Financial Derivatives

12 Months Ended

Dec. 31, 2015

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Financial Derivatives

Note13Financial Derivatives

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, the 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.

The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by PNC:

Table 111: Total Gross Derivatives
			December 31, 2015						December 31, 2014
			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		$	52,074	$	1,159	$	174	$	49,061	$	1,261	$	186
Derivatives not designated as hedging instruments under GAAP			295,902		3,782		3,628		291,256		3,973		3,841
Total gross derivatives		$	347,976	$	4,941	$	3,802	$	340,317	$	5,234	$	4,027
(a)	Included in Other assets on our Consolidated Balance Sheet.
(b)	Included in Other liabilities on our Consolidated Balance Sheet.

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, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk, and Contingent Features section below. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.

Further discussion on how derivatives are accounted for is included in Note 1 Accounting Policies.

Derivatives Designated As Hedging Instruments under GAAP

Certain derivatives used to manage interest rate and foreign exchange 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.

Further detail regarding the notional amounts and fair values related to derivatives designated in hedge relationships is presented in the following table:

Table 112: Derivatives Designated As Hedging Instruments under GAAP
					December 31, 2015						December 31, 2014
				Notional/		Asset		Liability		Notional/		Asset		Liability
				Contract		Fair		Fair		Contract		Fair		Fair
In millions				Amount		Value (a)		Value (b)		Amount		Value (a)		Value (b)
	Interest rate contracts:
		Fair value hedges:
			Receive-fixed swaps	$	25,756	$	699	$	18	$	20,930	$	827	$	38
			Pay-fixed swaps (c)		5,934		13		153		4,233		3		138
			Subtotal		31,690		712		171		25,163		830		176
		Cash flow hedges:
			Receive-fixed swaps		17,879		412		2		19,991		400		10
			Forward purchase commitments		1,400		4		1		2,778		25
			Subtotal		19,279		416		3		22,769		425		10
	Foreign exchange contracts:
		Net investment hedges			1,105		31				1,129		6
Total derivatives designated as hedging instruments				$	52,074	$	1,159	$	174	$	49,061	$	1,261	$	186
(a)		Included in Other assets on our Consolidated Balance Sheet.
(b)		Included in Other liabilities on our Consolidated Balance Sheet.
(c)		Includes zero-coupon swaps.

Fair Value Hedges

We enter into receive-fixed, pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt caused by fluctuations in market interest rates. 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. 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.

Further detail regarding gains (losses) on fair value hedge derivatives and related hedged items is presented in the following table:

Table 113: Gains (Losses) on Derivatives and Related Hedged Items - Fair Value Hedges

Year ended

December 31, 2015

December 31, 2014

December 31, 2013

Gain (Loss)

Gain (Loss)

Gain (Loss)

Gain

on Related

Gain

on Related

Gain

on Related

(Loss) on

Hedged

(Loss) on

Hedged

(Loss) on

Hedged

Derivatives

Items

Derivatives

Items

Derivatives

Items

Recognized

Recognized

Recognized

Recognized

Recognized

Recognized

in Income

in Income

in Income

in Income

in Income

in Income

In millions

Hedged Items

Location

Amount

Amount

Amount

Amount

Amount

Amount

Interest rate contracts

U.S. Treasury and Government Agencies Securities and Other Debt Securities

Investment securities (interest income)

$

(111)

$

116

$

111

$

(115)

Interest rate contracts

Subordinated debt and Bank notes and senior debt

Borrowed funds (interest expense)

$

(108)

$

67

123

(158)

(744)

711

Total (a)

$

(108)

$

67

$

12

$

(42)

$

(633)

$

596

(a)

The ineffective portion of the change in value of our fair value hedge derivatives resulted in net losses of $41 million for 2015 compared with net losses of $30 million for 2014 and net losses of $37 million for 2013.

