PITTSBURGH, — The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:
For the quarter |
||||||
3Q18 |
2Q18 |
3Q17 |
||||
Net income $ millions |
$1,400 |
$1,356 |
$1,126 |
|||
Diluted earnings per common share |
$2.82 |
$2.72 |
$2.16 |
“PNC delivered another good, consistent quarter. We grew average loans and deposits and continued to add new clients. Net interest income and our margin and fee income increased. We’re experiencing success with our national initiative to expand our middle market capabilities in faster growing markets, and we launched our national retail digital strategy with a high yield savings offer to be supported by an ultra-thin retail network. Looking ahead, we’re positioned to drive growth and efficiency over the long term.”
Bill Demchak, PNC Chairman, President and Chief Executive Officer
Income Statement Highlights
Third quarter 2018 compared with second quarter 2018
Balance Sheet Highlights
Earnings Summary |
||||||||||||
In millions, except per share data |
3Q18 |
2Q18 |
3Q17 |
|||||||||
Net income |
$ |
1,400 |
$ |
1,356 |
$ |
1,126 |
||||||
Net income attributable to diluted common shares |
$ |
1,317 |
$ |
1,282 |
$ |
1,042 |
||||||
Diluted earnings per common share |
$ |
2.82 |
$ |
2.72 |
$ |
2.16 |
||||||
Average diluted common shares outstanding |
467 |
472 |
483 |
|||||||||
Return on average assets |
1.47 |
% |
1.45 |
% |
1.20 |
% |
||||||
Return on average common equity |
12.32 |
% |
12.13 |
% |
9.89 |
% |
||||||
Book value per common share |
Quarter end |
$ |
93.22 |
$ |
92.26 |
$ |
89.05 |
|||||
Tangible book value per common share (non-GAAP) |
Quarter end |
$ |
73.11 |
$ |
72.25 |
$ |
69.72 |
|||||
Cash dividends declared per common share |
$ |
.95 |
$ |
.75 |
$ |
.75 |
||||||
The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported amounts. 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 |
|||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||
In millions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||
Net interest income |
$ |
2,466 |
$ |
2,413 |
$ |
2,345 |
2 |
% |
5 |
% |
|||||
Noninterest income |
1,891 |
1,911 |
1,780 |
(1) |
% |
6 |
% |
||||||||
Total revenue |
$ |
4,357 |
$ |
4,324 |
$ |
4,125 |
1 |
% |
6 |
% |
|||||
Total revenue for the third quarter of 2018 increased $33 million compared with the second quarter and $232 millioncompared with the third quarter of 2017. Net interest income grew in both comparisons and noninterest income increased over third quarter 2017.
Net interest income for the third quarter of 2018 increased $53 million compared with the second quarter and $121 million compared with the third quarter of 2017. Higher loan and securities yields and balances were partially offset by higher deposit and borrowing costs in both comparisons reflecting the impact of interest rate increases. Third quarter 2018 also benefited from an additional day compared with the second quarter. The net interest margin increased to 2.99 percent for the third quarter of 2018 compared with 2.96 percent for the second quarter and 2.91 percent for the third quarter of 2017.
Noninterest Income |
Change |
Change |
|||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||
In millions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||
Asset management |
$ |
486 |
$ |
456 |
$ |
421 |
7 |
% |
15 |
% |
|||||
Consumer services |
377 |
381 |
357 |
(1) |
% |
6 |
% |
||||||||
Corporate services |
465 |
487 |
404 |
(5) |
% |
15 |
% |
||||||||
Residential mortgage |
76 |
84 |
104 |
(10) |
% |
(27) |
% |
||||||||
Service charges on deposits |
186 |
169 |
181 |
10 |
% |
3 |
% |
||||||||
Other |
301 |
334 |
313 |
(10) |
% |
(4) |
% |
||||||||
$ |
1,891 |
$ |
1,911 |
$ |
1,780 |
(1) |
% |
6 |
% |
||||||
Noninterest income for the third quarter of 2018 declined $20 million compared with the second quarter as fee income growth was more than offset by a decrease in other noninterest income. Asset management revenue, including earnings from PNC’s equity investment in BlackRock, grew $30 million and reflected higher average equity markets. Corporate service fees declined $22 million primarily due to a lower benefit from commercial mortgage servicing rights valuation, net of economic hedge, and lower loan syndication fees partially offset by higher merger and acquisition advisory fees. Residential mortgage revenue decreased $8 million attributable to a lower benefit from mortgage servicing rights valuation, net of economic hedge. Service charges on deposits grew $17 million reflecting a seasonal increase in consumer spending.
Other noninterest income for the third quarter of 2018 decreased $33 million primarily due to negative derivative fair value adjustments of $32 million related to Visa Class B common shares in the third quarter compared with a benefit of $27 million in the second quarter partially offset by higher revenue from private equity investments.
Noninterest income for the third quarter of 2018 increased $111 million compared with the third quarter of 2017. Asset management revenue increased $65 million and included the benefit of the lower federal statutory income tax rate on BlackRock earnings and higher equity markets. Consumer service fees grew $20 million driven by increased customer activity reflected in debit card, brokerage and credit card fees. Corporate service fees grew $61 million primarily due to higher merger and acquisition advisory fees and treasury management revenue. Residential mortgage revenue decreased $28 million as a result of lower loan sales and servicing revenue and a lower benefit from mortgage servicing rights valuation, net of economic hedge.
