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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-09718
The PNC Financial Services Group, Inc.
(Exact name of registrant as specified in its charter)
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| Pennsylvania | | 25-1435979 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.) |
The Tower at PNC Plaza,, 300 Fifth Avenue,, Pittsburgh,, Pennsylvania15222-2401
(Address of principal executive offices, including zip code)
(888) (888) 762-2265
(Registrant’s telephone number including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, par value $5.00 | PNC | New York Stock Exchange |
Depositary Shares Each Representing a 1/4,000 Interest in a Share of Fixed-to-
Floating Rate Non-Cumulative Perpetual Preferred Stock, Series P | PNC P | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of October 16, 2020,15, 2021, there were 423,701,045422,640,807 shares of the registrant’s common stock ($5 par value) outstanding.
THE PNC FINANCIAL SERVICES GROUP, INC.
Cross-Reference Index to Third Quarter 20202021 Form 10-Q
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| PART I – FINANCIAL INFORMATION | |
| Item 1. Financial Statements (Unaudited). | |
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| Item 3. Quantitative and Qualitative Disclosures about Market Risk. | 22-43, 54-6620-39, 50-51 and 99-10588-94 |
| Item 4. Controls and Procedures. | |
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FINANCIAL REVIEW
THE PNC FINANCIAL SERVICES GROUP, INC.
This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Quarterly Report on Form 10-Q (the Report or Form 10-Q) and with Items 6, 7, 8 and 9A of our 20192020 Annual Report on Form 10-K (2019(2020 Form 10-K). We have reclassified certain prior period amounts to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. For information regarding certain business, regulatory and legal risks, see the following: the Risk Management section of this Financial Review and of Item 7 in our 20192020 Form 10-K; Item 1A Risk Factors included in our first quarter 2020 Form 10-Q and our 2019 Form 10-K; and the Commitments and Legal Proceedings Notes of the Notes To Consolidated Financial Statements included in Item 1 of this Report and our first quarter 2020 Form 10-Q and Item 8 of our 20192020 Form 10-K. Also, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates Andand Judgments section in this Financial Review and in our 20192020 Form 10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 1514 Segment Reporting in the Notes To Consolidated Financial Statements included in this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a generally accepted accounting principles (GAAP)GAAP basis. In this Report, “PNC”, “we” or “us” refers to The PNC Financial Services Group, Inc. and its subsidiaries on a consolidated basis (except when referring to PNC as a public company, its common stock or other securities issued by PNC, which just refer to The PNC Financial Services Group, Inc.). References to The PNC Financial Services Group, Inc. or to any of its subsidiaries are specifically made where applicable.
See page 104 for a glossary of certain terms and acronyms used in this Report.
Table 1: Consolidated Financial Highlights
| | | | | | | | | | | | | | | | | |
Dollars in millions, except per share data
Unaudited | Three months ended
September 30 | Nine months ended
September 30 | |
| 2021 | 2020 | 2021 | 2020 | |
| Financial Results (a) | | | | | |
| Revenue | | | | | |
| Net interest income | $ | 2,856 | | $ | 2,484 | | $ | 7,785 | | $ | 7,522 | | |
| Noninterest income | 2,341 | | 1,797 | | 6,299 | | 5,171 | | |
| Total revenue | 5,197 | | 4,281 | | 14,084 | | 12,693 | | |
| Provision for (recapture of) credit losses | (203) | | 52 | | (452) | | 3,429 | | |
| Noninterest expense | 3,587 | | 2,531 | | 9,211 | | 7,589 | | |
Income from continuing operations before income taxes and noncontrolling interests
| $ | 1,813 | | $ | 1,698 | | $ | 5,325 | | $ | 1,675 | | |
Income taxes from continuing operations
| 323 | | 166 | | 906 | | 128 | | |
| Net income from continuing operations | $ | 1,490 | | $ | 1,532 | | $ | 4,419 | | $ | 1,547 | | |
Income from discontinued operations before taxes
| | | | $ | 5,777 | | |
Income taxes from discontinued operations
| | | | 1,222 | | |
Net income from discontinued operations
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| | | $ | 4,555 | | |
| Net income | $ | 1,490 | | $ | 1,532 | | $ | 4,419 | | $ | 6,102 | | |
| Less: | | | | | |
| Net income attributable to noncontrolling interests | 16 | | 13 | | 38 | | 27 | | |
| Preferred stock dividends (b) | 57 | | 63 | | 162 | | 181 | | |
| Preferred stock discount accretion and redemptions | 1 | | 1 | | 3 | | 3 | | |
| Net income attributable to common shareholders | $ | 1,416 | | $ | 1,455 | | $ | 4,216 | | $ | 5,891 | | |
Per Common Share
| | | | | |
| Basic earnings from continuing operations | $ | 3.31 | | $ | 3.40 | | $ | 9.84 | | $ | 3.11 | | |
| Basic earnings from discontinued operations | | | | 10.61 | | |
Total basic earnings
| $ | 3.31 | | $ | 3.40 | | $ | 9.84 | | $ | 13.73 | | |
| Diluted earnings from continuing operations | $ | 3.30 | | $ | 3.39 | | $ | 9.83 | | $ | 3.11 | | |
| Diluted earnings from discontinued operations | | | | 10.59 | | |
| Total diluted earnings | $ | 3.30 | | $ | 3.39 | | $ | 9.83 | | $ | 13.70 | | |
| Cash dividends declared per common share | $ | 1.25 | | $ | 1.15 | | $ | 3.65 | | $ | 3.45 | | |
| Effective tax rate from continuing operations (c) | 17.8 | % | 9.8 | % | 17.0 | % | 7.6 | % | |
| Performance Ratios | | | | | |
| Net interest margin (d) | 2.27 | % | 2.39 | % | 2.28 | % | 2.57 | % | |
| Noninterest income to total revenue | 45 | % | 42 | % | 45 | % | 41 | % | |
| Efficiency | 69 | % | 59 | % | 65 | % | 60 | % | |
| Return on: | | | | | |
| Average common shareholders’ equity | 10.95 | % | 11.76 | % | 11.17 | % | 16.57 | % | |
| Average assets | 1.06 | % | 1.32 | % | 1.16 | % | 1.83 | % | |
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Dollars in millions, except per share data Unaudited | Three months ended
September 30 | Nine months ended
September 30 | |
| 2020 | 2019 | 2020 | 2019 | |
| Financial Results (a) | | | | | |
| Revenue | | | | | |
| Net interest income | $ | 2,484 |
| $ | 2,504 |
| $ | 7,522 |
| $ | 7,477 |
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| Noninterest income | 1,797 |
| 1,738 |
| 5,171 |
| 5,041 |
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| Total revenue | 4,281 |
| 4,242 |
| 12,693 |
| 12,518 |
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| Provision for credit losses | 52 |
| 183 |
| 3,429 |
| 552 |
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| Noninterest expense | 2,531 |
| 2,623 |
| 7,589 |
| 7,812 |
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Income from continuing operations before income taxes and noncontrolling interests
| $ | 1,698 |
| $ | 1,436 |
| $ | 1,675 |
| $ | 4,154 |
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Income taxes from continuing operations
| 166 |
| 255 |
| 128 |
| 706 |
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| Net income from continuing operations | $ | 1,532 |
| $ | 1,181 |
| $ | 1,547 |
| $ | 3,448 |
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Income from discontinued operations before taxes
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| $ | 251 |
| $ | 5,777 |
| $ | 700 |
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Income taxes from discontinued operations
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| 40 |
| 1,222 |
| 111 |
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Net income from discontinued operations
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| $ | 211 |
| $ | 4,555 |
| $ | 589 |
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| Net income | $ | 1,532 |
| $ | 1,392 |
| $ | 6,102 |
| $ | 4,037 |
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| Less: | | | | | |
| Net income attributable to noncontrolling interests | 13 |
| 13 |
| 27 |
| 35 |
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| Preferred stock dividends (b) | 63 |
| 63 |
| 181 |
| 181 |
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| Preferred stock discount accretion and redemptions | 1 |
| 1 |
| 3 |
| 3 |
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| Net income attributable to common shareholders | $ | 1,455 |
| $ | 1,315 |
| $ | 5,891 |
| $ | 3,818 |
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Per Common Share
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| Basic earnings from continuing operations | $ | 3.40 |
| $ | 2.47 |
| $ | 3.11 |
| $ | 7.15 |
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| Basic earnings from discontinued operations |
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| .48 |
| 10.61 |
| 1.30 |
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Total basic earnings
| $ | 3.40 |
| $ | 2.95 |
| $ | 13.73 |
| $ | 8.45 |
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| Diluted earnings from continuing operations | $ | 3.39 |
| $ | 2.47 |
| $ | 3.11 |
| $ | 7.13 |
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| Diluted earnings from discontinued operations |
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| .47 |
| 10.59 |
| 1.29 |
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| Total diluted earnings | $ | 3.39 |
| $ | 2.94 |
| $ | 13.70 |
| $ | 8.42 |
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| Cash dividends declared per common share | $ | 1.15 |
| $ | 1.15 |
| $ | 3.45 |
| $ | 3.05 |
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| Effective tax rate from continuing operations (c) | 9.8 | % | 17.8 | % | 7.6 | % | 17.0 | % | |
| Performance Ratios | | | | | |
| Net interest margin (d) | 2.39 | % | 2.84 | % | 2.57 | % | 2.91 | % | |
| Noninterest income to total revenue | 42 | % | 41 | % | 41 | % | 40 | % | |
| Efficiency | 59 | % | 62 | % | 60 | % | 62 | % | |
| Return on: | | | | | |
| Average common shareholders’ equity | 11.76 | % | 11.56 | % | 16.57 | % | 11.48 | % | |
| Average assets | 1.32 | % | 1.36 | % | 1.83 | % | 1.36 | % | |
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(a) | The Executive Summary and Consolidated Income Statement Review portions of this Financial Review section provide information regarding items impacting the comparability of the periods presented. |
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(b) | Dividends are payable quarterly other than 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. |
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(c) | 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. |
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(d) | Net interest margin is the total yield on interest-earning assets minus the total rate on interest-bearing liabilities and includes the benefit from use of noninterest-bearing sources. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating average yields used in the calculation of 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 GAAP in the Consolidated Income Statement. For additional information, see Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report. |
(c)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.
(d)Net interest margin is the total yield on interest-earning assets minus the total rate on interest-bearing liabilities and includes the benefit from use of noninterest-bearing sources. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating average yields used in the calculation of 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 GAAP in the Consolidated Income Statement. For additional information, see Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.
The PNC Financial Services Group, Inc. – Form 10-Q 11
Table 1: Consolidated Financial Highlights (Continued) (a)
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| Unaudited | September 30
2021 | December 31
2020 | September 30
2020 | |
Balance Sheet Data (dollars in millions, except per share data) | | | | |
| Assets | $ | 553,515 | | $ | 466,679 | | $ | 461,817 | | |
| Loans | $ | 290,230 | | $ | 241,928 | | $ | 249,279 | | |
Allowance for loan and lease losses
| $ | 5,355 | | $ | 5,361 | | $ | 5,751 | | |
| Interest-earning deposits with banks (b) | $ | 75,478 | | $ | 85,173 | | $ | 70,959 | | |
| Investment securities | $ | 125,606 | | $ | 88,799 | | $ | 91,185 | | |
| Loans held for sale | $ | 2,121 | | $ | 1,597 | | $ | 1,787 | | |
| Equity investments | $ | 7,737 | | $ | 6,052 | | $ | 4,938 | | |
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| Mortgage servicing rights | $ | 1,833 | | $ | 1,242 | | $ | 1,113 | | |
| Goodwill | $ | 10,885 | | $ | 9,233 | | $ | 9,233 | | |
| Other assets | $ | 36,137 | | $ | 30,999 | | $ | 32,445 | | |
| Noninterest-bearing deposits | $ | 156,305 | | $ | 112,637 | | $ | 107,281 | | |
| Interest-bearing deposits | $ | 292,597 | | $ | 252,708 | | $ | 247,798 | | |
| Total deposits | $ | 448,902 | | $ | 365,345 | | $ | 355,079 | | |
| Borrowed funds | $ | 33,471 | | $ | 37,195 | | $ | 42,110 | | |
Allowance for unfunded lending related commitments
| $ | 646 | | $ | 584 | | $ | 689 | | |
| Total shareholders’ equity | $ | 56,259 | | $ | 54,010 | | $ | 53,276 | | |
| Common shareholders’ equity | $ | 51,250 | | $ | 50,493 | | $ | 49,760 | | |
| Accumulated other comprehensive income | $ | 1,079 | | $ | 2,770 | | $ | 2,997 | | |
| Book value per common share | $ | 121.16 | | $ | 119.11 | | $ | 117.44 | | |
| Period-end common shares outstanding (in millions) | 423 | | 424 | | 424 | | |
| Loans to deposits | 65 | % | 66 | % | 70 | % | |
| Common shareholders’ equity to total assets | 9.3 | % | 10.8 | % | 10.8 | % | |
Client Assets (in billions) | | | | |
| Discretionary client assets under management | $ | 183 | | $ | 170 | | $ | 158 | | |
| Nondiscretionary client assets under administration | 170 | | 154 | | 142 | | |
| Total client assets under administration | 353 | | 324 | | 300 | | |
| Brokerage account client assets | 81 | | 59 | | 55 | | |
| Total client assets | $ | 434 | | $ | 383 | | $ | 355 | | |
| Basel III Capital Ratios (c) (d) | | | | |
| Common equity Tier 1 | 10.3 | % | 12.2 | % | 11.7 | % | |
| Common equity Tier 1 fully implemented (e) | 10.0 | % | 11.8 | % | 11.3 | % | |
| Tier 1 risk-based | 11.6 | % | 13.2 | % | 12.8 | % | |
| Total capital risk-based (f) | 13.6 | % | 15.6 | % | 15.2 | % | |
| Leverage | 8.2 | % | 9.5 | % | 9.4 | % | |
| Supplementary leverage | 7.0 | % | 9.9 | % | 9.5 | % | |
| Asset Quality | | | | |
| Nonperforming loans to total loans | 0.87 | % | 0.94 | % | 0.84 | % | |
| Nonperforming assets to total loans, OREO and foreclosed assets | 0.88 | % | 0.97 | % | 0.86 | % | |
| Nonperforming assets to total assets | 0.46 | % | 0.50 | % | 0.47 | % | |
| Net charge-offs to average loans (for the three months ended) (annualized) | 0.11 | % | 0.37 | % | 0.24 | % | |
Allowance for loan and lease losses to total loans
| 1.85 | % | 2.22 % | 2.31 | % | |
| Allowance for credit losses to total loans (g) | 2.07 | % | 2.46 | % | 2.58 | % | |
Allowance for loan and lease losses to nonperforming loans
| 212 | % | 235 | % | 276 | % | |
| Accruing loans past due 90 days or more (in millions) | $ | 492 | | $ | 509 | | $ | 448 | | |
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| Unaudited | September 30
2020 |
| December 31
2019 |
| September 30
2019 |
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Balance Sheet Data (dollars in millions, except per share data) | | | | |
| Assets | $ | 461,817 |
| $ | 410,295 |
| $ | 408,916 |
| |
| Loans | $ | 249,279 |
| $ | 239,843 |
| $ | 237,377 |
| |
Allowance for loan and lease losses (b)
| $ | 5,751 |
| $ | 2,742 |
| $ | 2,738 |
| |
| Interest-earning deposits with banks (c) | $ | 70,959 |
| $ | 23,413 |
| $ | 19,036 |
| |
| Investment securities | $ | 91,185 |
| $ | 86,824 |
| $ | 87,883 |
| |
| Loans held for sale | $ | 1,787 |
| $ | 1,083 |
| $ | 1,872 |
| |
| Equity investments | $ | 4,938 |
| $ | 5,176 |
| $ | 5,004 |
| |
Asset held for sale (d)
| | $ | 8,558 |
| $ | 8,321 |
| |
| Mortgage servicing rights | $ | 1,113 |
| $ | 1,644 |
| $ | 1,483 |
| |
| Goodwill | $ | 9,233 |
| $ | 9,233 |
| $ | 9,233 |
| |
| Other assets | $ | 32,445 |
| $ | 32,202 |
| $ | 35,774 |
| |
| Noninterest-bearing deposits | $ | 107,281 |
| $ | 72,779 |
| $ | 74,077 |
| |
| Interest-bearing deposits | $ | 247,798 |
| $ | 215,761 |
| $ | 211,506 |
| |
| Total deposits | $ | 355,079 |
| $ | 288,540 |
| $ | 285,583 |
| |
| Borrowed funds | $ | 42,110 |
| $ | 60,263 |
| $ | 61,354 |
| |
Allowance for unfunded lending related commitments (b)
| $ | 689 |
| $ | 318 |
| $ | 304 |
| |
| Total shareholders’ equity | $ | 53,276 |
| $ | 49,314 |
| $ | 49,420 |
| |
| Common shareholders’ equity | $ | 49,760 |
| $ | 45,321 |
| $ | 45,428 |
| |
| Accumulated other comprehensive income | $ | 2,997 |
| $ | 799 |
