EXHIBIT 99.1
THE PNC FINANCIAL SERVICES GROUP, INC.
IDENTIFICATION AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002, AS AMENDED
This Exhibit 99.1 includes excerpts from or references to portions of the
Corporation's 2002 Annual Report to Shareholders ("2002 Annual Report") that
were incorporated by reference into the Corporation's Annual Report on Form
10-K, as amended, for the year ended December 31, 2002 ("2002 Form 10-K"). These
excerpts or references include disclosures of non-GAAP financial measures as
defined by the SEC's Release No. 33-8176, "Conditions for Use of Non-GAAP
Financial Measures," that was effective subsequent to the Corporation's filing
of the 2002 Form 10-K. In addition to such non-GAAP financial measures, this
Exhibit 99.1 provides corresponding amounts or disclosures on a basis consistent
with generally accepted accounting principles ("GAAP") as required by Release
No. 33-8176 and in accordance with the SEC's "Frequently Asked Questions
Regarding the Use of Non-GAAP Financial Measures" guidance issued June 13, 2003.
In addition, this Exhibit 99.1 includes a Glossary of Terms similar to the
glossary that was included in the Financial Review section of the Corporation's
Quarterly Report on Form 10-Q for the three months ended June 30, 2003 ("June
2003 Form 10-Q"). Many of these terms were also used in the 2002 Annual Report
and 2002 Form 10-K.
The information in this Exhibit 99.1 is provided solely for the purpose of
identifying and reconciling to GAAP the applicable items disclosed in the 2002
Annual Report and does not represent the consolidated financial statements of
the Corporation for any period nor does it purport to serve any other purpose
under the SEC's financial reporting and disclosure rules and regulations.
1
1-a. TAXABLE-EQUIVALENT NET INTEREST INCOME IN THE 2002 ANNUAL REPORT:
In the "Consolidated Statement of Income Review" and "2001 versus 2000 -
Consolidated Income Statement Review" portions of the Financial Review section
of the 2002 Annual Report, the Corporation discussed taxable-equivalent net
interest income (net interest income on a taxable-equivalent basis). Further,
total revenue as used in the "Selected Ratios" portions of "Selected
Consolidated Financial Data" and in the "Results of Businesses" table of "Review
of Businesses" in the Financial Review section of the 2002 Annual Report
reflects the sum of net interest income, taxable-equivalent basis and
noninterest income.
1-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
The interest income earned on certain earning assets is completely or partially
exempt from federal income tax. As such, these tax-exempt instruments typically
yield lower returns than a taxable investment. In presenting net interest income
on a taxable-equivalent basis, the interest income earned on tax-exempt assets
is increased to make them fully equivalent to other taxable interest income
investments in order to provide accurate comparisons of yields and margins for
all earning assets.
A reconciliation of net interest income on a taxable-equivalent basis to net
interest income as reported in the Corporation's Consolidated Statement of
Income in the 2002 Annual Report follows:
Year Ended December 31
Dollars in millions 2002 2001 2000
======================================================================== ======================================
FINANCIAL PERFORMANCE
Net interest income, GAAP basis $2,197 $2,262 $2,164
Taxable-equivalent adjustment 13 16 18
- -------------------------------------------------------------------------------------------------------------------
Net interest income, taxable-equivalent basis $2,210 $2,278 $2,182
====== ====== ======
A reconciliation of total revenue on a taxable-equivalent basis to total revenue
on a GAAP basis (net interest income on a GAAP basis and noninterest income)
follows:
Year Ended December 31
Dollars in millions 2002 2001 2000
======================================================================== ======================================
FINANCIAL PERFORMANCE
Total revenue, GAAP basis $5,394 $4,914 $5,114
Taxable-equivalent adjustment 13 16 18
- -------------------------------------------------------------------------------------------------------------------
Total revenue, taxable-equivalent basis $5,407 $4,930 $5,132
====== ====== ======
2
2-a. EXCERPT FROM PAGE 26, "FINANCIAL REVIEW - SELECTED CONSOLIDATED FINANCIAL
