Capital, liquidity and loan loss reserves continued to strengthen
PITTSBURGH, April 23 /PRNewswire-FirstCall/ -- The PNC Financial
Services Group, Inc. (NYSE:PNC) today reported net income of $530
million, or $1.03 per diluted common share, for the first quarter
of 2009. Net income increased 38 percent over the first quarter of
2008. Earnings per common share were after preferred stock
dividends that included a $47 million preferred stock dividend
payment to the U.S. Department of the Treasury under the Capital
Purchase Program. The March 31, 2009 estimated Tier 1 risk-based
capital ratio was 10.2 percent and tangible common equity ratio was
3.3 percent, reflecting meaningful increases from year end. "PNC
delivered strong financial results, the second highest net income
quarter in our history, fueled by the acquisition of National City
and the efforts of our 59,000 employees. In a very challenging
environment we further strengthened our capital and liquidity
positions and loan loss reserves," said James E. Rohr, chairman and
chief executive officer. "We are on pace to exceed the strategic
objectives of our acquisition, and we are seeing solid client and
deposit growth throughout our markets. In this difficult time, PNC
is committed to building an even stronger company, actively lending
to qualified consumers and businesses, and supporting economic
recovery efforts." HIGHLIGHTS -- Net income for the first quarter
of 2009 reflected the diversification of PNC's businesses. Total
revenue was $3.9 billion for the quarter. Net interest income was
strong and noninterest income benefited from robust residential
mortgage banking activity driven by refinancing volumes and income
from servicing rights. Pretax pre-provision earnings exceeded
credit costs by over $650 million. -- PNC's Tier 1 risk-based
capital ratio increased by 50 basis points during the quarter to
10.2 percent while the tangible common equity ratio increased by 40
basis points to 3.3 percent at March 31, 2009. The reduction in the
quarterly common stock dividend beginning in April 2009 is expected
to add $1 billion annually to PNC's common equity position,
resulting in annual improvement in capital ratios of approximately
40 basis points. -- PNC strengthened its liquidity position and was
core funded with a loan to deposit ratio of 88 percent at March 31,
2009 compared with 91 percent at December 31, 2008. The company
continued to generate new deposits while allowing high rate
acquired certificate of deposit balances to decline consistent with
its focus on relationship-based deposits. -- PNC is committed to
responsible lending, essential to economic recovery. Loans and
commitments of approximately $26 billion were originated and
renewed during the first quarter as the company continued to make
credit available to qualified borrowers. -- Credit quality
deterioration continued during the first quarter as expected,
reflecting further economic weakening and resulting in additions to
loan loss reserves beyond net charge-offs. Nonperforming assets
increased during the quarter and were 2.02 percent of total loans
and foreclosed assets at March 31, 2009 compared with 1.23 percent
at year end. The ratio of allowance for loan and lease losses to
total loans increased to 2.51 percent at March 31, 2009 from 2.23
percent at December 31, 2008. -- Investment securities were $46
billion at March 31, 2009, or 16 percent of total assets.
Approximately 92 percent of the portfolio was comprised of agency
or investment grade equivalent securities. -- The acquisition of
National City Corporation is exceeding expectations. -- The
transaction was accretive to first quarter earnings and is expected
to be accretive for the full year. -- The combined company was
focused on clients and business growth, implementing centralized
loan and deposit pricing. -- Cost savings of approximately $400
million annualized were realized in the first quarter of 2009,
progressing toward the two-year goal of reducing combined company
annualized noninterest expense by $1.2 billion. -- Agreements were
reached in April 2009 to divest 61 branches in the third quarter of
2009. -- The first wave of client conversions is planned for the
fourth quarter of 2009. PNC acquired National City on December 31,
2008. PNC's consolidated balance sheet and financial ratios as of
March 31, 2009 and December 31, 2008 and for the first quarter of
2009 reflect the acquisition. PNC's consolidated income statement
beginning with the first quarter of 2009 includes operating results
of National City. As a result, the substantial increase in all
income statement comparisons to the prior year, except as noted,
are primarily due to the operating results of National City.
CONSOLIDATED REVENUE REVIEW Net interest income totaled $2.3
billion for the first quarter of 2009 compared with $854 million
for the year-earlier first quarter and $992 million for the fourth
quarter of 2008. The net interest margin was 3.81 percent for the
first quarter of 2009 compared with 3.09 percent in the first
quarter of 2008 and 3.37 percent for the fourth quarter of 2008.
The increase in the net interest margin in the linked quarter
comparison was primarily due to higher yielding loans from the
National City acquisition and lower funding costs in both
comparisons. Noninterest income was $1.6 billion for the first
quarter of 2009 compared with $967 million for the first quarter of
2008 and $684 million for the fourth quarter of 2008. First quarter
2009 noninterest income benefited from strong fee income from
residential mortgage banking activity related to refinancing
volumes and net gains on hedging mortgage servicing rights. Fund
servicing fees and asset management revenue were negatively
impacted by declines in asset values associated with the lower
equity markets. Consumer service fees reflected growing
card-related revenue partially offset by reduced consumer
transaction volumes related to seasonality and the economy.
