Derivatives

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Note 11:  Derivatives

We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. We designate certain derivatives as hedging instruments in qualifying hedge accounting relationships (fair value or cash flow hedges). Our remaining derivatives consist of economic hedges that do not qualify for hedge accounting and derivatives held for customer accommodation trading purposes. For additional information on our derivative activities, see Note 14 (Derivatives) in our 2023 Form 10-K.

Table 11.1 presents the total notional or contractual amounts and fair values for our derivatives. Derivative transactions can be measured in terms of the notional amount, but this amount is not recorded on our consolidated balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which derivative cash flows are determined.

Table 11.1: Notional or Contractual Amounts and Fair Values of Derivatives

	September 30, 2024					December 31, 2023
	Notional or contractual amount		Fair value			Notional or contractual amount	Fair value
			Derivative assets		Derivative liabilities		Derivative assets	Derivative liabilities
(in millions)
Derivatives designated as hedging instruments
Interest rate contracts	$	342,859	699		640	357,096	639	570
Commodity contracts	3,722		9		12	2,600	24	12
Foreign exchange contracts	3,455		21		285	4,193	60	395
Total derivatives designated as qualifying hedging instruments			729		937		723	977
Derivatives not designated as hedging instruments
Interest rate contracts	10,075,086		25,722		27,040	10,409,720	31,806	36,312
Commodity contracts	91,151		2,439		2,311	88,491	2,717	2,734
Equity contracts	462,077		16,535		16,476	438,458	13,305	13,810
Foreign exchange contracts	3,504,791		27,636		29,195	2,273,383	24,707	26,762
Credit contracts	47,613		93		46	60,439	113	44
Total derivatives not designated as hedging instruments			72,425		75,068		72,648	79,662
Total derivatives before netting			73,154		76,005		73,371	80,639
Netting			(55,433)		(64,615)		(55,148)	(62,144)
Total			$	17,721	11,390		18,223	18,495

Balance Sheet Offsetting

We execute substantially all of our derivative transactions under master netting arrangements. Where legally enforceable, these master netting arrangements give the ability, in the event of default by the counterparty, to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. We reflect all derivative balances and related cash collateral subject to enforceable master netting arrangements on a net basis on our consolidated balance sheet. We do not net non-cash collateral that we receive or pledge against derivative balances on our consolidated balance sheet.

For disclosure purposes, we present “Total Derivatives, net” which represents the aggregate of our net exposure to each counterparty after considering the balance sheet netting

adjustments and any non-cash collateral. We manage derivative exposure by monitoring the credit risk associated with each counterparty using counterparty-specific credit risk limits, using master netting arrangements and obtaining collateral.

Table 11.2 provides information on the fair values of derivative assets and liabilities subject to enforceable master netting arrangements, the balance sheet netting adjustments and the resulting net fair value amount recorded on our consolidated balance sheet, as well as the non-cash collateral associated with such arrangements. In addition to the netting amounts included in the table, we also have balance sheet netting related to resale and repurchase agreements that are disclosed within Note 15 (Securities and Other Collateralized Financing Activities).

Table 11.2: Offsetting of Derivative Assets and Liabilities

	September 30, 2024			December 31, 2023
(in millions)	Derivative Assets		Derivative Liabilities	Derivative Assets	Derivative Liabilities
Interest rate contracts
Over-the-counter (OTC)	$	24,365	25,027	29,040	31,809
OTC cleared	673		743	1,581	1,397
Exchange traded	170		158	195	201
Total interest rate contracts	25,208		25,928	30,816	33,407
Commodity contracts
OTC	1,785		1,859	2,014	2,254
Exchange traded	405		286	512	356
Total commodity contracts	2,190		2,145	2,526	2,610
Equity contracts
OTC	6,729		9,843	5,375	8,501
Exchange traded	7,785		5,258	4,790	3,970
Total equity contracts	14,514		15,101	10,165	12,471
Foreign exchange contracts
OTC	27,477		29,204	24,511	26,961
Total foreign exchange contracts	27,477		29,204	24,511	26,961
Credit contracts
OTC	89		40	77	39
Total credit contracts	89		40	77	39
Total derivatives subject to enforceable master netting arrangements, gross	69,478		72,418	68,095	75,488
Less: Gross amounts offset
Counterparty netting (1)	(52,158)		(52,075)	(50,692)	(50,606)
Cash collateral netting	(3,275)		(12,540)	(4,456)	(11,538)
Total derivatives subject to enforceable master netting arrangements, net	14,045		7,803	12,947	13,344
Derivatives not subject to enforceable master netting arrangements	3,676		3,587	5,276	5,151
Total derivatives recognized in consolidated balance sheet, net	17,721		11,390	18,223	18,495
Non-cash collateral	(2,097)		(1,330)	(2,587)	(4,388)
Total Derivatives, net	$	15,624	10,060	15,636	14,107