DATA," OF THE 2002 ANNUAL REPORT:
Year ended December 31
--------------------------------------------------------------
Dollars in millions 2002 2001 2000 1999 1998
===============================================================================================================================
SUMMARY OF OPERATIONS
Noninterest income before net securities gains $3,108 $2,521 $2,930 $2,438 $2,076
Net securities gains 89 131 20 22 16
2-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
The caption "noninterest income before net securities gains" is not found within
the Corporation's 2002 consolidated financial statements prepared in accordance
with GAAP. Total noninterest income disclosed in accordance with GAAP is the sum
of the two line items disclosed above as follows:
Year ended December 31
--------------------------------------------------------------
Dollars in millions 2002 2001 2000 1999 1998
===============================================================================================================================
Noninterest income before net securities gains $3,108 $2,521 $2,930 $2,438 $2,076
Net securities gains 89 131 20 22 16
--------------------------------------------------------------
Total noninterest income $3,197 $2,652 $2,950 $2,460 $2,092
====== ====== ====== ====== ======
3-a. EXCERPT FROM PAGE 27, "FINANCIAL REVIEW - SELECTED CONSOLIDATED FINANCIAL
DATA," OF THE 2002 ANNUAL REPORT:
SELECTED RATIOS
Year ended December 31 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
From Continuing Operations 9
Noninterest income to total revenue 59.1% 53.8% 57.5% 51.0% 45.4%
Efficiency (b) 58.62 65.48 56.82 55.32 54.74
From Net Income
Noninterest income to total revenue 59.1 53.9 59.7 52.9 47.0
Efficiency (b) 59.08 65.36 55.16 54.63 54.69
(b) The efficiency ratio is noninterest expense divided by the sum of
taxable-equivalent net interest income and noninterest income. Amortization of
goodwill and other intangibles, distributions on capital securities and mortgage
banking risk management activities are excluded for purposes of computing this
ratio. Excluding the impact of charges in 2001 related to strategic initiatives
and additions to reserves related to insured residual value exposures, the
efficiency ratios from continuing operations and from net income were 58.14% and
58.07%, respectively.
3-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
The ratio of noninterest income to total revenue is computed as total
noninterest income divided by the sum of net interest income and noninterest
income. The ratios in 3-a. above for all periods presented were calculated using
taxable-equivalent net interest income. See Item 1-b. of this Exhibit 99.1 for a
description of taxable-equivalent net interest income and a reconciliation to
net interest income on a GAAP basis.
The ratio of noninterest income to total revenue using net interest income on a
GAAP basis is as follows:
Year ended December 31 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
From Continuing Operations 59.3% 54.0% 57.7% 51.2% 45.7%
From net income 59.3% 53.9% 59.7% 52.9% 47.0%
3
See note (b) to the table under 3-a. above regarding the efficiency ratio as
calculated for the 2002 Annual Report. The efficiency ratio calculated on a GAAP
basis as noninterest expense divided by the sum of net interest income and
noninterest income is as follows:
Year ended December 31 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
From Continuing Operations 59.83% 69.48% 60.68% 59.08% 58.91%
From net income 60.29 69.38 60.69 59.87 59.93
4-a. EXCERPT FROM PAGE 28, FIRST PARAGRAPH OF "OVERVIEW - SUMMARY FINANCIAL
RESULTS," OF THE 2002 ANNUAL REPORT:
Consolidated net income for 2002 was $1.184 billion or $4.15 per diluted share
compared with $377 million or $1.26 per diluted share for 2001. Results for 2002
reflected the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," under which goodwill is no
longer amortized to expense. Results for 2001 reflected the cost of actions
taken during the year to accelerate the repositioning of PNC's lending business
and other strategic initiatives. These charges totaled $1.2 billion pretax and
reduced 2001 net income by $768 million or $2.65 per diluted share. Excluding
the effects of the strategic repositioning charges and goodwill amortization
expense, net income for 2001 would have been $1.238 billion, or $4.23 per
diluted share.
