PNC Bank 2010 Annual Report Download - page 112
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Please find page 112 of the 2010 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Other noninterest income. Distributions received
from the income of an investee on cost method
investments are included in interest income or
noninterest income depending on the type of
investment. We use the equity method for all other
general and limited partner ownership interests and
limited liability company investments. Under the
equity method, we record our equity ownership share
of net income or loss of the investee in noninterest
income. Investments described above are included in
the caption Equity investments on the Consolidated
Balance Sheet.
Private Equity Investments
We report private equity investments, which include direct
investments in companies, affiliated partnership interests and
indirect investments in private equity funds, at estimated fair
value. These estimates are based on available information and
may not necessarily represent amounts that we will ultimately
realize through distribution, sale or liquidation of the
investments. Fair value of publicly traded direct investments
are determined using quoted market prices and are subject to
various discount factors for legal or contractual sales
restrictions, when appropriate. The valuation procedures
applied to direct investments in private companies include
techniques such as multiples of adjusted earnings of the entity,
independent appraisals, anticipated financing and sale
transactions with third parties, or the pricing used to value the
entity in a recent financing transaction. We value affiliated
partnership interests based on the underlying investments of
the partnership using procedures consistent with those applied
to direct investments. In September 2009, the Financial
Accounting Standards Board (FASB) issued ASU 2009-12—
Fair Value Measurements and Disclosures (Topic 820)—
Investments in Certain Entities That Calculate Net Asset
Value per Share (or Its Equivalent). Based on the guidance,
we value indirect investments in private equity funds based on
net asset value as provided in the financial statements that we
receive from their managers. Due to the time lag in our receipt
of the financial information and based on a review of
investments and valuation techniques applied, adjustments to
the manager-provided value are made when available recent
portfolio company information or market information
indicates a significant change in value from that provided by
the manager of the fund. We include all private equity
investments on the Consolidated Balance Sheet in the caption
Equity investments. Changes in the fair value of private equity
investments are recognized in noninterest income.
We consolidate private equity investments when we are the
general partner in a limited partnership and have determined
that we have control of the partnership or are the primary
beneficiary of the VIE. The portion we do not own is reflected
in the caption Noncontrolling interests on the Consolidated
Balance Sheet.
L
OANS
Loans are classified as held for investment when management
has both the intent and ability to hold the loan for the
foreseeable future, or until maturity or payoff. Management’s
intent and view of the foreseeable future may change based on
changes in business strategies, the economic environment,
market conditions and the availability of government
programs.
Measurement of delinquency and past due status are based on
the contractual terms of each loan. Loans that are 30 days or
more past due in terms of payment are considered delinquent.
Except as described below, loans held for investment are
stated at the principal amounts outstanding, net of unearned
income, unamortized deferred fees and costs on originated
loans, and premiums or discounts on purchased loans. Interest
on performing loans is accrued based on the principal amount
outstanding and recorded in interest income as earned using
the constant effective yield method. Loan origination fees,
direct loan origination costs, and loan premiums and discounts
are deferred and accreted or amortized into net interest
income, over periods not exceeding the contractual life of the
loan.
When loans are redesignated from held for investment to held
for sale, specific reserves and allocated pooled reserves
included in the allowance for loan and lease losses (ALLL) are
charged-off to reduce the basis of the loans to the lower of
cost or estimated fair value less cost to sell.
In addition to originating loans, we also acquire loans through
portfolio purchases or acquisitions of other financial services
companies. For certain acquired loans that have experienced a
deterioration of credit quality, we follow the guidance
contained in ASC Sub Topic 310-30 – Loans and Debt
Securities Acquired with Deteriorated Credit Quality. Under
this guidance, acquired purchased impaired loans are to be
recorded at fair value without the carryover of any existing
valuation allowances. Evidence of credit quality deterioration
may include information and statistics regarding bankruptcy
events, borrower credit scores, such as Fair Isaac Corporation
scores (FICO), past due status, and current loan-to-value
(LTV) ratio. We review the loans acquired for evidence of
credit quality deterioration and determine if it is probable that
we will be unable to collect all contractual amounts due,
including both principal and interest. When both conditions
exist, we estimate the amount and timing of undiscounted
expected cash flows at acquisition for each loan either
individually or on a pool basis. We estimate the cash flows
expected to be collected using internal models that incorporate
management’s best estimate of current key assumptions, such
as default rates, loss severity and payment speeds. Collateral
values are also incorporated into cash flow estimates. Late
fees, which are contractual but not expected to be collected,
are excluded from expected future cash flows.
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