PNC Bank 2014 Annual Report Download - page 87

agreements in the fourth quarter of 2013. Additionally, the
liability for estimated losses on indemnification and
repurchase claims for residential mortgages decreased to $107
million at December 31, 2014 from $131 million at
December 31, 2013.
We believe our indemnification and repurchase liability
appropriately reflects the estimated probable losses on
indemnification and repurchase claims for all residential
mortgage loans sold and outstanding as of December 31, 2014
and December 31, 2013. In making these estimates, we
consider the losses that we expect to incur over the life of the
sold loans. See Note 22 Commitments and Guarantees in the
Notes To Consolidated Financial Statements in Item 8 of this
Report for additional information.
Home Equity Repurchase Obligations
PNC’s repurchase obligations include obligations with respect
to certain brokered home equity loans/lines of credit that were
sold to a limited number of private investors in the financial
services industry by National City prior to our acquisition of
National City. PNC is no longer engaged in the brokered
home equity lending business, and our exposure under these
loan repurchase obligations is limited to repurchases of the
loans sold in these transactions. Repurchase activity
associated with brokered home equity loans/lines of credit is
reported in the Non-Strategic Assets Portfolio segment.
Loan covenants and representations and warranties were
established through loan sale agreements with various investors
to provide assurance that loans PNC sold to the investors were
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.
Investor indemnification or repurchase claims are typically
settled on an individual loan basis through make-whole
payments or loan repurchases; however, on occasion we may
negotiate pooled settlements with investors. In connection
with pooled settlements, we typically do not repurchase loans
and the consummation of such transactions generally results in
us no longer having indemnification and repurchase exposure
with the investor in the transaction.
An indemnification and repurchase liability for estimated
losses for which indemnification is expected to be provided or
for loans that are expected to be repurchased was established
at the acquisition of National City. Management’s evaluation
of these indemnification and repurchase liabilities is based
upon trends in indemnification and repurchase claims, actual
loss experience, risks in the underlying serviced loan
portfolios, current economic conditions and the periodic
negotiations that management may enter into with investors to
settle existing and potential future claims.
Indemnification and repurchase liabilities, which are included
in Other liabilities on the Consolidated Balance sheet, are
evaluated by management on a quarterly basis. Initial
recognition and subsequent adjustments to the indemnification
are recognized in Other noninterest income on the
Consolidated Income Statement. For more information
regarding our Home Equity Repurchase Obligations, see Note
22 Commitments and Guarantees in the Notes To
Consolidated Statements in Item 8 of this Report.
R
ISK M ANAGEMENT
Enterprise Risk Management
PNC encounters risk as part of the normal course of operating
our business. Accordingly, we design risk management
processes to help manage this risk. We take risks we
understand in order to optimize long term shareholder value.
This Risk Management section describes our risk framework,
including risk appetite and strategy, culture, governance, risk
identification, controls and reporting. The overall Risk
Management section of this Item 7 also provides an analysis
of our key areas of risk, which include but are not limited to
credit, operational, compliance, market, liquidity and model.
Our use of financial derivatives as part of our overall asset and
liability risk management process is also addressed within the
risk management section.
PNC operates within a rapidly evolving regulatory
environment. Accordingly, we are actively focused on the
timely adoption of regulatory pronouncements within our
Enterprise Risk Management (ERM) Framework.
We view risk management as a cohesive combination of the
following risk elements which form PNC’s ERM Framework:
Risk Organization &
Governance
Risk
Monitor-
ing &
Reporting
Risk
Identi-
fication &
Quanti-
fication
Risk Controls &
Limits
Risk
Appetite
Statement
Risk Capacity,
Appetite &
Strategy
R
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s
k
C
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The PNC Financial Services Group, Inc. – Form 10-K 69