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Derivative Instruments
6 Months Ended
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
 Note 12
 
   Derivative Instruments
In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value in other assets or in other liabilities. On the date the Company enters into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, net investment hedge, or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations (“free-standing derivative”). When a derivative is designated as a fair value, cash flow or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).
Fair Value Hedges
These derivatives are interest rate swaps the Company uses to hedge the change in fair value related to interest rate changes of its underlying
available-for-sale
investment securities and fixed-rate debt. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings.
Cash Flow Hedges
These derivatives are interest rate swaps the Company uses to hedge the forecasted cash flows from its underlying variable-rate debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is
amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within other comprehensive income (loss). At June 30, 2021, the Company had $107 million
(net-of-tax)
of realized and unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared with $189 million
(net-of-tax)
of realized and unrealized losses at December 31, 2020. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during
both
the remainder of 2021 and the next 12 months are losses of $2 million
(net-of-tax
)
. All cash flow hedges were highly effective for the three
and six
months ended June 30, 2021.
Net Investment Hedges
 The Company uses forward commitments to sell specified amounts of certain foreign currencies, and
non-derivative
debt instruments, to hedge the volatility of its net investment in foreign operations driven by fluctuations in foreign currency exchange rates. The carrying amount of
non-derivative
debt instruments designated as net investment hedges was $1.4 billion at June 30, 2021 and December 31, 2020.
Other Derivative Positions
 The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell
to-be-announced
securities (“TBAs”) and other commitments to sell residential mortgage loans, which are used to economically hedge the interest rate risk related to mortgage loans held for sale (“MLHFS”) and unfunded mortgage loan commitments. The Company also enters into interest rate swaps, swaptions, forward commitments to buy TBAs, U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to economically hedge the change in the fair value of the Company’s MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. The Company mitigates the market and liquidity risk associated with these customer derivatives by entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or
non-derivative
financial instruments that partially or fully offset the exposure to earnings from these customer-related positions. The Company’s customer derivatives and related hedges are monitored and reviewed by the Company’s Market Risk Committee, which establishes policies for market risk management, including exposure limits for each portfolio. The Company also has derivative contracts that are created through its operations, including certain unfunded mortgage loan commitments and swap agreements related to the sale of a portion of its Class B common and preferred shares of Visa Inc. Refer to Note 14 for further information on these swap agreements.
The following table summarizes the asset and liability management derivative positions of the Company:
 
    Asset Derivatives              Liability Derivatives  
(Dollars in Millions)   Notional
Value
     Fair
Value
     Weighted-
Average
Remaining
Maturity
In Years
             Notional
Value
     Fair
Value
     Weighted-
Average
Remaining
Maturity
In Years
 
June 30, 2021
                                
 
                          
Fair value hedges
                                
 
                          
Interest rate contracts
                                
 
                          
Receive fixed/pay floating swaps
  $ 8,700      $        3.01         
 
   $ 1,500      $        3.78  
Pay fixed/receive floating swaps
                          
 
     1,850               9.20  
Cash flow hedges
                                
 
                          
Interest rate contracts
                                
 
                          
Pay fixed/receive floating swaps
                          
 
     250               .48  
Net investment hedges
                                
 
                          
Foreign exchange forward contracts
    828        4        .06         
 
                    
Other economic hedges
                                
 
                          
Interest rate contracts
                                
 
                          
Futures and forwards
                                
 
                          
Buy
    8,096        33        .06         
 
     5,231        18        .07  
Sell
    13,507        26        .34         
 
     19,036        59        .08  
Options
                                
 
                          
Purchased
    18,380        223        3.26         
 
                    
Written
    3,777        94        .09         
 
     6,240        207        2.25  
Receive fixed/pay floating swaps
    8,070               8.60         
 
     2,614               4.83  
Pay fixed/receive floating swaps
    2,644               3.09         
 
     5,027               5.27  
Foreign exchange forward contracts
    394        5        .05         
 
     185        4        .05  
Equity contracts
    172        3        .91         
 
     27               .90  
Other (a)
    951        7        .03         
 
     2,735        160        1.32  
Total
  $ 65,519      $ 395                  
 
   $ 44,695      $ 448           
December 31, 2020
                                
 
                          
Fair value hedges
                                
 
                          
Interest rate contracts
                                
 
                          
Receive fixed/pay floating swaps
  $ 8,400      $        1.76         
 
   $      $         
Pay fixed/receive floating swaps
                          
 
     100               9.63  
Cash flow hedges
                                
 
                          
Interest rate contracts
                                
 
                          
Pay fixed/receive floating swaps
                          
 
     3,250               4.59  
Net investment hedges
                                
 
                          
Foreign exchange forward contracts
    479               .06         
 
     336        3        .06  
Other economic hedges
                                
 
                          
Interest rate contracts
                                
 
                          
Futures and forwards
                                
 
                          
