-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0KTNCI6zj8IaEgJ2bzhtqcrSHlwvgQ0el/FCrTscqmjO+3SiVppwdvbM1bKgGs7 01yErRLYkyeZE/V9wh/Rng== 0000912057-00-013669.txt : 20000328 0000912057-00-013669.hdr.sgml : 20000328 ACCESSION NUMBER: 0000912057-00-013669 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCF FINANCIAL CORP CENTRAL INDEX KEY: 0000814184 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 411591444 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10253 FILM NUMBER: 579219 BUSINESS ADDRESS: STREET 1: 801 MARQUETTE AVE STREET 2: MAIL CODE 100-01-A CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6126616500 MAIL ADDRESS: STREET 1: 801 MARQUETTE AVENUE STREET 2: SUITE 302 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------- COMMISSION FILE NO. 001-10253 ----------------------- TCF FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 41-1591444 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 801 MARQUETTE AVENUE, MAIL CODE 100-01-A, MINNEAPOLIS, MINNESOTA 55402 (Address and Zip Code of principal executive offices) Registrant's telephone number, including area code: 612-661-6500 ------------------------ Securities registered pursuant to Section 12(b) of the Act (all registered on the New York Stock Exchange): COMMON STOCK (PAR VALUE $.01 PER SHARE) PREFERRED SHARE PURCHASE RIGHTS (Title of class) Securities registered pursuant to Section 12(g) of the Act: 9.50% WINTHROP RESOURCES CORPORATION SENIOR NOTES DUE 2003 (Title of class) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities and 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 No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 17, 2000 the aggregate market value of the voting stock held by nonaffiliates of the registrant, computed by reference to the average of the high and low prices on such date as reported by the New York Stock Exchange, was $1,598,586,759. As of March 17, 2000, there were outstanding 81,178,603 shares of the registrant's common stock, par value $.01 per share, its only outstanding class of common stock. DOCUMENTS INCORPORATED BY REFERENCE Specific portions of the registrant's annual report to shareholders for the year ended December 31, 1999 are incorporated by reference into Parts I, II and IV hereof. Specific portions of the registrant's definitive proxy statement dated March 30, 2000 are incorporated by reference into Part III hereof. TABLE OF CONTENTS
PART I PAGE ---- Item 1. Business.............................................................................................. 1 Forward-Looking Information.................................................................... 1 General........................................................................................ 1 Lending Activities............................................................................. 2 Investment Activities.......................................................................... 6 Sources of Funds............................................................................... 6 Other Information.............................................................................. 7 Activities of Subsidiaries of TCF Financial Corporation .................................... 7 Recent Accounting Developments.............................................................. 8 Competition................................................................................. 8 Employees................................................................................... 8 Regulation..................................................................................... 9 Taxation....................................................................................... 14 Item 2. Properties............................................................................................ 14 Item 3. Legal Proceedings..................................................................................... 15 Item 4. Submission of Matters to a Vote of Security Holders................................................... 16 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............................. 16 Item 6. Selected Financial Data............................................................................... 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................... 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................................ 17 Item 8. Financial Statements and Supplementary Data........................................................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................................................ 17 PART III Item 10. Directors and Executive Officers of the Registrant................................................... 17 Item 11. Executive Compensation............................................................................... 17 Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 18 Item 13. Certain Relationships and Related Transactions....................................................... 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 18 Signatures..................................................................................................... 19 Index to Consolidated Financial Statements..................................................................... 20 Index to Exhibits.............................................................................................. 20
PART I ITEM 1. BUSINESS FORWARD-LOOKING INFORMATION This Annual Report and other reports issued by TCF Financial Corporation ("TCF" or the "Company"), including reports filed with the Securities and Exchange Commission, may contain "forward-looking" statements that deal with future results, plans or performance. In addition, TCF's management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCF's future results may differ materially from historical performance and forward-looking statements about TCF's expected financial results or other plans are subject to a number of risks and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins; deposit outflows; reduced demand for financial services and loan and lease products; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government; changes in credit and other risks posed by TCF's loan, lease and investment portfolios; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation or other significant uncertainties. GENERAL TCF, a Delaware corporation based in Minneapolis, Minnesota, with $10.7 billion in assets, is the holding company of five federally chartered national banks located in Minnesota, Illinois, Wisconsin, Michigan and Colorado. Unless otherwise indicated, references herein to TCF include its direct and indirect subsidiaries. TCF's subsidiary banks are collectively referred to herein as the "TCF Banks." References herein to the "Holding Company" or "TCF Financial" refer to TCF Financial Corporation on an unconsolidated basis. Where information is incorporated in this report by reference to TCF's 1999 Annual Report, only those portions specifically identified are so incorporated. TCF's products include commercial, consumer and residential mortgage loan products, leasing, insurance and mutual funds, and some of its products, such as its commercial equipment and truck loans and leases, are offered in markets outside areas served by its bank subsidiaries. TCF's primary focus, however, has been on the delivery of retail banking products in markets served by its bank subsidiaries. TCF's strategic emphasis on retail banking has allowed it to fund its assets primarily with retail core deposits, minimize wholesale borrowings and lower its interest-rate risk. During the fourth quarter of 1999, TCF received approval of the Office of the Comptroller of the Currency ("OCC") to merge four of its bank charters into one national bank charter, based in Minnesota. The merger of the bank charters located in Minnesota, Illinois, Wisconsin and Michigan (the "Charter Merger") is expected to be completed in the second quarter of 2000. The merger of the bank charters is not expected to significantly change the management approach or operations within these geographic states. The resulting national bank will be named TCF National Bank. TCF has significantly expanded its retail banking franchise in recent periods and had 338 retail banking branches at December 31, 1999. In the past three years, TCF opened 164 new branches, of which 151 were supermarket branches. This expansion includes TCF's January 1998 acquisition of 76 branches and 178 automated teller machines ("ATMs") in Jewel-Osco stores in the Chicago, Illinois area previously operated by Bank of America. Information concerning this and other acquisitions is set forth in "Financial Review -- Results of Operations - Performance Summary" on page 17 and in Note 2 of Notes to Consolidated Financial Statements on page 41 of TCF's 1999 Annual Report, incorporated herein by reference. TCF anticipates opening approximately 37 new branches in 2000, and additional branches in subsequent years, including approximately 25 Illinois Jewel-Osco supermarket branches per year in subsequent years until branches have been installed in certain existing and all newly constructed stores. 1 TCF's marketing strategy emphasizes attracting deposits held in checking, passbook and statement savings, and money market accounts. These deposit products provide TCF with a significant source of fee income. TCF engages in commercial, residential and consumer lending activities, lease financing and in the insurance services business, including the sale of single premium tax-deferred annuities. TCF also has a broker dealer selling non-proprietary mutual funds. Non-interest income is a significant source of revenues for TCF and an important factor in TCF's results of operations. Providing a wide range of retail banking services is an integral component of TCF's business philosophy and a major strategy for generating additional non-interest income. TCF's non-interest income in future periods may be negatively impacted by pending legislative proposals which, if enacted and not judicially restrained, could limit loan, deposit or other fees and service charges. See "Forward-Looking Information" and "Legislative, Legal and Regulatory Developments" on pages 32 and 33 of TCF's 1999 Annual Report, incorporated herein by reference, for additional information. TCF operated 82 bank branches in Minnesota, 151 in Illinois, 31 in Wisconsin, 64 in Michigan and 10 in Colorado at December 31, 1999. TCF strives to develop innovative banking products and services. Of TCF's 338 bank branches, 195 were supermarket bank branches at December 31, 1999. These supermarket bank branches provide TCF with the opportunity to sell its consumer products and services, including deposits and loans, at a relatively low entry cost and feature extended hours, including Saturdays and Sundays. TCF's "Totally Free"SM checking accounts and other deposit products provide it with a significant source of low-interest cost funds and fee income. TCF has expanded its ATM network to 1,406 machines at December 31, 1999, generally located in areas served by the TCF Banks, and offers its customers an automated telephone banking system. Federal legislation imposes numerous legal and regulatory requirements on financial institutions. Among the most significant of these requirements are minimum regulatory capital levels and enforcement actions that can be taken by regulators when an institution's regulatory capital is deemed to be inadequate. TCF and each of the TCF Banks currently exceed all of their current minimum regulatory capital requirements and are considered "well-capitalized" under guidelines established by the Federal Reserve Board ("FRB") and the OCC pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. See "REGULATION." As federally chartered national banks, the TCF Banks are subject to regulation and examination by the OCC and, in certain cases, by the Federal Deposit Insurance Corporation ("FDIC"). The TCF Banks' deposits are insured to $100,000 by the FDIC, and as such these institutions are subject to regulations promulgated by the FDIC. The TCF Banks are members of the Federal Home Loan Bank ("FHLB") of Des Moines, Chicago, Topeka and/or Indianapolis, and are also member banks within their respective Federal Reserve districts. Following the Charter Merger, TCF National Bank will continue to hold FHLB advances from the FHLB of Chicago and Indianapolis until such advances mature or are prepaid. TCF National Bank will be required to hold common stock of these FHLB districts in the amount of 5% of the outstanding balances of such advances. However, following the Charter Merger, TCF National Bank will no longer be a member of either the FHLB of Chicago or Indianapolis. TCF Financial is a bank holding company and is subject to regulation and examination by the FRB. See "SOURCES OF FUNDS - Borrowings" and "REGULATION -- Regulation of TCF Financial and Affiliate and Insider Transactions." The following description includes detailed information regarding the business of TCF and its subsidiaries. LENDING ACTIVITIES GENERAL TCF's lending activities reflect its community banking philosophy, emphasizing loans to individuals and small to medium-sized businesses in its primary market areas in Minnesota, Illinois, Wisconsin, Michigan and Colorado. TCF is also engaged in lease financing and has expanded its consumer lending operations in recent years. See "Financial Review -- Financial Condition - Loans and Leases" on pages 24 through 26, Note 7 of Notes to Consolidated Financial Statements on pages 43 and 44 and "Other Financial Data" on pages 63 through 67 of TCF's 1999 Annual Report, incorporated herein by reference, for additional information regarding TCF's loan and lease portfolios. 2 RESIDENTIAL REAL ESTATE LENDING TCF's residential mortgage loan originations (first mortgage loans for the financing of one- to four-family homes) are predominantly secured by properties in Minnesota, Illinois, Wisconsin and Michigan. TCF engages in both adjustable-rate and fixed-rate residential real estate lending. Adjustable-rate residential real estate loans held in TCF's portfolio totaled $2.2 billion at December 31, 1999, compared with $2.1 billion at December 31, 1998. Loan originations by TCF Mortgage Corporation ("TCF Mortgage"), a wholly owned subsidiary, include loans purchased from loan correspondents. TCF sells certain residential real estate loans in the secondary market, primarily on a nonrecourse basis. TCF retains servicing rights for the majority of the loans it sells into the secondary market. These sales provide additional funds for loan originations and also generate fee income. TCF may also from time to time purchase or sell servicing rights on residential real estate loans. At December 31, 1999, 1998 and 1997, TCF serviced for others $2.9 billion, $3.7 billion and $4.4 billion, respectively, in residential real estate loans. During 1999, 1998 and 1997, TCF sold servicing rights on $344.6 million, $200.4 million and $144.7 million of loans serviced for others at net gains of $3.1 million, $2.4 million and $1.6 million, respectively. Adjustable-rate residential real estate loans originated by TCF have various adjustment periods and generally provide for limitations on the amount the rate may adjust on each adjustment date, as well as the total amount of adjustments over the lives of the loans. Accordingly, while this portfolio of loans is rate sensitive, it may not be as rate sensitive as TCF's cost of funds. In addition to such interest-rate risk, TCF faces credit risks resulting from potential increased costs to borrowers as a result of rate adjustments on adjustable-rate loans in its portfolio, which will depend upon the magnitude and frequency of shifts in market interest rates. Some adjustable-rate residential real estate loans originated by TCF in prior periods did not provide for limitations on rate adjustments. Credit risk may also result from declines in the values of underlying real estate collateral. See "-- Classified Assets, Loan and Lease Delinquencies and Defaults." TCF Mortgage and the TCF Banks generally adhere to Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Veterans Administration ("VA") or Federal Housing Administration ("FHA") guidelines in originating residential real estate loans. TCF generally requires that all conventional first mortgage real estate loans with loan-to-value ratios in excess of 80% carry private mortgage insurance. CONSUMER LENDING TCF makes consumer loans for personal, family or household purposes, such as debt consolidation or the financing of home improvements, automobiles, vacations and education. Consumer loans totaled $2.1 billion at December 31, 1999, with $1.1 billion, or 51%, having fixed interest rates and $1 billion, or 49%, having adjustable interest rates. The following discussion provides additional information on TCF's consumer lending operations. The consumer lending activities of the TCF Banks include a full range of consumer-oriented products including real estate secured loans, loans secured by personal property and unsecured personal loans. Each of these loan types can be made on an open- or closed-end basis. Consumer loan borrowers generally have higher debt-to-income ratios, and therefore consumer loans have a higher risk of loss than residential loans. Consumer loans having adjustable interest rates also present a credit risk similar to that posed by residential real estate loans as a result of increased costs to borrowers in the event of a rise in rates (see discussion above under "-- Residential Real Estate Lending"). Consumer loans secured by real estate may present additional credit risk in the event of a decline in the value of real estate collateral. In December 1998, TCF restructured its consumer finance company operations, including the discontinuation of indirect automobile lending, the consolidation of offices and a renewed focus on home equity lending. During 1999, $139.4 million of consumer finance automobile loans and $14.8 million of related allowances were transferred to loans held for sale and were subsequently sold. Losses of $1.4 million were recognized in connection with these sales, which are included in gain on sales of loans held for sale. TCF closed its Pensacola, Florida consumer finance loan collections facility during 1999. At December 31, 1999, consumer finance automobile loans totaled $7.7 million, compared with $233.9 million at December 31, 1998. 3 TCF changed its home equity loan origination programs in early 1999. Under the new programs and in response to intensifying price competition, TCF implemented a tiered pricing structure for its home equity loans. TCF also experienced an increase in the loan-to-value ratios on new home equity loans originated in 1999. Many of these loans are secured by a first lien on the home and include an advance to pay off an existing first lien mortgage loan, and many have balances exceeding $100,000. These loans may carry a higher level of credit risk than loans with a lower loan-to-value ratio. For additional information on consumer lending, including TCF's consumer finance company operations, see "Financial Review -- Financial Condition - Loans and Leases" on pages 24 through 26 of TCF's 1999 Annual Report, incorporated herein by reference. TCF originates student loans for resale. TCF had $143.9 million of education loans held for sale at December 31, 1999, compared with $138.3 million at December 31, 1998. TCF generally retains the student loans it originates until they are fully disbursed. Under a forward commitment agreement with the Student Loan Marketing Association ("SLMA"), TCF can sell the student loans to SLMA once they are fully disbursed, but must sell the student loans to SLMA before they go into repayment status. These loans are originated in accordance with designated guarantor and U.S. Department of Education guidelines and do not involve any independent credit underwriting by TCF. TCF's future student loan origination activity will be dependent on continued support of guaranteed student loan programs by the U.S. Government and TCF's ability to continue to sell such loans to SLMA or other parties. Recent federal legislation has limited the role of private lenders in originating student loans and has reduced the profitability of this activity. This legislation may reduce the volume of TCF's student loan originations in future periods. COMMERCIAL REAL ESTATE LENDING TCF currently originates longer-term loans on commercial real estate and, to a lesser extent, shorter-term construction loans. TCF is endeavoring to increase its originations of commercial real estate loans to creditworthy borrowers based in its primary markets. TCF may also engage in commercial real estate loan brokerage activity. At December 31, 1999, adjustable-rate loans represented 81% of commercial real estate loans outstanding. See "Financial Review -- Financial Condition - Loans and Leases" on pages 24 through 26 of TCF's 1999 Annual Report, incorporated herein by reference, for additional information regarding the types of properties securing TCF's commercial real estate loans. At December 31, 1999, TCF's commercial construction and development loan portfolio totaled $162.6 million. Construction and permanent commercial real estate lending is generally considered to involve a higher level of risk than single-family residential lending due to the concentration of principal in a limited number of loans and borrowers. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. COMMERCIAL BUSINESS LENDING TCF engages in general commercial business lending. Commercial business loans may be secured by various types of business assets, including commercial real estate, and in some cases may be made on an unsecured basis. TCF is seeking to expand its commercial business lending activity and in particular its lending to small and medium-sized businesses. TCF's commercial business lending activities encompass loans with a broad variety of purposes, including corporate working capital loans and loans to finance the purchase of equipment or other acquisitions. TCF also makes loans to individuals who use the funds for business or personal purposes. As part of its commercial business and commercial real estate lending activities, TCF also issues standby letters of credit. At December 31, 1999, TCF had 79 such standby letters of credit outstanding in the aggregate amount of $22 million. Recognizing the generally increased risks associated with commercial business lending, TCF originates commercial business loans in order to increase its short-term, variable-rate asset base and to contribute to its profitability through the higher rates earned on these loans and the marketing of other bank products. TCF concentrates on originating commercial business loans primarily to middle-market companies based in its primary markets with borrowing requirements of less than $15 million. Substantially all of TCF's commercial business loans outstanding at December 31, 1999 were to borrowers based in its primary markets. 4 LEASE FINANCING TCF provides a broad range of comprehensive lease and equipment finance products addressing the financing needs of diverse companies including large franchise organizations, small businesses, transportation owners and operators and other equipment lessees. At December 31, 1999, TCF's lease and equipment financing portfolio totaled $492.7 million, including $44.2 million of loans classified as commercial business loans. TCF entered the leasing business in June 1997 with the purchase of Winthrop Resources Corporation ("Winthrop"), a financial services company that leases computers, telecommunications equipment, point-of-sale systems and other business-essential equipment to companies nationwide. In September 1999, TCF expanded its leasing operation with the launch of TCF Leasing, Inc. ("TCF Leasing"), a general equipment finance company with a focus on middle-market companies, truck finance, lease discounting and trailer leasing. TCF internally funds certain leases, and consequently retains the credit risk on such leases. TCF also may arrange permanent financing of certain leases through non-recourse discounting of lease rentals with various other financial institutions at fixed interest rates. At December 31, 1999, 38.9% of TCF's lease portfolio was funded on a non-recourse basis with other financial institutions, compared with 45.9% at December 31, 1998. Proceeds from the assignment of the lease rentals are equal to the present value of the remaining lease payments due under the lease, discounted at the interest rate charged by the other financial institutions. Interest rates for this type of financing are negotiated on a transaction-by-transaction basis and reflect the financial strength of the lease customer, the term of the lease and the prevailing interest rates. For a lease discounted on a non-recourse basis, the other financial institution has no recourse against TCF unless TCF is in default under the terms of the agreement under which the lease and the leased equipment are assigned to the other financial institution as collateral. The other financial institution may, however, take title to the collateral in the event the customer fails to make lease payments or certain other defaults by the lease customer occur under the terms of the lease. CLASSIFIED ASSETS, LOAN AND LEASE DELINQUENCIES AND DEFAULTS TCF has established a classification system for individual commercial loans or other assets based on OCC regulations under which all or part of a loan or other asset may be classified as "substandard," "doubtful," "loss" or "special mention." It has also established overall ratings for various credit portfolios. A loan or other asset is placed in the substandard category when it is considered to have a well-defined weakness. A loan or other asset is placed in the doubtful category when some loss is likely but there is still sufficient uncertainty to permit the asset to remain on the books at its full value. All or a portion of a loan or other asset is classified as loss when it is considered uncollectible, in which case it is generally charged off. In some cases, loans or other assets for which there is perceived some possible exposure to credit loss are classified as special mention. Loans and other assets that are classified are subject to periodic review of their appropriate regulatory classifications. The following table summarizes information about TCF's non-accrual, restructured and past due loans and leases:
AT DECEMBER 31, ------------------------------------------------ 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- (IN MILLIONS) Non-accrual loans and leases $ 24.1 $ 33.7 $ 36.8 $ 26.4 $ 44.3 Restructured loans - - 1.3 3.0 1.6 ------- ------- ------- ------- ------- Total non-accrual and restructured loans and leases $ 24.1 $ 33.7 $ 38.1 $ 29.4 $ 45.9 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Accruing loans and leases 90 days or more past due $ 5.8 $ - $ - $ - $ .7 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
5 The allowance for loan and lease losses is based upon management's periodic analysis of TCF's loan and lease portfolios. Although appropriate levels of reserves have been estimated based upon factors and trends identified by management, there can be no assurance that the levels are adequate. Economic stagnation or reversals in the economy could give rise to increasing risk of credit losses and necessitate an increase in the required level of reserves. The expansion of the Company's consumer lending and other lending and leasing operations creates increased exposure to increases in delinquencies, repossessions, foreclosures and losses that generally occur during economic downturns or recessions. Adverse economic developments are also likely to adversely affect commercial lending operations and increase the risk of loan defaults and credit losses on such loans. Carrying values of foreclosed commercial real estate properties are generally based on appraisals prepared by certified or licensed appraisers. TCF reviews each external commercial real estate appraisal it receives for accuracy, completeness and reasonableness of assumptions used. Weaknesses in real estate markets may result in declines in property values and the sale of properties at less than previously estimated values, resulting in additional charge-offs. TCF recognizes the effect of such events in the periods in which they occur. Additional information concerning TCF's allowance for loan and lease losses is set forth in "Financial Review -- Financial Condition - Allowance for Loan and Lease Losses" on pages 26 and 27, in Note 1 of Notes to Consolidated Financial Statements on pages 39 through 41 and in Note 8 of Notes to Consolidated Financial Statements on page 44 of TCF's 1999 Annual Report, incorporated herein by reference. INVESTMENT ACTIVITIES The TCF Banks have authority to invest in various types of liquid assets, including United States Treasury obligations and securities of various federal agencies, deposits of insured banks, bankers' acceptances and federal funds, and must meet minimum liquidity requirements prescribed by law. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans and leases. The TCF Banks must also meet reserve requirements of the FRB, which are imposed based on amounts on deposit in various types of deposit categories. Information regarding the carrying values and fair values of TCF's investments and securities available for sale is set forth in Notes 4 and 5 of Notes to Consolidated Financial Statements on page 42 of TCF's 1999 Annual Report, incorporated herein by reference. Additional information regarding investments and securities available for sale is set forth in "Other Financial Data" on pages 63 through 67 of TCF's 1999 Annual Report, incorporated herein by reference. SOURCES OF FUNDS DEPOSITS Deposits are the primary source of TCF's funds for use in lending and for other general business purposes. Deposit inflows and outflows are significantly influenced by economic and competitive conditions, interest rates, money market conditions and other factors. Higher-cost borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels or net deposit outflows, or to support expanded activities. Consumer and commercial deposits are attracted principally from within TCF's primary market areas through the offering of a broad selection of deposit instruments including consumer and commercial demand deposit accounts, Negotiable Order of Withdrawal or "NOW" (interest-bearing checking) accounts, money market accounts, regular savings accounts, certificates of deposit and retirement savings plans. The composition of TCF's deposits has a significant impact on its cost of funds. TCF's marketing strategy emphasizes attracting deposits held in checking, regular savings and money market accounts. These accounts provide significant fee income and are a source of low-interest cost funds. Checking, savings and money market accounts comprised 56% of total deposits at December 31, 1999. In addition, there were approximately 1.6 million retail checking, savings and money market accounts at December 31, 1999, compared with approximately 1.4 million and 1.3 million such accounts at December 31, 1998 and 1997, respectively. 6 Information concerning TCF's deposits is set forth in "Financial Review -- Financial Condition - Deposits" on pages 29 and 30 and in Note 10 of Notes to Consolidated Financial Statements on page 46 of TCF's 1999 Annual Report, incorporated herein by reference. BORROWINGS The FHLB System functions as a central reserve bank providing credit for financial institutions through a regional bank located within a particular financial institution's assigned region. The TCF Banks are members of the FHLB System, and are required to own a minimum level of FHLB capital stock and are authorized to apply for advances on the security of such stock and certain of their loans 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. TCF's FHLB advances totaled $1.8 billion at December 31, 1999, down $44.4 million from the balance at December 31, 1998. 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. Acceptable uses prescribed by the FHLB have included expansion of residential mortgage lending and meeting short-term liquidity needs. 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 under repurchase agreements ("reverse repurchase agreements") with the FHLMC or major investment bankers utilizing government securities or mortgage-backed securities as collateral. Reverse repurchase agreements totaled $1 billion at December 31, 1999, compared with $367.3 million at December 31, 1998. Generally, securities with a value in excess of the amount borrowed are required to be deposited as collateral with the counterparty to a reverse repurchase agreement. The creditworthiness of the counterparty is important in establishing that the overcollateralized amount of securities delivered by TCF is protected and it is TCF's policy to enter into reverse repurchase agreements only with institutions with a satisfactory credit history. The use of reverse repurchase agreements may expose TCF to certain risks not associated with other sources of funds, including possible requirements to provide additional collateral and the possibility that such agreements may not be renewed. If for some reason TCF were no longer able to obtain reverse repurchase agreement financing, it would be necessary for TCF to obtain alternative sources of short-term funds. Such alternative sources of funds, if available, may be higher-cost substitutes for the reverse repurchase agreement funds. Information concerning TCF's FHLB advances, reverse repurchase agreements and other borrowings is set forth in "Financial Review -- Financial Condition - Borrowings" on page 30 and in Note 11 of Notes to Consolidated Financial Statements on pages 47 through 49 of TCF's 1999 Annual Report, incorporated herein by reference. OTHER INFORMATION ACTIVITIES OF SUBSIDIARIES OF TCF FINANCIAL CORPORATION TCF's business operations include those conducted by direct and indirect subsidiaries of TCF Financial. During the year ended December 31, 1999, TCF's subsidiaries were principally engaged in the following activities: Mortgage Banking TCF Mortgage and Standard Financial Mortgage Corporation originate, purchase, sell and service residential mortgage loans. 7 Leasing Winthrop and TCF Leasing provide a range of comprehensive lease finance products. Winthrop leases high-technology and other business-essential equipment to customers ranging from large corporations to small, growing businesses. TCF Leasing, TCF's newly formed leasing and equipment finance subsidiary, specializes in the leasing and financing of trucks and industrial equipment in key markets in various regions of the United States. Annuities and Investment Services TCF Financial Insurance Agency, Inc., is an insurance agency engaging in the sale of fixed-rate, single premium tax-deferred annuities. TCF Securities, Inc. engages in the sale of non-proprietary mutual fund products, and in the sale of variable-rate, single premium tax-deferred annuities. Insurance, Title Insurance and Appraisal Services Certain TCF subsidiaries provide various types of insurance, principally credit-related, marketed primarily to TCF's customers. North Star Title, Inc. ("North Star") is a title insurance agent for several title insurance underwriters, operating primarily in Minnesota, Illinois, Wisconsin and Michigan, providing title insurance, real estate abstracting, and closing services to affiliates and third parties. North Star Real Estate Services, Inc. ("North Star Real Estate") provides real estate appraisal services to its affiliates and to third parties. In the 1999 fourth quarter, TCF sold North Star and North Star Real Estate and recognized a gain of $5.5 million on the sale. RECENT ACCOUNTING DEVELOPMENTS There has been an ongoing review over many years of the accounting principles and practices used by financial institutions. This review is expected to continue by banking regulators, the Securities and Exchange Commission ("SEC"), the Financial Accounting Standards Board ("FASB"), the American Institute of Certified Public Accountants ("AICPA") and other organizations. As a result of this process, there have been new accounting pronouncements which have had an impact on TCF. Further developments may be forthcoming in light of this ongoing review process. In June 1998, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." Additional information on SFAS No. 133 is set forth in "Financial Review -- Financial Condition - Recent Accounting Developments" on page 32 of TCF's 1999 Annual Report, incorporated herein by reference. COMPETITION TCF National Bank Minnesota ("TCF Minnesota") is the third largest depository institution in Minnesota. The other TCF Banks compete with a number of larger depository institutions in their market areas. The TCF Banks experience significant competition in attracting and retaining deposits and in lending funds. TCF believes the primary factors in competing for deposits are the ability to offer attractive rates and products, convenient office locations and supporting data processing systems and services. Direct competition for deposits comes primarily from other commercial banks, credit unions and savings institutions. Additional significant competition for deposits comes from institutions selling money market mutual funds and corporate and government securities. The primary factors in competing for loans are interest rates, loan origination fees and the range of services offered. TCF competes for the origination of loans with commercial banks, mortgage bankers, mortgage brokers, consumer finance companies, credit unions, insurance companies and savings institutions. TCF also competes nationwide with other leasing companies in the financing of high-technology and business-essential equipment. Expanded use of the Internet has increased the potential competition affecting TCF and its loan, lease and deposit products. EMPLOYEES As of December 31, 1999, TCF had approximately 7,200 employees, including 2,400 part-time employees. TCF provides its employees with a comprehensive program of benefits, some of which are on a contributory basis, including comprehensive medical and dental plans, life insurance, accident insurance, short- and long-term disability coverage, a pension plan and a shared contribution stock ownership 401(k) plan. 8 REGULATION The banking industry is generally subject to extensive regulatory oversight. TCF Financial, as a publicly held bank holding company, and the TCF Banks, as national banks with deposits insured by the FDIC, are subject to a number of laws and regulations. Many of these laws and regulations have undergone significant change in recent years. These laws and regulations impose restrictions on activities, minimum capital requirements, lending and deposit restrictions and numerous other requirements. Future changes to these laws and regulations are likely and cannot be predicted with certainty. RECENT DEVELOPMENTS - Financial Modernization Act On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act (the "Act" or the "Gramm-Leach-Bliley Act"). The Act significantly changes the regulatory structure and oversight of the financial services industry and expands financial affiliation opportunities for bank holding companies. The Act permits "financial holding companies" to engage in a range of activities that are "financial in nature" or "incidental" thereto, such as banking, insurance, securities activities, and merchant banking. To qualify to engage in expanded financial activities, a financial holding company must make certain required regulatory filings, and subsidiary depository institutions must be well-capitalized, well-managed and rated "satisfactory" or better under the Community Reinvestment Act. The Act also permits national banks to engage in certain expanded financial activities through a financial subsidiary, provided the bank and its depository institution affiliates are deemed well-capitalized and well-managed and meet certain other regulatory requirements. The Act also reforms the regulatory framework of the financial services industry. Financial holding companies will be subject to primary supervision by the FRB. However, unless subsidiary activity adversely impacts the holding company, appropriate federal and state agencies will continue to have significant regulatory authority over the subsidiaries. The Act preempts state laws restricting the establishment of financial affiliations authorized or permitted under the Act, subject to certain limited exceptions, including an exception that allows state insurance regulators to impose certain requirements on financial institutions, so long as they are not substantially more adverse than those applying to other persons. The Act removes the current blanket exemption for banks from the broker-dealer registration requirements under the Securities Exchange Act of 1934, amends the Investment Company Act of 1940 with respect to bank common trust fund and mutual fund activities, and amends the Investment Advisors Act of 1940 to require registration of banks that act as investment advisers for mutual funds. The Act prohibits financial institutions from sharing non-public financial information on their customers to non- affiliated third parties unless the customer is provided the opportunity to opt-out or the customer consents. However, the Act allows a financial institution to disclose confidential information pursuant to a joint marketing agreement (after full disclosure to the customer), to perform services on behalf of the institution, to market the institution's own products, and to protect against fraud. The Act directs federal banking agencies to prescribe regulations within six months after the date of enactment designed to further clarify and enforce the privacy provisions. The provisions of the Act relating to financial holding companies became effective on or about March 15, 2000. Federal preemption provisions became effective on the date of enactment. The privacy provisions generally become effective in November 2000. - Other Developments In 1999, TCF sought and obtained regulatory approval to merge the charters of the TCF Banks located in Minnesota, Illinois, Wisconsin and Michigan. The Charter Merger is anticipated to be completed in the second quarter of 2000. The merger of the bank charters is not expected to significantly change the management approach or operations within these geographic states. 9 REGULATORY CAPITAL REQUIREMENTS TCF Financial and the TCF Banks are subject to both risk-based and leverage capital requirements of the FRB and the OCC, respectively. These requirements are described below. In addition, these regulatory agencies are required by law to take prompt action when institutions do not meet certain other 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," and requires that regulatory authorities subject undercapitalized institutions to various restrictions such as limitations on dividends or other capital distributions, limitations on growth or activity restrictions. Undercapitalized banks must also develop a capital restoration plan and the parent bank holding company is required to guarantee compliance with the plan. TCF Financial and the TCF Banks believe they would be considered "well-capitalized" under the FDICIA capital standards. The FRB's risk-based capital guidelines include among their objectives making regulatory capital requirements more sensitive to differences in risk profiles of banking organizations, factoring off-balance-sheet exposures into the assessment of capital adequacy and minimizing disincentives to holding liquid, low-risk assets. Under these guidelines, a bank holding company's assets and certain off-balance sheet items are assigned to one of four risk categories, each weighted differently in accordance with the perceived level of risk posed by such assets or off-balance-sheet items. FRB guidelines also prescribe two "tiers" of capital. "Tier 1" capital includes common stockholders' equity; qualifying noncumulative perpetual preferred stock (including related surplus); qualifying cumulative perpetual preferred stock (including related surplus), subject to certain limitations; and minority interests in the equity accounts of consolidated subsidiaries. Tier 1 capital excludes goodwill and certain other intangible and other assets. "Supplementary" or "Tier 2" capital consists of the allowance for loan and lease losses, subject to certain limitations; perpetual preferred stock and related surplus, subject to certain conditions; hybrid capital instruments (i.e., those with characteristics of both equity and debt), perpetual debt and mandatory convertible debt securities; and term subordinated debt and intermediate-term preferred stock (including related surplus), subject to certain limitations. The maximum amount of Tier 2 capital that is allowed to be included in an institution's qualifying total capital is 100% of Tier 1 capital, net of goodwill and other intangible assets required to be deducted. TCF Financial is currently required to maintain (i) Tier 1 capital equal to at least four percent of its risk-weighted assets and (ii) total capital (the sum of Tier 1 and Tier 2 capital) equal to eight percent of risk-weighted assets. The FRB also requires bank holding companies to maintain a minimum Tier 1 "leverage ratio" (measuring Tier 1 capital as a percentage of adjusted total assets) of at least three percent. Higher leverage ratio requirements (minimum additional capital of 100 to 200 basis points) are imposed for institutions that do not have the highest regulatory rating or that fail to meet certain other criteria. At December 31, 1999, TCF believes it met all these requirements. See Note 14 of Notes to Consolidated Financial Statements on page 51 of TCF's 1999 Annual Report, incorporated herein by reference. The FRB has not advised TCF of any specific minimum Tier 1 leverage ratio applicable to it. The FRB's guidelines indicate that the FRB expects that bank holding companies experiencing internal growth or making acquisitions should maintain stronger capital positions, substantially above the minimum supervisory levels, without significant reliance on intangible assets. In addition, the guidelines provide that the FRB will use Tier 1 leverage guidelines in its inspection and supervisory process and as part of its analysis of applications to be approved by the FRB (this would include applications relating to bank holding company activities, acquisitions or other matters). The guidelines also indicate that the FRB will review the Tier 1 leverage measure periodically and will consider adjustments needed to reflect significant changes in the economy, financial markets and banking practices. The OCC also imposes on the TCF Banks regulatory capital requirements that are substantially similar to those imposed by the FRB, and TCF believes each of the TCF Banks complied with OCC regulatory capital requirements at December 31, 1999. 10 The FRB and the OCC also have adopted rules that could permit them to quantify and account for interest-rate risk exposure and market risk from trading activity and reflect these risks in higher capital requirements. New legislation, additional rulemaking, or changes in regulatory policies may affect future regulatory capital requirements applicable to TCF Financial and the TCF Banks. The ability of TCF Financial and the TCF Banks to comply with regulatory capital requirements may be adversely affected by legislative changes or future rulemaking or policies of their regulatory authorities, or by unanticipated losses or lower levels of earnings. RESTRICTIONS ON DISTRIBUTIONS Dividends or other capital distributions from the TCF Banks 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 other borrowings, or for its other cash needs. The TCF Banks' ability to pay dividends is heavily dependent on regulatory policies and regulatory capital requirements. The ability to pay such dividends in the future may be adversely affected by new legislation or regulations, or by changes in regulatory policies. In general, the TCF Banks may not declare or pay a dividend to TCF Financial in excess of 100% of their net profits during a year combined with their retained net profits for the preceding two years without prior approval of the OCC. The TCF Banks' ability to make any capital distributions in the future may require regulatory approval and may be restricted by their regulatory authorities. The TCF Banks' ability to make any such distributions may also depend on their earnings and ability to meet minimum regulatory capital requirements in effect during future periods. These capital adequacy standards may be higher than existing minimum capital requirements. 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, tax considerations may limit the ability of the TCF Banks to make dividend payments in excess of their 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 "Financial Review -- Financial Condition - Liquidity Management" on page 29 and Note 13 of Notes to Consolidated Financial Statements on pages 50 and 51 of TCF's 1999 Annual Report, incorporated herein by reference. REGULATION OF TCF FINANCIAL AND AFFILIATE AND INSIDER TRANSACTIONS TCF Financial is subject to regulation as a bank holding company. It is required to register with the FRB and is subject to FRB regulations, examinations and reporting requirements relating to bank holding companies. As subsidiaries of a bank holding company, the TCF Banks are subject to certain restrictions in their dealings with TCF Financial and with other companies affiliated with TCF Financial, and also with each other. A bank holding company must serve as a source of strength for its subsidiary banks, and TCF Financial may be required to make up certain capital deficiencies of the TCF Banks. The FRB may require a holding company to contribute additional capital to an undercapitalized subsidiary bank. In addition, Section 55 of the National Bank Act may permit the OCC to order the pro rata assessment of shareholders of a national bank where the capital of the bank has become impaired. If a shareholder fails to pay such an assessment within three months, the OCC may order the sale of the shareholder's stock to cover a deficiency in the capital of a subsidiary bank. In the event of a 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"), a bank holding company must obtain FRB approval before acquiring more than 5% control, or substantially all of the assets, of another bank or bank holding company, or merging or consolidating with another bank 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 FRB as being closely related and proper incidents to the business of banking. As discussed, the Act permits any bank holding company that qualifies as a financial holding company to engage in an expanded list of activities, subject to certain restrictions. See "--Recent Developments." 11 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 the TCF Banks, and which require regulatory approval prior to any such changes in control. The Restated Certificate of Incorporation of TCF Financial and a Shareholder Rights Plan adopted by TCF Financial in 1999, among other items, contain 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 (the "1994 Act") by adopting a law after the date of enactment of the 1994 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 branch is located permits such acquisitions. Interstate mergers and branch acquisitions may also be subject to certain nationwide and statewide insured deposit maximum concentration levels. INSURANCE OF ACCOUNTS; DEPOSITOR PREFERENCE The deposits of the TCF Banks are insured by the FDIC up to $100,000 per insured depositor. Substantially all of TCF's deposits are Savings Association Insurance Fund ("SAIF") insured, but TCF also has deposits insured by the Bank Insurance Fund ("BIF"). The FDIC has established a risk-based deposit insurance assessment under which deposit insurance assessments are based upon an institution's capital strength and supervisory condition, as determined by the institution's primary regulator. The annual insurance premiums on bank deposits insured by the BIF and SAIF may vary between $0 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. In addition to risk-based deposit insurance assessments, assessments may be imposed on deposits insured by either the BIF or the SAIF to pay for the cost of Financing Corporation ("FICO") funding. FICO assessment rates for 1999 ranged from $.0116 to $.0122 per $100 of deposits annually for BIF-assessable deposits and from $.0580 to $.0610 per $100 of deposits annually for SAIF-assessable deposits. An increase in deposit insurance rates could have a material adverse effect on TCF, depending on the amount and duration of the increase. In addition, 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 is likely to have a material adverse effect on TCF, the severity of which would depend on the amount of deposits affected by such a termination. Under federal law, deposits and certain claims for 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 FRB, OCC and the FDIC. Bank regulatory authorities may impose on institutions found to be operating in an unsafe or unsound manner a number of restrictions or new requirements, including but not limited to growth limitations, dividend restrictions, individual increased regulatory capital requirements, increased loan and real estate loss reserve requirements, increased supervisory assessments, 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. Various enforcement remedies, including civil money penalties, may be assessed against an institution or an institution's directors, officers, employees, agents or independent contractors. 12 Subsidiaries of TCF are also subject to state and/or self-regulatory organization licensing, regulation and examination requirements in connection with certain insurance, mortgage banking and securities brokerage activities. NATIONAL BANK INVESTMENT LIMITATIONS Permissible investments by national banks are limited by the National Bank Act, as amended, and by rules of the OCC. The OCC is in the process of finalizing regulations under the Gramm-Leach-Bliley Act which will permit banks to engage in expanded activities subject, in the case of certain non-traditional bank activities, to certain supervisory requirements, including a required regulatory capital deduction and application of transactions with affiliates limitations. See "--Recent Developments." 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. Legislative proposals for tax reform have sought the elimination of certain tax benefits for single premium annuities which, if adopted, could impair TCF's ability to market annuity products. Recent legislation and administrative action has limited the role of private lenders in education loans and has adversely affected the profitablilty of student lending activity. TCF's non-interest income in future periods may be negatively impacted by pending state and federal legislative proposals which, if enacted, could limit loan, deposit or other fees and service charges. Among other proposals, state legislation has been proposed which could eliminate ATM surcharge fees imposed by TCF, and which could restrict the sharing of customer information among TCF-affiliated entities. These proposals could adversely affect TCF's revenues and product marketing strategies. Financial institutions have also increasingly been the subject of private class action lawsuits challenging escrow account practices, private mortgage insurance requirements, the use of loan brokers and other practices. Pending litigation against Visa and Mastercard, if successful, could have an adverse impact on the revenues of debit card issuers such as TCF. The Community Reinvestment Act ("CRA") and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. In recent periods, federal regulatory agencies, including the FRB and the Department of Justice ("DOJ"), have sought a more rigorous enforcement of the CRA and other fair lending laws and regulations. The DOJ is authorized to use the full range of its enforcement authority under the fair lending laws. The DOJ has authority to commence pattern or practice investigations of possible lending discrimination on its own initiative or through referrals from the federal financial institutions regulatory agencies, and to file lawsuits in federal court where there is reasonable cause to believe that such violations have occurred. The DOJ is also authorized to bring suit based on individual complaints filed with the Department of Housing and Urban Development where one of the parties to the complaint elects to have the case heard in federal court. A successful challenge to an institution's performance under the CRA and related laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, prospective and retrospective 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. The ultimate effects of the foregoing or other possible legal and regulatory developments cannot be predicted but may have an adverse impact on TCF. OTHER LAWS AND REGULATIONS TCF is subject to a wide array of other laws and regulations, both federal and state, including, but not limited to, usury laws, the CRA and related regulations, the Equal Credit Opportunity Act and Regulation B, Regulation D reserve requirements, Regulation E Electronic Funds transfer requirements, the Truth-in-Lending Act and Regulation Z, the Real Estate Settlement Procedures Act and Regulation X, and the Truth-in-Savings Act and Regulation DD. TCF is also subject to laws and regulations that may impose liability on lenders and owners for clean-up costs and other costs stemming from hazardous waste located on property securing real estate loans made by lenders or on real estate that is owned by lenders following a foreclosure or otherwise. Although TCF's lending procedures include measures designed to limit lender liability for hazardous waste clean-up or other related liability, TCF has engaged in significant commercial lending activity, and lenders may be held liable for clean up costs relating to hazardous wastes under certain circumstances. 13 TAXATION FEDERAL TAXATION Bad Debt Reserves TCF files consolidated federal income tax returns and is an accrual basis taxpayer. The TCF Banks are subject to federal income tax under the Internal Revenue Code of 1986, as amended (the "Code") in the same general manner as other corporations. Prior to 1996, savings institutions were subject to special bad debt reserve rules and certain other rules. During this period, a savings institution that held 60% or more of its assets in "qualifying assets" (as defined in the Code) was permitted to maintain reserves for bad debts and to make annual additions to such reserves that qualified as deductions from taxable income. Beginning in 1996, the favorable bad debt method described above was repealed, putting savings institutions on the same tax bad debt method as commercial banks. This legislation requires recapture of the amount of the tax bad debt reserves to the extent that they exceed the adjusted base year reserve (the "applicable excess reserves"). The applicable excess reserves are recaptured over a six-year period. This recapture period can be deferred for a period of up to two years to the extent that a certain residential lending test is met. TCF has previously provided taxes for the applicable excess reserves. IRS Audit History The statute of limitations on TCF's consolidated federal tax return is closed through 1995, with the exception of certain filed refund claims. See "Financial Review -- Results of Operations - Income Taxes" on page 23, Note 1 of Notes to Consolidated Financial Statements on pages 39 through 41 and Note 12 of Notes to Consolidated Financial Statements on pages 49 and 50 of TCF's 1999 Annual Report, incorporated herein by reference, for additional information regarding TCF's income taxes. STATE TAXATION TCF and/or its subsidiaries currently file tax returns in all 50 states and local tax returns in certain cities and other taxing jurisdictions. TCF's primary banking activities are in the states of Minnesota, Illinois, Wisconsin, Michigan and Colorado. The tax rates in those jurisdictions are 9.8%, 7.3%, 7.9%, 2.3% and 5%, respectively. The methods of filing, and the methods for calculating taxable and apportionable income, vary depending upon the laws of the taxing jurisdiction. ITEM 2. PROPERTIES OFFICES At December 31, 1999, TCF owned the buildings and land for 109 of its bank branch offices, owned the buildings but leased the land for 5 of its bank branch offices and leased the remaining 224 bank branch offices, all of which are well maintained. The properties related to the bank branch offices owned by TCF had a depreciated cost of approximately $59.7 million at December 31, 1999. At December 31, 1999, the aggregate net book value of leasehold improvements associated with leased bank branch office facilities was $17.3 million. In addition to the above-referenced branch offices, TCF owned and leased other facilities with an aggregate net book value of $12.6 million at December 31, 1999. See Note 9 of Notes to Consolidated Financial Statements on pages 45 and 46 of TCF's 1999 Annual Report, incorporated herein by reference. 14 ITEM 3. LEGAL PROCEEDINGS From time to time, TCF is a party to legal proceedings arising out of its general lending and operating activities. TCF is and expects to become engaged in a number of foreclosure proceedings and other collection actions as part of its loan collection activities. From time to time, borrowers have also brought actions against TCF, in some cases claiming substantial amounts of damages. Some financial services companies have recently been subjected to significant exposure in connection with class actions and/or suits seeking punitive damages. Among other possible developments, adverse decisions in litigation dealing with ATM surcharge legislation, privacy concerns or pending litigation against Visa and Mastercard affecting debit card fees could have an adverse impact on TCF. Management, after review with its legal counsel, believes that the ultimate disposition of its litigation will not have a material effect on TCF's financial condition. On November 2, 1993, TCF Minnesota filed a complaint in the United States Court of Federal Claims seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. TCF Minnesota's claim is based on the government's breach of contract in connection with TCF Minnesota's acquisitions of certain savings institutions prior to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), which contracts allowed TCF Minnesota to treat the "supervisory goodwill" created by the acquisitions as an asset that could be counted toward regulatory capital, and provided for other favorable regulatory accounting treatment. The United States has not yet answered TCF Minnesota's complaint. TCF Minnesota's complaint involves approximately $80.3 million in supervisory goodwill. In August 1995, Great Lakes Michigan filed with the United States Court of Federal Claims a complaint seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. Great Lakes Michigan's claim is based on the government's breach of contract in connection with Great Lakes Michigan's acquisitions of certain savings institutions prior to the enactment of FIRREA in 1989, which contracts allowed Great Lakes Michigan to treat the "supervisory goodwill" created by the acquisitions as an asset that could be counted toward regulatory capital, and provided for other favorable regulatory accounting treatment. The United States has not yet answered Great Lakes Michigan's complaint. Great Lakes Michigan's complaint involves approximately $87.3 million in supervisory goodwill. On July 1, 1996, the United States Supreme Court issued a decision affirming the August 30, 1995 decision of the United States Court of Appeals for the Federal Circuit, which decision had affirmed the Court of Federal Claims' liability determinations in three other "supervisory goodwill" cases, consolidated for review under the title WINSTAR CORP. v. UNITED STATES, 116 S.Ct. 2432 (1996). In rejecting the United States' consolidated appeal from the Court of Federal Claims' decisions, the Supreme Court held in WINSTAR that the United States had breached contracts it had entered into with the plaintiffs which provided for the treatment of supervisory goodwill, created through the plaintiffs' acquisitions of failed or failing savings institutions, as an asset that could be counted toward regulatory capital. Two of the three cases consolidated in the Supreme Court proceedings have since been tried before the Court of Federal Claims on the issue of damages, and the third was settled without trial. In one of the cases that proceeded to a damages trial, GLENDALE FEDERAL BANK, FSB v. UNITED STATES, 43 Fed. Cl. 390 (1999), the Court of Federal Claims issued a decision on April 9, 1999, awarding the plaintiff in that case $908,948,000 in restitution and non-overlapping reliance damages. The GLENDALE damages decision has been appealed to the United States Court of Appeals for the Federal Circuit. The other case which went to trial was settled in June 1998. On December 22, 1997, the Court of Federal Claims issued a decision finding the existence of contracts and governmental breaches of those contracts in four other "supervisory goodwill" cases, consolidated for purposes of that decision only under the title CALIFORNIA FEDERAL BANK v. UNITED STATES, 39 Fed. Cl. 753 (1997). In reaching its decision, the Court of Federal Claims rejected a number of "common issue" defenses that the government has raised in a number of "supervisory goodwill" cases. In November 1998, the Court of Federal Claims issued another decision in the CALIFORNIA FEDERAL case prohibiting the plaintiff in that case from offering evidence as to a lost profits theory of damages. A two-month trial regarding the plaintiff's other damages theories in that case was concluded in early March 1999. On April 21, 1999, the Court of Federal Claims entered judgment for the plaintiff in CALIFORNIA FEDERAL, and awarded the plaintiff $22,966,523.42 in damages under a cost of replacement capital theory. CALIFORNIA FEDERAL BANK v. UNITED STATES, 43 Fed Cl. 445 (1999). On May 6, 1999, the Court denied plaintiff's motion for reconsideration of its damages decision in the CALIFORNIA FEDERAL case. The CALIFORNIA FEDERAL decision has been appealed to the United States Court of Appeals for the Federal Circuit. 15 On September 30, 1999, the Court of Federal Claims issued a damages decision in another "supervisory goodwill" case, LASALLE TALMAN BANK vs. UNITED STATES, awarding the plaintiff $5,008,700 in damages designed to reimburse the plaintiff for certain "incidental" expenses caused by the government's breach. The Court rejected all of the plaintiff's other damages claims. The LASALLE TALMAN opinion has been appealed to the United States Court of Appeals for the Federal Circuit. In addition, the Court of Federal Claims has issued favorable liability decisions to the plaintiffs in several other "supervisory goodwill" cases, and a number of such cases are currently engaged in or about to commence trials on damage issues. The government has indicated that it will have a number of affirmative defenses against goodwill litigation filed against it. The TCF Minnesota and Great Lakes Michigan actions involve a variety of different types of transactions, contracts and contract provisions. There can be no assurance that the U.S. Supreme Court decision in WINSTAR or the Court of Federal Claims' recent decisions in GLENDALE, CALIFORNIA FEDERAL, LASALLE TALMAN and other cases will mean that a similar result would be obtained in the actions filed by TCF Minnesota and Great Lakes Michigan. There also can be no assurance that the government will be determined liable in connection with the loss of supervisory goodwill by either TCF Minnesota or Great Lakes Michigan or, even if a determination favorable to TCF Minnesota or Great Lakes Michigan is made on the issue of the government's liability, that a measure of damages will be employed that will permit any recovery on TCF Minnesota's or Great Lakes Michigan's claim. Because of the complexity of the issues involved in both the liability and damages phases of this litigation, and the usual risks associated with litigation, the Company cannot predict the outcome of TCF Minnesota's or Great Lakes Michigan's cases, and investors should not anticipate any recovery. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 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 common 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 THE WALL STREET JOURNAL.
