What was the primary driver for the significant increase in total assets?

The primary driver for the significant increase in total assets to $122.6 billion at March 31, 2007, from $101.8 billion at December 31, 2006, was the acquisition of Mercantile Bankshares Corporation, which added approximately $21 billion in assets.

How did the Mercantile acquisition impact the company's geographic presence?

The acquisition of Mercantile significantly expanded PNC's presence in the mid-Atlantic region, adding 235 branches across Maryland, Virginia, the District of Columbia, Delaware, and Southeastern Pennsylvania, particularly strengthening its position in the Baltimore and Washington, D.C. markets.

What is the company's outlook on net interest margin?

While the company expects net interest margins to remain challenged due to a flat or inverted yield curve and intense competition, it anticipates taxable-equivalent net interest income to grow in the mid-20% range for the full year 2007 compared to 2006, with an expected improvement in the net interest margin, primarily due to the Mercantile acquisition and projected earning asset growth.

How did the BlackRock deconsolidation affect financial reporting?

Following the September 2006 BlackRock/MLIM transaction, PNC's approximate 34% ownership interest in BlackRock is accounted for under the equity method. This resulted in a reduction in certain revenue and noninterest expense categories on the Consolidated Income Statement, with BlackRock's net income now reported within asset management noninterest income. This change also impacted year-over-year comparisons of noninterest income and expense.

PNC 10-Q Quarterly Report Q1 FY2007 — Revenue, Net Income, EPS

Summary

PNC Financial Services Group, Inc. reported a solid first quarter in 2007, with net income increasing to $459 million, or $1.46 per diluted share, compared to $354 million, or $1.19 per diluted share, in the prior year. This growth was driven by a 12% increase in net interest income and strong performance across all business segments, with Corporate & Institutional Banking showing particularly robust growth of 29%. The company successfully closed the significant acquisition of Mercantile Bankshares Corporation in March 2007, which added approximately $21 billion in assets and expanded its geographic footprint in the mid-Atlantic region. Despite a decrease in noninterest income, largely due to accounting changes and the deconsolidation of BlackRock, the company achieved positive operating leverage. Asset quality remained strong, with nonperforming assets as a percentage of total assets decreasing to 0.17%. PNC also continued to focus on shareholder returns, with a planned dividend increase and ongoing share repurchases, demonstrating a commitment to enhancing shareholder value while managing its capital position prudently.

Key Highlights

1Net income rose to $459 million ($1.46 per diluted share) in Q1 2007 from $354 million ($1.19 per diluted share) in Q1 2006.
2Completed the acquisition of Mercantile Bankshares Corporation for approximately $5.9 billion, significantly expanding PNC's presence in the mid-Atlantic region.
3Total revenue for the quarter was $1.62 billion, with a 12% increase in taxable-equivalent net interest income to $629 million.
4Corporate & Institutional Banking segment earnings increased by 29% year-over-year, driven by improved asset quality and positive operating leverage.
5Asset quality remained strong, with nonperforming assets to total assets at 0.17%, down from 0.22% in the prior year.
6Returned capital to shareholders through dividends ($.55 per share) and share repurchases.
7Achieved positive operating leverage, with revenue growth outpacing expense growth.

PNC FINANCIAL SERVICES GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2007

Summary

Key Highlights

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