PNC Bank 2010 Annual Report Download - page 125
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Please find page 125 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.Franklin business unit. The SPE or VIE was formed with a
small equity contribution and was structured as a bankruptcy-
remote entity so that its creditors had no recourse to the
sponsor. In exchange for a perfected security interest in the
cash flows of the nonconforming mortgage loans, the SPE
issued asset-backed securities to the sponsor in the form of
senior, mezzanine, and subordinated equity notes.
The SPE was deemed to be a VIE as its equity was not
sufficient to finance its activities. We were determined to be
the primary beneficiary of the SPE as we would absorb the
majority of the expected losses of the SPE through our
holding of the asset-backed securities. Accordingly, this SPE
was consolidated and all of the entity’s assets, liabilities, and
equity associated with the note tranches held by us were
intercompany balances and were eliminated in consolidation.
In October 2010, the governing documents were amended to
give us the option to unilaterally terminate the SPE. On
October 28, 2010, we exercised this option. The dissolution of
the SPE did not have any impact on the statement of financial
condition, liquidity, or cash flows of PNC. At December 31,
2009, nonconforming mortgage loans and foreclosed
properties associated with the consolidated SPE had a net
carrying value of $587 million.
In connection with the credit risk transfer agreement, we held
the right to put the mezzanine notes to the independent third-
party once credit losses in the mortgage loan pool exceeded
the principal balance of the subordinated equity notes. During
2009, cumulative credit losses in the mortgage loan pool
surpassed the principal balance of the subordinated equity
notes which resulted in us exercising our put option on two of
the subordinate mezzanine notes. Cash proceeds received
from the third party for the exercise of these put options
totaled $36 million. In addition, during 2009 we entered into
an agreement with the third party to terminate each party’s
rights and obligations under the credit risk transfer agreement
for the remaining mezzanine notes. We agreed to terminate
our contractual right to put the remaining mezzanine notes to
the third party for a cash payment of $126 million. A pretax
gain of $10 million was recognized in noninterest income as a
result of these transactions. The foregoing events did not have
any impact on our consolidation assessment of the SPE.
R
ESIDENTIAL AND
C
OMMERCIAL
M
ORTGAGE
-B
ACKED
S
ECURITIZATIONS
In connection with each Agency and Non-Agency
securitization discussed above, we evaluate each SPE utilized
in these transactions for consolidation. In performing these
assessments, we evaluate our level of continuing involvement
in these transactions as the magnitude of our involvement
ultimately determines whether or not we hold a variable
interest and/or are the primary beneficiary of the SPE. Factors
we consider in our consolidation assessment include the
significance of (1) our role as servicer, (2) our holdings of
mortgage-backed securities issued by the securitization SPE,
and (3) the rights of third-party variable interest holders.
Our first step in our assessment is to determine whether we
hold a variable interest in the securitization SPE. We hold a
variable interest in an Agency and Non-Agency securitization
SPE through our holding of mortgage-backed securities issued
by the SPE and/or our repurchase and recourse obligations.
Each SPE in which we hold a variable interest is evaluated to
determine whether we are the primary beneficiary of the
entity. For Agency securitization transactions, our contractual
role as servicer does not give us the power to direct the
activities that most significantly affect the economic
performance of the SPEs. Thus, we are not the primary
beneficiary of these entities. For Non-Agency securitization
transactions, we would be the primary beneficiary to the
extent our servicing activities give us the power to direct the
activities that most significantly affect the economic
performance of the SPE and we hold a more than insignificant
variable interest in the entity. At December 31, 2010, our level
of continuing involvement in Non-Agency securitization SPEs
did not result in PNC being deemed the primary beneficiary of
any of these entities. Details about the Agency and
Non-Agency securitization SPEs where we hold a variable
interest and are not the primary beneficiary are included in the
table above. Our maximum exposure to loss as a result of our
involvement with these SPEs is the carrying value of the
mortgage-backed securities, servicing assets, servicing
advances, and our liabilities associated with our repurchase
and recourse obligations. Creditors of the securitization SPEs
have no recourse to PNC’s assets or general credit.
N
OTE
4L
OANS AND
C
OMMITMENTS
T
O
E
XTEND
C
REDIT
Loans outstanding were as follows:
L
OANS
O
UTSTANDING
In millions
Dec. 31
2010
Dec. 31
2009
Commercial lending
Commercial $ 55,177 $ 54,818
Commercial real estate 17,934 23,131
Equipment lease financing 6,393 6,202
TOTAL COMMERCIAL LENDING 79,504 84,151
Consumer lending
Home equity 34,226 35,947
Residential real estate 15,999 19,810
Credit card 3,920 2,569
Other 16,946 15,066
TOTAL CONSUMER LENDING 71,091 73,392
Total loans (a) (b) $150,595 $157,543
(a) Net of unearned income, net deferred loan fees, unamortized discounts and
premiums, and purchase discounts and premiums totaling $2.7 billion and $3.2
billion at December 31, 2010 and December 31, 2009, respectively.
(b) Future accretable yield related to purchased impaired loans is not included in loans
outstanding.
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
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