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Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 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 September 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

						September 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						$	49,703					$	4					$	17					$	57,587					$	11					$	55
Cash flow hedges						82,650						847						9						96,900						321						29
Total interest rate contracts						132,353						851						26						154,487						332						84
Foreign exchange contracts:
Fair value hedges						1,465						90						0						1,402						0						6
Cash flow hedges						4,495						13						99						6,103						0						113
Net investment hedges						2,817						3						76						2,829						0						102
Total foreign exchange contracts						8,777						106						175						10,334						0						221
Total derivatives designated as accounting hedges						141,130						957						201						164,821						332						305
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts						68,343						1,623						198						62,268						552						117
Commodity contracts						17,388						1,379						1,219						15,492						758						694
Foreign exchange and other contracts						3,677						47						50						4,674						39						42
Total customer accommodation						89,408						3,049						1,467						82,434						1,349						853
Other interest rate exposures(2)						7,300						90						66						6,729						48						30
Other contracts						2,667						5						5						1,562						0						9
Total derivatives not designated as accounting hedges						99,375						3,144						1,538						90,725						1,397						892
Total derivatives						$	240,505					$	4,101					$	1,739					$	255,546					$	1,729					$	1,197
Less: netting adjustment(3)												(1,622)						(708)												(633)						(523)
Total derivative assets/liabilities												$	2,479					$	1,031											$	1,096					$	674

__________

(1)Does not reflect $40 million and $12 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 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 September 30, 2020 and December 31, 2019.

Table 8.2: Hedged Items in Fair Value Hedging Relationships

						September 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)						$	9,831					$	629					$	206					$	10,825					$	300					$	52
Interest-bearing deposits						(12,865)						(257)						0						(14,310)						(12)						0
Securitized debt obligations						(8,473)						(208)						34						(9,403)						44						64
Senior and subordinated notes						(21,989)						(1,425)						(700)						(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 adjustments related to these discontinued hedging relationships totaling $206 million as of September 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 September 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 September 30, 2020
Derivative assets(1)						$	4,101					$	(535)					$	(1,087)					$	2,479					$	0					$	2,479
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 September 30, 2020
Derivative liabilities(1)						$	1,739					$	(535)					$	(173)					$	1,031					$	0					$	1,031
Repurchase agreements(2)						702						0						0						702						(702)						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 $1.2 billion and $347 million as of September 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 September 30, 2020 and December 31, 2019, which we have the ability to re-pledge. We posted $1.4 billion and $954 million of cash collateral as of September 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 $716 million and $320 million as of September 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 September 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 September 30, 2020
Derivative assets(1)						$	4,101					$	(535)					$	(1,087)					$	2,479					$	0					$	2,479
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 September 30, 2020
Derivative liabilities(1)						$	1,739					$	(535)					$	(173)					$	1,031					$	0					$	1,031
Repurchase agreements(2)						702						0						0						702						(702)						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 $1.2 billion and $347 million as of September 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 September 30, 2020 and December 31, 2019, which we have the ability to re-pledge. We posted $1.4 billion and $954 million of cash collateral as of September 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 $716 million and $320 million as of September 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 nine months ended September 30, 2020 and 2019.

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

						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 expense recognized on fair value hedges						$	(30)					$	0					$	0					$	45					$	33					$	94					$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized losses reclassified from AOCI into net income						$	8					$	171					$	0					$	0					$	0					$	0					$	0
Foreign exchange contracts:
Realized gains 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 reclassified from AOCI into net income(4)						0						0						10						0						0						0						(2)
Net income recognized on cash flow hedges						$	17					$	330					$	10					$	0					$	0					$	0					$	(2)

						Three Months Ended September 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						$	583					$	6,429					$	63					$	(901)					$	(123)					$	(299)					$	144
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives						$	(3)					$	0					$	0					$	(26)					$	(5)					$	(3)					$	0
Gains (losses) recognized on derivatives						(80)						0						0						46						(10)						216						(60)
Gains (losses) recognized on hedged items(1)						81						0						0						(46)						(6)						(261)						58
Excluded component of fair value hedges(2)						0						0						0						0						0						(1)						0
Net expense recognized on fair value hedges						$	(2)					$	0					$	0					$	(26)					$	(21)					$	(49)					$	(2)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized losses reclassified from AOCI into net income						$	(1)					$	(43)					$	0					$	0					$	0					$	0					$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)						0						0						12						0						0						0						1
Net income (expense) recognized on cash flow hedges						$	(1)					$	(43)					$	12					$	0					$	0					$	0					$	1

						Nine Months Ended September 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						$	1,867					$	19,180					$	196					$	(2,588)					$	(405)					$	(923)					$	492
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives						$	(2)					$	0					$	0					$	(95)					$	(17)					$	(24)					$	0
Gains (losses) recognized on derivatives						(366)						0						0						295						102						968						(49)
Gains (losses) recognized on hedged items(1)						365						0						0						(289)						(165)						(1,092)						48
Excluded component of fair value hedges(2)						0						0						0						0						0						(1)						0
Net expense recognized on fair value hedges						$	(3)					$	0					$	0					$	(89)					$	(80)					$	(149)					$	(1)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized losses reclassified from AOCI into net income						$	(8)					$	(158)					$	0					$	0					$	0					$	0					$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)						0						0						37						0						0						0						0
Net income (expense) recognized on cash flow hedges						$	(8)					$	(158)					$	37					$	0					$	0					$	0					$	0

__________

(1)Includes amortization income of $19 million and expense of $34 million for the three and nine months ended September 30, 2020, respectively, and amortization expense of $60 million and $177 million for the three and nine months ended September 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 $73 million and a gain of $20 million for the three and nine months ended September 30, 2020, respectively, and a gain of $71 million and a loss of $224 million for the three and nine months ended September 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 nine months ended September 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 September 30,												Nine Months Ended September 30,
(Dollars in millions)						2020						2019						2020						2019
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts						$	(5)					$	18					$	7					$	28
Commodity contracts						7						8						23						17
Foreign exchange and other contracts						1						3						5						10
Total customer accommodation						3						29						35						55
Other interest rate exposures						17						(1)						1						(15)
Other contracts						0						(7)						0						(9)
Total						$	20					$	21					$	36					$	31

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