PNC Bank 2007 Annual Report Download - page 110

B LACK R OCK LTIP P ROGRAMS
BlackRock adopted the 2002 LTIP program to help attract and
retain qualified professionals. At that time, we agreed to
transfer 4 million of the shares of BlackRock common stock
then held by us to fund the 2002 and future programs
approved by BlackRock’s board of directors, subject to certain
conditions and limitations. Prior to 2006, BlackRock granted
awards under the 2002 LTIP program of approximately $233
million, of which approximately $208 million was paid on
January 30, 2007. The awards were paid 17% in cash by
BlackRock and the remainder in BlackRock common stock
transferred by us to the LTIP participants (1 million shares).
As permitted under the award agreements, employees elected
to put 95% of the stock portion of the awards back to
BlackRock. These shares were retained by BlackRock as
treasury stock.
BlackRock granted additional restricted stock unit awards in
January 2007, all of which are subject to achieving earnings
performance goals prior to the vesting date of September 29,
2011. Of the shares of BlackRock common stock that we have
agreed to transfer to fund their LTIP programs, approximately
1.6 million shares have been committed to fund the restricted
stock unit awards vesting in 2011 and the amount remaining
would then be available for future awards.
Noninterest income for 2007 and 2006 included net charges
totaling $127 million and $12 million, respectively, related to
our commitment to fund the BlackRock LTIP programs.
These net charges represent the mark-to-market of our
BlackRock LTIP obligation and is a result of the increase in
the market value of BlackRock common shares over these
periods. The charge for 2007 is net of the $82 million gain
recognized in connection with our transfer of BlackRock
shares during the first quarter of 2007 to satisfy a portion of
our BlackRock LTIP shares obligation.
Additionally, we reported noninterest expense of $33 million
and $64 million for the years ended December 31, 2006 and
2005, respectively, related to the BlackRock LTIP awards.
N OTE 19 I NCOME T AXES
The components of income taxes are as follows:
Year ended December 31
In millions 2007 2006 2005
Current
Federal $491 $565 $550
State 58 46 53
Total current 549 611 603
Deferred
Federal 61 752 (12)
State 17 13
Total deferred 78 752 1
Total $627 $1,363 $604
Significant components of deferred tax assets and liabilities
are as follows:
December 31 - in millions 2007 2006
Deferred tax assets
Allowance for loan and lease losses $ 370 $ 258
Net unrealized securities losses 90 52
Compensation and benefits 322 296
Other 370 283
Total deferred tax assets 1,152 889
Deferred tax liabilities
Leasing 1,011 1,025
Depreciation 65 75
Goodwill 255 205
BlackRock basis difference 1,234 1,166
Other 119 56
Total deferred tax liabilities 2,684 2,527
Net deferred tax liability $1,532 $1,638
A reconciliation between the statutory and effective tax rates
follows:
Year ended December 31 2007 2006 2005
Statutory tax rate 35.0%35.0% 35.0%
Increases (decreases) resulting from
State taxes 2.3 .8 2.1
Tax-exempt interest (.8) (.3) (1.1)
Life insurance (1.7) (.6) (1.0)
Tax credits (2.9) (.9) (1.8)
Reversal of deferred tax liabilities –
BlackRock basis allocation (2.3)
Other (2.0) (.7)
Effective tax rate 29.9% 34.0% 30.2%
At December 31, 2007 we had available $130 million of
federal and $247 million of state income tax net operating loss
carryforwards originating from acquired companies and $47
million in other state net operating losses which will expire
from 2008 through 2027.
No deferred US income taxes have been provided on certain
undistributed earnings of non-US subsidiaries, which
amounted to $48 million at December 31, 2007. As of
December 31, 2007, these earnings are considered to be
reinvested for an indefinite period of time.
As described in Note 1 Accounting Policies, we adopted FIN
48 effective January 1, 2007. Our adoption of FIN 48 did not
result in a cumulative adjustment to equity.
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