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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2021
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. Please refer to Notes to Consolidated Financial Statements, Note 12, “Derivative Financial Instruments” in our 2020 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”). All variation margin payments on derivatives cleared through the CME and LCH are accounted for as legal settlement. As of September 30, 2021, $5.9 billion notional of our derivative contracts were cleared on the CME and $0.3 billion were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 94.6 percent and 5.4 percent, respectively, of our total notional derivative contracts of $6.2 billion at September 30, 2021. 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 September 30, 2021 was $(96) million and $11 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 to the counterparty 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 September 30, 2021 and December 31, 2020, 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 $12 million and $43 million, respectively. Summary of Derivative Financial Statement Impact The following tables summarize the fair values and notional amounts of all derivative instruments at September 30, 2021 and December 31, 2020, and their impact on earnings and other comprehensive income for the nine months ended September 30, 2021 and September 30, 2020. Please refer to Notes to Consolidated Financial Statements, Note 12, “Derivative Financial Instruments” in our 2020 Form 10-K for a full discussion of cash flow hedges, fair value hedges, and trading activities. Impact of Derivatives on the Consolidated Balance Sheets
|  |  | Cash Flow Hedges |  | Fair Value Hedges |  | Trading |  | Total
|  |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31,
|  |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Fair Values(1) | Hedged Risk Exposure |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | $ | — |  |  | $ | — |  |  | $ | 489 |  |  | $ | 594 |  |  | $ | 38 |  |  | $ | 135 |  |  | $ | 527 |  |  | $ | 729 |
Derivative Liabilities:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | (909) |  |  | (287) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (909) |  |  | (287) |
Total net derivatives |  |  | $ | (909) |  |  | $ | (287) |  |  | $ | 489 |  |  | $ | 594 |  |  | $ | 38 |  |  | $ | 135 |  |  | $ | (382) |  |  | $ | 442 |
___________ (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
|  | September 30, |  | December 31, |  | September 30, |  | December 31,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Gross position(1) |  | $ | 527 |  |  | $ | 729 |  |  | $ | (909) |  |  | $ | (287) |
Impact of master netting agreement |  | (527) |  |  | (176) |  |  | 527 |  |  | 176 |
Derivative values with impact of master netting agreements (as carried on balance sheet) |  | — |  |  | 553 |  |  | (382) |  |  | (111) |
Cash collateral pledged(2) |  | 11,890 |  |  | 42,874 |  |  | — |  |  | — |
Net position |  | $ | 11,890 |  |  | $ | 43,427 |  |  | $ | (382) |  |  | $ | (111) |
__________ (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
|  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31,
|  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Notional Values |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 1,469,867 |  |  | $ | 1,018,976 |  |  | $ | 4,007,008 |  |  | $ | 4,845,543 |  |  | $ | 766,726 |  |  | $ | 2,693,364 |  |  | $ | 6,243,601 |  |  | $ | 8,557,883 |
As of September 30, 2021 and December 31, 2020, 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)
|  | September 30, |  | December 31, |  | September 30, |  | December 31,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Deposits |  | $ | (4,083,115) |  |  | $ | (4,992,867) |  |  | $ | (81,460) |  |  | $ | (154,235) |
Impact of Derivatives on the Consolidated Statements of Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Fair Value Hedges |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Interest recognized on derivatives |  | $ | 21,763 |  |  | $ | 23,851 |  |  | $ | 67,230 |  |  | $ | 47,906 |
Hedged items recorded in interest expense |  | 20,551 |  |  | 24,451 |  |  | 72,774 |  |  | (116,500) |
Derivatives recorded in interest expense |  | (20,602) |  |  | (24,458) |  |  | (72,787) |  |  | 116,870 |
Total |  | $ | 21,712 |  |  | $ | 23,844 |  |  | $ | 67,217 |  |  | $ | 48,276 |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense |  | $ | (5,228) |  |  | $ | (5,176) |  |  | $ | (15,791) |  |  | $ | (10,922) |
Total |  | $ | (5,228) |  |  | $ | (5,176) |  |  | $ | (15,791) |  |  | $ | (10,922) |
Trading |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Change in fair value of future interest payments recorded in earnings |  | $ | (3,571) |  |  | $ | (12,848) |  |  | $ | (21,383) |  |  | $ | 21,611 |
Total |  | (3,571) |  |  | (12,848) |  |  | (21,383) |  |  | 21,611 |
Total |  | $ | 12,913 |  |  | $ | 5,820 |  |  | $ | 30,043 |  |  | $ | 58,965 |
Impact of Derivatives on the Statements of Changes in Stockholders’ Equity
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Amount of gain (loss) recognized in other comprehensive income (loss) |  | $ | (133) |  |  | $ | 76 |  |  | $ | 13,583 |  |  | $ | (53,707) |
Less: amount of gain (loss) reclassified in interest expense |  | (5,228) |  |  | (5,176) |  |  | (15,791) |  |  | (10,922) |
Total change in other comprehensive income (loss) for unrealized gains (losses) on derivatives, before income tax (expense) benefit |  | $ | 5,095 |  |  | $ | 5,252 |  |  | $ | 29,374 |  |  | $ | (42,785) |
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 12 months, we estimate that $19 million will be reclassified as an increase to interest expense. Cash Collateral As of September 30, 2021, 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 related to derivative exposure between us and our derivatives counterparties at September 30, 2021 and December 31, 2020, respectively. Cash collateral pledged related to derivative exposure between us and our derivatives counterparties was $12 million and $43 million at September 30, 2021 and December 31, 2020, 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 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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