PNC Bank 2013 Annual Report Download - page 85

The table below reflects the estimated effects on pension
expense of certain changes in annual assumptions, using 2014
estimated expense as a baseline.
Table 29: Pension Expense – Sensitivity Analysis
Change in Assumption (a)
Estimated
Increase/(Decrease)
to 2014
Pension
Expense
(In millions)
.5% decrease in discount rate $ (2)
.5% decrease in expected long-term return on assets $21
.5% increase in compensation rate $ 1
(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 required 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 2014.
We maintain other defined benefit plans that have a less
significant effect on financial results, including various
nonqualified supplemental retirement plans for certain
employees, which are described more fully in Note 15
Employee Benefit Plans in the Notes To Consolidated
Financial Statements in Item 8 of this Report.
R ECOURSE AND 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, 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 Delegated Underwriting and Servicing (DUS)
program. We participated in a similar program with the
FHLMC. Our exposure and activity associated with these
recourse obligations are reported in the Corporate &
Institutional Banking segment. For more information
regarding our commercial mortgage loan recourse obligations,
see the Recourse and Repurchase Obligations section of Note
24 Commitments and Guarantees included in the Notes To
Consolidated Financial Statements in Item 8 of this Report.
R ESIDENTIAL M ORTGAGE 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 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 the Government National Mortgage Association
(GNMA), while Non-Agency securitizations consist of
mortgage loan sale transactions with private investors.
Mortgage loan sale transactions that are not part of a
securitization may involve FNMA, FHLMC or 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 FHA
and 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.
Loan covenants and representations and warranties are
established through loan sale agreements with various investors
to provide assurance that PNC has sold loans that are of sufficient
investment quality. Key aspects of such covenants and
representations and warranties include the loan’s compliance with
any applicable loan criteria established for the transaction,
including underwriting standards, delivery of all required loan
documents to the investor or its designated party, sufficient
collateral valuation and the validity of the lien securing the loan.
As a result of alleged breaches of these contractual obligations,
investors may request PNC to indemnify them against losses on
certain loans or to repurchase loans.
We investigate every investor claim on a loan by loan basis to
determine the existence of a legitimate claim and that all other
conditions for indemnification or repurchase have been met
prior to the settlement with that investor. Indemnifications for
loss or loan repurchases typically occur when, after review of
the claim, we agree insufficient evidence exists to dispute the
investor’s claim that a breach of a loan covenant and
representation and warranty has occurred, such breach has not
been cured and the effect of such breach is deemed to have
had a material and adverse effect on the value of the
transferred loan. Depending on the sale agreement and upon
proper notice from the investor, we typically respond to such
indemnification and repurchase requests within 60 days,
although final resolution of the claim may take a longer period
of time. With the exception of the sales agreements associated
The PNC Financial Services Group, Inc. – Form 10-K 67