PNC Reports Second Quarter Net Income of $207 Million
Earnings reduced by special FDIC assessment and integration costs
Capital, liquidity and loan loss reserves continued to strengthen
PITTSBURGH, July 23 /PRNewswire-FirstCall/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported net income of $207 million, or $.14 per diluted common share, for the second quarter of 2009. Net income reflected a special FDIC assessment of $.19 per diluted common share and integration costs of $.20 per diluted common share. For the first six months of 2009, the company earned net income of $737 million, or $1.16 per diluted common share.
"Our businesses performed well in the second quarter given the extremely challenging economic environment. We increased our loan loss reserves again this quarter as credit quality deteriorated with the broader economy," said James E. Rohr, chairman and chief executive officer. "Despite the current recession, sales were above expectations and we added clients and deepened customer relationships. Total revenue increased this quarter while we continued to effectively manage expenses and improve our liquidity and capital positions. We see opportunities for further market share growth through the successful implementation of our business model across our expanded franchise."
HIGHLIGHTS
-- PNC grew retail customer accounts and increased average transaction
deposits by $6.6 billion during the quarter, further strengthening its
liquidity position and core funding level to an 87 percent loan to
deposit ratio at June 30, 2009. The company reduced brokered
certificates of deposit as reflected in the $5.4 billion decline in
average other time deposits, substantially reducing the overall cost of
deposit funding.
-- PNC remains committed to responsible lending, essential to economic
recovery. Loans and commitments of approximately $29 billion were
originated and renewed during the second quarter as the company
continued to make credit available.
-- PNC raised $624 million in new common equity at market prices through
the issuance of 15 million shares of common stock in May 2009. PNC plans
to redeem the preferred shares issued under the TARP Capital Purchase
Program when appropriate in a shareholder-friendly manner, subject to
approval by its banking regulators.
-- Capital levels continued to strengthen. During the quarter PNC added 50
basis points to the estimated Tier 1 risk-based capital ratio which was
10.5 percent at June 30, 2009 and added 40 basis points to the estimated
Tier 1 common equity ratio which was 5.3 percent at June 30, 2009.
-- Pretax pre-provision earnings of $1.3 billion exceeded credit costs of
$1.1 billion. Total revenue was $4.0 billion for the quarter, reflecting
the diversification of PNC's revenue streams and the strength of
noninterest income sources. Expenses remained well controlled and
increased primarily due to the special FDIC assessment and integration
costs related to the National City acquisition.
-- As expected, credit quality continued to deteriorate during the second
quarter reflecting the weakened economy, but at a slower rate. PNC
increased loan loss reserves beyond net charge-offs by $292 million,
strengthening the ratio of allowance for loan and lease losses to total
loans to 2.77 percent at June 30, 2009 from 2.51 percent at March 31,
2009. Net charge-offs to average loans increased to 1.89 percent for the
second quarter from 1.01 percent for the first quarter of 2009. The
increase in net charge-offs was consistent with $2.8 billion of reserves
for expected losses established for National City loans on acquisition
date.
-- The acquisition of National City Corporation continued to exceed
expectations.
-- The transaction was accretive to first half earnings and is expected
to be accretive for the full year.
-- Cost savings in the first half of 2009 reached an annualized level
of approximately $500 million, ahead of plan and tracking to achieve
the $1.2 billion two-year goal.
-- Plans are in place for the required divestiture of 61 branches in
the third quarter of 2009.
-- Integration activities are proceeding on schedule. National City
customers will begin to be converted to the PNC platform in November
2009.
-- The combined company remains focused on delivering the PNC brand for
client and business growth.
For the first quarter of 2009, net income was $530 million, or $1.03 per diluted common share. Net income was $901 million, or $2.54 per diluted common share, for the first six months of 2008.
PNC acquired National City on December 31, 2008. PNC's consolidated balance sheet and financial ratios as of June 30, 2009, March 31, 2009 and December 31, 2008 and for both quarters of 2009 reflect the acquisition. PNC's consolidated income statement beginning with the first quarter of 2009 includes operating results of National City. The substantial increase in all income statement comparisons to the prior year, except as noted, is primarily due to the operating results of National City.
