We regularly enter into derivative transactions to support our overall risk management activities. Our primary market risks stem from the impact on our earnings and economic value of equity due to changes in interest rates and, to a lesser extent, changes in foreign exchange rates. We manage our interest rate sensitivity by employing several techniques, which include changing the duration and re-pricing characteristics of various assets and liabilities by using interest rate derivatives. We also use foreign currency derivatives to limit our earnings and capital exposures to foreign exchange risk by hedging exposures denominated in foreign currencies. We primarily use interest rate and foreign currency swaps to perform these hedging activities, but we may also use a variety of other derivative instruments, including caps, floors, options, futures and forward contracts, to manage our interest rate and foreign exchange risks. We designate these risk management derivatives as either qualifying accounting hedges or free-standing derivatives. Qualifying accounting hedges are further designated as fair value hedges, cash flow hedges or net investment hedges. Free-standing derivatives are economic hedges that do not qualify for hedge accounting.

We also offer interest rate, commodity, foreign currency derivatives and other contracts as an accommodation to our customers within our Commercial Banking business. We enter into these derivatives with our customers primarily to help them manage their interest rate risks, hedge their energy and other commodities exposures, and manage foreign currency fluctuations. We offset the substantial majority of the market risk exposure of our customer accommodation derivatives through derivative transactions with other counterparties.

•Fair Value Hedges: We designate derivatives as fair value hedges when they are used to manage our exposure to changes in the fair value of certain financial assets and liabilities, which fluctuate in value as a result of movements in interest rates. Changes in the fair value of derivatives designated as fair value hedges are presented in the same line item in our consolidated statements of income as the earnings effect of the hedged items. We enter into receive-fixed, pay-float interest rate swaps to hedge changes in the fair value of outstanding fixed rate debt and deposits due to fluctuations in market interest rates. We also enter into pay-fixed, receive-float interest rate swaps to hedge changes in the fair value of fixed rate investment securities.

•Cash Flow Hedges: We designate derivatives as cash flow hedges when they are used to manage our exposure to variability in cash flows related to forecasted transactions. Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of AOCI. Those amounts are reclassified into earnings in the same period during which the hedged forecasted transactions impact earnings and presented in the same line item in our consolidated statements of income as the earnings effect of the hedged items. We enter into receive-fixed, pay-float interest rate swaps and interest rate floors to modify the interest rate characteristics of designated credit card and commercial loans from floating to fixed in order to reduce the impact of changes in forecasted future cash flows due to fluctuations in market interest rates. We also enter into foreign currency forward contracts to hedge our exposure to variability in cash flows related to intercompany borrowings denominated in foreign currencies.

•Net Investment Hedges: We use net investment hedges to manage the foreign currency exposure related to our net investments in foreign operations that have functional currencies other than the U.S. dollar. Changes in the fair value of net investment hedges are recorded in the translation adjustment component of AOCI, offsetting the translation gain or loss from those foreign operations. We execute net investment hedges using foreign currency forward contracts to hedge the translation exposure of the net investment in our foreign operations under the forward method.

•Free-Standing Derivatives: Our free-standing derivatives primarily consist of our customer accommodation derivatives and other economic hedges. The customer accommodation derivatives and the related offsetting contracts are mainly interest rate, commodity and foreign currency contracts. The other free-standing derivatives are primarily used to economically hedge the risk of changes in the fair value of our commercial mortgage loan origination and purchase commitments as well as other interests held. Changes in the fair value of free-standing derivatives are recorded in earnings as a component of other non-interest income.

Derivative instruments contain an element of credit risk that stems from the potential failure of a counterparty to perform according to the terms of the contract, including making payments due upon maturity of certain derivative instruments. We execute our derivative contracts primarily in OTC markets. We also execute interest rate and commodity futures in the exchange-traded derivative markets. Our OTC derivatives consist of both trades cleared through central counterparty clearinghouses (“CCPs”) and uncleared bilateral contracts. The Chicago Mercantile Exchange (“CME”), the Intercontinental Exchange (“ICE”) and the LCH Group (“LCH”) are our CCPs for our centrally cleared contracts. In our uncleared bilateral contracts, we enter into agreements directly with our derivative counterparties.

