PNC Bank 2014 Annual Report Download - page 181

December 31, 2013
Level 3 Instruments Only
Dollars in millions Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average)
Residential mortgage-backed
non-agency securities
$ 5,358 Priced by a third-party vendor
using a discounted cash flow
pricing model (a)
Constant prepayment rate (CPR)
Constant default rate (CDR)
Loss severity
Spread over the benchmark curve (b)
1.0%-32.1% (6.0%)
0%-21.9% (6.6%)
6.1%-92.9% (52.3%)
237bps weighted average
(a)
(a)
(a)
(a)
Asset-backed securities 641 Priced by a third-party vendor
using a discounted cash flow
pricing model (a)
Constant prepayment rate (CPR)
Constant default rate (CDR)
Loss severity
Spread over the benchmark curve (b)
1.0%-11.1% (5.0%)
1.0%-13.9% (8.7%)
10.0%-100% (70.1%)
326bps weighted average
(a)
(a)
(a)
(a)
State and municipal securities 132
201
Discounted cash flow
Consensus pricing (c)
Spread over the benchmark curve (b)
Credit and Liquidity discount
80bps-240bps (97bps)
0%-25.0% (8.3%)
Other debt securities 38 Consensus pricing (c) Credit and Liquidity discount 7.0%-95.0% (88.4%)
Trading securities – Debt 32 Consensus pricing (c) Credit and Liquidity discount 0%-20.0% (8.3%)
Residential mortgage servicing rights 1,087 Discounted cash flow Constant prepayment rate (CPR)
Spread over the benchmark curve (b)
2.2%-32.9% (7.6%)
889bps-1,888bps (1,024bps)
Commercial mortgage loans held for
sale
586 Discounted cash flow Spread over the benchmark curve (b) 460bps-6,655bps (972bps)
Equity investments – Direct
investments
1,069 Multiple of adjusted earnings Multiple of earnings 4.5x-10.8x (7.2x)
Equity investments – Indirect (d) 595 Net asset value Net asset value
Loans – Residential real estate 225
179
Consensus pricing (c)
Discounted cash flow
Cumulative default rate
Loss severity
Discount rate
Loss severity
Discount rate
2.0%-100% (80.0%)
0%-100% (48.4%)
12.0%-13.0% (12.2%)
8.0% weighted average
10.0% weighted average
Loans – Home equity 123 Consensus pricing (c) Credit and Liquidity discount 36.0%-99.0% (55.0%)
BlackRock Series C Preferred Stock 332 Consensus pricing (c) Liquidity discount 20.0%
BlackRock LTIP (332) Consensus pricing (c) Liquidity discount 20.0%
Swaps related to sales of certain Visa
Class B common shares
(90) Discounted cash flow Estimated conversion factor of
Class B shares into Class A shares
Estimated growth rate of Visa Class A
share price
41.7%
8.6%
Other borrowed funds-non-agency
securitization
(184) Consensus pricing (c) Credit and Liquidity discount
Spread over the benchmark curve (b)
0%-99.0% (18.0%)
13bps
Insignificant Level 3 assets, net of
liabilities (e) 20
Total Level 3 assets, net of liabilities (f) $10,012
(a) Level 3 residential mortgage-backed non-agency and asset-backed securities with fair values as of December 31, 2014 totaling $4,081 million and $532 million, respectively, were
priced by a third-party vendor using a discounted cash flow pricing model that incorporates consensus pricing, where available. The comparable amounts as of December 31, 2013
were $4,672 million and $610 million, respectively. The significant unobservable inputs for these securities were provided by the third-party vendor and are disclosed in the table. Our
procedures to validate the prices provided by the third-party vendor related to these securities are discussed further in the Fair Value Measurement section of this Note 7. Certain Level
3 residential mortgage-backed non-agency and asset-backed securities with fair values as of December 31, 2014 of $717 million and $31 million, respectively, were valued using a
pricing source, such as a dealer quote or comparable security price, for which the significant unobservable inputs used to determine the price were not reasonably available. The
comparable amounts as of December 31, 2013 were $686 million and $31 million, respectively.
(b) The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporate non-interest-rate risks, such as credit and liquidity risks.
(c) Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable
asset prices.
(d) The range on these indirect equity investments has not been disclosed since these investments are recorded at their net asset redemption values.
(e) Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount
includes certain financial derivative assets and liabilities, residential mortgage loans held for sale, trading loans, other assets, other borrowed funds (ROAPs) and other liabilities. For
additional information, please see the Fair Value Measurement discussion included in this Note 7.
(f) Consisted of total Level 3 assets of $10,257 million and total Level 3 liabilities of $716 million as of December 31, 2014 and $10,650 million and $638 million as of December 31,
2013, respectively.
The PNC Financial Services Group, Inc. – Form 10-K 163