PNC Bank 2007 Annual Report Download - page 76

A VIE often holds financial assets, including loans or
receivables, real estate or other property.
Based on the guidance contained in FIN 46(R), we consolidate
a VIE if we are considered to be its primary beneficiary. The
primary beneficiary will absorb the majority of the expected
losses 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 recognize all of the VIE’s assets,
liabilities and noncontrolling interests. See Note 3 Variable
Interest Entities for information about VIEs that we do not
consolidate but in which we hold a significant variable
interest.
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, such as commercial
mortgage and education 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.
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,
the caption asset management also includes our 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 when
earned. 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 and
interest income from subordinated debt investments is
recorded on an accrual basis.
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 any gains from the sale of loans upon cash
settlement 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:
• Ownership interest,
• Our plans for the investment, and
• The nature of the investment.
Investment in BlackRock
We deconsolidated the assets and liabilities of BlackRock
from our Consolidated Balance Sheet effective September 29,
2006 and account for our investment in BlackRock under the
equity method of accounting. Under the equity method, our
investment in BlackRock is reflected on our Consolidated
Balance Sheet in the caption equity investments, while our
equity in earnings of BlackRock is reported on our
Consolidated Income Statement in the caption asset
management.
We mark to market our obligation to transfer BlackRock
shares related to certain BlackRock long-term incentive plan
(“LTIP”) programs. As we transfer the shares for payouts
under such LTIP programs, we recognize a gain or loss on
those shares. The impact of those transactions is shown on a
net basis on our Consolidated Income Statement in net gains
(losses) related to BlackRock. Our obligation to transfer
BlackRock shares related to the LTIP programs and the
resulting accounting are described in more detail in Note 2
Acquisitions and Divestitures.
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
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