UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2012
or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-09718
The PNC Financial Services Group, Inc.
(Exact name of registrant as specified in its charter)
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Pennsylvania |
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25-1435979 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer Identification No.) |
One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707
(Address of principal executive offices, including zip code)
(412) 762-2000
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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x |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ¨ No x
As of October 31, 2012, there were 528,863,145 shares of the registrants common stock ($5 par value) outstanding.
THE PNC FINANCIAL SERVICES GROUP,
INC.
Cross-Reference Index to Third Quarter 2012 Form 10-Q
THE PNC FINANCIAL SERVICES GROUP,
INC.
Cross-Reference Index to Third Quarter 2012 Form 10-Q (continued)
MD&A TABLE REFERENCE
THE PNC FINANCIAL SERVICES GROUP,
INC.
Cross-Reference Index to Third Quarter 2012 Form 10-Q (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE
THE PNC FINANCIAL SERVICES GROUP,
INC.
Cross-Reference Index to Third Quarter 2012 Form 10-Q (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE (Continued)
FINANCIAL REVIEW
TABLE 1: CONSOLIDATED FINANCIAL HIGHLIGHTS
THE PNC FINANCIAL SERVICES GROUP, INC.
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Dollars in millions, except per share data |
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Three months ended September 30 |
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Nine months ended September 30 |
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Unaudited |
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2012 |
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2011 |
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2012 |
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2011 |
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Financial Results (a) |
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Revenue |
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Net interest income |
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$ |
2,399 |
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$ |
2,175 |
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$ |
7,216 |
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$ |
6,501 |
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Noninterest income |
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1,689 |
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1,369 |
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4,227 |
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4,276 |
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Total revenue |
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4,088 |
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3,544 |
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11,443 |
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10,777 |
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Noninterest expense |
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2,650 |
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2,140 |
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7,753 |
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6,386 |
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Pretax, pre-provision earnings (b) |
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1,438 |
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1,404 |
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3,690 |
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4,391 |
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Provision for credit losses |
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228 |
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261 |
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669 |
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962 |
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Income before income taxes and noncontrolling interests (pretax earnings) |
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$ |
1,210 |
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$ |
1,143 |
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$ |
3,021 |
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$ |
3,429 |
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Net Income |
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$ |
925 |
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$ |
834 |
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$ |
2,282 |
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$ |
2,578 |
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Less: Net income (loss) attributable to noncontrolling interests |
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(14 |
) |
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4 |
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(13 |
) |
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(2 |
) |
Preferred stock dividends and discount
accretion |
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63 |
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4 |
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127 |
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33 |
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Net income attributable to common shareholders |
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$ |
876 |
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$ |
826 |
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$ |
2,168 |
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$ |
2,547 |
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Diluted earnings per common share |
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$ |
1.64 |
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$ |
1.55 |
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$ |
4.06 |
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$ |
4.79 |
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Cash dividends declared per common share |
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$ |
.40 |
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$ |
.35 |
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$ |
1.15 |
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$ |
.80 |
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Gain on sale of Visa Class B common shares: |
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Pretax |
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$ |
137 |
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$ |
137 |
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After-tax |
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$ |
89 |
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$ |
89 |
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Impact on diluted earnings per share |
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$ |
.17 |
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$ |
.17 |
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Integration costs: |
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Pretax |
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$ |
35 |
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$ |
8 |
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$ |
232 |
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$ |
14 |
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After-tax |
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$ |
23 |
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$ |
5 |
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$ |
151 |
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$ |
9 |
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Impact on diluted earnings per share |
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$ |
.04 |
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$ |
.01 |
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$ |
.29 |
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$ |
.02 |
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Noncash charges for unamortized discounts related to redemption of trust preferred securities: |
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Pretax |
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$ |
95 |
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$ |
225 |
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After-tax |
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$ |
61 |
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$ |
146 |
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Impact on diluted earnings per share |
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$ |
.12 |
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$ |
.28 |
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Provision for residential mortgage repurchase obligations: |
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Pretax |
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$ |
37 |
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$ |
31 |
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$ |
507 |
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$ |
66 |
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After-tax |
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$ |
24 |
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$ |
20 |
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$ |
330 |
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$ |
43 |
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Impact on diluted earnings per share |
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$ |
.05 |
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$ |
.04 |
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$ |
.62 |
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$ |
.08 |
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Performance Ratios |
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Net interest margin (c) |
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3.82 |
% |
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3.89 |
% |
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3.93 |
% |
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3.92 |
% |
Noninterest income to total revenue |
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41 |
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39 |
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37 |
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40 |
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Efficiency |
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65 |
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60 |
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68 |
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59 |
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Return on: |
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Average common shareholders equity |
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10.15 |
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10.25 |
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8.61 |
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10.93 |
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Average assets |
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1.23 |
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1.24 |
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1.04 |
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1.31 |
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See page 71 for a glossary of certain terms used in this Report.
Certain prior period amounts have been reclassified to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. The after-tax
amounts in this table were calculated using a marginal federal income tax rate of 35% and include applicable income tax adjustments.
(a) |
The Executive Summary and Consolidated Income Statement Review portions of the Financial Review section of this Report provide information regarding items impacting the
comparability of the periods presented. |
(b) |
We believe that pretax, pre-provision earnings, a non-GAAP measure, is useful as a tool to help evaluate the ability to provide for credit costs through operations.
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(c) |
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 net interest 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
generally accepted accounting principles (GAAP) in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended September 30, 2012 and September 30, 2011 were $36 million and $27
million, respectively. The taxable-equivalent adjustments to net interest income for the nine months ended September 30, 2012 and September 30, 2011 were $102 million and $76 million. |
The PNC
Financial Services Group, Inc. Form 10-Q 1
TABLE 1: CONSOLIDATED FINANCIAL
HIGHLIGHTS (CONTINUED) (a)
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Unaudited |
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September 30 2012 |
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December 31 2011 |
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September 30 2011 |
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Balance Sheet Data (dollars in millions, except per share data) |
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Assets |
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$ |
300,803 |
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$ |
271,205 |
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$ |
269,470 |
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Loans (b) (c) |
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181,864 |
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159,014 |
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154,543 |
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Allowance for loan and lease losses (b) |
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4,039 |
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4,347 |
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4,507 |
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Interest-earning deposits with banks (b) |
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2,321 |
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1,169 |
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2,773 |
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Investment securities (b) |
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62,814 |
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60,634 |
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62,105 |
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Loans held for sale (c) |
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2,737 |
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2,936 |
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2,491 |
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Goodwill and other intangible assets |
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10,941 |
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10,144 |
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10,156 |
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Equity investments (b) (d) |
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10,846 |
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10,134 |
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9,915 |
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Noninterest-bearing deposits |
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64,484 |
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59,048 |
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55,180 |
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Interest-bearing deposits |
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141,779 |
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128,918 |
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132,552 |
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Total deposits |
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206,263 |
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187,966 |
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187,732 |
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Transaction deposits |
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168,377 |
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147,637 |
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143,015 |
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Borrowed funds (b) |
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43,104 |
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36,704 |
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35,102 |
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Shareholders equity |
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38,683 |
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34,053 |
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34,219 |
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Common shareholders equity |
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35,124 |
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32,417 |
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32,583 |
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Accumulated other comprehensive income (loss) |
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991 |
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(105 |
) |
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397 |
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Book value per common share |
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66.41 |
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61.52 |
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61.92 |
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Common shares outstanding (millions) |
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529 |
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527 |
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526 |
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Loans to deposits |
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88 |
% |
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|
85 |
% |
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|
82 |
% |
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Client Assets (billions) |
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Discretionary assets under management |
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$ |
112 |
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$ |
107 |
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$ |
103 |
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Nondiscretionary assets under administration |
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110 |
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103 |
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|
99 |
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Total assets under administration |
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222 |
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|
210 |
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|
202 |
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Brokerage account assets |
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38 |
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|
34 |
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|
33 |
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Total client assets |
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$ |
260 |
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$ |
244 |
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$ |
235 |
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Capital Ratios |
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Tier 1 common |
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9.5 |
% |
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10.3 |
% |
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10.5 |
% |
Tier 1 risk-based (e) |
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11.7 |
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12.6 |
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13.1 |
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Total risk-based (e) |
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14.5 |
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15.8 |
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16.5 |
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Leverage (e) |
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10.4 |
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11.1 |
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11.4 |
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Common shareholders equity to assets |
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11.7 |
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12.0 |
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12.1 |
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Asset Quality |
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Nonperforming loans to total loans |
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1.88 |
% |
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2.24 |
% |
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2.39 |
% |
Nonperforming assets to total loans, OREO and foreclosed assets |
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2.20 |
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2.60 |
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|
2.77 |
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Nonperforming assets to total assets |
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1.34 |
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1.53 |
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|
1.59 |
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Net charge-offs to average loans (for the three months ended) (annualized) |
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|
.73 |
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|
.83 |
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|
.95 |
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Allowance for loan and lease losses to total loans |
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2.22 |
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2.73 |
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2.92 |
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Allowance for loan and lease losses to nonperforming loans (f) |
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|
118 |
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122 |
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|
122 |
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Accruing loans past due 90 days or more (g) |
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$ |
2,456 |
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$ |
2,973 |
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$ |
2,768 |
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(a) |
The Executive Summary and Consolidated Balance Sheet Review portions of the Financial Review section of this Report provide information regarding items impacting the
comparability of the periods presented. |
(b) |
Amounts include consolidated variable interest entities. See Consolidated Balance Sheet in Part I, Item 1 of this Report for additional information.
|
(c) |
Amounts include assets for which we have elected the fair value option. See Consolidated Balance Sheet in Part I, Item 1 of this Report for additional information.
|
(d) |
Amounts include our equity interest in BlackRock. |
(e) |
The minimum US regulatory capital ratios under Basel I are 4.0% for Tier 1 risk-based, 8.0% for Total risk-based, and 4.0% for Leverage. The comparable well-capitalized
levels are 6.0% for Tier 1 risk-based, 10.0% for Total risk-based, and 5.0% for Leverage. |
(f) |
The allowance for loan and lease losses includes impairment reserves attributable to purchased impaired loans. Nonperforming loans exclude certain government insured or
guaranteed loans, loans held for sale, loans accounted for under the fair value option and purchased impaired loans. |
(g) |
Excludes loans held for sale and purchased impaired loans. In the first quarter of 2012, we adopted a policy stating that home equity loans past due 90 days or more
would be placed on nonaccrual status. Prior policy required that these loans be past due 180 days before being placed on nonaccrual status. |
2 The PNC Financial Services Group, Inc. Form 10-Q
FINANCIAL REVIEW
THE PNC FINANCIAL SERVICES GROUP, INC.
This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements
and unaudited Statistical Information included elsewhere in this Report and with Items 6, 7, 8 and 9A of our 2011 Annual Report on Form 10-K as amended by Amendment No. 1 on Form 10-K/A (2011 Form 10-K). We have reclassified certain prior
period amounts to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. For information regarding certain business, regulatory and legal risks, see the following
sections as they appear in this Report and in our 2011 Form 10-K and in our First and Second Quarter 2012 Form 10-Qs: the Risk Management and Recourse and Repurchase Obligation sections of the Financial Review portion of the respective report;
Item 1A Risk Factors included in our 2011 Form 10-K and this Report; and the Legal Proceedings and Commitments and Guarantees Notes of the Notes To Consolidated Financial Statements included in the respective report. Also, see the Cautionary
Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates And Judgments section in this Financial Review and in our 2011 Form 10-K for certain other factors that could cause actual results
or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 19 Segment Reporting in the Notes To Consolidated Financial Statements
included in Part I, Item 1 of this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a generally accepted accounting principles (GAAP) basis.
EXECUTIVE SUMMARY
PNC is one of the largest diversified financial services companies in the United States and is headquartered in Pittsburgh, Pennsylvania.
PNC has businesses engaged in retail banking, corporate and institutional banking, asset management, and residential mortgage banking, providing many of
its products and services nationally, as well as, products and services in PNCs primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida, Kentucky, Washington, D.C.,
Alabama, Delaware, Georgia, Virginia, Missouri, Wisconsin and South Carolina. PNC also provides certain products and services internationally.
KEY STRATEGIC GOALS
At PNC we manage our company for the long term. We are focused on customer and loan growth, growing quality revenue, controlling costs while investing for the future, and managing risk and capital. We
continue to invest in our products, markets and brand, and embrace our corporate responsibility to the communities where we do business.
The
primary drivers of revenue are the acquisition, expansion and retention of customer relationships. We strive to expand and deepen customer relationships by offering convenient banking options and leading and innovative technology solutions,
providing a broad range of fee-based and credit products and services, focusing on customer service, and enhancing our brand. This strategy is designed to give our customers choices based on their needs. Our approach is focused on effectively
growing targeted market share and share of wallet rather than short term fee revenue optimization. We may also grow revenue through appropriate and targeted acquisitions and, in certain businesses, by expanding into new geographical
markets.
PNC faces a variety of risks that may impact various aspects of our risk profile from time to time. The
extent of such impacts may vary depending on factors such as the current economic, political and regulatory environment, merger and acquisition activity, and operational challenges. Many of these risks and our risk management strategies are
described in more detail in our 2011 Form 10-K and elsewhere in this Report.
Our capital priorities for 2012 are to build capital to support
client growth and business investment, maintain appropriate capital in light of economic uncertainty and return excess capital to shareholders. We continue to improve the quality of our capital and expect to build capital through retained earnings.
PNC continues to maintain a strong bank holding company liquidity position. See the 2012 Capital and Liquidity Actions section of this Executive Summary, the Funding and Capital Sources section of the Consolidated Balance Sheet Review section and
the Liquidity Risk Management section of this Financial Review and the Supervision and Regulation section in Item 1 of our 2011 Form 10-K.
RBC BANK (USA) ACQUISITION
On March 2, 2012, we acquired 100% of the issued and outstanding common stock of RBC Bank (USA), the US retail banking subsidiary of Royal Bank of Canada. As part of the acquisition, PNC also
purchased a credit card portfolio from RBC Bank (Georgia), National Association. PNC paid $3.6 billion in cash as the consideration for the acquisition of both RBC Bank (USA) and the credit card portfolio. The transaction added approximately $18.1
billion in deposits, $14.5 billion of loans and $1.1 billion of goodwill and intangible assets to PNCs Consolidated Balance Sheet. Our Consolidated Income Statement includes the impact of business activity associated with the RBC Bank (USA)
acquisition subsequent to March 2, 2012.
The PNC
Financial Services Group, Inc. Form 10-Q 3
RBC Bank (USA), based in Raleigh, North Carolina, operated more than 400 branches in North Carolina,
Florida, Alabama, Georgia, Virginia and South Carolina. The primary reasons for the acquisition of RBC Bank (USA) were to enhance shareholder value, to improve PNCs competitive position in the financial services industry, and to further expand
PNCs existing branch network in the states where it currently operates as well as expanding into new markets. When combined with PNCs existing network, PNC now has 2,887 branches across 17 states and the District of Columbia, ranking it
fifth among U.S. banks in branches. See Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements in this Report for additional information regarding this acquisition and 2011 branch acquisition activity.
SALE OF SMARTSTREET
Effective October 26, 2012, PNC divested certain deposits and assets of the Smartstreet business unit, which was acquired by PNC as part of the RBC Bank (USA) acquisition, to Union Bank, N.A.
Smartstreet is a nationwide business focused on homeowner or community association managers and had approximately $1 billion of assets and deposits as of September 30, 2012. Upon recording of the sale transaction in the fourth quarter of 2012,
the gain on sale will be immaterial and we will reduce goodwill and core deposit intangibles by $46 million and $13 million, respectively, and record accrued taxes payable of approximately $32 million.
2012 CAPITAL AND LIQUIDITY ACTIONS
Our ability to take certain capital actions, including plans to pay or increase common stock dividends or to repurchase shares under current or future
programs, is subject to the results of the supervisory assessment of capital adequacy undertaken by the Board of Governors of the Federal Reserve System (Federal Reserve) and our primary bank regulators as part of the Comprehensive Capital Analysis
and Review (CCAR) process. This capital adequacy assessment is based on a review of a comprehensive capital plan submitted to the Federal Reserve. In connection with the annual review process for 2012 (2012 CCAR), management reviewed the capital
plan with our Board of Directors on January 5, 2012. At that meeting, the Risk Committee of our Board approved the capital plan and authorized management to file the plan with the Federal Reserve. We filed our capital plan with the Federal
Reserve on January 9, 2012. As we announced on March 13, 2012, the Federal Reserve accepted the capital plan that we submitted for its review and did not object to our capital actions proposed as part of that plan. The capital actions
included recommendations to increase the quarterly common stock dividend and a modest share repurchase program. For additional information concerning the CCAR process and the factors the Federal Reserve takes into consideration in evaluating capital
plans, see Item 1 Business Supervision and Regulation included in our 2011 Form 10-K.
On April 5, 2012, consistent with our capital plan submitted to the Federal Reserve in January 2012,
our Board of Directors approved an increase to PNCs quarterly common stock dividend from $.35 per common share to $.40 per common share. Additionally, also consistent with that capital plan, PNC may purchase up to $250 million of common stock
under our existing 25 million share repurchase program in open market or privately negotiated transactions during 2012. Such purchases were initiated in the second quarter with approximately $50 million repurchased during the second quarter of
2012 and an additional $85 million in the third quarter of 2012. The discussion of capital within the Consolidated Balance Sheet Review section of this Financial Review includes additional information regarding our common stock repurchase program.
Debt Securities Issued
On
March 8, 2012, PNC Funding Corp issued $1 billion of senior notes, unconditionally guaranteed by The PNC Financial Services Group, Inc., due March 8, 2022. Interest is paid semi-annually at a fixed rate of 3.30%. The offering resulted in
gross proceeds to us of $990 million before offering related expenses. We intend to use the net proceeds from this offering for general corporate purposes, which may include: advances to PNC and its subsidiaries to finance their activities,
repayment of outstanding indebtedness, and repurchases and redemptions of issued and outstanding securities of PNC and its subsidiaries.
