Generated positive operating leverage; grew NII; substantially increased fee income and TBV
PITTSBURGH, Oct. 15, 2024 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE:PNC) today reported:
For the quarter
In millions, except per share data and as noted
3Q24
2Q24
3Q23
Third Quarter Highlights
Financial Results
Comparisons reflect 3Q24 vs. 2Q24
Net interest income (NII)
$ 3,410
$ 3,302
$ 3,418
Income Statement
▪ Generated 1% positive operatingleverage
▪ Revenue stable; noninterest expense decreased 1%; PPNR increased 2%
• NII grew 3%; NIM increased 4 bps
• Fee income increased 10%, and included strong capital markets and advisory revenue
• Other noninterest income of $69 million included negative Visa derivative fair value adjustments of $128 million; 2Q24 included the benefit of $141 million of significant items
Balance Sheet
▪ Average loans were stable
▪ Average deposits and securitiesincreased 1%
▪ Net loan charge-offs were $286 million, or 0.36% annualized to average loans
▪ ACL to total loans stable at 1.7%
▪ AOCI improved $2.4 billion or 32%
▪ TBV per share increased 9%
▪ Maintained strong capital position
– CET1 capital ratio of 10.3%
– Repurchased more than $0.1 billion of common shares
Fee income (non-GAAP)
1,953
1,777
1,721
Other noninterest income
69
332
94
Noninterest income
2,022
2,109
1,815
Revenue
5,432
5,411
5,233
Noninterest expense
3,327
3,357
3,245
Pretax, pre-provision earnings (PPNR) (non-GAAP)
2,105
2,054
1,988
Provision for credit losses
243
235
129
Net income
1,505
1,477
1,570
Per Common Share
Diluted earnings per share (EPS)
$ 3.49
$ 3.39
$ 3.60
Average diluted common shares outstanding
400
400
400
Book value
124.56
116.70
105.98
Tangible book value (TBV) (non-GAAP)
96.98
89.12
78.16
Balance Sheet & Credit Quality
Average loans In billions
$ 319.6
$ 319.9
$ 319.5
Average securities In billions
142.3
141.3
139.7
Average deposits In billions
422.1
417.2
422.5
Accumulated other comprehensive income (loss) (AOCI)
In billions
(5.1)
(7.4)
(10.3)
Net loan charge-offs
286
262
121
Allowance for credit losses (ACL) to total loans
1.65 %
1.67 %
1.70 %
Selected Ratios
Return on average common shareholders' equity
11.72 %
12.16 %
13.65 %
Return on average assets
1.05
1.05
1.12
Net interest margin (NIM) (non-GAAP)
2.64
2.60
2.71
Noninterest income to total revenue
37
39
35
Efficiency
61
62
62
Common equity Tier 1 (CET1) capital ratio
10.3
10.2
9.8
See non-GAAP financial measures in the Consolidated Financial Highlights accompanying this release.
From Bill Demchak, PNC Chairman and Chief Executive Officer:
"Our results for the third quarter demonstrate PNC's continued strong momentum across the franchise. NII and NIM both increased, fee revenue grew substantially and expenses remained well controlled, resulting in positive operating leverage. Importantly, we increased TBV, grew customers and continued to strengthen our capital levels. We remain well positioned to capitalize on opportunities and achieve record NII in 2025."
Income Statement Highlights
Third quarter 2024 compared with second quarter 2024
Total revenue of $5.4 billion increased $21 million due to strong fee income growth and higher net interest income, partially offset by negative Visa derivative fair value adjustments of $128 million.
Net interest income of $3.4 billion increased $108 million, or 3%, driven by higher yields on interest-earning assets.
Net interest margin of 2.64% increased 4 basis points.
Fee income of $2.0 billion increased $176 million, or 10%, primarily due to higher capital markets and advisory activity and increased residential mortgage servicing rights valuation, net of economic hedge.
