TCF Bank 2012 Annual Report Download - page 110

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.
Cash Flow Hedges TCF uses forward foreign exchange
contracts to manage the foreign exchange risk associated
with certain assets, liabilities and forecasted transactions.
Forward foreign exchange contracts represent agreements
to exchange a foreign currency for U.S. dollars at an
agreed-upon price and settlement date.
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 of TCF
Bank, 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, 2012 was a loss of $630
thousand. For the year ended December 31, 2011, a gain of
$259 thousand was included in the cumulative translation
adjustment within other comprehensive income (loss).
Derivatives Not Designated as Hedges During the
second quarter of 2012, TCF sold its Visa® Class B stock,
resulting in a net $13.1 million pretax gain recorded in
non-interest income. In conjunction with the sale, TCF
and the purchaser entered into a derivative transaction
whereby TCF will make, or receive, cash payments whenever
the conversion ratio of the Visa Class B stock into Visa Class
A stock is adjusted. The fair value of this derivative has
been determined using estimated future cash flows using
probability weighted scenarios for multiple estimates of
Visa’s aggregate exposure to covered litigation matters,
which include consideration of amounts funded by Visa
into its escrow account for the covered litigation matters.
Changes in the valuation of this swap agreement are
reflected in non-interest income. Additionally, certain
forward foreign exchange contracts used to manage foreign
exchange risk are not designated as hedges. Changes in the
fair value of these foreign exchange contracts are reflected
in non-interest expense.
The following tables summarize the derivative instruments as of December 31, 2012 and December 31, 2011. See Note 20,
Fair Value Measurement for additional information.
At December 31, 2012
Receivables Payables
(In thousands)
Notional
Amount
Designated
as Hedges
Not
Designated
as Hedges Total
Designated
as Hedges
Not
Designated
as Hedges Total
Forward foreign exchange contracts $497,399 $93 $1,485 $1,578 – $ 193 $ 193
Swap agreement 14,358 – – – – 1,227 1,227
Netting adjustments(1) – (841) (841) – (1,420) (1,420)
Net receivable / payable $93 $ 644 $ 737 $ – $ – $ –
At December 31, 2011
Receivables Payables
(In thousands)
Notional
Amount
Designated
as Hedges
Not
Designated
as Hedges Total
Designated
as Hedges
Not
Designated
as Hedges Total
Forward foreign exchange contracts $ 176,979 $ – $ 396 $ 396 $ 3 $ 662 $ 665
Netting adjustments(1) – (396) (396) (3) (378) (381)
Net receivable / payable $ – $ – $ – $ – $ 284 $ 284
(1) Derivative receivables and payables, and the related cash collateral received and paid, are netted when a legally enforceable master netting agreement exists between
TCF and a counterparty.
{ 94 } { TCF Financial Corporation and Subsidiaries }