Corporate service fees included treasury management fees which
continued to be a strong contributor to revenue. Service charges on
deposits were better than expected in spite of declining customer
transaction amounts and volumes. Net gains on sales of securities
were $56 million in the first quarter of 2009. The
other-than-temporary impairment of debt securities recognized in
earnings was a loss of $149 million in the first quarter of 2009
compared with a $174 million charge in the fourth quarter of 2008
and none in the first quarter of 2008. Other income for the first
quarter of 2009 included a gain of $103 million related to PNC's
BlackRock long-term incentive plan (LTIP) programs shares
obligation, and approximately $122 million of writedowns of private
equity and alternative investments. PNC's BlackRock LTIP shares
obligation resulted in net gains of $40 million for the first
quarter of 2008 and $177 million in the fourth quarter of 2008.
CONSOLIDATED EXPENSE REVIEW Noninterest expense for the first
quarter of 2009 was $2.3 billion compared with $1.0 billion in the
prior year first quarter and $1.1 billion for the fourth quarter of
2008. Acquisition cost savings of approximately $400 million
annualized were realized in the first quarter of 2009, on plan to
reach the $1.2 billion two-year goal. Integration costs were $52
million, or $.08 per diluted share, in the first quarter of 2009
compared with $14 million, or $.03 per diluted share, in the first
quarter of 2008, and in the fourth quarter of 2008 non-provision
related integration costs were $81 million, or $.15 per diluted
share. CONSOLIDATED BALANCE SHEET REVIEW Total assets were $286
billion at March 31, 2009 compared with $291 billion at December
31, 2008. The National City acquisition added approximately $136
billion of assets at estimated fair value as of December 31, 2008.
The decrease in the linked quarter comparison was due to declines
in loans, cash, trading securities and short-term investments
somewhat offset by an increase in investment securities. Loans were
$171 billion at March 31, 2009 compared with $175 billion at
December 31, 2008 and represented 60 percent of total assets at
both March 31, 2009 and December 31, 2008. Commercial lending
represented 57 percent of the loan portfolio and consumer lending
represented 43 percent at March 31, 2009. Commercial lending
totaled $95 billion at March 31, 2009 compared with $100 billion at
December 31, 2008, a decrease of 4 percent. Commercial loans, which
comprised 67 percent of total commercial lending, declined due to
lower utilization levels and paydowns. Consumer lending totaled $74
billion at March 31, 2009 and December 31, 2008. Increases in
education and residential mortgage loans were somewhat offset by a
decline in home equity installment loans. PNC is committed to
providing credit and liquidity to qualified borrowers. Total loan
originations and new commitments and renewals were approximately
$26 billion in the first quarter of 2009, including $6.9 billion of
originations for increased demand for first mortgages. Loans held
for sale declined to $4.0 billion at March 31, 2009 compared with
$4.4 billion at December 31, 2008 as a result of sales of
commercial mortgages. Investment securities totaled $46 billion at
March 31, 2009 compared with $43 billion at December 31, 2008. The
increase in securities of $2.8 billion since year end reflected the
purchase of U.S. Treasury and government agency securities,
somewhat offset by maturities and prepayments. At March 31, 2009
the investment securities balance included a net unrealized pretax
loss of $4.4 billion, which represented the difference between fair
value and amortized cost, compared with an unrealized loss of $5.4
billion at December 31, 2008. The improvement in the unrealized
pretax loss from year end was the result of improving fair values
in both agency and nonagency securities. Deposits were $195 billion
at March 31, 2009 compared with $193 billion at December 31, 2008.
During the first quarter of 2009 deposits increased $1.8 billion as
a result of deposit growth in many of PNC's markets, partially
offset by the decline of higher rate non-relationship certificates
of deposit. Interest-bearing deposits represented 79 percent of
total deposits at March 31, 2009 compared with 81 percent at
December 31, 2008. Borrowed funds were $48 billion at March 31,
2009 compared with $52 billion at December 31, 2008. The $3.8
billion decline primarily resulted from repayments of Federal Home
Loan Bank and other borrowings. PNC issued $1.0 billion of senior
notes guaranteed by the FDIC under the Temporary Liquidity
Guarantee Program in the first quarter of 2009 and $2.9 billion
during the fourth quarter of 2008. Capital levels were strengthened
during the first quarter of 2009. Higher capital levels were net of
dividend payments, which included $47 million paid to the U.S.
Department of the Treasury during the first quarter of 2009 on $7.6
billion of preferred stock. The company plans to redeem the
Treasury Department's investment as soon as appropriate, subject to
approval by PNC's primary banking regulators. PNC's estimated Tier
1 risk-based capital ratio increased by 50 basis points to 10.2
percent at March 31, 2009 from 9.7 percent at December 31, 2008.
The increase in the ratio was due to higher risk-based capital
primarily from retained earnings coupled with a decline in
risk-weighted assets. PNC's estimated tangible common equity ratio
at March 31, 2009 increased by 40 basis points to 3.3 percent since
December 31, 2008. The higher ratio was primarily due to an
increase in retained earnings, improving securities valuations and
a decrease in tangible assets. The March 31, 2009 ratio would have
been 4.4 percent excluding accumulated other comprehensive loss.