CONSOLIDATED EXPENSE REVIEW |
|||||||||||||||
Noninterest Expense |
Change |
Change |
|||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||
In millions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||
Personnel |
$ |
1,413 |
$ |
1,356 |
$ |
1,286 |
4 |
% |
10 |
% |
|||||
Occupancy |
195 |
203 |
204 |
(4) |
% |
(4) |
% |
||||||||
Equipment |
264 |
281 |
259 |
(6) |
% |
2 |
% |
||||||||
Marketing |
71 |
75 |
62 |
(5) |
% |
15 |
% |
||||||||
Other |
665 |
669 |
645 |
(1) |
% |
3 |
% |
||||||||
$ |
2,608 |
$ |
2,584 |
$ |
2,456 |
1 |
% |
6 |
% |
||||||
Noninterest expense for the third quarter of 2018 increased $24 million compared with the second quarter. Personnel expense increased $57 million primarily due to higher variable compensation associated with increased business activity and an additional day in the third quarter. This increase was partially offset by declines in all other expense categories.
Noninterest expense for the third quarter of 2018 increased $152 million compared with the third quarter of 2017. Ongoing business investments were primarily reflected in personnel expense, which increased $127 million and included higher variable compensation related to revenue growth, increased staffing levels and enhanced retail banking compensation, as well as higher marketing expense supporting business growth.
The effective tax rate was 15.7 percent for the third quarter of 2018 compared with 18.3 percent for the second quarter due to the timing of deductions related to tax planning activities. The federal statutory tax rate was lowered to 21.0 percent effective January 1, 2018. The effective tax rate was 26.8 percent for the third quarter of 2017.
CONSOLIDATED BALANCE SHEET REVIEW
Average total assets were $377.9 billion in the third quarter of 2018 and increased 1 percent compared with $375.6 billion in the second quarter and $373.4 billion in the third quarter of 2017. Higher investment securities and loans were partially offset by lower interest-earning deposits with banks in both comparisons. Total assets were $380.1 billion at September 30, 2018, $380.7 billion at June 30, 2018 and $375.2 billion at September 30, 2017.
Loans |
Change |
Change |
|||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||
In billions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||
Average |
|||||||||||||||
Commercial lending |
$ |
149.9 |
$ |
149.7 |
$ |
146.9 |
— |
2 |
% |
||||||
Consumer lending |
73.4 |
72.9 |
72.3 |
1 |
% |
2 |
% |
||||||||
Average loans |
$ |
223.3 |
$ |
222.6 |
$ |
219.2 |
— |
2 |
% |
||||||
Quarter end |
|||||||||||||||
Commercial lending |
$ |
149.4 |
$ |
149.6 |
$ |
148.5 |
— |
1 |
% |
||||||
Consumer lending |
73.7 |
73.3 |
72.6 |
1 |
% |
2 |
% |
||||||||
Total loans |
$ |
223.1 |
$ |
222.9 |
$ |
221.1 |
— |
1 |
% |
||||||
Average loans for the third quarter of 2018 increased $.7 billion compared with the second quarter. Average commercial lending balances grew $.2 billion primarily in PNC’s equipment finance and business credit businesses. Loan growth was moderated by substantial payoff volumes. Average consumer lending balances increased $.5 billion due to growth in auto, residential mortgage, credit card and unsecured installment loans partially offset by lower home equity and education loans. Total loans at September 30, 2018 grew $.2 billion compared with June 30, 2018. Consumer lending balances increased $.4 billion and commercial lending balances decreased $.2 billion.
Third quarter 2018 average and period end loans increased $4.1 billion and $2.0 billion, respectively, compared with third quarter 2017 as a result of higher commercial loans and growth in consumer lending balances.
Investment Securities |
Change |
Change |
|||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||
In billions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||
Average |
$ |
80.8 |
$ |
77.5 |
$ |
74.4 |
4 |
% |
9 |
% |
|||||
Quarter end |
$ |
80.8 |
$ |
80.1 |
$ |
75.0 |
1 |
% |
8 |
% |
|||||
Investment securities average balances for the third quarter of 2018 increased $3.3 billion and period end balances increased $.7 billion compared with the second quarter due to net purchase activity, primarily in agency residential mortgage-backed and US Treasury securities. Third quarter 2018 average and period end investment securities increased $6.4 billion and $5.8 billion, respectively, compared with the third quarter of 2017. Net unrealized losses on available for sale securities were $.7 billion at September 30, 2018, reflecting the impact of higher interest rates, compared with net unrealized losses of $.4 billion at June 30, 2018 and net unrealized gains of $.7 billion at September 30, 2017.
Average balances held with the Federal Reserve Bank decreased to $18.8 billion for the third quarter of 2018 from $20.7 billion in the second quarter and $23.4 billion in the third quarter of 2017 as investment of liquidity continued.
