[PNC LOGO] NEWS RELEASE
CONTACTS:
MEDIA:
Brian Goerke
(412) 762-4550
corporate.communications@pnc.com
INVESTORS:
William H. Callihan
(412) 762-8257
investor.relations@pnc.com
THE PNC FINANCIAL SERVICES GROUP REPORTS
FIRST QUARTER 2003 RESULTS
PITTSBURGH, April 17, 2003 - The PNC Financial Services Group, Inc. (NYSE:
PNC) today reported first quarter 2003 net income of $262 million, or $.92 per
diluted share. This compares with net income of $262 million, or $.92 per
diluted share, for the fourth quarter of 2002 and net income of $317 million, or
$1.11 per diluted share, for the first quarter of 2002.
"This was a solid quarter considering the difficult environment. Our
accomplishments were driven by strong performances at the Regional Community
Bank and BlackRock along with lower credit costs and the contribution of our
dedicated employees," said James E. Rohr, chairman and chief executive officer
of PNC Financial Services Group. "Our focus continues to be on our clients,
creating solutions that meet their financial needs. We believe this client
strategy and our ongoing initiatives related to balance sheet, expense and
capital management are well-aligned with our goal of achieving sustainable value
for our shareholders."
Return on average common shareholders' equity was 15.76 percent for the
first quarter of 2003 compared with 15.59 percent for the fourth quarter of 2002
and 21.83 percent for the first quarter of 2002. Return on average assets was
1.61 percent for the first quarter of 2003 compared with 1.58 percent for the
fourth quarter of 2002 and 1.89 percent for the first quarter of 2002.
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The PNC Financial Services Group
One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222 2707
www.pnc.com
The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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HIGHLIGHTS FROM THE QUARTER (Growth compared with first quarter 2002)
o Regional Community Banking grew home equity loans 14 percent on average
o BlackRock's earnings increased 12 percent, to $35 million
o PNC's transaction deposits grew six percent on average
o The loans to deposits ratio improved to 75 percent at March 31, 2003
o PNC repurchased 4.4 million common shares under its 35 million share
repurchase program
o Asset quality remained stable and nonperforming assets declined
o Efficiency initiatives were more than offset by higher incentive compensation
and benefits expense
BUSINESS RESULTS
Total business earnings were $287 million for the first quarter of 2003 compared
with $291 million for the fourth quarter of 2002 and $315 million for the first
quarter of 2002. Total business earnings declined slightly from the fourth
quarter of 2002 as higher earnings from PNC Advisors and the asset management
and processing businesses was more than offset by an earnings decline in the
wholesale banking businesses. First quarter 2003 total business earnings
declined compared with the first quarter of 2002 primarily due to the impact of
a lower interest rate environment and the effects of weak equity markets on
several of the Corporation's banking and processing businesses. Total business
earnings differed from consolidated results due to items reported in the "Other"
and Discontinued Operations categories.
Banking Businesses
Regional Community Banking earnings totaled $152 million for the first quarter
of 2003, flat with results for the fourth quarter of 2002. Earnings for the
first quarter of 2002 were $177 million. First quarter 2003 earnings included
the benefit of $38 million of net securities gains which was offset by lower
taxable-equivalent net interest income primarily due to a decline in average
interest rates and fewer days in the quarter, lower other noninterest income due
to seasonality of certain fees and increased pension expense compared with the
fourth quarter of 2002. The decrease in earnings in 2003 compared with the first
quarter of 2002 reflected a 17 percent decline in taxable-equivalent net
interest income due to the lower interest rate environment and a $1.8 billion
decline in the residential mortgage loan portfolio.
Wholesale Banking includes the results of Corporate Banking, PNC Real
Estate Finance and PNC Business Credit. Earnings from Wholesale Banking totaled
$72 million in the first quarter of 2003 compared with $84 million in the fourth
quarter of 2002 and $57 million in the first quarter of 2002. This business's
goal is to grow revenue from lending activities that meet the desired
risk/return profile. This objective has been challenged due to reduced client
demand in the current economic environment.
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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Earnings from Corporate Banking totaled $42 million in the first quarter of
2003 compared with $33 million in both the fourth and first quarters of 2002.
The improvement in earnings compared with both 2002 quarters was primarily due
to a decrease in the provision for credit losses that more than offset the
impact of lower total revenue and higher noninterest expense in 2003. The fourth
quarter 2002 provision for credit losses included the establishment of a $24
million reserve for a single airline industry credit. Negotiations with this
customer are continuing, and no additional reserve was required as of March 31,
2003.
