Good morning, everybody. If I could, I'd like to call the meeting to order. I am Bill Demchak, the Chairman and Chief Executive Officer of The PNC Financial Services Group, I will be presiding as Chairman of the 2018 Annual Meeting of Shareholders, I now call the meeting to order. On behalf of our board of directors and our management team, I welcome all of you and also welcome those shareholders and others who are listening by webcast or teleconference. As you know, our meeting will be conducted in accordance with the regulations for conduct, which were included as Annex B to our proxy statement. As indicated in our proxy statement, by attending this meeting, you agree to abide by the regulations for conduct. As a reminder, here are a few of those regulations. No cameras, mobile phones, laptops, tablets, or recording equipment are permitted in the room.
To ask a question or make a comment about an agenda item, please raise your hand and wait to be recognized by me, somebody will bring a microphone to you. I ask that you respect other individuals who are speaking, please don't speak out of turn or interfere when another speaker has the floor. Finally, after you have spoken, I will respond personally, or I'll designate another person from the management team to respond. You should have received an agenda and the regulations for conduct today. If you didn't receive an agenda, please raise your hand, the attendants will give you one. We have three management proposals on the agenda for this meeting. You'll have time to ask questions and/or make comments about the proposals after they are introduced. During the formal business of the meeting, your questions and comments must pertain to an agenda item.
We have scheduled a general question and answer session after we adjourn the meeting to discuss matters that are not on the agenda but appropriate for discussion. I'd like to start, if I could, by introducing our director nominees who are present, as well as our management executive committee members. Would you please stand? Thank you. I'd also like to introduce the representatives present from PricewaterhouseCoopers LLP, our independent registered public accounting firm. Would you please stand? Thanks, y'all. You'll have the opportunity to ask questions of the PwC representatives during the general question and answer session. With me on the platform today is Greg Jordan, who is our General Counsel, and Christi Davis, who is our Corporate Secretary. Christi's going to serve as the secretary for this meeting, I will now ask the secretary to present the secretary's report.
Mr. Chairman, I present an affidavit from Computershare Trust Company, N.A., PNC's transfer agent. The affidavit states that the notice of internet availability of proxy materials was mailed to certain shareholders on March 13th, 2018, the day they were given access to our proxy materials. Certain other shareholders were mailed paper copies or received electronic delivery of these proxy materials, including the notice of annual meeting on March 13th, 2018. The materials were distributed to shareholders of record as of February 2nd, 2018. The board of directors appointed Computershare as the judge of election for this meeting. The judge of election keeps a certified listing of all shareholders of record. On behalf of Computershare, Joe Roach is here to supervise the voting, he has delivered his oath of office to me. Mr. Roach is over here. Please stand. Thank you, Joe.
The affidavit, notice, and oaths will be filed with records of this meeting. The judge of election has certified that at the beginning of this meeting, there were present in person or by proxy, 472.2 million votes, or 90% of the total voting power. Therefore, a quorum is present. Copies of the minutes from the 2017 Annual Meeting of Shareholders are available from me upon request. I would also like to remind those attending the meeting that as reflected on this slide, our materials and information in the investor relations section of our website, pnc.com, include cautionary statements regarding forward-looking information and non-GAAP financial information. I urge you to read those cautionary statements. Mr. Chairman, that concludes my report.
Thank you, Christi. Based on your report, I find that proper notice has been given and a quorum is present. Therefore, this meeting has been properly convened. The purpose of this meeting is to consider and act upon three management proposals. They are the election of 12 nominated directors, the ratification of the audit committee's selection of PricewaterhouseCoopers LLP as PNC's independent registered public accounting firm for 2018. Finally, the advisory approval of the compensation of PNC's named executive officers. I will now ask for a single motion to introduce these proposals. May I have such a motion?
Mr. Chairman, my name is Bing Han. I'm a shareholder. I so move.
Thank you. May I have a second?
Mr. Chairman, my name is Nathan Herring. I'm a shareholder, and I second the motion.
Thank you. I declare that these proposals have been properly introduced and moved, and I now open the floor for any discussions or questions regarding only these proposals. If you have a question unrelated to these proposals, you'll have the opportunity, as I mentioned before, to ask it during the general question and answer session before I adjourn the meeting. Any questions on the proposals at hand? Thank you. All proposals are now formally before the meeting, and I declare the polls to be open. If anybody needs a ballot, please raise your hand. If you have already voted and you do not intend to change your vote today, you do not need a ballot. Does anybody need a ballot? She collected. Okay. Make sure that you've signed and fully completed your ballot before handing it in.
