PNC Bank 2002 Annual Report Download - page 42

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40
CONSOLIDATED BALANCE SHEET
REVIEW
2001 STRATEGIC REPOSITIONING
PNC took several actions in 2001 to accelerate the strategic
repositioning of its lending businesses that began in 1998. A
total of $12.0 billion of credit exposure, including $6.2 billion
of outstandings, were designated for exit or transferred to held
for sale during 2001, of which $10.1 billion and $4.3 billion,
respectively, related to the institutional lending portfolio. The
remaining $1.9 billion of credit exposure and outstandings
related to PNC’s vehicle leasing business that is being
discontinued.
At December 31, 2002, PNC’s vehicle leasing business had
$1.4 billion in assets that have been designated for exit
comprised of vehicle leases with an aggregate residual value of
$1.0 billion and $.4 billion of estimated future customer lease
payments. As of December 31, 2002 there were approximately
64,800 active vehicle leases scheduled to mature over the next
five years as follows: 22,900, 22,500, 13,000, 6,400, and less
than 100 in years 2003, 2004, 2005, 2006 and 2007,
respectively. The associated residual values are as follows:
$400 million, $370 million, $180 million, $70 million and less
than $.5 million, respectively. See 2001 Strategic Repositioning
and Critical Accounting Policies And Judgments in the Risk
Factors section of this Financial Review for additional
information regarding certain risks associated with executing
these strategies.
Details of the credit exposure and outstandings by business
in the institutional lending held for sale and exit portfolios are
included in the Wholesale Banking sections of the Review of
Businesses within this Financial Review. A rollforward of the
institutional lending held for sale portfolio follows:
Rollforward Of Institutional Lending Held For Sale
Portfolio
In millions Credit Exposure Outstandings
January 1, 2002 $4,958 $2,568
Additions 119 249
Sales (2,205) (1,278)
Payments and other exposure
reductions (1,996) (1,046)
Valuation adjustments, net (250) (195)
December 31, 2002 $626 $298
The liquidation of institutional loans held for sale resulted in
net gains in excess of valuation adjustments of $147 million in
2002. Gains realized in 2002 resulted from a more active
market than was anticipated at the time the loans were
transferred to held for sale, the negotiation of individual loan
sales rather than bulk transactions, and sales occurring faster
than expected. Additionally, declines in credit exposure
resulting from payments, refinancings and reductions in credit
facilities also contributed to the gains in 2002. These gains
were partially offset by additional valuation adjustments
required on certain credit facilities remaining in the portfolio.
Details by Wholesale Banking business follow.
Institutional Lending Held for Sale Activity
Year ended
December 31, 2002 Net gains on Valuation
In millions liquidation adjustments Total
Corporate Banking $368 $(213) $155
PNC Real Estate Finance 20 (17) 3
PNC Business Credit 9 (20) (11)
Total $397 $(250) $147
In addition to the actions taken regarding the institutional
lending held for sale and exit portfolios, the Corporation also
recorded charges in 2001 totaling $208 million in connection
with other actions and additions to reserves. Reserves related
to these actions totaled $133 million at December 31, 2002.
The following table summarizes the changes to these reserves
for 2002:
Rollforward Of Other Reserves Related To Fourth
Quarter 2001 Actions
In millions
2001
Charge
Utilized
in 2001
Utilized
in 2002
At
Dec. 31, 2002
Vehicle leasing $135 $(11) $(5) $119
Asset impairment
and severance costs 37 (24) (13)
Facilities consolidation
and other charges 36 (22) 14
Total $208 $(35) $(40) $133
The fourth quarter 2001 charge of $135 million in connection
with the vehicle leasing business included exit costs and
additions to reserves related to insured residual value
exposures. At December 31, 2002, the related liability had
been reduced to $119 million as a result of goodwill
impairment of $11 million recorded in the fourth quarter of
2001 and a net $5 million reduction related to severance and
contractual payments recorded in 2002 in connection with
PNC’s exit of this business.
The liability for asset impairment and severance costs was
eliminated in 2002 as a result of asset write-downs and
severance benefits paid totaling $24 million in the fourth
quarter of 2001 and $13 million of severance benefits paid in
2002.
In the fourth quarter of 2001, PFPC incurred $36 million
of pretax charges primarily related to a plan to consolidate
certain facilities. The charges primarily reflected costs related
to exiting certain lease agreements and the abandonment of
related leasehold improvements. During the third quarter of
2002, the Corporation recognized a $19 million reduction of
these charges as the facilities strategy has been modified and
certain originally contemplated relocations will not occur.