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PNC Reports Third Quarter Net Income of $925 Million and $1.64 Diluted EPS
Net Income up 11 Percent Over Third Quarter 2011
Customers and Revenue Grow
"PNC reported excellent results for the third quarter with 2012 shaping up to be another good year," said
Income Statement Highlights
- Strong earnings for the third quarter were driven by customer growth, higher revenue and disciplined credit and expense management.
- PNC continued to grow and deepen customer relationships across businesses and geographies through new client acquisition and cross sales.
- Retail Banking net checking relationships grew 230,000 organically in the first nine months of 2012, or 4 percent on an annualized basis.
-
Corporate & Institutional Banking continued to execute on strategic initiatives, including in the Southeast, by organically growing and deepening client relationships that meet appropriate risk/return measures. Approximately 775 new corporate banking primary clients were added in the first nine months of 2012.
-
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.
- Net interest income of
$2.4 billion for the third quarter decreased$.1 billion compared with the second quarter primarily due to the impact of lower purchase accounting accretion. - Noninterest income increased to
$1.7 billion for the third quarter compared with$1.1 billion for the second quarter. Client fee income remained strong. Third quarter included a$137 million pretax gain on the sale of a portion of PNC's investment in Visa shares. Second quarter noninterest income was reduced by a$438 million provision for residential mortgage repurchase obligations. - Provision for credit losses declined to
$228 million for the third quarter compared with$256 million for the second quarter. - Noninterest expense was stable at
$2.65 billion for both the third and second quarters reflecting effective cost management while investing in products and markets.
Balance Sheet Highlights
- Loans grew
$1.5 billion , or 1 percent, during the third quarter to$182 billion atSeptember 30, 2012 compared withJune 30, 2012 reflecting continued growth but at a slower pace.- Total commercial lending increased
$1.1 billion , or 1 percent, over the second quarter. - Consumer lending increased
$.4 billion as an increase in automobile loans was partially offset by runoff in residential real estate loans and lower education loans.
- Total commercial lending increased
- Overall credit quality improved during the third quarter of 2012 compared with the second quarter.
- Nonperforming assets of
$4.0 billion atSeptember 30, 2012 declined$.2 billion , or 4 percent. - Accruing loans past due decreased 1 percent.
- Nonperforming assets of
- Total deposits were
$206 billion atSeptember 30, 2012 compared with$207 billion atJune 30 , 2012.- Transaction deposits grew
$2.3 billion , or 1 percent, during the third quarter to$168 billion , or 82 percent of deposits, atSeptember 30, 2012 . - Retail certificates of deposit declined
$1.2 billion due to runoff of maturing accounts. - Time deposits decreased
$1.7 billion reflecting lower Eurodollar deposits.
- Transaction deposits grew
- PNC's 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. - 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. - PNC strengthened its strong capital levels. The Tier 1 common capital ratio increased to an estimated 9.5 percent at
September 30, 2012 from 9.3 percent atJune 30 , 2012.
Earnings Summary | |||||||||||||
In millions, except per share data |
3Q12 |
2Q12 |
3Q11 |
||||||||||
Net income |
$ |
925 |
$ |
546 |
$ |
834 |
|||||||
Diluted earnings per common share |
$ |
1.64 |
$ |
.98 |
$ |
1.55 |
|||||||
Average diluted common shares outstanding |
529 |
530 |
526 |
||||||||||
Return on average assets |
1.23 |
% |
.74 |
% |
1.24 |
% | |||||||
Return on average common equity |
10.15 |
% |
6.23 |
% |
10.25 |
% | |||||||
Book value per common share Period end |
$ |
66.41 |
$ |
64.00 |
$ |
61.92 |
|||||||
Cash dividends declared per common share |
$ |
.40 |
$ |
.40 |
$ |
.35 |
|||||||
Third quarter 2012 net income included an after tax gain on the sale of 5 million Visa Class B common shares of
The Consolidated Financial Highlights accompanying this news release include additional information regarding provisions for residential mortgage repurchase obligations, trust preferred redemption charges, integration costs and gain on sale of Visa shares and include reconciliations of reported amounts to non-GAAP financial measures, including a reconciliation of business segment income to net income. Reference to core net interest income is to total net interest income less purchase accounting accretion. Information in this news release including the financial tables is unaudited. See the notes in the Consolidated Financial Highlights.
