XML 46 R31.htm IDEA: XBRL DOCUMENT v3.22.0.1
Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Derivative Instruments and Hedging ActivitiesWe enter into derivative instruments, which may include interest rate swaps, foreign-currency forwards, equity options, and interest rate options in connection with our risk-management activities. Our primary objective for utilizing derivative financial instruments is to manage
interest rate risk associated with our fixed-rate and variable-rate assets and liabilities, foreign exchange risks related to our foreign-currency denominated assets and liabilities, and other market risks related to our investment portfolio.
Interest Rate Risk
We monitor our mix of fixed-rate and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, and options to achieve our desired mix of fixed-rate and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges (which do not qualify for hedge accounting treatment).
Derivatives qualifying for hedge accounting treatment can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio, and pay-fixed swaps designated as fair value hedges of closed portfolios of fixed-rate held-for-investment consumer automotive loan assets in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. Other derivatives qualifying for hedge accounting consist of pay-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest payments on certain variable-rate borrowings and deposit liabilities, receive-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest receipts on certain securities within our available-for-sale portfolio, as well as interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our dealer floorplan commercial loans.
We execute economic hedges, which may consist of interest rate swaps, interest rate caps, forwards, and options to mitigate interest rate risk.
We also enter into interest rate lock commitments and forward commitments that are executed as part of our mortgage business that meet the accounting definition of a derivative.
Foreign Exchange Risk
We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to our various foreign-currency exposures.
We enter into foreign-currency forwards with external counterparties as net investment hedges of foreign exchange exposure on our investment in foreign subsidiaries. Our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other comprehensive income. We also periodically enter into foreign-currency forwards to economically hedge any foreign-denominated debt, centralized lending, and foreign-denominated third-party loans. These foreign-currency forwards that are used as economic hedges are recorded at fair value with changes recorded as income or expense offsetting the gains and losses on the associated foreign-currency transactions.
Investment Risk
We enter into equity options to mitigate the risk associated with our exposure to the equity markets.
Credit Risk
We enter into various retail automotive-loan purchase agreements with certain counterparties. As part of those agreements, we may withhold a portion of the purchase price from the counterparty and be required to pay the counterparty all or part of the amount withheld at agreed upon measurement dates and determinable amounts if actual credit performance of the acquired loans on the measurement date is better than or equal to what was estimated at the time of acquisition. Based upon these terms, these contracts meet the accounting definition of a derivative.
Counterparty Credit Risk
Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the contract completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral as measured by the market value of the derivative financial instrument.
We manage our risk to financial counterparties through internal credit analysis, limits, and monitoring. Additionally, derivatives and repurchase agreements are entered into with approved counterparties using industry standard agreements.
We execute certain OTC derivatives, such as interest rate caps and floors, using bilateral agreements with financial counterparties. Bilateral agreements generally require both parties to post collateral in the event the fair values of the derivative financial instruments meet posting thresholds established under the agreements. In the event that either party defaults on the obligation, the secured party may seize the collateral. Payments related to the exchange of collateral for OTC derivatives are recognized as collateral.
We also execute certain derivatives, such as interest rate swaps, with clearinghouses, which requires us to post and receive collateral. For these clearinghouse derivatives, these payments are recognized as settlements rather than collateral.
Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified credit-risk-related event. No such specified credit-risk-related events occurred during the years ended December 31, 2021, 2020, or 2019.
We placed cash and noncash collateral totaling $2 million and $203 million, respectively, supporting our derivative positions at December 31, 2021, compared to $4 million and $145 million of cash and noncash collateral at December 31, 2020, in accounts maintained by counterparties. These amounts include collateral placed at clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. The receivables for cash collateral placed are included on our Consolidated Balance Sheet in other assets.
We received cash collateral from counterparties totaling $4 million in accounts maintained by counterparties at December 31, 2021. This amount includes collateral received from clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. The payables for cash collateral received are included on our Consolidated Balance Sheet in accrued expenses and other liabilities. Included in these amounts is noncash collateral where we have been granted the right to sell or pledge the underlying assets. We have not sold or pledged any of the noncash collateral received under these agreements.
Balance Sheet Presentation
The following table summarizes the amounts of derivative instruments reported on our Consolidated Balance Sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories.
Derivative contracts in a receivable and payable position exclude open trade equity on derivatives cleared through central clearing counterparties. Any associated margin exchanged with our central clearing counterparties are treated as settlements of the derivative exposure, rather than collateral. Such payments are recognized as settlements of the derivatives contracts in a receivable and payable position on our Consolidated Balance Sheet.
Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.
