The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate and liquidity risks, primarily by managing the amount, sources, and duration of its assets and liabilities and, the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

Derivative financial instruments are recorded at fair value in other assets and other liabilities on the Consolidated Statements of Condition. The Company's policy is to present our derivative assets and derivative liabilities on the Consolidated Statement of Condition on a gross basis, even when provisions allowing for set-off are in place. However, for derivative contracts cleared through certain central clearing parties, variation margin payments are recognized as settlements. We are exposed to non-performance risk by the counterparties to our various derivative financial instruments. A majority of our derivatives are centrally cleared through a Central Counterparty Clearing House or consist of residential mortgage interest rate lock commitments further limiting our exposure to non-performance risk. We believe that the non-performance risk inherent in our remaining derivative contracts is minimal based on credit standards and the collateral provisions of the derivative agreements.

Derivatives not designated as hedging instruments. The Company maintains a derivative portfolio of interest rate swaps, futures and forward commitments used to manage exposure to changes in interest rates and MSR asset values and to meet the needs of customers. The Company also enters into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Market risk on interest rate lock commitments and mortgage LHFS is managed using corresponding forward sale commitments and US Treasury futures. Changes in the fair value of derivatives not designated as hedging instruments are recognized on the Consolidated Statements of Income and Comprehensive Income.

Derivatives designated as hedging instruments. The Company has designated certain interest rate swaps as cash flow hedges on LIBOR and overnight SOFR-based variable interest payments on federal home loan bank advances. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income on the Consolidated Statements of Condition and reclassified into interest expense in the same period in which the hedge transaction is recognized in earnings. At March 31, 2023, the Company had $19 million (net-of-tax) of unrealized gains on derivatives classified as cash flow hedges recorded in accumulated other comprehensive loss. The Company had $52 million (net-of-tax) of unrealized gains on derivatives classified as cash flow hedges recorded in accumulated other comprehensive loss at December 31, 2022.

Derivatives that are designated in hedging relationships are assessed for effectiveness using regression analysis at inception and qualitatively thereafter, unless regression analysis is deemed necessary. All designated hedge relationships were, and are expected to be, highly effective as of March 31, 2023.

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed rate assets. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

The Company has entered into interest rate swaps with a notional amounts of $2.0 billion to hedge certain real estate loans using the portfolio layer method. For the three months ended March 31, 2023, the floating rate received related to the net settlement of this interest rate swap was greater than the fixed rate payments. As such, interest income from loans and leases in the accompanying Consolidated Statements of Income and Comprehensive Income was increased by $1 million.

The fair value basis adjustment on our hedged real estate loans is included in loans and leases held for investment on our Consolidated Statements of Condition. The carrying amount of our hedged loans was $6 billion at March 31, 2023, of which unrealized gains of $2 million were due to the fair value hedge relationship. We have designated $2.0 billion of this portfolio of loans in a hedging relationship as of March 31, 2023.


	March 31, 2023
			Fair Value
(in millions)	Notional Amount		Other Assets		Other Liabilities
Derivatives designated as cash flow hedging instruments:
Interest rate swap on FHLB advances	$	5,500	$	—	$	7
Total	$	5,500	$	—	$	7
Derivatives designated as fair value hedging instruments:
Interest rate swap on multi-family loans held for investment	$	2,000	$	—	$	2
Derivatives not designated as hedging instruments:
Assets
Futures	$	—			$	—
Mortgage-backed securities forwards	542		5		—
Rate lock commitments	1,759		15		—
Interest rate swaps and swaptions	7,522		159		—
Total	$	9,823	$	179	$	—
Liabilities
Mortgage-backed securities forwards	$	1,466	$	—	$	14
Rate lock commitments	218		—		7
Interest rate swaps and swaptions	2,247		—		49
Total derivatives not designated as hedging instruments	$	3,931	$	—	$	70


