PNC Bank 2013 Annual Report Download - page 208

Further detail regarding the notional amounts and fair values related to derivatives designated in hedge relationships is presented in
the following table:
Table 128: Derivatives Designated As Hedging Instruments under GAAP
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)
Interest rate contracts:
Fair value hedges:
Receive-fixed swaps (c) $16,446 $ 871 $230 $12,394 $1,365
Pay-fixed swaps (c) (d) 4,076 54 66 2,319 2 $144
Subtotal $20,522 $ 925 $296 $14,713 $1,367 $144
Cash flow hedges:
Receive-fixed swaps (c) $14,737 $ 264 $ 58 $13,428 $ 504
Forward purchase commitments 250 1
Subtotal $14,737 $ 264 $ 58 $13,678 $ 505
Foreign exchange contracts:
Net investment hedge 938 10 879 8
Total derivatives designated as hedging instruments $36,197 $1,189 $364 $29,270 $1,872 $152
(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, 43% were based on 1-month LIBOR and 57% on 3-month
LIBOR at December 31, 2013 compared with 51% and 49%, respectively, at December 31, 2012.
(d) Includes zero-coupon swaps.
F
AIR V ALUE H EDGES
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 $37 million for 2013
compared with net losses of $54 million for 2012 and net losses of $17 million for 2011. Further detail regarding gains (losses) on
fair value hedge derivatives and related hedged items is presented in the following table:
Table 129: Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges
Year ended
December 31, 2013 December 31, 2012 December 31, 2011
Gain
(Loss) on
Derivatives
Recognized
in Income
Gain (Loss)
on Related
Hedged
Items
Recognized
in Income
Gain
(Loss) on
Derivatives
Recognized
in Income
Gain (Loss)
on Related
Hedged
Items
Recognized
in Income
Gain
(Loss) on
Derivatives
Recognized
in Income
Gain (Loss)
on Related
Hedged
Items
Recognized
in Income
In millions Hedged Items Location Amount Amount Amount Amount Amount Amount
Interest rate contracts
U.S. Treasury and
Government
Agencies Securities
Investment securities
(interest income) $ 102 $(107) $(26) $ 23 $(153) $ 162
Interest rate contracts Other Debt Securities
Investment securities
(interest income) 9 (8) (1) 1 (23) 23
Interest rate contracts Subordinated debt
Borrowed funds
(interest expense) (393) 368 (30) (9) 214 (229)
Interest rate contracts
Bank notes and
senior debt
Borrowed funds
(interest expense) (351) 343 68 (80) 265 (276)
Total $(633) $ 596 $ 11 $(65) $ 303 $(320)
190 The PNC Financial Services Group, Inc. – Form 10-K