PNC Bank 2014 Annual Report Download - page 41

transactions, and otherwise to enhance the customer
experience with respect to our products and services. On the
retail side, this has included developments such as more
sophisticated ATMs and expanded access to banking
transactions through the internet, smart phones, tablets and
other remote devices. These efforts have all been in response
to actual and anticipated customer behavior and expectations.
Our continued success depends, in part, upon our ability to
address the needs of our customers by using technology to
provide products and services that satisfy customer demands
and create efficiencies in our operations. A failure to maintain
or enhance our competitive position with respect to
technology, whether because we fail to anticipate customer
expectations or because our technological developments fail to
perform as desired or are not rolled out in a timely manner,
may cause us to lose market share or incur additional expense.
There are risks resulting from the extensive use of models
in our business.
PNC relies on quantitative models to measure risks and to
estimate certain financial values. Models may be used in such
processes as determining the pricing of various products,
grading loans and extending credit, measuring interest rate and
other market risks, predicting losses, assessing capital
adequacy, and calculating economic and regulatory capital
levels, as well as to estimate the value of financial instruments
and balance sheet items. Poorly designed or implemented
models present the risk that our business decisions based on
information incorporating models will be adversely affected
due to the inadequacy of that information. Also, information
we provide to the public or to our regulators based on poorly
designed or implemented models could be inaccurate or
misleading. Some of the decisions that our regulators make,
including those related to capital distributions to our
shareholders, could be affected adversely due to their
perception that the quality of the models used to generate the
relevant information is insufficient. See the Model Risk
Management portion of the Risk Management section
included in Item 7 of this Report.
Our asset and liability valuations and the determination of
the amount of loss allowances and impairments taken on
our assets are highly subjective, and inaccurate estimates
could materially impact our results of operations or
financial position.
We must use estimates, assumptions, and judgments when
assets and liabilities are measured and reported at fair value.
Assets and liabilities carried at fair value inherently result in a
higher degree of financial statement volatility. Changes in
underlying factors or assumptions in any of the areas
underlying our estimates could materially impact our future
financial condition and results of operations. During periods
of market disruption, it may be more difficult to value certain
of our assets if trading becomes less frequent and/or market
data becomes less observable. There may be certain asset
classes that were historically in active markets with significant
observable data that rapidly become illiquid due to market
volatility, a loss in market confidence or other factors. Further,
rapidly changing and unprecedented market conditions in any
particular market could materially impact the valuation of
assets as reported within our consolidated financial
statements.
The determination of the amount of loss allowances and asset
impairments varies by asset type and is based upon our periodic
evaluation and assessment of known and inherent risks
associated with the respective asset class. Management updates
its evaluations regularly and reflects changes in allowances and
impairments in operations as such evaluations are revised.
Although we have policies and procedures in place to determine
loss allowance and asset impairments, due to the substantial
subjective nature of this area, there can be no assurance that our
management has accurately assessed the level of impairments
taken and allowances reflected in our financial statements.
Furthermore, additional impairments may need to be taken or
allowances provided for in the future. Historical trends may not
be indicative of future impairments or allowances.
Our business and financial results could be impacted
materially by adverse results in legal proceedings.
Many aspects of our business involve substantial risk of legal
liability. We have been named or threatened to be named as
defendants in various lawsuits arising from our business
activities (and in some cases from the activities of companies
we have acquired). In addition, we are regularly the subject of
governmental investigations and other forms of regulatory
inquiry. We also are at risk when we have agreed to indemnify
others for losses related to legal proceedings, including
litigation and governmental investigations and inquiries, they
face, such as in connection with the sale of a business or assets
by us. The results of these legal proceedings could lead to
significant monetary damages or penalties, restrictions on the
way in which we conduct our business, or reputational harm.
Although we establish accruals for legal proceedings when
information related to the loss contingencies represented by
those matters indicates both that a loss is probable and that the
amount of loss can be reasonably estimated, we do not have
accruals for all legal proceedings where we face a risk of loss.
In addition, due to the inherent subjectivity of the assessments
and unpredictability of the outcome of legal proceedings,
amounts accrued may not represent the ultimate loss to us
from the legal proceedings in question. Thus, our ultimate
losses may be higher, and possibly significantly so, than the
amounts accrued for legal loss contingencies.
We discuss further the unpredictability of legal proceedings
and describe certain of our pending legal proceedings in Note
21 Legal Proceedings in the Notes To Consolidated Financial
Statements in Item 8 of this Report.
The PNC Financial Services Group, Inc. – Form 10-K 23