	December 31, 2022
			Fair Value
(in millions)	Notional Amount		Other Assets		Other Liabilities
Derivatives designated as cash flow hedging instruments:
Interest rate swap	$	3,750	$	5	$	—
Total	$	3,750	$	5	$	—
Derivatives not designated as hedging instruments:
Assets
Futures	$	1,205	$	2	$	—
Mortgage-backed securities forwards	1,065		36		—
Rate lock commitments	1,539		9		—
Interest rate swaps and swaptions	7,594		182		—
Total	$	11,403	$	229	$	—
Liabilities
Mortgage-backed securities forwards	$	739	$	—	$	61
Rate lock commitments	527		—		10
Interest rate swaps and swaptions	2,445		—		65
Total derivatives not designated as hedging instruments	$	3,711	$	—	$	136


	March 31, 2023
							Gross Amounts Not Offset in the Statements of Condition
(in millions)	Gross Amount		Gross Amounts Netted in the Statements of Condition		Net Amount Presented in the Statements of Condition		Financial Instruments		Cash Collateral Pledged (Received)
Derivatives designated hedging instruments:
Interest rate swaps on FHLB advances	$	7	$	—	$	7	$	—	$	96
Interest rate swaps on multi-family loans held for investment(1)	$	2	$	—	$	2	$	—	$	35
Derivatives not designated as hedging instruments:
Assets
Mortgage-backed securities forwards	$	5	$	—	$	5	$	—	$	(3)
Interest rate swaptions	159		—		159		—		(24)
Futures	—		—		—		—		—
Total derivative assets	$	164	$	—	$	164	$	—	$	(27)
Liabilities
Futures	$	1	$	—	$	1	$	—	$	3
Mortgage-backed securities forwards	14		—		14		—		8
Interest rate swaps (1)	49		—		49		—		44
Total derivative liabilities	$	64	$	—	$	64	$	—	$	55

(1)Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior days fair value of open positions is considered settlement of the derivative position for accounting purposes.


	December 31, 2022
							Gross Amounts Not Offset in the Statements of Condition
(in millions)	Gross Amount		Gross Amounts Netted in the Statements of Condition		Net Amount Presented in the Statements of Condition		Financial Instruments		Cash Collateral Pledged (Received)
Derivatives designated hedging instruments:
Interest rate swaps on FHLB advances	$	5	$	—	$	5	$	4	$	27
Derivatives not designated as hedging instruments:
Assets
Mortgage-backed securities forwards	$	36	$	—	$	36	$	—	$	(9)
Interest rate swaptions	182		—		182		—		(36)
Futures	2				2				1
Total derivative assets	$	220	$	—	$	220	$	—	$	(44)
Liabilities
Mortgage-backed securities forwards	$	61	$	—	$	61	$	—	$	54
Interest rate swaps (1)	65		—		65		—		29
Total derivative liabilities	$	126	$	—	$	126	$	—	$	83

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges are initially recorded in other comprehensive income and are subsequently reclassified into earnings in the period that the hedged transaction affects income.


(in millions)	For the Three Months Ended March 31, 2023		For the Year Ended December 31, 2022		For the Three Months Ended March 31, 2022
Amount of loss recognized in AOCL	$	(90)	$	88	$	16
Amount of reclassified from AOCL to interest expense	$	(6)	$	(4)	$	6

Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. During the next twelve months, additional interest expense of $81 million is expected to be reclassified out of AOCL.


(dollars in millions)		For the Three Months Ended March 31, 2023		For the Three Months Ended December 31, 2022
Derivatives not designated as hedging instruments	Location of Gain (Loss)
Futures	Net return on mortgage servicing rights	$	(2)	$	(1)
Interest rate swaps and swaptions	Net return on mortgage servicing rights	7		(11)
Mortgage-backed securities forwards	Net return on mortgage servicing rights	(2)		(4)
Rate lock commitments and US Treasury futures	Net gain on loan sales	20		28
Forward commitments	Other noninterest income	—		(1)
Interest rate swaps (1)	Other noninterest income	—		—
Total derivative (loss) gain		$	23	$	11