PNC Financial Services : 3Q21 ER Press Release.pdf

MEDIA:	INVESTORS:
Marcey Zwiebel	Bryan Gill
[phone]	[phone]
[e-mail]	[e-mail]

PNC REPORTS THIRD QUARTER 2021 NET INCOME OF $1.5 BILLION,

$3.30 DILUTED EPS OR $3.75 AS ADJUSTED

Converted BBVA USA;

delivered record revenue; continued strong credit quality performance

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

For the quarter

In millions, except per share data and as noted		3Q21		2Q21	3Q20	Third Quarter Highlights
Financial Results							▪ Converted BBVA USA customers,
Revenue	$	5,197	$	4,667	$	4,281
employees, systems and
Noninterest expense		3,587		3,050		2,531	branches as of October 12, 2021
Pretax, pre-provision earnings (non-GAAP)		1,610		1,617		1,750	- Third quarter results reflect
Integration costs		243		111		-	full quarter benefit from BBVA
			USA
Pretax, pre-provision earnings excluding		1,853		1,728		-
			- Second quarter results include
integration costs (non-GAAP)
Provision for (recapture of) credit losses		(203)		302		52	one month impact of BBVA
			USA which closed on June 1,
Net income		1,490		1,103		1,532
			2021
							▪ Diluted EPS as adjusted was
Per Common Share
Diluted earnings - as reported	$	3.30	$	2.43	$	3.39	$3.75, excluding $243 million of
pre-tax integration costs related
Impact from integration costs (non-GAAP)		(0.45)		(0.21)		-	to BBVA USA
Diluted earnings - as adjusted (non-GAAP)		3.75		2.64		-	▪ Revenue increased 11% linked
Book value		121.16	120.25	117.44	quarter driven by the full quarter
	benefit of BBVA USA and strong
Tangible book value (non-GAAP)		94.82		93.83		95.71
			fee income growth
Balance Sheet & Credit Quality							▪ Expenses increased 18% linked
Average loans (in billions)	$	291.3	$	255.6	$	253.1	quarter. PNC legacy expenses
increased 3% linked quarter,
Average deposits (in billions)		454.4		401.7		350.5
			reflecting increased business
Net loan charge-offs		81		306		155	activity
Allowance for credit losses to total loans		2.07 %		2.16 %	2.58 %	▪ Provision recapture of $203
Selected Ratios							million, reflecting improved
						credit quality and changes in
Return on average common equity		10.95 %		8.32 %	11.76 %	portfolio composition
Return on average assets		1.06		0.88	1.32	▪ Average loans and deposits
Net interest margin (non-GAAP)		2.27		2.29	2.39	increased 14% and 13%,
Noninterest income to total revenue		45		45		42	respectively, linked quarter due
Efficiency		69		65		59	to the full quarter benefit of
			BBVA USA
Efficiency excluding integration costs (non-GAAP)		64		63		-
			▪ Strong credit performance; net
Common Equity Tier 1 capital ratio		10.2		10.1	11.7
		loan charge-offs of $81 million,
Diluted earnings as adjusted is a non-GAAP measure calculated by excluding post-tax integration costs for	decreased $225 million linked
BBVA USA. See this and other non-GAAP financial measures in the consolidated financial highlights		quarter
accompanying this release.

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

"In the third quarter PNC delivered solid financial results reflecting revenue growth and strong credit quality performance. While average loans increased due to the full quarter benefit of BBVA USA, period- end loans decreased modestly due to Paycheck Protection Program loan forgiveness activity. Importantly, we have completed the conversion of BBVA USA, providing all existing and new PNC customers with access to our coast-to-coast franchise. With the significant expansion of our footprint and the continued execution of our strategic priorities, we see substantial opportunities to leverage our best-in-class products and services, and deliver enhanced shareholder value for years to come."

- more -

PNC Reports Third Quarter 2021 Net Income of $1.5 Billion, $3.30 Diluted EPS or $3.75 As Adjusted - Page 2

BBVA USA

• As of October 12, 2021, PNC has converted approximately 2.6 million customers, 9,000 employees and nearly 600 branches across seven states, merging BBVA USA into PNC Bank. PNC acquired BBVA USA on June 1, 2021.
• Third quarter financial results reflect the full quarter benefit of BBVA USA. Second quarter financial results include the impact of BBVA USA operations for the month of June 2021.
• • Net interest income attributable to BBVA USA was $532 million in the third quarter of 2021 and included a significant increase in premium amortization expense related to certain BBVA USA investment securities. In the second quarter of 2021, net interest income attributable to BBVA USA was $236 million and included a $30 million benefit from purchase accounting accretion.
  • Noninterest income attributable to BBVA USA was $213 million in the third quarter of 2021, increasing $133 million compared with the second quarter of 2021.
  • Noninterest expense attributable to BBVA USA was $506 million in the third quarter of 2021, increasing $327 million compared with the second quarter of 2021.
  • Merger and integration costs in the third quarter of 2021 were $243 million, increasing $132 million compared with the second quarter of 2021. Since the announcement of the acquisition, PNC has incurred approximately half of the $980 million of expected merger and integration costs.
  • PNC remains on track to realize $900 million in cost saves.