CONSOLIDATED REVENUE REVIEW | |||||||||||||||||||||
Revenue |
|||||||||||||||||||||
Change |
Change | ||||||||||||||||||||
3Q12 vs |
3Q12 vs | ||||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 | ||||||||||||||||
Net interest income |
$ |
2,399 |
$ |
2,526 |
$ |
2,175 |
(5) |
% |
10 |
% | |||||||||||
Noninterest income |
1,689 |
1,097 |
1,369 |
54 |
% |
23 |
% | ||||||||||||||
Total revenue |
$ |
4,088 |
$ |
3,623 |
$ |
3,544 |
13 |
% |
15 |
% | |||||||||||
Total revenue for the third quarter of 2012 grew compared with both the second quarter of 2012 and the third quarter of 2011. Third quarter 2012 total revenue continued to reflect strong client fee income and included a gain on sale of a portion of PNC's investment in Visa shares.
Net interest income decreased compared with the second quarter primarily due to lower purchase accounting accretion. Core net interest income was relatively stable in the comparison as the impact of lower yields on interest earning assets was largely offset by loan growth. Net interest income increased compared with third quarter 2011 as a result of higher core net interest income somewhat offset by lower purchase accounting accretion. Growth in core net interest income was driven by the
Noninterest Income |
Change |
Change | |||||||||||||||||||||
3Q12 vs |
3Q12 vs | ||||||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 | ||||||||||||||||||
Asset management |
$ |
305 |
$ |
278 |
$ |
287 |
10 |
% |
6 |
% | |||||||||||||
Consumer services |
288 |
290 |
330 |
(1) |
% |
(13) |
% | ||||||||||||||||
Corporate services |
295 |
290 |
187 |
2 |
% |
58 |
% | ||||||||||||||||
Residential mortgage |
|||||||||||||||||||||||
Residential mortgage banking |
264 |
265 |
229 |
- |
15 |
% | |||||||||||||||||
Provision for residential mortgage |
|||||||||||||||||||||||
repurchase obligations |
(37) |
(438) |
(31) |
NM |
19 |
% | |||||||||||||||||
Service charges on deposits |
152 |
144 |
140 |
6 |
% |
9 |
% | ||||||||||||||||
Net gains on sales of securities |
40 |
62 |
68 |
(35) |
% |
(41) |
% | ||||||||||||||||
Net other-than-temporary impairments |
(24) |
(34) |
(35) |
29 |
% |
31 |
% | ||||||||||||||||
Other |
406 |
240 |
194 |
69 |
% |
109 |
% | ||||||||||||||||
$ |
1,689 |
$ |
1,097 |
$ |
1,369 |
54 |
% |
23 |
% | ||||||||||||||
Noninterest income for the third quarter of 2012 grew in comparison with both second quarter 2012 and third quarter 2011. The increase in noninterest income of
Asset management fees grew
Noninterest income for the third quarter of 2012 increased
CONSOLIDATED EXPENSE REVIEW | ||||||||||||||||||||||
Noninterest Expense |
Change |
Change | ||||||||||||||||||||
3Q12 vs |
3Q12 vs | |||||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 | |||||||||||||||||
Personnel |
$ |
1,171 |
$ |
1,119 |
$ |
949 |
5 |
% |
23 |
% | ||||||||||||
Occupancy |
212 |
199 |
171 |
7 |
% |
24 |
% | |||||||||||||||
Equipment |
185 |
181 |
159 |
2 |
% |
16 |
% | |||||||||||||||
Marketing |
74 |
67 |
72 |
10 |
% |
3 |
% | |||||||||||||||
Other |
1,008 |
1,082 |
789 |
(7) |
% |
28 |
% | |||||||||||||||
$ |
2,650 |
$ |
2,648 |
$ |
2,140 |
- |
24 |
% | ||||||||||||||
Noninterest expense for the third quarter of 2012 was stable with the second quarter reflecting effective cost management. Decreases in noncash charges for unamortized discounts related to redemption of trust preferred securities and lower integration costs were offset by an increase in personnel costs including an increase in expense for deferred compensation obligations driven by higher stock market prices.
Noninterest expense for the third quarter of 2012 increased
The effective tax rate was 23.6 percent for the third quarter of 2012 compared with 24.1 percent for the second quarter of 2012 and 27.0 percent for the third quarter of 2011.
