Strong quarterly earnings and capital growth Credit quality
deterioration eases PITTSBURGH, Oct. 22 /PRNewswire-FirstCall/ --
The PNC Financial Services Group, Inc. (NYSE:PNC) today reported
net income of $559 million, or $1.00 per diluted common share, for
the third quarter of 2009 compared with net income of $207 million,
or $.14 per diluted common share, for the second quarter of 2009.
For the first nine months of 2009, the company earned net income of
$1.30 billion, or $2.17 per diluted common share. Net income was
$1.16 billion, or $3.23 per diluted common share, for the first
nine months of 2008. "PNC continued to demonstrate its resiliency
in the economic downturn with strong third quarter earnings
growth," said James E. Rohr, chairman and chief executive officer.
"Once again we delivered pretax pre-provision earnings
significantly in excess of our credit costs resulting in growth in
capital. We strengthened our balance sheet which we believe is well
positioned as the economy begins to recover and the pace of credit
quality deterioration eases. Sales across the franchise were strong
and we see growing momentum as we added clients and deepened
customer relationships in the quarter. We are building on the value
of our combined company and are well prepared for the first wave of
National City client conversions in early November. As our results
demonstrate, we continue to execute against our plans to deliver
significant shareholder value now and in the future." HIGHLIGHTS --
Pretax pre-provision earnings of $1.7 billion exceeded the
provision for credit losses by more than $750 million in the third
quarter of 2009. -- Total revenue of $4.0 billion for the quarter
reflected strong net interest income and noninterest income as
PNC's diverse sources of revenue continued to deliver high quality
results. The net interest margin increased 16 basis points linked
quarter to 3.76 percent for the third quarter of 2009 primarily due
to a substantial reduction in the overall cost of funds. --
Expenses remained well controlled and declined $279 million, or 10
percent, compared with the linked quarter. -- Capital ratios
strengthened as PNC increased the estimated Tier 1 risk-based
capital ratio by 30 basis points to 10.8 percent at September 30,
2009 and added 20 basis points to the estimated Tier 1 common
equity ratio which was 5.5 percent at September 30, 2009. PNC plans
to redeem the preferred shares issued under the TARP Capital
Purchase Program when appropriate and in a shareholder-friendly
manner, subject to approval by its banking regulators. -- PNC
continued to maintain a strong liquidity position with an 87
percent loan to deposit ratio at September 30, 2009 combined with
significant liquid assets and borrowing capacity. Transaction
deposits increased $1 billion during the third quarter, reflecting
growth of approximately $3 billion before the impact of the
required branch divestitures that included $2 billion of
transaction deposits. During the quarter the company continued to
manage deposit pricing, reducing nonrelationship certificates of
deposit. -- Loans declined 3 percent during the quarter to $161
billion reflecting paydowns and reduced demand as customers
decreased debt, as well as net charge-offs. PNC remains committed
to responsible lending, and loans and commitments of approximately
$28 billion were originated and renewed during the third quarter as
the company continued to make credit available. -- Credit quality
deterioration occurred at a slower pace during the third quarter.
PNC strengthened loan loss reserves. The provision for credit
losses exceeded net charge-offs by $264 million and the ratio of
allowance for loan and lease losses to total loans increased to
2.99 percent at September 30, 2009 from 2.77 percent at June 30,
2009. Net charge-offs to average loans were 1.59 percent on an
annualized basis for the third quarter down from 1.89 percent for
the second quarter of 2009. The allowance for loan and lease losses
of $4.8 billion combined with the fair value marks of $6.6 billion
on acquired impaired loans represented approximately 7 percent of
loans outstanding at September 30, 2009. -- Overall the acquisition
of National City Corporation continued to exceed expectations. --
The transaction was accretive to year-to-date earnings and is
expected to be accretive for the full year. -- Cost savings of
approximately $200 million were realized in the third quarter, an
increase of $60 million from the second quarter. This brings
cumulative savings to more than $460 million, ahead of plan and on
track to exceed the $1.2 billion two-year goal. -- The required
divestiture of 61 branches including $4.1 billion of deposits and
$.8 billion of loans was completed by September 4, 2009. -- The
first major conversion of National City customers to the PNC
platform is scheduled for completion by November 9, 2009, with the
remaining conversions to be completed by June 2010. --
Consolidation of bank charters is planned for early November 2009.
