PNC Earns $559 Million in Third Quarter and $1.3 Billion Year-To-Date
Strong quarterly earnings and capital growth
Credit quality deterioration eases
PITTSBURGH, Oct. 22 /PRNewswire-FirstCall/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported net income of $559 million, or $1.00 per diluted common share, for the third quarter of 2009 compared with net income of $207 million, or $.14 per diluted common share, for the second quarter of 2009. For the first nine months of 2009, the company earned net income of $1.30 billion, or $2.17 per diluted common share. Net income was $1.16 billion, or $3.23 per diluted common share, for the first nine months of 2008.
"PNC continued to demonstrate its resiliency in the economic downturn with strong third quarter earnings growth," said James E. Rohr, chairman and chief executive officer. "Once again we delivered pretax pre-provision earnings significantly in excess of our credit costs resulting in growth in capital. We strengthened our balance sheet which we believe is well positioned as the economy begins to recover and the pace of credit quality deterioration eases. Sales across the franchise were strong and we see growing momentum as we added clients and deepened customer relationships in the quarter. We are building on the value of our combined company and are well prepared for the first wave of National City client conversions in early November. As our results demonstrate, we continue to execute against our plans to deliver significant shareholder value now and in the future."
HIGHLIGHTS
-- Pretax pre-provision earnings of $1.7 billion exceeded the provision for
credit losses by more than $750 million in the third quarter of 2009.
-- Total revenue of $4.0 billion for the quarter reflected strong net
interest income and noninterest income as PNC's diverse sources of
revenue continued to deliver high quality results. The net interest
margin increased 16 basis points linked quarter to 3.76 percent for the
third quarter of 2009 primarily due to a substantial reduction in the
overall cost of funds.
-- Expenses remained well controlled and declined $279 million, or 10
percent, compared with the linked quarter.
-- Capital ratios strengthened as PNC increased the estimated Tier 1
risk-based capital ratio by 30 basis points to 10.8 percent at September
30, 2009 and added 20 basis points to the estimated Tier 1 common equity
ratio which was 5.5 percent at September 30, 2009. PNC plans to redeem
the preferred shares issued under the TARP Capital Purchase Program when
appropriate and in a shareholder-friendly manner, subject to approval by
its banking regulators.
-- PNC continued to maintain a strong liquidity position with an 87 percent
loan to deposit ratio at September 30, 2009 combined with significant
liquid assets and borrowing capacity. Transaction deposits increased $1
billion during the third quarter, reflecting growth of approximately $3
billion before the impact of the required branch divestitures that
included $2 billion of transaction deposits. During the quarter the
company continued to manage deposit pricing, reducing nonrelationship
certificates of deposit.
-- Loans declined 3 percent during the quarter to $161 billion reflecting
paydowns and reduced demand as customers decreased debt, as well as net
charge-offs. PNC remains committed to responsible lending, and loans and
commitments of approximately $28 billion were originated and renewed
during the third quarter as the company continued to make credit
available.
-- Credit quality deterioration occurred at a slower pace during the third
quarter. PNC strengthened loan loss reserves. The provision for credit
losses exceeded net charge-offs by $264 million and the ratio of
allowance for loan and lease losses to total loans increased to 2.99
percent at September 30, 2009 from 2.77 percent at June 30, 2009. Net
charge-offs to average loans were 1.59 percent on an annualized basis
for the third quarter down from 1.89 percent for the second quarter of
2009. The allowance for loan and lease losses of $4.8 billion combined
with the fair value marks of $6.6 billion on acquired impaired loans
represented approximately 7 percent of loans outstanding at September
30, 2009.
-- Overall the acquisition of National City Corporation continued to exceed
expectations.
-- The transaction was accretive to year-to-date earnings and is
expected to be accretive for the full year.
-- Cost savings of approximately $200 million were realized in the
third quarter, an increase of $60 million from the second quarter.
This brings cumulative savings to more than $460 million, ahead of
plan and on track to exceed the $1.2 billion two-year goal.
-- The required divestiture of 61 branches including $4.1 billion of
deposits and $.8 billion of loans was completed by September 4,
2009.
-- The first major conversion of National City customers to the PNC
platform is scheduled for completion by November 9, 2009, with the
remaining conversions to be completed by June 2010.
-- Consolidation of bank charters is planned for early November 2009.
-- The combined company is committed to delivering the PNC brand for
client and business growth.
PNC acquired National City on December 31, 2008. Consolidated financial information for all 2009 periods presented includes the impact of the acquisition. The increase in income statement comparisons to the prior year, except as noted, is primarily due to operating results of National City.
CONSOLIDATED REVENUE REVIEW
Net interest income was $2.2 billion for both the third and second quarters of 2009 and $1.0 billion for the third quarter of 2008. The net interest margin increased to 3.76 percent for the third quarter compared with 3.46 percent for the third quarter of 2008 and 3.60 percent for the second quarter of 2009. The increase in the net interest margin in the linked quarter comparison was primarily due to a decline in deposit costs largely from deposit pricing initiatives and the reduction of high cost nonrelationship certificates of deposit and to a lower cost of borrowed funds. PNC continued to invest a portion of its available liquidity in lower risk assets, such as treasury, government agency and agency residential mortgage-backed securities, and to reduce borrowed funds.
