PNC Reports Full Year 2009 Net Income of $2.4 Billion
Fourth quarter net income was $1.1 billion and $2.17 diluted EPS
Balance sheet well-positioned; excellent opportunities for growth
PITTSBURGH, Jan. 21 /PRNewswire-FirstCall/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported 2009 net income of $2.4 billion, or $4.36 per diluted common share, compared with 2008 net income of $914 million, or $2.44 per diluted common share. Fourth quarter 2009 net income was $1.1 billion, or $2.17 per diluted common share, compared with net income of $559 million, or $1.00 per diluted common share, for the third quarter of 2009.
Net income for 2009 would have been $2.0 billion, or $3.45 per diluted common share, and fourth quarter 2009 net income would have been $521 million, or $.90 per diluted common share, excluding a gain related to the BlackRock acquisition of Barclays Global Investors and integration costs described below. Third quarter 2009 net income would have been $617 million, or $1.12 per diluted common share, and net income for full year 2008 would have been $1.3 billion, or $3.66 per diluted common share, excluding integration costs.
“During the most challenging economic environment of our time, the execution of the PNC business model resulted in exceptional 2009 performance,” said James E. Rohr, chairman and chief executive officer. “Our businesses performed well and customer growth and sales of products and services across the franchise were strong, giving us considerable momentum starting into 2010. We continue to focus on risk management and made significant progress in transitioning to a stronger balance sheet with strengthened loan loss reserves, liquidity and capital.”
Fourth quarter and full year 2009 results included a $687 million after-tax gain related to the BlackRock acquisition of Barclays Global Investors. Results also included after-tax integration costs of $274 million for full year 2009, $101 million for the fourth quarter of 2009, $58 million for the third quarter of 2009 and $422 million for full year 2008.
HIGHLIGHTS
-- PNC remains committed to responsible lending to support economic growth.
Loans and commitments originated and renewed totaled approximately $27
billion in the fourth quarter and $110 billion for the year. Included
were $4 billion of small business loans originated and renewed in 2009,
and PNC has enhanced its second-look programs for small business loan
applications. As of December 31, 2009, PNC had funded approximately
2,100 refinances totaling $.4 billion through the Home Affordable
Refinance Program and over 70,000 solicitations under the Home
Affordable Modification Program had been sent to eligible borrowers.
-- Loans totaled $158 billion at December 31, 2009 and declined 2 percent
during the fourth quarter reflecting a slower pace of decline compared
with the first nine months of 2009.
-- During the year the company effectively managed deposit pricing and
realigned the deposit mix, growing transaction deposits by $15 billion,
or 14 percent, and reducing nonrelationship certificates of deposit by
approximately $16 billion.
-- Pretax pre-provision earnings of $2.7 billion exceeded the provision for
credit losses by $1.7 billion in the fourth quarter of 2009. For the
full year 2009, pretax pre-provision earnings of $7.3 billion exceeded
the provision for credit losses by $3.3 billion.
-- Total revenue was $5.1 billion for the quarter and $17.0 billion for
2009, reflecting PNC’s diverse revenue sources. Net interest income
increased during the quarter primarily due to higher than expected cash
collections on impaired commercial loans. The net interest margin
increased 29 basis points linked quarter to 4.05 percent for the fourth
quarter of 2009 and 45 basis points to 3.82 percent for full year 2009
compared with the same periods in 2008.
-- Expenses of $2.4 billion in the fourth quarter were comparable to the
third quarter as a $100 million increase in acquisition cost savings was
partially offset by a $66 million increase in integration costs. For the
year, expenses were $9.7 billion, including $.4 billion of integration
costs offset by $800 million of acquisition cost savings.
-- The pace of credit quality deterioration continued to ease during the
fourth quarter. Nonperforming assets increased $.7 billion over the
third quarter to $6.3 billion, a lower increase compared with the $1.0
billion increase in the third quarter. PNC strengthened loan loss
reserves for the 11th consecutive quarter. The allowance for loan and
lease losses of $5.1 billion combined with $4.9 billion of marks on
acquired impaired loans represented approximately 6 percent of loans
outstanding at December 31, 2009.
-- Capital ratios continued to grow. The estimated Tier 1 common equity
ratio increased by 50 basis points to 6.0 percent at December 31, 2009
and the estimated Tier 1 risk-based capital ratio increased by 60 basis
points to 11.5 percent as of year end.
-- PNC continued to maintain a strong bank liquidity position with an 84
percent loan to deposit ratio at December 31, 2009. Holding company
liquidity remained strong with sufficient liquid assets to fund 2010
debt maturities and other corporate obligations.
-- The acquisition of National City Corporation exceeded expectations
during 2009.
o The transaction was accretive to each quarter and full year 2009
earnings.
o Cost savings of over $800 million were realized in 2009. PNC increased
its multi-year cost savings goal to $1.5 billion from $1.2 billion and
is on track to meet the new goal.
o PNC successfully completed the first major conversion of National City
customers to the PNC platform in November 2009, with three remaining
conversions on schedule to be completed by June 2010, ahead of
original plans.
o Consolidation of bank charters was completed in November 2009.