Deposits |
Change |
Change |
|||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||
In billions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||
Average |
|||||||||||||||
Noninterest-bearing |
$ |
76.2 |
$ |
76.7 |
$ |
79.0 |
(1) |
% |
(4) |
% |
|||||
Interest-bearing |
186.3 |
184.3 |
180.5 |
1 |
% |
3 |
% |
||||||||
Average deposits |
$ |
262.5 |
$ |
261.0 |
$ |
259.5 |
1 |
% |
1 |
% |
|||||
Quarter end |
|||||||||||||||
Noninterest-bearing |
$ |
74.8 |
$ |
79.1 |
$ |
80.0 |
(5) |
% |
(7) |
% |
|||||
Interest-bearing |
190.1 |
185.8 |
180.7 |
2 |
% |
5 |
% |
||||||||
Total deposits |
$ |
264.9 |
$ |
264.9 |
$ |
260.7 |
— |
2 |
% |
||||||
Average deposits for the third quarter of 2018 increased $1.5 billion compared with the second quarter as seasonal growth in commercial deposits was partially offset by lower consumer demand deposits attributable in part to seasonal consumer spending. Deposit growth was in interest-bearing balances, including certificates of deposit, and reflected rising deposit rates. Deposits at September 30, 2018 were stable with June 30, 2018 and reflected a shift of commercial deposits to interest-bearing from noninterest-bearing. Third quarter 2018 average and period end deposits increased $3.0 billion and $4.2 billion, respectively, compared with third quarter 2017 driven by overall deposit and customer growth.
Borrowed Funds |
Change |
Change |
|||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||
In billions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||
Average |
$ |
59.8 |
$ |
58.9 |
$ |
57.0 |
2 |
% |
5 |
% |
|||||
Quarter end |
$ |
58.0 |
$ |
59.3 |
$ |
57.6 |
(2) |
% |
1 |
% |
|||||
Average borrowed funds for the third quarter of 2018 increased $.9 billion compared with the second quarter due to higher repurchase agreements, Federal Home Loan Bank borrowings and subordinated debt partially offset by a decrease in bank notes and senior debt. Borrowed funds at September 30, 2018 decreased $1.3 billion compared with June 30, 2018 driven by lower Federal Home Loan Bank borrowings reflecting the maturity of short-term second quarter issuances. Third quarter 2018 average and period end borrowed funds increased $2.8 billion and $.4 billion, respectively, compared with third quarter 2017.
Capital |
||||||||||||
9/30/2018 |
* |
6/30/2018 |
9/30/2017 |
|||||||||
Common shareholders’ equity In billions |
$ |
43.1 |
$ |
42.9 |
$ |
42.4 |
||||||
Basel III common equity Tier 1 capital ratio |
9.3 |
% |
9.5 |
% |
9.8 |
% |
||||||
* Ratio estimated |
||||||||||||
PNC maintained a strong capital position. Common shareholders’ equity at September 30, 2018 increased compared with June 30, 2018 due to third quarter net income partially offset by share repurchases, dividends and lower accumulated other comprehensive income reflecting the impact of higher rates on net unrealized securities losses.
PNC returned $.9 billion of capital to shareholders in the third quarter of 2018 through repurchases of 3.3 million common shares for $.5 billion and dividends on common shares of $.4 billion. Repurchases were made under share repurchase programs of up to $2.0 billion for the four-quarter period beginning in the third quarter of 2018. These programs include repurchases of up to $.3 billion related to stock issuances under employee benefit plans.
On October 4, 2018, the PNC board of directors declared a quarterly cash dividend on common stock of 95 cents per share effective with the November 5, 2018 dividend payment date.
The Basel III common equity Tier 1 capital ratio, which includes the full phase-in of all Basel III adjustments, became effective for PNC as of January 1, 2018. The ratio for September 30, 2017 was calculated on the same basis. These ratios were calculated based on the standardized approach for the risk-weighting of assets. See Capital Ratios in the Consolidated Financial Highlights.
CREDIT QUALITY REVIEW |
|||||||||||||||
Credit Quality |
Change |
Change |
|||||||||||||
At or for the quarter ended |
9/30/18 vs |
9/30/18 vs |
|||||||||||||
In millions |
9/30/2018 |
6/30/2018 |
9/30/2017 |
6/30/18 |
9/30/17 |
||||||||||
Nonperforming loans |
$ |
1,694 |
$ |
1,719 |
$ |
1,873 |
(1) |
% |
(10) |
% |
|||||
Nonperforming assets |
$ |
1,825 |
$ |
1,854 |
$ |
2,067 |
(2) |
% |
(12) |
% |
|||||
Accruing loans past due 90 days |
$ |
619 |
$ |
586 |
$ |
678 |
6 |
% |
(9) |
% |
|||||
Net charge-offs |
$ |
91 |
$ |
109 |
$ |
106 |
(17) |
% |
(14) |
% |
|||||
Provision for credit losses |
$ |
88 |
$ |
80 |
$ |
130 |
10 |
% |
(32) |
% |
|||||
Allowance for loan and lease losses |
$ |
2,584 |
$ |
2,581 |
$ |
2,605 |
— |
(1) |
% |
||||||
Overall credit quality for the third quarter of 2018 remained strong. Provision for credit losses for the third quarter increased $8 million compared with the second quarter. The provision for consumer loans increased primarily attributable to credit card and auto loans while the provision for commercial loans was a net benefit in the third quarter reflecting lower specific loan reserves.
Nonperforming assets at September 30, 2018 decreased $29 million compared with June 30, 2018 due to lower nonperforming commercial loans and residential mortgage loans partially offset by higher nonperforming auto and home equity loans. Nonperforming assets decreased $242 million compared with September 30, 2017 as a result of lower nonperforming commercial loans, lower other real estate owned and foreclosed and other assets, and lower nonperforming commercial real estate and residential mortgage loans partially offset by higher nonperforming auto and home equity loans. Nonperforming assets to total assets were .48 percent at September 30, 2018, .49 percent at June 30, 2018, and .55 percent at September 30, 2017.