Noninterest income was $1.8 billion for both the third and second quarters of 2009 and $654 million for the third quarter of 2008. Relationship-based fees grew in the linked quarter comparison as asset management revenue, service charges on deposits, consumer service fees and fund servicing revenue increased. Corporate services revenue decreased 5 percent from the second quarter primarily related to commercial mortgage servicing rights, and residential mortgage fees declined 16 percent from the linked quarter driven by lower loan origination revenue from a reduction in loan refinancing volume.
Net securities gains were $168 million for the third quarter of 2009 compared with $55 million for the third quarter of 2008 and $182 million in the second quarter of 2009. The third quarter 2009 securities gains related primarily to sales of non-agency and agency residential mortgage-backed securities. The net credit component of other-than-temporary impairments of securities recognized in earnings was a loss of $129 million in the third quarter of 2009, down from a loss of $155 million in the second quarter. Other noninterest income of $314 million in the third quarter of 2009 increased $17 million in the linked quarter comparison and included net asset valuation improvements.
CONSOLIDATED EXPENSE REVIEW
Noninterest expense for the third quarter of 2009 was $2.4 billion compared with $1.1 billion in the prior year third quarter and $2.7 billion for the second quarter of 2009. The linked quarter decrease of $279 million, or 10 percent, was primarily due to a special FDIC assessment of $133 million in the second quarter of 2009, reversal of $66 million of an indemnification charge related to certain Visa litigation in the third quarter, cost savings related to the acquisition and lower integration costs. Integration costs in noninterest expense were $89 million for the third quarter of 2009, $125 million for the second quarter of 2009 and $14 million for the third quarter of 2008. The company realized approximately $200 million in cost savings related to the acquisition in the third quarter, an increase of $60 million from the second quarter of 2009. This brings cumulative savings to more than $460 million, on track to exceed the $1.2 billion two-year goal of reducing combined company annualized noninterest expense.
CONSOLIDATED BALANCE SHEET REVIEW
Total assets were $271 billion at September 30, 2009 compared with $280 billion at June 30, 2009. The decrease was primarily due to a decline in the loan portfolio of $4.4 billion and lower interest-earning deposits with banks of $9.1 billion resulting from funding the branch divestitures, which included the sale of $4.1 billion of deposits and $.8 billion of loans, and funding a reduction in deposits and borrowed funds. These declines were somewhat offset by a $4.4 billion increase in investment securities.
Average loans were $162 billion for the third quarter and decreased $7.0 billion, or 4 percent, compared with the second quarter of 2009. Average commercial loans declined by $5.1 billion, or 8 percent, average residential mortgage loans decreased by $1.0 billion, or 5 percent, and average commercial real estate loans were lower by $.9 billion, or 4 percent. Reduced loan demand, paydowns, lower utilization levels on commercial loans and net charge-offs contributed to the decreases. PNC is committed to providing credit and liquidity to qualified borrowers, and total loan originations and new commitments and renewals were approximately $28 billion in the third quarter of 2009, including $3.6 billion of originations for first mortgages, compared with $29 billion in the second quarter of 2009.
Average loans held for sale declined 22 percent to $3.7 billion in the third quarter of 2009 compared with $4.8 billion for the second quarter as a result of lower residential mortgage loan originations.
Average investment securities for the third quarter of 2009 were $53 billion, an increase of 4 percent compared with $51 billion in the linked quarter, driven by net securities purchases and improving valuations. During the third quarter, PNC continued to invest a portion of its available liquidity in lower risk investment securities, primarily treasury, government agency and agency residential mortgage-backed securities. This increase was partially offset by sales, primarily of agency residential mortgage-backed securities, prepayments and maturities. The September 30, 2009 investment securities balance included a net unrealized pretax loss of $2.2 billion representing the difference between fair value and amortized cost compared with net unrealized pretax losses of $3.8 billion at June 30, 2009 and $5.4 billion at December 31, 2008. The net unrealized pretax loss declined compared with both prior periods due to improving liquidity and pricing in non-agency securities markets primarily related to residential and commercial mortgage-backed securities.
Total deposits were $184 billion at September 30, 2009, a decrease of $6.6 billion from June 30, 2009. Branch deposits of $4.1 billion were divested during the third quarter of 2009, comprised of $2.2 billion of transaction and savings deposits and $1.9 billion of certificates of deposit. Average deposits declined to $189 billion for the third quarter of 2009 compared with $193 billion in the linked quarter. Average transaction deposits for the third quarter of $122 billion, consisting of money market, interest-bearing demand and demand and other noninterest-bearing deposits, increased $2.3 billion, or 2 percent, during the quarter including the impact of the branch divestitures. The net increase in transaction deposits resulted from strong customer relationship growth in many of PNC's markets, seasonality of certain corporate client balances and customer preferences for liquidity in the low rate environment. Average retail certificates of deposit declined by $3.9 billion reflecting the run off of high cost nonrelationship accounts and the impact of the branch divestitures. Average other time deposits declined $2.4 billion, or 46 percent, during the quarter primarily as a result of the allowed run off of brokered certificates of deposit.