| $ | 837 |
| |
| Book value per common share | $ | 117.44 |
| $ | 104.59 |
| $ | 103.37 |
| |
| Period-end common shares outstanding (in millions) | 424 |
| 433 |
| 439 |
| |
| Loans to deposits | 70 | % | 83 | % | 83 | % | |
| Common shareholders’ equity to total assets | 10.8 | % | 11.0 | % | 11.1 | % | |
Client Assets (in billions) | | | | |
| Discretionary client assets under management | $ | 158 |
| $ | 154 |
| $ | 163 |
| |
| Nondiscretionary client assets under administration | 142 |
| 143 |
| 135 |
| |
| Total client assets under administration | 300 |
| 297 |
| 298 |
| |
| Brokerage account client assets | 55 |
| 54 |
| 52 |
| |
| Total client assets | $ | 355 |
| $ | 351 |
| $ | 350 |
| |
| Basel III Capital Ratios (e) (f) | | | | |
| Common equity Tier 1 | 11.7 | % | 9.5 | % | 9.6 | % | |
| Common equity Tier 1 fully implemented (g) | 11.3 | % | N/A |
| N/A |
| |
| Tier 1 risk-based | 12.8 | % | 10.7 | % | 10.7 | % | |
| Total capital risk-based (h) | 15.2 | % | 12.7 | % | 12.7 | % | |
| Leverage | 9.4 | % | 9.1 | % | 9.3 | % | |
| Supplementary leverage | 9.5 | % | 7.6 | % | 7.8 | % | |
| Asset Quality | | | | |
| Nonperforming loans to total loans | .84 | % | .68 | % | .73 | % | |
| Nonperforming assets to total loans, OREO and foreclosed assets | .86 | % | .73 | % | .78 | % | |
| Nonperforming assets to total assets | .47 | % | .43 | % | .45 | % | |
| Net charge-offs to average loans (for the three months ended) (annualized) | .24 | % | .35 | % | .26 | % | |
Allowance for loan and lease losses to total loans (i)
| 2.31 | % | 1.14 | % | 1.15 | % | |
| Allowance for credit losses to total loans (i) (j) | 2.58 | % | 1.28 | % | 1.28 | % | |
Allowance for loan and lease losses to nonperforming loans (i)
| 276 | % | 168 | % | 158 | % | |
| Accruing loans past due 90 days or more (in millions) | $ | 448 |
| $ | 585 |
| $ | 532 |
| |
| |
(a) | The Executive Summary and Consolidated Balance Sheet Review portions of this Financial Review provide information regarding items impacting the comparability of the periods presented. |
| |
(b) | (b)Amounts include balances held with the Federal Reserve Bank of $75.1 billion, $84.9 billion and $70.6 billion as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively. (c)All ratios are calculated using the regulatory capital methodology applicable to PNC during each period presented and calculated based on the standardized approach. See Basel III Capital discussion in the Capital Management portion of the Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business and Item 1A Risk Factors in our 2020 Form 10-K. (d)Ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision, unless noted differently. (e)The fully implemented CET1 ratio is calculated to reflect the full impact of CECL and excludes the benefits of the five-year transition provision. (f)The 2021 and 2020 Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $20 million and $40 million, respectively, that are subject to a phase-out period that runs through 2021. (g)Calculated as the Allowance for loan and lease losses plus the Allowance for unfunded lending related commitments divided by total loans. Amounts at September 30, 2020 reflect the impact of adopting Accounting Standards Update 2016-13 - Financial Instruments - Credit Losses, which is commonly referred to as the Current Expected Credit Losses (CECL) standard and our transition from an incurred loss methodology for these reserves to an expected credit loss methodology. See Note 1 Accounting Policies of this Report for additional information related to our adoption of this standard.
|
| |
(c) | Amounts include balances held with the Federal Reserve Bank of Cleveland (Federal Reserve Bank) of $70.6 billion, $23.2 billion and $18.8 billion as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively. |
2 The PNC Financial Services Group, Inc. – Form 10-Q
| |
(d) | Represents our held for sale investment in BlackRock, Inc. In the second quarter of 2020, PNC divested its entire investment in BlackRock. Prior period BlackRock investment balances have been reclassified to the Asset held for sale line in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations. Refer to Note 1 Accounting Policies and Note 2 Discontinued Operations for additional details. |
| |
(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 Basel III Capital discussion in the Capital Management portion of the Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business and Item 1A Risk Factors in our 2019 Form 10-K. |
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(f) | The September 30, 2020 ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision, unless noted differently. |
| |
(g) | The September 30, 2020 fully implemented CET1 ratio is calculated to reflect the full impact of CECL and excludes the benefits of the five-year transition provision. |
| |
(h) | The 2020 and 2019 Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $40 million and $60 million, respectively, that are subject to a phase-out period that runs through 2021. |
| |
(i) | Ratios at September 30, 2020 reflect the changes in methodology due to the adoption of the CECL accounting standard on January 1, 2020, along with increases in reserves during 2020 due to the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth. |
| |
(j) | Calculated as the Allowance for loan and lease losses plus the Allowance for unfunded lending related commitments divided by total loans. |
EXECUTIVE SUMMARY
Headquartered in Pittsburgh, Pennsylvania, we are one of the largest diversified financial services companiesinstitutions in the United States (U.S.).U.S. We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our retail branch network is located primarily in markets across the Mid-Atlantic, Midwest and Southeast.coast-to-coast. We also have strategic international offices in four countries outside the U.S.
Key Strategic Goals
At PNC we manage our company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business.
We strive to serve our customers and expand and deepen relationships by offering a broad range of deposit, credit and fee-based products and services. We are focused on delivering those products and services to our customers with the goal of addressing their financial objectives and putting customers’ needs first. Our business model is built on customer loyalty and engagement, understanding our customers’ financial goals and offering our diverse products and services to help them achieve financial well-being. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.
We are focused on our strategic priorities, which are designed to enhance value over the long term, and consist of:
•Expanding our leading banking franchise to new markets and digital platforms;platforms,
•Deepening customer relationships by delivering a superior banking experience and financial solutions;solutions, and
•Leveraging technology to innovate and enhance products, services, security and processes.
Our capital priorities are to support customers and business investment, maintain appropriate capital in light of economic conditions, the Basel III framework, and other regulatory expectations, and return excess capital to shareholders. For more detail, see the Capital Highlights portion of this Executive Summary, the Liquidity and Capital Management portion of the Risk Management section of this Financial Review and the Supervision and Regulation section in Item 1 Business of our 20192020 Form 10-K.
Current Economic EnvironmentAcquisition of BBVA USA Bancshares, Inc.
The coronavirus (COVID-19) pandemicOn June 1, 2021, PNC acquired BBVA USA Bancshares Inc. (BBVA), a U.S. financial holding company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA. PNC paid $11.5 billion in cash as consideration for the acquisition.
On October 8, 2021, BBVA USA merged into PNC Bank. As of October 12, 2021, PNC has converted approximately 2.6 million customers, 9,000 employees and public health response to contain it led to a severe recession in the first half of 2020, after the U.S. economy reached a peak in economic activity in February 2020. Most measures of economic activity contracted with enormous declines in consumer spending, employment, retail sales, business investment, industrial production and corporate profitability. The unemployment rate peaked at 14.7% in April and has declined since then, but still remained elevated at 7.9% in September. Real GDP growth in theover 600 branches across seven states. PNC’s third quarter was extremely strong, at an annual rateresults reflect the full quarter benefit of 33.1%, after declining significantly in the first and second quarters of 2020. While economic conditions have improved, including a rebound in consumer spending and job growth, economic activity remains far below its pre-pandemic level. There is still a great deal of uncertainty about the length and severity of the pandemic and the strength or reversal of the economic rebound, including whether there will be additional fiscal stimulus from the federal government and, if so, its size and scope.
The Federal Reserve has undertaken extraordinary efforts to combat the economic weakness, reducing the federal funds rate 1.5 percentage points in March to a range of 0.00% to 0.25%. The Federal Reserve implemented multiple programs to support the flow of credit to businesses, consumers, and state and local governments, including,BBVA’s acquired business operations. Our results for the first time, direct purchasesnine months of corporate bonds and2021 reflect the benefit of bank loans to small and medium-sized businesses. In addition,BBVA's acquired business operations for the federal government authorized $2.4 trillion in federal spending to support household incomes and businesses, includingperiod since the $1.8 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act.
The PNC Financial Services Group, Inc. – Form 10-Q 3
PNC is committed to putting our resources to work to support our customers, communities and the broader financial system. PNC participated in funding Paycheck Protection Program (PPP) loans under the CARES Act and,acquisition closed on June 1, 2021. PNC’s balance sheet at September 30, 2020, had $12.9 billion of PPP loans outstanding, down from the $13.7 billion funded during the second quarter of 2020. PNC continues to grant loan modifications for customers in need through various hardship relief programs. We analyze and make decisions on these modifications based on each individual borrower's situation. PNC is also assisting customers with PPP loan forgiveness under the CARES Act. See the Troubled Debt Restructurings and Loan Modifications in the Credit Risk Management portion of the Risk Management section of this Financial Review for details on our commercial and consumer loan modifications.
Our retail branch operations are gradually returning to business as usual as we continue to prioritize the safety and well-being of our customers and employees. In the third quarter of 2020, we progressively reopened branches both for appointment banking and full banking operations. As of the end of October 2020, approximately 96% of branch lobbies were fully opened.
2021 includes BBVA’s balances. See the Recent Regulatory Developments sectionportion of this Financial Review as well as the Recent Regulatory Developments section in our first and second quarter 2020 Form 10-QReport for additionalmore detail on the CARES Actapproval and other governmental responsesmerger process.
For additional information on the acquisition of BBVA, see Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report.
Throughout this Report, BBVA USA Bancshares, Inc. will be referred to the pandemic and its economic and financial impacts. See also Risk Factors in Part II, Item 1A of our first quarter 2020 Form 10-Q for a description of the associated risks.as BBVA.
Community Support
In the second quarter of 2020, we announced a commitment of more than $1.0 billion to help end systemic racism and support economic empowerment of African Americans and low- and moderate-income communities including more than $50 million in additional charitable support for national and local work that is designed to help eliminate systemic racism and promote social justice, expand financial education and workforce development initiatives and enhance low-income neighborhood revitalization and affordable housing. In addition, this commitment will provide community development financing and capital for neighborhood revitalization, consumers, small businesses and enhancements to PNC's existing matching gift program to include support for qualifying non-profit organizations that support economic empowerment and social justice educational efforts.
Second Quarter Sale of Equity Investment in BlackRock, Inc.
In the second quarter of 2020, PNC divested itsour entire 22.4% equity investment in BlackRock. Net proceeds from the sale were $14.2 billion. The
$14.2 billion with an after-tax gain on the sale of $4.3 billion, and donation expense andbillion. BlackRock's historical results for all periods presented, are reported as discontinued operations. For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Discontinued OperationsAcquisition and Divestiture Activity in the Notes To Consolidated Financial Statements in Item 1 of this Report and the second quarter Form 10-Q.Report.
Income Statement Highlights
Net income from continuing operations of $1.5 billion orfor the third quarter of 2021 decreased $42.0 million compared to the third quarter of 2020. Earnings were $3.30 per diluted common share for the third quarter of 2021 compared to $3.39 per diluted common share for the third quarter of 2020 increased $351 million, or 30%, compared to net income from continuing operations of $1.2 billion, or $2.47 per diluted common share, for2020. Other than the third quarter of 2019.
Total revenue increased $39 million, or 1%, to $4.3 billion.
Net interest income of $2.5 billion decreased $20 million, or 1%.
| |
▪ | Net interest margin decreased to 2.39% compared to 2.84% for the third quarter of 2019. |
Noninterest income increased $59 million, or 3%, to $1.8 billion.
Provision for credit losses for the third quarter of 2020 of $52 million, which was calculated under the Current Expected Credit Losses (CECL) accounting standard adopted January 1, 2020, reflected a provision recapture for consumer loans, offset by a provision for expected losses for certain borrowers in industries adversely impacted by the pandemic, primarily within the commercial real estate portfolio. In addition, the third quarter 2020 provision for credit losses included $39 million related to investment securities. Provision for credit losses decreased $131 million compared to the third quarter of 2019.
Noninterest expense decreased $92 million, or 4%, to $2.5 billion, reflecting a continuous focus on expense management as well as lower business activity related to the economic impact of the pandemic.
We generated positive operating leverage of 4.4%BBVA acquisition, the decrease was primarily due to a lower effective tax rate in the third quarter of 2020 as a result of tax credit benefits and 4.3% for the first ninefavorable resolution of certain tax matters.
The PNC Financial Services Group, Inc. – Form 10-Q 3
•For the three months of 2020ended September 30, 2021 compared to the same periodsperiod in 2019.2020:
•Total revenue increased $916 million, or 21%, to $5.2 billion.
•Net interest income of $2.9 billion increased $372 million, or 15%, primarily due to the benefit of BBVA.
•Net interest margin decreased 12 basis points to 2.27% reflecting lower securities yields.
•Noninterest income increased $544 million, or 30%, to $2.3 billion, primarily due to record merger and acquisition advisory fees and the benefit of BBVA.
•Provision recapture was $203 million for the third quarter of 2021 driven by continued improvements in credit quality and changes in portfolio composition. Provision for credit losses was $52 million for the third quarter of 2020.
•Noninterest expense increased $1.1 billion, or 42%, to $3.6 billion, due to BBVA operating expenses, integration expenses and increased business and marketing activity.
For additional detail, see the Consolidated Income Statement Review section of this Financial Review.
4 The PNC Financial Services Group, Inc. – Form 10-Q
Balance Sheet Highlights
Our balance sheet was strong and well positioned at September 30, 20202021 and December 31, 2019.2020. In comparison to December 31, 2019:2020, changes in our balance sheet were primarily driven by the BBVA acquisition.
•Total assets increased $51.5$86.8 billion, or 13%19%, to $461.8$553.5 billion.
•Total loans increased $9.4$48.3 billion, or 4%20%, to $249.3$290.2 billion.
•Total commercial loans grew $12.1increased $28.0 billion, or 8%17%, to $172.7$195.2 billion reflecting broad based growth including PPP loan originations under the CARES Act.
