PNC Bank 2014 Annual Report Download - page 131

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.
VIEs are assessed for consolidation under ASC 810 –
Consolidation when we hold a variable interest in these
entities. We consolidate a VIE if we are its primary
beneficiary. The primary beneficiary of a VIE is determined to
be the party that meets both of the following criteria: (i) has
the power to make decisions that most significantly affect the
economic performance of the VIE; and (ii) has the obligation
to absorb losses or the right to receive benefits that in either
case could potentially be significant to the VIE. Upon
consolidation of a VIE, we recognize all of the VIE’s assets,
liabilities and noncontrolling interests on our Consolidated
Balance Sheet. On a quarterly basis, we determine whether
any changes occurred requiring a reassessment of whether
PNC is the primary beneficiary of an entity.
In applying this guidance, we consolidate a credit card
securitization trust, a non-agency securitization trust, and
certain tax credit investments and other arrangements. See
Note 2 Loan Sale and Servicing Activities and Variable
Interest Entities for information about VIEs that we
consolidate as well as those that we do not consolidate but in
which we hold a significant variable interest.
Revenue Recognition
We earn interest and noninterest income from various sources,
including:
• Lending,
• Securities portfolio,
• Asset management,
• Customer deposits,
• Loan sales and servicing,
• Brokerage services,
• Sale of loans and securities,
• Certain private equity activities, and
• Securities, derivatives and foreign exchange
activities.
We earn fees and commissions from:
• Issuing loan commitments, standby letters of credit
and financial guarantees,
• Selling various insurance products,
• Providing treasury management services,
• Providing merger and acquisition advisory and
related services, and
• Participating in certain capital markets transactions.
Revenue earned on interest-earning assets, including unearned
income and the amortization/accretion of premiums or
discounts recognized on acquired loans and debt securities, is
recognized based on the constant effective yield of the
financial instrument or based on other applicable accounting
guidance.
The Consolidated Income Statement caption Asset
management includes asset management fees, which are
generally based on a percentage of the fair value of the assets
under management. Additionally, Asset management
noninterest income includes our share of the earnings of
BlackRock recognized under the equity method of accounting.
Service charges on deposit accounts are recognized when
earned. Brokerage fees and gains and losses on the sale of
securities and certain derivatives are recognized on a trade-
date basis.
We record private equity income or loss based on changes in
the valuation of the underlying investments or when we
dispose of our interest.
We recognize gain/(loss) on changes in the fair value of
certain financial instruments where we have elected the fair
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) and commercial
mortgage servicing rights.
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 changes in fair value and impairment on servicing
rights prior to 2014, 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 customer-related
trading, as well as securities underwriting activities, as these
transactions occur or as services are provided. We generally
recognize gains from the sale of loans upon receipt of cash.
Mortgage revenue recognized is reported net of mortgage
repurchase reserves.
When appropriate, revenue is reported net of associated
expenses in accordance with GAAP.
Cash And Cash Equivalents
Cash and due from banks are considered “cash and cash
equivalents” for financial reporting purposes.
The PNC Financial Services Group, Inc. – Form 10-K 113