Overall delinquencies at September 30, 2018 increased $67 million, or 5 percent, compared with June 30, 2018. Accruing loans past due 90 days or more increased $33 million primarily in government insured education loans and commercial loans. Accruing loans 30 to 59 days past due increased $32 million and included higher auto loan delinquencies related to Hurricane Florence.
Net charge-offs for the third quarter of 2018 decreased $18 million compared with the second quarter with half of the decline attributable to lower home equity loan net charge-offs, and decreased $15 million compared with the third quarter of 2017 due to lower commercial loan net charge-offs. Net charge-offs for the third quarter of 2018 were .16 percent of average loans on an annualized basis compared with .20 percent for the second quarter and .19 percent for the third quarter of 2017.
The allowance for loan and lease losses to total loans was 1.16 percent at both September 30, 2018 and June 30, 2018and 1.18 percent at September 30, 2017. The allowance to nonperforming loans was 153 percent at September 30, 2018, 150 percent at June 30, 2018 and 139 percent at September 30, 2017.
BUSINESS SEGMENT RESULTS |
|||||||||||
Business Segment Income |
|||||||||||
In millions |
3Q18 |
2Q18 |
3Q17 |
||||||||
Retail Banking |
$ |
283 |
$ |
330 |
$ |
232 |
|||||
Corporate & Institutional Banking |
665 |
675 |
525 |
||||||||
Asset Management Group |
61 |
49 |
47 |
||||||||
Other, including BlackRock |
391 |
302 |
322 |
||||||||
Net income |
$ |
1,400 |
$ |
1,356 |
$ |
1,126 |
|||||
See accompanying notes in Consolidated Financial Highlights |
|||||||||||
Retail Banking |
Change |
Change |
|||||||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||||||
In millions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||||||
Net interest income |
$ |
1,305 |
$ |
1,277 |
$ |
1,176 |
$ |
28 |
$ |
129 |
|||||||||
Noninterest income |
$ |
622 |
$ |
678 |
$ |
643 |
$ |
(56) |
$ |
(21) |
|||||||||
Provision for credit losses |
$ |
113 |
$ |
72 |
$ |
77 |
$ |
41 |
$ |
36 |
|||||||||
Noninterest expense |
$ |
1,442 |
$ |
1,450 |
$ |
1,375 |
$ |
(8) |
$ |
67 |
|||||||||
Earnings |
$ |
283 |
$ |
330 |
$ |
232 |
$ |
(47) |
$ |
51 |
|||||||||
In billions |
|||||||||||||||||||
Average loans |
$ |
74.1 |
$ |
73.7 |
$ |
72.5 |
$ |
.4 |
$ |
1.6 |
|||||||||
Average deposits |
$ |
161.8 |
$ |
162.6 |
$ |
159.5 |
$ |
(.8) |
$ |
2.3 |
|||||||||
Retail Banking earnings for the third quarter of 2018 decreased compared with the second quarter and increased compared with the third quarter of 2017. Earnings benefited from the lower federal statutory income tax rate compared with third quarter 2017. Noninterest income decreased in both comparisons as a result of negative derivative fair value adjustments related to Visa Class B common shares and a lower benefit from residential mortgage servicing rights valuation, net of economic hedge partially offset by higher service charges on deposits. Additionally, consumer service fees grew in the comparison to third quarter 2017, including debit card, brokerage and credit card fees. Provision for credit losses increased in both comparisons due to credit card loan portfolio growth and, in the second quarter comparison, auto loan portfolio growth. Noninterest expense decreased compared with the second quarter reflecting lower occupancy costs and increased in the comparison to third quarter 2017 as a result of higher personnel costs, marketing activity and continued investments in technology.
Corporate & Institutional Banking |
Change |
Change |
|||||||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||||||
In millions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||||||
Net interest income |
$ |
925 |
$ |
900 |
$ |
924 |
$ |
25 |
$ |
1 |
|||||||||
Noninterest income |
$ |
592 |
$ |
635 |
$ |
555 |
$ |
(43) |
$ |
37 |
|||||||||
Provision for credit losses (benefit) |
$ |
(13) |
$ |
15 |
$ |
62 |
$ |
(28) |
$ |
(75) |
|||||||||
Noninterest expense |
$ |
669 |
$ |
639 |
$ |
599 |
$ |
30 |
$ |
70 |
|||||||||
Earnings |
$ |
665 |
$ |
675 |
$ |
525 |
$ |
(10) |
$ |
140 |
|||||||||
In billions |
|||||||||||||||||||
Average loans |
$ |
137.4 |
$ |
137.0 |
$ |
134.3 |
$ |
.4 |
$ |
3.1 |
|||||||||
Average deposits |
$ |
88.1 |
$ |
85.8 |
$ |
87.5 |
$ |
2.3 |
$ |
.6 |
|||||||||
Corporate & Institutional Banking earnings for the third quarter of 2018 decreased compared with the second quarter of 2018 and increased compared with the third quarter of 2017. Earnings benefited from the lower federal statutory income tax rate compared with third quarter 2017. Noninterest income declined from the second quarter primarily due to lower revenue from commercial mortgage banking activities, including a lower benefit from commercial mortgage servicing rights valuation, net of economic hedge, and lower net gains on commercial mortgage loans held for sale. Capital markets-related revenue also declined from the second quarter driven by lower customer-related derivative sales and lower loan syndication fees partially offset by higher merger and acquisition advisory fees. Noninterest income increased compared with the third quarter of 2017 primarily due to higher merger and acquisition advisory fees and growth in treasury management product revenue partially offset by lower gains on asset sales. Provision for credit losses was a benefit in the third quarter of 2018 reflecting lower specific loan reserves combined with overall strong portfolio credit quality. Noninterest expense increased in both comparisons due to continued investments in strategic initiatives and variable costs associated with increased business activity.
