PNC Bank 2006 Annual Report Download - page 122

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N
OTE
23 F
AIR
V
ALUE OF
F
INANCIAL
I
NSTRUMENTS
2006 2005
December 31 - in millions
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Assets
Cash and short-term assets $ 9,016 $ 9,016 $ 6,957 $ 6,957
Securities 23,191 23,191 20,710 20,710
Loans held for sale 2,366 2,366 2,449 2,449
Net loans (excludes leases) 46,757 46,878 45,713 45,883
Other assets 892 892 965 965
Mortgage and other loan servicing rights 477 552 344 403
Financial derivatives
Fair value hedges 51 51 108 108
Cash flow hedges 72 72 55
Free-standing derivatives 1,054 1,054 969 969
Liabilities
Demand, savings and money market deposits 47,277 47,277 43,914 43,914
Time deposits 19,024 18,959 16,361 16,215
Borrowed funds 15,310 15,496 17,186 17,323
Financial derivatives
Fair value hedges 52 52 30 30
Cash flow hedges 10 10 14 14
Free-standing derivatives 1,029 1,029 967 967
Unfunded loan commitments and letters of credit 101 122 77 98
The aggregate fair values in the table above do not represent
our underlying market value as the table excludes the
following:
• real and personal property,
• lease financing,
• loan customer relationships,
• deposit customer intangibles,
• retail branch networks,
• fee-based businesses, such as asset management and
brokerage, and
• trademarks and brand names.
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 our intention 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 and involve
uncertainties and significant judgment. Therefore, they cannot
be determined with precision. Changes in our assumptions
could significantly impact the derived fair value estimates.
We used the following methods and assumptions to estimate
fair value amounts for financial instruments.
G
ENERAL
For short-term financial instruments realizable in three months
or less, the carrying amount reported in the consolidated
balance sheet approximates fair value. Unless otherwise
stated, the rates used in discounted cash flow analyses are
based on market yield curves.
C
ASH
A
ND
S
HORT
-T
ERM
A
SSETS
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 purposes
of this disclosure only, short-term assets include the
following:
• due from banks,
• interest-earning deposits with banks,
• federal funds sold and resale agreements,
• trading securities,
• cash collateral,
• customers’ acceptance liability, and
• accrued interest receivable.
S
ECURITIES
The fair value of securities 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.
N
ET
L
OANS
A
ND
L
OANS
H
ELD
F
OR
S
ALE
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
112