Fair value is defined in GAAP as the price that would be received to sell an asset or the price paid to transfer a liability on the measurement date. The standard focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP establishes a fair value reporting hierarchy to maximize the use of observable inputs when measuring fair value and defines the three levels of inputs as noted below.

Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities may include debt securities, equity securities and listed derivative contracts that are traded in an active exchange market and certain US government agency securities that are actively traded in over-the-counter markets.

Observable inputs other than Level 1 such as: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated to observable market data for substantially the full term of the asset or liability. Level 2 assets and liabilities may include debt securities, equity securities and listed derivative contracts with quoted prices that are traded in markets that are not active, and certain debt and equity securities and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable inputs. This category generally includes agency residential and commercial mortgage-backed debt securities, asset-backed securities, corporate debt securities, residential mortgage loans held for sale, and derivative contracts.

Unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities may include financial instruments whose value is determined using pricing models with internally developed assumptions, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain available for sale and trading securities, commercial mortgage loans held for sale, private equity investments, residential mortgage servicing rights, BlackRock Series C Preferred Stock and certain financial derivative contracts. The available for sale and trading securities within Level 3 include non-agency residential mortgage-backed securities, auction rate securities, certain private-issuer asset-backed securities and corporate debt securities. Nonrecurring items, primarily certain nonaccrual and other loans held for sale, commercial mortgage servicing rights, equity investments and other assets are also included in this category.

We characterize active markets as those where transaction volumes are sufficient to provide objective pricing information, with reasonably narrow bid/ask spreads and where dealer quotes received do not vary widely and are based on current information. Inactive markets are typically characterized by low transaction volumes, price quotations that vary substantially among market participants or are not based on current information, wide bid/ask spreads, a significant increase in implied liquidity risk premiums, yields, or performance indicators for observed transactions or quoted prices compared to historical periods, a significant decline or absence of a market for new issuance, or any combination of the above factors. We also consider nonperformance risks including credit risk as part of our valuation methodology for all assets and liabilities measured at fair value.

Any models used to determine fair values or to validate dealer quotes based on the descriptions below are subject to review and independent testing as part of our model validation and internal control testing processes. Our Model Validation Committee tests significant models on at least an annual basis. In addition, we have teams, independent of the traders, verify marks and assumptions used for valuations at each period end.

Securities accounted for at fair value include both the available for sale and trading portfolios. We use prices obtained from pricing services, dealer quotes or recent trades to determine the fair value of securities. For 52% of our positions, we use prices obtained from pricing services provided by third party vendors. For an additional 11% of our positions, we use prices obtained from the pricing services as the primary input into the valuation process. One of the vendors' prices are set with reference to market activity for highly liquid assets such as agency mortgage-backed securities, and matrix pricing for other assets, such as CMBS and asset-backed securities. Another vendor primarily uses pricing models considering adjustments for ratings, spreads, matrix pricing and prepayments for the instruments we value using this service, such as non-agency residential mortgage-backed securities, agency adjustable rate mortgage securities, agency CMOs and municipal bonds. Management uses various methods and techniques to corroborate prices obtained from pricing services and dealers, including reference to other dealer or market quotes, by reviewing valuations of comparable instruments, or by comparison to internal valuations. Dealer quotes received are typically non-binding. In circumstances where relevant market prices are limited or unavailable, valuations may require significant management judgments or adjustments to determine fair value. In these cases, the securities are classified as Level 3.

The valuation techniques used for securities classified as Level 3 include using a discounted cash flow approach or, in certain instances, identifying a proxy security, market transaction or index. For certain security types, primarily non-agency residential securities, the fair value methodology incorporates values obtained from a discounted cash flow model. The modeling process incorporates assumptions management believes market participants would use to value the security under current market conditions. The assumptions used include prepayment projections, credit loss assumptions, and discount rates, which include a risk premium due to liquidity and uncertainty that are based on both observable and unobservable inputs. We use the discounted cash flow analysis, in conjunction with other relevant pricing information obtained from either pricing services or broker quotes to establish the fair value that management believes is representative under current market conditions. For purposes of determining fair value at June 30, 2011 and December 31, 2010, the relevant pricing service information was the predominant input.

