Ordinary people doing extraordinary things,everyday. 2 0 0 1 a n n u a l r e p o r t TC F F I N A NC I A L C O R P O R AT I O N A N AT I O N A L F I N A NC I A L H O L D I NG C O M PA N Y About the Cover TCF became a public company in 1986 and since that time holders. A $100 investment in TCF made ten years ago, we have had a simple and consistent philosophy of banking. with dividends reinvested, would be worth over $1,250 Our strong conviction that our customers come first is the today – an impressive annual return of almost 29 percent. driving force that has made TCF one of the best performing The chart also reflects our excellent dividend payment his- banks in the country. We listen to our customers and we have tory. TCF has increased its dividend every year for the last provided the products and services they want. The results ten years and will continue in 2002 by increasing the div- speak for themselves; over this time we have recorded some idend to $1.15 per share. of the highest performance ratios among the top 50 banks Record earnings, increased dividends, performance in the country and posted record operating earnings for ratios ranking with the top performing banks in the nation, the last 11 years. and excellent return on investment, make clear the reasons The chart on the cover, clearly illustrated below, shows TCF has become a well respected, often copied and highly that this strategy has also been excellent for TCF share- profitable banking organization. Stock Price Performance (In Dollars) Stock Price Dividend Paid $50 45 40 35 30 25 20 15 10 5 0 $1.00 0.75 0.50 0.25 0.00 Year Ending Stock Price Dividend Paid Jun-86 Dec-86 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 $3.00 $3.03 $1.72 $2.22 $3.38 $1.91 $4.84 $7.25 $8.50 $10.31 $16.56 $21.75 $33.94 $24.19 $24.88 $44.56 $47.98 N/A N/A N/A $0.05 $0.10 $0.10 $0.10 $0.13 $0.19 $0.25 $0.31 $0.38 $0.50 $0.65 $0.75 $0.85 $1.00 Corporate Profile TCF Financial Corporation is a Wayzata, Minnesota-based national Table of Contents 1 Financial Highlights 47Notes to Consolidated financial holding company with $11.4 billion in assets. TCF has 375 2 Letter to Our Shareholders Financial Statements banking offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado 12Business Highlights 72Independent Auditors’ Report and Indiana. Other TCF affiliates provide leasing and equipment 20Corporate Philosophy 73Other Financial Data finance, mortgage banking, discount brokerage, and investments 21Financial Review 74Corporate Information and insurance sales. 42Consolidated Financial Statements 76Shareholder Information Financial Highlights ( 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 ) 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: Diluted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted cash earnings(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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(2) . . . . . . . . . . . . . . . . . . . . . . . . . Cash return on average realized common equity(2) . . . . . . . . . . . Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity to total assets at year end . . . . . . . . . . . . . . . . . . . . . Tangible equity to total assets at year end . . . . . . . . . . . . . . . . . . (1) Excludes gains on sales of branches and securities. (2) Excludes amortization of goodwill, net of income tax benefit. ( D o l l a r s i n t h o u s a n d s ) Selected Balance Sheet Data: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tangible equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . At or For the Year Ended December 31, 2001 2000 % Change $ 481,222 $ 438,536 367,307 848,529 20,878 501,996 325,655 4,179 122,512 323,463 761,999 14,772 457,202 290,025 12,813 116,593 $ 207,322 $ 186,245 $ 2.70 $ 2.35 2.73 2.80 1.00 51.12 32.81 47.98 11.92 9.91 403% 484 1.79% 23.18 1.86 24.03 4.51 8.07 6.71 2.37 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 8.13 6.66 9.7% 13.6 11.4 41.3 9.8 12.3 (67.4) 5.1 11.3 14.9 15.2 14.8 21.2 7.7 5.1 6.7 2.5 0.8 4.1 7.7 3.9 7.3 3.7 (0.7) 0.8 At December 31, 2001 2000 % Change $11,358,715 $11,197,462 1,584,661 2,733,290 5,510,912 145,462 9,244 7,098,958 719,859 2,303,166 917,033 1,403,888 3,673,831 4,872,868 153,239 11,183 6,891,824 898,695 2,285,550 910,220 $ 762,327 76,931,828 $ 745,798 80,289,033 1.4% 12.9 (25.6) 13.1 (5.1) (17.3) 3.0 (19.9) 0.8 0.7 2.2 (4.2) 1 T H E C U S TO M E R F I R S T TCF–“The Customer First.” We are firmly commit- ted to providing outstanding service to our customers, every day. DEAR SHAREHOLDERS TCF had another great year. We earned a record $207.3 million in 2001, our 11th consecutive year of record operating earnings. Our diluted earnings per share increased 15 percent to $2.70. Return on average assets (ROA) was 1.79 percent, and our return on average realized common equity (RORE) was 23.18 percent. On a cash basis (the measure that will be used under generally accepted accounting principles starting next year), TCF earned $2.80 per common share, a return on average assets of 1.86 percent and a return on average realized common equity of 24.03 percent. 2 Our stock closed at $47.98 per share at December 31, 2001, up from $44.56 per share at year-end 2000, Diluted EPS Growth an increase of eight percent. Our annualized total return to investors over the past ten years was almost 29 percent. We have demonstrated that our unique strategy of convenience banking and de novo expansion 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 5 % $2.70 $2.35 works and the stock price appreciation we have experi- $2.00 enced reflects the market’s confidence in our continued $1.69 $1.76 superior performance. Our price-to-earnings ratio was 17.8 at year-end 2001. We now rank 14th in the top 50 banks in price-to-earnings ratio. TCF’s 2001 financial results were highlighted by solid top-line revenue growth, good credit quality, increased POWER ASSETS® (consumer, commercial and leasing credits), increased POWER LIABILITIES® (core deposits) and moderate non-interest expense 97 98 99 00 01 growth. At TCF, we put the customer first and our Net Income philosophy of convenient banking for customers from 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 1 % varied economic levels, de novo expansion, new pro- (Millions of Dollars) duct development, and focus on core banking activities is a proven strategy that has worked well for us in the past and will continue to work well for us in the future. $145 $166 $156 $207 $186 TOP-LINE REVENUE Top-line revenue is an important number for us. Top-line revenue, which consists of net interest income and fee income, was up $86.5 million for 2001, an increase of 11 percent. TCF is one of the few banks that has shown consistent top- line revenue growth, which demonstrates that we are 97 98 99 00 01 3 Fees and Other Revenues as many of our competitors are doing. Growing busi- growing our core businesses, not just cutting expenses 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 4 % (Millions of Dollars) $367 $323 $274 $236 nesses generate premium price-to-earnings ratios. Growth in top-line revenue results from the increase of Power Assets and Power Liabilities. Net interest income growth is driven by a changed balance sheet. Expanding the number of fee income producing products and services while growing the overall cus- $184 tomer base fuels fee income growth. TCF added 117,900 new checking accounts in 2001, bringing our total to over 1,249,000 accounts. We have a 78 percent debit card penetration rate, one of the highest in the country, and we are now the 13th largest VISA® debit card issuer in the United States with 1.2 million debit cards outstanding. 97 98 99 00 01 Net Interest Income from varied economic levels. Each of these customers TCF relies on attracting a large number of customers 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 0 % contributes incrementally to our profitability. We do (Millions of Dollars) $481 $426 $424 $439 $394 not believe in the old 80/20 rule, which suggests that banks earn 80 percent of their profits from the wealth- iest 20 percent of the customer base. POWER ASSETS AND POWER LIABILITIES Despite a year of economic uncertainty, economic slowdown and rate reductions, TCF enjoyed substantial growth in our Power Assets, up $638 million for the year, a 13 percent increase from year-end 2000. Commercial real estate lending 97 98 99 00 01 4 and consumer lending produced at record levels in 2001, while commercial lending and leasing also had a good year. We increased our checking account balances by over $332 million for the year, an increase of 15 percent. Higher-cost certificates of deposits decreased by $485.4 million during the year as TCF declined to pay rates above our institutional borrowing costs in the falling rate environment. CREDIT QUALITY Our credit quality remained strong in 2001. Net charge-offs were $12.5 million in 2001, only .15 percent of average loans and leases. We provided $20.9 million for credit losses in 2001 and, as a result, we increased our loan loss reserves by $8.4 million. Delinquency and non-performing assets were at very low levels. Good credit quality is related not only to the type of loans on the balance sheet, but also the type of funding. TCF’s very profitable and growing deposit function allows us to operate our loan portfolio with relatively low credit risk. C O M M E R C I A L R E A L E S TAT E Commercial Real Estate has been a long-time strength of TCF. In 2001 we had $562 million in originations and increased our portfolio by $251 million. This was accomplished by lending to local developers and builders on real estate projects in our local markets. 5 TC F C H E C K C A R D With over 1.2 million check cards issued, TCF is the 13th largest issuer of VISA® check cards in the United States. The TCF Express Card provides our customers the convenience of having purchases deducted directly from their checking accounts and is a significant part of fee income for TCF. 6 DE NOVO BRANCH EXPANSION TCF believes in a de novo style of expansion. While de novo expansion is unusual in today’s banking environment, most successful retailers such as Wal-Mart,® Target,® and our supermarket part- ners, Cub® Foods and Jewel-Osco,® grow through de novo expansion. We opened 21 new supermarket branches and 6 traditional branches in 2001. We have opened 193 branches in the last four years, bringing our overall branch network to 375. Many of these new branches are now becoming profitable. The increasing profits from past de novo expansion funds continued expansion. What we really like about the de novo model is that you can pick the places you want to go, determine the pace that you want to expand and control the culture. The cost of this expansion flows through the income statement faster than the dilution created through acquisition, but is ultimately more profitable. We believe we can bring these branches to profitability fast enough that de novo expansion is a better use of our capital than paying the premiums of acquisition. The internal rate of return on de novo expansion is one of the “hurdle rates” we use to measure acquisi- tions. Although we would not rule out an acquisition in the future, currently we think that the de novo Retail Distribution Growth (cid:1) T r a d i t i o n a l B r a n c h e s (cid:1) S u p e r m a r k e t B r a n c h e s 375 352 338 311 strategy is best for us. We plan to open another 25 to 30 branches in 2002, and have plans for additional de novo expansion in the years ahead. INNOVATIVE PRODUCTS AND SERVICES In addition to our de novo banking strategy, innovative products and services continue to add to our success. “Totally Free Checking”, 221 “Free Small Business Checking”, home equity loans, debit cards, investment sales and, of course, super- market branch banking have been our most successful innovations. Over the last few years we have introduced TCFExpress.com (our online banking service), TCF Leasing (our equipment leasing subsidiary), TCF 97 98 99 00 01 Express Coin ServiceSM (offering free self-service coin counting to TCF customers), system-wide 7-day-a- week banking, and the TCF Express Phone CardSM (free long distance phone minutes for debit card use). All of these innovations increase customer convenience and generate new revenues. SUPERMARKET BANKING TCF has the fourth largest super- market branch system in the United States, with 234 supermarket branches. In 2001, supermarket deposits totaled $1.2 billion, an increase of 13 percent. Our aver- age interest rate on deposits in supermarket branches is 1.23 percent. We continue to attract customers through these convenient, full-service branches. Our TCF Express Card Revenue 2 0 0 1 A N N U A L G R O W T H R A T E O F + 3 0 % (Millions of Dollars) $37.4 $28.7 $19.5 $11.1 $3.7 supermarket branches added over 83,000 new check- 97 98 99 00 01 7 ing accounts during 2001. As the de novo super- Supermarket Fee Income market branches mature, we are selling customers 2 0 0 1 A N N U A L G R O W T H R A T E O F + 2 2 % (Millions of Dollars) $137 other products as well. Our fee income in these branches totaled $136.7 million for the year (up 22 percent from last year). We have put consumer lenders $112 in many of our supermarket branches and have proven to many doubters that you can make loans in these $87 branches. We now have over $305 million in consumer loans that were originated in supermarket branches, $53 up 31 percent from 2000. $22 is working and is a significant factor in making TCF It is clear to us that our supermarket banking strategy 97 98 99 00 01 the most convenient bank in our markets. We plan to open approximately 15 new supermarket branches in 2002 and more in the future. TCF competes against financial institutions that Supermarket Consumer Loans are, in most cases, much larger and have far greater 2 0 0 1 A N N U A L G R O W T H R A T E O F + 3 1 % resources. This is both good news and bad news. The (Millions of Dollars) $305 $233 $193 $108 $88 consolidation that we’ve seen in the banking industry has in many cases created huge, unwieldy organizations that cannot react quickly to changing competition. On the other hand, when you walk with elephants, you sometimes get stepped on. We are competing in an industry that in many cases is still in a consolidation cost-take-out mode, a strategy that over time has proven to decrease customer service and slow down revenue growth. However, we have recently seen some banks come to realize the value of 97 98 99 00 01 top-line revenue growth and core earnings, and we believe they may become more competitive in the 8 future. In order to succeed TCF must move faster, create, design and implement innovative and cus- tomized products, and give great convenient service. We must invest for the future, find and nurture good management and staff, and grow by taking reasonable and measured risks in the process. TCF has been very successful over the past ten years of extensive change in the banking industry, and in a strong U.S. economy. We are now in an economic slowdown. Many banks are reporting “restructuring charges” resulting from increased loan charge-offs or other losses. We believe that we are more insulated than most of the industry, but we are not immune. I think it is appropriate to mention here what we consider to be the major risks to our continued success. First is the success of our de novo branch expansion. We are relying on the continued, long-term success of branch banking. Second, TCF, like all banks, is subject to the effects of any economic downturn. In particular, a significant decline in home values in our markets could have a negative effect on our results. A bad economy can create increased loan losses. Deposit S U P E R M A R K E T B A N K I NG TCF has the fourth largest supermarket branch network in the country.Our customers enjoy the convenience of combining their financial and shop- ping needs in one stop, seven days a week,360+ days a year, during extended hours. TCF’s de novo banking expertise, innovative spirit and strong supermarket partnerships are the foundations of our success.We are committed to continuing this successful strategy. 9 Supermarket Deposit Growth ting them is a continuing challenge. Technological losses (fraudulent checks, etc.) have risen and combat- 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 3 % (Millions of Dollars) $1,213 $1,074 $826 $618 $379 97 98 99 00 01 change is a risk. Additionally, rising and falling interest rates could affect our results. Legal, regulatory and tax issues are always a risk. Over the long term, the success and viability of our supermarket partners is important to TCF. We con- tinue to work closely with our partners to optimize our businesses and to be aware of and address any potential risks. New competitors, many of whom have significantly more resources than TCF, are entering the financial services business. We must remain aware of these competitors and be ready to address their challenges. None of these risks are new. Our consistent results have proven that we have managed these risks in the past and we believe that we are adequately prepared Supermarket Branch Expansion to manage them in the future. Our philosophy at TCF 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 0 % is to run a highly profitable bank and to minimize 234 213 195 160 risk. TCF has no unconsolidated subsidiaries, exotic derivatives, foreign loans, bank owned life insurance, etc. In my opinion our accounting is very conservative. A careful reading of this Annual Report will tell you pretty much everything about our company. We continue to have a mutuality of interest with our shareholders. Our senior management and board of 63 directors own approximately 6.6 million shares of TCF stock. Seventy-five percent of our eligible employees participate in TCF’s stock ownership plan, which at 97 98 99 00 01 year-end held over 4.1 million shares. I believe I am the third largest shareholder and the largest individual 10 shareholder, with just over two million shares, up some 74 thousand shares in the last year. Our incentive Retail Checking Accounts plans are mostly stock based and continue to be based on long-term growth in earnings per share. We remain very optimistic about TCF’s future. TCF repurchased 3.7 million shares (5 percent) 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 0 % (Thousands) 1,249 1,131 1,032 of stock in 2001, and a total of 18.6 million shares (20 913 percent) since the beginning of 1998. While the number 772 of shares we buy remains subject to the availability of capital, we plan to continue repurchasing shares as long as TCF stock remains our most attractive investment opportunity. We consider the return from repurchasing TCF stock as another hurdle rate for acquisitions. Again this year we give special thanks to our hard- working, responsive and dedicated Board of Directors. Our Board consists largely of entrepreneurial business people who also own TCF stock. We appreciate their 97 98 99 00 01 Fee Revenue Per Retail Checking Account continued guidance and support. 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 0 % We also thank our outstanding team of employees, who truly do put the customer first, for their continued hard work and dedication. We are truly a bank of ordinary people achieving extraordinary results. Thank you for your continued support and invest- $124 ment in TCF. $209 $190 $168 $143 William A. Cooper Chairman of the Board and Chief Executive Officer 97 98 99 00 01 11 INNOVATIONS Fostering the development of innovative products and services is an integral part of TCF’s culture. We actively hire, cultivate and recog- nize innovators in our organization. As an ongoing part of our business, we solicit ideas from all areas of the company. Every idea is evaluated and the best are selected for implementation. These innovations run the gamut from developing a new product, to enhancing a service, streamlining an operational process, or creating a unique marketing message. As these innovations are implemented and become successful, more ideas are generated and new innovations developed. At TCF, we attribute our constant stream of new innovations to the principle that “one thing leads to another”. In keeping with the TCF “Leader In Convenience Banking” philosophy, we began offering Sunday banking hours in most traditional branches during 2001. TCF was a pioneer in offering Sunday banking hours in supermarket branches in 1988, and has offered extended hours and Sunday banking in some traditional branches since 1997. Enthusiastic customer response motivated TCF to extend Sunday hours to most of our 375-branch network. Adding Sunday hours is a unique strategy that gives consumers the opportunity to do banking on a day when most other banks are closed. One of the cornerstones of TCF’s success in retail banking has been our ability to offer the best checking accounts available and the most convenient and customer-friendly banking options. Our strong commitment to developing tech- nology to enhance productivity, customer service and new products supports these efforts. TCF Totally Free OnlineSM Banking is an excellent illustration of how we combine these two strategies. Developed in response to customer requests, TCF Totally Free Online combines a no-fee, easy-to-use banking service with TCF’s popular checking account products. With TCF Totally Free Online, we are providing exactly the services our customers asked for, at zero cost to them. Today, over 100,000 TCF customers use our online banking system. Also launched in 2001 was TCF Express Trade,SM TCF’s convenient, low-cost, discount brokerage, repre- senting another natural addition to our convenience services. A TCF Express Trade account allows customers to buy and sell stocks, bonds, load and no-load mutual funds, and options by placing trades over the phone with a broker or directly online. Accounts can be opened at any of TCF’s 375 branches, or by telephone, and many services are available in branches, via telephone or online. One of TCF’s most successful 2001 innovations combined existing TCF products with a new strategy to target a previously underserved market. TCF’s new Small Business Banking Group is a dedicated team of small business bankers positioned at strategic branch locations to serve small business customers. Our Customers and non-customers enjoy the convenience of using TCF Express Coin ServiceSM coin counters. These colorful, self-service coin counting machines are located in many 12 TCF branches. We plan to have Express Coin Counters in all available branches by mid 2002. One of TCF’s most innovative marketing campaigns in 2001 generated both local and national media coverage. In a unique and eye-catching campaign, dozens of brightly wrapped Volkswagen®Beetles, touting TCF’s Express Check Card, were driven throughout the streets and over the freeways of Minneapolis and St. Paul. primary small business product, “Free Small Business Checking,” provides the small business owner with an easy-to-use, economical checking account along with a free Express Teller Business Check Card. Our bankers offer one-on-one, personal service, and through- out 2001 we added a number of relationship-based products such as business and home equity loans, deposit and insurance products to better serve this underserved market. And, consistent with our retail approach, our convenient branch network, ATMs, automated phone system, and online banking are all available to our small business customers. TCF’s Small Business Banking Group was implemented in our Minnesota market and our customer base has grown rapidly. We believe that TCF’s Small Business Banking Group is an excellent example of the innovative spirit at TCF. We will expand this effort in Minnesota and roll it out to our other banking states in 2002. Sometimes the best innovations revolve around the simplest ideas. This is the case with one of TCF’s most popular new products. TCF Express Coin ServiceSM is a self-service coin counting machine located in branches and available to both customers and non-customers. The service is available free of charge to customers and for a fee to non-customers. TCF customers appreciate the convenience of hav- ing coins counted free of charge at their convenience, and we believe that many non-customers will see the value of this and other TCF convenience services and become TCF customers. TCF plans to have TCF Express Coin Service coin counters in most branches by mid 2002. TCF’s culture of innovation is flourishing; other examples in 2001 are TCF Michigan’s “M Card” campus card banking program with the University of Michigan, “Chicago Bears Checking,” offered in partnership with the Chicago Bears football team and, in the face of record refinancing, a unique and highly effective targeted marketing campaign for home equity loans. The double-phone minutes loyalty pro- gram offered through our popular TCF Express Phone CardSM continued to increase visibility and usage of the TCF Express Card. Innovations must be a company-wide spirit, nurtured every day, to be successful. We will continue to foster the innovative spirit at TCF in 2002 and beyond. 13 TCF’S POWER BUSINESSES: POWER ASSETS® AND POWER LIABILITIES® In 2001, Power Assets and Power Liabilities, TCF’s Power Businesses, continued to drive top-line revenues and earnings growth for the company. We define Power Assets as higher-yielding commercial loans and leases, and our consumer home equity loans. Power Liabilities include checking, savings, money market, and certificate of deposit accounts. Although Power Assets and Power Liabilities comprise less than 60 percent of TCF’s balance sheet, in 2001 they contributed over 75 percent to net income. One of the main factors in producing greater returns (profits) is to increase net interest margin. In 2001 TCF was able to increase its net interest margin from 4.35% to 4.51%. We attribute some of this increase to 2001’s 11 interest rate reductions. However, the great- est impact came from the change in the mix of our balance sheet in both Power Assets and Power Liabilities. Power Liabilities remains the single largest driving force behind TCF’s top-line revenue growth. In 2001, our 375-branch network added a record 117,900 checking accounts, and we now have over 1,249,000 accounts – more than many of our larger competitors. We use the checking account as the first point of contact with the customer and then look for opportunities to cross-sell additional products and services. To facilitate this effort, we continually look to develop innovative new products; for example, in 2001 TCF devel- oped several new money market products to offer our customers an even greater range of deposit product options. The TCF Express Card, introduced in 1997, Checking, Savings & Money Market continues to play an important role in attracting and retaining checking account 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 7 % (Millions of Dollars) Our strategies for growing Power Liabilities have paid off – at year-end 2001 $4,779 TCF had deposit balances of $2.5 billion in checking, $1.3 billion in savings, $951 customers, as well as generating fee income. $4,086 $3,757 $3,712 million in money markets, and $2.3 billion in certificate of deposit accounts. Power Liabilities at year-end 2001 totaled $7.1 billion. Increasing this profitable, $3,302 low interest-cost deposit base will continue to allow us to underwrite our Power Assets without taking inappropriate credit risks. We intend to continue our suc- cessful Power Liabilities growth strategies throughout 2002. Power Asset growth in consumer home equity loans, commercial loans, and leasing and equipment finance all started strong in 2001. However, with the weakness in the slowing economy, our commercial loans and leasing portfo- lio originations slowed as the year progressed. This was not the case, however, for commercial real estate and especially for consumer home equity loans. Consumer home equity loans is TCF’s largest Power Asset category. In 2001, consumer loans, at $2.5 billion, had originations of $1.6 billion and increased 97 98 99 00 01 14 Consumer Home Equity Lending 2 0 0 1 A N N U A L G R O W T H R A T E O F + 1 3 % (Millions of Dollars) $2,444 outstandings by $275.2 million. TCF’s tiered-pricing home equity loan products have allowed us to provide our customers with attractive loan rates and loan-to- value options, while maintaining our credit quality, which is among the highest of the top 50 banks in the country. $1,457 $1,477 $2,152 $1,959 Also, in the face of the almost full-year refinance boom in 2001, TCF adopted a proactive strategy that proved especially successful in retaining our customers. First, we identified loan customers with high potential for refinancing their loans, then contacted them proactively and, in many cases, persuaded them to refinance with one of TCF’s loan products. Throughout 2001 we continued to place additional lenders in our growing supermarket branch network, in order to make the loan process even more convenient for our customers. 