PNC Bank 2011 Annual Report Download - page 53

Residential Mortgage-Backed Securities
At December 31, 2011, our residential mortgage-backed
securities portfolio was comprised of $31.7 billion fair value
of US government agency-backed securities and $5.6 billion
fair value of non-agency (private issuer) securities. The
agency securities are generally collateralized by 1-4 family,
conforming, fixed-rate residential mortgages.The non-agency
securities are also generally collateralized by 1-4 family
residential mortgages. The mortgage loans underlying the
non-agency securities are generally non-conforming (i.e.,
original balances in excess of the amount qualifying for
agency securities) and predominately have interest rates that
are fixed for a period of time, after which the rate adjusts to a
floating rate based upon a contractual spread that is indexed to
a market rate (i.e., a “hybrid ARM”), or interest rates that are
fixed for the term of the loan.
Substantially all of the non-agency securities are senior
tranches in the securitization structure and at origination had
credit protection in the form of credit enhancement, over-
collateralization and/or excess spread accounts.
During 2011, we recorded OTTI credit losses of $130 million
on non-agency residential mortgage-backed securities. Almost
all of the losses were associated with securities rated below
investment grade. As of December 31, 2011, the noncredit
portion of OTTI losses recorded in accumulated other
comprehensive loss for non-agency residential mortgage-
backed securities totaled $987 million and the related
securities had a fair value of $3.4 billion.
The fair value of sub-investment grade investment securities
for which we have not recorded an OTTI credit loss as of
December 31, 2011 totaled $1.5 billion, with unrealized net
losses of $93 million. The results of our security-level
assessments indicate that we will recover the entire cost basis
of these securities. Note 7 Investment Securities in the Notes
To Consolidated Financial Statements in Item 8 of this Report
provides further detail regarding our process for assessing
OTTI for these securities.
Commercial Mortgage-Backed Securities
The fair value of the non-agency commercial mortgage-
backed securities portfolio was $6.3 billion at December 31,
2011 and consisted of fixed-rate, private-issuer securities
collateralized by non-residential properties, primarily retail
properties, office buildings, and multi-family housing. The
agency commercial mortgage-backed securities portfolio was
$2.5 billion fair value at December 31, 2011 consisting of
multi-family housing. Substantially all of the securities are the
most senior tranches in the subordination structure.
There were no OTTI credit losses on commercial mortgage-
backed securities during 2011.
Asset-Backed Securities
The fair value of the asset-backed securities portfolio was $4.9
billion at December 31, 2011 and consisted of fixed-rate and
floating-rate, private-issuer securities collateralized primarily
by various consumer credit products, including residential
mortgage loans, credit cards, automobile loans, and student
loans. Substantially all of the securities are senior tranches in
the securitization structure and have credit protection in the
form of credit enhancement, over-collateralization and/or
excess spread accounts.
We recorded OTTI credit losses of $21 million on asset-
backed securities during 2011. All of the securities are
collateralized by first and second lien residential mortgage
loans and are rated below investment grade. As of
December 31, 2011, the noncredit portion of OTTI losses
recorded in accumulated other comprehensive loss for asset-
backed securities totaled $185 million and the related
securities had a fair value of $573 million.
For the sub-investment grade investment securities (available
for sale and held to maturity) for which we have not recorded
an OTTI loss through December 31, 2011, the remaining fair
value was $133 million, with unrealized net gains of $13
million. The results of our security-level assessments indicate
that we will recover the cost basis of these securities. Note 7
Investment Securities in the Notes To Consolidated Financial
Statements in Item 8 of this Report provides further detail
regarding our process for assessing OTTI for these securities.
If current housing and economic conditions were to worsen,
and if market volatility and illiquidity were to worsen, or if
market interest rates were to increase appreciably, the
valuation of our investment securities portfolio could continue
to be adversely affected and we could incur additional OTTI
credit losses that would impact our Consolidated Income
Statement.
44 The PNC Financial Services Group, Inc. – Form 10-K