PNC Financial Services : 1Q21 ER Press Release.pdf

MEDIA:	INVESTORS:
Marcey Zwiebel	Bryan Gill
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PNC REPORTS FIRST QUARTER 2021 NET INCOME OF $1.8 BILLION,

$4.10 DILUTED EPS

Generated linked quarter positive operating leverage;

significant provision recapture; record capital and liquidity

PITTSBURGH, April 16, 2021 - The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

			For the quarter
In millions, except per share data and as noted		1Q21		4Q20		1Q20
Financial Results
Revenue	$	4,220		$	4,208		$	4,336
Noninterest expense		2,574			2,708			2,543
Pretax, pre-provision earnings (non-GAAP)		1,646			1,500			1,793
Provision for (recapture of) credit losses		(551)			(254)			914
Net income from continuing operations		1,826			1,456			759
Per Common Share
Diluted EPS from continuing operations	$	4.10	$	3.26	$	1.59
Book value		118.47		119.11		106.70
Tangible book value (non-GAAP)		96.57		97.43		84.93
Balance Sheet & Credit Quality
Average loans (in billions)	$	238.1		$	245.8		$	243.6
Average deposits (in billions)		365.4			359.4			289.7
Net loan charge-offs		146			229			212
Allowance for credit losses to total loans		2.20	%		2.46	%		1.66	%
Selected Ratios
Return on average common equity		14.31 %		11.16 %		7.51 %
Return on average assets		1.58			1.24			0.89
Net interest margin (non-GAAP)		2.27			2.32			2.84
Noninterest income to total revenue		44			42			42
Efficiency		61			64			59
Common Equity Tier 1 capital ratio		12.6			12.2			9.4

See non-GAAP financial measures included in the consolidated financial highlights accompanying this news release.

First Quarter Highlights

• 5% linked quarter positive operating leverage, driven by modest revenue growth and lower expenses
• Significant provision recapture reflecting improved macroeconomic expectations
• NIM contracted 5 basis points linked quarter, reflecting the impact of higher balances held at the Federal Reserve
• Average loans declined 3% linked quarter primarily due to lower utilization and originations
• Average deposits grew 2% on a linked quarter basis
• • Loan to deposit ratio of 63%
• Record capital and liquidity
• Improving credit performance; net charge-offs to average loans of 0.25%
• BBVA USA acquisition planning on track. Continue to expect a mid-2021 close

From Bill Demchak, PNC Chairman, President and Chief Executive Officer:

"PNC had a solid start to 2021. We grew revenue, managed expenses and achieved positive operating leverage. We recorded a substantial provision recapture, saw improvement in our credit metrics and capital and liquidity are at record levels. Considerable progress was made in planning for our pending BBVA USA acquisition, and we launched Low Cash Mode℠, an innovative digital offering that helps Virtual Wallet® customers avoid overdraft fees and over time is expected to drive significant growth in new and existing customer relationships through the continued execution of our national expansion strategy. Looking ahead we see significant growth opportunities as the economy recovers and rates improve."

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PNC Reports First Quarter 2021 Net Income of $1.8 Billion, $4.10 Diluted EPS - Page 2

Pending Acquisition of 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

First quarter 2021 compared with fourth quarter 2020

• Net income of $1.8 billion increased $370 million, or 25%, reflecting the impact of a substantial provision recapture.
• Total revenue of $4.2 billion increased $12 million.
• Net interest income of $2.3 billion decreased $76 million, or 3%, resulting from a decrease in loans outstanding, two fewer days in the first quarter and lower securities yields.
• • Net interest margin of 2.27% decreased 5 basis points reflecting the impact of higher balances held with the Federal Reserve Bank.
• Noninterest income of $1.9 billion increased $88 million, or 5%.
• • Fee income of $1.4 billion decreased $102 million, or 7%, primarily driven by lower corporate service fees resulting from elevated merger and acquisition advisory fees in the fourth quarter.
  • Other noninterest income of $483 million increased $190 million, or 65%, and included higher private equity revenue as well as elevated underwriting related revenue.
• Noninterest expense of $2.6 billion decreased $134 million, or 5%, due to disciplined expense management, seasonality and the impact of asset impairments recognized in the fourth quarter.
• Provision recapture was $551 million in the first quarter driven by improvements in macroeconomic factors and lower loans outstanding. The provision recapture for the fourth quarter was $254 million.
• The effective tax rate was 16.9% for the first quarter and 17.0% for the fourth quarter.

