Exhibit 99.1
[Logo] PNC 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
THIRD QUARTER 2003 RESULTS
PITTSBURGH, October 16, 2003 - The PNC Financial Services Group, Inc.
(NYSE: PNC) today reported third quarter 2003 net income of $281 million, or
$1.00 per diluted share. This compares with net income of $184 million, or $.65
per diluted share, for the second quarter of 2003 and $285 million, or $1.00 per
diluted share, for the third quarter of 2002. Results for the second quarter of
2003 included expenses totaling $87 million after taxes, or $.31 per diluted
share, in connection with the Corporation's previously announced agreement with
the United States Department of Justice ("DOJ") and related legal and consulting
costs.
"This was a good quarter for PNC. These financial results and strategic
accomplishments reflect our team's efforts to build a mix of businesses capable
of delivering solid risk-adjusted returns," said James E. Rohr, chairman and
chief executive officer of The PNC Financial Services Group. "Our ongoing
efforts to meet customer needs, improve operating leverage and maintain a strong
balance sheet position us well to deliver value-added growth."
Return on average common shareholders' equity was 17.06 percent for the
third quarter of 2003 compared with 10.91 percent for the second quarter of 2003
and 17.49 percent for the third quarter of 2002. Return on average assets was
1.56 percent for the third quarter of 2003 compared with 1.13 percent for the
second quarter of 2003 and 1.72 percent for the third quarter of 2002.
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 2
The return on average assets for the third quarter of 2003 was reduced by
the impact of the Corporation's adoption, effective July 1, 2003, of FASB
Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities."
See Early Adoption of FIN 46 below and the Consolidated Financial Highlights for
further information.
Excluding the impact of the DOJ-related expenses, the returns on average
common shareholders' equity and on average assets for the second quarter of 2003
would have been 16.06 percent and 1.66 percent, respectively. The Consolidated
Financial Highlights contain reconciliations of the second quarter of 2003
ratios as adjusted to those as reported under generally accepted accounting
principles ("GAAP").
HIGHLIGHTS OF THE QUARTER
- - The Federal Reserve Bank of Cleveland ("Federal Reserve") and the Office of
the Comptroller of the Currency ("OCC") lifted their formal written
agreements with the Corporation.
- - On October 15, 2003, Moody's Investors Service affirmed the ratings of PNC
and its subsidiaries with a stable outlook, concluding the review for
possible downgrade that was initiated in June 2003.
- - The Corporation signed a definitive agreement to acquire United National
Bancorp.
- - PNC's Board of Directors approved a four percent increase in the quarterly
cash dividend on the common stock, to 50 cents per share.
- - Regional Community Banking grew average home equity loans at an annualized
rate of 21 percent and grew average demand deposits at an annualized rate
of 18 percent compared with the second quarter of 2003 and 17 percent and
10 percent, respectively, compared with the third quarter of 2002.
- - The net interest margin declined 42 basis points compared with the second
quarter of 2003 due to the impact of new accounting rules and lower
interest rates.
- - Consolidated assets under management grew to $336 billion at September 30,
2003 compared with $328 billion at June 30, 2003 and $285 billion at
September 30, 2002.
- - Asset quality remained stable and nonperforming assets declined to $396
million at September 30, 2003 compared with $404 million at June 30, 2003
and $409 million at September 30, 2002.
- - The $100 million efficiency initiative is ahead of schedule and has
resulted in expense savings of approximately $29 million in the third
quarter of 2003 and approximately $66 million for the first nine months of
2003.
BUSINESS RESULTS
Total business earnings were $291 million for the third quarter of 2003 compared
with $296 million for the second quarter of 2003 and $321 million for the third
quarter of 2002. Total business earnings for the third quarter of 2003 declined
in each comparison as lower earnings from Regional Community Banking resulting
from lower net interest income offset higher earnings from Wholesale Banking
reflecting higher
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 3
gains on sales of assets. The Consolidated Financial Highlights include a
reconciliation of total business earnings to total consolidated results and a
reconciliation of net interest income as reported under GAAP to
taxable-equivalent net interest income. The "Other" category in the Consolidated
Financial Highlights reflects differences between total business earnings and
consolidated results as reported in the first paragraph of this news release.
See Early Adoption of FIN 46 and the "Impact of FIN 46" schedules included
in the Consolidated Financial Highlights for further details of the income
statement line items impacted by PNC's adoption of this standard. The adoption
of FIN 46 had a minimal impact on third quarter of 2003 consolidated net income
and has no impact on business earnings.
BANKING BUSINESSES
Earnings for Regional Community Banking totaled $138 million for the third
quarter of 2003 compared with $159 million for the second quarter of 2003 and
$192 million for the third quarter of 2002. Lower earnings in the third quarter
of 2003 compared with the second quarter of 2003 resulted from a decline in
revenue driven by lower net interest income. Taxable-equivalent net interest
income decreased $25 million compared with the second quarter of 2003 due to
sales and maturities of securities that were replaced at lower yields, a change
in asset mix and prepayments on the residential mortgage loan portfolio. These
negative impacts to net interest income masked the benefit of growth in home
equity loans and demand deposits, two of the Regional Community Bank's core
products. Noninterest income for the third quarter of 2003 declined $9 million
compared with the second quarter of 2003 primarily due to a lower level of both
net securities gains and gains on sales of education loans. The decline in
earnings compared with the third quarter of 2002 was also attributable to a
decline in revenue, primarily due to significantly higher net securities gains
in 2002 and a decrease in taxable-equivalent net interest income reflecting a
lower interest rate environment and a smaller residential mortgage loan
portfolio in 2003.
Wholesale Banking includes the results of Corporate Banking, PNC Real
Estate Finance and PNC Business Credit. Wholesale Banking earnings totaled $77
million for the third quarter of 2003 compared with $63 million for the second
quarter of 2003 and $57 million for the third quarter of 2002. Gains on sales of
loans and a positive adjustment of the valuation allowance on loans held for
sale were the primary factors in the higher earnings for Wholesale Banking in
both comparisons.
