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Derivative Financial Instruments | 6 Months Ended
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Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate changes. Our goal is to manage interest rate sensitivity by modifying the repricing frequency and underlying index characteristics of certain balance sheet assets or liabilities, so any adverse impacts related to movements in interest rates are managed within low to moderate limits. As a result of interest rate fluctuations, hedged balance sheet positions will appreciate or depreciate in market value or create variability in cash flows. Income or loss on the derivative instruments linked to the hedged item will generally offset the effect of this unrealized appreciation or depreciation or volatility in cash flows for the period the item is being hedged. We view this strategy as a prudent management of interest rate risk. Please refer to Note 11, “Derivative Financial Instruments” in our 2017 Form 10-K for a full discussion of our risk management strategy. Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties we use are the Chicago Mercantile Exchange (“CME”) and the London Clearing House (“LCH”). The CME and the LCH made amendments to their respective rules that resulted in the prospective accounting treatment of certain daily variation margin payments being considered as the legal settlement of the outstanding exposure of the derivative instead of the posting of collateral. The CME rule changes, which became effective in January 2017, and the LCH rule changes, which became effective in January 2018, result in all variation margin payments on derivatives cleared through the CME and LCH being accounted for as legal settlement. As of June 30, 2018, $5.9 billion notional of our derivative contracts were cleared on the CME and $0.6 billion were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 90.3 percent and 9.7 percent, respectively, of our total notional derivative contracts of $6.5 billion at June 30, 2018. For derivatives cleared through the CME and LCH, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative. Interest income (expense) related to variation margin on derivatives that are not designated as hedging instruments or are designated as fair value relationships is recognized as a gain (loss) rather than as interest income (expense). Changes in fair value for derivatives not designated as hedging instruments will be presented as realized gains (losses). Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At June 30, 2018 and December 31, 2017, we had a net positive exposure (derivative gain positions to us, less collateral held by us and plus collateral posted with counterparties) related to derivatives of $30 million and $20 million, respectively. Summary of Derivative Financial Statement Impact The following tables summarize the fair values and notional amounts of all derivative instruments at June 30, 2018 and December 31, 2017, and their impact on earnings and other comprehensive income for the three and six months ended June 30, 2018 and 2017. Please refer to Note 11, “Derivative Financial Instruments” in our 2017 Form 10-K for a full discussion of cash flow hedges, fair value hedges, and trading activities. Impact of Derivatives on the Consolidated Balance Sheet
|  |  | Cash Flow Hedges |  | Fair Value Hedges |  | Trading |  | Total
|  |  | June 30, |  | December 31, |  | June 30, |  | December 31, |  | June 30, |  | December 31, |  | June 30, |  | December 31,
|  |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Fair Values(1) | Hedged Risk Exposure |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | $ | 959 |  |  | $ | — |  |  | $ | 444 |  |  | $ | 630 |  |  | $ | — |  |  | $ | 182 |  |  | $ | 1,403 |  |  | $ | 812 |
Derivative Liabilities:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | — |  |  | (2,584 | ) |  | — |  |  | — |  |  | (92 | ) |  | — |  |  | (92 | ) |  | (2,584 | )
Total net derivatives |  |  | $ | 959 |  |  | $ | (2,584 | ) |  | $ | 444 |  |  | $ | 630 |  |  | $ | (92 | ) |  | $ | 182 |  |  | $ | 1,311 |  |  | $ | (1,772 | )
___________
(1) | Fair values reported include variation margin as legal settlement of the derivative contract and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements and classified in other assets or other liabilities depending on whether in a net positive or negative position.
(2) | The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification:
|  | Other Assets |  | Other Liabilities
|  | June 30, |  | December 31, |  | June 30, |  | December 31,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Gross position(1) |  | $ | 1,403 |  |  | $ | 812 |  |  | $ | (92 | ) |  | $ | (2,584 | )
Impact of master netting agreement |  | (92 | ) |  | (812 | ) |  | 92 |  |  | 812 |
Derivative values with impact of master netting agreements (as carried on balance sheet) |  | 1,311 |  |  | — |  |  | — |  |  | (1,772 | )
Cash collateral pledged(2) |  | 28,385 |  |  | — |  |  | — |  |  | 21,586 |
Net position |  | $ | 29,696 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,814 |
__________
(1) | Gross position amounts include accrued interest and variation margin as legal settlement of the derivative contract.