Dividends High Low Declared ------------ ------------ --------- 1999: First Quarter $27 1/4 $21 11/16 $.1625 Second Quarter 30 11/16 25 1/8 .1875 Third Quarter 29 3/8 26 5/8 .1875 Fourth Quarter 30 9/16 23 3/4 .1875 1998: First Quarter $35 1/8 $29 1/4 $.125 Second Quarter 37 1/4 28 3/8 .1625 Third Quarter 32 7/16 19 7/8 .1625 Fourth Quarter 25 5/8 15 13/16 .1625
As of March 17, 2000, there were approximately 10,800 record holders of TCF's common stock. The Board of Directors of TCF has not adopted a formal dividend policy. The Board of Directors intends to continue its present practice of paying quarterly cash dividends on TCF's common stock as justified by the financial condition of TCF. The declaration and amount of future dividends will depend on circumstances existing at the time, including TCF's earnings, financial condition and capital requirements, the cash available to pay such dividends (derived mainly from dividends and distributions from the TCF Banks), as well as regulatory and contractual limitations and such other factors as the Board of Directors may deem relevant. In general, the TCF Banks may not 16 declare or pay a dividend to TCF in excess of 100% of their net profits for that year combined with their retained net profits for the preceding two calendar years without prior approval of the OCC. Restrictions on the ability of the TCF Banks to pay cash dividends or possible diminished earnings of the indirect subsidiaries of the Holding Company may limit the ability of the Holding Company to pay dividends in the future to holders of its common stock. See "REGULATION -- Regulatory Capital Requirements," "REGULATION -- Restrictions on Distributions" and Note 13 of Notes to Consolidated Financial Statements on pages 50 and 51 of TCF's 1999 Annual Report, incorporated herein by reference. Federal income tax rules may also limit dividend payments under certain circumstances. See "TAXATION," and Note 12 of Notes to Consolidated Financial Statements on pages 49 and 50 of TCF's 1999 Annual Report, incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The Other Financial Data on pages 63 through 67 of TCF's 1999 Annual Report, presenting selected financial data, is incorporated herein by reference and should be read in conjunction with the Consolidated Financial Statements and related notes appearing on pages 34 through 62 of TCF's 1999 Annual Report, incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Financial Review on pages 17 through 33 of TCF's 1999 Annual Report, presenting management's discussion and analysis of TCF's financial condition and results of operations, is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The quantitative and qualitative disclosures about market risk set forth on pages 30 through 32 of TCF's 1999 Annual Report are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, Notes to Consolidated Financial Statements, Independent Auditors' Report and Other Financial Data set forth on pages 34 through 67 of TCF's 1999 Annual Report are incorporated herein by reference. See Index to Consolidated Financial Statements on page 20 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and executive officers of TCF is set forth on pages 3 through 13 and pages 15 through 18 of TCF's definitive proxy statement dated March 30, 2000 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding compensation of directors and executive officers of TCF is set forth on page 7, pages 11 through 13 and pages 15 through 18 of TCF's definitive proxy statement dated March 30, 2000 and is incorporated herein by reference. 17 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding ownership of TCF's common stock by TCF's directors, executive officers, and certain other shareholders is set forth on pages 8 and 9 of TCF's definitive proxy statement dated March 30, 2000 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and transactions between TCF and management is set forth on page 6 of TCF's definitive proxy statement dated March 30, 2000 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS 1. Financial Statements See Index to Consolidated Financial Statements on page 20 of this report. 2. Financial Statement Schedules All schedules to the Consolidated Financial Statements normally required by the applicable accounting regulations are omitted since the required information is included in the Consolidated Financial Statements or the Notes thereto or is not applicable. 3. Exhibits See Index to Exhibits on page 20 of this report. (b) REPORTS ON FORM 8-K None. 18 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 of the Board and Chief Executive Officer Dated: March 24, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ WILLIAM A. COOPER Chairman of the Board, Chief Executive March 24, 2000 - ----------------------- Officer and Director William A. Cooper /s/ THOMAS A. CUSICK Vice Chairman of the Board, Chief Operating March 24, 2000 - ------------------------------ Officer and Director Thomas A. Cusick /s/ LYNN A. NAGORSKE President and Director March 24, 2000 - ------------------------------ Lynn A. Nagorske /s/ NEIL W. BROWN Executive Vice President, Chief Financial March 24, 2000 - ------------------------------ Officer and Treasurer (Principal Neil W. Brown Financial Officer) /s/ DAVID M. STAUTZ Senior Vice President and Controller March 24, 2000 - ------------------------------ (Principal Accounting Officer) David M. Stautz /s/ WILLIAM F. BIEBER Director March 24, 2000 - ------------------------------ William F. Bieber /s/ RUDY BOSCHWITZ Director March 24, 2000 - ------------------------------ Rudy Boschwitz /s/ JOHN M. EGGEMEYER III Director March 24, 2000 - ------------------------------ John M. Eggemeyer III /s/ ROBERT E. EVANS Director March 24, 2000 - ------------------------------ Robert E. Evans /s/ LUELLA G. GOLDBERG Director March 24, 2000 - ------------------------------ Luella G. Goldberg /s/ GEORGE G. JOHNSON Director March 24, 2000 - ------------------------------ George G. Johnson /s/ DANIEL F. MAY Director March 24, 2000 - ------------------------------ Daniel F. May /s/ THOMAS J. MCGOUGH Director March 24, 2000 - ------------------------------ Thomas J. McGough /s/ GERALD A. SCHWALBACH Director March 24, 2000 - ------------------------------ Gerald A. Schwalbach /s/ RALPH STRANGIS Director March 24, 2000 - ------------------------------ Ralph Strangis
19 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial statements of TCF and its subsidiaries, included in TCF's 1999 Annual Report, are incorporated herein by reference in this report:
PAGE IN 1999 DESCRIPTION ANNUAL REPORT ----------- ------------- Independent Auditors' Report 62 Consolidated Statements of Financial Condition at December 31, 1999 and 1998 34 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1999 35 Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 1999 36 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1999 38 Notes to Consolidated Financial Statements 39 Other Financial Data 63
INDEX TO EXHIBITS
EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 3(a) Restated Certificate of Incorporation of TCF Financial Corporation, as amended and restated through April 29, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3(b) Restated Bylaws of TCF Financial Corporation, as amended and restated through October 25, 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4(a) Rights Agreement, dated as of May 12, 1999, between TCF Financial Corporation and BankBoston, N.A. [incorporated by reference to Exhibit 1 to TCF Financial Corporation's Registration Statement on Form 8-A, No. 001-10253 (filed May 24, 1999)] 20 EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 4(b) Indenture dated July 1, 1996 relating to 9.50% Senior Notes due 2003 between Winthrop Resources Corporation ("Winthrop") and Norwest Bank Minnesota, National Association, as Trustee [incorporated by reference to Exhibit 4.5 to Winthrop's Registration Statement on Form S-2, File No. 333-04539 (filed May 24, 1996)]; as amended by First Supplemental Indenture dated as of June 20, 1997 by and among Winthrop, TCF Financial Corporation and Norwest Bank Minnesota, National Association, as Trustee [incorporated by reference to Exhibit 4(d) to TCF Financial Corporation's Amendment No. 1 to Registration Statement on Form S-4, File No. 333-25905 (filed May 21, 1997)] 4(c) Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request. 10(a) 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, No. 001-10253]; 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, No. 001-10253]; 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, No. 001-10253] 10(b) TCF Financial 1995 Incentive Stock Program, as amended October 1, 1995 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253]; as amended October 22, 1996 [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, 1996, No. 001-10253]; and as further amended on May 11, 1999 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, No. 001-10253] 10(c) Amended and Restated TCF Financial Corporation Executive Deferred Compensation Plan as amended and restated effective as of January 1, 2000. . . . . . . . . . . . . . . . . . . . 10(d) Amended and Restated Trust Agreement for TCF Financial Corporation Executive Deferred Compensation Plan effective September 1, 1998; amendment adopted effective November 1, 1998 [incorporated by reference to Exhibit 10(d) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253] 10(e)* Employment Agreement of William A. Cooper, dated July 1, 1996 [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, No. 001-10253]; as amended March 1, 1997 [incorporated by reference to Exhibit 10(e) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 001-10253] 10(f)* Change in Control Agreement of William A. Cooper, dated July 1, 1996 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, No. 001-10253] 21 EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 10(g)* Severance Agreement of Thomas A. Cusick, dated August 22, 1988 [incorporated by reference to Exhibit 19(c) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431]; amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(f) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 001-10253]; and amendment dated October 24, 1995 [incorporated by reference to Exhibit 10(f) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253] 10(h)* Severance Agreement of William E. Dove, dated August 22, 1988 [incorporated by reference to Exhibit 19(d) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431]; amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(g) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 001-10253]; and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(g) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253] 10(i)* Severance Agreement of Lynn A. Nagorske, dated August 22, 1988 [incorporated by reference to Exhibit 19(f) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431]; amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(i) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 001-10253]; and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(i) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253] 10(j)* Severance Agreement of Gregory J. Pulles, dated August 23, 1988 [incorporated by reference to Exhibit 19(g) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431]; amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(j) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 001-10253]; and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(j) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253] 10(k)* Severance Agreement of Barry N. Winslow, dated December 30, 1988 and amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(n) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 001-10253]; and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253] 10(l) Supplemental Employee Retirement Plan, as amended and restated effective July 21, 1997 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 001-10253]; as amended effective September 30, 1998 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253]; and as further amended on May 11, 1999 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, No. 001-10253] 22 EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 10(m) Trust Agreement for TCF Financial Corporation Supplemental Employee Retirement Plan, dated August 21, 1991 [incorporated by reference to Exhibit 10.16 to TCF Financial Corporation's Registration Statement on Form S-2, filed November 15, 1991, No. 33-43988]; as amended on October 20, 1997 [incorporated by reference to Exhibit 10(n) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 001-10253] 10(n) TCF Financial Corporation Senior Officer Deferred Compensation Plan as amended and restated effective as of January 1, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10(o) Amended and Restated Trust Agreement for TCF Financial Corporation Senior Officer Deferred Compensation Plan effective September 1, 1998; amendment adopted effective November 1, 1998 [incorporated by reference to Exhibit 10(p) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253] 10(p) Directors Stock Program [incorporated by reference to Program filed with registrant's definitive proxy statement dated March 22, 1996, No. 001-10253]; amendment adopted June 20, 1998 [incorporated by reference to Exhibit 10(q) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253] 10(q) Management Incentive Plan-Executive [incorporated by reference to Plan filed with registrant's definitive proxy statement dated March 16, 1994, No. 001-10253]; and 1995 Plan Acknowledgment [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253]; 1996 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(t) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253]; 1997 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(t) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 001-10253]; and 1998 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 001-10253]; and 1999 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(r) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, No. 001-10253] 10(r) 1996 Performance-Based Incentive Policy [incorporated by reference to Policy filed with registrant's definitive proxy statement dated March 22, 1996, No. 001-10253]; Incentive Compensation 1997 Plan [incorporated by reference to Plan filed with registrant's definitive proxy statement dated March 17, 1997, No. 001-10253]; and 1999 Performance-Based Incentive Policy (approved by shareholders at the Annual Meeting on May 11, 1999) [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, No. 001-10253] 10(s) Supplemental Pension Agreement with Robert E. Evans, dated July 9, 1991 [incorporated by reference to Exhibit 10.22 to TCF Financial Corporation's Registration Statement on Form S-4, No. 33-57290 (filed January 22, 1993)] 10(t)* Employment Agreement of Robert J. Delonis, dated February 9, 1995 [incorporated by reference to Exhibit 10(v) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, No. 001-10253];, as amended December 18, 1995 [incorporated by reference to Exhibit 10(w) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253]; as amended January 23, 1998 [incorporated by reference to Exhibit 10(u) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 001-10253] 23 EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 10(u) TCF Directors Deferred Compensation Plan [incorporated by reference to Plan filed with registrant's definitive proxy statement dated March 15, 1995, No. 001-10253]; as amended October 22, 1996 [incorporated by reference to Exhibit 10(x) to TCF Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, No. 001-10253]; amendment adopted effective September 30, 1998 [incorporated by reference to Exhibit 10(v) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253]; and as further amended on May 11, 1999 [incorporated by reference to Exhibit 10(v) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, No. 001-10253] 10(v) TCF Directors Retirement Plan dated October 24, 1995 [incorporated by reference to Exhibit 10(y) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253] 10(w)* Employment Agreement of David Mackiewich dated September 5, 1997 [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, 1997, No. 001-10253]; as amended on August 18, 1998 [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, 1998, No. 001-10253]; and as amended effective March 31, 1999. . . . . . . . . . . . . . . . . . . . . . . . 11 Computation of earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 TCF Financial Corporation 1999 Annual Report (portions incorporated by reference) . . . . . . . . . . 21 Subsidiaries of TCF Financial Corporation (as of March 15, 2000) . . . . . . . . . . . . . . . . . . . 23 Consent of KPMG LLP dated March 24, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Financial Data Schedules . . . . . . . . . . . . . . . . . . . . . . . . . (filed electronically)
* Executive Contract 24 EX-3.A 2 EXHIBIT 3.A Exhibit 3(a) RESTATED CERTIFICATE OF INCORPORATION OF TCF FINANCIAL CORPORATION As amended through April 29, 1998. RESTATED CERTIFICATE OF INCORPORATION OF TCF FINANCIAL CORPORATION (INCORPORATED APRIL 28, 1987) Pursuant to Section 245 of the General Corporation Law of Delaware TCF Financial Corporation, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: ARTICLE 1. CORPORATE TITLE; RESTATEMENT The name of the Corporation is TCF Financial Corporation. The date of filing of its original Certificate of Incorporation with the Secretary of State was April 28, 1987 with Restated Certificates of Incorporation filed on June 29, 1987 and August 11, 1987. This Restatement was duly adopted by the Board of Directors of TCF Financial Corporation pursuant to Section 245 of the General Corporation Law of Delaware (the `Delaware Corporation Law"). This restatement only restates and integrates and does not further amend the provisions of the corporation's certificate of incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate. ARTICLE 2. ADDRESS The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE 3. PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware Corporation Law. -1- ARTICLE 4. CAPITAL STOCK A. AUTHORIZED SHARES The total number of shares of all classes of stock which the Corporation shall have the authority to issue is three hundred ten million (310,000,000) shares, $.01 par value, divided into two classes of which two hundred eighty million (280,000,000) shares shall be Common Stock (hereinafter the "Common Stock") and thirty million (30,000,000) shares shall be Preferred Stock (hereinafter the "Preferred Stock"). The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote without a separate vote of the holders of Preferred Stock as a class. B. COMMON STOCK Subject to the rights of the holders of shares of any series of the Preferred Stock, and except as may be expressly provided with respect to the Preferred Stock or any series thereof herein or in a resolution of the Board of Directors establishing such series or by law: (1) the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of the Corporation's capital stock. (2) Each share of Common stock shall be entitled to one vote for the election of directors and on all other matters requiring stockholder action. C. PREFERRED STOCK The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of the Preferred Stock shall be as follows: (1) The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, with such voting powers, full or limited (including, without limitation, more than one vote, less than one vote or one vote per share and the ability to vote separately as a class or together with all or some of the other classes or series of capital stock on all or certain of the matters to be voted on by the stockholders of the Corporation), or no voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issuance thereof adopted by the Board of Directors, including, but not limited to, the following: -2- (a) the designation and number of shares constituting such series; (b) the dividend rate or rates of such series, if any, or the manner of determining such rate or rates, if any, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes or of any other series of capital stock and whether such dividends shall be cumulative or non-cumulative, and, if cumulative, from which date or dates; (c) whether the shares of such series shall be subject to redemption by the Corporation, and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption; (d) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series; (e) whether the shares of such series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation, and, if provision be made for conversion or exchange, the time, prices, rates, adjustments and other terms and conditions of such conversion or exchange; (f) the extent, if any, to which the holders of the shares of such series shall be entitled to vote as a class or otherwise, and if so entitled, the number of votes to which such holder is entitled, with respect to the election of directors or otherwise; (g) the restrictions, if any, on the issue or reissue of any additional series of Preferred Stock; and (h) the rights, if any, of the holders of the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up. (2) Subject to any limitations or restrictions stated in the resolution or resolutions of the Board of Directors originally fixing the number of shares constituting a series, the Board of Directors may by resolution or resolutions likewise adopted increase or decrease (but not below the number of shares of the series then outstanding) the number of shares of the series subsequent to the issue of that series, and in case the number of shares of any series shall be so decreased the shares constituting the decrease shall resume that status which they had prior to the adoption of the resolution originally fixing the number of shares. ARTICLE 5. ACQUISITION OF STOCK [Omitted] -3- ARTICLE 6. INCORPORATOR [Omitted] ARTICLE 7. BOARD OF DIRECTORS A. NUMBER OF DIRECTORS The business and affairs of the Corporation shall be managed by or under the direction of a board of directors (the "Board of Directors"). The authorized number of directors shall consist of not fewer than seven nor more than twenty-five directors. Within such limits, the exact number of directors shall be fixed from time to time pursuant to a resolution adopted by a majority of the Continuing Directors (as defined hereinafter in Article 8). B. ELECTION OF DIRECTORS Except as otherwise designated pursuant to the provisions of Article 4 relating to the rights of the holders of any class or series of Preferred Stock, the directors of the Corporation shall be divided into three classes, as nearly equal in number as possible: the first class, the second class and the third class. Each director shall serve for a term ending on the third annual meeting following the annual meeting at which such director was elected; PROVIDED, HOWEVER, that the directors first elected to the first class shall serve for a term ending upon the election of directors at the annual meeting next following the end of the calendar year 1987, the directors first elected to the second class shall serve for a term ending upon the election of directors at the second annual meeting next following the end of the calendar year 1987, and the directors first elected to the third class shall serve for a term ending upon the election of directors at the third annual meeting next following the end of the calendar year 1987. At each annual election, the successors to the class of directors whose term expires at that time shall be elected by the stockholders to hold office for a term of three years (or until their successors are elected and qualified) to succeed those directors whose term expires, so that the term of one class of directors shall expire each year, unless, by reason of any intervening changes in the authorized number of directors, the Board of Directors shall have designated one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes of directors. Notwithstanding the requirement that the three classes of directors shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior resignation, disqualification, or removal from office. -4- C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES Except as otherwise designated pursuant to the provisions of Article 4 relating to the rights of the holders of any class or series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by the affirmative vote of a majority of the Continuing Directors (as defined hereinafter in Article 8), or if there be no Continuing Directors, by the affirmative vote of a majority of directors then in office, although less than a quorum, or by the sole remaining director, or, in the event of the failure of the Continuing Directors, the directors, or the sole remaining director so to act, by the stockholders at the next election of directors; PROVIDED THAT, if the holders of any class or classes of stock or series thereof of the Corporation, voting separately, are entitled to elect one or more directors, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires. A director elected to fill a vacancy by reason of an increase in the number of directorships shall be elected by a majority vote of the directors then in office, although less than a quorum of the Board of Directors, to serve until the next election of the class for which such director shall have been chosen. If the number of directors is changed, any increase or decrease shall be apportioned among the three classes so as to make all classes as nearly equal in number as possible. If, consistent with the preceding requirement, the increase or decrease may be allocated to more than one class, the increase or decrease may be allocated to any such class the Board of Directors selects in its discretion. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. D. REMOVAL A director may be removed only for cause, as determined by the affirmative vote of the holders of at least a majority of the shares then entitled to vote in an election of directors, which vote may only be taken at a meeting of stockholders (and not by written consent), the notice of which meeting expressly states such purpose. Cause for removal shall be deemed to exist only if the director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction or has been adjudged by a court of competent jurisdiction to be liable for gross negligence or misconduct in the performance of such director's duty to the Corporation and such adjudication is no longer subject to direct appeal. ARTICLE 8. CERTAIN BUSINESS COMBINATIONS A. HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS In addition to any affirmative vote of holders of a class or series of capital stock of the Corporation required by law or the provisions of this Certificate of Incorporation, and except as otherwise expressly provided in Paragraph B of this Article 8, a Business Combination (as hereinafter defined) with, or upon a proposal by, a Related Person (as hereinafter defined) -5- shall be approved only upon the affirmative vote of the holders of at least eighty percent (80%) of the Voting Stock (as hereinafter defined) of the Corporation voting together as a single class, excluding all shares of Voting Stock beneficially owned or controlled by a Related Person. Such affirmative vote shall be required notwithstanding the fact that no vote may be required by law or regulation, or that a lesser percentage may be specified, by law or regulation. B. WHEN HIGHER VOTE IS NOT REQUIRED The provisions of Paragraph A of this Article 8 shall not be applicable to any particular Business Combination and such Business Combination shall require only such affirmative vote as is required by law, regulation or any other provision of this Certificate of Incorporation, if all of the conditions specified in any one of the following Subparagraphs (1), (2), or (3) are met: (1) Approval by directors. The Business Combination has been approved by a vote of a majority of the Continuing Directors (as hereinafter defined); or (2) Combination with subsidiary. The Business Combination is solely between the Corporation and a direct or indirect subsidiary of the Corporation and such Business Combination does not have the direct or indirect effect set forth in Paragraph C(2)(e) of this Article 8; or (3) Price and procedural conditions. The proposed Business Combination will be consummated within three years after the date the Related Person became a Related Person (the "Determination Date") and all of the following conditions have been met: (a) The aggregate amount of cash and fair market value (as of the date of the consummation of the Business Combination) of consideration other than cash, to be received per share of Common Stock in such Business Combination by holders thereof shall be at least equal to the highest of the following: (i) the highest per share price (with appropriate adjustments for recapitalizations, reclassifications (including stock splits and reverse stock splits), and stock dividends), including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Related Person for any shares of Common Stock acquired by it, including those shares acquired by the Related Person before the Determination Date, or (ii) the fair market value of the common stock of the Corporation (as determined by the Continuing Directors) on the date the Business Combination is first proposed (the "Announcement Date"). (b) The aggregate amount of cash and fair market value (as of the date of the consummation of the Business Combination) of consideration other than cash, to be received per share of any class or series of Preferred Stock in such Business Combination by holders thereof shall be at least equal to the higher of the following: (i) the highest per share price (with appropriate adjustments for recapitalizations, reclassifications (including stock splits and reverse stock splits), and stock dividends), including any brokerage commissions, -6- transfer taxes and soliciting dealers' fees, paid by the Related Person for any shares of such class or series of Preferred Stock acquired by it, including those shares acquired by the Related Person before the Determination Date; (ii) the fair market value of such class or series of Preferred Stock of the Corporation (as determined by a majority of the Continuing Directors) on the Announcement Date; and (iii) the highest preferential amount per share of such class or series of Preferred Stock to which the holders thereof would be entitled in the event of voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (regardless of whether the Business Combination to be consummated constitutes such an event). (c) The consideration to be received by holders of a particular class or series of outstanding Common or Preferred Stock shall be in cash or in the same form as the Related Person has previously paid for shares of such class or series of stock. If the Related Person has paid for shares of any class or series of stock with varying forms of consideration, the form of consideration given for such class of series of stock in the Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of stock previously acquired by it. (d) No Extraordinary Event (as hereinafter defined) occurs after the Related Person has become a Related Person and prior to the consummation of the Business Combination. (e) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) is mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required pursuant to such Act or subsequent provisions, although such proxy or information statement need be filed with the Securities and Exchange Commission only if a filing is required by such Act or subsequent provisions) and shall contain at the front thereof in a prominent place the recommendations, if any, of a majority of the Continuing Directors as to the advisability or inadvisability of the Business Combination and of any investment banking firm selected by a majority of the Continuing Directors as to the fairness of the Business Combination from the point of view of the stockholders of the Corporation other than the Related Person. C. CERTAIN DEFINITIONS For purposes of this Article 8, and such other Articles of this Certificate of Incorporation that specifically incorporate by reference the definitions contained in this Article 8: (1) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934 is in effect on January 1, 1987. -7- (2) "Business Combination" shall mean any of the following transactions, when entered into by the Corporation or a direct or indirect subsidiary of the Corporation with, or upon a proposal by, a Related Person: (a) the acquisition, merger or consolidation of the Corporation or any direct or indirect subsidiary of the Corporation; or (b) the sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one or a series of transactions) of any assets of the Corporation or any direct or indirect subsidiary of the Corporation having an aggregate fair market value of $10,000,000 or more; or (c) the issuance or transfer by the Corporation or any direct or indirect subsidiary of the Corporation (in one or a series of transactions) of securities of this Corporation or that subsidiary having an aggregate fair market value of $10,000,000 or more; or (d) the adoption of a plan or proposal for the liquidation or dissolution of the Corporation or any direct or indirect subsidiary of the Corporation; or (e) any reclassification of securities (including a stock split or reverse stock split), recapitalization, consolidation or any other transaction (whether or not involving a Related Person) which has the direct or indirect effect of increasing the voting power, whether or not then exercisable, of, a Related Person in any class or series of capital stock of the Corporation or any direct or indirect subsidiary of the Corporation; or (f) any agreement, contract or other arrangement providing directly or indirectly for any of the foregoing or any amendment or repeal of this Article 8. (3) "Continuing Director" shall mean (a) if a Related Person exists, any member of the Board of Directors of the Corporation who is not a Related Person or an Affiliate or Associate of a Related Person and who was a member of the Board of Directors immediately prior to the time that a Related Person became a Related Person, and any successor to a Continuing Director who is not a Related Person or an Affiliate or Associate of a Related Person and is recommended to succeed a Continuing Director by a majority of the Continuing Directors who are then members of the Board of Directors; and (b) if a Related Person does not exist, any member of the Board of Directors. (4) "Extraordinary Event" shall mean, as to any Business Combination and Related Person, any of the following events that is not approved by a majority of the Continuing Directors: (a) any failure to declare and pay at the regular date therefor any full -8- quarterly dividend (whether or not cumulative) on outstanding Preferred Stock; or (b) any reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock); or (c) any failure to increase the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including a stock split or reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock; or (d) the receipt by the Related Person, after the Determination Date, of a direct or indirect benefit (except proportionately as a stockholder) from any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any direct or indirect subsidiary of the Corporation, whether in anticipation of or in connection with the Business Combination or otherwise. (5) The term "person" shall mean any individual, corporation, partnership, bank, association, joint stock company, trust, syndicate, unincorporated organization or similar company, or a group of "persons" acting or agreeing to act together for the purpose of acquiring, holding, voting or disposing of securities of the Corporation, including any group of "persons" seeking to combine or pool their voting or other interests in the equity securities of the Corporation for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement whether written or otherwise. (6) "Related Person" shall mean any person (other than the Corporation, a direct or indirect subsidiary of the Corporation, or any profit sharing, employee stock ownership or other employee benefit plan of the Corporation or a direct or indirect subsidiary of the Corporation or any trustee of or fiduciary with respect to any such plan acting in such capacity) that is the direct or indirect beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 as in effect on January 1, 1987) of more than ten percent (10%) of the outstanding Voting Stock of the Corporation, and any Affiliate or Associate of any such person. (7) "Voting Stock" shall mean all outstanding shares of the Common or Preferred Stock of the Corporation entitled to vote generally in the election of directors. (8) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash" as used in Paragraphs B(3)(a) and B(3)(b) of this Article 8 shall include the shares of Common Stock and/or the shares of any other class of Preferred Stock retained by the holders of such shares. (9) A majority of the Continuing Directors shall have the power to make all determinations with respect to this Article 8, including, without limitation, the transactions that -9- are Business Combinations, the persons who are Related Persons, the time at which a Related Person became a Related Person, and the fair market value of any assets, securities or other property, and any such determinations of such Continuing Directors shall be conclusive and binding. D. NO EFFECT ON FIDUCIARY OBLIGATIONS OF RELATED PERSONS Nothing contained in this Article 8 shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. ARTICLE 9. ACTION BY WRITTEN CONSENT Except for the removal of a director pursuant to Article 7 hereof, any action required to be taken or which may be taken at any annual or special meeting of the stockholders of the Corporation may be taken by written consent without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the stockholders of the Corporation entitled to vote thereon. ARTICLE 10. SPECIAL MEETINGS Special meetings of the stockholders may only be called by a majority of the Continuing Directors (as defined in Article 8). ARTICLE 11. BYLAWS Bylaws may be adopted, amended or repealed by (i) the affirmative vote of the holders of at least eighty percent (80%) of the total votes eligible to be cast at a stockholders' meeting duly called and held or (ii) a resolution adopted by the Board of Directors, including a majority of the Continuing Directors (as defined in Article 8). ARTICLE 12. LIMITATION OF DIRECTORS' LIABILITY A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except: (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware Corporation Law, or (iv) for any transaction from which the director derives any improper personal benefit. If the Delaware Corporation Law is amended after the formation of this Corporation to permit the further elimination or -10- limitation of the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of this Article 12 by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE 13. INDEMNIFICATION A. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or a subsidiary thereof or is or was serving at the request of the Corporation, as a director, officer, partner, member or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, partner, member or trustee or in any other capacity while so serving, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware Corporation Law, as the same exists or may hereinafter be amended (but, in the case of any such amendment to the Delaware Corporation Law, the right to indemnification shall be retroactive only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law prior to such amendment permitted the Corporation to provide), against all expense, liability, and loss (including, without limitation, attorneys' fees and related disbursements, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement thereof) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, partner, member or trustee and shall inure to the benefit of his or her heirs, executors and administrators; PROVIDED, HOWEVER, that, except as provided in Paragraph B hereof with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Paragraph A shall be a contract right and shall include the right to be paid the expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that, if the Delaware Corporation Law so requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Paragraph A or otherwise. Such right to indemnification and the payment of expenses incurred in defending a proceeding in advance of the final disposition may be -11- conferred upon any person who is or was an employee or agent of the Corporation or a subsidiary thereof or is or was serving at the request of the Corporation as an employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, if, and to the extent, authorized by the Bylaws or the Board of Directors, and shall inure to the benefit or his or her heirs, executors and administrators. B. If a claim under Paragraph A of this Article 13 is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, the claimant may at any time thereinafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including, without limitation, its Board of Directors, independent legal counsel, or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware Corporation Law, nor an actual determination by the Corporation (including without limitation, its Board of Directors, independent legal counsel, or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. C. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article 13 shall not be exclusive of any other right to which any person may have or hereinafter acquire under any statute, provision of this Certificate of Incorporation or by the Bylaws of the Corporation, agreement, vote of stockholders or disinterested directors, or otherwise. D. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware Corporation Law. E. Any repeal or modification of the foregoing provisions of this Article 13 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. F. If this Article 13 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director or officer of the Corporation as to any expense (including attorneys' fees), judgment, -12- fine and amount paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article 13 that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE 14. AMENDMENT OF CERTIFICATE OF INCORPORATION The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereinafter prescribed by law. Notwithstanding the foregoing and in addition to any separate requirements contained in this Certificate of Incorporation, the affirmative vote of the holders of at least eighty percent (80%) of the total votes eligible to be cast at a legal meeting shall be required to amend, repeal or adopt any provisions inconsistent with, Articles 5, 7, 8, 9, 10, 11, 12, 13, and this Article 14. THE UNDERSIGNED, being the Chief Executive Officer and Chairman of the Board of the Corporation, does hereby certify that this Restated Certificate of Incorporation merely restates and integrates and does not further amend the Corporation's previous Restated Certificate of Incorporation, as amended, and that this Restated Certificate of Incorporation has been duly adopted in accordance with section 245 of the Delaware Corporation Law, and does hereby make and file this Restated Certificate of Incorporation. Dated: April 29, 1998. /s/ William A. Cooper ------------------------------- William A. Cooper Chief Executive Officer and Chairman of the Board of Directors Attest: /s/ Gregory J. Pulles ----------------------- Gregory J. Pulles Secretary -13- EX-3.B 3 EXHIBIT 3.B Exhibit 3(b) RESTATED BYLAWS OF TCF FINANCIAL CORPORATION As amended through October 25, 1999 BYLAWS OF TCF FINANCIAL CORPORATION (A DELAWARE CORPORATION) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the Corporation within the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. OTHER OFFICES. The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. SECTION 2. ANNUAL MEETING. The annual meeting of stockholders, commencing with the year 1988, shall be held at 10:00o'clock A.M on the fourth Wednesday of April, if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday at 10:00 o'clock A.M, or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. At such annual meeting, the stockholders shall elect by a plurality vote a class of directors of the Board of Directors from among those nominated in conformance with the procedures set forth in these Bylaws and transact such other business as may properly be brought before the meeting. SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may be called as provided in Article 10 of the Certificate of Incorporation. SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders stating the date, place and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not -1- less than ten nor more than fifty days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his or her address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Whenever notice is required to be given under any provision of statute or the Certificate of Incorporation of the Corporation or these Bylaws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice. SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 6. QUORUM, ADJOURNMENTS. The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. ORGANIZATION. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, in his or her absence or if one shall not have been elected, the President or any person designated by the Chairman of the Board or President, shall act as chairman of the meeting. The Secretary or, in his or her absence or inability to -2- act, the person whom the chairman of the meeting shall appoint as secretary of the meeting shall act as secretary of the meeting and keep the minutes thereof. SECTION 8. ORDER OF BUSINESS. All meetings of stockholders shall be conducted in accordance with such rules as are prescribed by the chairman of the meeting. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. SECTION 9. VOTING. Except as otherwise provided by statute, the Certificate of Incorporation or any resolution of the Board of Directors establishing any class or series of Preferred Stock, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in such person's name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these Bylaws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him or her by a proxy signed by such stockholder or his or her attorney-in-fact, but no proxy shall be voted after eleven months from its date. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such person's proxy, if there be such proxy, and shall state the number of shares voted. SECTION 10. VOTING BY THE CORPORATION. Shares of its own capital stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Nothing in this section shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held by it or by any of its subsidiaries in a fiduciary capacity. -3- SECTION 11. INSPECTORS. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. SECTION 12. ACTION BY CONSENT. The stockholders of the Corporation may take action by written consent only in accordance with the provisions of the Certificate of Incorporation of the Corporation. SECTION 13. STOCKHOLDER NOMINATIONS; BUSINESS TO BE BROUGHT BEFORE THE MEETING. (a) STOCKHOLDER NOMINATIONS. Nominations of candidates for election as directors at any annual meeting of stockholders may be made (i) by, or at the direction of, a majority of the Directorsor (ii) by any stockholder of record entitled to vote at such annual meeting. Only persons nominated in accordance with procedures set forth in this Section 13(a) shall be eligible for election as directors at an annual meeting. Nominations, other than those made by, or at the direction of, a majority of the Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 13(a). To be timely, a stockholder's notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the date of the scheduled annual meeting, regardless of postponements, deferrals, or adjournments of that meeting to a later date; PROVIDED, HOWEVER, that if less than seventy (70) days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class -4- and number of shares of the Corporation's equity securities which are beneficially owned (as such term is defined in Rule 13d-3 or 13d-5 under the Securities Exchange Act of 1934 as in effect on January 1, 1987 (the "Exchange Act")) by such person on the date of such stockholder notice and (d) any other information relating to such person that would be required to be disclosed pursuant to Schedule 13D under the Exchange Act in connection with the acquisition of shares, and pursuant to Regulation 14A under the Exchange Act, in connection with the solicitation of proxies with respect to nominees for election as directors, regardless of whether such person is subject to the provisions of such regulations, including, but not limited to, information required to be disclosed by Items 4(b) and 6 of Schedule 14A under the Exchange Act and information which would be required to be filed on Schedule 14B under the Exchange Act with the Securities and Exchange Commission; and (ii) as to the stockholder giving the notice (a) the name and address, as they appear on the Corporation's books, of such stockholder and any other stockholder who is a record or beneficial owner of any equity securities of the Corporation and who is known by such stockholder to be supporting such nominee(s) and (b) the class and number of shares of the Corporation's equity securities which are beneficially owned, as defined above, and owned of record by such stockholder on the date of such stockholder notice and the number of shares of the Corporation's equity securities beneficially owned and owned of record by any person known by such stockholder to be supporting such nominee(s) on the date of such stockholder notice. At the request of a majority of the Directors, any person nominated by, or at the direction of, the Board of Directors for election as a director at an annual meeting shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be elected as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 13(a). Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Section 13(a) shall be provided for use at the annual meeting. A majority of the Directors may reject any nomination by a stockholder not timely made in accordance with the requirements of this Section 13(a). If a majority of the Directors determines that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 13(a) in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within five (5) days from the date such deficiency notice is given to the stockholder, or such shorter time as may be reasonably deemed appropriate by a majority of the Directors, taking into consideration the date of the meeting, the matters to be brought before the meeting, time constraints for the printing and mailing of proxies and other materials to stockholders, and such other considerations as may be deemed appropriate by the Directors. If the deficiency is not cured within such period, or if a majority of the -5- Directors reasonably determines that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this Section 13(a) in any material respect, then the Board of Directors may reject such stockholder's nomination. The Secretary of the Corporation shall notify a stockholder in writing whether his or her nomination has been made in accordance with the time and informational requirements of this Section 13(a). Notwithstanding the procedure set forth in this Section 13(a), if the majority of the Directors does not make a determination as to the validity of any nominations by a stockholder, the chairman of the annual meeting shall determine and declare at the annual meeting whether a nomination was not made in accordance with the terms of this Section 13(a). If the chairman of such meeting determines that a nomination was not made in accordance with the terms of this Section 13(a), he or she shall so declare at the annual meeting and the defective nomination shall be disregarded. (b) BUSINESS TO BE BROUGHT BEFORE THE MEETING. At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon as shall have been brought before the annual meeting (i) by, or at the direction of, the majority of the Directors, or (ii) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 13(b). For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; PROVIDED, HOWEVER, that if less than seventy (70) days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholder who is the record or Beneficial Owner (as defined in Section 13(a) of these Bylaws) of any equity security of the Corporation known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation's equity securities which are beneficially owned (as defined in Section 13(a) of these Bylaws) and owned of record by the stockholder giving the notice on the date of such stockholder notice and by any other record or Beneficial Owners of the Corporation's equity securities known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (iv) any financial or other interest of the stockholder in such proposal. -6- A majority of the Directors may reject any stockholder proposal not timely made in accordance with the terms of this Section 13(b). If a majority of the Directors determines that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 13(b) in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five days from the date such deficiency notice is given to the stockholder, as the majority of the Directors shall reasonably determine. If the deficiency is not cured within such period, or if the majority of the Directors determines that the additional information provided by the stockholder, together with information previously provided, does not satisfy the requirements of this Section 13(b) in any material respect, then a majority of the Directors may reject such stockholder's proposal. The Secretary of the Corporation shall notify a stockholder in writing whether such person's proposal has been made in accordance with the time and information requirements of this Section 13(b). Notwithstanding the procedures set forth in this paragraph, if the majority of the Directors does not make a determination as to the validity of any stockholder proposal, the chairman of the annual meeting shall determine and declare at the annual meeting whether the stockholder proposal was made in accordance with the terms of this Section 13(b). If the chairman of such meeting determines that a stockholder proposal was not made in accordance with the terms of this Section 13(b), he or she shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board of Directors, but, in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided. ARTICLE III BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. The Board of Directors shall designate, when present, either the Chairman of the Board, if one has been elected, the Vice Chairman, or any other member of the Board of Directors, to preside at its meetings. SECTION 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. As provided in Article 7.A of the Articles of Incorporation the number of directors of the Corporation shall be set from time to time by the then serving Continuing Directors of the Corporation, as defined in Article 8 of the Certificate of Incorporation of the Corporation. Directors need not be -7- stockholders. Nominations of candidates for election as directors shall be made pursuant to the procedures set forth in Article II, Section 13(a) of these Bylaws. SECTION 3. PLACE OF MEETINGS. Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. ANNUAL MEETING. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III. SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same time and place on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these Bylaws. SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, the Vice Chairman or by a majority of both the directors and the Continuing Directors of the Corporation as such term is defined in Article 8 of the Certificate of Incorporation of the Corporation. Except as otherwise limited by statute, the Certificate of Incorporation of the Corporation or these Bylaws, the persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by such person or persons. SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these Bylaws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him or her at his or her residence or usual place of business, by first class mail, at least two days before the day on which such meeting is to be held, or shall be sent addressed to him or her at such place by telegraph, cable, telex, telecopier or other similar means, or be delivered to him personally or be given to him or her by telephone or other similar means, at least twenty-four hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he or she shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not -8- lawfully called or convened. SECTION 8. QUORUM AND MANNER OF ACTING. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such, other than acting as a member of the Board of Directors or a committee thereof. SECTION 9. ORGANIZATION. At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the Vice Chairman, if present, and if not present, another director chosen by a majority of the directors present, shall act as chairman of the meeting and preside thereat. Each meeting of the Board of Directors shall be conducted in accordance with such rules as are prescribed by the presiding officer of the meeting. The Secretary or, in his or her absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and keep the minutes thereof. SECTION 10. RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice of his or her resignation to the Chairman of the Board or the Vice Chairman, and to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. VACANCIES. Vacancies on the Board of Directors shall be filled in accordance with the procedures described in the Certificate of Incorporation. SECTION 12. AGE LIMITATION. No person shall be nominated or renominated for director if that person has attained the age of 70. SECTION 13. COMPENSATION. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors and any advisory directors for services to the Corporation in any capacity. -9- SECTION 14. COMMITTEES. (a) APPOINTMENT. The Board of Directors, by resolution duly adopted by a majority of the Board, may designate one or more directors to constitute an Executive Committee, provided that at least one-third of the members of the Executive Committee shall not be full time employees of the Corporation. The designation of any Executive Committee pursuant to this Article III, Section 14 and the delegation of authority thereto shall not operate to relieve the Board of Directors, or any director, of any responsibility imposed by law or regulation. The Board of Directors, by resolution duly adopted by a majority of the Board, may designate not fewer than three directors who are not employees of the Corporation or any of its subsidiaries to constitute an Audit Committee. (b) OTHER COMMITTEES. The Board of Directors may by resolution establish any other committees composed of directors as they may determine necessary or appropriate for the conduct of the business of the Corporation and may prescribe the duties, constitution and procedures thereof. Any committee so established shall have and may exercise all of the authority granted to it by the resolution establishing such committee. (c) AUTHORITY. The Executive Committee, when the Board of Directors is not in session, shall have and may exercise all of the authority of the Board of Directors. The Audit Committee shall recommend selection of and approve services to be provided by the independent auditors for the Corporation, and shall review matters pertaining to the audit, systems of internal control, and accounting policies and procedures, and shall direct and supervise investigations into matters within the scope of its duties. (d) LIMITATIONS ON AUTHORITY. Notwithstanding any other provision of these bylaws, neither the Executive Committee nor the Audit Committee or any other committee established by the Board of Directors shall have the power (i) to amend the Certificate of Incorporation of the Corporation (except, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors of the Corporation, that a committee may fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange or such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series); (ii) to adopt an agreement of merger or consolidation; (iii) to recommend to the stockholders of the Corporation the sale, lease or exchange of all or substantially all of the Corporation's property and assets, or to recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution; (iv) to amend these bylaws; and (v) in the absence of specific authorization in these Bylaws, the Certificate of Incorporation of the Corporation or resolution of the Board of Directors establishing -10- such committee, to declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger; and that such committee's powers shall be further limited to the extent, if any, that such authority shall be limited by the resolution appointing such committee, by statute, by the Certificate of Incorporation of the Corporation, or by these Bylaws. (e) TENURE. Subject to the provisions of these Bylaws, each member of the Executive Committee and Audit Committee shall hold office until the next regular annual meeting of the Board of Directors following his or her designation and until a successor is designated as a member of such Committee. (f) MEETINGS. Regular meetings of the Executive Committee and the Audit Committee may be held without notice at such times and places as such Committees may fix from time to time. Special meetings of such Committees may be called by any member thereof upon notice given not less than twenty-four hours prior to the meeting stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the Executive or Audit Committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the Executive or Audit Committee need not state the business proposed to be transacted at the meeting. (g) QUORUM. A majority of the members of the Executive or Audit Committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the Executive or Audit Committees must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. (h) VACANCIES. Any vacancy in the Executive or Audit Committee may be filled by resolution duly adopted by a majority of the Board of Directors. (i) RESIGNATIONS AND REMOVAL. Any member of the Executive Committee or Audit Committee may be removed at any time with or without cause by resolution duly adopted by a majority of the Board of Directors. Any member of either Committee may resign from such Committee at any time by giving written notice to the Chairman of the Board, the Vice Chairman or the Secretary of the Corporation. Unless otherwise specified therein, such resignation shall take effect upon its receipt. The acceptance of such resignation shall not be necessary to make it effective. (j) PROCEDURE. The Executive Committee, Audit Committee and any other committee established by the Board of Directors shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these Bylaws or the resolution adopted by the Board of Directors establishing such committee. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have occurred. -11- SECTION 15. ACTION BY CONSENT. Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be. SECTION 16. TELEPHONIC MEETING. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. SECTION 17. PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation within ten days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. ARTICLE IV OFFICERS SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation shall be elected by the Board of Directors and shall include the Chairman of the Board and Chief Executive Officer, the Vice Chairman of the Board, the President, the Secretary and the Treasurer. If the Board of Directors wishes, it may also elect other officers (including, without limitation, a Chief Operating Officer, a Controller, a General Counsel, one or more Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the Corporation. The Board of Directors may designate one or more Vice Presidents as Executive Vice President, First Vice President, Senior Vice President or Assistant Vice President. Any two or more offices may be held by the same person, and no officer except the Chairman of the Board need be a director. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, or until his or her death, or until he or she shall have resigned or have been removed, as hereinafter provided in these Bylaws. SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the -12- acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. REMOVAL. Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof. Any removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, or other cause may be filled by a vote of the majority of the Board of Directors. SECTION 5. OFFICERS' BONDS OR OTHER SECURITY. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his or her duties, in such amount and with such surety as the Board of Directors may require. SECTION 6. COMPENSATION. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation. ARTICLE V STOCK CERTIFICATES AND THEIR TRANSFER SECTION 1. STOCK CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him or her in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose -13- facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. SECTION 3. LOST CERTIFICATES. The Corporation may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. SECTION 6. REGULATIONS. The Board of Directors may make such additional rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 7. FIXING THE RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -14- ARTICLE VI GENERAL PROVISIONS SECTION 1. DIVIDENDS. Subject to the provisions of statute and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of capital stock of the Corporation (Common or Preferred), unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. RESERVES. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was created. SECTION 3. SEAL. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors. SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided by resolution of the Board of Directors, the Chairman or Vice Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. If one or more attorneys or agents are appointed, the Chairman or Vice Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman or Vice Chairman of the Board or the President -15- may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. ARTICLE VII INDEMNIFICATION SECTION 1. INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was an employee or agent of the Corporation or a subsidiary thereof, or is or was serving at the request of the Corporation as an employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as an employee or agent or in any other capacity while so serving, may be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, the right to indemnification shall be retroactive only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law prior to such amendment permitted the Corporation to provide), against all expense, liability and loss (including, without limitation, attorneys' fees and related disbursements, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification may continue as to a person who has ceased to be an employee or agent and may inure to the benefit of his or her heirs, executors and administrators; PROVIDED, HOWEVER, that the Corporation may indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 1 shall be a contract right and may include the right to be paid the expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that the payment of such expenses incurred by an employee or agent in his or her capacity as an employee or agent (and not in any other capacity in which service was or is rendered by such person while an employee or agent, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding may be made, if required by the Board of Directors, upon delivery to the Corporation of an undertaking, by or on behalf of such employee or agent, to repay all amounts so advanced if it shall ultimately be determined that such employee or agent is not entitled to be indemnified under this Section 1 or otherwise. SECTION 2. INDEMNIFICATION NOT EXCLUSIVE. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation or -16- these Bylaws of the Corporation, agreement, vote of stockholders or disinterested directors, or otherwise. SECTION 3. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any employee or agent of the Corporation or a subsidiary thereof, another corporation, partnership, joint venture, trust or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. ARTICLE VIII AMENDMENTS These Bylaws may be amended or repealed or new bylaws adopted as provided in the Certificate of Incorporation of the Corporation. -17- EX-10.C 4 EXHIBIT 10.C Exhibit 10(c) TCF FINANCIAL EXECUTIVE DEFERRED COMPENSATION PLAN (Amended and Restated effective as of January 1, 2000) 1. DEFERRAL OF INCENTIVE COMPENSATION, SALARIES AND STOCK AWARDS. a. From time to time eligible employees ("Employees") of TCF Financial Corporation ("TCF Financial") or any of its direct or indirect subsidiaries (each such corporation being referred to hereinafter as the "Company") may, by written notice, elect to have payment of a portion of their salary for the next succeeding calendar year, all or a portion of their incentive compensation payable for the next succeeding calendar year, and/or all or a portion of a stock award of TCF Financial Common Stock ("TCF Stock") deferred as hereinafter provided. Each such deferral of compensation or a TCF Stock award shall be (and is hereinafter referred to as) a "Deferred Amount." Notwithstanding the foregoing, however, an Employee may not elect to defer any portion of salary or incentive compensation with respect to any calendar year, unless such Employee's deferrals with respect to such year are at least $1,000 in the aggregate, and no deferral may be made of any salary or incentive compensation payable within 12 months after such Employee has received a distribution of pre-tax contributions from the TCF Employees Stock Ownership Plan - 401(k) pursuant to the financial hardship withdrawal provisions of such plan. b. Any elections with respect to Deferred Amounts of salary shall be exercised in writing by the Employee prior to the latest to occur of the following: (i) the beginning of the calendar year for which the salary is to be earned; (ii) such Employee's first day of employment service in that year; or (iii) the first day of the calendar month next following the date the Employee first becomes eligible to participate in the Plan. Any election with respect to Deferred Amounts of incentive compensation shall be made no later than December 31 of the calendar year preceding the calendar year in which the periods of service are rendered for which the incentive compensation is to be paid. Any election with respect to Deferred Amounts of TCF Stock awards shall be exercised in writing by the Employee on or before the effective date of the award, and may be exercised separately with respect to the shares of the stock award and any cash or stock dividends (other than stock dividends in the nature of stock splits) declared and paid with respect to such shares. An election of Deferred Amounts, once made, is irrevocable, except as provided in paragraph 6 hereof. c. Deferred Amounts shall be subject to the rules set forth in this document, and each Employee shall have the right to receive cash payments on account of previously Deferred Amounts only in the amounts and under the circumstances hereinafter set forth. Effective for compensation earned on or after January 1, 2000, and for awards of TCF Stock made on or after that date, an Employee's election of Deferred Amounts for a calendar year shall also include an election of the timing and 1 form of distribution of the Deferred Amounts elected for that year, from among the alternatives set forth in section 5.a. of this Plan. d. Employees eligible to participate in this Plan are Employees of a Company who have been designated by TCF Financial as subject to the reporting requirements of Section 16(a) under the Securities Exchange Act of 1934. Eligibility shall be determined annually as of the latest practicable date prior to the commencement of each new calendar year. In the event an Employee ceases to be eligible for this Plan during the course of a calendar year, the Employee's eligibility shall nevertheless continue through the end of that calendar year. Notwithstanding the foregoing, individuals who become employees of a Company as a result of a merger or acquisition shall not be eligible Employees under this Plan unless and until TCF Financial has adopted a resolution identifying them as eligible Employees. 2. PERSONNEL COMMITTEE. The Committee (the "Committee") shall consist of such members of the Personnel Committee of the Board of Directors of TCF Financial Corporation who qualify as non-employee directors from time to time under Rule 16b-3 of the Securities and Exchange Commission. Full power and authority to construe, interpret, and administer this Plan document shall be vested in the Committee. The Committee shall have full power and authority to make each determination provided for in this Plan document, and in this connection, to promulgate such rules and regulations as the Committee considers necessary or appropriate for the implementation and management of this Plan. The Committee shall have sole and absolute discretion in the performance of its powers and duties under this Plan. All determinations made by the Committee shall be final, conclusive and binding upon the Companies, each Employee and former Employee and their designees, unless found by a court of competent jurisdiction to have been arbitrary and capricious. The Committee shall have authority to designate officers of TCF Financial and to delegate authority to such officers to receive documents which are required to be filed with the Committee, to execute and provide directions to the Trustee and other administrators, and to do such other actions as the Committee may specify on its behalf, and any such actions undertaken by such officers shall be deemed to have the same authority and effect as if done by the Committee itself. 3. DEFERRED COMPENSATION ACCOUNTS. Each Company shall establish on its books a separate account ("Account"), including sub-accounts pursuant to Exhibit A hereto and Section 10 hereof, for each of its Employees who becomes a participant in this Plan, and each such Account shall be maintained as follows: a. Each Account shall be credited with the Deferred Amounts elected by the Employee for whom such Account is established as of the date on which such Deferred Amount would otherwise have been paid to the Employee. Separate Accounts will be maintained for any Deferred Amounts that are payable at different times or in different forms than other Deferred Amounts. 2 b. To the extent that a Company has made contributions to the Trust described in paragraph 4 with respect to an Employee's Deferred Amounts, the Employee's Account shall thereafter be adjusted as described in paragraph 4. To the extent such contributions have not been made with respect to an Employee's Deferred Amounts, and within 30 days after the date on which such Deferred Amounts are credited to an Employee's Account, they shall have been deemed to have been invested in such investments as shall be permitted by the Committee and as the Employee shall direct, except that Deferred Amounts pertaining to TCF Stock awards shall always be deemed to be invested in TCF Stock unless they are sold pursuant to a Change in Control Diversification Election. Any investment direction by an Employee shall be consistent with Section 10 and Exhibit A and shall be irrevocable with respect to the calendar year to which it applies, unless the Committee allows additional elections. While an Employee's Account is deemed to be so invested, it shall be credited with all interest, dividends (whether in stock, cash, or other property), stock splits, or other property that would have been received if the Deferred Amounts had actually been so invested, except if an Employee has elected not to defer dividends. All cash deemed to have been received with respect to investments deemed to have been made for an Employee's Account shall be deemed to be reinvested in such investments as the Employee shall direct as of a date selected by the Committee, which date shall be not less than 30 days after receipt of such direction, and the balance credited to an Employee's Account as of any date shall be equal to the fair market value of the investments deemed to have been made for such Account as of such date. Starting with Deferred Amounts elected for the year 2000 and after Accounts for each Employee shall be separately maintained on a calendar year basis, with each year's account (the "Class Year Account") reflecting only the Deferred Amounts of compensation earned in that year and the investments in which the Deferred Amounts are deemed to be invested. All Deferred Amounts elected before the year 2000, including deferrals of TCF Stock awards made before that date, and the investments in which they are deemed to be invested from time to time, shall be aggregated and maintained as a "Pre-2000 Account". c. Although the value of an Employee's Account is to be measured by the value of and income from certain investments, the value of and income from such investments are merely a measuring device to determine the payments to be made to each Employee hereunder. Each Employee, and each other recipient of an Employee's Deferred Amounts pursuant to paragraph 7, shall be and remain an unsecured general creditor of the Company by which he is employed with respect to any payments due and owing to such Employee hereunder. If a Company should from time to time, in its discretion, actually purchase the investments deemed to have been made for an Employee's Account, either directly or through the trust described in paragraph 4, such investments shall be solely for the Company's or such trust's own account, and the Employees shall have no right, title or interest therein. d. Sub-accounts shall be maintained as provided in Exhibit A hereto and in Section 10 hereof. 3 e. Notwithstanding the provisions of Exhibit A and Section 10, in the event of a Change in Control in which TCF Stock is exchanged for shares of a successor company, or for cash, securities or other property, such that TCF Stock is no longer outstanding, each Employee may make a one-time diversification election prior to the closing of the Change in Control to sell the assets in the Employee's TCF Stock Account in an orderly liquidation after the closing and to reinvest the assets in such investments as the Employee shall elect. Any assets thus acquired for the Employee's Account other than securities of a successor company shall be credited to the Employee's Diversified Account. If the Employee does not make such a diversification election, the shares of TCF Stock allocated to the Employee's account upon the closing shall be exchanged for the same consideration in the Change in Control as shares of TCF Stock generally receive in the Change in Control. Any portion of such consideration consisting of securities of a successor company will be allocated to the TCF Stock Account and thereafter will be subject to the same sale restrictions as applied to TCF Stock prior to the Change in Control. Any portion of such consideration consisting of assets other than securities of a successor company will be allocated to the Employee's Diversified Account. 4. TRUST. TCF Financial may establish a trust (of the type commonly known as a "rabbi trust") to aid in the accumulation of assets for payment of Deferred Amounts. In the event that such a Trust is established, the amounts credited to the Employee's Accounts shall be adjusted as follows: a. Each Company may, in its discretion, contribute to the trust an amount equal to the balance credited to the Account of each Employee employed by such Company on the date of such contribution. Thereafter, each Company may, in its discretion, contribute to the trust an amount equal to the Deferred Amounts of the Employees employed by such Company within five business days after the Deferred Amount is earned by the Employee or, in the case of Deferred Amounts of TCF Stock awards, the Company may contribute the deferred shares of TCF Stock within five days after the award is made. The assets of the trust shall be invested in such investments as may be permitted by the Committee and directed by an Employee for his own Account. Any investment direction of an Employee shall be made consistent with Section 10 and shall be irrevocable with respect to the calendar year to which it applies, unless the Committee allows additional elections. Insofar as the trustee of the Trust ("Trustee") has acquired an investment for an Employee's Account pursuant to such directions, the Employee shall have the right to determine confidentially whether such investment will be tendered in a tender or exchange offer, and to direct the Trustee accordingly. The terms of the trust shall be consistent with the terms of this Plan. The Trustee shall be a corporate trustee independent of the Company or, if individual(s), shall not include at any time any person who is or has been eligible for participation in this Plan. Nothing herein shall be construed as requiring the Company to make any contributions to the trust. To the extent such contributions are actually made, the trust assets shall remain subject to the claims of the Company's general creditors in the event of its insolvency. 4 b. Unless separate accounts are maintained by another record-keeper, the trust shall provide for separate accounts in the name of each Employee who has elected a Deferred Amount and for each Class Year Account and Pre-2000 Account. Except as provided in paragraph 4.d., from and after the date as of which such accounts are established, the balances in the Accounts established for Employees pursuant to this Plan shall be equal to the balances credited to such separate accounts. Starting with Deferred Amounts elected for the year 2000 and after Accounts for each Employee shall be separately maintained on a calendar year basis, with each year's account (the "Class Year Account") reflecting only the Deferred Amounts of compensation earned in that year and the investments in which the Deferred Amounts are deemed to be invested. All Deferred Amounts elected before the year 2000, including deferrals of TCF Stock awards made before that date, and the investments in which they are deemed to be invested from time to time, shall be aggregated and maintained as a "Pre-2000 Account". Each of the foregoing types of Accounts shall be adjusted as follows: (i) Contributions (if any) made by the Companies to the trust on behalf of such Employee for such Account, and all dividends or other distributions made with respect to property allocated to such separate Account (except for dividends on TCF Stock awards which the Employee elected not to defer), shall be credited to such separate Account and invested as the Employee shall direct. (ii) Each Employee's separate Account shall be increased by the amount of any increase in the fair market value, as determined by the Trustee, of any assets allocated to such separate Account, and shall be decreased by any decrease in the fair market value of such assets, as determined by the Trustee. (iii) Each Employee's separate Account shall be reduced by any distributions made to the Employee from the trust which are chargeable to such separate Account. c. An Employee's right to direct the investment of the Employee's separate account shall continue during any period of distribution subsequent to the Employee's termination of employment in the same manner as if the Employee had continued as an active Employee, although the Committee may, in its discretion, add additional registered mutual funds or collective or common trustee funds which are available only for the accounts of terminated Employees if the Committee deems such funds to be particularly appropriate or suitable for such Accounts. d. The adjustments described in this paragraph 4 shall only be made to an Employee's Account to the extent that a Company has made contributions to the trust pursuant to this paragraph 4. If for any reason such contributions have not been made then, and only to that extent, the Employee's Account shall be adjusted as provided in paragraph 3.b. 5 e. Sub-Accounts shall be maintained as provided in Exhibit A hereto and in Section 10 hereof. f. Notwithstanding the provisions of Exhibit A and Section 10, in the event of a Change in Control in which TCF Stock is exchanged for shares of a successor company, or for cash, securities or other property, such that TCF Stock is no longer outstanding, each Employee may make a one-time diversification election prior to the closing of the Change in Control to sell the assets in the Employee's TCF Stock Account in an orderly liquidation after the closing and to reinvest the assets in such investments as the Employee shall elect. Any assets thus acquired for the Employee's Account other than securities of a successor company shall be credited to the Employee's Diversified Account. If the Employee does not make such a diversification election, the shares of TCF Stock allocated to the Employee's account upon the closing shall be exchanged for the same consideration in the Change in Control as shares of TCF Stock generally receive in the Change in Control. Any portion of such consideration consisting of securities of a successor company will be allocated to the TCF Stock Account and thereafter will be subject to the same sale restrictions as applied to TCF Stock prior to the Change in Control. Any portion of such consideration consisting of assets other than securities of a successor company will be allocated to the Employee's Diversified Account. 5. PAYMENT OF DEFERRED AMOUNTS. a. DEFERRALS ON OR AFTER JANUARY 1, 2000 ("CLASS YEAR ACCOUNTS"). For Deferred Amounts of compensation earned on or after January 1, 2000 and of TCF Stock awards made on or after that date, at the same time as the Employee elects the Deferred Amounts for a calendar year, or for a TCF Stock Award, the Employee shall also elect the timing and form of distribution of such Deferred Amounts for that year, or for the TCF Stock award, from among the following options: (I) UPON A DATE CERTAIN. As to Deferred Amounts other than TCF Stock awards, the Employee may designate the distribution to be either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or to commence on a date in a year designated by the Employee ("Date Certain") either before or after employment termination but in no event sooner than two calendar years after the calendar year when the Deferred Amount was earned, subject to the Personnel Committee's designation of a uniform month and day for each year. For all Deferred Amounts, the Employee may designate the distribution to be either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid on or to commence on such Date Certain. Any distribution in annual installments shall commence 30 days after the Date Certain with succeeding installments paid thereafter on the date designated by the Committee in each subsequent year. Each installment shall consist of the balance of the Employee's account at the end of the previous calendar year, multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of installments remaining to be paid. Distributions from the TCF Stock account shall be made in 6 whole shares of TCF Stock (disregarding any shares in suspense or unvested as of the end of the calendar year). Distributions from the Diversified Account shall be made in cash. Distributions shall be made first from any available cash in the Employee's Account and, to the extent such cash is not sufficient to cover the distribution, pro rata from the TCF Stock Account and the Diversified Account (by liquidating pro rata portions of each investment in the Diversified Account). (II) UPON DISABILITY. The Employee may designate an alternative distribution in the event of Disability, as defined in this Plan, in the form of either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or to commence 30 days after such Disability occurs. The determination of payments and installments, including the distribution of only whole shares of TCF Stock from the TCF Stock account, shall be the same as under the preceding paragraph (I). (III) UPON OTHER TERMINATION OF EMPLOYMENT, INCLUDING RETIREMENT AND DEATH. The Employee may designate an alternative distribution in the event of a termination of employment, including retirement, in the form of either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or to commence 30 days after such termination of employment occurs. The determination of payments and installments, including the distribution of only whole shares of TCF Stock from the TCF Stock account, shall be the same as under the preceding paragraph (I). (IV) UPON A CHANGE IN CONTROL. The Employee may designate an alternative distribution in the event of a Change in Control (as defined in section 5.j.) in the form of either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or, in the case of annual installments, to commence 30 days after the one year anniversary of the closing of such Change in Control. The determination of payments and installments, including the distribution of only whole shares of TCF Stock from the TCF Stock account, shall be the same as under the preceding paragraph (I). b. PRE-2000 ACCOUNT. Not later than 30 days after an Employee's "Distribution Event" (as defined herein), the Trustee shall commence distribution of the amounts credited to such Employee's Pre-2000 Account. Notwithstanding the foregoing sentence, if an Employee's distribution requires Committee action then the commencement of distributions shall occur not later than 30 days after such Committee action or, if later, after the Employee's Distribution Event. Provided, that the Committee shall take any action required of it no later than its next regularly scheduled meeting after the Employee's Distribution Event. An Employee's "Distribution Event" is the first to occur of the following: (i) termination of employment; (ii) disability or (iii) the date one year after a "Change in Control: (as defined herein). Commencing within such 30 day period, the balance credited to the Employee's Account shall be paid as follows. 7 15-YEAR PAYMENT SCHEDULE SUBJECT TO ACCELERATION BY COMMITTEE. For distributions not subject to paragraph 5.c., d., or k., payment of the Employee's Pre-2000 Account shall be in fifteen annual installments unless the Committee approves a different schedule or the Employee's account is subject to the last paragraph of this section 5.b. The Committee may determine on a case by case basis to approve a different payment schedule for an Employee after taking into account whether the Employee has executed or will execute a non-competition agreement in form and scope reasonably acceptable to the Committee. The Committee may also consider such other factors as the Committee considers appropriate in each case. Any alternative payment schedule the Committee approves under this paragraph 5.b. may be in the form of installments over such period as the Committee selects, in the form of a lump sum, or any combination of installments and lump sum payments. For distributions from the Accounts of Employees who did not consent to the terms of this paragraph 5.b., the balance in the Account shall be paid as provided at the end of this section. (I) The first payment under paragraph 5.b. shall be paid on a date the Committee selects which is no later than 30 days after the Committee's direction as to the form and timing of distributions is made or, if later, 30 days after the Employee's Distribution Event. If no date is selected, the first payment shall be on the date that is the later of 30 days after the Committee's action or 30 days after the Employee's Distribution Event. Succeeding installments (if any) shall be paid on January 31 of each calendar year following the calendar year in which the first payment was made. (II) Each payment shall be made in cash or in kind as the Committee, in its discretion, shall determine except that all assets of an Employee's Account invested in TCF Stock shall be distributed in the form of TCF Stock. If the Committee makes no instruction, any assets of the Employee's Account invested in assets other than TCF Stock shall be distributed in the form of cash. Annual installments are intended to be substantially equal in value. To that end, each annual distribution shall be determined as follows. The amount credited to Employee's Account, as reported on the latest available account statement, shall be multiplied by a fraction, the numerator of which is one and the denominator of which is the number if installments remaining to be paid, including the current installment. The value of any portion of the account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. (III) Notwithstanding the foregoing subparagraph (I), an Employee who has terminated employment and commenced receiving payments may elect each year to have the payment otherwise due on January 31 of the next succeeding year paid as monthly installments instead, with each payment made on the last day of each month. Any such election shall be made in writing and delivered to the Committee on or before December 1 prior to any year for which it is to be effective. Such election may also indicate the assets to be liquidated in connection with each 8 monthly payment (subject to the requirement that any assets invested in TCF Stock must be distributed in kind). The amount of each monthly payment shall be equal to the amount that would otherwise be paid in one payment in January, divided by 12. Any assets to be liquidated in order to pay monthly benefits shall be liquidated on the last practicable date prior to the installment's payment date. In no event shall this subparagraph be construed as allowing the executive to lengthen or shorten the number of years over which his or her benefits will be paid; the election herein pertains only to timing of payments within a year. PRE-2000 ACCOUNT: LUMP SUM PAYMENT. For an Employee's Pre-2000 Account, distributions to Employees who did not consent to the foregoing terms of paragraph 5.b. at the time such provisions were added to the Plan in 1996, shall occur on or about the 30th day after the Employee's Distribution Event. Distribution shall consist of a single lump sum equal to the total value of the Employee's Pre-2000 Account, unless the termination of employment was due to retirement or disability (as defined herein), in which case the distribution shall be in five annual installments. However, the Committee shall reduce the number of the installments if necessary to provide for annual payments of at least $15,000. In addition, if the value of the Employee's Account is less than $15,000 as of any annual installment payment date, the Account shall be paid in full as of such installment payment date. Distributions shall be in the form of cash, except that any portion of the Account invested in TCF Stock shall be distributed in kind. The value of any portion of the account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. c. OVERRIDING LUMP SUM DISTRIBUTION IN EXCHANGE FOR NON-COMPETITION COVENANT OR REDUCTION IN ACCOUNT BALANCE. Effective on and after September 30, 1998, each Employee who so elects in accordance with this paragraph c and who has had a Distribution Event shall be entitled to elect to receive a lump sum form of distribution of either the Pre-2000 Account or any Class Year Account. A lump sum distribution shall consist of a single distribution of the entire value of the Employee's Pre-2000 or Class Year Account (unless the Employee elects to apply the election to only the portion of the Account invested in TCF Stock or to only the portion of the Account invested in assets other than TCF Stock) on or about 30 days after the later of the Employee's Distribution Event or the date on which the Employee's election is filed with TCF Financial. The distribution shall be in the form of cash, except that any portion of the Employee's Account invested in TCF Stock shall be distributed in kind. The value of any portion of the Account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. An Employee's election under this paragraph c may occur at any time prior to or after the commencement of distributions to such Employee. If distributions have already commenced, such election shall apply only to the balance of the Employee's Account at the time of the election. The election shall be made on such form as TCF Financial reasonably requires and shall be accompanied by either: (a) a noncompetition agreement reasonably acceptable to the Committee (see paragraph (i ) 9 below); or (b) the Employee's written acceptance of a reduction by 5% in the Employee's Account, whichever the Employee elects to provide. If the Employee elects the reduction in his or her Account, such reduction shall be accomplished by TCF Financial and the Trustee on or about 30 days after such election is made. d. CHANGE IN CONTROL DISTRIBUTION. In the event of a Change in Control (as defined in this Plan) all Pre-2000 Accounts in the Plan will be distributed to all Employees. If the Employee's Pre-2000 Account is subject to paragraph 5.b., distribution will be in the form required by paragraph 5.b. If the Employee elects to have paragraph 5.c. apply to the Pre-2000 Account, however, then distribution will be in the form of a lump sum. Any election to apply paragraph 5.c. to an Account in connection with a Change in Control shall meet the requirements of paragraph 5.c. The first payment, or the lump sum payment, whichever applies, of a Pre-2000 Account shall occur on or about 30 days after the earlier of (i) the date one year after the Change in Control, or (ii) the date of the Employee's termination of employment or disability. Any shares of TCF Stock (or securities of a successor company exchanged for TCF Stock) in the TCF Stock Account shall be distributed in kind. The value of any distribution from the Diversified Account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. In the event of a Change in Control, all Class Year Accounts of an Employee shall be distributed to the Employee if he or she so elected, at the time and in the manner elected under paragraph 5.a. at the time the Class Year Account was deferred. If the Employee subsequently elects to have paragraph 5.c. apply to the Class Year Account, however, then distribution shall be in the form of a lump sum. e. For purposes of this section, an Employee's employment is considered to terminate as of the date which is the later of (i) Employee's last date of service for the Company, or (ii) the last date on which there is an employment relationship between the Employee and a Company. f. For purposes of this section, an Employee is disabled as of the date the Employee is eligible for payments under the long term disability plan of a Company. g. In the event installment payments commence and any installments are unpaid at the time of Employee's death, the payments shall be made at the times and in such amounts as if Employee were living to the persons specified in paragraph 7.a. h. For purposes of this section, an Employee's termination of employment is a retirement if so determined by the Committee under all the facts and circumstances. i. A non-competition agreement shall be reasonably acceptable to the Committee for purposes of this Section 5 if it has a value as of the Committee's action date, equal to at least five percent of the then-current value of the Employee's Account. Valuation shall be determined in all cases on the basis of an independent appraisal, unless such an appraisal is deemed unnecessary by both the Committee and the Employee. j. For purposes of this Plan, a Change in Control shall be deemed to have occurred if (i) any "person" as defined in sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of TCF Financial representing fifty percent (50%) or more of the combined voting power of TCF Financial's then outstanding securities. (For purposes of this clause (i), the term 10 "beneficial owner" does not include any employee benefit plan maintained by TCF Financial that invests in TCF Financial's voting securities.); or (ii) during any period of two (2) consecutive years there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board or new directors whose nomination for election by the company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (iii) the shareholders of TCF Financial approve a merger or consolidation of TCF Financial with any other corporation, other than a merger or consolidation which would result in the voting securities of TCF Financial outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of TCF Financial or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of TCF Financial approve a plan of complete liquidation of TCF Financial or an agreement for the sale or disposition by TCF Financial of all or substantially all TCF Financial's assets; provided, however, that no Change in Control will be deemed to have occurred if such merger, consolidation, sale or disposition of assets, or liquidation is not subsequently consummated. The date of a Change in Control, for purposes of this Plan, is the date on which the Change in Control is consummated. k. Notwithstanding any other provision of this Section 5 or any payment schedule approved by the Committee pursuant to this Section 5 and regardless of whether payments have commenced under this Section 5, in the event that the Internal Revenue Service should finally determine with respect to an Employee who has terminated employment with the Company that part or all of the value of the Employee's Deferred Amounts or Plan Account which have not actually been distributed to the Employee, or that part or all of a related Trust Account which has not actually been distributed to the Employee, is nevertheless required to be included in the Employee's gross income for federal and/or State income tax purposes, then the Deferred Amounts or the Account or the part thereof that was determined to be includible in gross income shall be distributed to the Employee in a lump sum as soon as practicable after such determination without any action or approval by the Committee. A "final determination" of the Internal Revenue Service for purposes of this paragraph 5.i. is a determination in writing by said Service ordering the payment of additional tax, reporting of additional gross income or otherwise requiring Plan amounts to be included in gross income, which is not appealable or which the Employee does not appeal within the time prescribed for appeals. 6. EMERGENCY PAYMENTS. In the event of an "unforeseeable emergency" as determined hereafter, the Committee may determine the amounts payable under paragraph 5 hereof and pay all or a part of such amounts without regard to the payment dates provided in paragraph 5 to the extent the Committee determines that such action is necessary in light of immediate and heavy needs of the Employee (or his beneficiary) occasioned by severe financial hardship. For the purposes of this paragraph 6, an "unforeseeable emergency" is a severe financial hardship to the Employee resulting from a sudden and unexpected illness or accident of the Employee or beneficiary, or of a 11 dependent (as defined in Section 152(a) of the Internal Revenue Code of 1986, as amended) of the Employee or beneficiary, loss of the Employee's or beneficiary's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Employee or beneficiary. Payments shall not be made pursuant to this paragraph 6 to the extent that such hardship is or may be relieved: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Employee's or beneficiary's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of the Employee's deferrals under the Plan. Such action shall be taken only if Employee (or Employee's legal representatives or successors) signs an application describing fully the circumstances which are deemed to justify the payment, together with an estimate of the amounts necessary to prevent such hardship, which application shall be approved by the Committee after making such inquiries as the Committee deems necessary or appropriate. 7. METHOD OF PAYMENTS. a. In the event of Employee's death, payments shall be made to the persons (including a trustee or trustees) named in the last written instrument signed by Employee and received by the Committee prior to Employee's death, or if Employee fails to so name any person, the amounts shall be paid to Employee's estate or the appropriate distributee thereof. The Committee, the Company, and the Trustee shall be fully protected in making any payments due hereunder in accordance with what the Committee believes to be such last written instrument received by it. b. Payments due to a legally incompetent person may be made in such of the following ways as the Committee shall determine: (i) directly to such incompetent person, (ii) to the legal representative of such incompetent person, or (iii) to some near relative of the incompetent person to be used for the latter's benefit. c. Except as otherwise provided in paragraphs 7.a. and b., all payments to persons entitled to benefits hereunder shall be made to such persons in person or upon their personal receipt or endorsement, and shall not be grantable, transferable, or otherwise assignable in anticipation of payment thereof, in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be pledged, encumbered, or otherwise liable or taken for any obligation of such person. d. All payments to persons entitled to benefits hereunder shall be made out of the general assets, and shall be the sole obligations, of the Employer(s) by which the Eligible Employee was employed, except to the extent that such payments are made out of the trust described in paragraph 4. 12 8. CLAIMS PROCEDURES. a. If a claim for benefits made by any person (the "Applicant") is denied, the Committee shall furnish to the Applicant within 90 days after its receipt of such claim (or within 180 days after such receipt if special circumstances require an extension of time) a written notice which: (i) specifies the reasons for the denial, (ii) refers to the pertinent provisions of the Plan on which the denial is based, (iii) describes any additional material or information necessary for the perfection of the claim and explains why such material or information is necessary, and (iv) explains the claim review procedures. b. Upon the written request of the Applicant submitted within 60 days after his receipt of such written notice, the Committee shall afford the Applicant a full and fair review of the decision denying the claim and, if so requested: (i) permit the Applicant to review any documents which are pertinent to the claim, (ii) permit the Applicant to submit to the Committee issues and comments in writing, and (iii) afford the Applicant an opportunity to meet with a quorum of the Committee as a part of the review procedure. c. Within 60 days after its receipt of a request for review (or within 120 days after such receipt if special circumstances, such as the need to hold a hearing, require an extension of time) the Committee shall notify the Applicant in writing of its decision and the reasons for its decision and shall refer the Applicant to the provisions of the Plan which form the basis for its decision. 9. MISCELLANEOUS. a. Except as limited by paragraph 7.c. and except that an Employee shall have a continuing power to designate a new recipient in the event of Employee's death at any time prior to such death without the consent or approval of any person theretofore named as Employee's recipient by an instrument meeting the requirements of paragraph 7.a., this document shall be binding upon and inure to the benefit of each Company, the Employees, their legal representatives, successors and assigns, and all persons entitled to benefits hereunder. b. Any notice given in connection with this document shall be in writing and shall be delivered in person or by registered mail or overnight delivery service, return receipt requested. Any notice given by registered mail or overnight delivery service shall be deemed to have been given upon the date of delivery indicated on the return receipt, if correctly addressed. c. Nothing in this document shall interfere with the rights of any Employee to participate or share in any profit sharing or pension plan which is now in force or which may at some future time become a recognized plan of any Company. 13 d. Nothing in this document shall be construed as an employment agreement nor as in any way impairing the right of any Company to terminate an Employee's employment at will. e.This Plan constitutes a mere promise by the Company to make benefit payments in the future, and it is intended to be unfunded for tax purposes and for the purposes of Title I of ERISA. The rights of an Employee or beneficiary to receive benefit payments hereunder are solely those of an unsecured general creditor of the Company. 