PNC Bank 2006 Annual Report Download - page 83

R EVENUE R ECOGNITION
We earn net interest and noninterest income from various
sources, including:
• Lending,
• Securities portfolio,
• Asset management and fund servicing,
• Customer deposits,
• Loan servicing,
• Brokerage services, and
• Securities and derivatives trading activities, including
foreign exchange.
We also earn revenue from selling loans and securities, and
we recognize income or loss from certain private equity
activities. We earn fees and commissions from:
• Issuing loan commitments, standby letters of credit
and financial guarantees,
• Selling various insurance products,
• Providing treasury management services,
• Providing merger and acquisition advisory and
related services, and
• Participating in certain capital markets transactions.
Revenue earned on interest-earning assets is recognized based
on the effective yield of the financial instrument.
We recognize asset management and fund servicing fees
primarily as the services are performed. Asset management
fees are generally based on a percentage of the fair value of
the assets under management and performance fees are
generally based on a percentage of the returns on such assets.
Certain performance fees are earned upon attaining specified
investment return thresholds and are recorded as earned.
Beginning in the fourth quarter of 2006, asset management
fees also includes our proportionate share of the earnings of
BlackRock under the equity method of accounting.
Fund servicing fees are primarily based on a percentage of the
fair value of the fund assets and the number of shareholder
accounts we service.
Service charges on deposit accounts are recognized as
charged. Brokerage fees and gains on the sale of securities and
certain derivatives are recognized on a trade-date basis.
We record private equity income or loss based on changes in
the valuation of the underlying investments or when we
dispose of our interest. Dividend income from private equity
investments is generally recognized when received.
We recognize revenue from loan servicing, securities and
derivatives and foreign exchange trading, and securities
underwriting activities as they are earned based on contractual
terms, as transactions occur or as services are provided. We
recognize revenue from the sale of loans upon closing of the
transaction.
In certain circumstances, revenue is reported net of associated
expenses in accordance with GAAP.
C ASH AND C ASH E QUIVALENTS
Cash and due from banks are considered “cash and cash
equivalents” for financial reporting purposes.
I NVESTMENTS
We have interests in various types of investments. The
accounting for these investments is dependent on a number of
factors including, but not limited to, items such as:
• Marketability of the investment,
• Ownership interest,
• Our plans for the investment, and
• The nature of the investment.
Investment in BlackRock
As described in Note 2 Acquisitions, we deconsolidated the
assets and liabilities of BlackRock from our Consolidated
Balance Sheet at September 30, 2006 and now account for our
investment in BlackRock under the equity method of
accounting. Under the equity method, our investment in the
equity of BlackRock is reflected on our Consolidated Balance
Sheet in the caption Equity Investments, while our
proportionate share of BlackRock’s earnings is reported on
our Consolidated Income Statement in the caption Asset
Management.
Private Equity Investments
We report private equity investments, which include direct
investments in companies, interests in limited partnerships,
and affiliated partnership interests, at estimated fair values.
These estimates are based on available information and may
not necessarily represent amounts that we will ultimately
realize through distribution, sale or liquidation of the
investments. The valuation procedures applied to direct
investments include techniques such as multiples of cash flow
of the entity, independent appraisals of the entity or the
pricing used to value the entity in a recent financing
transaction. We value affiliated partnership interests based on
the underlying investments of the partnership using
procedures consistent with those applied to direct investments.
We generally value limited partnership investments based on
the financial statements we receive from the general partner.
We include all private equity investments on the Consolidated
Balance Sheet in Equity Investments. Changes in the fair
value of these assets are recognized in noninterest income.
We consolidate private equity funds when we are the sole
general partner in a limited partnership and have determined
that we have control of the partnership.
Equity Securities and Partnership Interests
We account for equity investments other than BlackRock and
private equity investments under one of the following
methods:
• Marketable equity securities are recorded on a trade-
date basis and are accounted for at fair value based
on the securities’ quoted market prices from a
national securities exchange. Dividend income on
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