PNC acquired National City Corporation on December 31, 2008. Consolidated financial information for all 2009 periods presented includes the impact of the acquisition. PNC’s consolidated balance sheet and financial ratios as of December 31, 2008 also reflected 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 $2.3 billion for the fourth quarter of 2009 compared with $2.2 billion for the third quarter and $1.0 billion for the fourth quarter of 2008. The net interest margin increased to 4.05 percent for the fourth quarter compared with 3.76 percent for the third quarter of 2009 and 3.37 percent for the fourth quarter of 2008. The increase in net interest income and the margin in the linked quarter comparison was primarily due to higher than expected cash collections on impaired commercial loans.
Noninterest income was $2.7 billion for the fourth quarter of 2009 and included a $1.1 billion gain recognized on PNC’s portion of the increase in BlackRock’s equity resulting from the value of BlackRock shares issued in connection with BlackRock’s acquisition of Barclays Global Investors on December 1, 2009. Noninterest income was $1.8 billion for the third quarter of 2009 and $684 million for the fourth quarter of 2008. Aside from the gain, noninterest income declined $165 million compared with the third quarter primarily as a result of a decrease of $100 million in residential mortgage fees due to lower loan sales and servicing revenue. Asset management revenue also decreased $23 million primarily due to PNC’s share of BlackRock's integration costs related to the Barclays Global Investors acquisition. In addition, the net effect of net securities gains and other-than-temporary impairment losses on securities was a decrease to noninterest income of $39 million compared with the third quarter.
Consumer service fees and service charges on deposits each declined 5 percent on a linked quarter basis and reflected the impact of the required branch divestitures completed in early September 2009. Corporate service fees increased 3 percent, fund servicing revenue increased 2 percent and other noninterest income increased 4 percent compared with the third quarter of 2009.
CONSOLIDATED EXPENSE REVIEW
Noninterest expense was $2.4 billion for both the fourth and third quarters of 2009 compared with $1.1 billion in the fourth quarter of 2008. Noninterest expense was relatively unchanged compared with the linked quarter primarily due to an increase in cost savings related to the National City acquisition of approximately $100 million largely offset by higher integration costs. Integration costs were $155 million for the fourth quarter of 2009, $89 million for the third quarter of 2009 and $81 million for the fourth quarter of 2008. In 2009, the company realized approximately $800 million in cumulative cost savings related to the acquisition, exceeding its $600 million target for 2009, and increased its multi-year acquisition-related annualized cost savings goal to $1.5 billion from $1.2 billion.
CONSOLIDATED BALANCE SHEET REVIEW
Total assets were $270 billion at December 31, 2009 compared with $271 billion at September 30, 2009 and $291 billion at December 31, 2008. Interest-earning deposits with banks increased by $3.4 billion, investment securities increased by $1.6 billion and equity investments increased by $1.6 billion while other assets decreased by $4.8 billion, loans declined by $3.1 billion and loans held for sale decreased by $1.0 billion compared with September 30, 2009. The decrease compared with December 31, 2008 was primarily due to a decline in the loan portfolio of $17.9 billion and lower interest-earning deposits with banks of $10.4 billion somewhat offset by a $12.6 billion increase in investment securities.
Average loans were $158 billion for the fourth quarter and decreased $3.7 billion, or 2 percent, linked quarter reflecting a slower pace of decline compared with a 4 percent decrease in the third quarter. Average consumer loans continued to grow, increasing $.8 billion or 2 percent during the fourth quarter. Average commercial loans declined by $2.8 billion, or 5 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. Continuation of 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. Total loan originations and new commitments and renewals were approximately $27 billion in the fourth quarter of 2009 compared with $28 billion in the third quarter, and $110 billion for the year. Included in these amounts were originations for first mortgages of $2.3 billion in the fourth quarter, $3.6 billion in the third quarter and $19 billion for the year.
Loans held for sale averaged $2.9 billion in the fourth quarter of 2009 compared with $3.7 billion for the third quarter. The decrease resulted from lower residential mortgage loan and commercial mortgage loan originations.
Average investment securities for the fourth quarter of 2009 increased 5 percent to $56 billion compared with $53 billion in the third quarter due to net securities purchases. During the fourth quarter, PNC continued to invest in lower risk assets, primarily agency residential mortgage-backed securities and U.S. Treasury and government agency securities. This increase was somewhat offset by maturities, prepayments and sales of agency residential mortgage-backed securities. The December 31, 2009 investment securities balance included a net unrealized pretax loss of $2.3 billion representing the difference between fair value and amortized cost compared with net unrealized pretax losses of $2.2 billion at September 30, 2009 and $5.4 billion at December 31, 2008. The net unrealized pretax loss at December 31, 2009 declined compared with December 31, 2008 due to improving liquidity and pricing in non-agency residential and commercial mortgage-backed securities markets partially offset by the impact of modest interest rate increases.
