TCF Financial Corporation
Annual Report 2010

Plain-text annual report

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 1 0 A n n u a l R e p o r t TCF Financial Corporation | 2010 Annual Report Bold Thinking Swift Decisions Smart Banking TCF Financial Corporation 200 Lake Street East Wayzata, MN 55391-1693 www.tcfbank.com TCFIR9347 Table of Contents 01 Financial Highlights 02 Letter to Our Stockholders 12 Board of Directors Annual Report on Form 10-K 01 Business 08 Risk Factors 17 Selected Financial Data 18 Management’s Discussion and Analysis 52 Consolidated Financial Statements 56 Notes to Consolidated Financial Statements 95 Other Financial Data Additional Information 108 Corporate Information 112 Stockholder Information 113 Corporate Philosophy Despite a troubled economy and numerous legislative and regulatory burdens, TCF has reported 63 consecutive quarters of profitability and a record high level of capital in 2010. We continue to focus on our conservative banking philosophy, which has proven its sustainability throughout the current economic cycle. We are seeing encouraging signs on the credit front, such as a decrease of nearly $20 million in non-performing assets during the fourth quarter of 2010. Throughout 2010, we have demonstrated an ability to meet our challenges head-on. This proactive approach has proven to be the right thing to do for our customers and stockholders. 2010 Annual Report • 113 • Corporate Philosophy Profit Centers TCF’s focused profit center structure creates superior financial performance. Day-to-day operations are organized by profit centers within business lines: Wholesale Banking (commercial banking, leasing and equipment finance, and inventory finance), Retail Banking (branch banking and retail lending), Treasury Services and Support Services, each with profit center goals and objectives. TCF emphasizes net income, return on average assets and earnings per share growth at acceptable levels of risk. We offer products that are profitable and contribute to these goals. Our profit center structure creates a highly responsive and performance driven culture. Convenience 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, Internet banking and mobile banking. Checking Accounts TCF focuses on growing and retaining its large number of low-interest cost checking accounts by offering convenient hours and delivery channels, and products with many free features. TCF uses the checking account as the anchor account to build additional customer relationships. Deposits TCF earns a significant portion of its profits from the deposit side of the bank. We accumulate a large number of low cost accounts through convenient services and products targeted to a broad range of customers. As a result of the profits we earn from the deposit business, we can minimize credit risk on the asset side. Secured and Diversified Lender TCF maintains a secured loan and lease portfolio that is well-diversified by type (consumer, commercial, specialty finance) and by geography. We further diversify our asset portfolio by industry, product and collateral type to minimize concentration risk. In addition, we require our loans and leases to be supported by collateral to provide an alternate repayment source beyond cash flow from the borrower, which helps mitigate losses. We emphasize credit quality over asset growth as the costs of poor credit quality far outweigh the benefits of unwise asset growth. Conservative Underwriting TCF’s diversified asset portfolio and our extensive credit review practices reduce our credit risks while creating profitability and sustainable growth, even in the most challenging economic environments. We lend and lease to high-quality customers and invest only in programs that add value to the organization and yield solid returns. Interest-rate Risk TCF believes interest-rate risk should be minimized. Interest-rate speculation does not generate consistent profits and is high risk. Capital and Liquidity TCF focuses on prudent capital and liquidity management which strengthens our capital position, increases our borrowing capacity, and reduces our costs and risks. We are solidly capitalized and have access to ample liquidity to conduct business. TCF’s financial strength makes us a safe and sound financial institution. Expansion TCF grows both through de novo expansion and acquisition. We are growing by starting new businesses, opening new branches and offering new products and services. The C ustomer F irst TCF strives to place The Customer First. We believe providing great service helps to retain existing customers, attract new customers, create value for our stockholders, and build pride in our employees. We also respect customers’ concerns 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. Stock Ownership TCF encourages stock ownership by our officers, directors and employees. We have a mutuality of interest with our stockholders, and our goal is to earn for them an above- average return. Technology TCF places a high priority on the development of technology to enhance productivity, customer service and new products. Properly applied technology increases revenue, reduces costs and enhances customer service. We centralize back office activities and decentralize the banking process. Conservative Accounting 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. Open Employee Communication TCF encourages open employee communication and promotes from within whenever possible. TCF places the highest priority on honesty, integrity and ethical behavior. Equal Treatment TCF does not discriminate against anyone in employment or the extension of credit. As a result of TCF’s community banking philosophy, we market our products and services to everyone in the communities we serve. Community Participation TCF believes in community participation, both financially and through volunteerism. We feel a responsibility to help those less fortunate. 2010 Annual Report • 1 • Financial Highlights (Dollars in thousands, except per-share data) 2010 2009 % Change At or For the Year Ended December 31, 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 securities, net Total non-interest income Non-interest expense Income before income tax expense Income tax expense Income after income tax expense Income (loss) attributable to non-controlling interests Net income Preferred stock dividends Net income available to common stockholders Per Common Share Information: Basic earnings Diluted earnings Dividends declared Stock price: High Low Close Book value Price to book value 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 Tier 1 common risk-based capital ratio(1) N.M. Not Meaningful. (1) See page 45 under Management’s Discussion and Analysis for reconciliation of GAAP to non-GAAP measures. $ 699,202 236,437 462,765 $633,006 258,536 374,470 508,862 29,123 537,985 763,124 237,626 87,765 149,861 3,297 146,564 – $146,564 496,468 29,387 525,855 767,784 132,541 45,854 86,687 (410) 87,097 18,403 $ 68,694 $ 1.05 1.05 .20 $ .54 .54 .40 18.89 12.90 14.81 10.30 1.44 X 16.67 8.74 13.62 9.10 1.50 X .82% 10.36 4.14 1.47 9.71 .49% 5.95 3.87 1.34 7.65 10.5% (8.5) 23.6 2.5 (.9) 2.3 (.6) 79.3 91.4 72.9 N.M. 68.3 (100.0) 113.4 94.4% 94.4 (50.0) 13.3 47.6 8.7 13.2 (3.9) 67.3 74.1 7.0 9.7 26.9 William A. Cooper, Chairman of the Board & Chief Executive Officer Dear Stockholders: As I finish my 25th year as Chairman funded with low-cost retail deposits At December 31, 2010, TCF’s stock price of TCF, it is rewarding to see that we and we don’t participate in nationally closed at $14.81 per share, up from have been able to create a successful syndicated credits. $13.62 per share on December 31, company with sustained profitability through the various economic cycles. I attribute our success to a conservative philosophy of banking, which is embedded in everything we do at TCF. At year end, TCF reported its 63rd consecutive quarter of profitability. This is a noteworthy achievement few of our competitors can match. At TCF, we value a large and growing customer base and deliver on our core conve- nience promise; we believe in secured and diversified lending to minimize risk; we focus on prudent capital and 2010 was yet another tumultuous year in the financial services industry. Many economists and bankers, including myself, thought 2010 would be “The Comeback Year” in which real signs of economic improvement would be seen throughout the country. Instead, we continued to see elevated unemploy- ment rates, depressed values on homes and other assets, and businesses postponing projects. 2009 and a 52-week low of $12.90 on November 1, 2010. We have seen significant volatility in the stock price over the past 52 weeks and increased short-selling activity, but by year-end the pressure on our stock price was related mainly to the uncertainty around the regulatory environment, which I expect to settle somewhat in 2011 when we know more where these new regulations will land. Change in 2010 came mainly from expansion of government intervention A Look At 2010 • TCF management and staff spent a liquidity management to create a safe into the financial services industry. great deal of time and effort around and sound bank; and we manage our Compliance with new legislation and compliance with new and proposed expenses very well. We have a business regulation for all financial institutions regulations in 2010, primarily around model that works, despite the economic has been significant in terms of both the following items: conditions we have faced. As important as what we have done are the things we have not done. TCF never made any subprime loans. We never securitized any loans. We did not conduct business with Fannie Mae® or Freddie Mac®. We don’t own any credit default swaps. All of our assets are on our balance sheet. Virtually all of our loans are secured. We are largely time and cost, but more painful for institutions like TCF that never partici- pated in the various activities that caused the financial crisis in the first place. This level of government oversight is unlike any I have seen in my career. However, I can say with certainty that banks, including TCF, will find ways to continue to address these issues going forward. Opt-in Initiative On August 15, 2010, new regulations on overdraft fees specific to ATM transactions and one-time debit card transactions became fully effective. TCF was one of the first banks in the country to proactively implement a highly successful customer education program around this issue and the number of opt-ins has been a true testament of how our customers 2010 Annual Report • 3 • At year-end, TCF reported its 63rd consecutive quarter of profitability. value the overdraft services provided like TCF. Since the Fed announced its by TCF. Since implementation, we have proposal, we have seen more and more seen a decline in overall fees and parties express increased concern service charges, but this decline has about the potential implications of the been less significant than that of most Durbin Amendment. Our lawsuit has of our competitors. Our success with certainly been the right thing to do for opt-in, as well as our implementation our customers and stockholders and of new account maintenance fees, we remain confident that a favorable demonstrates our willingness and ability outcome can be achieved. to meet regulatory challenges head-on. • Despite the lingering economic crisis, Dodd-Frank Act, particularly the Durbin TCF earned $146.6 million in 2010, up Amendment TCF senior management, 68 percent from the previous year. with the assistance of third party Diluted earnings per common share experts, extensively researched the was $1.05, up 94 percent from 2009. legality of provisions of the Dodd-Frank Act known as the Durbin Amendment, that limit the ability of banks to receive debit card interchange fees. On October 12, 2010, TCF filed a lawsuit challenging the constitutionality of the Durbin Amendment. We believe the provisions of the Durbin Amendment clearly violate multiple constitutional rights of TCF and similarly situated banks. More specifically, the rights that have been compromised deal with our ability to earn a fair rate of return on our invested capital and to compete on even ground with banks exempted by the law. In December 2010, the Federal Reserve Board issued a proposed regulation based on the Durbin Amendment creating proposed caps on interchange fees that, if implemented, will result in a significant revenue loss for banks • TCF’s net interest margin was 4.14 percent for the full year of 2010 and 4.04 percent in the fourth quarter of 2010. Our industry leading deposit strategies and continued reduction of high interest-rate certificates of deposit balances contributed significantly to net interest margin. During 2010, we took certain actions to increase the asset sensitivity of the balance sheet in anticipation of rising interest rates, which included changing the mix of fixed- and variable-rate loans. This has limited expansion of the net interest margin in the short-term, but is in the best long-term interest of the company. Overall, TCF’s net interest margin continues to be better than the average of the Top 50 Banks by approximately 68 basis points. • 4 • TCF Financial Corporation and Subsidiaries • TCF has paid a common stock of Vice Chairman Barry Winslow to lead dividend 91 consecutive quarters and a reorganized and improved risk returning capital to our stockholders management system. continues to be an important part of how we deliver value. In 2010, TCF’s annual dividend rate was $.20 per TCF Retail Banking TCF’s Retail Banking division consists share. The continued low dividend rate of branch banking and retail lending. currently accelerates the accumulation In branch banking, we spent a lot of of retained earnings, which adds to our time this year evaluating our product capital base for future growth. When line-up and pricing structures in light capital accumulation from earnings of the changes in both the regulatory exceeds capital required for asset environment and competitive growth and risk parameters permit, landscape. TCF will raise its dividend. In early 2010, as a result of new • TCF is financially strong and remains Regulation E rules, we eliminated TCF a safe and sound bank. We are solidly Totally Free Checking and implemented capitalized and have ample liquidity a new anchor account, TCF Convenience to conduct business. TCF’s tier 1 CheckingSM, that included a monthly risk-based capital was $1.5 billion, or maintenance fee. This monthly 10.59 percent of risk-weighted assets, maintenance fee is waived for account and total risk-based capital was holders who meet certain minimum $1.8 billion, or 12.98 percent of requirements. While we experienced risk-weighted assets. We continue to increased attrition as a result of the exceed the well-capitalized requirements new checking product structure, we did as defined by the regulatory agencies. manage to increase total deposits to At December 31, 2010, TCF had $415.5 $11.6 billion at December 31, 2010, up million of excess total risk-based capital slightly from last year. over the stated well-capitalized requirement. TCF’s total tier 1 common capital ratio was 9.71 percent. We anticipate exceeding the minimum standards under the Basel III capital guidelines, which are out for comment as this letter was written. We are committed to our convenience promise and have been working hard to simplify our product structures and make them more transparent. After listening carefully to our customers, we reevaluated our checking product line-up and made some important • On February 26, 2010, TCF raised net proceeds of approximately $164.5 million through a public common stock offering of 12,322,250 shares. We chose • The reorganization of TCF’s manage- enhancements in January 2011. We to take advantage of market conditions ment structure was in effect for the full now offer customers easy and straight- to build our capital in preparation for year of 2010 and resulted in improved forward ways to waive the monthly future growth opportunities to expand efficiencies and cost effectiveness. With maintenance fee and, most importantly, our businesses, which we demon- our day-to-day operations organized we have eliminated the minimum strated with our specialty finance by business line, we have been able balance requirement for most account businesses in 2010. We are committed to enhance our highly responsive and types. These changes were designed to to leveraging our capital to make performance-driven culture. provide most of our customers the careful and wise investment decisions that will increase TCF’s franchise value in the long-term. • We have strengthened our enterprise risk management with the appointment ability to use their checking account as a primary account without being charged a monthly maintenance fee. 2010 Annual Report • 5 • In addition, we will soon be piloting a 27 percent at December 31, 2009. change to the structure of our overdraft Despite the current economic condi- services. The piloted product will result tions, TCF provided lending to credit- in a daily fee if the account balance worthy customers and funded $879.2 is negative at the end of the day, not million of new consumer real estate a per item charge. The advantages loans during 2010. These new loans of this service are that it is simple to have thus far performed well with low understand and it eliminates a potential delinquencies and minimal charge-offs. pile-up of per item fees. We are being proactive in the marketplace by redesigning some of our product TCF Wholesale Banking TCF’s Wholesale Banking division structures to be even more reasonable consists of commercial banking and and equitable to our customers as they specialty finance (TCF Equipment will better understand the charges Finance, Winthrop Resources they can expect on their accounts. Corporation and TCF Inventory Finance). TCF branch banking has seen the most change of our business lines over the past year with the imposition of new regulations and legislation. While the dust has yet to settle, we continue to stay innovative while providing competitive products and services to our customers. Loan balances in our retail lending division decreased slightly in 2010 Loan balances decreased slightly during the year in our commercial portfolio, which totaled $3.6 billion at year-end. Overall demand for commercial loans was tempered by the sluggish economy. Even though the number of new commercial projects was minimal in the market during the year, we did see quite a bit of movement within the sector with an increase of lenders competing for business. Unfortunately, as the portfolio totaled $7.2 billion at in this low-rate environment, some of year-end. With ongoing deterioration our competitors chose to ease their in home values and reductions in underwriting standards and we saw spending in the weakened economy, increased prepayments. Our yields we continued to reduce the consumer were squeezed somewhat by the real estate portfolio and made invest- irrational pricing of some of these ments in other higher-yielding asset categories. We also concentrated on changing the mix of our assets to competitors. Our commercial portfolio is performing well under these tough economic conditions and I attribute this emphasize variable-rate over fixed-rate success to our conservative underwrit- loans, contrary to the demand for ing practices and our commitment to fixed-rate loans in the low interest rate relationship banking with long-term Convenience From our long-time standard of being open 7 days and longer hours to new and enhanced products and services such environment. While this effort reduces customers. In 2011, we expect the as TCF Mobile Banking, we the margin in the short-term, we reorganization efforts in commercial continue to be at the forefront believe when interest rates rise — as lending to produce both positive results of convenience banking. they have always done in the past — on the expense side and improved the margin will benefit significantly. prospecting efforts on the loan At December 31, 2010, variable-rate production side. loans comprised 33 percent of total consumer real estate loans, up from Specialty finance, TCF’s nationally- focused leasing, equipment and • 6 • TCF Financial Corporation and Subsidiaries inventory finance portfolio balances Its acquisition of Fidelity National increased $406.6 million, or 11 percent, Capital, Inc. late in 2009 has yielded during 2010. Growth momentum in solid returns for us as we integrated specialty finance stemmed from portfolio the business and the new team of purchases and program acquisitions employees into the Winthrop culture. as well as organic growth. Our highest In 2010, Winthrop was recognized by yielding loans and leases reside in the Equipment Leasing and Finance specialty finance, yet we are able to Association (ELFA) as recipient of minimize concentration risk by diversify- the ELFA Operations and Technology ing these businesses by industry, Award for its successful implementa- geography, product and collateral type. tion of a lease accounting and TCF’s leasing and equipment finance management system. business grew 3 percent in 2010. This TCF’s newest specialty finance business $3.2 billion portfolio is well-diversified is TCF Inventory Finance, Inc. (TCFIF). by equipment type and by geography. TCFIF provides floorplan financing Our leasing and equipment finance principally for dealers of consumer operation, which is comprised of TCF products in the United States and Equipment Finance and Winthrop Canada. We started the business in late Resources Corporation, is now the 2008 by entering into the consumer 29th largest in the United States, and is electronics and household appliances the 13th largest bank-affiliated leasing industries, expanded into the lawn and company in the United States. garden industry in 2009, and further In 2010, TCF Equipment Finance, Inc. (TCFEF) expanded its capital markets division, which focuses on portfolio and company acquisition activities as well as individual transactions on both the buy and sell side. Expansion of the capital markets activities has increased our ability to acquire assets at a time when the industry has been looking for new sources of liquidity. TCFEF completed a portfolio acquisition of middle market leases toward the end of the third quarter, which contributed to increased leasing and equipment expanded in 2010 into the power sports industry with the assumption of floorplan financing programs in Canada for Arctic Cat Sales, Inc. We also entered a relationship in the United States with E-Z-GO®, a Textron, Inc. Company. It is clear that TCFIF is focused on estab- lishing relationships with suppliers, dealer buying groups and manufacturers that are leaders in the industries we serve. Our joint venture established in 2009 with The Toro Company, a leader in the lawn and garden industry based in Minneapolis, Minnesota, continues to be very strong and productive. Asset Diversification We focus on diversifying our assets by business line and geography to minimize concentration risk. An example is the growth of our specialty finance businesses through portfolio finance balances at the end of the year. acquisitions — like TCF Inventory Finance’s acquisition of Arctic Cat® Canadian power sports equipment floorplan programs. TCFEF employs 322 people and was At year-end, the TCFIF portfolio balance recognized as one of the Minneapolis was $792.4 million with indirect credit Star Tribune’s Top 100 Workplaces in lines to 169 manufacturers and buying the Twin Cities metro area in 2010. groups and direct credit lines with 8,866 dealers in the United States Winthrop Resources Corporation is our and Canada. This management team technology-oriented leasing company. continues to work hard to position the 2010 Annual Report • 7 • We maintain a secured loan and lease portfolio that is well-diversified, which both minimizes concentration risk and helps mitigate losses. company and find new opportunities however, have allowed us the ability to grow assets. Our next step is to look to mitigate losses in the depressed for additional niches and in 2011 we economy. expect to see significant returns on our investments. During the year, non-performing assets increased $84.3 million, or TCF has been focused on growing 21 percent. Unlike some other banks, its higher-yielding specialty finance TCF’s non-performing asset category is business within its wholesale loan not necessarily a leading indicator of and lease portfolio. In just over a future credit performance because decade, we have changed the mix on a significant amount of our credit the asset side of the balance sheet problems in this category have already from 76 percent retail loans outstand- been addressed through charge-offs ing to an even mix between retail or reserves. That being said, we were loans and wholesale loans and leases. pleased to see non-performing assets We maintain a secured loan and lease decline nearly $20 million during the portfolio that is well-diversified, which fourth quarter of 2010, the first decline both minimizes concentration risk and in 18 quarters. We cautiously view helps mitigate losses. In addition, our this as an early positive sign of credit conservative underwriting practices stabilization, which could be attribut- result in lending and leasing to able to our efforts to work out problem high-quality customers and making loans and leases and perhaps to an investments only in programs that improving economy. add value to the organization. Credit Quality Credit losses — while better than most of our peers — remained an issue and significantly impacted TCF’s results in 2010. Net charge-offs increased 15 percent, or 13 basis points, from last year as adverse economic conditions continued to impact some of our consumer and commercial customers. Our secured lending philosophy and conservative under writing practices, In 2010, TCF’s consumer real estate delinquencies and net charge-offs continued to increase, but at a slower rate than in the previous two years — an early sign of stabilization for this portfolio. High unemployment rates and lower home values continued to persist in 2010, which led to continued losses for TCF. To help our customers avoid home foreclosure, we developed loan modification programs that extend payment dates, reduce interest rates and/or reduce payment amounts. • 8 • TCF Financial Corporation and Subsidiaries percent of the outstanding balance. The and leases, an increase of $21.3 million over 60-day delinquency rate on these from $244.5 million, or 1.68 percent of loans was 5.3 percent at December 31, loans and leases, at December 31, 2009. 2010. To date, our loan modification The increase in allowance for loan and programs are performing very well. lease losses was primarily related TCF also saw some credit deterioration within its Wholesale Banking business, primarily in commercial real estate, attributable to the recessionary state of the economy. We did see credit quality improvement in specialty finance with delinquencies down for to increased reserve levels on loans secured by real estate. The provision for credit losses of $236.4 million, however, decreased 9 percent from last year mainly due to credit improve- ments in the leasing and equipment finance portfolio. six consecutive quarters and non- Overall, we have seen some improve- accrual loans and leases down for three ment in credit quality, most notably in consecutive quarters at year-end. We our leasing and equipment finance continued to closely monitor our portfolio. We have started to see early wholesale customers, and in particular signs of stabilization in our consumer those customers in distressed indus- real estate portfolio, which gives us tries and geographies. Our relationship some optimism about 2011, however, banking strategy provided us the ability it is still too early to claim victory. While to effectively work out many distressed still challenging, our credit losses loans. Wholesale Banking continues remain less than most of our peers to be very profitable and is highly and continue to be manageable. diversified and well-managed. Real estate owned properties and real estate in judgment properties increased over the past year as the length of time in the foreclosure process continues to expand. Delays in TCF’s foreclosure process are not due to any failures in our system to comply with regional At December 31, 2010, TCF held laws, like the robo-signer debacle at $337.4 million of modified consumer other banks, but were affected by an real estate loans that are considered overwhelmed legal system in some troubled debt restructurings (TDRs) and markets. The foreclosure crisis of 2010 continue to accrue interest, up from involved misbehavior and documenta- $252.5 million at December 31, 2009. In tion mistakes by some of our larger these cases, we granted a concession competitors. TCF did not participate in regarding the terms of the loan to help any of these practices and continues to homeowners with appropriate financial follow prudent policies and procedures means retain ownership of their house around the foreclosure process. Revenue TCF’s total revenue in 2010 was $1.2 billion, up 7 percent from last year with an increase of 10 percent in net interest income and an increase of 2 percent in non-interest income. Our aggressive deposit pricing strategy and growth in our specialty finance portfolio in 2010 contributed to the increase in net interest income. Net interest income, however, was pressured by increased non-accrual loans and leases and TDRs, as well as management’s efforts to change the mix of assets by replacing the run-off of higher-yielding fixed-rate loans with lower-yielding variable-rate loans in anticipation of future interest rate increases. and to improve the likelihood that we will collect the principal owed. Reserves for losses on accruing consumer real estate TDRs were $37 million, or 11 At December 31, 2010, TCF’s allowance for loan and lease losses totaled $265.8 million, or 1.80 percent of loans Banking fees and service charges in 2010 decreased from last year primarily due to the implementation of opt-in 2010 Annual Report • 9 • regulations in August 2010. This impact costs increased significantly as a result was partially offset by new monthly of the administration of the company’s maintenance fee income. We look Bank Secrecy Act program. Legal costs forward to 2011 as we believe our increased as well due to the challenge of banking customers will find value in the the Durbin Amendment of the Dodd- enhancements we have recently made Frank Act. In addition, foreclosed real to our anchor checking account, TCF estate and repossessed asset expenses Convenience Checking, as well as increased $8.5 million, or 27 percent, additional deposit account products from last year as a result of increased and enhancements yet to come in 2011. levels of consumer real estate properties TCF’s card revenue of $111.1 million owned and the associated expenses. in 2010 was up 6 percent from 2009, Even during these difficult times, TCF is which was attributable to an increase committed to the ongoing professional in consumer spending and a small development of its employees and increase in average interchange rates. continues to recognize and motivate TCF has a large checking account base hard working individuals through job contributing to our ranking as the 11th promotions, incentive compensation, largest Visa® Classic debit card issuer tuition reimbursement and other in the United States. Card revenue reward programs. We strongly believe could be impacted in 2011 depending that maintaining an experienced and upon the Federal Reserve’s final rules motivated team creates a competitive on debit card interchange rates and advantage and is crucial to enhancing the outcome of our lawsuit. stockholder value. A strong fee category in 2010 was TCF also continues to support the leasing and equipment finance communities in which we serve, both revenues, which totaled $89.2 million, financially and through volunteerism. up 29 percent, from the prior year. During 2010, TCF and its employees Both operating lease revenues and contributed over $2 million to charitable customer- driven sales-type lease organizations in human services, revenues increased in 2010. education, community development Expenses TCF was very efficient in managing and the arts. In addition, numerous TCF employees generously gave their time by volunteering and providing leader- its operating expenses in 2010. We ship to local nonprofit organizations. continued to place an emphasis on our TCF and its employees continue to core businesses of deposit gathering and express a commitment to make a loan and lease production. In addition, difference for people in need and for Safe and Sound We emphasize prudent capital and liquidity management which strengthens our capital position, increases our borrowing capacity and reduces our costs and risks. our streamlined day-to-day operations the communities we serve, and we have Our customers and stockholders via our recent company reorganization an ongoing focus on organizations that reduced redundancies, improved have TCF employee involvement. can be confident that they are doing business with a safe and efficiencies and created a highly responsive and performance-driven culture. Unfortunately, 2010 presented some unusual charges that fell outside of core operating expenses. Consulting Expense control will be an ongoing sound financial institution. emphasis in 2011. TCF management and employees will continue to find ways to contribute to the bottom line while still carefully monitoring expenses. • 10 • TCF Financial Corporation and Subsidiaries To Be Successful in 2011, We Must: • Continue growth momentum in loans, leases and deposits. With fewer competitors in the market on both the deposit side and the lending side, now is an opportune time to capture deposit customers through premium campaigns, • Stay innovative in product and service offerings within the constraints of new regulations. We have shown that we can be flexible and move quickly in response to regulatory changes imposed on our products and services. We will continue to be innovative to protect our future profits. new products and services such as • Continue to review and control TCF Mobile Banking, and cross-sell expenses. In this difficult operating initiatives while lending to creditworthy environment, it is important to focus customers. Despite a decrease in the on expense control, and in 2011 it will number of deposit accounts in 2010, be a team effort of all TCF employees. we intend to earn them back in 2011. We will continue to identify areas Deposit gathering and loan and lease within our business lines to improve production are the bread and butter of processes and efficiencies. TCF, and a high priority for our entire management team in 2011. Checking account growth provides a low-cost funding base and drives future deposit fee income. • Continue our longstanding commit- ment to strong corporate governance. Our customers and stockholders entrust us with their money and confidential information and, therefore, our • Carefully monitor credit quality. Our management practices demand the objective in this area is to remain highest of standards. Reputation for conservative through controlled and honesty and integrity continues to thorough credit evaluation, secured rank at the top of our priorities. lending and prompt accounting for credit losses and the related provision- ing. I expect the economy to begin to improve during the year, which eventually should reduce the rate of loan and lease defaults and reduce credit losses. Credit quality, however, will largely depend on the viability of the U.S. economy, including home prices and unemployment. Risks to Our Business Strategy • Congressional and regulatory actions, including the uncertainty surrounding the Durbin Amendment, could have an impact on our business and our ability to generate future fee income. We do not know what Congress will do next; they may impose additional regulations • Use capital wisely. TCF is solidly on checking and card service fees. capitalized. We will continue to be good Litigation against Visa could also have stewards of our stockholders’ capital an impact on future card revenue. and think in terms of the best long-term Regulatory issues and the related • The economic climate is a major risk for all banks, including TCF. Unemployment and depressed home and commercial real estate values reduce consumer spending and loan demand, which impacts the ability of banks to generate fee income and earn interest on new loans. interest of the company. Prudent capital compliance burden continue to increase • Managing interest-rate risk and the management, which includes making and impact TCF’s expenses. We continue continued low levels of interest rates wise investments, is a top priority as to monitor these developments but a with an eye toward the possibility of well as staying cognizant of maintain- growing amount of time and dollars rapidly increasing inflation continues ing a strong liquidity position for are being spent on this effort. to be very challenging. unanticipated situations. 2010 Annual Report • 11 • We continue to be innovative and look for opportunities to create and deliver value to our stockholders. • Potential reductions in our borrowing TCF has prudently managed these types I would like to take this opportunity to capacity because of restrictions put on of risks in the past and we believe we thank the board of directors for their the Federal Home Loan Banks or the are adequately prepared to manage continued dedication, wise counsel Federal Reserve Discount Window could them in the future. and support of TCF. It was very much reduce our liquidity and inhibit growth or force higher deposit costs. Growing core deposits reduces this risk. • Changes in customer behavior from the slowing economy and advances in technology could further impact fee revenue. In addition, further changes to our product and service offerings in response to legislative changes could impact customer banking preferences in the future. In Closing TCF remains a safe and sound financial appreciated in 2010. During the past year, we welcomed Karen Grandstrand, Ray Barton and Rick Zona to TCF board institution. Our capital position is membership. Karen has a wealth of strong and we have ample liquidity to knowledge and experience in law and conduct business. I am proud we have in the banking industry; Ray brings an held tight to our conservative banking entrepreneurial background and insight principles and, as a result, TCF has into the retail franchise business; and remained profitable for an astounding Rick provides us with his knowledge 63 consecutive quarters. We continue and experience in the financial services to be innovative and look for opportuni- industry. We welcome their insights ties to create and deliver value to to assist TCF in our continued growth • Growth expectations of our new our stockholders despite the recession- and success. inventory finance business may not be ary environment and government’s achieved. This new line of business has overreach into the banking industry. been very successful for TCF, however, We have also demonstrated an ability the ability to retain existing business to meet our regulatory challenges relationships and attract new custom- ers has become more challenging as head-on. This proactive approach has proven to be the right thing to do for we find ourselves repeatedly compet- our customers and stockholders. ing with the nation’s largest inventory finance provider. We continue to have a mutuality of accomplishments. interest with our stockholders. Our I would also like to give a special thanks to our employees for their hard work and efforts during another very challenging year. Their exceptional abilities, commitment and energy make everything happen at TCF. I am proud of the TCF Team and our Thank you for your continued support and investment in TCF. William A. Cooper Chairman and Chief Executive Officer • A further deterioration of the public’s senior management and board of perception of banks. When public perception sours as a result of bad behavior from some of the largest players, smaller community banks directors own over 6.2 million shares, or 4 percent of TCF stock. Eighty-two percent of our match-eligible employees participate in TCF’s Employees Stock like TCF suffer the most. Therefore, it Purchase Plan, which at year-end held is important we continue to stick to over 7.8 million shares. our knitting and provide products and services that appeal to all people. • 12 • TCF Financial Corporation and Subsidiaries Board of Directors William A. Cooper Chairman of the Board and Chief Executive Officer, TCF Financial Corporation Chairman since 1987 Raymond L. Barton Chairman and Chief Executive Officer, Great Clips, Inc. Director since 2011 Peter Bell Former Chair, Metropolitan Council Director since 2009 William F. Bieber Chairman and Owner, ATEK Companies, Inc. Director since 1997 Theodore J. Bigos Owner, Bigos Management, Inc. Thomas A. Cusick Retired Vice Chairman, TCF Financial Corporation Director since 2008 Director since 1988 Luella G. Goldberg Past Chair, University of Minnesota Foundation, Former Acting President, Wellesley College Director since 1988 Karen L. Grandstrand Partner, Fredrikson & Byron PA Director since 2010 George G. Johnson CPA/Managing Director, George Johnson & Company Director since 1998 Vance K. Opperman President and Chief Executive Officer, Key Investment, Inc. Director since 2009 Gregory J. Pulles Vice Chairman, TCF Financial Corporation Director since 2006 Gerald A. Schwalbach Chairman, Spensa Development Group, LLC Director since 1999 Ralph Strangis Senior Partner, Kaplan, Strangis and Kaplan, P.A. Director since 1991 Barry N. Winslow Vice Chairman and Chief Risk Officer, TCF Financial Corporation Director since 2008 Richard A. Zona Retired Vice Chairman, U.S. Bancorp Director since 2011 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2010 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 x 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) Warrants (expiring November 14, 2018) (Title of each class) New York Stock Exchange New York Stock Exchange (Name of each exchange on which registered) No No No x Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. No Large accelerated filer x Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company No x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to 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 $2,154,546,434. As of January 31, 2011, there were 142,946,021 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 for the 2011 Annual Meeting of Stockholders to be held on April 27, 2011 are incorporated by reference into Part III hereof. DOCUMENTS INCORPORATED BY REFERENCE Table of Contents Description Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Part II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Part III Item 10. Item 11. Item 12. Item 13. Item 14. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings 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 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 Other Information 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 Part IV Item 15. Signatures Index to Exhibits Exhibits, Financial Statement Schedules Page 1 8 14 14 14 15 17 18 48 51 51 52 56 95 96 96 97 98 98 99 100 100 100 100 101 102 103 2010 Form 10-K Part I Item 1. Business General TCF Financial Corporation (“TCF” or the “Company”), a Delaware Corporation incorporated on April 28, 1987, is a national bank holding company based in Wayzata, Minnesota. Its principal subsidiary is TCF National Bank (“TCF Bank”), which is headquartered in Sioux Falls, South Dakota. TCF Bank operates bank branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota (TCF’s primary banking markets). TCF’s focus is on the delivery of retail and commercial banking products in markets served by TCF Bank, and commercial equipment loans and leases and inventory finance loans throughout the United States and Canada. At December 31, 2010, TCF had total assets of $18.5 billion and was the 35th largest publicly traded bank holding company in the United States based on total assets as of September 30, 2010. 