EXHIBIT 10(d)
TCF DIRECTORS DEFERRED COMPENSATION TRUST
(a) This Agreement made effective as of the 1st day of October, 2000 by
and between TCF Financial Corporation ("TCF Financial") and any subsidiary
thereof whose directors are eligible for a plan listed in the Appendix (TCF
Financial and the subsidiaries are individually each referred to herein as the
"Company") and The First National Bank in Sioux Falls ("Trustee");
(b) WHEREAS, Company has adopted the nonqualified deferred compensation
plan(s) as listed in the Appendix ( the "Plan").
(c) WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plan(s) with respect to the individuals participating in such
Plan(s).
(d) WHEREAS, Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan(s);
(e) WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan(s) as an unfunded plan maintained for the purpose of providing deferred
compensation for non-employee directors;
(f) WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan(s);
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. ESTABLISHMENT OF TRUST
(a) Company hereby deposits with Trustee in trust shares of common stock,
TCF Financial Corporation, par value $.01 per share ("TCF Stock"), which shall
become the principal of the Trust to be held, administered and disposed of by
Trustee as provided in this Trust Agreement.
(b) The Trust shall become irrevocable upon approval by the Board of
Directors of TCF Financial.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of
Plan participants and general creditors as herein set forth. Plan participants
and their beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created under the
Plan(s) and this Trust Agreement shall be mere unsecured contractual rights of
Plan participants and their beneficiaries against Company. Any assets held by
the Trust will be subject to the claims of Company's general creditors under
federal and state law in the event of Insolvency, as defined in Section 3(a)
herein.
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional deposits.
Section 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) Company shall deliver to Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of each Plan participant (and his
or her beneficiaries), that provides a formula or other instructions acceptable
to Trustee for determining the amounts so payable, the form in which such amount
is to be paid (as provided for or available under the Plan(s)), and the time of
commencement for payment of such amounts. Except as otherwise provided herein,
Trustee shall make payments to the Plan participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plan(s) and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan(s) shall be determined by Company or such party as it
shall designate under the Plan(s), and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan(s).
(c) Company may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan(s). Company
shall notify Trustee of its decision to make payment of benefits directly prior
to the time amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan(s), Company shall make the balance of each such payment as it falls due.
Trustee shall notify Company where principal and earnings are not sufficient.
Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY
WHEN COMPANY IS INSOLVENT.
(a) Trustee shall cease payment of benefits to Plan participants and their
beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for
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purposes of this Trust Agreement if (i) Company is unable to pay its debts as
they become due, or (ii) Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code, or (iii) Company is determined to be
insolvent by the Office of the Comptroller of the Currency the Federal Deposit
Insurance Corporation.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of Company
shall have the duty to inform trustee in writing of Company's Insolvency. If a
person claiming to be a creditor of Company alleges in writing to Trustee that
Company has become Insolvent, Trustee shall determine whether Company is
Insolvent and, pending such determination, Trustee shall discontinue payment of
benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's Insolvency, or has
received notice from Company or a person claiming to be a creditor alleging that
Company is Insolvent, Trustee shall have no duty to inquire whether Company is
Insolvent. Trustee may in all events rely on such evidence concerning Company's
solvency as may be furnished to Trustee and that provides Trustee with a
reasonable basis for making a determination concerning Company's solvency.
(3) If at any time Trustee has determined that Company is Insolvent,
Trustee shall discontinue payments to Plan participants or their beneficiaries
and shall hold the assets of the Trust for the benefit of Company's general
creditors. Nothing in this Trust Agreement shall in any way diminish any rights
as of Plan participants or their beneficiaries as general creditors of Company
with respect to benefits due under the Plan(s) or otherwise.
(4) Trustee shall resume the payment of benefits to Plan participants or
their beneficiaries in accordance with Section 2 of this Trust Agreement only
after Trustee has determined that Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance, less the aggregate amount of any payments made to
Plan participants or their beneficiaries by Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust assets before all payment of
benefits have been made to Plan participants and their beneficiaries pursuant to
the terms of the Plan(s).
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Section 5. INVESTMENT AUTHORITY.
(a) Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by Company. All rights associated with assets of
the Trust shall be exercised by Trustee or the person designated by Trustee, and
shall in no event be exercisable by or rest with Plan participants except that
voting rights with respect to Trust assets will be exercised by TCF Financial.
Company shall have the right at anytime, and from time to time in its sole
discretion, to substitute assets of equal fair market value for any asset held
by the Trust. This right is exercisable by Company in a nonfiduciary capacity
without the approval or consent of any person in a fiduciary capacity.
Section 6. DISPOSITION OF INCOME.
(a) During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be accumulated and reinvested.
Section 7. ACCOUNTING BY TRUSTEE.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 90 days following the close of each calendar year
and within 30 days after the removal or resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements, and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
Section 8. RESPONSIBILITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated by, and in conformity, the
terms of the Plan(s) or this Trust and is given in writing by Company. In
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the event of a dispute between Company and a party, Trustee may apply to a court
of competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in connection
with this Trust, Company agrees to indemnify Trustee against Trustee's costs,
expenses and liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such payments. If
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any of
its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. COMPENSATION AND EXPENSES OF TRUSTEE.
Company shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
Section 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 30 days after receipt of such notice unless Company and
Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days notice or upon shorter
notice accepted by Trustee, except as provided below.
(c) Upon a Change of Control, as defined herein, Trustee may not be
removed by Company for three years.
(d) If Trustee resigns or is removed within three years of a Change of
Control, as defined herein, Trustee shall select a successor Trustee in
accordance with the provisions of Section 11(b) hereof prior to the effective
date of Trustee's resignation or removal.
(e) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be
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completed within 30 days after receipt of notice of resignation, removal or
transfer, unless Company extends the time limit.
(f) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with section 11 hereof, by the effective date of resignation or
removal under paragraph (a) or (b) of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 11. APPOINTMENT OF SUCCESSOR.
(a) If Trustee resigns or is removed in accordance with Section 10(a) or
(b) hereof, Company may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law, as
a successor to replace Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the new Trustee, who shall have
all of the rights and powers of the former Trustee, including ownership rights
in the Trust assets. The former Trustee shall execute any instrument necessary
or reasonably requested by Company or the successor Trustee to evidence the
transfer.
(b) If Trustee resigns or is removed pursuant to the provisions of Section
10(d) hereof and selects a successor Trustee, Trustee may appoint any third
party such as a bank trust department or other party that may be granted
corporate trustee powers under state law. The appointment of a successor Trustee
shall be effective when accepted in writing by the new Trustee. The new Trustee
shall have all the rights and powers of the former Trustee, including ownership
rights in Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by the successor Trustee to evidence the
transfer.
(c) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
Section 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee and Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plan(s) or shall make the Trust revocable after
it has become irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan(s). Upon termination of the Trust, any assets remaining
in the Trust shall be returned to Company.
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(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the plan(s), Company may terminate
this Trust prior to the time all benefit payments under the Plan(s) have been
made. All assets in the Trust at termination shall be returned to Company.
(d) Sections 1(b), 5, 10, 11, 12 and 13 of this Trust Agreement may not be
amended by Company for three years following a Change of Control, as defined
herein.
Section 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
the Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of Minnesota.
(d) For purposes of this Trust, Change of Control shall mean each of the
events specified in the following clauses (i) through (iii), (i) any third
person, including a "group" as defined in section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, shall become the beneficial owner of the
shares of TCF Financial with respect to which 25% or more of the total number of
votes for the election of the Board of Directors of TCF Financial may be cast,
(ii) as a result of, or in connection with, any cash tender offer, exchange
offer, merger, or other business combination, sale of assets, or contested
election, or combination of the foregoing, the persons who were directors of TCF
Financial shall cease to constitute a majority of the Board of Directors of TCF
Financial, or (iii) the shareholders of TCF Financial shall approve an agreement
providing either for a transaction in which TCF Financial will cease to be an
independent publicly owned corporation or for a sale or other disposition of all
or substantially all the assets of TCF Financial; provided, however, that the
occurrence of any such events shall not be deemed a "change of control" if,
prior to such occurrence, a resolution specifically approving such occurrence
shall have been adopted by at least a majority of the Board of Directors of TCF
Financial.
Section 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be October 1, 2000.
TCF Financial Corporation
By:
Title:
[NO SEAL]
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Attest:
By
As its
The First National Bank in Sioux Falls
By:
Title:
[NO SEAL]
Attest
By
As its
EXHIBIT 10(m)
TRUST AGREEMENT FOR
TCF FINANCIAL SENIOR OFFICER DEFERRED COMPENSATION PLAN
THIS TRUST AGREEMENT, made effective as of the 1st day of October, 2000,
by and between TCF Financial Corporation, a Delaware corporation ("TCF
Financial") and The First National Bank in Sioux Falls (the "Trustee"),
W I T N E S S E T H:
WHEREAS, TCF Financial has established the TCF Financial Senior Officer
Deferred Compensation Plan (the "Plan"), which plan is now in full force and
effect; and
WHEREAS, the Plan is a nonqualified deferred compensation plan for select
management of TCF Financial and its subsidiaries (the "Companies" or,
individually, the "Company"), and TCF Financial wishes to establish a convenient
method for discharging its obligations to pay deferred compensation under said
Plan;
NOW, THEREFORE, the parties to this Agreement do hereby agree as follows:
ARTICLE 1
ESTABLISHMENT AND ACCEPTANCE OF TRUST
SECTION 1.1. This Trust shall be known as the "TRUST FOR TCF FINANCIAL
SENIOR OFFICER DEFERRED COMPENSATION PLAN." The Trustee hereby accepts the Trust
subject to all of the terms and conditions of this Agreement, and agrees to hold
and administer the assets of the Trust and to execute the Trust in accordance
with the provisions hereof. The assets deposited with the Trustee and held
pursuant to this Trust are referred to herein collectively as the "Trust Fund."
SECTION 1.2. Amounts credited to the accounts of Plan participants
pursuant to Article 4 are not included in their gross income for federal income
tax purposes until such time as they are actually paid or otherwise made
available to such participants.
ARTICLE 2
CONTRIBUTIONS TO THE TRUST
SECTION 2.1. The Trustee shall receive from time to time such amounts in
cash or other property acceptable to the Trustee as the Companies shall
contribute pursuant to the terms of the Plan. Each such contribution shall be
accompanied by a statement designating the Plan
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participant on behalf of whom such contribution is being made and, if more than
one account has been established for such participant pursuant to Section 4, the
account to which such contribution will be credited. The Trustee shall be under
no obligation to collect any such contributions, and all responsibility for
determining the amount, timing, and types of contributions made to the Trustee
shall be upon the Companies or their designees. Nothing in this Agreement shall
be construed as requiring the Companies, or any of them, to make any
contributions to the Trust.
SECTION 2.2. All contributions so received and all proceeds, investments,
reinvestments, and income thereof in the Trustee's possession shall be held,
invested, and, with all disbursements therefrom, accounted for by the Trustee as
provided in this Agreement.
SECTION 2.3. No portion of the Trust Fund shall be diverted to or used for
any purpose other than the payment of benefits pursuant to the Plan, or for the
payment of expenses of administering the Plan and the Trust, or for the payment
of expenses incurred in the making and administering of Trust investments
pursuant to Sections 4 and 5, until such time as the Companies' obligations to
make payments pursuant to the Plan have been fully discharged; PROVIDED, and
notwithstanding anything in this Agreement to the contrary, at all times during
the continuance of this Trust, the principal and income of the Trust Fund shall
be subject to the claims of the general creditors of the Companies. At any time
that the Trustee has actual knowledge, or has determined, that a Company is
"Insolvent," it shall deliver any undistributed principal and income credited to
the accounts established for participants employed by such Company to satisfy
such claims as a court of competent jurisdiction may direct. The Board of
Directors and the Chief Executive Officer of each Company shall have the duty to
inform the Trustee of that Company's Insolvency. If a Company or any person
claiming to be a creditor of a Company alleges in writing to the Trustee that
such Company has become Insolvent, and if the Trustee determines such allegation
is made in good faith and upon reasonable grounds, the Trustee shall immediately
suspend payments from the accounts established for participants employed by such
Company and shall hold all assets of such accounts subject to claims of such
Company's creditors. The Trustee shall then request, within 10 days, from such
Company sufficient information to determine if the Company is Insolvent. If the
Company shall fail or refuse to supply sufficient information from which the
Trustee may determine if the Company is Insolvent within 30 days of the
Trustee's request, the Trustee shall promptly request such information from the
party which alleged that the Company is Insolvent. If, on the basis of the
information so provided, the Trustee determines that the Company is not
Insolvent, it shall immediately resume payments from the accounts established
for participants employed by such Company, together with payment of any amounts
held back by the Trustee while making a determination as to Insolvency. If the
Trustee determines the Company is Insolvent, or if it has not received
sufficient information to make a determination as to the Company's solvency, it
shall resume such payments only after the Trustee has determined that the
Company is no longer Insolvent. Unless the Trustee has actual knowledge of a
Company's Insolvency, it shall have no duty to inquire whether any Company is
Insolvent. The Trustee may in all events rely on such evidence concerning the
Companies' solvency as may be furnished to the Trustee which will give it a
reasonable basis for making a determination concerning the Companies' solvency,
and nothing in this Agreement shall in any way diminish any right of the Plan's
participants or their
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beneficiaries to pursue their rights as general creditors of the Companies with
respect to benefits payable to them pursuant to the Plan. To assist the Trustee
with its determinations required hereunder, the Trustee may rely upon the advice
of legal counsel and/or other professional counsel retained by the Trustee and
such counsel's reasonable fees and expenses shall be payable from the assets of
the Trust or, at TCF Financial's election, may be directly paid by TCF Financial
and/or one or more of the Companies, PROVIDED that TCF Financial is notified in
advance of the Trustee's retention of legal counsel and TCF Financial or the
Committee consents thereto, which consent shall not be unreasonably withheld. A
Company shall be considered "Insolvent" for the purposes of this Agreement if it
is unable to pay its debts as they mature, or if it is a party as a debtor to a
proceeding pending under the U.S. Bankruptcy Code, or under any other applicable
state or federal bankruptcy law.
ARTICLE 3
PAYMENTS FROM THE TRUST FUND
SECTION 3.1.
a. When a Plan participant or beneficiary becomes entitled to
benefits pursuant to the Plan, the committee appointed to administer the Plan
(the "Committee") shall notify and direct the Trustees in writing of:
i. the name, social security number, and mailing address of
such participant or beneficiary;
ii. the amount and form of the distributions to be made to such
participant or beneficiary under the Plan;
iii. the period for which such distributions are to be made; and
iv. the date on which such distributions are to commence.
Upon receipt of such notice and direction, the Trustee shall commence payments
due to such participant or beneficiary out of the Trust assets. Such payments
shall be debited to the account or accounts established for such participant as
provided in Section 4 and shall continue until the earliest of: (A) the date on
which the last payment due to such participant or beneficiary has been made; (B)
the balance credited to the account or accounts from which such payments are to
be made has been reduced to zero; or (C) the Trustee receives written notice and
direction from the Committee to cease distributions because a Company will
continue such payments out of its general assets.
b. If the Trustee receives written notice and direction from the
Committee that a Company will continue any payments due pursuant to this section
3.1 out of its general assets, the Trustee shall discontinue the making of such
distributions out of the Trust Fund; PROVIDED, that the Trustee shall resume
such distributions (and shall make any payments then in
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arrears) if it receives written notice and direction from the Committee that the
Company will no longer make such payments from its general assets.
c. Distributions due pursuant to this section 3.1 shall be made at
such times, and in such form, as may be provided for under the Plan.
d. A "Directing Party" for purposes of this Agreement shall include
TCF Financial, the Committee, or any participant or beneficiary authorized by
this Agreement to direct the Trustee, as applicable (collectively referred to
for purposes of this Agreement as the "Directing Party").
e. Notwithstanding paragraphs a, and b of this Section, the following
shall apply on and after a Change in Control (as defined in Section 5(j) of the
Plan). If the Trustee receives notification from any source that a distribution
may be due to a participant or beneficiary, the Trustee shall promptly request
from the Committee all relevant information and directions relative to such
distribution(s) and if the Committee shall fail to provide such information
and/or directions within 30 days, the Trustee shall accept and act upon any
information and/or directions received from the participant or beneficiary with
respect to commencement or re-commencement of the payment of distributions to
such participant or beneficiary. In connection with providing such information
and/or directions, the participant or beneficiary shall be deemed a "Directing
Party" for purposes of this Agreement.
f. The Trustee shall be held harmless and shall not be liable for its
acts with respect to distributions from the Trust Fund when following the
directions of the Committee, or for failure to act in the absence of such
directions, nor shall the Trustee be liable or responsible for any payment made
by it in good faith and in the exercise of reasonable care without knowledge of
the changed condition or status of any payee.
SECTION 3.2. Except to the extent that such amounts are promptly paid by
the Companies, the Trustee shall also pay out of the Trust Fund: (a) all broker
fees and other expenses incurred in connection with the sale or purchase of
investments; (b) all personal property taxes, income taxes, and other taxes of
any kind (including taxes payable by the Companies, net of any related tax
savings to the Companies) at any time levied or assessed under any present or
future law upon, or with respect to, the Trust Fund or any property included in
the trust Fund; and (c) its own compensation and all other reasonable expenses
of administering the Plan and the Trust, including legal and/or other
professional fees reasonably incurred by the Trustee and/or the Trust pursuant
to Section 2.3 of this Agreement. Expenses shall be charged to the Trust Fund
without allocation among the accounts established pursuant to Section 4, unless
an expense is directly attributable to one or more of such accounts, in which
case such expense shall be charged directly to such accounts. The Trustee may
dispose of Trust investments, if necessary to provide cash assets for the
payment of expenses.
SECTION 3.3. As directed by the Committee, the Trustee shall withhold all
or any part of any distribution required to be made hereunder as the Committee
reasonably deems necessary and proper to protect the Trustee or the Trust Fund
against any liability or claim on account of
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any estate, inheritance, income, or other tax, and the Trustee may discharge any
such liability with any part or all of any such payment so withheld.
SECTION 3.4. Distributions pursuant to Section 3.1 shall be deemed to have
been sufficiently made if they are sent by first class mail to the participant
at the address provided to the Trustee by the Committee. If any such
distribution is returned to the Trustee unclaimed, the Trustee shall notify the
Committee and shall not make any further distributions to such payee until it
receives further directions from the Committee.
ARTICLE 4
INVESTMENTS OF THE TRUST FUND; PARTICIPANTS' ACCOUNTS
SECTION 4.1. Except as otherwise specifically provided herein, the Trustee
shall invest, reinvest, and hold the assets of the Trust Fund in such
investments as may be permitted by the Committee and as each Plan participant
shall direct in writing for his own account. Insofar as the Trustee has acquired
an investment for a Plan participant's Account pursuant to such directions, the
participant 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 Trustee shall not be restricted to those investments
which are authorized by the laws of any State for the investment of trust funds.
In addition, the Trustee may, for reasonable periods of time, hold in its
banking department any part or all of the Trust Fund uninvested or in cash
without liability for interest thereon, pending the investment of such funds or
the payment of costs, expenses, or benefits payable under the Plan in the
banking department of any corporate Trustee serving hereunder or of any other
bank, trust company or other financial institution including those affiliated in
ownership with the Trustee. The Trustee shall not be liable for any action taken
or omitted by it pursuant to such written directions which shall be deemed to be
authorized by the Committee and to be directions of the Committee.
Notwithstanding the foregoing provisions of this Section 4.1, the rights of each
Plan participant to direct the investment of his account shall be subject to the
claims of the general creditors of the Company by which such participant is
employed. Any investment direction of a participant shall be made by each
December 31 as applicable to the next succeeding calendar year and shall be
irrevocable with respect to such calendar year, unless the Committee shall
direct otherwise.
SECTION 4.2. The Trustee shall establish one or more separate accounts for
each Plan participant, and each such account shall be designated by the name of
the participant for whom it has been established. The assets of the Trust Fund
initially deposited with the Trustee shall be allocated among these accounts in
accordance with the instructions of the Committee. All contributions received by
the Trustee on behalf of a participant, and all dividends or distributions made
with respect to property allocated to such participant's account, shall then be
credited to such account and invested as the participant shall direct.
Distributions made by the Trustee to a Plan participant shall only be made from
such Participant's account to the extent of the balance thereof.
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SECTION 4.3. Notwithstanding the foregoing, a Plan participant's right to
direct the investment of his account during any period of distribution
subsequent to his retirement or disability shall be the same as an active
participant's unless the Committee directs otherwise. Notwithstanding the
foregoing provisions of this Section 4.3, the rights of each Plan participant to
direct the investment of his Account (which directions shall be deemed to be
directions of the Committee) shall be subject to the claims of the general
creditors of the Company by which such participant is employed.
ARTICLE 5
POWERS AND DUTIES OF THE TRUSTEE
SECTION 5.1. In addition to the powers and discretions conferred upon the
Trustee by any other provision of this Agreement, but subject to the provisions
of Article 4 hereof, the Trustee shall have all the usual powers conferred by
law on trustees and shall also have the following express powers with respect to
the Trust Fund:
a. To retain, to exchange for any other property, to sell in any
manner and at any time, to divide, subdivide, partition, mortgage, improve,
alter, remodel, repair, and develop in any manner any property, real or
personal, to lease such property for any period of time, and to grant options to
sell or lease any such property, without regard to restrictions and without the
approval of any court.
b. As directed by the Committee, to vote stock held by the Trust Fund
personally or by proxy, and to delegate the Trustee's voting powers with respect
to such stock to such proxy.
c. To exercise subscription, conversion, and other rights and options
as directed by the Committee, and to make payments form the Trust Fund in
connection therewith.
d. At the direction of the Committee, to take any action and to
abstain from taking any action with respect to any reorganization,
consolidation, merger, dissolution, recapitalization, refinancing, and any other
plan or change affecting any property constituting a part of the Trust Fund, and
in connection therewith to delegate its discretionary powers and to pay
assessments, subscriptions, and other charges from the Trust Fund.
e. In any manner, and to any extent, to waive, modify, reduce,
compromise, release, settle, and extend the time of payment of any claim of
whatsoever nature in favor of or against the Trustee or all or any part of the
Trust Fund.
f. At the direction of the Committee, to borrow money from any person
and to pledge assets of the Trust Fund as security for repayment of any such
loan.
g. Notwithstanding any language in the Trust instrument, neither the
Committee nor the Trustee on behalf of the Trust shall have power to start, to
enter into or
6
otherwise engage in any business enterprise, or to continue to operate any
business enterprise, that becomes part of the Trust estate, if such activity
constitutes "carrying on business" as referred to in Section 301.7701-2 of the
procedure and administration regulations.
h. The Trustee is expressly authorized to the fullest extent
permitted by law to (i) retain the services of U.S. Bancorp Piper Jaffray Inc.
and/or U.S. Bancorp Investments, Inc., each being affiliates of U.S. Bank
National Association, and/or any other registered broker-dealer organization
hereafter affiliated with U.S. Bank National Association, and any future
successors in interest thereto (collectively for the purposes of this paragraph
referred to as the "Affiliated Entities"), to provide services to assist in or
facilitate the purchase or sale of investment securities in the Trust, (ii)
acquire as assets of the Trust shares of mutual funds to which Affiliated
Entities provides, for a fee, services in any capacity and (iii) acquire in the
Trust any other services or products of any kind or nature from the Affiliated
Entities regardless of whether the same or similar services or products are
available from other institutions. The Trust may directly or indirectly (through
mutual funds fees and charges for example) pay management fees, transaction fees
and other commissions to the Affiliated Entities for the services or products
provided to the Trust and/or such mutual funds at such Affiliated Entities'
standard or published rates without offset (unless required by law) from any
fees charged by the Trustee for its services as Trustee. The Trustee may also
deal directly with the Affiliated Entities regardless of the capacity in which
it is then acting, to purchase, sell, exchange or transfer assets of the Trust
even though the Affiliated Entities are receiving compensation or otherwise
profiting from such transaction or are acting as a principal in such
transaction. Each of the Affiliated Entities is authorized to (i) effect
transactions on national securities exchanges for the Trust as directed by the
Trustee, and (ii) retain any transactional fees related thereto, consistent with
Section 11(a)(1) of the Securities Exchange Act of 1934, as amended, and related
Rule 11a2-2(T). Included specifically, but not by way of limitation, in the
transactions authorized by this provision are transactions in which any of the
Affiliated Entities are serving as an underwriter or member of an underwriting
syndicate for a security being purchased or are purchasing or selling a security
for its own account. In the event the Trustee is directed by a Directing Party
(as defined in Section 3.1(d) of this Agreement), the Directing Party shall be
authorized, and expressly retains the right hereunder, to direct the Trustee to
retain the services of, and conduct transactions with, Affiliated Entities fully
in the manner described above.
SECTION 5.2. The Trustee shall have no duties whatsoever except as are
specifically set forth as such in this Agreement, and no implied covenant or
obligation will be read into this Agreement against the Trustee.
SECTION 5.3. If there is more than one Trustee, the action of all of the
Trustees at the time acting hereunder, and any instrument executed by all of the
Trustees, shall be considered the action or instrument of the Trustee. Such
action may be taken at a meeting or in writing without a meeting, and the
Trustees may authorize any one or more of them to perform routine functions, to
sign routine papers, and to perform established or customary administrative and
ministerial functions.
7
ARTICLE 6
ACCOUNTS OF THE TRUSTEE; VALUATION OF TRUST FUND
SECTION 6.1. The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements, distributions, and other transactions.
Such accounts will be open to inspection and audit by the Companies or the
Committee, or by any authorized representative thereof, at all reasonable times
during business days.
SECTION 6.2. As of each December 31st, and at such other times as the
Committee may reasonably require, the Trustee shall determine the fair market
value of the Trust Fund, and of each participant's Account, and shall notify the
Committee in writing of the fair market value as so determined within 30 days
thereof. In addition, for purposes of determining the amount of any lump sum
distribution payable pursuant to the Plan, the Trustee shall determine the fair
market value of a Plan participant's Accounts as of the last day of the calendar
month coincident with or following such participant's termination of employment.
