PITTSBURGH, Jan. 18, 2022 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

BBVA USA

• PNC acquired BBVA USA on June 1, 2021, adding approximately 2.6 million customers, 9,000 employees and over 600 branches across seven states. Full year 2021 financial results include the addition of BBVA USA operations since June 1, 2021.
• Since the announcement of the acquisition, PNC has incurred $925 million of merger and integration costs, including $120 million in write-offs of capitalized items, or approximately 95% of the $980 million expected.

Income Statement Highlights
Fourth quarter 2021 compared with third quarter 2021

• Net income of $1.3 billion decreased $184 million, or 12%.
• Integration costs of $438 million pre-tax increased $195 million.
• Total revenue of $5.1 billion decreased $70 million, or 1%.
• Net interest income of $2.9 billion increased $6 million primarily driven by higher securities balances.
• Net interest margin of 2.27% was stable.
• Noninterest income of $2.3 billion decreased $76 million, or 3%, and included the negative impact of $47 million of integration costs.
• Fee income of $1.8 billion decreased $67 million, or 4%, as continued high levels of corporate service business activity was more than offset by a decline in residential mortgage revenue, lower service charges on deposits, and integration costs of $28 million reflecting fee waivers for BBVA USA customers related to conversion.
• Other noninterest income of $440 million decreased $9 million, or 2%, and included integration costs of $19 million related to BBVA USA lease exits.
• Noninterest expense of $3.8 billion increased $204 million, or 6%, including integration expenses of $391 million and higher personnel costs which reflected an increase to PNC's minimum wage.
• The fourth quarter of 2021 included a provision recapture of $327 million, reflecting continued improvements in the economic environment. The third quarter included a provision recapture of $203 million.
• The effective tax rate was 21.5% for the fourth quarter, 17.8% for the third quarter and 18.1% for full year 2021.

Balance Sheet Highlights
Fourth quarter 2021 compared with third quarter 2021 or December 31, 2021 compared with September 30, 2021

• Average loans of $288.9 billion decreased $2.4 billion, or 1%, driven by Paycheck Protection Program (PPP) loan forgiveness of $4.7 billion.
• Excluding the impact of PPP loan forgiveness, average commercial loans increased $2.2 billion driven by growth in PNC corporate banking and business credit businesses.
• Average consumer loans of $95.1 billion increased modestly driven by growth in residential mortgage loans, largely offset by declines in home equity and auto loans.
• Credit quality performance:
• Delinquencies of $2.0 billion increased $516 million, or 35%, primarily due to BBVA USA conversion-related administrative and operational delays which should largely be resolved within the first half of 2022.
• Total nonperforming loans of $2.5 billion were stable.
• Net loan charge-offs of $124 million increased $43 million driven by higher consumer loan net charge-offs, reflecting BBVA USA conversion-related impacts and seasonality.
• The allowance for credit losses to total loans was 1.92% at December 31, 2021 compared with 2.07% at September 30, 2021.
• Average deposits of $452.8 billion decreased $1.6 billion, as growth in commercial and consumer deposits was more than offset by legacy BBVA USA commercial deposit outflows reflecting the impact of strategic repricing decisions in the third quarter.
• Deposits of $457.3 billion increased $8.4 billion as a result of growth in consumer deposits.
• Average investment securities of $127.8 billion increased $7.3 billion, or 6%.
• Average Federal Reserve Bank balances of $75.1 billion decreased $5.0 billion, primarily reflecting increased securities purchases.
• PNC maintained strong capital and liquidity positions.
• On January 5, 2022, the PNC board of directors declared a quarterly cash dividend on common stock of $1.25 per share payable on February 5, 2022.
• The Basel III common equity Tier 1 capital ratio was an estimated 10.2% at December 31, 2021 and 10.3% at September 30, 2021.
• The Liquidity Coverage Ratio at December 31, 2021 for PNC exceeded the regulatory minimum requirement.