The increase in equity investments at December 31, 2009 compared with September 30, 2009 was primarily due to BlackRock’s acquisition of Barclays Global Investors. Other assets and other liabilities reflected a decrease during the same period due to a reduction in counterparty credit exposure. Other assets declined further due to a reduction in accounts receivable on securities sold.
Average deposits declined to $186 billion for the fourth quarter of 2009 compared with $189 billion in the third quarter as PNC continued to decrease high-cost certificates of deposit and grow transaction accounts. Average transaction deposits during the fourth quarter grew to $125 billion, an increase of $2.5 billion, or 2 percent, over the third quarter of 2009, even after the impact of the timing of required branch divestitures. Branch deposits of $4.1 billion were divested during the third quarter, comprised of $2.2 billion of transaction and savings deposits and $1.9 billion of certificates of deposit. The linked quarter increase in transaction deposits, which consist of money market, interest-bearing demand and demand and other noninterest-bearing deposits, resulted from 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 $3.8 billion in the fourth quarter reflecting run off of high cost nonrelationship accounts and the impact of the branch divestitures. Average other time deposits declined $1.5 billion during the quarter primarily as a result of the planned run off of brokered certificates of deposit. At December 31, 2009, total deposits were $187 billion compared with $184 billion at September 30, 2009, an increase of $3.1 billion in part reflecting corporate client balances moved from off-balance sheet sweep products to noninterest-bearing demand deposits at year end.
Average borrowed funds for the fourth quarter of 2009 were $40 billion, a decline of $3.4 billion, or 8 percent, compared with the third quarter of 2009. The decrease resulted from the impact of maturities of $1.1 billion of Federal Home Loan Bank borrowings and $.5 billion of subordinated debt in the fourth quarter, as well as the timing of net maturities in the third quarter.
Capital levels continued to grow during the fourth quarter of 2009. PNC increased the estimated Tier 1 common equity ratio by 50 basis points to 6.0 percent at December 31, 2009 from 5.5 percent at September 30, 2009 and 4.8 percent at December 31, 2008. The estimated Tier 1 risk-based capital ratio increased by 60 basis points to 11.5 percent at December 31, 2009 from 10.9 percent at September 30, 2009 and 9.7 percent at December 31, 2008. The increase in the linked quarter ratios was primarily due to higher capital from retained earnings combined with a reduction in risk-weighted assets. Total shareholders’ equity grew by $4.5 billion during the year to $30 billion at December 31, 2009. The PNC board of directors recently declared a quarterly common stock cash dividend of 10 cents per share payable on January 24, 2010.
Dividends paid to the United States Department of the Treasury on $7.6 billion of preferred shares issued under the TARP Capital Purchase Program totaled $332 million for full year 2009, or $.73 per diluted common share. PNC plans to redeem the Treasury Department’s investment in 2010, subject to approval by its banking regulators.
ASSET QUALITY REVIEW
The pace of credit quality deterioration continued to slow in the fourth quarter of 2009. Nonperforming assets were $6.3 billion at December 31, 2009 compared with $5.6 billion at September 30, 2009, an increase of $672 million and lower than the increase in nonperforming assets in the third and second quarters of $988 million and $1.1 billion, respectively. Nonperforming assets to total assets were 2.34 percent at December 31, 2009 compared with 2.08 percent at September 30, 2009.
In addition, early and later stage delinquencies stabilized. Accruing loans past due 30 to 89 days of $2.4 billion at December 31, 2009 were essentially flat with September 30, 2009 compared with an increase of 8 percent in the third quarter. Accruing loans past due 90 days or more of $.9 billion were also essentially flat with the third quarter end.
The provision for credit losses was $1.049 billion for the fourth quarter of 2009 compared with $914 million in the third quarter of 2009. The $135 million increase in the provision primarily resulted from an increase in reserves required for impaired consumer loans. Net charge-offs for the fourth quarter of 2009 increased to $835 million, or 2.09 percent of average loans on an annualized basis, compared with $650 million, or 1.59 percent, for the third quarter of 2009. The increase of $185 million was due to higher commercial real estate loan net charge-offs.
The company increased the allowance for loan and lease losses during the fourth quarter to $5.1 billion at December 31, 2009 from $4.8 billion at September 30, 2009. The allowance for loan and lease losses to total loans increased to 3.22 percent at December 31, 2009 compared with 2.99 percent at September 30, 2009 and the allowance to nonperforming loans was 89 percent at December 31, 2009 and 94 percent at September 30, 2009. The allowance for loan and lease losses of $5.1 billion combined with $4.9 billion of marks on acquired impaired loans represented approximately 6 percent of loans outstanding at December 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 prior to 2009 do not reflect any impact of National City with the exception of the fourth quarter of 2008, which included integration costs and a conforming provision for credit losses related to National City.
