PNC Bank 2010 Annual Report Download - page 73
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Please find page 73 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.The table below reflects the estimated effects on pension
expense of certain changes in annual assumptions, using 2011
estimated expense as a baseline.
Change in Assumption (a)
Estimated
Increase to 2011
Pension
Expense
(In millions)
.5% decrease in discount rate $19
.5% decrease in expected long-term return on
assets $19
.5% increase in compensation rate $ 3
(a) The impact is the effect of changing the specified assumption while holding all other
assumptions constant.
We currently estimate a pretax pension expense of $11 million
in 2011 compared with pretax expense of $46 million in 2010.
This year-over-year expected reduction is primarily due to the
amortization impact of the favorable 2010 investment returns
as compared with the expected long-term return assumption,
which has been established by considering the time over
which the Plan’s obligations are expected to be paid.
Our pension plan contribution requirements are not
particularly sensitive to actuarial assumptions. Investment
performance has the most impact on contribution requirements
and will drive the amount of permitted contributions in future
years. Also, current law, including the provisions of the
Pension Protection Act of 2006, sets limits as to both
minimum and maximum contributions to the plan. We do not
expect to be required by law to make any contributions to the
plan during 2011.
We maintain other defined benefit plans that have a less
significant effect on financial results, including various
nonqualified supplemental retirement plans for certain
employees.
R
ECOURSE
A
ND
R
EPURCHASE
O
BLIGATIONS
As discussed in Note 3 Loan Sale and Servicing Activities and
Variable Interest Entities in the Notes To Consolidated
Financial Statements in Item 8 of this Report, PNC has sold
commercial mortgage and residential mortgage loans directly
or indirectly in securitizations and whole-loan sale
transactions with continuing involvement. One form of
continuing involvement includes certain recourse and loan
repurchase obligations associated with the transferred assets in
these transactions.
Commercial Mortgage Recourse Obligations
We originate, close, and service certain commercial mortgage
loans which are sold to FNMA under FNMA’s Delegated
Underwriting and Servicing (DUS) program. We have similar
arrangements with FHLMC.
Under these programs, we generally assume up to a one-third
pari passu risk of loss on unpaid principal balances through a
loss share arrangement. At December 31, 2010 and 2009, the
unpaid principal balance outstanding of loans sold under these
programs was $13.2 billion and $19.7 billion, respectively. At
December 31, 2010 and 2009, the potential maximum
exposure under the loss share arrangements was $4.0 billion
and $6.0 billion, respectively. We maintain a reserve based
upon these potential losses. The reserve for losses under these
programs totaled $54 million and $71 million as of
December 31, 2010 and 2009, respectively, and is included in
Other liabilities on our Consolidated Balance Sheet. If
payment is required under these programs, we would not have
a contractual interest in the collateral underlying the mortgage
loans on which losses occurred, although the value of the
collateral is taken into account in determining our share of
such losses. Our exposure and activity associated with these
recourse obligations are reported in the Corporate &
Institutional Banking segment.
Analysis of Commercial Mortgage Recourse Obligations
In millions 2010 2009
January 1 $71 $79
Reserve adjustments, net 9(3)
Losses – loan repurchases and settlements (2) (5)
Loan sales (a) (24)
December 31 $ 54 $71
(a) Primarily due to the sale of a duplicative agency servicing operation.
Residential Mortgage Loan Repurchase Obligations
While residential mortgage loans are sold on a non-recourse
basis, we assume certain loan repurchase obligations
associated with mortgage loans we have sold to investors.
These loan repurchase obligations primarily relate to
situations where PNC is alleged to have breached certain
origination covenants and representations and warranties
made to purchasers of the loans in the respective purchase and
sale agreements. Residential mortgage loans covered by these
loan repurchase obligations include first and second-lien
mortgage loans we have sold through Agency securitizations,
Non-Agency securitizations, and whole-loan sale transactions.
As discussed in Note 3 in the Notes To Consolidated Financial
Statements in Item 8 of this Report, Agency securitizations
consist of mortgage loan sale transactions with FNMA,
FHLMC, and GNMA, while Non-Agency securitizations and
whole-loan sale transactions consist of mortgage loan sale
transactions with private investors. Our exposure and activity
associated with these loan repurchase obligations is reported
in the Residential Mortgage Banking segment. In addition,
PNC’s residential mortgage loan repurchase obligations
include certain brokered home equity loans/lines that were
sold to private investors by National City prior to our
acquisition. PNC is no longer engaged in the business of
originating and selling brokered home equity loans/lines, and
our exposure under these loan repurchase obligations is
reported in the Distressed Assets Portfolio segment.
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