Capital levels strengthen; asset quality solid
PITTSBURGH, April 17 /PRNewswire-FirstCall/ -- The PNC Financial
Services Group, Inc. (NYSE: PNC) today reported net income of $377 million,
or $1.09 per diluted share, for the first quarter of 2008 compared with net
income of $459 million, or $1.46 per diluted share, for the first quarter
of 2007 and net income of $178 million, or $.52 per diluted share, for the
fourth quarter of 2007.
"In an extremely difficult environment for the financial services
industry, PNC reported solid first quarter results," said James E. Rohr,
chairman and chief executive officer. "We continued to execute on our long-
term growth strategies and grew average loans, deposits and assets. Despite
a slower economy, we believe our diverse revenue mix, moderate risk profile
and disciplined expense control will continue to serve us well. This
confidence is reflected in our recently announced dividend increase to
shareholders."
HIGHLIGHTS
-- PNC continued to grow revenue while controlling noninterest expense,
creating positive operating leverage. Revenue growth of 13 percent
exceeded noninterest expense growth of 10 percent in the year over year
comparison.
-- Net interest income on a taxable-equivalent basis grew 37 percent in
the first quarter of 2008 compared with the first quarter of 2007 and 8
percent compared with the linked quarter. The net interest margin
improved to 3.09 percent compared with 2.95 percent and 2.96 percent in
the first and fourth quarters of 2007, respectively.
-- Noninterest income increased 16 percent compared with the prior quarter
and declined by 2 percent compared with the first quarter of 2007.
First quarter 2008 noninterest income included several gains that were
mostly offset by loss items, as follows: gains related to the Visa
initial public offering, the sale of J.J.B. Hilliard, W.L. Lyons, LLC,
securities available for sale transactions and the mark to market of
our BlackRock long-term incentive plan (LTIP) shares obligation,
substantially offset by valuation losses on commercial mortgage loans
and commitments held for sale, net of hedges, and on trading positions
as a result of continued lack of liquidity and unprecedented volatility
in the capital markets.
-- Average loans for the first quarter increased 28 percent over first
quarter 2007 and 3 percent compared with the linked quarter. Average
deposits for the first quarter increased 17 percent and 1 percent
compared with the first and fourth quarters of 2007, respectively.
-- Overall asset quality remained strong despite the impact of the
challenging credit environment. The provision for credit losses was
$151 million compared with $188 million in the fourth quarter of 2007.
The allowance for loan and lease losses was 1.22 percent of total loans
at March 31, 2008 and 1.21 percent at December 31, 2007.
-- PNC maintained a strong liquidity position and continued to be well
capitalized, building the Tier 1 risk-based capital ratio to 7.7
percent at March 31, 2008 compared with 6.8 percent at December 31,
2007. In April, the company announced a modest five percent increase of
the cash dividend on common stock to 66 cents per share in recognition
of the current market environment and reflecting confidence in PNC's
ability to grow earnings.
-- PNC completed the sale of Hilliard Lyons on March 31, resulting in an
after-tax gain of $23 million. The acquisition of Sterling Financial
Corporation, based in Lancaster, Pa., closed on April 4 and the
Yardville National Bank systems integration and conversion to the PNC
brand was completed on March 7.
The Consolidated Financial Highlights section of this release includes
a reconciliation of taxable-equivalent net interest income to net interest
income as reported under generally accepted accounting principles (GAAP).
CONSOLIDATED REVENUE REVIEW
Taxable-equivalent net interest income totaled $863 million for the
quarter, an increase of 37 percent compared with $629 million for the year-
earlier first quarter and an increase of 8 percent compared with $800
million for the fourth quarter of 2007. The net interest margin in the
first quarter of 2008 was 3.09 percent compared with 2.95 percent in the
first quarter of 2007 and 2.96 percent in the fourth quarter of 2007. The
increase in net interest income and the margin for both periods of
comparison resulted from the impact of declining interest rates on PNC's
liability sensitive balance sheet. Net interest income growth over the
prior year first quarter was also due to acquisitions and balance sheet
growth.
