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Derivative Instruments and Hedging Activities
 3 Months Ended
Mar. 31, 2023
Summary of Derivative Instruments [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Objectives and Accounting
Our primary objective for using derivatives is to manage interest rate risk. We use derivatives to stabilize forecasted interest income from variable-rate assets and to modify the coupon or the duration of fixed-rate financial assets or liabilities. We also assist clients with their risk management needs through the use of derivatives. For a more detailed discussion of the use of and accounting policies regarding derivative instruments, see Note 7 of our 2022 Form 10-K.
Fair Value Hedges of Liabilities – At March 31, 2023, we had one receive-fixed interest rate swap with a notional amount of $500 million designated in a qualifying fair value hedge relationship of fixed-rate debt. The receive-fixed interest rate swap effectively converts the interest on our fixed-rate debt to floating. Changes in the fair value of derivatives designated as fair value hedges of debt were offset by changes in the fair value of the hedged debt instruments as shown in the schedules below.
Fair Value Hedges of Assets – At March 31, 2023, we had pay-fixed, receive-floating interest rate swaps with an aggregate notional amount of $1.2 billion designated as fair value hedges of certain AFS securities. These swaps effectively convert the fixed interest income to a floating rate on the hedged portion of the securities. Changes in fair value of derivatives designated as fair value hedges of fixed-rate AFS securities were offset by changes in the value of the hedged securities, as shown in the schedules below.
Cash Flow Hedges – At March 31, 2023, we had receive-fixed interest rate swaps with an aggregate notional amount of $4.4 billion designated as cash flow hedges of pools of floating-rate commercial loans. During the first quarter of 2023, swaps designated as cash flow hedges with an aggregate notional amount of $300 million matured. Additionally, during the first quarter of 2023, we terminated cash flow hedging relationships with an aggregate notional amount of $2.9 billion. At March 31, 2023, there was $153 million of losses deferred in AOCI related to the terminated cash flow hedges that is expected to be fully amortized by October 2027. Changes in the fair value of qualifying cash flow hedges during the quarter were recorded in AOCI as shown in the schedule below. The amounts deferred in AOCI are reclassified into earnings in the periods in which the hedged interest receipts occur (i.e., when the hedged forecasted transactions affect earnings).
Collateral and Credit Risk
Exposure to credit risk arises from the possibility of nonperformance by counterparties. No significant losses on derivative instruments have occurred as a result of counterparty nonperformance. For a more detailed discussion of collateral and credit-risk-related to our derivative contracts, see Note 7 of our 2022 Form 10-K.
Our derivative contracts require us to pledge collateral for derivatives that are in a net liability position at a given balance sheet date. Certain of these derivative contracts contain credit-risk-related contingent features that include the requirement to maintain a minimum debt credit rating. We may be required to pledge additional collateral if a credit-risk-related feature were triggered, such as a downgrade of our credit rating. In past situations, not all counterparties have demanded that additional collateral be pledged when provided for by the contractual terms. At March 31, 2023, the fair value of our derivative liabilities was $353 million, for which we were required to pledge cash collateral of less than $1 million in the normal course of business. If our credit rating were downgraded one notch by either Standard & Poor’s (“S&P”) or Moody’s at March 31, 2023, there would likely be no additional collateral required to be pledged.
Derivative Amounts
Certain information with respect to notional amounts and recorded gross fair values at March 31, 2023 and December 31, 2022, and the related gain (loss) of derivative instruments is summarized as follows:
March 31, 2023December 31, 2022
Notional
amount		Fair valueNotional
amount		Fair value
(In millions)Other
assets		Other
liabilities		Other
assets		Other
liabilities
Derivatives designated as hedging instruments:
Cash flow hedges of floating-rate assets:
Receive-fixed interest rate swaps
$4,433 $— $— $7,633 $— $1 
Fair value hedges:
Debt hedges: Receive-fixed interest rate swaps500 — — 500 — — 
Asset hedges: Pay-fixed interest rate swaps1,227 69 — 1,228 84 — 
Total derivatives designated as hedging instruments6,160 69 — 9,361 84 1 
Derivatives not designated as hedging instruments:
Customer interest rate derivatives 1
13,804 295 349 13,670 296 443 
Other interest rate derivatives2,417 1 — 862 — — 
Foreign exchange derivatives258 4 4 605 6 7 
Total derivatives not designated as hedging instruments
16,479 300 353 15,137 302 450 
Total derivatives$22,639 $369 $353 $24,498 $386 $451 
1 Customer interest rate derivatives include a net credit valuation adjustment (“CVA”) of $9 million, reducing the fair value of the liability at March 31, 2023, and $13 million, reducing the fair value of the liability at December 31, 2022.
