PNC Bank 2007 Annual Report Download - page 39

would be subject during the period of such default or deferral to
restrictions on dividends and other provisions protecting the
status of the debenture holders similar to or in some ways more
restrictive than those potentially imposed under the Exchange
Agreements with Trust II and Trust III, as described above.
B
USINESS S EGMENTS R EVIEW
We have four major businesses engaged in providing banking,
asset management and global fund processing products and
services. Business segment results, including inter-segment
revenues, and a description of each business are included in
Note 26 Segment Reporting included in the Notes To
Consolidated Financial Statements under Item 8 of this Report.
Certain revenue and expense amounts included in this
Business Segments Review differ from the amounts shown in
Note 26 due to the presentation in this Business Segments
Review of business revenue on a taxable-equivalent basis, the
inclusion of BlackRock/MLIM transaction integration costs in
the “Other” category, and income statement classification
differences related to PFPC. Also, the presentation of
BlackRock results for the 2006 period have been modified in
this Business Segments Review as described on page 41 to
conform with our current period presentation.
Results of individual businesses are presented based on our
management accounting practices and our management
structure. There is no comprehensive, authoritative body of
guidance for management accounting equivalent to GAAP;
therefore, the financial results of individual businesses are not
necessarily comparable with similar information for any other
company. We refine our methodologies from time to time as
our management accounting practices are enhanced and our
businesses and management structure change. Financial
results are presented, to the extent practicable, as if each
business, with the exception of our BlackRock segment,
operated on a stand-alone basis. As permitted under GAAP,
we have aggregated the business results for certain operating
segments for financial reporting purposes.
Assets receive a funding charge and liabilities and capital
receive a funding credit based on a transfer pricing
methodology that incorporates product maturities, duration
and other factors. Capital is intended to cover unexpected
losses and is assigned to the banking and processing
businesses using our risk-based economic capital model. We
have assigned capital equal to 6% of funds to Retail Banking
to reflect the capital required for well-capitalized domestic
banks and to approximate market comparables for this
business. The capital assigned for PFPC reflects its legal
entity shareholders' equity.
BlackRock business segment results for the nine months
ended September 30, 2006 reflected our majority ownership in
BlackRock during that period. Subsequent to the
September 29, 2006 BlackRock/MLIM transaction closing,
our ownership interest was reduced to approximately 34%.
Since that date, our investment in BlackRock has been
accounted for under the equity method but continues to be a
separate reportable business segment of PNC. We describe our
presentation method for the BlackRock segment for this
Business Segments Review and our Line of Business
Highlights on page 41.
We have allocated the allowances for loan and lease losses
and unfunded loan commitments and letters of credit based on
our assessment of risk inherent in the loan portfolios. Our
allocation of the costs incurred by operations and other
support areas not directly aligned with the businesses is
primarily based on the use of services.
Total business segment financial results differ from total
consolidated results. The impact of these differences is
reflected in the “Other” category. “Other” for purposes of this
Item 7 Financial Review includes residual activities that do
not meet the criteria for disclosure as a separate reportable
business, such as gains or losses related to BlackRock
transactions including LTIP share distributions and
obligations, BlackRock/MLIM transaction and acquisition
integration costs, asset and liability management activities, net
securities gains or losses, certain trading activities and equity
management activities, differences between business segment
performance reporting and financial statement reporting
(GAAP), intercompany eliminations, and most corporate
overhead.
Employee data as reported by each business segment in the
tables that follow reflect staff directly employed by the
respective businesses and excludes corporate and shared
services employees. Prior period employee statistics generally
are not restated for organizational changes.
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