TCF Bank 2001 Annual Report Download - page 65

At December 31, 2001, 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.
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. At December 31, 2001, there were 2,881,069 shares reserved
for issuance under the Program, including 370,125 shares related to
outstanding stock options.
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 peri-
ods from three to eight years.
TCF also has prior programs with options that remain outstand-
ing. Those options are included in the following tables. Options gen-
erally 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.
ACCOUNTING FOR STOCK-BASED COMPENSATION –
Effective January 1, 2000, TCF adopted the recognition provisions
of SFAS No. 123, “Accounting for Stock-Based Compensation,” for
stock-based grants beginning in 2000. Under SFAS No. 123, the
fair value of an option or similar equity instrument on the date of
grant is amortized to expense over the vesting period of the grant.
The recognition provisions of SFAS No. 123 were applied prospec-
tively 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 stock option grants.
TCF believes the fair value method of accounting more appro-
priately 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 $11.1 million, $9.4 million and $9.5 million in 2001, 2000
and 1999, respectively.
Had compensation expense for all periods been determined based
on the fair value at the grant dates for awards under the Program con-
sistent with the method of SFAS No. 123, TCF’s pro forma net income
and diluted earnings per common share would have been $164.6 mil-
lion and $1.98, respectively, for the year ended December 31, 1999.
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: risk-free interest rates
of 5.03%; dividend yield of 2.7%; expected lives of 7 years; and
volatility of 27.0%.
The weighted-average grant date fair value of options was $6.59
and $7.02 in 2000 and 1999, respectively. No options were granted
in 2001. The weighted-average grant date fair value of restricted stock
was $39.53, $24.60 and $25.94 in 2001, 2000 and 1999, respectively.
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