Noninterest income totaled $967 million for the first quarter of 2008
compared with $991 million and $834 million for the first and fourth
quarters of 2007, respectively. The $133 million, or 16 percent, increase
in noninterest income compared with the linked quarter was primarily due to
the change in the mark-to-market adjustment on PNC's BlackRock LTIP shares
obligation, which was a $37 million gain in the first quarter of 2008
compared with a $128 million loss in the fourth quarter, a gain of $114
million on the sale of Hilliard Lyons, a gain of $95 million on the partial
share redemption of PNC's Visa ownership and net gains on available for
sale securities transactions of $41 million. These gains were partially
offset by higher valuation losses on commercial mortgage loans and
commitments held for sale, net of hedges, of $177 million in the first
quarter of 2008 compared with $30 million in the fourth quarter and trading
losses of $76 million in the first quarter of 2008 compared with $10
million in the fourth quarter.
Noninterest income decreased $24 million, or 2 percent, compared with
the prior year first quarter primarily due to the valuation losses on
commercial mortgage loans and commitments held for sale, net of hedges, and
lower trading results substantially offset by the gains on the Hilliard
Lyons sale, Visa share redemption and available for sale securities
transactions.
Asset management, fund servicing and consumer service fees grew in the
year over year comparison. In the linked quarter comparison asset
management revenue and corporate service fees declined while consumer
service fees and service charges on deposits were seasonally lower,
somewhat offset by higher fund servicing revenue.
CONSOLIDATED EXPENSE REVIEW
Noninterest expense for the first quarter of 2008 was $1.042 billion
compared with $944 million in the prior year first quarter and $1.213
billion for the fourth quarter of 2007. Noninterest expense decreased
compared with the linked quarter primarily due to a reversal of $43 million
of the $82 million charge for an indemnification obligation related to
certain Visa litigation recorded in the fourth quarter, lower integration
costs and continued focus on expense control. The 10 percent increase in
noninterest expense compared with the first quarter of 2007 was a result of
the acquisition of Mercantile and investments in growth initiatives
partially offset by disciplined expense management and the Visa
indemnification liability reversal.
CONSOLIDATED BALANCE SHEET REVIEW
Total assets were $140.0 billion at March 31, 2008 compared with $122.6
billion at March 31, 2007 and $138.9 billion at December 31, 2007. The
increase compared with March 31, 2007 was primarily due to growth in loans
and securities, the Yardville acquisition and an increase in trading
assets. The increase compared with the linked quarter end was attributable
to higher loans and trading assets somewhat offset by decreases in
securities and loans held for sale.
Average loans of $69.3 billion for the quarter increased $15.3 billion,
or 28 percent, compared with the year-earlier first quarter and increased
$2.2 billion, or 3 percent, compared with the fourth quarter of 2007. The
increase in average loans compared with the first quarter of 2007 was
primarily a result of acquisitions and higher commercial and residential
mortgage loans. The increase compared with the linked quarter was mainly
the result of growth in commercial loans and the transfer to the loan
portfolio during first quarter 2008 of approximately $1.8 billion, or $.7
billion average, education loans previously held for sale.
Average securities available for sale for the first quarter of 2008
were $30.0 billion, an increase of $6.6 billion, or 28 percent, compared
with the first quarter of 2007 and an increase of $.8 billion, or 3
percent, compared with the fourth quarter of 2007. The increase in
securities over the prior year first quarter was primarily due to the
addition of residential mortgage- backed and commercial mortgage-backed
securities as part of the company's balance sheet management activities.
The linked quarter increase was mainly due to higher commercial
mortgage-backed securities. Securities available for sale decreased by $1.6
billion at March 31, 2008 compared with December 31, 2007 primarily due to
the decline in fair value of the portfolio.
Average deposits of $81.6 billion grew $11.9 billion, or 17 percent,
compared with the first quarter of 2007 and $.8 billion, or 1 percent,
compared with the linked quarter. Average deposits increased from the prior
year first quarter as a result of acquisitions and growth in money market,
noninterest-bearing demand and time deposits. In the linked quarter
comparison, average deposits increased due to higher other time and money
market deposits somewhat offset by a decrease in demand and other
noninterest-bearing deposits.
