N ET I NTEREST I NCOME AND N ET I NTEREST M ARGIN for PNC FINANCIAL SERVICES GROUP INC (PNC)

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PNC » Topics » N ET I NTEREST I NCOME AND N ET I NTEREST M ARGIN

This excerpt taken from the PNC 10-Q filed May 11, 2009.

NET INTEREST INCOME AND NET INTEREST MARGIN


	Three months ended March 31
Dollars in millions	2009			2008
Net interest income	$	2,305		$	854
Net interest margin		3.81	%		3.09	%

In addition to the first quarter 2009 impact of National City, changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

The increase in net interest income for the first three months of 2009 compared with the first three months of 2008 reflected the increase in average interest-earning assets due to National City and the improvement in the net interest margin described below.

We expect net interest income and net interest margin for the remainder of 2009 to be flat to down compared with the first quarter of 2009 as the maturity of higher-yielding assets will be partially offset by interest-bearing deposit re-pricing, assuming our current expectations for interest rates and economic conditions. We include our current economic assumptions underlying our forward-looking statements in the Cautionary Statement Regarding Forward-Looking Information section of this Financial Review.

The net interest margin was 3.81% for the first three months of 2009 and 3.09% for the first three months of 2008. The following factors impacted the comparison:

•

A decrease in the rate paid on interest-bearing liabilities of 126 basis points. The rate paid on interest-bearing deposits, the largest component, decreased 138 basis points.

•

These factors were partially offset by a 45 basis point decrease in the yield on interest-earning assets. The yield on loans, which represented a larger portion of our earning assets in the first quarter of 2009, decreased 46 basis points.

•

In addition, the impact of noninterest-bearing sources of funding decreased 9 basis points due to lower interest rates and a lower proportion of noninterest-bearing sources of funding to interest-earning assets.

For comparing to the broader market, during the first three months of 2009 the average federal funds rate was .19% compared with 3.17% for the first three months of 2008.

This excerpt taken from the PNC 10-K filed Mar 2, 2009.

NET INTEREST INCOME AND NET INTEREST MARGIN


Year ended December 31 Dollars in millions	2008			2007
Net interest income	$	3,823		$	2,915
Net interest margin		3.37	%		3.00	%

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See Statistical Information – Analysis Of Year-To-Year Changes In Net Interest (Unaudited) Income And Average Consolidated Balance Sheet and Net Interest Analysis in Item 8 of this Report for additional information.

The 31% increase in net interest income for 2008 compared with 2007 was favorably impacted by the $16.5 billion, or 17%, increase in average interest-earning assets and a decrease in funding costs. The 2008 net interest margin was positively affected by declining rates paid on deposits and borrowings compared with the prior year. The reasons driving the higher interest-earning assets in these comparisons are further discussed in the Balance Sheet Highlights portion of the Executive Summary section of this Item 7.

The net interest margin was 3.37% for 2008 and 3.00% for 2007. The following factors impacted the comparison:

•

A decrease in the rate paid on interest-bearing liabilities of 140 basis points. The rate paid on interest-bearing deposits, the single largest component, decreased 123 basis points.

•

These factors were partially offset by a 77 basis point decrease in the yield on interest-earning assets. The yield on loans, the single largest component, decreased 109 basis points.

•

In addition, the impact of noninterest-bearing sources of funding decreased 26 basis points due to lower interest rates and a lower proportion of noninterest-bearing sources of funding to interest-earning assets.

For comparing to the broader market, during 2008 the average federal funds rate was 1.94% compared with 5.03% for 2007.

We expect our full-year 2009 net interest income to benefit from the impact of interest accretion of discounts resulting from purchase accounting marks and deposit pricing

alignment related to our National City acquisition. We also currently expect our 2009 net interest margin to improve on a year-over-year basis.

This excerpt taken from the PNC 10-Q filed Nov 6, 2008.

NET INTEREST INCOME AND NET INTEREST MARGIN


	Three months ended						Nine months ended
Dollars in millions	Sept. 30 2008			Sept. 30 2007			Sept. 30 2008			Sept. 30 2007
Net interest income	$	1,000		$	761		$	2,831		$	2,122
Net interest margin		3.46	%		3.00	%		3.34	%		3.00	%

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

The 33% increase in net interest income for the first nine months of 2008 compared with the first nine months of 2007 was favorably impacted by the $18.5 billion, or 20%, increase in average interest-earning assets and a decrease in funding costs. Similarly, the 31% increase in net interest income for the third quarter of 2008 compared with the third quarter of 2007 reflected the $14.4 billion, or 14%, increase in average interest-earning assets over this period and a decrease in funding costs. Wider net interest margins also benefited the 2008 periods in both the third quarter and first nine months comparisons. The reasons driving the higher interest-earning assets in these comparisons are further discussed in the Balance Sheet Highlights portion of the Executive Summary section of this Financial Review.

