PNC Bank 2011 Annual Report Download - page 119

exchange trading, as well as securities underwriting activities,
as these transactions occur or as services are provided. We
recognize gains from the sale of loans upon receipt of cash.
When appropriate, revenue is reported net of associated
expenses in accordance with GAAP.
C ASH A ND C ASH E QUIVALENTS
Cash and due from banks are considered “cash and cash
equivalents” for financial reporting purposes.
I NVESTMENTS
We hold 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.
Debt Securities
Debt securities are recorded on a trade-date basis. We classify
debt securities as held to maturity and carry them at amortized
cost if we have the positive intent and ability to hold the
securities to maturity. Debt securities that we purchase for
short-term appreciation, trading purposes or those with
non-bifurcated embedded derivatives are carried at fair value
and classified as trading securities and other assets on our
Consolidated Balance Sheet. Realized and unrealized gains
and losses on trading securities are included in Other
noninterest income.
Debt securities not classified as held to maturity or trading are
designated as securities available for sale and carried at fair
value with unrealized gains and losses, net of income taxes,
reflected in Accumulated other comprehensive income (loss).
On January 1, 2009, we adopted new guidance impacting the
recognition and disclosure of other-than-temporary
impairments (OTTI). On at least a quarterly basis, we review
all debt securities that are in an unrealized loss position for
OTTI. An investment security is deemed impaired if the fair
value of the investment is less than its amortized cost.
Amortized cost includes adjustments (if any) made to the cost
basis of an investment for accretion, amortization, previous
other-than-temporary impairments and hedging gains and
losses. After an investment security is determined to be
impaired, we evaluate whether the decline in value is other-
than-temporary. As part of this evaluation, we take into
consideration whether we intend to sell the security or whether
it is more likely than not that we will be required to sell the
security before expected recovery of its amortized cost. We
also consider whether or not we expect to receive all of the
contractual cash flows from the investment based on factors
that include, but are not limited to: the creditworthiness of the
issuer and, in the case of securities collateralized by consumer
and commercial loan assets, the historical and projected
performance of the underlying collateral. In addition, we may
also evaluate the business and financial outlook of the issuer,
as well as broader industry and sector performance indicators.
Declines in the fair value of available for sale debt securities
that are deemed other-than-temporary and are attributable to
credit deterioration are recognized on our Consolidated
Income Statement in the period in which the determination is
made. Declines in fair value which are deemed other-than-
temporary and attributable to factors other than credit
deterioration are recognized in Accumulated other
comprehensive income (loss) on our Consolidated Balance
Sheet.
We include all interest on debt securities, including
amortization of premiums and accretion of discounts on
investment securities in net interest income using the constant
effective yield method. Effective yields reflect either the
effective interest rate implicit in the security at the date of
acquisition or the effective interest rate determined based on
significantly improved cash flows subsequent to impairment.
We compute gains and losses realized on the sale of available
for sale debt securities on a specific security basis. These
securities gains/(losses) are included in the caption Net gains
on sales of securities on the Consolidated Income Statement.
In certain situations, management may elect to transfer certain
debt securities from the securities available for sale to the held
to maturity classification. In such cases, any unrealized gain or
loss at the date of transfer included in Accumulated other
comprehensive income (loss) is amortized over the remaining
life of the security as a yield adjustment. This amortization
offsets the effect on interest income of the amortization of the
premium or accretion of the discount on the security.
Equity Securities and Partnership Interests
We account for equity securities and 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 based on the
securities’ quoted market prices from a national
securities exchange. Those purchased with the
intention of recognizing short-term profits are
classified as trading and included in trading securities
and other assets on our Consolidated Balance Sheet.
Both realized and unrealized gains and losses on
trading securities are included in Noninterest income.
Marketable equity securities not classified as trading
are designated as securities available for sale with
unrealized gains and losses, net of income taxes,
reflected in Accumulated other comprehensive
income (loss). Any unrealized losses that we have
determined to be other-than-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 equity
110 The PNC Financial Services Group, Inc. – Form 10-K