Average borrowed funds for the first quarter of 2008 were $32.1
billion, an increase of $15.2 billion compared with the first quarter of
2007 and an increase of $3.5 billion compared with the fourth quarter of
2007. The increases were due to new borrowings to fund earning asset growth
and to reduce overnight borrowings.
PNC's Tier 1 risk-based capital ratio was an estimated 7.7 percent at
March 31, 2008 compared with 8.6 percent at March 31, 2007 and 6.8 percent
at December 31, 2007. The decline in the ratio from March 31, 2007 was
primarily due to the impact of acquisitions, which increased risk-weighted
assets and goodwill, and organic balance sheet growth. The increase in the
ratio from December 31, 2007 resulted primarily from retained earnings and
the issuances of trust and REIT preferred securities during the first
quarter of 2008. The company did not actively engage in share repurchase
activity during the first quarter of 2008. In April 2008 the PNC board of
directors approved an increase of three cents to 66 cents a share for the
second quarter common stock cash dividend. PNC issued approximately 4.6
million shares of common stock and paid approximately $224 million in cash
to Sterling shareholders at closing of the acquisition in April 2008.
ASSET QUALITY REVIEW
Overall asset quality at PNC performed as anticipated in the
challenging credit environment and the company remained focused on
maintaining a moderate risk profile. The provision for credit losses for
the first quarter of 2008 was $151 million compared with $8 million in the
first quarter of 2007 and $188 million in the fourth quarter of 2007. The
decrease in the provision compared with the linked quarter was primarily
attributable to a $45 million provision-related pretax charge in the fourth
quarter of 2007 associated with the Yardville acquisition.
Net charge-offs for the first quarter of 2008 were $98 million, or .57
percent of average loans, compared with net charge-offs of $36 million, or
.27 percent, for the first quarter of 2007 and net charge-offs of $83
million, or .49 percent, for the fourth quarter of 2007. The increase in
net charge-offs compared with the linked quarter was mainly due to aligning
small business and consumer loan charge-off policies.
Nonperforming assets at March 31, 2008 were $587 million, or .83
percent of total loans and foreclosed assets, compared with ratios of .32
percent at March 31, 2007 and .70 percent at December 31, 2007.
Nonperforming assets increased $383 million compared with the balance a
year ago and $109 million compared with December 31, 2007. The increases
over the prior quarters were due to higher nonaccrual commercial real
estate related loans and higher nonaccrual residential real estate
development loans partially offset by the impact of aligning small business
and consumer loan charge-off policies. The allowance for loan and lease
losses to nonperforming loans was 159 percent at March 31, 2008, 388
percent at March 31, 2007 and 190 percent at December 31, 2007.
BUSINESS SEGMENT RESULTS
Retail Banking
Retail Banking earned $221 million for the quarter compared with $201
million for the year-ago quarter and $215 million for the fourth quarter of
2007. Earnings increased 10 percent over the first quarter of 2007 and 3
percent over the linked quarter. The increase over the prior year first
quarter was driven by acquisitions and in both periods of comparison by a
$62 million after-tax gain related to the Visa initial public offering and
an after-tax gain of $23 million on the sale of Hilliard Lyons in the first
quarter of 2008. These increases were partially offset by higher provision
for credit losses and, in the linked quarter comparison, lower net interest
income and seasonal declines in certain consumer fees.
Retail Banking overview:
-- Customer growth continued. Reported checking relationships increased by
a net 33,000 since December 31, 2007 comprised of growth in checking
relationships of approximately 12,000 and the impact of the Yardville
conversion.
-- Net interest income on a taxable-equivalent basis for the first quarter
of 2008 grew $47 million, or 10 percent, compared with the first
quarter of 2007 and declined $44 million or 8 percent compared with the
linked quarter. The growth in net interest income over the year-ago
quarter was driven by acquisitions. Both comparisons were negatively
impacted by a lower value attributed to deposits in the declining rate
environment.
