PNC Bank 2013 Annual Report Download - page 153

Table 65: Commercial Lending Asset Quality Indicators (a)
Criticized Commercial Loans
In millions
Pass
Rated (b)
Special
Mention (c) Substandard (d) Doubtful (e)
Total
Loans
December 31, 2013
Commercial $ 83,903 $1,894 $2,352 $ 72 $ 88,221
Commercial real estate 19,175 301 1,113 86 20,675
Equipment lease financing 7,403 77 93 3 7,576
Purchased impaired loans 10 31 469 163 673
Total commercial lending (f) (g) $110,491 $2,303 $4,027 $324 $117,145
December 31, 2012
Commercial $ 78,048 $1,939 $2,600 $145 $ 82,732
Commercial real estate 14,898 804 1,802 210 17,714
Equipment lease financing 7,062 68 112 5 7,247
Purchased impaired loans 49 60 852 288 1,249
Total commercial lending (f) $100,057 $2,871 $5,366 $648 $108,942
(a) Based upon PDs and LGDs.
(b) Pass Rated loans include loans not classified as “Special Mention”, “Substandard”, or “Doubtful”.
(c) Special Mention rated loans have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of
repayment prospects at some future date. These loans do not expose us to sufficient risk to warrant a more adverse classification at this time.
(d) Substandard rated loans have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of debt. They are characterized by the distinct possibility that we will
sustain some loss if the deficiencies are not corrected.
(e) Doubtful rated loans possess all the inherent weaknesses of a Substandard loan with the additional characteristics that the weakness makes collection or liquidation in full improbable
due to existing facts, conditions, and values.
(f) Loans are included above based on their contractual terms as “Pass”, “Special Mention”, “Substandard” or “Doubtful”.
(g) We refined our process for categorizing commercial loans in the second quarter of 2013 in order to apply a split rating classification to certain loans meeting threshold criteria. By
assigning split classifications, a loan’s exposure amount may be split into more than one classification category in the above table.
C
ONSUMER L ENDING A SSET C LASSES
H OME E QUITY A ND R ESIDENTIAL R EAL E STATE L OAN
C LASSES
We use several credit quality indicators, including
delinquency information, nonperforming loan information,
updated credit scores, originated and updated LTV ratios, and
geography, to monitor and manage credit risk within the home
equity and residential real estate loan classes. We evaluate
mortgage loan performance by source originators and loan
servicers. A summary of asset quality indicators follows:
Delinquency/Delinquency Rates: We monitor trending of
delinquency/delinquency rates for home equity and residential
real estate loans. See the Asset Quality section of this Note 5
for additional information.
Nonperforming Loans: We monitor trending of
nonperforming loans for home equity and residential real
estate loans. See the Asset Quality section of this Note 5 for
additional information.
Credit Scores: We use a national third-party provider to
update FICO credit scores for home equity loans and lines of
credit and residential real estate loans on at least a quarterly
basis. The updated scores are incorporated into a series of
credit management reports, which are utilized to monitor the
risk in the loan classes.
LTV (inclusive of combined loan-to-value (CLTV) for first
and subordinate lien positions): At least semi-annually, we
update the property values of real estate collateral and
calculate an updated LTV ratio. For open-end credit lines
secured by real estate in regions experiencing significant
declines in property values, more frequent valuations may
occur. We examine LTV migration and stratify LTV into
categories to monitor the risk in the loan classes.
Historically, we used, and we continue to use, a combination
of original LTV and updated LTV for internal risk
management reporting and risk management purposes (e.g.,
line management, loss mitigation strategies). In addition to the
fact that estimated property values by their nature are
estimates, given certain data limitations it is important to note
that updated LTVs may be based upon management’s
assumptions (e.g., if an updated LTV is not provided by the
third-party service provider, home price index (HPI) changes
will be incorporated in arriving at management’s estimate of
updated LTV).
Geography: Geographic concentrations are monitored to
evaluate and manage exposures. Loan purchase programs are
sensitive to, and focused within, certain regions to manage
geographic exposures and associated risks.
A combination of updated FICO scores, originated and
updated LTV ratios and geographic location assigned to home
equity loans and lines of credit and residential real estate loans
The PNC Financial Services Group, Inc. – Form 10-K 135