4-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
The last sentence of the excerpt in 4-a. above does not quantify the impact of
2001 goodwill amortization expense. However, this information is disclosed in
Note 14 Goodwill And Other Intangible Assets in the Notes To Consolidated
Financial Statements included in the 2002 Annual Report and incorporated by
reference in the 2002 Form 10-K. A reconciliation of 2001 net income and
earnings per diluted share on a GAAP basis to the corresponding amounts
excluding the effects of the strategic repositioning charges and goodwill
amortization expense follows:
In millions, except per share data Net Income Per diluted share
-------------------------------------
2001 net income, GAAP basis $377 $1.26
Add back: Strategic repositioning charges 768 2.65
Goodwill amortization expense 93 .32
-------------------------------------
2001 net income, as adjusted $1,238 $4.23
====== =====
4
5-a. EXCERPT FROM PAGE 31, "REVIEW OF BUSINESSES," OF THE 2002 ANNUAL REPORT:
REGIONAL COMMUNITY BANKING
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
=================================================================
INCOME STATEMENT
Net interest income $1,409 $1,466
Noninterest income 689 679
- -----------------------------------------------------------------
Operating revenue 2,098 2,145
Provision for credit losses 52 50
Noninterest expense 1,061 1,063
Goodwill amortization 36
- -----------------------------------------------------------------
Operating income 985 996
Net securities (gains) (84) (86)
Strategic repositioning:
Vehicle leasing costs 135
Asset impairment and severance costs 13
- -----------------------------------------------------------------
Pretax earnings 1,069 934
Income taxes 372 338
- -----------------------------------------------------------------
Earnings $697 $596
=================================================================
PERFORMANCE RATIOS
Return on assigned capital 27% 22%
Noninterest income to operating revenue 33 32
Efficiency 49 54
Efficiency, excluding strategic
repositioning 51 50
- -----------------------------------------------------------------
5-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
The table below presents the income statement information included in 5-a. above
in a format consistent with that used on a GAAP basis and includes in note (a)
to the table a reconciliation of net interest income on a taxable equivalent
basis to net interest income on a GAAP basis. In addition, the noninterest
income to total revenue and efficiency ratios have been recomputed on a GAAP
basis, consistent with the approach described at 3-b. above.
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
=================================================================
INCOME STATEMENT
Net interest income (a) $1,409 $1,466
Other noninterest income 689 672
Net securities gains 84 86
- -----------------------------------------------------------------
Total revenue 2,182 2,224
Provision for credit losses 52 50
Noninterest expense 1,061 1,240
- -----------------------------------------------------------------
Pretax earnings 1,069 934
Income taxes 372 338
- -----------------------------------------------------------------
Earnings $697 $596
=================================================================
PERFORMANCE RATIOS
Return on assigned capital 27% 22%
Noninterest income to total revenue 35 34
Efficiency 49 56
- -----------------------------------------------------------------
(a) A reconciliation of net interest income on a taxable-equivalent basis to net
interest income on a GAAP basis follows:
Year ended December 31
Dollars in millions 2002 2001
==============================================================
Net interest income, GAAP basis $1,403 $1,460
Taxable-equivalent adjustment 6 6
- --------------------------------------------------------------
Net interest income, taxable-equivalent
basis $1,409 $1,466
- --------------------------------------------------------------
5
6-a. EXCERPT FROM PAGE 32, "REVIEW OF BUSINESSES," OF THE 2002 ANNUAL REPORT:
WHOLESALE BANKING
CORPORATE BANKING
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
================================================================
INCOME STATEMENT
Net interest income $349 $508
Noninterest income 282 256
- ----------------------------------------------------------------
Operating revenue 631 764
Provision for credit losses 203 57
Noninterest expense 359 378
Goodwill amortization 3
- ----------------------------------------------------------------
Operating income 69 326
Strategic repositioning:
Institutional lending repositioning 891
Asset impairment and severance costs 16
Net (gains) on loans held for sale (155)
- ----------------------------------------------------------------
Pretax earnings (loss) 224 (581)
Income tax expense (benefit) 74 (206)
- ----------------------------------------------------------------
Earnings (loss) $150 $(375)
================================================================
PERFORMANCE RATIOS
Return on assigned capital 14% (30)%
Noninterest income to operating revenue 45 34
Efficiency 46 71
Efficiency, excluding strategic
repositioning 57 49
- ----------------------------------------------------------------
6-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
The table below presents the income statement information included in 6-a. above
in a format consistent with that used on a GAAP basis and includes in note (a)
to the table a reconciliation of net interest income on a taxable-equivalent
basis to net interest income on a GAAP basis. In addition, the noninterest
income to total revenue and efficiency ratios have been recomputed on a GAAP
basis, consistent with the approach described at 3-b. above, and the return on
assigned capital ratio reflects the other reclassifications made to the income
statement information.
