Management’s Discussion and Analysis We believe our credit ratings are primarily based on the credit rating agencies’ assessment of: ‰ Our liquidity, market, credit and operational risk management practices; ‰ The level and variability of our earnings; ‰ Our capital base; ‰ Our franchise, reputation and management; ‰ Our corporate governance; and ‰ The external operating environment, including, in some cases, the assumed level of government or other systemic support.
Certain of our derivatives have been transacted under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings.
We assess the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies.
A downgrade by any one rating agency, depending on the agency’s relative ratings of us at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies.
We allocate a portion of our GCLA to ensure we would be able to make the additional collateral or termination payments that may be required in the event of a two-notch reduction in our long-term credit ratings, as well as collateral that has not been called by counterparties, but is available to them.
The table below presents the additional collateral or termination payments related to our net derivative liabilities under bilateral agreements that could have been called at the reporting date by counterparties in the event of a one-notch and two-notch downgrade in our credit ratings.
## Table 0 ##
Cash Flows As a global financial institution, our cash flows are complex and bear little relation to our net earnings and net assets.
Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity position than the liquidity and asset-liability management policies described above.
Cash flow analysis may, however, be helpful in highlighting certain macro trends and strategic initiatives in our businesses.
Year Ended December 2014.
Our cash and cash equivalents decreased by $3.53 billion to $57.60 billion at the end of 2014.
We used $22.53 billion in net cash for operating and investing activities, which reflects an initiative to reduce our balance sheet, and the funding of loans receivable.
We generated $19.00 billion in net cash from financing activities from an increase in bank deposits and net proceeds from issuances of unsecured long-term borrowings, partially offset by repurchases of common stock.
Year Ended December 2013.
Our cash and cash equivalents decreased by $11.54 billion to $61.13 billion at the end of 2013.
We generated $4.54 billion in net cash from operating activities.
We used net cash of $16.08 billion for investing and financing activities, primarily to fund loans receivable and repurchases of common stock.
Year Ended December 2012.
Our cash and cash equivalents increased by $16.66 billion to $72.67 billion at the end of 2012.
We generated $9.14 billion in net cash from operating and investing activities.
We generated $7.52 billion in net cash from financing activities from an increase in bank deposits, partially offset by net repayments of unsecured and secured long-term borrowings.
The after-tax adjustment to beginning retained earnings from the adoption of SFAS 157 and SFAS 159 related to Level 3 fair value measurements was approximately $1 million each.
Net gains (realized and unrealized) relating to Level 3 assets and liabilities were $1 million for 2008.
This amount included net unrealized losses of $209 million.
These amounts were included in other noninterest income in the Consolidated Income Statement.
During 2008, securities transferred into Level 3 from Level 2 exceeded securities transferred out by $4.3 billion.
These primarily related to private issuer asset-backed securities, auction rate securities, residential mortgage-backed securities and corporate bonds and occurred due to reduced volume of recently executed transactions and the lack of corroborating market price quotations for these instruments.
Other Level 3 assets include commercial mortgage loans held for sale, private equity investments and other assets.
Nonrecurring Fair Value Changes We may be required to measure certain other financial assets at fair value on a nonrecurring basis.
These adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment.
The amounts below for nonaccrual loans and loans held for sale represent the carrying value of loans for which adjustments are primarily based on the appraised value of collateral or the present value of expected future cash flows, which often results in significant management assumptions and input with respect to the determination of fair value.
The fair value determination of the equity investment resulting in an impairment loss included below was based on observable market data for other comparable entities as adjusted for internal assumptions and unobservable inputs.
The amounts below for commercial mortgage servicing rights reflect an impairment of certain strata of these assets.
The fair value of commercial mortgage servicing rights is estimated by using an internal valuation model.
The model calculates the present value of estimated future net servicing cash flows considering estimates on servicing revenue and costs, discount rates and prepayment speeds.
Annually, this model is subject to an internal review process to validate controls and model results.
Fair Value Measurements – Nonrecurring
## Table 1 ##
(a) All Level 3.
