PNC Bank 2014 Annual Report Download - page 77

Residential Mortgage Banking earned $35 million in 2014
compared with $148 million in 2013. Earnings declined from
the prior year primarily as a result of decreased loan sales
revenue and lower net hedging gains on residential mortgage
servicing rights, partially offset by increased servicing fees
and lower origination and servicing expenses.
The strategic focus of the business is the acquisition of new
customers through a retail loan officer sales force with an
emphasis on home purchase transactions. Our strategy
involves competing on the basis of superior service to new
and existing customers in serving their home purchase and
refinancing needs. A key consideration in pursuing this
approach is the cross-sell opportunity, especially in the bank
footprint markets.
Residential Mortgage Banking overview:
• Total loan originations were $9.5 billion for 2014
compared with $15.1 billion for 2013. Loans
continue to be originated primarily through direct
channels under Federal National Mortgage
Association (FNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Federal Housing
Administration (FHA)/Department of Veterans
Affairs agency guidelines. Refinancings were 55% of
originations for 2014 and 70% in 2013. During 2014,
21% of loan originations were under the original or
revised Home Affordable Refinance Program (HARP
or HARP 2).
• Investors having purchased mortgage loans may
request PNC to indemnify them against losses on
certain loans or to repurchase loans that they believe
do not comply with applicable contractual loan
origination covenants and representations and
warranties we have made. At December 31, 2014, the
liability for estimated losses on repurchase and
indemnification claims for the Residential Mortgage
Banking business segment was $107 million
compared with $131 million at December 31, 2013.
See the Recourse And Repurchase Obligations
section of this Item 7 and Note 22 Commitments and
Guarantees in the Notes To Consolidated Financial
Statements under Item 8 of this Report for additional
information.
• Residential mortgage loans serviced for others totaled
$108 billion at December 31, 2014 and $114 billion
at December 31, 2013 as payoffs continued to
outpace new direct loan origination volume and
acquisitions.
• Noninterest income was $651 million in 2014
compared with $906 million in 2013. Decreased loan
sales revenue and lower net hedging gains on
residential mortgage servicing rights were partially
offset by increased servicing fees. In addition, the
comparison was impacted by a residential mortgage
repurchase obligation benefit of $53 million recorded
in 2013.
• Provision for credit losses in 2014 was a $2 million
benefit, compared with an expense of $21 million in
2013.
• Net interest income was $149 million in 2014
compared with $194 million in 2013. The decrease in
net interest income was primarily due to the decline
in origination volume.
• Noninterest expense was $746 million in 2014
compared with $845 million in 2013. Lower
origination and servicing costs, as well as lower
residential mortgage foreclosure-related costs, drove
the decline in expenses.
BlackRock
(Unaudited)
Table 24: BlackRock Table
Information related to our equity investment in BlackRock
follows:
Year ended December 31
Dollars in millions 2014 2013
Business segment earnings (a) $530 $469
PNC’s economic interest in BlackRock (b) 22% 22%
(a) Includes PNC’s share of BlackRock’s reported GAAP earnings and additional
income taxes on those earnings incurred by PNC.
(b) At December 31.
In billions
December 31
2014
December 31
2013
Carrying value of PNC’s investment in
BlackRock (c) $ 6.3 $ 6.0
Market value of PNC’s investment in
BlackRock (d) 12.6 11.3
(c) PNC accounts for its investment in BlackRock under the equity method of
accounting, exclusive of a related deferred tax liability of $2.1 billion at
December 31, 2014 and $2.0 billion at December 31, 2013. Our voting interest in
BlackRock common stock was approximately 21% at December 31, 2014.
(d) Does not include liquidity discount.
At December 31, 2014, we held approximately 1.3 million
shares of BlackRock Series C Preferred Stock, which are
available to fund our obligation in connection with certain
BlackRock long-term incentive plan (LTIP) programs.
Additional information regarding our BlackRock LTIP shares
obligation is included in Note 14 Stock Based Compensation
Plans in the Notes To Consolidated Financial Statements in
Item 8 of this Report.
We account for the BlackRock Series C Preferred Stock at fair
value, which offsets the impact of marking-to-market the
obligation to deliver these shares to BlackRock. The fair value
amount of the BlackRock Series C Preferred Stock is included
on our Consolidated Balance Sheet in the caption Other assets.
Additional information regarding the valuation of the
BlackRock Series C Preferred Stock is included in Note 7 Fair
Value in the Notes To Consolidated Financial Statements in
Item 8 of this Report.
The PNC Financial Services Group, Inc. – Form 10-K 59