We use derivative financial instruments (derivatives) primarily to help manage exposure to interest rate, market and credit risk and reduce the effects that changes in interest rates may have on net income, fair value of assets and liabilities, and cash flows. We also enter into derivatives with customers to facilitate their risk management activities.

Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract. Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and it is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate (commonly LIBOR), security price, credit spread or other index. Residential and commercial real estate loan commitments associated with loans to be sold also qualify as derivative instruments.

All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and any related cash collateral exchanged with counterparties. Further discussion regarding the rights of setoff associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk, and Contingent Features section below.

Further discussion on how derivatives are accounted for is included in Note 1 Accounting Policies in our 2012 Form 10-K.

Certain derivatives used to manage interest rate risk as part of our asset and liability risk management activities are designated as accounting hedges under GAAP. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of expected future cash flows are considered cash flow hedges, and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives, to the extent effective, to be recognized in the income statement in the same period the hedged items affect earnings.

We enter into receive-fixed, pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt and borrowings caused by fluctuations in market interest rates. The specific products hedged may include bank notes, Federal Home Loan Bank borrowings, and senior and subordinated debt. We also enter into pay-fixed, receive-variable interest rate swaps and zero-coupon swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. The specific products hedged include U.S. Treasury, government agency and other debt securities. For these hedge relationships, we use statistical regression analysis to assess hedge effectiveness at both the inception of the hedge relationship and on an ongoing basis. There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness.

The ineffective portion of the change in value of our fair value hedge derivatives resulted in net losses of $13 million for the first six months of 2013 compared with net losses of $25 million for the first six months of 2012.

We enter into receive-fixed, pay-variable interest rate swaps to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. For these cash flow hedges, any changes in the fair value of the derivatives that are effective in offsetting changes in the forecasted interest cash flows are recorded in Accumulated other comprehensive income and are reclassified to interest income in conjunction with the recognition of interest received on the loans. In the 12 months that follow June 30, 2013, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $222 million pretax, or $144 million after-tax, in association with interest received on the hedged loans. 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, 2013. The maximum length of time over which forecasted loan cash flows are hedged is 7 years. We use statistical regression analysis to assess the effectiveness of these hedge relationships at both the inception of the hedge relationship and on an ongoing basis.

We also periodically enter into forward purchase and sale contracts to hedge the variability of the consideration that will be paid or received related to the purchase or sale of investment securities. The forecasted purchase or sale is consummated upon gross settlement of the forward contract itself. As a result, hedge ineffectiveness, if any, is typically minimal. Gains and losses on these forward contracts are recorded in Accumulated other comprehensive income and are recognized in earnings when the hedged cash flows affect earnings. In the 12 months that follow June 30, 2013, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $34 million pretax, or $22 million after-tax, as adjustments of yield on investment securities. The maximum length of time we are hedging forecasted purchases is four months. With respect to forecasted sale of securities, there were no amounts in Accumulated other comprehensive income at June 30, 2013.

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to either cash flow hedge strategy.

During the first six months of 2013 and 2012, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transaction would not occur. The amount of cash flow hedge ineffectiveness recognized in income for the first six months of 2013 and 2012 was not material to PNC's results of operations.

We enter into foreign currency forward contracts to hedge non-U.S. Dollar (USD) net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness.

For the first six months of 2013 and 2012, there was no net investment hedge ineffectiveness.

Further detail regarding the notional amounts, fair values and gains and losses recognized related to derivatives used in fair value, cash flow, and net investment hedge strategies is presented in the following derivative tables: Tables 111: Derivatives Total Notional or Contractual Amounts and Fair Values, 113: Derivatives Designated in GAAP Hedge Relationships - Fair Value Hedges, 114: Derivatives Designated in GAAP Hedge Relationships - Cash Flow Hedges, and 115: Derivatives Designated in GAAP Hedge Relationships - Net Investment Hedges.

We also enter into derivatives that are not designated as accounting hedges under GAAP.

The majority of these derivatives are used to manage risk related to residential and commercial mortgage banking activities and are considered economic hedges. Although these derivatives are used to hedge risk, they are not designated as accounting hedges because the contracts they are hedging are typically also carried at fair value on the balance sheet, resulting in symmetrical accounting treatment for both the hedging instrument and the hedged item.