Fair Value Option Commercial Mortgage Loans Held For Sale Effective January 1, 2008, we elected to account for commercial mortgage loans classified as held for sale and intended for securitization at fair value under the provisions of SFAS 159.
Based on the significance of unobservable inputs, we classify this portfolio as Level 3.
As such, a synthetic securitization methodology was used historically to value the loans and the related unfunded commitments on an aggregate basis based upon current commercial mortgage-backed securities (CMBS) market structures and conditions.
The election of the fair value option aligns the accounting for the commercial mortgages with the related hedges.
It also eliminates the requirements of hedge accounting under SFAS 133.
Due to the inactivity in the CMBS securitization market in 2008, we determined the fair value of commercial mortgage loans held for sale by using a whole loan valuation methodology.
Based on the significance of unobservable inputs, we classified this portfolio as Level 3.
Valuation assumptions included observable inputs based on whole loan sales, both observed in the market and actual sales from our portfolio and new loan origination spreads during the quarter.
Adjustments were made to the assumptions to account for uncertainties, including market conditions, and liquidity.
Credit risk was included as part of our valuation process for these loans by considering expected rates of return for market participants for similar loans in the marketplace.
PNC has not elected the fair value option for the remainder of our loans held for sale portfolio as the amounts are not significant and hedge accounting is not used for these loans.
At December 31, 2008, commercial mortgage loans held for sale for which the fair value option had been elected had an aggregate fair value of $1.4 billion and an aggregate outstanding principal balance of $1.6 billion.
Interest income on these loans is recorded as earned and reported in the Consolidated Income Statement in the caption Interest Income – Other.
Net losses resulting from changes in fair value of these loans of $251 million for 2008 were recorded in other noninterest income.
The impact on earnings of offsetting hedges is not reflected in these amounts.
Changes in fair value due to instrument-specific credit risk for 2008 were not material.
The changes in fair value of these loans were partially offset by changes in the fair value of the related financial derivatives that economically hedged these loans.
Customer Resale Agreements and Bank Notes Effective January 1, 2008, we elected to account for structured resale agreements and structured bank notes at fair value, which are economically hedged using free-standing financial derivatives.
The fair value for structured resale agreements and structured bank notes is determined using a model which includes observable market data as inputs such as interest rates.
SUMMARY OF LOAN LOSS EXPERIENCE
## Table 2 ##
(a) Amounts for 2005 reflect the impact of a $53 million loan recovery in that year.
Excluding this recovery, net charge-offs would have been .18% of average loans and the allowance as a multiple of net charge-offs would have been 7.18x.
(b) Amount for 2008 included a $504 million conforming provision for credit losses related to National City.
The following table presents the assignment of the allowance for loan and lease losses and the categories of loans as a percentage of total loans.
Changes in the allocation over time reflect the changes in loan portfolio composition, risk profile and refinements to reserve methodologies.
For purposes of this presentation, a portion of the allowance for loan and lease losses has been assigned to loan categories based on the relative specific and pool allocation amounts to provide coverage for probable losses not covered in specific, pool and consumer reserve methodologies related to qualitative and measurement factors.
At December 31, 2008, the portion of the reserves for these factors was $69 million.
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
## Table 3 ##
an immediate 50 basis points parallel decrease in interest rates.
Comparable amounts at December 31, 2007 were 2.8 years and 2.5 years, respectively.
Loans Held For Sale
## Table 4 ##
The acquisition of National City added approximately $2.2 billion of loans held for sale, primarily 1-4 family conforming residential mortgages.
The residential mortgage loans held for sale will be accounted for at fair value.
PNC adopted SFAS 159 beginning January 1, 2008 and elected to account for certain commercial mortgage loans held for sale at fair value.
The balance of these assets was $1.4 billion at December 31, 2008.
We stopped originating these types of loans during the first quarter of 2008.
We intend to continue pursuing opportunities to reduce our commercial mortgage loans held for sale position at appropriate prices.
We sold and/or securitized $.6 billion of commercial mortgage loans held for sale carried at fair value in 2008.
Losses of $197 million on commercial mortgage loans held for sale, net of hedges, were included in other noninterest income for 2008 compared with gains of $3 million in 2007.
