Average Consolidated Balance Sheet And Net Interest Analysis
## Table 0 ##
Nonaccrual loans are included in loans, net of unearned income.
The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities.
Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities.
Average balances of securities are based on amortized historical cost (excluding SFAS 115 adjustments to fair value which are included in other assets).
Average balances for certain loans and borrowed funds accounted for at fair value, with changes in fair value recorded in trading noninterest income, are included in noninterest-earning assets and noninterest-bearing liabilities.
Loan fees for the years ended December 31, 2008, 2007 and 2006 were $55 million, $39 million and $35 million, respectively.
Interest income includes the effects of taxable-equivalent adjustments using a marginal federal income tax rate of 35% to increase tax-exempt interest income to a taxable-equivalent basis.
The taxableequivalent adjustments to interest income for the years ended December 31, 2008, 2007 and 2006 were $36 million, $27 million and $25 million, respectively.
The following were issued in 2007: ?
SFAS 141(R), “Business Combinations” ?
SFAS 160, “Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No.51” ?
SEC Staff Accounting Bulletin No.109 ?
FIN 46(R) 7, “Application of FASB Interpretation No.46(R) to Investment Companies” ?
FSP FIN 48-1, “Definition of Settlement in FASB Interpretation (“FIN”) No.48” ?
SFAS 159 The following were issued in 2006 with an effective date in 2008: ?
SFAS 157 ?
The Emerging Issues Task Force (“EITF”) of the FASB issued EITF Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” STATUS OF DEFINED BENEFIT PENSION PLAN We have a noncontributory, qualified defined benefit pension plan (“plan” or “pension plan”) covering eligible employees.
Benefits are derived from a cash balance formula based on compensation levels, age and length of service.
Pension contributions are based on an actuarially determined amount necessary to fund total benefits payable to plan participants.
Consistent with our investment strategy, plan assets are primarily invested in equity investments and fixed income instruments.
Plan fiduciaries determine and review the plan’s investment policy.
We calculate the expense associated with the pension plan in accordance with SFAS 87, “Employers’ Accounting for Pensions,” and we use assumptions and methods that are compatible with the requirements of SFAS 87, including a policy of reflecting trust assets at their fair market value.
On an annual basis, we review the actuarial assumptions related to the pension plan, including the discount rate, the rate of compensation increase and the expected return on plan assets.
The discount rate and compensation increase assumptions do not significantly affect pension expense.
However, the expected long-term return on assets assumption does significantly affect pension expense.
The expected long-term return on plan assets for determining net periodic pension cost for 2008 was 8.25%, unchanged from 2007.
Under current accounting rules, the difference between expected long-term returns and actual returns is accumulated and amortized to pension expense over future periods.
Each one percentage point difference in actual return compared with our expected return causes expense in subsequent years to change by up to $7 million as the impact is amortized into results of operations.
The table below reflects the estimated effects on pension expense of certain changes in annual assumptions, using 2009 estimated expense as a baseline.
## Table 1 ##
(a) De minimis.
We currently estimate a pretax pension expense of $124 million in 2009 compared with a pretax benefit of $32 million in 2008.
The 2009 values and sensitivities shown above include the qualified defined benefit plan maintained by National City that we merged into the PNC plan as of December 31, 2008.
The expected increase in pension cost is attributable not only to the National City acquisition, but also to the significant variance between 2008 actual investment returns and long-term expected returns.
Our pension plan contribution requirements are not particularly sensitive to actuarial assumptions.
Investment performance has the most impact on contribution requirements and will drive the amount of permitted contributions in future years.
Also, current law, including the provisions of the Pension Protection Act of 2006, sets limits as to both minimum and maximum contributions to the plan.
We expect that the minimum required contributions under the law will be zero for 2009.
We maintain other defined benefit plans that have a less significant effect on financial results, including various nonqualified supplemental retirement plans for certain employees.
See Note 15 Employee Benefit Plans in the Notes To Consolidated Financial Statements in Item 8 of this Report for additional information.
RISK MANAGEMENT We encounter risk as part of the normal course of our business and we design risk management processes to help manage these risks.
This Risk Management section first provides an overview of the risk measurement, control strategies, and monitoring aspects of our corporate-level risk management processes.
Following that discussion is an analysis of the risk management process for what we view as our primary areas of risk: credit, operational, liquidity, and market.
The discussion of market risk is further subdivided into interest rate, trading, and equity and other investment risk areas.
Our use of financial derivatives as part of our overall asset and liability risk management process is also addressed within the Risk Management section of this Item 7.
In appropriate places within this section, historical performance is also addressed.