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
================================================================
INCOME STATEMENT
Net interest income (a) $349 $508
Noninterest income 437 31
- ----------------------------------------------------------------
Total revenue 786 539
Provision for credit losses 203 733
Noninterest expense 359 387
- ----------------------------------------------------------------
Pretax earnings 224 (581)
Income tax 74 (206)
- ----------------------------------------------------------------
Earnings $150 $(375)
================================================================
PERFORMANCE RATIOS
Return on assigned capital 14% (30)%
Noninterest income to total revenue 56 6
Efficiency 46 72
- ----------------------------------------------------------------
(a) A reconciliation of net interest income on a taxable-equivalent basis to net
interest income on a GAAP basis follows:
Year ended December 31
Dollars in millions 2002 2001
===============================================================
Net interest income, GAAP basis $344 $501
Taxable-equivalent adjustment 5 7
- ---------------------------------------------------------------
Net interest income, taxable-equivalent
basis $349 $508
- ---------------------------------------------------------------
6
7-a. EXCERPT FROM PAGE 33, "REVIEW OF BUSINESSES," OF THE 2002 ANNUAL REPORT:
WHOLESALE BANKING
PNC REAL ESTATE FINANCE
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
==============================================================
INCOME STATEMENT
Net interest income $117 $118
Noninterest income
Commercial mortgage banking 65 58
Other 44 37
- --------------------------------------------------------------
Total noninterest income 109 95
- --------------------------------------------------------------
Operating revenue 226 213
Provision for credit losses (10) 16
Noninterest expense 160 139
Goodwill amortization 18
- --------------------------------------------------------------
Operating income 76 40
Strategic repositioning:
Institutional lending repositioning 34
Severance costs 1
Net (gains) on loans held for sale (3)
- --------------------------------------------------------------
Pretax earnings 79 5
Minority interest (benefit) expense (2)
Income tax (benefit) expense (9) (33)
- --------------------------------------------------------------
Earnings $90 $38
==============================================================
PERFORMANCE RATIOS
Return on assigned capital 23% 10%
Noninterest income to operating revenue 48 45
Efficiency 63 60
Efficiency, excluding strategic
repositioning 64 58
- --------------------------------------------------------------
7-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP: The
table below presents the income statement information included in 7-a. above in
a format consistent with that used on a GAAP basis and includes in note (a) to
the table a reconciliation of net interest income on a taxable-equivalent basis
to net interest income on a GAAP basis. In addition, the noninterest income to
total revenue and efficiency ratios have been recomputed on a GAAP basis,
consistent with the approach described at 3-b. above, and the return on assigned
capital ratio reflects the other reclassifications made to the income statement
information.
