TCF Bank 2011 Annual Report Download - page 114

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The carrying amounts of cash and due from banks 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, forward
foreign exchange contracts and assets held in trust for
deferred compensation plans are carried at fair value (see
Note 20). Certain financial instruments, including lease
financings, 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 TCF in estimating fair value for
its remaining financial instruments, all of which are issued
or held for purposes other than trading.
Investments The carrying value of investments in FHLB
stock and Federal Reserve stock approximates fair value.
The fair value of other investments is estimated based
on discounted cash flows using current market rates and
consideration of credit exposure.
Loans and Leases Held for Sale Auto loans and
equipment finance leases held for sale are carried at the
lower of cost or fair value. The cost of auto loans held for
sale includes the unpaid principal balance, net of deferred
loan fees and cost and dealer participation premiums.
Estimated fair values are based upon recent loan sale
transactions and any available price quotes on loans with
similar coupons, maturities and credit quality.
Interest Only Strips The fair value of the interest only
strip represents the present value of future cash flows to
be generated by the loans, in excess of the interest paid to
investors and servicing revenue received on the loans, and
is included in other assets in the Consolidated Statements
of Financial Condition. This excess interest represents
future proceeds and is generated as the contractual loan
rate less the fixed rate that will be paid to the investor as
specified in the loan sale agreements. TCF uses available
market data, along with its own empirical data and
discounted cash flow models, to arrive at the estimated
fair value of its interest only strips. The present value of
the estimated expected future cash flows to be received is
determined by using discount, loss and prepayment rates
that the Company believes are commensurate with the
risks associated with the cash flows. These assumptions
are inherently subject to volatility and uncertainty, and as
a result, the estimated fair value of the interest only strip
will potentially fluctuate from period to period and such
fluctuations could be significant.
Loans The fair value of loans is estimated based on
discounted expected cash flows. These cash flows include
assumptions for prepayment estimates over the loans’
remaining life, consideration of the current interest rate
environment compared to the weighted average rate of each
portfolio, a credit risk component based on the historical
and expected performance of each portfolio and a liquidity
adjustment related to the current market environment.
Deposits The fair value of checking, savings and money
market deposits is deemed equal to the amount payable
on demand. The fair value of certificates of deposit is
estimated based on discounted cash flows using currently
offered market rates. The intangible value of long-term
relationships with depositors is not taken into account in
the fair values disclosed.
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
observable market prices and discounted cash flows using
interest rates for borrowings of similar remaining maturities
and characteristics.
Financial Instruments with Off-Balance Sheet
Risk The fair values of TCF’s commitments to extend
credit and standby letters of credit are estimated using
fees currently charged to enter into similar agreements as
commitments and standby letters of credit similar to TCF’s
are not actively traded. Substantially all commitments to
extend credit and standby letters of credit have floating
rates and do not expose TCF to interest-rate risk; therefore
fair value is approximately equal to carrying value.
96 TCF Financial Corporation and Subsidiaries