PNC Financial Services (PNC)

The PNC Financial Services Group, Inc. is a diversified financial services company in the United States, engaged in retail banking, corporate and institutional banking, asset management, and global fund processing services. The company operates directly and through its subsidiaries, in its primary geographic markets in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky and the greater Washington, D.C. area. It also provides certain asset management and global fund processing services internationally.

In 2006, company reported a strong performance with record net income with $8.73 earning per diluted share. Non-performing assets decreased 10% mostly due to principal reductions and payoffs. Deposits contribute around 65% to total funding requirements of the company, which is expected to grow as their banking sector is on path of expansion.

Since two years retail banking has been contributing around 48%-50% to revenues. Retail banking revenues grew 9% in 2006 while expenses increased 6% from the 2005 level. Taking a cue from the same, management is working to increase its retail franchise as evident by the acquisition of Mercantile Bancshares (MRBK), which is expected to close in March 2007.

PFPC’s revenue increased by 19% due to benefit of deferred tax reversal, increased servicing revenue and disciplined expense control. PFPC has won a large customer bid which will come online in the first quarter of 2007, which will add to its revenue significantly. Management has streamlined PFPC’s expenses and strengthens its sales force to remain competitive. Management will continue to invest in this business segment focusing on high growth opportunities such as managed accounts and offshore servicing.

Corporate and Investment bank’s revenue fell by 3.5% mainly due to higher loan loss provisions. With the acquisition of Harris Williams, its fee income increased by 32% and is expected to follow the suite in 2007. Strategically moving, the company is going strong with intentions of acquisitions and stock repurchases in order to effectively manage its excess capital. With an outstanding credit quality, the stock seems to find place in investors’ horizon.