Other noninterest income of $69 million decreased $263 million, reflecting negative Visa derivative fair value adjustments of $128 million primarily related to litigation escrow funding, while the prior quarter included the benefit of $141 million of significant items.
Noninterest expense of $3.3 billion decreased $30 million, or 1%, as higher personnel costs were more than offset by a PNC Foundation contribution expense of $120 million in the second quarter.
Provision for credit losses was $243 million in the third quarter and $235 million in the second quarter.
The effective tax rate was 19.2% for the third quarter and 18.8% for the second quarter.
Balance Sheet Highlights
Third quarter 2024 compared with second quarter 2024 or September 30, 2024 compared with June 30, 2024
Average loans of $319.6 billion were stable, including average commercial loans of $219.0 billion and average consumer loans of $100.6 billion.
Credit quality performance:
Delinquencies of $1.3 billion were stable.
Total nonperforming loans of $2.6 billion increased $0.1 billion and included higher commercial real estate nonperforming loans.
Net loan charge-offs of $286 million increased $24 million, primarily due to lower commercial recoveries.
The allowance for credit losses of $5.3 billion was stable. The allowance for credit losses to total loans was 1.65% at September 30, 2024 and 1.67% at June 30, 2024.
Average investment securities of $142.3 billion increased $1.0 billion, or 1%, primarily driven by net purchase activity of U.S. Treasury securities.
Average Federal Reserve Bank balances of $44.9 billion increased $4.2 billion, or 10%, reflecting deposit balance growth.
Average deposits of $422.1 billion increased $4.9 billion, or 1%, due to growth in interest-bearing commercial deposits, partially offset by a decline in consumer deposits. Noninterest-bearing deposits as a percentage of total average deposits remained stable at 23%.
Average borrowed funds of $76.1 billion decreased $1.4 billion, or 2%, reflecting lower Federal Home Loan Bank borrowings, partially offset by parent company senior debt issuances.
PNC maintained a strong capital and liquidity position:
On October 3, 2024, the PNC board of directors declared a quarterly cash dividend on common stock of $1.60 per share to be paid on November 5, 2024 to shareholders of record at the close of business October 16, 2024.
PNC returned $0.8 billion of capital to shareholders, reflecting more than $0.6 billion of dividends on common shares and more than $0.1 billion of common share repurchases.
The Basel III common equity Tier 1 capital ratio was an estimated 10.3% at September 30, 2024 and was 10.2% at June 30, 2024.
PNC's average LCR for the three months ended September 30, 2024 was 109%, exceeding the regulatory minimum requirement throughout the quarter.
Earnings Summary
In millions, except per share data
3Q24
2Q24
3Q23
Net income
$ 1,505
$ 1,477
$ 1,570
Net income attributable to diluted common shareholders
$ 1,396
$ 1,355
$ 1,440
Diluted earnings per common share
$ 3.49
$ 3.39
$ 3.60
Average diluted common shares outstanding
400
400
400
Cash dividends declared per common share
$ 1.60
$ 1.55
$ 1.55
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. Information in this news release, including the financial tables, is unaudited.
Second Quarter 2024 Significant Items
In the second quarter of 2024, PNC participated in the Visa exchange program, allowing PNC to monetize 50% of its Visa Class B-1 shares and converting its remaining holdings into 1.8 million of Visa Class B-2 shares. The exchange resulted in a gain of $754 million. The second quarter of 2024 also included Visa Class B-2 derivative fair value adjustments of negative $116 million and a $120 million expense related to a PNC Foundation contribution. During the second quarter, PNC also repositioned the investment securities portfolio, selling low-yielding investment securities for net proceeds of $3.8 billion, resulting in a loss of $497 million. PNC redeployed the full proceeds from the sale into higher-yielding investment securities. The combined impact to pre-tax noninterest income and pre-tax noninterest expense was $141 million and $120 million, respectively. The net income impact of these significant items on the second quarter of 2024 was $35 million, or $0.09 per common share.
