TCF Bank 2012 Annual Report Download - page 55

TCF modifies loans through reductions in interest
rates, extending payment dates, or term extensions
with reduction of contractual payments (but generally
not a reduction of principal). Loan modifications are
not reported as TDR loans in the calendar years after
modification if the loans were modified to an interest rate
equal to or greater than the yields of new loan originations
with comparable risk at the time of restructuring and the
loan is performing based on the restructured terms.
If TCF has not granted a concession as a result of the
modification, compared with the original terms, the loan is
not considered a TDR loan. Modifications that are not clas-
sified as TDR loans primarily involve interest rate changes
to current market rates for similarly situated borrowers who
have access to alternative funds. Loan modifications to
borrowers who are not experiencing financial difficulties are
not included in the following reporting of loan modifications.
Under consumer real estate programs, TCF typically
reduces a customer’s contractual payments for a period
of time appropriate for the borrower’s financial condition.
Due to clarifying bankruptcy-related regulatory guidance
adopted in the third quarter of 2012, loans discharged in
Chapter 7 bankruptcy where the borrower did not reaffirm
the debt are permanently reported as TDR loans as a result
of the removal of the borrower’s personal liability on the
loan. Although loans classified as TDR loans are considered
impaired, TCF received more than 53% of the contractual
interest due on accruing consumer real estate TDR loans
during 2012 by modifying the loan to a qualified customer
instead of foreclosing on the property. At December 31, 2012,
5.7% of accruing consumer real estate TDR loans were more
than 60-days delinquent, compared with 7% at December
31, 2011. Approximately 3.6% of the $313.5 million accruing
consumer real estate TDR loans modified during the two-year
period preceding December 31, 2012, defaulted during 2012.
Commercial loans that are 90 or more days past due
and not well secured at the time of modification remain
on non-accrual status. Regardless of whether contractual
principal and interest payments are well-secured at the
time of modification, equipment finance loans that are 90
or more days past due remain on non-accrual status. All
loans modified when on non-accrual status continue to
be reported as non-accrual loans until there is sustained
repayment performance for six consecutive months. At
December 31, 2012, 61% of total commercial TDR loans
were accruing and TCF recognized 97% of the contractual
interest due on accruing commercial TDR loans during 2012.
At December 31, 2012, all accruing commercial TDR loans
were current and performing. Approximately 15.9% of the
$258.3 million accruing commercial TDR loans modified
during the two-year period preceding December 31, 2012
defaulted during 2012.
A commercial loan may be modified through a term
extension with a reduction of contractual payments or a
change in interest rate. Commercial loan modifications
which are not classified as TDR loans primarily involve loans
on which interest rates were modified to current market
rates for similarly situated borrowers who have access
to alternative funds or on which TCF received additional
collateral or loan conditions. Reserves for losses on
accruing commercial loan TDR loans were $1.5 million,
or 1% of the outstanding balance, at December 31, 2012,
and $1.4 million, or 1.4% of the outstanding balance, at
December 31, 2011.
TCF utilizes a multiple note structure as a workout
alternative for certain commercial loans. The multiple
note structure restructures a troubled loan into two notes.
When utilizing a multiple note structure as a workout
alternative for certain commercial loans, the first note
is always classified as a TDR loan. Under TCF policy, the
first note is established at an amount and with market
terms that provide reasonable assurance of payment and
performance. This note may be removed from TDR loan
classification in the calendar years after modification,
if the loan was modified at an interest rate equal to the
yield of a new loan origination with comparable risk at
the time of restructuring and the loan is performing based
on the terms of the restructuring agreement. This note is
reported on accrual status if the loan has been formally
restructured so as to be reasonably assured of payment
and performance according to its modified terms. This
evaluation includes consideration of the customer’s
payment performance for a reasonable period of at least
six consecutive months, which may include time prior to the
restructuring, before the loan is returned to accrual status.
A second note is charged-off. This second note is legally
structured and, for accounting purposes, still outstanding
with the borrower, and should the borrower’s financial
position improve, may become recoverable. At December
31, 2012, nine loans with a contractual balance of $42.9
million and a remaining book balance of $25.6 million had
been restructured under this workout alternative.
For additional information regarding TCF’s loan
modifications refer to Note 7 of the Notes to Consolidated
Financial Statements, Allowance for Loan and Lease Losses
and Credit Quality Information.
{ 2012 Form 10K } { 39 }