TCF Financial Corporation Annual Report 2007

Plain-text annual report

07 Our goal is to be the most convenient bank in the markets we serve. T C F F i n a n c i a l C o r p o r a t i o n 2 0 0 7 A n n u a l R e p o r t TCF Financial Corporation 200 Lake Street East Wayzata, MN 55391-1693 www.tcfbank.com 002CS-60875 TCFIR9338 TCF® The Convenience Franchise TCF Financial Corporation 2007 Annual Report Table of Contents 1 10 Letter to Our Stockholders Business Highlights Annual Report on Form 10-K 1 16 17 45 49 76 Business Selected Financial Data Management’s Discussion and Analysis Consolidated Financial Statements Notes to Consolidated Financial Statements Other Financial Data 89 91 93 Corporate Information Stockholder Information Corporate Philosophy Financial Highlights (Dollars in thousands, except per-share data) Operating Results: Net interest income Provision for credit losses Net interest income after provision for credit losses Non-interest income: Fees and other revenue Gains on sales of securities available for sale Gains on sales of branches and real estate Total non-interest income Non-interest expense Income before income tax expense Income tax expense Net income Per Common Share Information: Basic earnings Diluted earnings Dividends declared Stock price: High Low Close Book value Price to book value At or For the Year Ended December 31, 2006 % Change 2007 $550,177 56,992 493,185 490,285 13,278 37,894 541,457 662,124 372,518 105,710 $266,808 $ 2.13 2.12 .97 28.99 17.17 17.93 8.68 2.07 X $537,530 20,689 516,841 485,276 – 4,188 489,464 649,197 357,108 112,165 $244,943 $ 1.90 1.90 .92 28.41 24.23 27.42 7.92 3.46 X 2.4% 175.5 (4.6) 1.0 N.M. N.M. 10.6 2.0 4.3 (5.8) 8.9 12.1% 11.6 5.4 (34.6) 9.6 (40.2) 1.1 5.9 (5.3) 76.5 (2.3) Financial Ratios: Return on average assets Return on average common equity Net interest margin Net charge-offs as a percentage of average loans and leases Total equity to total assets at year end N.M. Not Meaningful. 1.76% 25.82 3.94 .30 6.88 1.74% 24.37 4.16 .17 7.04 TCF Financial Corporation and Subsidiaries Financial Highlights Lynn A.Nagorske, Chief Executive Ofﬁcer Dear Stockholders: 2007 Highlights: • TCF recently increased its dividend to $1.00 per • TCF earned a record $266.8 million in 2007, up share in 2008, a 3.1 percent increase. This is the 17th $21.9 million, or 8.9 percent, from the previous year. consecutive year we have increased the dividend. Earnings per share was a record $2.12, up $.22, or 11.6 percent, from the previous year. • TCF’s return on average assets was 1.76 percent and return on average equity was 25.82 percent. TCF remains a “well-capitalized” ﬁnancial institution and continues to be ranked among the highest perform- ing banks in the country, topping U.S. Banker ’s Best of the Best: Banking’s Top 100 list in 2007. The major factors affecting our performance in 2007 were as follows: 1. T h i n g s T C F D o e s N o t D o As stockholders, you should be aware of the risky activities in which TCF has not participated. These activities have caused the depressed housing market and related credit crunch. • TCF’s stock price closed at $17.93 on December 31, TCF does not have: 2007, down 34.6 percent from $27.42 per share on December 31, 2006. Stock prices for all ﬁnancial institutions, including TCF, have been badly battered • Subprime lending programs • Teaser rate adjustable-rate mortgages (ARMs) since October 2007 as a result of the billion-dollar • Option ARMs losses and write-downs which continue to be announced by the Big Banks and brokerage compa- nies. As a result of the depreciated home values and a widening credit crunch, the market also now fears an economic slowdown. • Collateralized Debt Obligations • Asset-backed commercial paper • Structured investment vehicles. Letter to Stockholders 2007 Annual Report | page 1 Indeed, over 99 percent of TCF’s securities available The increase in net interest income was attributable to for sale portfolio consists of plain vanilla mortgage- a $1 billion increase, or 9.4 percent, in average Power backed securities guaranteed by FANNIE MAE® or Assets®, partially offset by a 22 basis point decrease, Freddie Mac®, both of which are AAA rated government or 5.3 percent, in the net interest margin rate. The net sponsored enterprises. interest margin rate in 2007 was 3.94 percent. 2 . I n t e r e s t R a t e E n v i r o n m e n t TCF’s net interest income grew to $550.2 million in 2007. This is an increase of $12.6 million, or 2.4 per- As a result of the interest rate environment, TCF’s growth primarily occurred in lower yield fixed-rate assets and higher cost deposits. This compressed the cent, in a very difﬁcult operating environment as the net interest margin. yield curve remained ﬂat or inverted for the entire year. 3 . C r e d i t Q u a l i t y Diluted EPS Dollars 2 1 . 2 $ 0 0 . 2 $ 0 9 . 1 $ 6 8 . 1 $ 3 5 . 1 $ TCF’s credit quality has not been immune from the depressed housing markets and weakening economy, especially in Michigan. TCF’s charge-offs in 2007 were $34.6 million, or .30 percent, as compared to 2006 charge-offs of $18 million, or .17 percent. Most of the increase resulted from higher home equity loan charge-offs, primarily in Minnesota and Michigan. The industry subprime lending crisis led to record foreclosures and an oversupply of homes held for sale. This, in turn, led to lower home values and increased credit losses for TCF. Our commercial loan and leasing credit quality remains very good with the exception of the Michigan market. 03 04 05 06 07 page 2 | TCF Financial Corporation and Subsidiaries Letter to Stockholders Although higher than historical levels, TCF’s over of $22.4 million from $58.5 million at December 31, 30-day delinquencies remained well controlled at 2006. The wisdom of TCF’s secured lending philoso- .67 percent. Non-performing assets at year end totaled phy has helped to weather the recent credit storms. $105.6 million, a $40 million increase from December 31, 2006. The rise in non-performing assets resulted from increased non-accruals and real estate-owned in both home equity and commercial real estate. The provision for losses in 2007 was $57 million com- pared to $20.7 million last year. At December 31, 2007, TCF’s allowance for loan and lease losses totaled $80.9 4 . F e e I n c o m e Fees and service charges increased 2.9 percent in 2007. A concentrated effort was made to manage this area well in 2007. Checking account customers continued to change their banking behavior; they are writing fewer checks, using their debit card more frequently to replace check and cash transactions, and initiating million, or .66 percent of loans and leases, an increase more ACH transactions. Power Assets Billions of Dollars 8 . 1 1 $ 7 . 0 1 $ Card Revenue Millions of Dollars 4 . 9 $ 4 . 8 $ 2 . 7 $ 9 . 8 9 $ 1 . 2 9 $ 8 . 9 7 $ 5 . 3 6 $ 0 . 3 5 $ 03 04 05 06 07 03 04 05 06 07 Letter to Stockholders 2007 Annual Report | page 3 TCF’s leasing and equipment ﬁnance business is now one of the largest proﬁt centers at TCF. Card revenues continued their growth momentum TCF’s banking markets. We continue to expand our and increased 7.4 percent to $98.9 million in 2007. commercial banking operations and capabilities within TCF is the 12th largest Visa® debit card issuer in the our banking markets. United States. Debit card revenue growth is slowing somewhat as this business is maturing and our net checking account growth has also slowed over the past few years. TCF’s leasing and equipment ﬁnance portfolio grew 14.6 percent, which includes operating leases. This $2.2 billion portfolio is well diversiﬁed by equipment type and geography, and grew nicely in all active seg- Another strong fee category was leasing and equipment ments. Our leasing and equipment ﬁnance operation ﬁnance revenues, which totaled $59.2 million, up is the 37th largest in the United States, and is the 18th 11.6 percent, from the prior year. largest bank-owned equipment ﬁnance company in the United States. Winthrop Resources Corporation grew its portfolio $22.7 million, or nine percent, in 5 . Po w e r A s s e t s® a n d Po w e r L i a b i l i t i e s® TCF’s Power Asset lending operations continued to generate strong growth. Power Assets totaled $11.8 billion at the end of 2007 and average Power Assets increased 9.4 percent over the prior year. Consumer home equity loans grew 10.9 percent and totaled $6.5 billion. During 2007, we tightened under- writing standards further to require higher borrower Leasing & Equipment Finance Portfolio Millions of Dollars credit scores and lower loan-to-value ratios. Includes operating leases. Commercial loans increased 5.9 percent in 2007 and totaled $3.1 billion. We have maintained our credit underwriting discipline in growing this portfolio. This portfolio is generally secured by real estate and other assets, and 93 percent of the portfolio is located in 5 7 1 , 2 $ 9 9 8 , 1 $ 0 6 5 , 1 $ 9 8 3 , 1 $ 2 6 1 , 1 $ 12/03 12/04 12/05 12/06 12/07 page 4 | TCF Financial Corporation and Subsidiaries Letter to Stockholders 2007 – a positive trend which will favorably impact TCF opened 20 branches in 2007 (10 traditional, seven future periods. TCF’s leasing and equipment ﬁnance supermarket and three campus). We also relocated six business is now one of the largest proﬁt centers at TCF. branches and remodeled 15 branches. TCF closed 10 Power Liabilities totaled $9.58 billion as of December branches in addition to the Michigan branches we sold. 31, 2007, a decline of $192.7 million. In the ﬁrst quarter 7. C a m p u s B a n k i n g of 2007, TCF sold $241 million of out-state Michigan deposits. During the second half of 2007, deposit competition intensiﬁed. Large banks with credit and subprime issues raised their retail deposit rates in order to replace other higher cost wholesale funding sources. TCF chose not to match these higher rates, particularly In 2007, TCF entered into a new exclusive campus banking relationship with the University of Illinois. The relationship will provide college students with internet banking, bill payment capabilities and checking account access through their i-cards™. The University of Illinois has an annual enrollment of approximately in certificates of deposit. This resulted in a decline 70,000 students. in balances in this category. While savings balances increased in 2007 because of generally higher interest rates, non-interest bearing checking balances declined. 6 . B r a n c h e s Collectively, TCF’s campus banking network includes over 123,000 accounts from students, faculty and staff. With our recent school additions, prospect list and pipeline of new students, we have a great opportunity In 2007, TCF sold its remaining out-state Michigan for new business in our campus banking division. branches and $241 million in deposits for an 11.5 per- cent premium plus a related gain on the sale of branch real estate. The total gain was $31.2 million. The sale recognized that TCF’s convenience banking strategy works better in densely populated urban areas, and that we have other more attractive growth opportunities. Our timing was excellent on the sale transaction and we received a very attractive premium. 8 . O t h e r A s s e t S a l e G a i n s In addition to the branch sale noted above, TCF recognized $20 million in asset sale gains in 2007 compared to $5.8 million in 2006. The 2007 gains included $13.3 million from the gains on sales of securities and $6.7 million from the sales of branch ofﬁce real estate. The sales of branch ofﬁce real estate Letter to Stockholders 2007 Annual Report | page 5 generally resulted from relocating certain of our mature disability benefit to an employee-funded plan. We branches to improved facilities in order to enhance also renegotiated major vendor contracts to reduce our growth prospects. TCF’s costs. 9 . E x p e n s e C o n t r o l I n i t i a t i v e s These actions resulted in TCF’s 2007 operating expenses TCF completed numerous actions to limit operating costs in 2007. These actions included the closure and sale of branches as well as the reduction of consumer lenders to reﬂect the slower housing markets. We also consolidated our retail branch backroom functions and outsourced our investment and insurance backroom operations. TCF froze its pension plan in 2006 and in 2007 converted TCF’s company-funded long-term Premier Checking & Savings Deposits Average Balances Millions of Dollars n Premier Savings n Premier Checking 9 3 2 , 2 $ 0 0 9 , 1 $ 9 6 0 , 1 $ 4 8 2 $ 1 $ 12/03 12/04 12/05 12/06 12/07 (excluding operating lease depreciation and fourth quarter Visa charges) being almost flat with 2006. This was an excellent team performance. 10 . V I S A In the fourth quarter of 2007, Visa completed its cor- porate restructuring in preparation for an initial public offering in 2008. After the restructuring was completed, the SEC concluded that all member banks must record an expense for their contingent obligation to Visa for the litigation indemniﬁcation liability under Visa’s bylaws. Accordingly, in the fourth quarter TCF recorded $7.7 million in pre-tax non-cash expense to reﬂect its estimated proportionate amount of Visa’s liability. The estimated amount reﬂects the settlement of the AMERICAN EXPRESS® case, an estimated settlement of the DISCOVER® case and all other “covered” liti- gation. If the initial public offering is completed, Visa will deposit amounts into an escrow fund intended to satisfy these legal obligations, and TCF’s recorded liability at that time may no longer be required. page 6 | TCF Financial Corporation and Subsidiaries Letter to Stockholders Retail banking is an important area for our company and one with signiﬁcant future ﬁnancial beneﬁts. 11 . I n c o m e Ta x e s 3 . R e t a i l B a n k i n g Income taxes were lower than planned in 2007 due to In 2008, we are refocusing our retail banking efforts to favorable tax developments including the closing of improve the quality of our deposit accounts and grow certain previous years’ tax returns, changes in state tax deposit balances. Active checking account customers laws, and positive developments in income tax audits. produce higher revenues and have lower attrition rates. 2008 Focus Areas and Concerns We have enhanced our internal reporting and changed employee incentives to influence their behavior. Growing deposits in this economic climate is going to 1 . T h e Y i e l d C u r v e a n d I n t e r e s t R a t e s be very difﬁcult. The strong headwinds continue and make this area very challenging to manage. The current credit crunch and liquidity crisis has crept into deposit pricing and increased our deposit costs. Further Federal Reserve Retail banking is an important area for our company and one with significant future financial benefits. This is a high priority item for our entire management Board interest rate cuts may be difﬁcult to offset through team in 2008. lower deposit rates. 2 . C r e d i t Q u a l i t y Economic conditions are always a major risk for all banks, including TCF. A recession would adversely impact our results through increased loan and lease Total New Branches Number of Branches charge-offs and higher loss provisions. Further deterio- ration in home values is also a risk. We expect TCF’s credit quality to deteriorate modestly in 2008 with somewhat higher charge-off levels. Our risk is elevated in this area due to the weak Michigan economy and depressed housing market. n Supermarket Branches n Traditional and Campus Branches Branches opened since January 1, 2002. 6 4 7 2 1 4 1 3 2 1 4 0 1 6 7 12/02 12/03 12/04 12/05 12/06 12/07 Letter to Stockholders 2007 Annual Report | page 7 4 . B r a n c h e s Our rapid expansion in Colorado over recent years TCF frequently evaluates its branches for performance has also slowed down by design. We currently have 46 and growth opportunities in its markets. With the branches in Colorado and plan to open two branches recent shift in focus from new branch expansion to in 2008. Our focus in Colorado is shifting from expan- improving the operating efﬁciencies of our existing sion to proﬁts. With our unique portfolio of all new branch network, in 2008 we intend to remodel 20 branches located in premier sites, we are very well branches, relocate three branches, and close and consoli- positioned for customer and proﬁt growth in Colorado. date three branches. These actions will improve the cus- tomer experience and boost TCF’s capabilities to grow 5 . V I S A deposit accounts, deposit balances and consumer loans. TCF also plans to open 10 new branches in 2008, three of which are scheduled to open in our new separately chartered Arizona Bank. Arizona’s prospects are strong and remain an excellent growth market for TCF. The Visa payment system is still under legal siege by the merchants who seek to reduce or eliminate their card interchange expenses. At some point in time, this litigation may be settled and interchange rates could be reduced. Based on information received from Visa, completion of its initial public offering could New Branch Total Deposits Millions of Dollars Branches opened since January 1, 2002. 18% annual growth rate (’07 vs. ’06). 7 6 2 , 1 $ 2 7 0 , 1 $ 2 8 7 $ New Branch Banking Fees & Other Revenue Millions of Dollars Branches opened since January 1, 2002. 34% annual growth rate (’07 vs. ’06). 2 . 3 7 $ 8 . 4 5 $ 7 . 9 3 $ 7 8 2 $ 6 1 1 $ 5 4 $ 1 . 4 2 $ 2 . 7 $ 1 . 1 $ 12/02 12/03 12/04 12/05 12/06 12/07 12/02 12/03 12/04 12/05 12/06 12/07 page 8 | TCF Financial Corporation and Subsidiaries Letter to Stockholders result in a gain for TCF. The litigation reserve situation We continue to have a mutuality of interest with our is also a risk. The debit card is an integral part of the stockholders and will always evaluate opportunities checking account and TCF has over $100 million of to deliver stockholder value. Our senior management revenues at stake. and board of directors own over 10 million shares, 6 . E x p e n s e C o n t r o l This remains a focus for 2008. We intend to continue or eight percent of TCF stock. Eighty-five percent of our match-eligible employees participate in TCF’s Employees Stock Purchase Plan, which at year-end our review efforts in this area and with strong teamwork held over 7.2 million shares. and focus, necessary actions will be made to improve efﬁciency and allow investments to be made to enhance future growth. 7 . R e g u l a t o r y B u r d e n We are operating in one of the toughest banking envi- ronments I have seen and 2007 was a very difficult year. I would like to thank the board of directors for their continued dedication, wise counsel and support. The regulatory burden continues to increase at a It was very much appreciated in 2007. I would also crushing pace. These burdens increased in 2007 and like to thank our hard-working employees, who have will continue to grow in 2008. We must comply with put in extraordinary effort during the year. Their all of these laws and regulations. The impact of all exceptional abilities, commitment and energy make these laws and regulations is an increase in our costs everything happen. We are proud of the TCF Team and a growing amount of senior management time and its accomplishments. and attention that must be directed to monitor and comply with these requirements. Thank you for your continued support and investment in TCF. In Closing A careful reading of this annual report will tell you almost everything about our company. We try to keep our ﬁnancial reporting simple and our disclosures Lynn A. Nagorske Chief Executive Officer complete. Letter to Stockholders 2007 Annual Report | page 9 TCF Business Highlights TCF’s philosophy of banking Successful franchises are built upon a carefully planned First. We bank a large and economically diverse customer philosophy that can endure the test of time – standing base with different needs for products and services. We against the inevitable up and down cycles of the market – in believe in providing quality products and innovative service order to consistently execute a solid business strategy. TCF’s to our customers, which creates loyalty to TCF and value underlying banking philosophy was written in 1989 and con- for our stockholders. From our introduction of TCF Totally tinues to guide our business strategies today, withstanding Free Checking in 1986, to the successful premier accounts even the recent volatility in the financial services sector launched a few years ago and the TCF Power CheckingSM resulting from the housing slowdown and deteriorating credit account we began offering customers in 2007, we have markets. At TCF, we plan for long-term growth and profits always attempted to match our products to our clients’ with our stockholders’ interest as our utmost priority. needs. By listening to them, we develop unique strategies TCF emphasizes convenience in banking; we’re open 12 hours a day, seven days a week, 364 days per year. TCF banks a large and diverse customer base. We provide customers innovative products through multiple banking channels, including traditional, supermarket and campus branches, TCF Express Teller® and other ATMs, debit cards, phone banking, and Internet banking. TCF’s success is built upon the belief that every customer is valuable and deserves convenient choices to conduct their banking. In other words, TCF strives to place The Customer for growth. These fundamental business strategies have served, and will continue to serve, TCF customers and stock- holders well. A key strategic driving force behind TCF’s success has been convenience in banking. We are open seven days a week and on most holidays. We have extended banking hours in our traditional, supermarket and campus branches to ensure our customers can bank when it is best for them. We continue to open new branches and are now located in seven states with a total of 453 branches. These branches are available to approximately a tenth of the U.S. population located in six major metropolitan areas: Minneapolis- St. Paul, Chicago, Detroit, Milwaukee and the fast-growing page 10 | TCF Financial Corporation and Subsidiaries Business Highlights areas of Denver and Phoenix. Since 2004, TCF has been banking and bill payment products. To enhance our consolidating, remodeling and relocating some of its existing communication to online banking customers regarding branches to improve the customer experience. We have seen new products and promotions, TCF began utilizing an online profitable results from these changes. We plan to continue secured messaging service in 2007. our new branch expansion in 2008 with the opening of more traditional, supermarket and campus branches. Initiatives like these will continue in the future. TCF’s 136,000 small business customers can take advantage of TCF’s Internet banking services, which provide expanded account histories and the ability to download transaction A key element of TCF’s convenience strategy is the evolution detail into financial software applications. In 2007, TCF of convenient products and services. Our customers’ needs began offering a merchant payment processing service via a for products and services change periodically. New products third party to enhance the efficiency of our business banking not only attract first time customers, they also allow us to customers. TCF’s convenient products and services help small develop deeper relationships with our existing customers. business owners manage their businesses more effectively. TCF has a culture that seeks out and initiates innovative products and services. This culture is encouraged annually with a strategic initiative meeting bringing forth new con- cepts. Initiatives that we introduced during 2007 were the TCF Power Checking and TCF Easy SavingsSM accounts, enroll- ment in the TCF CashRewards Loyalty ProgramSM, and expanded pricing options on certificates of deposits. TCF also provides a host of products and services for Campus banking at TCF has become a convenient service for the Universities of Minnesota, Michigan, and most recently Illinois plus nine other institutions in the Midwest. We are pleased that in 2007, TCF secured a new campus banking relationship with two campuses of the University of Illinois, including the Urbana campus, which further deepens our ties to the Big Ten Conference®. This is a great opportunity for TCF. The primary campus product – the campus card – customers who prefer the convenience of electronic offered to students, faculty and staff, is a multi-purpose banking. These include an automated phone system, an convenience card that serves as a school identification extensive network of TCF Express Teller ATMs and online card, ATM card, library card, security card, phone card, and Business Highlights 2007 Annual Report | page 11 stored value card for vending machines and other local mer- In 2007, TCF grew Power Assets by $1.1 billion, or 10 percent. chants. TCF now has over 123,000 campus deposit accounts TCF tightened its credit standards in consumer home equity and looks forward to continuing to grow this business. lending as a result of the significant turmoil in the housing TCF’s strategy for convenience banking remains the corner- stone of our success. Our goal is to make the banking experience available and comfortable for our diverse and growing customer base. Our extended branch network offers longer banking hours, assorted products and services, and convenience technology to serve our valued customers. TCF is primarily a secured lender and emphasizes credit quality over asset growth. The costs of poor credit far outweigh the benefits of unwise asset growth. Much of TCF’s success over the years can be attributed to its philosophy of secured lending based on conservative under- writing and a disciplined credit approval process. Add this philosophy to a hard working and well-trained staff with a well organized and customer focused backroom operation, and you have the formula to earn profits, grow your portfo- lios and service your customers well. sector and still managed to grow this portfolio by 11 percent, or $640 million, in 2007. The banking industry saw increases in delinquencies, non-performing assets and charge-offs during 2007. The highly publicized subprime industry lending problem, along with ill-advised option rate loans, caused increases in loan defaults which led to more foreclosures, higher home inventories and eventually deterioration in home values in almost every market. In addition, the liquidity crunch reduced the number of lenders in the mortgage arena, leaving many potential home buyers without access to credit. While TCF did not participate in any of these risky loan programs, TCF’s credit quality was impacted by the depressed housing markets. TCF’s commercial lending business was also able to increase its portfolio by six percent during 2007. In recent years with the market flush with liquidity, we saw bank and non-bank competitors competing for transactions in this business with irrational loan pricing and terms. The liquidity crunch has brought sanity back to this business, with many non- bank competitors being eliminated. page 12 | TCF Financial Corporation and Subsidiaries Business Highlights In addition to our banking franchise, we have a growing leasing and equipment finance business. TCF Equipment Finance generates new business through a diverse group of marketing segments. It provides financing solutions for small and mid-size companies through vendor programs, manufac- turers, distributors, and franchise organizations. Winthrop TCF utilizes conservative accounting and financial reporting principles that accurately and honestly report our financial condition and results of operations. We believe good accounting drives good business decision-making. Resources Corporation focuses on providing customized, TCF has frequently been recognized by banking periodicals high technology lease financing to meet the special needs for its conservative and in depth reporting of the financial of its customers. Both companies are national in scope, condition of the bank. We take pride in our ability to provide collectively financing a broad range of equipment types in detailed financial reporting via our sophisticated profit center all 50 states and to a limited extent in foreign countries. reporting system and conservative accounting policies and TCF leasing and equipment finance had an exceptional year in loan and lease originations and growth. The leasing and equipment finance portfolio increased $286 million, or 16 percent, during 2007. Both companies continue to find growth opportunities in markets where they can be effective and procedures. Over the years, this system has been refined and expanded. As a result, management can get a clear picture of where profits are being generated – down to the branch and product level – and use this intelligence to make wise business decisions. have a competitive presence. We are pleased TCF’s leasing TCF believes that long-term success in banking is based on and equipment finance business has been recognized as the conservative strategies that are efficiently and effectively 18th largest bank-owned equipment finance/leasing company executed. At TCF, we believe we have taken a conservative in the U.S. and we expect continued growth from this business. business operating approach to banking for many years. Simply put, TCF is in the business of banking and we know our business well. Business Highlights 2007 Annual Report | page 13 TCF has earned high profits for many years due to its conser- Comptroller of the Currency (OCC) and the Federal Reserve vative approach to banking and as a result, has generated Board, and has stable or above ratings from Moody’s®, Fitch® excess capital greater than that required to support balance and Standard & Poor’s®. sheet growth. We feel the best use of excess capital is to return it to our stockholders in the form of either dividends or stock repurchases. TCF has been able to increase its divi- dends for the past seventeen consecutive years. In fact, our dividend policy has been recognized by Standard & Poor’s® and was added to the Dow Jones U.S. Select Dividend IndexSM. TCF’s stock repurchase program has been active since 1998 and 65.5 million shares have been repurchased at an average cost of $19.14 per share. In 2007, TCF’s board of directors authorized a new program for TCF to acquire up to an addi- tional 5 percent of TCF stock, or approximately 6.5 million shares. Stock repurchase may slow in the coming years as TCF may have to retain more capital to support its asset growth. Overall, TCF has returned 90 percent of its net income to stockholders in dividends and stock repurchases over the last five years. TCF operates like a partnership. We’re organized geographically 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 are profitable and contribute to these goals. Local geographic managers are responsible for local business decisions, business development initiatives, customer relations, and community involvement. Managers are incented to achieve these goals. A strong management team is needed to truly operate as a retail business offering convenient services, innovative TCF has consistently exceeded its regulatory capital require- products and good service. One of TCF’s most important ments in Tier 1, leverage and risk-based capital. TCF is assets is its management bench strength and depth. Each considered “well-capitalized” by both the Office of the of the bank presidents is responsible for the financial goals page 14 | TCF Financial Corporation and Subsidiaries Business Highlights of their bank. We believe strongly that local management TCF’s holding company and corporate functions allocate teams make the best decisions regarding local issues. Our capital and provide centralized management services such management teams are responsible for business develop- as data processing, bank operations, product development, ment, customer relations and community involvement marketing, finance, treasury services, employee benefits, within their bank. legal services, compliance, human resources, credit review TCF also believes functional product line management benefits from a centralized approach. Centralized functional management, with support and direction from specific bank presidents, facilitates efficient product development, effec- and internal audit. This structure gives locally managed banks the flexibility to share, compare and refine new products and services while enjoying the intellectual and operational benefits of a larger organization. tive communication, consistent implementation and close A simple, well-grounded and straightforward philosophy of monitoring of our strategic initiatives, as well as central banking, which is outlined on the back inside cover of this accountability for the success of our major product areas. report, has been the foundation of TCF’s conservative and enduring business strategies. Coupled with successful execution by our team of employees and solid management, TCF remains one of the industry’s top performing banks in the country. We are proud of that achievement. Organizing management to more efficiently and effectively manage our local banks and implement our strategic products and services helps TCF in several areas. First, we enjoy informed timely local decision-making that allows us to compete effectively in local markets on a daily basis. Second, centralized strategic committees develop products and services, test and selectively pilot these programs to develop efficiencies and then quickly implement them bank- wide. In the process, TCF develops an exceptional team of managers and strategists. Business Highlights 2007 Annual Report | page 15 TCF Community Relations Building strong communities TCF believes in community partici- pation, both financially and through volunteerism. We feel a responsibility to help those less fortunate. There are a variety of ways local nonprofit organizations receive financial support from the TCF Foundation, TCF Bank® and its employees: • Branch Funds – Contributions or grants are awarded to We believe TCF has a special obligation to its communities. organizations located near TCF branches. This commitment to community is demonstrated by supporting a variety of nonprofit organizations through volunteer time, counsel, board representation and grant making, as well as supporting key projects through financial contributions. Our TCF Foundation believes that all children should have the right to good education. Since 1987, TCF has successfully • Employee Matching Gifts – Donations contributed by employees to nonprofit organizations of their choice are matched dollar-for-dollar by TCF. • Employee’s Fund – Funds contributed by employees through payroll deduction; contributions are matched 100 percent by the TCF Foundation. worked with inner-city schools. TCF also focuses on the • TCF Foundation and Corporate Giving – Larger grants higher education scholarship needs of our communities and multi-year commitments awarded to local and and employees. Last year, we contributed over $830,000 in some national organizations. educational grants. Each year, TCF employees create and organize an internal During 2007, TCF and its employees contributed over $3 million March of Dimes® campaign, raising money to prevent birth to charitable organizations in human services, education, defects and infant mortality. In 2007, TCF employees raised community development, and the arts. In addition, numerous $370,000, supporting the mission of the March of Dimes. TCF employees generously gave their time by volunteering and/or providing leadership to local nonprofit organizations. TCF continues to make a difference for people in need, and over the past 10 years, has contributed more than $28 million in grants to deserving organizations. To our employees who served overseas, and the families of those employees currently on active duty, we would like to extend a special thank you. page 16 | TCF Financial Corporation and Subsidiaries Community Relations 156976_10K_F_Q6 2/16/08 3:48 PM Page 10Ki UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2007 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to ____________ Commission File No. 001-10253 TCF Financial Corporation (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 41-1591444 (I.R.S. Employer Identification No.) 200 Lake Street East, Mail Code EX0-03-A, Wayzata, Minnesota 55391-1693 (Address of principal executive offices and zip code) Registrant’s telephone number, including area code: 952-745-2760 Securities registered pursuant to Section 12(b) of the Act: Common Stock (par value $.01 per share) (Title of class) New York Stock Exchange (Name of exchange on which registered) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No x Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): x Large accelerated filer x Accelerated filer Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No x As of June 30, 2007, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter as reported by the New York Stock Exchange, was $3,065,051,630. As of January 31, 2008, there were 126,318,946 shares outstanding of the registrant’s common stock, par value $.01 per share, its only outstanding class of common stock. Specific portions of the Registrant’s definitive Proxy Statement dated March 5, 2008 are incorporated by reference into Part III hereof. DOCUMENTS INCORPORATED BY REFERENCE 156976_10K_F_Q6 2/16/08 3:48 PM Page 10Kii Table of Contents Description Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Part II Item 5. Item 6. Item 7. Item 7A. Item 8. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Submission of Matters to a Vote of Security Holders Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Notes to Consolidated Financial Statements Other Financial Data Item 9. Item 9A. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Item 9B. Other Information Part III Item 10. Item 11. Item 12. Item 13. Item 14. Part IV Item 15. Signatures Index to Exhibits Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Exhibits and Financial Statement Schedules Page 1 8 13 13 13 13 14 16 17 42 44 44 45 49 76 77 77 77 78 78 79 80 80 80 80 81 82 83 156976_10K_F_Q6 2/16/08 3:48 PM Page 1 Part I Item 1. Business General TCF Financial Corporation (“TCF” or the “Company”), a Delaware Corporation, is a financial holding company based in Wayzata, Minnesota. Its principal subsidiaries, TCF National Bank and TCF National Bank Arizona (“TCF Bank”), are headquartered in Minnesota and Arizona, respectively. TCF National Bank operates bank branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin and Indiana. TCF National Bank Arizona operates bank branches in Arizona. TCF’s primary focus is on the delivery of retail and commercial banking products in markets served by TCF Bank. TCF’s prod- ucts, such as its commercial equipment loans and leases, are offered in markets outside areas served by TCF Bank. At December 31, 2007, TCF had total assets of $16 bil- lion and was the 36th largest publicly traded bank holding company in the United States based on total assets as of September 30, 2007. Unless otherwise indicated, references herein to “TCF” include its direct and indirect subsidiaries. References herein to the “Holding Company” or “TCF Financial” refer to TCF Financial Corporation on an uncon- solidated basis. TCF’s core businesses include retail and small business banking; commercial banking; consumer lending; leasing and equipment finance; and investments and insurance serv- ices. The retail banking business includes traditional and supermarket branches, campus banking, EXPRESS TELLER® ATMs and Visa® cards. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Financial Condition Analysis – Operating Segment Results” and Note 22 of Notes to Consolidated Financial Statements for information regarding TCF’s reportable operating segments. Retail Banking At December 31, 2007, TCF had 453 retail banking branches, consisting of 194 traditional branches, 244 supermarket branches and 15 campus branches. TCF operated 109 branches in Minnesota, 202 in Illinois, 56 in Michigan, 46 in Colorado, 31 in Wisconsin, five in Indiana and four in Arizona. Targeted new branch expansion is a key strategy for TCF. TCF has significantly expanded its banking franchise in recent years. 141 new branches have been opened since January 1, 2002. During 2007, TCF opened 20 branches, consisting of 10 traditional branches, seven supermarket branches and three campus branches. In order to improve the customer experience and enhance deposit and loan growth, TCF relocated six traditional branches to improved locations and facilities and remod- eled one traditional branch and 14 supermarket branches in 2007. TCF intends to relocate three branches to improved locations and facilities, including two traditional branches and one supermarket branch, and to remodel 19 supermar- ket branches and one campus branch in 2008. TCF anticipates opening 10 new branches in 2008, consisting of five new traditional branches and five new supermarket branches. TCF plans on opening fewer branches in 2008, compared with 2007, in an effort to optimize exist- ing branches in target market areas. TCF’s expansion is largely dependent on the continued long-term success of branch banking and the expansion and success of its super- market partners. Campus banking represents an important part of TCF’s retail banking business. TCF has alliances with the University of Minnesota, the University of Michigan, the University of Illinois plus seven other colleges. These alliances include exclusive marketing, naming rights and other agreements. Branches have been opened on many of these college cam- puses. TCF provides multi-purpose campus cards for many of these colleges. These cards serve as a school identification card, ATM card, library card, security card, health care card, phone card and stored value card for vending machines or similar uses. TCF is ranked 6th largest in number of campus card banking relationships in the U.S. At December 31, 2007, there were $206 million in campus deposits. TCF has a $35 million 25-year naming rights agreement with the University of Minnesota and will sponsor their new football stadium to be called “TCF Bank Stadium™”. Construction of this stadium should be complete in 2009. 