CONSOLIDATED BALANCE SHEET REVIEW
Total assets were
Loans |
||||||||||||||||||||||
Change 9/30/12 vs |
Change 9/30/12 vs | |||||||||||||||||||||
In billions |
9/30/2012 |
6/30/2012 |
9/30/2011 |
6/30/12 |
9/30/11 | |||||||||||||||||
Commercial lending |
$ |
105.2 |
$ |
104.1 |
$ |
84.8 |
1 |
% |
24 |
% | ||||||||||||
Consumer lending |
76.7 |
76.3 |
69.7 |
1 |
% |
10 |
% | |||||||||||||||
Total loans |
$ |
181.9 |
$ |
180.4 |
$ |
154.5 |
1 |
% |
18 |
% | ||||||||||||
Commercial lending increased
Investment securities were
Interest-earning deposits with banks of
Deposits |
Change |
Change | ||||||||||||||||||||
9/30/12 vs |
9/30/12 vs | |||||||||||||||||||||
In billions |
9/30/2012 |
6/30/2012 |
9/30/2011 |
6/30/12 |
9/30/11 | |||||||||||||||||
Transaction deposits |
$ |
168.4 |
$ |
166.1 |
$ |
143.0 |
1 |
% |
18 |
% | ||||||||||||
Other deposits |
37.9 |
40.8 |
44.7 |
(7) |
% |
(15) |
% | |||||||||||||||
Total deposits |
$ |
206.3 |
$ |
206.9 |
$ |
187.7 |
- |
10 |
% | |||||||||||||
Total deposits at
Borrowed funds decreased to
Capital | |||||||||||||
9/30/2012* |
6/30/2012 |
9/30/2011 | |||||||||||
Common shareholders' equity In billions |
$ |
35.1 |
$ |
33.9 |
$ |
32.6 |
|||||||
Tier 1 common capital ratio |
9.5 |
% |
9.3 |
% |
10.5 |
% | |||||||
Tier 1 risk-based capital ratio |
11.7 |
% |
11.4 |
% |
13.1 |
% | |||||||
* Ratios estimated | |||||||||||||
PNC strengthened its strong capital levels and ratios. The increase in common shareholders' equity was primarily attributable to the retention of earnings. The Tier 1 common capital ratio increased compared with the second quarter as growth in retained earnings was partially offset by an increase in risk-weighted assets from loan growth. PNC's 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, 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.
PNC issued
The PNC board of directors recently declared a quarterly common stock cash dividend of
CREDIT QUALITY REVIEW | |||||||||||||||||||
Credit Quality |
Change |
Change | |||||||||||||||||
At or for the quarter ended |
9/30/12 vs |
9/30/12 vs | |||||||||||||||||
In millions |
9/30/2012 |
6/30/2012 |
9/30/2011 |
6/30/12 |
9/30/11 | ||||||||||||||
Nonperforming loans |
$ |
3,414 |
$ |
3,458 |
$ |
3,692 |
(1) |
% |
(8) |
% | |||||||||
Nonperforming assets |
$ |
4,021 |
$ |
4,176 |
$ |
4,298 |
(4) |
% |
(6) |
% | |||||||||
Accruing loans past due 90 days or more |
$ |
2,456 |
$ |
2,483 |
$ |
2,768 |
(1) |
% |
(11) |
% | |||||||||
Net charge-offs |
$ |
331 |
$ |
315 |
$ |
365 |
5 |
% |
(9) |
% | |||||||||
Provision for credit losses |
$ |
228 |
$ |
256 |
$ |
261 |
(11) |
% |
(13) |
% | |||||||||
Allowance for loan and lease losses |
$ |
4,039 |
$ |
4,156 |
$ |
4,507 |
(3) |
% |
(10) |
% | |||||||||
Overall credit quality improved during the third quarter of 2012 compared with the second quarter. The decline in nonperforming assets at
Overall delinquencies decreased by
Net charge-offs for the third quarter of 2012 were .73 percent of average loans on an annualized basis compared with .71 percent for the second quarter of 2012 and .95 percent for the third quarter of 2011. Net charge-offs for the third quarter of 2012 included
The allowance for loan and lease losses to total loans was 2.22 percent at
BUSINESS SEGMENT RESULTS | ||||||||||||||
Business Segment Income (Loss) | ||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
|||||||||||
Retail Banking |
$ |
192 |
$ |
136 |
$ |
121 |
||||||||
Corporate & Institutional Banking |
607 |
577 |
437 |
|||||||||||
Asset Management Group |
37 |
38 |
40 |
|||||||||||
Residential Mortgage Banking |
