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 September 30, 2021, the Company had $95 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 $1 million

(net-of-tax).

All cash flow hedges were highly effective for the three and nine months ended September 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 September 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 15 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
September 30, 2021
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps	$	700	$	—		.04	$	2,250	$	—		3.70
Pay fixed/receive floating swaps		1,330		—		9.23		1,850		—		8.95
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps		—		—		—		250		—		.23
Net investment hedges
Foreign exchange forward contracts		826		7		.06		—		—		—
Other economic hedges
Interest rate contracts
Futures and forwards
Buy		5,325		29		.07		10,347		69		.05
Sell		28,069		139		.29		17,637		57		.14
Options
Purchased		16,930		235		3.34		—		—		—
Written		3,620		78		.09		7,541		241		2.11
Receive fixed/pay floating swaps		4,423		—		4.38		5,690		—		10.29
Pay fixed/receive floating swaps		2,006		—		4.26		4,562		—		4.24
Foreign exchange forward contracts		292		2		.04		275		2		.05
Equity contracts		21		2		.31		184		5		.70
Other (a)		601		9		.02		2,386		147		1.31
Total	$	64,143	$	501			$	52,972	$	521
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, $139 million and 1.75 years at September 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 $602 million at September 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
September 30, 2021
Interest rate contracts
Receive fixed/pay floating swaps	$	124,770	$	2,398		4.80	$	46,250	$	296		6.61
Pay fixed/receive floating swaps		47,573		80		6.65		119,027		784		4.51
Other (a)		8,463		1		3.98		7,260		3		4.66
Options
Purchased		85,251		217		1.29		2,701		41		1.86
Written		2,690		41		1.85		79,781		192		1.23
Futures
Buy		3,456		—		.14		318		—		1.97
Sell		2,583		—		1.43		565		—		.45
Foreign exchange rate contracts
Forwards, spots and swaps		38,518		1,112		1.20		39,988		1,121		1.45
Options
Purchased		629		18		.96		—		—		—
Written		—		—		—		629		18		.96
Credit contracts		2,737		—		2.49		6,934		6		4.41
Total	$	316,670	$	3,867			$	303,453	$	2,461
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 September 30											Nine Months Ended September 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	$	6	$	21		$	(6	)	$	(2	)	$	91	$	(171	)	$	(3	)	$	(5	)
Net investment hedges
Foreign exchange forward contracts		17		(4	)		—			—			16		6			—			—
Non-derivative debt instruments		27		(45	)		—			—			61		(41	)		—			—

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:


	Interest Income					Interest Expense						Interest Income					Interest Expense
	Three Months Ended September 30											Nine Months Ended September 30
(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	$	3,409		$	3,573	$	238		$	346		$	10,132		$	11,361	$	761		$	1,711

Asset and Liability Management Positions
Fair value hedges
Interest rate contract derivatives		45			—		112			28			14			—		185			(166	)
Hedged items		(45	)		—		(113	)		(27	)		(15	)		—		(185	)		167
Cash flow hedges
Interest rate contract derivatives		—			—		8			3			—			—		4			7

Note:

The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $13 million and $40 million into earnings during the three and nine months ended September 30, 2021, respectively,

as a result of realized cash flows on discontinued cash flow hedges. The Company reclassified losses of

$18 million and $24

million into earnings during the three and nine months ended September 30, 2020, respectively, as a result of realized cash flows on discontinued cash flow hedges. No amounts were reclassified into earnings on discontinued cash flow hedges because it is probable the original hedged forecasted cash flows will not occur.

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)	September 30, 2021		December 31, 2020		September 30, 2021			December 31, 2020
Line Item in the Consolidated Balance Sheet
Available-for-sale investment securities	$	3,127	$	99	$	(22	)	$	(1	)
Long-term debt		2,940		8,567		692			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 $700 million, respectively, at September 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 September 30						Nine Months Ended September 30
(Dollars in Millions)	Location of Gains (Losses) Recognized in Earnings		2021			2020			2021			2020
Asset and Liability Management Positions
Other economic hedges
Interest rate contracts
Futures and forwards		Mortgage banking revenue/ other noninterest income	$	101		$	46		$	432		$	53
Purchased and written options		Mortgage banking revenue		171			428			436			1,173
Swaps		Mortgage banking revenue		(39	)		(51	)		(236	)		724
Foreign exchange forward contracts		Other noninterest income		9			(2	)		(1	)		9
Equity contracts		Compensation expense		1			3			6			—
Other		Other noninterest income		2			(69	)		3			(70	)
Customer-Related Positions
Interest rate contracts
Swaps		Commercial products revenue		26			59			78			103
Purchased and written options		Commercial products revenue		(1	)		(14	)		(4	)		3
Futures		Commercial products revenue		—			—			—			(18	)
Foreign exchange rate contracts
Forwards, spots and swaps		Commercial products revenue		23			20			69			54
Purchased and written options		Commercial products revenue		1			1			1			1
Credit contracts		Commercial products revenue		(1	)		(10	)		(3	)		(15	)

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 September 30, 2021, was $874 million. At September 30, 2021, the Company had $589 million of cash posted as collateral against this net liability position.