(1)Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in our consolidated balance sheet, including portfolio level counterparty valuation adjustments related to customer accommodation and other trading derivatives. Counterparty valuation adjustments related to derivative assets were $299 million and $292 million and debit valuation adjustments related to derivative liabilities were $215 million and $222 million as of September 30, 2024, and December 31, 2023, respectively, and were primarily related to interest rate contracts.

Fair Value and Cash Flow Hedges

For fair value hedges, we use interest rate swaps to convert certain of our fixed-rate long-term debt and time certificates of deposit to floating rates to hedge our exposure to interest rate risk. We also enter into cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge our exposure to foreign currency risk and interest rate risk associated with the issuance of non-U.S. dollar denominated long-term debt. We also enter into futures contracts, forward contracts, and swap contracts to hedge our exposure to the price risk of physical commodities included in other assets on our consolidated balance sheet. In addition, we use interest rate swaps, cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge against changes in fair value of certain investments in AFS debt securities due to changes in interest rates, foreign currency rates, or both. For certain fair value hedges of interest rate risk, we use the portfolio layer method to hedge stated amounts of closed portfolios of AFS debt securities. For certain fair value hedges of foreign currency risk, changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other

comprehensive income (OCI). See Note 21 (Other Comprehensive Income) for the amounts recognized in other comprehensive income.

For cash flow hedges, we use interest rate swaps to hedge the variability in interest payments received on certain interest-earning deposits with banks and certain floating-rate commercial loans. We also use cross-currency swaps to hedge variability in interest payments on fixed-rate foreign currency-denominated long-term debt due to changes in foreign exchange rates.

We estimate $359 million pre-tax of deferred net losses related to cash flow hedges in OCI at September 30, 2024, will be reclassified into net interest income during the next twelve months. For cash flow hedges as of September 30, 2024, we are hedging our interest rate and foreign currency exposure to the variability of future cash flows for all forecasted transactions for a maximum of approximately 8 years. For additional information on our accounting hedges, see Note 1 (Summary of Significant Accounting Policies) in our 2023 Form 10-K.

Table 11.3 and Table 11.4 show the net gains (losses) related to derivatives in cash flow and fair value hedging relationships, respectively.

Table 11.3: Gains (Losses) Recognized on Cash Flow Hedging Relationships

	Net interest income				Total recorded in net income	Total recorded in OCI
(in millions)	Loans		Other interest income	Long-term debt	Derivative gains (losses)	Derivative gains (losses)
Quarter ended September 30, 2024
Total amounts presented in the consolidated statement of income and other comprehensive income	$	14,618	3,465	(3,163)	N/A	1,321
Interest rate contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	(131)		(90)	—	(221)	221
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	1,094
Total gains (losses) (pre-tax) on interest rate contracts	(131)		(90)	—	(221)	1,315
Foreign exchange contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	—		—	(1)	(1)	1
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	—
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(1)	(1)	1
Total gains (losses) (pre-tax) recognized on cash flow hedges	$	(131)	(90)	(1)	(222)	1,316
Quarter ended September 30, 2023
Total amounts presented in the consolidated statement of income and other comprehensive income	$	14,755	2,921	(3,039)	N/A	(542)
Interest rate contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	(69)		(135)	—	(204)	204
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	(757)
Total gains (losses) (pre-tax) on interest rate contracts	(69)		(135)	—	(204)	(553)
Foreign exchange contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	—		—	(2)	(2)	2
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	—
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(2)	(2)	2
Total gains (losses) (pre-tax) recognized on cash flow hedges	$	(69)	(135)	(2)	(206)	(551)
Nine months ended September 30, 2024
Total amounts presented in the consolidated statement of income and other comprehensive income	$	43,897	10,585	(9,676)	N/A	557
Interest rate contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	(343)		(329)	—	(672)	672
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	(136)
Total gains (losses) (pre-tax) on interest rate contracts	(343)		(329)	—	(672)	536
Foreign exchange contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	—		—	(5)	(5)	5
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	—
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(5)	(5)	5
Total gains (losses) (pre-tax) recognized on cash flow hedges	$	(343)	(329)	(5)	(677)	541
Nine months ended September 30, 2023
Total amounts presented in the consolidated statement of income and other comprehensive income	$	42,188	7,299	(8,243)	N/A	(850)
Interest rate contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	(190)		(308)	—	(498)	498
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	(1,374)
Total gains (losses) (pre-tax) on interest rate contracts	(190)		(308)	—	(498)	(876)
Foreign exchange contracts:
Realized gains (losses) (pre-tax) reclassified from OCI into net income	—		—	(6)	(6)	6
Net unrealized gains (losses) (pre-tax) recognized in OCI	N/A		N/A	N/A	N/A	—
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(6)	(6)	6
Total gains (losses) (pre-tax) recognized on cash flow hedges	$	(190)	(308)	(6)	(504)	(870)

