XML 31 R20.htm IDEA: XBRL DOCUMENT v3.24.3
DERIVATIVE FINANCIAL INSTRUMENTS
 9 Months Ended
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS
NOTE 12 — DERIVATIVE FINANCIAL INSTRUMENTS

Our derivatives designated as hedging instruments include interest rate swap contracts utilized to manage our interest rate exposure for items on our Consolidated Balance Sheets. This includes floating-rate loan portfolio cash flow hedges and fair value hedges of our fixed-rate borrowings and deposits.

Our derivatives not designated as hedging instruments mainly include interest rate and foreign exchange contracts that our customers utilized for their risk management needs. We typically manage our exposure to these customer derivatives by entering into offsetting or “back-to-back” interest rate and foreign exchange contracts with third-party dealers.

Derivative instruments that are cleared through certain central counterparty clearing houses are settled-to-market and reported net of collateral positions.

For further information on accounting for derivatives and hedging, refer to Note 1—Significant Accounting Policies and Basis of Presentation of this Form 10-Q and our 2023 Form 10-K.
The following table presents notional amounts and fair values of derivative financial instruments:

Notional Amount and Fair Value of Derivative Financial Instruments
dollars in millionsSeptember 30, 2024December 31, 2023
Notional AmountAsset Fair ValueLiability Fair ValueNotional AmountAsset Fair ValueLiability Fair Value
Derivatives designated as hedging instruments (Qualifying hedges)
Fair Value Hedges
Interest rate contracts hedging time deposits$334 $— $— $— $— $— 
Interest rate contracts hedging long-term borrowings
750 — — 815 — — 
Total fair value hedges (1) (4)
1,084 — — 815 — — 
Cash Flow Hedges
Interest rate contracts hedging loans (1) (4)
2,500 — — — — — 
Total derivatives designated as hedging instruments$3,584 $— $— $815 $— $— 
Derivatives not designated as hedging instruments (Non-qualifying hedges)
Interest rate contracts (1) (4)
$25,538 $446 $(415)$24,548 $530 $(518)
Foreign exchange contracts (2)
8,198 93 (91)9,142 104 (117)
Other contracts (3)
1,308 14 (1)983 6 (1)
Total derivatives not designated as hedging instruments$35,044 $553 $(507)$34,673 $640 $(636)
Gross derivatives fair values presented in the Consolidated Balance Sheets$553 $(507)$640 $(636)
Less: gross amounts offset in the Consolidated Balance Sheets— — — — 
Net amount presented in other assets and other liabilities in the Consolidated Balance Sheets553 (507)640 (636)
Less: amounts subject to master netting agreements (5)
(114)114 (97)97 
Less: cash collateral pledged (received) subject to master netting agreements (6)
(234)46 (405)39 
Total net derivative fair value$205 $(347)$138 $(500)
(1)    Fair value balances include accrued interest.
(2)    The foreign exchange contracts exclude foreign exchange spot contracts. The notional and net fair value amounts of these contracts were $660 million and $0 million, respectively, as of September 30, 2024, and $179 million and $0 million, respectively, as of December 31, 2023.
(3)    Other derivative contracts not designated as hedging instruments include risk participation agreements and equity warrants.
(4)    BancShares accounts for swap contracts cleared by the Chicago Mercantile Exchange and LCH Clearnet as “settled-to-market.” As a result, variation margin payments are characterized as settlement of the derivative exposure and variation margin balances are netted against the corresponding derivative mark-to-market balances. Gross amounts of recognized assets and liabilities were lowered by $70 million and $47 million, respectively, at September 30, 2024, which includes $24 million and $0 million relating to qualifying hedges, respectively. Gross amounts of recognized assets and liabilities were lowered by $66 million and $37 million, respectively, at December 31, 2023, which includes $4 million and $0 million, respectively, relating to qualifying hedges.
(5)    BancShares’ derivative transactions are governed by International Swaps and Derivatives Association (“ISDA”) agreements that allow for net settlements of certain payments as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. BancShares believes its ISDA agreements meet the definition of a master netting arrangement or similar agreement for purposes of the above disclosure.
(6)    In conjunction with the ISDA agreements described above, BancShares has entered into collateral arrangements with its counterparties, which provide for the exchange of cash depending on the change in the market valuation of the derivative contracts outstanding. Such collateral is available to be applied in settlement of the net balances upon an event of default of one of the counterparties. Collateral pledged or received is included in other assets or deposits, respectively.

Fair Value Hedges
The following table presents the impact of fair value hedges recorded in interest expense on the Consolidated Statements of Income:

Recognized Gains (Losses) on Fair Value Hedges
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
Interest Expense2024202320242023
Gain on hedging instruments - time depositsDeposits$2 $— $1 $— 
Gain (loss) on hedging instruments - borrowingsBorrowings4 — (2)— 
Loss on hedged item - time depositsDeposits(3)— (2)— 
Loss on hedged item - borrowingsBorrowings(5)— — — 
Net loss on fair value hedgesTotal interest expense$(2)$— $(3)$— 

The following table presents the carrying value of hedged items and associated cumulative hedging adjustment related to fair
value hedges:

dollars in millionsCumulative Fair Value Hedging Adjustment Included in the Carrying Value of Hedged Items
Carrying Value of Hedged ItemsCurrently DesignatedNo Longer Designated
September 30, 2024
Long-term borrowings$801 $4 $— 
Deposits336 2 — 
December 31, 2023
Long-term borrowings879 5 — 

Cash Flow Hedges
The following table presents the pretax unrealized gain on hedging instruments in cash flow hedges, which are reported in other comprehensive income, and the pretax amount reclassified from AOCI to earnings for the three and nine months ended September 30, 2024:

Unrealized Gain on Cash Flow Hedges
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Other comprehensive income on cash flow hedge derivatives before reclassifications$14 $— $17 $— 
Amounts reclassified from AOCI to earnings2 — 2 — 
Other comprehensive income on cash flow hedge derivatives$16 $— $19 $— 
Decrease in interest income on loans due to amounts reclassified from AOCI to earnings$(2)$— $(2)$— 

The following table presents other information for cash flow hedges:

Other Information for Cash Flow Hedges
dollars in millionsSeptember 30, 2024December 31, 2023
Unrealized gain on cash flow hedge derivatives reported in AOCI, net of income taxes$14 $— 
Estimate to be reclassified from AOCI to earnings during the next 12 months, net of income taxes (1)
$14 $— 
Maximum number of months over which forecasted cash flows are hedged13— 
(1) Reclassified amounts could differ from amounts actually recognized due to items such as changes in interest rates, hedge de-designations and the addition of other hedges.

Non-Qualifying Hedges
The following table presents gains on non-qualifying hedges recognized on the Consolidated Statements of Income:

Gains (Losses) on Non-Qualifying Hedges
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
Amounts Recognized2024202320242023
Interest rate contractsOther noninterest income$(5)$8 $6 $37 
Foreign currency forward contractsOther noninterest income(20)11 3 10 
Other contractsOther noninterest income2 1 1 1 
Total non-qualifying hedges - income statement impact$(23)$20 $10 $48 
Refer to Note 14—Fair Value for further information on derivatives.