PNC Bank 2012 Annual Report Download - page 144

N OTES T O C ONSOLIDATED F INANCIAL S TATEMENTS
T HE PNC F INANCIAL S ERVICES G ROUP ,I NC .
B USINESS
PNC is one of the largest diversified financial services
companies in the United States and is headquartered in
Pittsburgh, Pennsylvania.
PNC has businesses engaged in retail banking, corporate and
institutional banking, asset management, and residential
mortgage banking, providing many of its products and
services nationally, as well as, products and services in PNC’s
primary geographic markets located in Pennsylvania, Ohio,
New Jersey, Michigan, Illinois, Maryland, Indiana, North
Carolina, Florida, Kentucky, Washington, D.C., Delaware,
Alabama, Virginia, Georgia, Missouri, Wisconsin and South
Carolina. PNC also provides certain products and services
internationally.
N OTE 1A CCOUNTING P OLICIES
B ASIS O F F INANCIAL S TATEMENT P RESENTATION
Our consolidated financial statements include the accounts of
the parent company and its subsidiaries, most of which are
wholly owned, and certain partnership interests and variable
interest entities.
We prepared these consolidated financial statements in
accordance with accounting principles generally accepted in
the United States of America (GAAP). We have eliminated
intercompany accounts and transactions. We have also
reclassified certain prior year amounts to conform to the 2012
presentation. These reclassifications did not have a material
impact on our consolidated financial condition or results of
operations. We evaluate the materiality of identified errors in
the financial statements using both an income statement and a
balance sheet approach, based on relevant quantitative and
qualitative factors. Net income includes certain adjustments to
correct immaterial errors related to previously reported
periods.
As described in Note 2 Acquisition and Divestiture Activity,
on March 2, 2012, PNC acquired 100% of the issued and
outstanding common stock of RBC Bank (USA), the US retail
banking subsidiary of Royal Bank of Canada. As part of the
acquisition, PNC also purchased a credit card portfolio from
RBC Bank (Georgia), National Association. The transactions
added approximately $18.1 billion of deposits and $14.5
billion of loans to PNC’s Consolidated Balance Sheet. In
addition, see discussion of the July 1, 2010 sale of PNC
Global Investment Servicing Inc. The Consolidated Income
Statement and related Notes To Consolidated Financial
Statements reflect the global investment servicing business as
discontinued operations for 2010.
We have considered the impact on these consolidated
financial statements of subsequent events.
U SE O F E STIMATES
We prepared these consolidated financial statements using
financial information available at the time, which requires us
to make estimates and assumptions that affect the amounts
reported. Our most significant estimates pertain to our fair
value measurements, allowances for loan and lease losses and
unfunded loan commitments and letters of credit, and
accretion on purchased impaired loans. Actual results may
differ from the estimates and the differences may be material
to the consolidated financial statements.
I NVESTMENT I N B LACK R OCK ,I NC .
We account for our investment in the common stock and
Series B Preferred Stock of BlackRock (deemed to be in-
substance common stock) under the equity method of
accounting. In May 2012, we exchanged 2 million shares of
Series B Preferred Stock of BlackRock for an equal number of
shares of BlackRock common stock. The exchange transaction
had no impact on the carrying value of our investment in
BlackRock or our use of the equity method of accounting. The
investment in BlackRock is reflected on our Consolidated
Balance Sheet in Equity investments, while our equity in
earnings of BlackRock is reported on our Consolidated
Income Statement in Asset management revenue.
As described in Note 16 Stock Based Compensation Plans, we
also hold shares of BlackRock Series C Preferred Stock
pursuant to our obligation to partially fund a portion of certain
BlackRock long-term incentive plan (LTIP) programs. Since
these preferred shares are not deemed to be in substance
common stock, we have elected to account for these preferred
shares at fair value and the changes in fair value will offset the
impact of marking-to-market the obligation to deliver these
shares to BlackRock. Our investment in the BlackRock Series
C Preferred Stock is included on our Consolidated Balance
Sheet in Other assets. Our obligation to transfer these shares to
BlackRock is classified as a derivative not designated as a
hedging instrument under GAAP as disclosed in Note 17
Financial Derivatives.
In September 2011, we delivered approximately 1.3 million
shares of the BlackRock Series C Preferred Stock to
BlackRock in connection with our obligation.
On January 31, 2013, we transferred an additional 205,350
shares to BlackRock in connection with our obligation. After
this transfer, we hold approximately 1.3 million shares of
BlackRock Series C Preferred Stock which are available to
fund our obligation in connection with the BlackRock LTIP
programs.
The PNC Financial Services Group, Inc. – Form 10-K 125