Average borrowed funds for the third quarter of 2009 were $43 billion, a decline of $3.2 billion, or 7 percent, compared with the second quarter of 2009. The decrease was primarily due to maturities of $2.8 billion of Federal Home Loan Bank borrowings and $1.4 billion of bank notes partially offset by the third quarter issuance of $500 million of senior notes.
Capital levels grew during the third quarter of 2009. PNC increased the estimated Tier 1 risk-based capital ratio by 30 basis points to 10.8 percent at September 30, 2009 from 10.5 percent at June 30, 2009. The estimated Tier 1 common equity ratio increased by 20 basis points to 5.5 percent at September 30, 2009 from 5.3 percent at June 30, 2009. The increase in the ratios was primarily due to higher capital from retained earnings combined with a reduction in risk-weighted assets. Total shareholders' equity grew by $3.5 billion during the year to date to $28.9 billion at September 30, 2009 from $25.4 billion at December 31, 2008.
PNC paid preferred stock dividends of $237 million in the first nine months of 2009 to the U.S. Department of the Treasury under the TARP Capital Purchase Program on $7.6 billion of preferred stock. PNC plans to redeem the Treasury Department's investment when appropriate and in a shareholder-friendly manner, subject to approval by its banking regulators. In July and October 2009, the PNC board of directors declared a quarterly common stock cash dividend of 10 cents per share.
ASSET QUALITY REVIEW
Credit quality deterioration occurred at a slower pace during the third quarter of 2009. PNC's pretax pre-provision earnings of $1.7 billion exceeded the provision for credit losses for the third quarter of $914 million by $755 million. The provision for credit losses was $1.1 billion in the second quarter of 2009. The company increased the allowance for loan and lease losses during the third quarter to $4.8 billion at September 30, 2009 from $4.6 billion at June 30, 2009. The allowance for loan and lease losses to total loans increased to 2.99 percent at September 30, 2009 compared with 2.77 percent at June 30, 2009. Net charge-offs for the third quarter of 2009 declined to $650 million, or 1.59 percent of average loans on an annualized basis, compared with $795 million, or 1.89 percent, for the second quarter of 2009. The decrease of $145 million in net charge-offs was primarily due to lower net charge-offs of $102 million in commercial real estate loans.
Nonperforming assets were $5.6 billion at September 30, 2009 compared with $4.7 billion at June 30, 2009, an increase of $988 million and lower than the increase in nonperforming assets between June 30 and March 31, 2009 of $1.1 billion. Nonperforming assets increased during the third quarter to 3.50 percent of total loans and foreclosed and other assets at September 30, 2009 compared with 2.81 percent at June 30, 2009. The increase related primarily to a $380 million increase in nonperforming commercial loans, a $296 million increase in nonperforming residential real estate loans and a $216 million increase in nonperforming commercial real estate loans, mainly residential real estate development projects. Nonperforming assets to total assets were 2.08 percent at September 30, 2009 compared with 1.66 percent at June 30, 2009. The allowance for loan and lease losses to nonperforming loans was 94 percent at September 30, 2009 and 110 percent at June 30, 2009.
The allowance for loan and lease losses of $4.8 billion combined with the fair value marks of $6.6 billion on acquired impaired loans represented approximately 7 percent of loans outstanding at September 30, 2009.
BUSINESS SEGMENT RESULTS
PNC has three new reportable business segments in 2009: Asset Management Group, Residential Mortgage Banking, and Distressed Assets Portfolio. Certain prior period information has been reclassified to reflect current methodologies and current business and management structure. Operating results prior to 2009 do not reflect any impact of National City.
Retail Banking
Retail Banking earned $50 million for the third quarter of 2009 compared with $61 million in the second quarter of 2009. Retail Banking continued to maintain its focus on customer and deposit growth, employee and customer satisfaction, investing in the business for future growth, as well as disciplined expense management during this period of market and economic uncertainty.
Retail Banking overview:
-- PNC's customer retention efforts were successful and met expectations.
The required branch divestitures impacted statistics for net new
consumer and business checking relationships, online banking active
customers and online bill payment active customers during the third
quarter of 2009. Excluding the impact of the required divestitures,
checking relationships grew 1 percent and active online banking and
online bill payment customers grew 3 percent and 4 percent,
respectively, during the quarter.
-- Average deposit balances declined $3.6 billion from the second quarter
due to the planned run off of higher rate certificates of deposit net of
successful retention of customer relationships and the impact of branch
divestitures. The deposit strategy of Retail Banking is to remain
disciplined on pricing while targeting specific products and markets for
growth. A continued decline in certificates of deposit is expected for
the remainder of 2009 and into 2010.
-- Average loan balances decreased $371 million compared with the linked
quarter as education loan growth was offset by declines in commercial,
floor plan, residential mortgage and home equity loans. In the current
environment, consumer and commercial loan demand is being outpaced by
refinances, paydowns and charge-offs.
-- Net interest income for the third quarter of 2009 declined $38 million,
or 4 percent, compared with the second quarter primarily as a result of
declining yields assigned to deposits.
