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Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2023

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, 2023 and December 31, 2022, 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, 2023						December 31, 2022
	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	$	67,173	$	40	$	10	$	60,956	$	3	$	53
Cash flow hedges	61,100		117		10		30,350		0		451
Total interest rate contracts	128,273		157		20		91,306		3		504
Foreign exchange contracts:
Fair value hedges	1,322		0		208		1,338		0		211
Cash flow hedges	2,356		69		1		2,175		4		14
Net investment hedges	4,618		81		78		4,147		78		91
Total foreign exchange contracts	8,296		150		287		7,660		82		316
Total derivatives designated as accounting hedges	136,569		307		307		98,966		85		820
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts	98,191		1,609		1,986		91,601		1,140		1,873
Commodity contracts	32,131		1,354		1,335		28,935		1,756		1,738
Foreign exchange and other contracts	4,576		68		42		4,926		74		78
Total customer accommodation	134,898		3,031		3,363		125,462		2,970		3,689
Other interest rate exposures(2)	743		27		19		1,135		34		22
Other contracts	2,715		16		10		2,238		9		19
Total derivatives not designated as accounting hedges	138,356		3,074		3,392		128,835		3,013		3,730
Total derivatives	$	274,925	$	3,381	$	3,699	$	227,801	$	3,098	$	4,550
Less: netting adjustment(3)			(1,471)		(632)				(1,134)		(1,235)
Total derivative assets/liabilities			$	1,910	$	3,067			$	1,964	$	3,315

__________

(1)Does not reflect approximately $1 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022.

Table 8.2: Hedged Items in Fair Value Hedging Relationships


	September 30, 2023						December 31, 2022
	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)	$	4,608	$	(102)	$	144	$	3,983	$	(80)	$	200
Interest-bearing deposits	(17,225)		580		(1)		(17,280)		500		(1)
Securitized debt obligations	(13,117)		757		0		(11,921)		748		0
Senior and subordinated notes	(30,035)		1,931		(413)		(24,544)		1,542		(527)

__________

(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 $870 million and $236 million as of September 30, 2023 and December 31, 2022, respectively. The amount of the designated hedged items was $655 million and $225 million as of September 30, 2023 and December 31, 2022, respectively. The cumulative basis adjustments associated with these hedges was $10 million and $13 million as of September 30, 2023 and December 31, 2022, respectively.

(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, 2023 and December 31, 2022. 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, 2023
Derivative assets(1)	$	3,381	$	(388)	$	(1,083)	$	1,910	$	(77)	$	1,833
As of December 31, 2022
Derivative assets(1)	3,098		(759)		(375)		1,964		(96)		1,868


	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, 2023
Derivative liabilities(1)	$	3,699	$	(388)	$	(244)	$	3,067	$	(79)	$	2,988
Repurchase agreements(2)	522		0		0		522		(522)		0
As of December 31, 2022
Derivative liabilities(1)	4,550		(759)		(476)		3,315		(85)		3,230
Repurchase agreements(2)	883		0		0		883		(883)		0

__________

(1)We received cash collateral from derivative counterparties totaling $1.6 billion and $608 million as of September 30, 2023 and December 31, 2022, respectively. We also received securities from derivative counterparties with a fair value of approximately $72 million and $82 million as of September 30, 2023 and December 31, 2022, respectively, which we have the ability to re-pledge. We posted $2.0 billion and $2.3 billion of cash collateral as of September 30, 2023 and December 31, 2022, respectively.

(2)Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $528 million and $900 million as of September 30, 2023 and December 31, 2022, respectively, primarily consisting of agency RMBS securities.

Offsetting Liabilities

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, 2023
Derivative assets(1)	$	3,381	$	(388)	$	(1,083)	$	1,910	$	(77)	$	1,833
As of December 31, 2022
Derivative assets(1)	3,098		(759)		(375)		1,964		(96)		1,868


	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, 2023
Derivative liabilities(1)	$	3,699	$	(388)	$	(244)	$	3,067	$	(79)	$	2,988
Repurchase agreements(2)	522		0		0		522		(522)		0
As of December 31, 2022
Derivative liabilities(1)	4,550		(759)		(476)		3,315		(85)		3,230
Repurchase agreements(2)	883		0		0		883		(883)		0

__________

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, 2023 and 2022.