PNC Real Estate Finance earnings totaled $16 million for the first quarter
of 2003 compared with $23 million in the fourth quarter of 2002 and $22 million
in the first quarter of 2002. An increase in the provision for credit losses was
the primary factor for the decline in earnings compared with the fourth quarter
and first quarter of 2002. The provision for the first quarter of 2002 included
the impact of a $6 million net loan recovery in the exited mortgage warehouse
lending business.
PNC Business Credit earned $14 million in the first quarter of 2003
compared with $28 million in the fourth quarter of 2002 and $2 million in the
first quarter of 2002. Lower revenue and a $15 million increase in the provision
for credit losses in the first quarter of 2003 compared with the fourth quarter
of 2002 contributed to the decline in earnings. The higher provision in 2003
reflected additional reserves required for this portfolio. The increase in
earnings for 2003 compared with the prior year first quarter reflected a $21
million decline in the provision for credit losses.
Earnings from PNC Advisors totaled $16 million for the first quarter of
2003 compared with $13 million for the fourth quarter of 2002. This business
earned $33 million for the first quarter of 2002. Fourth quarter 2002 results
included a pretax charge of $10 million relating to the cost of an arbitration
ruling. Excluding this item, first quarter 2003 earnings declined compared with
the fourth quarter of 2002 due to a slight decline in total revenue and higher
noninterest expense. The impact of continued weak equity market conditions on
asset management and brokerage revenues and lower taxable-equivalent net
interest income reflecting the lower interest rate environment contributed to
the decline in earnings for the first quarter of 2003 compared with the first
quarter of 2002.
Asset Management and Processing Businesses
BlackRock's earnings totaled $35 million for the first quarter of 2003 compared
with $34 million for the fourth quarter of 2002 and $31 million for the first
quarter of 2002. Higher earnings for the first quarter of 2003 compared with the
first quarter of 2002 reflected the impact of lower total expenses that more
than offset the effect of lower revenue in the first quarter of 2003. Lower
first quarter 2003 revenue reflected declines in open-end fund revenue and fixed
income hedge fund performance fees that were partially offset by growth in
separate account base fees and other revenue. BlackRock is approximately 69
percent owned by PNC and is consolidated into PNC's financial statements.
Accordingly, approximately 31 percent of
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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BlackRock's earnings are recognized as a minority interest expense in the
Corporation's consolidated income statement and are included in the "Other"
category in the Business Earnings (Loss) table in the Consolidated Financial
Highlights.
PFPC earned $12 million for the first quarter of 2003 compared with $8
million for the fourth quarter of 2002 and $17 million for the first quarter of
2002. Results for the fourth quarter of 2002 included a $6 million pretax
write-off of an equity investment. Earnings declined for the first quarter of
2003 compared with the prior year first quarter as the effect of lower fund
servicing revenue more than offset lower operating and debt financing costs.
"Other" and Discontinued Operations
The "Other" category includes differences between business performance reporting
and financial statement reporting, equity management activities, minority
interest in income of consolidated entities, residual asset and liability
management activities, eliminations and corporate overhead. "Other" incurred a
net loss of $25 million for the first quarter of 2003 compared with a net loss
of $13 million for the fourth quarter of 2002 and earnings of $2 million for the
first quarter of 2002. The net loss in the "Other" category for the first
quarter of 2003 compared with both the fourth quarter and first quarter of 2002
was primarily driven by a pretax charge of $23 million related to leased
facilities.
CONSOLIDATED REVENUE
Consolidated revenue represents the sum of taxable-equivalent net interest
income and noninterest income. Total revenue increased slightly for the first
quarter of 2003 compared with the fourth quarter of 2002 but declined six
percent compared with the first quarter of 2002. Higher net securities gains and
a lower level of equity management losses mitigated a decline in
taxable-equivalent net interest income and lower net gains in excess of
valuation adjustments on institutional loans held for sale in the first quarter
of 2003 compared with the fourth quarter of 2002. See Note (a) to net interest
income (taxable-equivalent basis) in the Consolidated Financial Highlights for a
reconciliation to net interest income as reported under generally accepted
accounting principles ("GAAP"). The decline in total revenue for the first
quarter of 2003 compared with the first quarter of 2002 reflected a 15 percent
decrease in taxable-equivalent net interest income due to a narrower net
interest margin and downsizing of the loan portfolio.