-- The combined company is committed to delivering the PNC brand
for client and business growth. PNC acquired National City on
December 31, 2008. Consolidated financial information for all 2009
periods presented includes the impact of the acquisition. The
increase in income statement comparisons to the prior year, except
as noted, is primarily due to operating results of National City.
CONSOLIDATED REVENUE REVIEW Net interest income was $2.2 billion
for both the third and second quarters of 2009 and $1.0 billion for
the third quarter of 2008. The net interest margin increased to
3.76 percent for the third quarter compared with 3.46 percent for
the third quarter of 2008 and 3.60 percent for the second quarter
of 2009. The increase in the net interest margin in the linked
quarter comparison was primarily due to a decline in deposit costs
largely from deposit pricing initiatives and the reduction of high
cost nonrelationship certificates of deposit and to a lower cost of
borrowed funds. PNC continued to invest a portion of its available
liquidity in lower risk assets, such as treasury, government agency
and agency residential mortgage-backed securities, and to reduce
borrowed funds. Noninterest income was $1.8 billion for both the
third and second quarters of 2009 and $654 million for the third
quarter of 2008. Relationship-based fees grew in the linked quarter
comparison as asset management revenue, service charges on
deposits, consumer service fees and fund servicing revenue
increased. Corporate services revenue decreased 5 percent from the
second quarter primarily related to commercial mortgage servicing
rights, and residential mortgage fees declined 16 percent from the
linked quarter driven by lower loan origination revenue from a
reduction in loan refinancing volume. Net securities gains were
$168 million for the third quarter of 2009 compared with $55
million for the third quarter of 2008 and $182 million in the
second quarter of 2009. The third quarter 2009 securities gains
related primarily to sales of non-agency and agency residential
mortgage-backed securities. The net credit component of
other-than-temporary impairments of securities recognized in
earnings was a loss of $129 million in the third quarter of 2009,
down from a loss of $155 million in the second quarter. Other
noninterest income of $314 million in the third quarter of 2009
increased $17 million in the linked quarter comparison and included
net asset valuation improvements. CONSOLIDATED EXPENSE REVIEW
Noninterest expense for the third quarter of 2009 was $2.4 billion
compared with $1.1 billion in the prior year third quarter and $2.7
billion for the second quarter of 2009. The linked quarter decrease
of $279 million, or 10 percent, was primarily due to a special FDIC
assessment of $133 million in the second quarter of 2009, reversal
of $66 million of an indemnification charge related to certain Visa
litigation in the third quarter, cost savings related to the
acquisition and lower integration costs. Integration costs in
noninterest expense were $89 million for the third quarter of 2009,
$125 million for the second quarter of 2009 and $14 million for the
third quarter of 2008. The company realized approximately $200
million in cost savings related to the acquisition in the third
quarter, an increase of $60 million from the second quarter of
2009. This brings cumulative savings to more than $460 million, on
track to exceed the $1.2 billion two-year goal of reducing combined
company annualized noninterest expense. CONSOLIDATED BALANCE SHEET
REVIEW Total assets were $271 billion at September 30, 2009
compared with $280 billion at June 30, 2009. The decrease was
primarily due to a decline in the loan portfolio of $4.4 billion
and lower interest-earning deposits with banks of $9.1 billion
resulting from funding the branch divestitures, which included the
sale of $4.1 billion of deposits and $.8 billion of loans, and
funding a reduction in deposits and borrowed funds. These declines
were somewhat offset by a $4.4 billion increase in investment
securities. Average loans were $162 billion for the third quarter
and decreased $7.0 billion, or 4 percent, compared with the second
quarter of 2009. Average commercial loans declined by $5.1 billion,
or 8 percent, average residential mortgage loans decreased by $1.0
billion, or 5 percent, and average commercial real estate loans
were lower by $.9 billion, or 4 percent. Reduced loan demand,
paydowns, lower utilization levels on commercial loans and net
charge-offs contributed to the decreases. PNC is committed to
providing credit and liquidity to qualified borrowers, and total
loan originations and new commitments and renewals were
approximately $28 billion in the third quarter of 2009, including
$3.6 billion of originations for first mortgages, compared with $29
billion in the second quarter of 2009. Average loans held for sale
declined 22 percent to $3.7 billion in the third quarter of 2009
compared with $4.8 billion for the second quarter as a result of
lower residential mortgage loan originations. Average investment
securities for the third quarter of 2009 were $53 billion, an
increase of 4 percent compared with $51 billion in the linked
quarter, driven by net securities purchases and improving
valuations. During the third quarter, PNC continued to invest a
portion of its available liquidity in lower risk investment
securities, primarily treasury, government agency and agency
residential mortgage-backed securities. This increase was partially
offset by sales, primarily of agency residential mortgage-backed
securities, prepayments and maturities. The September 30, 2009
investment securities balance included a net unrealized pretax loss
of $2.2 billion representing the difference between fair value and
amortized cost compared with net unrealized pretax losses of $3.8
billion at June 30, 2009 and $5.4 billion at December 31, 2008. The
net unrealized pretax loss declined compared with both prior
periods due to improving liquidity and pricing in non-agency
securities markets primarily related to residential and commercial
mortgage-backed securities. Total deposits were $184 billion at
September 30, 2009, a decrease of $6.6 billion from June 30, 2009.
