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Derivative Instruments
 9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments

Derivatives Designated as Hedging Instruments TCF entered into an interest rate contract (interest rate swap agreement) in February 2015 related to its contemporaneously issued subordinated debt, which settles through a central clearing house. The swap was designated as a fair value hedge and effectively converts the fixed interest rate to a floating rate based on the three-month LIBOR plus a fixed number of basis points on the $150.0 million notional amount through February 27, 2025, the maturity date of the subordinated debt.

The interest rate swap substantially offsets the change in fair value of the hedged underlying subordinated debt that is attributable to the changes in market risk. The gains and losses related to changes in the fair value of the interest rate swap, as well as the offsetting changes in fair value of the hedged debt, are recorded in interest expense.

Forward foreign exchange contracts, which generally settle within 34 days, are used to manage the foreign exchange risk associated with TCF's net investment in TCF Commercial Finance Canada, Inc., a wholly-owned indirect Canadian subsidiary of TCF Bank. These forward foreign exchange contracts have been designated as net investment hedges. Changes in net investment hedges recorded within other comprehensive income (loss) are subsequently reclassified to noninterest 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.

Derivatives Not Designated as Hedges TCF executes interest rate contracts with commercial banking customers to facilitate their respective risk management strategies. Those interest rate contracts are simultaneously hedged with offsetting interest rate contracts that TCF executes with a third party and generally settles through a central clearing house, minimizing TCF's net risk exposure. As the interest rate contracts do not meet hedge accounting requirements, changes in the fair value of both the customer contracts and the offsetting contracts are recorded in other noninterest income. These contracts have original fixed maturity dates ranging from 27 days to 16 years.

TCF executes its forward foreign exchange contracts in the over-the-counter market with large financial institutions pursuant to International Swaps and Derivatives Association, Inc. 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. Changes in the fair value of these forward foreign exchange contracts are recorded in other noninterest expense.

TCF enters into interest rate lock commitments in conjunction with the sale of certain consumer real estate loans. These interest rate lock commitments are agreements to extend credit under certain specified terms and conditions at fixed rates with original lock expirations generally within three months. They are not designated as hedges and accordingly, changes in the valuation of these commitments are recorded in net (losses) gains on sales of loans and leases.

Residential mortgage loan commitments, forward loan sales commitments, are generally entered into at the time interest rate locks are accepted to protect the value of the mortgage loans from increases in market interest rates during the period held and are generally settled with the investor in the secondary market within 90 days after entering into the forward commitment. Certain forward loan commitments are accounted for as derivatives and recorded at fair value, with changes in fair value recorded through earnings. In the normal course of business, TCF may decide to settle a forward contract rather than fulfill the contract. Cash received or paid in this settlement manner is recorded in net (losses) gains on sales of loans and leases in the Consolidated Statements of Income and is considered a cost of executing a forward contract.

Power Equity CDs are time deposits that provide the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while TCF receives a known stream of funds based on the equity return (a purchased option). The written and purchased options are mirror derivative instruments which are carried at fair value. Power Equity CDs include written and purchased option derivatives consisting of instruments to facilitate an equity-linked time deposit product.

TCF's swap agreement is related to the sale of TCF's Visa Class B stock. The fair value of the swap agreement is based on TCF's estimated exposure related to the Visa covered litigation through a probability analysis of the funding and estimated settlement amounts. Changes, if any, in the valuation of this swap agreement, which has no determinable maturity date, are recorded in other noninterest expense.

