The Bancorp maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce certain risks related to interest rate, prepayment and foreign currency volatility. Additionally, the Bancorp holds derivative instruments for the benefit of its commercial customers and for other business purposes. The Bancorp does not enter into unhedged speculative derivative positions.

The Bancorp’s interest rate risk management strategy involves modifying the repricing characteristics of certain financial instruments so that changes in interest rates do not adversely affect the Bancorp’s net interest margin and cash flows. Derivative instruments that the Bancorp may use as part of its interest rate risk management strategy include interest rate swaps, interest rate floors, interest rate caps, forward contracts, forward starting interest rate swaps, options, swaptions and TBA securities. Interest rate swap contracts are exchanges of interest payments, such as fixed-rate payments for floating-rate payments, based on a stated notional amount and maturity date. Interest rate floors protect against declining rates, while interest rate caps protect against rising interest rates. Forward contracts are contracts in which the buyer agrees to purchase, and the seller agrees to make delivery of, a specific financial instrument at a predetermined price or yield. Options provide the purchaser with the right, but not the obligation, to purchase or sell a contracted item during a specified period at an agreed-upon price. Swaptions are financial instruments granting the owner the right, but not the obligation, to enter into or cancel a swap.

Prepayment volatility arises mostly from changes in fair value of the largely fixed-rate MSR portfolio, mortgage loans and mortgage-backed securities. The Bancorp may enter into various free-standing derivatives (principal-only swaps, interest rate swaptions, interest rate floors, mortgage options, TBA securities and interest rate swaps) to economically hedge prepayment volatility. Principal-only swaps are total return swaps based on changes in the value of the underlying mortgage principal-only trust. TBA securities are a forward purchase agreement for a mortgage-backed securities trade whereby the terms of the security are undefined at the time the trade is made.

The Bancorp also enters into derivative contracts (including foreign exchange contracts, commodity contracts and interest rate contracts) for the benefit of commercial customers and other business purposes. The Bancorp economically hedges significant exposures related to these free-standing derivatives by entering into offsetting third-party contracts with approved, reputable and independent counterparties with substantially matching terms and currencies. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Bancorp’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. Credit risk is minimized through credit approvals, limits, counterparty collateral and monitoring procedures.

The fair value of derivative instruments is presented on a gross basis, even when the derivative instruments are subject to master netting arrangements. Derivative instruments with a positive fair value are reported in other assets in the Condensed Consolidated Balance Sheets while derivative instruments with a negative fair value are reported in other liabilities in the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative instruments are not added to or netted against the fair value amounts with the exception of certain variation margin payments that are considered legal settlements of the derivative contracts. For derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation margin payments as settlements, the variation margin payments are applied to net the fair value of the respective derivative contracts.

The Bancorp’s derivative assets include certain contractual features in which the Bancorp requires the counterparties to provide collateral in the form of cash and securities to offset changes in the fair value of the derivatives, including changes in the fair value due to credit risk of the counterparty. As of June 30, 2021 and December 31, 2020, the balance of collateral held by the Bancorp for derivative assets was $1.1 billion and $1.0 billion, respectively. For derivative contracts cleared through certain central clearing parties whose rules treat variation margin payments as settlement of the derivative contract, the payments for variation margin of $898 million and $1.1 billion were applied to reduce the respective derivative contracts and were also not included in the total amount of collateral held as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, the credit component negatively impacting the fair value of derivative assets associated with customer accommodation contracts was $26 million and $42 million, respectively.

In measuring the fair value of derivative liabilities, the Bancorp considers its own credit risk, taking into consideration collateral maintenance requirements of certain derivative counterparties and the duration of instruments with counterparties that do not require collateral maintenance. When necessary, the Bancorp posts collateral primarily in the form of cash and securities to offset changes in fair value of the derivatives, including changes in fair value due to the Bancorp’s credit risk. As of June 30, 2021 and December 31, 2020, the balance of collateral posted by the Bancorp for derivative liabilities was $1.1 billion and $463 million, respectively. Additionally, as of June 30, 2021 and December 31, 2020, $768 million and $1.1 billion, respectively, of variation margin payments were applied to the respective derivative contracts to reduce the Bancorp’s derivative liabilities and were also not included in the total amount of collateral posted. Certain of the Bancorp’s derivative liabilities contain credit-risk related contingent features that could result in the requirement to post additional collateral upon the occurrence of specified events. As of both June 30, 2021 and December 31, 2020, the fair value of the additional collateral that could be required to be posted as a result of the credit-risk-related contingent features being triggered was immaterial to the Bancorp’s Condensed Consolidated Financial Statements. The posting of collateral has been determined to remove the need for further consideration of

