THE PNC FINANCIAL SERVICES GROUP, INC. FINANCIAL SUPPLEMENT THIRD QUARTER 2008 (UNAUDITED)
THE PNC FINANCIAL SERVICES GROUP, INC. FINANCIAL SUPPLEMENT THIRD QUARTER 2008 (UNAUDITED)
Page
Consolidated Results: Income Statement Balance Sheet Capital Ratios Average Balance Sheet and Supplemental Average Balance Sheet Information Details of Net Interest Margin Selected Income Statement Information and Trading Revenue Details of Loans Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit, and Net Unfunded Commitments Details of Nonperforming Assets Business Segment Results: Business Segment Products and Services Summary of Earnings and Revenue Period-end Employees Retail Banking Corporate & Institutional Banking Global Investment Servicing (formerly, PFPC) Glossary of Terms
1 2 2 3-4 5 6 7 8 9 - 10 11 12 12 13 - 15 16 17 18 - 20
The information contained in this Financial Supplement is preliminary, unaudited and based on data available on October 16, 2008. We have reclassified certain prior period amounts included in this Financial Supplement to be consistent with the current period presentation. This information speaks only as of the particular date or dates included in the schedules. We do not undertake any obligation to, and disclaim any duty to, correct or update any of the information provided in this Financial Supplement. Our future financial performance is subject to risks and uncertainties as described in our United States Securities and Exchange Commission ("SEC") filings.
Sterling Financial Corporation Acquisition
We completed our acquisition of Sterling Financial Corporation ("Sterling") on April 4, 2008. Sterling shareholders received an aggregate of approximately $224 million in cash and 4.6 million shares of PNC common stock. PNC converted the Sterling banking charter and financial and customer data onto PNC's financial and operational systems during August 2008.
Hilliard Lyons Divestiture
On March 31, 2008, we completed the sale of J.J.B. Hilliard, W.L. Lyons, LLC ("Hilliard Lyons"), a Louisville, Kentucky-based wholly-owned subsidiary of PNC and a full-service brokerage and financial services provider, to Houchens Industries, Inc. We recognized an after-tax gain of $23 million in the first quarter of 2008 in connection with this divestiture. Information for the periods presented reflects the reclassification of results for Hilliard Lyons, including the gain on the sale of this business, from the Retail Banking business segment to "Other, including BlackRock."
Yardville National Bancorp Acquisition
We completed our acquisition of Yardville National Bancorp ("Yardville") on October 26, 2007 and our financial results include Yardville from that date. PNC issued approximately 3.4 million shares of PNC common stock and paid approximately $156 million in cash as consideration for the acquisition. PNC converted the Yardville banking charter and financial and customer data onto PNC's financial and operational systems during March 2008.
THE PNC FINANCIAL SERVICES GROUP, INC. Consolidated Income Statement (Unaudited)
Nine months ended September 30 In millions, except per share data 2008 September 30 2007 September 30 2008 Three months ended June 30 2008 March 31 2008 December 31 2007
Page 1
September 30 2007
Interest Income Loans Securities available for sale Other Total interest income Interest Expense Deposits Borrowed funds Total interest expense Net interest income Noninterest Income Fund servicing Asset management Consumer services Corporate services Service charges on deposits Net securities gains (losses) Other Total noninterest income Total revenue Provision for credit losses Noninterest Expense Personnel Occupancy Equipment Marketing Other Total noninterest expense Income before income taxes Income taxes Net income Earnings Per Common Share Basic Diluted Average Common Shares Outstanding Basic Diluted Efficiency Noninterest income to total revenue Effective tax rate (a) (a)
$3,145 1,270 355 4,770 1,152 787 1,939 2,831 695 589 472 547 271 (34) 143 2,683 5,514 527 1,660 274 267 94 1,004 3,299 1,688 558 $1,130 $3.30 $3.24 343 346 60% 49% 33.1%
$3,109 1,031 356 4,496 1,531 843 2,374 2,122 620 559 513 533 258 (4) 477 2,956 5,078 127 1,587 255 227 86 928 3,083 1,868 579 $1,289 $3.92 $3.85 329 333 61% 58% 31.0%
$1,024 447 103 1,574 340 234 574 1,000 233 180 153 198 97 (74) (133) 654 1,654 190 569 89 91 38 355 1,142 322 74 $248 $.72 $.71 345 348 69% 40% 23.0%
$1,050 419 108 1,577 362 238 600 977 234 197 149 185 92 (1) 206 1,062 2,039 186 547 90 94 34 350 1,115 738 233 $505 $1.47 $1.45 344 347 55% 52% 31.6%
$1,071 404 144 1,619 450 315 765 854 228 212 170 164 82 41 70 967 1,821 151 544 95 82 22 299 1,042 628 251 $377 $1.11 $1.09 339 342 57% 53% 40.0%
$1,123 398 149 1,670 522 355 877 793 215 225 179 180 90 (1) (54) 834 1,627 188 553 95 84 29 452 1,213 226 48 $178 $.53 $.52 338 341 75% 51% 21.2%
$1,129 366 132 1,627 531 335 866 761 208 204 177 198 89 (2) 116 990 1,751 65 553 87 77 36 346 1,099 587 180 $407 $1.21 $1.19 337 340 63% 57% 30.7%
The higher effective tax rates for the first quarter and first nine months of 2008 were due to taxes associated with the gain on the sale of Hilliard Lyons. The lower effective tax rates for the third quarter of 2008 and the fourth quarter of 2007 were primarily due to lower pretax income in relation to tax credits and earnings that are not subject to tax.