Income Statement Highlights

Third quarter 2021 compared with second quarter 2021

• Net income of $1.5 billion increased $387 million, or 35%.
• Total revenue of $5.2 billion increased $530 million, or 11%, reflecting the full quarter benefit of BBVA USA and higher noninterest income.
• Net interest income of $2.9 billion increased $275 million, or 11%, driven by higher interest earning asset balances reflecting the full quarter benefit of BBVA USA, partially offset by lower yields.
• • Net interest margin of 2.27% decreased 2 basis points.
• Noninterest income of $2.3 billion increased $255 million, or 12%.
• • Fee income of $1.9 billion increased $274 million, or 17%, driven by the full quarter benefit of BBVA USA, record merger and acquisition advisory fees and higher residential mortgage revenue.
  • Other noninterest income of $449 million declined $19 million, or 4%, and included higher private equity revenue as well as a negative Visa Class B derivative fair value adjustment of $169 million primarily related to the extension of anticipated litigation resolution timing.
• Noninterest expense of $3.6 billion increased $537 million, or 18%, and included a full quarter of BBVA USA operating expenses, increased integration expenses, higher incentive compensation related to increased business activity and increased marketing.
• The third quarter of 2021 included a provision recapture of $203 million, reflecting continued improvements in credit quality and changes in portfolio composition. The second quarter included a provision for credit losses of $302 million, primarily driven by the establishment of an initial provision for credit losses related to the BBVA USA acquisition.
• The effective tax rate was 17.8% for the third quarter and 16.1% for the second quarter.

- more -

PNC Reports Third Quarter 2021 Net Income of $1.5 Billion, $3.30 Diluted EPS or $3.75 As Adjusted - Page 3

Balance Sheet Highlights

Third quarter 2021 compared with second quarter 2021 or September 30, 2021 compared with June 30, 2021

• Average loans of $291.3 billion increased $35.7 billion, or 14%, reflecting the full quarter benefit of
  BBVA USA.
• Loans of $290.2 billion at September 30, 2021 decreased $4.5 billion, or 2%.
• • Commercial loans of $195.2 billion decreased $4.4 billion, or 2%, driven by $4.8 billion of Paycheck Protection Program (PPP) loan forgiveness and a decrease in BBVA USA legacy loan portfolios, partially offset by growth in PNC legacy corporate banking, business credit and multifamily agency warehouse lending.
  • Consumer loans of $95.0 billion remained relatively stable, as growth in residential mortgage loans was offset primarily by declines in home equity and auto loans.
• Credit quality performance:
• • Delinquencies of $1.4 billion increased $106 million, or 8%, largely due to commercial loans past due 30 to 59 days primarily reflecting operational delays.
  • Total nonperforming loans of $2.5 billion decreased $251 million, or 9%.
  • Net loan charge-offs of $81 million decreased $225 million. The second quarter included net loan charge-offs of $248 million related to the purchase accounting treatment for certain loans that were previously charged-off by BBVA USA.
  • The allowance for credit losses to total loans was 2.07% at September 30, 2021 compared with 2.16% at June 30, 2021.
• Average deposits of $454.4 billion increased $52.7 billion, or 13%, primarily due to the full quarter benefit of BBVA USA.
• • Deposits of $448.9 billion at September 30, 2021 decreased $4.0 billion, or 1%, due to BBVA USA legacy commercial deposit outflows reflecting the impact of strategic repricing decisions, partially offset by growth in PNC legacy deposits.
• Average investment securities of $120.6 billion, increased $12.1 billion, or 11%, driven by the full quarter benefit of BBVA USA.
• • Investment securities of $125.6 billion at September 30, 2021 decreased $0.9 billion, or 1%.
• Average Federal Reserve Bank balances were $80.1 billion, increasing $1.8 billion.
• • Federal Reserve Bank balances at September 30, 2021 were $75.1 billion, an increase of $3.2 billion reflecting increased liquidity.
• PNC maintained strong capital and liquidity positions.
• • On October 1, 2021, the PNC board of directors declared a quarterly cash dividend on common stock of $1.25 per share payable on November 5, 2021.
  • The Basel III common equity Tier 1 capital ratio was an estimated 10.2% at September 30, 2021 and 10.1% at June 30, 2021.
  • The Liquidity Coverage Ratio at September 30, 2021 for PNC exceeded the regulatory minimum requirement.

