PNC Bank 2006 Annual Report Download - page 8

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6 PNC 2006 ANNUAL REPORT
The diversity of the business mix makes us less reliant on any one market segment
or geography for income. It delivers a high proportion of fees to total revenue –
one of the highest proportions among our peers. This is particularly important in
the current environment because it eases the pressure on PNC to take outsized
risks on the credit side. Only 2 percent of our commercial lending exposure is to
non-investment grade companies with more than $50 million in exposure.
Furthermore, our commercial loans are targeted to companies where we see
opportunity to leverage lending relationships into sales of other fee-based
products. On the consumer side, our principal lending activity is in home equity.
This has led to strong asset quality, with a lower percentage of nonperforming
loans to average loans than many of our peers.
Our interest rate risk profile is well-positioned, and we have taken aggressive
actions to maintain it. In the late summer and fall we repositioned our balance
sheet to improve total return performance.
Building a Great Company
We believe we can take advantage of our positioning to remain a top competitor
in 2007. But, we want more. By emphasizing four enhancements to our strategy
in the coming year, we will stay focused on our mission to build a great company.
First, we will strive to achieve flawless execution. Stable earnings growth depends
as much on operational risk control as it does on good asset quality and a well-
managed balance sheet. We intend to reduce the volatility of our earnings and
minimize our execution risk on tasks such as the integration of Mercantile by
applying prudent risk mitigation principles to our everyday activities.
Second, we must attract and retain talented employees from diverse backgrounds
and with diverse outlooks. One of every two new households added to PNC’s
fastest-growing markets in the next five years will be Asian or Hispanic/Latino.
To support growth in our customer base, we will acquire the language skills and the
cultural context necessary to conduct business in these rapidly expanding markets.
A highly regarded team of professionals is at work on the successful integration of
Mercantile Bankshares Corporation, which is a critical objective for PNC in 2007. PNC
announced the planned acquisition of Mercantile in 2006, with integration to be complete
in the third quarter of 2007. The combination of PNC and Mercantile will create a Mid-
Atlantic banking powerhouse. Approximately 70 percent of PNC’s more than 1,000
branches will be east of the Appalachians, in the affluent and rapidly expanding corridor
stretching from the Hudson to the Potomac. Joe Rockey (right), leads the integration team
that includes Dawn Price (left) and Anuj Dhanda (center).
Mercantile