36 |
(213) |
23 |
|||||||||||
Non-Strategic Assets Portfolio |
40 |
67 |
93 |
|||||||||||
Other, including BlackRock |
13 |
(59) |
120 |
|||||||||||
Net income |
$ |
925 |
$ |
546 |
$ |
834 |
||||||||
Enhancements were made to internal transfer pricing methodology during the second quarter of 2012. Prior period amounts have been reclassified to conform with the current period presentation. | ||||||||||||||
See accompanying notes in Consolidated Financial Highlights | ||||||||||||||
Retail Banking |
Change |
Change |
||||||||||||||||||||
3Q12 vs |
3Q12 vs |
|||||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 |
|||||||||||||||||
Net interest income |
$ |
1,076 |
$ |
1,114 |
$ |
956 |
$ |
(38) |
$ |
120 |
||||||||||||
Noninterest income |
$ |
588 |
$ |
437 |
$ |
467 |
$ |
151 |
$ |
121 |
||||||||||||
Provision for credit losses |
$ |
220 |
$ |
165 |
$ |
206 |
$ |
55 |
$ |
14 |
||||||||||||
Noninterest expense |
$ |
1,140 |
$ |
1,171 |
$ |
1,026 |
$ |
(31) |
$ |
114 |
||||||||||||
Earnings |
$ |
192 |
$ |
136 |
$ |
121 |
$ |
56 |
$ |
71 |
||||||||||||
In billions |
||||||||||||||||||||||
Average loans |
$ |
64.5 |
$ |
64.4 |
$ |
58.2 |
$ |
.1 |
$ |
6.3 |
||||||||||||
Average deposits |
$ |
131.4 |
$ |
132.3 |
$ |
122.5 |
$ |
(.9) |
$ |
8.9 |
||||||||||||
Retail Banking's earnings for the third quarter of 2012 increased compared with both the second quarter of 2012 and the third quarter of 2011. Net interest income declined in the linked quarter comparison as a result of lower purchase accounting accretion related to second quarter maturities of the final wave of higher rate acquired certificate of deposit accounts. In the comparison with third quarter 2011, the increase in net interest income was attributable to the
- Retail Banking continued to successfully execute its core strategy to grow consumer and small business checking households. Checking relationships totaled 6,451,000 at
September 30, 2012 , up 230,000 in organic growth in the first nine months of 2012, or 4 percent on an annualized basis. Active online banking and active online bill payment customers increased organically 12 percent and 7 percent, respectively, since the beginning of 2012. - Average transaction deposits for the third quarter of 2012 increased
$.8 billion over the second quarter of 2012. Average certificates of deposit declined$1.7 billion due to runoff of maturing accounts. In the comparison with third quarter 2011, average transaction deposits increased$15.1 billion , or 18 percent, attributable to theRBC Bank (USA ) acquisition and organic growth. Average certificates of deposit decreased$7.9 billion , or 24 percent. - Average loans were stable with second quarter 2012 and increased 11 percent compared with the third quarter of 2011 primarily as a result of home equity and commercial loans from the
RBC Bank (USA ) acquisition and growth in indirect auto loans. An indirect auto loan portfolio of approximately$.5 billion was purchased in September 2012. - Net charge-offs increased to
$219 million for the third quarter of 2012 compared with$187 million in the second quarter of 2012 and$182 million in the third quarter of 2011. Higher net charge-offs in the third quarter of 2012 related to the consumer loan troubled debt restructurings resulting from bankruptcy. Nonperforming assets were$1.1 billion atSeptember 30, 2012 , an increase of$105 million compared withJune 30, 2012 . - PNC's expansive branch footprint covers nearly half of the U.S. population in 17 states and
Washington, D.C. with a network of 2,887 branches and 7,261 ATMs atSeptember 30, 2012 .