20212020
Derivative contracts in a
Notional amount
Derivative contracts in a
Notional amount
December 31, ($ in millions)
receivable position
payable position
receivable position
payable position
Derivatives designated as accounting hedges
Interest rate contracts
Swaps
$— $— $17,039 $— $— $12,385 
Foreign exchange contracts
Forwards
— 2 171 1 — 164 
Total derivatives designated as accounting hedges
— 2 17,210 1 — 12,549 
Derivatives not designated as accounting hedges
Interest rate contracts
Futures and forwards
1 — 223 1 — 391 
Written options
5 2 580 15 — 587 
Total interest rate risk
6 2 803 16 — 978 
Foreign exchange contracts
Futures and forwards— 1 154 — 1 159 
Total foreign exchange risk— 1 154 — 1 159 
Credit contracts (a)
Other credit derivatives— 56 n/a— 28 n/a
Total credit risk— 56 n/a— 28 n/a
Equity contracts
Written options
— 1 2 — 4 2 
Purchased options
1 — — — — — 
Total equity risk
1 1 2 — 4 2 
Total derivatives not designated as accounting hedges
7 60 959 16 33 1,139 
Total derivatives
$7 $62 $18,169 $17 $33 $13,688 
n/a = not applicable
(a)The maximum potential amount of undiscounted future payments that could be required under these credit derivatives was $119 million and $56 million as of December 31, 2021, and December 31, 2020, respectively.
The following table presents amounts recorded on our Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges.
December 31, ($ in millions)
Carrying amount of the hedged itemsCumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items
TotalDiscontinued (a)
202120202021202020212020
Assets
Available-for-sale securities (b) (c)$5,119 $1,259 $(14)$39 $(30)$28 
Finance receivables and loans, net (d)
44,098 28,393 (37)225 46 72 
Liabilities
Long-term debt$7,213 $8,656 $110 $169 $110 $203 
(a)Represents the fair value hedging adjustment on qualifying hedges for which the hedging relationship was discontinued. This represents a subset of the amounts reported in the total hedging adjustment.
(b)The carrying amount of hedged available-for-sale securities is presented above using amortized cost and includes $3.9 billion and $592 million at December 31, 2021, and December 31, 2020, respectively, related to closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. Refer to Note 8 for a reconciliation of the amortized cost and fair value of available-for-sale securities.
(c)The amount that is identified as the last of layer in the open hedge relationship was $1.2 billion as of December 31, 2021. The basis adjustment associated with the open last of layer relationship was a $14 million asset as of December 31, 2021, which would be allocated across the entire remaining pool upon termination or maturity of the hedge relationship. The amount that has been identified as the last of layer in the discontinued hedge relationship was $8.6 billion and $1.2 billion as of December 31, 2021, and December 31, 2020, respectively. This amount is cumulative and is not adjusted as amortization of the associated basis runs off. The basis adjustment associated with the discontinued last of layer relationship was a $20 million liability as of December 31, 2021, and a $20 million asset as of December 31, 2020, which was allocated across the entire remaining pool upon termination of the hedge relationship. There were no last of layer relationships as of December 31, 2020.
(d)The hedged item represents the carrying value of the hedged portfolio of assets. The amount identified as the last of layer in the open hedge relationship was $15.6 billion and $9.4 billion at December 31, 2021, and December 31, 2020, respectively. The basis adjustment associated with the open last-of-layer relationship was a $82 million liability as of December 31, 2021, and a $153 million asset as of December 31, 2020, which would be allocated across the entire remaining closed pool upon termination or maturity of the hedge relationship. The amount that is identified as the last of layer in the discontinued hedge relationship was $20.9 billion at December 31, 2021, and $18.5 billion at December 31, 2020. This amount is cumulative and is not adjusted as amortization of the associated basis runs off. The basis adjustment associated with the discontinued last-of-layer hedge relationship was a $46 million asset and a $72 million asset as of December 31, 2021, and December 31, 2020, respectively, which was allocated across the entire remaining pool upon termination of the hedge relationship.
Statement of Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting hedges reported in our Consolidated Statement of Income.
Year ended December 31, ($ in millions)
202120202019
(Loss) gain recognized in earnings
Interest rate contracts
(Loss) gain on mortgage and automotive loans, net$(12)$(10)$1 
Other income, net of losses
8 (19)(11)
Total interest rate contracts
(4)(29)(10)
Foreign exchange contracts
Other operating expenses(1)(7)(4)
Total foreign exchange contracts
(1)(7)(4)
Credit contracts
Interest and fees on finance receivables and loans— (4)— 
Other income, net of losses(24)(1)— 
Total credit contracts(24)(5)— 
Total loss recognized in earnings$(29)$(41)$(14)
The following table summarizes the location and amounts of gains and losses on derivative instruments designated as qualifying fair value and cash flow hedges reported in our Consolidated Statement of Income.