(2) | Cash collateral pledged excludes amounts that represent legal settlement of the derivative contracts.
|  | Cash Flow |  | Fair Value |  | Trading |  | Total
|  | June 30, |  | December 31, |  | June 30, |  | December 31, |  | June 30, |  | December 31, |  | June 30, |  | December 31,
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Notional Values |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 1,344,791 |  |  | $ | 1,408,649 |  |  | $ | 3,867,204 |  |  | $ | 3,062,849 |  |  | $ | 1,317,494 |  |  | $ | 987,577 |  |  | $ | 6,529,489 |  |  | $ | 5,459,075 |
Impact of Derivatives on the Consolidated Statements of Income
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Fair Value Hedges |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Hedge ineffectiveness realized gains (losses) recorded in earnings(1) |  | $ | (2,914 | ) |  | $ | (3,711 | ) |  | $ | 2,939 |  |  | $ | (7,878 | )
Realized gains (losses) recorded in interest expense |  | (2,812 | ) |  | 2,881 |  |  | (3,326 | ) |  | 7,428 |
Total |  | $ | (5,726 | ) |  | $ | (830 | ) |  | $ | (387 | ) |  | $ | (450 | )
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Hedge ineffectiveness gains (losses) recorded in earnings(1) |  | $ | 65 |  |  | $ | (75 | ) |  | $ | 2,749 |  |  | $ | (147 | )
Realized losses recorded in interest expense |  | (543 | ) |  | (2,669 | ) |  | (2,104 | ) |  | (6,008 | )
Total |  | $ | (478 | ) |  | $ | (2,744 | ) |  | $ | 645 |  |  | $ | (6,155 | )
Trading |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Interest reclassification |  | $ | (239 | ) |  | $ | (101 | ) |  | $ | (129 | ) |  | $ | (20 | )
Realized losses recorded in earnings |  | (2,180 | ) |  | 278 |  |  | (6,935 | ) |  | (942 | )
Total(1) |  | (2,419 | ) |  | 177 |  |  | (7,064 | ) |  | (962 | )
Total |  | $ | (8,623 | ) |  | $ | (3,397 | ) |  | $ | (6,806 | ) |  | $ | (7,567 | )
________ (1) Amounts included in “gains (losses) on derivatives and hedging activities, net” in the consolidated statements of income. Impact of Derivatives on the Statements of Changes in Stockholders’ Equity
|  | Three Months Ended |  | Six Months Ended
|  | June 30, |  | June 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Amount of gain recognized in other comprehensive income (loss) |  | $ | 9,471 |  |  | $ | (4,698 | ) |  | $ | 28,200 |  |  | $ | (3,258 | )
Less: amount of loss reclassified in interest expense(1) |  | (543 | ) |  | (2,669 | ) |  | (2,104 | ) |  | (6,008 | )
Total change in other comprehensive income (loss) for unrealized gains (losses) on derivatives, before income tax (expense) benefit |  | $ | 10,014 |  |  | $ | (2,029 | ) |  | $ | 30,304 |  |  | $ | 2,750 |
___________ (1) Amounts included in “realized losses recorded in interest expense” in the “Impact of Derivatives on the Consolidated Statements of Income” table. Cash Collateral As of June 30, 2018, cash collateral held and pledged excludes amounts that represent legal settlement of the derivative contracts held with CME and LCH. Cash collateral held related to derivative exposure between us and our derivatives counterparties was zero at both June 30, 2018 and December 31, 2017. Collateral held is recorded in “Other Liabilities” on the consolidated balance sheets. Cash collateral pledged related to derivative exposure between us and our derivatives counterparties was $28 million and $22 million at June 30, 2018 and December 31, 2017, respectively. Collateral pledged is recorded in “Other interest-earning assets” on the consolidated balance sheets.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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