97 98 99 00 01 TCF’s Commercial Real Estate Group also had a strong 2001, increasing outstandings by $250.6 million. Our commercial real estate portfolio remains concentrated in apartment and office buildings but does contain some exposure to the weakened hotel industry; the portfolio has good credit quality and delinquencies of only .03 percent at year end. During 2001 TCF’s leasing and equipment portfolio did exhibit some stress, primarily in the truck and trailer segment. This caused our delinquencies, non-accruals and charge-offs, to increase over the year. Our net charge-offs of 1.0 percent of average outstand- ings for 2001 and delinquencies of 1.84 percent at year-end 2001 are well within industry averages. Power Assets and Power Liabilities remain the foundation of TCF’s top-line revenue growth. As we continue to replace borrowings with Power Liabilities and residential mortgages, and mortgage-backed securities with Power Assets, our core earnings and net interest margin should continue to improve. Consumer lending has been the most powerful of our Power Assets, with more than $2.5 billion in outstandings and a charge-off rate that has averaged less than 20 basis points over the last five years. 15 DE NOVO EXPANSION Michigan’s beautiful new Dixie Highway traditional branch is one of the latest in our de novo expansion strategy. TCF believes that de novo expansion is still the best way to grow our business. We plan to open 10 to 15 new traditional branches in 2002. TCF believes that de novo expansion is the most effective way to grow our business. De novo expansion has been the primary driver of the increased profits and solid growth in our retail operations. Since 1997, TCF has added 193 locations to our convenient branch network. Many of these branches have now reached profitability and their increased contribution has allowed us to continue our de novo expan- sion. This conveyor belt of growing profitability will pay for the de novo expansion that we have planned for the future. We are committed to providing our customers with more convenient banking locations and will continue to do so in 2002 by adding 25 to 30 branches. Supermarket banking remains a key component in TCF’s de novo expansion efforts; we have the fourth largest supermarket branch network in the country. Our strong partnerships with Jewel-Osco® and Cub® Foods continue to provide excellent expansion opportuni- ties. We opened 21 supermarket branches in 2001 and plan to open approximately 15 more in 2002. TCF’s consistent track record of success in supermarket banking is built on our strong sales culture, coupled with our convenience-based products and services. We have chosen supermarket partners that appreciate the value of having a bank in the store and work with us to nurture the relation- ship. Most importantly, TCF management is deeply committed to and focused on our supermarket banking franchise. As the opportunities for expansion in supermarket branches have slowed down, the year 2002 marks an era of new opportunity for TCF to add new traditional, stand-alone branches. Several of our markets, especially Detroit and Colorado, present excellent oppor- tunities and we believe our expansion strategy will work well in these areas. We plan to add 10 to 15 traditional branches across our markets in 2002. TCF is committed to being the most convenient bank in the markets we serve. We will continue to look for de novo expansion oppor- tunities throughout 2002 and beyond. 16 CONVENIENCE TCF has proven that we are “The Leader In Convenience Banking” in the markets we serve. In fact, many of our competitors have observed our strategies for providing convenience-based products and services over the years and now have begun to imitate them. “Totally Free Checking” is an excellent example – TCF has offered it since 1986, when it was a unique concept that immediately became enormously successful. Although there are now various versions of free checking in the marketplace, TCF still has the best suite of convenience products and services available – and our Totally Free Checking package is still the best. One of the foundations of our products and services philosophy is that TCF believes that we must listen to our customers and pro- vide convenience in the way that they define it. Our customers bank with us at their convenience, whether it is during extended hours at our traditional or supermarket branches, or via our Automated Phone System, our extensive network of TCF EXPRESS TELLERSM ATMs, or online at www.tcfexpress.com. In 2001 we implemented several new and innovative products and services: Sunday banking hours in traditional branches, TCF Totally Free OnlineSM Banking, TCF Express Coin Service,SM and TCF Express TradeSM online discount brokerage. Sunday hours in traditional branch locations is a natural extension of TCF’s convenience branch strategy; it allows us to offer our customers a wider choice of banking locations on a day when most banks are closed. TCF was a pioneer in offering Sunday banking hours in supermarket branches in 1988 and has offered Sunday banking in some traditional branches since 1997. Enthusiastic customer response motivated us to extend Sunday hours to most of our 375-branch network during 2001. TCF Totally Free Online Banking is another customer-driven convenience service. Not only is it free to any TCF checking account cus- tomer, it’s also quick and easy to sign up for and to use the service. TCF Express Coin Service provides self-service coin-counting; the customer simply deposits the coins into the counter and takes the receipt to the teller to make a deposit or obtain cash. Non- customers pay a small fee for the service – another reason for them to open a TCF checking account. TCF Express Trade online is another service our customers asked for; with it they can easily and securely buy or sell stock online at a very competitive cost. As both the world and our markets change, TCF will continue to develop innovative new products and services that our customers want. We are truly “The Leader In Convenience Banking.” TCF has long been a pioneer in offering customers seven-day-a-week banking with extended hours in supermarket branches, and Saturday hours in traditional branches. Enthusiastic customer response led us to expand to Sunday hours in most traditional branches during 2001. 17 GEOGRAPHIC STRUCTURE TCF’s proven expertise in providing campus card programs, along with our unique product line and branch presence, allowed us the opportunity to partner with the University of Michigan to provide students, faculty and staff with the “M Card.” TCF is now recognized as a premier provider of innovative campus card banking services. One of TCF’s most important assets is its management bench strength and depth. TCF is organized geographically and by function and we believe strongly that local management teams make the best decisions regarding local issues. Each of our bank management teams is responsible for local business decisions, business development initiatives, customer relations, and community involvement. Managers are given an incentive to achieve specific goals in many of these areas. TCF’s Minnesota franchise has been in business for 78 years and has been in many ways the bellwether bank of the organization. TCF Minnesota continues to focus on growth in higher-yielding consumer and commercial loans as well as increasing and fostering the development of our lower interest-cost checking account base. In 2001, TCF Minnesota introduced its Small Business Banking Group to bring TCF’s convenience-based products and services to this underserved market. We will continue to expand in Minnesota by adding branches in growing areas and developing innovative new products. The Lakeshore region in Illinois, Wisconsin and Indiana is TCF’s fastest growing franchise, and has the largest branch network and employee base in our markets. Lakeshore now has supermarket branches in almost all existing Jewel-Osco® stores and will continue to expand as Jewel builds new stores. This year, TCF added two important branch locations in the Loop area of downtown Chicago. The Power Liabilities team is going strong; Lakeshore’s focus now turns to developing resources in the Power Assets area, by adding expe- rienced new lenders in the commercial real estate and consumer lending areas. TCF Lakeshore is well positioned for growth. Michigan represents one of TCF’s best opportunities for future growth, as there are many areas of Detroit in which we do not have a presence. We are actively acquiring land for new traditional branches and plan to open approximately five branches in 2002. This year, TCF Michigan was proud to forge a partnership with the University of Michigan to offer the “M Card” – a multi-functional ID and bank- ing card for University of Michigan students, faculty and staff. Our Colorado franchise in Denver and Colorado Springs also represents an area of great potential for TCF’s future expansion. TCF Colorado now has 12 supermarket branches. TCF Colorado is also aggressively acquiring land to build additional traditional branches and will build three or four branches in 2002. In addition, we are focused on increasing our emerging consumer lending base by adding experienced lenders to develop this business. We are confident that TCF’s strategy of offering convenience products and services will thrive in this market, as it has in other states. 18 TCF: THE CUSTOMER FIRST TCF’s goal is to always place the customer first, to provide extraordinary service throughout all of our delivery channels and businesses – every day. We know that giving great customer service will help us attract and retain more customers – and make TCF an even more convenient place to bank. Rewarding our employees for giving great customer service is important to us – we know companies that have high employee satisfaction also enjoy higher levels of customer satisfaction and shareholder returns. In 2001, we launched a service program to formally recognize and reward employees who deliver great service to our customers. This program, “The Customer First,” is intended for all TCF employees, from those in our retail branches to those in our support functions. Every TCF employee can make the service experience great for our customers, every day! The Customer First program is based on our service standards – five simple and easy to remember steps to insure that we treat our customers just as we would like to be treated: • 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. To further emphasize the importance of putting the customer first, TCF employees receive ongoing communication, training, recog- nition and rewards for meeting or exceeding these standards. We want them to know exactly what’s expected of them and how to provide great service. At TCF, we’re a results-oriented company, we’re “The Leader In Convenience Banking” in America and we believe in the power of our employees. And above all, we put “The Customer First”. The Customer First is not just a program – but a culture based on our firm, consistent commitment to providing great customer service. When we put the customer first, our customers are satisfied and shareholder returns are high. 19 COMMUNITY GIVING At TCF, we believe that we have a special obligation to our commu- • Employee’s Fund – Employees contributed to this Fund through nities that goes beyond simply providing financial services. Through payroll deduction; the Foundation matched their contributions generous gifts of time, talents and resources, TCF and its employees 100%. A committee, consisting of TCF employees, selected orga- support many local organizations, making a difference in the neigh- nizations to receive grants based on active employee involvement. borhoods we serve. The year 2001 brought extraordinary opportunities to express our generosity; in fact, over six million dollars was con- tributed or raised by TCF, its employees, partners, and customers. • Corporate Giving – TCF’s Corporate Giving awarded larger grants, including multiyear commitments. Some of the grants awarded in 2001 were to Chicago Sinfonietta, sustaining arts and culture; TCF reflects our commitment to the community by supporting a vari- Courage Center, supporting human services; Friends of Ascension, ety of nonprofit organizations through volunteer time, management supporting education; Local Initiatives Support Corporation, in counsel and grants. This support is concentrated into four categories: support of community development; and Neighborhood Housing human services, community development, education, and arts/ Services of Chicago and the Twin Cities, providing for afford- culture. Additionally, we provide assistance to local organizations able housing. supported by TCF employees, through active volunteerism or service on boards and committees. In addition to the numerous grants awarded, TCF also benefited the community by supporting affordable housing efforts, providing There are a variety of ways local nonprofit organizations receive equity equivalent investments and assisting with the capitalization financial support from TCF: of several affordable housing loan funds. • Branch Funds – Contributions or grants awarded to impact orga- Special recognition goes out to all employees who raised funds for nizations located near TCF branches; gifts typically range between the victims, their families and relief workers impacted by the cat- $100 – $1,500 and are usually supported by branch personnel. astrophic events of September 11, 2001. Partnering with Jewel-Osco® • Employee Matching Gifts – Donations contributed by employees, matched dollar-for-dollar by TCF, to the nonprofit organiza- tion of their choice. Over $230,000 was donated during 2001. • Scholarships – Nearly $200,000 in scholarships were awarded to high school and college students based on financial need. in Illinois/Wisconsin and with the Minneapolis Fire Department in Minnesota, we raised over $3.2 million for the American Red Cross and the New York Police and Fire Widows’ and Children’s Benefit Fund. TCF is proud of its employees who are striving to make a difference to those in need and supporting numerous programs vital to the well-being of our communities. 20 CORPORATE PHILOSOPHY • TCF banks everybody, including lower- and middle-income • TCF encourages stock ownership by our officers, directors and customers and small to medium-sized businesses in our mar- employees. We have a mutuality of interest with our share- kets. TCF emphasizes convenience in banking; we’re open up holders, and our goal is to earn above-average returns for to 12 hours a day, seven days a week, 360+ days per year. our shareholders. We provide customers innovative products through multiple banking channels, including traditional and supermarket branches, TCF EXPRESS TELLERSM ATMs, TCF Express Cards, phone banking, and Internet banking. • TCF operates like a partnership. We’re organized geographi- cally and by function, with profit center goals and objectives. TCF emphasizes return on average assets, return on average equity, and earnings per share growth. We know which products • TCF is currently growing primarily through de novo expansion rather than acquisition. We are also growing by starting new businesses, opening new branches and offering new products and services. • TCF believes interest-rate risk should be minimized. Interest- rate speculation does not generate consistent profits and is high risk. are profitable and contribute to these goals. Local geographic • TCF is primarily a secured lender and emphasizes credit qual- managers are responsible for local business decisions, business ity over asset growth. The costs of poor credit far outweigh development initiatives, customer relations, and community the benefits of unwise asset growth. involvement. Managers are incented to achieve these goals. • TCF places a high priority on the development of technology • TCF focuses on growing its large number of low-interest cost to enhance productivity, customer service and new products. checking accounts by offering convenient products, such as Properly applied technology increases revenue, reduces costs “Totally Free Checking”. TCF uses the checking account as its and enhances service. We centralize paper processing and core deposit account to build additional customer relationships. decentralize the banking process. • TCF earns most of its profits from the deposit side of the bank. • TCF encourages open employee communication and promotes We accumulate a large number of low cost accounts through from within whenever possible. TCF places the highest prior- convenient services and products targeted to a broad range ity on honesty, integrity and ethical behavior. of customers. As a result of the profits we earn from the deposit business, we can minimize credit risk on the asset side. • TCF believes in community participation, both financially and through volunteerism. We feel a responsibility to help those • TCF utilizes conservative accounting and reporting principles less fortunate. that accurately and honestly report our financial condition and results of operations. • TCF does not discriminate against anyone in employment or the extension of credit. As a result of TCF’s community banking phi- losophy, we market to everyone in the communities we service. 21 Financial Review This financial review presents management’s discussion and analysis been its supermarket branch expansion. The Company opened its of the consolidated financial condition and results of operations of first supermarket branch in 1988, and now has 234 supermarket TCF Financial Corporation (“TCF” or the “Company”) and should branches, with more than $1.2 billion in deposits. TCF has the be read in conjunction with the consolidated financial statements nation’s fourth largest supermarket branch network. See “Financial and other financial data beginning on page 44. Condition – Deposits.” TCF entered the leasing business through its Corporate Profile 1997 acquisition of Winthrop Resources Corporation (“Winthrop”), a leasing company that leases computers and other business-essential equipment to companies nationwide. The Company expanded its TCF is the national financial holding company of two federally char- leasing operations in September 1999 through TCF Leasing, Inc. tered banks, TCF National Bank headquartered in Minnesota and (“TCF Leasing”), a de novo general equipment leasing business to TCF National Bank Colorado. The Company has 375 banking offices serve the transportation, general middle-market equipment, lease in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana. Other affiliates provide leasing and equipment finance, mortgage banking, discount brokerage and investment and insurance sales. discounting, and syndication sectors. See “Financial Condition – Loans and Leases.” The Company’s VISA® debit card program has also grown significantly since its inception in 1996. According to a TCF provides convenient financial services through multiple September 30, 2001 statistical report issued by VISA, TCF is the 13th channels to customers located primarily in the Midwest. TCF has largest VISA debit card issuer in the United States, with 1.2 million developed products and services designed to meet the needs of all cards outstanding and the 12th largest based on sales volume. consumers with a primary focus on middle- and lower-income indi- TCF’s strategic initiatives are businesses that complement the viduals. The Company focuses on attracting and retaining customers Company’s core and emerging businesses. TCF’s new products have through service and convenience, including branches that are open been significant contributors to the growth in fees and other rev- seven days a week and on most holidays, extensive full-service super- enues generated by checking accounts and loan products. Currently, market branch and automated teller machine (“ATM”) networks, TCF’s strategic initiatives include continued investment in de novo and telephone and Internet banking. TCF’s philosophy is to gener- branch expansion, new loan and deposit products, including card ate top-line revenue growth (net interest income and fees and other products, designed to provide additional convenience to deposit and revenues) through business lines that emphasize higher yielding assets loan customers and to further leverage its EXPRESS TELLER ATM and lower interest-cost deposits. The Company’s growth strategies network. In June 2001, the Company launched its discount broker- include de novo branch expansion and the development of new prod- age, TCF Express Trade, Inc. The Company is also planning to launch ucts and services designed to build on its core businesses and expand additional insurance and investment products in 2002. into complementary products and services through emerging busi- nesses and strategic initiatives. Results of Operations TCF’s core businesses are comprised of mature traditional bank branches, EXPRESS TELLER ATMs, and commercial, consumer and mortgage lending. TCF emphasizes the “Totally Free” checking P E R F O R M A N C E S U M M A R Y – TCF reported diluted earnings per common share of $2.70 for 2001, compared with $2.35 for account as its anchor account, which provides opportunities to cross 2000 and $2.00 for 1999. Net income was $207.3 million for 2001, sell other convenience products and services and generate additional up from $186.2 million for 2000 and $166 million for 1999. Return fee income. TCF’s strategy is to originate high credit quality, pri- on average assets was 1.79% in 2001, compared with 1.72% in 2000 marily secured loans and earn profits through lower interest-cost and 1.61% in 1999. Return on average realized common equity was deposits. Commercial loans are generally made on local properties 23.18% in 2001, compared with 21.53% in 2000 and 19.83% in or to local customers, and are virtually all secured. TCF’s largest core 1999. Diluted cash earnings per common share, which excludes amor- lending business is its consumer home equity loan portfolio, com- tization of goodwill net of income tax benefits, was $2.80 for 2001, prised of fixed- and variable-rate closed-end loans and lines of credit. compared with $2.44 for 2000 and $2.09 for 1999. On the same TCF’s emerging businesses and products are comprised of super- basis, cash return on average assets was 1.86% for 2001, compared market bank branches, including supermarket consumer lending, with 1.79% for 2000 and 1.69% for 1999, and cash return on aver- leasing and equipment finance, debit cards, and Internet and col- age realized common equity was 24.03% for 2001, compared with lege campus banking. TCF’s most significant de novo strategy has 22.40% for 2000 and 20.74% for 1999. 22 F I V E Y E A R F I N A N C I A L S U M M A R Y Consolidated Income: Year Ended December 31, Percentage Increase (Decrease) ( 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 ) Top-line revenue(1) . . . . . . . Net interest income . . . . . . . Provision for credit losses . . . Non-interest income. . . . . . Non-interest expense . . . . . Income before income tax expense . . . . . . . . Income tax expense . . . . . . . Net income . . . . . . . . . . Per common share: Basic earnings . . . . . . . . Diluted earnings . . . . . . Diluted cash earnings(2). . Dividends declared . . . . . 2001 $ 848,529 $ 481,222 20,878 371,486 501,996 329,834 122,512 $ 207,322 $ 2.73 $ 2.70 $ 2.80 $ 1.00 2000 $ 761,999 $ 438,536 14,772 336,276 457,202 302,838 116,593 $ 186,245 $ 2.37 $ 2.35 $ 2.44 $ .825 1999 $ 698,533 $ 424,213 16,923 313,693 447,892 273,091 107,052 $ 166,039 $ 2.01 $ 2.00 $ 2.09 $ .725 1998 $ 661,429 $ 425,734 23,280 284,681 421,886 265,249 109,070 $ 156,179 $ 1.77 $ 1.76 $ 1.84 $ .6125 1997 2001/2000 2000/1999 $ 577,363 $ 393,596 17,995 221,815 356,509 240,907 95,846 $ 145,061 $ 1.72 $ 1.69 $ 1.73 $ .46875 11.4% 9.7 41.3 10.5 9.8 8.9 5.1 11.3 15.2 14.9 14.8 21.2 9.1% 3.4 (12.7) 7.2 2.1 10.9 8.9 12.2 17.9 17.5 16.2 13.8 Consolidated Financial Condition: At December 31, Percentage Increase (Decrease) ( 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 ) Total assets . . . . . . . . . . . . . Securities available for sale . . . Residential real estate loans . . . Other loans and leases . . . . . Checking, savings and money market deposits. . . . . . . . Certificates . . . . . . . . . . . . . Borrowings . . . . . . . . . . . . . Stockholders’ equity. . . . . . . Tangible equity . . . . . . . . . . Per common share: Book value . . . . . . . . . . . Tangible equity . . . . . . . . Key Ratios and Other Data: Return on average assets . . . . . . . . Cash return on average assets(2). . . Return on average realized common equity . . . . . . . . . . . Return on average common equity . . . . . . . . . . . Cash return on average realized common equity(2) . . . . . . . . . . Average total equity to average assets . . . . . . . . . . . . . Average tangible equity to average assets . . . . . . . . . . . Average realized tangible equity to average assets . . . . . . . Net interest margin(3). . . . . . . . . . Common dividend payout ratio . . Number of banking locations . . . . Number of checking accounts (in thousands) . . . . . . . . . . . . 1997 2001/2000 2000/1999 2001 $11,358,715 1,584,661 2,733,290 5,510,912 2000 $11,197,462 1,403,888 3,673,831 4,872,868 1999 $10,661,716 1,521,661 3,919,678 3,976,065 4,778,714 2,320,244 3,023,025 917,033 762,327 11.92 9.91 4,086,219 2,805,605 3,184,245 910,220 745,798 11.34 9.29 3,712,988 2,871,847 3,083,888 808,982 637,252 9.87 7.78 1998 $10,164,594 1,677,919 3,765,280 3,375,898 3,756,558 2,958,588 2,461,046 845,502 662,619 $9,744,660 1,426,131 3,623,845 3,445,343 3,301,647 3,605,663 1,727,152 953,680 756,159 9.88 7.74 10.27 8.15 1.4% 12.9 (25.6) 13.1 16.9 (17.3) (5.1) 0.7 2.2 5.1 6.7 5.0% (7.7) (6.3) 22.6 10.1 (2.3) 3.3 12.5 17.0 14.9 19.4 At or For the Year Ended December 31, Percentage Increase (Decrease) 2001 1.79% 1.86 23.18 23.06 24.03 7.78 6.40 6.36 4.51 37.04% 375 1,249 2000 1.72% 1.79 21.53 22.64 22.40 7.58 6.04 6.43 4.35 35.11% 352 1,131 1999 1.61% 1.69 19.83 20.34 20.74 7.93 6.21 6.41 4.47 36.25% 338 1,032 1998 1.62% 1.70 17.51 17.34 18.37 9.35 7.38 7.29 4.84 34.80% 311 913 1997 2001/2000 1.77% 1.82 4.1% 3.9 2000/1999 6.8% 5.9 19.57 19.45 20.10 9.12 7.97 7.92 5.20 27.74% 221 772 7.7 1.9 7.3 2.6 6.0 (1.1) 3.7 5.5 6.5 10.4 8.6 11.3 7.7 (4.4) (2.7) 0.3 (2.7) (3.1) 4.1 9.6 (1) Top-line revenue consists of net interest income plus fees and other revenues excluding gains on sales of branches, securities available for sale, loan servicing and subsidiaries and title insurance revenues. (2) Excludes amortization of goodwill, net of income tax benefit. (3) Net interest income divided by average interest-earning assets. 23 O P E R A T I N G S E G M E N T R E S U L T S for the mortgage banking operating segment include a reduction in Banking, comprised of deposits and investment products, commercial intercompany expense of $1.2 million, after tax, compared with 2000. lending, consumer lending, residential lending and treasury services, Non-interest income totaled $15.4 million, down 1.7% from $15.7 mil- reported net income of $180.5 million for 2001, up 9.9% from $164.3 lion in 2000. This decrease in non-interest income from 2000 is pri- million in 2000. Net interest income for 2001 was $423 million, com- marily due to a $13.1 million decrease in net servicing income, partially pared with $397.9 million for 2000. The provision for credit losses offset by increases of $10.4 million in gains on sales of loans held for totaled $7.4 million in 2001, down from $9.6 million in 2000. Non- sale and $2.4 million in other income on higher volume of loan interest income (excluding gains on sales of branches and securities originations. The decline in net servicing income from 2000 is attrib- available for sale) totaled $309.3 million, up 12.7% from $274.4 mil- utable to a $16 million increase in amortization and impairment of lion in 2000. This improvement was primarily due to increased fees mortgage servicing rights, due to accelerating actual and assumed pre- and service charges and electronic funds transfer revenues, reflecting payments and increased volumes. As a result of declines in interest rates TCF’s expanded retail banking operations and customer base. Non- during 2001, the mortgage banking segment has experienced an increase interest expense (excluding the amortization of goodwill) totaled $432.3 in refinance activity. During 2001, this operating segment generated million, up 7.7% from $401.2 million in 2000. The increase was pri- $3.7 billion in new loan applications and $2.6 billion in closed loans, marily due to the costs associated with TCF’s continued retail banking up from $1.3 billion and $876.9 million, respectively for the same expansion, including de novo supermarket branches, offset by cost sav- 2000 period. Refinances were 59% of originations for 2001, com- ings from sales of underperforming branches. pared with 19% for 2000. TCF’s mortgage pipeline (applications in TCF has significantly expanded its banking franchise in recent process, but not yet closed) was $606.7 million at December 31, 2001, periods and had 375 banking branches at December 31, 2001. Since compared with $221.4 million at December 31, 2000. The third- January 1, 1998, TCF has opened 193 new branches, of which 176 were party servicing portfolio was $4.7 billion at December 31, 2001, with supermarket branches. TCF continued to expand its retail banking a weighted average coupon of 7.13%, compared with $4 billion at franchise by opening 27 new branches during 2001. TCF anticipates December 31, 2000, with a weighted average coupon of 7.42%. opening between 25 and 30 new branches during 2002 (including Capitalized mortgage servicing rights totaled $58.3 million, or 1.25% approximately 15 more supermarket branches) and plans to continue of the servicing portfolio, at December 31, 2001, compared with $40.1 expanding in future years. 