PNC Bank 2010 Annual Report Download - page 134
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Please find page 134 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.Rollforward of Allowance for Unfunded Loan
Commitments and Letters of Credit
In millions 2010 2009 2008
January 1 $ 296 $344 $134
Acquired allowance 75
Net change in allowance for unfunded loan
commitments and letters of credit (108) (48) 135
December 31 $ 188 $296 $344
N
OTE
6P
URCHASED
I
MPAIRED
L
OANS
At December 31, 2008, we identified certain loans related to
the National City acquisition, for which there was evidence of
credit quality deterioration since origination and it was
probable that we would be unable to collect all contractually
required principal and interest payments. Evidence of credit
quality deterioration included statistics such as past due status,
declines in current borrower FICO credit scores, geographic
concentration and increases in current LTV ratios. GAAP
requires these loans to be recorded at fair value at acquisition
date and prohibits the “carrying over” or the creation of
valuation allowances in the initial accounting for such loans
acquired in a transfer.
GAAP allows purchasers to aggregate purchased impaired
loans acquired in the same fiscal quarter into one or more
pools, provided that the loans have common risk
characteristics. A pool is then accounted for as a single asset
with a single composite interest rate and an aggregate
expectation of cash flows. With respect to the National City
acquisition, we aggregated homogeneous consumer and
residential real estate loans into pools with common risk
characteristics. We account for commercial and commercial
real estate loans individually.
Purchased Impaired Loans
December 31, 2010 December 31, 2009
In millions
Recorded
Investment
Outstanding
Balance
Recorded
Investment
Outstanding
Balance
Commercial $ 249 $ 408 $ 531 $ 921
Commercial real
estate 1,153 1,391 1,636 2,600
Consumer 3,024 4,121 3,457 5,097
Residential real
estate 3,354 3,803 4,663 6,620
Total $7,780 $9,723 $10,287 $15,238
During 2010, the recorded investment of purchased impaired
loans decreased by a net $2.5 billion as a result of payments
and other exit activities partially offset by accretion.
The excess of cash flows expected over the estimated fair
value at acquisition is referred to as the accretable yield and is
recognized in interest income over the remaining life of the
loans using the constant effective yield method. The
difference between contractually required payments and the
undiscounted cash flows expected to be collected at
acquisition is referred to as the nonaccretable difference.
Changes in the actual or expected cash flows of individual
commercial or pooled consumer purchased impaired loans
from the date of acquisition will either impact the accretable
yield or result in an impairment charge to the provision for
credit losses in the period in which the changes are deemed
probable. Subsequent decreases to the net present value of
expected cash flows will generally result in an impairment
charge to the provision for credit losses, resulting in an
increase to the ALLL, and a reclassification from accretable
yield to nonaccretable difference. Subsequent increases in the
net present value of cash flows will result in a recovery of any
previously recorded ALLL, to the extent applicable, and a
reclassification from nonaccretable difference to accretable
yield, which is recognized prospectively over the remaining
lives of the loans.
Purchased impaired commercial and commercial real estate
loans are charged off when the entire customer loan balance is
deemed uncollectible. As purchased impaired consumer and
residential real estate loans are accounted for in pools,
uncollectible amounts on individual loans remain in the pools
and are not reported as charge-offs. Any required charge-off
of a pool level recorded investment will occur at the end of the
life of the pool. Prepayments and interest rate decreases for
variable rate notes are treated as a reduction of cash flows
expected to be collected and a reduction of projections of
contractual cash flows such that the nonaccretable difference
is not affected. Thus, for decreases in cash flows expected to
be collected resulting from prepayments and interest rate
decreases for variable rate notes, the effect will be to reduce
the yield prospectively. Disposals of loans, which may include
sales of loans or foreclosures, result in removal of the loan
from the purchased impaired loan portfolio at its carrying
amount.
During 2010, $573 million of provision and $232 million of
charge-offs were recorded on purchased impaired loans. As of
December 31, 2010, decreases in the net present value of
expected cash flows of purchased impaired loans resulted in
an ALLL of $897 million on $7.2 billion of the purchased
impaired loans while the remaining $.6 billion of purchased
impaired loans required no allowance as the net present value
of expected cash flows improved or remained the same.
Activity for the accretable yield for 2010 follows.
Accretable Yield
In millions 2010
January 1 $ 3,502
Accretion (including cash recoveries) (1,368)
Net reclassifications to accretable from non- accretable 285
Disposals (234)
December 31 $ 2,185
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