Taxable-equivalent net interest income was $506 million and the net
interest margin was 3.76 percent for the first quarter of 2003 compared with
$527 million and 3.87 percent, respectively, for the fourth quarter of 2002.
Taxable-equivalent net interest income was $593 million and the net interest
margin was 4.12 percent for the first quarter of 2002. The declines in
taxable-equivalent net interest income and margin for the first quarter of 2003
compared with the fourth quarter of 2002 were primarily due to the impact of a
lower interest rate environment in 2003. The declines in taxable-equivalent net
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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interest income and margin compared with the first quarter of 2002 were
primarily due to the impact of the lower interest rate environment in 2003 and a
$3.6 billion or six percent decrease in average earning assets. The decline in
average earning assets resulted from continued downsizing of the institutional
lending portfolio and run-off of residential mortgages, the impact of which was
partially offset by a higher level of federal funds sold that increased overall
balance sheet liquidity.
Total noninterest income was $795 million for the first quarter of 2003
compared with $766 million for the fourth quarter of 2002 and $790 million for
the first quarter of 2002. Total noninterest income for each of these periods,
as adjusted for net securities gains, net gains in excess of valuation
adjustments related to institutional loans held for sale, and equity management
losses, follows:
First Quarter Fourth Quarter First Quarter
In millions 2003 2002 2002
- ------------------------------------------------------------------------------------------
Total noninterest income, as reported $795 $766 $790
Less: Held for sale gains,
net of valuation adjustments (a) 15 52 23
Equity management losses (4) (14) (2)
Net securities gains (b) 56 1 4
----------------------------------------------
Noninterest income, as adjusted $728 $727 $765
- ------------------------------------------------------------------------------------------
(a) Included in "Corporate Services" in the Consolidated Statement of Income.
(b) Net securities gains for the first quarter of 2003 consisted of: $38 million
in Regional Community Banking; $23 million in Corporate Banking and $2
million in "Other," both related to the liquidation of the PAGIC entities;
and $7 million of net securities losses in "Other" primarily due to
impairment of mutual fund equity investments.
Noninterest income, as adjusted, was essentially unchanged compared with
the fourth quarter of 2002 as higher asset management fees and other income
offset lower brokerage and consumer services revenue. Noninterest income, as
adjusted, declined $37 million compared with the first quarter of 2002. The
decline compared with the first quarter of 2002 reflected the continued negative
impact of weak equity markets on asset management, fund servicing and brokerage
revenue during the first quarter of 2003.
CONSOLIDATED EXPENSES
Total noninterest expense was $856 million and the efficiency ratio was 66
percent for the first quarter of 2003 compared with $791 million and 63 percent,
respectively, for the fourth quarter of 2002. Total noninterest expense was $807
million and the efficiency ratio was 58 percent for the first quarter of 2002.
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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Total noninterest expense, as adjusted for certain items, follows:
First Quarter Fourth Quarter First Quarter
In millions 2003 2002 2002
- ------------------------------------------------------------------------------------------
Total noninterest expense, as reported $856 $791 $807
Less: PAGIC liquidation costs 29
Facilities charge 23
Legal and consulting fees related
to regulatory compliance and
legal proceedings 2 10 10
----------------------------------------------
Noninterest expense, as adjusted $802 $781 $797
- ------------------------------------------------------------------------------------------
First quarter 2003 noninterest expense included $29 million of costs paid in
connection with the liquidation of the three "PAGIC" entities formed in 2001 in
transactions with American International Group, Inc., and a facilities charge of
$23 million related to vacant leased space and subleases consistent with the
requirements of Statement of Financial Accounting Standards No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." The "PAGIC" liquidation
costs were mostly offset by related net securities gains. Noninterest expense,
as adjusted, increased $21 million compared with the fourth quarter of 2002 due
to higher incentive compensation, an increase of $10 million in pension expense
and $2 million of expense in 2003 related to the Corporation's decision to
expense stock options over the vesting period beginning with grants made in
2003.
ASSET QUALITY REVIEW
Nonperforming assets were $408 million at March 31, 2003, a decline of $10
million from December 31, 2002 and down $30 million from March 31, 2002.
Nonperforming loans increased $26 million to $335 million at March 31, 2003
compared with $309 million at December 31, 2002 and $251 million at March 31,
2002. The ratio of nonperforming loans to total loans was .95 percent at March
31, 2003 compared with .87 percent at December 31, 2002 and .65 percent at March
31, 2002. The ratio of nonperforming assets to total loans, loans held for sale
and foreclosed assets was 1.10 percent at March 31, 2003 compared with 1.13
percent at December 31, 2002 and 1.04 percent at March 31, 2002. The increase in
nonperforming loans at March 31, 2003 compared with December 31, 2002 was
primarily due to two credits related to the services and manufacturing sectors.
