PNC Financial Services Group Inc., parent of PNC Bank — Cincinnati's fourth-largest bank — says it's interested in buying more fee-generating businesses.

        That would allow the banking company to provide investors faster growth and higher profits than relying on the traditional difference of what it charges on loans and pays on deposits.

James E. Rohr oversees PNC Financial Services Group, a banking behemoth with $70 billion in assets. (PNC Bank photo) | ZOOM |

        But James Rohr, PNC's top executive, is quick to say the $70 billion-asset company has the mix of businesses in place to get a higher percentage of its revenues from fees than most U.S. banks — with or without an acquisition.

        Still, PNC would consider buying companies that specialize in such areas as asset management, mutual-fund servicing and capital markets — high-return businesses that have helped the bank harvest above-average profitability in recent years.

        PNC now gets 58 percent of its revenue from fee income, up from 36 percent five years ago. That reliance on fee income has helped PNC provide investors a one-year return of 80 percent, making it one of the industry's top performers.

        Mr. Rohr, president and chief executive of PNC Financial, talked to Enquirer reporter Jeff McKinney about the company's future and where it sees growth opportunities.

        Question: PNC had a record with profits of $1.28 billion in 2000, largely because of double-digit gains in fee income. What will PNC do to sustain the revenue and earnings growth the company has experienced in recent years?

        Answer: We will continue investing heavily in fee-based businesses. Most of our business lines are now more focused on growing fee income instead of net interest margin. For example, our retail banking unit had about $30 million in fee income from the insurance business. We also do Internet processing for companies like American Express and Prudential Insurance from our retail bank. Fifty-two percent of our income in corporate banking comes from fees, up 30 percent from five years ago. And, income from our BlackRock (asset management) unit was up 50 percent last year, and up 20 percent in our mutual-fund processing business. So, we have the business mix to continue to grow revenue, whether we do a deal or not.

PNC

• Business: A diversified financial services company with assets of about $70 billion. It provides regional and commercial banking and asset management services nationally and in PNC's primary markets in Pennsylvania, Ohio, Kentucky, New Jersey and Delaware. • Headquarters: Pittsburgh. • Chief executive: James E. Rohr. • Employees: 26,000. • Ticker/market: PNC/NYSE. • Tuesday's close: $68.48. • 52-week high/low: $75.81 (Jan. 4); $36 (March 8). • Revenues (2000): $5.1 billion, versus $4.8 billion in 1999. • Profits (2000): $1.28 billion, or $4.31 a share, versus $1.26 billion, or $4.15 a share. Source: PNC Financial Services Group

        Q: What opportunities do you see for PNC to expand its fast-growing asset management and mutual-fund processing businesses?

        A: We've invested more than $2 billion the past five years in such companies as Hilliard Lyons (a brokerage), Midland (real-estate financing) and ISG (mutual-fund processing). We're continuing to look for acquisitions in the mutual-fund processing industry. That business is really growing because of growing investment activity. We're also looking for companies in the asset management business. We're one of the industry's most heavily capitalized banks now, giving us greater flexibility for acquisitions and to do things like stock buybacks.

        Q: After just selling the mortgage business, are there any other businesses that PNC is considering divesting?

        A: We sold the mortgage company, downsized the bank and used the company to do a stock buyback. (PNC plans to invest more than $1 billion to repurchase about 15 million shares, or 15 percent of its outstanding shares.) We expect to realize a gain from that sale of less than $250 million, the amount initially projected. We don't have any plans now to exit any other businesses.

        Q: How does the retail banking business play into PNC's overall mix, and what plans do you have for that business?

        A: That's our largest business, and we like it. The return on capital in that business is 20 percent. It is a rapidly growing business for us, and we're pleased with the growth we're experiencing there. We're relying on generating more fee income from that area instead of net interest margin. Net income in retail last year grew about 9 percent over 1999, higher than several banks of our size. So we're happy with it.

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