Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Assets and Liabilities at Fair Value

The following table summarizes the notional amounts and fair values of our derivative instruments as of September 30, 2021 and December 31, 2020, which are segregated by derivatives that are designated as accounting hedges and those that are not, and are further segregated by type of contract within those two categories. The total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated cash collateral received or pledged. Derivative assets and liabilities are included in other assets and other liabilities, respectively, on our consolidated balance sheets, and their related gains or losses are included in operating activities as changes in other assets and other liabilities in the consolidated statements of cash flows.

Table 8.1: Derivative Assets and Liabilities at Fair Value

	September 30, 2021						December 31, 2020
	Notional or Contractual Amount		Derivative(1)				Notional or Contractual Amount		Derivative(1)
(Dollars in millions)			Assets		Liabilities				Assets		Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges	$	44,563	$	29	$	10	$	47,349	$	9	$	10
Cash flow hedges	89,900		445		10		82,150		748		1
Total interest rate contracts	134,463		474		20		129,499		757		11
Foreign exchange contracts:
Fair value hedges	1,448		46		0		1,527		164		0
Cash flow hedges	4,278		87		2		4,582		0		161
Net investment hedges	3,325		50		34		3,116		0		196
Total foreign exchange contracts	9,051		183		36		9,225		164		357
Total derivatives designated as accounting hedges	143,514		657		56		138,724		921		368
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts	71,622		848		202		68,459		1,429		198
Commodity contracts	21,555		3,302		3,136		16,871		935		820
Foreign exchange and other contracts	4,077		53		39		4,677		58		70
Total customer accommodation	97,254		4,203		3,377		90,007		2,422		1,088
Other interest rate exposures(2)	2,656		42		27		1,770		71		56
Other contracts	1,983		2		3		1,826		1		6
Total derivatives not designated as accounting hedges	101,893		4,247		3,407		93,603		2,494		1,150
Total derivatives	$	245,407	$	4,904	$	3,463	$	232,327	$	3,415	$	1,518
Less: netting adjustment(3)			(975)		(904)				(1,148)		(739)
Total derivative assets/liabilities			$	3,929	$	2,559			$	2,267	$	779

__________

(1)Does not reflect $17 million and $31 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 2021 and December 31, 2020, respectively. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and other liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.

(2)Other interest rate exposures include commercial mortgage-related derivatives and interest rate swaps.

(3)Represents balance sheet netting of derivative assets and liabilities, and related payables and receivables for cash collateral held or placed with the same counterparty.

Hedged Item in Fair Value Hedging Relationship

The following table summarizes the carrying value of our hedged assets and liabilities in fair value hedges and the associated cumulative basis adjustments included in those carrying values, excluding basis adjustments related to foreign currency risk, as of September 30, 2021 and December 31, 2020.

Table 8.2: Hedged Items in Fair Value Hedging Relationships

	September 30, 2021						December 31, 2020
	Carrying Amount Assets/(Liabilities)		Cumulative Amount of Basis Adjustments Included in the Carrying Amount				Carrying Amount Assets/(Liabilities)		Cumulative Amount of Basis Adjustments Included in the Carrying Amount
(Dollars in millions)			Total Assets/(Liabilities)		Discontinued-Hedging Relationships				Total Assets/(Liabilities)		Discontinued-Hedging Relationships
Line item on our consolidated balance sheets in which the hedged item is included:
Investment securities available for sale(1)(2)	$	9,914	$	381	$	152	$	9,797	$	590	$	200
Interest-bearing deposits	(7,951)		(97)		0		(11,312)		(213)		0
Securitized debt obligations	(9,239)		(31)		5		(7,609)		(171)		20
Senior and subordinated notes	(19,889)		(774)		(561)		(21,927)		(1,282)		(666)

__________

(1)These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. The amortized cost basis of this portfolio was $249 million, the amount of the designated hedged items was $225 million, and the cumulative basis adjustments associated with these hedges was $1 million as of September 30, 2021. We had no such hedging relationships as of December 31, 2020.

(2)Carrying value represents amortized cost.

Offsetting Assets

The following table presents the gross and net fair values of our derivative assets, derivative liabilities, resale and repurchase agreements and the related offsetting amounts permitted under U.S. GAAP as of September 30, 2021 and December 31, 2020. The table also includes cash and non-cash collateral received or pledged in accordance with such arrangements. The amount of collateral presented, however, is limited to the amount of the related net derivative fair values or outstanding balances; therefore, instances of over-collateralization are excluded.