2007 Form 10-K | 1 156976_10K_F_Q6 2/16/08 3:48 PM Page 2 Commercial Business Lending Commercial business loans are loans originated by TCF that are generally secured by various types of business assets including inventory, receivables, equipment, financial instruments and commer- cial real estate. In limited cases, loans may be made on an unsecured basis. Commercial business loans are used for a variety of purposes including working capital and financing the purchase of equipment. TCF concentrates on originating commercial business loans to middle-market companies with borrowing require- ments of less than $25 million based in its primary markets. Substantially all of TCF’s commercial business loans out- standing at December 31, 2007, were to borrowers based in its primary markets. Leasing and Equipment Finance TCF provides a broad range of comprehensive lease and equipment finance products addressing the financing needs of diverse types of small to large companies. TCF’s leasing and equipment finance businesses, TCF Equipment Finance, Inc. (“TCF Equipment Finance”) and Winthrop Resources Corporation (“Winthrop Resources”), finance equipment in all 50 states and, to a limited extent, in foreign countries. TCF Equipment Finance delivers equipment finance solutions to small and mid-size companies in various industries. Winthrop Resources focuses on providing customized, high technology lease financing to meet the special needs of mid-size and large companies and health care facilities that procure computers, servers, telecommunication and other technology equipment. TCF funds most of its leases internally, and consequently retains the credit risk on such leases. TCF may arrange financing of certain leases through non-recourse discounting of lease rentals with various other financial institutions at fixed interest rates. Education Lending TCF originates education loans for resale. TCF sells certain education loans once they are fully disbursed. These loans are originated in accordance with designated guarantor and U.S. Department of Education guidelines and do not involve any independent credit underwriting by TCF. Non-interest income is a significant source of revenue for TCF and an important factor in TCF’s results of operations. Increasing fee and service charge revenue has been challeng- ing as a result of slower growth in deposit accounts and changing customer behavior. Providing a wide range of retail banking services is an integral component of TCF’s business philosophy and a major strategy for generating additional non-interest income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Income Statement and Analysis – Non-Interest Income” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward- Looking Information” for additional information. Lending Activities General TCF’s lending activities reflect its community banking philosophy, emphasizing secured loans to individu- als and businesses in its primary market areas in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana and Arizona. TCF is also engaged in leasing and equipment finance activities nationwide. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Financial Condition Analysis – Loans and Leases” and Note 5 of Notes to Consolidated Financial Statements for additional information regarding TCF’s loan and lease portfolios. Consumer Lending TCF makes consumer loans for personal, family or household purposes, such as home purchases, debt consolidation, financing of home improvements, automo- biles, vacations and education. TCF’s consumer lending origination activities primarily consist of home equity real estate secured lending. They also include loans secured by personal property and to a limited extent, unsecured personal loans. Consumer loans may be made on a revolving line of credit or fixed-term basis. TCF does not have any subprime lending programs or originate 2/28 adjustable-rate mortgages (ARM) or option ARM loans. Commercial Real Estate Lending Commercial real estate loans are loans originated by TCF that are secured by commercial real estate including, to a lesser extent, commercial real estate construction loans, generally to borrowers based in its primary markets. 2 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 3 Investment Activities TCF Bank has authority to invest in various types of liquid assets, including United States Treasury obligations and securities of various federal agencies and U.S. Government sponsored enterprises, deposits of insured banks, bankers’ acceptances and federal funds. TCF Bank’s portfolio does not include commercial paper, asset-backed commercial paper or asset-backed securities secured by credit cards or car loans. TCF Bank also does not participate in structured investment vehicles. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the returns on loans and leases. TCF Bank must also meet reserve requirements of the Federal Reserve Board, which are imposed based on amounts on deposit in various deposit categories. Sources of Funds Deposits Deposits are the primary source of TCF’s funds for use in lending and for other general business purposes. Deposit inflows and outflows are significantly influenced by economic and competitive conditions, interest rates, money market conditions and other factors. Consumer, small business and commercial deposits are attracted prin- cipally from within TCF’s primary market areas through the offering of a broad selection of deposit instruments including consumer, small business and commercial demand deposit accounts, interest-bearing checking accounts, money market accounts, regular savings accounts, certificates of deposit and retirement savings plans. TCF’s marketing strategy emphasizes attracting core deposits held in checking, savings, money market and cer- tificate of deposit accounts. These accounts are a source of low-interest cost funds and provide significant fee income. The composition of TCF’s deposits has a significant impact on the overall cost of funds. At December 31, 2007, interest-bearing deposits comprised 77% of total deposits, as compared with 75% at December 31, 2006. Information concerning TCF’s deposits is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Financial Condition Analysis – Deposits” and in Note 9 of Notes to Consolidated Financial Statements. Borrowings Borrowings may be used to compensate for reductions in deposit inflows or net deposit outflows, or to support expanded lending activities. These borrowings include Federal Home Loan Bank (“FHLB”) advances, repur- chase agreements, federal funds and other borrowings. TCF Bank, as a member of the FHLB system, is required to own a minimum level of FHLB stock and is authorized to apply for advances on the security of such stock, mortgage- backed securities, loans secured by real estate and other assets (principally securities which are obligations of, or guaranteed by, the United States Government), provided certain standards related to creditworthiness have been met. FHLB advances are made pursuant to several different credit programs. Each credit program has its own interest rates and range of maturities. The FHLB prescribes the acceptable uses to which the advances pursuant to each program may be made as well as limitations on the size of advances. In addition to the program limitations, the amounts of advances for which an institution may be eligi- ble are generally based on the FHLB’s assessment of the institution’s creditworthiness. As an additional source of funds, TCF may sell securities subject to its obligation to repurchase these securities (repurchase agreements) with major investment banks or the FHLB utilizing government securities or mortgage-backed securities as collateral. Generally, securities with a value in excess of the amount borrowed are required to be deposited as collateral with the counterparty to a repurchase agree- ment. The creditworthiness of the counterparty is important in establishing that the overcollateralized amount of secu- rities delivered by TCF is protected. TCF only enters into repurchase agreements with institutions with a satisfactory credit history. Information concerning TCF’s FHLB advances, repurchase agreements, subordinated notes and other borrowings is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Financial Condition Analysis – Borrowings” and in Notes 10 and 11 of Notes to Consolidated Financial Statements. 2007 Form 10-K | 3 156976_10K_F_Q6 2/16/08 3:48 PM Page 4 Other Information Activities of Subsidiaries of TCF Financial Corporation TCF’s business operations include those con- ducted by direct and indirect subsidiaries of TCF Financial, all of which are consolidated for purposes of preparing TCF’s consolidated financial statements. TCF does not utilize unconsolidated subsidiaries or special purpose entities to provide off-balance sheet borrowings. TCF’s primary direct subsidiaries are TCF National Bank and TCF National Bank Arizona (collectively, “TCF Bank”). Subsidiaries of TCF Bank are principally engaged in the following activities. Leasing and Equipment Finance See “Item 1. Business-Lending Activities” for information on TCF’s leasing and equipment finance businesses. Insurance and Investment Services TCF Investments sells a variety of investment products to its retail banking clients. These products include fixed and variable rate, single premium tax-deferred annuities, mutual funds, life insurance and broker-assisted securities. Real Estate Investment Trust TCF has a Real Estate Investment Trust (“REIT”) and a related foreign operating company (“FOC”) that acquire, hold and manage real estate loans and other assets. These companies are consolidated with TCF Bank and are included in the consolidated financial statements of TCF Financial Corporation. The REIT and related companies must meet specific provisions of the Internal Revenue Code (“IRC”) and state tax laws. If these companies fail to meet any of the required provisions of federal and state tax laws, TCF’s tax expense would increase significantly. TCF’s FOC operates under income tax laws in certain states (including Minnesota and Illinois) that recognize FOCs. The taxation of REITs and FOCs is and has been the subject of federal and state audits, litigation with state taxing authorities and tax policy debates by various state legisla- tures. Illinois passed legislation in 2007 that will reduce or eliminate TCF’s REIT and FOC tax benefits in the future. Other states may revise their tax laws applicable to REITs or FOCs and such changes would increase TCF’s income tax expense. Competition TCF competes with a number of depository institutions and financial service providers in its market areas, and experiences significant competition in attract- ing and retaining deposits and in lending funds. Direct competition for deposits comes primarily from retail banks, commercial banks, savings institutions, credit unions and investment banks. Additional significant competition for deposits comes from institutions selling money market mutual funds and corporate and government securities. TCF competes for the origination of loans with commercial banks, mortgage bankers, mortgage brokers, consumer and commercial finance companies, credit unions, insurance companies and savings institutions. TCF also competes nationwide with other leasing and equipment finance com- panies and commercial banks in the financing of equipment. Expanded use of the Internet has increased competition affecting TCF and its loan, lease and deposit products. Employees As of December 31, 2007, TCF had 8,183 employees, including 2,755 part-time employees. TCF pro- vides its employees with a comprehensive program of bene- fits, some of which are provided on a contributory basis, including comprehensive medical and dental plans, a 401(k) savings plan with a company matching contribution, life insurance and short- and long-term disability coverage. Regulation The banking industry is generally subject to extensive regu- latory oversight. TCF Financial, as a publicly held financial holding company, and TCF Bank, which has deposits insured by the Federal Deposit Insurance Corporation (“FDIC”), are subject to a number of laws and regulations. Many of these laws and regulations have undergone significant change in recent years. These laws and regulations impose restrictions on activities, minimum capital requirements, lending and deposit restrictions and numerous other requirements. Future changes to these laws and regulations, and other new financial services laws and regulations, are likely and cannot be predicted with certainty. TCF Financial’s primary regulator is the Federal Reserve Bank (“FRB”) and TCF Bank’s primary regulator is the Office of the Comptroller of the Currency (“OCC”). 4 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 5 Regulatory Capital Requirements TCF Financial and TCF Bank are subject to regulatory capital requirements of the FRB and the OCC, respectively, as described below. In addition, these regulatory agencies are required by law to take prompt action when institutions do not meet certain minimum capital standards. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) defines five levels of capital condition, the highest of which is “well-capitalized.” It requires that regulatory authorities subject undercapitalized institutions to various restrictions such as limitations on dividends or other capital distribu- tions, limitations on growth or restrictions on activities. Undercapitalized banks must develop a capital restoration plan and the parent financial holding company is required to guarantee compliance with the plan. TCF Financial and TCF Bank are “well-capitalized” under the FDICIA capital standards. The FRB and the OCC also have adopted rules that could permit them to quantify and account for interest-rate risk exposure and market risk from trading activity and reflect these risks in higher capital requirements. New legislation, additional rulemaking, or changes in regulatory policies may affect future regulatory capital requirements applicable to TCF Financial and TCF Bank. The ability of TCF Financial and TCF Bank to comply with regulatory capital requirements may be adversely affected by legislative changes; future rulemaking or policies of regulatory authorities; unantici- pated losses or lower levels of earnings. Restrictions on Distributions Dividends or other capital distributions from TCF Bank to TCF Financial are an important source of funds to enable TCF Financial to pay dividends on its common stock, to make payments on TCF Financial’s bor- rowings, or for its other cash needs. TCF Bank’s ability to pay dividends is dependent on regulatory policies and regulatory capital requirements. The ability to pay such dividends in the future may be adversely affected by new legislation or regulations, or by changes in regulatory policies. In general, TCF Bank may not declare or pay a dividend to TCF Financial in excess of 100% of its net retained profits for the current year combined with its net retained profits for the preced- ing two calendar years without prior approval of the OCC. TCF Bank’s ability to make capital distributions in the future may require regulatory approval and may be restricted by its regulatory authorities. TCF Bank’s ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. These capital adequacy standards may be higher in the future than existing minimum regulatory capital requirements. The OCC also has the authority to pro- hibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice. In addition, income tax consider- ations may limit the ability of TCF Bank to make dividend payments in excess of its current and accumulated tax “earnings and profits” (“E&P”). Annual dividend distributions in excess of E&P could result in a tax liability based on the amount of excess earnings distributed and current tax rates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Financial Condition Analysis – Liquidity Management” and Notes 13 and 14 of Notes to Consolidated Financial Statements. Regulation of TCF and Affiliates and Insider Transactions TCF Financial is subject to FRB regulations, examinations and reporting requirements relating to bank or financial holding companies. Bank subsidiaries of finan- cial holding companies like TCF Bank are subject to certain restrictions in their dealings with holding company affiliates. A holding company must serve as a source of strength for its subsidiary banks, and the FRB may require a holding company to contribute additional capital to an under- capitalized subsidiary bank. In addition, Section 55 of the National Bank Act may permit the OCC to order the pro rata assessment of shareholders of a national bank where the capital of the bank has become impaired. If a shareholder fails to pay such an assessment within three months, the OCC may order the sale of the shareholder’s stock to cover a deficiency in the capital of a subsidiary bank. In the event of a holding company’s bankruptcy, any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors. 2007 Form 10-K | 5 156976_10K_F_Q6 2/16/08 3:48 PM Page 6 Under the Bank Holding Company Act (“BHCA”), FRB approval is required before acquiring more than 5% control, or substantially all of the assets, of another bank, or bank or financial holding company, or merging or consolidating with such a bank or holding company. The BHCA also gener- ally prohibits a bank holding company, with certain excep- tions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, or conducting activities permitted by the FRB as being closely related to the business of banking. Restrictions on Change in Control Federal and state laws and regulations contain a number of provisions which impose restrictions on changes in control of financial institutions such as TCF Bank, and which require regulatory approval prior to any such changes in control. The Restated Certificate of Incorporation of TCF Financial and a Shareholder Rights Plan adopted by TCF Financial contain, among other items, features which may inhibit a change in control of TCF Financial. Acquisitions and Interstate Operations Under fed- eral law, interstate merger transactions may be approved by federal bank regulators without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle- Neal Interstate Banking and Branching Act of 1994 by adopting a law after the date of enactment of such act, and prior to June 1, 1997, which applies equally to all out- of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches by banks are permitted only if the law of the state in which the branches are located permits such acquisitions. Interstate mergers and branch acquisitions may also be subject to certain nationwide and statewide insured deposit maximum concentration levels or other limitations. Insurance of Accounts; Depositor Preference In February 2006, the Federal Deposit Insurance Act of 2005 (“FDIC Act”) was enacted into law, reforming the bank deposit insurance system. The provisions of the FDIC Act were fully implemented January 1, 2007. The deposits of TCF Bank are insured by the FDIC up to $100,000 per insured depositor, except certain types of retirement accounts, which are insured up to $250,000 per insured depositor. During 2006, FDIC regulations merged the former Saving Association Insurance Fund (“SAIF”) and Bank Insurance Fund (“BIF”) into the Deposit Insurance Fund (“DIF”). The FDIC has set a designated reserve ratio of 1.25% ($1.25 against $100 of insured deposits) for the DIF. The FDIC Act provides the FDIC Board of Directors the authority to set the designated reserve ratio between 1.15% and 1.50%. The FDIC must adopt a restoration plan when the reserve ratio falls below 1.15% and begin paying dividends when the reserve ratio exceeds 1.35%. There is no requirement to achieve a specific ratio within a given time frame. The FDIC Board of Directors has not declared any dividends as of December 31, 2007. The DIF reserve ratio calculated by the FDIC that was in effect at December 31, 2007 was 1.22%. In 2007, FDIC regulations established a new risk-based assessment system under which deposit insurance assess- ments are based upon supervisory ratings for all insured institutions, financial ratios for most institutions, and long-term debt issuer ratings for large institutions that have them. In 2007, the annual insurance premiums on bank deposits insured by the DIF varied between $.05 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $.43 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. TCF Bank was classified in the highest capital and supervisory evaluation category. In 2006, the annual insurance premiums on bank deposits insured by the DIF varied between $0 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. Annual insurance premiums were not required for TCF Bank for 2006 and 2005. The FDIC Act required the FDIC to establish a one-time historical assessment credit that provides banks a credit that can be used to offset insurance assessments in 2007 and 2008. This one-time historical assessment credit was established to benefit banks that had funded deposit 6 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 7 insurance funds prior to December 31, 1996. This one-time historical assessment credit is based upon TCF Bank’s insured deposits as of December 31, 1996. TCF Bank’s one- time historical assessment credit was $9.6 million when it was established in 2006. During 2007, TCF utilized this credit to entirely offset $5.8 million of Federal deposit insurance assessments. The remaining credit of $3.8 million will be completely used in 2008 and only partially offset 2008 assessments. As such, TCF’s Federal deposit insurance expense will increase in 2008. In addition to risk-based deposit insurance assessments, additional assessments may be imposed by the Financing Corporation, a separate U.S. government agency affiliated with the FDIC, on insured deposits to pay for the interest cost of Financing Corporation bonds. Financing Corporation assessment rates for 2007 ranged from $.0114 to $.0122 per $100 of deposits. Financing Corporation assessments of $1.1 million each year for 2007, 2006 and 2005 were paid by TCF Bank and are included in other expense. In addition, the FDIC is authorized to terminate a deposi- tory institution’s deposit insurance if it finds that the insti- tution is being operated in an unsafe and unsound manner or has violated any rule, regulation, order or condition admin- istered by the institution’s regulatory authorities. Any such termination of deposit insurance would likely have a material adverse effect on TCF, the severity of which would depend on the amount of deposits affected by such a termination. Under federal law, deposits and certain claims for admin- istrative expenses and employee compensation against an insured depository institution are afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the liquida- tion or other resolution of such an institution by any receiver appointed by regulatory authorities. Such priority creditors would include the FDIC. Examinations and Regulatory Sanctions TCF is sub- ject to periodic examination by the FRB, OCC and the FDIC. Bank regulatory authorities may impose a number of restrictions or new requirements on institutions found to be operating in an unsafe or unsound manner, including but not limited to growth limitations, dividend restrictions, individual increased regulatory capital requirements, increased loan, lease and real estate loss reserve require- ments, increased supervisory assessments, activity limita- tions or other restrictions that could have an adverse effect on such institutions, their holding companies or holders of their debt and equity securities. Various enforcement reme- dies, including civil money penalties, may be assessed against an institution or an institution’s directors, officers, employees, agents or independent contractors. Under the Bank Secrecy Act and USA Patriot Act, the OCC may, and in some cases is obligated to, take enforcement action where it finds a statutory or regulatory violation. To the extent not subject to preemption by the OCC, subsidiaries of TCF may also be subject to state and/or self-regulatory organization licensing, regulation and examination requirements in connection with certain insurance and securities brokerage activities. National Bank Investment Limitations Permissible investments by national banks are limited by the National Bank Act and by rules of the OCC. Non-traditional bank activities permitted by the Gramm-Leach-Bliley Act will sub- ject a bank to additional regulatory limitations or require- ments, including a required regulatory capital deduction and application of transactions with affiliates limitations in connection with such activities. Laws and Regulations TCF is subject to a wide array of other laws and regulations, including, but not limited to, usury laws, USA Patriot and Bank Secrecy Acts, the Community Reinvestment Act and related regulations, the Equal Credit Opportunity Act and Regulation B, Regulation D reserve requirements, Electronic Funds Transfer Act and Regulation E, the Truth-in-Lending Act and Regulation Z, the Real Estate Settlement Procedures Act and Regulation X, the Expedited Funds Availability Act and Regulation CC, and the Truth-in-Savings Act and Regulation DD. TCF is also subject to laws and regulations that may impose liability on lenders and owners for clean-up costs and other costs stemming from hazardous waste located on property securing real estate loans. 2007 Form 10-K | 7 156976_10K_F_Q6 2/16/08 3:48 PM Page 8 In defining the Company’s risk profile, management organizes risks into three main categories: Credit Risk, Market Risk (which includes interest-rate risk, liquidity risk, and price risk) and Operational Risk (which includes transaction risk and compliance risk). Policies, systems and procedures have been adopted which are intended to identify, assess, control, monitor, and manage risk in each of these areas. Primary responsibility for risk management lies with the heads of various business lines within the Company. Each business line within the Company maintains policies, systems and procedures which are intended to identify, assess, con- trol, monitor, and manage risk within each area. Management continually reviews the adequacy and effectiveness of these policies, systems and procedures. As an integral part of the risk management process, management has established various committees consisting of senior executives and others within the Company. The purpose of these committees is to closely monitor risks and ensure that adequate risk management practices exist within their respective areas of authority. Some of the principal committees include the Credit Policy Committee, Asset/Liability Management Committee (“ALCO”), Investment Committee, Capital Planning Committee and various financial reporting and compliance-related committees. Overlapping membership of these committees by senior executives and others helps provide a unified view of risk on an enterprise- wide basis. To provide an enterprise-wide view of the Company’s risk profile, an enterprise risk management governance process has been established. This includes appointment of an Enterprise Risk Management Officer, who oversees the process and reports on the Company’s risk profile. Additionally, risk officers are assigned to each significant line of business. The risk officers, while reporting directly to their respective line, facilitate implementation of the enterprise risk man- agement and governance process. An Enterprise Risk Management Committee has been established consisting of senior executives and others within the Company, which over- sees and supports the Enterprise Risk Management Officer. The Board of Directors, through its Audit Committee, has overall responsibility for oversight of the Company’s enterprise risk management governance process. Taxation Federal Taxation The statute of limitations on TCF’s con- solidated Federal income tax return is closed through 2003. State Taxation TCF and/or its subsidiaries currently file tax returns in all states which impose corporate income and franchise taxes and local tax returns in certain cities and other taxing jurisdictions. TCF’s primary banking activities are in the states of Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana and Arizona. The methods of filing, and the methods for calculating taxable and apportionable income, vary depending upon the laws of the taxing juris- diction. See “Risk Factors.” See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Income Statement Analysis – Income Taxes” and Notes 1 and 12 of Notes to Consolidated Financial Statements for additional information regarding TCF’s income taxes. Available Information TCF’s website, www.tcfbank.com, includes free access to Company news releases, investor presentations, conference calls to discuss published financial results, TCF’s Annual Report and periodic filings required by the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports. TCF’s Compensation/Nominating/Corporate Governance Committee and Audit Committee charters, Corporate Governance Guidelines, Codes of Ethics and changes to Codes of Ethics are also available on this website. Shareholders may request these documents in print by contacting the Corporate Secretary at TCF Financial Corporation, 200 Lake Street East, Mail Code EX0-03-A, Wayzata, MN 55391-1693. Item 1A. Risk Factors Enterprise Risk Management In the normal course of business, TCF is exposed to various risks. Management balances the Company’s strategic goals, including revenue and profitability objectives, with their associated risks. 8 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 9 Credit Risk Management Credit risk is defined as the risk to earnings or capital if an obligor fails to meet the terms of any contract with the Company or otherwise fails to perform as agreed. This includes failure of customers to meet their contractual obligations, and contingent exposures from unfunded loan commitments and letters of credit. Credit risk also includes failure of a counterparty to settle a securities transaction on agreed-upon terms (such as the counterparty in a repurchase transaction) or failure of an issuer in connection with mortgage-backed securities held in the Company’s securities available for sale portfolio. The Company manages securities transaction risk by monitoring all unsettled transactions. All counterparties and transac- tion limits are reviewed and approved annually by both ALCO and the Company’s senior credit committee. To further manage credit risk in the securities available for sale port- folio, over 99% of the securities held in the securities avail- able for sale portfolio are guaranteed by Fannie Mae and Freddie Mac. To manage credit risk arising from lending and leasing activities, management has adopted and maintains sound underwriting policies and procedures, and periodically reviews the appropriateness of these policies and procedures. Customers are evaluated as part of the initial underwriting processes and through periodic reviews. For consumer loans and small business banking loans, credit scoring models are used to help determine eligibility for credit and terms of credit. These models are periodically reviewed to verify they are predictive of borrower performance. Limits are estab- lished on the exposure to a single customer (including their affiliates) and on concentrations for certain categories of customers. Loan and lease credit approval levels are estab- lished so that larger credit exposures receive managerial review at the appropriate level through various credit approval committees. Management continuously monitors asset quality in order to manage the Company’s credit risk and determine the appropriateness of valuation allowances. This includes, in the case of commercial loans and leases, a risk rating methodology under which a rating (1 through 9) is assigned to every loan and lease. The rating reflects management’s assessment of the level of the customer’s financial stress which may impact repayment. Asset quality is monitored separately based on the type or category of loan or lease. This allows management to better define the Company’s loan and lease portfolio risk profile. Management also uses various risk models to estimate probable impact on payment performance under various expected or unexpected scenarios. Market Risk Management (Including Interest-Rate Risk and Liquidity Risk) Market risk is defined as the potential for losses arising from changes in interest rates, equity prices, and other relevant market rates or prices, and includes interest-rate risk, liquidity risk and price risk. Interest-rate risk and associated liquidity risk are the Company’s primary market risks. Interest-Rate Risk Interest-rate risk is defined as the exposure of net interest income and fair value of financial instruments (interest-earning assets, deposits and borrow- ings) to adverse movements in interest rates. Interest-rate risk arises mainly from the structure of the balance sheet. The primary goal of interest-rate risk management is to control exposure to interest-rate risk within acceptable tolerances established by ALCO and the Board of Directors. The major sources of the Company’s interest-rate risk are timing differences in the maturity and repricing characteris- tics of assets and liabilities, changes in relationships between rate indices (basis risk), changes in customer behavior and changes in the shape of the yield curve. Management meas- ures these risks and their impact in various ways, including use of simulation analysis and valuation analysis. Simulation analysis is used to model net interest income from asset and liability positions over a specified time period (generally one year), and the sensitivity of net interest income under various interest rate scenarios. The interest rate scenarios may include gradual or rapid changes in interest rates, spread narrowing and widening, yield curve twists, and changes in assumptions about customer behav- ior in various interest rate scenarios. The simulation analy- sis is based on various key assumptions which relate to the behavior of interest rates and spreads, changes in product balances, the repricing characteristics of products, and the behavior of loan and deposit customers in different rate environments. The simulation analysis does not necessarily take into account actions management may undertake in response to anticipated changes in interest rates. 2007 Form 10-K | 9 156976_10K_F_Q6 2/16/08 3:48 PM Page 10 In addition to the valuation analysis, management utilizes an interest rate gap measure (difference between interest-earning assets and interest-bearing liabilities repricing within a given period). While the interest rate gap measurement has some limitations, including no assumptions regarding future asset or liability production and a static interest rate assumption (large changes may occur related to those items), the interest rate gap represents the net asset or liability sensitivity at a point in time. An interest rate gap measure could be significantly affected by exter- nal factors such as loan prepayments, early withdrawals of deposits, changes in the correlation of various interest- bearing instruments, competition or a rise or decline in interest rates. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for further information about TCF’s interest-rate risk, gap analysis and simulation analysis. Management also uses valuation analysis to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analysis. Whereas net interest income simulation highlights exposure over a rela- tively short time period (12 months), valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the bal- ance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted value of liability cash flows. Valuation analysis addresses only the current balance sheet and does not incorporate the growth assumptions that are used in the net interest income simula- tion model. As with the net interest income simulation model, valuation analysis is based on key assumptions about the timing and variability of balance sheet cash flows. It also does not take into account actions management may under- take in response to anticipated changes in interest rates. ALCO meets regularly and is responsible for reviewing the Company’s interest rate sensitivity position and establishing policies to monitor and limit exposure to interest-rate risk. Liquidity Risk Liquidity risk is defined as the risk to earn- ings or capital arising from the Company’s inability to meet its obligations when they come due without incurring unaccept- able losses. The primary goal of liquidity risk management is to ensure that the Company’s entire funding needs are met promptly, in a cost-efficient and reliable manner. ALCO and the Board of Directors have adopted a Liquidity Management Policy to direct management of the Company’s liquidity risk. Under the Liquidity Management Policy, the Treasurer reviews current and forecasted funding needs for 10 | TCF Financial Corporation and Subsidiaries the Company and periodically reviews market conditions for issuing debt securities to wholesale investors. Key liquidity ratios and the amount available from alternative funding sources are reported to ALCO on a monthly basis. TCF maintains diverse and reliable sources of funding. They include federal funds lines totaling at least $500 mil- lion, repurchase agreement lines totaling at least 150% of the amount of the Company’s financeable collateral (defined as any piece or pool of collateral that is greater than $5 million in current par), access to Federal Home Loan Bank (“FHLB”) advances and the Federal Reserve Bank discount window, treasury, tax and loan notes, commercial repurchase sweeps, and wholesale deposits. A contingency funding plan is in place should certain liquidity triggers occur. Other Market Risks Another source of market risk is the Company’s investment in FHLB stock. The investments in FHLB stock are required investments related to TCF’s bor- rowings from these banks. All new FHLB borrowing activity since 2000 is done with the FHLB of Des Moines. FHLBs obtain their funding primarily through issuance of consoli- dated obligations of the Federal Home Loan Bank system. The U.S. Government does not guarantee these obligations, and each of the 12 FHLBs are generally jointly and severally liable for repayment of each other’s debt. Therefore, TCF’s investments in these banks could be adversely impacted by the financial operations of the FHLBs and actions by the Federal Housing Finance Board’s Office of Supervision. Operational Risk Management Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or external events. This definition includes transaction risk, which includes losses from fraud, error, the inability to deliver products or services, and loss or theft of information. Transaction risk encompasses product development and delivery, transaction processing, information technology systems, and the inter- nal control environment. The definition of operational risk also includes compliance risk, which is the risk of loss from violations of, or nonconformance with laws, rules, regula- tions, prescribed practices, or ethical standards. The Company’s Internal Audit Department periodically assesses the adequacy and effectiveness of the Company’s processes for controlling and managing risks in all the core areas of operations. This includes determining whether internal controls and information systems are properly designed and adequately tested and reviewed. This also 156976_10K_F_Q6 2/16/08 3:48 PM Page 11 includes determining whether the system of internal controls over financial reporting is appropriate for the type and level of risks posed by the nature and scope of the Company’s activities. Audit plans are prepared using a risk-based methodology as well as any concerns identified by manage- ment, the Audit Committee, regulators or the Company’s independent registered public accounting firm. Significant issues related to the adequacy of controls, together with recommendations for improvements to those controls, are reported to management and the Audit Committee. The Company’s Compliance Department and others charged with compliance responsibilities periodically assess the adequacy and effectiveness of the Company’s processes for controlling and managing its principal con- sumer compliance risks. Compliance Department audit plans are prepared using a risk-based methodology as well as any concerns identified by management, the Audit Committee, or regulators. Significant issues related to the adequacy of controls, together with recommendations for improvements to those controls, are reported to manage- ment and the Audit Committee. Other Risks Customer Behavior Changes in customers’ behavior regarding use of deposit accounts could result in lower fee revenue, higher borrowing costs, and higher operational costs for TCF. TCF obtains a large portion of its revenue from its deposit accounts and depends on low-interest cost deposits as a significant source of funds. In addition, competition from other financial institutions could result in higher numbers of closed accounts and increased account acquisition costs. TCF actively monitors customer behavior and adjusts policies and marketing efforts accordingly to attract new and retain existing checking account customers. New Branch Expansion The success of TCF’s branch expansion is dependent on the continued success of branch banking in attracting new customers and business. Many other financial institutions are also opening new branches, and the competition from them and other retailers for adequate new branch sites is significant. New branches typically produce net losses during the first two to three years of operations before they become profitable, and therefore the level and timing of new branch expansion can have a significant impact on TCF’s profitability. Supermarket Branches The success of TCF’s supermarket branch expansion is dependent on the continued long-term success and viability of TCF’s supermarket partners and TCF’s ability to maintain licenses or lease agreements for its supermarket locations. At December 31, 2007, TCF had 244 