In the proxy approach, the proxy selected has similar credit, tenor, duration, pricing and structuring attributes to the PNC position. The price, market spread, or yield on the proxy is then used to calculate an indicative market price for the security. Depending on the nature of the PNC position and its attributes relative to the proxy, management may make additional adjustments to account for market conditions, liquidity, and nonperformance risk, based on various inputs including recent trades of similar securities, single dealer quotes, and/or other observable and unobservable inputs.

Exchange-traded derivatives are valued using quoted market prices and are classified as Level 1. However, the majority of derivatives that we enter into are executed over-the-counter and are valued using internal models. Readily observable market inputs to these models can be validated to external sources, including industry pricing services, or corroborated through recent trades, dealer quotes, yield curves, implied volatility or other market-related data. Certain derivatives, such as total rate of return swaps, are corroborated to the CMBX index. These derivatives are classified as Level 2. Derivatives priced using significant management judgment or assumptions are classified as Level 3.

The fair values of our derivatives are adjusted for nonperformance risk including credit risk as appropriate. Our nonperformance risk adjustment is computed using new loan pricing and considers externally available bond spreads, in conjunction with internal historical recovery observations. The credit risk adjustment is not currently material to the overall derivatives valuation.

We have elected to account for certain residential mortgage loans originated for sale on a recurring basis at fair value. Residential mortgage loans are valued based on quoted market prices, where available, prices for other traded mortgage loans with similar characteristics, and purchase commitments and bid information received from market participants. These loans are regularly traded in active markets and observable pricing information is available from market participants. The prices are adjusted as necessary to include the embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans that are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation but are not considered significant to the fair value of the loans. Accordingly, residential mortgage loans held for sale are classified as Level 2.

Residential mortgage servicing rights (MSRs) are carried at fair value on a recurring basis. Currently, these residential MSRs do not trade in an active open market with readily observable prices. Although sales of servicing assets do occur, the precise terms and conditions typically would not be available. Accordingly, management determines the fair value of its residential MSRs using a discounted cash flow model incorporating assumptions about loan prepayment rates, discount rates, servicing costs, and other economic factors. As part of the pricing process, management compares its fair value estimates to third-party opinions of value on a quarterly basis to assess the reasonableness of the fair values calculated by its internal valuation models. Due to the nature of the valuation inputs, residential MSRs are classified as Level 3.

We account for certain commercial mortgage loans classified as held for sale at fair value. The election of the fair value option aligns the accounting for the commercial mortgages with the related hedges. At origination, these loans were intended for securitization.

We determine the fair value of commercial mortgage loans held for sale by using a whole loan methodology. Fair value is determined using sale valuation assumptions that management believes a market participant would use in pricing the loans. When available, valuation assumptions included observable inputs based on whole loan sales. Adjustments are made to these assumptions to account for situations when uncertainties exist, including market conditions and liquidity. Credit risk is included as part of our valuation process for these loans by considering expected rates of return for market participants for similar loans in the marketplace. Based on the significance of unobservable inputs, we classified this portfolio as Level 3.

The valuation of direct and indirect private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. The carrying values of direct and affiliated partnership interests reflect the expected exit price and are based on various techniques including multiples of adjusted earnings of the entity, independent appraisals, anticipated financing and sale transactions with third parties, or the pricing used to value the entity in a recent financing transaction. We value indirect investments in private equity funds based on net asset value as provided in the financial statements that we receive from their managers. Due to the time lag in our receipt of the financial information and based on a review of investments and valuation techniques applied, adjustments to the manager-provided value are made when available recent portfolio company information or market information indicates a significant change in value from that provided by the manager of the fund. These investments are classified as Level 3.

We have elected to account for structured resale agreements, which are economically hedged using free-standing financial derivatives, at fair value. The fair value for structured resale agreements is determined using a model that includes observable market data such as interest rates as inputs. Readily observable market inputs to this model can be validated to external sources, including yield curves, implied volatility or other market-related data. These instruments are classified as Level 2.