The adjusted ratio is reconciled to the reported ratio in the
Consolidated Financial Highlights section of this release. In April
2009, the PNC board of directors declared a quarterly common stock
cash dividend of 10 cents per share reflecting a reduction from 66
cents per share in the previous quarter. The board's decision,
which was based on consideration of extreme economic and market
deterioration and the changing regulatory environment, is expected
to enhance PNC's common equity position by $1 billion annually,
resulting in approximately 40 basis points annual improvement to
capital ratios. ASSET QUALITY REVIEW Credit quality deterioration
continued during the first quarter reflecting further economic
weakening. PNC increased the allowance for loan and lease losses
during the first quarter to $4.3 billion at March 31, 2009 compared
with $3.9 billion at December 31, 2008. The allowance for loan and
lease losses to total loans was 2.51 percent at March 31, 2009
compared with 2.23 percent at December 31, 2008. The provision for
credit losses for the first quarter of 2009 was $880 million. Net
charge-offs for the first quarter of 2009 were $431 million, or
1.01 percent of average loans, compared with 1.09 percent for the
fourth quarter of 2008. Approximately 42 percent of net charge-offs
were from commercial loans, 28 percent from consumer and
residential real estate loans, and 24 percent from commercial real
estate loans. Nonperforming assets were $3.5 billion at March 31,
2009 compared with $2.2 billion at December 31, 2008. The increase
resulted from the impact of recessionary conditions in the economy
and reflected a $1.1 billion increase in nonperforming commercial
lending and $.2 billion increase in nonperforming consumer lending.
The increase in nonperforming commercial loans was from service
providers, manufacturing and real estate, including residential
real estate development and commercial real estate exposure. The
increase in nonperforming consumer loans was mainly due to
residential mortgage loans. Nonperforming assets to total assets
were 1.21 percent at March 31, 2009 compared with .74 percent at
December 31, 2008. The allowance for loan and lease losses to
nonperforming loans was 145 percent at March 31, 2009 and 236
percent at December 31, 2008. BUSINESS SEGMENT RESULTS Beginning in
the first quarter of 2009, PNC has three new reportable business
segments: Asset Management Group, Residential Mortgage Banking, and
Distressed Assets Portfolio. These new segments are described
further in the Consolidated Financial Highlights section of this
release. Certain prior period information related to the Retail
Banking and Corporate & Institutional Banking segments has been
reclassified to reflect the impact of these new business segments
and other changes to the business and management structure.
Operating results for business segments for periods prior to 2009
do not reflect any impact of National City, other than fourth
quarter 2008 integration costs, which are included in "Other,
including BlackRock." Retail Banking Retail Banking earned $56
million for the first quarter of 2009. Results for the quarter were
challenged in this environment by continued downward credit
migration, a lower interest credit attributed to deposits in the
declining rate environment, reduced consumer spending and increased
FDIC insurance costs. Retail Banking continued to maintain its
focus on customer growth, employee and customer satisfaction,
investing in the business for future growth, as well as disciplined
expense management during this period of market and economic
uncertainty. Retail Banking overview: -- Net new consumer and
business checking relationships for legacy PNC grew by 18,000
during the first quarter of 2009 compared with 9,000 a year
earlier, excluding relationships added from National City and other
acquisitions. -- Average deposits were $135 billion for the first
quarter of 2009. During the quarter demand and money market
deposits grew as higher rate certificates declined. The deposit
strategy of Retail Banking is to remain disciplined on pricing
while targeting specific products and markets for growth. --
Average loans were $57 billion for the first quarter of 2009. Loan
activity during the quarter related primarily to originations of
home equity, credit card and education loans as PNC made credit
available to qualified borrowers. -- Net interest income for the
first quarter of 2009 of $928 million was impacted by a lower
interest credit attributed to deposits in the unprecedented low
rate environment. -- Noninterest income for the first quarter of
2009 was $517 million. Service charges on deposits and consumer
service fees represented 83 percent of noninterest income. These
consumer related fees were negatively impacted during the quarter
by recessionary economic conditions that resulted in lower consumer
spending as well as seasonality of certain fees. -- Noninterest
expense was $1.1 billion for the first quarter of 2009 reflecting
disciplined expense management somewhat offset by continued
investments in the business and rising FDIC insurance costs. --
Provision for credit losses was $303 million for the first quarter
of 2009 and $88 million in the linked quarter. The increase
reflected the acquired loan portfolio which more than doubled the
size of the loan portfolio, higher net charge-offs and continued
downward credit migration in the now larger commercial and consumer
loan portfolios. -- PNC Retail Banking had 2,585 branches and an
ATM network of 6,402 machines at March 31, 2009, giving PNC one of
the largest distribution networks among U.S. banks. During the
first quarter of 2009, PNC opened 7 traditional branches and 14
in-store branches, consolidated 16 branches, and added 170 ATM
machines. As previously announced, agreements were reached to
divest 61 branches during the third quarter of 2009. Corporate
& Institutional Banking Corporate & Institutional Banking
earned $374 million in the first quarter of 2009. Total revenue of
$1.3 billion was strong given the current environment, driven
primarily by net interest income. Noninterest expense was tightly
managed, and earnings were impacted by the provision for credit
losses, indicative of deteriorating credit quality throughout the
economy. Corporate & Institutional Banking overview: -- Net
interest income for the first quarter of 2009 was $1.0 billion, or
79 percent of total revenue, driven by strong loan spreads. --
Corporate service fees were $219 million in the first quarter of
2009. The major components of corporate service fees were treasury
management, corporate finance fees and commercial mortgage
servicing revenue. Treasury management fees continued to be a
strong contributor to revenue. -- Other noninterest income was $55
million for the first quarter of 2009 and primarily consisted of
leasing revenues. -- Noninterest expense of $454 million reflected
tight expense discipline for the first quarter of 2009. --
Provision for credit losses was $285 million in the first quarter
of 2009 reflecting general credit deterioration, particularly in
real estate. Net charge-offs for the first quarter were $169
million. The higher provision in the fourth quarter of 2008, which
did not include National City, was largely driven by the downward
credit migration of residential real estate development loans. --
Average loans were $79 billion for the first quarter of 2009 and
were comprised of 66 percent corporate loans, 25 percent commercial
real estate and related loans, and 9 percent asset based lending.
