PNC Bank 2008 Annual Report Download - page 27

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 and is
headquartered in Pittsburgh, Pennsylvania.
As described further below, on December 31, 2008, PNC
acquired National City Corporation (“National City”), nearly
doubling our assets to a total of $291 billion and expanding
our total consolidated deposits to $193 billion. Our
Consolidated Balance Sheet includes the impact of National
City as of December 31, 2008.
Prior to the acquisition, PNC had businesses engaged in retail
banking, corporate and institutional banking, asset
management, and global investment servicing, providing
many of its products and services nationally and others in
PNC’s primary geographic markets located in Pennsylvania,
New Jersey, Washington, DC, Maryland, Virginia, Ohio,
Kentucky and Delaware. PNC also provided certain
investment servicing internationally.
National City’s primary businesses prior to its acquisition by
PNC included commercial and retail banking, mortgage
financing and servicing, consumer finance and asset
management, operating through an extensive network in Ohio,
Florida, Illinois, Indiana, Kentucky, Michigan, Missouri,
Pennsylvania and Wisconsin. National City also conducted
selected consumer lending businesses and other financial
services on a nationwide basis.
PNC is now in the process of integrating the business and
operations of National City with those of PNC.
K
EY S TRATEGIC G OALS
We manage our company for the long term and are focused on
returning to a moderate risk profile while maintaining strong
capital and liquidity positions, investing in our markets and
products, and embracing our corporate responsibility to the
communities where we do business.
Our strategy to enhance shareholder value centers on driving
positive operating leverage by achieving growth in revenue
from our balance sheet and diverse business mix that exceeds
growth in expenses controlled through disciplined cost
management. In each of our current 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 offering convenient banking
options and leading technology solutions, providing a broad
range of fee-based and credit 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 are focused on our strategies for quality growth. We are
committed to returning to a moderate risk profile
characterized by disciplined credit management 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 well-positioned and strong balance
sheet, ample liquidity and investment flexibility to adjust,
where appropriate and permissible, 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 and
permissible. See the Funding and Capital Sources section of
the Consolidated Balance Sheet Review section and the
Liquidity Risk Management section of this Financial Review
regarding certain restrictions on dividends and common share
repurchases resulting from PNC’s participation in the US
Treasury’s Troubled Asset Relief Program (“TARP”) Capital
Purchase Program and dividend capacity.
On March 1, 2009, the Board decided to reduce PNC’s
quarterly common stock dividend from $0.66 to $0.10 per
share. The next dividend is expected to be declared in early
April 2009. Our Board recognizes the importance of the
dividend to our shareholders. While our overall capital and
liquidity positions are strong, extreme economic and market
deterioration and the changing regulatory environment drove
this difficult but prudent decision. This proactive measure will
help us build capital, further strengthen our balance sheet and
continue to serve our customers.
A
CQUISITION OF N ATIONAL C ITY C ORPORATION
On December 31, 2008, we acquired National City for
approximately $6.1 billion. The total consideration included
approximately $5.6 billion of PNC common stock, $150
million of preferred stock, and cash paid to warrant holders by
National City.
We completed the acquisition primarily by issuing
approximately 95 million shares of PNC common stock. In
accordance with purchase accounting methodologies, National
City Bank’s balance sheet was adjusted to fair value at which
time the bank was under-capitalized from a regulatory
perspective. However, PNC’s Consolidated Balance Sheet
remained well-capitalized and liquid.
Following the closing, PNC received $7.6 billion from the US
Department of the Treasury under the Emergency Economic
Stabilization Act of 2008 in exchange for the issuance of
preferred stock and a warrant. These proceeds were used to
enhance National City Bank’s regulatory capital position to
well-capitalized in order to continue serving the credit and
deposit needs of existing and new customers. On a
consolidated basis, these proceeds resulted in further
improvement to our capital and liquidity positions.
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