The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

"During this remarkable period in the midst of the pandemic and economic downturn, PNC has remained steadfast in our commitment to our customers, communities, employees and shareholders. While our pre-provision results for the second quarter were good in the context of a lower rate environment and business headwinds, the uncertainty in the economy related to the pandemic resulted in a substantial loan loss reserve build. The monetization of our BlackRock investment and recent CCAR results underscore the strength of our balance sheet. Our book value per share increased significantly, and PNC is very well positioned with substantial capital and liquidity flexibility to continue to support our constituents and capitalize on opportunities that may arise during these challenging times."

Bill Demchak, PNC Chairman, President and Chief Executive Officer

Sale of Equity Investment in BlackRock, Inc.

• PNC divested its 22.4% equity investment in BlackRock in May 2020 primarily through the sale of 31.6 million shares in a registered offering and 2.65 million shares repurchased by BlackRock. PNC also contributed .5 million BlackRock shares to the PNC Foundation. Net proceeds from the sale were $14.2 billion. The after-tax gain on the sale of $4.3 billion, and donation expense and BlackRock's historical results, are reported in PNC's consolidated financial statements as discontinued operations.

Income Statement Highlights - Continuing Operations

Second quarter 2020 compared with first quarter 2020

• Results from continuing operations reflected a loss of $744 million, a decrease of $1.5 billion due to a higher provision for credit losses.
• Provision for credit losses increased to $2.5 billion for the second quarter compared with $914 million for the first quarter due to the significant estimated economic impact of the pandemic. Provision was calculated under the Current Expected Credit Loss (CECL) accounting standard adopted January 1, 2020.
  • Provision was $1.7 billion for the commercial portfolio and $720 million for the consumer portfolio.
• Total revenue of $4.1 billion declined $260 million, or 6%.
• Net interest income of $2.5 billion increased $16 million, or 1%, as lower rates on deposits and borrowings and higher average loans, balances held with the Federal Reserve Bank and securities were partially offset by lower yields on earning assets.
  • Net interest margin decreased 32 basis points to 2.52% reflecting the full quarter impact of the 1.5 percentage point reduction in the federal funds rate by the Federal Reserve in March 2020.
• Noninterest income of $1.6 billion decreased $276 million, or 15%.
  • Fee income of $1.3 billion declined $204 million, or 14%. Service charges on deposits and consumer service fees decreased $136 million reflecting lower consumer spending and fees waived to assist customers in the pandemic, and residential mortgage revenue decreased $52 million due to a lower benefit from residential mortgage servicing rights valuation, net of economic hedge.
  • Other noninterest income of $271 million declined $72 million primarily due to lower net securities gains partially offset by higher capital markets-related revenue.
• Noninterest expense of $2.5 billion decreased $28 million, or 1%, reflecting lower business activity related to the economic impact of the pandemic and well-controlled expenses.
• The effective tax rate was 17.5% for the second quarter and 13.7% for the first quarter.