-- Noninterest income for the quarter increased $235 million, or 61
percent, compared with the prior year first quarter and increased $166
million, or 36 percent, compared with the fourth quarter of 2007. The
growth in noninterest income from the first quarter of 2007 was
primarily due to gains related to the Visa initial public offering and
sale of Hilliard Lyons and the impact of acquisitions. The increase
compared with the linked quarter reflected these gains partially offset
by lower service charges on deposits and consumer service fees as a
result of seasonality.
-- Noninterest expense for the quarter increased $85 million, or 17
percent, compared with the prior year first quarter and declined
slightly from the fourth quarter of 2007. The increase from the year-
ago quarter resulted from acquisitions, expenses directly associated
with fee income-related businesses and investments in the branch
network.
-- Provision for credit losses was $104 million for the first quarter of
2008 compared with $70 million in the linked quarter. The increased
provision was mainly driven by commercial loan credit migration of
portfolios primarily in Maryland and Virginia related to residential
real estate development.
-- Average loan balances increased $8.9 billion, or 32 percent, over the
year-ago quarter and increased 3 percent compared with the fourth
quarter of 2007. The growth over the prior year first quarter primarily
resulted from acquisitions, continued growth in small business lending
and in both quarters of comparison the transfer of $1.8 billion, or $.7
billion average, education loans from held for sale to the loan
portfolio during the first quarter of 2008.
-- Average deposit balances increased $5.5 billion, or 11 percent, over
the previous year first quarter and declined slightly compared with the
linked quarter. The growth over the prior year first quarter was
primarily due to acquisitions. The deposit strategy of Retail Banking
is to remain disciplined on pricing while targeting specific products
and markets for growth.
-- Assets under management were $65 billion at March 31, 2008, a decline
of $11 billion compared with March 31, 2007 and $8 billion compared
with December 31, 2007. The decreases were mainly due to the effects of
divestitures and comparatively lower equity markets in the first
quarter of 2008.
-- PNC had 1,096 branches and an ATM network of 3,903 machines at March
31, 2008. PNC opened five new branches and consolidated 18 branches
during the first quarter.
Corporate & Institutional Banking
Corporate & Institutional Banking earned $2 million in the first
quarter of 2008 compared with $132 million and $91 million in the first and
fourth quarters of 2007, respectively. First quarter 2008 earnings were
impacted by pretax valuation losses of $177 million on commercial mortgage
loans and commitments held for sale, net of hedges. The decrease compared
with the first quarter of 2007 also resulted from higher provision for
credit losses and noninterest expense somewhat offset by higher net
interest income. The linked quarter decrease in earnings was impacted by
the higher valuation losses somewhat offset by a lower provision for credit
losses.
Corporate & Institutional Banking overview:
-- Net interest income on a taxable-equivalent basis for the first quarter
of 2008 grew $58 million, or 32 percent, compared with the first
quarter of 2007 and $4 million, or 2 percent, compared with the fourth
quarter of 2007. The increase over the prior year first quarter was
primarily a result of acquisitions, an increase in commercial loans
held for sale and organic loan growth.
-- Corporate service fees were $123 million in the first quarter of 2008
compared with $127 million in the first quarter of 2007 and $137
million in the fourth quarter of 2007. The decrease compared with the
linked quarter was primarily due to seasonally lower affordable housing
revenue.
-- Other noninterest income was negative $122 million for the first
quarter of 2008 compared with income of $60 million in the prior year
first quarter and $25 million in the fourth quarter of 2007. First
quarter 2008 reflected valuation losses of $177 million on commercial
mortgage loans and commitments held for sale, net of hedges, compared
with valuation losses of $30 million in the linked quarter.
-- Noninterest expense increased $22 million, or 11 percent, compared with
the first quarter of 2007 and decreased $7 million, or 3 percent,
compared with the linked quarter. The increase over first quarter 2007
was primarily due to the impact of acquisitions of Mercantile and ARCS
Commercial Mortgage and expense associated with other growth
initiatives.