During the quarter, loan growth slowed across the customer base
reflecting reduced originations, lower utilization levels and
paydowns. -- Average deposits were $33 billion for the first
quarter, including 53 percent noninterest bearing demand and 25
percent money market. During the quarter PNC continued to
experience deposit growth due to a flight to quality including the
return of deposits from National City customers who had previously
moved funds to other institutions. -- The commercial mortgage
servicing portfolio was $269 billion at March 31, 2009 and $249
billion at December 31, 2008. Servicing portfolio additions
continued to be modest due to the declining volumes in the
commercial mortgage securitization market. Asset Management Group
Asset Management Group earned $38 million for the first quarter of
2009 in a time of economic uncertainty and exceptional disruption
in the equity markets. Results were favorably impacted by strong
net interest income on the loan portfolio and strong deposit
growth. Disciplined expense management also contributed to the
solid financial results in spite of the decline in equity market
values and higher provision for credit losses. Asset Management
Group overview: -- Assets under management were $96 billion at
March 31, 2009 compared with $103 billion including National City
at December 31, 2008. The decrease resulted from declining equity
market values. -- Noninterest income for the quarter was $155
million consisting primarily of asset management fees which were
impacted by the decline in equity market values during the quarter.
Other fee income sources provided solid results. -- Net interest
income was $100 million for the quarter. -- Noninterest expense was
$171 million for the first quarter of 2009, reflecting disciplined
expense management somewhat offset by increased costs for FDIC
insurance. -- Provision for credit losses was $17 million for the
quarter reflecting the deteriorating economic environment. Loan net
charge-offs related to continued downward credit migration occurred
in both the commercial and consumer loan portfolios. -- Balance
sheet activity for the quarter included core deposit growth in
demand and money market deposits demonstrating a return to
stability within the former National City franchise. Loan growth
was primarily in consumer lending. Residential Mortgage Banking
Residential Mortgage Banking earned $226 million for the first
quarter of 2009 driven by strong loan origination activity and
favorable income from servicing rights. Residential Mortgage
Banking overview: -- Total loan originations were $6.9 billion for
the first quarter. The strong volume was consistent with industry
trends and was primarily originated under agency (FNMA, FHLMC,
FHA/VA) guidelines. -- Residential mortgage loans serviced for
others totaled $168 billion at March 31, 2009 compared to $173
billion at January 1, 2009. The decrease was due to payoffs
exceeding new direct production during the quarter. -- Noninterest
income was $440 million in the first quarter of 2009 driven by
mortgage servicing rights net hedging gains of $202 million and
loan sale revenue of $175 million that resulted from strong loan
origination refinance volume. -- Net interest income was $87
million in the first quarter of 2009 resulting from higher pipeline
residential mortgage loans held for sale, which benefited from the
strong origination volumes during the quarter. -- Noninterest
expense of $173 million included the addition of personnel costs
associated with strong origination volumes and increased focus on
loan underwriting quality and servicing loss mitigation activities.
Global Investment Servicing Global Investment Servicing earned $10
million for the first quarter of 2009 compared with $30 million for
the first quarter of 2008 and $25 million for the fourth quarter of
2008. Results for first quarter 2009 were negatively impacted by
the continued deterioration of the financial markets and a legal
contingency reserve. Global Investment Servicing overview: --
Servicing revenue totaled $205 million which reflected a decrease
of $33 million, or 14 percent, from the first quarter of 2008 and
$17 million, or 8 percent, from the linked quarter. The decreases
were directly related to declines in equity market values and high
redemption activity which resulted in both lower asset-based fees
and account closures partially offset by increased subaccounting
fees from continued client conversions. -- Operating expense
decreased $6 million, or 3 percent, from the year ago quarter. The
decrease was largely due to actions taken to reduce costs in
response to the decline in revenue from unfavorable market
conditions. -- Global Investment Servicing provided
accounting/administration services for $712 billion of net fund
assets and provided custody services for $361 billion of fund
assets as of March 31, 2009 compared with $1.0 trillion and $476
billion, respectively, at March 31, 2008 and $839 billion and $379
billion, respectively, at December 31, 2008. The decrease in assets
serviced in both comparisons was due to declines in asset values
and fund outflows resulting from market conditions. -- Total fund
assets serviced by Global Investment Servicing were $1.8 trillion
at March 31, 2009 compared with asset servicing levels of $2.6
trillion at March 31, 2008 and $2.0 trillion at December 31, 2008.
Distressed Assets Portfolio Distressed Assets Portfolio segment had
earnings of $23 million for the first quarter of 2009. Earnings
were mainly driven by net interest income of $364 million which was
positively impacted by higher yielding impaired loans largely
offset by provision for credit losses of $259 million that
reflected further deterioration in credit quality during the
quarter. Noninterest expense was $80 million for the quarter with
more than half related to other real estate owned expense and a
significant portion for servicing costs. Distressed Assets
Portfolio overview: -- Total loans were $22 billion at March 31,
2009 compared with $27 billion at December 31, 2008. The decline in
loans during the first quarter was primarily due to net transfers
to core portfolios and net paydowns. -- The loan portfolio included
residential real estate development loans, subprime residential
mortgage loans, brokered home equity loans and certain other
residential real estate loans and cross-border leases. The majority
of the distressed loans were associated with acquisitions,
including $20 billion related to National City at March 31, 2009.
-- As of March 31, 2009, $8.5 billion of loans were deemed impaired
and nonperforming assets were $933 million. -- Loans in this
business segment require special servicing and management oversight
given current market conditions. The business activities of this
segment are primarily risk and asset management activities that are
focused on maximizing value within a defined risk profile. Other,
including BlackRock The "Other, including BlackRock" category, for
the purposes of this release, includes earnings and gains or losses
related to PNC's equity interest in BlackRock and those related to
Hilliard Lyons prior to its sale on March 31, 2008, asset and
liability management activities including net securities gains or
losses and certain trading activities, equity management
activities, provision for credit losses for conforming credit
allowance adjustments related to acquisitions, other integration
costs, differences between business segment performance reporting
and financial statement reporting under generally accepted
accounting principles (GAAP), corporate overhead and intercompany
eliminations. PNC recorded a loss of $197 million in "Other,
including BlackRock" for the first quarter of 2009. Results
included the after-tax impact of other-than-temporary impairment
charges and alternative investment writedowns, equity management
losses and integration costs. These items were somewhat offset by a
gain related to PNC's BlackRock LTIP shares obligation, net
securities gains and BlackRock business segment earnings. The loss
in "Other, including BlackRock" of $308 million for the fourth
quarter of 2008 was primarily due to $380 million of after-tax
integration costs including a conforming provision for credit
losses for National City, market-related impairments and BlackRock
business segment earnings, partially offset by a net gain on the
mark to market of PNC's BlackRock LTIP shares obligation.
CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION PNC Chairman
and Chief Executive Officer James E. Rohr and Chief Financial
Officer Richard J. Johnson will hold a conference call for
investors today at 10:30 a.m. Eastern Time regarding the topics
addressed in this news release and the related financial
supplement. Dial-in numbers for the conference call are (800)
990-2718 or (706) 643-0187 (international). The related financial
supplement and presentation slides to accompany the conference call
remarks may be found at http://www.pnc.com/investorevents. A taped
replay of the call will be available for one week at (800) 642-1687
or (706) 645-9291 (international), conference ID 94188806. In
addition, Internet access to the call (listen only) and to PNC's
first quarter 2009 earnings release, supplemental financial
information and presentation slides will be available at
http://www.pnc.com/investorevents. A replay of the webcast will be
available on PNC's Web site for 30 days. The PNC Financial Services
Group, Inc. (http://www.pnc.com/) is one of the nation's largest
diversified financial services organizations providing retail and
business banking; residential mortgage banking; specialized
services for corporations and government entities, including
corporate banking, real estate finance and asset-based lending;
wealth management; asset management and global fund services.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION We make
statements in this news release and in the conference call
regarding this news release, and we may from time to time make
other statements, regarding our outlook or expectations for
earnings, revenues, expenses, capital levels, liquidity levels,
asset quality and/or other matters regarding or affecting PNC that
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. Forward-looking statements are
typically identified by words such as "believe," "expect,"
"anticipate," "intend," "outlook," "estimate," "forecast," "will,"
"project" and other similar words and expressions. Forward-looking
statements are subject to numerous assumptions, risks and
uncertainties, which change over time. Forward-looking statements
speak only as of the date they are made. We do not assume any duty
and do not undertake to update our forward-looking statements.
Actual results or future events could differ, possibly materially,
from those that we anticipated in our forward-looking statements,
and future results could differ materially from our historical
performance. Our forward-looking statements are subject to the
following principal risks and uncertainties. We provide greater
detail regarding some of these factors in our 2008 Form 10K,
including in the Risk Factors and Risk Management sections of that
report, and in our other SEC filings. Our forward-looking
statements may also be subject to other risks and uncertainties,
including those that we may discuss elsewhere in this news release
or in our filings with the SEC, accessible on the SEC's website at
http://www.sec.gov/ and on or through our corporate website at
http://www.pnc.com/secfilings. We have included these web addresses
as inactive textual references only. Information on these websites
is not part of this document. -- Our businesses and financial
results are affected by business and economic conditions, both
generally and specifically in the principal markets in which we
operate. In particular, our businesses and financial results may be
impacted by: -- Changes in interest rates and valuations in the
debt, equity and other financial markets. -- Disruptions in the
liquidity and other functioning of financial markets, including
such disruptions in the markets for real estate and other assets
commonly securing financial products. -- Actions by the Federal
Reserve and other government agencies, including those that impact
money supply and market interest rates. -- Changes in our
customers', suppliers' and other counterparties' performance in
general and their creditworthiness in particular. -- Changes in
customer preferences and behavior, whether as a result of changing
business and economic conditions or other factors. -- A
continuation of recent turbulence in significant portions of the
U.S. and global financial markets, particularly if it worsens,
could impact our performance, both directly by affecting our
revenues and the value of our assets and liabilities and indirectly
by affecting our counterparties and the economy generally. -- Our
business and financial performance could be impacted as the
financial industry restructures in the current environment, both by
changes in the creditworthiness and performance of our
counterparties and by changes in the competitive landscape. --
Given current economic and financial market conditions, our
forward-looking financial statements are subject to the risk that
these conditions will be substantially different than we are
currently expecting. These statements are based on our current
expectations that interest rates will remain low through 2009 with
continued wide market credit spreads, and our view that national
economic trends currently point to a continuation of severe
recessionary conditions in 2009 followed by a subdued recovery. --
Legal and regulatory developments could have an impact on our
ability to operate our businesses or our financial condition or
results of operations or our competitive position or reputation.