Corporate & Institutional Banking |
Change |
Change |
||||||||||||||||||||
3Q12 vs |
3Q12 vs |
|||||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 |
|||||||||||||||||
Net interest income |
$ |
1,019 |
$ |
1,085 |
$ |
898 |
$ |
(66) |
$ |
121 |
||||||||||||
Corporate service fees |
$ |
258 |
$ |
248 |
$ |
150 |
$ |
10 |
$ |
108 |
||||||||||||
Other noninterest income |
$ |
139 |
$ |
106 |
$ |
101 |
$ |
33 |
$ |
38 |
||||||||||||
Provision for credit losses (benefit) |
$ |
(61) |
$ |
33 |
$ |
11 |
$ |
(94) |
$ |
(72) |
||||||||||||
Noninterest expense |
$ |
520 |
$ |
496 |
$ |
448 |
$ |
24 |
$ |
72 |
||||||||||||
Earnings |
$ |
607 |
$ |
577 |
$ |
437 |
$ |
30 |
$ |
170 |
||||||||||||
In billions |
||||||||||||||||||||||
Average loans |
$ |
89.4 |
$ |
86.2 |
$ |
67.7 |
$ |
3.2 |
$ |
21.7 |
||||||||||||
Average deposits |
$ |
60.2 |
$ |
59.5 |
$ |
51.9 |
$ |
.7 |
$ |
8.3 |
||||||||||||
Earnings for Corporate & Institutional Banking for the third quarter of 2012 increased compared with both the second quarter of 2012 and the third quarter of 2011 reflecting improvement in the provision for credit losses, which was a benefit in third quarter 2012. Net interest income declined in the linked quarter comparison due to lower purchase accounting accretion. Compared with third quarter 2011, net interest income increased primarily as a result of higher average loans from organic growth and the
- Average loans increased in both comparisons due to strong organic growth in corporate banking, real estate finance and asset-based lending. Loans added in the
RBC Bank (USA ) acquisition contributed to the increase in the comparison to third quarter 2011. - Average deposits increased from the third quarter of 2011 due to deposits added in the
RBC Bank (USA ) acquisition and inflows into noninterest-bearing demand deposits. - Net charge-offs were
$35 million in the third quarter of 2012 compared with$30 million in the second quarter of 2012 and$94 million in the third quarter of 2011. The decrease from third quarter 2011 reflected declines across all loan portfolios. Nonperforming assets declined for the tenth consecutive quarter. - The commercial mortgage servicing portfolio was
$265 billion atSeptember 30, 2012 ,$264 billion atJune 30, 2012 and$267 billion atSeptember 30, 2011 .
Asset Management Group |
Change |
Change |
||||||||||||||||||||
3Q12 vs |
3Q12 vs |
|||||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 |
|||||||||||||||||
Net interest income |
$ |
73 |
$ |
75 |
$ |
69 |
$ |
(2) |
$ |
4 |
||||||||||||
Noninterest income |
$ |
170 |
$ |
165 |
$ |
159 |
$ |
5 |
$ |
11 |
||||||||||||
Provision for credit losses (benefit) |
$ |
4 |
$ |
(1) |
$ |
(10) |
$ |
5 |
$ |
14 |
||||||||||||
Noninterest expense |
$ |
180 |
$ |
181 |
$ |
175 |
$ |
(1) |
$ |
5 |
||||||||||||
Earnings |
$ |
37 |
$ |
38 |
$ |
40 |
$ |
(1) |
$ |
(3) |
||||||||||||
In billions |
||||||||||||||||||||||
Assets under administration Quarter end |
$ |
222 |
$ |
214 |
$ |
202 |
$ |
8 |
$ |
20 |
||||||||||||
Average loans |
$ |
6.2 |
$ |
6.1 |
$ |
6.1 |
$ |
.1 |
$ |
.1 |
||||||||||||
Average deposits |
$ |
7.9 |
$ |
8.1 |
$ |
7.8 |
$ |
(.2) |
$ |
.1 |
||||||||||||
- New primary client acquisitions were nearly 25 percent higher in the first nine months of 2012 compared with the first nine months of 2011.
- Assets under administration at
September 30, 2012 included discretionary assets under management of$112 billion and nondiscretionary assets under administration of$110 billion . Discretionary assets under management atSeptember 30, 2012 increased$9 billion compared withSeptember 30, 2011 driven by stronger equity markets and net positive flows. - Average loans increased compared with the second quarter of 2012 as new client originations, primarily home equity installment loans, benefited from an attractive interest rate environment and loan referrals from other lines of business. Average deposits decreased due to cyclical declines in deposits between the second and third quarters of 2012.
