2013 Annual Report the PNC Financial Services Group, Inc
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Meeting Main Street Growing America PNC Financial Services Group 2013 Annual Report The PNC Financial Services Group, Inc. Financial Highlights Year ended December 31 Dollars in millions, except per share data Financial Results 2013 2012 2011 Net interest income $ 9,147 $ 9,640 $ 8,700 Noninterest income 6,865 5,872 5,626 Total revenue 16,012 15,512 14,326 Noninterest expense 9,801 10,582 9,105 Pretax, pre-provision earnings (non-GAAP) 6,211 4,930 5,221 Provision for credit losses 643 987 1,152 Net income $ 4,227 $ 3,001 $ 3,071 Diluted earnings per common share $ 7.39 $ 5.30 $ 5.64 Cash dividends declared per common share $ 1.72 $ 1.55 $ 1.15 Balance Sheet At year end 2013 2012 2011 Assets $ 320,296 $ 305,107 $ 271,205 Loans 195,613 185,856 159,014 Deposits 220,931 213,142 187,966 Shareholders’ equity 42,408 39,003 34,053 Book value per common share $ 72.21 $ 67.05 $ 61.52 Tangible book value per common share (non-GAAP) $ 54.68 $ 49.18 $ 45.20 Selected Ratios 2013 2012 2011 Return on average common shareholders’ equity 10.88% 8.31% 9.56% Return on average assets 1.38% 1.02% 1.16% Net interest margin 3.57% 3.94% 3.92% Noninterest income to total revenue 43% 38% 39% Basel I Tier 1 common capital ratio 10.5% 9.6% 10.3% Basel I Tier 1 risk-based capital ratio 12.4% 11.6% 12.6% Pro forma Basel III Tier 1 common capital ratio 9.4% 7.5% PNC believes that pretax, pre-provision earnings serves as a useful tool to help evaluate the ability to provide for credit costs through operations. PNC believes that tangible book value per common share serves as a useful tool to help evaluate the strength and discipline of a company’s capital management strategies and as an additional, conservative measure of total company value. See the Statistical Information (Unaudited) section included in Item 8 of the accompanying 2013 Form 10-K for additional information. PNC’s pro forma Basel III Tier 1 common capital ratio was estimated without benefit of phase-ins and based on estimated Basel III risk-weighted assets, using the lower of the ratio calculated under the standardized and advanced approaches. See the Funding and Capital Resources section included in Item 7 of the accompanying 2013 Form 10-K for additional information. These Financial Highlights should be read in conjunction with disclosures in the accompanying 2013 Form 10-K including the audited financial statements. Certain prior period amounts included in the Financial Highlights have been reclassified to conform with the current period presentation. From the CEO March 3, 2014 “PNC is a Main Street bank, not a Wall Street bank ... We are big enough that no matter where you are or what you need to do, we will be there to help you do it.” - Bill Demchak Dear Shareholders, PNC had a very good year in 2013. We reported record net income of $4.2 billion, or $7.39 per diluted common share, up from $3.0 billion, or $5.30 per diluted common share, in 2012. Our return on average assets was 1.38 percent. We grew commercial and consumer loans combined by $9.8 billion and deposits by $7.8 billion. And our diversified business mix contributed to growth in noninterest income of 17 percent. These results provide an important measure of validation of the strategy that we have been executing in recent years to capitalize on the opportunities % created by our recent growth. And our stock price performance reflects 33Increase in stock price that work as well. Our stock climbed from $58.31 on December 31, 2012, performance to $77.58 on December 31, 2013, an increase of 33 percent. Our earnings and capital strength supported our decision in April 2013 to increase the common stock dividend beginning in the second quarter of 2013 for the third time in as many years. Our dividend yield as of December 31, 2013, was 2.3 percent, and we believe we are well positioned to return additional capital to shareholders going forward, subject to the regulatory Comprehensive Capital Analysis and Review (CCAR) process. While it was a good year, we are still operating in a challenging and dynamic environment. Banks must adapt to new realities, and PNC is up to the challenge. PNC has grown dramatically over the last six years. We have more than doubled in size – growing assets to $320 billion – and expanded to new markets in the Midwest and Southeast. But that has not changed who we are, what we believe in or the model that has enabled us to truly be a part of the communities in which we do business. Total assets $320 PNC is a Main Street bank, not a Wall Street bank. We work to ensure small at year end