Total consumer loans decreased $2.7 billion, or 3%, to $76.6 billion primarily in auto, credit card and home equitydriven by BBVA loans, partially offset by higherPPP loan forgiveness.
•At September 30, 2021, PNC had $6.8 billion of PPP loans. PPP loans outstanding at December 31, 2020 were $12.0 billion.
•Total consumer loans increased $20.3 billion, or 27%, to $95.0 billion driven by loans from BBVA and increased originations of PNC legacy residential mortgage loans.mortgages, partially offset by declines in PNC legacy home equity and auto loan portfolios.
•Investment securities increased $4.4$36.8 billion, or 5%41%, to $91.2 billion.$125.6 billion, resulting from increased purchase activity and securities from BBVA.
•Interest-earning deposits with banks, primarily with the Federal Reserve Bank, increased $47.5decreased $9.7 billion to $71.0$75.5 billion, due to higher liquidity from deposit growth and proceeds fromincluded the salepayment for the purchase of our equity investment in BlackRock.BBVA.
•Total deposits increased $66.5$83.6 billion, or 23%, to $355.1$448.9 billion, reflecting deposits from BBVA and growth in PNC legacy commercial and consumer liquidity.
•Borrowed funds decreased $3.7 billion, or 10%, to $33.5 billion, due to growth in commercial depositslower FHLB borrowings reflecting customer liquidity accumulation and higher consumer deposits driven by government stimulus and lower consumer spending.
Borrowed funds decreased $18.2 billion, or 30%, to $42.1 billion reflectingthe use of liquidity from deposit growth, and proceedspartially offset by borrowed funds from the sale of our equity investment in BlackRock.BBVA.
For additional detail, see the Consolidated Balance Sheet Review section of this Financial Review.
Credit Quality Highlights
CreditThird quarter 2021 credit quality metricsperformance reflected the acquisition of BBVA, continued improvements in the third quarter of 2020 reflected continued uncertaintycredit quality and changes in the economic environment.portfolio composition.
•At September 30, 20202021 compared to December 31, 2019:2020:
•Nonperforming assets of $2.2$2.6 billion, increased $400$222 million, or 23%9%, drivendue to nonperforming assets from BBVA, partially offset by higherlower PNC legacy nonperforming commercial loans in industries adversely impacted by the pandemic and the energy industry.assets reflecting improved credit performance.
•Overall loan delinquencies of $1.2$1.4 billion decreased $266increased $33 million, or 18%2%, reflecting CARES Actas lower PNC legacy consumer and other forbearancecommercial delinquencies were more than offset by delinquencies from the BBVA acquisition.
•The ACL related to loans, which consists of the ALLL and extension treatments.the allowance for unfunded lending related commitments, totaled $6.0 billion at September 30, 2021, an increase of $0.1 billion since December 31, 2020. The increase was primarily attributable to the addition of reserves related to the BBVA acquisition, partially offset by continued improvements in credit quality and macroeconomic factors along with changes in portfolio composition.
•Net charge-offs were $155$81 million, in both third quarters of 2020 and 2019, representing .24%or 0.11% of average loans on an annualized basis in the third quarter of 2020 and .26%2021 compared to $155 million, or 0.24%, for the same quarter of 2019.2020.
The allowance for credit losses (ACL) related to loans increased to $6.4 billion, or 2.58% of total loans, at September 30, 2020, calculated under the CECL accounting standard adopted January 1, 2020, compared to $3.1 billion, or 1.28% of total loans, at December 31, 2019. The increase was due to the change in methodology together with the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth.
For additional detail including the adoption of the CECL accounting standard and the significant economic impact of the pandemic, see the Credit Risk Management portion of the Risk Management section of this Financial Review.
Capital Highlights
We grewmaintained our strong capital position.and liquidity positions.
The Basel III common equity Tier 1 (CET1) capital•Our CET1 ratio increaseddecreased to 11.7%10.3% at September 30, 20202021 from 9.5% 12.2% at December 31, 2019.
The September 30, 2020, ratio reflects higher capitalprimarily due in part to the gain from the sale of our equity investment in BlackRock and changes under the Tailoring Rules, effective January 1, 2020 forBBVA acquisition.
4 The PNC partially offsetFinancial Services Group, Inc. – Form 10-Q
•Capital was impacted by the impact of the CECL accounting standard.
Additionally, capital benefited from our election of a five-year transition period for CECL'sCECL’s estimated impact on CET1 capital. CECL'sCECL’s estimated impact on CET1 capital is defined as the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date, excluding the initial allowance for PCD loans from BBVA, compared to CECL ACL at transition. The estimated CECL impact is added to CET1 capital through December 31, 2021, then phased-out over the following three years.
•Common shareholders' equity increased 10% to $49.8$51.3 billion at September 30, 2020,2021, compared to $45.3$50.5 billion at December 31, 2019.2020.
•In the third quarter, we returned $0.9 billion of capital to shareholders through dividends on common shares of $0.5 billion and $0.4 billion of common share repurchases representing 2.1 million 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 October 1, 2020,2021, the PNC boardBoard of directorsDirectors declared a quarterly cash dividend on common stock of $1.15$1.25 per share payable on November 5, 2020.2021.
We announced on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economy during the pandemic, and will continue the suspension through the fourth quarter of 2020, consistent with the extension of the Federal Reserve's special capital distribution restrictions. We repurchased $99 million of common shares in the third quarter to offset the effects of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve.
The PNC Financial Services Group, Inc. – Form 10-Q 5
See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our 20202021 liquidity and capital actions as well as our capital ratios.
PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding a stress capital buffer established by the Federal Reserve Board in connection with the Federal Reserve Board's Comprehensive Capital Analysis and Review (CCAR)Board’s CCAR process. The Federal Reserve also has imposed additional limitations on capital distributions through the fourth quarter of 2020 by CCAR-participating bank holding companies and may extend these limitations, potentially in modified form. For additional information, see Capital Management in the Risk Management section in this Financial Review and the Supervision and Regulation section in Item 1 Business and Item 1A Risk Factors of our 20192020 Form 10-K.
Business Outlook
Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our views, as follow:follows:
•The U.S. economy is in a nascentan economic recovery, in the second half of 2020, following a very severe but very short economic contraction in the first half of the year2020 due to the COVID-19 pandemic and public health measures to contain it. Real GDP declined significantly in the first
•The Delta COVID-19 variant and second quarters of 2020, as many firms closed, at least temporarily, and consumers stayed at home. Since the late spring/early summersupply chain difficulties have been drags on economic activity has picked up due to loosening restrictions on businesses, massive federal stimulus, and extremely low interest rates. Between May and September the economy added back slightly more than half of the 22 million jobs lost in March and April.
Despite the improvement in the economy in recent months, economic activity remains far below its pre-pandemic level and unemployment remains elevated. Real GDP growth in the third quartersecond half of 2021, although the economy continues to expand. Growth will pick up at the end of 2021 as the impact of the Delta variant fades and supply chains normalize and will remain solid into 2022. Employment in September 2021 was extremely strong, at an annual rate of 33.1%, but will slow instill down by almost 5 million from before the fourth quarter and through 2021.pandemic; PNC does not expect real GDP to return to its pre-pandemic level until late 2021, and does not expectexpects employment to return to its pre-pandemic level until 2023. Risks to this outlook are weightedin mid-2022.
•Compared to the downside; they includespring of 2020 (when prices were falling), inflation accelerated in mid-2021 due to strong demand in specific segments and supply chain disruptions. Inflation has started to slow on a further resurgencemonth-over-month basis but will remain elevated in the spread of the coronavirus and a lack of additional stimulus from the federal government.near term.
Monetary policy remains extremely supportive of economic growth. •PNC expects the Federal Open Market CommitteeFOMC to keep the federalfed funds rate in its current range of 0.00% to 0.25% through at least mid-2024.until late 2022.
Given the many unknowns and risks being heavily weighted to the downside, our forward-looking statements are subject to the risk that conditions will be substantially different than we are currently expecting. If efforts to contain COVID-19 are unsuccessful and restrictions on businesses and activities are not further lifted or are reimposed, the recovery would be much weaker. There is even the potential that the economy could fall back into recession. PNC’s baseline scenario assumes additional fiscal stimulus; continued inaction on stimulus is another major downside risk. The longer it takes to combat the pandemic the more permanent damage it will cause to business and consumer fundamentals and sentiment; this could make the recovery weaker and result in permanently lower long-run economic growth. An extended global recession due to COVID-19 would weaken the U.S. recovery. As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.
For the fourth quarter of 20202021, compared to the third quarter of 2020,2021 where appropriate, we expect:
•Average loans, to decline in the low-single digits percentage range;excluding PPP loans, up modestly,
•Net interest income to be stable;up modestly,
•Fee income to be stabledown approximately 3% to 5%,
•Other noninterest income, excluding net securities gains and other noninterest incomeVisa activity, to be between $275$375 million and $325$425 million, resulting in our expectation that total noninterest income will be down in the high-single digit percentage range;
•Noninterest expense, excluding integration expense, to be up approximately 1%;down 3% to 5%, and
•Net loan charge-offs to be between $200$100 million and $250$150 million.
ForAdditionally, we are on track to realize $900 million in net expense savings of our forecast of BBVA’s 2022 expense base. We also expect to incur merger and integration costs of approximately $980 million, inclusive of the full year 2020,write-off of certain technology and other assets. During the fourth quarter, we expect to deliver positive operating leverage inincur the rangemajority of 3% to 4%.the remaining merger and integration costs of $450 million.
See the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors in our first quarter 2020 Form 10-Q and 2019 Form 10-K for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.
6 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED INCOME STATEMENT REVIEW
Our Consolidated Income Statement is presented in Part I, Item 1 of this Report.
Net income from continuing operations of $1.5 billion orfor the third quarter of 2021 decreased $42.0 million compared to the third quarter of 2020. Earnings were $3.30 per diluted common share for the third quarter of 2021 compared to $3.39 per diluted common share for the third quarter of 2020 increased $351 million, or 30%, compared2020.Other than the impact of the BBVA acquisition, the decrease in the quarterly comparison was
The PNC Financial Services Group, Inc. – Form 10-Q 5
primarily due to net income from continuing operations of $1.2 billion, or $2.47 per diluted common share, fora lower effective tax rate in the third quarter of 2019.2020 as a result of tax credit benefits and the favorable resolution of certain tax matters.
For the first nine months of 2020,2021, net income from continuing operations was $1.5$4.4 billion, or $3.11$9.83 per diluted common share, compared to $3.4$1.5 billion, or $7.13$3.11 per diluted common share, for the first nine months of 2019.2020. The year-to-date comparison reflects a lower provision for credit losses in 2021 due to continued improvements in credit quality and macroeconomic factors and higher noninterest income driven by the benefit of BBVA, partially offset by expenses related to the BBVA acquisition and increased business activity.
Net Interest Income
Table 2: Summarized Average Balances and Net Interest Income (a) | | | | | 2020 |
| 2019 | | | | 2021 | | 2020 | |
Three months ended September 30
Dollars in millions | | Average Balances |
| | Average Yields/ Rates |
| | Interest Income/ Expense |
| | Average Balances |
| | Average Yields/ Rates |
| | Interest Income/ Expense |
| | Three months ended September 30
Dollars in millions | | Average
Balances | | Average
Yields/
Rates | | Interest
Income/
Expense | | Average
Balances | | Average
Yields/
Rates | | Interest
Income/
Expense | |
| Assets | | | | | | | | | | | | | | Assets | | |
| Interest-earning assets | | | | | | | | | | | | | | Interest-earning assets | | |
| Investment securities | | $ | 90,502 |
| | 2.18 | % | | $ | 496 |
| | $ | 85,166 |
| | 2.91 | % | | $ | 622 |
| | Investment securities | | $ | 120,586 | | | 1.54 | % | | $ | 465 | | | $ | 90,502 | | | 2.18 | % | | $ | 496 | | |
| Loans | | 253,092 |
| | 3.32 | % | | 2,127 |
| | 237,682 |
| | 4.47 | % | | 2,698 |
| | Loans | | 291,326 | | | 3.32 | % | | 2,454 | | | 253,092 | | | 3.32 | % | | 2,127 | | |
| Interest-earning deposits with banks | | 60,327 |
| | .10 | % | | 15 |
| | 15,632 |
| | 2.17 | % | | 85 |
| | Interest-earning deposits with banks | | 80,274 | | | 0.16 | % | | 31 | | | 60,327 | | | 0.10 | % | | 15 | | |
| Other | | 9,752 |
| | 2.23 | % | | 55 |
| | 14,094 |
| | 3.49 | % | | 123 |
| | Other | | 9,113 | | | 2.03 | % | | 47 | | | 9,752 | | | 2.23 | % | | 55 | | |
| Total interest-earning assets/interest income | | $ | 413,673 |
| | 2.57 | % | | 2,693 |
| | $ | 352,574 |
| | 3.95 | % | | 3,528 |
| | Total interest-earning assets/interest income | | $ | 501,299 | | | 2.36 | % | | 2,997 | | | $ | 413,673 | | | 2.57 | % | | 2,693 | | |
| Liabilities | | | | | | | | | | | | | | Liabilities | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | Interest-bearing liabilities | | |
| Interest-bearing deposits | | $ | 248,551 |
| | .12 | % | | 74 |
| | $ | 206,942 |
| | 1.02 | % | | 531 |
| | Interest-bearing deposits | | $ | 298,471 | | | 0.04 | % | | 29 | | | $ | 248,551 | | | 0.12 | % | | 74 | | |
| Borrowed funds | | 43,344 |
| | 1.06 | % | | 118 |
| | 63,933 |
| | 2.87 | % | | 468 |
| | Borrowed funds | | 34,352 | | | 1.03 | % | | 90 | | | 43,344 | | | 1.06 | % | | 118 | | |
| Total interest-bearing liabilities/interest expense | | $ | 291,895 |
| | .26 | % | | 192 |
| | $ | 270,875 |
| | 1.45 | % | | 999 |
| | Total interest-bearing liabilities/interest expense | | $ | 332,823 | | | 0.14 | % | | 119 | | | $ | 291,895 | | | 0.26 | % | | 192 | | |
| Net interest margin/income (Non-GAAP) | | | | 2.39 | % | | 2,501 |
| | | | 2.84 | % | | 2,529 |
| | |
| Net interest margin/income (non-GAAP) | | Net interest margin/income (non-GAAP) | | | 2.27 | % | | 2,878 | | | | | 2.39 | % | | 2,501 | | |
| Taxable-equivalent adjustments | | | | | | (17 | ) | | | | | | (25 | ) | | Taxable-equivalent adjustments | | (22) | | | (17) | | |
| Net interest income (GAAP) | | | | | | $ | 2,484 |
| | | | | | $ | 2,504 |
| | Net interest income (GAAP) | | | | | | $ | 2,856 | | | | | | | $ | 2,484 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | |
Nine months ended September 30
Dollars in millions | | Average Balances |
| | Average Yields/ Rates |
| | Interest Income/ Expense |
| | Average Balances |
| | Average Yields/ Rates |
| | Interest Income/ Expense |
| |
| Assets | | | | | | | | | | | | | |
| Interest-earning assets | | | | | | | | | | | | | |
| Investment securities | | $ | 87,795 |
| | 2.45 | % | | $ | 1,617 |
| | $ | 83,719 |
| | 3.00 | % | | $ | 1,884 |
| |
| Loans | | 254,919 |
| | 3.58 | % | | 6,893 |
| | 233,724 |
| | 4.54 | % | | 8,013 |
| |
| Interest-earning deposits with banks | | 37,582 |
| | .28 | % | | 80 |
| | 14,708 |
| | 2.32 | % | | 256 |
| |
| Other | | 10,028 |
| | 2.64 | % | | 199 |
| | 12,780 |
| | 3.70 | % | | 354 |
| |
| Total interest-earning assets/interest income | | $ | 390,324 |
| | 2.98 | % | | 8,789 |
| | $ | 344,931 |
| | 4.04 | % | | 10,507 |
| |
| Liabilities | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | 235,160 |
| | .34 | % | | 590 |
| | $ | 201,371 |
| | 1.01 | % | | 1,518 |
| |
| Borrowed funds | | 51,225 |
| | 1.59 | % | | 619 |
| | 62,033 |
| | 3.05 | % | | 1,433 |
| |
| Total interest-bearing liabilities/interest expense | | $ | 286,385 |
| | .56 | % | | 1,209 |
| | $ | 263,404 |
| | 1.48 | % | | 2,951 |
| |
| Net interest margin/income (Non-GAAP) | | | | 2.57 | % | | 7,580 |
| | | | 2.91 | % | | 7,556 |
| |
| Taxable-equivalent adjustments | | | | | | (58 | ) | | | | | | (79 | ) | |
| Net interest income (GAAP) | | | | | | $ | 7,522 |
| | | | | | $ | 7,477 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 | |
Nine months ended September 30
Dollars in millions | | Average
Balances | | Average
Yields/
Rates | | Interest
Income/
Expense | | Average
Balances | | Average
Yields/
Rates | | Interest
Income/
Expense | |
| Assets | | | | | | | | | | | | | |
| Interest-earning assets | | | | | | | | | | | | | |
| Investment securities | | $ | 105,287 | | | 1.73 | % | | $ | 1,366 | | | $ | 87,795 | | | 2.45 | % | | $ | 1,617 | | |
| Loans | | 261,884 | | | 3.36 | % | | 6,629 | | | 254,919 | | | 3.58 | % | | 6,893 | | |
| Interest-earning deposits with banks | | 81,383 | | | 0.12 | % | | 74 | | | 37,582 | | | 0.28 | % | | 80 | | |
| Other | | 8,345 | | | 2.27 | % | | 142 | | | 10,028 | | | 2.64 | % | | 199 | | |
| Total interest-earning assets/interest income | | $ | 456,899 | | | 2.38 | % | | 8,211 | | | $ | 390,324 | | | 2.98 | % | | 8,789 | | |
| Liabilities | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | 273,498 | | | 0.05 | % | | 99 | | | $ | 235,160 | | | 0.34 | % | | 590 | | |
| Borrowed funds | | 34,562 | | | 1.05 | % | | 275 | | | 51,225 | | | 1.59 | % | | 619 | | |
| Total interest-bearing liabilities/interest expense | | $ | 308,060 | | | 0.16 | % | | 374 | | | $ | 286,385 | | | 0.56 | % | | 1,209 | | |
| Net interest margin/income (non-GAAP) | | | | 2.28 | % | | 7,837 | | | | | 2.57 | % | | 7,580 | | |
| Taxable-equivalent adjustments | | | | | | (52) | | | | | | | (58) | | |
| Net interest income (GAAP) | | | | | | $ | 7,785 | | | | | | | $ | 7,522 | | |
| |
(a) | Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins 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 GAAP on the Consolidated Income Statement. For more information, see Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report. |
(a)Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins 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 GAAP on the Consolidated Income Statement. For more information, see Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.
Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information (Unaudited) – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.
6The PNC Financial Services Group, Inc. – Form 10-Q
7
Net interest income decreased $20increased $372 million, or 1%, and increased $45 million, or 1%15%, for the third quarter of 2021, and increased $263 million, or 3%, for the first nine months of 2020, respectively,2021 compared to the same periods in 2019.2020. The decreaseincrease in both comparisons was primarily due to the quarterly comparison was attributable to lower yields onbenefit of BBVA interest-earning assets, partially offset by lower rates on deposits and borrowings and higher average interest-earning assets. In the year-to-date comparison, the increase was driven by lower rates on deposits, higher average interest-earning assetsasset balances and lower borrowing costs and balances,deposit rates, partially offset by lower yields on interest-earning assets and higher average deposit balances. securities.
Net interest margin decreased 45 basis points in the quarterly comparison and 34year-to-date comparisons decreased 12 basis points and 29 basis points, respectively. The decrease in both comparisons was largely due to lower yields on securities. The decrease in the year-to-date comparison reflecting the reduction in the federal funds rate byalso reflected higher balances held at the Federal Reserve in March 2020Bank and related changes in other short-term rates which resulted in lower yields on loans, and securities, partially offset by lower rates paid on deposits and borrowings. Additionally, the impact of higher balances held with the Federal Reserve contributed to the margin declines.
Average investment securities increased $5.3$30.1 billion, or 6%33%, in the quarterly comparison and $4.1$17.5 billion, or 5%, in the year-to-date comparison. The increases were primarily due to increases in agency residential mortgage-backed securities, partially offset by a decrease in U.S. Treasury and government agency securities in the year-to-date comparison.
Average investment securities represented 22% of average interest-earning assets for both the third quarter and first nine months of 2020 compared to 24% for the same periods in 2019.
Average loans grew $15.4 billion, or 6%, and $21.2 billion, or 9%20%, in the quarterly and year-to-date comparisons, respectively. Loan growth was driven by anBoth comparisons increased primarily due to the acquisition of BBVA. The increase in both commercial and consumer loans. Average commercial loans increased $14.2 billion and $17.5 billion in the respective comparisons reflecting broad based growth including PPP lending under the CARES Act and higher utilization of loan commitments driven by the economic impact of the pandemic on customer liquidity preferences in the year-to-date comparison.
Average consumer loans increased $1.2 billion and $3.7 billion in the quarterly and year-to-date comparisons, respectively. Growth in residential mortgage and home equitycomparison was partially offset by lower credit card, education, and auto loans in the quarterly comparison. The year-to-date comparison reflected growth in residential mortgage, auto, credit card and unsecured installment loans, partially offset by a decline in education loans duealso attributable to runoff in the guaranteed government loan portfolio.
increased purchase activity. Average loansinvestment securities represented 61%24% of average interest-earning assets for the third quarter of 20202021 and 65%23% for the first nine months of 20202021, compared to 67%22% for both periods in 2020.
Average loans increased $38.2 billion, or 15%, and 68%$7.0 billion, or 3%, in the quarterly and year-to-date comparisons, respectively. The increase in both comparisons was primarily a result of the BBVA acquisition. In the year-to-date comparison, the increase was partially offset by lower utilization of loan commitments by commercial customers and lower consumer loans. Average loans represented 58% of average interest-earning assets for the third quarter of 2021 and 57% for the nine months ended September 30, 2021, compared to 61% and 65% for the same periods in 2019, respectively.2020.
Average interest-earning deposits with banks increased $44.7$19.9 billion and $22.9$43.8 billion in the respective quarterly and year-to-date comparisons, as average balances held with the Federal Reserve Bank increased due to higher liquidity from deposit growth and proceeds from the sale of our equity investment in BlackRock.growth.
Average interest-bearing deposits grew $41.6$49.9 billion, or 20%, and $33.8$38.3 billion, or 17%,16% in the respective quarterly and year-to-date comparisons reflectingdue to overall growth in commercial and consumer liquidity, including deposits as well as pandemic-related accumulation of customer liquidity.from BBVA. In total, average interest-bearing deposits increased to 85%90% and 82%89% of average interest-bearing liabilities for the third quarterthree and first nine months of 2020ended September 30, 2021, compared to 76%85% and 82% for the same periods in 2019.2020.
Average borrowed funds decreased $20.6$9.0 billion, or 32%21%, compared with the third quarter of 20192020 and $10.8$16.7 billion, or 17%33%, compared towith the first nine months of 20192020 primarily due to a decline in Federal Home Loan Bank (FHLB)FHLB borrowings reflecting the use of liquidity from deposit growth and proceeds from the sale of our equity investment in BlackRock.growth.
Further details regarding average loans and deposits are included in the Business Segments Review section of this Financial Review.
8 The PNC Financial Services Group, Inc. – Form 10-Q
Noninterest Income
Table 3: Noninterest Income
| | | | | Three months ended September 30 |
| Nine months ended September 30 | | | | Three months ended September 30 | | Nine months ended September 30 |
| | | | | | | Change | | | | | | Change | | | | | | | | Change | | | | | | Change |
| Dollars in millions | | 2020 |
|
| 2019 |
| | $ | | % | | 2020 |
| | 2019 |
| | $ |
| | % |
| | Dollars in millions | | 2021 | | 2020 | | $ | | % | | 2021 | | 2020 | | $ | | % |
| Noninterest income | | | | | | | | | | | | | | | | | | Noninterest income | | | | | |
| Asset management | | $ | 215 |
| | $ | 213 |
| | $ | 2 |
| | 1 | % | | $ | 615 |
| | $ | 646 |
| | $ | (31 | ) | | (5 | )% | | Asset management | | $ | 248 | | | $ | 215 | | | $ | 33 | | | 15 | % | | $ | 713 | | | $ | 615 | | | $ | 98 | | | 16 | % |
| Consumer services | | 390 |
| | 402 |
| | (12 | ) | | (3 | )% | | 1,097 |
| | 1,165 |
| | (68 | ) | | (6 | )% | | Consumer services | | 496 | | | 390 | | | 106 | | | 27 | % | | 1,337 | | | 1,097 | | | 240 | | | 22 | % |
| Corporate services | | 479 |
| | 469 |
| | 10 |
| | 2 | % | | 1,517 |
| | 1,415 |
| | 102 |
| | 7 | % | | Corporate services | | 842 | | | 479 | | | 363 | | | 76 | % | | 2,085 | | | 1,517 | | | 568 | | | 37 | % |
| Residential mortgage | | 137 |
| | 134 |
| | 3 |
| | 2 | % | | 505 |
| | 281 |
| | 224 |
| | 80 | % | | Residential mortgage | | 147 | | | 137 | | | 10 | | | 7 | % | | 355 | | | 505 | | | (150) | | | (30) | % |
| Service charges on deposits | | 119 |
| | 178 |
| | (59 | ) | | (33 | )% | | 366 |
| | 517 |
| | (151 | ) | | (29 | )% | | Service charges on deposits | | 159 | | | 119 | | | 40 | | | 34 | % | | 409 | | | 366 | | | 43 | | | 12 | % |
| Other | | 457 |
| | 342 |
| | 115 |
| | 34 | % | | 1,071 |
| | 1,017 |
| | 54 |
| | 5 | % | | Other | | 449 | | | 457 | | | (8) | | | (2) | % | | 1,400 | | | 1,071 | | | 329 | | | 31 | % |
| Total noninterest income | | $ | 1,797 |
|
| $ | 1,738 |
|
| $ | 59 |
| | 3 | % | | $ | 5,171 |
|
| $ | 5,041 |
|
| $ | 130 |
| | 3 | % | | Total noninterest income | | $ | 2,341 | | | $ | 1,797 | | | $ | 544 | | | 30 | % | | $ | 6,299 | | | $ | 5,171 | | | $ | 1,128 | | | 22 | % |
Noninterest income as a percentage of total revenue was 42%45% for the third quarter of 2020 and 41% for the first nine months of 20202021, compared to 41%42% and 40%41% for the same periods in 2019, respectively.2020.
Asset management revenue increased in the quarterly and year-to-date comparison declinedcomparisons due to the impact of PNC's divestiture activity in 2019higher average equity markets and the benefit of the retirement recordkeeping businessBBVA acquisition. PNC's discretionary client assets under management increased to $183 billion at September 30, 2021 from $158 billion at September 30, 2020, primarily driven by higher spot equity markets and PNC's proprietary mutual fundsthe BBVA acquisition.
Consumer services revenue increased in the quarterly and year-to-date comparisons reflecting the addition of BBVA customers and the impacts of higher consumer spending on debit cards, merchant services revenues, credit card fees and growth in brokerage fees primarily due to higher average equity markets.
The PNC Financial Services Group, Inc. – Form 10-Q 7
Corporate services revenue increased in the quarterly and year-to-date comparisons primarily due to higher merger and acquisition advisory fees, treasury management product revenue and equity capital markets advisory fees. The year-to-date comparison also benefited from higher revenue from commercial mortgage servicing activities.
Residential Mortgage revenue increased in the quarterly comparison primarily due to higher loan sales revenue and higher mortgage servicing rights valuation, net of economic hedge. The decrease in the year-to-date comparison was primarily a result of lower servicing fee revenue primarily due to higher payoffs and lower mortgage servicing rights valuation, net of economic hedge.
Service charges on deposits increased in the quarterly and year-to-date comparisons primarily due to the addition of BBVA customers, partially offset by the impact of higher average equity markets. PNC's discretionary client assets under managementLow Cash ModeSM on overdraft revenue.
Other noninterest income decreased to $158 billion at September 30, 2020 from $163 billion at September 30, 2019, primarily as a result of the fourth quarter 2019 sale of the proprietary mutual funds.
Consumer services revenue declined in the quarterly and year-to-date comparisons as a result of lower transaction volumes and activity reflecting lower consumer spending.
Service charges on deposits decreased in both comparisons due to lower transaction volumes and fees waived for customers experiencing pandemic-related hardships and lower revenue related to the elimination of certain checking product fees.
Corporate services revenue in the quarterly and year-to-date comparisons increased due to higher revenue from commercial mortgage banking activities, asset-backed financing fees, loans commitments fees and treasury management product revenue, partially offset by lower merger and acquisition advisory fees.
Residential mortgage revenue increased in both comparisons due to higher loan sales revenue partially offset by lower servicing fees due to increased payoff volumes. Additionally, revenue from residential mortgage servicing rights (RMSR) valuation, net of economic hedge, was lower in the quarterly comparison anddue to a negative Visa Class B derivative fair value adjustment primarily related to the extension of anticipated litigation resolution timing, partially offset by higher in the year-to-date comparison.
Other noninterest income increased in the quarterly comparison and included higher revenue from net securities gains, capital markets-related activities and positive valuation adjustments of private equity investments.revenue. In the year-to-date comparison, the increase was primarily attributable todriven by higher net securities gainsprivate equity revenue and capital markets-related revenue,the addition of BBVA, partially offset by lower revenue from private equity investments and lower gains on asset sales, including the second quarter 2019 divestiture of the retirement recordkeeping business.a larger negative Visa Class B derivative fair value adjustment.