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 $20.4 million for 2001, down 11.3% from $23 million in 2000. Results for 2001 reflect changes in methodologies of certain allocations from prior years. Leasing and equipment finance results include an increase of $1.5 million, after tax, in intercompany expense as a result of the change in methodolo- gies. Net interest income for 2001 was $39.4 million, up 29.7% from $30.4 million in 2000. Leasing and equipment finance’s provision for credit losses totaled $13.5 million in 2001, up from $5.2 million in 2000, primarily as a result of increased delinquencies and net charge-offs coupled with growth in the portfolio. Non-interest income totaled $45.7 million in 2001, up 18.9% from $38.5 million in 2000 due to higher levels of sales type lease revenues during 2001. Non-interest expense (excluding the amortization of goodwill) totaled $38.4 million in 2001, up 48.6% from $25.8 million in 2000 primarily as a result of the growth experienced in TCF Leasing. million, or 1.01%, at December 31, 2000. Non-interest expense totaled $20.9 million for 2001, up 7.5% from $19.4 million for 2000. Contributing to the increase in non-interest expense during 2001 were increased expenses resulting from the high level of loan originations during the year. Consolidated Income Statement Analysis N E T I N T E R E S T I N C O M E – 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), repre- sented 56.4% of TCF’s revenue in 2001. Net interest income divided by average interest-earning assets is referred to as the net interest mar- gin, expressed as a percentage. Net interest income and net interest mar- gin are affected by changes in interest rates, loan pricing strategies and competitive conditions, the volume and the mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. Net interest income was $481.2 million for the year ended December 31, 2001, compared with $438.5 million in 2000 and $424.2 million Mortgage Banking activities include the origination and purchase of res- in 1999. This represents an increase of 9.7% in 2001, compared with idential mortgage loans, generally for sale to third parties with servic- an increase of 3.4% in 2000 and a decrease of .4% in 1999. Total aver- ing retained. This operating segment reported net income of $5.9 age interest-earning assets increased 5.9% in 2001, following increases million for 2001, compared with $1.2 million for 2000. As a result of of 6.1% in 2000 and 7.9% in 1999. The net interest margin for 2001 changes in methodologies of certain allocations in 2001, the 2001 results was 4.51%, compared with 4.35% in 2000 and 4.47% in 1999. 24 The following table presents TCF’s average balance sheets, interest and dividends earned or paid, and the related yields and rates on major categories of TCF’s interest-earning assets and interest-bearing liabilities: Year Ended December 31, 2001 Year Ended December 31, 2000 Year Ended December 31, 1999 Yields Average and Balance Interest(1) Rates Average Balance ( D o l l a r s i n t h o u s a n d s ) Assets: Investments . . . . . . . . . . . . . . . . . . . $ 164,362 $ 8,966 5.46% $ 139,840 Securities available for sale(2). . . . . . . 1,500,225 Loans held for sale . . . . . . . . . . . . . . Loans and leases: 1,706,093 112,267 6.58 24,266 6.40 379,045 220,560 Yields and Interest(1) Rates Average Balance Yields and Interest(1) Rates $ 10,041 7.18% $ 142,494 $ 9,411 6.60% 99,185 17,130 6.61 7.77 1,689,257 111,032 199,073 13,367 6.57 6.71 Consumer . . . . . . . . . . . . . . . . . Commercial real estate. . . . . . . . . Commercial business . . . . . . . . . . Leasing and equipment finance . . Subtotal . . . . . . . . . . . . . . . . . Residential real estate. . . . . . . . . . Total loans and leases(3) . . . . . Total interest-earning assets. . Other assets(4) . . . . . . . . . . . . . . . . . 886,713 Total assets . . . . . . . . . . . . . . . . . $11,553,106 Liabilities and Stockholders’ Equity: Non-interest bearing deposits . . . . . . $ 1,580,907 Interest-bearing deposits: 2,346,349 215,438 9.18 2,139,135 218,577 10.22 1,971,069 199,103 10.10 1,490,616 116,128 7.79 1,195,985 103,181 409,685 29,893 7.30 918,915 89,131 9.70 367,072 650,616 33,483 69,960 5,165,565 450,590 8.72 4,352,808 425,201 3,251,328 230,520 7.09 3,860,025 275,124 8,416,893 681,110 8.09 8,212,833 700,325 10,666,393 826,609 7.75 10,073,458 826,681 8.63 9.12 10.75 9.77 7.13 8.53 8.21 933,227 341,378 410,245 78,033 27,425 47,077 3,655,919 351,638 3,808,062 266,653 7,463,981 618,291 9,494,805 752,101 8.36 8.03 11.48 9.62 7.00 8.28 7.92 773,799 $10,847,257 $ 1,328,932 798,494 $10,293,299 $ 1,177,723 Checking . . . . . . . . . . . . . . . . . . Savings . . . . . . . . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . . Total interest-bearing deposits . . Total deposits . . . . . . . . . . Borrowings: Short-term borrowings . . . . . . . . Long-term borrowings . . . . . . . . Total borrowings . . . . . . . . . . Total interest-bearing liabilities . . . . . . . . . . . Total deposits and borrowings . . . . . . . . . . . . Other liabilities(4) . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . Stockholders’ equity(4) . . . . . . . . . . . Total liabilities and 790,023 1,018,730 3,549 7,472 .45 .73 902,091 21,144 2.34 2,710,844 32,165 1.19 739,429 1,036,861 758,240 2,534,530 4,391 11,571 25,139 41,101 2,607,009 130,562 5.01 2,824,456 155,993 5,317,853 162,727 3.06 5,358,986 197,094 6,898,760 162,727 2.36 6,687,918 197,094 1,097,688 44,800 4.08 767,302 49,218 2,345,742 137,860 5.88 2,331,400 141,833 3,443,430 182,660 5.30 3,098,702 191,051 .59 1.12 3.32 1.62 5.52 3.68 2.95 6.41 6.08 6.17 711,440 1,111,104 728,522 2,551,066 4,043 12,435 19,074 35,552 2,888,968 139,943 5,440,034 175,495 6,617,757 175,495 601,224 32,333 2,072,734 120,060 2,673,958 152,393 .57 1.12 2.62 1.39 4.84 3.23 2.65 5.38 5.79 5.70 8,761,283 345,387 3.94 8,457,688 388,145 4.59 8,113,992 327,888 4.04 10,342,190 345,387 3.34 9,786,620 388,145 3.97 9,291,715 327,888 3.53 311,871 10,654,061 899,045 238,047 10,024,667 822,590 185,393 9,477,108 816,191 stockholders’ equity . . . . . . . . $11,553,106 $10,847,257 $10,293,299 Net interest income and margin . . . . $481,222 4.51% $438,536 4.35% $424,213 4.47% (1)Tax-exempt income was not significant and thus has not been presented on a tax equivalent basis. Tax-exempt income of $156,000, $181,000 and $189,000 was recognized during the years ended December 31, 2001, 2000 and 1999, 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. 25 The following table presents the components of the changes in net interest income by volume and rate: ( I n t h o u s a n d s ) Investments . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . Loans and leases: Consumer . . . . . . . . . . . . . . . . . . Commercial real estate. . . . . . . . . . Commercial business. . . . . . . . . . . Leasing and equipment finance . . . . Subtotal . . . . . . . . . . . . . . . . . . Residential real estate . . . . . . . . . . Total loans and leases . . . . . . . . Total interest income. . . . . . Deposits: Checking . . . . . . . . . . . . . . . . . . . Savings . . . . . . . . . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . . . Subtotal. . . . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . . . Total deposits. . . . . . . . . . . . . . Borrowings: Short-term borrowings . . . . . . . . . Long-term borrowings . . . . . . . . . Total borrowings . . . . . . . . . . . Total interest expense . . . . . Net interest income . . . . . . . . . . . . . . Year Ended December 31, 2001 Versus Same Period in 2000 Increase (Decrease) Due to Volume(1) $ 1,579 Rate(1) $ (2,654) Total $ (1,075) 13,534 10,583 20,168 23,682 3,594 26,546 73,990 (452) (3,447) 13,082 7,136 (23,307) (10,735) (7,184) (7,375) (48,601) (3,139) 12,947 (3,590) 19,171 25,389 (43,072) (1,532) (44,604) 30,918 56,614 (50,133) (19,215) (56,686) (72) 275 (196) 4,252 4,331 (1,117) (3,903) (8,247) (13,267) (842) (4,099) (3,995) (8,936) (11,559) (13,872) (25,431) (7,228) (27,139) (34,367) 16,993 (21,411) 843 17,836 10,608 (4,816) (26,227) (4,418) (3,973) (8,391) (53,366) (42,758) Year Ended December 31, 2000 Versus Same Period in 1999 Increase (Decrease) Due to Volume(1) Rate(1) $ (179) (12,518) 1,528 12,012 22,560 2,161 26,046 62,779 3,588 66,367 55,198 184 (864) 804 124 (3,187) (3,063) 9,973 15,537 25,510 22,447 $ 809 671 2,235 7,462 2,588 3,897 (3,163) 10,784 4,883 15,667 19,382 164 – 5,261 5,425 19,237 24,662 6,912 6,236 13,148 37,810 Total $ 630 (11,847) 3,763 19,474 25,148 6,058 22,883 73,563 8,471 82,034 74,580 348 (864) 6,065 5,549 16,050 21,599 16,885 21,773 38,658 60,257 $ 46,006 $ (3,320) $ 42,686 $ 32,751 $(18,428) $ 14,323 (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 volume increase faster, or to a greater extent, than the increase in the yield or and mix of interest-earning assets and interest-bearing liabilities, the interest-rate-sensitive assets. See “Financial Condition – Market Risk movement of interest rates and the level of non-performing assets. – Interest-Rate Risk” and “Financial Condition – Deposits.” Achieving net interest margin growth is dependent on TCF’s ability In 2001, TCF’s net interest income increased $42.7 million, or to generate higher-yielding assets and lower cost retail deposits. If vari- 9.7%, and total average interest-earning assets increased by $592.9 able index rates (e.g., prime) were to decline, TCF may experience million, or 5.9%, compared with 2000 levels. TCF’s net interest compression of its net interest margin depending on the timing and income improved by $46 million due to volume changes and decreased amount of any reductions, as it is possible that interest rates paid on $3.3 million due to rate changes. The increases in net interest income retail deposits will not decline as quickly, or to the same extent, as the and net interest margin are primarily due to the growth in higher yield- decline in the yield on interest-rate-sensitive assets such as home equity ing commercial and consumer loans and leasing and equipment finance loans. Competition for checking, savings and money market deposits, along with the strong growth in low-cost checking, savings and money important sources of lower cost funds for TCF, is intense. TCF may market deposits, as well as the decrease in interest rates and interest paid also experience compression in its net interest margin if the rates paid on certificates and borrowings. These favorable trends were partially on deposits increase, or as a result of new pricing strategies and lower offset by the anticipated reduction in residential real estate loans. Interest rates offered on loan products in order to respond to competitive con- income decreased by $72,000 in 2001 reflecting a decrease of $56.7 ditions or if the rates paid for short-term and long-term borrowings million due to rate, substantially offset by an increase of $56.6 million 26 due to volume changes. Interest expense decreased $42.8 million in expense increased $4.7 million in 1999, reflecting an increase of 2001, reflecting a decrease of $53.4 million due to lower cost of funds, $30.4 million due to volume, partially offset by a decrease of $25.7 partially offset by a $10.6 million increase due to volume changes. The million due to a lower cost of funds. increase in net interest income due to volume changes reflects the increase in total average interest-earning assets and an increase in the balance of non-interest bearing deposits. The decrease in net interest income due to rate changes reflects the impact of declining rates on interest earning assets greater than the impact of declining rates on interest bearing liabilities. In 2000, TCF’s net interest income increased $14.3 million, or 3.4%, and total average interest-earning assets increased by $578.7 mil- lion, or 6.1%, compared with 1999 levels. TCF’s net interest income improved by $32.8 million due to volume changes and decreased $18.4 million due to rate changes. The favorable impact of the growth in consumer lending volumes and rates, leasing and equipment finance volumes, and commercial real estate volumes and rates was partially offset by decreased consumer finance automobile and secu- rities available for sale volumes and increased borrowings volumes. Interest income increased $74.6 million in 2000, reflecting increases of $55.2 million due to volume and $19.4 million due to rate changes. Interest expense increased $60.3 million in 2000, reflecting increases of $37.8 million due to a higher cost of funds and $22.4 million due to volume. The increase in net interest income due to volume changes reflects the increase in total average interest-earning assets and an increase in the balance of non-interest bearing deposits. The decrease in net interest income due to rate changes reflects a higher cost of funds. In 1999, TCF’s net interest income decreased $1.5 million, or .4%, and total average interest-earning assets increased by $692 mil- lion, or 7.9%, compared with 1998 levels. TCF’s net interest income improved by $15.5 million due to volume changes. The increase in P R O V I S I O N F O R C R E D I T L O S S E S – TCF provided $20.9 million for credit losses in 2001, compared with $14.8 million in 2000 and $16.9 million in 1999. Net loan and lease charge-offs were $12.5 million, or .15% of average loans and leases, in 2001, com- pared with $3.9 million, or .05%, in 2000 and $26.4 million, or .35% of average loans and leases in 1999. The increase in provisions and net loan and lease charge-offs from 2000 reflects the impact of the growth in commercial loan and leasing and equipment finance portfolios coupled with increased charge-offs in the leasing and equip- ment finance portfolio. Leasing and equipment finance net charge- offs were $9.1 million, or 1% of related average loans and leases dur- ing 2001, compared with $2.2 million, or .33% in 2000 and $1.6 million, or .39% of related average loans and leases in 1999. The pro- vision for credit losses is calculated as part of the determination of the allowance for loan and lease losses. The determination of the allowance for loan and lease losses and the related provision for credit losses is a critical accounting policy which involves a number of factors such as net charge-offs, delinquencies in the loan and lease portfolio, gen- eral economic conditions and management’s assessment of credit risk in the current loan and lease portfolio. The allowance for loan and lease losses totaled $75 million at December 31, 2001, compared with $66.7 million at December 31, 2000, and was 144% of non-accrual loans and leases. See “Financial Condition – Allowance for Loan and Lease Losses.” N O N - I N T E R E S T I N C O M E – Non-interest income is a signifi- cant source of revenues for TCF, representing 43.6% of total rev- net interest income due to volume reflects the increase in total aver- enues in 2001, and is an important factor in TCF’s results of age interest-earning assets. Net interest income decreased $17 mil- operations. Providing a wide range of retail banking services is an lion due to rate changes in 1999, reflecting loan prepayments and integral component of TCF’s business philosophy and a major strat- the discontinuation of TCF’s higher-yielding consumer finance busi- egy for generating additional non-interest income. Excluding gains ness. TCF’s 1999 net interest income and net interest margin were on sales of securities available for sale, loan servicing, branches, sub- negatively impacted, as compared with 1998, by $17.4 million or 11 sidiaries and title insurance revenues, non-interest income increased basis points due to the discontinuation and sale of TCF’s higher- $43.8 million, or 13.6%, during 2001 to $367.3 million. The yielding consumer finance automobile business. The unfavorable increase was primarily due to increased fees and service charges and impact of the discontinuation of TCF’s consumer finance automo- electronic funds transfer and leasing revenues, reflecting TCF’s bile business, decreased yields on loans and leases resulting, in part, expanded retail banking and leasing operations and customer base. from the implementation of new tiered pricing for home equity loans The increases in fees and service charges and electronic funds trans- in early 1999, and increased borrowing volumes was partially offset fer revenues primarily reflect the increase in the number of retail by increased securities available for sale and loan and lease volumes, checking accounts, which totaled 1,249,000 accounts at December decreased rates paid on interest-bearing liabilities and decreased cer- 31, 2001, up from 1,131,000 at December 31, 2000. The average tificate of deposit volumes. Interest income increased $3.2 million annual fee revenue per retail checking account was $209 for 2001, in 1999, reflecting an increase of $45.9 million due to volume, par- compared with $190 for 2000. tially offset by a decrease of $42.7 million due to rate changes. Interest 27 The following table presents the components of non-interest income: ( D o l l a r s i n t h o u s a n d s ) 2001 2000 1999 1998 1997 2001/2000 2000/1999 Year Ended December 31, Percentage Increase (Decrease) Fees and service charges . . . . . . . Electronic funds transfer revenues . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . Mortgage banking . . . . . . . . . . . Investments and insurance. . . . . Other . . . . . . . . . . . . . . . . . . . Fees and other revenues . . . . Gains on sales of: Branches. . . . . . . . . . . . . . . Securities available for sale . . Loan servicing . . . . . . . . . . . Subsidiaries and joint venture interest . . . . . . . Title insurance revenues(1) . . . . . Other non-interest income . . . . . . . . . . . . . Total non-interest income . . . . . . . . . . . Fees and other revenues as a percentage of top-line revenues. . . . . . . . . Fees and other revenues as a percentage of average assets . . . . . . . . . . . . (1) Title insurance business was sold in 1999. N.M. Not meaningful. $194,321 $166,240 $138,198 $109,934 $ 83,993 16.9% 20.3% 87,134 78,101 67,144 50,556 30,808 11.6 16.3 45,730 12,042 11,535 16,545 38,442 10,519 12,266 17,895 28,505 12,770 14,849 12,854 31,344 16,877 13,926 13,058 32,025 13,768 11,892 11,281 367,307 323,463 274,320 235,695 183,767 3,316 863 – – – 12,813 – – – – 12,160 3,194 3,076 5,522 15,421 18,585 2,246 2,414 5,580 20,161 14,187 8,509 1,622 – 13,730 19.0 14.5 (6.0) (7.5) 13.6 (74.1) N.M. – – – 34.9 (17.6) (17.4) 39.2 17.9 5.4 (100.0) (100.0) (100.0) (100.0) 4,179 12,813 39,373 48,986 38,048 (67.4) (67.5) $371,486 $336,276 $313,693 $284,681 $221,815 10.5 7.2 43.29% 42.45% 39.27% 35.63% 31.83% 3.18 2.98 2.67 2.45 2.25 Fees and service charges increased $28.1 million, or 16.9%, in 2001 checking account base with Express Cards increased to 78.3% during and $28 million, or 20.3%, in 2000, primarily as a result of expanded 2001, from 74.8% during 2000. The percentage of these customers retail banking activities. These increases reflect the impact of the invest- who were active Express Card users increased to 51.3% during 2001, ment in de novo branch expansion and the increase in the number of from 49.3% during 2000. The average number of transactions per retail checking accounts and per account revenues noted above. month on active Express Cards increased to 10.92 during 2001, Electronic funds transfer revenues increased $9 million, or from 9.99 during 2000. Also included in electronic funds trans- 11.6%, in 2001 and $11 million, or 16.3%, in 2000. These increases fer revenues are ATM revenues of $45.8 million, $47.3 million and reflect TCF’s efforts to provide banking services through its $46.4 million for 2001, 2000 and 1999, respectively. The decline EXPRESS TELLER ATM network and TCF Express Cards. Included in ATM revenues in 2001 was attributable to fewer ATM machines in electronic funds transfer revenues are Express Card interchange coupled with a decline in utilization of machines by non-customers fees of $37.4 million, $28.7 million and $19.5 million for 2001, as the number of alternative ATM machines has increased and as 2000 and 1999, respectively. The significant increase in these fees check card usage has reduced the need for cash by customers. reflects an increase in the distribution of Express Cards, and an Additionally, as contracts are renewed and entered into, merchants increase in utilization resulting from TCF’s phone card promotion have generally required larger percentages of the fee charged to non- which rewards customers with long distance minutes based on usage, customers. At December 31, 2001, TCF had 1,341 EXPRESS TELLER a promotion begun in February 2000. TCF had 1.4 million ATM’s in its network compared with 1,384 EXPRESS TELLER EXPRESS TELLER ATM cards outstanding at December 31, 2001, ATM’s at December 31, 2000. In 2002, the contracts covering 256 of which 1.2 million were Express Cards. At December 31, 2000, EXPRESS TELLER ATM’s will expire and not be renewed. The TCF had 1.2 million EXPRESS TELLER ATM cards outstanding, expiration of the contracts on these machines is not expected to have 28 of which 1.1 million were Express Cards. The percentage of TCF’s a material impact on future ATM revenues. Leasing and equipment finance revenues increased $7.3 million, ing lease transactions and $644,000 in other revenues. The increase or 19%, in 2001 to $45.7 million, following an increase of $9.9 mil- in total leasing revenues for 2000 was primarily due to increased rev- lion or 34.9%, in 2000 to $38.4 million. The volume and type of enue of $6.8 million from sales-type lease transactions and an increase new lease transactions and the resulting revenues may fluctuate from of $1.7 million in operating lease transactions. TCF’s ability to grow period to period based upon factors not within the control of TCF, its lease portfolio is dependent upon its ability to place new equip- such as economic conditions. The increase in total leasing and equip- ment in service. In an adverse economic environment, there may be ment finance revenues for 2001 is primarily due to increases of $3.6 a decline in the demand for some types of equipment which TCF million from sales-type lease transactions, $3.1 million from operat- leases, resulting in a decline in the amount of new equipment being placed into service. The following table sets forth information about mortgage banking revenues: ( D o l l a r s i n t h o u s a n d s ) Servicing income. . . . . . . . . . . . . Less: Mortgage servicing amortization and impairment . . . . . . . . . . . . . . Net servicing income (loss) . . . . . . . . Gains on sales of loans. . . . . . . . . Other income . . . . . . . . . . . . . . . Total mortgage banking . . . N.M. Not meaningful. Year Ended December 31, Percentage Increase (Decrease) 2001 $16,932 2000 $12,642 1999 $12,981 1998 $17,146 1997 2001/2000 2000/1999 $17,093 33.9% (2.6)% 20,964 (4,032) 11,795 4,279 5,326 7,316 1,347 1,856 4,906 8,075 3,194 1,501 $12,042 $10,519 $12,770 6,814 4,853 N.M. 10,332 4,536 2,009 $16,877 12,240 1,229 299 $13,768 N.M. N.M. 130.5 14.5 8.6 (9.4) (57.8) 23.7 (17.6) Mortgage banking revenues increased $1.5 million or 14.5% in The capitalization, amortization and impairment of mortgage servicing 2001, following a decrease of $2.3 million or 17.6% in 2000. The rights are critical accounting policies to TCF and are subject to signif- increase in revenues during 2001 is attributable to increased loan icant estimates. These estimates are based upon loan types, note rates origination and sale activity, partially offset by increased amortiza- and prepayment assumptions for the overall portfolio. Changes in the tion and impairment of mortgage service rights due to high levels mix of loans, interest rates, defaults or prepayment speeds may have a of actual and assumed prepayments and increased volumes. The material effect on the amortization amount and possible impairment decrease in total mortgage banking revenues for 2000 was primar- in valuation. In a declining interest rate environment, prepayments ily due to a decline in gains on sales of loans and net servicing income will increase and result in an acceleration in the amortization of the due to lower levels of originations of mortgages and the related ser- mortgage servicing rights as the underlying portfolio declines and also vicing rights. At December 31, 2001, 2000 and 1999, TCF was ser- may result in impairment valuation charges as the value of the mortgage vicing mortgage loans for others with aggregate unpaid principal servicing rights decline. TCF periodically evaluates its capitalized mort- balances of $4.7 billion, $4 billion and $2.9 billion, respectively. gage servicing rights for impairment. Any impairment is recognized As noted above, mortgage banking revenues are impacted by the through a valuation allowance. See Notes 1 and 9 of Notes to amount of amortization and impairment of mortgage servicing rights. Consolidated Financial Statements for additional information con- cerning TCF’s mortgage servicing rights. The following table summarizes the prepayment speed assumptions used in the determination of the valuation and amortization of mortgage servicing rights as of December 31, 2001: ( D o l l a r s i n t h o u s a n d s ) Interest Rate Tranche 0 to 7.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01 to 8.00% . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01 to 9.00% . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01% and higher . . . . . . . . . . . . . . . . . . . . . . . . Unpaid Balance $2,386,402 1,993,510 275,001 24,442 $4,679,355 Prepayment Speed Assumption Weighted Average Life (in Years) 12.4% 17.9 27.8 29.4 14.9 7.4 5.1 3.1 2.6 6.2 29 Investments and insurance income, consisting principally of com- TCF periodically sells branches that it considers to be underper- missions on sales of annuities and mutual funds, decreased $731,000 forming, or have limited growth potential, and may continue to do to $11.5 million in 2001, following a decrease of $2.6 million to so in the future, including one planned branch sale during the first $12.3 million in 2000. Annuity and mutual fund sales volumes quarter of 2002. totaled $165 million for the year ended December 31, 2001, com- Gains on sales of securities available for sale totaled $863,000 in pared with $170.2 million during 2000. The decreased sales vol- 2001. There were no sales of securities available for sale during 2000. umes during 2001 reflect the impact of lower yields offered by Sales of securities available for sale produced gains of $3.2 million insurance companies on annuity products, and the volatility of the in 1999. In 1999, TCF recognized $3.1 million in gains on sales of stock market affecting sales of mutual funds. Sales of insurance and $344.6 million of third-party loan servicing rights. No sales of third- investments may fluctuate from period to period, and future sales party loan servicing rights occurred during 2000 and 2001. TCF levels will depend upon general economic conditions and investor may, from time to time, sell securities available for sale and loan ser- preferences. Sales of annuities will also depend upon continued favor- vicing rights depending on market conditions. able tax treatment and may be negatively impacted by the level of inter- During the 1999 fourth quarter, TCF sold its title insurance and est rates. appraisal operations and recognized a gain of $5.5 million, and will During 2001, TCF recognized a gain of $3.3 million on the sale recognize a deferred gain of up to $15 million over the ensuing five of a branch with $30 million in deposits, compared with gains of years based upon TCF’s use of services. TCF earned and recognized $12.8 million on the sales of six branches with $95.7 million in in other non-interest income $5.2 million and $4.5 million during deposits during 2000. TCF recognized gains of $12.2 million on 2001 and 2000, respectively. Title insurance revenues are no longer the sales of eight branches with $116.7 million in deposits in 1999. recognized by TCF as a result of its sale of these operations. Title insurance revenues totaled $15.4 million in 1999. N O N - I N T E R E S T E X P E N S E – Non-interest expense increased $44.8 million, or 9.8%, in 2001, and $9.3 million, or 2.1%, in 2000, compared with the respective prior years. The following table presents the components of non-interest expense: Year Ended December 31, Percentage Increase (Decrease) ( D o l l a r s i n t h o u s a n d s ) 2001 2000 1999 1998 1997 2001/2000 2000/1999 Compensation and employee benefits. . . . . . . . . . Occupancy and equipment . . . . . . . Advertising and promotions. . . . . Amortization of goodwill . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . Total non-interest $267,716 $239,544 $239,053 $217,401 $180,482 11.8% 78,774 20,909 7,777 126,820 74,938 19,181 7,706 115,833 73,613 16,981 7,713 110,532 71,323 19,544 7,816 105,802 58,352 19,157 4,069 94,449 5.1 9.0 .9 9.5 9.8 .2% 1.8 13.0 (.1) 4.8 2.1 expense . . . . . . . . . . . . $501,996 $457,202 $447,892 $421,886 $356,509 Compensation and employee benefits, representing 53.3% and to TCF’s expanded retail banking and leasing activities, partially off- 52.4% of total non-interest expense in 2001 and 2000, respec- set by branch sales. tively, increased $28.2 million, or 11.8%, in 2001, and $491,000, Advertising and promotion expenses increased $1.7 million in or .2%, in 2000. The 2001 increase of 11.8% was primarily due to 2001 following an increase of $2.2 million in 2000. These increases costs associated with expanded retail banking and leasing activities. are primarily due to retail banking activities and promotional expenses Also contributing to the increase during 2001 is the increase in associated with the TCF Express Phone Card, where customers earn compensation and benefits resulting from the significant increase free long distance phone minutes for use of their Express Cards. TCF in mortgage banking activities. The slight increase in 2000 is the awarded over 67 million and 38 million phone minutes during 2001 result of increases in expanded retail and leasing activities offset by and 2000, respectively, under this promotion. the cost savings from the sale of TCF’s title insurance and appraisal Other non-interest expense increased $11 million, or 9.5%, in operations during the fourth quarter of 1999. 2001, primarily the result of increased expenses associated with higher Occupancy and equipment expenses increased $3.8 million in levels of activity in mortgage banking and expanded retail banking 2001 and $1.3 million in 2000. The increases were primarily due and leasing operations. In 2000, other non-interest expense 30 increased $5.3 million, or 4.8%, reflecting costs associated with Bank (“FHLB”) stock, Federal Reserve Bank stock and other invest- expanded retail banking and leasing activities, including increases in ments, increased $21.9 million in 2001 to $155.9 million at deposit account losses. A summary of other expense is presented in December 31, 2001. The increase primarily reflects an increase of Note 24 of Notes to Consolidated Financial Statements. $20.7 million in FHLB stock. TCF had no non-investment grade I N C O M E T A X E S – TCF recorded income tax expense of $122.5 million in 2001, compared with $116.6 million in 2000 and $107.1 million in 1999. Income tax expense represented 37.14% of income before income tax expense during 2001, compared with 38.5% and debt securities (junk bonds) and there were no open trading account or investment option positions as of December 31, 2001 or 2000. TCF is required to invest in FHLB stock in proportion to its level of borrowings from the FHLB. 39.2% in 2000 and 1999, respectively. The lower tax rates in 2001 and 2000 primarily reflect the impact of favorable conclusion of 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 increased $180.8 million during 2001 to $1.6 billion at December prior years taxes, lower state income taxes and the reduced effect of 31, 2001. This increase reflects purchases of $567.3 million of non-deductible expenses as a percent of pre-tax net income. mortgage-backed securities in March 2001 in response to expected The determination of current and deferred income taxes is a crit- declines in the residential real estate loan portfolio, partially offset ical accounting policy which is based on complex analyses of many by sales of $33.6 million in mortgage-backed securities and normal factors including interpretation of Federal and state income tax laws, payment and prepayment activity. At December 31, 2001, TCF’s the differences between tax and financial reporting basis of assets and securities available-for-sale portfolio included $1.5 billion and $47.2 liabilities (temporary differences), estimates of amounts due or owed million of fixed-rate and adjustable-rate mortgage-backed securities, such as the timing of reversal of temporary differences and current respectively. Net unrealized pre-tax gains on securities available for financial accounting standards. Actual results could differ signifi- sale totaled $9.8 million at December 31, 2001, compared with net cantly from the estimates and interpretations used in determining unrealized pre-tax losses of $15.6 million at December 31, 2000. the current and deferred income tax liabilities. Further detail on income taxes is provided in Note 13 of Notes to Consolidated Financial Statements. Consolidated Financial Condition Analysis I N V E S T M E N T S – Total investments, which include interest- bearing deposits with banks, federal funds sold, Federal Home Loan L O A N S H E L D F O R S A L E – Loans held for sale included resi- dential mortgage and education loans. Education loans held for sale were $165.1 million and $153.2 million at December 31, 2001 and 2000, respectively. Residential mortgage loans held for sale were $286.6 million and $74.5 million at December 31, 2001 and 2000, respectively. The increase in residential mortgage loans held for sale reflects the increase in refinance activity experienced in the mortgage banking segment as a result of the decline in interest rates. L O A N S A N D L E A S E S – The following table sets forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale: Year Ended December 31, Percentage Increase (Decrease) ( D o l l a r s i n t h o u s a n d s ) 2001 2000 1999 1998 1997 2001/2000 2000/1999 Consumer . . . . . . . . . . . . . . . Commercial real estate . . . . . . Commercial business . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . Subtotal. . . . . . . . . . . . Residential real estate . . . . . . . Total loans and leases. . . $2,509,333 $2,234,134 $2,058,584 $1,876,554 $1,976,699 12.3% 1,622,461 1,371,841 1,073,472 422,381 410,422 351,353 956,737 5,510,912 2,733,290 856,471 4,872,868 3,673,831 492,656 3,976,065 3,919,678 811,428 289,104 398,812 3,375,898 3,765,280 859,916 240,207 368,521 3,445,343 3,623,845 $8,244,202 $8,546,699 $7,895,743 $7,141,178 $7,069,188 18.3 2.9 11.7 13.1 (25.6) (3.5) 8.5% 27.8 16.8 73.8 22.6 (6.3) 8.2 31 Loans and leases decreased $302.5 million from year-end 2000 December 31, 2000. As a result of falling interest rates during 2001, to $8.2 billion at December 31, 2001, reflecting increases of $275.2 $946 million of the variable rate consumer loans were at their inter- million in consumer loans, $250.6 million in commercial real estate est rate floors as of December 31, 2001. These loans will remain at loans and $100.3 million in leasing and equipment finance, respec- their interest rate floor until interest rates rise above the floor rate. tively, offset by an anticipated decrease of $940.5 million in resi- An increase in the TCF base interest rate of 100 basis points would dential real estate loans. At December 31, 2001, TCF’s residential result in the repricing of $366.9 million of variable rate consumer real estate loan portfolio was comprised of $1.5 billion of fixed-rate loans currently at their floor. A 200 basis point increase in the TCF loans and $1.2 billion of adjustable-rate loans. The decline in the base interest rate would result in a total of $654.5 million of these residential portfolio during 2001 was due to accelerating prepay- loans repricing at interest rates above their current floor. ments brought on by the declining interest rate environment. As a result of the tiered pricing structure introduced in early 1999 Management expects that the balance in the residential loan port- for its home equity loans, TCF experienced an increase in the loan- folio will continue to decline, which will provide funding for antic- to-value ratios on new home equity loans. Many of these loans are ipated growth in other loan categories. secured by a first lien on the home and include an advance to pay off Consumer loans increased $275.2 million from year-end 2000 an existing first lien mortgage loan. These loans may carry a higher to $2.5 billion at December 31, 2001, reflecting an increase of $291.6 level of credit risk than loans with a lower loan-to-value ratio. Higher million in home equity loans. Approximately 70% of the home equity loan-to-value ratio loans are made to more creditworthy customers loan portfolio at December 31, 2001 consists of closed-end loans, based on credit scoring models. Notwithstanding the above men- compared with 68% at December 31, 2000. In addition, 51% of this tioned increase, the weighted average loan-to-value ratio for the home portfolio carries a variable interest rate, compared with 47% at equity loan portfolio at December 31, 2001 was 72%, compared with 77% at December 31, 2000. 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 ) 2 Loan-to-Value Ratios(1) Over 105%(2) . . . . . . . . . . . . . . . . . . . Over 100%-105%(2) . . . . . . . . . . . . . . Over 90% to 100% . . . . . . . . . . . . . . . Over 80% to 90% . . . . . . . . . . . . . . . . 80% or less . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . Balance $ 10,203 56,375 396,333 802,094 1,178,783 $2,443,788 At December 31, 2001 Over 30-Day Delinquency as Percent a Percentage of Portfolio of Total .4% 2.3 16.2 32.8 48.3 100.0% 2.69% 1.43 .69 .64 .69 .70 2000 Percent of Total .3% 1.8 22.6 30.1 45.2 Balance $ 5,766 39,867 486,536 648,218 971,760 $2,152,147 100.0% Over 30-Day Delinquency as a Percentage of Portfolio –% 2.10 .97 .93 .77 .89 (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. (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. 32 The following table summarizes TCF’s commercial real estate loan portfolio by property type: At December 31, ( D o l l a r s i n t h o u s a n d s ) 2 Apartments . . . . . . . . . . . . . . . . . . . . . Office buildings . . . . . . . . . . . . . . . . . Retail services . . . . . . . . . . . . . . . . . . . Hotels and motels . . . . . . . . . . . . . . . . Warehouse/industrial buildings. . . . . . . Health care facilities. . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . Balance $ 431,679 364,357 217,408 144,424 159,090 24,698 280,805 2001 Over 30-Day Delinquency as Number a Percentage of Portfolio of Loans 586 283 243 34 165 15 448 2000 Number of Loans 544 279 221 34 156 18 546 Balance $ 326,594 318,230 171,747 159,383 120,852 28,783 246,252 $1,371,841 1,798 Over 30-Day Delinquency as a Percentage of Portfolio .12% – .05 – – – .54 .13 .03% .08 – – – – .04 .03 $1,622,461 1,774 Commercial real estate loans increased $250.6 million from year- mercial real estate and commercial business loans are secured either end 2000 to $1.6 billion at December 31, 2001. Commercial busi- by properties or underlying business assets. At December 31, 2001 ness loans increased $12 million in 2001 to $422.4 million at and December 31, 2000, the construction and development port- December 31, 2001. TCF continues to expand its commercial busi- folio included $31.5 million and $28 million, respectively, of hotel ness and commercial real estate lending activity to borrowers located and motel loans and $2.5 million and $1.9 million, respectively, of in its primary midwestern markets. With a primary focus on secured apartment loans. At December 31, 2001, approximately 86% of TCF’s lending, at December 31, 2001, approximately 98% of TCF’s com- commercial real estate loans outstanding were secured by properties located in its primary markets. The following table summarizes TCF’s leasing and equipment finance portfolio: ( D o l l a r s i n t h o u s a n d s ) 2 Winthrop(1) . . . . . . . . . . . . . . . . . . . . . . . Wholesale(2) . . . . . . . . . . . . . . . . . . . . . . Middle market . . . . . . . . . . . . . . . . . . . . . Truck and trailer. . . . . . . . . . . . . . . . . . . Small ticket(3) . . . . . . . . . . . . . . . . . . . . . Leveraged lease . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance $307,335 204,792 181,826 144,485 100,691 17,608 At December 31, 2001 Over 30-Day Delinquency as Percent a Percentage of Portfolio of Total 32.1% .24% 21.4 19.0 15.1 10.5 1.9 .28 2.14 7.59 1.17 – 1.84 2000 Percent of Total 41.7% 18.7 10.1 17.8 9.7 2.0 100.0% Over 30-Day Delinquency as a Percentage of Portfolio .73% .35 1.66 6.84 .80 – 1.83 Balance $357,113 160,050 86,532 152,740 82,867 17,169 $856,471 $956,737 100.0% (1) Winthrop consists primarily of high-tech equipment, computers, telecommunications and point of sale equipment. (2) Wholesale includes the discounting and purchase or origination of lease receivables sourced by third party lessors. (3) Small ticket includes lease financings to small- and mid-size companies through programs with vendors, manufacturers, distributors and franchise organizations. Individual contracts generally range from $25,000 to $250,000. Leasing and equipment finance increased $100.3 million from with non-recourse fundings of $165.8 million or 25.4% at December year-end 2000 to $956.7 million at December 31, 2001. At 31, 2000. Total loan and lease originations for TCF’s leasing busi- December 31, 2001, $143.7 million or 20.6% of TCF’s lease port- nesses were $492.3 million during 2001, compared with $648.1 mil- folio was funded on a non-recourse basis with other banks and con- lion in 2000 and $327.3 million in 1999. The leasing and equipment sequently TCF retains no credit risk on such amounts. This compares finance businesses have experienced a slowdown in originations due 33 to the current economy. At December 31, 2001, the backlog of industry. TCF’s expanded leasing activity is subject to risk of cyclical approved transactions related to TCF’s leasing businesses totaled downturns and other adverse economic developments affecting these $126.1 million, compared with $165.6 million at December 31, 2000. industries and markets. TCF’s ability to grow its lease portfolio is The increase in the leasing and equipment finance portfolio is pri- dependent upon its ability to place new equipment in service. In an marily due to the de novo expansion activity of TCF Leasing, which adverse economic environment, there is a lower demand for some began in 1999. The investment in a leveraged lease represents a 100% types of equipment which TCF leases, resulting in a decline in the equity interest in a Boeing 767 aircraft on lease to Delta Airlines in amount of new equipment being placed into service. TCF Leasing the United States. The aircraft is in service, the lessee is current on has originated most of its portfolio during recent periods, and con- the lease payments and the lease expires in 2010. This lease repre- sequently the performance of this portfolio may not be reflective of sents TCF’s only material direct exposure to the commercial airline future results and credit quality. Loans and leases outstanding at December 31, 2001 are shown in the following table by maturity: ( 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 . . . . . . . . . . . . At December 31, 2001(1) Consumer Commercial Real Estate Commercial Business Leasing and Equipment Finance Residential Real Estate Total Loans and Leases $ 105,145 $ 226,205 $223,956 $ 353,403 $ 96,619 $1,005,328 98,836 110,143 180,394 607,274 1,077,266 341,158 2,415,071 $2,520,216 $1,195,400 1,219,671 $2,415,071 144,017 120,444 264,999 673,189 144,375 53,212 1,400,236 $1,626,441 $ 279,948 1,120,288 $1,400,236 86,765 59,135 40,975 7,007 87 3,874 197,843 $421,799 $ 65,426 132,417 $197,843 274,793 184,754 235,278 – – – 694,825 97,549 99,774 205,893 495,478 432,558 1,299,601 2,630,853 701,960 574,250 927,539 1,782,948 1,654,286 1,697,845 7,338,828 $1,048,228 $2,727,472 $8,344,156 $ 694,825 – $ 694,825 $1,447,277 1,183,576 $2,630,853 $3,682,876 3,655,952 $7,338,828 (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. 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 – Credit risk is the risk of loss from a customer default. TCF has in place a process conditions. The Company considers the allowance for loan and lease losses of $75 million adequate to cover losses inherent in the loan to identify and manage its credit risk. The process includes initial credit and lease portfolio as of December 31, 2001. However, no assurance review and approval, periodic monitoring to measure compliance with can be given that TCF will not, in any particular period, sustain loan credit agreements and internal credit policies, monitoring changes in and lease losses that are sizable in relation to the amount reserved, or the risk ratings of loans and leases, identification of problem loans and that subsequent evaluations of the loan and lease portfolio, in light of leases and special procedures for collection of problem loans and leases. factors then prevailing, including economic conditions and the on- The risk of loss is difficult to quantify and is subject to fluctuations in going credit review process by TCF, will not require significant increases values and general economic conditions and other factors. As discussed in the allowance for loan and lease losses. A protracted economic previously, the determination of the allowance for loan and lease losses slowdown and/or a decline in real estate may have an adverse impact is a critical accounting policy which involves estimates and manage- on the adequacy of the allowance for loan and lease losses by increas- ment’s judgment on a number of factors such as net charge-offs, delin- ing credit risk and the risk of potential loss. See Notes 1 and 7 of Notes quencies in the loan and lease portfolio and general and economic to Consolidated Financial Statements for additional information concerning TCF’s allowance for loan and lease losses. 34 The following table sets forth information detailing the allowance for loan and lease losses and selected statistics: Year Ended December 31, ( 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: Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate. . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . Residential real estate. . . . . . . . . . . . . . . . . . . . . . . Recoveries: Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate. . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . Residential real estate. . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . 2001 $ 66,669 – – (6,605) (122) (429) (9,794) (1) (16,951) 3,487 103 193 649 – 4,432 (12,519) 20,878 $ 75,028 2000 $ 55,755 – – (7,041) (76) (143) (2,426) (15) (9,701) 4,576 295 690 254 28 5,843 (3,858) 14,772 $ 66,669 1999 $ 80,013 – (14,793) (31,509) (674) (52) (2,008) (155) (34,398) 5,831 1,381 329 398 71 8,010 (26,388) 16,923 $ 55,755 1998 $ 82,583 – – (30,108) (1,294) (42) (979) (291) 1997 $ 71,865 10,592 – (21,660) (927) (1,485) (2,297) (444) (32,714) (26,813) 5,222 559 635 345 103 6,864 (25,850) 23,280 3,141 2,530 2,488 618 167 8,944 (17,869) 17,995 $ 80,013 $ 82,583 .15% .05% .35% .36% .30% .91 1.32 .78 1.31 .71 1.33 1.12 2.27 1.17 2.30 The allocation of TCF’s allowance for loan and lease losses, including general and specific loss allocations, is as follows: ( D o l l a r s i n t h o u s a n d s ) 2001 2000 1999 1998 1997 2001 At December 31, Consumer. . . . . . . . . . . . . . Commercial real estate . . . . . Commercial business . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . Unallocated. . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . Residential real estate . . . . . . Total allowance balance. . . N.A. Not applicable. $ 8,355 $ 9,764 $10,701 $32,011 $28,129 .33% 24,459 12,117 11,774 16,139 72,844 2,184 20,753 9,668 7,583 16,139 63,907 2,762 12,708 8,256 4,237 16,839 52,741 3,014 12,525 5,756 2,955 23,295 76,542 3,471 15,065 4,520 2,004 29,364 79,082 3,501 $75,028 $66,669 $55,755 $80,013 $82,583 1.51 2.87 1.23 N.A. 1.32 .08 .91 Allocations as a Percentage of Total Loans and Leases Outstanding by Type At December 31, 2000 .44% 1999 .52% 1998 1.71% 1997 1.42% 1.51 2.36 .89 N.A. 1.31 .08 .78 1.18 2.35 .86 N.A. 1.33 .08 .71 1.54 1.99 .74 N.A. 2.27 .09 1.12 1.75 1.88 .54 N.A. 2.30 .10 1.17 35 Additional information on the allowance for loan and lease losses follows: ( D o l l a r s i n t h o u s a n d s ) Consumer . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . Commercial business . . . . . . . . Leasing and equipment finance . . Unallocated . . . . . . . . . . . . . . . Subtotal. . . . . . . . . . . . . Residential real estate . . . . . . . . Total . . . . . . . . . . . . . . . At December 31, 2001 At December 31, 2000 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 $ 8,355 $2,509,333 .33% .13% $ 9,764 $2,234,134 .44% 24,459 1,622,461 12,117 11,774 16,139 422,381 956,737 – 72,844 5,510,912 2,184 2,733,290 $75,028 $8,244,202 1.51 2.87 1.23 N.A. 1.32 .08 .91 – .06 1.00 N.A. .24 – .15 20,753 1,371,841 9,668 7,583 16,139 410,422 856,471 – 63,907 4,872,868 2,762 3,673,831 $66,669 $8,546,699 1.51 2.36 .89 N.A. 1.31 .08 .78 Net Charge Offs(1) .12% (.02) (.15) .33 N.A. .09 – .05 (1) Net charge-offs (recoveries) during the year as a percentage of related average loans and leases. N.A. Not applicable. The allocated allowance balances for TCF’s residential, consumer ment finance portfolios coupled with increased charge-offs in the leas- and commercial real estate loan portfolios at December 31, 2001 ing business. The allowance for loan and lease losses as a percentage of reflect the Company’s continued strengthening of its credit quality net loan and lease charge-offs during the year was 599% at December and related low level of net loan charge-offs for these portfolios. The 31, 2001, compared with 1,728% at December 31, 2000 and 211% at increase in the allocated allowance for leasing and equipment finance December 31, 1999. Net loan and lease charge-offs were $12.5 mil- losses reflects the previously mentioned increase in the percentage of lion, or .15% of average loans and leases outstanding in 2001, com- leases that are internally funded and the increase in charge-offs in pared with $3.9 million, or .05% of average loans and leases in 2000 the leasing and equipment finance portfolio. The allocated allowances and $26.4 million, or .35% of average loans and leases in 1999. The for these portfolios do not reflect any significant changes in estima- ratio of net loan charge-offs to average loans outstanding for TCF’s tion methods or assumptions. consumer portfolio was .13% for the year ended December 31, 2001, The increase in TCF’s allowance for loan and lease losses as a per- compared with .12% for the year ended December 31, 2000. Included centage of total loans and leases at December 31, 2001 reflects the impact in total net loan and lease charge-offs were $9.1 million and $2.2 mil- of the significant growth in the commercial loan and leasing and equip- lion of leasing and equipment finance net charge-offs during 2001 and 2000, respectively. The following table sets forth additional information regarding TCF’s leasing and equipment finance net charge-offs: 2 ( D o l l a r s i n t h o u s a n d s ) Winthrop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Truck and trailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Small ticket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leveraged lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2001 2000 % of Average Loans and Leases .64% Net Charge-offs $1,325 .85 .39 2.31 1.37 – 1.00 – 12 299 536 – $2,172 % of Average Loans and Leases .38% – .03 .32 .81 – .33 Net Charge-offs $2,182 1,621 513 3,587 1,242 – $9,145 36 N O N - P E R F O R M I N G A S S E T S – Non-performing assets con- sisting of non-accrual loans and leases and other real estate owned in non-performing assets are increases of $3.4 million in non-accrual consumer loans and $2.6 million in non-accrual leasing and equip- totaled $66.6 million at December 31, 2001, or .82% of net loans ment finance. Approximately 57% of non-performing assets consist and leases, up $20.6 million from $46.1 million, or .54% at of, or are secured by, residential real estate. The accrual of interest December 31, 2000. The increase in total non-performing assets income is generally discontinued when loans and leases become 90 days reflects increases of $6.7 million, $3.3 million and $2.4 million in or more past due with respect to either principal or interest (150 days non-performing commercial real estate, commercial business and res- for loans secured by residential real estate) unless such loans and leases idential real estate assets, respectively. Also contributing to the increase 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance, net . . . . . . . . . . Residential real estate. . . . . . . . . . . . . . . . . . . . . Total non-accrual loans and leases, net. . . . . . Non-recourse discounted lease rentals . . . . . . . . Total non-accrual loans and leases, gross . . . . Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . Total non-performing assets, gross . . . . . . . . . . . Total non-performing assets, net . . . . . . . . . . . . Accruing loans and leases 90 days or more past due . . . . Gross non-performing assets as a percentage of net loans and leases . . . . . . . . . . . . . . . . . . . . . . . Gross non-performing assets as a percentage of total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 2000 1999 1998 1997 $16,473 $13,027 $12,178 $17,745 $21,037 11,135 3,550 11,723 6,959 49,840 2,134 51,974 14,655 $66,629 $64,495 $ 5,129 5,820 236 7,376 4,829 31,288 3,910 35,198 10,869 $46,067 $42,157 $ 5,020 1,576 2,960 1,310 5,431 23,455 619 24,074 10,912 $34,986 $34,367 $ 5,789 4,352 2,797 290 8,078 33,262 435 33,697 13,602 $47,299 $46,864 $ – 3,818 3,370 117 8,451 36,793 – 36,793 18,353 $55,146 $55,146 $ – .82% .59 .54% .41 .45% .33 .67% .47 .79% .57 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: 2 ( 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, 2001 2000 Principal Balances $25,998 15,646 5,129 $46,773 Percentage of Loans and Leases .32% .19 .06 .57% Principal Balances $40,083 13,755 5,020 $58,858 Percentage of Loans and Leases .47% .16 .06 .69% 37 The over 30-day delinquency rate on TCF’s loans and leases (excluding loans held for sale and non-accrual loans and leases) was .57% of loans and leases outstanding at December 31, 2001, compared with .69% at year-end 2000. TCF’s delinquency rates are determined using the contractual method. The following table sets forth information regarding TCF’s over 30-day delinquent loan and lease portfolio, exclud- ing loans held for sale and non-accrual loans and leases: 2 ( D o l l a r s i n t h o u s a n d s ) Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 2000 Principal Balances $17,939 Percentage of Portfolio .72% 538 526 17,393 10,377 $46,773 .03 .13 1.84 .38 .57 Principal Balances $20,628 1,793 3,958 15,508 16,971 $58,858 Percentage of Portfolio .93% .13 .96 1.83 .46 .69 TCF’s over 30-day delinquency on total leasing and equipment The recorded investment in loans that are considered to be finance increased to 1.84% at December 31, 2001 from 1.83% at impaired was $18.8 million and $6.8 million at December 31, 2001 December 31, 2000. Included in delinquent leasing and equipment and December 31, 2000, respectively. The related allowance for finance at December 31, 2001 are $754,000 of leases that have been credit losses was $5 million at December 31, 2001, compared with funded on a non-recourse basis by third-party financial institutions, $1.3 million at December 31, 2000. All of the impaired loans were compared with $2.4 million at December 31, 2000. Delinquencies on non-accrual status. Management monitors the performance and in the truck and trailer segment of the leasing and equipment classification of such loans and leases and the financial condition of finance portfolio were $11 million, or 7.6% at December 31, 2001, these borrowers. compared with $10.4 million, or 6.8%, at December 31, 2000. Also, non-accrual loans and leases in the truck and trailer segment of the leasing and equipment finance portfolio were $6.9 million at December 31, 2001, compared with $4.7 million at December 31, 2000. The increase in delinquencies and non-accrual loans and leases in the truck and trailer segment reflects the impact of higher fuel and insurance costs, driver shortages and the slowdown in freight activity caused by the slowing economy. Management con- tinues to closely monitor the truck and trailer portfolio given the current economic environment. See “Loans and Leases.” In addition to the non-accrual loans and leases, there were $71.9 million of loans and leases at December 31, 2001 for which man- agement 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 doubt- ful, or were to customers that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. This compares with $19.8 million of loans and leases at December 31, 2000. The increase in these classified assets is generally due to the slowing economy and results from the periodic review process and risk rating performed by TCF. Although these loans and leases are generally secured by commercial real estate or other corporate assets, they may be subject to future modifications of their terms or may become non-performing. L I Q U I D I T Y M A N A G E M E N T – TCF manages its liquidity posi- tion 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 repayments, pro- ceeds from the discounting of leases and borrowings. 