Balance Sheet Highlights

• Average loans increased $24.5 billion, or 10%, to $268.1 billion in the second quarter compared with the first quarter.
  • Average commercial loans of $189.3 billion increased $25.2 billion, or 15%, reflecting Paycheck Protection Program (PPP) lending under the CARES Act and higher utilization of loan commitments driven by the economic impact of the pandemic on customer liquidity preferences.
  • Average consumer loans of $78.8 billion decreased $.7 billion, or 1%, primarily due to lower credit card, auto and student loans partially offset by higher residential mortgage loans.
• Loans at June 30, 2020 declined $6.4 billion, or 2%, to $258.2 billion compared with March 31, 2020.
  • Commercial loans decreased $4.5 billion, or 2%. PNC funded $13.7 billion of PPP loans during the second quarter. New loans were more than offset by paydowns of March 2020 draws on loan commitments.
  • Consumer loans decreased $1.9 billion, or 2%, primarily in auto, credit card and home equity loans.
• Credit quality performance:
  • Overall delinquencies of $1.3 billion at June 30, 2020 decreased $173 million, or 12%, compared with March 31, 2020 due to lower consumer loan and commercial loan delinquencies reflecting CARES Act and other forbearance.
  • Nonperforming assets of $2.0 billion at June 30, 2020 increased $200 million, or 11%, compared with March 31, 2020.
  • Net loan charge-offs were $236 million for the second quarter compared with $212 million for the first quarter.
  • The allowance for credit losses to total loans was 2.55% at June 30, 2020 and 1.66% at March 31, 2020.
• Average deposits increased $45.5 billion, or 16%, to $335.2 billion in the second quarter compared with the first quarter due to growth in commercial deposits reflecting pandemic-related accumulation of liquidity by customers. Consumer deposits also increased driven by government stimulus payments and lower consumer spending.
  • Deposits at June 30, 2020 increased $40.8 billion, or 13%, to $346.0 billion compared with March 31, 2020.
• Average investment securities increased $4.0 billion, or 5%, to $88.4 billion in the second quarter compared with the first quarter.
  • Investment securities at June 30, 2020 increased $8.0 billion, or 9%, to $98.5 billion compared with March 31, 2020.
• Average balances held with the Federal Reserve Bank of $34.2 billion for the second quarter increased $16.9 billion compared with the first quarter, and balances at June 30, 2020 of $50.0 billion increased $30.4 billion compared with March 31, 2020, reflecting higher liquidity from deposit growth and proceeds from the sale of the equity investment in BlackRock.
• PNC maintained strong capital and liquidity positions.
  • The PNC board of directors declared a quarterly cash dividend on common stock payable on August 5, 2020 of $1.15 per share, consistent with the second quarter dividend paid on May 5, 2020.
  • PNC announced on March 16, 2020 a temporary suspension of its common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economy during the pandemic, and will continue the suspension through the third quarter of 2020, with the exception of permissible share repurchases to offset the effects of employee benefit plan-related issuances.
  • The Basel III common equity Tier 1 capital ratio was an estimated 11.3 percent at June 30, 2020 and 9.4 percent at March 31, 2020.
  • The Liquidity Coverage Ratio at June 30, 2020 for both PNC and PNC Bank, N.A. exceeded the regulatory minimum requirement.

Total revenue for the second quarter of 2020 decreased $260 million compared with the first quarter and $139 million compared with the second quarter of 2019 due to lower noninterest income.

Net interest income for the second quarter of 2020 increased $16 million compared with the first quarter and $29 million compared with the second quarter of 2019. In both comparisons, lower rates on deposits and borrowings and higher average loans, balances held with the Federal Reserve Bank and securities were partially offset by lower yields on earning assets. The net interest margin declined to 2.52% for the second quarter of 2020 from 2.84% in the first quarter and 2.91% in the second quarter of 2019 as a result of lower yields on earning assets partially offset by lower funding costs reflecting the full quarter impact of the 1.5 percentage point reduction in the federal funds rate by the Federal Reserve in March 2020 and the related decline in other market interest rates.

Noninterest income for the second quarter of 2020 decreased $276 million compared with the first quarter. Asset management revenue declined $2 million reflecting the impact of lower average equity markets. Consumer services decreased $47 million and service charges on deposits decreased $89 million due to lower transaction volumes and activity reflecting lower consumer spending and fees waived to assist customers in the pandemic. Corporate services declined $14 million primarily due to lower merger and acquisition advisory fees partially offset by higher loan syndication and asset-backed financing fees. Residential mortgage revenue decreased $52 million as a lower benefit from residential mortgage servicing rights valuation, net of economic hedge, was partially offset by higher loan sales revenue. Other noninterest income declined $72 million primarily due to lower net securities gains partially offset by higher capital markets-related revenue.

Noninterest income for the second quarter of 2020 decreased $168 million compared with the second quarter of 2019. Asset management revenue declined $22 million reflecting the impact of 2019 sales of proprietary mutual funds and the retirement recordkeeping business. Consumer services decreased $62 million and service charges on deposits decreased $92 million largely due to pandemic-related lower transaction volumes and fees waived for customers experiencing hardships. Corporate services grew $28 million as a result of higher revenue from commercial mortgage banking activities and higher asset-backed financing and loan syndication fees partially offset by lower merger and acquisition advisory fees. Residential mortgage revenue increased $76 million due to higher loan sales revenue from higher origination volumes. Other noninterest income decreased $96 million reflecting negative valuation adjustments of private equity investments and the second quarter 2019 gain on the sale of the retirement recordkeeping business partially offset by higher capital markets-related revenue.

