PNC Bank 2010 Annual Report Download - page 83
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Please find page 83 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.Commercial lending portfolio early stage delinquencies
(accruing loans past due 30 to 89 days) decreased substantially
from December 31, 2009 to December 31, 2010, generally due
to the improved economic environment and active portfolio
management. Consumer lending portfolio early stage
delinquencies improved modestly from December 31, 2009 to
December 31, 2010, due to declines in residential real estate
delinquencies.
Accruing loans past due 90 days or more are referred to as late
stage delinquencies and totaled $542 million at December 31,
2010, compared to $884 million at December 31, 2009,
reflecting the same factors as early stage delinquencies noted
above. These loans are not included in nonperforming loans
because they are well secured by collateral and in the process
of collection.
Additional information regarding accruing loans past due is
included in Note 5 Asset Quality and Allowances for Loan
and Lease Losses and Unfunded Loan Commitments and
Letters of Credit in the Notes To Consolidated Financial
Statements in Item 8 of this Report.
Our Special Asset Committee closely monitors loans that are
not included in nonperforming or past due categories and for
which we are uncertain about the borrower’s ability to comply
with existing repayment terms over the next six months. These
loans totaled $574 million at December 31, 2010 and $811
million at December 31, 2009.
A
LLOWANCES FOR
L
OAN AND
L
EASE
L
OSSES AND
U
NFUNDED
L
OAN
C
OMMITMENTS AND
L
ETTERS OF
C
REDIT
We maintain an ALLL to absorb losses from the loan portfolio
and determine this allowance based on quarterly assessments
of the estimated probable credit losses incurred in the loan
portfolio. While we make allocations to specific loans and
pools of loans, the total reserve is available for all loan and
lease losses. There were no significant changes during 2010 to
the process and procedures we follow to determine our ALLL.
The ALLL was $4.9 billion at December 31, 2010 and $5.1
billion at December 31, 2009. The allowance as a percent of
nonperforming loans was 109% at December 31, 2010 and
89% at December 31, 2009. The allowance as a percent of
total loans was 3.25% at December 31, 2010 and 3.22% at
December 31, 2009.
We establish specific allowances for loans considered
impaired using a method prescribed by GAAP. All impaired
loans are subject to individual analysis, except leases and
large groups of smaller-balance homogeneous loans which
may include but are not limited to credit card, residential
mortgage, and consumer installment loans. Specific
allowances for individual loans are determined by our Special
Asset Committee based on an analysis of the present value of
expected future cash flows from the loans discounted at their
effective interest rate, observable market price, or the fair
value of the underlying collateral.
Allocations to commercial loan classes (pool reserve
methodology) are assigned to pools of loans as defined by our
business structure and are based on internal probability of
default and loss given default credit risk ratings.
Key elements of the pool reserve methodology include:
• Probability of default (PD), which is primarily based
on historical default analyses and is derived from the
borrower’s internal PD credit risk rating;
• Exposure at default (EAD), which is derived from
historical default data; and
• Loss given default (LGD), which is based on
historical loss data, collateral value and other
structural factors that may affect our ultimate ability
to collect on the loan and is derived from the loan’s
internal LGD credit risk rating.
Our pool reserve methodology is sensitive to changes in key
risk parameters such as PDs, LGDs and EADs. In general, a
given change in any of the major risk parameters will have a
corresponding change in the pool reserve allocations for
non-impaired commercial loans. Our commercial loans are the
largest category of credits and are most sensitive to changes in
the key risk parameters and pool reserve loss rates. To
illustrate, if we increase the pool reserve loss rates by 5% for
all categories of non-impaired commercial loans, then the
aggregate of the ALLL and allowance for unfunded loan
commitments and letters of credit would increase by $69
million. Additionally, other factors such as the rate of
migration in the severity of problem loans will contribute to
the final pool reserve allocations.
The majority of the commercial portfolio is secured by
collateral, including loans to asset-based lending customers
that continue to show demonstrably lower loss given default.
Further, the large investment grade or equivalent portion of
the loan portfolio has performed well and has not been subject
to significant deterioration. Additionally, guarantees on loans
greater than $1 million and owner guarantees for small
business loans do not significantly impact our ALLL.
Allocations to consumer loan classes are based upon a roll-
rate model based on statistical relationships, calculated from
historical data that estimate the movement of loan
outstandings through the various stages of delinquency and
ultimately charge-off. In general, the estimated rates at which
loan outstandings roll from one stage of delinquency to
another are dependent on various factors such as FICO, LTV
ratios, the current economic environment, and geography.
The ALLL is significantly lower than it would have been
otherwise due to the accounting treatment for purchased
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