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 unconsolidated basis. TCF’s core businesses include Retail Banking, Wholesale Banking and Treasury Services. Retail Banking includes branch banking and retail lending. Wholesale Banking includes commercial banking, leasing and equipment finance and inventory finance. TCF refers to its combined leasing and equipment finance and inventory finance businesses as Specialty Finance. Treasury Services includes the Company’s investment and borrowing portfolios and management of capital, debt and market risks, including interest-rate and liquidity risks. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Operating Segment Results” and Note 24 of Notes to Consolidated Financial Statements for information regarding TCF’s reportable operating segments. Retail Banking At December 31, 2010, TCF had 442 retail banking branches, consisting of 198 traditional branches, 234 supermarket branches and 10 campus branches. TCF operates 201 branches in Illinois, 111 in Minnesota, 55 in Michigan, 36 in Colorado, 26 in Wisconsin, 7 in Arizona, 5 in Indiana and 1 in South Dakota. • 1 • TCF makes consumer loans for personal, family or household purposes, such as home purchases, debt consoli- dation, financing of home improvements, automobiles, vacations and education. TCF’s retail lending origination activity primarily consists of consumer real estate secured lending. It also includes originating loans secured by personal property and, to a limited extent, unsecured personal loans. Consumer loans are made on a fixed-term basis or revolving line of credit. TCF does not have any subprime lending programs nor did it ever originate 2/28 adjustable-rate mortgages (ARM) or option ARM loans. Deposits from consumers and small businesses are a 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 from within TCF’s primary banking market areas through the offering of a broad selection of deposit instruments including consumer 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 certificate of deposit accounts. These accounts are a source of low-interest cost funds and provide significant fee income, including banking fees and service charges. 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 and four other colleges. These alliances include exclusive marketing, naming rights and other agreements. Branches have been opened on many of these college campuses. 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 5th largest in number of campus card banking relationships in the U.S. At December 31, 2010, there were $264.8 million in campus deposits. TCF has a 25-year naming rights agreement with the University of Minnesota to sponsor its on-campus football stadium called “TCF Bank Stadium®” which opened in 2009. • 2 • TCF Financial Corporation and Subsidiaries 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 the slowing of the economy and changing customer behavior. Providing a wide range of retail bank- ing services is an integral component of TCF’s business philosophy and a major strategy for generating additional non-interest income. TCF offers retail checking account customers inexpensive, convenient access to funds at local merchants and ATMs through its debit card programs. Costs associated with TCF’s debit card programs are offset by interchange fees charged to retailers and recorded as non- interest income. Key drivers of non-interest income are the number of deposit accounts and related transaction activ- ity. New regulations that became fully effective on August 15, 2010 require consumer checking account customers to elect if they want TCF to authorize debit card and ATM trans- actions if, at the time of authorization, there are insufficient funds in the account to cover the transaction (“opt-in”). TCF has had a process in place to discuss this service with new and existing consumer checking account customers since early 2010. Under the new regulation, any account that has not elected to opt-in is deemed by regulation to have declined the service. The opt-in election is revocable by customers at any time. Customers who have not elected to opt-in may see an increase in the number of denied trans- actions on their ATM or debit card transactions. These denied transactions may impact consumer payment behavior and reduce fees and service charges and card revenue. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Information – Other Risks Relating to Fee Income”. Card revenues are anticipated to be further impacted by the Durbin Amendment (the “Amendment”) to the Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act” or “Dodd-Frank Act”), which directs the Board of Governors of the Federal Reserve System to estab- lish rules by April 21, 2011, required to take effect by July 21, 2011, related to debit-card interchange fees. Federal Reserve is defined as Federal Reserve Board or Federal Reserve Bank. The proposed rule released by the Federal Reserve on December 16, 2010 precludes the recovery of costs other than those permitted by the Amendment, and the resulting reduction in TCF’s average interchange rate after July 21, 2011 could approach 85%. TCF Bank has filed a lawsuit against the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) challenging the constitutionality of the Amendment on the grounds that it violates TCF’s due process rights as it requires TCF to offer the debit card product below its cost, denies TCF equal protection under the law by exempting a large number of institutions with assets less than $10 billion and violates TCF’s rights under the takings clause of the Constitution of the United States by causing TCF to bear a substantial competitive and financial burden without just compensa- tion. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Income Statement and Analysis – Non-Interest Income” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Information” for additional information. TCF does not engage in loan sales to securitizers of asset-backed securities and as a result, is not subject to any representations, warranties or other enforcement mecha- nisms by investors in an asset-backed securities offering. Wholesale Banking Commercial Real Estate Lending Commercial real estate loans are loans originated by TCF that are secured by commercial real estate which includes retail centers, multi-family housing, office buildings and, to a lesser extent, commercial real estate construction loans, mainly to borrowers based in its primary banking markets. 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 and financial instruments. In very limited cases, loans may be originated 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 requirements of less than $25 million. Substantially all of TCF’s commercial business loans outstanding at December 31, 2010 were to borrowers based in its primary banking markets. Commercial Banking Small business and commercial deposits are attracted from within TCF’s primary banking market areas through the offering of a broad selection of deposit instruments including small business and commercial demand deposit accounts, interest-bearing checking accounts, money market accounts, regular savings accounts and certificates of deposit. 2010 Form 10-K • 3 • 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 with significant diversity in the types of underlying equipment. Winthrop Resources focuses on providing customized lease financing to meet the special needs of mid-size and large companies and health care facilities that procure high-tech equipment such as computers, servers, telecommunication and other technology equipment. During 2009, Winthrop Resources acquired all of the outstanding shares of Fidelity National Capital, Inc. (“FNCI”), which provided technology financing through leasing solutions similar to those provided by Winthrop, which broadened its market diversification. Inventory Finance TCF’s Inventory Finance business originates commercial variable-rate loans which are secured by the underlying floorplan equipment and supported by repurchase agreements from original equip- ment manufacturers, with a focus on consumer electronics, household appliances, lawn and garden products and power sports products. TCF Inventory Finance operates primarily in the U.S. with a presence in Canada. TCF Inventory Finance commenced lending operations in December of 2008. In 2009, TCF Inventory Finance formed a joint venture with The Toro Company (“Toro®”) called Red Iron Acceptance, LLC (“Red Iron”). Red Iron provides U.S. distributors and dealers and select Canadian distributors of the Toro and Exmark® brands with reliable, cost- effective sources of financing. TCF and Toro maintain a 55% and 45% ownership interest, respectively, in Red Iron. Treasury Services TCF Bank has authority to invest in various types of liquid assets, including United States Department of the Treasury (“U.S. 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 investments do not include commercial paper, asset-backed commercial paper, asset-backed secu- rities secured by credit cards or auto loans, trust preferred securities or preferred stock of Fannie Mae or Freddie Mac. TCF Bank also has not participated in structured investment vehicles and does not have any bank-owned life insurance. TCF Bank must also meet reserve requirements of the Federal Reserve, which are imposed based on amounts on deposit in various deposit categories. TCF’s reserve requirements are largely met through TCF’s vault cash levels. Sources of Funds Borrowings Borrowings may be used to compensate for reductions in deposit inflows or net deposit outflows, or to support expanded lending and leasing activities. These borrowings may include Federal Home Loan Bank (“FHLB”) advances, repurchase agreements, federal funds, advances from the Federal Reserve Discount Window 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 eligible 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 market value in excess of the amount borrowed are required to be deposited as collateral with the counterparty to a repurchase agreement. The creditworthiness of the counterparty is important in establishing the overcollater- alized amount of securities delivered by TCF is protected. TCF only enters into repurchase agreements with institutions having a satisfactory credit profile. Information concerning TCF’s FHLB advances, repurchase agreements, subordinated notes, junior subordinated notes (trust preferred securities) and other borrowings is set forth in “Item 7. Management’s Discussion and Analysis of • 4 • TCF Financial Corporation and Subsidiaries Financial Condition and Results of Operations — Consolidated Financial Condition Analysis — Borrowings” and in Notes 10 and 11 of Notes to Consolidated Financial Statements. Other Information Activities of Subsidiaries of TCF Financial Corporation TCF’s business operations include those conducted 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 Bank’s subsidiaries principally engage in Leasing and Equipment Finance and Inventory Finance activities. See “Item 1. Business — Wholesale Banking” for more information. 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 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 banks, mortgage bankers, mortgage brokers, consumer and commercial finance companies, credit unions, insurance companies and savings institutions. TCF also competes nationwide with other companies and banks in the financing of equipment and inventory. Expanded use of the Internet has increased competition affecting TCF and its loan, lease and deposit products. Employees As of December 31, 2010, TCF had 7,363 employees, including 2,385 part-time employees. TCF provides its employees with a comprehensive program of benefits, 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 regulatory oversight. TCF Financial, as a publicly held bank 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 restric- tions 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 and TCF Bank’s primary regulator is the OCC. Regulatory Capital Requirements TCF Financial and TCF Bank are subject to regulatory capital requirements of the Federal Reserve and the OCC, respectively, as described below. These regulatory agencies are required by law to take prompt action when institutions are viewed to be unsafe or unsound or 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 distributions, limitations on growth or restrictions on activities. Undercapitalized banks must develop a capital restoration plan and the parent bank holding company is required to guarantee compliance with the plan. TCF Financial and TCF Bank are “well-capitalized” under the FDICIA capital standards. The Federal Reserve 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 require- ments. 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, unanticipated losses or lower levels of earnings. Restrictions on Distributions TCF Financial’s ability to pay dividends is subject to limitations imposed by the Federal Reserve. In general, Federal Reserve regulatory guidelines call upon a bank holding company’s board of directors to take a number of factors into account when considering the payment of dividends, including the quality and level of current and future earnings. 2010 Form 10-K • 5 • 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 borrowings, or for its other cash needs. The ability of TCF Financial and TCF Bank to pay dividends is dependent on regulatory policies and regulatory capital requirements. Payment of dividends may be subject to regulatory approval. 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 preceding 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 exist- ing minimum regulatory capital requirements, including the U.S. regulatory rule-making relative to the implementation of the capital and liquidity standards under Basel III, the international regulatory framework for banks. The OCC also has the authority to prohibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice. In addition, income tax considerations 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 “Item 7. 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 Federal Reserve regulations, examinations and reporting requirements relating to bank holding companies. Subsidiaries of bank 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 Federal Reserve may require a holding company to contribute additional capital to an under-capitalized subsidiary bank. In addition, the OCC may assess TCF if it believes the capital of TCF Bank has become impaired. If TCF were to fail to pay such an assess- ment within three months, the Board of Directors must cause the sale of TCF Bank’s stock to cover a deficiency in the capital. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors. Under the Bank Holding Company Act (“BHCA”), Federal Reserve approval is required before acquiring more than 5% control, or substantially all of the assets, of another bank, or bank or bank holding company, or merging or consolidating with such a bank or holding company. The BHCA also generally prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, or conducting activities permitted by the Federal Reserve as being closely related to the business of banking. Further restrictions or limitations on acquisitions or establishing financial subsidiaries may also be imposed by TCF’s regulators or examiners. 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 contains features which may inhibit a change in control of TCF Financial. Acquisitions and Interstate Operations Under federal law, interstate merger transactions may be approved by federal bank regulators without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle-Neal Interstate Banking and Branching Act of 1994 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 • 6 • TCF Financial Corporation and Subsidiaries be subject to certain nationwide and statewide insured deposit maximum concentration levels or other limitations. Insurance of Accounts On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd- Frank Act that provides for unlimited insurance coverage of certain non-interest bearing accounts. Beginning December 31, 2010, through December 31, 2012, all non- interest bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC- insured institutions. The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution. The FDIC has set a designated reserve ratio of 1.35% ($1.35 for each $100 of insured deposits) for the Deposit Insurance Fund (“DIF”). The Federal Deposit Insurance Act of 2005 (“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 timeframe. The DIF reserve ratio calculated by the FDIC at September 30, 2010 was a negative .15% and therefore, the FDIC needs to increase premiums charged to banks. In 2010, the annual insurance premiums on bank deposits insured by the DIF varied between $.07 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $.78 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. On November 12, 2009, the FDIC adopted a final rule requiring depository institutions to prepay their estimated quarterly insurance premium for fourth quarter 2009 and all of 2010, 2011 and 2012. TCF Bank prepaid $77.6 million of such premium on December 30, 2009 and $50.5 million remained as a prepaid balance at December 31, 2010. The expense related to this prepayment is anticipated to be recognized over the next two years based on actual calculations of quarterly premiums. The Dodd-Frank Act requires changes to a number of components of the FDIC insurance assessment, with an implementation date of April 1, 2011. The changes amend the current methodology used to determine the assess- ments paid by institutions with assets greater than $10 billion, including changing the assessment base from deposits to total average assets less tier one capital. Additionally, the FDIC has developed a scorecard approach to determine a separate assessment rate for each institution with assets greater than $10 billion. As a result of these changes, TCF’s FDIC insurance expense is expected to increase by approximately $15 million in 2011. In addition to risk-based deposit insurance premiums, 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 2010 ranged from $.0102 to $.0104 for each $100 of deposits. Financing Corporation assessments of $1.2 million, $1.2 million and $1.1 million were paid by TCF Bank for 2010, 2009 and 2008, respectively. Under federal law, deposits and certain claims for administrative expenses and employee compensation against an insured depository institution are afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the liquidation or other resolution of such an institution by any receiver appointed by regulatory authorities. Such priority creditors would include the FDIC. Examinations and Regulatory Sanctions TCF is subject to periodic examination by the Federal Reserve, OCC and the FDIC. Bank regulatory authorities may impose a number of restrictions or new requirements on institu- tions, including, but not limited to, growth limitations, dividend restrictions, individual increased regulatory capital requirements, increased loan, lease and real estate loss reserve requirements, increased supervisory assess- ments, activity limitations or other restrictions that could have an adverse effect on such institutions, their holding companies or holders of their debt and equity securities. Certain enforcement actions may not be publicly disclosed by TCF or its regulatory authorities. Various enforcement remedies, 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 (“BSA”), the OCC is obligated to take enforcement action where it finds a statutory or regulatory violation that would constitute a program violation. In its 2009 examinations of TCF’s compliance with the BSA, the OCC identified instances of non-compliance that constitute a program violation. On July 20, 2010, TCF National Bank agreed to the issuance of a 2010 Form 10-K • 7 • Consent Order (the “Order”) by the OCC, the Bank’s primary banking regulator, addressing certain matters related to the BSA. The Order requires the Bank to address deficiencies in the Bank’s BSA program identified by the OCC, including review and revision of the Bank’s BSA risk assessment, BSA Compliance Program, and Suspicious Activity Report filing procedures and processes. The OCC did not identify any systemic undetected criminal activity or money laundering. The Bank is also required to address performing appropri- ate due diligence when an account is opened, and to review transactions since November 2008 for compliance. The Bank is implementing or has implemented corrective action for each deficiency and expects to satisfy all of the requirements of the Order in a timely fashion. The Order does not call for the payment of a civil money penalty. Material failure to comply with the Order could result in enforcement actions 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 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 subject a bank to additional regulatory limitations or requirements, including a required regulatory capital deduction and application of transactions with affiliates limitations in connection with such activities. Dodd-Frank Wall Street Reform and Consumer Protection Act The Act was signed into law on July 21, 2010. Generally, the Act is effective the day after it was signed into law, but different effective dates apply to specific provisions of the Act. Uncertainty remains as to the ultimate impact of the Act, which 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. The Act, among other things: • Directs the Federal Reserve to issue rules which are expected to limit debit-card interchange fees (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Income Statement Analysis – Non-Interest Income – Card Revenue”); • After a three-year phase-in period which begins January 1, 2013, removes trust preferred securities as a permitted component of a holding company’s tier 1 capital; • Provides for an increase in the FDIC assessment for depository institutions with assets of $10 billion or more, increases in the minimum reserve ratio for the deposit insurance fund from 1.15% to 1.35% and changes in the basis for determining FDIC premiums from deposits to assets; • Creates a new consumer financial protection bureau that will have rulemaking authority for a wide range of consumer protection laws that would apply to all banks and have broad powers to supervise and enforce consumer protection laws; • Provides for new disclosure and other requirements relating to executive compensation and corporate governance; • Changes standards for Federal preemption of state laws related to federally chartered institutions and their subsidiaries; • Provides for mortgage reform addressing a customer’s ability to repay, restricts variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and makes more loans subject to require- ments for higher-cost loans, new disclosures, and certain other restrictions; • Creates a financial stability oversight council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity; • Permanently increases the deposit insurance coverage to $250 thousand and allows depository institutions to pay interest on business checking accounts starting July 2011; and • Requires publicly-traded bank holding companies with assets of $10 billion or more to establish a risk committee of the Board of Directors responsible for enterprise-wide risk management practices. Taxation Federal Taxation The statute of limitations on TCF’s con- solidated federal income tax return is closed through 2006. • 8 • TCF Financial Corporation and Subsidiaries 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, Arizona and South Dakota. The methods of filing, and the methods for calculating taxable and apportionable income, vary depending upon the laws of the taxing jurisdiction. See “Risk Factors”. See “Item 7. 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, ir.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 as soon as reasonably practicable after electronic filing or furnishing of such material to the SEC. TCF’s Compensation/Nominating/Corporate Governance Committee and Audit Committee charters, Corporate Governance Guidelines, Codes of Ethics and changes to Codes of Ethics and information on all TCF’s securities are also available on this website. Stockholders may request these documents in print free of charge 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 the associated risks. 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, foreign currency 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. TCF appointed a dedicated Chief Risk Officer (“CRO”) in 2010 to further enhance its enterprise risk management governance process. The CRO is a senior executive, report- ing directly to both the Company’s Chief Executive Officer and Audit Committee Chairman. The CRO has primary responsibility for enterprise wide risk management and Integrated Risk Control Services (formerly referred to as Internal Audit) department across all lines of business at TCF. Additionally, the heads of the various business lines within the company are responsible for identifying the most significant risks in their respective areas. Risk officers are assigned to key business units. The risk officers, while reporting directly to their respective line of business, facilitate implementation of the enterprise risk manage- ment and governance process. Each business line within the Company maintains policies, systems and procedures which are intended to identify, assess, control, monitor, and manage risk within each area. Management continually reviews the adequacy and effectiveness of these policies, systems and procedures. An Enterprise Risk Management Committee consisting of senior executives within the Company supports the CRO. 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, Concentration Credit Risk Management Committee, Asset/ Liability Management Committee (“ALCO”), Investment Committee, Capital Planning Committee and various financial reporting and compliance-related committees. Overlapping membership of these committees helps provide a unified view of risk on an enterprise-wide basis. The Board of Directors, through its Audit Committee, has overall responsibility for oversight of the Company’s enterprise risk management governance process. 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 and counterparties to meet their contractual obligations, and contingent exposures from unfunded loan commitments and letters of credit. Credit risk also includes failure of a 2010 Form 10-K • 9 • 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. TCF has a Concentration Credit Risk Management Committee that meets regularly and is responsible for monitoring the loan and lease portfolio composition and risk tolerance within the various segments of the portfolio. The Concentration Credit Risk Management Committee and the Board of Directors have adopted a Concentration Policy to direct management of the Company’s concentration risk. To manage credit risk arising from lending and leasing activities, management has adopted and maintains underwriting policies and procedures, and periodically reviews the appropriateness of these policies and procedures. Customers and guarantors or recourse providers are evaluated as part of the initial underwriting processes and through periodic reviews. For consumer 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 established 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 established so that larger credit exposures receive managerial review at the appropriate level through various credit committees. Management continuously monitors asset quality in order to manage the Company’s credit risk and to 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 and operational condition which may impact repayment. Asset quality is monitored separately based on the type or cat- egory 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. If the weak economic conditions continue to prevail throughout 2011 and beyond, credit risk will continue to be elevated. A weakening economy, increasing unemployment or further deterioration of housing markets could result in increased credit losses. The Company manages securities transaction risk by monitoring all unsettled transactions. All counterparties and transaction limits are reviewed and approved annually by both ALCO and the Company’s senior credit committee. To further manage credit risk in the securities portfolio, over 99% of the securities held in the securities available for sale portfolio are issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. 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, foreign currency risk and price risk. Interest-rate risk and 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 pri- mary goal of interest-rate risk management is to control expo- sure to changes in market interest-rates 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 characteristics of assets and liabilities, changes in the shape of the yield curve, changes in customer behavior and changes in relationships between rate indices (basis risk). Management measures these risks and their impact in various ways, including use of simulation analyses and valuation analyses. Simulation analyses are used to model net interest income from asset and liability positions over a specified time period (generally one and two years), 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 behavior in various interest rate scenarios. The simulation analyses are based on various key assump- tions 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 analyses do not necessarily take into account all actions management may undertake in response to anticipated changes in interest rates. • 10 • TCF Financial Corporation and Subsidiaries In addition to valuation analyses, 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, 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 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. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for further information about TCF’s interest- rate risk, gap analysis and simulation analyses. Management also uses valuation analyses to measure risk in the balance sheet that might not be taken into account in the net interest income simulation analyses. Net interest income simulation highlights exposure over a relatively short time period (12 or 24 months), and valua- tion analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance 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 simulation 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 and does not take into account actions management may undertake in response to antici- pated 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 earnings or capital arising from the Company’s inability to meet its obligations when they come due without incurring unacceptable losses. ALCO and the Board of Directors have adopted a Liquidity Management Policy to direct management of the Company’s liquidity risk. The objective of the liquidity management policy is to ensure that TCF meets its cash and collateral obligations promptly, in a cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and liability liquidity will provide TCF with the ability to meet both expected and unexpected cash flows and collateral needs. Key liquidity ratios, level of asset liquidity, and the amount available from available funding sources are reported to ALCO on a monthly basis. At year end, TCF’s Liquidity Management Policy and current operating practices established a minimum on-balance sheet asset liquidity target of $350 million, a maximum unsecured short-term daily borrowing limit of $225 million, and collateral pledged at the Federal Reserve Discount Window having a borrowing capacity of $500 million. TCF’s asset liquidity may be held in the form of on-balance sheet cash invested with the Federal Reserve or the use of overnight Federal Funds Sold to highly rated counterparties or short-term U.S. Treasury Bills or Notes. Other asset liquidity can be provided by unpledged, AAA rated securities which could be sold or pledged to various counterparties under established TCF lines. At December 31, 2010, TCF had asset liquidity of $507 million. Deposits are TCF’s primary source of funding. In addition, TCF maintains secured sources of funding, which include $1.7 billion in secured borrowing capacity at the FHLB of Des Moines and $529 million of secured borrowing capacity at the Federal Reserve Discount Window. TCF’s secured borrowing capacity with the FHLB is dependent upon the maintenance by TCF of a Borrowing Base Certificate which pledges consumer and commercial real estate loans to the FHLB under a blanket lien. In addition, the FHLB relies upon its own internal credit analysis of TCF’s financial results when determining TCF’s secured borrowing capacity. Should the FHLB lower its internal issuer credit rating on TCF, TCF’s secured borrowing capacity could be reduced, TCF could be required to change collateral from a blanket lien to physically delivering loan files which would be held at the FHLB, or both. Additionally, diminished borrowing capacity could result from TCF credit rating downgrades and unfavorable conditions in the credit markets that restrict or limit various funding sources. TCF has developed and maintains a contingency funding plan should certain liquidity needs arise. Other Market Risks The Company is also exposed to foreign currency risk as changes in foreign exchange rates may impact the Company’s investment in TCF Commercial Finance Canada, Inc. (“TCFCFC”) or results of other transactions in countries outside of the United States. During 2010, TCF entered into forward foreign exchange contracts in order to minimize the risk of changes in foreign exchange rates on its investment in and loans to TCFCFC and on certain other foreign lease transactions. The value of 2010 Form 10-K • 11 • forward foreign exchange contracts vary over their contrac- tual lives as the related currency exchange rates fluctuate. TCF may also experience realized and unrealized gains or losses on forward foreign exchange contracts as a result of changes in foreign exchange rates. The investments in FHLB stock are required investments related to TCF’s borrowings from these banks. FHLBs obtain their funding primarily through issuance of consolidated obligations of the FHLB 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. The FHLB system has experienced finan- cial stress in recent years, and some of the regional banks within the FHLB system have suspended or reduced their dividends, or eliminated the ability of members to redeem capital stock. The ultimate impact of these developments on the FHLB system or its programs for advances to members is not clear. TCF’s investments in the FHLB and ability to obtain FHLB funds could be adversely impacted if the financial health of the FHLB system worsens. Operational Risk Management Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, incorrect or inadequate execution, 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 internal 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, regulations, prescribed practices, or ethical standards. The Company’s Integrated Risk Control Services department periodically assesses the adequacy and effectiveness of the Company’s processes for controlling and managing risks in all core areas of operations. This includes determining whether internal controls and information systems are properly designed and adequately tested and reviewed. This also 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 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 management and the Audit Committee. In July 2010, TCF National Bank entered into a consent order with the OCC directing the Bank to address certain deficiencies relating to the BSA. See “Item 1. Business – Regulation – Examinations and Regulatory Sanctions”. Other Risks Declines in Real Estate Values Declines in home and real estate values in TCF’s markets have adversely impacted results of operations. Like all banks, TCF is subject to the effects of any economic downturn, and in particular, a continued decline in real estate values in TCF’s markets could have a further negative effect on results of opera- tions. A significant further decline in home values would likely lead to an additional decrease in new consumer real estate loan originations, increased delinquencies, defaults, non-accrual and accruing modified loans, as well as increased losses in this portfolio. A significant further decline in commer- cial real estate values would likely lead to an additional reduction of TCF’s secured interest levels and potentially increase accruing modified loans or non-accrual loans. Economic Conditions In addition to the declines in home values, the weak economy has also adversely impacted TCF’s results of operations. Continued weakness of the economy coupled with high unemployment and decreased consumer spending could have a further negative effect on results of TCF’s operations through higher credit losses, lower transaction-related revenues and lower average deposit balances. Soundness of Other Financial Institutions Financial services institutions are interrelated as a result of trad- ing, clearing, counterparty or other relationships. TCF has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and • 12 • TCF Financial Corporation and Subsidiaries dealers, commercial banks, investment banks, and other institutional clients. Many of these transactions expose TCF to credit risk in the event of default of a counterparty or client. In addition, TCF’s credit risk may be exacerbated when collateral held cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due. Any such losses could have a material and adverse effect on TCF’s financial condition and results of operations. 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 or adverse customer reaction to changes in TCF’s products, in response to new regulations, could result in higher numbers of closed accounts and increased account acquisition costs. New Products In 2010, TCF introduced a new anchor retail deposit account product that replaced TCF Totally Free Checking, and that calls for a monthly maintenance fee on accounts not meeting certain requirements. After gauging the impact and response from customers and competition, TCF amended the fee waiver criteria in early 2011 to be more customer-friendly and to generate and retain accounts. TCF also implemented new regulatory requirements that prohibit financial institutions from charging NSF fees on point-of- sale and ATM transactions unless customers opt-in. The opt-in election is revocable by customers at any time. In 2011, TCF is considering retail checking account changes that include charging a daily negative balance fee in lieu of a per item NSF fee. This is a unique product that TCF hopes will simplify this process for customers by eliminating fees for each item presented and assessing a single fee for each day an account is overdrawn. TCF continually seeks to react to changes in competitive conditions and customer behav- ior, but uncertainties relating to customer acceptance of new products and competitive conditions could adversely impact TCF’s new account origination activity and fee income. Card Revenue Future card revenues may be impacted by class action litigation against Visa USA Inc. (Visa USA) and MasterCard®. Under Visa USA’s Bylaws, TCF has a contingent obligation to indemnify Visa USA for certain litigation unrelated to TCF. See page 28 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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. Card revenues are anticipated to be further impacted by the Durbin Amendment to the Dodd-Frank Act, which directs the Federal Reserve to establish rules by April 21, 2011, required to take effect by July 21, 2011, related to debit-card interchange fees which preclude the recovery of costs other than those permitted by the Amendment. The Federal Reserve issued proposed regulations implementing the Durbin Amendment in December 2010. If the proposed regulations are adopted, the reduction in TCF’s average interchange rate after July 21, 2011 could approach 85%. TCF has filed a lawsuit against the Federal Reserve and OCC challenging the constitutionality of the Amendment on the grounds that it violates TCF’s due process rights as it requires TCF to offer the debit card product below cost and thus not earn a full return on invested capital, denies TCF equal protection under the law by exempting institutions with assets less than $10 billion and violates TCF’s rights under the takings clause of the Constitution of the United States by caus- ing TCF to bear a substantial competitive and financial burden without just compensation. Supermarket Branches The success of TCF’s supermarket branches 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. A significant financial decline of one of our supermarket partners could result in the loss of supermarket branches or increase costs to operate the supermarket branches. At December 31, 2010, TCF had 234 supermarket branches. Supermarket banking continues to play an important 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, or financial or labor difficulties in the supermarket industry, may reduce activ- ity in TCF’s supermarket branches. 2010 Form 10-K • 13 • 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 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 previously 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. TCF seeks to mitigate its overall exposure to lessor’s liability risk by requiring certain lessees to furnish evidence of liability insurance prior to lease inception and to maintain that insurance throughout the term of the lease and through its own insurance programs. Inventory Finance TCF has strategic and execution risk associated with expanding the inventory finance business as the ability to attract and retain manufacturers and dealers may not achieve expectations. The core operating risks of this business, except for foreign currency risk, are similar to other existing TCF businesses, but also include the risk that inventory could be sold without the dealer remitting payment to TCF as required. FDIC Insurance The FDIC is authorized to terminate a depository institution’s deposit insurance if it finds that the institution is being operated in an unsafe and unsound manner or has violated any rule, regulation, order or condition administered by the institution’s regulatory authorities. Any such termination of deposit insurance 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. Income Taxes TCF is subject to income tax laws which are often complex and require interpretation. Changes in income tax laws could negatively impact TCF’s results of operations. If TCF’s Real Estate Investment Trust (“REIT”) affiliate fails to qualify as a REIT, or should states enact legislation taxing REITs or related entities, TCF’s tax expense would increase. 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. Additional unfavorable tax law changes or unfavorable audit results could increase TCF’s income taxes. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Income Statement Analysis — Income Taxes” and Note 12 of Notes to Consolidated Financial Statements for additional information. Rules and Regulations Uncertainty remains as to the ultimate impact of the Dodd-Frank Act, which was signed into law on July 21, 2010. Significant regulatory and legal consequences may arise as provisions of the Act are interpreted and implemented by designated regulatory agencies. Along with the Act, new or revised tax, accounting, and other laws, regulations, rules and standards could significantly 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 stockholders. 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 “Item 1. Business – Regulation”. These regula- tions, 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, regulations, 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 financial 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 rulings, could adversely affect TCF, and it is generally not possible 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. Financial institutions have also increasingly been the subject of class action lawsuits or in some cases regulatory actions challenging a variety of practices involving • 14 • TCF Financial Corporation and Subsidiaries consumer lending and retail deposit-taking activity. Increased litigation brought on the basis of state law, including litigation brought by state attorneys general, or enforcement actions by the new Consumer Financial Protection Bureau, are possible as a result of the enactment of the Act. See Business — Regulation — Dodd-Frank Wall Street Reform and Consumer Protection Act. The Community Reinvestment Act (“CRA”) and fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A suc- cessful challenge 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 dam- ages 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. 