Corporate Banking earnings were $37 million for the third quarter of 2003
compared with $33 million for the second quarter of 2003 and $30 million for the
third quarter of 2002. The adoption of FIN 46 resulted in an increase during the
third quarter of 2003 of $4 million to taxable-equivalent net interest income
that was offset by a decrease of $3 million to noninterest income and an
increase to noninterest expense of $1 million. The improvement in earnings in
the third quarter of 2003 compared with the second quarter of 2003 reflected
higher taxable-equivalent net interest income and a lower provision for credit
losses. The increase in taxable-equivalent net interest income reflected lower
borrowing costs that more than offset the impact of a decline in average loans
outstanding and loans held for sale. Earnings increased compared with the third
quarter of 2002 as a reduction in the provision for credit losses in the third
quarter of 2003 and lower noninterest expense more
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 4
than offset a decline in taxable-equivalent net interest income.
Taxable-equivalent net interest income decreased compared with the prior year
quarter primarily due to the impact of a smaller loan portfolio and lower
average interest rates. The decline in average loans outstanding reflected
continued weak loan demand and a strategy to exit client relationships that did
not meet the desired risk/return profile for the capital invested.
Earnings from PNC Real Estate Finance totaled $34 million for the third
quarter of 2003. Earnings for the second quarter of 2003 and the third quarter
of 2002 were $24 million and $19 million, respectively. A decline in the
provision for credit losses and a positive adjustment of the valuation allowance
related to the liquidation of the institutional loans held for sale were the
primary factors that contributed to improved results for the third quarter of
2003 compared with both the second quarter of 2003 and the third quarter of
2002. In addition, a $10 million increase in net gains on commercial mortgage
loan sales in the third quarter of 2003 compared with the third quarter of 2002
contributed to the higher earnings relative to the prior year period.
PNC Business Credit earnings totaled $6 million for both the third quarter
and second quarter of 2003 and totaled $8 million for the third quarter of 2002.
Third quarter 2003 earnings were consistent with the level in the second quarter
of 2003 as higher taxable-equivalent net interest income attributable to loan
growth was offset by an increase in the provision for credit losses. Earnings
declined compared with the third quarter of 2002 as an $8 million increase in
the provision for credit losses in the third quarter of 2003 more than offset
higher noninterest income. Noninterest income for the third quarter of 2002
included net losses on the institutional lending held for sale portfolio of $4
million.
Earnings from PNC Advisors totaled $20 million for the third quarter of
2003, the second quarter of 2003 and the third quarter of 2002. The adoption of
FIN 46 resulted in increases during the third quarter of 2003 of $3 million to
taxable-equivalent net interest income and $73 million to noninterest income
that were offset by increases to noninterest expense of $7 million and minority
and other interests in income of consolidated entities of $69 million. Earnings
for the third quarter of 2003 were consistent with the prior quarter as higher
fee income from increased trading activity offset a decline in
taxable-equivalent net interest income apart from the impact of FIN 46. Earnings
were consistent with the third quarter of 2002 as higher fee income driven by
improved equity market conditions and increased brokerage activity were offset
by the negative effect on taxable-equivalent net interest income of the lower
interest rate environment in 2003. Assets under management at PNC Advisors
totaled $50.9 billion at September 30, 2003, $51.1 billion at June 30, 2003 and
$50.2 billion at September 30, 2002.
ASSET MANAGEMENT AND PROCESSING BUSINESSES
BlackRock's earnings totaled $40 million for the third quarter of 2003 compared
with $39 million for the second quarter of 2003 and $33 million for the third
quarter of 2002. The adoption of FIN 46 resulted in increases during the third
quarter of 2003 of $24 million to net interest income and $9 million to
noninterest income that were mitigated by increases of $2 million to noninterest
expense and $31 million to
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 5
minority and other interests in income of consolidated entities. Earnings
increased slightly in the third quarter of 2003 compared with the second quarter
of 2003 as higher revenue was mitigated by an increase in sales-based
compensation expenses and lower investment income. Earnings for the third
quarter of 2003 increased 21 percent compared with the prior year quarter due to
higher revenue driven by an increase in assets under management. BlackRock's
assets under management were $293.5 billion at September 30, 2003 compared with
$286.3 billion at June 30, 2003 and $245.9 billion at September 30, 2002. Growth
in assets under management since June 30, 2003 reflected net subscriptions of
$6.5 billion and net market appreciation of $.7 billion, while growth since
September 30, 2002 was comprised of net subscriptions of $33.8 billion and net
market appreciation of $13.8 billion. BlackRock is approximately 70 percent
owned by PNC and is consolidated into PNC's financial statements. Accordingly,
approximately 30 percent of BlackRock's earnings are recognized as 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.
Earnings from PFPC totaled $16 million for the third quarter of 2003
compared with $15 million for the second quarter of 2003 and $19 million for the
third quarter of 2002. PFPC's results for the third quarter of 2002 included the
benefit of a $19 million pretax ($11 million after taxes) reduction in reserves
that were originally established in 2001 largely related to a previously
reported plan to consolidate selected facilities. The higher level of earnings
in the third quarter of 2003 compared with the third quarter of 2002 was driven
by a decline in operating expenses, primarily reflecting a $14 million benefit
from efficiency initiatives, the full impact of which was partially offset by
investments to support net new business.
"OTHER"
The "Other" category includes differences between business performance reporting
and financial statement reporting, equity management activities, minority
interest in income of BlackRock, residual asset and liability management
activities and corporate overhead. A net loss of $8 million was reported in
"Other" for the third quarter of 2003 compared with a net loss of $111 million
for the second quarter of 2003 and a net loss of $32 million for the third
quarter of 2002. Expenses totaling $120 million, or $87 million after taxes,
recognized in connection with the DOJ agreement were included in the results of
"Other" for the second quarter of 2003. Excluding this item, the net loss in
"Other" for the third quarter of 2003 declined $16 million and $24 million
compared with the second quarter of 2003 and the third quarter of 2002,
respectively, due primarily to lower net losses from equity management
activities.
EARLY ADOPTION OF FIN 46
In October 2003, the Financial Accounting Standards Board announced that the
effective date of FIN 46 was deferred from July 1, 2003 to December 31, 2003 for
interests held by public companies in all variable interest entities created
prior to February 1, 2003. However, PNC elected to adopt the accounting
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 6
provisions of FIN 46 as of the original July 1, 2003 implementation date by
consolidating those variable interest entities currently subject to the
standard. Note 1 Accounting Policies included in PNC's Quarterly Report on Form
10-Q for the three months ended June 30, 2003 provides further information
regarding FIN 46.