The fair market value of the Trust Fund, and of each participant's Account,
shall be the fair market value of all securities and other assets then held in
the Trust Fund or in such Account, including all income received since the last
valuation and income accrued and unpaid at the close of the valuation period. In
determining fair market value, the Trustee may rely upon any information that it
believes to be reliable, including reports of sales and of bid and asked prices
of issues listed on an exchange as disclosed in newspapers of general
circulation or in generally recognized financial services, quotations with
respect to unlisted issues as supplied by any reputable broker or investment
bank, or from any other source that the Trustee believes to be reliable, or the
Trustee may make any such determination based upon its own analysis of such
records or reports of any company issuing such stock or other securities as are
made available to them.
ARTICLE 7
ADMINISTRATIVE PROVISIONS
SECTION 7.1. Except as otherwise specifically provided herein, the Trustee
may rely upon the authenticity, truth, and accuracy of, and will be fully
protected in acting upon:
a. Any copy of a resolution of the Board of Directors of TCF
Financial or any of the Companies, if certified by the Secretary or an Assistant
Secretary of the appropriate Company under its corporate seal.
b. Any notice, direction, certification, approval, or other writing
of the Committee, if evidenced by an instrument signed in the name of the
Committee by one or more of its members or by the Secretary of TCF Financial.
8
c. Any notice, direction, certification, or other writing, given by a
Plan participant pursuant to Section 4.1 which is believed by the Trustee to be
genuine and to have been sent by such participant.
SECTION 7.2. The Trustee shall receive such reasonable compensation as may
from time to time be agreed upon by TCF Financial and the Trustee. The Trustee
shall be held harmless and shall be fully indemnified by TCF Financial, its
successors and assigns from any liability, including reasonable legal and
professional services expenses, for any actions directed by a Directing Party
(as that term is defined in paragraph d. of Section 3.1).
SECTION 7.3. No person dealing with the Trustee shall be obligated to see
to the application of any property paid or delivered to the Trustee or to
inquire into the expediency or propriety of any transaction or the Trustee's
authority to consummate the same.
SECTION 7.4. Ownership of the assets comprising the Trust Fund shall be in
the Trustee, in its capacity as Trustee, and participants in the Plan and their
beneficiaries shall have no right or interest in or to such assets, except as
specifically provided herein. The rights of any participant or his beneficiaries
to any benefits or future payments hereunder or under the provisions of the Plan
shall be solely those of unsecured, general creditors of the Companies, and such
rights shall not be subject to attachment, garnishment or other legal process by
any creditor of any such participant or beneficiary. Except to the extent that a
Plan participant shall have a continuing right to designate a beneficiary of any
amount payable in the event of his death, no such participant or beneficiary
shall have any right to alienate, anticipate, commute, pledge, encumber,
transfer, or assign any of the benefits or payments which he may expect to
receive, contingently or otherwise, under the Plan or this Agreement.
SECTION 7.5 Communications to the Trustee shall be deemed sufficiently
made if sent by mail addressed to the Trustee at its address on file with the
Committee. Communications to the Companies or the Committee will be deemed
sufficiently made if sent by mail addressed to the Committee, in care of TCF
Financial, at its principal place of business.
ARTICLE 8
SUCCESSION OF TRUSTEES
SECTION 8.1. The Trustee acting hereunder shall be one or more
individuals, or one or more qualified corporations, or any combination of
individuals and qualified corporations, appointed by TCF Financial to serve in
such capacity; PROVIDED, that an individual who is or has been eligible to
participate in the Plan shall not be eligible to serve as a Trustee. The number
of Trustees shall not be increased or decreased except with the written consent
of all of the Plan's participants (excluding any terminated participants and
beneficiaries then receiving distributions pursuant to the Plan, other than
terminated participants entitled to a lump sum distribution). Upon any
determination to increase the number of Trustees, or upon the death, disability,
removal, or resignation of any Trustee, the vacancy or vacancies so created
shall be filled by such individuals or qualified corporations as may be
appointed by the Board of Directors of TCF
9
Financial and approved in writing by all of the Plan's participants (excluding
any terminated participants and beneficiaries then receiving distributions
pursuant to the Plan, other than terminated participants entitled to a lump sum
distribution). If the Board of Directors of TCF Financial and all of the Plan's
participants (excluding any terminated participants and beneficiaries then
receiving distributions pursuant to the Plan, other than terminated participants
entitled to a lump sum distribution) shall fail to agree upon such appointment,
and if there is no other Trustee then acting, a successor Trustee or Trustees
shall be appointed by a court of competent jurisdiction. Any such appointment
shall be effective upon the acceptance thereof in writing by the person so
appointed and the delivery of a signed copy of such acceptance to the Trustee
then in office.
SECTION 8.2. The Trustee, and any successor to any Trustee, may be removed
by the Board of Directors of TCF Financial at any time upon the receipt by Board
of Directors of TCF Financial of the consent of all of the Plan's participants
(excluding any terminated participants and beneficiaries then receiving
distributions pursuant to the Plan, other than terminated participants entitled
to a lump sum distribution) to such removal and upon the giving of 30 days'
prior written notice to such Trustee and to any other Trustees then acting. Such
removal shall be effective on the date specified in such written notice;
PROVIDED, that notice shall theretofore have been given to the Trustee of the
appointment of a successor Trustee or Trustees in the manner hereinafter set
forth. Notwithstanding the foregoing, a Trustee who dies or who becomes eligible
to be a participant in the Plan shall automatically cease to be a Trustee,
effective as of the date of death of the date such eligibility commences,
whichever is applicable.
SECTION 8.3. The Trustee, and any successor to any Trustee, may resign as
Trustee hereunder by filing with the Committee a written resignation which shall
take effect 30 days after the date of such filing, unless prior thereto a
successor Trustee or Trustees shall have been appointed.
SECTION 8.4. All of the provisions set forth herein with respect to the
Trustee shall relate to each successor Trustee so appointed with the same force
and effect as if such successor Trustee originally had been named herein as a
Trustee.
SECTION 8.5. Upon the appointment of a successor Trustee, the removed or
resigning Trustee shall transfer and deliver those assets of the Trust Fund in
its possession or under its control to the remaining Trustee or Trustees, if
any, or otherwise to the successor Trustee or Trustees, together with all such
instruments of transfer, conveyance, assignment, and further assurance as the
remaining or successor Trustee may reasonably require. Any removed or resigning
Trustee shall, at the request of the Committee, or may, in its own discretion,
file with the Committee an account of its actions as Trustee. The receipt and
approval by the Committee of the final account of the removed or resigning
Trustee shall be a full and complete acquittal and discharge from liability of
such removed or resigning Trustee, and any successor Trustee shall have no
liability whatsoever for the acts or omissions of any prior Trustee in which it
did not participate. If the Committee shall fail to express in writing its
objections to any account delivered by any removed or resigning Trustee within
six months from the date of receipt by the Committee of such account, such
account shall be considered as approved by the Committee
10
ARTICLE 9
AMENDMENT AND TERMINATION OF THE TRUST
SECTION 9.1. This Agreement 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) of the Plan), no such amendment shall (without the consent of the
participant, 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) of the Plan, the approval of the Board of Directors and
the consent of all participants, terminated participants and beneficiaries shall
be required for the 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 Trust assets credited to the accounts of the consenting
participants shall be transferred to a separate trust established pursuant to an
agreement that is identical to this Agreement in all respects, except that it
may include the proposed amendment.
SECTION 9.2. This Trust shall not be terminated until such time as all of
the Companies' obligations to make distributions pursuant to the Plan have been
fully discharged unless all of the Plan's participants (excluding any terminated
participants and beneficiaries then receiving distributions pursuant to the Plan
other than terminated participants entitled to a lump sum distribution) shall
consent in writing to an earlier termination. If all of the Plan's participants,
terminated participants and beneficiaries do not consent to an early
termination, the Trust shall terminate with respect to such consenting
participants (and with respect to participants or beneficiaries whose consent is
not required) but shall continue in effect with respect to the nonconsenting
participants. Upon a termination or partial termination of the Trust, the Trust
assets, if any, that remain in the accounts established for participants in the
Plan (or for the consenting participants (and participants or beneficiaries
whose consent is not required), if fewer than all of the Plan's participants
have consented to a termination for which the participants' consent is required)
shall be paid or distributed to TCF Financial or its successor in interest.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Each Company making a contribution to the Trust Fund
pursuant to the provisions of the Plan shall, by virtue of its making such
contribution, become a party to this Agreement and shall have the same rights
and obligations as if it had executed this Agreement as one of the original
parties thereto.
11
SECTION 10.2. Nothing contained in this Agreement shall be deemed to
constitute a contract of employment between the Companies and any employee of
any of them.
SECTION 10.3. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original, and all of such
counterparts shall together constitute one and the same document.
SECTION 10.4. Except when otherwise indicated by the context, any
masculine terminology used in this Agreement shall also include the feminine and
neuter, and the definition of any term herein in the singular shall also include
the plural (and vice versa). The headings of Articles of this Agreement are for
convenience of reference only and shall have no substantive effect on the
provisions of this Agreement.
SECTION 10.5. Any notice required hereunder may be waived by the person
entitled thereto.
SECTION 10.6. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Minnesota, except to the extent
superseded by applicable federal laws.
SECTION 10.7. This Agreement shall constitute the entire agreement among
the parties hereto with respect to the subject matter hereof, and shall
supersede and replace all previous agreements relating to the same subject
matter, both written and oral.
SECTION 10.8. The effective date of this restated Agreement shall be
September 1, 1998.
ARTICLE 11
SPECIAL PROVISIONS REGARDING OSPIP AND DEFERRED STOCK
SECTION 11.1. Effective for deferrals of incentive compensation earned in
1992 and thereafter the Trustee shall accept as directed by the Committee
contributions of common stock of TCF Financial Corporation issued in the name of
the Trustee pursuant to the Deferred Stock award provisions of the Stock Option
and Incentive Plan of TCF Financial or any successor plan thereto. Each such
contribution of Deferred Stock shall be accompanied by a designation of the date
or dates on which such Stock shall become transferable by the Trustee as well as
any events which may cause acceleration of such dates. Deferred Stock shall not
be transferable by the Trustee prior to such date or dates. If a Plan
participant or beneficiary becomes entitled to benefits from the Plan, any
Deferred Stock which is not yet transferable shall be returned to TCF Financial
and canceled. In all other respects, Deferred Stock held by the Trustee shall be
subject to the same terms and conditions as apply to other stock held by the
Trustee.
12
IN WITNESS WHEREOF, TCF Financial and the Trustee have caused this
Agreement to be executed effective as of the day and year first above written.
TCF Financial Corporation
[NO SEAL] By:
------------------------------
Title:
---------------------------
Attest:
By
-------------------------------
As its
---------------------------
The First National Bank in Sioux Falls
[NO SEAL] By:
------------------------------
Title:
---------------------------
Attest As Trustee as aforesaid.
By
-------------------------------
As its
---------------------------
|
13
EXHIBIT 10(s)
TRUST AGREEMENT FOR
TCF FINANCIAL SENIOR OFFICER DEFERRED COMPENSATION PLAN
THIS TRUST AGREEMENT, made effective as of the 1st day of October, 2000,
by and between TCF Financial Corporation, a Delaware corporation ("TCF
Financial") and The First National Bank in Sioux Falls (the "Trustee"),
W I T N E S S E T H:
WHEREAS, TCF Financial has established the TCF Financial Senior Officer
Deferred Compensation Plan (the "Plan"), which plan is now in full force and
effect; and
WHEREAS, the Plan is a nonqualified deferred compensation plan for select
management of TCF Financial and its subsidiaries (the "Companies" or,
individually, the "Company"), and TCF Financial wishes to establish a convenient
method for discharging its obligations to pay deferred compensation under said
Plan;
NOW, THEREFORE, the parties to this Agreement do hereby agree as follows:
ARTICLE 1
ESTABLISHMENT AND ACCEPTANCE OF TRUST
SECTION 1.1. This Trust shall be known as the "TRUST FOR TCF FINANCIAL
SENIOR OFFICER DEFERRED COMPENSATION PLAN." The Trustee hereby accepts the Trust
subject to all of the terms and conditions of this Agreement, and agrees to hold
and administer the assets of the Trust and to execute the Trust in accordance
with the provisions hereof. The assets deposited with the Trustee and held
pursuant to this Trust are referred to herein collectively as the "Trust Fund."
SECTION 1.2. TCF Financial has obtained a ruling from the Internal Revenue
Service that the amounts credited to the accounts of Plan participants pursuant
to Article 4 will not be included in their gross income for federal income tax
purposes until such time as they are actually paid or otherwise made available
to such participants.
ARTICLE 2
CONTRIBUTIONS TO THE TRUST
SECTION 2.1. The Trustee shall receive from time to time such amounts in
cash or other property acceptable to the Trustee as the Companies shall
contribute pursuant to the terms of the
1
Plan. Each such contribution shall be accompanied by a statement designating the
Plan participant on behalf of whom such contribution is being made and, if more
than one account has been established for such participant pursuant to Section
4, the account to which such contribution will be credited. The Trustee shall be
under no obligation to collect any such contributions, and all responsibility
for determining the amount, timing, and types of contributions made to the
Trustee shall be upon the Companies or their designees. Nothing in this
Agreement shall be construed as requiring the Companies, or any of them, to make
any contributions to the Trust.
SECTION 2.2. All contributions so received and all proceeds, investments,
reinvestments, and income thereof in the Trustee's possession shall be held,
invested, and, with all disbursements therefrom, accounted for by the Trustee as
provided in this Agreement.
SECTION 2.3. No portion of the Trust Fund shall be diverted to or used for
any purpose other than the payment of benefits pursuant to the Plan, or for the
payment of expenses of administering the Plan and the Trust, or for the payment
of expenses incurred in the making and administering of Trust investments
pursuant to Sections 4 and 5, until such time as the Companies' obligations to
make payments pursuant to the Plan have been fully discharged; PROVIDED, and
notwithstanding anything in this Agreement to the contrary, at all times during
the continuance of this Trust, the principal and income of the Trust Fund shall
be subject to the claims of the general creditors of the Companies. At any time
that the Trustee has actual knowledge, or has determined, that a Company is
"Insolvent," it shall deliver any undistributed principal and income credited to
the accounts established for participants employed by such Company to satisfy
such claims as a court of competent jurisdiction may direct. The Board of
Directors and the Chief Executive Officer of each Company shall have the duty to
inform the Trustee of that Company's Insolvency. If a Company or any person
claiming to be a creditor of a Company alleges in writing to the Trustee that
such Company has become Insolvent, and if the Trustee determines such allegation
is made in good faith and upon reasonable grounds, the Trustee shall immediately
suspend payments from the accounts established for participants employed by such
Company and shall hold all assets of such accounts subject to claims of such
Company's creditors. The Trustee shall then request, within 10 days, from such
Company sufficient information to determine if the Company is Insolvent. If the
Company shall fail or refuse to supply sufficient information from which the
Trustee may determine if the Company is Insolvent within 30 days of the
Trustee's request, the Trustee shall promptly request such information from the
party which alleged that the Company is Insolvent. If, on the basis of the
information so provided, the Trustee determines that the Company is not
Insolvent, it shall immediately resume payments from the accounts established
for participants employed by such Company, together with payment of any amounts
held back by the Trustee while making a determination as to Insolvency. If the
Trustee determines the Company is Insolvent, or if it has not received
sufficient information to make a determination as to the Company's solvency, it
shall resume such payments only after the Trustee has determined that the
Company is no longer Insolvent. Unless the Trustee has actual knowledge of a
Company's Insolvency, it shall have no duty to inquire whether any Company is
Insolvent. The Trustee may in all events rely on such evidence concerning the
Companies' solvency as may be furnished to the Trustee which will give it a
reasonable basis for making a determination concerning the Companies' solvency,
and
2
nothing in this Agreement shall in any way diminish any right of the Plan's
participants or their beneficiaries to pursue their rights as general creditors
of the Companies with respect to benefits payable to them pursuant to the Plan.
To assist the Trustee with its determinations required hereunder, the Trustee
may rely upon the advice of legal counsel and/or other professional counsel
retained by the Trustee and such counsel's reasonable fees and expenses shall be
payable from the assets of the Trust or, at TCF Financial's election, may be
directly paid by TCF Financial and/or one or more of the Companies, PROVIDED
that TCF Financial is notified in advance of the Trustee's retention of legal
counsel and TCF Financial or the Committee consents thereto, which consent shall
not be unreasonably withheld. A Company shall be considered "Insolvent" for the
purposes of this Agreement if it is unable to pay its debts as they mature, or
if it is a party as a debtor to a proceeding pending under the U.S. Bankruptcy
Code, or under any other applicable state or federal bankruptcy law.
ARTICLE 3
PAYMENTS FROM THE TRUST FUND
SECTION 3.1.
a. When a Plan participant or beneficiary becomes entitled to
benefits pursuant to the Plan, the committee appointed to administer the Plan
(the "Committee") shall notify and direct the Trustees in writing of:
i. the name, social security number, and mailing address of
such participant or beneficiary;
ii. the amount and form of the distributions to be made to such
participant or beneficiary under the Plan;
iii. the period for which such distributions are to be made;
and
iv. the date on which such distributions are to commence.
Upon receipt of such notice and direction, the Trustee shall commence payments
due to such participant or beneficiary out of the Trust assets. Such payments
shall be debited to the account or accounts established for such participant as
provided in Section 4 and shall continue until the earliest of: (A) the date on
which the last payment due to such participant or beneficiary has been made; (B)
the balance credited to the account or accounts from which such payments are to
be made has been reduced to zero; or (C) the Trustee receives written notice and
direction from the Committee to cease distributions because a Company will
continue such payments out of its general assets.
b. If the Trustee receives written notice and direction from the
Committee that a Company will continue any payments due pursuant to this section
3.1 out of its general assets, the Trustee shall discontinue the making of such
distributions out of the Trust Fund;
3
PROVIDED, that the Trustee shall resume such distributions (and shall make any
payments then in arrears) if it receives written notice and direction from the
Committee that the Company will no longer make such payments from its general
assets.
c. Distributions due pursuant to this section 3.1 shall be made at
such times, and in such form, as may be provided for under the Plan.
d. A "Directing Party" for purposes of this Agreement shall include
TCF Financial, the Committee, or any participant or beneficiary authorized by
this Agreement to direct the Trustee, as applicable (collectively referred to
for purposes of this Agreement as the "Directing Party").
e. Notwithstanding paragraphs a, and b of this Section, the following
shall apply on and after a Change in Control (as defined in Section 5(j) of the
Plan). If the Trustee receives notification from any source that a distribution
may be due to a participant or beneficiary, the Trustee shall promptly request
from the Committee all relevant information and directions relative to such
distribution(s) and if the Committee shall fail to provide such information
and/or directions within 30 days, the Trustee shall accept and act upon any
information and/or directions received from the participant or beneficiary with
respect to commencement or re-commencement of the payment of distributions to
such participant or beneficiary. In connection with providing such information
and/or directions, the participant or beneficiary shall be deemed a "Directing
Party" for purposes of this Agreement.
f. The Trustee shall be held harmless and shall not be liable for its
acts with respect to distributions from the Trust Fund when following the
directions of the Committee, or for failure to act in the absence of such
directions, nor shall the Trustee be liable or responsible for any payment made
by it in good faith and in the exercise of reasonable care without knowledge of
the changed condition or status of any payee.
SECTION 3.2. Except to the extent that such amounts are promptly paid by
the Companies, the Trustee shall also pay out of the Trust Fund: (a) all broker
fees and other expenses incurred in connection with the sale or purchase of
investments; (b) all personal property taxes, income taxes, and other taxes of
any kind (including taxes payable by the Companies, net of any related tax
savings to the Companies) at any time levied or assessed under any present or
future law upon, or with respect to, the Trust Fund or any property included in
the trust Fund; and (c) its own compensation and all other reasonable expenses
of administering the Plan and the Trust, including legal and/or other
professional fees reasonably incurred by the Trustee and/or the Trust pursuant
to Section 2.3 of this Agreement. Expenses shall be charged to the Trust Fund
without allocation among the accounts established pursuant to Section 4, unless
an expense is directly attributable to one or more of such accounts, in which
case such expense shall be charged directly to such accounts. The Trustee may
dispose of Trust investments, if necessary to provide cash assets for the
payment of expenses.
SECTION 3.3. As directed by the Committee, the Trustee shall withhold all
or any part of any distribution required to be made hereunder as the Committee
reasonably deems necessary
4
and proper to protect the Trustee or the Trust Fund against any liability or
claim on account of any estate, inheritance, income, or other tax, and the
Trustee may discharge any such liability with any part or all of any such
payment so withheld.
SECTION 3.4. Distributions pursuant to Section 3.1 shall be deemed to have
been sufficiently made if they are sent by first class mail to the participant
at the address provided to the Trustee by the Committee. If any such
distribution is returned to the Trustee unclaimed, the Trustee shall notify the
Committee and shall not make any further distributions to such payee until it
receives further directions from the Committee.
ARTICLE 4
INVESTMENTS OF THE TRUST FUND; PARTICIPANTS' ACCOUNTS
SECTION 4.1. Except as otherwise specifically provided herein, the Trustee
shall invest, reinvest, and hold the assets of the Trust Fund in such
investments as may be permitted by the Committee and as each Plan participant
shall direct in writing for his own account. Insofar as the Trustee has acquired
an investment for a Plan participant's Account pursuant to such directions, the
participant 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 Trustee shall not be restricted to those investments
which are authorized by the laws of any State for the investment of trust funds.
In addition, the Trustee may, for reasonable periods of time, hold in its
banking department any part or all of the Trust Fund uninvested or in cash
without liability for interest thereon, pending the investment of such funds or
the payment of costs, expenses, or benefits payable under the Plan in the
banking department of any corporate Trustee serving hereunder or of any other
bank, trust company or other financial institution including those affiliated in
ownership with the Trustee. The Trustee shall not be liable for any action taken
or omitted by it pursuant to such written directions which shall be deemed to be
authorized by the Committee and to be directions of the Committee.
Notwithstanding the foregoing provisions of this Section 4.1, the rights of each
Plan participant to direct the investment of his account shall be subject to the
claims of the general creditors of the Company by which such participant is
employed. Any investment direction of a participant shall be made by each
December 31 as applicable to the next succeeding calendar year and shall be
irrevocable with respect to such calendar year, unless the Committee shall
direct otherwise.
SECTION 4.2. The Trustee shall establish one or more separate accounts for
each Plan participant, and each such account shall be designated by the name of
the participant for whom it has been established. The assets of the Trust Fund
initially deposited with the Trustee shall be allocated among these accounts in
accordance with the instructions of the Committee. All contributions received by
the Trustee on behalf of a participant, and all dividends or distributions made
with respect to property allocated to such participant's account, shall then be
credited to such account and invested as the participant shall direct.
Distributions made by the Trustee to a Plan participant shall only be made from
such Participant's account to the extent of the balance thereof.
5
SECTION 4.3. Notwithstanding the foregoing, a Plan participant's right to
direct the investment of his account during any period of distribution
subsequent to his retirement or disability shall be the same as an active
participant's unless the Committee directs otherwise. Notwithstanding the
foregoing provisions of this Section 4.3, the rights of each Plan participant to
direct the investment of his Account (which directions shall be deemed to be
directions of the Committee) shall be subject to the claims of the general
creditors of the Company by which such participant is employed.
SECTION 4.4. In the event the Trustee is directed to engage in borrowing
on behalf of a Plan participant's Account as directed by the Committee pursuant
to Section 5.1(f) hereof, the Trustee shall pledge as security for any such loan
all shares of TCF Stock acquired with the proceeds of such loan and shall hold
such shares in suspense (unallocated), pursuant to the terms of section 10.c of
the Plan, until such time, if any, as the shares are released from pledge.
During any time when such shares are held in suspense, they shall not be deemed
to be part of the Plan participant's Account in the Trust under this Article 4,
except that dividends paid on such shares shall be subject to investment
direction of the participant to the extent they exceed principal and/or interest
payments on such loan. In the event any shares are released from pledge, the
shares shall thereafter be immediately allocated to the participant's Account
under this Article 4. In no event shall such shares be credited to or inure to
the benefit of the Account of another participant under this Article 4.
ARTICLE 5
POWERS AND DUTIES OF THE TRUSTEE
SECTION 5.1. In addition to the powers and discretions conferred upon the
Trustee by any other provision of this Agreement, but subject to the provisions
of Article 4 hereof, the Trustee shall have all the usual powers conferred by
law on trustees and shall also have the following express powers with respect to
the Trust Fund:
a. To retain, to exchange for any other property, to sell in any
manner and at any time, to divide, subdivide, partition, mortgage, improve,
alter, remodel, repair, and develop in any manner any property, real or
personal, to lease such property for any period of time, and to grant options to
sell or lease any such property, without regard to restrictions and without the
approval of any court.
b. As directed by the Committee, to vote stock held by the Trust Fund
personally or by proxy, and to delegate the Trustee's voting powers with respect
to such stock to such proxy.
c. To exercise subscription, conversion, and other rights and options
as directed by the Committee, and to make payments form the Trust Fund in
connection therewith.
