XML 38 R20.htm IDEA: XBRL DOCUMENT
v3.20.4

Derivative Financial Instruments | 12 Months Ended
--- | ---
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Risk Management Strategy 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. Although we use derivatives to reduce the risk of interest rate changes, the use of derivatives does expose us to both market and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates and market liquidity. Credit risk is the risk that a counterparty will not perform its obligations under a contract and it is limited to the loss of the fair value gain in a derivative that the counterparty owes us less collateral held and plus collateral posted. When the fair value of a derivative contract less collateral held and plus collateral posted is negative, we owe the counterparty and, therefore, we have no credit risk exposure to the counterparty; however, the counterparty has exposure to us. We minimize the credit risk in derivative instruments by entering into transactions with reputable counterparties that are reviewed regularly by our Credit Department. We also maintain a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association, Inc. Master Agreement. Depending on the nature of the derivative transaction, bilateral collateral arrangements are required as well. When we have more than one outstanding derivative transaction with the counterparty, and there exists legally enforceable netting provisions with the counterparty (i.e., a legal right to offset receivable and payable derivative contracts), the “net” mark-to-market exposure, less collateral held and plus collateral posted, represents exposure with the counterparty. We refer to this as the “net position.” When there is a net negative exposure, we consider our exposure to the counterparty and the net position to be zero. Title VII of 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 CME and the LCH. All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As of December 31, 2020, $8.2 billion notional of our derivative contracts were cleared on the CME and $0.4 billion were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 95.3 percent and 4.7 percent, respectively, of our total notional derivative contracts of $8.6 billion at December 31, 2020. 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. The amount of variation margin included as settlement as of December 31, 2020 was $(179) million and $19 million for the CME and LCH, respectively. Changes in fair value for derivatives not designated as hedging instruments are 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 December 31, 2020 and 2019, 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 $43 million and $52 million, respectively. Accounting for Derivative Instruments The accounting for derivative instruments requires that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at fair value. Our derivative instruments are classified and accounted for by us as fair value hedges, cash flow hedges, and trading hedges. We elected to early adopt ASU No. 2017-12 effective July 1, 2018. Under the standard, we are no longer required to separately measure and report hedge ineffectiveness, which was previously recorded in “gains (losses) on derivatives and hedging activities, net” in our consolidated statements of income. In accordance with the standard, certain provisions were required to be applied on a modified retrospective basis, which requires a cumulative effect adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year of adoption, or January 1, 2018 in our case. Fair Value Hedges We generally use fair value hedges to offset the exposure to changes in fair value of a recognized fixed-rate liability. We enter into interest rate swaps to economically convert fixed-rate liabilities into variable-rate liabilities. For fair value hedges, we generally consider all components of the derivative’s gain and/or loss when assessing hedge effectiveness and generally hedge changes in fair values due to interest rates. For fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in the same line item in the consolidated statements of income that is used to present the earnings effect of the hedged component of the hedged item. The timing of recognition of the change in fair value of a hedging instrument included in the assessment of hedge effectiveness is the same as prior to the adoption of ASU No. 2017-12. Cash Flow Hedges We use cash flow hedges to hedge the exposure to variability in cash flows of floating-rate liabilities. This strategy is used primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. In assessing hedge effectiveness, generally all components of each derivative’s gains or losses are included in the assessment. We hedge exposure to changes in cash flows due to changes in interest rates or total changes in cash flow. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in other comprehensive income (loss). Those amounts are subsequently reclassified to earnings, in the same line item in the consolidated statements of income as impacted by the hedged item, when the hedged item affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate deposits. During the next twelve months, we estimate that $19 million will be reclassified as an increase to interest expense. Trading Activities When derivative instruments do not qualify for hedge accounting treatment, they are accounted for at fair value with all changes in fair value recorded through earnings. All of our derivative instruments entered into with maturities of less than 3 years are economically hedging risk, but do not receive hedge accounting treatment. Trading derivatives also include any hedges that originally received hedge accounting treatment, but lost hedge accounting treatment due to failed effectiveness testing, as well as the activity of certain derivatives prior to those derivatives receiving hedge accounting treatment. Summary of Derivative Financial Statement Impact The following tables summarize the fair values and notional amounts of all derivative instruments at December 31, 2020 and 2019, and their impact on earnings and other comprehensive income for the years ended December 31, 2020, 2019 and 2018. Impact of Derivatives on the Consolidated Balance Sheets