THE PNC FINANCIAL SERVICES GROUP, INC. Consolidated Balance Sheet (Unaudited)
In millions, except par value September 30 2008 June 30 2008 March 31 2008 December 31 2007
Page 2
September 30 2007
Assets
Cash and due from banks Federal funds sold and resale agreements (includes $1,007, $1,001, and $1,032 measured at fair value at September 30, 2008, June 30, 2008, and March 31, 2008) (a) Trading securities and other short-term investments Loans held for sale (includes $1,465, $1,604, and $2,068 measured at fair value at September 30, 2008, June 30, 2008, and March 31, 2008) (a) Securities available for sale Loans, net of unearned income of $910, $934, $951, $990, and $986 Allowance for loan and lease losses Net loans Goodwill Other intangible assets Equity investments Other Total assets
Liabilities
$3,060
$3,525
$3,934
$3,567
$3,318
1,826 2,866 1,922 31,031 75,184 (1,053) 74,131 8,829 1,092 6,735 14,118 $145,610
3,015 2,705 2,288 31,032 73,040 (988) 72,052 8,824 1,104 6,376 11,850 $142,771
2,157 3,987 2,516 28,581 70,802 (865) 69,937 8,244 1,105 6,187 13,343 $139,991
2,729 4,129 3,927 30,225 68,319 (830) 67,489 8,405 1,146 6,045 11,258 $138,920
2,360 3,944 3,004 28,430 65,760 (717) 65,043 7,836 1,099 5,975 10,357 $131,366
Deposits Noninterest-bearing Interest-bearing Total deposits Borrowed funds Federal funds purchased Repurchase agreements Federal Home Loan Bank borrowings Bank notes and senior debt (includes $6, $11, and $11 measured at fair value at September 30, 2008, June 30, 2008, and March 31, 2008) (a) Subordinated debt Other Total borrowed funds Allowance for unfunded loan commitments and letters of credit Accrued expenses Other Total liabilities Minority and noncontrolling interests in consolidated entities
Shareholders’ Equity
$19,255 65,729 84,984 4,837 2,611 10,466 5,792 5,192 3,241 32,139 127 2,650 9,422 129,322 2,070
$19,869 64,820 84,689 7,343 1,887 9,572 5,804 5,169 2,697 32,472 124 3,388 4,981 125,654 2,009
$19,176 61,234 80,410 5,154 2,510 9,663 6,842 5,402 3,208 32,779 152 3,878 6,341 123,560 2,008
$19,440 63,256 82,696 7,037 2,737 7,065 6,821 4,506 2,765 30,931 134 4,330 4,321 122,412 1,654
$18,570 59,839 78,409 6,658 1,990 4,772 7,794 3,976 2,263 27,453 127 4,077 5,095 115,161 1,666
Preferred stock (b) Common stock - $5 par value Authorized 800 shares, issued 357, 357, 353, 353, and 353 shares Capital surplus Retained earnings Accumulated other comprehensive loss Common stock held in treasury at cost: 9, 11, 12, 12, and 16 shares Total shareholders’ equity Total liabilities, minority and noncontrolling interests, and shareholders’ equity
Capital Ratios
1,787 3,377 11,959 (2,230) (675) 14,218 $145,610 8.2 % 11.9 7.2 3.6 9.4
1,787 3,387 11,940 (1,227) (779) 15,108 $142,771 8.2 % 11.9 7.3 4.3 10.2
1,764 2,603 11,664 (779) (829) 14,423 $139,991 7.7 % 11.4 6.8 4.7 10.3
1,764 2,618 11,497 (147) (878) 14,854 $138,920 6.8 % 10.3 6.2 4.7 10.7
1,764 2,631 11,531 (255) (1,132) 14,539 $131,366 7.5 % 10.9 6.8 5.2 11.1
Tier 1 risk-based (c) Total risk-based (c) Leverage (c) Tangible common equity Common shareholders’ equity to assets
(a) Amounts represent items for which the Corporation has elected the fair value option under SFAS 159. (b) Less than $.5 million at each date. (c) The ratios as of September 30, 2008 are estimated.
THE PNC FINANCIAL SERVICES GROUP, INC. Average Consolidated Balance Sheet (Unaudited)
In millions September 30 2008 June 30 2008 Three months ended March 31 2008 December 31 2007
Page 3
September 30 2007
Assets Interest-earning assets: Securities available for sale Residential mortgage-backed Commercial mortgage-backed Asset-backed U.S. Treasury and government agencies State and municipal Other debt Corporate stocks and other Total securities available for sale Loans, net of unearned income Commercial Commercial real estate Lease financing Consumer Residential mortgage Other Total loans, net of unearned income Loans held for sale Federal funds sold and resale agreements Other Total interest-earning assets Noninterest-earning assets: Allowance for loan and lease losses Cash and due from banks Other Total assets
$22,924 5,863 3,522 32 798 266 411 33,816 31,070 9,560 2,573 20,984 8,875 286 73,348 2,146 2,736 3,700 115,746 (1,012) 2,779 25,486 $142,999
$20,813 5,838 3,363 47 773 211 385 31,430 30,825 9,340 2,646 20,558 9,193 266 72,828 2,350 2,528 4,068 113,204 (900) 2,725 26,363 $141,392
$20,506 5,538 2,849 90 411 84 494 29,972 29,147 8,986 2,484 18,897 9,411 391 69,316 3,607 3,040 5,384 111,319 (852) 3,027 27,061 $140,555
$20,592 4,921 2,704 155 306 52 458 29,188 27,528 8,919 2,552 18,150 9,605 400 67,154 3,408 2,516 4,926 107,192 (749) 3,089 25,418 $134,950
$19,541 4,177 2,454 281 233 25 381 27,092 26,352 8,272 2,581 17,954 9,325 393 64,877 2,842 2,163 4,342 101,316 (708) 3,047 23,977 $127,632
Supplemental Average Balance Sheet Information (Unaudited) Trading Assets Securities (a) Resale agreements (b) Financial derivatives (c) Loans at fair value (c) Total trading assets
$2,298 1,937 1,775 74 $6,084
$2,471 1,731 2,028 92 $6,322
$3,872 2,129 2,808 114 $8,923
$3,486 1,320 1,785 148 $6,739
$3,293 1,267 1,389 164 $6,113
(a) Included in "Interest-earning assets-Other" above. (b) Included in "Federal funds sold and resale agreements" above. (c) Included in "Noninterest-earning assets-Other" above.
THE PNC FINANCIAL SERVICES GROUP, INC. Average Consolidated Balance Sheet (Unaudited) (Continued)
In millions September 30 2008 June 30 2008 Three months ended March 31 2008 December 31 2007
Page 4
September 30 2007
Liabilities, Minority and Noncontrolling Interests, and Shareholders' Equity Interest-bearing liabilities: Interest-bearing deposits Money market $28,075 $27,543 Demand 9,958 9,997 Savings 2,751 2,813 Retail certificates of deposit 16,456 16,791 Other time 4,393 4,686 Time deposits in foreign offices 5,141 4,112 Total interest-bearing deposits 66,774 65,942 Borrowed funds Federal funds purchased 4,446 4,702 Repurchase agreements 3,424 2,185 Federal Home Loan Bank borrowings 9,660 9,602 Bank notes and senior debt 5,772 6,621 Subordinated debt 5,088 5,132 Other 3,758 2,854 Total borrowed funds 32,148 31,096 Total interest-bearing liabilities 98,922 97,038 Noninterest-bearing liabilities, minority and noncontrolling interests, and shareholders' equity: Demand and other noninterest-bearing deposits 18,193 18,045 Allowance for unfunded loan commitments and letters of credit 124 152 Accrued expenses and other liabilities 9,396 9,410 Minority and noncontrolling interests in consolidated entities 2,020 2,008 Shareholders' equity 14,344 14,739 Total liabilities, minority and noncontrolling interests, and shareholders' equity $142,999 $141,392 Supplemental Average Balance Sheet Information (Unaudited) (Continued) Deposits and Common Shareholders' Equity Interest-bearing deposits Demand and other noninterest-bearing deposits Total deposits Transaction deposits Common shareholders' equity Trading Liabilities Securities sold short (a) Repurchase agreements and other borrowings (b) Financial derivatives (c) Borrowings at fair value (c) Total trading liabilities
$25,405 9,580 2,625 16,556 3,813 6,026 64,005 5,564 2,614 8,233 6,754 4,649 4,247 32,061 96,066
$24,697 9,587 2,662 16,921 1,948 6,488 62,303 5,232 2,875 6,339 7,676 4,118 2,353 28,593 90,896
$24,151 9,275 2,841 16,563 2,748 4,616 60,194 6,249 2,546 2,097 7,537 4,039 2,741 25,209 85,403
17,564 135 10,690 1,817 14,283 $140,555
18,472 127 9,035 1,658 14,762 $134,950
18,211 125 8,117 1,414 14,362 $127,632
$66,774 18,193 $84,967 $56,226 $13,838
$65,942 18,045 $83,987 $55,585 $14,513
$64,005 17,564 $81,569 $52,549 $14,276
$62,303 18,472 $80,775 $52,756 $14,755
$60,194 18,211 $78,405 $51,637 $14,355
$1,370 609 1,806 20 $3,805
$1,157 691 2,051 25 $3,924
$2,127 661 2,856 30 $5,674
$1,748 630 1,772 39 $4,189
$1,960 637 1,400 41 $4,038
(a) Included in "Borrowed funds-Other" above. (b) Included in "Borrowed funds-Repurchase agreements" and "Borrowed funds-Other" above. (c) Included in "Accrued expenses and other liabilities" above.