Retail Banking
Retail Banking earned $136 million for the full year of 2009 and incurred a loss of $25 million for the fourth quarter of 2009 compared with earnings of $50 million in the third quarter of 2009. Results for the quarter were challenged by increased credit costs and lower interest credits assigned to deposits. Retail Banking continued to maintain its focus on growing customers and deposits, customer and employee 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:
-- Checking relationships increased by 2,000 and active online banking and
online bill payment customers grew by 3 percent and 2 percent,
respectively, during the fourth quarter.
-- Average deposit balances declined $4.3 billion during the fourth quarter
due primarily to required branch divestitures in the third quarter and
the planned run off of higher rate certificates of deposit net of
successful retention of customer relationships. Excluding approximately
$1.4 billion of average transaction deposits from third quarter balances
related to branch divestitures, average transaction deposits increased
$1 billion in the fourth quarter. 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 into 2010.
-- Average loan balances increased $.6 billion compared with the linked
quarter as a result of higher education and credit card loans partially
offset by declines due to branch divestitures in the third quarter and
lower commercial, residential mortgage and home equity loans. In the
current environment, consumer and commercial loan origination is being
outpaced by refinances, paydowns and net charge-offs.
-- Net interest income for the fourth quarter of 2009 declined $32 million,
or 4 percent, compared with the third quarter primarily as a result of
lower interest credits assigned to deposits, reflective of the rate
environment.
-- Noninterest income for the quarter declined $23 million, or 4 percent,
compared with the linked quarter as a result of the impact of branch
divestitures in the third quarter, a decrease in service charges on
deposits related to lower overdraft charges, and lower brokerage fees.
-- Noninterest expense for the fourth quarter declined $29 million, or 3
percent, compared with the third quarter. Expenses were well managed as
continued investments in distribution channels were more than offset by
reductions in expenses from acquisitions and the required branch
divestitures.
-- Provision for credit losses was $409 million for the fourth quarter of
2009 compared with $313 million in the third quarter due to an increase
in reserves required for small commercial loans and the credit card
portfolio.
-- Retail Banking had 2,512 branches and an ATM network of 6,473 machines
at December 31, 2009, giving PNC one of the largest distribution
networks among U.S. banks. During the fourth quarter of 2009, PNC opened
9 traditional branches and 5 in-store branches, consolidated 55 branches
as a result of the first National City conversion in November, and added
10 ATMs.
-- Retail Banking 2009 results were slightly impacted by changes to
overdraft charges, as mentioned above. In 2010, Retail Banking revenue
will be negatively impacted in a more significant manner by 1) the new
rules set forth in Regulation E related to overdraft charges and 2) the
Credit Card Act of 2009. Current estimates are that 2010 earnings will
be impacted by approximately $115 million after tax related to
Regulation E and by approximately $40 million after tax attributable to
the Credit Card Act of 2009. These estimates do not include any
additional negative impact to revenue for other changes that may be made
in 2010 from a customer advocacy perspective or other/additional
regulatory requirements, or any offsetting impact of changes to products
and/or pricing.
Corporate & Institutional Banking
Corporate & Institutional Banking earned $1.2 billion for the full year 2009 and $415 million in the fourth quarter of 2009 compared with $309 million in the third quarter of 2009. Higher linked quarter earnings resulted from an increase in net interest income due to higher than expected cash collections on impaired commercial loans as well as a lower provision for credit losses reflecting a slowing in the pace of credit quality deterioration.
Corporate & Institutional Banking overview:
-- Net interest income for the fourth quarter of 2009 was $1.0 billion, an
increase of $94 million compared with the third quarter of 2009
primarily due to higher than expected cash collections on impaired
commercial loans, an increase in average noninterest-bearing demand
deposits and a higher spread on loans, which more than offset the impact
of a decrease in average loans.
-- Corporate service fees increased to $235 million in the fourth quarter
of 2009 compared with $226 million in the linked quarter. The increase
was primarily the result of higher merger and acquisition advisory fees.
-- Other noninterest income decreased $42 million to $133 million in the
fourth quarter of 2009 compared with the third quarter mainly due to
lower gains on loan sales from portfolio management activities.
-- Noninterest expense was $444 million in the fourth quarter of 2009
compared with $459 million in the third quarter. The decrease was
primarily from lower asset impairment costs largely in the
transportation related portfolio and a decline in compensation-related
costs.
-- Provision for credit losses was $283 million in the fourth quarter of
2009 compared with $384 million in the third quarter of 2009. The
decrease reflected a slowing pace of credit quality deterioration. Net
charge-offs in the fourth quarter totaled $341 million. The $119 million
increase compared with the linked quarter primarily resulted from
commercial real estate loans.
-- Average loans were $67 billion for the fourth quarter of 2009 compared
with $70 billion in the third quarter of 2009. The decrease was due to
lower utilization levels among middle market and large corporate
clients.
-- Average deposits were $43 billion in the fourth quarter of 2009, an
increase of $3.7 billion, or 9 percent, compared with the third quarter.
Continued deposit growth reflected customer movement of balances from
off-balance sheet sweep products into noninterest-bearing demand
deposits.
