PNC Bank 2007 Annual Report Download - page 99

Pretax Tax After-tax
Net unrealized gains (losses) on cash
flow hedge derivatives
Balance at January 1, 2005 $ 6
2005 activity
Increase in net unrealized losses on
cash flow hedge derivatives $ (49) $ 17 (32)
Less: net gains realized in net income
Net unrealized losses on cash flow
hedge derivatives (49) 17 (32)
Balance at December 31, 2005 (26)
2006 activity
Increase in net unrealized gains on cash
flow hedge derivatives 13 (5) 8
Less: net gains realized in net income (7) 2 (5)
Net unrealized gains on cash flow
hedge derivatives 20 (7) 13
Balance at December 31, 2006 (13)
2007 activity
Increase in net unrealized gains on cash
flow hedge derivatives 283 (104) 179
Less: net gains realized in net income (14) 5 (9)
Net unrealized gains on cash flow
hedge derivatives 297 (109) 188
Balance at December 31, 2007 $ 175
Pension, other postretirement and
postemployment benefit plan
adjustments
Balance at January 1, 2005 $ (15)
Balance at December 31, 2005 (15)
2006 activity
SFAS 87 adjustment $ (2) $ 1 (1)
SFAS 158 adjustment, net (203) 71 (132)
Total 2006 activity (205) 72 (133)
Balance at December 31, 2006 (148)
2007 activity (49) 20 (29)
Balance at December 31, 2007 $ (177)
Other (b)
Balance at January 1, 2005 $ 21
2005 activity (11) 4 (7)
Balance at December 31, 2005 14
2006 activity 6 (3) 3
Balance at December 31, 2006 17
2007 activity 24 (19) 5
Balance at December 31, 2007 $ 22
(b) Consists of interest-only strip valuation adjustments, foreign currency translation
adjustments and in 2007, deferred tax adjustments on BlackRock’s other
comprehensive income.
The accumulated balances related to each component of other
comprehensive income (loss) are as follows:
December 31 – in millions 2007 2006
Net unrealized securities gains (losses) $(167) $ (91)
Net unrealized gains (losses) on cash flow hedge
derivatives 175 (13)
Pension, other postretirement and post-
employment benefit plan adjustments (177) (148)
Other 22 17
Accumulated other comprehensive (loss) $(147) $(235)
N OTE 15 F INANCIAL D ERIVATIVES
We use a variety of derivative financial instruments to help
manage 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. These
instruments include interest rate swaps, interest rate caps and
floors, futures contracts, and total return swaps.
Fair Value Hedging Strategies
We enter into interest rate and total return swaps, interest rate
caps, floors and futures derivative contracts to hedge
designated commercial mortgage loans held for sale, bank
notes, Federal Home Loan Bank borrowings, senior debt and
subordinated debt for changes in fair value primarily due to
changes in interest rates. Adjustments related to the ineffective
portion of fair value hedging instruments are recorded in
interest income, interest expense or noninterest income
depending on the hedged item.
Cash Flow Hedging Strategies
We enter into interest rate swap contracts 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 interest rate changes. We hedged
our exposure to the variability of future cash flows for all
forecasted transactions for a maximum of 10 years for hedges
converting floating-rate commercial loans to fixed. The fair
value of these derivatives is reported in other assets or other
liabilities and offset in accumulated other comprehensive
income (loss) for the effective portion of the derivatives. We
subsequently reclassify any unrealized gains or losses related
to these swap contracts from accumulated other
comprehensive income (loss) into interest income in the same
period or periods during which the hedged forecasted
transaction affects earnings. Ineffectiveness of the strategies,
if any, is recognized immediately in earnings.
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