PNC Bank 2012 Annual Report Download - page 246

Table 153: Net Outstanding Standby Letters of Credit
Dollars in billions
December 31
2012
December 31
2011
Net outstanding standby letters of credit $11.5 $10.8
Internal credit ratings (as a percentage
of portfolio):
Pass (a) 95% 94%
Below pass (b) 5% 6%
(a) Indicates that expected risk of loss is currently low.
(b) Indicates a higher degree of risk of default.
If the customer fails to meet its financial or performance
obligation to the third party under the terms of the contract or
there is a need to support a remarketing program, then upon
the request of the guaranteed party, subject to the terms of the
letter of credit, we would be obligated to make payment to
them. The standby letters of credit and risk participations in
standby letters of credit and bankers’ acceptances outstanding
on December 31, 2012 had terms ranging from less than 1
year to 7 years. The aggregate maximum amount of future
payments PNC could be required to make under outstanding
standby letters of credit and risk participations in standby
letters of credit and bankers’ acceptances was $14.7 billion at
December 31, 2012, of which $7.5 billion support remarketing
programs.
As of December 31, 2012, assets of $1.8 billion secured
certain specifically identified standby letters of credit.
Recourse provisions from third parties of $3.2 billion were
also available for this purpose as of December 31, 2012. In
addition, a portion of the remaining standby letters of credit
and letter of credit risk participations issued on behalf of
specific customers is also secured by collateral or guarantees
that secure the customers’ other obligations to us. The
carrying amount of the liability for our obligations related to
standby letters of credit and risk participations in standby
letters of credit and bankers’ acceptances was $247 million at
December 31, 2012.
S
TANDBY B OND P URCHASE A GREEMENTS AND O THER
L IQUIDITY F ACILITIES
We enter into standby bond purchase agreements to support
municipal bond obligations. At December 31, 2012, the
aggregate of our commitments under these facilities was $587
million. We also enter into certain other liquidity facilities to
support individual pools of receivables acquired by
commercial paper conduits. At December 31, 2012, our total
commitments under these facilities were $145 million.
I NDEMNIFICATIONS
We are a party to numerous acquisition or divestiture
agreements under which we have purchased or sold, or agreed
to purchase or sell, various types of assets. These agreements
can cover the purchase or sale of:
• Entire businesses,
• Loan portfolios,
• Branch banks,
• Partial interests in companies, or
• Other types of assets.
These agreements generally include indemnification
provisions under which we indemnify the third parties to these
agreements against a variety of risks to the indemnified parties
as a result of the transaction in question. When PNC is the
seller, the indemnification provisions will generally also
provide the buyer with protection relating to the quality of the
assets we are selling and the extent of any liabilities being
assumed by the buyer. Due to the nature of these
indemnification provisions, we cannot quantify the total
potential exposure to us resulting from them.
We provide indemnification in connection with securities
offering transactions in which we are involved. When we are
the issuer of the securities, we provide indemnification to the
underwriters or placement agents analogous to the
indemnification provided to the purchasers of businesses from
us, as described above. When we are an underwriter or
placement agent, we provide a limited indemnification to the
issuer related to our actions in connection with the offering
and, if there are other underwriters, indemnification to the
other underwriters intended to result in an appropriate sharing
of the risk of participating in the offering. Due to the nature of
these indemnification provisions, we cannot quantify the total
potential exposure to us resulting from them.
In the ordinary course of business, we enter into certain types
of agreements that include provisions for indemnifying third
parties. We also enter into certain types of agreements,
including leases, assignments of leases, and subleases, in
which we agree to indemnify third parties for acts by our
agents, assignees and/or sublessees, and employees. We also
enter into contracts for the delivery of technology service in
which we indemnify the other party against claims of patent
and copyright infringement by third parties. Due to the nature
of these indemnification provisions, we cannot calculate our
aggregate potential exposure under them.
In the ordinary course of business, we enter into contracts with
third parties under which the third parties provide services on
behalf of PNC. In many of these contracts, we agree to
indemnify the third party service provider under certain
circumstances. The terms of the indemnity vary from contract
to contract and the amount of the indemnification liability, if
any, cannot be determined.
We are a general or limited partner in certain asset
management and investment limited partnerships, many of
which contain indemnification provisions that would require
us to make payments in excess of our remaining unfunded
commitments. While in certain of these partnerships the
maximum liability to us is limited to the sum of our unfunded
commitments and partnership distributions received by us, in
the others the indemnification liability is unlimited. As a
result, we cannot determine our aggregate potential exposure
for these indemnifications.
The PNC Financial Services Group, Inc. – Form 10-K 227