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Derivative Instruments and Hedging Activities | 3 Months Ended
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Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities We enter into derivative instruments, which may include interest rate swaps, foreign-currency forwards, equity options, and interest rate options, in connection with our risk-management activities. Our primary objective for using derivative financial instruments is to manage interest rate risk associated with our fixed-rate and variable-rate assets and liabilities, foreign exchange risks related to our net investments in foreign subsidiaries, as well as foreign-currency denominated assets and liabilities, and other market risks related to our investment portfolio. Interest Rate Risk We monitor our mix of fixed-rate and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, and options to achieve a more desired mix of fixed-rate and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges that do not qualify for hedge accounting treatment. Derivatives qualifying for hedge accounting treatment can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio, and pay-fixed swaps designated as fair value hedges of fixed-rate held-for-investment consumer automotive loan assets. Other derivatives qualifying for hedge accounting consist of interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our dealer floorplan commercial loans. We have the ability to execute economic hedges, which could consist of interest rate swaps, interest rate caps, forwards, and options to mitigate interest rate risk. We also enter into interest rate lock commitments and forward commitments that are executed as part of our mortgage business that meet the accounting definition of a derivative. Foreign Exchange Risk We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to our various foreign-currency exposures. We enter into foreign-currency forwards with external counterparties as net investment hedges of foreign exchange exposure on our investment in foreign subsidiaries. Our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other comprehensive income. We also periodically enter into foreign-currency forwards to economically hedge any foreign-denominated debt, centralized lending, and foreign-denominated third-party loans. These foreign-currency forwards used as economic hedges are recorded at fair value with changes recorded as income or expense offsetting the gains and losses on the associated foreign-currency transactions. Investment Risk We enter into equity options to mitigate the risk associated with our exposure to the equity markets. Credit Risk We enter into various retail automotive-loan purchase agreements with certain counterparties. As part of those agreements, we may be required to pay the counterparty at agreed upon measurement dates and determinable amounts if actual credit performance of the acquired loans on the measurement date is better than what was estimated at the time of acquisition. Based upon these terms, these contracts meet the accounting definition of a derivative. Counterparty Credit Risk Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the contract completely fail to perform under the terms of those contracts, with adjustments to reflect the exchange of collateral for margined transactions. We manage our risk to financial counterparties through internal credit analysis, limits, and monitoring. Additionally, derivatives and repurchase agreements are entered into with approved counterparties using industry standard agreements. We execute certain OTC derivatives, such as interest rate caps and floors, using bilateral agreements with financial counterparties. Bilateral agreements generally require both parties to post collateral in the event the fair values of the derivative financial instruments meet posting thresholds established under the agreements. If either party defaults on the obligation, the secured party may seize the collateral. Payments related to the exchange of collateral for OTC derivatives are recognized as collateral. We also execute certain derivatives, such as interest rate swaps, with clearinghouses, which require us to post and receive collateral. For these clearinghouse derivatives, these payments are recognized as settlements rather than collateral. Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified credit-risk-related event. No such specified credit-risk-related events occurred during the three months ended March 31, 2024, or 2023. We placed cash and noncash collateral with counterparties totaling $1 million and $569 million, respectively, supporting our derivative positions at March 31, 2024, compared to $6 million and $642 million of cash and noncash collateral, respectively, at December 31, 2023. These amounts include noncash collateral placed at clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. The receivables for cash collateral placed are included on our Condensed Consolidated Balance Sheet in other assets. We granted our counterparties the right to sell or pledge the noncash collateral. We received cash collateral from counterparties totaling $11 million and $31 million at March 31, 2024, and December 31, 2023, respectively. These amounts exclude cash and noncash collateral pledged under repurchase agreements. The payables for cash collateral received are included on our Condensed Consolidated Balance Sheet in accrued expenses and other liabilities. Balance Sheet Presentation The following table summarizes the amounts of derivative instruments reported on our Condensed Consolidated Balance Sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories. Derivative contracts in a receivable and payable position exclude open trade equity on derivatives cleared through central clearing counterparties. Any associated margin exchanged with our central clearing counterparties are treated as settlements of the derivative exposure, rather than collateral. Such payments are recognized as settlements of the derivatives contracts in a receivable and payable position on our Condensed Consolidated Balance Sheet. Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.