The Bancorp holds certain derivative instruments that qualify for hedge accounting treatment and are designated as either fair value hedges or cash flow hedges. Derivative instruments that do not qualify for hedge accounting treatment, or for which hedge accounting is not established, are held as free-standing derivatives. All customer accommodation derivatives are held as free-standing derivatives.


			Fair Value
June 30, 2021 ($ in millions)	Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives Designated as Qualifying Hedging Instruments:
Fair value hedges:
Interest rate swaps related to long-term debt	$	1,455	429		—
Total fair value hedges			429		—
Cash flow hedges:
Interest rate floors related to C&I loans	3,000		183		—
Interest rate swaps related to C&I loans	8,000		—		1
Total cash flow hedges			183		1
Total derivatives designated as qualifying hedging instruments			612		1
Derivatives Not Designated as Qualifying Hedging Instruments:
Free-standing derivatives - risk management and other business purposes:
Interest rate contracts related to MSR portfolio	6,310		146		—
Forward contracts related to residential mortgage loans held for sale(b)	3,395		1		8
Swap associated with the sale of Visa, Inc. Class B Shares	3,836		—		213
Foreign exchange contracts	208		5		—
Interest rate contracts for collateral management	12,000		5		5

Interest rate contracts for LIBOR transition	2,372		—		—
Total free-standing derivatives – risk management and other business purposes			157		226
Free-standing derivatives – customer accommodation:
Interest rate contracts(a)	80,338		879		225
Interest rate lock commitments	1,865		39		—
Commodity contracts	10,369		1,240		1,209
TBA securities	92		—		—
Foreign exchange contracts	19,778		281		246
Total free-standing derivatives – customer accommodation			2,439		1,680
Total derivatives not designated as qualifying hedging instruments			2,596		1,906
Total			$	3,208	1,907


			Fair Value
December 31, 2020 ($ in millions)	Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives Designated as Qualifying Hedging Instruments:
Fair value hedges:
Interest rate swaps related to long-term debt	$	1,955	528		—
Total fair value hedges			528		—
Cash flow hedges:
Interest rate floors related to C&I loans	3,000		244		—
Interest rate swaps related to C&I loans	8,000		16		2
Total cash flow hedges			260		2
Total derivatives designated as qualifying hedging instruments			788		2
Derivatives Not Designated as Qualifying Hedging Instruments:
Free-standing derivatives – risk management and other business purposes:
Interest rate contracts related to MSR portfolio	6,910		202		1
Forward contracts related to residential mortgage loans held for sale	2,903		1		16
Swap associated with the sale of Visa, Inc. Class B Shares	3,588		—		201
Foreign exchange contracts	204		—		3
Interest rate contracts for collateral management	12,000		3		1
Interest rate contracts for LIBOR transition	2,372		—		—
Total free-standing derivatives – risk management and other business purposes			206		222
Free-standing derivatives – customer accommodation:
Interest rate contracts(a)	77,806		1,238		265
Interest rate lock commitments	1,830		57		—
Commodity contracts	7,762		375		359
Foreign exchange contracts	14,587		255		224
Total free-standing derivatives – customer accommodation			1,925		848
Total derivatives not designated as qualifying hedging instruments			2,131		1,070
Total			$	2,919	1,072

The Bancorp may enter into interest rate swaps to convert its fixed-rate funding to floating-rate. Decisions to convert fixed-rate funding to floating are made primarily through consideration of the asset/liability mix of the Bancorp, the desired asset/liability sensitivity and interest rate levels. As of June 30, 2021, certain interest rate swaps met the criteria required to qualify for the shortcut method of accounting that permits the assumption of perfect offset. For all designated fair value hedges of interest rate risk as of June 30, 2021 that were not accounted for under the shortcut method of accounting, the Bancorp performed an assessment of hedge effectiveness using regression analysis with changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk recorded in the same income statement line in current period net income.