We have elected to account for the 2.9 million shares of the BlackRock Series C Preferred Stock received in a stock exchange with BlackRock at fair value. The Series C Preferred Stock economically hedges the BlackRock LTIP liability that is accounted for as a derivative. The fair value of the Series C Preferred Stock is determined using a third-party modeling approach, which includes both observable and unobservable inputs. This approach considers expectations of a default/liquidation event and the use of liquidity discounts based on our inability to sell the security at a fair, open market price in a timely manner. Although dividends are equal to common shares and other preferred series, significant transfer restrictions exist on our Series C shares for any purpose other than to satisfy the LTIP obligation. Due to the significance of unobservable inputs, this security is classified as Level 3.

Assets and liabilities measured at fair value on a recurring basis, including instruments for which PNC has elected the fair value option, follow.

Fair Value Measurements - Summary

					June 30, 2011								December 31, 2010
											Total								Total
In millions				Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
Assets
	Securities available for sale
		US Treasury and government agencies		$	3,692	$	438			$	4,130	$	5,289	$	421			$	5,710
		Residential mortgage-backed
			Agency				25,500				25,500				31,720				31,720
			Non-agency					$	6,454		6,454					$	7,233		7,233
		Commercial mortgage-backed
			Agency				1,303				1,303				1,797				1,797
			Non-agency				2,545				2,545				1,856				1,856
		Asset-backed					2,734		951		3,685				1,537		1,045		2,582
		State and municipal					1,961		341		2,302				1,729		228		1,957
		Other debt					3,367		75		3,442				4,004		73		4,077
			Total debt securities		3,692		37,848		7,821		49,361		5,289		43,064		8,579		56,932
		Corporate stocks and other			306						306		307		67		4		378
			Total securities available for sale		3,998		37,848		7,821		49,667		5,596		43,131		8,583		57,310
	Financial derivatives (a) (b)
		Interest rate contracts			2		5,597		51		5,650				5,502		68		5,570
		Other contracts					196		9		205				178		9		187
			Total financial derivatives		2		5,793		60		5,855				5,680		77		5,757
	Residential mortgage loans held for sale (c)						1,351				1,351				1,878				1,878
	Trading securities (d)
		Debt (e) (f)			607		1,368		56		2,031		1,348		367		69		1,784
		Equity			44						44		42						42
			Total trading securities		651		1,368		56		2,075		1,390		367		69		1,826
	Residential mortgage servicing rights (g)								996		996						1,033		1,033
	Commercial mortgage loans held for sale (c)								856		856						877		877
	Equity investments
		Direct investments							849		849						749		749
		Indirect investments (h)							664		664						635		635
			Total equity investments						1,513		1,513						1,384		1,384
	Customer resale agreements (i)						813				813				866				866
	Loans (j)						235		4		239				114		2		116
	Other assets
		BlackRock Series C Preferred Stock (k)							426		426						396		396
		Other					468		8		476				450		7		457
			Total other assets				468		434		902				450		403		853
		Total assets		$	4,651	$	47,876	$	11,740	$	64,267	$	6,986	$	52,486	$	12,428	$	71,900
Liabilities
	Financial derivatives (b) (l)
		Interest rate contracts				$	4,223	$	7	$	4,230			$	4,302	$	56	$	4,358
		BlackRock LTIP							426		426						396		396
		Other contracts					196		11		207				173		8		181
			Total financial derivatives				4,419		444		4,863				4,475		460		4,935
	Trading securities sold short (m)
		Debt (e)		$	1,804		41				1,845	$	2,514		16				2,530
			Total trading securities sold short		1,804		41				1,845		2,514		16				2,530
	Other liabilities														6				6
		Total liabilities		$	1,804	$	4,460	$	444	$	6,708	$	2,514	$	4,497	$	460	$	7,471
(a)		Included in Other assets on our Consolidated Balance Sheet.
(b)		Amounts at June 30, 2011 and December 31, 2010 are presented gross and are not reduced by the impact of legally enforceable master netting agreements
		that allow PNC to net positive and negative positions and cash collateral held or placed with the same counterparty. At June 30, 2011 and December 31, 2010,
		respectively, the net asset amounts were $1.8 billion and $1.9 billion and the net liability amounts were $.9 billion and $1.1 billion.
(c)		Included in Loans held for sale on our Consolidated Balance Sheet. PNC has elected the fair value option for certain commercial and residential
		mortgage loans held for sale.
(d)		Fair value includes net unrealized gains of $7 million at June 30, 2011 compared with net unrealized losses of $17 million at December 31, 2010.
(e)		Approximately 57% of these securities are residential mortgage-backed agency hybrid securities and 31% are US Treasury and government agencies securities at
		June 30, 2011.
(f)		At June 30, 2011, $1.0 billion of residential mortgage-backed agency hybrid securities are carried in Trading securities.
(g)		Included in Other intangible assets on our Consolidated Balance Sheet.
(h)		The indirect equity funds are not redeemable, but PNC receives distributions over the life of the partnership from liquidation of the underlying investments by the investee.
(i)		Included in Federal funds sold and resale agreements on our Consolidated Balance Sheet. PNC has elected the fair value option for these items.
(j)		Included in Loans on our Consolidated Balance Sheet.
(k)		PNC has elected the fair value option for these shares.
(l)		Included in Other liabilities on our Consolidated Balance Sheet.
(m)		Included in Other borrowed funds on our Consolidated Balance Sheet.

Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three months and
six months ended June 30, 2011 and 2010 follow.

Three Months Ended June 30, 2011

																						(*) Unrealized
																						gains or losses
								Total realized / unrealized														on assets and
							gains or losses for the period (a)															liabilities held on
										Included												Consolidated
Level 3 Instruments					Fair Value					in other										Fair Value		Balance Sheet at
	Only				March 31,			Included in		comprehensive										June 30,		June 30,
In millions					2011			Earnings (*)		income		Purchases		Sales		Issuances		Settlements		2011		2011
Assets
	Securities available for
		sale
		Residential mortgage-
			backed non-agency		$	7,171		$	(58)	$	(73)	$	3	$	(280)			$	(309)	$	6,454	$	(35)
		Asset-backed				1,024					(11)								(62)		951		(4)
		State and municipal				341					1		5						(6)		341
		Other debt				73			(1)		2		2		(2)				1		75
		Corporate stocks
			and other			1													(1)
			Total securities
				available for sale		8,610			(59)		(81)		10		(282)				(377)		7,821		(39)
	Financial derivatives					50			63				3						(56)		60		63
	Trading securities - Debt					60			1										(5)		56
	Residential mortgage
		servicing rights				1,109			(107)							$	31		(37)		996		(105)
	Commercial mortgage
		loans held for sale				858			6						(6)				(2)		856		5
	Equity investments
		Direct investments				794			21				55		(21)						849		20
		Indirect investments				663			27				14		(40)						664		29
			Total equity
				investments		1,457			48				69		(61)						1,513		49
	Loans					2							2								4
	Other assets
		BlackRock Series C
			Preferred Stock			447			(21)												426		(21)
		Other				8															8
			Total other assets			455			(21)												434		(21)
				Total assets	$	12,601		$	(69)	$	(81)	$	84	$	(349)	$	31	$	(477)	$	11,740	$	(48)
				Total liabilities (c)	$	476		$	(14)					$	5			$	(23)	$	444	$	(18)

