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 June 30, 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.



	June 30, 2018						December 31, 2017
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
(Dollars in millions)	Amount		Derivatives		Derivatives		Amount		Derivatives		Derivatives
Cash flow hedges
Interest rate contracts	$	181	$	4	$	—	$	6,998	$	2	$	149
Fair value hedges
Interest rate contracts	—		—		—		500		—		—
Not designated as hedging instruments:
Trading
Interest rate contracts	108,129		469		688		132,214		878		646
Commodity contracts	569		43		32		1,244		50		33
Foreign exchange contracts	7,975		238		140		7,053		250		146
Equity contracts	815		52		52		1,496		139		144
Other contracts	46		—		—		4		—		—
Total Trading	117,534		802		912		142,011		1,317		969
Other risk management	1,300		1		22		1,345		3		9
Total derivative instruments	$	119,015	$	807	$	934	$	150,854	$	1,322	$	1,127

We recognized net losses of $49 million and net gains of $2 million on other risk management derivatives for the three and six months ended June 30, 2018, respectively, and net losses of $10 million and $6 million for the three and six months ended June 30, 2017, 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

The Company uses interest rate swaps to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed loans, and to a lesser extent, to hedge interest rate risk on rollover debt.

The Company used interest rate swaps with an aggregate notional amount of $181 million at June 30, 2018 to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed short-term borrowings. At June 30, 2018, the weighted average remaining life of the active cash flow hedges was 2.1 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 June 30, 2018, the Company expects to reclassify approximately $69 million of losses from AOCI as a reduction to net interest income during the twelve months ending June 30, 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 June 30, 2018.

The following tables present 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 derivatives designated as cash flow hedges for the three and six months ended June 30, 2018 and 2017.



	Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)						Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						(Gain) Loss Recognized in Income on Derivative Instruments (Ineffective Portion)
	For the Three Months Ended June 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,
(Dollars in millions)	2018			2017		Location	2018			2017		Location	2018			2017
Derivatives in cash flow hedging relationships
						Interest income	$	(8	)	$	20
Interest rate contracts	$	(19	)	$	55	Interest expense	—			—		Noninterest expense	$	(1	)	$	1
Total	$	(19	)	$	55		$	(8	)	$	20		$	(1	)	$	1




	Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)						Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Gain (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion)
	For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
(Dollars in millions)	2018			2017		Location	2018			2017		Location	2018			2017
Derivatives in cash flow hedging relationships
						Interest income	$	(8	)	$	49
Interest rate contracts	$	(98	)	$	36	Interest expense	—			—		Noninterest expense	$	(1	)	$	3
Total	$	(98	)	$	36		$	(8	)	$	49		$	(1	)	$	3

Fair Value Hedges

The Company engages in an interest rate hedging strategy in which one or more interest rate swaps are associated with a specified interest bearing liability, in order to convert the liability from a fixed rate to a floating rate instrument. This strategy mitigates the changes in fair value of the hedged liability caused by changes in the designated benchmark interest rate, U.S. dollar 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 the gains (losses) on the Company's fair value hedges and hedged item for the three and six months ended June 30, 2018 and 2017.



	For the Three Months Ended June 30, 2018						For the Six Months Ended June 30, 2018
(Dollars in millions)	Derivative		Hedged Item		Hedge Ineffectiveness		Derivative			Hedged Item		Hedge Ineffectiveness
(Dollars in millions)	Derivative		Hedged Item		Hedge Ineffectiveness		Derivative			Hedged Item		Hedge Ineffectiveness
Interest rate risk on long-term debt	$	—	$	—	$	—	$	(2	)	$	2	$	—
Total	$	—	$	—	$	—	$	(2	)	$	2	$	—



	For the Three Months Ended June 30, 2017							For the Six Months Ended June 30, 2017
(Dollars in millions)	Derivative		Hedged Item			Hedge Ineffectiveness		Derivative			Hedged Item		Hedge Ineffectiveness
(Dollars in millions)	Derivative		Hedged Item			Hedge Ineffectiveness		Derivative			Hedged Item		Hedge Ineffectiveness
Interest rate risk on long-term debt	$	1	$	(1	)	$	—	$	(1	)	$	—	$	(1	)
Total	$	1	$	(1	)	$	—	$	(1	)	$	—	$	(1	)

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 three and six months ended June 30, 2018 and 2017.



	Gain or (Loss) Recognized in Income on Derivative Instruments					Gain or (Loss) Recognized in Income on Derivative Instruments
	For the Three Months Ended					For the Six Months Ended
(Dollars in millions)	June 30, 2018		June 30, 2017			June 30, 2018		June 30, 2017
Trading derivatives:
Interest rate contracts	$	17	$	(36	)	$	130	$	(58	)
Equity contracts	1		—			18		—
Foreign exchange contracts	12		11			21		21
Commodity contracts	—		1			—		1
Total	$	30	$	(24	)	$	169	$	(36	)

Offsetting Financial Assets and Liabilities

The Company primarily enters into derivative contracts and repurchase agreements with counterparties utilizing standard International Swaps and Derivatives Association Master Agreements and Master Repurchase Agreements, respectively. 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 5 to these Consolidated Financial Statements.