PNC Bank 2010 Annual Report Download - page 97
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Please find page 97 of the 2010 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.interest-earning deposits with banks; loans held for sale;
loans; investment securities; and certain other assets.
Economic capital – Represents the amount of resources that a
business segment should hold to guard against potentially
large losses that could cause insolvency. It is based on a
measurement of economic risk, as opposed to risk as defined
by regulatory bodies. The economic capital measurement
process involves converting a risk distribution to the capital
that is required to support the risk, consistent with our target
credit rating. As such, economic risk serves as a “common
currency” of risk that allows us to compare different risks on a
similar basis.
Effective duration – A measurement, expressed in years, that,
when multiplied by a change in interest rates, would
approximate the percentage change in value of on- and off-
balance sheet positions.
Efficiency – Noninterest expense divided by total revenue.
Fair value – The price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
FICO score – A credit bureau-based industry standard score
created by Fair Isaac Co. which predicts the likelihood of
borrower default. We use FICO scores both in underwriting
and assessing credit risk in our consumer lending portfolio.
Lower FICO scores indicate likely higher risk of default,
while higher FICO scores indicate likely lower risk of default.
FICO scores are updated on a periodic basis.
Foreign exchange contracts – Contracts that provide for the
future receipt and delivery of foreign currency at previously
agreed-upon terms.
Funds transfer pricing – A management accounting
methodology designed to recognize the net interest income
effects of sources and uses of funds provided by the assets and
liabilities of a business segment. We assign these balances
LIBOR-based funding rates at origination that represent the
interest cost for us to raise/invest funds with similar maturity
and repricing structures.
Futures and forward contracts – Contracts in which the buyer
agrees to purchase and the seller agrees to deliver a specific
financial instrument at a predetermined price or yield. May be
settled either in cash or by delivery of the underlying financial
instrument.
GAAP – Accounting principles generally accepted in the
United States of America.
Interest rate floors and caps – Interest rate protection
instruments that involve payment from the protection seller to
the protection buyer of an interest differential, which
represents the difference between a short-term rate (e.g., three-
month LIBOR) and an agreed-upon rate (the strike rate)
applied to a notional principal amount.
Interest rate swap contracts – Contracts that are entered into
primarily as an asset/liability management strategy to reduce
interest rate risk. Interest rate swap contracts are exchanges of
interest rate payments, such as fixed-rate payments for
floating-rate payments, based on notional principal amounts.
Intrinsic value – The amount by which the fair value of an
underlying stock exceeds the exercise price of an option on
that stock.
Investment securities – Collectively, securities available for
sale and securities held to maturity.
Leverage ratio – Tier 1 risk-based capital divided by adjusted
average total assets.
LIBOR – Acronym for London InterBank Offered Rate.
LIBOR is the average interest rate charged when banks in the
London wholesale money market (or interbank market)
borrow unsecured funds from each other. LIBOR rates are
used as a benchmark for interest rates on a global basis.
Loan-to-value ratio (LTV) – A calculation of a loan’s
collateral coverage that is used both in underwriting and
assessing credit risk in our lending portfolio. LTV is the sum
total of loan obligations secured by collateral divided by the
market value of that same collateral. Market values of the
collateral are based on an independent valuation of the
collateral. For example, an LTV of less than 90% is better
secured and has less credit risk than an LTV of greater than or
equal to 90%. Our real estate market values are updated on an
annual basis but may be updated more frequently for select
loans.
Loss Given Default (LGD) – An estimate of recovery based
on collateral type, collateral value, loan exposure, or the
guarantor(s) quality and guaranty type (full or partial). Each
loan has its own LGD. The LGD risk rating measures the
percentage of exposure of a specific credit obligation that we
expect to lose if default occurs. LGD is net of recovery,
through either liquidation of collateral or deficiency
judgments rendered from foreclosure or bankruptcy
proceedings. The LGD rating is updated with the same
frequency as the borrower’s PD rating, and should be done
more frequently than the PD if the collateral values and
amounts change often.
Net interest income from loans and deposits – A management
accounting assessment, using funds transfer pricing
methodology, of the net interest contribution from loans and
deposits.
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