PNC Bank 2002 Annual Report Download - page 47

Download and view the complete annual report

Please find page 47 of the 2002 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

45
CREDIT-RELATED INSTRUMENTS
Credit Default Swaps
Credit default swaps provide, for a fee, an assumption of a
portion of the credit risk associated with the underlying
financial instruments. The Corporation primarily uses such
contracts to mitigate credit risk associated with commercial
lending activities. At December 31, 2002, credit default swaps
with $184 million in notional value were used by the
Corporation to hedge credit risk associated with commercial
lending activities and are included in the Other Derivatives
table in the Financial And Other Derivatives section of this
Financial Review. Net losses realized in connection with
credit default swaps for 2002 were not significant.
Interest Rate Derivative Risk Participation Agreements
The Corporation enters into risk participation agreements to
share credit exposure with other financial counterparties
related to interest rate derivative contracts. Risk participation
agreements executed by the Corporation to mitigate credit risk
had a total notional value of $43 million at December 31,
2002. Additionally, risk participation agreements entered into
in which the Corporation assumed credit exposure had a total
notional value of $109 million at December 31, 2002. These
agreements are considered to be financial guarantees and
therefore are not included in the Financial And Other
Derivatives section of this Financial Review.
SECURITIES
Total securities at December 31, 2002 were $13.8 billion
compared with $13.9 billion at December 31, 2001. Securities
represented 21% of total assets at December 31, 2002
compared with 20% at December 31, 2001.
At December 31, 2002, the securities available for sale
balance included a net unrealized gain of $274 million, which
represented the difference between fair value and amortized
cost. The comparable amount at December 31, 2001 was a net
unrealized loss of $132 million. Net unrealized gains and losses
in the securities available for sale portfolio are included in
accumulated other comprehensive income or loss, net of tax or,
for the portion attributable to a hedged risk as part of a fair value
hedge strategy, in net income. The expected weighted-average
life of securities available for sale was 2 years and 8 months at
December 31, 2002 compared with 4 years at December 31,
2001.
Securities designated as held to maturity are carried at
amortized cost and were assets of companies formed with AIG
that were consolidated in PNC’s financial statements. In January
2003, these securities were sold and these companies were
liquidated. See Note 32 Subsequent Events. The expected
weighted-average life of securities held to maturity was 20
years and 2 months at December 31, 2002 compared with 18
years and 11 months at December 31, 2001.
Details Of Securities
Amortized Fair
In millions Cost Value
December 31, 2002
SECURITIES
A
VAILABLE FOR SALE
Debt securities
U.S. Treasury and government agencies $813 $826
Mort
g
a
g
e-backed 8,916 9,103
Asset-backed 2,699 2,780
State and munici
p
al 61 63
Other debt 58 61
Corporate stocks and other 597 585
T
otal securities available for sale $13,144 $13,418
SECURITIES HELD TO MATURITY
Debt securities
U.S. Treasury and government agencies $276 $309
Asset-backed 88
Other debt 61 61
Total securities held to maturity $345 $378
December 31, 2001
SECURITIES
A
VAILABLE FOR SALE
Debt securities
U.S. Treasury and government agencies $808 $807
Mort
g
a
g
e-backed 9,669 9,578
A
sset-backed 2,799 2,776
State and municipal 62 64
Other debt 75 75
Cor
p
orate stocks and other 264 245
Total securities available for sale $13,677 $13,545
SECURITIES HELD TO MATURITY
Debt securities
U.S. Treasury and government agencies $260 $257
Asset-backed 8 8
Other debt 95 95
Total securities held to maturity $363 $360
EQUITY MANAGEMENT ACTIVITIES
At December 31, 2002, equity management (private equity
activities) investments carried at estimated fair value totaled
approximately $530 million. Approximately 56% of the
amount is invested directly in a variety of companies and
approximately 44% is invested in various limited partnerships.
Equity management funding commitments totaled $173
million at December 31, 2002. The valuation of equity
management assets is subject to the performance of the
underlying companies as well as market conditions and may be
volatile. There is a time lag in the Corporation’s receipt of the
financial information that is the primary basis for the valuation
of the limited partnership interests. Consequently, PNC will
recognize in the first quarter of 2003 valuation changes related
to limited partnership investments that reflect the impact of
fourth quarter 2002 market conditions and performance of the
underlying companies. The Corporation continues to make
private equity investments at a more moderate pace than prior