On
June 20, 2012, PNC Bank, National Association (PNC Bank, N.A.) issued $1.0 billion of senior extendible floating rate bank notes with an initial maturity date of July 20, 2013, subject to the holders monthly option to extend, and a
final maturity date of June 20, 2014. Interest is paid at the 3-month LIBOR rate, reset quarterly, plus a spread of 22.5 basis points, which spread is subject to four potential one basis point increases in the event of certain extensions of
maturity by the holder.
On October 22, 2012, PNC Bank, N.A. issued $1.0 billion of subordinated notes with a maturity date of
November 1, 2022. Interest is payable semi-annually, at a fixed rate of 2.70%, on May 1 and November 1 of each year, beginning on May 1, 2013.
Trust Preferred Securities Redeemed
On April 25, 2012 we redeemed $300 million of
trust preferred securities issued by PNC Capital Trust D with a current distribution rate of 6.125% and $6 million of trust preferred securities issued by Yardville Capital Trust III with a current distribution rate of 10.18%. In addition, on
May 25, 2012 we redeemed $500 million of trust preferred securities issued by National City Capital Trust III with a current distribution rate of 6.625%. These redemptions together resulted in a noncash charge for unamortized discounts of
approximately $130 million in the second quarter of 2012.
4 The PNC Financial Services Group, Inc. Form 10-Q
On July 30, 2012 we redeemed $450 million of trust preferred securities issued by PNC Capital Trust E
with a current distribution rate of 7.750% and $517.5 million of enhanced trust preferred securities issued by National City Capital Trust IV with a current distribution rate of 8.000%. These redemptions together resulted in a noncash charge for
unamortized discounts of approximately $95 million in the third quarter of 2012.
Preferred Stock Issued
On April 24, 2012, we issued 60 million depositary shares, each representing a 1/4,000th interest in a share of our Fixed-to-Floating Rate
Non-Cumulative Perpetual Preferred Stock, Series P, in an underwritten public offering resulting in gross proceeds of $1.5 billion to us before commissions and expenses. We intend to use the net proceeds from the sale of the depositary shares for
general corporate purposes, which may include repurchases and redemptions of issued and outstanding securities of PNC and its subsidiaries, including trust preferred securities.
On September 21, 2012 we issued 18 million depositary shares, each representing a 1/4,000th interest in a share of our Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series Q,
in an underwritten public offering resulting in gross proceeds of $450 million to us before commissions and expenses. On October 9, 2012, pursuant to the underwriting agreement for this offering, we issued an additional 1.2 million
depositary shares in satisfaction of an option granted to the underwriters in the underwriting agreement to cover over-allotments, resulting in additional gross proceeds of $30 million. We intend to use the net proceeds from the sales of the
depositary shares for general corporate purposes, which may include advances to our subsidiaries to finance their activities, repayment of outstanding indebtedness, and repurchases and redemptions of issued and outstanding securities of PNC and its
subsidiaries.
Senior Debt and Intended Redemption of Normal APEX
On November 1, 2012 PNC priced its parent company Senior Notes due November 9, 2022 in a secondary public offering made in connection with the remarketing transaction described in Note 20 Subsequent
Events in the Notes To Consolidated Financial Statements in this Report. As described in Note 20, PNC has submitted redemption notices to the Property Trustee for the redemption on December 10, 2012 of the 12% Fixed-to-Floating Rate Normal APEX
(the Normal APEX) issued by the National City Preferred Capital Trust I and related securities and has instructed the Property Trustee to issue the redemption notices to the applicable holders on November 9, 2012, contingent upon
the settlement of the secondary offering of parent company senor notes described above and related transactions on that day, which are subject to customary closing conditions. In the fourth quarter of 2012, PNC expects noncash charges for
unamortized discounts of $67 million related to this redemption. After the closing of these transactions, including the redemption of the Normal
APEX, only the Senior Notes due November 9, 2022 will remain outstanding.
RECENT MARKET AND INDUSTRY DEVELOPMENTS
The following updates our previous disclosures on recent market and industry developments, including with respect to regulatory developments, mortgage
matters and governmental programs. We provide additional information on these matters in the Recent Market and Industry Developments, Residential Mortgage Matters and PNCs Participation in Select Government Programs sections of the Financial
Review in Item 7 of our 2011 Form 10-K and Part I, Item 2 of our First Quarter 2012 Form 10-Q and in the Recent Market and Industry Developments section of our Second Quarter 2012 Form 10-Q. We also refer you to Item 1 Business
Supervision and Regulation and Item 1A Risk Factors included in our 2011 Form 10-K with respect to reforms and regulatory developments affecting PNC and the financial services industry.
Among the recent legislative and regulatory developments affecting the banking industry are evolving regulatory capital standards for banking organizations. These evolving standards include the so-called
Basel III initiatives that are part of the effort by international banking supervisors to improve the ability of the banking sector to absorb shocks in periods of financial and economic stress and changes by the federal banking agencies
to reduce the use of credit ratings in the rules governing regulatory capital.
In June 2012, the US banking regulators requested comment on
three sets of proposed rules that implement the Basel III capital framework and also make other changes to US regulatory capital standards for banking institutions. The Basel III proposed rules include heightened capital requirements for banking
institutions in terms of both higher quality capital and higher regulatory capital ratios. These proposed rules, among other things, would revise the capital levels at which a banking institution would be subject to the prompt corrective action
framework (including the establishment of a new Tier 1 common equity requirement), eliminate or reduce the ability of certain types of capital instruments (including capital issued to third parties by consolidated subsidiaries) to count as
regulatory capital, eliminate the Tier 1 treatment of trust preferred securities (as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)) following a phase-in period beginning in 2013, remove the filter that
currently excludes unrealized gains and losses (other than those resulting from other-than-temporary impairments) on available for sale debt securities from affecting regulatory capital, and require new deductions from capital for investments in
unconsolidated financial institutions (possibly including BlackRock, Inc.), mortgage servicing assets and deferred tax assets that exceed specified thresholds. The proposed rules also would establish a new capital conservation buffer and, for large
or internationally active banks, a
The PNC
Financial Services Group, Inc. Form 10-Q 5
supplemental leverage capital requirement that would take into account certain off-balance sheet exposures and a countercyclical capital buffer that would initially be set at zero in the United
States. The proposed Basel III rules would become effective under a phase-in period beginning January 1, 2013 and would be in full effect on January 1, 2019.
The other proposed capital rules issued by the US banking regulators in June 2012 would revise the manner in which a banking institution determines its risk-weighted assets for risk-based capital purposes
under the Basel II framework applicable to large or internationally active banks (referred to as the advanced approaches) and under the Basel I framework applicable to all banking institutions (referred to as the standardized approach). These rules
would replace references to credit ratings with alternative methodologies for assessing creditworthiness. In addition, among other things, the advanced approaches proposal would implement the changes made to counterparty credit risk weightings by
the Basel III capital framework (including the establishment of a credit valuation adjustment for counterparty risk in OTC derivative transactions), and the standardized approach would modify the risk-weighting framework for residential mortgage
assets. The advanced approaches proposal would become effective on January 1, 2013, and the standardized approach changes to the Basel I risk-weighting rules are proposed to become effective no later than July 1, 2015. The public comment
period on the Basel III, advanced approaches and standardized approach proposed rules closed on October 22, 2012.
In June 2012, the US
banking regulators also adopted final market risk capital rules to implement the enhancements to the market risk framework adopted by the Basel Committee (commonly referred to as Basel II.5). The final rules are effective January 1,
2013 and, among other things, establish new stressed Value at Risk (VaR) and incremental risk charges for covered trading positions and replace references to credit ratings in the market risk rules with alternative methodologies for
assessing credit risk.
In October 2012, the Federal Reserve and Office of the Comptroller of the Currency (OCC) adopted final stress testing
rules for banking organizations with total consolidated assets of $50 billion or more, including PNC and PNC Bank, N.A. The rules, among other things, describe the types of supervisory scenarios that may be provided in connection with the annual
CCAR process conducted by the Federal Reserve in coordination with the OCC, and require that PNC (as well as other bank holding companies with $50 billion or more in total consolidated assets) conduct a separate mid-year stress test and file the
results of such test with the Federal Reserve in early July of each year. The rules also require that PNC in March 2013 and September 2013 publicly disclose certain information concerning the companys estimated revenue, income, losses and
regulatory capital position over a forward-looking nine quarter planning horizon under supervisory hypothetical severely adverse macroeconomic scenarios for
March 2013 disclosures and under PNCs hypothetical severely adverse macroeconomic scenarios for September 2013 disclosures.
HURRICANE SANDY
During the last week of October 2012,
Hurricane Sandy caused widespread damage along the East Coast particularly in New Jersey, a key market area for us. The storm resulted in significant property damage to our customers and to the community and the closing or disruption of many
businesses, with much of the impact not yet remediated. We are actively reviewing our exposure but are currently unable to reasonably estimate the extent of losses we may incur as a result of these storms.
KEY FACTORS AFFECTING FINANCIAL PERFORMANCE
Our financial performance is substantially affected by a number of external factors outside of our control, including the following:
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General economic conditions, including the continuity, speed and stamina of the moderate economic recovery in general and on our customers in
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The level of, and direction, timing and magnitude of movement in, interest rates and the shape of the interest rate yield curve,
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The functioning and other performance of, and availability of liquidity in, the capital and other financial markets, |
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Loan demand, utilization of credit commitments and standby letters of credit, and asset quality, |
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Customer demand for non-loan products and services, |
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Changes in the competitive and regulatory landscape and in counterparty creditworthiness and performance as the financial services industry
restructures in the current environment, |
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The impact of the extensive reforms enacted in the Dodd-Frank legislation and other legislative, regulatory and administrative initiatives, including
those outlined in our 2011 Form 10-K, our First and Second Quarter 2012 Form 10-Qs and elsewhere in this Report, and |
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The impact of market credit spreads on asset valuations. |
In addition, our success will depend upon, among other things:
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Further success in the acquisition, growth and retention of customers, |
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Continued development of the geographic markets related to our recent acquisitions, including full deployment of our product offerings and integration
of the acquired RBC Bank (USA) businesses into PNC, |
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Revenue growth and our ability to provide innovative and valued products to our customers, |
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Our ability to utilize technology to develop and deliver products and services to our customers, |
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Our ability to manage and implement strategic business objectives within the changing regulatory environment,
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6 The PNC Financial Services Group, Inc. Form 10-Q
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A sustained focus on expense management, |
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Managing the non-strategic assets portfolio and impaired assets, |
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Improving our overall asset quality, |
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Continuing to maintain and grow our deposit base as a low-cost funding source, |
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Prudent risk and capital management related to our efforts to manage risk in keeping with a moderate risk philosophy, and to meet evolving regulatory
capital standards, |
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Actions we take within the capital and other financial markets, |
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The impact of legal and regulatory-related contingencies, and |
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The appropriateness of reserves needed for critical estimates and related contingencies. |
For additional information, please see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A
Risk Factors in our 2011 Form 10-K and in this Report.
INCOME STATEMENT HIGHLIGHTS
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Net income for the third quarter of 2012 of $925 million increased 11 percent compared to the third quarter of 2011. Strong earnings for the third
quarter were driven by customer growth, higher revenue and disciplined credit and expense management. For additional detail, please see the Consolidated Income Statement Review section in this Financial Review. |
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Net interest income of $2.4 billion for the third quarter of 2012 increased 10 percent compared with the third quarter of 2011 driven by the RBC Bank
(USA) acquisition, organic loan growth and lower funding costs, somewhat offset by lower purchase accounting accretion. |
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Net interest margin decreased to 3.82% for the third quarter of 2012 compared to 3.89% for the third quarter of 2011, primarily due to lower purchase
accounting accretion. |
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Noninterest income of $1.7 billion for the third quarter of 2012 increased $320 million compared to the third quarter of 2011. The increase was
primarily due to a pretax gain of $137 million on the sale of 5 million Visa Class B common shares, higher corporate services revenue from the impact of impairments on commercial mortgage servicing rights taken in the third quarter of 2011, and
an increase in value of hedges on deferred compensation obligations. |
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The provision for credit losses decreased to $228 million for the third quarter of 2012 compared to $261 million for the third quarter of 2011 as
overall credit quality improved. |
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Noninterest expense of $2.7 billion for the third quarter of 2012 increased $510 million compared with the third quarter of 2011 primarily driven by
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operating expense for the RBC Bank (USA) acquisition, noncash charges related to redemption of trust preferred securities, higher integration costs, and higher personnel expense including an
increase in the cost of deferred compensation obligations driven by higher stock market prices. |
CREDIT
QUALITY HIGHLIGHTS
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Overall credit quality improved during the third quarter of 2012. |
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Nonperforming assets of $4.0 billion at September 30, 2012 decreased 3 percent compared to December 31, 2011. The decline in nonperforming
assets from December 31, 2011 was primarily attributable to decreases in commercial real estate and commercial nonperforming loans. This decrease was offset by higher nonperforming home equity loans from a change in policy made in the first
quarter of 2012 which places home equity loans on nonaccrual status when past due 90 days or more compared with 180 days under the prior policy. Additionally, pursuant to regulatory guidance in the third quarter of 2012, nonperforming consumer
loans, primarily home equity and residential mortgage, increased $112 million related to changes in treatment of certain loans classified as troubled debt restructurings (TDRs) resulting from bankruptcy where no formal reaffirmation was provided by
the borrower and therefore a concession has been granted based upon discharge from personal liability. Of these loans, approximately 90% are current on their payments. |
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Accruing loans past due 90 days or more of $2.5 billion at September 30, 2012 decreased $517 million, or 17 percent, from December 31, 2011,
primarily due to a decline in government insured residential real estate loans and a change in policy for home equity loans past due 90 days being placed on nonaccrual status, compared to prior policy of past due 180 days.
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Net charge-offs of $331 million decreased $34 million compared to the third quarter of 2011. On an annualized basis, net charge-offs were 0.73% of
average loans for the third quarter of 2012 and 0.95% of average loans for the third quarter of 2011. |
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The allowance for loan and lease losses was 2.22% of total loans and 118% of nonperforming loans at September 30, 2012, compared with 2.73% and
122% at December 31, 2011, respectively. |
BALANCE SHEET HIGHLIGHTS
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PNC continued to grow and deepen customer relationships across businesses and geographies through new client acquisition and cross sales.
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Retail Banking net checking relationships grew 230,000 organically in the first nine months of 2012, or 4 percent on an annualized basis.
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The PNC
Financial Services Group, Inc. Form 10-Q 7
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Corporate & Institutional Banking continued to organically grow and deepen client relationships that meet appropriate risk/return measures.
Approximately 775 new primary clients in Corporate Banking were added in the first nine months of 2012. |
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Asset management new primary client acquisitions were nearly 25 percent higher in the first nine months of 2012 compared with the same period of 2011.
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Total loans increased by $23 billion, or 14 percent, to $182 billion at September 30, 2012 compared to December 31, 2011.
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Total commercial lending increased by $16.9 billion, or 19 percent, from December 31, 2011, due to strong organic growth and the impact from the
RBC Bank (USA) acquisition. |
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Total consumer lending increased $6 billion from December 31, 2011 primarily in home equity and automobile loans, including the impact from the
RBC Bank (USA) acquisition. |
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Total deposits were $206 billion at September 30, 2012 compared with $188 billion at December 31, 2011. |
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Transaction deposits increased to $168 billion at September 30, 2012 compared to $148 billion at December 31, 2011, including the impact from
the RBC Bank (USA) acquisition as well as organic transaction deposit growth from increases in both consumer and commercial liquidity. Transaction deposits were 82 percent of total deposits at September 30, 2012, reflecting our strong customer
focus and core strategy to grow checking relationships. |
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Retail certificates of deposit declined by $4.4 billion at September 30, 2012 from December 31, 2011 due to runoff of maturing accounts.
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PNCs balance sheet remained core funded with a loans to deposits ratio of 88 percent at September 30, 2012 and retained a strong bank
holding company liquidity position. |
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PNC issued $480 million of 5.375 percent preferred stock in late September and early October 2012. In total, approximately $2 billion of preferred
stock was issued in the first nine months of 2012 with a weighted average rate of 5.9 percent. Trust preferred securities redeemed in the first nine months of 2012 totaled $1.8 billion with a weighted average rate of 7.2 percent, effectively
lowering funding costs. |
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PNC strengthened its strong capital levels during the third quarter with a Tier 1 common capital ratio of 9.5 percent at September 30, 2012
compared to 9.3 percent at June 30, 2012. The Tier 1 common capital ratio was 10.3 percent at December 31, 2011, and the comparison to September 30, 2012 reflects a decrease
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of approximately 1.2 percentage points from the acquisition of RBC Bank (USA). |
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PNCs goal is to be within a Basel III Tier 1 common capital ratio range of between 8.0 to 8.5 percent by year end 2013 without benefit of
phase-ins. We believe we are positioned to reach this goal. This belief is based on current understanding of Basel III proposed rules, estimates of Basel II (with proposed modifications) risk-weighted assets, and application of Basel II.5 rules and
is subject to development, validation and regulatory approval of related models. |
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In April 2012 the PNC board of directors raised the quarterly cash dividend on common stock to 40 cents per share, an increase of 5 cents per share, or
14 percent. PNC may purchase up to $250 million of common stock under its existing 25 million share repurchase program in open market or privately negotiated transactions during 2012. Such purchases were initiated in the second quarter with
approximately $50 million repurchased during the second quarter of 2012 and an additional $85 million repurchased in the third quarter of 2012. |
Our Consolidated Income Statement and Consolidated Balance Sheet Review sections of this Financial Review describe in greater detail the various items that impacted our results for the first nine months
of 2012 and 2011 and balances at September 30, 2012 and December 31, 2011, respectively.
