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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
    Derivative financial instruments are recorded at fair value in other assets and other liabilities on the Consolidated Statements of Financial Condition. Our policy is to present our derivative assets and derivative liabilities on the Consolidated Statements of Financial Condition on a gross basis, even when provisions allowing for set-off are in place. However, for derivative contracts cleared through certain central clearing parties, variation margin payments are recognized as settlements. We are exposed to non-performance risk by the counterparties to our various derivative financial instruments. A majority of our derivatives are centrally cleared through a Central Counterparty Clearing House or consist of residential mortgage interest rate lock commitments further limiting our exposure to non-performance risk. We believe that the non-performance risk inherent in our remaining derivative contracts is minimal based on credit standards and the collateral provisions of the derivative agreements.

Derivatives not designated as hedging instruments: We maintain a derivative portfolio of interest rate swaps, futures and forward commitments used to manage exposure to changes in interest rates and MSR asset values and to meet the needs of customers. We also enter into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Market risk on interest rate lock commitments and mortgage LHFS is managed using corresponding forward sale commitments and U.S. Treasury futures. Changes in the fair value of derivatives not designated as hedging instruments are recognized on the Consolidated Statements of Operations.

    Derivatives designated as hedging instruments: We have designated certain interest rate swaps as fair value hedges of our subordinated debt. Cash flows and the income impact associated with designated hedges are reported in the same category as the underlying hedged item. We have also designated certain interest rate swaps as cash flow hedges on LIBOR-based variable interest payments on certain commercial loans. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income on the Consolidated Statement of Financial Condition and reclassified into interest income in the same period in which the hedge transaction is recognized in earnings.

During the first quarter of 2022, we de-designated all of our cash flow hedges of custodial deposits. We evaluate the probability of hedged forecasted transactions on at least a quarterly basis relating to amounts deferred in OCI. Amounts recorded in OCI related to de-designated cash flow hedges of forecasted transactions, which remain probable to occur, are reclassified into net loan administration income in the same period in which the hedged transaction is recognized into earnings. Also during the first quarter of 2022, we de-designated our fair value hedge of residential first HFI mortgage loans and our fair value hedges of available for sale securities utilizing the last of layer method. The basis adjustments relating to these terminated fair value hedges are recognized in earnings consistent with other components of the carrying value of the previously hedged items.

We had $43 million (net-of-tax) of unrealized gains on de-designated cash flow hedges recorded in AOCI as of June 30, 2022. The estimated amount to be reclassified from OCI into earnings on de-designated hedging relationships during the next 12 months represents $10 million (net-of-tax) of gains. We had $31 million (net-of-tax) of unrealized losses on derivatives designated in hedge relationships as of June 30, 2022. The estimated amount to be reclassified from OCI into earnings during the next 12 months beginning June 30, 2022 represents $1 million (net-of-tax) of losses. At December 31, 2021, we had $20 million (net-of-tax) of unrealized gains on derivatives classified as cash flow hedges recorded in AOCI.
Derivatives that are designated in hedging relationships are assessed for effectiveness using regression analysis at inception and qualitatively thereafter, unless regression analysis is deemed necessary. All designated hedge relationships were and are expected to be highly effective as of June 30, 2022.