Asset Management Group |
Change |
Change |
|||||||||||||||||
3Q18 vs |
3Q18 vs |
||||||||||||||||||
In millions |
3Q18 |
2Q18 |
3Q17 |
2Q18 |
3Q17 |
||||||||||||||
Net interest income |
$ |
71 |
$ |
72 |
$ |
72 |
$ |
(1) |
$ |
(1) |
|||||||||
Noninterest income |
$ |
228 |
$ |
222 |
$ |
220 |
$ |
6 |
$ |
8 |
|||||||||
Provision for credit losses |
$ |
2 |
$ |
7 |
$ |
3 |
$ |
(5) |
$ |
(1) |
|||||||||
Noninterest expense |
$ |
217 |
$ |
223 |
$ |
214 |
$ |
(6) |
$ |
3 |
|||||||||
Earnings |
$ |
61 |
$ |
49 |
$ |
47 |
$ |
12 |
$ |
14 |
|||||||||
In billions |
|||||||||||||||||||
Client assets under administration at |
$ |
293 |
$ |
279 |
$ |
275 |
$ |
14 |
$ |
18 |
|||||||||
Average loans |
$ |
7.0 |
$ |
7.0 |
$ |
7.0 |
— |
— |
|||||||||||
Average deposits |
$ |
12.3 |
$ |
12.3 |
$ |
12.2 |
— |
$ |
.1 |
||||||||||
Asset Management Group earnings for the third quarter of 2018 increased in both comparisons. Earnings benefited from the lower federal statutory income tax rate compared with third quarter 2017. Noninterest income increased in both comparisons primarily due to increases in the average equity markets. Provision for credit losses declined from the second quarter reflecting higher second quarter reserves on home equity loans. Noninterest expense decreased compared with the second quarter primarily due to lower legal reserves and increased over third quarter 2017 driven by higher personnel related expenses.
Other, including BlackRock
The “Other, including BlackRock” category, for the purposes of this release, includes earnings and gains or losses related to PNC’s equity investment in BlackRock, and 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 and certain trading activities, discontinued consumer loan portfolios, private equity investments, intercompany eliminations, most corporate overhead, tax adjustments that are not allocated to business segments, exited businesses, integration costs, 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 Chief Financial Officer Robert Q. Reillywill 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) 402-9103 and (312) 281-1206 (international) and Internet access to the live audio listen-only webcast of the call is available at www.pnc.com/investorevents. PNC’s third quarter 2018 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 21894303 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.
[TABULAR MATERIAL FOLLOWS]
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) |
|||||||||||||||||||
FINANCIAL RESULTS |
Three months ended |
Nine months ended |
||||||||||||||||||
Dollars in millions, except per share data |
September 30 |
June 30 |
September 30 |
September 30 |
September 30 |
|||||||||||||||
2018 |
2018 |
2017 |
2018 |
2017 |
||||||||||||||||
Revenue |
||||||||||||||||||||
Net interest income |
$ |
2,466 |
$ |
2,413 |
$ |
2,345 |
$ |
7,240 |
$ |
6,763 |
||||||||||
Noninterest income |
1,891 |
1,911 |
1,780 |
5,552 |
5,306 |
|||||||||||||||
Total revenue |
4,357 |
4,324 |
4,125 |
12,792 |
12,069 |
|||||||||||||||
Provision for credit losses |
88 |
80 |
130 |
260 |
316 |
|||||||||||||||
Noninterest expense |
2,608 |
2,584 |
2,456 |
7,719 |
7,337 |
|||||||||||||||
Income before income taxes (benefit) and noncontrolling |
$ |
1,661 |
$ |
1,660 |
$ |
1,539 |
$ |
4,813 |
$ |
4,416 |
||||||||||
Net income |
$ |
1,400 |
$ |
1,356 |
$ |
1,126 |
$ |
3,995 |
$ |
3,297 |
||||||||||
Less: |
||||||||||||||||||||
Net income attributable to noncontrolling interests |
11 |
10 |
12 |
31 |
39 |
|||||||||||||||
Preferred stock dividends (a) |
63 |
55 |
63 |
181 |
181 |
|||||||||||||||
Preferred stock discount accretion and redemptions |
1 |
1 |
1 |
3 |
24 |
|||||||||||||||
Net income attributable to common shareholders |
$ |
1,325 |
$ |
1,290 |
$ |
1,050 |
$ |
3,780 |
$ |
3,053 |
||||||||||
Less: |
||||||||||||||||||||
Dividends and undistributed earnings allocated to |
6 |
5 |
5 |
16 |
15 |
|||||||||||||||
Impact of BlackRock earnings per share dilution |
2 |
3 |
3 |
7 |
8 |
|||||||||||||||
Net income attributable to diluted common shares |
$ |
1,317 |
$ |
1,282 |
$ |
1,042 |
$ |
3,757 |
$ |
3,030 |
||||||||||
Diluted earnings per common share |
$ |
2.82 |
$ |
2.72 |
$ |
2.16 |
$ |
7.96 |
$ |
6.21 |
||||||||||
Cash dividends declared per common share |
$ |
.95 |
$ |
.75 |
$ |
.75 |
$ |
2.45 |
$ |
1.85 |
||||||||||
Effective tax rate (b) |
15.7 |
% |
18.3 |
% |
26.8 |
% |
17.0 |
% |
25.3 |
% |
(a) |
Dividends are payable quarterly other than the Series O, Series R and Series S preferred stock, which are payable semiannually, with the Series O payable in different quarters than the Series R and Series S preferred stock. |
