PNC FINANCIAL SERVICES GROUP INC
For the period ended Dec 31, 2023. Filed Feb 21, 2024.
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FY2023 · Filed Feb 21, 2024
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Residential Mortgage Servicing Rights
Table 56: Residential Mortgage Servicing Rights
| In millions · 2023 · 2022 · 2021 | ||||
|---|---|---|---|---|
| January 1 | $2,310 | $1,078 | $673 | |
| Additions: | ||||
| BBVA Acquisition | 35 | |||
| From loans sold with servicing retained | 23 | 57 | 87 | |
| Purchases | 444 | 897 | 411 | |
| Changes in fair value due to: | ||||
| Time and payoffs (a) | (237) | (231) | (320) | |
| Other (b) | 115 | 509 | 192 | |
| Sale | (1) | |||
| December 31 | $2,654 | $2,310 | $1,078 | |
| Unpaid principal balance of loans serviced for others at December 31 | $209,158 | $189,831 | $132,953 | |
| Servicing advances at December 31 | $172 | $165 | $176 | |
(a)Represents decrease in MSR value due to passage of time, including the impact from regularly scheduled loan principal payments, prepayments and loans that were paid off during the period.
(b)Includes MSR value changes resulting from changes in interest rates and other market-driven conditions.
Sensitivity Analysis
The fair value of commercial and residential MSRs and significant inputs to the valuation models as of December 31, 2023 and December 31, 2022 are shown in Tables 57 and 58. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.
128 The PNC Financial Services Group, Inc. –2023 Form 10-K
A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 57 and 58. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.
The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions:
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