PNC Bank 2014 Annual Report Download - page 114

with $31 million for 2012. The increase in corporate services
revenue was primarily due to higher net commercial mortgage
servicing rights valuations, higher commercial mortgage fees,
net of amortization, and higher treasury management fees,
partially offset by lower merger and acquisition advisory fees.
Residential mortgage revenue increased to $871 million in
2013 from $284 million in 2012. The increase was driven by
improvement in the provision for residential mortgage
repurchase obligations, which was a benefit of $53 million in
2013 compared with a provision of $761 million in 2012. The
release of reserves in 2013 was largely the result of
agreements with two government-sponsored enterprises
(GSEs), FHLMC and FNMA, for loans sold into agency
securitizations. See the Recourse And Repurchase Obligations
section of this Item 7 and Item 7 in our 2013 Form 10-K for
further detail. This benefit was partially offset by lower loan
sales revenue resulting from an increase in mortgage interest
rates which had the effect of reducing gain on sale margins
and, to a lesser extent, loan origination volume.
Service charges on deposits were $597 million in 2013
compared with $573 million in 2012.
Net gains on sales of securities totaled $99 million for 2013
and $204 million for 2012. The net credit component of other-
than-temporary impairment (OTTI) of securities recognized in
earnings was $16 million in 2013 compared with $111 million
for 2012.
Other noninterest income increased by $58 million, or 4%, to
$1.5 billion in 2013 due to higher revenue associated with
private equity investments and commercial mortgage loans
held for sale. In addition, the increase reflected higher revenue
from credit valuations for customer-related derivatives
activities as higher market interest rates reduced the fair value
of PNC’s credit exposure on these activities. The impact to
2013 revenue due to these credit valuations was $56 million,
while the impact to 2012 revenue was not significant. These
increases were partially offset by lower gains on sale of Visa
Class B common shares, which were $168 million on the sale
of 4 million shares in 2013 compared with gains of $267
million on the sale of 9 million shares in 2012. We held
approximately 10 million Visa Class B common shares with a
fair value of approximately $971 million and recorded
investment of $158 million as of December 31, 2013.
Provision For Credit Losses
The provision for credit losses totaled $643 million in 2013
compared with $987 million in 2012. The decrease in
provision compared to prior year was the result of continued
credit quality improvement, including improvement in our
purchased impaired loan portfolio. Increasing value of
residential real estate resulted in greater expected cash flows
from our purchased impaired loans.
Noninterest Expense
Noninterest expense was $9.7 billion for 2013, a decrease of
$.8 billion, or 8%, from $10.5 billion for 2012. The decline
reflected the impact of 2012 integration costs of $267 million
and a reduction in noncash charges related to redemption of
trust preferred securities to $57 million in 2013 from $295
million in 2012. Additionally, residential mortgage
foreclosure-related expenses declined to $56 million from
$225 million in the same comparison. These decreases to
noninterest expense were partially offset by the impact of a
full year of operating expense for the March 2012 RBC Bank
(USA) acquisition during 2013 compared to 2012.
In the third quarter of 2013, we concluded redemptions of
discounted trust preferred securities assumed in our
acquisitions. From the fourth quarter of 2011 through 2013,
we redeemed a total of $3.2 billion of these higher-rate trust
preferred securities, resulting in noncash charges totaling
approximately $550 million. See Note 14 Capital Securities of
Subsidiary Trusts and Perpetual Trust Securities in Item 8 of
our 2013 Form 10-K and 2012 Form 10-K for more
information on our redemption of trust preferred securities in
2013 and 2012, respectively.
Effective Income Tax Rate
The effective income tax rate was 25.9% in both 2013 and
2012. The effective tax rate is generally lower than the
statutory rate primarily due to tax credits PNC receives from
our investments in low income housing and new markets
investments, as well as earnings in other tax exempt
investments.
Consolidated Balance Sheet Review
Loans
Loans increased $9.8 billion to $195.6 billion as of
December 31, 2013 compared with December 31, 2012. The
increase in loans was driven by the increase in commercial
lending as a result of growth in commercial and commercial
real estate loans, primarily from new customers and organic
growth. The increase in consumer lending resulted from
growth in automobile and home equity loans, partially offset
by paydowns of education loans.
Average total loans increased by $13.4 billion to $190.0
billion in 2013, which was driven by increases in average
commercial loans of $9.4 billion, average consumer loans of
$2.4 billion and average commercial real estate loans of $1.4
billion. The overall increase in loans reflected organic loan
growth, primarily in our Corporate & Institutional Banking
segment.
Loans represented 61% of total assets at both December 31,
2013 and December 31, 2012. Commercial lending
96 The PNC Financial Services Group, Inc. – Form 10-K