Nonperforming loans held for sale declined $36 million during the first quarter
of 2003 due to net sales and valuation adjustments. These assets are carried at
lower of cost or market value and represented 15 percent of total nonperforming
assets at March 31, 2003.
The provision for credit losses was $36 million for the first quarter of
2003 compared with $65 million for the fourth quarter of 2002 and $82 million
for the first quarter of 2002. The provision for credit losses for the fourth
quarter of 2002 included an addition to reserves of $24 million established
primarily
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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for a single airline industry credit. The provision for credit losses in the
first quarter of 2002 reflected additional reserves related to the Corporate
Banking business and the PNC Business Credit portfolio.
The allowance for credit losses at March 31, 2003 was $680 million and
represented 1.93 percent of total loans and 203 percent of nonperforming loans.
The comparable amounts and ratios were $673 million, 1.90 percent and 218
percent, respectively, at December 31, 2002 and $613 million, 1.59 percent and
244 percent, respectively, at March 31, 2002. The allowance for unfunded loan
commitments and letters of credit was $77 million at March 31, 2003 compared
with $84 million at December 31, 2002 and $99 million at March 31, 2002. The
allowance for unfunded loan commitments at March 31, 2002 included a $46 million
specific reserve allocated against a single unfunded loan commitment which was
funded and charged off during the second quarter of 2002.
Net charge-offs were $36 million or .42 percent of average loans for the
first quarter of 2003 compared with $35 million, or .39 percent, respectively,
in the fourth quarter of 2002. Net charge-offs were $41 million or .43 percent
of average loans for the first quarter of 2002.
BALANCE SHEET REVIEW
Total assets were $68.6 billion at March 31, 2003 compared with $66.4 billion at
December 31, 2002. Average interest-earning assets for the first quarter of 2003
were $54.0 billion, up slightly compared with the fourth quarter of 2002.
Average total loans for the first quarter of 2003 were $35.2 billion, a decrease
of $.3 billion or three percent on an annualized basis compared with the fourth
quarter of 2002 primarily due to maturities of commercial loans.
Total deposits were $47.1 billion at March 31, 2003 compared with $45.0
billion at December 31, 2002. This increase included a deposit of approximately
$900 million from a single customer received prior to the end of the first
quarter of 2003. As expected, this deposit was subsequently withdrawn in April
2003.
Average total deposits were $44.4 billion for the first quarter of 2003, an
increase of $.3 billion or three percent on an annualized basis from the fourth
quarter of 2002. Average total deposits represented 67 percent of total sources
of funds for both the first quarter of 2003 and the fourth quarter of 2002.
Average transaction deposits (consisting of interest-bearing demand and money
market deposits and demand and other non-interest bearing deposits) were $31.8
billion for the first quarter of 2003, an increase of approximately $400
million, or 5 percent on an annualized basis, compared with the fourth quarter
of 2002 and reflected ongoing client acquisition and retention efforts.
Average borrowed funds were $8.7 billion during the first quarter of 2003,
down $.3 billion, or 15 percent on an annualized basis, compared with the fourth
quarter of 2002 as deposits increased.
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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Shareholders' equity totaled $6.8 billion at March 31, 2003 compared with
$6.9 billion at December 31, 2002. The regulatory capital ratios at March 31,
2003 are estimated to be 8.0 percent for Leverage, 8.6 percent for Tier I and
12.2 percent for Total Risk-based Capital. These ratios were expected to decline
slightly from year-end 2002 levels primarily due to the utilization of capital
to repurchase common shares.
Common shares outstanding at March 31, 2003 were 281.6 million. PNC's
repurchase program was adopted in January 2002 and permits the purchase of up to
35 million shares of common stock through February 29, 2004. Under this program,
PNC purchased 4.4 million common shares during the first quarter of 2003 at a
total cost of $193 million. Management continues to be authorized to purchase up
to a total of $1.0 billion of its common stock during 2003. The extent and
timing of share repurchases during the remainder of the year will depend on a
number of factors including, among others, market and general economic
conditions, regulatory capital considerations, alternative uses of capital and
the potential impact on PNC's credit rating. Under applicable regulations, as
long as PNC remains subject to its written agreement with the Federal Reserve
Bank of Cleveland, it must obtain prior regulatory approval to repurchase its
common stock in amounts that exceed 10 percent of consolidated net worth in any
12-month period. A total of 4.7 million common shares have been repurchased
under this program from inception through March 31, 2003.