THE PNC FINANCIAL SERVICES GROUP, INC. Details of Net Interest Margin (Unaudited)
Three months ended September 30 June 30 2008 March 31 2008 December 31 2007
Page 5
September 30 2007
Net Interest Margin (a) Average yields/rates Yield on interest-earning assets Loans Securities available for sale Other Total yield on interest-earning assets Rate on interest-bearing liabilities Deposits Borrowed funds Total rate on interest-bearing liabilities Interest rate spread Impact of noninterest-bearing sources Net interest margin
(a)
2008
5.53 % 5.32 4.85 5.42 2.02 2.85 2.29 3.13 .33 3.46 %
5.76 % 5.35 5.04 5.59 2.20 3.04 2.47 3.12 .35 3.47 %
6.18 % 5.41 4.88 5.83 2.82 3.89 3.17 2.66 .43 3.09 %
6.62 % 5.46 5.51 6.19 3.31 4.88 3.81 2.38 .58 2.96 %
6.89 % 5.42 5.56 6.37 3.49 5.22 3.99 2.38 .62 3.00 %
Calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of yields and margins for all earning assets in calculating net interest margins, in this table we use net interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended September 30, 2008, June 30, 2008, March 31, 2008, December 31, 2007, and September 30, 2007 were $9 million, $10 million, $9 million, $7 million, and $6 million, respectively.
THE PNC FINANCIAL SERVICES GROUP, INC. Selected Consolidated Income Statement Information and Trading Revenue (Unaudited) SELECTED CONSOLIDATED INCOME STATEMENT INFORMATION
Nine months ended September 30 September 30 2007 Three months ended September 30 2008 June 30 2008 September 30 2007
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In millions OTHER NONINTEREST INCOME BlackRock LTIP shares adjustment Commercial mortgage loans held for sale intended for securitization valuations, net of hedges Gain on sale of Hilliard Lyons (a) Visa redemption gain Reversal of legal contingency reserve established in connection with an acquisition due to a settlement Trading income (losses) (b) Equity management gains (losses) PROVISION FOR CREDIT LOSSES Integration costs NONINTEREST EXPENSE Integration costs Visa indemnification liability
2008
$69 (238) 114 95 61 (77) (8)
$1
$(51) (82)
$80 21
$(50)
114 81
61 (54) (24)
53 (7)
33 47
23
23
41 (43)
67
14
13
41
(a) The impact of the gain was $23 million after taxes. (b) For the nine months and three months ended September 30, 2008, Corporate & Institutional Banking generated trading income which was more than offset by trading losses in "Other, including BlackRock."
TRADING REVENUE
Nine months ended September 30 September 30 2007 Three months ended September 30 2008 June 30 2008 September 30 2007
In millions Net interest income (expense) Noninterest income Total trading revenue Securities underwriting and trading (c) Foreign exchange Financial derivatives Total trading revenue
2008
$58 (77) $(19) $(3) 52 (68) $(19)
$114 $114 $31 42 41 $114
$19 (54) $(35) $(13) 19 (41) $(35)
$23 53 $76 $19 17 40 $76
$(1) 33 $32 $14 15 3 $32
(c) Includes changes in fair value for certain loans accounted for at fair value.
THE PNC FINANCIAL SERVICES GROUP, INC. Details of Loans (Unaudited)
September 30 In millions 2008 June 30 2008 March 31 2008 December 31 2007
Page 7
September 30 2007
Commercial Retail/wholesale Manufacturing Other service providers Real estate related (a) Financial services Health care Other Total commercial Commercial real estate Real estate projects Mortgage Total commercial real estate Lease financing Total commercial lending Consumer Home equity Education Automobile Other Total consumer Residential mortgage Other Unearned income Total, net of unearned income
$6,138 5,656 3,914 6,155 1,595 1,630 7,323 32,411 6,622 3,047 9,669 3,553 45,633 14,892 2,648 1,606 2,260 21,406 8,757 298 (910) $75,184
$6,374 5,322 3,670 6,101 1,452 1,637 6,419 30,975 6,539 2,912 9,451 3,522 43,948 14,735 2,117 1,590 2,245 20,687 9,047 292 (934) $73,040
$6,298 5,170 3,563 5,701 1,390 1,605 5,912 29,639 6,448 2,603 9,051 3,464 42,154 14,315 2,024 1,533 2,156 20,028 9,299 272 (951) $70,802
$5,973 4,705 3,529 5,425 1,268 1,446 6,261 28,607 6,114 2,792 8,906 3,500 41,013 14,447 132 1,513 2,234 18,326 9,557 413 (990) $68,319
$5,506 4,609 3,816 4,232 1,901 1,256 5,415 26,735 5,807 2,507 8,314 3,539 38,588 14,366 110 1,521 2,160 18,157 9,605 396 (986) $65,760
(a) Includes loans to customers in the real estate and construction industries.