We expect net interest income growth will be approximately 30% for full year 2008 compared with 2007, assuming our current expectations for interest rates and economic conditions. We include our current economic assumptions underlying our forward-looking statements in the Cautionary Statement Regarding Forward-Looking Information section of this Financial Review.

The net interest margin was 3.34% for the first nine months of 2008 and 3.00% for the first nine months of 2007. The following factors impacted the comparison:

•

A decrease in the rate paid on interest-bearing liabilities of 134 basis points. The rate paid on

interest-bearing deposits, the single largest component, decreased 117 basis points.

•

These factors were partially offset by a 71 basis point decrease in the yield on interest-earning assets. The yield on loans, the single largest component, decreased 98 basis points.

•

In addition, the impact of noninterest-bearing sources of funding decreased 29 basis points due to lower interest rates and a lower proportion of noninterest-bearing sources of funding to interest-earning assets.

The net interest margin was 3.46% for the third quarter of 2008 and 3.00% for the third quarter of 2007. The following factors impacted the comparison:

•

A decrease in the rate paid on interest-bearing liabilities of 170 basis points. The rate paid on interest-bearing deposits, the single largest component, decreased 147 basis points.

•

These factors were partially offset by a 95 basis point decrease in the yield on interest-earning assets. The yield on loans, the single largest component, decreased 136 basis points.

•

For comparing to the broader market, during the first nine months of 2008 the average federal funds rate was 2.40% compared with 5.20% for the first nine months of 2007. The average federal funds rate was 1.96% for the third quarter of 2008 compared with 5.09% for the third quarter of 2007.

We believe that net interest margins for our industry will continue to be impacted by competition for high quality loans and deposits and customer migration from lower to higher rate deposit or other products. We expect our net interest margin to improve for full year 2008 compared with 2007.

This excerpt taken from the PNC 10-Q filed Aug 8, 2008.

NET INTEREST INCOME AND NET INTEREST MARGIN


	Three months ended						Six months ended
Dollars in millions	June 30 2008			June 30 2007			June 30 2008			June 30 2007
Net interest income	$	977		$	738		$	1,831		$	1,361
Net interest margin		3.47	%		3.03	%		3.28	%		3.00	%

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information - Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

The 35% increase in net interest income for the first six months of 2008 compared with the first six months of 2007 was favorably impacted by the $20.6 billion, or 22%, increase in average interest-earning assets. Similarly, the 32% increase in net interest income for the second quarter of 2008 compared with the second quarter of 2007 reflected the $15.2 billion, or 15%, increase in average interest-earning assets over this period and a decrease in funding costs. Wider net interest margins also benefited the 2008 periods in both the second quarter and first half comparisons. The reasons driving the higher interest-earning assets in these comparisons are further discussed in the Balance Sheet Highlights portion of the Executive Summary section of this Financial Review.

We expect net interest income growth will exceed 28% for full year 2008 compared with 2007, assuming our current expectations for interest rates and economic conditions. We include our current economic assumptions underlying our forward-looking statements in the Cautionary Statement Regarding Forward-Looking Information section of this Financial Review.

The net interest margin was 3.28% for the first half of 2008 and 3.00% for the first half of 2007. The following factors impacted the comparison:

•

A decrease in the rate paid on interest-bearing liabilities of 114 basis points. The rate paid on interest-bearing deposits, the single largest component, decreased 102 basis points.

•

These factors were partially offset by a 58 basis point decrease in the yield on interest-earning assets. The yield on loans, the single largest component, decreased 79 basis points.

•

In addition, the impact of noninterest-bearing sources of funding decreased 28 basis points due to lower interest rates and a lower proportion of noninterest-bearing sources of funding to interest-earning assets.

The net interest margin was 3.47% for the second quarter of 2008 and 3.03% for the second quarter of 2007. The following factors impacted the comparison:

•

A decrease in the rate paid on interest-bearing liabilities of 151 basis points. The rate paid on interest-bearing deposits, the single largest component, decreased 132 basis points.

•

These factors were partially offset by a 76 basis point decrease in the yield on interest-earning assets. The yield on loans, the single largest component, decreased 105 basis points.

•

In addition, the impact of noninterest-bearing sources of funding decreased 31 basis points due to lower interest rates and a lower proportion of noninterest-bearing sources of funding to interest-earning assets.