Once you've completed it, please raise your hand so that somebody can get it from you and collect it. Once our representative collects the ballots and gives them to the judge of election, the polls will close. I'll now ask the proxies to please cast their ballots. We'll wait here for a few seconds. Jump the gun a little bit. We're going to let her have it all, Brad. Thank you, Becky. I declare the polls to be closed. While the votes are being tabulated, I would like to provide a few comments about our company. As you saw, PNC had a successful year in 2017. We grew revenue, loans, and deposits, and importantly, we deepened relationships with our customers as we helped them achieve their financial goals.
We enhanced our product and servicing offerings, we maintained our risk profile, and we executed on our strategic priorities. For the full year, we reported net income of $5.4 billion, or $10.36 per diluted common share. Our return on average assets was 1.45%, and our return on average common equity was 12.09%. Our results benefited from new federal tax legislation that was signed into law in December. You would have seen that we recognized an income tax benefit of $1.2 billion at the end of last year, primarily attributable to the revaluation of deferred tax liabilities at the lower statutory tax rate. I'll talk a little bit more about the benefits of tax reform for PNC in just a moment. Even without the tax benefit, our underlying business performance was very strong in 2017. We grew loans by $9.6 billion and deposits by $7.9 billion.
Total revenue increased $1.2 billion or 8%, driven by the growth in net interest income for the year. Expenses were up year-over-year in 2017, reflecting more business activity and ongoing investments in our businesses. However, they increased less than revenues, resulting in positive operating leverage, which, of course, is a focus of ours. Shareholders' equity increased 4% in 2017 to $47.5 billion at year-end. Our strong capital position continues to give us flexibility going forward. We returned $3.6 billion of capital to shareholders in 2017. We paid $1.3 billion in common stock dividends, including raising a quarterly dividend on our common stock to $0.75 per share in the third quarter. That was a 20% increase to 36% over the year before. Our share repurchases totaled 8.6 million common shares for $2.3 billion. Our stock price performed well in 2017.
In fact, as of December 31st, PNC's five-year annualized shareholder return was 23%, which ranked us first in our peer group. As I mentioned, our results in 2017 did benefit significantly from tax reform. I'd like to spend just a couple of minutes sharing with you some details about those benefits. The tax legislation enacted in December gives us increased flexibility as we continue to invest in our businesses, people, and the communities in which we serve. Upon news that the legislation had been signed by the President, PNC announced a number of important investments. First, we continued to invest in our employees by providing a $1,500 credit to the pension plan accounts of essentially all employees. Additionally, for about 90% of our approximately 53,000 employees, we announced a one-time cash payment of $1,000.
We also announced plans to raise our minimum hourly pay rate to $15 for eligible employees by the end of 2018. We increased the maximum pension contribution to $2,000, which benefits approximately 65% of our full and part-time employees. We held the cost of healthcare premiums flat to last year's level as well. Collectively, our investment in the careers of our lower-paid employees has reduced turnover substantially. We believe it is key to delivering a superior customer experience. For our communities, we made a $200 million contribution to the PNC Foundation, which oversees our work on early childhood education, as well as our support for other important causes that help our communities thrive, including the arts, culture, and our partnership with the United Way. By virtually all measures, 2017 was a good year for PNC. Beyond our financial results, we received a first-place ranking in the J.D. Power 2017 National Bank Satisfaction Study.
We earned the number two ranking among super regional banks on Fortune Magazine's list of most admired companies. We received a number of awards for the work we've done to build a talent culture defined by our values and focused on assembling high-performing diverse teams, establishing a welcoming and inclusive environment and creating career paths that offer every employee an opportunity to develop and grow within the company. We are not resting on our laurels. We're making important progress on our three strategic priorities as well. We continue to be pleased with the growth in our business across the Southeast. We've learned important lessons in those markets about our ability to grow in regions where we may not have a dense retail branch presence.