CONSOLIDATED REVENUE REVIEW
Revenue
Change
Change
3Q24 vs
3Q24 vs
In millions
3Q24
2Q24
3Q23
2Q24
3Q23
Net interest income
$ 3,410
$ 3,302
$ 3,418
3 %
—
Noninterest income
2,022
2,109
1,815
(4) %
11 %
Total revenue
$ 5,432
$ 5,411
$ 5,233
—
4 %
Total revenue for the third quarter of 2024 increased $21 million from the second quarter of 2024 due to strong fee income growth and higher net interest income, partially offset by negative Visa derivative fair value adjustments of $128 million. Compared with the third quarter of 2023, total revenue increased $199 million driven by higher noninterest income.
Net interest income of $3.4 billion increased $108 million from the second quarter of 2024, driven by higher yields on interest-earning assets. Net interest margin was 2.64% in the third quarter of 2024, increasing 4 basis points from the second quarter of 2024. Compared to the third quarter of 2023, net interest income was stable.
Noninterest Income
Change
Change
3Q24 vs
3Q24 vs
In millions
3Q24
2Q24
3Q23
2Q24
3Q23
Asset management and brokerage
$ 383
$ 364
$ 348
5 %
10 %
Capital markets and advisory
371
272
168
36 %
121 %
Card and cash management
698
706
689
(1) %
1 %
Lending and deposit services
320
304
315
5 %
2 %
Residential and commercial mortgage
181
131
201
38 %
(10) %
Fee income (non-GAAP)
1,953
1,777
1,721
10 %
13 %
Other
69
332
94
(79) %
(27) %
Total noninterest income
$ 2,022
$ 2,109
$ 1,815
(4) %
11 %
Noninterest income for the third quarter of 2024 decreased $87 million compared with the second quarter of 2024. Asset management and brokerage increased $19 million, reflecting higher average equity markets. Capital markets and advisory revenue grew $99 million and included higher merger and acquisition advisory activity, increased asset backed financing revenue and higher underwriting fees. Card and cash management fees decreased $8 million reflecting the impact of credit card origination incentives, partially offset by higher treasury management product revenue. Lending and deposit services grew $16 million primarily due to increased customer activity. Residential and commercial mortgage revenue increased $50 million driven by higher residential mortgage servicing rights valuation, net of economic hedge. Other noninterest income decreased $263 million, reflecting negative Visa derivative fair value adjustments of $128 million primarily related to litigation escrow funding, while the prior quarter included the benefit of $141 million of significant items.
Noninterest income for the third quarter of 2024 increased $207 million from the third quarter of 2023. Fee income increased $232 million driven by growth in capital markets and advisory revenue. Other noninterest income decreased $25 million primarily reflecting negative Visa derivative fair value adjustments of $128 million in the third quarter of 2024 compared to negative $51 million in the third quarter of 2023.
CONSOLIDATED EXPENSE REVIEW
Noninterest Expense
Change
Change
3Q24 vs
3Q24 vs
In millions
3Q24
2Q24
3Q23
2Q24
3Q23
Personnel
$ 1,869
$ 1,782
$ 1,773
5 %
5 %
Occupancy
234
236
244
(1) %
(4) %
Equipment
357
356
347
—
3 %
Marketing
93
93
93
—
—
Other
774
890
788
(13) %
(2) %
Total noninterest expense
$ 3,327
$ 3,357
$ 3,245
(1) %
3 %
Noninterest expense for the third quarter of 2024 decreased $30 million compared to the second quarter of 2024 as increased personnel costs, reflecting higher variable compensation related to increased business activity, were more than offset by lower other expense. Other expense for the second quarter of 2024 included a $120 million PNC Foundation contribution expense.
Noninterest expense for the third quarter of 2024 increased $82 million compared with the third quarter of 2023, primarily due to higher personnel costs, reflecting higher variable compensation related to increased business activity.