supermarket branches, representing 54% of all retail branches. Supermarket banking continues to play an impor- tant role in TCF’s growth, as these branches have been consistent generators of account growth and deposits. TCF is subject to the risk, among others, that its license or lease for a location or locations will terminate upon the sale or closure of that location or locations by the supermarket partner. Also, an economic slowdown, financial or labor difficulties in the supermarket industry may reduce activity in TCF’s supermarket branches. Card Revenue Future card revenues may be impacted by class action litigation against Visa USA Inc. (Visa USA) and MasterCard®. TCF Financial Corporation’s bank subsidiaries have membership interests in Visa USA. Under Visa USA’s Bylaws, TCF has a contingent obligation to indemnify Visa USA for certain litigation unrelated to TCF. See page 38 under Management’s Discussion and Analysis for details of TCF’s contingent obligation to indemnify Visa USA for certain litigation. Merchants are also seeking to develop independent card products or payment systems that would serve as alterna- tives to TCF Visa card products. The continued success of TCF’s various card programs is dependent on the success and viability of Visa and the continued use by customers and acceptance by merchants of its cards. Declines in Home Values Declines in home values in TCF’s markets could adversely impact results from opera- tions. Like all banks, TCF is subject to the effects of any economic downturn, and in particular, a significant decline in home values in TCF’s markets could have a negative effect on results of operations. A significant decline in home val- ues would likely lead to a decrease in new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and residential real estate loan portfolios and result in increased losses in these portfolios. Leasing and Equipment Finance Activities TCF’s leasing and equipment finance activities are subject to the risk of cyclical downturns and other adverse economic developments. In an adverse economic environment, there 2007 Form 10-K | 11 156976_10K_F_Q6 2/16/08 3:48 PM Page 12 may be a decline in the demand for some types of equipment which TCF leases and/or finances, resulting in a decline in the amount of new equipment being placed in service as well as the decline in equipment values for equipment previ- ously placed in service. TCF, like all owners and lessors of commercial equipment, may also be exposed to liability claims resulting from injuries or accidents involving that equipment. Such liability has been most acute in states that have adopted laws imposing statutory vicarious liability on leasing companies for any injuries or property damage caused by motor vehicles they owned and leased. In 2005, a federal statute was enacted that significantly reduced a leasing company’s exposure to that risk. TCF seeks to mitigate its overall exposure to lessor’s liability risk by requiring certain lessees to furnish evidence of liabil- ity insurance prior to lease inception and to maintain that insurance throughout the term of the lease, and through its own insurance programs. Income Taxes TCF is subject to federal and state income tax laws and regulations. Income tax regulations are often complex and require interpretation. Changes in income tax regulations could negatively impact TCF’s results of operations. If TCF’s REIT affiliate fails to qualify as a REIT, or should states enact legislation taxing REITs or related entities, TCF’s tax expense would increase significantly. The REIT and related companies must meet specific provisions of the Internal Revenue Code and state tax laws. Use of REITs is and has been the subject of federal and state audits, litigation with state taxing authorities and tax policy debates by various state legislatures. Any unfavorable law changes and unfavorable audit results in 2008 would increase TCF’s income taxes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Income Statement Analysis – Income Taxes” for additional information. Rules and Regulations New or revised tax, accounting, and other laws, regulations, rules and standards could sig- nificantly impact strategic initiatives, results of operations, and financial condition. The financial services industry is extensively regulated. Federal and state laws and regulations are designed primarily to protect the deposit insurance funds and consumers, and not necessarily to benefit a financial company’s shareholders. These laws and regulations may impose significant limitations on operations. These limitations, and sources of potential liability for the violation of such laws and regulations, are described in “Regulation.” These regulations, along with tax and accounting laws, regulations, rules, and standards, have a significant impact on the ways that financial institutions conduct business, implement strategic initiatives, engage in tax planning and make financial disclosures. These laws, regu- lations, rules, and standards are constantly evolving and may change significantly over time. The nature, extent, and timing of the adoption of significant new laws, changes in existing laws, or repeal of existing laws may have a material impact on TCF’s business, results of operations, and finan- cial condition, the effect of which is impossible to predict. Violations of these laws can result in enforcement actions which can impact operations. Future Legislative and Regulatory Change; Litigation and Enforcement Activity There are a number of respects in which future legislative or regulatory change, or changes in enforcement practices or court rul- ings, could adversely affect TCF, and it is generally not pos- sible to predict when or if such changes may have an impact on TCF. TCF’s income in future periods may be negatively impacted by pending state and federal legislative proposals which, if enacted, could limit interest rates or loan, deposit or other fees and service charges. For example, recently enacted federal legislation will reduce interest subsidies and other benefits available to financial institutions that make education loans. Financial institutions have increas- ingly been the subject of class action lawsuits or in some cases regulatory actions challenging a variety of practices involving consumer lending and retail deposit-taking activity. The Community Reinvestment Act (“CRA”) and fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice (“DOJ”) and other federal agencies are responsible for enforcing these laws and regulations. A successful chal- lenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictions on expansion activity. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. 12 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 13 USA Patriot and Bank Secrecy Acts The USA Patriot and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury Department’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to estab- lish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions. In recent years, several banking institutions have received large fines for non-compliance with these laws and regulations. Although TCF has developed policies and procedures designed to ensure compliance, regulators may take enforcement action against TCF in the event of noncompliance. Disruption to Infrastructure The extended disruption of vital infrastructure could negatively impact TCF’s busi- ness, results of operations, and financial condition. TCF’s operations depend upon, among other things, its technolog- ical and physical infrastructure, including its equipment and facilities. Extended disruption of its vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking and viruses, terrorist activity or the domestic and foreign response to such activity, or other events outside of TCF’s control, could have a material adverse impact either on the financial services industry as a whole, or on TCF’s business, results of operations, and financial condition. Estimates and Assumptions TCF’s consolidated finan- cial statements conform with generally accepted accounting principles, which require management to make estimates and assumptions that affect amounts reported in the con- solidated financial statements. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. For further information relating to critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Summary of Critical Accounting Estimates.” Item 1B. Unresolved Staff Comments None. Item 2. Properties Offices At December 31, 2007, TCF owned the buildings and land for 134 of its bank branch offices, owned the buildings but leased the land for 24 of its bank branch offices and leased or licensed the remaining 295 bank branch offices, all of which are well maintained. Bank branch properties owned by TCF had an aggregate net book value of approximately $254.3 million at December 31, 2007. At December 31, 2007, the aggregate net book value of leasehold improvements associated with leased bank branch office facilities was $33.7 million. In addition to the branch offices, TCF owned and leased other facilities with an aggregate net book value of $43.9 million at December 31, 2007. For more information on premises and equipment, see Note 7 of Notes to Consolidated Financial Statements. Item 3. Legal Proceedings From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations. TCF is, and expects to become, engaged in a number of foreclosure proceedings and other collection actions as part of its lending and leasing collection activities. From time to time, borrowers and other customers, or employees or former employees have also brought actions against TCF, in some cases claiming substantial damages. Financial services companies are subject to the risk of class action litigation, and TCF has had such actions brought against it from time to time. Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty. Item 4. Submission of Matters to a Vote of Security Holders None. 2007 Form 10-K | 13 156976_10K_F_Q6 2/16/08 3:48 PM Page 14 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TCF’s common stock trades on the New York Stock Exchange under the symbol “TCB.” The following table sets forth the high and low prices and dividends declared for TCF’s com- mon stock. The stock prices represent the high and low sale prices for the common stock on the New York Stock Exchange Composite Tape, as reported by Bloomberg. 2007 First Quarter Second Quarter Third Quarter Fourth Quarter 2006 First Quarter Second Quarter Third Quarter Fourth Quarter High Low Dividends Declared $27.91 28.99 28.25 27.95 $28.41 27.70 28.10 27.89 $24.93 25.39 22.69 17.17 $24.23 24.91 24.94 25.16 $.2425 .2425 .2425 .2425 $ .23 .23 .23 .23 As of January 31, 2008, there were 8,098 holders of record of TCF’s common stock. The Board of Directors of TCF Financial has not adopted a formal dividend policy. The Board of Directors intends to continue its practice of paying quarterly cash dividends on TCF’s common stock as justified by the financial condition of TCF. The declaration and amount of future dividends will depend on circumstances existing at the time, including TCF’s earnings, financial condition and capital requirements, the cash available to pay such dividends (derived mainly from dividends and distributions from TCF Bank), as well as regulatory and contractual limitations and such other fac- tors as the Board of Directors may deem relevant. In general, TCF Bank may not declare or pay a dividend to TCF in excess of 100% of its net retained profits for that year combined with its net retained profits for the preceding two calendar years without prior approval of the OCC. Restrictions on the ability of TCF Bank to pay cash dividends or possible dimin- ished earnings of the indirect subsidiaries of TCF may limit the ability of TCF to pay dividends in the future to holders of its common stock. See “Regulation – Regulatory Capital Requirements,” “Regulation – Restrictions on Distributions” and Note 14 of Notes to Consolidated Financial Statements. 14 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 15 The following graph compares the cumulative total stockholder return on TCF Stock over the last five fiscal years with the cumulative total return of the Standard and Poor’s 500 Stock Index, the SNL All Bank and Thrift Index, and a TCF Financial- selected group of peer institutions over the same period (assuming the investment of $100 in each index on December 31, 2002 and reinvestment of all dividends). TCF Stock Performance Chart TCF Financial Corporation S&P 500* SNL All Bank & Thrift Index (1) 2007 TCF Peer Group (2) $200 180 160 140 120 100 e u l a V x e d n I 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 Index TCF Financial Corporation S&P 500* SNL All Bank & Thrift Index (1) 2007 TCF Peer Group (2) 12/31/02 100.00 100.00 100.00 100.00 12/31/03 120.98 128.68 135.57 146.44 Period Ending 12/31/04 155.57 142.69 151.82 161.86 12/31/05 135.53 149.70 154.20 159.39 12/31/06 141.87 173.34 180.17 178.95 12/31/07 96.41 182.86 137.40 139.07 (1) Includes every bank and thrift institution in the U.S. traded on a major public exchange, a total of 599 companies as of December 31, 2007. (2) Consists of the 30 banks and thrifts, 15 of which are immediately larger than and 15 of which are immediately smaller than TCF Financial in total assets as of September 30, 2007, as follows: Hudson City Bancorp, Inc.; First Horizon National Corporation; IndyMac Bancorp, Inc.; Synovus Financial Corp.; New York Community Bancorp, Inc.; Colonial BancGroup, Inc.; Astoria Financial Corporation; Associated Banc-Corp; BOK Financial Corporation; First BanCorp.; Webster Financial Corporation; Flagstar Bancorp, Inc.; First Citizens Bancshares, Inc.; Commerce Bancshares, Inc.; City National Corporation; Fulton Financial Corporation; BankUnited Financial Corporation; Downey Financial Corp.; South Financial Group, Inc.; People’s United Financial, Inc.; Citizens Republic Bancorp, Inc.; Cullen/Frost Bankers, Inc.; BancorpSouth, Inc.; Valley National Bancorp; Sterling Financial Corporation; East West Bancorp, Inc.; Wilmington Trust Corporation; UCBH Holdings, Inc.; International Bancshares Corporation; and Whitney Holding Corporation. Ten of the companies, which were in the 2006 TCF Peer Group, are not in the 2007 TCF Peer Group due to merger and acquisition activity or changes in asset size. Those 10 companies are: Mercantile Bankshares Corporation; W Holding Company, Inc.(September 30, 2007 data not available); Sky Financial Group, Inc.; Fremont General Corporation; Investors Financial Services Corp.; MAF Bancorp, Inc.; First Republic Bank; People’s Bank (MHC); Bank of Hawaii Corporation; FirstMerit Corporation. * Source: SNL Financial LC and Standard & Poor’s © 2008 The following table summarizes share repurchase activity for the quarter ended December 31, 2007. Period October 1 to October 31, 2007 Share repurchase program (1) Employee transactions (2) November 1 to November 30, 2007 Share repurchase program (1) Employee transactions (2) December 1 to December 31, 2007 Share repurchase program (1) Employee transactions (2) Total number of shares purchased 100,000 1,611 – – – – Average price paid per share Total shares purchased as a part of publicly announced plan Number of shares that may yet be purchased under the plan $22.91 $26.56 $ $ $ $ – – – – 100,000 N.A. – N.A. – N.A. 5,384,130 N.A. 5,384,130 N.A. 5,384,130 N.A. (1) The current share repurchase authorization was approved by the Board of Directors on April 14, 2007. The authorization was for a repurchase of up to an additional 5% of TCF's common stock outstanding at the time of the authorization, or 6.5 million shares. This authorization does not have an expiration date. (2) Restricted shares withheld pursuant to the terms of awards under the TCF Financial Incentive Stock Program to offset tax withholding obligations that occur upon vesting and release of restricted shares. The TCF Financial Incentive Stock Program provides that the value of shares withheld shall be the average of the high and low prices of common stock of TCF Financial Corporation on the date the relevant transaction occurs. N.A. Not Applicable. 2007 Form 10-K | 15 156976_10K_F_Q6 2/16/08 3:48 PM Page 16 Item 6. Selected Financial Data The selected five-year financial summary presented below should be read in conjunction with the Consolidated Financial Statements and related notes. Five-Year Financial Summary Consolidated Income: (Dollars in thousands, except per-share data) Total revenue Net interest income Provision for credit losses Fees and other revenue Gains on sales of securities available for sale Losses on termination of debt Gains on sales of branches and real estate Non-interest expense Income before income tax expense Income tax expense Net income Per common share: Basic earnings Diluted earnings Dividends declared Consolidated Financial Condition: (Dollars in thousands, except per share data) Loans and leases excluding residential real estate loans Securities available for sale Residential real estate loans Subtotal Total assets Checking, savings and money market deposits Certificates of deposit Total deposits Borrowings Stockholders’ equity Book value per common share Key Ratios and Other Data: Year Ended December 31, 2007 2006 $ 1,091,634 $ 1,026,994 $ 537,530 $ $ 20,689 485,276 550,177 $ 56,992 490,285 2005 995,932 $ 517,690 $ 8,586 453,965 2004 981,777 $ 491,891 $ 18,627 467,027 2003 900,256 481,145 19,048 429,899 13,278 – – – 10,671 – 22,600 – 32,832 (44,345) 37,894 662,124 372,518 105,710 266,808 $ 4,188 649,197 357,108 112,165 244,943 $ 13,606 606,936 380,410 115,278 265,132 $ 259 578,674 384,476 129,483 254,993 $ 725 553,425 327,783 111,905 215,878 2.13 $ 2.12 $ .97 $ 1.90 $ 1.90 $ .92 $ 2.00 $ 2.00 $ .85 $ 1.87 $ 1.86 $ .75 $ 1.53 1.53 .65 $ $ $ $ Compound Annual Growth Rate 1-Year 2007/2006 5-Year 2007/2002 6.3% 2.4 175.5 1.0 N.M. – N.M. 2.0 4.3 (5.8) 8.9 12.1 11.6 5.4 3.5% 2.0 15.0 3.8 2.9 – 80.8 4.4 .8 (3.3) 2.8 6.2 6.1 11.0 At December 31, 2007 2006 2005 2004 2003 Compound Annual Growth Rate 1-Year 2007/2006 5-Year 2007/2002 $11,810,629 $10,705,890 $ 9,442,772 $ 8,404,404 $ 7,156,697 1,533,288 1,212,643 2,745,931 11,344,737 1,963,681 527,607 2,491,288 15,977,054 1,619,941 1,014,166 2,634,107 12,376,965 1,648,615 770,441 2,419,056 13,388,594 1,816,126 627,790 2,443,916 14,669,734 7,322,014 2,254,535 9,576,549 4,973,448 1,099,012 7,285,615 2,483,635 9,769,250 3,588,540 1,033,374 7,213,735 1,915,620 9,129,355 2,983,136 998,472 6,525,458 1,468,650 7,994,108 3,104,603 958,418 $ 8.68 $ 7.92 $ 7.46 $ 6.99 $ 6,021,189 1,612,123 7,633,312 2,414,825 920,858 6.53 10.3% 8.1 (16.0) 1.9 8.9 .5 (9.2) (2.0) 38.6 6.4 9.6 Return on average assets Return on average equity Average total equity to average assets Net interest margin (1) Net charge-offs as a percentage of average loans and leases Common dividend payout ratio Number of bank branches (1) Net interest income divided by average interest-earning assets. N.M. Not Meaningful. 16 | TCF Financial Corporation and Subsidiaries 2007 1.76% 25.82 6.82 3.94 .30 45.75% 453 At or For the Year Ended December 31, 2005 2006 2.08% 1.74% 28.03 24.37 7.43 7.15 4.46 4.16 .29 .17 42.50% 48.42% 453 453 2004 2.15% 27.02 7.94 4.54 .20 40.32% 430 13.2% (4.1) (21.8) (10.0) 5.5 4.7 3.3 4.4 9.8 2.4 5.6 2003 1.85% 23.05 8.03 4.54 .24 42.48% 401 156976_10K_F_Q6 2/16/08 3:48 PM Page 17 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Table of Contents Overview Results of Operations Performance Summary Operating Segment Results Consolidated Income Statement Analysis Net Interest Income Provision for Credit Losses Non-Interest Income Non-Interest Expense Income Taxes Consolidated Financial Condition Analysis Securities Available for Sale Loans and Leases Allowance for Loan and Lease Losses Non-Performing Assets Past Due Loans and Leases Potential Problem Loans and Leases Liquidity Management Deposits Branches Borrowings Contractual Obligations and Commitments Stockholders’ Equity Summary of Critical Accounting Estimates Recent Accounting Developments Fourth Quarter Summary Legislative, Legal and Regulatory Developments Forward-Looking Information Page 17 18 18 18 19 19 23 23 25 26 27 27 27 31 34 35 35 36 36 36 37 38 39 39 39 40 41 41 Management’s discussion and analysis of the consolidated financial condition and results of operations of TCF Financial Corporation (“TCF” or the “Company”) should be read in conjunction with the consolidated financial statements in Item 8 and selected financial data in Item 6. Overview TCF, a Delaware corporation, is a financial holding company based in Wayzata, Minnesota. Its principal subsidiaries, TCF National Bank and TCF National Bank Arizona (“TCF Bank”), are headquartered in Minnesota and Arizona, respectively, and had 453 banking offices in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana and Arizona at December 31, 2007. TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the needs of all consumers. The Company focuses on attracting and retaining customers through service and convenience, includ- ing branches that are open seven days a week and on most holidays, extensive full-service supermarket branches, auto- mated teller machine (“ATM”) networks and telephone and internet banking. TCF’s philosophy is to generate interest income, fees and other revenue growth through business lines that emphasize higher yielding assets and low or no interest- cost deposits. The Company’s growth strategies include new branch expansion and the development of new products and services. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives. TCF’s core businesses include retail and small business banking, commercial banking, consumer lending, leasing and equipment finance and investments and insurance serv- ices. The retail banking business includes traditional and supermarket branches, campus banking, EXPRESS TELLER® ATMs and Visa® cards. Targeted new branch expansion is an integral part of TCF’s growth strategy for generating new deposit accounts and the related revenue that is associated with the accounts and other products. New branches typically produce net losses during the first two to three years of operations before they become profitable, and therefore the level and timing of new branch expansion can have a significant impact on TCF’s profitability. TCF’s lending strategy is to originate high credit quality, primarily secured, loans and leases. TCF’s largest core lending business is its consumer home equity loan operation, which offers fixed- and variable-rate loans and lines of credit secured by residential real estate properties. Commercial loans are generally made on local properties or to local customers. The leasing and equipment finance businesses consist of TCF Equipment Finance, a company that delivers equipment finance solutions to businesses in select markets, and Winthrop Resources, a company that primarily leases technology and data processing equipment. TCF’s leasing 2007 Form 10-K | 17 156976_10K_F_Q6 2/16/08 3:48 PM Page 18 and equipment finance businesses have equipment instal- lations in all 50 states and, to a limited extent, in foreign countries. As a primarily secured lender, TCF emphasizes credit quality over asset growth. As a result, TCF’s credit losses are generally lower than those experienced by other banks. The allowance for loan and lease losses, which is generally lower as a percent of loans and leases than the average in the banking industry, reflects the lower historical charge-offs and management’s expectation of the risk of loss incurred in the loan and lease portfolio. See “Consolidated Financial Condition Analysis – Allowance for Loan and Lease Losses.” Net interest income, the difference between interest income earned on loans and leases, securities available for sale, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 50.4% of TCF’s total revenue in 2007. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings. TCF manages the risk of changes in interest rates on its net interest income through an Asset/Liability Committee and through related interest-rate risk monitor- ing and management policies. Non-interest income is a significant source of revenue for TCF and an important factor in TCF’s results of operations. A key driver of non-interest income is its number of deposit accounts and the related transaction activity. Increasing fee and service charge revenues has been challenging as a result of slower growth in deposit accounts and changing customer behaviors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Income Statement Analysis – Non-Interest Income” for additional information. The Company’s Visa debit card program has grown signif- icantly since its inception in 1996. TCF is the 12th largest issuer of Visa Classic debit cards in the United States, based on sales volume for the three months ended September 30, 2007 as published by Visa. TCF earns interchange revenue from customer debit card transactions. The following portions of the Management’s Discussion and Analysis of Financial Condition and Results of Operations focus in more detail on the results of operations for 2007, 2006 and 2005 and on information about TCF’s balance sheet, credit quality, liquidity, funding resources, capital and other matters. Results of Operations Performance Summary TCF reported diluted earnings per common share of $2.12 for 2007, compared with $1.90 for 2006 and $2.00 for 2005. Net income was $266.8 million for 2007, compared with $244.9 million for 2006 and $265.1 million for 2005. Net income for 2007 included a $31.2 mil- lion pre-tax gain on the sale of 10 out-state Michigan branches, $6.7 million in pre-tax gains on sales of real estate, $13.3 million in pre-tax gains on sales of securities, a $7.7 million pre-tax charge for TCF’s estimated contingent obligation related to Visa USA litigation indemnification and $18.4 million of favorable income tax settlements and adjustments for a combined after-tax impact of 37 cents per diluted share. Net income for 2006 included $4.2 million in pre-tax gains on sales of real estate, a $1.6 million net pre-tax gain on the sale of mortgage servicing rights and a $6.1 million reduction of income tax expense for a combined after-tax impact of eight cents per diluted share. Return on average assets was 1.76% in 2007, compared with 1.74% in 2006 and 2.08% in 2005. Return on average common equity was 25.82% in 2007, compared with 24.37% in 2006 and 28.03% in 2005. The effective income tax rate for 2007 was 28.4%, compared with 31.4% in 2006 and 30.3% in 2005. Operating Segment Results BANKING, consisting of deposits, investment products, commercial banking, small business banking, consumer lending and treasury services, reported net income of $232.1 million for 2007, up 11.3% from $208.4 million in 2006. Banking net interest income for 2007 was $485.5 million, up 1.7% from $477.5 million for 2006. 18 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 19 The provision for credit losses totaled $51.7 million in 2007, up from $18.1 million in 2006. The increase in the pro- vision for credit losses from 2006 is primarily due to higher consumer home equity net charge-offs and the resulting portfolio reserve rate increases and increased reserves for certain commercial loans. Refer to the “Consolidated Income Statement Analysis – Provision for Credit Losses” section for further discussion. Non-interest income totaled $481.3 million in 2007, up from $428.4 million in 2006. Fees and service charges were $278 million for 2007, up 2.9% from $270.2 million in 2006. In 2006 there were $5.3 million in fees and service charges related to the Michigan sold branches. Card revenues were $98.9 million for 2007, up 7.4% from $92.1 million in 2006. This increase was primarily attributable to an increased sales volume as a result of increases in transactions per account and the number of active accounts. During 2007, TCF sold 10 out-state branches and recognized gains of $31.2 million and sold five branch buildings and five parcels of land and recognized gains of $6.7 million. During 2006, TCF sold two branch buildings and one land parcel and recog- nized gains of $4.2 million. Also, during 2007 TCF recognized $13.3 million of gains on sales of $1.2 billion of mortgage- backed securities. There were no sales of securities in 2006. See “Consolidated Income Statement Analysis – Non-Interest Income” for further discussion. Non-interest expense totaled $594.7 million in 2007, up 1.6% from $585.5 million in 2006. The increase was primarily due to a $7.7 million charge for TCF’s estimated contingent liability related to Visa USA litigation indemnification. See page 38 under Management’s Discussion and Analysis for details of TCF’s obligations to indemnify Visa for certain litigation. LEASING AND EQUIPMENT FINANCE, an operating segment composed of TCF’s wholly-owned subsidiaries TCF Equipment Finance and Winthrop Resources, provides a broad range of comprehensive lease and equipment finance products. Leasing and equipment finance reported net income of $34.6 million for 2007, up 3.6% from $33.4 million in 2006. Net interest income for 2007 was $65.4 million, up 11.4% from $58.7 million in 2006. The provision for credit losses for this operating segment totaled $5.3 million in 2007, up from $2.6 million in 2006. The increase in the provision for credit losses from 2006 to 2007 was primarily due to increases in reserves for certain loans and leases, partially offset by a recovery in 2007 of a previously charged-off lease. In addition, 2006 included a reduction of reserves in certain marketing segments due to lower levels of historical charge-offs and one large non- accrual lease that was settled in the second quarter of 2006 for less than the amount reserved. Non-interest income totaled $59.2 million in 2007, up $6.1 million from $53 million in 2006. The increase in leasing and equipment finance revenues for 2007, compared with 2006, was primarily due to higher operating lease and sales- type lease revenues. Non-interest expense totaled $65.4 million in 2007, up $8.4 million from $56.9 million in 2006 primarily related to an increase of $4 million in compensation and benefits which included an increase in commissions resulting from a larger volume of sales-type leases and other commissioned events, increased salaries related to headcount expansion and an increase of $3.2 million in operating lease depreciation. Consolidated Income Statement Analysis Net Interest Income Net interest income, the difference between interest earned on loans and leases, securities available for sale, investments and other interest-earning assets (interest income), and interest paid on deposits and borrowings (interest expense), represented 50.4% of TCF’s total revenue in 2007, 52.3% in 2006 and 52% in 2005. Net interest income divided by average interest-earning assets is referred to as the net interest margin, expressed as a percentage. Net interest income and net interest margin are affected by changes in interest rates, loan and deposit 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. 2007 Form 10-K | 19 156976_10K_F_Q6 2/16/08 3:48 PM Page 20 The following tables summarize TCF’s average balances, interest, dividends and yields and rates on major categories of TCF’s interest-earning assets and interest-bearing liabilities. Year Ended December 31, 2007 Year Ended December 31, 2006 Average Yields and Interest(1) Rates Average Balance Average Yields and Interest(1) Rates Average Balance Average Balance Change Average Yields and Rates Interest(1) (bps) $ 178,012 2,024,563 154,516 $ 8,237 109,581 13,252 4.63% 5.41 8.58 $ 78,511 1,833,359 210,992 $ 3,504 98,035 15,009 4.46% 5.35 7.11 $ 99,501 191,204 (56,476) $ 4,733 11,546 (1,757) 17 6 147 326,516 124,992 4,307 455,815 114,140 46,363 160,503 10,853 28,947 39,800 147,507 803,625 33,328 836,953 968,023 30,650 2,994 33,644 49,994 14,976 64,970 17,481 116,095 114,530 230,625 230,625 11,369 175,852 187,221 417,846 417,846 6.97 8.56 9.88 7.37 6.42 7.62 6.73 6.39 7.36 7.07 7.70 7.27 5.80 7.20 6.92 2.91 .36 1.79 4.22 1.17 2.64 2.89 2.35 4.65 3.11 2.39 4.94 4.52 4.54 3.62 3.03 4,683,745 1,460,685 43,589 6,188,019 1,777,813 608,209 2,386,022 169,776 393,442 563,218 1,915,790 11,053,049 574,554 11,627,603 13,984,694 1,161,106 $15,145,800 $ 1,444,125 594,979 199,432 2,238,536 1,054,542 824,791 1,879,333 1,184,756 1,279,577 2,464,333 604,767 4,948,433 2,461,055 7,409,488 9,648,024 230,293 3,890,054 4,120,347 11,529,835 13,768,371 343,978 14,112,349 1,033,451 $15,145,800 3,851,117 1,659,544 36,711 5,547,372 1,665,531 721,871 2,387,402 134,560 373,690 508,250 1,659,807 10,102,831 696,086 10,798,917 12,921,779 1,141,934 $14,063,713 $ 1,513,121 609,907 232,725 2,355,753 1,001,024 864,316 1,865,340 899,067 1,376,182 2,275,249 620,844 4,761,433 2,291,002 7,052,435 9,408,188 596,852 2,752,847 3,349,699 10,402,134 12,757,887 300,930 13,058,817 1,004,896 $14,063,713 263,157 143,576 3,717 410,450 105,089 55,239 160,328 8,471 27,619 36,090 122,292 729,160 40,430 769,590 886,138 6.83 8.65 10.13 7.40 6.31 7.65 6.72 6.30 7.39 7.10 7.37 7.22 5.81 7.13 6.86 31,539 2,017 33,556 37,275 12,797 50,072 15,216 98,844 96,480 195,324 195,324 30,041 123,243 153,284 348,608 348,608 3.15 .23 1.80 4.15 .93 2.20 2.45 2.08 4.21 2.77 2.08 5.03 4.48 4.58 3.35 2.73 832,628 (198,859) 6,878 640,647 112,282 (113,662) (1,380) 35,216 19,752 54,968 255,983 950,218 (121,532) 828,686 1,062,915 19,172 $1,082,087 $ (68,996) (14,928) (33,293) (117,217) 53,518 (39,525) 13,993 285,689 (96,605) 189,084 (16,077) 187,000 170,053 357,053 239,836 (366,559) 1,137,207 770,648 1,127,701 1,010,484 43,048 1,053,532 28,555 $1,082,087 63,359 (18,584) 590 45,365 9,051 (8,876) 175 2,382 1,328 3,710 25,215 74,465 (7,102) 67,363 81,885 (889) 977 88 12,719 2,179 14,898 2,265 17,251 18,050 35,301 35,301 (18,672) 52,609 33,937 69,238 69,238 14 (9) (25) (3) 11 (3) 1 9 (3) (3) 33 5 (1) 7 6 (24) 13 (1) 7 24 44 44 27 44 34 31 (9) 4 (4) 27 30 (Dollars in thousands) Assets: Investments Securities available for sale (2) Education loans held for sale Loans and leases: Consumer home equity: Fixed-rate Variable-rate Consumer – other Total consumer home equity and other Commercial real estate: Fixed- and adjustable-rate Variable-rate Total commercial real estate Commercial business: Fixed- and adjustable-rate Variable-rate Total commercial business Leasing and equipment finance Subtotal Residential real estate Total loans and leases (3) Total interest-earning assets Other assets (4) Total assets Liabilities and Stockholders’ Equity: Non-interest bearing deposits: Retail Small business Commercial and custodial Total non-interest bearing deposits Interest-bearing deposits: Premier checking Other checking Subtotal Premier savings Other savings Subtotal Money market Subtotal Certificates of deposit 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 Total liabilities Stockholders’ equity Total liabilities and stockholders’ equity Net interest income and margin bps = basis points. (1) Tax-exempt income was not significant and thus yields on interest-earning assets and net interest margin have not been presented on a tax equivalent basis. Tax-exempt $550,177 $ 12,647 $537,530 3.94% 4.16% (22) income of $1,933,000 and $1,209,000 was recognized during the years ended December 31, 2007 and 2006, 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) Includes operating leases 20 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 21 Year Ended December 31, 2006 Year Ended December 31, 2005 Average Yields and Interest (1) Rates Average Balance Average Yields and Interest (1) Rates Average Balance Average Balance Change Average Yields and Rates Interest(1) (bps) $ 78,511 1,833,359 210,992 $ 3,504 98,035 15,009 4.46% 5.35 7.11 $ 95,349 1,569,808 214,588 $ 3,450 81,479 10,921 3.62% 5.19 5.09 $ (16,838) 263,551 (3,596) $ 54 16,556 4,088 263,157 143,576 3,717 410,450 105,089 55,239 160,328 8,471 27,619 36,090 122,292 729,160 40,430 769,590 886,138 6.83 8.65 10.13 7.40 6.31 7.65 6.72 6.30 7.39 7.10 7.37 7.22 5.81 7.13 6.86 31,539 2,017 33,556 37,275 12,797 50,072 15,216 98,844 96,480 195,324 195,324 30,041 123,243 153,284 348,608 348,608 3.15 .23 1.80 4.15 .93 2.20 2.45 2.08 4.21 2.77 2.08 5.03 4.48 4.58 3.35 2.73 3,851,117 1,659,544 36,711 5,547,372 1,665,531 721,871 2,387,402 134,560 373,690 508,250 1,659,807 10,102,831 696,086 10,798,917 12,921,779 1,141,934 $14,063,713 $ 1,513,121 609,907 232,725 2,355,753 1,001,024 864,316 1,865,340 899,067 1,376,182 2,275,249 620,844 4,761,433 2,291,002 7,052,435 9,408,188 596,852 2,752,847 3,349,699 10,402,134 12,757,887 300,930 13,058,817 1,004,896 $14,063,713 2,304,340 2,450,634 34,763 4,789,737 1,385,905 826,934 2,212,839 85,390 340,314 425,704 1,423,264 8,851,544 885,735 9,737,279 11,617,024 1,113,850 $12,730,874 $ 1,548,027 585,860 311,497 2,445,384 641,672 1,026,017 1,667,689 427,070 1,558,423 1,985,493 640,576 4,293,758 1,740,440 6,034,198 8,479,582 917,665 2,038,561 2,956,226 8,990,424 11,435,808 349,216 11,785,024 945,850 $12,730,874 154,241 171,133 3,213 328,587 85,214 49,561 134,775 4,959 19,575 24,534 97,596 585,492 50,680 636,172 732,022 15,910 2,067 17,977 13,246 9,419 22,665 7,640 48,282 49,124 97,406 97,406 29,830 87,096 116,926 214,332 214,332 6.69 6.98 9.24 6.86 6.15 5.99 6.09 5.81 5.75 5.76 6.86 6.61 5.72 6.53 6.30 2.48 .20 1.08 3.10 .60 1.14 1.19 1.12 2.82 1.61 1.15 3.25 4.27 3.96 2.38 1.87 108,916 (27,557) 504 81,863 19,875 5,678 25,553 3,512 8,044 11,556 24,696 143,668 (10,250) 133,418 154,116 15,629 (50) 15,579 24,029 3,378 27,407 7,576 50,562 47,356 97,918 97,918 211 36,147 36,358 134,276 134,276 1,546,777 (791,090) 1,948 757,635 279,626 (105,063) 174,563 49,170 33,376 82,546 236,543 1,251,287 (189,649) 1,061,638 1,304,755 28,084 $1,332,839 $ (34,906) 24,047 (78,772) (89,631) 359,352 (161,701) 197,651 471,997 (182,241) 289,756 (19,732) 467,675 550,562 1,018,237 928,606 (320,813) 714,286 393,473 1,411,710 1,322,079 (48,286) 1,273,793 59,046 $1,332,839 84 16 202 14 167 89 54 16 166 63 49 164 134 51 61 9 60 56 67 3 72 105 33 106 126 96 139 116 93 178 21 62 97 86 (Dollars in thousands) Assets: Investments Securities available for sale (2) Education loans held for sale Loans and leases: Consumer home equity: Fixed-rate Variable-rate Consumer – other Total consumer home equity and other Commercial real estate: Fixed- and adjustable-rate Variable-rate Total commercial real estate Commercial business: Fixed- and adjustable-rate Variable-rate Total commercial business Leasing and equipment finance Subtotal Residential real estate Total loans and leases (3) Total interest-earning assets Other assets (4) Total assets Liabilities and Stockholders’ Equity: Non-interest bearing deposits: Retail Small business Commercial and custodial Total non-interest bearing deposits Interest-bearing deposits: Premier checking Other checking Subtotal Premier savings Other savings Subtotal Money market Subtotal Certificates of deposit 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 Total liabilities Stockholders’ equity Total liabilities and stockholders’ equity Net interest income and margin bps = basis points. (1) Tax-exempt income was not significant and thus yields on interest-earning assets and net interest margin have not been presented on a tax equivalent basis. Tax-exempt $517,690 $537,530 $ 19,840 4.16% 4.46% (30) income of $1,209,000 and $954,000 was recognized during the years ended December 31, 2006 and 2005, 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) Includes operating leases. 