Fourth quarter 2021 net income of $1.3 billion, or $2.86 per diluted common share, included integration costs of $438 million pretax resulting from the acquisition of BBVA USA. Excluding the impact of integration costs, adjusted diluted earnings per common share was $3.68.

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.

Total revenue for the fourth quarter of 2021 decreased $70 million compared with the third quarter of 2021 due to lower noninterest income. Compared with the fourth quarter of 2020 total revenue increased $919 million primarily due to the acquisition of BBVA USA and growth in noninterest income. 

Net interest income of $2.9 billion for the fourth quarter of 2021 increased $6 million compared to the third quarter of 2021 primarily driven by higher securities balances. In comparison with the fourth quarter of 2020, net interest income increased $438 million as a result of higher interest earning assets, partially offset by lower securities yields.

The net interest margin was 2.27% for both the fourth and third quarter of 2021 and 2.32% in the fourth quarter of 2020. Compared to the fourth quarter of 2020, the decrease was driven by lower securities yields.

Noninterest income for the fourth quarter of 2021 decreased $76 million compared with the third quarter of 2021. Asset management revenue grew $3 million primarily as a result of higher average equity markets. Consumer services increased $12 million due to higher brokerage fees and increased credit card activity. Corporate services decreased $3 million and included continued strong merger and acquisition advisory fees and $17 million of integration costs related to treasury management fee waivers for BBVA USA customers during conversion. Residential mortgage revenue decreased $46 million due to lower results from residential mortgage servicing rights valuation, net of economic hedge, and lower loan sales revenue. Service charges on deposits decreased $33 million primarily due to the impact of converting BBVA USA customers to PNC products and overdraft pricing structure as well as conversion-related fee waivers of $11 million. Other noninterest income decreased $9 million, reflecting lower private equity revenue and integration costs of $19 million related to BBVA USA lease exits. In addition, the fourth quarter included a positive Visa Class B derivative fair value adjustment of $1 million compared to a negative Visa Class B derivative fair value adjustment of $169 million in the third quarter.

Noninterest income for the fourth quarter of 2021 increased $481 million compared with the fourth quarter of 2020. Asset management revenue grew $30 million as a result of higher average equity markets and the benefit of BBVA USA. Consumer services increased $121 million driven by the addition of BBVA USA customers, growth in transaction volumes and higher brokerage fees. Corporate services increased $189 million driven by higher merger and acquisition advisory fees, increased treasury management product revenue and the benefit of BBVA USA. Service charges on deposits decreased $8 million as the addition of BBVA USA was more than offset by the impact of Low Cash Mode^SM and conversion-related fee waivers. Other noninterest income increased $147 million and included higher private equity revenue.

Noninterest expense for the fourth quarter of 2021 increased $204 million compared with the third quarter of 2021. Integration expenses were $391 million in the fourth quarter of 2021 and $235 million in the third quarter of 2021. Excluding the impact of integration expenses, noninterest expense was $3,400 million and $3,352 million, respectively, for the fourth and third quarter of 2021, increasing primarily due to personnel costs, reflecting higher employee benefits expense and an increase to PNC's minimum wage. In addition, personnel costs related to incentive compensation remained elevated during the fourth quarter of 2021 due to continued high levels of business activity.

Noninterest expense increased $1,083 million in comparison with the fourth quarter of 2020 primarily driven by operating and integration expenses related to the BBVA USA acquisition, and increased business activity.

The effective tax rate was 21.5% for the fourth quarter of 2021, 17.8% for the third quarter of 2021 and 17.0% for the fourth quarter of 2020. The full year 2021 effective tax rate was 18.1%.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets were $560.3 billion in the fourth quarter of 2021 compared with $559.2 billion in the third quarter of 2021 and $465.0 billion in the fourth quarter of 2020. Compared to the fourth quarter of 2020, the increase was primarily driven by the BBVA USA acquisition.

