PNC Bank 2015 Annual Report Download - page 223

N OTE 21 C OMMITMENTS AND G UARANTEES
Commitments
In the normal course of business, we have various
commitments outstanding, certain of which are not included
on our Consolidated Balance Sheet. The following table
presents our outstanding commitments to extend credit along
with significant other commitments as of December 31, 2015
and December 31, 2014, respectively.
Table 131: Commitments to Extend Credit and Other
Commitments
In millions
December 31
2015
December 31
2014
Commitments to extend credit
Total commercial lending $101,252 $ 98,742
Home equity lines of credit 17,268 17,839
Credit card 19,937 17,833
Other 4,032 4,178
Total commitments to extend credit 142,489 138,592
Net outstanding standby letters of credit (a) 8,765 9,991
Reinsurance agreements (b) 2,010 4,297
Standby bond purchase agreements (c) 911 1,095
Other commitments (d) 966 962
Total commitments to extend credit and
other commitments $155,141 $154,937
(a) Net outstanding standby letters of credit include $4.7 billion and $5.2 billion which
support remarketing programs at December 31, 2015 and December 31, 2014,
respectively.
(b) Represents aggregate maximum exposure up to the specified limits of the
reinsurance contracts, and reflects estimates based on availability of financial
information from insurance carriers. As of December 31, 2015 the aggregate
maximum exposure amount comprised $1.6 billion for accidental death &
dismemberment contracts and $.4 billion for credit life, accident & health contracts.
The comparative amount as of December 31, 2014 included $1.8 billion for
accidental death & dismemberment, $.5 billion for credit life, accident & health and
$2.0 billion related to lender placed hazard contracts.
(c) We enter into standby bond purchase agreements to support municipal bond
obligations.
(d) Includes $.5 billion and $.4 billion related to investments in qualified affordable
housing projects at December 31, 2015 and December 31, 2014, respectively.
Commitments to Extend Credit
Commitments to extend credit, or net unfunded loan
commitments, represent arrangements to lend funds or provide
liquidity subject to specified contractual conditions. These
commitments generally have fixed expiration dates, may
require payment of a fee, and contain termination clauses in
the event the customer’s credit quality deteriorates. Based on
our historical experience, some commitments expire
unfunded, and therefore cash requirements are substantially
less than the total commitment.
Net Outstanding Standby Letters of Credit
We issue standby letters of credit and share in the risk of
standby letters of credit issued by other financial institutions,
in each case to support obligations of our customers to third
parties, such as insurance requirements and the facilitation of
transactions involving capital markets product execution.
Internal credit ratings related to our net outstanding standby
letters of credit were as follows:
Table 132: Internal Credit Ratings Related to Net
Outstanding Standby Letters of Credit
December 31
2015
December 31
2014
Internal credit ratings (as a percentage of
portfolio):
Pass (a) 93% 95%
Below pass (b) 7% 5%
(a) Indicates that expected risk of loss is currently low.
(b) Indicates a higher degree of risk of default.
If the customer fails to meet its financial or performance
obligation to the third party under the terms of the contract or
there is a need to support a remarketing program, then upon a
draw by a beneficiary, subject to the terms of the letter of
credit, we would be obligated to make payment to them. The
standby letters of credit outstanding on December 31, 2015
had terms ranging from less than 1 year to 7 years.
As of December 31, 2015, assets of $1.0 billion secured
certain specifically identified standby letters of credit. In
addition, a portion of the remaining standby letters of credit
issued on behalf of specific customers is also secured by
collateral or guarantees that secure the customers’ other
obligations to us. The carrying amount of the liability for our
obligations related to standby letters of credit and
participations in standby letters of credit was $.2 billion at
December 31, 2015 and is included in Other liabilities on our
Consolidated Balance Sheet.
Reinsurance Agreements
We have a wholly-owned captive insurance subsidiary which
provides reinsurance for accidental death & dismemberment,
credit life, accident & health and lender placed hazard, all of
which are in run-off. This subsidiary previously entered into
these various types of reinsurance agreements with third-party
insurers where the subsidiary assumed the risk of loss through
quota share agreements up to 100% reinsurance. In quota
share agreements, the subsidiary and the third-party insurers
share the responsibility for payment of all claims.
We maintain a reserve for probable losses on these
agreements, which totaled $8 million and $13 million as of
December 31, 2015 and December 31, 2014, respectively, and
are included in Other Liabilities on the Consolidated Balance
Sheet. There is a reasonable possibility that losses could be
more than or less than the amount reserved due to ongoing
uncertainty in various economic, social and other factors that
The PNC Financial Services Group, Inc. – Form 10-K 205