PNC Bank 2001 Annual Report Download - page 35

33
CORPORATE BANKING
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2001 2000
INCOME STATEMENT
Credit-related revenue $408 $411
Noncredit revenue 356 433
T
otal revenue 764 844
Provision for credit losses 57 79
Noninterest expense 381 394
Institutional lending repositioning 891
Asset impairment and severance costs 16
Pretax (loss) earnin
g
s(581) 371
Income tax (benefit) expense (206) 130
(Net loss) earnings $(375) $241
AVERAGE BALANCE
S
HEET
Loans
Middle market $5,811 $6,553
Large corporate 3,103 3,193
Energy, metals and mining 1,233 1,507
Communications 1,110 1,501
Leasing 2,322 1,844
Other 328 357
Total loans 13,907 14,955
Loans held for sale 367 800
Other assets 2,411 1,991
Total assets $16,685 $17,746
De
p
osits $4,729 $4,701
Assigned funds and other liabilities 10,705 11,714
Assigned capital 1,251 1,331
Total funds $16,685 $17,746
P
ERFORMANCE
R
ATIO
S
Return on assigned capital (30)% 18%
Noncredit revenue to total revenue 64 51
Efficiency 71 46
Corporate Banking provides credit, equipment leasing,
treasury management and capital markets products and
services primarily to mid-sized corporations and government
entities within PNC’s geographic region. The strategic focus
for Corporate Banking is to adapt its institutional expertise
to the middle market with an emphasis on higher-margin
noncredit products and services, especially treasury
management and capital markets, and to improve the
risk/return characteristics of its institutional lending
business.
During 2001, Corporate Banking took actions to
accelerate the repositioning of its institutional lending
business. A total of $9.7 billion of credit exposure including
$4.0 billion of outstandings were designated for exit or sale.
Charges related to these actions were $891 million, including
$41 million of charge-offs on loans designated for exit in the
first quarter of 2001. Institutional lending credits designated
for exit or sale were primarily in the communications
portfolio, certain portions of the energy, metals and mining
and large corporate portfolios, and relationships where the
potential for future returns was considered unacceptable in
relation to risk. At December 31, 2001, the exit and held for
sale portfolios had total credit exposure of $7.2 billion
including outstandings of $2.5 billion. Of these amounts,
$4.6 billion and $2.3 billion, respectively, were classified as
held for sale, net of charges of $850 million that represented
the excess of principal balances outstanding over the lower
of cost or market values. The Corporation is pursuing
opportunities to liquidate the held for sale portfolio
expeditiously. Gains and losses may result from the
liquidation of loans held for sale to the extent actual
performance differs from estimates inherent in the recorded
amounts or market valuations change. See Strategic
Repositioning and Critical Accounting Policies and
Judgments in the Risk Factors section of this Financial
Review for additional information. Additionally, a pretax
charge of $16 million was incurred in 2001 for asset
impairment and severance costs.
Corporate Banking incurred a net loss of $375 million in
2001 compared with earnings of $241 million in 2000.
Total revenue of $764 million for 2001 decreased $80
million compared with 2000. Credit-related revenue
decreased 1% compared with 2000 as the impact of a wider
net interest margin was more than offset by a decrease in
average loans. The decrease in average loans in 2001 was
primarily due to downsizing partially offset by the expansion
of equipment leasing. Noncredit revenue includes
noninterest income and the benefit of compensating
balances received in lieu of fees. Noncredit revenue
decreased $77 million compared with 2000 primarily due to
the impact of weak capital market conditions that resulted in
lower capital markets fees and losses resulting from lower
valuations of equity investments.
Total credit costs in the 2001 consolidated provision for
credit losses were $733 million, including $57 million
reflected in the Corporate Banking provision for credit losses
and $676 million reflected in the institutional lending
repositioning charge that represented net charge-offs.
Additionally, $76 million was charged against the allowance
for credit losses. The institutional lending repositioning
charge also included $215 million of valuation adjustments
related to loans held for sale. The provision for credit losses
was $79 million in 2000. See Strategic Repositioning and
Critical Accounting Policies and Judgments in the Risk
Factors section and Credit Risk in the Risk Management
section of this Financial Review for additional information.
Treasury management and capital markets products
offered through Corporate Banking are sold by several
businesses across the Corporation and related profitability is
included in the results of those businesses. Consolidated
revenue from treasury management was $331 million for
2001 compared with $341 million for 2000. Increases in fee
revenue were more than offset by lower income earned on
customers’ deposit balances resulting from the lower interest
rate environment in 2001 and the impact of downsizing
institutional lending. Consolidated revenue from capital
markets was $123 million for 2001, a $10 million decrease
compared with 2000 due to weak capital market conditions
and the impact of changing customer relationships due to
downsizing certain lending portfolios.