THE PNC FINANCIAL SERVICES GROUP, INC. Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit, and Net Unfunded Commitments (Unaudited)
Change in Allowance for Loan and Lease Losses
Three months ended - in millions September 30 2008 June 30 2008 March 31 2008 December 31 2007
Page 8
September 30 2007
Beginning balance Charge-offs Commercial Commercial real estate Consumer Residential mortgage Lease financing Total charge-offs Recoveries Commercial Commercial real estate Consumer Lease financing Total recoveries Net charge-offs Commercial Commercial real estate Consumer Residential mortgage Lease financing Total net charge-offs Provision for credit losses (a) Acquired allowance (b) Net change in allowance for unfunded loan commitments and letters of credit Ending balance
Supplemental Information
$988 (51) (60) (39) (2) 1 (151) 21 4 4 29 (30) (56) (35) (2) 1 (122) 190
$865 (71) (24) (33) (2) (130) 11 3 3 1 18 (60) (21) (30) (1) (112) 186 20 29 $988
$830 (70) (11) (28) (1) (110) 8 4 12 (62) (11) (24) (1) (98) 151
$717 (60) (12) (24)
$703 (38) (3) (17)
(96) 10 3 13 (50) (12) (21)
(58) 5 4 9 (33) (3) (13)
(83) 188 15 (7) $830
(49) 65
(3) $1,053
(18) $865
(2) $717
Net charge-offs to average loans (For the three months ended) Allowance for loan and lease losses to total loans Allowance for loan and lease losses to nonperforming loans Commercial lending net charge-offs (c) Consumer lending net charge-offs (d) Total net charge-offs Net charge-offs to average loans Commercial lending Consumer lending
.66 % 1.40 125 $(85) (37) $(122)
.62 % 1.35 142 $(82) (30) $(112)
.57 % 1.22 151 $(74) (24) $(98)
.49 % 1.21 183 $(62) (21) $(83)
.30 % 1.09 274 $(36) (13) $(49)
.78 % .49
.77 % .41
.73 % .34
.63 % .30
.38 % .19
(a) Amount for the second quarter of 2008 included integration costs of $23 million related to Sterling and amount for the fourth quarter of 2007 included $45 million related to Yardville. (b) Amount for the second quarter of 2008 related to Sterling and for the fourth quarter of 2007 related to Yardville. (c) Includes commercial, commercial real estate and equipment lease financing. (d) Includes consumer and residential mortgage. Change in Allowance for Unfunded Loan Commitments and Letters of Credit
Three months ended - in millions September 30 2008 June 30 2008 March 31 2008 December 31 2007 September 30 2007
Beginning balance Acquired allowance - Sterling Net change in allowance for unfunded loan commitments and letters of credit Ending balance
Net Unfunded Commitments
In millions
$124
$152 1 (29) $124
June 30 2008
$134
$127
$125
3 $127
September 30 2008
18 $152
March 31 2008
7 $134
December 31 2007
2 $127
September 30 2007
Net unfunded commitments
$57,094
$51,558
$52,426
$53,347
$52,590
THE PNC FINANCIAL SERVICES GROUP, INC. Details of Nonperforming Assets (Unaudited) Nonperforming Assets by Type
In millions September 30 2008 June 30 2008 March 31 2008 December 31 2007
Page 9
September 30 2007
Nonaccrual loans Commercial Retail/wholesale Manufacturing Other service providers Real estate related (a) Financial services Health care Other Total commercial Commercial real estate Real estate projects Mortgage Total commercial real estate Consumer Residential mortgage Lease financing Total nonaccrual loans Restructured loans Total nonperforming loans Foreclosed and other assets Residential mortgage Consumer Commercial lending Total foreclosed and other assets Total nonperforming assets (b) (c) Nonperforming loans to total loans Nonperforming assets to total loans and foreclosed assets Nonperforming assets to total assets (a) Includes loans related to customers in the real estate and construction industries. (b) Excludes equity management assets carried at estimated fair value (the September 30, 2007 amount includes troubled debt restructured assets of $4 million): (c) Excludes loans held for sale carried at lower of cost or market value (amounts include troubled debt restructured assets of $7 million, $20 million, and $21 million at September 30, 2008, June 30, 2008, and March 31, 2008, respectively):
$72 45 76 92 15 8 5 313 391 49 440 25 60 3 841 841 19 10 5 34 $875 1.12 % 1.16 .60
$58 34 66 70 10 7 8 253 330 35 365 24 49 4 695 695 19 11 8 38 $733 .95 % 1.00 .51
$32 47 68 63 16 4 8 238 251 22 273 19 38 3 571 2 573 13 10 19 42 $615 .81 % .87 .44
$39 35 48 45 15 4 7 193 184 28 212 17 27 3 452 2 454 10 8 23 41 $495 .66 % .72 .36
$41 41 38 15 1 4 4 144 64 11 75 15 25 3 262 262 11 5 23 39 $301 .40 % .46 .23
$34
$44
$5
$4
$12
$39
$59
$35
$25
$7
THE PNC FINANCIAL SERVICES GROUP, INC. Details of Nonperforming Assets (Unaudited) (Continued) Change in Nonperforming Assets
In millions Nine months ended
Page 10
January 1, 2008 Transferred in Acquisition Charge-offs/valuation adjustments Principal activity including payoffs Returned to performing Asset sales September 30, 2008
$495 989 9 (307) (220) (77) (14) $875
Largest Individual Nonperforming Assets at September 30, 2008 - in millions (a)
Ranking
Outstandings
Industry
1 2 3 4 5 6 7 8 9 10 Total As a percent of total nonperforming assets
$23 17 15 14 13 13 13 12 11 11 $142 16%
Manufacturing Construction Construction Wholesale Trade Retail Trade Construction Construction Construction Construction Wholesale Trade
(a) Amounts shown are not net of related allowance for loan and lease losses, if applicable.
THE PNC FINANCIAL SERVICES GROUP, INC. Business Segment Products and Services (Unaudited)
Page 11
Retail Banking provides deposit, lending, brokerage, trust, investment management, and cash management services to approximately 2.9 million consumer and small business customers within our primary geographic markets. Our customers are serviced through 1,142 offices in our branch network, the call center located in Pittsburgh, and the Internet – www.pncbank.com . The branch network is located primarily in Pennsylvania, New Jersey, Washington, D.C., Maryland, Virginia, Ohio, Kentucky and Delaware. Brokerage services are provided through PNC Investments, LLC. Retail Banking also serves as investment manager and trustee for employee benefit plans and charitable and endowment assets and provides nondiscretionary defined contribution plan services. These services are provided to individuals and corporations primarily within our primary geographic markets.