Last year, that led our corporate institutional bank to expand middle-market banking to three new markets, Dallas, Kansas City, and Minneapolis. As part of our multi-year expansion, we are now delivering our full suite of commercial products and services to new middle-market and larger clients, and we are embedding ourselves in those communities. Based on our success in those three markets, we're expanding our middle-market franchise to Denver, Houston, and Nashville in 2018. As the year unfolds, you'll hear a lot about our efforts to expand the reach of our retail bank nationally on a primarily digital platform. When it comes to the experience of banking and investing, customers expect us to make it easy. We are making important investments in our relationships with our customers to continue to improve how we serve them.
We are transitioning all of our lines of business to a single customer relationship management platform that will make it easier for us to see and better service the whole relationship over time. We are investing to improve our product and servicing offerings as well. In our corporate and institutional bank, for example, we announced the acquisitions last year of ECN's U.S.-based commercial and vendor finance business, The Trout Group, and also Fortis Advisors to bolster our existing capabilities. We launched real-time payments, enabling clients to conduct business with greater speed, efficiency, and security. Within our asset management group, we are investing to offer more products and services, innovate, attract, and retain the best talent, all for the purpose of delivering superior client experiences. Inside of our retail bank, we have focused efforts this past year on improving the quality of our credit product offerings.
We also made significant progress on our multi-year initiative to redesign the home lending process by combining mortgage and home equity lending onto a common platform. It is an extremely complex effort, but one that will ultimately result in much improved loan origination and servicing experience for our customers. Within retail and beyond, we are meeting our customers where they are and providing tools for how they want to bank through our investments in digital technologies. We're gaining important insight into how our customers use our products and services. Customers continue to embrace our digital services from direct auto, credit card, and other loan applicants who are coming to us online at an increasing pace, to convenient services like eStatement, online bill pay, and mobile deposit services. Our mobile offerings now include PNC Pay and Zelle, which are changing the way customers make payments in real time.
As they adopt these new digital services, we continue to invest in the latest and best practices in cybersecurity and fraud prevention, including features such as multi-factor authentication, fingerprint verification, and facial recognition. Now, before we move on with the business of the meeting, I wanted to offer a few comments on the first quarter of this year. As you know, about 10 days ago, we announced first quarter 2018 results. We reported a net income of $1.2 billion, or $2.43 per common share. Compared to the first quarter of 2017, revenue grew by 6%, net interest income grew by 9%, primarily driven by higher loan and security yields that benefited from higher interest rates. We also benefited from a lower tax rate.
Total loans grew by $9 billion or 4% compared to the same period a year ago, deposits increased by $4 billion or 2%, reflecting growth in both consumer and commercial deposits. We managed expenses well, our credit quality was stable, and we returned significant capital to shareholders. As the year unfolds, it remains to be seen how the competitive landscape will evolve, we will continue to execute against our priorities. We're excited about our plans to tap new opportunities to expand PNC's franchise, deepen customer relationships, and leverage technology to create long-term shareholder value. I'd now like to call on the Secretary, if I could, for the preliminary results of our voting.
Thank you, Bill. The Judge of Election has provided a preliminary report to me, which certifies that a majority of the votes cast were for the election of all 12 director nominees for the ratification of the selection of PricewaterhouseCoopers and for the advisory approval of the compensation of PNC's named executive officers. I will file the preliminary report with the records of this meeting. The final vote tally will be disclosed on a Form 8-K that PNC will file with the SEC.
Thank you, Christi. Subject to certification of the final voting results. In terms of somebody trying to stop us from doing something.
You wouldn't risk your rating with the HRC.
I think.
You wouldn't let that influence your corporate giving.
No, I think they're disconnected. We're proud of our rating with the HRC. Having said that, we just haven't run into a situation where somebody who we support and think fits the mission statement of our philanthropy, we've been influenced in any way, shape, or form. My guess is we wouldn't care about a third-party rating if it was something that was right for our community. We don't run our business as a function of anybody's third-party rating, except maybe the regulators.
Thank you.
Yeah. Any other questions?
There's a priest.
Yeah.
I'll do. Good morning, everybody, and Chairman Demchak. I'm Bernard Survil, Greensburg, Pennsylvania, representing the community of the Salesian Sisters of Beaver County. We all saw what was on the street as we came in today, discontent. That discontent has origins beyond those people in the street. Among others, Pope Francis has said as recently as November of last year that the world would be better off without nuclear weapons. That both the use and the possession is unacceptable. He's not the first in the Vatican to say that. Over the last five popes, the same thing has been said, and it's being heard out in bars at St. Kilian Parish. It's being heard at St. John Capistran in Upper St. Clair, and many other Catholic churches, and other Christian and non-Christian churches in our area.
