PNC Bank 2013 Annual Report Download - page 133

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
certain risk management activities, customer-related trading
activities, or those with embedded derivatives that otherwise
may require bifurcation 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 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
method or the cost method of accounting. We use the
equity method for general and limited partner
ownership interests and limited liability companies in
which we are considered to have significant influence
over the operations of the investee and when the net
asset value of our investment reflects our economic
interest in the underlying investment. Under the
equity method, we record our equity ownership share
of net income or loss of the investee in Noninterest
income. We use the cost method for all other
investments. Under the cost method, there is no
change to the cost basis unless there is an other-than-
temporary decline in value or dividends received are
considered a return on investment. 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
The PNC Financial Services Group, Inc. – Form 10-K 115