We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate risk, primarily by managing the amount, source, and duration of our assets and liabilities, and through the use of derivative instruments. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. We also use derivative instruments to facilitate transactions on behalf of our customers.

All derivatives are carried on the Consolidated Balance Sheets at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in the Consolidated Balance Sheets in other liabilities. Changes in fair value are recognized in earnings except for certain changes related to derivative instruments designated as part of a cash flow hedging relationship.

The following table presents notional amounts and gross fair values of our derivative assets and derivative liabilities which are not offset in the Consolidated Balance Sheets:


	June 30, 2020										December 31, 2019
	Notional		Fair Value						Notional		Fair Value
(in millions)	Amount		Asset		Liability		Amount		Asset		Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	1,955	$	4	$	—	$	1,655	$	1	$	—
Interest rate swaps – not designated	4,326		—		44		3,640		—		23

Total subject to master netting arrangements	6,281		4		44		5,295		1		23
Not subject to master netting arrangements:
Interest rate swaps – not designated	4,326		416		—		3,640		149		1
Interest rate lock commitments – not designated	453		18		—		163		3		—
Forward delivery commitments – not designated	420		1		2		195		1		1
Credit risk contracts – not designated	399		—		1		265		—		—

Total not subject to master netting arrangements	5,598		435		3		4,263		153		2
Total	$	11,879	$	439	$	47	$	9,558	$	154	$	25

Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through these exchanges as settled. The daily settlement of the derivative exposure does not change or reset the contractual terms of the

instrument. The fair value of interest rate swaps - not designated has increased from December 31, 2019 primarily due to the significantly lower interest rate environment since year-end.

Interest Rate Contracts. We entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, hedging the exposure to variability in expected future cash flows. The derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings. Prior to 2019, any ineffective portion of the gain or loss was reported in earnings immediately.


	Amount of Gain (Loss) Recognized in OCI on Derivatives					Location of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income
	Six Months Ended June 30,							Six Months Ended June 30,
(in millions)	2020		2019			2020		2019
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	(51)	$	(26)	Interest income (expense)	$	(4)	$	2


	Six months ended June 30,
	2020						2019

(in millions)	Interest Income - Loans and Leases		Interest Expense - Short-Term Borrowings		Interest Income - Loans and Leases		Interest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items)	$	511	$	22	$	545	$	48
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships	—		—		—		—
Interest rate contracts	—		—		—		—
Amount of gain (loss) reclassified from AOCI into net income	1		(5)		(1)		3
Amount of gain (loss) reclassified from AOCI into income as a result of that a forecasted transaction is no longer probable of occurring	—		—		—		—

As of June 30, 2020, the maximum length of time over which forecasted interest cash flows are hedged is 4.4 years. In the twelve months that follow June 30, 2020, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $23.5 million ($18.3 million net of tax), in association with interest on the hedged loans and FHLB advances. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2020.

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. Also, during the six months ended June 30, 2020 and 2019, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transactions would not occur.

A description of interest rate swaps, interest rate lock commitments, forward delivery commitments and credit risk contracts can be found in Note 14 "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020.

The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income or other expense.

Risk participation agreements sold with notional amounts totaling $283.5 million as of June 30, 2020 have remaining terms ranging from one day to twenty years. Under these agreements, our maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $0.7 million at June 30, 2020 and $0.3 million at December 31, 2019. The fair values of risk participation agreements purchased and sold were $0.3 million and $0.7 million, respectively, at June 30, 2020 and $0.1 million and $0.3 million, respectively at December 31, 2019.


		Six Months Ended June 30,
(in millions)	Consolidated Statements of Income Location	2020		2019
Interest rate swaps	Non-interest income - other	$	—	$	—
Interest rate lock commitments	Mortgage banking operations	—		—
Forward delivery contracts	Mortgage banking operations	(1)		(1)
Credit risk contracts	Non-interest income - other	—		—

We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions.

Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay an additional $0.3 million and $0.1 million as of June 30, 2020 and December 31, 2019, respectively, in excess of amounts previously posted as collateral with the respective counterparty.

The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the Consolidated Balance Sheets to the net amounts that would result in the event of offset:


			Amount Not Offset in the Consolidated Balance Sheets
(in millions)	Net Amount Presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral		Net Amount
June 30, 2020
Derivative Assets
Interest rate contracts:
Designated	$	4	$	1	$	3	$	—


Total	$	4	$	1	$	3	$	—