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Derivative Financial Instruments (Tables) | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Impact of Derivatives on Balance Sheet | Summary of Derivative Financial Statement Impact The following tables summarize the fair values and notional amounts of all derivative instruments and their impact on net income and other comprehensive income. Impact of Derivatives on Balance Sheet
|  |  |  | Cash Flow |  |  | Fair Value(3) |  |  | Trading |  |  | Total |
(Dollars in millions) |  | Hedged Risk Exposure |  | Sep 30, 2022 |  |  | Dec 31, 2021 |  |  | Sep 30, 2022 |  |  | Dec 31, 2021 |  |  | Sep 30, 2022 |  |  | Dec 31, 2021 |  |  | Sep 30, 2022 |  |  | Dec 31, 2021 |
Fair Values(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Interest rate |  | $ | — |  |  | $ | — |  |  | $ | 56 |  |  | $ | 222 |  |  | $ | — |  |  | $ | 2 |  |  | $ | 56 |  |  | $ | 224 |
Cross-currency interest rate swaps |  | Foreign currency and interest rate |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total derivative assets(2) |  |  |  |  | — |  |  |  | — |  |  |  | 56 |  |  |  | 222 |  |  |  | — |  |  |  | 2 |  |  |  | 56 |  |  |  | 224 |
Derivative Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Interest rate |  |  | — |  |  |  | — |  |  |  | (7 | ) |  |  | — |  |  |  | (2 | ) |  |  | (5 | ) |  |  | (9 | ) |  |  | (5 | )
Floor Income Contracts |  | Interest rate |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (65 | ) |  |  | — |  |  |  | (65 | )
Cross-currency interest rate swaps |  | Foreign currency and interest rate |  |  | — |  |  |  | — |  |  |  | (407 | ) |  |  | (190 | ) |  |  | — |  |  |  | — |  |  |  | (407 | ) |  |  | (190 | )
Total derivative liabilities(2) |  |  |  |  | — |  |  |  | — |  |  |  | (414 | ) |  |  | (190 | ) |  |  | (2 | ) |  |  | (70 | ) |  |  | (416 | ) |  |  | (260 | )
Net total derivatives |  |  |  | $ | — |  |  | $ | — |  |  | $ | (358 | ) |  | $ | 32 |  |  | $ | (2 | ) |  | $ | (68 | ) |  | $ | (360 | ) |  | $ | (36 | )
(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) | 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, 2022 |  |  | December 31, 2021 |  |  | September 30, 2022 |  |  | December 31, 2021 |
Gross position |  | $ | 56 |  |  | $ | 224 |  |  | $ | (416 | ) |  | $ | (260 | )
Impact of master netting agreements |  |  | — |  |  |  | (6 | ) |  |  | — |  |  |  | 6 |
Derivative values with impact of master netting agreements (as carried on balance sheet) |  |  | 56 |  |  |  | 218 |  |  |  | (416 | ) |  |  | (254 | )
Cash collateral (held) pledged |  |  | (62 | ) |  |  | (244 | ) |  |  | 69 |  |  |  | 147 |
Net position |  | $ | (6 | ) |  | $ | (26 | ) |  | $ | (347 | ) |  | $ | (107 | )
(3) | The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:
|  | As of September 30, 2022 |  |  | As of December 31, 2021 |
(Dollar in millions) |  | Carrying Value |  |  | Hedge Basis Adjustments |  |  | Carrying Value |  |  | Hedge Basis Adjustments |
Short-term borrowings |  | $ | 1,283 |  |  | $ | (15 | ) |  | $ | — |  |  | $ | — |
Long-term borrowings |  | $ | 6,102 |  |  | $ | (664 | ) |  | $ | 8,503 |  |  | $ | 252 |
Gross Positions with Impact of Master Netting Agreements | 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, 2022 |  |  | December 31, 2021 |  |  | September 30, 2022 |  |  | December 31, 2021 |
Gross position |  | $ | 56 |  |  | $ | 224 |  |  | $ | (416 | ) |  | $ | (260 | )
Impact of master netting agreements |  |  | — |  |  |  | (6 | ) |  |  | — |  |  |  | 6 |
Derivative values with impact of master netting agreements (as carried on balance sheet) |  |  | 56 |  |  |  | 218 |  |  |  | (416 | ) |  |  | (254 | )
Cash collateral (held) pledged |  |  | (62 | ) |  |  | (244 | ) |  |  | 69 |  |  |  | 147 |
Net position |  | $ | (6 | ) |  | $ | (26 | ) |  | $ | (347 | ) |  | $ | (107 | )
(3) | The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:
Carrying Value and Related Fair Value Hedging Adjustments of Liabilities | The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:
|  | As of September 30, 2022 |  |  | As of December 31, 2021 |
(Dollar in millions) |  | Carrying Value |  |  | Hedge Basis Adjustments |  |  | Carrying Value |  |  | Hedge Basis Adjustments |
Short-term borrowings |  | $ | 1,283 |  |  | $ | (15 | ) |  | $ | — |  |  | $ | — |
Long-term borrowings |  | $ | 6,102 |  |  | $ | (664 | ) |  | $ | 8,503 |  |  | $ | 252 |
Derivative Notional Values |
|  | Cash Flow |  |  | Fair Value |  |  | Trading |  |  | Total |
(Dollars in billions) |  | Sep 30, 2022 |  |  | Dec 31, 2021 |  |  | Sep 30, 2022 |  |  | Dec 31, 2021 |  |  | Sep 30, 2022 |  |  | Dec 31, 2021 |  |  | Sep 30, 2022 |  |  | Dec 31, 2021 |
Notional Values: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 9.9 |  |  | $ | 12.1 |  |  | $ | 6.2 |  |  | $ | 6.2 |  |  | $ | 25.5 |  |  | $ | 28.4 |  |  | $ | 41.6 |  |  | $ | 46.7 |