businesses can meet their payroll, veterinarians can finance new X-ray machines Billions and manufacturers can get goods to market. We help people buy cars to get themselves to work and their kids to soccer practice. We help mothers and $139 fathers save to send their children to college, and then we help those young adults learn to manage their finances. We are big enough that no matter where you are or what you need to do, we will be there to help you do it. We help make 2007 2013 America – the real America – go. That was true before the financial crisis, it was true through the crisis, and it will be true for generations to come. Ours is a model that has served our shareholders, customers, communities and employees well. Progress on our priorities Our strategic priorities are aligned to expand market share, deepen relationships, increase fee income and improve operating results, leading to sustainable growth and long-term value for our shareholders. In 2013 we made important progress against each priority. Driving growth in new and underpenetrated markets In 2013, as the competitive landscape changed, the Northeast. And our results in the Southeast, the fight to win new clients became more where we only fully established our presence a intense and, at times, irrational. In response, year ago, continue to outpace our expectations our focus shifted from adding new clients at as we work aggressively to raise awareness the pace we had in previous years to targeting of our brand, capture market share and build specific products and markets for growth and franchise value. cultivating the relationships we already enjoy In this environment and at this point in the with our existing clients in order to gain greater economic cycle, the keys to creating sustainable share of wallet. growth – especially in our recently acquired By design, we did not add new clients and underpenetrated markets – are disciplined indiscriminately in 2013. Still, Corporate adherence to our risk management strategy and and Institutional Banking and our Asset deepening the relationships we already enjoy Management Group (AMG) saw sales and with clients who may have begun with a loan or cross-sales continue to grow. In the Midwest, checking account but have come to trust us with markets we entered in just the last five years more of their business in the months and years saw performance levels climb nearer to what since those relationships were established. we experience in our traditional markets across Capturing more investable assets Our business is built on relationships. The more increases in the equity markets and Assets under we can help our clients to define and achieve strong sales production. Assets under administration at year end their financial goals, the more they will trust us administration increased 10 percent Billions to help meet their needs and the stronger, more to $247 billion as of December 31, $247 $224 profitable our relationships will be. 2013. And in a sign of how our entire team has committed to this goal, retail To that end, we have worked to make investing banking brokerage managed account and retirement a part of every client conversation, assets increased 35 percent to and we have established related goals for all $9 billion. 2012 2013 client-facing employees across the company. Importantly, nearly 90 percent of our wealth The results in just the first 18 months or so of clients rate the PNC Wealth Management team this effort have been terrific as our entire team as “excellent” and say they are extremely likely has committed to the goal. to remain PNC Wealth Management clients. Within AMG, new primary client acquisitions Our institutional client satisfaction has increased increased by 22 percent in 2013, with referral as well, with 80 percent describing themselves sales from other PNC lines of business up as “committed” or “loyal,” a testament to the 44 percent compared to a year ago. AMG grew strength of the relationships we work to build total revenue 7 percent year over year due to with our clients through time. Redefining the retail banking business In light of the current operating environment mobile increased to 30 percent of total deposit and in recognition of our customers’ evolving transactions – nearly double the rate in the preferences, we took important steps in 2013 fourth quarter of 2012. to redefine the retail banking experience and Clearly, the retail banking industry has to adapt the value exchange between the bank and our to meet consumers where, when and how they retail customers. want to bank. And PNC is taking bold steps in Retail banking is evolving faster than at any the direction of our customers.