- more -

PNC Reports Third Quarter 2021 Net Income of $1.5 Billion, $3.30 Diluted EPS or $3.75 As Adjusted - Page 4

Earnings Summary

In millions, except per share data		3Q21		2Q21		3Q20
Net income	$	1,490	$	1,103	$	1,532
Net income attributable to	$	1,408	$	1,037	$	1,447
diluted common shares - as reported
Net income attributable to	$	1,600	$	1,125
diluted common shares - as adjusted (non-GAAP)		-
Diluted earnings per common share - as reported	$	3.30	$	2.43	$	3.39
Diluted earnings per common share - as adjusted (non-GAAP)	$	3.75	$	2.64		-
Average diluted common shares outstanding		426		427		426
Cash dividends declared per common share	$	1.25	$	1.25	$	1.15

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

Third quarter 2021 net income of $1.5 billion, or $3.30 per diluted common share, included integration costs of $243 million pretax resulting from the acquisition of BBVA USA. Excluding the impact of integration costs, adjusted diluted earnings per common share was $3.75.

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

Revenue							Change	Change
							3Q21 vs	3Q21 vs
In millions		3Q21		2Q21		3Q20	2Q21	3Q20
Net interest income	$	2,856	$	2,581	$	2,484	11	%	15	%
Noninterest income		2,341		2,086		1,797	12	%	30	%
Total revenue	$	5,197	$	4,667	$	4,281	11 %	21 %

Total revenue for the third quarter of 2021 increased $530 million compared with the second quarter of 2021 and $916 million compared with the third quarter of 2020. In both comparisons, the increase was largely due to the acquisition of BBVA USA and growth in noninterest income as a result of increased business activity. For the third quarter of 2021, net interest income attributable to BBVA USA was $532 million and included a significant increase in premium amortization related to certain BBVA USA investment securities. In the second quarter of 2021, net interest income attributable to BBVA USA was $236 million and included a $30 million benefit from purchase accounting accretion. Total noninterest income attributable to BBVA USA was $213 million in the third quarter of 2021, increasing $133 million from the second quarter of 2021.

Net interest income of $2.9 billion for the third quarter of 2021 increased $275 million compared to the second quarter driven by higher interest earning assets reflecting the full quarter

- more -

PNC Reports Third Quarter 2021 Net Income of $1.5 Billion, $3.30 Diluted EPS or $3.75 As Adjusted - Page 5

benefit of BBVA USA, partially offset by lower yields. In comparison with the third quarter of 2020, net interest income increased $372 million as a result of interest earning assets acquired in the BBVA USA acquisition and higher securities balances, partially offset by lower securities yields.

The net interest margin was 2.27% in the third quarter of 2021, 2.29% in the second quarter of 2021 and 2.39% in the third quarter of 2020. In both comparisons the decrease was largely due to lower securities yields.

Noninterest Income							Change	Change
							3Q21 vs	3Q21 vs
In millions		3Q21		2Q21		3Q20	2Q21	3Q20
Asset management	$	248	$	239	$	215	4 %	15 %
Consumer services		496		457		390	9 %	27 %
Corporate services		842		688		479	22 %	76 %
Residential mortgage		147		103		137	43 %	7 %
Service charges on deposits		159		131		119	21 %	34 %
Other		449		468		457	(4)%	(2)%
	$	2,341	$	2,086	$	1,797	12 %	30 %

Noninterest income for the third quarter of 2021 increased $255 million compared with the second quarter of 2021. Asset management revenue grew $9 million primarily as a result of the full quarter benefit of BBVA USA and higher average equity markets. Consumer services increased $39 million driven by growth in transaction volumes, primarily due to the addition of BBVA USA customers. Corporate services was $154 million higher and included record merger and acquisition advisory fees and the full quarter benefit of BBVA USA. Residential mortgage revenue increased $44 million reflecting higher loan sales revenue and servicing fees. Service charges on deposits increased $28 million and included the full quarter benefit of BBVA USA and the effect of Low Cash ModeSM. Other noninterest income decreased $19 million and included higher private equity revenue as well as a negative Visa Class B derivative fair value adjustment of $169 million primarily related to the extension of anticipated litigation resolution timing. The second quarter included a negative Visa Class B derivative fair value adjustment of $13 million.

Noninterest income for the third quarter of 2021 increased $544 million compared with the third quarter of 2020. Asset management revenue grew $33 million as a result of higher average equity markets and the benefit of BBVA USA. Consumer services was $106 million higher driven by growth in transaction volumes and the addition of BBVA USA customers. Corporate services increased $363 million driven by record merger and acquisition advisory fees and higher treasury management product revenue. Service charges on deposits increased $40 million primarily driven by the addition of BBVA USA customers. Other noninterest income decreased $8 million and included a negative fair value adjustment related to the Visa Class B derivative, higher private equity revenue and the benefit of BBVA USA.

- more -