My question to you, Mr. Chairman, is how is PNC Financial Services going to respond to this? Thank you.
Thank you for your question. Just a few facts around the subject. We, at your urging, looked at what we do with any company who has some business related to nuclear energy or weapons manufacture. In total, I think we have $200 million of loans outstanding, which puts us somewhere on the list, 93rd or 95th or something, in terms of financial institutions lending to these companies. Having said that, virtually every company on the list is a broad-based, diversified industrial company that makes everything from electronics to water treatment, to healthcare, to bridges, to airplanes, to cars. It's not something that we would pull back from. They're good companies. Finally, as a practical matter, nuclear energy, in and of itself, is not something that PNC is going to take a stand on and not something that is of vast interest to our various constituents.
Do we have other questions?
Is it on? Thank you. Sorry. I wanted to comment on what the gentleman, what you just respond with, Mr. Demchak.
Yeah.
Regarding the nuclear weapons issue and the six companies that PNC is invested in according to the International Campaign to Abolish Nuclear Weapons, an organization which won the Nobel Peace Prize. They quote the number far higher for what PNC's investment is with these companies. Also, we should have a question. Does the board know? My question is, what do these companies do? Do you know they do Trident missiles? Do you know they do Minuteman missiles? That's what we're talking about, nuclear weapons, not nuclear energy. These might be broad-based companies, but we have to contradict the idea that this is just about nuclear energy. This is about war and about what Donald Trump may do with basically all of our money. If he drops a bomb, what happens to all of our shares? Nothing. We'll all be gone. World War III. I don't know.
I have to resist that. It's not really a general question, but I would like to hear what the board thinks about this issue. Do you think we should be invested in nuclear weapons as a company? I would disagree as a shareholder.
Yeah. I appreciate your comments. I don't know what organization lists our exposure, but I assure you, I know what our exposure is. Fair enough on the differentiation between people involved with the nuclear industry and nuclear bombs. Having said that, you can't separate them from each other. It is not something that we will take a stand on as a company. Thank you. Other questions?
Sorry.
Good morning. My name is Fran Harkins, and I'm a shareholder. I was disturbed, dismayed to see that the SEC has fined PNC for a breach of fiduciary integrity, that they have this outfit called PNC I-Hub. Your wealth management group has advised people to invest in shares that have higher charges than what they could have been. It's almost like, according to reading the Post-Gazette, this short article, like PNC got kickbacks. They made $ millions from this thing. There were even charges made to investors for their funds and someone looking after them when no one was looking after them. That's basically what it says. It's in the April 7th issue. The title is, "Commission Settles with PNC Arm in Breach of Client Duties." I know from the immediate nod to your head that you knew exactly what I was talking about.
Just for the information for other investors, I think they should know. My family has been an investor since the 1950s. This is a unique circumstance that I have seen. Certainly, when I pick up on this little article, if I were an attorney or an advisor trying to tell people where to go to invest their money, this is a big red flag to me. It's a big red flag in terms of the integrity that PNC has broached. I would like to know specifically what you, as the CEO, have done so far or intend to do in the near future to change this kind of culture, because dividends are nice, but not when people are being skewered, to say it nicely.
Yes.
Okay? In terms of their monies. They need to trust. Investors need to trust an institution like PNC, and this flies in its face of trust. Specifically, what have you done to change this culture?
Thank you for your question. As you can imagine, we're horrified when our reputation is damaged, when we're seen to be doing something that harms our customers. The instance, and I'm going to ask Greg to go through the details of what that was, but in a practical sense, what's happened is through the years, the way brokers were compensated has changed. We, along with many broker-dealers, if not all the broker-dealers in the country, face similar fines related to what has become a change in practice on something called 12b-1 fees. What we have done specifically is we've removed all the funds that have 12b-1 fees, the fees you were talking about, from our offerings inside of PNC, our brokerage division. I would tell you that it wasn't, in my view, a cultural issue in the sense that it wasn't employees trying to cause harm.