Balance Sheet Highlights

First quarter 2021 compared with fourth quarter 2020, or March 31, 2021 compared with December 31, 2020

• Average loans decreased $7.7 billion, or 3%, to $238.1 billion.
• • Average commercial loans of $164.9 billion declined $5.4 billion, or 3%, primarily due to lower average balances in PNC's real estate business, including seasonal declines in multifamily agency warehouse lending of $1.9 billion, and PNC's corporate banking business reflecting both lower utilization of loan commitments and a decline in originations.
  • Average consumer loans of $73.2 billion decreased $2.3 billion, or 3%, reflecting lower home equity, auto, credit card and residential mortgage.
• Loans at March 31, 2021 declined $4.9 billion, or 2%, to $237.0 billion. Commercial loans decreased $2.7 billion, or 2%, and consumer loans decreased $2.2 billion, or 3%.
• Credit quality performance:
• • Overall delinquencies decreased $217 million, or 16%, to $1.1 billion at March 31, 2021.
  • Nonperforming assets decreased $158 million, or 7%, to $2.2 billion at March 31, 2021.
  • Net loan charge-offs decreased $83 million to $146 million, primarily due to lower commercial loan net charge-offs.

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PNC Reports First Quarter 2021 Net Income of $1.8 Billion, $4.10 Diluted EPS - Page 3

• • The allowance for credit losses to total loans was 2.20% at March 31, 2021 compared with 2.46% at December 31, 2020.
• Average deposits increased $6.0 billion, or 2%, to $365.4 billion due to growth in consumer deposits driven by government stimulus payments, partially offset by seasonally lower commercial deposits.
• • Deposits at March 31, 2021 increased $9.8 billion, or 3%, to $375.1 billion.
• Average investment securities increased $0.7 billion, or 1%, to $86.4 billion.
• • Investment securities at March 31, 2021 increased $9.5 billion, or 11%, to $98.3 billion resulting from accelerated purchase activity near the end of the first quarter as the interest rate environment improved.
• Average balances held with the Federal Reserve Bank of $85.2 billion increased $9.1 billion due to liquidity from deposit growth and lower loan balances.
• • Federal Reserve Bank balances at March 31, 2021 increased $0.9 billion to $85.8 billion.
• PNC maintained strong capital and liquidity positions.
• • On April 1, 2021, the PNC board of directors declared a quarterly cash dividend on common stock of $1.15 per share payable on May 5, 2021.
  • The Basel III common equity Tier 1 capital ratio was an estimated 12.6% at March 31, 2021 and 12.2% at December 31, 2020.
  • The Liquidity Coverage Ratio at March 31, 2021 for both PNC and PNC Bank, N.A. exceeded the regulatory minimum requirement.

Earnings Summary

In millions, except per share data		1Q21		4Q20		1Q20
Net income	$	1,826	$	1,456	$	915
Net income attributable to diluted common shares	$	1,750	$	1,387	$	839
Diluted earnings per common share	$	4.10	$	3.26	$	1.95
Average diluted common shares outstanding		426		426		430
Cash dividends declared per common share	$	1.15	$	1.15	$	1.15

In the second quarter of 2020 PNC divested its entire 22.4% equity investment in BlackRock, Inc. Net proceeds from the sale were $14.2 billion. For the first quarter of 2020, BlackRock's historical results 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.

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PNC Reports First Quarter 2021 Net Income of $1.8 Billion, $4.10 Diluted EPS - Page 4

CONSOLIDATED REVENUE REVIEW

Revenue							Change	Change
							1Q21 vs	1Q21 vs
In millions		1Q21		4Q20		1Q20	4Q20	1Q20
Net interest income	$	2,348	$	2,424	$	2,511	(3)%	(6)%
Noninterest income		1,872		1,784		1,825	5 %	3 %
Total revenue	$	4,220	$	4,208	$	4,336	-	(3)%

Total revenue for the first quarter of 2021 increased $12 million compared with the fourth quarter of 2020 as higher noninterest income more than offset a decrease in net interest income. In comparison with the first quarter of 2020, total revenue decreased $116 million due to lower net interest income.