(b) |
The effective income tax rates are generally lower than the statutory rate due to the relationship of pretax income to tax credits and earnings that are not subject to tax. The 2018 results reflected the change in the statutory federal income tax rate from 35% to 21%, effective as of January 1, 2018, as a result of the new federal tax legislation. |
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) |
|||||||||||||||||||
Three months ended |
Nine months ended |
|||||||||||||||||||
September 30 |
June 30 |
September 30 |
September 30 |
September 30 |
||||||||||||||||
2018 |
2018 |
2017 |
2018 |
2017 |
||||||||||||||||
PERFORMANCE RATIOS |
||||||||||||||||||||
Net interest margin (a) |
2.99 |
% |
2.96 |
% |
2.91 |
% |
2.95 |
% |
2.84 |
% |
||||||||||
Noninterest income to total revenue |
43 |
% |
44 |
% |
43 |
% |
43 |
% |
44 |
% |
||||||||||
Efficiency (b) |
60 |
% |
60 |
% |
60 |
% |
60 |
% |
61 |
% |
||||||||||
Return on: |
||||||||||||||||||||
Average common shareholders’ equity (c) |
12.32 |
% |
12.13 |
% |
9.89 |
% |
11.83 |
% |
9.76 |
% |
||||||||||
Average assets (c) |
1.47 |
% |
1.45 |
% |
1.20 |
% |
1.42 |
% |
1.19 |
% |
||||||||||
BUSINESS SEGMENT NET INCOME (LOSS) (c) (d) |
||||||||||||||||||||
In millions |
||||||||||||||||||||
Retail Banking |
$ |
283 |
$ |
330 |
$ |
232 |
$ |
909 |
$ |
675 |
||||||||||
Corporate & Institutional Banking |
665 |
675 |
525 |
1,924 |
1,527 |
|||||||||||||||
Asset Management Group |
61 |
49 |
47 |
178 |
146 |
|||||||||||||||
Other, including BlackRock (e) |
391 |
302 |
322 |
984 |
949 |
|||||||||||||||
Total net income |
$ |
1,400 |
$ |
1,356 |
$ |
1,126 |
$ |
3,995 |
$ |
3,297 |
(a) |
Calculated as annualized taxable-equivalent net interest income divided by average earning assets. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles (GAAP) in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017 were $29 million, $29 million and $55 million, respectively. The taxable equivalent adjustments to net interest income for the nine months ended September 30, 2018 and September 30, 2017 were $87 million and $161 million, respectively. Taxable equivalent amounts for the 2018 periods were calculated using a statutory federal income tax rate of 21%, reflecting the enactment of the new federal tax legislation effective January 1, 2018. Amounts for the 2017 periods were calculated using the previously applicable statutory federal income tax rate of 35%. |
(b) |
Calculated as noninterest expense divided by total revenue. |
(c) |
The 2018 results reflected the change in the statutory federal income tax rate from 35% to 21%, effective as of January 1, 2018, as a result of the new federal tax legislation. |
(d) |
Our business information is presented based on our internal management reporting practices. Net interest income in business segment results reflect PNC’s internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors. |
(e) |
Includes earnings and gains or losses related to PNC’s equity interest in BlackRock and residual activities that do not meet the criteria for disclosure as a separate reportable business. We provide additional information on these activities in our Form 10-K and Form 10-Q filings with the SEC. |
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) |
||||||||||
September 30 |
June 30 |
September 30 |
|||||||||
2018 |
2018 |
2017 |
|||||||||
BALANCE SHEET DATA |
|||||||||||
Dollars in millions, except per share data |
|||||||||||
Assets |
$ |
380,080 |
$ |
380,711 |
$ |
375,191 |
|||||
Loans (a) |
$ |
223,053 |
$ |
222,855 |
$ |
221,109 |
|||||
Allowance for loan and lease losses |
$ |
2,584 |
$ |
2,581 |
$ |
2,605 |
|||||
Interest-earning deposits with banks |
$ |
19,800 |
$ |
21,972 |
$ |
24,713 |
|||||
Investment securities |
$ |
80,804 |
$ |
80,125 |
$ |
74,994 |
|||||
Loans held for sale (a) |
$ |
1,108 |
$ |
1,325 |
$ |
1,764 |
|||||
Equity investments (b) |
$ |
12,446 |
$ |
12,430 |
$ |
11,009 |
|||||
Mortgage servicing rights |
$ |
2,136 |
$ |
2,045 |
$ |
1,854 |
|||||
Goodwill |
$ |
9,218 |
$ |
9,218 |
$ |
9,163 |
|||||
Other assets (a) |
$ |
28,851 |
$ |
27,897 |
$ |
28,454 |
|||||
Noninterest-bearing deposits |
$ |
74,736 |
$ |
79,047 |
$ |
79,967 |
|||||
Interest-bearing deposits |
$ |
190,148 |
$ |
185,838 |
$ |
180,768 |
|||||
Total deposits |
$ |
264,884 |
$ |
264,885 |
$ |
260,735 |
|||||
Borrowed funds (a) |
$ |
57,955 |
$ |
59,222 |
$ |
57,564 |
|||||
Shareholders’ equity |
$ |
47,058 |
$ |
46,904 |
$ |
46,388 |
|||||