AVERAGE
CONSOLIDATED BALANCE SHEET HIGHLIGHTS
Various seasonal and other factors
impact our period-end balances whereas average balances are generally more indicative of underlying business trends apart from the impact of acquisitions and divestitures. The Consolidated Balance Sheet Review section of this Financial Review
provides information on changes in selected Consolidated Balance Sheet categories at September 30, 2012 compared with December 31, 2011.
Total average assets increased to $292.6 billion for the first nine months of 2012 compared with $263.5 billion for the first nine months of 2011, primarily due to an increase of $23.9 billion in average
interest-earning assets to $246.8 billion for the first nine months of 2012, compared with $223.0 billion in the first nine months of 2011. The increase in average interest-earning assets was driven primarily by an increase in average total loans,
including those acquired from the RBC Bank (USA) acquisition.
Average total loans increased by $23.8 billion to $174.4 billion for the first
nine months of 2012 compared with the first nine months of 2011, primarily due to an increase in average commercial loans of $17.2 billion and an increase in average consumer loans of $4.8 billion. Loans added from the RBC Bank (USA) acquisition
contributed to the increase. In
8 The PNC Financial Services Group, Inc. Form 10-Q
addition, average commercial loans increased from organic loan growth primarily in corporate banking and asset-based lending and average consumer loans increased due to growth in indirect auto
loans.
Loans represented 71% of average interest-earning assets for the first nine months of 2012 and 68% of average interest-earning assets
for the first nine months of 2011.
Average investment securities increased $1.8 billion to $61.3 billion in the first nine months of 2012
compared with the first nine months of 2011. Total investment securities comprised 25% of average interest-earning assets for the first nine months of 2012 and 27% for the first nine months of 2011.
Average noninterest-earning assets totaled $45.8 billion in the first nine months of 2012 compared with $40.5 billion in the first nine months of 2011.
The increase included the impact of the RBC Bank (USA) acquisition, including goodwill, and the impact of increases in equity investments.
Average total deposits were $199.6 billion for the first nine months of 2012 compared with $181.9 billion for the first nine months of 2011. The increase
of $17.7 billion primarily resulted from an increase in average transaction deposits of $23.1 billion partially offset by a decrease of $7.7 billion in retail certificates of deposit attributable to runoff of maturing accounts. Growth in average
noninterest-bearing deposits, average interest-bearing demand deposits and average money market deposits drove the increase in transaction deposits and resulted from deposits added in the RBC Bank (USA) acquisition and organic growth. Average
transaction deposits were $159.1 billion for the first nine months of 2012 compared with $136.0 billion for the first nine months of 2011. Total deposits at September 30, 2012 were $206.3 billion compared with $188.0 billion at
December 31, 2011 and are further discussed within the Consolidated Balance Sheet Review section of this Report.
Average total deposits
represented 68% of average total assets for the first nine months of 2012 and 69% for the first nine months of 2011.
Average borrowed funds
increased to $42.4 billion for the first nine months of 2012 compared with $35.7 billion for the first nine months of 2011. An increase in commercial paper and net issuances of Federal Home Loan Bank (FHLB) borrowings during the first nine months of
2012 drove the increase compared with the first nine months of 2011. Total borrowed funds at September 30, 2012 were $43.1 billion compared with $36.7 billion at December 31, 2011 and are further discussed within the Consolidated Balance
Sheet Review section of this Financial Review. The Liquidity Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding our sources and uses of borrowed funds.
Business Segment Highlights
Total business segment earnings were $2.6 billion for the first nine months of 2012 and $2.4 billion for the first nine months of 2011. Highlights of results for the first nine months and the third
quarter of 2012 and 2011 are included below. Enhancements were made to the internal funds transfer pricing methodology during the second quarter of 2012. Retrospective application of our new funds transfer pricing methodology has been made to the
prior period reportable business segment results and disclosures to create comparability to the current period presentation, which we believe is more meaningful to readers of our financial statements. During the third quarter of 2012, enhancements
were made to certain processes and assumptions used to estimate our Allowance for Loan and Lease Losses (ALLL). Specifically, PNC increased the amount of internally observed data used in estimating commercial lending Probabilities of Default (PDs)
and Losses Given Default (LGDs). The estimated impact as of the beginning of the third quarter 2012 was approximately an increase of $41 million and a decrease of $55 million to the provision for credit losses of Retail Banking and
Corporate & Institutional Banking, respectively. Prior periods are not presented on a comparable basis as it is not practicable to do so. The Business Segments Review section of this Financial Review includes a Results of Businesses-Summary
table and further analysis of our business segment results over the first nine months of 2012 and 2011 including presentation differences from Note 19 Segment Reporting in our Notes To Consolidated Financial Statements of this Report.
We provide a reconciliation of total business segment earnings to PNC total consolidated net income as reported on a GAAP basis in Note 19 Segment
Reporting in our Notes To Consolidated Financial Statements of this Report.
Retail Banking
Retail Banking earned $475 million in the first nine months of 2012 compared with $309 million for the same period a year ago. Earnings increased from the
prior year as a result of organic growth in loan and transaction deposit balances, lower rates paid on deposits, a lower provision for credit losses, higher levels of customer-initiated transactions, a gain on the sale of a portion of Visa Class B
common shares, and the impact of the RBC Bank (USA) acquisition, partially offset by the regulatory impact of lower interchange fees on debit card transactions and higher additions to legal reserves.
In the third quarter of 2012, Retail Banking earned $192 million compared with earnings of $121 million for the third quarter of 2011. The increase in
earnings was primarily due to higher net interest income resulting from the RBC Bank (USA) acquisition, improvements in deposit spreads and growth in indirect auto loans and an increase in noninterest income due to the gain on the sale of a portion
of Visa Class B common shares. These increases were partially offset by an increase in noninterest expense due to operating expense for the RBC Bank (USA) acquisition.
The PNC
Financial Services Group, Inc. Form 10-Q 9
Corporate & Institutional Banking
Corporate & Institutional Banking earned $1.7 billion in the first nine months of 2012 as compared with $1.3 billion in the first nine months of 2011. The increase in earnings was primarily due
to higher net interest income. We continued to focus on building client relationships including increasing cross sales, adding new clients where the risk-return profile is attractive, and remaining committed to expense discipline.
In the third quarter of 2012, Corporate & Institutional Banking earned $607 million compared with earnings of $437 million in the third quarter
of 2011. The increase reflected higher net interest income primarily due to higher average loans from organic growth and the RBC Bank (USA) acquisition as well as an increase in corporate service fees due to the impact of impairments on commercial
mortgage servicing rights taken in the third quarter of 2011. These increases, together with higher other noninterest income and lower provision for loan losses, were partially offset by an increase in noninterest expense due to higher
compensation-related costs driven by improved performance, higher staffing and operating expense for the RBC Bank (USA) acquisition.
Asset
Management Group
Asset Management Group earned $111 million in the first nine months of 2012 compared with $143 million in the first nine
months of 2011. Assets under administration were $222 billion at September 30, 2012 and $202 billion at September 30, 2011 driven by the stronger equity markets. Earnings for the first nine months of 2012 reflected an increase in the
provision for credit losses and an increase in noninterest expense partially offset by growth in net interest income and noninterest income. Noninterest expense increased due to continued strategic investments in the business. The core growth
strategies for the business continue to include: investing in higher growth geographies, increasing internal referral sales and adding new front line sales staff.
In the third quarter of 2012, Asset Management Group earned $37 million compared with $40 million in the third quarter of 2011. The decrease is primarily due to an increase in the provision for credit
losses and higher noninterest expense from strategic business investments.
Residential Mortgage Banking
Residential Mortgage Banking reported a loss of $116 million in the first nine months of 2012 compared with earnings of $150 million in the first nine
months of 2011. Earnings declined from the prior year period primarily as a result of
higher provision for residential mortgage repurchase obligations and higher noninterest expense, partially offset by increased loan sales revenue driven by higher loan origination volume.
In the third quarter of 2012, Residential Mortgage Banking reported earnings of $36 million compared with earnings of $23 million in the
third quarter of 2011 due to increased loan sales revenue driven by higher loan origination volume substantially offset by lower net hedging gains on mortgage servicing rights. Noninterest expense increased due to higher residential mortgage volume
and servicing costs, partially offset by lower residential mortgage foreclosure-related expenses.
BlackRock
Our BlackRock business segment earned $283 million in the first nine months of 2012 and $271 million in the first nine months of 2011. In the third
quarter of 2012, business segment earnings from BlackRock were $105 million compared with $92 million in the third quarter of 2011.
Non-Strategic Assets Portfolio
This
business segment consists primarily of acquired non-strategic assets. Non-Strategic Assets Portfolio had earnings of $178 million for the first nine months of 2012 compared with $202 million in the first nine months of 2011. The decrease was
primarily attributable to lower net interest income, driven by declines in loan balances and purchase accounting accretion, and an increase in noninterest expense, partially offset by a lower provision for credit losses.
In the third quarter of 2012, Non-Strategic Assets Portfolio had earnings of $40 million compared with $93 million for the third quarter of 2011. The
decrease was due to a decrease in net interest income driven by lower purchase accounting accretion and lower loan balances and an increase in noninterest expense primarily related to taxes and insurance on delinquent mortgage loans and higher other
real estate owned expense.
Other
Other reported a loss of $328 million for the nine months of 2012 compared with earnings of $160 million for the first nine months of 2011. In the third quarter of 2012, Other
reported a loss of $92 million compared with earnings of $28 million in the third quarter of 2011. The decreases in both 2012 periods were primarily due to higher integration costs and noncash charges related to redemption of trust preferred
securities.
10 The PNC Financial Services Group, Inc. Form 10-Q
CONSOLIDATED INCOME STATEMENT
REVIEW
Our Consolidated Income Statement is presented in Part I, Item 1 of this Report.
Net income for the first nine months of 2012 was $2.3 billion, a decrease of 11 percent compared with $2.6 billion for the first nine months of 2011.
Revenue growth of 6 percent and a decline in the provision for credit losses was more than offset by an increase in noninterest expense which included noncash charges related to redemption of trust preferred securities and higher integration costs.
Revenue for the first nine months of 2012 reflected higher net interest income and a gain on sale of 5 million Visa Class B common shares partially offset by a higher provision for residential mortgage repurchase obligations.
Net income for the third quarter of 2012 was $925 million, an increase of 11 percent, compared with $834 million for the third quarter of 2011. The
increase in net income was due to revenue growth of 15 percent, a decrease in the provision for credit losses and a lower effective tax rate partially offset by higher noninterest expense. Third quarter 2012 results reflected the RBC Bank (USA)
acquisition and included the gain on sale of Visa Class B common shares partially offset by noncash charges related to redemption of trust preferred securities.
Table 2: Net Interest Income and Net Interest Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
Nine months ended September 30 |
|
Dollars in millions |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net interest income |
|
$ |
2,399 |
|
|
$ |
2,175 |
|
|
$ |
7,216 |
|
|
$ |
6,501 |
|
Net interest margin |
|
|
3.82 |
% |
|
|
3.89 |
% |
|
|
3.93 |
% |
|
|
3.92 |
% |
Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning
assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information (Unaudited)Average Consolidated Balance Sheet And Net Interest Analysis section of this
Report for additional information.
The increases in net interest income compared with both the third quarter of 2011 and the first nine
months of 2011 were primarily due to the impact of the RBC Bank (USA) acquisition, organic loan growth, and lower funding costs, somewhat offset by lower purchase accounting accretion.
The net interest margin was 3.93% for the first nine months of 2012 and 3.92% for the first nine months of 2011. The following factors impacted the comparison:
|
|
|
The weighted-average rate accrued on interest-bearing liabilities decreased 30 basis points. The rate accrued on interest-bearing deposits, the largest
component, decreased 26 basis points, and the rate on total borrowed funds decreased by 60 basis points.
|
|
|
The rate on interest-bearing deposits declined primarily due to the runoff of maturing retail certificates of deposit. The decline in the rate on total borrowed funds is primarily attributable to
the redemption of trust preferred securities in the second and third quarters of 2012 in addition to an increase in FHLB borrowings as a lower-cost funding source. |
|
|
|
These factors were partially offset by a 22 basis point decrease in the yield on interest-earning assets. The yield on loans, the largest portion of
our earning assets, decreased 30 basis points primarily due to lower rates on new loan volume in the current low rate environment, as well as the impact from lower purchase accounting accretion. |
The net interest margin was 3.82% for the third quarter of 2012 and 3.89% for the third quarter of 2011. The decline was primarily due to lower purchase
accounting accretion which accounted for an approximate 13 basis point decrease in net interest margin. The following factors also impacted the comparison:
|
|
|
The weighted-average rate accrued on interest-bearing liabilities decreased 28 basis points. The rate accrued on interest-bearing deposits, the largest
component, decreased 22 basis points, and the rate on total borrowed funds decreased by 67 basis points. Similar to the nine months comparison, the decreases were primarily due to the runoff of maturing retail certificates of deposit as well as the
redemption of trust preferred securities during the second and third quarters of 2012 in addition to an increase in FHLB borrowings as a lower-cost funding source. |
|
|
|
These factors were partially offset by a 28 basis point decrease in the yield on interest-earning assets. The yield on loans, the largest portion of
our earning assets, decreased 41 basis points, due to lower rates on new loan volume in the current low rate environment, as well as the impact from lower purchase accounting accretion. |
We expect our fourth quarter 2012 net interest income to remain stable compared to third quarter 2012, as the core net interest income component should
continue to grow, offset by the expected decline of approximately $30 million to $35 million in purchase accounting accretion.
With respect
to 2013, we expect purchase accounting accretion to decline by approximately $400 million compared to full year 2012. Despite this decline, we expect total revenues in 2013 to exceed total revenues in 2012.
We believe our net interest margin will come under pressure in 2013, assuming that the current low rate environment continues.
Noninterest Income
Noninterest
income totaled $4.2 billion for the first nine months of 2012 and $4.3 billion for the first nine months of
The PNC
Financial Services Group, Inc. Form 10-Q 11
2011. The overall decrease in the comparison was primarily due to higher provision for residential mortgage repurchase obligations and lower consumer service fees from the regulatory impact of
lower interchange fees on debit card transactions, which were largely offset by the gain on sale of a portion of our Visa Class B common shares, an increase in residential mortgage loan sales revenue related to an increase in loan origination volume
and higher corporate services fees from the impact of impairments on commercial mortgage servicing rights taken in the 2011 period.
Noninterest income was $1.7 billion for the third quarter of 2012 and $1.4 billion for the third quarter of 2011. The overall increase was primarily due
to the gain on the sale of a portion of our Visa Class B common shares, higher corporate services revenue from the impact of impairments on commercial mortgage servicing rights taken in the third quarter of 2011, and an increase in value of hedges
on deferred compensation obligations.
Asset management revenue, including BlackRock, totaled $867 million in the first nine months of 2012
compared with $838 million in the first nine months of 2011. Asset management revenue was $305 million in the third quarter of 2012 compared to $287 million in the third quarter of 2011. The increases were due to stronger equity markets, growth in
customers and higher earnings from our BlackRock investment. Discretionary assets under management increased to $112 billion at September 30, 2012 compared with $103 billion at September 30, 2011 driven by stronger equity markets and net
positive flows.
For the first nine months of 2012, consumer services fees totaled $842 million compared with $974 million in the first nine
months of 2011. Consumer services fees were $288 million in the third quarter of 2012 compared with $330 million in the third quarter of 2011. Lower consumer services fees for both periods reflected the regulatory impact of lower interchange fees on
debit card transactions partially offset by customer growth. As further discussed in the Retail Banking section of the Business Segments Review portion of this Financial Review, the Dodd-Frank limits on interchange rates were effective
October 1, 2011 and had a negative impact on revenue of approximately $230 million in the first nine months of 2012. This impact was partially offset by higher volumes of customer credit and debit card transactions and the RBC Bank (USA)
acquisition.
Corporate services revenue increased to $817 million in the first nine months of 2012 compared with $632 million in the first
nine months of 2011. Corporate services revenue was $295 million in the third quarter of 2012 compared with $187 million in the third quarter of 2011. The impact of commercial mortgage servicing rights impairments taken in the 2011 periods, and
higher merger and acquisition advisory fees in the nine months comparison led to the increases in corporate services revenue.
Residential mortgage revenue decreased to $284 million in the first nine months of 2012 from $556 million
in the first nine months of 2011 due to a higher provision for residential mortgage repurchase obligations of $507 million in the 2012 period, including $438 million in the second quarter of 2012, compared with $66 million in the first nine months
of 2011. This decrease in residential mortgage revenue was partially offset by an increase in loan sales revenue driven by higher loan origination volume.
For the third quarter of 2012, residential mortgage revenue increased to $227 million compared to $198 million in the third quarter of 2011 due to higher loan sales revenue driven by higher loan
origination volume partially offset by lower net hedging gains on mortgage servicing rights. Provision for residential mortgage repurchase obligations for these periods was $37 million and $31 million, respectively. Third quarter 2012 mortgage
repurchase activity continued to track expectations and primarily reflected refinements to our life of loan reserve estimates and also new origination activity.
Service charges on deposits grew to $423 million for the first nine months of 2012 from $394 million for the first nine months of 2011 and increased to $152 million for the third quarter of 2012 compared
with $140 million for the third quarter of 2011. The increases in both periods reflected continued success in growing customers, including the RBC Bank (USA) acquisition.
Net gains on sales of securities totaled $159 million for the first nine months of 2012 and $187 million for the first nine months of 2011. Net gains on sales of securities were $40 million for the third
quarter of 2012 and $68 million for the third quarter of 2011.
