PNC Bank 2012 Annual Report Download - page 146

value option. These financial instruments include certain
commercial and residential mortgage loans originated for sale,
certain residential mortgage portfolio loans, resale agreements
and our investment in BlackRock Series C preferred stock. We
also recognize gain/(loss) on changes in the fair value of
residential mortgage servicing rights (MSRs), which are
measured at fair value.
We recognize revenue from servicing residential mortgages,
commercial mortgages and other consumer loans as earned
based on the specific contractual terms. These revenues, as
well as impairment on servicing rights, are reported on the
Consolidated Income Statement in the line items Residential
mortgage, Corporate services and Consumer services. We
recognize revenue from securities, derivatives and foreign
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.
D EBT S ECURITIES
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 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 at least a quarterly basis, we review all debt securities that
are in an unrealized loss position for other than temporary
impairment (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 included in Accumulated other comprehensive income
(loss) at the time of transfer is amortized over the remaining
life of the security as a yield adjustment such that only the
remaining initial discount/premium from the purchase date is
recognized in income.
E QUITY S ECURITIES AND P ARTNERSHIP I NTERESTS
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
on our Consolidated Balance Sheet. Both realized
and unrealized gains and losses on trading securities
The PNC Financial Services Group, Inc. – Form 10-K 127