PNC Bank 2013 Annual Report Download - page 207

N OTE 17 F INANCIAL D ERIVATIVES
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.
The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by PNC:
Table 127: Total Gross Derivatives
December 31, 2013 December 31, 2012
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 designated as hedging instruments under GAAP $ 36,197 $1,189 $ 364 $ 29,270 $1,872 $ 152
Derivatives not designated as hedging instruments under GAAP 345,059 3,604 3,570 337,086 6,696 6,458
Total gross derivatives $381,256 $4,793 $3,934 $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.
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. 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.
Further discussion on how derivatives are accounted for is included in Note 1 Accounting Policies.
D
ERIVATIVES D ESIGNATED A S H EDGING I NSTRUMENTS UNDER GAAP
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.
The PNC Financial Services Group, Inc. – Form 10-K 189