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Derivative Instruments and Other Financial Instruments Used For Hedging
 12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Other Financial Instruments Used For Hedging
Derivative Instruments and Other Financial Instruments Used For Hedging
The Company enters into certain derivative and other financial instruments primarily to assist customers with their risk management objectives and to manage the Company’s exposure to interest rate risk. When entering into derivatives on behalf of customers, the Company generally acts as a financial intermediary by offsetting a significant portion of the market risk for these derivatives with third parties. The Company may also enter into derivatives for other risk management purposes. All derivative instruments are recognized as assets or liabilities on the consolidated balance sheets at fair value.
Counterparty credit risk is inherent in derivative instruments. In order to reduce its exposure to counterparty credit risk, the Company utilizes credit approvals, limits, monitoring procedures and master netting and credit support annex agreements. Additionally, the Company considers counterparty credit quality and the creditworthiness of the Company in estimating the fair value of derivative instruments.
The table below presents the notional amounts and fair value amounts of the Company's derivative instruments reported on the consolidated balance sheets, segregated between derivative instruments designated and qualifying as hedging instruments and derivative instruments not designated as hedging instruments as of December 31, 2018 and December 31, 2017. Asset and liability values are presented gross, excluding the impact of legally enforceable master netting and credit support annex agreements. The fair value of asset and liability derivatives designated and qualifying as hedging instruments and derivatives designated as other risk management are included in other assets and other liabilities, respectively. The fair value of asset and liability trading derivatives are included in trading account assets and trading account liabilities, respectively.
 
 
December 31, 2018
 
December 31, 2017
 
 
 
 
Fair Value
 
 
 
Fair Value
(Dollars in millions)
 
Notional
Amount
 
Asset
Derivatives
 
Liability
Derivatives
 
Notional
Amount
 
Asset
Derivatives
 
Liability
Derivatives
Cash flow hedges
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts
 
$
674

 
$
6

 
$
—

 
$
6,998

 
$
2

 
$
149

Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
—

 
—

 
—

 
500

 
—

 
—

Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Trading
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
189,478

 
531

 
600

 
132,214

 
878

 
646

Commodity contracts
 
336

 
25

 
18

 
1,244

 
50

 
33

Foreign exchange contracts
 
8,475

 
260

 
168

 
7,053

 
250

 
146

Equity contracts
 
300

 
22

 
13

 
1,496

 
139

 
144

Other contracts
 
127

 
—

 
—

 
4

 
—

 
—

Total trading
 
198,716

 
838

 
799

 
142,011

 
1,317

 
969

Other risk management
 
1,704

 
27

 
5

 
1,345

 
3

 
9

Total derivative instruments
 
$
201,094

 
$
871

 
$
804

 
$
150,854

 
$
1,322

 
$
1,127


We recognized net losses of $4 million, $17 million, and $19 million on other risk management derivatives for the years ended December 31, 2018, 2017 and 2016, respectively, which are included in other noninterest income.
Derivatives Designated and Qualifying as Hedging Instruments
The Company uses interest rate derivatives to manage the financial impact on the Company from changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of assets and liabilities, primarily LIBOR-based commercial loans and debt issuances. Derivatives that qualify for hedge accounting are designated as either fair value or cash flow hedges.
Cash Flow Hedges
At December 31, 2018, the Company used interest rate floors with a notional amount of $500 million and interest rate swaps with a notional amount of $174 million to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed loans and LIBOR indexed short-term borrowings, respectively. At December 31, 2018, the weighted average remaining life of active cash flow hedges was 2.6 years.
For cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness are recognized in noninterest expense in the period in which they arise. At December 31, 2018, the Company expects to reclassify approximately $89 million of losses from AOCI as a reduction to net interest income during the year ending December 31, 2019. This amount could differ from amounts actually realized due to changes in interest rates, hedge terminations and the addition of other hedges subsequent to December 31, 2018.
The following table presents the amount and location of the net gains and losses recorded in the Company's consolidated statements of income and changes in stockholders' equity for derivative instruments designated as cash flow hedges for the years ended December 31, 2018, 2017 and 2016:
 
 
Gains (Losses)
Recognized in OCI
(Effective Portion)
 
Gains (Losses) Reclassified from
AOCI
into Income (Effective Portion)
 