Three Months Ended June 30, 2010

																				(*) Unrealized
							Total realized / unrealized													gains or losses
							gains or losses for the period (a)													on assets and
												Purchases,								liabilities held on
											Included in	issuances,								Consolidated
					Fair Value						other	and		Transfers		Transfers		Fair Value		Balance Sheet at
Level 3 Instruments Only					March 31,			Included in			comprehensive	settlements,		into		out of		June 30,		June 30,
In millions					2010			Earnings (*)			income	net		Level 3 (b)		Level 3 (b)		2010		2010
Assets
	Securities available for sale
		Residential mortgage-
			backed non-agency		$	7,710		$	(46)	$	395	$	(422)			$	(2)	$	7,635		$	(81)
		Commercial mortgage-
			backed non-agency			3											(3)
		Asset-backed				1,187			(10)		61		(88)						1,150			(10)
		State and municipal				272			5		(11)		(29)						237
		Other debt				83					1		(2)						82
		Corporate stocks
			and other			47													47
			Total securities
				available for sale		9,302			(51)		446		(541)				(5)		9,151			(91)
	Financial derivatives					86			6				(7)						85			58
	Trading securities - Debt					77			1				(5)						73
	Residential mortgage
		servicing rights				1,271			(288)				(20)						963			(291)
	Commercial mortgage
		loans held for sale				1,041			13				(18)						1,036			14
	Equity investments
		Direct investments				602			63				(15)						650			58
		Indirect investments				606			24				(12)						618			22
			Total equity investments			1,208			87				(27)						1,268			80
	Other assets
		BlackRock Series C
			Preferred Stock			452			(154)										298
		Other				9					(1)		(1)						7
			Total other assets			461			(154)		(1)		(1)						305
				Total assets	$	13,446		$	(386)	$	445	$	(619)			$	(5)	$	12,881		$	(230)
				Total liabilities (c)	$	494		$	(159)			$	19	$	1			$	355		$	50
(a)		Losses for assets are bracketed while losses for liabilities are not.
(b)		PNC’s policy is to recognize transfers in and transfers out as of the end of the reporting period.
(c)		Financial derivatives.


Six Months Ended June 30, 2011

																						(*) Unrealized
																						gains or losses
								Total realized / unrealized														on assets and
							gains or losses for the period (a)															liabilities held on
										Included												Consolidated
Level 3 Instruments					Fair Value					in other										Fair Value		Balance Sheet at
	Only				Dec. 31,			Included in		comprehensive										June 30,		June 30,
In millions					2010			Earnings (*)		income		Purchases		Sales		Issuances		Settlements		2011		2011
Assets
	Securities available for
		sale
		Residential mortgage-
			backed non-agency		$	7,233		$	(64)	$	182	$	45		(280)			$	(662)	$	6,454	$	(63)
		Asset-backed				1,045			(3)		43								(134)		951		(9)
		State and municipal				228					3		121						(11)		341
		Other debt				73			(2)		4		2	$	(3)				1		75		(1)
		Corporate stocks
			and other			4													(4)
			Total securities
				available for sale		8,583			(69)		232		168		(283)				(810)		7,821		(73)
	Financial derivatives					77			106				3						(126)		60		90
	Trading securities - Debt					69			(3)										(10)		56		(5)
	Residential mortgage
		servicing rights				1,033			(71)				48			$	70		(84)		996		(70)
	Commercial mortgage
		loans held for sale				877			(1)						(13)				(7)		856		(1)
	Equity investments
		Direct investments				749			34				102		(36)						849		31
		Indirect investments				635			71				24		(66)						664		71
			Total equity
				investments		1,384			105				126		(102)						1,513		102
	Loans					2							2								4
	Other assets
		BlackRock Series C
			Preferred Stock			396			30												426		30
		Other				7							1								8
			Total other assets			403			30				1								434		30
				Total assets	$	12,428		$	97	$	232	$	348	$	(398)	$	70	$	(1,037)	$	11,740	$	73
				Total liabilities (c)	$	460		$	50					$	8			$	(74)	$	444	$	34