We manage the counterparty credit risk associated with derivative instruments by entering into legally enforceable master netting agreements, where applicable, and exchanging collateral with our counterparties, typically in the form of cash or high-quality liquid securities. We exchange collateral in two primary forms: variation margin, which mitigates the risk of changes in value due to daily market movements and is exchanged daily, and initial margin, which mitigates the risk of potential future exposure of a derivative and is exchanged at the outset of a transaction and adjusted daily. We exchange variation margin and initial margin on our cleared derivatives. For uncleared bilateral derivatives executed after September 1, 2021 and in scope for initial margin, we exchange variation margin and initial margin.

The amount of collateral exchanged for variation margin is dependent upon the fair value of the derivative instruments as well as the fair value of the pledged collateral and will vary over time as market variables change. The amount of the initial margin exchanged is dependent upon 1) the calculation of initial margin exposure, as prescribed by 1(a) the U.S. prudential regulators’ margin rules for uncleared derivatives (“PR Rules”) or 1(b) the CCPs for cleared derivatives and 2) the fair value of the pledged collateral; it will vary over time as market variables change. When valuing collateral, an estimate of the variation in price and liquidity over time is subtracted in the form of a “haircut” to discount the value of the collateral pledged. Our exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on our balance sheet. The fair value of our derivatives is adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated collateral received or pledged. See Table 9.3 for our net exposure associated with derivatives.

•CCPs: We clear eligible OTC derivatives with CCPs as part of our regulatory requirements. We also clear exchange-traded instruments, like futures, with CCPs. Futures commission merchants (“FCMs”) serve as the intermediary between CCPs and us. CCPs require that we post initial and variation margin through our FCMs to mitigate the risk of non-payment or default. Initial margin is required by CCPs as collateral against potential losses on our exchange-traded and cleared derivative contracts and variation margin is exchanged on a daily basis to account for mark-to-market changes in those derivative contracts. For CME, ICE and LCH-cleared OTC derivatives, variation margin cash payments are required to be characterized as settlements. Our FCM agreements governing these derivative transactions include provisions that may require us to post additional collateral under certain circumstances.

•Bilateral Counterparties: We enter into master netting agreements and collateral agreements with bilateral derivative counterparties, where applicable, to mitigate the risk of default. These bilateral agreements typically provide the right to offset exposure with the same counterparty and require the party in a net liability position to post collateral. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event the fair values of uncleared derivatives exceed established exposure thresholds. Certain of these bilateral agreements include provisions requiring that our debt maintain a credit rating of investment grade or above by each of the major credit rating agencies. In the event of a downgrade of our debt credit rating below investment grade, some of our counterparties would have the right to terminate their derivative contract and close out existing positions.

We record counterparty credit valuation adjustments (“CVAs”) on our derivative assets to reflect the credit quality of our counterparties. We consider collateral and legally enforceable master netting agreements that mitigate our credit exposure to each counterparty in determining CVAs, which may be adjusted due to changes in the fair values of the derivative contracts, collateral, and creditworthiness of the counterparty. We also record debit valuation adjustments (“DVAs”) to adjust the fair values of our derivative liabilities to reflect the impact of our own credit quality.

The following table summarizes the notional amounts and fair values of our derivative instruments as of December 31, 2023 and 2022, which are segregated by derivatives that are designated as accounting hedges and those that are not, and are further segregated by type of contract within those two categories. The total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated cash collateral received or pledged. Derivative assets and liabilities are included in other assets and other liabilities, respectively, on our consolidated balance sheets, and their related gains or losses are included in operating activities as changes in other assets and other liabilities in the consolidated statements of cash flows.