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
==============================================================
INCOME STATEMENT
Net interest income (a) $117 $118
Noninterest income
Net commercial mortgage banking 65 58
Other 47 31
- --------------------------------------------------------------
Total noninterest income 112 89
- --------------------------------------------------------------
Total revenue 229 207
Provision for credit losses (10) 44
Noninterest expense 160 158
- --------------------------------------------------------------
Pretax earnings 79 5
- --------------------------------------------------------------
Minority interest (benefit) (2)
Income tax (benefit) (9) (33)
- --------------------------------------------------------------
Earnings $90 $38
==============================================================
PERFORMANCE RATIOS
Return on assigned capital 23% 10%
Noninterest income to total revenue 49 43
Efficiency 70 76
- --------------------------------------------------------------
(a) A reconciliation of net interest income on a taxable-equivalent basis to net
interest income on a GAAP basis follows:
Year ended December 31
Dollars in millions 2002 2001
============================================================
Net interest income, GAAP basis $116 $116
Taxable-equivalent adjustment 1 2
- ------------------------------------------------------------
Net interest income,
taxable-equivalent basis $117 $118
- ------------------------------------------------------------
7
8-a. EXCERPT FROM PAGE 34, "REVIEW OF BUSINESSES," OF THE 2002 ANNUAL REPORT:
WHOLESALE BANKING
PNC BUSINESS CREDIT
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
==============================================================
INCOME STATEMENT
Net interest income $134 $104
Noninterest income 59 30
- --------------------------------------------------------------
Operating revenue 193 134
Provision for credit losses 64 19
Noninterest expense 53 29
Goodwill amortization 2
- --------------------------------------------------------------
Operating income 76 84
Strategic repositioning:
Institutional lending repositioning 48
Net losses on loans held for sale 11
- --------------------------------------------------------------
Pretax earnings 65 36
Income taxes 25 14
- --------------------------------------------------------------
Earnings $40 $22
==============================================================
PERFORMANCE RATIOS
Return on assigned capital 16% 13%
Noninterest income to operating revenue 31 22
Efficiency 29 30
Efficiency, excluding strategic
repositioning 27 22
- --------------------------------------------------------------
8-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP: The
table below presents the income statement information included in 8-a. above in
a format consistent with that used on a GAAP basis. In addition, the noninterest
income to total revenue and efficiency ratios have been recomputed on a GAAP
basis, consistent with the approach described at 3-b. above.
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
==============================================================
INCOME STATEMENT
Net interest income (a) $134 $104
Noninterest income 48 (8)
- --------------------------------------------------------------
Total revenue 182 96
Provision for credit losses 64 29
Noninterest expense 53 31
- --------------------------------------------------------------
Pretax earnings 65 36
Income taxes 25 14
- --------------------------------------------------------------
Earnings $40 $22
==============================================================
PERFORMANCE RATIOS
Return on assigned capital 16% 13%
Noninterest income to total revenue 26 (8)
Efficiency 29 32
- --------------------------------------------------------------
(a) Net interest income on a taxable-equivalent basis equaled net interest
income on a GAAP basis for each period presented.
8
9-a. EXCERPT FROM PAGE 35, "REVIEW OF BUSINESSES," OF THE 2002 ANNUAL REPORT:
PNC ADVISORS
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
===============================================================
INCOME STATEMENT
Net interest income $100 $128
Noninterest income
Investment management and trust 334 393
Brokerage 131 130
Other 89 84
- ---------------------------------------------------------------
Total noninterest income 554 607
- ---------------------------------------------------------------
Operating revenue 654 735
Provision for credit losses 4 2
Noninterest expense 497 497
Goodwill amortization 7
- ---------------------------------------------------------------
Pretax earnings 153 229
Income taxes 56 86
- ---------------------------------------------------------------
Earnings $97 $143
===============================================================
PERFORMANCE RATIOS
Return on assigned capital 19% 26%
Noninterest income to operating revenue 85 83
Efficiency 76 68
- ---------------------------------------------------------------
9-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP: The
table below presents the income statement information included in 9-a. above in
a format consistent with that used on a GAAP basis. In addition, the noninterest
income to total revenue and efficiency ratios have been recomputed on a GAAP
basis, consistent with the approach described at 3-b. above.
Year ended December 31
Taxable-equivalent basis
Dollars in millions 2002 2001
===============================================================
INCOME STATEMENT
Net interest income (a) $100 $128
Noninterest income
Investment management and trust 334 393
Brokerage 131 130
Other 89 84
- ---------------------------------------------------------------
Total noninterest income 554 607
- ---------------------------------------------------------------
Total revenue 654 735
Provision for credit losses 4 2
Noninterest expense 497 504
- ---------------------------------------------------------------
Pretax earnings 153 229
Income taxes 56 86
- ---------------------------------------------------------------
Earnings $97 $143
===============================================================
PERFORMANCE RATIOS
Return on assigned capital 19% 26%
Noninterest income to total revenue 85 83
Efficiency 76 69
- -------------------------------------- ----------- ------------
(a) Net interest income on a taxable-equivalent basis equaled net interest
income on a GAAP basis for each period presented.
