PNC Bank 2007 Annual Report Download - page 55

risk and criticality. Comprehensive testing validates our
resiliency capabilities on an ongoing basis, and an integrated
governance model is designed to help assure transparent
management reporting.
Insurance
As a component of our risk management practices, we
purchase insurance designed to protect us against accidental
loss or losses which, in the aggregate, may significantly affect
personnel, property, financial objectives, or our ability to
continue to meet our responsibilities to our various
stakeholder groups.
PNC, through a subsidiary company, Alpine Indemnity
Limited, participates as a direct writer for its general liability,
automobile liability, workers’ compensation, property and
terrorism programs. PNC’s risks associated with its
participation as a direct writer for these programs are
mitigated through policy limits and annual aggregate limits.
Risks in excess of Alpine policy limits and annual aggregates
are mitigated through the purchase of direct coverage
provided by various insurers up to limits established by PNC’s
Corporate Insurance Committee.
L IQUIDITY R ISK M ANAGEMENT
Liquidity risk is the risk of potential loss if we were unable to
meet our funding requirements at a reasonable cost. We
manage liquidity risk to help ensure that we can obtain cost-
effective funding to meet current and future obligations under
both normal “business as usual” and stressful circumstances.
Our largest source of liquidity on a consolidated basis is the
deposit base that comes from our retail and corporate and
institutional banking activities. Other borrowed funds come
from a diverse mix of short and long-term funding sources.
Liquid assets and unused borrowing capacity from a number
of sources are also available to maintain our liquidity position.
Liquid assets consist of short-term investments (federal funds
sold, resale agreements and other short-term investments,
including trading securities) and securities available for sale.
At December 31, 2007, our liquid assets totaled $37.1 billion,
with $24.2 billion pledged as collateral for borrowings, trust,
and other commitments.
Bank Level Liquidity
PNC Bank, N.A. can borrow from the Federal Reserve Bank of
Cleveland’s discount window to meet short-term liquidity
requirements. These borrowings are secured by securities and
commercial loans. PNC Bank, N.A. is also a member of the
Federal Home Loan Bank (“FHLB”)-Pittsburgh and as such has
access to advances from FHLB-Pittsburgh secured generally by
residential mortgage loans. At December 31, 2007, we
maintained significant unused borrowing capacity from the
Federal Reserve Bank of Cleveland’s discount window and
FHLB-Pittsburgh under current collateral requirements.
During the second half of 2007 we substantially increased
FHLB borrowings, which provided us with additional liquidity
at relatively attractive rates. Total FHLB borrowings were
$7.1 billion at December 31, 2007 compared with $42 million
at December 31, 2006.
We can also obtain funding through traditional forms of
borrowing, including federal funds purchased, repurchase
agreements, and short and long-term debt issuances. In July 2004,
PNC Bank, N.A. established a program to offer up to $20 billion
in senior and subordinated unsecured debt obligations with
maturities of more than nine months. Through December 31,
2007, PNC Bank, N.A. had issued $5.8 billion of debt under this
program, including the following 2007 issuances:
• In April 2007, $500 million of senior bank notes
were issued that mature on October 3, 2008. Interest
will be reset monthly to 1-month LIBOR minus 6
basis points and will be paid monthly.
• In May 2007, $1 billion of senior bank notes were
issued that mature June 17, 2008. Interest will be
reset monthly to 1-month LIBOR minus 5 basis
points and will be paid monthly.
• In June 2007, $1 billion of senior bank notes were
issued that mature on December 29, 2008. Interest
will be reset monthly to 1-month LIBOR minus 4
basis points and will be paid monthly.
• In December 2007, $350 million of subordinated
bank notes were issued that mature on December 7,
2017. These notes pay interest semiannually at a
fixed rate of 6.0%.
In January 2008, $50 million of senior bank notes were issued
that mature on January 25, 2011. Interest will be reset
quarterly to 3-month LIBOR plus 55 basis points and will be
paid quarterly.
In January 2008, $100 million of senior bank notes were
issued that mature on January 25, 2010. Interest will be reset
quarterly to 3-month LIBOR plus 45 basis points and will be
paid quarterly.
In February 2008, $175 million of senior bank notes were issued
that mature on February 1, 2010. Interest will be reset quarterly to
3-month LIBOR plus 45 basis points and will be paid quarterly.
In February 2008, $500 million of senior bank notes were
issued that mature on August 5, 2009. Interest will be reset
quarterly to 3-month LIBOR plus 40 basis points and will be
paid quarterly.
None of the 2007 or 2008 issuances described above are
redeemable by us or the holders prior to maturity.
We have the ability to issue additional trust preferred securities
out of our PNC Preferred Funding structure, subject to certain
contractual restrictions. In February 2008, PNC Preferred Funding
Trust III issued $375 million of 8.700% Fixed-to-Floating Rate
Non-Cumulative Exchangeable Perpetual Trust Securities. See
“Perpetual Trust Securities” in the Off-Balance Sheet
Arrangements And VIEs section of this Item 7.
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