6
d. At the direction of the Committee, to take any action and to
abstain from taking any action with respect to any reorganization,
consolidation, merger, dissolution, recapitalization, refinancing, and any other
plan or change affecting any property constituting a part of the Trust Fund, and
in connection therewith to delegate its discretionary powers and to pay
assessments, subscriptions, and other charges from the Trust Fund.
e. In any manner, and to any extent, to waive, modify, reduce,
compromise, release, settle, and extend the time of payment of any claim of
whatsoever nature in favor of or against the Trustee or all or any part of the
Trust Fund.
f. At the direction of the Committee, to borrow money from any person
(including, but not limited to, TCF Financial, its successors, assigns or
affiliates) and to pledge assets of the Trust Fund as security for repayment of
any such loan. Any money which is borrowed by the Trustee at the direction of
the Committee for the purpose of purchasing investments directed by a
participant shall be repaid only from the assets of such participant's account
and the Trustee shall pledge only the assets of such participant's account as
collateral for the loan. For the purposes of Section 2.3, loan repayments shall
be deemed to be expenses incurred in connection with the making and
administering of Trust investments.
g. Notwithstanding any language in the Trust instrument, neither the
Committee nor the Trustee on behalf of the Trust shall have power to start, to
enter into or otherwise engage in any business enterprise, or to continue to
operate any business enterprise, that becomes part of the Trust estate, if such
activity constitutes "carrying on business" as referred to in Section 301.7701-2
of the procedure and administration regulations.
h. The Trustee is expressly authorized to the fullest extent
permitted by law to (i) retain the services of U.S. Bancorp Piper Jaffray Inc.
and/or U.S. Bancorp Investments, Inc., each being affiliates of U.S. Bank
National Association, and/or any other registered broker-dealer organization
hereafter affiliated with U.S. Bank National Association, and any future
successors in interest thereto (collectively for the purposes of this paragraph
referred to as the "Affiliated Entities"), to provide services to assist in or
facilitate the purchase or sale of investment securities in the Trust, (ii)
acquire as assets of the Trust shares of mutual funds to which Affiliated
Entities provides, for a fee, services in any capacity and (iii) acquire in the
Trust any other services or products of any kind or nature from the Affiliated
Entities regardless of whether the same or similar services or products are
available from other institutions. The Trust may directly or indirectly (through
mutual funds fees and charges for example) pay management fees, transaction fees
and other commissions to the Affiliated Entities for the services or products
provided to the Trust and/or such mutual funds at such Affiliated Entities'
standard or published rates without offset (unless required by law) from any
fees charged by the Trustee for its services as Trustee. The Trustee may also
deal directly with the Affiliated Entities regardless of the capacity in which
it is then acting, to purchase, sell, exchange or transfer assets of the Trust
even though the Affiliated Entities are receiving compensation or otherwise
profiting from such transaction or are acting as a principal in such
transaction. Each of the Affiliated Entities is authorized to (i) effect
transactions on national securities exchanges for the Trust as directed by
7
the Trustee, and (ii) retain any transactional fees related thereto, consistent
with Section 11(a)(1) of the Securities Exchange Act of 1934, as amended, and
related Rule 11a2-2(T). Included specifically, but not by way of limitation, in
the transactions authorized by this provision are transactions in which any of
the Affiliated Entities are serving as an underwriter or member of an
underwriting syndicate for a security being purchased or are purchasing or
selling a security for its own account. In the event the Trustee is directed by
a Directing Party (as defined in Section 3.1(d) of this Agreement), the
Directing Party shall be authorized, and expressly retains the right hereunder,
to direct the Trustee to retain the services of, and conduct transactions with,
Affiliated Entities fully in the manner described above.
SECTION 5.2. The Trustee shall have no duties whatsoever except as are
specifically set forth as such in this Agreement, and no implied covenant or
obligation will be read into this Agreement against the Trustee.
SECTION 5.3. If there is more than one Trustee, the action of all of the
Trustees at the time acting hereunder, and any instrument executed by all of the
Trustees, shall be considered the action or instrument of the Trustee. Such
action may be taken at a meeting or in writing without a meeting, and the
Trustees may authorize any one or more of them to perform routine functions, to
sign routine papers, and to perform established or customary administrative and
ministerial functions.
ARTICLE 6
ACCOUNTS OF THE TRUSTEE; VALUATION OF TRUST FUND
SECTION 6.1. The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements, distributions, and other transactions.
Such accounts will be open to inspection and audit by the Companies or the
Committee, or by any authorized representative thereof, at all reasonable times
during business days.
SECTION 6.2. As of each December 31st, and at such other times as the
Committee may reasonably require, the Trustee shall determine the fair market
value of the Trust Fund, and of each participant's Account, and shall notify the
Committee in writing of the fair market value as so determined within 30 days
thereof. In addition, for purposes of determining the amount of any lump sum
distribution payable pursuant to the Plan, the Trustee shall determine the fair
market value of a Plan participant's Accounts as of the last day of the calendar
month coincident with or following such participant's termination of employment.
The fair market value of the Trust Fund, and of each participant's Account,
shall be the fair market value of all securities and other assets then held in
the Trust Fund or in such Account, including all income received since the last
valuation and income accrued and unpaid at the close of the valuation period. In
determining fair market value, the Trustee may rely upon any information that it
believes to be reliable, including reports of sales and of bid and asked prices
of issues listed on an exchange as disclosed in newspapers of general
circulation or in generally recognized financial services, quotations with
respect to unlisted issues as supplied by any reputable broker or investment
bank, or from any other source that the Trustee believes to be reliable, or the
Trustee may make any
8
such determination based upon its own analysis of such records or reports of any
company issuing such stock or other securities as are made available to them.
ARTICLE 7
ADMINISTRATIVE PROVISIONS
SECTION 7.1. Except as otherwise specifically provided herein, the Trustee
may rely upon the authenticity, truth, and accuracy of, and will be fully
protected in acting upon:
a. Any copy of a resolution of the Board of Directors of TCF
Financial or any of the Companies, if certified by the Secretary or an Assistant
Secretary of the appropriate Company under its corporate seal.
b. Any notice, direction, certification, approval, or other writing
of the Committee, if evidenced by an instrument signed in the name of the
Committee by one or more of its members or by the Secretary of TCF Financial.
c. Any notice, direction, certification, or other writing, given by a
Plan participant pursuant to Section 4.1 which is believed by the Trustee to be
genuine and to have been sent by such participant.
SECTION 7.2. The Trustee shall receive such reasonable compensation as may
from time to time be agreed upon by TCF Financial and the Trustee. The Trustee
shall be held harmless and shall be fully indemnified by TCF Financial, its
successors and assigns from any liability, including reasonable legal and
professional services expenses, for any actions directed by a Directing Party
(as that term is defined in paragraph d. of Section 3.1).
SECTION 7.3. No person dealing with the Trustee shall be obligated to see
to the application of any property paid or delivered to the Trustee or to
inquire into the expediency or propriety of any transaction or the Trustee's
authority to consummate the same.
SECTION 7.4. Ownership of the assets comprising the Trust Fund shall be in
the Trustee, in its capacity as Trustee, and participants in the Plan and their
beneficiaries shall have no right or interest in or to such assets, except as
specifically provided herein. The rights of any participant or his beneficiaries
to any benefits or future payments hereunder or under the provisions of the Plan
shall be solely those of unsecured, general creditors of the Companies, and such
rights shall not be subject to attachment, garnishment or other legal process by
any creditor of any such participant or beneficiary. Except to the extent that a
Plan participant shall have a continuing right to designate a beneficiary of any
amount payable in the event of his death, no such participant or beneficiary
shall have any right to alienate, anticipate, commute, pledge, encumber,
transfer, or assign any of the benefits or payments which he may expect to
receive, contingently or otherwise, under the Plan or this Agreement.
9
SECTION 7.5 Communications to the Trustee shall be deemed sufficiently
made if sent by mail addressed to the Trustee at its address on file with the
Committee. Communications to the Companies or the Committee will be deemed
sufficiently made if sent by mail addressed to the Committee, in care of TCF
Financial, at its principal place of business.
ARTICLE 8
SUCCESSION OF TRUSTEES
SECTION 8.1. The Trustee acting hereunder shall be one or more
individuals, or one or more qualified corporations, or any combination of
individuals and qualified corporations, appointed by TCF Financial to serve in
such capacity; PROVIDED, that an individual who is or has been eligible to
participate in the Plan shall not be eligible to serve as a Trustee. The number
of Trustees shall not be increased or decreased except with the written consent
of all of the Plan's participants (excluding any terminated participants and
beneficiaries then receiving distributions pursuant to the Plan, other than
terminated participants entitled to a lump sum distribution). Upon any
determination to increase the number of Trustees, or upon the death, disability,
removal, or resignation of any Trustee, the vacancy or vacancies so created
shall be filled by such individuals or qualified corporations as may be
appointed by the Board of Directors of TCF Financial and approved in writing by
all of the Plan's participants (excluding any terminated participants and
beneficiaries then receiving distributions pursuant to the Plan, other than
terminated participants entitled to a lump sum distribution). If the Board of
Directors of TCF Financial and all of the Plan's participants (excluding any
terminated participants and beneficiaries then receiving distributions pursuant
to the Plan, other than terminated participants entitled to a lump sum
distribution) shall fail to agree upon such appointment, and if there is no
other Trustee then acting, a successor Trustee or Trustees shall be appointed by
a court of competent jurisdiction. Any such appointment shall be effective upon
the acceptance thereof in writing by the person so appointed and the delivery of
a signed copy of such acceptance to the Trustee then in office.
SECTION 8.2. The Trustee, and any successor to any Trustee, may be removed
by the Board of Directors of TCF Financial at any time upon the receipt by Board
of Directors of TCF Financial of the consent of all of the Plan's participants
(excluding any terminated participants and beneficiaries then receiving
distributions pursuant to the Plan, other than terminated participants entitled
to a lump sum distribution) to such removal and upon the giving of 30 days'
prior written notice to such Trustee and to any other Trustees then acting. Such
removal shall be effective on the date specified in such written notice;
PROVIDED, that notice shall theretofore have been given to the Trustee of the
appointment of a successor Trustee or Trustees in the manner hereinafter set
forth. Notwithstanding the foregoing, a Trustee who dies or who becomes eligible
to be a participant in the Plan shall automatically cease to be a Trustee,
effective as of the date of death of the date such eligibility commences,
whichever is applicable.
SECTION 8.3. The Trustee, and any successor to any Trustee, may resign as
Trustee hereunder by filing with the Committee a written resignation which shall
take effect 30 days after
10
the date of such filing, unless prior thereto a successor Trustee or Trustees
shall have been appointed.
SECTION 8.4. All of the provisions set forth herein with respect to the
Trustee shall relate to each successor Trustee so appointed with the same force
and effect as if such successor Trustee originally had been named herein as a
Trustee.
SECTION 8.5. Upon the appointment of a successor Trustee, the removed or
resigning Trustee shall transfer and deliver those assets of the Trust Fund in
its possession or under its control to the remaining Trustee or Trustees, if
any, or otherwise to the successor Trustee or Trustees, together with all such
instruments of transfer, conveyance, assignment, and further assurance as the
remaining or successor Trustee may reasonably require. Any removed or resigning
Trustee shall, at the request of the Committee, or may, in its own discretion,
file with the Committee an account of its actions as Trustee. The receipt and
approval by the Committee of the final account of the removed or resigning
Trustee shall be a full and complete acquittal and discharge from liability of
such removed or resigning Trustee, and any successor Trustee shall have no
liability whatsoever for the acts or omissions of any prior Trustee in which it
did not participate. If the Committee shall fail to express in writing its
objections to any account delivered by any removed or resigning Trustee within
six months from the date of receipt by the Committee of such account, such
account shall be considered as approved by the Committee
ARTICLE 9
AMENDMENT AND TERMINATION OF THE TRUST
SECTION 9.1. This Agreement 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) of the Plan), no such amendment shall (without the consent of the
participant, 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) of the Plan, the approval of the Board of Directors and
the consent of all participants, terminated participants and beneficiaries shall
be required for the 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 Trust assets credited to the accounts of the consenting
participants shall be transferred to a separate trust established pursuant to an
agreement that is identical to this Agreement in all respects, except that it
may include the proposed amendment.
11
SECTION 9.2. This Trust shall not be terminated until such time as all of
the Companies' obligations to make distributions pursuant to the Plan have been
fully discharged unless all of the Plan's participants (excluding any terminated
participants and beneficiaries then receiving distributions pursuant to the Plan
other than terminated participants entitled to a lump sum distribution) shall
consent in writing to an earlier termination. If all of the Plan's participants,
terminated participants and beneficiaries do not consent to an early
termination, the Trust shall terminate with respect to such consenting
participants (and with respect to participants or beneficiaries whose consent is
not required) but shall continue in effect with respect to the nonconsenting
participants. Upon a termination or partial termination of the Trust, the Trust
assets, if any, that remain in the accounts established for participants in the
Plan (or for the consenting participants (and participants or beneficiaries
whose consent is not required), if fewer than all of the Plan's participants
have consented to a termination for which the participants' consent is required)
shall be paid or distributed to TCF Financial or its successor in interest.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Each Company making a contribution to the Trust Fund
pursuant to the provisions of the Plan shall, by virtue of its making such
contribution, become a party to this Agreement and shall have the same rights
and obligations as if it had executed this Agreement as one of the original
parties thereto.
SECTION 10.2. Nothing contained in this Agreement shall be deemed to
constitute a contract of employment between the Companies and any employee of
any of them.
SECTION 10.3. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original, and all of such
counterparts shall together constitute one and the same document.
SECTION 10.4. Except when otherwise indicated by the context, any
masculine terminology used in this Agreement shall also include the feminine and
neuter, and the definition of any term herein in the singular shall also include
the plural (and vice versa). The headings of Articles of this Agreement are for
convenience of reference only and shall have no substantive effect on the
provisions of this Agreement.
SECTION 10.5. Any notice required hereunder may be waived by the person
entitled thereto.
SECTION 10.6. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Minnesota, except to the extent
superseded by applicable federal laws.
SECTION 10.7. This Agreement shall constitute the entire agreement among
the parties hereto with respect to the subject matter hereof, and shall
supersede and replace all previous agreements relating to the same subject
matter, both written and oral.
12
SECTION 10.8. The effective date of this restated Agreement shall be
September 1, 1998.
ARTICLE 11
SPECIAL PROCISIONS FOR EMPLOYEES SUBJECT TO SECTION 16 OF THE SECURITIES
AND EXCHANGE ACT OF 1934
SECTION 11.1 Notwithstanding anything in this Trust Agreement to the
contrary, for an Employee who is subject to liability under Section 16 of the
Securities and Exchange Act of 1934, the Committee shall administer
participation elections and investment elections pursuant to the provisions of
Paragraph 10 of the Plan.
ARTICLE 12
SPECIAL PROVISIONS REGARDING OSPIP AND DEFERRED STOCK
SECTION 12.1. Effective for deferrals of incentive compensation earned in
1992 and thereafter the Trustee shall accept as directed by the Committee
contributions of common stock of TCF Financial Corporation issued in the name of
the Trustee pursuant to the Deferred Stock award provisions of the Stock Option
and Incentive Plan of TCF Financial or any successor plan thereto. Each such
contribution of Deferred Stock shall be accompanied by a designation of the date
or dates on which such Stock shall become transferable by the Trustee as well as
any events which may cause acceleration of such dates. Deferred Stock shall not
be transferable by the Trustee prior to such date or dates. If a Plan
participant or beneficiary becomes entitled to benefits from the Plan, any
Deferred Stock which is not yet transferable shall be returned to TCF Financial
and cancelled. In all other respects, Deferred Stock held by the Trustee shall
be subject to the same terms and conditions as apply to other stock held by the
Trustee.
IN WITNESS WHEREOF, TCF Financial and the Trustee have caused this
Agreement to be executed effective as of the day and year first above written.
TCF Financial Corporation
[NO SEAL] By:
---------------------------------
Title:
------------------------------
Attest:
By
----------------------------------
As its
------------------------------
|
13
The First National Bank in Sioux Falls
[NO SEAL] By:
---------------------------------
Title:
------------------------------
Attest: As Trustee as aforesaid.
By
----------------------------------
As its
----------------------------
|
14
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 38.
CORPORATE PROFILE
TCF is the national financial holding company of two federally chartered banks,
TCF National Bank headquartered in Minnesota and TCF National Bank Colorado. The
Company has 352 banking offices in Minnesota, Illinois, Michigan, Wisconsin,
Colorado and Indiana. Other affiliates provide leasing, mortgage banking, and
annuity, insurance and mutual fund sales.
TCF provides convenient financial services through multiple channels to
customers located primarily in the Midwest. TCF has developed products and
services designed to meet the needs of all consumers with a primary focus on
middle- and lower-income individuals. The Company focuses on attracting and
retaining customers through service and convenience, including branches that are
open seven days a week and on most holidays, extensive full-service supermarket
branch and automated teller machine ("ATM") networks, and telephone and Internet
banking. TCF's philosophy is to generate top-line revenue growth (net interest
income and fees and other revenues) through business lines that emphasize higher
yielding assets and lower interest-cost deposits. The Company's growth
strategies include de novo branch expansion and the development of new products
and services designed to build on its core businesses and expand into
complementary products and services through emerging businesses and strategic
initiatives.
TCF's core businesses are comprised of traditional bank branches, ATMs, and
commercial, consumer and mortgage lending. TCF emphasizes the "Totally Free"
checking account as its anchor account, which provides opportunities to cross
sell other account relationships and generate additional fee income. TCF's
strategy is to originate high credit quality, primarily secured loans and earn
profits through lower interest-cost deposits. Commercial loans are generally
made on local properties or to local customers, and are virtually all secured.
TCF's largest core lending business is its consumer home equity loan portfolio,
comprised of fixed- and variable-rate closed-end loans and lines of credit.
TCF's emerging businesses and products are comprised of supermarket bank
branches, including supermarket consumer lending, and leasing and equipment
finance, debit cards, and Internet and college campus banking. TCF's most
significant de novo strategy has been its supermarket branch expansion. The
Company opened its first supermarket branch in 1988, and now has 213 supermarket
branches, with more than $1 billion in deposits. TCF has the nation's fourth
largest supermarket branch network. See "Financial Condition-- Deposits." TCF
entered the leasing business through its 1997 acquisition of Winthrop Resources
Corporation ("Winthrop"), a leasing company that leases computers and other
business-essential equipment to companies nationwide. The Company expanded its
leasing operations in September 1999 through TCF Leasing, Inc. ("TCF Leasing"),
a de novo general equipment leasing business with a focus on middle-market
companies, truck and trailer leasing and financing and lease discounting. See
"Financial Condition - Loans and Leases." These businesses are among TCF's
fastest growing operations. The Company's VISA debit card program has also grown
significantly since its inception in 1996. TCF is the 16th largest VISA debit
card issuer in the United States according to VISA, with over 1 million cards
outstanding.
TCF's strategic initiatives are businesses that complement the Company's core
and emerging businesses. TCF's new products have been significant contributors
to the growth in fees and other revenues generated by checking accounts and loan
products. Currently, TCF's strategic initiatives include several new card
products designed to provide additional convenience to deposit and loan
customers and to further leverage its ATM network. The Company is also planning
to launch a discount brokerage business and additional insurance products in
2001.
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY - TCF reported net income of $186.2 million for 2000, up
from $166 million for 1999 and $156.2 million for 1998. Diluted earnings per
common share was $2.35 for 2000, compared with $2.00 for 1999 and $1.76 for
1998. Return on average assets was 1.72% in 2000, compared with 1.61% in 1999
and 1.62% in 1998. Return on average realized common equity was 21.53% in 2000,
compared with 19.83% in 1999 and 17.51% in 1998. Diluted cash earnings per
common share, which excludes amortization and reduction of goodwill net of
applicable income tax benefits, was $2.44 for 2000, compared with $2.10 for 1999
and $1.88 for 1998. On the same basis, cash return on average assets was 1.79%
for 2000, compared with 1.69% for 1999 and 1.74% for 1998, and cash return on
average realized common equity was 22.40% for 2000, compared with 20.79% for
1999 and 18.74% for 1998.
TCF has significantly expanded its banking franchise in recent periods and
had 352 banking branches at December 31, 2000. In the past three years, TCF
opened 164 new branches, of which 154 were supermarket branches. This expansion
includes TCF's January 1998 acquisition of 76 branches and 178 ATMs in
Jewel-Osco stores in the Chicago area. TCF anticipates opening between 30 and 40
new branches during 2001, including 25 to 30 supermarket branches and 5 to 10
traditional branches.
21
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
reserves 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.
OPERATING SEGMENT RESULTS - Banking, leasing and equipment finance and mortgage
banking comprise TCF's reportable operating segments. The following summarizes
the 2000 and 1999 results for these segments.
BANKING
Banking, comprised of deposits and investment products, commercial lending,
consumer lending, residential lending and treasury services, reported net income
of $164.3 million for 2000, up 8.4% from $151.5 million in 1999. Net interest
income for 2000 was $397.9 million, essentially flat with 1999. The provision
for credit losses totaled $9.6 million in 2000, down from $15.1 million in 1999.
The decrease reflects a reduction in provisions recognized in connection with
TCF's discontinued consumer finance automobile lending activity. Non-interest
income (excluding title insurance revenues, a business TCF sold in 1999, and
gains on asset sales) totaled $274.4 million, up 17.8% from $233 million in
1999. This improvement was primarily due to increased fees and service charges
and electronic funds transfer revenues, reflecting TCF's expanded retail banking
operations and customer base. Non-interest expense (excluding the amortization
of goodwill and deposit base intangibles) totaled $398.9 million, up 1.2% from
$394.3 million in 1999. The increase was primarily due to the costs associated
with TCF's continued retail banking expansion, including de novo supermarket
branches, offset by cost savings from discontinued businesses and sales of
underperforming branches.
LEASING AND EQUIPMENT FINANCE
Leasing and equipment finance, an operating segment comprised of TCF's wholly
owned subsidiaries Winthrop and TCF Leasing, provides a broad range of
comprehensive lease and equipment finance products. This operating segment
reported net income of $23 million for 2000, up 19.1% from $19.4 million in
1999. Net interest income for 2000 was $30.4 million, up 20.6% from $25.2
million in 1999. Leasing and equipment finance's provision for credit losses
totaled $5.2 million in 2000, up from $1.9 million in 1999, primarily as a
result of the significant growth in the portfolio. Non-interest income totaled
$38.5 million in 2000, up 35% from $28.5 million in 1999. Non-interest expense
(excluding the amortization of goodwill) totaled $25.8 million in 2000, up 35.4%
from $19.1 million in 1999. These increases reflect the $363.8 million, or
73.8%, increase in TCF's leasing and equipment finance portfolio during 2000. As
previously noted, TCF expanded its leasing operations in September 1999 through
TCF Leasing, a de novo leasing business.
MORTGAGE BANKING
Mortgage banking activities include the origination and purchase of residential
mortgage loans, generally for sale to third parties with servicing retained.
This operating segment reported net income of $1.2 million for 2000, compared
with a net loss of $1.1 million for 1999. Non-interest income (excluding gains
on sales of loan servicing) totaled $25.5 million, up 16.8% from $21.8 million
in 1999. This increase is primarily due to a $5.6 million increase in service
fees on mortgage loans. During 2000, TCF purchased the bulk servicing rights on
$933 million of residential mortgage loans. In addition, the inter-segment
residential loan service fee charged to the banking segment was increased to a
market rate in 2000. Non-interest expense totaled $29.2 million, down 10.3% from
$32.6 million in 1999. During 2000, TCF's mortgage banking operation
consolidated and streamlined its operations in various states. TCF's mortgage
banking operation periodically purchases and sells loan servicing rights
depending on market conditions.
CONSOLIDATED INCOME STATEMENT ANALYSIS
NET INTEREST INCOME - 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), represented 56.2% of TCF's revenue
in 2000. Net interest income divided by average interest-earning assets is
referred to as the net interest margin, expressed as a percentage. Net interest
income and net interest margin are affected by changes in interest rates, loan
pricing strategies and competitive 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 $438.5 million for the year ended December 31, 2000,
compared with $424.2 million in 1999 and $425.7 million in 1998. This represents
an increase of 3.4% in 2000, compared with a decrease of .4% in 1999 and an
increase of 8.2% in 1998. Total average interest-earning assets increased 6.1%
in 2000, following increases of 7.9% in 1999 and 16.2% in 1998. The net interest
margin for 2000 was 4.35%, compared with 4.47% in 1999 and 4.84% in 1998.
