PNC Bank 2000 Annual Report Download - page 87

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84
Real and personal property, lease financing, loan customer
relationships, deposit customer intangibles, retail branch
networks, fee-based businesses, such as asset management
and brokerage, trademarks and brand names are excluded
from the amounts set forth in the previous table.
Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Corporation.
Fair value is defined as the estimated amount at which
a financial instrument could be exchanged in a current
transaction between willing parties, or other than in a forced
or liquidation sale. However, it is not management’s inten-
tion to immediately dispose of a significant portion of such
financial instruments, and unrealized gains or losses should
not be interpreted as a forecast of future earnings and cash
flows. The derived fair values are subjective in nature,
involve uncertainties and significant judgment and, there-
fore, cannot be determined with precision. Changes in
assumptions could significantly impact the derived fair
value estimates.
The following methods and assumptions were used in
estimating fair value amounts for financial instruments.
GE N E R A L
For short-term financial instruments realizable in three
months or less, the carrying amount reported in the consoli-
dated balance sheet approximates fair value. Unless other-
wise stated, the rates used in discounted cash flow analyses
are based on market yield curves.
CA S H A N D SH O R T - T E R M AS S E T S
The carrying amounts reported in the consolidated balance
sheet for cash and short-term investments approximate fair
values primarily due to their short-term nature. For purpos-
es of this disclosure only, short-term assets include due
from banks, interest-earning deposits with banks, federal
funds sold and resale agreements, trading securities, cus-
tomer’s acceptance liability and accrued interest receivable.
SE C U R I T I E S AV A I L A B L E F O R SA L E
The fair value of securities available for sale is based on
quoted market prices, where available. If quoted market
prices are not available, fair value is estimated using the
quoted market prices of comparable instruments.
NE T LO A N S A N D LO A N S HE L D F O R SA L E
Fair values are estimated based on the discounted value of
expected net cash flows incorporating assumptions about
prepayment rates, credit losses and servicing fees and costs.
For revolving home equity loans, this fair value does not
include any amount for new loans or the related fees that
will be generated from the existing customer relationships.
In the case of nonaccrual loans, scheduled cash flows
exclude interest payments. The carrying value of loans held
for sale approximates fair value.
CO M M E R C I A L MO R T G A G E SE RV I C I N G RI G H T S
The fair value of commercial mortgage servicing rights
is estimated based on the present value of future
cash flows.
DE P O S I T S
The carrying amounts of noninterest-bearing demand and
interest-bearing money market and savings deposits approx-
imate fair values. For time deposits, which include foreign
deposits, fair values are estimated based on the discounted
value of expected net cash flows taking into account current
interest rates.
BO R R O W E D FU N D S
The carrying amounts of federal funds purchased, commer-
cial paper, acceptances outstanding and accrued interest
payable are considered to be their fair value because of
their short-term nature. For all other borrowed funds, fair
values are estimated based on the discounted value of
expected net cash flows taking into account current interest
rates.
UN F U N D E D LO A N CO M M I T M E N T S A N D
LE T T E R S O F CR E D I T
Fair values for commitments to extend credit and letters of
credit are estimated based on the amount of deferred fees
and the creditworthiness of the counterparties.
FI N A N C I A L A N D OT H E R DE R I VA T I V E S
The fair value of derivatives is estimated based on the dis-
counted value of the expected net cash flows. These fair val-
ues represent the estimated amounts the Corporation would
receive or pay to terminate the contracts, taking into
account current interest rates.
NO T E 2 7 UN U S E D LI N E O F CR E D I T
At December 31, 2000, the Corporation maintained a line of
credit in the amount of $500 million, none of which was
drawn. This line is available for general corporate purposes
and expires in 2003.