Residential Mortgage Banking |
Change |
Change |
||||||||||||||||||
3Q12 vs |
3Q12 vs |
|||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 |
|||||||||||||||
Net interest income |
$ |
52 |
$ |
53 |
$ |
46 |
$ |
(1) |
$ |
6 |
||||||||||
Noninterest income |
||||||||||||||||||||
Provision for residential mortgage |
||||||||||||||||||||
repurchase obligations |
$ |
(37) |
$ |
(438) |
$ |
(31) |
$ |
401 |
$ |
(6) |
||||||||||
Other noninterest income |
$ |
269 |
$ |
276 |
$ |
239 |
$ |
(7) |
$ |
30 |
||||||||||
Provision for credit losses (benefit) |
$ |
2 |
$ |
(2) |
$ |
15 |
$ |
4 |
$ |
(13) |
||||||||||
Noninterest expense |
$ |
226 |
$ |
230 |
$ |
203 |
$ |
(4) |
$ |
23 |
||||||||||
Earnings (loss) |
$ |
36 |
$ |
(213) |
$ |
23 |
$ |
249 |
$ |
13 |
||||||||||
In billions |
||||||||||||||||||||
Residential mortgage servicing portfolio |
$ |
119 |
$ |
116 |
$ |
121 |
$ |
3 |
$ |
(2) |
||||||||||
Loan origination volume |
$ |
3.8 |
$ |
3.6 |
$ |
2.6 |
$ |
.2 |
$ |
1.2 |
||||||||||
Residential Mortgage Banking earnings increased compared with the second quarter of 2012 driven by a lower provision for residential mortgage repurchase obligations. In both comparisons, other noninterest income reflected growth in loan sales revenue driven by higher loan origination volume substantially offset by lower net hedging gains on mortgage servicing rights. Noninterest expense increased compared with third quarter 2011 resulting from higher residential mortgage origination volume and servicing costs, partially offset by lower residential mortgage foreclosure-related expenses.
Loan origination volume was strong in the third quarter of 2012. Approximately 30 percent of originations were under the revised Home Affordable Refinance Program. The fair value of mortgage servicing rights was
Non-Strategic Assets Portfolio |
Change |
Change |
|||||||||||||||||
3Q12 vs |
3Q12 vs |
||||||||||||||||||
In millions |
3Q12 |
2Q12 |
3Q11 |
2Q12 |
3Q11 |
||||||||||||||
Net interest income |
$ |
195 |
$ |
221 |
$ |
228 |
$ |
(26) |
$ |
(33) |
|||||||||
Noninterest income |
$ |
9 |
$ |
2 |
$ |
10 |
$ |
7 |
$ |
(1) |
|||||||||
Provision for credit losses |
$ |
61 |
$ |
50 |
$ |
45 |
$ |
11 |
$ |
16 |
|||||||||
Noninterest expense |
$ |
79 |
$ |
67 |
$ |
47 |
$ |
12 |
$ |
32 |
|||||||||
Earnings |
$ |
40 |
$ |
67 |
$ |
93 |
$ |
(27) |
$ |
(53) |
|||||||||
In billions |
|||||||||||||||||||
Average loans |
$ |
12.4 |
$ |
12.9 |
$ |
13.1 |
$ |
(.5) |
$ |
(.7) |
|||||||||
Non-Strategic Assets Portfolio segment earnings decreased in the third quarter of 2012 compared with both the second quarter of 2012 and the third quarter of 2011. The decline in both comparisons 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. The comparison to the prior year quarter was also impacted by higher other real estate owned expense in third quarter 2012.
- The Non-Strategic Assets Portfolio primarily consists of non-strategic assets obtained through acquisitions of other companies. The decrease in average loans in both comparisons reflected customer payment activity and portfolio management activities to reduce underperforming assets. Certain assets in this segment continue to require special servicing and management oversight.
- Net charge-offs were
$65 million for the third quarter of 2012 compared with$83 million for the second quarter of 2012 and$74 million for the third quarter of 2011. The linked quarter decrease was primarily due to a decline in net charge-offs on construction loans. The decline from third quarter 2011 was attributable to lower net charge-offs on residential development loans.