Commercial MSRs are periodically evaluated for impairment.
For purposes of impairment, the commercial MSRs are stratified based on asset type, which characterizes the predominant risk of the underlying financial asset.
If the carrying amount of any individual stratum exceeds its fair value, a valuation reserve is established with a corresponding charge to Corporate services on our Consolidated Income Statement.
The fair value of commercial MSRs is estimated by using a discounted cash flow model incorporating inputs for assumptions as to constant prepayment rates, discount rates and other factors determined based on current market conditions and expectations.
Changes in the residential MSRs follow: Table 100: Residential Mortgage Servicing Rights
## Table 2 ##
(a) Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period.
(b) Represents MSR value changes resulting primarily from market-driven changes in interest rates.
We recognize mortgage servicing right assets on residential real estate loans when we retain the obligation to service these loans upon sale and the servicing fee is more than adequate compensation.
MSRs are subject to declines in value principally from actual or expected prepayment of the underlying loans and also defaults.
We manage this risk by economically hedging the fair value of MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of MSRs declines (or increases).
The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors which are determined based on current market conditions.
The fair value of commercial and residential MSRs and significant inputs to the valuation models as of December 31, 2013 are shown in the tables below.
The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value.
Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments.
These models have been refined based on current market conditions and management judgment.
Future interest rates are another important factor in the valuation of MSRs.
Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates.
The forward rates utilized are derived from the current yield curve for U. S.  dollar interest rate swaps and are consistent with pricing of capital markets instruments.
Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.
A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented below.
These sensitivities do not include the impact of the related hedging activities.
Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear.
Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption.
In reality, changes in one factor may result in changes in another (for example, changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

<table><tr><td></td><td colspan="3">2008</td><td colspan="3">2007</td><td colspan="3">2006</td></tr><tr><td>Taxable-equivalent basisDollars in millions</td><td>Average Balances</td><td> Interest Income/ Expense</td><td>Average Yields/ Rates</td><td>Average Balances</td><td>Interest Income/ Expense</td><td>Average Yields/ Rates</td><td>Average Balances</td><td>Interest Income/ Expense</td><td>Average Yields/ Rates</td></tr><tr><td> Assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest-earning assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment securities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Securities available for sale</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Residential mortgage-backed</td><td>$22,058</td><td>$1,202</td><td>5.45%</td><td>$19,163</td><td>$1,041</td><td>5.43%</td><td>$14,881</td><td>$740</td><td>4.97%</td></tr><tr><td>Commercial mortgage-backed</td><td>5,666</td><td>307</td><td>5.42</td><td>4,025</td><td>222</td><td>5.52</td><td>2,305</td><td>110</td><td>4.77</td></tr><tr><td>Asset-backed</td><td>3,126</td><td>159</td><td>5.09</td><td>2,394</td><td>122</td><td>5.10</td><td>1,312</td><td>70</td><td>5.34</td></tr><tr><td>U.S. Treasury and government agencies</td><td>50</td><td>3</td><td>6.00</td><td>293</td><td>13</td><td>4.44</td><td>2,334</td><td>102</td><td>4.37</td></tr><tr><td>State and municipal</td><td>764</td><td>36</td><td>4.71</td><td>227</td><td>11</td><td>4.85</td><td>148</td><td>8</td><td>5.41</td></tr><tr><td>Other debt</td><td>220</td><td>12</td><td>5.45</td><td>47</td><td>4</td><td>8.51</td><td>89</td><td>6</td><td>6.74</td></tr><tr><td>Corporate