PNC Reports Full Year 2020 Net Income Of $7.6 Billion

1/15/21

PITTSBURGH, Jan. 15, 2021 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

Agreement to Buy BBVA USA Bancshares, Inc.

  • On November 16, 2020 PNC announced a definitive agreement to acquire BBVA USA Bancshares, Inc., including its U.S. banking subsidiary BBVA USA, from the Spanish financial group BBVA S.A. for a fixed purchase price of $11.6 billion in cash. BBVA USA operates over 600 branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. The transaction is expected to close in mid-2021 and will increase PNC's total assets by an estimated $102 billion, creating the fifth largest bank by assets and a PNC presence in 29 of the 30 largest markets in the U.S.

Income Statement Highlights

Fourth quarter 2020 compared with third quarter 2020

  • Net income of $1.5 billion decreased $76 million, or 5%.
  • Total revenue of $4.2 billion declined $73 million, or 2%.
  • Net interest income of $2.4 billion decreased $60 million, or 2%, reflecting a decrease in loans outstanding and lower securities balances and yields, partially offset by higher loan yields and a decline in deposit and borrowing costs.
    • Net interest margin decreased 7 basis points to 2.32% due to the impact of higher balances held with the Federal Reserve Bank.
  • Noninterest income of $1.8 billion decreased $13 million, or 1%.
    • Fee income of $1.5 billion increased $151 million, or 11%, as a result of higher corporate service fees and service charges on deposits, partially offset by lower residential mortgage revenue.
    • Other noninterest income of $293 million decreased $164 million, or 36%, and included negative Visa Class B derivative fair value adjustments of $173 million, primarily related to the extension of anticipated litigation resolution timing.
  • Noninterest expense of $2.7 billion increased $177 million, or 7%, primarily reflecting higher incentive compensation related to increased business activity, as well as seasonality and equipment impairments.
  • Provision recapture was $254 million compared with a provision for credit losses of $52 million in the third quarter reflecting improvements in macroeconomic factors.
  • The effective tax rate was 17.0% for the fourth quarter and 9.8% for the third quarter. The third quarter included tax credit benefits and the favorable resolution of certain tax matters.

Balance Sheet Highlights

Fourth quarter 2020 compared with third quarter 2020, or December 31, 2020 compared with September 30, 2020

