10-QPeriod: Q1 FY2009

PNC FINANCIAL SERVICES GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 11, 2009For Securities:PNC

Summary

PNC Financial Services Group, Inc. reported its first quarter 2009 results, heavily influenced by the acquisition of National City on December 31, 2008. Total revenue more than doubled year-over-year to $3.9 billion, largely due to the inclusion of National City’s operations. While net income increased to $530 million ($1.03 per diluted share), this was down from $1.09 per diluted share in the prior year first quarter, reflecting the significant impact of the National City integration and a challenging economic environment. The company prudently reduced its common stock dividend by approximately 85%, from $0.66 to $0.10 per share, a move expected to bolster its capital position by $1 billion annually. Credit quality deteriorated as expected, with nonperforming assets rising to 2.02% of total loans, prompting an increase in the provision for credit losses. Despite economic headwinds, PNC highlighted the successful integration of National City, noting it was "exceeding our expectations" and accretive to earnings. The company strengthened its capital ratios, with the Tier 1 risk-based capital ratio at 10.0% and the Tier 1 common capital ratio at 4.9%. Liquidity remained strong with a loan-to-deposit ratio of 88%. The company is also addressing the "stress test" requirement to increase its common equity by $600 million by November 2009, planning to achieve this through retained earnings and capital raising alternatives.

Financial Highlights

18 data points
Beta

Revenue

$3.69B

Net Income

$530.00M

14.4% Net Margin

EPS (Diluted)

$1.03

Free Cash Flow

$870.00M

Financial Statements
Beta
Revenue$3.69B
Operating Income$520.00M
Interest Expense$939.00M
Net Income$530.00M
EPS (Basic)$1.04
EPS (Diluted)$1.03
Shares Outstanding (Basic)443.00M
Shares Outstanding (Diluted)444.00M

Key Highlights

  • 1Total revenue more than doubled to $3.9 billion due to the acquisition of National City.
  • 2Net income was $530 million ($1.03/share), a decrease from $1.09/share in Q1 2008, reflecting integration costs and economic pressures.
  • 3Common stock dividend was reduced by ~85% from $0.66 to $0.10 per share, aiming to improve capital by $1 billion annually.
  • 4Nonperforming assets increased to 2.02% of total loans, up from 1.23% in Q4 2008, due to economic weakness.
  • 5Tier 1 risk-based capital ratio increased to 10.0%, and Tier 1 common capital ratio stood at 4.9%.
  • 6National City acquisition integration is "exceeding our expectations" and is accretive to earnings.
  • 7Cost savings of approximately $400 million annualized were realized in Q1 2009, on track for the $1.2 billion target.

Frequently Asked Questions

The acquisition of National City, completed on December 31, 2008, significantly increased PNC's total revenue, assets, and deposits. It also contributed to higher operating expenses and provision for credit losses due to the integration process and the scale of the combined entity. The company stated that the integration is "exceeding our expectations" and is accretive to earnings.

PNC reduced its quarterly common stock dividend from $0.66 to $0.10 per share to prudently build capital and strengthen its balance sheet. This move is expected to generate approximately $1 billion in additional common equity and cash annually, improving capital ratios by about 40 basis points, reflecting a cautious approach amidst economic uncertainty and regulatory changes, including the "stress test" requirements.

Following the Supervisory Capital Assessment Program (stress tests), PNC is required to increase its common shareholders' equity component of Tier 1 capital by $600 million by November 9, 2009. PNC plans to meet this requirement through a combination of retained earnings growth and the pursuit of other capital-raising alternatives.

PNC acknowledged that credit quality continued to deteriorate in the first quarter of 2009, as anticipated, due to ongoing economic weakening. Nonperforming assets increased to 2.02% of total loans from 1.23% at the end of 2008, and the allowance for loan and lease losses increased to 2.51% of total loans. The company expects credit costs to remain elevated in the near term but anticipates the rate of deterioration may slow in the second quarter.