PNC Bank 2009 Annual Report Download - page 38
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We evaluate our portfolio of investment securities in light of
changing market conditions and other factors and, where
appropriate, take steps intended to improve our overall
positioning. Overall, we consider the portfolio to be well-
diversified and high quality. US Treasury and government
agencies, agency residential mortgage-backed securities and
agency commercial mortgage-backed securities collectively
represented 59% of the investment securities portfolio at
December 31, 2009.
At December 31, 2009, the securities available for sale
portfolio included a net unrealized loss of $2.3 billion, which
represented the difference between fair value and amortized
cost. The comparable amount at December 31, 2008 was a net
unrealized loss of $5.4 billion. The fair value of investment
securities is impacted by interest rates, credit spreads, market
volatility and liquidity conditions. The fair value of
investment securities generally decreases when interest rates
increase and vice versa. In addition, the fair value generally
decreases when credit spreads widen and vice versa. The
decline in the net unrealized loss from the prior year-end was
primarily the result of improving fair values in non-agency
residential mortgage-backed and non-agency commercial
mortgage-backed securities. Net unrealized gains and losses in
the securities available for sale portfolio are included in
shareholders’ equity as accumulated other comprehensive
income or loss, net of tax.
Unrealized gains and losses on available for sale securities do
not impact liquidity or risk-based capital. However, reductions
in the credit ratings of these securities would have an impact
on the determination of risk-weighted assets which could
reduce our regulatory capital ratios. In addition, the amount
representing the credit-related portion of other-than-temporary
impairments on available for sale securities would reduce our
earnings and regulatory capital ratios.
The expected weighted-average life of investment securities
(excluding corporate stocks and other) was 4.1 years at
December 31, 2009 and 3.1 years at December 31, 2008.
We estimate that at December 31, 2009 the effective duration
of investment securities was 2.9 years for an immediate 50
basis points parallel increase in interest rates and 2.5 years for
an immediate 50 basis points parallel decrease in interest
rates. Comparable amounts at December 31, 2008 were 3.7
years and 3.1 years, respectively.
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