For comparing to the broader market, during the first six months of 2008 the average federal funds rate was 2.62% compared with 5.25% for the first six months of 2007. The average federal funds rate was 2.09% for the second quarter of 2008 compared with 5.25% for the second quarter of 2007.

This excerpt taken from the PNC 10-Q filed May 12, 2008.

NET INTEREST INCOME AND NET INTEREST MARGIN


	Three months ended March 31
Dollars in millions	2008			2007
Taxable-equivalent net interest income	$	863		$	629
Net interest margin		3.09	%		2.95	%

We provide a reconciliation of net interest income as reported under GAAP to net interest income presented on a taxable-equivalent basis in the Consolidated Financial Highlights section on page 1 of this Report.

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information-Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

The 37% increase in taxable-equivalent net interest income for the first three months of 2008 compared with the first three months of 2007 was consistent with the $26.1 billion, or 31%, increase in average interest-earning assets and wider net interest margin over this period. The reasons driving the higher interest-earning assets in the comparison are further discussed in the Balance Sheet Highlights portion of the Executive Summary section of this Financial Review.

We expect net interest income to be at least 20% higher for full year 2008 compared with 2007, assuming our current expectations for interest rates and economic conditions. Our forward-looking statements are based on our current expectations that interest rates will remain low through most of 2008 with continued wide market credit spreads and our view that national economic conditions currently point toward a mild recession.

The net interest margin was 3.09% for the first quarter of 2008 and 2.95% for the first quarter of 2007. The following factors impacted the comparison:

•

The Mercantile acquisition.

•

A decrease in the rate paid on interest-bearing liabilities of 78 basis points. The rate paid on interest-bearing deposits, the single largest component, decreased 70 basis points.

•

These factors were partially offset by a 40 basis point decrease in the yield on interest-earning assets. The

yield on loans, the single largest component, decreased 50 basis points.

•

In addition, the impact of noninterest-bearing sources of funding decreased 24 basis points due to lower interest rates and a lower proportion of noninterest-bearing sources of funding to interest-earning assets.

Comparing yields and rates paid to the broader market, during the first three months of 2008, the average federal funds rate was 3.17% compared with 5.26% for the first three months of 2007.

This excerpt taken from the PNC 10-Q filed Nov 8, 2007.

NET INTEREST INCOME AND NET INTEREST MARGIN


	Three months ended						Nine months ended
Dollars in millions	Sept. 30 2007			Sept. 30 2006			Sept. 30 2007			Sept. 30 2006
Taxable-equivalent net interest income	$	767		$	574		$	2,142		$	1,699
Net interest margin		3.00	%		2.89	%		3.00	%		2.92	%

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See Statistical Information-Average Consolidated Balance Sheet And Net Interest Analysis included on pages 69 and 70 of this Report for additional information.

The 26% increase in taxable-equivalent net interest income for the first nine months of 2007 compared with the first nine months of 2006 was consistent with the $17.5 billion, or 23%, increase in average interest-earning assets over these periods. Similarly, the 34% increase in taxable-equivalent net interest income for the third quarter of 2007 compared with the prior year quarter reflected the $22.7 billion, or 29%, increase in average interest-earning assets over these quarters. The reasons driving the higher interest-earning assets in these comparisons are further discussed in the Balance Sheet Highlights portion of the Executive Summary section of this Financial Review.

The net interest margin was 3.00% for the first nine months of 2007 and 2.92% for the first nine months of 2006. The following factors impacted the comparison:

•

The Mercantile acquisition.

•

The yield on interest-earning assets increased 46 basis points. The yield on loans, the single largest component, increased 42 basis points.

•

These factors were partially offset by an increase in the rate paid on interest-bearing liabilities of 41 basis points. The rate paid on interest-bearing deposits, the single largest component, increased 38 basis points.

•

The impact of noninterest-bearing sources of funding increased 3 basis points for the nine months of 2007 due to higher rates.

The net interest margin was 3.00% for the third quarter of 2007 and 2.89% for the third quarter of 2006. The following factors impacted the comparison:

•

The Mercantile acquisition.

•

The yield on interest-earning assets increased 28 basis points. The yield on loans, the single largest component, increased 30 basis points.

•

These factors were partially offset by an increase in the rate paid on interest-bearing liabilities of 11 basis points. The rate paid on interest-bearing deposits, the single largest component, increased 6 basis points.

•

In addition, the impact of noninterest-bearing sources of funding decreased 6 basis points for the third quarter of 2007 as the proportion of average noninterest-bearing sources of funding to average interest-bearing assets declined in the comparison.