Table 8.3: Offsetting of Financial Assets and Financial Liabilities

	Gross Amounts		Gross Amounts Offset in the Balance Sheet				Net Amounts as Recognized		Securities Collateral Held Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Received
As of September 30, 2021
Derivative assets(1)	$	4,904	$	(434)	$	(541)	$	3,929	$	0	$	3,929
As of December 31, 2020
Derivative assets(1)	3,415		(383)		(765)		2,267		0		2,267

	Gross Amounts		Gross Amounts Offset in the Balance Sheet				Net Amounts as Recognized		Securities Collateral Pledged Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Pledged
As of September 30, 2021
Derivative liabilities(1)	$	3,463	$	(434)	$	(470)	$	2,559	$	0	$	2,559
Repurchase agreements(2)	825		0		0		825		(825)		0
As of December 31, 2020
Derivative liabilities(1)	1,518		(383)		(356)		779		0		779
Repurchase agreements(2)	668		0		0		668		(668)		0

__________

(1)We received cash collateral from derivative counterparties totaling $653 million and $862 million as of September 30, 2021 and December 31, 2020, respectively. We also received securities from derivative counterparties with a fair value of approximately $1 million as of both September 30, 2021 and December 31, 2020, respectively, which we have the ability to re-pledge. We posted $2.5 billion and $1.5 billion of cash collateral as of September 30, 2021 and December 31, 2020, respectively.

(2)Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $842 million and $682 million as of September 30, 2021 and December 31, 2020, respectively, primarily consisting of agency RMBS securities.

Offsetting Liabilities

The following table presents the gross and net fair values of our derivative assets, derivative liabilities, resale and repurchase agreements and the related offsetting amounts permitted under U.S. GAAP as of September 30, 2021 and December 31, 2020. The table also includes cash and non-cash collateral received or pledged in accordance with such arrangements. The amount of collateral presented, however, is limited to the amount of the related net derivative fair values or outstanding balances; therefore, instances of over-collateralization are excluded.

Table 8.3: Offsetting of Financial Assets and Financial Liabilities

	Gross Amounts		Gross Amounts Offset in the Balance Sheet				Net Amounts as Recognized		Securities Collateral Held Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Received
As of September 30, 2021
Derivative assets(1)	$	4,904	$	(434)	$	(541)	$	3,929	$	0	$	3,929
As of December 31, 2020
Derivative assets(1)	3,415		(383)		(765)		2,267		0		2,267

	Gross Amounts		Gross Amounts Offset in the Balance Sheet				Net Amounts as Recognized		Securities Collateral Pledged Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Pledged
As of September 30, 2021
Derivative liabilities(1)	$	3,463	$	(434)	$	(470)	$	2,559	$	0	$	2,559
Repurchase agreements(2)	825		0		0		825		(825)		0
As of December 31, 2020
Derivative liabilities(1)	1,518		(383)		(356)		779		0		779
Repurchase agreements(2)	668		0		0		668		(668)		0

__________

(1)We received cash collateral from derivative counterparties totaling $653 million and $862 million as of September 30, 2021 and December 31, 2020, respectively. We also received securities from derivative counterparties with a fair value of approximately $1 million as of both September 30, 2021 and December 31, 2020, respectively, which we have the ability to re-pledge. We posted $2.5 billion and $1.5 billion of cash collateral as of September 30, 2021 and December 31, 2020, respectively.

(2)Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $842 million and $682 million as of September 30, 2021 and December 31, 2020, respectively, primarily consisting of agency RMBS securities.

Effects of Fair Value and Cash Flow Hedge Accounting

The net gains (losses) recognized in our consolidated statements of income related to derivatives in fair value and cash flow hedging relationships are presented below for the three and nine months ended September 30, 2021 and 2020.