10. INVESTMENT ELECTIONS BY EMPLOYEES; LEVERAGING; DEFERRED TCF STOCK AWARDS; PURCHASE PROCEDURES FOR PURPOSES OF RULE 16b-3. a. Employees may elect to liquidate funds in their Deferred Compensation Accounts under Section 3 or 4 and reinvest them as directed, PROVIDED that any investment election shall be exercised in writing by the Employee and approved by the Committee or its approved representative under such terms and conditions as the Committee deems appropriate (Exhibit A to this Plan), and FURTHER PROVIDED, that on and after September 30, 1998 any investments in TCF Stock shall be subject to paragraph b of this section 10. b. If an Employee directs or retains any investment in shares of TCF Stock on or after September 30, 1998, or defers an award of TCF Stock, the Employee's Account shall include a TCF Stock Account which shall operate as follows: (i) All shares of TCF Stock allocated to the Employee's Account on September 30, 1998 (excluding any shares held in suspense or unvested pursuant to paragraph c of this section) shall be allocated on that date to the Employee's TCF Stock Account and the fixed number of shares so allocated shall be the beginning balance of the TCF Stock Account. (ii) Thereafter, the TCF Stock Account shall be increased by the number of shares, if any, of TCF Stock purchased (or deemed to be purchased) from Deferred Amounts or from dividends (other than nondeferred dividends) and/or interest pursuant to the Employee's directions under Section 3 of this Plan and by any shares of TCF Stock released from pledge or becoming vested, as provided in paragraph c of this section. (iii) The balance of shares of the TCF Stock Account shall in no event be decreased. (iv) Shares allocated to the Employee's TCF Stock Account shall be subject to all of the restrictions and other provisions of this Committee's action dated 8-24-98 establishing separate accounts for TCF Stock as compared to non-TCF Stock assets. c. (I) In the event the Trustee engages in borrowing on behalf of an Employee's account pursuant to directions of the Committee under section 5.1(f) of the Trust, all shares of TCF Stock acquired with the proceeds of such borrowing shall be pledged by the Trustee to secure the repayment of such loan and any shares of TCF Stock so pledged shall be held in suspense (unallocated) in the Employee's TCF Stock Account pursuant to this paragraph c. Shares held in suspense (unallocated) under this paragraph c shall be 14 treated as follows: (i) they shall not be credited to the balance of the Employee's TCF Stock Account under paragraph a of this section and shall not be distributed or distributable to the Employee, whether as part of a distribution pursuant to section 5 of this Plan or otherwise, during any time when they are pledged; (ii) they shall not be used for any other purpose than the repayment of principal and/or interest payments as they come due on the loan entered into by the Trustee in connection with the purchase of such shares; and (iii) they shall not in any event be credited to or inure to the benefit of any other Employee's Account in the Plan and/or Trust. Dividends paid on shares held in suspense shall be credited to the Employee's Account in TCF Stock or in other assets as the Employee shall direct, to the extent such dividends exceed then-current amounts of principal and interest due on the loan. In the event the Employee has a distribution of his or her entire Account balance or entire remaining Account balance in the Plan, the Trustee shall be directed to liquidate a sufficient number of the shares of TCF Stock held in suspense in order to repay the balance due on the loan in full and the remainder of the shares held in suspense, if any, shall be released from the pledge, allocated to the Employee's TCF Stock Account and included in the distribution. Notwithstanding the foregoing, the lender may elect to release from pledge any shares of TCF Stock held in suspense under this paragraph c prior to complete repayment of the loan and in such event the Trustee and the administrator of the Plan shall thereafter immediately allocate such shares to the Employee's TCF Stock Account and shall increase the balance thereof as provided in paragraph a of this section. c (II) Deferred Amounts consisting of TCF Stock awards shall be held unallocated until such time as the shares vest in accordance with the terms of the award agreement. As of the date any such shares become vested, the number of shares vesting shall be allocated to the Employee's Account and shall thereafter become subject to distribution the same as any other shares of TCF Stock in the TCF Stock account. Any cash dividends paid on unvested shares of TCF Stock, if such dividends have been deferred by the Employee, shall be allocated to the Employee's account and invested as directed by the Employee. Any stock dividends paid on unvested shares of TCF Stock, if such dividends have been deferred by the Employee, shall be allocated to the Employees' TCF Stock account and increase the TCF Stock account balance unless such dividends are in the nature of a stock split, in which case they shall be held unallocated until such time as the award vests. d. Any election of Deferred Amounts of salary or incentive compensation under paragraph 1.b. shall be exercised in writing by the Employee and filed with the Committee no later than the date prior to the date the first salary or incentive compensation, part or all of which is to become a Deferred Amount, is earned. e. Any investment election under paragraph 3 or 4 relating to initial or periodic investment of Deferred Amounts in TCF Stock, whether as a result of an initial or yearly election to participate in the Plan or a change in the level of participation in the Plan, shall be exercised in writing by the Employee and filed with the Committee no later than the date prior to the date the first salary or incentive compensation, part or all of which is to become a Deferred Amount, is earned. Deferred Amounts of salary or incentive compensation, to the extent they are forwarded to the trustee, shall be so forwarded on or immediately after the payroll date of the salary or incentive 15 compensation which is being deferred and shall be deemed to be invested on the same date on which the Trustee purchases the designated investments. The Trustee shall purchase such investments as soon as practicable after the payroll date for which the Deferred Amount is received, and in the case of investments consisting of TCF Stock, no later than two weeks after such payroll date, with the exact date and purchase terms to be determined by a stock broker or other investment professional on the basis of such person's judgment as to the best available purchase price for the Plan and Trust. If Deferred Amounts are not forwarded to the Trustee, investments in equity securities of TCF Financial shall be deemed to occur at the average of the high and low trading price for such securities on the payroll date. f. Any investment election under paragraph 3 or 4 relating to liquidation of existing investments and reinvestment or reapplication of proceeds within the Plan or Trust shall be consistent with Exhibit A hereto, shall be exercised in writing and filed with the Committee by the Employee on any date, provided that any such election which is a discretionary purchase of TCF Stock is at least six months after the date of the Employee's last such discretionary election (as defined in Rule 16b-3) of a sale of TCF Stock under any other benefit plan of the Company. Liquidation and/or reinvestment of funds within the Plan or Trust under Section 3 or 4 shall occur as soon as practicable after the Employee's election is filed with the Committee, provided that the Committee determines it is a valid election and, in the case of investment or reinvestment in TCF Stock, such election is implemented by the Trustee no later than two weeks after the date such election is filed with the Committee and determined to be valid, with the exact date(s) and terms of any such transaction involving TCF Stock to be determined by a stock broker or other investment professional on the basis of such person's judgment as to the then best available purchase price for the Plan and Trust. If Deferred Amounts have not been forwarded to the Trustee, to the extent there are no actual funds to implement the Employee's election, such election shall be deemed to be implemented at the average of the high and low sales prices for TCF Stock on the date the election was filed with the Committee and determined to be valid and, for other investments, on such basis as the Trustee reasonably determines. g. For purposes of this Section 10, filing with the corporate secretary of TCF Financial shall be deemed to be a filing with the Committee. 11 . TERMINATION OR AMENDMENT. This Plan may be amended at any time and from time to time, upon the approval of the Board of Directors of TCF Financial; PROVIDED, that, if the amendment is adopted prior to a change in control (as defined in section 5(j) hereof), no such amendment shall (without the consent of all participants, including any terminated participants and beneficiaries then receiving distributions) alter any participant's or beneficiary's right to payments of amounts previously credited to such participant's or beneficiary's Account or delay the time or times at which a participant or beneficiary is entitled to receive payments with respect to the participant's Deferred Amounts under the Plan. If the amendment is adopted after a change in control, as defined in section 5(j) hereof, the approval of the Board of Directors and the consent of all participants, terminated participants and beneficiaries shall be required for the 16 amendment. In the event that all of the Plan's participants and beneficiaries do not consent to a proposed amendment, such amendment shall not take effect but the Plan Accounts of the consenting participants shall be transferred to a separate plan that is identical to this Plan in all respects, except that it may include the proposed amendment. The Board of Directors may terminate this Plan in its discretion, except that any such termination shall require the consent of all participants (including any terminated participants and beneficiaries then receiving distributions), unless it is an automatic termination of the Plan under section 5(k) hereof. 17 EXHIBIT A (Action of 16b-3 Sub-Committee of the Personnel Committee Establishing TCF Stock Accounts and Diversified Accounts effective as of September 30, 1998 and as amended effective as of January 1, 2000) 1. Effective as of September 30, 1998 (the "Effective Date"), each participant's Account in the Plan and Trust (if the Trustee is maintaining separate accounts) shall be divided into two sub-accounts: a "TCF Stock Account" and a "Diversified Account". All shares of common stock of TCF Financial ("TCF Stock") in a participant's Account on the Effective Date shall be allocated as of that Date to the Participant's TCF Stock Account. All other investments in a participant's Account on the Effective Date shall be allocated as of that Date to the participant's Diversified Account. Thereafter, the Sub-Accounts shall operate as follows: a. The TCF Stock Account shall consist solely of shares of TCF Stock (and cash or cash equivalent money market funds for fractional shares or for funds held temporarily prior to investment). The Diversified Account shall not at any time include any shares of TCF Stock. Except as permitted by paragraph e, below, no transfer of assets will be permitted from the TCF Stock Account to the Diversified Account or from the Diversified Account to the TCF Stock Account. b. A participant's TCF Stock Account shall hold all shares of TCF Stock allocated to it on or after the Effective Date and such shares shall not be subject to sale, transfer, assignment, pledge or other hypothecation in any manner. Upon the occurrence of a Distribution Event (as defined in the Plans) the shares will be distributed from the Plan and Trust to the participant in an in-kind distribution pursuant to the terms of the Plan. c. The Diversified Account shall not at any time purchase or invest in any shares of TCF Stock, but shall invest in such investments as the participant directs and as the Committee permits from time to time. d. Any new Deferred Amounts for a participant after the Effective Date shall be allocated to either the participant's TCF Stock Account or to such participant's Diversified Account, as the participant shall direct in an irrevocable election filed before the beginning of each calendar year and applicable throughout the calendar year. The Deferred Amounts shall be credited to the applicable sub-Account as of the same date that they are otherwise credited to the participant's Account under Section 3.a. of the Plans and Section 4.2 of the Trusts. e. Dividends generated by a participant's TCF Stock Account and which are deferred shall be reinvested in the TCF Stock Account, or in the Diversified Account, as the participant directs in an irrevocable election filed before the beginning of each calendar year and applicable throughout the calendar year. Any interest or dividends generated by a participant's Diversified Account shall be reinvested in the Diversified Account, or in the participant's TCF Stock Account, as the participant directs in an irrevocable election filed before the beginning of each calendar year and applicable throughout the calendar year, unless 18 management determines that the reinvestment of interest and dividends within or from the Diversified Account is not administratively feasible. If the participant does not file an election with respect to the investment of interest and/or dividends, all interest and dividends shall be reinvested in the asset that generated them. f. Notwithstanding the election provisions of paragraphs 1.d and 1.e., any participant may make a one-time only investment election for the fourth quarter of 1998 with respect to new Deferred Amounts and dividends and interest generated during that calendar quarter, provided that the election is filed prior to the beginning of the calendar quarter, is irrevocable and applies to the entire calendar quarter. 19 EX-10.N 5 EXHIBIT 10.N Exhibit 10(n) TCF FINANCIAL SENIOR OFFICER DEFERRED COMPENSATION PLAN (Amended and Restated effective as of January 1, 2000) 1. DEFERRAL OF INCENTIVE COMPENSATION, SALARIES AND STOCK AWARDS. a. From time to time eligible employees ("Employees") of TCF Financial Corporation ("TCF Financial") or any of its direct or indirect subsidiaries (each such corporation being referred to hereinafter as the "Company") may, by written notice, elect to have payment of a portion of their salary for the next succeeding calendar year, all or a portion of their incentive compensation payable for the next succeeding calendar year, and/or all or a portion of a stock award of TCF Financial Common Stock ("TCF Stock") deferred as hereinafter provided. Each such deferral of compensation or a TCF Stock award shall be (and is hereinafter referred to as) a "Deferred Amount." Notwithstanding the foregoing, however, an Employee may not elect to defer any portion of salary or incentive compensation with respect to any calendar year, unless such Employee's deferrals with respect to such year are at least $1,000 in the aggregate, and no deferral may be made of any salary or incentive compensation payable within 12 months after such Employee has received a distribution of pre-tax contributions from the TCF Employees Stock Ownership Plan - 401(k) pursuant to the financial hardship withdrawal provisions of such plan. b. Any elections with respect to Deferred Amounts of salary shall be exercised in writing by the Employee prior to the latest to occur of the following: (i) the beginning of the calendar year for which the salary is to be earned; (ii) such Employee's first day of employment service in that year; or (iii) the first day of the calendar month next following the date the Employee first becomes eligible to participate in the Plan. Any election with respect to Deferred Amounts of incentive compensation shall be made no later than December 31 of the calendar year preceding the calendar year in which the periods of service are rendered for which the incentive compensation is to be paid. Any election with respect to Deferred Amounts of TCF Stock awards shall be exercised in writing by the Employee on or before the effective date of the award, and may be exercised separately with respect to the shares of the stock award and any cash or stock dividends (other than stock dividends in the nature of stock splits) declared and paid with respect to such shares. An election of Deferred Amounts, once made, is irrevocable, except as provided in paragraph 6 hereof. c.Deferred Amounts shall be subject to the rules set forth in this document, and each Employee shall have the right to receive cash payments on account of previously Deferred Amounts only in the amounts and under the circumstances hereinafter set forth. Effective for compensation earned on or after January 1, 2000, and for awards of TCF Stock made on or after that date, an Employee's election of Deferred Amounts for a calendar year shall also include an election of the timing and 1 form of distribution of the Deferred Amounts elected for that year, from among the alternatives set forth in section 5.a.of this Plan. d. Employees eligible to participate in this Plan are Employees of a Company who hold the office of Senior Vice President of TCF Financial Corporation or TCF National Bank Minnesota or President or Executive Vice President of an insured institution subsidiary of TCF Financial or President of a direct or indirect subsidiary of TCF Financial. Effective on and after February 9, 1995, employees of Great Lakes National Bank Michigan ("Great Lakes") are eligible for this plan if they hold the officer position of Senior Vice President or above and are selected for eligibility in the plan by the Chairman and President of Great Lakes. Effective upon the merger of bank charters in the year 2000, any Senior Vice President of TCF National Bank is an eligible employee. Effective on and after November 1, 1998, Employees of a Company who hold the office of General Counsel of an insured institution subsidiary of TCF Financial or of a finance company subsidiary, direct or indirect, of TCF Financial are also eligible to participate in this Plan. Notwithstanding the foregoing, an employee who is eligible to participate in the TCF Financial Executive Deferred Compensation Plan or the Winthrop Resources Corporation Deferred Compensation Plan shall not be eligible to participate in this Plan. Eligibility shall be determined annually as of the latest practicable date prior to the commencement of each new calendar year. In the event an Employee ceases to be eligible for this Plan during the course of a calendar year, the Employee's eligibility shall nevertheless continue through the end of that calendar year. Notwithstanding the foregoing, individuals who become employees of a Company as a result of a merger or acquisition shall not be eligible Employees under this Plan unless and until TCF Financial has adopted a resolution identifying them as eligible Employees. 2. PERSONNEL COMMITTEE. The Committee (the "Committee") shall consist of such members of the Personnel Committee of the Board of Directors of TCF Financial Corporation who qualify as non-employee directors from time to time under Rule 16b-3 of the Securities and Exchange Commission. Full power and authority to construe, interpret, and administer this Plan document shall be vested in the Committee. The Committee shall have full power and authority to make each determination provided for in this Plan document, and in this connection, to promulgate such rules and regulations as the Committee considers necessary or appropriate for the implementation and management of this Plan. The Committee shall have sole and absolute discretion in the performance of its powers and duties under this Plan. All determinations made by the Committee shall be final, conclusive and binding upon the Companies, each Employee and former Employee and their designees, unless found by a court of competent jurisdiction to have been arbitrary and capricious. The Committee shall have authority to designate officers of TCF Financial and to delegate authority to such officers to receive documents which are required to be filed with the Committee, to execute and provide directions to the Trustee and other administrators, and to do such other actions as the Committee may specify on its behalf, and any such actions undertaken by such 2 officers shall be deemed to have the same authority and effect as if done by the Committee itself. 3. DEFERRED COMPENSATION ACCOUNTS. Each Company shall establish on its books a separate account ("Account"), including sub-accounts pursuant to Exhibit A hereto and Section 10 hereof, for each of its Employees who becomes a participant in this Plan, and each such Account shall be maintained as follows: a. Each Account shall be credited with the Deferred Amounts elected by the Employee for whom such Account is established as of the date on which such Deferred Amount would otherwise have been paid to the Employee. Separate Accounts will be maintained for any Deferred Amounts that are payable at different times or in different forms than other Deferred Amounts. b. To the extent that a Company has made contributions to the Trust described in paragraph 4 with respect to an Employee's Deferred Amounts, the Employee's Account shall thereafter be adjusted as described in paragraph 4. To the extent such contributions have not been made with respect to an Employee's Deferred Amounts, and within 30 days after the date on which such Deferred Amounts are credited to an Employee's Account, they shall have been deemed to have been invested in such investments as shall be permitted by the Committee and as the Employee shall direct, except that Deferred Amounts pertaining to TCF Stock awards shall always be deemed to be invested in TCF Stock unless they are sold pursuant to a Change in Control Diversification Election. Any investment direction by an Employee shall be consistent with Section 10 and Exhibit A and shall be irrevocable with respect to the calendar year to which it applies, unless the Committee allows additional elections. While an Employee's Account is deemed to be so invested, it shall be credited with all interest, dividends (whether in stock, cash, or other property), stock splits, or other property that would have been received if the Deferred Amounts had actually been so invested, except if an Employee has elected not to defer dividends. All cash deemed to have been received with respect to investments deemed to have been made for an Employee's Account shall be deemed to be reinvested in such investments as the Employee shall direct as of a date selected by the Committee, which date shall be not less than 30 days after receipt of such direction, and the balance credited to an Employee's Account as of any date shall be equal to the fair market value of the investments deemed to have been made for such Account as of such date. Starting with Deferred Amounts elected for the year 2000 and after Accounts for each Employee shall be separately maintained on a calendar year basis, with each year's account (the "Class Year Account") reflecting only the Deferred Amounts of compensation earned in that year and the investments in which the Deferred Amounts are deemed to be invested. All Deferred Amounts elected before the year 2000, including deferrals of TCF Stock awards made before that date, and the investments in which they are deemed to be invested from time to time, shall be aggregated and maintained as a "Pre-2000 Account". 3 c. Although the value of an Employee's Account is to be measured by the value of and income from certain investments, the value of and income from such investments are merely a measuring device to determine the payments to be made to each Employee hereunder. Each Employee, and each other recipient of an Employee's Deferred Amounts pursuant to paragraph 7, shall be and remain an unsecured general creditor of the Company by which he is employed with respect to any payments due and owing to such Employee hereunder. If a Company should from time to time, in its discretion, actually purchase the investments deemed to have been made for an Employee's Account, either directly or through the trust described in paragraph 4, such investments shall be solely for the Company's or such trust's own account, and the Employees shall have no right, title or interest therein. d. Sub-accounts shall be maintained as provided in Exhibit A hereto and in Section 10 hereof. e. Notwithstanding the provisions of Exhibit A and Section 10, in the event of a Change in Control in which TCF Stock is exchanged for shares of a successor company, or for cash, securities or other property, such that TCF Stock is no longer outstanding, each Employee may make a one-time diversification election prior to the closing of the Change in Control to sell the assets in the Employee's TCF Stock Account in an orderly liquidation after the closing and to reinvest the assets in such investments as the Employee shall elect. Any assets thus acquired for the Employee's Account other than securities of a successor company shall be credited to the Employee's Diversified Account. If the Employee does not make such a diversification election, the shares of TCF Stock allocated to the Employee's account upon the closing shall be exchanged for the same consideration in the Change in Control as shares of TCF Stock generally receive in the Change in Control. Any portion of such consideration consisting of securities of a successor company will be allocated to the TCF Stock Account and thereafter will be subject to the same sale restrictions as applied to TCF Stock prior to the Change in Control. Any portion of such consideration consisting of assets other than securities of a successor company will be allocated to the Employee's Diversified Account. 4. TRUST. TCF Financial may establish a trust (of the type commonly known as a "rabbi trust") to aid in the accumulation of assets for payment of Deferred Amounts. In the event that such a Trust is established, the amounts credited to the Employee's Accounts shall be adjusted as follows: a. Each Company may, in its discretion, contribute to the trust an amount equal to the balance credited to the Account of each Employee employed by such Company on the date of such contribution. Thereafter, each Company may, in its discretion, contribute to the trust an amount equal to the Deferred Amounts of the Employees employed by such Company within five business days after the Deferred Amount is earned by the Employee or, in the case of Deferred Amounts of TCF Stock awards, the Company may contribute the deferred shares of TCF Stock within five days 4 after the award is made. The assets of the trust shall be invested in such investments as may be permitted by the Committee and directed by an Employee for his own Account. Any investment direction of an Employee shall be made consistent with Section 10 and shall be irrevocable with respect to the calendar year to which it applies, unless the Committee allows additional elections. Insofar as the trustee of the Trust ("Trustee") has acquired an investment for an Employee's Account pursuant to such directions, the Employee shall have the right to determine confidentially whether such investment will be tendered in a tender or exchange offer, and to direct the Trustee accordingly. The terms of the trust shall be consistent with the terms of this Plan. The Trustee shall be a corporate trustee independent of the Company or, if individual(s), shall not include at any time any person who is or has been eligible for participation in this Plan. Nothing herein shall be construed as requiring the Company to make any contributions to the trust. To the extent such contributions are actually made, the trust assets shall remain subject to the claims of the Company's general creditors in the event of its insolvency. b. Unless separate accounts are maintained by another record-keeper, the trust shall provide for separate accounts in the name of each Employee who has elected a Deferred Amount and for each Class Year Account and Pre-2000 Account. Except as provided in paragraph 4.d., from and after the date as of which such accounts are established, the balances in the Accounts established for Employees pursuant to this Plan shall be equal to the balances credited to such separate accounts. Starting with Deferred Amounts elected for the year 2000 and after Accounts for each Employee shall be separately maintained on a calendar year basis, with each year's account (the "Class Year Account") reflecting only the Deferred Amounts of compensation earned in that year and the investments in which the Deferred Amounts are deemed to be invested. All Deferred Amounts elected before the year 2000, including deferrals of TCF Stock awards made before that date, and the investments in which they are deemed to be invested from time to time, shall be aggregated and maintained as a "Pre-2000 Account". Each of the foregoing types of Accounts shall be adjusted as follows: (i) Contributions (if any) made by the Companies to the trust on behalf of such Employee for such Account, and all dividends or other distributions made with respect to property allocated to such separate Account (except for dividends on TCF Stock awards which the Employee elected not to defer), shall be credited to such separate Account and invested as the Employee shall direct. (ii) Each Employee's separate Account shall be increased by the amount of any increase in the fair market value, as determined by the Trustee, of any assets allocated to such separate Account, and shall be decreased by any decrease in the fair market value of such assets, as determined by the Trustee. (iii) Each Employee's separate Account shall be reduced by any distributions made to the Employee from the trust which are chargeable to such separate Account. 5 c. An Employee's right to direct the investment of the Employee's separate account shall continue during any period of distribution subsequent to the Employee's termination of employment in the same manner as if the Employee had continued as an active Employee, although the Committee may, in its discretion, add additional registered mutual funds or collective or common trustee funds which are available only for the accounts of terminated Employees if the Committee deems such funds to be particularly appropriate or suitable for such Accounts. d. The adjustments described in this paragraph 4 shall only be made to an Employee's Account to the extent that a Company has made contributions to the trust pursuant to this paragraph 4. If for any reason such contributions have not been made then, and only to that extent, the Employee's Account shall be adjusted as provided in paragraph 3.b. e. Sub-Accounts shall be maintained as provided in Exhibit A hereto and in Section 10 hereof. f. Notwithstanding the provisions of Exhibit A and Section 10, in the event of a Change in Control in which TCF Stock is exchanged for shares of a successor company, or for cash, securities or other property, such that TCF Stock is no longer outstanding, each Employee may make a one-time diversification election prior to the closing of the Change in Control to sell the assets in the Employee's TCF Stock Account in an orderly liquidation after the closing and to reinvest the assets in such investments as the Employee shall elect. Any assets thus acquired for the Employee's Account other than securities of a successor company shall be credited to the Employee's Diversified Account. If the Employee does not make such a diversification election, the shares of TCF Stock allocated to the Employee's account upon the closing shall be exchanged for the same consideration in the Change in Control as shares of TCF Stock generally receive in the Change in Control. Any portion of such consideration consisting of securities of a successor company will be allocated to the TCF Stock Account and thereafter will be subject to the same sale restrictions as applied to TCF Stock prior to the Change in Control. Any portion of such consideration consisting of assets other than securities of a successor company will be allocated to the Employee's Diversified Account. 5. PAYMENT OF DEFERRED AMOUNTS. a. DEFERRALS ON OR AFTER JANUARY 1, 2000 ("CLASS YEAR ACCOUNTS"). For Deferred Amounts of compensation earned on or after January 1, 2000 and of TCF Stock awards made on or after that date, at the same time as the Employee elects the Deferred Amounts for a calendar year, or for a TCF Stock Award, the Employee shall also elect the timing and form of distribution of such Deferred Amounts for that year, or for the TCF Stock award, from among the following options: 6 (I) UPON A DATE CERTAIN. As to Deferred Amounts other than TCF Stock awards, the Employee may designate the distribution to be either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or to commence on a date in a year designated by the Employee ("Date Certain") either before or after employment termination but in no event sooner than two calendar years after the calendar year when the Deferred Amount was earned, subject to the Personnel Committee's designation of a uniform month and day for each year. For all Deferred Amounts, the Employee may designate the distribution to be either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid on or to commence on such Date Certain. Any distribution in annual installments shall commence 30 days after the Date Certain with succeeding installments paid thereafter on the date designated by the Committee in each subsequent year. Each installment shall consist of the balance of the Employee's account at the end of the previous calendar year, multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of installments remaining to be paid. Distributions from the TCF Stock account shall be made in whole shares of TCF Stock (disregarding any shares in suspense or unvested as of the end of the calendar year). Distributions from the Diversified Account shall be made in cash. Distributions shall be made first from any available cash in the Employee's Account and, to the extent such cash is not sufficient to cover the distribution, pro rata from the TCF Stock Account and the Diversified Account (by liquidating pro rata portions of each investment in the Diversified Account). (II) UPON DISABILITY. The Employee may designate an alternative distribution in the event of Disability, as defined in this Plan, in the form of either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or to commence 30 days after such Disability occurs. The determination of payments and installments, including the distribution of only whole shares of TCF Stock from the TCF Stock account, shall be the same as under the preceding paragraph (I). (III) UPON OTHER TERMINATION OF EMPLOYMENT, INCLUDING RETIREMENT AND DEATH. The Employee may designate an alternative distribution in the event of a termination of employment, including retirement, in the form of either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or to commence 30 days after such termination of employment occurs. The determination of payments and installments, including the distribution of only whole shares of TCF Stock from the TCF Stock account, shall be the same as under the preceding paragraph (I). (IV) UPON A CHANGE IN CONTROL. The Employee may designate an alternative distribution in the event of a Change in Control (as defined in section 5.j.) in the form of either a lump sum or annual installments (but no fewer than two and no more than 15) to be paid or, in the case of annual installments, to 7 commence 30 days after the one year anniversary of the closing of such Change in Control. The determination of payments and installments, including the distribution of only whole shares of TCF Stock from the TCF Stock account, shall be the same as under the preceding paragraph (I). b. PRE-2000 ACCOUNT. Not later than 30 days after an Employee's "Distribution Event" (as defined herein), the Trustee shall commence distribution of the amounts credited to such Employee's Pre-2000 Account. Notwithstanding the foregoing sentence, if an Employee's distribution requires Committee action then the commencement of distributions shall occur not later than 30 days after such Committee action or, if later, after the Employee's Distribution Event. Provided, that the Committee shall take any action required of it no later than its next regularly scheduled meeting after the Employee's Distribution Event. An Employee's "Distribution Event" is the first to occur of the following: (i) termination of employment; (ii) disability or (iii) the date one year after a "Change in Control: (as defined herein). Commencing within such 30 day period, the balance credited to the Employee's Account shall be paid as follows. 15-YEAR PAYMENT SCHEDULE SUBJECT TO ACCELERATION BY COMMITTEE. For distributions not subject to paragraph 5.c., d., or k., payment of the Employee's Pre-2000 Account shall be in fifteen annual installments unless the Committee approves a different schedule or the Employee's account is subject to the last paragraph of this section 5.b. The Committee may determine on a case by case basis to approve a different payment schedule for an Employee after taking into account whether the Employee has executed or will execute a non-competition agreement in form and scope reasonably acceptable to the Committee. The Committee may also consider such other factors as the Committee considers appropriate in each case. Any alternative payment schedule the Committee approves under this paragraph 5.b. may be in the form of installments over such period as the Committee selects, in the form of a lump sum, or any combination of installments and lump sum payments. For distributions from the Accounts of Employees who did not consent to the terms of this paragraph 5.b., the balance in the Account shall be paid as provided at the end of this section. (I) The first payment under paragraph 5.b. shall be paid on a date the Committee selects which is no later than 30 days after the Committee's direction as to the form and timing of distributions is made or, if later, 30 days after the Employee's Distribution Event. If no date is selected, the first payment shall be on the date that is the later of 30 days after the Committee's action or 30 days after the Employee's Distribution Event. Succeeding installments (if any) shall be paid on January 31 of each calendar year following the calendar year in which the first payment was made. (II) Each payment shall be made in cash or in kind as the Committee, in its discretion, shall determine except that all assets of an Employee's Account invested in TCF Stock shall be distributed in the form of TCF Stock. If the Committee 8 makes no instruction, any assets of the Employee's Account invested in assets other than TCF Stock shall be distributed in the form of cash. Annual installments are intended to be substantially equal in value. To that end, each annual distribution shall be determined as follows. The amount credited to Employee's Account, as reported on the latest available account statement, shall be multiplied by a fraction, the numerator of which is one and the denominator of which is the number if installments remaining to be paid, including the current installment. The value of any portion of the account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. (III) Notwithstanding the foregoing subparagraph (I), an Employee who has terminated employment and commenced receiving payments may elect each year to have the payment otherwise due on January 31 of the next succeeding year paid as monthly installments instead, with each payment made on the last day of each month. Any such election shall be made in writing and delivered to the Committee on or before December 1 prior to any year for which it is to be effective. Such election may also indicate the assets to be liquidated in connection with each monthly payment (subject to the requirement that any assets invested in TCF Stock must be distributed in kind). The amount of each monthly payment shall be equal to the amount that would otherwise be paid in one payment in January, divided by 12. Any assets to be liquidated in order to pay monthly benefits shall be liquidated on the last practicable date prior to the installment's payment date. In no event shall this subparagraph be construed as allowing the executive to lengthen or shorten the number of years over which his or her benefits will be paid; the election herein pertains only to timing of payments within a year. PRE-2000 ACCOUNT: LUMP SUM PAYMENT. For an Employee's Pre-2000 Account, distributions to Employees who did not consent to the foregoing terms of paragraph 5.b. at the time such provisions were added to the Plan in 1996, shall occur on or about the 30th day after the Employee's Distribution Event. Distribution shall consist of a single lump sum equal to the total value of the Employee's Pre-2000 Account, unless the termination of employment was due to retirement or disability (as defined herein), in which case the distribution shall be in five annual installments. However, the Committee shall reduce the number of the installments if necessary to provide for annual payments of at least $15,000. In addition, if the value of the Employee's Account is less than $15,000 as of any annual installment payment date, the Account shall be paid in full as of such installment payment date. Distributions shall be in the form of cash, except that any portion of the Account invested in TCF Stock shall be distributed in kind. The value of any portion of the account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. 9 c. OVERRIDING LUMP SUM DISTRIBUTION IN EXCHANGE FOR NON-COMPETITION COVENANT OR REDUCTION IN ACCOUNT BALANCE. Effective on and after September 30, 1998, each Employee who so elects in accordance with this paragraph c and who has had a Distribution Event shall be entitled to elect to receive a lump sum form of distribution of either the Pre-2000 Account or any Class Year Account. A lump sum distribution shall consist of a single distribution of the entire value of the Employee's Pre-2000 or Class Year Account (unless the Employee elects to apply the election to only the portion of the Account invested in TCF Stock or to only the portion of the Account invested in assets other than TCF Stock) on or about 30 days after the later of the Employee's Distribution Event or the date on which the Employee's election is filed with TCF Financial. The distribution shall be in the form of cash, except that any portion of the Employee's Account invested in TCF Stock shall be distributed in kind. The value of any portion of the Account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. An Employee's election under this paragraph c may occur at any time prior to or after the commencement of distributions to such Employee. If distributions have already commenced, such election shall apply only to the balance of the Employee's Account at the time of the election. The election shall be made on such form as TCF Financial reasonably requires and shall be accompanied by either: (a) a noncompetition agreement reasonably acceptable to the Committee (see paragraph (i ) below); or (b) the Employee's written acceptance of a reduction by 5% in the Employee's Account, whichever the Employee elects to provide. If the Employee elects the reduction in his or her Account, such reduction shall be accomplished by TCF Financial and the Trustee on or about 30 days after such election is made. d. CHANGE IN CONTROL DISTRIBUTION. In the event of a Change in Control (as defined in this Plan) all Pre-2000 Accounts in the Plan will be distributed to all Employees. If the Employee's Pre-2000 Account is subject to paragraph 5.b., distribution will be in the form required by paragraph 5.b. If the Employee elects to have paragraph 5.c. apply to the Pre-2000 Account, however, then distribution will be in the form of a lump sum. Any election to apply paragraph 5.c. to an Account in connection with a Change in Control shall meet the requirements of paragraph 5.c. The first payment, or the lump sum payment, whichever applies, of a Pre-2000 Account shall occur on or about 30 days after the earlier of (i) the date one year after the Change in Control, or (ii) the date of the Employee's termination of employment or disability. Any shares of TCF Stock (or securities of a successor company exchanged for TCF Stock) in the TCF Stock Account shall be distributed in kind. The value of any distribution from the Diversified Account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. In the event of a Change in Control, all Class Year Accounts of an Employee shall be distributed to the Employee if he or she so elected, at the time and in the manner elected under paragraph 5.a. at the time the Class Year Account was deferred. If the Employee subsequently elects to have paragraph 5.c. apply to the Class Year Account, however, then distribution shall be in the form of a lump sum. 10 e. For purposes of this section, an Employee's employment is considered to terminate as of the date which is the later of (i) Employee's last date of service for the Company, or (ii) the last date on which there is an employment relationship between the Employee and a Company. f. For purposes of this section, an Employee is disabled as of the date the Employee is eligible for payments under the long term disability plan of a Company. g. In the event installment payments commence and any installments are unpaid at the time of Employee's death, the payments shall be made at the times and in such amounts as if Employee were living to the persons specified in paragraph 7.a. h. For purposes of this section, an Employee's termination of employment is a retirement if so determined by the Committee under all the facts and circumstances. i. A non-competition agreement shall be reasonably acceptable to the Committee for purposes of this Section 5 if it has a value as of the Committee's action date, equal to at least five percent of the then-current value of the Employee's Account. Valuation shall be determined in all cases on the basis of an independent appraisal, unless such an appraisal is deemed unnecessary by both the Committee and the Employee. j. For purposes of this Plan, a Change in Control shall be deemed to have occurred if (i) any "person" as defined in sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of TCF Financial representing fifty percent (50%) or more of the combined voting power of TCF Financial's then outstanding securities. (For purposes of this clause (i), the term "beneficial owner" does not include any employee benefit plan maintained by TCF Financial that invests in TCF Financial's voting securities.); or (ii) during any period of two (2) consecutive years there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board or new directors whose nomination for election by the company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (iii) the shareholders of TCF Financial approve a merger or consolidation of TCF Financial with any other corporation, other than a merger or consolidation which would result in the voting securities of TCF Financial outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of TCF Financial or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of TCF Financial approve a plan of complete liquidation of TCF Financial or an agreement for the sale or disposition by TCF Financial of all or substantially all TCF Financial's assets; provided, however, that no Change in Control will be deemed to have occurred if such merger, consolidation, sale or disposition of assets, or liquidation is not subsequently consummated. The date of a Change in Control, for purposes of this Plan, is the date on which the Change in Control is consummated. k. Notwithstanding any other provision of this Section 5 or any payment schedule approved by the Committee pursuant to this Section 5 and regardless of 11 whether payments have commenced under this Section 5, in the event that the Internal Revenue Service should finally determine with respect to an Employee who has terminated employment with the Company that part or all of the value of the Employee's Deferred Amounts or Plan Account which have not actually been distributed to the Employee, or that part or all of a related Trust Account which has not actually been distributed to the Employee, is nevertheless required to be included in the Employee's gross income for federal and/or State income tax purposes, then the Deferred Amounts or the Account or the part thereof that was determined to be includible in gross income shall be distributed to the Employee in a lump sum as soon as practicable after such determination without any action or approval by the Committee. A "final determination" of the Internal Revenue Service for purposes of this paragraph 5.i. is a determination in writing by said Service ordering the payment of additional tax, reporting of additional gross income or otherwise requiring Plan amounts to be included in gross income, which is not appealable or which the Employee does not appeal within the time prescribed for appeals. 6. EMERGENCY PAYMENTS. In the event of an "unforeseeable emergency" as determined hereafter, the Committee may determine the amounts payable under paragraph 5 hereof and pay all or a part of such amounts without regard to the payment dates provided in paragraph 5 to the extent the Committee determines that such action is necessary in light of immediate and heavy needs of the Employee (or his beneficiary) occasioned by severe financial hardship. For the purposes of this paragraph 6, an "unforeseeable emergency" is a severe financial hardship to the Employee resulting from a sudden and unexpected illness or accident of the Employee or beneficiary, or of a dependent (as defined in Section 152(a) of the Internal Revenue Code of 1986, as amended) of the Employee or beneficiary, loss of the Employee's or beneficiary's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Employee or beneficiary. Payments shall not be made pursuant to this paragraph 6 to the extent that such hardship is or may be relieved: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Employee's or beneficiary's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of the Employee's deferrals under the Plan. Such action shall be taken only if Employee (or Employee's legal representatives or successors) signs an application describing fully the circumstances which are deemed to justify the payment, together with an estimate of the amounts necessary to prevent such hardship, which application shall be approved by the Committee after making such inquiries as the Committee deems necessary or appropriate. 7. METHOD OF PAYMENTS. a. In the event of Employee's death, payments shall be made to the persons (including a trustee or trustees) named in the last written instrument signed by Employee and received by the Committee prior to Employee's death, or if Employee fails to so name any person, the amounts shall be paid to Employee's estate or the 12 appropriate distributee thereof. The Committee, the Company, and the Trustee shall be fully protected in making any payments due hereunder in accordance with what the Committee believes to be such last written instrument received by it. b. Payments due to a legally incompetent person may be made in such of the following ways as the Committee shall determine: (i) directly to such incompetent person, (ii) to the legal representative of such incompetent person, or (iii) to some near relative of the incompetent person to be used for the latter's benefit. c. Except as otherwise provided in paragraphs 7.a. and b., all payments to persons entitled to benefits hereunder shall be made to such persons in person or upon their personal receipt or endorsement, and shall not be grantable, transferable, or otherwise assignable in anticipation of payment thereof, in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be pledged, encumbered, or otherwise liable or taken for any obligation of such person. d. All payments to persons entitled to benefits hereunder shall be made out of the general assets, and shall be the sole obligations, of the Employer(s) by which the Eligible Employee was employed, except to the extent that such payments are made out of the trust described in paragraph 4. 8. CLAIMS PROCEDURES. a. If a claim for benefits made by any person (the "Applicant") is denied, the Committee shall furnish to the Applicant within 90 days after its receipt of such claim (or within 180 days after such receipt if special circumstances require an extension of time) a written notice which: (i) specifies the reasons for the denial, (ii) refers to the pertinent provisions of the Plan on which the denial is based, (iii) describes any additional material or information necessary for the perfection of the claim and explains why such material or information is necessary, and (iv) explains the claim review procedures. b. Upon the written request of the Applicant submitted within 60 days after his receipt of such written notice, the Committee shall afford the Applicant a full and fair review of the decision denying the claim and, if so requested: (i) permit the Applicant to review any documents which are pertinent to the claim, (ii) permit the Applicant to submit to the Committee issues and comments in writing, and (iii) afford the Applicant an opportunity to meet with a quorum of the Committee as a part of the review procedure. 13 c. Within 60 days after its receipt of a request for review (or within 120 days after such receipt if special circumstances, such as the need to hold a hearing, require an extension of time) the Committee shall notify the Applicant in writing of its decision and the reasons for its decision and shall refer the Applicant to the provisions of the Plan which form the basis for its decision. 9. MISCELLANEOUS. a. Except as limited by paragraph 7.c. and except that an Employee shall have a continuing power to designate a new recipient in the event of Employee's death at any time prior to such death without the consent or approval of any person theretofore named as Employee's recipient by an instrument meeting the requirements of paragraph 7.a., this document shall be binding upon and inure to the benefit of each Company, the Employees, their legal representatives, successors and assigns, and all persons entitled to benefits hereunder. b. Any notice given in connection with this document shall be in writing and shall be delivered in person or by registered mail or overnight delivery service, return receipt requested. Any notice given by registered mail or overnight delivery service shall be deemed to have been given upon the date of delivery indicated on the return receipt, if correctly addressed. c. Nothing in this document shall interfere with the rights of any Employee to participate or share in any profit sharing or pension plan which is now in force or which may at some future time become a recognized plan of any Company. d. Nothing in this document shall be construed as an employment agreement nor as in any way impairing the right of any Company to terminate an Employee's employment at will. e.This Plan constitutes a mere promise by the Company to make benefit payments in the future, and it is intended to be unfunded for tax purposes and for the purposes of Title I of ERISA. The rights of an Employee or beneficiary to receive benefit payments hereunder are solely those of an unsecured general creditor of the Company. 10. INVESTMENT ELECTIONS BY EMPLOYEES; DEFERRED TCF STOCK AWARDS. a. Employees may elect to liquidate funds in their Deferred Compensation Accounts under Section 3 or 4 and reinvest them as directed, PROVIDED that any investment election shall be exercised in writing by the Employee and approved by the Committee or its approved representative under such terms and conditions as the Committee deems appropriate (Exhibit A to this Plan), and FURTHER PROVIDED, that on and after September 30, 1998 any investments in TCF Stock shall be subject to paragraph b of this section 10. 14 b. If an Employee directs or retains any investment in shares of TCF Stock on or after September 30, 1998, or defers an award of TCF Stock, the Employee's Account shall include a TCF Stock Account which shall operate as follows: (i) All shares of TCF Stock allocated to the Employee's Account on September 30, 1998 (excluding any shares held unvested pursuant to paragraph c of this section) shall be allocated on that date to the Employee's TCF Stock Account and the fixed number of shares so allocated shall be the beginning balance of the TCF Stock Account. (ii) Thereafter, the TCF Stock Account shall be increased by the number of shares, if any, of TCF Stock purchased (or deemed to be purchased) from Deferred Amounts or from dividends (other than nondeferred dividends) and/or interest pursuant to the Employee's directions under Section 3 of this Plan and by any shares of TCF Stock becoming vested, as provided in paragraph c of this section. (iii) The balance of shares of the TCF Stock Account shall in no event be decreased. (iv) Shares allocated to the Employee's TCF Stock Account shall be subject to all of the restrictions and other provisions of this Committee's action dated 8-24-98 establishing separate accounts for TCF Stock as compared to non-TCF Stock assets. c. Deferred Amounts consisting of TCF Stock awards shall be held unallocated until such time as the shares vest in accordance with the terms of the award agreement. As of the date any such shares become vested, the number of shares vesting shall be allocated to the Employee's Account and shall thereafter become subject to distribution the same as any other shares of TCF Stock in the TCF Stock account. Any cash dividends paid on unvested shares of TCF Stock, if such dividends have been deferred by the Employee, shall be allocated to the Employee's account and invested as directed by the Employee. Any stock dividends paid on unvested shares of TCF Stock, if such dividends have been deferred by the Employee, shall be allocated to the Employees' TCF Stock account and increase the TCF Stock account balance unless such dividends are in the nature of a stock split, in which case they shall be held unallocated until such time as the award vests. 11 . TERMINATION OR AMENDMENT. This Plan may be amended at any time and from time to time, upon the approval of the Board of Directors of TCF Financial; PROVIDED, that, if the amendment is adopted prior to a change in control (as defined in section 5(j) hereof), no such amendment shall (without the consent of all participants, including any terminated participants and beneficiaries then receiving distributions) alter any participant's or beneficiary's right to payments of amounts previously credited to such participant's or beneficiary's Account or delay the time or times at which a participant or beneficiary is entitled to receive payments with respect to the participant's Deferred Amounts under the Plan. If the amendment is adopted after a change in control, as defined in section 5(j) hereof, the approval of the Board of Directors and the consent of all participants, terminated participants and beneficiaries shall be required for the 15 amendment. In the event that all of the Plan's participants and beneficiaries do not consent to a proposed amendment, such amendment shall not take effect but the Plan Accounts of the consenting participants shall be transferred to a separate plan that is identical to this Plan in all respects, except that it may include the proposed amendment. The Board of Directors may terminate this Plan in its discretion, except that any such termination shall require the consent of all participants (including any terminated participants and beneficiaries then receiving distributions), unless it is an automatic termination of the Plan under section 5(k) hereof. 