Interest and fees on finance receivables and loansInterest and dividends on investment securities and other earning assetsInterest on depositsInterest on long-term debt
Year ended December 31, ($ in millions)
202120202019202120202019202120202019202120202019
Gain (loss) on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt$— $— $— $— $— $— $— $— $— $68 $(135)$41 
Derivatives designated as hedging instruments on fixed-rate unsecured debt— — — — — — — — — (68)135 (41)
Hedged available-for-sale securities— — — (40)38 28 — — — — — — 
Derivatives designated as hedging instruments on available-for-sale securities— — — 40 (38)(28)— — — — — — 
Hedged fixed-rate consumer automotive loans(215)139 138 — — — — — — — — — 
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans215 (139)(138)— — — — — — — — — 
Total gain on fair value hedging relationships
— — — — — — — — — — — — 
Gain (loss) on cash flow hedging relationships
Interest rate contracts
Hedged variable rate borrowings
Reclassified from accumulated other comprehensive income into income
— — — — — — — — — — — 15 
Hedged deposit liabilities
Reclassified from accumulated other comprehensive income into income— — — — — — (1)(8)(4)— — — 
Hedged variable-rate commercial loans
Reclassified from accumulated other comprehensive income into income58 73 — — — — — — — — — — 
Reclassified from accumulated other comprehensive income into income as a result of a forecasted transaction being probable not to occur4 — — — — — — — — — — — 
Total gain (loss) on cash flow hedging relationships
$62 $73 $— $— $— $— $(1)$(8)$(4)$— $— $15 
Total amounts presented in the Consolidated Statement of Income$6,468 $6,581 $7,337 $600 $736 $955 $1,045 $1,952 $2,538 $860 $1,249 $1,570 
During the next 12 months, we estimate $21 million of gains will be reclassified into pretax earnings from derivatives designated as cash flow hedges.
The following table summarizes the location and amounts of gains and losses related to interest and amortization on derivative instruments designated as qualifying fair value and cash flow hedges reported in our Consolidated Statement of Income.
Interest and fees on finance receivables and loansInterest and dividends on investment securities and other earning assetsInterest on depositsInterest on long-term debt
Year ended December 31, ($ in millions)
202120202019202120202019202120202019202120202019
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments$— $— $— $— $— $— $— $— $— $4 $12 $25 
Interest for qualifying accounting hedges of unsecured debt— — — — — — — — — 5 — — 
Amortization of deferred secured debt basis adjustments (FHLB advances)— — — — — — — — — (13)(22)(23)
Amortization of deferred basis adjustments of available-for-sale securities— — — (4)(7)(3)— — — — — — 
Interest for qualifying accounting hedges of available-for-sale securities— — — (6)(6)2 — — — — — — 
Amortization of deferred loan basis adjustments(46)(49)(28)— — — — — — — — — 
Interest for qualifying accounting hedges of consumer automotive loans held for investment(122)(121)22 — — — — — — — — — 
Total (loss) gain on fair value hedging relationships(168)(170)(6)(10)(13)(1)— — — (4)(10)2 
(Loss) gain on cash flow hedging relationships
Interest rate contracts
Interest for qualifying accounting hedges of deposit liabilities— — — — — — — — (1)— — — 
Interest for qualifying accounting hedges of variable-rate commercial loans— 1 1 — — — — — — — — — 
Total gain (loss) on cash flow hedging relationships$— $1 $1 $— $— $— $— $— $(1)$— $— $— 
The following table summarizes the effect of cash flow hedges on accumulated other comprehensive (loss) income.
Year ended December 31, ($ in millions)
202120202019
Interest rate contracts
(Loss) gain recognized in other comprehensive (loss) income$(61)$105 $(23)
The following table summarizes the effect of net investment hedges on accumulated other comprehensive (loss) income and the Consolidated Statement of Income.
Year ended December 31, ($ in millions)
202120202019
Foreign exchange contracts (a) (b)
Loss recognized in other comprehensive (loss) income$— $(4)$(6)
(a)There were no amounts excluded from effectiveness testing for the years ended December 31, 2021, 2020, or 2019.
(b)Gains and losses reclassified from accumulated other comprehensive income are reported as other income, net of losses, in the Consolidated Statement of Income. There were no amounts reclassified for the years ended December 31, 2021, 2020, or 2019.