Our residential mortgage banking activities consist of originating, selling and servicing mortgage loans. Residential mortgage loans that will be sold in the secondary market, and the related loan commitments, which are considered derivatives, are accounted for at fair value. Changes in the fair value of the loans and commitments due to interest rate risk are hedged with forward contracts to sell mortgage-backed securities, as well as U.S. Treasury and Eurodollar futures and options. Gains and losses on the loans and commitments held for sale and the derivatives used to economically hedge them are included in Residential mortgage noninterest income on the Consolidated Income Statement.

We typically retain the servicing rights related to residential mortgage loans that we sell. Residential mortgage servicing rights are accounted for at fair value with changes in fair value influenced primarily by changes in interest rates. Derivatives used to hedge the fair value of residential mortgage servicing rights include interest rate futures, swaps, options (including caps, floors, and swaptions), and forward contracts to purchase mortgage-backed securities. Gains and losses on residential mortgage servicing rights and the related derivatives used for hedging are included in Residential mortgage noninterest income.

Certain commercial mortgage loans held for sale are accounted for at fair value. These loans, and the related loan commitments, which are considered derivatives, are accounted for at fair value. In addition we originate loans for sale into the secondary market that are carried at the lower of cost or fair value. Derivatives used to economically hedge these loans and commitments from changes in fair value due to interest rate risk and credit risk include forward loan sale contracts, interest rate swaps, and credit default swaps. Gains and losses on the commitments, loans and derivatives are included in Other noninterest income. Derivatives used to economically hedge the change in value of commercial mortgage servicing rights include interest rate swaps and futures. Gains or losses on these derivatives are included in Corporate services noninterest income.

The residential and commercial mortgage loan commitments associated with loans to be sold which are accounted for as derivatives are valued based on the estimated fair value of the underlying loan and the probability that the loan will fund within the terms of the commitment. The fair value also takes into account the fair value of the embedded servicing right.

We offer derivatives to our customers in connection with their risk management needs. These derivatives primarily consist of interest rate swaps, interest rate caps, floors, swaptions and foreign exchange contracts. We primarily manage our market risk exposure from customer transactions by entering into a variety of hedging transactions with third-party dealers. Gains and losses on customer-related derivatives are included in Other noninterest income.

The derivatives portfolio also includes derivatives used for other risk management activities. These derivatives are entered into based on stated risk management objectives and include credit default swaps (CDSs) used to mitigate the risk of economic loss on a portion of our loan exposure. We enter into credit default swaps under which we buy loss protection from or sell loss protection to a counterparty for the occurrence of a credit event related to a referenced entity or index. There were no credit default swaps sold as of June 30, 2013 and December 31, 2012. The fair values of these derivatives typically are based on related credit spreads. Gains and losses on the derivatives entered into for other risk management are included in Other noninterest income. CDSs are included in the following derivative tables: Tables 111: Derivatives Total Notional or Contractual Amounts and Fair Values, 117: Credit Default Swaps, 118: Credit Ratings of Credit Default Swaps and 119: Referenced/Underlying Assets of Credit Default Swaps.

We also periodically enter into risk participation agreements to share some of the credit exposure with other counterparties 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 its obligation to perform under certain derivative swap contracts. Risk participation agreements are included in the following derivative tables: Tables 111: Derivatives Total Notional or Contractual Amounts and Fair Values, 116: Gains (Losses) on Derivatives Not Designated as Hedging Instruments under GAAP, 120: Risk Participation Agreements Sold and 121: Internal Credit Ratings of Risk Participation Agreements Sold.

Included in the customer, mortgage banking risk management, and other risk management portfolios are written interest-rate caps and floors entered into with customers and for risk management purposes. We receive an upfront premium from the counterparty and are obligated to make payments to the counterparty if the underlying market interest rate rises above or falls below a certain level designated in the contract. Our ultimate obligation under written options is based on future market conditions and is only quantifiable at settlement.

Further detail regarding the derivatives not designated in hedging relationships is presented in the following derivative tables: Tables 111: Derivatives Total Notional or Contractual Amounts and Fair Values and 116: Gains (Losses) on Derivatives Not Designated as Hedging Instruments under GAAP.