ASSETS UNDER MANAGEMENT AND ASSETS SERVICED
Assets under management were $313 billion at March 31, 2003 compared with $313
billion at December 31, 2002 and $285 billion at March 31, 2002. The increase
compared with the first quarter of 2002 reflects growth in fixed income assets
managed by BlackRock that was partially offset by declines in liquidity and
equity assets.
At March 31, 2003, PFPC provided accounting/administration services for
$573 billion of pooled investment assets and provided custody services for $347
billion of customer assets. The comparable amounts were $510 billion and $336
billion, respectively, at December 31, 2002 and $543 billion and $339 billion,
respectively, at March 31, 2002. The increase in assets serviced during the
first quarter of 2003 primarily resulted from asset inflows related to a new
client. PFPC serviced approximately 48 million shareholder accounts at March 31,
2003 compared with 51 million at December 31, 2002 and 49 million at March 31,
2002. The decline in shareholder accounts in the first quarter of 2003 was
primarily due to a loss of one large transfer agency client.
Brokerage assets administered by PNC Advisors totaled $31 billion at March
31, 2003 compared with $32 billion at December 31, 2002 and $29 billion at March
31, 2002.
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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CONFERENCE CALL AND SUPPLEMENTARY FINANCIAL INFORMATION
PNC Chairman and Chief Executive Officer, James E. Rohr, and PNC Vice Chairman
and Chief Financial Officer, William S. Demchak, will hold a conference call for
investors at 10:00 a.m. (eastern time) today regarding the topics addressed in
this release. Investors should call 5-10 minutes before the start of the
conference at 800-990-2718 (domestic) and 706-643-0187 (international). A taped
replay of the call will be available for one week at 800-642-1687 (domestic) and
706-645-9291 (international); enter conference ID: 9445003.
In addition, internet access to the call (listen-only), PNC's first quarter
earnings release and supplementary financial information regarding PNC's first
quarter results will be available on PNC's home page at www.pnc.com and under
"For Investors - Financial Information." PNC's first quarter earnings release
and the accompanying financial supplement, which includes significant financial
information that will be discussed on the conference call, will be available on
PNC's website prior to the beginning of the conference call. A replay of the
webcast will be available for at least one week.
The conference call may include a discussion of non-GAAP financial measure
items, which is qualified by GAAP reconciliation information included in this
news release or otherwise available on PNC's website in the "For Investors"
section. The conference call may include forward-looking information which,
along with the supplementary financial information and this news release, is
subject to the cautionary statements that follow.
FORWARD-LOOKING STATEMENTS
This news release contains, and other statements that the Corporation may make
may contain, forward-looking statements with respect to the Corporation's
outlook or expectations for earnings, revenues, expenses, capital levels, asset
quality or other future financial or business performance, strategies or
expectations, or the impact of legal, regulatory or supervisory matters on the
Corporation's business operations or performance. Forward-looking statements are
typically identified by words or phrases such as "believe," "feel," "expect,"
"anticipate," "intend," "outlook," "estimate," "forecast," "project,"
"position," "target," "assume," "achievable," "potential," "strategy," "goal,"
"objective," "plan," "aspiration," "outcome," "continue," "remain," "maintain,"
"seek," "strive," "trend," and variations of such words and similar expressions,
or future or conditional verbs such as "will," "would," "should," "could,"
"might," "can," "may," or similar expressions. The Corporation cautions that
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, and the Corporation assumes no duty and does not
undertake to update forward-looking statements. Actual results could differ
materially from those anticipated in forward-looking statements and future
results could differ materially from historical performance.