Common shareholders’ equity |
$ |
43,076 |
$ |
42,917 |
$ |
42,406 |
|||||
Accumulated other comprehensive income (loss) |
$ |
(1,260) |
$ |
(940) |
$ |
(22) |
|||||
Book value per common share |
$ |
93.22 |
$ |
92.26 |
$ |
89.05 |
|||||
Tangible book value per common share (Non-GAAP) (c) |
$ |
73.11 |
$ |
72.25 |
$ |
69.72 |
|||||
Period end common shares outstanding (millions) |
462 |
465 |
476 |
||||||||
Loans to deposits |
84 |
% |
84 |
% |
85 |
% |
|||||
CLIENT ASSETS (billions) |
|||||||||||
Discretionary client assets under management |
$ |
159 |
$ |
149 |
$ |
146 |
|||||
Nondiscretionary client assets under administration |
134 |
130 |
129 |
||||||||
Total client assets under administration |
293 |
279 |
275 |
||||||||
Brokerage account client assets |
51 |
49 |
48 |
||||||||
Total client assets |
$ |
344 |
$ |
328 |
$ |
323 |
|||||
CAPITAL RATIOS |
|||||||||||
Basel III (d) (e) (f) |
|||||||||||
Common equity Tier 1 |
9.3 |
% |
9.5 |
% |
N/A |
||||||
Tier 1 risk-based |
10.5 |
% |
10.7 |
% |
N/A |
||||||
Total capital risk-based |
12.7 |
% |
12.6 |
% |
N/A |
||||||
Leverage |
9.2 |
% |
9.4 |
% |
N/A |
||||||
Supplementary leverage |
7.6 |
% |
7.8 |
% |
N/A |
||||||
Fully Phased-In Basel III (Non-GAAP) |
|||||||||||
Common equity Tier 1 |
N/A |
N/A |
9.8 |
% |
|||||||
Transitional Basel III (e) |
|||||||||||
Common equity Tier 1 |
N/A |
N/A |
10.3 |
% |
|||||||
Tier 1 risk-based |
N/A |
N/A |
11.6 |
% |
|||||||
Total capital risk-based |
N/A |
N/A |
13.7 |
% |
|||||||
Leverage |
N/A |
N/A |
9.9 |
% |
|||||||
Common shareholders’ equity to total assets |
11.3 |
% |
11.3 |
% |
11.3 |
% |
|||||
ASSET QUALITY |
|||||||||||
Nonperforming loans to total loans |
.76 |
% |
.77 |
% |
.85 |
% |
|||||
Nonperforming assets to total loans, OREO, foreclosed and other assets |
.82 |
% |
.83 |
% |
.93 |
% |
|||||
Nonperforming assets to total assets |
.48 |
% |
.49 |
% |
.55 |
% |
|||||
Net charge-offs to average loans (for the three months ended) (annualized) |
.16 |
% |
.20 |
% |
.19 |
% |
|||||
Allowance for loan and lease losses to total loans |
1.16 |
% |
1.16 |
% |
1.18 |
% |
|||||
Allowance for loan and lease losses to nonperforming loans |
153 |
% |
150 |
% |
139 |
% |
|||||
Accruing loans past due 90 days or more (in millions) |
$ |
619 |
$ |
586 |
$ |
678 |
(a) |
Amounts include assets and liabilities for which we have elected the fair value option. Our second quarter 2018 Form 10-Q included, and our third quarter 2018 Form 10-Q will include, additional information regarding these Consolidated Balance Sheet line items. |
(b) |
Amounts include our equity interest in BlackRock. Amounts for the 2018 periods reflected $.6 billion of trading and available for sale securities, primarily money market funds, that were reclassified to Equity investments on January 1, 2018 in accordance with the adoption of Accounting Standards Update 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. |
(c) |
See the Tangible Book Value per Common Share table on page 17 for additional information. |
(d) |
The ratios as of September 30, 2018 are estimated. |
(e) |
All ratios are calculated using the regulatory capital methodology applicable to PNC during each period presented and calculated based on the standardized approach. See Capital Ratios on page 16 for additional information. |
(f) |
The 2018 Basel III ratios for Common equity Tier 1 capital, Tier 1 risk-based capital, Leverage and Supplementary leverage reflect the full phase-in of all Basel III adjustments to these metrics applicable to PNC. The 2018 Basel III Total risk-based capital ratios include $80 million of nonqualifying trust preferred capital securities that are subject to a phase-out period that runs through 2021. |
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) |
|||||||||||||||||
CAPITAL RATIOS |
||||||||||||||||||
Because PNC remains in the parallel run qualification phase for the advanced approaches, PNC’s regulatory risk-based capital ratios in |
||||||||||||||||||
We provide information below regarding PNC’s estimated Basel III September 30, 2018, actual Basel III June 30, 2018, pro forma Fully |
||||||||||||||||||
Basel III Common Equity Tier 1 Capital Ratios |
||||||||||||||||||
Basel III (a) |
Fully Phased-In |
2017 Transitional |
||||||||||||||||
September 30 |
June 30 |
September 30 |
September 30 |
|||||||||||||||
Dollars in millions |
2018 (estimated) |
2018 |
2017 |
2017 |
||||||||||||||
Common stock, related surplus and retained earnings, net of |
$ |
44,336 |
$ |
43,857 |
$ |
42,426 |
$ |
42,426 |
||||||||||
