PNC Bank 2013 Annual Report Download - page 131

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 other 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, Missouri, Georgia, 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 2013
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. The financial statements include certain
adjustments to correct immaterial errors related to previously
reported periods.
We have also considered the impact of subsequent events on
these consolidated financial statements.
U SE O F E STIMATES
We prepared these consolidated financial statements using
financial information available at the time of preparation,
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. 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.
We also hold shares of Series C Preferred Stock of BlackRock
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.
B USINESS C OMBINATIONS
We record the net assets of companies that we acquire at their
estimated fair value at the date of acquisition and we include
the results of operations of the acquired companies on our
Consolidated Income Statement from the date of acquisition.
We recognize, as goodwill, the excess of the acquisition price
over the estimated fair value of the net assets acquired.
S PECIAL P URPOSE E NTITIES
Special purpose entities (SPEs) are defined as legal entities
structured for a particular purpose. We use special purpose
entities in various legal forms to conduct normal business
activities. We review the structure and activities of special
purpose entities for possible consolidation under the
applicable GAAP guidance.
A variable interest entity (VIE) is a corporation, partnership,
limited liability company, or any other legal structure used to
conduct activities or hold assets that either:
• Does not have equity investors with voting rights that
can directly or indirectly make decisions about the
entity’s activities through those voting rights or
similar rights, or
• Has equity investors that do not provide sufficient
equity for the entity to finance its activities without
additional subordinated financial support.
A VIE often holds financial assets, including loans or
receivables, real estate or other property.
The PNC Financial Services Group, Inc. – Form 10-K 113