PNC Bank 2010 Annual Report Download - page 67
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Please find page 67 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.loans are included in this business segment, nor are all of the
loans included in this business segment considered impaired.
• The $14.8 billion of loans held in this portfolio at
December 31, 2010 are stated inclusive of a fair
value adjustment on purchased impaired loans at
acquisition. Taking the adjustment and the ALLL
into account, the net carrying basis of this loan
portfolio is 80% of customer outstandings.
• Commercial Lending within the Distressed Assets
Portfolio business segment is comprised of
$1.7 billion in residential development assets (i.e.
condominiums, townhomes, developed and
undeveloped land) primarily acquired from National
City and $.8 billion of performing cross-border
leases. This commercial lending portfolio has
declined 27% since December 31, 2009. For the
residential development portfolio, a team of asset
managers actively deploy workout strategies on this
portfolio through reducing unfunded loan exposure,
refinancing, customer payoffs, foreclosures and loan
sales. The overall credit quality of this portfolio is
considered to be moderately better at December 31,
2010 compared with the beginning of 2010 based
upon continuing dispositions of credits, improved
economic conditions and increased activity in several
markets. The cross-border portfolio continues to
demonstrate good credit quality.
• The performance of the Consumer Lending portfolio
is dependent upon economic growth, unemployment
rates, the housing market recovery and the interest
rate environment. The portfolio’s credit quality
performance has stabilized through actions taken by
management over the last two years. Approximately
78% of customers have been current with principal
and interest payments for the past 12 months.
Currently, the portfolio yields over 7%. Consumer
Lending consists of residential real estate mortgages
and consumer or brokered home equity loans.
• Residential real estate mortgages are primarily legacy
National City originate-for-sale programs that have
been discontinued and acquired portfolios. The
residential real estate mortgage portfolio is composed
of jumbo and ALT-A first lien mortgages, non-prime
first and second lien mortgages and to a lesser extent,
residential construction loans. We have implemented
internal and external programs to proactively explore
refinancing opportunities that would allow the
borrower to qualify for a conforming mortgage loan
which would be originated and sold by PNC or
originated by a third-party originator. Also, loss
mitigation programs have been developed to help
manage risk and assist borrowers to maintain
homeownership, when possible.
• Home equity loans include second liens and brokered
home equity lines of credit. We have implemented
several modification programs to assist the loss
mitigation teams that manage this risk. Additionally,
we have initiated several voluntary and involuntary
programs to reduce and/or block line availability on
home equity lines of credit.
• When loans are sold, investors may request PNC to
indemnify them against losses or to repurchase loans
that they believe do not comply with applicable
representations. From 2005 to 2007, home equity
loans were sold with such representations. At
December 31, 2010, the liability for estimated losses
on repurchase and indemnification claims for the
Distressed Assets Portfolio business segment was
$150 million. We recognized $47 million of
additional reserves in the fourth quarter of 2010. See
the Recourse and Repurchase Obligations section of
this Item 7 and Note 23 Commitments and
Guarantees in the Notes To Consolidated Financial
Statements included in Item 8 of this Report for
additional information.
C
RITICAL
A
CCOUNTING
E
STIMATES
A
ND
J
UDGMENTS
Our consolidated financial statements are prepared by
applying certain accounting policies. Note 1 Accounting
Policies in the Notes To Consolidated Financial Statements in
Item 8 of this Report describes the most significant accounting
policies that we use. Certain of these policies require us to
make estimates or economic assumptions that may prove
inaccurate or be subject to variations that may significantly
affect our reported results and financial position for the period
or in future periods.
Fair Value Measurements
We must use estimates, assumptions, and judgments when
assets and liabilities are required to be recorded at, or adjusted
to reflect, fair value.
Assets and liabilities carried at fair value inherently result in a
higher degree of financial statement volatility. Fair values and
the information used to record valuation adjustments for
certain assets and liabilities are based on either quoted market
prices or are provided by independent third-party sources,
including appraisers and valuation specialists, when available.
When such third-party information is not available, we
estimate fair value primarily by using cash flow and other
financial modeling techniques. Changes in underlying factors,
assumptions, or estimates in any of these areas could
materially impact our future financial condition and results of
operations.
Effective January 1, 2008, PNC adopted Fair Value
Measurements and Disclosures (Topic 820). This guidance
defines fair value as the price that would be received to sell a
financial asset or paid to transfer a financial liability in an
orderly transaction between market participants at the
measurement date. This guidance established a three level
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