Six Months Ended June 30, 2010

																				(*) Unrealized
							Total realized / unrealized													gains or losses
							gains or losses for the period (a)													on assets and
												Purchases,								liabilities held on
											Included in	issuances,								Consolidated
					Fair Value						other	and		Transfers		Transfers		Fair Value		Balance Sheet at
Level 3 Instruments Only					December 31,			Included in			comprehensive	settlements,		into		out of		June 30,		June 30,
In millions					2009			Earnings (*)			income	net		Level 3 (b)		Level 3 (b)		2010		2010
Assets
	Securities available for sale
		Residential mortgage-
			backed agency		$	5						$	(5)
		Residential mortgage-
			backed non-agency			8,302		$	(115)	$	680		(1,230)				(2)	$	7,635		$	(154)
		Commercial mortgage-
			backed non-agency			6								$	2	$	(8)
		Asset-backed				1,254			(53)		118		(169)						1,150			(53)
		State and municipal				266			5		(17)		(18)		1				237
		Other debt				53					4		(4)		29				82
		Corporate stocks
			and other			47					(1)		1						47
			Total securities
				available for sale		9,933			(163)		784		(1,425)		32		(10)		9,151			(207)
	Financial derivatives					50			42				(7)						85			76
	Trading securities - Debt					89			(3)				(13)						73			(4)
	Residential mortgage
		servicing rights				1,332			(323)				(46)						963			(324)
	Commercial mortgage
		loans held for sale				1,050			22				(36)						1,036			20
	Equity investments
		Direct investments				595			88				(33)						650			73
		Indirect investments				593			41				(16)						618			33
			Total equity investments			1,188			129				(49)						1,268			106
	Other assets
		BlackRock Series C
			Preferred Stock			486			(184)				(4)						298
		Other				23					(4)		(12)						7
			Total other assets			509			(184)		(4)		(16)						305
				Total assets	$	14,151		$	(480)	$	780	$	(1,592)	$	32	$	(10)	$	12,881		$	(333)
				Total liabilities (c)	$	506		$	(173)			$	21		1			$	355		$	48
(a)		Losses for assets are bracketed while losses for liabilities are not.
(b)		PNC’s policy is to recognize transfers in and transfers out as of the end of the reporting period.
(c)		Financial derivatives.

Net gains (realized and unrealized) included in earnings relating to Level 3 assets and liabilities were $47 million for the first six months of 2011 compared with net losses of $307 million for the first six months of 2010. The net losses (realized and unrealized) for the second quarter of 2011 were $55 million compared with net losses of $227 million for the second quarter of 2010. These amounts included net unrealized gains of $39 million for the first six months of 2011 compared with net unrealized losses of $381 million for the first six months of 2010 and net unrealized losses of $30 million and $280 million for the second quarters of 2011 and 2010, respectively. These net gains and losses were included in noninterest income on the Consolidated Income Statement. These amounts also included amortization and accretion of $55 million for the first six months of 2011 compared with $67 million for the first six months of 2010. The second quarter amounts for 2011 and 2010 were $31 million and $35 million, respectively. The amortization and accretion amounts were included in interest income on the Consolidated Income Statement.

During the first six months of 2011 and 2010, no material transfers of assets or liabilities between the hierarchy levels occurred.

We may be required to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or write-downs of individual assets due to impairment. The amounts below for nonaccrual loans represent the carrying value of loans for which adjustments are primarily based on the appraised value of collateral or the net book value of the collateral from the borrower's most recent financial statements if no appraisal is available. If an appraisal is outdated due to changed project or market conditions, or if the net book value is utilized, management applies internal assumptions in determining fair value. The amounts below for loans held for sale represent the carrying value of loans for which adjustments are primarily based on observable market data, management's internal assumptions or the appraised value of collateral. The fair value determination of the equity investment resulting in an impairment loss included below was based on observable market data for other comparable entities as adjusted for internal assumptions and unobservable inputs. The amounts below for commercial mortgage servicing rights reflect an impairment of three strata at June 30, 2011 and at December 31, 2010, respectively. The fair value of commercial mortgage servicing rights is estimated by using an internal valuation model. The model calculates the present value of estimated future net servicing cash flows considering estimates of servicing revenue and costs, discount rates and prepayment speeds. The amounts below for long-lived assets held for sale represent the carrying value of the asset for which adjustments are primarily based upon the most recent appraised value or, if the net book value is utilized, management applies internal assumptions in determining fair value.

Refer to the Fair Value Measurement section of this Note 8 regarding the fair value of commercial mortgage loans held for sale, residential mortgage loans held for sale, customer resale agreements, and BlackRock Series C Preferred Stock.

Interest income on these loans is recorded as earned and reported on the Consolidated Income Statement in other interest income. The impact on earnings of offsetting economic hedges is not reflected in these amounts. Changes in fair value due to instrument-specific credit risk for both the first six months of 2011 and 2010 were not material.