CONSOLIDATED REVENUE REVIEW
Net interest income totaled $2.2 billion for the second quarter of 2009 compared with $1.0 billion for second quarter 2008 and $2.3 billion for first quarter 2009. The net interest margin was 3.60 percent for the second quarter of 2009 compared with 3.47 percent in the second quarter of 2008 and 3.81 percent for the first quarter of 2009. The decrease in net interest income and margin in the linked quarter comparison was primarily due to a reduction in loan demand partially offset by lower deposit rates and borrowing costs. As loan balances have declined, PNC has invested in lower risk assets, such as U.S. Treasury and government agency securities, and maintained increased balances in interest earning accounts with the Federal Reserve.
Noninterest income was $1.8 billion for the second quarter of 2009 compared with $1.1 billion for the same quarter of 2008 and $1.6 billion for the first quarter of 2009. Noninterest income increased 15 percent compared with the linked quarter primarily due to higher gains on asset sales, improved asset valuations and customer-related fee income somewhat offset by lower net gains on hedging residential mortgage servicing rights. Asset management revenue, corporate and consumer service fees, and service charges on deposits increased in the comparison.
Asset sales included net securities gains of $182 million for the second quarter of 2009 compared with $8 million for the second quarter of 2008 and $56 million in the first quarter of 2009. Second quarter 2009 securities gains related primarily to sales of agency residential mortgage-backed securities.
Improved asset valuations resulted in better trading results and lower losses on private equity and alternative investments compared with the linked quarter. First quarter 2009 included a gain of $103 million related to PNC's BlackRock long-term incentive plan (LTIP) programs shares obligation. There was no impact from the LTIP obligation in the second quarter of 2009 as a result of the first quarter 2009 restructuring of PNC's ownership of BlackRock equity.
CONSOLIDATED EXPENSE REVIEW
Noninterest expense for the second quarter of 2009 was $2.7 billion compared with $1.1 billion in the prior year second quarter and $2.3 billion for the first quarter of 2009. The linked quarter increase of $330 million included a special FDIC assessment of $133 million and integration costs of $125 million. Integration costs in noninterest expense were $13 million for the second quarter of 2008 and $52 million in the first quarter of 2009. Annualized acquisition cost savings of approximately $500 million were realized by the second quarter of 2009, on track to achieve the $1.2 billion two-year goal of reducing combined company annualized noninterest expense.
CONSOLIDATED BALANCE SHEET REVIEW
Total assets were $280 billion at June 30, 2009 compared with $286 billion at March 31, 2009. The decrease was primarily due to a decline in loan demand somewhat offset by an increase in lower risk investment securities.
Average loans were $169 billion for the quarter and decreased $4.9 billion, or 3 percent, compared with the first quarter of 2009 mainly as a result of a $3.7 billion, or 5 percent, decline in average commercial loans and a $.7 billion, or 1 percent, decline in average consumer credits. Reduced loan demand as well as paydowns and lower utilization levels on commercial loans contributed to the decreases. PNC is committed to providing credit and liquidity to qualified borrowers. Total loan originations and new commitments and renewals were approximately $29 billion in the second quarter of 2009, including $6.4 billion of originations for first mortgages, and were $26 billion in the first quarter of 2009.
Average loans held for sale increased to $4.8 billion in the second quarter of 2009 compared with $4.5 billion for the first quarter of 2009. At June 30, 2009, residential mortgages comprised 62 percent of total loans held for sale and commercial mortgages represented 33 percent.
Average investment securities for the second quarter of 2009 were $51 billion, an increase of 3 percent compared with the linked quarter. The increase was primarily due to purchases of government agency and U.S. Treasury securities, partially offset by sales of agency residential mortgage-backed securities and maturities and prepayments. The June 30, 2009 investment securities balance included a net unrealized pretax loss of $3.8 billion representing the difference between fair value and amortized cost compared with a net unrealized pretax loss of $4.4 billion at March 31, 2009. The lower unrealized pretax loss was primarily the result of improving market liquidity of commercial and nonagency residential mortgage-backed securities.