	December 31, 2023						December 31, 2022
	Notional or Contractual Amount		Derivative(1)				Notional or Contractual Amount		Derivative(1)
(Dollars in millions)			Assets		Liabilities				Assets		Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges	$	68,987	$	18	$	26	$	60,956	$	3	$	53
Cash flow hedges	70,350		216		23		30,350		0		451
Total interest rate contracts	139,337		234		49		91,306		3		504
Foreign exchange contracts:
Fair value hedges	1,380		0		113		1,338		0		211
Cash flow hedges	2,488		0		66		2,175		4		14
Net investment hedges	4,870		1		89		4,147		78		91
Total foreign exchange contracts	8,738		1		268		7,660		82		316
Total derivatives designated as accounting hedges	148,075		235		317		98,966		85		820
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts	103,489		1,188		1,382		91,601		1,140		1,873
Commodity contracts	33,495		1,161		1,147		28,935		1,756		1,738
Foreign exchange and other contracts	5,153		50		47		4,926		74		78
Total customer accommodation	142,137		2,399		2,576		125,462		2,970		3,689
Other interest rate exposures(2)	872		21		31		1,135		34		22
Other contracts	2,955		20		8		2,238		9		19
Total derivatives not designated as accounting hedges	145,964		2,440		2,615		128,835		3,013		3,730
Total derivatives	$	294,039	$	2,675	$	2,932	$	227,801	$	3,098	$	4,550
Less: netting adjustment(3)			(1,005)		(597)				(1,134)		(1,235)
Total derivative assets/liabilities			$	1,670	$	2,335			$	1,964	$	3,315

__________

(1)Does not reflect $2 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of December 31, 2023 and 2022, respectively. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and other liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.

The following table summarizes the carrying value of our hedged assets and liabilities in fair value hedges and the associated cumulative basis adjustments included in those carrying values, excluding basis adjustments related to foreign currency risk, as of December 31, 2023 and 2022.


	December 31, 2023						December 31, 2022
	Carrying Amount Assets/(Liabilities)		Cumulative Amount of Basis Adjustments Included in the Carrying Amount				Carrying Amount Assets/(Liabilities)		Cumulative Amount of Basis Adjustments Included in the Carrying Amount
(Dollars in millions)			Total Assets/(Liabilities)		Discontinued-Hedging Relationships				Total Assets/(Liabilities)		Discontinued-Hedging Relationships
Line item on our consolidated balance sheets in which the hedged item is included:
Investment securities available for sale(1)(2)	$	6,108	$	(8)	$	126	$	3,983	$	(80)	$	200
Interest-bearing deposits	(17,374)		277		0		(17,280)		500		(1)
Securitized debt obligations	(13,375)		503		0		(11,921)		748		0
Senior and subordinated notes	(30,899)		971		(372)		(24,544)		1,542		(527)

(1)These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. The amortized cost basis of this portfolio was $2.2 billion and $236 million as of December 31, 2023 and 2022, respectively. The amount of the designated hedged items was $1.5 billion and $225 million as of December 31, 2023 and 2022, respectively. The cumulative basis adjustments associated with these hedges was $33 million and $13 million as of December 31, 2023 and 2022, respectively.

Derivative contracts and repurchase agreements that we execute bilaterally in the OTC market are generally governed by enforceable master netting agreements where we generally have the right to offset exposure with the same counterparty. Either counterparty can generally request to net settle all contracts through a single payment upon default on, or termination of, any one contract. We elect to offset the derivative assets and liabilities under master netting agreements for balance sheet presentation where a right of setoff exists. For derivative contracts entered into under master netting agreements for which we have not been able to confirm the enforceability of the setoff rights, or those not subject to master netting agreements, we do not offset our derivative positions for balance sheet presentation.

The following table presents the gross and net fair values of our derivative assets, derivative liabilities, resale and repurchase agreements and the related offsetting amounts permitted under U.S. GAAP as of December 31, 2023 and 2022. The table also includes cash and non-cash collateral received or pledged in accordance with such arrangements. The amount of collateral presented, however, is limited to the amount of the related net derivative fair values or outstanding balances; therefore, instances of over-collateralization are excluded.

Table 9.3: Offsetting of Financial Assets and Financial Liabilities


	Gross Amounts		Gross Amounts Offset in the Balance Sheet				Net Amounts as Recognized		Securities Collateral Held Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Received
As of December 31, 2023
Derivative assets(1)	$	2,675	$	(433)	$	(572)	$	1,670	$	(22)	$	1,648
As of December 31, 2022
Derivative assets(1)	3,098		(759)		(375)		1,964		(96)		1,868


	Gross Amounts		Gross Amounts Offset in the Balance Sheet				Net Amounts as Recognized		Securities Collateral Pledged Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Pledged
As of December 31, 2023
Derivative liabilities(1)	$	2,932	$	(433)	$	(164)	$	2,335	$	(13)	$	2,322
Repurchase agreements(2)	538		0		0		538		(538)		0
As of December 31, 2022
Derivative liabilities(1)	4,550		(759)		(476)		3,315		(85)		3,230
Repurchase agreements(2)	883		0		0		883		(883)		0

__________

(1)We received cash collateral from derivative counterparties totaling $858 million and $608 million as of December 31, 2023 and 2022, respectively. We also received securities from derivative counterparties with a fair value of approximately $16 million and $82 million as of December 31, 2023 and 2022, respectively, which we have the ability to re-pledge. We posted $1.7 billion and $2.3 billion of cash collateral as of December 31, 2023 and 2022, respectively.