2007 Form 10-K | 21 156976_10K_F_Q6 2/16/08 3:48 PM Page 22 The following table presents the components of the changes in net interest income by volume and rate. (In thousands) Interest income: Investments Securities available for sale Education loans held for sale Loans and leases: Consumer home equity: Fixed-rate Variable-rate Consumer – other Commercial real estate: Fixed- and adjustable-rate Variable-rate Commercial business: Fixed- and adjustable-rate Variable-rate Leasing and equipment finance Residential real estate Total loans and leases Total interest income Interest expense: Premier checking Other checking Premier savings Other savings Money market Certificates of deposit Borrowings: Short-term borrowings Long-term borrowings Total borrowings Total interest expense Net interest income Year Ended December 31, 2007 Versus Same Period in 2006 Increase (Decrease) Due to Year Ended December 31, 2006 Versus Same Period in 2005 Increase (Decrease) Due to Volume (1) Rate (1) Total Volume (1) Rate (1) Total $ 4,599 10,336 (4,485) $ 134 1,210 2,728 $ 4,733 11,546 (1,757) $ (670) 14,030 (186) $ 724 2,526 4,274 $ 54 16,556 4,088 57,947 (17,033) 682 7,183 (8,665) 2,249 1,454 19,518 (7,050) 59,581 73,505 1,633 1,034 12,044 4,555 (403) 7,472 (18,107) 51,397 35,024 28,884 42,768 5,412 (1,551) (92) 1,868 (211) 133 (126) 5,697 (52) 7,782 8,380 (2,522) (57) 675 (1,528) 2,668 10,578 (565) 1,212 (1,087) 40,354 (30,121) 63,359 (18,584) 590 9,051 (8,876) 2,382 1,328 25,215 (7,102) 67,363 81,885 (889) 977 12,719 3,027 2,265 18,050 (18,672) 52,609 33,937 69,238 12,647 105,630 (62,828) 186 17,592 (6,845) 3,065 2,060 17,054 (11,004) 72,801 86,280 10,536 (351) 18,418 (1,207) (242) 18,551 (12,654) 31,802 16,684 27,080 55,662 3,286 35,271 318 2,283 12,523 447 5,984 7,642 754 60,617 67,836 5,093 301 5,611 4,585 7,818 28,805 12,865 4,345 19,674 107,196 (35,822) 108,916 (27,557) 504 19,875 5,678 3,512 8,044 24,696 (10,250) 133,418 154,116 15,629 (50) 24,029 3,378 7,576 47,356 211 36,147 36,358 134,276 19,840 (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 due to volume and rate are calculated independently for each line item presented. Net interest income was $550.2 million for 2007, up 2.4% from $537.5 million in 2006. The increase in net interest income in 2007 primarily reflects the growth in average interest-earning assets, up $1.1 billion over 2006, partially offset by a 22 basis point reduction in net interest margin. The decrease in the net interest margin, from 4.16% in 2006 to 3.94% in 2007, is primarily due to partially funding the growth in interest earning assets with borrowings and higher- cost deposits and continued customer preference for lower- yielding fixed-rate loans. Net interest income was $537.5 million in 2006, up from $517.7 million in 2005. The increase in net interest income in 2006 primarily reflected the growth in average interest earning assets, up $1.3 billion over 2005, partially offset by the 30 basis point reduction in net interest margin. The decrease in the net interest margin, from 4.46% in 2005 to 4.16% in 2006 is primarily due to customer preference for lower-yielding fixed-rate loans and higher-cost market-rate deposits, largely due to the flat or inverted yield curve, and higher borrowing costs. In addition, intense price competi- tion on loans and deposits has contributed to the compres- sion of the net interest margin in 2006 and 2005. Achieving net interest income growth over time is primarily dependent on TCF’s ability to generate higher-yielding assets and lower-cost deposits. While interest rates and customer preferences continue to change over time, TCF is currently 22 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 23 liability sensitive as measured by its interest rate gap measure (the difference between interest-earning assets and interest-bearing liabilities maturing, repricing, or prepaying during the next twelve months). See “Consolidated Financial Condition Analysis – Deposits” and “Quantitative and Qualitative Disclosures about Market Risk” for further discussion on TCF’s interest-rate risk position. Provision for Credit Losses TCF provided $57 million for credit losses in 2007, compared with $20.7 million in 2006 and $8.6 million in 2005. The increase in provision from 2006 to 2007 was primarily due to higher consumer home equity net charge-offs, the resulting portfolio reserve rate increases and higher reserves for certain commercial loans, primarily in Michigan, and equipment finance loans and leases. Consumer home equity charge-off rates have steadily increased throughout 2007. As a result, TCF has increased consumer home equity reserve levels. Higher home equity charge-offs are primarily due to the slowdown in the residen- tial real estate market, primarily in Minnesota and Michigan. The increase in provision from 2005 to 2006 was primarily due to a $3.3 million commercial business loan recovery in 2005, higher consumer home equity net charge-offs and the resulting portfolio reserve rate increases. Net loan and lease charge-offs were $34.6 million, or .30% of average loans and leases in 2007, compared with $18 million, or .17% of average loans and leases in 2006 and $28.2 million, or .29% of average loans and leases in 2005. Excluding the charge-off of an $18.8 million invest- ment in a leveraged lease, 2005 net charge-offs were $9.4 million or .10% of average loans and leases. The provision 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 estimate which involves a number of factors such as historical trends in net charge-offs, delin- quencies in the loan and lease portfolio, value of collateral, general economic conditions and management’s assessment of credit risk in the current loan and lease portfolio. Also see “Consolidated Financial Condition Analysis – Allowance for Loan and Lease Losses.” Non-Interest Income Non-interest income is a signifi- cant source of revenue for TCF, representing 49.6% of total revenues in 2007, 47.7% in 2006 and 48% in 2005, and is an important factor in TCF’s results of operations. Providing a wide range of retail banking services is an integral component of TCF’s business philosophy and a major strategy for gen- erating additional non-interest income. Total non-interest income was $541.5 million for 2007, up from $489.5 million in 2006 and up from $478.2 million in 2005. The following table presents the components of non-interest income. Year Ended December 31, 2007 $278,046 98,880 35,620 10,318 422,864 59,151 8,270 490,285 2006 $270,166 92,084 37,760 10,695 410,705 53,004 21,567 485,276 2005 $262,636 79,803 40,730 10,665 393,834 47,387 12,744 453,965 2004 $275,120 63,463 42,935 12,558 394,076 50,323 22,628 467,027 2003 $249,339 52,991 43,623 13,901 359,854 51,088 18,957 429,899 13,278 – 10,671 22,600 32,832 37,894 – $541,457 4,188 – $489,464 13,606 – $478,242 259 – $489,886 725 (44,345) $419,111 Compound Annual Growth Rate 1-Year 2007/2006 5-Year 2007/2002 2.9% 7.4 (5.7) (3.5) 3.0 11.6 (61.7) 1.0 N.M. N.M. – 10.6 4.0% 15.9 (4.7) (8.2) 4.7 2.8 (14.6) 3.8 2.9 80.8 – 5.2 44.91% 3.24 47.25% 3.45 45.58% 3.57 47.57% 3.93 47.75% 3.69 (Dollars in thousands) Fees and service charges Card revenue ATM revenue Investments and insurance revenue Subtotal Leasing and equipment finance Other Fees and other revenue Gains on sales of securities available for sale Gains on sales of branches and real estate Losses on termination of debt Total non-interest income Fees and other revenue as a percentage of: Total revenue Average assets N.M. Not Meaningful. 2007 Form 10-K | 23 156976_10K_F_Q6 2/16/08 3:48 PM Page 24 Fees and Service Charges Fees and service charges increased $7.9 million, or 2.9%, to $278 million for 2007, compared with $270.2 million for 2006 primarily due to higher activity of deposit service fees. Fees and service charges related to the Michigan branches that were sold in the first quarter of 2007, were $5.3 million in 2006 and $945 thousand in 2007 respectively. During 2006, fees and service charges increased $7.5 million, or 2.9% to $270.2 million, compared with $262.6 million for 2005 primarily due to growth in deposit accounts. Card Revenue During 2007, card revenue, primarily inter- change fees, totaled $98.9 million, up from $92.1 million in 2006 and $79.8 million in 2005. The increases in card revenue in 2007 and 2006 were primarily attributable to increased sales volume as a result of increases in the number of active accounts and customer transaction volumes. The growth in sales volume slowed in 2007 as the average number of checking accounts with a TCF card declined as the portfolio matured. The continued success of TCF’s debit card program is highly dependent on the success and viability of Visa and the continued use by customers and acceptance by merchants of its debit and credit cards. ATM Revenue ATM revenue totaled $35.6 million for 2007, down from $37.8 million in 2006 and $40.7 million in 2005. The declines in ATM revenue were primarily attributable to continued declines in fees charged to TCF customers for use of non-TCF ATM machines due to growth in TCF’s fee free check- ing products and changes in customer ATM usage behavior. The following table sets forth information about TCF’s card business. (Dollars in thousands) Average number of checking accounts with a TCF card Average active card users Average number of transactions per card per month Sales volume for the year ended: Off-line (Signature) On-line (PIN) Total Percentage off-line Average interchange rate At or For the Year Ended December 31, Percentage Increase (Decrease) 2007 1,455,540 811,961 19.4 2006 1,463,456 804,194 18.2 2005 1,406,728 763,157 16.9 $6,146,036 802,735 $6,948,771 $5,711,751 752,770 $6,464,521 $5,030,619 642,446 $5,673,065 88.45% 1.35% 88.36% 1.36% 88.68% 1.34% 2007/2006 2006/2005 (.5)% 1.0 6.6 7.6 6.6 7.5 .1 (.7) 4.0% 5.4 7.7 13.5 17.2 14.0 (.4) 1.5 Investments and Insurance Revenue Investments and insurance revenue, consisting principally of commissions on sales of annuities and mutual funds, decreased $377 thousand in 2007 from 2006. The average commission percentage earned on sales of annuities and mutual funds declined in 2007, compared with 2006 and 2005, as a result of a higher sales of mutual funds, that generally carry a lower commission rate than annuities and a continued market trend of lower commission rates paid on sales of annuities. Annuity and mutual fund sales volumes totaled $222.6 million for the year ended December 31, 2007, compared with $203.7 million during 2006. The increased sales volumes dur- ing 2007 was the result of increased sales of mutual funds resulting from additional marketing focus and market condi- tions. Sales of fixed annuity products slightly declined during 2007 as a result of lower interest rates offered by carriers. Sales of insurance and investment products may fluctu- ate from period to period, and future sales levels will depend upon general economic conditions and investor preferences. Sales of annuities will also depend upon their continued tax advantage and may be impacted by the level of interest rates and alternative investment products. Leasing and Equipment Finance Revenue Leasing and equipment finance revenues in 2007 increased $6.1 million, or 11.6%, from 2006. The increase in leasing and equipment finance revenues for 2007 was primarily driven by a $2.9 million increase in operating lease revenues and an increase of $1.8 million in sales-type lease revenues. The increase in operating lease revenues was primarily driven by a $6.6 million increase in average operating lease balances. Leasing and equipment finance revenues increased $5.6 mil- lion, or 11.9%, in 2006 compared with 2005, primarily due 24 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 25 to an increase in operating lease revenues of $8.5 million, partially offset by a $3.7 million decrease in sales-type lease revenues. Sales-type lease revenues generally occur at or near the end of the lease term as customers extend the lease or pur- chase the underlying equipment. Leasing and equipment finance revenues may fluctuate from period to period based on customer-driven factors not within the control of TCF. Other Non-Interest Income Other non-interest income primarily consists of gains on sales of education loans and other miscellaneous income and mortgage banking revenues in 2006 and 2005. Total other non-interest income in 2007 decreased $13.3 million from 2006 compared with an increase of $8.8 million in 2006 over 2005. The decrease from 2006 to 2007, and the increase from 2005 to 2006, was due to gains on the sales of education loans. In 2006, TCF accelerated the sales of education loans in response to certain legisla- tive changes in student loan programs and recognized gains of $7.2 million on such sales. The following table presents the components of other non-interest income. (Dollars in thousands) Gains on sales of education loans Mortgage banking Other Total other earnings N.M. Not Meaningful. Year Ended December 31, 2007 $2,011 – 6,259 $8,270 2006 $ 7,224 4,734 9,609 $21,567 2005 $ 2,078 5,578 5,088 $12,744 2004 $ 7,789 12,960 1,879 $22,628 2003 $ 3,092 12,719 3,146 $18,957 Compound Annual Growth Rate 1-Year 2007/2006 5-Year 2007/2002 (72.2)% N.M. (34.9) (61.7) (5.7)% N.M. (6.0) (14.6) Gains on Sales of Securities Available for Sale Gains on securities available for sale of $13.3 million were recognized on sales of $1.2 billion in mortgage-backed secu- rities in 2007. There were no sales of securities available for sale in 2006. In 2005, gains on securities available for sale of $10.7 million were recognized on the sales of $1 billion in mortgage-backed securities. Gains on Sales of Branches and Real Estate Gains on sales of branches and real estate were $37.9 million for 2007, up from $4.2 million in 2006 and $13.6 million in 2005. During the first quarter of 2007, TCF sold the deposits and facilities of 10 out-state branches in Michigan and recog- nized a $31.2 million gain. Non-Interest Expense Non-interest expense increased $2 million, or .3%, in 2007, and $35.2 million, or 5.9%, in 2006, excluding the Visa USA indemnification and operating lease depreciation. The following table presents the components of non-interest expense. Year Ended December 31, 2007 $346,468 120,824 21,679 147,869 636,840 17,588 7,696 $662,124 2006 $341,857 114,618 26,926 151,449 634,850 14,347 – $649,197 2005 $326,526 103,900 25,691 143,484 599,601 7,335 – $606,936 2004 $322,824 95,617 26,353 132,037 576,831 1,843 – $578,674 2003 $302,804 88,423 25,536 133,342 550,105 3,320 – $553,425 Compound Annual Growth Rate 1-Year 2007/2006 5-Year 2007/2002 1.3% 5.4 (19.5) (2.4) .3 22.6 N.M. 2.0 3.3% 7.8 (.2) 2.5 3.8 40.3 N.M. 4.4 (Dollars in thousands) Compensation and employee benefits Occupancy and equipment Advertising and promotions Other Subtotal Operating lease depreciation Visa indemnification Total non-interest expense N.M. Not Meaningful. 2007 Form 10-K | 25 156976_10K_F_Q6 2/16/08 3:48 PM Page 26 Compensation and Employee Benefits Compensation and employee benefits, representing 52.3%, 52.7% and 53.8% of total non-interest expense in 2007, 2006 and 2005, respectively, increased $4.6 million, or 1.4%, in 2007, and $15.3 million, or 4.7%, in 2006. In 2007, compensation and employee benefits increased primarily due to costs associated with branch expansion partially offset by decreases resulting from branches sold, closed branches and other efficiency initiatives. The increase in compensa- tion and employee benefits in 2006 was primarily due to costs associated with branch expansion. Occupancy and Equipment Occupancy and equipment expenses increased $6.2 million in 2007 and $10.7 million in 2006. These increases were primarily due to costs associated with branch expansion, remodeling and relocation. Advertising and Promotions Advertising and promo- tions expense decreased $5.2 million in 2007 following an increase of $1.2 million in 2006. The decrease in 2007 was primarily due to $4.9 million in spending reductions on media and promotion. The increase in 2006 was primarily due to a $1.4 million increase in promotional expenses for new customers, partially offset by an $827 thousand decrease in advertising. Operating Lease Depreciation Operating lease depreciation totaled $17.6 million for 2007, up from $14.3 million and $7.3 million for 2006 and 2005, respectively. The increases in depreciation were primarily driven by an increase in average operating lease balances. Visa Indemnification Expense TCF is a member of Visa USA for issuance and processing of its card transactions. As a member of Visa, TCF has a contingent obligation to indemnify Visa for losses in connection with certain covered litigation matters. TCF recognized a $7.7 million pre-tax charge in the fourth quarter of 2007 for this contingent obligation. See page 38 under Management’s Discussion and Analysis for details of TCF’s obligations to indemnify Visa for certain litigation. Other Non-Interest Expense Other non-interest expense totaled $147.9 million in 2007, down $3.6 million from 2006, primarily due to expense control initiatives par- tially offset by a $3 million increase in loan and lease related costs mainly driven by higher private mortgage insurance expense, a $1.5 million increase in net real estate expenses due to higher losses on foreclosed real estate and a $1.1 million increase in card processing and issuance costs due to increased transactions. In 2006, other non-interest expense increased $8 million, or 5.6%, primarily driven by a $2.3 million increase in card and internet processing expenses related to transaction increases and a $1.4 million increase in foreclosed real estate expense primarily due to net losses on sales in 2006 versus net recoveries in 2005. Income Taxes Income tax expense represented 28.38% of income before income tax expense during 2007, compared with 31.41% and 30.30% in 2006 and 2005, respectively. The lower effective income tax rate in 2007 compared with 2006 and 2005 was primarily due to $18.4 million of reductions in income tax expense comprised of a favorable settlement with the Internal Revenue Service of an isolated tax deduc- tion from a prior year, the effects of state tax law changes, and other favorable developments involving uncertain tax positions. This compares with $6.1 million of reductions in income tax expense in 2006 for favorable developments involving uncertain tax positions. The increase in the effective income tax rate in 2006 compared with 2005 was primarily due to $6.1 million of reductions in income tax expense for favorable developments involving uncertain tax positions in 2006 compared with $14 million of reductions for favorable developments in 2005. TCF has a Real Estate Investment Trust (“REIT”) and a related foreign operating company (“FOC”) that acquire, hold and manage real estate loans and other assets. These companies are consolidated with TCF Bank and are included in the consolidated financial statements of TCF Financial Corporation. The REIT and related companies must meet specific provisions of the Internal Revenue Code and state tax laws. If these companies fail to meet any of the required provisions of federal and state tax laws, TCF’s tax expense would increase significantly. TCF’s FOC operates under laws in certain states (including Minnesota and Illinois) that have allowed FOCs. The taxation of REITs and FOCs is and has been the subject of federal and state audits, litigation with state taxing authorities and tax policy debates by var- ious state legislatures. Illinois passed legislation in 2007 that will reduce or eliminate TCF’s REIT and FOC tax benefits in the future. Certain states have proposed legislation that, if enacted, would eliminate tax deductions that TCF is entitled to under current laws and thus would significantly 26 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 27 increase state income tax expense. Thus, TCF’s annual effective income tax rate will likely increase in future years. The determination of current and deferred income taxes is a critical accounting estimate which is based on complex analyses of many factors including interpretation of federal and state income tax laws, the evaluation of uncertain tax positions, differences between the tax and financial report- ing bases of assets and liabilities (temporary differences), estimates of amounts due or owed such as the timing of reversal of temporary differences and current financial accounting standards. Additionally, there can be no assurance that estimates and interpretations used in deter- mining income tax liabilities may not be challenged by federal and state taxing authorities. Actual results could differ sig- nificantly from the estimates and tax law interpretations used in determining the current and deferred income tax liabilities. In addition, under generally accepted accounting princi- ples, deferred income tax assets and liabilities are recorded at the federal and state income tax rates expected to apply to taxable income in the periods in which the deferred income tax assets or liabilities are expected to be realized. If such rates change, deferred income tax assets and liabilities must be adjusted in the period of change through a charge or credit to the Consolidated Statements of Income. See Note 12 of Notes to Consolidated Financial Statements for information regarding TCF’s adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109. Consolidated Financial Condition Analysis Securities Available for Sale Securities available for sale increased $147.6 million to $2.0 billion at December 31, 2007. This increase reflects purchases of $1.6 billion and sales of $1.2 billion of mortgage-backed securities, and normal payment and prepayment activity. At December 31, 2007, the increase in mortgage-backed securities partially offsets the decline in residential real estate loans. TCF’s securities available for sale portfolio primarily included fixed-rate mortgage-backed securities. Net unrealized pre-tax losses on securities available for sale totaled $16.4 million at December 31, 2007, compared with net unrealized pre-tax losses of $33.3 million at December 31, 2006. TCF may, from time to time, sell mortgage-backed securities and utilize the proceeds to reduce borrowings, fund growth in loans and leases or for other corporate purposes. TCF’s securities portfolio does not contain commercial paper, asset-backed commercial paper or asset-backed securities secured by credit cards or car loans. TCF also does not participate in structured investment vehicles. Loans and Leases The following tables set forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale. 2007 2006 2005 2004 2003 Compound Annual Growth Rate 1-Year 2007/2006 5-Year 2007/2002 (Dollars in thousands) At December 31, Portfolio Distribution: Consumer home equity and other: Home equity: Line of credit (1) Closed-end loans Total consumer home equity Other Total consumer home equity and other Commercial real estate Commercial business Total commercial Leasing and equipment finance (2) Residential real estate Total loans and leases $ 1,429,633 $ 1,232,315 $ 1,389,741 3,758,947 5,148,688 57,587 4,650,353 5,882,668 62,409 5,093,441 6,523,074 67,557 6,590,631 2,557,330 558,325 3,115,655 2,104,343 527,607 5,206,275 2,297,500 435,203 2,732,703 1,503,794 770,441 $12,338,236 $11,333,680 $10,213,213 5,945,077 2,390,653 551,995 2,942,648 1,818,165 627,790 (1) Excludes fixed-term amounts under lines of credit which are included in closed-end loans. (2) Excludes operating leases included in other assets. $1,472,165 2,909,592 4,381,757 56,183 $1,093,945 2,493,715 3,587,660 62,538 4,437,940 2,154,396 436,696 2,591,092 1,375,372 1,014,166 $9,418,570 3,650,198 1,916,701 429,401 2,346,102 1,160,397 1,212,643 $8,369,340 16.0% 9.5 10.9 8.2 10.9 7.0 1.1 5.9 15.7 (16.0) 8.9 9.1% 20.2 17.2 (.1) 16.9 6.9 4.8 6.5 15.2 (21.8) 8.7 2007 Form 10-K | 27 156976_10K_F_Q6 2/16/08 3:48 PM Page 28 (In thousands) At December 31, 2007 Geographic Distribution: Minnesota Illinois Michigan Wisconsin Colorado California Florida Texas Arizona New York Ohio Indiana Other Total Consumer Home Equity and Other(1) $2,496,369 2,040,795 1,113,823 510,246 354,001 2,496 7,502 498 13,957 3,742 3,295 22,406 21,501 $6,590,631 Commercial Real Estate and Commercial Business $ 779,130 715,096 896,157 431,462 68,884 19,307 52,171 2,482 14,625 5,800 8,272 23,767 98,502 $3,115,655 Leasing and Equipment $ Finance(2) 74,024 73,303 89,152 39,497 34,909 270,003 135,750 132,504 87,298 94,449 83,833 35,331 954,290 $2,104,343 Residential Real Estate $290,186 71,118 138,249 16,040 296 – 300 642 59 63 2,292 927 7,435 $527,607 Total $ 3,639,709 2,900,312 2,237,381 997,245 458,090 291,806 195,723 136,126 115,939 104,054 97,692 82,431 1,081,728 $12,338,236 Loans and leases outstanding at December 31, 2007 are shown by contractual maturity in the following table. (In thousands) 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 Variable- and adjustable-rate loans Total after 1 year At December 31, 2007(3) Consumer Home Equity and Other(1) Commercial Real Estate Commercial Business Leasing and Equipment Finance(2) Residential Real Estate Total Loans and Leases $ 389,610 $ 458,063 $275,633 $ 748,579 $ 32,051 $ 1,903,936 340,529 348,110 728,222 1,463,032 1,072,339 2,248,789 6,201,021 $6,590,631 $4,780,565 1,420,456 $6,201,021 288,455 269,765 482,609 850,595 182,093 25,750 2,099,267 $2,557,330 $ 744,130 1,355,137 $2,099,267 123,515 73,517 41,388 30,836 13,436 – 282,692 $558,325 $109,803 172,889 $282,692 504,796 378,723 398,582 73,663 – – 1,355,764 $2,104,343 $1,355,764 – $1,355,764 24,953 25,484 52,287 110,025 95,286 187,521 495,556 $527,607 1,282,248 1,095,599 1,703,088 2,528,151 1,363,154 2,462,060 10,434,300 $12,338,236 $421,573 73,983 $495,556 $ 7,411,835 3,022,465 $10,434,300 (1) Excludes fixed-term amounts under lines of credit which are included in closed-end loans. (2) Excludes operating leases included in other assets. (3) Gross of deferred fees and costs. 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 loans and leases remain outstanding for significantly shorter periods than their contractual terms. 28 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 29 Consumer Lending TCF’s consumer home equity loan portfolio represented 53% and 52% of its total loan and lease portfolio as of December 31, 2007 and 2006, respectively and has increased by 10.9% in 2007 and 14.3% in 2006. TCF’s consumer home equity portfolio is secured by mortgages filed on residential real estate. At December 31, 2007, 64% of loan balances were secured by first mortgages. The average loan size secured by a first mortgage was $114 thousand and the average balance of loans secured by a junior lien position was $35 thousand at December 31, 2007. At December 31, 2007, 78% of TCF’s consumer home equity loans consisted of closed-end loans, compared with 79% at December 31, 2006. TCF’s closed-end home equity loans require payments of principal and interest over a fixed term. The average home value based on most recent values known to TCF securing the loans and lines of credit in this portfolio was $248 thousand as of December 31, 2007. TCF’s home equity lines of credit require regular payments of interest and do not require regular payments of principal. The average FICO (Fair Isaac Company) credit score at loan origination for the home equity portfolio was 721 as of December 31, 2007 and December 31, 2006. TCF’s consumer home equity underwriting standards produce adequately secured loans to customers with good credit scores. Loans with loan-to-value (LTV) ratios in excess of 90% are only made to very creditworthy customers based on credit scoring models and other credit underwriting cri- teria. TCF does not have any subprime lending programs and does not originate 2/28 adjustable-rate mortgages (ARM) or Option ARM loans. TCF also does not originate home equity loans with multiple payment options or loans with “teaser” interest rates. Although TCF does not have any programs that target subprime borrowers, in the normal course of lending to customers loans have been originated with FICO scores below 620 at lower LTV ratios. Approximately 6% of the consumer home equity portfolio, as of December 31, 2007, was originated at FICO scores below 620. At December 31, 2007, 24% of the home equity portfolio carried a variable interest rate tied to the prime rate, compared with 25% at December 31, 2006. Outstanding balances on home equity lines of credit were 52% of total lines of credit at December 31, 2007, compared with 50% at December 31, 2006. Commercial Lending Commercial real estate loans increased $166.7 million from December 31, 2006 to $2.6 billion at December 31, 2007. Variable – and adjustable – rate loans represented 67% of commercial real estate loans outstanding at December 31, 2007. Commercial business loans increased $6.3 million in 2007 to $558.3 million at December 31, 2007. TCF continues to expand its commercial business and commercial real estate lending activity gen- erally to borrowers located in its primary markets. With a focus on secured lending, approximately 98% of TCF’s commercial real estate and commercial business loans were secured either by properties or other business assets at December 31, 2007. At December 31, 2007, approximately 93% of TCF’s commercial real estate loans outstanding were secured by properties located in its primary markets. At December 31, 2007, the construction and development portfolio had $1.4 million in loans over 30-days delinquent compared with no such loans at December 31, 2006. 2007 Form 10-K | 29 156976_10K_F_Q6 2/16/08 3:48 PM Page 30 The following tables summarize TCF’s commercial real estate loan portfolio by property type. At December 31, 2007 Construction and Development $ 56,585 8,773 27,110 19,115 27,962 58,952 – 78,633 $277,130 Permanent $ 634,331 464,283 350,807 343,050 125,654 41,750 30,035 290,290 $2,280,200 Total $ 690,916 473,056 377,917 362,165 153,616 100,702 30,035 368,923 $2,557,330 2006 Construction and Development $ 37,568 957 10,662 10,375 2,266 69,249 – 57,580 $188,657 Permanent $ 537,123 454,269 395,076 297,348 105,737 40,697 54,063 317,683 $2,201,996 (Dollars in thousands) Retail services Apartments Office buildings Warehouse/industrial buildings Hotels and motels Residential home builders Health care facilities Other Total (Dollars in thousands) Retail services Apartments Office buildings Warehouse/industrial buildings Hotels and motels Residential home builders Health care facilities Other Total Balance $ 690,916 473,056 377,917 362,165 153,616 100,702 30,035 368,923 $2,557,330 At December 31, 2007 Number of Loans 490 551 248 283 51 87 11 242 1,963 Over 30-Day Delinquency Rate as a Percentage of Balance .67% .08 .65 .13 – 1.81 – .50 .45 Balance $574,691 455,226 405,738 307,723 108,003 109,946 54,063 375,263 $2,390,653 2006 Number of Loans 437 591 270 274 39 97 16 253 1,977 Total $ 574,691 455,226 405,738 307,723 108,003 109,946 54,063 375,263 $2,390,653 Over 30-Day Delinquency Rate as a Percentage of Balance .03% .02 – – – .16 – 4.69 .76 Leasing and Equipment Finance The following tables summarize TCF’s leasing and equipment finance portfolio by mar- keting segment and by equipment type, excluding operating leases. (Dollars in thousands) Marketing Segment Middle market (1) Small ticket (2) Winthrop (3) Wholesale (4) Other Total At December 31, 2007 Percent of Total Over 30-Day Delinquency as a Percentage of Balance 61.3% 20.3 13.1 5.1 .2 100.0% .77% 1.01 .49 .04 3.28 .75 Balance $1,084,549 370,649 253,125 93,807 16,035 $1,818,165 2006 Percent of Total Over 30-Day Delinquency as a Percentage of Balance 59.6% 20.4 13.9 5.2 .9 100.0% .48% .59 .28 .33 1.03 .47 Balance $1,290,923 426,436 275,799 107,195 3,990 $2,104,343 (1) Middle market consists primarily of loan and lease financing of construction and manufacturing equipment and specialty vehicles. (2) Small ticket includes loan and lease financings to small- and mid-size companies through programs with vendors, manufacturers, distributors, buying groups, and franchise organizations. (3) Winthrop’s portfolio consists primarily of lease financing of technology and data processing equipment. (4) Wholesale includes the discounting of lease receivables originated by third party lessors. 30 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 31 (Dollars in thousands) Equipment Type Specialty vehicles Construction Manufacturing Medical Technology and data processing Furniture and fixtures Printing Trucks and trailers Material handling Other Total The leasing and equipment finance portfolio increased $286.2 million from December 31, 2006 to $2.1 billion at December 31, 2007, consisting of $604.2 million of loans and $1.5 billion of leases. Total loan and lease originations and purchases for TCF Equipment Finance and Winthrop Resources were $1,128 million for 2007, an increase of 5% from $1,070 million in 2006. The backlog of approved transactions increased to $292.5 million at December 31, 2007, from $249.7 million at December 31, 2006. TCF’s leasing activity is subject to risk of cyclical downturns and other adverse economic developments. In an adverse economic environ- ment, there may be a decline in the demand for some types of equipment, resulting in a decline in the amount of new equipment being placed into service as well as a decline in equipment values for equipment previously placed in serv- ice. Declines in value of equipment under lease increase the potential for impairment losses and credit losses, due to diminished collateral value, and may result in lower sales-type revenue at the end of the contractual lease term. See Note 1 to Consolidated Financial Statements – Policies Related to Critical Accounting Estimates for information on lease accounting. At December 31, 2007 and 2006, $48.4 million, and $53.7 million, respectively, of TCF’s lease portfolio, were discounted on a non-recourse basis with third-party finan- cial institutions and, consequently, TCF retains no credit risk on such amounts. The leasing and equipment finance port- folio tables above include lease residuals. Lease residuals represent the estimated fair value of the leased equipment at the expiration of the initial term of the transaction and At December 31, 2007 Percent of Total 20.1% 18.3 17.4 13.3 11.4 4.0 3.1 2.7 2.5 7.2 100.0% Balance $ 345,099 310,485 326,922 222,198 243,069 79,474 65,545 55,241 50,565 119,567 $1,818,165 2006 Percent of Total 19.0% 17.1 18.0 12.2 13.4 4.4 3.6 3.0 2.8 6.5 100.0% Balance $ 423,893 384,689 365,650 279,939 239,921 84,990 64,796 57,569 53,096 149,800 $2,104,343 are reviewed on an ongoing basis. Any downward revisions in estimated fair value are recorded in the periods in which they become known. At December 31, 2007, lease residuals totaled $41.7 million, compared with $34.7 million at December 31, 2006. Residential Real Estate Residential real estate loans were $527.6 million at December 31, 2007, down $100.2 mil- lion from December 31, 2006. The decline in residential real estate loans during 2007 was due to normal amortization of loan balances and loan prepayments. Management expects that the residential loan portfolio will continue to decline, which will provide funding for anticipated growth in other loan, lease or investment categories. At December 31, 2007, TCF’s residential real estate loan portfolio was $449 million in fixed-rate loans and $78.6 million in adjustable-rate loans. Allowance for Loan and Lease Losses The determina- tion of the allowance for loan and lease losses is a critical accounting estimate. TCF’s methodologies for determining and allocating the allowance for loan and lease losses focus on ongoing reviews of larger individual loans and leases, historical net charge-offs, delinquencies in the loan and lease portfolio, the level of impaired and non-performing assets, values of underlying loan and lease collateral, the overall risk characteristics of the portfolios, changes in character or size of the portfolios, geographic location, prevailing economic conditions and other relevant factors. The various factors used in the methodologies are reviewed on a periodic basis. 2007 Form 10-K | 31 156976_10K_F_Q6 2/16/08 3:48 PM Page 32 The Company considers the allowance for loan and lease losses of $80.9 million appropriate to cover losses incurred in the loan and lease portfolios as of December 31, 2007. However, no assurance can be given that TCF will not, in any particular period, sustain loan and lease losses that are sizable in relation to the amount reserved, or that subsequent evaluations of the loan and lease portfolio, in light of factors then prevailing, including economic conditions, TCF’s ongoing credit review process or regulatory requirements, will not require significant changes in the allowance for loan and lease losses. Among other factors, a protracted economic slowdown and/or a decline in commercial or residential real estate values in TCF’s markets may have an adverse impact on the current adequacy of the allowance for loan and lease losses by increasing credit risk and the risk of poten- tial loss. The total allowance for loan and lease losses is generally available to absorb losses from any segment of the portfo- lio. The allocation of TCF’s allowance for loan and lease losses disclosed in the following table is subject to change based on the changes in criteria used to evaluate the allowance and is not necessarily indicative of the trend of future losses in any particular portfolio. In 2005, TCF refined its allowance for loan and lease losses allocation methodology resulting in an allocation of the entire allowance for loan and lease losses to the individual loan and lease portfolios. This change resulted in the allocation of the previously unallocated portion of the allowance for loan and lease losses. The next several pages include detailed information regarding TCF’s allowance for loan and lease losses, net charge-offs, non-performing assets, past due loans and leases and potential problem loans and leases. Included in this data are numerous portfolio ratios that must be carefully reviewed and related to the nature of the underly- ing loan and lease portfolios before appropriate conclusions can be reached regarding TCF or for purposes of making comparisons to other banks. Most of TCF’s non-performing assets and past due loans and leases are secured by real estate. Given the nature of these assets and the related mortgage foreclosure, property sale and, if applicable, mortgage insurance claims processes, it can take 18 months or longer for a loan to migrate from initial delinquency to final disposition. This resolution process generally takes much longer for loans secured by real estate than for unse- cured loans or loans secured by other property primarily due to state real estate foreclosure laws. The allocation of TCF’s allowance for loan and lease losses is as follows. (Dollars in thousands) Consumer home equity Consumer other Total consumer Commercial real estate Commercial business Total commercial Leasing and equipment finance Residential real estate Unallocated Total allowance balance N.A. Not Applicable. At December 31, 2005 2006 2004 2007 2003 $30,951 $12,615 $10,017 $ 9,213 $ 8,177 1,900 2,053 10,077 12,070 25,142 21,222 11,797 6,602 36,939 27,824 13,515 15,313 942 616 10,987 – $80,942 $58,543 $55,823 $75,393 $72,460 2,059 33,010 25,891 7,077 32,968 14,319 645 – 1,694 10,907 20,742 7,696 28,438 24,566 796 10,686 2,211 14,826 22,662 7,503 30,165 12,990 562 – Allocations as a Percentage of Total Loans and Leases Outstanding by Type At December 31, 2007 2006 2005 2004 2003 .47% 3.05 .50 1.01 1.27 1.06 .68 .12 N.A. .66 .21% 3.54 .25 .95 1.36 1.03 .71 .09 N.A. .52 .19% 3.57 .23 .92 1.52 1.02 1.02 .08 N.A. .55 .21% 3.02 .25 .96 1.76 1.10 1.79 .08 N.A. .80 .23% 3.04 .28 1.31 2.75 1.57 1.16 .08 N.A. .87 The allocated allowance balances for TCF’s residential, consumer and leasing and equipment finance portfolios, at December 31, 2007, reflect the Company’s credit quality and related low level of historical net charge-offs for these portfolios. The increase in the consumer home equity allowance from December 31, 2006, to December 31, 2007, is primarily due to increased actual and estimated home equity loan charge-offs due to the slowdown in the housing markets that occurred primarily in Minnesota and Michigan. The decrease in the allocated allowance for leasing and equipment finance in 2005 was primarily related to the charge-off of the investment in a leveraged lease. 32 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 33 The following table sets forth information detailing the allowance for loan and lease losses. (Dollars in thousands) Balance at beginning of year Charge-offs: Consumer home equity First mortgage lien Junior lien Total home equity Consumer other Total consumer Commercial real estate Commercial business Leasing and equipment finance Residential real estate Total charge-offs Recoveries: Consumer home equity First mortgage lien Junior lien Total home equity Consumer other Total consumer Commercial real estate Commercial business Leasing and equipment finance Residential real estate Total recoveries Net charge-offs Provision charged to operations Acquired allowance Balance at end of year 2007 $ 58,543 Year Ended December 31, 2005 $ 75,393 2004 $ 72,460 2006 $ 55,823 2003 $ 73,016 (9,589) (11,977) (21,566) (19,455) (41,021) (2,409) (1,264) (7,507) (220) (52,421) 253 948 1,201 13,019 14,220 – 16 3,585 7 17,828 (34,593) 56,992 – $ 80,942 (3,142) (4,479) (7,621) (18,423) (26,044) (228) (555) (6,117) (277) (33,221) 108 167 275 13,621 13,896 39 86 1,225 6 15,252 (17,969) 20,689 – $ 58,543 (2,363) (2,841) (5,204) (18,675) (23,879) (74) (454) (23,387) (110) (47,904) 135 177 312 14,705 15,017 82 2,627 2,003 19 19,748 (28,156) 8,586 – $ 55,823 (2,051) (1,919) (3,970) (21,199) (25,169) (602) (235) (8,508) (81) (34,595) 42 266 308 13,623 13,931 126 82 2,963 8 17,110 (17,485) 18,627 1,791 $ 75,393 (2,127) (1,719) (3,846) (17,103) (20,949) (1,381) (920) (8,620) (86) (31,956) 138 253 391 10,686 11,077 45 138 1,083 9 12,352 (19,604) 19,048 – $ 72,460 The following table sets forth additional information regarding net charge-offs. (Dollars in thousands) Consumer home equity First mortgage lien Junior lien Total home equity Consumer other Total consumer Commercial real estate Commercial business Total commercial Leasing and equipment finance Residential real estate Total N.M. Not Meaningful. Year Ended December 31, 2007 2006 Net Charge-offs (Recoveries) % of Average Loans and Leases Net Charge-offs (Recoveries) % of Average Loans and Leases $ 9,336 11,029 20,365 6,436 26,801 2,409 1,248 3,657 3,922 213 $34,593 .24% .50 .33 N.M. .43 .10 .22 .12 .20 .04 .30 $ 3,032 4,314 7,346 4,802 12,148 189 469 658 4,892 271 $17,969 .09% .22 .13 N.M. .22 .01 .09 .02 .29 .04 .17 2007 Form 10-K | 33 156976_10K_F_Q6 2/16/08 3:48 PM Page 34 Non-Performing Assets Non-performing assets consist of non-accrual loans and leases and other real estate owned. The increase in non-accrual loans and leases from 2006 to 2007 was primarily due to an increase in the number of con- sumer home equity non-accrual loans, partially offset by a $2.3 million commercial real estate loan that was paid off in the second quarter of 2007. The increase in other real estate owned was primarily due to a $13.8 million Minnesota commercial real estate loan and an increase in the number of residential real estate properties. Approximately 55% of non-performing assets at December 31, 2007 and 60% of non-performing assets at December 31, 2006 consisted of, or were secured by, residential real estate. The consumer home equity portfolio is secured by a total of 84,400 properties of which 240, or .28%, were in other real estate owned as of December 31, 2007. This compares with 180 properties, or .22% of total properties, as of December 31, 2006. The accrual of interest income is generally discontinued when loans and leases become 90 days or more past due with respect to either principal or interest (150 days or six payments past due for loans secured by residen- tial real estate) unless such loans and leases are well secured and in the process of collection. Non-performing assets are summarized in the following table. (Dollars in thousands) Non-accrual loans and leases: Consumer home equity First mortgage lien Junior lien Total home equity Consumer other Total consumer Commercial real estate Commercial business Total commercial Leasing and equipment finance Residential real estate Total non-accrual loans and leases Other real estate owned: Residential Commercial Total other real estate owned Total non-performing assets Non-performing assets as a percentage of: Net loans and leases Total assets 2007 2006 At December 31, 2005 2004 2003 $ 20,776 5,391 26,167 6 26,173 19,999 2,658 22,657 8,050 2,974 59,854 28,752 17,013 45,765 $105,619 $11,202 5,291 16,493 27 16,520 12,849 3,421 16,270 7,596 2,799 43,185 19,899 2,554 22,453 $65,638 $12,510 5,872 18,382 28 18,410 188 2,207 2,395 6,434 2,409 29,648 14,877 2,834 17,711 $47,359 $ 9,162 2,914 12,076 111 12,187 1,093 4,533 5,626 25,678 3,387 46,878 11,726 5,465 17,191 $64,069 $ 9,148 2,818 11,966 86 12,052 2,490 2,931 5,421 13,940 3,993 35,406 20,462 12,992 33,454 $68,860 .86% .66 .58% .45 .47% .35 .69% .52 .83% .61 Included in non-performing assets are loans and leases that are considered impaired. Impaired loans and leases totaled $24.8 million and $17.5 million at December 31, 2007, and December 31, 2006, respectively. The related allowance for credit losses on impaired loans and leases was $2.7 million at December 31, 2007, compared with $2.5 million at December 31, 2006. All of the impaired loans and leases were on non-accrual status. There were no impaired loans and leases at December 31, 2007, and December 31, 2006, which did not have a related allowance for loan and leases losses. The average balance of impaired loans and leases was $21.5 million for 2007 compared with $8.2 million for 2006. 