Comparing yields and rates paid to the broader market, during the first nine months of 2007, the average federal funds rate was 5.20% compared with 4.87% for the first nine months of 2006. The average federal funds rate was 5.09% during the third quarter of 2007 compared with 5.25% for the third quarter of 2006.

This excerpt taken from the PNC 10-Q filed Aug 8, 2007.

NET INTEREST INCOME AND NET INTEREST MARGIN


	Three months ended						Six months ended
Dollars in millions	June 30 2007			June 30 2006			June 30 2007			June 30 2006
Taxable-equivalent net interest income	$	746		$	562		$	1,375		$	1,125
Net interest margin		3.03	%		2.90	%		3.00	%		2.93	%

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See Statistical Information-Average Consolidated Balance Sheet And Net Interest Analysis included on pages 69 and 70 of this Report for additional information.

The 22% increase in taxable-equivalent net interest income for the first six months of 2007 compared with the first six months of 2006 was consistent with the $14.9 billion, or 19%, increase in average interest-earning assets over these periods. Similarly, the 33% increase in taxable-equivalent net interest income for the second quarter of 2007 compared with the prior year quarter reflected the $20.9 billion, or 27%, increase in average interest-earning assets over these quarters. The reasons driving the higher interest-earning assets in these comparisons are further discussed in the Balance Sheet Highlights portion of the Executive Summary section of this Report.

The net interest margin was 3.00% for the first six months of 2007 and 2.93% for the first six months of 2006. The following factors impacted the comparison:

•

The Mercantile acquisition.

•

The yield on interest-earning assets increased 54 basis points. The yield on loans, the single largest component, increased 48 basis points.

•

The impact of noninterest-bearing sources of funding increased 7 basis points for the first half of 2007 due to higher rates.

•

These factors were partially offset by an increase in the rate paid on interest-bearing liabilities of 54 basis points. The rate paid on interest-bearing deposits, the single largest component, increased 56 basis points.

The net interest margin was 3.03% for the second quarter of 2007 and 2.90% for the second quarter of 2006. The following factors impacted the comparison:

•

The Mercantile acquisition.

•

An adjustment to our cross-border leases that lowered interest income on loans.

•

The yield on interest-earning assets increased 51 basis points. The yield on loans, the single largest component, increased 43 basis points.

•

The impact of noninterest-bearing sources of funding increased 4 basis points for the second quarter of 2007 due to higher rates.

•

These factors were partially offset by an increase in the rate paid on interest-bearing liabilities of 42 basis points. The rate paid on interest-bearing deposits, the single largest component, increased 41 basis points.

For comparing to the broader market, during the first six months of 2007, the average federal funds rate was 5.25% compared with 4.68% for the first six months of 2006. The average federal funds rate was 5.25% during the second quarter of 2007 compared with 4.91% for the second quarter of 2006.

We believe that net interest margins for our industry will continue to be challenged given the current yield curve, as competition for loans and deposits remains intense, as customers continue to migrate from lower rate to higher rate deposits or other products, and as the benefit of adding or repricing investment securities is diminished. However, we expect that our taxable-equivalent net interest income for full year 2007 will grow in the mid-20% range and the net interest margin will improve compared with full year 2006. These expected increases are primarily due to the Mercantile acquisition as well as projected earning asset growth and funding composition and pricing.

This excerpt taken from the PNC 10-Q filed May 9, 2007.

NET INTEREST INCOME AND NET INTEREST MARGIN


		Three months ended
Dollars in millions		Mar. 31, 2007			Mar. 31, 2006
Taxable-equivalent net interest income	$	629		$	563
Net interest margin		2.95	%		2.95	%

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See Statistical Information-Average Consolidated Balance Sheet And Net Interest Analysis included on pages 65 and 66 of this Report for additional information.

The 12% increase in taxable-equivalent net interest income for the first quarter of 2007 compared with the first quarter of 2006 was consistent with the $8.8 billion, or 12%, increase in average interest-earning assets over these periods. The reasons driving the higher interest-earning assets in this comparison are further discussed in the Balance Sheet Highlights portion of the Executive Summary section of this Report.

The net interest margin was 2.95% for both the first quarters of 2007 and 2006. The following factors offset each other in the comparison:

•

The yield on interest-earning assets increased 59 basis points. Loans, the single largest component, increased 54 basis points.

•

The impact of noninterest-bearing sources of funding increased 9 basis points for the first quarter of 2007 due to higher rates.

•

These factors were offset by an increase in the rate paid on interest-bearing liabilities of 68 basis points. The rate paid on interest-bearing deposits, the single large component, increased 71 basis points.