-- Noninterest income for the quarter increased $5 million, or 1 percent,
compared with the linked quarter as a result of higher service charges
on deposits.
-- Noninterest expense for the third quarter declined $25 million, or 2
percent, compared with the second quarter. Expenses were well managed as
continued investments in distribution channels were partially offset by
reductions in expenses from acquisitions and the required branch
divestitures.
-- Provision for credit losses was $313 million for the third quarter of
2009 compared with $304 million in the second quarter.
-- Retail Banking had 2,553 branches and an ATM network of 6,463 machines
at September 30, 2009 giving PNC one of the largest distribution
networks among U.S. banks. During the third quarter of 2009, PNC opened
7 traditional branches and 3 in-store branches, consolidated 2 branches,
added 62 ATMs, and divested 61 branches and 73 ATMs.
Corporate & Institutional Banking
Corporate & Institutional Banking earned $283 million in the third quarter of 2009 compared with $107 million in the second quarter of 2009. The increase in earnings resulted from a lower provision for credit losses. Revenue was strong at $1.3 billion, an increase of 3 percent from the second quarter.
Corporate & Institutional Banking overview:
-- Net interest income for the third quarter of 2009 was $915 million, an
increase of $29 million compared with the second quarter of 2009
primarily due to higher loan spreads during the third quarter.
-- Corporate service fees were $226 million in the third quarter of 2009
compared with $236 million in the linked quarter. The major components
of corporate service fees are treasury management, corporate finance
fees and commercial mortgage servicing revenue. The linked quarter
decrease was primarily the result of a $16 million recovery in the
valuation of commercial mortgage servicing rights in the previous
quarter.
-- Other noninterest income increased $14 million to $175 million in the
third quarter of 2009 compared with the second quarter mainly due to
higher gains on sales of impaired and unimpaired loans from portfolio
management activities.
-- Noninterest expense was $459 million in the third quarter of 2009
compared with $467 million in the second quarter. The decrease was
primarily from lower asset impairment costs.
-- Provision for credit losses was $426 million in the third quarter of
2009 compared with $649 million in the second quarter of 2009. The
provision related primarily to real estate, middle market and
transportation related portfolios. Net charge-offs for the third quarter
were $222 million, a $100 million decrease compared with the linked
quarter. The largest decline in net charge-offs was in the middle market
portfolio.
-- Average loans were $70 billion for the third quarter of 2009 compared
with $74 billion in the second quarter of 2009. The decrease was due to
lower utilization levels among middle market and large corporate clients
and asset-based lending clients who had lower inventory and receivable
levels.
-- Average deposits were $39 billion in the third quarter of 2009, an
increase of $3.4 billion, or 9 percent, compared with the second
quarter. Continued growth occurred primarily in noninterest-bearing
demand and money market deposits, and included seasonal increases
related to tax receipts of municipal and school district customers.
-- The commercial mortgage servicing portfolio was $275 billion at
September 30, 2009 compared with $269 billion at June 30, 2009 and $247
billion at September 30, 2008. Continued growth in the agency and
conventional servicing portfolios was somewhat offset by a decline in
the commercial mortgage-backed securities servicing portfolio.
Asset Management Group
Asset Management Group earned $35 million for the third quarter of 2009 compared with $8 million for the second quarter of 2009. Assets under management grew 6 percent during the third quarter, driving higher asset management fees. Total revenue of $225 million remained strong as the business continued to focus on client growth, retention and satisfaction. The increase in quarterly earnings was primarily attributable to a significantly lower provision for credit losses. Continued emphasis on cost reduction resulted in lower noninterest expense.
Asset Management Group overview:
-- Assets under management increased to $104 billion at September 30, 2009
compared with $98 billion at June 30, 2009 due to higher equity market
values and improvement in net flows. Nondiscretionary assets under
administration declined by $11 billion compared with June 30, 2009 due
to lower institutional assets related to the exit of a noncore product
offering.
-- Noninterest income for the quarter of $155 million increased $4 million
compared with the second quarter of 2009 as asset management fees were
positively impacted by the improving equity markets, new business
generation and a shift in assets into higher yielding equity
investments.
-- Net interest income for the third quarter of $70 million decreased $5
million compared with the linked quarter due to lower yields assigned to
deposits in the declining rate environment and a reduction in higher
yield loans.
-- Noninterest expense declined by $5 million to $162 million for the third
quarter compared with the second quarter from continued expense
discipline.
-- Provision for credit losses was $9 million for the third quarter of 2009
compared with $46 million for the second quarter. The lower provision
was attributable to consistent reserve levels resulting from stable
credit quality and lower net charge-offs.
-- Average loan balances decreased $120 million, or 2 percent, compared
with the linked quarter as declines in commercial loans and residential
mortgages were somewhat offset by home equity loan growth. Average
deposits for the quarter declined $152 million, or 2 percent, compared
with the second quarter due to the elimination of a deposit sweep
product and the planned run off of high rate certificates of deposit.