34 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 35 Past Due Loans and Leases 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. TCF’s delinquency rates are determined based on the contrac- tual terms of the loan or lease. (Dollars in thousands) Accruing loans and leases delinquent for: 30-59 days 60-89 days 90 days or more Total At December 31, 2007 Percentage of Loans and Leases .38% .17 .12 .67% Principal Balances $46,748 20,445 15,384 $82,577 2006 Percentage of Loans and Leases .30% .22 .11 .63% Principal Balances $34,607 24,872 12,214 $71,693 The following table summarizes TCF’s over 30-day delinquent loan and lease portfolio by loan type, excluding loans held for sale and non-accrual loans and leases. (Dollars in thousands) Consumer home equity First mortgage lien Junior lien Total home equity Consumer other Total consumer Commercial real estate Commercial business Total commercial Leasing and equipment finance Residential real estate Total At December 31, 2007 Percentage of Portfolio Principal Balances Principal Balances 2006 Percentage of Portfolio $31,784 12,289 44,073 377 44,450 11,382 1,071 12,453 15,691 9,983 $82,577 .76% .53 .68 .56 .68 .45 .19 .40 .75 1.90 .67 $22,527 11,406 33,933 380 34,313 18,072 762 18,834 8,499 10,047 $71,693 .60% .54 .58 .61 .58 .76 .14 .64 .47 1.61 .63 Potential Problem Loans and Leases In addition to non-performing assets, there were $55.2 million of loans and leases at December 31, 2007, for which management has concerns regarding the ability of the borrowers to meet existing repayment terms, compared with $66.1 million at December 31, 2006. These loans and leases are primarily classified as substandard for regulatory purposes and reflect the distinct possibility, but not the probability, that the Company will not be able to collect all amounts due accord- ing to the contractual terms of the loan or lease agreement. Although these loans and leases have been identified as potential problem loans and leases, they may never become delinquent, non-performing or impaired. Additionally, these loans and leases are generally secured by commercial real estate or other assets, thus reducing the potential for loss should they become non-performing. Potential problem loans and leases are considered in the determination of the adequacy of the allowance for loan and lease losses. There were no material leasing and equipment finance potential problem loans at December 31, 2007, and 2006, respectively, that were funded on a non-recourse basis. 2007 Form 10-K | 35 156976_10K_F_Q6 2/16/08 3:48 PM Page 36 Potential problem loans and leases are summarized as follows. (Dollars in thousands) Commercial real estate Commercial business Leasing and equipment finance Total Liquidity Management TCF manages its liquidity position to ensure that the funding needs of depositors and borrowers are met promptly and in a cost-effective manner. Asset liq- uidity 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 maintain a diverse set of funding sources to promptly meet funding requirements. Deposits are the primary source of TCF’s funds for use in lending and for other general business purposes. In addition to deposits, TCF derives funds from loan and lease repay- ments and borrowings. Deposit inflows and outflows are significantly influenced by general interest rates, money market conditions, competition for funds, customer service and other factors. TCF’s deposit inflows and outflows have been and will continue to be affected by these factors. Borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels, net deposit outflows or to fund bal- ance sheet growth. Historically, TCF has borrowed primarily from the FHLB, from institutional sources under repurchase agreements and from other sources. At December 31, 2007, TCF had over $2.5 billion in unused capacity under these funding sources, which could be used to meet future liquidity needs. See “Borrowings.” Potential sources of liquidity for TCF Financial Corporation (parent company only) include cash dividends from TCF National Bank, issuance of debt and equity securities and borrowings under a $80 million line of credit. TCF Bank’s ability to pay dividends or make other capital distributions to TCF is restricted by regulation and may require regulatory approval. At December 31, 2007 Percentage of Portfolio 1.23% 1.56 .71 .47 Principal Balances $31,511 8,695 15,015 $55,221 Principal Balances $43,216 11,664 11,265 $66,145 2006 Percentage of Portfolio 1.81% 2.11 .62 .58 Deposits Deposits totaled $9.6 billion at December 31, 2007, down $192.7 million from December 31, 2006 primarily due to the sale of $241.4 million in deposits held by the out-state Michigan branches sold in the first quarter of 2007 and intensified competition due to liquidity pressures on market participants for deposits. Checking, savings and money market deposits are an important source of low-cost funds and fee income for TCF. Checking, savings and money market deposits totaled $7.3 billion, up $36 million from December 31, 2006, and comprised 76% of total deposits at December 31, 2007, compared with 75% of total deposits at December 31, 2006. The average balance of these deposits for 2007 was $7.2 billion, an increase of $70 million over the $7.1 billion average balance for 2006. Certificates of deposit totaled $2.3 billion at December 31, 2007, down $229.1 million from December 31, 2006. TCF had no brokered deposits at December 31, 2007 or 2006. Non-interest bear- ing deposits represented 23% and 25% of total deposits as of December 31, 2007 and 2006, respectively. TCF’s weighted- average cost for deposits, including non-interest bearing deposits, was 2.18% at December 31, 2007, compared with 2.33% at December 31, 2006. Branches During 2007, TCF opened 20 branches including 10 traditional branches, seven supermarket branches and three campus branches. TCF plans on opening fewer branches in 2008, compared with 2007, in an effort to optimize exist- ing branches in target market areas to improve convenience and service to customers. TCF anticipates opening 10 new branches in 2008, consisting of five new traditional branches and five new supermarket branches. TCF also closed and 36 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 37 consolidated four traditional branches and six supermarket branches and sold 10 Michigan branches, including the related deposit accounts. In order to improve the customer experience and enhance deposit and loan growth, TCF relocated six traditional branches to improved locations and facilities, remodeled one traditional branch and 14 supermarket branches in 2007. In 2008, TCF plans to relocate three branches to improved locations and new facilities, including two traditional branches and one supermarket branch, to close and consoli- date three traditional branches into nearby branches and to remodel 19 supermarket branches and one campus branch. At December 31, 2007, 141, or 31%, of TCF’s 453 branches were opened since January 1, 2002. Additional information regarding TCF’s branches opened since January 1, 2002 is displayed in the table below. (Dollars in thousands) Number of new branches opened during the year: Traditional Supermarket Campus Total Number of new branches at year end: Traditional Supermarket Campus Total Percent of total branches Deposits: Checking Savings Money market Subtotal Certificates of deposit Total deposits Total fees and other revenue for the year N.M. Not Meaningful. At or For the Year Ended December 31, 2007 2006 2005 2004 2003 Percentage Increase 2007/2006 10 5 3 18 83 48 10 141 31.1% 10 5 4 19 73 43 7 123 27.2% 18 7 3 28 63 38 3 104 23.0% 19 11 – 30 45 31 – 76 17.7% 14 5 – 19 26 20 – 46 10.7% $ 409,427 442,749 53,007 905,183 361,862 $1,267,045 73,204 $ $ 315,030 298,854 36,194 650,078 421,989 $1,072,067 54,786 $ $241,688 227,925 18,998 488,611 293,720 $782,331 $ 39,699 $151,475 85,472 8,189 245,136 42,212 $287,348 $ 24,091 $ 53,370 37,934 4,904 96,208 19,690 $115,898 $ 7,221 N.M. N.M. N.M. N.M. N.M. N.M. N.M. N.M. N.M. 30.0% 48.1 46.5 39.2 (14.2) 18.2 33.6 Borrowings Borrowings totaled $5 billion at December 31, 2007, up $1.4 billion from December 31, 2006. The increase was primarily to support the growth in assets. See Notes 10 and 11 of Notes to Consolidated Financial Statements for detailed information on TCF’s borrowings. The weighted-average rate on borrowings was 4.51% at December 31, 2007, and 4.53% at December 31, 2006. TCF does not utilize unconsolidated subsidiaries or special purpose entities to provide off-balance sheet borrowings. See Note 17 of Notes to Consolidated Financial Statements for further information relating to off-balance sheet instruments. 2007 Form 10-K | 37 156976_10K_F_Q6 2/16/08 3:48 PM Page 38 Contractual Obligations and Commitments As disclosed in the Notes to Consolidated Financial Statements, TCF has certain obligations and commitments to make future payments under contracts. At December 31, 2007, the aggregate contractual obligations (excluding bank deposits) and commitments are as follows. (In thousands) Payments Due by Period Contractual Obligations Total borrowings (1) Annual rental commitments under non-cancelable operating leases Campus marketing agreements Construction contracts and land purchase commitments for future branch sites Visa indemnification obligation (2) (In thousands) Commitments Commitments to lend: Consumer home equity and other Commercial Leasing and equipment finance Other Total commitments to lend Standby letters of credit and guarantees on industrial revenue bonds Total $4,973,448 220,072 49,675 8,928 7,696 $5,259,819 Total $1,927,001 621,025 89,206 83,686 2,720,918 76,357 $2,797,275 Less than 1 Year $582,614 27,304 1,985 8,928 7,696 $628,527 1-3 Years $240,086 49,539 5,818 – – $295,443 4-5 Years $202,008 After 5 Years $3,948,740 40,880 5,318 102,349 36,554 – – $248,206 – – $4,087,643 Amount of Commitment – Expiration by Period Less than 1 Year 4-5 Years 1-3 Years $ 11,246 320,003 89,206 83,686 504,141 52,298 $556,439 $ 27,409 240,190 – – 267,599 20,971 $288,570 After 5 Years $1,685,901 29,578 – – 1,715,479 $202,445 31,254 – – 233,699 2,516 $236,215 572 $1,716,051 (1) Total borrowings excludes interest. (2) The payment time is estimated to be less than one year, however the exact date of the payment can not be determined. Commitments to lend are agreements to lend to a cus- tomer provided there is no violation of any condition in the contract. These commitments generally have fixed expira- tion dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral predominantly consists of residential and commercial real estate. TCF is a member of Visa USA, Inc. (Visa USA) for issuance and processing of its card transactions. On October 3, 2007, Visa, Inc. (Visa) completed a restructuring including Visa USA in preparation for its planned initial public offering (IPO). As a member of Visa, TCF has an obligation to indem- nify Visa USA under its bylaws and Visa under a retrospective responsibility plan, approved as part of Visa’s restructuring, for contingent losses in connection with certain covered litigation (“the Visa indemnification”) disclosed in Visa’s public filings with the Securities and Exchange Commission (SEC) based on its membership proportion. TCF is not a party to the lawsuits brought against Visa USA. TCF’s membership proportion in Visa USA is .12554%. The SEC accounting staff has concluded that Visa USA member institutions are required to recognize their portion of the Visa indemnification at the estimated fair value of such obligation in accordance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Although the deter- mination of fair value of TCF’s Visa indemnification is highly judgmental, TCF recognized a charge in the fourth quarter of 2007 for this obligation totaling $7.7 million. 38 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 39 Campus marketing agreements consist of fixed or mini- mum obligations for exclusive marketing and naming rights with 10 campuses. TCF is obligated to make various annual payments for these rights in the form of royalties and schol- arships through 2029. TCF also has various renewal options, which may extend the terms of these agreements. Campus marketing agreements are an important element of TCF’s campus banking strategy. See Note 17 of Notes to Consolidated Financial Statements for information on standby letters of credit and guarantees on industrial revenue bonds. Stockholders’ Equity Stockholders’ equity at December 31, 2007 was $1.1 billion, or 6.88% of total assets, up from $1 billion, or 7.04% of total assets, at December 31, 2006. The increase in stockholders’ equity was primarily due to net income of $266.8 million, partially offset by the repur- chase of 3.9 million shares of TCF’s common stock at a cost of $105.3 million and the payment of $124.5 million in dividends on common stock. At December 31, 2007, TCF had 5.4 million shares remaining in stock repurchase programs authorized by its Board of Directors. For the year ended December 31, 2007, average total equity to average assets was 6.82%, compared with 7.15% for the year ended December 31, 2006. Dividends to common shareholders on a per share basis totaled 97 cents in 2007, an increase of 5.4% from 92 cents in 2006. TCF’s dividend payout ratio was 45.8% in 2007 and 48.4% in 2006. The Company’s primary funding sources for common dividends are dividends received from TCF Bank. At December 31, 2007, TCF Financial and TCF Bank exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the Federal Reserve Board and the Office of the Comptroller of the Currency. See Notes 13 and 14 of Notes to Consolidated Financial Statements. Summary of Critical Accounting Estimates Critical accounting estimates occur in certain accounting policies and procedures and are particularly susceptible to significant change. Policies that contain critical accounting estimates include the determination of the allowance for loan and lease losses, lease financing and income taxes. See Note 1 of Notes to Consolidated Financial Statements for further discussion of critical accounting estimates. Recent Accounting Developments On June 14, 2007, the EITF reached a final consensus on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. This consensus was ratified by the FASB on June 27, 2007. This Issue states that tax benefits received on dividends paid to employees associated with their unvested stock compensation awards should be recorded in additional-paid-in-capital (APIC) for awards expected to vest. Currently, such dividends are accounted for as a permanent tax deduction reducing the annual effective income tax rate. This Issue is to be applied prospectively to dividends declared in fiscal years beginning after December 15, 2007. Retrospective application of this Issue is prohibited. This Issue will not have a material effect on TCF’s financial statements. On September 6, 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No.157, Fair Value Measurements. SFAS 157 clarifies the fair value measurement objective, its application in GAAP and establishes a frame- work that builds on current practice and requirements. The framework simplifies and, where appropriate, codifies the similar guidance in existing pronouncements and applies broadly to financial and non-financial assets and liabilities. The Statement clarifies the definition of fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, known as an exit- price definition of fair value. It also provides further guidance on the valuation techniques to be used in estimating fair value. Current disclosures about the use of fair value to meas- ure assets and liabilities are expanded in this Statement. The disclosures focus on the methods used for fair value measurements and apply whether the assets and liabilities are measured at fair value in all periods, such as trading securities, or in only some periods, such as impaired assets. The Statement is effective for all financial statements issued for fiscal years beginning after November 15, 2007 as well as for interim periods within such fiscal years. TCF expects no significant effect on its financial statements from the adoption of this Statement. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an 2007 Form 10-K | 39 156976_10K_F_Q6 2/16/08 3:48 PM Page 40 amendment of FASB Statement No. 115. SFAS 159 allows companies to report selected financial assets and liabilities at fair value. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately in the balance sheet. The main intent of the Statement is to miti- gate the difficulty in determining reported earnings caused by a “mixed-attribute model” (or reporting some assets at fair value and others using a different valuation attribute such as amortized cost). The project is separated into two phases. This first phase addresses the creation of a fair value option for financial assets and liabilities. A second phase will address creating a fair value option for selected non-financial items. SFAS 159 is effective for all financial statements issued for fiscal years beginning after November 15, 2007. TCF expects the adoption of this Statement to have no effect on its financial statements. Fourth Quarter Summary In the fourth quarter of 2007, TCF reported net income of $62.8 million, up from $53.7 million in the fourth quarter of 2006. The fourth quarter of 2007 net income included $11.3 million in pre-tax gains on sales of securities, $2.8 million of pre-tax gains on sales of real estate, a $7.7 mil- lion charge for TCF’s estimated contingent obligation related to Visa USA litigation indemnification and $5.4 million of favorable income tax adjustments for a combined after-tax impact of seven cents per diluted share. Net income for the fourth quarter of 2006 included an $851 thousand reduction in income tax expense for an after-tax impact of one cent per diluted share. Diluted earnings per common share was 50 cents for the fourth quarter of 2007, compared with 42 cents for the same 2006 period. TCF opened five new branches in the fourth quarter of 2007, consisting of four traditional branches and one supermarket branch. Net interest income was $139.6 million for the quarter ended December 31, 2007, up $3.7 million, or 2.7% from the quarter ended December 31, 2006. The increase in net interest income was primarily due to the growth in average interest- earning assets, up $928.1 million over the fourth quarter of 2006, partially offset by the 24 basis point reduction in net interest margin. The net interest margin was 3.83% and 4.07% for the fourth quarter of 2007 and 2006, respectively. The decrease in net interest margin from the fourth quarter of 2006 was primarily due to partially funding the growth in interest-earning assets with borrowings and higher-cost deposits and continued customer preference for lower yield- ing fixed-rate loans and the net impact of interest rate changes on variable-rate assets and liabilities, partially offset by increased interest rates on higher balances of fixed-rate assets. TCF provided $20.1 million for credit losses in the fourth quarter of 2007, compared with $10.1 million in the fourth quarter of 2006, primarily due to higher consumer home equity net charge-offs and the resulting portfolio reserve rate increases. For the fourth quarter of 2007, net loan and lease charge-offs were $13.8 million, or .46% of average loans and leases outstanding, compared with $6.6 million, or .24% of average loans and leases outstanding during the same 2006 period primarily due to higher consumer home equity and commercial real estate loan net charge-offs. Total non-interest income in the fourth quarter of 2007 was $138.9 million, up $20 million, or 16.9 percent, from the fourth quarter of 2006, primarily due to gains on sales of securities available for sale. Fees and service charges were $72.3 mil- lion, up 8.4 percent from the fourth quarter of 2006, prima- rily due to higher deposit service fees. Card revenues totaled $25.1 million for the fourth quarter of 2007, up 6.7 percent over the same period. Leasing and equipment finance rev- enues were $14.8 million for the fourth quarter of 2007, down $324 thousand from the fourth quarter of 2006 primarily due to a decrease in sales-type lease revenues. Leasing and equipment finance revenues may fluctuate from period to period based on customer-driven factors not within the control of TCF. Non-interest expense totaled $160.4 million for the 2007 fourth quarter, down $1.2 million, or .7 percent, from $161.6 million for the 2006 fourth quarter, excluding Visa indemni- fication and operating lease depreciation. Compensation and employee benefits increased $744 thousand, or .9 per- cent, from the fourth quarter of 2006, primarily due to branch expansion partially offset by decreases resulting from branches sold, closed branches and other efficiency initiatives. Occupancy and equipment expenses increased $913 thousand, or 3.1 percent, from the fourth quarter of 2006, primarily due to costs associated with branch expan- sion. Advertising and promotions expense decreased $1.6 million from the fourth quarter of 2006, primarily due to 40 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 41 decreased media and promotions expense. Operating lease depreciation increased $521 thousand from the fourth quarter of 2006, primarily driven by the large amount of operating leases that commenced in the fourth quarter of 2006 and were depreciating in the fourth quarter of 2007. The fourth quarter of 2007 included a $7.7 million charge for TCF’s estimated contingent obligation related to Visa liti- gation indemnification. See page 38 under Management’s Discussion and Analysis for details of TCF’s obligations to indemnify Visa for certain litigation. Other expense decreased $1.2 million, or 3.1 percent, primarily due to expense control initiatives partially offset by an $879 thousand increase in net real estate expenses due to higher losses on foreclosed real estate and a $747 thousand increase in card processing and issuance costs due to increased transactions. The fourth quarter of 2006 included approximately $1 million of sever- ance and other exit costs related to the closure and consol- idation of 13 branches and other staff reductions. In the fourth quarter of 2007, the effective income tax rate was 26.7% of income before tax expense, down from 32.05% for the fourth quarter of 2006. The lower effective tax rate for the fourth quarter of 2007, compared with the fourth quarter of 2006, was primarily due to $5.4 million of adjustments in the fourth quarter of 2007 for favorable developments involving uncertain tax positions compared with $851 thousand of adjustments involving uncertain tax positions in the fourth quarter of 2006. 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 a dramatic and potentially adverse impact on TCF and its bank and other subsidiaries. TCF has filed Chief Executive Officer and Chief Financial Officer certifications as Exhibits 31.1 and 31.2 to its Form 10-K pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. TCF has also filed, as Exhibits 32.1 and 32.2 to Form 10-K, certificates called for under Section 906 of the Act. Pursuant to Section 303A.12 of the New York Stock Exchange (“NYSE”) Listed Company Manual, TCF’s Chief Executive Officer submitted a certification to the NYSE on May 17, 2007 indicating that he was not aware of any violation by TCF of the NYSE’s Corporate Governance listing standards. Forward-Looking Information This annual report on Form 10-K and other reports issued by the Company, including reports filed with the SEC, may con- tain “forward-looking” statements that deal with future results, plans or performance. In addition, TCF’s manage- ment may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCF’s future results may differ materially from historical performance and forward-looking statements about TCF’s expected financial results or other plans and are subject to a number of risks and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive develop- ments such as shrinking interest margins; deposit outflows; an inability to increase the number of deposit accounts and the possibility that deposit account losses (fraudulent checks, etc.) may increase; impact of legal, legislative or other changes affecting customer account charges and fee income; reduced demand for financial services and loan and lease products; adverse developments affecting TCF’s supermarket banking relationships or any of the supermar- ket chains in which TCF maintains supermarket branches; changes in accounting standards or interpretations of existing standards; monetary, fiscal or tax policies of the federal or state governments; including adoption of state legislation that would increase state taxes; impact of federal legislation enacted in September 2007, reducing interest subsidies and other benefits available to TCF in its education lending programs; adverse findings in tax audits or regulatory examinations and resulting enforcement actions; changes in credit and other risks posed by TCF’s loan, lease, investment, and securities available for sale portfolios, including declines in commercial or residential real estate values or changes in allowance for loan and lease losses methodology dictated by new market conditions or regulatory requirements; imposition of vicarious liability on TCF as lessor in its leasing operations; denial of insurance coverage for claims made by TCF; techno- logical, computer-related or operational difficulties or loss or theft of information; adverse changes in securities markets; and results of litigation, including possible increases in indemnification obligations for certain litigation against Visa USA (“covered litigation”) and potential reductions in card revenues resulting from other litigation against Visa USA; or other significant uncertainties. 2007 Form 10-K | 41 156976_10K_F_Q6 2/16/08 3:48 PM Page 42 Item 7A. Quantitative and Qualitative Disclosures About Market Risk TCF’s results of operations are dependent to a large degree on its net interest income and its ability to manage interest- rate risk. Although TCF manages other risks, such as credit risk, liquidity risk, operational and other risks, in the normal course of its business, the Company considers interest-rate risk to be its most significant market risk. See “Item 1A. Risk Factors – Operational Risk Management” for further discussion. Since TCF does not hold a trading portfolio, the Company is not exposed to market risk from trading activities. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. TCF, like most finan- cial institutions, has material interest-rate risk exposure to changes in both short-term and long-term interest rates as well as variable interest rate indices (e.g., the prime rate). TCF’s Asset/Liability Committee (ALCO) manages TCF’s interest-rate risk based on interest rate expectations and other factors. The principal objective of TCF’s asset/liabil- ity management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest-rate risk and liquidity risk and facilitating the funding needs of the Company. TCF utilizes net interest income simulation models to esti- mate the near-term effects (next twelve months) of chang- ing interest rates on its net interest income. Net interest income simulation involves forecasting net interest income under a variety of scenarios, including the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The base net interest income simula- tion performed as of December 31, 2007, assumes interest rates are unchanged for the next twelve months. The net interest income simulation shows that if short-term and long-term interest rates were to sustain an immediate increase or decrease of 100 basis points, for the next twelve months that net interest income would not significantly change from the base case. Management exercises its best judgement in making assumptions regarding events that management can impact such as non-contractual deposit repricings and events out- side management’s control such as customer behavior on loan and deposit activity, counter-party decisions on callable borrowings and the effect that competition has on both 42 | TCF Financial Corporation and Subsidiaries loan and deposit pricing. These assumptions are inherently uncertain and, as a result, net interest income simulation results will differ from actual results due the timing, mag- nitude and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. In addition to the net interest income simulation model, management utilizes an interest rate gap measure (differ- ence between interest-earning assets and interest-bearing liabilities re-pricing within a given period). While the interest rate gap measurement has some limitations, including no assumptions regarding future asset or liability production and a static interest rate assumption (large quarterly changes may occur related to these items), the interest rate gap represents the net asset or liability sensitivity at a point in time. An interest rate gap measure could be signifi- cantly affected by external factors such as loan prepayments, early withdrawals of deposits, changes in the correlation of various interest-bearing instruments, competition, or a rise or decline in interest rates. TCF’s one-year interest rate gap was a negative $1 billion, or 6.4% of total assets at December 31, 2007, compared with a negative $630 million, or 4.3% of total assets at December 31, 2006. A negative interest rate gap position exists when the amount of interest-bearing liabilities maturing or re-pricing exceeds the amount of interest-earning assets maturing or re-pricing, including assumed prepayments, within a particular time period. TCF estimates that an immediate 100 basis point decrease in current mortgage loan interest rates would increase prepayments on the $7.4 billion of fixed-rate mortgage- backed securities, residential real estate loans and consumer loans at December 31, 2007, by approximately $977 million, or 134.4%, in the first year. An increase in prepayments would decrease the estimated life of the portfolios and may adversely impact net interest income or net interest margin in the future. Although prepayments on fixed-rate portfolios are currently at a relatively low level, TCF estimates that an immediate 100 basis point increase in current mortgage loan interest rates would reduce prepayments on the fixed- rate mortgage-backed securities, residential real estate loans and consumer loans at December 31, 2007, by approx- imately $257 million, or 35.4%, in the first year. A slowing in prepayments would increase the estimated life of the portfolios and may favorably impact net interest income or net interest margin in the future. 156976_10K_F_Q6 2/16/08 3:48 PM Page 43 The following table summarizes TCF’s interest-rate gap position at December 31, 2007. (Dollars in thousands) Interest-earning assets: Education loans held for sale Securities available for sale (1) Real estate loans (1) Leasing and equipment finance (1) Commercial loans (1) Consumer loans (1) Investments Total Interest-bearing liabilities: Checking deposits (2) Savings deposits (2) Money market deposits (2) Certificates of deposit Short-term borrowings Long-term borrowings (3) Total Interest-earning assets over (under) interest-bearing liabilities Unsettled transactions Cumulative gap Cumulative gap as a percentage of total assets: At December 31, 2007 At December 31, 2006 Within 30 Days 30 Days to 6 Months 6 Months to 1 Year 1 to 3 Years 3+ Years Total Maturity/Rate Sensitivity $ 154,420 16,702 10,135 158,872 1,048,332 1,401,380 10 2,789,851 821,415 1,238,278 267,164 206,634 556,070 2,904 3,092,465 $ – 75,574 53,318 338,173 209,387 318,708 120,465 1,115,625 278,203 228,901 65,347 1,601,285 – 14,931 2,188,667 $ – 114,080 59,305 339,010 310,660 355,118 – 1,178,173 288,116 220,862 60,358 342,060 – 11,049 922,445 $ – 407,788 106,703 880,621 815,712 1,267,273 – 3,478,097 887,756 563,511 148,215 87,345 – 236,456 1,923,283 1,715 $ 1,349,537 298,146 387,667 731,564 3,248,152 27,792 6,044,573 1,833,037 385,268 35,583 17,211 – 4,152,038 6,423,137 $ 156,135 1,963,681 527,607 2,104,343 3,115,655 6,590,631 148,267 14,606,319 4,108,527 2,636,820 576,667 2,254,535 556,070 4,417,378 14,549,997 (302,614) 100,944 $ (201,670) (1,073,042) – $(1,274,712) 255,728 – $(1,018,984) 1,554,814 – $ 535,830 (378,564) – $ 157,266 56,322 100,944 157,266 $ (1.3)% 2.9% (8.0)% (4.6)% (6.4)% (4.3)% 3.4% (7.4)% 1.0% .7% 1.0% .7% (1) Based upon contractual maturity, repricing date, if applicable, scheduled repayments of principal and projected prepayments of principal based upon experience and third-party projections. (2) Includes non-interest bearing deposits. At December 31, 2007, 34% of checking deposits, 64% of savings deposits, and 68% of money market deposits are included in amounts repricing within one year. At December 31, 2006, 30% of checking deposits, 56% of savings deposits, and 64% of money market deposits are included in amounts repricing within one year. (3) Includes $4.167 billion of callable borrowings. Based on December 31, 2007 interest rates. The 1-3 year category includes the projected call of $217 million of callable borrowings, with the remaining $3.95 billion in the over 3 year category. 2007 Form 10-K | 43 156976_10K_F_Q6 2/16/08 3:48 PM Page 44 Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders TCF Financial Corporation: We have audited the accompanying consolidated statements of financial condition of TCF Financial Corporation and sub- sidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income, stock- holders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007. These consol- idated 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by manage- ment, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reason- able 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 sub- sidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in con- formity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TCF Financial Corporation’s internal control over financial reporting as of December 31, 2007, based on cri- teria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 14, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Minneapolis, Minnesota February 14, 2008 44 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 45 Consolidated Statements of Financial Condition (Dollars in thousands, except per-share data) Assets Cash and due from banks Investments Securities available for sale Education loans held for sale Loans and leases: Consumer home equity and other 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 Goodwill Other assets Total assets Liabilities and Stockholders’ Equity Deposits: Checking Savings Money market Certificates of deposit Total deposits Short-term borrowings Long-term borrowings Total borrowings Accrued expenses and other liabilities Total liabilities 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; 131,468,699 and 131,660,749 shares issued Additional paid-in capital Retained earnings, subject to certain restrictions Accumulated other comprehensive loss Treasury stock at cost, 4,866,480 and 1,242,413 shares, and other Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes to consolidated financial statements. At December 31, 2007 2006 $ 358,174 148,267 1,963,681 156,135 6,590,631 2,557,330 558,325 2,104,343 11,810,629 527,607 12,338,236 (80,942) 12,257,294 438,452 152,599 502,452 $15,977,054 $ 4,108,527 2,636,820 576,667 2,254,535 9,576,549 556,070 4,417,378 4,973,448 328,045 14,878,042 $ 348,980 170,129 1,816,126 144,574 5,945,077 2,390,653 551,995 1,818,165 10,705,890 627,790 11,333,680 (58,543) 11,275,137 406,087 152,599 356,102 $14,669,734 $ 4,348,256 2,351,580 585,779 2,483,635 9,769,250 214,112 3,374,428 3,588,540 278,570 13,636,360 – – 1,315 354,563 926,875 (18,055) (165,686) 1,099,012 $15,977,054 1,317 343,744 784,011 (34,926) (60,772) 1,033,374 $14,669,734 2007 Form 10-K | 45 156976_10K_F_Q6 2/16/08 3:48 PM Page 46 Consolidated Statements of Income Year Ended December 31, 2007 2006 2005 $836,953 109,581 13,252 8,237 968,023 230,625 187,221 417,846 550,177 56,992 493,185 278,046 98,880 35,620 10,318 422,864 59,151 8,270 490,285 13,278 37,894 541,457 346,468 120,824 21,679 17,588 155,565 662,124 372,518 105,710 $266,808 $ $ $ 2.13 2.12 .97 $769,590 98,035 15,009 3,504 886,138 195,324 153,284 348,608 537,530 20,689 516,841 270,166 92,084 37,760 10,695 410,705 53,004 21,567 485,276 – 4,188 489,464 341,857 114,618 26,926 14,347 151,449 649,197 357,108 112,165 $244,943 $ $ $ 1.90 1.90 .92 $636,172 81,479 10,921 3,450 732,022 97,406 116,926 214,332 517,690 8,586 509,104 262,636 79,803 40,730 10,665 393,834 47,387 12,744 453,965 10,671 13,606 478,242 326,526 103,900 25,691 7,335 143,484 606,936 380,410 115,278 $265,132 $ $ $ 2.00 2.00 .85 (In thousands, except per-share data) Interest income: Loans and leases Securities available for sale Education loans held for sale Investments Total interest income Interest expense: Deposits Borrowings Total interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses Non-interest income: Fees and service charges Card revenue ATM revenue Investments and insurance revenue Subtotal Leasing and equipment finance Other Fees and other revenue Gains on sales of securities available for sale Gains on sales of branches and real estate Total non-interest income Non-interest expense: Compensation and employee benefits Occupancy and equipment Advertising and promotions Operating lease depreciation Other Total non-interest expense Income before income tax expense Income tax expense Net income Net income per common share: Basic Diluted Dividends declared per common share See accompanying notes to consolidated financial statements. 46 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 47 Consolidated Statements of Stockholders’ Equity (Dollars in thousands) Balance, December 31, 2004 Comprehensive income (loss): Net income Other comprehensive loss Comprehensive income (loss) Dividends on common stock Repurchase of 3,450,000 shares Issuance of 526,900 shares Cancellation of shares Cancellation of shares for tax withholding Amortization of stock compensation Exercise of stock options, 66,064 shares Stock compensation tax benefits Change in shares held in trust for deferred compensation plans, at cost Balance, December 31, 2005 Comprehensive income (loss): Net income Other comprehensive loss Comprehensive income (loss) Adjustment to initially apply FASB Statement No.158, net of tax Dividends on common stock Repurchase of 3,900,000 shares Issuance of 738,890 shares Treasury stock retired Cancellation of shares Cancellation of shares for tax withholding Amortization of stock compensation Exercise of stock options, 28,667 shares Stock compensation tax benefits Change in shares held in trust for deferred compensation plans, at cost Balance, December 31, 2006 Comprehensive income: Net income Other comprehensive income Comprehensive income Dividends on common stock Repurchase of 3,910,000 shares Issuance of 198,850 shares Cancellation of shares Cancellation of shares for tax withholding Amortization of stock compensation Exercise of stock options, 87,083 shares Stock compensation tax benefits Change in shares held in trust for deferred compensation plans, at cost Balance, December 31, 2007 Number of Common Shares Issued Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss)/ Income Treasury Stock and Other Total 184,939,094 $1,849 $ 505,542 $1,385,760 $ (1,415) $ (933,318) $ 958,418 – – – – – – (114,004) (438,897) – – – – – – – – – – (1) (4) – – – – – – – – – (9,658) (1,137) (13,479) 5,830 (648) 10,716 (20,282) 265,132 – 265,132 (114,543) – – 262 – – – – – (19,800) (19,800) – – – – – – – – – – – – (93,499) 9,658 – – – 1,225 – 265,132 (19,800) 245,332 (114,543) (93,499) – (876) (13,483) 5,830 577 10,716 – – 20,282 – 184,386,193 $1,844 $ 476,884 $1,536,611 $(21,215) $ (995,652) $ 998,472 – – – – – – – (52,500,000) (134,635) (90,809) – – – – – – – – – – – (525) (1) (1) – – – – – – – – – – (13,874) (126,765) (490) (2,451) 7,499 (192) 20,681 (17,548) 244,943 – 244,943 – (121,405) – – (876,667) 529 – (374) (374) – – – (13,337) – – – – – – – (101,045) 13,874 1,003,957 – – – – – – – – – – – – – 546 – 17,548 – 244,943 (374) 244,569 (13,337) (121,405) (101,045) – – 38 (2,452) 7,499 354 20,681 131,660,749 $1,317 $ 343,744 $ 784,011 $(34,926) $ (60,772) $ 1,033,374 – – – – – – (140,775) (51,275) – – – – – – – – – (1) (1) – – – – – – – – (4,850) (615) (1,409) 7,430 (992) 4,534 266,808 – 266,808 (124,513) – – 569 – – – – – 16,871 16,871 – – – – – – – – – – – – (105,251) 4,850 – – – 2,208 – 266,808 16,871 283,679 (124,513) (105,251) – (47) (1,410) 7,430 1,216 4,534 – 131,468,699 – $1,315 6,721 – $354,563 $ 926,875 – – $(18,055) $(165,686) $1,099,012 (6,721) See accompanying notes to consolidated financial statements. 