As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk inherent in these contracts was not material as of June 30, 2022.

The net effect of interest rate swap agreements was to increase net interest income by $25 million and $72 million during the three-month and six-month periods ended June 30, 2022, respectively, and $75 million and $166 million during the three-month and six-month periods ended June 30, 2021, respectively.

Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:



					Weighted-						Estimated
	Notional		Average		Average Rate						Fair Value
	Amount		Maturity		Fixed			Variable			Gain (Loss) (a)
	(In thousands)		(In years)								(In thousands)
June 30, 2022
Fair value hedges:
Fixed rate long-term borrowings (b)	$	1,000,000		3.1		3.10	%		2.20	%	$	4,338
Cash flow hedges:
Interest payments on variable rate commercial real estate loans (b)(c)		18,250,000		1.5		1.72	%		1.63	%		37,079
Total	$	19,250,000		1.6							$	41,417
December 31, 2021
Fair value hedges:
Fixed rate long-term borrowings (b)	$	1,650,000		2.3		2.86	%		0.74	%	$	41
Cash flow hedges:
Interest payments on variable rate commercial real estate loans (b)(d)		21,700,000		0.6		1.24	%		0.09	%		(248	)
Total	$	23,350,000		0.7							$	(207	)

(a)

Certain clearinghouse exchanges consider payments by counterparties for variation margin on derivative instruments to be settlements of those positions. The impact of such payments for interest rate swap agreements designated as fair value hedges was a net settlement of losses of $24.8mm at June 30, 2022 and a net settlement of gains of $43.5 at December 31, 2021. The impact of such payments on interest rate swap agreements designated as cash flow hedges was a net settlement of losses of $181.5 million at June 30, 2022 and a net settlement of gains of $88.2 million at December 31,2021.

(b)

Under the terms of these agreements, the Company receives settlement amounts at a fixed rate and pays at a variable rate.

(c)

Includes notional amount and terms of $3.3 billion of forward-starting interest rate swap agreements that become effective in 2023.

(d)

Includes notional amount and terms of $8.4 billion of forward-starting interest rate swap agreements that become effective in 2022.

The Company utilizes commitments to sell residential and commercial real estate loans to hedge the exposure to changes in the fair value of real estate loans held for sale. Such commitments have generally been designated as fair value hedges. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in fair value of certain commitments to originate real estate loans for sale.

Derivative financial instruments not designated as hedging instruments included interest rate contracts, foreign exchange and other option and futures contracts. Interest rate contracts not designated as hedging instruments had notional values of $47.9 billion and $32.6 billion at June 30, 2022 and December 31, 2021, respectively. The notional amounts of foreign exchange and other option and futures contracts not designated as hedging instruments aggregated $1.6 billion and $1.1 billion at June 30, 2022 and December 31, 2021, respectively.

Information about the fair values of derivative instruments in the Company’s consolidated balance sheet and consolidated statement of income follows:


	Asset Derivatives				Liability Derivatives
	Fair Value				Fair Value
	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
	(In thousands)
Derivatives designated and qualifying as hedging instruments (a)
Interest rate swap agreements	$	41,417	$	258	$	—	$	465
Commitments to sell real estate loans		13,892		4,044		135		548
		55,309		4,302		135		1,013
Derivatives not designated and qualifying as hedging instruments (a)
Mortgage banking:
Mortgage-related commitments to originate real estate loans for sale		6,524		11,728		30,705		5,288
Commitments to sell real estate loans		37,090		8,137		3,376		4,108
Other:
Interest rate contracts (b)		121,112		410,056		754,154		76,278
Foreign exchange and other option and futures contracts		23,729		8,230		20,069		7,156
		188,455		438,151		808,304		92,830
Total derivatives	$	243,764	$	442,453	$	808,439	$	93,843

(a)

Asset derivatives are reported in other assets and liability derivatives are reported in other liabilities.

(b)

The impact of variation margin payments at June 30, 2022 and December 31, 2021 was a reduction of the estimated fair value of interest rate contracts not designated as hedging instruments in an asset position of $777.8 million and $54.4 million, respectively, and in a liability position of $18.7 million and $305.1 million, respectively.