Gains (Losses) Recognized in Income
(Ineffective Portion)
 
 
For the Years Ended
December 31,
 
 
 
For the Years Ended
December 31,
 
 
 
For the Years Ended
December 31,
(Dollars in millions)
 
2018
 
2017
 
2016
 
Location
 
2018
 
2017
 
2016
 
Location
 
2018
 
2017
 
2016
 
 
 

 
 

 
 
 
Interest income
 
$
(34
)
 
$
69

 
$
170

 
 
 
 

 
 

 
 
Interest rate contracts
$
(96
)
 
$
(35
)
 
$
(26
)
 
Interest expense
 
—

 
—

 
(3
)
 
Noninterest expense
 
$
(1
)
 
$
3

 
$
—

Total
 
$
(96
)
 
$
(35
)
 
$
(26
)
 
 
 
$
(34
)
 
$
69

 
$
167

 
 
 
$
(1
)
 
$
3

 
$
—



Fair Value Hedges

The Company engaged in an interest rate hedging strategy in which one or more interest rate swaps were associated with a specified interest bearing liability, in order to convert the liability from a fixed rate to a floating rate instrument. This strategy mitigated the changes in fair value of the hedged liability caused by changes in the designated benchmark interest rate, LIBOR.
For fair value hedges, any ineffectiveness is recognized in noninterest expense in the period in which it arises. The change in the fair value of the hedged item and the hedging instrument, to the extent completely effective, offsets with no impact on earnings.
The following tables present gains (losses) on the Company's fair value hedges and hedged item for the years ended December 31, 2018, 2017 and 2016:
 
 
 
 
For the Year Ended December 31, 2018
 
(Dollars in millions)
 
Derivative Instrument
 
Hedged Item
 
Hedge Ineffectiveness
 
 
Interest rate risk on long-term debt
 
$
(2
)
 
$
2

 
$
—

 
 
Total
 
$
(2
)
 
$
2

 
$
—

 
 
 
 
For the Year Ended December 31, 2017
 
(Dollars in millions)
 
Derivative Instrument
 
Hedged Item
 
Hedge Ineffectiveness
 
 
Interest rate risk on long-term debt
 
$
(4
)
 
$
3

 
$
(1
)
 
 
Total
 
$
(4
)
 
$
3

 
$
(1
)
 
 
 
 
For the Year Ended December 31, 2016
 
(Dollars in millions)
 
Derivative Instrument
 
Hedged Item
 
Hedge Ineffectiveness
 
 
Interest rate risk on long-term debt
 
$
(2
)
 
$
2

 
$
—

 
 
Total
 
$
(2
)
 
$
2

 
$
—

Derivatives Not Designated as Hedging Instruments
Trading Derivatives
Derivative instruments classified as trading are primarily derivatives entered into as an accommodation for customers. Trading derivatives are included in trading assets or trading liabilities with changes in fair value reflected in income from trading account activities. The majority of the Company's derivative transactions for customers were essentially offset by contracts with third parties that reduce or eliminate market risk exposures.
The following table presents the amount of the net gains and losses for derivative instruments classified as trading reported in the consolidated statements of income under the heading trading account activities for the years ended December 31, 2018, 2017 and 2016:
 
 
Gains (Losses) Recognized in Income on
Trading Derivatives
 
 
For the Years Ended
(Dollars in millions)
 
December 31, 2018
 
December 31, 2017
 
December 31, 2016
Trading derivatives:
 
 

 
 

 
 
Interest rate contracts
 
$
95

 
$
(49
)
 
$
137

Equity contracts
 
36

 
12

 
40

Foreign exchange contracts
 
44

 
43

 
39

Commodity contracts
 
—

 
1

 
2

Total
 
$
175

 
$
7

 
$
218


Offsetting Financial Assets and Liabilities
The Company primarily enters into derivative contracts with counterparties utilizing standard International Swaps and Derivatives Association Master Agreements and Credit Support Annex Agreements. These agreements generally establish the terms and conditions of the transactions, including a legal right to set-off amounts payable and receivable between the Company and a counterparty, regardless of whether or not such amounts have matured or have contingency features. For additional information related to offsetting of financial assets and liabilities, refer to Note 8 to these Consolidated Financial Statements.