stocks and other</td><td>412</td><td>12</td><td>2.91</td><td>392</td><td>18</td><td>4.59</td><td>246</td><td>14</td><td>5.69</td></tr><tr><td>Total securities available for sale</td><td>32,296</td><td>1,731</td><td>5.36</td><td>26,541</td><td>1,431</td><td>5.39</td><td>21,315</td><td>1,050</td><td>4.93</td></tr><tr><td>Securities held to maturity</td><td>402</td><td>23</td><td>5.72</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total investment securities</td><td>32,698</td><td>1,754</td><td>5.36</td><td>26,541</td><td>1,431</td><td>5.39</td><td>21,315</td><td>1,050</td><td>4.93</td></tr><tr><td>Loans</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commercial</td><td>30,962</td><td>1,844</td><td>5.96</td><td>25,509</td><td>1,859</td><td>7.29</td><td>20,201</td><td>1,451</td><td>7.18</td></tr><tr><td>Commercial real estate</td><td>9,368</td><td>542</td><td>5.79</td><td>7,671</td><td>603</td><td>7.86</td><td>3,212</td><td>232</td><td>7.22</td></tr><tr><td>Equipment lease financing</td><td>2,566</td><td>81</td><td>3.16</td><td>2,559</td><td>76</td><td>2.97</td><td>2,777</td><td>123</td><td>4.43</td></tr><tr><td>Consumer</td><td>20,526</td><td>1,135</td><td>5.53</td><td>17,718</td><td>1,167</td><td>6.59</td><td>16,125</td><td>1,009</td><td>6.26</td></tr><tr><td>Residential mortgage</td><td>9,017</td><td>536</td><td>5.94</td><td>8,564</td><td>512</td><td>5.98</td><td>6,888</td><td>375</td><td>5.44</td></tr><tr><td>Other</td><td>305</td><td>18</td><td>5.90</td><td>432</td><td>31</td><td>7.18</td><td>363</td><td>26</td><td>7.16</td></tr><tr><td>Total loans</td><td>72,744</td><td>4,156</td><td>5.71</td><td>62,453</td><td>4,248</td><td>6.80</td><td>49,566</td><td>3,216</td><td>6.49</td></tr><tr><td>Loans held for sale</td><td>2,502</td><td>166</td><td>6.63</td><td>2,955</td><td>184</td><td>6.23</td><td>2,683</td><td>157</td><td>5.85</td></tr><tr><td>Federal funds sold and resale agreements</td><td>2,472</td><td>71</td><td>2.87</td><td>2,152</td><td>104</td><td>4.83</td><td>1,143</td><td>58</td><td>5.07</td></tr><tr><td>Other</td><td>4,068</td><td>202</td><td>4.97</td><td>3,909</td><td>226</td><td>5.78</td><td>2,985</td><td>156</td><td>5.23</td></tr><tr><td>Total interest-earning assets/interest income</td><td>114,484</td><td>6,349</td><td>5.55</td><td>98,010</td><td>6,193</td><td>6.32</td><td>77,692</td><td>4,637</td><td>5.97</td></tr><tr><td>Noninterest-earning assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Allowance for loan and lease losses</td><td>-962</td><td></td><td></td><td>-690</td><td></td><td></td><td>-591</td><td></td><td></td></tr><tr><td>Cash and due from banks</td><td>2,705</td><td></td><td></td><td>3,018</td><td></td><td></td><td>3,121</td><td></td><td></td></tr><tr><td>Other</td><td>25,793</td><td></td><td></td><td>23,080</td><td></td><td></td><td>14,790</td><td></td><td></td></tr><tr><td>Total assets</td><td>$142,020</td><td></td><td></td><td>$123,418</td><td></td><td></td><td>$95,012</td><td></td><td></td></tr><tr><td colspan="3"> Liabilities, Minority and Noncontrolling Interests, and Shareholders’ Equity</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest-bearing liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest-bearing deposits</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Money market</td><td>$27,625</td><td>566</td><td>2.05</td><td>$23,840</td><td>827</td><td>3.47</td><td>$19,745</td><td>663</td><td>3.36</td></tr><tr><td>Demand</td><td>9,947</td><td>68</td><td>.68</td><td>9,259</td><td>103</td><td>1.11</td><td>8,187</td><td>88</td><td>1.07</td></tr><tr><td>Savings</td><td>2,714</td><td>8</td><td>.29</td><td>2,687</td><td>12</td><td>.45</td><td>2,081</td><td>10</td><td>.48</td></tr><tr><td>Retail certificates of deposit</td><td>16,642</td><td>597</td><td>3.59</td><td>16,690</td><td>776</td><td>4.65</td><td>13,999</td><td>582</td><td>4.16</td></tr><tr><td>Other time</td><td>4,424</td><td>149</td><td>3.37</td><td>2,119</td><td>110</td><td>5.19</td><td>1,364</td><td>66</td><td>4.84</td></tr><tr><td>Time deposits in foreign offices</td><td>5,006</td><td>97</td><td>1.94</td><td>4,623</td><td>225</td><td>4.87</td><td>3,613</td><td>181</td><td>5.01</td></tr><tr><td>Total interest-bearing