The survivor: Jim Rohr has beaten challenges, and odds, at PNC.

Jim Rohr's first year in office as CEO of PNC Financial Services Group was a rough ride. He took over just as the economy started to tank and, not long into his tenure, the bank got into trouble with regulators for moving $762 million of underperforming loans and other assets into off-balance sheet entities; PNC had to restate its 2001 earnings as a result.

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As the long list of ousted chiefs attests, that was not a good year for CEOs presiding over accounting troubles, and many observers assumed a management shakeup was inevitable at PNC. But Rohr was told to stay put; an independent consultant hired by order of the Federal Reserve to review the situation determined that maintaining current leadership was the best thing for the Pittsburgh financial firm and its 23,000 employees and 2.2 million customers in 36 states. Since then, other challenges have cropped up, but Rohr, with his head-down style and relentless focus on the business and on customers, has managed to keep PNC largely out of the harsh media spotlight--and himself in the driver's seat.

Recently, Rohr has given analysts and investors more to smile about. Net income for the first half of 2004 rose to $632 million, or 41 percent over the same period in '03. Third-quarter numbers continued a positive trend; excluding a one-time charge for a retention and incentive plan for asset management subsidiary BlackRock, the bank reported earnings per share of $1.06, beating analyst estimates. "Results on the general business came in a bit better than what we would have been expecting," says Morgan Stanley analyst Betty Grascek. "So it seems like they have been taking these concerns that the market has to heart and focusing on them." She adds that the rise in stock price indicates "that clearly the market believes that [Rohr]'s been doing a better job." Indeed, PNC shares, which fell to as low as $36 in 2002, are up at a more comfortable mid-$50s range, though still off highs in the $60 to $70 range. "Our earnings have been relatively flat for the last four years," Rohr explains. "We have not taken a great deal of interest-rate risk because rates have been so low and I think we're very well-positioned to grow our bottom line in the future, and that bodes well for our stock."

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Rohr has also made some strategic buys: The January acquisition of United National Bancorp expanded PNC's reach in New Jersey and gave it 100,000 new households, and the August purchase of State Street Research and Management made Black-Rock one of the 20 largest asset managers in the world.

The planned purchase of Riggs Bank in Washington, D.C., best known for its business with the capitol's diplomatic community, may not fare as well. Riggs already had legal headaches in July when PNC announced it would acquire the bank, but the deal assumed Riggs would shed its embassy and international businesses. Considerably worse news has since surfaced, including fresh investigations by the Justice Department and the Fed, which may well scuttle the deal. "It's fair to say there have been a number of new developments since we announced the transaction," says Rohr, who notes that Riggs' location would give PNC entree into the 200,000-plus small-business market in D.C. "While we still find the market and franchise attractive, there are some other issues. We have to wait and see and watch how these things develop."

As an added irritation, PNC's 2001 accounting irregularities have made their way into the headlines again, thanks to the SEC's aggressive pursuit of insurance giant AIG for its role in helping PNC move the underperforming assets. But Rohr insists that, at least for PNC, all that is squarely in the past; the bank settled with the Fed in 2003, admitting no wrong-doing, and paid a fine. Rohr has also initiated reforms and internal governance procedures to track investments and financial consolidations. As for 2001, he says, "we dealt with it, and it's over."

Turning Employees Into Salesmen

A PNC employee for 28 years before taking the helm. Rohr isn't too interested in talking about the past. He is acutely focused on his goal of growing earnings per share in the double digits. He believes the $73 billion asset bank will get there through a tight focus on customer service, aggressive technology investment--with about $480 million spent in 2004--and inspiring employees to take ownership of PNC's future.

One resounding success has been the Chairman's Challenge, a rewards-based referral program designed to turn all of PNC's nonsales employees into a highly motivated sales force for the company's many financial products. The baseball-themed program, now in its fourth year, has brought in $440 million in new demand deposits and generated $1 billion in deposit and loans balances. Because it allows employees to earn thousands of dollars in additional income, as well as days off (plus an autographed baseball from the CEO), the program also doubles as a retention tool. Best of all, it's low-cost growth, says Rohr. "The Chairman's Challenge is an example of the most valuable growth you can generate, when you just generate the company based off its own bottom," says Rohr. "You're not paying any premium for it. You're just growing the company's profits."

Rohr now needs to make the most of those new accounts from a cross-selling perspective. "They need to make better use of their current footprint," says Morgan Stanley's Grascek. "They just haven't been as aggressive on the sales side, both to existing and new customers."

Rohr also will have to deliver consistent results for the next several quarters in order to get analysts and investors fully on board. For his part, the plain-spoken Cleveland native says he can meet that challenge by staying focused on three very simple things: "One is to grow our customers, two is to manage our risks and three is customer satisfaction," he says. "If you can pull together as a team to do those three things, your earnings per share takes care of itself."