PNC Bank 2011 Annual Report Download - page 122

qualifying special-purpose entity under previous GAAP. The
guidance further clarified that an entity must consider all
arrangements or agreements made contemporaneously with or
in contemplation of a transfer even if not entered into at the
time of the transfer when applying surrender of control
conditions. Additionally, this guidance established conditions
for accounting and reporting for transfer of a portion of a
financial asset, modified the asset sale/derecognition criteria,
and changed how retained interests are initially measured.
L OANS H ELD F OR S ALE
We designate loans as held for sale when we have the intent to
sell them. We transfer loans to the Loans held for sale
category at the lower of cost or estimated fair value less cost
to sell. At the time of transfer, write-downs on the loans are
recorded as charge-offs. We establish a new cost basis upon
transfer. Any subsequent lower-of-cost-or-market adjustment
is determined on an individual loan basis and is recognized as
a valuation allowance with any charges included in Other
noninterest income. Gains or losses on the sale of these loans
are included in Other noninterest income when realized.
We have elected to account for certain commercial mortgage
loans held for sale at fair value. The changes in the fair value of
these loans are measured and recorded in Other noninterest
income each period. See Note 8 Fair Value for additional
information. Also, we elected to account for residential real estate
loans held for sale and securitizations acquired from National
City, which were not purchased impaired loans, at fair value.
Interest income with respect to loans held for sale classified as
performing is accrued based on the principal amount
outstanding using a constant effective yield method.
In certain circumstances, loans designated as held for sale may be
transferred to held for investment based on a change in strategy.
We transfer these loans at the lower of cost or estimated fair
value; however, any loans held for sale and designated at fair
value will remain at fair value for the life of the loan.
N ONPERFORMING A SSETS
Nonperforming assets include:
• Nonaccrual loans and leases,
• Troubled debt restructurings, and
• Other real estate owned and foreclosed assets.
Nonperforming loans are those loans that have deteriorated in
credit quality to the extent that full collection of original
contractual principal and interest is not probable. When a loan
is determined to be nonperforming (and as a result is
impaired), the accrual of interest is ceased and the loan is
classified as nonaccrual. The current year accrued and
uncollected interest is reversed out of net interest income.
A loan acquired and accounted for under ASC 310-30 – Loans
and Debt Securities Acquired with Deteriorated Credit Quality
is reported as an accruing loan and a performing asset due to
the accretion of interest income.
We generally classify Commercial Lending (Commercial,
Commercial Real Estate, and Equipment Lease Financing)
loans as nonaccrual (and therefore nonperforming) when we
determine that the collection of interest or principal is not
probable or when delinquency of interest or principal payments
has existed for 90 days or more and the loans are not well-
secured and in the process of collection. A loan is considered
well-secured when the collateral in the form of liens on (or
pledges of) real or personal property, including marketable
securities, has a realizable value sufficient to discharge the debt
in full, including accrued interest. Such factors that would lead
to nonperforming status and subject the loan to an impairment
test would include, but are not limited to, the following:
• Deterioration in the financial position of the borrower
resulting in the loan moving from accrual to cash
basis,
• The collection of principal or interest is 90 days or
more past due unless the asset is both well-secured
and in the process of collection,
• Reasonable doubt exists as to the certainty of the
future debt service ability, whether 90 days have
passed or not,
• Customer has filed or will likely file for bankruptcy,
• The bank advances additional funds to cover
principal or interest,
• We are in the process of liquidation of a commercial
borrower, or
• We are pursuing remedies under a guaranty.
We charge off commercial nonaccrual loans when we
determine that a specific loan, or portion thereof, is
uncollectible. This determination is based on the specific facts
and circumstances of the individual loans. In making this
determination, we consider the viability of the business or
project as a going concern, the past due status when the asset
is not well-secured, the expected cash flows to repay the loan,
the value of the collateral, and the ability and willingness of
any guarantors to perform.
Additionally, in general, for smaller dollar commercial loans
of $1 million or less, a partial or full charge-off will occur at
120 days past due for term loans and 180 days past due for
revolvers.
Home equity installment loans and lines of credit, as well as
residential real estate loans, that are well-secured are classified
as nonaccrual at 180 days past due. A consumer loan is
considered well-secured when the collateral in the form of
liens on (or pledges of) real or personal property, including
marketable securities, has a realizable value sufficient to
discharge the debt in full, including accrued interest.
Home equity installment loans and lines of credit and
residential real estate loans that are not well-secured and/or are
in the process of collection are charged off at 180 days past due
to the estimated fair value of the collateral less cost to sell. The
remaining portion of the loan is placed on nonaccrual status.
The PNC Financial Services Group, Inc. – Form 10-K 113