16 EXHIBIT A (Action of 16b-3 Sub-Committee of the Personnel Committee Establishing TCF Stock Accounts and Diversified Accounts effective as of September 30, 1998 and as amended effective as of January 1, 2000) 1. Effective as of September 30, 1998 (the "Effective Date"), each participant's Account in the Plan and Trust (if the Trustee is maintaining separate accounts) shall be divided into two sub-accounts: a "TCF Stock Account" and a "Diversified Account". All shares of common stock of TCF Financial ("TCF Stock") in a participant's Account on the Effective Date shall be allocated as of that Date to the Participant's TCF Stock Account. All other investments in a participant's Account on the Effective Date shall be allocated as of that Date to the participant's Diversified Account. Thereafter, the Sub-Accounts shall operate as follows: a. The TCF Stock Account shall consist solely of shares of TCF Stock (and cash or cash equivalent money market funds for fractional shares or for funds held temporarily prior to investment). The Diversified Account shall not at any time include any shares of TCF Stock. Except as permitted by paragraph e, below, no transfer of assets will be permitted from the TCF Stock Account to the Diversified Account or from the Diversified Account to the TCF Stock Account. b. A participant's TCF Stock Account shall hold all shares of TCF Stock allocated to it on or after the Effective Date and such shares shall not be subject to sale, transfer, assignment, pledge or other hypothecation in any manner. Upon the occurrence of a Distribution Event (as defined in the Plans) the shares will be distributed from the Plan and Trust to the participant in an in-kind distribution pursuant to the terms of the Plan. c. The Diversified Account shall not at any time purchase or invest in any shares of TCF Stock, but shall invest in such investments as the participant directs and as the Committee permits from time to time. d. Any new Deferred Amounts for a participant after the Effective Date shall be allocated to either the participant's TCF Stock Account or to such participant's Diversified Account, as the participant shall direct in an irrevocable election filed before the beginning of each calendar year and applicable throughout the calendar year. The Deferred Amounts shall be credited to the applicable sub-Account as of the same date that they are otherwise credited to the participant's Account under Section 3.a. of the Plans and Section 4.2 of the Trusts. e. Dividends generated by a participant's TCF Stock Account and which are deferred shall be reinvested in the TCF Stock Account, or in the Diversified Account, as the participant directs in an irrevocable election filed before the beginning of each calendar year and applicable throughout the calendar year. Any interest or dividends generated by a participant's Diversified Account shall be reinvested in the Diversified Account, or in the participant's TCF Stock 17 Account, as the participant directs in an irrevocable election filed before the beginning of each calendar year and applicable throughout the calendar year, unless management determines that the reinvestment of interest and dividends within or from the Diversified Account is not administratively feasible. If the participant does not file an election with respect to the investment of interest and/or dividends, all interest and dividends shall be reinvested in the asset that generated them. 18 EX-10.W 6 EXHIBIT 10.W Exhibit 10 (w) AMENDMENT TO EMPLOYMENT AGREEMENT AND RESTRICTED STOCK AWARD AGREEMENTS This Amendment is made and entered into effective as of the 31st day of March, 1999, by and between David H. Mackiewich ("Executive") and TCF National Bank Illinois ("TCF Illinois") and TCF Financial Corporation ("TCF Financial") (TCF Illinois and TCF Financial are jointly referred to herein as "TCF"). WHEREAS, Executive and TCF are parties to an Employment Agreement dated September 3, 1997 and amended as of August 18, 1998 (the "Employment Agreement") providing in general for Executive's employment as Executive Chairman of TCF Illinois through January 2, 2002; and WHEREAS, Executive and TCF Financial are parties to Restricted Stock Agreement No. 44, as amended effective January 19, 1998 ("RS No. 44") under which 6,667 shares were earned through December 31, 1997 and to Restricted Stock Agreement No. 91, as amended July 1, 1998 ("RS No. 91") under which 22,500 shares have been earned through December 31, 1998; and WHEREAS, TCF Financial has requested that Executive resign as a member of the board of directors of TCF Financial and Executive is willing to do so and is tendering his resignation in connection with the signing of this Amendment; and WHEREAS, Executive wishes to resign from the board of directors of TCF Illinois; and WHEREAS, the parties wish to amend the Employment Agreement, RS No. 44 and RS No. 91 to provide for full vesting and distribution on May 13, 1999 to Executive of 44,583 shares (the 6,667 shares already earned under RS No. 44 plus 22,500 shares already earned under RS No. 91 plus 50% of the 30,833 remaining unearned shares under RS No. 91) and for vesting on January 1, 2000 of the remaining 15,417 shares, with such shares being held in escrow until such date. NOW THEREFORE, the parties hereby amend their prior agreements as follows: AMENDMENT TO EMPLOYMENT AGREEMENT Notwithstanding anything to the contrary in the Employment Agreement, such Agreement is hereby amended to eliminate any references to restricted stock vesting on January 1, 2002 , it being the intention that the parties' agreement herein as to Executive's stock awards supersedes in all respects such previous provisions relating to that stock award. Executive hereby affirms that upon receiving the shares provided for in this Amendment he will have received all shares due to him from TCF under his restricted stock awards. Sec. 3.1 (Time Devoted, Duties) is amended at the request of Executive to provide that effective March 31, 1999 Executive resigns from the board of TCF Illinois and he shall no longer be required to serve on such board or to preside over or attend board meetings of TCF Illinois. Sec 4.3 (Additional Compensation) is amended to provide that TCF will immediately transfer to Executive and release all of its interest in the Alexander Hamilton split dollar insurance policy. Sec. 5.2, the last sentence, is amended to read as follows: Executive also has a grant of restricted stock in the amount of 60,000 shares (the "Restricted Stock Grant"), of which 44,583 shares will vest on May 13, 1999 and the remaining 15,416 shares will vest on January 1, 2000 pursuant to the terms of RS No. 44 and RS No. 91 as amended herein and the vesting of the 15,416 shares will be subject only to one of the following conditions being met: (1) That Executive is still employed by TCF on that date; (2) That Executive terminated his employment with TCF for good reason (as defined in this Agreement); (3) That TCF terminated Executive's employment; or (4) That Executive's employment was terminated by reason of Executive's death or disability. In the case of conditions (2), (3) or (4), the vesting date shall be the date of termination of employment rather than January 1, 2000. In all other respects, including but not limited to Executive's title as Executive Chairman, the Employment Agreement remains in full force and effect. Executive by his signature below affirms and acknowledges that the changes to his Employment Agreement being made at this time do not constitute "good reason" for him to terminate his employment under the Agreement. AMENDMENT TO RS NO. 44 Notwithstanding anything to the contrary in RS No. 44, the 6,667 shares subject to RS No. 44 shall be fully vested, shall not be subject to any restrictions and shall be distributed to Executive (net of withholding, unless Executive pays withholding separately) on or before May 13, 1999 and upon Executive's receipt of such shares RS No. 44 shall terminate and shall be of no further effect. AMENDMENT TO RS NO. 91 Notwithstanding anything to the contrary in RS No. 91, 37,916 of the shares subject to RS No. 91 shall be fully vested, shall not be subject to any restrictions, and shall be distributed to Executive (net of withholding, unless Executive pays withholding separately) on or before May 13th, 1999. Subject only to one of the following conditions being met: (1) That Executive is still employed by TCF on that date; (2) That Executive terminated his employment with TCF for good reason (as defined in this Agreement); (3) That TCF terminated Executive's employment; or (4) That Executive's employment was terminated by reason of Executive's death or disability, the remaining 15,417 shares under RS No. 91 shall be delivered to Executive on January 2, 2000 (net of withholding, unless Executive pays withholding separately) or, if earlier, on the date of such termination of employment. Upon Executive's receipt of all such shares, RS No. 91 shall terminate and shall be of no further effect. RESIGNATION FROM TCF FINANCIAL BOARD Executive, by his signature below, hereby resigns from the board of directors of TCF Financial effective February 1st, 1999. WHEREFORE the parties have caused this Agreement to be executed effective as of the 31st day of March, 1999. By:/s/ David H. Mackiewich -------------------------------- David H. Mackiewich TCF NATIONAL BANK ILLINOIS TCF FINANCIAL CORPORATION By:/s/ C. H. Westbrook By:/s/ Gregory J. Pulles --------------------------------- --------------------------------- Title: Executive Vice President Title: Vice Chairman ------------------------------ ------------------------------ EX-11 7 EXHIBIT 11 Exhibit 11 - Computation of Earnings Per Common Share TCF FINANCIAL CORPORATION AND SUBSIDIARIES Computation of Earnings Per Common Share (Dollars in thousands, except per-share data)
Computation of Basic Earnings Per Common Share for Statements of Operations: Year Ended December 31, - ----------------------------------------------------------------------- ------------------------------------------- 1999 1998 1997 ----------- ----------- ------------ Net income $ 166,039 $ 156,179 $ 145,061 =========== =========== ============ Weighted average common shares outstanding 82,445,288 88,092,895 84,477,536 =========== =========== ============ Basic earnings per common share $ 2.01 $ 1.77 $ 1.72 =========== =========== ============ Computation of Diluted Earnings Per Common Share for Statements of Operations: - ------------------------------------------------------------------------- Net income $ 166,039 $ 156,179 $ 145,061 Add: Interest expense on 7 1/4% convertible subordinated debentures, net of tax - - 132 ------------ ------------ ------------ Income applicable to common shareholders including effect of dilutive securities $ 166,039 $ 156,179 $ 145,193 ============ ============ ============ 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 82,445,288 88,092,895 84,477,536 Net dilutive effect of: Stock option plans 172,486 346,434 468,275 Restricted stock plans 452,944 476,486 838,189 Assumed conversion of 7 1/4% convertible subordinated debentures - - 349,936 ------------ ------------ ------------- 83,070,718 88,915,815 86,133,936 ============ ============ ============= Diluted earnings per common share $ 2.00 $ 1.76 $ 1.69 ============ ============ =============
EX-13 8 EXHIBIT 13 TCF FINANCIAL CORPORATION AND SUBSIDIARIES FINANCIAL REVIEW FINANCIAL REVIEW The financial review presents management's discussion and analysis of the consolidated financial condition and results of operations of TCF Financial Corporation ("TCF" or the "Company"). This review should be read in conjunction with the consolidated financial statements and other financial data beginning on page 34. RESULTS OF OPERATIONS PERFORMANCE SUMMARY - TCF reported net income of $166 million for 1999, up from $156.2 million for 1998 and $145.1 million for 1997. Diluted earnings per common share was $2.00 for 1999, compared with $1.76 for 1998 and $1.69 for 1997. Return on average assets was 1.61% in 1999, compared with 1.62% in 1998 and 1.77% in 1997. Return on average realized common equity was 19.83% in 1999, compared with 17.51% in 1998 and 19.57% in 1997. Diluted cash earnings per common share, which excludes amortization and reduction of goodwill net of income tax benefits, was $2.10 for 1999, compared with $1.88 for 1998 and $1.73 for 1997. On the same basis, cash return on average assets was 1.69% for 1999, compared with 1.74% for 1998 and 1.82% for 1997, and cash return on average realized equity was 20.79% for 1999, compared with 18.74% for 1998 and 20.10% for 1997. As TCF's September 4, 1997 acquisition of Standard Financial, Inc. ("Standard") was accounted for as a purchase transaction, TCF's results for periods prior to the acquisition have not been restated. Since Standard's performance ratios were lower than TCF's, the Company's performance ratios since 1997 have been negatively impacted by the acquisition of Standard. TCF has significantly expanded its retail banking franchise in recent periods and had 338 retail banking branches at December 31, 1999. In the past three years, TCF opened 164 new branches, of which 151 were supermarket branches. This expansion includes TCF's January 1998 acquisition of 76 branches and 178 automated teller machines ("ATMs") in Jewel-Osco stores in the Chicago area previously operated by Bank of America. TCF anticipates opening approximately 37 new branches in 2000, and additional branches in subsequent years, including approximately 25 Illinois Jewel-Osco supermarket branches per year in subsequent years until branches have been installed in certain existing and all newly constructed stores. Further detail on acquisitions is provided in Note 2 of Notes to Consolidated Financial Statements. In December 1998, TCF restructured its consumer finance company operations, including the discontinuation of indirect automobile lending, the consolidation of offices and a renewed focus on home equity lending. During 1999, $139.4 million of consumer finance automobile loans and $14.8 million of related allowances were transferred to loans held for sale in connection with the sales of these loans. Losses of $1.4 million were recognized in connection with these sales, which are included in gain on sales of loans held for sale. TCF also closed its Florida consumer finance loan collections facility during 1999. In the 1998 fourth quarter, TCF recorded a pretax charge of $1.8 million for the reorganization of its consumer finance company operations, and increased the provision for credit losses by $3.9 million from the 1997 fourth quarter primarily in connection with the finance company automobile loan portfolio. TCF's 1997 results reflect a branch reorganization at Great Lakes National Bank Michigan ("Great Lakes Michigan"), including the sale of all eight Ohio branches and related deposits for a net gain of $10.6 million, the accelerated amortization of Great Lakes Michigan's remaining $8.7 million of deposit base intangibles, and the write-off of $1.5 million of Great Lakes Michigan's teller equipment. NET INTEREST INCOME - A significant component of TCF's earnings is net interest income, which is the difference between interest earned on loans and leases, securities available for sale, investments and other interest-earning assets (interest income), and interest paid on deposits and borrowings (interest expense). This amount, when divided by average interest-earning assets, is referred to as the net interest margin, expressed as a percentage. Net interest income and net interest margin are affected by changes in interest rates, loan pricing strategies and competitive conditions, the volume and the mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. Net interest income was $424.2 million for the year ended December 31, 1999, compared with $425.7 million in 1998 and $393.6 million in 1997. This represents a decrease of .4% in 1999, compared with increases of 8.2% in 1998 and 11% in 1997. Total average interest-earning assets increased 7.9% in 1999, following increases of 16.2% in 1998 and 12.5% in 1997. The net interest margin for 1999 was 4.47%, compared with 4.84% in 1998 and 5.20% in 1997. TCF's 1999 net interest income and net interest margin were negatively impacted, as compared with 1998, by $17.4 million or 11 basis points due to the discontinuation and sale of TCF's higher-yielding consumer finance automobile business. 17 The following table presents TCF's average balance sheets, interest and dividends earned or paid, and the related yields and rates on major categories of TCF's interest-earning assets and interest-bearing liabilities:
Year ended December 31, 1999 Year ended December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------- INTEREST AVERAGE YIELDS Average (Dollars in thousands) BALANCE INTEREST(1) AND RATES Balance Interest(1) - ------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments .............................................. $ 142,494 $ 9,411 6.60% $ 161,239 $ 10,356 ------------------------------------------------------------ Securities available for sale(2) ......................... 1,689,257 111,032 6.57 1,359,698 93,124 ---------------------- ----------------------- Loans held for sale ...................................... 199,073 13,367 6.71 197,969 14,072 ---------------------- ----------------------- Loans and leases: Residential real estate .......................... 3,808,062 266,653 7.00 3,687,579 267,916 Commercial real estate ........................... 933,227 78,033 8.36 831,287 73,546 Commercial business .............................. 341,378 27,425 8.03 263,257 22,169 Consumer ......................................... 1,971,069 199,103 10.10 1,922,943 218,837 Lease financing .................................. 410,245 47,077 11.48 378,824 48,874 ---------------------- ----------------------- Total loans and leases(3) ................ 7,463,981 618,291 8.28 7,083,890 631,342 ---------------------- ----------------------- Total interest-earning assets .... 9,494,805 752,101 7.92 8,802,796 748,894 ----------------- ------- Other assets(4) .......................................... 798,494 826,741 ---------- ---------- Total assets ..................................... $10,293,299 $ 9,629,537 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY: Non-interest bearing deposits ............................ $ 1,177,723 $ 1,017,245 ---------- ---------- Interest-bearing deposits: Checking ......................................... 711,440 4,043 .57 666,956 6,207 Passbook and statement ........................... 1,111,104 12,435 1.12 1,130,067 18,305 Money market ..................................... 728,522 19,074 2.62 700,400 20,496 Certificates ..................................... 2,888,968 139,943 4.84 3,249,742 167,484 ----------------------- ------------------------ Total interest-bearing deposits ......... 5,440,034 175,495 3.23 5,747,165 212,492 ----------------------- ------------------------ Total deposits ................... 6,617,757 175,495 2.65 6,764,410 212,492 ----------------------- ------------------------ Borrowings: Securities sold under repurchase agreements and federal funds purchased .................. 529,359 28,610 5.40 140,414 7,863 FHLB advances .................................... 1,821,172 100,454 5.52 1,367,104 79,237 Discounted lease rentals ......................... 171,997 13,830 8.04 205,393 16,744 Other borrowings ................................. 151,430 9,499 6.27 92,467 6,824 ----------------------- ------------------------ Total borrowings ......................... 2,673,958 152,393 5.70 1,805,378 110,668 ----------------------- ------------------------ Total interest-bearing liabilities .............. 8,113,992 327,888 4.04 7,552,543 323,160 ----------------- --------- Other liabilities(4) ..................................... 185,393 159,292 ---------- ---------- Total liabilities ................................ 9,477,108 8,729,080 Stockholders' equity(4) .................................. 816,191 900,457 ---------- ---------- Total liabilities and stockholders' equity ..................... $10,293,299 $9,629,537 ---------- ---------- Net interest income ...................................... $ 424,213 $ 425,734 ------- ------- Net interest-rate spread ................................. 3.88% ----- Net interest margin ...................................... 4.47% - ------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 - ------------------------------------------------------------------------------------------------------------------ Interest Interest Yields Average Yields (Dollars in thousands) and Rates Balance Interest(1) and Rates - ------------------------------------------------------------------------------------------------------------------ ASSETS: Investments .............................................. 6.42% $ 96,146 $ 7,192 7.48% ------------------------------------------------------- Securities available for sale(2) ......................... 6.85 1,338,295 95,701 7.15 ------------------------- Loans held for sale ...................................... 7.11 211,192 15,755 7.46 ------------------------- Loans and leases: Residential real estate .......................... 7.27 2,674,107 206,853 7.74 Commercial real estate ........................... 8.85 856,712 77,829 9.08 Commercial business .............................. 8.42 205,402 18,068 8.80 Consumer ......................................... 11.38 1,856,299 221,758 11.95 Lease financing .................................. 12.90 335,534 39,458 11.76 ------------------------- Total loans and leases(3) ................ 8.91 5,928,054 563,966 9.51 ------------------------- Total interest-earning assets .... 8.51 7,573,687 682,614 9.01 ------ ---------------------- Other assets(4) .......................................... 600,083 --------- Total assets ..................................... $ 8,173,770 --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Non-interest bearing deposits ............................ $ 782,836 --------- Interest-bearing deposits: Checking ......................................... .93 551,501 6,133 1.11 Passbook and statement ........................... 1.62 901,576 17,653 1.96 Money market ..................................... 2.93 658,894 20,533 3.12 Certificates ..................................... 5.15 2,868,833 150,863 5.26 -------------------------- Total interest-bearing deposits ......... 3.70 4,980,804 195,182 3.92 -------------------------- Total deposits ................... 3.14 5,763,640 195,182 3.39 -------------------------- Borrowings: Securities sold under repurchase agreements and federal funds purchased .................. 5.60 346,339 19,892 5.74 FHLB advances .................................... 5.80 817,464 48,142 5.89 Discounted lease rentals ......................... 8.15 222,558 18,430 8.28 Other borrowings ................................. 7.38 97,547 7,372 7.56 -------------------------- Total borrowings ......................... 6.13 1,483,908 93,836 6.32 -------------------------- Total interest-bearing liabilities .............. 4.28 6,464,712 289,018 4.47 ------ ---------------------- Other liabilities(4) ..................................... 180,585 --------- Total liabilities ................................ 7,428,133 Stockholders' equity(4) .................................. 745,637 --------- Total liabilities and stockholders' equity ..................... $ 8,173,770 --------- Net interest income ...................................... $ 393,596 ------- Net interest-rate spread ................................. 4.23% 4.54% ----- ----- Net interest margin ...................................... 4.84% 5.20% - ---------------------------------------------------------------------------------------------------------------
(1) Tax-exempt income was not significant and thus has not been presented on a tax equivalent basis. Tax-exempt income of $189,000, $147,000 and $201,000 was recognized during the years ended December 31, 1999, 1998 and 1997, respectively. (2) Average balance and yield of securities available for sale is based upon the historical amortized cost. (3) Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income. (4) Average balance is based upon month-end balances. 18 The following table presents the components of the changes in net interest income by volume and rate:
YEAR ENDED DECEMBER 31, 1999 Year Ended December 31, 1998 VERSUS SAME PERIOD In 1998 Versus Same Period in 1997 - ----------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) DUE TO Increase (Decrease) Due to - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) VOLUME(1) RATE(1) TOTAL Volume(1) Rate(1) Total - ----------------------------------------------------------------------------------------------------------------------------------- Investments ..................................... $ (1,229) $ 284 $ (945) $ 4,302 $ (1,138) $ 3,164 ----------------------------------------------------------------------------- Securities available for sale ................... 21,839 (3,931) 17,908 1,505 (4,082) (2,577) ----------------------------------------------------------------------------- Loans held for sale ............................. 79 (784) (705) (962) (721) (1,683) ----------------------------------------------------------------------------- Loans and leases: Residential real estate ................. 8,728 (9,991) (1,263) 74,296 (13,233) 61,063 Commercial real estate .................. 8,704 (4,217) 4,487 (2,311) (1,972) (4,283) Commercial business ..................... 6,323 (1,067) 5,256 4,910 (809) 4,101 Consumer direct ......................... 20,619 (13,067) 7,552 10,482 (4,885) 5,597 Consumer finance automobile ............. (23,019) (4,267) (27,286) (5,228) (3,290) (8,518) Lease financing ......................... 3,851 (5,648) (1,797) 5,376 4,040 9,416 ----------------------------------------------------------------------------- Total loans and leases .......... 25,206 (38,257) (13,051) 87,525 (20,149) 67,376 ----------------------------------------------------------------------------- Total interest income ... 45,895 (42,688) 3,207 92,370 (26,090) 66,280 ----------------------------------------------------------------------------- Deposits: Checking ................................ 388 (2,552) (2,164) 1,161 (1,087) 74 Passbook and statement .................. (303) (5,567) (5,870) 4,026 (3,374) 652 Money market ............................ 803 (2,225) (1,422) 1,254 (1,291) (37) Certificates ............................ (17,858) (9,683) (27,541) 19,812 (3,191) 16,621 ----------------------------------------------------------------------------- Total deposits .................. (16,970) (20,027) (36,997) 26,253 (8,943) 17,310 ----------------------------------------------------------------------------- Borrowings: Securities sold under repurchase agreements and federal funds purchased ................. 21,038 (291) 20,747 (11,555) (474) (12,029) FHLB advances ........................... 25,209 (3,992) 21,217 31,843 (748) 31,095 Discounted lease rentals ................ (2,691) (223) (2,914) (1,401) (285) (1,686) Other borrowings ........................ 3,825 (1,150) 2,675 (376) (172) (548) ----------------------------------------------------------------------------- Total borrowings ................ 47,381 (5,656) 41,725 18,511 (1,679) 16,832 ----------------------------------------------------------------------------- Total interest expense .. 30,411 (25,683) 4,728 44,764 (10,622) 34,142 ----------------------------------------------------------------------------- Net interest income ............................. $ 15,484 $(17,005) $ (1,521) $ 47,606 $ (15,468) $ 32,138 - -----------------------------------------------------------------------------------------------------------------------------------
(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. In 1999, TCF's net interest income decreased $1.5 million, or .4%, and total average interest-earning assets increased by $692 million, or 7.9%, compared with 1998 levels. TCF's net interest income improved by $15.5 million due to volume changes and decreased $17 million due to rate changes. The unfavorable impact of the discontinuation of TCF's consumer finance automobile business, decreased yields on loans and leases resulting, in part, from the implementation of new tiered pricing for home equity loans in early 1999, and increased borrowing volumes was partially offset by increased securities available for sale and loan and lease volumes, decreased rates paid on interest-bearing liabilities and decreased certificate of deposit volumes. TCF's net interest margin for the fourth quarter of 1999 was 4.38%, compared with 4.46% for the third quarter of 1999 and 4.65% for the fourth quarter of 1998. As previously noted, TCF's net interest margin for 1999 was negatively impacted by the discontinuation of TCF's higher-yielding consumer finance automobile business. Interest income increased $3.2 million in 1999, reflecting an increase of $45.9 million due to volume, partially offset by a decrease of $42.7 million due to rate changes. Interest expense increased $4.7 million in 1999, reflecting an increase of $30.4 million due to volume, partially offset by a decrease of $25.7 million due to a lower cost of funds. The increase in net interest income due to volume reflects the increase in total average interest-earning assets. The decrease in net interest income due to rate changes reflects loan prepayments and the discontinuation of TCF's higher-yielding consumer finance business. Changes in net interest income are dependent upon the movement of interest rates, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. 19 Achieving net interest margin growth is dependent on TCF's ability to generate higher-yielding assets and lower-cost retail deposits. If variable index rates (e.g., prime) were to decline, TCF may experience additional compression of its net interest margin depending on the timing and amount of any reductions, as it is possible that interest rates paid on retail deposits will not decline as quickly, or to the same extent, as the decline in the yield on interest-rate-sensitive assets such as home equity loans. Competition for checking, savings and money market deposits, important sources of lower cost funds for TCF, is intense. TCF may also experience compression in its net interest margin if the rates paid on deposits increase, or as a result of new pricing strategies and lower rates offered on loan products in order to respond to competitive conditions. See "Financial Condition - Market Risk - Interest-Rate Risk" and "Financial Condition - Deposits." In 1998, TCF's net interest income increased primarily due to the acquisition of Standard and the growth of lower interest-cost retail deposits. Net interest income increased $32.1 million, or 8.2%, and total average interest-earning assets increased by $1.2 billion, or 16.2%, from 1997 levels. TCF's net interest income improved by $47.6 million due to volume changes and decreased $15.5 million due to rate changes. The favorable impact of the growth in residential real estate, consumer and commercial business loan and lease financing volumes, decreased volumes of securities sold under repurchase agreements and federal funds purchased and decreased rates paid on interest-bearing liabilities was partially offset by decreased yields on securities available for sale and consumer and residential real estate loans, and increased certificate of deposit and Federal Home Loan Bank ("FHLB") advance volumes. TCF's net interest margin for 1998 was negatively impacted by Standard's lower net interest margin, loan prepayments and purchases of mortgage-backed securities. Interest income increased $66.3 million in 1998, reflecting an increase of $92.4 million due to volume, partially offset by a decrease of $26.1 million due to rate changes. Interest expense increased $34.1 million in 1998, reflecting an increase of $44.8 million due to volume, partially offset by a decrease of $10.6 million due to a lower cost of funds. The increase in net interest income due to volume was primarily due to the acquisition of Standard. The decrease in net interest income due to rate changes reflects the impact of Standard's lower net interest margin, and loan prepayments, partially offset by TCF's changing asset/liability mix, with greater emphasis on higher-yielding consumer loans and lease financings. In 1997, TCF's net interest income increased primarily due to the acquisition of Standard, the growth of higher-yielding consumer loans, commercial business loans, lease financings and lower interest-cost retail deposits, and increased capital. Net interest income increased $39 million, or 11%, and total average interest-earning assets increased by $839.9 million, or 12.5%, from 1996 levels. TCF's net interest income improved by $47.2 million due to volume changes and decreased $8.2 million due to rate changes. The favorable impact of the growth in consumer loan, securities available for sale, residential real estate loan and lease financing volumes was partially offset by decreased yields on consumer and residential real estate loans, decreased volumes in commercial real estate loans, and increased certificate of deposit volumes. Interest income increased $69.7 million in 1997, reflecting an increase of $75.5 million due to volume, partially offset by a decrease of $5.7 million due to rate changes. Interest expense increased $30.7 million in 1997, primarily due to the acquisition of Standard, reflecting increases of $28.3 million due to volume and $2.4 million due to a higher cost of funds. The decrease in net interest income due to rate changes reflects the acquisition of Standard, partially offset by TCF's changing asset/liability mix. PROVISION FOR CREDIT LOSSES - TCF provided $16.9 million for credit losses in 1999, compared with $23.3 million in 1998 and $18 million in 1997. The decreased provision in 1999 reflects the significant provisions recognized in 1998 related to TCF's discontinued consumer finance automobile loan portfolio. The allowance for loan and lease losses totaled $55.8 million at December 31, 1999, compared with $80 million at December 31, 1998, and was 232% of non-accrual loans and leases. See "Financial Condition - Allowance for Loan and Lease Losses." NON-INTEREST INCOME - Non-interest income is a significant source of revenues for TCF and an important factor in TCF's results of operations. Providing a wide range of retail banking services is an integral component of TCF's business philosophy and a major strategy for generating additional non-interest income. Excluding gains on sales of securities available for sale, loan servicing, branches, subsidiaries and a joint venture interest, non-interest income increased $32 million, or 12.2%, during 1999 to $294.6 million. The increase was primarily due to increased fee and service charge revenues and electronic funds transfer revenues, partially offset by decreases in leasing and title insurance revenues, and reflects TCF's expanded retail banking activities. The increases in fee and service charge revenues and electronic funds transfer revenues reflect the increase in the number of retail checking accounts, which totaled 1,044,000 accounts at December 31, 1999, up from 913,000 at December 31, 1998. The average annual fee revenue per retail checking account was $168 for 1999, compared with $143 for 1998. 20 The following table presents the components of non-interest income:
Percentage Year Ended December 31, Increase (Decrease) - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 1999/98 1998/97 - ----------------------------------------------------------------------------------------------------------------------------------- Fee and service charge revenues .................. $ 151,988 $ 127,952 $ 101,329 18.8% 26.3% Electronic funds transfer revenues ............... 67,129 50,556 30,808 32.8 64.1 Leasing revenues ................................. 28,505 31,344 32,025 (9.1) (2.1) Title insurance revenues ......................... 15,421 20,161 13,730 (23.5) 46.8 Commissions on sales of annuities ................ 8,797 8,413 7,894 4.6 6.6 Commissions on sales of mutual funds ............. 6,052 5,513 3,998 9.8 37.9 Gain on sales of loans held for sale ............. 4,747 7,575 4,777 (37.3) 58.6 Other ............................................ 12,008 11,156 7,789 7.6 43.2 -------------------------------------- 294,647 262,670 202,350 12.2 29.8 -------------------------------------- Gain on sales of securities available for sale ... 3,194 2,246 8,509 42.2 (73.6) Gain on sales of loan servicing .................. 3,076 2,414 1,622 27.4 48.8 Gain on sales of branches ........................ 12,160 18,585 14,187 (34.6) 31.0 Gain on sale of subsidiaries ..................... 5,522 - - 100.0 - Gain on sale of joint venture interest ........... - 5,580 - (100.0) 100.0 -------------------------------------- 23,952 28,825 24,318 (16.9) 18.5 -------------------------------------- Total non-interest income ........ $ 318,599 $ 291,495 $ 226,668 9.3 28.6 - -----------------------------------------------------------------------------------------------------------------------------------
Fee and service charge revenues increased $24 million in 1999, or 18.8%, and $26.6 million in 1998, or 26.3%, primarily as a result of expanded retail banking activities. These increases reflect the increase in the number of retail checking accounts and per account revenues noted above. Included in fee and service charge revenues are fees of $10.3 million, $13.7 million and $14.6 million received for the servicing of loans owned by others during 1999, 1998 and 1997, respectively. At December 31, 1999, 1998 and 1997, TCF was servicing real estate loans for others with aggregate unpaid principal balances of $2.9 billion, $3.7 billion and $4.4 billion, respectively. Electronic funds transfer revenues increased $16.6 million, or 32.8%, in 1999 and $19.7 million, or 64.1%, in 1998. These increases reflect TCF's efforts to provide banking services through its ATM network. TCF had 1,406 ATMs at December 31, 1999. As previously noted, in January 1998, TCF acquired 178 ATMs in connection with its acquisition of 76 branches in Jewel-Osco stores. Electronic funds transfer revenues in future periods may be negatively impacted by pending city and state legislative proposals which, if enacted and not judicially restrained, could limit ATM fees. Included in electronic funds transfer revenues are debit card interchange fees of $19.5 million, $11.1 million and $3.7 million for 1999, 1998 and 1997, respectively. The significant increase in these fees reflects an increase in the distribution of debit cards, and a significant increase in their utilization by TCF's customers. TCF initiated its debit card program at the end of 1996. TCF had 929,000 debit cards outstanding at December 31, 1999, up from 774,000 at December 31, 1998. Leasing revenues decreased $2.8 million in 1999 to $28.5 million, following a decrease of $681,000 in 1998 to $31.3 million. The year-to-year fluctuations in leasing revenues and the allocation between types of leasing revenues result primarily from the manner and timing in which leasing revenues are recognized over the term of each particular lease. The allocation of revenues is a function of the lease classification as determined in accordance with generally accepted accounting principles. In addition, the volume and type of new lease transactions and the resulting revenues may fluctuate from period to period based upon factors not within the control of TCF, such as economic conditions. TCF's ability to grow its lease portfolio is dependent upon its ability to place new equipment in service. In an adverse economic environment, there may be a decline in the demand for some types of equipment which TCF leases, resulting in a decline in the amount of new equipment being placed into service. Title insurance revenues decreased $4.7 million in 1999, to $15.4 million, following an increase of $6.4 million in 1998 to $20.2 million. Title insurance revenues are cyclical in nature and are largely dependent on the levels of residential real estate loan originations and refinancings. During the 1999 fourth quarter, TCF sold its title insurance and appraisal operations and recognized a gain of $5.5 million on the sale, and will recognize an additional gain of up to $15 million over the next five years. The amount of the deferred gain to be recognized in each year will be dependent upon these operations continuing to realize a specified level of use by TCF customers, and will be 21 in direct proportion to the actual level of use realized when compared to the specified level. Title insurance revenues will no longer be recognized by TCF as a result of its sale of these operations. Commissions on sales of annuities increased $384,000 to $8.8 million in 1999, following an increase of $519,000 to $8.4 million in 1998. Commissions on sales of mutual funds increased $539,000 to $6.1 million in 1999, following an increase of $1.5 million to $5.5 million in 1998. Sales of annuities and mutual funds may fluctuate from period to period, and future sales levels will depend upon general economic conditions and investor preferences. Sales of annuities will also depend upon continued favorable tax treatment and may be negatively impacted by the interest rate environment. Gains on sales of loans held for sale decreased $2.8 million in 1999, following an increase of $2.8 million in 1998. During 1999, TCF recognized losses of $1.4 million on sales of $139.4 million of its consumer finance automobile loan portfolio. See "Financial Condition - Loans Held for Sale" and "Financial Condition - Loans and Leases." Gains or losses on sales of loans held for sale may fluctuate significantly from period to period due to changes in interest rates and volumes, and results in any period related to these transactions may not be indicative of results which will be obtained in future periods. Gains on sales of securities available for sale totaled $3.2 million in 1999, an increase of $948,000 from the $2.2 million recognized in 1998. Gains on sales of third-party loan servicing rights totaled $3.1 million in 1999 on the sale of $344.6 million of third-party loan servicing rights. Gains of $2.4 million and $1.6 million were recognized on the sales of $200.4 million and $144.7 million of third-party loan servicing rights in 1998 and 1997, respectively. TCF periodically sells securities available for sale and loan servicing rights depending on market conditions. During 1999, TCF recognized gains of $12.2 million on the sales of eight underperforming branches with $116.7 million in deposits, compared with gains of $18.6 million on the sales of 14 underperforming branches with $234 million in deposits and $5.6 million on the sale of its joint venture interest in Burnet Home Loans during 1998. TCF recognized gains of $14.2 million on the sales of 11 underperforming branches with $183.6 million in deposits during 1997. TCF periodically sells branches that it considers to be underperforming, or have limited growth potential, and may continue to do so in the future. NON-INTEREST EXPENSE - Non-interest expense increased $24.1 million, or 5.6%, in 1999, and $67.3 million, or 18.6%, in 1998, compared with the respective prior years. The following table presents the components of non-interest expense:
Percentage Year Ended December 31, Increase (Decrease) - --------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 1999/98 1998/97 - --------------------------------------------------------------------------------------------------------------------------- Compensation and employee benefits ............... $ 239,053 $ 217,401 $ 180,482 10.0% 20.5% Occupancy and equipment .......................... 73,613 71,323 58,352 3.2 22.2 Advertising and promotions ....................... 16,981 19,544 19,157 (13.1) 2.0 Amortization of goodwill and other intangibles ... 10,689 11,399 15,757 (6.2) (27.7) Other ............................................ 112,462 109,033 87,614 3.1 24.4 --------------------------------------- Total non-interest expense ....... $ 452,798 $ 428,700 $ 361,362 5.6 18.6 ===========================================================================================================================
Compensation and employee benefits, representing 52.8% and 50.7% of total non-interest expense in 1999 and 1998, respectively, increased $21.7 million, or 10%, in 1999, and $36.9 million, or 20.5%, in 1998. The increases were primarily due to costs associated with expanded retail banking activities, including the opening of a total of 140 new branches in 1999 and 1998 and the acquisition of Standard. Occupancy and equipment expenses increased $2.3 million in 1999 and $13 million in 1998. The 1998 increase reflects the costs associated with expanded retail banking activities, including the acquisitions of the Jewel-Osco supermarket branches and Standard. Advertising and promotion expenses decreased $2.6 million in 1999 following an increase of $387,000 in 1998. The 1999 decrease reflects a decrease in direct mail expenses relating to the promotion of consumer and consumer finance loan products. Amortization of goodwill and other intangibles decreased $710,000 in 1999 and $4.4 million in 1998. The decrease in 1998 was primarily due to the previously mentioned 1997 accelerated amortization of $8.7 million of deposit base intangibles, partially offset by an increase in the amortization of goodwill and deposit base intangibles resulting from the acquisition of Standard. Reductions of goodwill associated with branch sales, which are reported as a component of gain on sales of branches, totaled $464,000 in 1999 and $3.3 million in 1998. No such reductions occurred in 1997. 22 Other non-interest expense increased $3.4 million, or 3.1%, in 1999 and $21.4 million, or 24.4%, in 1998. The increases primarily reflect costs associated with expanded retail banking activities and increases in deposit account losses. A summary of other expense is presented in Note 21 of Notes to Consolidated Financial Statements. Included in other non-interest expense for 1999 are $1 million in non-recurring expenses related to the previously mentioned closing of TCF's Florida consumer finance loan collections facility. The increase for 1998 also reflects the recognition of $1.8 million of non-recurring costs in connection with TCF's reorganization of its consumer finance company operations. YEAR 2000 - TCF devoted significant resources to address the "Year 2000" computer issue, which results from the use of two digits rather than four by computer systems to define the applicable year and the need to make certain that such systems will continue to properly process information as a result of the calendar change to the Year 2000. Failure of computer systems to properly recognize the Year 2000 could potentially result in the production of erroneous data, miscalculations of financial information such as interest, system failures, business disruption and other operational problems. TCF evaluated its data processing and other systems with imbedded technologies, such as ATMs, vaults and security systems, to determine whether they were Year 2000 compliant. Remediation and testing of all critical systems was completed in 1999. Many of TCF's data processing applications are supplied by third-party vendors. TCF evaluated whether such vendor-supplied applications were Year 2000 compliant. TCF also developed contingency plans to mitigate potential delays or other problems. TCF's contingency plans include back-up solutions for mission-critical applications and business continuation plans for significant vendors and other business partners. TCF incurred $10.2 million of internal and external costs for replacement, renovation and testing of its critical internal computer hardware and software and imbedded technologies through December 31, 1999. Of the $10.2 million of Year 2000 costs, $3.7 million has been capitalized. Of the $6.5 million in internal and external costs that were expensed, $3.7 million and $2.8 million was recognized by TCF in 1999 and 1998, respectively. Since a significant portion of the costs incurred on the Year 2000 issue resulted from the redeployment of internal resources from other projects, TCF does not anticipate significant operating cost reductions in 2000 and beyond. TCF does not anticipate significant additional expenditures to be incurred. The effect of the Year 2000 issue on TCF is in part dependent on the way the Year 2000 issue was addressed by TCF's customers, including significant borrowers, depositors, vendors, service providers, counterparties, competitors, utilities, government agencies and instrumentalities and other entities with which TCF does business. TCF has surveyed and continues to monitor parties with which it does business to determine whether they have experienced any significant Year 2000 issues since the start of the new year. The Year 2000 efforts of third parties are ultimately not within TCF's control, and their failure to address Year 2000 issues successfully during the Year 2000 transition period could result in a disruption in the services TCF provides, including deposit and loan services, and could increase TCF's operating costs and credit, investment or other risks. Based on management's assessment of operations through February 29, 2000, TCF has not experienced any significant operating difficulties resulting from the change to the Year 2000, either directly or indirectly through significant vendors or customers. TCF will continue to monitor this issue and will modify its Year 2000 contingency plans as additional information becomes available. INCOME TAXES - TCF recorded income tax expense of $107.1 million in 1999, compared with $109.1 million in 1998 and $95.8 million in 1997. Income tax expense represented 39.2% of income before income tax expense during 1999, compared with 41.1% and 39.8% in 1998 and 1997, respectively. The lower tax rates in 1999 reflect lower state taxes, and the impact of relatively higher non-deductible expenses in 1998, including goodwill reductions associated with branch sales. Further detail on income taxes is provided in Note 12 of Notes to Consolidated Financial Statements. FINANCIAL CONDITION INVESTMENTS - Total investments, which includes interest-bearing deposits with banks, federal funds sold, FHLB stock, Federal Reserve Bank stock and other investments, decreased $129.6 million in 1999 to $148.2 million at December 31, 1999. The decrease primarily reflects decreases of $95.6 million in interest-bearing deposits with banks and $41 million in federal funds sold. TCF had no non-investment grade debt securities (junk bonds) and there were no open trading account or investment option positions as of December 31, 1999. 23 SECURITIES AVAILABLE FOR SALE - Securities available for sale are carried at fair value with the unrealized gains or losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), which is a separate component of stockholders' equity. Securities available for sale decreased $156.3 million during 1999 to $1.5 billion at December 31, 1999. The decrease reflects sales of $288.7 million and payment and prepayment activity, partially offset by purchases of $582.6 million of securities available for sale. At December 31, 1999, TCF's securities available-for-sale portfolio included $1.4 billion and $112 million of fixed-rate and adjustable-rate mortgage-backed securities, respectively. Securities available for sale totaled $1.7 billion at December 31, 1998. Gross unrealized losses on securities available for sale totaled $75.3 million at December 31, 1999, compared with gross unrealized gains of $12.3 million at December 31, 1998. TCF has no plans to sell these securities and it is not anticipated that these unrealized losses will be realized. LOANS HELD FOR SALE - Residential real estate and education loans held for sale are carried at the lower of cost or market. Education loans held for sale increased $5.7 million and residential real estate loans held for sale decreased $19.8 million from year-end 1998, and totaled $143.9 million and $55 million, respectively, at December 31, 1999. As previously noted, $139.4 million of consumer finance automobile loans and $14.8 million of related allowances were transferred to loans held for sale and were subsequently sold during 1999. Losses of $1.4 million were recognized in connection with these sales which are included in gain on sales of loans held for sale. There were no consumer finance automobile loans classified as held for sale at December 31, 1999. See "Loans and Leases." LOANS AND LEASES- The following table sets forth information about loans and leases held in TCF's portfolio, excluding loans held for sale:
At December 31, - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Residential real estate ................ $3,919,678 $3,765,280 $3,623,845 $2,252,312 $2,607,202 Consumer ............................... 2,058,584 1,876,554 1,976,699 1,728,368 1,534,213 Commercial real estate ................. 1,073,472 811,428 859,916 858,225 967,766 Commercial business .................... 395,513 289,104 240,207 157,057 167,920 Lease financing ........................ 448,496 398,812 368,521 296,958 239,247 ---------------------------------------------------------------------------------- Total loans and leases ......... $7,895,743 $7,141,178 $7,069,188 $5,292,920 $5,516,348 ==================================================================================================================================
Loans and leases increased $754.6 million from year-end 1998 to $7.9 billion at December 31, 1999, reflecting increases of $408.3 million, $262 million and $154.4 million in consumer direct, commercial real estate and residential real estate loans, respectively, partially offset by a decrease of $226.2 million in consumer finance automobile loans. At December 31, 1999, TCF's residential real estate loan portfolio was comprised of $1.7 billion of fixed-rate loans and $2.2 billion of adjustable-rate loans. Consumer loans increased $182 million from year-end 1998 to $2.1 billion at December 31, 1999, reflecting an increase of $448.8 million in home equity loans, partially offset by the decrease of $226.2 million in consumer finance automobile loans. In December 1998, TCF restructured its consumer finance company operations, including the discontinuation of indirect automobile lending, the consolidation of offices and a renewed focus on home equity lending using a new tiered pricing strategy. At December 31, 1999, consumer finance automobile loans, net of unearned discounts and deferred fees, totaled $7.7 million, compared with $233.9 million at December 31, 1998. Reflected in the decrease is the previously mentioned sale of $139.4 million of consumer finance automobile loans. The consumer finance automobile loans at December 31, 1999 are substantially comprised of lower quality (sub-prime) loans which carry a higher level of credit risk. The risks posed by this portfolio could also be exacerbated by TCF's discontinuation of this lending activity, which has involved the closing of its indirect lending offices and the centralization of its loan collection operations, among other changes. 24 TCF changed its home equity loan origination programs in early 1999. Under the new programs and in response to intensifying price competition, TCF implemented a tiered pricing structure for its home equity loans. TCF also experienced an increase in the loan-to-value ratios on new home equity loans originated in 1999. Many of these loans are secured by a first lien on the home and include an advance to pay off an existing first lien mortgage loan, and many have balances exceeding $100,000. These loans may carry a higher level of credit risk than loans with a lower loan-to-value ratio. The following table sets forth additional information about the loan-to-value ratios for TCF's home equity loan portfolio:
At December 31, - ------------------------------------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------------------------------------ PERCENT Percent (Dollars in thousands) BALANCE OF TOTAL Balance of Total - ------------------------------------------------------------------------------------------------------------ Loan-to-Value Ratios(1) Over 100%(2) ........................ $ 56,530 2.9% $ 53,972 3.5% Over 90% to 100% .................... 398,871 20.2 48,469 3.2 Over 80% to 90% ..................... 570,567 28.9 453,502 29.7 80% or less ......................... 948,956 48.0 970,186 63.6 ----------------------------------------------------- Total ....................... $1,974,924 100.0% $1,526,129 100.0% ============================================================================================================
(1) Loan-to-value is based on the loan amount (current outstanding balance on closed-end loans and the total commitment on lines of credit) plus deferred loan origination costs net of fees and refundable insurance premiums, if any, plus the original amount of senior liens, if any. Property values represent the most recent appraised value or property tax assessment value known to TCF. In most cases this value was obtained at the loan origination date and does not reflect subsequent appreciation or depreciation in property values, if any. (2) Amount reflects the total outstanding loan balance. The portion of the loan balance in excess of 100% of the property value is substantially less. The following table summarizes TCF's commercial real estate loan portfolio by property type:
At December 31, - -------------------------------------------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------------------------------------------- NUMBER Number (Dollars in thousands) BALANCE(1) OF LOANS Balance(1) of Loans - -------------------------------------------------------------------------------------------------------------------- Apartments ............................................ $ 276,312 537 $ 269,791 608 Office buildings ...................................... 233,184 257 155,780 243 Retail services ....................................... 161,032 228 130,790 236 Hospitality facilities ................................ 112,652 27 41,338 19 Warehouse/industrial buildings ........................ 107,076 136 86,902 135 Health care facilities ................................ 20,858 17 24,280 14 Other ................................................. 165,481 437 105,530 317 Unearned discounts and deferred loan fees ............. (3,123) N.A. (2,983) N.A. ----------------------------------------------------- $ 1,073,472 1,639 $ 811,428 1,572 ====================================================================================================================
(1) Includes construction and development loans. N.A. Not applicable. Commercial real estate loans increased $262 million from year-end 1998 to $1.1 billion at December 31, 1999. Commercial business loans increased $106.4 million in 1999 to $395.5 million at December 31, 1999. TCF is seeking to expand its commercial business and commercial real estate lending activity to borrowers located in its primary midwestern markets. At December 31, 1999, approximately 91% of TCF's commercial real estate loans outstanding were secured by properties located in its primary markets. At December 31, 1999, 72% of total commercial business and commercial real estate loans outstanding involved lending relationships of less than $5 million. Outstandings on lending relationships of $5 million or more averaged $9 million at December 31, 1999, with the largest relationship of $38 million. At December 31, 1999 and December 31, 1998, there were no commercial real estate loans with terms that have been modified in troubled debt restructurings included in performing loans. Lease financings increased $49.7 million from year-end 1998 to $448.5 million at December 31, 1999, primarily as a result of increased lease originations from both TCF's established leasing subsidiary, 25 Winthrop Resources Corporation, and its newly formed leasing and equipment finance subsidiary, TCF Leasing, Inc. A significant expansion of equipment leasing and financing activity is currently underway at TCF Leasing, Inc., which specializes in the leasing and financing of industrial and transportation equipment, and discounting leases in key markets in various regions of the United States. At December 31, 1999, 38.9% of TCF's lease portfolio was funded on a non-recourse basis with other banks and consequently TCF retained no credit risk on such leases, compared with 45.9% at December 31, 1998. Total loan and lease originations for TCF's leasing and equipment finance businesses were $327.3 million in 1999, compared with $199.6 million in 1998 and $204.7 million in 1997. At December 31, 1999, the backlog of approved transactions related to TCF's leasing and equipment finance businesses totaled $125.2 million, compared with $55.1 million at December 31, 1998. Loan and lease originations were as follows:
Year Ended December 31, - --------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- Consumer direct .......................... $1,371,712 $1,078,641 $1,087,235 Consumer finance automobile .............. - 102,386 99,114 ----------------------------------------------------- Total consumer ................... 1,371,712 1,181,027 1,186,349 Commercial ............................... 792,469(1) 519,386 446,355 Lease financing .......................... 281,565 199,639 204,674 Residential real estate .................. 1,362,742 2,023,078 1,119,355 ----------------------------------------------------- Total ............................ $3,808,488 $3,923,130 $2,956,733 =========================================================================================================
(1) Includes $45.7 million in loans originated in TCF's leasing and equipment finance businesses. ALLOWANCE FOR LOAN AND LEASE LOSSES - Credit risk is the risk of loss from a customer default. TCF has in place a process to identify and manage its credit risks. The process includes initial credit review and approval, periodic monitoring to measure compliance with credit agreements and internal credit policies, monitoring changes in the risk ratings of loans, identification of problem loans and leases and special procedures for collection of problem loans and leases. The risk of loss is difficult to quantify and is subject to fluctuations in values and general economic conditions and other factors. See Note 1 of Notes to Consolidated Financial Statements for additional information concerning TCF's allowance for loan and lease losses. At December 31, 1999, the allowance for loan and lease losses totaled $55.8 million, compared with $80 million at December 31, 1998. The allocation of TCF's allowance for loan and lease losses, including general and specific loss allocations, is as follows:
Allocations as a Percentage of Total Loans and Leases Outstanding by Type At December 31, At December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Residential real estate ................ $ 3,014 $ 3,471 $ 3,501 $ 2,379 $ 3,238 .08% .09% .10% .11% .12% Commercial real estate ................. 12,708 12,525 15,065 16,213 20,701 1.18 1.54 1.75 1.89 2.14 Commercial business .................... 8,587 5,756 4,520 3,072 7,261 2.17 1.99 1.88 1.96 4.32 Consumer direct ........................ 8,482 9,338 12,109 11,907 11,241 .41 .57 .72 .84 .86 Consumer finance automobile ............ 2,219 22,673 16,020 14,793 5,426 28.72 9.69 5.37 4.84 2.57 Lease financing ........................ 3,906 2,955 2,004 1,116 595 .87 .74 .54 .38 .25 Unallocated ............................ 16,839 23,295 29,364 22,385 17,828 N.A. N.A. N.A. N.A. N.A. ----------------------------------------------- Total allowance balance ................ $55,755 $80,013 $82,583 $71,865 $66,290 .71 1.12 1.17 1.36 1.20 ====================================================================================================================================
N.A. Not applicable. 26 Additional information on the allowance for loan and lease losses follows:
AT DECEMBER 31, 1999 - -------------------------------------------------------------------------------------------------- ALLOWANCE FOR ALLOWANCE NET LOAN AND TOTAL LOANS AS A % OF CHARGE (Dollars in thousands) LEASE LOSSES AND LEASES PORTFOLIO OFFS(1) - -------------------------------------------------------------------------------------------------- Commercial real estate ................... $ 12,708 $1,073,472 1.18% (.08)% Commercial business ...................... 8,587 395,513 2.17 (.08) Consumer direct .......................... 8,482 2,050,858 .41 .24 Lease financing .......................... 3,906 448,496 .87 .39 Unallocated .............................. 16,839 - N.A. N.A. ------------------------- Subtotal ......................... 50,522 3,968,339 1.27 .14 Residential real estate .................. 3,014 3,919,678 .08 - ------------------------- Subtotal ......................... 53,536 7,888,017 .68 .07 Consumer finance automobile .............. 2,219 7,726 28.72 17.52 ------------------------- Total ............................ $ 55,755 $7,895,743 .71 .35 ==================================================================================================
At December 31, 1998 - -------------------------------------------------------------------------------------------------- Allowance for Allowance Net Loan and Total Loans as a % of Charge (Dollars in thousands) Lease Losses and Leases Portfolio Offs(1) - -------------------------------------------------------------------------------------------------- Commercial real estate ................... $ 12,525 $ 811,428 1.54% .09% Commercial business ...................... 5,756 289,104 1.99 (.23) Consumer direct .......................... 9,338 1,642,606 .57 .30 Lease financing .......................... 2,955 398,812 .74 .17 Unallocated .............................. 23,295 - N.A. N.A. ------------------------- Subtotal ......................... 53,869 3,141,950 1.71 .18 Residential real estate .................. 3,471 3,765,280 .09 .01 ------------------------- Subtotal ......................... 57,340 6,907,230 .83 .09 Consumer finance automobile .............. 22,673 233,948 9.69 7.26 ------------------------- Total ............................ $ 80,013 $7,141,178 1.12 .36 ==================================================================================================
(1) Net charge-offs (recoveries) during the year then ended as a percentage of related average loans and leases. N.A. Not applicable. The allocated allowance balances for TCF's residential, commercial real estate and commercial business loan portfolios at December 31, 1999 reflect the Company's continued strengthening of its credit quality and related low level of net loan charge-offs for these portfolios. The increase in the allocated allowance for lease losses reflects the previously mentioned increase in the percentage of leases that are internally funded. The allocated allowances for these portfolios do not reflect any material changes in estimation methods or assumptions. TCF experienced an increase in the level of net loan charge-offs related to its consumer finance automobile portfolio, a large portion of which was sold or liquidated during 1999. Included in the net loan and lease charge-offs was $21.2 million of net charge-offs related to the consumer finance automobile loans. As a result, the ratio of annualized net loan charge-offs to average loans outstanding for TCF's consumer finance automobile portfolio was 17.52% for the year ended December 31, 1999, compared with 7.26% for 1998. The unallocated portion of TCF's allowance for loan and lease losses totaled $16.8 million at December 31, 1999, compared with $23.3 million at December 31, 1998. The decrease in the unallocated allowance for loan and lease losses reflects the reduction in non-accrual loans and leases, and a decrease in the balance of higher risk consumer finance automobile loans outstanding. Net loan and lease charge-offs were $26.4 million in 1999, compared with $25.9 million in 1998 and $17.9 million in 1997. Excluding consumer finance automobile loans, TCF's 1999 net charge-offs were $5.2 million, or .07% of average loans and leases outstanding, compared with $6 million, or .09%, for 1998. The allowance for loan and lease losses as a percentage of net loan and lease charge-offs was 211% at December 31, 1999, compared with 310% at December 31, 1998 and 462% at December 31, 1997. The decrease in TCF's allowance for loan and lease losses as a percentage of total loans and leases at December 31, 1999 reflects the impact of the significant consumer finance automobile loan charge-off activity during 1999, and the significant decrease in consumer finance automobile loans outstanding. A summary of the allowance for loan and lease losses and selected statistics is presented in Note 8 of Notes to Consolidated Financial Statements. NON-PERFORMING ASSETS - Non-performing assets (principally non-accrual loans and leases and other real estate owned) totaled $35.4 million at December 31, 1999, down $13.2 million from the December 31, 1998 total of $48.7 million. The decrease in total non-performing assets reflects decreases of $5.6 million in consumer non-accrual loans and $3.6 million in other real estate owned and other assets. Approximately 75% of non-performing assets consist of, or are secured by, residential real estate. The accrual of interest income is generally discontinued when loans and leases become 90 days or more past due with respect to either principal or interest (150 days for loans secured by residential real estate) unless such loans and leases are adequately secured and in the process of collection. 27 Non-performing assets are summarized in the following table:
At December 31, - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Non-accrual loans and leases: Consumer .................................................... $12,178 $17,745 $21,037 $13,472 $ 7,487 Residential real estate ..................................... 5,431 8,078 8,451 3,996 7,045 Commercial real estate ...................................... 1,576 4,352 3,818 7,604 22,255 Commercial business ......................................... 2,960 2,797 3,370 1,149 7,541 Lease financing ............................................. 1,929 725 117 176 - --------------------------------------------------------- 24,074 33,697 36,793 26,397 44,328 Other real estate owned and other assets ............................ 11,348 14,972 21,953 19,937 26,402 --------------------------------------------------------- Total non-performing assets ......................... $35,422 $48,669 $58,746 $46,334 $70,730 --------------------------------------------------------- Non-performing assets as a percentage of net loans and leases ....... .45% .69% .84% .89% 1.30% Non-performing assets as a percentage of total assets ............... .33 .48 .60 .62 .94 =================================================================================================================================
The following table sets forth information regarding TCF's delinquent loan and lease portfolio, excluding loans held for sale and non-accrual loans and leases:
At December 31, - ------------------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------------------ Percentage of Percentage of Principal Loans and Principal Loans and (Dollars in thousands) Balances Leases Balances Leases - ------------------------------------------------------------------------------------------ Loans and leases delinquent for: 30-59 days ..................... $20,368 .26% $51,768 .72% 60-89 days ..................... 6,945 .09 15,373 .22 90 days or more ................ 5,789 .07 - - ----------------------------------------------------- Total .................. $33,102 .42% $67,141 .94% ===========================================================================================
The over 30-day delinquency rate on TCF's loans and leases (excluding loans held for sale and non-accrual loans and leases) was .42% of loans and leases outstanding at December 31, 1999, compared with .94% at year-end 1998. TCF had $5.8 million of accruing loans and leases 90 days or more past due at December 31, 1999. TCF's delinquency rates are determined using the contractual method. The following table sets forth information regarding TCF's over 30-day delinquent loan and lease portfolio, excluding loans held for sale and non-accrual loans and leases:
At December 31, - ----------------------------------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------------------------------- Principal Percentage of Principal Percentage of (Dollars in thousands) Balances Portfolio Balances Portfolio - ----------------------------------------------------------------------------------------------------- Consumer ........................... $19,076 .93% $52,588 2.83% Residential real estate ............ 11,552 .30 9,151 .24 Commercial real estate ............. 493 .05 1,787 .22 Commercial business ................ 1,595 .41 1,984 .69 Lease financing .................... 386 .09 1,631 .41 ------- ------- Total ...................... $33,102 .42 $67,141 .94 =====================================================================================================
28 TCF's over 30-day delinquency rate on total consumer loans was .93% at December 31, 1999, down from 2.83% at year-end 1998. Management continues to monitor the consumer loan portfolio, which will generally have higher delinquencies than other loan categories. The decreased consumer loan delinquency rate at December 31, 1999 is due to the significant reduction in TCF's consumer finance automobile loan portfolio and the increase in the home equity loan portfolio during 1999. See "Loans and Leases." In addition to the non-accrual loans and leases, there were commercial real estate and commercial business loans and lease financings with an aggregate principal balance of $33 million outstanding at December 31, 1999 for which management has concerns regarding the ability of the borrowers to meet existing repayment terms. This amount consists of loans and leases that were classified for regulatory purposes as substandard, doubtful or loss, or were to borrowers that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. This compares with $23.1 million of such loans and leases at December 31, 1998. Although these loans and leases are secured by commercial real estate or other corporate assets, they may be subject to future modifications of their terms or may become non-performing. Management monitors the performance and classification of such loans and leases and the financial condition of these borrowers. LIQUIDITY MANAGEMENT - TCF manages its liquidity position to ensure that the funding needs of depositors and borrowers are met promptly and in a cost-effective manner. Asset liquidity arises from the ability to convert assets to cash as well as from the maturity of assets. Liability liquidity results from the ability of TCF to attract a diversity of funding sources to meet funding requirements promptly. Deposits are the primary source of TCF's funds for use in lending and for other general business purposes. In addition to deposits, TCF derives funds primarily from loan and lease repayments, proceeds from the discounting of leases, advances from the FHLB and proceeds from reverse repurchase borrowing agreements. Deposit inflows and outflows are significantly influenced by general interest rates, money market conditions, competition for funds and other factors. TCF's deposit inflows and outflows have been and will continue to be affected by these factors. See "FORWARD-LOOKING INFORMATION." Borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels, net deposit outflows or to support expanded activities. Historically, TCF has borrowed primarily from the FHLB, from institutional sources under reverse repurchase agreements and, to a lesser extent, from other sources. See "Borrowings." Potential sources of liquidity for TCF Financial Corporation (parent company only) include cash dividends from TCF's wholly owned bank subsidiaries, issuance of equity securities, borrowings under the Company's $135 million bank line of credit and commercial paper program, and interest income. TCF's subsidiary banks' ability to pay dividends or make other capital distributions to TCF is restricted by regulation and may require regulatory approval. Undistributed earnings and profits at December 31, 1999 includes approximately $134.4 million for which no provision for federal income tax has been made. This amount represents earnings appropriated to bad debt reserves and deducted for federal income tax purposes and is generally not available for payment of cash dividends or other distributions to shareholders. Payments or distributions of these appropriated earnings could invoke a tax liability for TCF based on the amount of earnings removed and current tax rates. DEPOSITS - Deposits totaled $6.6 billion at December 31, 1999, down $130.3 million from December 31, 1998. The decrease reflects the previously noted sales of eight underperforming branches with $116.7 million of deposits. Lower interest-cost checking, savings and money market deposits totaled $3.7 billion, down $43.6 million from December 31, 1998, and comprised 56.4% of total deposits at December 31, 1999. The average balance of these deposits for 1999 was $3.7 billion, an increase of $214.1 million over the $3.5 billion average balance for 1998. Checking, savings and money market deposits are an important source of lower cost funds and fee income for TCF. Higher interest-cost certificates of deposit decreased $86.7 million from December 31, 1998. The Company's weighted-average rate for deposits, including non-interest bearing deposits, decreased to 2.71% at December 31, 1999, from 2.73% at December 31, 1998. This decrease reflects the lower proportion of higher-rate certificates at December 31, 1999 than at December 31, 1998. As previously noted, TCF continued to expand its supermarket banking franchise during 1999, opening 34 new branches during the year. TCF now has 195 supermarket branches, up from 161 such branches a year ago. During the past year, the number of deposit accounts in TCF's supermarket branches increased 38.1% to over 29 561,000 accounts and the balances increased 33.6% to $825.7 million. The average rate on these deposits increased from 2.16% at December 31, 1998 to 2.24% at December 31, 1999. Additional information regarding TCF's supermarket branches follows:
Supermarket Banking Summary At December 31, - -------------------------------------------------------------------------------------------------------------------------------- Increase Percentage (Dollars in thousands) 1999 1998 (Decrease) Change - -------------------------------------------------------------------------------------------------------------------------------- Number of branches .................................... 195 161 34 21.1% Number of deposit accounts ............................ 561,032 406,146 154,886 38.1 Deposits: Checking ...................................... $354,074 $272,194 $ 81,880 30.1 Passbook and statement ........................ 120,876 96,496 24,380 25.3 Money market .................................. 60,169 55,070 5,099 9.3 Certificates .................................. 290,579 194,456 96,123 49.4 ---------------------------------------------- Total deposits ........................ $825,698 $618,216 $207,482 33.6 ============================================== Average rate on deposits .............................. 2.24% 2.16% .08% 3.7 ============================================== Total fees and other revenues for the year ............ $ 86,665 $ 53,482 $ 33,183 62.0 ============================================== Consumer loans outstanding ............................ $192,931 $108,213 $ 84,718 78.3 ===============================================================================================================
BORROWINGS - Borrowings totaled $3.1 billion at December 31, 1999, up $622.8 million from year-end 1998. The increase was primarily due to an increase of $642.7 million in reverse repurchase agreements, partially offset by a decrease of $44.4 million in FHLB advances. Included in FHLB advances at December 31, 1999 are $1 billion of fixed-rate advances which are callable at par on certain dates. If called, the FHLB will provide replacement funding at the then-prevailing market rate of interest for the remaining term-to-maturity of the advances, subject to standard terms and conditions. Due to recent increases in interest rates, the market rates exceeded the contract rates for TCF's entire portfolio of callable FHLB advances at December 31, 1999. The weighted-average rate on borrowings decreased to 5.91% at December 31, 1999, from 6.00% at December 31, 1998. Management has entered into additional long-term callable FHLB advances to extend the maturity of $189 million of TCF's short-term borrowings. The FHLB advances settle during the first quarter of 2000. STOCKHOLDERS' EQUITY - Stockholders' equity at December 31, 1999 was $809 million, or 7.6% of total assets, down from $845.5 million, or 8.3% of total assets, at December 31, 1998. The decrease in stockholders' equity is primarily due to the repurchase of 4,091,611 shares of TCF's common stock at a cost of $106.1 million, the payment of $60.8 million in dividends on common stock and the increase of $55 million in accumulated other comprehensive loss, partially offset by net income of $166 million for the year ended December 31, 1999. MARKET RISK - INTEREST-RATE RISK - TCF's results of operations are dependent to a large degree on its net interest income, which is the difference between interest income and interest expense, and the Company's ability to manage its interest-rate risk. Although TCF manages other risks, such as credit and liquidity risk, in the normal course of its business, the Company considers interest-rate risk to be its most significant market risk. TCF, like most financial institutions, has a material interest-rate risk exposure to changes in both short-term and long-term interest rates as well as variable index interest rates (e.g., prime). Since TCF does not hold a trading portfolio, the Company is not exposed to market risk from trading activities. Like most financial institutions, TCF's interest income and cost of funds are significantly affected by general economic conditions and by policies of regulatory authorities. The mismatch between maturities and interest-rate sensitivities of assets and liabilities results in interest-rate risk. TCF's Asset/Liability Management Committee 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. Although the measure is subject to a number of assumptions and is only one of a number of measurements, management believes the interest-rate gap (difference between interest-earning assets and interest-bearing liabilities repricing within a given period) is an important indication of TCF's exposure to interest-rate risk and the related volatility of net interest income in a changing interest rate environment. In addition to the interest-rate gap analysis, management also utilizes a simulation model to measure and manage TCF's interest-rate risk. For an institution with a negative interest-rate gap for a given period, the amount of its interest-bearing liabilities maturing or otherwise repricing within such period exceeds the amount of its interest-earning assets repricing within the same period. In a rising interest-rate environment, institutions with negative interest-rate gaps will generally experience more immediate increases in the cost of their liabilities than 30 in the yield on their assets. Conversely, the yield on assets for institutions with negative interest-rate gaps will generally decrease more slowly than the cost of their funds in a falling interest-rate environment. The amounts in the maturity/rate sensitivity table below represent management's estimates and assumptions. The amounts could be significantly affected by external factors such as prepayment rates other than those assumed, early withdrawals of deposits, changes in the correlation of various interest-bearing instruments, competition, a general rise or decline in interest rates, and the possibility that the FHLB will exercise its option to call certain of TCF's longer-term FHLB advances. See Note 11 of Notes to Consolidated Financial Statements for additional information on FHLB advances. Decisions by management to purchase or sell assets, or retire debt could change the maturity/repricing and spread relationships. In addition, TCF's interest-rate risk will increase during periods of rising interest rates due to resulting slower prepayments on loans and mortgage-backed securities. TCF's one-year adjusted interest-rate gap was a negative $1 billion, or (10)% of total assets, at December 31, 1999, compared with a negative $203.1 million, or (2)% of total assets, at December 31, 1998. The increase in TCF's negative one-year interest-rate gap reflects the impact of projected slower prepayments on residential loans and mortgage-backed securities. The following table summarizes TCF's interest-rate gap position at December 31, 1999:
Maturity/Rate Sensitivity - ---------------------------------------------------------------------------------------------------------------------------------- Within 30 Days to 6 Months to (Dollars in thousands) 30 Days 6 Months 1 Year 1 to 3 Years 3+ Years Total - ---------------------------------------------------------------------------------------------------------------------------------- Interest-earning assets: Loans held for sale ................. $ 155,055 $ 36,678 $ 7,195 $ - $ - $ 198,928 Securities available for sale(1) .... 29,041 129,285 119,493 267,674 976,168 1,521,661 Real estate loans(1) ................ 385,652 444,717 625,340 1,405,647 2,131,794 4,993,150 Lease financings(1) ................. 17,192 80,135 85,220 188,725 77,224 448,496 Other loans(1) ...................... 1,312,139 136,835 139,975 397,878 467,270 2,454,097 Investments ......................... 124,930 - - - 23,224 148,154 ------------------------------------------------------------------------------------ 2,024,009 827,650 977,223 2,259,924 3,675,680 9,764,486 ------------------------------------------------------------------------------------ Interest-bearing liabilities: Checking deposits(2) ................ 102,325 - - - 1,810,954 1,913,279 Passbook and statement deposits(2) .. 67,957 110,752 116,516 329,404 466,663 1,091,292 Money market deposits ............... 708,417 - - - - 708,417 Certificate deposits ................ 186,332 1,322,588 871,736 461,313 29,878 2,871,847 FHLB advances(3) .................... 102,700 207,118 189,898 1,093,071 167,000 1,759,787 Discounted lease rentals ............ 5,729 28,858 35,109 108,673 - 178,369 Other borrowings .................... 256,982 810,000 - 50,000 28,750 1,145,732 ------------------------------------------------------------------------------------ 1,430,442 2,479,316 1,213,259 2,042,461 2,503,245 9,668,723 ------------------------------------------------------------------------------------ Interest-earning assets over (under) interest-bearing liabilities (Primary gap) ....................... 593,567 (1,651,666) (236,036) 217,463 1,172,435 95,763 Impact of unsettled borrowings(4) ........... 85,000 104,000 - (189,000) - - Impact of short-term funding of additional liquidity for millennium change(5) .. 83,850 - - - - 83,850 ==================================================================================== Adjusted gap ................................ $ 762,417 $(1,547,666) $ (236,036) $ 28,463 $ 1,172,435 $ 179,613 ==================================================================================== Adjusted cumulative gap ..................... $ 762,417 $ (785,249) $(1,021,285) $ (992,822) $ 179,613 $ 179,613 ==================================================================================== Adjusted cumulative gap as a percentage of total assets: At December 31, 1999 ........ 7% (7)% (10)% (9)% 2% 2% ------------------------------------------------------------------------------------ At December 31, 1998 ........ -% (2)% (2)% 1% 1% 1% ===================================================================================================================================
(1) Based upon contractual maturity, repricing date, if applicable, scheduled repayments of principal and projected prepayments of principal based upon experience. (2) Includes non-interest bearing deposits. Money market accounts and 5% of checking accounts are included in amounts repricing within one year. In addition, 27% and 30% of passbook and statement accounts are included in the less than 1 year and "1 to 3 Years" categories, respectively. All remaining passbook and statement and checking accounts are assumed to mature in the "3+ Years" category. While management believes these assumptions are well based, no assurance can be given that amounts on deposit in checking and passbook and statement accounts will not significantly change or be repriced in the event of a general change in interest rates. At December 31, 1998, 10% of checking accounts were included in amounts repricing within one year, and 27% and 30% of passbook and statement accounts were included in the less than 1 year and "1 to 3 Years" categories, respectively. (3) Includes $1 billion of callable FHLB advances, all of which have a call date beyond one year. Due to recent increases in market rates, $911.5 million of these FHLB advances are included as repricing in the "1 to 3 Years" category which corresponds to their next call date, instead of in the "3+ Years" category, which corresponds to their maturity date. (4) Represents unsettled callable FHLB advances, $85 million that settle within 30 days and $104 million that settle within six months. The call dates for these FHLB advances are beyond one year. (5) Impact on TCF's interest-rate gap of short-term funding of additional liquidity position in preparation for the millennium change. These short-term borrowings were paid off within 30 days. 31 As previously noted, TCF also utilizes simulation models to estimate the near-term effects (next 12 months) of changing 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, 1999, net interest income is estimated to increase by 1.2% over the next twelve months if interest rates were to sustain an immediate increase of 200 basis points. At December 31, 1998, net interest income was estimated to increase by 2.2% assuming a similar change in interest rates. If interest rates were to decline by 200 basis points, net interest income is estimated to decrease by .3% over the next twelve months. Simulations at December 31, 1998 projected a decrease in net interest income of 5% assuming a similar change in interest rates. Management exercises its best judgment in making assumptions regarding loan prepayments, early deposit withdrawals, and other non-controllable events in estimating TCF's exposure to changes in interest rates. These assumptions are inherently uncertain and, as a result, the simulation models cannot precisely estimate net interest income or precisely predict the impact of a change in interest rates on net interest income. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. RECENT ACCOUNTING DEVELOPMENTS - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires recognition of all derivative instruments as either assets or liabilities in the statement of financial condition and measurement of those instruments at fair value. A derivative may be designated as a hedge of an exposure to changes in the fair value of a recognized asset or liability, an exposure to variable cash flows of a forecasted transaction, or a foreign currency exposure. The accounting for gains and losses associated with changes in the fair value of a derivative and the impact on TCF's consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in offsetting changes in the fair value or cash flows of the underlying hedged item. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. TCF has not used derivatives to hedge exposures other than the use of forward contracts in its mortgage banking secondary marketing operations. The impact of SFAS No. 133 on the Company's financial position and results of operations is not expected to be material. 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. Among other possible developments, pending legislation which would impose limitations on ATM surcharges or restrict the sharing of customer information, or adverse decisions in litigation dealing with such legislation, or in litigation against Visa and Mastercard affecting debit card fees, could have an adverse impact on TCF. Federal legislation was enacted in 1996 that repealed the reserve method of accounting for thrift bad debt reserves. This legislation eliminated the recapture of a thrift institution's bad debt reserve under certain circumstances, including the institution's conversion to a bank or as a result of similar charter changes. After the repeal of the reserve method of accounting for bad debts, TCF completed the conversion of its savings bank subsidiaries to national banks and TCF became a national bank holding company on April 7, 1997. TCF now operates five national bank subsidiaries: TCF National Bank Minnesota, TCF National Bank Illinois, TCF National Bank Wisconsin, TCF National Bank Colorado and Great Lakes Michigan. During the fourth quarter of 1999, TCF received the approval of the Office of the Comptroller of the Currency to merge four of its existing bank charters into one national bank charter based in Minnesota. The merger of the bank charters located in Minnesota, Illinois, Wisconsin and Michigan is expected to be completed in the second quarter of 2000. The merger of the bank charters is not expected to significantly change the management approach or operations within these geographic states. On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act (the "Act"). The Act significantly changes the regulatory structure and oversight of the financial services industry and expands financial affiliation opportunities for bank holding companies. The Act permits "financial holding companies" to engage in a range of activities that are "financial in nature" or "incidental" thereto, such as banking, insurance, securities activities, and merchant banking. To qualify to engage in expanded financial activities, a financial holding company must make certain required regulatory filings, and subsidiary depository institutions must be well-capitalized, well-managed and rated "satisfactory" or better under the Community Reinvestment Act. 32 The Act also permits national banks to engage in certain expanded financial activities through a financial subsidiary, provided the bank and its depository institution affiliates are deemed well-capitalized and well-managed and meet certain other regulatory requirements. The Act preempts state laws restricting the establishment of financial affiliations authorized or permitted under the Act, subject to certain limited exceptions, including an exception that allows state insurance regulators to impose certain requirements on financial institutions, so long as they are not substantially more adverse than those applying to other persons. The provisions of the Act relating to financial holding companies become effective on or about March 15, 2000. Federal preemption provisions became effective on the date of enactment. FORWARD-LOOKING INFORMATION This Annual Report and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, may contain "forward-looking" statements that deal with future results, plans or performance. In addition, TCF's management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCF's future results may differ materially from historical performance and forward-looking statements about TCF's expected financial results or other plans are subject to a number of risks and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins; deposit outflows; reduced demand for financial services and loan and lease products; changes in accounting policies or guidelines, or monetary and fiscal policies of the federal government; changes in credit and other risks posed by TCF's loan, lease and investment portfolios; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation or other significant uncertainties. 33 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At December 31, - ----------------------------------------------------------------------------------------------------- (Dollars in thousands, except per-share data) 1999 1998 - ----------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks............................................. $ 429,262 $ 420,477 Investments......................................................... 148,154 277,715 Securities available for sale....................................... 1,521,661 1,677,919 Loans held for sale................................................. 198,928 213,073 Loans and leases: Residential real estate.......................................... 3,919,678 3,765,280 Consumer......................................................... 2,058,584 1,876,554 Commercial real estate........................................... 1,073,472 811,428 Commercial business.............................................. 395,513 289,104 Lease financing.................................................. 448,496 398,812 ---------------------------- Total loans and leases........................................ 7,895,743 7,141,178 Allowance for loan and lease losses........................... (55,755) (80,013) ---------------------------- Net loans and leases....................................... 7,839,988 7,061,165 Goodwill............................................................ 158,468 166,645 Deposit base intangibles............................................ 13,262 16,238 Other assets........................................................ 351,993 331,362 ---------------------------- $10,661,716 $10,164,594 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Checking......................................................... $ 1,913,279 $1,879,623 Passbook and statement........................................... 1,091,292 1,176,931 Money market..................................................... 708,417 700,004 Certificates..................................................... 2,871,847 2,958,588 ---------------------------- Total deposits................................................ 6,584,835 6,715,146 ---------------------------- Securities sold under repurchase agreements......................... 1,010,000 367,280 Federal Home Loan Bank advances..................................... 1,759,787 1,804,208 Discounted lease rentals............................................ 178,369 183,684 Other borrowings.................................................... 135,732 105,874 ---------------------------- Total borrowings.............................................. 3,083,888 2,461,046 Accrued interest payable............................................ 40,352 27,601 Accrued expenses and other liabilities.............................. 143,659 115,299 ---------------------------- Total liabilities............................................. 9,852,734 9,319,092 ---------------------------- Stockholders' equity: Preferred stock, par value $.01 per share, 30,000,000 shares authorized; none issued and outstanding................ - -- Common stock, par value $.01 per share, 280,000,000 shares authorized; 92,804,205 and 92,912,246 shares issued........... 928 929 Additional paid-in capital....................................... 500,797 507,534 Retained earnings, subject to certain restrictions............... 715,461 610,177 Unamortized deferred compensation................................ (14,887) (24,217) Loan to Executive Deferred Compensation Plan..................... (4,721) (6,111) Shares held in trust for deferred compensation plans, at cost.... (46,066) (45,740) Accumulated other comprehensive income (loss).................... (47,382) 7,591 Treasury stock, at cost, 10,863,017 and 7,343,117 shares......... (295,148) (204,661) ---------------------------- Total stockholders' equity................................. 808,982 845,502 ---------------------------- $ 10,661,716 $10,164,594 ====================================================================================================
See accompanying notes to consolidated financial statements. 34 CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------ (In thousands, except per-share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ INTEREST INCOME: Loans and leases.............................................. $618,291 $631,342 $563,966 Securities available for sale................................. 111,032 93,124 95,701 Loans held for sale........................................... 13,367 14,072 15,755 Investments................................................... 9,411 10,356 7,192 -------------------------------------------- Total interest income...................................... 752,101 748,894 682,614 -------------------------------------------- INTEREST EXPENSE: Deposits...................................................... 175,495 212,492 195,182 Borrowings.................................................... 152,393 110,668 93,836 -------------------------------------------- Total interest expense..................................... 327,888 323,160 289,018 -------------------------------------------- Net interest income..................................... 424,213 425,734 393,596 Provision for credit losses...................................... 16,923 23,280 17,995 -------------------------------------------- Net interest income after provision for credit losses...... 407,290 402,454 375,601 -------------------------------------------- NON-INTEREST INCOME: Fee and service charge revenues............................... 151,988 127,952 101,329 Electronic funds transfer revenues............................ 67,129 50,556 30,808 Leasing revenues.............................................. 28,505 31,344 32,025 Title insurance revenues...................................... 15,421 20,161 13,730 Commissions on sales of annuities............................. 8,797 8,413 7,894 Commissions on sales of mutual funds.......................... 6,052 5,513 3,998 Gain on sales of loans held for sale.......................... 4,747 7,575 4,777 Other......................................................... 12,008 11,156 7,789 -------------------------------------------- 294,647 262,670 202,350 -------------------------------------------- Gain on sales of securities available for sale................ 3,194 2,246 8,509 Gain on sales of loan servicing............................... 3,076 2,414 1,622 Gain on sales of branches..................................... 12,160 18,585 14,187 Gain on sale of subsidiaries.................................. 5,522 - - Gain on sale of joint venture interest........................ - 5,580 - -------------------------------------------- 23,952 28,825 24,318 -------------------------------------------- Total non-interest income.................................. 318,599 291,495 226,668 -------------------------------------------- NON-INTEREST EXPENSE: Compensation and employee benefits............................ 239,053 217,401 180,482 Occupancy and equipment....................................... 73,613 71,323 58,352 Advertising and promotions.................................... 16,981 19,544 19,157 Amortization of goodwill and other intangibles................ 10,689 11,399 15,757 Other......................................................... 112,462 109,033 87,614 -------------------------------------------- Total non-interest expense................................. 452,798 428,700 361,362 -------------------------------------------- Income before income tax expense........................ 273,091 265,249 240,907 Income tax expense............................................... 107,052 109,070 95,846 -------------------------------------------- Net income.............................................. $166,039 $156,179 $145,061 ============================================ NET INCOME PER COMMON SHARE: Basic......................................................... $ 2.01 $ 1.77 $ 1.72 ============================================ Diluted....................................................... $ 2.00 $ 1.76 $ 1.69 ============================================ DIVIDENDS DECLARED PER COMMON SHARE.............................. $ .725 $ .6125 $ .46875 ==================================================================================================================
See accompanying notes to consolidated financial statements. 35
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Number of Common Common (Dollars in thousands) Shares Issued Stock - ----------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 .................................. 85,242,232 $ 852 Comprehensive income: Net income ............................................... -- -- Other comprehensive income ............................... -- -- ---------------------------- Comprehensive income .................................. -- -- Dividends on common stock ................................... -- -- Issuance of 7,700,000 shares to effect purchase acquisition, of which 1,194,268 shares were from treasury............. 6,505,732 65 Purchase of 1,295,800 shares to be held in treasury ......... -- -- Issuance of 3,326,034 shares, of which 2,426,968 shares were from treasury ..................... 899,066 9 Repurchase and cancellation of shares ....................... (2,086) -- Amortization of deferred compensation ....................... -- -- Exercise of stock options, of which 44,600 shares were from treasury ...................................... 176,585 2 Loan payments ............................................... -- -- ---------------------------- BALANCE, DECEMBER 31, 1997 .................................. 92,821,529 928 Comprehensive income: Net income ............................................... -- -- Other comprehensive loss ................................. -- -- ---------------------------- Comprehensive income .................................. -- -- Dividends on common stock ................................... -- -- Purchase of 7,549,300 shares to be held in treasury ......... -- -- Issuance of 108,200 shares, of which 61,000 shares were from treasury ..................................... 47,200 1 Cancellation of shares ...................................... (18,170) -- Amortization of deferred compensation ....................... -- -- Exercise of stock options, of which 145,183 shares were from treasury ..................................... 61,687 -- Shares held in trust for deferred compensation plans ........ -- -- Loan to Executive Deferred Compensation Plan, net ........... -- -- ---------------------------- BALANCE, DECEMBER 31, 1998 .................................. 92,912,246 929 Comprehensive income: Net income ............................................... -- -- Other comprehensive loss ................................. -- -- ---------------------------- Comprehensive income .................................. -- -- Dividends on common stock ................................... -- -- Purchase of 4,091,611 shares to be held in treasury ......... -- -- Issuance of 21,050 shares from treasury ..................... -- -- Cancellation of shares ...................................... (108,041) (1) Amortization of deferred compensation ....................... -- -- Exercise of stock options, 550,661 shares from treasury ..... -- -- Shares held in trust for deferred compensation plans ........ -- -- Loan payments ............................................... -- -- ---------------------------- BALANCE, DECEMBER 31, 1999 .................................. 92,804,205 $ 928 ===============================================================================================
See accompanying notes to consolidated financial statements. 36
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) Loan to Executive Additional Unamortized Deferred Paid-in Retained Deferred Compensation (Dollars in thousands) Capital Earnings Compensation Plan - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 .................................. $ 274,320 $ 402,109 $ (7,693) $ (68) Comprehensive income: Net income ............................................... -- 145,061 -- -- Other comprehensive income ............................... -- -- -- -- ------------------------------------------------------------------ Comprehensive income .................................. -- 145,061 -- -- Dividends on common stock ................................... -- (38,201) -- -- Issuance of 7,700,000 shares to effect purchase acquisition, of which 1,194,268 shares were from treasury 162,937 -- -- -- Purchase of 1,295,800 shares to be held in treasury ......... -- -- -- -- Issuance of 3,326,034 shares, of which 2,426,968 shares were from treasury ..................... 20,570 -- (26,110) -- Repurchase and cancellation of shares ....................... (60) -- 15 -- Amortization of deferred compensation ....................... -- -- 8,331 -- Exercise of stock options, of which 44,600 shares were from treasury ...................................... 2,917 -- -- -- Loan payments ............................................... -- -- -- 68 ------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 .................................. 460,684 508,969 (25,457) -- Comprehensive income: Net income ............................................... -- 156,179 -- -- Other comprehensive loss ................................. -- -- -- -- ------------------------------------------------------------------ Comprehensive income .................................. -- 156,179 -- -- Dividends on common stock ................................... -- (54,971) -- -- Purchase of 7,549,300 shares to be held in treasury ......... -- -- -- -- Issuance of 108,200 shares, of which 61,000 shares were from treasury ..................................... 2,518 -- (4,815) -- Cancellation of shares ...................................... (375) -- 192 -- Amortization of deferred compensation ....................... -- -- 5,863 -- Exercise of stock options, of which 145,183 shares were from treasury ..................................... (1,033) -- -- -- Shares held in trust for deferred compensation plans ........ 45,740 -- -- -- Loan to Executive Deferred Compensation Plan, net ........... -- -- -- (6,111) ------------------------------------------------------------------ BALANCE, DECEMBER 31, 1998 .................................. 507,534 610,177 (24,217) (6,111) Comprehensive income: Net income ............................................... -- 166,039 -- -- Other comprehensive loss ................................. -- -- -- -- ------------------------------------------------------------------ Comprehensive income .................................. -- 166,039 -- -- Dividends on common stock ................................... -- (60,755) -- -- Purchase of 4,091,611 shares to be held in treasury ......... -- -- -- -- Issuance of 21,050 shares from treasury ..................... (30) -- (605) -- Cancellation of shares ...................................... (2,569) -- 392 -- Amortization of deferred compensation ....................... -- -- 9,543 -- Exercise of stock options, 550,661 shares from treasury ..... (4,464) -- -- -- Shares held in trust for deferred compensation plans ........ 326 -- -- -- Loan payments ............................................... -- -- -- 1,390 ------------------------------------------------------------------ BALANCE, DECEMBER 31, 1999 .................................. $ 500,797 $ 715,461 $ (14,887) $ (4,721) ================================================================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) Shares Held in Trust for Accumulated Deferred Other Compensation Comprehensive (Dollars in thousands) Plan Income (Loss) Treasury Stock Total - --------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 .................................. $ -- $ 2,376 $ (41,209) $ 630,687 Comprehensive income: Net income ............................................... -- -- -- 145,061 Other comprehensive income ............................... -- 6,180 -- 6,180 ------------------------------------------------------------------ Comprehensive income .................................. -- 6,180 -- 151,241 Dividends on common stock ................................... -- -- -- (38,201) Issuance of 7,700,000 shares to effect purchase acquisition, of which 1,194,268 shares were from treasury -- -- 22,805 185,807 Purchase of 1,295,800 shares to be held in treasury ......... -- -- (27,316) (27,316) Issuance of 3,326,034 shares, of which 2,426,968 shares were from treasury ..................... -- -- 44,876 39,345 Repurchase and cancellation of shares ....................... -- -- -- (45) Amortization of deferred compensation ....................... -- -- -- 8,331 Exercise of stock options, of which 44,600 shares were from treasury ...................................... -- -- 844 3,763 Loan payments ............................................... -- -- -- 68 ------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 .................................. -- 8,556 -- 953,680 Comprehensive income: Net income ............................................... -- -- -- 156,179 Other comprehensive loss ................................. -- (965) -- (965) ------------------------------------------------------------------ Comprehensive income .................................. -- (965) -- 155,214 Dividends on common stock ................................... -- -- -- (54,971) Purchase of 7,549,300 shares to be held in treasury ......... -- -- (210,939) (210,939) Issuance of 108,200 shares, of which 61,000 shares were from treasury ..................................... -- -- 1,933 (363) Cancellation of shares ...................................... -- -- -- (183) Amortization of deferred compensation ....................... -- -- -- 5,863 Exercise of stock options, of which 145,183 shares were from treasury ..................................... -- -- 4,345 3,312 Shares held in trust for deferred compensation plans ........ (45,740) -- -- -- Loan to Executive Deferred Compensation Plan, net ........... -- -- -- (6,111) ------------------------------------------------------------------ BALANCE, DECEMBER 31, 1998 .................................. (45,740) 7,591 (204,661) 845,502 Comprehensive income: Net income ............................................... -- -- -- 166,039 Other comprehensive loss ................................. -- (54,973) -- (54,973) ------------------------------------------------------------------ Comprehensive income .................................. -- (54,973) -- 111,066 Dividends on common stock ................................... -- -- -- (60,755) Purchase of 4,091,611 shares to be held in treasury ......... -- -- (106,106) (106,106) Issuance of 21,050 shares from treasury ..................... -- -- 575 (60) Cancellation of shares ...................................... -- -- -- (2,178) Amortization of deferred compensation ....................... -- -- -- 9,543 Exercise of stock options, 550,661 shares from treasury ..... -- -- 15,044 10,580 Shares held in trust for deferred compensation plans ........ (326) -- -- -- Loan payments ............................................... -- -- -- 1,390 ------------------------------------------------------------------ BALANCE, DECEMBER 31, 1999 .................................. $ (46,066) $ (47,382) $ (295,148) $ 808,982 =================================================================================================================================