Average deposits were $193 billion for the second quarter of 2009 compared with $192 billion in the linked quarter. Average money market, interest-bearing demand and savings deposits increased $4.5 billion, or 6 percent, during the second quarter as a result of relationship growth in many of PNC's markets. Average demand and other noninterest-bearing deposits grew $2.5 billion, or 6 percent, in the second quarter and represented 22 percent of total deposits at June 30, 2009. Average other time deposits declined $5.4 billion, or 51 percent, during the quarter primarily as a result of the allowed run off of brokered certificates of deposit. This contributed to the $4.2 billion decline in total deposits at June 30, 2009 to $190 billion compared with March 31, 2009.
Average borrowed funds for the second quarter of 2009 were $46 billion, a decline of $1.7 billion, or 4 percent, compared with the first quarter of 2009. The decrease was primarily due to repayments and maturities of Federal Home Loan Bank borrowings and bank notes and senior debt partially offset by the second quarter issuance of $1.0 billion of senior notes, which were not issued under the FDIC debt guarantee program.
Capital levels were further strengthened during the second quarter of 2009. PNC raised $624 million in new common equity through the issuance of 15 million shares of common stock in May 2009 through an "at the market" offering, following the results of the Supervisory Capital Assessment Program stress test. As required, PNC filed a capital plan which was accepted by its regulators.
In April 2009, the PNC board of directors declared a quarterly common stock cash dividend of 10 cents per share. Preferred stock dividends included $95 million paid 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 in a shareholder-friendly manner, subject to approval by its banking regulators.
PNC's estimated Tier 1 risk-based capital ratio increased by 50 basis points to 10.5 percent at June 30, 2009 from 10.0 percent at March 31, 2009. The estimated Tier 1 common equity ratio increased by 40 basis points to 5.3 percent at June 30, 2009 from 4.9 percent at March 31, 2009. The increase in the ratios was primarily due to higher capital from the common equity issuance and retained earnings combined with lower risk-weighted assets which were partially offset by the impact of higher goodwill.
ASSET QUALITY REVIEW
While credit quality deterioration continued as expected during the second quarter reflecting the weak economy, PNC's pretax pre-provision earnings of $1.3 billion exceeded the provision for credit losses of $1.1 billion. PNC increased the allowance for loan and lease losses during the second quarter to $4.6 billion at June 30, 2009 compared with $4.3 billion at March 31, 2009. The allowance for loan and lease losses to total loans was 2.77 percent at June 30, 2009 compared with 2.51 percent at March 31, 2009.
PNC increased loan loss reserves beyond net charge-offs. Net charge-offs for the second quarter of 2009 were $795 million, or 1.89 percent of average loans, compared with $431 million, or 1.01 percent, for the first quarter of 2009. The $364 million increase in net charge-offs was reflective of overall recessionary economic conditions and included higher net charge-offs of $131 million in commercial loans, $127 million in residential real estate loans and $62 million in consumer loans. Net charge-offs for the second quarter of 2009 attributable to National City loans were $463 million, or 58 percent of total net charge-offs. PNC had established reserves of $2.8 billion for expected losses on National City loans on acquisition date.
Nonperforming assets were $4.5 billion at June 30, 2009 compared with $3.5 billion at March 31, 2009, an increase of $1.0 billion in the second quarter compared with an increase of $1.3 billion in the first quarter. Nonperforming assets increased during the quarter to 2.74 percent of total loans and foreclosed and other assets at June 30, 2009 compared with 2.05 percent at March 31, 2009. The increase related primarily to the residential housing market and included a $.4 billion increase in nonperforming commercial real estate loans, mainly residential real estate development projects, and a $.4 billion increase in nonperforming residential real estate loans. Nonperforming assets to total assets were 1.62 percent at June 30, 2009 compared with 1.23 percent at March 31, 2009. The allowance for loan and lease losses to nonperforming loans was 113 percent at June 30, 2009 and 145 percent at March 31, 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 for business segments for periods prior to 2009 do not reflect any impact of National City.
Retail Banking
Retail Banking earned $60 million for the second quarter of 2009 compared with $50 million for the first 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. Net new consumer and business checking relationships grew
by 14,000 during the second quarter of 2009. Additionally, online
banking and online bill payment active customers each grew 2 percent
during the quarter.
-- Employee engagement and customer satisfaction/loyalty results are
tracking at all time highs. PNC recently received the "Gallup Great
Workplace Award" in recognition of its extraordinary ability to
create an engaged workplace culture.