  • Average loans decreased $7.3 billion, or 3%, to $245.8 billion.
    • Average commercial loans of $170.3 billion decreased $5.3 billion, or 3%, reflecting lower utilization of loan commitments and originations, partially offset by higher multi-family agency warehouse lending.
    • Average consumer loans of $75.5 billion decreased $2.0 billion, or 3%, primarily due to lower auto and home equity loans.
  • Loans at December 31, 2020 declined $7.4 billion, or 3%, to $241.9 billion. Commercial loans decreased $5.5 billion, or 3%, and consumer loans decreased $1.9 billion, or 2%.
  • Credit quality performance:
    • Overall delinquencies of $1.4 billion at December 31, 2020 increased $125 million, or 10%.
    • Nonperforming assets of $2.3 billion at December 31, 2020 increased $185 million, or 9%.
    • Net loan charge-offs increased $74 million to $229 million, reflecting higher commercial loan charge-offs, primarily in industries adversely impacted by the pandemic.
    • The allowance for credit losses to total loans was 2.46% at December 31, 2020 compared with 2.58% at September 30, 2020.
  • Average deposits increased $8.9 billion, or 3%, to $359.4 billion due to growth in both commercial and consumer deposits. Commercial deposits reflected the enhanced liquidity position of our customers and seasonal growth. Consumer deposits increased driven by lower consumer spending.
    • Deposits at December 31, 2020 increased $10.2 billion, or 3%, to $365.3 billion.
  • Average investment securities decreased $4.8 billion, or 5%, to $85.7 billion as portfolio prepayments exceeded purchases.
    • Investment securities at December 31, 2020 decreased $2.4 billion, or 3%, to $88.8 billion.
  • Average balances held with the Federal Reserve Bank of $76.1 billion increased $16.1 billion reflecting liquidity from deposit growth and lower loan and security balances.
    • Federal Reserve Bank balances at December 31, 2020 increased $14.3 billion to $84.9 billion.
  • PNC maintained strong capital and liquidity positions.
    • On January 5, 2021, the PNC board of directors declared a quarterly cash dividend on common stock of $1.15 per share payable on February 5, 2021.
    • The Basel III common equity Tier 1 capital ratio was an estimated 12.1% at December 31, 2020 and 11.7% at September 30, 2020.
    • The Liquidity Coverage Ratio at December 31, 2020 for both PNC and PNC Bank, N.A. exceeded the regulatory minimum requirement.
4Q203Q204Q19
4264264381.241.321.3311.1611.7611.54
In the second quarter of 2020 PNC divested its entire 22.4% equity investment in BlackRock. Net proceeds from the sale were $14.2 billion. For all periods presented, BlackRock's historical results, and the after-tax gain on the sale of $4.3 billion, are reported as discontinued operations.The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported (GAAP) amounts. This information supplements results as reported in accordance with GAAP and should not be viewed in isolation from, or as a substitute for, GAAP results. Fee income, a non-GAAP financial measure, refers to noninterest income in the following categories: asset management, consumer services, corporate services, residential mortgage and service charges on deposits. Information in this news release, including the financial tables, is unaudited.
CONSOLIDATED REVENUE REVIEW
ChangeChange
4Q20 vs4Q20 vs
4Q203Q204Q193Q204Q19
1,7841,7971,833
Total revenue for the fourth quarter of 2020 decreased $73 million compared with the third quarter of 2020 and $113 million compared with the fourth quarter of 2019, reflecting lower net interest income and noninterest income.Net interest income of $2.4 billion for the fourth quarter of 2020 decreased $60 million compared to the third quarter, reflecting a decrease in loans outstanding and lower securities balances and yields, partially offset by higher loan yields and a decline in deposit and borrowing costs. In comparison with the fourth quarter of 2019, net interest income decreased $64 million due to lower yields on earning assets partially offset by lower rates on deposits, higher average earning assets and a decline in borrowing costs and balances. The net interest margin declined to 2.32% for the fourth quarter of 2020 from 2.39% in the third quarter and 2.78% in the fourth quarter of 2019. In both comparisons the decrease reflected higher balances held with the Federal Reserve Bank. Compared with the fourth quarter of 2019, the decrease also resulted from lower yields on loans and securities, partially offset by lower rates on deposits.
ChangeChange
4Q20 vs4Q20 vs
4Q203Q204Q193Q204Q19
3873903906504794999913787134119185293457456
Noninterest income for the fourth quarter of 2020 decreased $13 million compared with the third quarter. Asset management revenue increased $6 million as a result of higher average equity markets. Consumer services decreased $3 million and included lower brokerage fees. Corporate services increased $171 million primarily due to higher merger and acquisition advisory fees. Residential mortgage revenue declined $38 million driven by lower results from residential mortgage servicing rights valuation, net of economic hedge, as well as lower servicing fees and loan sales revenue. Service charges on deposits increased $15 million due to higher transaction volumes. Other noninterest income decreased $164 million due to a negative Visa Class B derivative fair value adjustment of $173 million in the fourth quarter of 2020, primarily related to the extension of anticipated litigation resolution timing. In addition, other noninterest income included favorable assumption updates to credit valuation adjustments related to the derivatives portfolio and higher net securities gains, partially offset by lower private equity revenue. Noninterest income for the fourth quarter of 2020 decreased $49 million compared with the fourth quarter of 2019. Corporate services increased $151 million primarily due to higher merger and acquisition advisory fees. Residential mortgage revenue increased $12 million driven by higher loan sales revenue. Service charges on deposits decreased $51 million reflecting lower transaction volumes and lower revenue related to the elimination of certain checking product fees. Other noninterest income decreased $163 million primarily due to a negative fair value adjustment related to the Visa Class B derivative. Other noninterest income in the fourth quarter of 2020 also reflected lower private equity revenue, higher credit valuation adjustments and higher net securities gains while the fourth quarter of 2019 included a gain on sale of proprietary mutual funds.
CONSOLIDATED EXPENSE REVIEW
ChangeChange
4Q20 vs4Q20 vs
4Q203Q204Q193Q204Q19
215205201296292348646777612557668
Noninterest expense for the fourth quarter of 2020 increased $177 million compared with the third quarter. Personnel expense increased $111 million due to higher incentive compensation related to increased business activity. Other expenses increased $55 million reflecting seasonality and equipment impairments.Noninterest expense for the fourth quarter of 2020 decreased $54 million compared with the fourth quarter of 2019, due to technology-related equipment write-offs recognized in the fourth quarter of 2019 and a decrease in costs associated with business travel, partially offset by higher incentive compensation related to increased business activity.