A number of variable interest entities were consolidated by PNC upon adoption of
FIN 46:
- - Market Street Funding Corporation ("Market Street"), a multi-seller
asset-backed commercial paper conduit that is independently owned and
managed, was consolidated as PNC Bank, N.A., is the primary beneficiary
since it receives a majority of the expected residual returns and would
absorb a majority of any expected losses of the conduit. This entity is
reflected in the results of Corporate Banking.
- - BlackRock acts as collateral manager for six collateralized debt obligation
("CDO") funds, including a collateralized loan obligation fund which closed
on September 30, 2003. BlackRock is considered the primary beneficiary
given its role as collateral manager since it receives a majority of
the expected residual returns in the form of non-fixed, market-based fees
from the funds.
- - PNC Real Estate Finance makes equity investments in various limited
partnerships that sponsor affordable housing projects utilizing the Low
Income Housing Tax Credit. PNC Real Estate Finance is considered the
primary beneficiary of those entities in which PNC owns in excess of 50
percent of the limited partnership interests. Additionally, PNC Real Estate
Finance is a national syndicator of affordable housing equity and is the
general partner in these structures. In certain of these transactions, PNC
is considered the primary beneficiary as it receives a majority of the
expected residual returns through the receipt of fees.
- - PNC Advisors manages a number of private investment funds organized as
limited partnerships or offshore corporations ("Hawthorn Funds"). These
entities were consolidated as PNC was determined to be the primary
beneficiary since it receives a majority of the expected residual returns
in the form of fees received from these entities.
The adoption of FIN 46 resulted in increases in total assets and total
liabilities of $6.5 billion at September 30, 2003. Several income statement line
items changed significantly with the inclusion of the results of the variable
interest entities that were consolidated, but the impact on consolidated net
income was minimal. The Consolidated Financial Highlights include a
consolidating balance sheet and a consolidating statement of income that provide
details of the impact of the adoption of FIN 46.
CONSOLIDATED REVENUE REVIEW
Total revenue represents the sum of taxable-equivalent net interest income and
noninterest income. Total revenue was $1.4 billion for the third quarter of
2003, an increase of $121 million compared with the second quarter of 2003 and
an increase of $117 million compared with the third quarter of 2002. Total
revenue for the third quarter of 2003 included $117 million related to the
adoption of FIN 46, comprised of
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 7
a $29 million impact on taxable-equivalent net interest income and an $88
million impact on noninterest income.
NET INTEREST INCOME
Taxable-equivalent net interest income totaled $514 million and the net interest
margin was 3.49 percent for the third quarter of 2003 compared with $523 million
and 3.91 percent, respectively, for the second quarter of 2003.
Taxable-equivalent net interest income was $532 million and the net interest
margin was 3.88 percent for the third quarter of 2002.
A reconciliation of the taxable-equivalent net interest income and margin
for the second quarter of 2003 and the third quarter of 2003 follows:
Net Net
interest interest
Taxable-equivalent net interest income and margin reconciliation (dollars in millions) income margin
- ---------------------------------------------------------------------------------------------------------------
Second quarter 2003 $523 3.91%
Asset replacements at lower yields and market and other factors (24) (.23)
Adoption of SFAS 150 (14) (.10)
Adoption of FIN 46 29 (.09)
-----------------------
Third quarter 2003 $514 3.49%
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The continued low interest rate environment, prepayments on the residential
mortgage loan portfolio and the sales and maturities of securities that were
replaced at lower yields resulted in a decline in taxable-equivalent net
interest income of $24 million and a decline in the net interest margin of 23
basis points compared with the second quarter of 2003.
PNC's adoption, effective July 1, 2003, of Statement of Financial
Accounting Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity," ("SFAS 150") negatively
impacted third quarter of 2003 taxable-equivalent net interest income by $14
million and the net interest margin by 10 basis points. As required by SFAS 150,
the Corporation's mandatorily redeemable capital securities of subsidiary trusts
(trust preferred securities) totaling $848 million were reclassified in the
third quarter of 2003 from the mezzanine section of the Consolidated Balance
Sheet to borrowed funds. The dividends paid on these financial instruments,
previously classified as noninterest expense, were recharacterized as interest
expense. Reclassification of prior period amounts was not permitted under the
standard.
The consolidation of variable interest entities due to the adoption of FIN
46 during the third quarter of 2003 increased taxable-equivalent net interest
income by $29 million and average interest-earning assets by $4.6 billion. These
results negatively impacted the net interest margin by nine basis points.
The decline in taxable-equivalent net interest income and margin compared
with the third quarter of 2002 reflected the impact of the adoption of both FIN
46 and SFAS 150, the lower interest rate environment in 2003 and a decline in
average interest-earning assets due to prepayments on the residential mortgage
loan portfolio and a smaller institutional lending portfolio.
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 8
NONINTEREST INCOME
Noninterest income totaled $906 million and represented 64 percent of total
revenue for the third quarter of 2003 compared with $776 million and 60 percent,
respectively, for the second quarter of 2003. Noninterest income was $771
million and represented 59 percent of total revenue for the third quarter of
2002. Noninterest income for the third quarter of 2003 included $88 million
related to the adoption of FIN 46. The following table highlights changes in
specific items contained within consolidated noninterest income:
Third Quarter Second Quarter Third Quarter
In millions 2003 2003 2002
- -------------------------------------------------------------------------------------------------------------
Adoption of FIN 46 (a) $88
Held for sale gains, net of valuation adjustments (b) 23 $15 $17
Net securities gains 19 26 68
Net gains on sales of commercial mortgages (b) 15 13 5
PFPC retirement services(c) 2 7 7
Equity management losses (4) (17) (22)
All other 763 732 696
--------------------------------------------
Noninterest income $906 $776 $771
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(a) Included in "Asset management", "Corporate services" and "Investments held
by certain variable interest entities" noninterest income in the
Consolidated Statement of Income.
(b) Included in "Corporate services" in the Consolidated Statement of Income.
(c) Included in "Fund Servicing" and "Other" noninterest income in the
Consolidated Statement of Income.
