PNC Bank 2009 Annual Report Download - page 121

The fair value of securities pledged to secure public and trust
deposits and repurchase agreements and for other purposes
was $23.4 billion at December 31, 2009 and $22.5 billion at
December 31, 2008. The pledged securities include positions
held in our portfolio of investment securities, trading
securities, and securities accepted as collateral from others
that we are permitted by contract or custom to sell or repledge.
The fair value of securities accepted as collateral that we are
permitted by contract or custom to sell or repledge was $2.4
billion at December 31, 2009 and $1.6 billion at December 31,
2008 and is a component of federal funds sold and resale
agreements on our Consolidated Balance Sheet. Of the
permitted amount, $1.3 billion was repledged to others at
December 31, 2009 and $461 million was repledged to others
at December 31, 2008.
N OTE 8F AIR V ALUE
Fair Value Measurement
Fair value is defined in GAAP as the price that would be
received to sell an asset or the price paid to transfer a liability
on the measurement date. The standard focuses on the exit
price in the principal or most advantageous market for the
asset or liability in an orderly transaction between willing
market participants. GAAP establishes a fair value reporting
hierarchy to maximize the use of observable inputs when
measuring fair value and defines the three levels of inputs as
noted below.
Level 1
Quoted prices in active markets for identical assets or
liabilities. Level 1 assets and liabilities may include debt
securities, equity securities and listed derivative contracts that
are traded in an active exchange market and certain US
government agency securities that are actively traded in
over-the-counter markets.
Level 2
Observable inputs other than Level 1 such as: quoted prices
for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are
not active, or other inputs that are observable or can be
corroborated to observable market data for substantially the
full term of the asset or liability. Level 2 assets and liabilities
may include debt securities, equity securities and listed
derivative contracts with quoted prices that are traded in
markets that are not active, and certain debt and equity
securities and over-the-counter derivative contracts whose fair
value is determined using a pricing model without significant
unobservable inputs. This category generally includes agency
residential and commercial mortgage-backed debt securities,
asset-backed securities, corporate debt securities, residential
mortgage loans held for sale, and derivative contracts.
Level 3
Unobservable inputs that are supported by minimal or no
market activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities may include
financial instruments whose value is determined using pricing
models with internally developed assumptions, discounted
cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires
significant management judgment or estimation. This category
generally includes certain available for sale securities,
commercial mortgage loans held for sale, private equity
investments, trading securities, residential mortgage servicing
rights, BlackRock Series C Preferred Stock and financial
derivative contracts. The available for sale and trading
securities within Level 3 include non-agency residential
mortgage-backed securities, auction rate securities, certain
private-issuer asset-backed securities and corporate debt
securities. Nonrecurring items, primarily certain nonaccrual
and other loans held for sale, commercial mortgage servicing
rights, equity investments and other assets are also included in
this category.
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