Net interest income of $2.3 billion for the first quarter of 2021 decreased $76 million compared to the fourth quarter resulting from a decrease in loans outstanding, two fewer days in the first quarter and lower securities yields; partially offset by higher loan yields, a decline in deposit rates and lower borrowings balances. In comparison with the first quarter of 2020, net interest income decreased $163 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 2.27% for the first quarter of 2021 from 2.32% in the fourth quarter and 2.84% in the first quarter of 2020. In both comparisons the decrease reflected higher balances held with the Federal Reserve Bank. Compared with the first quarter of 2020, the decrease also resulted from lower yields on securities and loans, partially offset by lower rates on deposits.

Noninterest Income							Change	Change
							1Q21 vs	1Q21 vs
In millions		1Q21		4Q20		1Q20	4Q20	1Q20
Asset management	$	226	$	221	$	201	2 %	12 %
Consumer services		384		387		377	(1)%	2 %
Corporate services		555		650		526	(15)%	6 %
Residential mortgage		105		99		210	6 %	(50)%
Service charges on deposits		119		134		168	(11)%	(29)%
Other		483		293		343	65 %	41 %
	$	1,872	$	1,784	$	1,825	5 %	3 %

Noninterest income for the first quarter of 2021 increased $88 million compared with the fourth quarter. Asset management revenue increased $5 million as a result of higher average equity markets. Consumer services decreased $3 million, as higher brokerage fees were more than offset by seasonally lower activity. Corporate services decreased $95 million primarily due to elevated fourth quarter merger and acquisition advisory fees. Residential mortgage revenue increased $6 million driven by higher results from residential mortgage servicing rights valuation, net of economic hedge. Service charges on deposits decreased $15 million due to lower transaction volumes, reflecting seasonality and

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PNC Reports First Quarter 2021 Net Income of $1.8 Billion, $4.10 Diluted EPS - Page 5

higher average customer account balances as a result of government stimulus payments. Other noninterest income increased $190 million and included higher private equity revenue, primarily related to the reversal of negative valuation adjustments recognized during 2020, as well as elevated underwriting related revenue. In addition, the fourth quarter included a negative Visa Class B derivative fair value adjustment of $173 million compared to a positive adjustment of $17 million in the first quarter.

Noninterest income for the first quarter of 2021 increased $47 million compared with the first quarter of 2020. Asset management revenue increased $25 million as a result of higher average equity markets. Consumer services increased $7 million reflecting higher brokerage fees. Corporate services increased $29 million primarily due to higher revenue from commercial mortgage servicing activities, loan commitment fees and treasury management product revenue. Residential mortgage revenue decreased $105 million primarily driven by an elevated first quarter 2020 benefit from residential mortgage servicing rights valuation, net of economic hedge. Service charges on deposits decreased $49 million and included lower transaction volumes. Other noninterest income increased $140 million primarily due to higher private equity revenue and capital markets-related revenue, partially offset by lower net securities gains.

CONSOLIDATED EXPENSE REVIEW

Noninterest Expense							Change	Change
							1Q21 vs	1Q21 vs
In millions		1Q21		4Q20		1Q20	4Q20	1Q20
Personnel	$	1,477	$	1,521	$	1,369	(3)%	8 %
Occupancy		215		215		207	-	4 %
Equipment		293		296		287	(1)%	2 %
Marketing		45		64		58	(30)%	(22)%
Other		544		612		622	(11)%	(13)%
	$	2,574	$	2,708	$	2,543	(5)%	1 %

Noninterest expense for the first quarter of 2021 decreased $134 million compared with the fourth quarter. Personnel expense decreased $44 million due to two fewer days in the quarter and seasonally lower medical benefits expense. Marketing decreased $19 million reflecting a seasonal decline in activity. Other expense decreased $68 million due to PNC's continued focus on expense management, seasonality and the impact of asset impairments recognized in the fourth quarter.

Noninterest expense for the first quarter of 2021 increased $31 million compared with the first quarter of 2020 due to higher deferred compensation, partially offset by lower costs associated with business travel and marketing activity.

The effective tax rate was 16.9% for the first quarter of 2021, 17.0% for the fourth quarter of 2020 and 13.7% for the first quarter of 2020.

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