PNC Bank 2001 Annual Report Download - page 88

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NOTE 23 INCOME TAXES
The components of income taxes were as follows:
Year ended December 31
In millions 2001 2000 1999
Current
Federa
l
$195 $226 $454
State 40 32 35
T
otal curren
t
235 258 489
Deferred
Federa
l
(
51
)
363 102
State 313
(
5
)
Total deferred (48) 376 97
Total $187 $634 $586
Significant components of deferred tax assets and liabilities
are as follows:
December 31 - in millions 2001 2000
Deferred tax assets
Allowance for credit losses $225 $250
Compensation and benefits 31 85
Net unrealized securities losses 75 19
Loan valuations related to
institutional lending repositioning 330
Other 163 104
T
otal deferred tax assets 824 458
D
eferred tax liabilities
Leasing 1,182 824
Depreciation 53 37
Other 89 102
T
otal deferred tax liabilities 1
,
324 963
Net deferred tax liability $500 $505
A reconciliation between the statutory and effective tax
rates follows:
Year ended December 31 2001 2000 1999
Statutory tax rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from
State taxes 4.9 1.6 1.1
Tax-exempt interest (1.8) (.6) (.7)
Goodwill 3.0 .9 .9
Life insurance (3.5) (1.0) (1.0)
Tax credits (7.6) (1.8) (1.4)
Other 3.2 .2 (1.1)
Effective tax rate 33.2% 34.3% 32.8%
NOTE 24 LEGAL PROCEEDINGS
Several putative class action complaints have been filed
against the Corporation, certain present and former
officers or directors and its independent auditors for 2001
alleging violations of federal securities laws relating to
disclosures and seeking unquantified damages on behalf of
purchasers of the Corporation’s common stock during
specified periods. Management believes there are
substantial defenses to the lawsuits and intends to defend
them vigorously. The impact of the final disposition of
these lawsuits cannot be assessed at this time.
In January 2001, PNC sold its residential mortgage
banking business. Certain closing date purchase price
adjustments aggregating approximately $300 million pretax
are currently in dispute between the parties. The
Corporation has established a receivable of approximately
$140 million to reflect additional purchase price it believes
is due from the buyer. The buyer has taken the position
that the purchase price it has already paid should be
reduced by approximately $160 million. The Corporation
has established specific reserves related to a portion of its
recorded receivable. The purchase agreement requires that
an independent public accounting firm determine the final
adjustments. The buyer also has filed a lawsuit against the
Corporation seeking compensatory damages with respect
to certain of the disputed matters that the Corporation
believes are covered by the process provided in the
purchase agreement, unquantified punitive damages and
declaratory and other relief. Management intends to assert
the Corporation’s positions vigorously. Management
believes that, net of available reserves, an adverse outcome,
expected to be recorded in discontinued operations, could
be material to net income in the period in which recorded,
but that the final disposition of this matter will not be
material to the Corporation’s financial position.
The Corporation, in the normal course of business, is
subject to various other pending and threatened lawsuits in
which claims for monetary damages are asserted.
Management does not anticipate that the ultimate aggregate
liability, if any, arising out of such other lawsuits will have a
material adverse effect on the Corporation’s financial
position.
At the present time, management is not in a position to
determine whether any pending or threatened litigation will
have a material adverse effect on the Corporation’s results
of operations in any future reporting period.
The staffs of the Securities and Exchange Commission
and the Federal Reserve Board have informed PNC that
they are conducting inquiries with respect to the
transactions with subsidiaries of a third party financial
institution described in Note 3 Restatements. PNC is
cooperating with these inquiries.