PNC Bank 2006 Annual Report Download - page 125

directors and sometimes employees and agents at the time of
acquisition. We advanced such costs on behalf of several such
individuals (including some from Riggs) with respect to
pending litigation or investigations during 2006. It is not
possible for us 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 PFPC as an
intermediary on behalf of certain of its clients, we provide
indemnification to those clients against the failure of the
borrowers to return the securities. The market value of the
securities lent is fully secured on a daily basis; therefore, the
exposure to us is limited to temporary shortfalls in the collateral
as a result of short-term fluctuations in trading prices of the
loaned securities. At December 31, 2006, the total maximum
potential exposure as a result of these indemnity obligations
was approximately $13.0 billion, although we held collateral at
the time in excess of that amount.
O THER G UARANTEES
We write caps and floors for customers, risk management and
proprietary trading purposes. At December 31, 2006, the fair
value of the written caps and floors liability on our
Consolidated Balance Sheet was $53 million. Our ultimate
obligation under written options is based on future market
conditions and is only quantifiable at settlement. We manage
our market risk exposure from customer positions through
transactions with third-party dealers.
We also enter into credit default swaps under which we buy
loss protection from or sell loss protection to a counterparty
for the occurrence of a credit event of a reference entity. The
fair value of the contracts sold on our Consolidated Balance
Sheet was a net asset of $4 million at December 31, 2006. The
maximum amount we would be required to pay under the
credit default swaps in which we sold protection, assuming all
reference obligations experience a credit event at a total loss,
without recoveries, was $933 million at December 31, 2006.
We purchased $827 million notional of credit default swaps to
mitigate the exposure of certain written credit default swaps at
December 31, 2006.
We have entered into various contingent performance
guarantees through credit risk participation arrangements with
terms ranging from less than one year to 11 years. We will be
required to make payments under these guarantees if a
customer defaults on its obligation to perform under certain
credit agreements with third parties. Our exposure under these
agreements is approximately $372 million at December 31,
2006.
C ONTINGENT P AYMENTS I N C ONNECTION W ITH C ERTAIN
A CQUISITIONS
A number of the acquisition agreements to which we are a
party and under which we have purchased various types of
assets, including the purchase of entire businesses, partial
interests in companies, or other types of assets, require us to
make additional payments in future years if certain
predetermined goals are achieved or not achieved within a
specific time period. Due to the nature of the contract
provisions, we cannot quantify our total exposure that may
result from these agreements.
N OTE 25 P ARENT C OMPANY
Summarized financial information of the parent company is as
follows:
Income Statement
Year ended December 31 - in millions 2006 2005 2004
O PERATING R EVENUE
Dividends from:
Bank subsidiaries and bank holding
company $710 $717 $895
Non-bank subsidiaries 69 72 187
Interest income 16 84
Noninterest income 96
Total operating revenue 804 803 1,086
O
PERATING E XPENSE
Interest expense 93 71 42
Other expense 46 11 5
Total operating expense 139 82 47
Income before income taxes and equity
in undistributed net income of
subsidiaries 665 721 1,039
Income tax benefits (60) (24) (17)
Income before equity in
undistributed net income of
subsidiaries 725 745 1,056
Equity in undistributed net income
of subsidiaries:
Bank subsidiaries and bank
holding company 1,653 396 98
Non-bank subsidiaries 217 184 43
Net income $2,595 $1,325 $1,197
Balance Sheet
December 31 - in millions 2006 2005
A SSETS
Cash and due from banks $2 $3
Short-term investments with subsidiary
bank 3
Securities available for sale 290 293
Investments in:
Bank subsidiaries and bank holding
company 9,294 7,140
Non-bank subsidiaries 2,038 2,504
Other assets 559 237
Total assets $12,186 $10,177
L IABILITIES
Subordinated debt $1,147 $1,326
Accrued expenses and other liabilities 251 288
Total liabilities 1,398 1,614
S
HAREHOLDERS ’E QUITY 10,788 8,563
Total liabilities and shareholders’
equity $12,186 $10,177
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