22
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 Year Ended Year Ended
DECEMBER 31, 2000 December 31, 1999 December 31, 1998
--------------------------------------------------------------------------------------------------------------------------------
YIELDS Yields Yields
AVERAGE AND Average and Average and
(Dollars in thousands) BALANCE INTEREST(1) RATES Balance Interest(1) Rates Balance Interest(1) Rates
--------------------------------------------------------------------------------------------------------------------------------
Assets:
Investments ............... $ 139,840 $10,041 7.18% $142,494 $ 9,411 6.60% $161,239 $ 10,356 6.42%
----------------------- ---------------------- ---------------------
Securities available
for sale (2) ......... 1,500,225 99,185 6.61 1,689,257 111,032 6.57 1,359,698 93,124 6.85
----------------------- ---------------------- ---------------------
Loans held for sale ....... 220,560 17,130 7.77 199,073 13,367 6.71 197,969 14,072 7.11
----------------------- ---------------------- ---------------------
Loans and leases:
Residential real estate 3,860,025 275,124 7.13 3,808,062 266,653 7.00 3,687,579 267,916 7.27
Commercial real estate . 1,195,985 103,181 8.63 933,227 78,033 8.36 831,287 73,546 8.85
Commercial business .... 367,072 33,483 9.12 341,378 27,425 8.03 263,257 22,169 8.42
Consumer ............... 2,139,135 218,577 10.22 1,971,069 199,103 10.10 1,922,943 218,837 11.38
Leasing and equipment
finance .............. 650,616 69,960 10.75 410,245 47,077 11.48 378,824 48,874 12.90
----------------------- ---------------------- ---------------------
Total loans and
leases (3) ....... 8,212,833 700,325 8.53 7,463,981 618,291 8.28 7,083,890 631,342 8.91
----------------------- ---------------------- ---------------------
Total interest-
earning assets 10,073,458 826,681 8.21 9,494,805 752,101 7.92 8,802,796 748,894 8.51
------------ ----------- -----------
Other assets (4) ....... 773,799 798,494 826,741
----------- ----------- ----------
Total assets ........ $10,847,257 $10,293,299 $9,629,537
=========== =========== ==========
Liabilities and
Stockholders' Equity:
Non-interest bearing
deposits ............ $ 1,328,932 $ 1,177,723 $1,017,245
----------- ----------- ----------
Interest-bearing deposits:
Checking ............... 739,429 4,391 .59 711,440 4,043 .57 666,956 6,207 .93
Passbook and statement . 1,036,861 11,571 1.12 1,111,104 12,435 1.12 1,130,067 18,305 1.62
Money market ........... 758,240 25,139 3.32 728,522 19,074 2.62 700,400 20,496 2.93
Certificates ........... 2,824,456 155,993 5.52 2,888,968 139,943 4.84 3,249,742 167,484 5.15
----------------------- ---------------------- ---------------------
Total interest-
bearing deposits . 5,358,986 197,094 3.68 5,440,034 175,495 3.23 5,747,165 212,492 3.70
----------------------- ---------------------- ---------------------
Total deposits ... 6,687,918 197,094 2.95 6,617,757 175,495 2.65 6,764,410 212,492 3.14
----------------------- ---------------------- ---------------------
Borrowings:
Securities sold under
repurchase agree-
ments and federal
funds purchased ...... 925,004 58,652 6.34 529,359 28,610 5.40 140,414 7,863 5.60
FHLB advances .......... 1,888,892 109,385 5.79 1,821,172 100,454 5.52 1,367,104 79,237 5.80
Discounted lease rentals 163,758 14,004 8.55 171,997 13,830 8.04 205,393 16,744 8.15
Other borrowings ....... 121,048 9,010 7.44 151,430 9,499 6.27 92,467 6,824 7.38
----------------------- ---------------------- ---------------------
Total borrowings .... 3,098,702 191,051 6.17 2,673,958 152,393 5.70 1,805,378 110,668 6.13
----------------------- ---------------------- ---------------------
Total interest-
bearing
liabilities ... 8,457,688 388,145 4.59 8,113,992 327,888 4.04 7,552,543 323,160 4.28
----------------------- ---------------------- ---------------------
Total deposits and
borrowings .... 9,786,620 388,145 3.97 9,291,715 327,888 3.53 8,569,788 323,160 3.77
------------ ----------- -----------
Other liabilities (4) ..... 238,047 185,393 159,292
----------- ----------- ----------
Total liabilities ...... 10,024,667 9,477,108 8,729,080
Stockholders' equity (4) .. 822,590 816,191 900,457
----------- ----------- ----------
Total liabilities and
stockholders' equity . $10,847,257 $10,293,299 $9,629,537
=========== =========== ==========
Net interest income ....... $438,536 $424,213 $425,734
============ =========== ===========
Net interest margin ....... 4.35% 4.47% 4.84%
--------------------------------------------------------------------------------------------------------------------------------
|
(1) Tax-exempt income was not significant and thus has not been presented on a
tax equivalent basis. Tax-exempt income of $181,000, $189,000 and $147,000 was
recognized during the years ended December 31, 2000, 1999 and 1998,
respectively.
(2) Average balance and yield of securities available for sale are based upon
the historical amortized cost.
(3) Average balance of loans and leases includes non-accrual loans and
leases, and is presented net of unearned income.
(4) Average balance is based upon month-end balances.
23
The following table presents the components of the changes in net interest
income by volume and rate:
YEAR ENDED DECEMBER 31, 2000 YEAR ENDED DECEMBER 31, 1999
VERSUS SAME PERIOD IN 1999 VERSUS SAME PERIOD IN 1998
--------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO Increase (Decrease) Due to
--------------------------------------------------------------------------------------------------------------
(In thousands) VOLUME(1) RATE(1) TOTAL Volume(1) Rate(1) Total
--------------------------------------------------------------------------------------------------------------
Investments ..................... $ (179) $ 809 $ 630 $(1,229) $ 284 $ (945)
---------------------------------------------------------------------------
Securities available for sale ... (12,518) 671 (11,847) 21,839 (3,931) 17,908
---------------------------------------------------------------------------
Loans held for sale ............. 1,528 2,235 3,763 79 (784) (705)
---------------------------------------------------------------------------
Loans and leases:
Residential real estate ...... 3,588 4,883 8,471 8,728 (9,991) (1,263)
Commercial real estate ....... 22,560 2,588 25,148 8,704 (4,217) 4,487
Commercial business .......... 2,161 3,897 6,058 6,323 (1,067) 5,256
Consumer direct .............. 28,524 7,606 36,130 20,619 (13,067) 7,552
Consumer finance automobile .. (16,512) (144) (16,656) (23,019) (4,267) (27,286)
Leasing and equipment finance. 26,046 (3,163) 22,883 3,851 (5,648) (1,797)
---------------------------------------------------------------------------
Total loans and leases .... 66,367 15,667 82,034 25,206 (38,257) (13,051)
---------------------------------------------------------------------------
Total interest income .. 55,198 19,382 74,580 45,895 (42,688) 3,207
---------------------------------------------------------------------------
Deposits:
Checking ..................... 184 164 348 388 (2,552) (2,164)
Passbook and statement ....... (864) -- (864) (303) (5,567) (5,870)
Money market ................. 804 5,261 6,065 803 (2,225) (1,422)
Certificates ................. (3,187) 19,237 16,050 (17,858) (9,683) (27,541)
---------------------------------------------------------------------------
Total deposits ............ (3,063) 24,662 21,599 (16,970) (20,027) (36,997)
---------------------------------------------------------------------------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased ... 24,367 5,675 30,042 21,038 (291) 20,747
FHLB advances ................ 3,857 5,074 8,931 25,209 (3,992) 21,217
Discounted lease rentals ..... (680) 854 174 (2,691) (223) (2,914)
Other borrowings ............. (2,089) 1,600 (489) 3,825 (1,150) 2,675
---------------------------------------------------------------------------
Total borrowings .......... 25,455 13,203 38,658 47,381 (5,656) 41,725
---------------------------------------------------------------------------
Total interest expense . 22,392 37,865 60,257 30,411 (25,683) 4,728
---------------------------------------------------------------------------
Net interest income ............. $ 32,806 $(18,483) $ 14,323 $ 15,484 $(17,005) $ (1,521)
==============================================================================================================
|
(1) Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
Changes in net interest income are dependent upon the movement of interest
rates, the volume and mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. Achieving net interest
margin growth is dependent on TCF's ability to generate higher-yielding assets
and lower-interest 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 variable-rate home equity and commercial 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 2000, TCF's net interest income increased $14.3 million, or 3.4%, and
total average interest-earning assets increased by $578.7 million, or 6.1%,
compared with 1999 levels. TCF's net interest income improved by $32.8 million
due to volume changes and decreased $18.5 million due to rate changes. The
favorable impact of the growth in consumer volumes and rates, leasing and
equipment finance volumes, and commercial real estate volumes
24
and rates was partially offset by decreased consumer finance automobile and
securities available for sale volumes and increased securities sold under
repurchase agreement volumes. Interest income increased $74.6 million in 2000,
reflecting increases of $55.2 million due to volume and $19.4 million due to
rate changes. Interest expense increased $60.3 million in 2000, reflecting
increases of $37.9 million due to a higher cost of funds and $22.4 million due
to volume. The increase in net interest income due to volume changes reflects
the increase in total average interest-earning assets and an increase in the
balance of non-interest bearing deposits. The decrease in net interest income
due to rate changes reflects a higher cost of funds.
In 1999, TCF's net interest income decreased $1.5 million, or .4%, and total
average interest-earning assets increased by $692 million, or 7.9%, compared
with 1998 levels. TCF's net interest income improved by $15.5 million due to
volume changes. The increase in net interest income due to volume reflects the
increase in total average interest-earning assets. Net interest income decreased
$17 million due to rate changes in 1999, reflecting loan prepayments and the
discontinuation of TCF's higher-yielding consumer finance business. TCF's 1999
net interest income and net interest margin were negatively impacted, as
compared with 1998, by $17.4 million or 11 basis points due to the
discontinuation and sale of TCF's higher-yielding consumer finance automobile
business. The unfavorable impact of the discontinuation of TCF's consumer
finance automobile business, decreased yields on loans and leases resulting, in
part, from the implementation 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.
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.
In 1998, TCF's net interest income increased $32.1 million, or 8.2%,
primarily due to the 1997 acquisition of Standard Financial, Inc. ("Standard"),
a community-oriented thrift institution located in Chicago, Illinois, and to the
growth of lower interest-cost retail deposits. 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.
PROVISION FOR CREDIT LOSSES - TCF provided $14.8 million for credit losses in
2000, compared with $16.9 million in 1999 and $23.3 million in 1998. The 1998
provision reflects significant provisions recognized related to TCF's
discontinued consumer finance automobile lending activity. The allowance for
loan and lease losses totaled $66.7 million at December 31, 2000, compared with
$55.8 million at December 31, 1999, and was 189% of non-accrual loans and
leases. See "Financial Condition - Allowance for Loan and Lease Losses."
NON-INTEREST INCOME - Non-interest income is a significant source of revenues
for TCF, representing 43.8% of total revenues in 2000, and is an important
factor in TCF's results of operations. Providing a wide range of retail banking
services is an integral component of TCF's business philosophy and a major
strategy for generating additional non-interest income. Excluding gains on sales
of securities available for sale, loan servicing, branches, subsidiaries, a
joint venture interest and title insurance revenues, non-interest income
increased $49.6 million, or 17.8%, during 2000 to $328.8 million. The increase
was primarily due to increased fees and service charges and electronic funds
transfer and leasing revenues, reflecting TCF's expanded retail banking and
leasing operations and customer base. The increases in fees and service charges
and electronic funds transfer revenues reflect the increase in the number of
retail checking accounts, which totaled 1,131,000 accounts at December 31, 2000,
up from 1,032,000 at December 31, 1999. The average annual fee revenue per
retail checking account was $190 for 2000, compared with $168 for 1999.
25
The following table presents the components of non-interest income:
Year Ended December 31, Percentage Increase (Decrease)
---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 2000/1999 1999/1998
---------------------------------------------------------------------------------------------------------------
Fees and service charges ..................... $179,563 $151,972 $127,952 18.2% 18.8%
Electronic funds transfer revenues ........... 78,101 67,144 50,556 16.3 32.8
Leasing ...................................... 38,442 28,505 31,344 34.9 (9.1)
Investments and insurance .................... 12,266 14,849 13,926 (17.4) 6.6
Gain on sales of loans held for sale ......... 4,012 4,747 7,575 (15.5) (37.3)
Other ........................................ 16,405 12,009 11,156 36.6 7.6
----------------------------------
Fees and other revenues ................... 328,789 279,226 242,509 17.8 15.1
----------------------------------
Gain on sales of securities available for sale. -- 3,194 2,246 (100.0) 42.2
Gain on sales of loan servicing .............. -- 3,076 2,414 (100.0) 27.4
Gain on sales of branches .................... 12,813 12,160 18,585 5.4 (34.6)
Gain on sale of subsidiaries ................. -- 5,522 -- (100.0) 100.0
Gain on sale of joint venture interest ....... -- -- 5,580 -- (100.0)
Title insurance revenues (1).................. -- 15,421 20,161 (100.0) (23.5)
----------------------------------
Other non-interest income ................. 12,813 39,373 48,986 (67.5) (19.6)
----------------------------------
Total non-interest income .............. $341,602 $318,599 $291,495 7.2 9.3
===============================================================================================================
|
(1) Title insurance business was sold in 1999.
Fees and service charges increased $27.6 million, or 18.2%, in 2000 and $24
million, or 18.8%, in 1999, 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 fees and
service charges are fees of $10.3 million, $10.3 million and $13.7 million
received for the servicing of mortgage loans owned by others during 2000, 1999
and 1998, respectively. At December 31, 2000, 1999 and 1998, TCF was servicing
mortgage loans for others with aggregate unpaid principal balances of $4
billion, $2.9 billion and $3.7 billion, respectively. These mortgage loans had a
weighted-average coupon rate of 7.42% at December 31, 2000. As previously noted,
TCF purchased the bulk servicing rights on $933 million of residential loans
during 2000.
Electronic funds transfer revenues increased $11 million, or 16.3%, in 2000
and $16.6 million, or 32.8%, in 1999. These increases reflect TCF's efforts to
provide banking services through its ATM network and debit cards. Included in
electronic funds transfer revenues are debit card interchange fees of $28.7
million, $19.5 million and $11.1 million for 2000, 1999 and 1998, respectively.
The significant increase in these fees reflects an increase in the distribution
of debit cards, and an increase in utilization resulting from TCF's phone card
promotion which rewards customers with long distance minutes based on usage. TCF
had 1.2 million ATM cards outstanding at December 31, 2000, of which 1.1 million
were debit cards. At December 31, 1999, TCF had 1.1 million ATM cards
outstanding of which 929,000 were debit cards. The percentage of TCF's checking
account base with debit cards increased to 74.8% during 2000, from 71.6% during
1999. The percentage of these customers who were active debit card users
increased to 49.3% during 2000, from 44.6% during 1999. The average number of
transactions per month on active debit cards increased to 9.99 during 2000, from
9.01 during 1999. TCF had 1,384 ATMs in its network at December 31, 2000,
compared with 1,406 ATMs at December 31, 1999. Electronic funds transfer
revenues in future periods may be negatively impacted by pending legislative
proposals which, if enacted and not judicially restrained, could limit ATM fees.
Leasing revenues increased $9.9 million in 2000 to $38.4 million, following a
decrease of $2.8 million in 1999 to $28.5 million. 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. The increase in total leasing revenues for 2000 is primarily due to
increased revenue of $6.8 million from sales-type lease transactions and an
increase of $1.7 million in operating lease transactions. The decrease in total
leasing revenues for 1999 is primarily due to decreased revenue of $4 million
from sales-type lease transactions. 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.
Investments and insurance income, consisting principally of commissions on
sales of annuities and mutual funds, decreased $2.6 million to $12.3 million in
2000, following an increase of $923,000
26
to $14.8 million in 1999. Annuity and mutual fund sales volumes totaled $170.2
million for the year ended December 31, 2000, compared with $230.5 million
during 1999. The decreased volumes during 2000 reflect the impact of lower
yields offered by insurance companies on annuity products, and the volatility of
the stock market. 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 level of interest
rates.
Gains on sales of loans held for sale decreased $735,000 in 2000, following a
decrease of $2.8 million in 1999. Residential mortgage loan sales volumes
totaled $512.4 million for the year ended December 31, 2000, compared with
$360.3 million for the same period of 1999. Education loan sales volumes totaled
$100.9 million for the year ended December 31, 2000, compared with $97.1 million
for the same period of 1999. 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.
Sales of securities available for sale produced gains of $3.2 million and
$2.2 million in 1999 and 1998, respectively. There were no sales of securities
available for sale in 2000. Gains of $3.1 million and $2.4 million were
recognized on the sales of $344.6 million and $200.4 million of third-party loan
servicing rights in 1999 and 1998, respectively. No similar activity occurred
during 2000. TCF may, from time to time, sell securities available for sale and
loan servicing rights depending on market conditions.
During the 1999 fourth quarter, TCF sold its title insurance and appraisal
operations and recognized a gain of $5.5 million, and will recognize a deferred
gain of up to $15 million over the ensuing five years based upon TCF's use of
services. During 2000, $4.5 million of this deferred gain was earned and
recognized in other non-interest income. Title insurance revenues are no longer
recognized by TCF as a result of its sale of these operations. Title insurance
revenues totaled $15.4 million in 1999 and $20.2 million in 1998.
During 2000, TCF recognized gains of $12.8 million on the sales of six
branches with $95.7 million in deposits, compared with gains of $12.2 million on
the sales of eight branches with $116.7 million in deposits during 1999. TCF
recognized gains of $18.6 million on the sales of 14 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 periodically sells branches that it considers to be
underperforming, or have limited growth potential, and may continue to do so in
the future, including one planned branch sale during the first quarter of 2001.
NON-INTEREST EXPENSE - Non-interest expense increased $9.7 million, or 2.1%, in
2000, and $24.1 million, or 5.6%, in 1999, compared with the respective prior
years. The following table presents the components of non-interest expense:
Year Ended December 31, Percentage Increase (Decrease)
------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 2000/1999 1999/1998
------------------------------------------------------------------------------------------------------------------------------
Compensation and employee benefits .............. $239,544 $239,053 $217,401 .2% 10.0%
Occupancy and equipment ......................... 74,938 73,613 71,323 1.8 3.2
Advertising and promotions ...................... 19,181 16,981 19,544 13.0 (13.1)
Amortization of goodwill and other intangibles... 10,001 10,689 11,399 (6.4) (6.2)
Other ........................................... 118,864 112,462 109,033 5.7 3.1
-----------------------------------------
Total non-interest expense ................... $462,528 $452,798 $428,700 2.1 5.6
==============================================================================================================================
|
Compensation and employee benefits, representing 51.8% and 52.8% of total
non-interest expense in 2000 and 1999, respectively, increased $491,000, or .2%,
in 2000, and $21.7 million, or 10%, in 1999. The increases were primarily due to
costs associated with expanded retail banking and leasing activities, including
the opening of a total of 164 new branches in the past three years, offset by
cost savings from discontinued businesses.
Occupancy and equipment expenses increased $1.3 million in 2000 and $2.3
million in 1999. The increases were primarily due to TCF's expanded retail
banking and leasing activities, offset by branch sales.
Advertising and promotion expenses increased $2.2 million in 2000 following a
decrease of $2.6 million in 1999. The increase in 2000 was primarily due to
promotional expenses associated with the TCF Express Phone Card, where customers
earn free long distance minutes for use of their debit cards. During 2000, TCF
awarded over 38.6 million minutes under this promotion. The decrease in 1999
reflected a decrease in direct mail expenses relating to the promotion of
consumer finance loan products.
27
Amortization of goodwill and other intangibles decreased $688,000 in 2000 and
$710,000 in 1999. The decrease in 2000 was primarily due to reduced amortization
of deposit base intangibles. The write-off of goodwill associated with branch
sales, which is reported as a component of gain on sales of branches, totaled
$464,000 in 1999 and $3.3 million in 1998. No such write-offs occurred during
2000.
Other non-interest expense increased $6.4 million, or 5.7%, in 2000 and $3.4
million, or 3.1%, in 1999. The increases primarily reflect costs associated with
expanded retail banking and leasing activities, including increases in deposit
account losses. A summary of other expense is presented in Note 19 of Notes to
Consolidated Financial Statements.
INCOME TAXES - TCF recorded income tax expense of $116.6 million in 2000,
compared with $107.1 million in 1999 and $109.1 million in 1998. Income tax
expense represented 38.5% of income before income tax expense during 2000,
compared with 39.2% and 41.1% in 1999 and 1998, respectively. The lower tax
rates in 2000 and 1999 reflect lower state income taxes, and the impact of
relatively lower non-deductible expenses.
Further detail on income taxes is provided in Note 11 of Notes to
Consolidated Financial Statements.
CONSOLIDATED FINANCIAL
CONDITION ANALYSIS
INVESTMENTS - Total investments, which include interest-bearing deposits with
banks, federal funds sold, FHLB stock, Federal Reserve Bank stock and other
investments, decreased $14.1 million in 2000 to $134.1 million at December 31,
2000. The decrease primarily reflects a decrease of $20 million in
interest-bearing deposits with banks, partially offset by an increase of $5.8
million in FHLB stock. TCF had no non-investment grade debt securities (junk
bonds) and there were no open trading account or investment option positions as
of December 31, 2000. TCF is required to invest in FHLB stock in proportion to
its level of borrowings from the FHLB.
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
$117.8 million during 2000 to $1.4 billion at December 31, 2000. The decrease
reflects payment and prepayment activity, partially offset by purchases of
$314,000 of securities available for sale. At December 31, 2000, TCF's
securities available-for-sale portfolio included $1.3 billion and $85.8 million
of fixed-rate and adjustable-rate mortgage-backed securities, respectively.
Securities available for sale totaled $1.5 billion at December 31, 1999. Net
unrealized pre-tax losses on securities available for sale totaled $15.6 million
at December 31, 2000, compared with net unrealized pre-tax losses of $75.3
million at December 31, 1999. 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 $9.3 million and residential real estate loans held for sale increased
$19.5 million from year-end 1999, and totaled $153.2 million and $74.5 million,
respectively, at December 31, 2000. As previously noted, $139.4 million of
consumer finance automobile loans and $14.8 million of related allowances were
transferred to loans held for sale during 1999 and were subsequently sold during
1999. There were no consumer finance automobile loans classified as held for
sale at December 31, 2000. See "Loans and Leases."
LOANS AND LEASES - The following table sets forth information about loans and
leases held in TCF's portfolio, excluding loans held for sale:
At December 31,
------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
Residential real estate .......................... $ 3,673,831 $3,919,678 $3,765,280 $3,623,845 $2,252,312
Consumer ......................................... 2,234,134 2,058,584 1,876,554 1,976,699 1,728,368
Commercial real estate ........................... 1,371,841 1,073,472 811,428 859,916 858,225
Commercial business .............................. 410,422 351,353 289,104 240,207 157,057
Leasing and equipment finance .................... 856,471 492,656 398,812 368,521 296,958
--------------------------------------------------------------------------------
Total loans and leases ..................... $ 8,546,699 $7,895,743 $7,141,178 $7,069,188 $5,292,920
====================================================================================================================================
|
28
Loans and leases increased $651 million from year-end 1999 to $8.5 billion at
December 31, 2000, reflecting increases of $363.8 million, $298.4 million and
$175.6 million in leasing and equipment finance, and commercial real estate and
consumer loans, respectively, partially offset by a decrease of $245.8 million
in residential real estate loans. At December 31, 2000, TCF's residential real
estate loan portfolio was comprised of $1.6 billion of fixed-rate loans and $2.1
billion of adjustable-rate loans. Management expects that the balance in the
residential loan portfolio will continue to decline, which will provide funding
for anticipated growth in other loan categories.
Consumer loans increased $175.6 million from year-end 1999 to $2.2 billion at
December 31, 2000, reflecting an increase of $193.9 million in home equity
loans, partially offset by a decrease of $17.1 million in automobile loans.
Approximately 68% of the home equity loan portfolio at December 31, 2000
consists of closed-end loans. In addition, 47% of this portfolio carries a
variable interest rate.
In December 1998, TCF restructured its consumer finance company operations,
including the discontinuation of indirect automobile lending and a renewed focus
on home equity lending. In response to intensifying price competition, in early
1999 TCF implemented a tiered pricing structure for its home equity loans. As a
result of the new programs, TCF experienced an increase in the loan-to-value
ratios on new home equity loans. Many of these loans are secured by a first lien
on the home and include an advance to pay off an existing first lien mortgage
loan. These loans may have balances exceeding $100,000. These loans may carry a
higher level of credit risk than loans with a lower loan-to-value ratio. Higher
loan-to-value ratio loans are made to more creditworthy customers based on
credit scoring models. The following table sets forth additional information
about the loan-to-value ratios for TCF's home equity loan portfolio:
At December 31,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
PERCENT Percent
(Dollars in thousands) BALANCE OF TOTAL Balance of Total
------------------------------------------------------------------------------------------------------------------------------------
Loan-to-Value Ratios (1)
Over 100% (2) ............................................... $ 45,633 2.1% $ 56,530 2.9%
Over 90% to 100% ............................................ 486,536 22.4 398,871 20.2
Over 80% to 90% ............................................. 648,218 29.9 570,567 28.9
80% or less ................................................. 988,440 45.6 948,956 48.0
----------------------------------------------------------------
Total .................................................... $2,168,827 100.0% $1,974,924 100.0%
====================================================================================================================================
|
(1) Loan-to-value is based on the loan amount (current outstanding balance on
closed-end loans and the total commitment on lines of credit) plus deferred loan
origination costs net of fees and refundable insurance premiums, if any, plus
the original amount of senior liens, if any. Property values represent the most
recent appraised value or property tax assessment value known to TCF. In most
cases this value was obtained at the loan origination date and does not reflect
subsequent appreciation or depreciation in property values, if any.
(2) Amount reflects the total outstanding loan balance. The portion of the loan
balance in excess of 100% of the property value is substantially less.
The following table summarizes TCF's commercial real estate loan portfolio
by property type:
At December 31,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
NUMBER Number
(Dollars in thousands) BALANCE OF LOANS Balance of Loans
------------------------------------------------------------------------------------------------------------------------------------
Apartments ...................................................... $ 326,594 544 $276,312 537
Office buildings ................................................ 318,230 279 233,184 257
Retail services ................................................. 171,747 221 161,032 228
Hospitality facilities .......................................... 159,383 34 112,652 27
Warehouse/industrial buildings .................................. 120,852 156 107,076 136
Health care facilities .......................................... 28,783 18 20,858 17
Other ........................................................... 246,252 546 162,358 437
--------------------------------------------------------------
$1,371,841 1,798 $1,073,472 1,639
====================================================================================================================================
|
29
Commercial real estate loans increased $298.4 million from year-end 1999 to
$1.4 billion at December 31, 2000. Commercial business loans increased $59.1
million in 2000 to $410.4 million at December 31, 2000. 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, 2000, approximately
87% of TCF's commercial real estate loans outstanding were secured by properties
located in its primary markets. In addition, approximately 96% of TCF's
commercial business and commercial real estate loans are secured either by
properties or underlying business assets. At December 31, 2000 and December 31,
1999, there were no commercial real estate loans with terms that have been
modified in troubled debt restructurings included in performing loans.
Leasing and equipment finance increased $363.8 million from year-end 1999 to
$856.5 million at December 31, 2000. At December 31, 2000, $165.8 million or
25.4% of TCF's lease portfolio was funded on a non-recourse basis with other
banks and consequently TCF retains no credit risk on such amounts. This compares
with non-recourse fundings of $178.4 million or 38.9% at December 31, 1999.
Total loan and lease originations for TCF's leasing business were $648.1 million
during 2000, compared with $327.3 million in 1999 and $199.6 million in 1998. At
December 31, 2000, the backlog of approved transactions related to TCF's leasing
business totaled $165.6 million, compared with $125.2 million at December 31,
1999. The increase in the leasing and equipment finance portfolio is primarily
due to the de novo expansion activity of TCF Leasing, which began in 1999.