All other noninterest income increased $31 million, or four percent,
compared with the second quarter of 2003 and $67 million, or 10 percent,
compared with the third quarter of 2002 primarily due to higher asset management
fees, corporate services revenue and other noninterest income. The increases in
these categories were driven by growth in assets under management, affordable
housing and commercial mortgage servicing fees, and higher trading profits,
respectively.
CONSOLIDATED EXPENSES REVIEW
Noninterest expense totaled $835 million and the efficiency ratio was 59 percent
for the third quarter of 2003 compared with $935 million and 72 percent,
respectively, for the second quarter of 2003. Noninterest expense for the third
quarter of 2003 included $28 million related to the adoption of FIN 46. The
level of noninterest expense and the efficiency ratio for the second quarter of
2003 were negatively impacted by the DOJ-related expenses. Noninterest expense
was $790 million and the efficiency ratio was 61 percent for the third quarter
of 2002. The following table highlights changes in specific items contained
within consolidated noninterest expense:
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 9
Third Quarter Second Quarter Third Quarter
In millions 2003 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Adoption of FIN 46 (a) $28
Costs incurred under DOJ agreement (b) $115
PFPC restructuring reserve reversal (b) $(19)
Distributions on capital securities (trust preferred securities) 14 15
PFPC retirement services (c) 1 9 11
Legal and consulting fees related to regulatory compliance and
certain legal proceedings (b) 1 5 8
Washington Mutual litigation (b) 5
All other 805 792 770
---------------------------------------------
Noninterest expense $835 $935 $790
- --------------------------------------------------------------------------------------------------------------------
(a) Included in "Staff expense" and "Other" noninterest expense in the
Consolidated Statement of Income.
(b) Included in "Other" noninterest expense in the Consolidated Statement of
Income.
(c) Included in "Staff expense", "Net occupancy", "Equipment" and "Other"
noninterest expense in the Consolidated Statement of Income.
All other noninterest expense increased $13 million, or two percent,
compared with the second quarter of 2003 primarily due to higher sales-based
compensation, corporate governance and community relations expenses that more
than offset an $8 million greater benefit from the efficiency initiative in the
third quarter of 2003. All other noninterest expense in the third quarter of
2003 increased $35 million, or five percent, compared with the third quarter of
2002 as higher pension, stock option, incentive compensation and marketing
expenses and continued investments in PNC's businesses more than offset a
$29 million benefit of the 2003 efficiency initiative.
ASSET QUALITY REVIEW
At September 30, 2003, nonperforming assets totaled $396 million compared with
$404 million at June 30, 2003 and $409 million at September 30, 2002. The ratio
of nonperforming assets to total loans, loans held for sale and foreclosed
assets was 1.10 percent at September 30, 2003 compared with 1.12 percent at June
30, 2003 and 1.08 percent at September 30, 2002.
Nonperforming loans were $324 million at September 30, 2003 compared with
$327 million at June 30, 2003 and $271 million at September 30, 2002. The ratio
of nonperforming loans to total loans was .94 percent at September 30, 2003, .95
percent at June 30, 2003, and .75 percent at September 30, 2002. The increase in
this ratio from a year ago was primarily due to a $1.4 billion decline in loans.
At September 30, 2003, nonperforming loans held for sale totaled $35
million compared with $45 million at June 30, 2003 and $125 million at September
30, 2002. Nonperforming loans held for sale are carried at lower of cost or
market value and represented nine percent, 11 percent and 31 percent of total
nonperforming assets at September 30, 2003, June 30, 2003 and September 30,
2002, respectively.
Foreclosed and other assets totaled $37 million at September 30, 2003
compared with $32 million at June 30, 2003 and $13 million at September 30,
2002. The balance at September 30, 2003 and June 30, 2003 included the
Corporation's repossession of collateral related to a single airline industry
credit during the second quarter of 2003.
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 10
The provision for credit losses was $50 million for the third quarter of
2003 compared with $57 million for the second quarter of 2003 and $73 million
for the third quarter of 2002.
The allowance for credit losses was $648 million at September 30, 2003, and
represented 1.88 percent of total loans and 200 percent of nonperforming loans.
The comparable amounts and ratios were $673 million, 1.95 percent and 206
percent, respectively, at June 30, 2003 and $648 million, 1.80 percent and 239
percent, respectively, at September 30, 2002. The allowance for unfunded loan
commitments and letters of credit was $89 million at September 30, 2003 compared
with $78 million at June 30, 2003 and $79 million at September 30, 2002. The
increase at September 30, 2003 was attributable to increases in unfunded
commitments and reserve allocation rates in Corporate Banking and PNC Business
Credit. The allocation rate change was driven by higher default probabilities.
Net charge-offs were $63 million or .73 percent of average loans for both
the third quarter of 2003 and the second quarter of 2003. Net charge-offs were
$73 million or .79 percent of average loans for the third quarter of 2002. Net
charge-offs for the third quarter of 2003 included $28 million related to a
single PNC Business Credit loan to a wholesale goods/retail customer for which
a substantial reserve had been provided at June 30, 2003. Net charge-offs for
the second quarter of 2003 included $24 million related to a single airline
industry credit for which a substantial reserve had been provided at December
31, 2002. Net charge-offs for the third quarter of 2002 included $43 million
related to a single credit supported by vocational student loans that resulted
from a draw during the second quarter of 2002 by Market Street on a liquidity
facility provided by PNC.
CONSOLIDATED BALANCE SHEET REVIEW
Total assets were $72.3 billion at September 30, 2003, an increase of $5.0
billion or seven percent from June 30, 2003 primarily due to the addition of
$6.5 billion of assets from the adoption of FIN 46. The securities portfolio
declined $1.1 billion in the comparison as a result of sales during the third
quarter of 2003. Total assets at September 30, 2003 increased $4.6 billion
compared with September 30, 2002, as the impact of FIN 46 in 2003 was partially
offset by a decline in loans and loans held for sale.
Average interest-earning assets were $58.4 billion for the third quarter of
2003, an increase of $5.2 billion compared with the second quarter of 2003 and
an increase of $4.2 billion compared with the third quarter of 2002. Average
interest-earning assets increased $4.6 billion during the third quarter of 2003
due to the adoption of FIN 46.
Average total loans of $34.4 billion for the third quarter of 2003 were
down approximately $500 million compared with the second quarter of 2003 and
declined $2.3 billion compared with the third quarter of 2002. An increase in
home equity loans that was more than offset by the impact of prepayments of
residential mortgages, weak commercial loan demand coupled with strategic
commercial loan downsizing and the run-off of vehicle leases resulted in the
declines compared with the prior quarterly periods.