-- The commercial mortgage servicing portfolio was $287 billion at December
31, 2009 compared with $275 billion at September 30, 2009 and $270
billion at December 31, 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 $105 million for the full year 2009 and $23 million for the fourth quarter of 2009 compared with $35 million for the third quarter of 2009. Assets under administration were $205 billion as of December 31, 2009. Total revenue for full year 2009 of $919 million reflects the continued focus on client growth, retention and satisfaction. The decrease in earnings from third to fourth quarter 2009 primarily resulted from an increase in the provision for credit losses required for small commercial loans. During the quarter, the core fundamentals of the business remained strong as improvements in the equity markets contributed to higher asset management fees and continued emphasis on expense management resulted in lower expense levels.
Asset Management Group overview:
-- Assets under administration decreased to $205 billion at December 31,
2009 compared with $217 billion at September 30, 2009. Discretionary
assets under management decreased to $103 billion at December 31, 2009
compared with $104 billion at September 30, 2009. The declines in
discretionary and nondiscretionary assets were due to the exit of a
noncore product offering and other National City integration impacts.
-- Noninterest income of $151 million for the quarter decreased $4 million
compared with the third quarter of 2009 as increased asset management
fees from new business generation and the improving equity markets were
offset by lower other income.
-- Net interest income for the fourth quarter decreased $3 million, or 4
percent, compared with the linked quarter due to a reduction in higher
yield loans.
-- Noninterest expense of $155 million declined by $7 million in the fourth
quarter compared with the third quarter. This was the third consecutive
quarterly decline as continued expense discipline and the benefits from
acquisition-related initiatives were realized.
-- Provision for credit losses was $25 million for the fourth quarter of
2009 compared with $9 million for the third quarter. The increase in the
provision was attributable to an increase in reserves required for
primarily small commercial loans. Credit quality indicators remained
stable and reserves were consistent with the linked quarter.
-- Average deposits for the quarter increased $148 million, or 2 percent,
from the linked quarter as seasonal increases in demand deposits
exceeded the planned run off of high rate certificates of deposit.
Average loan balances decreased $80 million, or 1 percent, compared with
the linked quarter as home equity loan growth was mitigated by declines
in commercial loans and residential mortgages.
Residential Mortgage Banking
Residential Mortgage Banking earned $435 million for full year 2009 and $25 million in the fourth quarter of 2009 compared with $91 million in the third quarter. Fourth quarter earnings declined due to lower loan sales revenue, reduced net hedging revenue on mortgage servicing assets, lower servicing fees and lower net interest income.
Residential Mortgage Banking overview:
-- Total loan originations were $2.3 billion for the fourth quarter
compared with $3.6 billion in the linked quarter, reflecting a
significant drop in origination activity consistent with industry
trends. Loans were primarily originated through direct channels under
FNMA, FHLMC and FHA/VA agency guidelines.
-- Residential mortgage loans serviced for others totaled $145 billion at
December 31, 2009 compared with $158 billion at September 30, 2009.
During the fourth quarter $7.9 billion of servicing was sold and payoffs
continued to slightly outpace new direct loan origination volume.
-- Noninterest income was $105 million in the fourth quarter of 2009
compared with $209 million in the third quarter. The decline was
primarily due to a $57 million decrease in loan sales revenue driven by
an increase in loan repurchase reserves primarily related to origination
activities in prior years. Net hedging gains on mortgage servicing
rights declined by $25 million in the fourth quarter.
-- Net interest income was $71 million in the fourth quarter of 2009
compared with $83 million in the third quarter, reflecting lower
warehouse volumes and lower escrow deposits.
-- Noninterest expense was $142 million for the fourth quarter of 2009, up
$1 million compared with the linked quarter. Higher foreclosure costs
were partially offset by a decline in personnel expense.
-- The fair value of mortgage servicing rights was $1.3 billion at December
31, 2009, unchanged from September 30, 2009. The sale of servicing was
offset by a higher fair value of the asset from lower prepayment
expectations due to higher interest rates at year end.
Global Investment Servicing
Global Investment Servicing earned $63 million for the full year 2009 and $22 million in the fourth quarter of 2009. Earnings were $19 million for the third quarter of 2009 and $25 million for the fourth quarter of 2008. Increased earnings compared with the linked quarter were the result of higher net operating income due to revenue increases from the improving markets and new client conversions. The decrease in earnings from the prior year quarter reflected the impact of the market turmoil over the past year.
Global Investment Servicing overview:
-- Servicing revenue totaled $206 million and increased 3 percent over the
linked quarter. Higher asset based fees resulting from higher equity
markets, client inflows, and reimbursement of higher out-of-pocket
client expenses were partially offset by lower revenue earned in
interest sensitive businesses. Servicing revenue declined $16 million,
or 7 percent, from fourth quarter 2008 due to the business impact of the
lower rate environment as well as increased fund redemptions and account
closures during the past year as a result of the volatility in the
equity markets during that time.
