Financial Derivatives

3 Months Ended

Mar. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Financial Derivatives

Note10Financial 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.

For more information regarding derivatives see Note 1 Accounting Policies and Note 14 Financial Derivatives in our Notes To Consolidated Financial Statements under Item 8 of our 2015 Form 10-K.

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

Table 81: Total Gross Derivatives
			March 31, 2016						December 31, 2015
			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		$	51,508	$	1,663	$	301	$	52,074	$	1,159	$	174
Derivatives not designated as hedging instruments under GAAP			316,988		5,267		4,934		295,902		3,782		3,628
Total gross derivatives		$	368,496	$	6,930	$	5,235	$	347,976	$	4,941	$	3,802
(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.

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 82: Derivatives Designated As Hedging Instruments under GAAP
					March 31, 2016						December 31, 2015
				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	$	25,928	$	1,064			$	25,756	$	699	$	18
			Pay-fixed swaps (c)		5,934			$	301		5,934		13		153
			Subtotal		31,862		1,064		301		31,690		712		171
		Cash flow hedges:
			Receive-fixed swaps		17,413		534				17,879		412		2
			Forward purchase commitments		1,150		6				1,400		4		1
			Subtotal		18,563		540				19,279		416		3
	Foreign exchange contracts:
		Net investment hedges			1,083		59				1,105		31
Total derivatives designated as hedging instruments				$	51,508	$	1,663	$	301	$	52,074	$	1,159	$	174
(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 83: Gains (Losses) on Derivatives and Related Hedged Items - Fair Value Hedges
					Three months ended
					March 31, 2016				March 31, 2015
						Gain (Loss)				Gain (Loss)
				Gain		on Related		Gain		on Related
				(Loss) on		Hedged		(Loss) on		Hedged
				Derivatives		Items		Derivatives		Items
				Recognized		Recognized		Recognized		Recognized
In millions		Hedged Items	Location	in Income		in Income		in Income		in Income
Interest rate contracts		U.S. Treasury and Government Agencies Securities and Other Debt Securities	Investment securities (interest income)
				$	(154)	$	158	$	(52)	$	54
Interest rate contracts		Subordinated debt and Bank notes and senior debt	Borrowed funds
			(interest expense)		407		(432)		157		(172)
Total (a)				$	253	$	(274)	$	105	$	(118)
(a)	The ineffective portion of the change in value of our fair value hedge derivatives resulted in net losses of $21 million for the first three months of 2016 compared with net losses of $13 million for the first three months of 2015.

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 March 31,2016, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $198 million pretax, or $129 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 March 31,2016. The maximum length of time over which forecasted loan cash flows are hedged is 6 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 March 31,2016, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $45 million pretax, or $29 million after-tax, as adjustments of yield on investment securities. As of March 31,2016, 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.

During the first three months of2016 and 2015, 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 84: Gains (Losses) on Derivatives and Related Cash Flows - Cash Flow Hedges (a) (b)
			Three months ended
				March 31
In millions				2016		2015
Gains (losses) on derivatives recognized in OCI - (effective portion)			$	265	$	298
Less: Gains (losses) reclassified from accumulated OCI into income - (effective portion)
	Interest income			65		68
	Noninterest income					(9)
Total gains (losses) reclassified from accumulated OCI into income - (effective portion)			$	65	$	59
Net unrealized gains (losses) on cash flow hedge derivatives			$	200	$	239
(a)		All cash flow hedge derivatives are interest rate contracts as of March 31, 2016 and March 31, 2015.
(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. During the first three months of2016 and 2015, there was no net investment hedge ineffectiveness. Gains (losses) on net investment hedge derivatives recognized in OCI was net gains of $29 million for the three months ended March 31,2016 compared with net gains of $54millionat March 31,2015.

Derivatives Not Designated As Hedging Instruments under GAAP

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

For additional information on derivatives not designated as hedging instruments under GAAP see Note 14 Financial Derivatives in our 2015 Form 10-K.