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’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish proce- dures for identifying and verifying the identity of customers seeking to open new accounts. Failure to comply with these regulations could result in sanctions and possibly fines. In recent years, several banking institutions have received sanctions and some have incurred large fines for non-compliance with these laws and regulations. Disruption to Infrastructure The extended disruption of vital infrastructure could negatively impact TCF’s business, results of operations, and financial condition. TCF’s opera- tions depend upon, among other things, its technological 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 mate- rial 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 financial statements conform with generally accepted accounting principles, which require management to make estimates and assumptions that affect amounts reported in the consolidated 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 “Item 7. 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, 2010, TCF owned the buildings and land for 144 of its bank branch offices, owned the buildings but leased the land for 25 of its bank branch offices and leased or licensed the remaining 273 bank branch offices, all of which are functional and appropriately maintained. Bank branch properties owned by TCF had an aggregate net book value of approximately $282.7 million at December 31, 2010. At December 31, 2010, the aggregate net book value of leasehold improvements associated with leased bank branch office facilities was $26 million. In addition to the branch offices, TCF owned and leased other facilities with an aggregate net book value of $46.2 million at December 31, 2010. For more information on premises and equipment, see Note 7 of Notes to Consolidated Financial Statements. Item 3. Legal Proceedings In August 2010, TCF was named in a putative class action challenging TCF’s checking account posting practices. The plaintiffs seek damages and other relief, including restitution. TCF’s account agreement with the customer contains an arbitration provision under which the named plaintiffs agreed to arbitrate disputes such as this in an individual arbitration, as opposed to class action. On November 24, 2010, the United States District Court of Minnesota granted TCF’s motion to compel individual arbitration of all claims by plaintiffs and stayed further proceedings in the legal action. TCF believes its arbitration provision is valid and enforceable and that in 2010 Form 10-K • 15 • any event it has meritorious defenses to the claims brought by the plaintiffs. At this stage of the litigation, it is not possible for management of TCF to determine the probability of a material adverse outcome or reasonably estimate the amount of any potential loss. From time to time, TCF is also a party to other 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 collections activities. TCF may also be subject to enforcement action by federal regulators, including the Securities and Exchange Commission, the Federal Reserve and the OCC. 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 is subject to such actions brought against it from time to time. Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty, and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established with confidence. Based on our current understanding of these pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of TCF. 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. As of January 31, 2011, there were 7,299 holders of record of TCF’s common stock. 2010 Fourth Quarter Third Quarter Second Quarter First Quarter 2009 Fourth Quarter Third Quarter Second Quarter First Quarter High Dividends Low Declared $16.63 17.66 18.89 16.83 $14.72 15.83 16.67 14.31 $12.90 13.87 14.95 13.40 $11.36 12.71 11.37 8.74 $.05 .05 .05 .05 $.05 .05 .05 .25 The Board of Directors of TCF Financial and TCF Bank have adopted a Capital Plan and Dividend Policy. The policies define how enterprise risk related to capital will be managed, how the adequacy of capital will be measured and the process by which capital strategy, capital manage- ment and common stock dividend recommendations will be presented to TCF’s Board of Directors. TCF’s management is charged with ensuring that capital strategy actions, including the declaration of common stock dividends, are prudent, efficient and provide value to TCF’s shareholders, while ensuring that past and prospective earnings retention is consistent with TCF’s capital needs, asset quality and overall financial condition. 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, level of internally generated common capital excluding 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 factors 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 diminished earnings of TCF may limit the ability of TCF Financial to pay dividends in the future to holders of its common stock. In addition, the ability of TCF Financial and TCF Bank to pay dividends is dependent on regulatory policies and capital requirements and may be subject to regulatory approval. See “Item 1. Business — Regulation — Regulatory Capital Requirements”, “Item 1. Business — Regulation — Restrictions on Distributions” and Note 14 of Notes to Consolidated Financial Statements. • 16 • TCF Financial Corporation and Subsidiaries 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, 2005 and reinvestment of all dividends). TCF Stock Performance Chart Total Return Performance TCF Financial Corporation SNL Bank and Thrift Index(1) S&P 500 Index TCF 2010 Peer Group (2) $140 120 100 80 60 40 e u l a V x e d n I 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 Index TCF Financial Corporation SNL Bank and Thrift (1) S&P 500 Index TCF 2010 Peer Group (2) 12/31/05 100.00 100.00 100.00 100.00 Period Ending 12/31/06 104.67 116.85 115.79 109.80 12/31/07 71.14 89.10 122.16 86.03 12/31/08 57.60 51.24 76.96 70.45 12/31/09 59.13 50.55 97.33 61.42 12/31/10 65.13 56.44 111.99 71.52 (1) Includes all major exchange (NYSE, NYSE Amex, NASDAQ) banks and thrifts in SNL’s converage universe (503 companies as of December 31, 2010). (2) Consists of the 30 publicly-traded banks and thrifts, 15 of which are immediately larger than and 15 of which are immediately smaller than TCF Financial Corporation in total assets as of September 30, 2010. The 2010 Peer Group includes: Marshall & Ilsley Corporation; Zions Bancorporation; New York Community Bancorp, Inc.; Popular, Inc.; Synovus Financial Corporation; First Horizon National Corporation; BOK Financial Corporation; Associated Banc-Corp; People’s United Financial, Inc.; City National Corporation; First Citizens BancShares, Inc.; First Niagara Financial Group, Inc.; East West Bancorp, Inc.; Astoria Financial Corporation; Commerce Bancshares, Inc.; Webster Financial Corporation; Cullen/Frost Bankers, Inc.; First BanCorp.; Fulton Financial Corporation; SVB Financial Group; FirstMerit Corporation; Wintrust Financial Corporation; Valley National Bancorp; Susquehanna Bancshares, Inc.; Flagstar Bancorp, Inc.; BancorpSouth, Inc.; Washington Federal, Inc.; Bank of Hawaii Corporation; PrivateBancorp, Inc.; and International Bancshares Corporation. Five of the companies which were in the 2009 Peer Group are not in the 2010 Peer Group due to the failure of the company or changes in asset size. Those five companies are: Huntington Bancshares, Inc.; CapitalSource, Inc.; MB Financial, Inc.; W Holding Company, Inc.; and South Financial Group, Inc. Source: SNL Financial LC and Standard & Poor’s © 2011 The following table summarizes share repurchase activity for the quarter ended December 31, 2010. Period October 1 to October 31, 2010 Share repurchase program (1) Employee transactions (2) November 1 to November 30, 2010 Share repurchase program (1) Employee transactions (2) December 1 to December 31, 2010 Share repurchase program (1) Employee transactions (2) Total Share repurchase program (1) Employee transactions (2) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that May Yet be Purchased Under the Plan – 3,332 – – – – – 3,332 $ – $16.37 $ – $ – $ – $ – $ – $16.37 5,384,130 N.A. 5,384,130 N.A. 5,384,130 N.A. – N.A. – N.A. – N.A. – N.A. N.A. Not Applicable. (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) 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. 2010 Form 10-K • 17 • 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: Year Ended December 31, (Dollars in thousands, except per-share data) Total revenue Net interest income Provision for credit losses Fees and other revenue Gains on securities, net Visa share redemption Gains on sales of branches 2010 $ 1,237,187 $ 699,202 236,437 508,862 29,123 – 2009 $1,158,861 $ 633,006 258,536 496,468 29,387 – 2008 $1,092,108 $ 593,673 192,045 474,061 16,066 8,308 2007 $1,091,634 $ 550,177 56,992 490,285 13,278 – 2006 $1,026,994 $ 537,530 20,689 485,276 – – and real estate Non-interest expense Income before income tax expense Income tax expense Income after income tax expense Income (loss) attributable to non-controlling interest Net income Preferred stock dividends Net income available to common stockholders Per common share: Basic earnings Diluted earnings Dividends declared Consolidated Financial Condition: – 763,124 237,626 87,765 149,861 3,297 146,564 – – 767,784 132,541 45,854 86,687 (410) 87,097 18,403 – 694,403 205,660 76,702 128,958 – 128,958 2,540 37,894 662,124 372,518 105,710 266,808 – 266,808 – 4,188 649,197 357,108 112,165 244,943 – 244,943 – $ 146,564 $ 68,694 $ 126,418 $ 266,808 $ 244,943 113.4 $ 1.05 $ 1.05 $ .20 $ .54 $ .54 $ .40 $ 1.01 $ 1.01 $ 1.00 $ 2.09 $ 2.09 $ .97 $ 1.90 $ 1.90 $ .92 94.4 94.4 (50.0) (Dollars in thousands, except per-share data) Loans and leases Securities available for sale Total assets Checking, savings and money market deposits Certificates of deposit Total deposits Borrowings Equity Book value per common share Key Ratios and Other Data: 2009 2010 2006 $14,788,304 $14,590,744 $13,345,889 $12,494,370 $11,478,255 1,816,126 14,669,734 1,931,174 18,465,025 1,963,681 15,977,054 1,966,104 16,740,357 1,910,476 17,885,175 2007 2008 10,556,788 1,028,327 11,585,115 4,985,611 1,471,663 7,285,615 2,483,635 9,769,250 3,588,540 1,033,374 $ 10.30 $ 9.10 $ 8.99 $ 8.68 $ 7.92 10,380,814 1,187,505 11,568,319 4,755,499 1,175,362 7,647,069 2,596,283 10,243,352 4,660,774 1,493,776 7,322,014 2,254,535 9,576,549 4,973,448 1,099,012 Return on average assets Return on average common equity Net interest margin(1) Net charge-offs as a percentage of average loans and leases Average total equity to average assets Number of bank branches (1) Net interest income divided by average interest-earning assets. N.M. Not Meaningful. 2010 .82% 10.36 4.14 1.47 7.83 442 At or For the Year Ended December 31, 2008 2009 .49% 5.95 3.87 1.34 7.20 443 .79% 11.46 3.91 .78 7.04 448 Compound Annual Growth Rate 1-Year 2010/2009 5-Year 2010/2005 6.8% 10.5 (8.5) 2.5 (.9) – – – (.6) 79.3 91.4 72.9 N.M. 68.3 (100.0) – 1.4% 1.1 3.2 1.7 (13.4) .1 4.8 25.2 13.2 2007 1.76% 25.82 3.94 .29 6.82 453 4.4% 6.2 94.1 2.3 22.2 (100.0) 4.7 (9.0) (5.3) (10.8) N.M. (11.2) (11.2) (12.1) (12.1) (25.1) 7.2% 3.2 6.6 7.9 (11.7) 4.9 10.8 8.1 6.7 2006 1.74% 24.37 4.16 .16 7.15 453 At December 31, Compound Annual Growth Rate 1-Year 2010/2009 5-Year 2010/2005 • 18 • TCF Financial Corporation and Subsidiaries 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 Other Real Estate Owned and Repossessed and Returned Equipment Liquidity Management Deposits 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 18 20 20 20 20 20 24 24 26 28 29 29 29 39 40 42 42 42 43 43 45 46 46 47 47 Management’s discussion and analysis of the consolidated financial condition and results of operations of TCF Financial Corporation should be read in conjunction with the consolidated financial statements in Item 8 and selected financial data in Item 6. Overview TCF Financial Corporation, a Delaware corporation, is a national bank holding company based in Wayzata, Minnesota. Its principal subsidiary, TCF National Bank, is headquartered in South Dakota. TCF had 442 branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota (TCF’s primary banking markets) at December 31, 2010. 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, including branches that are open seven days a week and on most holidays, extensive full-service supermarket branches, automated teller machine (“ATM”) networks and internet, mobile and telephone banking. TCF’s philoso- phy 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 the development of new products and services, new branch expansion and acquisitions. New products and services are designed to build on existing businesses and expand into complemen- tary products and services through strategic initiatives. TCF’s core businesses include Retail Banking, Wholesale Banking and Treasury Services. Retail Banking includes branch banking and retail lending. Wholesale Banking includes commercial banking, leasing and equipment finance and inventory finance. TCF refers to its combined leasing and equipment finance and inventory finance businesses as Specialty Finance. Treasury Services includes the Company’s investment and borrowing portfolios and management of capital, debt and market risks, including interest-rate and liquidity risks. TCF’s lending strategy is to originate high credit quality and primarily secured loans and leases. TCF’s retail lending operation offers fixed- and variable-rate loans and lines of credit secured by residential real estate properties. Commercial loans are generally made on properties or to customers located within TCF’s primary banking markets. 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 and equipment finance businesses have equipment installations in all 50 states and, to a limited extent, in foreign countries. In December 2008, TCF Inventory Finance commenced lending operations to originate commercial variable-rate loans which are secured by equipment under a floorplan arrangement and supported by repurchase agreements from original equipment manufacturers to businesses in the United States and Canada. 2010 Form 10-K • 19 • 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 56.5% of TCF’s total revenue in 2010. 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 Management Committee and through related interest-rate risk monitoring and management policies. See “Item 1A. Risk Factors” and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” for further discussion. 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 challenging as a result of the slowing of the economy, changing customer behavior and the impact of the imple- mentation of new regulation. 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. Key drivers of non-interest income are the number of deposit accounts and related transaction activity. New regulations that became fully effective on August 15, 2010 require consumer checking account customers to elect if they want TCF to authorize debit card and ATM transactions if, at the time of authorization, there are insufficient funds in the account to cover the transaction (“opt-in”). TCF has had a process in place to discuss this service with new and existing consumer checking account customers since early 2010. Under the new regulations, any account that has not elected to opt-in is deemed by regulation to have declined the service. The opt-in election is revocable by customers at any time. Customers who have not elected to opt-in may see an increase in the number of denied transactions on their debit card or ATM transac- tions. These denied transactions may impact consumer payment behavior and reduce fees and service charges and card revenue. In response to these new regulations, TCF introduced a new anchor checking account product that replaced the TCF Totally Free Checking product. The new product car- ries a monthly maintenance fee on accounts not meeting certain specific requirements. TCF is considering future retail deposit account changes that could include charging a daily negative balance fee in lieu of per item NSF fees or other significant charges. The impact of such changes on TCF’s fee revenues is uncertain. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Income Statement Analysis — Non-Interest Income” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Information” for addi- tional information. The Company’s Visa debit card program has grown significantly since its inception in 1996. TCF is the 11th largest issuer of Visa Classic debit cards in the United States, based on sales volume for the three months ended September 30, 2010, as published by Visa. TCF earns interchange revenue from customer card transactions paid primarily by merchants, not TCF’s customers. Card products represent 25.3% of banking fee revenue for the year ended December 31, 2010. Visa has significant litigation against it regarding interchange pricing and there is a risk this revenue could be impacted by any settlement or adverse rulings in such litigation. Card revenues are anticipated to be impacted by the Durbin Amendment to the Dodd-Frank Act, which directs the Federal Reserve to establish rules by April 21, 2011, required to take effect by July 21, 2011, related to debit-card interchange fees which preclude the recovery of costs other than those permitted by the Amendment. The Federal Reserve issued proposed regulations implementing the Durbin Amendment in December 2010. If the proposed regulations are adopted, the reduction in TCF’s average interchange rate after July 21, 2011 could approach 85%. TCF has filed a lawsuit against the Federal Reserve and OCC challenging the constitutionality of the Durbin Amendment on the grounds that it violates TCF’s due process rights as it requires TCF to offer the debit card product below cost and thus not earn a full return on invested capital, denies TCF equal protection under the law by exempting institutions with assets less than $10 billion and violates TCF’s rights under the takings clause of the Constitution of the United States by causing TCF to bear a substantial competitive and financial burden without just compensation. See “Item 1A. Risk Factors — Other Risks — Card Revenue” for further discussion. The following portions of Management’s Discussion and Analysis of Financial Condition and Results of Operations focus in more detail on the results of operations for 2010, 2009 and 2008 and on information about TCF’s balance sheet, loan and lease portfolio, liquidity, funding resources, capital and other matters. • 20 • TCF Financial Corporation and Subsidiaries Results of Operations Performance Summary TCF reported diluted earnings per common share of $1.05 for 2010, compared with $.54 for 2009 and $1.01 for 2008. Net income was $146.6 million for 2010, compared with $87.1 million for 2009 and $129 million for 2008. Net income for 2009 includes a non-cash deemed preferred stock dividend of $12 million, or 10 cents per common share. Return on average assets was .82% in 2010, compared with .49% in 2009 and .79% in 2008. Return on average common equity was 10.36% in 2010, compared with 5.95% in 2009 and 11.46% in 2008. The effective income tax rate for 2010 was 36.9%, compared with 34.6% in 2009 and 37.3% in 2008. Operating Segment Results RETAIL BANKING — Consisting of branch banking and retail lending, reported net income of $93 million for 2010, up from $26.6 million in 2009 as a result of lower costs of deposits in branch banking and lower operating expenses. Retail Banking net interest income for 2010 was $443 million, up 9.9% from $403.2 million for 2009. The Retail Banking provision for credit losses totaled $140.6 million in 2010, down 21% from $178 million in 2009. This decrease was primarily due to decreased levels of provision in excess of net charge-offs in the consumer real estate portfolio. Refer to the “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Income Statement Analysis — Provision for Credit Losses” section for further discussion. Retail Banking non-interest income totaled $409.6 million in 2010, compared with $418 million in 2009. Fees and service charges were $267.5 million for 2010, down 5.2% from $282.3 million in 2009, primarily due to changes in customer banking and spending behavior resulting in less fee income and to a lesser extent, the implementation of “opt-in” regulations. Card revenues were $111 million for 2010, up 6% from $104.7 million in 2009. The increase in card revenues was primarily attributable to an increase in spending per active account. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Income Statement Analysis – Non-Interest Income” for further discussion. Retail Banking non-interest expense totaled $562.8 million in 2010, down 6% from $599 million in 2009. The decrease was primarily due to decreased compensation and employee benefit expense due to headcount reductions, decreased deposit account premiums and the 2009 FDIC special assessment. WHOLESALE BANKING — Consisting of commercial bank- ing, leasing and equipment finance and inventory finance, reported net income of $39.5 million for 2010, up 25.2% from $31.6 million in 2009. Net interest income for 2010 was $251.7 million, up 22% from $206.3 million in 2009, as a result of an $801 million, or 12.1%, increase in average interest-earning assets, primarily within the specialty finance businesses. The provision for credit losses for this operating segment totaled $94 million in 2010, up from $78.7 million in 2009. The increase in the provision for credit losses from 2009 was primarily due to increased net charge-offs and increased non-accrual loans in commercial lending. Wholesale Banking non-interest income totaled $98.7 million in 2010, up $21.5 million from $77.2 million in 2009. The increase in Wholesale Banking revenues in 2010, was primarily due to an increase in operating lease revenues resulting from the acquisition of FNCI in 2009. Wholesale Banking non-interest expense totaled $191.3 million in 2010, up $35.1 million from $156.2 million in 2009, primarily as a result of increased compensation expense and operating lease depreciation related to the FNCI acquisition in 2009 and increased expense for fore- closed real estate and repossessed assets. TREASURY SERVICES — Treasury services reported net income of $16.2 million in 2010, down from $27.4 million in 2009. The $11.2 million decrease was primarily due to the impact of TCF becoming more asset sensitive, and lower balances of securities available for sale. Consolidated Income Statement Analysis Net Interest Income Net interest income, the differ- ence between interest earned on loans and leases, invest- ments and other interest-earning assets (interest income), and interest paid on deposits and borrowings (interest expense), represented 56.5% of TCF’s total revenue in 2010, 54.6% in 2009 and 54.4% in 2008. 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 prevailing short and long-term interest rates, loan and deposit pricing strategies and competitive condi- tions, the volume and the mix of interest-earning assets and interest-bearing liabilities, the level of non-performing assets, and the impact of modified loans and leases. 2010 Form 10-K • 21 • 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. (Dollars in thousands) Assets: Investments and other U.S. Government sponsored entities: Mortgage-backed securities Debentures U.S. Treasury Bills Other securities Total securities available for sale (2) Loans and leases: Consumer real estate: Fixed-rate Variable-rate Consumer — other Total consumer real estate 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 Total commercial Leasing and equipment finance Inventory finance Total loans and leases (3) Total interest-earning assets Other assets (4) Total assets Liabilities and Equity: Non-interest bearing deposits: Retail Small business Commercial and custodial Total non-interest bearing deposits Interest-bearing deposits: Checking Savings 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 Total TCF Financial Corp. stockholders’ equity Non-controlling interest in subsidiaries Total equity Total liabilities and equity Year Ended December 31, 2010 Year Ended December 31, 2009 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) $ 337,279 $ 5,509 1.63% $ 375,396 $ 4,370 1.16% $ (38,117) $ 1,139 47 1,817,413 – 71,233 454 1,889,100 5,082,487 2,148,171 26,576 7,257,234 2,816,201 495,433 3,311,634 140,498 234,892 375,390 3,687,024 3,056,006 677,214 14,677,478 16,903,857 1,286,683 $18,190,540 $ 1,429,436 641,412 284,750 2,355,598 2,071,990 5,410,681 656,691 8,139,362 1,054,179 9,193,541 11,549,139 124,891 4,580,786 4,705,677 13,899,218 16,254,816 511,589 16,766,405 1,415,161 8,974 1,424,135 $18,190,540 $ 80,332 – 93 20 80,445 313,573 116,437 2,303 432,313 167,757 21,559 189,316 7,447 8,521 15,968 205,284 196,445 49,881 883,923 969,877 4.42 – .13 4.41 4.26 6.17 5.42 8.67 5.96 5.96 4.35 5.72 5.30 3.63 4.25 5.57 6.43 7.37 6.02 5.74 6,466 40,023 4,532 51,021 10,208 61,229 61,229 474 208,972 209,446 270,675 270,675 .31 .74 .69 .63 .97 .67 .53 .38 4.56 4.45 1.95 1.66 80,902 8,487 12 26 89,427 348,400 106,988 3,061 458,449 155,812 22,544 178,356 9,581 10,644 20,225 198,581 192,557 14,797 864,384 958,181 8,137 58,556 7,006 73,699 48,413 122,112 122,112 233 202,830 203,063 325,175 325,175 4.92 2.18 .07 5.26 4.36 6.43 5.75 8.54 6.26 6.05 4.01 5.69 5.75 3.45 4.25 5.50 6.81 8.22 6.20 5.85 .45 1.24 1.03 1.02 2.53 1.34 1.07 .27 4.64 4.55 2.39 2.05 1,645,544 389,245 17,123 494 2,052,406 5,421,081 1,862,267 35,849 7,319,197 2,574,818 561,881 3,136,699 166,745 308,929 475,674 3,612,373 2,826,835 179,990 13,938,395 16,366,197 1,157,314 $17,523,511 $ 1,402,442 584,605 265,681 2,252,728 1,802,694 4,732,316 683,030 7,218,040 1,915,467 9,133,507 11,386,235 85,228 4,373,182 4,458,410 13,591,917 15,844,645 416,555 16,261,200 1,261,219 1,092 1,262,311 $17,523,511 (570) (8,487) 81 (6) (8,982) (50) (218) 6 (85) (10) (34,827) 9,449 (758) (26,136) 11,945 (985) 10,960 (2,134) (2,123) (4,257) – 6,703 3,888 35,084 19,539 11,696 (26) (33) 13 (30) (9) 34 3 (45) 18 7 (38) (85) (18) (11) (1,671) (18,533) (2,474) (22,678) (38,205) (60,883) (60,883) 241 6,142 6,383 (54,500) (54,500) (14) (50) (34) (39) (156) (67) (54) 11 (8) (10) (44) (39) 171,869 (389,245) 54,110 (40) (163,306) (338,594) 285,904 (9,273) (61,963) 241,383 (66,448) 174,935 (26,247) (74,037) (100,284) 74,651 229,171 497,224 739,083 537,660 129,369 $ 667,029 $ 26,994 56,807 19,069 102,870 269,296 678,365 (26,339) 921,322 (861,288) 60,034 162,904 39,663 207,604 247,267 307,301 410,171 95,034 505,205 153,942 7,882 161,824 $ 667,029 Net interest income and margin bps = basis points. (1) Interest income excludes the taxable equivalent adjustments (based on the U.S. federal statutory rate of 35%) of $1.6 million and $494 thousand during the years ended $633,006 699,202 $66,196 4.14% 3.87% 27 December 31, 2010 and 2009, 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. • 22 • TCF Financial Corporation and Subsidiaries Year Ended December 31, 2009 Year Ended December 31, 2008 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) $ 375,396 $ 4,370 1.16% $ 155,839 $ 5,937 3.81% $ 219,557 $ (1,567) (265) 1,645,544 389,245 17,123 494 2,052,406 80,902 8,487 12 26 89,427 4.92 2.18 .07 5.26 4.36 2,100,291 – 8,929 3,745 2,112,965 110,502 – 294 150 110,946 5.26 – 3.29 4.01 5.25 6.73 6.36 6.95 6.65 6.21 5.21 5.99 5.93 4.95 5.26 5.87 7.32 10.00 6.57 6.36 372,067 109,115 9,233 490,415 132,014 31,110 163,124 9,988 18,143 28,131 191,255 165,838 4 847,512 964,395 12,933 48,601 10,099 71,633 85,141 156,774 156,774 8,990 204,958 213,948 370,722 370,722 .71 1.73 1.65 1.37 3.44 2.03 1.58 2.18 4.60 4.39 2.94 2.50 (454,747) 389,245 8,194 (3,251) (60,559) (29,600) 8,487 (282) (124) (21,519) (34) 218 (322) 125 (89) (23,667) (2,127) (6,172) (31,966) 23,798 (8,566) 15,232 (407) (7,499) (7,906) 7,326 26,719 14,793 16,872 (6,214) (30) (61) 159 (39) (16) (120) (30) (18) (150) (101) (37) (51) (178) (37) (51) (4,796) 9,955 (3,093) 2,066 (36,728) (34,662) (34,662) (8,757) (2,128) (10,885) (45,547) (45,547) (26) (49) (62) (35) (91) (69) (51) (191) 4 16 (55) (45) (111,117) 147,440 (97,042) (60,719) 447,382 (35,190) 412,192 (1,809) (57,664) (59,473) 352,719 561,444 179,950 1,033,394 1,192,392 (1,231) $1,191,161 $ (6,215) 994 33,778 28,557 (27,667) 1,920,201 69,487 1,962,021 (556,890) 1,405,131 1,433,688 (326,535) (86,521) (413,056) 992,075 1,020,632 57,332 1,077,964 112,105 1,092 113,197 $1,191,161 348,400 106,988 3,061 458,449 155,812 22,544 178,356 9,581 10,644 20,225 198,581 192,557 14,797 864,384 958,181 8,137 58,556 7,006 73,699 48,413 122,112 122,112 233 202,830 203,063 325,175 325,175 6.43 5.75 8.54 6.26 6.05 4.01 5.69 5.75 3.45 4.25 5.50 6.81 8.22 6.20 5.85 .45 1.24 1.03 1.02 2.53 1.34 1.07 .27 4.64 4.55 2.39 2.05 5,421,081 1,862,267 35,849 7,319,197 2,574,818 561,881 3,136,699 166,745 308,929 475,674 3,612,373 2,826,835 179,990 13,938,395 16,366,197 1,157,314 $17,523,511 $ 1,402,442 584,605 265,681 2,252,728 1,802,694 4,732,316 683,030 7,218,040 1,915,467 9,133,507 11,386,235 85,228 4,373,182 4,458,410 13,591,917 15,844,645 416,555 16,261,200 1,261,219 1,092 1,262,311 $17,523,511 5,532,198 1,714,827 132,891 7,379,916 2,127,436 597,071 2,724,507 168,554 366,593 535,147 3,259,654 2,265,391 40 12,905,001 15,173,805 1,158,545 $16,332,350 $ 1,408,657 583,611 231,903 2,224,171 1,830,361 2,812,115 613,543 5,256,019 2,472,357 7,728,376 9,952,547 411,763 4,459,703 4,871,466 12,599,842 14,824,013 359,223 15,183,236 1,149,114 – 1,149,114 $16,332,350 (Dollars in thousands) Assets: Investments and other U.S. Government sponsored entities: Mortgage-backed securities Debentures U.S. Treasury Bills Other securities Total securities available for sale (2) Loans and leases: Consumer real estate: Fixed-rate Variable-rate Consumer — other Total consumer real estate 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 Total commercial Leasing and equipment finance Inventory finance Total loans and leases (3) Total interest-earning assets Other assets (4) Total assets Liabilities and Equity: Non-interest bearing deposits: Retail Small business Commercial and custodial Total non-interest bearing deposits Interest-bearing deposits: Checking Savings 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 Total TCF Financial Corp. stockholders’ equity Non-controlling interest in subsidiaries Total equity Total liabilities and equity Net interest income and margin bps = basis points. (1) Interest income excludes the taxable equivalent adjustments (based on the U.S. federal statutory rate of 35%) of $494 thousand and $593 thousand during the years ended $633,006 $593,673 $ 39,333 3.87% 3.91% (4) December 31, 2009 and 2008, 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. 2010 Form 10-K • 23 • The following table presents the components of the changes in net interest income by volume, rate and number of days. (In thousands) Interest income: Investments U.S. Government sponsored entities: Mortgage-backed securities Debentures U.S. Treasury Bills Other securities Total securities available for sale Loans and leases: Consumer home equity: Fixed-rate Variable-rate Consumer - other Total consumer real estate 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 Total commercial Leasing and equipment finance Inventory finance Total loans and leases Total interest income Interest expense: Checking 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, 2010 Versus Same Period in 2009 Increase (Decrease) Due to Year Ended December 31, 2009 Versus Same Period in 2008 Increase (Decrease) Due to Volume(1) Rate(1) Total Volume(1) Rate (1) # Days Total $ (480) $ 1,619 $ 1,139 $ 4,478 $ (6,038) $ (7) $ (1,567) 8,017 (8,487) 64 (2) (6,990) (8,587) - 17 (4) (1,992) (570) (8,487) 81 (6) (8,982) (22,721) 8,487 142 (132) (3,102) (6,879) - (424) 8 (18,417) - - - - - (29,600) 8,487 (282) (124) (21,519) (21,230) 15,747 (803) (3,853) (13,597) (6,298) 45 (22,283) (34,827) 9,449 (758) (26,136) 14,412 (2,798) 9,995 (1,430) (2,662) (4,266) 4,136 15,092 36,778 44,977 31,087 1,093 7,507 (261) (16,107) 131 9,556 11,123 8,230 21,250 (2,467) 1,813 965 (704) 539 9 2,567 (11,204) (1,694) (25,438) (19,391) (2,764) (26,040) (2,213) (22,098) 110 (3,414) (4,740) (62,730) 44,946 11,945 (985) 10,960 (2,134) (2,123) (4,257) 6,703 3,888 35,084 19,539 11,696 (1,671) (18,533) (2,474) (38,205) 241 6,142 6,383 (54,500) 66,196 (7,072) 9,091 (7,911) (3,849) 27,528 (1,735) 24,115 (99) (2,548) (2,886) 20,214 38,870 14,794 66,698 73,704 (192) 26,643 1,049 (16,795) (4,164) (3,674) (18,273) 24,450 47,130 (15,640) (10,925) 1,747 (26,861) (955) (293) (8) (1,256) (23,667) (2,127) (6,172) (31,966) (3,303) (6,769) (8,394) (427) (62) (489) (282) (4,922) (4,965) (12,344) (12,151) (1) (48,026) (78,111) (4,582) (16,527) (4,123) (19,800) (4,593) 2,027 7,869 (69,181) (6,806) (26) (29) (55) (544) - - (1,800) (1,807) (22) (161) (19) (133) - (481) (481) (816) (991) 23,798 (8,566) 15,232 (407) (7,499) (7,906) 7,326 26,719 14,793 16,872 (6,214) (4,796) 9,955 (3,093) (36,728) (8,757) (2,128) (10,885) (45,547) 39,333 (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 $699.2 million for 2010, up 10.5% from $633 million in 2009. The increase in net interest income in 2010 was primarily due to a $793.1 million, or 5.3%, increase in average loans and leases and a 27 basis point increase in net interest margin. The increase in the net interest margin, from 3.87% in 2009 to 4.14% in 2010, was primarily due to lower average costs of deposits, partially offset by lower yields on new loan and lease production and the impact of higher average balances of non-accrual loans and leases. Net interest income was $633 million for 2009, up 6.6% from $593.7 million in 2008. The increase in net interest income in 2009 primarily reflects the growth in average interest-earning assets, up $1.2 billion over 2008, partially offset by a 4 basis point reduction in net interest margin. The decrease in the net interest margin, • 24 • TCF Financial Corporation and Subsidiaries from 3.91% in 2008 to 3.87% in 2009, is primarily due to declines in yields of interest earning assets, resulting from lower market interest rates, the effect of higher average balances of non-accrual and modified loans and leases and investments in lower yielding debentures as a result of excess liquidity, partially offset by declines in rates on average deposits and an improvement in deposit mix. Provision for Credit Losses TCF provided $236.4 million for credit losses in 2010, compared with $258.5 million in 2009 and $192 million in 2008. The decrease in provi- sion from 2009 to 2010 was driven by decreased levels of provision in excess of net charge-offs in the consumer real estate portfolio. Consumer real estate charge-off rates increased throughout 2010. As a result, TCF increased consumer real estate allowance levels. Higher consumer real estate net charge-offs are primarily due to continued weak residential real estate market conditions and persistent high unemployment in TCF’s markets, particularly in the Chicago market. The increase in provision from 2008 to 2009 was due to increased net charge-offs in the consumer real estate, commercial lending and leasing and equipment finance portfolios. Higher consumer real estate provisions also include portfolio reserve rate increases due to higher expected charge-offs and reserves for restructured consumer real estate loans. Net loan and lease charge-offs were $215.1 million, or 1.47% of average loans and leases, in 2010, compared with $186.5 million, or 1.34% of average loans and leases, in 2009 and $100.5 million, or .78% of average loans and leases, in 2008. 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, delinquencies in the loan and lease portfolio, year of loan or lease origination, value of collateral, general economic conditions and management’s assessment of credit risk in the current loan and lease portfolio. Also see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — 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 43.5% of total revenues in 2010, 45.4% in 2009 and 45.6% in 2008, and is an important factor in TCF’s results of operations. Providing a wide range of retail banking services is an integral com- ponent of TCF’s business philosophy and a major strategy for generating additional non-interest income. Total fees and other revenue was $508.9 million for 2010, compared with $496.5 million in 2009 and $474.1 million in 2008. The following table presents the components of non-interest income. (Dollars in thousands) Fees and service charges Card revenue ATM revenue Subtotal Leasing and equipment finance Other Fees and other revenue Gains on securities, net Gains on sales of branches and real estate Visa share redemption Total non-interest income Fees and other revenue Year Ended December 31, 2009 $286,908 104,770 30,438 422,116 69,113 5,239 496,468 29,387 – – $525,855 2008 $270,739 103,082 32,645 406,466 55,488 12,107 474,061 16,066 – 8,308 $498,435 2007 $278,046 98,880 35,620 412,546 59,151 18,588 490,285 13,278 37,894 – $541,457 2010 $273,181 111,067 29,836 414,084 89,194 5,584 508,862 29,123 – – $537,985 Compound Annual Growth Rate 2006 $270,166 92,084 37,760 400,010 53,004 32,262 485,276 – 4,188 – $489,464 1-Year 2010/2009 (4.8)% 6.0 (2.0) (1.9) 29.1 6.6 2.5 (.9) – – _ 2.3 5-Year 2010/2005 .8% 6.8 (6.0) 1.6 13.5 (24.9) 2.3 22.2 (100.0) 2.4 as a percentage of total revenue 41.1% 42.8% 43.4% 44.9% 47.3% 2010 Form 10-K • 25 • Fees and Service Charges Fees and service charges decreased $13.7 million, or 4.8%, to $273.2 million for 2010, compared with $286.9 million for 2009. The decrease in banking fees and service charges from 2009 was primarily due to a decrease in activity-based fee revenue as a result of the implementation of recent overdraft fee regulations and changes in customer banking and spending behavior, partially offset by increased monthly maintenance fee income. During 2009, fees and service charges increased $16.2 million, or 6%, to $286.9 million, compared with $270.7 million for 2008 primarily due to an increased number of checking accounts and related fee income. New regulations that became fully effective on August 15, 2010 require consumer checking account customers to elect if they want TCF to authorize debit card and ATM transactions if, at the time of authorization, there are insufficient funds in the account to cover the transaction (“opt-in”). TCF has had a process in place to discuss this service with new and existing consumer checking account customers since early 2010. The opt-in election is revocable by customers at any time. Customers who have not elected to opt-in may see an increase in the number of denied transactions on their ATM or debit card transactions. These denied transactions may impact consumer payment behavior and reduce fees and service charges and card revenue. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Information — Other Risks Related to Fee Income”. Card Revenue During 2010, card revenue, primarily interchange fees, totaled $111.1 million, up from $104.8 million in 2009 and $103.1 million in 2008. The increases in card revenue in 2010 and 2009 were primarily the result of an increase in average spending per active account and a small increase in interchange rates, partially offset by a decrease in active accounts. 