Cash Flow Hedges

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 December 31,2015, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $190 million pretax, or $124 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 December 31,2015. 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 December 31,2015, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $24 million pretax, or $16 million after-tax, as adjustments of yield on investment securities. As of December 31,2015, the maximum length of time over which forecasted purchase contracts are hedged is 2 months.

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

During2015, 2014 and 2013, 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.

Further detail regarding gains (losses) on derivatives and related cash flows is presented in the following table:

Table 114: Gains (Losses) on Derivatives and Related Cash Flows - Cash Flow Hedges (a) (b)
				Year ended
				December 31
In millions				2015		2014		2013
Gains (losses) on derivatives recognized in OCI - (effective portion)			$	415	$	431	$	(141)
Less: Gains (losses) reclassified from accumulated OCI into income - (effective portion)
	Interest income			293		263		337
	Noninterest income			(5)				49
Total gains (losses) reclassified from accumulated OCI into income - (effective portion)			$	288	$	263	$	386
Net unrealized gains (losses) on cash flow hedge derivatives			$	127	$	168	$	(527)
(a)		All cash flow hedge derivatives are interest rate contracts as of December 31, 2015, December 31, 2014 and December 31, 2013.
(b)		The amount of cash flow hedge ineffectiveness recognized in income was not material for the periods presented.

Net Investment Hedges

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. Net investment hedge derivatives are classified as foreign exchange contracts. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness. For 2015, 2014 and 2013, there was no net investment hedge ineffectiveness. Gains (losses) on net investment hedge derivatives recognized in OCI was net gains of $60 million as of December 31, 2015, net gains of $54 million at December 31, 2014 and net losses of $21 million at December 31, 2013.

Derivatives Not Designated As Hedging Instruments under GAAP

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

Further detail regarding the notional amounts and fair values related to derivatives not designated in hedge relationships is presented in the following table:

Table 115: Derivatives Not Designated As Hedging Instruments under GAAP
					December 31, 2015						December 31, 2014
In millions				Notional / Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional / Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)
Derivatives used for residential mortgage banking activities:
Residential mortgage servicing
	Interest rate contracts:
		Swaps		$	37,505	$	758	$	416	$	32,459	$	777	$	394
		Swaptions			650		27		14		1,498		29		22
		Futures (c)			17,653						22,084
		Futures options			6,000				1		12,225		4
		Mortgage-backed securities commitments			3,920		4		8		710		4
			Subtotal		65,728		789		439		68,976		814		416
Loan sales
	Interest rate contracts:
		Futures (c)			20						58
		Bond options			200		2				300
		Mortgage-backed securities commitments			6,363		16		8		4,916		10		21
		Residential mortgage loan commitments			1,580		16				1,852		22
			Subtotal		8,163		34		8		7,126		32		21
			Subtotal	$	73,891	$	823	$	447	$	76,102	$	846	$	437
Derivatives used for commercial mortgage banking activities:
	Interest rate contracts:
		Swaps		$	3,945	$	77	$	46	$	3,801	$	67	$	48
		Swaptions			439						439		2		1
		Futures (c)			18,454						19,913
		Commercial mortgage loan commitments			1,176		11		6		2,042		16		10
			Subtotal		24,014		88		52		26,195		85		59
	Credit contracts				77						95
			Subtotal	$	24,091	$	88	$	52	$	26,290	$	85	$	59
Derivatives used for customer-related activities:
	Interest rate contracts:
		Swaps		$	157,041	$	2,507	$	2,433	$	146,008	$	2,632	$	2,559
		Caps/floors - Sold			5,337				11		4,846				16
		Caps/floors - Purchased			6,383		18				6,339		34
		Swaptions			4,363		86		13		3,361		62		12
		Futures (c)			1,673						3,112
		Mortgage-backed securities commitments			1,910		5		2		2,137		3		3
			Subtotal		176,707		2,616		2,459		165,803		2,731		2,590
	Foreign exchange contracts				10,888		194		198		12,547		223		240
	Credit contracts				5,026		2		4		5,124		2		4
			Subtotal	$	192,621	$	2,812	$	2,661	$	183,474	$	2,956	$	2,834
Derivatives used for other risk management activities:
	Interest rate contracts									$	833	$	1
	Foreign exchange contracts			$	2,742	$	59	$	6		2,661		85	$	1
	Credit contracts				15						15
	Other contracts (d)				2,542				462		1,881				510
			Subtotal		5,299		59		468		5,390		86		511
Total derivatives not designated as hedging instruments				$	295,902	$	3,782	$	3,628	$	291,256	$	3,973	$	3,841
(a)		Included in Other assets on our Consolidated Balance Sheet.
(b)		Included in Other liabilities on our Consolidated Balance Sheet.
(c)		Futures contracts settle in cash daily and, therefore, no derivative asset or derivative liability is recognized on our Consolidated Balance Sheet.
(d)		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.