deposits</td><td>66,358</td><td>1,485</td><td>2.24</td><td>59,218</td><td>2,053</td><td>3.47</td><td>48,989</td><td>1,590</td><td>3.25</td></tr><tr><td>Borrowed funds</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Federal funds purchased and repurchase agreements</td><td>7,228</td><td>156</td><td>2.16</td><td>7,983</td><td>394</td><td>4.94</td><td>5,286</td><td>258</td><td>4.88</td></tr><tr><td>Federal Home Loan Bank borrowings</td><td>9,303</td><td>321</td><td>3.45</td><td>2,168</td><td>109</td><td>5.03</td><td>623</td><td>25</td><td>4.01</td></tr><tr><td>Bank notes and senior debt</td><td>6,064</td><td>197</td><td>3.25</td><td>6,282</td><td>337</td><td>5.36</td><td>3,128</td><td>159</td><td>5.08</td></tr><tr><td>Subordinated debt</td><td>4,990</td><td>219</td><td>4.39</td><td>4,247</td><td>251</td><td>5.91</td><td>4,417</td><td>269</td><td>6.09</td></tr><tr><td>Other</td><td>3,737</td><td>112</td><td>3.00</td><td>2,344</td><td>107</td><td>4.56</td><td>1,589</td><td>66</td><td>4.15</td></tr><tr><td>Total borrowed funds</td><td>31,322</td><td>1,005</td><td>3.21</td><td>23,024</td><td>1,198</td><td>5.20</td><td>15,043</td><td>777</td><td>5.17</td></tr><tr><td>Total interest-bearing liabilities/interest expense</td><td>97,680</td><td>2,490</td><td>2.55</td><td>82,242</td><td>3,251</td><td>3.95</td><td>64,032</td><td>2,367</td><td>3.70</td></tr><tr><td>Noninterest-bearing liabilities, minority and noncontrolling interests, and shareholders’ equity</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Demand and other noninterest-bearing deposits</td><td>18,155</td><td></td><td></td><td>17,587</td><td></td><td></td><td>14,320</td><td></td><td></td></tr><tr><td>Allowance for unfunded loan commitments and letters of credit</td><td>134</td><td></td><td></td><td>125</td><td></td><td></td><td>106</td><td></td><td></td></tr><tr><td>Accrued expenses and other liabilities</td><td>10,033</td><td></td><td></td><td>8,195</td><td></td><td></td><td>6,672</td><td></td><td></td></tr><tr><td>Minority and noncontrolling interests in consolidated entities</td><td>1,981</td><td></td><td></td><td>1,335</td><td></td><td></td><td>600</td><td></td><td></td></tr><tr><td>Shareholders’ equity</td><td>14,037</td><td></td><td></td><td>13,934</td><td></td><td></td><td>9,282</td><td></td><td></td></tr><tr><td>Total liabilities, minority and noncontrolling interests, and shareholders’equity</td><td>$142,020</td><td></td><td></td><td>$123,418</td><td></td><td></td><td>$95,012</td><td></td><td></td></tr><tr><td>Interest rate spread</td><td></td><td></td><td>3.00</td><td></td><td></td><td>2.37</td><td></td><td></td><td>2.27</td></tr><tr><td>Impact of noninterest-bearing sources</td><td></td><td></td><td>.37</td><td></td><td></td><td>.63</td><td></td><td></td><td>.65</td></tr><tr><td>Net interest income/margin</td><td></td><td>$3,859</td><td>3.37%</td><td>$2,942</td><td></td><td>3.00%</td><td></td><td>$2,270</td><td>2.92%</td></tr></table>
<table><tr><td>Change in Assumption</td><td>EstimatedIncrease to 2009PensionExpense(In millions)</td></tr><tr><td>.5% decrease in discount rate(a)</td><td></td></tr><tr><td>.5% decrease in expected long-term return on assets</td><td>$16</td></tr><tr><td>.5% increase in compensation rate</td><td>$2</td></tr></table>
<table><tr><td>In millions</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>January 1</td><td>$650</td><td>$647</td><td>$1,033</td></tr><tr><td>Additions:</td><td></td><td></td><td></td></tr><tr><td>From loans sold with servicing retained</td><td>158</td><td>117</td><td>118</td></tr><tr><td>RBC Bank (USA) acquisition</td><td></td><td>16</td><td></td></tr><tr><td>Purchases</td><td>110</td><td>175</td><td>65</td></tr><tr><td>Sales</td><td>-4</td><td></td><td></td></tr><tr><td>Changes in fair value due to:</td><td></td><td></td><td></td></tr><tr><td>Time and payoffs (a)</td><td>-193</td><td>-167</td><td>-163</td></tr><tr><td>Other (b)</td><td>366</td><td>-138</td><td>-406</td></tr><tr><td>December 31</td><td>$1,087</td><td>$650</td><td>$647</td></tr><tr><td>Unpaid principal balance of loans serviced for others at December 31</td><td>$113,994</td><td>$119,262</td><td>$118,058</td></tr></table>

Question: what was the change in the expected long-term return on plan assets for determining net periodic pension cost in 2008 compared to 2007?
Answer: 0.0