Branch deposits of $4.1 billion were divested during the third
quarter of 2009, comprised of $2.2 billion of transaction and
savings deposits and $1.9 billion of certificates of deposit.
Average deposits declined to $189 billion for the third quarter of
2009 compared with $193 billion in the linked quarter. Average
transaction deposits for the third quarter of $122 billion,
consisting of money market, interest-bearing demand and demand and
other noninterest-bearing deposits, increased $2.3 billion, or 2
percent, during the quarter including the impact of the branch
divestitures. The net increase in transaction deposits resulted
from strong customer relationship growth in many of PNC's markets,
seasonality of certain corporate client balances and customer
preferences for liquidity in the low rate environment. Average
retail certificates of deposit declined by $3.9 billion reflecting
the run off of high cost nonrelationship accounts and the impact of
the branch divestitures. Average other time deposits declined $2.4
billion, or 46 percent, during the quarter primarily as a result of
the allowed run off of brokered certificates of deposit. Average
borrowed funds for the third quarter of 2009 were $43 billion, a
decline of $3.2 billion, or 7 percent, compared with the second
quarter of 2009. The decrease was primarily due to maturities of
$2.8 billion of Federal Home Loan Bank borrowings and $1.4 billion
of bank notes partially offset by the third quarter issuance of
$500 million of senior notes. Capital levels grew during the third
quarter of 2009. PNC increased the estimated Tier 1 risk-based
capital ratio by 30 basis points to 10.8 percent at September 30,
2009 from 10.5 percent at June 30, 2009. The estimated Tier 1
common equity ratio increased by 20 basis points to 5.5 percent at
September 30, 2009 from 5.3 percent at June 30, 2009. The increase
in the ratios was primarily due to higher capital from retained
earnings combined with a reduction in risk-weighted assets. Total
shareholders' equity grew by $3.5 billion during the year to date
to $28.9 billion at September 30, 2009 from $25.4 billion at
December 31, 2008. PNC paid preferred stock dividends of $237
million in the first nine months of 2009 to the U.S. Department of
the Treasury under the TARP Capital Purchase Program on $7.6
billion of preferred stock. PNC plans to redeem the Treasury
Department's investment when appropriate and in a
shareholder-friendly manner, subject to approval by its banking
regulators. In July and October 2009, the PNC board of directors
declared a quarterly common stock cash dividend of 10 cents per
share. ASSET QUALITY REVIEW Credit quality deterioration occurred
at a slower pace during the third quarter of 2009. PNC's pretax
pre-provision earnings of $1.7 billion exceeded the provision for
credit losses for the third quarter of $914 million by $755
million. The provision for credit losses was $1.1 billion in the
second quarter of 2009. The company increased the allowance for
loan and lease losses during the third quarter to $4.8 billion at
September 30, 2009 from $4.6 billion at June 30, 2009. The
allowance for loan and lease losses to total loans increased to
2.99 percent at September 30, 2009 compared with 2.77 percent at
June 30, 2009. Net charge-offs for the third quarter of 2009
declined to $650 million, or 1.59 percent of average loans on an
annualized basis, compared with $795 million, or 1.89 percent, for
the second quarter of 2009. The decrease of $145 million in net
charge-offs was primarily due to lower net charge-offs of $102
million in commercial real estate loans. Nonperforming assets were
$5.6 billion at September 30, 2009 compared with $4.7 billion at
June 30, 2009, an increase of $988 million and lower than the
increase in nonperforming assets between June 30 and March 31, 2009
of $1.1 billion. Nonperforming assets increased during the third
quarter to 3.50 percent of total loans and foreclosed and other
assets at September 30, 2009 compared with 2.81 percent at June 30,
2009. The increase related primarily to a $380 million increase in
nonperforming commercial loans, a $296 million increase in
nonperforming residential real estate loans and a $216 million
increase in nonperforming commercial real estate loans, mainly
residential real estate development projects. Nonperforming assets
