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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments |
4. | Derivative Financial Instruments
Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 2015 Form 10-K. Please refer to “Note 7 — Derivative Financial Instruments” in our 2015 Form 10-K for a full discussion. Summary of Derivative Financial Statement Impact The following tables summarize the fair values and notional amounts of all derivative instruments at September 30, 2016 and December 31, 2015, and their impact on other comprehensive income and earnings for the three and nine months ended September 30, 2016 and 2015. Impact of Derivatives on Consolidated Balance Sheet
|  |  |  |  | Cash Flow |  |  | Fair Value |  |  | Trading |  |  | Total |
(Dollars in millions) |  | Hedged Risk Exposure |  |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |  |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |  |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |  |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |
Fair Values(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | Interest rate |  |  | $ | — |  |  | $ | — |  |  | $ | 857 |  |  | $ | 694 |  |  | $ | 73 |  |  | $ | 32 |  |  | $ | 930 |  |  | $ | 726 |
Cross-currency interest rate swaps |  |  | Foreign currency & interest rate |  |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 2 |  |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 2 |
Other(2) |  |  | Interest rate |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | — |
Total derivative assets(3) |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 875 |  |  |  | 696 |  |  |  | 74 |  |  |  | 32 |  |  |  | 949 |  |  |  | 728 |
Derivative Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | Interest rate |  |  |  | (207 | ) |  |  | (89 | ) |  |  | — |  |  |  | (3 | ) |  |  | (65 | ) |  |  | (68 | ) |  |  | (272 | ) |  |  | (160 | )
Floor Income Contracts |  |  | Interest rate |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (293 | ) |  |  | (365 | ) |  |  | (293 | ) |  |  | (365 | )
Cross-currency interest rate swaps |  |  | Foreign currency & interest rate |  |  |  | — |  |  |  | — |  |  |  | (731 | ) |  |  | (926 | ) |  |  | (11 | ) |  |  | (62 | ) |  |  | (742 | ) |  |  | (988 | )
Other(2) |  |  | Interest rate |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (11 | ) |  |  | (2 | ) |  |  | (11 | ) |  |  | (2 | )
Total derivative liabilities(3) |  |  |  |  |  |  | (207 | ) |  |  | (89 | ) |  |  | (731 | ) |  |  | (929 | ) |  |  | (380 | ) |  |  | (497 | ) |  |  | (1,318 | ) |  |  | (1,515 | )
Net total derivatives |  |  |  |  |  | $ | (207 | ) |  | $ | (89 | ) |  | $ | 144 |  |  | $ | (233 | ) |  | $ | (306 | ) |  | $ | (465 | ) |  | $ | (369 | ) |  | $ | (787 | )
(1) | Fair values reported are exclusive of collateral held and pledged 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) | “Other” includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.
(3) | The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
|  | Other Assets |  |  | Other Liabilities |
(Dollar in millions) |  | September 30, 2016 |  |  | December 31, 2015 |  |  | September 30, 2016 |  |  | December 31, 2015 |
Gross position |  | $ | 949 |  |  | $ | 728 |  |  | $ | (1,318 | ) |  | $ | (1,515 | )
Impact of master netting agreements |  |  | (19 | ) |  |  | (50 | ) |  |  | 19 |  |  |  | 50 |
Derivative values with impact of master netting agreements (as carried on balance sheet) |  |  | 930 |  |  |  | 678 |  |  |  | (1,299 | ) |  |  | (1,465 | )
Cash collateral (held) pledged |  |  | (425 | ) |  |  | (759 | ) |  |  | 407 |  |  |  | 466 |
Net position |  | $ | 505 |  |  | $ | (81 | ) |  | $ | (892 | ) |  | $ | (999 | )
The above fair values include adjustments for counterparty credit risk both for when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the overall net asset positions at September 30, 2016 and December 31, 2015 by $3 million and $1 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at September 30, 2016 and December 31, 2015 by $30 million and $31 million, respectively.
