PNC Bank 2010 Annual Report Download - page 113
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Please find page 113 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.The accretable yield is calculated based upon the difference
between the undiscounted expected future cash flows of the
loans and the recorded investment in the loans. This amount is
accreted into income over the life of the loan or pool using the
constant effective yield method. Subsequent decreases in
expected cash flows that are attributable, at least in part, to
credit quality are recognized as impairments through a charge
to the provision for credit losses resulting in an increase in the
ALLL. Subsequent increases in expected cash flows are
recognized as a recovery of previously recorded ALLL or
prospectively through an adjustment of the loan’s or pool’s
yield over its remaining life.
The nonaccretable yield represents the difference between the
expected undiscounted cash flows of the loans and the total
contractual cash flows (including principal and future interest
payments) at acquisition and throughout the remaining lives of
the loans.
L
EASES
We provide financing for various types of equipment, aircraft,
energy and power systems, and rolling stock and automobiles
through a variety of lease arrangements. Direct financing
leases are carried at the aggregate of lease payments plus
estimated residual value of the leased property, less unearned
income. Leveraged leases, a form of financing lease, are
carried net of nonrecourse debt. We recognize income over
the term of the lease using the constant effective yield method.
Lease residual values are reviewed for other-than-temporary
impairment on a quarterly basis. Gains or losses on the sale of
leased assets are included in Other noninterest income while
valuation adjustments on lease residuals are included in Other
noninterest expense.
L
OAN
S
ALES
,L
OAN
S
ECURITIZATIONS
A
ND
R
ETAINED
I
NTERESTS
We recognize the sale of loans or other financial assets when
the transferred assets are legally isolated from our creditors
and the appropriate accounting criteria are met. We have sold
mortgage, credit card and other loans through securitization
transactions. In a securitization, financial assets are transferred
into trusts or to SPEs in transactions to effectively legally
isolate the assets from PNC. Where the transferor is a
depository institution, legal isolation is accomplished through
compliance with specific rules and regulations of the relevant
regulatory authorities. Where the transferor is not a depository
institution, legal isolation is accomplished through utilization
of a two-step securitization structure.
In December 2009, the FASB issued ASU 2009-16 –
Transfers and Servicing (Topic 860) – Accounting For
Transfers of Financial Assets which requires a true sale legal
analysis to be obtained to address several relevant factors,
such as the nature and level of recourse to the transferor, and
the amount and nature of retained interests in the loans sold.
The analytical conclusion as to a true sale is never absolute
and unconditional, but contains qualifications based on the
inherent equitable powers of a bankruptcy court, as well as the
unsettled state of the common law. Once the legal isolation
test has been met, other factors concerning the nature and
extent of the transferor’s control over the transferred assets are
taken into account in order to determine whether
derecognition of assets is warranted.
In a securitization, the trust or SPE issues beneficial interests
in the form of senior and subordinated securities backed or
collateralized by the assets sold to the trust. The senior classes
of the asset-backed securities typically receive investment
grade credit ratings at the time of issuance. These ratings are
generally achieved through the creation of lower-rated
subordinated classes of asset-backed securities, as well as
subordinated or residual interests. In certain cases, we may
retain a portion or all of the securities issued, interest-only
strips, one or more subordinated tranches, servicing rights and,
in some cases, cash reserve accounts. Securitized loans are
removed from the balance sheet and a net gain or loss is
recognized in noninterest income at the time of initial sale,
and each subsequent sale for revolving securitization
structures. Gains or losses recognized on the sale of the loans
depend on the allocation of carrying value between the loans
sold and the retained interests, based on their relative fair
market values at the date of sale. We generally estimate the
fair value of the retained interests based on the present value
of future expected cash flows using assumptions as to discount
rates, interest rates, prepayment speeds, credit losses and
servicing costs, if applicable.
Our loan sales and securitizations are generally structured
without recourse to us and with no restrictions on the retained
interests with the exception of loan sales to certain US
government chartered entities.
When we are obligated for loss-sharing or recourse in a sale,
our policy is to record such liabilities at fair value upon sale
based on the guidance contained in applicable GAAP.
We originate, sell and service mortgage loans under the
Federal National Mortgage Association (FNMA) Delegated
Underwriting and Servicing (DUS) program. Under the
provisions of the DUS program, we participate in a loss-
sharing arrangement with FNMA. We participate in a similar
program with the Federal Home Loan Mortgage Corporation
(FHLMC). Refer to Note 23 Commitments and Guarantees for
more information about our obligations related to sales of
loans under these programs.
On January 1, 2010, we adopted ASU 2009-16 – Transfers
and Servicing (Topic 860) – Accounting For Transfers of
Financial Assets which is a codification of guidance issued in
June 2009. This revised guidance removes the concept of a
qualifying special-purpose entity from existing GAAP and
removes the exception from applying FASB ASC 810-10,
Consolidation, to qualifying special purpose entities. The
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