-- Operating expense totaled $169 million, up slightly from third quarter
2009 levels and $5 million, or 3 percent, lower than fourth quarter
2008. The decrease from the prior year quarter was largely due to
actions taken to reduce costs in response to the market downturn
including job and salary actions in certain businesses and renegotiation
of vendor contracts. The small increase from the linked quarter was
driven by higher out-of-pocket client expenses that are billed and
reimbursed.
-- Global Investment Servicing provided accounting/administration services
for $855 billion of net fund assets and custody services for $459
billion of fund assets as of December 31, 2009 compared with $795
billion and $427 billion, respectively, at September 30, 2009 and $839
billion and $379 billion, respectively, at December 31, 2008. Increases
in both categories over the linked quarter and prior year reflected the
recovering equity markets, inflows from existing clients and new client
conversions.
-- Total fund assets serviced by Global Investment Servicing were $2.3
trillion at December 31, 2009 compared with asset servicing levels of
$2.2 trillion at September 30, 2009 and $2.0 trillion at December 31,
2008.
Distressed Assets Portfolio
Distressed Assets Portfolio segment had earnings of $84 million for full year 2009 and a loss of $88 million for the fourth quarter of 2009 compared with earnings of $14 million for the third quarter of 2009. Earnings declined primarily due to a higher provision for credit losses and lower net interest and noninterest income.
Distressed Assets Portfolio overview:
-- Average loans declined to $19 billion for the fourth quarter of 2009
compared with $20 billion in the third quarter. The decrease in average
loans was primarily driven by scheduled repayments and net charge-offs.
-- Acquired impaired loans were reduced to $7.6 billion at December 31,
2009 compared with $7.8 billion at September 30, 2009 primarily as a
result of paydowns. This segment contained 74 percent of the company’s
acquired impaired loans at year end.
-- Net interest income decreased to $218 million for the fourth quarter of
2009 compared with $235 million for the third quarter primarily due to
lower portfolio levels.
-- Noninterest income was $3 million for the fourth quarter compared with
$19 million in the linked quarter. The decrease was mainly due to the
impact of loan disposition activity in the fourth quarter.
-- Noninterest expense decreased $13 million to $49 million for the fourth
quarter of 2009 compared with the third quarter due to reduced levels of
other real estate owned operating expenses and improved disposition
results related to sales of other real estate owned.
-- The provision for credit losses of $314 million increased $146 million
compared with the linked quarter as a result of higher reserves for
certain impaired consumer loans from lowered cash flow expectations.
-- Loans in this segment require special servicing and management oversight
given current loan performance and market conditions. 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, other than temporary impairment of debt securities 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 $735 million in “Other, including BlackRock” for the fourth quarter of 2009 compared with $41 million for the third quarter of 2009. The $694 million increase in earnings was primarily attributable to the $687 million after-tax gain related to the BlackRock acquisition of Barclays Global Investors.
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 10:00 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 49519422.
In addition, Internet access to the call (listen only) and to PNC’s fourth quarter and full year 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 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 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:
o Changes in interest rates and valuations in the debt, equity and other
financial markets.
o 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.
o Actions by the Federal Reserve and other government agencies,
including those that impact money supply and market interest rates.
o Changes in our customers’, suppliers’ and other counterparties’
performance in general and their creditworthiness in particular.
o Changes in levels of unemployment.
o 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 in the first half of 2010 but will move
upward in the second half of the year and our view that the modest
economic recovery that began last year will extend through 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:
o 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.
o 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.
o Increased litigation risk from recent regulatory and other
governmental developments.
o Unfavorable resolution of legal proceedings or other claims and
regulatory and other governmental inquiries.
o The results of the regulatory examination and supervision process,
including our failure to satisfy the requirements of agreements with
governmental agencies.
o 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.
-- 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 includes 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.
CONTACTS:
MEDIA:
Brian E. Goerke
(412) 762-4550
corporate.communications@pnc.com
INVESTORS:
William H. Callihan
(412) 762-8257
investor.relations@pnc.com
[TABULAR MATERIAL FOLLOWS]
The PNC Financial Services Group, Inc.