37 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------ (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................... $ 166,039 $ 156,179 $ 145,061 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization.......................................... 29,031 27,914 23,185 Amortization of goodwill and other intangibles......................... 10,689 11,399 15,757 Provision for credit losses............................................ 16,923 23,280 17,995 Proceeds from sales of loans held for sale............................. 586,859 577,808 624,192 Principal collected on loans held for sale............................. 10,144 9,083 9,174 Originations and purchases of loans held for sale...................... (457,515) (603,567) (799,319) Net (increase) decrease in other assets and liabilities, and accrued interest................................................ 47,088 14,339 (15,067) Gains on sales of assets............................................... (23,952) (28,825) (24,318) Other, net............................................................. 14,988 8,395 (4,707) ---------------------------------------------- Total adjustments................................................... 234,255 39,826 (153,108) ---------------------------------------------- Net cash provided (used) by operating activities................. 400,294 196,005 (8,047) ---------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Principal collected on loans and leases...................................... 2,315,173 3,111,218 1,952,057 Originations and purchases of loans.......................................... (3,069,408) (3,119,924) (1,952,261) Purchases of equipment for lease financing................................... (289,156) (186,009) (179,165) Proceeds from sales of loans................................................. - 20,330 15,910 Net (increase) decrease in interest-bearing deposits with banks.............. 95,575 (95,322) 453,895 Proceeds from sales of securities available for sale......................... 288,718 231,438 476,218 Proceeds from maturities of and principal collected on securities available for sale............................................. 577,844 606,603 445,145 Purchases of securities available for sale................................... (791,995) (967,585) (506,970) Net (increase) decrease in federal funds sold................................ 41,000 (41,000) 45,000 Acquisitions, net of cash acquired........................................... - - (218,896) Sales of deposits, net of cash paid.......................................... (104,404) (213,159) (170,171) Other, net................................................................... 7,723 (19,956) (12,971) ----------------------------------------------- Net cash provided (used) by investing activities.......................... (928,930) (673,366) 347,791 ----------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits.......................................... (13,649) 41,816 65,073 Net increase (decrease) in securities sold under repurchase agreements and federal funds purchased................................................... 642,720 254,836 (181,288) Proceeds from borrowings..................................................... 4,679,462 3,502,311 1,835,104 Payments on borrowings....................................................... (4,598,365) (2,911,853) (1,960,675) Proceeds from issuance of common stock....................................... - - 29,266 Purchases of common stock to be held in treasury............................. (106,106) (210,939) (27,316) Payments of dividends on common stock........................................ (60,755) (54,971) (38,201) Other, net................................................................... (5,886) (20,372) (1,143) ---------------------------------------------- Net cash provided (used) by financing activities.......................... 537,421 600,828 (279,180) ---------------------------------------------- Net increase in cash and due from banks...................................... 8,785 123,467 60,564 Cash and due from banks at beginning of year................................. 420,477 297,010 236,446 ---------------------------------------------- Cash and due from banks at end of year....................................... $ 429,262 $ 420,477 $ 297,010 ============================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest on deposits and borrowings.................................... $ 302,268 $ 306,299 $285,722 ============================================== Income taxes........................................................... $ 78,125 $ 105,207 $ 97,319 ============================================== Transfer of loans to other real estate owned and other assets............. $ 32,074 $ 36,750 $ 40,837 ==============================================================================================================================
See accompanying notes to consolidated financial statements. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 ("TCF" or the "Company") is a national bank holding company engaged primarily in community banking and lease financing through its wholly owned subsidiaries, TCF National Bank Minnesota ("TCF Minnesota"), TCF National Bank Illinois ("TCF Illinois"), TCF National Bank Wisconsin ("TCF Wisconsin"), TCF National Bank Colorado ("TCF Colorado"), and Great Lakes National Bank Michigan ("Great Lakes Michigan"). 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. For Consolidated Statements of Cash Flows purposes, cash and cash equivalents include cash and due from banks. COMPREHENSIVE INCOME - Comprehensive income is the total of net income and other comprehensive income (loss), which for TCF is comprised entirely of unrealized gains and losses on securities available for sale. The following table summarizes the components of other comprehensive income (loss):
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized holding gains (losses) on securities available for sale (net of tax expense (benefit) of ($31,532), $206 and $6,994, respectively) ............ $(52,971) $ 236 $ 11,465 Reclassification adjustment for gains included in net income (net of tax expense of $1,192, $1,045 and $3,224, respectively) ....................... (2,002) (1,201) (5,285) --------------------------------------- Total other comprehensive income (loss), net of tax ............................... $(54,973) $ (965) $ 6,180 ====================================================================================================================================
INVESTMENTS - Investments are carried at cost, adjusted for amortization of premiums or accretion of discounts using methods which approximate a level yield. SECURITIES AVAILABLE FOR SALE - Securities available for sale are carried at fair value with the unrealized holding gains or losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), which is a separate component of stockholders' equity. Cost of securities sold is determined on a specific identification basis and gains or losses on sales of securities available for sale are recognized at trade dates. LOANS HELD FOR SALE - Loans held for sale are carried at the lower of cost or market determined on an aggregate basis, including related forward mortgage loan sales commitments. Cost of loans sold is determined on a specific identification basis and gains or losses on sales of loans held for sale are recognized at settlement dates. Net fees and costs associated with originating and acquiring loans held for sale are deferred and are included in the basis for determining the gain or loss on sales of loans held for sale. LOANS AND LEASES - Net fees and costs associated with originating and acquiring loans and leases are deferred and amortized over the lives of the assets. Net fees and costs associated with loan commitments are deferred in other assets or other liabilities until the loan is advanced. Discounts and premiums on loans purchased, net deferred fees and costs, unearned discounts and finance charges, and unearned lease income are amortized using methods which approximate a level yield over the estimated remaining lives of the loans and leases. Leases that transfer substantially all of the benefits and risks of equipment ownership to the lessee are classified as direct financing or sales-type leases and are included in loans and leases. Direct financing and sales-type leases are carried at the combined present value of the future minimum lease payments and the lease residual value, which represents the estimated fair value of the leased equipment at the termination of the lease based on management's experience and judgment. Lease residual values are reviewed on an ongoing basis and any downward revisions are recorded in the periods in which they become known. Interest income on direct financing and sales-type leases is recognized using methods which approximate a level yield over the term of the leases. Sales-type leases generate dealer profit which is 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 discounted at the rate implicit in the lease. Lease cost consists of the leased equipment's book value, less the present value of its residual. Impaired loans include all non-accrual and restructured commercial real estate and commercial business loans. Consumer and residential real estate loans and lease financings are excluded from the 39 definition of an impaired loan. Loan impairment is measured as the present value of expected future cash flows discounted at the loan's initial effective interest rate, the fair value of the collateral of an impaired collateral-dependent loan or an observable market price. The allowance for loan and lease losses is maintained at a level believed to be adequate by management to provide for probable loan and lease losses inherent in the portfolio. Management's judgment as to the adequacy of the allowance, including the allocated and unallocated elements, 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, the level of non-performing assets, historical net charge-off amounts, geographic location and prevailing economic conditions. Residential loans, consumer loans, and smaller-balance commercial loans and lease financings are segregated by loan type and sub-type, and are evaluated on a group basis. The allowance for loan and lease losses is established for probable losses inherent in TCF's loan and lease portfolios 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. Loans and leases are charged off to the extent they are deemed to be uncollectible. The adequacy 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 on impaired loans. 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. Interest income is accrued on loan and lease balances outstanding. Loans and leases, including loans that are considered to be impaired, are reviewed regularly by management and are placed on non-accrual status when the collection of interest or principal is 90 days or more past due (150 days or more past due for loans secured by residential real estate), unless the loan or lease is adequately secured and in the process of collection. When a loan or lease is placed on non-accrual status, unless collection of all principal and interest is considered to be assured, uncollected interest accrued in prior years is charged off against the allowance for loan and lease losses. Interest accrued in the current year is reversed. Interest payments received on non-accrual loans and leases are generally applied to principal unless the remaining principal balance has been determined to be fully collectible. Cost of loans sold is determined on a specific identification basis and gains or losses on sales of loans are recognized at trade dates. PREMISES AND EQUIPMENT - Premises and equipment are carried at cost and are depreciated or amortized on a straight-line basis over their estimated useful lives. OTHER REAL ESTATE OWNED - Other real estate owned is recorded at the lower of cost or fair value minus estimated costs to sell at the date of transfer to other real estate owned. If the fair value of an asset minus the estimated costs to sell should decline 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. MORTGAGE SERVICING RIGHTS - Mortgage servicing rights are capitalized and amortized in proportion to, and over the period of, estimated net servicing income. TCF periodically evaluates its capitalized mortgage servicing rights for impairment. Loan type and note rate are the predominant risk characteristics of the underlying loans used to stratify capitalized mortgage servicing rights for purposes of measuring impairment. Any impairment is recognized through a valuation allowance. INTANGIBLE ASSETS - Goodwill resulting from acquisitions is amortized over 25 years on a straight-line basis. Deposit base intangibles are amortized over 10 years on an accelerated basis. The Company periodically reviews the recoverability of the carrying values of these assets. DERIVATIVE FINANCIAL INSTRUMENTS - TCF utilizes derivative financial instruments in the course of asset and liability management to meet the ongoing credit needs of its customers and in order to manage the market exposure of its residential loans held for sale portfolio and its commitments to extend credit for residential loans. Derivative financial instruments include commitments to extend credit, forward settlements of Federal Home Loan Bank ("FHLB") advances, and forward mortgage loan sales commitments. See Note 15 for additional information concerning these derivative financial instruments. ADVERTISING AND PROMOTIONS - Expenditures for advertising and promotions are expensed as incurred. 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 bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 40 EARNINGS PER COMMON SHARE - The following table reconciles the weighted average shares outstanding and the income applicable to common shareholders used for basic and diluted earnings per share:
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per-share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average number of common shares outstanding used in basic earnings per common share calculation ....................................... 82,445,288 88,092,895 84,477,536 Net dilutive effect of: Stock option plans ...................................................................... 172,486 346,434 468,275 Restricted stock plans .................................................................. 452,944 476,486 838,189 Assumed conversion of 7 1/4% convertible subordinated debentures ........................ - - 349,936 -------------------------------------- Weighted average number of shares outstanding adjusted for effect of dilutive securities .... 83,070,718 88,915,815 86,133,936 ====================================== Net income .................................................................................. $ 166,039 $ 156,179 $ 145,061 Add: Interest expense on 7 1/4% convertible subordinated debentures, net of tax ............. - - 132 -------------------------------------- Income applicable to common shareholders including effect of dilutive securities ............ $ 166,039 $ 156,179 $ 145,193 ====================================== Basic earnings per common share ............................................................. $ 2.01 $ 1.77 $ 1.72 ====================================== Diluted earnings per common share ........................................................... $ 2.00 $ 1.76 $ 1.69 ====================================================================================================================================
2. BUSINESS COMBINATIONS AND ACQUISITIONS JEWEL-OSCO BRANCHES - On January 30, 1998, TCF Illinois completed its acquisition of the fixed assets and automated teller machines ("ATMs") for 76 branches in Jewel-Osco stores in the Chicago area previously operated by Bank of America. TCF accounted for the acquisition using the purchase method of accounting. STANDARD FINANCIAL, INC. - On September 4, 1997, TCF acquired all of the outstanding common stock of Standard Financial, Inc. ("Standard"), a community-oriented thrift institution with $2.6 billion in assets, $1.9 billion in deposits, and 14 full-service offices in Chicago, Illinois, for a purchase price of $423.7 million, which consisted of $237.9 million in cash and 7.7 million shares of TCF common stock. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the results of operations of Standard have been included in TCF's consolidated financial statements since September 4, 1997. WINTHROP RESOURCES CORPORATION - On June 24, 1997, TCF completed its acquisition of Winthrop Resources Corporation ("Winthrop"), a leasing company with $363 million in assets. Winthrop leases computers, telecommunications equipment, point-of-sale systems and other business-essential equipment to companies nationwide. In connection with the acquisition, TCF issued approximately 13.4 million shares of its common stock for all of the outstanding common shares of Winthrop. The acquisition of Winthrop was accounted for as a pooling-of-interests combination. Accordingly, TCF's consolidated financial statements for periods prior to the combination have been restated to include the accounts and the results of operations of Winthrop for all periods presented, except for dividends declared per share. There were no material intercompany transactions prior to the acquisition and no material differences in the accounting and reporting policies of TCF and Winthrop. BOC FINANCIAL CORPORATION - On January 16, 1997, TCF completed its purchase of BOC Financial Corporation, an Illinois-based holding company with $183.1 million in assets and $168 million in deposits. TCF accounted for the acquisition using the purchase method of accounting. 3. CASH AND DUE FROM BANKS At December 31, 1999, TCF was required by Federal Reserve Board regulations to maintain reserve balances of $180 million in cash on hand or at various Federal Reserve Banks. 41 4. INVESTMENTS The carrying values of investments, which approximate their fair values, consist of the following:
At December 31, - -------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 - -------------------------------------------------------------------------------------------------------- Interest-bearing deposits with banks ...................................... $ 20,319 $115,894 Federal funds sold ........................................................ - 41,000 Federal Home Loan Bank stock, at cost ..................................... 104,611 93,482 Federal Reserve Bank stock, at cost ....................................... 23,224 23,112 Other ..................................................................... - 4,227 ------------------------- $ 148,154 $277,715 ========================================================================================================
The carrying value and yield of investments at December 31, 1999, by contractual maturity, are shown below:
Carrying (Dollars in thousands) Value(1) Yield - -------------------------------------------------------------------------------------------------------- Due in one year or less .................................................. $ 20,319 3.88% No stated maturity(2) .................................................... 127,835 7.09 --------- $ 148,154 6.65 ========================================================================================================
(1) Carrying value is equal to fair value. (2) Balance represents FRB and FHLB stock, required regulatory investments. 5. SECURITIES AVAILABLE FOR SALE Securities available for sale consist of the following:
At December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government and other marketable securities ......... $ 500 $ - $ - $ 500 $ - $ - $ - $ - Mortgage-backed securities: FHLMC ......................... 928,034 326 (47,491) 880,869 989,681 9,966 (960) 998,687 FNMA .......................... 589,206 378 (27,633) 561,951 537,197 5,567 (1,336) 541,428 GNMA .......................... 26,850 179 (174) 26,855 33,721 510 (113) 34,118 Private issuer ................ 51,796 139 (1,073) 50,862 104,099 311 (1,597) 102,813 Collateralized mortgage obligations ................. 624 - - 624 873 - - 873 ---------------------------------------------------------------------------------------------- $1,597,010 $1,022 $(76,371) $1,521,661 $1,665,571 $16,354 $(4,006) $1,677,919 ============================================================================================== Weighted-average yield ........... 6.58% 6.63% ====================================================================================================================================
Gross gains of $4.7 million, $2.3 million and $9.1 million and gross losses of $1.5 million, $57,000 and $602,000 were recognized on sales of securities available for sale during 1999, 1998 and 1997, respectively. Mortgage-backed securities aggregating $3.6 million were pledged as collateral to secure certain deposits at December 31, 1999. 42 6. LOANS HELD FOR SALE Loans held for sale consist of the following:
At December 31, - -------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 - -------------------------------------------------------------------------------------------------- Residential real estate ........................................ $ 55,016 $ 74,814 Education ...................................................... 143,912 138,259 ------------------------------- $198,928 $213,073 ==================================================================================================
7. LOANS AND LEASES Loans and leases consist of the following:
At December 31, - -------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 - -------------------------------------------------------------------------------------------------- Residential real estate ............................... $ 3,911,184 $ 3,757,416 Unearned premiums and deferred loan fees .............. 8,494 7,864 --------------------------------- 3,919,678 3,765,280 --------------------------------- Commercial real estate: Apartments .................................... 276,045 257,195 Other permanent ............................... 637,980 464,817 Construction and development .................. 162,570 92,399 Unearned discounts and deferred loan fees ..... (3,123) (2,983) --------------------------------- 1,073,472 811,428 --------------------------------- Commercial business ................................... 394,463 288,676 Deferred loan costs ................................... 1,050 428 --------------------------------- 395,513 289,104 --------------------------------- Consumer: Home equity ................................... 1,974,924 1,526,129 Automobile .................................... 55,271 337,893 Loans secured by deposits ..................... 6,859 7,581 Other secured ................................. 11,148 19,033 Unsecured ..................................... 26,634 35,290 Unearned discounts and deferred loan fees ..... (16,252) (49,372) --------------------------------- 2,058,584 1,876,554 --------------------------------- Lease financing: Direct financing leases ....................... 446,351 377,157 Sales-type leases ............................. 30,387 35,695 Lease residuals ............................... 24,384 29,340 Unearned income and deferred lease costs ...... (52,626) (43,380) --------------------------------- 448,496 398,812 --------------------------------- $ 7,895,743 $ 7,141,178 ==================================================================================================
43 At December 31, 1999 and 1998, the recorded investment in loans that were considered to be impaired was $4.5 million and $7.1 million, respectively. The related allowance for loan losses at those dates was $1 million and $1.7 million, respectively. All of the impaired loans were on non-accrual status. The average recorded investment in impaired loans during the year ended December 31, 1999 and 1998 was $8.1 million and $8.7 million, respectively. For the year ended December 31, 1999 and 1998, TCF recognized interest income on impaired loans of $519,000 and $90,000, all of which was recognized using the cash basis method of income recognition. At December 31, 1999, 1998 and 1997, loans and leases on non-accrual status totaled $24.1 million, $33.7 million and $36.8 million, respectively. Had the loans and leases performed in accordance with their original terms throughout 1999, TCF would have recorded gross interest income of $3.6 million for these loans and leases. Interest income of $1.4 million has been recorded on these loans and leases for the year ended December 31, 1999. At December 31, 1999 and 1998, TCF had no loans and leases outstanding with terms that had been modified in troubled debt restructurings. There were no material commitments to lend additional funds to customers whose loans or leases were classified as non-accrual at December 31, 1999. The aggregate amount of loans to directors and executive officers of TCF was not significant at December 31, 1999 or 1998. All loans to TCF's directors and executive officers 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, and in the opinion of management do not represent more than a normal credit risk of collection. Future minimum lease payments for direct financing and sales-type leases as of December 31, 1999 are as follows:
Payments to Payments to be be Received Received by Other (In thousands) by TCF Financial Institutions Total - -------------------------------------------------------------------------------------------------- 2000....................................... $104,007 $ 93,230 $197,237 2001....................................... 69,252 62,030 131,282 2002....................................... 39,933 25,325 65,258 2003....................................... 22,571 9,646 32,217 2004....................................... 11,542 5,395 16,937 Thereafter................................. 3,706 - 3,706 ----------------------------------------------------- $251,011 $195,626 $446,637 ==================================================================================================
8. ALLOWANCE FOR LOAN AND LEASE LOSSES Following is a summary of the allowance for loan and lease losses and selected statistics:
Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- Balance at beginning of year ..................................... $ 80,013 $ 82,583 $ 71,865 Acquired balance ............................................... - - 10,592 Transfers to loans held for sale ............................... (14,793) - - Provision for credit losses .................................... 16,923 23,280 17,995 Charge-offs .................................................... (34,398) (32,714) (26,813) Recoveries ..................................................... 8,010 6,864 8,944 -------------------------------------------------- Net charge-offs .............................................. (26,388) (25,850) (17,869) -------------------------------------------------- Balance at end of year ........................................... $ 55,755 $ 80,013 $ 82,583 ================================================== Ratio of net loan and lease charge-offs to average loans and leases outstanding ............................ .35% .36% .30% Allowance for loan and lease losses as a percentage of total loan and lease balances at year-end ......... .71 1.12 1.17 ======================================================================================================================
44 9. OTHER ASSETS Other assets consist of the following:
At December 31, - ------------------------------------------------------------------------------ (In thousands) 1999 1998 - ------------------------------------------------------------------------------ Premises and equipment ................. $176,108 $173,688 Accrued interest receivable ............ 54,550 52,197 Mortgage servicing rights .............. 22,614 21,566 Other real estate owned ................ 10,912 13,602 Other .................................. 87,809 70,309 ----------------------------------- $351,993 $331,362 ==============================================================================
Premises and equipment are summarized as follows:
At December 31, - -------------------------------------------------------------------------------------------- (In thousands) 1999 1998 - -------------------------------------------------------------------------------------------- Land .................................................. $ 35,590 $ 33,619 Office buildings ...................................... 127,622 130,932 Leasehold improvements ................................ 32,709 27,084 Furniture and equipment ............................... 158,368 145,835 -------------------------------- 354,289 337,470 Less accumulated depreciation and amortization ........ 178,181 163,782 -------------------------------- $176,108 $173,688 ============================================================================================
TCF leases certain premises and equipment under operating leases. Net lease expense was $19.6 million, $19.6 million and $15 million in 1999, 1998 and 1997, respectively. At December 31, 1999, the total annual minimum lease commitments for operating leases were as follows:
(In thousands) - ------------------------------------------------------- 2000............................. $ 17,061 2001............................. 15,366 2002............................. 13,344 2003............................. 13,646 2004............................. 12,797 Thereafter....................... 69,240 ----------------- $141,454 =======================================================
Mortgage servicing rights, net of valuation allowance, are summarized as follows:
Year Ended December 31, - ----------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Balance at beginning of year, net ..................... $ 21,566 $ 19,512 $ 17,360 Acquired balance .............................. - - 2,177 Mortgage servicing rights capitalized ......... 6,991 8,966 5,229 Amortization .................................. (4,737) (5,268) (4,753) Sales of servicing ............................ (1,037) (97) (401) Valuation adjustments ......................... (169) (1,547) (100) --------------------------------------------------- Balance at end of year, net ........................... $ 22,614 $ 21,566 $ 19,512 =================================================================================================================
45 The valuation allowance for mortgage servicing rights is summarized as follows:
Year Ended December 31, - ---------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ---------------------------------------------------------------------------- Balance at beginning of year, net.. $ 2,738 $1,594 $1,494 Provisions................. 169 1,547 100 Charge-offs................ (1,961) (403) - ----------------------------------- Balance at end of year, net........ $ 946 $2,738 $1,594 ============================================================================
At December 31, 1999, 1998 and 1997, TCF was servicing real estate loans for others with aggregate unpaid principal balances of approximately $2.9 billion, $3.7 billion and $4.4 billion, respectively. During 1999, 1998 and 1997, TCF sold servicing rights on $344.6 million, $200.4 million and $144.7 million of loans serviced for others at net gains of $3.1 million, $2.4 million and $1.6 million, respectively. 10. DEPOSITS Deposits are summarized as follows:
At December 31, - ----------------------------------------------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------------------------------------------- WEIGHTED- Weighted- (Dollars in thousands) AVERAGE RATE AMOUNT TOTAL Average Rate Amount Total - ----------------------------------------------------------------------------------------------------------------- Checking: Non-interest bearing...... 0.00% $ 1,185,330 18.0% 0.00% $ 1,158,685 17.3% Interest bearing.......... .55 727,949 11.0 .57 720,938 10.7 ----------------------- ---------------------------- .21 1,913,279 29.0 .22 1,879,623 28.0 ----------------------- ---------------------------- Passbook and statement: Non-interest bearing...... 0.00 42,838 .7 0.00 63,024 .9 Interest bearing.......... 1.12 1,048,454 15.9 1.13 1,113,907 16.6 ----------------------- ---------------------------- 1.08 1,091,292 16.6 1.07 1,176,931 17.5 ----------------------- ---------------------------- Money market................ 2.67 708,417 10.8 2.64 700,004 10.4 ----------------------- ---------------------------- .93 3,712,988 56.4 .94 3,756,558 55.9 Certificates................ 5.00 2,871,847 43.6 5.01 2,958,588 44.1 ----------------------- ---------------------------- 2.71 $ 6,584,835 100.0% 2.73 $ 6,715,146 100.0% =================================================================================================================
Certificates had the following remaining maturities at December 31, 1999:
(In millions) $100,000 Maturity Minimum Other Total(1) - -------------------------------------------------------------------------- 0-3 months................ $ 294.2 $ 520.8 $ 815.0 4-6 months................ 70.5 651.8 722.3 7-12 months............... 74.6 768.7 843.3 13-24 months.............. 37.0 344.7 381.7 25-36 months.............. 7.9 71.7 79.6 37-48 months.............. 2.2 14.4 16.6 49-60 months.............. .5 9.5 10.0 Over 60 months............ .1 3.2 3.3 ---------------------------------------------- $ 487.0 $ 2,384.8 $ 2,871.8 ==========================================================================
(1) Includes $246.3 million of negotiated rate certificates and no brokered deposits. 46 11. BORROWINGS Borrowings consist of the following:
At December 31, - ------------------------------------------------------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Year of WEIGHTED- Weighted- (Dollars in thousands) Maturity AMOUNT AVERAGE RATE Amount Average Rate - ------------------------------------------------------------------------------------------------------------------------------ Securities sold under repurchase agreements.. 1999 $ - -% $ 317,280 6.81% 2000 960,000 5.75 - - 2001 50,000 5.71 50,000 5.71 ----------- ------------ 1,010,000 5.74 367,280 6.66 ----------- ------------ Federal Home Loan Bank advances ............. 1999 - - 570,207 5.85 2000 499,716 6.00 297,399 6.16 2001 181,571 5.79 886,602 5.19 2003 50,000 5.78 50,000 5.78 2004 903,000 5.55 - - 2006 3,000 5.46 - - 2009 122,500 5.24 - - ----------- ------------ 1,759,787 5.69 1,804,208 5.58 ----------- ------------ Discounted lease rentals..................... 1999 - - 87,791 8.28 2000 83,785 8.43 58,917 8.18 2001 57,285 8.50 29,009 8.21 2002 23,284 8.67 6,772 7.99 2003 8,816 8.84 1,195 7.65 2004 5,199 8.92 - - ----------- ------------ 178,369 8.52 183,684 8.22 ----------- ------------ Other borrowings: Senior subordinated debentures............. 2003 28,750 9.50 28,750 9.50 Collateralized mortgage obligations........ 2008 - - 44 6.50 2010 - - 1,809 5.95 ----------- ------------ - - 1,853 5.95 ----------- ------------ Bank line of credit........................ 1999 - - 74,000 6.19 2000 42,000 6.92 - - Commercial paper........................... 2000 22,357 6.21 - - Treasury, tax and loan note................ 1999 - - 1,271 4.11 2000 42,625 4.53 - - ----------- ------------ 135,732 6.60 105,874 7.06 ----------- ------------ $ 3,083,888 5.91 $ 2,461,046 6.00 ==============================================================================================================================
47 At December 31, 1999, borrowings with a remaining contractual maturity of one year or less consisted of the following:
Weighted- (Dollars in thousands) Amount Average Rate - ----------------------------------------------------------------------------------------- Securities sold under repurchase agreements........... $ 960,000 5.75% Federal Home Loan Bank advances....................... 499,716 6.00 Discounted lease rentals.............................. 83,785 8.43 Bank line of credit................................... 42,000 6.92 Commercial paper...................................... 22,357 6.21 Treasury, tax and loan note........................... 42,625 4.53 -------------- $ 1,650,483 5.97 =========================================================================================
The securities underlying the repurchase agreements are book entry securities. During the period, book entry securities were delivered by appropriate entry into the counterparties' accounts through the Federal Reserve System. The dealers may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, but have agreed to resell to TCF identical or substantially the same securities upon the maturities of the agreements. At December 31, 1999, all of the securities sold under repurchase agreements provided for the repurchase of identical securities. At December 31, 1999, securities sold under repurchase agreements were collateralized by mortgage-backed securities and had the following maturities:
Repurchase Borrowing Collateral Securities - -------------------------------------------------------------------------------------------------------- (Dollars in thousands) Amount Interest Rate Carrying Amount Market Value - -------------------------------------------------------------------------------------------------------- Maturity: January 2000................. $ 200,000 5.62% $ 220,586 $ 208,621 February 2000................ 660,000 5.77 741,624 700,808 March 2000................... 100,000 5.83 111,022 104,732 November 2001................ 50,000 5.71 54,010 52,916 -------------- -------------------------------------- $ 1,010,000 5.74 $ 1,127,242 $ 1,067,077 ========================================================================================================
Included in FHLB advances at December 31, 1999 are $1 billion of fixed-rate advances which are callable at par on certain dates. If called, the FHLB will provide replacement funding at the then-prevailing market rate of interest for the remaining term-to-maturity of the advances, subject to standard terms and conditions. The stated maturity dates and the next call dates for the callable FHLB advances outstanding at December 31, 1999 were as follows (in thousands):
Year Stated Maturity Next Call Date - ----------------------------------------------------------------------------------------------- 2000.............................................. $ - $ - 2001.............................................. - 703,000 2002.............................................. - 208,500 2003.............................................. - - 2004.............................................. 903,000 117,000 2006.............................................. 3,000 - 2009.............................................. 122,500 - ------------------------------------------ $ 1,028,500 $ 1,028,500 ===============================================================================================
TCF has a $135 million bank line of credit expiring in April 2000 which is unsecured and contains certain covenants common to such agreements with which TCF is in compliance. The interest rate on the line of credit is based on either the prime rate or LIBOR. TCF has the option to select the interest rate index and term for advances on the line of credit. The line of credit may be used for appropriate corporate purposes, including serving as a back-up line of credit to support the redemption of TCF's commercial paper. TCF has a $50 million commercial paper program which is unsecured and contains certain covenants common to such programs with which TCF is in compliance. Any usage under the commercial paper program requires an equal amount of back-up support by the bank line of credit. Commercial paper generally matures within 90 days, although it may have a term of up to 270 days. The $28.8 million of senior subordinated debentures mature in July 2003. These debentures will be redeemable at par plus accrued interest to the date of redemption beginning July 1, 2001. 48 During 1997, TCF redeemed $7.1 million of convertible subordinated debentures (the "Debentures") at par plus accrued and unpaid interest to the date of redemption. The Debentures were convertible into TCF common stock at a conversion price of $8.52 per common share. TCF issued approximately 839,000 shares of common stock in connection with the conversion of the Debentures. FHLB advances are collateralized by residential real estate loans, FHLB stock and mortgage-backed securities with an aggregate carrying value of $2.8 billion at December 31, 1999. The following table sets forth TCF's maximum and average borrowing levels for each of the years in the three-year period ending December 31, 1999:
Securities Sold Under Repurchase Agreements and Discounted (Dollars in thousands) Federal Funds Purchased FHLB Advances Lease Rentals Other Borrowings - ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1999: AVERAGE BALANCE............................ $ 529,359 $1,821,172 $171,997 $151,430 MAXIMUM MONTH-END BALANCE.................. 1,010,000 1,997,346 182,456 367,177 AVERAGE RATE FOR PERIOD.................... 5.40% 5.52% 8.04% 6.27% Year ended December 31, 1998: Average balance............................ $ 140,414 $1,367,104 $205,393 $ 92,467 Maximum month-end balance.................. 367,280 1,804,208 222,018 214,087 Average rate for period.................... 5.60% 5.80% 8.15% 7.38% Year ended December 31, 1997: Average balance............................ $ 346,339 $ 817,464 $222,558 $ 97,547 Maximum month-end balance.................. 482,231 1,339,578 241,895 136,259 Average rate for period.................... 5.74% 5.89% 8.28% 7.56% =======================================================================================================================
12. INCOME TAXES Income tax expense (benefit) consists of:
(In thousands) Current Deferred Total - ----------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1999: FEDERAL...................... $ 91,647 $2,981 $ 94,628 STATE........................ 11,747 677 12,424 ------------------------------- $103,394 $3,658 $107,052 =============================== Year ended December 31, 1998: Federal...................... $ 91,102 $ (994) $ 90,108 State........................ 19,325 (363) 18,962 ------------------------------- $110,427 $(1,357) $109,070 =============================== Year ended December 31, 1997: Federal...................... $ 77,465 $ 1,395 $ 78,860 State........................ 16,464 522 16,986 ------------------------------- $ 93,929 $ 1,917 $ 95,846 =======================================================================
Total income tax expense of $107.1 million, $109.1 million and $95.8 million for the years ended December 31, 1999, 1998 and 1997, respectively, did not include tax benefits specifically allocated to stockholders' equity. The tax benefit allocated to additional paid-in capital for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes totaled $4.1 million, $2.4 million and $2.3 million for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, TCF has net operating loss ("NOL") carryforwards for federal income tax purposes of $2.7 million, which are available to offset future federal taxable income through 2008. The realization of the NOLs is subject to certain Internal Revenue Code ("IRC") limitations. In addition, at December 31, 1999, TCF has NOL carryforwards for state income tax purposes of $13 million, which are available to offset future state taxable income through 2004. TCF has, in its judgment, made certain reasonable assumptions relating to the realizability of the deferred tax assets. Based upon these assumptions, the Company has determined that no valuation allowance is required with respect to the deferred tax assets. 49 Income tax expense differs from the amounts computed by applying the federal income tax rate of 35% to income before income tax expense as a result of the following:
Year Ended December 31, - --------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Computed income tax expense................................... $ 95,582 $ 92,837 $84,317 Increase (reduction) in income tax expense resulting from:.... Amortization of goodwill.................................... 2,724 3,741 1,287 State income tax, net of federal income tax benefit......... 8,076 12,325 11,041 Other, net.................................................. 670 167 (799) ------------------------------------------ $107,052 $109,070 $95,846 ===============================================================================================================
The significant components of the Company's deferred tax assets and deferred tax liabilities are as follows:
At December 31, - ------------------------------------------------------------------------------------------------ (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------ Deferred tax assets: Securities available for sale............................... $27,967 $ - Allowance for loan and lease losses......................... 15,437 22,011 Pension and other compensation plans........................ 12,032 11,058 ------------------------ Total deferred tax assets................................ 55,436 33,069 ------------------------ Deferred tax liabilities: Lease financing............................................. 27,292 28,883 Loan fees and discounts..................................... 9,738 8,697 Securities available for sale............................... - 4,757 Other, net.................................................. 3,216 4,609 ------------------------ Total deferred tax liabilities.......................... 40,246 46,946 ------------------------ Net deferred tax assets (liabilities) $15,190 $(13,877) ================================================================================================
13. STOCKHOLDERS' EQUITY RESTRICTED RETAINED EARNINGS - In general, TCF's subsidiary banks may not declare or pay a dividend to TCF in excess of 100% of their net profits for that year combined with their retained net profits for the preceding two calendar years without prior approval of the Office of the Comptroller of the Currency ("OCC"). Additional limitations on dividends declared or paid on, or repurchases of, TCF's subsidiary banks' capital stock are tied to the national banks' regulatory capital levels. Undistributed earnings and profits at December 31, 1999 includes approximately $134.4 million for which no provision for federal income tax has been made. This amount represents earnings appropriated to bad debt reserves and deducted for federal income tax purposes and is generally not available for payment of cash dividends or other distributions to shareholders. Payments or distributions of these appropriated earnings could invoke a tax liability for TCF based on the amount of earnings removed and current tax rates. SHAREHOLDER RIGHTS PLAN - TCF's preferred share purchase rights will become exercisable only if a person or group acquires or announces an offer to acquire 15% or more of TCF's common stock. When exercisable, each right will entitle the holder to buy one one-hundredth of a share of a new series of junior participating preferred stock at a price of $100. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either TCF's common stock or shares in an "acquiring entity" at half of the market value. TCF's Board of Directors (the "Board") is generally entitled to redeem the rights at 1 cent per right at any time before they become exercisable. The rights will expire on June 9, 2009, if not previously redeemed or exercised. SHARES HELD IN TRUST FOR DEFERRED COMPENSATION PLANS - 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. 50 LOAN TO EXECUTIVE DEFERRED COMPENSATION PLAN - During 1998, loans totaling $6.4 million were made by TCF to the Executive Deferred Compensation Plan trustee on a nonrecourse basis to purchase shares of TCF common stock for the accounts of participants. The loans are repayable over five years, bear interest of 7.41% and are secured by the shares of TCF common stock purchased with the loan proceeds. These loans have a remaining principal balance of $4.7 million at December 31, 1999 and are reflected as a reduction of stockholders' equity as required by generally accepted accounting principles. STOCK OFFERING - On June 3, 1997, TCF completed a public offering of 1.4 million shares of its common stock at a price of $21.6875 per share. The purpose of the offering was to meet one of the criteria for TCF's merger with Winthrop to be accounted for as a pooling of interests. The net proceeds of $29.3 million were used as a portion of the cash consideration paid in connection with the acquisition of Standard. TREASURY STOCK - On January 20, 1997, the Board authorized the repurchase of up to 5% of TCF common stock, or 3.5 million shares. On February 25, 1997, the Board formally rescinded TCF's common stock repurchase program in connection with the Company's merger with Winthrop. On January 19, 1998, the Board authorized the repurchase of up to 5% of TCF common stock, or 4.6 million shares. On June 22, 1998, the Board authorized the repurchase of up to an additional 5% of TCF common stock, or 4.5 million shares. On December 15, 1998, the Board authorized the repurchase of up to an additional 5% of TCF common stock, or 4.3 million shares. TCF purchased 4,091,611, 7,549,300 and 1,295,800 shares of common stock during the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, TCF has remaining authorization of 1.8 million shares under its December 15, 1998 5% stock repurchase program. 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 possibly additional discretionary, actions by the federal banking agencies that could have a direct material effect on TCF's financial statements. Under capital adequacy guidelines and the regulatory framework for "prompt corrective action," TCF must meet specific capital guidelines that involve quantitative measures of the Company's assets, stockholders' equity, and certain off-balance-sheet items as calculated under regulatory accounting practices. The following table sets forth TCF's tier 1 leverage, tier 1 risk-based and total risk-based capital levels, and applicable percentages of adjusted assets, together with the excess over the minimum capital requirements:
At December 31, - --------------------------------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------------------------------------------------------- (Dollars in thousands) Amount Percentage Amount Percentage - --------------------------------------------------------------------------------------------------- Tier 1 leverage capital........................ $688,357 6.56% $659,661 6.75% Tier 1 leverage capital requirement............ 314,582 3.00 293,024 3.00 -------------------------------------------------- Excess....................................... $373,775 3.56% $366,637 3.75% ================================================== Tier 1 risk-based capital...................... $688,357 10.22% $659,661 10.45% Tier 1 risk-based capital requirement.......... 269,448 4.00 252,458 4.00 -------------------------------------------------- Excess....................................... $418,909 6.22% $407,203 6.45% ================================================== Total risk-based capital....................... $745,171 11.06% $738,239 11.70% Total risk-based capital requirement........... 538,897 8.00 504,916 8.00 -------------------------------------------------- Excess...................................... $206,274 3.06% $233,323 3.70% ===================================================================================================