|  | March 31, 2024 |  | December 31, 2023
|  | Derivative contracts in a |  | Notional amount |  | Derivative contracts in a |  | Notional amount
($ in millions) |  | receivable position |  | payable position |  | receivable position |  | payable position |
Derivatives designated as accounting hedges |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | $ | — |  |  | $ | — |  |  | $ | 32,390 |  |  | $ | — |  |  | $ | — |  |  | $ | 35,835 |
Purchased options |  | 9 |  |  | — |  |  | 6,250 |  |  | 31 |  |  | — |  |  | 6,250 |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |
Forwards |  | — |  |  | — |  |  | 160 |  |  | — |  |  | 6 |  |  | 166 |
Total derivatives designated as accounting hedges |  | 9 |  |  | — |  |  | 38,800 |  |  | 31 |  |  | 6 |  |  | 42,251 |
Derivatives not designated as accounting hedges |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | — |  |  | — |  |  | 1,000 |  |  | — |  |  | — |  |  | 2,000 |
Forwards |  | — |  |  | — |  |  | 92 |  |  | — |  |  | — |  |  | 70 |
Written options |  | 2 |  |  | — |  |  | 115 |  |  | 2 |  |  | — |  |  | 88 |
Total interest rate risk |  | 2 |  |  | — |  |  | 1,207 |  |  | 2 |  |  | — |  |  | 2,158 |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |
Forwards |  | — |  |  | — |  |  | 57 |  |  | — |  |  | 1 |  |  | 59 |
Total foreign exchange risk |  | — |  |  | — |  |  | 57 |  |  | — |  |  | 1 |  |  | 59 |
Credit contracts (a) |  |  |  |  |  |  |  |  |  |  |  |
Other credit derivatives |  | — |  |  | 10 |  |  | n/a |  | — |  |  | 10 |  |  | n/a
Total credit risk |  | — |  |  | 10 |  |  | n/a |  | — |  |  | 10 |  |  | n/a
Equity contracts |  |  |  |  |  |  |  |  |  |  |  |
Written options |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |
Purchased options |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total equity risk |  | 1 |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |
Total derivatives not designated as accounting hedges |  | 3 |  |  | 11 |  |  | 1,264 |  |  | 2 |  |  | 11 |  |  | 2,217 |
Total derivatives |  | $ | 12 |  |  | $ | 11 |  |  | $ | 40,064 |  |  | $ | 33 |  |  | $ | 17 |  |  | $ | 44,468 |
n/a = not applicable (a)The maximum potential amount of undiscounted future payments that could be required under these credit derivatives was $24 million and $29 million as of March 31, 2024, and December 31, 2023, respectively. The following table presents amounts recorded on our Condensed Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges.
|  | Carrying amount of the hedged items |  | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items
|  | Total |  | Discontinued (a)
($ in millions) |  | March 31, 2024 |  | December 31, 2023 |  | March 31, 2024 |  | December 31, 2023 |  | March 31, 2024 |  | December 31, 2023
Assets |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities (b) |  | $ | 15,937 |  |  | $ | 16,302 |  |  | $ | (278) |  |  | $ | (79) |  |  | $ | (151) |  |  | $ | (156) |
Finance receivables and loans, net (c) |  | 47,482 |  |  | 54,189 |  |  | (181) |  |  | (93) |  |  | (21) |  |  | (27) |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt |  | $ | 7,765 |  |  | $ | 7,750 |  |  | $ | 97 |  |  | $ | 100 |  |  | $ | 97 |  |  | $ | 100 |