|  | Cash Flow |  |  | Fair Value |  |  | Trading |  |  | Total |
(Dollars in billions) |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |  |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |  |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |  |  | Sept. 30, 2016 |  |  | Dec. 31, 2015 |
Notional Values: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 14.7 |  |  | $ | 9.5 |  |  | $ | 12.2 |  |  | $ | 12.6 |  |  | $ | 29.0 |  |  | $ | 33.8 |  |  | $ | 55.9 |  |  | $ | 55.9 |
Floor Income Contracts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 16.5 |  |  |  | 35.1 |  |  |  | 16.5 |  |  |  | 35.1 |
Cross-currency interest rate swaps |  |  | — |  |  |  | — |  |  |  | 8.6 |  |  |  | 9.1 |  |  |  | .3 |  |  |  | .3 |  |  |  | 8.9 |  |  |  | 9.4 |
Other(1) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3.0 |  |  |  | 3.2 |  |  |  | 3.0 |  |  |  | 3.2 |
Total derivatives |  | $ | 14.7 |  |  | $ | 9.5 |  |  | $ | 20.8 |  |  | $ | 21.7 |  |  | $ | 48.8 |  |  | $ | 72.4 |  |  | $ | 84.3 |  |  | $ | 103.6 |
(1) | “Other” includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.
Impact of Derivatives on Consolidated Statements of Income
|  | Three Months Ended September 30, |
|  | Unrealized Gain (Loss) on Derivatives(1)(2) |  |  | Realized Gain (Loss) on Derivatives(3) |  |  | Unrealized Gain (Loss) on Hedged Item(1) |  |  | Total Gain (Loss) |
(Dollars in millions) |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Fair Value Hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | (149 | ) |  | $ | 209 |  |  | $ | 62 |  |  | $ | 83 |  |  | $ | 175 |  |  | $ | (234 | ) |  | $ | 88 |  |  | $ | 58 |
Cross-currency interest rate swaps |  |  | 112 |  |  |  | (6 | ) |  |  | (22 | ) |  |  | (1 | ) |  |  | (81 | ) |  |  | 35 |  |  |  | 9 |  |  |  | 28 |
Total fair value derivatives |  |  | (37 | ) |  |  | 203 |  |  |  | 40 |  |  |  | 82 |  |  |  | 94 |  |  |  | (199 | ) |  |  | 97 |  |  |  | 86 |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | — |  |  |  | — |  |  |  | (20 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (20 | ) |  |  | — |
Total cash flow derivatives |  |  | — |  |  |  | — |  |  |  | (20 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (20 | ) |  |  | — |
Trading: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | (20 | ) |  |  | 82 |  |  |  | 14 |  |  |  | 10 |  |  |  | — |  |  |  | — |  |  |  | (6 | ) |  |  | 92 |
Floor Income Contracts |  |  | 113 |  |  |  | 69 |  |  |  | (28 | ) |  |  | (164 | ) |  |  | — |  |  |  | — |  |  |  | 85 |  |  |  | (95 | )
Cross-currency interest rate swaps |  |  | 6 |  |  |  | 7 |  |  |  | (1 | ) |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | 5 |  |  |  | 6 |
Other |  |  | (3 | ) |  |  | 13 |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4 | ) |  |  | 13 |
Total trading derivatives |  |  | 96 |  |  |  | 171 |  |  |  | (16 | ) |  |  | (155 | ) |  |  | — |  |  |  | — |  |  |  | 80 |  |  |  | 16 |
Total |  |  | 59 |  |  |  | 374 |  |  |  | 4 |  |  |  | (73 | ) |  |  | 94 |  |  |  | (199 | ) |  |  | 157 |  |  |  | 102 |
Less: realized gains (losses) recorded in interest expense |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | 82 |  |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | 82 |
Gains (losses) on derivative and hedging activities, net |  | $ | 59 |  |  | $ | 374 |  |  | $ | (16 | ) |  | $ | (155 | ) |  | $ | 94 |  |  | $ | (199 | ) |  | $ | 137 |  |  | $ | 20 |
(1) | Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
(2) | Represents ineffectiveness related to cash flow hedges.