Reputational impacts, in turn, could affect matters such as
business generation and retention, our ability to attract and
retain management, liquidity and funding. These legal and
regulatory developments could include: -- Changes resulting from
the Emergency Economic Stabilization Act of 2008, the American
Recovery and Reinvestment Act of 2009, and other developments in
response to the current economic and financial industry
environment, including current and future conditions or
restrictions imposed as a result of our participation in the TARP
Capital Purchase Program. -- Legislative and regulatory reforms
generally, including changes to laws and regulations involving tax,
pension, bankruptcy, consumer protection, and other aspects of the
financial institution industry. -- Increased litigation risk from
recent regulatory and other governmental developments. --
Unfavorable resolution of legal proceedings or regulatory and other
governmental inquiries. -- The results of the regulatory
examination and supervision process, including our failure to
satisfy the requirements of agreements with governmental agencies.
-- Changes in accounting policies and principles. -- Our issuance
of securities to the U.S. Department of the Treasury may limit our
ability to return capital to our shareholders and is dilutive to
our common shares. If we are unable previously to redeem the
shares, the dividend rate increases substantially after five years.
-- Our business and operating results are affected by our ability
to identify and effectively manage risks inherent in our
businesses, including, where appropriate, through the effective use
of third-party insurance, derivatives and capital management
techniques. -- The adequacy of our intellectual property
protection, and the extent of any costs associated with obtaining
rights in intellectual property claimed by others, can impact our
business and operating results. -- Our ability to anticipate and
respond to technological changes can have an impact on our ability
to respond to customer needs and to meet competitive demands. --
Our ability to implement our business initiatives and strategies
could affect our financial performance over the next several years.
-- Competition can have an impact on customer acquisition, growth
and retention, as well as on our credit spreads and product
pricing, which can affect market share, deposits and revenues. --
Our business and operating results can also be affected by
widespread natural disasters, terrorist activities or international
hostilities, either as a result of the impact on the economy and
capital and other financial markets generally or on us or on our
customers, suppliers or other counterparties specifically. -- Also,
risks and uncertainties that could affect the results anticipated
in forward-looking statements or from historical performance
relating to our equity interest in BlackRock, Inc. are discussed in
more detail in BlackRock's filings with the SEC, including in the
Risk Factors sections of BlackRock's reports. BlackRock's SEC
filings are accessible on the SEC's website and on or through
BlackRock's website at http://www.blackrock.com/. This material is
referenced for informational purposes only and should not be deemed
to constitute a part of this document. In addition, our recent
acquisition of National City Corporation ("National City") presents
us with a number of risks and uncertainties related both to the
acquisition transaction itself and to the integration of the
acquired businesses into PNC. These risks and uncertainties include
the following: -- The anticipated benefits of the transaction,
including anticipated cost savings and strategic gains, may be
significantly harder or take longer to achieve than expected or may
not be achieved in their entirety as a result of unexpected factors
or events. -- Our ability to achieve anticipated results from this
transaction is dependent on the state going forward of the economic
and financial markets, which have been under significant stress
recently. Specifically, we may incur more credit losses from
National City's loan portfolio than expected. Other issues related
to achieving anticipated financial results include the possibility
that deposit attrition or attrition in key client, partner and
other relationships may be greater than expected. -- Litigation and
governmental investigations currently pending against National
City, as well as others that may be filed or commenced relating to
National City's business and activities before the acquisition,
could adversely impact our financial results. -- Our ability to
achieve anticipated results is also dependent on our ability to
bring National City's systems, operating models, and controls into
conformity with ours and to do so on our planned time schedule. The
integration of National City's business and operations into PNC,
which will include conversion of National City's different systems
and procedures, may take longer than anticipated or be more costly
than anticipated or have unanticipated adverse results relating to
National City's or PNC's existing businesses. PNC's ability to
integrate National City successfully may be adversely affected by
the fact that this transaction will result in PNC entering several
markets where PNC did not previously have any meaningful retail
presence. In addition to the National City transaction, we grow our
business from time to time by acquiring other financial services
companies. Acquisitions in general present us with risks, in
addition to those presented by the nature of the business acquired,
similar to some or all of those described above relating to the
National City acquisition. [TABULAR MATERIAL FOLLOWS] The PNC
Financial Services Group, Inc. Consolidated Financial Highlights
(Unaudited) Page 13 FINANCIAL RESULTS Three months ended Dollars in
millions, except per share data March 31 December 31 March 31 2009
(a) 2008 2008 Revenue Net interest income $2,305 $992 $854
Noninterest income 1,566 684 967 Total revenue $3,871 $1,676 $1,821
Provision for credit losses $880 $990 (b) $151 Noninterest expense
$2,328 $1,129 $1,035 Net income (loss) $530 $(246) $384 Net income
(loss) attributable to common shareholders $460 $(269) $377 Diluted
earnings (loss) per common share $1.03 $(.77) $1.09 Cash dividends
declared per common share (c) $.66 $.66 $.63 Cash dividends - TARP
$47 SELECTED RATIOS Net interest margin (d) 3.81% 3.37% 3.09%
Noninterest income to total revenue (e) 40 41 53 Efficiency (f) 60
67 57 Return on: Average tangible common shareholders' equity
20.18% (31.37)% 27.77% Average common shareholders' equity 10.23
(8.70) 10.82 Average assets .77 (.68) 1.10 Certain prior period
amounts included in these Consolidated Financial Highlights have
been reclassified to conform with the current period presentation.