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, 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.

Commercial mortgage loans held for sale and the related loan commitments, which are considered derivatives, are accounted for at 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 futures, swaps and options. 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 and 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.

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.

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table:

Table 116: Gains (Losses) on Derivatives Not Designated As Hedging Instruments under GAAP
			Year ended
			December 31
In millions				2015		2014		2013
Derivatives used for residential mortgage banking activities:
Residential mortgage servicing
	Interest rate contracts		$	103	$	240	$	(223)
Loan sales
	Interest rate contracts			83		(3)		286
		Gains (losses) included in residential mortgage banking activities (a)	$	186	$	237	$	63
Derivatives used for commercial mortgage banking activities:
	Interest rate contracts (b) (c)		$	34	$	82	$	12
	Credit contracts (c)					(1)		(2)
		Gains (losses) from commercial mortgage banking activities	$	34	$	81	$	10
Derivatives used for customer-related activities:
	Interest rate contracts		$	71	$	41	$	149
	Foreign exchange contracts			79		47		80
	Equity contracts							(3)
	Credit contracts			(1)		(1)		(1)
		Gains (losses) from customer-related activities (c)	$	149	$	87	$	225
Derivatives used for other risk management activities:
	Interest rate contracts				$	(19)	$	3
	Foreign exchange contracts		$	281		188		2
	Other contracts (d)			1		(134)		(168)
		Gains (losses) from other risk management activities (c)	$	282	$	35	$	(163)
Total gains (losses) from derivatives not designated as hedging instruments			$	651	$	440	$	135
(a)		Included in Residential mortgage noninterest income.
(b)		Included in Corporate services noninterest income.
(c)		Included in Other noninterest income.
(d)		Includes BlackRock LTIP funding obligation and the swaps entered into in connection with sales of a portion of Visa Class B common shares.

Credit Derivatives - Risk Participation Agreements

We have entered 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. The notional amount of risk participation agreements sold was $2.5 billion at December 31, 2015 and 2.8 billion at December 31, 2014.Assuming all underlying third party customers referenced in the swap contracts defaulted at December 31,2015, the exposure from these agreements would be $122 million based on the fair value of the underlying swaps, compared with $124 million at December 31, 2014.

Offsetting, Counterparty Credit Risk, and Contingent Features

We, generally, 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 all outstanding derivative instruments under the master netting agreement 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. Collateral representing initial margin, which is based on potential future exposure, is also required to be pledged by us in relation to derivative instruments with central clearing house counterparties. Any cash collateral exchanged with counterparties under these master netting agreements is also netted, when appropriate, 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 derivative instruments under a master netting agreement to be eligible for closeout netting under GAAP, we must conduct sufficient legal review to conclude with a well-founded basis that the offsetting rights included in the master netting agreement would be legally enforceable upon an event of default, including upon an event of bankruptcy, insolvency, or a similar proceeding of the counterparty. Enforceability is evidenced by a legal opinion that supports, with sufficient confidence, the enforceability of the master netting agreement in such circumstances.

