Prudential 2005 Annual Report Download - page 108

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PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
4. INVESTMENTS (continued)
Activity in the allowance for losses for all commercial loans, for the years ended December 31, is as follows:
2005 2004 2003
(in millions)
Allowance for losses, beginning of year ............................................................ $600 $597 $642
Release of allowance for losses ................................................................... (273) (12) (31)
Charge-offs, net of recoveries .................................................................... (30) (7) (50)
Change in foreign exchange ..................................................................... (49) 22 36
Allowance for losses, end of year ................................................................. $248 $600 $597
Non-performing commercial loans identified in management’s specific review of probable loan losses and the related
allowance for losses at December 31, are as follows:
2005 2004
(in millions)
Non-performing commercial loans with allowance for losses .................................................. $134 $509
Non-performing commercial loans with no allowance for losses ................................................ 17 120
Allowance for losses, end of year ........................................................................ (119) (271)
Net carrying value of non-performing commercial loans ...................................................... $ 32 $358
Non-performing commercial loans with no allowance for losses are loans in which the fair value of the collateral or the net
present value of the loans’ expected future cash flows equals or exceeds the recorded investment. The average recorded investment
in non-performing loans before allowance for losses was $210 million, $523 million, $542 million for 2005, 2004 and 2003,
respectively. Net investment income recognized on these loans totaled $4 million, $18 million and $14 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
The Company’s loans held for sale are primarily commercial mortgage loans to be sold in securitization transactions. The net
carrying value of commercial loans held for sale by the Company as of December 31, 2005 and 2004 was $680 million (net of a
valuation allowance of zero million) and $557 million (net of a valuation allowance of zero million), respectively. These loans are
primarily loans collateralized by office buildings, retail stores, apartment complexes and industrial buildings. As of December 31,
2005 and 2004, all of the Company’s commercial loans held for sale were collateralized. In certain transactions, the Company
prearranges that it will sell the loan to an investor. As of December 31, 2005 and 2004, $386 million and $163 million, respectively,
of loans held for sale are subject to such arrangements.
Commercial mortgage loans sold by the Company in securitization transactions for the years ended December 31, 2005, 2004
and 2003, were $2,437 million, $1,793 million and $1,179 million, respectively. In some of the commercial loan securitizations, the
Company retained servicing responsibilities, but did not retain any material ownership interest in the financial assets that were
transferred. The Company recognized net pre-tax gains of $36 million, $35 million and $19 million for the years ended
December 31, 2005, 2004 and 2003, respectively, in connection with securitization transactions, which are recorded in “Realized
investment gains (losses), net.”
Other Long-term Investments
“Other long-term investments” are comprised as follows at December 31:
2005 2004
(in millions)
Joint ventures and limited partnerships:
Real estate related .......................................................................... $ 861 $ 829
Non real estate related ....................................................................... 1,068 1,058
Total joint ventures and limited partnerships .......................................................... 1,929 1,887
Real estate held through direct ownership ................................................................ 1,147 1,435
Separate accounts ................................................................................... 1,426 1,361
Other ............................................................................................ 966 1,113
Total other long-term investments .................................................................. $5,468 $5,796
Prudential Financial 2005 Annual Report106