PNC Bank 2006 Annual Report Download - page 123

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.
Loans are presented above net of the allowance for loan and
lease losses.
O THER A SSETS
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 fair value, and
• private equity investments carried at fair value.
Investments accounted for under the equity method, including
our investment in BlackRock, are not included in the
accompanying table.
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 $365 million as of December 31,
2006, and $321 million as of December 31, 2005, both of
which approximate fair value at each date.
M ORTGAGE A ND O THER L OAN S ERVICING A SSETS
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.
D EPOSITS
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.
B ORROWED F UNDS
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.
U NFUNDED L OAN C OMMITMENTS A ND L ETTERS O F
C REDIT
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.
F INANCIAL D ERIVATIVES
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.
N OTE 24 C OMMITMENTS AND G UARANTEES
E QUITY F UNDING C OMMITMENTS
We had commitments to make additional equity investments
in certain equity management entities of $123 million and
affordable housing limited partnerships of $71 million at
December 31, 2006.
Additionally, in October 2005, we committed $200 million to
PNC Mezzanine Partners III, L.P., a $350 million mezzanine
fund, that invests principally in subordinated debt securities
with an equity component. Funding of this investment is
expected to occur over a five-year period. The remaining
unfunded commitment on December 31, 2006 was $155
million. The limited partnership is consolidated for financial
reporting purposes as PNC has a 57% ownership interest.
S TANDBY L ETTERS OF C REDIT
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, 2006 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 $6.6 billion at
December 31, 2006.
Assets valued as of December 31, 2006 of approximately $.9
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, 2006. 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 $57 million at December 31, 2006.
S TANDBY B OND P URCHASE A GREEMENTS AND O THER
L IQUIDITY F ACILITIES
We enter into standby bond purchase agreements to support
municipal bond obligations. At December 31, 2006, the
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