PNC Bank 2010 Annual Report Download - page 19
Download and view the complete annual report
Please find page 19 of the 2010 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.believe may be important or useful to investors. We generally
post the following shortly before or promptly following its
first use or release: financially-related press releases
(including earnings releases), various SEC filings,
presentation materials associated with earnings and other
investor conference calls or events, and access to live and
taped audio from such calls or events. When warranted, we
will also use our website to expedite public access to time-
critical information regarding PNC in advance of distribution
of a press release or a filing with the SEC disclosing the same
information. You can also find the SEC reports and corporate
governance information described in the sections above in the
Investor Relations section of our website.
Where we have included web addresses in this Report, such as
our web address and web addresses of the SEC and of
BlackRock, we have included those web addresses as inactive
textual references only. Except as specifically incorporated by
reference into this Report, information on those websites is
not part hereof.
ITEM
1
A
–
RISK FACTORS
We are subject to a number of risks potentially impacting our
business, financial condition, results of operations and cash
flows. As a financial services organization, certain elements of
risk are inherent in our transactions and are present in the
business decisions we make. Thus, we encounter risk as part
of the normal course of our business, and we design risk
management processes to help manage these risks.
There are risks that are known to exist at the outset of a
transaction. For example, every loan transaction presents
credit risk (the risk that the borrower may not perform in
accordance with contractual terms) and interest rate risk (a
potential loss in earnings or economic value due to adverse
movement in market interest rates or credit spreads), with the
nature and extent of these risks principally depending on the
financial profile of the borrower and overall economic
conditions. We focus on lending that is within the boundaries
of our risk framework, and manage these risks by adjusting
the terms and structure of the loans we make and through our
oversight of the borrower relationship, as well as through
management of our deposits and other funding sources.
Risk management is an important part of our business model.
The success of our business is dependent on our ability to
identify, understand and manage the risks presented by our
business activities so that we can appropriately balance
revenue generation and profitability. These risks include credit
risk, market risk, liquidity risk, operational risk, compliance
and legal risk, and strategic and reputation risk. Our
shareholders have been well served by our focus on achieving
and maintaining a moderate risk profile. At December 31,
2008 with an economy in severe recession and with our then
recent acquisition of National City, our Consolidated Balance
Sheet did not reflect that desired risk profile. However, by
December 31, 2010 we had made significant progress toward
bringing PNC back into alignment with a moderate risk profile
and transitioning PNC’s balance sheet to more closely reflect
our business model. We remain committed to returning to a
moderate risk profile characterized by disciplined credit
management, a stable operating risk environment, and more
limited exposure to earnings volatility resulting from interest
rate fluctuations and the shape of the interest rate yield curve.
We discuss our principal risk management processes and, in
appropriate places, related historical performance in the Risk
Management section included in Item 7 of this Report.
The following are the key risk factors that affect us. Any one
or more of these risk factors could have a material adverse
impact on our business, financial condition, results of
operations or cash flows, in addition to presenting other
possible adverse consequences, which are described below.
These risk factors and other risks are also discussed further in
other sections of this Report.
The possibility of the moderate economic recovery
returning to recessionary conditions or of turmoil or
volatility in the financial markets would likely have an
adverse effect on our business, financial position and
results of operations.
The economy in the United States and globally began to
recover from severe recessionary conditions in mid-2009 and
is currently in the midst of a moderate economic recovery.
The sustainability of the moderate recovery is dependent on a
number of factors that are not within our control, such as a
return to private sector job growth and investment,
strengthening of housing sales and construction, continuation
of the economic recovery globally, and the timing of the exit
from government credit easing policies. We continue to face
risks resulting from the aftermath of the severe recession
generally and the moderate pace of the current recovery. A
slowing or failure of the economic recovery could bring a
return to some or all of the adverse effects of the earlier
recessionary conditions.
Since the middle of 2007, there has been disruption and
turmoil in financial markets around the world. Throughout
much of the United States, there have been dramatic declines
in the housing market, with falling home prices and increasing
foreclosures, high levels of unemployment and
underemployment, and reduced earnings, or in some cases
losses, for businesses across many industries, with reduced
investments in growth.
This overall environment resulted in significant stress for the
financial services industry, and led to distress in credit
markets, reduced liquidity for many types of financial assets,
including loans and securities, and concerns regarding the
financial strength and adequacy of the capitalization of
financial institutions. Some financial institutions around the
world have failed, some have needed significant additional
capital, and others have been forced to seek acquisition
partners.
11