PNC Bank 2001 Annual Report Download - page 81

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79
At December 31, 2001, key economic assumptions and
the sensitivity of the current fair value of residual cash flows
to an immediate 10% or 20% adverse change in those
assumptions are as follows:
Fair Value Assumptions
December 31, 2001
Dollars in millions
Residential
Mortgage
Student
Loans Other
Fair value of retained interest
(carrying value) $29 $52 $2
Weighted-average life (in years) .8 2.0 1.8
Residual cash flows discount rate 7.50% 4.40% 4.14%
Impact on fair value of 10%
adverse change $(.2) $(2.2)
Impact on fair value of 20%
adverse change (.3) (3.3)
Prepayment speed assumption
(CPR) 50.0% 13.7% (a)
Impact on fair value of 10%
adverse change $(1.9) $(.8) (a)
Impact on fair value of 20%
adverse change (3.5) (1.3) (a)
(a) Historically, there have been no prepayments on these loans, which are guaranteed
by an agency of the U. S. Government.
These sensitivities are hypothetical and should be used with
caution. As the figures indicate, changes in fair value based
on a 10% variation in assumptions generally cannot be
extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear.
Also, the effect of a variation in a particular assumption on
fair value is calculated independently of variations in other
assumptions, whereas a change in one factor may realistically
have an impact on another, which might magnify or
counteract the sensitivities.
During 2000, the Corporation sold commercial mortgage
loans of $865 million in secondary market securitization
transactions and recognized a pretax gain of $13 million.
Additionally, the Corporation sold $737 million of
commercial mortgage loans into a trust. The Corporation
retained servicing rights in the loans and 99% or $730 million
of the mortgage-backed securities. The 1% interest in the
trust was purchased by a publicly-traded entity managed by a
subsidiary of PNC. A substantial portion of the entity’s
purchase price was financed by PNC. The Corporation had
securities of $155 million related to the trust in its portfolio
at December 31, 2000. No gain related to the portion of
securities retained was recognized by the Corporation as of
December 31, 2000. The securities were subsequently sold to
third parties in the first quarter of 2001.
NOTE 15 DEPOSITS
The aggregate amount of time deposits with a denomination
greater than $100,000 was $4.0 billion and $5.8 billion at
December 31, 2001 and 2000, respectively. Remaining
contractual maturities of time deposits for the years 2002
through 2006 and thereafter are $8.7 billion, $1.3 billion, $1.2
billion, $681 million and $917 million, respectively.
NOTE 16 BORROWED FUNDS
Bank notes have interest rates ranging from 1.95% to 6.50%
with approximately 40% maturing in 2002. Senior and
subordinated notes consisted of the following:
December 31, 2001
Dollars in millions Outstanding Stated Rate Maturity
Senior $2,762 2.45% – 7.00
%
2002-2006
Subordinated
Nonconvertible 2,298 6.13 – 8.25 2003-2009
Total $5,060
Borrowed funds have scheduled repayments for the years
2002 through 2006 and thereafter of $3.4 billion, $2.4 billion,
$2.1 billion, $1.6 billion and $2.6 billion, respectively.
Included in outstandings for the senior and subordinated
notes in the table above are basis adjustments of $8 million
and $89 million, respectively, related to SFAS No. 133.
NOTE 17 CAPITAL SECURITIES OF SUBSIDIARY
TRUSTS
Mandatorily Redeemable Capital Securities of Subsidiary
Trusts (“Capital Securities”) include nonvoting preferred
beneficial interests in the assets of PNC Institutional Capital
Trust A, Trust B and Trust C. Trust A, formed in December
1996, holds $350 million of 7.95% junior subordinated
debentures, due December 15, 2026, and redeemable after
December 15, 2006, at a premium that declines from
103.975% to par on or after December 15, 2016. Trust B,
formed in May 1997, holds $300 million of 8.315% junior
subordinated debentures due May 15, 2027, and redeemable
after May 15, 2007, at a premium that declines from
104.1575% to par on or after May 15, 2017. Trust C, formed
in June 1998, holds $200 million of junior subordinated
debentures due June 1, 2028, bearing interest at a floating
rate per annum equal to 3-month LIBOR plus 57 basis
points. The rate in effect at December 31, 2001 was 2.65%.
Trust C Capital Securities are redeemable on or after June 1,
2008 at par.