It was rather a practice, like we've seen many things in finance, a practice in the industry, which when put under a spotlight, is not the right thing for clients. We weren't necessarily different than other people, but that doesn't necessarily make us right. Greg, if you could just spend a second on it.
The only thing I'll add is the SEC found a problem with the way bank brokerage firms disclosed the fees. It was a manner of disclosure that a lot of banks used for many years, including PNC. The SEC determined that the banks needed to do it differently and do it better. We were caught up in that sweep by the SEC, as several other banks were. The number mentioned in the article, those funds were repaid back to the customers who made those investments when the disclosures were the way the SEC determined they should've been different. We've changed that, and as Bill said, we've gotten away from that product. This wasn't really a finding by the SEC of intent or deceit by PNC, but that the disclosures were inadequate. We regret that, and we are happy to have this behind us.
As you said, it's not the way we want to be seen treating our customers.
You are right to bring it up. We are very focused on that in any situation where we're doing harm to our customers. To the extent we ever find that, we remediate and try to make it right. That's what we stand for as an institution. Thank you, though. There's a question all the way in the back.
My name is Peter Deutsch. I have a PhD in physics, and I taught at Penn State's campus in Beaver County in the physics department for a little more than 30 years as a PhD. I'm concerned about your input to nuclear programs, which does seem to be largely weapons related. I guess I'd like to maybe get a little more of your views. I'll try to be more specific than that. I'm concerned that there's a modernization of nuclear weapons going on, I think that you're giving input to that, I think we should be getting rid of them. Even if we don't, the modernization may make it more convenient. It increases the apparent or the perceived convenience of using nuclear weapons. I think that could well be a mistake in that it's even a misperception.
I'm wondering if you could comment on that. I'm also wondering whether your input to weapons through loans or whatever, nuclear weapons also pales over into other areas that are related. For example, the delivery systems by aircraft, by submarines, and perhaps the electronics involved, the avionics, and perhaps other areas, such as ultimately cyber warfare. I'm just wondering if you could comment on the general input of your investments into nuclear weapons and related things, and also whether there isn't a concern that you're making them more convenient to use, easier to use, and therefore, perhaps even getting yourselves into a possibility of accidental war, perhaps somewhat analogous to what happened during World War I.
That's a lot to lay on an institution with $200 million of exposure. Having said that, I believe that our list that we gathered the exposure on was exhaustive in terms of people who touched the nuclear industry, broadly defined. Nuclear weapons and their use is something that is policy in nature and driven by our government. Whether we lend to or don't lend to people who are involved in that industry isn't going to change their use or design or build. The broad-reaching nature of the companies that are involved, it's everybody from the person who makes your cell phone, through to the cell towers, through to people who are all over the place.
I think, personally, without expressing a view on nuclear weapons, either for the company or for myself, the effort to change the policy towards them in this country has to be driven towards our government, not towards banks.
Follow-up?
Sure.
I'm actually not only a shareholder in the bank, I have an account. Our social security, for example, for both my wife and me, comes through PNC Bank, and we've used it and its predecessors, I think it used to be called Integra Bank or something, since 1982 or 1983. We look forward to PNC for leadership. My learning about this involvement or financing of some nuclear weapons, to me, makes me want to take stock in whether I continue as a participant in the bank.
That is your choice to make. We, as best we can, take the interest at all times of our customers, our shareholders, our clients, and our communities into thought in terms of how we run this business. As I said before, the nuclear issue is not one that is broad-based concern today amongst those constituencies, and we're not going to take a stand on it. I'll take other questions, but no more questions on that particular subject. Is there anybody that has something different? You're going to go right back to the same thing.
I wanted to ask you about PNC's involvement in lobbying as it relates to some things. As far as if the regulation is going to happen, PNC says it's waiting to see that the government will empower-
That's right
we lobby for it. Do you have any opinion on lobbying for candidates or against candidates that support regulation? That would go against what you're saying to that man back there.
No. We deploy lobbyists largely to educate our political system on issues that are pertinent to the business of banking, not other businesses. It's our interest and in the country's interest, and certainly in our constituents' interest, to have good regulation that make the banks safe, but still allow them to operate to serve their communities. Other questions?
weapons systems,
It would be unlikely and fairly strange to find a financial institution lobbying about nuclear weapons. With that, if there are no other questions, thank you everybody for attending today, and we will see you next year.