What was the impact of the BlackRock/MLIM transaction on PNC's financial results?

The BlackRock/MLIM transaction, which closed on September 29, 2006, significantly boosted PNC's financial results. It contributed an after-tax gain of approximately $1.3 billion, or $4.36 per diluted share, to the third quarter and nine-month results of 2006. Following the transaction, PNC's ownership in BlackRock decreased to approximately 34%, and it is now accounted for under the equity method.

What are the key strategic initiatives driving PNC's performance?

PNC's strategy focuses on achieving revenue growth through customer acquisition, expansion, and retention. Key initiatives include the "One PNC" program, aimed at improving efficiency and targeting resources, which is on track to deliver $400 million in annual pre-tax earnings benefit. The company is also pursuing targeted acquisitions to expand its market presence and product offerings.

How is PNC's asset quality performing?

PNC's asset quality remained strong as of September 30, 2006. The ratio of nonperforming assets to loans, loans held for sale, and foreclosed assets declined to 0.36%, down from 0.42% at the end of 2005. The company anticipates that current levels of asset quality may not be sustainable long-term but expects them to remain strong by historical standards in the near term.

What is the outlook for net interest margin?

The net interest margin has experienced some pressure, decreasing to 2.89% for Q3 2006 and 2.92% for the nine months, compared to 2.96% and 2.99% respectively in the prior year. This is attributed to increased average rates paid on deposits and borrowed funds, which outpaced the increase in yields on interest-earning assets, influenced by rising federal funds rates.

PNC 10-Q Quarterly Report Q3 FY2006 — Revenue, Net Income, EPS

Summary

PNC Financial Services Group, Inc. reported strong financial results for the third quarter and first nine months of 2006, significantly boosted by a substantial gain from the BlackRock/MLIM transaction. Total revenue surged to $3.52 billion for the quarter and $7.06 billion for the nine months, largely due to noninterest income, which represented 84% of total revenue in Q3. Diluted earnings per share reached $5.01 for the quarter and $7.46 year-to-date, a significant increase from the prior year's periods. This growth was driven by a $1.3 billion after-tax gain from the BlackRock/MLIM transaction, alongside contributions from the "One PNC" initiative, which is on track to achieve its targeted earnings benefit. The company also announced a significant development with the pending acquisition of Mercantile Bankshares Corporation, a $17 billion asset banking company, for approximately $6.0 billion in stock and cash. This acquisition is expected to expand PNC's presence in the mid-Atlantic region. Despite a slight decrease in net interest margin compared to the prior year, driven by higher deposit and borrowing costs, overall asset quality remained strong, with nonperforming assets declining. PNC's strategic focus on customer relationship growth, expense management, and targeted acquisitions continues to drive performance. The company's capital position remains strong, with Tier 1 risk-based capital at 10.4%. The company is actively managing its balance sheet and is well-positioned for continued growth.

Key Highlights

1PNC Financial Services Group, Inc. reported a significant increase in diluted earnings per share to $5.01 for Q3 2006 and $7.46 for the first nine months of 2006, up from $1.14 and $3.35, respectively, in the prior year.
2Total revenue for the third quarter reached $3.52 billion, a substantial increase from $1.68 billion in Q3 2005, driven by a significant gain on the BlackRock/MLIM transaction.
3Noninterest income represented 84% of total revenue for the third quarter of 2006, highlighting the growing importance of fee-based income streams.
4The company announced a definitive agreement to acquire Mercantile Bankshares Corporation for approximately $6.0 billion in stock and cash, aiming to expand its footprint in the mid-Atlantic region.
5Asset quality remained strong, with the ratio of nonperforming assets to total loans declining to 0.36% at the end of Q3 2006.
6The "One PNC" initiative continues to progress as planned, contributing to efficiency improvements and revenue growth, with an annualized run rate benefit of $260 million achieved in Q3 2006.
7Shareholders' equity increased by $2.2 billion to $10.8 billion, largely due to the BlackRock/MLIM transaction.

PNC FINANCIAL SERVICES GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2006

Summary

Key Highlights

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