Noninterest Expense
Table 4: Noninterest Expense
| | | | | Three months ended September 30 | | Nine months ended September 30 | | | | Three months ended September 30 | | Nine months ended September 30 | |
| | | | | | | Change | | | | | | Change | | | | | | | | Change | | | | | | Change | |
| Dollars in millions | | 2020 |
|
| 2019 |
| | $ | | % | | 2020 |
| | 2019 |
| | $ |
| | % |
| | Dollars in millions | | 2021 | | 2020 | | $ | | % | | 2021 | | 2020 | | $ | | % | |
| Noninterest expense | | | | | | | | | | | | | | | | | | Noninterest expense | | | | |
| Personnel | | $ | 1,410 |
| | $ | 1,400 |
| | $ | 10 |
| | 1 | % | | $ | 4,152 |
| | $ | 4,179 |
| | $ | (27 | ) | | (1 | )% | | Personnel | | $ | 1,986 | | | $ | 1,410 | | | $ | 576 | | | 41 | % | | $ | 5,103 | | | $ | 4,152 | | | $ | 951 | | | 23 | % | |
| Occupancy | | 205 |
| | 206 |
| | (1 | ) | | — |
| | 611 |
| | 633 |
| | (22 | ) | | (3 | )% | | Occupancy | | 248 | | | 205 | | | 43 | | | 21 | % | | 680 | | | 611 | | | 69 | | | 11 | % | |
| Equipment | | 292 |
| | 291 |
| | 1 |
| | — |
| | 880 |
| | 862 |
| | 18 |
| | 2 | % | | Equipment | | 355 | | | 292 | | | 63 | | | 22 | % | | 974 | | | 880 | | | 94 | | | 11 | % | |
| Marketing | | 67 |
| | 76 |
| | (9 | ) | | (12 | )% | | 172 |
| | 224 |
| | (52 | ) | | (23 | )% | | Marketing | | 103 | | | 67 | | | 36 | | | 54 | % | | 222 | | | 172 | | | 50 | | | 29 | % | |
| Other | | 557 |
| | 650 |
| | (93 | ) | | (14 | )% | | 1,774 |
| | 1,914 |
| | (140 | ) | | (7 | )% | | Other | | 895 | | | 557 | | | 338 | | | 61 | % | | 2,232 | | | 1,774 | | | 458 | | | 26 | % | |
| Total noninterest expense | | $ | 2,531 |
|
| $ | 2,623 |
|
| $ | (92 | ) | | (4 | )% | | $ | 7,589 |
| | $ | 7,812 |
| | $ | (223 | ) | | (3 | )% | | Total noninterest expense | | $ | 3,587 | | | $ | 2,531 | | | $ | 1,056 | | | 42 | % | | $ | 9,211 | | | $ | 7,589 | | | $ | 1,622 | | | 21 | % | |
The decreaseincrease in noninterest expense in the quarterly and year-to-date comparisons reflected lowerBBVA operating and integration expenses as well as increased business activity related to the economic impact of the pandemic, including costs associated with business travel and lower marketing expense. In the year-to-dateactivity.
The PNC Financial Services Group, Inc. – Form 10-Q 9
comparison, personnel and occupancy expenses declined due to variable costs associated with decreased business activity, partially offset by higher equipment expense related to technology investments.
Effective Income Tax Rate
The effective income tax rate from continuing operations was 17.8% in the third quarter of 2021 compared to 9.8% in the third quarter of 2020, compared to 17.8% in the third quarter of 2019, and 7.6%17.0% in the first nine months of 20202021 compared to 17.0%7.6% in the same period in 2019.of 2020. The decreaseincrease in both comparisons was primarily due to overall lower pre-tax income, tax credit benefits and the favorable resolution of certain tax matters in the third quarter of 2020.
Provision For (Recapture of) Credit Losses
Table 5: Provision for (Recapture of) Credit Losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| | | | | | Change | | | | | | Change | |
| Dollars in millions | | 2021 | | 2020 | | $ | | 2021 | | 2020 | | $ | |
| Provision for (recapture of) credit losses | | | | | | | | | | | | | |
| Loans and leases | | $ | (229) | | | $ | (23) | | | $ | (206) | | | $ | (525) | | | $ | 3,149 | | | $ | (3,674) | | |
| Unfunded lending related commitments | | 1 | | | 27 | | | (26) | | | 16 | | | 192 | | (176) | | |
| Investment securities | | 25 | | | 39 | | | (14) | | | 51 | | | 69 | | | (18) | | |
| Other financial assets | | | | 9 | | | (9) | | | 6 | | | 19 | | (13) | | |
| Total provision for (recapture of) credit losses | | $ | (203) | | | $ | 52 | | | $ | (255) | | | $ | (452) | | | $ | 3,429 | | | $ | (3,881) | | |
|
| | | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 | |
| Dollars in millions | | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| |
| Provision for (recapture of) credit losses | | | | | | | | | |
| Loans and leases | | $ | (23 | ) | | $ | 183 |
| | $ | 3,149 |
| | $ | 552 |
| |
| Unfunded lending related commitments (a) | | 27 |
| | | | 192 |
| | | |
| Investment securities | | 39 |
| | | | 69 |
| | | |
| Other financial assets | | 9 |
| | | | 19 |
| | | |
| Total provision for credit losses | | $ | 52 |
| | $ | 183 |
| | $ | 3,429 |
| | $ | 552 |
| |
(a) For the three and nine months ended September 30, 2019, the provision for unfunded lending related commitments was included in the provision for loans and leases.
The provision for credit losses decreased $131 millionrecapture for the third quarter of 2020 compared to the third quarter of 2019 and increased $2.9 billion for the first nine months of 2020 compared with the same period2021 reflected continued improvements in 2019. The provision in the 2020 periods was calculated under the CECL accounting standard adopted January 1, 2020. The provision for loans and leases in the third quarter of 2020 reflected a provision recapture for consumer loans, offset by a provision for expected losses for certain borrowers in industries adversely impacted by the pandemic, primarily within the commercial real estate loan portfolio. In addition, the third quarter 2020 provision for credit losses included $39 million related to investment securities. The higher provision for the nine months ended September 30, 2020 reflected the change in methodology together with the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth.changes in portfolio composition.
The Credit Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding factors impacting the provision for credit losses.
Net Income from Discontinued Operations
Table 6: Discontinued Operations
The following table summarizes net income from our investment in BlackRock, which is now reported as discontinued operations as a result of the second quarter 2020 divestiture.
|
| | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 | |
| | | | | | | | | | |
| Dollars in millions | | 2020 | | 2019 |
| | 2020 |
| | 2019 |
| |
| Net income from discontinued operations | |
| | $ | 211 |
| | $ | 4,555 |
| | $ | 589 |
| |
For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Discontinued OperationsAcquisition and Divestiture Activity in the Notes To Consolidated Financial Statements of this Report and the second quarter Form 10-Q.Report.
108 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED BALANCE SHEET REVIEW
Table 7: Summarized Balance Sheet Data
|
| | | | | | | | | | | | | | |
| | September 30 |
| | December 31 |
| | Change | |
| Dollars in millions | 2020 |
| | 2019 |
| | $ | % | |
| Assets | | | | | | | |
| Interest-earning deposits with banks | $ | 70,959 |
| | $ | 23,413 |
| | $ | 47,546 |
| 203 | % | |
| Loans held for sale | 1,787 |
| | 1,083 |
| | 704 |
| 65 | % | |
| Asset held for sale (a) | | | 8,558 |
| | (8,558 | ) | (100 | )% | |
| Investment securities | 91,185 |
| | 86,824 |
| | 4,361 |
| 5 | % | |
| Loans | 249,279 |
| | 239,843 |
| | 9,436 |
| 4 | % | |
| Allowance for loan and lease losses (b) | (5,751 | ) | | (2,742 | ) | | (3,009 | ) | (110 | )% | |
| Mortgage servicing rights | 1,113 |
| | 1,644 |
| | (531 | ) | (32 | )% | |
| Goodwill | 9,233 |
| | 9,233 |
| | — |
| — |
| |
| Other | 44,012 |
| | 42,439 |
| | 1,573 |
| 4 | % | |
| Total assets | $ | 461,817 |
| | $ | 410,295 |
| | $ | 51,522 |
| 13 | % | |
| Liabilities | | | | |
|
|
|
| |
| Deposits | $ | 355,079 |
| | $ | 288,540 |
| | $ | 66,539 |
| 23 | % | |
| Borrowed funds | 42,110 |
| | 60,263 |
| | (18,153 | ) | (30 | )% | |
| Allowance for unfunded lending related commitments (b) | 689 |
| | 318 |
| | 371 |
| 117 | % | |
| Other | 10,629 |
| | 11,831 |
| | (1,202 | ) | (10 | )% | |
| Total liabilities | 408,507 |
| | 360,952 |
| | 47,555 |
| 13 | % | |
| Equity | | | | |
|
|
|
| |
| Total shareholders’ equity | 53,276 |
| | 49,314 |
| | 3,962 |
| 8 | % | |
| Noncontrolling interests | 34 |
| | 29 |
| | 5 |
| 17 | % | |
| Total equity | 53,310 |
| | 49,343 |
| | 3,967 |
| 8 | % | |
| Total liabilities and equity | $ | 461,817 |
| | $ | 410,295 |
| | $ | 51,522 |
| 13 | % | |
| |
(a) | Represents our held for sale investment in BlackRock. In the second quarter of 2020, PNC divested its entire investment in BlackRock. Prior period BlackRock investment balances have been reclassified to the Asset held for sale line in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations. Refer to Note 1 Accounting Policies and Note 2 Discontinued Operations in the Notes To Consolidated Financial Statements of this Report and the second quarter Form 10-Q for additional details. |
| |
(b) | Amount as of September 30, 2020 reflects the impact of adopting the CECL accounting standard and our transition from an incurred loss methodology for these reserves to an expected credit loss methodology. Prior period amounts represent ALLL under the incurred loss methodology. Refer to Note 1 Accounting Policies in this Report for additional detail on the adoption of this standard. |
The summarized balance sheet data in Table 76 is based upon our Consolidated Balance Sheet in Part I, Item 1 of this Report.
Table 6: Summarized Balance Sheet Data
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30 | | December 31 | | Change | |
| Dollars in millions | 2021 | | 2020 | | $ | % | |
| Assets | | | | | | | |
| Interest-earning deposits with banks | $ | 75,478 | | | $ | 85,173 | | | $ | (9,695) | | (11) | % | |
| Loans held for sale | 2,121 | | | 1,597 | | | 524 | | 33 | % | |
| Investment securities | 125,606 | | | 88,799 | | | 36,807 | | 41 | % | |
| Loans | 290,230 | | | 241,928 | | | 48,302 | | 20 | % | |
| Allowance for loan and lease losses | (5,355) | | | (5,361) | | | 6 | | — | | |
| Mortgage servicing rights | 1,833 | | | 1,242 | | | 591 | | 48 | % | |
| Goodwill | 10,885 | | | 9,233 | | | 1,652 | | 18 | % | |
| Other | 52,717 | | | 44,068 | | | 8,649 | | 20 | % | |
| Total assets | $ | 553,515 | | | $ | 466,679 | | | $ | 86,836 | | 19 | % | |
| Liabilities | | | | | | | |
| Deposits | $ | 448,902 | | | $ | 365,345 | | | $ | 83,557 | | 23 | % | |
| Borrowed funds | 33,471 | | | 37,195 | | | (3,724) | | (10) | % | |
| Allowance for unfunded lending related commitments | 646 | | | 584 | | | 62 | | 11 | % | |
| Other | 14,199 | | | 9,514 | | | 4,685 | | 49 | % | |
| Total liabilities | 497,218 | | | 412,638 | | | 84,580 | | 20 | % | |
| Equity | | | | | | | |
| Total shareholders’ equity | 56,259 | | | 54,010 | | | 2,249 | | 4 | % | |
| Noncontrolling interests | 38 | | | 31 | | | 7 | | 23 | % | |
| Total equity | 56,297 | | | 54,041 | | | 2,256 | | 4 | % | |
| Total liabilities and equity | $ | 553,515 | | | $ | 466,679 | | | $ | 86,836 | | 19 | % | |
Our balance sheet was strong and well positioned at September 30, 20202021 and December 31, 2019.2020.
•Total assets increased asasset growth reflected the addition of loans and investment securities from the BBVA acquisition, partially offset by a result of higherdecrease in interest-earning deposits with banks, primarily the Federal Reserve Bank, loan growth, and higher investment securities;banks.
•Total liabilities increased primarily due to deposit growth reflecting customer liquidity accumulation,higher commercial and consumer deposits driven by the acquisition of BBVA, partially offset by lower FHLB borrowings and federal funds purchased;borrowed funds.
•Total equity increased primarily due to higher retained earnings driven byas net income and the gain on saleissuance of our equity investment in BlackRock and higher accumulated other comprehensive income (AOCI),preferred stock was partially offset by lower AOCI, reflecting the impact of higher rates on net unrealized securities gains, dividends on common and preferred stock, share repurchases, the day-one effect of adopting the CECL accounting standard and the redemption of our Series Q preferred stock.repurchases.
The ACL related to loans totaled $6.4$6.0 billion at September 30, 2020,2021, an increase of $3.3$0.1 billion since December 31, 2019.2020. The increase was primarily attributable to a $.6 billion day-one CECL transition adjustment and a $3.3 billion provision for credit losses,the addition of reserves related to the BBVA acquisition, partially offset by net charge-offs of $.6 billion. The provision reflects the significantly adverse economic impact of the pandemic and its resulting effects on loan portfoliocontinued improvements in credit quality and loan growth.macroeconomic factors along with changes in portfolio composition. See the following for additional information regarding our ACL related to loans:
•Allowance for Credit Losses in the Credit Risk Management section of this Financial Review,
•Critical Accounting Estimates and Judgments section of this Financial Review, and
Note 1 Accounting Policies and •Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.
The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and regulatory compliance is included in the Liquidity and Capital Management portion of the Risk Management section in this Financial Review and in Note 1820 Regulatory Matters in the Notes To Consolidated Financial Statements included in our 20192020 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q 9 11
Loans
Table 8:7: Loans
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30 | | December 31 | | Change | |
| Dollars in millions | 2021 | | 2020 | | $ | % | |
| Commercial | | | | | | | |
| Commercial and industrial | $ | 152,735 | | | $ | 132,073 | | | $ | 20,662 | | 16 | % | |
| Commercial real estate | 36,195 | | | 28,716 | | 7,479 | | 26 | % | |
| Equipment lease financing | 6,257 | | | 6,414 | | (157) | | (2) | % | |
| Total commercial | 195,187 | | | 167,203 | | | 27,984 | | 17 | % | |
| Consumer | | | | | | | |
| Residential real estate | 38,214 | | | 22,560 | | | 15,654 | | 69 | % | |
| Home Equity | 24,479 | | | 24,088 | | | 391 | | 2 | % | |
| Automobile | 17,265 | | | 14,218 | | | 3,047 | | 21 | % | |
| Credit card | 6,466 | | | 6,215 | | | 251 | | 4 | % | |
| Education | 2,653 | | | 2,946 | | | (293) | | (10) | % | |
| Other consumer | 5,966 | | | 4,698 | | | 1,268 | | 27 | % | |
| Total consumer | 95,043 | | | 74,725 | | | 20,318 | | 27 | % | |
| Total loans | $ | 290,230 | | | $ | 241,928 | | | $ | 48,302 | | 20 | % | |
|
| | | | | | | | | | | | | | |
| | September 30 |
| | December 31 |
| | Change | |
| Dollars in millions | 2020 |
| | 2019 |
| | $ | % | |
| Commercial | | | | | | | |
| Commercial and industrial | $ | 137,187 |
| | $ | 125,337 |
| | $ | 11,850 |
| 9 | % | |
| Commercial real estate | 29,028 |
| | 28,110 |
| | 918 |
| 3 | % | |
| Equipment lease financing | 6,479 |
| | 7,155 |
| | (676 | ) | (9 | )% | |
| Total commercial | 172,694 |
| | 160,602 |
| | 12,092 |
| 8 | % | |
| Consumer | | | | |
|
|
|
| |
| Home equity | 24,539 |
| | 25,085 |
| | (546 | ) | (2 | )% | |
| Residential real estate | 22,886 |
| | 21,821 |
| | 1,065 |
| 5 | % | |
| Automobile | 14,977 |
| | 16,754 |
| | (1,777 | ) | (11 | )% | |
| Credit card | 6,303 |
| | 7,308 |
| | (1,005 | ) | (14 | )% | |
| Education | 3,051 |
| | 3,336 |
| | (285 | ) | (9 | )% | |
| Other consumer | 4,829 |
| | 4,937 |
| | (108 | ) | (2 | )% | |
| Total consumer | 76,585 |
| | 79,241 |
| | (2,656 | ) | (3 | )% | |
| Total loans | $ | 249,279 |
| | $ | 239,843 |
| | $ | 9,436 |
| 4 | % | |
Commercial loans increased reflectingdriven by BBVA loans, partially offset by PPP loan growth including PPP lending under the CARES Act.forgiveness. At September 30, 20202021, PNC had $12.9$6.8 billion of PPP loans outstanding. PPP loans outstanding down from the second quarter funded amount of $13.7at December 31, 2020 were $12.0 billion.