9
10-a. EXCERPT FROM PAGE 36, "REVIEW OF BUSINESSES," OF THE 2002 ANNUAL REPORT:
BLACKROCK
Year ended December 31
Dollars in millions 2002 2001
===============================================================
INCOME STATEMENT
Investment advisory and
administrative fees $519 $495
Other income 58 38
- ---------------------------------------------------------------
Total revenue 577 533
Operating expense 321 292
Fund administration
and servicing costs - affiliates 40 61
Amortization of goodwill and other
intangible assets 1 10
- ---------------------------------------------------------------
Total expense 362 363
- ---------------------------------------------------------------
Operating income 215 170
Nonoperating income 9 11
- ---------------------------------------------------------------
Pretax earnings 224 181
Income taxes 91 74
- ---------------------------------------------------------------
Earnings $133 $107
===============================================================
PERFORMANCE DATA
Return on equity 24% 25%
Operating margin (a) 40 36
Diluted earnings per share $2.04 $1.65
- ---------------------------------------------------------------
(a) Excludes the impact of fund administration and servicing costs - affiliates.
10-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP: The
table below presents the income statement information included in 10-a. above in
a format consistent with that used on a GAAP basis. In addition, the operating
margin ratio as presented in the table has been reconciled to the ratio
calculated on a GAAP basis as described in note (b) to the table below.
Year ended December 31
Dollars in millions 2002 2001
===============================================================
INCOME STATEMENT
Investment advisory and
administration fees $519 $495
Other income 58 38
- ---------------------------------------------------------------
Total revenue 577 533
Operating expense 321 292
Fund administration and servicing costs 41 71
- ---------------------------------------------------------------
Total expense 362 363
- ---------------------------------------------------------------
Operating income 215 170
Nonoperating income (a) 9 11
- ---------------------------------------------------------------
Pretax earnings 224 181
Income taxes 91 74
- ---------------------------------------------------------------
Earnings $133 $107
===============================================================
PERFORMANCE DATA
Return on equity 24% 25%
Operating margin (b) 40 37
Diluted earnings per share $2.04 $1.65
- ---------------------------------------------------------------
(a) Net of nonoperating expense.
(b) (b) Calculated as operating income divided by total revenue
less fund administration and servicing costs. A reconciliation of this
presentation to operating margin calculated on a GAAP basis (operating
income divided by total revenue) follows:
Year ended December 31
Dollars in millions 2002 2001
=========================================================
Operating income $215 $170
- ---------------------------------------------------------
Total revenue $577 $533
Less fund administration and
servicing costs 41 71
- ---------------------------------------------------------
Revenue used for operating
margin calculation, as reported $536 $462
Operating margin, as reported 40% 37%
Operating margin, GAAP basis 37% 32%
PNC believes that operating margin, as reported, is an effective indicator of
management's ability to effectively employ BlackRock's resources. Fund
administration and servicing costs have been excluded from the operating margin
calculation because these costs are a fixed, asset-based expense which can
fluctuate based on the discretion of a third party.
10
11-a. EXCERPT FROM PAGE 37, "REVIEW OF BUSINESSES," OF THE 2002 ANNUAL REPORT:
PFPC
Year ended December 31
Dollars in millions 2002 2001
==============================================================
INCOME STATEMENT
Fund servicing revenue $817 $846
Operating expense 669 644
Goodwill amortization 40
(Accretion)/amortization of
other intangibles, net (19) (15)
- --------------------------------------------------------------
Operating income 167 177
Nonoperating income (a) 10 14
Debt financing 88 94
Facilities consolidation and other
charges (19) 36
- --------------------------------------------------------------
Pretax earnings 108 61
Income taxes 43 25
- --------------------------------------------------------------
Earnings $65 $36
==============================================================
(a) Net of nonoperating expense.
11-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP: The
table below presents the income statement information included in 11-a. above in
a format consistent with that used on a GAAP basis.
