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PNC » Topics » I NTEREST S ENSITIVITY A NALYSIS

This excerpt taken from the PNC 10-Q filed Aug 8, 2007.

INTEREST SENSITIVITY ANALYSIS

 

     

Second

Quarter
2007

    

Second

Quarter
2006

  

Net Interest Income Sensitivity Simulation

       

Effect on net interest income in first year from gradual interest rate change over following 12 months of:

       

100 basis point increase

    (2.5 )%   (1.3 )%

100 basis point decrease

    2.5 %   1.2 %

Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of:

       

100 basis point increase

    (5.7 )%   (3.6 )%

100 basis point decrease

    4.4 %   2.8 %

Duration of Equity Model

       

Base case duration of equity (in years):

    3.2     1.0  

Key Period-End Interest Rates

       

One-month LIBOR

    5.32 %   5.33 %

Three-year swap

    5.39 %   5.62 %

In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. The following Net Interest Income Sensitivity To Alternate Rate Scenarios table reflects the percentage change in net interest income over the next two 12-month periods assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates, and (iii) a Two-Ten Inversion (a 200 basis point inversion between two-year and ten-year rates superimposed on current base rates) scenario. We are inherently sensitive to a flatter or inverted yield curve.

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