	Condensed Consolidated Statements of Income Caption	For the three months ended June 30,			For the six months ended June 30,
($ in millions)		2021		2020	2021	2020
Change in fair value of interest rate swaps hedging long- term debt	Interest on long-term debt	$	46	(1)	(99)	226
Change in fair value of hedged long-term debt attributable to the risk being hedged	Interest on long-term debt	(46)		2	99	(225)

The Bancorp may enter into interest rate swaps to convert floating-rate assets and liabilities to fixed rates or to hedge certain forecasted transactions for the variability in cash flows attributable to the contractually specified interest rate. The assets or liabilities may be grouped in circumstances where they share the same risk exposure that the Bancorp desires to hedge. The Bancorp may also enter into interest rate caps and floors to limit cash flow variability of floating-rate assets and liabilities. As of June 30, 2021, all hedges designated as cash flow hedges were assessed for effectiveness using regression analysis. The entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is recorded in AOCI and reclassified from AOCI to current period earnings when the hedged item affects earnings. As of June 30, 2021, the maximum length of time over which the Bancorp is hedging its exposure to the variability in future cash flows is 42 months.

Reclassified gains and losses on interest rate contracts related to commercial and industrial loans are recorded within interest income in the Condensed Consolidated Statements of Income. As of June 30, 2021 and December 31, 2020, $548 million and $718 million, respectively, of net deferred gains, net of tax, on cash flow hedges were recorded in AOCI in the Condensed Consolidated Balance Sheets. As of June 30, 2021, $213 million in net unrealized gains, net of tax, recorded in AOCI are expected to be reclassified into earnings during the next 12 months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations or the addition of other hedges subsequent to June 30, 2021.

During both the three and six months ended June 30, 2021 and 2020, there were no gains or losses reclassified from AOCI into earnings associated with the discontinuance of cash flow hedges because it was probable that the original forecasted transaction would no longer occur by the end of the originally specified time period or within the additional period of time as defined by U.S. GAAP.

As part of its overall risk management strategy relative to its mortgage banking activity, the Bancorp may enter into various free-standing derivatives (principal-only swaps, interest rate swaptions, interest rate floors, mortgage options, TBA securities and interest rate swaps) to economically hedge changes in fair value of its largely fixed-rate MSR portfolio. Principal-only swaps hedge the spread between mortgage rates and LIBOR because these swaps appreciate in value as a result of tightening spreads. Principal-only swaps also provide prepayment protection by increasing in value when prepayment speeds increase, as opposed to MSRs that lose value in a faster prepayment environment. Receive fixed/pay floating interest rate swaps and swaptions increase in value when interest rates do not increase as quickly as expected.

The Bancorp enters into forward contracts and mortgage options to economically hedge the change in fair value of certain residential mortgage loans held for sale due to changes in interest rates. IRLCs issued on residential mortgage loan commitments that will be held for sale are also considered free-standing derivative instruments and the interest rate exposure on these commitments is economically hedged primarily with forward contracts. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are recorded as a component of mortgage banking net revenue in the Condensed Consolidated Statements of Income.

In conjunction with the sale of Visa, Inc. Class B Shares in 2009, the Bancorp entered into a total return swap in which the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Class B Shares into Class A Shares. This total return swap is accounted for as a free-standing derivative. Refer to Note 21 for further discussion of significant inputs and assumptions used in the valuation of this instrument.

As part of the LIBOR to SOFR transition, the Bancorp received certain interest rate swap contracts from the two central clearing parties that are moving from an Effective Federal Funds Rate discounting curve to a SOFR discounting curve. The purpose of these interest rate swaps was to neutralize the impact on collateral requirements due to the change in discounting curves implemented by the central clearing parties.


	Condensed Consolidated Statements of Income Caption	For the three months ended June 30,			For the six months ended June 30,
($ in millions)		2021		2020	2021	2020
Interest rate contracts:
Forward contracts related to residential mortgage loans held for sale	Mortgage banking net revenue	$	(58)	47	9	(11)
Interest rate contracts related to MSR portfolio	Mortgage banking net revenue	46		11	(88)	361
Foreign exchange contracts:
Foreign exchange contracts for risk management purposes	Other noninterest income	(3)		(6)	(5)	8
Equity contracts:
Swap associated with sale of Visa, Inc. Class B Shares	Other noninterest income	(37)		(29)	(50)	(51)