Noninterest expense for the second quarter of 2020 decreased $28 million compared with the first quarter and $96 million compared with the second quarter of 2019. Lower business activity related to the economic impact of the pandemic contributed to the declines, including lower marketing expense and costs associated with business travel, as PNC continued to focus on managing expenses. Equipment expense increased in the second quarter of 2020 compared with the first quarter reflecting higher depreciation.

The effective tax rate from continuing operations was 17.5% for the second quarter of 2020, 13.7% for the first quarter and 16.8% for the second quarter of 2019. The lower effective tax rate in the first quarter included a benefit from resolution of certain tax matters.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets were $457.3 billion in the second quarter of 2020 compared with $412.4 billion in the first quarter of 2020 and $397.0 billion in the second quarter of 2019. Total assets were $459.0 billion at June 30, 2020, $445.5 billion at March 31, 2020 and $405.8 billion at June 30, 2019. Balance sheet growth in the second quarter of 2020 in all comparisons reflected higher deposits maintained with the Federal Reserve Bank and higher investment securities. Loans declined at June 30, 2020 compared with March 31, 2020, and increased compared with June 30, 2019 and in both average balance comparisons.

Average loans for the second quarter of 2020 grew $24.5 billion compared with the first quarter. Average commercial loans increased $25.2 billion, reflecting PPP lending under the CARES Act and higher utilization of loan commitments driven by the economic impact of the pandemic on customer liquidity preferences. PNC funded $13.7 billion of PPP loans during the second quarter. Average consumer loans of $78.8 billion decreased $.7 billion primarily due to lower credit card, auto and student loans partially offset by higher residential mortgage loans.

Total loans at June 30, 2020 declined $6.4 billion compared with March 31, 2020. Commercial loans decreased $4.5 billion as new loans were more than offset by paydowns of March 2020 draws on loan commitments. Unfunded commercial loan commitments increased to $137.2 billion at June 30, 2020 compared with $116.0 billion at March 31, 2020. Consumer loans decreased $1.9 billion primarily in auto, credit card and home equity loans.

Second quarter 2020 average and period end loans increased $33.3 billion and $21.0 billion, respectively, compared with second quarter 2019 driven by growth in commercial loans, including PPP lending, and higher consumer loans, primarily residential mortgage and auto loans.

Average investment securities for the second quarter of 2020 increased $4.0 billion and period end balances increased $8.0 billion compared with the first quarter primarily due to net purchases of agency residential mortgage-backed securities, as well as short-term U.S. Treasury securities near second quarter end. Second quarter 2020 average and period-end investment securities increased $4.8 billion and $10.2 billion, respectively, compared with the second quarter of 2019 primarily due to higher agency residential mortgage-backed securities. Net unrealized gains on available for sale securities were $3.4 billion at June 30, 2020, $2.9 billion at March 31, 2020 and $1.2 billion at June 30, 2019.

Average balances held with the Federal Reserve Bank were $34.2 billion in the second quarter of 2020, $17.3 billion in the first quarter of 2020 and $13.2 billion in the second quarter of 2019. Balances held with the Federal Reserve were $50.0 billion at June 30, 2020, $19.6 billion at March 31, 2020 and $18.1 billion at June 30, 2019. Higher balances in the second quarter of 2020 reflected liquidity from deposit growth and proceeds from the sale of the equity investment in BlackRock.

Average deposits for the second quarter of 2020 increased $45.5 billion compared with the first quarter and deposits at June 30, 2020 increased $40.8 billion compared with March 31, 2020 due to growth in commercial deposits reflecting pandemic-related accumulation of liquidity by customers. Consumer deposits also increased driven by government stimulus payments and lower consumer spending. Second quarter 2020 average and period-end deposits increased $62.3 billion and $72.7 billion, respectively, compared with second quarter 2019 as a result of pandemic-related customer liquidity and overall growth in commercial and consumer deposits and customers.

Average borrowed funds for the second quarter of 2020 decreased $4.0 billion compared with the first quarter due to lower federal funds purchased, bank notes and senior debt and Federal Home Loan Bank borrowings. Borrowed funds at June 30, 2020 decreased $26.4 billion compared with March 31, 2020 as declines in Federal Home Loan Bank borrowings, federal funds purchased, bank notes and senior debt, and repurchase agreements reflected use of liquidity from deposit growth and proceeds from the sale of the equity investment in BlackRock. Average borrowed funds for the second quarter of 2020 decreased $9.1 billion compared with the second quarter of 2019, and period-end borrowed funds decreased $22.0 billion.