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 INFOR- MATION.” Borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than pro- jected 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. At December 31, 2001, TCF had over $2.3 billion in unused capacity under these funding sources, which could be used to meet future liquidity needs. See “Borrowings.” 38 Potential sources of liquidity for TCF Financial Corporation (par- savings and money market deposits totaled $4.8 billion, up $692.5 ent company only) include cash dividends from TCF’s wholly-owned million from December 31, 2000, and comprised 67.3% of total bank subsidiaries, issuance of equity securities, borrowings under the deposits at December 31, 2001, compared with 59.3% of total deposits Company’s $105 million bank line of credit and commercial paper at December 31, 2000. The average balance of these deposits for 2001 program, and interest income. TCF’s subsidiary banks’ ability to pay was $4.3 billion, an increase of $428.3 million over the $3.9 billion dividends or make other capital distributions to TCF is restricted by average balance for 2000. Higher interest-cost certificates of deposit regulation and may require regulatory approval. Undistributed earn- decreased $485.4 million from December 31, 2000 as a result of ings and profits at December 31, 2001 includes approximately $134.4 TCF’s disciplined pricing and availability of other lower-cost fund- million for which no provision for federal income tax has been made. ing sources. The Company’s weighted-average rate for deposits, includ- This amount represents earnings appropriated to bad debt reserves ing non-interest bearing deposits, decreased to 1.49% at December and deducted for federal income tax purposes, and is generally not 31, 2001, from 3.12% at December 31, 2000, due to the change in available for payment of cash dividends or other distributions to share- mix of deposits and the declines in overall interest rates during 2001. holders without incurring an income tax liability based on the amount As previously noted, TCF continued to expand its supermarket of earnings removed and current tax rates. banking franchise during 2001, opening 21 new branches during the D E P O S I T S – Checking, savings and money market deposits are an important source of lower cost funds and fee income for TCF. Deposits totaled $7.1 billion at December 31, 2001, up $207.1 million from December 31, 2000. As previously noted, TCF sold one branch with $30 million of deposits during 2001. Lower interest-cost checking, year. TCF now has 234 supermarket branches. During the past year, the number of deposit accounts in TCF’s supermarket branches increased 14.6% to over 740,000 accounts and the balances increased 13% to $1.2 billion. The average rate on these deposits decreased from 2.73% at December 31, 2000 to 1.23% at December 31, 2001, due to general decreases in interest rates. Additional information regarding TCF’s supermarket branches follows: ( 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. . . . . . . . . . . . . . . . . . Savings . . . . . . . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . Total loans and leases . . . . . . . . . Average rate on deposits . . . . . . . . . Total fees and other revenues for the year . . . . . . . . . . . . . . . . Consumer loans outstanding . . . . . . At December 31, Percentage Increase (Decrease) 2001 234 2000 213 1999 195 1998 160 740,457 646,084 551,536 406,146 2001/2000 2000/1999 9.9% 14.6 9.2% 17.1 $ 591,000 $ 475,162 $354,074 $272,194 211,190 130,758 932,948 279,777 135,000 108,557 718,719 354,891 120,876 60,169 535,119 290,579 96,496 55,070 423,760 194,456 $1,212,725 $1,073,610 $825,698 $618,216 1.23% 2.73% 2.24% 2.16% $ 136,709 $ 305,081 $ 112,043 $ 233,393 $ 86,665 $192,931 $ 53,482 $108,213 24.4 56.4 20.5 29.8 (21.2) 13.0 (54.9) 22.0 30.7 34.2 11.7 80.4 34.3 22.1 30.0 21.9 29.3 21.0 B O R R O W I N G S – Borrowings totaled $3 billion at December 31, 2001, down $161.2 million from year-end 2000. The decrease was tain anniversary dates and quarterly thereafter until maturity. If called, the FHLB will provide replacement funding at the then prevailing primarily due to high prepayments on the residential and securities market rate of interest for the remaining term-to-maturity of the available for sale portfolios and increased deposit funding which reduces advances, subject to standard terms and conditions. The weighted- reliance on borrowings. See Note 11 and 12 of Notes to Consolidated average rate on borrowings decreased to 4.85% at December 31, 2001, Financial Statements for detailed information on TCF’s borrowings. from 6.23% at December 31, 2000, due to general decreases in inter- Included in long-term borrowings at December 31, 2001, are $1.3 est rates. At December 31, 2001, borrowings with a maturity of one billion of fixed-rate FHLB advances which are callable at par on cer- year or less totaled $795.5 million. 39 TCF does not have any unconsolidated subsidiaries, partnerships, special purpose entities or other forms of off-balance-sheet borrow- ings. See Note 19 of Notes to Consolidated Financial Statements for information relating to off-balance-sheet instruments. C O N T R A C T U A L O B L I G A T I O N S A N D C O M M E R C I A L C O M M I T M E N T S – As disclosed in the Notes to Consolidated Financial Statements, TCF has certain obligations and commitments to make future payments under contracts. At December 31, 2001, the aggregate contractual obligations (excluding bank deposits) and commercial commitments are as follows: Contractual Obligations ( D o l l a r s i n t h o u s a n d s ) Total borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual rental commitments under non-cancellable operating leases . . . . . . . . . . . . . . . Other Commercial Commitments ( D o l l a r s i n t h o u s a n d s ) Commitments to lend . . . . . . . . . . . . . . . . . . . . . . . . . Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . Payments Due by Period Total $3,023,025 Less than 1 year $ 719,859 1-3 Years $1,577,204 118,048 16,649 29,067 $3,141,073 $ 736,508 $1,606,271 4-5 Years $303,462 23,898 $327,360 Amount of Commitment – Expiration by Period Less than 1 year $1,409,771 11,070 1-3 Years $ 125,237 1,260 4-5 Years $ 10,483 418 Total $1,550,207 12,748 After 5 Years $422,500 48,434 $470,934 After 5 Years $ 4,716 – $1,562,955 $1,420,841 $ 126,497 $ 10,901 $ 4,716 S T O C K H O L D E R S ’ E Q U I T Y – Stockholders’ equity at December 31, 2001 was $917 million, or 8.1% of total assets, up from $910.2 M A R K E T R I S K – I N T E R E S T - R A T E R I S K – TCF’s results of operations are dependent to a large degree on its net interest income million, or 8.1% of total assets, at December 31, 2000. The increase and the Company’s ability to manage its interest-rate risk. Although in stockholders’ equity is primarily due to net income of $207.3 mil- TCF manages other risks, such as credit and liquidity risk, in the nor- lion for the year ended December 31, 2001, partially offset by the mal course of its business, the Company considers interest-rate risk repurchase of 3.7 million shares of TCF’s common stock at a cost of to be its most significant market risk. TCF, like most financial insti- $148 million and the payment of $77.5 million in dividends on com- tutions, has a material interest-rate risk exposure to changes in both mon stock. Since January 1, 1998, the Company has repurchased 18.6 short-term and long-term interest rates as well as variable index inter- million shares of TCF’s common stock at an average cost of $29.04 est rates (e.g., prime). Since TCF does not hold a trading portfolio, per share. At December 31, 2001, average total equity to average assets the Company is not exposed to market risk from trading activities. was 7.78% compared to 7.58% at December 31, 2000. Dividends Like most financial institutions, TCF’s interest income and cost paid to common shareholders on a per share basis totaled $1.00 in of funds are significantly affected by general economic conditions 2001, an increase of 21.2% from $.825 in 2000. TCF’s dividend and by policies of regulatory authorities. The mismatch between matu- payout ratio was 37.04% in 2001 and 35.11% in 2000. The rities and interest-rate sensitivities of assets and liabilities results in Company’s primary funding sources for common dividends are div- interest-rate risk. TCF’s Asset/Liability Management Committee idends received from its subsidiary banks. At December 31, 2001, manages TCF’s interest-rate risk based on interest rate expectations TCF and its bank subsidiaries exceeded their regulatory capital and other factors. The principal objective of TCF’s asset/liability requirements and are considered “well-capitalized” under guidelines management activities is to provide maximum levels of net interest established by the Federal Reserve Board and the Office of the income while maintaining acceptable levels of interest-rate risk and Comptroller of the Currency pursuant to the Federal Deposit liquidity risk and facilitating the funding needs of the Company. Insurance Corporation Improvement Act of 1991. See Note 14 of Although the measure is subject to a number of assumptions and Notes to Consolidated Financial Statements. TCF does not have any is only one of a number of measurements, management believes the trust preferred securities or other quasi-equity instruments. interest-rate gap (difference between interest-earning assets and TCF has used stock options as a form of employee compensation interest-bearing liabilities repricing within a given period) is an only to a limited extent. At December 31, 2001, the amount of incen- important indication of TCF’s exposure to interest-rate risk and the tive stock options outstanding was .48% of total shares outstanding. related volatility of net interest income in a changing interest rate 40 environment. In addition to the interest-rate gap analysis, manage- tionships. In addition, TCF’s interest-rate risk will increase during ment also utilizes a simulation model to measure and manage TCF’s periods of rising interest rates due to slower prepayments on loans interest-rate risk, relative to a base case scenario. and mortgage-backed securities. TCF’s one-year adjusted interest- The amounts in the maturity/rate sensitivity table below repre- rate gap was a positive $241.8 million, or 2% of total assets, at sent management’s estimates and assumptions. The amounts could December 31, 2001, compared with a negative $215.1 million, or be significantly affected by external factors such as prepayment rates (2)% of total assets, at December 31, 2000. A positive interest-rate other than those assumed, early withdrawals of deposits, changes in gap position exists when the amount of interest-earning assets matur- the correlation of various interest-bearing instruments, competi- ing or repricing within a particular time period exceeds the amount tion, a general rise or decline in interest rates, and the possibility that of interest-bearing liabilities maturing or repricing. The change in the FHLB will exercise its option to call certain of TCF’s longer-term the one-year gap was primarily due to an increase in projected pre- FHLB advances. Decisions by management to purchase or sell assets, payment speeds on residential loans and mortgage-backed securities, or retire debt could change the maturity/repricing and spread rela- partially offset by the impact of interest-rate floors on consumer loans. The following table summarizes TCF’s interest-rate gap position at December 31, 2001: ( 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) . . . . . . . . . . . . Savings deposits(2). . . . . . . . . . . . . . Money market deposits(2) . . . . . . . . Certificate deposits . . . . . . . . . . . . . Short-term borrowings(3) . . . . . . . . Long-term borrowings(3) . . . . . . . . Interest-earning assets over (under) interest-bearing liabilities . . . . . . . . Cumulative gap . . . . . . . . . . . . . . . . . . Cumulative gap as a percentage of total assets: At December 31, 2001. . . . . . . . . . . At December 31, 2000 . . . . . . . . . . Maturity/Rate Sensitivity Within 30 Days 30 Days to 6 Months 6 Months to 1 Year 1 to 3 Years 3+ Years Total $ 244,993 $ 178,839 $ 10,909 $ 8,353 $ 8,515 $ 451,609 41,841 544,123 40,136 751,775 915 185,030 542,199 164,452 232,600 131,181 192,732 565,312 169,821 157,628 – 376,931 1,223,660 416,254 1,334,890 – 788,127 1,480,457 166,074 454,821 23,846 1,584,661 4,355,751 956,737 2,931,714 155,942 1,623,783 1,434,301 1,096,402 3,360,088 2,921,840 10,436,414 209,041 185,820 560,983 392,137 719,859 14,325 2,082,165 – 124,823 – 923,630 – 37,493 1,085,946 – 131,318 – 578,372 – 34,897 744,587 – 2,327,824 371,374 – 365,007 – 1,248,020 1,984,401 477,481 390,051 61,098 – 968,430 4,224,884 2,536,865 1,290,816 951,034 2,320,244 719,859 2,303,165 10,121,983 $ (458,382) $ (458,382) $ 348,355 $ (110,027) $ 351,815 $ 241,788 $1,375,687 $1,617,475 $(1,303,044) $ 314,431 $ 314,431 $ 314,431 (4)% 6 % (1)% (2)% 2 % (2)% 14% 9% 3% 2% 3% 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. 8% of checking deposits, 34% of savings deposits, and 59% of money market deposits are included in amounts repricing within one year. 29% of savings deposits are included in the “1 to 3 Years” category. All remaining checking, savings and money market deposits are assumed to mature in the “3+ Years” category. While management believes that these assumptions are well based, no assurance can be given that amounts on deposit in checking, savings, and money market accounts will not significantly change or be repriced in the event of a general change in interest rates. At December 31, 2000, 8% of checking deposits, 34% of savings deposits, and 53% of money market deposits were included in amounts repricing within one year. 29% of savings deposits were included in the “1 to 3 Years” category. (3)Includes $1.5 billion of callable long-term borrowings. Based upon market interest rates at December 31, 2001, $5.5 million and $200 million of these callable long-term borrowings are forecasted to be called prior to maturity and are included in amounts repricing within one year and “1 to 3 Years”, respectively, which corresponds to their next call date, instead of in the “3+ Years” category, which corresponds to their maturity date. 41 As previously noted, TCF also utilizes simulation models to esti- Upon adoption of SFAS No. 142, TCF is required to evaluate its mate the near-term effects (next twelve months) of changing interest existing intangible assets and goodwill that were acquired in prior pur- rates on its net interest income. Net interest income simulation involves chase business combinations, and make any necessary reclassifications forecasting net interest income under a variety of scenarios, includ- of intangible assets in order to conform with the new criteria of SFAS ing the level of interest rates, the shape of the yield curve, and spreads No. 141 for recognition apart from goodwill. Upon adoption of SFAS between market interest rates. At December 31, 2001, net interest No. 142, the Company is required to reassess the useful lives and resid- income is estimated to increase by 3.1%, compared with the base case ual values of all intangible assets acquired in purchase business combi- scenario, over the next twelve months if interest rates were to sustain nations, and make any necessary amortization period adjustments by an immediate increase of 200 basis points. At December 31, 2000, the end of the first quarter of 2002. In addition, to the extent an intan- net interest income was estimated to increase by .4%, compared with gible asset is identified as having an indefinite useful life, as in the case the base case scenario, assuming a similar change in interest rates. If of goodwill, the Company will be required to test the intangible asset interest rates were to decline by 200 basis points, net interest income for impairment in accordance with the provisions of SFAS No. 142 is estimated to decrease by 6.2%, compared with the base case sce- within the first quarter of 2002. Any impairment loss will be measured nario, over the next twelve months. Simulations at December 31, 2000 as of the date of adoption and recognized as a cumulative effect of a projected a decrease in net interest income of 3.9%, compared with change in accounting principle during the first quarter of 2002. the base case scenario, assuming a similar change in interest rates. As of the date of adoption, the Company had unamortized goodwill Management exercises its best judgment in making assumptions in the amount of $145.5 million and unamortized identifiable intan- regarding loan prepayments, early deposit withdrawals, and other non- gible assets (deposit base intangibles) in the amount of $9.2 million, all controllable events in estimating TCF’s exposure to changes in inter- of which will be subject to the transition provisions of SFAS Nos. 141 est rates. These assumptions are inherently uncertain and, as a result, and 142. Amortization expense related to goodwill was $7.8 million the simulation models cannot precisely estimate net interest income or ($7.6 million after-tax, or 10 cents per common diluted share) and $7.7 precisely predict the impact of a change in interest rates on net inter- million ($7.5 million after-tax, or 9 cents per common diluted share) est income. Actual results will differ from simulated results due to the for the year ended December 31, 2001 and December 31, 2000, respec- timing, magnitude and frequency of interest rate changes and changes tively. Management finalized its study of the effects of SFAS No. 142 and in market conditions and management strategies, among other factors. concluded that goodwill is not impaired as of January 1, 2002. R E C E N T A C C O U N T I N G D E V E L O P M E N T S – Effective July 1, 2001, TCF adopted Statement of Financial Accounting Standards F O U R T H Q U A R T E R S U M M A R Y – In the fourth quarter of 2001, TCF had net income of $54.2 million, up 3.9% from $52.2 mil- (“SFAS”) No. 141, “Business Combinations,” which requires that the lion in the fourth quarter of 2000. Diluted earnings per common purchase method of accounting be used for all business combinations share was 72 cents for the fourth quarter of 2001, compared to 66 initiated after June 30, 2001. SFAS No. 141 also specifies criteria cents for the fourth quarter of 2000. The 2000 fourth quarter results intangible assets acquired in a purchase method business combina- included a $5.5 million after-tax gain on sales of three branches, or tion must meet to be recognized and reported apart from goodwill. 7 cents per diluted common share. TCF opened 8 new branches in Effective January 1, 2002, the Company adopted SFAS No. 142, the fourth quarter of 2001, of which 3 were supermarket branches. “Goodwill and Other Intangible Assets,” which requires that good- Net interest income was $125.7 million and $110.8 million for will and intangible assets with indefinite useful lives no longer be the quarter ended December 31, 2001 and 2000, respectively. The amortized, but instead tested for impairment at least annually in net interest margin was 4.74% and 4.33% for the fourth quarter of accordance with the provisions of SFAS No. 142. 2001 and 2000, respectively. TCF net interest income improved by $10.6 million, or 9.6% over the fourth quarter of 2000 due to vol- ume changes and $4.3 million due to rate changes. 42 TCF provided $7 million for credit losses in the fourth quarter Forward-Looking Information of 2001, compared with $4.7 million in the fourth quarter of 2000. Net loan and lease charge-offs were $5.6 million, or .27% of aver- This Annual Report and other reports issued by the Company, includ- age loans and leases outstanding, compared with $2 million, or .10% ing reports filed with the Securities and Exchange Commission, may of average loans and leases outstanding during the same 2000 period. contain “forward-looking” statements that deal with future results, plans The increase in the provision and net loan and lease charge-offs from or performance. In addition, TCF’s management may make such state- 2000 reflects the impact of the growth in the commercial loan and ments orally to the media, or to securities analysts, investors or others. leasing and equipment finance portfolios coupled with increased Forward-looking statements deal with matters that do not relate strictly charge-offs in the leasing and equipment finance portfolio. to historical facts. TCF’s future results may differ materially from his- Non-interest income, excluding gains on sales of securities avail- torical performance and forward-looking statements about TCF’s able for sale and branches, increased $9.3 million, or 10.7%, during expected financial results or other plans are subject to a number of risks the fourth quarter of 2001 to $95.6 million. The increase was pri- and uncertainties. These include but are not limited to possible leg- marily due to increased fees and service charges and leasing revenues, islative changes and adverse economic, business and competitive devel- reflecting TCF’s expanding retail banking and lease operations and opments such as shrinking interest margins; deposit outflows; reduced customer base. demand for financial services and loan and lease products; changes in Non-interest expense increased $14.8 million, or 12.7%, in the accounting policies or guidelines, or monetary and fiscal policies of fourth quarter of 2001 to $131.4 million. The increases were pri- the federal government; changes in credit and other risks posed by TCF’s marily due to costs associated with expanded retail banking and leas- loan, lease and investment portfolios; technological, computer-related ing activities. or operational difficulties; adverse changes in securities markets; results In the fourth quarter of 2001, the effective income tax rate was of litigation or other significant uncertainties. The terrorist attacks on reduced to 35.36% of income before income tax expense for the September 11, 2001 have had an adverse impact on the United States’ quarter due to the favorable conclusion of prior year taxes. economy and could have a continuing adverse impact on the econ- Legislative, Legal and Regulatory Developments Federal and state legislation imposes numerous legal and regulatory requirements on financial institutions. Future legislative or regulatory change, or changes in enforcement practices or court rulings, may have a dramatic and potentially adverse impact on TCF and its bank and other subsidiaries. omy and the Company’s business, most likely by reducing capital and consumer spending. Such developments could result in decreased demand for TCF’s products and services and increased credit losses. 43 Consolidated Statements of Financial Condition ( 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: Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . Liabilities and Stockholders’ Equity Deposits: Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 2000 $ 386,700 $ 392,007 155,942 1,584,661 451,609 2,509,333 1,622,461 422,381 956,737 5,510,912 2,733,290 8,244,202 (75,028) 8,169,174 215,237 145,462 9,244 240,686 134,059 1,403,888 227,779 2,234,134 1,371,841 410,422 856,471 4,872,868 3,673,831 8,546,699 (66,669) 8,480,030 197,525 153,239 11,183 197,752 $11,358,715 $11,197,462 $ 2,536,865 $ 2,203,943 1,290,816 951,033 4,778,714 2,320,244 7,098,958 719,859 2,303,166 3,023,025 319,699 1,045,388 836,888 4,086,219 2,805,605 6,891,824 898,695 2,285,550 3,184,245 211,173 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,441,682 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; 92,719,544 and 92,755,659 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings, subject to certain restrictions . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock at cost, 15,787,716 and 12,466,626 shares, and other . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes to consolidated financial statements. – 927 520,940 965,454 6,229 (576,517) 917,033 – 928 508,682 835,605 (9,868) (425,127) 910,220 $11,358,715 $11,197,462 44 Consolidated Statements of Income ( 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 ) 2001 2000 1999 Year Ended December 31, Interest income: Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $681,110 112,267 24,266 8,966 826,609 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 and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,727 182,660 345,387 481,222 20,878 460,344 194,321 87,134 45,730 12,042 11,535 16,545 Fees and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367,307 Gains on sales of branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains on sales of securities available for sale . . . . . . . . . . . . . . . . Gains on sales of loan servicing . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . Title insurance revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . Non-interest expense: Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advertising and promotions . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income tax expense . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,316 863 – – – 4,179 371,486 267,716 78,774 20,909 7,777 126,820 501,996 329,834 122,512 $700,325 99,185 17,130 10,041 826,681 197,094 191,051 388,145 438,536 14,772 423,764 166,240 78,101 38,442 10,519 12,266 17,895 323,463 12,813 – – – – 12,813 336,276 239,544 74,938 19,181 7,706 115,833 457,202 302,838 116,593 $618,291 111,032 13,367 9,411 752,101 175,495 152,393 327,888 424,213 16,923 407,290 138,198 67,144 28,505 12,770 14,849 12,854 274,320 12,160 3,194 3,076 5,522 15,421 39,373 313,693 239,053 73,613 16,981 7,713 110,532 447,892 273,091 107,052 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $207,322 $186,245 $166,039 Net income per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared per common share . . . . . . . . . . . $ 2.73 $ 2.70 $ 1.00 $ 2.37 $ 2.35 $ .825 $ 2.01 $ 2.00 $ .725 See accompanying notes to consolidated financial statements. 45 Consolidated Statements of Stockholders’ Equity ( D o l l a r s i n t h o u s a n d s ) Balance, December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase of 4,091,611 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 21,050 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options, 550,661 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares held in trust for deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan payments by deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 37,259 shares to effect purchase acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase of 3,243,800 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 1,319,896 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options, 283,036 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares held in trust for deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of TCF stock to fund the Employees Stock Purchase Plan, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan to deferred compensation plans, net of payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase of 3,670,107 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 262,340 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options, 86,677 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares held in trust for deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of TCF stock to fund the Employees Stock Purchase Plan, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan to deferred compensation plans, net of payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes to consolidated financial statements. 