Interest income on these loans is recorded as earned and reported on the Consolidated Income Statement in other interest income. Throughout 2010 and the first six months of 2011, certain residential mortgage loans for which we elected the fair value option were subsequently reclassified to portfolio loans. Changes in fair value due to instrument-specific credit risk for the first six months of 2011 and 2010 were not material.

Interest income on structured resale agreements is reported on the Consolidated Income Statement in other interest income. Changes in fair value due to instrument-specific credit risk for both the first six months of 2011 and 2010 were not material.

Interest income on securities is reported on the Consolidated Income Statement in interest income.

The changes in fair value included in noninterest income for items for which we elected the fair value option follow.

Fair values and aggregate unpaid principal balances of items for which we elected the fair value option follow.

Fair Value Option - Fair Value and Principal Balances

						Aggregate Unpaid
In millions			Fair Value			Principal Balance		Difference
June 30, 2011
Customer resale agreements				$	813	$	761	$	52
Residential mortgage-backed agency hybrid securities (a)					1,023		852		171
Residential mortgage loans held for sale
	Performing loans				1,333		1,286		47
	Loans 90 days or more past due				16		21		(5)
	Nonaccrual loans				2		4		(2)
		Total			1,351		1,311		40
Commercial mortgage loans held for sale (b)
	Performing loans				839		981		(142)
	Nonaccrual loans				17		25		(8)
		Total			856		1,006		(150)
Residential mortgage loans - portfolio
	Performing loans				63		80		(17)
	Loans 90 days or more past due				85		92		(7)
	Nonaccrual loans				91		196		(105)
		Total		$	239	$	368	$	(129)
December 31, 2010
Customer resale agreements				$	866	$	806	$	60
Residential mortgage loans held for sale
	Performing loans				1,844		1,839		5
	Loans 90 days or more past due				33		41		(8)
	Nonaccrual loans				1		2		(1)
		Total			1,878		1,882		(4)
Commercial mortgage loans held for sale (b)
	Performing loans				847		990		(143)
	Nonaccrual loans				30		49		(19)
		Total			877		1,039		(162)
Residential mortgage loans - portfolio
	Performing loans				36		44		(8)
	Loans 90 days or more past due				64		67		(3)
	Nonaccrual loans				16		31		(15)
		Total		$	116	$	142	$	(26)
(a)		These residential mortgage-backed agency hybrid securities are carried as trading securities.
(b)		There were no loans 90 days or more past due within this category at June 30, 2011 or December 31, 2010.

Additional Fair Value Information Related to Financial Instruments

		June 30, 2011					December 31, 2010
			Carrying		Fair			Carrying		Fair
In millions			Amount		Value			Amount		Value
Assets
Cash and short-term assets			$	11,829	$	11,829		$	9,711	$	9,711
Trading securities				2,075		2,075			1,826		1,826
Investment securities				59,414		59,577			64,262		64,487
Loans held for sale				2,679		2,683			3,492		3,492
Net loans (excludes leases)				139,484		142,563			139,316		141,431
Other assets				4,770		4,770			4,664		4,664
Mortgage servicing rights				1,588		1,594			1,698		1,707
Financial derivatives
	Designated as hedging instruments under GAAP			1,359		1,359			1,255		1,255
	Not designated as hedging instruments under GAAP			4,496		4,496			4,502		4,502

Liabilities
Demand, savings and money market deposits				145,358		145,358			141,990		141,990
Time deposits				36,534		36,870			41,400		41,825
Borrowed funds				35,457		37,617			39,821		41,273
Financial derivatives
	Designated as hedging instruments under GAAP			48		48			85		85
	Not designated as hedging instruments under GAAP			4,815		4,815			4,850		4,850
Unfunded loan commitments and letters of credit				185		185			173		173

The aggregate fair values in the table above do not represent the total market value of PNC's assets and liabilities as the table excludes the following:

We used the following methods and assumptions to estimate fair value amounts for financial instruments.

For short-term financial instruments realizable in three months or less, the carrying amount reported on our Consolidated Balance Sheet approximates fair value. Unless otherwise stated, the rates used in discounted cash flow analyses are based on market yield curves.

