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Derivative Instruments and Hedging Activities (Tables)
 6 Months Ended
Jun. 30, 2020
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 June 30, 2020 and December 31, 2019, 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
 
 
June 30, 2020
 
December 31, 2019
 
 
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
 
$
48,761

 
$
3

 
$
20

 
$
57,587

 
$
11

 
$
55

Cash flow hedges
 
114,600

 
1,002

 
13

 
96,900

 
321

 
29

Total interest rate contracts
 
163,361

 
1,005

 
33

 
154,487

 
332

 
84

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value hedges
 
1,404

 
20

 
0

 
1,402

 
0

 
6

Cash flow hedges
 
4,639

 
50

 
63

 
6,103

 
0

 
113

Net investment hedges
 
2,596

 
27

 
14

 
2,829

 
0

 
102

Total foreign exchange contracts
 
8,639

 
97

 
77

 
10,334

 
0

 
221

Total derivatives designated as accounting hedges
 
172,000

 
1,102

 
110

 
164,821

 
332

 
305

Derivatives not designated as accounting hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Customer accommodation:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
68,707

 
1,721

 
224

 
62,268

 
552

 
117

Commodity contracts
 
17,384

 
1,876

 
1,739

 
15,492

 
758

 
694

Foreign exchange and other contracts
 
3,816

 
48

 
52

 
4,674

 
39

 
42

Total customer accommodation
 
89,907

 
3,645

 
2,015

 
82,434

 
1,349

 
853

Other interest rate exposures(2)
 
6,263

 
87

 
81

 
6,729

 
48

 
30

Other contracts
 
1,614

 
1

 
8

 
1,562

 
0

 
9

Total derivatives not designated as accounting hedges
 
97,784

 
3,733

 
2,104

 
90,725

 
1,397

 
892

Total derivatives
 
$
269,784

 
$
4,835

 
$
2,214

 
$
255,546

 
$
1,729

 
$
1,197

Less: netting adjustment(3)
 
(2,226
)
 
(754
)
 
 
 
(633
)
 
(523
)
Total derivative assets/liabilities
 
$
2,609

 
$
1,460

 
 
 
$
1,096

 
$
674

__________
(1) 
Does not reflect $33 million and $12 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019.
Table 8.2: Hedged Items in Fair Value Hedging Relationships
 
 
June 30, 2020
 
December 31, 2019
 
 
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)
 
$
4,858

 
$
660

 
$
212

 
$
10,825

 
$
300

 
$
52

Interest-bearing deposits
 
(14,851
)
 
(306
)
 
0

 
(14,310
)
 
(12
)
 
0

Securitized debt obligations
 
(10,011
)
 
(248
)
 
42

 
(9,403
)
 
44

 
64

Senior and subordinated notes
 
(22,620
)
 
(1,533
)
 
(732
)
 
(27,777
)
 
(458
)
 
324

__________
(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. In the second quarter of 2020, we terminated all last of layer hedging relationships with cumulative basis adjustment totaling $212 million as of June 30, 2020. As of December 31, 2019, the amortized cost basis of this portfolio was $5.9 billion, the amount of the designated hedged items was $3.1 billion, and the cumulative basis adjustment associated with these hedges was $75 million.
(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 June 30, 2020 and December 31, 2019. 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
 
 
(Dollars in millions)
 
 
Financial Instruments
 
Cash Collateral Received
 
 
 
Net Exposure
As of June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)
 
$
4,835

 
$
(702
)
 
$
(1,524
)
 
$
2,609

 
$
0

 
$
2,609

As of December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)
 
1,729

 
(347
)
 
(286
)
 
1,096

 
0

 
1,096

 
 
Gross Amounts
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts as Recognized
 
Securities Collateral Pledged Under Master Netting Agreements
 
 
(Dollars in millions)
 
 
Financial Instruments
 
Cash Collateral Pledged
 
 
 
Net Exposure
As of June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)
 
$
2,214

 
$
(702
)
 
$
(52
)
 
$
1,460

 
$
0

 
$
1,460

Repurchase agreements(2)
 
573

 
0

 
0

 
573

 
(573
)
 
0

As of December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)
 
1,197

 
(347
)
 
(176
)
 
674

 
0

 
674

Repurchase agreements(2)
 
314

 
0

 
0

 
314

 
(314
)
 
