PNC Bank 2002 Annual Report Download - page 50

48
The capital position is managed through balance sheet size and
composition, issuance of debt and equity instruments, treasury
stock activities, dividend policies and retention of earnings.
In January 2002, the Board of Directors authorized the
Corporation to purchase up to 35 million shares of its
common stock through February 29, 2004. These shares may
be purchased in the open market or in privately negotiated
transactions. This authorization terminated any prior
authorization. During 2002, a total of 320,000 shares were
repurchased under this program, all in the first quarter. Under
this program, the Corporation currently expects to purchase
between $250 million and $1 billion of its common stock
during 2003. The extent and timing of any future share
repurchases will depend on a number of factors including,
among others, market and general economic conditions,
regulatory capital considerations, alternative uses of capital and
the potential impact on PNC’s credit rating. Under applicable
regulations, as long as PNC remains subject to its written
agreement with the Federal Reserve, it must obtain prior
regulatory approval to repurchase its common stock in
amounts that exceed 10 percent of consolidated net worth in
any 12-month period.
RISK FACTORS
The Corporation is subject to a number of risks including,
among others, those described below and in the Risk
Management and Forward-Looking Statements sections of
this Financial Review. These factors and others could impact
the Corporation’s business, financial condition, results of
operations and cash flows.
BUSINESS AND ECONOMIC CONDITIONS
The Corporation’s business and results of operations are
sensitive to general business and economic conditions in the
United States. These conditions include the level and
movement of interest rates, inflation, monetary supply,
fluctuations in both debt and equity capital markets, and the
strength of the U.S. economy, in general, and the regional
economies in which the Corporation conducts business. A
sustained weakness or further weakening of the economy
could decrease the value of loans held for sale, decrease the
demand for loans and other products and services offered by
the Corporation, increase usage of unfunded commitments or
increase the number of customers and counterparties who
become delinquent, file for protection under bankruptcy laws
or default on their loans or other obligations to the
Corporation. An increase in the number of delinquencies,
bankruptcies or defaults could result in a higher level of
nonperforming assets, net charge-offs, provision for credit
losses, and valuation adjustments on loans held for sale.
Changes in interest rates could affect the value of certain on-
balance-sheet and off-balance-sheet financial instruments of
the Corporation. Changes in interest rates could also affect the
value of assets under management. In a period of rapidly rising
interest rates, certain assets under management would likely be
negatively impacted by reduced asset values and increased
redemptions. Also, changes in equity markets could affect the
value of equity investments and the value of net assets under
management and administration. Declines in the equity
markets adversely affected results in 2002 and 2001 and could
continue to negatively affect noninterest revenues in future
periods.
2001 STRATEGIC REPOSITIONING
The Corporation took several actions in 2001 to accelerate the
strategic repositioning of its lending business that began in
1998. These actions entail a degree of risk pending
completion.
At December 31, 2002, $626 million of institutional
lending credit exposure including $298 million of outstandings
were classified as held for sale. A total of $92 million of these
loans was included in nonperforming assets at that date. The
loans are carried at the lower of cost or estimated fair market
value. The estimation of fair market values involves a number
of judgments, and is inherently uncertain. In addition, the
value of loan assets is affected by a variety of company,
industry, economic and other factors, and can be volatile. If
the value of loans held for sale deteriorates prior to
disposition, valuation adjustments will be made through
charges to earnings. Moreover, deterioration in the condition
of the borrowers could lead to additional loans being placed
on nonperforming status. See Critical Accounting Policies And
Judgments for additional information.
During the fourth quarter of 2001, the Corporation
decided to discontinue its vehicle leasing business and
recorded charges and a liability of $135 million related to exit
costs and additions to reserves related to insured residual value
exposures. At December 31, 2002, approximately $1.4 billion
of vehicle leases remained on the Corporation’s books. Until
the remaining leases mature, the Corporation will continue to