Table 11.4: Gains (Losses) Recognized on Fair Value Hedging Relationships

	Net interest income				Noninterest income		Total recorded in net income	Total recorded in OCI
(in millions)	Debt securities		Deposits	Long-term debt	Net gains from trading and securities	Other	Derivative gains (losses)	Derivative gains (losses)
Quarter ended September 30, 2024
Total amounts presented in the consolidated statement of income and other comprehensive income	$	4,630	(6,445)	(3,163)	1,248	596	N/A	1,321
Interest contracts
Amounts related to cash flows on derivatives	234		(123)	(1,014)	—	—	(903)	N/A
Recognized on derivatives	(1,115)		565	5,177	—	—	4,627	—
Recognized on hedged items	1,108		(566)	(5,185)	—	—	(4,643)	N/A
Total gains (losses) (pre-tax) on interest rate contracts	227		(124)	(1,022)	—	—	(919)	—
Foreign exchange contracts
Amounts related to cash flows on derivatives	—		—	(34)	—	—	(34)	N/A
Recognized on derivatives	—		—	30	76	—	106	5
Recognized on hedged items	—		—	(36)	(76)	—	(112)	N/A
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(40)	—	—	(40)	5
Commodity contracts
Recognized on derivatives	—		—	—	—	(300)	(300)	—
Recognized on hedged items	—		—	—	—	308	308	N/A
Total gains (losses) (pre-tax) on commodity contracts	—		—	—	—	8	8	—
Total gains (losses) (pre-tax) recognized on fair value hedges	$	227	(124)	(1,062)	—	8	(951)	5
Quarter ended September 30, 2023
Total amounts presented in the consolidated statement of income and other comprehensive income	$	4,178	(4,608)	(3,039)	1,246	381	N/A	(542)
Interest contracts
Amounts related to cash flows on derivatives	263		(114)	(956)	—	—	(807)	N/A
Recognized on derivatives	668		5	(3,970)	—	—	(3,297)	—
Recognized on hedged items	(659)		11	3,973	—	—	3,325	N/A
Total gains (losses) (pre-tax) on interest rate contracts	272		(98)	(953)	—	—	(779)	—
Foreign exchange contracts
Amounts related to cash flows on derivatives	—		—	(38)	—	—	(38)	N/A
Recognized on derivatives	—		—	(10)	—	(7)	(17)	9
Recognized on hedged items	—		—	7	—	6	13	N/A
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(41)	—	(1)	(42)	9
Commodity contracts
Recognized on derivatives	—		—	—	—	84	84	—
Recognized on hedged items	—		—	—	—	(44)	(44)	N/A
Total gains (losses) (pre-tax) on commodity contracts	—		—	—	—	40	40	—
Total gains (losses) (pre-tax) recognized on fair value hedges	$	272	(98)	(994)	—	39	(781)	9

(continued on following page)

(continued from previous page)