Table 9.4: Effects of Fair Value and Cash Flow Hedge Accounting


	Year Ended December 31, 2023
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	2,550	$	37,410	$	1,978	$	(9,489)	$	(959)	$	(2,204)	$	1,120
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	158	$	0	$	0	$	(385)	$	(414)	$	(1,036)	$	0
Gains (losses) recognized on derivatives	(149)		0		0		220		244		733		42
Gains (losses) recognized on hedged items(1)	72		0		0		(223)		(245)		(575)		(42)
Excluded component of fair value hedges(2)	0		0		0		0		0		(3)		0
Net income (expense) recognized on fair value hedges	$	81	$	0	$	0	$	(388)	$	(415)	$	(881)	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	0	$	(1,205)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		11		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	0	$	(1,205)	$	11	$	0	$	0	$	0	$	0



	Year Ended December 31, 2022
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	1,884	$	28,910	$	443	$	(2,535)	$	(384)	$	(1,074)	$	914
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	48	$	0	$	0	$	2	$	(48)	$	(197)	$	0
Gains (losses) recognized on derivatives	276		0		0		(542)		(698)		(1,893)		(84)
Gains (losses) recognized on hedged items(1)	(366)		0		0		546		699		2,059		83
Excluded component of fair value hedges(2)	0		0		0		0		0		(3)		0
Net income (expense) recognized on fair value hedges	$	(42)	$	0	$	0	$	6	$	(47)	$	(34)	$	(1)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	0	$	(121)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)	0		0		3		0		0		0		(1)
Net income (expense) recognized on cash flow hedges	$	0	$	(121)	$	3	$	0	$	0	$	0	$	(1)



	Year Ended December 31, 2021
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	1,446	$	24,263	$	60	$	(956)	$	(119)	$	(488)	$	824
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(92)	$	0	$	0	$	126	$	123	$	209	$	0
Gains (losses) recognized on derivatives	207		0		0		(168)		(237)		(799)		(106)
Gains (losses) recognized on hedged items(1)	(299)		0		0		167		220		941		106
Excluded component of fair value hedges(2)	0		0		0		0		0		(3)		0
Net income (expense) recognized on fair value hedges	$	(184)	$	0	$	0	$	125	$	106	$	348	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	38	$	919	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		1		0		0		0		1
Net income (expense) recognized on cash flow hedges	$	38	$	919	$	1	$	0	$	0	$	0	$	1

_________

(2)Changes in fair values of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income (“OCI”). The initial value of the excluded component is recognized in earnings over the life of the swap under the amortization approach.

(4)We recognized a loss of $66 million and $17 million for the year ended December 31, 2023 and 2022, and gain of $163 million for year ended December 31, 2021, on foreign exchange contracts reclassified from AOCI. These amounts were largely offset by the foreign currency transaction gains (losses) on our foreign currency denominated intercompany funding included in other non-interest income on our consolidated statements of income.

In the next 12 months, we expect to reclassify into earnings an after-tax loss of $712 million recorded in AOCI as of December 31, 2023 associated with cash flow hedges of forecasted transactions. This amount will largely offset the cash flows associated with the forecasted transactions hedged by these derivatives. The maximum length of time over which forecasted transactions were hedged was approximately 9.2 years as of December 31, 2023. The amount we expect to reclassify into earnings may change as a result of changes in market conditions and ongoing actions taken as part of our overall risk management strategy.


	Year Ended December 31,
(Dollars in millions)		2023		2022		2021
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts		$	34	$	40	$	32
Commodity contracts		39		49		28
Foreign exchange and other contracts		16		14		7
Total customer accommodation		89		103		67
Other interest rate exposures		264		76		(5)
Other contracts		(29)		(38)		(12)
Total		$	324	$	141	$	50