to total assets were 2.08 percent at September 30, 2009 compared
with 1.66 percent at June 30, 2009. The allowance for loan and
lease losses to nonperforming loans was 94 percent at September 30,
2009 and 110 percent at June 30, 2009. The allowance for loan and
lease losses of $4.8 billion combined with the fair value marks of
$6.6 billion on acquired impaired loans represented approximately 7
percent of loans outstanding at September 30, 2009. BUSINESS
SEGMENT RESULTS PNC has three new reportable business segments in
2009: Asset Management Group, Residential Mortgage Banking, and
Distressed Assets Portfolio. Certain prior period information has
been reclassified to reflect current methodologies and current
business and management structure. Operating results prior to 2009
do not reflect any impact of National City. Retail Banking Retail
Banking earned $50 million for the third quarter of 2009 compared
with $61 million in the second quarter of 2009. Retail Banking
continued to maintain its focus on customer and deposit 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: -- PNC's customer retention efforts were successful and
met expectations. The required branch divestitures impacted
statistics for net new consumer and business checking
relationships, online banking active customers and online bill
payment active customers during the third quarter of 2009.
Excluding the impact of the required divestitures, checking
relationships grew 1 percent and active online banking and online
bill payment customers grew 3 percent and 4 percent, respectively,
during the quarter. -- Average deposit balances declined $3.6
billion from the second quarter due to the planned run off of
higher rate certificates of deposit net of successful retention of
customer relationships and the impact of branch divestitures. The
deposit strategy of Retail Banking is to remain disciplined on
pricing while targeting specific products and markets for growth. A
continued decline in certificates of deposit is expected for the
remainder of 2009 and into 2010. -- Average loan balances decreased
$371 million compared with the linked quarter as education loan
growth was offset by declines in commercial, floor plan,
residential mortgage and home equity loans. In the current
environment, consumer and commercial loan demand is being outpaced
by refinances, paydowns and charge-offs. -- Net interest income for
the third quarter of 2009 declined $38 million, or 4 percent,
compared with the second quarter primarily as a result of declining
yields assigned to deposits. -- Noninterest income for the quarter
increased $5 million, or 1 percent, compared with the linked
quarter as a result of higher service charges on deposits. --
Noninterest expense for the third quarter declined $25 million, or
2 percent, compared with the second quarter. Expenses were well
managed as continued investments in distribution channels were
partially offset by reductions in expenses from acquisitions and
the required branch divestitures. -- Provision for credit losses
was $313 million for the third quarter of 2009 compared with $304
million in the second quarter. -- Retail Banking had 2,553 branches
and an ATM network of 6,463 machines at September 30, 2009 giving
PNC one of the largest distribution networks among U.S. banks.
During the third quarter of 2009, PNC opened 7 traditional branches
and 3 in-store branches, consolidated 2 branches, added 62 ATMs,
and divested 61 branches and 73 ATMs. Corporate & Institutional
Banking Corporate & Institutional Banking earned $283 million
in the third quarter of 2009 compared with $107 million in the
second quarter of 2009. The increase in earnings resulted from a
lower provision for credit losses. Revenue was strong at $1.3
billion, an increase of 3 percent from the second quarter.
Corporate & Institutional Banking overview: -- Net interest
income for the third quarter of 2009 was $915 million, an increase
of $29 million compared with the second quarter of 2009 primarily
due to higher loan spreads during the third quarter. -- Corporate
service fees were $226 million in the third quarter of 2009
compared with $236 million in the linked quarter. The major
components of corporate service fees are treasury management,
corporate finance fees and commercial mortgage servicing revenue.