The net credit component of other-than-temporary impairment (OTTI) of
securities recognized in earnings was a loss of $96 million in the first nine months of 2012, including a loss of $24 million in the third quarter, compared with losses of $108 million and $35 million for the same periods in 2011, respectively.
Other noninterest income totaled $931 million for the first nine months of 2012 compared with $803 million for the first nine months of 2011.
Other noninterest income totaled $406 million for the third quarter of 2012 and $194 million for the third quarter of 2011. The increases in both periods were primarily due to the $137 million gain on the sale of 5 million Visa Class B common
shares during the third quarter of 2012 and, in the comparison to the prior year quarter, an increase in value of hedges on deferred compensation obligations due to higher stock market prices. These higher prices also resulted in a similar increase
in noninterest expense compared to the third quarter 2011.
We continue to hold approximately 18 million Visa Class B common shares with
an estimated fair value of approximately $1 billion as of September 30, 2012. Our recorded investment
12 The PNC Financial Services Group, Inc. Form 10-Q
in these remaining shares was approximately $343 million at September 30, 2012.
Other noninterest income typically fluctuates from period to period depending on the nature and magnitude of transactions completed. Further details
regarding our trading activities are included in the Market Risk Management Trading Risk portion of the Risk Management section of this Financial Review. Further details regarding private and other equity investments are included in the
Market Risk Management Equity And Other Investment Risk section, and further details regarding gains or losses related to our equity investment in BlackRock are included in the Business Segments Review section.
Product Revenue
In addition to
credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital markets-related products and services, and commercial mortgage banking activities for
customers of all our business segments. A portion of the revenue and expense related to these products is reflected in the Corporate & Institutional Banking segment results and the remainder is reflected in the results of other businesses.
The Other Information section in the Corporate & Institutional Banking table in the Business Segments Review section of this Financial Review includes the consolidated revenue to PNC for these services. A discussion of the consolidated
revenue from these services follows.
Treasury management revenue comprised of fees and net interest income from customer deposit balances,
totaled $1.0 billion for the first nine months of 2012 and $943 million for the first nine months of 2011. For the third quarter of 2012, treasury management revenue was $346 million compared with $319 million for the third quarter of 2011. Higher
deposit balances along with strong growth in commercial card, lockbox and traditional payment products including wire and ACH led to the favorable results.
Revenue from capital markets-related products and services totaled $482 million in the first nine months of 2012 compared with $462 million in the first nine months of 2011. The year-to-date comparison
reflects strong customer driven capital markets activity and higher merger and acquisition advisory fees. For the third quarter of 2012, capital markets-related revenue was $175 million compared with $158 million for the third quarter of 2011. This
comparison reflects the decreased impact of counterparty credit risk on valuations of customer derivatives positions.
Commercial mortgage
banking activities include revenue derived from commercial mortgage servicing (including net interest income and noninterest income from loan servicing and ancillary services, net of commercial mortgage servicing rights amortization, and commercial
mortgage servicing rights valuations net of economic hedge), and revenue derived from
commercial mortgage loans intended for sale and related hedges (including loan origination fees, net interest income, valuation adjustments and gains or losses on sales).
Commercial mortgage banking activities resulted in revenue of $213 million in the first nine months of 2012 compared with $43 million in the first nine
months of 2011. For the third quarter of 2012, revenue from commercial mortgage banking activities was $84 million compared to a loss of $21 million for the third quarter of 2011. Both comparisons increased due to the impact of impairments on
commercial mortgage servicing rights taken in the 2011 periods.
Provision For Credit Losses
The provision for credit losses totaled $669 million for the first nine months of 2012 compared with $962 million for the first nine months of 2011. The
provision for credit losses was $228 million for the third quarter of 2012 compared with $261 million for the third quarter of 2011. The declines in the comparisons were driven by overall credit quality improvement.
We expect provision for the fourth quarter of 2012 to be similar to the provision recorded in recent quarters.
The Credit Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding factors impacting
the provision for credit losses.
Noninterest Expense
Noninterest expense was $7.8 billion for the first nine months of 2012 and $6.4 billion for the first nine months of 2011. Noninterest expense for the first nine months of 2012 included integration costs
of $232 million, noncash charges of $225 million related to redemption of trust preferred securities, and $134 million of residential mortgage foreclosure-related expenses. The first nine months of 2011 included $84 million of residential mortgage
foreclosure-related expenses and $14 million of integration costs. In addition, operating expense for the RBC Bank (USA) acquisition, higher personnel expense, including an increase in the cost of deferred compensation obligations driven by higher
stock market prices, higher additions to legal reserves and increased expenses for other real estate owned contributed to the increase in noninterest expense in the first nine months of 2012.
Noninterest expense totaled $2.7 billion for the third quarter of 2012 compared with noninterest expense of $2.1 billion for the third quarter of 2011. Third quarter 2012 expense included noncash charges
of $95 million related to redemption of trust preferred securities and integration costs of $35 million. The third quarter of 2011 included integration costs of $8 million. Similar to the nine month comparison, operating expenses for the RBC Bank
(USA) acquisition, higher personnel expense, including an increase in the cost of deferred compensation obligations driven by higher stock market prices, and increased expenses for other real estate owned also
The PNC
Financial Services Group, Inc. Form 10-Q 13
contributed to the increase in noninterest expense compared to the prior year quarter.
We expect noninterest expense for the fourth quarter of 2012 to include $67 million in non-cash charges assuming a redemption and remarketing of
approximately $500 million in hybrid capital securities with a current all-in funding cost of 12 percent. If we complete the planned remarketing process, we will need to replace this funding with bank holding company debt in the near future.
We expect integration costs of $51 million in the fourth quarter of 2012. PNCs continuous improvement target for 2012 is to exceed a
total of $550 million in annualized cost savings at PNC and in integration savings at RBC Bank (USA). As of September 30, 2012, we had identified more than 600 initiatives to deliver these savings goals and captured more than $417 million in
estimated savings year to date.
Effective Income Tax Rate
The effective income tax rate was 24.5% in the first nine months of 2012 compared with 24.8% in the first nine months of 2011. For the third quarter of 2012, our effective income tax rate was 23.6%
compared with 27.0% for the third quarter of 2011. The effective tax rate is generally lower than the statutory rate primarily due to tax credits PNC receives from our investments in low income housing partnerships and other tax exempt investments.
CONSOLIDATED BALANCE SHEET REVIEW
Table 3: Summarized Balance Sheet Data
|
|
|
|
|
|
|
|
|
In millions |
|
Sept. 30 2012 |
|
|
Dec. 31 2011 |
|
Assets |
|
|
|
|
|
|
|
|
Loans |
|
$ |
181,864 |
|
|
$ |
159,014 |
|
Investment securities |
|
|
62,814 |
|
|
|
60,634 |
|
Cash and short-term investments |
|
|
10,993 |
|
|
|
9,992 |
|
Loans held for sale |
|
|
2,737 |
|
|
|
2,936 |
|
Goodwill and other intangible assets |
|
|
10,941 |
|
|
|
10,144 |
|
Equity investments |
|
|
10,846 |
|
|
|
10,134 |
|
Other, net |
|
|
20,608 |
|
|
|
18,351 |
|
Total assets |
|
$ |
300,803 |
|
|
$ |
271,205 |
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
206,263 |
|
|
$ |
187,966 |
|
Borrowed funds |
|
|
|
|
|
|
|
|
Commercial paper |
|
|
10,731 |
|
|
|
4,271 |
|
Other |
|
|
32,373 |
|
|
|
32,433 |
|
Other |
|
|
9,634 |
|
|
|
9,289 |
|
Total liabilities |
|
|
259,001 |
|
|
|
233,959 |
|
Total shareholders equity |
|
|
38,683 |
|
|
|
34,053 |
|
Noncontrolling interests |
|
|
3,119 |
|
|
|
3,193 |
|
Total equity |
|
|
41,802 |
|
|
|
37,246 |
|
Total liabilities and equity |
|
$ |
300,803 |
|
|
$ |
271,205 |
|
The summarized balance sheet data above is based upon our Consolidated Balance Sheet in this Report.
The increase in total assets of $29.6 billion at September 30, 2012 compared with December 31, 2011 was primarily due to the
addition of assets from the RBC Bank (USA) acquisition and organic loan growth. Total liabilities increased $25 billion from September 30, 2012 compared with December 31, 2011 primarily due to the addition of deposits from the RBC Bank
(USA) acquisition, organic growth in transaction deposits and net commercial paper issuances.
An analysis of changes in selected balance
sheet categories follows.
LOANS
A summary of the major categories of loans outstanding follows. Outstanding loan balances of $181.9 billion at September 30, 2012 and $159.0 billion at December 31, 2011 were net of unearned
income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums of $2.9 billion at September 30, 2012 and $2.3 billion at December 31, 2011, respectively. The balances include purchased impaired
loans but do not include future accretable net interest (i.e., the difference between the undiscounted expected cash flows and the carrying value of the loan) on those loans.
Loans increased $22.9 billion as of September 30, 2012 compared with December 31, 2011. On March 2, 2012, our RBC Bank (USA) acquisition added $14.5 billion of loans, which included $6.4
billion of commercial, $2.5 billion of commercial real estate, $3.4 billion of consumer (including $3.0 billion of home equity loans and $.3 billion of credit card loans), $2.1 billion of residential real estate, and $.1 billion of equipment lease
financing loans. Excluding acquisition activity, the growth in commercial loans was due to organic growth in the portfolio while the growth in consumer loans was primarily driven by organic growth in automobile loans and the acquisition of an
indirect automobile loan portfolio. In addition, excluding acquisition activity, the decline in residential real estate loans was due to continued run-off of acquired portfolios and lower education loans.
Loans represented 60% of total assets at September 30, 2012 and 59% of total assets at December 31, 2011. Commercial lending represented 58% of
the loan portfolio at September 30, 2012 and 56% at December 31, 2011. Consumer lending represented 42% at September 30, 2012 and 44% at December 31, 2011.
Commercial real estate loans represented 10% of total loans and 6% of total assets at both September 30, 2012 and December 31, 2011. See the Credit Risk Management portion of the Risk Management
section of this Financial Review for additional details of loans.
14 The PNC Financial Services Group, Inc. Form 10-Q
Table 4: Details Of Loans
|
|
|
|
|
|
|
|
|
In millions |
|
Sept. 30 2012 |
|
|
Dec. 31 2011 |
|
Commercial Lending |
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
Retail/wholesale trade |
|
$ |
13,381 |
|
|
$ |
11,539 |
|
Manufacturing |
|
|
13,498 |
|
|
|
11,453 |
|
Service providers |
|
|
11,822 |
|
|
|
9,717 |
|
Real estate related (a) |
|
|
10,208 |
|
|
|
8,488 |
|
Financial services |
|
|
9,136 |
|
|
|
6,646 |
|
Health care |
|
|
6,652 |
|
|
|
5,068 |
|
Other industries |
|
|
14,971 |
|
|
|
12,783 |
|
Total commercial |
|
|
79,668 |
|
|
|
65,694 |
|
Commercial real estate |
|
|
|
|
|
|
|
|
Real estate projects |
|
|
12,801 |
|
|
|
10,640 |
|
Commercial mortgage |
|
|
5,808 |
|
|
|
5,564 |
|
Total commercial real estate |
|
|
18,609 |
|
|
|
16,204 |
|
Equipment lease financing |
|
|
6,923 |
|
|
|
6,416 |
|
Total Commercial Lending |
|
|
105,200 |
|
|
|
88,314 |
|
Consumer Lending |
|
|
|
|
|
|
|
|
Home equity |
|
|
|
|
|
|
|
|
Lines of credit |
|
|
24,007 |
|
|
|
22,491 |
|
Installment |
|
|
11,871 |
|
|
|
10,598 |
|
Total home equity |
|
|
35,878 |
|
|
|
33,089 |
|
Residential real estate |
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
14,505 |
|
|
|
13,885 |
|
Residential construction |
|
|
878 |
|
|
|
584 |
|
Total residential real estate |
|
|
15,383 |
|
|
|
14,469 |
|
Credit card |
|
|
4,135 |
|
|
|
3,976 |
|
Other consumer |
|
|
|
|
|
|
|
|
Education |
|
|
8,415 |
|
|
|
9,582 |
|
Automobile |
|
|
8,328 |
|
|
|
5,181 |
|
Other |
|
|
4,525 |
|
|
|
4,403 |
|
Total other consumer |
|
|
21,268 |
|
|
|
19,166 |
|
Total Consumer Lending |
|
|
76,664 |
|
|
|
70,700 |
|
Total loans (b) |
|
$ |
181,864 |
|
|
$ |
159,014 |
|
(a) |
Includes loans to customers in the real estate and construction industries. |
(b) |
Construction loans with interest reserves, and A/B Note restructurings are not significant to PNC. |
Total loans above include purchased impaired loans of $7.7 billion, or 4% of total loans, at
September 30, 2012, and $6.7 billion, or 4% of total loans, at December 31, 2011. The increase is related to the addition of purchased impaired loans from the RBC Bank (USA) acquisition.
We are committed to providing credit and liquidity to qualified borrowers. Total loan originations and new commitments and renewals totaled $116 billion
for the first nine months of 2012, including $40 billion in the third quarter.
Our loan portfolio continued to be diversified among numerous
industries and types of businesses in our principal geographic markets.
Because commercial lending is 58% of total loans, the commercial
lending allowance for loan and lease losses is most impacted by changes in assumptions and judgments underlying the determination of the ALLL. This estimate considers factors such as:
|
|
|
Industry concentrations and conditions, |
|
|
|
Recent credit quality trends, |
|
|
|
Recent loss experience in particular portfolios, |
|
|
|
Recent macro economic factors, |
|
|
|
Changes in risk selection and underwriting standards, and |
|
|
|
Timing of available information. |
Higher Risk Loans
Our total ALLL of $4.0 billion at September 30, 2012
consisted of $1.8 billion and $2.2 billion established for the commercial lending and consumer lending categories, respectively. The ALLL included what we believe to be appropriate loss coverage on higher risk loans in the commercial and consumer
portfolios. We do not consider government insured or guaranteed loans to be higher risk as defaults are materially mitigated by payments of insurance or guarantee amounts for approved claims. Additional information regarding our higher risk loans
and ALLL is included in Note 5 Asset Quality and Note 7 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in our Notes To Consolidated Financial Statements included in this Report.
The PNC
Financial Services Group, Inc. Form 10-Q 15
Table 5: Accretion Purchased Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
Nine months ended September 30 |
|
In millions |
|
2012 (a) |
|
|
2011 (b) |
|
|
2012 (a) |
|
|
2011 (b) |
|
Impaired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled accretion |
|
$ |
175 |
|
|
$ |
166 |
|
|
$ |
511 |
|
|
$ |
512 |
|
Reversal of contractual interest on impaired loans |
|
|
(103 |
) |
|
|
(99 |
) |
|
|
(311 |
) |
|
|
(293 |
) |
Scheduled accretion net of contractual interest |
|
|
72 |
|
|
|
67 |
|
|
|
200 |
|
|
|
219 |
|
Excess cash recoveries |
|
|
21 |
|
|
|
72 |
|
|
|
112 |
|
|
|
193 |
|
Total impaired loans |
|
$ |
93 |
|
|
$ |
139 |
|
|
$ |
312 |
|
|
$ |
412 |
|
(a) |
Represents National City and RBC Bank (USA) acquisitions. |
(b) |
Represents National City acquisition. |
Table 6: Accretable Net Interest Purchased Impaired Loans
|
|
|
|
|
|
|
|
|
In millions |
|
2012 |
|
|
2011 |
|
January 1 |
|
$ |
2,109 |
|
|
$ |
2,185 |
|
Addition of accretable yield due to RBC Bank (USA) acquisition on March 2, 2012 |
|
|
587 |
|
|
|
|
|
Accretion |
|
|
(511 |
) |
|
|
(512 |
) |
Excess cash recoveries |
|
|
(112 |
) |
|
|
(193 |
) |
Net reclassifications to accretable from non-accretable and other
activity |
|
|
191 |
|
|
|
795 |
|
September 30 (a) |
|
$ |
2,264 |
|
|
$ |
2,275 |
|
(a) |
As of September 30, 2012, we estimate that the reversal of contractual interest on purchased impaired loans will total approximately $1.3 billion in future
periods. This will offset the total net accretable interest in future interest income of $2.3 billion on purchased impaired loans. |
Table 7: Valuation of Purchased Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 (a) |
|
|
December 31, 2011 (b) |
|
Dollars in millions |
|
Balance |
|
|
Net Investment |
|
|
Balance |
|
|
Net Investment |
|
Commercial and commercial real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
$ |
1,937 |
|
|
|
|
|
|
$ |
988 |
|
|
|
|
|
Purchased impaired mark |
|
|
(535 |
) |
|
|
|
|
|
|
(136 |
) |
|
|
|
|
Recorded investment |
|
|
1,402 |
|
|
|
|
|
|
|
852 |
|
|
|
|
|
Allowance for loan losses |
|
|
(229 |
) |
|
|
|
|
|
|
(229 |
) |
|
|
|
|
Net investment |
|
|
1,173 |
|
|
|
61 |
% |
|
|
623 |
|
|
|
63 |
% |
Consumer and residential mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
|
6,976 |
|
|
|
|
|
|
|
6,533 |
|
|
|
|
|
Purchased impaired mark |
|
|
(629 |
) |
|
|
|
|
|
|
(718 |
) |
|
|
|
|
Recorded investment |
|
|
6,347 |
|
|
|
|
|
|
|
5,815 |
|
|
|
|
|
Allowance for loan losses |
|
|
(839 |
) |
|
|
|
|
|
|
(769 |
) |
|
|
|
|
Net investment |
|
|
5,508 |
|
|
|
79 |
% |
|
|
5,046 |
|
|
|
77 |
% |
Total purchased impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
|
8,913 |
|
|
|
|
|
|
|
7,521 |
|
|
|
|
|
Purchased impaired mark |
|
|
(1,164 |
) |
|
|
|
|
|
|
(854 |
) |
|
|
|
|
Recorded investment |
|
|
7,749 |
|
|
|
|
|
|
|
6,667 |
|
|
|
|
|
Allowance for loan losses |
|
|
(1,068 |
) |
|
|
|
|
|
|
(998 |
) |
|
|
|
|
Net investment |
|
$ |
6,681 |
|
|
|
75 |
% |
|
$ |
5,669 |
|
|
|
75 |
% |
(a) |
Represents National City and RBC Bank (USA) acquisitions. |
(b) |
Represents National City acquisition. |
16 The PNC Financial Services Group, Inc. Form 10-Q
The unpaid principal balance of purchased impaired loans increased from $7.5 billion at December 31,
2011 to $8.9 billion at September 30, 2012 due to the acquisition of RBC Bank (USA), partially offset by payments, disposals, and charge-offs of amounts determined to be uncollectible. The remaining purchased impaired mark at September 30,
2012 was $1.2 billion, which was an increase from $0.9 billion at December 31, 2011. The associated allowance for loan losses increased $70 million at September 30, 2012 compared to December 31, 2011. The net investment of $5.7
billion at December 31, 2011 also increased 18% to $6.7 billion at September 30, 2012. At September 30, 2012, our largest individual purchased impaired loan had a recorded investment of $18 million.
