PNC Bank 2013 Annual Report Download - page 141

We discontinue hedge accounting when it is determined that
the derivative no longer qualifies as an effective hedge; the
derivative expires or is sold, terminated or exercised; or the
derivative is de-designated as a fair value or cash flow hedge
or, for a cash flow hedge, it is no longer probable that the
forecasted transaction will occur by the end of the originally
specified time period. If we determine that the derivative no
longer qualifies as a fair value or cash flow hedge and hedge
accounting is discontinued, the derivative will continue to be
recorded on the balance sheet at its fair value with changes in
fair value included in current earnings. For a discontinued fair
value hedge, the previously hedged item is no longer adjusted
for changes in fair value.
When hedge accounting is discontinued because it is no longer
probable that a forecasted transaction will occur, the
derivative will continue to be recorded on the balance sheet at
its fair value with changes in fair value included in current
earnings, and the gains and losses in Accumulated other
comprehensive income (loss) will be recognized immediately
into earnings. When we discontinue hedge accounting because
the hedging instrument is sold, terminated or no longer
designated, the amount reported in Accumulated other
comprehensive income (loss) up to the date of sale,
termination or de-designation continues to be reported in
Other comprehensive income or loss until the forecasted
transaction affects earnings. We did not terminate any cash
flow hedges in 2013, 2012 or 2011 due to a determination that
a forecasted transaction was no longer probable of occurring.
We purchase or originate financial instruments that contain an
embedded derivative. At the inception of the transaction, we
assess if the economic characteristics of the embedded
derivative are clearly and closely related to the economic
characteristics of the host contract, whether the hybrid
financial instrument is measured at fair value with changes in
fair value reported in earnings, and whether a separate
instrument with the same terms as the embedded derivative
would be a derivative. If the embedded derivative does not
meet all of these conditions, the embedded derivative is
recorded separately from the host contract with changes in fair
value recorded in earnings, unless we elect to account for the
hybrid instrument at fair value.
We have elected on an instrument-by-instrument basis, fair
value measurement for certain financial instruments with
embedded derivatives.
We enter into commitments to originate residential and
commercial mortgage loans for sale. We also enter into
commitments to purchase or sell commercial and residential
real estate loans. These commitments are accounted for as
free-standing derivatives which are recorded at fair value in
Other assets or Other liabilities on the Consolidated Balance
Sheet. Any gain or loss from the change in fair value after the
inception of the commitment is recognized in Noninterest
income.
I NCOME T AXES
We account for income taxes under the asset and liability
method. Deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax
bases of assets and liabilities and are measured using the
enacted tax rates and laws that we expect will apply at the
time when we believe the differences will reverse. The
recognition of deferred tax assets requires an assessment to
determine the realization of such assets. Realization refers to
the incremental benefit achieved through the reduction in
future taxes payable or refunds receivable from the deferred
tax assets, assuming that the underlying deductible differences
and carryforwards are the last items to enter into the
determination of future taxable income. We establish a
valuation allowance for tax assets when it is more likely than
not that they will not be realized, based upon all available
positive and negative evidence.
E
ARNINGS P ER C OMMON S HARE
Basic earnings per common share is calculated using the two-
class method to determine income attributable to common
shareholders. Unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend
equivalents are considered participating securities under the
two-class method. Income attributable to common
shareholders is then divided by the weighted-average common
shares outstanding for the period.
Diluted earnings per common share is calculated under the
more dilutive of either the treasury method or the two-class
method. For the diluted calculation, we increase the weighted-
average number of shares of common stock outstanding by the
assumed conversion of outstanding convertible preferred stock
from the beginning of the year or date of issuance, if later, and
the number of shares of common stock that would be issued
assuming the exercise of stock options and warrants and the
issuance of incentive shares using the treasury stock method.
These adjustments to the weighted-average number of shares
of common stock outstanding are made only when such
adjustments will dilute earnings per common share. See
Note 18 Earnings Per Share for additional information.
R ECENT A CCOUNTING P RONOUNCEMENTS
In July 2013, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) 2013-10,
Derivatives and Hedging (Topic 815): Inclusion of the Fed
Funds Effective Swap Rate (or Overnight Index Swap Rate) as
a Benchmark Interest Rate for Hedge Accounting Purposes.
This ASU amends Topic 815 to include the Fed Funds
effective swap rate (OIS) as a U.S. benchmark interest rate for
hedge accounting purposes. The amendments also remove the
restriction on using different benchmark interest rates for
similar hedges. ASU 2013-10 became effective on July 17,
2013 and applies to new hedge relationships established on or
after that date. This did not have a material effect on our
results of operations or financial position.
The PNC Financial Services Group, Inc. – Form 10-K 123