-- Provision for credit losses was $49 million in the first quarter of
2008 compared with a net recovery of $16 million in the first quarter
of 2007 and a provision of $69 million in the linked quarter. The
increase in the provision compared with the year-ago quarter was
primarily due to credit quality migration primarily related to
commercial real estate exposure and growth in total credit exposure.
The linked quarter decrease in the provision reflected a slowdown in
credit deterioration.
-- Average loan balances increased $4.9 billion, or 25 percent, from the
prior year first quarter and $1.3 billion, or 6 percent, compared with
the fourth quarter of 2007. The increases resulted from organic loan
growth in corporate and commercial real estate loans and in the
comparison with the first quarter of 2007 the Mercantile and Yardville
acquisitions.
-- Average deposit balances for the quarter increased $2.0 billion, or 16
percent, compared with the first quarter of 2007 and were essentially
unchanged linked quarter. The increase resulted primarily from higher
client time deposits and the impact of acquisitions.
-- The commercial mortgage servicing portfolio was $244 billion at March
31, 2008, an increase of 18 percent from March 31, 2007 and essentially
unchanged linked quarter. The increase over the prior year first
quarter relates in part to the ARCS acquisition in the third quarter of
2007, which added $13 billion of commercial mortgage servicing.
PFPC
PFPC earned $30 million for the first quarter of 2008 compared with $31
million and $32 million for the first and fourth quarters of 2007,
respectively.
Revenue growth was driven by new business, acquisitions and organic
growth somewhat offset by equity market depreciation. Servicing revenue
increased $30 million, or 14 percent, from the first quarter of 2007 and
$15 million, or 7 percent, from the linked quarter. These increases
resulted primarily from fee income growth in offshore operations and from
the acquisitions of Albridge Solutions Inc. and Coates Analytics, LP in
December 2007. Operating expense increased $28 million, or 18 percent, from
the year ago quarter and $14 million, or 8 percent, from the linked quarter
as a result of investments in technology, a larger employee base to support
business growth and costs related to the acquisitions. Income taxes
increased in the first quarter of 2008 due to state tax adjustments in both
prior quarters of comparison.
PFPC provided accounting/administration services for $1.0 trillion of
net fund assets and provided custody services for $476 billion of fund
assets as of March 31, 2008 compared with $822 billion and $435 billion,
respectively, on March 31, 2007 and $990 billion and $500 billion,
respectively, at December 31, 2007. Total fund assets serviced by PFPC were
$2.6 trillion at March 31, 2008 compared with asset servicing levels of
$2.2 trillion at March 31, 2007 and $2.5 trillion at December 31, 2007.
Other, including BlackRock
The "Other, including BlackRock" category, for the purposes of this
release, includes the earnings and gains or losses related to PNC's equity
interest in BlackRock, integration costs, asset and liability management
activities including net securities gains or losses and certain trading
activities, equity management activities, differences between business
segment performance reporting and financial statement reporting under GAAP,
corporate overhead and intercompany eliminations.
PNC recorded earnings of $124 million in Other for the first quarter of
2008 compared with earnings of $95 million in the first quarter of 2007 and
a loss of $160 million in the fourth quarter of 2007. In the linked quarter
comparison the increase in Other earnings was primarily due to a net gain
on the mark to market of our BlackRock LTIP shares obligation compared with
a charge in the prior quarter, a partial reversal of the fourth quarter
charge for an indemnification obligation related to certain Visa
litigation, lower integration costs and higher net securities gains
somewhat offset by higher trading losses.
CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION
PNC Chairman and Chief Executive Officer James E. Rohr and Chief
Financial Officer Richard J. Johnson will hold a conference call for
investors today at 10:00 a.m. Eastern Time regarding the topics addressed
in this news release and the related financial supplement. Investors should
call five to 10 minutes before the start of the conference call at
800-990-2718 or 706-643-0187 (international). The related financial
supplement and presentation slides to accompany the conference call remarks
may be found at http://www.pnc.com/investorevents. A taped replay of the call will
be available for one week at 800-642-1687 or 706-645-9291 (international),
conference ID 41428871.
