PNC Bank 2009 Annual Report Download - page 26

ITEM 7– MANAGEMENT ’ S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
E XECUTIVE S UMMARY
PNC is one of the largest diversified financial services
companies in the United States and is headquartered in
Pittsburgh, Pennsylvania.
PNC has businesses engaged in retail banking, corporate and
institutional banking, asset management, residential mortgage
banking and global investment servicing, providing many of
its products and services nationally and others in PNC’s
primary geographic markets located in Pennsylvania, Ohio,
New Jersey, Michigan, Maryland, Illinois, Indiana, Kentucky,
Florida, Missouri, Virginia, Delaware, Washington, D.C., and
Wisconsin. PNC also provides certain investment servicing
internationally.
On December 31, 2008, PNC acquired National City
Corporation (National City). Our consolidated financial
statements for 2009 reflect the impact of National City. The
impact of National City is described where appropriate
throughout this Report.
We expect to incur additional merger and integration costs in
2010 of approximately $285 million pretax in connection with
the acquisition of National City. We previously recognized
$421 million pretax in 2009, including $155 million pretax in
the fourth quarter, and $575 million pretax in the fourth
quarter of 2008. The transaction is expected to result in the
reduction of more than $1.5 billion of combined company
annualized noninterest expense through the elimination of
operational and administrative redundancies.
We continue to integrate the businesses and operations of
National City with those of PNC.
R EPURCHASE OF O UTSTANDING TARP P REFERRED S TOCK
As further described in Note 19 Equity in the Notes To
Consolidated Financial Statements in Item 8 of this Report, on
December 31, 2008, we issued $7.6 billion of Fixed Rate
Cumulative Perpetual Preferred Shares, Series N (Series N
Preferred Stock), and the related warrant to the US Treasury
under the US Treasury’s Troubled Asset Relief Program
(TARP) Capital Purchase Program.
As approved by the Federal Reserve Board, the US Treasury
and our other banking regulators, on February 10, 2010, we
redeemed all 75,792 shares of our Series N Preferred Stock
held by the US Treasury totaling $7.6 billion. We used the net
proceeds from our February 2010 common stock and senior
notes offerings, described further in the Liquidity Risk
Management section of this Item 7, and other funds to redeem
the Series N Preferred Stock.
Dividends of $89 million were paid on February 10, 2010
when the Series N Preferred Stock was redeemed. PNC paid
total dividends of $421 million to the US Treasury while the
Series N Preferred Stock was outstanding.
We did not exercise our right to seek to repurchase the related
warrant at the time we redeemed the Series N Preferred Stock.
P
ENDING S ALE OF PNC G LOBAL I NVESTMENT S ERVICING
On February 2, 2010, we entered into a definitive agreement
to sell PNC Global Investment Servicing Inc. (GIS), a leading
provider of processing, technology and business intelligence
services to asset managers, broker-dealers and financial
advisors worldwide, for $2.3 billion in cash. Upon completion
of the sale, we expect to report an after-tax gain of
approximately $455 million.
We currently anticipate closing the transaction in the third
quarter of 2010. Completion of the transaction is subject to
regulatory approvals and certain other closing conditions. If
the sale of GIS is not completed by November 1, 2010, we
will be required, on or before that date, to raise $700 million
in additional Tier 1 common capital. We would do this either
through the sale of assets approved by the Federal Reserve
Board and/or through the issuance of additional common
stock. See Item 1A Risk Factors in this Report for additional
information.
Further information regarding the National City acquisition
and the pending sale of GIS is included in Note 2 Acquisitions
and Divestitures in our Notes To Consolidated Financial
Statements within Item 8 of this Report.
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
pre-tax, pre-provision earnings in excess of credit costs by
achieving growth in revenue from our balance sheet and
diverse business mix that exceeds growth in expenses
controlled through disciplined cost management. 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
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