Residential Mortgage Banking
Residential Mortgage Banking earned $91 million in the third quarter of 2009 compared with $92 million in the second quarter. Third quarter earnings were driven by lower noninterest expense and higher servicing revenue as payoff activity declined, somewhat offset by reduced loan sales revenue from lower loan origination volume and lower net interest income.
Residential Mortgage Banking overview:
-- Total loan originations were $3.6 billion for the third quarter compared
with $6.4 billion in the linked quarter, reflecting a significant drop
in refinancing activity consistent with industry trends. Loans were
primarily originated through direct channels under agency (FNMA, FHLMC,
FHA/VA) guidelines.
-- Residential mortgage loans serviced for others totaled $158 billion at
September 30, 2009 compared with $161 billion at June 30, 2009. Payoffs
slightly exceeded new direct loan origination volume during the quarter.
-- Noninterest income was $209 million in the third quarter of 2009
compared with $245 million in the second quarter of 2009. The decline
was due to lower loan sales revenue which decreased $68 million in the
linked quarter comparison primarily driven by a reduction in the
mortgage loan pipeline and compressed price margins. Net hedging gains
on mortgage servicing rights increased slightly to $60 million in the
third quarter. Loan servicing fees increased by $28 million over the
previous quarter, benefitting from lower payoff volume.
-- Net interest income was $83 million in the third quarter of 2009
compared with $87 million in the second quarter.
-- Noninterest expense was $141 million for the third quarter of 2009, down
$35 million or 20 percent compared with the linked quarter. Lower
origination volumes contributed to a decline in personnel expense and
foreclosure costs decreased from second quarter 2009.
-- The fair value of mortgage servicing rights was $1.3 billion at
September 30, 2009 compared with $1.5 billion at June 30, 2009. The
decrease was primarily attributable to a lower fair value of the asset
resulting from higher prepayment expectations due to lower interest
rates at the end of the third quarter of 2009.
Global Investment Servicing
Global Investment Servicing earned $19 million for the third quarter of 2009 compared with $12 million for the second quarter of 2009 and $34 million for the third quarter of 2008. The increased earnings compared with the linked quarter were the result of higher net operating income due to improved markets and lower operating expense, and a legal contingency reserve recorded in the second quarter of 2009. The decrease in earnings from the prior year quarter reflected lower market levels.
Global Investment Servicing overview:
-- Servicing revenue totaled $200 million and increased slightly over the
linked quarter. Higher asset based fees resulting from higher equity
markets were offset by lower revenue from client reimbursed expenses.
Servicing revenue declined $43 million, or 18 percent, from third
quarter 2008 due to lower equity market values, high redemption activity
and account closures over the past twelve months.
-- Operating expense totaled $168 million, a decrease of $2 million, or 1
percent, from the second quarter of 2009 and $19 million, or 10 percent,
from the third quarter of 2008. The decreases were largely due to
actions taken to reduce costs in response to the market downturn
including job and salary actions in certain services and renegotiation
of vendor contracts.
-- Global Investment Servicing provided accounting/administration services
for $795 billion of net fund assets and custody services for $427
billion of fund assets as of September 30, 2009 compared with $774
billion and $399 billion, respectively, at June 30, 2009 and $907
billion and $415 billion, respectively, at September 30, 2008. Increases
in both categories over the linked quarter reflected the recovering
market and client inflows while the decrease in
accounting/administration net fund assets serviced in the prior year
comparison was due to market levels and the loss of a client.
-- Total fund assets serviced by Global Investment Servicing were $2.2
trillion at September 30, 2009 compared with asset servicing levels of
$2.0 trillion at June 30, 2009 and $2.3 trillion at September 30, 2008.
Distressed Assets Portfolio
Distressed Assets Portfolio segment had earnings of $39 million for the third quarter of 2009 compared with $155 million for the second quarter of 2009. Earnings declined primarily due to a higher provision for credit losses and lower net interest income.
Distressed Assets Portfolio overview:
-- Net interest income was $235 million for the third quarter of 2009
compared with $295 million for the second quarter primarily due to lower
interest on acquired impaired loans.
-- Noninterest income was $19 million for the third quarter compared with
$39 million in the linked quarter. The decrease was mainly due to early
termination of certain credit insurance and third party servicing
contracts and a reduction in recourse reserves in the second quarter.
-- Noninterest expense increased $7 million to $62 million for the third
quarter of 2009 compared with the second quarter due to higher levels of
other real estate owned expenses in the third quarter.
-- The provision for credit losses of $127 million increased $97 million
compared with the linked quarter as a result of an increase in required
reserves allocated to this business segment.
-- Average loans were $20 billion for the third quarter of 2009 compared
with $22 billion in the second quarter of 2009. The decline in average
loans was primarily driven by scheduled repayments and net charge-offs.
-- Acquired impaired loans declined to $7.8 billion at September 30, 2009
compared with $8.7 billion at June 30, 2009 primarily as a result of
paydowns. This segment contained 71 percent of the company's acquired
impaired loans at quarter end.
-- Loans in this segment require special servicing and management oversight
given current loan performance and market conditions. Consequently, the
business activities of this segment are focused on maximizing value
within a defined risk profile, including selling assets when the terms
and conditions are appropriate.