In addition, Internet access to the call (listen only) and to PNC's
first quarter 2008 earnings release, supplemental financial information and
presentation slides will be available at http://www.pnc.com/investorevents. A
replay of the webcast will be available on PNC's Web site for 30 days.
The PNC Financial Services Group, Inc. (http://www.pnc.com) is one of the
nation's largest diversified financial services organizations providing
retail and business banking; specialized services for corporations and
government entities, including corporate banking, real estate finance and
asset-based lending; wealth management; asset management and global fund
services.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We make statements in this news release and in the conference call
regarding this news release, and we may from time to time make other
statements, regarding our outlook or expectations for earnings, revenues,
expenses and/or other matters regarding or affecting PNC that are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act. Forward-looking statements are typically identified by words
such as "believe," "expect," "anticipate," "intend," "outlook," "estimate,"
"forecast," "will," "project" and other similar words and expressions.
Forward-looking statements are subject to numerous assumptions, risks
and uncertainties, which change over time. Forward-looking statements speak
only as of the date they are made. We do not assume any duty and do not
undertake to update our forward-looking statements. Because forward-looking
statements are subject to assumptions and uncertainties, actual results or
future events could differ, possibly materially, from those that we
anticipated in our forward-looking statements, and future results could
differ materially from our historical performance.
Our forward-looking statements are subject to the following principal
risks and uncertainties. We provide greater detail regarding some of these
factors in our Form 10-K for the year ended December 31, 2007, including in
the Risk Factors and Risk Management sections of that report, and in our
other SEC reports. Our forward-looking statements may also be subject to
other risks and uncertainties, including those that we may discuss
elsewhere in this news release or in our filings with the SEC, accessible
on the SEC's website at http://www.sec.gov and on or through our corporate website
at http://www.pnc.com/secfilings.
-- Our businesses and financial results are affected by business and
economic conditions, both generally and specifically in the principal
markets in which we operate. In particular, our businesses and
financial results may be impacted by:
-- Changes in interest rates and valuations in the debt, equity and
other financial markets.
-- Disruptions in the liquidity and other functioning of financial
markets, including such disruptions in the markets for real estate
and other assets commonly securing financial products.
-- Actions by the Federal Reserve and other government agencies,
including those that impact money supply and market interest rates.
-- Changes in our customers', suppliers' and other counterparties'
performance in general and their creditworthiness in particular.
-- Changes in customer preferences and behavior, whether as a result of
changing business and economic conditions or other factors.
-- A continuation of recent turbulence in significant portions of the
global financial markets could impact our performance, both directly
by affecting our revenues and the value of our assets and liabilities
and indirectly by affecting the economy generally.
-- Given current economic and financial market conditions, our forward-
looking financial statements are subject to the risk that these
conditions will be substantially different than we are currently
expecting. These statements are based on our current expectations that
interest rates will remain low through 2008 with continued wide market
credit spreads and that national economic conditions currently point
toward a mild recession.
-- Our operating results are affected by our liability to provide shares
of BlackRock common stock to help fund certain BlackRock long-term
incentive plan ("LTIP") programs, as our LTIP liability is adjusted
quarterly ("marked-to-market") based on changes in BlackRock's common
stock price and the number of remaining committed shares, and we
recognize gain or loss on such shares at such times as shares are
transferred for payouts under the LTIP programs.
-- Legal and regulatory developments could have an impact on our ability
to operate our businesses or our financial condition or results of
operations or our competitive position or reputation. Reputational
impacts, in turn, could affect matters such as business generation and
retention, our ability to attract and retain management, liquidity and
funding. These legal and regulatory developments could include: (a)
the unfavorable resolution of legal proceedings or regulatory and other
governmental inquiries; (b) increased litigation risk from recent
regulatory and other governmental developments; (c) the results of the
regulatory examination process, our failure to satisfy the requirements
of agreements with governmental agencies, and regulators' future use of
supervisory and enforcement tools; (d) legislative and regulatory
reforms, including changes to laws and regulations involving tax,
pension, education lending, and the protection of confidential customer
information; and (e) changes in accounting policies and principles.