We currently expect to collect total cash flows of $9.0 billion on purchased impaired loans, representing the $6.7 billion net investment (carrying
value) at September 30, 2012 and the accretable net interest of $2.3 billion shown in the Accretable Net Interest-Purchased Impaired Loans table. These represent the net future expected cash flows on purchased impaired loans, as contractual
interest will be reversed.
Weighted Average Life of the Purchased Impaired Portfolios
The table below provides the weighted average life (WAL) for each of the purchased impaired portfolios as of the third quarter of 2012.
Table 8: Weighted Average Life of the Purchased Impaired Portfolios
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
|
in millions |
|
Recorded Investment |
|
|
WAL (a) |
|
Commercial |
|
$ |
354 |
|
|
|
2.1 years |
|
Commercial real estate |
|
|
1,048 |
|
|
|
2.1 years |
|
Consumer (b) |
|
|
2,697 |
|
|
|
4.2 years |
|
Residential real estate |
|
|
3,650 |
|
|
|
4.5 years |
|
Total |
|
$ |
7,749 |
|
|
|
3.9 years |
|
(a) |
Weighted average life represents the average number of years for which each dollar of unpaid principal remains outstanding. |
(b) |
Portfolio primarily consists of nonrevolving home equity products. |
Purchased Impaired Loans Accretable Difference Sensitivity Analysis
The
following table provides a sensitivity analysis on the Purchased Impaired Loan portfolio. The analysis reflects hypothetical changes in key drivers for expected cash flows over the life of the loans under declining and improving conditions at a
point in time. Any unusual significant economic events or changes, as well as other variables not considered below (e.g., natural or widespread disasters), could result in impacts outside of the ranges represented below. Additionally, commercial and
commercial real estate loan settlements or sales proceeds can vary widely from appraised values due to a number of factors including, but not limited to special use considerations, liquidity premiums, and improvements / deterioration in other income
sources.
Table 9: Accretable Difference Sensitivity Total Purchased Impaired
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
In billions |
|
For quarter ended September 30, 2012 |
|
|
Declining Scenario (a) |
|
|
Improving Scenario (b) |
|
Expected Cash Flows |
|
$ |
9.0 |
|
|
$ |
(.4 |
) |
|
$ |
.7 |
|
Accretable Difference |
|
|
2.3 |
|
|
|
|
|
|
|
.4 |
|
Allowance for Loan and Lease Losses |
|
|
(1.1 |
) |
|
|
(.4 |
) |
|
|
.3 |
|
(a) |
Declining Scenario Reflects hypothetical changes that would decrease future cash flow expectations. For consumer loans, we assume home price forecast decreases
by 10% and unemployment rate forecast increases by 2 percentage points; for commercial loans, we assume that collateral values decrease by 10%. |
(b) |
Improving Scenario Reflects hypothetical changes that would increase future cash flow expectations. For consumer loans, we assume home price forecast increases
by 10%, unemployment rate forecast decreases by 2 percentage points and interest rate forecast increases by 2 percentage points; for commercial loans, we assume that collateral values increase by 10%. |
The impact of declining cash flows is primarily reflected as immediate impairment (allowance for loan losses). The impact of increased cash flows is
first recognized as a reversal of the allowance with any additional cash flow increases reflected as an increase in accretable yield over the life of the loan.
Net Unfunded Credit Commitments
Net unfunded credit commitments are comprised of
the following:
Table 10: Net Unfunded Credit Commitments
|
|
|
|
|
|
|
|
|
In millions |
|
September 30 2012 |
|
|
December 31 2011 |
|
Commercial / commercial real estate (a) |
|
$ |
75,790 |
|
|
$ |
64,955 |
|
Home equity lines of credit |
|
|
20,075 |
|
|
|
18,317 |
|
Credit card |
|
|
17,692 |
|
|
|
16,216 |
|
Other |
|
|
4,728 |
|
|
|
3,783 |
|
Total |
|
$ |
118,285 |
|
|
$ |
103,271 |
|
(a) |
Less than 5% of these amounts at each date relate to commercial real estate. |
Commitments to extend credit represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. Commercial commitments reported above exclude syndications, assignments
and participations, primarily to financial institutions, totaling $21.4 billion at September 30, 2012 and $20.2 billion at December 31, 2011.
Unfunded liquidity facility commitments and standby bond purchase agreements totaled $770 million at September 30, 2012 and $742 million at December 31, 2011 and are included in the preceding
table primarily within the Commercial / commercial real estate category.
In addition to the credit commitments set forth in the table above,
our net outstanding standby letters of credit totaled $11.4 billion at September 30, 2012 and $10.8 billion at December 31, 2011. Standby letters of credit commit us to make payments on behalf of our customers if specified future events
occur.
The PNC
Financial Services Group, Inc. Form 10-Q 17
Information regarding our allowance for unfunded loan commitments and letters of credit is included in Note
7 Allowance for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in our Notes To Consolidated Financial Statements of this Report.
INVESTMENT SECURITIES
Table 11: Details of Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
|
|
December 31, 2011 |
|
In millions |
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
Securities available for sale (a) |
|
$ |
50,534 |
|
|
$ |
52,133 |
|
|
$ |
48,609 |
|
|
$ |
48,568 |
|
Securities held to maturity |
|
|
10,681 |
|
|
|
11,232 |
|
|
|
12,066 |
|
|
|
12,450 |
|
Total securities |
|
$ |
61,215 |
|
|
$ |
63,365 |
|
|
$ |
60,675 |
|
|
$ |
61,018 |
|
(a) |
Includes $321 million of both amortized cost and fair value of securities classified as corporate stocks and other at September 30, 2012. Comparably, at
December 31, 2011, amortized cost and fair value of these corporate stocks and other was $368 million. The remainder of securities available for sale are debt securities. |
The carrying amount of investment securities totaled $62.8 billion at September 30, 2012, an increase of $2.2 billion, or 4%, from $60.6 billion at December 31, 2011. The increase primarily
reflected an increase of $1.9 billion in available for sale asset-backed securities which is primarily due to securities added in the RBC Bank (USA) acquisition, an increase of $1.1 billion in available for sale agency residential mortgage-backed
securities due to net purchase activity, and an increase of $0.7 billion in available for sale non-agency residential mortgage-backed securities due to increases in fair value at September 30, 2012. These increases were partially offset by a
$1.4 billion decrease in held to maturity debt securities due to principal payments of the held to maturity securities. Investment securities represented 21% of total assets at September 30, 2012 and 22% at December 31, 2011.
We evaluate our portfolio of investment securities in light of changing market conditions and other factors and, where appropriate, take steps intended
to improve our overall positioning. We consider the portfolio to be well-diversified and of high quality. US Treasury and government agencies, agency residential mortgage-backed and agency commercial mortgage-backed securities collectively
represented 60% of the investment securities portfolio at September 30, 2012.
At September 30, 2012, the securities available for
sale portfolio included a net unrealized gain of $1.6 billion, which represented the difference between fair value and amortized
cost. The comparable amount at December 31, 2011 was a net unrealized loss of $41 million. The fair value of investment securities is impacted by interest rates, credit spreads, market
volatility and liquidity conditions. The fair value of investment securities generally decreases when interest rates increase and vice versa. In addition, the fair value generally decreases when credit spreads widen and vice versa.
The improvement in the net unrealized gain as compared with a loss at December 31, 2011 was primarily due to the effect of higher valuations of
non-agency residential mortgage-backed securities which had a decrease in net unrealized losses of $1.0 billion. Net unrealized gains and losses in the securities available for sale portfolio are included in Shareholders equity as Accumulated
other comprehensive income or loss from continuing operations, net of tax on our Consolidated Balance Sheet.
Additional information regarding
our investment securities is included in Note 8 Investment Securities and Note 9 Fair Value in our Notes to Consolidated Financial Statements included in this Report.
Unrealized gains and losses on available for sale securities do not impact liquidity or risk-based capital under currently effective capital rules. However, reductions in the credit ratings of these
securities could have an impact on the liquidity of the securities or the determination of risk-weighted assets which could reduce our regulatory capital ratios under currently effective capital rules. In addition, the amount representing the
credit-related portion of OTTI on available for sale securities would reduce our earnings and regulatory capital ratios. Reductions in credit ratings of these securities would not have a direct impact on the risk-weightings of these securities under
the proposed capital rules issued by the US banking regulators in June 2012 as discussed in Recent Market and Industry Developments in the Executive Summary section of this Financial Review.
The expected weighted-average life of investment securities (excluding corporate stocks and other) was 3.8 years at September 30, 2012 and 3.7 years at December 31, 2011.
We estimate that, at September 30, 2012, the effective duration of investment securities was 2.3 years for an immediate 50 basis points parallel
increase in interest rates and 2.3 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2011 were 2.6 years and 2.4 years, respectively.
18 The PNC Financial Services Group, Inc. Form 10-Q
The following table provides detail regarding the vintage, current credit rating, and FICO score of the
underlying collateral at origination, where available, for residential mortgage-backed, commercial mortgage-backed and other asset-backed securities held in the available for sale and held to maturity portfolios:
Table 12: Vintage, Current Credit Rating, and FICO Score for Asset-Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
|
|
|
Agency |
|
|
Non-agency |
|
|
|
|
Dollars in millions |
|
Residential Mortgage- Backed Securities |
|
|
Commercial Mortgage- Backed Securities |
|
|
Residential Mortgage- Backed Securities |
|
|
Commercial Mortgage- Backed Securities |
|
|
Asset- Backed Securities (a) |
|
Fair Value Available for Sale |
|
$ |
27,930 |
|
|
$ |
651 |
|
|
$ |
6,220 |
|
|
$ |
3,281 |
|
|
$ |
5,539 |
|
Fair Value Held to Maturity |
|
|
4,800 |
|
|
|
1,380 |
|
|
|
|
|
|
|
2,893 |
|
|
|
775 |
|
Total Fair Value |
|
$ |
32,730 |
|
|
$ |
2,031 |
|
|
$ |
6,220 |
|
|
$ |
6,174 |
|
|
$ |
6,314 |
|
% of Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Vintage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
15 |
% |
|
|
1 |
% |
|
|
|
|
|
|
7 |
% |
|
|
|
|
2011 |
|
|
28 |
% |
|
|
48 |
% |
|
|
|
|
|
|
6 |
% |
|
|
1 |
% |
2010 |
|
|
26 |
% |
|
|
11 |
% |
|
|
|
|
|
|
4 |
% |
|
|
4 |
% |
2009 |
|
|
10 |
% |
|
|
19 |
% |
|
|
|
|
|
|
2 |
% |
|
|
2 |
% |
2008 |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
1 |
% |
2007 |
|
|
3 |
% |
|
|
2 |
% |
|
|
25 |
% |
|
|
11 |
% |
|
|
4 |
% |
2006 |
|
|
1 |
% |
|
|
4 |
% |
|
|
21 |
% |
|
|
21 |
% |
|
|
7 |
% |
2005 and earlier |
|
|
6 |
% |
|
|
12 |
% |
|
|
53 |
% |
|
|
48 |
% |
|
|
6 |
% |
Not Available |
|
|
8 |
% |
|
|
|
|
|
|
1 |
% |
|
|
1 |
% |
|
|
75 |
% |
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
By Credit Rating (at September 30, 2012) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
|
|
|
|
|
1 |
% |
|
|
73 |
% |
|
|
62 |
% |
AA |
|
|
|
|
|
|
|
|
|
|
1 |
% |
|
|
7 |
% |
|
|
27 |
% |
A |
|
|
|
|
|
|
|
|
|
|
2 |
% |
|
|
14 |
% |
|
|
1 |
% |
BBB |
|
|
|
|
|
|
|
|
|
|
4 |
% |
|
|
2 |
% |
|
|
|
|
BB |
|
|
|
|
|
|
|
|
|
|
13 |
% |
|
|
2 |
% |
|
|
|
|
B |
|
|
|
|
|
|
|
|
|
|
6 |
% |
|
|
|
|
|
|
1 |
% |
Lower than B |
|
|
|
|
|
|
|
|
|
|
72 |
% |
|
|
|
|
|
|
9 |
% |
No rating |
|
|
|
|
|
|
|
|
|
|
1 |
% |
|
|
2 |
% |
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
By FICO Score (at origination) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
>720 |
|
|
|
|
|
|
|
|
|
|
56 |
% |
|
|
|
|
|
|
2 |
% |
<720 and >660 |
|
|
|
|
|
|
|
|
|
|
31 |
% |
|
|
|
|
|
|
6 |
% |
<660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
% |
No FICO score |
|
|
|
|
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
89 |
% |
Total |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
(a) |
Available for sale asset-backed securities include $3 million of available for sale agency asset-backed securities. |
We conduct a comprehensive security-level impairment assessment quarterly on all securities in an unrealized loss position to determine whether the loss
represents OTTI. Our assessment considers the security structure, recent security collateral performance metrics, external credit ratings, failure of the issuer to make scheduled interest or principal payments, our judgment and expectations of
future performance, and relevant independent industry research, analysis and forecasts.
We also consider the severity of the impairment and
the length of time that the security has been impaired in our assessment. Results of the periodic assessment are reviewed by a cross-functional senior management team representing Asset & Liability Management, Finance, and Market Risk
Management. The senior management team considers the results of the assessments, as well as other factors, in determining whether the impairment is other-than-temporary.
The PNC
Financial Services Group, Inc. Form 10-Q 19
For those debt securities where we do not intend to sell and believe we will not be required to sell the
securities prior to expected recovery we recognize the credit portion of OTTI charges in current earnings and the noncredit portion of OTTI is included in Accumulated other comprehensive income (loss). Also see our Consolidated Statement of
Comprehensive Income.
We recognized OTTI for the third quarter and first nine months of 2012 and 2011 as follows:
Table 13: Other-Than-Temporary Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
Nine months ended September 30 |
|
In millions |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Credit portion of OTTI losses (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential mortgage-backed |
|
$ |
23 |
|
|
$ |
30 |
|
|
$ |
86 |
|
|
$ |
93 |
|
Asset-backed |
|
|
1 |
|
|
|
5 |
|
|
|
9 |
|
|
|
14 |
|
Other debt |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Total credit portion of OTTI losses |
|
|
24 |
|
|
|
35 |
|
|
|
96 |
|
|
|
108 |
|
Noncredit portion of OTTI (recoveries) (b) |
|
|
2 |
|
|
|
87 |
|
|
|
(22 |
) |
|
|
117 |
|
Total OTTI losses |
|
$ |
26 |
|
|
$ |
122 |
|
|
$ |
74 |
|
|
$ |
225 |
|
(a) |
Reduction of Noninterest income on our Consolidated Income Statement. |
(b) |
Included in Accumulated other comprehensive income (loss), net of tax, on our Consolidated Balance Sheet. Also see our Consolidated Statement of Comprehensive Income.
|
20 The PNC Financial Services Group, Inc. Form 10-Q
The following table summarizes net unrealized gains and losses recorded on non-agency residential and
commercial mortgage-backed securities and other asset-backed securities, which represent our most significant categories of securities not backed by the US government or its agencies. A summary of all OTTI credit losses recognized for the first nine
months of 2012 by investment type is included in Note 8 Investment Securities in the Notes To Consolidated Financial Statements in this Report.