Other, including BlackRock
The "Other, including BlackRock" category, for the purposes of this release, includes earnings and gains or losses related to PNC's equity interest in BlackRock, asset and liability management activities including net securities gains or losses and certain trading activities, equity management activities, exited businesses, provision for credit losses for conforming credit allowance adjustments related to acquisitions, other integration costs, differences between business segment performance reporting and financial statement reporting under generally accepted accounting principles, corporate overhead and intercompany eliminations.
PNC recorded earnings of $42 million in "Other, including BlackRock" for the third quarter of 2009 compared with a loss of $228 million for the second quarter of 2009. The higher results were attributable to the second quarter special FDIC assessment, the reversal of a portion of an indemnification charge related to certain Visa litigation in the third quarter, gains on private equity and alternative investments activities compared with losses in the second quarter, lower integration costs and higher BlackRock business segment earnings in the third quarter.
CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION
PNC Chairman and Chief Executive Officer James E. Rohr and Executive Vice President and Chief Financial Officer Richard J. Johnson will hold a conference call for investors today at 8:30 a.m. Eastern Time regarding the topics addressed in this news release and the related financial supplement. Dial-in numbers for the conference call are (800) 990-2718 or (706) 643-0187 (international). The related financial supplement and presentation slides to accompany the conference call remarks may be found at www.pnc.com/investorevents. A taped replay of the call will be available for one week at (800) 642-1687 or (706) 645-9291 (international), conference ID 33973833.
In addition, Internet access to the call (listen only) and to PNC's third quarter 2009 earnings release, supplemental financial information and presentation slides will be available at 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:
-- Changes in interest rates and valuations in the debt, equity and
other financial markets.
-- Disruptions in the liquidity and other functioning of financial
markets, including such disruptions in the markets for real estate
and other assets commonly securing financial products.
-- Actions by the Federal Reserve and other government agencies,
including those that impact money supply and market interest rates.
-- Changes in our customers', suppliers' and other counterparties'
performance in general and their creditworthiness in particular.
-- Changes in levels of unemployment.
-- Changes in customer preferences and behavior, whether as a result of
changing business and economic conditions or other factors.
-- A continuation of recent turbulence in significant portions of the US
and global financial markets, particularly if it worsens, could impact
our performance, both directly by affecting our revenues and the value
of our assets and liabilities and indirectly by affecting our
counterparties and the economy generally.
-- Our business and financial performance could be impacted as the
financial industry restructures in the current environment, both by
changes in the creditworthiness and performance of our counterparties
and by changes in the competitive and regulatory landscape.
-- Given current economic and financial market conditions, our
forward-looking financial statements are subject to the risk that these
conditions will be substantially different than we are currently
expecting. These statements are based on our current expectations that
interest rates will remain low through 2009 with continued wide market
credit spreads, and our view that national economic trends currently
point to the end of recessionary conditions in the later half of 2009
followed by a subdued recovery in 2010.
-- Legal and regulatory developments could have an impact on our ability to
operate our businesses or our financial condition or results of
operations or our competitive position or reputation. Reputational
impacts, in turn, could affect matters such as business generation and
retention, our ability to attract and retain management, liquidity, and
funding. These legal and regulatory developments could include:
-- Changes resulting from legislative and regulatory responses to the
current economic and financial industry environment, including
current and future conditions or restrictions imposed as a result of
our participation in the TARP Capital Purchase Program.
-- Other legislative and regulatory reforms, including broad-based
restructuring of financial industry regulation as well as changes to
laws and regulations involving tax, pension, bankruptcy, consumer
protection, and other aspects of the financial institution industry.
-- Increased litigation risk from recent regulatory and other
governmental developments.
-- Unfavorable resolution of legal proceedings or other claims or
regulatory and other governmental inquiries.
-- The results of the regulatory examination and supervision process,
including our failure to satisfy the requirements of agreements with
governmental agencies.
-- Changes in accounting policies and principles.
-- Our issuance of securities to the US Department of the Treasury may
limit our ability to return capital to our shareholders and is dilutive
to our common shares. If we are unable previously to redeem the shares,
the dividend rate increases substantially after five years.
-- Our business and operating results are affected by our ability to
identify and effectively manage risks inherent in our businesses,
including, where appropriate, through the effective use of third-party
insurance, derivatives, and capital management techniques, and by our
ability to meet evolving regulatory capital standards.
-- The adequacy of our intellectual property protection, and the extent of
any costs associated with obtaining rights in intellectual property
claimed by others, can impact our business and operating results.
-- Our ability to anticipate and respond to technological changes can have
an impact on our ability to respond to customer needs and to meet
competitive demands.
-- Our ability to implement our business initiatives and strategies could
affect our financial performance over the next several years.
-- Competition can have an impact on customer acquisition, growth and
retention, as well as on our credit spreads and product pricing, which
can affect market share, deposits and revenues.
-- Our business and operating results can also be affected by widespread
natural disasters, terrorist activities or international hostilities,
either as a result of the impact on the economy and capital and other
financial markets generally or on us or on our customers, suppliers or
other counterparties specifically.