At December 31, 1999, TCF and its bank subsidiaries exceeded their regulatory capital requirements and are considered "well-capitalized" under guidelines established by the Federal Reserve Board and the OCC pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. 15. 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 by TCF 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. 51 TCF's exposure to credit loss in the event of non-performance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of the commitments. TCF uses the same credit policies in making these commitments as it does for on-balance-sheet instruments. TCF evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management's credit evaluation of the customer. For Veterans Administration ("VA") loans serviced with partial recourse and forward mortgage loan sales commitments, the contract or notional amount exceeds TCF's exposure to credit loss. TCF controls the credit risk of forward mortgage loan sales commitments through credit approvals, credit limits and monitoring procedures. COMMITMENTS TO EXTEND CREDIT - Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. These commitments totaled $1.2 billion and $1.1 billion at December 31, 1999 and 1998, respectively. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral predominantly consists of residential and commercial real estate and personal property. Included in the total commitments to extend credit at December 31, 1999 were fixed-rate mortgage loan commitments and loans in process aggregating $87.4 million. STANDBY LETTERS OF CREDIT - Standby letters of credit are conditional commitments issued by TCF guaranteeing the performance of a customer to a third party. The standby letters of credit expire in various years through the year 2005 and totaled $22 million and $45.3 million at December 31, 1999 and 1998, respectively. Collateral held primarily consists of commercial real estate mortgages. Since the conditions under which TCF is required to fund standby letters of credit may not materialize, the cash requirements are expected to be less than the total outstanding commitments. VA LOANS SERVICED WITH PARTIAL RECOURSE - TCF services VA loans on which it must cover any principal loss in excess of the VA's guarantee if the VA elects its "no-bid" option upon the foreclosure of a loan. The serviced loans are collateralized by residential real estate and totaled $184.5 million and $273.2 million at December 31, 1999 and 1998, respectively. FORWARD MORTGAGE LOAN SALES COMMITMENTS - TCF enters into forward mortgage loan sales commitments in order to manage the market exposure on its residential loans held for sale and its commitments to extend credit for residential loans. Forward mortgage loan sales commitments are contracts for the delivery of mortgage loans or pools of loans in which TCF agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of the counterparties to meet the terms of their contracts and from movements in mortgage loan values and interest rates. Forward mortgage loan sales commitments totaled $46.3 million and $106.7 million at December 31, 1999 and 1998, respectively. FEDERAL HOME LOAN BANK ADVANCES - FORWARD SETTLEMENTS - TCF enters into forward settlements of FHLB advances in the course of asset and liability management and to manage interest rate risk. Forward settlements of FHLB advances totaled $189 million and $150 million at December 31, 1999 and 1998, respectively. 16. 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. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. Fair value estimates are subjective in nature, involving uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The carrying amounts of cash and due from banks, investments and accrued interest payable and receivable approximate their fair values due to the short period of time until their expected realization. Securities available for sale are carried at fair value, which is based on quoted market prices. Certain financial instruments, including lease financings and discounted lease rentals, and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements. The following methods and assumptions are used by the Company in estimating its fair value disclosures for its remaining financial instruments, all of which are issued or held for purposes other than trading. LOANS HELD FOR SALE - The fair value of loans held for sale is estimated based on quoted market prices. The estimated fair value of capitalized mortgage servicing rights totaled $36 million at December 31, 1999, compared with a carrying amount of $22.6 million. The estimated fair value of capitalized mortgage servicing rights is based on estimated cash flows discounted using rates commensurate with the risks involved. Assumptions regarding prepayments, defaults and interest rates are determined using available market information. LOANS - The fair values of residential and consumer loans are estimated using quoted market prices. For certain variable-rate loans that reprice frequently and that have experienced no significant change in credit risk, fair values are based on carrying values. The fair values of other loans 52 are estimated by discounting contractual cash flows adjusted for prepayment estimates, using interest rates currently being offered for loans with similar terms to borrowers with similar credit risk characteristics. DEPOSITS - The fair value of checking, passbook and statement and money market deposits is deemed equal to the amount payable on demand. The fair value of certificates is estimated based on discounted cash flow analyses using interest rates offered by TCF for certificates with similar remaining maturities. BORROWINGS - The carrying amounts of short-term borrowings approximate their fair values. The fair values of TCF's long-term borrowings are estimated based on quoted market prices or discounted cash flow analyses using interest rates for borrowings of similar remaining maturities. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - The fair values of residential commitments to extend credit and forward mortgage loan sales commitments associated with residential loans held for sale are based upon quoted market prices. The fair values of TCF's remaining commitments to extend credit and standby letters of credit are estimated using fees currently charged to enter into similar agreements. For fixed-rate loan commitments and standby letters of credit issued in conjunction with fixed-rate loan agreements, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of forward settlements of FHLB advances are based on the difference between current levels of interest rates and the committed rates. TCF has not incurred, and does not anticipate, significant losses as a result of the recourse provisions associated with its balance of VA loans serviced with partial recourse. As a result, the carrying amounts and related estimated fair values of these financial instruments were not material at December 31, 1999 and 1998. As discussed above, the carrying amounts of certain of the Company's financial instruments approximate their fair value. The carrying amounts disclosed below are included in the Consolidated Statements of Financial Condition under the indicated captions, except where noted otherwise. The carrying amounts and fair values of the Company's remaining financial instruments are set forth in the following table:
At December 31, - ------------------------------------------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------------------------------------------- CARRYING ESTIMATED Carrying Estimated (In thousands) AMOUNT FAIR VALUE Amount Fair Value - ------------------------------------------------------------------------------------------------------------------- Financial instrument assets: Loans held for sale......................................... $ 198,928 $ 200,617 $ 213,073 $ 215,909 Loans: Residential real estate................................... 3,919,678 3,825,981 3,765,280 3,813,684 Commercial real estate.................................... 1,073,472 1,061,374 811,428 824,358 Commercial business....................................... 395,513 391,268 289,104 288,443 Consumer.................................................. 2,058,584 2,116,554 1,876,554 1,993,242 Allowance for loan losses(1).............................. (51,847) - (76,024) - ---------------------------------------------------- $7,594,328 $7,595,794 $6,879,415 $7,135,636 ==================================================== Financial instrument liabilities: Certificates................................................ $2,871,847 $2,901,177 $2,958,588 $2,994,231 Federal Home Loan Bank advances............................. 1,759,787 1,733,859 1,804,208 1,817,563 Other borrowings............................................ 135,732 135,301 105,874 106,471 ----------------------------------------------------- $4,767,366 $4,770,337 $4,868,670 $4,918,265 ==================================================== Financial instruments with off-balance-sheet risk:(2) Commitments to extend credit(3)............................. $ 8,572 $ (916) $ 3,085 $ (264) Standby letters of credit(4)................................ (1) (2) - (21) Forward mortgage loan sales commitments(3).................. 39 427 87 113 Federal Home Loan Bank advance forward settlements.......... - 1,509 - - ----------------------------------------------------------------------------- $ 8,610 $ 1,018 $ 3,172 $ (172) ====================================================================================================================
(1) Excludes the allowance for lease losses. (2) Positive amounts represent assets, negative amounts represent liabilities. (3) Carrying amounts are included in other assets. (4) Carrying amounts are included in accrued expenses and other liabilities. 53 17. STOCK OPTION AND INCENTIVE PLAN The TCF Financial 1995 Incentive Stock Program (the "Program") was adopted to enable TCF to attract and retain key personnel. Under the Program, no more than 5% of the shares of TCF common stock outstanding on the date of initial shareholder approval may be awarded. Options generally become exercisable over a period of one to 10 years from the date of the grant and expire after 10 years. All outstanding options have a fixed exercise price equal to the market price of TCF common stock on the date of grant. Restricted stock granted in 1998 generally vests within five years, but may be subject to a delayed vesting schedule if certain return on equity goals are not met. Other restricted stock grants generally vest over periods from three to eight years. TCF also has prior programs with options that remain outstanding. Those options are included in the following tables. ACCOUNTING FOR STOCK-BASED COMPENSATION - TCF has elected to retain the intrinsic value based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," for its stock-based employee compensation plans through 1999. See discussion of subsequent accounting change below. Accordingly, no compensation expense has been recognized for TCF's stock option grants. Compensation expense for restricted stock under APB Opinion No. 25 is recorded over the vesting periods, and totaled $9.5 million, $5.9 million and $8.3 million in 1999, 1998 and 1997, respectively. Had compensation expense been determined based on the fair value at the grant dates for awards under the Program consistent with the method of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," TCF's pro forma net income and earnings per common share would have been as follows:
Year Ended December 31, - ------------------------------------------------------------------------------ (In thousands, except per-share data) 1999 1998 1997 - ------------------------------------------------------------------------------ Net income: As reported.................. $166,039 $156,179 $145,061 ======================================= Pro forma.................... $164,607 $156,271 $146,155 ======================================= Basic earnings per common share: As reported.................. $ 2.01 $ 1.77 $ 1.72 ======================================= Pro forma.................... $ 2.00 $ 1.77 $ 1.73 ======================================= Diluted earnings per common share: As reported.................. $ 2.00 $ 1.76 $ 1.69 ======================================= Pro forma.................... $ 1.98 $ 1.76 $ 1.70 ==============================================================================
Since the pro forma disclosures of results under SFAS No. 123 are only required to consider grants awarded since 1995, the pro forma effects of applying SFAS No. 123 during this period may not be representative of the effects on reported results for future years. The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model, with the following weighted-average assumptions used for 1999, 1998 and 1997, respectively: risk-free interest rates of 5.03%, 4.78% and 5.95%; dividend yield of 2.7%, 2.6% and 1.7%; expected lives of 7, 5.25 and 10 years; and volatility of 27.0%, 27.2% and 26.4%. The weighted-average grant-date fair value of options granted was $7.02, $6.49 and $11.98 in 1999, 1998 and 1997, respectively. The weighted-average grant-date fair value of restricted stock was $25.94, $31.19 and $22.23 in 1999, 1998 and 1997, respectively. 54 The following table reflects TCF's stock option and restricted stock transactions under the program since December 31, 1996:
Stock Options Restricted Stock ---------------------------------------------------------------------------------- Exercise Price -------------------------------- Shares Range Weighted-Average Shares Price Range - ------------------------------------------------------------------------------------------------------------------------------- Outstanding at December 31, 1996.......... 942,968 $ 2.22-17.54 $ 6.12 1,191,866 $ 7.66-18.91 Granted........................... 123,032 20.40-33.28 31.66 929,200 20.88-27.34 Exercised......................... (224,955) 2.22-17.54 7.06 - - Forfeited......................... (4,000) 7.74 7.74 - - Vested............................ - - - (172,138) 8.10 - 9.89 --------- --------- Outstanding at December 31, 1997.......... 837,045 2.22-33.28 9.61 1,948,928 7.66-27.34 Granted........................... 551,500 23.69-32.19 25.04 108,200 28.97-34.00 Exercised......................... (208,388) 2.44-17.54 4.69 - - Forfeited......................... (1,500) 32.19 32.19 (5,400) 16.56-34.00 Vested............................ - - - (607,994) 7.66-21.91 --------- --------- Outstanding at December 31, 1998.......... 1,178,657 2.22-33.28 17.67 1,443,734 7.66-34.00 Granted........................... 247,550 23.56-29.03 25.25 21,050 22.53-28.59 Exercised......................... (551,107) 2.22-23.69 11.73 - - Forfeited......................... (112,000) 23.56-33.28 32.36 (11,760) 8.11-34.00 Vested............................ - - - (331,889) 7.66-27.34 --------- --------- Outstanding at December 31, 1999.......... 763,100 2.63-33.28 22.27 1,121,135 8.11-34.00 ========= ========= EXERCISABLE AT DECEMBER 31, 1999.......... 430,400 2.63-33.28 18.70 ===============================================================================================================================
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable --------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Remaining Contractual Weighted-Average Exercise Price Range Shares Exercise Price Life in Years Shares Exercise Price - ------------------------------------------------------------------------------------------------------------------------ $ 2.63 to $10.00............. 93,922 $ 5.12 2.0 93,922 $ 5.12 $10.01 to $20.00............. 45,596 13.38 6.1 45,596 13.38 $20.01 to $30.00............. 523,082 24.33 9.0 276,782 23.50 $30.01 to $33.28............. 100,500 31.59 8.1 14,100 32.24 ------- ------- Total Options........ 763,100 22.27 7.8 430,400 18.70 ========================================================================================================================
At December 31, 1999, there were 1,666,066 shares reserved for issuance under the Program, including 763,100 shares for which options had been granted but had not yet been exercised. Effective January 1, 2000, TCF adopted SFAS No. 123 for stock-based compensation transactions beginning in 2000. Also during January 2000, TCF granted 1,095,000 shares of restricted stock to certain officers. Vesting of these performance-based shares is dependent on TCF achieving certain earnings per share growth goals. The shares will be forfeited after eight years if not earned by that time. The total grant-date fair value of these shares was $21.6 million, which will be recognized as compensation expense ratably during the expected vesting period. 55 18. EMPLOYEE BENEFIT PLANS The TCF Cash Balance Pension Plan (the "Pension Plan") is a defined benefit qualified plan covering all "regular stated salary" employees and certain part-time employees who are at least 21 years old and have completed a year of eligibility service with TCF. TCF makes a monthly allocation to the participant's account based on a percentage of the participant's compensation. The percentage is based on the sum of the participant's age and years of employment with TCF. Participants are fully vested after five years of vesting service. In addition to providing retirement income benefits, TCF provides health care benefits for eligible retired employees, and in some cases life insurance benefits (the "Postretirement Plan"). Substantially all full-time employees may become eligible for health care benefits if they reach retirement age and have completed 10 years of service with the Company, with certain exceptions. These and similar benefits for active employees are provided through insurance companies or through self-funded programs. The Postretirement Plan is an unfunded plan. The following table sets forth the status of the Pension Plan and the Postretirement Plan at the dates indicated:
Pension Plan Postretirement Plan ---------------------------------------------------- Year Ended December 31, Year Ended December 31, - -------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year................... $ 28,967 $17,027 $ 9,214 $ 8,603 Service cost - benefits earned during the year............ 3,297 2,967 426 299 Interest cost on benefit obligation....................... 2,059 1,454 630 641 Acquisition/merger........................................ - 5,006 - - Actuarial (gain) loss..................................... (1,205) 3,647 69 358 Benefits paid............................................. (2,390) (1,134) (618) (687) --------------------------------------------------- Benefit obligation at end of year..................... 30,728 28,967 9,721 9,214 --------------------------------------------------- Change in fair value of plan assets: Fair value of plan assets at beginning of year............ 57,338 53,374 - - Actual return on plan assets.............................. 18,151 916 - - Benefits paid............................................. (2,390) (1,134) (618) (687) Acquisition/merger........................................ 1,768 4,182 - - Employer contributions.................................... - - 618 687 --------------------------------------------------- Fair value of plan assets at end of year.............. 74,867 57,338 - - --------------------------------------------------- Funded status of plans: Funded status at end of year.............................. 44,139 28,371 (9,721) (9,214) Unrecognized transition obligation........................ - - 4,433 4,775 Unrecognized prior service cost........................... (3,983) (5,040) 770 879 Unrecognized net gain..................................... (23,870) (7,901) (998) (1,079) --------------------------------------------------- Prepaid (accrued) benefit cost at end of year......... $ 16,286 $15,430 $(5,516) $(4,639) ====================================================================================================================
56 Net periodic benefit cost (credit) included the following components:
Pension Plan Postretirement Plan ---------------------------------------------------------------------- Year Ended December 31, Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- Service cost.................................. $ 3,297 $ 2,967 $ 2,091 $ 426 $ 299 $ 236 Interest cost................................. 2,059 1,454 1,207 630 641 604 Expected return on plan assets................ (5,155) (3,745) (2,841) - - - Amortization of transition obligation......... - - - 342 342 342 Amortization of prior service cost............ (1,057) (876) (742) 109 109 109 Recognized actuarial gain..................... - (728) - (12) (58) (116) ---------------------------------------------------------------------- Net periodic benefit cost (credit)......... $ (856) $ (928) $ (285) $1,495 $1,333 $1,175 ======================================================================================================================
The discount rate and rate of increase in future compensation used to measure the benefit obligation and the expected long-term rate of return on plan assets were as follows:
Pension Plan Postretirement Plan ------------------------------------------------------------------ Year Ended December 31, Year Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Discount rate........................................... 7.50% 6.75% 7.75% 7.50% 6.75% 7.75% Rate of increase in future compensation................. 5.00 5.00 5.00 - - - Expected long-term rate of return on plan assets........ 10.00 9.50 9.50 - - - =============================================================================================================================
The Pension Plan's assets consist primarily of listed stocks and government bonds. At December 31, 1999 and 1998, the Pension Plan's assets included TCF common stock with a market value of $6.3 million and $7.3 million, respectively. For active participants of the Postretirement Plan, a 7.6% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. This rate is assumed to decrease gradually to 6% for the year 2004 and remain at that level thereafter. For most retired participants, the annual rate of increase is assumed to be 4% for all future years, which represents the Plan's annual limit on increases in TCF's contributions for retirees. Assumed health care cost trend rates have an effect on the amounts reported for the Postretirement Plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage- (In thousands) Point Increase Point Decrease - -------------------------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components......................... $ 93 $ (79) Effect on postretirement benefit obligation..................................... 490 (423) ====================================================================================================================
EMPLOYEE STOCK PURCHASE PLAN - The TCF Employees Stock Purchase Plan generally allows participants to make contributions by salary deduction of up to 12% of their salary on a tax-deferred basis pursuant to section 401(k) of the IRC. TCF matches the contributions of all employees at the rate of 50 cents per dollar, with a maximum employer contribution of 3% of the employee's salary. Employee contributions vest immediately while the Company's matching contributions are subject to a graduated vesting schedule based on an employee's years of vesting service. The Company's matching contributions are expensed when made. TCF's contribution to the plan was $2.8 million, $2.7 million and $2.2 million in 1999, 1998 and 1997, respectively. 57 19. PARENT COMPANY FINANCIAL INFORMATION TCF Financial Corporation's (parent company only) condensed statements of financial condition as of December 31, 1999 and 1998, and the condensed statements of operations and cash flows for the years ended December 31, 1999, 1998 and 1997 are as follows: CONDENSED STATEMENTS OF FINANCIAL CONDITION
At December 31, - --------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Assets: Cash................................................................................................... $ 673 $ 178 Interest-bearing deposits with banks................................................................... 2,639 2,401 Investment in subsidiaries: Bank subsidiaries.................................................................................. 835,997 879,887 Other subsidiaries................................................................................. 586 586 Premises and equipment................................................................................. 11,566 8,009 Other assets........................................................................................... 39,693 41,656 --------------------- $891,154 $932,717 ===================== Liabilities and Stockholders' Equity: Bank line of credit.................................................................................... $ 42,000 $ 74,000 Commercial paper....................................................................................... 22,357 - Other liabilities...................................................................................... 17,815 13,215 --------------------- Total liabilities.................................................................................. 82,172 87,215 Stockholders' equity................................................................................... 808,982 845,502 --------------------- $891,154 $932,717 =================================================================================================================================
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- Interest income............................................................................... $ 576 $ 581 $ 1,099 Interest expense.............................................................................. 4,000 2,219 758 ---------------------------------- Net interest income (expense)............................................................. (3,424) (1,638) 341 Provision for credit losses................................................................... - (49) 679 ---------------------------------- Net interest expense after provision for credit losses.................................... (3,424) (1,589) (338) ---------------------------------- Cash dividends received from consolidated subsidiaries: Bank subsidiaries......................................................................... 164,791 184,569 109,791 Other subsidiaries........................................................................ - - 1,549 ---------------------------------- Total cash dividends received from consolidated subsidiaries........................... 164,791 184,569 111,340 ---------------------------------- Other non-interest income: Affiliate service fees.................................................................... 82,567 72,483 53,671 Other..................................................................................... (3) 35 (4) ---------------------------------- Total other non-interest income........................................................ 82,564 72,518 53,667 ---------------------------------- Non-interest expense: Compensation and employee benefits........................................................ 49,171 41,379 42,828 Occupancy and equipment................................................................... 14,982 14,672 12,217 Other..................................................................................... 20,622 19,294 17,813 ---------------------------------- Total non-interest expense............................................................. 84,775 75,345 72,858 ---------------------------------- Income before income tax benefit and equity in undistributed earnings of subsidiaries..... 159,156 180,153 91,811 Income tax benefit............................................................................ 1,852 1,588 7,518 ---------------------------------- Income before equity in undistributed earnings of subsidiaries............................ 161,008 181,741 99,329 Equity in undistributed earnings of subsidiaries.............................................. 5,031 (25,562) 45,732 ---------------------------------- Net income.................................................................................... $166,039 $156,179 $145,061 =================================================================================================================================
58 CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------ (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income............................................. $ 166,039 $ 156,179 $ 145,061 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries..... (5,031) 25,562 (45,732) Other, net 15,554 1,802 8,625 ------------------------------------------------- Total adjustments.................................. 10,523 27,364 (37,107) ------------------------------------------------- Net cash provided by operating activities............ 176,562 183,543 107,954 ------------------------------------------------- Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits with banks............................................ (238) 17,420 (14,383) Investments in and advances to subsidiaries, net....... (1,000) - (66,265) Loan to Executive Deferred Compensation Plan, net...... 1,390 (6,111) 68 Purchases of premises and equipment, net............... (6,624) (4,174) (3,913) Other, net............................................. 579 765 1,201 ------------------------------------------------- Net cash provided (used) by investing activities..... (5,893) 7,900 (83,292) ------------------------------------------------- Cash flows from financing activities: Dividends paid on common stock......................... (60,755) (54,971) (37,341) Proceeds from issuance of common stock, net............ - - 29,266 Proceeds from conversion of convertible debentures..... - - 7,149 Purchases of common stock to be held in treasury....... (106,106) (210,939) (27,318) Net increase in commercial paper....................... 22,357 - - Net increase (decrease) in bank line of credit......... (32,000) 74,000 - Other, net............................................. 6,330 629 3,481 ------------------------------------------------- Net cash used by financing activities................ (170,174) (191,281) (24,763) ------------------------------------------------- Net increase (decrease) in cash.......................... 495 162 (101) Cash at beginning of year................................ 178 16 117 ------------------------------------------------- Cash at end of year...................................... $ 673 $ 178 $ 16 ============================================================================================================
20. BUSINESS SEGMENTS TCF's wholly owned bank subsidiaries, TCF Minnesota, TCF Illinois, TCF Wisconsin, and Great Lakes Michigan (collectively "the banks"), have been identified as reportable operating segments. The banks have the following operating units that provide financial services to customers: deposits and investment products, commercial lending, consumer lending, lease financing, mortgage banking and residential lending, and investments and mortgage-backed securities. In addition, TCF operates a bank holding company ("parent company") that provides data processing, bank operations and other professional services to the banks. The results of the parent company and TCF Colorado, a wholly owned bank subsidiary of TCF, comprise the "other" category in the tables below. TCF evaluates performance and allocates resources based on the banks' net income, net interest margin, return on average assets and return on average realized common equity. The banks follow generally accepted accounting principles as described in the Summary of Significant Accounting Policies. TCF generally accounts for intersegment sales and transfers at cost. Certain asset sales between the banks were accounted for at current market prices, resulting in intercompany profit. Each bank is managed separately with its own president, who reports directly to TCF's chief operating decision maker, and board of directors. 59 The following table sets forth certain information about the reported profit or loss and assets for each of TCF's reportable segments, including reconciliations to TCF's consolidated totals:
Great Total TCF TCF TCF Lakes Reportable Consolidated (Dollars in thousands) Minnesota Illinois Wisconsin Michigan Segments Other Eliminations Total - ----------------------------------------------------------------------------------------------------------------------------------- AT OR FOR THE YEAR ENDED DECEMBER 31, 1999: INTEREST INCOME - EXTERNAL CUSTOMERS...... $ 297,990 $ 220,705 $ 49,851 $ 179,699 $ 748,245 $ 3,856 $ - $ 752,101 NON-INTEREST INCOME - EXTERNAL CUSTOMERS...... 165,740 87,577 24,292 35,509 313,118 5,481 - 318,599 INTEREST EXPENSE ........ 109,854 107,575 20,763 88,440 326,632 5,403 (4,147) 327,888 AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES... 1,062 9,597 30 - 10,689 - - 10,689 INCOME TAX EXPENSE (BENEFIT)................ 56,897 24,358 6,379 21,494 109,128 (2,076) - 107,052 NET INCOME (LOSS) ........ 86,819 30,689 11,807 40,181 169,496 (4,104) 647 166,039 TOTAL ASSETS.............. 4,003,542 3,539,364 700,763 2,459,669 10,703,338 118,652 (160,274) 10,661,716 NET INTEREST MARGIN....... 5.45% 3.67% 4.63% 3.97% N.M. N.M. N.M. 4.47% RETURN ON AVERAGE ASSETS.. 2.29 .90 1.73 1.68 N.M. N.M. N.M. 1.61 RETURN ON AVERAGE REALIZED COMMON EQUITY... 32.24 8.13 25.31 22.95 N.M. N.M. N.M. 19.83 ====================================================================================================== At or For the Year Ended December 31, 1998: Interest income - external customers...... $ 323,056 $ 206,139 $ 45,094 $ 173,045 $ 747,334 $ 1,560 $ - $ 748,894 Non-interest income - external customers...... 169,431 69,589 17,794 31,954 288,768 2,727 - 291,495 Interest expense ........ 114,736 103,795 18,525 87,532 324,588 2,870 (4,298) 323,160 Amortization of goodwill and other intangibles... 1,165 10,204 30 - 11,399 - - 11,399 Income tax expense (benefit)................ 63,988 22,418 4,934 20,245 111,585 (2,515) - 109,070 Net income (loss) ........ 89,977 25,512 8,289 37,681 161,459 (4,173) (1,107) 156,179 Total assets.............. 3,798,433 3,400,172 619,201 2,350,532 10,168,338 86,769 (90,513) 10,164,594 Net interest margin....... 6.37% 3.61% 4.92% 4.01% N.M. N.M. N.M. 4.84% Return on average assets.. 2.50 .79 1.39 1.70 N.M. N.M. N.M. 1.62 Return on average realized common equity... 32.72 6.54 17.52 21.13 N.M. N.M. N.M. 17.51 ====================================================================================================== At or For the Year Ended December 31, 1997: Interest income - external customers...... $ 341,337 $ 121,332 $ 46,536 $ 173,058 $ 682,263 $ 351 $ - $ 682,614 Non-interest income - external customers...... 151,410 26,834 13,124 34,690 226,058 610 - 226,668 Interest expense ........ 127,576 55,523 20,751 87,344 291,194 834 (3,010) 289,018 Amortization of goodwill and other intangibles.. 1,435 4,484 30 9,808 15,757 - - 15,757 Income tax expense (benefit)................ 64,476 16,360 4,667 17,449 102,952 (7,106) - 95,846 Net income (loss) ........ 93,475 22,630 7,216 32,967 156,288 (11,633) 406 145,061 Total assets.............. 3,687,023 3,334,399 613,485 2,214,651 9,849,558 84,079 (188,977) 9,744,660 Net interest margin....... 6.32% 4.29% 4.51% 4.03% N.M. N.M. N.M. 5.20% Return on average assets.. 2.54 1.30 1.18 1.51 N.M. N.M. N.M. 1.77 Return on average realized common equity... 32.50 12.08 15.22 17.65 N.M. N.M. N.M. 19.57 ===================================================================================================================================
N.M. Not meaningful. 60 Revenues from external customers for TCF's operating units, comprised of total interest income and non-interest income, are as follows:
Year Ended December 31, - ------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Deposits and investment products................ $ 232,603 $ 194,948 $ 143,714 Commercial lending.............................. 108,817 99,383 98,090 Consumer lending................................ 215,671 236,538 241,390 Lease financing................................. 76,052 80,201 72,610 Mortgage banking and residential lending........ 311,635 322,014 244,078 Investments and mortgage-backed securities...... 125,922 107,305 109,400 ----------------------------------------------- $ 1,070,700 $ 1,040,389 $ 909,282 =================================================================================================
21. OTHER EXPENSE Other expense consists of the following:
Year Ended December 31, - ------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Deposit account losses........................ $ 17,172 $ 14,335 $ 4,738 Telecommunication............................. 13,386 13,049 9,398 ATM interchange............................... 11,156 9,107 7,005 Postage and courier........................... 10,876 9,926 9,012 Office supplies............................... 8,879 10,006 8,349 Loan and lease................................ 5,469 6,917 5,751 Federal deposit insurance premiums and assessments.................................. 5,307 5,439 4,689 Mortgage servicing amortization and valuation adjustments........................ 4,906 6,815 4,853 Other......................................... 35,311 33,439 33,819 ------------------------------------------------- $ 112,462 $ 109,033 $ 87,614 =================================================================================================
22. LITIGATION AND CONTINGENT LIABILITIES From time to time, TCF is a party to legal proceedings arising out of its general lending and operating activities. TCF is and expects to become engaged in a number of foreclosure proceedings and other collection actions as part of its loan collection activities. From time to time, borrowers have also brought actions against TCF, in some cases claiming substantial amounts of damages. Some financial services companies have recently been subjected to significant exposure in connection with class actions and/or suits seeking punitive damages. While the Company is not aware of any actions or allegations which should reasonably give rise to any material adverse effect, it is possible that the Company could be subjected to such a claim in an amount which could be material. Management, after review with its legal counsel, believes that the ultimate disposition of its litigation will not have a material effect on TCF's financial condition. 61 INDEPENDENT AUDITORS' REPORT [LOGO] The Board of Directors and Stockholders of TCF Financial Corporation: We have audited the accompanying consolidated statements of financial condition of TCF Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. 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 generally accepted auditing standards. 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TCF Financial Corporation and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Minneapolis, Minnesota January 18, 2000 62 OTHER FINANCIAL DATA SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
At At At At At At At At (Dollars in thousands, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, except per-share data) 1999 1999 1999 1999 1998 1998 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------ SELECTED FINANCIAL CONDITION DATA: Total assets............ $10,661,716 $10,342,248 $10,338,341 $10,200,744 $10,164,594 $9,900,439 $9,393,060 $9,664,849 Investments............. 148,154 127,701 194,781 158,222 277,715 135,491 122,888 246,364 Securities available for sale............... 1,521,661 1,599,438 1,701,063 1,569,406 1,677,919 1,673,722 1,122,490 1,306,853 Loans and leases........ 7,895,743 7,602,130 7,431,171 7,293,329 7,141,178 7,092,639 7,103,686 7,036,646 Deposits................ 6,584,835 6,633,738 6,648,283 6,632,481 6,715,146 6,733,368 6,741,288 6,925,024 Borrowings.............. 3,083,888 2,721,200 2,734,652 2,579,789 2,461,046 2,159,948 1,617,240 1,631,021 Stockholders' equity.... 808,982 815,304 810,448 824,442 845,502 869,426 906,485 948,070 ============================================================================================================================== Three Months Ended - ------------------------------------------------------------------------------------------------------------------------------ Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, 1999 1999 1999 1999 1998 1998 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------ SELECTED OPERATIONS DATA: Interest income......... $ 193,043 $ 188,656 $ 186,359 $ 184,043 $ 185,286 $ 185,229 $ 186,903 $ 191,476 Interest expense........ 86,931 82,116 79,637 79,204 80,625 80,605 79,606 82,324 ----------------------------------------------------------------------------------------------------- Net interest income... 106,112 106,540 106,722 104,839 104,661 104,624 107,297 109,152 Provision for credit losses .............. 3,371 2,845 2,947 7,760 9,761 4,544 2,991 5,984 ----------------------------------------------------------------------------------------------------- Net interest income after provision for credit losses........ 102,741 103,695 103,775 97,079 94,900 100,080 104,306 103,168 ----------------------------------------------------------------------------------------------------- Non-interest income: Gain (loss) on sales of securities available for sale... - - (5) 3,199 - (43) 1,787 502 Gain on sales of loan servicing....... - - 743 2,333 - 2,414 - - Gain on sales of branches............. 3,349 6,429 2,382 - 12,051 226 4,260 2,048 Gain on sale of subsidiaries......... 5,522 - - - - - - - Gain on sale of joint venture interest............. - - - - - - - 5,580 Other non-interest income .............. 77,275 76,090 72,897 68,385 70,066 71,263 63,531 57,810 ----------------------------------------------------------------------------------------------------- Total non-interest income............ 86,146 82,519 76,017 73,917 82,117 73,860 69,578 65,940 ----------------------------------------------------------------------------------------------------- Non-interest expense: Amortization of goodwill and other intangibles.... 2,665 2,676 2,673 2,675 2,829 2,828 2,826 2,916 Other non-interest expense.............. 112,292 114,061 110,106 105,650 107,096 109,054 102,748 98,403 ----------------------------------------------------------------------------------------------------- Total non-interest expense............ 114,957 116,737 112,779 108,325 109,925 111,882 105,574 101,319 ----------------------------------------------------------------------------------------------------- Income before income tax expense.......... 73,930 69,477 67,013 62,671 67,092 62,058 68,310 67,789 Income tax expense...... 28,980 26,717 26,024 25,331 27,588 25,477 28,110 27,895 ----------------------------------------------------------------------------------------------------- Net income............ $ 44,950 $ 42,760 $ 40,989 $ 37,340 $ 39,504 $ 36,581 $ 40,200 $ 39,894 ===================================================================================================== Per common share: Basic earnings........ $ .55 $ .52 $ .50 $ .45 $ .47 $ .42 $ .45 $ .44 ===================================================================================================== Diluted earnings...... $ .55 $ .52 $ .49 $ .44 $ .46 $ .42 $ .45 $ .43 ===================================================================================================== Diluted cash earnings(1).......... $ .58 $ .54 $ .52 $ .47 $ .48 $ .44 $ .48 $ .48 ===================================================================================================== Dividends declared.... $ .1875 $ .1875 $ .1875 $ .1625 $ .1625 $ .1625 $ .1625 $ .125 ===================================================================================================== FINANCIAL RATIOS:(2) Return on average assets .............. 1.72% 1.66% 1.60% 1.48% 1.60% 1.54% 1.69% 1.66% Cash return on average assets(1).............. 1.80 1.73 1.67 1.55 1.68 1.62 1.81 1.83 Return on average realized common equity .............. 21.04 20.37 19.81 18.06 18.77 16.75 17.52 16.99 Return on average common equity.......... 22.03 21.29 20.11 17.99 18.56 16.58 17.37 16.83 Cash return on average realized common equity(1)....... 22.14 21.27 20.73 18.97 19.67 17.62 18.77 18.82 Average total equity to average assets...... 7.78 7.79 7.95 8.22 8.63 9.28 9.75 9.83 Average realized tangible equity to average assets......... 6.50 6.44 6.33 6.39 6.67 7.22 7.66 7.71 Net interest margin(3).. 4.38 4.46 4.52 4.52 4.65 4.82 4.94 4.94 ==============================================================================================================================
(1) Excludes amortization and reduction of goodwill, net of income tax benefit. (2) Annualized. (3) Net interest income divided by average interest-earning assets. 63 OTHER FINANCIAL DATA FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per-share data) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED SUMMARY OF OPERATIONS: Interest income $752,101 $748,894 $682,614 $612,884 $631,198 Interest expense 327,888 323,160 289,018 258,316 302,106 ---------------------------------------------------------------------------- Net interest income 424,213 425,734 393,596 354,568 329,092 Provision for credit losses 16,923 23,280 17,995 21,446 16,973(1) ---------------------------------------------------------------------------- Net interest income after provision for credit losses 407,290 402,454 375,601 333,122 312,119 Loss on sale of mortgage-backed securities - - - - (21,037) Gain (loss) on sales of securities available for sale 3,194 2,246 8,509 86 (152) Gain on sales of loan servicing 3,076 2,414 1,622 - 1,535 Gain on sales of branches 12,160 18,585 14,187 2,747 1,103 Gain on sale of subsidiaries 5,522 - - - - Gain on sale of joint venture interest - 5,580 - - - Gain on sales of loans - - - 5,443 - Other non-interest income 294,647 262,670 202,350 173,336 151,104 ---------------------------------------------------------------------------- Total non-interest income 318,599 291,495 226,668 181,612 132,553 ---------------------------------------------------------------------------- Amortization of goodwill and other intangibles 10,689 11,399 15,757 3,540 3,163 FDIC special assessment - - - 34,803 - Merger-related expenses - - - - 21,733 Cancellation cost on early termination of interest-rate exchange contracts - - - - 4,423 Other non-interest expense 442,109 417,301 345,605 314,983 296,664 ---------------------------------------------------------------------------- Total non-interest expense 452,798 428,700 361,362 353,326 325,983 ---------------------------------------------------------------------------- Income before income tax expense and extraordinary item 273,091 265,249 240,907 161,408 118,689 Income tax expense 107,052 109,070 95,846 61,031 45,482 ---------------------------------------------------------------------------- Income before extraordinary item 166,039 156,179 145,061 100,377 73,207 Extraordinary item, net - - - - (963) ---------------------------------------------------------------------------- Net income 166,039 156,179 145,061 100,377 72,244 Dividends on preferred stock - - - - 678 ---------------------------------------------------------------------------- Net income available to common shareholders $166,039 $156,179 $145,061 $100,377 $ 71,566 ============================================================================ Basic earnings per common share: Income before extraordinary item $ 2.01 $ 1.77 $ 1.72 $ 1.23 $ .89 Extraordinary item - - - - (.01) ---------------------------------------------------------------------------- Net income $ 2.01 $ 1.77 $ 1.72 $ 1.23 $ .88 ============================================================================ Diluted earnings per common share: Income before extraordinary item $ 2.00 $ 1.76 $ 1.69 $ 1.20 $ .87 Extraordinary item - - - - (.01) ---------------------------------------------------------------------------- Net income $ 2.00 $ 1.76 $ 1.69 $ 1.20 $ .86 ============================================================================ Dividends declared per common share $ .725 $ .6125 $ .46875 $.359375 $.296875 ============================================================================ Average common and common equivalent shares outstanding: Basic 82,445 88,093 84,478 81,904 81,115 ============================================================================ Diluted 83,071 88,916 86,134 83,939 83,560 ===================================================================================================================================
(1) Includes $5,000 in merger-related provisions. 64 FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED)
At December 31, - --------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per-share data) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED SUMMARY OF FINANCIAL CONDITION: Total assets $ 10,661,716 $ 10,164,594 $ 9,744,660 $ 7,430,487 $ 7,507,856 Interest-bearing deposits with banks 20,319 115,894 20,572 386,244 11,594 Federal funds sold - 41,000 - - - Other investments - 4,227 4,061 3,910 3,716 Federal Reserve Bank stock, at cost 23,224 23,112 22,977 - - Federal Home Loan Bank stock, at cost 104,611 93,482 82,002 66,061 60,096 Securities available for sale 1,521,661 1,677,919 1,426,131 999,586 1,201,525 Loans held for sale 198,928 213,073 244,612 203,869 242,413 Loans and leases 7,895,743 7,141,178 7,069,188 5,292,920 5,516,348 Goodwill 158,468 166,645 177,700 15,431 11,569 Deposit base intangibles 13,262 16,238 19,821 10,843 12,918 Deposits 6,584,835 6,715,146 6,907,310 4,977,630 5,191,552 Federal Home Loan Bank advances 1,759,787 1,804,208 1,339,578 1,141,040 893,587 Other borrowings 1,324,101 656,838 387,574 567,132 726,314 Stockholders' equity 808,982 845,502 953,680 630,687 582,399 Tangible net worth 637,252 662,619 756,159 604,413 557,912 Book value per common share 9.87 9.88 10.27 7.61 6.98 Tangible book value per common share 7.78 7.74 8.15 7.29 6.69 =================================================================================================================================
At or For the Year Ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- KEY RATIOS AND OTHER DATA: Net interest margin 4.47% 4.84% 5.20% 5.27% 4.61% Return on average assets 1.61 1.62 1.77 1.39 .95 Return on average realized common equity 19.83 17.51 19.57 16.77 13.69 Average total equity to average assets 7.93 9.35 9.12 8.31 7.04 Average interest-earning assets to average interest-bearing liabilities 117.02 116.55 117.15 115.29 111.30 Common dividend payout ratio 36.25% 34.80% 27.74% 29.95% 34.52% Number of full service bank offices 338 311 221 196 185 =================================================================================================================================
65 OTHER FINANCIAL DATA
ALLOWANCE FOR LOAN AND LEASE LOSS INFORMATION Year Ended December 31, - -------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 80,013 $ 82,583 $ 71,865 $ 66,290 $ 56,343 Acquired balance - - 10,592 - - Transfers to loans held for sale (14,793) - - - - Charge-offs: Residential real estate (155) (291) (444) (333) (472) Commercial real estate (674) (1,294) (927) (1,944) (4,189) Commercial business (52) (42) (1,485) (2,786) (1,695) Consumer (31,509) (30,108) (21,660) (18,317) (8,414) Lease financing (2,008) (979) (2,297) (914) (247) ------------------------------------------------------------------------- (34,398) (32,714) (26,813) (24,294) (15,017) ------------------------------------------------------------------------- Recoveries: Residential real estate 71 103 167 131 157 Commercial real estate 1,381 559 2,530 3,690 1,080 Commercial business 329 635 2,488 2,675 4,862 Consumer 5,831 5,222 3,141 1,918 1,892 Lease financing 398 345 618 9 - ------------------------------------------------------------------------- 8,010 6,864 8,944 8,423 7,991 ------------------------------------------------------------------------- Net charge-offs (26,388) (25,850) (17,869) (15,871) (7,026) Provision charged to operations 16,923 23,280 17,995 21,446 16,973 ------------------------------------------------------------------------- Balance at end of year $ 55,755 $ 80,013 $ 82,583 $ 71,865 $ 66,290 ========================================================================= Ratio of net loan and lease charge-offs to average loans and leases outstanding .35% .36% .30% .29% .13% Year-end allowance as a percentage of year-end total loan and lease balances .71 1.12 1.17 1.36 1.20 ================================================================================================================================
66
CONTRACTUAL AMORTIZATION OF LOAN AND LEASE PORTFOLIOS At December 31, 1999(1) - ------------------------------------------------------------------------------------------------------------------------------- Residential Commercial Commercial Lease Total Loans (In thousands) Real Estate Real Estate Business Consumer Financing and Leases - ------------------------------------------------------------------------------------------------------------------------------- Amounts due: Within 1 year $ 136,919 $ 177,013 $223,582 $ 102,964 $220,920 $ 861,398 After 1 year: 1 to 2 years 131,408 93,437 46,219 88,756 147,352 507,172 2 to 3 years 128,873 83,395 46,150 90,461 73,512 422,391 3 to 5 years 273,262 218,182 57,113 218,548 55,180 822,285 5 to 10 years 683,659 351,877 20,597 523,161 4,158 1,583,452 10 to 15 years 624,379 135,834 802 823,271 - 1,584,286 Over 15 years 1,932,684 16,857 - 227,675 - 2,177,216 --------------------------------------------------------------------------------------------- Total after 1 year 3,774,265 899,582 170,881 1,971,872 280,202 7,096,802 --------------------------------------------------------------------------------------------- Total $ 3,911,184 $ 1,076,595 $394,463 $2,074,836 $501,122 $7,958,200 ============================================================================================= Amounts due after 1 year on: Fixed-rate loans and leases $ 1,643,675 $ 184,720 $ 98,325 $ 999,956 $280,202 $3,206,878 Adjustable-rate loans 2,130,590 714,862 72,556 971,916 - 3,889,924 --------------------------------------------------------------------------------------------- Total after 1 year $ 3,774,265 $ 899,582 $170,881 $1,971,872 $280,202 $7,096,802 ===============================================================================================================================
(1) Gross of unearned discounts and deferred fees. This table does not include the effect of prepayments, which is an important consideration in management's interest-rate risk analysis. Industry experience indicates that the loans remain outstanding for significantly shorter periods than their contractual terms. 67 EX-21 9 EXHIBIT 21 TCF FINANCIAL CORPORATION EXHIBIT 21 Subsidiaries of Registrant (As of March 15, 2000)
NAMES UNDER WHICH SUBSIDIARY SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS TCF Financial Insurance Illinois TCF Financial Insurance Agency Agency Illinois, Inc. Illinois, Inc. TCF Insurance TCF Financial Insurance Minnesota TCF Financial Insurance Agency Agency Wisconsin, Inc. Wisconsin, Inc. TCF Insurance TCF Financial Insurance Agency Minnesota TCF Financial Insurance Agency Michigan, Inc. Michigan, Inc. TCF Insurance GLB Agency TCF Financial Insurance Agency Minnesota TCF Financial Insurance Agency Colorado, Inc. Colorado, Inc. TCF Financial Insurance Agency, Inc. Minnesota TCF Financial Insurance Agency, Inc. TCF Insurance TCF Securities, Inc. Minnesota TCF Securities, Inc. GLB Securities (MI) TCF Foundation Minnesota TCF Foundation TCF Minnesota Financial Services, Inc. Minnesota TCF Minnesota Financial Services, Inc. TCB Air, Inc. Minnesota TCB Air, Inc. TCF National Bank Minnesota United States TCF National Bank Minnesota TCF Consumer Financial Services, Inc. Minnesota TCF Consumer Financial Services, Inc. TCF Financial Services TCF Mortgage Corporation Minnesota TCF Mortgage Corporation TCFMC Holding Co. Minnesota TCFMC Holding Co. TCF Financial Services, Inc. Minnesota TCF Financial Services, Inc. TCF Management Corporation Minnesota TCF Management Corporation NAMES UNDER WHICH SUBSIDIARY SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS TCF Agency Minnesota, Inc. Minnesota TCF Agency Minnesota, Inc. TCF Agency Minnesota TCF Insurance Agency Minnesota, Inc. (UT) TCF Agency Mississippi, Inc. Mississippi TCF Agency Mississippi, Inc. TCF Agency Mississippi TCF Agency Insurance Services, Inc. Minnesota TCF Agency Insurance Services, Inc. TCF National Properties, Inc. Minnesota TCF National Properties, Inc. TCF Real Estate Financial Services, Inc. Minnesota TCF Real Estate Financial Services, Inc. Winthrop Resources Corporation Minnesota Winthrop Resources Corporation TCF Small Business Leasing TCF Leasing, Inc. TCF Leasing, Inc. WINR Business Credit TCF National Bank Wisconsin United States TCF National Bank Wisconsin TCF Agency Wisconsin, Inc. Wisconsin TCF Agency Wisconsin, Inc. TCF Portfolio Strategies, Inc. Minnesota TCF Portfolio Strategies, Inc. TCF National Bank Illinois United States TCF National Bank Illinois Capitol Equities Corporation Illinois Capitol Equities Corporation SFB Insurance Agency, Inc. Illinois SFB Insurance Agency, Inc. Standard Financial Mortgage Illinois Standard Financial Mortgage Corporation Corporation TCF Agency Illinois, Inc. Illinois TCF Agency Illinois, Inc. TCF National Bank United States Great Lakes National Bank Michigan TCF National Bank GLB Service Corporation II Michigan GLB Service Corporation II GLB Properties, Inc. Michigan GLB Properties, Inc. Lakeland Group Insurance Agency, Inc. Michigan Lakeland Group Insurance Agency, Inc. 401 Service Corporation Michigan 401 Service Corporation NAMES UNDER WHICH SUBSIDIARY SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS TCF Colorado Corporation Colorado TCF Colorado Corporation TCF National Bank Colorado United States TCF National Bank Colorado TCF Agency Colorado, Inc. Colorado TCF Agency Colorado, Inc. Great Lakes Mortgage LLC Michigan Great Lakes Mortgage LLC TCF Investment Holdings I, Inc. Minnesota TCF Investment Holdings I, Inc. TCF Investment Holdings II, Inc. Minnesota TCF Investment Holdings II, Inc. TCF Investment Holdings III, Inc. Minnesota TCF Investment Holdings III, Inc. GLB Investment Holdings IV, Inc. Minnesota GLB Investment Holdings IV, Inc. TCF Investment Holdings V, Inc. Minnesota TCF Investment Holdings V, Inc. TCF Real Estate Investments, Inc. Minnesota TCF Real Estate Investments, Inc. TCF Illinois Realty Investments, LLC Minnesota TCF Illinois Realty Investments, LLC TCF Wisconsin Real Estate Minnesota TCF Wisconsin Real Estate Investments, Inc. Investments, Inc. GLB Real Estate Investments, Inc. Minnesota GLB Real Estate Investments, Inc.
EX-23 10 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors TCF Financial Corporation: We consent to incorporation by reference of our report dated January 18, 2000, relating to the consolidated statements of financial condition of TCF Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 Form 10-K of TCF Financial Corporation, in the following Registration Statements of TCF Financial Corporation: Nos. 33-43030, 33-57633, 33-53986, and 33-63767 on Form S-8. /s/ KPMG LLP Minneapolis, Minnesota March 24, 2000 EX-27 11 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1999 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 429,262 20,319 0 0 1,521,661 0 0 7,895,743 55,755 10,661,716 6,584,835 1,650,483 184,011 1,433,405 0 0 928 808,054 10,661,716 618,291 120,443 13,367 752,101 175,495 327,888 424,213 16,923 3,194 452,798 273,091 166,039 0 0 166,039 2.01 2.00 4.47 24,074 5,789 0 32,981 80,013 34,398 8,010 55,755 38,916 0 16,839
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