PNC Bank 2008 Annual Report Download - page 97

G OODWILL AND O THER I NTANGIBLE A SSETS
We test goodwill and indefinite-lived intangible assets for
impairment at least annually, or when events or changes in
circumstances indicate the assets might be impaired. Finite-
lived intangible assets are amortized to expense using
accelerated or straight-line methods over their respective
estimated useful lives. We review finite-lived intangible assets
for impairment when events or changes in circumstances
indicate that the asset’s carrying amount may not be
recoverable from undiscounted future cash flows or it may
exceed its fair value.
D EPRECIATION AND A MORTIZATION
For financial reporting purposes, we depreciate premises and
equipment, net of salvage value, principally using the straight-
line method over their estimated useful lives.
We use estimated useful lives for furniture and equipment
ranging from one to 10 years, and depreciate buildings over an
estimated useful life of up to 40 years. We amortize leasehold
improvements over their estimated useful lives of up to 15
years or the respective lease terms, whichever is shorter.
We purchase, as well as internally develop and customize,
certain software to enhance or perform internal business
functions. Software development costs incurred in the
planning and post-development project stages are charged to
noninterest expense. Costs associated with designing software
configuration and interfaces, installation, coding programs and
testing systems are capitalized and amortized using the
straight-line method over periods ranging from one to seven
years.
R EPURCHASE AND R ESALE A GREEMENTS
Generally, repurchase and resale agreements are treated as
collateralized financing transactions and are carried at the
amounts at which the securities will be subsequently
reacquired or resold, including accrued interest, as specified in
the respective agreements. Our policy is to take possession of
securities purchased under agreements to resell. We monitor
the market value of securities to be repurchased and resold
and additional collateral may be obtained where considered
appropriate to protect against credit exposure.
Effective January 1, 2008, we elected to account for structured
resale agreements at fair value. The fair value for structured
resale agreements is determined using a model which includes
observable market data as inputs.
O THER C OMPREHENSIVE I NCOME
Other comprehensive income consists, on an after-tax basis,
primarily of unrealized gains or losses on investment
securities classified as available for sale and derivatives
designated as cash flow hedges, and changes in pension, other
postretirement and postemployment benefit plan liability
adjustments. Details of each component are included in Note
20 Other Comprehensive Income.
T REASURY S TOCK
We record common stock purchased for treasury at cost. At
the date of subsequent reissue, the treasury stock account is
reduced by the cost of such stock on the first-in, first-out
basis.
D ERIVATIVE I NSTRUMENTS AND H EDGING A CTIVITIES
We use a variety of financial derivatives as part of our overall
asset and liability risk management process to help manage
interest rate, market and credit risk inherent in our business
activities. Interest rate and total return swaps, interest rate caps
and floors and futures contracts are the primary instruments
we use for interest rate risk management.
Financial derivatives involve, to varying degrees, interest rate,
market and credit risk. We manage these risks as part of our
asset and liability management process and through credit
policies and procedures. We seek to minimize counterparty
credit risk by entering into transactions with only high-quality
institutions, establishing credit limits, and generally requiring
bilateral netting and collateral agreements.
We recognize all derivative instruments at fair value as either
other assets or other liabilities on the Consolidated Balance
Sheet. The accounting for changes in the fair value of a
derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship. For
derivatives not designated as an accounting hedge, the gain or
loss is recognized in noninterest income.
For those derivative instruments that are designated and
qualify as accounting hedges, we must designate the hedging
instrument, based on the exposure being hedged, as a fair
value hedge or a cash flow hedge. We have no derivatives that
hedge the net investment in a foreign operation.
We formally document the relationship between the hedging
instruments and hedged items, as well as the risk management
objective and strategy, before undertaking an accounting
hedge. To qualify for hedge accounting, the derivatives and
related hedged items must be designated as a hedge at
inception of the hedge relationship. For accounting hedge
relationships, we formally assess, both at the inception of the
hedge and on an ongoing basis, if the derivatives are highly
effective in offsetting designated changes in the fair value or
cash flows of the hedged item. If it is determined that the
derivative instrument is not highly effective, hedge accounting
is discontinued.
For derivatives that are designated as fair value hedges (i.e.,
hedging the exposure to changes in the fair value of an asset
or a liability attributable to a particular risk), changes in the
fair value of the hedging instrument are recognized in earnings
and offset by recognizing changes in the fair value of the
hedged item attributable to the hedged risk. To the extent the
changes in fair value of the derivative does not offset the
change in fair value of the hedged item, the difference or
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