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



	Three Months Ended September 30, 2023
	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	$	627	$	9,696	$	550	$	(2,611)	$	(249)	$	(579)	$	256
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	42	$	0	$	0	$	(104)	$	(112)	$	(275)	$	0
Gains (losses) recognized on derivatives	(15)		0		0		(38)		4		(273)		(42)
Gains (losses) recognized on hedged items(1)	(6)		0		0		38		(4)		313		42



	Three Months Ended September 30, 2023
	Net Interest Income												Non-Interest Income
Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net income (expense) recognized on fair value hedges	$	21	$	0	$	0	$	(104)	$	(112)	$	(236)	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	0	$	(320)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		3		0		0		0		1
Net income (expense) recognized on cash flow hedges	$	0	$	(320)	$	3	$	0	$	0	$	0	$	1


	Nine Months Ended September 30, 2023
	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	$	1,881	$	27,476	$	1,436	$	(6,744)	$	(696)	$	(1,596)	$	730
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	113	$	0	$	0	$	(278)	$	(297)	$	(754)	$	0
Gains (losses) recognized on derivatives	(35)		0		0		(84)		(10)		(275)		(17)
Gains (losses) recognized on hedged items(1)	(22)		0		0		81		9		388		17
Excluded component of fair value hedges(2)	0		0		0		0		0		(2)		0
Net income (expense) recognized on fair value hedges	$	56	$	0	$	0	$	(281)	$	(298)	$	(643)	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	0	$	(879)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		9		0		0		0		1
Net income (expense) recognized on cash flow hedges	$	0	$	(879)	$	9	$	0	$	0	$	0	$	1



	Three Months Ended September 30, 2022
	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	$	499	$	7,578	$	123	$	(689)	$	(120)	$	(319)	$	192
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	22	$	0	$	0	$	4	$	(21)	$	(71)	$	0
Gains (losses) recognized on derivatives	83		0		0		(381)		(311)		(807)		(85)
Gains (losses) recognized on hedged items(1)	(102)		0		0		381		312		846		85
Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net income (expense) recognized on fair value hedges	$	3	$	0	$	0	$	4	$	(20)	$	(33)	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	0	$	(86)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)	0		0		2		0		0		0		(1)
Net income (expense) recognized on cash flow hedges	$	0	$	(86)	$	2	$	0	$	0	$	0	$	(1)



	Nine Months Ended September 30, 2022
	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	$	1,336	$	20,550	$	193	$	(1,200)	$	(214)	$	(644)	$	634
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	22	$	0	$	0	$	46	$	12	$	(20)	$	0
Gains (losses) recognized on derivatives	294		0		0		(569)		(735)		(2,039)		(197)
Gains (losses) recognized on hedged items(1)	(364)		0		0		570		735		2,155		196
Excluded component of fair value hedges(2)	0		0		0		0		0		(2)		0
Net income (expense) recognized on fair value hedges	$	(48)	$	0	$	0	$	47	$	12	$	94	$	(1)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	0	$	104	$	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	$	0	$	104	$	1	$	0	$	0	$	0	$	(1)

_________

(1)Includes amortization benefit of $20 million and $56 million for the three and nine months ended September 30, 2023, respectively, and amortization benefit of $23 million and $57 million for the three and nine months ended September 30, 2022, 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 (“OCI”). 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 $100 million and $70 million for the three and nine months ended September 30, 2023, respectively, and a gain of $79 million and $98 million for the three and nine months ended September 30, 2022, 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.

In the next 12 months, we expect to reclassify into earnings an after-tax loss of $877 million recorded in AOCI as of September 30, 2023 associated with cash flow hedges of forecasted transactions. This amount will largely offset the cash flows associated with the forecasted transactions hedged by these derivatives. The maximum length of time over which forecasted transactions were hedged was approximately 9.5 years as of September 30, 2023. The amount we expect to reclassify into earnings may change as a result of changes in market conditions and ongoing actions taken as part of our overall risk management strategy.

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, 2023 and 2022. 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)	2023		2022		2023		2022
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts	$	7	$	11	$	26	$	31
Commodity contracts	11		20		28		37
Foreign exchange and other contracts	5		7		13		11
Total customer accommodation	23		38		67		79
Other interest rate exposures	81		0		199		14
Other contracts	(7)		(24)		(24)		(29)
Total	$	97	$	14	$	242	$	64

Gains (Losses) on Free-Standing Derivatives

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2023		2022		2023		2022
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts	$	7	$	11	$	26	$	31
Commodity contracts	11		20		28		37
Foreign exchange and other contracts	5		7		13		11
Total customer accommodation	23		38		67		79
Other interest rate exposures	81		0		199		14
Other contracts	(7)		(24)		(24)		(29)
Total	$	97	$	14	$	242	$	64