Included in this portfolio at December 31, 2000 are $144.4 million of loans and
leases secured by trucks and trailers, compared with $34.1 million at December
31, 1999. TCF's expanded leasing activity is subject to the risk of cyclical
downturns and other adverse economic developments affecting these industries and
markets. TCF Leasing has originated most of its portfolio during 2000, and
consequently the performance of this portfolio may not be reflective of future
results and credit quality.
Loan and lease originations were as follows:
Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Consumer(1) ............................................................. $ 1,111,644 $1,371,712 $1,181,027
Commercial .............................................................. 768,024 746,769 519,386
Leasing and equipment finance ........................................... 648,052 327,265 199,639
Residential real estate(1) .............................................. 893,873 1,362,742 2,023,078
-----------------------------------------------------
Total ............................................................. $ 3,421,593 $3,808,488 $3,923,130
====================================================================================================================================
|
(1) Includes loans held for sale.
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
risk. 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 and leases,
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 Notes 1 and 7 of Notes to Consolidated Financial Statements for
additional information concerning TCF's allowance for loan and lease losses.
30
At December 31, 2000, the allowance for loan and lease losses totaled $66.7
million, compared with $55.8 million at December 31, 1999. The increase is due
to growth in loans and leases, primarily commercial business, commercial real
estate and leasing and equipment finance, which carry higher credit risk than
residential real estate loans. 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) 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
Residential real estate ......... $ 2,762 $3,014 $3,471 $3,501 $2,379 .08% .08% .09% .10% .11%
Commercial real estate .......... 20,753 12,708 12,525 15,065 16,213 1.51 1.18 1.54 1.75 1.89
Commercial business ............. 9,668 8,256 5,756 4,520 3,072 2.36 2.35 1.99 1.88 1.96
Consumer direct ................. 8,394 8,482 9,338 12,109 11,907 .38 .41 .57 .72 .84
Consumer finance automobile ..... 1,370 2,219 22,673 16,020 14,793 62.59 28.72 9.69 5.37 4.84
Leasing and equipment finance ... 7,583 4,237 2,955 2,004 1,116 .89 .86 .74 .54 .38
Unallocated ..................... 16,139 16,839 23,295 29,364 22,385 .19 .21 .33 .42 .42
---------------------------------------------
Total allowance balance ...... $ 66,669 $55,755 $80,013 $82,583 $71,865 .78 .71 1.12 1.17 1.36
====================================================================================================================================
|
Additional information on the allowance for loan and lease losses follows:
At December 31, 2000 At December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE ALLOWANCE NET Allowance Allowance Net
FOR LOAN AND TOTAL LOANS AS A % OF CHARGE for Loan and Total Loans as a % of Charge
(DOLLARS IN THOUSANDS) LEASE LOSSES AND LEASES PORTFOLIO OFFS(1) Lease Losses and Leases Portfolio Offs(1)
-----------------------------------------------------------------------------------------------------------------------------------
Commercial real estate $20,753 $1,371,841 1.51% (.02)% $12,708 $1,073,472 1.18% (.08)%
Commercial business ... 9,668 410,422 2.36 (.15) 8,256 351,353 2.35 (.08)
Consumer .............. 9,764 2,234,134 .44 .12 10,701 2,058,584 .52 1.30
Leasing and equipment
finance ............ 7,583 856,471 .89 .33 4,237 492,656 .86 .39
Unallocated ........... 16,139 -- .19 N.A. 16,839 -- .21 N.A.
---------------------- -----------------------
Subtotal ........... 63,907 4,872,868 1.31 .09 52,741 3,976,065 1.33 .72
Residential real estate 2,762 3,673,831 .08 -- 3,014 3,919,678 .08 --
---------------------- -----------------------
Total .............. $66,669 $8,546,699 .78 .05 $55,755 $7,895,743 .71 .35
====================================================================================================================================
|
(1) Net charge-offs (recoveries) during the year then ended as a percentage of
related average loans and leases.
N.A. Not applicable.
The allocated allowance balances for TCF's residential, consumer and
commercial business loan portfolios at December 31, 2000 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
leasing and equipment finance losses reflects the previously mentioned increase
in the percentage of leases that are internally funded, and portfolio growth.
The allocated allowances for these portfolios do not reflect any significant
changes in estimation methods or assumptions.
Net loan and lease charge-offs were $3.9 million in 2000, compared with $26.4
million in 1999 and $25.9 million in 1998. TCF has experienced a significant
decrease in the level of net loan charge-offs related to its consumer finance
automobile portfolio, a large portion of which was sold or liquidated in 1999.
As a result, the ratio of annualized net loan charge-offs to average loans
outstanding for TCF's consumer portfolio was .12% for the year ended December
31, 2000, compared with 1.30% for the year ended December 31, 1999. Included in
the net loan and lease charge-offs for 2000 were $1.5 million of net recoveries
related to the consumer finance automobile loans, compared with net charge-offs
of $21.2 million for 1999. The allowance for loan and lease losses as a
percentage of net loan and lease charge-offs during the year was 1,728% at
December 31, 2000, compared with 211% at December 31, 1999 and 310% at December
31, 1998. The increase in this ratio reflects the significant decrease in net
loan charge-offs related to TCF's consumer finance automobile portfolio,
including a significant level of net recoveries. The increase in TCF's allowance
for loan and lease losses as a percentage of total loans and leases at December
31, 2000 reflects the impact of the significant growth in the higher-risk
commercial loan and lease portfolios during the past year.
31
NON-PERFORMING ASSETS - Non-performing assets (principally non-accrual loans and
leases and other real estate owned) totaled $46.7 million at December 31, 2000,
up $11.3 million from $35.4 million at December 31, 1999. The increase in total
non-performing assets reflects increases of $9.4 million in non-accrual leasing
and equipment finance and $4.2 million in commercial real estate non-accrual
loans, partially offset by a decrease of $2.7 million in commercial business
non-accrual loans. Included in non-accrual leasing and equipment finance at
December 31, 2000 are $3.9 million of leases that have been funded on a
non-recourse basis by third-party financial institutions. Approximately 60% 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.
Non-performing assets are summarized in the following table:
At December 31,
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
Non-accrual loans and leases:
Consumer ........................................ $13,027 $12,178 $17,745 $21,037 $13,472
Residential real estate ......................... 4,829 5,431 8,078 8,451 3,996
Commercial real estate .......................... 5,820 1,576 4,352 3,818 7,604
Commercial business ............................. 236 2,960 2,797 3,370 1,149
Leasing and equipment finance ................... 11,286 1,929 725 117 176
----------------------------------------------------------------------------
35,198 24,074 33,697 36,793 26,397
Other real estate owned and other assets ........... 11,524 11,348 14,972 21,953 19,937
----------------------------------------------------------------------------
Total non-performing assets ..................... $46,722 $35,422 $48,669 $58,746 $46,334
============================================================================
Non-performing assets as a percentage of
net loans and leases ............................ .55% .45% .69% .84% .89%
Non-performing assets as a percentage of total assets .42 .33 .48 .60 .62
===================================================================================================================================
|
The following table sets forth information regarding TCF's delinquent loan
and lease portfolio, excluding loans held for sale and non-accrual loans and
leases:
At December 31,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
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 ................................................... $ 40,083 .47% $20,368 .26%
60-89 days ................................................... 13,755 .16 6,945 .09
90 days or more .............................................. 5,020 .06 5,789 .07
---------------------------------------------------------------
Total ..................................................... $ 58,858 .69% $33,102 .42%
====================================================================================================================================
|
32
The over 30-day delinquency rate on TCF's loans and leases (excluding loans
held for sale and non-accrual loans and leases) was .69% of loans and leases
outstanding at December 31, 2000, compared with .42% at year-end 1999. TCF had
$5 million of accruing loans and leases 90 days or more past due at December 31,
2000, compared with $5.8 million at December 31, 1999. TCF's delinquency rates
are 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,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL PERCENTAGE OF Principal Percentage of
(Dollars in thousands) BALANCES PORTFOLIO Balances Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Consumer ................................................... $ 20,628 .93% $ 19,076 .93%
Residential real estate .................................... 16,971 .46 11,552 .30
Commercial real estate ..................................... 1,793 .13 493 .05
Commercial business ........................................ 3,958 .96 1,595 .46
Leasing and equipment finance .............................. 15,508 1.83 386 .08
----------- ----------
Total ................................................ $ 58,858 .69 $33,102 .42
====================================================================================================================================
|
TCF's over 30-day delinquency rate on total consumer loans was .93% at
December 31, 2000, unchanged from year-end 1999. TCF's over 30-day delinquency
on total leasing and equipment finance increased to 1.83% at December 31, 2000
from .08% at December 31, 1999. The increase can be attributed to the
significant increase in activity in the leasing operations during 2000. Included
in delinquent leasing and equipment finance at December 31, 2000 are $2.4
million of leases that have been funded on a non-recourse basis by third-party
financial institutions. Contributing to the increase in leasing and equipment
finance delinquencies is an increase in delinquencies for the truck and trailer
segment during the fourth quarter of 2000. At December 31, 2000, approximately
$9.6 million of the truck and trailer segment was over 30-days delinquent. The
rise in fuel prices has had an adverse impact on the owner/operator trucking
industry. These operators may be experiencing financial difficulties and may be
unable to meet their lease obligations. Management continues to monitor the
leasing and equipment finance and consumer loan portfolios, which will generally
have higher delinquencies than other categories. See "Loans and Leases."
In addition to the non-accrual loans and leases, there were commercial real
estate and commercial business loans and lease financings with an aggregate
principal balance of $19.9 million outstanding at December 31, 2000 for which
management has concerns regarding the ability of the borrowers to meet existing
repayment terms. This amount consists of loans and leases that were classified
for regulatory purposes as substandard or doubtful, or were to borrowers that
currently are experiencing financial difficulties or that management believes
may experience financial difficulties in the future. This compares with $33
million of such loans and leases at December 31, 1999. 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."
33
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, 2000 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 without incurring an income tax
liability based on the amount of earnings removed and current tax rates.
DEPOSITS - Checking, savings and money market deposits are an important source
of lower cost funds and fee income for TCF. Deposits totaled $6.9 billion at
December 31, 2000, up $307 million from December 31, 1999. As previously noted,
TCF sold six branches with $95.7 million of deposits during 2000. Lower
interest-cost checking, savings and money market deposits totaled $4.1 billion,
up $373.2 million from December 31, 1999, and comprised 59.3% of total deposits
at December 31, 2000. The average balance of these deposits for 2000 was $3.9
billion, an increase of $134.7 million over the $3.7 billion average balance for
1999. Higher interest-cost certificates of deposit decreased $66.2 million from
December 31, 1999. The Company's weighted-average rate for deposits, including
non-interest bearing deposits, increased to 3.12% at December 31, 2000, from
2.71% at December 31, 1999, due to increases in general levels of interest
rates.
As previously noted, TCF continued to expand its supermarket banking
franchise during 2000, opening 18 new branches during the year. TCF now has 213
supermarket branches. During the past year, the number of deposit accounts in
TCF's supermarket branches increased 17.1% to over 646,000 accounts and the
balances increased 30% to $1.1 billion. The average rate on these deposits
increased from 2.24% at December 31, 1999 to 2.73% at December 31, 2000, due to
general increases in interest rates. Additional information regarding TCF's
supermarket branches follows:
Supermarket Banking Summary At December 31,
-----------------------------------------------------------------------------------------------------------------------------
Percentage
(Dollars in thousands) 2000 1999 Increase Change
-----------------------------------------------------------------------------------------------------------------------------
Number of branches ............................................ 213 195 18 9.2%
Number of deposit accounts .................................... 646,084 551,536 94,548 17.1
Deposits:
Checking ................................................... $ 475,162 $354,074 $121,088 34.2
Passbook and statement ..................................... 135,000 120,876 14,124 11.7
Money market ............................................... 108,557 60,169 48,388 80.4
Certificates ............................................... 354,891 290,579 64,312 22.1
----------------------------------------
Total deposits .......................................... $ 1,073,610 $825,698 $247,912 30.0
========================================
Average rate on deposits ...................................... 2.73% 2.24% .49% 21.9
========================================
Total fees and other revenues for the year .................... $ 112,043 $86,665 $25,378 29.3
========================================
Consumer loans outstanding .................................... $ 233,393 $192,931 $40,462 21.0
==============================================================================================================================
|
BORROWINGS - Borrowings totaled $3.2 billion at December 31, 2000, up $100.4
million from year-end 1999. The increase was primarily due to increases of
$131.3 million in FHLB advances and $91 million in federal funds purchased,
partially offset by decreases of $42 million in TCF's bank line of credit, $29.3
million in treasury, tax and loan notes, $22.4 million in commercial paper and
$15.7 million in securities sold under agreements to repurchase. See Note 10 of
Notes to Consolidated Financial Statements for detailed information on TCF's
borrowings. Included in FHLB advances at December 31, 2000 are $1.5 billion of
fixed-rate advances which are callable at par on certain anniversary dates and
quarterly thereafter until maturity. 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. Included in FHLB advances are $688 million of long-term FHLB
advances that have call dates within one year. Due to changes in interest rates
since the long-term FHLB advances were obtained, the market
34
rates exceeded the contract rates on $53 million of the long-term FHLB
advances with call dates within one year. The weighted-average rate on
borrowings increased to 6.23% at December 31, 2000, from 5.91% at December 31,
1999, due to general increases in interest rates. At December 31, 2000,
borrowings with a maturity of one year or less totaled $1.5 billion. Management
has entered into additional long-term callable FHLB advances to extend the
maturity of $300 million of TCF's short-term borrowings. The FHLB advances
settle during the first quarter of 2001.
STOCKHOLDERS' EQUITY - Stockholders' equity at December 31, 2000 was $910.2
million, or 8.1% of total assets, up from $809 million, or 7.6% of total assets,
at December 31, 1999. The increase in stockholders' equity is primarily due to
net income of $186.2 million for the year ended December 31, 2000 and the
decrease of $37.5 million in accumulated other comprehensive loss, partially
offset by the repurchase of 3,243,800 shares of TCF's common stock at a cost of
$73.8 million and the payment of $66.1 million in dividends on common stock.
Since January 1, 1998, the Company has repurchased 14.9 million shares of TCF's
common stock at an average cost of $26.26 per share.
MARKET RISK - Interest-Rate Risk - TCF's results of operations are dependent to
a large degree on its net interest income 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 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. 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 slower prepayments on loans and
mortgage-backed securities. TCF's one-year adjusted interest-rate gap was a
negative $215.1 million, or (2)% of total assets, at December 31, 2000, compared
with a negative $1 billion, or (10)% of total assets, at December 31, 1999. The
decrease in TCF's negative one-year interest-rate gap reflects the impact of
projected faster prepayment rates on loan and mortgage-backed securities
portfolios, and a change in management's maturity/repricing assumptions for
money market deposits.
35
The following table summarizes TCF's interest-rate gap position at December
31, 2000:
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 ................. $ 167,861 $ 45,966 $ 8,366 $ 2,393 $ 3,193 $ 227,779
Securities available for sale (1) ... 26,434 102,458 113,620 279,790 881,586 1,403,888
Real estate loans (1) ............... 559,281 570,888 616,026 1,495,122 1,804,355 5,045,672
Leasing and equipment finance (1) ... 32,883 143,060 158,175 392,921 129,432 856,471
Other loans (1) ..................... 1,375,937 166,454 171,343 464,089 466,733 2,644,556
Investments ......................... 110,773 -- -- -- 23,286 134,059
----------------------------------------------------------------------------------------
2,273,169 1,028,826 1,067,530 2,634,315 3,308,585 10,312,425
----------------------------------------------------------------------------------------
Interest-bearing liabilities:
Checking deposits (2) ............... 165,755 -- -- -- 2,038,188 2,203,943
Passbook and statement deposits (2) . 144,090 101,812 107,111 302,914 389,461 1,045,388
Money market deposits (3) ........... 441,643 -- -- -- 395,245 836,888
Certificate deposits ................ 241,426 1,409,891 723,036 402,511 28,741 2,805,605
FHLB advances (4) ................... 353,000 -- 181,537 293,500 1,063,000 1,891,037
Discounted lease rentals ............ 8,899 39,560 39,424 61,471 16,409 165,763
Other borrowings .................... 501,753 375,692 50,000 -- 200,000 1,127,445
----------------------------------------------------------------------------------------
1,856,566 1,926,955 1,101,108 1,060,396 4,131,044 10,076,069
----------------------------------------------------------------------------------------
Interest-earning assets over (under)
interest-bearing liabilities
(Primary gap) ....................... 416,603 (898,129) (33,578) 1,573,919 (822,459) 236,356
Impact of unsettled borrowings (5) ..... 300,000 -- -- (300,000) -- --
----------------------------------------------------------------------------------------
Adjusted gap ........................... $ 716,603 $ (898,129) $ (33,578) $ 1,273,919 $ (822,459) $ 236,356
========================================================================================
Adjusted cumulative gap ................ $ 716,603 $ (181,526) $ (215,104) $ 1,058,815 $ 236,356 $ 236,356
========================================================================================
Adjusted cumulative gap as a percentage
of total assets:
At December 31, 2000 ............. 6% (2)% (2)% 9% 2% 2%
========================================================================================
At December 31, 1999 ............. 7% (7)% (10)% (9)% 2% 2%
================================================================================================================================
|
(1) Based upon contractual maturity, repricing date, if applicable, scheduled
repayments of principal and projected prepayments of principal based upon
experience.
(2) Includes non-interest bearing deposits. 7.5% of checking accounts are
included in amounts repricing within one year. In addition, 34% and 29% of
passbook and statement accounts are included in the less than 1 year and "1 to 3
Years" categories, respectively. All remaining passbook and statement and
checking accounts are assumed to mature in the "3+ Years" category. While
management believes these assumptions are well based, no assurance can be given
that amounts on deposit in checking and passbook and statement accounts will not
significantly change or be repriced in the event of a general change in interest
rates. At December 31, 1999, money market accounts and 10% of checking accounts
were included in amounts repricing within one year, and 27% and 30% of passbook
and statement accounts were included in the less than 1 year and "1 to 3 Years"
categories, respectively.
(3) Reflects a change in maturity/repricing assumptions from those at December
31, 1999. Certain low-rate money market accounts totaling $395.2 million were
moved to the "3+ Years" category due to a history of little or no repricing
activity for the product types.
(4) Includes $671.5 million of callable FHLB advances, all of which have a call
date beyond one year. Based upon market interest rates at December 31, 2000,
$158.5 million of these FHLB advances are included as repricing in the "1 to 3
Years" category which corresponds to their next call date, instead of in the "3+
Years" category, which corresponds to their maturity date.
(5) Represents $300 million of unsettled callable FHLB advances that settle
within 30 days. The call dates for these FHLB advances are beyond one year.
As previously noted, TCF also utilizes simulation models to estimate the
near-term effects (next twelve 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, 2000, net interest income is estimated to increase by .4% over
the next twelve months if interest rates were to sustain an immediate increase
of 200 basis points. At December 31, 1999, net interest income was estimated to
increase by 1.2% 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 3.9% over the next twelve months. Simulations at December 31, 1999
projected a decrease in net interest income of .3% 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
36
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 - Effective January 1, 2001, TCF adopted
Statement of Financial Accounting Standards ("SFAS") No. 133, as amended,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that all derivative instruments as defined, including derivatives
embedded in other financial instruments or contracts, be recognized as either
assets or liabilities in the statement of financial condition at fair value.
Changes in the fair value of a derivative are recorded in the results of
operations. A derivative may be designated as a hedge of an exposure to changes
in the fair value of an asset, liability or firm commitment or as a hedge of
cash flows of forecasted transactions. The accounting for derivatives that are
used as hedges is dependent on the type of hedge and requires that a hedge be
highly effective in offsetting changes in the hedged risk.
Under SFAS No. 133, TCF's pipeline of locked residential mortgage loan
commitments are considered derivatives and will be recorded at fair value, with
changes in fair value recognized in gains on sales of loans held for sale in the
income statement. TCF hedges its risk of changes in the fair value of locked
residential mortgage loan commitments due to changes in interest rates through
the use of forward sales contracts. Forward sales contracts require TCF to
deliver qualifying residential mortgage loans or pools of loans at a specified
future date at a specified price or yield. Such forward sales contracts hedging
the pipeline of locked residential mortgage loan commitments are derivatives
under SFAS No. 133 and are recorded at fair value, with changes in fair value
recognized in gains on sales of loans held for sale. TCF also utilizes forward
sales contracts to hedge its risk of changes in the fair value of its
residential loans held for sale. In accordance with fair value hedge accounting
under SFAS No. 133, the forward sales contracts hedging the residential loans
held for sale are recorded at fair value, with changes in fair value recognized
in gains on sales of loans held for sale as is the offsetting change in the fair
value of the hedged loans. The impact of adopting SFAS No. 133 on TCF's
financial position and results of operations was not material.
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.
On November 12, 1999, the President signed into law the Gramm-Leach-Bliley
Act (the "Act"). The Act significantly changed the regulatory structure and
oversight of the financial services industry and expanded financial affiliation
opportunities for bank holding companies. The Act permits "financial holding
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. TCF filed
an election to become a financial holding company with the Federal Reserve, and
this election became effective in June 2000. The Act also permits a national
bank to engage in certain expanded financial activities through a financial
subsidiary, 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.
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.
37
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At December 31,
--------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data) 2000 1999
--------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks .................................................. $ 392,007 $ 429,262
Investments .............................................................. 134,059 148,154
Securities available for sale ............................................ 1,403,888 1,521,661
Loans held for sale ...................................................... 227,779 198,928
Loans and leases:
Residential real estate ............................................... 3,673,831 3,919,678
Consumer .............................................................. 2,234,134 2,058,584
Commercial real estate ................................................ 1,371,841 1,073,472
Commercial business ................................................... 410,422 351,353
Leasing and equipment finance ......................................... 856,471 492,656
------------------------------
Total loans and leases ............................................. 8,546,699 7,895,743
Allowance for loan and lease losses ................................ (66,669) (55,755)
------------------------------
Net loans and leases ............................................ 8,480,030 7,839,988
Goodwill ................................................................. 153,239 158,468
Deposit base intangibles ................................................. 11,183 13,262
Other assets ............................................................. 395,277 351,993
------------------------------
$ 11,197,462 $10,661,716
==============================
Liabilities and Stockholders' Equity
Deposits:
Checking .............................................................. $ 2,203,943 $1,913,279
Passbook and statement ................................................ 1,045,388 1,091,292
Money market .......................................................... 836,888 708,417
Certificates .......................................................... 2,805,605 2,871,847
------------------------------
Total deposits ..................................................... 6,891,824 6,584,835
------------------------------
Securities sold under repurchase agreements and federal funds purchased .. 1,085,320 1,010,000
Federal Home Loan Bank advances .......................................... 1,891,037 1,759,787
Discounted lease rentals ................................................. 165,763 178,369
Other borrowings ......................................................... 42,125 135,732
------------------------------
Total borrowings ................................................... 3,184,245 3,083,888
Accrued interest payable ................................................. 37,055 40,352
Accrued expenses and other liabilities ................................... 174,118 143,659
------------------------------
Total liabilities .................................................. 10,287,242 9,852,734
------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share, 30,000,000
shares authorized; none issued and outstanding ..................... - -
Common stock, par value $.01 per share, 280,000,000 shares
authorized; 92,755,659 and 92,804,205 shares issued ................ 928 928
Additional paid-in capital ............................................ 508,682 500,797
Retained earnings, subject to certain restrictions .................... 835,605 715,461
Accumulated other comprehensive loss .................................. (9,868) (47,382)
Treasury stock at cost, 12,466,626 and 10,863,017 shares, and other ... (425,127) (360,822)
------------------------------
Total stockholders' equity ...................................... 910,220 808,982
------------------------------
$ 11,197,462 $10,661,716
==============================================================================================================
|
See accompanying notes to consolidated financial statements.
38
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
--------------------------------------------------------------------------------------------------------------
(In thousands, except per-share data) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
Interest income:
Loans and leases ...................................... $ 700,325 $618,291 $631,342
Securities available for sale ......................... 99,185 111,032 93,124
Loans held for sale ................................... 17,130 13,367 14,072
Investments ........................................... 10,041 9,411 10,356
------------------------------------------------
Total interest income .............................. 826,681 752,101 748,894
------------------------------------------------
Interest expense:
Deposits .............................................. 197,094 175,495 212,492
Borrowings ............................................ 191,051 152,393 110,668
------------------------------------------------
Total interest expense ............................. 388,145 327,888 323,160
------------------------------------------------
Net interest income ............................. 438,536 424,213 425,734
Provision for credit losses .............................. 14,772 16,923 23,280
------------------------------------------------
Net interest income after provision for
credit losses ................................ 423,764 407,290 402,454
------------------------------------------------
Non-interest income:
Fees and service charges .............................. 179,563 151,972 127,952
Electronic funds transfer revenues .................... 78,101 67,144 50,556
Leasing ............................................... 38,442 28,505 31,344
Investments and insurance ............................. 12,266 14,849 13,926
Gain on sales of loans held for sale .................. 4,012 4,747 7,575
Other ................................................. 16,405 12,009 11,156
------------------------------------------------
Fees and other revenues ............................ 328,789 279,226 242,509
------------------------------------------------
Gain on sales of securities available for sale ........ - 3,194 2,246
Gain on sales of loan servicing ....................... - 3,076 2,414
Gain on sales of branches ............................. 12,813 12,160 18,585
Gain on sale of subsidiaries .......................... - 5,522 -
Gain on sale of joint venture interest ................ - - 5,580
Title insurance revenues .............................. - 15,421 20,161
------------------------------------------------
Other non-interest income .......................... 12,813 39,373 48,986
------------------------------------------------
Total non-interest income ....................... 341,602 318,599 291,495
------------------------------------------------
Non-interest expense:
Compensation and employee benefits .................... 239,544 239,053 217,401
Occupancy and equipment ............................... 74,938 73,613 71,323
Advertising and promotions ............................ 19,181 16,981 19,544
Amortization of goodwill and other intangibles ........ 10,001 10,689 11,399
Other ................................................. 118,864 112,462 109,033
------------------------------------------------
Total non-interest expense ......................... 462,528 452,798 428,700
------------------------------------------------
Income before income tax expense ................ 302,838 273,091 265,249
Income tax expense ....................................... 116,593 107,052 109,070
------------------------------------------------
Net income ...................................... $ 186,245 $166,039 $156,179
================================================
Net income per common share:
Basic ................................................. $ 2.37 $ 2.01 $ 1.77
================================================
Diluted ............................................... $ 2.35 $ 2.00 $ 1.76
================================================
Dividends declared per common share ...................... $ .825 $ .725 $ .6125
==============================================================================================================
|
See accompanying notes to consolidated financial statements.