Further detail regarding the notional amounts and fair values related to derivatives not designated in hedge relationships is presented in the following table:
Table 85: Derivatives Not Designated As Hedging Instruments under GAAP
					March 31, 2016						December 31, 2015
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		$	36,925	$	1,225	$	793	$	37,505	$	758	$	416
		Swaptions			1,103		39		23		650		27		14
		Futures (c)			20,626						17,653
		Futures options			18,000		2		3		6,000				1
		Mortgage-backed securities commitments			4,280		12		5		3,920		4		8
			Subtotal		80,934		1,278		824		65,728		789		439
Loan sales
	Interest rate contracts:
		Futures (c)			10						20
		Bond options			200						200		2
		Mortgage-backed securities commitments			5,113		8		14		6,363		16		8
		Residential mortgage loan commitments			1,950		22				1,580		16
			Subtotal		7,273		30		14		8,163		34		8
			Subtotal	$	88,207	$	1,308	$	838	$	73,891	$	823	$	447
Derivatives used for commercial mortgage banking activities:
	Interest rate contracts:
		Swaps		$	4,186	$	129	$	68	$	3,945	$	77	$	46
		Swaptions									439
		Futures (c)			15,450						18,454
		Commercial mortgage loan commitments			1,380		14		8		1,176		11		6
			Subtotal		21,016		143		76		24,014		88		52
	Credit contracts				58						77
			Subtotal	$	21,074	$	143	$	76	$	24,091	$	88	$	52
Derivatives used for customer-related activities:
	Interest rate contracts:
		Swaps		$	163,175	$	3,445	$	3,424	$	157,041	$	2,507	$	2,433
		Caps/floors - Sold			5,277				7		5,337				11
		Caps/floors - Purchased			6,617		19				6,383		18
		Swaptions			4,963		144		11		4,363		86		13
		Futures (c)			1,632						1,673
		Mortgage-backed securities commitments			3,457		11		10		1,910		5		2
			Subtotal		185,121		3,619		3,452		176,707		2,616		2,459
	Foreign exchange contracts				11,261		178		157		10,888		194		198
	Credit contracts				5,775		3		6		5,026		2		4
			Subtotal	$	202,157	$	3,800	$	3,615	$	192,621	$	2,812	$	2,661
Derivatives used for other risk management activities:
	Foreign exchange contracts			$	2,995	$	16	$	88	$	2,742	$	59	$	6
	Other contracts (d)				2,555				317		2,557				462
			Subtotal		5,550		16		405		5,299		59		468
Total derivatives not designated as hedging instruments				$	316,988	$	5,267	$	4,934	$	295,902	$	3,782	$	3,628
(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.

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table:
Table 86: Gains (Losses) on Derivatives Not Designated As Hedging Instruments under GAAP
				Three months ended
				March 31
In millions				2016		2015
Derivatives used for residential mortgage banking activities:
Residential mortgage servicing
	Interest rate contracts		$	195	$	98
Loan sales
	Interest rate contracts			(7)		21
		Gains (losses) included in residential mortgage banking activities (a)	$	188	$	119
Derivatives used for commercial mortgage banking activities:
	Interest rate contracts (b) (c)		$	53	$	30
	Credit contracts (c)					(1)
		Gains (losses) from commercial mortgage banking activities	$	53	$	29
Derivatives used for customer-related activities:
	Interest rate contracts		$	(4)	$	4
	Foreign exchange contracts			29		1
		Gains (losses) from customer-related activities (c)	$	25	$	5
Derivatives used for other risk management activities:
	Interest rate contracts
	Foreign exchange contracts		$	(95)	$	183
	Other contracts (d)			(4)		(7)
		Gains (losses) from other risk management activities (c)	$	(99)	$	176
Total gains (losses) from derivatives not designated as hedging instruments			$	167	$	329
(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 $3.2 billion at March 31, 2016 and $2.5 billion at December 31, 2015.Assuming all underlying third party customers referenced in the swap contracts defaulted at March 31,2016, the exposure from these agreements would be $166 million based on the fair value of the underlying swaps, compared with $122 million at December 31, 2015.

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.

For additional information on derivative offsetting, counterparty credit risk, and contingent features see Note 14 Financial Derivatives in our 2015 Form 10-K. Refer to Note 15Commitments and Guarantees in this Report for additional information related to resale and repurchase agreements offsetting.

The following derivative Table 87shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of March 31,2016 and December 31, 2015. 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.

Table 87: Derivative Assets and Liabilities Offsetting
						Amounts							Securities Collateral
						Offset on the							Held/(Pledged)
						Consolidated Balance Sheet							Under Master
March 31, 2016				Gross		Fair Value		Cash		Net			Netting		Net
In millions				Fair Value		Offset Amount		Collateral		Fair Value			Agreements		Amounts
Derivative assets
	Interest rate contracts:
		Cleared	$	1,844	$	1,651	$	152	$	41				$	41
		Exchange-traded		2						2					2
		Over-the-counter		4,828		2,010		481		2,337		$	296		2,041
	Foreign exchange contracts			253		112		12		129			1		128
	Credit contracts			3		1		1		1					1
		Total derivative assets	$	6,930	$	3,774	$	646	$	2,510	(a)	$	297	$	2,213
Derivative liabilities
	Interest rate contracts:
		Cleared	$	1,923	$	1,651	$	243	$	29				$	29
		Exchange-traded		3						3					3
		Over-the-counter		2,741		1,996		663		82					82
	Foreign exchange contracts			245		123		35		87					87
	Credit contracts			6		4		2
	Other contracts			317						317					317
		Total derivative liabilities	$	5,235	$	3,774	$	943	$	518	(b)			$	518
December 31, 2015
In millions
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
(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.

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. The majority of OTC derivatives are governed by ISDA documentation or other legally enforceable industry standard master netting agreements. 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.

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 March 31,2016, 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 $1.3 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 liabilities 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 March 31,2016was $1.2 billion for which PNC had posted collateral of $1.0 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 March 31,2016 would be $.2 billion.