Other, including
The "Other, including
PNC recorded income of
CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION
PNC Chairman and Chief Executive Officer
The
[TABULAR MATERIAL FOLLOWS]
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) | |||||||||||||
FINANCIAL RESULTS |
Three months ended |
Nine months ended | ||||||||||||
Dollars in millions, except per share data |
September 30 |
June 30 |
September 30 |
September 30 |
September 30 | |||||||||
2012 |
2012 |
2011 |
2012 |
2011 | ||||||||||
Revenue |
||||||||||||||
Net interest income |
$ |
2,399 |
$ |
2,526 |
$ |
2,175 |
$ |
7,216 |
$ |
6,501 | ||||
Noninterest income |
1,689 |
1,097 |
1,369 |
4,227 |
4,276 | |||||||||
Total revenue |
4,088 |
3,623 |
3,544 |
11,443 |
10,777 | |||||||||
Noninterest expense |
2,650 |
2,648 |
2,140 |
7,753 |
6,386 | |||||||||
Pretax, pre-provision earnings (a) |
1,438 |
975 |
1,404 |
3,690 |
4,391 | |||||||||
Provision for credit losses |
228 |
256 |
261 |
669 |
962 | |||||||||
Income before income taxes and noncontrolling interests |
||||||||||||||
(pretax earnings) |
$ |
1,210 |
$ |
719 |
$ |
1,143 |
$ |
3,021 |
$ |
3,429 | ||||
Net income (b) |
$ |
925 |
$ |
546 |
$ |
834 |
$ |
2,282 |
$ |
2,578 | ||||
Less: |
||||||||||||||
Net income (loss) attributable to |
(14) |
(5) |
4 |
(13) |
(2) | |||||||||
Preferred stock dividends and |
63 |
25 |
4 |
127 |
33 | |||||||||
Net income attributable to common shareholders |
$ |
876 |
$ |
526 |
$ |
826 |
$ |
2,168 |
$ |
2,547 | ||||
Diluted earnings per common share |
$ |
1.64 |
$ |
.98 |
$ |
1.55 |
$ |
4.06 |
$ |
4.79 | ||||
Cash dividends declared per common share |
$ |
.40 |
$ |
.40 |
$ |
.35 |
$ |
1.15 |
$ |
.80 | ||||
Gain on sale of Visa Class B common shares: |
||||||||||||||
Pretax |
$ |
137 |
$ |
137 |
||||||||||
After-tax |
$ |
89 |
$ |
89 |
||||||||||
Impact on diluted earnings per share |
$ |
.17 |
$ |
.17 |
||||||||||
Integration costs: |
||||||||||||||
Pretax |
$ |
35 |
$ |
52 |
$ |
8 |
$ |
232 |
$ |
14 | ||||
After-tax |
$ |
23 |
$ |
34 |
$ |
5 |
$ |
151 |
$ |
9 | ||||
Impact on diluted earnings per share |
$ |
.04 |
$ |
.06 |
$ |
.01 |
$ |
.29 |
$ |
.02 | ||||
Noncash charges for unamortized discounts related to |
||||||||||||||
Pretax |
$ |
95 |
$ |
130 |
$ |
225 |
||||||||
After-tax |
$ |
61 |
$ |
85 |
$ |
146 |
||||||||
Impact on diluted earnings per share |
$ |
.12 |
$ |
.16 |
$ |
.28 |
||||||||
Provision for residential mortgage repurchase |
||||||||||||||
Pretax |
$ |
37 |
$ |
438 |
$ |
31 |
$ |
507 |
$ |
66 | ||||
After-tax |
$ |
24 |
$ |
284 |
$ |
20 |
$ |
330 |
$ |
43 | ||||
Impact on diluted earnings per share |
$ |
.05 |
$ |
.54 |
$ |
.04 |
$ |
.62 |
$ |
.08 | ||||
Certain prior period amounts included in these Consolidated Financial Highlights 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)
|
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. | |||||||||||||
(b) |
See page 16 for a reconciliation of business segment income to net income. |
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) |
||||||||||||||||||||
Three months ended |
Nine months ended |
||||||||||||||||||||
September 30 |
June 30 |
September 30 |
September 30 |
September 30 |
|||||||||||||||||
2012 |
2012 |
2011 |
2012 |
2011 |
|||||||||||||||||
PERFORMANCE RATIOS |
|||||||||||||||||||||
Net interest margin (a) |
3.82 |
% |
4.08 |
% |
3.89 |
% |
3.93 |
% |
3.92 |
% |
|||||||||||
Noninterest income to total revenue |
41 |
30 |
39 |
37 |
40 |
||||||||||||||||
Efficiency (b) |
65 |
73 |
60 |
68 |
59 |
||||||||||||||||
Return on: |
|||||||||||||||||||||
Average common shareholders' equity |
10.15 |
6.23 |
