TCF Bank 2012 Annual Report Download - page 111

The following table summarizes the pre-tax impact of derivative activity within the Consolidated Statements of Income
and the Consolidated Statements of Comprehensive Income, by accounting designation.
For the Year Ended December 31,
(In thousands) 2012 2011
Consolidated Statements of Income:
Non-interest expense:
Cash flow hedge $ (6) $ 265
Not designated as hedges (7,524) 3,062
Net realized (loss) gain $(7,530) $3,327
Consolidated Statements of Comprehensive Income:
Accumulated other comprehensive (loss) income:
Net investment hedge $ (630) $ 259
Cash flow hedge – 2
Net unrealized (loss) gain $ (630) $ 261
TCF executes all of its foreign exchange contracts in
the over-the-counter market with large, international
financial institutions pursuant to International Swaps and
Derivatives Association, Inc. (“ISDA”) master agreements.
These agreements include credit risk-related features
that enhance the creditworthiness of these instruments
as compared with other obligations of the respective
counterparty with whom TCF has transacted by requiring
that additional collateral be posted under certain
circumstances. The amount of collateral required depends
on the contract and is determined daily based on market
and currency exchange rate conditions.
In connection with certain over-the counter forward
foreign exchange contracts, TCF could be required to
terminate transactions with certain counterparties in the
event that, among other things, TCF Bank’s long-term debt
is rated less than BBB- by Standard and Poor’s or Baa3
by Moody’s. At December 31, 2012, credit risk-related
contingent features existed on forward foreign exchange
contracts with a notional value of $156.2 million. In the
event TCF was rated less than BB- by Standard and Poor’s,
the contract could be terminated or TCF may be required to
provide approximately $3.1 million in additional collateral.
At December 31, 2012, TCF had received $1.3 million
and posted $250 thousand of cash collateral related to
its forward foreign exchange contracts and posted $1.4
million of cash collateral related to its swap agreement, of
which $209 thousand was not utilized to offset derivative
liability positions because the liability position was
over-collateralized.
Note 20. Fair Value Measurement
TCF uses fair value measurements to record fair value
adjustments to certain assets and liabilities, and to
determine fair value disclosures. The Company’s fair values
are based on the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
Securities available for sale, derivatives (forward foreign
exchange contracts and swaps), and assets held in trust for
deferred compensation plans are recorded at fair value on
a recurring basis. Certain investments, commercial loans,
real estate owned, repossessed and returned assets are
recorded at fair value on a nonrecurring basis.
TCF groups its assets and liabilities measured at fair
value in three levels, based on the markets in which the
assets and liabilities are traded, and the degree and
reliability of estimates and assumptions used to determine
fair value as follows: Level 1, which include valuations
that are based on prices obtained from independent
pricing sources for instruments traded in active markets;
Level 2, which include valuations that are based on prices
obtained from independent pricing sources that are based
on observable transactions of similar instruments, but
not quoted markets; and Level 3, for which valuations are
generated from Company model-based techniques that use
significant unobservable inputs. Such unobservable inputs
reflect estimates of assumptions that market participants
would use in pricing the asset or liability.
{ 2012 Form 10K } { 95 }