The linked quarter decrease was primarily the result of a $16
million recovery in the valuation of commercial mortgage servicing
rights in the previous quarter. -- Other noninterest income
increased $14 million to $175 million in the third quarter of 2009
compared with the second quarter mainly due to higher gains on
sales of impaired and unimpaired loans from portfolio management
activities. -- Noninterest expense was $459 million in the third
quarter of 2009 compared with $467 million in the second quarter.
The decrease was primarily from lower asset impairment costs. --
Provision for credit losses was $426 million in the third quarter
of 2009 compared with $649 million in the second quarter of 2009.
The provision related primarily to real estate, middle market and
transportation related portfolios. Net charge-offs for the third
quarter were $222 million, a $100 million decrease compared with
the linked quarter. The largest decline in net charge-offs was in
the middle market portfolio. -- Average loans were $70 billion for
the third quarter of 2009 compared with $74 billion in the second
quarter of 2009. The decrease was due to lower utilization levels
among middle market and large corporate clients and asset-based
lending clients who had lower inventory and receivable levels. --
Average deposits were $39 billion in the third quarter of 2009, an
increase of $3.4 billion, or 9 percent, compared with the second
quarter. Continued growth occurred primarily in noninterest-bearing
demand and money market deposits, and included seasonal increases
related to tax receipts of municipal and school district customers.
-- The commercial mortgage servicing portfolio was $275 billion at
September 30, 2009 compared with $269 billion at June 30, 2009 and
$247 billion at September 30, 2008. Continued growth in the agency
and conventional servicing portfolios was somewhat offset by a
decline in the commercial mortgage-backed securities servicing
portfolio. Asset Management Group Asset Management Group earned $35
million for the third quarter of 2009 compared with $8 million for
the second quarter of 2009. Assets under management grew 6 percent
during the third quarter, driving higher asset management fees.
Total revenue of $225 million remained strong as the business
continued to focus on client growth, retention and satisfaction.
The increase in quarterly earnings was primarily attributable to a
significantly lower provision for credit losses. Continued emphasis
on cost reduction resulted in lower noninterest expense. Asset
Management Group overview: -- Assets under management increased to
$104 billion at September 30, 2009 compared with $98 billion at
June 30, 2009 due to higher equity market values and improvement in
net flows. Nondiscretionary assets under administration declined by
$11 billion compared with June 30, 2009 due to lower institutional
assets related to the exit of a noncore product offering. --
Noninterest income for the quarter of $155 million increased $4
million compared with the second quarter of 2009 as asset
management fees were positively impacted by the improving equity
markets, new business generation and a shift in assets into higher
yielding equity investments. -- Net interest income for the third
quarter of $70 million decreased $5 million compared with the
linked quarter due to lower yields assigned to deposits in the
declining rate environment and a reduction in higher yield loans.
-- Noninterest expense declined by $5 million to $162 million for
the third quarter compared with the second quarter from continued
expense discipline. -- Provision for credit losses was $9 million
for the third quarter of 2009 compared with $46 million for the
second quarter. The lower provision was attributable to consistent
reserve levels resulting from stable credit quality and lower net
charge-offs. -- Average loan balances decreased $120 million, or 2
percent, compared with the linked quarter as declines in commercial
loans and residential mortgages were somewhat offset by home equity
loan growth. Average deposits for the quarter declined $152
million, or 2 percent, compared with the second quarter due to the
elimination of a deposit sweep product and the planned run off of
high rate certificates of deposit. Residential Mortgage Banking
Residential Mortgage Banking earned $91 million in the third
quarter of 2009 compared with $92 million in the second quarter.
Third quarter earnings were driven by lower noninterest expense and
higher servicing revenue as payoff activity declined, somewhat
offset by reduced loan sales revenue from lower loan origination
volume and lower net interest income. Residential Mortgage Banking
overview: -- Total loan originations were $3.6 billion for the
third quarter compared with $6.4 billion in the linked quarter,
reflecting a significant drop in refinancing activity consistent
with industry trends. Loans were primarily originated through
direct channels under agency (FNMA, FHLMC, FHA/VA) guidelines. --
Residential mortgage loans serviced for others totaled $158 billion
at September 30, 2009 compared with $161 billion at June 30, 2009.