Average loans for the fourth quarter of 2021 were $288.9 billion, decreasing $2.4 billion compared to the third quarter of 2021. Average commercial loans decreased $2.5 billion driven by PPP loan forgiveness of $4.7 billion, partially offset by growth in PNC corporate banking and business credit businesses. Average consumer loans of $95.1 billion increased modestly driven by growth in residential mortgage loans largely offset by declines in home equity and auto loans.

Average loans for the fourth quarter of 2021 increased $43.1 billion compared to the fourth quarter of 2020, reflecting the acquisition of BBVA USA.

Fourth quarter 2021 average and period-end PPP loans outstanding were $4.6 billion and $3.4 billion, respectively.

Average investment securities for the fourth quarter of 2021 were $127.8 billion, increasing $7.2 billion and $42.1 billion from the third quarter of 2021 and fourth quarter of 2020, respectively, reflecting increased purchase activity, primarily of U.S. Treasury and government agency securities. Compared to the fourth quarter of 2020, the increase was also attributable to BBVA USA.

Net unrealized gains on available for sale securities were $0.7 billion at December 31, 2021, $1.7 billion at September 30, 2021 and $3.2 billion at December 31, 2020.

Average Federal Reserve Bank balances for the fourth quarter of 2021 were $75.1 billion, decreasing $5.0 billion from the third quarter of 2021, primarily reflecting increased securities purchases. Compared to the fourth quarter of 2020, average Federal Reserve Bank balances decreased $1.0 billion.

Average deposits for the fourth quarter of 2021 were $452.8 billion, decreasing $1.6 billion compared with the third quarter of 2021, as growth in commercial and consumer deposits was more than offset by legacy BBVA USA commercial deposit outflows reflecting the impact of strategic repricing decisions in the third quarter. Compared with the fourth quarter of 2020, average deposits increased $93.4 billion primarily reflecting the acquisition of BBVA USA.

Deposits at December 31, 2021 of $457.3 billion, increased $8.4 billion from September 30, 2021 as a result of growth in consumer deposits.

Average borrowed funds of $34.4 billion in the fourth quarter of 2021 were stable compared with the third quarter of 2021. Compared with the fourth quarter of 2020, average borrowed funds decreased $3.8 billion reflecting the use of excess liquidity.

Borrowed funds at December 31, 2021 of $30.8 billion, decreased $2.7 billion primarily due to lower bank notes and senior debt.

PNC maintained a strong capital position. Common shareholders' equity at December 31, 2021 decreased $0.6 billion from September 30, 2021 as fourth quarter net income was more than offset by a decrease in accumulated other comprehensive income, reflecting the impact of higher rates on net unrealized securities gains, as well as share repurchases and dividends paid in the fourth quarter.

In the fourth quarter of 2021, PNC returned $1.1 billion of capital to shareholders through $0.6 billion of common share repurchases, representing 2.9 million shares, and $0.5 billion of dividends on common shares. Repurchases were made under the share repurchase programs of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021.

On January 5, 2022, the PNC board of directors declared a quarterly cash dividend on common stock of $1.25 per share payable on February 5, 2022.

For information regarding PNC's Basel III capital ratios, see Capital Ratios in the Consolidated Financial Highlights. 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.

The fourth quarter of 2021 included a provision recapture of $327 million, reflecting continued improvements in the economic environment. The third quarter included a provision recapture of $203 million.

Net loan charge-offs were $124 million in the fourth quarter of 2021, increasing $43 million from the third quarter of 2021 driven by higher consumer loan net charge-offs, reflecting BBVA USA conversion-related impacts and seasonality. Compared to the fourth quarter of 2020, net loan charge-offs decreased $105 million driven by lower commercial and industrial net loan charge-offs.

The allowance for credit losses was $5.5 billion at December 31, 2021, $6.0 billion September 30, 2021 and $5.9 billion at December 31, 2020. The allowance for credit losses as a percentage of total loans was 1.92% at December 31, 2021, 2.07% at September 30, 2021 and 2.46% at December 31, 2020.

