
	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Accounting

Our objectives in using derivatives are to add stability to interest income or expense, to modify the duration of specific assets or liabilities as we consider advisable, to manage exposure to interest rate movements or other identified risks, and/or to directly offset derivatives sold to our customers. For a detailed discussion of the use of and accounting policies regarding derivative instruments, see Note 7 of our 2016 Annual Report on Form 10-K

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 2016 Annual Report on 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. However, in past situations, not all counterparties have demanded that additional collateral be pledged when provided for under their contracts. At June 30, 2017, the fair value of our derivative liabilities was $38 million, for which we were required to pledge cash collateral of approximately $45 million in the normal course of business. If our credit rating were downgraded one notch by either Standard & Poor’s or Moody’s at June 30, 2017, the additional amount of collateral we could be required to pledge is approximately $1 million. As a result of the Dodd-Frank Act, all newly eligible derivatives entered into are cleared through a central clearinghouse. Derivatives that are centrally cleared do not have credit-risk-related features that require additional collateral if our credit rating were downgraded.

Derivative Amounts

Selected information with respect to notional amounts and recorded gross fair values at June 30, 2017 and December 31, 2016, and the related gain (loss) of derivative instruments for the three and six months ended June 30, 2017 and 2016 is summarized as follows:



	June 30, 2017						December 31, 2016
	Notional amount		Fair value				Notional amount		Fair value
(In millions)	Notional amount		Other assets		Other liabilities		Notional amount		Other assets		Other liabilities
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate swaps	$	1,388	$	—	$	—	$	1,388	$	2	$	1
Derivatives not designated as hedging instruments:
Interest rate swaps and forwards	196		1		—		235		2		—
Interest rate swaps for customers ¹	4,412		37		32		4,162		49		49
Foreign exchange	318		8		6		424		11		9
Total derivatives not designated as hedging instruments	4,926		46		38		4,821		62		58
Total derivatives	$	6,314	$	46	$	38	$	6,209	$	64	$	59

¹Notional amounts include both the customer swaps and the offsetting derivative contracts.



	Amount of derivative gain (loss) recognized/reclassified
	Three Months Ended June 30, 2017								Six Months Ended June 30, 2017
(In millions)	OCI		Reclassified from AOCI to interest income		Noninterest income (expense)		Offset to interest expense		OCI		Reclassified from AOCI to interest income		Noninterest income (expense)		Offset to interest expense
Derivatives designated as hedging instruments:
Cash flow hedges¹:
Interest rate swaps	$	2	$	1					$	—	$	3
Derivatives not designated as hedging instruments:
Interest rate swaps and forward contracts					$	—							$	—
Interest rate swaps for customers					3								4
Foreign exchange					4								7
Total derivatives	$	2	$	1	$	7	$	—	$	—	$	3	$	11	$	—



	Amount of derivative gain (loss) recognized/reclassified
	Three Months Ended June 30, 2016								Six Months Ended June 30, 2016
(In millions)	OCI		Reclassified from AOCI to interest income		Noninterest income (expense)		Offset to interest expense		OCI		Reclassified from AOCI to interest income		Noninterest income (expense)		Offset to interest expense
Derivatives designated as hedging instruments:
Cash flow hedges¹:
Interest rate swaps	$	8	$	3					$	28	$	6
Derivatives not designated as hedging instruments:
Interest rate swaps and forward contracts					$	2							$	2
Interest rate swaps for customers					1								1
Foreign exchange					3								5
Total derivatives	$	8	$	3	$	6	$	—	$	28	$	6	$	8	$	—

Note: These schedules are not intended to present at any given time the Company’s long/short position with respect to its derivative contracts.


¹	Amounts recognized in OCI and reclassified from AOCI represent the effective portion of the derivative gain (loss). For the 12 months following June 30, 2017, we estimate that no significant amount will be reclassified from AOCI into interest income.

The fair value of derivative assets was reduced by a net credit valuation adjustment of $2 million and $7 million at June 30, 2017 and 2016, respectively. The adjustment for derivative liabilities was a $1 million decrease and not significant at June 30, 2017 and 2016, respectively. These adjustments are required to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.