PNC Bank 2011 Annual Report Download - page 78

The table below reflects the estimated effects on pension
expense of certain changes in annual assumptions, using 2012
estimated expense as a baseline.
Change in Assumption (a)
Estimated
Increase to 2012
Pension
Expense
(In millions)
.5% decrease in discount rate $23
.5% decrease in expected long-term return on assets $18
.5% increase in compensation rate $ 2
(a) The impact is the effect of changing the specified assumption while holding all other
assumptions constant.
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 2012.
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 Loan Recourse Obligations
We originate, close, and service certain multi-family
commercial mortgage loans which are sold to FNMA under
FNMA’s Delegated Underwriting and Servicing (DUS)
program. We participated in a similar program with the
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, 2011 and
December 31, 2010, the unpaid principal balance outstanding
of loans sold as a participant in these programs was $13.0
billion and $13.2 billion, respectively. The potential maximum
exposure under the loss share arrangements was $4.0 billion at
both December 31, 2011 and December 31, 2010. We
maintain a reserve for estimated losses based on our exposure.
The reserve for losses under these programs totaled $47
million and $54 million as of December 31, 2011 and
December 31, 2010, 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.
Residential Mortgage Loan and Home Equity 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 loans sale transactions with FNMA,
FHLMC, and the Government National Mortgage Association
(GNMA) program, while Non-Agency securitizations and
whole-loan sale transactions consist of mortgage loans sale
transactions with private investors. Our historical exposure
and activity associated with Agency securitization repurchase
obligations has primarily been related to transactions with
FNMA and FHLMC, as indemnification and repurchase losses
associated with Federal Housing Agency (FHA) and
Department of Veterans Affairs (VA)-insured and uninsured
loans pooled in GNMA securitizations historically have been
minimal. Repurchase obligation activity associated with
residential mortgages is reported in the Residential Mortgage
Banking segment.
PNC’s repurchase obligations also include certain brokered
home equity loans/lines that were sold to a limited number of
private investors in the financial services industry by National
City prior to our acquisition. PNC is no longer engaged in the
brokered home equity lending business, and our exposure
under these loan repurchase obligations is limited to
repurchases of the whole-loans sold in these transactions.
Repurchase activity associated with brokered home equity
lines/loans are reported in the Non-Strategic Assets Portfolio
segment.
Loan covenants and representations and warranties are
established through loan sale agreements with various
investors to provide assurance that PNC has sold loans to
The PNC Financial Services Group, Inc. – Form 10-K 69