For commercial and industrial loans by industry and commercial real estate loans by geography and property type, see Loan Portfolio Characteristics and Analysis in the Credit Risk Management portion of the Risk Management section of this Financial Review.
Total consumerConsumer loans declined as new originations decreasedincreased primarily due to the economic impactaddition of BBVA loans and increased originations of PNC legacy residential mortgages, partially offset by declines in the pandemic and lower consumer spending. Residential mortgage loans increasedremaining PNC legacy portfolios as the low interest rate environment resulted in an increase in origination volumes primarily of nonconforming loans, which are loans that do not meet agency standards as a result of exceeding agency conforming loan limits.paydowns outpaced new originations.
For information on our home equity and residential real estate and home equity portfolios, including loans by geography, and our auto loan portfolio, see Loan Portfolio Characteristics and Analysis in the Credit Risk Management portion of the Risk Management section in this Financial Review.
For additional information regarding our loan portfolio see Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.
Investment Securities
Investment securities of $91.2$125.6 billion at September 30, 20202021 increased $4.4$36.8 billion, or 5%41%, compared to December 31, 2019, due primarily to net purchases2020, resulting from increased purchase activity and an increase in the fair value of agency residential mortgage-backed and U.S. Treasury securities.BBVA acquisition.
The level and composition of the investment securities portfolio fluctuates over time based on many factors including market conditions, loan and deposit growth and balance sheet management activities. We manage our investment securities portfolio to optimize returns, while providing a reliable source of liquidity for our banking and other activities, considering the Liquidity Coverage Ratio (LCR)LCR and other internal and external guidelines and constraints. During 2020, $16.2 billion
Table 8: Investment Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | Ratings as of September 30, 2021 (a) | |
| Dollars in millions | Amortized
Cost (b) | | Fair
Value | | Amortized
Cost (b) | | Fair
Value | | AAA/
AA | | A | | BBB | | BB and Lower | | No
Rating | |
| U.S. Treasury and government agencies | $ | 41,437 | | | $ | 41,860 | | | $ | 20,616 | | | $ | 21,631 | | | 100 | % | | | | | | | | | |
| Agency residential mortgage-backed | 64,412 | | | 65,185 | | | 47,355 | | | 48,911 | | | 100 | % | | | | | | | | | |
| Non-agency residential mortgage-backed | 1,003 | | | 1,242 | | | 1,272 | | | 1,501 | | | 8 | % | | | | 2 | % | | 49 | % | | 41 | % | |
| Agency commercial mortgage-backed | 2,008 | | | 2,060 | | | 2,571 | | | 2,688 | | | 100 | % | | | | | | | | | |
| Non-agency commercial mortgage-backed (c) | 3,637 | | | 3,671 | | | 3,678 | | | 3,689 | | | 85 | % | | 1 | % | | 2 | % | | | | 12 | % | |
| Asset-backed (d) | 5,999 | | | 6,067 | | | 5,060 | | | 5,150 | | | 95 | % | | 1 | % | | | | 4 | % | | | |
| Other (e) | 5,392 | | | 5,625 | | | 5,061 | | | 5,393 | | | 54 | % | | 26 | % | | 15 | % | | | | 5 | % | |
| Total investment securities (f) | $ | 123,888 | | | $ | 125,710 | | | $ | 85,613 | | | $ | 88,963 | | | 96 | % | | 1 | % | | 1 | % | | 1 | % | | 1 | % | |
(a)Ratings percentages allocated based on amortized cost, net of debt securities were transferred from held to maturity to availableallowance for sale pursuant to elections made under recently adopted accounting standards. See further discussion in Note 1 Accounting Policies.
1210 The PNC Financial Services Group, Inc. – Form 10-Q
Table 9: Investment Securities(c)Collateralized primarily by retail properties, office buildings, lodging properties and multifamily housing.
(d)Collateralized primarily by corporate debt, government guaranteed education loans and other consumer credit products. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | Ratings (a) as of September 30, 2020 | |
| Dollars in millions | Amortized Cost (b) |
| | Fair Value |
| | Amortized Cost |
| | Fair Value |
| | AAA/ AA |
| | A |
| | BBB |
| | BB and Lower |
| | No Rating |
| |
| U.S. Treasury and government agencies | $ | 18,063 |
| | $ | 19,157 |
| | $ | 16,926 |
| | $ | 17,348 |
| | 100 | % | |
| |
| |
| |
| |
| Agency residential mortgage-backed | 51,202 |
| | 52,928 |
| | 50,266 |
| | 50,984 |
| | 100 | % | |
| |
| |
| |
| |
| Non-agency residential mortgage-backed | 1,376 |
| | 1,603 |
| | 1,648 |
| | 1,954 |
| | 12 | % | | 1 | % | | 2 | % | | 47 | % | | 38 | % | |
| Agency commercial mortgage-backed | 2,824 |
| | 2,966 |
| | 3,153 |
| | 3,178 |
| | 100 | % | |
| |
| |
| |
| |
| Non-agency commercial mortgage-backed (c) | 3,851 |
| | 3,829 |
| | 3,782 |
| | 3,806 |
| | 87 | % | | 1 | % | | | | 5 | % | | 7 | % | |
| Asset-backed (d) | 5,158 |
| | 5,240 |
| | 5,096 |
| | 5,166 |
| | 92 | % | | 1 | % | | | | 6 | % | | 1 | % | |
| Other (e) | 5,308 |
| | 5,638 |
| | 4,580 |
| | 4,771 |
| | 67 | % | | 21 | % | | 10 | % | | | | 2 | % | |
| Total investment securities (f) | $ | 87,782 |
| | $ | 91,361 |
| | $ | 85,451 |
| | $ | 87,207 |
| | 96 | % | | 1 | % | | 1 | % | | 1 | % | | 1 | % | |
| |
(a) | Ratings percentages allocated based on amortized cost, net of allowance for securities. |
| |
(b) | Amortized cost is presented net of applicable allowance for securities of $71 million(f)Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.
September 30, 2020 in accordance with the adoption of the CECL accounting standard. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies for additional detail on the adoption of this ASU.
|
| |
(c) | Collateralized primarily by retail properties, office buildings, lodging properties and multifamily housing. |
| |
(d) | Collateralized primarily by corporate debt, government guaranteed education loans and other consumer credit products. |
| |
(e) | Includes state and municipal securities. |
| |
(f) | Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively. |
Table 98 presents the distribution of our total investment securities portfolio by amortized cost and fair value, as well as by credit rating. We have included credit ratings information because we believe that the information is an indicator of the degree of credit risk to which we are exposed. Changes in credit ratings classifications could indicate increased or decreased credit risk and could be accompanied by a reduction or increase in the fair value of our investment securities portfolio. We continually monitor the credit risk in our portfolio and maintain the allowance for investment securities at an appropriate level to absorb expected credit losses on our investment securities portfolio for the remaining contractual term of the securities adjusted for expected prepayments. See Note 1 Accounting Policies and Note 3 Investment Securities in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional details regarding the methodology for determining the allowance and the amount of the allowance for investment securities, respectively.securities.
The duration of investment securities was 2.23.8 years at September 30, 2020.2021. We estimate that at September 30, 20202021 the effective duration of investment securities was 2.74 years for an immediate 50 basis points parallel increase in interest rates and 1.73.5 years for an immediate 50 basis points parallel decrease in interest rates.
Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 3.44.4 years at September 30, 20202021 compared to 4.13.4 years at December 31, 2019.2020.
Table 10:9: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities
|
| | | | | | | |
September 30, 20202021 | Years |
| |
| Agency residential mortgage-backed | 3.14.6 |
| |
| Non-agency residential mortgage-backed | 6.46.8 |
| |
| Agency commercial mortgage-backed | 4.45.0 |
| |
| Non-agency commercial mortgage-backed | 2.72.1 |
| |
| Asset-backed | 2.22.8 |
| |
Additional information regarding our investment securities portfolio is included in Note 3 Investment Securities and Note 1211 Fair Value in the Notes To Consolidated Financial Statements included in Item 1 of this Report.
The PNC Financial Services Group, Inc. – Form 10-Q 13
Funding Sources
Table 11:10: Details of Funding Sources | | | | | | | | | | | | | | | | | | | | | | | |
| September 30 | | December 31 | | Change | |
| Dollars in millions | 2021 | | 2020 | | $ | % | |
| Deposits | | | | | | | |
| Noninterest-bearing | $ | 156,305 | | | $ | 112,637 | | | $ | 43,668 | | 39 | % | |
| Interest-bearing | | | | | | | |
| Money market | 79,829 | | | 59,737 | | | 20,092 | | 34 | % | |
| Demand | 103,569 | | | 92,294 | | | 11,275 | | 12 | % | |
| Savings | 90,288 | | | 80,985 | | | 9,303 | | 11 | % | |
| Time deposits | 18,911 | | | 19,692 | | | (781) | | (4) | % | |
| Total interest-bearing deposits | 292,597 | | | 252,708 | | | 39,889 | | 16 | % | |
| Total deposits | 448,902 | | | 365,345 | | | 83,557 | | 23 | % | |
| Borrowed funds | | | | | | | |
| Federal Home Loan Bank borrowings | | | 3,500 | | | (3,500) | | (100) | % | |
| Bank notes and senior debt | 22,993 | | | 24,271 | | | (1,278) | | (5) | % | |
| Subordinated debt | 7,074 | | | 6,403 | | | 671 | | 10 | % | |
| Other | 3,404 | | | 3,021 | | | 383 | | 13 | % | |
| Total borrowed funds | 33,471 | | | 37,195 | | | (3,724) | | (10) | % | |
| Total funding sources | $ | 482,373 | | | $ | 402,540 | | | $ | 79,833 | | 20 | % | |
|
| | | | | | | | | | | | | | |
| | September 30 |
| | December 31 |
| | Change | |
| Dollars in millions | 2020 |
| | 2019 |
| | $ | % | |
| Deposits | | | | | | | |
| Noninterest-bearing | $ | 107,281 |
| | $ | 72,779 |
| | $ | 34,502 |
| 47 | % | |
| Interest-bearing | | | | |
|
|
|
| |
| Money market | 62,948 |
| | 54,115 |
| | 8,833 |
| 16 | % | |
| Demand | 86,866 |
| | 71,692 |
| | 15,174 |
| 21 | % | |
| Savings | 78,229 |
| | 68,291 |
| | 9,938 |
| 15 | % | |
| Time deposits | 19,755 |
| | 21,663 |
| | (1,908 | ) | (9 | )% | |
| Total interest-bearing deposits | 247,798 |
| | 215,761 |
| | 32,037 |
| 15 | % | |
| Total deposits | 355,079 |
| | 288,540 |
| | 66,539 |
| 23 | % | |
| Borrowed funds | | | | |
|
|
|
| |
| FHLB borrowings | 5,500 |
| | 16,341 |
| | (10,841 | ) | (66 | )% | |
| Bank notes and senior debt | 26,839 |
| | 29,010 |
| | (2,171 | ) | (7 | )% | |
| Subordinated debt | 6,465 |
| | 6,134 |
| | 331 |
| 5 | % | |
| Other | 3,306 |
| | 8,778 |
| | (5,472 | ) | (62 | )% | |
| Total borrowed funds | 42,110 |
| | 60,263 |
| | (18,153 | ) | (30 | )% | |
| Total funding sources | $ | 397,189 |
| | $ | 348,803 |
| | $ | 48,386 |
| 14 | % | |
GrowthTotal deposits increased reflecting deposits from BBVA and growth in total deposits reflectedPNC legacy commercial and consumer customer liquidity accumulation, including from government stimulus and lower consumer spending.liquidity.
Borrowed funds decreased due to lower FHLB borrowings, federal funds purchased (included in other borrowed funds) and bank notes and senior debt reflecting the use of liquidity from deposit growth, and proceedswhich more than offset borrowed funds from the sale of our equity investment in BlackRock.BBVA.
The PNC Financial Services Group, Inc. – Form 10-Q 11
The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan, investment securities and deposit growth, and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity for our banking and other activities, considering our LCR requirements and other internal and external guidelines and constraints.
See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for additional information regarding our 20202021 liquidity and capital activities.activities. See Note 810 Borrowed Funds in the Notes to Consolidated Financial Statements in Item 18 of this Reportour 2020 Form 10-K for additional information related to our borrowings.
Shareholders’ Equity
Total shareholders’ equity was $53.3$56.3 billion at September 30, 2020,2021, an increase of $4.0$2.3 billion or 8%, compared to December 31, 2019.2020. The increase primarily resulted from net income of $6.1$4.4 billion which included the gain on saleand a preferred stock issuance of our equity investment in BlackRock, and higher AOCI of $2.2$1.5 billion, partially offset by lower AOCI of $1.7 billion reflecting the impact of higher rates on net unrealized securities gains, common and preferred stock dividends of $1.7 billion and common share repurchases of $1.4 billion, a day-one transition adjustment of $.7 billion for the adoption of the CECL accounting standard and $.5 billion for the redemption of our Series Q preferred stock.$0.4 billion.
PNC announced on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economy during the pandemic, and will continue the suspension through the fourth quarter of 2020, consistent with the extension of the Federal Reserve's special capital distribution restrictions. PNC repurchased $99 million of common shares in the third quarter to offset the effects of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve.
14 The PNC Financial Services Group, Inc. – Form 10-Q
BUSINESS SEGMENTS REVIEW
We have three reportable business segments:
•Retail Banking
•Corporate & Institutional Banking
•Asset Management Group
Business segment results and a description of each business are included in Note 1514 Segment Reporting in the Notes To Consolidated Financial Statements included in Item 1 of this Report. Certain amounts included in this Business Segments Review differ from those amounts shown in Note 15,14, primarily due to the presentation in this Financial Review of business net interest income on a taxable-equivalent basis.
Our business segment results for the first nine months of 2021 reflect the benefit of BBVA’s business operations for the period since the acquisition closed on June 1, 2021. Period end information presented includes BBVA's balances at September 30, 2021. Until the conversion of bank systems and branches as of October 12, 2021, PNC Bank and BBVA customers were served through their respective PNC Bank and BBVA USA branches, websites and mobile apps, financial advisors and relationship managers. Following conversion, there will be changes in the segmentation of BBVA USA customers as we continue to integrate data to PNC applications, finalize the review of customer relationships and better align customers with PNC’s products and services. These changes will be reflected in fourth quarter reporting. See Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional information on the acquisition of BBVA.
During the second quarter of 2020, we divested our entire 22.4% investment in BlackRock.BlackRock, which had previously been reported as a separate business segment. See Note 2 Discontinued OperationsAcquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional information on the sale and details on our results and cash flows for the three and nine months ended September 30, 2020 and 2019. Following the sale and donation, PNC only holds shares of BlackRock stock in a fiduciary capacity for clients of PNC.information.
Net interest income in business segment results reflects our 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.
Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in the “Other” category as shown in Table 8182 in Note 1514 Segment Reporting in the Notes To Consolidated Financial Statements included in Item 1 of this Report. “Other” 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, ACL for 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 (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments’ results exclude their portion of net income attributable to noncontrolling interests..
See the Executive Summary of this Financial Review for our discussion of the impact of pandemic-related developments on our business and operations, including pandemic relief efforts for our customers. We have granted loan modifications through various hardship relief programs to assist our customers in need during the pandemic. See Loan Modifications in the Troubled Debt Restructurings and Loan Modifications section of Credit Risk Management for details on these programs.