Nonperforming loans were $2.5 billion at both December 31, 2021 and September 30, 2021. Nonperforming loans increased $194 million compared to December 31, 2020, primarily due to nonperforming loans from the BBVA USA acquisition, partially offset by lower consumer nonperforming loans.

Delinquencies at December 31, 2021 of $2.0 billion increased $516 million compared to September 30, 2021, reflecting higher commercial loan delinquencies of $244 million and consumer loan delinquencies of $272 million. The increase in total delinquencies was primarily driven by BBVA USA conversion-related administrative and operational delays which should largely be resolved within the first half of 2022. Compared to the fourth quarter of 2020, total delinquencies increased $622 million also primarily related to conversion-related administrative and operational delays. Under the CARES Act credit reporting rules and guidance from regulatory agencies, certain loans modified due to pandemic-related hardships were considered current during their modification period and not reported as past due.

Retail Banking Highlights
Fourth quarter 2021 compared with third quarter 2021

• Earnings decreased 19%, due to a provision for credit losses and lower net interest income, partially offset by higher noninterest income and lower noninterest expense.
• Noninterest income increased 17%, due to a positive fair value adjustment related to the Visa Class B derivative of $1 million compared to a negative adjustment of $169 million in the third quarter. In addition, the fourth quarter included lower residential mortgage revenue and service charges on deposits, partially offset by higher consumer service fees.
• Provision for credit losses was $55 million for the fourth quarter of 2021 driven in part by increased expected losses in the credit card and auto loan portfolios. The third quarter included a provision recapture of $113 million.
• Noninterest expense decreased 1%, driven by lower marketing activity.
• Average loans decreased 4% driven by PPP loan forgiveness and a decline in home equity and auto loans.
• Average deposits increased modestly due to higher demand deposits.

Fourth quarter 2021 compared with fourth quarter 2020

• Earnings increased 8% and included the benefit of BBVA USA.
• Noninterest income increased 64%, and included a positive fair value adjustment of $1 million related to the Visa Class B derivative compared to a negative Visa Class B derivative fair value adjustment of $173 million in the fourth quarter of 2020. In addition, the fourth quarter of 2021 included the benefit of BBVA USA customers, growth in transaction volumes and higher brokerage fees.
• Noninterest expense increased 26%, primarily driven by operating expenses related to the addition of BBVA USA.
• Average loans and deposits increased 19% and 31%, respectively, reflecting the impact of the BBVA USA acquisition.

Corporate & Institutional Banking Highlights
Fourth quarter 2021 compared with third quarter 2021

• Earnings increased 19%, primarily due to a larger provision recapture.
• Noninterest income and noninterest expense were largely stable, reflecting continued elevated business activity in both periods.
• Provision recapture of $369 million for the fourth quarter of 2021, reflecting continued improvements in the economic environment and portfolio changes.
• Average loans increased 1%, driven by growth in PNC corporate banking and business credit businesses, partially offset by PPP loan forgiveness and a decline in PNC's real estate business.
• Average deposits decreased 2%, due to BBVA USA legacy deposit outflows reflecting the impact of strategic repricing decisions, partially offset by seasonal growth.

Fourth quarter 2021 compared with fourth quarter 2020

• Earnings increased 34%, due to the addition of BBVA USA, a larger provision recapture and higher noninterest income.
• Noninterest income increased 15%, driven by the addition of BBVA USA, higher treasury management product revenue and growth in capital markets-related revenue, led by an increase in merger and acquisition advisory fees.
• Noninterest expense increased 22%, reflecting operating expenses from BBVA USA and higher variable costs as a result of increased business activity.
• Average loans increased 15%, reflecting the addition of BBVA USA and growth in PNC's business credit and corporate banking businesses, partially offset by PPP loan forgiveness and a decline in PNC's real estate business.
• Average deposits increased 16%, driven by the addition of BBVA USA.

