TCF Bank 2003 Annual Report Download - page 38

36 TCF Financial Corporation and Subsidiaries
Allowance for Loan and Lease Losses Credit risk is the risk
of loss from a customer default on a loan or lease. 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, identifi-
cation of problem loans and leases and procedures for the collection
of problem loans and leases. The risk of loss is difficult to quantify
and is subject to fluctuations in values, general economic conditions
and other factors. The determination of the allowance for loan
and lease losses is a critical accounting estimate which involves
management’s judgment on a number of factors such as net charge-
offs, delinquencies in the loan and lease portfolio, general economic
conditions and management’s assessment of credit risk in the cur-
rent loan and lease portfolio. The Company considers the allowance
for loan and lease losses of $76.6 million appropriate to cover losses
inherent in the loan and lease portfolios as of December 31, 2003.
However, no assurance can be given that TCF will not, in any particu-
lar period, sustain loan and lease losses that are sizable in relation
to the amount reserved, or that subsequent evaluations of the loan
and lease portfolio, in light of factors then prevailing, including
economic conditions and TCF’s on-going credit review process, will
not require significant changes in the allowance for loan and lease
losses. Among other factors, a protracted economic slowdown and/
or a decline in commercial or residential real estate values in TCF’s
markets may have an adverse impact on the adequacy of the allowance
for loan and lease losses by increasing credit risk and the risk of
potential loss. See “Forward-Looking Information” and Notes 1
and 7 of Notes to Consolidated Financial Statements for additional
information concerning TCF’s allowance for loan and lease losses.
The next several pages include detail information regarding TCF’s
allowance for loan and lease losses, net charge-offs, non-performing
assets, past due loans and leases and potential problem loans and
leases. Included in this data are numerous portfolio ratios that must
be carefully reviewed and related to the nature of the underlying
loan and lease portfolios before appropriate conclusions can be
reached regarding TCF or for purposes of making comparisons to
other companies. Most of TCF’s non-performing assets and past
due loans and leases are secured by residential real estate. Given
the nature of these assets and the related mortgage foreclosure,
property sale and, if applicable, mortgage insurance claims
processes, it can take 18 months or longer for a loan to migrate
from initial delinquency to final disposition. This resolution process
generally takes much longer for loans secured by real estate than
for unsecured loans or loans secured by other property primarily
due to state foreclosure laws.
The key indicators of TCF’s credit quality and reserve coverage
for 2003 include net charge-offs to average loans and leases of
.16%, the year-end allowance as a multiple of net charge-offs of
5.9X and an earnings coverage ratio of 26.3X.
Loan and leases outstanding at December 31, 2003 are shown in the following table by maturity:
At December 31, 2003 (1)
Leasing and
Commercial Commercial Equipment Residential Total Loans
(In thousands) Consumer Real Estate Business Finance Real Estate and Leases
Amounts due:
Within 1 year . . . . . . . . . . . . . . . . . . . . . . . $ 110,042 $ 295,481 $ 213,615 $ 399,224 $ 52,585 $1,070,947
After 1 year:
1 to 2 years . . . . . . . . . . . . . . . . . . . . . 93,903 129,837 107,229 318,314 54,914 704,197
2 to 3 years . . . . . . . . . . . . . . . . . . . . . 192,580 319,498 70,466 365,922 111,445 1,059,911
3 to 5 years . . . . . . . . . . . . . . . . . . . . . 124,752 190,267 8,843 88,622 53,108 465,592
5 to 10 years . . . . . . . . . . . . . . . . . . . . 689,949 837,905 20,252 59,838 241,217 1,849,161
10 to 15 years . . . . . . . . . . . . . . . . . . . 1,398,267 114,053 1,999 26,708 199,084 1,740,111
Over 15 years . . . . . . . . . . . . . . . . . . . 1,023,605 33,149 4,837 – 494,394 1,555,985
Total after 1 year . . . . . . . . . . . . . 3,523,056 1,624,709 213,626 859,404 1,154,162 7,374,957
Total . . . . . . . . . . . . . . . . . . . $3,633,098 $1,920,190 $ 427,241 $1,258,628 $1,206,747 $8,445,904
Amounts due after 1 year on:
Fixed-rate loans and leases . . . . . . . . . . . $1,416,392 $ 278,796 $ 56,042 $ 859,404 $ 849,274 $3,459,908
Variable and adjustable-rate loans(2) . . . . 2,106,664 1,345,913 157,584 – 304,888 3,915,049
Total after 1 year . . . . . . . . . . . . . . . . . $3,523,056 $1,624,709 $ 213,626 $ 859,404 $1,154,162 $7,374,957
(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.
(2) Includes $1.7 billion of consumer loans and $379 million of variable-rate commercial real estate and commercial business loans at their interest rate floor.