(3) | For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in “Gains (losses) on derivative and hedging activities, net.”
|  | Nine Months Ended September 30, |
|  | Unrealized Gain (Loss) on Derivatives(1)(2) |  |  | Realized Gain (Loss) on Derivatives(3) |  |  | Unrealized Gain (Loss) on Hedged Item(1) |  |  | Total Gain (Loss) |
(Dollars in millions) |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Fair Value Hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 166 |  |  | $ | 95 |  |  | $ | 201 |  |  | $ | 265 |  |  | $ | (172 | ) |  | $ | (111 | ) |  | $ | 195 |  |  | $ | 249 |
Cross-currency interest rate swaps |  |  | 210 |  |  |  | (547 | ) |  |  | (58 | ) |  |  | 3 |  |  |  | (135 | ) |  |  | 682 |  |  |  | 17 |  |  |  | 138 |
Total fair value derivatives |  |  | 376 |  |  |  | (452 | ) |  |  | 143 |  |  |  | 268 |  |  |  | (307 | ) |  |  | 571 |  |  |  | 212 |  |  |  | 387 |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | — |  |  |  | — |  |  |  | (31 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (31 | ) |  |  | — |
Total cash flow derivatives |  |  | — |  |  |  | — |  |  |  | (31 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (31 | ) |  |  | — |
Trading: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 44 |  |  |  | 94 |  |  |  | 35 |  |  |  | 30 |  |  |  | — |  |  |  | — |  |  |  | 79 |  |  |  | 124 |
Floor Income Contracts |  |  | 147 |  |  |  | 312 |  |  |  | (222 | ) |  |  | (489 | ) |  |  | — |  |  |  | — |  |  |  | (75 | ) |  |  | (177 | )
Cross-currency interest rate swaps |  |  | 51 |  |  |  | 3 |  |  |  | (3 | ) |  |  | (3 | ) |  |  | — |  |  |  | — |  |  |  | 48 |  |  |  | — |
Other |  |  | (8 | ) |  |  | 9 |  |  |  | (2 | ) |  |  | (2 | ) |  |  | — |  |  |  | — |  |  |  | (10 | ) |  |  | 7 |
Total trading derivatives |  |  | 234 |  |  |  | 418 |  |  |  | (192 | ) |  |  | (464 | ) |  |  | — |  |  |  | — |  |  |  | 42 |  |  |  | (46 | )
Total |  |  | 610 |  |  |  | (34 | ) |  |  | (80 | ) |  |  | (196 | ) |  |  | (307 | ) |  |  | 571 |  |  |  | 223 |  |  |  | 341 |
Less: realized gains (losses) recorded in interest expense |  |  | — |  |  |  | — |  |  |  | 112 |  |  |  | 268 |  |  |  | — |  |  |  | — |  |  |  | 112 |  |  |  | 268 |
Gains (losses) on derivative and hedging activities, net |  | $ | 610 |  |  | $ | (34 | ) |  | $ | (192 | ) |  | $ | (464 | ) |  | $ | (307 | ) |  | $ | 571 |  |  | $ | 111 |  |  | $ | 73 |
(1) | Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
(2) | Represents ineffectiveness related to cash flow hedges.
(3) | For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in “Gains (losses) on derivative and hedging activities, net.”
Collateral Collateral held and pledged related to derivative exposures between us and our derivative counterparties are detailed in the following table:
(Dollars in millions) |  | September 30, 2016 |  |  | December 31, 2015 |
Collateral held: |  |  |  |  |  |  |  |
Cash (obligation to return cash collateral is recorded in short-term borrowings)(1) |  | $ | 425 |  |  | $ | 759 |
Securities at fair value — corporate derivatives (not recorded in the financial statements)(2) |  |  | 376 |  |  |  | — |
Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)(3) |  |  | 394 |  |  |  | 301 |
Total collateral held |  | $ | 1,195 |  |  | $ | 1,060 |
Derivative asset at fair value including accrued interest |  | $ | 1,062 |  |  | $ | 896 |
Collateral pledged to others: |  |  |  |  |  |  |  |
Cash (right to receive return of cash collateral is recorded in investments) |  | $ | 407 |  |  | $ | 466 |
Total collateral pledged |  | $ | 407 |  |  | $ | 466 |
Derivative liability at fair value including accrued interest and premium receivable |  | $ | 1,343 |  |  | $ | 1,395 |
(1) | At September 30, 2016 and December 31, 2015, $0 and $2 million, respectively, were held in restricted cash accounts.
(2) | The Company has the ability to sell or re-pledge securities it holds as collateral.
(3) | The trusts do not have the ability to sell or re-pledge securities they hold as collateral.
Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $594 million with our counterparties. Downgrades in our unsecured credit rating would not result in any additional collateral requirements, except to increase the frequency of collateral calls. Two counterparties have the right to terminate the contracts based on our current unsecured credit rating. We are currently in an asset position with these derivative counterparties (including accrued interest and net of premiums receivable). Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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