Net interest income on commercial mortgage loans held for sale was $76 million in 2008 compared with $15 million in 2007.
The non-cash losses reflected illiquid market conditions which began in the latter part of 2007.
We previously classified substantially all of our education loans as loans held for sale as we sold education loans to issuers of asset-backed paper when the loans were placed into repayment status.
During 2008, the secondary markets for education loans have been impacted by liquidity issues similar to those for other asset classes.
In February 2008, given this outlook and the economic and customer relationship value inherent in this product, we transferred these loans at lower of cost or market value from held for sale to the loan portfolio.
We did not sell education loans during the remainder of 2008 and do not anticipate sales of these transferred loans in the foreseeable future.
FUNDING AND CAPITAL SOURCES Details Of Funding Sources

Tables referenced above, in order (Table 0 first):
<table><tr><td></td><td>As of December</td></tr><tr><td><i>$ in millions</i></td><td>2014</td><td>2013</td></tr><tr><td>Additional collateral or termination payments for a one-notch downgrade</td><td>$1,072</td><td>$ 911</td></tr><tr><td>Additional collateral or termination payments for a two-notch downgrade</td><td>2,815</td><td>2,989</td></tr></table>
<table><tr><td>In millions</td><td>December 31,2008Total FairValue (a)</td><td>Total losses for year ended December 31, 2008</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Nonaccrual loans</td><td>$250</td><td>$-99</td></tr><tr><td>Loans held for sale</td><td>101</td><td>-2</td></tr><tr><td>Equity investment</td><td>75</td><td>-73</td></tr><tr><td>Commercial mortgage servicing rights</td><td>560</td><td>-35</td></tr><tr><td>Total assets</td><td>$986</td><td>$-209</td></tr></table>
<table><tr><td>Year ended December 31 - dollars in millions</td><td>2008</td><td>2007</td><td>2006</td><td>2005</td><td>2004</td></tr><tr><td>Allowance for loan and lease losses – January 1</td><td>$830</td><td>$560</td><td>$596</td><td>$607</td><td>$632</td></tr><tr><td>Charge-offs</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commercial</td><td>-301</td><td>-156</td><td>-108</td><td>-52</td><td>-113</td></tr><tr><td>Commercial real estate</td><td>-165</td><td>-16</td><td>-3</td><td>-1</td><td>-2</td></tr><tr><td>Equipment lease financing</td><td>-3</td><td></td><td>-14</td><td>-29</td><td>-2</td></tr><tr><td>Consumer</td><td>-143</td><td>-73</td><td>-52</td><td>-45</td><td>-46</td></tr><tr><td>Residential real estate</td><td>-6</td><td></td><td>-3</td><td>-2</td><td>-3</td></tr><tr><td>Total charge-offs</td><td>-618</td><td>-245</td><td>-180</td><td>-129</td><td>-166</td></tr><tr><td>Recoveries</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commercial (a)</td><td>53</td><td>30</td><td>19</td><td>82</td><td>31</td></tr><tr><td>Commercial real estate</td><td>10</td><td>1</td><td>1</td><td>1</td><td>1</td></tr><tr><td>Equipment lease financing</td><td>1</td><td></td><td>5</td><td>1</td><td>5</td></tr><tr><td>Consumer</td><td>15</td><td>14</td><td>15</td><td>15</td><td>13</td></tr><tr><td>Residential real estate</td><td></td><td></td><td></td><td></td><td>1</td></tr><tr><td>Total recoveries</td><td>79</td><td>45</td><td>40</td><td>99</td><td>51</td></tr><tr><td>Net charge-offs (a)</td><td>-539</td><td>-200</td><td>-140</td><td>-30</td><td>-115</td></tr><tr><td>Provision