The factors discussed elsewhere in this news release and the following
factors, among others, could cause actual results to differ materially from
those anticipated in forward-looking statements or from historical performance:
(1) changes in political, economic or industry conditions, the interest rate
environment or financial and capital markets, which if adverse could result in:
a deterioration in credit quality, increased credit losses, and increased
funding of unfunded loan commitments and letters of credit; an adverse effect on
the allowances for credit losses and unfunded loan commitments and letters of
credit; a reduction in demand for credit or fee-based products and services; a
reduction in net interest income, value of assets under management
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The PNC Financial Services Group, Inc. Reports First Quarter 2003 Earnings -
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and assets serviced, value of private equity investments and of other debt and
equity investments, value of loans held for sale or value of other on-balance
sheet and off-balance sheet assets; or changes in the availability and terms of
funding necessary to meet PNC's liquidity needs; (2) relative and absolute
investment performance of assets under management; (3) the introduction,
withdrawal, success and timing of business initiatives and strategies, decisions
regarding further reductions in balance sheet leverage, the timing and pricing
of any sales of loans held for sale, and PNC's inability to realize cost savings
or revenue enhancements, or to implement integration plans relating to or
resulting from mergers, acquisitions, restructurings and divestitures; (4)
customer borrowing, repayment, investment and deposit practices and their
acceptance of PNC's products and services; (5) the impact of increased
competition; (6) how PNC chooses to redeploy available capital, including the
extent and timing of any share repurchases and investments in PNC businesses;
(7) the inability to manage risks inherent in PNC's business; (8) the
unfavorable resolution of legal proceedings or government inquiries; the impact
of increased litigation risk from recent regulatory developments; and the impact
of reputational risk created by recent regulatory developments on such matters
as business generation and retention, the ability to attract and retain
management, liquidity and funding; (9) the denial of insurance coverage for
claims made by PNC; (10) an increase in the number of customer or counterparty
delinquencies, bankruptcies or defaults that could result in, among other
things, increased credit and asset quality risk, a higher provision for credit
losses and reduced profitability; (11) the impact, extent and timing of
technological changes, the adequacy of intellectual property protection and
costs associated with obtaining rights in intellectual property claimed by
others; (12) actions of the Federal Reserve Board; (13) the impact of
legislative and regulatory reforms and changes in accounting policies and
principles; (14) the impact of the regulatory examination process, the
Corporation's failure to satisfy the requirements of written agreements with
regulatory agencies, and regulators' future use of supervisory and enforcement
tools; and (15) terrorist activities and international hostilities, including
the situations surrounding Iraq and North Korea, which may adversely affect the
general economy, financial and capital markets, specific industries, and the
Corporation.
The Corporation's SEC reports, accessible on the SEC's website at
www.sec.gov and on PNC's website at www.pnc.com, contain additional information
about the foregoing factors and identify additional factors that can affect the
results anticipated in forward-looking statements.
The PNC Financial Services Group, Inc., headquartered in Pittsburgh, is one
of the nation's largest diversified financial services organizations, providing
regional community banking; wholesale banking, including corporate banking, real
estate finance and asset-based lending; wealth management; asset management; and
global fund services.
[TABULAR MATERIAL FOLLOWS]
CONSOLIDATED FINANCIAL HIGHLIGHTS
The PNC Financial Services Group, Inc. Page 11
For the three months ended
----------------------------------------
Dollars in millions, except per share data March 31 December 31 March 31
Unaudited 2003 2002 2002
- ---------------------------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
Revenue
Net interest income (taxable-equivalent basis)(a) $ 506 $ 527 $ 593
Noninterest income 795 766 790
---------------------------------------
Total revenue $ 1,301 $ 1,293 $ 1,383
=======================================
Income from continuing operations $ 262 $ 278 $ 317
Discontinued operations (16)
---------------------------------------
Net income $ 262 $ 262 $ 317
=======================================
Per common share
DILUTED EARNINGS (LOSS)
Continuing operations $ .92 $ .97 $ 1.11
Discontinued operations (.05)
---------------------------------------
Net income $ .92 $ .92 $ 1.11
=======================================
CASH DIVIDENDS DECLARED $ .48 $ .48 $ .48
- ---------------------------------------------------------------------------------------------------
SELECTED RATIOS
FROM CONTINUING OPERATIONS
Return on
Average common shareholders' equity 15.76% 16.55% 21.83%
Average assets 1.61 1.67 1.89
Net interest margin 3.76 3.87 4.12
Noninterest income to total revenue (b) 61 59 57
Efficiency (c) 66 61 58
FROM NET INCOME
Return on
Average common shareholders' equity 15.76% 15.59% 21.83%
Average assets 1.61 1.58 1.89
Net interest margin 3.76 3.87 4.12
Noninterest income to total revenue (b) 61 59 57
Efficiency (c) 66 63 58
- ---------------------------------------------------------------------------------------------------
Certain prior period amounts included in these Consolidated Financial Highlights
have been reclassified to conform to the current period presentation. In
addition, amounts included in these Consolidated Financial Highlights are
presented on a continuing operations basis, unless otherwise noted.
