TCF Bank 2012 Annual Report Download - page 116

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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 Loans and leases held
for sale are carried at the lower of cost or fair value. The
cost of loans held for sale includes the unpaid principal
balance, net of deferred loans fees and costs. 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
retained by TCF. 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 lives, consideration of the current interest rate
environment compared with 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 interest rates and do
not expose TCF to interest rate risk; therefore fair value is
approximately equal to carrying value.
{ 100 } { TCF Financial Corporation and Subsidiaries }