PNC Bank 2010 Annual Report Download - page 84
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Please find page 84 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.impaired loans. This treatment also results in a lower ratio of
ALLL to total loans. Loan loss reserves on the purchased
impaired loans were not carried over on the date of
acquisition. In addition, these loans were recorded net of $9.2
billion of fair value adjustments as of December 31, 2008. As
of December 31, 2010, we have reserves of $.9 billion for
purchased impaired loans.
Excluding the allowance for purchased impaired loans and
consumer loans and lines of credit, not secured by residential
real estate, which are excluded from nonperforming loans, of
$1.4 billion at December 31, 2010, the allowance as a percent
of nonperforming loans was 77% at that date. Comparable
information at December 31, 2009 was $1.0 billion and 72%.
A portion of the ALLL related to qualitative and measurement
factors has been assigned to loan categories based on the
relative specific and pool allocation amounts to provide
coverage for specific and pool reserve methodologies. These
factors include, but are not limited to, the following:
• industry concentrations and conditions
• credit quality trends
• recent loss experience in particular sectors of the
portfolio
• changes in risk selection and underwriting standards
and
• timing of available information.
In addition to the ALLL, we maintain an allowance for
unfunded loan commitments and letters of credit. We report
this allowance as a liability on our Consolidated Balance
Sheet. We determine this amount using estimates of the
probability of the ultimate funding and losses related to those
credit exposures. This methodology is similar to the one we
use for determining the adequacy of our ALLL.
We refer you to Note 5 Asset Quality and Allowances for
Loan and Lease Losses and Unfunded Loan Commitments and
Letters of Credit and Note 6 Purchased Impaired Loans in the
Notes To Consolidated Financial Statements in Item 8 of this
Report regarding changes in the ALLL and in the allowance
for unfunded loan commitments and letters of credit. Also see
the Allocation Of Allowance For Loan And Lease Losses
table in the Statistical Information (Unaudited) section of
Item 8 of this Report for additional information included
herein by reference.
Charge-Offs And Recoveries
Year ended December 31
Dollars in millions Charge-offs Recoveries
Net
Charge-offs
Percent of
Average
Loans
2010
Commercial $1,227 $294 $ 933 1.72%
Commercial real
estate 670 77 593 2.90
Equipment lease
financing 120 56 64 1.02
Consumer 1,069 110 959 1.74
Residential real
estate 406 19 387 2.19
Total $3,492 $556 $2,936 1.91
2009
Commercial $1,276 $181 $1,095 1.79%
Commercial real
estate 510 38 472 1.91
Equipment lease
financing 149 27 122 1.97
Consumer 961 105 856 1.63
Residential real
estate 259 93 166 .79
Total $3,155 $444 $2,711 1.64
Total net charge-offs are significantly lower than they would
have been otherwise due to the accounting treatment for
purchased impaired loans. This treatment also results in a
lower ratio of net charge-offs to average loans. Customer
balances related to these purchased impaired loans were
reduced by the fair value adjustments of $9.2 billion as of
December 31, 2008. However, as a result of further credit
deterioration on purchased impaired commercial loans, we
recorded $232 million of net charge-offs during 2010. Net
charge-offs were not recorded on purchased impaired
consumer pools.
C
REDIT
D
EFAULT
S
WAPS
From a credit risk management perspective, we buy and sell
credit loss protection via the use of credit derivatives. When
we buy loss protection by purchasing a credit default swap
(CDS), we pay a fee to the seller, or CDS counterparty, in
return for the right to receive a payment if a specified credit
event occurs for a particular obligor or reference entity. We
purchase CDSs to mitigate the risk of economic loss on a
portion of our loan exposures.
We also sell loss protection to mitigate the net premium cost
and the impact of fair value accounting on the CDS in cases
where we buy protection to hedge the loan portfolio. These
activities represent additional risk positions rather than hedges
of risk.
We approve counterparty credit lines for all of our CDS
activities. Counterparty credit lines are approved based on a
review of credit quality in accordance with our traditional
credit quality standards and credit policies. The credit risk of
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