PNC Bank 2005 Annual Report Download - page 69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE PNC FINANCIAL SERVICES GROUP, INC.
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BUSINESS
We are one of the largest diversified financial services
companies in the United States, operating businesses
engaged in:
• Retail banking,
• Corporate & institutional banking,
• Asset management, and
• Global fund processing services.
We provide many of our products and services nationally
and others in our primary geographic markets located in
Pennsylvania, New Jersey, Delaware, Ohio, Kentucky and
the greater Washington, D.C. area. We also provide certain
asset management and global fund processing services
internationally. We are subject to intense competition from
other financial services companies and are subject to
regulation by various domestic and international
authorities.
NOTE 1 ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
Our consolidated financial statements include the accounts of
the parent company and its subsidiaries, most of which are
wholly owned, and certain partnership interests and variable
interest entities. We prepared these statements in accordance
with accounting principles generally accepted in the United
States of America (“generally accepted accounting
principles” or “GAAP”). We have eliminated all significant
intercompany accounts and transactions. We have also
reclassified certain prior year amounts to conform with the
2005 presentation. These reclassifications did not have a
material impact on our consolidated financial condition or
results of operations.
Special Purpose Entities
Special purpose entities are broadly defined as legal entities
structured for a particular purpose. We use special purpose
entities in various legal forms to conduct normal business
activities. Special purpose entities that meet the criteria for a
Qualifying Special Purpose Entity (“QSPE”) as defined in
Statement of Financial Accounting Standards No. (“SFAS”)
140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,” are not required
to be consolidated. We review special purpose entities that
are not QSPEs for consolidation in accordance with Financial
Accounting Standards Board (“FASB”) Interpretation No. 46
(Revised 2003), “Consolidation of Variable Interest Entities”
(“FIN 46R”).
In general, a variable interest entity (“VIE”) is a special
purpose entity formed as a corporation, partnership, limited
liability corporation, or any other legal structure used to
conduct activities or hold assets that either:
• Does not have equity investors with voting rights that
can directly or indirectly make decisions about the
entity’ s activities through those voting rights or
similar rights, or
• Has equity investors that do not provide enough cash
or other financial resources for the entity to support
its activities.
A VIE often holds financial assets, including loans or
receivables, real estate or other property.
We consolidate a VIE if we are considered to be its primary
beneficiary. The primary beneficiary is subject to a majority of
the risk of loss from the VIE's activities, is entitled to receive a
majority of the entity's residual returns, or both. Upon
consolidation of a VIE, we generally record all of the VIE’ s
assets, liabilities and noncontrolling interests at fair value, with
future changes based upon consolidation accounting principles.
See Note 3 Variable Interest Entities for more information
about non-consolidated VIEs in which we hold a significant
interest.
BUSINESS COMBINATIONS
We record the net assets of companies that we acquire at their
estimated fair value at the date of acquisition, and we include
the results of operations of an acquired business in our
consolidated income statement from the date of acquisition.
We recognize as goodwill the excess of the purchase price over
the estimated fair value of the net assets acquired.
USE OF ESTIMATES
We prepare the consolidated financial statements using
financial information available at the time, which requires us
to make estimates and assumptions that affect the amounts
reported. Actual results will differ from these estimates and the
differences may be material to the consolidated financial
statements.
REVENUE RECOGNITION
We earn net interest and noninterest income from various
sources, including:
• Lending,
• Securities portfolio,
• Investment management and fund servicing,
• Customer deposits,
• Loan servicing,
• Brokerage services, and
• Securities and derivatives trading activities including
foreign exchange.