Corporate & Institutional Banking provides lending, treasury management, and capital markets-related products and services to mid-sized corporations, government entities, and selectively to large corporations. Lending products include secured and unsecured loans, letters of credit and equipment leases. Treasury management services include cash and investment management, receivables management, disbursement services, funds transfer services, information reporting, and global trade services. Capital markets-related products and services include foreign exchange, derivatives, loan syndications, mergers and acquisitions advisory and related services to middle-market companies, securities underwriting, and securities sales and trading. Corporate & Institutional Banking also provides commercial loan servicing, real estate advisory and technology solutions for the commercial real estate finance industry. Corporate & Institutional Banking provides products and services generally within our primary geographic markets, with certain products and services provided nationally. Global Investment Servicing, formerly PFPC, is a leading full service provider of processing, technology and business solutions for the global investment industry. Securities services include custody, securities lending, and accounting and administration for funds registered under the 1940 Act and alternative investments. Investor services include transfer agency, subaccounting, and distribution. Financial advisor services include managed accounts and information management. This business segment serviced $2.3 trillion in total assets and 73 million shareholder accounts as of September 30, 2008 both domestically and internationally from locations in Ireland, Poland and Luxembourg.
BlackRock is one of the largest publicly traded investment management firms in the United States with $1.428 trillion of assets under management at June 30, 2008. BlackRock manages assets on behalf of institutional and individual investors worldwide through a variety of fixed income, cash management, equity and balanced and alternative investment separate accounts and funds. In addition, BlackRock provides risk management, investment system outsourcing and financial advisory services globally to institutional investors. At September 30, 2008, PNC’s ownership interest in BlackRock was approximately 33%.
THE PNC FINANCIAL SERVICES GROUP, INC. Summary of Business Segment Earnings and Revenue (Unaudited) (a) (b)
In millions September 30 2008 June 30 2008 Three months ended March 31 2008 December 31 2007
Page 12
September 30 2007
Earnings Retail Banking (c) Corporate & Institutional Banking Global Investment Servicing (formerly, PFPC) Other, including BlackRock (c) (d) Total consolidated net income Revenue (a) Retail Banking (c) Corporate & Institutional Banking Global Investment Servicing (e) Other, including BlackRock (c) (d) Total consolidated revenue
(a)
$79 72 34 63 $248 $882 362 237 173 $1,654
$140 134 33 198 $505 $889 482 237 431 $2,039
$195 2 30 150 $377 $959 242 228 392 $1,821
$211 91 32 (156) $178 $943 399 214 71 $1,627
$246 87 33 41 $407 $930 388 209 224 $1,751
Our business information is presented based on our management accounting practices and our management structure. We refine our methodologies from time to time as our management accounting practices are enhanced and our businesses and management structure change. We consider BlackRock to be a separate reportable business segment but have combined its results with Other for this presentation. Our Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 will provide additional business segment disclosures for BlackRock.
(b)
(c)
Information for the periods presented reflects the reclassification of results for Hilliard Lyons, which we sold March 31, 2008, including the gain on its sale, from Retail Banking to "Other, including BlackRock." Includes earnings and gains or losses related to PNC's equity interest in BlackRock and those related to Hilliard Lyons prior to its sale, integration costs, asset and liability management activities including net securities gains or losses and certain trading activities, equity management activities, differences between business segment performance reporting and financial statement reporting under generally accepted accounting principles (GAAP), corporate overhead and intercompany eliminations. Global Investment Servicing revenue represents the sum of servicing revenue and nonoperating income (expense) less debt financing costs.
(d)
(e)
September 30
June 30 2008
March 31 2008
December 31 2007
September 30 2007
Period-end Employees
Full-time employees: Retail Banking Corporate & Institutional Banking Global Investment Servicing Other Operations & Technology Staff Services and other Total Other Total full-time employees Total part-time employees Total employees
2008
11,347 2,305 4,969 4,452 2,150 6,602 25,223 2,906 28,129
11,671 2,310 4,946 4,572 2,168 6,740 25,667 2,938 28,605
11,014 2,218 4,865 4,394 2,001 6,395 24,492 2,843 27,335
11,022 2,290 4,784 4,379 3,005 7,384 25,480 2,840 28,320
10,747 2,267 4,504 4,243 3,050 7,293 24,811 2,823 27,634
The period-end employee statistics disclosed for each business reflect staff directly employed by the respective business and exclude operations, technology and staff services employees. Sterling and Yardville employees are included in the Retail Banking, Corporate & Institutional Banking and Other businesses at September 30, 2008 and June 30, 2008. Yardville employees are also included in these categories at March 31, 2008 and December 31, 2007. Statistics at September 30, 2008, June 30, 2008 and March 31, 2008 exclude Hilliard Lyons employees; statistics at December 31, 2007 and September 30, 2007 reflect the reclassification of these employees from Retail Banking to Staff Services and other in the table above.
THE PNC FINANCIAL SERVICES GROUP, INC. Retail Banking (Unaudited) (a)
Dollars in millions September 30 2008 June 30 2008 Three months ended March 31 2008 December 31 2007
Page 13
September 30 2007
INCOME STATEMENT Net interest income Noninterest income Total revenue Provision for credit losses Noninterest expense Pretax earnings Income taxes Earnings AVERAGE BALANCE SHEET Loans Consumer Home equity Indirect Education Other consumer Total consumer Commercial and commercial real estate (b) Floor plan Residential mortgage Other Total loans Goodwill and other intangible assets Loans held for sale Other assets Total assets Deposits Noninterest-bearing demand (c) Interest-bearing demand Money market Total transaction deposits Savings Certificates of deposit Total deposits Other liabilities Capital Total funds PERFORMANCE RATIOS Return on average capital Noninterest income to total revenue Efficiency
$493 389 882 156 593 133 54 $79
$499 390 889 90 569 230 90 $140
$498 461 959 104 538 317 122 $195
$542 401 943 70 537 336 125 $211
$535 395 930 8 530 392 146 $246
$14,780 2,034 2,348 1,799 20,961 14,750 923 2,339 66 39,039 6,287 68 1,550 $46,944 $11,155 9,582 20,055 40,792 2,739 16,302 59,833 377 3,789 $63,999 8 44 67 %
$14,635 2,071 2,087 1,736 20,529 15,175 1,045 2,443 67 39,259 6,158 57 1,465 $46,939 $10,824 9,641 19,346 39,811 2,800 16,445 59,056 318 3,833 $63,207 15 % 44 64
$14,366 2,026 844 1,636 18,872 14,393 1,020 2,440 65 36,790 5,806 1,131 1,661 $45,388 $10,458 9,237 17,732 37,427 2,609 16,321 56,357 348 3,560 $60,265 22 % 48 56
$14,417 2,031 108 1,580 18,136 14,020 983 2,500 69 35,708 5,651 1,572 2,316 $45,247 $10,967 9,173 17,328 37,468 2,651 16,768 56,887 382 3,548 $60,817 24 % 43 57
$14,296 2,033 110 1,500 17,939 13,799 939 2,050 69 34,796 5,562 1,567 2,676 $44,601 $11,191 8,869 17,020 37,080 2,831 16,502 56,413 342 3,517 $60,272 28 % 42 57
(a) See notes (a) and (c) on page 12. Information for the periods presented excludes the impact of Hilliard Lyons, which was sold on March 31, 2008, including the gain on its sale. (b) Average balance for the third quarter of 2008 reflects a transfer of approximately $400 million of loans, or $225 million on average, to the Corporate & Institutional Banking business segment. (c) Average balance for the first quarter of 2008 reflects a transfer of $140 million to the Corporate & Institutional Banking business segment.