Table 14: Net Unrealized Gains and Losses on Non-Agency Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
|
In millions |
|
Residential Mortgage-
Backed Securities |
|
|
Commercial Mortgage- Backed Securities |
|
|
Asset-Backed
Securities (a) |
|
Available for Sale Securities (Non-Agency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Net Unrealized Gain (Loss) |
|
|
Fair Value |
|
|
Net Unrealized Gain |
|
|
Fair Value |
|
|
Net Unrealized Gain (Loss) |
|
Credit Rating Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
$ |
76 |
|
|
$ |
2 |
|
|
$ |
1,849 |
|
|
$ |
95 |
|
|
$ |
3,323 |
|
|
$ |
23 |
|
Other Investment Grade (AA, A, BBB) |
|
|
410 |
|
|
|
38 |
|
|
|
1,224 |
|
|
|
89 |
|
|
|
1,574 |
|
|
|
9 |
|
Total Investment Grade |
|
|
486 |
|
|
|
40 |
|
|
|
3,073 |
|
|
|
184 |
|
|
|
4,897 |
|
|
|
32 |
|
BB |
|
|
814 |
|
|
|
(81 |
) |
|
|
98 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
B |
|
|
397 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
(2 |
) |
Lower than B |
|
|
4,493 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
558 |
|
|
|
(63 |
) |
Total Sub-Investment Grade |
|
|
5,704 |
|
|
|
(134 |
) |
|
|
98 |
|
|
|
4 |
|
|
|
616 |
|
|
|
(65 |
) |
Total No Rating |
|
|
30 |
|
|
|
1 |
|
|
|
110 |
|
|
|
5 |
|
|
|
23 |
|
|
|
(16 |
) |
Total |
|
$ |
6,220 |
|
|
$ |
(93 |
) |
|
$ |
3,281 |
|
|
$ |
193 |
|
|
$ |
5,536 |
|
|
$ |
(49 |
) |
OTTI Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI has been recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No OTTI recognized to date |
|
$ |
486 |
|
|
$ |
40 |
|
|
$ |
3,073 |
|
|
$ |
184 |
|
|
$ |
4,897 |
|
|
$ |
32 |
|
Total Investment Grade |
|
|
486 |
|
|
|
40 |
|
|
|
3,073 |
|
|
|
184 |
|
|
|
4,897 |
|
|
|
32 |
|
Sub-Investment Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI has been recognized |
|
|
3,783 |
|
|
|
(233 |
) |
|
|
|
|
|
|
|
|
|
|
583 |
|
|
|
(62 |
) |
No OTTI recognized to date |
|
|
1,921 |
|
|
|
99 |
|
|
|
98 |
|
|
|
4 |
|
|
|
33 |
|
|
|
(3 |
) |
Total Sub-Investment Grade |
|
|
5,704 |
|
|
|
(134 |
) |
|
|
98 |
|
|
|
4 |
|
|
|
616 |
|
|
|
(65 |
) |
No Rating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI has been recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
(16 |
) |
No OTTI recognized to date |
|
|
30 |
|
|
|
1 |
|
|
|
110 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Total No Rating |
|
|
30 |
|
|
|
1 |
|
|
|
110 |
|
|
|
5 |
|
|
|
23 |
|
|
|
(16 |
) |
Total |
|
$ |
6,220 |
|
|
$ |
(93 |
) |
|
$ |
3,281 |
|
|
$ |
193 |
|
|
$ |
5,536 |
|
|
$ |
(49 |
) |
Securities Held to Maturity (Non-Agency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Rating Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
|
|
|
|
$ |
2,646 |
|
|
$ |
95 |
|
|
$ |
563 |
|
|
$ |
2 |
|
Other Investment Grade (AA, A, BBB) |
|
|
|
|
|
|
|
|
|
|
247 |
|
|
|
14 |
|
|
|
208 |
|
|
|
1 |
|
Total Investment Grade |
|
|
|
|
|
|
|
|
|
|
2,893 |
|
|
|
109 |
|
|
|
771 |
|
|
|
3 |
|
BB |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lower than B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sub-Investment Grade |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
Total No Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
2,893 |
|
|
$ |
109 |
|
|
$ |
775 |
|
|
$ |
3 |
|
(a) |
Excludes $3 million of available for sale agency asset-backed securities. |
The PNC
Financial Services Group, Inc. Form 10-Q 21
Residential Mortgage-Backed Securities
At September 30, 2012, our residential mortgage-backed securities portfolio was comprised of $32.7 billion fair value of US government agency-backed securities and $6.2 billion fair value of
non-agency (private issuer) securities. The agency securities are generally collateralized by 1-4 family, conforming, fixed-rate residential mortgages. The non-agency securities are also generally collateralized by 1-4 family residential mortgages.
The mortgage loans underlying the non-agency securities are generally non-conforming (i.e., original balances in excess of the amount qualifying for agency securities) and predominately have interest rates that are fixed for a period of time, after
which the rate adjusts to a floating rate based upon a contractual spread that is indexed to a market rate (i.e., a hybrid ARM), or interest rates that are fixed for the term of the loan.
Substantially all of the non-agency securities are senior tranches in the securitization structure and at origination had credit protection in the form
of credit enhancement, over-collateralization and/or excess spread accounts.
During the first nine months of 2012, we recorded OTTI credit
losses of $86 million on non-agency residential mortgage-backed securities. All of the losses were associated with securities rated below investment grade. As of September 30, 2012, the noncredit portion of impairment recorded in Accumulated
other comprehensive income for non-agency residential mortgage-backed securities for which we have recorded an OTTI credit loss totaled $233 million and the related securities had a fair value of $3.8 billion.
The fair value of sub-investment grade investment securities for which we have not recorded an OTTI credit loss as of September 30, 2012 totaled
$1.9 billion, with unrealized net gains of $99 million. The results of our security-level assessments indicate that we will recover the entire cost basis of these securities. Note 8 Investment Securities in the Notes To Consolidated Financial
Statements in this Report provides further detail regarding our process for assessing OTTI for these securities.
Commercial
Mortgage-Backed Securities
The fair value of the non-agency commercial mortgage-backed securities portfolio was $6.2 billion at
September 30, 2012 and consisted of fixed-rate, private-issuer securities collateralized by non-residential properties, primarily retail properties, office buildings, and multi-family housing. The agency commercial mortgage-backed securities
portfolio was $2 billion fair value at September 30, 2012 consisting of multi-family housing. Substantially all of the securities are the most senior tranches in the subordination structure.
There were no OTTI credit losses on commercial mortgage-backed securities during the first nine months of 2012.
Asset-Backed Securities
The fair value of the asset-backed securities portfolio was $6.3 billion at September 30, 2012 and consisted of fixed-rate and floating-rate, private-issuer securities collateralized primarily by
various consumer credit products, including residential mortgage loans, credit cards, automobile loans, and student loans. Substantially all of the securities are senior tranches in the securitization structure and have credit protection in the form
of credit enhancement, over-collateralization and/or excess spread accounts.
We recorded OTTI credit losses of $9 million on asset-backed
securities during the first nine months of 2012. All of the securities are collateralized by first lien and second lien residential mortgage loans and are rated below investment grade. As of September 30, 2012, the noncredit portion of
impairment recorded in Accumulated other comprehensive income for asset-backed securities for which we have recorded an OTTI credit loss totaled $78 million and the related securities had a fair value of $606 million.
For the sub-investment grade investment securities (available for sale and held to maturity) for which we have not recorded an OTTI loss through
September 30, 2012, the remaining fair value was $37 million, with unrealized net losses of $3 million. The results of our security-level assessments indicate that we will recover the cost basis of these securities. Note 8 Investment Securities
in the Notes To Consolidated Financial Statements in this Report provides further detail regarding our process for assessing OTTI for these securities.
If current housing and economic conditions were to worsen, and if market volatility and illiquidity were to worsen, or if market interest rates were to increase appreciably, the valuation of our
investment securities portfolio could be adversely affected and we could incur additional OTTI credit losses that would impact our Consolidated Income Statement.
Table 15: Loans Held For Sale
|
|
|
|
|
|
|
|
|
In millions |
|
September 30 2012 |
|
|
December 31 2011 |
|
Commercial mortgages at fair value |
|
$ |
811 |
|
|
$ |
843 |
|
Commercial mortgages at lower of cost or fair value |
|
|
372 |
|
|
|
451 |
|
Total commercial mortgages |
|
|
1,183 |
|
|
|
1,294 |
|
Residential mortgages at fair value |
|
|
1,477 |
|
|
|
1,522 |
|
Other |
|
|
77 |
|
|
|
120 |
|
Total |
|
$ |
2,737 |
|
|
$ |
2,936 |
|
We stopped originating certain commercial mortgage loans designated as held for sale in 2008 and continue pursuing
opportunities to reduce these positions at appropriate prices. We sold $32 million in unpaid principal balance of these commercial mortgage loans held for sale carried at fair value
22 The PNC Financial Services Group, Inc. Form 10-Q
in the first nine months of 2012. We sold $25 million of these loans in the first nine months of 2011.
We recognized total net gains of $13 million in the first nine months of 2012, including losses of $2 million in the third quarter, on the valuation and sale of commercial mortgage loans held for sale,
net of hedges. Total net gains of $26 million on the valuation and sale of commercial mortgage loans held for sale, net of hedges, were recognized in the first nine months of 2011, including gains of $6 million in the third quarter.
Residential mortgage loan origination volume was $10.8 billion in the first nine months of 2012 compared to $8.4 billion for the first nine months of
2011. Substantially all such loans were originated under agency or Federal Housing Administration (FHA) standards.
We sold $10.5 billion of
residential mortgage loans and recognized related gains of $534 million during the first nine months of 2012, of which $216 million occurred in the third quarter. The comparable amounts for the first nine months of 2011 were $9.2 billion and $274
million, respectively, including $103 million in the third quarter.
Interest income on loans held for sale was $127 million in the first nine
months of 2012, including $32 million in the third quarter. Comparable amounts for 2011 were $153 million and $46 million, respectively. These amounts are included in Other interest income on our Consolidated Income Statement.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets totaled $10.9 billion at September 30, 2012 and $10.1 billion at December 31, 2011. During the first nine months of 2012, PNC recorded goodwill of $950
million and other intangible assets of $180 million associated with the RBC Bank (USA) acquisition. See Note 2 Acquisition and Divestiture Activity and Note 10 Goodwill and Other Intangible Assets included in the Notes To Consolidated Financial
Statements in this Report.
FUNDING AND CAPITAL SOURCES
Table 16: Details Of Funding Sources
|
|
|
|
|
|
|
|
|
In millions |
|
September 30 2012 |
|
|
December 31 2011 |
|
Deposits |
|
|
|
|
|
|
|
|
Money market |
|
$ |
103,228 |
|
|
$ |
89,912 |
|
Demand |
|
|
65,145 |
|
|
|
57,717 |
|
Retail certificates of deposit |
|
|
25,070 |
|
|
|
29,518 |
|
Savings |
|
|
10,098 |
|
|
|
8,705 |
|
Time deposits in foreign offices and other time |
|
|
2,722 |
|
|
|
2,114 |
|
Total deposits |
|
|
206,263 |
|
|
|
187,966 |
|
Borrowed funds |
|
|
|
|
|
|
|
|
Federal funds purchased and repurchase agreements |
|
|
3,877 |
|
|
|
2,984 |
|
Federal Home Loan Bank borrowings |
|
|
9,942 |
|
|
|
6,967 |
|
Bank notes and senior debt |
|
|
9,960 |
|
|
|
11,793 |
|
Subordinated debt |
|
|
6,754 |
|
|
|
8,321 |
|
Commercial paper |
|
|
10,731 |
|
|
|
4,271 |
|
Other |
|
|
1,840 |
|
|
|
2,368 |
|
Total borrowed funds |
|
|
43,104 |
|
|
|
36,704 |
|
Total |
|
$ |
249,367 |
|
|
$ |
224,670 |
|
Total funding sources increased $24.7 billion at September 30, 2012 compared with December 31, 2011.
Total deposits increased $18.3 billion, or 10%, at September 30, 2012 compared with December 31, 2011. On March 2, 2012, our
RBC Bank (USA) acquisition added $18.1 billion of deposits, including $6.9 billion of money market, $6.7 billion of demand deposit, $4.1 billion of retail certificates of deposit, and $.4 billion of savings accounts. Excluding acquisition activity,
money market, demand deposits, savings and time deposits in foreign offices and other time deposit accounts increased for the nine months ended September 30, 2012, partially offset by the maturity of retail certificates of deposit.
Interest-bearing deposits represented 69% of total deposits at both September 30, 2012 and December 31, 2011. Total borrowed funds increased $6.4 billion since December 31, 2011. The change from December 31, 2011 was due to an
increase in Federal funds purchased and repurchase agreements along with an increase in FHLB borrowings and commercial paper, partially offset by repayments and maturities of bank notes and senior debt and the redemption of trust preferred
securities.
Capital
See 2012 Capital and Liquidity Actions in the Executive Summary section of this Financial Review and Note 20 Subsequent Events in the Notes To
Consolidated Financial Statements in this Report for information regarding our 2012 capital activities.
The PNC
Financial Services Group, Inc. Form 10-Q 23
We manage our capital position by making adjustments to our balance sheet size and composition, issuing
debt, equity or hybrid instruments, executing treasury stock transactions, managing dividend policies and retaining earnings.
Total
shareholders equity increased $4.6 billion, to $38.7 billion, at September 30, 2012 compared with December 31, 2011 and included an increase in retained earnings of $1.6 billion. The issuance of preferred stock in September 2012 and
April 2012 contributed to the increase in capital surplus of $1.9 billion. Accumulated other comprehensive income increased $1.1 billion, to $1.0 billion, at September 30, 2012 compared with a loss of $0.1 billion at December 31, 2011
primarily due to net unrealized gains on securities compared to a net loss. Common shares outstanding were 529 million at September 30, 2012 and 527 million at December 31, 2011.
Our current common stock repurchase program permits us to purchase up to 25 million shares of PNC common stock on the open market or in privately
negotiated transactions. This program will remain in effect until fully utilized or until modified, superseded or terminated. The extent and timing of share repurchases under this program will depend on a number of factors including, among others,
market and general economic conditions, economic and regulatory capital considerations, alternative uses of capital, regulatory and contractual limitations, and the potential impact on our credit ratings. Consistent with our capital plan submitted
to the Federal Reserve in the first quarter of 2012, we may purchase up to $250 million of common stock under this program during 2012. Such purchases were initiated during the second quarter and approximately $135 million had been repurchased as of
September 30, 2012.
Table 17: Risk-Based Capital
|
|
|
|
|
|
|
|
|
Dollars in millions |
|
September 30 2012 |
|
|
December 31 2011 |
|
Capital components |
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Common |
|
$ |
35,124 |
|
|
$ |
32,417 |
|
Preferred |
|
|
3,559 |
|
|
|
1,636 |
|
Trust preferred capital securities |
|
|
771 |
|
|
|
2,354 |
|
Noncontrolling interests |
|
|
1,346 |
|
|
|
1,351 |
|
Goodwill and other intangible assets |
|
|
(9,945 |
) |
|
|
(9,027 |
) |
Eligible deferred income taxes on goodwill and other intangible assets |
|
|
367 |
|
|
|
431 |
|
Pension, other postretirement benefit plan adjustments |
|
|
686 |
|
|
|
755 |
|
Net unrealized securities (gains) losses, after-tax |
|
|
(1,050 |
) |
|
|
41 |
|
Net unrealized gains on cash flow hedge derivatives, after-tax |
|
|
(656 |
) |
|
|
(717 |
) |
Other |
|
|
(144 |
) |
|
|
(168 |
) |
Tier 1 risk-based capital |
|
|
30,058 |
|
|
|
29,073 |
|
Subordinated debt |
|
|
3,996 |
|
|
|
4,571 |
|
Eligible allowance for credit losses |
|
|
3,229 |
|
|
|
2,904 |
|
Total risk-based capital |
|
$ |
37,283 |
|
|
$ |
36,548 |
|
Tier 1 common capital |
|
|
|
|
|
|
|
|
Tier 1 risk-based capital |
|
$ |
30,058 |
|
|
$ |
29,073 |
|
Preferred equity |
|
|
(3,559 |
) |
|
|
(1,636 |
) |
Trust preferred capital securities |
|
|
(771 |
) |
|
|
(2,354 |
) |
Noncontrolling interests |
|
|
(1,346 |
) |
|
|
(1,351 |
) |
Tier 1 common capital |
|
$ |
24,382 |
|
|
$ |
23,732 |
|
Assets |
|
|
|
|
|
|
|
|
Risk-weighted assets, including off-balance sheet instruments and market risk equivalent assets |
|
$ |
257,297 |
|
|
$ |
230,705 |
|
Adjusted average total assets |
|
|
289,491 |
|
|
|
261,958 |
|
Capital ratios |
|
|
|
|
|
|
|
|
Tier 1 common |
|
|
9.5 |
% |
|
|
10.3 |
% |
Tier 1 risk-based |
|
|
11.7 |
|
|
|
12.6 |
|
Total risk-based |
|
|
14.5 |
|
|
|
15.8 |
|
Leverage |
|
|
10.4 |
|
|
|
11.1 |
|
Federal banking regulators have stated that they expect all bank holding companies to have a level and composition of
Tier 1 capital well in excess of the 4% Basel I regulatory minimum, and they have required the largest US bank holding companies, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet credit needs of their
customers through estimated stress scenarios. They have also stated their view that common equity should be the dominant form of Tier 1 capital. As a result, regulators are now emphasizing the Tier 1 common capital ratio in their
24 The PNC Financial Services Group, Inc. Form 10-Q
evaluation of bank holding company capital levels, although a formal ratio for this metric is not provided for in current regulations. We seek to manage our capital consistent with these
regulatory principles, and believe that our September 30, 2012 capital levels were aligned with them.
Dodd-Frank requires the Federal
Reserve Board to establish capital requirements that would, among other things, eliminate the Tier 1 treatment of trust preferred securities following a phase-in period expected to begin in 2013. Accordingly, PNC has redeemed some of its trust
preferred securities and will consider redeeming others on or after their first call date, based on such considerations as dividend rates, future capital requirements, capital market conditions and other factors. See 2012 Capital and Liquidity
Actions in the Executive Summary section of this Financial Review for additional information regarding our April 2012, May 2012, and July 2012 redemptions of trust preferred securities. See Note 13 Capital Securities of Subsidiary Trusts and
Perpetual Trust Securities in Item 8 of our 2011 Form 10-K and Note 11 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities and Note 20 Subsequent Events in the Notes To Consolidated Financial Statements in this Report for
additional information on trust preferred securities.