The following derivative Table 117shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of December 31,2015 and December 31, 2014. The table includes cash collateral held or pledged under legally enforceable master netting agreements. 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.

Refer to Note 21Commitments and Guarantees for additional information related to resale and repurchase agreements offsetting.

Table 117: Derivative Assets and Liabilities Offsetting
						Amounts							Securities Collateral
						Offset on the							Held/(Pledged)
						Consolidated Balance Sheet							Under Master
December 31, 2015				Gross		Fair Value		Cash		Net			Netting		Net
In millions				Fair Value		Offset Amount		Collateral		Fair Value			Agreements		Amounts
Derivative assets
	Interest rate contracts:
		Cleared	$	1,003	$	779	$	195	$	29				$	29
		Over-the-counter		3,652		1,645		342		1,665		$	178		1,487
	Foreign exchange contracts			284		129		13		142			2		140
	Credit contracts			2		1		1
		Total derivative assets	$	4,941	$	2,554	$	551	$	1,836	(a)	$	180	$	1,656
Derivative liabilities
	Interest rate contracts:
		Cleared	$	855	$	779	$	57	$	19				$	19
		Exchange-traded		1						1					1
		Over-the-counter		2,276		1,687		530		59					59
	Foreign exchange contracts			204		85		20		99					99
	Credit contracts			4		3		1
	Other contracts			462						462					462
		Total derivative liabilities	$	3,802	$	2,554	$	608	$	640	(b)			$	640
December 31, 2014
In millions
Derivative assets
	Interest rate contracts		$	4,918	$	1,981	$	458	$	2,479		$	143	$	2,336
	Foreign exchange contracts			314		159		47		108			1		107
	Credit contracts			2		1		1
		Total derivative assets (c)	$	5,234	$	2,141	$	506	$	2,587	(a)	$	144	$	2,443
Derivative liabilities
	Interest rate contracts		$	3,272	$	2,057	$	483	$	732				$	732
	Foreign exchange contracts			241		80		20		141					141
	Credit contracts			4		4
	Other contracts			510						510					510
		Total derivative liabilities (c)	$	4,027	$	2,141	$	503	$	1,383	(b)			$	1,383
(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.
(c)		As of December 31, 2014, cleared derivatives were not subject to offsetting. Gross derivative assets and derivative liabilities for cleared derivatives totaled $807 million and $657 million, respectively, at December 31, 2014. Derivative assets and liabilities related to exchange-traded contracts were not material at December 31, 2014.

The table above includes over-the-counter (OTC) derivatives, cleared derivatives, and exchange-traded derivatives. OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or cleared through a central clearing house. Cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house who then becomes our counterparty. Exchange-traded derivatives represent standardized futures and options contracts executed directly on an organized exchange.

As of December 31, 2015, derivative fair values and related cash collateral for derivatives cleared through a central clearing house are, when appropriate, presented on a net basis.

The derivative fair values in the table not identified as cleared or exchange-traded represent OTC derivatives, the majority of which are governed by ISDA documentation or other legally enforceable industry standard master netting agreements and are subject to offsetting.

In addition to using master netting agreements and other collateral agreements to reduce credit risk associated with derivative instruments, we also seek to manage credit risk by evaluating credit ratings of counterparties and by using internal credit analysis, limits, and monitoring procedures.

At December 31,2015, we held cash, U.S. government securities and mortgage-backed securities totaling $.9 billion under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties, and we pledged cash totaling $.9 billionunder these agreements to collateralize net derivative liabilities owed to counterpartiesand to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals 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 values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values 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 derivative agreements contain various credit-risk related contingent provisions, such as those that require PNC’s debt to maintain a specified credit rating from one or more of the major credit rating agencies. If PNC’s debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full 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 December 31,2015was $.8 billion for which PNC had posted collateral of $.6 billion in the normal course of business. The maximum additional amount of collateral PNC would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on December 31,2015 would be $.2 billion.