During the first quarter of 2007, the average federal funds rate was 5.26% compared with 4.46% for the first quarter of 2006.

We believe that net interest margins for our industry will continue to be challenged if the yield curve remains flat or inverted, as competition for loans and deposits remains intense, as customers continue to migrate from lower rate to higher rate deposits or other products, and as the benefit of adding or repricing investment securities is diminished. However, we expect that taxable-equivalent net interest income for full year 2007 will grow in the mid-20% range compared with full year 2006 and the net interest margin will improve. These

expected increases are primarily due to the Mercantile acquisition as well as projected earning asset growth, funding composition and pricing, and interest rate changes.

This excerpt taken from the PNC 10-Q filed Nov 9, 2006.

NET INTEREST INCOME AND NET INTEREST MARGIN

Three months ended

Nine months
ended

Dollars in millions

Sept. 30
2006

Sept. 30
2005

Sept. 30
2006

Sept. 30
2005

Taxable-equivalent net interest income

$574

$566

$1,699

$1,619

Net interest margin

2.89

2.96

2.92

2.99

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources. See Statistical Information-Average Consolidated Balance Sheet And Net Interest Analysis included on pages 63 and 64 of this Report for additional information.

The increase in taxable-equivalent net interest income for the first nine months of 2006 compared with the first nine months of 2005 reflected the impact of a $5.5 billion increase in average interest-earning assets in 2006, driven by organic growth and our expansion into the greater Washington, DC area. The $2.9 billion increase in average interest-earning assets for the third quarter of 2006 compared with the third quarter of 2005 drove the increase in taxable-equivalent net interest income in the third quarter of 2006.

The following factors contributed to the decline in net interest margin for the first nine months of 2006 compared with the first nine months of 2005:

An increase in the average rate paid on deposits of 106 basis points for the first nine months of 2006 compared with the 2005 period. The average rate paid on money market accounts, the largest single component of interest-bearing deposits, increased 116 basis points. The average rate paid on Retail Banking money market accounts increased only 98 basis points while the average rate paid on Corporate & Institutional Banking money market accounts increased 152 basis points. The average rate paid on money market accounts reported in “Other” increased 190 basis points. These accounts are utilized as an alternative source of short-term liquidity and pay interest at rates that closely approximate short-term market rates.

An increase in the average rate paid on borrowed funds of 156 basis points for the first nine months of 2006 compared with the first nine months of 2005.

By comparison, the yield on interest-earning assets increased only 83 basis points. Loans, the single largest component, increased 86 basis points.

These factors were partially offset by the favorable impact on net interest margin in 2006 of an increase of 21 basis points related to noninterest-bearing sources of funding.

During the first nine months of 2006, the average federal funds rate was 4.88% compared with 2.97% for the first nine months of 2005.

The decline in net interest margin for the third quarter of 2006 compared with the third quarter of 2005 reflected the following:

An increase in the average rate paid on deposits of 110 basis points for the third quarter of 2006 compared with the third quarter of 2005. The average rate paid on money market accounts, the largest single component of interest-bearing deposits, increased 114 basis points. The average rate paid on Retail Banking money market accounts increased only 89 basis points while the average rate paid on Corporate & Institutional Banking money market accounts increased 153 basis points. The average rate paid on money market accounts reported in “Other” increased 173 basis points.

An increase in the average rate paid on borrowed funds of 161 basis points for the third quarter of 2006 compared with the prior year period.

By comparison, the yield on interest-earning assets increased only 86 basis points. Loans, the single largest component, increased 84 basis points.

These factors were partially offset by the favorable impact on net interest margin in 2006 of an increase of 22 basis points related to noninterest-bearing sources of funding.

During the third quarter of 2006, the average federal funds rate was 5.25% compared with 3.46% for the third quarter of 2005.

We believe that net interest margins for our industry will continue to be challenged if the yield curve remains flat or inverted, as competition for loans and deposits remains intense and as customers continue to migrate from lower cost to higher cost deposits. However, we believe that our balance sheet repositioning will have a positive impact on taxable-equivalent net interest income and net interest margin.

EXCERPTS ON THIS PAGE:

10-Q	May 11, 2009

10-K	Mar 2, 2009

10-Q	Nov 6, 2008

10-Q	Aug 8, 2008

10-Q	May 12, 2008

10-Q	Nov 8, 2007

10-Q	Aug 8, 2007

10-Q	May 9, 2007

10-Q	Nov 9, 2006

PNC Financial Services (PNC)

PNC » Topics » N ET I NTEREST I NCOME AND N ET I NTEREST M ARGIN

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