PNC Bank 2000 Annual Report Download - page 67

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NO T E S T O CO N S O L I D AT E D FI N A N C I A L STA T E M E N T S
The PNC Financial Services Group, Inc.
BU S I N E S S
The PNC Financial Services Group, Inc. (“Corporation” or
“PNC”) is one of the largest diversified financial services
companies in the United States, operating community bank-
ing, corporate banking, real estate finance, asset-based
lending, wealth management, asset management and global
fund services businesses. The Corporation provides certain
p r oducts and services nationally and others in PNC’s primary
geographic markets in Pennsylvania, New Jersey, Delaware,
Ohio and Kentucky. The Corporation also provides certain
products and services internationally. PNC is subject to
intense competition from other financial services companies
and is subject to regulation by certain federal and state
agencies and undergoes periodic examinations by
those authorities.
NO T E 1 A C C O U N T I N G PO L I C I E S
BA S I S O F FI N A N C I A L ST A T E M E N T PR E S E N TA T I O N
The consolidated financial statements include the accounts
of PNC and its subsidiaries, most of which are wholly
owned. Such statements have been prepared in accordance
with accounting principles generally accepted in the United
States. All significant intercompany accounts and transac-
tions have been eliminated. Certain prior-period amounts
have been reclassified to conform with the current period
presentation. These classifications did not impact the
Corporation’s financial condition or results of operations.
In preparing the consolidated financial statements,
management is required to make estimates and assumptions
that affect the amounts reported. Actual results will differ
from such estimates and the differences may be material to
the consolidated financial statements.
The Consolidated Financial Statements and Notes to
Consolidated Financial Statements reflect the residential
mortgage banking business, which was sold on January 31,
2001, as discontinued operations, unless otherwise noted.
LO A N S HE L D FO R SA L E
Loans are designated as held for sale when the Corporation
has a positive intent to sell them. Loans are transferred at
the lower of cost or market to the loans held for sale catego-
ry. Upon the transfer, related write-downs on loans classified
as nonaccrual are charged against the allowance for credit
losses and for all other loans write-downs are charged to
noninterest income. Such loans are carried at the lower of
cost or aggregate market value and related valuation adjust-
ments subsequent to transfer are included in noninterest
income.
SE C U R I T I E S
Securities purchased with the intention of recognizing short-
term profits are placed in the trading account, carried at
market value and classified as short-term investments.
Gains and losses on trading securities are included in non-
interest income. Securities not classified as trading are des-
ignated as securities available for sale and carried at fair
value with unrealized gains and losses, net of income taxes,
reflected in accumulated other comprehensive income or
loss. Gains and losses realized on the sale of securities
available for sale are computed on a specific security basis
and included in noninterest income.
LO A N S
Loans are stated at the principal amounts outstanding, net
of unearned income. Interest income with respect to loans is
accrued on the principal amount outstanding, except for
lease financing income which is recognized over its respec-
tive terms using methods which approximate the level yield
method. Significant loan fees are deferred and accreted to
interest income over the respective lives of the loans.
LO A N SE C U R I T I Z AT I O N S A N D RE TA I N E D
IN T E R E S T S
The Corporation sells mortgage and other loans through sec-
ondary market securitizations. In certain cases, the
Corporation will retain interest-only strips, servicing rights
and cash reserve accounts, all of which are associated with
the securitized asset. Any gain or loss recognized on the
sale of the loans depends in part on the previous carrying
amount, allocated between the loans sold and the retained
interests, based on their relative fair market values at the
date of transfer. The Corporation generally estimates fair
value based on the present value of future expected cash
flows using assumptions as to discount rates, prepayment
speeds, credit losses and servicing costs, if applicable.
64