Our Tier 1 common capital ratio was 9.5% at September 30, 2012, compared with
10.3% at December 31, 2011. Our Tier 1 risk-based capital ratio decreased 90 basis points to 11.7% at September 30, 2012 from 12.6% at December 31, 2011. Our total risk-based capital ratio declined 130 basis points to 14.5% at
September 30, 2012 from 15.8% at December 31, 2011. The decline in these ratios was primarily due to goodwill and risk-weighted assets as a result of the RBC Bank (USA) acquisition and organic asset growth resulting in higher risk-weighted
assets. Our Tier 1 risk-based capital ratio reflected our 2012 capital actions of issuing approximately $1.9 billion of preferred stock and redeeming approximately $1.8 billion of trust preferred securities. Risk-weighted assets increased $26.6
billion from $230.7 billion at December 31, 2011 to $257.3 billion at September 30, 2012 due to the RBC Bank (USA) acquisition and organic loan growth for the first nine months of 2012.
At September 30, 2012, PNC and PNC Bank, National Association (PNC Bank), our domestic bank subsidiary, were both considered well
capitalized based on US regulatory capital ratio requirements under Basel I. To qualify as well-capitalized, regulators currently require bank holding companies and banks to maintain capital ratios of at least 6% for Tier 1
risk-based, 10% for total risk-based, and 5% for leverage. We believe PNC and PNC Bank will continue to meet these requirements during the remainder of 2012.
The access to, and cost of, funding for new business initiatives including acquisitions, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance
costs, and the level and nature of regulatory oversight depend, in part, on a financial institutions capital strength.
PNC and PNC Bank, N.A. expect to enter the parallel run qualification phase under the Basel II
capital framework on January 1, 2013. The Basel II framework, which was adopted by the Basel Committee on Banking Supervision in 2004, seeks to provide more risk-sensitive regulatory capital calculations and promote enhanced risk management
practices among large, internationally active banking organizations. The U.S. banking agencies adopted final rules to implement the Basel II capital framework in December 2007 and in June 2012 requested comment on proposed modifications to these
rules (collectively referred to as the advanced approaches). See Recent Market and Industry Developments in the Executive Summary section of this Financial Review. Prior to fully implementing the advanced approaches to calculate
risk-weighted assets, PNC and PNC Bank, N.A. must successfully complete a parallel run qualification phase. This phase must last at least four consecutive quarters, although, consistent with the experience of other U.S. banks, we
currently anticipate a multi-year parallel run period.
We provide additional information regarding enhanced capital requirements and some of
their potential impacts on PNC in Item 1A Risk Factors included in our 2011 Form 10-K.
OFF-BALANCE SHEET ARRANGEMENTS AND
VARIABLE INTEREST ENTITIES
We engage in a variety of activities that involve unconsolidated
entities or that are otherwise not reflected in our Consolidated Balance Sheet that are generally referred to as off-balance sheet arrangements. Additional information on these types of activities is included in our 2011 Form 10-K and in
the following sections of this Report:
|
|
|
Commitments, including contractual obligations and other commitments, included within the Risk Management section of this Financial Review,
|
|
|
|
Note 3 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements,
|
|
|
|
Note 11 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities in the Notes To Consolidated Financial Statements, and
|
|
|
|
Note 18 Commitments and Guarantees in the Notes To Consolidated Financial Statements. |
PNC consolidates variable interest entities (VIEs) when we are deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined to be
the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that
in either case could potentially be significant to the VIE.
A summary of VIEs, including those that we have consolidated and those in which
we hold variable interests but have not consolidated into our financial statements, as of
The PNC
Financial Services Group, Inc. Form 10-Q 25
September 30, 2012 and December 31, 2011 is included in Note 3 of this Report.
Trust Preferred Securities
In
connection with $.9 billion in principal amount of junior subordinated debentures associated with trust preferred securities outstanding as of September 30, 2012 that were issued by various subsidiary statutory trusts, we are subject to certain
restrictions, including restrictions on dividend payments. Generally, if there is (i) an event of default under the debentures, (ii) PNC elects to defer interest on the debentures, (iii) PNC exercises its right to defer payments on
the related trust preferred securities issued by the statutory trusts, or (iv) there is a default under PNCs guarantee of such payment obligations, as specified in the applicable governing documents, then PNC would be subject during the
period of such default or deferral to restrictions on dividends and other
provisions protecting the status of the debenture holders similar to or in some ways more restrictive than those potentially imposed under the Exchange Agreements with PNC Preferred Funding Trust
II and Trust III, as described in Note 13 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities in our 2011 Form 10-K. See 2012 Capital and Liquidity Actions in the Executive Summary section of this Financial Review for additional
information regarding our second and third quarter redemptions of trust preferred securities.
The replacement capital covenant described in
Note 13 in our 2011 Form 10-K, for which the holders of our 6 7/8% Subordinated Notes due May 15, 2019 are the beneficiaries, is no longer applicable due to the July 2012 redemption of trust preferred securities issued by PNC Capital Trust E.
FAIR VALUE MEASUREMENTS
In addition to the following, see Note 9 Fair Value in the Notes To Consolidated Financial Statements in this Report for further information regarding
fair value.
The following table summarizes the assets and liabilities measured at fair value and the portion of such assets and liabilities
that are classified within Level 3 of the valuation hierarchy.
Table 18: Fair Value Measurements
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
|
|
December 31, 2011 |
|
In millions |
|
Total Fair Value |
|
|
Level 3 |
|
|
Total Fair Value |
|
|
Level 3 |
|
Total assets |
|
$ |
70,759 |
|
|
$ |
10,889 |
|
|
$ |
66,658 |
|
|
$ |
10,051 |
|
Total assets at fair value as a percentage of consolidated assets |
|
|
24 |
% |
|
|
|
|
|
|
25 |
% |
|
|
|
|
Level 3 assets as a percentage of total assets at fair value |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
15 |
% |
Level 3 assets as a percentage of consolidated assets |
|
|
|
|
|
|
4 |
% |
|
|
|
|
|
|
4 |
% |
Total liabilities |
|
$ |
8,401 |
|
|
$ |
330 |
|
|
$ |
8,625 |
|
|
$ |
308 |
|
Total liabilities at fair value as a percentage of consolidated liabilities |
|
|
3 |
% |
|
|
|
|
|
|
4 |
% |
|
|
|
|
Level 3 liabilities as a percentage of total liabilities at fair value |
|
|
|
|
|
|
4 |
% |
|
|
|
|
|
|
4 |
% |
Level 3 liabilities as a percentage of consolidated liabilities |
|
|
|
|
|
|
<1 |
% |
|
|
|
|
|
|
<1 |
% |
The majority of assets recorded at fair value are included in the securities available for sale portfolio. The majority
of Level 3 assets represent non-agency residential mortgage-backed and asset-backed securities in the securities available for sale portfolio for which there was limited market activity.
An instruments categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. PNC reviews and updates fair value hierarchy
classifications quarterly. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels. PNCs policy is to
recognize transfers in and transfers out as of the end of the reporting period. During the first nine months of 2012, there were transfers of assets and liabilities from Level 2 to Level 3 of $462 million consisting primarily of mortgage-backed
securities as a result of a ratings downgrade which reduced the observability of valuation inputs. Also during the first nine months of 2012, $279 million of assets in the Rabbi Trust were classified as Level 1 based upon refinement in our
methodology. This reclassification has been reflected as if it were a transfer from Level 2 to Level 1. During the first nine months of 2011, there were no material transfers of assets or liabilities between the hierarchy levels.
26 The PNC Financial Services Group, Inc. Form 10-Q
EUROPEAN EXPOSURE
Table 19: Summary of European Exposure
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
Direct |
|
|
Indirect |
|
|
Total |
|
September 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Greece, Ireland, Italy, Portugal, and Spain (GIIPS) |
|
$ |
209 |
|
|
$ |
29 |
|
|
$ |
238 |
|
Belgium, France, and Turkey |
|
|
171 |
|
|
|
1,144 |
|
|
|
1,315 |
|
Subtotal |
|
|
380 |
|
|
|
1,173 |
|
|
|
1,553 |
|
United Kingdom |
|
|
1,126 |
|
|
|
584 |
|
|
|
1,710 |
|
Others (a) |
|
|
918 |
|
|
|
853 |
|
|
|
1,771 |
|
Total |
|
$ |
2,424 |
|
|
$ |
2,610 |
|
|
$ |
5,034 |
|
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Greece, Ireland, Italy, Portugal, and Spain (GIIPS) |
|
$ |
118 |
|
|
$ |
63 |
|
|
$ |
181 |
|
Belgium, France, and Turkey |
|
|
154 |
|
|
|
935 |
|
|
|
1,089 |
|
Subtotal |
|
|
272 |
|
|
|
998 |
|
|
|
1,270 |
|
United Kingdom |
|
|
847 |
|
|
|
529 |
|
|
|
1,376 |
|
Others (a) |
|
|
968 |
|
|
|
803 |
|
|
|
1,771 |
|
Total |
|
$ |
2,087 |
|
|
$ |
2,330 |
|
|
$ |
4,417 |
|
(a) |
Others primarily consist of Denmark, Germany, Netherlands, Sweden, and Switzerland. |
European entities are defined as supranational, sovereign, financial institutions and non-financial entities within the countries that comprise the European Union, European Union candidate countries and
other European countries. Foreign exposure underwriting and approvals are centralized. PNC currently underwrites new foreign activities if the credit is generally associated with activities of its United States commercial customers, and in the case
of PNC Business Credits United Kingdom operations, transactions that are predominantly well collateralized by self liquidating assets such as receivables, inventories or, in limited situations, the borrowers appraised value of certain
fixed assets, such that PNC is at minimal risk of loss. Formerly, PNC had underwritten foreign infrastructure leases supported by highly rated bank letters of credit, US Treasury securities and the underlying assets of the lease. Country exposures
are monitored and reported on a regular basis. We actively monitor sovereign risk, banking system health, and market conditions and adjust limits as appropriate. We rely on information from internal and external sources, including international
financial institutions, economists and analysts, industry trade organizations, rating agencies, econometric data analytical service providers, and geopolitical news analysis services.
Direct exposure primarily consists of loans, leases, securities, derivatives, letters of credit and unfunded contractual commitments with European entities, and totaled $2.4 billion at September 30,
2012. Direct exposure outstanding was $1.8 billion and other direct exposure was $580 million, primarily for unfunded contractual commitments. The $1.8 billion outstanding balance (.61% of PNC total assets) primarily
represents $640 million for cross-border leases in support of national infrastructure, which are supported by letters of credit and other collateral having trigger mechanisms that require
replacement or collateral in the form of cash or United States Treasury or government securities, $618 million for United Kingdom foreign office loans and $225 million of securities issued by AAA-rated sovereigns. The remaining $580 million of our
direct exposure is largely comprised of $500 million for unfunded contractual commitments primarily for United Kingdom local office commitments to PNC Business Credit corporate customers on a secured basis or activities supporting our domestic
customers export activities through the confirmation of trade letters of credit.
The comparable level of direct exposure at December 31,
2011 was $2.1 billion, including $1.6 billion outstanding and $485 million primarily for unfunded contractual commitments. The $1.6 billion outstanding balance (.59% of PNC total assets) primarily included $625 million for cross-border leases in
support of national infrastructure, $382 million for United Kingdom foreign office loans and $357 million of securities issued by AAA-rated sovereigns. The remaining $485 million of our direct exposure is largely comprised of $440 million for
unfunded contractual commitments primarily for United Kingdom local office commitments to PNC Business Credit corporate customers on a secured basis.
We also track European financial exposures where PNC is appointed as a fronting bank by our clients and we elect to assume the joint probability of default risk. As of September 30, 2012 and
December 31, 2011, PNC had $2.6 billion and $2.3 billion, respectively, of indirect exposure. For PNC to incur a loss in these indirect exposures, both the obligor and the financial counterparty participating bank would need to default. PNC
assesses both the corporate customers and the participating banks for counterparty risk and where PNC has found that a participating bank exposes PNC to unacceptable risk, PNC will reject the participating bank as an acceptable counterparty and will
ask the corporate customer to find an acceptable participating bank.
Among the regions and nations that PNC monitors, we have identified
eight countries for which we are more closely monitoring their economic and financial situation. The basis for the increased monitoring includes, but is not limited to, sovereign debt burden, near term financing risk, political instability, GDP
trends, balance of payments, market confidence, banking system distress and/or holdings of stressed sovereign debt. The countries identified are: Greece, Ireland, Italy, Portugal, Spain (collectively GIIPS), Belgium, France and Turkey.
Direct and indirect exposure to entities in the GIIPS countries totaled $238 million as of September 30, 2012, of which $121 million is
direct exposure for cross-border leases within Portugal, $66 million represents direct exposure for loans
The PNC
Financial Services Group, Inc. Form 10-Q 27
outstanding within Ireland and indirect exposure of $29 million for letters of credit with strong underlying obligors within Ireland, Italy and Spain. The comparable amounts as of
December 31, 2011 were total direct and indirect exposure of $181 million, consisting of $118 million of direct exposure for cross-border leases within Portugal, indirect exposure of $48 million for letters of credit with strong underlying
obligors within Ireland, Italy and Spain and $15 million for unfunded contractual commitments in Spain.
Direct and indirect exposure to
entities in Belgium, France, and Turkey totaled $1.3 billion as of September 30, 2012. Direct exposure of $171 million primarily consists of $69 million for cross-border leases within Belgium, $62 million for unfunded contractual commitments in
France and $30 million of covered bonds issued by a financial institution in France. Indirect exposure is $1.1 billion for letters of credit with strong underlying obligors and creditworthy participant banks in France and Belgium. The comparable
amounts as of December 31, 2011 were total direct and indirect exposure of $1.1 billion as of December 31, 2011 of which there was $154 million of direct exposure primarily consisting of $75 million for cross-border leases within Belgium,
$62 million for unfunded contractual commitments in France and $11 million for 90% Overseas Private Investment Corporation (OPIC) guaranteed Turkish loans. Indirect exposure was $935 million for letters of credit with strong underlying
obligors and creditworthy participant banks in France and Belgium.
BUSINESS
SEGMENTS REVIEW
We have six reportable business segments:
|
|
|
Corporate & Institutional Banking |
|
|
|
Residential Mortgage Banking |
|
|
|
Non-Strategic Assets Portfolio |
Business segment results, including inter-segment revenues, and a description of each business are included in Note 19 Segment Reporting included in the Notes To Consolidated Financial Statements of this
Report. Certain amounts included in this Financial Review differ from those amounts shown in Note 19 primarily due to the presentation in this Financial Review of business net interest revenue on a taxable-equivalent basis.
Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of
guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual businesses are not necessarily comparable with similar information for any other company. We periodically refine our internal methodologies as
management reporting practices are enhanced.
Retrospective application of new methodologies is made to prior period reportable business segment results and disclosures to create comparability to the current period presentation to reflect
any such refinements. Financial results are presented, to the extent practicable, as if each business operated on a stand-alone basis. We have aggregated the business results for certain similar operating segments for financial reporting purposes.
Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that
incorporates product maturities, duration and other factors. During the second quarter of 2012, enhancements were made to the funds transfer pricing methodology. Retrospective application of our new funds transfer pricing methodology has been made
to the prior period reportable business segment results and disclosures to create comparability to the current period presentation, which we believe is more meaningful to readers of our financial statements.
A portion of capital is intended to cover unexpected losses and is assigned to our business segments using our risk-based economic capital model,
including consideration of the goodwill and other intangible assets at those business segments, as well as the diversification of risk among the business segments.
We have allocated the allowances for loan and lease losses and for unfunded loan commitments and letters of credit based on our assessment of risk in the business segment loan portfolios. Our allocation
of the costs incurred by operations and other shared support areas not directly aligned with the businesses is primarily based on the use of services. During the third quarter of 2012, enhancements were made to certain processes and assumptions used
to estimate our ALLL. Specifically, PNC increased the amount of internally observed data used in estimating commercial lending PDs and LGDs. The estimated impact as of the beginning of the third quarter 2012 was approximately an increase of $41
million and a decrease of $55 million to the provision for credit losses of Retail Banking and Corporate & Institutional Banking, respectively. Prior periods are not presented on a comparable basis as it is not practicable to do so.
Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in the
Other category. Other for purposes of this Business Segments Review and the Business Segment Highlights in the Executive Summary includes residual activities that do not meet the criteria for disclosure as a separate
reportable business, such as gains or losses related to BlackRock transactions, integration costs, asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and
certain trading activities, exited businesses, alternative investments, including private equity, intercompany
28 The PNC Financial Services Group, Inc. Form 10-Q
eliminations, most corporate overhead, tax adjustments that are not allocated to business segments, and differences between business segment performance reporting and
financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests.