(a) Results for the three months ended March 31, 2009 include the
impact of National City, which we acquired on December 31, 2008.
(b) Includes a $504 million conforming provision for credit losses
related to our National City acquisition. (c) In April 2009, the
PNC board of directors declared a quarterly common stock cash
dividend of 10 cents per share reflecting a reduction from 66 cents
per share in the first quarter of 2009. (d) Calculated as
annualized taxable-equivalent net interest income divided by
average earning assets. The interest income earned on certain
earning assets is completely or partially exempt from federal
income tax. As such, these tax-exempt instruments typically yield
lower returns than taxable investments. To provide more meaningful
comparisons of margins for all earning assets, we use net interest
income on a taxable-equivalent basis in calculating net interest
margin by increasing the interest income earned on tax-exempt
assets to make it fully equivalent to interest income earned on
taxable investments. This adjustment is not permitted under GAAP in
the Consolidated Income Statement. The taxable-equivalent
adjustments to net interest income for the three months ended March
31, 2009, December 31, 2008, and March 31, 2008 were $15 million,
$8 million, and $9 million, respectively. The adjustment for the
three months ended March 31, 2009 includes the impact of National
City. (e) Calculated as noninterest income divided by the sum of
net interest income and noninterest income. (f) Calculated as
noninterest expense divided by the sum of net interest income and
noninterest income. The PNC Financial Services Group, Inc.
Consolidated Financial Highlights (Unaudited) Page 14 March 31
December 31 March 31 2009 (a) 2008 (a) 2008 BALANCE SHEET DATA
Dollars in millions, except per share data Assets $286,422 $291,081
$139,991 Loans 171,373 175,489 70,802 Allowance for loan and lease
losses 4,299 3,917 865 Investment securities 46,253 43,473 28,581
Loans held for sale 4,045 4,366 2,516 Goodwill and other intangible
assets 12,178 11,688 9,349 Equity investments 8,215 8,554 6,187
Deposits 194,635 192,865 80,410 Borrowed funds 48,459 52,240 32,779
Shareholders' equity 26,477 25,422 14,423 Common shareholders'
equity 18,546 17,490 14,416 Accumulated other comprehensive loss
3,289 3,949 779 Book value per common share 41.67 39.44 42.26
Common shares outstanding (millions) 445 443 341 Loans to deposits
88% 91% 88% ASSETS ADMINISTERED (billions) Managed $96 $103 $66
Nondiscretionary 120 125 110 FUND ASSETS SERVICED (billions)
Accounting/administration net assets $712 $839 $1,000 Custody
assets 361 379 476 CAPITAL RATIOS (b) Tier 1 risk-based 10.2% 9.7%
7.7% Total risk-based 13.8 13.2 11.4 Leverage (c) 8.9 17.5 6.8
Tangible common equity (d) 3.3 2.9 4.7 Tangible common equity,
excluding the impact of accumulated other comprehensive income (d)
4.4 4.3 5.3 ASSET QUALITY RATIOS Nonperforming loans to total loans
1.73% .95% .81% Nonperforming assets to total loans and foreclosed
assets 2.02 1.23 .87 Nonperforming assets to total assets 1.21 .74
.44 Net charge-offs to average loans (for the three months ended)
1.01 1.09 .57 Allowance for loan and lease losses to total loans
2.51 2.23 1.22 Allowance for loan and lease losses to nonperforming
loans 145 236 151 (a) Includes the impact of National City, which
we acquired on December 31, 2008. (b) The capital ratios as of
March 31, 2009 are estimated. (c) Tier 1 risk-based capital divided
by adjusted average total assets. The ratio as of December 31, 2008
did not reflect any impact of National City on PNC's adjusted
average total assets. (d) Period-end common shareholders' equity
less goodwill and other intangible assets (net of deferred taxes)
excluding mortgage servicing rights, divided by period-end assets
less goodwill and other intangible assets (net of deferred taxes)
excluding mortgage servicing rights. See page 16 for a
reconciliation of tangible common equity (GAAP basis) to tangible
common equity excluding the impact of accumulated other
comprehensive income ("AOCI"). The PNC Financial Services Group,
Inc. Consolidated Financial Highlights (Unaudited) Page 15 BUSINESS
SEGMENT EARNINGS AND REVENUE (a) (b) In millions Three months ended
March 31 December 31 March 31 Earnings (Loss) 2009 (c) 2008 2008
Retail Banking $56 $69 $137 Corporate & Institutional Banking
374 (54) 25 Asset Management Group 38 22 37 Residential Mortgage
Banking 226 Global Investment Servicing 10 25 30 Distressed Assets
Portfolio 23 Other, including BlackRock (b) (d) (197) (308) 155
Total consolidated net income (loss) $530 $(246) $384 Revenue
Retail Banking $1,445 $668 $741 Corporate & Institutional
Banking 1,314 530 315 Asset Management Group 255 129 145
Residential Mortgage Banking 527 Global Investment Servicing 190
214 228 Distressed Assets Portfolio 377 Other, including BlackRock
(b) (237) 135 392 Total consolidated revenue $3,871 $1,676 $1,821
(a) Our business segment information is presented based on our
management accounting practices and management structure. We refine
our methodologies from time to time as our management accounting
practices are enhanced and our businesses and management structure
change. Beginning in the first quarter of 2009, we have three new
reportable business segments as further described below: Asset
Management Group, Residential Mortgage Banking, and Distressed
Assets Portfolio. These new segments result from our December 31,
2008 acquisition of National City. We have reclassified certain
prior period amounts of our continuing business segments to reflect
the impact of the new segments and other changes to our business
and management structure. Asset Management Group includes personal
wealth management for high net worth and ultra high net worth and
institutional asset management clients. Personal wealth management
products and services include customized investment management,
financial planning, private banking, tailored credit solutions as
well as trust management and administration for affluent
individuals and families. Institutional asset management provides
investment management, custody, and retirement planning services.
