PNC Bank 2012 Annual Report Download - page 247

In some cases, indemnification obligations of the types
described above arise under arrangements entered into by
predecessor companies for which we become responsible as a
result of the acquisition.
Pursuant to their bylaws, PNC and its subsidiaries provide
indemnification to directors, officers and, in some cases,
employees and agents against certain liabilities incurred as a
result of their service on behalf of or at the request of PNC
and its subsidiaries. PNC and its subsidiaries also advance on
behalf of covered individuals costs incurred in connection
with certain claims or proceedings, subject to written
undertakings by each such individual to repay all amounts
advanced if it is ultimately determined that the individual is
not entitled to indemnification. We generally are responsible
for similar indemnifications and advancement obligations that
companies we acquire had to their officers, directors and
sometimes employees and agents at the time of acquisition.
We advanced such costs on behalf of several such individuals
with respect to pending litigation or investigations during
2012. It is not possible for us to determine the aggregate
potential exposure resulting from the obligation to provide this
indemnity or to advance such costs.
V ISA I NDEMNIFICATION
Our payment services business issues and acquires credit and
debit card transactions through Visa U.S.A. Inc. card
association or its affiliates (Visa).
In October 2007, Visa completed a restructuring and issued
shares of Visa Inc. common stock to its financial institution
members (Visa Reorganization) in contemplation of its initial
public offering (IPO). As part of the Visa Reorganization, we
received our proportionate share of a class of Visa Inc.
common stock allocated to the US members. Prior to the IPO,
the US members, which included PNC, were obligated to
indemnify Visa for judgments and settlements related to the
specified litigation.
As a result of the acquisition of National City, we became
party to judgment and loss sharing agreements with Visa and
certain other banks. The judgment and loss sharing
agreements were designed to apportion financial
responsibilities arising from any potential adverse judgment or
negotiated settlements related to the specified litigation.
In July 2012, Visa funded $150 million into their litigation
escrow account and reduced the conversion rate of Visa B to
A shares. We continue to have an obligation to indemnify
Visa for judgments and settlements for the remaining
specified litigation, therefore we may have additional
exposure to the specified Visa litigation.
R ECOURSE AND R EPURCHASE O BLIGATIONS
As discussed in Note 3 Loan Sale and Servicing Activities and
Variable Interest Entities, PNC has sold commercial
mortgage, residential mortgage and home equity loans directly
or indirectly through securitization and loan sale transactions
in which we have continuing involvement. One form of
continuing involvement includes certain recourse and loan
repurchase obligations associated with the transferred assets.
C OMMERCIAL M ORTGAGE L OAN R ECOURSE O BLIGATIONS
We originate, close and service certain multi-family
commercial mortgage loans which are sold to FNMA under
FNMA’s 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, 2012 and
December 31, 2011, the unpaid principal balance outstanding
of loans sold as a participant in these programs was $12.8
billion and $13.0 billion, respectively. The potential maximum
exposure under the loss share arrangements was $3.9 billion at
December 31, 2012 and $4.0 billion at December 31, 2011.
We maintain a reserve for estimated losses based upon our
exposure. The reserve for losses under these programs totaled
$43 million and $47 million as of December 31, 2012 and
December 31, 2011, 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.
Table 154: Analysis of Commercial Mortgage Recourse
Obligations
In millions 2012 2011
January 1 $47 $54
Reserve adjustments, net 4 1
Losses – loan repurchases and settlements (8) (8)
December 31 $43 $47
R
ESIDENTIAL M ORTGAGE L OAN AND H OME E QUITY
R EPURCHASE O BLIGATIONS
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 loan sale transactions. As
discussed in Note 3 Loans Sale and Servicing Activities and
228 The PNC Financial Services Group, Inc. – Form 10-K