PNC Bank 2007 Annual Report Download - page 24

ITEM 7- MANAGEMENT ’ S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
E XECUTIVE S UMMARY
T HE PNC F INANCIAL S ERVICES G ROUP ,I NC .
PNC is one of the largest diversified financial services
companies in the United States based on assets, with
businesses engaged in retail banking, corporate and
institutional banking, asset management, and global fund
processing services. We provide many of our products and
services nationally and others in our primary geographic
markets located in Pennsylvania, New Jersey, Washington,
DC, Maryland, Virginia, Ohio, Kentucky and Delaware. We
also provide certain global fund processing services
internationally.
K EY S TRATEGIC G OALS
Our strategy to enhance shareholder value centers on driving
positive operating leverage by achieving growth in revenue from
our diverse business mix that exceeds growth in expenses as a
result of disciplined cost management. In each of our business
segments, the primary drivers of revenue growth are the
acquisition, expansion and retention of customer relationships.
We strive to expand our customer base by providing convenient
banking options and leading technology systems, providing a
broad range of fee-based products and services, focusing on
customer service, and through a significantly enhanced branding
initiative. We may also grow revenue through appropriate and
targeted acquisitions and, in certain businesses, by expanding into
new geographical markets.
We have maintained a moderate risk profile characterized by
strong credit quality and limited exposure to earnings volatility
resulting from interest rate fluctuations and the shape of the
interest rate yield curve. Our actions have created a strong
balance sheet, ample liquidity and investment flexibility to
adjust, where appropriate, to changing interest rates and market
conditions. We continue to be disciplined in investing capital in
our businesses while returning a portion to shareholders through
dividends and share repurchases when appropriate.
A CQUISITION A ND D IVESTITURE A CTIVITY
A summary of pending and recently completed acquisitions
and divestitures is included under Item 1 and in Note 2
Acquisitions and Divestitures in the Notes To Consolidated
Financial Statements in Item 8 of this Report.
K EY F ACTORS A FFECTING F INANCIAL P ERFORMANCE
Our financial performance is substantially affected by several
external factors outside of our control, including:
• General economic conditions,
• Loan demand, utilization of credit commitments and
standby letters of credit, and asset quality
• Customer demand for other products and services,
• Movement of customer deposits from lower to higher
rate accounts or to investment alternatives,
• The level of, direction, timing and magnitude of
movement in interest rates, and the shape of the
interest rate yield curve, and
• The functioning and other performance of, and
availability of liquidity in, the capital and other
financial markets.
• The impact of credit spreads on valuations of
commercial mortgage loans held for sale and the
market for securitization and sale of these assets.
Starting in the middle of 2007, and continuing at present, there
has been significant turmoil and volatility in worldwide
financial markets, accompanied by uncertain prospects for the
overall economy. Our performance in 2008 will be impacted
by developments in these areas. In addition, our success in
2008 will depend, among other things, upon:
• Further success in the acquisition, growth and
retention of customers,
• The successful integration of Yardville and progress
toward closing and integrating the Sterling
acquisition,
• Completing the divestiture of Hilliard Lyons,
• Continued development of the Mercantile franchise,
including full deployment of our product offerings,
• Revenue growth,
• A sustained focus on expense management and
creating positive operating leverage,
• Maintaining strong overall asset quality,
• Prudent risk and capital management, and
• Actions we take within the capital and other financial
markets.
S
UMMARY F INANCIAL R ESULTS
Year ended December 31
In billions, except for
per share data 2007 2006
Net income $1.467 $2.595
Diluted earnings per share $4.35 $8.73
Return on
Average common
shareholders’ equity 10.53% 27.97%
Average assets 1.19% 2.73%
We refer you to the Consolidated Income Statement Review
portion of the 2006 Versus 2005 section of this Item 7 for
significant items which collectively increased net income for
2006 by $1.1 billion, or $3.67 per diluted share.
Our performance in 2007 included the following
accomplishments:
• Our total assets at December 31, 2007 reached a
record level of $139 billion, as further detailed in the
Consolidated Balance Sheet Review section of this
Item 7. We achieved growth by expanding our
footprint, growing and deepening customer
relationships, and enhancing product capabilities.
• We differentiated ourselves with a diverse revenue
mix of both interest and noninterest
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