DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments, Offsetting Assets

The following table presents notional amounts and fair values of derivative financial instruments:

Notional Amount and Fair Value of Derivative Financial Instruments

dollars in millions	September 30, 2024						December 31, 2023
	Notional Amount		Asset Fair Value		Liability Fair Value		Notional Amount		Asset Fair Value		Liability 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 Sheets			553		(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.

Schedule of Derivative Instruments, Offsetting Liabilities

The following table presents notional amounts and fair values of derivative financial instruments:

Notional Amount and Fair Value of Derivative Financial Instruments

dollars in millions	September 30, 2024						December 31, 2023
	Notional Amount		Asset Fair Value		Liability Fair Value		Notional Amount		Asset Fair Value		Liability 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 Sheets			553		(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.

Schedule of Fair Value and Non-Qualifying 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 millions		Three Months Ended September 30,				Nine Months Ended September 30,
	Interest Expense	2024		2023		2024		2023
Gain on hedging instruments - time deposits	Deposits	$	2	$	—	$	1	$	—
Gain (loss) on hedging instruments - borrowings	Borrowings	4		—		(2)		—
Loss on hedged item - time deposits	Deposits	(3)		—		(2)		—
Loss on hedged item - borrowings	Borrowings	(5)		—		—		—
Net loss on fair value hedges	Total 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 millions			Cumulative Fair Value Hedging Adjustment Included in the Carrying Value of Hedged Items
	Carrying Value of Hedged Items		Currently Designated		No Longer Designated
September 30, 2024
Long-term borrowings	$	801	$	4	$	—
Deposits	336		2		—
December 31, 2023
Long-term borrowings	879		5		—

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

Gains (Losses) on Non-Qualifying Hedges

dollars in millions		Three Months Ended September 30,				Nine Months Ended September 30,
	Amounts Recognized	2024		2023		2024		2023
Interest rate contracts	Other noninterest income	$	(5)	$	8	$	6	$	37
Foreign currency forward contracts	Other noninterest income	(20)		11		3		10
Other contracts	Other noninterest income	2		1		1		1
Total non-qualifying hedges - income statement impact		$	(23)	$	20	$	10	$	48

Schedule of Unrealized Gain on 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 millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Other comprehensive income on cash flow hedge derivatives before reclassifications	$	14	$	—	$	17	$	—
Amounts reclassified from AOCI to earnings	2		—		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)	$	—

Schedule of Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss)

The following table presents other information for cash flow hedges:

Other Information for Cash Flow Hedges

dollars in millions	September 30, 2024		December 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 hedged	13		—

(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.