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 11
Average total deposits were $44.6 billion for the third quarter of 2003
compared with $43.9 billion for the second quarter of 2003 and $43.7 billion for
the third quarter of 2002. Average total deposits represented 63 percent of
total sources of funds for the third quarter of 2003, the second quarter of 2003
and the third quarter of 2002. Average aggregate interest-bearing demand, money
market and demand and other non-interest bearing deposits were $33.5 billion for
the third quarter of 2003, an increase of approximately $1.1 billion, or 14
percent on an annualized basis, compared with the second quarter of 2003 and up
$2.7 billion compared with the third quarter of 2002. Both increases reflected
ongoing client acquisition and retention efforts.
Average borrowed funds were $14.0 billion for the third quarter of 2003, an
increase of $5.3 billion compared with the second quarter of 2003 and an
increase of $4.2 billion compared with the third quarter of 2002. Average
borrowed funds for the third quarter of 2003 included $4.5 billion and $.8
billion due to the impact of the adoption of FIN 46 and SFAS 150, respectively.
As required by SFAS 150, the Corporation's mandatorily redeemable capital
securities of subsidiary trusts totaling $848 million were reclassified in the
third quarter of 2003 from the mezzanine section of the Consolidated Balance
Sheet to borrowed funds.
Shareholders' equity totaled $6.6 billion at September 30, 2003, $6.8
billion at June 30, 2003 and $6.7 billion at September 30, 2002. The regulatory
capital ratios at September 30, 2003 are estimated to be 7.4 percent for
Leverage, 8.2 percent for Tier 1 and 11.3 percent for Total Risk-based Capital.
The ratios declined from their levels at June 30, 2003 primarily as a result of
the adoption of FIN 46. The Consolidated Financial Highlights provide details
regarding the impact of FIN 46 on these ratios.
Common shares outstanding at September 30, 2003 were 277.3 million. PNC's
current stock repurchase program permits the purchase of up to 35 million shares
of common stock through February 29, 2004. Under this program, PNC purchased 3.2
million common shares during the third quarter of 2003 at a total cost of $152
million. For the first nine months of 2003, 9.8 million shares have been
purchased at a total cost of $452 million. 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. A total of 10.1 million common shares have been repurchased
under this program from inception through September 30, 2003.
ASSETS UNDER MANAGEMENT
FUND ASSETS AND SHAREHOLDER ACCOUNTS SERVICED
Assets under management were $336 billion at September 30, 2003 compared with
$328 billion at June 30, 2003 and $285 billion at September 30, 2002. Growth in
fixed income assets managed by BlackRock was the primary factor in the increases
from each prior quarter.
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 12
At September 30, 2003, PFPC provided accounting/administration services for
$634 billion of pooled investment assets and provided custody services for $384
billion of pooled investment assets. The comparable amounts were $618 billion
and $371 billion, respectively, at June 30, 2003 and $489 billion and $311
billion, respectively, at September 30, 2002. Increases in both
accounting/administration and custody pooled investment assets at September 30,
2003 compared with the prior periods resulted from new business, asset inflows
from existing business and the continued upward trend in the equity markets
during the third quarter of 2003. Total assets serviced by PFPC amounted to $1.5
trillion at both September 30, 2003, and June 30, 2003 and $1.3 trillion at
September 30, 2002.
PFPC serviced approximately 21 million transfer agency shareholder accounts
at September 30, 2003, 20 million at June 30, 2003, and 28 million at September
30, 2002. The decline in transfer agency accounts in 2003 was primarily due to a
loss of one large client in the first quarter. Subaccounting shareholder
accounts serviced by PFPC totaled 29 million at September 30, 2003, 28 million
at June 30, 2003 and 24 million at September 30, 2002. The increase in
subaccounting shareholder accounts serviced at September 30, 2003 compared with
September 30, 2002 resulted from net new business and growth in existing client
accounts.
UNITED NATIONAL BANCORP ACQUISITION
In August 2003, the Corporation signed a definitive agreement to acquire United
National Bancorp ("United National") for approximately $638 million in stock and
cash. United National is a bank holding company with approximately $3 billion in
total assets. Its principal subsidiary, UnitedTrust Bank, provides a full range
of commercial and retail banking services through 45 branches in New Jersey and
seven branches in Pennsylvania. With this acquisition, PNC expects to increase
its customer base by more than 100,000 households and businesses.
The transaction is expected to close in January 2004. The merger is subject
to customary closing conditions, including regulatory approvals and the approval
of shareholders of United National. A special meeting of United National
shareholders is anticipated later in 2003 to approve this transaction. PNC has
filed all applicable applications for approval of the merger and the bank
combination with the Federal Reserve, OCC and the New Jersey Department of
Banking and Insurance. The Corporation's Registration Statement on Form S-4
filed with the Securities and Exchange Commission ("SEC") on October 9, 2003,
provides further information.
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 and the related financial supplement. Investors should call 5-
-more-
The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 13
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: 3017713.
In addition, internet access to the call (listen-only) and to PNC's third
quarter earnings release and supplementary financial information regarding PNC's
third quarter results will be available on PNC's website at www.pnc.com under
"For Investors." PNC's third quarter earnings release and the related 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
on PNC's website for thirty days.
The conference call may include a discussion of non-GAAP financial
measures, which is qualified by GAAP reconciliation information included in this
news release or otherwise available on PNC's website under "For Investors." The
conference call may include forward-looking information which, along with the
supplementary financial information and this news release, is subject to the
cautionary statement that follows.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
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.
In addition to factors previously disclosed in PNC's SEC reports and those
discussed elsewhere in this news release, forward-looking statements are
subject, among others, to the following risks and uncertainties, which could
cause actual results or future events 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 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
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The PNC Financial Services Group, Inc.
Reports Third Quarter 2003 Earnings -- Page 14
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 acquisitions or other 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 and other governmental developments; and
the impact of reputational risk created by recent regulatory and other
governmental 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 affecting
interest rates, money supply or otherwise reflecting changes in monetary policy;
(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 agreements with
governmental agencies, and regulators' future use of supervisory and enforcement
tools; (15) terrorist activities and international hostilities which may
adversely affect the general economy, financial and capital markets, specific
industries, and the Corporation; and (16) issues related to the completion of
the pending acquisition of United National Bancorp and the integration of its
business into that of PNC, including the following: completion of the
transaction is dependent on, among other things, receipt of stockholder and
regulatory approvals, the timing of which cannot be predicted with precision at
this point and which may not be received at all; the transaction may be
materially more expensive to complete than anticipated, including as a result of
unexpected factors or events; the integration of United National's business and
operations into PNC, which will include conversion of United National's
different systems and procedures, may take longer than anticipated or be more
costly than anticipated or have unanticipated adverse results relating to United
National's or PNC's existing businesses; the anticipated cost savings of the
acquisition may take longer than expected to be realized or may not be achieved
in their entirety; and the anticipated benefits to PNC are dependent in part on
United National's business performance in the future, and there can be no
assurance as to actual future results, which could be impacted by various
factors, including the risks and uncertainties generally related to PNC's and
United National's performance (with respect to United National, see United
National's SEC reports, also accessible on the SEC's website) or due to factors
related to the acquisition of United National and the process of integrating it
into PNC.
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 risks and uncertainties and identify additional factors that
can affect the results anticipated in forward-looking statements or from
historical performance.
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 15
For the three months ended For the nine months ended
-------------------------------------- -------------------------
Dollars in millions, except per share data September 30 June 30 September 30 September 30 September 30
Unaudited 2003 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------- ------------------------
FINANCIAL PERFORMANCE
Revenue
Net interest income (taxable-equivalent basis) (a) $ 514 $ 523 $ 532 $1,543 $1,683
Noninterest income 906 776 771 2,477 2,431
--------------------------------- ------------------------
Total revenue $1,420 $1,299 $1,303 $4,020 $4,114
--------------------------------- ------------------------
Net income $ 281 $ 184 $ 285 $ 727 $ 922
--------------------------------- ------------------------
Per common share
Diluted earnings $ 1.00 $ .65 $ 1.00 $ 2.57 $ 3.23
--------------------------------- ------------------------
Cash dividends declared $ .48 $ .48 $ .48 $ 1.44 $ 1.44
- ------------------------------------------------------------------------------------------- ------------------------
SELECTED RATIOS
Return on
Average common shareholders' equity (b) 17.06% 10.91% 17.49% 14.53% 20.01%
Average assets (b) 1.56 1.13 1.72 1.44 1.84
Net interest margin 3.49 3.91 3.88 3.71 4.00
Noninterest income to total revenue (c) 64 60 59 62 59
Efficiency (b)(d) 59 72 61 65 59
====================================================================================================================
Certain prior period amounts included in these Consolidated Financial Highlights
have been reclassified to conform to the current period presentation.
(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 For the nine months ended
---------------------------------------- --------------------------
September 30 June 30 September 30 September 30 September 30
2003 2003 2002 2003 2002
------------ ------- ------------ ------------ ------------
Net interest income, GAAP basis $ 512 $ 521 $ 528 $1,536 $1,673
Taxable-equivalent adjustment 2 2 4 7 10
------ ------ ------ ------ ------
Net interest income, taxable-equivalent basis $ 514 $ 523 $ 532 $1,543 $1,683
====== ====== ====== ====== ======
(b) Ratios as adjusted for the second quarter 2003 DOJ-related expenses are
provided in the following table. See "Agreement with Department of Justice"
in the Financial Review section of the Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003. These expenses represent
matters which management believes are not indicative of the Corporation's
legal and regulatory affairs arising out of the operation of its business
in the ordinary course.
For the three For the nine
months ended months ended
June 30, 2003 September 30, 2003
------------------- -------------------
Return on average common shareholders' equity, GAAP basis 10.91% 14.53%
Adjustment for DOJ-related expenses 5.15 1.74
------------------- -------------------
Return on average common shareholders' equity, as adjusted 16.06 16.27
=================== ===================
Return on average assets, GAAP basis 1.13% 1.44%
Adjustment for DOJ-related expenses .53 .17
------------------- -------------------
Return on average assets, as adjusted 1.66 1.61
=================== ===================
Efficiency ratio, GAAP basis 72% 65%
Adjustment for DOJ-related expenses (9) (3)
------------------- -------------------
Efficiency ratio, as adjusted 63 62
=================== ===================
(c) Computed as total noninterest income divided by the sum of net interest
income and noninterest income. For the nine months ended September 30,
2002, the ratio previously reported had been computed using
taxable-equivalent net interest income. The ratio for that period has been
restated to conform to the current period presentation.
(d) The efficiency ratio for all periods presented is computed as noninterest
expense divided by the sum of net interest income and noninterest income.
For the nine months ended September 30, 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 ratio for that
period has been restated to conform to the current period presentation.
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CONSOLIDATED FINANCIAL HIGHLIGHTS
The PNC Financial Services Group, Inc. Page 16
Third Quarter 2003 Second Quarter 2003
----------------------------- -----------------------------
Fully Fully
diluted diluted
Dollars in millions, except per share data Pretax Net earnings Pretax Net earnings
Unaudited Impact Income per share Impact Income per share
------------------------------- ------------------------------
RECONCILIATION OF QUARTERLY
GAAP EARNINGS TO NORMALIZED
EARNINGS (a)
Results as reported on a GAAP basis $281 $1.00 $184 $ .65
Normalization adjustments:
Costs incurred under Department of Justice ("DOJ")
agreement and legal and consulting fees related to
regulatory compliance and certain legal
proceedings (b) $ 1 $120 87 .31
-------------------------- ---------------------------
Reported results excluding above item 281 1.00 271 .96
PFPC restructuring reserve reversal (c)
Washington Mutual litigation (d)
Held for sale gains, net of valuation adjustments (e) (23) (15) (15) (10)
Equity management losses (f) 4 3 17 11
Net securities gains (g) (4) (3) (11) (7)
- ------------------------------------------------------------------------------------------------------------------------
Total other normalization adjustments (15) (.05) (6) (.02)
- ------------------------------------------------------------------------------------------------------------------------
Results as adjusted to reflect normalized earnings $266 $ .95 $265 $ .94
========================================================================================================================
Third Quarter 2002
----------------------------
Fully
diluted
Dollars in millions, except per share data Pretax Net earnings
Unaudited Impact Income per share
----------------------------
RECONCILIATION OF QUARTERLY
GAAP EARNINGS TO NORMALIZED
EARNINGS (a)
Results as reported on a GAAP basis $285 $1.00
Normalization adjustments:
Costs incurred under Department of Justice ("DOJ")
agreement and legal and consulting fees related to
regulatory compliance and certain legal
proceedings (b) $ 8 5 .02
---------------------------
Reported results excluding above item 290 1.02
PFPC restructuring reserve reversal (c) (19) (11)
Washington Mutual litigation (d) 5 3
Held for sale gains, net of valuation adjustments (e) (17) (11)
Equity management losses (f) 22 14
Net securities gains (g) (53) (34)
- -------------------------------------------------------------------------------------
Total other normalization adjustments (39) (.14)
- -------------------------------------------------------------------------------------
Results as adjusted to reflect normalized earnings $251 $ .88
=====================================================================================
(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 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) See "Agreement with Department of Justice" in the Consolidated Income
Statement Review portion of the Financial Review section of the
Corporation's Quarterly Report on Form 10-Q for the three months ended June
30, 2003, regarding second quarter 2003 amounts. These expenses represent
matters not arising out of the operation of the Corporation's business in
the ordinary course. Therefore, management believes these expenses are not
indicative of the Corporations's legal and regulatory affairs related to
its business operations and have been removed from the computation of
normalized earnings.