12The PNC Financial Services Group, Inc. – Form 10-Q
15
Retail Banking
Retail Banking's core strategy is to acquirehelp all of our consumer and retainsmall business customers who maintain theirmove financially forward. We aim to grow our primary checking and transaction relationships with us.through strong acquisition and retention. We seek to deepen relationships by meeting the broad range of our customers’ financial needs with savings, liquidity, lending, investment and retirement solutions. A strategic priority for us is to differentiate the customer experience, and drive transformation and automation.leveraging technology to make banking easier for our customers. A key element of our strategy is to expand the use of lower-cost alternative distribution channels, with an emphasis on digital capabilities, while continuing to optimize the traditional branch network. In addition, we have a disciplined process to continually improve the engagement ofare focused on consistently engaging both our employees and customers, which is a strong driver of customer growth, retention and relationship expansion.
Table 12:11: Retail Banking Table | | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | |
| Nine months ended September 30 | | | | | Change | |
| Dollars in millions, except as noted | 2021 | | 2020 | | $ | % | |
| Income Statement | | | | | | | |
| Net interest income | $ | 4,572 | | | $ | 4,229 | | | $ | 343 | | 8 | % | |
| Noninterest income | 2,022 | | | 2,046 | | | (24) | | (1) | % | |
| Total revenue | 6,594 | | | 6,275 | | | 319 | | 5 | % | |
| Provision for (recapture of) credit losses | (156) | | | 1,049 | | | (1,205) | | * | |
| Noninterest expense | 5,042 | | | 4,537 | | | 505 | | 11 | % | |
| Pretax earnings | 1,708 | | | 689 | | | 1,019 | | 148 | % | |
| Income taxes | 396 | | | 161 | | | 235 | | 146 | % | |
| Noncontrolling interest | 26 | | | 20 | | | 6 | | 30 | % | |
| Earnings | $ | 1,286 | | | $ | 508 | | | $ | 778 | | 153 | % | |
| Average Balance Sheet | | | | | | | |
| Loans held for sale | $ | 1,296 | | | $ | 769 | | | $ | 527 | | 69 | % | |
| Loans | | | | | | | |
| Consumer | | | | | | | |
| Residential real estate | $ | 23,323 | | | $ | 18,215 | | | $ | 5,108 | | 28 | % | |
| Home equity | 22,324 | | | 22,723 | | | (399) | | (2) | % | |
| Automobile | 15,398 | | | 16,449 | | | (1,051) | | (6) | % | |
| Credit card | 6,070 | | | 6,767 | | | (697) | | (10) | % | |
| Education | 2,820 | | | 3,226 | | | (406) | | (13) | % | |
| Other consumer | 2,326 | | | 2,417 | | | (91) | | (4) | % | |
| Total consumer | 72,261 | | | 69,797 | | | 2,464 | | 4 | % | |
| Commercial | 14,819 | | | 12,298 | | | 2,521 | | 20 | % | |
| Total loans | $ | 87,080 | | | $ | 82,095 | | | $ | 4,985 | | 6 | % | |
| Total assets | $ | 103,820 | | | $ | 98,764 | | | $ | 5,056 | | 5 | % | |
| Deposits | | | | | | | |
| Noninterest-bearing demand | $ | 55,107 | | | $ | 38,390 | | | $ | 16,717 | | 44 | % | |
| Interest-bearing demand | 58,700 | | | 46,501 | | | 12,199 | | 26 | % | |
| Money market | 31,639 | | | 23,210 | | | 8,429 | | 36 | % | |
| Savings | 78,907 | | | 67,000 | | | 11,907 | | 18 | % | |
| Certificates of deposit | 10,321 | | | 11,579 | | | (1,258) | | (11) | % | |
| Total deposits | $ | 234,674 | | | $ | 186,680 | | | $ | 47,994 | | 26 | % | |
| Performance Ratios | | | | | | | |
| Return on average assets | 1.66 | % | | 0.69 | % | | | | |
| Noninterest income to total revenue | 31 | % | | 33 | % | | | | |
| Efficiency | 76 | % | | 72 | % | | | | |
The PNC Financial Services Group, Inc. – Form 10-Q 13
|
| | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | |
| Nine months ended September 30 | | | | | Change | |
| Dollars in millions, except as noted | 2020 | | 2019 | | $ | % | |
| Income Statement | | | | | | | |
| Net interest income | $ | 4,229 |
| | $ | 4,118 |
| | $ | 111 |
| 3 | % | |
| Noninterest income | 2,046 |
| | 1,996 |
| | 50 |
| 3 | % | |
| Total revenue | 6,275 |
| | 6,114 |
| | 161 |
| 3 | % | |
| Provision for credit losses | 1,049 |
| | 356 |
| | 693 |
| 195 | % | |
| Noninterest expense | 4,557 |
| | 4,531 |
| | 26 |
| 1 | % | |
| Pretax earnings | 669 |
| | 1,227 |
| | (558 | ) | (45 | )% | |
| Income taxes | 161 |
| | 291 |
| | (130 | ) | (45 | )% | |
| Earnings | $ | 508 |
| | $ | 936 |
| | $ | (428 | ) | (46 | )% | |
| Average Balance Sheet | | | | | | | |
| Loans held for sale | $ | 769 |
| | $ | 586 |
| | $ | 183 |
| 31 | % | |
| Loans | | | | | | | |
| Consumer | | | | | | | |
| Home equity | $ | 22,723 |
| | $ | 22,679 |
| | $ | 44 |
| — |
| |
| Residential real estate | 18,215 |
| | 15,806 |
| | 2,409 |
| 15 | % | |
| Automobile | 16,449 |
| | 15,201 |
| | 1,248 |
| 8 | % | |
| Credit card | 6,767 |
| | 6,403 |
| | 364 |
| 6 | % | |
| Education | 3,226 |
| | 3,672 |
| | (446 | ) | (12 | )% | |
| Other consumer | 2,417 |
| | 2,187 |
| | 230 |
| 11 | % | |
| Total consumer | 69,797 |
| | 65,948 |
| | 3,849 |
| 6 | % | |
| Commercial | 12,298 |
| | 10,440 |
| | 1,858 |
| 18 | % | |
| Total loans | $ | 82,095 |
| | $ | 76,388 |
| | $ | 5,707 |
| 7 | % | |
| Total assets | $ | 98,764 |
| | $ | 92,282 |
| | $ | 6,482 |
| 7 | % | |
| Deposits | | | | | | | |
| Noninterest-bearing demand | $ | 38,390 |
| | $ | 31,338 |
| | $ | 7,052 |
| 23 | % | |
| Interest-bearing demand | 46,501 |
| | 42,207 |
| | 4,294 |
| 10 | % | |
| Money market | 23,210 |
| | 25,786 |
| | (2,576 | ) | (10 | )% | |
| Savings | 67,000 |
| | 55,659 |
| | 11,341 |
| 20 | % | |
| Certificates of deposit | 11,579 |
| | 12,619 |
| | (1,040 | ) | (8 | )% | |
| Total deposits | $ | 186,680 |
| | $ | 167,609 |
| | $ | 19,071 |
| 11 | % | |
| Performance Ratios | | | | | | | |
| Return on average assets | .69 | % | | 1.36 | % | | | | |
| Noninterest income to total revenue | 33 | % | | 33 | % | | | | |
| Efficiency | 73 | % | | 74 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At or for nine months ended September 30 | | | | | Change | |
| Dollars in millions, except as noted | 2021 | | 2020 | | $ | % | |
| Supplemental Noninterest Income Information | | | | | | | |
| Consumer services | $ | 1,273 | | | $ | 1,058 | | | $ | 215 | | 20 | % | |
| Residential mortgage | $ | 355 | | | $ | 505 | | | $ | (150) | | (30) | % | |
| Service charges on deposits | $ | 406 | | | $ | 364 | | | $ | 42 | | 12 | % | |
| Residential Mortgage Information | | | | | | | |
| Residential mortgage servicing statistics (in billions, except as noted) (a) | | | | | | | |
| Serviced portfolio balance (b) | $ | 139 | | | $ | 119 | | | $ | 20 | | 17 | % | |
| Serviced portfolio acquisitions | $ | 42 | | | $ | 21 | | | $ | 21 | | 100 | % | |
| MSR asset value (b) | $ | 1.1 | | | $ | 0.6 | | | $ | 0.5 | | 83 | % | |
| MSR capitalization value (in basis points) (b) | 81 | | | 50 | | | 31 | | 62 | % | |
| Servicing income: (in millions) | | | | | | | |
| Servicing fees, net (c) | $ | 20 | | | $ | 105 | | | $ | (85) | | (81) | % | |
| Mortgage servicing rights valuation, net of economic hedge | $ | 62 | | | $ | 138 | | | $ | (76) | | (55) | % | |
| Residential mortgage loan statistics | | | | | | | |
| Loan origination volume (in billions) | $ | 18.2 | | | $ | 11.4 | | | $ | 6.8 | | 60 | % | |
| Loan sale margin percentage | 2.95 | % | | 3.51 | % | | | | |
| Percentage of originations represented by: | | | | | | | |
| Purchase volume (d) | 45 | % | | 38 | % | | | | |
| Refinance volume | 55 | % | | 62 | % | | | | |
| Other Information (b) | | | | | | | |
| Customer-related statistics (average) (e) | | | | | | | |
| Non-teller deposit transactions (f) | 66 | % | | 63 | % | | | | |
| Digital consumer customers (g) | 80 | % | | 73 | % | | | | |
| Credit-related statistics | | | | | | | |
| Nonperforming assets | $ | 1,220 | | | $ | 1,077 | | | $ | 143 | | 13 | % | |
| Net charge-offs - loans and leases | $ | 269 | | | $ | 433 | | | $ | (164) | | (38) | % | |
| Other statistics | | | | | | | |
| ATMs | 9,572 | | | 9,058 | | | 514 | | 6 | % | |
| Branches (h) | 2,712 | | | 2,207 | | | 505 | | 23 | % | |
| Brokerage account client assets (in billions) (i) | $ | 76 | | | $ | 55 | | | $ | 21 | | 38 | % | |
*- Not Meaningful
(a) Represents mortgage loan servicing balances for third parties and the related income.
(b)Presented as of period end, except for average customer-related statistics and net charge-offs, which are both shown for the nine months ended.
(c)Servicing fees net of impact of decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan payments, prepayments, and loans that were paid down or paid off during the period.
(d)Mortgages with borrowers as part of residential real estate purchase transactions.
(e)Represents PNC legacy only, statistics will include BBVA activity in the fourth quarter reporting following the conversion of bank systems and branches.
(f)Percentage of total consumer and business banking deposit transactions processed at an ATM or through our mobile banking application.
(g)Represents consumer checking relationships that process the majority of their transactions through non-teller channels.
(h)Excludes stand-alone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.
(i)Includes cash and money market balances.
Retail Banking earnings for the first nine months of 2021 increased $778 million compared with the same period in 2020 driven by a provision recapture and higher net interest income, partially offset by higher noninterest expense. Results for the first nine months of 2021 reflect the benefit of BBVA's business operations since the acquisition closed on June 1, 2021.
Net interest income increased primarily due to growth in average deposit and loan balances, reflecting the BBVA acquisition, along with wider interest rate spreads on the value of loans, partially offset by narrower interest rate spreads on the value of deposits.
Noninterest income decreased due to a larger negative derivative Visa Class B fair value adjustment related to the extension of litigation timing in the first nine months of 2021, along with declines in residential mortgage revenue, driven by lower servicing fees primarily due to higher payoffs and lower revenue from residential mortgage servicing rights valuation, net of economic hedge. The decrease in noninterest income was partially offset by the BBVA acquisition, increased consumer services revenue driven by debit card and brokerage fees, as well as higher service charges on deposits.
Provision recapture in the first nine months of 2021 was driven by improvements in credit quality and macroeconomic factors along with changes in portfolio composition, partially offset by the additional provision for credit losses related to the BBVA acquisition.
1614 The PNC Financial Services Group, Inc. – Form 10-Q
|
| | | | | | | | | | | | | | |
| At or for the nine months ended September 30 | | | | | Change | |
| Dollars in millions, except as noted | 2020 |
| | 2019 |
| | $ | % | |
| Supplemental Noninterest Income Information | | | | | | | |
| Consumer services | $ | 1,058 |
| | $ | 1,148 |
| | $ | (90 | ) | (8 | )% | |
| Residential mortgage | $ | 505 |
| | $ | 281 |
| | $ | 224 |
| 80 | % | |
| Service charges on deposits | $ | 364 |
| | $ | 504 |
| | $ | (140 | ) | (28 | )% | |
| Residential Mortgage Information | | | | | | | |
| Residential mortgage servicing statistics (in billions, except as noted) (a) | | | | | | | |
| Serviced portfolio balance (b) | $ | 119 |
| | $ | 123 |
| | $ | (4 | ) | (3 | )% | |
| Serviced portfolio acquisitions | $ | 21 |
| | $ | 9 |
| | $ | 12 |
| 133 | % | |
| MSR asset value (b) | $ | 0.6 |
| | $ | 0.9 |
| | $ | (0.3 | ) | (33 | )% | |
| MSR capitalization value (in basis points) (b) | 50 |
| | 72 |
| | (22 | ) | (31 | )% | |
| Servicing income: (in millions) | | | | | | | |
| Servicing fees, net (c) | $ | 105 |
| | $ | 139 |
| | $ | (34 | ) | (24 | )% | |
| Mortgage servicing rights valuation, net of economic hedge | $ | 138 |
| | $ | 38 |
| | $ | 100 |
| * |
| |
| Residential mortgage loan statistics | | | | | | | |
| Loan origination volume (in billions) | $ | 11.4 |
| | $ | 8.0 |
| | $ | 3.4 |
| 43 | % | |
| Loan sale margin percentage | 3.51 | % | | 2.41 | % | | | | |
| Percentage of originations represented by: | | | | | | | |
| Purchase volume (d) | 38 | % | | 50 | % | | | | |
| Refinance volume | 62 | % | | 50 | % | | | | |
| Other Information (b) | | | | | | | |
| Customer-related statistics (average) | | | | | | | |
| Non-teller deposit transactions (e) | 63 | % | | 57 | % | | | | |
| Digital consumer customers (f) | 73 | % | | 69 | % | | | | |
| Credit-related statistics | | | | | | | |
| Nonperforming assets (g) | $ | 1,077 |
| | $ | 1,056 |
| | $ | 21 |
| 2 | % | |
| Net charge-offs - loans and leases | $ | 433 |
| | $ | 380 |
| | $ | 53 |
| 14 | % | |
| Other statistics | | | | | | | |
| ATMs | 9,058 |
| | 9,102 |
| | (44 | ) | — |
| |
| Branches (h) | 2,207 |
| | 2,310 |
| | (103 | ) | (4 | )% | |
| Brokerage account client assets (in billions) (i) | $ | 55 |
| | $ | 52 |
| | $ | 3 |
| 6 | % | |
* - Not Meaningful
| |
(a) | Represents mortgage loan servicing balances for third parties and the related income. |
| |
(b) | Presented as of September 30, except for average customer-related statistics and net charge-offs which are both for the nine months ended. |
| |
(c) | Servicing fees net of impact of decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan payments, prepayments, and loans that were paid down or paid off during the period.
|
| |
(d) | Mortgages with borrowers as part of residential real estate purchase transactions.
|
| |
(e) | Percentage of total consumer and business banking deposit transactions processed at an ATM or through our mobile banking application.
|
| |
(f) | Represents consumer checking relationships that process the majority of their transactions through non-teller channels.
|
| |
(g) | Primarily nonperforming loans of $1.1 billion for both September 30, 2020 and September 30, 2019. |
| |
(h) | Excludes stand-alone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.
|
| |
(i) | Includes cash and money market balances. |
Retail Banking had earnings of $508 million in the first nine months of 2020 compared with $936 million for the same period in 2019. The decrease in earnings was attributable to a higher provision for credit losses and increased noninterestNoninterest expense partially offset by higher net interest income and noninterest income.