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 Average transaction size (in dollars) Percentage off-line Average interchange rate Average interchange per transaction At or For the Year Ended December 31, Percentage Increase (Decrease) 2010 1,399,730 807,519 22.2 $6,645,374 984,134 $7,629,508 $ 35 2009 1,533,234 843,825 20.7 $6,394,041 914,302 $7,308,343 $ 35 2008 1,449,501 812,385 20.3 $6,429,265 850,719 $7,279,984 $ 37 87.10% 1.38% 87.49% 1.34% 88.31% 1.34% $ .49 $ .47 $ .49 2010/2009 (8.7)% (4.3) 7.2 3.9 7.6 4.4 – (39)bps 4 – 4.3% 2009/2008 5.8% 3.9 2.0 (.5) 7.5 .4 (5.4) (82)bps (4.1)% 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 cards. On December 16, 2010, the Federal Reserve released a proposal for comment that would establish standards for determining whether a debit card interchange fee received by a card issuer is reasonable and proportional to the cost incurred by the issuer for the transaction. These standards would apply to issuers that, together with their affiliates, have assets of $10 billion or more. The Federal Reserve is requesting comment on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer’s cost, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand- alone cap (initially set at 12 cents per transaction). See “Item 1A. Risk Factors — Other Risks — Card Revenue” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” for more information. ATM Revenue ATM revenue totaled $29.8 million for 2010, down from $30.4 million in 2009 and $32.6 million in 2008. The declines in ATM revenue were primarily due to a decrease in fee generating transactions by TCF customers using non-TCF ATMs. Leasing and Equipment Finance Revenue Leasing and equipment finance revenues in 2010 increased $20.1 million, or 29.1%, from 2009. Leasing and equipment • 26 • TCF Financial Corporation and Subsidiaries finance revenues in 2009 increased $13.6 million, or 24.6%, from 2008. The increase in leasing and equipment finance revenues for both years was primarily due to increased operating lease revenue primarily from the acquisition of FNCI in 2009, which also had a corresponding increase in operating lease depreciation of $14.4 million in 2010. Leasing and equipment finance revenues may fluctuate from period to period based on customer-driven factors not within TCF’s control. Other Non-Interest Income Total other non-interest income in 2010 increased $345 thousand from 2009 compared with a decrease in 2009 of $6.9 million from 2008. The increase from 2009 to 2010 was primarily due to a gain on a non-marketable investment of $538 thousand. The decrease from 2008 to 2009 was primarily due to TCF no longer selling investment and insurance products in the branches and a decrease in gains on the sales of education loans in 2008, partially offset by servicing fees generated by TCF Inventory Finance. The following table presents the components of other non-interest income. (Dollars in thousands) Investments and insurance Gains on sales of education loans Mortgage banking Other Total other earnings N.M. Not Meaningful. Year Ended December 31, 2010 $1,111 – – 4,473 $5,584 2009 $ 643 – – 4,596 $5,239 2008 $ 9,405 1,456 – 1,246 $12,107 2007 $10,318 2,011 – 6,259 $18,588 2006 $10,695 7,224 4,734 9,609 $32,262 Compound Annual Growth Rate 1-Year 2010/2009 72.8% – – (2.7) 6.6 5-Year 2010/2005 (36.4)% (100.0) (100.0) (2.5) (24.9) Gains on Securities, Net In 2010, TCF recognized net gains of $29.1 million, on of sales of $1.3 billion in mortgage-backed securities and agency U.S. Treasury Bills and other than temporary losses on certain investments of $2.4 million. In 2009, TCF recognized net gains of $29.4 million, on sales of $2.1 billion of mortgage-backed securities and agency debentures and U.S. Treasury Bills and other than temporary losses on certain investments of $2.4 million. In 2008, net gains of $16.1 million were recognized, which included sales of $1.5 billion in mortgage-backed securities and other than temporary losses on certain investments of $613 thousand. Non-Interest Expense Non-interest expense decreased $4.7 million, or .6%, in 2010, and increased $73.4 million, or 10.6%, in 2009 and $32.3 million, or 4.9%, in 2008. The following table presents the components of non-interest expense. (Dollars in thousands) Compensation and employee benefits Occupancy and equipment FDIC insurance Deposit account premiums Advertising and marketing Other Subtotal Foreclosed real estate and repossessed assets, net Operating lease depreciation Other credit costs, net FDIC special assessment Visa indemnification expense Total non-interest expense 2010 $352,861 126,551 23,584 17,304 13,062 147,884 681,246 40,385 37,106 6,018 – (1,631) $763,124 Year Ended December 31, 2009 $356,996 126,292 19,109 30,682 17,134 143,698 693,911 31,886 22,368 12,137 8,362 (880) $767,784 2008 $341,203 127,953 2,990 16,888 19,150 150,061 658,245 19,170 17,458 3,296 – (3,766) $694,403 2007 $346,468 120,824 1,145 4,849 16,829 139,249 629,364 5,673 17,588 1,803 – 7,696 $662,124 Compound Annual Growth Rate 2006 $341,857 114,618 1,139 5,047 21,879 145,732 630,272 4,181 14,347 397 – – $649,197 1-Year 2010/2009 (1.2)% .2 23.4 (43.6) (23.8) 2.9 (1.8) 26.7 65.9 (50.4) (100.0) – 85.3 – (.6) 5-Year 2010/2005 1.6% 4.0 85.3 24.3 (8.0) 1.1 2.7 72.3 38.3 172.6 4.7 2010 Form 10-K • 27 • Compensation and Employee Benefits Compensation and employee benefits represented 46.2%, 46.5% and 49.1% of total non-interest expense in 2010, 2009 and 2008, respectively. Compensation and employee benefits decreased $4.1 million, or 1.2%, in 2010, compared with an increase of $15.8 million, or 4.6%, in 2009 and a decrease of $5.3 million, or 1.5%, in 2008. The decrease in compensation and benefits in 2010 was primarily due to headcount reductions and decreased employee medical plan expenses, partially offset by increased costs in the Specialty Finance businesses as a result of expansion and growth. The increase in compensation and benefits in 2009 was primarily due to increases in leasing and equipment finance and the inventory finance compensation costs as a result of expansion and growth and increased employee medical plan expenses. The decreases in compensation and benefits in 2008 were primarily due to headcount reductions, decreased performance-based compensation and lower benefit related costs, partially offset by expenses from branch expansion and the new inventory finance business. Occupancy and Equipment Occupancy and equipment expenses increased $259 thousand in 2010, decreased $1.7 million in 2009 and increased $7.1 million in 2008. The increase in 2010 was primarily due to increased amortization of software offset by decreased building expenses. The decrease in 2009 was primarily due to the closing of six branches. The increase in 2008 was primarily due to costs associated with branch expansion and increased real estate taxes. FDIC Insurance FDIC premiums expense totaled $23.6 million in 2010, up $4.5 million from $19.1 million in 2009. FDIC premiums totaled $19.1 million in 2009, up $16.1 million from $3 million in 2008. The increase in 2010 was primarily due to higher deposit insurance rates. The increase in 2009 was primarily due to higher insurance rates and deposit growth. In 2009, the FDIC charged banks a special assess- ment which totaled $8.4 million for TCF. The Dodd-Frank Act requires changes to a number of components of the FDIC insurance assessment, with an implementation date by the FDIC of April 1, 2011. The changes amend the current methodology used to determine the assessments paid by institutions with assets greater the $10 billion, including changing the assessment base from deposits to total average assets less tier 1 capital. Additionally, the FDIC has developed a scorecard approach to determine a separate assessment rate for each institution with assets greater than $10 billion. As a result of these changes, TCF’s FDIC insurance expense is expected to increase by approximately $15 million in 2011. Deposit Account Premiums Deposit account premium expense decreased $13.4 million to $17.3 million in 2010, increased $13.8 million to $30.7 million in 2009 and increased $12 million to $16.9 million in 2008. The decrease in deposit account premium expense from 2009 to 2010 was primarily due to revised marketing strategies and lower checking account production. The increases in deposit account premium expense in 2009 and 2008 were primarily due to successful marketing campaigns, commencing in June of 2008, which resulted in increased checking account production. New checking accounts decreased 37% in 2010 compared with 2009 and grew 24.4% in 2009 compared with 2008. Other Non-Interest Expense Other non-interest expense totaled $147.9 million in 2010, up $4.2 million from 2009, primarily attributable to increased consulting costs related to the administration of the company’s Bank Secrecy Act program and other legal costs related to the challenge of the Durbin Amendment of the Dodd-Frank Act. Other non-interest expense totaled $143.7 million in 2009, down $6.4 million from 2008, primarily due to decreased separation costs. Foreclosed Real Estate and Repossessed Assets, Net Foreclosed real estate and repossessed assets expense, net totaled $40.4 million in 2010, compared to $31.9 million in 2009 and $19.2 million in 2008. The increases were primarily due to an increase in the number of consumer real estate properties owned and the associated expenses and an increase in the loss on sale of real estate properties. Operating Lease Depreciation Operating lease depreciation totaled $37.1 million in 2010, up $14.7 million from 2009. Operating lease depreciation totaled $22.4 million in 2009, up $4.9 million from $17.5 million in 2008. The increases in 2009 and 2010 were primarily due to the acquisition of FNCI in 2009. Other Credits Costs, Net Other credit costs, net is comprised of consumer real estate loan pool insurance, write-downs on carrying values of operating leases due to customer defaults and reserve requirements for expected losses on unfunded commitments. Other credit • 28 • TCF Financial Corporation and Subsidiaries costs, net totaled $6 million for 2010, down from $12.1 million in 2009. The decrease for 2010 as compared to 2009 was primarily attributable to the reversal of reserves on several unfunded commitments that were closed and lower premium costs related to consumer real estate loan pool insurance. Other credit costs, net totaled $12.1 million in 2009, up $8.8 million from 2008. The increase for 2009 as compared to 2008 was primarily attributable to higher premium costs related to consumer real estate loan pool insurance. Visa Indemnification Expense TCF is a member of Visa U.S.A. for issuance and processing of its card transactions. As a member of Visa, TCF has an obligation to indemnify Visa U.S.A. under its bylaws and Visa under a retrospective responsibility plan, for contingent losses in connection with certain covered litigation (“the Visa indemnification”) disclosed in Visa’s public filings with the SEC based on its membership proportion. TCF is not a party to the lawsuits brought against Visa U.S.A. TCF’s membership proportion in Visa U.S.A. is .16234% at December 31, 2010. As of December 31, 2010, TCF held 308,219 Visa Inc. Class B shares with no recorded value that are generally restricted from sale, other than to other Class B share- holders, and are subject to dilution as a result of TCF’s indemnification obligation. At December 31, 2010, TCF’s estimated remaining Visa contingent indemnification obligation was $1.4 million. During the fourth quarter of 2010, TCF, based on informa- tion made public by Visa U.S.A., reduced the contingency obligation related to the Visa indemnification for certain covered litigation matters by $1 million. The remaining covered litigation against Visa is primarily with card retailers and merchants, mostly related to fees and interchange rates. TCF’s remaining indemnification obligation for Visa’s covered litigation is a highly judgmental estimate. TCF must rely on Visa’s public disclosures about the covered litigation in mak- ing estimates of this contingent indemnification obligation. Income Taxes Income tax expense represented 36.93% of income before income tax expense during 2010, compared with 34.60% and 37.30% in 2009 and 2008, respectively. The higher effective income tax rate for 2010 as compared with 2009 and the lower effective income tax rate for 2009 as compared with 2008 are primarily due to significant favor- able developments in uncertain tax positions in 2009. The determination of current and deferred income taxes is a critical accounting estimate which is based on com- plex analyses of many factors including interpretation of income tax laws, the evaluation of uncertain tax positions, differences between the tax and financial reporting 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 determining income tax liabilities may not be challenged by taxing authorities. Actual results could differ significantly from the estimates and tax law interpretations used in determining the current and deferred income tax liabilities. In addition, under generally accepted accounting principles, deferred income tax assets and liabilities are recorded at the 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. Also, if current period income tax rates change, the impact on the annual effective income tax rate is applied year-to-date in the period of enactment. As discussed under “Item 1A. Risk Factors — Other Risks — Income Taxes”, TCF uses a REIT and related companies in the management of qualified real estate secured assets. In the third quarter of 2009, TCF received notice from a state taxing authority challenging use of the REIT and related companies based on a recent court decision unrelated to TCF and unrelated to the laws in place for the years in the notice. In May 2010, the state’s Supreme Court unanimously overturned the lower court’s decision on which the state taxing authority relied. In September 2010, the state taxing authority informed TCF it was conceding its position and withdrawing its notice. This closure had no effect on TCF’s liability for uncertain tax positions. 2010 Form 10-K • 29 • Consolidated Financial Condition Analysis Securities Available for Sale Securities available for sale were $1.9 billion, or 10.5% of total assets, at December 31, 2010. During 2010, TCF recognized gains of $31.5 million on the sale of $598.5 million of mortgage-backed securities in the available for sale securities portfolio. TCF’s securities available for sale portfolio primarily consists of fixed-rate mortgage- backed securities issued by Fannie Mae and Freddie Mac. Net unrealized pre-tax losses on securities available for sale totaled $25.8 million at December 31, 2010, compared with gains of $2.2 million at December 31, 2009. TCF may, from time to time, sell treasury and agency 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 automobile loans. TCF also has not participated in structured investment vehicles. Loans and Leases The following tables set forth information about loans and leases held in TCF’s portfolio. (Dollars in thousands) At December 31, 2010 2009 2008 2007 2006 $ 4,893,887 $ 4,961,347 $ 4,881,662 $ 4,706,568 $ 4,409,247 2,101,211 6,510,458 206,984 2,262,194 7,156,081 39,188 2,344,113 7,050,681 223,691 2,319,222 7,280,569 51,422 2,420,116 7,301,778 62,561 7,195,269 3,328,216 317,987 3,646,203 3,154,478 792,354 6,717,442 2,390,653 551,995 2,942,648 1,818,165 – $14,788,304 $14,590,744 $13,345,889 $12,494,370 $11,478,255 7,331,991 3,269,003 449,516 3,718,519 3,071,429 468,805 7,274,372 2,557,330 558,325 3,115,655 2,104,343 – 7,364,339 2,984,156 506,887 3,491,043 2,486,082 4,425 Compound Annual Growth Rate 1-Year 2010/2009 5-Year 2010/2005 (1.4)% (2.5) (1.7) (23.8) (1.9) 1.8 (29.3) (1.9) 2.7 69.0 1.4 3.4% 5.0 3.9 (32.9) 3.0 7.7 (6.1) 5.9 16.0 N.M. 7.2 Consumer Real Estate and Other $2,816,387 2,180,769 1,038,430 476,683 571,446 2,651 1,795 3,682 3,342 24,089 3,537 – 54,115 18,343 $7,195,269 At December 31, 2010 Leasing and Equipment Finance(1) $ 84,346 105,479 114,830 54,964 44,985 400,813 251,376 181,229 132,975 62,310 175,109 4,275 68,634 1,473,153 $3,154,478 Commercial $ 882,343 891,780 752,337 551,937 139,552 18,102 2,765 62,729 53,373 104,682 3,400 – 35,770 147,433 $3,646,203 Inventory Finance $ 15,848 22,527 24,026 20,768 6,701 17,274 43,782 34,994 33,580 21,302 28,332 189,949 7,616 325,655 $792,354 Total $ 3,798,924 3,200,555 1,929,623 1,104,352 762,684 438,840 299,718 282,634 223,270 212,383 210,378 194,224 166,135 1,964,584 $14,788,304 Portfolio Distribution: Consumer real estate and other: Consumer real estate: First mortgage lien Junior lien Total consumer real estate Other Total consumer real estate and other Commercial real estate Commercial business Total commercial Leasing and equipment finance (1) Inventory finance Total loans and leases N.M. Not Meaningful. (In thousands) Geographic Distribution: Minnesota Illinois Michigan Wisconsin Colorado California Texas Florida Ohio Indiana New York Canada Arizona Other Total (1) Excludes operating leases included in other assets. • 30 • TCF Financial Corporation and Subsidiaries Loans and leases outstanding at December 31, 2010 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 (1) Total after 1 year At December 31, 2010(3) Consumer Real Estate and Other Commercial Real Estate Commercial Business Leasing and Equipment Finance(2) Inventory Finance Total Loans and Leases $ 636,817 $ 577,505 $177,886 $1,200,395 $792,354 $ 3,384,957 427,786 392,319 700,771 1,675,308 1,349,979 2,012,289 6,558,452 $7,195,269 381,029 724,495 1,034,704 554,791 52,576 3,116 2,750,711 $3,328,216 86,828 30,145 10,746 1,436 10,946 – 140,101 $317,987 825,384 586,305 482,227 60,167 – – 1,954,083 $3,154,478 – – – – – – – $792,354 1,721,027 1,733,264 2,228,448 2,291,702 1,413,501 2,015,405 11,403,347 $14,788,304 $4,403,794 $1,550,637 $ 62,372 $1,950,077 $ – $ 7,966,880 2,154,658 $6,558,452 1,200,074 $2,750,711 77,729 $140,101 4,006 $1,954,083 – $ – 3,436,467 $11,403,347 (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) 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. Retail Lending TCF’s consumer real estate loan portfolio represents 48.4% of its total loan and lease portfolio. The consumer real estate portfolio decreased 1.7% in 2010 and was flat in 2009 from 2008. Consumer real estate loan originations were $1.1 billion in 2010, compared to $1.2 billion in 2009 and $1.6 billion in 2008, reflecting lower consumer demand for financing due in part to declines in home values and reduced levels of consumer spending in the weak economy. TCF’s consumer real estate portfolio is secured by mortgages filed on residential real estate. At December 31, 2010, 68% of loan balances were secured by first mortgages with 32% secured by second mortgages. The average loan size secured by a first mortgage was $117 thousand and the average balance of loans secured by a junior lien position was $37 thousand at December 31, 2010. At December 31, 2010, 33% of the consumer real estate portfolio carried a variable interest rate tied to the prime rate, compared with 27% at December 31, 2009. At December 31, 2010, 75% of TCF’s consumer real estate loan balance consisted of closed-end loans, compared with 76% at December 31, 2009. TCF’s closed-end consumer real estate loans require payments of principal and interest over a fixed term. The average home value, which is based on original values securing the loans and lines of credit in this portfolio, was $255 thousand as of December 31, 2010. Substantially all of TCF’s consumer real estate loans are in TCF’s primary banking markets. TCF’s consumer real estate lines of credit require regular payments of interest and do not require regular payments of principal. The average Fair Isaac Corporation (“FICO”) credit score at loan origination for the retail lending portfolio was 726 as of December 31, 2010 and 725 as of December 31, 2009. As part of TCF’s credit risk monitoring, TCF obtains updated FICO score information quarterly. The average updated FICO score for the retail lending portfolio was 725 at December 31, 2010, compared with 724 at December 31, 2009. TCF’s consumer real estate underwriting standards are intended to produce adequately secured loans to customers with good credit scores at the origination date. Beginning in 2008, TCF generally has not made new loans in excess of 90% loan-to-value (LTV) at origination. TCF does not have any subprime lending programs and did not originate 2/28 adjustable-rate mortgages (ARM) or Option ARM loans. TCF also has not originated consumer real estate loans with multiple payment options or loans with “teaser” interest rates. Although TCF does not have any programs 2010 Form 10-K • 31 • that target subprime borrowers, in the normal course of lending to customers, loans at lower LTV ratios have been originated to borrowers with FICO scores below 620. TCF originated $2 billion of new loans since January 1, 2009; of these loans, net charge-offs during 2010 totaled $472 thousand, or .03%. TCF’s consumer real estate portfolio is subject to the risk of falling home values and to the general economic environment, particularly unemployment. At December 31, 2010, total consumer real estate lines of credit outstanding were $2.2 billion, unchanged from $2.2 billion at December 31, 2009. Outstanding balances on consumer real estate lines of credit were 61% of total lines of credit at December 31, 2010, compared with 58% at December 31, 2009. At December 31, 2010, 28% of retail lending accruing loans over 30-days delinquent made a payment during the last month of the year, compared to 14.5% at December 31, 2009. Commercial Banking Commercial real estate loans increased $59.2 million from December 31, 2009 to $3.3 billion at December 31, 2010. Variable- and adjustable-rate loans represented 38% of commercial real estate loans outstanding at December 31, 2010. Commercial business loans decreased $131.5 million in 2010 to $318 million at December 31, 2010. TCF continues to expand its commer- cial lending activities generally to borrowers located in its primary banking markets. With a focus on secured lending, approximately 99% of TCF’s commercial real estate and commercial business loans were secured either by proper- ties or other business assets at December 31, 2010. At December 31, 2010, approximately 92% of TCF’s commercial real estate loans outstanding were secured by properties located in its primary banking markets. The following table summarizes TCF’s commercial real estate loan portfolio by property and loan type. At December 31, (Dollars in thousands) Retail services (1) Apartments Office buildings Warehouse/industrial buildings Hotels and motels Health care facilities Residential home builders Other Total Number of Loans 463 716 256 262 41 35 31 119 1,923 2010 Construction and Permanent Development $ 11,767 $ 865,784 20,338 754,915 32,851 564,631 10,475 459,904 28,387 203,794 24,961 111,543 19,810 32,071 133,195 53,790 $3,125,837 Total $ 877,551 775,253 597,482 470,379 232,181 136,504 51,881 186,985 $202,379 $3,328,216 Number of Loans 481 699 275 284 42 23 38 130 1,972 2009 Construction and Permanent Development $ 853,004 715,391 550,606 457,752 186,983 60,127 35,637 157,018 $3,016,518 Total $ 23,867 $ 876,871 751,953 599,728 466,101 241,012 62,935 58,308 212,095 $252,485 $3,269,003 36,562 49,122 8,349 54,029 2,808 22,671 55,077 (1) Primarily retail shopping centers and stores, convenience stores, gas stations, restaurants and automobile dealerships. • 32 • TCF Financial Corporation and Subsidiaries Leasing and Equipment Finance The following tables summarize TCF’s leasing and equipment finance portfolio by market- ing segment and by equipment type, excluding operating leases. (Dollars in thousands) Marketing Segment Middle market (1) Small ticket (2) Winthrop Other Total At December 31, 2010 2009 Balance $1,632,829 833,053 530,063 158,533 $3,154,478 Percent of Total 51.8% 26.4 16.8 5.0 100.0% Balance $1,465,122 872,904 577,972 155,431 $3,071,429 Percent of Total 47.7% 28.4 18.8 5.1 100.0% (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. (Dollars in thousands) Equipment Type Specialty vehicles Manufacturing Medical Construction Technology and data processing Golf cart and turf Furniture and fixtures Exercise equipment Printing Other Total At December 31, 2010 Balance $ 624,149 567,622 432,973 349,841 321,279 211,796 162,131 99,342 84,187 301,158 $3,154,478 Percent of Total 19.8% 18.0 13.7 11.1 10.2 6.7 5.1 3.1 2.7 9.6 100.0% Balance $ 547,444 469,291 446,340 416,518 379,971 181,546 178,571 73,221 81,467 297,060 $3,071,429 2009 Percent of Total 17.8% 15.3 14.5 13.6 12.4 5.9 5.8 2.4 2.7 9.6 100.0% The leasing and equipment finance portfolio increased to $3.2 billion at December 31, 2010, up 2.7% from December 31, 2009 and consisted of $2.2 billion of leases and $939.5 million of loans. Total loan and lease originations for TCF Equipment Finance and Winthrop Resources were $1.1 billion for 2010, a decrease of 6.8% from $1.2 billion in 2009. Total loan and lease purchases by TCF Equipment Finance and Winthrop Resources decreased to $186.8 million for 2010, from $563.9 million for 2009. Loan and lease purchases during 2010 included $186.8 million of loans and leases in the middle market segment compared with purchases during 2009 which included $339.9 million of loans and leases in the small ticket segment and $224 million in the Winthrop segment. The backlog of approved transactions was $402.6 million at December 31, 2010, compared with $322.6 million at December 31, 2009. The average size of transactions originated during 2010 was $81.6 thousand, compared with $82.7 thousand during 2009. TCF’s leasing and equipment finance 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 service. Declines in the value of leased equipment 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 of Notes to Consolidated Financial Statements — Summary of Significant Accounting Policies — Policies Related to Critical Accounting Estimates for information on lease accounting. At December 31, 2010 and 2009, $212.4 million and $254.9 million, respectively, of TCF’s lease portfolio were discounted on a non-recourse basis with third-party financial institutions and, consequently, TCF retains no credit risk on such amounts. The leasing and equipment 2010 Form 10-K • 33 • finance portfolio 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 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, 2010, lease residuals totaled $109.6 million, or 10.1% of original equipment value, compared with $106.3 million, or 8.7% of original equipment value, at December 31, 2009. TCF Inventory Finance The following table summarizes the TCF Inventory Finance portfolio by marketing segment. (Dollars in thousands) Equipment Type Lawn and garden Power sports and other Electronics and appliances Total At December 31, 2010 2009 Balance $441,691 220,472 130,191 $792,354 Percent of Total 55.8% 27.8 16.4 100.0% Balance $346,509 – 122,296 $468,805 Percent of Total 73.9% – 26.1 100.0% In the third quarter of 2010, TCF expanded into the power • Performing loans that are 60+ days delinquent sports industry by entering into an agreement with Arctic Cat Sales Inc. to become the exclusive inventory finance source for Arctic Cat’s Canadian dealers. This agreement led to the acquisition of $125.8 million in loans towards the end of the third quarter of 2010. In the third quarter of 2009, TCF formed a joint venture with The Toro Company (“Toro”) called Red Iron Acceptance, LLC (“Red Iron”). Red Iron provides U.S. distributors and dealers and select Canadian distributors of the Toro and Exmark brands with reliable, cost-effective sources of financing. TCF and Toro maintain a 55% and 45% ownership interest, respectively, in Red Iron. As TCF has a controlling financial interest in Red Iron, its financial results are consolidated in TCF’s financial statements. Toro’s interest is reported as a non-controlling interest within equity and qualifies as tier 1 regulatory capital. Credit Quality The following tables summarize TCF’s loan and lease portfolio based on the most important credit quality data that should be used to understand the overall condition of the portfolio. • Within the performing loans and leases, TCF classifies customers within regulatory classification guidelines. Loans and leases that are “classified” mean that management has concerns regarding the ability of the borrowers to meet existing loan or lease terms and conditions but may never become non-performing or result in a loss. have a higher potential to become non-performing and generally are a leading indicator for future charge-off trends. • Accruing troubled debt restructurings (“TDRs”) are loans to borrowers that have been modified such that TCF has granted a concession in terms to improve the likelihood of collection of all principal and interest owed. • Non-accrual loans and leases generally have been charged down to the estimated fair value of the collateral less selling costs or reserved for expected loss upon workout. Included in Note 6 of Notes to Consolidated Financial Statements, “Allowance for Loan and Lease Losses and Credit Quality Information”, are disclosures of loans considered to be “impaired” for accounting purposes. Impaired loans comprise a portion of non-accrual loans and accruing TDRs and therefore are not additive to the information in the table below. Impaired loan accounting policies prescribe specific methodologies for determining a portion of the allowance for loan and lease losses. In addition, TCF has modified certain loans and leases to troubled borrowers where a concession was not granted and thus are not considered TDRs. These other modified loans and leases totaled $135.5 million and $101.5 million at December 31, 2010 and 2009, respectively, and are further discussed on page 35 under “Loan Modifications”. • 34 • TCF Financial Corporation and Subsidiaries (Dollars in thousands) Consumer real estate and other Commercial real estate and commercial business Leasing and equipment finance Inventory finance Total loans and leases Percent of total loans and leases (Dollars in thousands) Consumer real estate and other Commercial real estate and commercial business Leasing and equipment finance Inventory finance Total loans and leases Percent of total loans and leases December 31, 2010 Performing Loans and Leases Non-classified Classified(1) Total 60+ Days Delinquent and Accruing(2) Accruing TDRs Non-accrual Loans and Leases Total Loans and Leases $ 6,613,610 $ – $ 6,613,610 $76,711 $337,401 $167,547 $ 7,195,269 3,091,911 3,073,347 785,245 $13,564,113 91.7% 354,185 35,695 5,710 3,446,096 3,109,042 790,955 $395,590 $13,959,703 94.4% 2.7% 9,021 11,029 344 $97,105 .7% 48,838 – – $386,239 2.6% 142,248 34,407 1,055 $345,257 2.3% 3,646,203 3,154,478 792,354 $14,788,304 100.0% December 31, 2009 Performing Loans and Leases Non-classified Classified(1) Total 60+ Days Delinquent and Accruing(2) Accruing TDRs Non-accrual Loans and Leases Total Loans and Leases $ 6,863,222 $ – $ 6,863,222 $76,959 $252,510 $139,300 $ 7,331,991 3,280,957 2,967,540 467,319 $13,579,038 93.1% 331,298 31,767 – 3,612,255 2,999,307 467,319 $363,065 $13,942,103 95.6% 2.5% 68 22,114 715 $99,856 .7% – – – $252,510 1.7% 106,196 50,008 771 $296,275 2.0% 3,718,519 3,071,429 468,805 $14,590,744 100.0% (1) Excludes classified loans and leases that are 60+ days delinquent or accruing TDRs. (2) Excludes accruing TDRs that are 60+ days delinquent. Past Due Loans and Leases The following tables set forth information regarding TCF’s delinquent loan and lease portfolio, excluding non-accrual loans and leases, and will not agree to the above table, as these amounts include accruing TDRs that are delinquent. Delinquent balances are determined based on the contractual terms of the loan or lease. See Note 6 of Notes to Consolidated Financial Statements, “Allowance for Loan and Lease Losses and Credit Quality Information”, for additional information. (In thousands) Principal Balances 60-89 days 90 days or more Total (In thousands) Percentage of Loans and Leases 60-89 days 90 days or more Total 2010 2009 At December 31, 2008 2007 2006 $ 55,618 59,425 $115,043 $ 54,073 52,056 $106,129 $41,851 37,619 $79,470 $20,445 15,384 $35,829 $24,872 12,214 $37,086 2010 2009 At December 31, 2008 2007 2006 .39% .41 .80% .38% .36 .74% .32% .28 .60% .17% .12 .29% .22% .11 .33% 2010 Form 10-K • 35 • (Dollars in thousands) Consumer real estate and other: First mortgage lien Junior lien Consumer other Total consumer real estate and other Commercial real estate Commercial business Total commercial real estate and other Leasing and equipment finance: Middle market Small ticket Winthrop Other Total leasing and equipment finance Inventory finance Subtotal (1) Delinquencies in acquired portfolios (2) Total At December 31, 2010 2009 Principal Balances Percentage of Portfolio Principal Balances Percentage of Portfolio $ 73,848 20,763 39 94,650 8,856 165 9,021 2,589 2,003 462 – 5,054 318 109,043 6,000 $115,043 1.55% .93 .10 1.35 .27 .06 .26 .18 .30 .13 – .19 .05 .79 1.00 .80% $ 65,074 17,942 215 83,231 22 46 68 8,387 2,612 231 33 11,263 705 95,267 10,862 $106,129 1.34% .78 .42 1.16 – .01 – .59 .43 .06 .02 .44 .19 .69 1.93 .74% (1) Excludes delinquencies and non-accrual loans in acquired portfolios as delinquency and non-accrual migration in these portfolios is not expected to result in losses exceeding the credit reserves netted against the loan balances. (2) At December 31, 2010, includes $600.5 million of loans and leases. Loan Modifications TCF may modify certain loans to retain customers or to maximize collection of loan balances. If, for economic or legal reasons related to the customer’s financial difficulties, TCF grants a concession that it would not have otherwise considered, the loan is classified as a TDR. TDRs generally continue to accrue interest if the loan was accruing interest at the time of the modification, although at lower rates than the original loans, and if customers have demonstrated a willingness and ability to make modified loan payments. TCF has maintained several programs designed to assist consumer real estate customers by extending payment dates or reducing customers’ contractual payments. All loan modifications are made on a case-by-case basis. Under these programs, TCF typically reduces customer’s contractual payments for a period of 12 to 18 months. If TCF has not granted a concession, compared to the original terms and conditions, the loan is not considered a TDR. Concessions related to TDRs generally do not include the forgiveness of principal balances. Modifications which are not classified as TDRs primarily involve interest rate changes to current market rates for similarly situated borrowers. Loan modifications to borrowers who are not experiencing financial difficulties are not included in the following reporting of loan modifications. Loan modifica- tions are not reported in calendar years after modification if the loans were modified at an interest rate equal to or greater than the rate that TCF was willing to accept at the time of modification for a new loan with comparable risk and the loans are no longer impaired based on the terms of the restructuring agreements. Reserves for losses on accru- ing restructured consumer real estate loans were $36.8 million, or 10.9% of the outstanding balance, at December 31, 2010 and $27 million, or 10.7% of the outstanding bal- ance at December 31, 2009. TCF utilized its historical 16% re-default rate on restructured consumer real estate loans in determining its assumed 20% re-default rate included in the estimated cash flows. Due to the secured nature of these loans, reserves for losses on accruing restructured commercial real estate loans were $695 thousand, or 1.4% of the outstanding balance at December 31, 2010. • 36 • TCF Financial Corporation and Subsidiaries Commercial loan modifications which are not classified as TDRs primarily involve loans where interest rates were changed to current market rates for borrowers with similar credit characteristics or where TCF received additional collateral or loan conditions. Loans that are 90 or more days past due and not well secured at the time of modifica- tion remain on non-accrual status. Regardless of whether contractual principal and interest payments are well- secured at the time of modification, equipment finance loans that are 90 or more days past due remain on non- accrual status. Loans modified when on non-accrual status continue to be reported as non-accrual loans until there is sustained repayment performance for six months. The balance of modified loans as of December 31, 2010 and 2009 are summarized in the following tables. (Dollars in thousands) TDRs: Accruing Non-accruing Total TDRs Other loan modifications: Accruing Non-accruing Total other loan modifications Total loan modifications Over 60-day delinquency as a percentage of balance: Accruing TDRs Accruing other loan modifications Total accruing loan modifications (Dollars in thousands) TDRs: Accruing Non-accruing Total TDRs Other loan modifications: Accruing Non-accruing Total other loan modifications Total loan modifications Over 60-day delinquency as a percentage of balance: Accruing TDRs Accruing other loan modifications Total accruing loan modifications December 31, 2010 Consumer Real Estate and Other Commercial Real Estate and Business Leasing and Equipment Finance $337,401 30,511 367,912 24,145 3,394 27,539 $395,451 $ 48,838 17,487 66,325 68,484 10,622 79,106 $145,431 $ – 1,284 1,284 22,624 6,231 28,855 $30,139 Total $386,239 49,282 435,521 115,253 20,247 135,500 $571,021 5.32% 5.82 5.35 –% – – –% .55 .55 4.64% 1.33 3.88 December 31, 2009 Consumer Real Estate and Other Commercial Real Estate and Business Leasing and Equipment Finance $252,510 15,416 267,926 32,717 1,506 34,223 $302,149 $ – 9,586 9,586 33,272 – 33,272 $42,858 $ – – – 31,925 2,059 33,984 $33,984 Total $252,510 25,002 277,512 97,914 3,565 101,479 $378,991 2.48% 11.19 3.48 –% – – –% 3.08 3.08 2.48% 4.74 3.11 2010 Form 10-K • 37 • At December 31, 2010, all consumer real estate TDRs were temporary modifications, except for $31.1 million which were permanent modifications. Temporary modifica- tions are no longer classified as TDRs once they complete the temporary modification term (typically 12 to 18 months) and the customer is performing for three months under the original contractual terms. Non-accrual Loans and Leases The increase in non-accrual loans and leases from December 31, 2009 was primarily due to increases in commercial and consumer real estate non-accrual loans. There were fewer addi- tions and higher repayments in 2010, as compared with 2009. Consumer real estate loans are charged-off to their estimated realizable values upon entering non-accrual sta- tus. Any necessary additional reserves are established for commercial, leasing and equipment finance and inventory finance loans and leases when reported as non-accrual. Most of TCF’s non-accrual loans and past due loans 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 unsecured loans or loans secured by other property primarily due to state real estate foreclosure laws. Non-accrual loans and leases are summarized in the following table. (In thousands) Consumer real estate First mortgage lien Junior lien Total consumer real estate Consumer other Total consumer real estate and other Commercial real estate Commercial business Total commercial real estate and commercial business Leasing and equipment finance Inventory finance Total non-accrual loans and leases 2010 2009 At December 31, 2008 2007 2006 $140,871 26,626 167,497 50 167,547 104,305 37,943 142,248 34,407 1,055 $345,257 $118,313 20,846 139,159 141 139,300 77,627 28,569 106,196 50,008 771 $296,275 $ 71,078 11,793 82,871 65 82,936 54,615 14,088 68,703 20,879 – $172,518 $23,750 5,391 29,141 6 29,147 19,999 2,658 22,657 8,050 – $59,854 $14,001 5,291 19,292 27 19,319 12,849 3,421 16,270 7,596 – $43,185 • 38 • TCF Financial Corporation and Subsidiaries The changes in amount of non-accrual loans and leases for the years ended December 31, 2010 and 2009 are summarized in the following table. (In thousands) Balance, at beginning of year Additions Charge-offs Transfers to other assets Return to accrual status Payments received Other, net Balance, at end of year (In thousands) Balance, at beginning of year Additions Charge-offs Transfers to other assets Return to accrual status Payments received Other, net Balance, at end of year Consumer $139,300 245,695 (57,194) (98,446) (48,999) (8,576) (4,233) $167,547 Consumer $ 82,936 223,785 (43,180) (85,944) (30,274) (6,136) (1,887) $139,300 At or For the Year Ended December 31, 2010 Leasing and Equipment Finance $ 50,008 56,033 (27,938) (15,291) (4,364) (24,041) – $ 34,407 Commercial $106,196 137,585 (45,804) (33,127) – (26,546) 3,944 $142,248 Inventory Finance $ 771 6,278 (79) (288) (4,115) (1,575) 63 $ 1,055 At or For the Year Ended December 31, 2009 Leasing and Equipment Finance $ 20,879 97,260 (27,616) (20,179) (3,927) (15,905) (504) $ 50,008 Commercial $ 68,703 127,951 (41,663) (28,151) (3,304) (15,754) (1,586) $106,196 Inventory Finance $ – 2,515 (64) – – (1,680) – $ 771 Total $ 296,275 445,591 (131,015) (147,152) (57,478) (60,738) (226) $ 345,257 Total $ 172,518 451,511 (112,523) (134,274) (37,505) (39,475) (3,977) $ 296,275 Charge-offs and allowance recorded to date against the non-accrual loan and lease portfolio as a percentage of the remaining contractual loan balance prior to non-accrual status as of December 31, 2010 is summarized in the following table. (Dollars in thousands) Consumer Commercial Leasing and equipment finance Inventory finance Total (Dollars in thousands) Consumer Commercial Leasing and equipment finance Inventory finance Total Contractual Balance $212,809 200,619 34,458 1,055 $448,941 Contractual Balance $170,818 131,384 50,008 771 $352,981 At December 31, 2010 Charge-offs and Allowance Recorded $ 46,780 86,446 8,384 185 $141,795 Net Exposure $166,029 114,173 26,074 870 $307,146 At December 31, 2009 Charge-offs and Allowance Recorded $33,044 33,776 14,976 22 $81,818 Net Exposure $137,774 97,608 35,032 749 $271,163 Impairment(1) 22.0% 43.1 24.3 17.5 31.6% Impairment(1) 19.3% 25.7 29.9 2.9 23.2% (1) Represents the ratio of charge-offs and allowance recorded to the contractual loan balances prior to non-accrual status. 2010 Form 10-K • 39 • 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 determin- ing 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-accrual assets, values of underlying loan and lease collateral, the overall risk characteristics of the portfolios, changes in character or size of the portfolios, geographic loca- tion, year of origination, prevailing economic conditions and other relevant factors. The various factors used in the methodologies are reviewed on a periodic basis. The Company considers the allowance for loan and lease losses of $265.8 million appropriate to cover losses incurred in the loan and lease portfolios as of December 31, 2010. 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 subse- quent evaluations of the loan and lease portfolio, in light of factors then prevailing, including economic conditions, TCF’s ongoing credit review process or regulatory require- ments, will not require significant changes in the balance of the allowance for loan and lease losses. Among other fac- tors, a continued economic slowdown, increasing levels of unemployment and/or a decline in commercial or residen- tial 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 potential loss. The total allowance for loan and lease losses is gener- ally available to absorb losses from any segment of the portfolio. The allocation of TCF’s allowance for loan and lease losses disclosed in the following table is subject to change based on changes in the criteria used to evaluate the allowance and is not necessarily indicative of the trend of future losses in any particular portfolio. In conjunction with Note 6 of Notes to Consolidated Financial Statements, “Allowance for Loan and Lease Losses and Credit Quality Information”, the following includes detailed information regarding TCF’s allowance for loan and lease losses and net charge-offs. The allocation of TCF’s allowance for loan and lease losses and credit loss reserves are as follows. At December 31, 2010 2009 2008 2007 2006 Allowance as a Percentage of Total Loans and Leases Outstanding by Type At December 31, 2008 2009 2007 2010 2006 $105,634 $ 89,542 $ 47,279 51,157 75,424 98,436 164,966 2,664 2,476 101,100 167,442 39,386 37,274 11,865 6,230 51,251 43,504 67,216 172,850 1,653 174,503 50,788 11,690 62,478 $16,494 15,102 31,596 2,059 33,655 25,891 7,077 32,968 $ 7,069 6,108 13,177 2,211 15,388 22,662 7,503 30,165 2.16% 2.97 2.42 4.22 2.43 1.53 3.68 1.71 1.80% 3.25 2.27 4.82 2.28 1.14 1.39 1.17 .97% 2.11 1.35 4.26 1.37 1.32 2.34 1.47 26,301 2,537 32,063 1,462 20,058 33 14,319 – 12,990 – .83 .32 1.04 .31 .81 .75 265,819 244,471 172,442 80,942 58,543 1.80 1.68 1.29 .35% .64 .45 .92 .46 1.01 1.27 1.06 .68 – .66 .16% .29 .20 1.07 .23 .95 1.36 1.03 .71 – .51 2,353 3,850 1,510 399 402 N.A. N.A. N.A. N.A. N.A. $268,172 $248,321 $173,952 $81,341 $58,945 1.81 1.70 1.30 .66 .52 (Dollars in thousands) Consumer real estate: First mortgage lien Junior lien Consumer real estate Consumer other Total consumer Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Total allowance for loan and lease losses Other credit loss reserves: Reserves for unfunded commitments Total credit loss reserves N.A. Not Applicable. • 40 • TCF Financial Corporation and Subsidiaries The increase in the consumer real estate allowance from December 31, 2009 to December 31, 2010, is primarily due to increased provision for credit losses as the balance of consumer real estate TDRs increased. The level of commer- cial lending allowances is generally volatile due to reserves for specific loans based on individual facts as loans migrate to classified commercial loans or to non-accrual. Charge-offs are taken against such specific reserves. The commercial allowance increased in 2010 from 2009 due to these factors. The increase in the inventory finance allowance was primarily due to the growth of the inventory finance business. 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 real estate First mortgage lien Junior lien Total real estate Consumer other Total consumer Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Total charge-offs Recoveries: Consumer real estate First mortgage lien Junior lien Total consumer real estate Consumer other Total consumer Commercial real estate Commercial business Total commercial Leasing and equipment finance Inventory finance Total recoveries Net charge-offs Provision charged to operations Balance, at end of year Net charge-offs as a percentage of average loans and leases 2010 $ 244,471 2009 $ 172,442 Year Ended December 31, 2008 $ 80,942 2007 $ 58,543 (78,605) (56,125) (134,730) (16,377) (151,107) (45,682) (4,045) (49,727) (34,745) (1,484) (237,063) 2,237 2,633 4,870 11,338 16,208 724 603 1,327 4,100 339 21,974 (215,089) 236,437 $ 265,819 (55,420) (53,137) (108,557) (18,498) (127,055) (35,956) (9,810) (45,766) (29,372) (205) (202,398) 808 1,129 1,937 10,741 12,678 440 697 1,137 2,053 23 15,891 (186,507) 258,536 $ 244,471 (30,262) (32,937) (63,199) (20,830) (84,029) (11,884) (5,731) (17,615) (13,156) – (114,800) 210 625 835 11,525 12,360 30 130 160 1,735 – 14,255 (100,545) 192,045 $ 172,442 (9,809) (11,977) (21,786) (19,455) (41,241) (2,409) (1,264) (3,673) (7,507) – (52,421) 260 948 1,208 13,019 14,227 – 16 16 3,585 – 17,828 (34,593) 56,992 $ 80,942 2006 $ 55,823 (3,419) (4,479) (7,898) (18,423) (26,321) (228) (555) (783) (6,117) – (33,221) 114 167 281 13,621 13,902 39 86 125 1,225 – 15,252 (17,969) 20,689 $ 58,543 1.47% 1.34% .78% .29% .16% Other Real Estate Owned and Repossessed and Returned Equipment Other real estate owned and repossessed and returned equipment are summarized in the following table. (In thousands) Other real estate owned: Residential real estate Commercial real estate Total other real estate owned Repossessed and returned equipment Total other real estate owned and repossessed and returned equipment 2010 2009 At December 31, 2008 2007 2006 $ 90,115 50,950 141,065 8,325 $ 66,956 38,812 105,768 17,166 $38,632 23,033 61,665 10,927 $28,752 17,013 45,765 2,292 $19,899 2,554 22,453 2,090 $149,390 $122,934 $72,592 $48,057 $24,543 2010 Form 10-K • 41 • Other real estate owned is recorded at the lower of cost or fair value less estimated costs to sell the property. At December 31, 2010, TCF owned 520 consumer real estate properties, an increase of 222 from December 31, 2009 due to the addition of 1,019 new properties exceeding sales of 797 properties. The average amount of time to sell consumer real estate properties once they are listed for sale was 4.2 months in 2010. The consumer real estate portfolio is secured by a total of 82,543 properties of which 813, or .98%, were owned or in the process of foreclosure and included within other real estate owned as of December 31, 2010. This compares with 504 properties, or .57%, owned or in the process of foreclosure and included within other real estate owned as of December 31, 2009. The changes in amount of other real estate owned for the years ended December 31, 2010 and 2009 are summarized in the following table. (In thousands) Balance, at beginning of year Transferred in, net of charge-offs Sales Write-downs Other, net Balance, at end of year (In thousands) Balance, at beginning of year Transferred in, net of charge-offs Sales Write-downs Other, net Balance, at end of year At or For the Year Ended December 31, 2010 Commercial $ 38,812 29,541 (10,617) (4,040) (2,746) $ 50,950 Consumer $ 66,956 121,555 (88,358) (12,640) 2,602 $ 90,115 Total $105,768 151,096 (98,975) (16,680) (144) $141,065 At or For the Year Ended December 31, 2009 Commercial $23,033 28,604 (9,616) (3,485) 276 $38,812 Consumer $ 38,632 102,744 (66,901) (9,731) 2,212 $ 66,956 Total $ 61,665 131,348 (76,517) (13,216) 2,488 $105,768 The charge-offs and write-downs recorded to date on other real estate owned compared to the contractual loan balances prior to non-accrual status at December 31, 2010 and 2009 are summarized in the following table. (Dollars in thousands) Consumer Commercial Total (Dollars in thousands) Consumer Commercial Total Contractual Loan Balance Prior to Non- performing Status $134,529 69,438 $203,967 Contractual Loan Balance Prior to Non- performing Status $ 91,305 53,738 $145,043 December 31, 2010 Charge-offs and Write-downs Recorded $44,414 18,488 $62,902 Other Real Estate Owned Balance $ 90,115 50,950 $141,065 December 31, 2009 Charge-offs and Write-downs Recorded $24,349 14,926 $39,275 Other Real Estate Owned Balance $ 66,956 38,812 $105,768 Impairment(1) 33.0% 26.6 30.8% Impairment(1) 26.7% 27.8 27.1% (1) Represents the ratio of charge-offs and write-downs recorded to the contractual loan balances prior to non-performing status. • 42 • TCF Financial Corporation and Subsidiaries At December 31, 2010 and December 31, 2009, TCF had $8.3 million and $17.2 million, respectively, of repossessed and returned equipment held for sale in its Wholesale Banking segment. The overall economic environment influences the level of repossessed and returned equipment, the demand for these types of used equipment in the marketplace and the fair value or ultimate sales prices at disposition. TCF periodically determines the fair value of this equipment and, if fair value is lower than its recorded basis, makes adjustments. Liquidity Management TCF manages its liquidity position to ensure that the funding needs of depositors and borrowers are met promptly and in a cost-effective manner. Asset liquidity arises from the ability to convert assets to cash as well as from the maturity of assets. Liability liquidity results from the ability of TCF to maintain a diverse set of funding sources to promptly meet funding requirements. ALCO and the Board of Directors have adopted a Liquidity Management Policy to direct management of the Company’s liquidity risk. See Item 1A. Risk Factors — Enterprise Risk Management — Market Risk Management (including Interest Rate Risk and Liquidity Risk) – Liquidity Risk for more information. Given the current economic condition and continued emergence of regulatory guidance, the Company increased asset liquidity by $356.6 million during 2010 to $507.3 million by increasing interest-bearing deposits held at the Federal Reserve. At December 31, 2010, TCF had $371.3 million of interest-bearing deposits at the Federal Reserve. 