|  |  |  | Cash Flow Hedges |  | Fair Value Hedges |  | Trading |  | Total
|  |  |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31,
|  |  |  | 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
Fair Values(1) |  | Hedged Risk Exposure |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Interest rate |  | $ | — |  |  | $ | 715 |  |  | $ | 594 |  |  | $ | — |  |  | $ | 135 |  |  | $ | — |  |  | $ | 729 |  |  | $ | 715 |
Derivative Liabilities:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Interest rate |  | (287) |  |  | — |  |  | — |  |  | (896) |  |  | — |  |  | (268) |  |  | (287) |  |  | (1,164) |
Total net derivatives |  |  |  | $ | (287) |  |  | $ | 715 |  |  | $ | 594 |  |  | $ | (896) |  |  | $ | 135 |  |  | $ | (268) |  |  | $ | 442 |  |  | $ | (449) |
__________ (1)Fair values reported include variation margin as legal settlement of the derivative contract. 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
|  | December 31, |  | December 31, |  | December 31, |  | December 31,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Gross position(1) |  | $ | 729 |  |  | $ | 715 |  |  | $ | (287) |  |  | $ | (1,164) |
Impact of master netting agreement |  | (176) |  |  | (519) |  |  | 176 |  |  | 519 |
Derivative values with impact of master netting agreements (as carried on balance sheet) |  | 553 |  |  | 196 |  |  | (111) |  |  | (645) |
Cash collateral pledged(2) |  | 42,874 |  |  | 52,564 |  |  | — |  |  | — |
Net position |  | $ | 43,427 |  |  | $ | 52,760 |  |  | $ | (111) |  |  | $ | (645) |
__________ (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
|  |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31, |  | December 31,
|  |  | 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
Notional Values |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | $ | 1,018,976 |  |  | $ | 1,150,518 |  |  | $ | 4,845,543 |  |  | $ | 5,031,429 |  |  | $ | 2,693,364 |  |  | $ | 3,744,917 |  |  | $ | 8,557,883 |  |  | $ | 9,926,864 |
As of December 31, 2020 and 2019, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
Line Item in the Balance Sheet in Which the Hedged Item is Included: |  | Carrying Amount of the Hedged Assets/(Liabilities) |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
| December 31, |  | December 31, |  | December 31, |  | December 31,
| 2020 |  | 2019 |  | 2020 |  | 2019
Deposits |  | $ | (4,992,867) |  |  | $ | (5,085,426) |  |  | $ | (154,235) |  |  | $ | (63,148) |
Impact of Derivatives on the Consolidated Statements of Income
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Fair Value Hedges |  |  |  |  |  |
Interest rate swaps:
Interest recognized on derivatives |  | $ | 71,668 |  |  | $ | (8,806) |  |  | $ | (11,642) |
Hedged items recorded in interest expense |  | (91,087) |  |  | (77,350) |  |  | (7,966) |
Derivatives recorded in interest expense |  | 91,419 |  |  | 77,177 |  |  | 8,123 |
Total |  | $ | 72,000 |  |  | $ | (8,979) |  |  | $ | (11,485) |
Cash Flow Hedges |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense |  | $ | (16,000) |  |  | $ | 2,299 |  |  | $ | (1,455) |
Total |  | $ | (16,000) |  |  | $ | 2,299 |  |  | $ | (1,455) |
Trading |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |
Change in fair value of future interest payments recorded in earnings |  | $ | 10,164 |  |  | $ | 19,469 |  |  | $ | (1,400) |
Total |  | 10,164 |  |  | 19,469 |  |  | (1,400) |
Total |  | $ | 66,164 |  |  | $ | 12,789 |  |  | $ | (14,340) |
Impact of Derivatives on the Statements of Changes in Stockholders’ Equity
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Amount of gain (loss) recognized in other comprehensive income (loss) |  | $ | (52,511) |  |  | $ | (36,115) |  |  | $ | 10,452 |
Less: Amount of gain (loss) reclassified in interest expense |  | (16,000) |  |  | 2,299 |  |  | (1,455) |
Total change in other comprehensive income (loss) for unrealized gains (losses) on derivatives, before income tax (expense) benefit |  | $ | (36,511) |  |  | $ | (38,414) |  |  | $ | 11,907 |
Cash Collateral As of December 31, 2020, cash collateral held and pledged excludes amounts that represent legal settlement of the derivative contracts held with the CME and LCH. There was no cash collateral held by us related to derivative exposure between us and our derivatives counterparties at December 31, 2020 and 2019, respectively. 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 $43 million and $53 million at December 31, 2020 and 2019, respectively. Collateral pledged is recorded in “Other interest-earning assets” on the consolidated balance sheets.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration