10-QPeriod: Q3 FY2001

PNC FINANCIAL SERVICES GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 14, 2001For Securities:PNC

Summary

PNC Financial Services Group, Inc. reported net income of $893 million for the first nine months of 2001, a decrease from $945 million in the same period of 2000. This decline was largely influenced by venture capital losses and the adoption of a new accounting standard for financial derivatives. Excluding these factors, adjusted net income showed a slight decrease. The company is strategically focusing on increasing its stake in higher-value businesses like asset management and processing, while actively managing and reducing exposure in traditional banking segments. This strategic shift is evidenced by the sale of its residential mortgage banking business and the downsizing of certain institutional lending portfolios, which has strengthened its balance sheet amidst a challenging economic environment. Despite a slight dip in overall profitability compared to the previous year, PNC demonstrated resilience in its diverse business lines. Key areas like Regional Community Banking and Asset Management showed positive growth, contributing significantly to overall earnings. The company's commitment to shareholder value is also reflected in its share repurchase programs and consistent dividend payouts. Investors should note the ongoing strategic repositioning towards more fee-based income streams and the proactive management of credit risk, especially in portfolios undergoing downsizing, as key indicators of future performance.

Key Highlights

  • 1Net income for the first nine months of 2001 was $893 million, down from $945 million in the prior year. Diluted earnings per share were $3.03, compared to $3.18 in the same period of 2000.
  • 2The company is actively pursuing a strategy to increase the contribution from higher-valued businesses such as asset management and processing, which represented 25% of total business earnings for the first nine months of 2001.
  • 3PNC sold its residential mortgage banking business on January 31, 2001, which is reflected in discontinued operations.
  • 4Total revenue for the first nine months of 2001 increased to $3.902 billion from $3.800 billion in the prior year, driven by growth in noninterest income.
  • 5Provision for credit losses increased significantly to $235 million for the first nine months of 2001 from $96 million in the same period of 2000, primarily due to loans in downsizing portfolios and a provision for unallocated reserves due to economic deterioration.
  • 6PNC maintained strong capital ratios, with a Tier 1 risk-based capital ratio of 8.4% and a total risk-based capital ratio of 12.0% as of September 30, 2001.
  • 7Shareholders' equity increased to $6.8 billion at September 30, 2001, from $6.6 billion at December 31, 2000, and the company repurchased 8.4 million shares of common stock during the first nine months of 2001.

Frequently Asked Questions

The decrease in net income for the first nine months of 2001 to $893 million from $945 million in the same period of 2000 was primarily due to the negative impact of a $59 million net loss from venture capital activities and the effect of adopting a new accounting standard for financial derivatives. Excluding these items, adjusted net income showed a slight decrease but remained strong.

PNC is actively pursuing a strategy to create a more diverse and valuable business mix. This involves increasing the contribution from higher-valued businesses like asset management and processing, while improving the risk/return characteristics of traditional banking businesses. This is being achieved through initiatives like selling the residential mortgage banking business and downsizing certain institutional lending portfolios.

The provision for credit losses increased significantly to $235 million for the first nine months of 2001 from $96 million in the prior year. This increase is attributed to loans in portfolios undergoing downsizing (communications, energy, metals, and mining) and a $45 million addition to unallocated reserves due to deteriorating economic conditions. Nonperforming assets to total loans ratio slightly increased to 0.85% as of September 30, 2001.

PNC maintained strong capital ratios, with a Tier 1 risk-based capital ratio of 8.4% and a total risk-based capital ratio of 12.0% as of September 30, 2001, indicating a well-capitalized position. The company also demonstrated its commitment to shareholder value by repurchasing 8.4 million shares of common stock during the first nine months of 2001 and increasing its quarterly dividend to $0.48 per share.