(a)Represents the fair value hedging adjustment on qualifying hedges for which the hedging relationship was discontinued. This represents a subset of the amounts reported in the total hedging adjustment. (b)These amounts include the amortized cost basis and unallocated basis adjustments of closed portfolios of available-for-sale securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At March 31, 2024, and December 31, 2023, the amortized cost basis and unallocated basis adjustments of the closed portfolios used in these hedging relationships was $14.5 billion and $14.8 billion, respectively, of which $14.2 billion and $14.6 billion, respectively, represents the amortized cost basis and unallocated basis adjustments of closed portfolios designated in an active hedge relationship. At March 31, 2024, and December 31, 2023, the total cumulative basis adjustments associated with these hedging relationships was a $225 million liability and a $45 million liability, respectively, of which the portion related to discontinued hedging relationships was a $116 million liability and a $120 million liability, respectively. At both March 31, 2024, and December 31, 2023, the notional amounts of the designated hedged items were $11.3 billion, with cumulative basis adjustments of a $109 million liability and a $75 million asset, respectively, which would be allocated across the entire remaining closed pool upon termination or maturity of the hedge relationship. Refer to Note 7 for a reconciliation of the amortized cost and fair value of available-for-sale securities. (c)These amounts include the carrying value of closed portfolios of loan receivables used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At March 31, 2024, and December 31, 2023, the carrying value of the closed portfolios used in these hedging relationships was $47.5 billion and $54.2 billion, respectively, of which $41.0 billion and $50.0 billion, respectively, represents the carrying value of closed portfolios designated in an active hedge relationship. At March 31, 2024, and December 31, 2023, the total cumulative basis adjustments associated with these hedging relationships was a $181 million liability and a $93 million liability, respectively, of which the portion related to discontinued hedging relationships was a $21 million liability and a $27 million liability, respectively. At March 31, 2024, and December 31, 2023, the notional amounts of the designated hedged items were $19.7 billion and $23.2 billion, respectively, with cumulative basis adjustments of a $160 million liability and a $66 million liability, respectively, which would be allocated across the entire remaining closed pool upon termination or maturity of the hedge relationship. Statement of Income Presentation The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting hedges reported in our Condensed Consolidated Statement of Comprehensive (Loss) Income.
|  |  |  | Three months ended March 31, |  |
($ in millions) |  |  |  |  |  | 2024 |  | 2023 |  |
Gain (loss) recognized in earnings |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |
Gain on mortgage and automotive loans, net |  |  |  |  |  | $ | 5 |  |  | $ | 5 |  |  |
Total interest rate contracts |  |  |  |  |  | 5 |  |  | 5 |  |  |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |
Other operating expenses |  |  |  |  |  | 1 |  |  | 1 |  |  |
Total foreign exchange contracts |  |  |  |  |  | 1 |  |  | 1 |  |  |
Credit contracts |  |  |  |  |  |  |  |  |  |
Other income, net of losses |  |  |  |  |  | — |  |  | (5) |  |  |
Total credit contracts |  |  |  |  |  | — |  |  | (5) |  |  |
Equity contracts |  |  |  |  |  |  |  |  |  |
Other income, net of losses |  |  |  |  |  | — |  |  | (4) |  |  |
Total equity contracts |  |  |  |  |  | — |  |  | (4) |  |  |
Total gain (loss) recognized in earnings |  |  |  |  |  | $ | 6 |  |  | $ | (3) |  |  |
The following table summarizes the location and amounts of gains and losses on derivative instruments designated as qualifying fair value and cash flow hedges reported in our Condensed Consolidated Statement of Comprehensive (Loss) Income.