0

__________
(1) 
We received cash collateral from derivative counterparties totaling $1.7 billion and $347 million as of June 30, 2020 and December 31, 2019, respectively. We also received securities from derivative counterparties with a fair value of approximately $1 million as of both June 30, 2020 and December 31, 2019, which we have the ability to re-pledge. We posted $1.3 billion and $954 million of cash collateral as of June 30, 2020 and December 31, 2019, respectively.
(2) 
Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $584 million and $320 million as of June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019. 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
 
 
(Dollars in millions)
 
 
Financial Instruments
 
Cash Collateral Received
 
 
 
Net Exposure
As of June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)
 
$
4,835

 
$
(702
)
 
$
(1,524
)
 
$
2,609

 
$
0

 
$
2,609

As of December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)
 
1,729

 
(347
)
 
(286
)
 
1,096

 
0

 
1,096

 
 
Gross Amounts
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts as Recognized
 
Securities Collateral Pledged Under Master Netting Agreements
 
 
(Dollars in millions)
 
 
Financial Instruments
 
Cash Collateral Pledged
 
 
 
Net Exposure
As of June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)
 
$
2,214

 
$
(702
)
 
$
(52
)
 
$
1,460

 
$
0

 
$
1,460

Repurchase agreements(2)
 
573

 
0

 
0

 
573

 
(573
)
 
0

As of December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)
 
1,197

 
(347
)
 
(176
)
 
674

 
0

 
674

Repurchase agreements(2)
 
314

 
0

 
0

 
314

 
(314
)
 
0

__________
(1) 
We received cash collateral from derivative counterparties totaling $1.7 billion and $347 million as of June 30, 2020 and December 31, 2019, respectively. We also received securities from derivative counterparties with a fair value of approximately $1 million as of both June 30, 2020 and December 31, 2019, which we have the ability to re-pledge. We posted $1.3 billion and $954 million of cash collateral as of June 30, 2020 and December 31, 2019, respectively.
(2) 
Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $584 million and $320 million as of June 30, 2020 and December 31, 2019, 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 six months ended June 30, 2020 and 2019.
Table 8.4: Effects of Fair Value and Cash Flow Hedge Accounting
 
 
Three Months Ended June 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
 
$
482

 
$
5,820

 
$
16

 
$
(611
)
 
$
(56
)
 
$
(180
)
 
$
166

Fair value hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate and foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest recognized on derivatives
 
$
(17
)
 
$
0

 
$
0

 
$
27

 
$
40

 
$
71

 
$
0

Gains (losses) recognized on derivatives
 
(26
)
 
0

 
0

 
9

 
(13
)
 
61

 
26

Gains (losses) recognized on hedged items(1)
 
22

 
0

 
0

 
(10
)
 
0

 
(68
)
 
(26
)
Excluded component of fair value hedges(2)
 
0

 
0

 
0

 
0

 
0

 
0

 
0

Net expense recognized on fair value hedges
 
$
(21
)
 
$
0

 
$
0

 
$
26

 
$
27

 
$
64

 
$
0

Cash flow hedging relationships:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized losses reclassified from AOCI into net income
 
$
7

 
$
135

 
$
0

 
$
0

 
$
0

 
$
0

 
$
0

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains reclassified from AOCI into net income(4)
 
0

 
0

 
2

 
0

 
0

 
0

 
(2
)
Net income (expense) recognized on cash flow hedges
 
$
7

 
$
135

 
$
2

 
$
0

 
$
0

 
$
0

 
$
(2
)
 
 
Six Months Ended June 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
 
$
1,012

 
$
12,362

 
$
53

 
$
(1,342
)
 
$
(155
)
 
$
(419
)
 
$
311

Fair value hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate and foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest recognized on derivatives
 
$
(28
)
 
$
0

 
$
0

 
$
25

 
$
52

 
$
110

 
$
0

Gains (losses) recognized on derivatives
 
(364
)
 
0

 
0

 
296

 
269

 
1,129

 
3

Gains (losses) recognized on hedged items(1)
 
360

 
0

 
0

 
(296
)
 
(292
)
 
(1,159
)
 
(3
)
Excluded component of fair value hedges(2)
 
0

 
0

 
0

 
0

 
0

 
(1
)
 
0

Net income (expense) recognized on fair value hedges
 
$
(32
)
 
$
0

 
$
0

 
$
25

 
$
29

 
$
79

 
$
0

Cash flow hedging relationships:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains reclassified from AOCI into net income
 