The amount of derivative gains (losses) from cash flow and fair value hedges that was deferred in other comprehensive income (“OCI”) or recognized in earnings for the three months ended March 31, 2023 and 2022 is shown in the schedules below.
Three Months Ended March 31, 2023
(In millions)Effective portion of derivative gain/(loss) deferred in AOCIAmount of gain/(loss) reclassified from AOCI into incomeInterest on fair value hedges
Cash flow hedges of floating-rate assets:1
Purchased interest rate floors$— $— $— 
Interest rate swaps38 (49)— 
Fair value hedges of liabilities:
Receive-fixed interest rate swaps— — 4 
Basis amortization on terminated hedges2, 3
— — — 
Fair value hedges of assets:
Pay-fixed interest rate swaps— — 6 
Basis amortization on terminated hedges3
— — — 
Total derivatives designated as hedging instruments
$38 $(49)$10 
Three Months Ended March 31, 2022
(In millions)Effective portion of derivative gain/(loss) deferred in AOCIAmount of gain/(loss) reclassified from AOCI into incomeInterest on fair value hedges
Cash flow hedges of floating-rate assets: 1
Purchased interest rate floors$— $2 $— 
Interest rate swaps(178)12 — 
Fair value hedges of liabilities:
Receive-fixed interest rate swaps— — 2 
Basis amortization on terminated hedges2
— — 1 
Fair value hedges of assets:
Pay-fixed interest rate swaps— — (1)
Basis amortization on terminated hedges 2
— — — 
Total derivatives designated as hedging instruments
$(178)$14 $2 
1 For the 12 months following March 31, 2023, we estimate that $156 million of losses will be reclassified from AOCI into interest income, compared with an estimate of $205 million of losses as of March 31, 2022.
2 There was no remaining cumulative unamortized basis adjustment for terminated or redesignated fair value hedges of debt at March 31, 2023 and March 31, 2022. There was $10 million and $7 million of cumulative unamortized basis adjustments from terminated or redesignated fair value hedges of assets at March 31, 2023 and March 31, 2022, respectively.
The amount of gains (losses) recognized from derivatives not designated as accounting hedges is summarized as follows:
Other Noninterest Income/(Expense)
(In millions)Three Months Ended March 31, 2023Three Months Ended March 31, 2022
Derivatives not designated as hedging instruments:
Customer-facing interest rate derivatives
$1 $13 
Other interest rate derivatives1 1 
Foreign exchange derivatives7 6 
Total derivatives not designated as hedging instruments
$9 $20 
The following schedule presents derivatives used in fair value hedge accounting relationships, as well as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the periods presented.
Gain/(loss) recorded in income
Three Months Ended March 31, 2023Three Months Ended March 31, 2022
(In millions)
Derivatives 2
Hedged itemsTotal income statement impact
Derivatives 2
Hedged itemsTotal income statement impact
Debt: Receive-fixed interest rate swaps 1, 2
$12 $(12)$— $(32)$32 $— 
Assets: Pay-fixed interest rate swaps 1, 2
40 (40)— 53 (53)— 
1 Consists of hedges of benchmark interest rate risk of fixed-rate long-term debt and fixed-rate AFS securities. Gains and losses were recorded in net interest expense or income consistent with the hedged items.
2 The income/expense for derivatives does not reflect interest income/expense from periodic accruals and payments to be consistent with the presentation of the gains/(losses) on the hedged items.
The following schedule provides information regarding basis adjustments for hedged items.
Par value of hedged assets/(liabilities)
Carrying amount of the hedged assets/(liabilities) 1
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item
(In millions)March 31, 2023December 31, 2022March 31, 2023December 31, 2022March 31, 2023December 31, 2022
Long-term fixed-rate debt$(500)$(500)$(447)$(435)$53 $65 
Fixed-rate AFS securities1,227 1228 1,001 962 (227)(266)
1 Carrying amounts exclude (1) issuance and purchase discounts or premiums, (2) unamortized issuance and acquisition costs, and (3) amounts related to terminated fair value hedges.