Loan Sale and Servicing Activities and Variable Interest Entities

6 Months Ended

Jun. 30, 2016

Loan Sale and Servicing Activities and Variable Interest Entities [Abstract]

Loan Sale and Servicing Activities and Variable Interest Entities

Note 2 Loan Sale and Servicing Activities and Variable Interest Entities

Loan Sale and Servicing Activities

As more fully described in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2015 Form 10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization special purpose entities (SPEs).

We earn servicing and other ancillary fees for our role as servicer and, depending on the contractual terms of the servicing arrangement, we can be terminated as servicer with or without cause. At the consummation date of each type of loan transfer where PNC retains the servicing, we recognize a servicing right at fair value. See Note 7 Goodwill and Intangible Assets for information on our servicing rights, including the carrying value of servicing assets.

The following table provides cash flows associated with PNC's loan sale and servicing activities:

Table 42: Cash Flows Associated with Loan Sale and Servicing Activities

		Residential			Commercial		Home Equity
In millions		Mortgages			Mortgages (a)		Loans/Lines (b)
CASH FLOWS - Three months ended June 30, 2016
Sales of loans (c)			$	1,408	$	804
Repurchases of previously transferred loans (d)			$	103
Servicing fees (e)			$	93	$	32	$	3
Servicing advances recovered/(funded), net			$	48	$	(24)	$	(4)
Cash flows on mortgage-backed securities held (f)			$	417	$	92
CASH FLOWS - Three months ended June 30, 2015
Sales of loans (c)			$	2,015	$	1,159
Repurchases of previously transferred loans (d)			$	134
Servicing fees (e)			$	82	$	36	$	4
Servicing advances recovered/(funded), net			$	47	$	21	$	1
Cash flows on mortgage-backed securities held (f)			$	429	$	54
CASH FLOWS - Six months ended June 30, 2016
Sales of loans (c)			$	2,846	$	1,454
Repurchases of previously transferred loans (d)			$	263
Servicing fees (e)			$	186	$	62	$	6
Servicing advances recovered/(funded), net			$	76	$	7	$	20
Cash flows on mortgage-backed securities held (f)			$	769	$	197
CASH FLOWS - Six months ended June 30, 2015
Sales of loans (c)			$	3,955	$	2,179
Repurchases of previously transferred loans (d)			$	303			$	2
Servicing fees (e)			$	165	$	68	$	8
Servicing advances recovered/(funded), net			$	38	$	28	$	25
Cash flows on mortgage-backed securities held (f)			$	669	$	114
(a)	Represents cash flow information associated with both commercial mortgage loan transfer and servicing activities.
(b)	These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged.
(c)	Gains/losses recognized on sales of loans were insignificant for the periods presented.
(d)	Includes residential mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our Removal of Account Provision (ROAP) option, and loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers. Includes home equity lines of credit repurchased at the end of their draw periods due to contractual requirements.
(e)	Includes contractually specified servicing fees, late charges and ancillary fees.
(f)	Represents cash flows on securities we hold issued by a securitization SPE in which PNC transferred to and/or services loans. The carrying values of such securities held were $6.4 billion in residential mortgage-backed securities and $1.1 billion in commercial mortgage-backed securities at June 30, 2016 and $5.6 billion in residential mortgage-backed securities and $1.2 billion in commercial mortgage-backed securities at June 30, 2015. Additionally, at December 31, 2015, the carrying values of such securities held were $6.6 billion in residential mortgage-backed securities and $1.3 billion in commercial mortgage-backed securities.

The table below presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans. For more information regarding our recourse and repurchase obligations, including our reserve of estimated losses, see the Recourse and Repurchase Obligations section of Note 21 Commitments and Guarantees in our 2015 Form 10-K.