| Interest and fees on finance receivables and loans |  | Interest and dividends on investment securities and other earning assets |  |  |  | Interest on long-term debt
Three months ended March 31, ($ in millions) | 2024 | 2023 |  |  | 2024 | 2023 |  |  |  |  |  |  | 2024 | 2023 |
Gain (loss) on fair value hedging relationships |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hedged fixed-rate unsecured debt | $ | — |  | $ | — |  |  |  | $ | — |  | $ | — |  |  |  |  |  |  |  | $ | — |  | $ | 1 |  |
Derivatives designated as hedging instruments on fixed-rate unsecured debt | — |  | — |  |  |  | — |  | — |  |  |  |  |  |  |  | — |  | (1) |  |
Hedged available-for-sale securities | — |  | — |  |  |  | (205) |  | 130 |  |  |  |  |  |  |  | — |  | — |  |
Derivatives designated as hedging instruments on available-for-sale securities | — |  | — |  |  |  | 205 |  | (130) |  |  |  |  |  |  |  | — |  | — |  |
Hedged fixed-rate consumer automotive loans | (94) |  | 205 |  |  |  | — |  | — |  |  |  |  |  |  |  | — |  | — |  |
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans | 94 |  | (205) |  |  |  | — |  | — |  |  |  |  |  |  |  | — |  | — |  |
Total gain on fair value hedging relationships | — |  | — |  |  |  | — |  | — |  |  |  |  |  |  |  | — |  | — |  |
(Loss) gain on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hedged variable-rate commercial loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reclassified from accumulated other comprehensive loss into income | (1) |  | 5 |  |  |  | — |  | — |  |  |  |  |  |  |  | — |  | — |  |
Total (loss) gain on cash flow hedging relationships | $ | (1) |  | $ | 5 |  |  |  | $ | — |  | $ | — |  |  |  |  |  |  |  | $ | — |  | $ | — |  |
Total amounts presented in the Condensed Consolidated Statement of Comprehensive (Loss) Income | $ | 2,827 |  | $ | 2,575 |  |  |  | $ | 266 |  | $ | 238 |  |  |  |  |  |  |  | $ | 248 |  | $ | 227 |  |
During the next 12 months, we estimate $18 million of losses will be reclassified into pretax earnings from derivatives designated as cash flow hedges. The following table summarizes the location and amounts of gains and losses related to interest and amortization on derivative instruments designated as qualifying fair value and cash flow hedges reported in our Condensed Consolidated Statement of Comprehensive (Loss) Income.
| Interest and fees on finance receivables and loans |  | Interest and dividends on investment securities and other earning assets |  |  |  | Interest on long-term debt
Three months ended March 31, ($ in millions) | 2024 | 2023 |  |  | 2024 | 2023 |  |  |  |  |  |  | 2024 | 2023 |
Gain on fair value hedging relationships |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of deferred unsecured debt basis adjustments | $ | — |  | $ | — |  |  |  | $ | — |  | $ | — |  |  |  |  |  |  |  | $ | 2 |  | $ | 2 |  |
Amortization of deferred secured debt basis adjustments (FHLB advances) | — |  | — |  |  |  | — |  | — |  |  |  |  |  |  |  | 1 |  | 1 |  |
Amortization of deferred basis adjustments of available-for-sale securities | — |  | — |  |  |  | 6 |  | 5 |  |  |  |  |  |  |  | — |  | — |  |
Interest for qualifying accounting hedges of available-for-sale securities | — |  | — |  |  |  | 48 |  | 13 |  |  |  |  |  |  |  | — |  | — |  |
Amortization of deferred loan basis adjustments | 5 |  | 10 |  |  |  | — |  | — |  |  |  |  |  |  |  | — |  | — |  |
Interest for qualifying accounting hedges of consumer automotive loans held for investment | 82 |  | 162 |  |  |  | — |  | — |  |  |  |  |  |  |  | — |  | — |  |
Total gain on fair value hedging relationships | $ | 87 |  | $ | 172 |  |  |  | $ | 54 |  | $ | 18 |  |  |  |  |  |  |  | $ | 3 |  | $ | 3 |  |
The following table summarizes the effect of cash flow hedges on accumulated other comprehensive loss.
|  |  | Three months ended March 31, |  |
($ in millions) |  |  |  |  | 2024 |  | 2023 |  |
Interest rate contracts |  |  |  |  |  |  |  |  |
Loss recognized in other comprehensive (loss) income |  |  |  |  | $ | (21) |  |  | $ | (1) |  |  |
The following table summarizes the effect of net investment hedges on accumulated other comprehensive loss.
|  |  | Three months ended March 31, |  |
($ in millions) |  |  |  |  | 2024 |  | 2023 |  |
Foreign exchange contracts (a) (b) |  |  |  |  |  |  |  |  |
Gain recognized in other comprehensive (loss) income |  |  |  |  | $ | 4 |  |  | $ | — |  |  |
(a)There were no amounts excluded from effectiveness testing for the three months ended March 31, 2024, or 2023. (b)Gains and losses reclassified from accumulated other comprehensive loss are reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive (Loss) Income. There were no amounts reclassified for the three months ended March 31, 2024, or 2023.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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