PNC Bank 2007 Annual Report Download

James E. Rohr
Chairman and Chief Executive Officer
To Our Shareholders:
I am pleased to report that The PNC Financial Services Group had a good year in 2007. Our
businesses produced strong results, and we moved forward with strategic acquisitions that
enhance our market position.
Through the efforts of our 28,000 dedicated employees, we deepened customer relationships,
deployed capital to grow our businesses, maintained a moderate risk profile, and grew revenue
faster than expenses on an adjusted basis.*
As a result, we generated net income of $1.5 billion and grew net income on an adjusted basis to
$1.7 billion, its highest level in our history. We increased net interest income and continued to
manage expenses effectively. And through growth and acquisitions, our assets reached a record
$139 billion.
We achieved these results during a time of unprecedented market volatility, causing many in the
financial services industry to announce substantial losses, writedowns and workforce reductions.
Our strategic decision making enabled us to substantially avoid subprime mortgages and many
of the other issues currently affecting our industry, and we are satisfied with how our business is
positioned.
Unfortunately, fourth quarter performance did fall short of expectations due to a combination of
market volatility and credit deterioration in our commercial real estate portfolio. In this
challenging environment, our diversified business mix and the continued execution of our
strategic priorities served as points of differentiation in the marketplace.
Our performance in recent years, including our double-digit dividend increases, provided our
shareholders with very strong returns. In fact, our total shareholder returns on a three-, and five-
year basis rank us first among our peers; for 2007, PNC ranked second.**
Our business strategies, fueled by the energy and enthusiasm of our employees, will propel PNC
on its journey to become a great company.
We continued to grow the number of customers we serve. Attracting customers, deepening
those relationships and working to increase satisfaction drove strong results in all of our
businesses. In our Retail Banking segment, our focus is to win in the payments space.
*Reported revenue, noninterest expense and net income for 2007 and 2006 were $6.705 billion, $4.296 billion and $1.467 billion, and $8.572 billion,
$4.443 billion and $2.595 billion, respectively. Reported operating leverage for 2007 was (19%). Adjusted revenue, adjusted noninterest expense and
adjusted net income for 2007 and 2006 were $6.836 billion, $4.112 billion and $1.702 billion, and $5.807 billion, $3.587 billion and $1.514 billion,
respectively. Adjusted operating leverage for 2007 was 3%. The full-year impact of adjusted items included, on an after-tax basis, a $1.3 billion gain
on the BlackRock/Merrill Lynch Investment Managers transaction, a $31 million loss on the repositioning of PNC’s mortgage loan portfolio, and
a $127 million loss on the rebalancing of PNC’s securities portfolio for 2006; $47 million and $99 million of integration costs, and $83 million and
$7 million of charges in connection with our BlackRock LTIP shares obligation for 2007 and 2006, respectively, and a $53 million charge related to
Visa indemnification for 2007. Additionally, reported revenue and noninterest expense for 2006 were also adjusted as if we had recorded our
investment in BlackRock on the equity method for the full year, thereby reducing reported revenue and reported noninterest expense by $953 million
and $765 million, respectively. Other references to adjusted results reflect the same adjustments, as appropriate.
** PNC’s 2007 peer group consists of BB&T Corporation, Comerica Incorporated, Fifth Third Bancorp, KeyCorp, National City Corporation, Regions
Financial Corporation, SunTrust Banks, U.S. Bancorp, Wachovia Corporation, and Wells Fargo & Company.
The PNC Financial Services Group
One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222-2707