PNC Bank 2005 Annual Report Download - page 109

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OTHER ASSETS
Other assets as shown in the accompanying table include
the following:
• noncertificated interest-only strips,
• FHLB and FRB stock,
• equity investments carried at cost, and
• private equity investments.
The carrying amounts of private equity investments are
recorded at fair value. Fair value of the noncertificated
interest-only strips is estimated based on the discounted
value of expected net cash flows. The equity investments
carried at cost, including the FHLB and FRB stock, have a
carrying value of approximately $321 million as of
December 31, 2005, which approximates fair value.
COMMERCIAL MORTGAGE SERVICING RIGHTS
Fair value is based on the present value of the future cash
flows, including assumptions as to prepayment speeds,
discount rates, interest rates, cost to service and other
factors.
DEPOSITS
The carrying amounts of noninterest-bearing demand and
interest-bearing money market and savings deposits
approximate fair values. For time deposits, which include
foreign deposits, fair values are estimated based on the
discounted value of expected net cash flows assuming
current interest rates.
BORROWED FUNDS
The carrying amounts of federal funds purchased,
commercial 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 assuming current interest
rates.
UNFUNDED LOAN COMMITMENTS AND LETTERS OF
CREDIT
The fair value of unfunded loan commitments and letters
of credit is our estimate of the cost to terminate them. For
purposes of this disclosure, this fair value is the sum of the
deferred fees currently recorded by us on these facilities
and the liability established on these facilities related to
their creditworthiness.
FINANCIAL DERIVATIVES
For exchange-traded contracts, fair value is based on
quoted market prices. For nonexchange-traded contracts,
fair value is based on dealer quotes, pricing models or
quoted prices for instruments with similar characteristics.
NOTE 24 COMMITMENTS AND
GUARANTEES
EQUITY FUNDING COMMITMENTS
We had commitments to make additional equity
investments in certain equity management entities of $78
million and affordable housing limited partnerships of $47
million at December 31, 2005.
Additionally, in October 2005, we committed $200 million to
PNC Mezzanine Partners III, L.P., a $350 million mezzanine
fund, that will invest principally in subordinated debt securities
with an equity component. Funding of this investment is
expected to occur over a five-year period. The limited
partnership will be consolidated for financial reporting
purposes as PNC will have a 57% ownership interest.
STANDBY LETTERS OF CREDIT
We issue standby letters of credit and have risk participations
in standby letters of credit and bankers’ acceptances issued
by other financial institutions, in each case to support
obligations of our customers to third parties. If the customer
fails to meet its financial or performance obligation to the
third party under the terms of the contract, then upon the
request of the guaranteed party, we would be obligated to
make payment to them. The standby letters of credit and risk
participations in standby letters of credit and bankers’
acceptances outstanding on December 31, 2005 had terms
ranging from less than one year to 10 years. The aggregate
maximum amount of future payments we could be required
to make under outstanding standby letters of credit and risk
participations in standby letters of credit and bankers’
acceptances was $6.4 billion at December 31, 2005.
Assets valued as of December 31, 2005 of approximately $1
billion secured certain specifically identified standby letters
of credit. Approximately $2.2 billion in recourse provisions
from third parties was also available for this purpose as of
December 31, 2005. In addition, a portion of the remaining
standby letters of credit and letter of credit risk participations
issued on behalf of specific customers is also secured by
collateral or guarantees that secure the customers’ other
obligations to us. The carrying amount of the liability for our
obligations related to standby letters of credit and risk
participations in standby letters of credit and bankers’
acceptances was $60 million at December 31, 2005.
STANDBY BOND PURCHASE AGREEMENTS AND OTHER
LIQUIDITY FACILITIES
We enter into standby bond purchase agreements to support
municipal bond obligations. At December 31, 2005, the
aggregate of PNC’ s commitments under these facilities was
$235 million. PNC also enters into certain other liquidity
facilities to support individual pools of receivables acquired
by commercial paper conduits including Market Street. At
December 31, 2005, our total commitments under these
facilities were $4.8 billion, of which $4.6 billion was related to
Market Street.
INDEMNIFICATIONS
We are a party to numerous acquisition or divestiture
agreements under which we have purchased or sold, or agreed
to purchase or sell, various types of assets. These agreements
can cover the purchase or sale of:
• Entire businesses,
• Loan portfolios,
• Branch banks,
• Partial interests in companies, or
• Other types of assets.