TCF Bank 2004 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 manage-
ment’s judgment on a number of factors such as net charge-offs,
delinquencies in the loan and lease portfolio, general economic con-
ditions and management’s assessment of credit risk in the current
loan and lease portfolio. The Company considers the allowance for
loan and lease losses of $79.9 million appropriate to cover losses
inherent in the loan and lease portfolios as of December 31, 2004.
However, no assurance can be given that TCF will not, in any particular
period, sustain loan and lease losses that are sizable in relation to
the amount reserved, or that 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 detailed 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
Total loan and lease originations and purchases for TCF’s leasing
businesses were $717.8 million at December 31, 2004, compared with
$618.3 million during 2003. The backlog of approved transactions
increased to $195.3 million at December 31, 2004, from $155.2 million
at December 31, 2003. TCF’s expanded leasing activity is subject to
risk of cyclical downturns and other adverse economic developments.
TCF’s ability to increase its leasing and equipment finance 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 as well as a decline in equipment values for equipment
previously placed in service.
Loan and leases outstanding at December 31, 2004 are shown in the following table by maturity:
At December 31, 2004 (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 . . . . . . . . . . . . . . . . . . . . . . . . $ 218,537 $ 339,974 $ 206,658 $ 548,749 $ 44,390 $1,358,308
After 1 year:
1 to 2 years . . . . . . . . . . . . . . . . . . . . . 213,561 254,168 106,279 366,559 45,976 986,543
2 to 3 years . . . . . . . . . . . . . . . . . . . . . 240,324 276,953 47,552 257,653 46,728 869,210
3 to 5 years . . . . . . . . . . . . . . . . . . . . . 451,705 498,899 33,923 250,525 83,857 1,318,909
5 to 10 years . . . . . . . . . . . . . . . . . . . . 1,105,021 703,562 17,971 56,604 197,913 2,081,071
10 to 15 years . . . . . . . . . . . . . . . . . . . 1,007,075 58,724 2,750 – 163,283 1,231,832
Over 15 years . . . . . . . . . . . . . . . . . . . . 1,181,627 24,875 8,317 – 426,873 1,641,692
Total after 1 year . . . . . . . . . . . . . . 4,199,313 1,817,181 216,792 931,341 964,630 8,129,257
Total . . . . . . . . . . . . . . . . . . . . $4,417,850 $2,157,155 $ 423,450 $1,480,090 $1,009,020 $9,487,565
Amounts due after 1 year on:
Fixed-rate loans and leases . . . . . . . . . . . . $1,678,920 $ 342,111 $ 63,161 $ 931,341 $ 743,816 $3,759,349
Variable and adjustable-rate loans(2) . . . . . 2,520,393 1,475,070 153,631 – 220,814 4,369,908
Total after 1 year . . . . . . . . . . . . . . . . . $4,199,313 $1,817,181 $ 216,792 $ 931,341 $ 964,630 $8,129,257
(1) Gross of deferred fees and costs. 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 $189 million of consumer loans and $13.4 million of commercial real estate and commercial business loans at their interest rate floors.