Year ended December 31
Dollars in millions 2002 2001
==============================================================
INCOME STATEMENT
Fund servicing revenue $817 $846
Operating expense 650 720
(Accretion)/amortization of
other intangibles, net (19) (15)
- --------------------------------------------------------------
Operating income 186 141
Nonoperating income (a) 10 14
Debt financing 88 94
- --------------------------------------------------------------
Pretax earnings 108 61
Income taxes 43 25
- --------------------------------------------------------------
Earnings $65 $36
==============================================================
(a) Net of nonoperating expense.
11
12-a. EXCERPT FROM PAGE 64, FROM THE FIRST PARAGRAPH OF "2001 VERSUS 2000,
CONSOLIDATED INCOME STATEMENT REVIEW, SUMMARY RESULTS," OF THE 2002 ANNUAL
REPORT:
Consolidated net income for 2001 was $377 million or $1.26 per diluted share.
Excluding the effect of adopting the new accounting standard for financial
derivatives, net income was $382 million or $1.28 per diluted share compared
with $1.279 billion or $4.31 per diluted share for 2000.
12-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
The second sentence from the excerpt in 12-a. above does not quantify the impact
of the adoption of the new accounting standard for financial derivatives,
Statement of Financial Accounting Standards ("SFAS") No. 133. However, the
after-tax charge of $5 million that the Corporation recognized upon adoption of
SFAS No. 133 in 2001 is disclosed in "Selected Consolidated Financial Data" and
under "Financial And Other Derivatives" in the Risk Management portion of the
Financial Review section of the 2002 Annual Report.
A reconciliation of 2001 net income (in millions) and the corresponding earnings
per diluted share amounts as described in 12-a. above to the GAAP amounts
follows:
NET INCOME DILUTED EARNINGS PER SHARE
2001 net income, GAAP basis $377 $1.26
After-tax charge related to the adoption of SFAS No. 133 5 .02
---- -----
2001 net income, excluding impact of adoption of SFAS No. 133 $382 $1.28
==== =====
13-a. EXCERPT FROM PAGE 64, "2001 VERSUS 2000, CONSOLIDATED INCOME STATEMENT
REVIEW, NET INTEREST INCOME," OF THE 2002 ANNUAL REPORT:
Taxable-equivalent net interest income of $2.278 billion for 2001 increased 4%
compared with 2000 net interest income of $2.182 billion.
13-b. DISCUSSION OF NON-GAAP FINANCIAL MEASURE AND RECONCILIATION TO GAAP:
See 1-b. of this Exhibit 99.1 for a description of taxable-equivalent net
interest income and a reconciliation of 2001 and 2000 taxable-equivalent net
interest income amounts to the corresponding amounts calculated in accordance
with GAAP.
12
GLOSSARY OF TERMS
ACCOUNTING/ADMINISTRATION NET ASSETS - Domestic and foreign assets for
which PNC provides accounting and administration services. These assets are
not included in PNC's balance sheet.
ADJUSTED AVERAGE TOTAL ASSETS - Primarily comprised of total average
quarterly assets plus (less) unrealized losses (gains) on
available-for-sale debt securities, less goodwill and certain other
intangible assets.
ANNUALIZED - Adjusted to reflect a full year of activity.
ASSETS UNDER MANAGEMENT - Assets held by PNC in a fiduciary capacity for
customers/clients. These assets are not included in PNC's balance sheet.
ASSIGNED CAPITAL - Capital assignments based on management's assessment of
inherent risks and equity levels at independent companies providing similar
products and services in order to present, to the extent practicable, the
financial results of each business as if the business operated on a
stand-alone basis.
CHARGE-OFF - Process of removing a loan or portion of a loan from a bank's
balance sheet because the loan is considered uncollectible. A charge-off
also is recorded when a loan is transferred to held for sale and the loan's
market value is less than its carrying amount prior to the transfer. This
difference is a charge-off.
COMMON SHAREHOLDERS' EQUITY TO TOTAL ASSETS - Common shareholders' equity
divided by total assets. Common shareholders' equity equals total
shareholders' equity less preferred stock and the portion of capital
surplus and retained interest related to the preferred stock.
