PNC Financial Services Group, Inc. Q1 2010 Earnings Call Transcript

PNC Financial Services Group, Inc. Q1 2010 Earnings Call Transcript
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PNC Financial Services Group, Inc. (PNC)

Q1 2010 Earnings Call

April 22, 2010 8:30 am ET

Executives

William Callihan – Executive Vice President, Director Investor Relations

James Rohr – Chairman, Chief Executive Officer

Richard Johnson – Executive Vice President, Chief Financial Officer

Analysts

Michael Mayo – CLSA

William Wallace – FBR Capital Markets

John McDonald – Sanford Bernstein

Matthew O’Connor – Deutsche Bank

Edward Najarian – ISI Group

Matthew Burnell – Wells Fargo

Kenneth Usdin – Bank of America

Heather Wolf – UBS

Meredith Whitney – Meredith Whitney Advisory Group

Rick Weiss – Janney Capital Markets

Presentation

Operator

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I would like to welcome everyone to the PNC Financial Services Group first quarter earning conference call. (Operator Instructions) Mr. Callihan, you may begin your conference.

William

Calli

han

Good morning everyone. Welcome to today’s conference call for the PNC Financial Services Group. Participating on our call will be PNC’s Chairman and Chief Executive Officer Jim Rohr, and Rick Johnson, Executive Vice President and Chief Financial Officer.

The following statements contain forward-looking information. Actual results and future events could differ possibly materially from those we anticipate in our statement and from our historical performance due to a variety of factors. Those factors include items described in today’s conference call press release and related materials and on our most recent 10-K and various other SEC filings available on our corporate website. These statements speak only as of April 22, 2010 and PNC undertakes no obligation to update them.

We will also provide details of reconciliations to GAAP and non-GAAP financial measures we may discuss. These details may be found in today’s conference call press release and financial supplement in our presentation slides and appendix and in various SEC reports and other documents. These are all available on our corporate website pnc.com in the investor relations section.

I’d now like to turn the call over to Jim Rohr.

James Rohr

Good morning everyone. Thank you for joining us. First of all, I’d like to just say how pleased we are with the quarter. The financials speak for themselves and I think they’re relatively straightforward, but the quarter was actually even better than that.

A year ago at this time, I said that our goals were to successfully integrate National City and achieve our cost savings goal, build out capital positions and repay TARP, transition our balance sheet to reflect a more moderate risk profile, have our credit costs normalized in line with the economy and to deliver a return on assets of greater than 1.3%.

Our first quarter performance reflects the tremendous progress we’ve made against all of these strategic objectives. We posted well-diversified revenue, reduced expenses and improved credit costs. In addition, we had several major accomplishments.

First, this quarter we redeemed our TARP preferred stock and issued common equity. Second, we announced plans to sell Global Investment Servicing at an attractive multiple, which will allow us to focus our capital more on our banking businesses.

And third, the conversion of National City is now three-quarters complete with more than 1,000 branches and more than four million National City business and consumer customers now onto PNC’s technology platform. The final branch conversion wave is slated for early June.

On our next quarterly call, I expect to tell you that we’ve successfully completed the branch conversion process almost six months ahead of our original schedule, and at the same time, we remain confident that we will exceed our annualized run rate acquisition cost savings goal of $1.5 billion, well ahead of plan.

This is truly a result of the great work of our 56,000 employees and they also produced strong first quarter earnings of $671 million or $0.66 per diluted common share, and financially, the quarter was even better than that.

The early redemption of our TARP preferred shares resulted in a $0.50 reduction in our earnings per share excluding integration costs of $0.15 per diluted common share, first quarter earnings per diluted common share would have been $1.31, an increase of 46% on a linked quarter basis, and up 18% compared to the same period last year, and that is after adjusting those quarters as well for integrations costs and the fourth quarter gain of course from the Blackrock BGI transaction. Page 16 of the press release summarizes these few adjustments.

Now our $1.31 in diluted earnings per common share this quarter reflected a final TARP dividend payment of $89 million or $0.18 per diluted common share. These results were driven by a larger distribution platform, which helped us deliver $3.8 billion in first quarter revenue. Our first quarter net interest income reflects our continued success in re-pricing our deposit while maintaining yield on our earning assets. Our balance sheet is highly liquid and well positioned to support increased demand for credit as the economy recovers.

In non-interest income improvements in the equity markets drove higher first quarter asset management fees. We also saw year over year growth in corporate fees, reflecting success with our cross selling efforts.

Consumer fees were down linked quarter primarily due to seasonally lower credit card fees, and lower brokerage fees. These trends show us that as the economy recovers, there are greater opportunities for growth in client related fee based income.

With regards to credit costs, our first quarter provision was $751 million, down 28% on a linked quarter basis. Assuming a moderate growth in the economy, it appears that our provision may have peaked in the fourth quarter of 2009.

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