Consolidated Financial Highlights
(Unaudited)
FINANCIAL
RESULTS Three months ended Year ended
Dollars in
millions,
except per December September December December December
share data 31 30 31 31 31
2009 (a) 2009 (a) 2008 2009 (a) 2008
Revenue
Net interest
income $2,345 $2,222 $992 $9,054 $3,823
Noninterest
income 2,737 (b) 1,826 684 7,934 (b) 3,367
Total revenue 5,082 4,048 1,676 16,988 7,190
Noninterest
expense 2,369 2,379 1,129 9,734 4,398
Pretax,
pre-provision
earnings $2,713 $1,669 $547 $7,254 $2,792
Provision for
credit losses $1,049 $914 $990 (c) $3,930 $1,517 (c)
Net income
(loss) $1,107 $559 $(246) $2,403 $914
Net income
(loss)
attributable
to common
shareholders $1,011 $467 $(269) $2,003 $861
Diluted
earnings
(loss) per
common share $2.17 $1.00 $(.77) $4.36 $2.44
Cash
dividends
declared per
common share $.10 $.10 $.66 $.96 $2.61
Total
preferred
dividends
declared $119 $99 $21 $388 $21
TARP Capital
Purchase
Program
preferred
dividends $95 $95 $332
Impact of
TARP Capital
Purchase
Program
preferred
dividends
per common
share $.21 $.21 $.73
SELECTED
RATIOS
Net interest
margin (d) 4.05% 3.76% 3.37% 3.82% 3.37%
Noninterest
income to
total revenue
(e) 54 45 41 47 47
Efficiency
(f) 47 59 67 57 61
Return on:
Average
common
shareholders'
equity 17.79% 8.70% (8.70)% 9.78% 6.52%
Average
assets 1.62 .81 (.68) .87 .64
Certain prior period amounts included in these Consolidated Financial
Highlights have been reclassified to conform with the current period
presentation.
(a) Includes the impact of National City, which we acquired on December 31,
2008.
(b) Includes a $1.076 billion gain related to BlackRock's acquisition of
Barclays Global Investors ("BGI") on December 1, 2009.
(c) Includes a $504 million conforming provision for credit losses related to
our National City acquisition.
(d) Calculated as annualized taxable-equivalent net interest income divided
by average earning assets. The interest income earned on certain earning
assets is completely or partially exempt from federal income tax. As such,
these tax-exempt instruments typically yield lower returns than taxable
investments. To provide more meaningful comparisons of margins for all
earning assets, we use net interest income on a taxable-equivalent basis in
calculating net interest margin by increasing the interest income earned on
tax-exempt assets to make it fully equivalent to interest income earned on
taxable investments. This adjustment is not permitted under GAAP in the
Consolidated Income Statement. The taxable-equivalent adjustments to net
interest income for the three months ended December 31, 2009, September 30,
2009, and December 31, 2008 were $18 million, $16 million, and $8 million,
respectively. The taxable-equivalent adjustments to net interest income for
the years ended December 31, 2009 and December 31, 2008 were $65 million and
$36 million, respectively. The adjustments for the three months ended
December 31, 2009 and September 30, 2009 and for the year ended December 31,
2009 include the impact of National City.
(e) Calculated as noninterest income divided by the sum of net interest
income and noninterest income.
(f) Calculated as noninterest expense divided by the sum of net interest
income and noninterest income.
The PNC Financial Services Group, Inc.
Consolidated Financial Highlights
(Unaudited)
RECONCILIATIONS OF "AS REPORTED" (GAAP) NET INCOME AND DILUTED EPS TO "AS ADJUSTED"
AMOUNTS
In millions, except per share data
THREE MONTHS
ENDED December 31, 2009 September 30, 2009
Income Income
Taxes Diluted Taxes Diluted
(Benefit) Net (Benefit) Net
Pretax (a) Income EPS Pretax (a) Income EPS
Net income,
as reported $1,107 $2.17 $559 $1.00
Adjustments:
Gain on
BlackRock/BGI $
transaction (1,076) $389 (687) (1.49)
Integration
costs 155 (54) 101 .22 $89 $(31) 58 .12
Net income,
as adjusted $521 $.90 $617 $1.12
December 31, 2008
Income
Taxes Net Diluted
Pretax (Benefit) (a) Income EPS
Net income (loss), as reported $(246) $(.77)
Adjustments:
Conforming provision for credit losses
- National City $504 $(176) 328 .94
Other integration costs 81 (29) 52 .15
Net income, as adjusted $134 $.32
YEAR ENDED December 31, 2009 December 31, 2008
Income Income
Taxes Diluted Taxes Diluted
(Benefit) Net (Benefit) Net
Pretax (a) Income EPS Pretax (a) Income EPS
Net income,
as reported $2,403 $4.36 $914 $2.44
Adjustments:
Gain on
BlackRock/BGI $
transaction (1,076) $389 (687) (1.51)
Conforming
provision for
credit losses
- National
City $504 $(176) 328 .95
Other
integration
costs 421 (147) 274 .60 145 (51) 94 .27
Net income,
as adjusted $1,990 $3.45 $1,336 $3.66
These tables represent reconciliations of certain “As Reported” (GAAP) amounts to
“As Adjusted” amounts for the gain on the BlackRock/BGI transaction and
integration costs. We have provided these adjusted amounts and reconciliations so that
investors, analysts, regulators and others will be better able to evaluate the impact
of these respective items on the results for and as of the periods presented. We
believe that information as adjusted for the impact of the specified items may be
useful due to the extent to which the items are not indicative of ongoing operations.
Adjusted information supplements our results as reported in accordance with GAAP and
should not be viewed in isolation from, or as a substitute for, GAAP results.
(a) Calculated using a marginal federal income tax rate of 35%. The after-tax gain on
the BlackRock/BGI transaction also reflects the impact of state income taxes.