2007 Form 10-K | 47 156976_10K_F_Q6 2/16/08 3:48 PM Page 48 Consolidated Statements of Cash Flows (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Provision for credit losses Proceeds from sales of loans held for sale Principal collected on loans held for sale Originations of education loans held for sale Net increase (decrease) in other assets and accrued expenses and other liabilities Gains on sales of assets and deposits, net Other, net Total adjustments Net cash provided by operating activities Cash flows from investing activities: Principal collected on loans and leases Originations and purchases of loans Purchases of equipment for lease financing Proceeds from sales of securities available for sale Proceeds from maturities of and principal collected on securities available for sale Purchases of securities available for sale Net decrease (increase) in federal funds sold Purchases of Federal Home Loan Bank stock Proceeds from redemptions of Federal Home Loan Bank stock Proceeds from sales of real estate owned Purchases of premises and equipment Proceeds from sales of premises and equipment Proceeds from sale of mortgage servicing rights Other, net Net cash used by investing activities Cash flows from financing activities: Net increase in deposits Sales of deposits, net Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Payments on long-term borrowings Purchases of common stock Dividends paid on common stock Stock compensation tax benefits Other, net Net cash provided by financing activities Net increase (decrease) in cash and due from banks Cash and due from banks at beginning of year Cash and due from banks at end of year Supplemental disclosures of cash flow information: Cash paid for: Interest on deposits and borrowings Income taxes Transfer of loans and leases to other assets See accompanying notes to consolidated financial statements. 48 | TCF Financial Corporation and Subsidiaries Year Ended December 31, 2007 2006 2005 $ 266,808 $ 244,943 $ 265,132 47,039 8,586 102,491 13,152 (191,061) (71,809) (25,624) 11,108 (106,118) 159,014 4,227,920 (4,551,188) (620,058) 1,017,711 247,152 (1,314,638) – (53,876) 75,952 22,386 (86,900) 29,604 – 21,163 (984,772) 1,153,127 (16,542) (583,985) 1,687,308 (1,203,086) (93,499) (114,543) 10,716 1,165 840,661 14,903 359,798 374,701 $ 64,169 56,992 187,967 3,989 (206,752) 28,292 (51,172) 6,751 90,236 357,044 3,337,230 (3,711,353) (776,716) 1,916,424 234,215 (2,369,452) 71,000 (95,226) 53,008 33,635 (76,637) 9,743 – 15,498 (1,358,631) 48,707 (213,294) 341,957 1,275,329 (217,406) (105,251) (124,513) 4,534 718 1,010,781 9,194 348,980 $ 358,174 $ 408,248 93,634 $ 73,733 $ 59,807 20,689 284,455 17,235 (216,468) 3,176 (5,790) (328) 162,776 407,719 3,621,344 (4,110,463) (767,932) – 229,014 (397,504) (71,000) (68,948) 49,466 31,060 (79,614) 7,714 41,160 16,532 (1,499,171) 639,895 – (258,014) 1,206,403 (321,830) (101,045) (121,405) 20,681 1,046 1,065,731 (25,721) 374,701 348,980 $ $ $ $ 331,345 96,324 41,088 $ $ $ 200,246 151,161 26,574 156976_10K_F_Q6 2/16/08 3:48 PM Page 49 Notes to Consolidated Financial Statements Note 1. Summary of Signiﬁcant Accounting Policies Basis of Presentation The consolidated financial state- ments include the accounts of TCF Financial Corporation and its wholly owned subsidiaries. TCF Financial Corporation (“TCF” or the “Company”) a Delaware corporation, is a financial holding company engaged primarily in community banking and leasing and equipment finance through its pri- mary subsidiaries, TCF National Bank and TCF National Bank Arizona, collectively (“TCF Bank”). TCF Bank owns leasing and equipment finance, investment and insurance sales and Real Estate Investment Trust (“REIT”) subsidiaries. These subsidiaries are consolidated with TCF Bank and are included in the consolidated financial statements of TCF Financial Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years’ financial statements to conform to the current year presen- tation. For Consolidated Statements of Cash Flows purposes, cash and cash equivalents include cash and due from banks. The preparation of financial statements in conformity with generally accepted accounting principles requires man- agement to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. Policies Related to Critical Accounting Estimates Summary of Critical Accounting Estimates Critical accounting estimates occur in certain accounting policies and procedures and are particularly susceptible to signifi- cant change. Policies that contain critical accounting esti- mates include the determination of the allowance for loan and lease losses, lease financings and income taxes. Critical accounting policies are discussed with and reviewed by TCF’s Audit Committee. Allowance for Loan and Lease Losses The allowance for loan and lease losses is maintained at a level believed by management to be appropriate to provide for probable loan and lease losses incurred in the portfolio as of the balance sheet date, including known or anticipated prob- lem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. Management’s judgement as to the amount of the allowance is a result of ongoing review of larger individual loans and leases, the overall risk characteristics of the portfolios, changes in the character or size of the portfolios, geographic location and prevailing economic conditions. Additionally, the level of impaired and non-performing assets, historical net charge-off amounts, delinquencies in the loan and lease portfolios, values of underlying loan and lease collateral and other relevant factors are reviewed to determine the amount of the allowance. Impaired loans include non- accrual and restructured commercial real estate and com- mercial business loans and equipment finance loans. Loan impairment is measured as the present value of the expected future cash flows discounted at the loan’s initial effective interest rate or the fair value of the collateral for collateral- dependent loans. Consumer loans, residential real estate loans and leases are excluded from the definition of an impaired loan and are evaluated on a pool basis. Loans and leases are charged off to the extent they are deemed to be uncollectible. The amount of the allowance for loan and lease losses is highly dependent upon manage- ment’s estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of bor- rowers, lessees or properties. These estimates are reviewed periodically and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known. 2007 Form 10-K | 49 156976_10K_F_Q6 2/16/08 3:48 PM Page 50 Lease Financing TCF provides various types of lease financing that are classified for accounting purposes as direct financing, sales-type or operating leases. Leases that transfer substantially all of the benefits and risks of equipment ownership to the lessee are classified as direct financing or sales-type leases and are included in loans and leases. Direct financing and sales-type leases are carried at the combined present value of the future minimum lease payments and the lease residual value. The determination of the lease classification requires various judgments and esti- mates by management including the fair value of the equip- ment at lease inception, useful life of the equipment under lease, estimate of the lease residual value and collectibility of minimum lease payments. Sales-type leases generate dealer profit which is recog- nized at lease inception by recording lease revenue net of the lease cost. Lease revenue consists of the present value of the future minimum lease payments. Lease cost consists of the leased equipment’s book value, less the present value of its residual. The revenues associated with other types of leases are recognized over the term of the underlying leases. Interest income on direct financing and sales-type leases is recognized using methods which approximate a level yield over the fixed, non-cancelable term of the leases. TCF receives pro-rata rent payments for the interim period until the lease contract commences and the fixed, non- cancelable, lease term begins. TCF recognizes these interim payments in the month they are earned and records the income in interest income on direct finance leases. Management has policies and procedures in place for the determination of lease classification and review of the related judgments and estimates for all lease financings. Some lease financings include a residual value compo- nent, which represents the estimated fair value of the leased equipment at the expiration of the initial term of the transaction. The estimation of residual values involves judgments regarding product and technology changes, customer behavior, shifts in supply and demand and other economic assumptions. These estimates are reviewed at least annually and downward adjustments, if necessary, are charged to non-interest expense in the periods in which they become known. Leases which do not transfer substantially all benefits and risks of ownership to the lessee are classified as oper- ating leases. Operating leases represent a rental agreement where ownership of the underlying equipment resides with the lessor. Such leased equipment and related initial direct costs are included in other assets on the balance sheet and are depreciated on a straight-line basis over the term of the lease to its estimated salvage value. Depreciation expense is recorded as operating lease expense and included in non-interest expense. Operating lease rental income is recognized when it is due according to the provisions of the lease and is reflected as a component of non-interest income. An allowance for lease losses is not provided on operating leases. Income Taxes Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax con- sequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax-basis carrying amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The determination of current and deferred income taxes is a critical accounting estimate which is based on complex analyses of many factors including interpretation of federal and state income tax laws, the evaluation of uncertain tax positions, differences between the tax and financial report- ing bases of assets and liabilities (temporary differences), estimates of amounts due or owed such as the timing of reversal of temporary differences and current financial accounting standards. Additionally, there can be no assur- ance that estimates and interpretations used in determining income tax liabilities may not be challenged by federal and state taxing authorities. Actual results could differ signifi- cantly from the estimates and tax law interpretations used in determining the current and deferred income tax liabilities. In the preparation of income tax returns, tax positions are taken based on interpretation of federal and state income 50 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 51 tax laws for which the outcome is uncertain. Management periodically reviews and evaluates the status of uncertain tax positions and makes estimates of amounts ultimately due or owed. The benefit of tax positions are recorded in income tax expense in the consolidated financial statements net of the estimates of ultimate amounts due or owed including any applicable interest and penalties. Changes in the estimated amounts due or owed may result from closing of the statute of limitations on tax returns, new legislation, clarification of existing legislation, through government pronouncements, the courts, and through the examination process. TCF’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Income. Other Signiﬁcant Accounting Policies Investments Investments are carried at cost, adjusted for amortization of premiums or accretion of discounts, using methods which approximate a level yield. TCF period- ically evaluates investments for “other than temporary” impairment. Securities Available for Sale Securities available for sale are carried at fair value with the unrealized holding gains or losses, net of related deferred income taxes, reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. The cost of securities sold is determined on a specific identifica- tion basis and gains or losses on sales of securities available for sale are recognized on trade dates. Declines in the value of securities available for sale that are considered other than temporary are recorded in non-interest income as a loss on securities available for sale. TCF periodically evalu- ates securities available for sale for “other than temporary” impairment. Discounts and premiums on securities available for sale are amortized using methods which approximate a level yield over the life of the security. Education Loans Held for Sale Education loans held for sale are carried at the lower of cost or market value. Net fees and costs associated with originating and acquiring loans held for sale are deferred and are included in the basis for determining the gain or loss on sales of loans held for sale. Gains on sales are recorded at the settlement date and cost is determined on a specific identification basis. Loans and Leases Net direct fees and costs associated with originating and acquiring loans and leases are deferred and amortized over the lives of the loan or lease. The net direct fees and costs for sales-type leases are offset against revenues recorded at the commencement of sales-type leases. Discounts and premiums on loans purchased, net direct fees and costs, unearned discounts and finance charges, and unearned lease income are amortized to interest income using methods which approximate a level yield over the estimated remaining lives of the loans and leases. Net direct fees and costs on lines of credit are amortized on a straight line basis over the contractual life of the line of credit and adjusted for payoffs. Net deferred fees and costs on home equity lines of credit are amortized to service fee income. Loans and leases, including loans or leases that are considered to be impaired, are reviewed regularly by man- agement and are placed on non-accrual status when the collection of interest or principal is 90 days or more past due (150 days or six payments are owed for loans secured by residential real estate), unless the loan or lease is adequately secured and in the process of collection. A loan secured by residential real estate is placed on non- accrual status if, upon notification of bankruptcy, the loan is already in delinquent status. If the loan is current at notification, the loan is placed on non-accrual status at 90 days or four payments are owed, or after a partial charge- off. When a loan or lease is placed on non-accrual status, uncollected interest accrued in prior years is charged off against the allowance for loan and lease losses and interest accrued in the current year is reversed. For non-accrual leases that have been funded on a non-recourse basis by third-party financial institutions, the related debt is also placed on non-accrual status. Interest payments received on loans and leases in non-accrual status are generally applied to principal unless the remaining principal balance has been determined to be fully collectible. Premises and Equipment Premises and equipment, including leasehold improvements, are carried at cost and are depreciated or amortized on a straight-line basis over estimated useful lives of owned assets and for leasehold improvements over the estimated useful life of the related asset or the lease term, whichever is shorter. Maintenance and repairs are charged to expense as incurred. Rent expense 2007 Form 10-K | 51 156976_10K_F_Q6 2/16/08 3:48 PM Page 52 for leased land with facilities is recognized in occupancy and equipment expense. Rent expense for leases with free rent periods or scheduled rent increases is recognized on a straight-line basis over the lease term. Other Real Estate Owned Other real estate owned is recorded at the lower of cost or fair value less estimated costs to sell the property at the date of transfer to other real estate owned. The fair value of other real estate is determined through independent third-party appraisals, automated valuation methods or broker opinions. At the time a loan is transferred to other real estate owned, any carrying amount in excess of the fair value less estimated costs to sell the property is charged off to the allowance for loan and lease losses. Subsequently, should the fair value of an asset, less the estimated costs to sell, decline to less than the car- rying amount of the asset, the deficiency is recognized in the period in which it becomes known and is included in other non-interest expense. Net operating expenses of properties and recoveries on sales of other real estate owned are also recorded in other non-interest expense. Investments in Affordable Housing Limited Partnerships Investments in affordable housing consist of investments in limited partnerships that operate qualified affordable housing projects or that invest in other limited partnerships formed to operate affordable housing projects. TCF generally utilizes the effective yield method to account for these investments with the tax credits net of the amor- tization of the investment reflected in the Consolidated Statements of Income as a reduction of income tax expense. However, depending on circumstances, the equity or cost methods may be utilized. The amount of the investment along with any unfunded equity contributions which are unconditional and legally binding are recorded in other assets. A liability for the unfunded equity contributions is recorded in other liabilities. At December 31, 2007, TCF’s investments in affordable housing limited partnerships were $51 million, compared with $43 million at December 31, 2006 and were recorded in other assets. Five of these investments in affordable housing limited partnerships are considered variable interest entities. These partnerships are not consolidated with TCF. As of December 31, 2007 and 2006, the carrying amount of these five investments was $49.8 million and $39.7 million, respectively. These amounts included $12.3 million and $1.8 million of uncon- ditional unfunded equity contributions as of December 31, 52 | TCF Financial Corporation and Subsidiaries 2007 and 2006, respectively, which are recorded in other liabilities. Thus, the maximum exposure to loss on these five investments was $49.8 million at December 31, 2007; however, the general partner of these partnerships provides various guarantees to TCF including guaranteed minimum returns. These guarantees are backed by a AA credit-rated company and significantly limit any risk of loss. Intangible Assets Goodwill is tested for impairment annually. Deposit base intangibles were amortized over 10 years on an accelerated basis. The Company reviews the recoverability of the carrying values of these assets at least annually or earlier whenever an event occurs indicating that they may be impaired. Stock-Based Compensation The fair value of restricted stock is determined on the date of grant and amortized to compensation expense, with a corresponding increase in addi- tional paid-in capital, over the longer of the service period or performance period, but in no event beyond an employee’s retirement date. For performance-based restricted stock, TCF estimates the degree to which performance conditions will be met to determine the number of shares which will vest and the related compensation expense prior to the vesting date. Compensation expense is adjusted in the period such estimates change. Non-forfeitable dividends are recorded to retained earnings for shares of restricted stock which are expected to vest and to compensation expense for shares of restricted stock which are not expected to vest. Income tax benefits related to stock compensation in excess of grant date fair value are recognized as an increase to additional paid-in capital upon vesting and delivery of the stock. Any income tax benefits that are less than grant date fair value would be recognized as a reduction of addi- tional paid in capital to the extent of previously recognized income tax benefits and then as compensation expense for the remaining amount. See Note 15 for additional information concerning stock-based compensation. Deposit Account Overdrafts Deposit account overdrafts are reported in consumer or commercial loans. Net losses on uncollectible overdrafts are reported as net charge-offs in the allowance for loan and lease losses within 60 days from the date of overdraft. Uncollectible deposit fees are reversed against fees and service charges and a related reserve for uncollectible deposit fees is maintained in other liabilities. Other deposit account losses are reported in other non-interest expense. 156976_10K_F_Q6 2/16/08 3:48 PM Page 53 Note 2. Cash and Due from Banks At December 31, 2007, TCF was required by Federal Reserve Board regulations to maintain reserve balances of $97.9 million in cash on hand or at the Federal Reserve Bank. Note 3. Investments The carrying values of investments, which approximate their fair values, consist of the following. (In thousands) Federal Home Loan Bank stock, at cost: Des Moines Chicago Subtotal Federal Reserve Bank stock, at cost Federal funds sold Interest-bearing deposits with banks and other Total investments At December 31, 2006 2007 $115,848 4,617 120,465 20,423 – $ 73,630 4,617 78,247 20,023 71,000 7,379 $148,267 859 $170,129 The investments in FHLB stock are required investments related to TCF’s borrowings from these banks. All new FHLB borrowing activity since 2000 is done with the FHLB of Des Moines. FHLBs obtain their funding primarily through issuance of consolidated obligations of the Federal Home Loan Bank system. The U.S. Government does not guarantee these obligations, and each of the 12 FHLBs are generally jointly and severally liable for repayment of each other’s debt. Therefore, TCF’s investments in these banks could be adversely impacted by the financial operations of the FHLBs and actions by the Federal Housing Board’s Office of Supervision. The carrying values and yields on investments at December 31, 2007, by contractual maturity, are shown below. (Dollars in thousands) Due in 1 year or less Due in 5-10 years Due after 10 years No stated maturity Total $ Carrying Value 14 200 7,164 140,889 $148,267 Yield 2.46% 2.00 4.38 4.57 4.56 Note 4. Securities Available for Sale Securities available for sale consist of the following. 2007 2006 At December 31, Gross Amortized Unrealized Unrealized Losses Gains Gross Cost Fair Value Gross Amortized Unrealized Unrealized Losses Gains Gross Cost Fair Value (Dollars in thousands) Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other Other securities Total Weighted-average yield 5.27% $1,975,817 3,992 250 $1,980,059 $2,493 – – $2,493 $(18,681) $1,959,630 3,801 250 $(18,871) $1,963,681 (190) – $1,843,744 4,719 1,000 $1,849,463 5.37% $880 – – $880 $(34,046) $1,810,578 4,548 1,000 $(34,217) $1,816,126 (171) – 2007 Form 10-K | 53 156976_10K_F_Q6 2/16/08 3:48 PM Page 54 Gross gains of $13.3 million and $10.7 million were rec- The amortized cost and fair value of securities ognized on sales of securities available for sale during 2007 and 2005, respectively. There were no sales of securi- ties available for sale during 2006. $2 billion and $1.7 bil- lion of mortgage-backed securities were pledged as collateral to secure certain deposits and borrowings at December 31, 2007 and 2006, respectively (see Notes 10 and 11 for additional information). available for sale at December 31, 2007, by contractual maturity, are shown below. (Dollars in thousands) Due in 1 year or less Due in 1-5 years Due in 5-10 years Due after 10 years Total At December 31, 2007 $ Amortized Cost 8 593 3,946 1,975,512 $1,980,059 $ Fair Value 8 604 3,773 1,959,296 $1,963,681 The following table shows the securities available for sale portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position. Unrealized losses on securities available for sale are due to changes in interest rates and not due to credit quality issues. TCF has the ability and intent to hold these investments until a recovery of fair value. Accordingly, TCF has concluded that no other-than-temporary impairment has occurred at December 31, 2007. (In thousands) Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other Total (In thousands) Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other Total Less than 12 months Fair Value Unrealized Losses At December 31, 2007 12 months or more Fair Value Unrealized Losses Total Fair Value Unrealized Losses $286,063 – $286,063 $(190) – $(190) $977,511 3,443 $980,954 $(18,491) (190) $(18,681) $1,263,574 3,443 $1,267,017 $(18,681) (190) $(18,871) Less than 12 months Fair Value Unrealized Losses At December 31, 2006 12 months or more Fair Value Unrealized Losses Total Fair Value Unrealized Losses $270,636 – $270,636 $(570) – $(570) $1,271,984 4,101 $1,276,085 $(33,476) (171) $(33,647) $1,542,620 4,101 $1,546,721 $(34,046) (171) $(34,217) 54 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 55 Note 5. Loans and Leases The following table sets forth information about loans and leases, excluding loans held for sale. (Dollars in thousands) Consumer home equity and other: Home equity: First mortgage lien Junior lien Total consumer home equity Other Total consumer home equity and other Commercial: Commercial real estate: Permanent Construction and development Total commercial real estate Commercial business Total commercial Leasing and equipment finance: (1) Equipment finance loans Lease financings: Direct financing leases Sales-type leases Lease residuals Unearned income and deferred lease costs Total lease financings Total leasing and equipment finance Total consumer, commercial and leasing and equipment finance Residential real estate Total loans and leases At December 31, 2007 2006 Percentage Change $ 4,178,961 2,344,113 6,523,074 67,557 6,590,631 $ 3,781,458 2,101,210 5,882,668 62,409 5,945,077 2,280,204 277,126 2,557,330 558,325 3,115,655 2,201,996 188,657 2,390,653 551,995 2,942,648 604,185 492,062 1,611,881 26,657 41,678 (180,058) 1,500,158 2,104,343 11,810,629 527,607 $12,338,236 1,423,226 22,694 34,671 (154,488) 1,326,103 1,818,165 10,705,890 627,790 $11,333,680 10.5% 11.6 10.9 8.2 10.9 3.6 46.9 7.0 1.1 5.9 22.8 13.3 17.5 20.2 (16.6) 13.1 15.7 10.3 (16.0) 8.9 (1) Operating leases of $71.1 million and $80.4 million at December 31, 2007 and 2006, respectively, are included in Other Assets on the Consolidated Statements of Financial Condition. The aggregate amount of loans to non-management directors of TCF and their related interests was $39.3 million and $44.1 million at December 31, 2007 and 2006, respectively. During 2007, $10 thousand of new loans were made, $4.8 million of loans were repaid. All loans to outside directors and their related interests were made in the ordinary course of business on normal credit terms, includ- ing interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons. The aggregate amount of loans to executive officers of TCF was $27 thousand and $30 thousand at December 31, 2007 and 2006, respectively. In the opinion of management, the above mentioned loans to outside directors and their related interests and executive officers do not represent more than a normal risk of collection. Future minimum lease payments for direct financing and sales-type leases as of December 31, 2007 are as follows. (In thousands) 2008 2009 2010 2011 2012 Thereafter Total Total $ 570,770 408,543 287,601 182,481 81,420 27,566 $1,558,381 2007 Form 10-K | 55 156976_10K_F_Q6 2/16/08 3:48 PM Page 56 Note 6. Allowance for Loan and Lease Losses Following is a summary of the allowance for loan and lease losses and selected statistics. (Dollars in thousands) Balance at beginning of year Provision for credit losses Charge-offs Recoveries Net charge-offs Balance at end of year Net charge-offs as a percentage of average loans and leases Allowance for loan and lease losses as a percentage of total loans and leases at year end Year Ended December 31, 2006 $ 55,823 20,689 (33,221) 15,252 (17,969) $ 58,543 .17% .52 2005 $ 75,393 8,586 (47,904) 19,748 (28,156) $ 55,823 .29% .55 2007 $ 58,543 56,992 (52,421) 17,828 (34,593) $ 80,942 .30% .66 Information relating to impaired loans and non-accrual loans and leases is as follows. (In thousands) Impaired loans and leases: Balance, at year-end Related allowance for loan and lease losses, at year-end (1) Average impaired loans and leases Interest income recognized on impaired loans and leases (cash basis) Other non-accrual loans and leases: Balance, at year-end Interest income recognized on non-accrual loans and leases (cash basis) Contractual interest on non-accrual loans and leases (2) At or For the Year Ended December 31, 2005 2006 2007 $24,770 2,718 21,490 91 35,084 1,915 5,724 $17,512 2,470 8,169 603 25,673 978 3,557 $3,791 1,642 5,345 76 25,857 960 2,900 (1) There were no impaired loans and leases at December 31, 2007, 2006 and 2005 which did not have a related allowance for loan and lease losses. (2) Represents interest which would have been recorded had the loans and leases performed in accordance with their contractual terms during the period. TCF had $4.9 million of troubled debt restructuring loans at December 31, 2007. There were no such loans outstanding at December 31, 2006 and December 31, 2005. There were no material commitments to lend additional funds to customers whose loans or leases were classified as non-accrual at December 31, 2007. At December 31, 2007, accruing loans and leases delinquent for 90 days or more was $15.4 million, compared with $12.2 million at December 31, 2006. Note 7. Premises and Equipment Premises and equipment are summarized as follows. (In thousands) Land Office buildings Leasehold improvements Furniture and equipment Subtotal Less accumulated depreciation and amortization Total At December 31, 2006 2007 $118,656 $131,942 218,171 236,893 54,474 57,639 273,412 288,876 664,713 715,350 276,898 $438,452 258,626 $406,087 56 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 57 TCF leases certain premises and equipment under oper- ating leases. Net lease expense including utilities and other operating expenses was $34 million, $32.9 million and $30.2 million in 2007, 2006 and 2005, respectively. At December 31, 2007, the total minimum rental payments for operating leases were as follows. (In thousands) 2008 2009 2010 2011 2012 Thereafter Total $ 27,304 25,368 24,171 21,165 19,716 102,349 $220,073 Note 8. Goodwill and Other Intangible Assets Goodwill and other intangible assets are summarized as follows. (In thousands) Amortizable intangible assets: Deposit base intangibles Unamortizable intangible assets: Goodwill related to the banking segment Goodwill related to the leasing segment Total 2007 2006 At December 31, Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount $ 21,180 $21,180 $ – $ 21,180 $20,224 $ 956 $141,245 11,354 $152,599 $141,245 11,354 $152,599 $141,245 11,354 $152,599 $141,245 11,354 $152,599 Amortization expense for intangible assets was $1 million, $2.9 million and $11.8 million for the years ended December 31, 2007, 2006 and 2005, respectively. 2007 Form 10-K | 57 156976_10K_F_Q6 2/16/08 3:48 PM Page 58 Note 9. Deposits Deposits are summarized as follows. (Dollars in thousands) Checking: Non-interest bearing Interest bearing Total checking Savings Money market Total checking, savings, and money market Certificates of deposit Total deposits Rate at Year End –% 1.40 .64 2.60 2.57 1.50 4.38 2.18 2007 Amount $2,228,598 1,879,929 4,108,527 2,636,820 576,667 7,322,014 2,254,535 $9,576,549 At December 31, % of Total 23.3% 19.6 42.9 27.5 6.0 76.5 23.5 100.0% Rate at Year End –% 1.86 .82 2.54 2.76 1.53 4.66 2.33 2006 Amount $2,428,223 1,920,033 4,348,256 2,351,580 585,779 7,285,615 2,483,635 $9,769,250 % of Total 24.9% 19.6 44.5 24.1 6.0 74.6 25.4 100.0% During the first quarter of 2007, TCF sold 10 out-state Michigan branches with $241.4 million in deposits. Certificates of deposit had the following remaining maturities at December 31, 2007. (In thousands) 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 Total $100,000 Minimum $273,354 225,917 96,366 9,179 3,829 1,655 203 649 $611,152 Other $ 644,194 664,333 245,814 56,894 17,443 7,950 3,666 3,089 $1,643,383 Total $ 917,548 890,250 342,180 66,073 21,272 9,605 3,869 3,738 $2,254,535 58 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 59 Note 10. 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, 2007. (Dollars in thousands) At December 31, Federal funds purchased Securities sold under repurchase agreements Federal Home Loan Bank advances Line of credit U.S. Treasury, tax and loan borrowings Total Year ended December 31, Average daily balance Federal funds purchased Securities sold under repurchase agreements Federal Home Loan Bank advances Line of credit U.S. Treasury, tax and loan borrowings Total Maximum month-end balance Federal funds purchased Securities sold under repurchase agreements Federal Home Loan Bank advances Line of credit U.S. Treasury, tax and loan borrowings N.A. Not Applicable. 2007 2006 2005 Amount Rate Amount Rate Amount Rate $150,000 3.68% $125,000 5.39% $270,000 4.30% 43,297 100,000 9,500 253,273 $556,070 4.31 4.33 5.93 4.29 4.16 86,788 – – 2,324 $214,112 4.95 – – 4.99 5.20 29,101 150,000 16,500 6,525 $472,126 3.86 4.03 5.15 3.89 4.21 $131,551 4.98% $502,200 5.06% $308,062 3.46% 36,768 17,575 8,276 36,123 $230,293 $354,000 84,051 100,000 31,000 253,273 4.73 4.48 7.29 4.68 4.94 N.A. N.A. N.A. N.A. N.A. 53,087 24,657 1,893 15,015 $596,852 $645,000 188,162 200,000 27,000 145,493 4.63 4.57 5.38 5.31 5.03 N.A. N.A. N.A. N.A. N.A. 518,953 68,630 18,075 3,945 $917,665 $583,000 828,378 350,000 56,000 10,949 3.13 2.84 4.52 3.06 3.25 N.A. N.A. N.A. N.A. N.A. The securities underlying the repurchase agreements are book entry securities. During the borrowing period, book entry securities were delivered by entry into the counterparties’ accounts through the Federal Reserve System. The dealers may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, but have agreed to resell to TCF identical or substantially the same securities upon the maturities of the agreements. At December 31, 2007, all of the securi- ties sold under short-term repurchase agreements provided for the repurchase of identical securities and were collater- alized by mortgage-backed securities having a fair value of $44.6 million. TCF Financial (parent company) has an $80 million unsecured line of credit that matures in March 2008, and contains certain covenants common to such agreements. As of December 31, 2007, TCF is not in default with respect to any of its covenants under the line of credit agreement. The interest rate on the line of credit is based on either the prime rate or LIBOR. TCF has the option to select the inter- est rate index and term for advances on the line of credit. The line of credit may be used for appropriate corporate purposes. At December 31, 2007, TCF had $9.5 million out- standing on its bank line of credit. There were no outstanding balances under the line of credit at December 31, 2006. 2007 Form 10-K | 59 156976_10K_F_Q6 2/16/08 3:48 PM Page 60 Note 11. Long-term Borrowings Long-term borrowings consist of the following. (Dollars in thousands) Federal Home Loan Bank advances and securities sold under repurchase agreements Subtotal Subordinated bank notes Subtotal Discounted lease rentals Subtotal Other borrowings Subtotal Total long-term borrowings At December 31, 2007 Weighted- Average Rate –% 5.26 6.02 4.85 4.16 4.49 4.60 4.49 5.27 5.37 5.63 5.43 – 7.13 7.10 6.98 7.00 6.98 7.09 – 4.51 5.00 4.66 4.56 2006 Weighted- Average Rate 3.65% 5.26 6.02 4.85 4.16 4.49 – 4.58 5.27 5.37 5.63 5.43 7.13 7.30 7.27 7.16 7.25 – 7.20 4.50 4.51 5.00 4.59 4.49 Amount $ 200,000 117,000 100,000 200,000 1,400,000 1,100,000 – 3,117,000 74,545 49,458 74,337 198,340 27,566 16,000 7,390 2,287 431 – 53,674 2,222 2,226 966 5,414 $3,374,428 Year of Maturity 2007 2009 2010 2011 2015 2016 2017 2014 2015 2016 2007 2008 2009 2010 2011 2012 2007 2008 2009 Amount $ – 117,000 100,000 200,000 1,400,000 1,100,000 1,250,000 4,167,000 74,726 49,619 74,395 198,740 – 24,318 15,439 6,681 1,732 276 48,446 – 2,226 966 3,192 $4,417,378 The next call year and stated maturity year for the callable FHLB advances and repurchase agreements outstanding at December 31, 2007 were as follows. Stated Weighted- Average Rate (Dollars in thousands) Next Call Date $1,617,000 1,000,000 1,450,000 100,000 – – – $4,167,000 Year 2008 2009 2010 2011 2015 2016 2017 Total Weighted- Average Rate 4.42% $ 4.45 4.56 4.82 – – – 4.49 Maturity Date – 117,000 100,000 200,000 1,400,000 1,100,000 1,250,000 $4,167,000 –% 5.26 6.02 4.85 4.16 4.49 4.60 4.49 At December 31, 2007, TCF has pledged residential real estate loans, consumer loans, commercial real estate loans and FHLB stock with an aggregate carrying value of $5.9 billion as collateral for FHLB advances. Included in FHLB advances and repurchase agreements at December 31, 2007 are $517 million of fixed-rate FHLB advances, which are callable quarterly by our counterparties at par until maturity. In addition, TCF has $1.9 billion of FHLB advances and $1.8 billion of repurchase agreements which are callable during various years from 2008 through 2011. The probability that these advances and repurchase agreements will be called depends primarily on the level of related interest rates during the call period. If FHLB advances are called, replacement funding will be provided by the FHLB at the then-prevailing market rate of interest for the term selected by TCF, subject to standard terms and conditions. 60 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 61 The $75 million of subordinated notes due 2014 have a The effective income tax rate differs from the federal income tax rate of 35% as a result of the following. fixed-rate coupon of 5% through June 14, 2009, and will reprice quarterly thereafter at the three-month LIBOR rate plus 1.63%. The $50 million of subordinated notes due 2015 have a fixed-rate coupon of 5% through March 14, 2010, and will reprice quarterly thereafter at the three-month LIBOR rate plus 1.56%. These subordinated notes may be redeemed by TCF Bank at par after June 14, 2009, and March 14, 2010, respectively. The $75 million of subordinated notes due 2016 have a fixed-rate coupon of 5.5% until February 1, 2016. These subordinated notes qualify as Tier 2 or supplementary capi- tal for regulatory purposes, subject to certain limitations. 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 on these financings, the other financial institution has a first lien on the underly- ing leased equipment and TCF is only entitled to residual proceeds in excess of the outstanding borrowing balance. Additionally, in the case of non-recourse financings, the other financial institution has no further recourse against TCF. Note 12. Income Taxes (In thousands) Year ended December 31, 2007: Current Deferred Total Federal State Total $ 91,170 3,100 $ 94,270 $13,900 (2,460) $11,440 $105,070 640 $105,710 Year ended December 31, 2006: Federal State Total $ 112,465 1,830 $114,295 $ (439) $ 112,026 (1,691) 139 $(2,130) $ 112,165 Year ended December 31, 2005: Federal State Total $ 120,793 1,788 $ 122,581 $(7,241) $ 113,552 1,726 $(7,303) $ 115,278 (62) Year Ended December 31, 2005 2006 35.00% 35.00% 2007 35.00% (In thousands) Federal income tax rate Increase (decrease) in income tax expense resulting from: State income tax, net of federal income tax benefit .11 Deductible stock dividends (1.04) Investments in affordable .03 (1.14) .29 (1.17) housing limited partnerships Federal settlement of prior year issue Changes in uncertain tax positions Other, net Effective income tax rate (.60) (.60) (.64) (2.27) (2.73) (.09) 28.38% – – (1.72) (.16) 31.41% (3.67) .49 30.30% Effective January 1,2007, TCF adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (the Interpretation). This Interpretation provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. The initial adoption of this Interpretation had no impact on TCF’s financial statements. A reconciliation of the change in the gross amount, before related tax effects, of unrecognized tax benefits from January 1, 2007 to December 31, 2007 is as follows: (In thousands) Balance at January 1, 2007 Increases for tax positions related to the current year Increases for tax positions related to prior years Decreases for tax positions related to prior years Decreases related to lapse of applicable statutes of limitation Balance at December 31, 2007 $24,316 2,305 211 (10,150) (3,642) $13,040 2007 Form 10-K | 61 156976_10K_F_Q6 2/16/08 3:48 PM Page 62 The total amount of unrecognized tax benefits that, if recognized, would affect the tax provision and the effective income tax rate is $6.5 million, net of related tax benefit effects. TCF’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Income. The gross amount of accrued interest at December 31, 2007 is $1.4 million. TCF recorded a reduction of accrued interest of $768 thou- sand during 2007. TCF’s federal income tax returns are open and subject to examination from the 2004 tax return year and forward. TCF’s various state income tax returns are generally open from the 2003 and later tax return years based on individual state statutes of limitation. Changes in the amount of unrecognized tax benefits within the next twelve months from normal expirations of statutes of limitation are not expected to be material. TCF is under examination by certain states. TCF does not currently expect to resolve these examinations within the next twelve months. Developments in these examinations or other events could cause manage- ment to change its judgment about the amount of unrecog- nized tax benefits. Due to the amount and nature of these possible events, an estimate of the range of reasonably possible changes in the amount of unrecognized tax bene- fits cannot be made. The significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows. Note 13. Stockholders’ Equity Restricted Retained Earnings Retained earnings at December 31, 2007 includes approximately $134.4 million for which no provision for federal income taxes has been made. This amount represents earnings legally appropriated to thrift bad debt reserves and deducted for federal income tax purposes in prior years and is generally not available for payment of cash dividends or other distributions to shareholders. Future payments or distributions of these appropriated earnings could invoke a tax liability for TCF based on the amount of the distributions and the tax rates in effect at that time. Shareholder Rights Plan Each share of TCF common stock outstanding includes one preferred share purchase right. TCF’s preferred share purchase rights will become exercisable only if a person or group acquires or announces an offer to acquire 15% or more of TCF’s common stock. When exercisable, each right will entitle the holder to buy one one-hundredth of a share of a new series of junior par- ticipating preferred stock at a price of $200. 