PNC Bank 2009 Annual Report Download - page 99

temporary on securities classified as available for
sale are recognized in current period earnings.
• For investments in limited partnerships, limited
liability companies and other investments that are not
required to be consolidated, we use either the cost
method or the equity method of accounting. We use
the cost method for investments in which we are not
considered to have influence over the operations of
the investee and when cost appropriately reflects our
economic interest in the underlying investment.
Under the cost method, there is no change to the cost
basis unless there is an other-than-temporary decline
in value. If the decline is determined to be other-than-
temporary, we write down the cost basis of the
investment to a new cost basis that represents
realizable value. The amount of the write-down is
accounted for as a loss included in other noninterest
income. Distributions received from the income of an
investee on cost method investments are included in
interest income or noninterest income depending on
the type of investment. We use the equity method for
all other general and limited partner ownership
interests and limited liability company investments.
Under the equity method, we record our equity
ownership share of net income or loss of the investee
in noninterest income. Investments described above
are included in the caption Equity investments on the
Consolidated Balance Sheet.
Private Equity Investments
We report private equity investments, which include direct
investments in companies, affiliated partnership interests and
indirect investments in private equity funds, at estimated fair
value. 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. Fair value of publicly traded direct investments are
determined using quoted market prices and are subject to
various discount factors for legal or contractual sales
restrictions, when appropriate. The valuation procedures applied
to direct investments in private companies include techniques
such as multiples of adjusted earnings of the entity, independent
appraisals, anticipated financing and sale transactions with third
parties, 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.
In September 2009, the FASB issued ASU 2009-12—Fair
Value Measurements and Disclosures (Topic 820)—
Investments in Certain Entities That Calculate Net Asset Value
per Share (or Its Equivalent). Based on the guidance, we value
indirect investments in private equity funds based on net asset
value as provided in the financial statements that we receive
from their managers. Due to the time lag in our receipt of the
financial information and based on a review of investments and
valuation techniques applied, adjustments to the manager-
provided value are made when available recent portfolio
company information or market information indicates a
significant change in value from that provided by the manager
of the fund. We include all private equity investments on the
Consolidated Balance Sheet in the caption Equity investments.
Changes in the fair value of private equity investments are
recognized in noninterest income.
We consolidate private equity investments when we are the
general partner in a limited partnership and have determined
that we have control of the partnership. The portion we do not
own is reflected in the caption Noncontrolling interests on the
Consolidated Balance Sheet.
L
OANS
Loans are classified as held for investment when management
has both the intent and ability to hold the loan for the
foreseeable future, or until maturity or payoff. Management’s
intent and view of the foreseeable future may change based on
changes in business strategies, the economic environment,
market conditions and the availability of government
programs.
Except as described below, loans held for investment are
stated at the principal amounts outstanding, net of unearned
income, unamortized deferred fees and costs on originated
loans, and premiums or discounts on purchased loans. Interest
on performing loans is accrued based on the principal amount
outstanding and recorded in interest income as earned using
the constant effective yield method. Loan origination fees,
direct loan origination costs, and loan premiums and discounts
are deferred and accreted or amortized into net interest
income, over periods not exceeding the contractual life of the
loan.
When loans are redesignated from held for investment to held
for sale, specific reserves and allocated pooled reserves
included in the allowance for loan and lease losses are
charged-off to reduce the basis of the loans to lower of cost or
market value.
In addition to originating loans, we also acquire loans through
portfolio purchases or acquisitions of other financial services
companies. For certain acquired loans that have experienced a
deterioration of credit quality, we follow the guidance
contained in FASB ASC Receivables (Topic 310) – Loans and
Debt Securities Acquired with Deteriorated Credit Quality.
Under this guidance, acquired loans are to be recorded at fair
value absent the carryover of any existing valuation
allowances. Evidence of credit quality deterioration may
include information and statistics such as bankruptcy events,
FICO scores, past due status, current borrower credit scores,
and current loan-to-value. We review the loans acquired for
evidence of credit quality deterioration and determine if it is
probable that we will be unable to collect all contractual
amounts due, including both principal and interest. When both
conditions exist, we estimate the amount and timing of
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