Table 20: Results Of Businesses Summary (a)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
Revenue |
|
|
Average Assets (b) |
|
Nine months ended September 30 in millions |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Retail Banking |
|
$ |
475 |
|
|
$ |
309 |
|
|
$ |
4,651 |
|
|
$ |
4,196 |
|
|
$ |
72,048 |
|
|
$ |
66,193 |
|
Corporate & Institutional Banking |
|
|
1,679 |
|
|
|
1,343 |
|
|
|
4,121 |
|
|
|
3,469 |
|
|
|
100,907 |
|
|
|
79,315 |
|
Asset Management Group |
|
|
111 |
|
|
|
143 |
|
|
|
726 |
|
|
|
695 |
|
|
|
6,666 |
|
|
|
6,744 |
|
Residential Mortgage Banking |
|
|
(116 |
) |
|
|
150 |
|
|
|
468 |
|
|
|
732 |
|
|
|
11,663 |
|
|
|
11,103 |
|
BlackRock |
|
|
283 |
|
|
|
271 |
|
|
|
366 |
|
|
|
351 |
|
|
|
5,727 |
|
|
|
5,441 |
|
Non-Strategic Assets Portfolio |
|
|
178 |
|
|
|
202 |
|
|
|
625 |
|
|
|
753 |
|
|
|
12,276 |
|
|
|
13,392 |
|
Total business segments |
|
|
2,610 |
|
|
|
2,418 |
|
|
|
10,957 |
|
|
|
10,196 |
|
|
|
209,287 |
|
|
|
182,188 |
|
Other (c) (d) |
|
|
(328 |
) |
|
|
160 |
|
|
|
486 |
|
|
|
581 |
|
|
|
83,352 |
|
|
|
81,331 |
|
Total |
|
$ |
2,282 |
|
|
$ |
2,578 |
|
|
$ |
11,443 |
|
|
$ |
10,777 |
|
|
$ |
292,639 |
|
|
$ |
263,519 |
|
(a) |
During the second quarter of 2012, enhancements were made to the funds transfer pricing methodology. Retrospective application of our new funds transfer pricing
methodology has been made to the prior period reportable business segment results and disclosures to create comparability to the current period presentation, which we believe is more meaningful to readers of our financial statements.
|
(b) |
Period-end balances for BlackRock. |
(c) |
For our segment reporting presentation in this Financial Review, Other for the first nine months of 2012 included $232 million of pretax integration costs
related to acquisitions. |
(d) |
Other average assets include securities available for sale associated with asset and liability management activities. |
The PNC
Financial Services Group, Inc. Form 10-Q 29
Retail Banking
(Unaudited)
Table 21: Retail Banking Table
|
|
|
|
|
|
|
|
|
Nine months ended September 30 Dollars in millions, except as noted |
|
2012 |
|
|
2011 |
|
Income Statement |
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
3,235 |
|
|
$ |
2,834 |
|
Noninterest income |
|
|
|
|
|
|
|
|
Service charges on deposits |
|
|
404 |
|
|
|
375 |
|
Brokerage |
|
|
141 |
|
|
|
153 |
|
Consumer services |
|
|
618 |
|
|
|
732 |
|
Other |
|
|
253 |
|
|
|
102 |
|
Total noninterest income |
|
|
1,416 |
|
|
|
1,362 |
|
Total revenue |
|
|
4,651 |
|
|
|
4,196 |
|
Provision for credit losses |
|
|
520 |
|
|
|
662 |
|
Noninterest expense |
|
|
3,380 |
|
|
|
3,047 |
|
Pretax earnings |
|
|
751 |
|
|
|
487 |
|
Income taxes |
|
|
276 |
|
|
|
178 |
|
Earnings |
|
$ |
475 |
|
|
$ |
309 |
|
Average Balance Sheet |
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
Home equity |
|
$ |
28,136 |
|
|
$ |
25,999 |
|
Indirect auto |
|
|
5,047 |
|
|
|
2,830 |
|
Indirect other |
|
|
1,212 |
|
|
|
1,533 |
|
Education |
|
|
9,049 |
|
|
|
9,036 |
|
Credit cards |
|
|
4,037 |
|
|
|
3,715 |
|
Other |
|
|
1,987 |
|
|
|
1,725 |
|
Total consumer |
|
|
49,468 |
|
|
|
44,838 |
|
Commercial and commercial real estate |
|
|
11,176 |
|
|
|
10,634 |
|
Floor plan |
|
|
1,745 |
|
|
|
1,449 |
|
Residential mortgage |
|
|
974 |
|
|
|
1,210 |
|
Total loans |
|
|
63,363 |
|
|
|
58,131 |
|
Goodwill and other intangible assets |
|
|
6,105 |
|
|
|
5,756 |
|
Other assets |
|
|
2,580 |
|
|
|
2,306 |
|
Total assets |
|
$ |
72,048 |
|
|
$ |
66,193 |
|
Deposits |
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
$ |
19,938 |
|
|
$ |
18,209 |
|
Interest-bearing demand |
|
|
27,496 |
|
|
|
21,729 |
|
Money market |
|
|
46,148 |
|
|
|
40,788 |
|
Total transaction deposits |
|
|
93,582 |
|
|
|
80,726 |
|
Savings |
|
|
9,645 |
|
|
|
7,979 |
|
Certificates of deposit |
|
|
26,448 |
|
|
|
34,020 |
|
Total deposits |
|
|
129,675 |
|
|
|
122,725 |
|
Other liabilities |
|
|
358 |
|
|
|
898 |
|
Capital |
|
|
8,607 |
|
|
|
8,173 |
|
Total liabilities and equity |
|
$ |
138,640 |
|
|
$ |
131,796 |
|
30 The PNC Financial Services Group, Inc. Form 10-Q
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Nine months ended September 30 Dollars in millions, except as noted |
|
2012 |
|
|
2011 |
|
Performance Ratios |
|
|
|
|
|
|
|
|
Return on average capital |
|
|
7 |
% |
|
|
5 |
% |
Return on average assets |
|
|
.88 |
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|
|
.62 |
|
Noninterest income to total revenue |
|
|
30 |
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|
|
32 |
|
Efficiency |
|
|
73 |
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|
73 |
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Other Information (a) |
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Credit-related statistics: |
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|
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Commercial nonperforming assets |
|
$ |
266 |
|
|
$ |
330 |
|
Consumer nonperforming assets |
|
|
799 |
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|
|
454 |
|
Total nonperforming assets (b) |
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$ |
1,065 |
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$ |
784 |
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Purchased impaired loans (c) |
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$ |
852 |
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$ |
786 |
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Commercial lending net charge-offs |
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$ |
85 |
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$ |
171 |
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Credit card lending net charge-offs |
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|
139 |
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|
167 |
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Consumer lending (excluding credit card) net charge-offs |
|
|
373 |
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|
|
324 |
|
Total net charge-offs |
|
$ |
597 |
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$ |
662 |
|
Commercial lending annualized net charge-off ratio |
|
|
.88 |
% |
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|
1.89 |
% |
Credit card lending annualized net charge-off ratio |
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|
4.60 |
% |
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|
6.01 |
% |
Consumer lending (excluding credit card) annualized net charge-off ratio |
|
|
1.07 |
% |
|
|
1.02 |
% |
Total annualized net charge-off ratio |
|
|
1.26 |
% |
|
|
1.52 |
% |
Home equity portfolio credit statistics: (d) |
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% of first lien positions at origination |
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|
41 |
% |
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|
38 |
% |
Weighted-average loan-to-value ratios (LTVs) (e) |
|
|
80 |
% |
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|
72 |
% |
Weighted-average updated FICO scores (f) |
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742 |
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|
743 |
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Annualized net charge-off ratio |
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|
1.21 |
% |
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1.11 |
% |
Loans 30 59 days past due |
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|
.51 |
% |
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|
.58 |
% |
Loans 60 89 days past due |
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|
.33 |
% |
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|
.32 |
% |
Loans 90 days past due (g) |
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1.24 |
% |
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|
1.12 |
% |
Other statistics: |
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ATMs |
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7,261 |
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6,754 |
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Branches (h) |
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2,887 |
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2,469 |
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Customer-related statistics: (in thousands) |
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Retail Banking checking relationships |
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6,451 |
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5,722 |
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Retail online banking active customers |
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4,117 |
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3,479 |
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Retail online bill payment active customers |
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1,219 |
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1,079 |
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Brokerage statistics: |
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Financial consultants (i) |
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655 |
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703 |
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Full service brokerage offices |
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42 |
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37 |
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Brokerage account assets (billions) |
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$ |
38 |
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|
$ |
33 |
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(a) |
Presented as of September 30, except for net charge-offs and annualized net charge-off ratios, which are for the nine months ended. |
(b) |
Includes nonperforming loans of $1.0 billion at September 30, 2012 and $748 million at September 30, 2011. In the first quarter of 2012, we adopted a policy
stating that Home equity loans past due 90 days or more would be placed on nonaccrual status. The prior policy required that these loans be past due 180 days before being placed on nonaccrual status. |
(c) |
Recorded investment of purchased impaired loans related to acquisitions. |
(d) |
Lien position, LTV, FICO and delinquency statistics are based upon balances and other data that exclude the impact of accounting for acquired loans.
|
(e) |
Updated LTV is reported for September 30, 2012. For September 30, 2011, LTV is based upon data from loan origination. Original LTV excludes certain acquired
portfolio loans where this data is not available. |
(f) |
Represents FICO scores that are updated monthly for home equity lines and quarterly for the home equity installment loans. |
(g) |
Includes non-accrual loans. |
(h) |
Excludes satellite offices (e.g., drive-ups, electronic branches, and retirement centers) that provide limited products and/or services. |
(i) |
Financial consultants provide services in full service brokerage offices and traditional bank branches. |
The PNC
Financial Services Group, Inc. Form 10-Q 31
Retail Banking earned $475 million for the first nine months of 2012 compared with earnings of $309 million
for the same period a year ago. The increase in earnings resulted from organic growth in loan and transaction deposit balances, lower rates paid on deposits, a lower provision for credit losses, higher levels of customer-initiated transactions, a
gain on the sale of a portion of Visa Class B common shares, and the impact of the RBC Bank (USA) acquisition, partially offset by the regulatory impact of lower interchange fees on debit card transactions and higher additions to legal reserves.
The results for the first nine months of 2012 include the impact of the retail business associated with the acquisition of RBC Bank (USA) and
the credit card portfolio purchase from RBC Bank (Georgia), National Association in March 2012. Retail Banking added approximately $12.1 billion in deposits, $4.9 billion in loans, 460,000 checking relationships, over 400 branches, and over 400 ATMs
through this acquisition. Retail Bankings footprint extends across 17 states and Washington, D.C., covering nearly half the US population and serving 5,710,000 consumers and 741,000 small businesses with 2,887 branches and 7,261 ATMs.
Retail Bankings core strategy is to grow consumer and small business checking households by providing an experience that builds
customer loyalty and creates opportunities to sell other products and services, including loans, savings accounts, investment products and money management services. Net new checking relationships grew 690,000 in the first nine months of 2012,
including 460,000 from the RBC Bank (USA) acquisition. Year to date organic customer relationship growth was 4% on an annualized basis. The growth reflects strong results and gains in all of our markets as well as strong customer retention in the
overall network. The business is also focused on expanding the use of technology, using services such as online banking and mobile deposit taking to improve customer service convenience and lower our service delivery costs. Active online banking
customers and active online bill payment customers increased by 18% and 13%, respectively, from September 30 of the prior year.
Total
revenue for the first nine months of 2012 was $4.7 billion compared with $4.2 billion for the same period of 2011. Net interest income of $3.2 billion increased $401 million compared with the first nine months of 2011. The increase resulted from
higher organic loan and transaction deposit balances, lower rates paid on deposits, and the impact of the RBC Bank (USA) acquisition.
Noninterest income increased $54 million compared to the first nine months of 2011. The increase was driven by the pretax gain of $137 million on the
sale of 5 million Visa Class B common shares. Noninterest revenue has been adversely affected by Dodd-Frank limits related to interchange rates that became effective in October 2011. In the first nine months of 2012, the negative impact of
these limits was approximately $230 million. This impact has been partially offset by higher
volumes of merchant, customer credit card and debit card transactions and the RBC Bank (USA) acquisition.
The provision for credit losses was $520 million in the first nine months of 2012 compared with $662 million in prior year. Net charge-offs were $597 million for the first nine months of 2012 compared
with $662 million for the same period in 2011. Improvements in credit quality over the prior year were evident in the small business and credit card portfolios. Pursuant to regulatory guidance, additional net consumer charge-offs have been taken as
of September 30, 2012 related to changes in treatment of certain loans where borrowers have been discharged from personal liability under bankruptcy protection where no formal reaffirmation of the loan obligation was provided by the borrower.
Such loans have been classified as troubled debt restructurings and have been measured at fair value of the collateral less costs to sell. The level of provisioning going forward will be dependent on general economic conditions, loan growth,
utilization of credit commitments and asset quality.
Noninterest expense increased $333 million in the first nine months of 2012 compared to
the same period of 2011. The increase was primarily attributable to the operating expenses associated with RBC Bank (USA) and higher additions to legal reserves.
Growing core checking deposits is key to Retail Bankings growth and to providing a source of low-cost funding to PNC. The deposit product strategy of Retail Banking is to remain disciplined on
pricing, target specific products and markets for growth, and focus on the retention and growth of balances for relationship customers. In the first nine months of 2012, average total deposits of $129.7 billion increased $7.0 billion, or 6%,
compared with the same period in 2011.
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Average transaction deposits grew $12.9 billion, or 16% and average savings deposit balances grew $1.7 billion or 21% year over year as a result of
organic deposit growth, continued customer preference for liquidity, and the RBC Bank (USA) acquisition. In the first nine months of 2012, compared with the same period a year ago, average demand deposits increased $7.5 billion, or 19%, to $47.4
billion; average money market deposits increased $5.4 billion, or 13%, to $46.1 billion. |
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Total average certificates of deposit decreased $7.6 billion or 22% compared to the same period in 2011. The decline in average certificates of deposit
was due to the run-off of maturing accounts partially offset by the impact of the RBC Bank (USA) acquisition. |
Retail
Banking continues to focus on a relationship-based lending strategy that targets specific customer sectors, including mass and mass affluent consumers, small businesses and auto dealerships. In the first nine months of 2012, average total loans were
$63.4 billion, an increase of $5.2 billion, or 9%, over the same period in 2011, of which $3.7 billion was
32 The PNC Financial Services Group, Inc. Form 10-Q
attributable to the RBC Bank (USA) acquisition, primarily in the home equity portfolio.
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Average indirect auto loans increased $2.2 billion, or 78%, over the first nine months of 2011. The increase was due to the expansion of our indirect
sales force and product introduction to acquired markets, as well as overall increases in auto sales. An indirect auto portfolio of $522 million was purchased in September 2012. |
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Average home equity loans increased $2.1 billion, or 8%, compared with the same period in 2011. The increase was due to the RBC Bank (USA) acquisition.
The remainder of the portfolio showed a decline as loan demand was outpaced by paydowns, refinancings, and charge-offs. Retail Bankings home equity loan portfolio is relationship based, with 97% of the portfolio attributable to borrowers in
our primary geographic footprint. |
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Average commercial and commercial real estate loans increased $542 million, or 5%, compared with the same period in 2011. The increase was due to the
acquisition of RBC Bank (USA). The remainder of
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the portfolio showed a decline as loan demand was outpaced by paydowns, refinancings, and charge-offs. |
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Average credit card balances increased $322 million, or 9%, compared with the first nine months of 2011 as a result of the portfolio purchase from RBC
Bank (Georgia), National Association in March 2012 and an increase in active accounts. |
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Average auto dealer floor plan loans grew $296 million, or 20%, compared with the first nine months of 2011, primarily resulting from dealer line
utilization and additional dealer relationships. |
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Average education loans for the first nine months of 2012 were flat compared with the same period in 2011. |
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Average indirect other and residential mortgages in this segment are primarily run-off portfolios and declined $321 million and $236 million,
respectively, compared with the same period in 2011. The indirect other portfolio is comprised of marine, RV, and other indirect loan products.
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The PNC
Financial Services Group, Inc. Form 10-Q 33
Corporate & Institutional Banking
(Unaudited)
Table 22: Corporate & Institutional Banking Table
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Nine months ended September 30 Dollars in millions, except as noted |
|
2012 |
|
|
2011 |
|
Income Statement |
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|
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Net interest income |
|
$ |
3,042 |
|
|
$ |
2,595 |
|
Noninterest income |
|
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Corporate service fees |
|
|
706 |
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|
|
526 |
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Other |
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|
373 |
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|
|
348 |
|
Noninterest income |
|
|
1,079 |
|
|
|
874 |
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Total revenue |
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|
4,121 |
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|
|
3,469 |
|
Provision for credit losses (benefit) |
|
|
(9 |
) |
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|
12 |
|
Noninterest expense |
|
|
1,479 |
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|
|
1,337 |
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Pretax earnings |
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|
2,651 |
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|
2,120 |
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Income taxes |
|
|
972 |
|
|
|
777 |
|
Earnings |
|
$ |
1,679 |
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|
$ |
1,343 |
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Average Balance Sheet |
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Loans |
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|
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Commercial |
|
$ |
47,560 |
|
|
$ |
34,771 |
|
Commercial real estate |
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|
15,516 |
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|
13,949 |
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Commercial real estate related |
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|
5,510 |
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|
3,553 |
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Asset-based lending |
|
|
9,811 |
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|
7,928 |
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Equipment lease financing |
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|
5,904 |
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|
5,499 |
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Total loans |
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|
84,301 |
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|
|
65,700 |
|
Goodwill and other intangible assets |
|
|
3,633 |
|
|
|
3,444 |
|
Loans held for sale |
|
|
1,233 |
|
|
|
1,251 |
|
Other assets |
|
|
11,740 |
|
|
|
8,920 |
|
Total assets |
|
$ |
100,907 |
|
|
$ |
79,315 |
|
Deposits |
|
|
|
|
|
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Noninterest-bearing demand |
|
$ |
37,575 |
|
|
$ |
30,010 |
|
Money market |
|
|
15,284 |
|
|
|
12,770 |
|
Other |
|
|
5,862 |
|
|
|
5,662 |
|
Total deposits |
|
|
58,721 |
|
|
|
48,442 |
|
Other liabilities |
|
|
17,586 |
|
|
|
13,064 |
|
Capital |
|
|
9,100 |
|
|
|
7,927 |
|
Total liabilities and equity |
|
$ |
85,407 |
|
|
$ |
69,433 |
|
Performance Ratios |
|
|
|
|
|
|
|
|
Return on average capital |
|
|
25 |
% |
|
|
23 |
% |
Return on average assets |
|
|
2.22 |
|
|
|
2.26 |
|
Noninterest income to total revenue |
|
|
26 |
|
|
|
25 |
|
Efficiency |
|
|
36 |
|
|
|
39 |
|
Commercial Mortgage Servicing Portfolio (in billions) |
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
267 |
|
|
$ |
266 |
|
Acquisitions/additions |
|
|
29 |
|
|
|
31 |
|
Repayments/transfers |
|
|
(31 |
) |
|
|
(30 |
) |
End of period |
|
$ |
|