    The following tables present the notional amount, estimated fair value and maturity of our derivative financial instruments:
June 30, 2022 (1)
Notional AmountFair Value (2)Expiration Dates
 (Dollars in millions)
Derivatives in cash flow hedge relationships:
Assets
Interest rate swaps on commercial loans$2,800 $13 2025
Derivatives in fair value hedge relationships:
Assets
Interest rate swaps on subordinated debt150 — 2025
Total$150 $— 
Derivatives not designated as hedging instruments:
Assets
Futures$978 $2 2022-2023
Mortgage-backed securities forwards3,366 43 2022
Rate lock commitments4,577 34 2022
Interest rate swaps and swaptions7,227 170 2022-2052
Total$16,148 $249 
Liabilities
Mortgage-backed securities forwards$2,831 $31 2022
Rate lock commitments999 9 2022
Interest rate swaps2,262 41 2022-2032
Total$6,092 $81 
(1)Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior day's fair value of open positions is considered a settlement of the derivative position for accounting purposes.
(2)Derivative assets and liabilities are included in other assets and other liabilities on the Consolidated Statements of Financial Condition, respectively.
December 31, 2021 (1)
Notional AmountFair Value (2)Expiration Dates
 (Dollars in millions)
Derivatives in cash flow hedge relationships:
Liabilities
Interest rate swaps on custodial deposits$800 — 2026-2027
Derivatives in fair value hedge relationships:
Assets
Interest rate swaps on AFS securities$85 $— 2022
Total derivative assets$85 $— 
Liabilities
Interest rate swaps on HFI residential first mortgages$100 $— 2024
Interest rate swaps on AFS securities350 — 2024-2025
Total derivative liabilities$450 $— 
Derivatives not designated as hedging instruments:
Assets
Futures$1,117 $— 2022-2023
Mortgage-backed securities forwards4,008 11 2022
Rate lock commitments5,169 54 2022
Interest rate swaps and swaptions4,070 76 2022-2031
Total$14,364 $141 
Liabilities
Mortgage-backed securities forwards$4,023 $14 2022
Rate lock commitments370 1 2022
Interest rate swaps and swaptions1,493 5 2022-2031
Total$5,886 $20 
(1)Variation margin pledged to or received from a Central Counterparty Clearing House to cover the prior day's fair value of open positions, is considered a settlement of the derivative position for accounting purposes.
(2)Derivative assets and liabilities are included in other assets and other liabilities on the Consolidated Statements of Financial Condition, respectively.
    The following table presents the derivatives subject to a master netting arrangement, including the cash pledged as collateral:
Gross Amounts Netted in the Statements of Financial ConditionNet Amount Presented in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition
Gross AmountFinancial InstrumentsCash Collateral
(Dollars in millions)
June 30, 2022
Derivatives designated as hedging instruments:
Assets
Interest rate swaps on subordinated debt$— $— $— $— $2 
Interest rate swaps on commercial loans13— 13 — 41
Total derivative assets$13 $— $13 $— $43 
Derivatives not designated as hedging instruments:
Assets
Mortgage-backed securities forwards$43 $— $43 $— $40 
Interest rate swaps and swaptions (1)170— 170 — 60 
Futures2— 2 — 2
Total derivative assets$215 $— $215 $— $102 
Liabilities
Mortgage-backed securities forwards$31 $— $31 $— $12 
Interest rate swaps41— 41 — 34
Total derivative liabilities$72 $— $72 $— $46 
December 31, 2021
Derivatives designated as hedging instruments:
Assets
Interest rate swaps on AFS securities$— $— $— $— $1 
Total derivative assets$— $— $— $— $1 
Liabilities
Interest rate swaps on AFS securities$— $— $— $— $4 
Interest rate swaps on HFI residential first mortgages— — — — 1 
Interest rate swaps on custodial deposits— — — — 9
Total derivative liabilities$— $— $— $— $14 
Derivatives not designated as hedging instruments:
Assets
Mortgage-backed securities forwards$10 $— $10 $— $12 
Interest rate swaptions (1)77 — 77 — 17 
Total derivative assets$87 $— $87 $— $29 
Liabilities
Mortgage-backed securities forwards$14 $— $14 $— $9 
Interest rate swaps6 — 6 — 24 
Total derivative liabilities$20 $— $20 $— $33 
(1)Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior day's fair value of open positions is considered settlement of the derivative position for accounting purposes.

Gains of $10 million on cash flow hedging relationships of commercial loans were reclassified from AOCI into interest income during the three and six months ended June 30, 2022. There were no cash flow hedging relationships of commercial loans during the three and six months ended June 30, 2021.

Gains of $4 million and $3 million on the de-designated cash flow hedging relationships of custodial deposits were reclassified from AOCI into loan administration income during the three and six months ended June 30, 2022, respectively. Losses of $1 million and $2 million on cash flow hedging relationships of custodial deposits were reclassified from AOCI into loan administration income during the three and six months ended June 30, 2021, respectively.
Gains of $2 million and $1 million on the de-designated fair value hedging relationships of AFS securities were recorded in interest income for the three and six months ended June 30, 2022, respectively. Losses of $1 million and $2 million on fair value hedging relationships of AFS securities were recorded in interest income for the three and six months ended June 30, 2021, respectively.

Gains and losses on the de-designated fair value hedging relationships of HFI residential first mortgages for the three and six months ended June 30, 2022 and June 30, 2021 were de-minimis.

At June 30, 2022, we pledged a total of $113 million related to derivative financial instruments, consisting of $28 million of cash collateral on derivative liabilities and $85 million of maintenance margin on centrally cleared derivatives. We had an obligation to return a total of $79 million of cash collateral on derivative assets at June 30, 2022. We pledged a total of $66 million related to derivative financial instruments, consisting of $28 million of cash collateral on derivative liabilities and $38 million of maintenance margin on centrally cleared derivatives and had a $12 million obligation to return cash on derivative assets at December 31, 2021. Within the Consolidated Statements of Financial Condition, the collateral related to derivative activity is included in other assets and other liabilities and the cash pledged as maintenance margin is restricted and included in other assets.

    The following table presents net gain recognized in income on derivative instruments, net of the impact of offsetting positions:
 Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
(Dollars in millions)
Derivatives not designated as hedging instruments:Location of gain (loss)
FuturesNet return on mortgage servicing rights$1 $— $4 $— 
Interest rate swaps and swaptionsNet return on mortgage servicing rights(35)20 (48)(27)
Mortgage-backed securities forwardsNet return on mortgage servicing rights(8)7 (39)(11)
Rate lock commitments and MSR forwardsNet gain on loan sales(116)(178)(12)(15)
Forward commitmentsOther noninterest income(3)— (3)— 
Interest rate swaps (1)Other noninterest income1 1 3 1 
Total derivative gain (loss)$(160)$(150)$(95)$(52)
(1)Includes customer-initiated commercial interest rate swaps.