The majority of the free-standing derivative instruments the Bancorp enters into are for the benefit of its commercial customers. These derivative contracts are not designated against specific assets or liabilities on the Condensed Consolidated Balance Sheets or to forecasted transactions and, therefore, do not qualify for hedge accounting. These instruments include foreign exchange derivative contracts entered into for the benefit of commercial customers involved in international trade to hedge their exposure to foreign currency fluctuations and commodity contracts to hedge such items as natural gas and various other derivative contracts. The Bancorp may economically hedge significant exposures related to these derivative contracts entered into for the benefit of customers by entering into offsetting contracts with approved, reputable, independent counterparties with substantially matching terms. The Bancorp hedges its interest rate exposure on commercial customer transactions by executing offsetting swap agreements with primary dealers. Revaluation gains and losses on interest rate, foreign exchange, commodity and other commercial customer derivative contracts are recorded as a component of commercial banking revenue or other noninterest income in the Condensed Consolidated Statements of Income.

The Bancorp enters into risk participation agreements, under which the Bancorp assumes credit exposure relating to certain underlying interest rate derivative contracts. The Bancorp only enters into these risk participation agreements in instances in which the Bancorp has participated in the loan that the underlying interest rate derivative contract was designed to hedge. The Bancorp will make payments under these agreements if a customer defaults on its obligation to perform under the terms of the underlying interest rate derivative contract. The total notional amount of the risk participation agreements was $3.4 billion at both June 30, 2021 and December 31, 2020 and the fair value was a liability of $8 million at both June 30, 2021 and December 31, 2020, which is included in other liabilities in the Condensed Consolidated Balance Sheets. As of June 30, 2021, the risk participation agreements had a weighted-average remaining life of 3.2 years.

The Bancorp’s maximum exposure in the risk participation agreements is contingent on the fair value of the underlying interest rate derivative contracts in an asset position at the time of default. The Bancorp monitors the credit risk associated with the underlying customers in the risk participation agreements through the same risk grading system currently utilized for establishing loss reserves in its loan and lease portfolio.


	Condensed Consolidated Statements of Income Caption	For the three months ended June 30,			For the six months ended June 30,
($ in millions)		2021		2020	2021	2020
Interest rate contracts:
Interest rate contracts for customers (contract revenue)	Commercial banking revenue	$	12	12	19	26
Interest rate contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	1		(1)	16	(34)
Interest rate lock commitments	Mortgage banking net revenue	57		82	89	182
Commodity contracts:
Commodity contracts for customers (contract revenue)	Commercial banking revenue	6		4	11	7
Commodity contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	(1)		—	—	(1)
Commodity contracts for customers (credit losses)	Other noninterest expense	—		(1)	—	(1)
Foreign exchange contracts:
Foreign exchange contracts for customers (contract revenue)	Commercial banking revenue	16		14	30	26
Foreign exchange contracts for customers (contract revenue)	Other noninterest income	(2)		(3)	(1)	3
Foreign exchange contracts for customers (credit portion of fair value adjustment)	Other noninterest expense	—		1	—	(1)

The Bancorp’s derivative transactions are generally governed by ISDA Master Agreements and similar arrangements, which include provisions governing the setoff of assets and liabilities between the parties. When the Bancorp has more than one outstanding derivative transaction with a single counterparty, the setoff provisions contained within these agreements generally allow the non-defaulting party the right to reduce its liability to the defaulting party by amounts eligible for setoff, including the collateral received as well as eligible offsetting transactions with that counterparty, irrespective of the currency, place of payment or booking office. The Bancorp’s policy is to present its derivative assets and derivative liabilities on the Condensed Consolidated Balance Sheets on a gross basis, even when provisions allowing for setoff are in place. However, for derivative contracts cleared through certain central clearing parties who have modified their rules to treat variation margin payments as settlements, the fair value of the respective derivative contracts is reported net of the variation margin payments.


	Gross Amount Recognized in the Condensed Consolidated Balance Sheets(a)		Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
			Derivatives	Collateral(b)	Net Amount
As of June 30, 2021
Derivative assets	$	3,169	(742)	(632)	1,795
Derivative liabilities	1,907		(742)	(811)	354
As of December 31, 2020
Derivative assets	$	2,862	(621)	(755)	1,486
Derivative liabilities	1,072		(621)	(221)	230