PNC Bank 2010 Annual Report Download - page 33
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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, and residential
mortgage banking, 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, Virginia,
Missouri, Delaware, Washington, D.C., and Wisconsin. PNC
also provides certain products and services internationally.
On December 31, 2008, PNC acquired National City. Our
consolidated financial statements for 2009 and 2010 reflect
the impact of National City.
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
growth in pre-tax, pre-provision earnings 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. This strategy is designed to give our
consumer customers choices based on their needs. Rather than
striving to optimize fee revenue in the short term, our
approach is focused on effectively growing targeted market
share and “share of wallet.” 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 re-establishing 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. We
made substantial progress in transitioning our balance sheet
throughout 2009 and 2010, working to return to our moderate
risk philosophy throughout our expanded franchise. Our
actions have created a well-positioned balance sheet, strong
bank level liquidity and investment flexibility to adjust, where
appropriate and permissible, to changing interest rates and
market conditions.
We also expect to build capital via retained earnings while
having opportunities to return capital to shareholders during
2011subject to regulatory approvals. See the Funding and
Capital Sources section of the Consolidated Balance Sheet
Review section and the Liquidity Risk Management section of
this Item 7 and the Supervision and Regulation section in
Item 1 of this Report.
S
ALE OF
PNC G
LOBAL
I
NVESTMENT
S
ERVICING
On July 1, 2010, we sold 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 pursuant to a definitive agreement entered into on
February 2, 2010. The pretax gain recorded in the third quarter
of 2010 related to this sale was $639 million, or $328 million
after taxes.
Results of operations of GIS through June 30, 2010 and the
related after-tax gain on sale in the third quarter of 2010 are
presented as income from discontinued operations, net of
income taxes, on our Consolidated Income Statement for the
periods presented in this Report. Once we entered into the
sales agreement, GIS was no longer a reportable business
segment. Further information regarding the GIS sale is
included in Note 2 Divestiture in the Notes To Consolidated
Financial Statements in Item 8 of this Report.
R
ECENT
M
ARKET AND
I
NDUSTRY
D
EVELOPMENTS
The economic turmoil that began in the middle of 2007 and
continued through most of 2008 and 2009 has settled into a
modest economic recovery. This has been accompanied by
dramatic changes in the competitive landscape.
Beginning in late 2008, efforts by the Federal government,
including the US Congress, the US Department of the
Treasury, the Federal Reserve, the FDIC, and the Securities
and Exchange Commission, to stabilize and restore confidence
in the financial services industry have impacted and will likely
continue to impact PNC and our stakeholders. These efforts,
which will continue to evolve, include the Emergency
Economic Stabilization Act of 2008, the American Recovery
and Reinvestment Act of 2009, Dodd-Frank, in particular, and
other legislative, administrative and regulatory initiatives,
including the new rules set forth in Regulation E related to
overdraft charges.
Dodd-Frank is extensive, complicated and comprehensive
legislation that impacts practically all aspects of a banking
organization. Dodd-Frank will negatively impact revenue and
increase both the direct and indirect costs of doing business
25