Table 111: Derivatives Total Notional or Contractual Amounts and Fair Values

					June 30, 2013						December 31, 2012
					Notional/		Asset		Liability		Notional/		Asset		Liability
					Contract		Fair		Fair		Contract		Fair		Fair
In millions					Amount		Value (a)		Value (b)		Amount		Value (a)		Value (b)
Derivatives designated as hedging instruments under GAAP
	Interest rate contracts:
		Cash flow hedges:
			Receive fixed swaps (c)	$	13,799	$	307	$	69	$	13,428	$	504
			Forward purchase commitments		3,480		9		38		250		1
			Subtotal	$	17,279	$	316	$	107	$	13,678	$	505
		Fair value hedges:
			Receive fixed swaps (c)	$	13,856	$	990	$	153	$	12,394	$	1,365
			Pay fixed swaps (c) (d)		1,874		26		69		2,319		2	$	144
			Subtotal	$	15,730	$	1,016	$	222	$	14,713	$	1,367	$	144
	Foreign exchange contracts:
		Net investment hedge			848		48				879				8
Total derivatives designated as hedging instruments				$	33,857	$	1,380	$	329	$	29,270	$	1,872	$	152
Derivatives not designated as hedging instruments under GAAP
Derivatives used for residential mortgage banking activities:
Residential mortgage servicing
	Interest rate contracts:
		Swaps		$	61,792	$	1,629	$	1,290	$	59,607	$	2,204	$	1,790
		Swaptions			6,417		33		24		5,890		209		119
		Futures (e)			46,276						49,816
		Future options			25,750		25		5		34,350		5		2
		Mortgage-backed securities commitments			4,467		17		50		3,429		3		1
			Subtotal	$	144,702	$	1,704	$	1,369	$	153,092	$	2,421	$	1,912
Loan sales
	Interest rate contracts:
		Futures (e)		$	485					$	702
		Bond options			400	$	10				900	$	3
		Mortgage-backed securities commitments			11,279		232	$	89		8,033		5	$	14
		Residential mortgage loan commitments			3,738		11		22		4,092		85
			Subtotal	$	15,902	$	253	$	111	$	13,727	$	93	$	14
			Subtotal	$	160,604	$	1,957	$	1,480	$	166,819	$	2,514	$	1,926
Derivatives used for commercial mortgage banking activities
	Interest rate contracts:
		Swaps		$	1,054	$	22	$	49	$	1,222	$	56	$	84
		Swaptions			1,050		5		4
		Futures (e)			1,279						2,030
		Future options			5,200		2		7
		Commercial mortgage loan commitments			1,313		37		24		1,259		12		9
			Subtotal	$	9,896	$	66	$	84	$	4,511	$	68	$	93
	Credit contracts:
		Credit default swaps			95		2				95		2
			Subtotal	$	9,991	$	68	$	84	$	4,606	$	70	$	93
Derivatives used for customer-related activities:
	Interest rate contracts:
		Swaps		$	126,963	$	2,862	$	2,848	$	127,567	$	3,869	$	3,917
		Caps/floors - Sold			4,920				7		4,588				1
		Caps/floors - Purchased			4,716		22				4,187		21
		Swaptions			2,889		61		60		2,285		82		35
		Futures (e)			5,344						9,113
		Mortgage-backed securities commitments			2,689		24		22		1,736		2		2
			Subtotal	$	147,521	$	2,969	$	2,937	$	149,476	$	3,974	$	3,955
	Foreign exchange contracts				12,645		209		164		10,737		126		112
	Equity contracts										105		1		3
	Credit contracts:
		Risk participation agreements			3,769		1		4		3,530		5		6
			Subtotal	$	163,935	$	3,179	$	3,105	$	163,848	$	4,106	$	4,076
Derivatives used for other risk management activities:
	Interest rate contracts:
		Swaps		$	552					$	601	$	4
		Futures (e)			155						274
		Residential mortgage loan commitments			600	$	1	$	1
			Subtotal	$	1,307	$	1	$	1	$	875	$	4
	Foreign exchange contracts				13						17			$	3
	Equity contracts										8		2		2
	Credit contracts:
		Credit default swaps									15
	Other contracts (f)				941				331		898				358
			Subtotal	$	2,261	$	1	$	332	$	1,813	$	6	$	363
Total derivatives not designated as hedging instruments				$	336,791	$	5,205	$	5,001	$	337,086	$	6,696	$	6,458
Total Gross Derivatives				$	370,648	$	6,585	$	5,330	$	366,356	$	8,568	$	6,610
(a)		Included in Other assets on our Consolidated Balance Sheet.
(b)		Included in Other liabilities on our Consolidated Balance Sheet.
(c)		The floating rate portion of interest rate contracts is based on money-market indices. As a percent of notional amount, 48% were based on 1-month LIBOR and 52% on 3-month LIBOR at June 30, 2013 compared with 51% and 49%, respectively, at December 31, 2012.
(d)		Includes zero-coupon swaps.
(e)		Futures contracts settle in cash daily and therefore, no derivative asset or liability is recognized on our Consolidated Balance Sheet.
(f)		Includes PNC's obligation to fund a portion of certain BlackRock LTIP programs and the swaps entered into in connection with sales of a portion of Visa Class B common shares in the second quarter of 2013 and second half of 2012. Refer to Note 9 Fair Value for additional information on the Visa swaps.

We utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of various types of derivative instruments with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party's net position. In certain cases, minimum thresholds must be exceeded before any collateral is exchanged. Collateral is typically exchanged daily based on the net fair value of the positions with the counterparty as of the preceding day. Any cash collateral exchanged with counterparties under these master netting agreements is also netted against the applicable derivative fair values on the Consolidated Balance Sheet. However, the fair value of any securities held or pledged is not included in the net presentation on the balance sheet. In order for an arrangement to be eligible for netting under GAAP (ASC 210-20), we must obtain the requisite assurance that the offsetting rights included in the master netting agreement would be legally enforceable in the event of bankruptcy, insolvency, or a similar proceeding of such third party. Enforceability is evidenced by obtaining a legal opinion that supports, with sufficient confidence, the enforceability of the master netting agreement in bankruptcy.

The following derivative Table 112: Derivative Assets and Liabilities Offsetting shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of June 30, 2013 and December 31, 2012. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

For further discussion on ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities and the impact of other instruments entered into under master netting arrangements, see Note 1 under Recent Accounting Pronouncements in the March 31, 2013 Form 10-Q. Refer to Note 18 Commitments and Guarantees for additional information related to resale and repurchase agreements offsetting.

Table 112: Derivative Assets and Liabilities Offsetting


					Amounts							Securities
			Gross		Offset on the				Net			Collateral
			Fair Value		Consolidated Balance Sheet				Fair Value			Held Under
June 30, 2013			Derivative		Fair Value		Cash		Derivative			Master Netting		Net
In millions			Assets		Offset Amount		Collateral		Assets			Agreements		Amounts
Derivative assets
	Interest rate contracts	$	6,325	$	3,534	$	635	$	2,156		$	233	$	1,923
	Foreign exchange contracts		257		146		23		88					88
	Credit contracts		3		3
	Total derivative assets	$	6,585	$	3,683	$	658	$	2,244	(a)	$	233	$	2,011


					Amounts							Securities
			Gross		Offset on the				Net			Collateral
			Fair Value		Consolidated Balance Sheet				Fair Value			Pledged Under
June 30, 2013			Derivative		Fair Value		Cash		Derivative			Master Netting		Net
In millions			Liabilities		Offset Amount		Collateral		Liabilities			Agreements		Amounts
Derivative liabilities
	Interest rate contracts	$	4,831	$	3,625	$	573	$	633		$		$	633
	Foreign exchange contracts		164		55		9		100					100
	Credit contracts		4		3				1					1
	Other contracts		331						331					331
	Total derivative liabilities	$	5,330	$	3,683	$	582	$	1,065	(b)	$		$	1,065


					Amounts							Securities
			Gross		Offset on the				Net			Collateral
			Fair Value		Consolidated Balance Sheet				Fair Value			Held Under
December 31, 2012			Derivative		Fair Value		Cash		Derivative			Master Netting		Net
In millions			Assets		Offset Amount		Collateral		Assets			Agreements		Amounts
Derivative assets
	Interest rate contracts	$	8,432	$	5,041	$	1,024	$	2,367		$	135	$	2,232
	Foreign exchange contracts		126		61		7		58					58
	Equity contracts		3		3
	Credit contracts		7		2				5					5
	Total derivative assets	$	8,568	$	5,107	$	1,031	$	2,430	(a)	$	135	$	2,295