Asset Management Group Highlights
Fourth quarter 2021 compared with third quarter 2021

• Earnings decreased 7%, primarily due to lower net interest income and higher noninterest expense, partially offset by an increased provision recapture.
• Noninterest income increased 1%, due to the impact of higher average equity markets.
• Noninterest expense increased 4%, due to higher personnel expenses and higher operational loss reserves.
• Discretionary client assets under management increased 5%, primarily driven by higher spot equity markets.

Fourth quarter 2021 compared with fourth quarter 2020

• Earnings increased 29%, primarily due to the benefit of BBVA USA.
• Noninterest income increased 15%, due to the impact of the BBVA USA acquisition and higher average equity markets.
• Noninterest expense increased 26%, due to the impact of the BBVA USA acquisition and higher operational loss reserves.
• Discretionary client assets under management increased 13%, primarily driven by higher spot equity markets and the addition of BBVA USA.
• Average loans and deposits increased 57% and 49%, respectively, reflecting the acquisition of BBVA USA.

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.

CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION

PNC Chairman, President and Chief Executive Officer William S. Demchak and Executive Vice President and Chief Financial Officer Robert Q. Reilly will hold a conference call for investors today at 9:30 a.m. Eastern Time regarding the topics addressed in this news release and the related financial supplement. Dial-in numbers for the conference call are (877) 885-9643 and (773) 790-4245 (international) and Internet access to the live audio listen-only webcast of the call is available at www.pnc.com/investorevents. PNC's fourth quarter 2021 and full year 2021 earnings release, related financial supplement, and presentation slides to accompany the conference call remarks will be available at www.pnc.com/investorevents prior to the beginning of the call. A telephone replay of the call will be available for one week at (800) 633-8284 and (402) 977-9140 (international), conference ID 21999390 and a replay of the audio webcast will be available on PNC's website for 30 days.

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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CAPITAL RATIOS

As of January 1, 2020, the 2019 Tailoring Rules became effective for PNC. The most significant changes involve PNC's election to exclude specific accumulated other comprehensive income items from common equity Tier 1 capital and higher thresholds used to calculate common equity Tier 1 capital deductions. Effective January 1, 2020, PNC must deduct from common equity Tier 1 capital investments in unconsolidated financial institutions, mortgage servicing rights and deferred tax assets (in each case, net of associated deferred tax liabilities) to the extent such items individually exceed 25% of the institution's adjusted common equity Tier 1 capital.

PNC's regulatory risk-based capital ratios in 2021 are calculated using the standardized approach for determining risk-weighted assets. Under the standardized approach for determining credit risk-weighted assets, exposures are generally assigned a pre-defined risk weight. Exposures to high volatility commercial real estate, past due exposures and equity exposures are generally subject to higher risk weights than other types of exposures.

During 2020, regulators adopted a final rule permitting banks that have adopted the CECL standard to delay for two years CECL's full impact on regulatory capital, relative to the incurred loss methodology's impact on regulatory capital, followed by a three year transition period. PNC elected to adopt this optional five-year transition provision effective as of March 31, 2020. See the table below for the September 30, 2021, December 31, 2020 and estimated December 31, 2021 ratios. For the full impact of PNC's adoption of CECL, which excludes the benefits of the five-year transition provision, see the December 31, 2021 and September 30, 2021 (Fully Implemented) estimates presented in the table below.

Our Basel III capital ratios may be impacted by changes to the regulatory capital rules and additional regulatory guidance or analysis.

Pretax pre-provision earnings is a non-GAAP measure and is based on adjusting income from continuing operations before income taxes and noncontrolling interests to exclude provision for (recapture of) credit losses. We believe that pretax, pre-provision earnings is a useful tool to help evaluate the ability to provide for credit costs through operations and provides an additional basis to compare results between periods by isolating the impact of provision for (recapture of) credit losses, which can vary significantly between periods.

Pretax pre-provision earnings excluding integration costs is a non-GAAP measure and is based on adjusting pretax pre-provision earnings to exclude integration costs during the period. We believe that pretax, pre-provision earnings excluding integration costs is a useful tool in understanding PNC's results by providing greater comparability between periods, as well as demonstrating the effect of significant items.