The carrying amounts reported on our Consolidated Balance Sheet for cash and short-term investments approximate fair values primarily due to their short-term nature. For purposes of this disclosure only, short-term assets include the following:

Securities include both the investment securities (comprised of available for sale and held to maturity securities) and trading portfolios. We use prices obtained from pricing services, dealer quotes or recent trades to determine the fair value of securities. For 56% of our positions, we use prices obtained from pricing services provided by third party vendors. For an additional 10% of our positions, we use prices obtained from the pricing services as the primary input into the valuation process. One of the vendors' prices are set with reference to market activity for highly liquid assets such as agency mortgage-backed securities, and matrix pricing for other assets, such as CMBS and asset-backed securities. Another vendor primarily uses pricing models considering adjustments for ratings, spreads, matrix pricing and prepayments for the instruments we value using this service, such as non-agency residential mortgage-backed securities, agency adjustable rate mortgage securities, agency CMOs and municipal bonds. Management uses various methods and techniques to corroborate prices obtained from pricing services and dealers, including reference to other dealers' quotes, by reviewing valuations of comparable instruments, or by comparison to internal valuations. Dealer quotes received are typically non-binding.

Fair values are estimated based on the discounted value of expected net cash flows incorporating assumptions about prepayment rates, net credit losses and servicing fees. For purchased impaired loans, fair value is assumed to equal PNC's carrying value, which represents the present value of expected future principal and interest cash flows, as adjusted for any ALLL recorded for these loans. See Note 6 Purchased Impaired Loans for additional information. For revolving home equity loans and commercial credit lines, this fair value does not include any amount for new loans or the related fees that will be generated from the existing customer relationships. Non-accrual loans are valued at their estimated recovery value. Also refer to the Fair Value Measurement and Fair Value Option sections of this Note 8 regarding the fair value of commercial and residential mortgage loans held for sale. Loans are presented net of the ALLL and do not include future accretable discounts related to purchased impaired loans.

Investments accounted for under the equity method, including our investment in BlackRock, are not included in the accompanying table.

The carrying amounts of private equity investments are recorded at fair value. The valuation procedures applied to direct investments and affiliated partnership interests include techniques such as multiples of adjusted earnings of the entity, independent appraisals, anticipated financing and sales transactions with third parties, or the pricing used to value the entity in a recent financing transaction. We value indirect investments in private equity funds based on net asset value as provided in the financial statements that we receive from their managers. Due to the time lag in our receipt of the financial information and based on a review of investments and valuation techniques applied, adjustments to the manager-provided value are made when available recent investment portfolio company or market information indicates a significant change in value from that provided by the general partner.

The aggregate carrying value of our investments that are carried at cost and FHLB and FRB stock was $2.4 billion at June 30, 2011 and $2.4 billion as of December 31, 2010, both of which approximate fair value at each date.

Fair value is based on the present value of the estimated future cash flows, incorporating assumptions as to prepayment speeds, discount rates, escrow balances, interest rates, cost to service and other factors.

The key valuation assumptions for commercial and residential mortgage loan servicing assets at June 30, 2011 and December 31, 2010 are included in Note 9 Goodwill and Other Intangible Assets.

Refer to the Fair Value Measurement section of this Note 8 regarding the fair value of customer resale agreements.

The carrying amounts of noninterest-bearing demand and interest-bearing money market and savings deposits approximate fair values. For time deposits, which include foreign deposits, fair values are estimated based on the discounted value of expected net cash flows assuming current interest rates.

The carrying amounts of Federal funds purchased, commercial paper, repurchase agreements, proprietary trading short positions, cash collateral, other short-term borrowings, acceptances outstanding and accrued interest payable are considered to be their fair value because of their short-term nature. For all other borrowed funds, fair values are estimated primarily based on dealer quotes or discounted cash flow analysis.

The fair value of unfunded loan commitments and letters of credit is determined from a market participant's view including the impact of changes in interest rates, credit and other factors. Because the interest rate on substantially all unfunded loan commitments and letters of credit varies with changes in market rates, these instruments are subject to little fluctuation in fair value due to changes in interest rates. We establish a liability on these facilities related to their creditworthiness.

Refer to the Fair Value Measurement section of this Note 8 regarding the fair value of financial derivatives.