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 ser- vice 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 balance sheet growth. Historically, TCF has borrowed primarily from the FHLB, institutional sources under repurchase agree- ments and other sources. At December 31, 2010, TCF had $2.4 billion in unused secured borrowing capacity under these funding sources. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Financial Condition Analysis — Borrowings”. Potential sources of liquidity for TCF include secured borrowings from FHLB and the Federal Reserve Discount Window or other unsecured and uncommitted short-term federal funds purchased lines, and issuance of debt and equity securities. TCF Bank’s ability to pay dividends or make other capital distributions to TCF is restricted by regulation and may require regulatory approval. TCF executes all of its foreign exchange contracts in the over-the-counter market with large, international financial institutions. These contracts also may include credit risk- related contingent features that enhance the creditworthi- ness of these instruments as compared to other obligations of the respective counterparty with whom TCF has trans- acted. These contingent features may be for the benefit of TCF, as well as its counterparties with respect to changes in TCF’s creditworthiness. Deposits Deposits totaled $11.6 billion at December 31, 2010, up $16.8 million from December 31, 2009. 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 $10.6 billion, up $176 million from December 31, 2009, and comprised 91% of total deposits at December 31, 2010, compared with 90% of total deposits at December 31, 2009. The average balance of these deposits for 2010 was $10.5 billion, an increase of $1 billion over the $9.5 billion average balance for 2009. Certificates of deposit totaled $1 billion at December 31, 2010, down $159.2 million from December 31, 2009. Non-interest bearing deposits represented 21% of total deposits at both December 31, 2010 and 2009. TCF’s weighted-average cost for deposits, including non- interest bearing deposits, was .41% at December 31, 2010, compared with .65% at December 31, 2009. The decrease in the weighted-average rate for deposits was due to pricing strategies on certain deposit products and mix changes. TCF had no brokered deposits at December 31, 2010 or 2009. Borrowings Borrowings totaled $5 billion at December 31, 2010, up $230.1 million from December 31, 2009. 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 4.17% at December 31, 2010, and 4.42% at December 31, 2009. The decrease in the weighted-average rate on borrowings was primarily due to an increase in low rate short-term borrowings. TCF does not utilize unconsolidated subsidiaries or special purpose entities to provide off-balance sheet borrowings. 2010 Form 10-K • 43 • 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, 2010, the aggregate contractual obligations (excluding bank deposits) and commitments are as follows. (In thousands) Contractual Obligations Total borrowings (1) Annual rental commitments under non-cancelable operating leases Campus marketing agreements Construction contracts Visa indemnification expense (2) Total (In thousands) Commitments Commitments to lend: Consumer real estate and other Commercial Leasing and equipment finance Total commitments to lend Standby letters of credit and guarantees on industrial revenue bonds Total (1) Total borrowings excludes interest. Payments Due by Period Less than 1 Year $629,563 25,995 4,221 30 1,420 $661,229 1-3 Years $400,000 3-5 Years $1,042,694 After 5 Years $2,730,194 46,029 5,915 – – $451,944 39,509 5,991 – – $1,088,194 98,295 33,695 – – $2,862,184 Amount of Commitment – Expiration by Period 3-5 Less than Years 1 Year 1-3 Years After 5 Years $ 22,434 162,239 148,597 – 333,270 $165,815 42,928 – 208,743 $ 94,273 49,272 – 143,545 $1,162,097 22,988 1,185,085 Total $4,802,451 209,828 49,822 30 1,420 $5,063,551 Total $1,444,619 277,427 148,597 1,870,643 31,062 $1,901,705 22,566 $355,836 2,639 $211,382 5,857 – $149,402 $1,185,085 (2) The payment time is estimated to be less than one year; however, the exact date of the payment cannot be determined. Commitments to lend are agreements to lend to a customer provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. By contract, the Company, in its sole discretion, may terminate or otherwise modify the credit arrangement in place with a customer. Collateral predomi- nantly consists of residential and commercial real estate. The credit facilities established for inventory finance customers are discretionary credit arrangements which do not obligate the Company to lend. Campus marketing agreements consist of fixed or minimum obligations for exclusive marketing and naming rights with seven campuses. TCF is obligated to make various annual payments for these rights in the form of royalties and scholarships through 2029. TCF also has vari- ous renewal options, which may extend the terms of these agreements. Campus marketing agreements are an impor- tant 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, 2010 was $1.5 billion, or 7.97% of total assets, up from $1.2 billion, or 6.57% of total assets, at December 31, 2009. The increase in stockholders’ equity was primarily the result of TCF’s public offering of common stock in February of 2010, which raised net proceeds of $164.6 million, as well as an increase in retained earnings. Dividends to common shareholders on a per share basis totaled 20 cents in 2010, a decrease of 50% from 40 cents in 2009. TCF’s dividend payout ratio was 19% in 2010. The Company’s primary funding sources for dividends are earnings and dividends received from TCF Bank. At December 31, 2010, TCF had 5.4 million shares remaining in its stock repurchase program authorized by its Board of Directors. For the year ended December 31, 2010, average total equity to average assets was 7.83%, compared with 7.20% for the year ended December 31, 2009. For the year ended • 44 • TCF Financial Corporation and Subsidiaries December 31, 2010, tangible realized common equity to tangible assets was 7.37%, compared with 5.86% for the year ended December 31, 2009. Tangible realized common equity is a non-GAAP measure and represents common equity less goodwill, other intangible assets, accumulated other comprehensive income and non-controlling interest in subsidiaries. Tangible realized common equity was $1.3 billion at December 31, 2010, compared with $1 billion at December 31, 2009. Tangible assets represent common equity less goodwill and other intangible assets. Tangible assets were $18.3 billion at December 31, 2010, compared with $17.7 billion at December 31, 2009. Management reviews tangible realized common equity to tangible assets as an ongoing measure and has included this information because of current interest by investors, rating agencies and banking regulators. The methodology for calculating tangible realized common equity may vary between companies. The following table is a reconciliation of the non-GAAP measure of tangible realized common equity to tangible assets to the GAAP measure of total equity to total assets. (Dollars in thousands) Computation of total equity to total assets: Total equity Total assets Total equity to total assets Computation of tangible realized common equity to tangible assets: Total equity Less: Non-controlling interest in subsidiaries Total TCF Financial Corporation stockholders’ equity Less: Goodwill Other intangibles Add: Accumulated other comprehensive loss Tangible realized common equity Total assets Less: Goodwill Other intangibles Tangible assets Tangible realized common equity to tangible assets At December 31, 2010, TCF Financial and TCF Bank exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the Federal Reserve and the OCC. See Notes 13 and 14 of Notes to Consolidated Financial Statements. At December 31, 2010 2009 $ 1,480,163 18,465,025 8.02% $ 1,179,755 17,885,175 6.60% $ 1,480,163 8,500 1,471,663 $ 1,179,755 4,393 1,175,362 152,599 1,232 152,599 1,405 31,514 $ 1,349,346 $18,465,025 18,545 $ 1,039,903 $17,885,175 152,599 1,232 $18,311,194 7.37% 152,599 1,405 $17,731,171 5.86% Tier 1 risk-based capital at December 31, 2010 was $1.5 billion, or 10.59% of risk-weighted assets, compared with $1.2 billion, or 8.52% of risk-weighted assets, at December 31, 2009. Tier 1 common capital at December 31, 2010 was $1.4 billion, or 9.71%, of the risk-weighted assets compared to $1 billion, or 7.65%, of risk-weighted assets at December 31, 2009. 2010 Form 10-K • 45 • In contrast to GAAP-basis measures, the total tier 1 common risk-based capital ratio excludes the effect of qualifying trust preferred securities, qualifying non-controlling interest in subsidiaries and cumulative perpetual preferred stock. Management reviews the total tier 1 common risk-based capital ratio as an ongoing measure and has included this information because of current interest by investors, rating agencies and banking regulators. The methodology for calculating total tier 1 common risk-based capital may vary between companies. The following table is a reconciliation of GAAP to non-GAAP measures. At December 31, 2010 2009 $ 1,475,525 13,929,097 $ 1,161,750 13,627,871 10.59% 8.52% $ 1,475,525 115,000 8,500 $ 1,352,025 $13,929,097 $ 1,161,750 115,000 4,393 $ 1,042,357 $13,627,871 9.71% 7.65% 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 account- ing 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. (Dollars in thousands) Computation of tier 1 risk-based capital ratio: Total tier 1 capital Total risk-weighted assets Total tier 1 risk-based capital ratio Computation of tier 1 common risk-based capital ratio: Total tier 1 capital Less: Qualifying trust preferred securities Less: Qualifying non-controlling interest in subsidiaries Total tier 1 common capital Total risk-weighted assets Total tier 1 common risk-based capital ratio One factor considered in TCF’s capital planning process is the amount of dividends paid to common stockholders as a component of common capital generated. TCF’s common capital generated for the year ended December 31, 2010 is as follows. (Dollars in thousands) Net income available to common stockholders Treasury shares sold to TCF employee benefit plans Common shares purchased by TCF employee benefit plans Amortization of stock compensation Cancellation of common shares Other Total internally generated capital Issuance of common stock Total common capital generated Less: Common stock dividends Net common capital generated Common dividend as a percentage of total common capital generated 2010 $146,564 11,727 6,362 9,534 (2,165) 298 172,320 164,567 336,887 (27,617) $309,270 8.2% • 46 • TCF Financial Corporation and Subsidiaries Recent Accounting Developments On July 21, 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The FASB has elected to defer the disclosures related to TDRs included within ASU No. 2010-20. The disclosures related to TDRs are expected to be effective for the second quarter 2011. The remaining disclosures under ASU No. 2010-20 were not deferred and are included in Note 6 of Notes to Consolidated Financial Statements, “Allowance for Loan and Lease Losses and Credit Quality Information”. Fourth Quarter Summary In the fourth quarter of 2010, TCF reported net income of $30.7 million, compared with $19.5 million in the fourth quarter of 2009. Diluted earnings per common share was 22 cents for the fourth quarter of 2010, compared with 15 cents for the same 2009 period. Net interest income was $174.3 million for the quarter ended December 31, 2010, up $4.6 million, or 2.7%, from the quarter ended December 31, 2009. The increase in net interest income was primarily due to decreased rates paid on deposits and increases in Specialty Finance loans and leases, partially offset by the impact of increased asset liquidity and decreased income from consumer loans. The net interest margin was 4.04% and 4.07% for the fourth quarter of 2010 and 2009, respectively. TCF provided $77.6 million for credit losses in the fourth quarter of 2010, compared with $77.4 million in the fourth quarter of 2009. The net increase was primarily due to increased reserves and charge-offs in the commercial real estate portfolio partially offset by decreased levels of provision in excess of net charge-offs in the consumer real estate portfolio. For the fourth quarter of 2010, net loan and lease charge-offs were $64.9 million, or 1.75% of aver- age loans and leases outstanding, compared with $48.7 million, or 1.35% of average loans and leases outstanding during the same 2009 period. The increase was primarily due to in commercial loan and consumer real estate net charge-offs. Total non-interest income in the fourth quarter of 2010 was $141.5 million, compared with $143.1 million in the fourth quarter of 2009. The decrease in non-interest income was primarily due to a decrease in leasing revenues and fees and service charges. Fees and service charges were $61.5 million, down 17.9% from the fourth quarter of 2009, primarily due to a decrease in activity-based fee revenue as a result of the implementation of recent overdraft fee regulations, partially offset by increased monthly maintenance fee income. Card revenues totaled $27.6 million for the fourth quarter of 2010, up 3% over the same 2009 period. Leasing and equipment finance revenues were $23.4 million for the fourth quarter of 2010, down $1 million from the fourth quarter of 2009 primarily due to decreased operating lease revenue as a result of operating lease runoff from the FNCI acquisition that occurred during 2009, which was partially offset by a corresponding decrease in operating lease depreciation. Non-interest expense totaled $190.5 million for the 2010 fourth quarter, a decrease of $16.3 million, or 7.9%, from $206.8 million for the 2009 fourth quarter. Compensation and employee benefits decreased $2 million, or 2.2%, from the fourth quarter of 2009, primarily due to headcount reductions and decreased employee medical plan expenses, partially offset by increased costs in the Specialty Finance businesses as a result of expansion and growth. Deposit account premium expense decreased $7.7 million from the fourth quarter of 2009, primarily due to revised marketing strategies and lower checking account production. Other expense in the fourth quarter of 2010 decreased $2.9 million, or 7.2%, from the fourth quarter of 2009 primarily attribut- able to a decrease in severance costs, as a result of the reor- ganization of the company’s structure and business segments in the fourth quarter of 2009. Other credit costs, net in the fourth quarter of 2010 decreased $2.8 million, or 64.8%, from the fourth quarter of 2009 primarily due to the reversal of reserves on several unfunded commitments that were closed and lower costs of consumer real estate loan pool insurance. In the fourth quarter of 2010, the effective income tax rate was 33.61% of income before tax expense, up from 32.77% for the fourth quarter of 2009. The effective tax rate for the fourth quarter of both 2010 and 2009 included the effects of year-to-date changes in the estimated annual effective tax rate of approximately $1 million. 2010 Form 10-K • 47 • Legislative, Legal and Regulatory Developments Federal and state legislation imposes numerous legal and regulatory requirements on financial institutions. Future legislative or regulatory change, or changes in enforcement practices or court rulings, may have a dramatic and potentially adverse impact on TCF and its bank and other subsidiaries. TCF expects that the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, will not have a significant effect on future results. Forward-Looking Information This annual report on Form 10-K and other reports issued by the Company, including reports filed with the SEC, may contain “forward-looking” statements that deal with future results, plans or performance. In addition, TCF’s management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCF’s future results may differ materially from historical performance and forward- looking statements about TCF’s expected financial results or other plans and are subject to a number of risks and uncer- tainties. These include, but are not limited to the following: Adverse Economic or Business Conditions, Credit and Other Risks Continued or deepening deterioration in general economic and banking industry conditions, or continued increases in unemployment in TCF’s primary banking markets; adverse economic, business and com- petitive developments such as shrinking interest margins, deposit outflows, deposit account attrition, or an inabil- ity to increase the number of deposit accounts; adverse changes in credit and other risks posed by TCF’s loan, lease, investment, and securities available for sale portfolios, including continuing declines in commercial or residential real estate values or changes in the allowance for loan and lease losses dictated by new market conditions or regulatory requirements; interest rate risks resulting from fluctuations in prevailing interest rates or other factors that result in a mismatch between yields earned on TCF’s interest-earning assets and the rates paid on its deposits and borrowings; and foreign currency exchange risks. Earnings/Capital Constraints, Liquidity Risks Limitations on TCF’s ability to pay dividends or to increase dividends in the future because of financial performance deterioration, regulatory restrictions or limitations; increased deposit insurance premiums, special assessments or other costs related to adverse conditions in the banking industry, the economic impact on banks of the Dodd-Frank Act and Emergency Economic Stabilization Act of 2008, as amended (“EESA”), and other regulatory reform legislation; the impact of financial regulatory reform, including the phase out of trust preferred securities in tier 1 capital called for by the Act, or additional capital, leverage, liquidity and risk management requirements or changes in the composi- tion of qualifying regulatory capital; adverse changes in securities markets directly or indirectly affecting TCF’s ability to sell assets or to fund its operations; diminished unsecured borrowing capacity resulting from TCF credit rating downgrades and unfavorable conditions in the credit markets that restrict or limit various funding sources; costs associ- ated with new regulatory requirements or interpretive guidance relating to liquidity. Legislative and Regulatory Requirements New con- sumer protection and supervisory requirements, including the Dodd-Frank Act’s creation of a new consumer protection bureau and limits on Federal preemption for state laws that could be applied to national banks; the imposition of requirements with an adverse impact relating to TCF’s lending, loan collection and other business activities as a result of the EESA and the Dodd-Frank Act, or other legislative or regulatory developments such as mortgage foreclosure moratorium laws or imposition of underwriting or other limitations that impact the ability to use certain variable-rate products; reduction of interchange revenue from debit card transactions resulting from the so-called Durbin Amendment to the Dodd-Frank Act, which limits debit card interchange fees to amounts that will only allow issuers to recover incremental costs of authorization, clearance and settlement of debit card transactions, plus possibly some costs relating to fraud prevention; impact of legislative, regulatory or other changes affecting customer account charges and fee income; changes to bankruptcy laws which would result in the loss of all or part of TCF’s security interest due to collateral value declines (so-called “cramdown” provisions); any material failure of TCF to comply with the terms of its consent order with the Office of the Comptroller of the Currency relating to TCF’s Bank Secrecy Act compliance, which may result in regulatory enforcement action including monetary penalties; increased health care costs • 48 • TCF Financial Corporation and Subsidiaries resulting from recently enacted Federal health care reform legislation; adverse regulatory examinations and resulting enforcement actions or other adverse consequences such as increased capital requirements or higher deposit insurance assessments; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to the Bank Secrecy Act and anti-money laundering compliance activity. Other Risks Relating to Fee Income Uncertainties relating to TCF’s implementation of new regulatory require- ments that prohibit financial institutions from charging NSF fees on point-of-sale and ATM transactions unless customers opt-in, including customer opt-in preferences which may have an adverse impact on TCF’s fee revenue; and uncertainties relating to future retail deposit account changes such as charging a daily negative balance fee in lieu of per item NSF fees or other significant changes, including limitations on TCF’s ability to predict customer behavior and the impact on TCF’s fee revenues. Litigation Risks Results of litigation, including class action litigation concerning TCF’s lending or deposit activities including account servicing processes or fees or charges, or employment practices, and possible increases in indemnification obligations for certain litigation against Visa U.S.A. (“covered litigation”) and potential reductions in card revenues resulting from covered litigation or other litigation against Visa. Competitive Conditions; Supermarket Branching Risk Reduced demand for financial services and loan and lease products; adverse developments affecting TCF’s supermar- ket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches. Accounting, Audit, Tax and Insurance Matters Changes in accounting standards or interpretations of existing standards; federal or state monetary, fiscal or tax policies, including adoption of state legislation that would increase state taxes; adverse state or Federal tax assessments or findings in tax audits; lack of or inadequate insurance coverage for claims against TCF. Technological and Operational Matters Technological, computer-related or operational difficulties or loss or theft of information and the possibility that deposit account losses (fraudulent checks, etc.) may increase. 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 one of its most significant market risks. See “Item 1A. Risk Factors – Enterprise Risk Management — Market Risk Management (Including Interest-Rate and Liquidity Risk)” 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 financial institu- tions, 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 Management Committee (ALCO) manages TCF’s interest-rate risk based on interest rate expectations and other factors. The principal objective of TCF’s asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest-rate risk and liquidity risk and facilitating the funding needs of the Company. TCF utilizes net interest income simulation models to estimate the near-term effects (next 1-2 years) 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. At December 31, 2010, net interest income is estimated to increase slightly by 1% compared with the base case scenario, over the next 12 months if short- and long-term interest rates were to sustain an immediate increase of 100 basis points. Management exercises its best judgment in making assumptions regarding events that management can influ- ence such as non-contractual deposit repricings and events outside management’s control such as customer behavior on loan and deposit activity, counterparty decisions on callable borrowings and the effect that competition has on both loan and deposit pricing. These assumptions are 2010 Form 10-K • 49 • inherently uncertain and, as a result, net interest income simulation results will differ from actual results due the timing, magnitude 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 (difference 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 significantly 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 positive $515.5 million, or 2.8% of total assets, at December 31, 2010, compared with a negative $1.2 billion, or 6.6% of total assets, at December 31, 2009. The change in the gap from year-end is primarily due to decreased levels of fixed-rate loans, an increase in non-contractual deposits and increased equity. A positive interest rate gap position exists when the amount of interest-earning assets maturing or re-pricing exceeds the amount of interest- bearing liabilities maturing or re-pricing, including assumed prepayments, within a particular time period. 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 25 basis point decrease in current mortgage loan interest rates would increase prepayments on the $6.7 billion of fixed-rate mortgage- backed securities and consumer real estate loans at December 31, 2010, by approximately $44 million, or 7.7%, 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, 2010, by approximately $144 million, or 25.1%, in the first year. A slowing in prepayments would increase the estimated life of the portfolios and may also adversely impact net interest income or net interest margin in the future. The level of prepayments that would actually occur in any scenario will be impacted by factors other than interest rates. Such factors include lenders’ willingness to lend funds, which can be impacted by the value of assets under- lying loans and leases. • 50 • TCF Financial Corporation and Subsidiaries The following table summarizes TCF’s interest-rate gap position at December 31, 2010. (Dollars in thousands) Interest-earning assets: Consumer loans (1) (2) Commercial loans (1) (2) Leasing and equipment finance (2) Securities available for sale (2) Investments Inventory finance Total Interest-bearing liabilities: Checking deposits (3) Savings deposits (3) Money market deposits (3) Certificates of deposit Short-term borrowings Long-term borrowings (4) Total Interest-earning assets (under) over interest-bearing liabilities Cumulative gap Cumulative gap as a percentage of total assets: At December 31, 2010 At December 31, 2009 Within 30 Days 30 Days to 6 Months Maturity/Rate Sensitivity 6 Months to 1 Year 1 to 3 Years 3+ Years Total $1,022,951 452,911 155,630 38,273 371,407 360,646 2,401,818 575,930 1,592,682 330,149 100,451 126,790 8,107 2,734,109 $ 391,684 301,442 626,474 64,272 141,567 253,204 1,778,643 62,673 462,632 9,837 412,856 – 548,460 1,496,458 $ 441,042 324,193 577,485 88,414 62 178,504 1,609,700 67,230 470,622 10,349 357,483 – 138,389 1,044,073 $2,157,678 1,395,466 1,356,257 333,026 368 – 5,242,795 $ 3,181,914 1,172,191 438,632 1,407,189 37,761 – 6,237,687 $ 7,195,269 3,646,203 3,154,478 1,931,174 551,165 792,354 17,270,643 860,831 1,589,703 250,466 146,837 – 501,152 3,348,989 2,963,400 1,275,163 35,121 10,700 – 3,662,713 7,947,097 4,530,064 5,390,802 635,922 1,028,327 126,790 4,858,821 16,570,726 (332,291) $ (332,291) 282,185 $ (50,106) 565,627 $ 515,521 1,893,806 $2,409,327 (1,709,410) $ 699,917 699,917 $ 699,917 (1.8)% (12.9)% (0.3)% (8.9)% 2.8 % (6.6)% 13.0% 4.2% 3.8% 1.9% 3.8% 1.9% (1) At January 1, 2011, $1.4 billion of variable-rate consumer loans and $397 million of variable-rate commercial loans were modeled as fixed-rate loans as their current interest rate is below their contractual interest rate floor. An increase in short-term interest rates may not result in a change in the interest rate on these variable-rate loans. (2) Based upon contractual maturity, repricing date, if applicable, scheduled repayments of principal and projected prepayments of principal based upon experience and third-party projections. (3) Includes non-interest bearing deposits. At December 31, 2010, 16% of checking deposits, 47% of savings deposits, and 55% of money market deposits are included in amounts repricing within one year. At December 31, 2009, 18% of checking deposits, 51% of savings deposits, and 54% of money market deposits are included in amounts repricing within one year. (4) Includes $700 million of callable borrowings. 2010 Form 10-K • 51 • Item 8. Financial Statements and Supplementary Data Repo rt of I ndependent Registered P ubli c Ac co unting 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 subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of income, equity, and cash flows for each of the years in the three- year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with 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 reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TCF Financial Corporation and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity 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, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 15, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Minneapolis, Minnesota February 15, 2011 • 52 • TCF Financial Corporation and Subsidiaries Consolidated Statements of Financial Condition (Dollars in thousands, except per-share data) Assets Cash and due from banks Investments Securities available for sale Loans and leases: Consumer real estate and other Commercial Leasing and equipment finance Inventory finance Total loans and leases Allowance for loan and lease losses Net loans and leases Premises and equipment, net Goodwill Other assets Total assets Liabilities and 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 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; 142,965,012 and 130,339,500 shares issued Additional paid-in capital Retained earnings, subject to certain restrictions Accumulated other comprehensive loss Treasury stock at cost, 51,160 and 1,136,688 shares, and other Total TCF Financial Corporation stockholders’ equity Non-controlling interest in subsidiaries Total equity Total liabilities and equity See accompanying notes to consolidated financial statements. At December 31, 2010 2009 $ 663,901 179,768 1,931,174 7,195,269 3,646,203 3,154,478 792,354 14,788,304 (265,819) 14,522,485 443,768 152,599 571,330 $18,465,025 $ 4,530,064 5,390,802 635,922 1,028,327 11,585,115 126,790 4,858,821 4,985,611 414,136 16,984,862 – – 1,430 459,884 1,064,978 (31,514) (23,115) 1,471,663 8,500 1,480,163 $18,465,025 $ 299,127 163,692 1,910,476 7,331,991 3,718,519 3,071,429 468,805 14,590,744 (244,471) 14,346,273 447,930 152,599 565,078 $17,885,175 $ 4,400,290 5,339,955 640,569 1,187,505 11,568,319 244,604 4,510,895 4,755,499 381,602 16,705,420 1,303 297,429 946,002 (18,545) (50,827) 1,175,362 4,393 1,179,755 $17,885,175 2010 Form 10-K • 53 • Consolidated Statements of Income (In thousands, except per-share data) Interest income: Loans and leases Securities available for sale Investments and other 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 Subtotal Leasing and equipment finance Other Fees and other revenue Gains on securities, net Visa share redemption Total non-interest income Non-interest expense: Compensation and employee benefits Occupancy and equipment FDIC insurance Deposit account premiums Advertising and marketing Other Subtotal Foreclosed real estate and repossessed assets, net Operating lease depreciation Other credit costs, net FDIC special assessment Total non-interest expense Income before income tax expense Income tax expense Income after income tax expense Income (loss) attributable to non-controlling interest Net income Preferred stock dividends Non-cash deemed preferred stock dividend Net income available to common stockholders Net income per common share: Basic Diluted Dividends declared per common share See accompanying notes to consolidated financial statements. Year Ended December 31, 2010 2009 2008 $883,923 80,445 5,509 969,877 61,229 209,446 270,675 699,202 236,437 462,765 273,181 111,067 29,836 414,084 89,194 5,584 508,862 29,123 – 537,985 352,861 126,551 23,584 17,304 13,062 146,253 679,615 40,385 37,106 6,018 – 763,124 237,626 87,765 149,861 3,297 146,564 – – $146,564 $ 1.05 $ 1.05 $ .20 $864,384 89,427 4,370 958,181 122,112 203,063 325,175 633,006 258,536 374,470 286,908 104,770 30,438 422,116 69,113 5,239 496,468 29,387 – 525,855 356,996 126,292 19,109 30,682 17,134 142,818 693,031 31,886 22,368 12,137 8,362 767,784 132,541 45,854 86,687 (410) 87,097 6,378 12,025 $ 68,694 $ .54 $ .54 $ .40 $847,512 110,946 5,937 964,395 156,774 213,948 370,722 593,673 192,045 401,628 270,739 103,082 32,645 406,466 55,488 12,107 474,061 16,066 8,308 498,435 341,203 127,953 2,990 16,888 19,150 146,295 654,479 19,170 17,458 3,296 – 694,403 205,660 76,702 128,958 – 128,958 2,540 – $126,418 $ 1.01 $ 1.01 $ 1.00 • 54 • TCF Financial Corporation and Subsidiaries Consolidated Statements of Equity TCF Financial Corporation Number of Common Shares Issued (Dollars in thousands) Balance as of December 31, 2007 131,468,699 Pension and postretirement measurement date change – 131,468,699 Subtotal Comprehensive income: Income after income tax expense Other comprehensive income Comprehensive income Dividends on preferred stock Dividends on common stock Issuance of preferred shares and common warrant Grants of restricted stock, 755,838 shares Treasury shares sold to TCF employee benefit plans, 683,787 shares Cancellation of shares of restricted stock Cancellation of common shares for tax withholding – – – – – – – – (223,647) (405,674) – – – – – – – – – Amortization of stock compensation Exercise of stock options, 13,000 shares Stock compensation tax benefits Change in shares held in trust for deferred compensation plans, at cost – Balance as of December 31, 2008 130,839,378 Comprehensive income (loss): Income after income tax expense Other comprehensive loss Comprehensive income (loss) – – – Investment by non-controlling interest Dividends on preferred stock Dividends on common stock Non-cash deemed preferred stock dividend Redemption of preferred stock Grants of restricted stock, 719,727 shares Treasury shares sold to TCF employee benefit plans, 1,448,640 shares Cancellation of shares of restricted stock Cancellation of common shares for tax withholding Amortization of stock compensation Exercise of stock options, 108,800 shares Stock compensation tax expense Change in shares held in trust for – deferred compensation plans, at cost Cost of issuance of common warrants – Balance as of December 31, 2009 130,339,500 Comprehensive income (loss): Income after income tax expense Other comprehensive loss (18,878) – – – – (481,000) Comprehensive income (loss) Public offering of common stock Investment by non-controlling interest Dividends on common stock Grants of restricted stock, 347,916 shares Common shares purchased by TCF employee benefit plans Treasury shares sold to TCF employee benefit plans, 757,612 shares Cancellation of shares of restricted stock Cancellation of common shares for tax withholding Amortization of stock compensation Stock compensation tax benefits Change in shares held in trust for deferred compensation plans, at cost Balance as of December 31, 2010 – – – 12,322,250 – – 20,000 442,579 – (23,723) (135,594) – – – 142,965,012 Preferred Stock $ – Common Stock $1,315 Accumulated Other Comprehensive (Loss)/ Income Additional Paid-in Capital Retained Earnings $354,563 $ 926,875 Treasury Stock Total and Other $ (18,055) $(165,686) $ 1,099,012 Non- controlling Interests Total Equity $ – $ 1,099,012 – – – – – 283 – 348,154 – – – – – – – – 1,315 – 354,563 65 926,940 – (18,055) – 65 (165,686) 1,099,077 – – – – – – – – (3) (4) – – – – – – – – 128,958 – 128,958 (2,540) (126,447) – 14,363 14,363 – – 12,850 (19,573) (7,530) (4,217) (6,474) 8,344 (173) 10,110 – – – 982 – – – – – – – – – – – – – – – – – – 19,573 17,707 – – – 336 – 128,958 14,363 143,321 (2,257) (126,447) 361,004 – 10,177 (3,238) (6,478) 8,344 163 10,110 – – – – – – – – – – – – – – – 65 1,099,077 128,958 14,363 143,321 (2,257) (126,447) 361,004 – 10,177 (3,238) (6,478) 8,344 163 10,110 – $ 348,437 – $1,308 (17,426) – $330,474 $ 927,893 – – 17,426 $ (3,692) $(110,644) $ 1,493,776 – – $ – $ 1,493,776 – – – – 710 – 12,025 (361,172) – – – – – – – – – – – – – – – – – – – – – – – – (18,638) – (5) (18,367) (818) – – – – (250) 8,615 (1,279) (1,058) 87,097 – 87,097 – (6,378) (50,828) (12,025) – – – 243 – – – – – (14,853) (14,853) – – – – – – – – – – – – – – – – – – – – 18,638 37,514 – – – 2,817 – 87,097 (14,853) 72,244 – (5,668) (50,828) – (361,172) – 19,147 (580) (250) 8,615 1,538 (1,058) – – $ – – – $1,303 (848) (402) – – $297,429 $ 946,002 – – – (402) $ (18,545) $ (50,827) $ 1,175,362 848 – – – – – – – – – – – – – – – – – 124 – – – 4 – – (1) – – – – – 164,443 – – (8,491) 6,358 (7,893) (247) (1,946) 9,534 298 146,564 – 146,564 – – (27,617) – – (12,969) (12,969) – – – – – – 29 – – – – – – – – – – – – – – – 8,491 146,564 (12,969) 133,595 164,567 – (27,617) – – 6,362 19,620 – 11,727 (218) – – – (1,947) 9,534 298 (410) – (410) 4,803 – – – – – – – – – – – 86,687 (14,853) 71,834 4,803 (5,668) (50,828) – (361,172) – 19,147 (580) (250) 8,615 1,538 (1,058) – – – (402) $ 4,393 $ 1,179,755 3,297 – 3,297 – 810 – – – – – – – – 149,861 (12,969) 136,892 164,567 810 (27,617) – 6,362 11,727 (218) (1,947) 9,534 298 – $ – – $1,430 399 – $459,884 $1,064,978 – $(31,514) (399) – $ (23,115) $1,471,663 – – $8,500 $1,480,163 See accompanying notes to consolidated financial statements. 2010 Form 10-K • 55 • 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: Provision for credit losses Depreciation and amortization Net increase (decrease) in other assets and accrued expenses and other liabilities Gains on sales of assets, 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 Purchase of leasing and equipment finance portfolios Purchase of inventory finance portfolios Proceeds from sales of loans Proceeds from sales of leases Proceeds from sales of securities available for sale Purchases of securities available for sale Proceeds from maturities of and principal collected on securities available for sale Purchases of Federal Home Loan Bank stock Redemptions of Federal Home Loan Bank stock Proceeds from sales of real estate owned Purchases of premises and equipment Acquisition of Fidelity National Capital, Inc. Other, net Net cash used by investing activities Cash flows from financing activities: Net increase in deposits Net (decrease) increase in short-term borrowings Proceeds from long-term borrowings Payments on long-term borrowings Net proceeds from public offering of common stock Redemption of preferred stock Net investment by non-controlling interest Proceeds from issuance of preferred stock and common warrant Dividends paid on common stock Dividends paid on preferred stock Stock compensation tax benefits (costs) Common shares sold to TCF employee benefit plans 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. Year Ended December 31, 2010 2009 2008 $ 146,564 $ 87,097 $ 128,958 236,437 86,632 62,397 (32,508) 16,202 369,160 515,724 4,877,210 (4,447,982) (802,587) (186,779) (168,612) 1,456 10,670 – 1,330,955 (1,788,142) 436,574 (34,925) 26,042 103,236 (36,088) – 32,420 (646,552) 16,796 (117,814) 574,876 (135,704) 164,567 – – 810 – (27,617) – 298 18,089 1,301 495,602 364,774 299,127 $ 663,901 258,536 69,632 (34,882) (30,539) 9,419 272,166 359,263 3,380,198 (3,340,040) (801,569) (339,860) (274,722) 937 – 2,293,739 (2,436,163) 327,856 (18,882) 11,129 25,913 (40,276) (57,728) 28,758 (1,240,710) 1,324,967 17,743 31,393 (141,012) – (361,172) 4,803 – (50,828) (7,925) (1,058) 19,147 2,136 838,194 (43,253) 342,380 $ 299,127 192,045 64,813 14,397 (13,986) 9,468 266,737 395,695 3,041,757 (3,494,969) (850,459) (15,001) – 245,884 1,707,821 (1,888,527) 219,017 (144,611) 140,196 43,324 (49,556) – 18,297 (1,026,827) 666,803 (329,209) 344,258 (323,348) – – 361,004 (126,447) – 10,110 10,177 1,976 615,324 (15,808) 358,188 $ 342,380 $ 258,750 $ 72,777 $ 214,079 $ 329,609 $ 7,788 $ 135,682 $ 378,132 $ 42,957 $ 103,359 • 56 • TCF Financial Corporation and Subsidiaries Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of TCF Financial Corporation and its wholly owned subsidiaries. TCF Financial Corporation, a Delaware corporation, is a national bank holding company engaged primarily in retail banking and wholesale banking through its primary subsidiary, TCF National Bank (“TCF Bank”). TCF Bank owns leasing and equipment finance, inventory finance and 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 presentation. 