46 Number of Common Shares Issued 92,912,246 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock and Other Total $ 929 $ 507,534 $ 610,177 $ 7,591 $ (280,729) $ 845,502 – – – – – – (108,041) – – – – 92,804,205 – – – – – – – (48,546) – – – – – – – – – – – – (1) – – – – 928 – – – – – – – – – – – – – – 92,755,659 928 – – – – – – (36,115) – – – – – – – – – – – (1) – – – – – – – – – – (30) (2,569) – (4,464) 326 – 166,039 – 166,039 (60,755) – – – – – – – – (54,973) (54,973) – – – – – – – – – – – – (106,106) (30) 392 9,543 15,044 (326) 1,390 166,039 (54,973) 111,066 (60,755) (106,106) (60) (2,178) 9,543 10,580 – 1,390 500,797 715,461 (47,382) (360,822) 808,982 – – – – 417 – (7,716) (1,262) – (81) 1 15,842 684 – 508,682 – – – – – 3,057 (1,484) 15 885 9,744 41 – 186,245 – 186,245 (66,101) – – – – – – – – – – – 37,514 37,514 – – – – – – – – – – – 835,605 (9,868) 207,322 – 207,322 (77,473) – – – – – – – – – 16,097 16,097 – – – – – – – – – – – – – 963 (73,824) 7,716 386 9,375 7,337 – (15,842) – (416) (425,127) – – – – (148,043) (3,057) 646 11,049 2,405 (9,744) – (4,646) 186,245 37,514 223,759 (66,101) 1,380 (73,824) – (876) 9,375 7,256 1 – 684 (416) 910,220 207,322 16,097 223,419 (77,473) (148,043) – (839) 11,064 3,290 – 41 (4,646) 92,719,544 $927 $520,940 $965,454 $6,229 $(576,517) $917,033 47 Consolidated 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 (used) 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 accrued expenses and other liabilities . . . . . . . . . . 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 . . . . . . . . . . . . . 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 decrease in federal funds sold . . . . . . . . . . . . . . . . . . . . Net increase in Federal Home Loan Bank stock . . . . . . . . . . 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 (decrease) in short-term borrowings . . . . . . . . . Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . Payments of dividends on common stock . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided (used) 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, 2001 2000 1999 $ 207,322 $ 186,245 $ 166,039 42,412 9,716 20,878 2,135,218 12,469 30,369 10,001 14,772 611,123 9,885 29,031 10,689 16,923 586,859 10,144 (2,375,396) (649,750) (457,515) 91,612 (4,393) 5,550 (61,934) 145,388 3,352,341 (2,719,682) (449,231) (559) 33,645 398,316 (587,324) (18,927) (26,958) (64,313) (82,692) 237,180 (178,836) 677,334 (579,529) (148,043) (77,473) 1,364 (68,003) (5,307) 392,007 (1,854) (12,813) 4,125 15,858 202,103 2,162,839 (2,320,239) (579,595) 19,987 – 176,905 (314) – (4,671) (82,097) (48,329) (675,514) 402,731 (168,287) 954,252 (619,250) (73,824) (66,101) 6,635 436,156 (37,255) 429,262 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 (11,129) (104,404) 18,852 (928,930) (13,649) 674,431 1,566,253 (1,529,301) (106,106) (60,755) 6,548 537,421 8,785 420,477 Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . $ 386,700 $ 392,007 $ 429,262 Supplemental disclosures of cash flow information: Cash paid for: Interest on deposits and borrowings . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 352,903 $ 24,128 $ 377,430 $ 89,852 $ 302,268 $ 78,125 Transfer of loans and leases to other real estate owned and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,447 $ 16,580 $ 32,074 See accompanying notes to consolidated financial statements. 48 Notes to Consolidated Financial Statements 1 Summary of Significant Accounting Policies result of ongoing review of larger individual loans and leases, the B A S I S O F P R E S E N T A T I O N – The consolidated financial state- ments include the accounts of TCF Financial Corporation and its overall risk characteristics of the portfolios, changes in the character or size of the portfolios, the level of impaired loans and non- performing assets, historical net charge-off amounts, geographic wholly owned subsidiaries. TCF Financial Corporation (“TCF” or the location, prevailing economic conditions and other relevant factors. “Company”) is a national financial holding company engaged pri- Impaired loans include all non-accrual and restructured commer- marily in community banking, mortgage banking and leasing and cial real estate and commercial business loans and equipment financ- equipment finance through its wholly owned subsidiaries, TCF National ings. Consumer and residential real estate loans and lease financings Bank and TCF National Bank Colorado (“TCF Colorado”). TCF are excluded from the definition of an impaired loan. Loan impair- National Bank and TCF Colorado own leasing and equipment finance, ment is measured as the present value of expected future cash flows mortgage banking, discount brokerage, investment and insurance sales, discounted at the loan’s initial effective interest rate or the fair value and real estate investment trusts, (“REIT”) subsidiaries. These sub- of the collateral for collateral-dependent loans. Residential loans, sidiaries are consolidated with TCF National Bank and TCF Colorado consumer loans, and smaller-balance commercial loans and lease and are therefore included in the consolidated financial statements and equipment financings are segregated by loan type and sub-type, of TCF Financial Corporation. All significant intercompany accounts and are evaluated on a group basis. Loans and leases are charged off and transactions have been eliminated in consolidation. to the extent they are deemed to be uncollectible. The amount of the Certain reclassifications have been made to prior years’ financial allowance for loan and lease losses is highly dependent upon man- statements to conform to the current year presentation. agement’s estimates of variables affecting valuation, appraisals of col- For Consolidated Statements of Cash Flows purposes, cash and lateral, evaluations of performance and status, and the amounts and cash equivalents include cash and due from banks. timing of future cash flows expected to be received on impaired loans. The preparation of financial statements in conformity with gen- Such estimates, appraisals, evaluations and cash flows may be subject erally accepted accounting principles requires management to make to frequent adjustments due to changing economic prospects of bor- estimates and assumptions that affect the reported amounts of assets rowers, lessees or properties. These estimates are reviewed periodi- and liabilities and disclosure of contingent assets and liabilities at the cally and adjustments, if necessary, are recorded in the provision for date of the financial statements and the reported amounts of rev- credit losses in the periods in which they become known. enues and expenses during the reporting period. Actual results could differ from those estimates. Critical Accounting Policies M O R T G A G E S E R V I C I N G R I G H T S – Mortgage servicing rights are capitalized and amortized in proportion to, and over the period of, estimated net servicing income. TCF periodically evaluates its Critical accounting policies are dependent on estimates that are par- capitalized mortgage servicing rights for impairment. Loan type and ticularly susceptible to significant change include the determination note rate are the predominant risk characteristics of the underlying of the allowance for loan and lease losses, mortgage servicing rights loans used to stratify capitalized mortgage servicing rights for pur- and income taxes. The following have been identified as “Critical poses of measuring impairment. Any impairment is recognized Accounting Policies.” through a valuation allowance. 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 – The allowance for loan and lease losses is maintained at a level believed to I N C O M E T A X E S – Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and lia- be appropriate by management to provide for probable loan and lease bilities are recognized for the future tax consequences attributable to losses inherent in the portfolio as of the balance sheet date, includ- differences between the financial statement carrying amounts of exist- ing known or anticipated problem loans and leases, as well as for loans ing assets and liabilities and their respective tax bases. Deferred tax and leases which are not currently known to require specific assets and liabilities are measured using enacted tax rates expected to allowances. Management’s judgment as to the amount of the apply to taxable income in the years in which those temporary dif- allowance, including the allocated and unallocated elements, is a ferences are expected to be recovered or settled. The effect on deferred 49 tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. L O A N S A N D L E A S E S – Net fees and costs associated with origi- nating and acquiring loans and leases are deferred and amortized The determination of current and deferred income taxes is based over the lives of the assets. Discounts and premiums on loans pur- on complex analyses of many factors including interpretation of chased, net deferred fees and costs, unearned discounts and finance Federal and state income tax laws, the difference between tax and charges, and unearned lease income are amortized using methods financial reporting basis of assets and liabilities (temporary differ- which approximate a level yield over the estimated remaining lives of ences), estimates of amounts due or owed such as the timing of rever- the loans and leases. sals of temporary differences and current financial accounting Lease financings include direct financing and sales-type leases as standards. Actual results could differ significantly from the estimates well as a leveraged lease. Leases that transfer substantially all of the and interpretations used in determining the current and deferred benefits and risks of equipment ownership to the lessee are classified income tax liabilities. Other Significant Accounting Policies as direct financing or sales-type leases and are included in loans and leases. Direct financing and sales-type leases are carried at the com- bined present value of the future minimum lease payments and the I N V E S T M E N T S – Investments are carried at cost, adjusted for amortization of premiums or accretion of discounts using methods lease residual value. The lease residual value represents the estimated fair value of the leased equipment at the termination of the lease. which approximate a level yield. 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 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 component of stock- holders’ 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 secu- rities available for sale that are considered other than temporary are recorded in noninterest income as a loss on securities available for sale. Lease residual values are reviewed on an ongoing basis and any down- ward revisions are recorded in the periods in which they become known. Interest income on direct financing and sales-type leases is recognized using methods which approximate a level yield over the term of the leases. Sales-type leases generate dealer profit which is rec- ognized at lease inception by recording lease revenue net of the lease cost. Lease revenue consists of the present value of the future mini- mum lease payments discounted at the rate implicit in the lease. Lease cost consists of the leased equipment’s book value, less the present value of its residual. The investment in a leveraged lease is the sum of all lease payments (less nonrecourse debt payments) plus estimated L O A N S H E L D F O R S A L E – Loans held for sale include resi- dential mortgage and education loans. Residential mortgage loans residual values, less unearned income. Income from the leveraged lease is recognized using a method which approximates a level yield held for sale are carried at the lower of cost or market as adjusted over the term of the lease based on the unrecovered equity investment. for the effects of fair value hedges using quoted market prices. See Loans and leases, including loans that are considered to be Note 18 for additional information concerning derivative instru- impaired, are reviewed regularly by management and are placed on ments and hedging activities. Education loans held for sale are car- non-accrual status when the collection of interest or principal is 90 ried at the lower of cost or market. Net fees and costs associated days or more past due (150 days or more past due for loans secured with originating and acquiring loans held for sale are deferred and by residential real estate), unless the loan or lease is adequately secured are included in the basis for determining the gain or loss on sales and in the process of collection. When a loan or lease is placed on of loans held for sale. Gains on sales are recorded at the settlement non-accrual status, unless collection of all principal and interest is date and cost is determined on a specific identification basis. considered to be assured, uncollected interest accrued in prior years is charged off against the allowance for loan and lease losses. Interest accrued in the current year is reversed. For those non-accrual leases that have been funded on a non-recourse basis by third-party finan- cial institutions, the related debt is also placed on non-accrual sta- tus. Interest payments received on non-accrual loans and leases are generally applied to principal unless the remaining principal balance has been determined to be fully collectible. 50 P R E M I S E S A N D E Q U I P M E N T – Premises and equipment are carried at cost and are depreciated or amortized on a straight-line which requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead tested for impairment annually. basis over their estimated useful lives. O T H E R R E A L E S T A T E O W N E D – Other real estate owned is recorded at the lower of cost or fair value minus estimated costs to D E R I V A T I V E F I N A N C I A L I N S T R U M E N T S – TCF utilizes derivative financial instruments to meet the ongoing credit needs of its customers and in order to manage the market exposure of its sell at the date of transfer to other real estate owned. If the fair value residential loans held for sale and its commitments to extend credit of an asset minus the estimated costs to sell should decline to less than for residential loans. Derivative financial instruments include com- the carrying amount of the asset, the deficiency is recognized in the mitments to extend credit and forward mortgage loan sales commit- period in which it becomes known and is included in other non- ments. TCF does not use interest rate contracts (e.g. swaps, caps, interest expense. I N T A N G I B L E A S S E T S – Goodwill resulting from acquisitions is amortized over 20 to 25 years on a straight-line basis. Deposit base intangibles are amortized over 10 years on an accelerated basis. The Company reviews the recoverability of the carrying values of these assets whenever an event occurs indicating that they may be impaired. On January 1, 2002, TCF adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” floors) or other derivatives to manage interest rate risk and has none of these instruments outstanding. See Notes 18 and 19 for additional information concerning these derivative financial instruments. 2 Cash and Due from Banks At December 31, 2001, TCF was required by Federal Reserve Board (“FRB”) regulations to maintain reserve balances of $39 million in cash on hand or at various Federal Reserve Banks. 3 Investments 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 ) Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Reserve Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 $131,181 23,847 914 $155,942 2000 $110,441 23,286 332 $134,059 The carrying value, which approximates fair value, and yield of investments at December 31, 2001, 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(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Balance represents FRB and Federal Home Loan Bank (“FHLB”) stock, required regulatory investments. Carrying Value 914 155,028 $ $ 155,942 Yield 2.64% 4.17 4.16 51 4 Securities Available for Sale Securities available for sale consist of the following: 2001 ( D o l l a r s i n t h o u s a n d s ) Mortgage-backed securities: Federal agencies. . . . . . . . . . Private issuer and collateralized mortgage obligations . . . . U.S. Government and other marketable securities . . . . . . Gross Amortized Unrealized Unrealized Losses Gains Gross Cost At December 31, Fair Value Amortized Cost 2000 Gross Unrealized Gains Gross Unrealized Losses Fair Value $1,547,374 $11,691 $ (979) $1,558,086 $1,380,196 $2,659 $(17,235) $1,365,620 26,828 650 90 – (993) 25,925 38,765 112 (1,159) 37,718 – 650 550 – – 550 $1,574,852 $11,781 $(1,972) $1,584,661 $1,419,511 $2,771 $(18,394) $1,403,888 Weighted-average yield . . . . . . . 6.55% 6.63% A gross gain of $863,000 was recognized on sales of securities available for sale during 2001. There were no sales of securities available for sale in 2000, while a gross gain of $4.7 million and a gross loss of $1.5 million were recognized on sales of securities available for sale during 1999. Mortgage-backed securities aggregating $1.1 billion were pledged as collateral to secure certain deposits and borrowings at December 31, 2001. See Notes 11 and 12 for additional information regarding securities pledged as collateral to secure certain borrowings. 5 Loans Held for Sale Loans held for sale consist of the following: ( I n t h o u s a n d s ) Residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Education loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 $286,552 165,057 $451,609 2000 $ 74,545 153,234 $227,779 52 6 Loans and Leases Loans and leases consist of the following: ( D o l l a r s i n t h o u s a n d s ) Consumer: Home equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other secured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial: Commercial real estate: Permanent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance: Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease financings: Direct financing leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales-type leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease residuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned income and deferred lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in leveraged lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consumer, commercial and leasing and equipment finance . . . . . . . . . . . . . Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 2000 Percentage Change $2,443,788 $2,152,147 43,433 22,112 56,812 25,175 2,509,333 2,234,134 1,444,484 177,977 1,622,461 422,381 2,044,842 1,193,469 178,372 1,371,841 410,422 1,782,263 271,398 207,059 691,899 36,272 33,860 (94,300) 17,608 685,339 956,737 658,678 37,645 30,426 (94,506) 17,169 649,412 856,471 5,510,912 2,733,290 $8,244,202 4,872,868 3,673,831 $8,546,699 13.6% (23.5) (12.2) 12.3 21.0 (0.2) 18.3 2.9 14.7 31.1 5.0 (3.6) 11.3 (0.2) 2.6 5.5 11.7 13.1 (25.6) (3.5) 53 At December 31, 2001 and 2000, the recorded investment in loans increased loans outstanding by $1.6 million. All loans outside direc- that were considered to be impaired was $18.8 million and $6.8 mil- tors and their related interests were made in the ordinary course of lion, respectively. The related allowance for loan losses at those dates business on normal credit terms, including interest rates and col- was $5 million and $1.3 million, respectively. All of the impaired loans lateral, as those prevailing at the time for comparable transactions were on non-accrual status. The average recorded investment in with unrelated persons. The aggregate amount of loans to executive impaired loans during the year ended December 31, 2001, 2000 and officers of TCF was $9.1 million and $5.2 million at December 31, 1999 was $9.9 million, $4.5 million and $8.1 million, respectively. 2001 and 2000, respectively. Included in these amounts were loans For the year ended December 31, 2001, 2000 and 1999, TCF rec- made to the Executive Deferred Compensation Plan trustee on behalf ognized interest income on impaired loans of $29,000, $40,000 of the executive officers. During 2001, $6.2 million of new loans and $519,000 all of which was recognized using the cash basis method to the Executive Deferred Compensation Plan were made and repay- of income recognition. ments totaled $2.3 million. See Note 14 for additional information At December 31, 2001, 2000 and 1999, loans and leases on non- regarding loans to the deferred compensation plan. In the opinion accrual status totaled $52 million, $35.2 million and $24.1 million, of management the above mentioned loans to outside directors and respectively. Had the loans and leases performed in accordance with their related interests and executive officers do not represent more their original terms for 2001, 2000 and 1999, TCF would have than a normal credit risk of collection. recorded gross interest income of $5.4 million, $3.9 million and During 2000, TCF purchased the equity interest in a leveraged $3.6 million, respectively, for these loans and leases. Interest income lease transaction for a Boeing 767 aircraft on lease to Delta Airlines of $1.7 million, $1.6 million and $1.4 million has been recorded on in the United States. The investment in a leveraged lease represents these loans and leases for the years ended December 31, 2001, 2000 net unpaid rentals and estimated unguaranteed residual values of the and 1999, respectively. leased assets, less related unearned income. TCF has no general oblig- At December 31, 2001 and 2000, TCF had no loans outstand- ation for principal and interest on notes representing third-party ing with terms that had been modified in troubled debt restructur- participation related to the leveraged lease; such notes are recorded ings. There were no material commitments to lend additional funds as an offset against the related rental receivable. As the equity owner to customers whose loans or leases were classified as non-accrual at in the leveraged lease, TCF is taxed on total lease payments received December 31, 2001. and is entitled to tax deductions based on the cost of the leased asset The aggregate amount of loans to outside directors of TCF and and tax deductions for interest paid to third-party participants. The their related interests was $31.8 million and $27 million at December leveraged lease has renewal and purchase options by the lessee at the 31, 2001 and 2000, respectively. During 2001, $12 million of new end of the 9.75 year lease term. The aircraft is in service, the lessee loans were made, repayments totaled $8.8 million and changes in is current on the lease payments and the lease expires in 2010. This the composition of the outside directors and their related interests lease represents TCF’s only material direct exposure to the com- mercial airline industry. TCF’s net investment in a leveraged lease 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 lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net investment in leveraged lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 $ 10,134 18,056 (10,582) 17,608 (5,568) $ 12,040 2000 $ 11,066 18,056 (11,953) 17,169 (1,929) $ 15,240 54 Future minimum lease payments for direct financing and sales-type leases as of December 31, 2001 are as follows: ( I n t h o u s a n d s ) 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Allowance for Loan and Lease Losses 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Premises and Equipment Premises and equipment are summarized as follows: Payments to be Received by TCF $170,703 134,019 96,398 68,976 35,062 28,921 Payments to be Received by Other Financial Institutions $ 83,600 49,901 19,379 2,966 303 13 Total $254,303 183,920 115,777 71,942 35,365 28,934 $534,079 $156,162 $690,241 Year Ended December 31, 2001 $ 66,669 – 20,878 (16,951) 4,432 (12,519) $ 75,028 .15% .91 2000 $ 55,755 – 14,772 (9,701) 5,843 (3,858) $ 66,669 .05% .78 1999 $ 80,013 (14,793) 16,923 (34,398) 8,010 (26,388) $ 55,755 .35% .71 ( 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, 2001 $ 48,549 143,681 36,539 196,283 425,052 209,815 2000 $ 42,088 134,034 33,778 174,232 384,132 186,607 $215,237 $197,525 55 TCF leases certain premises and equipment under operating leases. Net lease expense was $20.7 million, $20.3 million and $19.6 mil- lion in 2001, 2000 and 1999, respectively. At December 31, 2001, the total annual minimum lease commitments for operating leases were as follows: ( I n t h o u s a n d s ) 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,649 15,255 13,812 12,410 11,488 48,434 $118,048 9 Mortgage Servicing Rights 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases and originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of servicing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of year, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, 2001 $ 40,086 39,139 (16,564) – (4,400) $ 58,261 2000 $ 22,614 22,798 (5,326) – – 1999 $ 21,566 6,991 (4,737) (1,037) (169) $ 40,086 $ 22,614 Year Ended December 31, 2001 $ 946 4,400 – 2000 $ 946 – – $ 5,346 $ 946 1999 $ 2,738 169 (1,961) $ 946 At December 31, 2001, 2000 and 1999, TCF was servicing real The estimated fair value of mortgage servicing rights included in estate loans for others with aggregate unpaid principal balances of the Consolidated Statements of Financial Condition at December 31, approximately $4.7 billion, $4 billion and $2.9 billion, respectively. 2001 was approximately $64.7 million. The estimated fair value of During 2000, TCF purchased the bulk servicing rights on $933 mil- capitalized mortgage servicing rights is based on estimated cash flows lion of residential mortgage loans at a cost of $13.8 million. During discounted using rates commensurate with the risks involved. 1999, TCF sold servicing rights on $344.6 million of loans serviced Assumptions regarding prepayments, defaults and interest rates are for others at a net gain of $3.1 million. No servicing rights were sold determined using available market information. during 2000 or 2001. 56 10 Deposits 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. . . . . . . . . . . . . . Savings: Non-interest bearing . . . . . . . . . Interest bearing. . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certificates At December 31, Weighted- Average Rate 2000 Amount –% $1,430,102 Weighted– Average Rate 2001 Amount –% $1,664,403 872,462 2,536,865 169,527 1,121,289 1,290,816 951,033 4,778,714 2,320,244 .20 .07 – .61 .53 1.20 .42 3.71 1.49 % of Total 23.4% 12.3 35.7 2.4 15.8 18.2 13.4 67.3 32.7 $7,098,958 100.0% Certificates had the following remaining maturities at December 31, 2001: ( 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 no brokered deposits. % of Total 20.8% 11.2 32.0 1.1 14.1 15.2 12.1 59.3 40.7 773,841 2,203,943 71,957 973,431 1,045,388 836,888 4,086,219 2,805,605 $6,891,824 100.0% Other $ 598,485 Total(1) $ 798,789 457,654 508,846 291,800 34,145 23,210 27,089 2,839 516,977 578,372 328,185 36,823 26,256 31,876 2,966 .58 .21 – 1.13 1.05 3.83 1.17 5.96 3.12 $100,000 Minimum $200,304 59,323 69,526 36,385 2,678 3,046 4,787 127 $376,176 $1,944,068 $2,320,244 57 11 Short-term Borrowings The following table sets forth selected information for short-term borrowings (borrowings with an original maturity of less than one year) for each of the years in the three year period ended December 31, 2001: ( D o l l a r s i n t h o u s a n d s ) At December 31, Federal funds purchased . . . . . . . . . . . . . Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . . . Treasury, tax and loan note payable. . . . . . Commercial paper . . . . . . . . . . . . . . . . . Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Year ended December 31, Average daily balance Federal funds purchased . . . . . . . . . . . . . Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . . . Treasury, tax and loan note payable. . . . . . Commercial paper . . . . . . . . . . . . . . . . . Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum month-end balance . . . . . . . . . . . Federal funds purchased . . . . . . . . . . . . . Securities sold under repurchase Total agreements . . . . . . . . . . . . . . . . . . . . Treasury, tax and loan note payable. . . . . . Commercial paper . . . . . . . . . . . . . . . . . Line of credit . . . . . . . . . . . . . . . . . . . . . N.A. Not Applicable 2001 2000 1999 Amount Rate Amount Rate Amount Rate $ 48,000 1.73% $ 91,000 6.49% $ – –% 669,734 125 – 2,000 $ 719,859 1.83 1.40 – 2.41 1.82 794,320 13,375 – – 6.61 5.73 – – 960,000 42,625 22,357 42,000 $ 898,695 6.58 $1,066,982 5.75 4.53 6.21 6.92 5.76 $ 120,812 3.77% $ 10,989 6.68% $ 1,977 4.81% 908,016 62,111 – 6,749 $1,097,688 4.14 3.61 – 5.57 4.08 664,015 68,631 4,843 18,824 $ 767,302 6.41 6.14 6.18 7.58 6.41 477,382 53,999 22,621 45,245 $ 601,224 $ 304,000 N.A. $ 91,000 N.A. $ 10,000 1,047,301 262,680 – 30,500 N.A. N.A. N.A. N.A. 1,070,790 250,000 19,039 79,000 N.A. N.A. N.A. N.A. 960,000 258,837 45,073 89,000 5.38 4.72 5.62 6.03 5.38 N.A. N.A. N.A. N.A. N.A. The securities underlying the repurchase agreements are book TCF Financial Corporation has a $105 million bank line of entry securities. During the borrowing period, book entry securities credit maturing in April 2002 which is unsecured and contains were delivered by appropriate entry into the counterparties’ accounts certain covenants common to such agreements with which TCF is through the Federal Reserve System. The dealers may sell, loan or in compliance. The interest rate on the line of credit is based on otherwise dispose of such securities to other parties in the normal either the prime rate or LIBOR. TCF has the option to select the course of their operations, but have agreed to resell to TCF identi- interest rate index and term for advances on the line of credit. The cal or substantially the same securities upon the maturities of the line of credit may be used for appropriate corporate purposes, agreements. At December 31, 2001, all of the securities sold under including serving as a back-up line of credit to support the redemp- repurchase agreements provided for the repurchase of identical tion of TCF’s commercial paper. securities. At December 31, 2001, $669.7 million of securities sold TCF Financial Corporation has a $50 million commercial paper under repurchase agreements with an interest rate of 1.83% maturing program which is unsecured and contains certain covenants common in 2002 were collateralized by mortgaged-backed securities having a to such programs with which TCF is in compliance. Any usage under carrying value of $689.5 million and a market value of $692 million. the commercial paper program requires an equal amount of back-up support by the bank line of credit. Commercial paper generally matures within 90 days, although it may have a term of up to 270 days. 58 12 Long-term Borrowings Long-term borrowings consist of the following: ( D o l l a r s i n t h o u s a n d s ) Securities sold under repurchase agreements. . . . . . . . . . . . Federal Home Loan Bank advances. . . . . . . . . . . . . . . . . . . Discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . Other borrowings: Senior subordinated debentures . . . . . . . . . . . . . . . At December 31, 2001 2000 Year of Maturity 2005 Amount $ 200,000 Weighted– Average Rate 6.27% 2001 2003 2004 2005 2006 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2003 – 135,000 853,000 246,000 303,000 122,500 100,000 200,000 1,959,500 – 75,600 46,458 18,462 2,684 450 12 143,666 – $2,303,166 – 5.76 5.72 6.02 5.26 5.25 6.02 4.85 5.58 – 8.01 8.00 8.33 8.50 7.68 8.53 8.06 – 5.79 Amount $ 200,000 481,537 135,000 803,000 246,000 3,000 122,500 100,000 – 1,891,037 84,529 48,369 20,897 10,114 1,355 390 109 165,763 28,750 $2,285,550 Weighted- Average Rate 6.27% 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 9.50 6.10 At December 31, 2001, $200 million of securities sold under repurchase agreements with an interest rate of 6.27% maturing in 2005 were collateralized by mortgage-backed securities having a carrying value of $213.3 million and a market value of $214.7 million. These borrowings are callable quarterly by the counterparty beginning in the third quarter of 2002. For certain equipment leases, TCF utilizes its lease rentals and underlying equipment as collateral to borrow from other financial institutions at fixed rates on a non-recourse basis. In the event of a default by the customer in non-recourse financings, the other financial institution has a first lien on the underlying leased equipment with no further recourse against TCF. On July 1, 2001, TCF exercised its right of redemption on the $28.8 million of 9.50% senior subordinated debentures at par plus accrued earnings to the date of redemption in accordance with redemption provisions of the debentures. 59 Included in FHLB advances at December 31, 2001 are $1.3 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 rate exceeded the contract rates on $5.5 million of long-term 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, 2001 were as follows (dollars in thousands): Year 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stated Maturity $ – Weighted– Average Rate –% 85,000 303,000 246,000 203,000 122,500 100,000 200,000 $1,259,500 5.65 5.49 5.92 5.55 5.16 5.92 4.78 5.49 Next Call Date $ 642,500 300,000 317,000 – – – – – Weighted- Average Rate 5.67% 5.68 4.93 – – – – – $1,259,500 5.49 FHLB advances are collateralized by residential real estate loans and FHLB stock with an aggregate carrying value of $2.5 billion at December 31, 2001. 13 Income Taxes Income tax expense consists of: ( I n t h o u s a n d s ) Year ended December 31, 2001: Current Deferred Total Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $112,288 $3,707 $115,995 6,188 329 6,517 Year ended December 31, 2000: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year ended December 31, 1999: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,476 $4,036 $122,512 $ 88,746 6,457 $ 95,203 $ 91,647 11,747 $ 103,394 $ 18,862 2,528 $ 21,390 $ 2,981 677 $ 3,658 $ $ $ $ 107,608 8,985 116,593 94,628 12,424 107,052 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: ( I n t h o u s a n d s ) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2001 $115,442 2000 $105,993 1999 $ 95,582 2,553 4,236 281 2,544 5,840 2,216 2,724 8,076 670 $122,512 $116,593 $107,052 60 The significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows: ( 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: Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan fees and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 2000 $ – $ 5,755 21,829 17,034 38,863 3,580 53,158 14,596 8,912 399 80,645 20,471 15,710 41,936 – 50,653 12,570 2,884 4,240 70,347 $(41,782) $(28,411) 14 Stockholders’ Equity R E S T R I C T E D R E T A I N E D E A R N I N G S – Retained earnings at December 31, 2001 includes approximately $134.4 million for which no provision for federal income tax has been made. This amount represents earnings appropriated to bad debt reserves and deducted for federal income tax purposes and is generally not available for pay- ment of cash dividends or other distributions to shareholders. Payments or distributions of these appropriated earnings could invoke a tax liability for TCF based on the amount of earnings removed and current tax rates. In general, TCF’s subsidiary banks may not declare or pay a div- idend to TCF in excess of 100% of their net profits for that year com- bined with their retained net profits for the preceding two calendar years without prior approval of the Office of the Comptroller of the Currency (“OCC”). Additional limitations on dividends declared or paid on, or repurchases of, TCF’s subsidiary banks’ capital stock are tied to the national banks’ regulatory capital levels. S H A R E H O L D E R R I G H T S P L A N – TCF’s preferred share pur- chase rights will become exercisable only if a person or group acquires or announces an offer to acquire 15% or more of TCF’s common stock. When exercisable, each right will entitle the holder to buy one one-hundredth of a share of a new series of junior participating pre- ferred stock at a price of $100. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either TCF’s common stock or shares in an “acquiring entity” at half of the market value. TCF’s Board of Directors (the “Board”) is generally entitled to redeem the rights at one cent per right at any time before they become exercisable. The rights will expire on June 9, 2009, if not previously redeemed or exercised. T R E A S U R Y S T O C K A N D O T H E R – 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans to deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2001 2000 $(463,394) $(325,026) (71,652) (31,688) (9,783) (61,908) (33,056) (5,137) $(576,517) $(425,127) 61 TCF purchased 3,670,107, 3,243,800 and 4,091,611 shares of $6.2 million was loaned to the plan to purchase additional shares its common stock during the years ended December 31, 2001, 2000 of TCF stock. The amount of the loan related to an individual par- and 1999, respectively. At December 31, 2001, TCF has 6.7 million ticipant is limited to what could be serviced (fully amortized over a shares remaining in its stock repurchase programs authorized by the five-year term) through dividend payments on existing and newly Board of Directors. acquired shares of TCF common stock in the participant’s account. On June 22, 2000, the Company entered into an agreement with The loans are repayable by the participants over five years and bear a third party that provides TCF with an option to purchase up to $50 interest at 6.625% to 8.00% and are secured by a pledge of stock million of TCF’s common stock under a forward share repurchase acquired through the loan, future income to the participant’s account contract. The forward transactions can be settled from time to time, and a contingent deferral commitment from each participant. These at the Company’s election, on a physical, net cash or net share basis. loans are reflected as a reduction of stockholders’ equity as required The final maturity date of the agreement is June 24, 2002. At by generally accepted accounting principles. December 31, 2001 and 2000, there were no open forward pur- During 2001, loans totaling $755,000 were made by TCF to the chases under this contract. S H A R E S H E L D I N T R U S T F O R D E F E R R E D C O M P E N S A T I O N P L A N S – TCF has deferred compensation plans that allow eligible executives, senior officers and certain other employees to defer pay- ment of up to 100% of their base salary and bonus as well as grants of restricted stock. There are no company contributions to these plans, other than payment of administrative expenses. The amounts deferred are invested in TCF stock or other publicly traded stocks and bonds. At December 31, 2001 the assets in the plans totaled $200.4 million and included $193.6 million invested in TCF common stock. The cost of TCF common stock held by TCF’s deferred compensation plans is reported separately in a manner similar to treasury stock (that is, changes in fair value are not recognized) with a corresponding deferred compensation obligation reflected in additional paid-in capital. Directors’ Deferred Compensation Plan trustee on a non-recourse 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 interest at 6.625% and are secured by the shares of TCF common stock purchases with the loan proceeds. These loans have a remaining principal balance of $721,000 at December 31, 2001, which is reflected as a reduction of stockholders’ equity as required by generally accepted accounting principles. 15 Regulatory Capital Requirements TCF is subject to various regulatory capital requirements adminis- tered by the federal banking agencies. Failure to meet minimum cap- ital requirements can initiate certain mandatory, and possibly additional discretionary, actions by the federal banking agencies that L O A N S T O D E F E R R E D C O M P E N S A T I O N P L A N S – During 1998 and 2000, loans totaling $6.4 million and $2 million, respec- could have a direct material effect on TCF’s financial statements. Under capital adequacy guidelines and the regulatory framework for tively, were made by TCF to the Executive Deferred Compensation “prompt corrective action,” TCF must meet specific capital guide- Plan trustee on a non-recourse basis to purchase shares of TCF lines that involve quantitative measures of the Company’s assets, stock- common stock for the accounts of participants. During September holders’ equity, and certain off-balance-sheet items as calculated 2001, most participant accounts were refinanced and an additional under regulatory accounting practices.. The following table sets forth TCF’s tier 1 leverage, tier 1 risk-based and total risk-based capital levels, and applicable percentages of adjusted assets, together with the excess over the minimum capital requirements: At December 31, 2 ( D o l l a r s i n t h o u s a n d s ) 2001 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $758,728 343,996 $414,732 $758,728 296,260 $462,468 $833,821 592,520 $241,301 6.62% 3.00 3.62% 10.24% 4.00 6.24% 11.26% 8.00 3.26% 2000 Percentage 6.90% 3.00 3.90% 10.66% 4.00 6.66% 11.59% 8.00 3.59% Amount $758,766 330,110 $428,656 $758,766 284,827 $473,939 $825,527 569,655 $255,872 62 At December 31, 2001, TCF and its bank subsidiaries exceeded The recognition provisions of SFAS No. 123 were applied prospec- their regulatory capital requirements and are considered “well- tively upon adoption. TCF applied the intrinsic value based method capitalized” under guidelines established by the FRB and the OCC of accounting prescribed by Accounting Principles Board (“APB”) pursuant to the Federal Deposit Insurance Corporation Improvement Opinion No. 25, “Accounting for Stock Issued to Employees,” as Act of 1991. amended, for stock-based transactions through December 31, 1999. Accordingly, no compensation expense was recognized prior to 2000 16 Stock Option and Incentive Plan for TCF’s stock option grants. TCF believes the fair value method of accounting more appro- The TCF Financial 1995 Incentive Stock Program (the “Program”) priately reflects the substance of the transaction between an entity was adopted to enable TCF to attract and retain key personnel. Under that issues stock options, or other stock-based instruments, and its the Program, no more than 5% of the shares of TCF common stock employees; that is, an entity has granted something of value to an outstanding on the date of initial shareholder approval may be employee generally in return for their continued employment and awarded. At December 31, 2001, there were 2,881,069 shares reserved services. The fair value based method is designated as the preferred for issuance under the Program, including 370,125 shares related to method of accounting by SFAS No. 123. outstanding stock options. Compensation expense for restricted stock under SFAS No. 123 Restricted stock granted to certain executive officers in 2000 will and APB Opinion No. 25 is recorded over the vesting periods, and vest only if certain earnings per share goals are achieved by 2008. totaled $11.1 million, $9.4 million and $9.5 million in 2001, 2000 Failure to achieve the goals will result in all or a portion of the shares and 1999, respectively. being forfeited. Other restricted stock grants generally vest over peri- Had compensation expense for all periods been determined based ods from three to eight years. on the fair value at the grant dates for awards under the Program con- TCF also has prior programs with options that remain outstand- sistent with the method of SFAS No. 123, TCF’s pro forma net income ing. Those options are included in the following tables. Options gen- and diluted earnings per common share would have been $164.6 mil- erally become exercisable over a period of one to 10 years from the lion and $1.98, respectively, for the year ended December 31, 1999. date of the grant and expire after 10 years. All outstanding options The fair value of each option grant is estimated on the grant date have a fixed exercise price equal to the market price of TCF common using the Black-Scholes option pricing model, with the following stock on the date of grant. A C C O U N T I N G F O R S T O C K - B A S E D C O M P E N S A T I O N – Effective January 1, 2000, TCF adopted the recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” for stock-based grants 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. weighted-average assumptions used for 1999: risk-free interest rates of 5.03%; dividend yield of 2.7%; expected lives of 7 years; and volatility of 27.0%. The weighted-average grant date fair value of options was $6.59 and $7.02 in 2000 and 1999, respectively. No options were granted in 2001. The weighted-average grant date fair value of restricted stock was $39.53, $24.60 and $25.94 in 2001, 2000 and 1999, respectively. 63 The following table reflects TCF’s stock option and restricted stock transactions under the Program since December 31, 1998: Outstanding at December 31, 1998 . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at December 31, 2000 . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at December 31, 2001. . . . . . . . . . . . . . Exercisable at December 31, 2001. . . . . . . . . . . . . . . (1) 848,899 shares vested on January 2, 2002. Stock Options Restricted Stock Exercise Price Shares 1,178,657 Range $ 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 – – 467,515 3.46-33.28 – (86,832) (10,558) – 3.46–32.19 23.56–32.19 – 370,125 – 5.33–33.28 204,127 5.33–33.28 Weighted- Average $ 17.67 25.25 11.73 32.36 – 22.27 21.81 20.25 28.32 – 23.32 – 17.47 24.73 – 24.65 22.48 Shares 1,443,734 Price Range $ 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 16.56-43.70 262,340 27.98–48.20 – (18,850) (59,179) – 27.98–48.20 16.56–40.75 2,459,411(1) The following table summarizes information about stock options outstanding at December 31, 2001: Exercise Price Range $5.33 to $20.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.01 to $25.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.01 to $30.00. . . . . . . . . . . . . . . . . . . . . . . . . . . . $30.01 to $33.28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Employee Benefit Plans Options Outstanding Options Exercisable Weighted- Average Exercise Price $ 7.83 23.59 28.91 31.50 24.65 Shares 43,325 167,250 72,050 87,500 370,125 Weighted- Average Remaining Contractual Life in Years 1.9 7.0 7.5 6.1 6.3 Weighted- Average Exercise Price $ 7.83 23.61 28.94 32.26 22.48 Shares 43,325 96,902 30,400 33,500 204,127 In addition to providing retirement income benefits, TCF provides health care benefits for eligible retired employees, and in some cases The TCF Cash Balance Pension Plan (the “Pension Plan”) is a qual- life insurance benefits (the “Postretirement Plan”). Substantially all ified defined benefit plan covering all “regular stated salary” employ- full-time employees may become eligible for health care benefits if they ees and certain part-time employees who are at least 21 years old and reach retirement age and have completed ten years of service with the have completed a year of eligibility service with TCF. TCF makes a Company, with certain exceptions. Effective January 1, 2000, TCF monthly allocation to the participant’s account based on a percentage modified the Postretirement Plan by eliminating the Company subsidy of the participant’s compensation. The percentage is based on the sum for employees not yet eligible for benefits under the Postretirement Plan. of the participant’s age and years of employment with TCF. Participants The plan provisions for full-time and retired employees then eligible are fully vested after five years of qualifying service. 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. 64 The following table sets forth the status of the Pension Plan and the Postretirement Plan at the dates indicated: ( 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . Funded status of plans: Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid (accrued) benefit cost at end of year . . . . . . . . . . . . . . . Net periodic benefit cost (credit) included the following components: Pension Plan Postretirement Plan Year Ended December 31, Year Ended December 31, 2001 2000 2001 2000 $ 32,544 $ 30,728 $ 7,609 $ 9,721 2,969 2,480 – 323 (2,263) 36,053 87,064 (25,197) (2,263) – 59,604 23,551 – (1,869) 1,678 $ 23,360 3,248 2,431 – (1,942) (1,921) 32,544 74,867 14,118 (1,921) – 87,064 54,520 – (2,926) (32,808) $ 18,786 49 547 – 2,182 (809) 9,578 – – (809) 809 – (9,578) 2,304 – 1,388 56 523 (2,481) 179 (389) 7,609 – – (389) 389 – (7,609) 2,513 – (797) $(5,886) $(5,893) Pension Plan Year Ended December 31, Postretirement Plan Year Ended December 31, ( 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) . . . 2001 $ 2,969 2,480 (7,156) – (1,057) (1,810) $(4,574) 2000 $ 3,248 2,431 (6,207) – (1,057) (915) $(2,500) 1999 $ 3,297 2,059 (5,155) – (1,057) – $ (856) 2001 $ 49 547 – 209 – (3) $802 2000 $ 56 523 – 209 – (22) $766 1999 $ 426 630 – 342 109 (12) $1,495 65 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, 2001 7.50% 4.50 2000 7.50% 5.00 1999 7.50% 5.00 2001 7.50% N.A. 10.00 10.00 10.00 N.A. 2000 7.50% N.A. N.A. 1999 7.50% N.A. N.A. Discount rate . . . . . . . . . . . . . . . . . . . . . Rate of increase in future compensation . . Expected long-term rate of return on plan assets . . . . . . . . . . . . . . N.A. Not applicable. The Pension Plan’s assets consist primarily of listed stocks. At December 31, 2001 and 2000, the Pension Plan’s assets included TCF com- mon stock with a market value of $11.8 million and $11.3 million, respectively. For active participants of the Postretirement Plan, a 6.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002. This rate is assumed to decrease gradually to 6% for the year 2004 and remain at that level thereafter. For most retired participants, the annual rate of increase is assumed to be 4% for all future years. 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 service and interest cost components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect on postretirement benefits obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1- Percentage- Point Increase $ 13 1- Percentage- Point Decrease $ (12) 131 (117) E M P L O Y E E S S T O C K P U R C H A S E P L A N – The TCF Employees Stock Purchase Plan generally allows participants to make contribu- including derivatives embedded in other financial instruments or contracts, be recognized as either assets or liabilities in the statement tions by salary deduction of up to 18% of their salary on a tax-deferred of financial condition at fair value. Changes in the fair value of a basis (12% prior to November 1, 2001). TCF matches the contribu- derivative are recorded in the results of operations. A derivative may tions of all employees at the rate of 50 cents per dollar, with a max- be designated as a hedge of an exposure to changes in the fair value imum employer contribution of 3% of the employee’s salary. Employee of an asset, liability or firm commitment or as a hedge of cash flows contributions vest immediately while the Company’s matching con- of forecasted transactions. The accounting for derivatives that are tributions are subject to a graduated vesting schedule based on an used as hedges is dependent on the type of hedge and requires that a employee’s years of vesting service. Employee contributions and match- hedge be highly effective in offsetting changes in the hedged risk. ing contributions are invested in TCF stock. Employees age 50 and Under SFAS No. 133, TCF’s pipeline of locked residential mort- over may invest all or a portion of their account balance in various gage loan commitments are considered derivatives and are recorded mutual funds. The Company’s matching contributions are expensed at fair value, with the changes in fair value recognized in gains on sales when made. At December 31, 2001, the assets in the plan totaled of loans held for sale in the consolidated statements of income. TCF $200.2 million and included $197.3 million invested in TCF com- economically hedges its risk of changes in the fair value of locked res- mon stock. Additionally, as of December 31, 2001, $76.5 million of idential mortgage loan commitments due to changes in interest rates plan assets were eligible for diversification under plan provisions. through the use of forward sales contracts. Forward sales contracts TCF’s contribution to the plan was $3 million, $2.7 million and require TCF to deliver qualifying residential mortgage loans or pools $2.8 million in 2001, 2000 and 1999, respectively. of loans at a specified future date at a specified price or yield. Such 18 Derivative Instruments and Hedging Activities 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 Effective January 1, 2001, TCF adopted SFAS No. 133, as amended, on sales of loans held for sale. TCF also utilizes forward sales con- “Accounting for Derivative Instruments and Hedging Activities.” tracts to hedge its risk of changes in the fair value of its residential SFAS No. 133 requires that all derivative instruments as defined, 66 loans held for sale. In accordance with fair value hedge accounting under SFAS No. 133, the forward sales contracts hedging the resi- S T A N D B Y L E T T E R S O F C R E D I T – Standby letters of credit are conditional commitments issued by TCF guaranteeing the perfor- dential loans held for sale are recorded at fair value, with changes in mance of a customer to a third party. The standby letters of credit fair value recognized in gains on sales of loans held for sale as is the expire in various years through the year 2003 and totaled $12.7 mil- offsetting change in the fair value of the hedged loans. lion and $28.8 million at December 31, 2001 and 2000, respec- The impact of adopting SFAS No. 133 on TCF’s financial posi- tively. Collateral held primarily consists of commercial real estate tion was not material. A transition adjustment of $117,000 was mortgages. Since the conditions under which TCF is required to recorded in other income in the consolidated statements of income fund standby letters of credit may not materialize, the cash require- on January 1, 2001. During 2001, the ineffectiveness of the fair ments are expected to be less than the total outstanding commitments. value hedges was not material. Forward mortgage loan sales commit- ments totaled $490.9 million and $121.7 million at December 31, 2001 and 2000, respectively. 19 Financial Instruments with Off-Balance-Sheet Risk TCF is a party to financial instruments with off-balance-sheet risk, primarily to meet the financing needs of its customers. These finan- V A L O A N S S E R V I C E D W I T H P A R T I A L R E C O U R S E – 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 fore- closure of a loan. The liability relating to the loans serviced with par- tial recourse was $100,000 and $100,000 at December 31, 2001 and 2000, respectively and was recorded in other liabilities. The serviced loans are collateralized by residential real estate and totaled $179.7 mil- lion and $182.1 million at December 31, 2001 and 2000, respectively. cial instruments, which are issued or held by TCF for purposes other F E D E R A L H O M E L O A N B A N K A D V A N C E S – F O R W A R D than trading, involve elements of credit and interest-rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. TCF’s exposure to credit loss in the event of non-performance S E T T L E M E N T S – TCF enters into forward settlements of FHLB advances in the course of asset and liability management and to manage interest rate risk. There were no forward settlements of FHLB advances at December 31, 2001. Forward settlements of FHLB advances totaled by the counterparty to the financial instrument for commitments to $300 million at December 31, 2000. extend credit and standby letters of credit is represented by the con- tractual amount of the commitments. TCF uses the same credit poli- 20 Fair Values of Financial Instruments cies in making these commitments as it does for on-balance-sheet instruments. TCF evaluates each customer’s creditworthiness on a TCF is required to disclose the estimated fair value of financial instru- case-by-case basis. The amount of collateral obtained is based on ments, both assets and liabilities on and off the balance sheet, for which management’s credit evaluation of the customer. C O M M I T M E N T S T O E X T E N D C R E D I T – 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. At December 31, 2001 these commit- ments totaled $1.6 billion and consisted of consumer commitments of $955.7 million, commercial commitments of $494.5 million, leasing and equipment financing commitments of $71.6 million and other commitments of $32.5 million. At December 31, 2000 these commitments totaled $1.2 billion and consisted of consumer com- mitments of $706.9 million, commercial commitments of $411.3 million, leasing and equipment finance commitments of $71.6 mil- lion and other commitments of $47 million. 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. it is practicable to estimate fair value. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. Fair value estimates are subjective in nature, involving uncertainties and matters of signifi- cant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The carrying amounts of cash and due from banks, investments and accrued interest payable and receivable approximate their fair values due to the short period of time until their expected realization. Securities available for sale are carried at fair value, which is based on quoted mar- ket prices. Certain financial instruments, including lease financings and discounted lease rentals, and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements. The following methods and assumptions are used by the Company in estimating fair value disclosures for its remaining financial instru- ments, all of which are issued or held for purposes other than trading. 