PNC Bank 2013 Annual Report Download - page 181

were transfers out of Level 3 residential mortgage loans held for sale and loans of $12 million and $28 million, respectively,
primarily due to the transfer of residential mortgage loans held for sale and loans to OREO. In addition, there was approximately
$84 million of Level 3 residential mortgage loans held for sale reclassified to Level 3 loans during 2013 due to the loans being
reclassified from held for sale loans to held in portfolio loans. This amount was included in Transfers out of Level 3 residential
mortgages loans held for sale and Transfers into Level 3 loans within Table 88. During 2012, there were transfers of securities
available for sale from Level 2 to Level 3 of $478 million consisting of mortgage-backed securities as a result of a ratings
downgrade which reduced the observability of valuation inputs and certain state and municipal securities with valuation inputs that
were determined to be unobservable. Level 2 to Level 3 transfers also included $127 million and $27 million for loans and
residential mortgage loans held for sale, respectively, as a result of reduced market activity in the nonperforming residential
mortgage sales market which reduced the observability of valuation inputs. Also during 2012, there was a transfer out of Level 3
securities available for sale of $40 million due to an instrument being reclassified to a loan and no longer being carried at fair
value.
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities follows.
Table 89: Fair Value Measurements – Recurring Quantitative Information
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 Consensus pricing (c) Cumulative default rate
Loss severity
Gross discount rate
2.0%-100% (80.0%)
0%-100% (48.4%)
12.0%-13.0% (12.2%)
164 Discounted cash flow Loss severity
Gross discount rate
8.0% weighted average
10.0% weighted average
Loans – Home equity (e) 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 (e) (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 (f) 35
Total Level 3 assets, net of
liabilities (g) $10,012
The PNC Financial Services Group, Inc. – Form 10-K 163