-- Average deposit balances increased $2.0 billion over the linked quarter
due to demand, money market and savings deposit growth that was
partially offset by the planned run off of higher rate certificates of
deposit net of the successful retention of customer relationships. 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.
-- Average loan balances decreased $453 million compared with the linked
quarter as education loan growth was offset by declines in commercial,
home equity and residential mortgage loans. In the current environment,
demand for commercial and home equity loans is being outpaced by
paydowns and charge-offs.
-- Net interest income for the second quarter of 2009 declined $19 million,
or 2 percent, compared with the linked quarter primarily as a result of
declining loan portfolio spreads and balances.
-- Noninterest income for the quarter increased $44 million, or 8 percent,
compared with the linked quarter as service charges on deposits and
consumer service fees increased 8 percent and 9 percent, respectively,
while brokerage fees remained relatively flat.
-- Noninterest expense for the second quarter increased 1 percent compared
with the linked quarter. Expenses were well managed as continued
investments in distribution channels were partially offset by reductions
in expenses from acquisitions.
-- Provision for credit losses was $304 million for both the second and
first quarters of 2009.
-- Retail Banking had 2,606 branches and an ATM network of 6,474 machines
at June 30, 2009 giving PNC one of the largest distribution networks
among U.S. banks. During the second quarter of 2009, PNC opened 4
traditional branches and 23 in-store branches, consolidated 6 branches
and added 72 ATMs.
Corporate & Institutional Banking
Corporate & Institutional Banking earned $111 million in the second quarter of 2009 compared with $359 million in the first quarter of 2009. The reduction reflects a higher provision for credit losses indicative of deteriorating economic conditions. Total revenue remained strong at $1.3 billion and was essentially flat with the first quarter of 2009.
Corporate & Institutional Banking overview:
-- Net interest income for the second quarter of 2009 was $885 million, a
decrease of $138 million compared with the first quarter of 2009
primarily due to a decline in higher risk and relatively higher yielding
loans.
-- Corporate service fees were $236 million in the second quarter of 2009
compared with $218 million in the linked quarter. The increase was
primarily from new business activity and higher corporate finance fees.
-- Other noninterest income increased $115 million to $169 million in the
second quarter of 2009 compared with the first quarter mainly due to
higher capital markets activity.
-- Noninterest expense was $470 million in the second quarter of 2009
compared with $436 million in the first quarter of 2009. The increase
was primarily due to higher credit-related costs, a loss on the
disposition of repossessed assets and a lease residual impairment.
-- Provision for credit losses was $649 million in the second quarter of
2009 compared with $287 million in the first quarter and resulted from
credit deterioration primarily in real estate and transportation related
portfolios. Net charge-offs for the second quarter were $322 million, a
$152 million increase compared with the linked quarter.
-- Average loans were $74 billion for the second quarter of 2009 compared
with $78 billion in the first quarter of 2009. The decrease was due to
slower loan demand across the customer base reflecting reduced
originations as well as lower utilization levels, paydowns and higher
net charge-offs.
-- Average deposits were $36 billion in the second quarter of 2009, an
increase of $3 billion, or 10 percent, compared with the first quarter
of 2009. PNC continued to experience deposit growth, particularly in
money market and noninterest-bearing demand, driven largely by customer
safety considerations.
-- The commercial mortgage servicing portfolio was $269 billion at June 30,
2009 compared with $248 billion at June 30, 2008 and $269 billion at
March 31, 2009. Servicing portfolio additions continued to be modest and
focused on agency portfolios, and were offset in the second quarter of
2009 by repayments and transfers.
Asset Management Group
Asset Management Group earned $8 million for the second quarter of 2009 compared with $39 million for the first quarter of 2009. The earnings decline was primarily attributable to a higher provision for credit losses and lower net interest income. Continued focus on the fundamentals of customer growth and expense management provided solid revenue, increased client satisfaction, stable retention and lower noninterest expense despite the economic environment.
Asset Management Group overview:
-- Assets under management increased to $98 billion at June 30, 2009
compared with $96 billion at March 31, 2009 due to higher equity market
values.
-- Noninterest income for the quarter declined $3 million compared with the
linked quarter due to a seasonal decline in tax services revenue
partially offset by higher asset management fees reflecting improved
equity market values.