Buy
    16,431        73        .50         
 
     1,925        5        .07  
Sell
    10,440        48        .04         
 
     28,976        157        .07  
Options
                                
 
                          
Purchased
    11,610        121        4.11         
 
                    
Written
    5,073        202        .13         
 
     7,770        198        2.53  
Receive fixed/pay floating swaps
    11,064               7.31         
 
     907               23.43  
Pay fixed/receive floating swaps
    78               13.68         
 
     8,538               5.67  
Foreign exchange forward contracts
    292        1        .04         
 
     341        2        .05  
Equity contracts
    127        3        .39         
 
     45               .46  
Other (a)
    47        1        .11         
 
     1,832        183        2.44  
Total
  $ 64,041      $ 449     
 
 
 
  
 
 
 
   $ 54,020      $ 548     
 
 
 
 
(a)
Includes derivative liability swap agreements related to the sale of a portion of the Company’s Class B common and preferred shares of Visa Inc. The Visa swap agreements had a total notional value, fair value and weighted-average remaining maturity of $1.8 billion, $154 million and 2.01 years at June 30, 2021, respectively, compared to $1.8 billion, $182 million and 2.50 years at December 31, 2020, respectively. In addition, includes short-term underwriting purchase and sale commitments with total asset and liability notional values of $951 million at June 30, 2021, and $47 million at December 31, 2020.
The following table summarizes the customer-related derivative positions of the Company:
 
    Asset Derivatives              Liability Derivatives  
(Dollars in Millions)   Notional
Value
     Fair
Value
     Weighted-
Average
Remaining
Maturity In
Years
             Notional
Value
     Fair
Value
     Weighted-
Average
Remaining
Maturity In
Years
 
June 30, 2021
                                
 
                          
Interest rate contracts
                                
 
                          
Receive fixed/pay floating swaps
  $ 133,861      $ 2,725        4.88         
 
   $ 32,873      $ 228        6.54  
Pay fixed/receive floating swaps
    32,833        48        6.43         
 
     126,297        934        4.81  
Other (a)
    9,104        2        3.98         
 
     6,123        3        4.96  
Options
                                
 
                          
Purchased
    81,426        216        1.35         
 
     2,200        47        2.13  
Written
    2,378        47        1.99         
 
     77,120        190        1.28  
Futures
                                
 
                          
Buy
    925               .66         
 
     1,786               .35  
Sell
    1,549               1.68         
 
     734               .45  
Foreign exchange rate contracts
                                
 
                          
Forwards, spots and swaps
    40,075        1,225        1.15         
 
     41,487        1,232        1.39  
Options
                                
 
                          
Purchased
    522        14        1.08         
 
                    
Written
                          
 
     522        14        1.08  
Credit contracts
    3,215               2.40         
 
     7,302        7        4.46  
Total
  $ 305,888      $ 4,277                  
 
   $ 296,444      $ 2,655           
December 31, 2020
                                
 
                          
Interest rate contracts
                                
 
                          
Receive fixed/pay floating swaps
  $ 144,859      $ 3,782        4.93         
 
   $ 12,027      $ 99        8.72  
Pay fixed/receive floating swaps
    15,048        2        8.43         
 
     134,963        1,239        4.71  
Other (a)
    9,921        6        3.75         
 
     6,387        3        4.22  
Options
                                
 
                          
Purchased
    72,655        111        1.40         
 
     1,454        46        2.96  
Written
    1,736        46        2.76         
 
     68,205        81        1.25  
Futures
                                
 
                          
Buy
    1,851               1.22         
 
     924               .05  
Sell
                          
 
     4,090               .72  
Foreign exchange rate contracts
                                
 
                          
Forwards, spots and swaps
    44,845        1,590        .96         
 
     45,992        1,565        1.13  
Options
                                
 
                          
Purchased
    519        14        .90         
 
                    
Written
                          
 
     519        14        .90  
Credit contracts
    2,876        1        2.75         
 
     7,479        7        3.81  
Total
  $ 294,310      $ 5,552     
 
 
 
  
 
 
 
   $ 282,040      $ 3,054     
 
 
 
 
(a)
Primarily represents floating rate interest rate swaps that pay based on differentials between specified interest rate indexes.
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains (losses) reclassified from other comprehensive income (loss) into earnings
(net-of-tax):
 
    Three Months Ended June 30              Six Months Ended June 30  
   
Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
    Gains (Losses)
Reclassified from
Other
Comprehensive
Income
(Loss) into Earnings
            
Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)
    Gains (Losses)
Reclassified from
Other
Comprehensive
Income
(Loss) into Earnings
 
(Dollars in Millions)   2021     2020     2021      2020              2021     2020     2021      2020  
Asset and Liability Management Positions
                                       
 
                                 
Cash flow hedges
                                       
 
                                 
Interest rate contracts
  $ 11     $     $ 6      $ 7         
 
   $ 85     $ (192   $ 3      $ (3
Net investment hedges
                                       
 
                                 