THE PNC FINANCIAL SERVICES GROUP, INC. Retail Banking (Unaudited) (Continued)
Dollars in millions except as noted September 30 2008 June 30 2008 March 31 2008 December 31 2007
Page 14
September 30 2007
OTHER INFORMATION (a) (b) Credit-related statistics: Commercial nonperforming assets Consumer nonperforming assets Total nonperforming assets Commercial net charge-offs Consumer net charge-offs Total net charge-offs (c)
$373 58 $431 $46 35 $81
$304 49 $353 $45 31 $76
$217 42 $259 $61 23 $84
$187 38 $225 $24 21 $45
$104 33 $137 $20 14 $34
Commercial annualized net charge-off ratio 1.16 % 1.11 % 1.59 % .63 % .54 % Consumer annualized net charge-off ratio .60 % .54 % .43 % .40 % .28 % Total annualized net charge-off ratio (c) .83 % .78 % .92 % .50 % .39 % Other statistics: Full-time employees 11,347 11,671 11,014 11,022 10,747 Part-time employees 2,358 2,371 2,322 2,298 2,236 ATMs 4,018 4,015 3,903 3,900 3,870 Branches (d) 1,142 1,153 1,096 1,109 1,072 ASSETS UNDER ADMINISTRATION (in billions) (e) Assets under management Personal $44 $46 $46 $48 $52 Institutional 19 20 19 20 20 Total $63 $66 $65 $68 $72 Asset Type Equity $34 $36 $36 $40 $42 Fixed income 17 17 17 17 19 Liquidity/Other 12 13 12 11 11 Total $63 $66 $65 $68 $72 Nondiscretionary assets under administration Personal $28 $30 $30 $30 $31 Institutional 78 81 81 83 81 Total $106 $111 $111 $113 $112 Asset Type Equity $44 $47 $46 $49 $50 Fixed income 25 27 27 28 27 Liquidity/Other 37 37 38 36 35 Total $106 $111 $111 $113 $112 (a) Presented as of period-end, except for net charge-offs and annualized net charge-off ratios, which are for the three months ended. Information for the periods presented excludes the impact of Hilliard Lyons, which was sold on March 31, 2008. (b) Amounts subsequent to October 26, 2007 include the impact of Yardville. Amounts subsequent to April 4, 2008 include the impact of Sterling. (c) Increase in the first quarter of 2008 related to the impact of aligning small business and consumer loan charge-off policies. (d) Excludes certain satellite branches that provide limited products and service hours. (e) Excludes brokerage account assets.
THE PNC FINANCIAL SERVICES GROUP, INC. Retail Banking (Unaudited) (Continued)
Dollars in millions except as noted September 30 2008 June 30 2008 (b) March 31 2008 December 31 2007 (b)
Page 15
September 30 2007
OTHER INFORMATION (a) (b) Home equity portfolio credit statistics: % of first lien positions (c) Weighted average loan-to-value ratios (c) Weighted average FICO scores (d) Annualized net charge-off ratio Loans 90 days past due Checking-related statistics: Retail Banking checking relationships Consumer DDA households using online banking % of consumer DDA households using online banking Consumer DDA households using online bill payment % of consumer DDA households using online bill payment Small business loans and managed deposits: Small business loans (e) Managed deposits: On-balance sheet Noninterest-bearing demand (f) Interest-bearing demand Money market Certificates of deposit Off-balance sheet (g) Small business sweep checking Total managed deposits Brokerage statistics: Financial consultants (h) Full service brokerage offices Brokerage account assets (billions)
39 73 727 .58 .46
% % % %
39 72 726 .53 .46
% % % %
39 72 725 .35 .42
% % % %
39 73 727 .26 .37
% % % %
39 72 726 .16 .30
% % % %
2,431,000 1,213,000 56 % 841,000 39 % $13,656
2,328,000 2,305,000 2,272,000 1,157,000 1,128,000 1,091,000 56 % 55 % 54 % 768,000 723,000 667,000 37 % 35 % 33 % $13,582 $13,778 $13,049
2,275,000 1,050,000 52 % 604,000 30 % $13,157
$6,106 2,270 3,912 1,077 3,124 $16,489 402 23 $16
$6,043 1,851 3,349 879 2,958 $15,080 394 24 $18
$5,946 1,911 3,398 1,030 2,976 $15,261 387 24 $18
$5,994 1,873 3,152 1,068 2,780 $14,867 364 24 $19
$6,119 2,027 3,389 1,070 2,823 $15,428 359 24 $19
(a) Presented as of period-end, except for the annualized net charge-off ratio, which is for the three months ended. Information for the periods presented excludes the impact of Hilliard Lyons, which was sold on March 31, 2008. (b) This information excludes the impact of acquisitions between PNC's acquisition date and the date of conversion of the acquired companies' data onto PNC's financial and operational systems because such information was not available prior to the conversion date. Therefore, information presented above as of December 31, 2007 (except "Brokerage statistics") excludes the impact of Yardville, which PNC acquired effective October 26, 2007 and converted during March 2008. Also, information presented above as of June 30, 2008 (except "Brokerage statistics") excludes the impact of Sterling, which PNC acquired effective April 4, 2008 and converted during August 2008. (c) Includes loans from acquired portfolios for which lien position and loan-to-value information was limited. (d) Represents the most recent FICO scores we have on file. (e) See note (b) on page 13. (f) Balances for the first quarter of 2008 reflect a transfer of $140 million to the Corporate & Institutional Banking business segment. (g) Represents small business balances. These balances are swept into liquidity products managed by other PNC business segments, the majority of which are off-balance sheet. (h) Financial consultants provide services in full service brokerage offices and PNC traditional branches.