The effective tax rate was 17.0% for the fourth quarter of 2020, 9.8% for the third quarter of 2020 and 14.6% for the fourth quarter of 2019. The third quarter of 2020 included tax credit benefits and the favorable resolution of certain tax matters.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets were $465.0 billion in the fourth quarter of 2020 compared with $462.1 billion in the third quarter and $411.4 billion in the fourth quarter of 2019. Total assets were $466.7 billion at December 31, 2020, $461.8 billion at September 30, 2020 and $410.3 billion at December 31, 2019. Balance sheet growth in the fourth quarter of 2020 resulted from higher balances maintained with the Federal Reserve Bank driven by increased deposits in all comparisons.

ChangeChange
4Q20 vs4Q20 vs
4Q203Q204Q193Q204Q19
75.577.578.1
74.776.679.2
Average loans for the fourth quarter of 2020 decreased $7.3 billion compared with the third quarter. Average commercial loans declined $5.3 billion reflecting lower utilization of loan commitments and originations, partially offset by higher multi-family agency warehouse lending. Average consumer loans decreased $2.0 billion primarily due to lower auto and home equity loans.Total loans at December 31, 2020 decreased $7.4 billion compared with September 30, 2020 driven by a decline in commercial loans of $5.5 billion. At December 31, 2020 PNC had $12.0 billion of PPP loans outstanding, down from $12.9 billion at September 30, 2020. Consumer loans at December 31, 2020 decreased $1.9 billion compared with September 30, 2020.

Average and period-end loans for the fourth quarter of 2020 increased $6.9 billion and $2.1 billion compared with the fourth quarter of 2019, respectively. The increase in both comparisons was driven by growth in commercial loans, including PPP lending, partially offset by a decline in consumer loans, primarily within the auto loan portfolio.

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Average investment securities for the fourth quarter of 2020 decreased $4.8 billion and period-end balances decreased $2.4 billion compared with the third quarter, due to prepayments exceeding purchases, primarily within the agency residential mortgage-backed securities portfolio.Fourth quarter 2020 average and period-end investment securities increased $2.2 billion and $2.0 billion, respectively, compared with the fourth quarter of 2019, primarily due to net purchases of U.S. agency securities. Net unrealized gains on available for sale securities were $3.2 billion at December 31, 2020, $3.4 billion at September 30, 2020 and $1.4 billion at December 31, 2019.

Average balances held with the Federal Reserve Bank of $76.1 billion in the fourth quarter of 2020 increased from $60.0 billion in the third quarter reflecting deposit growth and lower loan and security balances. Federal Reserve Bank balances at December 31, 2020 of $84.9 billion increased from $70.6 billion at September 30, 2020. Average balances held with the Federal Reserve Bank increased $53.1 billion from $23.0 billion in the fourth quarter of 2019 driven by higher deposits. Federal Reserve Bank balances were $23.2 billion at December 31, 2019.

ChangeChange
4Q20 vs4Q20 vs
4Q203Q204Q193Q204Q19
249.5248.6214.1
252.7247.8215.7
Average deposits for the fourth quarter of 2020 increased $8.9 billion compared with the third quarter and deposits at December 31, 2020 increased $10.2 billion compared with September 30, 2020 due to growth in commercial and consumer deposits. Commercial deposits reflected the enhanced liquidity position of our customers and seasonal growth. Consumer deposits increased reflecting lower consumer spending. Fourth quarter 2020 average and period-end deposits increased $71.6 billion and $76.8 billion, respectively, compared with fourth quarter 2019 as a result of overall growth in commercial and consumer liquidity and customers.
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Average borrowed funds for the fourth quarter of 2020 decreased $5.1 billion compared with the third quarter and borrowed funds at December 31, 2020 decreased $4.9 billion compared with September 30, 2020 due to lower Federal Home Loan Bank borrowings and bank notes and senior debt, reflecting the use of liquidity from deposit growth. Average borrowed funds for the fourth quarter of 2020 declined $21.8 billion compared with the fourth quarter of 2019 and period-end borrowed funds decreased $23.1 billion reflecting the use of excess liquidity.
12/31/20209/30/202012/31/2019
12.111.79.511.811.3N/A
PNC maintained a strong capital position. Common shareholders' equity at December 31, 2020 increased $0.7 billion, or 1%, over September 30, 2020 due to fourth quarter net income partially offset by dividends and a decrease in accumulated other comprehensive income related to prepayments in the agency residential mortgage-backed securities portfolio. The PNC board of directors declared a quarterly cash dividend on common stock payable on February 5, 2021 of $1.15 per share.

