TCF Bank 2011 Annual Report Download - page 109

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Amounts recorded within other comprehensive income
(loss) are subsequently reclassified to non-interest expense
upon completion of the related transaction. Changes in net
investment hedges recorded within other comprehensive
income (loss) are subsequently reclassified to non-interest
expense during the period in which the foreign investment
is substantially liquidated or when other elements of the
currency translation adjustment are reclassified to income.
If a hedged forecasted transaction is no longer probable,
hedge accounting is ceased and any gain or loss included in
other comprehensive income (loss) is reported in earnings
immediately. Changes in the values of forward foreign
exchange contracts that are not designated as hedges are
reflected in non-interest expense.
Cash Flow Hedges Foreign exchange contracts, which
include forward contracts, were used to manage the
foreign exchange risk associated with certain minimum
lease payment streams. TCF had less than $1 thousand of
unrealized gains and $2 thousand of unrealized losses, at
December 31, 2011 and 2010, respectively, classified as
cash flow hedges and recorded in other comprehensive
income (loss). During 2011, TCF recorded gains on foreign
exchange contracts totaling $289 thousand within other
comprehensive income, which were also reclassified into
earnings. For the year ended December 31, 2011, losses of
$24 thousand were excluded from the assessment of hedge
effectiveness of TCF’s cash flow hedges, while the amount
excluded in 2010 was less than $1 thousand.
Net Investment Hedges Foreign exchange contracts,
which include forward contracts and currency options, are
used to manage the foreign exchange risk associated with
the Company’s net investment in TCF Commercial Finance
Canada, Inc., a wholly-owned Canadian subsidiary, along
with certain assets, liabilities and forecasted transactions
of that subsidiary. The gross amount of related gains or
losses included in the cumulative translation adjustment
within other comprehensive income (loss) for the year
ended December 31, 2011 was a gain of $259 thousand. For
the year ending December 31, 2010, a loss of $195 thousand
was included in the cumulative translation adjustment
within other comprehensive income (loss).
The following table summarizes the pre-tax impact
of foreign exchange activity on other non-interest
expense within the Consolidated Statements of Income
and Consolidated Statements of Financial Condition, by
accounting designation.
For the Year Ended
December 31,
(In thousands) 2011 2010
Consolidated Statements of Income:
Foreign exchange (losses) gains $(4,751) $ 1,720
Forward foreign exchange contract losses:
Cash flow hedge $ 265 $ –
Not designated as hedges 3,062 (1,976)
Total forward foreign exchange
contract gains (losses) 3,327 (1,976)
Net realized losses (1,424) (256)
Accumulated other comprehensive income
(loss):
Foreign currency translation adjustment (433) 575
Net investment hedge 259 (195)
Cash flow hedge 2 (1)
Net unrealized (loss) gain $ (172) $ 379
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. At December 31, 2010, TCF had posted
$854 thousand of U.S. Treasury securities as collateral
under such agreements in the normal course of business.
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, 2011, credit risk-related
contingent features existed on forward foreign exchange
contracts with a notional value of $76.4 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 $1.5 million of additional collateral.
There were $344 thousand of forward foreign exchange
contracts containing credit risk related features in a net
liability position at December 31, 2011 with cash collateral
posted by TCF of $135 thousand to offset these contracts.
912011 Form 10-K