Table 8.4: Effects of Fair Value and Cash Flow Hedge Accounting

	Three Months Ended September 30, 2021
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	317	$	6,205	$	16	$	(228)	$	(29)	$	(116)	$	243
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(25)	$	0	$	0	$	31	$	30	$	50	$	0
Gains (losses) recognized on derivatives	19		0		0		(28)		(57)		(72)		(34)
Gains (losses) recognized on hedged items(1)	(83)		0		0		27		54		103		34
Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net income (expense) recognized on fair value hedges	$	(89)	$	0	$	0	$	30	$	27	$	80	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	10	$	240	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		0		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	10	$	240	$	0	$	0	$	0	$	0	$	0

	Nine Months Ended September 30, 2021
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	1,078	$	17,812	$	48	$	(734)	$	(89)	$	(367)	$	592
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(75)	$	0	$	0	$	101	$	93	$	168	$	0
Gains (losses) recognized on derivatives	130		0		0		(117)		(154)		(408)		(79)
Gains (losses) recognized on hedged items(1)	(206)		0		0		116		140		504		79
Excluded component of fair value hedges(2)	0		0		0		0		0		(2)		0
Net income (expense) recognized on fair value hedges	$	(151)	$	0	$	0	$	100	$	79	$	262	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	30	$	700	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		1		0		0		0		1
Net income (expense) recognized on cash flow hedges	$	30	$	700	$	1	$	0	$	0	$	0	$	1

	Three Months Ended September 30, 2020
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	443	$	5,758	$	14	$	(476)	$	(43)	$	(132)	$	706
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(23)	$	0	$	0	$	44	$	40	$	56	$	0
Gains (losses) recognized on derivatives	24		0		0		(47)		(48)		(72)		61
Gains (losses) recognized on hedged items(1)	(31)		0		0		48		41		111		(61)
Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net income (expense) recognized on fair value hedges	$	(30)	$	0	$	0	$	45	$	33	$	94	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	8	$	171	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		1		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	8	$	171	$	1	$	0	$	0	$	0	$	0

	Nine Months Ended September 30, 2020
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	1,455	$	18,120	$	67	$	(1,818)	$	(198)	$	(551)	$	1,017
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(51)	$	0	$	0	$	69	$	92	$	166	$	0
Gains (losses) recognized on derivatives	(340)		0		0		249		221		1,057		64
Gains (losses) recognized on hedged items(1)	329		0		0		(248)		(251)		(1,048)		(64)
Excluded component of fair value hedges(2)	0		0		0		0		0		(2)		0
Net income (expense) recognized on fair value hedges	$	(62)	$	0	$	0	$	70	$	62	$	173	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	17	$	330	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		10		0		0		0		(2)
Net income (expense) recognized on cash flow hedges	$	17	$	330	$	10	$	0	$	0	$	0	$	(2)

_________

(1)Includes amortization expense of $34 million and benefit of $10 million for the three and nine months ended September 30, 2021, respectively, and amortization income of $19 million and expense of $34 million, respectively, for the three and nine months ended September 30, 2020, respectively, related to basis adjustments on discontinued hedges.

(2)Changes in fair values 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. The initial value of the excluded component is recognized in earnings over the life of the swap under the amortization approach.

(3)See “Note 9—Stockholders’ Equity” for the effects of cash flow and net investment hedges on AOCI and amounts reclassified to net income, net of tax.

(4)We recognized a gain of $83 million and $245 million for the three and nine months ended September 30, 2021, respectively, and a loss of $73 million and a gain of $20 million for the three and nine months ended September 30, 2020, respectively, on foreign exchange contracts reclassified from AOCI. These amounts were largely offset by the foreign currency transaction gains (losses) on our foreign currency denominated intercompany funding included in other non-interest income on our consolidated statements of income.

Gains (Losses) on Free-Standing Derivatives

The net impacts to our consolidated statements of income related to free-standing derivatives are presented below for the three and nine months ended September 30, 2021 and 2020. These gains or losses are recognized in other non-interest income on our consolidated statements of income.

Table 8.5: Gains (Losses) on Free-Standing Derivatives

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2021		2020		2021		2020
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts	$	7	$	(5)	$	25	$	7
Commodity contracts	11		7		20		23
Foreign exchange and other contracts(1)	3		1		11		5
Total customer accommodation	21		3		56		35
Other interest rate exposures	18		17		2		1
Other contracts	(6)		0		(7)		0
Total	$	33	$	20	$	51	$	36

__________

(1)     Foreign exchange and other contracts includes gains of $1 million and $8 million on FX spot transactions for the three and nine months ended September 30, 2021.