39
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Number of Common Additional
(Dollars in thousands) Shares Issued Common Stock Paid-in Capital
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 ........................................... 92,821,529 $ 928 $ 460,684
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 2,518
Cancellation of shares ............................................... (18,170) -- (375)
Amortization of deferred compensation ................................ -- -- --
Exercise of stock options, of which 145,183 shares were from treasury 61,687 -- (1,033)
Shares held in trust for deferred compensation plans ................. -- -- 45,740
Loan to Executive Deferred Compensation Plan, net of payments ........ -- -- --
---------------------------------------------------
Balance, December 31, 1998 ........................................... 92,912,246 929 507,534
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 .............................. -- -- (30)
Cancellation of shares ............................................... (108,041) (1) (2,569)
Amortization of deferred compensation ................................ -- -- --
Exercise of stock options, 550,661 shares from treasury .............. -- -- (4,464)
Shares held in trust for deferred compensation plans ................. -- -- 326
Loan payments by Executive Deferred Compensation Plan ................ -- -- --
---------------------------------------------------
Balance, December 31, 1999 ........................................... 92,804,205 928 500,797
Comprehensive income:
Net income ........................................................ -- -- --
Other comprehensive income ........................................ -- -- --
---------------------------------------------------
Comprehensive income ........................................... -- -- --
Dividends on common stock ............................................ -- -- --
Issuance of 37,259 shares from treasury to effect purchase acquisition -- -- 417
Purchase of 3,243,800 shares to be held in treasury .................. -- -- --
Issuance of 1,319,896 shares from treasury ........................... -- -- (7,716)
Cancellation of shares ............................................... (48,546) -- (1,262)
Amortization of deferred compensation ................................ -- -- --
Exercise of stock options, 283,036 shares from treasury .............. -- -- (81)
Issuance of stock options ............................................ -- -- 1
Shares held in trust for deferred compensation plans ................. -- -- 15,842
Purchase of TCF stock to fund the 401(k) plan, net ................... -- -- 684
Loan to Executive Deferred Compensation Plan, net of payments ........ -- -- --
---------------------------------------------------
Balance, December 31, 2000 ........................................... 92,755,659 $ 928 $ 508,682
=========================================================================================================================
Accumulated Other
Comprehensive Treasury Stock
Retained Earnings Income (Loss) and Other Total
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 ........................................... $ 508,969 $ 8,556 $ (25,457) $ 953,680
Comprehensive income:
Net income ........................................................ 156,179 -- -- 156,179
Other comprehensive loss .......................................... -- (965) -- (965)
---------------------------------------------------------
Comprehensive income ........................................... 156,179 (965) -- 155,214
Dividends on common stock ............................................ (54,971) -- -- (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 -- -- (2,882) (363)
Cancellation of shares ............................................... -- -- 192 (183)
Amortization of deferred compensation ................................ -- -- 5,863 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 of payments ........ -- -- (6,111) (6,111)
---------------------------------------------------------
Balance, December 31, 1998 ........................................... 610,177 7,591 (280,729) 845,502
Comprehensive income:
Net income ........................................................ 166,039 -- -- 166,039
Other comprehensive loss .......................................... -- (54,973) -- (54,973)
---------------------------------------------------------
Comprehensive income ........................................... 166,039 (54,973) -- 111,066
Dividends on common stock ............................................ (60,755) -- -- (60,755)
Purchase of 4,091,611 shares to be held in treasury .................. -- -- (106,106) (106,106)
Issuance of 21,050 shares from treasury .............................. -- -- (30) (60)
Cancellation of shares ............................................... -- -- 392 (2,178)
Amortization of deferred compensation ................................ -- -- 9,543 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 by Executive Deferred Compensation Plan ................ -- -- 1,390 1,390
---------------------------------------------------------
Balance, December 31, 1999 ........................................... 715,461 (47,382) (360,822) 808,982
Comprehensive income:
Net income ........................................................ 186,245 -- -- 186,245
Other comprehensive income ........................................ -- 37,514 -- 37,514
---------------------------------------------------------
Comprehensive income ........................................... 186,245 37,514 -- 223,759
Dividends on common stock ............................................ (66,101) -- -- (66,101)
Issuance of 37,259 shares from treasury to effect purchase acquisition -- -- 963 1,380
Purchase of 3,243,800 shares to be held in treasury .................. -- -- (73,824) (73,824)
Issuance of 1,319,896 shares from treasury ........................... -- -- 7,716 --
Cancellation of shares ............................................... -- -- 386 (876)
Amortization of deferred compensation ................................ -- -- 9,375 9,375
Exercise of stock options, 283,036 shares from treasury .............. -- -- 7,337 7,256
Issuance of stock options ............................................ -- -- -- 1
Shares held in trust for deferred compensation plans ................. -- -- (15,842) --
Purchase of TCF stock to fund the 401(k) plan, net ................... -- -- -- 684
Loan to Executive Deferred Compensation Plan, net of payments ........ -- -- (416) (416)
---------------------------------------------------------
Balance, December 31, 2000 ........................................... $ 835,605 $ (9,868) $(425,127) $ 910,220
================================================================================================================================
|
See accompanying notes to consolidated financial statements.
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income ............................................... $ 186,245 $ 166,039 $ 156,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 30,369 29,031 27,914
Amortization of goodwill and other intangibles ..... 10,001 10,689 11,399
Provision for credit losses ........................ 14,772 16,923 23,280
Proceeds from sales of loans held for sale ......... 611,123 586,859 577,808
Principal collected on loans held for sale ......... 9,885 10,144 9,083
Originations and purchases of loans held for sale .. (649,750) (457,515) (603,567)
Net (increase) decrease in other assets and
liabilities, and accrued interest ............... (1,854) 47,088 14,339
Gains on sales of assets ........................... (12,813) (23,952) (28,825)
Other, net ......................................... 4,125 14,988 8,395
------------------------------------------------
Total adjustments ............................... 15,858 234,255 39,826
------------------------------------------------
Net cash provided by operating activities .... 202,103 400,294 196,005
------------------------------------------------
Cash flows from investing activities:
Principal collected on loans and leases .................. 2,162,839 2,315,173 3,111,218
Originations and purchases of loans ...................... (2,320,239) (3,069,408) (3,119,924)
Purchases of equipment for lease financing ............... (579,595) (289,156) (186,009)
Proceeds from sales of loans ............................. - - 20,330
Net (increase) decrease in interest-bearing deposits
with banks ............................................ 19,987 95,575 (95,322)
Proceeds from sales of securities available for sale ..... - 288,718 231,438
Proceeds from maturities of and principal collected on
securities available for sale ......................... 176,905 577,844 606,603
Purchases of securities available for sale ............... (314) (791,995) (967,585)
Net (increase) decrease in federal funds sold ............ - 41,000 (41,000)
Sales of deposits, net of cash paid ...................... (82,097) (104,404) (213,159)
Other, net ............................................... (53,000) 7,723 (19,956)
------------------------------------------------
Net cash used by investing activities ................. (675,514) (928,930) (673,366)
------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits ...................... 402,731 (13,649) 41,816
Net increase in securities sold under repurchase
agreements and federal funds purchased ................ 75,320 642,720 254,836
Proceeds from borrowings ................................. 5,443,008 4,679,462 3,502,311
Payments on borrowings ................................... (5,331,961) (4,598,365) (2,911,853)
Purchases of common stock to be held in treasury ......... (73,824) (106,106) (210,939)
Payments of dividends on common stock .................... (66,101) (60,755) (54,971)
Other, net ............................................... (13,017) (5,886) (20,372)
------------------------------------------------
Net cash provided by financing activities ............. 436,156 537,421 600,828
------------------------------------------------
Net increase (decrease) in cash and due from banks ....... (37,255) 8,785 123,467
Cash and due from banks at beginning of year ............. 429,262 420,477 297,010
------------------------------------------------
Cash and due from banks at end of year ................... $ 392,007 $ 429,262 $ 420,477
===============================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings ................... $ 377,430 $ 302,268 $ 306,299
===============================================
Income taxes .......................................... $ 89,852 $ 78,125 $ 105,207
===============================================
Transfer of loans to other real estate owned
and other assets ...................................... $ 16,580 $ 32,074 $ 36,750
==============================================================================================================
|
See accompanying notes to consolidated financial statements.
42
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 financial holding
company engaged primarily in community banking and lease financing through its
wholly owned subsidiaries, TCF National Bank and TCF National Bank Colorado
("TCF Colorado"). The preparation of financial 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) 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
Unrealized holding gains (losses) on securities available for sale (net of tax
expense (benefit) of $22,212, ($31,532) and $206, respectively) ............. $ 37,514 $(52,971) $ 236
Reclassification adjustment for gains included in net income (net of tax expense
of $1,192 and $1,045 in 1999 and 1998, respectively) ..................... - (2,002) (1,201)
------------------------------------------
Total other comprehensive income (loss), net of tax .................. $ 37,514 $(54,973) $ (965)
============================================================================================================================
|
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 related 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. Declines in the
value of securities available for sale that are considered other than temporary
are recorded in noninterest income as a loss on securities available for sale.
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.
Lease financings include direct financing and sales-type leases as well as
leveraged leases. Leases that transfer substantially all of the benefits and
risks of equipment ownership to the lessee are classified as direct financing or
sales-type leases and are included in loans and leases. Direct financing and
sales-type leases are 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.
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. The investment in leveraged leases is the sum of all lease
payments (less nonrecourse debt payments) plus estimated residual values, less
unearned
43
income. Income from leveraged leases is recognized using a method which
approximates a level yield over the term of the leases based on the unrecovered
equity investment.
Impaired loans include all non-accrual and restructured commercial real
estate and commercial business loans and equipment financings. Consumer and
residential real estate loans and lease financings are excluded from the
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 or the fair value of the collateral for collateral-dependent
loans.
The allowance for loan and lease losses is maintained at a level believed to
be appropriate by management to provide for probable loan and lease losses
inherent in the portfolio as of the balance sheet date, including known or
anticipated problem loans and leases, as well as for loans and leases which are
not currently known to require specific allowances. Management's judgment as to
the amount 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, prevailing economic conditions and other relevant
factors. Residential loans, consumer loans, and smaller-balance commercial loans
and lease and equipment financings are segregated by loan type and sub-type, and
are evaluated on a group basis. Loans and leases are charged off to the extent
they are deemed to be uncollectible. The amount of the allowance for loan and
lease losses is highly dependent upon management's estimates of 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. For those non-accrual leases that have been funded on
a non-recourse basis by third-party financial institutions, the related debt is
also placed on non-accrual status. Interest payments received on 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 20 to
25 years on a straight-line basis. Deposit base intangibles are amortized over
10 years on an accelerated basis. The Company reviews the recoverability of the
carrying values of these assets whenever an event occurs indicating that they
may be impaired.
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 and its commitments to extend credit for residential loans.
Derivative financial instruments include commitments to extend credit and
forward mortgage loan sales commitments. See Note 14 for additional information
concerning these derivative financial instruments.
ADVERTISING AND PROMOTIONS - Expenditures for advertising and promotions are
expensed as incurred.
44
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.
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) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding used in basic earnings
per common share calculation .............................................. 78,648,765 82,445,288 88,092,895
Net dilutive effect of:
Stock option plans ..................................................... 113,338 172,486 346,434
Restricted stock plans ................................................. 626,572 452,944 476,486
-----------------------------------------
Weighted average number of shares outstanding adjusted for effect of
dilutive securities ....................................................... 79,388,675 83,070,718 88,915,815
=========================================
Net income ................................................................... $ 186,245 $ 166,039 $ 156,179
=========================================
Basic earnings per common share .............................................. $ 2.37 $ 2.01 $ 1.77
=========================================
Diluted earnings per common share ............................................ $ 2.35 $ 2.00 $ 1.76
==========================================================================================================================
|
2 > CASH AND DUE FROM BANKS
At December 31, 2000, TCF was required by Federal Reserve Board ("FRB")
regulations to maintain reserve balances of $17.7 million in cash on hand or at
various Federal Reserve Banks.
3 > INVESTMENTS
The carrying values of investments, which approximate their fair values, consist
of the following:
At December 31,
--------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
--------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits with banks ..................................................... $ 332 $20,319
Federal Home Loan Bank stock, at cost .................................................... 110,441 104,611
Federal Reserve Bank stock, at cost ...................................................... 23,286 23,224
-------------------------
$ 134,059 $148,154
==========================================================================================================================
|
The carrying value and yield of investments at December 31, 2000, by
contractual maturity, are shown below:
(Dollars in thousands) Carrying Value(1) Yield
-------------------------------------------------------------------------------------------------------------------
Due in one year or less ..................................................... $ 332 6.17%
No stated maturity (2) ...................................................... 133,727 7.44
------------
$134,059 7.44
===================================================================================================================
|
(1) Carrying value is equal to fair value.
(2) Balance represents FRB and Federal Home Loan Bank ("FHLB") stock, required
regulatory investments.
45
4 > SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
At December 31,
-------------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------------------
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 ..... $ 550 $ -- $ -- $ 550 $ 500 $ -- $ -- $ 500
Mortgage-backed securities:
FHLMC .................. 830,516 1,234 (11,738) 820,012 928,034 326 (47,491) 880,869
FNMA ................... 527,288 1,195 (5,392) 523,091 589,206 378 (27,633) 561,951
GNMA ................... 22,392 230 (105) 22,517 26,850 179 (174) 26,855
Private issuer ......... 38,328 112 (1,159) 37,281 51,796 139 (1,073) 50,862
Collateralized mortgage
obligations ......... 437 -- -- 437 624 -- -- 624
---------------------------------------------------------------------------------------------------
$1,419,511 $2,771 $ (18,394) $1,403,888 $1,597,010 $1,022 $(76,371) $1,521,661
====================================================================================================
Weighted-average yield .... 6.63% 6.58
================================================================================================================================
|
The carrying value and yield of U.S. Government and other marketable
securities at December 31, 2000, by contractual maturity, are shown below:
(Dollars in thousands) Carrying Value(1) Yield
------------------------------------------------------------------------------------------------------------------------------
2004 ..................................................................................... $500 7.00%
2005 ..................................................................................... 50 6.60
----
$550 6.96
==============================================================================================================================
|
(1) Carrying value is equal to fair value.
Gross gains of $4.7 million and $2.3 million and gross losses of $1.5 million
and $57,000 were recognized on sales of securities available for sale during
1999 and 1998, respectively. There were no sales of securities available for
sale in 2000.
Mortgage-backed securities aggregating $5.3 million were pledged as
collateral to secure certain deposits at December 31, 2000. In addition,
mortgage-backed securities aggregating $1.1 billion were pledged as collateral
to secure certain borrowings. See Note 10 of Notes to Consolidated Financial
Statements for additional information regarding securities pledged as collateral
to secure certain borrowings.
5 > LOANS HELD FOR SALE
Loans held for sale consist of the following:
At December 31,
--------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999
--------------------------------------------------------------------------------------------------------------------------
Residential real estate .................................................................. $ 74,545 $55,016
Education ................................................................................ 153,234 143,912
------------------------
$ 227,779 $198,928
==========================================================================================================================
|
46
6 > LOANS AND LEASES
Loans and leases consist of the following:
At December 31,
-------------------------------------------------------------------------------
(In thousands) 2000 1999
-------------------------------------------------------------------------------
Residential real estate ...................... $ 3,666,765 $ 3,911,184
Unearned premiums and deferred loan fees ..... 7,066 8,494
-------------------------
3,673,831 3,919,678
-------------------------
Consumer:
Home equity ............................... 2,168,827 1,974,924
Automobile ................................ 38,138 55,271
Loans secured by deposits ................. 6,881 6,859
Other secured ............................. 11,900 11,148
Unsecured ................................. 25,175 26,634
Unearned discounts and deferred loan fees . (16,787) (16,252)
-------------------------
2,234,134 2,058,584
-------------------------
Commercial real estate:
Apartments ................................ 324,666 276,045
Other permanent ........................... 871,614 637,980
Construction and development .............. 178,372 162,570
Unearned discounts and deferred loan fees . (2,811) (3,123)
-------------------------
1,371,841 1,073,472
-------------------------
Commercial business .......................... 409,915 350,816
Deferred loan costs .......................... 507 537
-------------------------
410,422 351,353
-------------------------
Leasing and equipment finance:
Loans:
Equipment finance loans ................ 204,351 43,647
Deferred loan costs .................... 2,708 513
-------------------------
207,059 44,160
-------------------------
Lease financings:
Direct financing leases ................ 658,678 446,351
Sales-type leases ...................... 37,645 30,387
Lease residuals ........................ 30,426 24,384
Unearned income and deferred lease costs (94,506) (52,626)
Investment in leveraged leases ......... 17,169 --
-------------------------
649,412 448,496
-------------------------
856,471 492,656
-------------------------
$ 8,546,699 $ 7,895,743
=========================================================================
|
At December 31, 2000 and 1999, the recorded investment in loans that were
considered to be impaired was $6.1 million and $4.5 million, respectively. The
related allowance for loan losses at those dates was $1.2 million and $1
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,
2000 and 1999 was $4.3 million and $8.1 million, respectively. For the year
ended December 31, 2000 and 1999, TCF recognized interest income on impaired
loans of $40,000 and $519,000, all of which was recognized using the cash basis
method of income recognition.
At December 31, 2000, 1999 and 1998, loans and leases on non-accrual status
totaled $35.2 million, $24.1 million and $33.7 million, respectively. Had the
loans and leases performed in accordance with their original terms throughout
2000, TCF would have recorded gross interest income of $3.9 million for these
loans and leases. Interest income of $1.6 million has been recorded on these
loans and leases for the year ended December 31, 2000.
At December 31, 2000 and 1999, TCF had no loans and leases outstanding with
terms that had been modified in troubled debt
47
restructurings. There were no material commitments to lend additional funds
to customers whose loans or leases were classified as non-accrual at December
31, 2000.
The aggregate amount of loans to directors and executive officers of TCF was
not significant at December 31, 2000 or 1999. 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.
During 2000, TCF purchased the equity interest in a leveraged lease
transaction for an aircraft. The investment in leveraged leases represents net
unpaid rentals and estimated unguaranteed residual values of the leased assets,
less related unearned income. TCF has no general obligation for principal and
interest on notes representing third-party participation related to the
leveraged lease; such notes are recorded as an offset against the related rental
receivable. As the equity owner in the leveraged lease, TCF is taxed on total
lease payments received and is entitled to tax deductions based on the cost of
the leased asset and tax deductions for interest paid to third-party
participants. The leveraged lease has renewal and purchase options by the lessee
at the end of the 9.75 year lease term.
At December 31, 2000, TCF's net investment in leveraged leases is comprised
of the following:
(In thousands)
--------------------------------------------------------------------------------
Rental receivable (net of principal and interest on non-recourse debt) $ 11,066
Estimated residual value of leased assets ............................ 18,056
Less: Unearned income ................................................ (11,953)
--------
Investment in leveraged leases ....................................... 17,169
Less: Deferred taxes ................................................. (1,929)
--------
Net investment in leveraged leases ................................ $ 15,240
================================================================================
|
Future minimum lease payments for direct financing and sales-type leases as
of December 31, 2000 are as follows:
Payments to be
Payments to Received by
be Received Other Financial
(In thousands) by TCF Institutions Total
--------------------------------------------------------------------
2001 ............ $152,336 $ 94,295 $246,631
2002 ............ 114,248 52,826 167,074
2003 ............ 81,935 22,607 104,542
2004 ............ 56,556 10,646 67,202
2005 ............ 37,917 1,397 39,314
Thereafter 25,585 527 26,112
--------------------------------------------
$468,577 $182,298 $650,875
====================================================================
|
7 > 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) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
Balance at beginning of year .................................................. $ 55,755 $ 80,013 $ 82,583
Transfers to loans held for sale ........................................... -- (14,793) --
Provision for credit losses ................................................ 14,772 16,923 23,280
Charge-offs ................................................................ (9,701) (34,398) (32,714)
Recoveries ................................................................. 5,843 8,010 6,864
----------------------------------
Net charge-offs ......................................................... (3,858) (26,388) (25,850)
----------------------------------
Balance at end of year ........................................................ $ 66,669 $ 55,755 $ 80,013
==================================
Ratio of net loan and lease charge-offs to average loans and leases outstanding .05% .35% .36%
Allowance for loan and lease losses as a percentage of total loan and
lease balances at year end ................................................. .78 .71 1.12
==================================================================================================================
|
48
8 > OTHER ASSETS
Other assets consist of the following:
At December 31,
------------------------------------------------
(In thousands) 2000 1999
------------------------------------------------
Premises and equipment .... $197,525 $176,108
Accrued interest receivable 63,128 54,550
Mortgage servicing rights . 40,086 22,614
Other real estate owned ... 10,869 10,912
Other ..................... 83,669 87,809
--------------------
$395,277 $351,993
===============================================
|
Premises and equipment are summarized as follows:
At December 31,
-------------------------------------------------------------------
(In thousands) 2000 1999
-------------------------------------------------------------------
Land ......................................... $ 42,088 $ 35,590
Office buildings ............................. 134,034 127,622
Leasehold improvements ....................... 33,778 32,709
Furniture and equipment ...................... 174,232 158,368
--------------------
384,132 354,289
Less accumulated depreciation and amortization 186,607 178,181
--------------------
$197,525 $176,108
==================================================================
|
TCF leases certain premises and equipment under operating leases. Net lease
expense was $20.3 million, $19.6 million and $19.6 million in 2000, 1999 and
1998, respectively.
At December 31, 2000, the total annual minimum lease commitments for
operating leases were as follows:
(In thousands)
----------------------------
2001 ...... $ 17,282
2002 ...... 15,221
2003 ...... 14,800
2004 ...... 13,967
2005 ...... 11,521
Thereafter ...... 60,256
--------
$133,047
============================
|
Mortgage servicing rights, net of valuation allowance, are summarized as
follows:
Year Ended December 31,
-------------------------------------------------------------------------
(In thousands) 2000 1999 1998
-------------------------------------------------------------------------
Balance at beginning of year, net ...... $ 22,614 $ 21,566 $ 19,512
Mortgage servicing rights capitalized 8,992 6,991 8,966
Purchased mortgage servicing rights . 13,806 -- --
Amortization ........................ (5,326) (4,737) (5,268)
Sales of servicing .................. -- (1,037) (97)
Valuation adjustments ............... -- (169) (1,547)
-------------------------------
Balance at end of year, net ............ $ 40,086 $ 22,614 $ 21,566
=========================================================================
|
49
The valuation allowance for mortgage servicing rights is summarized as
follows:
Year Ended December 31,
----------------------------------------------------------------
(In thousands) 2000 1999 1998
----------------------------------------------------------------
Balance at beginning of year $946 $ 2,738 $ 1,594
Provisions .............. -- 169 1,547
Charge-offs .......... -- (1,961) (403)
--------------------------------
Balance at end of year ..... $946 $ 946 $ 2,738
================================================================
|
At December 31, 2000, 1999 and 1998, TCF was servicing real estate loans for
others with aggregate unpaid principal balances of approximately $4 billion,
$2.9 billion and $3.7 billion, respectively. During 2000, TCF purchased the bulk
servicing rights on $933 million of residential mortgage loans at a cost of
$13.8 million. During 1999 and 1998, TCF sold servicing rights on $344.6 million
and $200.4 million of loans serviced for others at net gains of $3.1 million and
$2.4 million, respectively. No servicing rights were sold during 2000.
9 > DEPOSITS
Deposits are summarized as follows:
At December 31,
---------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average % of Average % of
(Dollars in thousands) Rate Amount Total Rate Amount Total
---------------------------------------------------------------------------------------------------------------
Checking:
Non-interest bearing --% $ 1,430,102 20.8% --% $ 1,185,330 18.0%
Interest bearing ... .58 773,841 11.2 .55 727,949 11.0
------------------------ --------------------------
.21 2,203,943 32.0 .21 1,913,279 29.0
------------------------ --------------------------
Passbook and statement:
Non-interest bearing -- 71,957 1.1 -- 42,838 .7
Interest bearing ... 1.13 973,431 14.1 1.12 1,048,454 15.9
------------------------ --------------------------
1.05 1,045,388 15.2 1.08 1,091,292 16.6
------------------------ --------------------------
Money market .......... 3.83 836,888 12.1 2.67 708,417 10.8
------------------------ --------------------------
1.17 4,086,219 59.3 .93 3,712,988 56.4
Certificates .......... 5.96 2,805,605 40.7 5.00 2,871,847 43.6
------------------------ --------------------------
3.12 $6,891,824 100.0% 2.71 $6,584,835 100.0%
================================================================================================================
|
Certificates had the following remaining maturities at December 31, 2000:
(In thousands) $100,000
Maturity Minimum Other Total(1)
--------------------------------------------------------------------------------------------------------------------------
0-3 months ................................................................. $302,188 $672,717 $974,905
4-6 months ................................................................. 65,496 629,364 694,860
7-12 months ................................................................ 74,890 629,910 704,800
13-24 months ............................................................... 37,242 270,631 307,873
25-36 months ............................................................... 9,189 85,333 94,522
37-48 months ............................................................... 1,755 16,881 18,636
49-60 months ............................................................... 232 7,013 7,245
Over 60 months ............................................................. -- 2,764 2,764
------------------------------------------
$490,992 $2,314,613 $2,805,605
==========================================================================================================================
|
(1) Includes $235.7 million of negotiated rate certificates and no brokered
deposits.