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 management 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 manage- ment 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 significant change. Policies that contain critical account- ing estimates 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 problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. TCF evaluates the allowance for loans and lease losses on impaired loans, non-accrual leases and certain classified loans on an individual basis, with the exception of consumer real estate troubled debt restructurings (“TDR”). Loans evaluated on an individual basis are classified as “individually evaluated for loss potential”. The allowance for all other loans and leases is evaluated collectively and classified as “collectively evaluated for loss potential”. Management’s judgment 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-accrual loans, 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 commercial loans, equipment finance loans, inventory finance loans and TDRs. Loan impairment is generally based upon the present value of the expected future cash flows discounted at the loan’s initial effective interest rate. The fair value of the collateral for fully collateral-dependent loans may be used to measure loan impairment. Consumer real estate loans, other than troubled debt restructurings, and all leases are collectively excluded from the definition of an impaired loan and are collectively evaluated for potential loss. Loans and leases are charged off to the extent they are deemed to be uncollectible. Charge-offs related to confirmed losses are utilized in the historical data which is used in the allowance for loan and lease losses calculations. Consumer real estate loans are charged-off to the estimated fair value of underlying collateral, less estimated costs to sell, when they are placed on non-accrual status. Additional review of the fair value, less cost to sell, compared with the recorded value occurs upon foreclosure and additional charge-offs are recorded if necessary. Valuation adjust- ments on residential properties made within 90 days after foreclosure are recorded as charge-offs. Subsequent 2010 Form 10-K • 57 • valuation adjustments are recorded as real estate owned expense. Consumer other consists primarily of deposit account overdrafts, which are charged-off no later than 60 days past due. Commercial loans, leasing and equipment finance and inventory finance loans, which are considered collateral dependent, are charged-off to estimated fair value, less estimated costs to sell, when it becomes prob- able, based on current information and events, all principal and interest amounts will not be collectible in accordance with the contractual terms. Loans which are not dependent on underlying collateral are charged-off when deemed uncollectible based on specific facts and circumstances. The amount of the allowance for loan and lease losses is highly dependent upon management’s estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees or properties. These estimates are reviewed periodically and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known. 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 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 values. The determination of the lease classification requires various judgments and estimates by management including the fair value of the equipment at lease inception, useful life of the equipment under lease, estimate of the lease residual value and collectability of minimum lease payments. Sales-type leases generate dealer profit which is recognized 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 lease. 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 com- ponent, 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 judgment regarding product and technology changes, customer behavior, shifts in supply and demand and other economic assumptions. TCF reviews residual assumptions on the portfolio at least annually and downward adjust- ments, if necessary, are charged to non-interest expense in the periods in which they become known. For certain leases, TCF sells minimum lease payments to third-party financial institutions, at fixed rates, on a non- recourse basis. For those transactions which achieve sale treatment, the related lease cash flow stream and the non- recourse financing are not recognized on TCF’s Statements of Financial Condition. For those transactions which do not achieve sale treatment, the underlying lease remains on TCF’s Statements of Financial Condition and non-recourse debt is recorded in the amount of the proceeds received. TCF retains servicing of these assets and it will bill, collect and remit funds to the third-party financial institution. Upon default by the lessee, the third-party financial institutions may take control of the underlying collateral which TCF would otherwise retain as residual value within the Statements of Financial Condition. Leases which do not transfer substantially all benefits and risks of ownership to the lessee are classified as operating leases. Such leased equipment and related initial direct costs are included in other assets on the balance sheet and 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 and is reflected as a component of non-interest income. An allow- ance for lease losses is not provided on operating leases. • 58 • TCF Financial Corporation and Subsidiaries Income Taxes Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax-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 in which the enactment date occurs. 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 reporting 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 determining income tax liabilities will not be challenged by federal and state taxing authorities. Actual results could differ significantly from the estimates and tax law inter- pretations 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 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 benefits 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 unrecog- nized 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 a level yield method. TCF periodically evaluates investments for “other than temporary” impairment with losses, if any, recorded in non-interest income as a loss on securities. 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 equity. The cost of securities sold is determined on a specific identification basis and gains or losses on sales of securities available for sale are recognized on trade dates. TCF periodically evaluates securities available for sale for “other than temporary” impairment. 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. Discounts and premiums on securities available for sale are amortized using a level yield method over the expected life of the security. Loans and Leases Loans and leases are reported at historical cost including net direct fees and costs associ- ated with originating and acquiring loans and leases. 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 all 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 consumer real estate 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 management. Consumer real estate loans are placed on non-accrual status when the collection of interest and principal is 150 days or more past due or six payments are owed. Consumer real estate loans are also placed on non-accrual status if, upon notification of bankruptcy, the loan is 60 days or more past due. If the loan is current at notification of bankruptcy, the loan is placed on 2010 Form 10-K • 59 • non-accrual status at 90 days or when four payments are owed, or after a partial charge-off, which management feels is appropriate based on the experience of TCF’s cus- tomer activity and loan type. Commercial real estate and commercial business, leasing and equipment finance and inventory finance loans and leases are generally placed on non-accrual status when the collection of interest or prin- cipal is 90 days or more past due, unless the loan or lease is adequately secured and in the process of collection. When a loan or lease is placed on non-accrual status, 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 liability 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 prin- cipal balance has been determined to be fully collectible. Loans on non-accrual status are reported as non-accrual loans until there is sustained repayment performance for six months. 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 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. Within 90 days of a loan transferring 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, if the fair value of an asset, less the estimated costs to sell, declines to less than the carrying amount of the asset, the deficiency is recognized in the period in which it becomes known and is included in other non-interest expense. Net operating expenses of properties and recoveries on sales of other real estate owned are recorded in foreclosed real estate owned and repossessed assets, net. 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 amortization 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, 2010, TCF’s investments in affordable housing limited partnerships were $30.2 million, compared with $37 million at December 31, 2009, 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, 2010 and 2009, the carrying amount of these five investments was $29.4 million and $36.2 million, respectively. The maximum exposure to loss on these five investments was $29.4 million at December 31, 2010; however, the general partner of these partnerships provides various guarantees to TCF including guaranteed minimum returns. These guarantees are backed by a BBB credit-rated company and limit any risk of loss. In addition to the guarantees, the investments are supported by the performance of the underlying real estate properties which also mitigates the risk of loss. Intangible Assets Goodwill is tested for impairment annually. Other intangibles are amortized over their esti- mated useful life. The Company reviews the recoverability of these assets at least annually or earlier whenever an event occurs indicating that they may be impaired. • 60 • TCF Financial Corporation and Subsidiaries Stock-Based Compensation The fair value of restricted stock and stock options is determined on the date of grant and amortized to compensation expense, with a correspond- ing increase in additional 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 that will vest and the related compensation expense. Compensation expense is adjusted in the period such estimates change. Non-forfeitable dividends, if any, paid on shares of restricted stock are recorded to retained earnings for shares that are expected to vest and to compen- sation expense for shares that are not expected to vest. Income tax benefits related to stock compensation in excess of grant date fair value less any proceeds on exercise are recognized as an increase to additional paid-in capital upon vesting or exercising and delivery of the stock. Any income tax benefits that are less than grant date fair value less any proceeds on exercise would be recognized as a reduction of additional paid in capital to the extent of previously recognized income tax benefits and then as income tax 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. Note 2. Cash and Due from Banks At December 31, 2010, TCF was required by Federal Reserve regulations to maintain reserves of $41.2 million in cash on hand or at the Federal Reserve. Note 3. Investments The carrying values of investments consist of the following. (In thousands) Federal Home Loan Bank stock, at cost: Des Moines Chicago Subtotal Federal Reserve Bank stock, at cost Other Total investments At December 31, 2009 2010 $136,899 4,617 141,516 30,684 7,568 $179,768 $128,016 4,617 132,633 22,972 8,087 $163,692 The investments in Federal Home Loan Bank (“FHLB”) stock are required investments related to TCF’s current and previous borrowings from these banks. 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 of their regulator, the Federal Housing Finance Agency. Other investments primarily consist of non-traded mortgage- backed securities and other bonds which qualify for investment credit under the Community Reinvestment Act. During 2010, TCF recorded an impairment charge of $241 thousand on other investments, which had a carrying value of $7.6 million at December 31, 2010, as full recovery is not expected. During 2009, TCF recorded an impairment charge of $405 thousand on other investments, which had a carrying value of $8.1 million at December 31, 2009. The carrying values and yields on investments at December 31, 2010, by contractual maturity, are shown below. (Dollars in thousands) Due in one year or less Due in 1-5 years Due in 5-10 years Due after 10 years No stated maturity Total Carrying Value $ – 600 2,100 4,868 172,200 $179,768 Yield –% 2.67 3.24 5.66 2.66 2.75 2010 Form 10-K Note 4. Securities Available for Sale Securities available for sale consist of the following. 2010 2009 At December 31, Gross Amortized Unrealized Unrealized Losses Gains Gross Cost Fair Value Gross Amortized Unrealized Unrealized Losses Gains Gross Cost • 61 • Fair Value (Dollars in thousands) Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other U.S. Treasury Bills Other securities Total Weighted-average yield $1,929,098 222 24,999 2,610 $1,956,929 3.87% $16,579 – 1 – $16,580 $42,141 – – 194 $42,335 $1,903,536 222 25,000 2,416 $1,931,174 $1,903,201 263 – 4,783 $1,908,247 4.54% $21,138 – – 221 $21,359 $19,130 $1,905,209 263 – 5,004 $19,130 $1,910,476 – – – Gross gains of $31.5 million and $31.8 million were recognized on sales of securities during 2010 and 2009, respectively. Mortgage-backed securities of $1.9 billion and $1.8 billion were pledged as collateral to secure certain deposits and borrow- ings at December 31, 2010 and 2009, respectively (see Notes 10 and 11 for additional information). During 2010, TCF recorded an impairment charge of $2.1 million on other securities as full recovery is not expected. The other securities had a fair value of $2.4 million at December 31, 2010. 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 individual securities have been in a continuous unrealized loss position. Unrealized losses on securities available for sale are due to lower values for equity securities or 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 occurs. (In thousands) Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other securities Total (In thousands) Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Less than 12 Months Fair Value Unrealized Losses At December 31, 2010 12 Months or More Fair Value Unrealized Losses Total Fair Value Unrealized Losses $988,753 2,216 $990,969 $42,141 194 $42,335 $ – – $ – $ – – $ – $988,753 2,216 $990,969 $42,141 194 $42,335 Less than 12 Months At December 31, 2009 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses $1,082,197 $19,130 $ – $ – $1,082,197 $19,130 The amortized cost and fair value of securities available for sale at December 31, 2010, by contractual maturity, are shown below. (In thousands) Due in one year or less Due in 1-5 years Due in 5-10 years Due after 10 years No stated maturity Total At December 31, 2010 Amortized Cost $ 25,099 127 342 1,928,951 2,410 $1,956,929 Fair Value $ 25,100 127 357 1,903,374 2,216 $1,931,174 • 62 • TCF Financial Corporation and Subsidiaries Note 5. Loans and Leases The following table sets forth information about loans and leases. (Dollars in thousands) Consumer real estate and other: Consumer real estate: First mortgage lien Junior lien Total consumer real estate Other Total consumer real estate 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 Inventory finance Total loans and leases At December 31, 2010 2009 Percentage Change $ 4,893,887 2,262,194 7,156,081 39,188 7,195,269 $ 4,961,347 2,319,222 7,280,569 51,422 7,331,991 3,125,837 202,379 3,328,216 317,987 3,646,203 3,016,518 252,485 3,269,003 449,516 3,718,519 939,474 868,830 2,277,753 29,728 109,555 (202,032) 2,215,004 3,154,478 792,354 $14,788,304 2,305,945 24,714 106,391 (234,451) 2,202,599 3,071,429 468,805 $14,590,744 (1.4)% (2.5) (1.7) (23.8) (1.9) 3.6 (19.8) 1.8 (29.3) (1.9) 8.1 (1.2) 20.3 3.0 13.8 .6 2.7 69.0 1.4 % (1) Operating leases of $77.4 million and $105.9 million at December 31, 2010 and 2009, respectively, are included in Other Assets on the Consolidated Statements of Financial Condition. During the year ended December 31, 2010, TCF sold $10.7 million of minimum lease payment receivables, receiving cash of $10.7 million and recognizing a loss of $25 thousand. The retained residual values reported within the Statements of Financial Condition at December 31, 2010 totaled $183 thousand. Future minimum lease payments receivable for direct financing, sales-type leases and operating leases as of December 31, 2010, are as follows. (In thousands) 2011 2012 2013 2014 2015 Thereafter Total Total $ 910,363 636,486 408,759 207,209 77,826 26,290 $2,266,933 The aggregate amount of loans to non-management directors of TCF and their related interests was $7.4 million and $7.5 million at December 31, 2010 and 2009, respectively. During 2010, $2.5 million in new loans were made and $2.7 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, including 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 $97 thousand at December 31, 2010 and 2009. 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. 2010 Form 10-K • 63 • Acquired Loans and Leases During the year ended 2010, TCF paid $186.8 million to acquire leasing and equipment finance loans and leases having remaining contractual principal cash flows including residual on leases of $186.8 million and paid $168.6 million to acquire inventory finance loans having remaining contractual principal cash flows of $168.6 million. In total, TCF paid $355.4 million during the year ended 2010 to acquire loans and leases having remaining contractual principal cash flows including residual on leases of $355.4 million. At the time of acquisition, the expected principal cash flows including residual on leases to be collected over the life of the contracts was $355.2 million. As of December 31, 2010, it was probable that TCF would not collect all contractual principal remain- ing cash flows, but it was probable that TCF would collect more than the expected principal cash flows including residual on leases. During the year ended 2009, TCF paid $339.9 million to acquire leasing and equipment finance loans and leases having remaining contractual principal cash flows including residual on leases of $353.9 million and paid $274.7 million to acquire inventory finance loans having remaining contractual principal cash flows of $277.7 million. In total, TCF paid $614.6 million during the year ended 2009 to acquire loans and leases having remaining contractual principal cash flows including residual on leases of $631.6 million. At the time of acquisition, the expected principal cash flows including residual on leases to be collected over the life of the contracts was $615.2 million. For these loans and leases, it was probable that TCF would not collect all of the contractual principal amounts due, but was probable that TCF would collect more than the expected principal cash flows including residual on leases. These loans and leases were initially recorded at fair value and a non-accretable discount was established for the difference between the contractual principal cash flows and the expected principal cash flows determined at the time of acquisition. Non-accretable discounts of $4.2 million and $10.2 million remained on these portfolios at December 31, 2010, and December 31, 2009, respectively. In the future, if TCF is unable to collect the expected cash flows or revises its expectations below the current level, an allowance for credit losses will be established on these acquired portfolios. The excess of expected principal cash flows to be col- lected over the initial fair value of the acquired portfolios is referred to as the accretable yield and is accreted into interest income over the estimated life of the acquired portfolios using the effective yield method. The accretable yield is affected by changes in interest rate indices for variable-rate acquired portfolios, changes in prepayment assumptions and changes in the expected principal and interest payments over the estimated life of the loan. These loans and leases are classified as accruing and interest income continues to be recognized unless expected losses exceed the non-accretable discount. The following table provides a rollforward of unamortized accretable yield for all acquired loan and lease portfolios during the years ended December 31, 2010 and 2009. (In thousands) Balance, at beginning of year Portfolio acquisitions Reclassification from non-accretable discount for loans with improving cash flows Accretion Balance, at end of year Year Ended December 31, 2010 $ (13) (214) 221 – (183) $(189) 2009 $ – 833 (846) $ (13) Within the loan and lease portfolios acquired in 2009, there were certain loans which had experienced deterioration in credit quality at the time of acquisition. These loans had outstanding principal balances of $13.7 million and $21.6 million at December 31, 2010 and 2009, respectively. The non-accretable discount on loans acquired with deteriorated credit quality was $769 thousand and $1 million at December 31, 2010 and 2009, respectively. The remaining accretion to be recognized in expense for these loans was $207 thousand at December 31, 2010, and $376 thousand at December 31, 2009. Accretion of $169 thousand and $149 thousand was recorded during the years ended December 31, 2010 and 2009, respectively. • 64 • TCF Financial Corporation and Subsidiaries Note 6. Allowance for Loan and Lease Losses and Credit Quality Information Allowance for Loan and Lease Losses The following tables provide the allowance for loan and lease losses, other credit loss reserves and other information regarding the allowance for loan and leases losses and balances by type of allowance methodology. TCF’s key credit quality indicator is the receivable’s performance status, defined as accruing or non-accruing. (In thousands) Allowance for loan and lease losses: Balance, at beginning of year Charge-offs Recoveries Net charge-offs Provision for credit losses Balance, at end of year Other credit loss reserves: Reserves for unfunded commitments Total credit loss reserves Allowance for loan and lease losses: Individually evaluated for loss potential Collectively evaluated for loss potential Total Loans and leases outstanding: For the Year Ended December 31, 2010 Consumer Real Estate and Other $ 167,442 (151,107) 16,208 (134,899) 141,960 174,503 Commercial Real Estate and Commercial Business $ 43,504 (49,727) 1,327 (48,400) 67,374 62,478 Leasing and Equipment Finance $ 32,063 (34,745) 4,100 (30,645) 24,883 26,301 Inventory Finance $ 1,462 (1,484) 339 (1,145) 2,220 2,537 Total $ 244,471 (237,063) 21,974 (215,089) 236,437 265,819 1,147 $ 175,650 1,206 $ 63,684 – $ 26,301 – $ 2,537 2,353 $ 268,172 $ 777 173,726 $ 174,503 $ 35,550 26,928 $ 62,478 $ 8,823 17,478 $ 26,301 $ 440 2,097 $ 2,537 $ 45,590 220,229 $ 265,819 Individually evaluated for loss potential Collectively evaluated for loss potential Loans acquired with deteriorated credit quality Total $ 12,516 7,182,753 – $7,195,269 $ 712,737 2,933,466 – $3,646,203 $ 38,243 3,102,581 13,654 $3,154,478 $ 7,123 785,231 – $792,354 $ 770,619 14,004,031 13,654 $14,788,304 (In thousands) Allowance for loan and lease losses: Balance, at beginning of year Charge-offs Recoveries Net charge-offs Provision for credit losses Balance, at end of year Other credit loss reserves: Reserves for unfunded commitments Total credit loss reserves Allowance for loan and lease losses: Individually evaluated for loss potential Collectively evaluated for loss potential Total Loans and leases outstanding: For the Year Ended December 31, 2009 Commercial Real Estate and Commercial Business $ 51,251 (45,766) 1,138 (44,628) 36,881 43,504 Leasing and Equipment Finance $ 20,058 (29,372) 2,052 (27,320) 39,325 32,063 Consumer Real Estate and Other $ 101,100 (127,055) 12,678 (114,377) 180,719 167,442 Inventory Finance $ 33 (205) 23 (182) 1,611 1,462 Total $ 172,442 (202,398) 15,891 (186,507) 258,536 244,471 1,434 $ 168,876 2,416 $ 45,920 – $ 32,063 – $ 1,462 3,850 $ 248,321 $ 941 166,501 $ 167,442 $ 15,171 28,333 $ 43,504 $ 14,930 17,133 $ 32,063 $ 309 1,153 $ 1,462 $ 31,351 213,120 $ 244,471 Individually evaluated for loss potential Collectively evaluated for loss potential Loans acquired with deteriorated credit quality Total $ 4,266 7,327,725 – $7,331,991 $ 677,981 3,040,538 – $3,718,519 $ 50,008 2,999,831 21,590 $3,071,429 $ 1,086 467,719 – $468,805 $ 733,341 13,835,813 21,590 $14,590,744 2010 Form 10-K • 65 • Performing and Non-accrual Loans and Leases The following table sets forth information regarding TCF’s performing and non-accrual loans and leases. Performing loans and leases are considered to have a lower risk of loss and are on accruing status. Non-accrual loans and leases are those which management believes have a higher risk of loss than performing loans and leases. Delinquent balances are determined based on the contractual terms of the loan or lease. At December 31, 2010(1) (In thousands) Consumer real estate and other: 0-59 Days Delinquent and Accruing 90 Days or More Total 60+ Days 60-89 Days Delinquent Delinquent Delinquent and Accruing and Accruing and Accruing Total Performing Non- Accrual Total First mortgage lien Junior lien Other $ 4,679,168 2,214,805 39,099 $30,910 7,398 30 $42,938 13,365 9 $ 73,848 20,763 39 $ 4,753,016 2,235,568 39,138 $140,871 26,626 50 $ 4,893,887 2,262,194 39,188 Total consumer real estate and other Commercial real estate and commercial business: Real estate Business Total commercial real estate and commercial business Leasing and equipment finance:(1) Middle market Small ticket Winthrop Other Total leasing and equipment finance Inventory finance Subtotal Portfolios acquired with deteriorated credit quality Total 6,933,072 38,338 56,312 94,650 7,027,722 167,547 7,195,269 3,215,055 279,879 8,856 165 3,494,934 9,021 1,606,125 695,491 529,467 158,431 2,989,514 790,955 14,208,475 3,221 3,172 462 – 6,855 189 54,403 – – – 330 727 – – 8,856 165 3,223,911 280,044 104,305 37,943 3,328,216 317,987 9,021 3,503,955 142,248 3,646,203 3,551 3,899 462 – 1,609,676 699,390 529,929 158,431 23,153 11,018 134 102 1,632,829 710,408 530,063 158,533 1,057 155 57,524 7,912 344 111,927 2,997,426 791,299 14,320,402 34,407 1,055 345,257 3,031,833 792,354 14,665,659 119,529 $14,328,004 1,215 $55,618 1,901 $59,425 3,116 $115,043 122,645 $14,443,047 – $345,257 122,645 $14,788,304 (1) Operating leases of $77.4 million at December 31, 2010 are included in Other Assets on the Consolidated Statements of Financial Condition. • 66 • TCF Financial Corporation and Subsidiaries At December 31, 2009(1) 0-59 Days Delinquent and Accruing 60-89 Days Delinquent and Accruing 90 Days or More Delinquent and Accruing Total 60+ Days Delinquent and Accruing Total Performing Non- accrual Total (In thousands) Consumer real estate and other: First mortgage lien Junior lien Other $ 4,777,960 2,280,434 51,066 $30,631 8,259 154 $34,443 9,683 61 $ 65,074 $ 4,843,034 2,298,376 51,281 17,942 215 $ 118,313 $ 4,961,347 2,319,222 51,422 20,846 141 Total consumer real estate and other Commercial real estate and commercial business: Real estate Business Total commercial real estate and commercial business Leasing and equipment finance:(1) Middle market Small ticket Winthrop Other Total leasing and equipment finance Inventory finance Subtotal Portfolios acquired with deteriorated credit quality Total 7,109,460 39,044 44,187 83,231 7,192,691 139,300 7,331,991 3,191,354 420,901 3,612,255 1,424,197 657,734 572,209 154,981 2,809,121 467,319 13,998,155 22 46 68 8,387 2,458 231 33 11,109 350 50,571 – – – – 154 2,975 – 3,129 365 47,681 22 46 68 3,191,376 420,947 77,627 28,569 3,269,003 449,516 3,612,323 106,196 3,718,519 8,387 2,612 3,206 33 1,432,584 660,346 575,415 155,014 32,538 14,496 2,557 417 1,465,122 674,842 577,972 155,431 14,238 715 98,252 2,823,359 468,034 14,096,407 50,008 771 296,275 2,873,367 468,805 14,392,682 190,185 $14,188,340 3,502 $54,073 4,375 $52,056 7,877 198,062 $106,129 $14,294,469 – 198,062 $296,275 $14,590,744 (1) Operating leases of $105.9 million at December 31, 2009 are included in Other Assets on the Consolidated Statements of Financial Condition. The following table provides interest income recognized on loans and leases in non-accrual status and contractual interest that would have been recorded had the loans and leases performed in accordance with their original contractual terms. (In thousands) Contractual interest due on non-accrual loans and leases Interest income recognized on loans and leases in non-accrual status Net reduction in interest income For the Year Ended December 31, 2009 $31,368 3,010 $28,358 2008 $17,953 1,956 $15,997 2010 $40,016 6,773 $33,243 Consumer real estate loans to customers in bankruptcy totaled $109.2 million at December 31, 2010, compared with $77 million at December 31, 2009. Of these amounts, $23.3 million and $16 million were in non-accrual sta- tus at December 31, 2010 and 2009, respectively. As of December 31, 2010 and 2009, approximately 76% and 77%, respectively, of TCF consumer real estate loan customers in bankruptcy were less than 60 days past due on their payments. For the years ended December 31, 2010 and December 31, 2009, interest income would have been reduced by approximately $62 thousand and $45 thousand, respectively, had the accrual of interest income been dis- continued upon notification of bankruptcy. 2010 Form 10-K • 67 • Loan Modifications for Borrowers with Financial Difficulties Included within the loans and leases above are certain loans that have been modified in order to maximize collection of loan balances. If, for economic or legal reasons related to the customer’s financial difficulties, TCF grants a concession compared to the original terms and conditions on the loan that it would not have otherwise considered, the modified loan is classified as a TDR. Concessions related to TDRs generally do not include forgiveness of principal balances. All TDRs are considered to be impaired. TCF held consumer real estate loan TDRs of $367.9 million and $267.9 million at December 31, 2010 and December 31, 2009, respectively. Of these loans, $337.4 million and $252.5 million were accruing at December 31, 2010 and December 31, 2009, respectively. TCF also held $66.3 million and $9.6 million of commercial real estate loan TDRs at December 31, 2010 and December 31, 2009, respectively. Of these loans, $48.8 million were accruing at December 31, 2010. There were no accruing commercial loan TDRs at December 31, 2009. The amount of additional funds committed to borrowers who are in TDR status was $2.2 million at December 31, 2010 and $3 million at December 31, 2009. TDRs are evaluated separately in TCF’s allowance methodology based on the expected cash flows for loans in this status. Reserves for losses on accruing consumer real estate loan TDRs were $36.8 million, or 10.9% of the outstanding balance, at December 31, 2010 and $27 million, or 10.7% of the outstanding balance at December 31, 2009. TCF utilized its historical 16% re-default rate on consumer real estate loan TDRs in determining its assumed 20% re- default rate included in the estimated cash flows. Reserves for losses on accruing commercial real estate loan TDRs were $695 thousand, or 1.42% of the outstanding balance, at December 31, 2010. Consumer real estate loans that are less than 150 days past due, or six payments owing, at the time of modifica- tion remain on accrual status if there is demonstrated performance under a reduced payment amount prior to the actual legal modification and payment in full under the modified loan is expected. Otherwise, the loans are placed on non-accrual status and reported as non-accrual until there is sustained repayment performance for six con- secutive payments. An accruing modified loan is re-aged to current delinquency status after the receipt of three consecutive modified payments. The following table provides interest income recognized on TDRs and contractual interest that would have been recorded had the loans performed in accordance with their original contractual terms. (In thousands) Contractual interest due on TDRs Interest income recognized on TDRs Net reduction in interest income For the Year Ended December 31, 2008 $1,331 495 $ 836 2010 $21,297 11,318 $ 9,979 2009 $6,308 3,215 $3,093 Impaired Loans TCF considers impaired loans to include non-accrual commercial loans, equipment finance loans, inventory finance loans and consumer real estate or commercial TDRs. Non-accrual impaired loans are included in the previous tables within the amounts disclosed as non-accrual and the accruing consumer real estate and commercial TDRs have been previously disclosed as performing within the tables of performing and non-accrual loans and leases. The loan balance of impaired loans represents the amount recorded within loans and leases on the Consolidated Statements of Financial Condition whereas the unpaid contractual balance represents the balances legally owed by the borrowers, excluding write-downs. • 68 • TCF Financial Corporation and Subsidiaries The following impaired loans were included in previous amounts disclosed as performing and non-accrual and loan modifications for Borrowers with Financial Difficulty, as explained above. (In thousands) Impaired loans with an allowance recorded: Consumer real estate: First mortgage lien Junior lien Total consumer real estate Commercial real estate and commercial business: Commercial real estate Commercial business Total commercial real estate and commercial business Leasing and equipment finance: Middle market Small ticket Other Total leasing and equipment finance Inventory finance Total impaired loans with an allowance recorded Impaired loans without an allowance recorded: Consumer real estate: First mortgage lien Junior lien Total consumer real estate Total impaired loans (In thousands) Impaired loans with an allowance recorded: Consumer real estate: First mortgage lien Junior lien Total consumer real estate Commercial real estate and commercial business: Commercial real estate Commercial business Total commercial real estate and commercial business Leasing and equipment finance: Middle market Small ticket Other Total leasing and equipment finance Inventory finance Total impaired loans with an allowance recorded Impaired loans without an allowance recorded: Consumer real estate: First mortgage lien Junior lien Total consumer real estate Total impaired loans Unpaid Contractual Balance Loan Balance At December 31, 2010 Related Allowance Recorded Year-to-Date Year-to-Date Average Loan Interest Income Recognized Balance $315,289 21,679 336,968 $314,852 21,717 336,569 $35,340 3,006 38,346 $279,167 18,248 297,415 $10,311 687 10,998 192,426 41,168 153,143 37,943 20,214 8,558 115,385 33,256 233,594 191,086 28,772 148,641 13,181 524 102 13,807 1,055 13,181 524 102 13,807 1,055 2,745 155 2 2,902 185 13,147 599 260 14,006 913 115 4 119 80 1 8 89 48 585,424 542,517 70,205 460,975 11,254 37,822 2,972 40,794 $626,218 29,688 1,655 31,343 $573,860 – – – $70,205 19,232 1,300 20,532 $481,507 664 65 729 $11,983 Unpaid Contractual Balance $243,735 15,018 258,753 90,765 33,339 Loan Balance $243,481 14,779 258,260 77,627 28,569 124,104 106,196 13,112 674 417 14,203 771 13,112 674 418 14,204 771 At December 31, 2009 Related Allowance Recorded Year-to-Date Year-to-Date Average Loan Interest Income Recognized Balance $26,889 1,650 28,539 $134,928 7,977 142,905 $3,741 208 3,949 7,287 1,310 8,597 3,231 144 100 3,475 22 66,121 21,329 87,450 9,317 347 213 9,877 385 35 9 44 16 – 2 18 – 397,831 379,431 40,633 240,617 4,011 10,961 1,385 12,346 $410,177 8,722 944 9,666 $389,097 – – – $40,633 8,108 1,270 9,378 $249,995 279 27 306 $4,317 2010 Form 10-K • 69 • The increase in impaired loans from December 31, 2009, TCF leases certain premises and equipment under operating leases. Net lease expense including utilities and other operating expenses was $34.7 million, $35.3 million and $35.5 million in 2010, 2009 and 2008, respectively. At December 31, 2010, the total minimum rental payments for operating leases were as follows. (In thousands) 2011 2012 2013 2014 2015 Thereafter Total $ 25,995 23,818 22,211 20,776 18,733 98,295 $209,828 was primarily due to a $84.9 million increase in accruing consumer real estate TDRs resulting from TCF’s expanded consumer modification activity and an increase in accru- ing commercial real estate loan TDRs. Included in impaired loans were $326.1 million and $249.6 million of accruing consumer real estate loan TDRs less than 90 days past due as of December 31, 2010 and 2009, respectively. 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, 2009 2010 $142,024 $145,304 266,210 272,155 59,284 62,433 305,276 323,745 772,794 803,637 359,869 $443,768 324,864 $447,930 • 70 • TCF Financial Corporation and Subsidiaries Note 8. Goodwill and Other Intangible Assets Goodwill and intangible assets are summarized as follows. (In thousands) Amortizable intangible assets: Other intangibles related to wholesale banking segment Unamortizable intangible assets: Goodwill related to retail banking segment Goodwill related to wholesale banking segment Total At December 31, Gross Amount 2010 Accumulated Amortization Net Amount Gross Amount 2009 Accumulated Amortization Net Amount $ 1,450 $218 $ 1,232 $ 1,450 $45 $ 1,405 $141,245 11,354 $152,599 $141,245 $141,245 11,354 $152,599 11,354 $152,599 $141,245 11,354 $152,599 Other intangibles of $1.5 million was recorded as a result of the acquisition of Fidelity National Capital, Inc. in 2009. Amortization expense for intangible assets is estimated to be $172 thousand for 2011, $168 thousand for 2012, $156 thousand for 2013, $156 thousand for 2014 and $156 thousand for 2015. There was no impairment of goodwill or intangible assets for the years ended December 31, 2010, 2009, or 2008. 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 2010 Amount –% $ 2,429,061 2,101,003 .26 .12 .55 .54 .37 .84 .41 4,530,064 5,390,802 635,922 10,556,788 1,028,327 $11,585,115 At December 31, % of Total 21.0% 18.1 39.1 46.5 5.5 91.1 8.9 100.0% Rate at Year-End 2009 Amount –% .35 .16 .92 .71 $ 2,382,007 2,018,283 4,400,290 5,339,955 640,569 .58 1.22 .65% 10,380,814 1,187,505 $11,568,319 % of Total 20.6% 17.4 38.0 46.2 5.5 89.7 10.3 100.0% Certificates of deposit had the following remaining maturities at December 31, 2010. (In thousands) Maturity 0-3 months 4-6 months 7-12 months 13-24 months Over 24 months Total $100,000+ $120,529 91,963 93,936 28,559 3,136 $338,123 Other $138,610 162,208 263,546 110,249 15,591 $690,204 Total $ 259,139 254,171 357,482 138,808 18,727 $1,028,327 2010 Form 10-K • 71 • 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, 2010. 2010 2009 2008 Amount Rate Amount Rate Amount Rate (Dollars in thousands) At December 31, Federal Home Loan Bank advances Federal funds purchased Securities sold under repurchase agreements U.S. Treasury, tax and loan borrowings Line of credit — TCFCFC Total Year ended December 31, Average daily balance $100,000 15,000 7,534 3,054 1,202 $126,790 Federal Home Loan Bank advances $ 63,548 Federal funds purchased 43,151 Securities sold under repurchase agreements 12,211 U.S. Treasury, tax and loan borrowings Line of credit — TCFCFC Line of credit — holding company Total Maximum month-end balance Federal funds purchased Federal Home Loan Bank advances Securities sold under repurchase agreements Line of credit — TCFCFC Line of credit — holding company U.S. Treasury, tax and loan borrowings N.A. Not Applicable. 3,139 2,842 – $124,891 $205,000 200,000 19,913 10,202 – 5,029 .27% .15 .10 – 4.00 .27 .25% .21 .16 – 7.07 – .38 N.A. N.A. N.A. N.A. – N.A. $200,000 17,000 24,485 3,119 – $244,604 $ 15,959 45,795 20,934 2,540 – – $ 85,228 $228,000 200,000 24,994 – – 3,119 .22% .11 $ – 200,000 .20 – – .20 24,980 1,881 – $226,861 .22% .14 $133,538 208,307 .61 .20 – – .27 N.A. N.A. N.A. N.A. – N.A. 36,666 27,255 – 5,997 $411,763 $395,000 400,000 57,485 – 17,500 255,715 –% .03 2.75 – – .33 1.97% 2.14 2.47 2.55 – 5.17 2.18 N.A. N.A. N.A. – N.A. N.A. Securities underlying 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 identi- cal securities upon the maturities of the agreements. At December 31, 2010, all of the securities sold under short- term repurchase agreements provided for the repurchase of identical securities and were collateralized by mortgage- backed securities having a fair value of $25.6 million. • 72 • TCF Financial Corporation and Subsidiaries 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 Junior subordinated notes (trust preferred) Senior unsecured term note Discounted lease rentals Subtotal Total long-term borrowings At December 31, 2010 Year of Maturity 2010 2011 2013 2015 2016 2017 2018 2014 2015 2016 2068 2012 2010 2011 2012 2013 2014 2015 2016 2017 Amount $ – 300,000 400,000 900,000 1,100,000 1,250,000 300,000 4,250,000 71,020 50,000 74,589 195,609 111,061 89,787 – 84,101 61,829 39,155 16,463 5,211 3,818 1,787 212,364 $4,858,821 Weighted- Average Rate –% 4.64 .97 4.18 4.49 4.60 3.51 4.07 1.96 1.89 5.63 3.34 12.28 3.83 – 5.30 5.31 5.28 5.12 5.02 4.98 4.98 5.27 4.27 Amount $ 100,000 300,000 – 900,000 1,100,000 1,250,000 300,000 3,950,000 71,020 49,969 74,522 195,511 110,441 – 108,795 69,420 43,968 25,657 6,500 402 201 – 254,943 $4,510,895 2009 Weighted- Average Rate 6.02% 4.64 – 4.18 4.49 4.60 3.51 4.43 1.91 5.37 5.63 4.21 11.20 – 5.42 5.55 5.62 5.72 5.84 5.89 5.91 – 5.53 4.65 At December 31, 2010, TCF has pledged loans secured by residential real estate, commercial real estate loans and FHLB stock with an aggregate carrying value of $7.4 billion as collateral for FHLB advances. Included in FHLB advances and repurchase agreements at December 31, 2010 are $300 million of fixed-rate FHLB advances and repurchase agree- ments, which are callable quarterly by counterparties at par until maturity. In addition, TCF has $200 million of FHLB advances and $200 million of repurchase agreements which contain one-time call provisions through 2011. The probability that the advances and repurchase agreements will be called by counterparties depends primarily on the level of related interest rates during the call period. If FHLB advances are called, replacement fund- ing will be available from the FHLB at the then-prevailing market rate of interest for the term selected by TCF, subject to standard terms and conditions. Subordinated bank notes with stated maturities in 2014 and 2015 are callable quar- terly by TCF and have variable interest rates which reset quarterly. The next call year and stated maturity year for the call- able FHLB advances and repurchase agreements outstanding at December 31, 2010 were as follows. (Dollars in thousands) Next Call $700,000 – – – – $700,000 Weighted- Average Rate 3.92% – – – – 3.92 Year 2011 2015 2016 2017 2018 Total Stated Maturity $ – 200,000 100,000 100,000 300,000 $700,000 Weighted- Average Rate –% 3.88 4.82 4.37 3.51 3.92 2010 Form 10-K • 73 • The effective income tax rate differs from the federal income tax rate of 35% as a result of the following. Federal income tax rate Increase (decrease) in income tax expense resulting from: State income tax,net of federal income tax benefit Investments in affordable housing Deductible stock dividends Changes in uncertain tax positions Compensation deduction limitations Deferred tax adjustments due to law changes Non-controlling interest Year Ended December 31, 2008 2009 35.00% 35.00% 2010 35.00% 3.71 3.81 1.86 (.78) (.25) (1.42) (.85) (.77) (1.60) (.15) (3.42) .18 – .75 .35 .57 .77 1.40 tax effect Other, net Effective income tax rate (.49) (.29) 36.93% .11 .27 34.60% – .07 37.30% A reconciliation of the change in the gross amount, before related tax effects, of unrecognized tax benefits from January 1, 2010 to December 31, 2010 is as follows: (In thousands) Balance at January 1, 2010 Increases for tax positions related to the current year Decreases for tax positions related to prior years Decreases related to lapses of applicable statutes of limitation Balance at December 31, 2010 $2,857 562 (251) (704) $2,464 The total amount of unrecognized tax benefits that, if recognized, would affect the tax provision and the effective income tax rate is $1 million, net of related tax benefit effects. The gross amount of accrued interest on unrecognized tax benefits was $218 thousand at December 31, 2010. TCF recorded a reduction of accrued interest of $154 thousand and $419 thousand during 2010 and 2009, respectively. The $71 million of subordinated notes due 2014 will reprice quarterly at the three-month LIBOR rate plus 1.63%. These subordinated notes may be redeemed by TCF Bank at par once a quarter at TCF’s discretion. The $50 million of subordinated notes due 2015 will reprice quarterly at the three-month LIBOR rate plus 1.56%. These subordinated notes may be redeemed by TCF Bank at par once a quarter at TCF’s discretion. The $74.6 million of subordinated notes due 2016 have a fixed-rate coupon of 5.5% until February 1, 2016. All of these subordinated notes qualify as Tier 2 or supple- mentary capital for regulatory purposes, subject to certain limitations. TCF’s trust preferred securities are callable, with Federal Reserve approval, at par beginning August 15, 2013 or within 90 days of the occurrence of a Capital Treatment Event, as defined by TCF’s trust preferred securities Supplemental Indenture dated August 19, 2008. During the second quarter of 2010, TCF entered into a $90 million senior unsecured variable-rate term note maturing in July 2012. The loan is prepayable and contains certain cov- enants common to such agreements. TCF was not in default with respect to any covenants at December 31, 2010. For certain equipment leases, TCF sells its minimum lease rentals to other financial institutions at fixed rates on a non-recourse basis with its underlying equipment as collateral as a credit risk reduction tool and such transaction did not qualify as sales. In the event of a default by customer on these leases, the other financial institution has a first lien on the underlying leased equipment and TCF is only entitled to residual proceeds in excess of the outstanding borrowing balance. In these non-recourse financings, the other financial institution has no further recourse against TCF. Note 12. Income Taxes (In thousands) Year ended December 31, 2010: Current Deferred Total Federal State Total Year ended December 31, 2009: Federal State Total Year ended December 31, 2008: Federal State Total $49,462 11,695 $61,157 $ 4,311 6,285 $10,596 $46,627 1,715 $48,342 $24,740 1,868 $26,608 $33,775 1,483 $35,258 $24,191 4,169 $28,360 $74,202 13,563 $87,765 $38,086 7,768 $ 45,854 $70,818 5,884 $ 76,702 • 74 • TCF Financial Corporation and Subsidiaries TCF’s federal income tax returns are open and subject to examination from the 2007 tax return year and forward. TCF’s various state income tax returns are generally open from the 2006 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. The significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows. (In thousands) Deferred tax assets: Allowance for loan and lease losses Stock compensation and deferred compensation plans Securities available for sale Net operating losses Valuation allowance Accrued expenses Other Total deferred tax assets Deferred tax liabilities: Lease financing Loan fees and discounts Premises and equipment Prepaid expenses Investment in FHLB stock Investments in affordable housing Securities available for sale Other Total deferred tax liabilities Net deferred tax liabilities At December 31, 2010 2009 $ 91,730 $ 81,510 18,620 9,442 8,988 (4,159) 3,151 8,507 136,279 18,558 – 11,891 (3,832) 1,841 7,177 117,145 249,072 22,769 16,182 9,286 3,134 2,554 – 7,461 310,458 $174,179 211,360 22,926 14,068 8,595 3,134 2,960 812 8,851 272,706 $155,561 Note 13. Equity Restricted Retained Earnings Retained earnings at TCF National Bank, a wholly owned subsidiary of TCF Financial Corporation, at December 31, 2010 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 distri- butions 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. Treasury Stock and Other Treasury stock and other consists of the following. (In thousands) Treasury stock, at cost Shares held in trust for deferred compensation plans, at cost Total At December 31, 2010 2009 $ (1,325) $(29,435) (21,790) (21,392) $(23,115) $(50,827) No repurchases of common stock were made in 2010, 2009 or 2008. At December 31, 2010, TCF had 5.4 million shares remaining in its stock repurchase programs autho- rized by the Board. Public Offering of Common Stock In February of 2010, TCF completed a public offering of common stock which raised net proceeds of $164.6 million through the issuance of 12,322,250 common shares. Shares Held in Trust for Deferred Compensation Plans TCF has maintained 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 stock. In October of 2008, TCF terminated these plans for those participants who elected to do so. Directors are allowed to defer up to 100% of their fees and restricted stock awards. TCF also has a supplemental nonqualified Employee Stock Purchase Plan in which certain employees can contribute from 0% to 50% of their salary and bonus. TCF matching contributions to this plan totaled $807 thousand and $463 thousand in 2010 and 2009, respectively. The company made no other contributions to these plans, other than payment of administrative 2010 Form 10-K • 75 • expenses. The amounts deferred were invested in TCF stock or other publicly traded stocks, bonds or mutual funds. At December 31, 2010, the fair value of the assets in the plans totaled $31.4 million and included $22.3 million invested in TCF common stock compared with a total fair value of $28 million, including $20.5 million invested in TCF common stock at December 31, 2009. The cost of TCF common stock held by TCF’s deferred compensation plans is reported separately in a manner similar to treasury stock (that is, changes in fair value are not recognized) with a corresponding deferred compensation obligation reflected in additional paid-in capital. Preferred Stock On April 22, 2009, TCF redeemed all of the 361,172 outstanding shares of its Fixed-Rate Cumulative Perpetual Preferred Stock, Series A, $.01 Par Value. Upon redemption, the difference of $12 million between the pre- ferred stock redemption amount and the recorded amount was charged to retained earnings as a non-cash deemed preferred stock dividend. This non-cash deemed preferred stock dividend had no impact on total equity, but reduced earnings per diluted common share by 10 cents. Warrants At December 31, 2010, TCF had 3,199,988 warrants outstanding with a strike price of $16.93 per share, which expire on November 14, 2018. Upon the completion of the U.S. Treasury’s secondary public offering of the warrants issued under the Capital Purchase Program (CPP), in December of 2009, the warrants became publicly traded on the New York Stock Exchange under the symbol “TCB WS”. As a result, TCF has no further obligations to the Federal Government in connection with the CPP. 