PNC Bank 2008 Annual Report Download - page 29

program totaled $445 million. These trades matured at the end
of January 2009 and were replaced with commercial paper
sold to investors.
****
It is also possible that the US Congress and federal banking
agencies, as part of their efforts to provide economic stimulus
and financial market stability, to enhance the liquidity and
solvency of financial institutions and markets, and to enhance
the regulation of financial institutions and markets, will
announce additional legislation, regulations or programs.
These additional actions may take the form of changes in or
additions to the statutes or regulations related to existing
programs, including those described above. It is not possible
at this time to predict the ultimate impact of these actions on
PNC’s business plans and strategies.
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 the following,
some of which may be affected by legislative, regulatory and
administrative initiatives of the Federal government outlined
above:
• General economic conditions, including the length
and severity of the current recession,
• The level of, and direction, timing and magnitude of
movement in interest rates, and the shape of the
interest rate yield curve,
• The functioning and other performance of, and
availability of liquidity in, the capital and other
financial markets,
• Loan demand, utilization of credit commitments and
standby letters of credit, and asset quality,
• Customer demand for other products and services,
• Changes in the competitive landscape and in
counterparty creditworthiness and performance as the
financial services industry restructures in the current
environment,
• Movement of customer deposits from lower to higher
rate accounts or to investment alternatives, and
• The impact of market credit spreads on asset
valuations.
In addition, our success will depend, among other things,
upon:
• Further success in the acquisition, growth and
retention of customers,
• Progress toward integrating the National City
acquisition,
• Continued development of the markets related to our
recent acquisitions, including full deployment of our
product offerings,
• Revenue growth,
• A sustained focus on expense management, including
achieving our cost savings targets associated with our
National City integration, and creating positive
operating leverage,
• Managing the distressed assets portfolio,
• Maintaining solid overall asset quality,
• Continuing to maintain our solid deposit base,
• Prudent risk and capital management leading to a
return to our desired moderate risk profile, and
• Actions we take within the capital and other financial
markets.
See also Item 1A Risk Factors and the Cautionary Statement
Regarding Forward-Looking Information section of Item 7 of
this Report.
O THER 2008 A CQUISITION A ND D IVESTITURE A CTIVITY
On April 4, 2008, we acquired Lancaster, Pennsylvania-based
Sterling Financial Corporation (“Sterling”) for approximately
4.6 million shares of PNC common stock and $224 million in
cash. Sterling was a banking and financial services company
with approximately $3.2 billion in assets, $2.7 billion in
deposits, and 65 branches in south-central Pennsylvania,
northern Maryland and northern Delaware. The Sterling
technology systems and bank charter conversions were
completed during the third quarter of 2008 and we realized the
anticipated cost savings related to these activities.
On March 31, 2008, we sold J.J.B. Hilliard, W.L. Lyons, LLC
(“Hilliard Lyons”), a Louisville, Kentucky-based wholly-
owned subsidiary of PNC and a full-service brokerage and
financial services provider, to Houchens Industries, Inc. We
recognized an after-tax gain of $23 million in the first quarter
of 2008 in connection with this divestiture. Business segment
information for the periods presented in this Item 7 reflects the
reclassification of results for Hilliard Lyons, including the
gain on the sale of this business, from the Retail Banking
business segment to “Other.”
Summary Financial Results Year ended December 31
In millions, except
per share data 2008 2007
Net income $ 882 $1,467
Diluted earnings per share $2.46 $ 4.35
Return on
Average common shareholders’ equity 6.28% 10.53%
Average assets .62% 1.19%
Our earnings and related per share amounts for 2008 do not
include the impact of National City, which we acquired
effective December 31, 2008, other than a conforming
adjustment to our provision for credit losses of $504 million
and other integration costs of $71 million, both of which were
recognized in the fourth quarter.
Our performance in 2008 included the following:
• At December 31, 2008 we had total assets of $291
billion, including loans of $175 billion, and total
deposits of $193 billion, reflecting the acquisition of
National City.
• We significantly strengthened capital. The Tier 1
risk-based capital ratio was 9.7% at December 31,
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