PNC further strengthened its already strong capital position. Common shareholders' equity at June 30, 2020 increased $3.6 billion, or 8%, over March 31, 2020 due to higher second quarter net income and an increase in accumulated other comprehensive income partially offset by dividends.

The PNC board of directors declared a quarterly cash dividend on common stock payable on August 5, 2020 of $1.15 per share, consistent with the second quarter dividend paid on May 5, 2020.

PNC announced on March 16, 2020 a temporary suspension of its common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economy during the pandemic, and will continue the suspension through the third quarter of 2020, with the exception of share repurchases to offset the effects of employee benefit plan-related issuances as permitted by recent guidance from the Federal Reserve. The estimated amount is $100 million in the third quarter of 2020, but the timing and amount of executed repurchases will be based on market conditions and other factors.

For information regarding PNC's Basel III capital ratios, see Capital Ratios in the Consolidated Financial Highlights. The 2019 Tailoring Rules became effective for PNC as of January 1, 2020. PNC elected a five-year transition provision effective March 31, 2020 to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. The fully implemented ratios reflect the full impact of CECL and exclude the benefits of this transition provision.

Provision for credit losses was $2.5 billion in the second quarter of 2020, an increase of $1.5 billion compared with the first quarter. Under the CECL accounting standard adopted January 1, 2020, the weighted average of PNC's macroeconomic scenarios used in the estimation of expected credit losses materially worsened compared with the first quarter due to the significantly adverse economic impact of the pandemic. Negative borrower credit migration attributable to the pandemic also contributed to the provision increase. Provision for credit losses was $1.7 billion for the commercial portfolio, $720 million for the consumer portfolio and $31 million for securities and other assets.

Net loan charge-offs for the second quarter of 2020 increased $24 million compared with the first quarter as increases in commercial loan net charge-offs of $48 million were partially offset by a decrease in consumer loan net charge-offs of $24 million. Compared with second quarter 2019, net loan charge-offs increased $94 million due to higher commercial loan net charge-offs of $75 million and higher consumer loan net charge-offs of $19 million primarily in the auto and credit card portfolios. Net charge-offs were .35 percent of average loans on an annualized basis for both the second and first quarters of 2020 and .24 percent for the second quarter of 2019.

Nonperforming assets at June 30, 2020 increased $200 million compared with March 31, 2020. Higher nonperforming commercial loans of $192 million and higher nonperforming consumer loans of $40 million were partially offset by lower other real estate owned and foreclosed assets of $32 million due to asset sales and suspension of pandemic-related foreclosures. The increase in nonperforming commercial loans was primarily related to industries economically impacted by the pandemic and the energy industry. Nonperforming assets increased $105 million compared with June 30, 2019 due to higher nonperforming commercial loans of $218 million partially offset by lower nonperforming consumer loans of $66 million and lower other real estate owned and foreclosed assets of $47 million. Nonperforming assets to total assets were .43% at June 30, 2020, .39% at March 31, 2020 and .46% at June 30, 2019.

Overall delinquencies at June 30, 2020 decreased $173 million, or 12%, compared with March 31, 2020 as consumer loan delinquencies declined $135 million and commercial loan delinquencies declined $38 million. Loans past due 30 to 59 days decreased $98 million, loans past due 60 to 89 days increased $3 million and loans past due 90 days or more decreased $78 million. Declines reflected pandemic-related loan modifications through extensions, deferrals and forbearance. Under the CARES Act credit reporting rules and guidance from regulatory agencies, certain loans modified due to COVID-19 related hardships were considered current and not reported as past due at June 30, 2020.

Retail Banking results were a loss for the second quarter of 2020 compared with earnings in the first quarter of 2020 and the second quarter of 2019. Noninterest income declined in both comparisons. Service charges on deposits were lower driven by a decrease in overdraft and return items, and consumer service fees decreased, including merchant services, credit card and debit card fees. Both decreases were attributable to declines in transaction volumes reflecting lower consumer spending and fees waived to assist customers in the pandemic. Residential mortgage revenue decreased compared with the first quarter due to a lower benefit from residential mortgage servicing rights valuation, net of economic hedge, partially offset by higher loan sales revenue. Compared with second quarter 2019, residential mortgage revenue increased attributable to higher loan sales revenue from higher origination volumes. Noninterest income also declined in both comparisons due to negative derivative fair value adjustments related to Visa Class B common shares in the second quarter of 2020. Provision for credit losses increased in the second quarter of 2020 due to the significant estimated economic impact of the pandemic. Noninterest expense decreased in both comparisons driven by lower marketing, ATM and business travel expense, partially offset by higher branch-related expense due in part to the impact of the pandemic.