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 the Current Expected Credit Losses (CECL) standard 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.

ChangeChange
At or for the quarter ended4Q20 vs4Q20 vs
12/31/20209/30/202012/31/20193Q204Q19
4810104093314(13)2.462.581.28
Provision recapture was $254 million in the fourth quarter of 2020 compared with a provision for credit losses of $52 million in the third quarter. Commercial loan provision recapture was $182 million in the fourth quarter of 2020 compared to a provision for credit losses of $219 million in the third quarter, primarily reflecting improvements in macroeconomic factors. Provision recapture for the consumer loan portfolio decreased $128 million to $87 million for the fourth quarter of 2020, primarily due to lower impacts related to improvements in credit quality and macroeconomic factors in the fourth quarter. Provision for credit losses for securities and other assets was $15 million for the fourth quarter of 2020.Net loan charge-offs for the fourth quarter of 2020 increased $74 million compared with the third quarter. Commercial loan net charge-offs increased $71 million from the third quarter reflecting higher charge-offs of commercial and industrial loans, primarily in industries adversely impacted by the pandemic. Consumer loan net charge-offs modestly increased $3 million from the third quarter. Compared to the fourth quarter of 2019, net loan charge-offs increased $20 million due to higher commercial loan net charge-offs of $50 million, partially offset by lower consumer loan net charges-offs of $30 million. Net charge-offs were .37% of average loans on an annualized basis at December 31, 2020, .24% at September 30, 2020 and .35% at December 31, 2019.

Nonperforming assets at December 31, 2020 increased $185 million compared with September 30, 2020. Higher nonperforming commercial loans of $8 million and higher nonperforming consumer loans of $193 million were partially offset by lower other real estate owned and foreclosed assets of $16 million. Higher nonperforming consumer loans reflected an increase in nonperforming residential real estate of $189 million primarily related to borrowers exiting forbearance and deferring payments to the end of the loan term. Nonperforming assets increased $585 million compared with December 31, 2019 primarily due to the economic impacts of the pandemic. Commercial and consumer nonperforming loans increased $422 million and $229 million, respectively. This increase was partially offset by lower other real estate owned and foreclosed assets of $66 million. Nonperforming assets to total assets were .50% at December 31, 2020 compared with .47% at September 30, 2020 and .43% at December 31, 2019.

Overall delinquencies at December 31, 2020 increased $125 million compared with September 30, 2020. Consumer loan delinquencies increased $72 million primarily due to increases in government insured residential real estate. Commercial loan delinquencies grew $53 million reflecting increases in the commercial and industrial portfolio. Loans past due 30 to 59 days decreased $81 million, loans past due 60 to 89 days decreased $17 million and loans past due 90 days or more increased $61 million. Under the CARES Act credit reporting rules and guidance from regulatory agencies, certain loans modified due to pandemic-related hardships were considered current and not reported as past due at December 31, 2020 and September 30, 2020.

The allowance for credit losses was $5.9 billion at December 31, 2020 and $6.4 billion at September 30, 2020. The allowance for credit losses as a percentage of total loans was 2.46% at December 31, 2020 and 2.58% at September 30, 2020.