Payoffs slightly exceeded new direct loan origination volume during
the quarter. -- Noninterest income was $209 million in the third
quarter of 2009 compared with $245 million in the second quarter of
2009. The decline was due to lower loan sales revenue which
decreased $68 million in the linked quarter comparison primarily
driven by a reduction in the mortgage loan pipeline and compressed
price margins. Net hedging gains on mortgage servicing rights
increased slightly to $60 million in the third quarter. Loan
servicing fees increased by $28 million over the previous quarter,
benefitting from lower payoff volume. -- Net interest income was
$83 million in the third quarter of 2009 compared with $87 million
in the second quarter. -- Noninterest expense was $141 million for
the third quarter of 2009, down $35 million or 20 percent compared
with the linked quarter. Lower origination volumes contributed to a
decline in personnel expense and foreclosure costs decreased from
second quarter 2009. -- The fair value of mortgage servicing rights
was $1.3 billion at September 30, 2009 compared with $1.5 billion
at June 30, 2009. The decrease was primarily attributable to a
lower fair value of the asset resulting from higher prepayment
expectations due to lower interest rates at the end of the third
quarter of 2009. Global Investment Servicing Global Investment
Servicing earned $19 million for the third quarter of 2009 compared
with $12 million for the second quarter of 2009 and $34 million for
the third quarter of 2008. The increased earnings compared with the
linked quarter were the result of higher net operating income due
to improved markets and lower operating expense, and a legal
contingency reserve recorded in the second quarter of 2009. The
decrease in earnings from the prior year quarter reflected lower
market levels. Global Investment Servicing overview: -- Servicing
revenue totaled $200 million and increased slightly over the linked
quarter. Higher asset based fees resulting from higher equity
markets were offset by lower revenue from client reimbursed
expenses. Servicing revenue declined $43 million, or 18 percent,
from third quarter 2008 due to lower equity market values, high
redemption activity and account closures over the past twelve
months. -- Operating expense totaled $168 million, a decrease of $2
million, or 1 percent, from the second quarter of 2009 and $19
million, or 10 percent, from the third quarter of 2008. The
decreases were largely due to actions taken to reduce costs in
response to the market downturn including job and salary actions in
certain services and renegotiation of vendor contracts. -- Global
Investment Servicing provided accounting/administration services
for $795 billion of net fund assets and custody services for $427
billion of fund assets as of September 30, 2009 compared with $774
billion and $399 billion, respectively, at June 30, 2009 and $907
billion and $415 billion, respectively, at September 30, 2008.
Increases in both categories over the linked quarter reflected the
recovering market and client inflows while the decrease in
accounting/administration net fund assets serviced in the prior
year comparison was due to market levels and the loss of a client.
-- Total fund assets serviced by Global Investment Servicing were
$2.2 trillion at September 30, 2009 compared with asset servicing
levels of $2.0 trillion at June 30, 2009 and $2.3 trillion at
September 30, 2008. Distressed Assets Portfolio Distressed Assets
Portfolio segment had earnings of $39 million for the third quarter
of 2009 compared with $155 million for the second quarter of 2009.
Earnings declined primarily due to a higher provision for credit
losses and lower net interest income. Distressed Assets Portfolio
overview: -- Net interest income was $235 million for the third
quarter of 2009 compared with $295 million for the second quarter
primarily due to lower interest on acquired impaired loans. --
Noninterest income was $19 million for the third quarter compared
with $39 million in the linked quarter. The decrease was mainly due
to early termination of certain credit insurance and third party
servicing contracts and a reduction in recourse reserves in the
second quarter. -- Noninterest expense increased $7 million to $62
million for the third quarter of 2009 compared with the second
quarter due to higher levels of other real estate owned expenses in
the third quarter. -- The provision for credit losses of $127
million increased $97 million compared with the linked quarter as a
result of an increase in required reserves allocated to this
business segment. -- Average loans were $20 billion for the third
quarter of 2009 compared with $22 billion in the second quarter of
2009. The decline in average loans was primarily driven by
scheduled repayments and net charge-offs. -- Acquired impaired
loans declined to $7.8 billion at September 30, 2009 compared with
$8.7 billion at June 30, 2009 primarily as a result of paydowns.
This segment contained 71 percent of the company's acquired
impaired loans at quarter end. -- Loans in this segment require
special servicing and management oversight given current loan
performance and market conditions. Consequently, the business
activities of this segment are focused on maximizing value within a
defined risk profile, including selling assets when the terms and
conditions are appropriate. 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, asset and liability management activities
including net securities gains or losses and certain trading
activities, equity management activities, exited businesses,
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, corporate overhead and intercompany eliminations. PNC
recorded earnings of $42 million in "Other, including BlackRock"
for the third quarter of 2009 compared with a loss of $228 million
for the second quarter of 2009. The higher results were
attributable to the second quarter special FDIC assessment, the
reversal of a portion of an indemnification charge related to
certain Visa litigation in the third quarter, gains on private
equity and alternative investments activities compared with losses
in the second quarter, lower integration costs and higher BlackRock
business segment earnings in the third quarter. CONFERENCE CALL AND
SUPPLEMENTAL FINANCIAL INFORMATION PNC Chairman and Chief Executive
Officer James E. Rohr and Executive Vice President and Chief
Financial Officer Richard J. Johnson will hold a conference call
for investors today at 8:30 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 33973833. In
addition, Internet access to the call (listen only) and to PNC's
third 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," "plan," "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 10-K and
2009 Form 10Qs, including in the Risk Factors and Risk Management
sections of those reports, 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 levels of
unemployment. -- 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 US 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
and regulatory 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 the end of
recessionary conditions in the later half of 2009 followed by a
subdued recovery in 2010. -- 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 legislative and regulatory responses 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. -- Other legislative and
regulatory reforms, including broad-based restructuring of
financial industry regulation as well as 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 other claims 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 US 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, and by our ability to meet evolving regulatory capital
standards. -- 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 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. -- Legal
proceedings or other claims made and governmental investigations
currently pending against National City, as well as others that may
be filed, made 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 has resulted 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 Nine months ended ------------------
----------------- Dollars in millions, September June September
September September except per 30 30 30 30 30 share data 2009 (a)
2009 (a) 2008 2009 (a) 2008 ------- ------- ---- ------- ----
Revenue Net interest income $2,222 $2,182 $1,000 $6,709 $2,831
Noninterest income 1,826 1,805 654 5,197 2,683 ----- ----- ---
----- ----- Total revenue 4,048 3,987 1,654 11,906 5,514
Noninterest expense 2,379 2,658 1,131 7,365 3,269 ----- ----- -----
----- ----- Pretax, pre-provision earnings $1,669 $1,329 $523
$4,541 $2,245 ------ ------ ---- ------ ------ Provision for credit
losses $914 $1,087 $190 $2,881 $527 Net income $559 $207 $259
$1,296 $1,160 Net income attributable to common shareholders $467
$65 $248 $992 $1,130 ---- --- ---- ---- ------ Diluted earnings per
common share $1.00 $.14 $.70 $2.17 $3.23 Cash dividends declared
per common share $.10 $.10 $.66 $.86 $1.95 Total preferred
dividends declared $99 $119 $269 TARP Capital Purchase Program
preferred dividends $95 $95 $237 Impact of TARP Capital Purchase
Program preferred dividends per common share $.21 $.21 $.52
SELECTED RATIOS Net interest margin (b) 3.76% 3.60% 3.46% 3.72%
3.34% Noninterest income to total revenue (c) 45 45 40 44 49
Efficiency (d) 59 67 68 62 59 Return on: Average common
shareholders' equity 8.70% 1.52% 7.44% 6.77% 10.91% Average assets
.81 .30 .72 .62 1.09
--------------------------------------------------------------------------