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, which was $239.9 million at December 31, 2010, 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. • 76 • TCF Financial Corporation and Subsidiaries 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 stated minimum and well-capitalized capital ratio requirements. (Dollars in thousands) As of December 31, 2010: 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, 2009: 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 Amount Ratio Minimum Capital Requirement(1) Ratio Amount Well-Capitalized Capital Requirement(1) Ratio Amount $1,475,525 1,519,201 8.00% 8.24 $ 553,448 553,146 3.00% 3.00 N.A. $ 921,909 1,475,525 1,519,201 1,808,412 1,851,962 $1,161,750 1,103,875 1,161,750 1,103,875 1,514,940 1,456,858 10.59 10.91 12.98 13.31 557,164 556,756 1,114,328 1,113,511 4.00 4.00 8.00 8.00 835,746 835,133 1,392,910 1,391,889 6.59% 6.27 $ 528,681 527,836 3.00% 3.00 N.A. $ 879,727 8.52 8.11 11.12 10.70 545,115 544,648 1,090,230 1,089,297 4.00 4.00 8.00 8.00 817,672 816,972 1,362,787 1,361,621 N.A. 5.00% 6.00 6.00 10.00 10.00 N.A. 5.00% 6.00 6.00 10.00 10.00 (1) The minimum and well capitalized requirements are determined by the Federal Reserve for TCF and by the OCC for TCF National Bank pursuant to the FDIC Improvement Act of 1991. At December 31, 2010, TCF and TCF National Bank exceeded their regulatory capital requirements and are considered “well-capitalized”. Note 15. Stock Compensation The TCF Financial Incentive Stock Program (the “Program”) was adopted to enable TCF to attract and retain key personnel. At December 31, 2010, there were 4,760,019 shares reserved for issuance under the Program. At December 31, 2010, there were 207,194 shares of performance-based restricted stock that will vest only if certain return on equity goals or service conditions, as defined in the Program, are achieved. Failure to achieve the goals and service conditions will result in all or a por- tion of the shares being forfeited. Other restricted stock grants vest over periods from one year to seven years. The weighted-average grant date fair value of restricted stock was $13.36, $10.33 and $12.50 for shares granted in 2010, 2009 and 2008, respectively. Compensation expense for restricted stock and stock options totaled $9.1 million, $7.9 million and $5.7 million in 2010, 2009 and 2008, respectively. The recognized tax benefit for stock compen- sation expense was $3.5 million, $3 million and $2 million in 2010, 2009 and 2008, respectively. Unrecognized stock compensation expense for restricted stock awards and stock options were $12.4 million with a weighted-average remaining amortization period of .9 years at December 31, 2010, compared with $17.3 million with a weighted-average remaining amortization period of 1.6 years at December 31, 2009 and $20.8 million with a weighted-average remaining amortization period of 2.4 years at December 31, 2008. TCF has also issued stock options under the Program that generally become exercisable over a period of one to ten years from the date of the grant and expire after ten years. All outstanding options have a fixed exercise price equal to the market price of TCF common stock on the date of grant. 2010 Form 10-K • 77 • The following table reflects TCF’s stock option and restricted stock transactions under the Program since December 31, 2007. Outstanding at December 31, 2007 Granted Exercised Forfeited Vested Outstanding at December 31, 2008 Granted Exercised Forfeited Vested Outstanding at December 31, 2009 Granted Forfeited Vested Outstanding at December 31, 2010 Exercisable at December 31, 2010 N.A. Not Applicable. Restricted Stock Stock Options Exercise Price Shares 2,525,216 753,650 – (222,850) (1,168,499) 1,887,517 718,761 – (481,000) (254,433) 1,870,845 307,433 (20,000) (387,653) 1,770,625 N.A. Price Range $ 9.87 - 30.28 9.41 - 17.37 – 17.37 - 30.28 9.87 - 28.02 9.41 - 30.28 8.29 - 13.43 – 10.37 - 28.71 17.33 - 30.28 7.57 - 30.28 11.50 - 14.60 10.37 - 28.02 8.29 - 28.71 7.57 - 30.13 N.A. Shares 144,050 2,626,000 (13,000) (383,631) – 2,373,419 – (108,800) (56,000) – 2,208,619 – – – 2,208,619 – Range $11.78 - 16.09 12.85 - 15.75 11.78 - 14.30 15.03 - 16.09 – 11.78 - 15.75 – 11.78 - 14.52 11.78 - 15.75 – 12.85 - 15.75 – – – 12.85 - 15.75 – Weighted- Average $13.91 14.65 12.56 15.74 – 14.44 – 14.14 14.95 – 14.44 – – 14.44 – The following table summarizes information about stock options outstanding at December 31, 2010. Exercise price range $12.85-$15.75 Stock Options Outstanding Stock Options Exercisable Weighted- Average Exercise Price $14.44 Weighted- Average Remaining Contractual Life in Years 7.26 Shares 2,208,619 Weighted- Average Exercise Price $ – Shares – • 78 • TCF Financial Corporation and Subsidiaries Additional valuation and related assumption informa- tion for TCF’s stock option plans related to options issued in 2008 is presented below. No stock options were issued in 2009 or 2010. Expected volatility Weighted-average volatility Expected dividend yield Expected term (in years) Risk-free interest rate 28.5% 28.5% 3.5% 6.25 – 6.75 2.58 – 2.91% Note 16. Employee Benefit Plans Employees Stock Purchase Plan The TCF Employees Stock Purchase Plan, a qualified 401(K) and employee stock ownership plan, generally allows participants to make contributions of up to 50% of their covered compensation on a tax-deferred basis, subject to the annual covered compensation limitation imposed by the Internal Revenue Service (“IRS”). 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 covered compensation, 75 cents per dollar for employees with five through nine years of service, up to a maximum company contribution of 4.5% of the employ- ee’s covered compensation, and $1 per dollar for employees with 10 or more years of service, up to a maximum company contribution of 6% of the employee’s covered compensation, subject to the annual covered compensation limitation imposed by the IRS. Employee contributions vest immediately while the Company’s matching contributions are subject to a graduated vesting schedule based on an employee’s years of service with full vesting after five years. Employees have the opportunity to diversify and invest their account balance, including matching contributions, in various mutual funds or TCF common stock. At December 31, 2010, the fair value of the assets in the plan totaled $163.4 million and included $116 million invested in TCF common stock. The Company’s matching contributions are expensed when made. TCF’s contributions to the plan were $6.9 million in 2010, 2009 and 2008, 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. Each month TCF credits participant accounts with interest on the account balance based on the five- year Treasury rate plus 25 basis points determined at the beginning of each year. All participant accounts are vested. 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. 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. Employees retiring after December 31, 2009 are no longer eligible to participate in the Postretirement Plan. The Postretirement Plan is not funded. 2010 Form 10-K • 79 • 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 Actuarial 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 of plans at end of year Amounts recognized in the 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, before tax Total recognized asset (liability) N.A. Not Applicable. Pension Plan Year Ended December 31, 2009 2010 Postretirement Plan Year Ended December 31, 2009 2010 $48,473 443 $48,916 $48,916 $48,824 – 2,554 1,726 (4,188) 48,916 50,605 9,938 (4,188) – 56,355 $ 7,439 $50,933 (2,109) $48,824 $48,824 $49,049 – 2,918 935 (4,078) 48,824 38,624 13,559 (4,078) 2,500 50,605 $ 1,781 N.A. N.A. N.A. N.A. $ 9,166 2 7 455 460 (528) 9,555 – – – – (528) 528 – – $(9,555) N.A. N.A. N.A. N.A. $ 8,384 495 892 (612) 9,166 (612) 612 $(9,166) $ 7,439 $ 1,781 $(9,555) $(9,166) – 20,083 20,083 $27,522 – 27,020 27,020 $28,801 7 4,423 4,430 $(5,125) 11 4,277 4,288 $(4,878) • 80 • TCF Financial Corporation and Subsidiaries At December 31, 2010, assets held in trust for the Pension Plan included investments in mutual funds and money market funds. The fair value of these assets is based upon quotes from independent asset pricing services for identical assets based on active markets, which are considered level 1 under Fair Value Measurements and are measured on a recurring basis. The following table sets forth the changes recognized in accumulated other comprehensive loss at the dates indicated. (In thousands) Accumulated other comprehensive loss at the beginning of the year Net actuarial (gain) loss arising during the period Amortizations (recognized in net periodic benefit cost): Transition obligation Actuarial loss Settlement expense Measurement date change Total recognized in other comprehensive (income) loss Accumulated other comprehensive loss at end of year, before tax Pension Plan Year Ended December 31, 2010 2009 2008 2010 Postretirement Plan Year Ended December 31, 2009 2008 $27,020 $ 38,788 $ 7,221 $4,288 $3,652 $4,538 (3,266) (7,495) 33,130 460 892 (492) – (1,595) (2,076) – – (1,263) (3,010) – – (859) (490) (214) (6,937) (11,768) 31,567 (4) (314) – – – 142 (4) (252) – – 636 (4) (311) (79) (886) $20,083 $ 27,020 $38,788 $4,430 $4,288 $3,652 The measurement dates used for determining the Pension Plan and the Postretirement Plan projected and accumulated benefit obligations and the dates used to value plan assets were December 31, 2010 and December 31, 2009. The discount rate used to measure the benefit obligation of the Pension Plan was 4.75% for the year ended December 31, 2010 and 5.5% for the year ended December 31, 2009. The discount rate used to measure the benefit obligation of the Postretirement Plan was 4.75% for the year ended December 31, 2010 and 5.25% for the year ended December 31, 2009. Net periodic benefit cost (income) included in compensation and employee benefits expense consists of the following. Pension Plan Year Ended December 31, (In thousands) Interest cost Expected return on plan assets Service cost Recognized actuarial loss Settlement expense Amortization of transition obligation Net periodic benefit cost (income) 2010 $ 2,554 (4,946) – 1,595 2,076 – $ 1,279 2009 $ 2,918 (5,129) – 1,263 3,010 – $ 2,062 2008 $ 2,934 (5,059) – 859 490 – $ (776) Postretirement Plan Year Ended December 31, 2009 $495 – 7 252 – 4 $758 2010 $455 – – 2 314 – – 4 4 $775 2008 $537 12 310 $863 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 N.A. Not Applicable. Pension Plan Year Ended December 31, 2009 6.25% 8.50 2010 5.50% 8.50 2008 6.00% 8.50 2010 5.25% N.A. Postretirement Plan Year Ended December 31, 2009 6.25% N.A. 2008 6.00% N.A. 2010 Form 10-K • 81 • The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during 2011 are as follows. (In thousands) Actuarial net loss Settlement expense Transition obligation Net loss 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 (equally weighted) and the Morgan Stanley Capital International U.S. Mid-Cap 450 indexes, at targeted weightings of 50% and 50%, respectively. The actuarial assumptions used in the Pension Plan valuation are reviewed annually. The expected long-term rate of return on plan assets is determined by reference to historical market returns and future expectations. The 10-year weighted-average return of the indexes consistent with the Plan’s current investment strategy was 5.4%, net of administrative expenses. Although past performance is no guarantee of the future results, TCF is not aware of any reasons why it should not be able to achieve the assumed future average long-term annual returns of 5.0%, 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 $553 thousand change in net periodic pension expense. The discount rate used to determine TCF’s pension and postretirement benefit obligations as of December 31, 2010 and December 31, 2009, was determined by matching estimated 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. The actual return on plan assets, net of administra- tive expenses was 21.1% for the year ended December 31, 2010, and 32.8% for the year ended December 31, 2009. The actual gain on plan assets for the year ended December 31, 2010, decreased the actuarial loss by $5 million. The decrease in the discount rate from 5.5% at December 31, 2009 to 4.75% at December 31, 2010 increased the actu- arial loss by $2.3 million. Various plan participant census Pension Plan $1,917 1,473 – $3,390 Postretirement Plan $324 – 4 $328 Total $2,241 1,473 4 $3,718 changes decreased the actuarial loss by $606 thousand during the year ended December 31, 2010. The accumulated other comprehensive loss in excess of 10% of the greater of the accumulated benefit obligation or fair value of the plan assets is amortized over approximately seven years. For 2010, TCF is eligible to contribute up to $15.5 million to the Pension Plan until the 2010 federal income tax return extension due date under various IRS funding methods. During 2010, TCF made no cash contributions to the Pension Plan. TCF does not expect to be required to contribute to the Pension Plan in 2011. TCF expects to contribute $979 thousand to the Postretirement Plan in 2011. TCF contributed $528 thousand to the Postretirement Plan for the year ended December 31, 2010. TCF currently has no plans to pre-fund the Postretirement Plan in 2011. The following are expected future benefit payments used to determine projected benefit obligations. (In thousands) 2011 2012 2013 2014 2015 2016-2020 Pension Postretirement Plan $ 979 958 938 912 882 3,859 Plan $ 4,254 4,457 3,640 4,088 3,248 16,177 The following table presents assumed health care cost trend rates for the Postretirement Plan at December 31, 2010 and 2009. Health care cost trend rate assumed for next year Final health care cost trend rate Year that final health care trend rate is reached 2010 2009 7.50% 5% 7.75% 5% 2023 2023 • 82 • TCF Financial Corporation and Subsidiaries Assumed health care cost trend rates have an effect on the amounts reported for the Postretirement Plan. A 1% 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 $ 17 $ (16) $410 $(371) 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 customers. 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 recognized 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 instru- ment, 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 a credit evaluation of the customer. Financial instruments with off-balance sheet risk are summarized as follows: (In thousands) Commitments to extend credit: At December 31, 2010 2009 Consumer real estate and other Commercial Leasing and equipment finance $1,444,619 277,427 148,597 $1,596,706 336,428 124,898 Total commitments to extend credit 1,870,643 2,058,032 Standby letters of credit and guarantees on industrial revenue bonds Total 31,062 $1,901,705 39,281 $2,097,313 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 2015. Collateral held primarily consists of commercial real estate mort- gages. 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 outstanding commitments. Note 18. Foreign Exchange Contracts Forward foreign exchange contracts to sell a foreign currency are used to manage the foreign exchange risk associated with certain assets, liabilities and forecasted transactions. Forward foreign exchange contracts represent agreements to exchange a foreign currency for U.S. dollars at an agreed- upon price on an agreed-upon settlement date. All forward foreign exchange contracts are recognized within other assets or other liabilities at fair value on the Statement of Financial Condition. These typically settle within 30 days with the exception of contracts associated with cash flow hedges which have maturities as long as seven months. The following table summarizes the forward foreign exchange contracts, recorded at fair value, that are reflected within other assets and other liabilities on TCF’s Consolidated Statements of Financial Condition. See Note 20 Fair Values of Financial Instruments for additional information. 2010 Form 10-K (In thousands) Forward foreign exchange contracts Netting adjustments (1) Carrying value of contracts Receivables Not Notional Designated Designated as Hedges as Hedges Amount $ 3 $ 12 $185,540 (3) (12) $ – $ – At December 31, 2010 Payables Not Designated Designated as Hedges $1,659 (3) $1,656 as Hedges $198 (12) $186 Total $ 15 (15) $ – • 83 • Total $1,857 (15) $1,842 (1) Foreign exchange contract receivables and payables, and the related cash collateral received and paid are netted when a legally enforceable master netting agreement exists between TCF and a counterparty. The value of forward foreign exchange contracts will vary over their contractual lives as the related currency exchange rates fluctuate. The accounting for changes in the fair value of a forward foreign exchange contract depends on whether or not the contract has been designated and qualifies as a hedge. To qualify as a hedge, a contract must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a contract to be designated as a hedge, the risk management objective and strategy must be documented. Hedge documentation must also identify the hedging instrument, the asset or liability and type of risk to be hedged and how the effectiveness of the contract is assessed prospectively and retrospectively. To assess effectiveness, TCF uses statistical methods such as regression analysis. The extent to which a contract has been, and is expected to continue to be effective at offsetting changes in cash flows or the net investment must be assessed and documented at least quarterly. If it is determined that a contract is not highly effective at hedging the designated exposure, hedge accounting is discontinued. Upon origination of a forward foreign exchange contract, the contract is designated either as a hedge of a forecasted transaction or the variability of cash flows to be paid related to a recognized asset or liability (“cash flow hedge”); or a hedge of the volatility of an investment in foreign operations driven by changes in foreign currency exchange rates (“net investment hedge”). To the extent that a hedge is effective, changes in fair value are recorded within accumulated other comprehensive income (loss), with any ineffectiveness recorded in non-interest expense. Changes in cash flow hedges recorded within other comprehensive income (loss) are subsequently reclassified to non-interest expense upon completion of the sale. Changes in net investment hedges recorded within other comprehensive income (loss) are subsequently reclassified to non-interest expense during the period in which the foreign investment is substantially liquidated or when other elements of the currency translation adjustment are reclassified to income. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately. Changes in the values of forward foreign exchange contracts that are not designated as hedges are reflected in non-interest expense. Cash Flow Hedges Foreign exchange contracts, which include forward contracts, are used to manage the foreign exchange risk associated with the TCF’s minimum lease payment stream. These foreign exchange contracts are hedges of the forecasted cash flows from the underlying lease agreement expected through June 30, 2011. At December 31, 2010, the Company had $1 thousand of unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss). The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the next 12 months is a loss of $1 thousand. Net Investment Hedges Foreign exchange contracts, which include forward contracts and currency options, are used to manage the foreign exchange risk associated with the Company’s net investment in TCF Commercial Finance Canada, Inc., a wholly-owned Canadian subsidiary, along with certain assets, liabilities and forecasted transactions of that subsidiary. The net amount of related gains or losses included in the cumulative translation adjustment for the year ended December 31, 2010 was a loss of $195 thousand. • 84 • TCF Financial Corporation and Subsidiaries The following table summarizes the pre-tax impact of foreign exchange activity on other non-interest expense within the Consolidated Statements of Income and Consolidated Statements of Financial Condition, by accounting designation. (In thousands) Foreign exchange gains Forward foreign exchange contract losses: Net investment hedge Cash flow hedge Not designated as hedges Total Accumulated other comprehensive income (loss): Foreign currency translation adjustment Net investment hedge Cash flow hedge Total Year Ended December 31, 2010 $ 1,720 – – (1,976) (1,976) 575 (195) (1) $ 379 TCF executes all of its foreign exchange contracts in the over-the-counter market with large, international financial institutions. These contracts also include credit risk-related contingent features, primarily in the form of International Swaps and Derivatives Association, Inc. (“ISDA”) master agreements that enhance the credit- worthiness of these instruments as compared to other obligations of the respective counterparty with whom TCF has transacted. These contingent features may be for the benefit of TCF, as well as its counterparties with respect to changes in TCF’s creditworthiness. At December 31, 2010, TCF had posted $854 thousand of U.S. Treasury securities as collateral in the normal course of business under such agreements. The amount of collateral required depends on the contract and is determined daily based on market and currency exchange rate conditions. In connection with certain over-the-counter forward foreign exchange contracts, TCF could be required to provide additional collateral or to terminate transactions with certain counterparties in the event that, among other things, TCF National Bank’s long-term debt is rated less than BB- by Standard and Poor’s ratings group. At December 31, 2010, approximately $1.3 million of additional collateral would be required if the credit risk-related contingent features were triggered, which would bring the total collateral required to $2.1 million at December 31, 2010. There were $349 thousand of forward foreign exchange contracts containing credit risk related features in a net liability position at December 31, 2010. Note 19. Fair Value Measurement Fair values represent the estimated price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price”. The following is a description of valuation methodologies used for assets recorded at fair value on a recurring basis at December 31, 2010. Securities Available for Sale Securities available for sale consist primarily of U.S. Government sponsored enterprise securities and U.S. Treasury bills. The fair value of U.S. Government sponsored enterprise securities is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets, and are classified as Level 2 assets. The fair value of U.S. Treasury bills is recorded using prices obtained from independent asset pricing services that obtain prices from brokers and active market participants, and are classified as Level 1 assets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and comparisons to current market trading activity. However, management does not adjust these prices. Other securities, for which there is little or no market activity, are categorized as Level 3 assets. Other securities classified as Level 3 assets include equity investments in other thinly traded financial institutions and foreign debt securities. The fair value of these assets is determined by using quoted prices, when available, and incorporating results of internal pricing techniques and observable market information, which is adjusted for security specific information, such as financial statement strength, earnings history, disclosed fair value measurements, recorded impairments and key financial ratios, to determine fair value. Assets Held in Trust for Deferred Compensation Assets held in trust for deferred compensation plans included investments in publicly traded stocks, excluding TCF common stock reported in treasury and other in equity, and mutual funds. The fair value of these assets is based upon prices obtained from independent asset pricing services based on active markets. 2010 Form 10-K • 85 • At December 31, 2010, the fair value of assets measured on a recurring basis are: (In thousands) Securities available for sale: Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other U.S. Treasury bills Other securities Forward foreign currency contracts Assets held in trust for deferred compensation plans(4) Total assets Forward foreign currency contracts Total liabilities At December 31, 2009: Securities available for sale: Mortgage-backed securities: U.S. Government sponsored enterprises and federal agencies Other Other securities Assets held in trust for deferred compensation plans(4) Total assets (1) Considered Level 1 under ASC 820, Fair Value Measurements and Disclosures. (2) Considered Level 2 under ASC 820, Fair Value Measurements and Disclosures. Readily Available Market Prices(1) Observable Market Prices(2) Market Prices(3) Company Determined Total at Fair Value $ – – 25,000 – – 9,178 $34,178 $ – $ – $1,903,536 – – – 15 – $1,903,551 $ 1,856 $ 1,856 $ – 222 – 2,416 – – $2,638 $ – $ – $1,903,536 222 25,000 2,416 15 9,178 $1,940,367 $ 1,856 $ 1,856 $ – – – 7,511 $ 7,511 $ 1,905,209 – – – $ 1,905,209 $ – 263 5,004 – $5,267 $ 1,905,209 263 5,004 7,511 $ 1,917,987 (3) Considered Level 3 under ASC 820, Fair Value Measurements and Disclosures, and is based on valuation models that use significant assumptions that are not observable in an active market. (4) A corresponding liability is recorded in other liabilities for TCF’s obligation to the participants in these plans. • 86 • TCF Financial Corporation and Subsidiaries The change in the financial assets carried at fair value using Company Determined Market Prices from $5.3 million at December 31, 2009, to $2.6 million at December 31, 2010, was the result of impairment charges totaling $2.1 million recorded through gains on securities, net, decreases in fair values of $417 thousand recorded through other comprehensive income and reductions due to principal paydowns of $90 thousand. The following is a description of valuation methodologies used for assets measured on a non-recurring basis. Loans Impaired loans for which repayment of the loan is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the fair value of such collateral. Long-lived Assets Held for Sale Long-lived assets held for sale include real estate owned and repossessed and returned equipment. The fair value of real estate owned is based on independent full appraisals, real estate broker’s price opinions, or automated valuation methods, less estimated selling costs. Certain properties require assumptions that are not observable in an active market in the determination of fair value. The fair value of repossessed and returned equipment is based on available pricing guides, auction results or price opinions, less estimated selling costs. Assets that are acquired through foreclosure, repossession or return are initially recorded at the lower of the loan or lease carrying amount or fair value less estimated selling costs at the time of transfer to real estate owned or repossessed and returned equipment. Long-lived assets held for sale were written down $20 million, which is included in foreclosed real estate and repossessed assets, net expense, during the year ended December 31, 2010. The table below presents the balances of assets measured at fair value on a non-recurring basis at December 31, 2010. (In thousands) Loans (4) Real estate owned (5) Repossessed and returned equipment (5) Investments (6) Total At December 31, 2009: Loans (4) Real estate owned (5) Repossessed and returned equipment (5) Total Readily Available Market Prices(1) $ – – – – $ – $ – – – $ – Observable Market Prices(2) Market Prices(3) Company Determined $ – – 5,731 – $ 5,731 $ – – 14,861 $14,861 $ 42,683 127,295 1,180 4,296 $175,454 $ 62,794 71,272 527 $134,593 Total at Fair Value $ 42,683 127,295 6,911 4,296 $181,185 $ 62,794 71,272 15,388 $149,454 (1) Considered Level 1 under ASC 820, Fair Value Measurements and Disclosures. (2) Considered Level 2 under ASC 820, Fair Value Measurements and Disclosures. (3) Considered Level 3 under ASC 820, Fair Value Measurements and Disclosures, and is based on valuation models that use significant assumptions that are not observable in an active market. (4) Represents the carrying value of loans for which adjustments are based on the appraisal value of the collateral. (5) Amounts do not include assets held at cost at December 31, 2010. (6) Represents the carrying value of other investments which were recorded at fair value determined by using quoted prices, when available, and incorporating results of internal pricing techniques and observable market information during the year ended December 31, 2010. 2010 Form 10-K • 87 • Note 20. Fair Values of Financial Instruments TCF is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. These fair value estimates were made at December 31, 2010 and 2009, based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, given there is no active market or observable market transactions for many of TCF’s financial instruments, the Company has made many estimates of fair values which are subjective in nature, involve 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 and fair values of the Company’s remaining financial instruments are set forth in the following table. This information represents only a portion of TCF’s balance sheet and not the estimated value of the Company as a whole. Non-financial instruments such as the value of TCF’s branches and core deposits, leasing operations and the future revenues from TCF’s customers are not reflected in this disclosure. Therefore, this information is of limited use in assessing the value of TCF. At December 31, 2010 2009 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value $ 663,901 179,768 1,931,174 $ 663,901 179,768 1,931,174 $ 299,127 163,692 1,910,476 $ 299,127 163,692 1,910,476 7,195,269 3,328,216 317,987 939,474 792,354 (265,819) $15,082,324 6,907,960 3,222,201 303,172 942,167 792,940 – $14,943,283 7,331,991 3,269,003 449,516 868,830 468,805 (244,471) $14,516,969 $10,556,788 1,028,327 126,790 4,858,821 1,842 $16,572,568 $10,556,788 1,031,090 126,790 5,280,615 1,842 – $16,997,125 $10,380,814 1,187,505 244,604 4,510,895 – $16,323,818 7,090,772 3,112,313 424,122 878,168 468,746 – $14,347,416 $10,380,814 1,191,176 244,604 4,816,727 $16,633,321 $ 33,909 (92) $ 33,909 (92) $ 35,860 (55) $ 35,860 (55) $ 33,817 $ 33,817 $ 35,805 $ 35,805 (In thousands) Financial instrument assets: Cash and due from banks Investments Securities available for sale Loans: Consumer real estate and other Commercial real estate Commercial business Equipment finance loans Inventory finance loans Allowance for loan and lease losses (1) Total financial instrument assets Financial instrument liabilities: Checking, savings and money market deposits Certificates of deposit Short-term borrowings Long-term borrowings Forward foreign currency contracts Total financial instrument liabilities Financial instruments with off-balance-sheet risk: (2) Commitments to extend credit (3) Standby letters of credit (4) Total financial instruments with off-balance-sheet risk (1) Expected credit losses are included in the estimated fair values. (2) Positive amounts represent assets, negative amounts represent liabilities. (3) Carrying amounts are included in other assets. (4) Carrying amounts are included in accrued expenses and other liabilities. • 88 • TCF Financial Corporation and Subsidiaries 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 and assets held in trust for deferred compensation plans are carried at fair value (see Note 19). Certain financial instru- ments, including lease financings, discounted lease rentals and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements. The following methods and assumptions are used by TCF in estimating fair value for its remaining financial instruments, all of which are issued or held for purposes other than trading. Investments The carrying value of investments in FHLB stock and Federal Reserve stock approximates fair value. The fair value of other investments is estimated based on discounting cash flows at current market rates and consid- eration of credit exposure. Loans The fair value of loans is estimated based on discounted expected cash flows. These cash flows include assumptions for prepayment estimates over the loans’ remaining life, consideration of the current interest rate environment compared to the weighted average rate of each portfolio, a credit risk component based on the historical and expected performance of each portfolio and a liquidity adjustment related to the current market environment. Forward Foreign Currency Contracts Forward foreign currency contract assets and liabilities are carried at fair value, which is net of the related cash collateral received and paid, when a legally enforceable master netting agree- ment exists between TCF and the counterparty. 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 estimated based on discounted cash flows using currently offered market rates. The intangible value of long-term relationships with depositors is not taken into account in the fair values disclosed. Borrowings The carrying amounts of short-term borrowings approximate their fair values. The fair values of TCF’s long-term borrowings are estimated based on observable market prices and discounted cash flows using interest rates for borrowings of similar remaining maturities and characteristics. Financial Instruments with Off-Balance Sheet Risk The fair value of TCF’s commitments to extend credit and standby letters of credit are estimated using fees currently charged to enter into similar agreements, as commitments and standby letters of credit similar to TCF’s are not actively traded. Substantially all commitments to extend credit and standby letters of credit have floating rates and do not expose TCF to interest rate risk; therefore fair value is approximately equal to carrying value. Note 21. Earnings Per Common Share TCF’s restricted stock awards that pay non-forfeitable common stock dividends meet the criteria of a participating security. Accordingly, earnings per share is calculated using the two-class method, under which earnings are allocated to both common shares and participating securities. 