50
10 > BORROWINGS
Borrowings consist of the following:
At December 31,
---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
---------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Year of Average Average
Maturity Amount Rate Amount Rate
----------------------------------------------------------------------------------------------------------------------
Federal funds purchased ............................ 2001 $ 91,000 6.49% $ -- --%
Securities sold under repurchase agreements ........ 2000 -- -- 960,000 5.75
2001 794,320 6.61 50,000 5.71
2005 200,000 6.27 -- --
--------- -----------
994,320 6.54 1,010,000 5.74
--------- -----------
Federal Home Loan Bank advances .................... 2000 -- -- 499,716 6.00
2001 481,537 5.89 181,571 5.79
2003 135,000 5.76 50,000 5.78
2004 803,000 5.69 903,000 5.55
2005 246,000 6.02 -- --
2006 3,000 5.48 3,000 5.46
2009 122,500 5.25 122,500 5.24
2010 100,000 6.02 -- --
--------- -----------
1,891,037 5.78 1,759,787 5.69
--------- -----------
Discounted lease rentals ............................ 2000 -- -- 83,785 8.43
2001 84,529 8.81 57,285 8.50
2002 48,369 8.96 23,284 8.67
2003 20,897 9.10 8,816 8.84
2004 10,114 9.22 5,199 8.92
2005 1,355 9.15 -- --
2006 390 8.25 -- --
2007 109 8.36 -- --
--------- -----------
165,763 8.92 178,369 8.52
--------- -----------
Other borrowings:
Senior subordinated debentures .................... 2003 28,750 9.50 28,750 9.50
Bank line of credit ............................... 2000 -- -- 42,000 6.92
Commercial paper .................................. 2000 -- -- 22,357 6.21
Treasury, tax and loan note ....................... 2000 -- -- 42,625 4.53
2001 13,375 5.73 -- --
--------- -----------
42,125 8.30 135,732 6.60
--------- -----------
$3,184,245 6.23 $ 3,083,888 5.91
=====================================================================================================================
|
At December 31, 2000, borrowings with a remaining contractual maturity of one
year or less consisted of the following:
Weighted-
(Dollars in thousands) Amount Average Rate
------------------------------------------------------------------------
Federal funds purchased ................... $ 91,000 6.49%
Securities sold under repurchase agreements 794,320 6.61
Federal Home Loan Bank advances ........... 481,537 5.89
Discounted lease rentals .................. 84,529 8.81
Treasury, tax and loan note ............... 13,375 5.73
---------
$1,464,761 6.48
=========================================================================
|
51
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, 2000, all of the securities sold under
repurchase agreements provided for the repurchase of identical securities.
At December 31, 2000, securities sold under repurchase agreements were
collateralized by mortgage-backed securities and had the following maturities:
Repurchase Borrowing Collateral Securities
----------------------------------------------------------------------------------------------------------------------------
Interest Carrying Market
(Dollars in thousands) Amount Rate Amount Value
----------------------------------------------------------------------------------------------------------------------------
Maturity:
2001 ................................................................ $794,320 6.61% $ 846,172 $836,278
2005 ................................................................ 200,000 6.27 219,359 216,307
--------- -------------------------
$994,320 6.54 $1,065,531 $1,052,585
============================================================================================================================
|
Included in FHLB advances at December 31, 2000 are $1.5 billion of fixed-rate
advances which are callable at par on certain dates. If called, the FHLB will
provide replacement funding at the then-prevailing market interest rates. Due to
changes in interest rates since the long-term FHLB advances were obtained, the
market rates exceeded the contract rates on $53 million of the long-term FHLB
advances with call dates within one year. The probability that these advances
will be called depends primarily on the level of related interest rates during
the call period. The stated maturity dates and the next call dates for the
callable FHLB advances outstanding at December 31, 2000 were as follows (in
thousands):
Weighted- Weighted-
Average Average
Year Stated Maturity Rate Next Call Date Rate
------------------------------------------------------------------------------------------------------------------------------
2001 ................................................................ $100,000 4.60% $788,000 5.58%
2002 ................................................................ -- -- 454,500 5.81
2003 ................................................................ 85,000 5.74 100,000 6.02
2004 ................................................................ 803,000 5.69 117,000 5.28
2005 ................................................................ 246,000 6.02 -- --
2006 ................................................................ 3,000 5.48 -- --
2009 ................................................................ 122,500 5.25 -- --
2010 ................................................................ 100,000 6.02 -- --
---------- ----------
$1,459,500 5.66 $1,459,500 5.66
==============================================================================================================================
|
For certain equipment leases, TCF utilizes its lease rentals and underlying
equipment as collateral to borrow from other financial institutions at fixed
rates on a non-recourse basis. In the event of a default by the customer in
non-recourse financings, the other financial institution has a first lien on the
underlying leased equipment with no further recourse against TCF.
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. TCF intends to exercise its right of
redemption on the debentures in 2001.
TCF has a $135 million bank line of credit expiring in April 2001 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.
FHLB advances are collateralized by residential real estate loans and FHLB
stock with an aggregate carrying value of $2.5 billion at December 31, 2000.
52
The following table sets forth TCF's maximum and average borrowing levels for
each of the years in the three-year period ended December 31, 2000:
Securities Sold
Under Repurchase
Agreements and Discounted
Federal Funds FHLB Lease Other
(Dollars in thousands) Purchased Advances Rentals Borrowings
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000:
AVERAGE BALANCE .......... $ 925,004 $1,888,892 $163,758 $121,048
MAXIMUM MONTH-END BALANCE 1,151,913 2,016,040 172,348 296,750
AVERAGE RATE FOR PERIOD .. 6.34% 5.79% 8.55% 7.44%
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%
=========================================================================================
|
11 > INCOME TAXES
Income tax expense (benefit) consists of:
(In thousands) Current Deferred Total
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000:
FEDERAL ................... $ 88,746 $ 18,862 $107,608
STATE ..................... 6,457 2,528 8,985
--------------------------------------
$ 95,203 $ 21,390 $116,593
======================================
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
=========================================================================
|
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) 2000 1999 1998
---------------------------------------------------------------------------------------------
Computed income tax expense .......................... $105,993 $ 95,582 $ 92,837
Increase in income tax expense resulting from:
Amortization of goodwill .......................... 2,544 2,724 3,741
State income tax, net of federal income tax benefit 5,840 8,076 12,325
Other, net ........................................ 2,216 670 167
-----------------------------------
$116,593 $107,052 $109,070
=============================================================================================
|
The tax benefit recorded in additional paid-in capital for compensation
expense for tax purposes in excess of amounts recognized for financial reporting
purposes totaled $1.5 million, $4.1 million and $2.4 million for the years ended
December 31, 2000, 1999 and, 1998, respectively.
53
The significant components of the Company's deferred tax assets and deferred
tax liabilities are as follows:
At December 31,
------------------------------------------------------------------------
(In thousands) 2000 1999
------------------------------------------------------------------------
Deferred tax assets:
Securities available for sale ............. $ 5,755 $27,967
Allowance for loan and lease losses ....... 20,471 15,437
Pension and other compensation plans ...... 15,710 12,032
-------------------
Total deferred tax assets .............. 41,936 55,436
-------------------
Deferred tax liabilities:
Lease financing ........................... 50,653 27,292
Loan fees and discounts ................... 12,570 9,738
Other, net ................................ 7,124 3,216
-------------------
Total deferred tax liabilities ......... 70,347 40,246
-------------------
Net deferred tax assets (liabilities) $(28,411) $15,190
========================================================================
|
12 > 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, 2000 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.
TREASURY STOCK AND OTHER - Treasury stock and other consists of the following:
At December 31,
-------------------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999
Treasury stock, at cost ..................................... $(325,026) $(295,148)
Shares held in trust for deferred compensation plans, at cost (61,908) (46,066)
Unamortized deferred compensation ........................... (33,056) (14,887)
Loan to Executive Deferred Compensation Plan ................ (5,137) (4,721)
--------------------------
$(425,127) $(360,822)
===========================================================================================
|
On January 19, 1998, the Board authorized the repurchase of up to 5% of TCF
common stock, or 4.6 million shares. On June 22, 1998, the Board authorized the
repurchase of up to an additional 5% of TCF common stock, or 4.5 million shares.
On December 15, 1998, the Board authorized the repurchase of up to an additional
5% of TCF common stock, or 4.3 million shares. On March 8, 2000, the Board
authorized the repurchase of up to an additional 5% of TCF common stock, or 4.1
million shares. TCF purchased 3,243,800, 4,091,611 and 7,549,300 shares of
common stock during the years ended December 31, 2000, 1999 and 1998,
respectively. At December 31, 2000, TCF has remaining authorization of 2.6
million shares under its March 8, 2000 5% stock repurchase program.
54
On June 22, 2000, the Company entered into an agreement with a third party
that provides TCF with an option to purchase up to $50 million of TCF's common
stock under a forward share repurchase contract. The forward transactions can be
settled from time to time, at the Company's election, on a physical, net cash or
net share basis. The final maturity date of the agreement is June 24, 2002. At
December 31, 2000, there were no open forward purchases under this contract.
SHARES HELD IN TRUST FOR DEFERRED COMPENSATION PLANS - The cost of TCF common
stock held by TCF's deferred 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.
LOAN TO EXECUTIVE DEFERRED COMPENSATION PLAN - During 1998 and 2000, loans
totaling $6.4 million and $2 million, respectively, were made by TCF to the
Executive Deferred Compensation Plan trustee on a nonrecourse basis to purchase
shares of TCF common stock for the accounts of participants. The loans are
repayable by the participants over five years and bear interest at 7.41% to
8.00% and are secured by the shares of TCF common stock purchased with the loan
proceeds. These loans have a remaining principal balance of $5.1 million at
December 31, 2000, which is reflected as a reduction of stockholders' equity as
required by generally accepted accounting principles.
13 > 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 I leverage, tier I 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,
----------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------
(Dollars in thousands) AMOUNT PERCENTAGE Amount Percentage
----------------------------------------------------------------------------------------
Tier 1 leverage capital ............. $758,766 6.90% $688,357 6.56%
Tier 1 leverage capital requirement . 330,110 3.00 314,582 3.00
-------------------------------------------------
Excess ........................... $428,656 3.90% $373,775 3.56%
=================================================
Tier 1 risk-based capital ........... $758,766 10.66% $688,357 10.22%
Tier 1 risk-based capital requirement 284,827 4.00 269,448 4.00
-------------------------------------------------
Excess ........................... $473,939 6.66% $418,909 6.22%
=================================================
Total risk-based capital ............ $825,527 11.59% $745,171 11.06%
Total risk-based capital requirement 569,655 8.00 538,897 8.00
-------------------------------------------------
Excess ........................... $255,872 3.59% $206,274 3.06%
========================================================================================
|
At December 31, 2000, TCF and its bank subsidiaries exceeded their regulatory
capital requirements and are considered "well-capitalized" under guidelines
established by the FRB and the OCC pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991.
14 > 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.
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
55
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
$1.1 billion and $1.2 billion at December 31, 2000 and 1999, respectively. Since
certain of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
Collateral predominantly consists of residential and commercial real estate and
personal property. Included in the total commitments to extend credit at
December 31, 2000 were fixed-rate mortgage loan commitments and loans in process
aggregating $27.5 million.
STANDBY LETTERS OF CREDIT - Standby letters of credit are 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 $28.8 million and $22 million at December 31, 2000 and 1999,
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 $182.1 million and $184.5
million at December 31, 2000 and 1999, respectively.
FORWARD MORTGAGE LOAN SALES COMMITMENTS - TCF enters into forward mortgage loan
sales commitments in order to 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 $121.7 million and $46.3
million at December 31, 2000 and 1999, 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 $300
million and $189 million at December 31, 2000 and 1999, respectively.
15 > 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
fair value disclosures for its remaining financial instruments, all of which are
issued or held for purposes other than trading.
LOANS HELD FOR SALE - The fair value of loans held for sale is estimated based
on quoted market prices.
The estimated fair value of capitalized mortgage servicing rights totaled
$49.8 million at December 31, 2000, compared with a carrying amount of $40.1
million. The estimated fair value of 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 are estimated by
discounting contractual cash flows adjusted for prepayment estimates, using
interest rates currently being offered for loans with similar terms to borrowers
with similar credit risk characteristics.
56
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, 2000 and
1999.
As discussed above, the carrying amounts of certain of the Company's
financial instruments approximate their fair value. The carrying amounts
disclosed below are included in the Consolidated Statements of Financial
Condition under the indicated captions, except where noted otherwise. The
carrying amounts and fair values of the Company's remaining financial
instruments are set forth in the following table:
At December 31,
-------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(In thousands) AMOUNT FAIR VALUE Amount Fair Value
-------------------------------------------------------------------------------------------------------------------------
Financial instrument assets:
Loans held for sale ............................... $ 227,779 $ 231,306 $ 198,928 $ 200,617
Loans:
Residential real estate ........................ 3,673,831 3,712,568 3,919,678 3,825,981
Commercial real estate ......................... 1,371,841 1,381,222 1,073,472 1,061,374
Commercial business ............................ 410,422 410,003 351,353 347,108
Consumer ....................................... 2,234,134 2,408,672 2,058,584 2,116,554
Equipment finance loans ........................ 207,059 210,434 44,160 44,160
Allowance for loan losses (1) .................. (60,816) -- (51,847) --
---------------------------------------------------------------
$ 8,064,250 $ 8,354,205 $ 7,594,328 $ 7,595,794
===============================================================
Financial instrument liabilities:
Certificates ...................................... $ 2,805,605 $ 2,836,340 $ 2,871,847 $ 2,901,177
Securities sold under agreements to repurchase .... 994,320 1,003,645 1,010,000 1,010,000
Federal Home Loan Bank advances ................... 1,891,037 1,903,898 1,759,787 1,733,859
Other borrowings .................................. 42,125 41,694 135,732 135,301
---------------------------------------------------------------
$ 5,733,087 $ 5,785,577 $ 5,777,366 $ 5,780,337
===============================================================
Financial instruments with off-balance-sheet risk: (2)
Commitments to extend credit (3) .................. $ 12,045 $ (342) $ 8,572 $ (916)
Standby letters of credit (4) ..................... (2) (2) (1) (2)
Forward mortgage loan sales commitments (3) ....... 50 (1,151) 39 427
Federal Home Loan Bank advance forward settlements -- (6,985) -- 1,509
---------------------------------------------------------------
$ 12,093 $ (8,480) $ 8,610 $ 1,018
==========================================================================================================================
|
(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.
57
16 > 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. Restricted stock granted
to certain executive officers in 2000 will vest only if certain earnings per
share goals are achieved by 2008. Failure to achieve the goals will result in
all or a portion of the shares being forfeited. Other restricted stock grants
generally vest over periods from three to eight years. TCF also has prior
programs with options that remain outstanding. Those options are included in the
following tables.
ACCOUNTING FOR STOCK-BASED COMPENSATION - Effective January 1, 2000, TCF adopted
the recognition provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," for stock-based
transactions beginning in 2000. Under SFAS No. 123, the fair value of an option
or similar equity instrument on the date of grant is amortized to expense over
the vesting period of the grant. The recognition provisions of SFAS No. 123 are
applied prospectively upon adoption. TCF applied the intrinsic value based
method of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," as amended, for stock-based
transactions through December 31, 1999. Accordingly, no compensation expense was
recognized prior to 2000 for TCF's non-compensatory stock option grants.
TCF believes the fair value method of accounting more appropriately reflects
the substance of the transaction between an entity that issues stock options, or
other stock-based instruments, and its employees; that is, an entity has granted
something of value to an employee generally in return for their continued
employment and services. The fair value based method is designated as the
preferred method of accounting by SFAS No. 123.
Compensation expense for restricted stock under SFAS No. 123 and APB Opinion
No. 25 is recorded over the vesting periods, and totaled $9.4 million, $9.5
million and $5.9 million in 2000, 1999 and 1998, respectively.
Had compensation expense for all periods been determined based on the fair
value at the grant dates for awards under the Program consistent with the method
of SFAS No. 123, TCF's pro forma net income and earnings per common share would
have been as follows for periods prior to TCF's adoption of SFAS No. 123:
Year Ended December 31,
------------------------------------------------------------------
(In thousands, except per-share data) 1999 1998
------------------------------------------------------------------
Net income:
As reported ................... $ 166,039 $ 156,179
===========================
Pro forma ..................... $ 164,607 $ 156,271
===========================
Basic earnings per common share:
As reported ................... $ 2.01 $ 1.77
===========================
Pro forma ..................... $ 2.00 $ 1.77
===========================
Diluted earnings per common share:
As reported ................... $ 2.00 $ 1.76
===========================
Pro forma ..................... $ 1.98 $ 1.76
==================================================================
|
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option pricing model, with the following weighted-average
assumptions used for 1999 and 1998, respectively: risk-free interest rates of
5.03% and 4.78%; dividend yield of 2.7% and 2.6%; expected lives of 7 and 5.25
years; and volatility of 27.0% and 27.2%.
The weighted-average grant date fair value of options was $6.59, $7.02 and
$6.49 in 2000, 1999 and 1998, respectively. The weighted-average grant date fair
value of restricted stock was $24.60, $25.94 and $31.19 in 2000, 1999 and 1998,
respectively.
58
The following table reflects TCF's stock option and restricted stock
transactions under the Program since December 31, 1997:
Stock Options Restricted Stock
---------------------------------------------------------------
Exercise Price
---------------------
Weighted-
Shares Range Average Shares Price Range
-----------------------------------------------------------------------------------------------------------
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
Granted ..................... 1,000 21.81 21.81 1,300,080 22.10-43.70
Exercised ................... (283,585) 2.63-28.88 20.25 -- --
Forfeited ................... (13,000) 23.56-32.19 28.32 (20,940) 20.88-34.00
Vested ...................... -- -- -- (125,175) 8.11-28.59
----------- ---------
OUTSTANDING AT DECEMBER 31, 2000 467,515 3.46-33.28 23.32 2,275,100 16.56-43.70
=========== =========
EXERCISABLE AT DECEMBER 31, 2000 180,965 3.46-33.28 18.34
==========================================================================================================
|
The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------------------------------
Weighted-
Average
Weighted- Remaining Weighted-
Average Contractual Average
Exercise Price Range Shares Exercise Price Life in Years Shares Exercise Price
------------------------------------------------------------------------------------------------------------
$3.46 to $10.00 ................... 49,885 $5.45 1.5 49,885 $ 5.45
$10.01 to $20.00 .................. 37,830 13.78 5.2 37,830 13.78
$20.01 to $30.00 .................. 285,300 24.98 8.1 65,050 24.85
$30.01 to $33.28 .................. 94,500 31.55 7.1 28,200 32.24
-------- ----------
Total Options .................. 467,515 23.32 7.0 180,965 18.34
============================================================================================================
|
At December 31, 2000, there were 3,211,391 shares reserved for issuance under
the Program, including 467,515 shares for which options had been granted but had
not yet been exercised.
17 > EMPLOYEE BENEFIT PLANS
The TCF Cash Balance Pension Plan (the "Pension Plan") is a qualified defined
benefit 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
qualifying 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 ten years of service with the Company, with certain exceptions.
Effective January 1, 2000, TCF modified the Postretirement Plan by eliminating
the Company subsidy for employees not yet eligible for benefits under the
Postretirement Plan. The plan provisions for full-time and retired employees
eligible for these benefits were not changed. These and similar benefits for
active employees are provided through insurance companies or through self-funded
programs. The Postretirement Plan is an unfunded plan.
59
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) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year ........ $ 30,728 $ 28,967 $ 9,721 $ 9,214
Service cost - benefits earned during the year.. 3,248 3,297 56 426
Interest cost on benefit obligation ............ 2,431 2,059 523 630
Amendments ..................................... -- -- (2,481) --
Actuarial (gain) loss .......................... (1,942) (1,205) 179 69
Benefits paid .................................. (1,921) (2,390) (389) (618)
------ ------ ---- ----
Benefit obligation at end of year ........... 32,544 30,728 7,609 9,721
------ ------ ----- -----
Change in fair value of plan assets:
Fair value of plan assets at beginning of year . 74,867 57,338 -- --
Actual return on plan assets ................... 14,118 18,151 -- --
Benefits paid .................................. (1,921) (2,390) (389) (618)
Plan merger .................................... -- 1,768 -- --
Employer contributions ......................... -- -- 389 618
------ ------ ----- -----
Fair value of plan assets at end of year .... 87,064 74,867 -- --
------ ------ ----- -----
Funded status of plans:
Funded status at end of year ................... 54,520 44,139 (7,609) (9,721)
Unrecognized transition obligation ............. -- -- 2,513 4,433
Unrecognized prior service cost ................ (2,926) (3,983) -- 770
Unrecognized net gain .......................... (32,808) (23,870) (797) (998)
------ ------ ----- -----
Prepaid (accrued) benefit cost at end of year $ 18,786 $ 16,286 $ (5,893) $ (5,516)
==================================================================================================
|
Net periodic benefit cost (credit) included the following components:
Pension Plan Postretirement Plan
-------------------------------------------------------
Year Ended December 31, Year Ended December 31,
-----------------------------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999 1998 2000 1999 1998
-----------------------------------------------------------------------------------------------------
Service cost .......................... $ 3,248 $ 3,297 $ 2,967 $ 56 $ 426 $ 299
Interest cost ......................... 2,431 2,059 1,454 523 630 641
Expected return on plan assets ........ (6,207) (5,155) (3,745) -- -- --
Amortization of transition obligation . -- -- -- 209 342 342
Amortization of prior service cost .... (1,057) (1,057) (876) -- 109 109
Recognized actuarial gain ............. (915) -- (728) (22) (12) (58)
---------------------------------------------------------------
Net periodic benefit cost (credit).. $(2,500) $ (856) $ (928) $ 766 $ 1,495 $ 1,333
======================================================================================================
|
The discount rate and rate of increase in future compensation used to measure
the benefit obligation and the expected long-term rate of return on plan assets
were as follows:
Pension Plan Postretirement Plan
------------------------------------------------
Year Ended December 31, Year Ended December 31,
----------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
----------------------------------------------------------------------------------------
Discount rate ........................ 7.50% 7.50% 6.75% 7.50% 7.50% 6.75%
Rate of increase in future
compensation ...................... 5.00 5.00 5.00 -- -- --
Expected long-term rate of return
on plan assets .................... 10.00 10.00 9.50 -- -- --
========================================================================================
|
60
The Pension Plan's assets consist primarily of listed stocks and government
bonds. At December 31, 2000 and 1999, the Pension Plan's assets included TCF
common stock with a market value of $11.3 million and $6.3 million,
respectively.
For active participants of the Postretirement Plan, a 7.2% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
2001. This rate is assumed to decrease gradually to 6% for the year 2005 and
remain at that level thereafter. For most retired participants, the annual rate
of increase is assumed to be 4% for all future years, which represents the
Plan's annual limit on increases in 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 .. $ 14 $ (13)
Effect on postretirement benefit obligation .............. 132 (119)
===================================================================================
|
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 Internal
Revenue Code. 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 $2.7 million, $2.8 million and $2.7
million in 2000, 1999 and 1998, respectively.
18 > BUSINESS SEGMENTS
Prior to April 1, 2000, TCF's wholly owned bank subsidiaries located in
Minnesota, Illinois, Wisconsin and Michigan had been identified as reportable
segments. In April 2000, TCF merged these four bank charters into one national
bank charter headquartered in Minnesota.
Following the bank merger, certain management responsibilities were realigned
within the organization. Management reporting was revised to reflect the charter
merger and the resulting changes in responsibilities. Banking, leasing and
equipment finance, and mortgage banking have been identified as reportable
operating segments. Banking includes the following operating units that provide
financial services to customers: deposits and investment products, commercial
lending, consumer lending, residential lending and treasury services. Management
of TCF's banking area is organized by state. The separate state operations have
been aggregated for purposes of segment disclosures. Leasing and equipment
finance provides a broad range of comprehensive lease and equipment finance
products addressing the financing needs of diverse companies. Mortgage banking
activities include the origination and purchase of residential mortgage loans
for portfolio loans and sales to third parties, generally with servicing
retained. In addition, TCF operates a bank holding company ("parent company")
that provides data processing, bank operations and other professional services
to the operating segments.
TCF evaluates performance and allocates resources based on the segments' net
income. The segments follow generally accepted accounting principles as
described in the Summary of Significant Accounting Policies. TCF generally
accounts for intersegment sales and transfers at cost. Each segment is managed
separately with its own president, who reports directly to TCF's chief operating
decision maker.
61
The following table sets forth certain information about the reported profit
or loss and assets for each of TCF's reportable segments, including
reconciliation to TCF's consolidated totals. The results of TCF's parent company
and other administrative areas comprise the "other" category in the table below.
Prior period data has been restated to reflect the change in composition of
TCF's operating segments.