(a) 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 a taxable investment. In order to provide accurate
comparisons of yields and margins for all earning assets, the interest income
earned on tax exempt assets has been increased to make them fully equivalent to
other taxable interest income investments. A reconciliation of net interest
income as reported in the Consolidated Statement of Income to net interest
income on a taxable-equivalent basis follows (in millions):
For the three months ended
---------------------------------
March 31 December 31 March 31
2003 2002 2002
-------- ----------- --------
Net interest income, GAAP basis $503 $524 $590
Taxable-equivalent adjustment 3 3 3
---- ---- ----
Net interest income, taxable-equivalent basis $506 $527 $593
==== ==== ====
(b) Computed as total noninterest income divided by the sum of net interest
income and noninterest income. For the quarters ended March 31, 2002 and
December 31, 2002, the ratio had previously been reported by using
taxable-equivalent net interest income. The ratios for those quarters have
been restated to conform to the current period presentation.
(c) The efficiency ratio for all periods presented is computed as noninterest
expense divided by the sum of net interest income and noninterest income.
The efficiency ratio as computed on a net income basis for the quarter
ended December 31, 2002 includes the pretax amount of the loss from
discontinued operations as a component of noninterest expense. For the
quarters ended March 31, 2002 and December 31, 2002, the efficiency ratio
previously reported had been computed by excluding amortization expense and
distributions on capital securities from the calculation and had used
taxable-equivalent net interest income. The efficiency ratios for those
quarters have been restated to conform to the current period presentation.
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CONSOLIDATED FINANCIAL HIGHLIGHTS
The PNC Financial Services Group, Inc. Page 12
First Quarter 2003 Fourth Quarter 2002
---------------------------------- ------------------------------------
Fully Fully
diluted diluted
Dollars in millions, except per share data Pretax Net earnings Pretax Net earnings
Unaudited Impact Income per share Impact Income share
- ----------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF QUARTERLY
GAAP EARNINGS TO NORMALIZED
EARNINGS (a)
Results as reported on a GAAP basis $ 262 $ .92 $ 262 $ .92
Normalization adjustments:
Loss from discontinued operations 16
Liquidation of PAGIC entities
Net securities gains (c) $ (25) (16)
Liquidation costs 29 19
----------------------
Liquidation of PAGIC, net 4 3
Facilities charge 23 15
Additional provision for credit losses (b) $ 30 20
Held for sale gains, net of
valuation adjustments (15) (10) (52) (34)
Equity management losses 4 3 14 9
Net securities gains - other (c) (16) (11)
Legal and consulting fees related to
regulatory compliance and legal
proceedings 2 1 10 6
Litigation settlement - Washington
Mutual (15) (10)
Net litigation costs - PNC Advisors 10 6
- ----------------------------------------------------------------------------------------------------------------------------
Total normalization adjustments 1 .00 13 .04
- ----------------------------------------------------------------------------------------------------------------------------
Results as adjusted to reflect normalized
earnings $ 263 $ .92 $ 275 $ .96
============================================================================================================================
First Quarter 2002
------------------------------------
Fully
diluted
Pretax Net earnings
Impact Income share
- -------------------------------------------------------------------------------------
RECONCILIATION OF QUARTERLY
GAAP EARNINGS TO NORMALIZED
EARNINGS (a)
Results as reported on a GAAP basis $ 317 $1.11
Normalization adjustments:
Loss from discontinued operations
Liquidation of PAGIC entities
Net securities gains (c)
Liquidation costs
Liquidation of PAGIC, net
Facilities charge
Additional provision for credit losses (b) $ 45 29
Held for sale gains, net of
valuation adjustments (23) (15)
Equity management losses 2 1
Net securities gains - other (c)
Legal and consulting fees related to
regulatory compliance and legal
proceedings 10 6
Litigation settlement - Washington
Mutual
Net litigation costs - PNC Advisors
- -----------------------------------------------------------------------------------
Total normalization adjustments 21 .08
- -----------------------------------------------------------------------------------
Results as adjusted to reflect normalized
earnings $ 338 $1.19
===================================================================================
(a) This reconciliation is provided so that users of the Corporation's
financial information (shareholders, investor analysts, regulators and
others) have a basis for comparison of the Corporation's results for the
periods presented that supplements results as reported in accordance with
generally accepted accounting principles ("GAAP"). Management believes that
this additional information is useful and relevant as it identifies and
summarizes those significant items included in reported GAAP earnings that
management believes are not a reflection of the Corporation's core
operating performance for the periods presented.