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99267064982919146241126
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Retail Banking earnings for the fourth quarter of 2020 decreased compared with the third quarter of 2020 and increased compared with the fourth quarter of 2019. Noninterest income decreased over the third quarter driven by the impact of a negative derivative fair value adjustment related to Visa Class B common shares in the fourth quarter of 2020, as well as lower residential mortgage revenue, primarily due to lower residential mortgage servicing rights valuation, net of economic hedge, and lower servicing fees and loan sales revenue. This decrease was partially offset by higher service charges on deposits due to increased transaction volumes. In comparison with the fourth quarter of 2019, noninterest income decreased driven by the impact of a negative derivative fair value adjustment related to Visa Class B Common shares in the fourth quarter of 2020, as well as lower service charges on deposits due to lower transaction volumes and lower revenue related to the elimination of certain checking product fees. The decline was partially offset by higher residential mortgage revenue, driven by higher loan sales revenue.Provision recapture for the fourth quarter of 2020 decreased compared with the third quarter, primarily due to lower impacts related to improvements in credit quality and macroeconomic factors in the fourth quarter. Noninterest expense decreased compared with the third quarter reflecting lower customer related transaction costs, branch-related expenses, and marketing. Compared with the fourth quarter of 2019, noninterest expense decreased primarily as a result of lower customer related transaction costs and costs associated with business travel.
  • Average loans decreased 3% compared with the third quarter of 2020 and were flat compared with the fourth quarter of 2019. The decrease from the third quarter of 2020 was driven by declines in auto, residential mortgage and home equity, reflecting lower consumer demand. Compared with the fourth quarter 2019, average loans were flat due to growth in commercial, driven by PPP loans, and residential mortgage, resulting from increased originations in the low interest rate environment, offset primarily by auto, credit card, and student lending.
  • Average deposits increased 1% compared with the third quarter and 18% compared with the fourth quarter of 2019 due to increases in demand deposits and savings, reflecting lower consumer spending partially offset by lower certificates of deposit.
  • Net loan charge-offs were $136 million for the fourth quarter of 2020 compared with $125 million in the third quarter of 2020 and $154 million in the fourth quarter of 2019.
  • Residential mortgage loan origination volume was $3.7 billion in the fourth quarter of 2020 compared with $4.0 billion for the third quarter and $3.5 billion for the fourth quarter of 2019. Approximately 45% of fourth quarter 2020 volume was for home purchase transactions compared with 44% for the third quarter of 2020 and 40% for the fourth quarter of 2019.
  • The third party residential mortgage servicing portfolio was $121 billion at December 31, 2020 compared with $119 billion at September 30, 2020 and $120 billion at December 31, 2019. Residential mortgage loan servicing acquisitions were $12 billion for the fourth quarter of 2020 compared with $8 billion for the third quarter of 2020 and $3 billion for the fourth quarter of 2019.
  • Approximately 77% of consumer customers used non-teller channels for the majority of their transactions during the fourth quarter of 2020 compared with 75% in the third quarter of 2020 and 71% in the fourth quarter of 2019.
  • Deposit transactions via ATM and mobile channels were 66% of total deposit transactions in the fourth quarter of 2020 compared with 67% in the third quarter of 2020 and 58% in the fourth quarter of 2019.
Corporate & Institutional BankingChangeChange
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Corporate & Institutional Banking earnings for the fourth quarter of 2020 increased compared to both the third quarter of 2020 and fourth quarter of 2019. Noninterest income increased in both comparisons primarily due to higher capital markets-related revenue, led by a significant increase in merger and acquisition advisory fees. Higher revenue from commercial mortgage banking activities also contributed to the increase compared with the fourth quarter of 2019. Provision recapture in the fourth quarter of 2020 reflected improvements in macroeconomic factors. Noninterest expense increased in both comparisons largely due to higher variable costs associated with increased business activity.
  • Average loans decreased 3% compared to the third quarter due to a decline in PNC's corporate banking business, reflecting lower average utilization of loan commitments. Average loans increased 4% over the fourth quarter of 2019 primarily due to PPP loan originations and higher multifamily agency warehouse lending, partially offset by lower average utilization of loan commitments.
  • Average deposits increased 4% from the third quarter reflecting seasonal growth and 41% from the fourth quarter of 2019 reflecting liquidity maintained by customers due to the economic impact of the pandemic.
  • Net charge-offs were $99 million in the fourth quarter of 2020 compared with $32 million in the third quarter of 2020 and $47 million in the fourth quarter of 2019.
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—

Asset Management Group earnings for the fourth quarter of 2020 decreased in both comparisons. Noninterest income increased compared to the prior quarter due to higher average equity markets. Noninterest income declined compared to the fourth quarter of 2019 due to the prior year gain on the sale of components of the PNC Capital Advisors investment management business, primarily proprietary mutual funds. Noninterest expense was stable compared to the third quarter of 2020 and declined compared to the fourth quarter of 2019 due to lower run-rate expenses driven by 2019 divestitures.

Client assets under administration at December 31, 2020 included discretionary client assets under management of $170 billion and nondiscretionary client assets under administration of $154 billion. Discretionary client assets under management increased $12 billion compared with September 30, 2020 and $16 billion compared with December 31, 2019 primarily driven by higher spot equity markets.

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.

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