-- Also, risks and uncertainties that could affect the results anticipated
in forward-looking statements or from historical performance relating to
our equity interest in BlackRock, Inc. are discussed in more detail in
BlackRock's filings with the SEC, including in the Risk Factors sections
of BlackRock's reports. BlackRock's SEC filings are accessible on the
SEC's website and on or through BlackRock's website at
www.blackrock.com. This material is referenced for informational
purposes only and should not be deemed to constitute a part of this
document.
In addition, our recent acquisition of National City Corporation ("National City") presents us with a number of risks and uncertainties related both to the acquisition itself and to the integration of the acquired businesses into PNC. These risks and uncertainties include the following:
-- The anticipated benefits of the transaction, including anticipated cost
savings and strategic gains, may be significantly harder or take longer
to achieve than expected or may not be achieved in their entirety as a
result of unexpected factors or events.
-- Our ability to achieve anticipated results from this transaction is
dependent on the state going forward of the economic and financial
markets, which have been under significant stress recently.
Specifically, we may incur more credit losses from National City's loan
portfolio than expected. Other issues related to achieving anticipated
financial results include the possibility that deposit attrition or
attrition in key client, partner and other relationships may be greater
than expected.
-- Legal proceedings or other claims made and governmental investigations
currently pending against National City, as well as others that may be
filed, made or commenced relating to National City's business and
activities before the acquisition, could adversely impact our financial
results.
-- Our ability to achieve anticipated results is also dependent on our
ability to bring National City's systems, operating models, and controls
into conformity with ours and to do so on our planned time schedule.
The integration of National City's business and operations into PNC,
which will include conversion of National City's different systems and
procedures, may take longer than anticipated or be more costly than
anticipated or have unanticipated adverse results relating to National
City's or PNC's existing businesses. PNC's ability to integrate
National City successfully may be adversely affected by the fact that
this transaction has resulted in PNC entering several markets where PNC
did not previously have any meaningful retail presence.
In addition to the National City transaction, we grow our business from time to time by acquiring other financial services companies. Acquisitions in general present us with risks, in addition to those presented by the nature of the business acquired, similar to some or all of those described above relating to the National City acquisition.
[TABULAR MATERIAL FOLLOWS]
The PNC Financial Services Group, Inc.
Consolidated Financial Highlights (Unaudited)
Page 13
FINANCIAL RESULTS Three months ended Nine months ended
------------------ -----------------
Dollars in
millions, September June September September September
except per 30 30 30 30 30
share data 2009 (a) 2009 (a) 2008 2009 (a) 2008
------- ------- ---- ------- ----
Revenue
Net interest
income $2,222 $2,182 $1,000 $6,709 $2,831
Noninterest
income 1,826 1,805 654 5,197 2,683
----- ----- --- ----- -----
Total revenue 4,048 3,987 1,654 11,906 5,514
Noninterest expense 2,379 2,658 1,131 7,365 3,269
----- ----- ----- ----- -----
Pretax,
pre-provision
earnings $1,669 $1,329 $523 $4,541 $2,245
------ ------ ---- ------ ------
Provision
for credit losses $914 $1,087 $190 $2,881 $527
Net income $559 $207 $259 $1,296 $1,160
Net income
attributable to
common shareholders $467 $65 $248 $992 $1,130
---- --- ---- ---- ------
Diluted earnings
per common share $1.00 $.14 $.70 $2.17 $3.23
Cash dividends declared
per common share $.10 $.10 $.66 $.86 $1.95
Total preferred
dividends declared $99 $119 $269
TARP Capital
Purchase Program
preferred dividends $95 $95 $237
Impact of TARP Capital
Purchase Program
preferred dividends
per common share $.21 $.21 $.52
SELECTED RATIOS
Net interest margin (b) 3.76% 3.60% 3.46% 3.72% 3.34%
Noninterest income to
total revenue (c) 45 45 40 44 49
Efficiency (d) 59 67 68 62 59
Return on:
Average common
shareholders' equity 8.70% 1.52% 7.44% 6.77% 10.91%
Average assets .81 .30 .72 .62 1.09
--------------------------------------------------------------------------
Certain prior period amounts included in these Consolidated Financial
Highlights have been reclassified to conform with the current period
presentation.
(a) Results for the three months ended September 30, 2009 and June 30,
2009 and for the nine months ended September 30, 2009 include the
impact of National City, which we acquired on December 31, 2008.
(b) Calculated as annualized taxable-equivalent net interest income
divided by average earning assets. The interest income earned on
certain earning assets is completely or partially exempt from
federal income tax. As such, these tax-exempt instruments
typically yield lower returns than taxable investments. To provide
more meaningful comparisons of margins for all earning assets, we
use net interest income on a taxable-equivalent basis in
calculating net interest margin by increasing the interest income
earned on tax-exempt assets to make it fully equivalent to
interest income earned on taxable investments. This adjustment is
not permitted under GAAP in the Consolidated Income Statement. The
taxable-equivalent adjustments to net interest income for the
three months ended September 30, 2009, June 30, 2009, and
September 30, 2008 were $16 million, $16 million, and $9 million,
respectively. The taxable-equivalent adjustments to net interest
income for the nine months ended September 30, 2009 and
September 30, 2008 were $47 million and $28 million, respectively.