	Amount of Gain (Loss) Recognized
	Three Months Ended June 30
	2022					2021
	Derivative			Hedged Item		Derivative			Hedged Item
	(In thousands)
Derivatives in fair value hedging relationships
Interest rate swap agreements:
Fixed rate long-term borrowings (a)	$	(20,683	)		20,762	$	154			(78	)
Derivatives not designated as hedging instruments
Interest rate contracts (b)	$	5,808				$	2,771
Foreign exchange and other option and futures contracts (b)		4,493					1,618
Total	$	10,301				$	4,389


	Amount of Gain (Loss) Recognized
	Six Months Ended June 30
	2022					2021
	Derivative			Hedged Item		Derivative			Hedged Item
	(In thousands)
Derivatives in fair value hedging relationships
Interest rate swap agreements:
Fixed rate long-term borrowings (a)	$	(63,956	)		63,760	$	(32,504	)		31,820
Derivatives not designated as hedging instruments
Interest rate contracts (b)	$	10,961				$	5,979
Foreign exchange and other option and futures contracts (b)		6,239					3,226
Total	$	17,200				$	9,205

The amount of interest income recognized in the consolidated statement of income associated with derivatives designated as cash flow hedges was $20 million and $67 million for the three months ended June 30, 2022 and 2021, respectively, and $58 million and $149 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 the unrealized net loss recognized in other comprehensive income related to cash flow hedges was $144 million, of which losses of $18 million, $76 million and $50 million related to interest rate swap agreements maturing in 2022, 2023, and 2025, respectively.

The Company also has commitments to sell and commitments to originate residential and commercial real estate loans that are considered derivatives. The Company designates certain of the commitments to sell real estate loans as fair value hedges of real estate loans held for sale. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in the fair value of certain commitments to originate real estate loans for sale. As a result of these activities, net unrealized pre-tax gains related to hedged loans held for sale, commitments to originate loans for sale and commitments to sell loans were approximately $12 million and $24 million at June 30, 2022 and December 31, 2021, respectively. Changes in unrealized gains and losses are included in mortgage banking revenues and, in general, are realized in subsequent periods as the related loans are sold and commitments satisfied.

The Company does not offset derivative asset and liability positions in its consolidated financial statements. The Company’s exposure to credit risk by entering into derivative contracts is mitigated through master netting agreements and collateral posting or settlement requirements. Master netting agreements covering interest rate and foreign exchange contracts with the same party include a right to set-off that becomes enforceable in the event of default, early termination or under other specific conditions.

The aggregate fair value of derivative financial instruments in a liability position and the net liability positions with counterparties which are subject to master netting arrangements was $3 million and $35 million at June 30, 2022 and December 31, 2021, respectively. The Company was required to post collateral relating to those positions of $1 million and $33 million at June 30, 2022 and December 31, 2021, respectively. Certain of the Company’s derivative financial instruments contain provisions that require the Company to maintain specific credit ratings from credit rating agencies to avoid higher collateral posting requirements. If the Company’s debt rating were to fall below specified ratings, the counterparties of the derivative financial instruments could demand immediate incremental collateralization on those instruments in a net liability position. The aggregate fair value of all derivative financial instruments with such credit risk-related contingent features in a net liability position on June 30, 2022 was not material.

The aggregate fair value of derivative financial instruments in an asset position and the net asset positions with counterparties which are subject to enforceable master netting arrangements was $183 million at June 30, 2022 and $7 million at December 31, 2021. Counterparties posted collateral relating to those positions of $195 million at June 30, 2022 and $6 million at December 31, 2021. Interest rate swap agreements entered into with customers are subject to the Company’s credit risk standards and often contain collateral provisions.

In addition to the derivative contracts noted above, the Company clears certain derivative transactions through a clearinghouse, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position. The amount of initial margin collateral posted by the Company was $224 million and $132 million at June 30, 2022 and December 31, 2021, respectively. The fair value asset and liability amounts of derivative contracts have been reduced by variation margin payments treated as settlements as described herein. Variation margin on derivative contracts not treated as settlements continues to represent collateral posted or received by the Company.