PNC Bank 2002 Annual Report Download - page 91

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89
NOTE 12 ALLOWANCES FOR CREDIT LOSSES
AND UNFUNDED LOAN COMMITMENTS AND
LETTERS OF CREDIT
Changes in the allowance for credit losses were as follows:
In millions 2002 2001 2000
January 1 $560 $598 $600
Charge-offs (267) (985) (186)
Recoveries 44 37 51
Net charge-offs (223) (948) (135)
Provision for credit losses 309 903 136
Acquired allowance
(NBOC acquisition) 41
Net change in allowance for
unfunded loan commitments
and letters of credit (14) 7(3)
December 31 $673 $560 $598
Changes in the allowance for unfunded loan commitments
and letters of credit were as follows:
In millions 2002 2001 2000
Allowance at January 1 $70 $77 $74
Net change in allowance for
unfunded loan commitments
and letters of credit 14 (7) 3
December 31 $84 $70 $77
Impaired loans totaling $234 million and $192 million at
December 31, 2002 and 2001, respectively, had a
corresponding specific allowance for credit losses of $80
million and $28 million. The average balance of impaired loans
was $242 million in 2002, $319 million in 2001 and $277
million in 2000. There was no interest income recognized on
impaired loans in 2002, 2001 or 2000.
NOTE 13 PREMISES, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements, stated at
cost less accumulated depreciation and amortization, were as
follows:
December 31 - in millions 2002 2001
Land $88 $87
Buildings 452 448
Equipment 1,542 1,413
Leasehold improvements 398 321
T
otal 2,480 2,269
Accumulated depreciation and
amortization (1,238) (1,141)
Net book value $1,242 $1,128
Depreciation and amortization expense on premises,
equipment and leasehold improvements totaled $183 million
in 2002, $168 million in 2001 and $149 million in 2000.
Certain facilities and equipment are leased under
agreements expiring at various dates through the year 2071.
Substantially all such leases are accounted for as operating
leases. Rental expense on such leases amounted to $180
million in 2002, $165 million in 2001 and $148 million in 2000.
At December 31, 2002 and 2001, required minimum
annual rentals due on noncancelable leases having initial or
remaining terms in excess of one year aggregated $1.0 billion
and $908 million, respectively. Minimum annual rentals for
each of the years 2003 through 2007 are $154 million, $137
million, $126 million, $106 million and $93 million,
respectively.
In the fourth quarter of 2001, management of PFPC
initiated a plan to consolidate certain facilities as a follow-up
to the integration of the Investor Services Group acquisition.
In connection with this initiative and other strategic actions,
pretax charges to noninterest expense of $36 million were
recognized in the fourth quarter of 2001. During 2002, these
reserves were reduced by $19 million as the facilities strategy
has been modified and certain originally contemplated
relocations will not occur.
NOTE 14 GOODWILL AND OTHER
INTANGIBLE ASSETS
Effective January 1, 2002, the Corporation implemented SFAS
No. 142 which changed the accounting for goodwill from the
amortization of goodwill to an impairment-only approach. The
amortization of goodwill, including goodwill recognized relating
to past business combinations, ceased upon adoption of the new
standard. Impairment testing for goodwill at a reporting unit
level will be required on at least an annual basis.
In accordance with SFAS No. 142, the Corporation identified
its reporting unit structure for goodwill impairment testing
purposes as of January 1, 2002. Management performed the first
step of the transitional goodwill impairment test on its reporting
units during the first quarter of 2002. During the fourth quarter
of 2002, the Corporation performed the first step of its annual
goodwill impairment test on its reporting units, using data as of
September 30, 2002. Barring any adverse triggering events in the
interim, the Corporation will perform its annual test during the
fourth quarter of each year. The results of these tests during
2002 indicated no impairment loss as the fair value of the
reporting units exceeded the carrying amount of the net assets
(including goodwill) in all cases. Fair value was determined by
using discounted cash flow and market comparability
methodologies. As a result of adopting this statement, the
Corporation reassessed the useful lives and the classification of
identifiable intangible assets and determined that they continue
to be appropriate.