(c) In the fourth quarter of 2001, PFPC incurred $36 million of pretax charges
largely related to a plan to consolidate certain facilities as a follow-up
to the integration of an acquisition. During 2002, the facilities strategy
was modified and certain originally contemplated relocations were no longer
expected to occur. Accordingly, during the third quarter of 2002, PFPC
recognized a $19 million pretax reduction in the 2001 facilities
consolidation reserve. Management believes these activities are not
indicative of the ongoing business operations of PFPC and, therefore, the
2002 reduction to reserves has been removed from the computation of
normalized earnings.
(d) In January 2003, the Corporation and Washington Mutual, FA agreed to
settlement of all issues in dispute between them in connection with the
sale of the Corporation's residential mortgage banking business in January
2001. The net loss on settlement, reported in the Corporation's fourth
quarter 2002 results in discontinued operations, was substantially offset
by the reversal in the fourth quarter of 2002 of reserves available for
this matter. These reserves had been charged to expense in continuing
operations during 2002, including the third quarter of 2002. Management
believes these expenses are not indicative of the Corporation's legal
affairs related to its business operations and have been removed from the
computation of normalized earnings.
(e) The Corporation has realized gains, net of valuation adjustments, on
disposition of loans designated as held for sale as part of its
institutional lending repositioning initiative. These assets and underlying
customer relationships are not included in the Corporation's ongoing
business strategy for Wholesale Banking. Accordingly, these amounts have
been removed from the computation of normalized earnings.
(f) Private equity investment activities have been conducted at a more moderate
pace than in prior years and emphasis is being placed on the management of
capital for other investors, for which the Corporation generates fee
income. Fair value adjustments on the existing portfolio of investments are
not managed outcomes from these activities. Accordingly, valuation losses
have been removed from the computation of normalized earnings.
(g) 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 believes that
net securities gains in excess of $15 million on a quarterly basis 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.
Total net securities gains were $19 million for the third quarter of 2003
(consisting of $17 million in Regional Community Banking; $1 million in
BlackRock and $1 million in "Other").
Total net securities gains were $26 million for the second quarter of 2003
(consisting of $22 million in Regional Community Banking; $2 million in
Corporate Banking; and $1 million each in BlackRock and "Other").
Total net securities gains were $68 million for the third quarter of 2002
(consisting of $66 million in Regional Community Banking and $2 million in
"Other").
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CONSOLIDATED FINANCIAL HIGHLIGHTS
The PNC Financial Services Group, Inc. Page 17
For the three months ended For the nine months ended
--------------------------------------- ---------------------------
In millions September 30 June 30 September 30 September 30 September 30
Unaudited 2003 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------- ---------------------------
BUSINESS EARNINGS (LOSS)
Banking Businesses
Regional Community Banking $ 138 $ 159 $ 192 $ 449 $ 545
Wholesale Banking
Corporate Banking 37 33 30 112 117
PNC Real Estate Finance 34 24 19 74 67
PNC Business Credit 6 6 8 26 12
- ----------------------------------------------------------------------------------------------- ---------------------------
Total wholesale banking 77 63 57 212 196
PNC Advisors 20 20 20 56 84
- ----------------------------------------------------------------------------------------------- ---------------------------
Total banking businesses 235 242 269 717 825
- ----------------------------------------------------------------------------------------------- ---------------------------
BlackRock 40 39 33 114 99
PFPC 16 15 19 43 57
- ----------------------------------------------------------------------------------------------- ---------------------------
Total asset management and processing businesses 56 54 52 157 156
- ----------------------------------------------------------------------------------------------- ---------------------------
Total business earnings 291 296 321 874 981
Intercompany Eliminations (2) (1) (4) (5) (7)
Other (a) (8) (111) (32) (142) (52)
- ----------------------------------------------------------------------------------------------- ---------------------------
Total consolidated $ 281 $ 184 $ 285 $ 727 $ 922
=============================================================================================== ===========================
Dollars in millions, except per share data September 30 June 30 September 30
Unaudited 2003 2003 2002
- -------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (b)
Assets $72,284 $67,262 $67,659
Earning assets 58,657 54,748 55,650
Loans, net of unearned income 34,524 34,534 35,917
Allowance for credit losses 648 673 648
Securities 14,889 16,017 12,536
Loans held for sale 1,531 1,475 1,989
Deposits 45,523 46,694 44,960
Borrowed funds 13,863 7,903 9,947
Allowance for unfunded loan commitments and
letters of credit 89 78 79
Shareholders' equity 6,637 6,774 6,717
Common shareholders' equity 6,628 6,765 6,707
Book value per common share 23.93 24.16 23.62
Loans to deposits 76% 74% 80%
ASSETS UNDER MANAGEMENT (billions) $336 $328 $285
CAPITAL RATIOS (b)
Tier 1 Risk-based (c) 8.2% 8.9% 8.8%
Total Risk-based (c) 11.3 12.3 12.5
Leverage (c) 7.4 8.1 7.8
Shareholders' equity to assets 9.18 10.07 9.93
Common shareholders' equity to assets 9.17 10.06 9.91
ASSET QUALITY RATIOS
Nonperforming assets to total loans,
loans held for sale and foreclosed assets 1.10% 1.12% 1.08%
Nonperforming loans to loans .94 .95 .75
Net charge-offs to average loans (for the three months ended) .73 .73 .79
Allowance for credit losses to loans 1.88 1.95 1.80
Allowance for credit losses to nonperforming loans 200 206 239
===================================================================================================================
(a) "Other" for the three months ended June 30, 2003 and the nine months ended
September 30, 2003, includes pretax expenses of $120 million ($87 million
after taxes) in connection with the DOJ agreement. In addition, "Other" for
the nine months ended September 30, 2003 includes a pretax charge of $23
million ($15 million after taxes) related to leased facilities.