• Average loans increased 3% compared with the first quarter of 2020 and 10% compared with the second quarter of 2019 due to growth in commercial lending, driven by PPP loans, and higher residential mortgage loans. Compared with second quarter 2019, growth in auto, unsecured installment and credit card loans contributed to the increase.
• Average deposits increased 9% compared with the first quarter and 12% compared with second quarter 2019 due to increases in demand deposits and savings as a result of government stimulus payments and lower consumer spending. Compared to the second quarter of 2019, the increase was partially offset by lower money market deposits, reflecting a shift to relationship-based savings products, and lower certificates of deposit.
• Net loan charge-offs were $142 million for the second quarter of 2020 compared with $166 million in the first quarter of 2020 and $120 million in the second quarter of 2019. The decline from the first quarter reflected COVID-19 related hardship assistance and suspension of pandemic-related foreclosures.
• Residential mortgage loan origination volume was $4.2 billion for the second quarter of 2020 compared with $3.2 billion for the first quarter of 2020 and $2.9 billion for the second quarter of 2019. Approximately 34% of second quarter 2020 volume was for home purchase transactions compared with 36% and 54% for the first quarter of 2020 and second quarter of 2019, respectively.
• The third party residential mortgage servicing portfolio was $122 billion at June 30, 2020 compared with $118 billion at March 31, 2020 and $124 billion at June 30, 2019. Residential mortgage loan servicing acquisitions were $11 billion for second quarter 2020 compared with $2 billion for the first quarter of 2020 and $5 billion for the second quarter of 2019.
• Approximately 73% of consumer customers used non-teller channels for the majority of their transactions during the second quarter of 2020 compared with 71% in the first quarter of 2020 and 69% in the second quarter of 2019.
• Deposit transactions via ATM and mobile channels were 65% of total deposit transactions in the s

Corporate & Institutional Banking results were a loss for the second quarter of 2020 compared with earnings in the first quarter of 2020 and second quarter of 2019. Noninterest income increased in both comparisons primarily due to higher capital markets-related revenue and higher revenue from commercial mortgage banking activities. Provision for credit losses increased in the second quarter of 2020 due to the significant estimated economic impact of the pandemic which resulted in a worsening macroeconomic outlook and negative credit migration. Noninterest expense decreased in both comparisons largely due to lower variable costs associated with decreased business activity.

• Average loans increased 15% compared with the first quarter and 18% over the second quarter of 2019 due to broad growth across PNC's corporate banking, real estate, commercial banking and business credit businesses, including higher average utilization of loan commitments primarily driven by the economic impact of the pandemic and PPP loan originations.
• Average deposits increased 29% from the first quarter and 40% from the second quarter of 2019 reflecting liquidity maintained by customers due to the economic impact of the pandemic.
• Net charge-offs were $99 million in the second quarter of 2020 compared with $50 million in the first quarter and $23 million in the second quarter of 2019.

Asset Management Group earnings for the second quarter of 2020 decreased in both comparisons. Noninterest income was consistent with the first quarter of 2020 and decreased compared with the second quarter of 2019 as a result of the gain on the sale of the retirement recordkeeping business in second quarter 2019. Provision for credit losses increased in the second quarter of 2020 due to the significant estimated economic impact of the pandemic. Noninterest expense declined compared with the first quarter due to lower variable costs associated with reduced business activity related to the economic impact of the pandemic and decreased compared with the second quarter of 2019 as a result of the impact of the 2019 divestitures.

Client assets under administration at June 30, 2020 included discretionary client assets under management of $151 billion and nondiscretionary client assets under administration of $138 billion. Discretionary client assets under management increased $15 billion compared with March 31, 2020 primarily due to higher equity markets at June 30, 2020 compared with March 31, 2020. Discretionary client assets under management decreased $11 billion compared with June 30, 2019 driven by the impact of the fourth quarter 2019 sale of proprietary mutual funds.

Other

The "Other" category, for the purposes of this release, includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, exited businesses, and differences between business segment performance reporting and financial statement reporting under generally accepted accounting principles.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.