XML 50 R16.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
NOTE 8—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Presentation on the Consolidated Balance Sheet
Hedging Instruments
The Company utilizes fair value hedges to offset exposure to changes in value of certain fixed-rate assets. All derivative contracts were designated as hedging instruments at December 31, 2019 and 2018, and the notional amount associated with these fair value hedge contracts was $10.1 billion and $9.8 billion for the same periods, respectively. The Company had no bilateral derivative contracts at December 31, 2019. The consolidated balance sheet excludes derivative assets of $52 million and $175 million at December 31, 2019, and 2018, respectively, and derivative liabilities of $457 million and $131 million for the same periods. These contracts were executed through central clearing organizations and were settled by variation margin payments.
Credit Risk
As all of the derivatives that the Company utilizes in its hedging activities at December 31, 2019 are subject to derivatives clearing agreements (cleared derivatives contracts), the credit risk associated with these cleared derivatives contracts is largely mitigated by the daily variation margin exchanged with counterparties.
Hedged Assets
The following table presents the cumulative basis adjustments related to the carrying amount of hedged assets in fair value hedging relationships (dollars in millions):
 
 
 
Cumulative Amount of Fair Value Hedging Basis Adjustment Included in Carrying Amount of Hedged Assets(2)
 
Carrying Amount of Hedged Assets(1)
 
Total
 
Discontinued
December 31, 2019:
 
 
 
 
 
Available-for-sale securities(3)
$
12,480

 
$
583

 
$
(227
)
 
 
 
 
 
 
December 31, 2018:
 
 
 
 
 
Available-for-sale securities(3)
$
13,203

 
$
(10
)
 
$
(385
)
(1)
The carrying amount includes the impact of basis adjustments on active fair value hedges and the impact of basis adjustments from previously discontinued fair value hedges.
(2)
Represents the increase (decrease) to the carrying amount of hedged assets. If fair value hedge accounting is discontinued, the previously hedged item is no longer adjusted for changes in fair value through the consolidated statements of income and the cumulative net gain or loss on the hedged item is amortized to net interest income using the effective interest method over the contractual life of the hedged item adjusted to reflect actual prepayments.
(3)
Includes the amortized cost basis of closed portfolios of prepayable securities designated in hedging relationships in which the hedged item is the last layer of principal expected to be remaining throughout the hedge term. As of December 31, 2019 and 2018, respectively, the amortized cost basis of this portfolio was $162 million and $810 million, the amount of the designated hedged items was $148 million and $192 million and the cumulative basis adjustments associated with these hedges was a gain of $1 million and a loss of $6 million.
Presentation on the Consolidated Statements of Income
The following table presents the effects of fair value hedge accounting on the consolidated statements of income (dollars in millions):
 
Interest Income
 
Year Ended December 31,
 
2019
 
2018
 
 
 
 
Total interest income
$
2,111

 
$
2,009

 
 
 
 
Effects of fair value hedging on total interest income(1)(2)
 
 
 
Agency debentures:
 
 
 
Amounts recognized as interest accruals on derivatives
1

 
(3
)
Changes in fair value of hedged items
2

 
(69
)
Changes in fair value of derivatives
(4
)
 
68

Net loss on fair value hedging relationships - agency debentures
(1
)
 
(4
)
 
 
 
 
Agency mortgage-backed securities:
 
 
 
Amounts recognized as interest accruals on derivatives
(7
)
 
(15
)
Amortization of basis adjustments from discontinued hedges
35

 
24

Changes in fair value of hedged items
722

 
(111
)
Changes in fair value of derivatives
(723
)
 
93

Net gain (loss) on fair value hedging relationships - agency mortgage-backed securities
27

 
(9
)
Total net gain (loss) on fair value hedging relationships
$
26

 
$
(13
)
(1)
Excludes interest income accruals on hedged items and amounts recognized upon the sale of securities attributable to fair value hedge accounting.
(2)
Excludes interest on variation margin related to centrally cleared derivative contracts.
The following table presents the changes in fair value of interest rate derivative contracts designated as fair value hedges and related hedged items as reflected on the consolidated statements of income (dollars in millions):
 
Year Ended December 31, 2017
 
Hedging
Instrument
 
Hedged
Item
 
Hedge
Ineffectiveness(1)
Agency debentures
$
1

 
$
(3
)
 
$
(2
)
Agency mortgage-backed securities
36

 
(48
)
 
(12
)
Total gains (losses) included in earnings
$
37

 
$
(51
)
 
$
(14
)
(1)
Reflected in the gains (losses) on securities and other, net line item on the consolidated statements of income.