2010 Form 10-K • 89 • The computation of basic and diluted earnings per common share is presented in the following table. (In thousands, except per-share data) Basic Earnings Per Common Share Net income Preferred stock dividends Non-cash deemed preferred stock dividend Net income available to common stockholders Earnings allocated to participating securities Earnings allocated to common stock 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 Earnings allocated to common stock 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: Non-participating restricted stock Stock options Warrants Weighted-average common shares outstanding for diluted earnings per common share Diluted earnings per common share Year Ended December 31, 2010 2009 2008 $ 146,564 – – 146,564 729 $ 145,835 139,681,722 (1,065,206) $ 87,097 6,378 12,025 68,694 215 $ 68,479 127,592,824 (999,580) $ 128,958 2,540 – 126,418 488 $ 125,930 125,226,553 (283,880) 138,616,516 $ 1.05 126,593,244 $ .54 124,942,673 $ 1.01 $ 145,835 $ 68,479 $ 125,930 138,616,516 126,593,244 124,942,673 56,844 139,155 – – 229 167 – – 18,872 138,812,515 $ 1.05 126,593,640 $ .54 124,961,545 $ 1.01 All shares of restricted stock are deducted from weighted- average shares outstanding for the computation of basic earnings 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, stock options and warrants are included in the calculation of diluted earnings per common share, using the treasury stock method. For the years ended December 31, 2010, 2009 and 2008, 4.1 million, 6.5 million and 4.4 million shares were outstanding, respectively, related to non-participating restricted stock, stock options, and warrants that were not included in the computation of diluted earnings per share because they were anti-dilutive. • 90 • TCF Financial Corporation and Subsidiaries Note 22. Comprehensive Income Comprehensive income is the total of net income and other comprehensive income. The following table summarizes the components of comprehensive income. (In thousands) Net income Other comprehensive (loss) income: Unrealized holding gains (losses) arising during the year on securities available for sale Recognized pension and postretirement actuarial gain (loss), settlement expense and transition obligation Pension and postretirement measurement date change Reclassification adjustment for securities gains included in net income Foreign currency translation adjustment Net investment hedge Cash flow hedge Income tax benefit (expense) Total other comprehensive (loss) income Comprehensive income Note 23. Other Expense Other expense consists of the following. (In thousands) Card processing and issuance Professional fees Deposit account losses Postage and courier Telecommunications Outside processing Office supplies ATM processing Other Total other expense Year Ended December 31, 2010 $146,564 2009 $ 87,097 2008 $128,958 3,343 (3,253) 69,754 6,795 – (31,484) 575 (195) (1) 7,998 (12,969) $133,595 11,132 – (31,828) 251 – – 8,845 (14,853) $ 72,244 (30,974) 293 (16,066) 1 – – (8,645) 14,363 $143,321 Year Ended December 31, 2010 $ 19,167 17,742 12,590 11,926 11,915 11,487 8,342 5,820 47,264 $146,253 2009 $ 19,792 8,504 14,076 13,816 11,726 10,821 9,281 6,615 48,187 $142,818 2008 $ 19,262 7,474 14,709 13,380 11,860 10,450 9,664 6,881 52,615 $146,295 Note 24. Business Segments Retail Banking, Wholesale Banking, Treasury Services and Support Services have been identified as reportable operating segments. Retail Banking includes branch banking and retail lending. Wholesale Banking includes commercial banking, leasing and equipment finance and inventory finance. Treasury Services includes TCF’s investment and borrowing portfolios and management of capital, debt and market risks, including interest-rate and liquidity risks. Support Services includes holding company and corporate functions that provide data processing, bank operations and other professional services to the operating segments. TCF evaluates performance and allocates resources based on the segments’ net income. The business segments follow generally accepted accounting principles as described in the Summary of Significant Accounting Policies. TCF generally accounts for inter-segment sales and transfers at cost. 2010 Form 10-K • 91 • The following table sets forth certain information of each of TCF’s reportable segments, including a reconciliation of TCF’s consolidated totals. Retail Banking Wholesale Banking Treasury Services Support Services Eliminations Consolidated (In thousands) At or For the Year Ended December 31, 2010: 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) $ 412,038 409,601 $ 821,639 $ 442,984 140,616 409,601 562,799 56,124 93,046 Income (loss) after income tax expense Income attributable to non-controlling interest Net income (loss) Total assets At or For the Year ended December 31, 2009: 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) Income after income tax expense Loss attributable to non-controlling interest Net income Total assets At or For the Year Ended December 31, 2008: 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 (loss) Total assets – $ 93,046 $7,590,149 $ 433,304 418,046 $ 851,350 $ 403,180 178,029 418,046 599,045 17,526 26,626 – $ 26,626 $ 7,655,815 $ 459,639 419,948 $ 879,587 $ 378,722 136,646 419,948 571,831 28,244 $ 61,949 $ 7,583,605 $ 454,154 98,714 $ 552,868 $ 251,660 94,040 98,714 191,320 22,169 42,845 3,297 $ 39,548 $7,823,331 $ 408,876 77,238 $ 486,114 $ 206,277 78,693 77,238 156,204 17,432 31,186 $ 103,685 33,188 $ 136,873 $ 5,725 1,781 33,188 9,767 11,138 16,227 $ – (3,518) $ (3,518) $ (1,167) – 138,369 141,125 (1,666) (2,257) $ – – $ – $ – – (141,887) (141,887) – – $ 969,877 537,985 $ 1,507,862 $ 699,202 236,437 537,985 763,124 87,765 149,861 – $ 16,227 $ 6,200,121 $ – $ (2,257) 216,869 $ – $ – (3,365,445) $ 3,297 $ 146,564 18,465,025 $ 116,001 32,292 $ 148,293 $ 22,988 1,814 32,292 8,255 17,790 27,421 $ – (1,721) $ (1,721) $ 561 – 142,261 148,262 (6,894) 1,454 $ – – $ – $ – – (143,982) (143,982) – – $ 958,181 525,855 $ 1,484,036 $ 633,006 258,536 525,855 767,784 45,854 86,687 (410) $ 31,596 $ 7,544,398 – $ 27,421 $ 5,549,107 – $ 1,454 $124,578 – $ – $ (2,988,723) (410) $ 87,097 $ 17,885,175 $ 359,914 60,639 $ 420,553 $ 147,139 52,834 60,639 119,072 14,018 $ 21,854 $ 6,200,288 $ 144,842 17,113 $ 161,955 $ 66,981 2,565 17,113 6,920 26,044 $ 48,565 $ 5,108,534 $ – 735 $ 735 $ 831 – 141,309 137,154 8,396 $ (3,410) $ 94,605 $ – – $ – $ – – (140,574) (140,574) – $ – $ (2,246,675) $ 964,395 498,435 $ 1,462,830 $ 593,673 192,045 498,435 694,403 76,702 $ 128,958 $ 16,740,357 • 92 • TCF Financial Corporation and Subsidiaries Note 25. Parent Company Financial Information TCF Financial Corporation’s (parent company only) condensed statements of financial condition as of December 31, 2010 and 2009, and the condensed statements of income and cash flows for the years ended December 31, 2010, 2009 and 2008 are as follows. Condensed Statements of Financial Condition (In thousands) Assets: Cash and cash equivalents Investment in bank subsidiaries Accounts receivable from affiliates Other assets Total assets Liabilities and Stockholders’ Equity: Junior subordinated notes (trust preferred) Senior unsecured term note Other liabilities Total liabilities Equity Total liabilities and 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 (Loss) income before income tax benefit and equity in undistributed earnings of subsidiaries Income tax benefit (Loss) income before equity in undistributed earnings of subsidiaries Equity in undistributed earnings of bank subsidiaries Net income Preferred stock dividends Non-cash deemed preferred stock dividend Net income available to common stockholders At December 31, 2010 2009 $ 17,772 1,630,341 20,571 15,421 $1,684,105 $ 111,061 89,787 11,594 212,442 1,471,663 $1,684,105 $ 32,062 1,232,346 16,060 12,963 $1,293,431 $ 110,441 – 7,628 118,069 1,175,362 $1,293,431 Year Ended December 31, 2009 $ 44 12,369 (12,325) 32,000 2008 $ – 4,826 (4,826) 122,797 2010 $ 37 14,789 (14,752) 4,000 12,712 (1,549) 11,163 13,058 298 2,182 15,538 (15,127) 6,442 (8,685) 155,249 146,564 – – $146,564 9,127 (1,984) 7,143 9,844 365 1,487 11,696 15,122 5,169 20,291 66,806 87,097 6,378 12,025 $ 68,694 6,922 85 7,007 5,833 362 6,279 12,474 112,504 2,282 114,786 14,172 128,958 2,540 – $126,418 2010 Form 10-K • 93 • Condensed Statements of Cash Flows (In thousands) Cash flows from operating activities: Year Ended December 31, 2010 2009 2008 Net income Adjustments to reconcile net income to net cash provided by operating activities: $146,564 $ 87,097 $ 128,958 Equity in undistributed earnings of bank subsidiaries Other, net Total adjustments Net cash provided by operating activities Cash flows from investing activities: Purchases of premises and equipment, net Net cash used by investing activities Cash flows from financing activities: Dividends paid on common stock Dividends paid on preferred stock Recission of capital contribution to TCF National Bank Issuance of common stock (Redemption)/Issuance of preferred stock Interest paid on trust preferred securities Sale of trust preferred securities Capital infusions to TCF National Bank Shares sold to Employees Stock Purchase Plans Net decrease in short-term borrowings Stock compensation tax (expense) benefits Proceeds from senior unsecured term note Other, net Net cash used by financing activities Net (decrease) increase in cash Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (155,249) 16,743 (138,506) 8,058 (142) (142) (27,617) – – 164,748 – – (12,364) – (255,000) 18,089 – 298 89,640 – – (22,206) (14,290) 32,062 $17,772 (66,806) 29,795 (37,011) 50,086 (40) (40) (50,828) (7,926) 361,172 – (361,172) (12,364) – (50) 19,147 – (1,058) – 1,538 (51,541) (1,495) 33,557 $ 32,062 (14,172) (6,394) (20,566) 108,392 (40) (40) (126,447) – – 361,004 – 111,378 (434,092) 10,178 (9,500) 9,638 163 (77,678) 30,674 2,883 $ 33,557 TCF Financial Corporation’s (parent company only) operations are conducted through its banking subsidiaries and other subsidiaries. As a result, TCF’s cash flow and ability to make dividend payments to its common stockholders depend on the earnings of its subsidiaries. The ability of TCF’s banking subsidiaries to pay dividends or make other payments to TCF is limited by their obligations to maintain sufficient capital and by other regulatory restrictions on dividends. At December 31, 2010, TCF’s banking subsidiaries could pay a total of approximately $239.9 million in dividends to TCF without prior regulatory approval. Additionally, retained earnings at TCF National Bank, a wholly owned subsidiary of TCF Financial Corporation, at December 31, 2010 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. • 94 • TCF Financial Corporation and Subsidiaries Note 26. Litigation Contingencies From time to time, TCF is also a party to other 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 collections activities. TCF may also be subject to enforcement action by federal regulators, including the Securities and Exchange Commission, the Federal Reserve and the Comptroller of the Currency. 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 is subject to such actions brought against it from time to time. Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty, and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established with confidence. Based on our current understanding of these pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of TCF. 2010 Form 10-K • 95 • 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 Securities available for sale Goodwill Total assets Total deposits Short-term borrowings Long-term borrowings Total 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 (losses) on securities, net Total non-interest income Non-interest expense Income before income tax expense Income tax expense Income after income tax expense Income (loss) attributable to non-controlling interest Net income Preferred stock dividends Net income available to common stockholders 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, 2010 Sept. 30, 2010 June 30, 2010 March 31, 2010 Dec. 31, 2009 Sept. 30, 2009 June 30, 2009 March 31, 2009 At $14,788,304 $14,896,601 $14,639,893 $14,706,423 $14,590,744 $14,329,264 $13,962,656 $13,795,617 2,098,628 152,599 18,082,341 11,647,203 26,299 4,311,568 1,499,956 1,931,174 152,599 18,465,025 11,585,115 126,790 4,858,821 1,480,163 2,087,406 152,599 17,475,721 11,619,053 25,829 4,307,098 1,142,535 1,899,825 152,599 18,187,314 11,882,373 17,590 4,496,574 1,393,617 2,060,227 152,599 17,743,009 11,626,011 21,397 4,524,955 1,179,839 1,940,331 152,599 18,030,045 11,523,043 14,805 4,600,820 1,474,536 1,910,476 152,599 17,885,175 11,568,319 244,604 4,510,895 1,179,755 1,947,462 152,599 18,313,608 11,461,519 344,681 4,581,511 1,505,962 Dec. 31, 2010 Sept. 30, 2010 June 30, 2010 March 31, 2010 Dec. 31, 2009 Sept. 30, 2009 June 30, 2009 March 31, 2009 Three Months Ended $ 174,286 $ 173,755 $ 176,499 $ 174,662 $ 169,641 $ 161,489 $ 156,463 $ 145,413 43,712 77,389 50,491 59,287 75,544 49,013 61,891 77,646 96,640 114,468 127,486 124,171 92,252 85,945 94,572 101,701 120,309 21,185 141,494 190,500 47,634 16,011 31,623 898 30,725 – 129,437 8,505 137,942 191,753 60,657 22,852 37,805 912 36,893 – 136,043 (137) 135,906 189,069 74,323 28,112 46,211 1,186 45,025 – 123,073 (430) 122,643 191,802 55,012 20,790 34,222 301 33,921 – 135,866 7,283 143,149 206,763 28,638 9,385 19,253 128,057 – 128,057 190,267 23,735 6,491 17,244 (203) 19,456 – (207) 17,451 – 129,814 10,556 140,370 196,546 38,396 14,853 23,543 – 23,543 13,218 102,731 11,548 114,279 174,208 41,772 15,125 26,647 – 26,647 5,185 $ 30,725 $ 36,893 $ 45,025 $ 33,921 $ 19,456 $ 17,451 $ 10,325 $ 21,462 $ .22 $ .26 $ .32 $ .26 $ .15 $ .14 $ .08 $ .17 $ .22 $ .26 $ .32 $ .26 $ .15 $ .14 $ .08 $ .17 $ .05 $ .05 $ .05 $ .05 $ .05 $ .05 $ .05 $ .25 .68% 8.25 4.04 1.75 8.05 .84% 9.95 4.12 1.58 8.28 1.02% 12.71 4.18 1.30 7.88 .76% 10.68 4.20 1.22 7.10 .43% 6.57 4.07 1.35 6.69 .39% 6.03 3.92 1.52 6.61 .53% 3.61 3.80 1.43 6.94 .62% 7.58 3.66 1.04 8.64 • 96 • TCF Financial Corporation and Subsidiaries Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disclosure 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 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, manage- ment concluded that the Company’s disclosure controls and procedures are effective, as of December 31, 2010. Disclosure controls and procedures are designed to ensure that information required to be disclosed by TCF in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer (Principal Executive Officer), the Chief Financial Officer (Principal Financial Officer) and the Controller and Assistant Treasurer (Principal Accounting Officer), as appropriate, to allow for timely decisions regarding required disclosure. TCF’s disclosure controls also include internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and that transactions are properly recorded and reported. Changes in Internal Control Over Financial Reporting There were no changes to TCF’s internal controls over finan- cial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2010 that materially affected, or are reasonably likely to materially affect, TCF’s internal control over financial reporting. 2010 Form 10-K • 97 • Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining 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 disposition 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, 2010. 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, 2010. KPMG LLP, TCF’s independent registered public accounting firm that audited the consolidated financial statements included in this annual report, has issued an unqualified attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. Any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance 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. William A. Cooper Chairman and Chief Executive Officer Thomas F. Jasper Executive Vice President and Chief Financial Officer David M. Stautz Senior Vice President, Controller and Assistant Treasurer February 15, 2011 • 98 • TCF Financial Corporation and Subsidiaries Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders TCF Financial Corporation: We have audited TCF Financial Corporation’s internal control over financial reporting as of December 31, 2010, 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 maintained 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 regarding 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 transactions 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 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 disposition 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, 2010, 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, 2010 and 2009, and the related consolidated statements of income, equity, and cash flows for each of the years in the three-year period ended December 31, 2010, and our report dated February 15, 2011 expressed an unqualified opinion on those consolidated financial statements. Minneapolis, Minnesota February 15, 2011 Item 9B. Other Information None. 2010 Form 10-K Part III • 99 • 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 for the 2011 Annual Meeting of Stockholders to be held on April 27, 2011 (the “2011 Proxy Statement”): and incorporated herein by reference: Election of Directors: Background of the Nominees; Section 16(a) Beneficial Ownership Reporting Compliance 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 2011 Proxy Statement 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 2011 Proxy Statement entitled Election of Directors: Background of the Nominees and Election of Directors: Board Committees, Committee Memberships, and Meetings in 2010 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 application 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 that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by TCF’s Financial Statements, or experience actively supervising one or more persons engaged in such activities. 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 Vance K. Opperman meet the requirements of audit com- mittee financial experts. The Board has also determined that Mr. Schwalbach, Mr. Johnson and Mr. Opperman are independent. Additional information regarding Mr. Schwalbach, Mr. Johnson and Mr. Opperman, and other directors is set forth in the section Election of Directors: Background of the Nominees in TCF’s 2011 Proxy Statement and is incorporated herein by reference. Code of Ethics for Senior Financial Management TCF has adopted a Code of Ethics applicable to the Principal Executive Officer (“PEO”), Principal Financial Officer (“PFO”) and Principal Accounting Officer (“PAO”) (the “Senior Financial Management Code of Ethics”) as well as a code of ethics generally applicable to all officers (including the PEO, PFO and PAO), directors and employees of TCF (the “Code of Ethics”). The Code of Ethics and Senior Financial Management Code of Ethics are both available for review at TCF’s website at www.tcfbank.com by clicking on “Investor Relations” and then “Corporate Governance”. Any changes to the Code of Ethics or Senior Financial Management Code of Ethics will be posted on this site, and any waivers granted to or violations by the PEO, PFO and PAO of the Code of Ethics or Senior Financial Management Code of Ethics will also be posted on this site. • 100 • TCF Financial Corporation and Subsidiaries Item 11. Executive Compensation Information regarding compensation of directors and executive officers of TCF is set forth in the following sections of TCF’s 2011 Proxy Statement, 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 2010; Outstanding Equity Awards at December 31, 2010; Option Exercises and Stock Vested in 2010; Pension Benefits in 2010; Nonqualified Deferred Compensation in 2010 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 shareholders 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 2011 Proxy Statement, 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 in the section entitled Election of Directors: Director Independence and Related Party Transactions of TCF’s 2011 Proxy Statement, 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 procedures relating to audit and non-audit services provided by the Company’s independent registered public accounting firm is set forth in the section entitled Independent Registered Public Accountants in TCF’s 2011 Proxy Statement, and is incorporated herein by reference. 2010 Form 10-K Part IV • 101 • Item 15. Exhibits, Financial Statement Schedules (a) Financial Statements, Financial Statement Schedules and Exhibits 1. F inancial 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, 2010 and 2009 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2010 Consolidated Statements of Equity for each of the years in the three-year period ended December 31, 2010 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2010 Notes to Consolidated Financial Statements Other Financial Data Management’s Report on Internal Control Over Financial Reporting P ag e 17 52 53 54 55 56 95 97 Reports of Independent Registered Public Accounting Firm 51, 98 2. F inancial 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. E xhibits See Index to Exhibits on page 103 of this report. • 102 • TCF Financial Corporation and Subsidiaries Signatures Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TCF Financial Corporation Registrant By /s/ William A. Cooper William A. Cooper Chairman and Chief Executive Officer Dated: February 15, 2011 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. N ame Title /s/ William A. Cooper William A. Cooper /s/ Thomas F. Jasper Thomas F. Jasper /s/ David M. Stautz David M. Stautz /s/ Raymond L. Barton Raymond L. Barton /s/ Peter Bell Peter Bell /s/ William F. Bieber William F. Bieber /s/ Theodore J. Bigos Theodore J. Bigos /s/ Thomas A. Cusick Thomas A. Cusick /s/ Luella G. Goldberg Luella G. Goldberg /s/ Karen L. Grandstrand Karen L. Grandstrand /s/ George G. Johnson George G. Johnson /s/ Vance K. Opperman Vance K. Opperman /s/ Gregory J. Pulles Gregory J. Pulles /s/ Gerald A. Schwalbach Gerald A. Schwalbach /s/ Ralph Strangis Ralph Strangis /s/ Barry N. Winslow Barry N. Winslow /s/ Richard A. Zona Richard A. Zona Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President, Controller and Assistant Treasurer (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director Director and Vice Chairman Director Director Da te February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 February 15, 2011 Director, Vice Chairman and Chief Risk Officer February 15, 2011 Director February 15, 2011 2010 Form 10-K • 103 • Index to Exhibits Ex h ibit N o. 3(a) 3(b) 4(a) 4(b) 4(c) 4(d) 4(e) 4(f) 4(g) 4(h) 4(i) 4(j) 4(k) Description Amended and Restated Certificate of Incorporation of TCF Financial Corporation, as amended through November 13, 2008 [incorporated by reference to Exhibit 3.1 to TCF Financial Corporation’s Registration Statement on Form S-3 filed December 11, 2008] Amended and Restated Bylaws of TCF Financial Corporation [incorporated by reference to Exhibit 3(b) to TCF Financial Corporation’s Current Report on Form 8-K filed April 28, 2008] Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series A [incorporated by reference to Exhibit 4.1 to TCF Financial Corporation’s Current Report on Form 8-K filed November 14, 2008] Warrant Agreement dated December 15, 2009 by and among TCF Financial Corporation, Computershare, Inc. and Computershare Trust Company, N.A. [incorporated by reference to Exhibit 4.1 to TCF Financial Corporation’s Form 8-A filed December 16, 2009] Specimen Warrant to Purchase Shares of Common Stock of TCF Financial Corporation [incorporated by reference to Exhibit 4.2 to TCF Financial Corporation’s Form 8-A filed December 16, 2009] Indenture dated August 19, 2008 between TCF Financial Corporation and Wilmington Trust Company, as Trustee [incorporated by reference to Exhibit 4.1 to TCF Financial Corporation’s Current Report on Form 8-K filed August 19, 2008] Supplemental Indenture dated August 19, 2008 between TCF Financial Corporation and Wilmington Trust Company, as Trustee [incorporated by reference to Exhibit 4.2 to TCF Financial Corporation’s Current Report on Form 8-K filed August 19, 2008] Form of 10.75% Junior Subordinated Note, Series I [incorporated by reference to Exhibit 4.3 to TCF Financial Corporation’s Current Report on Form 8-K filed August 19, 2008] Certificate of Trust of TCF Capital I [incorporated by reference to Exhibit 4.2 to TCF Financial Corporation’s Registration Statement on Form S-3, filed August 11, 2008] Amended and Restated Trust Agreement of TCF Capital I dated August 19, 2008 by and among TCF Financial Corporation, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and the Administrative Trustees named therein and the Several Holders named therein [incorporated by reference to Exhibit 4.4 to TCF Financial Corporation’s Current Report on Form 8-K filed August 19, 2008] Form of 10.75% Capital Security, Series I for TCF Capital I [incorporated by reference to Exhibit 4.5 to TCF Financial Corporation’s Current Report on Form 8-K filed August 19, 2008] Guarantee Agreement for TCF Capital I dated August 19, 2008 by and between TCF Financial Corporation and Wilmington Trust Company, as Guarantee Trustee [incorporated by reference to Exhibit 4.6 to TCF Financial Corporation’s Current Report on Form 8-K filed August 19, 2008] Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request • 104 • TCF Financial Corporation and Subsidiaries E xh ibit No . 10(a) 10(b) 10(b)-1* 10(b)-2 10(b)-3 10(b)-4* 10(b)-5* 10(b)-6* 10(b)-7* 10(b)-8* Description 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] Amended and Restated TCF Financial Incentive Stock Program (as amended and restated October 20, 2008) [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation’s Current Report on Form 8-K filed May 5, 2009] 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] 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 reference 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] 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] 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] 2010 Form 10-K • 105 • Ex h ibit N o. 10(b)-9* 10(b)-10* 10(b)-11* 10(b)-12* 10(b)-13* 10(b)-14* 10(b)-15* 10(c) 10(d) Description Nonqualified Stock Option Agreement as executed by Mr. Cooper, effective July 31, 2008 [incorporated by reference to Exhibit 10(b)-11 to TCF Financial Corporation’s Current Report on Form 8-K filed August 6, 2008] Amended and Restated Restricted Stock Agreement as executed by Mr. Cooper, effective January 20, 2009 [incorporated by reference to Exhibit 10(b)-13 to TCF Financial Corporation’s Current Report on Form 8-K filed January 23, 2009] Form of Amended and Restated Restricted Stock Agreement as executed by certain executives, effective January 20, 2009 [incorporated by reference to Exhibit 10(b)-14 to TCF Financial Corporation’s Current Report on Form 8-K filed January 23, 2009] Form of Year 2009 Executive Stock Award as executed by certain executives, effective January 20, 2009 [incorporated by reference to Exhibit 10(b)-15 to TCF Financial Corporation’s Current Report on Form 8-K filed January 23, 2009] Form of Letter Agreement entered into by certain executive officers effective December 14, 2009 [incorporated by reference to Exhibit 10(b)-15 to TCF Financial Corporation’s Current Report on Form 8-K filed December 18, 2009] Form of Agreement Termination Award Agreement entered into by certain executive officers effective December 14, 2009 [incorporated by reference to Exhibit 10(b)-16 to TCF Financial Corporation’s Current Report on Form 8-K filed December 18, 2009] Form of 2010 Restricted Stock Award Agreement entered into by certain executive officers effective December 14, 2009 [incorporated by reference to Exhibit 10(b)-17 to TCF Financial Corporation’s Current Report on Form 8-K filed December 18, 2009] 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] 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 Third Amendment of Trust Agreement for TCF Executive Deferred Compensation Plan 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] 10(e)* Amended on Restated agreement between Mr. William A. Cooper and TCF Financial Corporation effective as of July 31, 2009 [incorporated by reference to Exhibit 10(e)-6 to TCF Financial Corporation’s Current Report on Form 8-K filed August 4, 2009] • 106 • TCF Financial Corporation and Subsidiaries E xh ibit No . 10(j) 10(j)-1 10(k) 10(l) 10(m) 10(n) 10(n)-1 10(o) 10(p) 10(r) 10(r)-1 Description TCF Financial Corporation Supplemental Employee Retirement Plan — Employees Stock Purchase Plan (“ESPP”) 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] TCF ESPP — Supplemental Plan (as amended and restated effective January 1, 2008) [incorporated by reference to Exhibit 10(j)-2 to TCF Financial Corporation’s Current Report on Form 8-K filed October 24, 2008] Trust Agreement for TCF ESPP Supplemental Executive Retirement Plan (“SERP”) effective January 1, 2009 and dated November 20, 2008 [incorporated by reference to Exhibit 10(k) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] 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] Trust Agreement for TCF Financial Senior Officer Deferred Compensation Plan 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 Second Amendment of Trust Agreement for TCF Financial Senior Officers Deferred Compensation Plan 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 Grant Program [incorporated by reference to Exhibit 10(n) of TCF Financial Corporation’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2010] Resolution adopting Directors Stock Grant Program goal for fiscal year 2009 and after [incorporated by reference to Exhibit 10(n)-1 of TCF Financial Corporation’s Current Report on Form 8-K filed January 23, 2009] Form of 2010 Management Incentive Plan effective January 1, 2010 [incorporated by reference to Exhibit 10(o) of TCF Financial Corporation’s Current Report on Form 8-K filed December 18, 2009] TCF Performance-Based Compensation Policy for Covered Executive Officers (as re-approved effective January 1, 2009) [incorporated by reference to Exhibit 10(p) to TCF Financial Corporation’s Current Report on Form 8-K filed May 5, 2009] TCF Financial Corporation TCF 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 Financial Corporation 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]; and as amended by Amendment of Directors 2005 Deferred Compensation Plan effective July 19, 2010 [incorporated by reference to Exhibit 10(r)-1 of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010] 2010 Form 10-K • 107 • Ex h ibit N o. 10(s) 10(t) 12(a)# 12(b)# 21# 23# 31# 32# 101# * Executive Contract # Filed herein Description Trust Agreement for TCF Directors Deferred Compensation Plan [incorporated by reference to Exhibit 10(d) to TCF Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000]; 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 Third Amendment of TCF Directors Deferred Compensation Trust 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 Director Retirement Plan effective as of 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]; and as amended by Amendment of Director Retirement Plan effective July 19, 2010 [incorporated by reference to Exhibit 10(t) of TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010] Computation of Ratios of Earnings to Fixed Charges for periods ended December 31, 2010, 2009, 2008, 2007 and 2006 Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends for periods ended December 31, 2010, 2009, 2008, 2007 and 2006 Subsidiaries of TCF Financial Corporation (as of December 31, 2010) Consent of KPMG LLP dated February 15, 2011 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) Financial Statements of the Company for the period ended December 31, 2010, formatted in XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements tagged as blocks of text • 108 • TCF Financial Corporation and Subsidiaries Board of Directors Senior Officers William A. Cooper 5 Chairman of the Board and Chief Executive Officer Raymond L. Barton 4,6,7 Chairman and Chief Executive Officer, Great Clips, Inc. Peter Bell 2,3,4,6,7 Former Chair, Metropolitan Council William F. Bieber 2,3,4,6,7 Chairman and Owner, ATEK Companies, Inc. Theodore J. Bigos 2,3,4,6,7 Owner, Bigos Management, Inc. Thomas A. Cusick 4,6,7 Retired Vice Chairman Luella G. Goldberg 1,2,3,4,5,6,7 Past Chair, University of Minnesota Foundation, Former Acting President, Wellesley College Karen L. Grandstrand 1,4,6,7 Partner, Fredrikson & Byron PA George G. Johnson 1,4,6,7 CPA/Managing Director, George Johnson & Company Vance K. Opperman 1,2,3,4,6,7 President and Chief Executive Officer, Key Investment, Inc. Gregory J. Pulles Vice Chairman Gerald A. Schwalbach 1,2,3,4,6,7 Chairman, Spensa Development Group, LLC Ralph Strangis 2,3,4,5,6,7 Senior Partner, Kaplan, Strangis and Kaplan, P.A. Barry N. Winslow Vice Chairman and Chief Risk Officer Richard A. Zona 4,6,7 Retired Vice Chairman, U.S. Bancorp 1 Audit Committee 2 Compensation/Nominating/ Corporate Governance Committee 3 Advisory Committee — TCF Employees Stock Purchase Plan 4 Shareholder Relations/ Capital and Expansion Committee 5 Executive Committee 6 Asset Liability Management Committee 7 BSA Compliance Committee TCF Financial Corporation TCF Retail Bank Chairman of the Board and Chief Executive Officer William A. Cooper President and Chief Operating Officer Neil W. Brown Executive Vice President and Chief Financial Officer Thomas F. Jasper Vice Chairman Gregory J. Pulles Vice Chairman and Chief Risk Officer Barry N. Winslow Executive Vice President and Chief Information Officer Earl D. Stratton Executive Vice President, Wholesale Banking Craig R. Dahl Senior Vice Presidents James S. Broucek Steven D. Christensen Joseph T. Green Jason E. Korstange Barbara E. Shaw David M. Stautz President and Chief Operating Officer, TCF Financial Corporation Neil W. Brown TCF Branch Banking Managing Director Mark L. Jeter Executive Vice Presidents Robert C. Borgstrom Luis J. Campos Timothy G. Doyle Timothy B. Meyer Michael J. Olson Senior Vice Presidents Ross R. Allen Delia M. Conrad Peter R. Daugherty James T. Dowiak Mark W. Gault Jennifer K. Rohling TCF Retail Lending Managing Director Mark W. Rohde Executive Vice Presidents Joseph W. Doyle Claire M. Graupmann James L. Koon Paul R. Tokarczyk Matthew R. Wiley Senior Vice Presidents Bradley C. Barthels Robert J. Brueggeman Rose M. Dickey Michael A. Dill CaIvin E. Fuoss Donald J. Hawkins Daniel B. Hoffman Vicki L. Makowka Carol B. Schirmers Raymond J. Swidron Thomas K. Torossian Jason R. Voronyak Katrina Williams 2010 Annual Report • 109 • Winthrop Resources Corporation Executive Vice Presidents Paul L. Gendler Michael S. Jones Richard J. Pieper Senior Vice Presidents Gary W. Anderson Abigail R. Nesbitt Mark D. Nyquist Dean J. Stinchfield TCF Inventory Finance, Inc. President and Chief Executive Officer Rosario A. Perrelli Executive Vice Presidents Howard J. Hentz Vincent E. Hillery Michael S. Jones Peter D. Kelley Christopher Meals Senior Vice Presidents Peter J. Baranowski Kevin L. Harrington James S. Raymond Larry M. Tagli Mark J. Wrend Dornett Wright TCF Commercial Finance Canada, Inc. President Peter D. Kelley TCF Wholesale Bank Executive Vice President, TCF Financial Corporation Craig R. Dahl TCF Commercial Lending Managing Director James J. Urbanek Executive Vice Presidents Douglas W. Benner Michael R. Klemz David J. Veurink Senior Vice Presidents Wesley M. Anderson John E. Boyle Michael Y. Chin Jeffrey T. Doering Scott A. Fedie Russell P. McMinn Douglas A. Ortyn William R. Patterson Guy J. Rau Janelle Rietz-Kamenar Michael Roidt Elisabeth A. Rojas Patrick P. Skiles TCF Equipment Finance, Inc. Executive Vice Presidents Bradley C. Gunstad William S. Henak Michael S. Jones Mark D. Nyquist Senior Vice Presidents Gary W. Anderson Gloria J. Charley Richard J. Chenitz Peter C. Darin Walter E. Dzielsky Michael A. Kloos Brick W. Moore Abigail R. Nesbitt Jodie L. Palmer Gary A. Peterson Charles A. Sell, Jr. Robert J. Stark Mark H. Valentine Frederick M. Van Etten TCF Corporate Functions TCF Legal Vice Chairman, TCF Financial Corporation Gregory J. Pulles Executive Vice President, General Counsel and Secretary, TCF National Bank Joseph T. Green Executive Vice Presidents Bradley C. Gunstad Brian J. Hurd Senior Vice Presidents Gary L. Fineman Linda J. Firth Shelley A. Fitzmaurice Douglass B. Hiatt Charles P. Hoffman, Jr. Kirk D. Johnson Gloria J. Karsky Beth A. Paulson Heather B. Thayer R. Elizabeth Topoluk TCF Credit Quality Vice Chairman and Chief Credit Officer, TCF National Bank Timothy P. Bailey Executive Vice Presidents Paul B. Brawner Robert A. Henry Senior Vice Presidents Barbara L. Buss Scott D. Campbell Andrew D. Clark Larry M. Czekaj Gregory W. Drehmel Martin J. Krogman Kathleen M. Wacker TCF Finance / Treasury Executive Vice President and Treasurer, TCF National Bank James S. Broucek Executive Vice President and Controller, TCF National Bank David M. Stautz Senior Vice Presidents Susan D. Bode James M. Dunne Brian P. Engels Christy A. Powers Michelle O. Wright TCF Support Services Executive Vice President and Chief Information Officer, TCF Financial Corporation Earl D. Stratton Executive Vice Presidents Gregg R. Goudy James C. LaPlante Senior Vice Presidents Michael J. Beier Ronald L. Britz Beverly L. Burman Patricia A. Buss Beverly M. Craig Carol Jean F. Felth Christopher N. Germann James M. Matheis Anton J. Negrini Richard J. Nelson Leonard D. Steele Cathleen L. Wilkins TCF Human Resources Executive Vice President and Corporate Human Resources Director, TCF National Bank Barbara E. Shaw Senior Vice Presidents Edward J. Gallagher Viane R. Hoefs Roger T. Sorensen • 110 • TCF Financial Corporation and Subsidiaries Offices Executive Offices TCF Financial Corporation 200 Lake Street East Mail Code EX0-03-A Wayzata, MN 55391-1693 (952) 745-2760 TCF National Bank Headquarters 2508 South Louise Avenue Sioux Falls, SD 57106 Minnesota/South Dakota 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 TCF Inventory Finance, Inc. Headquarters 2300 Barrington Road Suite 600 Hoffman Estates, IL 60169 (877) 872-8234 TCF Commercial Finance Canada, Inc. Headquarters 700 Dorval Drive Suite 705 Oakville, Ontario L6K 3V3 Canada (877) 800-4430 Traditional Branches Minneapolis/St. Paul Area (46) Greater Minnesota (2) South Dakota (1) Supermarket Branches Minneapolis/St. Paul Area (55) Greater Minnesota (4) Campus Branches Minneapolis/St. Paul Area (2) Greater Minnesota (2) Illinois/Wisconsin/Indiana Traditional Branches Chicagoland (41) Milwaukee Area (10) Kenosha /Racine Area (6) Supermarket Branches Chicagoland (156) Milwaukee Area (8) Kenosha /Racine Area (2) Indiana (5) Campus Branches Chicagoland (3) Greater Illinois (1) Michigan Traditional Branches Metro Detroit Area (51) Supermarket Branches Metro Detroit Area (1) Greater Michigan (1) Campus Branches Metro Detroit Area (2) Colorado/Arizona Traditional Branches Metro Denver Area (26) Colorado Springs (8) Metro Phoenix Area (7) Supermarket Branches Metro Denver Area (2) 2010 Annual Report • 111 • Stockholder Information Stock Data Year 2010 Fourth Quarter Third Quarter Second Quarter First Quarter 2009 Fourth Quarter Third Quarter Second Quarter First Quarter 2008 Fourth Quarter Third Quarter Second Quarter First Quarter 2007 Fourth Quarter Third Quarter Second Quarter First Quarter 2006 Fourth Quarter Third Quarter Second Quarter First Quarter Close High Dividends Paid Low Per Share $14.81 16.19 16.61 15.94 $13.66 13.04 13.37 11.76 $13.66 18.00 12.03 17.92 $17.93 26.18 27.80 26.36 $27.42 26.29 26.45 25.75 $16.63 17.66 18.89 16.83 $14.72 15.83 16.67 14.31 $20.00 28.00 19.31 22.04 $27.95 28.25 28.99 27.91 $27.89 28.10 27.70 28.41 $12.90 13.87 14.95 13.40 $11.36 12.71 11.37 8.74 $11.22 9.25 11.91 14.65 $17.17 22.69 25.39 24.93 $25.16 24.94 24.91 24.23 $ .05 .05 .05 .05 $ .05 .05 .05 .25 $ .25 .25 .25 .25 $.2425 .2425 .2425 .2425 $ .23 .23 .23 .23 For more historical information on TCF’s stock price and dividend, visit ir.tcfbank.com. 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, 2010, TCF had approximately 142.9 million shares of common stock outstanding. 2011 Common Stock Dividend Dates Expected Record: January 28 April 29 July 29 October 28 Expected Payment: February 28 May 31 August 31 November 30 Annual Meeting The annual meeting of stockholders of TCF will be held on Wednesday, April 27, 2011, 10:00 a.m. (local time) at the Marriott Minneapolis West, 9960 Wayzata Boulevard, St. Louis Park, Minnesota. 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 reinvestment plan for TCF Financial Corporation common stock. This shareholder-paid program provides a low-cost alternative 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 43078 Providence, RI 02940-3078 (800) 443-6852 www.computershare.com Note to Stockholders It is important for registered stockholders to keep the transfer agent informed of their current address and to cash their dividend payments; otherwise, TCF may be required by state law to report and deliver (or “escheat”) these shares and any unclaimed dividends as unclaimed property, even if TCF does not have physical possession of the stock certificate. In other words, TCF is required to escheat shares and un-cashed dividends if there has been no stockholder-initiated activity or no stockholder contact with the transfer agent within the state’s dormancy period. Unclaimed property rules vary by state. Some states do not consider the act of reinvesting dividends in a dividend reinvestment plan as account activity that would signify a stockholder’s continued interest in the underlying shares of stock. Your failure to keep an active account can result in the escheatment of your shares and any un-cashed dividends to the state, in which case you will need to request a refund of the unclaimed property from the state. Stockholders holding shares in street name should contact their broker regarding questions about escheatment and unclaimed property laws. TCF is not providing legal advice on unclaimed property laws. • 112 • TCF Financial Corporation and Subsidiaries Investor/Analyst Contact Jason Korstange Senior Vice President Corporate Communications (952) 745-2755 Justin Horstman Assistant Vice President Investor Relations (952) 745-2756 Credit Ratings Available Information Please visit our website at ir.tcfbank.com for free access to TCF investor information, news releases, investor presentations, quarterly conference calls, annual reports, 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 Standard & Poor’s Outlook TCF Financial Corporation: Long-term Counterparty Short-term Counterparty TCF National Bank: Long-term Counterparty Short-term Counterparty Trust Preferred Last Review December 2010 Negative Fitch Ratings Outlook TCF Financial Corporation: Last Review September 2010 Stable BBB A-2 BBB+ A-2 BB Long-term IDR Short-term IDR TCF National Bank: Long-term IDR Short-term IDR Trust Preferred A- F1 A- F1 BBB Moody’s Outlook TCF National Bank: Long-term Issuer Long-term Deposits Short-term Deposits Bank Financial Strength Trust Preferred Last Review January 2011 Stable A2 A2 Prime-1 C+ Baa2 Stock Price Performance (In Dollars) $35 30 25 20 15 10 5 Year Ending 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 $1.50 1.25 1.00 0.75 0.50 0.25 0.00 6-86 12-86 12-88 12-90 12-92 12-94 12-96 12-98 12-00 12-02 12-04 12-06 12-08 12-10 *Stock split adjusted For more historical information on TCF’s stock price and dividend, visit ir.tcfbank.com. Table of Contents 01 Financial Highlights 02 Letter to Our Stockholders 12 Board of Directors Annual Report on Form 10-K 01 Business 08 Risk Factors 17 Selected Financial Data 18 Management’s Discussion and Analysis 52 Consolidated Financial Statements 56 Notes to Consolidated Financial Statements 95 Other Financial Data Additional Information 108 Corporate Information 112 Stockholder Information 113 Corporate Philosophy Despite a troubled economy and numerous legislative and regulatory burdens, TCF has reported 63 consecutive quarters of profitability and a record high level of capital in 2010. We continue to focus on our conservative banking philosophy, which has proven its sustainability throughout the current economic cycle. We are seeing encouraging signs on the credit front, such as a decrease of nearly $20 million in non-performing assets during the fourth quarter of 2010. Throughout 2010, we have demonstrated an ability to meet our challenges head-on. This proactive approach has proven to be the right thing to do for our customers and stockholders. 2010 Annual Report • 113 • Corporate Philosophy Profit Centers TCF’s focused profit center structure creates superior financial performance. Day-to-day operations are organized by profit centers within business lines: Wholesale Banking (commercial banking, leasing and equipment finance, and inventory finance), Retail Banking (branch banking and retail lending), Treasury Services and Support Services, each with profit center goals and objectives. TCF emphasizes net income, return on average assets and earnings per share growth at acceptable levels of risk. We offer products that are profitable and contribute to these goals. Our profit center structure creates a highly responsive and performance driven culture. Convenience 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, Internet banking and mobile banking. Checking Accounts TCF focuses on growing and retaining its large number of low-interest cost checking accounts by offering convenient hours and delivery channels, and products with many free features. TCF uses the checking account as the anchor account to build additional customer relationships. Deposits TCF earns a significant portion of its profits from the deposit side of the bank. We accumulate a large number of low cost accounts through convenient services and products targeted to a broad range of customers. As a result of the profits we earn from the deposit business, we can minimize credit risk on the asset side. Secured and Diversified Lender TCF maintains a secured loan and lease portfolio that is well-diversified by type (consumer, commercial, specialty finance) and by geography. We further diversify our asset portfolio by industry, product and collateral type to minimize concentration risk. In addition, we require our loans and leases to be supported by collateral to provide an alternate repayment source beyond cash flow from the borrower, which helps mitigate losses. We emphasize credit quality over asset growth as the costs of poor credit quality far outweigh the benefits of unwise asset growth. Conservative Underwriting TCF’s diversified asset portfolio and our extensive credit review practices reduce our credit risks while creating profitability and sustainable growth, even in the most challenging economic environments. We lend and lease to high-quality customers and invest only in programs that add value to the organization and yield solid returns. Interest-rate Risk TCF believes interest-rate risk should be minimized. Interest-rate speculation does not generate consistent profits and is high risk. Capital and Liquidity TCF focuses on prudent capital and liquidity management which strengthens our capital position, increases our borrowing capacity, and reduces our costs and risks. We are solidly capitalized and have access to ample liquidity to conduct business. TCF’s financial strength makes us a safe and sound financial institution. Expansion TCF grows both through de novo expansion and acquisition. We are growing by starting new businesses, opening new branches and offering new products and services. The C ustomer F irst TCF strives to place The Customer First. We believe providing great service helps to retain existing customers, attract new customers, create value for our stockholders, and build pride in our employees. We also respect customers’ concerns 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. Stock Ownership TCF encourages stock ownership by our officers, directors and employees. We have a mutuality of interest with our stockholders, and our goal is to earn for them an above- average return. Technology TCF places a high priority on the development of technology to enhance productivity, customer service and new products. Properly applied technology increases revenue, reduces costs and enhances customer service. We centralize back office activities and decentralize the banking process. Conservative Accounting 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. Open Employee Communication TCF encourages open employee communication and promotes from within whenever possible. TCF places the highest priority on honesty, integrity and ethical behavior. Equal Treatment TCF does not discriminate against anyone in employment or the extension of credit. As a result of TCF’s community banking philosophy, we market our products and services to everyone in the communities we serve. Community Participation TCF believes in community participation, both financially and through volunteerism. We feel a responsibility to help those less fortunate. 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 1 0 A n n u a l R e p o r t TCF Financial Corporation | 2010 Annual Report Bold Thinking Swift Decisions Smart Banking TCF Financial Corporation 200 Lake Street East Wayzata, MN 55391-1693 www.tcfbank.com TCFIR9347 

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