					Amounts							Securities
			Gross		Offset on the				Net			Collateral
			Fair Value		Consolidated Balance Sheet				Fair Value			Pledged Under
December 31, 2012			Derivative		Fair Value		Cash		Derivative			Master Netting		Net
In millions			Liabilities		Offset Amount		Collateral		Liabilities			Agreements		Amounts
Derivative liabilities
	Interest rate contracts	$	6,118	$	5,060	$	908	$	150		$	18	$	132
	Foreign exchange contracts		123		47		6		70					70
	Equity contracts		5						5					5
	Credit contracts		6						6					6
	Other contracts		358						358					358
	Total derivative liabilities	$	6,610	$	5,107	$	914	$	589	(b)	$	18	$	571
(a) Represents the net amount of derivative assets included in Other Assets on our Consolidated Balance Sheet.
(b) Represents the net amount of derivative liabilities included in Other Liabilities on our Consolidated Balance Sheet.

In addition to using master netting and related collateral agreements to reduce credit risk associated with derivative instruments, we also seek to minimize credit risk by entering into transactions with counterparties with high credit ratings and by using internal credit approvals, limits, and monitoring procedures. Collateral may also be exchanged under certain derivative agreements that are not considered master netting agreements.

At June 30, 2013, we held cash, U.S. government securities and mortgage-backed securities totaling $1.0 billion under master netting and other collateral agreements to collateralize net derivative assets due from counterparties, and we have pledged cash, U.S. government securities and agency mortgage-backed securities totaling $618 million under these agreements to collateralize net derivative liabilities owed to counterparties. These totals may differ from the amounts presented in the preceding offsetting table because they may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral held or pledged exceeds the net derivative fair value with the counterparty as of the balance sheet date due to timing or other factors. To the extent not netted against the derivative fair value under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other borrowed funds on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.

Certain of the master netting agreements and certain other derivative agreements also contain provisions that require PNC's debt to maintain an investment grade credit rating from each of the major credit rating agencies. If PNC's debt ratings were to fall below investment grade, we would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on June 30, 2013 was $837 million for which PNC had posted collateral of $617 million in the normal course of business. The maximum amount of collateral PNC would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2013, would be an additional $220 million.

Our exposure related to risk participations where we sold protection is discussed in the Credit Derivatives section below.

Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.

The following tables provide the gains (losses) on derivatives designated as hedging instruments and not designated as hedging instruments under GAAP.

Gains (losses) on derivative instruments and related hedged items follow:

Table 113: Derivatives Designated in GAAP Hedge Relationships - Fair Value Hedges

June 30, 2013

June 30, 2012

Gain (Loss)

Gain

on Related

Gain

on Related

(Loss) on

Hedged

(Loss) on

Hedged

Derivatives

Items

Derivatives

Items

Recognized

Six months ended

in Income

In millions

Hedged Items

Location

Amount

Interest rate contracts

U.S. Treasury and

Investment securities

Government Agencies

(interest income)

Securities

(66)

(29)

Interest rate contracts

Other Debt Securities

Investment securities

(interest income)

(5)

(2)

Interest rate contracts

Subordinated debt

Borrowed funds

(interest expense)

(263)

256

(24)

Interest rate contracts

Bank notes and

Borrowed funds

senior debt

(interest expense)

(271)

268

(80)

Total

(466)

453

(76)

June 30, 2013

June 30, 2012

Gain (Loss)

Gain

on Related

Gain

on Related

(Loss) on

Hedged

(Loss) on

Hedged

Derivatives

Items

Derivatives

Items

Recognized

Three months ended

in Income

In millions

Hedged Items

Location

Amount

Interest rate contracts

U.S. Treasury and

Investment securities

Government Agencies

(interest income)

Securities

(43)

(48)

Interest rate contracts

Other Debt Securities

Investment securities

(interest income)

(3)

(2)

Interest rate contracts

Subordinated debt

Borrowed funds

(interest expense)

(195)

190

(50)

Interest rate contracts

Bank notes and

Borrowed funds

senior debt

(interest expense)