-- Our business and operating results are affected by our ability to
identify and effectively manage risks inherent in our businesses,
including, where appropriate, through the effective use of third-party
insurance, derivatives and capital management techniques.
-- The adequacy of our intellectual property protection, and the extent of
any costs associated with obtaining rights in intellectual property
claimed by others, can impact our business and operating results.
-- Our ability to anticipate and respond to technological changes can have
an impact on our ability to respond to customer needs and to meet
competitive demands.
-- Our ability to implement our business initiatives and strategies could
affect our financial performance over the next several years.
-- Competition can have an impact on customer acquisition, growth and
retention, as well as on our credit spreads and product pricing, which
can affect market share, deposits and revenues.
-- Our business and operating results can also be affected by widespread
natural disasters, terrorist activities or international hostilities,
either as a result of the impact on the economy and capital and other
financial markets generally or on us or on our customers, suppliers or
other counterparties specifically.
-- Also, risks and uncertainties that could affect the results anticipated
in forward-looking statements or from historical performance relating
to our equity interest in BlackRock, Inc. are discussed in more detail
in BlackRock's filings with the SEC, including in the Risk Factors
sections of BlackRock's reports. BlackRock's SEC filings are accessible
on the SEC's website and on or through BlackRock's website at
http://www.blackrock.com.
We grow our business from time to time by acquiring other financial
services companies. Acquisitions in general present us with risks in
addition to those presented by the nature of the business acquired. In
particular, acquisitions may be substantially more expensive to complete
(including as a result of costs incurred in connection with the integration
of the acquired company) and the anticipated benefits (including
anticipated cost savings and strategic gains) may be significantly harder
or take longer to achieve than expected. In some cases, acquisitions
involve our entry into new businesses or new geographic or other markets,
and these situations also present risks resulting from our inexperience in
these new areas. As a regulated financial institution, our pursuit of
attractive acquisition opportunities could be negatively impacted due to
regulatory delays or other regulatory issues. Regulatory and/or legal
issues related to the pre-acquisition operations of an acquired business
may cause reputational harm to PNC following the acquisition and
integration of the acquired business into ours and may result in additional
future costs arising as a result of those issues. Our recent acquisition of
Sterling Financial Corporation ("Sterling") presents regulatory and
litigation risk, as a result of financial irregularities at Sterling's
commercial finance subsidiary, that may impact our financial results.
Consolidated Financial Highlights
The PNC Financial Services Group, Inc. (Unaudited)
Page 11
FINANCIAL PERFORMANCE
Dollars in millions, except per First Fourth First
share data Quarter Quarter Quarter
2008 2007 2007
Revenue
Net interest income (taxable-
equivalent basis) (a) $863 $800 $629
Noninterest income 967 834 991
Total revenue $1,830 $1,634 $1,620
Noninterest expense $1,042 $1,213 $944
Net income $377 $178 $459
Diluted earnings per common share $1.09 $.52 $1.46
Cash dividends declared per common
share $.63 $.63 $.55
SELECTED RATIOS
Net interest margin 3.09 % 2.96 % 2.95 %
Noninterest income to total revenue (b) 53 51 61
Efficiency ( c ) 57 75 58
Return on:
Average tangible common shareholders'
equity 25.98 % 11.06 % 26.63 %
Average common shareholders' equity 10.62 4.78 15.59
Average assets 1.08 .52 1.73
(a) Reconciliations of net interest income on a GAAP basis to
taxable-equivalent net interest income are provided below.
(b) Calculated as noninterest income divided by the sum of net interest
income (GAAP basis) and noninterest income.
( c ) Calculated as noninterest expense divided by the sum of net interest
income (GAAP basis) and noninterest income.