The adjustments for the three months ended September 30, 2009 and
June 30, 2009 and for the nine months ended September 30, 2009
include the impact of National City.
( c ) Calculated as noninterest income divided by the sum of net
interest income and noninterest income.
(d) Calculated as noninterest expense divided by the sum of net
interest income and noninterest income.
The PNC Financial Services Group, Inc.
Consolidated Financial Highlights (Unaudited)
Page 14
September 30 June 30 September 30
2009 (a) 2009 (a) 2008
------- ------- ----
BALANCE SHEET DATA
Dollars in millions,
except per share data
Assets $271,407 $279,754 $145,610
Loans 160,608 165,009 75,184
Allowance for loan and lease losses 4,810 4,569 1,053
Interest-earning deposits
with banks 1,129 10,190 329
Investment securities 54,413 49,969 31,031
Loans held for sale 3,509 4,662 1,922
Goodwill and other intangible assets 12,734 12,890 9,921
Equity investments 8,684 8,168 6,735
Noninterest-bearing deposits 43,025 41,806 19,225
Interest-bearing deposits 140,784 148,633 65,729
Total deposits 183,809 190,439 84,984
Borrowed funds 41,910 44,681 32,139
Shareholders' equity 28,928 27,294 14,218
Common shareholders' equity 20,997 19,363 13,712
Accumulated other comprehensive loss 1,947 3,101 2,230
Book value per common share 45.52 42.00 39.44
Common shares outstanding (millions) 461 461 348
Loans to deposits 87% 87% 88%
ASSETS ADMINISTERED (billions)
Managed $104 $98 $64
Nondiscretionary 113 124 105
FUND ASSETS SERVICED (billions)
Accounting/administration net assets $795 $774 $907
Custody assets 427 399 415
CAPITAL RATIOS (b)
Tier 1 risk-based 10.8% 10.5% 8.2%
Tier 1 common 5.5 5.3 5.7
Total risk-based 14.3 14.1 11.9
Leverage 9.6 9.1 7.2
ASSET QUALITY RATIOS
Nonperforming loans to total loans 3.19% 2.52% 1.12%
Nonperforming assets to total
loans and foreclosed and
other assets 3.50 2.81 1.16
Nonperforming assets to total assets 2.08 1.66 .60
Net charge-offs to average
loans (for the three
months ended) (annualized) 1.59 1.89 .66
Allowance for loan and
lease losses to total loans 2.99 2.77 1.40
Allowance for loan and
lease losses to
nonperforming loans 94 110 125
---------------------- -- --- ---
(a) Includes the impact of National City, which we acquired on
December 31, 2008.
(b) The capital ratios as of September 30, 2009 are estimated.
The PNC Financial Services Group, Inc.
Consolidated Financial Highlights (Unaudited)
Page 15
BUSINESS SEGMENT EARNINGS
AND REVENUE (a) (b)
In millions
Three months ended Nine months ended
------------------ -----------------
September June September September September
30 30 30 30 30
Earnings (Loss) 2009 (c) 2009 (c) 2008 2009 (c) 2008
--------------- ------- ------- ---- ------- ----
Retail Banking $50 $61 $36 $161 $260
Corporate &
Institutional Banking 283 107 90 749 271
Asset Management Group 35 8 26 82 97
Residential Mortgage
Banking 91 92 410
Global Investment
Servicing 19 12 34 41 97
Distressed Assets
Portfolio 39 155 197
Other, including
BlackRock (b) 42 (228) 73 (344) 435
---------------- -- ---- -- ---- ---
Total consolidated
net income $559 $207 $259 $1,296 $1,160
------------- ---- ---- ---- ------ ------
Revenue
-------- ------ ------ ---- ------ ------
Retail Banking $1,434 $1,467 $662 $4,342 $2,063
Corporate &
Institutional Banking 1,316 1,283 443 3,889 1,328
Asset Management Group 225 226 141 701 431
Residential Mortgage
Banking 292 332 1,152
Global Investment
Servicing 198 188 237 576 702
Distressed Assets
Portfolio 254 334 932
Other, including
BlackRock (b) 329 157 171 314 990
---------------- --- --- --- --- ---
Total consolidated
revenue $4,048 $3,987 $1,654 $11,906 $5,514
------------- ------ ------ ------ ------- ------
(a) Our business segment information is presented based on our
management accounting practices and management structure. We refine
our methodologies from time to time as our management accounting
practices are enhanced and our businesses and management structure
change. Certain prior period amounts have been reclassified to
reflect current methodologies and our current business and
management structure.
(b) We consider BlackRock to be a separate reportable business segment
but have combined its results with Other for this presentation.
Our third quarter 2009 Form 10-Q will include additional
information regarding BlackRock.
( c ) Includes the impact of National City, which we acquired on December
31, 2008.
CONTACTS:
MEDIA:
Brian E. Goerke
(412) 762-4550
corporate.communications@pnc.com
INVESTORS:
William H. Callihan
(412) 762-8257
investor.relations@pnc.com
SOURCE The PNC Financial Services Group, Inc.
Released October 22, 2009