CUSTODY ASSETS - Assets held on behalf of clients under safekeeping
arrangements. Such assets are not reported in PNC's balance sheet. Assets
held in custody accounts at other institutions on behalf of PNC are
included in the appropriate asset categories as if held in the physical
custody of PNC.
EARNING ASSETS - Assets that generate income, which include: short-term
investments; loans held for sale; loans, net of unearned income;
securities; federal funds sold and certain other assets.
EFFICIENCY RATIO - Noninterest expense divided by the sum of net interest
income and noninterest income.
INSTITUTIONAL LENDING REPOSITIONING - A 2001 PNC strategic action taken to
build a more diverse and valuable business mix designed to create
shareholder value over time by reducing lending leverage and improving the
risk/return characteristics of the banking business.
LEVERAGE RATIO - Tier 1 risk-based capital divided by adjusted average
total assets.
NET INTEREST MARGIN - Annualized taxable-equivalent net interest income
divided by average earning assets.
NONINTEREST INCOME TO TOTAL REVENUE - Total noninterest income divided by
total revenue. Total noninterest income includes asset management, fund
servicing, service charges on deposits, brokerage, consumer services,
corporate services, equity management, net securities gains (losses) and
other noninterest income. Total revenue includes total noninterest income
plus net interest income.
NONPERFORMING ASSETS - Nonperforming assets include nonaccrual loans,
troubled debt restructured loans, nonaccrual loans held for sale,
foreclosed and other assets.
NONPERFORMING LOANS - Nonperforming loans include nonaccrual loans to
commercial, lease financing, consumer, commercial real estate and
residential mortgage customers as well as troubled debt restructured loans.
Nonperforming loans do not include nonaccrual loans held for sale or
foreclosed and other assets.
OPERATING MARGIN - Operating income divided by total revenue.
RETURN ON ASSIGNED CAPITAL - Annualized net income divided by assigned
capital.
RETURN ON AVERAGE ASSETS - Annualized earnings divided by average assets.
Earnings can be from net income or continuing operations, as indicated in
PNC's disclosures.
RETURN ON AVERAGE EQUITY - Annualized earnings divided by average
shareholders' equity. Earnings can be from net income or continuing
operations, as indicated in PNC's disclosures.
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RISK-WEIGHTED ASSETS - Primarily computed by the assignment of specific
risk-weights, as defined by The Board of Governors of the Federal Reserve
System, to assets and off-balance sheet instruments.
SECURITIZATION - The process by which financial assets are legally
transformed into securities.
SHAREHOLDERS' EQUITY TO TOTAL ASSETS - Total shareholders' equity divided
by total assets.
TAXABLE-EQUIVALENT INTEREST - The interest income earned on certain earning
assets is completely or partially exempt from federal income tax. As such,
these tax-exempt instruments typically yield lower returns than a taxable
investment. In order to provide accurate comparisons of yields and margins
for all earning assets, the interest income earned on tax-exempt assets is
increased to make them fully equivalent to other taxable interest income
investments.
TIER 1 AND TOTAL RISK-BASED CAPITAL - Terms used by The Board of Governors
of the Federal Reserve System to describe the capital adequacy of a bank
holding company. Refer to the Risk-Based Capital table within the Capital
portion of the Consolidated Balance Sheet Review of the Financial Review
section of the 2002 Annual Report for the components of risk-based capital.
TIER 1 RISK-BASED CAPITAL RATIO - Tier 1 risk-based capital divided by
risk-weighted assets.
TOTAL ASSETS SERVICED - Domestic and foreign assets for which PNC provides
mutual fund related services. These assets are not included in PNC's
balance sheet.
TOTAL DEPOSITS - The sum of total transaction deposits, savings accounts,
certificates of deposit, other time deposits and deposits in foreign
offices.
TOTAL RISK-BASED CAPITAL RATIO - Total risk-based capital divided by
risk-weighted assets.
TOTAL TRANSACTION DEPOSITS - The sum of noninterest-bearing demand
deposits, interest-bearing demand deposits and money market accounts.
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