Leasing and Eliminations
Equipment Mortgage and
(In thousands) Banking Finance Banking Other Reclassification Consolidated
-----------------------------------------------------------------------------------------------------------------------
AT OR FOR THE YEAR ENDED
DECEMBER 31, 2000:
REVENUES FROM EXTERNAL CUSTOMERS:
INTEREST INCOME ................ $ 751,103 $ 69,960 $ 5,192 $ 426 $ -- $ 826,681
NON-INTEREST INCOME ........... 287,219 38,451 15,846 86 -- 341,602
--------------------------------------------------------------------------------
TOTAL ...................... $ 1,038,322 $ 108,411 $ 21,038 $ 512 $ -- $ 1,168,283
================================================================================
NET INTEREST INCOME .............. $ 397,887 $ 30,405 $ 5,609 $ (556) $ 5,191 $ 438,536
PROVISION FOR CREDIT LOSSES ...... 9,594 5,178 -- -- -- 14,772
NON-INTEREST INCOME .............. 287,219 38,451 25,497 90,640 (100,205) 341,602
AMORTIZATION OF GOODWILL AND
OTHER INTANGIBLES ............. 9,605 396 -- -- -- 10,001
OTHER NON-INTEREST EXPENSE ....... 398,922 25,813 29,218 93,588 (95,014) 452,527
INCOME TAX EXPENSE ............... 102,722 14,420 717 (1,266) -- 116,593
--------------------------------------------------------------------------------
NET INCOME (LOSS) ............. $ 164,263 $ 23,049 $ 1,171 $ (2,238) $ -- $ 186,245
================================================================================
TOTAL ASSETS ..................... $10,800,942 $ 876,540 $ 130,477 $ 112,309 $ (722,806) $11,197,462
================================================================================
At or For the Year Ended
December 31, 1999:
Revenues from External Customers:
Interest Income ............... $ 699,451 $ 47,562 $ 4,668 $ 420 $ -- $ 752,101
Non-Interest Income ........... 269,384 28,490 20,723 2 -- 318,599
--------------------------------------------------------------------------------
Total ...................... $ 968,835 $ 76,052 $ 25,391 $ 422 $ -- $ 1,070,700
================================================================================
Net Interest Income .............. $ 398,264 $ 25,212 $ 6,029 $ (3,487) $ (1,805) $ 424,213
Provision for Credit Losses ...... 15,065 1,858 -- -- -- 16,923
Non-Interest Income .............. 269,384 28,490 24,914 82,564 (86,753) 318,599
Amortization of Goodwill and
Other Intangibles ............. 10,296 393 -- -- -- 10,689
Other Non-Interest Expense ....... 394,303 19,062 32,571 84,731 (88,558) 442,109
Income Tax Expense ............... 96,473 13,037 (491) (1,967) -- 107,052
--------------------------------------------------------------------------------
Net Income (Loss) ............. $ 151,511 $ 19,352 $ (1,137) $ (3,687) $ -- $ 166,039
================================================================================
Total Assets ..................... $10,270,641 $ 524,702 $ 122,685 $ 56,188 $ (312,500) $10,661,716
================================================================================
At or For the Year Ended
December 31, 1998:
Revenues from External Customers:
Interest Income ............... $ 691,282 $ 48,861 $ 8,591 $ 160 $ -- $ 748,894
Non-Interest Income ........... 228,486 31,340 31,640 29 -- 291,495
--------------------------------------------------------------------------------
Total ...................... $ 919,768 $ 80,201 $ 40,231 $ 189 $ -- $ 1,040,389
================================================================================
Net Interest Income .............. $ 393,273 $ 26,833 $ 9,874 $ (1,759) $ (2,487) $ 425,734
Provision for Credit Losses ...... 22,073 1,255 -- (48) -- 23,280
Non-Interest Income .............. 228,561 31,340 37,184 70,783 (76,373) 291,495
Amortization of Goodwill and
Other Intangibles ............. 11,006 393 -- -- -- 11,399
Other Non-Interest Expense ....... 368,661 16,705 37,274 73,521 (78,860) 417,301
Income Tax Expense ............... 90,470 16,166 3,941 (1,507) -- 109,070
--------------------------------------------------------------------------------
Net Income (Loss) ............. $ 129,624 $ 23,654 $ 5,843 $ (2,942) $ -- $ 156,179
================================================================================
Total Assets ..................... $ 9,757,427 $ 417,094 $ 262,794 $ 54,485 $ (327,206) $10,164,594
=====================================================================================================================
|
62
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) 2000 1999 1998
--------------------------------------------------------------------------------------
Deposits and investment products ........... $ 272,785 $ 232,603 $ 194,948
Commercial lending ......................... 139,697 108,817 99,383
Consumer lending ........................... 239,916 215,671 236,538
Residential lending and treasury services .. 385,924 411,744 388,899
Leasing and equipment finance .............. 108,411 76,052 80,201
Mortgage banking ........................... 21,038 25,391 40,231
Other ...................................... 512 422 189
----------------------------------------
$1,168,283 $1,070,700 $1,040,389
======================================================================================
|
19 > OTHER EXPENSE
Other expense consists of the following:
Year Ended December 31,
-------------------------------------------------------------------------
(In thousands) 2000 1999 1998
-------------------------------------------------------------------------
Deposit account losses ........ $ 19,479 $ 17,172 $ 14,335
Telecommunication ............. 13,345 13,386 13,049
ATM interchange ............... 11,735 11,156 9,107
Postage and courier ........... 11,442 10,876 9,926
Office supplies ............... 9,216 8,879 10,006
Loan and lease ................ 3,979 5,469 6,917
Federal deposit insurance ..... 2,837 5,307 5,439
Mortgage servicing rights ..... 5,326 4,906 6,815
Other ......................... 41,505 35,311 33,439
----------------------------------------
$118,864 $112,462 $109,033
=========================================================================
|
63
20 > PARENT COMPANY FINANCIAL INFORMATION
TCF Financial Corporation's (parent company only) condensed statements of
financial condition as of December 31, 2000 and 1999, and the condensed
statements of operations and cash flows for the years ended December 31, 2000,
1999 and 1998 are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
At December 31,
------------------------------------------------------------------------------
(In thousands) 2000 1999
------------------------------------------------------------------------------
Assets:
Cash ......................................... $ 191 $ 673
Interest-bearing deposits with banks ......... 23,996 2,639
Investment in bank subsidiaries .............. 835,933 835,997
Premises and equipment ....................... 11,947 11,566
Dividends receivable from bank subsidiaries .. 25,000 7,272
Other assets ................................. 35,315 33,007
------------------------
$932,382 $891,154
========================
Liabilities and Stockholders' Equity:
Bank line of credit .......................... $ -- $ 42,000
Commercial paper ............................. -- 22,357
Other liabilities ............................ 22,162 17,815
------------------------
Total liabilities ......................... 22,162 82,172
Stockholders' equity ......................... 910,220 808,982
------------------------
$932,382 $891,154
==============================================================================
|
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31,
----------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
Interest income ...................................................... $ 1,192 $ 576 $ 581
Interest expense ..................................................... 1,726 4,000 2,219
---------------------------------------------
Net interest expense .............................................. (534) (3,424) (1,638)
Provision for credit losses .......................................... -- -- (49)
---------------------------------------------
Net interest expense after provision for credit losses ............ (534) (3,424) (1,589)
---------------------------------------------
Cash dividends received from consolidated bank subsidiaries .......... 212,327 164,791 184,569
Other non-interest income:
Affiliate service fees ............................................ 90,553 82,567 72,483
Other ............................................................. 87 (3) 35
---------------------------------------------
Total other non-interest income ................................ 90,640 82,564 72,518
---------------------------------------------
Non-interest expense:
Compensation and employee benefits ................................ 54,506 49,171 41,379
Occupancy and equipment ........................................... 16,133 14,982 14,672
Other ............................................................. 22,970 20,622 19,294
---------------------------------------------
Total non-interest expense ..................................... 93,609 84,775 75,345
---------------------------------------------
Income before income tax benefit and equity in undistributed
earnings of subsidiaries ....................................... 208,824 159,156 180,153
Income tax benefit ................................................... 1,435 1,852 1,588
---------------------------------------------
Income before equity in undistributed earnings of subsidiaries .... 210,259 161,008 181,741
Equity in undistributed earnings of subsidiaries ..................... (24,014) 5,031 (25,562)
---------------------------------------------
Net income ........................................................... $ 186,245 $ 166,039 $ 156,179
======================================================================================================================
|
64
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income ......................................................................... $ 186,245 $ 166,039 $ 156,179
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries ................................ 24,014 (5,031) 25,562
Other, net ...................................................................... 13,381 15,554 1,802
---------------------------------------
Total adjustments ............................................................ 37,395 10,523 27,364
---------------------------------------
Net cash provided by operating activities ....................................... 223,640 176,562 183,543
---------------------------------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits with banks .................... (21,357) (238) 17,420
Investments in and advances to subsidiaries, net ................................... -- (1,000) --
Loan to Executive Deferred Compensation Plan, net .................................. (416) 1,390 (6,111)
Purchases of premises and equipment, net ........................................... (4,300) (6,624) (4,174)
Other, net ......................................................................... 525 579 765
---------------------------------------
Net cash provided (used) by investing activities ................................ (25,548) (5,893) 7,900
---------------------------------------
Cash flows from financing activities:
Dividends paid on common stock ..................................................... (66,101) (60,755) (54,971)
Purchases of common stock to be held in treasury ................................... (73,824) (106,106) (210,939)
Net increase (decrease) in commercial paper ........................................ (22,357) 22,357 --
Net increase (decrease) in bank line of credit ..................................... (42,000) (32,000) 74,000
Other, net ......................................................................... 5,708 6,330 629
---------------------------------------
Net cash used by financing activities ........................................... (198,574) (170,174) (191,281)
---------------------------------------
Net increase (decrease) in cash ....................................................... (482) 495 162
Cash at beginning of year ............................................................. 673 178 16
---------------------------------------
Cash at end of year ................................................................... $ 191 $ 673 $ 178
================================================================================================================================
|
21 > 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.
65
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
TCF Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of TCF Financial Corporation and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in note 16 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, as of January 1, 2000.
KPMG LLP
Minneapolis, Minnesota
January 17, 2001
66
OTHER FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
AT DEC. 31, At Sept. 30, At June 30, At March 31,
(Dollars in thousands,
except per-share data) 2000 2000 2000 2000
--------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA:
Total assets ................... $11,197,462 $10,980,000 $10,905,705 $10,761,821
Investments .................... 134,059 132,173 131,635 155,265
Securities available for sale .. 1,403,888 1,413,218 1,436,836 1,470,532
Residential real estate loans .. 3,673,831 3,797,023 3,866,659 3,932,944
Other loans and leases ......... 4,872,868 4,562,644 4,364,491 4,158,849
Deposits ....................... 6,891,824 6,810,921 6,719,962 6,823,248
Borrowings ..................... 3,184,245 3,115,066 3,205,732 2,975,080
Stockholders' equity ........... 910,220 859,444 807,382 780,311
==================================================================================================
At Dec. 31, At Sept. 30, At June 30, At March 31,
1999 1999 1999 1999
--------------------------------------------------------------------------------------------------
Total assets ................... $10,661,716 $10,342,248 $ 10,338,341 $10,200,744
Investments .................... 148,154 127,701 194,781 158,222
Securities available for sale .. 1,521,661 1,599,438 1,701,063 1,569,406
Residential real estate loans .. 3,919,678 3,819,673 3,773,094 3,788,352
Other loans and leases ......... 3,976,065 3,782,457 3,658,077 3,504,977
Deposits ....................... 6,584,835 6,633,738 6,648,283 6,632,481
Borrowings ..................... 3,083,888 2,721,200 2,734,652 2,579,789
Stockholders' equity ........... 808,982 815,304 810,448 824,442
==================================================================================================
|
Three Months Ended
----------------------------------------------------------------------------------------------------------
DEC. 31, Sept. 30, June 30, March 31,
2000 2000 2000 2000
----------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income ....................... $214,408 $210,709 $204,407 $197,157
Interest expense ...................... 103,584 100,035 94,209 90,317
--------------------------------------------------------------
Net interest income ................ 110,824 110,674 110,198 106,840
Provision for credit losses ........... 4,711 3,688 5,383 990
--------------------------------------------------------------
Net interest income after
provision for credit losses ..... 106,113 106,986 104,815 105,850
Non-interest income:
Fees and other revenues ............ 88,122 85,276 82,438 72,953
Other non-interest income:
Gain (loss) on sales of
securities available for sale. -- -- -- --
Gain on sales of loan servicing . -- -- -- --
Gain on sales of branches ....... 8,947 -- 3,866 --
Gain on sale of subsidiaries .... -- -- -- --
Title insurance revenues ........ -- -- -- --
--------------------------------------------------------------
Other non-interest income .... 8,947 -- 3,866 --
--------------------------------------------------------------
Total non-interest income . 97,069 85,276 86,304 72,953
--------------------------------------------------------------
Non-interest expense:
Amortization of goodwill and
other intangibles ............... 2,519 2,515 2,484 2,483
Other non-interest expense ......... 115,841 113,818 112,761 110,107
--------------------------------------------------------------
Total non-interest expense ...... 118,360 116,333 115,245 112,590
--------------------------------------------------------------
Income before income tax expense ...... 84,822 75,929 75,874 66,213
Income tax expense .................... 32,657 29,232 29,212 25,492
--------------------------------------------------------------
Net income ......................... $ 52,165 $ 46,697 $ 46,662 $ 40,721
==============================================================
Per common share:
Basic earnings ..................... $ .67 $ .60 $ .60 $ .51
==============================================================
Diluted earnings ................... $ .66 $ .59 $ .59 $ .51
==============================================================
Diluted cash earnings (1)........... $ .68 $ .61 $ .61 $ .53
==============================================================
Dividends declared ................. $ .2125 $ .2125 $ .2125 $ .1875
==============================================================
FINANCIAL RATIOS: (2)
Return on average assets .............. 1.89% 1.71% 1.73% 1.53%
Cash return on average assets (1) ..... 1.96 1.78 1.80 1.60
Return on average realized
common equity ...................... 23.17 21.52 22.19 19.24
Return on average common equity ....... 23.78 22.55 23.72 20.55
Cash return on average
realized common equity (1) ......... 24.01 22.39 23.09 20.12
Average total equity to average assets 7.95 7.60 7.28 7.44
Average realized tangible equity
to average assets .................. 6.66 6.43 6.23 6.35
Average tangible equity to
average assets ..................... 6.45 6.06 5.72 5.84
Net interest margin (3) ............... 4.33 4.38 4.38 4.32
==========================================================================================================
----------------------------------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
1999 1999 1999 1999
----------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income ....................... $193,043 $188,656 $186,359 $184,043
Interest expense ...................... 86,931 82,116 79,637 79,204
--------------------------------------------------------------
Net interest income ................ 106,112 106,540 106,722 104,839
Provision for credit losses ........... 3,371 2,845 2,947 7,760
--------------------------------------------------------------
Net interest income after
provision for credit losses ..... 102,741 103,695 103,775 97,079
Non-interest income:
Fees and other revenues ............ 74,785 72,137 68,385 63,919
Other non-interest income:
Gain (loss) on sales of
securities available for sale. -- -- (5) 3,199
Gain on sales of loan servicing . -- -- 743 2,333
Gain on sales of branches ....... 3,349 6,429 2,382 --
Gain on sale of subsidiaries .... 5,522 -- -- --
Title insurance revenues ........ 2,490 3,953 4,512 4,466
--------------------------------------------------------------
Other non-interest income .... 11,361 10,382 7,632 9,998
--------------------------------------------------------------
Total non-interest income . 86,146 82,519 76,017 73,917
--------------------------------------------------------------
Non-interest expense:
Amortization of goodwill and
other intangibles ............... 2,665 2,676 2,673 2,675
Other non-interest expense ......... 112,292 114,061 110,106 105,650
--------------------------------------------------------------
Total non-interest expense ...... 114,957 116,737 112,779 108,325
--------------------------------------------------------------
Income before income tax expense ...... 73,930 69,477 67,013 62,671
Income tax expense .................... 28,980 26,717 26,024 25,331
--------------------------------------------------------------
Net income ......................... $ 44,950 $ 42,760 $ 40,989 $ 37,340
==============================================================
Per common share:
Basic earnings ..................... $ .55 $ .52 $ .50 $ .45
==============================================================
Diluted earnings ................... $ .55 $ .52 $ .49 $ .44
==============================================================
Diluted cash earnings (1) .......... $ .58 $ .54 $ .52 $ .47
==============================================================
Dividends declared ................. $ .1875 $ .1875 $ .1875 $ .1625
==============================================================
FINANCIAL RATIOS: (2)
Return on average assets .............. 1.72% 1.66% 1.60% 1.48%
Cash return on average assets (1) ..... 1.80 1.73 1.67 1.55
Return on average realized
common equity ...................... 21.04 20.37 19.81 18.06
Return on average common equity ....... 22.03 21.29 20.11 17.99
Cash return on average
realized common equity (1) ......... 22.14 21.27 20.73 18.97
Average total equity to average assets 7.78 7.79 7.95 8.22
Average realized tangible equity
to average assets .................. 6.50 6.44 6.33 6.39
Average tangible equity to
average assets ..................... 6.13 6.08 6.21 6.42
Net interest margin (3) ............... 4.38 4.46 4.52 4.52
==========================================================================================================
|
(1)Excludes amortization and reduction of goodwill, net of income tax benefit.
(2)Annualized.
(3) Net interest income divided by average interest-earning assets.
67
FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS
Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------
(In thousands, except per-share data) 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF OPERATIONS:
Interest income ............................................. $826,681 $752,101 $748,894 $682,614 $612,884
Interest expense ............................................ 388,145 327,888 323,160 289,018 258,316
-----------------------------------------------------
Net interest income ...................................... 438,536 424,213 425,734 393,596 354,568
Provision for credit losses ................................. 14,772 16,923 23,280 17,995 21,446
-----------------------------------------------------
Net interest income after provision for credit losses .... 423,764 407,290 402,454 375,601 333,122
Fees and other revenues ..................................... 328,789 279,226 242,509 188,620 159,844
Other non-interest income:
Gain on sales of securities available for sale ........... -- 3,194 2,246 8,509 86
Gain on sales of loan servicing .......................... -- 3,076 2,414 1,622 --
Gain on sales of branches ................................ 12,813 12,160 18,585 14,187 2,747
Gain on sale of subsidiaries ............................. -- 5,522 -- -- --
Gain on sale of joint venture interest ................... -- -- 5,580 -- --
Gain on sales of loans ................................... -- -- -- -- 5,443
Title insurance revenues ................................. -- 15,421 20,161 13,730 13,492
-----------------------------------------------------
Other non-interest income ............................. 12,813 39,373 48,986 38,048 21,768
-----------------------------------------------------
Total non-interest income .......................... 341,602 318,599 291,495 226,668 181,612
-----------------------------------------------------
Amortization of goodwill and other intangibles .............. 10,001 10,689 11,399 15,757 3,540
FDIC special assessment ..................................... -- -- -- -- 34,803
Other non-interest expense .................................. 452,527 442,109 417,301 345,605 314,983
-----------------------------------------------------
Total non-interest expense ............................ 462,528 452,798 428,700 361,362 353,326
-----------------------------------------------------
Income before income tax expense ......................... 302,838 273,091 265,249 240,907 161,408
Income tax expense .......................................... 116,593 107,052 109,070 95,846 61,031
-----------------------------------------------------
Net income ............................................... $186,245 $166,039 $156,179 $145,061 $100,377
=====================================================
Basic earnings per common share ............................. $ 2.37 $ 2.01 $ 1.77 $ 1.72 $ 1.23
=====================================================
Diluted earnings per common share ........................... $ 2.35 $ 2.00 $ 1.76 $ 1.69 $ 1.20
=====================================================
Diluted cash earnings per common share ...................... $ 2.44 $ 2.10 $ 1.88 $ 1.73 $ 1.22
=====================================================
Dividends declared per common share ......................... $ .825 $ .725 $ .6125 $ .46875 $.359375
=====================================================
Average common and common equivalent shares outstanding:
Basic .................................................... 78,649 82,445 88,093 84,478 81,904
=====================================================
Diluted .................................................. 79,389 83,071 88,916 86,134 83,939
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68
FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED)
At December 31,
--------------------------------------------------------------------------------------------------------------------------
(In thousands, except per-share data) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF FINANCIAL CONDITION:
Total assets ................................. $11,197,462 $10,661,716 $10,164,594 $9,744,660 $7,430,487
Interest-bearing deposits with banks ......... 332 20,319 115,894 20,572 386,244
Federal funds sold ........................... -- -- 41,000 -- --
Other investments ............................ -- -- 4,227 4,061 3,910
Federal Reserve Bank stock, at cost .......... 23,286 23,224 23,112 22,977 --
Federal Home Loan Bank stock, at cost ........ 110,441 104,611 93,482 82,002 66,061
Securities available for sale ................ 1,403,888 1,521,661 1,677,919 1,426,131 999,586
Loans held for sale .......................... 227,779 198,928 213,073 244,612 203,869
Residential real estate loans ................ 3,673,831 3,919,678 3,765,280 3,623,845 2,252,312
Other loans and leases ....................... 4,872,868 3,976,065 3,375,898 3,445,343 3,040,608
Goodwill ..................................... 153,239 158,468 166,645 177,700 15,431
Deposit base intangibles ..................... 11,183 13,262 16,238 19,821 10,843
Deposits ..................................... 6,891,824 6,584,835 6,715,146 6,907,310 4,977,630
Federal Home Loan Bank advances .............. 1,891,037 1,759,787 1,804,208 1,339,578 1,141,040
Other borrowings ............................. 1,293,208 1,324,101 656,838 387,574 567,132
Stockholders' equity ......................... 910,220 808,982 845,502 953,680 630,687
Tangible equity .............................. 745,798 637,252 662,619 756,159 604,413
Book value per common share .................. 11.34 9.87 9.88 10.27 7.61
Tangible book value per common share ......... 9.29 7.78 7.74 8.15 7.29
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At or For the Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND OTHER DATA:
Net interest margin ............................. 4.35% 4.47% 4.84% 5.20% 5.27%
Return on average assets ........................ 1.72 1.61 1.62 1.77 1.39
Return on average realized common equity ........ 21.53 19.83 17.51 19.57 16.77
Average total equity to average assets .......... 7.58 7.93 9.35 9.12 8.31
Average interest-earning assets to average
interest-bearing liabilities ................. 119.10 117.02 116.55 117.15 115.29
Common dividend payout ratio .................... 35.11% 36.25% 34.80% 27.74% 29.95%
Number of full service bank offices ............. 352 338 311 221 196
Number of checking accounts (in thousands) ...... 1,131 1,032 913 772 669
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69
ALLOWANCE FOR LOAN AND LEASE LOSS INFORMATION
Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year .................... $ 55,755 $ 80,013 $ 82,583 $ 71,865 $ 66,290
Acquired balance ................................ -- -- -- 10,592 --
Transfers to loans held for sale ................ -- (14,793) -- -- --
Charge-offs:
Residential real estate ...................... (15) (155) (291) (444) (333)
Commercial real estate ....................... (76) (674) (1,294) (927) (1,944)
Commercial business .......................... (360) (52) (42) (1,485) (2,786)
Consumer ..................................... (7,041) (31,509) (30,108) (21,660) (18,317)
Leasing and equipment finance ................ (2,209) (2,008) (979) (2,297) (914)
-------------------------------------------------------------------------
(9,701) (34,398) (32,714) (26,813) (24,294)
-------------------------------------------------------------------------
Recoveries:
Residential real estate ...................... 28 71 103 167 131
Commercial real estate ....................... 295 1,381 559 2,530 3,690
Commercial business .......................... 694 329 635 2,488 2,675
Consumer ..................................... 4,576 5,831 5,222 3,141 1,918
Leasing and equipment finance ............. 250 398 345 618 9
-------------------------------------------------------------------------
5,843 8,010 6,864 8,944 8,423
-------------------------------------------------------------------------
Net charge-offs ........................... (3,858) (26,388) (25,850) (17,869) (15,871)
Provision charged to operations ................. 14,772 16,923 23,280 17,995 21,446
-------------------------------------------------------------------------
Balance at end of year .......................... $ 66,669 $ 55,755 $ 80,013 $ 82,583 $ 71,865
========================================================================
Ratio of net loan and lease charge-offs to average
loans and leases outstanding ................. .05% .35% .36% .30% .29%
Year-end allowance as a percentage of year-end
total loan and lease balances ................ .78 .71 1.12 1.17 1.36
Year-end allowance as a percentage of year-end loans
and leases excluding residential real estate loans 1.31 1.33 2.27 2.30 2.29
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70
CONTRACTUAL AMORTIZATION OF LOAN AND LEASE PORTFOLIOS
At December 31, 2000 (1)
--------------------------------------------------------------------------------------------------------------------
Leasing and
Residential Commercial Commercial Equipment Total Loans
(In thousands) Real Estate Real Estate Business Consumer Finance and Leases
--------------------------------------------------------------------------------------------------------------------
Amounts due:
Within 1 year ............. $ 114,568 $ 213,456 $234,965 $ 97,393 $312,119 $ 972,501
After 1 year:
1 to 2 years ........... 115,641 162,865 60,183 88,604 239,938 667,231
2 to 3 years ........... 120,013 88,205 48,904 100,528 168,565 526,215
3 to 5 years ........... 250,073 266,182 43,971 204,425 227,647 992,298
5 to 10 years .......... 629,189 487,696 20,752 566,558 -- 1,704,195
10 to 15 years ......... 572,963 135,716 894 948,031 -- 1,657,604
Over 15 years .......... 1,864,318 20,532 246 245,382 -- 2,130,478
-----------------------------------------------------------------------------------
Total after 1 year .. 3,552,197 1,161,196 174,950 2,153,528 636,150 7,678,021
-----------------------------------------------------------------------------------
Total ............ $3,666,765 $1,374,652 $409,915 $2,250,921 $948,269 $8,650,522
===================================================================================
Amounts due after 1 year on:
Fixed-rate loans and leases $1,479,438 $ 244,741 $ 75,647 $1,143,996 $636,150 $3,579,972
Adjustable-rate loans ..... 2,072,759 916,455 99,303 1,009,532 -- 4,098,049
-----------------------------------------------------------------------------------
Total after 1 year ..... $3,552,197 $1,161,196 $174,950 $2,153,528 $636,150 $7,678,021
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(1) Gross of unearned discounts and deferred fees. This table does not include
the effect of prepayments, which is an important consideration in management's
interest-rate risk analysis. Company experience indicates that the loans remain
outstanding for significantly shorter periods than their contractual terms.