Table 43: Principal Balance, Delinquent Loans, and Net Charge-offs Related to Serviced Loans For Others

		Residential		Commercial		Home Equity
In millions		Mortgages		Mortgages (a)		Loans/Lines (b)
June 30, 2016
Total principal balance	$	69,268	$	49,625	$	2,533
Delinquent loans (c)	$	1,555	$	1,035	$	893
December 31, 2015
Total principal balance	$	72,898	$	53,789	$	2,806
Delinquent loans (c)	$	1,923	$	1,057	$	904
Three months ended June 30, 2016
Net charge-offs (d)	$	28	$	157	$	9
Three months ended June 30, 2015
Net charge-offs (d)	$	37	$	148	$	8
Six months ended June 30, 2016
Net charge-offs (d)	$	54	$	1,069	$	16
Six months ended June 30, 2015
Net charge-offs (d)	$	69	$	255	$	15
(a) Represents information at the securitization level in which PNC has sold loans and is the servicer for the securitization.
(b) These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged.
(c) Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.
(d) Net charge-offs for Residential mortgages and Home equity loans/lines represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for commercial mortgage backed securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.

Variable Interest Entities (VIEs)

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2015 Form 10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs. The following provides a summary of VIEs, including those that we have consolidated and those in which we hold variable interests but have not consolidated into our financial statements as of June 30, 2016 and December 31, 2015, respectively. Amounts presented for June 30, 2016 are based on the assessments performed in accordance with ASC 810 as amended by ASU 2015-02 and adopted in the first quarter of 2016. Specifically, the ASU modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities (VOEs). We have not provided additional financial support to these entities which we are not contractually required to provide.

Table 44: Consolidated VIEs – Carrying Value (a)

June 30, 2016 (b)
In millions			Total
Assets
Equity investments				$	220
Other assets					47
	Total assets			$	267
	Total liabilities			$	11
Noncontrolling interests				$	123

December 31, 2015
In millions			Total
Assets
Cash and due from banks				$	11
Interest-earning deposits with banks					4
Loans					1,341
Allowance for loan and lease losses					(48)
Equity investments					183
Other assets					402
	Total assets			$	1,893
Liabilities
Other borrowed funds				$	148
Accrued expenses					44
Other liabilities					202
	Total liabilities			$	394
Noncontrolling interests				$	99
(a)		Amounts represent carrying value on PNC’s Consolidated Balance Sheet.
(b)		Amounts for June 30, 2016 reflect the first quarter 2016 adoption of ASU 2015-02.

The following table provides a summary of non-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between PNC and the VIE. We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 45 where we have determined that our continuing involvement is not significant.

In addition, where PNC only has lending arrangements in the normal course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 45. These loans are included as part of the asset quality disclosures that we make in Note 3 Asset Quality.

Table 45: Non-Consolidated VIEs

		PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
In millions		PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
June 30, 2016 (b)
Commercial Mortgage-Backed Securitizations (c)		$	1,284	$	1,284	(d)
Residential Mortgage-Backed Securitizations (c)			6,406		6,406	(d)	$	1	(f)
Tax Credit Investments and Other			3,042		2,963	(e)		771	(g)
	Total	$	10,732	$	10,653		$	772
December 31, 2015
Commercial Mortgage-Backed Securitizations (c)		$	1,498	$	1,498	(d)	$	1	(f)
Residential Mortgage-Backed Securitizations (c)			6,680		6,680	(d)		1	(f)
Tax Credit Investments and Other			2,551		2,622	(e)		836	(g)
	Total	$	10,729	$	10,800		$	838
(a)	This represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable).
(b)	Amounts for June 30, 2016 reflect the first quarter 2016 adoption of ASU 2015-02.
(c)	Amounts reflect involvement with securitization SPEs where PNC transferred to and/or services loans for an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings.
(d)	Included in Trading securities, Investment securities, Other intangible assets and Other assets on our Consolidated Balance Sheet.
(e)	Included in Loans, Equity investments and Other assets on our Consolidated Balance Sheet.
(f)	Included in Other liabilities on our Consolidated Balance Sheet.
(g)	Included in Deposits and Other liabilities on our Consolidated Balance Sheet.

We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs). The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act. During the six months ended June 30, 2016, we recognized $105 million of amortization, $111 million of tax credits, and $38 million of other tax benefits associated with qualified investments in low income housing tax credits within Income taxes. The amounts for the second quarter of 2016 were $53 million, $55 million and $19 million, respectively.