THE PNC FINANCIAL SERVICES GROUP, INC. Corporate & Institutional Banking (Unaudited) (a)
Dollars in millions except as noted September 30 2008 June 30 2008 Three months ended March 31 2008 December 31 2007
Page 16
September 30 2007
INCOME STATEMENT Net interest income Noninterest income Corporate service fees Other Noninterest income Total revenue Provision for credit losses Noninterest expense Pretax earnings (loss) Income taxes (benefit) Earnings AVERAGE BALANCE SHEET Loans Corporate (b) Commercial real estate (c) Commercial - real estate related Asset-based lending Total loans (b) Goodwill and other intangible assets Loans held for sale Other assets Total assets Deposits Noninterest-bearing demand Money market Other Total deposits Other liabilities Capital Total funds PERFORMANCE RATIOS Return on average capital Noninterest income to total revenue Efficiency COMMERCIAL MORTGAGE SERVICING PORTFOLIO (in billions) Beginning of period Acquisitions/additions Repayments/transfers End of period OTHER INFORMATION Consolidated revenue from: (d) Treasury Management Capital Markets Commercial mortgage securitizations and valuations (e) Commercial mortgage loan servicing (f) Commercial mortgage banking activities Total loans (g) Nonperforming assets (g) Net charge-offs Full-time employees (g) Net carrying amount of commercial mortgage servicing rights (g)
$254 159 (51) 108 362 31 236 95 23 $72
$250 145 87 232 482 72 210 200 66 $134
$241 123 (122) 1 242 49 215 (22) (24) $2
$237 137 25 162 399 69 222 108 17 $91
$204 161 23 184 388 55 211 122 35 $87
$12,635 5,828 3,015 5,321 26,799 2,260 1,897 5,930 $36,886 $7,502 5,268 2,323 15,093 5,128 2,705 $22,926 11 % 30 65
$11,879 5,501 2,939 5,241 25,560 2,239 2,204 5,889 $35,892 $7,393 5,301 2,195 14,889 4,905 2,436 $22,230 22 % 48 44
$11,333 5,146 2,902 4,974 24,355 2,191 2,418 6,281 $35,245 $7,481 5,026 2,029 14,536 5,679 2,462 $22,677
$10,747 4,938 2,637 4,748 23,070 2,232 1,781 4,641 $31,724 $7,851 4,995 1,818 14,664 4,452 2,357 $21,473 15 % 41 56
$10,108 4,538 2,347 4,601 21,594 2,085 1,207 4,544 $29,430 $7,238 4,960 1,436 13,634 3,109 2,132 $18,875 16 % 47 54
89 %
$248 7 (8) $247
$244 11 (7) $248
$243 5 (4) $244
$244 8 (9) $243
$222 36 (14) $244
$137 $80 $(56) 55 $(1) $28,232 $391 $39 2,305 $698
$133 $104 $49 56 $105 $26,075 $329 $35 2,310 $681
$133 $76 $(146) 50 $(96) $24,981 $317 $15 2,218 $678
$131 $74 $(12) 58 $46 $23,861 $243 $39 2,290 $694
$121 $73 $1 65 $66 $22,455 $141 $15 2,267 $708
(a) See note (a) on page 12. (b) Includes lease financing. (c) Average balance for the third quarter of 2008 reflects a transfer of approximately $400 million of loans, or $225 million on average, from the Retail Banking business segment. (d) Represents consolidated PNC amounts. (e) Includes valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, origination fees, gains on sale of loans held for sale and net interest income on loans held for sale. (f) Includes net interest income and noninterest income from loan servicing and ancillary services. (g) Presented as of period end.
THE PNC FINANCIAL SERVICES GROUP, INC. Global Investment Servicing (Unaudited) (a)
Dollars in millions except as noted September 30 2008 June 30 2008 Three months ended March 31 2008 December 31 2007
Page 17
September 30 2007
INCOME STATEMENT Servicing revenue (b) $243 Operating expense (b) 187 Operating income 56 Debt financing 7 Nonoperating income (c) 1 Pretax earnings 50 Income taxes 16 Earnings $34 PERIOD-END BALANCE SHEET Goodwill and other intangible assets $1,306 Other assets 3,195 Total assets $4,501 Debt financing $885 Other liabilities 2,927 Shareholder's equity 689 Total funds $4,501 PERFORMANCE RATIOS Return on average equity 20 % Operating margin (d) 23 SERVICING STATISTICS (at period end) Accounting/administration net fund assets (in billions)(e) Domestic $806 Offshore 101 Total $907 Asset type (in billions)(e) Money market $387 Equity 308 Fixed income 116 Other 96 Total $907 Custody fund assets (in billions) $415 Shareholder accounts (in millions) Transfer agency 17 Subaccounting 56 Total 73 OTHER INFORMATION Period-end full-time employees 4,969
$244 186 58 8 1 51 18 $33 $1,305 1,301 $2,606 $935 1,005 666 $2,606 20 % 24
$238 181 57 11 1 47 17 $30 $1,311 1,388 $2,699 $986 1,070 643 $2,699 19 % 24
$223 167 56 10 1 47 15 $32 $1,315 1,161 $2,476 $989 865 622 $2,476 21 % 25
$216 159 57 9 2 50 17 $33 $1,002 1,169 $2,171 $702 878 591 $2,171 23 % 26
$862 126 $988 $400 358 126 104 $988 $471 19 55 74 4,946
$875 125 $1,000 $413 358 128 101 $1,000 $476 19 57 76 4,865
$869 121 $990 $373 390 123 104 $990 $500 19 53 72 4,784
$806 116 $922 $328 377 117 100 $922 $497 19 51 70 4,504
(a) See note (a) on page 12. (b) Certain out-of-pocket expense items which are then client billable are included in both servicing revenue and operating expense above, but offset each other entirely and therefore have no net effect on operating income. Distribution revenue and expenses which relate to 12b-1 fees that are received from certain fund clients for the payment of marketing, sales and service expenses also entirely offset each other, but are netted for presentation purposes above. (c) Net of nonoperating expense. (d) Total operating income divided by servicing revenue. (e) Includes alternative investment net assets serviced.
THE PNC FINANCIAL SERVICES GROUP, INC. Glossary of Terms
Page 18
Accounting/administration net fund assets - Net domestic and foreign fund investment assets for which we provide accounting and administration services. We do not include these assets on our Consolidated Balance Sheet. Adjusted average total assets - Primarily comprised of total average quarterly (or annual) assets plus (less) unrealized losses (gains) on available for sale debt securities, less goodwill and certain other intangible assets (net of eligible deferred taxes). Annualized - Adjusted to reflect a full year of activity. Assets under management - Assets over which we have sole or shared investment authority for our customers/clients. We do not include these assets on our Consolidated Balance Sheet. Basis point - One hundredth of a percentage point. Charge-off - Process of removing a loan or portion of a loan from our balance sheet because it is considered uncollectible. We also record a charge-off when a loan is transferred to held for sale by reducing the carrying amount by the allowance for loan losses associated with such loan or, if the market value is less than its carrying amount, by the amount of that difference. Common shareholders’ equity to total assets - Common shareholders' equity divided by total assets. Common shareholders' equity equals total shareholders' equity less the liquidation value of preferred stock. Credit spread - The difference in yield between debt issues of similar maturity. The excess of yield attributable to credit spread is often used as a measure of relative creditworthiness, with a reduction in the credit spread reflecting an improvement in the borrower’s perceived creditworthiness. Custody assets - Investment assets held on behalf of clients under safekeeping arrangements. We do not include these assets on our Consolidated Balance Sheet. Investment assets held in custody at other institutions on our behalf are included in the appropriate asset categories on the Consolidated Balance Sheet as if physically held by us. Derivatives - Financial contracts whose value is derived from publicly traded securities, interest rates, currency exchange rates or market indices. Derivatives cover a wide assortment of financial contracts, including forward contracts, futures, options and swaps. Duration of equity - An estimate of the rate sensitivity of our economic value of equity. A negative duration of equity is associated with asset sensitivity (i.e., positioned for rising interest rates), while a positive value implies liability sensitivity (i.e., positioned for declining interest rates). For example, if the duration of equity is +1.5 years, the economic value of equity declines by 1.5% for each 100 basis point increase in interest rates. Earning assets - Assets that generate income, which include: federal funds sold; resale agreements; trading securities and other short-term investments; loans held for sale; loans, net of unearned income; securities; and certain other assets. Economic capital - Represents the amount of resources that a business segment should hold to guard against potentially large losses that could cause insolvency. It is based on a measurement of economic risk, as opposed to risk as defined by regulatory bodies. The economic capital measurement process involves converting a risk distribution to the capital that is required to support the risk, consistent with our target credit rating. As such, economic risk serves as a “common currency” of risk that allows us to compare different risks on a similar basis. Effective duration - A measurement, expressed in years, that, when multiplied by a change in interest rates, would approximate the percentage change in value of on- and off- balance sheet positions.
