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 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.


December 31	2020						2019
	Notional Amount		Fair Value				Notional Amount		Fair Value
(in millions)			Asset		Liability				Asset		Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	1,430	$	3	$	—	$	1,655	$	1	$	—
Interest rate swaps – not designated	4,791		—		37		3,640		—		23

Total subject to master netting arrangements	6,221		3		37		5,295		1		23
Not subject to master netting arrangements:
Interest rate swaps – not designated	4,791		349		—		3,640		149		1
Interest rate lock commitments – not designated	531		24		—		163		3		—
Forward delivery commitments – not designated	500		—		2		195		1		1
Credit risk contracts – not designated	437		—		1		265		—		—

Total not subject to master netting arrangements	6,259		373		3		4,263		153		2
Total	$	12,480	$	376	$	40	$	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.

We adopted RRR on October 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2022. As of October 16, 2020, we changed our valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash migration from overnight index swap (OIS) to SOFR for U.S. dollar cleared interest rate swaps to better reflect prices obtainable in the markets in which we transact. Certain of these valuation methodology changes were applied to eligible hedging relationships. Accordingly, we have updated our hedge documentation to reflect the election of certain expedients and exceptions related to our cash flow hedging programs. The change in valuation methodology was applied prospectively as a change in accounting estimate and did not have a material impact on our consolidated financial position or results of operations.

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 OCI 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
	Year Ended December 31,							Year Ended December 31,
(in millions)	2020		2019		2018			2020		2019		2018
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	(51)	$	(22)	$	(3)	Interest income (expense)	$	(14)	$	2	$	2
							Other income	(9)		—		—


	Year Ended December 31,
	2020				2019				2018
(in millions)	Interest Income - Loans and Leases		Interest Expense - Short-Term Borrowings		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)	$	990	$	38	$	1,085	$	80	$	1,022	$	75
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)	(7)		(16)		(1)		3		(1)		3
Amount of gain (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring	—		—		—		—		—		—

As of December 31, 2020, the maximum length of time over which forecasted interest cash flows are hedged is 3.9 years. In the twelve months that follow December 31, 2020, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $18.8 million ($14.7 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 December 31, 2020. During the third quarter of 2020, we voluntarily terminated $225.0 million of interest rate contracts associated with cash flow hedge programs to take advantage of strong deposit growth and reduce higher-cost debt.

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 years ended December 31, 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.

Interest Rate Swaps. We enter into interest rate swap agreements to meet the financing, interest rate and equity risk management needs of qualifying commercial loan customers. These agreements provide the customer the ability to convert from variable to fixed interest rates. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. Swap derivative transactions with customers are not subject to enforceable master netting arrangements and are generally secured by rights to non-financial collateral, such as real and personal property.

We enter into positions with a derivative counterparty in order to offset our exposure on the fixed components of the customer interest rate swap agreements. We seek to minimize counterparty credit risk by entering into transactions only with high-quality financial dealer institutions.

Interest rate swap agreements with loan customers and with the offsetting counterparties are 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.

Interest Rate Lock Commitments. IRLCs an agreement to extend credit to a mortgage loan borrower, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding. We are bound to fund the loan at a specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date, subject to the loan approval process. The borrower is not obligated to perform under the commitment. As such, outstanding IRLCs subject us to interest rate risk and related price risk during the period from the commitment to the borrower through the loan funding date, or commitment expiration. The IRLCs generally range between 30 to 270 days. The IRLCs are 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 mortgage banking operations non-interest income.

Forward Delivery Commitments. Forward delivery commitments on mortgage-backed securities are used to manage the interest rate and price risk of our IRLCs and mortgage loan held for sale inventory by fixing the forward sale price that will be realized upon sale of the mortgage loans into the secondary market. Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs. The forward delivery contracts are 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 mortgage banking operations non-interest income.

Credit Risk Contracts. We purchase and sell credit protection under risk participation agreements to share with other counterparties some of the credit exposure related to interest rate derivative contracts or to take on credit exposure to generate revenue. We will make/receive payments under these agreements if a customer defaults on their obligation to perform under certain derivative swap contracts.

Risk participation agreements sold with notional amounts totaling $294.4 million as of December 31, 2020 have remaining terms ranging from one month 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 $0.6 million and $0.3 million at December 31, 2020 and 2019, respectively. The fair values of risk participation agreements purchased and sold were $0.2 million and $0.6 million, respectively, at December 31, 2020 and $0.1 million and $0.3 million, respectively, at December 31, 2019.


		Year Ended December 31,
(in millions)	Consolidated Statements of Income Location	2020		2019		2018
Interest rate swaps	Non-interest income - other	$	—	$	—	$	1
Interest rate lock commitments	Mortgage banking operations	—		—		—
Forward delivery contracts	Mortgage banking operations	(2)		(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 December 31, 2020 and 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
December 31, 2020
Derivative Assets
Interest rate contracts:
Designated	$	3	$	—	$	3	$	—


Total	$	3	$	—	$	3	$	—