PNC Bank 2010 Annual Report Download - page 124
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Please find page 124 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.by the SPE were outstanding. Series 2005-1 was paid off
during the third quarter of 2010.
Our continuing involvement in these securitization
transactions consists primarily of holding certain retained
interests and acting as the primary servicer. For each
securitization series, our retained interests held are in the form
of a pro-rata undivided interest, or sellers’ interest, in the
transferred receivables, subordinated tranches of asset-backed
securities, interest-only strips, discount receivables, and
subordinated interests in accrued interest and fees in
securitized receivables. We consolidated the SPE as of
January 1, 2010 as we are deemed the primary beneficiary of
the entity based upon our level of continuing involvement.
Our role as primary servicer gives us the power to direct the
activities of the SPE that most significantly affect its
economic performance and our holding of retained interests
gives us the obligation to absorb or receive expected losses or
residual returns that are significant to the SPE. Accordingly,
all retained interests held in the credit card SPE are eliminated
in consolidation. The underlying assets of the consolidated
SPE are restricted only for payment of the beneficial interest
issued by the SPE. We are not required to nor have we
provided additional financial support to the SPE. Additionally,
creditors of the SPE have no direct recourse to PNC.
T
AX
C
REDIT
I
NVESTMENTS
We make certain equity investments in various limited
partnerships or limited liability companies (LLCs) that
sponsor affordable housing projects utilizing the LIHTC
pursuant to Sections 42 and 47 of the Internal Revenue Code.
The purpose of these investments is to achieve a satisfactory
return on capital, to facilitate the sale of additional affordable
housing product offerings and to assist us in achieving goals
associated with the Community Reinvestment Act. The
primary activities of the investments include the identification,
development and operation of multi-family housing that is
leased to qualifying residential tenants. Generally, these types
of investments are funded through a combination of debt and
equity. We typically invest in these partnerships as a limited
partner or non-managing member. We make similar
investments in other types of tax credit investments.
Also, we are a national syndicator of affordable housing
equity (together with the investments described above, the
LIHTC investments). In these syndication transactions, we
create funds in which our subsidiaries are the general partner
or managing member and sell limited partnership or
non-managing member interests to third parties, and in some
cases may also purchase a limited partnership or
non-managing member interest in the fund and/or provide
mezzanine financing to the fund. The purpose of this business
is to generate income from the syndication of these funds,
generate servicing fees by managing the funds, and earn tax
credits to reduce our tax liability. General partner or managing
member activities include selecting, evaluating, structuring,
negotiating, and closing the fund investments in operating
limited partnerships, as well as oversight of the ongoing
operations of the fund portfolio.
Typically, the general partner or managing member will be the
party that has the right to make decisions that will most
significantly impact the economic performance of the entity.
However, certain partnership or LLC agreements provide the
limited partner or non-managing member the ability to remove
the general partner or managing member without cause. This
results in the limited partner or non-managing member being
the party that has the right to make decisions that will most
significantly impact the economic performance of the entity.
The primary sources of losses and benefits in LIHTC
investments are the tax credits, tax benefits due to passive
losses on the investments, and development and operating
cash flows. We have consolidated LIHTC investments in
which we are the general partner or managing member and
have a limited partnership interest or non-managing member
interest that could potentially absorb losses or receive benefits
that are significant. The assets are primarily included in
Equity investments and Other assets on our Consolidated
Balance Sheet with the liabilities classified in Other liabilities
and third party investors’ interests included in the Equity
section as Noncontrolling interests. Neither creditors nor
equity investors in the LIHTC investments have any recourse
to our general credit. There are no terms or conditions that
have required or could require us, as the primary beneficiary,
to provide financial support. Also, we have not provided nor
do we intend to provide financial or other support to the
limited partnership or LLC that we are not contractually
obligated to provide. The consolidated aggregate assets and
liabilities of these LIHTC investments are provided in the
Consolidated VIEs table and reflected in the “Other” business
segment.
For tax credit investments in which we do not have the right to
make decisions that will most significantly impact the
economic performance of the entity, we are not the primary
beneficiary and thus they are not consolidated. These
investments are disclosed in the Non-Consolidated VIEs table.
The table also reflects our maximum exposure to loss. Our
maximum exposure to loss is equal to our legally binding
equity commitments adjusted for recorded impairment and
partnership results. We use the equity method to account for
our investment in these entities with the investments reflected
in Equity investments on our Consolidated Balance Sheet. In
addition, we increase our recognized investments and
recognize a liability for all legally binding unfunded equity
commitments. These liabilities are reflected in Other liabilities
on our Consolidated Balance Sheet.
C
REDIT
R
ISK
T
RANSFER
T
RANSACTION
National City Bank (which merged into PNC Bank, N.A. in
November 2009) sponsored an SPE and concurrently entered
into a credit risk transfer agreement with an independent third
party to mitigate credit losses on a pool of nonconforming
residential mortgage loans originated by its former First
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