Floor Income Contracts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6.0 |  |  |  | 12.5 |  |  |  | 6.0 |  |  |  | 12.5 |
Cross-currency interest rate swaps |  |  | — |  |  |  | — |  |  |  | 1.9 |  |  |  | 2.1 |  |  |  | — |  |  |  | — |  |  |  | 1.9 |  |  |  | 2.1 |
Total derivatives |  | $ | 9.9 |  |  | $ | 12.1 |  |  | $ | 8.1 |  |  | $ | 8.3 |  |  | $ | 31.5 |  |  | $ | 40.9 |  |  | $ | 49.5 |  |  | $ | 61.3 |
Mark-to-Market Impact of Derivatives on Statements of Income | Mark-to-Market Impact of Derivatives on Statements of Income
|  | Total Gains (Losses) |
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(Dollars in millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Fair Value Hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains (losses) recognized in net income on derivatives |  | $ | (193 | ) |  | $ | (53 | ) |  | $ | (629 | ) |  | $ | (228 | )
Gains (losses) recognized in net income on hedged items |  |  | 210 |  |  |  | 60 |  |  |  | 680 |  |  |  | 251 |
Net fair value hedge ineffectiveness gains (losses) |  |  | 17 |  |  |  | 7 |  |  |  | 51 |  |  |  | 23 |
Cross currency interest rate swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains (losses) recognized in net income on derivatives |  |  | (127 | ) |  |  | (48 | ) |  |  | (217 | ) |  |  | 138 |
Gains (losses) recognized in net income on hedged items |  |  | 104 |  |  |  | 51 |  |  |  | 251 |  |  |  | (90 | )
Net fair value hedge ineffectiveness gains (losses) |  |  | (23 | ) |  |  | 3 |  |  |  | 34 |  |  |  | 48 |
Total fair value hedges(1)(2) |  |  | (6 | ) |  |  | 10 |  |  |  | 85 |  |  |  | 71 |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total cash flow hedges(2) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Trading: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 40 |  |  |  | (2 | ) |  |  | 120 |  |  |  | 13 |
Floor income contracts |  |  | — |  |  |  | (3 | ) |  |  | 41 |  |  |  | 8 |
Cross currency interest rate swaps |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total trading derivatives(3) |  |  | 40 |  |  |  | (5 | ) |  |  | 161 |  |  |  | 21 |
Mark-to-market gains (losses) recognized |  | $ | 34 |  |  | $ | 5 |  |  | $ | 246 |  |  | $ | 92 |
(1) | Recorded in interest expense in the consolidated statements of income.
(2) | The accrued interest income (expense) on fair value hedges and cash flow hedges is recorded in interest expense and is excluded from this table.
(3) | Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
Impact of Derivatives on Other Comprehensive Income (Equity) | Impact of Derivatives on Other Comprehensive Income (Equity)
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(Dollars in millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Total gains (losses) on cash flow hedges |  | $ | 52 |  |  | $ | (1 | ) |  | $ | 179 |  |  | $ | 21 |
Reclassification adjustments for derivative (gains) losses included in net income (interest expense)(1) |  |  | 2 |  |  |  | 21 |  |  |  | 38 |  |  |  | 64 |
Net changes in cash flow hedges, net of tax |  | $ | 54 |  |  | $ | 20 |  |  | $ | 217 |  |  | $ | 85 |
| (1) | Includes net settlement income/expense.
Collateral Held and Pledged | The following table details collateral held and pledged related to derivative exposure between us and our derivative counterparties:
(Dollars in millions) |  | September 30, 2022 |  |  | December 31, 2021 |
Collateral held: |  |  |  |  |  |  |  |
Cash (obligation to return cash collateral is recorded in short-term borrowings) |  | $ | 62 |  |  | $ | 244 |
Securities at fair value — corporate derivatives (not recorded in financial statements)(1) |  |  | — |  |  |  | — |
Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)(2) |  |  | — |  |  |  | 1 |
Total collateral held |  | $ | 62 |  |  | $ | 245 |
Derivative asset at fair value including accrued interest |  | $ | 60 |  |  | $ | 242 |
Collateral pledged to others: |  |  |  |  |  |  |  |
Cash (right to receive return of cash collateral is recorded in investments) |  | $ | 69 |  |  | $ | 147 |
Total collateral pledged |  | $ | 69 |  |  | $ | 147 |
Derivative liability at fair value including accrued interest and premium receivable |  | $ | 419 |  |  | $ | 271 |
(1) | The Company has the ability to sell or re-pledge securities it holds as collateral.
(2) | The trusts do not have the ability to sell or re-pledge securities they hold as collateral.
Schedule of Credit Exposure Related to Our Derivative Counterparties | The table below highlights credit exposure related to our derivative counterparties at September 30, 2022.
(Dollars in millions) |  | Corporate Contracts |  |  | Securitization Trust Contracts |
Exposure, net of collateral |  | $ | 7 |  |  | $ | — |
Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3 |  |  | 100 | % |  |  | — | %
Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s A3 |  |  | — | % |  |  | — | %

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