-- Net interest income for the quarter declined $21 million compared with
the first quarter of 2009 due to a reduction of higher yielding loans.
Personal wealth management products include traditional loans and
deposits.
-- Noninterest expense for the quarter declined due to continued expense
discipline.
-- Provision for credit losses was $46 million for the second quarter of
2009 compared with $17 million in the linked quarter. Loan loss reserves
were increased beyond net charge-offs as credit quality continued to
deteriorate.
-- Balance sheet activity for the quarter reflected a stable loan portfolio
compared with the linked quarter as home equity loan growth largely
offset declines in commercial and residential mortgage loans. Average
deposits for the quarter declined $568 million compared with the first
quarter due to seasonal outflows related to customer tax payments, the
internal reassignment of balances to another business segment and the
planned run off of higher rate certificates of deposit. These decreases
were partially offset by deposit growth that resulted from the recapture
of former National City customers and successful retention and
acquisition efforts.
Residential Mortgage Banking
Residential Mortgage Banking earned $88 million in the second quarter of 2009 compared with $221 million for the first quarter. The decline was driven primarily by lower net mortgage servicing rights hedging gains and reduced loan sales revenue.
Residential Mortgage Banking overview:
-- Total loan originations were $6.4 billion for the second quarter
compared with $6.9 billion in the linked quarter, reflecting strong
refinancing activity consistent with industry trends. However, rising
mortgage rates reduced incoming application pipeline volume. Loans were
primarily originated through direct channels under agency (FNMA, FHLMC,
FHA/VA) guidelines.
-- Residential mortgage loans serviced for others totaled $161 billion at
June 30, 2009 compared with $168 billion at March 31, 2009 as payoffs
exceeded new direct loan origination volume during the quarter.
-- Noninterest income was $245 million in the second quarter of 2009
compared with $438 million in the first quarter of 2009. Net hedging
gains on mortgage servicing rights were $58 million for the second
quarter, a decrease of $144 million compared with the prior quarter.
Loan sales revenue declined by $23 million in the linked quarter
comparison primarily due to a reduction in the mortgage loan pipeline.
-- Net interest income was $80 million in the second quarter of 2009
compared with $82 million in the first quarter.
-- Noninterest expense was $176 million for the second quarter of 2009 and
relatively flat compared with $173 million in the linked quarter.
-- The carrying value of mortgage servicing rights was $1.5 billion at June
30, 2009 compared with $1.0 billion at March 31, 2009. The increase was
primarily attributable to a higher fair value of the asset resulting
from rising interest rates during the quarter and a steepening of the
interest rate curve which increased the expected cash flows associated
with this asset due to lower prepayment risk.
Global Investment Servicing
Global Investment Servicing earned $12 million for the second quarter of 2009 compared with $33 million for the second quarter of 2008 and $10 million for the first quarter of 2009. Results for second quarter 2009 were hampered by the continued negative impact of the financial markets on servicing revenue and an increase to a legal contingency reserve established in the first quarter of 2009.
Global Investment Servicing overview:
-- Servicing revenue totaled $199 million which reflected a decrease of $45
million, or 18 percent, from the second quarter of 2008 and $6 million,
or 3 percent, from the linked quarter. The decrease from the prior year
was directly related to declines in equity market values, high
redemption activity, and account closures over the past year which
resulted in lower asset-based and account-based fees. The majority of
the linked quarter decline was due to the seasonal nature of certain
investor services.
-- Operating expense totaled $170 million and decreased $16 million, or 9
percent, from the year ago quarter and $5 million, or 3 percent, from
the first quarter of 2009. The decreases were 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 $774 billion of net fund assets and provided custody services for
$399 billion of fund assets as of June 30, 2009 compared with $988
billion and $471 billion, respectively, at June 30, 2008 and $712
billion and $361 billion, respectively, at March 31, 2009. The decrease
in assets serviced in the prior year comparison was due to declines in
asset values and fund outflows resulting from market conditions, while
increases from the linked quarter reflected a strengthening of the
market during the second quarter.
-- Total fund assets serviced by Global Investment Servicing were $2.0
trillion at June 30, 2009 compared with asset servicing levels of $2.6
trillion at June 30, 2008 and $1.8 trillion at March 31, 2009.