(b) See "Impact of FIN 46" on pages 18 and 19 of these Consolidated Financial
Highlights regarding the impact of the adoption of FIN 46 on this
information.
(c) Estimated for September 30, 2003.
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CONSOLIDATED FINANCIAL HIGHLIGHTS
The PNC Financial Services Group, Inc.
IMPACT OF FIN 46 Page 18
CONSOLIDATING STATEMENT OF INCOME (Unaudited)
Impact of FIN 46
--------------------------------------------------------
Results Affordable
For the three months ended September 30, 2003 before adoption Market St BlackRock Hawthorn Housing Eliminations Results as
In millions, except per share data of FIN 46 Funding CDOs Funds Partnerships and Other reported
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and fees on loans $477 $477
Securities 136 $4 140
Loans held for sale 8 8
Purchased customer receivables $11 11
Investments held by certain
variable interest entities $48 48
Other 33 $1 34
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 654 11 48 4 1 718
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 106 106
Borrowed funds 65 65
Commercial paper 7 7
Liabilities of certain
variable interest entities 24 1 3 28
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 171 7 24 1 3 206
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 483 4 24 3 (2) 512
Provision for credit losses 50 50
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income less
provision for credit losses 433 4 24 3 (2) 462
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Asset management 217 (5) 212
Fund servicing 188 188
Service charges on deposits 60 60
Brokerage 46 46
Consumer services 65 65
Corporate services 135 (3) 132
Equity management (4) (4)
Net securities gains 19 19
Investments held by certain variable
interest entities 14 73 9 96
Other 92 92
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 818 (3) 9 73 9 906
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Staff expense 447 4 1 452
Net occupancy 63 63
Equipment 67 67
Marketing 16 16
Other 214 1 2 3 18 (1) 237
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 807 1 2 7 18 835
- ----------------------------------------------------------------------------------------------------------------------------------
Income before minority and other interests
in income of consolidated entities
and income taxes 444 31 69 (11) 533
Minority and other interests in income
of consolidated entities 13 31 69 (11) (2) 100
Income taxes 152 152
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $279 $2 $281
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
The PNC Financial Services Group, Inc.
IMPACT OF FIN 46 Page 19
CONSOLIDATING BALANCE SHEET (Unaudited)
Impact of FIN 46
----------------------------------------------------------
Results Affordable
At September 30, 2003 before adoption Market St BlackRock Hawthorn Housing Eliminations Results as
In millions, except par value of FIN 46 Funding CDOs Funds Partnerships and Other reported
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $3,148 $57 $315 $3 $3,614
Other short-term investments 2,533 2,590
Loans held for sale 1,531 1,531
Securities 14,887 2 14,889
Loans, net of unearned income of $1,037 34,610 (86) 34,524
Allowance for credit losses (649) 1 (648)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 33,961 (85) 33,876
Goodwill 2,385 2,385
Other intangible assets 311 311
Purchased customer receivables 2,481 2,481
Investments held by certain variable
interest entities 2,318 2,318
Other 7,078 2 41 727 467 (23) 8,289
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $65,834 $2,397 $2,564 $1,042 $470 ($23) $72,284
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Noninterest-bearing $12,118 $12,118
Interest-bearing 33,491 (86) 33,405
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 45,609 (86) 45,523
Borrowed funds
Federal funds purchased 881 881
Repurchase agreements 1,048 1,048
Bank notes and senior debt 2,839 2,839
Federal Home Loan Bank borrowings 1,127 1,127
Subordinated debt 1,980 1,980
Mandatorily redeemable capital
securities of subsidiary trusts 848 848
Commercial paper $2,483 2,483
Liabilities of certain variable
interest entities $2,141 $114 $160 2,415
Other borrowed funds 188 54 242
- ------------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 8,911 2,483 2,195 114 160 13,863
Allowance for unfunded loan
commitments and letters of credit 89 89
Mandatorily redeemable interest in
consolidated entities 268 892 234 (23) 1,371
Accrued expenses 2,214 14 2,228
Other 2,128 87 36 76 2,327
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 58,951 2,397 2,564 1,042 470 (23) 65,401
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest 246 246
SHAREHOLDERS' EQUITY
Common stock - $5 par value
Authorized 800 shares, issued 353 shares 1,764 1,764
Capital surplus 1,110 1,110
Retained earnings 7,507 7,507
Deferred benefit expense (24) (24)
Accumulated other comprehensive income 147 147
Common stock held in treasury
at cost: 76 shares (3,867) (3,867)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,637 6,637
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities, minority interest
and shareholders' equity $65,834 $2,397 $2,564 $1,042 $470 ($23) $72,284
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL AND OTHER RATIOS
Tier 1 Risk-based (a)(b) 8.9% (.5)% (.1)% (.1)% 8.2%
Total Risk-based (a)(b) 12.3 (.7) (.2) (.1) 11.3
Leverage (a) 8.1 (.3)% (.2) (.1) (.1) 7.4
Shareholders' equity to total assets 10.08 (.34) (.36) (.15) (.06) .01 % 9.18
Common shareholders' equity to total assets 10.07 (.34) (.36) (.15) (.06) .01 9.17
Return on average assets 1.68 (.06) (.05) (.02) .01 1.56
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Estimated for September 30, 2003.
(b) Regulatory capital relief has been granted through April 1, 2004 with
respect to consolidation of the Market Street conduit.