PNC Bank 2013 Annual Report Download - page 136

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 consists of nonperforming loans and
leases, other real estate owned (OREO) and foreclosed assets.
Nonperforming loans and leases include nonperforming
troubled debt restructurings (TDRs).
C OMMERCIAL L OANS
We generally classify Commercial Lending (Commercial,
Commercial Real Estate, and Equipment Lease Financing)
loans as nonperforming and place them on nonaccrual status
when we determine that the collection of interest or principal
is not probable, including when delinquency of interest or
principal payments has existed for 90 days or more and the
loans are not well-secured and/or 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
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 accounting,
• The collection of principal or interest is 90 days or
more past due unless the asset is both well-secured
and/or in the process of collection,
• Reasonable doubt exists as to the certainty of the
borrower’s future debt service ability, whether 90
days have passed or not,
• The borrower has filed or will likely file for
bankruptcy,
• The bank advances additional funds to cover
principal or interest,
• We are in the process of liquidating a commercial
borrower, or
• We are pursuing remedies under a guarantee.
We charge off commercial nonperforming 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.
Certain small business credit card balances are placed on
nonaccrual status when they become 90 days or more past
due. Such loans are charged-off at 180 days past due.
C ONSUMER L OANS
Nonperforming loans are those loans accounted for at
amortized cost that have deteriorated in credit quality to the
extent that full collection of contractual principal and interest
is not probable. These loans are also classified as nonaccrual.
For these loans, the current year accrued and uncollected
interest is reversed through Net interest income and prior year
accrued and uncollected interest is charged-off. Additionally,
these loans may be charged-off down to the fair value less
costs to sell.
Loans acquired and accounted for under ASC 310-30 – Loans
and Debt Securities Acquired with Deteriorated Credit Quality
are reported as performing and accruing loans due to the
accretion of interest income.
Loans accounted for under the fair value option and loans
accounted for as held for sale are reported as performing loans
as these loans are accounted for at fair value and the lower of
carrying value or the fair value less costs to sell, respectively.
However, based upon the nonaccrual policies discussed
below, interest income is not accrued. Additionally, based
upon the nonaccrual policies discussed below, certain
government insured loans for which we do not expect to
collect substantially all principal and interest are reported as
nonperforming and do not accrue interest. Alternatively,
certain government insured loans for which we expect to
collect substantially all principal and interest are not reported
as nonperforming loans and continue to accrue interest.
In the first quarter of 2013, we completed our alignment of
certain nonaccrual and charge-off policies consistent with
interagency supervisory guidance on practices for loans and
lines of credit related to consumer lending. This alignment
primarily related to (i) subordinate consumer loans (home
equity loans and lines of credit and residential mortgages)
where the first-lien loan was 90 days or more past due,
(ii) government guaranteed loans where the guarantee may not
result in collection of substantially all contractual principal
and interest and (iii) certain loans with borrowers in or
discharged from bankruptcy. In the first quarter of 2013, due
to classification as either nonperforming or, in the case of
loans accounted for under the fair value option, nonaccrual
loans, nonperforming loans increased by $426 million and net
charge-offs increased by $134 million as a result of
completing the alignment of the aforementioned policies.
Additionally, overall delinquencies decreased $395 million
due to loans now being reported as either nonperforming or, in
the case of loans accounted for under the fair value option,
nonaccruing, or having been charged-off. The impact of the
alignment of the policies was considered in our reserving
process in the determination of our Allowance for Loan and
Lease Losses (ALLL) at December 31, 2012. See Note 5
118 The PNC Financial Services Group, Inc. – Form 10-K