(b) Amounts provided principally for a single airline industry credit in the
fourth quarter of 2002 and for a Market Street Funding Corporation ("Market
Street") exposure in the first quarter of 2002. Market Street is a
multi-seller asset-backed commercial paper conduit that is independently
owned and managed by a third party.
(c) Total reported net securities gains were $56 million for the first quarter
of 2003 (consisting of: $38 million in Regional Community Banking; $23
million in Corporate Banking and $2 million in "Other," both related to the
liquidation of the PAGIC entities; and $7 million of net securities losses
in "Other" primarily due to impairment of mutual fund equity investments).
Certain net gains or losses from the disposition of securities designated
as available for sale are a recurring component of the Corporation's
balance sheet and interest rate risk management process. Based on the
current portfolio and interest rate environment, management has determined
that net securities gains in excess of $15 million may not be sustainable,
indicative of future performance, or reflect the Corporation's business
strategy. Accordingly, this amount has been removed from the computation
of normalized earnings.
-more-
CONSOLIDATED FINANCIAL HIGHLIGHTS
The PNC Financial Services Group, Inc. Page 13
For the three months ended
-----------------------------------------
In millions March 31 December 31 March 31
Unaudited 2003 2002 2002
- -----------------------------------------------------------------------------------------------------
BUSINESS EARNINGS (LOSS)
Banking Businesses
Regional Community Banking $ 152 $ 152 $ 177
Wholesale Banking
Corporate Banking 42 33 33
PNC Real Estate Finance 16 23 22
PNC Business Credit 14 28 2
- -----------------------------------------------------------------------------------------------------
Total wholesale banking 72 84 57
PNC Advisors 16 13 33
- -----------------------------------------------------------------------------------------------------
Total banking businesses 240 249 267
- -----------------------------------------------------------------------------------------------------
BlackRock 35 34 31
PFPC 12 8 17
- -----------------------------------------------------------------------------------------------------
Total asset management and processing businesses 47 42 48
- -----------------------------------------------------------------------------------------------------
Total business earnings 287 291 315
Other (25) (13) 2
- -----------------------------------------------------------------------------------------------------
Results from continuing operations 262 278 317
Discontinued operations (16)
- -----------------------------------------------------------------------------------------------------
Total consolidated $ 262 $ 262 $ 317
=====================================================================================================
Dollars in millions, except per share data March 31 December 31 March 31
Unaudited 2003 2002 2002
- -----------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Assets $ 68,619 $ 66,377 $ 66,663
Earning assets 56,205 54,833 55,856
Loans, net of unearned income 35,245 35,450 38,539
Allowance for credit losses 680 673 613
Securities 14,973 13,763 11,092
Loans held for sale 1,702 1,607 3,648
Total deposits 47,081 44,982 44,910
Borrowed funds 8,534 9,116 10,988
Allowance for unfunded loan commitments and
letters of credit 77 84 99
Shareholders' equity 6,792 6,859 5,979
Common shareholders' equity 6,783 6,849 5,969
Book value per common share 24.05 24.03 21.02
Loans to deposits 75% 79% 86%
Securities to total assets 22 21 17
ASSETS UNDER MANAGEMENT (billions) $ 313 $ 313 $ 285
CAPITAL RATIOS
Tier I Risk-based (a) 8.6% 8.8% 7.7%
Total Risk-based (a) 12.2 12.5 11.7
Leverage (a) 8.0 8.1 6.9
Shareholders' equity to total assets 9.90 10.33 8.97
Common shareholders' equity to total assets 9.89 10.32 8.95
ASSET QUALITY RATIOS
Nonperforming assets to total loans,
loans held for sale and foreclosed assets 1.10% 1.13% 1.04%
Nonperforming loans to total loans .95 .87 .65
Allowance for credit losses to total loans (b) 1.93 1.90 1.59
Allowance for credit losses to nonperforming loans (b) 203 218 244
Net charge-offs to average loans (For the three months
ended) .42 .39 .43
=====================================================================================================
(a) Estimated for March 31, 2003.
(b) The asset quality ratios presented for March 31, 2002 reflect a
reclassification of a portion of the allowance for credit losses related to
unfunded loan commitments and letters of credit to a liability on the
Consolidated Balance Sheet. The amount reclassified totaled $99 million at
March 31, 2002. This reclassification had the effect of lowering the
previously reported asset quality ratio. The allowance for unfunded loan
commitments and letters of credit is available for potential credit losses
as loan commitments are funded.