Derivative instruments, recognized at fair value within other assets or other liabilities were as follows:
 
At September 30, 2019
 
 
 
Fair Value
(In thousands)
Notional Amount(1)
 
Derivative Assets
 
Derivative Liabilities
Derivatives designated as hedging instruments
 
 
 
 
 
Interest rate contract
$
150,000

 
$
—

 
$
11

Forward foreign exchange contracts
171,075

 
1,252

 
—

Total derivatives designated as hedging instruments
$
321,075

 
$
1,252

 
$
11

Derivatives not designated as hedging instruments
 
 
 
 
 
Interest rate contracts
$
4,694,964

 
$
130,391

 
$
101,899

Forward foreign exchange contracts
291,999

 
414

 
315

Interest rate lock commitments
266,949

 
4,554

 
113

Forward loan sales commitments
218,061

 
166

 
253

Power Equity CDs
31,870

 
617

 
617

Swap agreement
12,644

 
—

 
356

Total derivatives not designated as hedging instruments
$
5,516,487

 
$
136,142

 
$
103,553

Total derivatives before netting
$
5,837,562

 
137,394

 
103,564

Netting(2)
 
 
(2,152
)
 
(93,785
)
Total derivatives, net
 
 
$
135,242

 
$
9,779

 
At December 31, 2018
 
 
 
Fair Value
(In thousands)
Notional Amount(1)
 
Derivative Assets
 
Derivative Liabilities
Derivatives designated as hedging instruments
 
 
 
 
 
Interest rate contract
$
150,000

 
$
393

 
$
—

Forward foreign exchange contracts
157,271

 
2,980

 
—

Total derivatives designated as hedging instruments
$
307,271

 
$
3,373

 
$
—

Derivatives not designated as hedging instruments
 
 
 
 
 
Interest rate contracts
$
1,095,449

 
$
7,516

 
$
3,732

Forward foreign exchange contracts
254,274

 
3,709

 
13

Interest rate lock commitments
28,007

 
652

 
28

Swap agreement
13,020

 
—

 
583

Total derivatives not designated as hedging instruments
$
1,390,750

 
$
11,877

 
$
4,356

Total derivatives before netting
 
 
15,250

 
4,356

Netting(2)
 
 
(6,982
)
 
(991
)
Total derivatives, net
 
 
$
8,268

 
$
3,365

(1)
Notional or contract amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the Consolidated Statements of Financial Condition.
(2)
Includes netting of derivative asset and liability balances and related cash collateral, where counterparty netting agreements are in place.

Derivative instruments may be subject to master netting arrangements and collateral arrangements and qualify for offset in the Consolidated Statements of Financial Condition. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Derivative instruments subject to master netting arrangements and collateral arrangements are recognized on a net basis in the Consolidated Statements of Financial Condition. The gross amounts recognized, gross amounts offset and net amount presented of derivative instruments were as follows:
 
At September 30, 2019
(In thousands)
Gross Amounts Recognized
 
Gross Amounts
 Offset(1)
 
Net Amount Presented
Derivative assets
 
 
 
 
 
Interest rate contracts
$
130,391

 
$
(312
)
 
$
130,079

Forward foreign exchange contracts
1,666

 
(1,666
)
 
—

Interest rate lock commitments
4,554

 
(8
)
 
4,546

Forward loan sales commitments
166

 
(166
)
 
—

Power Equity CDs
617

 
—

 
617

Total derivative assets
$
137,394

 
$
(2,152
)
 
$
135,242

Derivative liabilities
 
 
 
 
 
Interest rate contracts
$
101,910

 
$
(93,099
)
 
$
8,811

Forward foreign exchange contracts
315

 
(156
)
 
159

Interest rate lock commitments
113

 
(8
)
 
105

Forward loan sales commitments
253

 
(166
)
 
87

Power Equity CDs
617

 
—

 
617

Other contracts
356

 
(356
)
 
—

Total derivative liabilities
$
103,564

 
$
(93,785
)
 
$
9,779

 
At December 31, 2018
(In thousands)
Gross Amounts Recognized
 
Gross Amounts
Offset(1)
 
Net Amount Presented
Derivative assets
 
 
 
 
 
Interest rate contracts
$
7,909

 
$
(395
)
 
$
7,514

Forward foreign exchange contracts
6,689

 
(6,587
)
 
102

Interest rate lock commitments
652

 
—

 
652

Total derivative assets
$
15,250

 
$
(6,982
)
 
$
8,268

Derivative liabilities
 
 
 
 
 
Interest rate contracts
$
3,732

 
$
(395
)
 
$
3,337

Forward foreign exchange contracts
13

 
(13
)
 
—

Interest rate lock commitments
28

 
—

 
28

Swap agreement
583

 
(583
)
 
—

Total derivative liabilities
$
4,356

 
$
(991
)
 
$
3,365


(1)
Includes the amounts with counterparties subject to enforceable master netting arrangements that have been offset in the Consolidated Statements of Financial Condition.