Distressed Assets Portfolio
Distressed Assets Portfolio segment had earnings of $155 million for the second quarter of 2009 compared with $3 million for the first quarter of 2009. Earnings increased primarily due to a lower provision for credit losses.
Distressed Assets Portfolio overview:
-- Net interest income of $295 million for the second quarter of 2009
declined by $36 million compared with the first quarter primarily as a
result of a reduction in higher yielding loans.
-- Noninterest income was $39 million for the second quarter compared with
$13 million in the first quarter of 2009. The increase was primarily due
to the early termination of certain credit insurance and third party
servicing contracts and a reduction in recourse reserves.
-- Noninterest expense was $55 million for the second quarter, a decrease
of $25 million compared with the linked quarter due to lower other real
estate owned expense.
-- The provision for credit losses of $30 million decreased $229 million
due to credit quality stabilizing during the quarter, particularly in
the consumer portfolios.
-- Acquired impaired loans were $8.8 billion at June 30, 2009 compared with
$8.5 billion as of March 31, 2009. Nonperforming assets were $1.3
billion, an increase of $.4 billion from March 31, 2009 primarily in the
residential mortgage portfolio.
-- Loans in this business 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 the value of the portfolios assigned to it.
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, 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 (GAAP), corporate overhead and intercompany eliminations.
PNC recorded a loss of $227 million in "Other, including BlackRock" for the second quarter of 2009 compared with a loss of $152 million for the first quarter of 2009. The higher loss primarily resulted from the special FDIC assessment, higher integration costs in the second quarter and a first quarter gain related to PNC's BlackRock LTIP shares obligation. These items were somewhat offset by the after-tax impact of higher net securities gains, higher trading results, lower losses on private equity and alternative investments, and higher BlackRock business segment earnings.
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 11:00 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 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 17418471.
In addition, Internet access to the call (listen only) and to PNC's second quarter 2009 earnings release, supplemental financial information and presentation slides will be available at 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. (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 first quarter 2009 Form 10Q, 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 www.sec.gov and on or through our corporate website at 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 a continuation of severe recessionary conditions in 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 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 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.
-- 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 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 Consolidated Financial
Services Group, Inc. Highlights (Unaudited)
Page 13
FINANCIAL RESULTS Three months ended Six months ended
------------------ ----------------
Dollars in millions,
except per share data June 30 March 31 June 30 June 30 June 30
2009 (a) 2009 (a) 2008 2009 (a) 2008
------- ------- ---- ------- ----
Revenue
Net interest income $2,182 $2,305 $977 $4,487 $1,831
Noninterest income 1,805 1,566 1,062 3,371 2,029
----- ----- ----- ----- -----
Total revenue 3,987 3,871 2,039 7,858 3,860
Noninterest expense 2,658 2,328 1,103 4,986 2,138
----- ----- ----- ----- -----
Pretax, pre-provision
earnings $1,329 $1,543 $936 $2,872 $1,722
------ ------ ---- ------ ------
Provision for
credit losses $1,087 $880 $186 $1,967 $337
Net income $207 $530 $517 $737 $901
Net income attributable
to common shareholders $65 $460 $505 $525 $882
--- ---- ---- ---- ----
Diluted earnings
per common share $.14 $1.03 $1.45 $1.16 $2.54
Cash dividends declared
per common share $.10 $.66 $.66 $.76 $1.29
Total preferred
dividends declared $119 $51 $170
TARP Capital Purchase
Program preferred
dividends $95 $47 $142
Impact of TARP Capital
Purchase Program
preferred dividends
per common share $.21 $.11 $.32