THE PNC FINANCIAL SERVICES GROUP, INC. Glossary of Terms (Continued)
Page 19
Efficiency - Noninterest expense divided by the sum of net interest income (GAAP basis) and noninterest income. Fair value – The price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date using the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. Funds transfer pricing - A management accounting methodology designed to recognize the net interest income effects of sources and uses of funds provided by the assets and liabilities of a business segment. We assign these balances LIBOR-based funding rates at origination that represent the interest cost for us to raise/invest funds with similar maturity and repricing structures. Futures and forward contracts - Contracts in which the buyer agrees to purchase and the seller agrees to deliver a specific financial instrument at a predetermined price or yield. May be settled either in cash or by delivery of the underlying financial instrument. GAAP - Accounting principles generally accepted in the United States of America. Leverage ratio - Tier 1 risk-based capital divided by adjusted average total assets. Net interest income from loans and deposits - A management accounting assessment, using funds transfer pricing methodology, of the net interest contribution from loans and deposits. Net interest margin - Annualized taxable-equivalent net interest income divided by average earning assets. Nondiscretionary assets under administration - Assets we hold for our customers/clients in a nondiscretionary, custodial capacity. We do not include these assets on our Consolidated Balance Sheet. Noninterest income to total revenue - Noninterest income divided by the sum of net interest income (GAAP basis) and noninterest income. Nonperforming assets - Nonperforming assets include nonaccrual loans, troubled debt restructured loans, foreclosed assets and other assets. We do not accrue interest income on assets classified as nonperforming. Nonperforming loans - Nonperforming loans include loans to commercial, commercial real estate, lease financing, consumer, and residential mortgage customers as well as troubled debt restructured loans. Nonperforming loans do not include loans held for sale or foreclosed and other assets. We do not accrue interest income on loans classified as nonperforming. Notional amount - A number of currency units, shares, or other units specified in a derivatives contract. Operating leverage - The period to period percentage change in total revenue (GAAP basis) less the percentage change in noninterest expense. A positive percentage indicates that revenue growth exceeded expense growth (i.e., positive operating leverage) while a negative percentage implies expense growth exceeded revenue growth (i.e., negative operating leverage). Recovery - Cash proceeds received on a loan that we had previously charged off. We credit the amount received to the allowance for loan and lease losses. Return on average assets – Annualized net income divided by average assets. Return on average capital - Annualized net income divided by average capital. Return on average common shareholders’ equity - Annualized net income less preferred stock dividends divided by average common shareholders’ equity.
THE PNC FINANCIAL SERVICES GROUP, INC. Glossary of Terms (Continued)
Page 20
Return on average tangible common shareholders’ equity – Annualized net income less preferred stock dividends divided by average common shareholders’ equity less goodwill and other intangible assets (net of deferred taxes for both taxable and nontaxable combinations), and excluding mortgage servicing rights. Risk-weighted assets - Primarily computed by the assignment of specific risk-weights (as defined by the Board of Governors of the Federal Reserve System) to assets and off-balance sheet instruments. Securitization - The process of legally transforming financial assets into securities. Tangible common equity ratio - Period-end common shareholders’ equity less goodwill and other intangible assets (net of eligible deferred taxes), and excluding mortgage servicing rights, divided by period-end assets less goodwill and other intangible assets (net of deferred taxes), and excluding mortgage servicing rights. Taxable-equivalent interest - The interest income earned on certain assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of yields and margins for all interest-earning assets, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on other taxable investments. This adjustment is not permitted under GAAP on the Consolidated Income Statement. Tier 1 risk-based capital - Tier 1 risk-based capital equals: total shareholders' equity, plus trust preferred capital securities, plus certain minority interests that are held by others; less goodwill and certain other intangible assets (net of eligible deferred taxes relating to nontaxable combinations), less equity investments in nonfinancial companies and less net unrealized holding losses on available for sale equity securities. Net unrealized holding gains on available for sale equity securities, net unrealized holding gains (losses) on available for sale debt securities and net unrealized holding gains (losses) on cash flow hedge derivatives are excluded from total shareholders’ equity for Tier 1 risk-based capital purposes. Tier 1 risk-based capital ratio - Tier 1 risk-based capital divided by period-end risk-weighted assets. Total fund assets serviced - Total domestic and offshore fund investment assets for which we provide related processing services. We do not include these assets on our Consolidated Balance Sheet. Total return swap - A non-traditional swap where one party agrees to pay the other the “total return” of a defined underlying asset (e.g., a loan), usually in return for receiving a stream of LIBOR-based cash flows. The total returns of the asset, including interest and any default shortfall, are passed through to the counterparty. The counterparty is therefore assuming the credit and economic risk of the underlying asset. Total risk-based capital - Tier 1 risk-based capital plus qualifying subordinated debt and trust preferred securities, other minority interest not qualified as Tier 1, and the allowance for loan and lease losses, subject to certain limitations. Total risk-based capital ratio - Total risk-based capital divided by period-end risk-weighted assets. Transaction deposits - The sum of money market and interest-bearing demand deposits and demand and other noninterest-bearing deposits. Yield curve - A graph showing the relationship between the yields on financial instruments or market indices of the same credit quality with different maturities. For example, a “normal” or “positive” yield curve exists when long-term bonds have higher yields than short-term bonds. A “flat” yield curve exists when yields are the same for short-term and long-term bonds. A “steep” yield curve exists when yields on long-term bonds are significantly higher than on short-term bonds. An “inverted” or “negative” yield curve exists when short-term bonds have higher yields than long-term bonds.