Derivatives Designated as Hedging Instruments

Interest rate contract The carrying amount of the hedged subordinated debt, including the cumulative basis adjustment related to the application of fair value hedge accounting, is recorded in long-term borrowings on the Consolidated Statements of Financial Condition and was as follows:
 
Carrying Amount
 of the Hedged Liability
 
Cumulative Amount of
Fair Value Hedging Adjustments
Included in the Carrying Amount
of the Hedged Liability
(In thousands)
At September 30, 2019
 
At December 31, 2018
 
At September 30, 2019
 
At December 31, 2018
Subordinated bank note - 2025
$
153,307

 
$
144,296

 
$
4,682

 
$
(4,165
)



The following table summarizes the effect of fair value hedge accounting on the Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Statement of income line where the gain (loss) on the fair value hedge was recorded:
 
 
 
 
 
 
 
Interest expense on borrowings
$
17,115

 
$
10,726

 
$
48,050

 
$
31,850

Gain (loss) on interest rate contract (fair value hedge)
 
 
 
 
 
 
 
Hedged item
$
(2,100
)
 
$
1,206

 
$
(8,847
)
 
$
6,337

Derivative designated as a hedging instrument
2,195

 
(1,165
)
 
8,938

 
(6,621
)
Net income (expense) recognized on fair value hedge in interest expense on borrowings
$
95

 
$
41

 
$
91

 
$
(284
)


Forward foreign exchange contracts The effect of net investment hedges on accumulated other comprehensive income was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
Forward foreign exchange contracts
$
2,170

 
$
(2,537
)
 
$
(3,761
)
 
$
4,637



Derivatives Not Designated as Hedging Instruments Certain other interest rate contracts, forward foreign exchange contracts, interest rate lock commitments, Power Equity CDs and other contracts have not been designated as hedging instruments. The effect of these derivatives on the Consolidated Statements of Income was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
Location of Gain (Loss)
2019
 
2018
 
2019
 
2018
Interest rate contracts(1)
Other noninterest income
$
(19,764
)
 
$
51

 
$
(21,307
)
 
$
157

Forward foreign exchange contracts
Other noninterest expense
3,307

 
(3,706
)
 
(5,302
)
 
8,050

Interest rate lock commitments
Net (losses) gains on sales of loans and leases
337

 
(244
)
 
1,117

 
798

Forward loan sales commitments
Net (losses) gains on sales of loans and leases
(11
)
 
—

 
(11
)
 
—

Swap agreement
Other noninterest income
4

 
(292
)
 
4

 
(274
)
Net gain (loss) recognized
 
$
(16,127
)
 
$
(4,191
)
 
$
(25,499
)
 
$
8,731


(1)
Included in both the three and nine months ended September 30, 2019 is a loss of $17.3 million related to the termination of $1.1 billion of interest rate swaps.

At September 30, 2019 and December 31, 2018, credit risk-related contingent features existed on forward foreign exchange contracts with a notional value of $30.2 million and $25.7 million, respectively. 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 $0.6 million and $0.5 million in additional collateral at September 30, 2019 and December 31, 2018, respectively. There were no forward foreign exchange contracts containing credit risk-related features in a liability position at both September 30, 2019 and December 31, 2018.

At September 30, 2019, TCF had posted $58.1 million and $0.1 million of cash collateral related to its interest rate contracts and forward foreign exchange contracts, respectively, and received $1.9 million of cash collateral related to its forward foreign exchange contracts.