SELECTED RATIOS
Net interest margin (b) 3.60% 3.81% 3.47% 3.70% 3.28%
Noninterest income
to total revenue (c) 45 40 52 43 53
Efficiency (d) 67 60 54 63 55
Return on:
Average common
shareholders' equity 1.52% 10.23% 14.33% 5.72% 12.59%
Average assets .30 .77 1.47 .53 1.29
----------------------- --- --- ---- --- ----
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 June 30, 2009 and March 31, 2009
and for the six months ended June 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 June 30, 2009, March 31, 2009, and June 30, 2008 were $16
million, $15 million, and $10 million, respectively. The taxable-
equivalent adjustments to net interest income for the six months
ended June 30, 2009 and June 30, 2008 were $31 million and $19
million, respectively. The adjustments for the three months ended
June 30, 2009 and March 31, 2009 and for the six months ended
June 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 Consolidated Financial
Services Group, Inc. Highlights (Unaudited)
Page 14
June 30 March 31 June 30
2009 (a) 2009 (a) 2008
------- ------- ----
BALANCE SHEET DATA
Dollars in millions, except per share data
Assets $279,754 $286,422 $142,771
Loans 165,009 171,373 73,040
Allowance for loan and lease losses 4,569 4,299 988
Investment securities 49,969 46,253 31,032
Loans held for sale 4,662 4,045 2,288
Goodwill and other intangible assets 12,890 12,178 9,928
Equity investments 8,168 8,215 6,376
Deposits 190,439 194,635 84,689
Borrowed funds 44,681 48,459 32,472
Shareholders' equity 27,294 26,477 15,108
Common shareholders' equity 19,363 18,546 14,602
Accumulated other comprehensive loss 3,101 3,289 1,227
Book value per common share 42.00 41.67 42.17
Common shares outstanding (millions) 461 445 346
Loans to deposits 87% 88% 86%
ASSETS ADMINISTERED (billions)
Managed $98 $96 $67
Nondiscretionary 124 120 110
FUND ASSETS SERVICED (billions)
Accounting/administration net assets $774 $712 $988
Custody assets 399 361 471
CAPITAL RATIOS (b)
Tier 1 risk-based 10.5% 10.0% 8.2%
Tier 1 common 5.3 4.9 5.7
Total risk-based 14.1 13.6 11.9
Leverage 9.1 8.9 7.3
ASSET QUALITY RATIOS
Nonperforming loans to total loans 2.44% 1.73% .95%
Nonperforming assets to total loans
and foreclosed and other assets 2.74 2.05 1.00
Nonperforming assets to total assets 1.62 1.23 .51
Net charge-offs to average loans
(for the three months ended) 1.89 1.01 .62
Allowance for loan and lease losses to
total loans 2.77 2.51 1.35
Allowance for loan and lease losses to
nonperforming loans 113 145 142
-------------------------------------- --- --- ---
(a) Includes the impact of National City, which we acquired on December
31, 2008.
(b) The capital ratios as of June 30, 2009 are estimated.
The PNC Financial Consolidated Financial
Services Group, Inc. Highlights (Unaudited)
Page 15
BUSINESS SEGMENT
EARNINGS AND REVENUE (a) (b)
In millions
Three months ended Six months ended
------------------ ----------------
June 30 March 31 June 30 June 30 June 30
Earnings (Loss) 2009 (c) 2009 (c) 2008 2009 (c) 2008
--------------- ------- ------- ---- ------- ----
Retail Banking $60 $50 $81 $110 $218
Corporate & Institutional
Banking 111 359 159 470 184
Asset Management Group 8 39 34 47 71
Residential Mortgage Banking 88 221 309
Global Investment Servicing 12 10 33 22 63
Distressed Assets Portfolio 155 3 158
Other, including
BlackRock (b) (227) (152) 210 (379) 365
------------------------- ---- ---- --- ---- ---
Total consolidated
net income $207 $530 $517 $737 $901
------------------------- ---- ---- ---- ---- ----
Revenue
-------- ------ ------ ---- ------ ------
Retail Banking $1,466 $1,441 $659 $2,907 $1,400
Corporate & Institutional
Banking 1,290 1,295 566 2,585 881
Asset Management Group 226 250 147 476 292
Residential Mortgage Banking 325 520 845
Global Investment Servicing 188 190 237 378 465
Distressed Assets Portfolio 334 344 678
Other, including
BlackRock (b) 158 (169) 430 (11) 822
-------------------------- --- ---- --- --- ---
Total consolidated
revenue $3,987 $3,871 $2,039 $7,858 $3,860
-------------------------- ------ ------ ------ ------ ------
(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 second 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
corporate.communications@pnc.com
INVESTORS:
William H. Callihan
(412) 762-8257
investor.relations@pnc.com
SOURCE The PNC Financial Services Group, Inc.
Released July 23, 2009