$
9

 
$
159

 
$
0

 
$
0

 
$
0

 
$
0

 
$
0

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains reclassified from AOCI into net income(4)
 
0

 
0

 
9

 
0

 
0

 
0

 
(2
)
Net income recognized on cash flow hedges
 
$
9

 
$
159

 
$
9

 
$
0

 
$
0

 
$
0

 
$
(2
)
 
 
Three Months Ended June 30, 2019
 
 
 
 
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
 
$
629

 
$
6,383

 
$
64

 
$
(870
)
 
$
(139
)
 
$
(310
)
 
$
191

Fair value hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest recognized on derivatives
 
$
(1
)
 
$
0

 
$
0

 
$
(33
)
 
$
(6
)
 
$
(10
)
 
$
0

Gains (losses) recognized on derivatives
 
(175
)
 
0

 
0

 
154

 
79

 
471

 
11

Gains (losses) recognized on hedged items(1)
 
174

 
0

 
0

 
(151
)
 
(102
)
 
(511
)
 
(10
)
Net income (expense) recognized on fair value hedges
 
$
(2
)
 
$
0

 
$
0

 
$
(30
)
 
$
(29
)
 
$
(50
)
 
$
1

Cash flow hedging relationships:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized losses reclassified from AOCI into net income
 
$
(3
)
 
$
(59
)
 
$
0

 
$
0

 
$
0

 
$
0

 
$
0

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains (losses) reclassified from AOCI into net income(4)
 
0

 
0

 
13

 
0

 
0

 
0

 
(1
)
Net income (expense) recognized on cash flow hedges
 
$
(3
)
 
$
(59
)
 
$
13

 
$
0

 
$
0

 
$
0

 
$
(1
)
 
 
Six Months Ended June 30, 2019
 
 
 
 
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
 
$
1,284

 
$
12,751

 
$
133

 
$
(1,687
)
 
$
(282
)
 
$
(624
)
 
$
348

Fair value hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest recognized on derivatives
 
$
1

 
$
0

 
$
0

 
$
(69
)
 
$
(12
)
 
$
(21
)
 
$
0

Gains (losses) recognized on derivatives
 
(286
)
 
0

 
0

 
249

 
112

 
752

 
11

Gains (losses) recognized on hedged items(1)
 
284

 
0

 
0

 
(243
)
 
(159
)
 
(831
)
 
(10
)
Net income (expense) recognized on fair value hedges
 
$
(1
)
 
$
0

 
$
0

 
$
(63
)
 
$
(59
)
 
$
(100
)
 
$
1

Cash flow hedging relationships:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized losses reclassified from AOCI into net income
 
$
(7
)
 
$
(115
)
 
$
0

 
$
0

 
$
0

 
$
0

 
$
0

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains (losses) reclassified from AOCI into net income(4)
 
0

 
0

 
25

 
0

 
0

 
0

 
(1
)
Net income (expense) recognized on cash flow hedges
 
$
(7
)
 
$
(115
)
 
$
25

 
$
0

 
$
0

 
$
0

 
$
(1
)
__________
(1) 
Includes amortization expense of $17 million and $53 million for the three and six months ended June 30, 2020, respectively, and amortization expense of $56 million and $117 million for the three and six months ended June 30, 2019, 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 loss of $299 million and a gain of $93 million for the three and six months ended June 30, 2020, respectively, and a loss of $123 million and $295 million for the three and six months ended June 30, 2019, 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 other non-interest 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 six months ended June 30, 2020 and 2019. These gains or losses are recognized in other non-interest income in our consolidated statements of income.
Table 8.5: Gains (Losses) on Free-Standing Derivatives
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
 
2020
 
2019
 
2020
 
2019
Gains (losses) recognized in other non-interest income:
 
 
 
 
 
 
 
 
Customer accommodation:
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
(1
)
 
$
4

 
$
12

 
$
10

Commodity contracts
 
(1
)
 
7

 
16

 
9

Foreign exchange and other contracts
 
1

 
4

 
4

 
7

Total customer accommodation
 
(1
)
 
15

 
32

 
26

Other interest rate exposures
 
(34
)
 
(14
)
 
(16
)
 
(14
)
Other contracts
 
1

 
0

 
0

 
(2
)
Total
 
$
(34
)
 
$
1

 
$
16

 
$
10