10-KPeriod: FY2007

PNC FINANCIAL SERVICES GROUP, INC. Annual Report, Year Ended Dec 31, 2007

Filed February 29, 2008For Securities:PNC

Summary

PNC Financial Services Group, Inc. (PNC) reported fiscal year 2007 results marked by significant acquisition activity, including the substantial acquisition of Mercantile Bankshares Corporation. Total assets grew to $138.9 billion, reflecting this expansion. The company's diverse business model, encompassing Retail Banking, Corporate & Institutional Banking, BlackRock, and PFPC, contributed to a revenue mix where noninterest income constituted 57% of total revenue for the year. Despite a challenging market environment with "significant turmoil and volatility in worldwide financial markets," PNC maintained strong asset quality and a solid liquidity position. Net income for 2007 was $1.467 billion, or $4.35 per diluted share, a decrease from $2.595 billion in 2006, primarily due to the absence of significant one-time gains recognized in the prior year. The company anticipates continued loan growth and potential credit deterioration in 2008, expecting higher nonperforming assets and provisions for credit losses.

Financial Highlights

20 data points
Beta

Revenue

$5.89B

Net Income

$1.47B

24.9% Net Margin

EPS (Diluted)

$4.32

Free Cash Flow

-$416.00M

Financial Statements
Beta
Revenue$5.89B
Operating Income$1.36B
Interest Expense$3.20B
Net Income$1.47B
EPS (Basic)$4.40
EPS (Diluted)$4.32
Shares Outstanding (Basic)331.00M
Shares Outstanding (Diluted)334.00M

Key Highlights

  • 1PNC completed several significant acquisitions in 2007, most notably Mercantile Bankshares Corporation for approximately $5.9 billion, which significantly expanded its presence in the mid-Atlantic region.
  • 2Total assets grew to $138.9 billion at December 31, 2007, up from $101.8 billion at December 31, 2006, largely driven by acquisitions.
  • 3Noninterest income represented 57% of total revenue in 2007, highlighting the company's diversified revenue streams.
  • 4Net income decreased to $1.467 billion ($4.35 per diluted share) in 2007 from $2.595 billion ($8.73 per diluted share) in 2006, largely due to the absence of significant gains from the BlackRock/MLIM transaction recognized in 2006.
  • 5The company maintained strong asset quality, with the allowance for loan and lease losses to total loans at 1.21% and a nonperforming asset ratio of 0.34% at year-end 2007.
  • 6PNC continued to focus on expanding its Retail Banking footprint through acquisitions and organic growth, while also managing its Corporate & Institutional Banking segment which saw increased provisions for credit losses.
  • 7The company noted significant turmoil and volatility in worldwide financial markets starting mid-2007, which impacted performance and led to increased liquidity risk.

Frequently Asked Questions

PNC's financial performance in 2007 was significantly influenced by its aggressive acquisition strategy, particularly the acquisition of Mercantile Bankshares Corporation. This, combined with organic growth in its Retail Banking and Corporate & Institutional Banking segments, contributed to an increase in total assets and a diversified revenue stream. However, net income decreased compared to 2006 primarily because the prior year benefited from substantial one-time gains related to the BlackRock/MLIM transaction.

PNC reported strong asset quality metrics despite the challenging market conditions. The allowance for loan and lease losses was maintained at 1.21% of total loans, and nonperforming assets represented 0.34% of total assets at year-end 2007. The company expects to sustain asset quality but anticipates higher nonperforming assets and provisions for credit losses in 2008 due to projected loan growth and continued credit deterioration.

PNC anticipates that net interest income will be higher in 2008 compared to 2007, assuming current expectations for interest rates and economic conditions. The company expects interest rates to remain low through most of 2008 and for economic conditions to avoid a recession. Furthermore, PNC expects its net interest margin to improve slightly in 2008 compared to 2007.

In 2007, PNC made significant acquisitions, including Mercantile Bankshares Corporation (adding $21 billion in assets) and Yardville National Bancorp (adding $2.6 billion in assets). The company also acquired Albridge Solutions Inc. and Coates Analytics, LP to enhance its PFPC segment. PNC also entered into an agreement to sell its subsidiary, J.J.B. Hilliard, W.L. Lyons, Inc., expected to close in the first half of 2008. These activities generally expanded the company's geographic reach and service offerings.