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 is generally entitled to redeem the rights at $.001 per right at any time before they become exercisable. The rights will expire on June 9, 2009, if not previously redeemed or exercised. (In thousands) Deferred tax assets: Stock compensation and deferred compensation plans Allowance for loan and lease losses Securities available for sale Net operating losses and credits Valuation allowance Other Total deferred tax assets Deferred tax liabilities: Lease financing Loan fees and discounts Premises and equipment Prepaid expenses Pension and postretirement benefits Investments in affordable housing Investment in FHLB Stock Other Total deferred tax liabilities Net deferred tax liabilities At December 31, 2007 2006 Treasury Stock and Other Treasury stock and other consists of the following. $ 30,766 30,968 5,868 7,065 (2,131) 7,161 79,697 109,455 25,412 13,143 7,907 5,078 4,455 3,169 3,186 171,805 $ 92,108 $ 30,817 21,531 11,748 6,010 (2,447) 5,199 72,858 94,928 24,000 9,220 6,941 1,241 3,244 3,112 1,929 144,615 $ 71,757 (In thousands) Treasury stock, at cost Shares held in trust for deferred compensation plans, at cost Total At December 31, 2007 $(126,020) 2006 $(27,827) (39,666) $(165,686) (32,945) $(60,772) TCF purchased 3.9 million, 3.9 million and 3.5 million shares of its common stock during the years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007, TCF had 5.4 million shares remaining in its stock repurchase programs authorized by the Board. Shares Held in Trust for Deferred Compensation Plans TCF has certain deferred compensation plans that previously allowed eligible executives, senior officers and certain other employees to defer payment of up to 100% of their base salary and bonus as well as grants of restricted 62 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 63 stocks. There were 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, bonds or mutual funds. Directors were and still are allowed to defer up to 100% of their fees and restricted stock awards. TCF has a supplemental nonqualified Employee Stock Purchase Plan in which certain employees can contribute from 0% to 50% of their salary and bonus. At December 31, 2007, the fair value of the assets in the plans totaled $93.3 million and included $70.6 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 com- pensation obligation reflected in additional paid-in capital. Note 14. Regulatory Capital Requirements TCF is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal banking agencies that could have a material adverse effect on TCF. In general, TCF Bank may not declare or pay a dividend to TCF in excess of 100% of its net retained profits for the current year combined with its retained net profits for the preceding two calendar years without prior approval of the OCC. The following table sets forth TCF’s and TCF National Bank’s regulatory tier 1 leverage, tier 1 risk-based and total risk- based capital levels, and applicable percentages of adjusted assets, together with the minimum and well-capitalized capital requirements. (Dollars in thousands) As of December 31, 2007: Tier 1 leverage capital TCF TCF National Bank Tier 1 risk-based capital TCF TCF National Bank Total risk-based capital TCF TCF National Bank As of December 31, 2006: Tier 1 leverage capital TCF TCF National Bank Tier 1 risk-based capital TCF TCF National Bank Total risk-based capital TCF TCF National Bank N.A. Not Applicable. Actual Minimum Capital Requirement Well-Capitalized Capital Requirement Amount Ratio Amount Ratio Amount Ratio $ 964,467 900,864 964,467 900,864 1,245,808 1,182,196 $ 914,128 821,273 914,128 821,273 1,173,073 1,080,218 6.16% 5.76 8.28 7.75 10.70 10.17 $469,914 468,806 465,931 464,934 931,863 929,869 3.00% 3.00 N.A. $ 781,343 4.00 4.00 8.00 8.00 698,897 697,402 1,164,829 1,162,336 6.33% 5.70 $432,993 432,374 3.00% 3.00 N.A. $ 720,623 8.65 7.79 11.10 10.24 422,678 421,941 845,355 843,881 4.00 4.00 8.00 8.00 634,016 632,911 1,056,694 1,054,851 N.A. 5.00% 6.00 6.00 10.00 10.00 N.A. 5.00% 6.00 6.00 10.00 10.00 At December 31, 2007, TCF, TCF National Bank and TCF National Bank Arizona exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the FRB and the OCC pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. 2007 Form 10-K | 63 156976_10K_F_Q6 2/16/08 3:48 PM Page 64 Note 15. Stock Compensation The TCF Financial Incentive Stock Program (the “Program”) was adopted to enable TCF to attract and retain key person- nel. Under the Program, no more than 5% of the shares of TCF common stock outstanding on the date of initial share- holder approval may be awarded. At December 31, 2007, there were 3,937,813 shares reserved for issuance under the Program, including 144,050 shares related to outstanding stock options that are fully vested. At December 31, 2007, there were 1,455,166 shares of performance-based restricted stock that will vest only if certain earnings per share goals and service conditions are achieved. Failure to achieve the goals and service conditions will result in all or a portion of the shares being forfeited. In January 2008, 1,012,666 shares of performance-based restricted stock vested. Other restricted stock grants vest over periods from three to seven years. The weighted- average grant date fair value of restricted stock was $26.81, $25.31 and $27.78 for shares granted in 2007, 2006 and 2005, respectively. Compensation expense for restricted stock totaled $7.1 million, $7.0 million and $4.7 million in 2007, 2006 and 2005, respectively. The recognized tax benefit for stock compensation expense was $2.4 million, $2.3 mil- lion and $1.6 million in 2007, 2006 and 2005, respectively. Unrecognized stock compensation for restricted stock awards was $13.8 million with a weighted-average remain- ing amortization period of 1.4 years at December 31, 2007, compared with $19.6 million with a weighted-average remaining amortization period of 2 years at December 31, 2006 and $20.4 million with a weighted-average remaining amortization period of 1.8 years at December 31, 2005. TCF has also issued stock options under the Program that generally become exercisable over a period of one to 10 years from the date of the grant and expire after 10 years. All outstanding options have a fixed exercise price equal to the market price of TCF common stock on the date of grant. As of December 31, 2007 and 2006, all outstanding stock options are vested. Stock options outstanding and exercis- able at December 31, 2007 had exercise prices ranging from $11.78 to $16.09, a weighted-average exercise price of $13.91 and a weighted-average contractual life of 1.3 years. In January 2008, TCF issued 1,626,000 nonqualified stock options under the Program. The options have an exercise price of $15.75 per share, with 50% exercisable in 2011 and the remaining 50% exercisable in 2012. TCF also issued under the Program 100,000 shares of performance-based restricted stock, with 50% of the award vesting in each of 2008 and 2009, provided certain return on equity goals and service conditions are met. The following table reflects TCF’s stock option and restricted stock transactions under the Program since December 31, 2004. Restricted Stock Stock Options Exercise Price Shares 3,032,226 526,400 – (111,185) (1,138,165) 2,309,276 713,900 – (133,535) (270,300) 2,619,341 198,850 – (140,775) (152,200) 2,525,216 N.A. Price Range $ 9.87-$30.28 25.97- 28.71 – 11.05- 30.28 9.87- 21.85 9.87- 30.28 25.18- 26.69 – 9.87- 30.28 18.03- 24.10 9.87- 30.28 24.26- 28.64 – 9.87- 30.13 20.38- 26.39 9.87- 30.28 N.A. Shares 325,864 – (66,064) – – 259,800 – (28,667) – – 231,133 – (87,083) – – 144,050 144,050 Range $ 5.71-$16.64 – 5.71- 16.64 – – 11.78- 16.64 – 11.78- 16.09 – – 11.78- 16.64 – 11.78- 16.64 – – 11.78- 16.09 11.78- 16.09 Weighted- Average $12.91 – 9.60 – – 13.76 – 12.33 – – 13.93 – 13.96 – – 13.91 13.91 Outstanding at December 31, 2004 Granted Exercised Forfeited Vested Outstanding at December 31, 2005 Granted Exercised Forfeited Vested Outstanding at December 31, 2006 Granted Exercised Forfeited Vested Outstanding at December 31, 2007 Exercisable at December 31, 2007 N.A. Not Applicable. 64 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 65 Note 16. Employee Beneﬁt Plans Employee Stock Purchase Plan The TCF Employees Stock Purchase Plan generally allows participants to make contributions of up to 50% of their salary and bonus on a tax-deferred basis. TCF matches the contributions of all participants with TCF common stock at the rate of 50 cents per dollar for employees with one through four years of service, up to a maximum company contribution of 3% of the employee’s salary and bonus, 75 cents per dollar for employees with five through nine years of service, up to a maximum company contribution of 4.5% of the employee’s salary and bonus, and $1 per dollar for employees with 10 or more years of service, up to a maximum company contri- bution of 6% of the employee’s salary and bonus. Prior to April 1, 2006, TCF matched the contributions of all partici- pants with TCF common stock at the rate of 50 cents per dollar for employees with over one year of service, up to a maximum company contribution of 3% of the employee’s salary and bonus. Employee contributions vest immediately while the Company’s matching contributions are subject to a graduated vesting schedule based on an employee’s years of vesting service with full vesting after five years. Employees have the opportunity to diversify and invest their vested account balance in various mutual funds or TCF common stock. Effective January 1, 2007, the Company’s matching contributions can be diversified after three years. At December 31, 2007, the fair value of the assets in the plan totaled $156.5 million and included $129.9 million invested in TCF common stock. The Company’s matching contributions are expensed when made. TCF’s contributions to the plan were $6.6 million, $5.1 million and $4.3 million in 2007, 2006 and 2005, respectively. Pension Plan The TCF Cash Balance Pension Plan (the “Pension Plan”) is a qualified defined benefit plan covering eligible employees who are at least 21 years old and have completed a year of eligibility service with TCF. Employees hired after June 30, 2004 are not eligible to participate in the Pension Plan. Effective March 31, 2006, TCF amended the Pension Plan to discontinue compensation credits for all participants. Interest credits will continue to be paid until participants’ accounts are distributed from the Pension Plan. Prior to March 31, 2006, TCF made a monthly allocation to the participant’s account based on a percentage of the participant’s compensation. The percentage was based on the sum of the participant’s age and years of employment with TCF and includes interest on the account balance based on the five-year Treasury rate plus 25 basis points. All unvested participant accounts were vested on March 31, 2006. The measurement of the projected benefit obligation, prepaid pension asset, pension liability and annual pension expense involves complex actuarial valuation methods and the use of actuarial and economic assumptions. Due to the long-term nature of the pension plan obligation, actual results may differ significantly from the actuarial-based estimates. Differences between estimates and actual experience are required to be deferred and under certain circumstances amortized over the future expected working lifetime of plan participants. As a result, these differences are not recognized when they occur. TCF closely monitors all assumptions and updates them annually. TCF accounts for the Pension Plan in accordance with Statement of Financial Accounting Standard (SFAS) No. 87 “Employers’ Accounting for Pensions,” and SFAS No. 88 “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” as amended by SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. SFAS No. 158 requires companies to reflect each defined benefit and other postretirement benefits plan’s funded status on the company’s balance sheet. TCF implemented these provisions for the year ended December 31, 2006. SFAS No. 158 also requires TCF to change its measurement date from September 30 to December 31 on or before December 31, 2008. TCF will change its measurement date to December 31 in 2008. The Company does not consolidate the assets and liabilities associated with the Pension Plan. Postretirement Plan TCF provides health care benefits for eligible retired employees (the “Postretirement Plan”). Effective January 1, 2000, TCF modified the Postretirement Plan for employees not yet eligible for benefits under the Postretirement Plan by eliminating the Company subsidy. The plan provisions for full-time and retired employees then eligible for these benefits were not changed. The Postretirement Plan is not funded. 2007 Form 10-K | 65 156976_10K_F_Q6 2/16/08 3:48 PM Page 66 The following table sets forth the status of the Pension Plan and the Postretirement Plan at the dates indicated. (In thousands) Benefit obligation: Accrued participant balance – vested Present value of future service and benefits Total projected benefit obligation Accumulated benefit obligation Change in benefit obligation: Benefit obligation at beginning of year Service cost – benefits earned during the year Interest cost on projected benefit obligation Plan amendments Actuarial (gain) loss Benefits paid Projected 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 TCF contributions Fair value of plan assets at end of year Funded status plans at end of year Amounts recognized in Statements of Financial Condition: Prepaid (accrued) benefit cost at end of year Amounts not yet recognized in net periodic benefit cost and included in accumulated other comprehensive loss, before tax: Transition obligation Accumulated actuarial net loss Accumulated other comprehensive loss (AOCL), before tax Total prepaid (accrued) benefit cost and AOCL N.A. Not Applicable. Pension Plan Year Ended December 31, 2006 2007 Postretirement Plan Year Ended December 31, 2006 2007 $55,467 (3,011) $52,456 $52,456 $56,765 – 2,930 – (1,101) (6,138) 52,456 64,277 9,367 (6,138) – 67,506 $15,050 $58,718 (1,953) $56,765 $56,765 $62,076 1,421 3,109 (6,479) 3,370 (6,732) 56,765 61,950 5,059 (6,732) 4,000 64,277 $ 7,512 N.A. N.A. N.A. N.A. $ 9,410 17 491 (484) 1,175 (1,118) 9,491 – – (1,118) 1,118 – $(9,491) N.A. N.A. N.A. N.A. $ 8,656 26 433 – 1,341 (1,046) 9,410 – – (1,046) 1,046 – $(9,410) $15,050 $ 7,512 $(9,491) $(9,410) – 7,221 7,221 $22,271 – 16,410 16,410 $23,922 20 4,518 4,538 $(4,953) 605 3,566 4,171 $(5,239) The following table sets forth the changes recognized in accumulated other comprehensive loss at the dates indicated. (In thousands) Accumulated other comprehensive Pension Plan Year Ended December 31, 2007 2006 loss at beginning of year, before tax $16,410 $ – – – – – – 16,410 16,410 $ 7,221 $16,410 Impact of plan amendments on transition obligation Actuarial net loss (gain) arising during the period Amortizations (recognized in net periodic benefit cost): Transition obligation cost (credit) Actuarial loss Settlement expense Initial application of FAS 158 Total recognized in other comprehensive (income) loss Accumulated other comprehensive loss at end of year, before tax N.A. Not Applicable. – (5,530) – (1,997) (1,662) – (9,189) 66 | TCF Financial Corporation and Subsidiaries Postretirement Plan Year Ended December 31, 2006 2007 $4,171 $ (484) 1,175 (101) (223) – – 367 – – – – – – 4,171 4,171 $4,538 $4,171 2005 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 2005 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 156976_10K_F_Q6 2/16/08 3:48 PM Page 67 The measurement dates used for determining the Pension Plan and the Postretirement Plan projected and accumulated benefit obligations and the date used to value plan assets were September 30, 2007 and 2006. The discount rate used to measure the benefit obligation of the Pension Plan was 6% for the year ended December 31, 2007 and 5.5% for the year ended December 31, 2006. The discount rate used to measure the benefit obligation of the Postretirement Plan was 6% for the year ended December 31, 2007 and 5.5% for the year ended December 31, 2006. Net periodic benefit cost included in compensation and employee benefits expense consists of the following. (In thousands) Service cost Interest cost Expected return on plan assets Amortization of transition obligation Amortization of prior service cost Recognized actuarial loss Settlement expense Plan amendment/curtailment gain Net periodic benefit cost Pension Plan Year Ended December 31, $ 2007 – 2,930 (4,938) – – 1,997 1,662 – $ 1,651 2006 $ 1,421 3,109 (5,023) – (21) 2,330 1,742 (400) $ 3,158 2005 $ 5,303 3,428 (5,727) – (249) 1,050 – – $ 3,805 Postretirement Plan Year Ended December 31, 2006 $ 26 433 – 101 – 119 – – $679 2007 $ 17 491 – 101 – 223 – – $832 2005 $ 35 552 – 131 – 139 – – $857 The discount rate, the expected long-term rate of return on plan assets and the rate of increase in future compensation used to determine the net benefit cost were as follows. Assumptions used to determine net benefit cost Discount rate Expected long-term rate of return on plan assets Rate of compensation increase Pension Plan Year Ended December 31, 2006 5.25/5.5%(1) 8.75 4.0 2007 5.5% 8.50 N.A. 2005 6.0% 8.75 4.0 2007 5.5% N.A. N.A. Postretirement Plan Year Ended December 31, 2006 5.25% N.A. N.A. 2005 6.0% N.A. N.A. (1) Due to a curtailment and liability remeasurement as of February 1, 2006 for the Pension Plan, the discount rate used to determine net benefit cost was increased from 5.25% for the period ending February 1, 2006 to 5.5% for the period ended December 31, 2006. N.A. Not Applicable. The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during 2008 are as follows. (In thousands) Actuarial net loss Settlement Transition obligation Total Pension Plan $ 859 713 – $1,572 Postretirement Plan $311 _ 4 $315 Total $1,170 713 4 $1,887 TCF’s Pension Plan assets are invested in index mutual funds that are designed to mirror the performance of the Standard and Poor’s 500 and the Morgan Stanley Capital International U.S. Mid-Cap 450 indexes, at targeted weightings of 75% and 25%, respectively. The actuarial assumptions used in the Pension Plan val- uation are reviewed annually. The expected long-term rate of return on plan assets is determined by reference to his- torical market returns and future expectations. The 10-year weighted-average return of the indexes consistent with the Plan’s current investment strategy was 7.1%, net of admin- istrative expenses. Although past performance is no guaran- tee of the future results, TCF is not aware of any reasons why it should not be able to achieve the assumed future average 2007 Form 10-K | 67 156976_10K_F_Q6 2/16/08 3:48 PM Page 68 The following table presents assumed health care cost trend rates for the Postretirement Plan at December 31, 2007 and 2006. Health care cost trend rate assumed for next year Final health care cost trend rate Year that final health care trend rate is reached 2007 2006 9% 5% 7.4% 5% 2012 2009 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: (In thousands) Effect on total of service and interest cost components Effect on postretirement benefits obligations 1-Percentage-Point Decrease Increase $ 21 $ (19) 380 (345) Note 17. 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 cus- tomers. These financial instruments, which are issued or held for purposes other than trading, involve elements of credit and interest-rate risk in excess of the amount recog- nized in the Consolidated Statements of Financial Condition. TCF’s exposure to credit loss, in the event of non- performance by the counterparty to the financial instrument, for commitments to extend credit and standby letters of credit is represented by the contractual amount of the commitments. TCF uses the same credit policies in making these commitments as it does for making direct loans. TCF evaluates each customer’s creditworthiness on a case-by- case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. long term annual returns of 8.5%, net of administrative expenses, on plan assets over complete market cycles. A 1% difference in the expected return on plan assets would result in a $589 thousand change in net periodic pension expense. The discount rate used to determine TCF’s pension and postretirement benefit obligations as of December 31, 2007 and December 31, 2006 was determined by matching esti- mated benefit cash flows to a yield curve derived from corporate bonds rated AA by Moody’s. Bonds containing call or put provisions were excluded. The average estimated duration of TCF’s Pension and Postretirement Plans varied between seven and eight years. In prior years, the discount rate was determined based on the Moody’s AA and Citigroup Pension Liability long-term bond indexes. The actual return on plan assets, net of administrative expenses was 14.4% for 2007 and 8.5% for 2006. The actual return on plan assets for 2007 decreased the actuarial loss by $4.4 million. The increase in the discount rate from 5.5% at December 31, 2006 to 6.0% at December 31, 2007 decreased the actuarial loss by $2.6 million. Various plan participant census changes increased the actuarial loss by $1.5 million in 2007. The decrease in the actuarial loss in 2006 was primarily due to the vesting of all participants effective April 1, 2006 and the change in the discount rate assumption from 5.25% to 5.5%, partially offset by various plan participant census changes. For 2007, TCF is eligible to contribute up to $12.3 million to the Pension Plan until the 2007 federal income tax return has been filed under various IRS funding methods, but is not required to make any contributions. TCF currently has no plans to contribute to the Pension Plan in 2008. TCF expects to contribute $1 million to the Postretirement Plan in 2008. TCF contributed $1.1 million to the Postretirement Plan in 2007. TCF currently has no plans to pre-fund the Postretirement Plan in 2008. The following are expected future benefit payments used to determine projected benefit obligations. (In thousands) 2008 2009 2010 2011 2012 2013-2017 Pension Plan $ 6,546 5,040 4,734 4,568 4,460 18,961 Postretirement Plan $1,007 1,016 983 955 924 4,060 68 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 69 Financial instruments with off-balance sheet risk are summarized as follows. (In thousands) Commitments to extend credit: At December 31, 2007 2006 Consumer home equity and other Commercial Leasing and equipment finance Other $1,927,001 621,025 89,206 83,686 $1,889,100 618,055 91,271 79,444 Total commitments to extend credit Standby letters of credit and guarantees on industrial revenue bonds Total 2,720,918 2,677,870 76,357 $2,797,275 96,285 $2,774,155 Commitments to Extend Credit Commitments to extend credit are agreements to lend provided there is no violation of any condition in the contract. These commitments gen- erally have fixed expiration dates or termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral to secure these commitments predominantly consists of residential and commercial real estate. Standby Letters of Credit and Guarantees on Industrial Revenue Bonds Standby letters of credit and guarantees on industrial revenue bonds are conditional commitments issued by TCF guaranteeing the performance of a customer to a third-party. These conditional commit- ments expire in various years through the year 2018. Collateral held primarily consists of commercial real estate mortgages. Since the conditions under which TCF is required to fund these commitments may not materialize, the cash requirements are expected to be less than the total out- standing commitments. Note 18. Fair Values of Financial Instruments TCF is required to disclose the estimated fair value of finan- cial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made at a specific point in time, based on relevant market information and informa- tion about the financial instruments. Fair value estimates are subjective in nature, involving uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The carrying amounts of cash and due from banks 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 car- ried at fair value, which is based on quoted market prices. Certain financial instruments, including lease financings, discounted lease rentals and all non-financial instruments are excluded from fair value of financial instrument disclo- sure requirements. The following methods and assumptions are used by the Company in estimating fair value for its remaining financial instruments, all of which are issued or held for purposes other than trading. Investments Short-term investments approximate their fair values due to the short period of time until their real- ization. The fair value of other investments is estimated based on discounting cash flows at current market rates and consideration of credit exposure. Loans The fair value of residential loans is estimated based on quoted market prices of loans with similar characteristics. For certain variable-rate loans that reprice frequently and that have experienced no significant change in credit risk, fair values are based on carrying values. The fair values of other loans are estimated by discounting contractual cash flows, adjusted for prepayment estimates, using interest rates currently being offered for loans with similar terms to borrowers with similar credit risk characteristics. Deposits The fair value of checking, savings and money market deposits is deemed equal to the amount payable on demand. The fair value of certificates of deposit is esti- mated based on discounted cash flow analyses using actual rates offered for FHLB advances, which represents TCF’s primary alternative source of funds. The intangible value of long-term relationships with depositors is not taken into account in the fair values disclosed. 2007 Form 10-K | 69 156976_10K_F_Q6 2/16/08 3:48 PM Page 70 Borrowings The carrying amounts of short-term borrow- ings approximate their fair values. The fair values of TCF’s long-term borrowings are estimated based on quoted market prices or discounted cash flow analyses using inter- est rates for borrowings of similar remaining maturities. Financial Instruments with Off-Balance Sheet Risk 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 standby letters of credit issued in conjunction with fixed-rate loan agreements, fair value also considers the difference between current levels of interest rates and the committed rates. 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, 2007 2006 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value $ 148,267 156,135 $ 148,270 157,083 $ 170,129 144,574 $ 170,129 145,464 5,160,997 1,429,634 6,590,631 2,557,330 558,325 604,185 527,607 (69,796) $11,072,684 $ 7,322,014 2,254,535 556,070 4,417,378 $14,549,997 5,113,946 1,429,634 6,543,580 2,587,342 560,020 616,886 518,313 – $11,131,494 $ 7,322,014 2,252,848 556,070 4,569,832 $14,700,764 4,712,762 1,232,315 5,945,077 2,390,653 551,995 492,062 627,790 (48,480) $10,273,800 $ 7,285,615 2,483,635 214,112 3,374,428 $13,357,790 4,597,165 1,232,315 5,829,480 2,377,243 551,319 489,105 615,373 – $10,178,113 $ 7,285,615 2,471,847 214,112 3,359,300 $13,330,874 $ $ 38,402 (215) 38,187 $ $ 38,402 (215) 38,187 $ $ 35,254 (200) 35,054 $ $ 35,254 (200) 35,054 (In thousands) Financial instrument assets: Investments Education loans held for sale Loans: Consumer home equity and other: Closed-end loans and other Home equity lines of credit (1) Total consumer home equity and other Commercial real estate Commercial business Equipment finance loans Residential real estate Allowance for loan losses (2) Total financial instrument assets Financial instrument liabilities: Checking, savings and money market deposits Certificates of deposit Short-term borrowings Long-term borrowings Total financial instrument liabilities Financial instruments with off-balance-sheet risk: (3) Commitments to extend credit (4) Standby letters of credit (5) Total financial instruments with off-balance-sheet risk (1) Excludes fixed-term amounts under lines of credit included in closed-end loans. (2) Excludes the allowance for lease losses. (3) Positive amounts represent assets, negative amounts represent liabilities. (4) Carrying amounts are included in other assets. (5) Carrying amounts are included in accrued expenses and other liabilities. 70 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 71 Note 19. Earnings Per Common Share The computation of basic and diluted earnings per share is presented in the following table. (Dollars in thousands, except per-share data) Basic Earnings Per Common Share Net income Weighted-average shares outstanding Restricted stock Weighted-average common shares outstanding for basic earnings per common share Basic earnings per common share Diluted Earnings Per Common Share Net income Weighted-average number of common shares outstanding adjusted for effect of dilutive securities: Weighted-average common shares outstanding used in basic earnings per common share calculation Net dilutive effect of: Restricted stock Stock options Weighted-average common shares outstanding for diluted earnings per common share Diluted earnings per common share Year Ended December 31, 2007 2006 2005 $ 266,808 127,919,997 (2,521,887) $ 244,943 131,614,386 (2,604,836) $ 265,132 134,652,568 (2,274,032) 125,398,110 2.13 $ 129,009,550 1.90 $ 132,378,536 2.00 $ $ 266,808 $ 244,943 $ 265,132 125,398,110 129,009,550 132,378,536 356,316 76,340 110,455 105,480 226,179 137,144 125,830,766 2.12 $ 129,225,485 1.90 $ 132,741,859 2.00 $ All shares of restricted stock are deducted from weighted-average shares outstanding for the computation of basic earn- ings per common share. Shares of performance-based restricted stock are included in the calculation of diluted earnings per common share, using the treasury stock method, at the beginning of the quarter in which the performance goals have been achieved. All other shares of restricted stock, which vest over specified time periods, and stock options are included in the calculation of diluted earnings per common share, using the treasury stock method. Note 20. Comprehensive Income Comprehensive income is the total of net income and other comprehensive income. The following table summarizes the com- ponents of comprehensive income. (In thousands) Net income Other comprehensive income (loss): Unrealized holding gains (losses) arising during the period on securities available for sale Reclassification adjustment for securities gains included in net income Recognized pension and postretirement actuarial losses and transition obligation Income tax (expense) benefit Total other comprehensive income (loss) Comprehensive income Year Ended December 31, 2007 $266,808 2006 $244,943 2005 $265,132 30,237 (13,278) 8,822 (8,910) 16,871 $283,679 (94) – – (280) (374) $244,569 (20,360) (10,671) – 11,231 (19,800) $245,332 2007 Form 10-K | 71 156976_10K_F_Q6 2/16/08 3:48 PM Page 72 Note 21. Other Expense Other expense consists of the following. (In thousands) Card processing and issuance Deposit account losses Postage and courier Telecommunications Office supplies ATM processing Visa indemnification expense Foreclosed real estate, net Federal deposit insurance and OCC assessments Deposit base intangible amortization Other Total other expense 2007 $ 18,134 17,629 13,663 11,790 9,581 8,647 7,696 5,006 3,247 956 59,216 $155,565 Year Ended December 31, 2006 $ 16,986 17,455 14,532 12,702 10,255 8,956 – 3,684 3,033 1,629 62,217 $151,449 2005 $ 15,588 16,821 14,303 12,305 10,009 8,935 – 2,253 2,777 1,659 58,834 $143,484 Note 22. Business Segments Banking and leasing and equipment finance have been identified as reportable operating segments. Banking includes the following operating units that provide financial services to customers: deposits and investments products, commercial banking, consumer lending and treasury services. Management of TCF’s banking operations is organized by state. The separate state operations have been aggregated for purposes of segment disclosures. Leasing and equipment finance provides a broad range of comprehensive leasing and equipment finance products addressing the financing needs of diverse businesses. In addition, TCF’s bank holding company (“Parent Company”) and corporate functions provide data processing, bank operations and other profes- sional services to the operating segments. TCF evaluates performance and allocates resources based on the segments’ net income. The business segments follow generally accepted accounting principles as described in the Summary of Significant Accounting Policies. TCF gener- ally accounts for inter-segment sales and transfers at cost. 72 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 73 The following table sets forth certain information of each of TCF’s reportable segments, including a reconciliation of TCF’s consolidated totals. The “other” category in the table below includes TCF’s parent company, corporate functions and mortgage banking. (In thousands) At or For the Year Ended December 31, 2007: Revenues from external customers: Interest income Non-interest income Total Net interest income Provision for credit losses Non-interest income Non-interest expense Income tax expense (benefit) Net income Total assets At or For the Year Ended December 31, 2006: Revenues from external customers: Interest income Non-interest income Total Net interest income Provision for credit losses Non-interest income Non-interest expense Income tax expense (benefit) Net income Total assets At or For the Year Ended December 31, 2005: Revenues from external customers: Interest income Non-interest income Total Net interest income Provision for credit losses Non-interest income Non-interest expense Income tax expense Net income Total assets Leasing and Equipment Finance Eliminations and Reclassifications Other Banking Consolidated $ 820,516 481,346 $ 1,301,862 485,535 $ 51,741 481,346 594,691 88,389 232,060 $ $15,478,259 $ 763,846 428,413 $ 1,192,259 477,453 $ 18,121 428,413 585,512 93,786 $ 208,447 $ 14,256,595 $ 634,312 425,017 $ 1,059,329 455,549 $ 4,593 425,017 549,586 96,505 $ 229,882 $ 12,931,312 $ 147,507 59,152 $ 206,659 65,356 $ 5,251 59,152 65,351 19,330 34,576 $ $2,281,781 $ 122,292 53,004 $ 175,296 58,659 $ 2,568 53,004 56,932 18,773 $ 33,390 $ 1,989,230 $ 97,596 47,465 $ 145,061 57,014 $ 3,993 47,465 48,596 18,493 $ 33,397 $ 1,635,528 $ $ $ – 959 959 (714) – 156,899 158,022 (2,009) 172 $ $144,582 $ $ $ – – – – – (155,940) (155,940) – – $ $(1,927,568) $ $ $ – 8,047 8,047 445 – 134,645 132,378 (394) $ 3,106 $ 131,509 $ $ $ – – – 973 – (126,598) (125,625) – $ – $ (1,707,600) $ $ $ 114 5,760 5,874 2,780 – 125,337 125,984 280 $ 1,853 $ 195,355 $ $ $ – – – 2,347 – (119,577) (117,230) – $ – $ (1,373,601) $ 968,023 541,457 $ 1,509,480 550,177 $ 56,992 541,457 662,124 105,710 266,808 $ $15,977,054 $ 886,138 489,464 $ 1,375,602 537,530 $ 20,689 489,464 649,197 112,165 $ 244,943 $ 14,669,734 $ 732,022 478,242 $ 1,210,264 517,690 $ 8,586 478,242 606,936 115,278 $ 265,132 $ 13,388,594 2007 Form 10-K | 73 156976_10K_F_Q6 2/16/08 3:48 PM Page 74 Note 23. Parent Company Financial Information TCF Financial Corporation’s (parent company only) condensed statements of financial condition as of December 31, 2007 and 2006, and the condensed statements of income and cash flows for the years ended December 31, 2007, 2006 and 2005 are as follows. Condensed Statements of Financial Condition (In thousands) Assets: Cash Investment in bank subsidiaries Dividends receivable from bank subsidiaries Accounts receivable from affiliates Other assets Total assets Liabilities and Stockholders’ Equity: Short-term borrowings Other liabilities Total liabilities Stockholders’ equity Total liabilities and stockholders’ equity Condensed Statements of Income (In thousands) Interest income Interest expense Net interest expense Dividends from TCF National Bank 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 bank subsidiaries Net income $ 2007 – 603 (603) 194,558 12,241 142 12,383 11,866 440 1,581 13,887 192,451 1,502 193,953 72,855 $266,808 At December 31, 2007 2006 $ 2,883 1,069,373 – 24,320 24,848 $1,121,424 $ 9,500 12,912 22,412 1,099,012 $1,121,424 $ 17,652 975,466 4,691 22,237 21,994 $1,042,040 $ – 8,666 8,666 1,033,374 $1,042,040 $ Year Ended December 31, 2006 – 232 (232) 203,908 $ 2005 38 818 (780) 165,025 7,921 1,901 9,822 7,255 414 2,982 10,651 202,847 1,558 204,405 40,538 $244,943 10,067 746 10,813 8,618 403 2,386 11,407 163,651 1,342 164,993 100,139 $265,132 In December 2006, TCF contributed $35 million in initial capital to TCF National Bank Arizona to meet regulatory requirements and to fund its operations. 74 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 75 Condensed Statements of Cash Flows (In thousands) Cash flows from operating activities: Year Ended December 31, 2007 2006 2005 Net income Adjustments to reconcile net income to net cash provided by operating activities: $ 266,808 $ 244,943 $ 265,132 Equity in undistributed earnings of bank subsidiaries Other, net Total adjustments Net cash provided by operating activities Cash flows from investing activities: Capital distribution from TCF National Bank Investment in TCF National Bank Arizona Purchases of premises and equipment, 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 Stock compensation tax benefits Other, net Net cash used by financing activities Net increase (decrease) in cash Cash at beginning of year Cash at end of year Note 24. Litigation Contingencies From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations. TCF is and expects to become engaged in a number of foreclosure pro- ceedings and other collection actions as part of its lending and leasing collection activities. From time to time, borrow- ers and other customers, or employees or former employees, have also brought actions against TCF, in some cases claim- ing substantial damages. Financial services companies are subject to the risk of class action litigation, and TCF has had such actions brought against it from time to time. Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty. (68,163) 1,188 (66,975) 199,833 – – (88) (88) (124,513) (105,251) 9,500 4,534 1,216 (214,514) (14,769) 17,652 2,883 $ (33,229) (18,713) (51,942) 193,001 75,000 (35,000) (104) 39,896 (121,405) (101,045) (16,500) 20,681 354 (217,915) 14,982 2,670 $ 17,652 (107,548) (13,594) (121,142) 143,990 50,000 – (28) 49,972 (114,543) (93,499) 2,500 10,716 577 (194,249) (287) 2,957 2,670 $ 2007 Form 10-K | 75 2007 Form 10-K | 75 156976_10K_F_Q6 2/16/08 3:48 PM Page 76 Other Financial Data The selected quarterly financial data presented below should be read in conjunction with the Consolidated Financial Statements and related notes. Selected Quarterly Financial Data (Unaudited) (Dollars in thousands, except per-share data) Selected Financial Condition Data: Loans and leases excluding education and residential real estate loans Securities available for sale Residential real estate loans Subtotal Goodwill Total assets Checking, savings and money market deposits Certificates of deposit Total deposits Short-term borrowings Long-term borrowings Stockholders’ equity Selected Operations Data: Net interest income Provision for credit losses Net interest income after provision for credit losses Non-interest income: Fees and other revenue Gains on sales of securities available for sale Gains on sales of branches and real estate Total non-interest income Non-interest expense Income before income tax expense Income tax expense Net income Per common share: Basic earnings Diluted earnings Dividends declared Financial Ratios: Return on average assets (1) Return on average common equity (1) Net interest margin (1) Net charge-offs as a percentage of average loans and leases (1) Average total equity to average assets (1) Annualized. Dec. 31, 2007 Sept. 30, 2007 June 30, 2007 March 31, 2007 Dec. 31, 2006 Sept. 30, 2006 June 30, 2006 March 31, 2006 At $11,810,629 $11,334,162 $11,038,605 $10,815,212 $10,705,890 $10,496,031 $10,231,268 $ 9,824,661 1,963,681 2,022,505 1,943,450 1,859,244 1,816,126 1,770,427 1,781,995 1,816,135 527,607 547,552 572,619 602,748 627,790 659,477 695,214 732,912 2,491,288 2,570,057 2,516,069 2,461,992 2,443,916 2,429,904 2,477,209 2,549,047 152,599 152,599 152,599 152,599 152,599 152,599 152,599 152,599 15,977,054 15,530,338 14,977,704 14,898,375 14,669,734 14,319,387 14,222,561 13,851,936 7,322,014 2,254,535 9,576,549 556,070 4,417,378 1,099,012 7,312,568 2,433,498 9,746,066 167,319 4,266,022 1,043,447 7,331,605 2,511,090 9,842,695 285,828 3,568,997 1,001,032 7,420,480 2,477,230 9,897,710 47,376 3,571,930 1,062,008 7,285,615 2,483,635 9,769,250 214,112 3,374,428 1,033,374 7,224,223 2,454,469 9,678,692 376,397 2,976,133 1,031,189 7,261,327 2,382,273 9,643,600 561,374 7,461,186 2,128,723 9,589,909 346,528 2,778,277 2,688,131 977,385 968,300 Dec. 31, 2007 Sept. 30, 2007 June 30, 2007 March 31, 2007 Dec. 31, 2006 Sept. 30, 2006 June 30, 2006 March 31, 2006 Three Months Ended $ 139,571 $ 137,704 $ 137,425 $ 135,477 $ 135,887 $ 135,033 $ 135,442 $ 131,168 20,124 18,883 13,329 4,656 10,073 5,288 4,177 1,151 119,447 118,821 124,096 130,821 125,814 129,745 131,265 130,017 124,845 126,394 126,882 112,164 118,831 128,252 123,622 114,571 11,261 2,017 – – $ $ $ $ $ $ $ $ 2,752 138,858 172,613 85,692 22,875 62,817 .51 .50 .2425 1.60% 23.55 3.83 .46 6.79 $ $ $ $ 1,246 129,657 162,777 85,701 26,563 59,138 .48 .48 .2425 1.55% 23.39 3.90 .38 6.64 $ $ $ $ 2,723 129,605 162,534 91,167 29,038 62,129 .49 .49 .2425 1.67% 24.16 4.02 .24 6.92 $ $ $ $ 31,173 143,337 164,200 109,958 27,234 82,724 .65 .65 .2425 2.24% 31.81 4.00 .10 7.03 – – 118,831 165,562 79,083 25,350 53,733 .42 .42 .23 1.49% 20.68 4.07 .24 7.20 $ $ $ $ – 1,260 129,512 162,389 96,868 30,941 65,927 .51 .51 .23 1.86% 26.44 4.11 .18 7.02 $ $ $ $ – – 123,622 160,966 93,921 26,860 67,061 .52 .52 .23 1.92% 27.75 4.22 .16 6.92 $ $ $ $ – 2,928 117,499 160,280 87,236 29,014 58,222 .45 .45 .23 1.71% 23.82 4.25 .08 7.18 76 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 77 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (Principal Executive Officer), the Company’s Chief Financial Officer (Principal Financial Officer) and its Controller and Assistant Treasurer (Principal Accounting Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a- 15 under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, management concluded that the Company’s disclosure controls and procedures are effective, as of December 31, 2007. Also, there were no sig- nificant changes in the Company’s disclosure controls or internal controls over financial reporting during the fourth quarter of 2007 that have materially affected or are reason- ably likely to materially affect TCF’s internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintain- ing adequate internal control over financial reporting for TCF Financial Corporation (the Company). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that transac- tions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are only being made in accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dispo- sition of the Company’s assets that could have a material effect on the financial statements. Management completed an assessment of TCF’s internal control over financial reporting as of December 31, 2007. This assessment was based on criteria for evaluating inter- nal control over financial reporting established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that TCF’s internal control over financial reporting was effective as of December 31, 2007. KPMG LLP, TCF’s registered public accounting firm that audited the consolidated financial statements included in this annual report, has issued an unqualified attestation report on management’s assessment of the Company’s inter- nal control over financial reporting as of December 31, 2007. Any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assur- ance that the objectives of the control system are met. The design of a control system inherently has limitations, and the benefits of controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Therefore, no assessment of a cost-effective system of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected. Lynn A. Nagorske Chief Executive Officer and Director Thomas F. Jasper Executive Vice President and Chief Financial Officer David M. Stautz Senior Vice President, Controller and Assistant Treasurer February 14, 2008 2007 Form 10-K | 77 156976_10K_F_Q6 2/16/08 3:48 PM Page 78 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders TCF Financial Corporation: We have audited TCF Financial Corporation’s internal con- trol over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TCF Financial Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report. Our responsibility is to express an opinion on TCF Financial Corporation’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was main- tained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regard- ing the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that trans- actions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures 78 | TCF Financial Corporation and Subsidiaries of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dis- position of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, TCF Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria estab- lished in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of TCF Financial Corporation and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated February 14, 2008 expressed an unqual- ified opinion on those consolidated financial statements. Minneapolis, Minnesota February 14, 2008 Item 9B. Other Information None. 156976_10K_F_Q6 2/16/08 3:48 PM Page 79 Part III Item 10. Directors, Executive Ofﬁcers and Corporate Governance Information regarding directors and executive officers of TCF is set forth in the following sections of TCF’s definitive Proxy Statement dated March 5, 2008 and incorporated herein by reference: Election of Directors: Background of the Nominees and Other Directors; TCF Stock Ownership of Directors, Officers and 5% Owners – Were All Stock Ownership Reports Timely Filed by TCF Financial Insiders? and Background of Executive Officers Who are Not Directors. Information regarding procedures for nominations of Directors is set forth in the section entitled Election of Directors: Corporate Governance – Director Nominations and Additional Information in TCF’s definitive Proxy Statement dated March 5, 2008, and is incorporated herein by reference. Audit Committee and Financial Expert Information regarding TCF’s separately standing Audit Committee, its members and financial experts is set forth in the section of TCF’s definitive proxy statement for the 2008 Annual Meeting entitled Election of Directors: Background of the Nominees and Other Directors – Committee Membership and – Board Committee Memberships and Meetings in 2007 and is incorporated herein by reference. TCF’s Board of Directors is required to determine whether it has at least one audit committee financial expert and that the expert is independent. An audit committee financial expert is a committee member who has an understanding of generally accepted accounting principles and financial statements and has the ability to assess the general applica- tion of these principles in connection with the accounting for estimates, accruals and reserves. Additionally, this individual should have experience preparing, auditing, analyzing or evaluating financial statements that present the breadth and level of complexity of accounting issues present in TCF’s financial statements. The member should also have an understanding of internal control over financial reporting as well as an understanding of audit committee functions. The Board has determined that Gerald A. Schwalbach, the Audit Committee Chairman, George G. Johnson and Douglas A. Scovanner meet the requirements of audit committee financial experts. The Board has also determined that Mr. Schwalbach, Mr. Johnson and Mr. Scovanner are inde- pendent. Additional information regarding Mr. Schwalbach, Mr. Johnson, Mr. Scovanner and other directors is set forth in the section Election of Directors: Background of the Nominees and Other Directors in TCF’s definitive Proxy Statement dated March 5, 2008 and is incorporated herein by reference. Code of Ethics for Senior Financial Management TCF adopted a code of ethics for senior financial manage- ment in March 2003. This code of ethics is available for review at the Company’s website at www.tcfbank.com under the “Corporate Governance” section. Any changes to or waivers of violations of the code of ethics for senior finan- cial management will be posted to the Company’s website. 2007 Form 10-K | 79 156976_10K_F_Q6 2/16/08 3:48 PM Page 80 Item 11. Executive Compensation Information regarding compensation of directors and exec- utive officers of TCF is set forth in the following sections of TCF’s definitive Proxy Statement dated March 5, 2008 and is incorporated herein by reference: Election of Directors: Compensation of Directors; Compensation Discussion and Analysis; Compensation Committee Report; Summary Compensation Table; Grants of Plan-Based Awards in 2007; Outstanding Equity Awards at Fiscal Year-End; Option Exercises and Stock Vested in 2007; Pension Benefits; Nonqualified Deferred Compensation and Potential Payments Upon Termination or Change in Control. Item 12. Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder Matters Information regarding ownership of TCF’s common stock by TCF’s directors, executive officers, and certain other share- holders and shares authorized under plans is set forth in the sections entitled Election of Directors: TCF Stock Ownership of Directors, Officers and 5% Owners and Equity Compensation Plans Approved by Stockholders of TCF’s definitive Proxy Statement dated March 5, 2008 and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and transactions between TCF and management is set forth in the section entitled Election of Directors: Director Independence of TCF’s definitive Proxy Statement dated March 5, 2008 and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services and the audit committee’s pre-approval policies and pro- cedures relating to audit and non-audit services provided by the Company’s independent registered public accounting firm is set forth in the section entitled Advisory Vote on TCF Financial’s Appointment of Independent Registered Public Accountants: Audit Committee Report of TCF’s definitive Proxy Statement dated March 5, 2008 and is incorporated herein by reference. 80 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 81 Part IV Item 15. Exhibits and Financial Statement Schedules (a) Financial Statements, Financial Statement Schedules and Exhibits 1. Financial Statements The following consolidated financial statements of TCF and its subsidiaries, are filed as part of this report: Description Selected Financial Data Consolidated Statements of Financial Condition at December 31, 2007 and 2006 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2007 Consolidated Statements of Stockholders’ Equity for each of the years in the three-year period ended December 31, 2007 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2007 Notes to Consolidated Financial Statements Other Financial Data Management’s Report on Internal Control Over Financial Reporting Page 16 45 46 47 48 49 76 77 Reports of Independent Registered Public Accounting Firm 44, 78 2. Financial Statement Schedules All schedules to the Consolidated Financial Statements normally required by the applicable accounting regulations are included in the Consolidated Financial Statements or the Notes thereto. 3. Exhibits See Index to Exhibits on page 83 of this report. 2007 Form 10-K | 81 2007 Form 10-K | 81 156976_10K_F_Q6 2/16/08 3:48 PM Page 82 Signatures Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TCF Financial Corporation Registrant By /s/ Lynn A. Nagorske Lynn A. Nagorske Chief Executive Officer and Director Dated: February 14, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date Chairman of the Board and Director February 14, 2008 Chief Executive Officer and Director (Principal Executive Officer) February 14, 2008 Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 14, 2008 Senior Vice President, Controller and Assistant Treasurer (Principal Accounting Officer) February 14, 2008 Director, Vice Chairman, General Counsel and Secretary Director Director Director Director Director Director Director Director Director February 14, 2008 February 14, 2008 February 14, 2008 February 14, 2008 February 14, 2008 February 14, 2008 February 14, 2008 February 14, 2008 February 14, 2008 February 14, 2008 /s/ William A. Cooper William A. Cooper /s/ Lynn A. Nagorske Lynn A. Nagorske /s/ Thomas F. Jasper Thomas F. Jasper /s/ David M. Stautz David M. Stautz /s/ Gregory J. Pulles Gregory J. Pulles /s/ William F. Bieber William F. Bieber /s/ Rodney P. Burwell Rodney P. Burwell /s/ Thomas A. Cusick Thomas A. Cusick /s/ Luella G. Goldberg Luella G. Goldberg /s/ George G. Johnson George G. Johnson /s/ Peter L. Scherer Peter L. Scherer /s/ Gerald A. Schwalbach Gerald A. Schwalbach /s/ Douglas A. Scovanner Douglas A. Scovanner /s/ Ralph Strangis Ralph Strangis 82 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 83 Index to Exhibits Exhibit No. 3(a) 3(b)# 4(a) 4(b) 10(a) 10(b) 10(b)-1* 10(b)-2 Description Restated Certificate of Incorporation of TCF Financial Corporation, as amended and restated through April 29, 1998 [incorporated by reference to Exhibit 3(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999] Bylaws of TCF Financial Corporation, as amended through May 21, 2005, and as further amended by amend- ments adopted on February 26, 2007 and October 15, 2007. Rights Agreement, dated as of May 12, 1999, between TCF Financial Corporation and BankBoston, N.A. [incorporated by reference to Exhibit 1 to TCF Financial Corporation’s Registration Statement on Form 8-A filed May 24, 1999] and as amended January 24, 2005 [incorporated by reference to Exhibit 4(a) to TCF Financial Corporation’s Current Report on Form 8-K filed January 27, 2005] Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request. Stock Option and Incentive Plan of TCF Financial Corporation, as amended [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation’s Registration Statement on Form S-4, No. 33-14203 filed May 12, 1987]; Second Amendment, Third Amendment and Fourth Amendment to the Plan [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1987, No. 0-16431]; Fifth Amendment to the Plan [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1989]; amendment dated January 21, 1991 [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990]; and as further amended by amendment dated January 28, 1992 and amendment dated March 23, 1992 (effective April 15, 1992) [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991] TCF Financial Incentive Stock Program as amended and restated on March 5, 2004, and approved by Shareholders of TCF Financial Corporation at the Annual Meeting on April 28, 2004 [incorporated by reference to Appendix B to TCF Financial Corporation’s Definitive Proxy Statement filed with the SEC on March 17, 2004]; and as amended by amendment adopted October 16, 2006 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation’s Current Report on Form 8-K filed October 20, 2006]; Amended and Restated TCF Financial Incentive Stock Program [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2008] Form of TCF Financial Corporation Incentive Stock Program Performance-Based Restricted Stock Agreement [incorporated by reference to Exhibit 10(b)-1 of TCF Financial Corporation’s Current Report on Form 8-K filed April 29, 2005] Form of TCF Financial Corporation Restricted Stock Agreement and Non-solicitation/Confidentiality Agreement [incorporated by reference to Exhibit 10(b)-2 to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005] 2007 Form 10-K | 83 156976_10K_F_Q6 2/16/08 3:48 PM Page 84 Exhibit No. 10(b)-3 10(b)-4* 10(b)-5* 10(b)-6* 10(b)-7* 10(b)-8* 10(b)-9* Description Summary of Stock Award Program for Consumer Lending and Business Banker Divisions [incorporated by reference to Exhibit 10(b)-3 to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005] Form of Year 2006 Executive Stock Grant Award Agreement dated January 23, 2006 [incorporated by refer- ence to Exhibit 10(b)-4 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2006] TCF Financial Corporation Restricted Stock Agreement and Non-Solicitation/Confidentiality Agreement dated January 22, 2007 (“Performance-Based Stock Award”) [incorporated by reference to Exhibit 10(b)-5 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2007] TCF Financial Corporation Restricted Stock Agreement and Non-Solicitation/Confidentiality Agreement, dated January 22, 2007 [incorporated by reference to Exhibit 10(b)-6 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2007] TCF Financial 1995 Incentive Stock Program Incentive Stock Option Agreement of Craig R. Dahl dated May 11, 1999 [incorporated by reference to Exhibit 10(b)-7 to TCF Financial Corporation’s Current Report on Form 10-Q filed April 26, 2007] Nonqualified Stock Option Agreement of Craig R. Dahl dated May 11, 1999 [incorporated by reference to Exhibit 10(b)-8 to TCF Financial Corporation’s Current Report on Form 10-Q filed April 26, 2007] Form of the 2008 Restricted Stock Agreement as executed by certain executives effective January 21, 2008 [incorporated by reference to Exhibit 10(b)-9 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2008] 10(b)-10* Form of the 2008 Nonqualified Stock Option Agreement as executed by certain executives effective January 21, 2008 [incorporated by reference to Exhibit 10(b)-10 to TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2008] 10(c) 10(d) TCF Financial Corporation Executive Deferred Compensation Plan as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(c) to TCF Financial Corporation’s Current Report on Form 8-K filed January 27, 2005] Amended and Restated Trust Agreement for TCF Financial Corporation Executive Deferred Compensation Plan effective September 1, 1998; amendment adopted effective November 1, 1998 [incorporated by reference to Exhibit 10(d) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998]; Restated Trust Agreement as executed with First National Bank in Sioux Falls as trustee effective as of October 1, 2000 [incorporated by reference to Exhibit 10(d) of TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000]; as amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(d) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001]; and as amended by amendments adopted May 3, 2002 [incorporated by reference to Exhibit 10(d) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002]; and as amended by amendments effective as of June 30, 2003 [incorporated by reference to Exhibit 10(d) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003] 84 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 85 Exhibit No. 10(e)* 10(e)-1* 10(e)-2* 10(e)-3* 10(e)-4* 10(e)-5* 10(e)-6* 10(e)-7* 10(e)-8* 10(e)-9* 10(e)-10* Description Employment Agreement of William A. Cooper, dated July 1, 1996 [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996]; as amended March 1, 1997 [incorporated by reference to Exhibit 10(e) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996] Agreement between William A. Cooper and TCF Financial Corporation and TCF National Bank dated January 24, 2005 [incorporated by reference to Exhibit 10(e)-1 to TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)]; as amended December 15, 2005 [incorporated by reference to Exhibit 10(e)-2 to TCF Financial Corporation’s Report on Form 8-K filed December 19, 2005] Restricted Stock Agreement between William A. Cooper and TCF Financial Corporation dated January 24, 2005 [incorporated by reference to Exhibit 10(e)-2 to TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)] Employment Agreement between Lynn A. Nagorske and TCF Financial Corporation dated December 15, 2005 [incorporated by reference to Exhibit 10 (e)-1 of TCF Financial Corporation’s Current Report on Form 8-K filed December 19, 2005] Employment Agreement between Neil W. Brown and TCF Financial Corporation dated December 15, 2005 [incorporated by reference to Exhibit 10(i)-1 of TCF Financial Corporation’s Report on Form 8-K filed December 19, 2005] Form of Employment Agreement as executed by certain executives dated December 15, 2005 [incorporated by reference to Exhibit 10(i)-2 of TCF Financial Corporation’s Current Report on Form 8-K filed December 19, 2005] Employment Agreement between Craig R. Dahl and TCF Financial Corporation dated April 26, 1999, Change in Control Agreement and Amendment to Employment Agreement between Craig R. Dahl and TCF Financial Corporation dated April 15, 2005 and Non Solicitation / Confidentiality Agreement between Craig R. Dahl and TCF Financial Corporation dated April 15, 2005 [incorporated by reference to Exhibit 10(e)-6 of TCF Financial Corporation’s Current Report on Form 10-Q filed April 26, 2007] Employment Agreement between Lynn A. Nagorske and TCF Financial Corporation effective January 1, 2008 [incorporated by reference to Exhibit 10(e)-6 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] Employment Agreement between Neil W. Brown and TCF Financial Corporation effective January 1, 2008 [incorporated by reference to Exhibit 10(e)-7 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] Form of Employment Agreement as executed by certain executives effective January 1, 2008 [incorporated by reference to Exhibit 10(e)-8 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] Employment Agreement between Craig Dahl and TCF Financial Corporation effective January 1, 2008 [incorporated by reference to Exhibit 10(e)-9 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] 2007 Form 10-K | 85 156976_10K_F_Q6 2/16/08 3:48 PM Page 86 Exhibit No. 10(g)* 10(g)-1* 10(g)-2* 10(g)-3* 10(g)-4* 10(g)-5* 10(g)-6* 10(g)-7* 10(j)-1 10(j)-2 10(k) Description Change in Control Agreement of Lynn A. Nagorske, dated December 15, 2005 [incorporated by reference to Exhibit 10(f) to TCF Financial Corporation’s Report on Form 8-K filed December 19, 2005] Change in Control Agreement of Neil W. Brown dated December 15, 2005 [incorporated by reference to Exhibit 10(g)-1 of TCF Financial Corporation’s Report Form 8-K filed December 19, 2005] Form of Change in Control Agreement as executed by certain executives and dated December 15, 2005 [incorporated by reference to Exhibit 10(g)-2 of TCF Financial Corporation’s Report Form 8-K filed December 19, 2005] Form of Non-solicitation Agreement and Change in Control Contract as executed by certain Senior Officers dated December 15, 2005 [incorporated by reference to Exhibit 10(i)-3 of TCF Financial Corporation’s Report 8-K filed December 19, 2005] Change in Control Agreement between Lynn A. Nagorske and TCF Financial Corporation effective January 1, 2008 [incorporated by reference to Exhibit 10(g)-4 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] Change in Control Agreement between Neil W. Brown and TCF Financial Corporation effective January 1, 2008 [incorporated by reference to Exhibit 10(g)-5 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] Form of Change of Control Agreement as executed by certain executives effective January 1, 2008 [incorporated by reference to Exhibit 10(g)-6 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] Form of Change in Control and Non-Solicitation Agreement as executed by certain Senior Officers effective January 1, 2008 [incorporated by reference to Exhibit 10(g)-7 to TCF Financial Corporation’s Current Report on Form 8-K filed October 19, 2007] Supplemental Employee Retirement Plan – ESPP Plan as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(j) of TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)] 2005 ESPP SERP (a/k/a TCF Employees Stock Purchase Plan-Supplemental Plan) as amended and restated as effective April 1, 2006 [incorporated by reference to Exhibit 10(j)-2 of TCF Financial Corporation’s Current Report on Form 8-K filed February 9, 2006]; and as amended by amendment adopted April 8, 2006 [incorpo- rated by Exhibit 10(j)-2 to TCF Financial Corporation’s Current Report on Form 8-K filed April 13, 2006] Trust Agreement for TCF Financial Corporation Supplemental Employee Retirement Plan, dated August 21, 1991 [incorporated by reference to Exhibit 10.16 to TCF Financial Corporation’s Registration Statement on Form S-2, filed November 15, 1991, No. 33-43988]; as amended on October 20, 1997 [incorporated by ref- erence to Exhibit 10(n) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997]; as amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(k) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001] 86 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 87 Exhibit No. 10(l) 10(m) 10(n) 10(o)* 10(o)-1* 10(p) Description TCF Financial Corporation Senior Officer Deferred Compensation Plan as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(l) to TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)] Amended and Restated Trust Agreement for TCF Financial Corporation Senior Officer Deferred Compensation Plan effective September 1, 1998; amendment adopted effective November 1, 1998 [incorporated by refer- ence to Exhibit 10(p) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998]; Restated Trust Agreement as executed with First National Bank in Sioux Falls as trustee effective as of October 1, 2000 [incorporated by reference to Exhibit 10(m) of TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000]; as amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(m) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001]; and as amended by amendments effective as of June 30, 2003 [incorporated by reference to Exhibit 10(m) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003] Directors Stock Program [incorporated by reference to Program filed as Appendix A with TCF Financial Corporation’s Definitive 14A filing of its proxy statement on March 16, 2005 and as filed as Exhibit 10(n) of TCF Financial Corporation’s Current Report on Form 8-K filed April 29, 2005] 2003 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(o) of TCF Financial Corporation’s Report on Form 10-Q for the quarter ended March 31, 2003];and 2004 Management Incentive Plan – Executive [incorporated by reference to Exhibit 10(o) of TCF Financial Corporation’s Report on Form 10-Q for the quarter ended March 31, 2004] and 2005 Management Incentive Plan – Executive [incorporated by reference to Exhibit 10(o) of TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)]; and 2006 Management Incentive Plan – Executive [incorporated by reference to Exhibit 10(o) of TCF Financial Corporation’s Current Report on Form 8-K (filed January 25, 2006)]; and Form of 2007 Management Incentive Plan – Executive Agreement [incorporated by reference to Exhibit 10(o) of TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2007]; Form of 2008 Management Incentive Plan – Executive Agreement [incorporated by reference to Exhibit 10(o) of TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2008] 2007 Management Incentive Plan – Leasing Executive Agreement [incorporated by reference to Exhibit 10(o)-1 of TCF Financial Corporation’s Current Report on Form 10-Q filed April 26, 2007]; 2008 Management Incentive Plan – Leasing Executive Agreement [incorporated by reference to Exhibit 10(o)-1 of TCF Financial Corporation’s Current Report on Form 8-K filed January 25, 2008] TCF Performance-Based Compensation Policy for Covered Executive Officers as amended and restated effective January 1, 2004, and approved by Shareholders of TCF Financial Corporation at the Annual Meeting on April 28, 2004 [incorporated by reference to Appendix A to TCF Financial Corporation’s Definitive 14A filing of its Proxy Statement (filed March 17, 2004)] 2007 Form 10-K | 87 156976_10K_F_Q6 2/16/08 3:48 PM Page 88 Description TCF Financial Corporation 2005 Directors Deferred Compensation Plan as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(r) of TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)] TCF Directors 2005 Deferred Compensation Plan, adopted effective as of January 6, 2005, as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(r)-1 of TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)] Trust Agreement for TCF Directors Deferred Compensation Plan; as amended by amendment adopted April 30, 2001 [incorporated by reference to Exhibit 10(s) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001]; as amended by amendment adopted October 10, 2001 [incorporated by reference to Exhibit 10(s) of TCF Financial Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001]; and as amended by amendments adopted May 3, 2002 [incorporated by reference to Exhibit 10(s) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002]; and as amended by amendments effective as of June 30, 2003 [incorporated by reference to Exhibit 10(s) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003] TCF Directors Retirement Plan dated October 24, 1995 [incorporated by reference to Exhibit 10(y) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995] Supplemental Employee Retirement Plan for TCF Cash Balance Pension Plan, as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(u) of TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)] TCF Financial Corporation 2005 Cash Balance Pension Plan SERP, adopted effective January 1, 2005, as amended and restated through January 27, 2005 [incorporated by reference to Exhibit 10(u)-1 of TCF Financial Corporation’s Current Report on Form 8-K (filed January 27, 2005)]; as amended effective April 1, 2006 [incorporated by reference to Exhibit 10(u)-1 of TCF Financial Corporation’s Current Report on Form 8-K filed February 9, 2006] Subsidiaries of TCF Financial Corporation (as of December 31, 2007) Consent of KPMG LLP dated February 15, 2008 Rule 13a-14(a)/15d-14(a) Certifications (Section 302 Certifications) Statement Furnished Pursuant to Title 18 United States Code Section 1350 (Section 906 Certifications) Exhibit No. 10(r) 10(r)-1 10(s) 10(t) 10(u) 10(u)-1 21# 23# 31# 32# * Executive Contract # Filed herein 88 | TCF Financial Corporation and Subsidiaries 156976_10K_F_Q6 2/16/08 3:48 PM Page 89 Senior Ofﬁcers TCF Financial Corporation Chief Executive Officer Lynn A. Nagorske President and Chief Operating Officer Neil W. Brown Vice Chairman, General Counsel and Secretary Gregory J. Pulles Executive Vice President and Chief Financial Officer Thomas F. Jasper Executive Vice President and Chief Information Officer Earl D. Stratton Executive Vice President and Chief Marketing Officer Candace H. Lex Executive Vice President Craig R. Dahl Senior Vice Presidents James S. Broucek Timothy G. Doyle Joseph T. Green Jason E. Korstange Thomas E. Murphy, Jr. Barbara E. Shaw David M. Stautz TCF Bank Corporate President and Chief Executive Officer Timothy P. Bailey Executive Vice Presidents Paul B. Brawner Gregg R. Goudy Brian J. Hurd James L. Koon James C. LaPlante Senior Vice Presidents Michael Beier Ronald L. Britz Beverly L. Burman Scott D. Campbell Beverly M. Craig Daniel R. Edward Brian P. Engels Linda J. Firth Shelley A. Fitzmaurice Mark W. Gault Christopher N. German Douglass B. Hiatt David R. Hinkemeyer Charles P. Hoffman, Jr. Katherine D. Johnson Scott W. Johnson Gloria J. Karsky James M. Matheis David B. McCullough Anton J. Negrini Richard J. Nelson Carol B. Schirmers Leonard D. Steele R. Elizabeth Topoluk Cathleen L. Wilkins TCF Bank Minnesota President Mark L. Jeter Executive Vice Presidents Douglas W. Benner Sara L. Evers Claire M. Graupmann John F. Schroeder Senior Vice Presidents Wesley M. Anderson Jeffrey R. Arnold Michael A. Dill James T. Dowiak Gregory W. Drehmel Scott A. Fedie Matthew J. Helling Viane R. Hoefs Kevin V. Kuntz Katherine L. Landon Robert A. Larkin Joseph C. Miller Michael J. Olson Daniel M. Reyelts Elizabeth A. Rojas Steven E. Rykkeli TCF Bank Illinois/Wisconsin/Indiana President Mark W. Rohde Executive Vice Presidents Luis J. Campos Mark B. Dillon Michael R. Klemz David J. Veurink Matthew R. Wiley Senior Vice Presidents John E. Boyle Robert J. Brueggeman Michael Y. Chin Jennifer A. Daugherty Peter R. Daugherty Jeffrey T. Doering Edward J. Gallagher Brian S. Graf Daniel B. Hoffman Eileen P. Kowalski Vicki L. Makowka Dennis McClelland Russell P. McMinn Luke K. Oosterhouse Douglas A. Ortyn Todd A. Palmer Michael Roidt Thomas K. Torossian Kristin E. Utzinger Dennis J. Vena Kathleen M. Wacker TCF Bank Michigan President Robert F. Grant Past President Robert H. Scott Executive Vice Presidents Robert C. Borgstrom Joseph W. Doyle Terrence B. Pryor Senior Vice Presidents Jerry E. Coviak Larry M. Czekaj Gary L. Fineman Dennis J. Gistinger Natalie A. Glass Donald J. Hawkins Susan N. Kaminski Guy J. Rau Paul R. Tokarczyk David F. Wible Brian D. Wilson TCF Bank Colorado President Wayne A. Marty Executive Vice President Matthew G. Lamb Senior Vice Presidents Timothy J. Bosiacki James W. Hagen Larry E. Heesch David L. Norwood Bernadette D. Slowey Stephanie R. Zelenak TCF Bank Arizona President Timothy B. Meyer Senior Vice Presidents Delia M. Conrad TCF Equipment Finance, Inc. President and Chief Executive Officer Craig R. Dahl Executive Vice Presidents William S. Henak Mark D. Nyquist Senior Vice Presidents Peter C. Darin Walter E. Dzielsky Bradley C. Gunstad Jodie L. Palmer James L. Phillips Charles A. Sell, Jr. Robert J. Stark Mark H. Valentine Winthrop Resources Corporation Chairman and Chief Executive Officer Craig R. Dahl Executive Vice President Paul L. Gendler Richard J. Pieper Senior Vice Presidents Gary W. Anderson Dean J. Stinchfield TCF Investments and Insurance President and Chief Executive Officer Peter O. Torvik Senior Vice President James R. Scattergood 2007 Annual Report | 89 156976_10K_F_Q6 2/16/08 3:48 PM Page 90 Board of Directors William A. Cooper 5 Chairman of the Board Lynn A. Nagorske 5 Chief Executive Officer William F. Bieber 2,3,4 Chairman, Acrometal Companies, Inc. Rodney P. Burwell 2,3,4 Chairman, Xerxes Corporation Thomas A. Cusick 4 Retired Vice Chairman Luella G. Goldberg 2,3,4,5 Past Chair, University of Minnesota Foundation, Former Acting President, Wellesley College George G. Johnson 1,4 CPA/Managing Director, George Johnson & Company Gregory J. Pulles Vice Chairman, General Counsel and Secretary Peter L. Scherer 4 President and Chief Executive Officer, Scherer Bros. Lumber Co. Gerald A. Schwalbach 1,2,3,4 Chairman, Spensa Development Group, LLC Douglas A. Scovanner 1,4 Executive Vice President and Chief Financial Officer, Target Corporation Ralph Strangis 2,3,4,5 Senior Partner, Kaplan, Strangis and Kaplan, P.A. 1 Audit Committee 2 Compensation/Nominating/ Corporate Governance Committee 3 Advisory Committee – TCF Employees Stock Purchase Plan 4 Shareholder Relations/ De Novo Banking Committee 5 Executive Committee 90 | TCF Financial Corporation and Subsidiaries Ofﬁces Executive Offices TCF Financial Corporation 200 Lake Street East Wayzata, MN 55391-1693 (952) 745-2760 Minnesota Headquarters 801 Marquette Avenue Minneapolis, MN 55402 (612) 661-6500 Traditional Branches Minneapolis/ St. Paul Area (45) Greater Minnesota (2) Supermarket Branches Minneapolis/ St. Paul Area (53) Greater Minnesota (4) Campus Branches Minneapolis/St. Paul Area (2) Greater Minnesota (3) Illinois/Wisconsin/Indiana Headquarters 800 Burr Ridge Parkway Burr Ridge, IL 60527 (630) 986-4900 Traditional Branches Chicagoland (43) Milwaukee Area (10) Kenosha/Racine Area (6) Supermarket Branches Chicagoland (155) Milwaukee Area (8) Kenosha/Racine Area (3) Indiana (5) Campus Branches Chicagoland (5) Greater Illinois (2) Milwaukee (1) Michigan Headquarters 17440 College Parkway Livonia, MI 48152 (734) 542-2900 Traditional Branches Metro Detroit Area (51) Supermarket Branches Metro Detroit Area (1) Greater Michigan (1) Campus Branches Metro Detroit Area (2) Greater Michigan (1) Colorado Headquarters 6400 South Fiddler’s Green Circle Suite 800 Greenwood Village, CO 80111 (720) 200-2400 Traditional Branches Metro Denver Area (25) Colorado Springs (7) Supermarket Branches Metro Denver Area (14) Arizona Headquarters 4001 East Mountain Sky Avenue Suite 101 Phoenix, AZ 85044 (602) 716-8900 Traditional Branches Metro Phoenix Area (4) TCF Equipment Finance, Inc. Headquarters 11100 Wayzata Boulevard Suite 801 Minnetonka, MN 55305 (952) 656-5080 Winthrop Resources Corporation Headquarters 11100 Wayzata Boulevard Suite 800 Minnetonka, MN 55305 (952) 936-0226 156976_10K_F_Q6 2/16/08 3:48 PM Page 91 Stockholder Information Stock Data Year Close High Dividends Paid Low Per Share 2007 Fourth Quarter Third Quarter Second Quarter First Quarter 2006 Fourth Quarter Third Quarter Second Quarter First Quarter 2005 Fourth Quarter Third Quarter Second Quarter First Quarter 2004 Fourth Quarter Third Quarter Second Quarter First Quarter 2003 Fourth Quarter Third Quarter Second Quarter First Quarter $17.93 26.18 27.80 26.36 $27.42 26.29 26.45 25.75 $27.14 26.75 25.88 27.15 $32.14 30.29 29.03 25.54 $25.68 23.98 19.92 20.02 $27.95 28.25 28.99 27.91 $27.89 28.10 27.70 28.41 $28.78 28.82 28.56 32.03 $32.36 32.62 29.03 26.37 $27.13 24.86 21.27 22.89 $17.17 22.69 25.39 24.93 $25.16 24.94 24.91 24.23 $25.02 25.81 24.55 26.42 $29.46 28.01 24.35 23.92 $23.91 19.76 18.45 18.25 $.2425 .2425 .2425 .2425 $.23 .23 .23 .23 $.2125 .2125 .2125 .2125 $.1875 .1875 .1875 .1875 $.1625 .1625 .1625 .1625 For more historical information on TCF’s stock price and dividend, visit www.tcfbank.com and click on About TCF/ Investor Relations. Trading of Common Stock The common stock of TCF Financial Corporation is listed on the New York Stock Exchange under the symbol TCB. At December 31, 2007, TCF had approximately 126.6 million shares of common stock outstanding. 2008 Common Stock Dividend Dates Expected Record: February 1 May 2 August 1 October 31 Expected Payment: February 29 May 30 August 29 November 28 Transfer Agent and Registrar Computershare Trust Company, N.A. PO Box 43078 Providence, RI 02940-3078 (800) 443-6852 www.computershare.com Direct Stock Purchase and Dividend Reinvestment Plan Computershare Trust Company, N.A. offers the Computershare Investment Plan, a direct stock purchase and dividend rein- vestment plan for TCF Financial Corporation common stock. This shareholder-paid program provides a low-cost alterna- tive to traditional retail brokerage methods of purchasing, holding and selling TCF common stock. The Plan is sponsored and administered by our Transfer Agent, Computershare, Inc. Information is available from: Computershare Investment Plan for TCF Financial Corporation c/o Computershare PO Box 43081 Providence, RI 02940-3081 (800) 443-6852 www.computershare.com Investor/Analyst Contact Jason Korstange Senior Vice President Corporate Communications (952) 745-2755 Stacey Ronshaugen Assistant Vice President Investor Relations (952) 745-2762 Available Information Please visit our website at www.tcfbank.com for free access to investor information, news releases, investor presentations, access to TCF’s quarterly conference calls, TCF’s annual report, and SEC filings. Information may also be obtained, free of charge, from: TCF Financial Corporation Corporate Communications 200 Lake Street East EX0-01-C Wayzata, MN 55391-1693 (952) 745-2760 Annual Meeting The annual meeting of stockholders of TCF will be held on Wednesday, April 23, 2008, 3:00 p.m. (local time) at the Marriott Minneapolis West, 9960 Wayzata Boulevard, St. Louis Park, Minnesota. 2007 Annual Report | 91 156976_10K_F_Q6 2/16/08 3:48 PM Page 92 Credit Ratings Last Review September 2007 Last Rating Action Moody’s TCF National Bank: Outlook Issuer Long-term deposits Short-term deposits Bank financial strength Stable A1 A1 Prime-1 B- Last Review October 2007 Last Review September 2007 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 Stable BBB+ A-2 A- A-2 Last Rating Action FITCH Outlook TCF Financial Corporation: Long-term IDR Short-term IDR TCF National Bank: Long-term IDR Short-term IDR Stable A- F1 A- F1 $1.50 1.25 1.00 0.75 0.50 0.25 0.00 Stock Price Performance (In Dollars) Stock Price* Dividends* 4 0 / 3 / 9 t i l p S k c o t S 5 9 / 0 3 / 1 1 t i l p S k c o t S 7 9 / 8 2 / 1 1 t i l p S k c o t S $35 30 25 20 15 10 5 Year Ending 6-86 12-86 12-87 12-88 12-89 12-90 12-91 12-92 12-93 12-94 12-95 12-96 12-97 12-98 12-99 12-00 12-01 12-02 12-03 12-04 12-05 12-06 12-07 *Stock split adjusted For more historical information on TCF’s stock price and dividend, visit www.tcfbank.com and click on About TCF / Investor Relations. 92 | TCF Financial Corporation and Subsidiaries Corporate Philosophy • TCF emphasizes convenience in bank- bank. We accumulate a large number of • TCF believes interest-rate risk should ing; we’re open 12 hours a day, seven low cost accounts through convenient be minimized. Interest-rate specula- days a week, 364 days per year. TCF services and products targeted to a tion does not generate consistent banks a large and diverse customer broad range of customers. As a result profits and is high risk. base. We provide customers innovative of the profits we earn from the deposit products through multiple banking business, we can minimize credit risk channels, including traditional, on the asset side. • TCF places a high priority on the development of technology to enhance productivity, customer service and • TCF operates like a partnership. growth. and decentralize the banking process. • TCF is primarily a secured lender and new products. Properly applied tech- emphasizes credit quality over asset nology increases revenue, reduces growth. The costs of poor credit far costs and enhances customer service. outweigh the benefits of unwise asset We centralize back office activities • TCF strives to place The Customer • TCF utilizes conservative accounting First. We believe providing great serv- and financial reporting principles that ice helps to retain existing customers, accurately and honestly report our attract new customers, create value financial condition and results of oper- for our stockholders, and build pride ations. We believe good accounting in our employees. We also respect drives good business decision-making. customers’ concern about privacy and know they place their trust in us. TCF is committed to protecting the private information of our customers and retaining that trust is our priority. • TCF is currently growing primarily through de novo expansion rather than acquisition. We are growing by starting new businesses, opening new branches and offering new products and services. • TCF encourages open employee com- munication and promotes from within whenever possible. TCF places the highest priority on honesty, integrity and ethical behavior. • TCF believes in community partici- pation, both financially and through volunteerism. We feel a responsibility to help those less fortunate. • TCF does not discriminate against anyone in employment or the extension of credit. As a result of TCF’s commu- nity banking philosophy, we market our products and services to everyone in the communities we serve. 2007 Annual Report | 93 as TCF Totally Free Checking and TCF • TCF encourages stock ownership by PLUS e CheckingSM. TCF uses the checking our officers, directors and employees. account as the anchor account to build We have a mutuality of interest with additional customer relationships. our stockholders, and our goal is to • TCF earns a significant portion of its profits from the deposit side of the earn above-average returns for our stockholders. supermarket and campus branches, TCF Express Teller and other ATMs, debit cards, phone banking, and Internet banking. We’re organized geographically 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 are profitable and contribute to these goals. Local geographic managers are responsible for local business decisions, business development initiatives, customer relations, and community involvement. Managers are incented to achieve these goals. • TCF focuses on growing and retaining its large number of low-interest cost checking accounts by offering conven- ient products with free features, such 07 Our goal is to be the most convenient bank in the markets we serve. T C F F i n a n c i a l C o r p o r a t i o n 2 0 0 7 A n n u a l R e p o r t TCF Financial Corporation 200 Lake Street East Wayzata, MN 55391-1693 www.tcfbank.com 002CS-60875 TCFIR9338 TCF® The Convenience Franchise TCF Financial Corporation 2007 Annual Report

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