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
September 30, 2009 and June 30, 2009 and for the nine months ended
September 30, 2009 include the impact of National City, which we
acquired on December 31, 2008. (b) 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 September 30,
2009, June 30, 2009, and September 30, 2008 were $16 million, $16
million, and $9 million, respectively. The taxable-equivalent
adjustments to net interest income for the nine months ended
September 30, 2009 and September 30, 2008 were $47 million and $28
million, respectively. The adjustments for the three months ended
September 30, 2009 and June 30, 2009 and for the nine months ended
September 30, 2009 include the impact of National City. ( c )
Calculated as noninterest income divided by the sum of net interest
income and noninterest income. (d) 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 September 30 June 30
September 30 2009 (a) 2009 (a) 2008 ------- ------- ---- BALANCE
SHEET DATA Dollars in millions, except per share data Assets
$271,407 $279,754 $145,610 Loans 160,608 165,009 75,184 Allowance
for loan and lease losses 4,810 4,569 1,053 Interest-earning
deposits with banks 1,129 10,190 329 Investment securities 54,413
49,969 31,031 Loans held for sale 3,509 4,662 1,922 Goodwill and
other intangible assets 12,734 12,890 9,921 Equity investments
8,684 8,168 6,735 Noninterest-bearing deposits 43,025 41,806 19,225
Interest-bearing deposits 140,784 148,633 65,729 Total deposits
183,809 190,439 84,984 Borrowed funds 41,910 44,681 32,139
Shareholders' equity 28,928 27,294 14,218 Common shareholders'
equity 20,997 19,363 13,712 Accumulated other comprehensive loss
1,947 3,101 2,230 Book value per common share 45.52 42.00 39.44
Common shares outstanding (millions) 461 461 348 Loans to deposits
87% 87% 88% ASSETS ADMINISTERED (billions) Managed $104 $98 $64
Nondiscretionary 113 124 105 FUND ASSETS SERVICED (billions)
Accounting/administration net assets $795 $774 $907 Custody assets
427 399 415 CAPITAL RATIOS (b) Tier 1 risk-based 10.8% 10.5% 8.2%
Tier 1 common 5.5 5.3 5.7 Total risk-based 14.3 14.1 11.9 Leverage
9.6 9.1 7.2 ASSET QUALITY RATIOS Nonperforming loans to total loans
3.19% 2.52% 1.12% Nonperforming assets to total loans and
foreclosed and other assets 3.50 2.81 1.16 Nonperforming assets to
total assets 2.08 1.66 .60 Net charge-offs to average loans (for
the three months ended) (annualized) 1.59 1.89 .66 Allowance for
loan and lease losses to total loans 2.99 2.77 1.40 Allowance for
loan and lease losses to nonperforming loans 94 110 125
---------------------- -- --- --- (a) Includes the impact of
National City, which we acquired on December 31, 2008. (b) The
capital ratios as of September 30, 2009 are estimated. The PNC
Financial Services Group, Inc. Consolidated Financial Highlights
(Unaudited) Page 15 BUSINESS SEGMENT EARNINGS AND REVENUE (a) (b)
In millions Three months ended Nine months ended ------------------
----------------- September June September September September 30
30 30 30 30 Earnings (Loss) 2009 (c) 2009 (c) 2008 2009 (c) 2008
--------------- ------- ------- ---- ------- ---- Retail Banking
$50 $61 $36 $161 $260 Corporate & Institutional Banking 283 107
90 749 271 Asset Management Group 35 8 26 82 97 Residential
Mortgage Banking 91 92 410 Global Investment Servicing 19 12 34 41
97 Distressed Assets Portfolio 39 155 197 Other, including
BlackRock (b) 42 (228) 73 (344) 435 ---------------- -- ---- --
---- --- Total consolidated net income $559 $207 $259 $1,296 $1,160
------------- ---- ---- ---- ------ ------ Revenue -------- ------
------ ---- ------ ------ Retail Banking $1,434 $1,467 $662 $4,342
$2,063 Corporate & Institutional Banking 1,316 1,283 443 3,889
1,328 Asset Management Group 225 226 141 701 431 Residential
Mortgage Banking 292 332 1,152 Global Investment Servicing 198 188
237 576 702 Distressed Assets Portfolio 254 334 932 Other,
including BlackRock (b) 329 157 171 314 990 ---------------- ---
--- --- --- --- Total consolidated revenue $4,048 $3,987 $1,654
$11,906 $5,514 ------------- ------ ------ ------ ------- ------
(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. Certain prior period amounts have been reclassified to
reflect current methodologies and our current business and
management structure. (b) We consider BlackRock to be a separate
reportable business segment but have combined its results with
Other for this presentation. Our third 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. 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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