	Net interest income				Noninterest income		Total recorded in net income	Total recorded in OCI
(in millions)	Debt securities		Deposits	Long-term debt	Net gains from trading and securities	Other	Derivative gains (losses)	Derivative gains (losses)
Nine months ended September 30, 2024
Total amounts presented in the consolidated statement of income and other comprehensive income	$	13,362	(18,405)	(9,676)	4,217	1,925	N/A	557
Interest contracts
Amounts related to cash flows on derivatives	756		(384)	(3,007)	—	—	(2,635)	N/A
Recognized on derivatives	(541)		247	2,363	—	—	2,069	—
Recognized on hedged items	539		(250)	(2,395)	—	—	(2,106)	N/A
Total gains (losses) (pre-tax) on interest rate contracts	754		(387)	(3,039)	—	—	(2,672)	—
Foreign exchange contracts
Amounts related to cash flows on derivatives	—		—	(92)	—	—	(92)	N/A
Recognized on derivatives	—		—	18	(4)	—	14	16
Recognized on hedged items	—		—	(30)	6	—	(24)	N/A
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(104)	2	—	(102)	16
Commodity contracts
Recognized on derivatives	—		—	—	—	(532)	(532)	—
Recognized on hedged items	—		—	—	—	561	561	N/A
Total gains (losses) (pre-tax) on commodity contracts	—		—	—	—	29	29	—
Total gains (losses) (pre-tax) recognized on fair value hedges	$	754	(387)	(3,143)	2	29	(2,745)	16
Nine months ended September 30, 2023
Total amounts presented in the consolidated statement of income and other comprehensive income	$	11,998	(11,174)	(8,243)	3,263	1,373	N/A	(850)
Interest contracts
Amounts related to cash flows on derivatives	863		(226)	(2,488)	—	—	(1,851)	N/A
Recognized on derivatives	905		(166)	(4,199)	—	—	(3,460)	—
Recognized on hedged items	(904)		181	4,188	—	—	3,465	N/A
Total gains (losses) (pre-tax) on interest rate contracts	864		(211)	(2,499)	—	—	(1,846)	—
Foreign exchange contracts
Amounts related to cash flows on derivatives	—		—	(189)	—	—	(189)	N/A
Recognized on derivatives	—		—	24	—	20	44	20
Recognized on hedged items	—		—	(39)	—	(15)	(54)	N/A
Total gains (losses) (pre-tax) on foreign exchange contracts	—		—	(204)	—	5	(199)	20
Commodity contracts
Recognized on derivatives	—		—	—	—	181	181	—
Recognized on hedged items	—		—	—	—	(109)	(109)	N/A
Total gains (losses) (pre-tax) on commodity contracts	—		—	—	—	72	72	—
Total gains (losses) (pre-tax) recognized on fair value hedges	$	864	(211)	(2,703)	—	77	(1,973)	20

Table 11.5 shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships.

Table 11.5: Hedged Items in Fair Value Hedging Relationships

	Hedged items currently designated			Hedged items no longer designated
(in millions)	Carrying amount of assets/(liabilities) (1)(2)		Hedge accounting basis adjustment assets/(liabilities) (3)	Carrying amount of assets/(liabilities) (2)	Hedge accounting basis adjustment assets/(liabilities)
September 30, 2024
Available-for-sale debt securities (4)(5)	$	37,067	(1,307)	9,820	343
Other assets (6)	3,520		258	—	—
Interest-bearing deposits	(70,958)		(353)	—	—
Long-term debt	(157,339)		8,439	—	—
December 31, 2023
Available-for-sale debt securities (4)	$	55,898	(2,384)	13,418	504
Other assets (6)	2,262		67	—	—
Interest-bearing deposits	(89,641)		(101)	—	—
Long-term debt	(146,940)		10,990	—	—

(1)Does not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded $280 million and $404 million for AFS debt securities where only foreign currency risk is the designated hedged risk as of September 30, 2024, and December 31, 2023, respectively.

(2)Represents the full carrying amount of the hedged asset or liability item as of the balance sheet date, except for circumstances in which only a portion of the asset or liability was designated as the hedged item in which case only the portion designated is presented.

(3)The balance includes $618 million and $731 million of long-term debt cumulative basis adjustments as of September 30, 2024, and December 31, 2023, respectively, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges.

(4)Carrying amount represents the amortized cost.

(5)The balance includes cumulative basis adjustments of $58 million and $(46) million as of September 30, 2024, and December 31, 2023, respectively, related to certain AFS debt securities designated as the hedged item in a fair value hedge using the portfolio layer method. At September 30, 2024, the aggregated designated hedged items using the portfolio layer method had a carrying amount of $16.3 billion from closed portfolios of financial assets totaling $16.3 billion. At December 31, 2023, the aggregated designated hedged items using the portfolio layer method had a carrying amount of $25.8 billion from closed portfolios of financial assets totaling $28.2 billion.

(6)Other assets consists of hedged physical commodity inventory.

Derivatives Not Designated as Hedging Instruments

Derivatives not designated as hedging instruments include economic hedges and derivatives entered into for customer accommodation trading purposes.