(206)

204

127

(128)

Total

(357)

348

121

(126)

Table 114: Derivatives Designated in GAAP Hedge Relationships - Cash Flow Hedges

		Gain (Loss) on Derivatives		Gain (Loss) Reclassified from Accumulated			Gain (Loss) Recognized in Income
Six months ended		Recognized in OCI		OCI into Income			on Derivatives
In millions		(Effective Portion)		(Effective Portion)			(Ineffective Portion)
			Amount	Location	Amount		Location	Amount (a)
June 30, 2013	Interest rate contracts	$	(179)	Interest income	$	186	Interest income
				Noninterest income		23
June 30, 2012	Interest rate contracts	$	207	Interest income	$	232	Interest income
				Noninterest income		59

		Gain (Loss) on Derivatives		Gain (Loss) Reclassified from Accumulated			Gain (Loss) Recognized in Income
Three months ended		Recognized in OCI		OCI into Income			on Derivatives
In millions		(Effective Portion)		(Effective Portion)			(Ineffective Portion)
			Amount	Location	Amount		Location	Amount (a)
June 30, 2013	Interest rate contracts	$	(193)	Interest income	$	80	Interest income
				Noninterest income		8
June 30, 2012	Interest rate contracts	$	154	Interest income	$	116	Interest income
				Noninterest income		32
(a) The amount of cash flow hedge ineffectiveness recognized in income was not material for the periods presented.

Table 116: Gains (Losses) on Derivatives Not Designated as Hedging Instruments under GAAP

				Three months ended			Six months ended
				June 30				June 30
In millions				2013		2012		2013		2012
Derivatives used for residential mortgage banking activities:
Residential mortgage servicing
	Interest rate contracts		$	(172)	$	123	$	(211)	$	206
Loan sales
	Interest rate contracts			142		14		176		36
		Gains (losses) included in residential mortgage banking activities (a)	$	(30)	$	137	$	(35)	$	242
Derivatives used for commercial mortgage banking activities:
	Interest rate contracts (b) (c)		$	1	$	19	$	7	$	21
	Credit contracts (c)							(1)		(1)
		Gains (losses) from commercial mortgage banking activities	$	1	$	19	$	6	$	20
Derivatives used for customer-related activities:
	Interest rate contracts		$	67	$	(9)	$	86	$	27
	Foreign exchange contracts			(2)		39		21		56
	Equity contracts					(3)		(3)		(5)
	Credit contracts			(2)		(1)		(3)		(2)
		Gains (losses) from customer-related activities (c)	$	63	$	26	$	101	$	76
Derivatives used for other risk management activities:
	Interest rate contracts		$	4	$	(8)	$	4	$	(7)
	Foreign exchange contracts			2		(1)		2		(1)
	Credit contracts									(1)
	Other contracts (d)			(18)		44		(77)		(10)
		Gains (losses) from other risk management activities (c)	$	(12)	$	35	$	(71)	$	(19)
Total gains (losses) from derivatives not designated as hedging instruments			$	22	$	217	$	1	$	319
(a)		Included in Residential mortgage noninterest income.
(b)		Included in Corporate services noninterest income.
(c)		Included in Other noninterest income.
(d)		Includes BlackRock LTIP, a forward purchase commitment for certain loans upon conversion from a variable rate to a fixed rate, and the swap entered into in connection with the sale of a portion of Visa Class B common shares.

The credit derivative underlying is based on the credit risk of a specific entity, entities, or an index. As discussed above, we enter into credit derivatives, specifically credit default swaps and risk participation agreements, as part of our commercial mortgage banking hedging activities and for customer and other risk management purposes. Detail regarding credit default swaps and risk participations sold follows.

We have sold risk participation agreements with terms ranging from less than 1 year to 24 years. We will be required to make payments under these agreements if a customer defaults on its obligation to perform under certain derivative swap contracts with third parties.

Based on our internal risk rating process of the underlying third parties to the swap contracts, the percentages of the exposure amount of risk participation agreements sold by internal credit rating follow:

Assuming all underlying swap counterparties defaulted at June 30, 2013, the exposure from these agreements would be $76 million based on the fair value of the underlying swaps, compared with $143 million at December 31, 2012.