Foreign exchange forward contracts
    (8     (6                    
 
     (1     10               
Non-derivative
debt instruments
    (14     (21                
 
 
 
     34       4               
 
Note:
The Company does not exclude components from effectiveness testing for cash flow and net investment hedges.
The table below shows the effect of fair value and cash flow hedge accounting on the Consolidated Statement of Income:
 
    Three Months Ended June 30      Six Months Ended June 30  
    Interest Income      Interest Expense             Interest Income      Interest Expense  
(Dollars in Millions)   2021     2020      2021     2020             2021     2020      2021     2020  
Total amount of income and expense line items presented in the Consolidated Statement of Income in which the effects of fair value or cash flow hedges are recorded
  $ 3,382     $ 3,672      $ 245     $ 472        
 
   $ 6,723     $ 7,788      $ 523     $ 1,365  
                   
Asset and Liability Management Positions
                                      
 
                                 
Fair value hedges
                                      
 
                                 
Interest rate contract derivatives
    (30            18       841        
 
     (31            73       (194
Hedged items
    29              (17     (834      
 
     30              (72     194  
Cash flow hedges
                                      
 
                                 
Interest rate contract derivatives
                 (8     (9  
 
 
 
                  (4     4  
 
Note:
The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $12 million and $27 million into earnings during the three and six months ended June 30, 2021, respectively, as a result of the discontinuance of cash flow hedges.
 
The Company reclassified losses of $6 million into earnings during the three and six months ended June 30, 2020 as a result of the discontinuance of cash flow hedges.
The table below shows cumulative hedging adjustments and the carrying amount of assets and liabilities designated in fair value hedges:
 
    Carrying Amount of the Hedged Assets
and Liabilities
             Cumulative Hedging Adjustment (a)  
(Dollars in Millions)   June 30, 2021      December 31, 2020              June 30, 2021      December 31, 2020  
Line Item in the Consolidated Balance Sheet
                       
 
                 
Available-for-sale
investment securities
  $ 1,855      $ 99         
 
   $ 23      $ (1
Long-term debt
    10,294        8,567     
 
 
 
     736        903  
 
(a)
The cumulative hedging adjustment related to discontinued hedging relationships on
available-for-sale
investment securities and long-term debt was $(6) million and $631 million, respectively, at June 30, 2021. The cumulative hedging adjustment related to discontinued hedging relationships on long-term debt was $726 million at December 31, 2020.
The table below shows the gains (losses) recognized in earnings for other economic hedges and the customer-related positions:
 
    
Location of Gains (Losses)
Recognized in Earnings
     Three Months
Ended June 30
            Six Months
Ended June 30
 
(Dollars in Millions)    2021     2020             2021     2020  
Asset and Liability Management Positions
                               
 
                
Other economic hedges
                               
 
                
Interest rate contracts
                               
 
                
Futures and forwards
     Mortgage banking revenue/
other noninterest income

 
   $ (99 )   $ 82        
 
   $ 331     $ 7  
Purchased and written options
     Mortgage banking revenue        253       465        
 
     265       745  
Swaps
     Mortgage banking revenue        193       46        
 
     (197     775  
Foreign exchange forward contracts
     Other noninterest income        (7     (6      
 
     (10     11  
Equity contracts
     Compensation expense        1       1        
 
     5       (3
Other
     Other noninterest income        1              
 
     1       (1
Customer-Related Positions
                               
 
                
Interest rate contracts
                               
 
                
Swaps
     Commercial products revenue        25       66        
 
     52       44  
Purchased and written options
     Commercial products revenue        4              
 
     (3     17  
Futures
     Commercial products revenue                     
 
           (18
Foreign exchange rate contracts
                               
 
                
Forwards, spots and swaps
     Commercial products revenue        27       17        
 
     46       34  
Credit contracts
     Commercial products revenue        (4     (23  
 
 
 
     (2     (5
Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk using a credit valuation adjustment and includes it within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into derivative positions that are centrally cleared through clearinghouses, by entering into master netting arrangements and, where possible, by requiring collateral arrangements. A master netting arrangement allows two counterparties, who have multiple derivative contracts with each other, the ability to net settle amounts under all contracts, including any related collateral, through a single payment and in a single currency. Collateral arrangements generally require the counterparty to deliver collateral (typically cash or U.S. Treasury and agency securities) equal to the Company’s net derivative receivable, subject to minimum transfer and credit rating requirements.
 
The Company’s collateral arrangements are predominately bilateral and, therefore, contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on net liability thresholds and may be contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral arrangements, the counterparties to the derivatives could request immediate additional collateral coverage up to and including full collateral coverage for derivatives in a net liability position. The aggregate fair value of all derivatives under collateral arrangements that were in a net liability position at June 30, 2021, was $1.0 billion. At June 30, 2021, the Company had $748 million of cash posted as collateral against this net liability position.