The clients served include corporations, unions and charitable
endowments and foundations, located primarily in our geographic
footprint. This segment includes the asset management businesses
acquired with National City and the legacy PNC wealth management
business previously included in Retail Banking. Residential
Mortgage Banking directly originates first lien residential
mortgage loans on a nationwide basis with a significant presence
within the retail banking footprint and also originates loans
through joint venture partners. Mortgage loans represent loans
collateralized by one-to-four-family residential real estate and
are made to borrowers in good credit standing. These loans are
typically underwritten to third party standards and sold to primary
mortgage market aggregators (Fannie Mae, Freddie Mac, Ginnie Mae,
Federal Home Loan Banks and third-party investors) with servicing
retained. The mortgage servicing operation performs all functions
related to servicing first mortgage loans for various investors.
Certain loans originated through our joint ventures are serviced by
a joint venture partner. Distressed Assets Portfolio includes
residential real estate development loans, cross-border leases,
subprime residential mortgage loans, brokered home equity loans and
certain other residential real estate loans. These loans require
special servicing and management oversight given current market
conditions. The majority of these loans are from acquisitions,
primarily National City. (b) We consider BlackRock to be a separate
reportable business segment but have combined its results with
Other for this presentation. Our first quarter 2009 Form 10-Q will
include additional information regarding BlackRock. (c) Includes
the impact of National City, which we acquired on December 31,
2008. (d) The $504 million conforming provision for credit losses
related to the National City acquisition was included in this
business segment for the fourth quarter of 2008. The PNC Financial
Services Group, Inc. Consolidated Financial Highlights (Unaudited)
Page 16 RECONCILIATION OF "AS REPORTED" TO "AS ADJUSTED" TANGIBLE
COMMON EQUITY RATIO Dollars in millions Tangible common equity
ratio (a) March 31 December 31 March 31 2009 (b) 2008 2008 Common
shareholders' equity $18,546 $17,490 $14,416 Add back: AOCI 3,289
3,949 779 Common shareholders' equity, excluding AOCI $21,835
$21,439 $15,195 Goodwill and other intangible assets, net of
deferred taxes $9,448 $9,206 $8,275 Total assets $286,422 $291,081
$139,991 Add back: AOCI assets 2,658 3,282 630 Total assets,
excluding AOCI $289,080 $294,363 $140,621 Tangible common equity
ratio, as reported 3.3% 2.9% 4.7% Add back: AOCI assets 1.1 1.4 .6
Tangible common equity ratio, as adjusted 4.4% 4.3% 5.3% This table
represents a reconciliation of certain GAAP amounts to "As
Adjusted" amounts attributable to accumulated other comprehensive
income ("AOCI"). We have provided these adjusted amounts and
reconciliation so that investors, analysts, regulators and others
will be better able to evaluate the impact of these respective
items on our tangible common equity ratio as of the periods
presented. We believe that information as adjusted for the impact
of the specified items may be useful due to the extent to which
these items are not indicative of our ongoing operations. Adjusted
information supplements our results as reported in accordance with
GAAP and should not be viewed in isolation from, or as a substitute
for, our GAAP results. (a) Period-end common shareholders' equity
less goodwill and other intangible assets (net of deferred taxes)
excluding mortgage servicing rights, divided by period-end assets
less goodwill and other intangible assets (net of deferred taxes)
excluding mortgage servicing rights. (b) Estimated. CONTACTS:
MEDIA: Brian E. Goerke (412) 762-4550 INVESTORS: William H.
Callihan (412) 762-8257 DATASOURCE: The PNC Financial Services
Group, Inc. CONTACT: Media, Brian E. Goerke, +1-412-762-4550, , or
Investors, William H. Callihan, +1-412-762-8257, , both of The PNC
Financial Services Group, Inc. Web Site: http://www.pnc.com/
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