TCF Bank 2014 Annual Report Download - page 101

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.
At December 31, 2014, credit risk-related contingent features existed on forward foreign exchange contracts with a notional
value of $124.8 million. In the event TCF is rated less than BB- by Standard and Poor’s, the contracts could be terminated or TCF
may be required to provide approximately $2.5 million in additional collateral. There were no forward foreign exchange contracts
containing credit risk-related features in a net liability position at December 31, 2014.
At December 31, 2014, TCF had posted $5.1 million of cash collateral related to its swap agreements and had received
$1.2 million of cash collateral related to its forward foreign exchange contracts.
Note 19. Fair Value Disclosures
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 upon the sale of an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. Securities available for sale, certain
loans and leases held for sale, forward foreign exchange contracts, swap agreements, interest rate lock commitments, forward
loan sales commitments and assets and liabilities held in trust for deferred compensation plans are recorded at fair value on a
recurring basis. From time to time we may be required to record at fair value other assets on a non-recurring basis, such as
certain securities held to maturity, loans, interest-only strips, other real estate owned and repossessed and returned assets.
These non-recurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of
individual assets.
The following is a discussion of the fair value hierarchy and the valuation methodologies used for assets and liabilities recorded at
fair value on a recurring or non-recurring basis and for estimating fair value of financial instruments not recorded at fair value.
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
includes valuations that are based on prices obtained from independent pricing sources for the same instruments traded in active
markets; Level 2, which includes 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.
Investments The carrying value of investments in FHLB stock and Federal Reserve Bank stock, categorized as Level 2,
approximates fair value based on redemption at par value.
Securities Held to Maturity Securities held to maturity consist primarily of securities of U.S. Government sponsored
enterprises and federal agencies. The fair value of securities of U.S. Government sponsored enterprises and federal agencies,
categorized as Level 2, is estimated using prices obtained from independent asset pricing services that are based on observable
transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for
unusual fluctuations and comparisons to current market trading activity. The fair value of certain other securities held to maturity,
categorized as Level 3, is estimated based on discounted cash flows using current market rates and consideration of credit
exposure or other internal pricing methods. There is no observable secondary market for these securities.
Securities Available for Sale Securities available for sale consist primarily of securities of U.S. Government sponsored
enterprises and federal agencies. The fair value of securities of U.S. Government sponsored enterprises and federal agencies,
categorized as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable
transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for
unusual fluctuations and comparisons to current market trading activity. The fair value of other securities, categorized as Level 1,
is determined using quoted prices from the New York Stock Exchange.
Loans and Leases Held for Sale Loans and leases held for sale are generally carried at the lower of cost or fair value. The cost
of loans held for sale includes the unpaid principal balance, net of deferred loan 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.
Certain other loans and leases held for sale are recorded at fair value under the elected fair value option. TCF relies on internal
valuation models which utilize quoted investor prices to estimate the fair value of these loans. Loans and leases held for sale are
categorized as Level 3.
Loans The fair value of loans, categorized as Level 3, is estimated based on discounted expected cash flows and recent sales
of similar loans. The discounted cash flows include assumptions for prepayment estimates over each loan’s remaining life,
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