The PNC Financial Services Group, Inc.
Consolidated Financial Highlights
(Unaudited)
December 31 September 30 December 31
2009 2009 2008
BALANCE SHEET DATA
Dollars in millions, except per share
data
Assets $269,863 $271,407 $291,081
Loans 157,543 160,608 175,489
Allowance for loan and lease losses 5,072 4,810 3,917
Interest-earning deposits with banks 4,488 1,129 14,859
Investment securities 56,027 54,413 43,473
Loans held for sale 2,539 3,509 4,366
Goodwill and other intangible assets 12,909 12,734 11,688
Equity investments 10,254 8,684 8,554
Noninterest-bearing deposits 44,384 43,025 37,148
Interest-bearing deposits 142,538 140,784 155,717
Total deposits 186,922 183,809 192,865
Borrowed funds 39,261 41,910 52,240
Shareholders’ equity 29,942 28,928 25,422
Common shareholders’ equity 22,011 20,997 17,490
Accumulated other comprehensive loss 1,962 1,947 3,949
Book value per common share 47.68 45.52 39.44
Common shares outstanding (millions) 462 461 443
Loans to deposits 84% 87% 91%
ASSETS UNDER ADMINISTRATION(billions)
Discretionary assets under management $103 $104 $103
Nondiscretionary assets under
administration 102 113 125
Total assets under administration $205 $217 $228
FUND ASSETS SERVICED(billions)
Accounting/administration net assets $855 $795 $839
Custody assets 459 427 379
CAPITAL RATIOS
Tier 1 risk-based (a) 11.5% 10.9% 9.7%
Tier 1 common (a) 6.0 5.5 4.8
Total risk-based (a) 15.1 14.5 13.2
Leverage (a) (b) 10.0 9.6 17.5
Common shareholders' equity to assets 8.2 7.7 6.0
ASSET QUALITY RATIOS
Nonperforming loans to total loans 3.60% 3.19% .95%
Nonperforming assets to total loans and
foreclosed and other assets 3.99 3.50 1.24
Nonperforming assets to total assets 2.34 2.08 .75
Net charge-offs to average loans (for
the three months ended) (annualized) 2.09 1.59 1.09
Allowance for loan and lease losses to
total loans 3.22 2.99 2.23
Allowance for loan and lease losses to
nonperforming loans 89 94 236
(a) The ratio as of December 31, 2009 is estimated.
(b) The ratio as of December 31, 2008 did not reflect any impact of National
City on PNC's adjusted average total assets.
The PNC Financial Services Group, Inc.
Consolidated Financial Highlights
(Unaudited)
BUSINESS SEGMENT EARNINGS AND REVENUE(a) (b)
In millions
Three months ended Year ended
December 31 September 30 December 31 December 31 December 31
Earnings
(Loss) 2009 (c) 2009 (c) 2008 2009 (c) 2008
Retail Banking $(25) $50 $68 $136 $328
Corporate &
Institutional
Banking 415 309 (55) 1,190 215
Asset
Management
Group 23 35 22 105 119
Residential
Mortgage
Banking 25 91 435
Global
Investment
Servicing 22 19 25 63 122
Distressed
Assets
Portfolio (88) 14 84
Other,
including
BlackRock (b)
(d) (e) (f) 735 41 (306) 390 130
Total
consolidated
net income
(loss) $1,107 $559 $(246) $2,403 $914
Revenue
Retail Banking $1,379 $1,434 $668 $5,721 $2,731
Corporate &
Institutional
Banking 1,377 1,316 531 5,266 1,859
Asset
Management
Group 218 225 128 919 559
Residential
Mortgage
Banking 176 292 1,328
Global
Investment
Servicing (g) 205 198 214 781 916
Distressed
Assets
Portfolio 221 254 1,153
Other,
including
BlackRock (b)
(d) (e) 1,506 329 135 1,820 1,125
Total
consolidated
revenue $5,082 $4,048 $1,676 $16,988 $7,190
(a) Our business information is presented based on our management accounting
practices and our 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 2009 Form 10-K will
include additional information regarding BlackRock.
(c) Includes the impact of National City, which we acquired on December 31,
2008.
(d) Includes earnings and gains or losses related to PNC's equity interest in
BlackRock, integration costs, asset and liability management activities
including net securities gains or losses and certain trading activities, equity
management activities, exited businesses, differences between business segment
performance reporting and financial statement reporting under generally
accepted accounting principles (GAAP), corporate overhead and intercompany
eliminations.
(e) The $1.076 billion gain related to BlackRock's acquisition of BGI was
included in this business segment for the fourth quarter and full year 2009.
(f) The $504 million conforming provision for credit losses related to the
National City acquisition was included in this business segment for the fourth
quarter and full year 2008.
(g) Global Investment Servicing revenue represents the sum of servicing revenue
and nonoperating income (expense) less debt financing costs.
SOURCE The PNC Financial Services Group, Inc.
Released January 21, 2010