67 L O A N S – The fair value of residential loans is estimated using quoted market prices. For certain variable-rate loans that reprice frequently B O R R O W I N G S – The carrying amounts of short-term borrowings approximate their fair values. The fair values of TCF’s long-term and that have experienced no significant change in credit risk, fair borrowings are estimated based on quoted market prices or discounted values are based on carrying values. The fair values of other loans are cash flow analyses using interest rates for borrowings of similar estimated by discounting contractual cash flows adjusted for prepay- remaining maturities. ment estimates, using interest rates currently being offered for loans with similar terms to borrowers with similar credit risk characteristics. D E P O S I T S – The fair value of checking, savings and money market deposits is deemed equal to the amount payable on demand. The fair 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 – The fair values of TCF’s commitments to extend credit and standby letters of credit are estimated using fees currently charged to enter into similar agreements. For fixed-rate loan commitments and value of certificates is estimated based on discounted cash flow analy- standby letters of credit issued in conjunction with fixed-rate loan ses using interest rates offered by TCF for certificates with similar agreements, fair value also considers the difference between current remaining maturities. The intangible value of long-term relationships levels of interest rates and the committed rates. The fair value of VA with depositors is not taken into account in the fair values disclosed loans serviced with partial recourse approximates the carrying value in the table below. recorded in other liabilities. The fair values of forward settlements of FHLB advances are based on the difference between current lev- els of interest rates and the committed rates. As discussed above, the carrying amounts of certain of the Company’s financial instruments approximate their fair value. The carrying amounts and fair values of the Company’s remaining financial instruments are set forth in the following table: At December 31, 2001 2000 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value $ 451,609 $ 454,536 $ 227,779 $ 231,306 7,352 7,352 – – 2,509,333 2,548,617 1,622,461 1,644,263 422,381 271,398 417,896 275,148 2,733,290 2,795,894 (66,876) – 2,234,134 1,371,841 410,422 207,059 3,673,831 (60,816) 2,408,672 1,381,222 410,003 210,434 3,712,568 – $ 7,943,596 $ 8,136,354 $ 8,064,250 $ 8,354,205 $ 4,778,714 $ 4,778,714 $ 4,086,219 $ 4,086,219 2,320,244 2,357,872 719,859 719,859 2,303,166 2,410,329 2,805,605 898,695 2,285,550 2,836,340 898,695 2,309,323 $10,121,983 $10,266,774 $10,076,069 $10,130,577 $ 13,767 $ 13,767 $ 12,045 $ 12,045 2,409 – 2,409 – (2) – (2) (6,985) $ 16,176 $ 16,176 $ 12,043 $ 5,058 2 ( I n t h o u s a n d s ) Financial instrument assets: Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forward mortgage loan sales commitments. . . . . . . . . . . . . . . . . Loans: Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan losses(1) . . . . . . . . . . . . . . . . . . . . . . . . . Financial instrument liabilities: Checking, savings and money market deposits . . . . . . . . . . . . . . Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments with off-balance-sheet risk:(2) Commitments to extend credit(3) . . . . . . . . . . . . . . . . . . . . . . . Standby letters of credit(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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. 68 21 Earnings Per Common Share The computation of basic and diluted earnings per share is presented in the following table: ( 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 ) Basic Earnings Per Common Share Year Ended December 31, 2001 2000 1999 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 207,322 $ 186,245 $ 166,039 75,825,017 78,648,765 82,445,288 $ 2.73 $ 2.37 $ 2.01 Diluted Earnings Per Common Share Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average number of common shares outstanding adjusted for effect of dilutive securities: $ 207,322 $ 186,245 $ 166,039 Weighted average common shares outstanding used in basic earnings per common share calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,825,017 78,648,765 82,445,288 Net dilutive effect of: Stock option plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,711 868,209 113,338 626,572 172,486 452,944 76,842,937 79,388,675 83,070,718 Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.70 $ 2.35 $ 2.00 22 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 comprehensive income: ( I n t h o u s a n d s ) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) before tax: Unrealized holding gains (losses) arising during the period on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustment for gains included in net income . . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2001 $207,322 2000 $186,245 1999 $166,039 26,295 (863) 9,335 16,097 59,726 – 22,212 37,514 (84,503) (3,194) (32,724) (54,973) $223,419 $223,759 $111,066 23 Business Segments financing needs of diverse companies. Mortgage banking activities include the origination and purchase of residential mortgage loans Banking, leasing and equipment finance, and mortgage banking have primarily for sale to third parties, generally with servicing retained. been identified as reportable operating segments. Banking includes In addition, TCF operates a bank holding company (“parent com- the following operating units that provide financial services to cus- pany”) and has corporate functions that provide data processing, bank tomers: deposits and investment products, commercial lending, con- operations and other professional services to the operating segments. sumer lending, residential lending and treasury services. Management TCF evaluates performance and allocates resources based on the of TCF’s banking segment is organized by state. The separate state segments’ net income. The segments follow generally accepted account- operations have been aggregated for purposes of segment disclosures. ing principles as described in the Summary of Significant Accounting Leasing and equipment finance provides a broad range of compre- Policies. TCF generally accounts for intersegment sales and transfers hensive leasing and equipment finance products addressing the at cost. Each segment is managed separately with its own president, who reports to TCF’s chief operating decision maker. 69 The following table sets forth certain information about the reported profit or loss and assets of each of TCF’s reportable segments, includ- ing a reconciliation of TCF’s consolidated totals. Results for 2001 reflect changes in methodologies of certain allocations. Leasing and equip- ment finance results for 2001 include an increase of $1.5 million, after-tax, in intercompany expense. The mortgage banking results for 2001 include a reduction of $1.2 million after-tax, in intercompany expense compared with 2000. The net offsets to these changes in intercom- pany expenses are included in banking results. The results of TCF’s parent company and corporate functions comprise the “other” category in the table below. ( I n t h o u s a n d s ) At or For the Year Ended December 31, 2001: Revenues from external customers: Interest income . . . . . . . . . . . . Non-interest income . . . . . . . . Total. . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . Provision for credit losses . . . . . . . Non-interest income . . . . . . . . . . . Amortization of goodwill . . . . . . . . Other non-interest expense . . . . . Income tax expense . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . At or For the Year Ended December 31, 2000: Revenues from external customers: Interest income . . . . . . . . . . . . . Non-interest income . . . . . . . . . Total . . . . . . . . . . . . . . . . . . Net interest income. . . . . . . . . . . . . Provision for credit losses . . . . . . . . Non-interest income . . . . . . . . . . . Amortization of goodwill. . . . . . . . . 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. . . . . . . . . Other non-interest expense. . . . . . . Income tax expense . . . . . . . . . . . . . Net income (loss). . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . 70 Leasing and Equipment Finance Banking Mortgage Banking Eliminations and Reclassifications Other Consolidated $ 722,722 $ 89,131 $ 14,334 $ 422 $ – $ 826,609 313,501 45,730 12,042 213 – 371,486 $ 1,036,223 $134,861 $ 26,376 $ 635 $ – $ 1,198,095 $ 423,043 $ 39,429 $ 14,919 $ 433 $ 3,398 $ 481,222 7,359 313,501 7,350 432,298 109,063 13,519 45,730 427 38,369 12,410 – – – 20,878 15,439 96,829 (100,013) 371,486 – 20,893 3,577 – 99,274 (2,538) – (96,615) – 7,777 494,219 122,512 $ 180,474 $ 20,434 $ 5,888 $ 526 $ – $ 207,322 $10,982,411 $988,387 $374,263 $102,132 $(1,088,478) $11,358,715 $ 751,103 $ 69,960 $ 5,192 $ 287,219 $ 1,038,322 $ 397,887 38,451 $ 108,411 $ 30,405 10,519 $ 15,711 $ 5,609 $ $ 426 87 513 $ $ – – – $ 826,681 336,276 $ 1,162,957 (556) $ 5,191 $ 438,536 9,594 287,219 7,310 401,217 102,722 5,178 38,451 396 25,813 14,420 – 15,711 – 19,432 717 $ 164,263 $ 10,800,942 $ 23,049 $ 876,540 $ 1,171 $ 130,477 – 90,640 – 93,588 (1,266) $ (2,238) $ – (95,745) – (90,554) – – 14,772 336,276 7,706 449,496 116,593 $ 186,245 $ 112,309 $ (722,806) $ 11,197,462 $ 699,451 $ 47,562 $ 4,668 $ 420 $ 269,240 $ 968,691 $ 398,264 28,490 $ 76,052 $ 25,212 15,961 $ 20,629 $ 6,029 15,065 269,240 7,320 397,135 96,473 1,858 28,490 393 19,062 13,037 – 20,152 – 27,809 (491) 2 $ 422 $ – – – $ 752,101 313,693 $ 1,065,794 $ (3,487) $ (1,805) $ 424,213 – 82,564 – 84,731 (1,967) – (86,753) – (88,558) – 16,923 313,693 7,713 440,179 107,052 $ 151,511 $ 10,270,641 $ 19,352 $ 524,702 $ (1,137) $ (3,687) $ – $ 166,039 $ 122,685 $ 56,188 $ (312,500) $ 10,661,716 24 Other Expense Other expense consists of the following: ( I n t h o u s a n d s ) Deposit account losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Postage and courier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telecommunication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ATM interchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan and lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal deposit insurance and OCC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit base intangible amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Parent Company Financial Information Year Ended December 31, 2000 $ 19,479 1999 $ 17,172 11,442 13,345 9,216 11,735 3,979 2,837 2,295 10,876 13,386 8,879 11,156 5,469 5,307 2,976 2001 $ 19,415 13,150 11,541 9,881 9,723 6,787 2,757 1,939 51,627 $126,820 41,505 $115,833 35,311 $110,532 Effective January 1, 2001, certain company-wide functions previously included in the parent company were transferred, with related assets and liabilities, to TCF National Bank. The impact of this transfer is reflected in the following financial statements. TCF Financial Corporation’s (parent company only) condensed statements of financial condition as of December 31, 2001 and 2000, and the condensed statements of income and cash flows for the years ended December 31, 2001, 2000 and 1999 are as follows: C O N D E N S 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 ( I n t h o u s a n d s ) Assets: At December 31, 2001 2000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing deposits with banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends receivable from bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37 2,657 880,200 388 16,100 32,221 $ 191 23,996 835,933 11,947 25,000 35,315 Liabilities and Stockholders’ Equity: Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $931,603 $932,382 $ 2,000 12,570 14,570 917,033 $931,603 $ – 22,162 22,162 910,220 $932,382 71 C O N D E N S E D S T A T E M E N T S O F I N C O M E Year Ended December 31, ( I n t h o u s a n d s ) Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 $ 833 376 457 206,970 14,292 95 14,387 13,785 784 1,690 16,259 205,555 496 206,051 1,271 $207,322 2000 $ 1,192 1,726 (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) 164,791 82,567 (3) 82,564 49,171 14,982 20,622 84,775 159,156 1,852 161,008 5,031 $186,245 $166,039 C O N D E N S E D S T A T E M E N T S O F C A S H F L O W 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: 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 subsidiaries, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan to deferred compensation plans, 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 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, 2001 2000 1999 $ 207,322 $ 186,245 $ 166,039 (1,271) 5,381 4,110 211,432 21,339 (6,000) (4,646) (273) – 10,420 (77,473) (148,043) 2,000 1,510 24,014 13,381 37,395 223,640 (21,357) – (416) (4,300) 525 (25,548) (66,101) (73,824) (64,357) 5,708 (5,031) 15,554 10,523 176,562 (238) (1,000) 1,390 (6,624) 579 (5,893) (60,755) (106,106) (9,643) 6,330 (222,006) (198,574) (170,174) (154) 191 (482) 673 495 178 $ 37 $ 191 $ 673 72 26 Litigation and Contingent Liabilities subjected to significant exposure in connection with litigation, includ- ing class action litigation and punitive damage claims. While the From time to time, TCF is a party to legal proceedings arising out of Company is not aware of any actions or allegations which should rea- its lending, deposit operations or other activities. TCF engages in sonably give rise to any material adverse effect, it is possible that the foreclosure proceedings and other collection actions as part of its Company could be subjected to such a claim in an amount which loan collection activities. From time to time, borrowers have also could be material. Based upon a review with its legal counsel, man- brought actions against TCF, in some cases claiming substantial agement believes that the ultimate disposition of pending litigation amounts of damages. Some financial services companies have been will not have a material effect on TCF’s financial condition. 73 Independent Auditors’ Report The Board of Directors and Stockholders of TCF Financial Corporation: We have audited the accompanying consolidated statements of finan- cial condition of TCF Financial Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated state- ments of income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2001. These con- solidated 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 perform the audit to obtain reasonable assur- ance 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 as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, 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 16, 2002 74 Other Financial Data S E L E C T E D Q U A R T E R L Y F I N A N C I A L D A T A ( U N A U D I T E D ) ( 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 ) At Dec. 31, 2001 At Sept. 30, 2001 At June 30, At March 31, 2001 2001 At Dec. 31, 2000 At Sept. 30, 2000 At June 30, At March 31, 2000 2000 Selected Financial Condition Data: Total assets . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . Residential real estate loans . . . . . Other loans and leases . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . Borrowings . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . $11,358,715 1,584,661 2,733,290 5,510,912 7,098,958 3,023,025 917,033 $11,723,353 $11,628,663 $11,845,124 $11,197,462 $10,980,000 $10,905,705 $10,761,821 1,470,532 1,403,888 3,932,944 3,673,831 4,158,849 4,872,868 6,823,248 6,891,824 2,975,080 3,184,245 780,311 910,220 1,413,218 3,797,023 4,562,644 6,810,921 3,115,066 859,444 1,436,836 3,866,659 4,364,491 6,719,962 3,205,732 807,382 1,928,338 3,450,311 5,010,256 7,030,818 3,675,428 895,066 1,843,871 3,251,813 5,181,260 6,916,145 3,571,501 890,369 1,794,136 3,122,970 5,334,359 7,057,945 3,459,286 898,486 Dec. 31, 2001 Sept. 30, 2001 June 30, 2001 March 31, 2001 Dec. 31, 2000 Sept. 30, 2000 June 30, 2000 March 31, 2000 Three Months Ended 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 . . . . Gains on sales of branches . . . Gains on sales of securities available for sale . . . . . . . Total . . . . . . . . . . . . Non-interest expense: Amortization of goodwill . . . Other non-interest expense. . Total. . . . . . . . . . . . . Income before income tax expense . . . . . . . . . . . Income tax expense . . . . . . . . . . Net income . . . . . . . . . . . . . Per common share: Basic earnings . . . . . . . . . . . Diluted earnings . . . . . . . . . Diluted cash earnings(1) . . . . Dividends declared . . . . . . . Mortgage Banking Revenues: Servicing income . . . . . . . . . . . Less: Mortgage servicing amorti- zation and impairment. . . . . Net servicing income (loss). . Gains on sales of loans . . . . . . . Other income . . . . . . . . . . . . . Total mortgage banking . . 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 tangible equity to average assets . . . . . . . . . . Net interest margin. . . . . . . . . . $ 195,777 70,031 125,746 6,955 $ 205,545 $ 212,726 $ 212,561 $ 214,408 $ 210,709 $ 204,407 $ 197,157 90,317 106,840 990 94,209 110,198 5,383 100,035 110,674 3,688 103,584 110,824 4,711 98,770 113,791 2,425 93,448 119,278 5,422 83,138 122,407 6,076 118,791 116,331 113,856 111,366 106,113 106,986 104,815 105,850 95,621 – 863 96,484 1,944 129,484 131,428 83,847 29,652 $ 54,195 $ $ $ $ .73 .72 .74 .25 95,295 – – 95,295 1,944 124,715 126,659 95,650 – – 95,650 1,945 124,008 125,953 80,741 3,316 – 84,057 1,944 116,012 117,956 86,343 8,947 – 95,290 1,940 114,641 116,581 84,069 – – 84,069 1,937 113,189 115,126 81,308 3,866 – 85,174 1,915 112,200 114,115 71,743 – – 71,743 1,914 109,466 111,380 84,967 32,077 66,213 25,492 $ 52,890 $ 52,014 $ 48,223 $ 52,165 $ 46,697 $ 46,662 $ 40,721 75,874 29,212 75,929 29,232 77,467 29,244 84,822 32,657 83,553 31,539 $ $ $ $ .70 $ .69 $ .72 $ .25 $ .68 $ .67 $ .70 $ .25 $ .62 $ .62 $ .64 $ .25 $ .2125 $ .67 $ .66 $ .68 $ .60 $ .59 $ .61 $ .2125 $ .60 $ .59 $ .61 $ .2125 $ .51 .51 .53 .1875 $ 4,676 $ 4,316 $ 4,180 $ 3,760 $ 3,739 $ 3,141 $ 2,860 $ 2,902 9,411 (4,735) 4,551 1,240 $ 1,056 4,973 (657) 3,277 1,012 4,076 104 3,373 1,358 2,504 1,256 594 669 1,779 1,960 637 563 1,207 1,934 215 601 1,130 1,730 246 475 $ 3,632 $ 4,835 $ 2,519 $ 3,160 $ 2,750 $ 2,451 $ 1,210 1,692 249 217 2,158 1.88% 1.94 1.81% 1.88 1.78% 1.84 1.71% 1.77 1.89% 1.96 1.71% 1.78 1.73% 1.80 1.53% 1.60 24.44 23.92 25.30 7.85 6.50 4.74 23.68 23.48 24.53 7.72 6.36 4.55 23.22 23.37 24.07 7.61 6.23 4.40 21.47 21.54 22.31 7.93 6.48 4.35 23.17 23.78 24.01 7.95 6.45 4.33 21.52 22.55 22.39 7.60 6.06 4.38 22.19 23.72 23.09 7.28 5.72 4.38 19.24 20.55 20.12 7.44 5.84 4.32 (1) Excludes amortization of goodwill, net of income tax benefit. (2) Annualized. 75 Senior Officers T C F F I N A N C I A L C O R P O R A T I O N Chairman of the Board and Chief Executive Officer W I L L I A M A . C O O P E R Vice Chairman and Chief Operating Officer T H O M A S A . C U S I C K President LY N N A . N A G O R S K E Vice Chairman, General Counsel and Secretary G R E G O RY J . P U L L E S Executive Vice President, Chief Financial Officer and Treasurer N E I L W . B R O W N Executive Vice President and Chief Information Officer E A R L D . S T R A T T O N Executive Vice Presidents C R A I G R . D A H L R O N A L D J . P A L M E R M A RY E . S A R L E S Senior Vice Presidents J A M E S S . B R O U C E K T I M O T H Y G . D OY L E D A N I E L P. E N G E L WA L L A C E A . F U D O L D A N T O I N E T T E M . J E L I N E K J A S O N E . KO R S TA N G E M A R K R . L U N D N O R M A N G . M O R R I S S O N B A R B A R A E . S H A W D AV I D M . S TA U T Z D I A N E O . S T O C K M A N T C F N A T I O N A L B A N K C O R P O R A T E Chief Executive Officer and President B A R RY N . W I N S L O W Executive Vice President P A U L B . B R A W N E R Senior Vice Presidents P H I L I P M . B R O O M D A N I E L R . E D WA R D S H E L L E Y A . F I T Z M A U R I C E G R E G G R . G O U D Y 76 J O S E P H T. G R E E N D O U G L A S S B . H I A T T Senior Vice Presidents R O B E R T J . B R U E G G E M A N C H A R L E S P. H O F F M A N , J R . M A U R E E N F. C I P R I A N O K A T H E R I N E D . J O H N S O N D AV I D R . C R E E L S C O T T W . J O H N S O N G L O R I A J . K A R S K Y J A M E S C . L A P L A N T E P E T E R R . D A U G H E R T Y J E F F R E Y T. D O E R I N G G I N A L . G A L A N T E D AV I D B . M C C U L L O U G H M A R K W . G A U L T A N T O N J . N E G R I N I P A T R I C I A L . Q UA A L R O G E R W . S TA R R J A M E S L . KO O N R U S S E L L P. M C M I N N T O D D A . P A L M E R L E O N A R D D . S T E E L E S T E P H E N W . S I N N E R R . E L I Z A B E T H T O P O L U K S U Z A N N E M . S T U E B E L A R RY I . WA S I K D AV I D J . V E U R I N K M I N N E S O T A President M A R K L . J E T E R Executive Vice Presidents S A R A L . E V E R S R O B E R T H . S C O T T Senior Vice Presidents R O N A L D L . B R I T Z S C O T T A . F E D I E M A R K L . F O S T E R M I C H I G A N President T H O M A S J . WA G N E R Executive Vice Presidents L U I S J . C A M P O S R O B E R T T. G R I F F O R E C H A R L E S L . H A Y N E T E R R E N C E K . M C H U G H Senior Vice Presidents J E R RY E . C O V I A K C L A I R E M . G R A U P M A N N L A R RY M . C Z E K A J K . R O B E R T L E A D E N N I S J . G I S T I N G E R T I M O T H Y B . M E Y E R N A TA L I E A . G L A S S E R I N E . R A D E N S T E V E N E . RY K K E L I J O H N F. S C H R O E D E R K U R T A . S C H R U P P J A M E S T. S TA H L M A N N D A N I E L G . T H O R B E R G I L L I N O I S / W I S C O N S I N / I N D I A N A President T I M O T H Y P. B A I L E Y Chief Operating Officer, Retail M I C H A E L B . J O H N S T O N E Executive Vice Presidents M A R K B . D I L L O N M I C H A E L R . K L E M Z M A R K W . R O H D E C . H U N T E R W E S T B R O O K D O N A L D J . H A W K I N S J O H N J . O W E N S T. P A U L T E R O VA C O L O R A D O President and Chief Executive Officer WA Y N E A . M A R T Y Senior Vice Presidents M A T T H E W G . L A M B E D WA R D F. T I E R N E Y T C F F I N A N C I A L I N S U R A N C E A G E N C Y President M A RY E . S A R L E S Senior Vice Presidents J A N E T M . B RY A N T W I L L I A M A . M I L L E R T C F S E C U R I T I E S , I N C . President F R A N K A . M C C A R T H Y T C F M O R T G A G E C O R P O R A T I O N President J O S E P H W . D OY L E Senior Vice Presidents D O U G L A S L . D I N N D O R F L U C Y L . R A U E N P A T R I C I A A . R OY C R A F T TA M A R A J . S A LV O J O N M . S AVA T C A R O L B . S C H I R M E R S W I N T H R O P R E S O U R C E S C O R P O R A T I O N President R O N A L D J . P A L M E R Senior Vice Presidents G A RY W . A N D E R S O N P A U L L . G E N D L E R J O H N G . M C M A N I G A L D E B O R A H L . M O G E N S E N R I C H A R D J . P I E P E R D E A N J . S T I N C H F I E L D T C F L E A S I N G , I N C . President C R A I G R . D A H L Executive Vice Presidents W I L L I A M S . H E N A K M A R K D . N YQ U I S T Senior Vice Presidents P E T E R C . D A R I N WA L T E R E . D Z I E L S K Y B R A D L E Y C . G U N S TA D T H O M A S F. J A S P E R T I M O T H Y A . P R A T T W I L L I A M D . R E I N K E C H A R L E S A . S E L L , J R . T C F E X P R E S S T R A D E President B R I A N J . H U R D Board of Directors Offices LY N N A . N A G O R S K E President 2,3,4,5 R A L P H S T R A N G I S Senior Partner, Kaplan, Strangis and Kaplan, P.A. E X E C U T I V E O F F I C E S C O L O R A D O TCF Financial Corporation 2 0 0 L A K E S T R E E T E A S T Headquarters 9 2 0 0 E A S T P A N O R A M A C I R C L E M A I L C O D E E X 0 - 0 3 - A S U I T E 1 0 0 WA Y Z A TA , M N 5 5 3 9 1 - 1 6 9 3 E N G L E W O O D , C O 8 0 1 1 2 2,3,5 ( 6 1 2 ) 6 6 1 - 6 5 0 0 ( 3 0 3 ) 8 5 8 - 8 5 1 9 G E R A L D A . S C H WA L B A C H 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 5 De Novo Expansion Committee M I N N E S O T A Headquarters 8 0 1 M A R Q U E T T E AV E N U E M A I L C O D E 0 0 1 - 0 3 - P M I N N E A P O L I S , M N 5 5 4 0 2 ( 6 1 2 ) 6 6 1 - 6 5 0 0 Traditional Branches M I N N E A P O L I S / S T. PAU L A R E A ( 4 2 ) G R E A T E R M I N N E S O TA ( 6 ) Supermarket Branches M I N N E A P O L I S / S T. PAU L A R E A ( 3 6 ) Traditional Branches C O L O R A D O S P R I N G S ( 1 ) Supermarket Branches M E T R O D E N V E R A R E A ( 9 ) C O L O R A D O S P R I N G S ( 3 ) T C F M O R T G A G E C O R P O R A T I O N Headquarters 8 0 1 M A R Q U E T T E AV E N U E M A I L C O D E 0 0 1 - 0 4 - O M I N N E A P O L I S , M N 5 5 4 0 2 2,3,4 G R E A T E R M I N N E S O TA ( 4 ) ( 6 1 2 ) 6 6 1 - 7 5 0 1 I L L I N O I S / W I S C O N S I N / I N D I A N A W I N T H R O P R E S O U R C E S C O R P O R A T I O N 4 W I L L I A M A . C O O P E R Chairman of the Board and Chief Executive Officer 2,3,5 W I L L I A M F. B I E B E R Chairman, Acrometal Management Corporation R O D N E Y P. B U R W E L L Chairman, Xerxes Corporation 2,3,5 4 T H O M A S A . C U S I C K Vice Chairman and Chief Operating Officer J O H N M . E G G E M E Y E R I I I 2,3,5 President, Castle Creek Capital LLC R O B E R T E . E VA N S Retired Vice Chairman 1 L U E L L A G . G O L D B E R G Past Chair, University of Minnesota Foundation, Former Acting President, Wellesley College 1 G E O R G E G . J O H N S O N CPA/Managing Director, George Johnson & Co. 1,4 T H O M A S J . M C G O U G H President, McGough Construction Company, Inc. 2,3 R I C H A R D F. M C N A M A R A Chief Executive Officer, Activar, Inc. Headquarters 1 1 1 0 0 WA Y Z A TA B O U L E VA R D S U I T E 8 0 0 M I N N E T O N K A , M N 5 5 3 0 5 ( 9 5 2 ) 9 3 6 - 0 2 2 6 T C F L E A S I N G , I N C . Headquarters 1 1 1 0 0 WA Y Z A TA B O U L E VA R D M I N N E T O N K A , M N 5 5 3 0 5 ( 9 5 2 ) 6 5 6 - 5 0 8 0 Headquarters 8 0 0 B U R R R I D G E P A R K WA Y B U R R R I D G E , I L 6 0 5 2 7 ( 6 3 0 ) 9 8 6 - 4 9 0 0 Traditional Branches C H I C A G O L A N D ( 3 0 ) M I LWA U K E E A R E A ( 1 1 ) K E N O S H A / R A C I N E A R E A ( 7 ) Supermarket Branches C H I C A G O L A N D ( 1 4 9 ) M I LWA U K E E A R E A ( 1 3 ) K E N O S H A / R A C I N E A R E A ( 2 ) I N D I A N A ( 5 ) M I C H I G A N Headquarters 4 0 1 E A S T L I B E R T Y S T R E E T A N N A R B O R , M I 4 8 1 0 4 ( 7 3 4 ) 7 6 9 - 8 3 0 0 Traditional Branches M E T R O D E T R O I T A R E A ( 3 2 ) G R E A T E R M I C H I G A N ( 1 2 ) Supermarket Branches M E T R O D E T R O I T A R E A ( 1 2 ) G R E A T E R M I C H I G A N ( 1 ) 77 Shareholder Information S T O C K D A T A Year Close High Low 2001 Fourth Quarter Third Quarter Second Quarter First Quarter $47.98 46.06 46.31 37.79 $48.25 51.12 46.55 44.38 $39.40 39.45 34.90 32.81 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 $ 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 $ 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 $ 33.81 25.75 22.00 18.00 $ 23.75 26.63 25.13 21.69 $ 15.81 19.88 28.38 29.25 $ 27.00 24.13 18.75 19.50 Dividends Paid Per Share $ .25 .25 .25 .25 $.2125 .2125 .2125 .1875 $.1875 .1875 .1875 .1625 $.1625 .1625 .1625 .125 $ .125 .125 .125 .09375 T R A D I N G O F C O M M O N S T O C K The common stock of TCF Financial Corporation is listed on the New York Stock Exchange under the symbol TCB. At December 31, 2001, TCF had approximately 76.9 million shares of common stock outstanding. 2 0 0 2 C O M M O N S T O C K D I V I D E N D D A T E S Expected Record: February 1 May 10 August 2 November 1 Expected Payment: February 28 May 31 August 30 November 29 T R A N S F E R A G E N T A N D R E G I S T R A R EquiServe Trust Company PO Box 43010 Providence, RI 02940-3010 (800) 730-4001 www.equiserve.com C O M M O N S T O C K D I V I D E N D R E I N V E S T M E N T P L A N Approximately 66% of TCF’s 10,003 shareholders of record participate in the Dividend Reinvestment Plan. Under the plan, common shareholders may purchase additional shares of common stock at market price without service charges or brokerage commissions through automatic 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: EquiServe Trust Company PO Box 43010 Providence, RI 02940-3010 (800) 730-4001 www.equiserve.com I N V E S T O R / A N A L Y S T C O N T A C T S Jason E. Korstange Senior Vice President Corporate Communications (952) 745-2755 Patricia L. Quaal Senior Vice President Investor Relations (952) 745-2758 A D D I T I O N A L I N F O R M A T I O N TCF’s report on Form 10-K is filed with the Securities and Exchange Commission and is available to shareholders without charge. 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 C O R P O R A T E W E B S I T E Please visit our web site at www.tcfexpress.com for investor information, news, investor presentations, and access to TCF’s quarterly conference calls. A N N U A L M E E T I N G The annual meeting of shareholders of TCF will be held on Wednesday, May 8, 2002 at 10:30 a.m. at the Sheraton Minneapolis West, 12201 Ridgedale Drive, Minnetonka, Minnesota. 78 Total Return to Shareholders (In Dollars) TCF Financial Corporation (cid:1) SNL All Bank & Thrift Index (cid:1) S&P 500 (cid:1) $1,500 1,250 1,000 750 500 250 0 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 12/31/01 Assumes $100 invested December 31, 1991 with dividends reinvested. Last Rating Action FITCH Outlook Issuer ratings TCF Financial Corporation: Long-term senior Short-term TCF National Bank Long-term deposits Short-term obligations Last Review December 2000 Stable B A- F-1 A F-1 C R E D I T R A T I N G S Last Rating Action Moody’s TCF National Bank: Outlook Issuer Long-term deposits Short-term deposits Bank financial strength Last Rating Action Standard & Poor’s Outlook TCF Financial Corporation: Long-term counterparty Short-term counterparty TCF National Bank: Long-term counterparty Short-term counterparty Last Review October 2001 Stable A2 A2 P-1 C+ Last Review August 2001 Positive BBB A-2 BBB+ A-2 P U O R G L L E V I K E C N A N E H T : N G I S E D 79 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-02 TCFIR9311