10.25 |
8.61 |
10.93 |
||||||||||||||||
Average assets |
1.23 |
.74 |
1.24 |
1.04 |
1.31 |
||||||||||||||||
BUSINESS SEGMENT INCOME (LOSS) (c) (d) |
|||||||||||||||||||||
In millions |
|||||||||||||||||||||
Retail Banking (e) |
$ |
192 |
$ |
136 |
$ |
121 |
$ |
475 |
$ |
309 |
|||||||||||
Corporate & Institutional Banking (f) |
607 |
577 |
437 |
1,679 |
1,343 |
||||||||||||||||
Asset Management Group |
37 |
38 |
40 |
111 |
143 |
||||||||||||||||
Residential Mortgage Banking (g) |
36 |
(213) |
23 |
(116) |
150 |
||||||||||||||||
Non-Strategic Assets Portfolio |
40 |
67 |
93 |
178 |
202 |
||||||||||||||||
Other, including BlackRock (d) (h) (i) |
13 |
(59) |
120 |
(45) |
431 |
||||||||||||||||
Total net income |
$ |
925 |
$ |
546 |
$ |
834 |
$ |
2,282 |
$ |
2,578 |
|||||||||||
(a)
|
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, June 30, 2012, and September 30, 2011 were $36 million, $35 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, respectively. |
||||||||||||||||||||
(b) |
Calculated as noninterest expense divided by total revenue. |
||||||||||||||||||||
(c)
|
Our business information is presented based on our internal management reporting practices. We periodically refine our internal methodologies as management reporting practices are enhanced. 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. During the third quarter of 2012 enhancements were made to certain assumptions used to estimate our total allowance for loan and lease losses (ALLL) and provision. 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. |
||||||||||||||||||||
(d)
|
We consider BlackRock to be a separate reportable business segment but have combined its results with Other for this presentation. Our third quarter 2012 Form 10-Q will include additional information regarding BlackRock. |
||||||||||||||||||||
(e) |
Includes gain on the sale of a portion of Visa Class B common shares. See page 15 for additional information related to these amounts. |
||||||||||||||||||||
(f) |
We consider a primary client relationship to be a corporate banking client relationship with annual revenue generation of $10,000 to $50,000 or more. |
||||||||||||||||||||
(g) |
Includes provisions for residential mortgage repurchase obligations. See page 15 for additional information related to these amounts. |
||||||||||||||||||||
(h)
|
Includes earnings and gains or losses related to PNC's equity interest in BlackRock and 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 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 as the segments' results exclude their portion of net income attributable to noncontrolling interests. |
||||||||||||||||||||
(i)
|
Includes amounts for integration costs and noncash charges for unamortized discounts related to redemption of trust preferred securities. See page 15 for additional information related to these amounts. |
Total and Core Net Interest Income | ||||||||||||||||
Three months ended |
Nine months ended | |||||||||||||||
September 30 |
June 30 |
September 30 |
September 30 |
September 30 |
||||||||||||
In millions |
2012 |
2012 |
2011 |
2012 |
2011 |
|||||||||||
Core net interest income (a) |
$ |
2,154 |
$ |
2,183 |
$ |
1,884 |
$ |
6,365 |
$ |
5,639 |
||||||
Purchase accounting accretion (a) |
245 |
343 |
291 |
851 |
862 |
|||||||||||
Total net interest income |
$ |
2,399 |
$ |
2,526 |
$ |
2,175 |
$ |
7,216 |
$ |
6,501 |
||||||
(a)
|
We believe that core net interest income and purchase accounting accretion are useful in evaluating the components of net interest income. |
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) | ||||||||||||