We use economic hedge derivatives to manage our exposure to interest rate risk, equity price risk, foreign currency risk, and credit risk. We also use economic hedge derivatives to mitigate the periodic earnings volatility caused by mismatches between the changes in fair value of the hedged item and hedging instrument recognized on our fair value accounting hedges.

For additional information on economic hedges and other derivatives, see Note 14 (Derivatives) in our 2023 Form 10-K.

Table 11.6 shows the net gains (losses) related to derivatives not designated as hedging instruments. Gains (losses) on customer accommodation trading derivatives are excluded from the following table. For additional information, see Note 2 (Trading Activities).

Table 11.6: Gains (Losses) on Derivatives Not Designated as Hedging Instruments

	Quarter ended September 30,			Nine months ended September 30,
(in millions)	2024		2023	2024		2023
Interest rate contracts (1)	$	392	(788)	$	(37)	(945)
Equity contracts (2)	27		(300)	153		(281)
Foreign exchange contracts (3)	(649)		337	(481)		(356)
Credit contracts (4)	—		5	8		4
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	(230)	(746)	$	(357)	(1,578)

(1)Derivative gains and (losses) related to mortgage banking activities were recorded in mortgage banking noninterest income. Other derivative gains and (losses) not related to mortgage banking were recorded in other noninterest income. For additional information on our mortgage banking interest rate contracts, see Note 6 (Mortgage Banking Activities).

(2)Includes derivative gains and (losses) used to economically hedge the deferred compensation plan, which were recorded in personnel noninterest expense, and derivative instruments related to our previous sales of shares of Visa Inc. Class B common stock, which were recorded in other noninterest income.

(3)Includes derivatives used to mitigate foreign exchange risk of specified foreign currency-denominated assets and liabilities. In 2024, gains and (losses) were recorded in net gains from trading and securities within noninterest income. Prior to 2024, gains and (losses) were recorded in other noninterest income.

(4)Includes credit derivatives used to mitigate credit risk associated with lending exposure. Gains and (losses) were recorded in other noninterest income.

Credit Derivatives

Credit derivative contracts are arrangements whose value is derived from the transfer of credit risk of a reference asset or entity from one party (the purchaser of credit protection) to another party (the seller of credit protection). We generally use credit derivatives to assist customers with their risk management objectives by purchasing and selling credit protection on corporate debt obligations through the use of credit default swaps or through risk participation swaps to help manage counterparty exposure. We would be required to perform under the credit derivatives we sold in the event of default by the referenced obligors. Events of default include events such as bankruptcy, capital restructuring or lack of principal and/or interest payment.

Table 11.7 provides details of sold credit derivatives.

Table 11.7: Sold Credit Derivatives

	Notional amount
(in millions)	Protection sold		Protection sold – non-investment grade
September 30, 2024
Credit default swaps	$	12,569	1,282
Risk participation swaps	5,993		3,787
Total credit derivatives	$	18,562	5,069
December 31, 2023
Credit default swaps	$	18,453	1,399
Risk participation swaps	6,632		6,485
Total credit derivatives	$	25,085	7,884

    

Protection sold represents the estimated maximum exposure to loss that would be incurred if, upon an event of default, the value of our interests and any associated collateral declined to zero, and does not take into consideration any recovery value from the referenced obligation or offset from collateral held or any economic hedges.

The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.

We consider the credit risk to be low if the underlying assets under the credit derivative have an external rating that is investment grade. If an external rating is not available, we classify the credit derivative as non-investment grade.

Our maximum exposure to sold credit derivatives is managed through posted collateral and purchased credit derivatives with identical or similar reference positions in order to achieve our desired credit risk profile. The credit risk management is designed to provide an ability to recover a significant portion of any amounts that would be paid under sold credit derivatives.

Credit-Risk Contingent Features

Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. Table 11.8 illustrates our exposure to OTC bilateral derivative contracts with credit-risk contingent features, collateral we have posted, and the additional collateral we would be required to post if the credit rating of our debt was downgraded below investment grade.

Table 11.8: Credit-Risk Contingent Features

(in billions)	Sep 30, 2024		Dec 31, 2023
Net derivative liabilities with credit-risk contingent features	$	22.1	23.7
Collateral posted	19.6		21.4
Additional collateral to be posted upon a below investment grade credit rating (1)	2.5		2.3

(1)Any credit rating below investment grade requires us to post the maximum amount of collateral.