for credit losses (b)</td><td>1,517</td><td>315</td><td>124</td><td>21</td><td>52</td></tr><tr><td>Acquired allowance – National City</td><td>2,224</td><td></td><td></td><td></td><td></td></tr><tr><td>Acquired allowance – other</td><td>20</td><td>152</td><td></td><td>23</td><td>22</td></tr><tr><td>Net change in allowance for unfunded loan commitments and letters of credit</td><td>-135</td><td>3</td><td>-20</td><td>-25</td><td>16</td></tr><tr><td>Allowance for loan and lease losses – December 31</td><td>$3,917</td><td>$830</td><td>$560</td><td>$596</td><td>$607</td></tr><tr><td>Allowance as a percent of December 31:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Loans</td><td>2.23%</td><td>1.21%</td><td>1.12%</td><td>1.21%</td><td>1.40%</td></tr><tr><td>Nonperforming loans</td><td>236</td><td>183</td><td>350</td><td>299</td><td>405</td></tr><tr><td>As a percent of average loans</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net charge-offs (a)</td><td>.74</td><td>.32</td><td>.28</td><td>.06</td><td>.28</td></tr><tr><td>Provision for credit losses</td><td>2.09</td><td>.50</td><td>.25</td><td>.04</td><td>.13</td></tr><tr><td>Allowance for loan and lease losses</td><td>5.38</td><td>1.33</td><td>1.13</td><td>1.26</td><td>1.48</td></tr><tr><td>Allowance as a multiple of net charge-offs (a)</td><td>7.27x</td><td>4.15x</td><td>4.00x</td><td>19.87x</td><td>5.28x</td></tr></table>
<table><tr><td></td><td colspan="2">2008</td><td colspan="2">2007</td><td colspan="2">2006</td><td colspan="2">2005</td><td colspan="2">2004</td></tr><tr><td>December 31Dollars in millions</td><td>Allowance</td><td>Loans to Total Loans</td><td>Allowance</td><td>Loans to Total Loans</td><td>Allowance</td><td>Loans to Total Loans</td><td>Allowance</td><td>Loans to Total Loans</td><td>Allowance</td><td>Loans toTotal Loans</td></tr><tr><td>Commercial</td><td>$1,621</td><td>38.3%</td><td>$560</td><td>41.8%</td><td>$443</td><td>40.9%</td><td>$489</td><td>39.2%</td><td>$503</td><td>40.1%</td></tr><tr><td>Commercial real estate</td><td>833</td><td>14.7</td><td>153</td><td>13.0</td><td>30</td><td>7.0</td><td>32</td><td>6.4</td><td>26</td><td>4.5</td></tr><tr><td>Consumer</td><td>929</td><td>29.9</td><td>68</td><td>26.9</td><td>28</td><td>33.1</td><td>24</td><td>33.1</td><td>35</td><td>36.3</td></tr><tr><td>Residential real estate</td><td>308</td><td>12.3</td><td>9</td><td>14.0</td><td>7</td><td>12.7</td><td>7</td><td>14.9</td><td>6</td><td>11.0</td></tr><tr><td>Equipment lease financing</td><td>179</td><td>3.7</td><td>36</td><td>3.7</td><td>48</td><td>5.6</td><td>41</td><td>5.7</td><td>33</td><td>6.9</td></tr><tr><td>Other</td><td>47</td><td>1.1</td><td>4</td><td>.6</td><td>4</td><td>.7</td><td>3</td><td>.7</td><td>4</td><td>1.2</td></tr><tr><td>Total</td><td>$3,917</td><td>100.0%</td><td>$830</td><td>100.0%</td><td>$560</td><td>100.0%</td><td>$596</td><td>100.0%</td><td>$607</td><td>100.0%</td></tr></table>
<table><tr><td>December 31 - in millions</td><td> 2008</td><td>2007</td></tr><tr><td>Commercial mortgage</td><td>$2,158</td><td>$2,116</td></tr><tr><td>Residential mortgage</td><td>1,962</td><td>117</td></tr><tr><td>Education</td><td></td><td>1,525</td></tr><tr><td>Other</td><td>246</td><td>169</td></tr><tr><td>Total</td><td>$4,366</td><td>$3,927</td></tr></table>

Question: In the year with the most Commercial, what is the growth rate of Residential real estate?
Answer: 0.97078
Reasoning program: subtract(308,9), divide(#0,308)