The effective tax rate was 19.2% for the third quarter of 2024, 18.8% for the second quarter of 2024 and 15.5% for the third quarter of 2023.
CONSOLIDATED BALANCE SHEET REVIEW
Average total assets of $569.5 billion increased $6.5 billion compared to the second quarter of 2024 and $14.6 billion compared to the third quarter of 2023. In both comparisons, the increase was primarily attributable to higher Federal Reserve Bank balances and increased investment securities.
Average Loans
Change
Change
3Q24 vs
3Q24 vs
In billions
3Q24
2Q24
3Q23
2Q24
3Q23
Commercial
$ 219.0
$ 219.1
$ 217.7
—
1 %
Consumer
100.6
100.8
101.8
—
(1) %
Total
$ 319.6
$ 319.9
$ 319.5
—
—
Average loans for the third quarter of 2024 were stable compared to the second quarter of 2024 and third quarter of 2023. In comparison to the third quarter of 2023, average commercial loans increased $1.3 billion driven by higher corporate banking balances, partially offset by a decline in commercial real estate lending. Average consumer loans decreased $1.2 billion and included lower education, credit card and home equity balances.
Average Investment Securities
Change
Change
3Q24 vs
3Q24 vs
In billions
3Q24
2Q24
3Q23
2Q24
3Q23
Available for sale
$ 56.2
$ 53.4
$ 46.5
5 %
21 %
Held to maturity
86.1
87.9
93.2
(2) %
(8) %
Total
$ 142.3
$ 141.3
$ 139.7
1 %
2 %
Average investment securities of $142.3 billion in the third quarter of 2024 increased $1.0 billion and $2.6 billion from the second quarter of 2024 and the third quarter of 2023, respectively. In both comparisons, the increase reflected net purchase activity, primarily of U.S. Treasury securities. The duration of the investment securities portfolio was estimated at 3.3 years as of September 30, 2024, 3.6 years as of June 30, 2024 and 4.3 years as of September 30, 2023.
Net unrealized losses on available-for-sale securities were $2.3 billion at September 30, 2024, decreasing from $3.7 billion at June 30, 2024 and $5.4 billion at September 30, 2023. In both comparisons, the decrease reflected the benefit from lower interest rates as well as paydowns and maturities.
Average Federal Reserve Bank balances for the third quarter of 2024 were $44.9 billion, increasing $4.2 billion from the second quarter of 2024 and $7.0 billion from the third quarter of 2023. In comparison to the second quarter of 2024, the increase primarily reflected deposit balance growth. Compared to the third quarter of 2023, the increase was driven by higher borrowed funds outstanding.
Average Deposits
Change
Change
3Q24 vs
3Q24 vs
In billions
3Q24
2Q24
3Q23
2Q24
3Q23
Commercial
$ 206.1
$ 199.7
$ 204.7
3 %
1 %
Consumer
216.0
217.5
217.8
(1) %
(1) %
Total
$ 422.1
$ 417.2
$ 422.5
1 %
—
IB % of total avg. deposits
77 %
77 %
74 %
NIB % of total avg. deposits
23 %
23 %
26 %
IB - Interest-bearing
NIB - Noninterest-bearing
Average deposits for the third quarter of 2024 of $422.1 billion increased $4.9 billion compared to the second quarter of 2024. Average commercial deposits grew $6.4 billion reflecting higher interest-bearing deposit balances. Average consumer deposits declined $1.5 billion as growth in time deposits was more than offset by declines across the remaining portfolio. Compared to the third quarter of 2023, average deposits were stable.
Noninterest-bearing deposits as a percentage of total average deposits were 23% for the third quarter of 2024, stable from the second quarter of 2024 and down 3% from the third quarter of 2023.
Average Borrowed Funds
Change
Change
3Q24 vs
3Q24 vs
In billions
3Q24