TAXABLE-EQUIVALENT NET INTEREST INCOME
The interest income earned on certain 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 yields and margins for all earning assets, we
also provide revenue on a taxable-equivalent basis by increasing the
interest income earned on tax-exempt assets to make it fully equivalent to
interest income earned on taxable investments. This adjustment is not
permitted under GAAP in the Consolidated Income Statement.
The following is a reconciliation of net interest income as reported in
the Consolidated Income Statement to net interest income on a taxable-
equivalent basis:
First Fourth First
Quarter Quarter Quarter
In millions 2008 2007 2007
Net interest income, GAAP basis $854 $793 $623
Taxable-equivalent adjustment 9 7 6
Net interest income, taxable-
equivalent basis $863 $800 $629
BUSINESS EARNINGS SUMMARY (a) (b)
In millions First Fourth First
Quarter Quarter Quarter
2008 2007 2007
Retail Banking $221 $215 $201
Corporate & Institutional Banking 2 91 132
PFPC 30 32 31
Other, including BlackRock (b) 124 (160) 95
Total consolidated net income $377 $178 $459
(a) Our business segment information is presented based on our management
accounting practices and management structure. We refine our
methodologies from time to time as our management accounting practices
are enhanced and our businesses and management structure change.
(b) We consider BlackRock to be a separate reportable business segment but
have combined its results with Other for this presentation. Our first
quarter 2008 report on Form 10-Q will provide additional business
segment disclosures for BlackRock.
Consolidated Financial Highlights
The PNC Financial Services Group, Inc. (Unaudited)
Page 12
March 31 December 31 March 31
2008 2007 2007
BALANCE SHEET DATA
Dollars in millions, except per
share data
Assets $139,991 $138,920 $122,563
Loans, net of unearned income 70,802 68,319 62,925
Allowance for loan and lease losses 865 830 690
Securities available for sale 28,581 30,225 26,475
Loans held for sale 2,516 3,927 2,382
Goodwill and other intangibles 9,349 9,551 8,668
Equity investments 6,187 6,045 5,408
Deposits 80,410 82,696 77,367
Borrowed funds 32,779 30,931 20,456
Shareholders' equity 14,423 14,854 14,739
Common shareholders' equity 14,416 14,847 14,732
Book value per common share 42.26 43.60 42.63
Common shares outstanding
(millions) 341 341 346
Loans to deposits 88 % 83 % 81 %
ASSETS ADMINISTERED (billions)
Managed $65 $73 $76
Nondiscretionary 111 113 111
FUND ASSETS SERVICED (billions)
Accounting/administration net assets $1,000 $990 $822
Custody assets 476 500 435
CAPITAL RATIOS
Tier 1 risk-based (a) 7.7 % 6.8 % 8.6 %
Total risk-based (a) 11.4 10.3 12.2
Leverage (a) 6.8 6.2 8.7
Tangible common equity (b) 4.7 4.7 5.8
Common shareholders' equity to assets 10.3 10.7 12.0
ASSET QUALITY RATIOS
Nonperforming loans to total loans .77 % .64 % .28 %
Nonperforming assets to total
loans and foreclosed assets .83 .70 .32
Nonperforming assets to total assets .42 .34 .17
Net charge-offs to average loans
(for the three months ended) .57 .49 .27
Allowance for loan and lease losses
to loans 1.22 1.21 1.10
Allowance for loan and lease losses
to nonperforming loans 159 190 388
(a) The ratios as of March 31, 2008 are estimated.
(b) Common shareholders' equity less goodwill and other intangible assets
net of deferred taxes (excluding mortgage servicing rights) divided by
assets less goodwill and other intangible assets net of deferred taxes
(excluding mortgage servicing rights).
SOURCE The PNC Financial Services Group, Inc.
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Related links:
http://www.pnc.com
http://www.prnewswire.com/comp/701257.html/
CONTACT:
MEDIA: Brian E. Goerke, +1-412-762-4550,
corporate.communications@pnc.com, or INVESTORS: William H.
Callihan +1-412-762-8257, investor.relations@pnc.com, both of The
PNC Financial Services Group, Inc.
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