PNC Bank 2002 Annual Report Download - page 108

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Pursuant to their bylaws, the Corporation and its
subsidiaries provide indemnification to directors, officers and,
in some cases, employees and agents against certain liabilities
incurred as a result of their service on behalf of or at the
request of the Corporation and its subsidiaries and also
advance on behalf of covered individuals costs incurred in
defending against certain claims, subject to written
undertakings by each such individual to repay all amounts so
advanced if it is ultimately determined that the individual is
not entitled to indemnification. The Corporation advanced
such defense costs on behalf of several such individuals during
2002 with respect to pending litigation or investigations. It is
not possible to determine the aggregate potential exposure
resulting from the obligation to provide this indemnity or to
advance such costs.
In connection with the lending of securities held by its
mutual fund processing services business on behalf of certain
of its customers, PNC provides indemnification to those
customers against the failure of the borrower to return the
securities. Each borrower’s obligation to return the securities
is fully secured on a daily basis, and thus the exposure to the
Corporation is limited to temporary shortfalls in the collateral
as a result of short-term fluctuations in trading prices of the
borrowed securities. At December 31, 2002, the aggregate
maximum potential exposure as a result of these indemnity
obligations was $6.0 billion, although PNC held cash collateral
at the time in excess of that amount.
Contingent Payments in Connection with Certain
Acquisitions
A number of the acquisition agreements to which PNC is a
party and under which it has purchased various types of assets,
including the purchase of entire businesses, partial interests in
companies, or other types of assets, require PNC to make
additional payments in future years if certain predetermined
goals, such as revenue targets, are achieved or if other
contingencies, such as specified declines in the value of the
consideration paid, occur within a specified time. As certain of
these provisions do not specify dollar limitations, it is not
possible to quantify the aggregate exposure to PNC resulting
from these agreements.
NBOC Acquisition Put Option
See Note 2 NBOC Acquisition for a description of the Put
Option, which represents NBOC’s right to transfer the then
remaining Serviced Portfolio, as defined, to PNC at the end
of the loan servicing term. At December 31, 2002, the Put
Option liability was approximately $57 million. Based upon a
third party valuation, the estimated purchase price of the
discontinued loan portfolio at the Put Option exercise date is
$175 million. While there is no recourse to third parties for
amounts that may be paid under this arrangement, the
amount paid under the Put Option is supported by a
portfolio of loans which in turn are supported by specific
collateral. The loans would be liquidated in due course to
recover some or all of the amounts that may ultimately be
paid in connection with this Put Option.
NOTE 30 UNUSED LINE OF CREDIT
At December 31, 2002, the Corporation’s parent company
maintained a line of credit in the amount of $460 million, none
of which was drawn. This line is available for general
corporate purposes and expires in 2003.
NOTE 31 PARENT COMPANY
Summarized financial information of the parent company is as
follows:
Statement Of Income
Year ended December 31 - in millions 2002 2001 2000
OPERATING REVENUE
Dividends from:
Bank subsidiaries $525 $1
,
116 $690
Nonbank subsidiaries 71 60 55
Interest income 369
Noninterest income 121
Total operating revenue 600 1,184 755
OPERATING EXPENSE
Interest expense 50 50 54
Other expense 77 6(6)
Total operating expense 127 56 48
Income before income taxes and
equity in undistributed net income
of subsidiaries 473 1,128 707
Income tax benefits (52) (17) (21)
Income before equity in
undistributed net income of
subsidiaries 525 1,145 728
Bank subsidiaries 631 (531) 386
Nonbank subsidiaries 28 (237) 165
Net income $1,184 $377 $1,279
Balance Sheet
December 31 - in millions 2002 2001
ASSETS
Cash and due from banks $1 $1
Securities available for sale 192 94
Investments in:
Bank subsidiaries 6,285 5,324
Nonbank subsidiaries 1,696 1,555
Other assets 160 152
T
otal assets $8,334 $7,126
LIABILITIES
Nonbank affiliate borrowings $1,256 $1,086
Accrued expenses and other liabilities 219 217
T
otal liabilities 1,475 1,303
SHAREHOLDERS’ EQUITY 6,859 5,823
Total liabilities and shareholders’ equity $8,334 $7,126
Commercial paper and all other debt issued by PNC Funding
Corp., a wholly owned finance subsidiary, is fully and
unconditionally guaranteed by the parent company. In
addition, in connection with certain affiliates’ commercial
mortgage servicing operations, the parent company has
committed to maintain such affiliates’ net worth above
minimum requirements.