Less regulatory capital adjustments: |
||||||||||||||||||
Goodwill and disallowed intangibles, net of deferred tax |
(9,299) |
(9,319) |
(9,202) |
(9,137) |
||||||||||||||
Basel III total threshold deductions |
(4,034) |
(3,408) |
(1,731) |
(1,166) |
||||||||||||||
Accumulated other comprehensive income (loss) |
(1,007) |
(757) |
(117) |
(94) |
||||||||||||||
All other adjustments |
(322) |
(167) |
(163) |
(161) |
||||||||||||||
Basel III Common equity Tier 1 capital |
$ |
29,674 |
$ |
30,206 |
$ |
31,213 |
$ |
31,868 |
||||||||||
Basel III standardized approach risk-weighted assets (c) |
$ |
318,321 |
$ |
319,112 |
$ |
317,393 |
$ |
309,292 |
||||||||||
Basel III advanced approaches risk-weighted assets (d) |
$ |
274,072 |
$ |
280,883 |
$ |
285,517 |
N/A |
|||||||||||
Basel III Common equity Tier 1 capital ratio |
9.3 |
% |
9.5 |
% |
9.8 |
% |
10.3 |
% |
||||||||||
Risk weight and associated rules utilized |
Standardized |
Standardized |
Standardized |
(a) |
2018 results are calculated using the regulatory capital methodology applicable to us during 2018 and reflects the full phase-in of all Basel III adjustments to this metric applicable to PNC. |
(b) |
2017 Fully Phased-In Basel III results are presented as pro forma estimates. |
(c) |
Basel III standardized approach risk-weighted assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets. |
(d) |
Basel III advanced approaches risk-weighted assets are based on the Basel III advanced approaches rules, and include credit, market and operational risk-weighted assets. During the parallel run qualification phase, PNC has refined the data, models and internal processes used as part of the advanced approaches for determining risk-weighted assets. We anticipate additional refinements through the parallel run qualification phase. |
Our Basel III capital ratios may be impacted by additional regulatory guidance or analysis, and, in the case of those ratios calculated using the advanced approaches, may be subject to variability based on the ongoing evolution, validation and regulatory approval of PNC’s models that are integral to the calculation of advanced approaches risk-weighted assets as PNC moves through the parallel run approval process.
The PNC Financial Services Group, Inc. |
Consolidated Financial Highlights (Unaudited) |
||||||||||
Tangible book value per common share is a non-GAAP measure and is calculated based on tangible common shareholders’ equity |
|||||||||||
Tangible Book Value per Common Share (Non-GAAP) |
|||||||||||
September 30 |
June 30 |
September 30 |
|||||||||
Dollars in millions, except per share data |
2018 |
2018 |
2017 |
||||||||
Book value per common share |
$ |
93.22 |
$ |
92.26 |
$ |
89.05 |
|||||
Tangible book value per common share |
|||||||||||
Common shareholders’ equity |
$ |
43,076 |
$ |
42,917 |
$ |
42,406 |
|||||
Goodwill and Other Intangible Assets |
(9,489) |
(9,511) |
(9,503) |
||||||||
Deferred tax liabilities on Goodwill and Other Intangible Assets |
192 |
192 |
301 |
||||||||
Tangible common shareholders’ equity |
$ |
33,779 |
$ |
33,598 |
$ |
33,204 |
|||||
Period-end common shares outstanding (millions) |
462 |
465 |
476 |
||||||||
Tangible book value per common share (Non-GAAP) |
$ |
73.11 |
$ |
72.25 |
$ |
69.72 |
Cautionary Statement Regarding Forward-Looking Information
We make statements in this news release and related conference call, and we may from time to time make other statements, regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting PNC and its future business and operations that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “look,” “intend,” “outlook,” “project,” “forecast,” “estimate,” “goal,” “will,” “should” and other similar words and expressions.
Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance.
Our forward-looking statements are subject to the following principal risks and uncertainties.
Cautionary Statement Regarding Forward-Looking Information (Continued)
We provide greater detail regarding these as well as other factors in our 2017 Form 10-K and our 2018 Form 10-Qs, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements in those reports, and in our subsequent SEC filings. Our forward-looking statements may also be subject to other risks and uncertainties, including those we may discuss elsewhere in this news release or in our SEC filings, accessible on the SEC’s website at www.sec.gov and on our corporate website at www.pnc.com/secfilings. We have included these web addresses as inactive textual references only. Information on these websites is not part of this document.