Net interest income increased primarily due to growth in loan and deposit balances, partially offset by narrower interest rate spreads on the valueas a result of loans and deposits.
Noninterest income increased largely due to growth in residential mortgage revenue attributable to increased loan sales revenue and higher revenue from residential mortgage servicing rights valuation, net of economic hedge, partially offset by lower servicing fees. The increase in noninterest income was partially offset by a decrease in service charges on deposits and consumer services fees reflecting lower transaction volumes, fees waived to assist customers in the pandemic, lower consumer spending and the elimination of certain checking product fees. The increase in noninterest income was also driven by lower negative derivative fair value adjustments related to Visa Class B common shares of $22 million for the first nine months of 2020 compared with the negative adjustments of $55 million for the same period in 2019.
The PNC Financial Services Group, Inc. – Form 10-Q 17
Provision for credit losses increased in the first nine months of 2020 compared to the same period in 2019 reflecting changes in methodology due to the adoption of the CECL accounting standard, together with the significantly adverse economic impact of the pandemic.
Higher noninterest expense primarily resulted from higher personnel, branch related expenses due in part to the impact of the pandemic,BBVA operating expenses, increased marketing activity and equipment, partially offset by lower advertising and marketing.non-credit losses due to additions to litigation reserves.
The deposit strategy of Retail Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances, executing on market-specific deposit growth strategies and providing a source of low-cost funding and liquidity to PNC. In the first nine months of 2020,2021, average total deposits increased compared to the same period in 20192020 primarily driven by growth in demand and savings deposits which increased due, in part, to a shift from money market deposits to relationship-based savings products. Savings and demand deposits also benefited from the impact of continued government stimulus payments and lower consumer spending due to the pandemic.payments.
Retail Banking average total loans increased in the first nine months of 20202021 compared with the same period in 2019.2020 due to the impact of the BBVA acquisition on all loan classes except education loans, which BBVA did not have in their loan portfolio.
•Average residential mortgagesreal estate loans increased primarily as a result of growth in nonconforming residential mortgage loans and a robust refinance market driven by historically low interest rates.due to originations outpacing paydowns.
•Average commercial loans increased primarily due to PPP loans.
•Average auto loans increased primarilyloan balances declined due to new indirectimpacts of the pandemic on the auto loan volumes, including in our Southeastindustry and expansion markets.proactive credit tightening.
•Average credit card balances increased as we continueddecreased due to focus on our long-term objective of deepening penetration within our existingchanges in customer base as well as new client acquisition.
Average unsecured installment loans increased primarilybehavior resulting in higher balance paydowns driven by growth in originations through digital channels.government stimulus payments combined with credit tightening actions taken as a result of the pandemic.
Average home equity loans increased as new originated volume exceeded paydowns and payoffs on loans.
•Average education loans decreased driven by a continued decline in the runoff portfolio of government guaranteed education loans.
In 2018, we launched our•Average other consumer loans declined driven by lower originations due to the pandemic and the effects of government stimulus and credit tightening.
Our national expansion strategy is designed to grow customers with digitally-led banking and a thin branch network in markets outside of our existing retail branch network andas we expand into new markets. In 2018, we began offering aour digital high yield savings deposit product and opened our first solution center in Kansas City. Solution centers are an emerging branch operating model with a distinctive layout, where routine transactions are supported through a combination of technology and skilled banker assistance to create personalized experiences. The primary focus of the solution center is to bring a community element to our digital banking capabilities. The solution center provides a collaborative environment that connects our customers with our digital solutions and banking services, beyond deposits and withdrawals. Following the first solution center opening in 2018, four additional solution centers opened in 2019 with a second in Kansas City and three in the Dallas/Fort Worth market. In the third quarter of 2020, we expanded into three new markets, Boston, Houston and Nashville and opened elevenseventeen new solution centers. In the first nine months of 2021 we opened ten new solution centers including one location inand expanded into two new markets, Denver and Phoenix. In total, we have thirty-two open solution centers within the markets of Boston, three inDallas/Fort Worth, Denver, Houston, three inKansas City, Nashville and four in Dallas/Fort Worth.Phoenix. We also offer digital unsecured installment and small business loans in the expansion markets. As a result of the BBVA acquisition, we have become a coast-to-coast Retail Bank and added over 600 branches across seven states to our network.
Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for consumers and small businesses. We are focused on meeting the financial needs of our customers by providing a broad range of liquidity, banking and investment products. In April 2021, we announced our Low Cash ModeSM Virtual Wallet® feature which gives all Virtual Wallet® customers the ability to avoid unnecessary overdraft fees through real-time intelligent alerts, extra time to prevent or address overdrafts, and controls to choose whether to return certain debits rather than the bank making the decision. Through the end of September, we have successfully rolled out Low Cash ModeSM to 3.8 million PNC legacy Virtual Wallet® customers and have delivered over 10 million Low Cash ModeSM alerts.
Upon conversion, BBVA customers became eligible for the full suite of PNC products and services, including Low Cash ModeSM. Our full year 2021 guidance includes the impact of fee reductions on both PNC legacy and the conversion of BBVA customers.
See the Executive Summary section in this Financial Review for additional information on our business outlook.
Retail Banking also continued to execute on its strategy of transforming the customer experience through transaction channel migration, branch network and home lending process transformations and multi-channel engagement and service strategies. We are also continually assessing our current branch network for optimization opportunities as usage of alternative channels has increased and as a result have closed 110112 branches through the first nine months of 2020.
Approximately 73% of consumer customers used non-teller channels for the majority of their transactions in the first nine months of 2020 compared2021, consistent with 69% for the same period in 2019.
Deposit transactions via ATM and mobile channels increased to 63% of total deposit transactions in the first nine months of 2020 from 57% for the same period in 2019.
Retail Banking continues to make progress on its multi-year initiative to redesign the home lending process, including integrating mortgage and home equity lending into a common platform. Technology enhancements supported increased residential mortgage origination volume. In addition, we enhanced the home equity origination process to make it easier and to reach additional customers. The enhanced product is currently available in twenty-four states and we are moving toward offering the product in most of the remaining states in 2020 and 2021. Additional improvements for both mortgage and home equity are planned to continue through the remainder of 2020 and 2021.
18The PNC Financial Services Group, Inc. – Form 10-Q15
Corporate & Institutional Banking
Corporate & Institutional Banking’s strategy is to be the leading relationship-based provider of traditional banking products and services to its customers through the economic cycles. We aim to grow our market share and drive higher returns by delivering value-added solutions that help our clients better run their organizations, all while maintaining prudent risk and expense management. We continue to focus on building client relationships where the risk-return profile is attractive.
Table 13:12: Corporate & Institutional Banking Table | | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | |
| Nine months ended September 30 | | | | | Change | |
| Dollars in millions | 2021 | | 2020 | | $ | % | |
| Income Statement | | | | | | | |
| Net interest income | $ | 3,343 | | | $ | 3,055 | | | $ | 288 | | 9 | % | |
| Noninterest income | 2,730 | | | 2,143 | | | 587 | | 27 | % | |
| Total revenue | 6,073 | | | 5,198 | | | 875 | | 17 | % | |
| Provision for (recapture of) credit losses | (277) | | | 2,254 | | | (2,531) | | * | |
| Noninterest expense | 2,504 | | | 2,055 | | | 449 | | 22 | % | |
| Pretax earnings | 3,846 | | | 889 | | | 2,957 | | 333 | % | |
| Income taxes | 846 | | | 201 | | | 645 | | 321 | % | |
| Noncontrolling interest | 10 | | | 6 | | | 4 | | 67 | % | |
| Earnings | $ | 2,990 | | | $ | 682 | | | $ | 2,308 | | 338 | % | |
| Average Balance Sheet | | | | | | | |
| Loans held for sale | $ | 598 | | | $ | 669 | | | $ | (71) | | (11) | % | |
| Loans | | | | | | | |
| Commercial | | | | | | | |
| Commercial and industrial | $ | 123,505 | | | $ | 127,149 | | | $ | (3,644) | | (3) | % | |
| Commercial real estate | 30,919 | | | 27,070 | | | 3,849 | | 14 | % | |
| Equipment lease financing | 6,321 | | | 6,957 | | | (636) | | (9) | % | |
| Total commercial | 160,745 | | | 161,176 | | | (431) | | — | | |
| Consumer | 14 | | | 9 | | | 5 | | 56 | % | |
| Total loans | $ | 160,759 | | | $ | 161,185 | | | $ | (426) | | — | | |
| Total assets | $ | 184,964 | | | $ | 185,001 | | | $ | (37) | | — | | |
| Deposits | | | | | | | |
| Noninterest-bearing demand | $ | 76,105 | | | $ | 50,104 | | | $ | 26,001 | | 52 | % | |
| Interest-bearing demand | 30,718 | | | 26,182 | | | 4,536 | | 17 | % | |
| Money market | 33,706 | | | 34,373 | | | (667) | | (2) | % | |
| Other | 7,723 | | | 8,789 | | | (1,066) | | (12) | % | |
| Total deposits | $ | 148,252 | | | $ | 119,448 | | | $ | 28,804 | | 24 | % | |
| Performance Ratios | | | | | | | |
| Return on average assets | 2.16 | % | | 0.49 | % | | | | |
| Noninterest income to total revenue | 45 | % | | 41 | % | | | | |
| Efficiency | 41 | % | | 40 | % | | | | |
| Other Information | | | | | | | |
| Consolidated revenue from: (a) | | | | | | | |
| Treasury Management (b) | $ | 1,609 | | | $ | 1,412 | | | $ | 197 | | 14 | % | |
| Capital Markets (b) | $ | 1,412 | | | $ | 1,077 | | | $ | 335 | | 31 | % | |
| Commercial mortgage banking activities: | | | | | | | |
| Commercial mortgage loans held for sale (c) | $ | 103 | | | $ | 117 | | | $ | (14) | | (12) | % | |
| Commercial mortgage loan servicing income (d) | 244 | | | 212 | | | 32 | | 15 | % | |
| Commercial mortgage servicing rights valuation, net of economic hedge (e) | 64 | | | 58 | | | 6 | | 10 | % | |
| Total | $ | 411 | | | $ | 387 | | | $ | 24 | | 6 | % | |
| MSR asset value (f) | $ | 703 | | | $ | 515 | | | $ | 188 | | 37 | % | |
| Average loans by C&IB business | | | | | | | |
| Corporate Banking | $ | 78,975 | | | $ | 83,762 | | | $ | (4,787) | | (6) | % | |
| Real Estate | 42,313 | | | 40,030 | | | 2,283 | | 6 | % | |
| Business Credit | 23,367 | | | 23,009 | | | 358 | | 2 | % | |
| Commercial Banking | 12,435 | | | 10,093 | | | 2,342 | | 23 | % | |
| Other | 3,669 | | | 4,291 | | | (622) | | (14) | % | |
| Total average loans | $ | 160,759 | | | $ | 161,185 | | | $ | (426) | | — | | |
| Credit-related statistics | | | | | | | |
| Nonperforming assets (f) | $ | 1,061 | | | $ | 832 | | | $ | 229 | | 28 | % | |
| Net charge-offs - loans and leases | $ | 290 | | | $ | 181 | | | $ | 109 | | 60 | % | |
|
| | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | |
| Nine months ended September 30 | | | | | Change | |
| Dollars in millions | 2020 | | 2019 | | $ | % | |
| Income Statement | | | | | | | |
| Net interest income | $ | 3,055 |
| | $ | 2,745 |
| | $ | 310 |
| 11 | % | |
| Noninterest income | 2,143 |
| | 1,891 |
| | 252 |
| 13 | % | |
| Total revenue | 5,198 |
| | 4,636 |
| | 562 |
| 12 | % | |
| Provision for credit losses | 2,254 |
| | 219 |
| | 2,035 |
| 929 | % | |
| Noninterest expense | 2,061 |
| | 2,087 |
| | (26 | ) | (1 | )% | |
| Pretax earnings | 883 |
| | 2,330 |
| | (1,447 | ) | (62 | )% | |
| Income taxes | 201 |
| | 531 |
| | (330 | ) | (62 | )% | |
| Earnings | $ | 682 |
| | $ | 1,799 |
| | $ | (1,117 | ) | (62 | )% | |
| Average Balance Sheet | | | | | | | |
| Loans held for sale | $ | 669 |
| | $ | 467 |
| | $ | 202 |
| 43 | % | |
| Loans | | | | | | | |
| Commercial | | | | | | | |
| Commercial and industrial | $ | 127,149 |
| | $ | 112,371 |
| | $ | 14,778 |
| 13 | % | |
| Commercial real estate | 27,070 |
| | 26,257 |
| | 813 |
| 3 | % | |
| Equipment lease financing | 6,957 |
| | 7,273 |
| | (316 | ) | (4 | )% | |
| Total commercial | 161,176 |
| | 145,901 |
| | 15,275 |
| 10 | % | |
| Consumer | 9 |
| | 16 |
| | (7 | ) | (44 | )% | |
| Total loans | $ | 161,185 |
| | $ | 145,917 |
| | $ | 15,268 |
| 10 | % | |
| Total assets | $ | 185,001 |
| | $ | 163,126 |
| | $ | 21,875 |
| 13 | % | |
| Deposits | | | | | | | |
| Noninterest-bearing demand | $ | 50,104 |
| | $ | 39,016 |
| | $ | 11,088 |
| 28 | % | |
| Interest-bearing demand | 26,182 |
| | 19,027 |
| | 7,155 |
| 38 | % | |
| Money market | 34,373 |
| | 27,358 |
| | 7,015 |
| 26 | % | |
| Other | 8,789 |
| | 6,258 |
| | 2,531 |
| 40 | % | |
| Total deposits | $ | 119,448 |
| | $ | 91,659 |
| | $ | 27,789 |
| 30 | % | |
| Performance Ratios | | | | | | | |
| Return on average assets | .49 | % | | 1.47 | % | | | | |
| Noninterest income to total revenue | 41 | % | | 41 | % | | | | |
| Efficiency | 40 | % | | 45 | % | | | | |
| Other Information | | | | | | | |
| Consolidated revenue from: (a) | | | | | | | |
| Treasury Management (b) | $ | 1,412 |
| | $ | 1,372 |
| | $ | 40 |
| 3 | % | |
| Capital Markets (b) | $ | 1,077 |
| | $ | 849 |
| | $ | 228 |
| 27 | % | |
| Commercial mortgage banking activities: | | | | | | | |
| Commercial mortgage loans held for sale (c) | $ | 117 |
| | $ | 73 |
| | $ | 44 |
| 60 | % | |
| Commercial mortgage loan servicing income (d) | 212 |
| | 190 |
| | 22 |
| 12 | % | |
| Commercial mortgage servicing rights valuation, net of economic hedge (e) | 58 |
| | 17 |
| | 41 |
| 241 | % | |
| Total | $ | 387 |
| | $ | 280 |
| | $ | 107 |
| 38 | % | |
| MSR asset value (f) | $ | 515 |
| | $ | 595 |
| | $ | (80 | ) | (13 | )% | |
| Average Loans by C&IB business | | | | | | | |
| Corporate Banking | $ | 83,762 |
| | $ | 73,460 |
| | $ | 10,302 |
| 14 | % | |
| Real Estate | 40,030 |
| | 37,231 |
| | 2,799 |
| 8 | % | |
| Business Credit | 23,009 |
| | 22,480 |
| | 529 |
| 2 | % | |
| Commercial Banking | 10,093 |
| | 8,048 |
| | 2,045 |
| 25 | % | |
| Other | 4,291 |
| | 4,698 |
| | (407 | ) | (9 | )% | |
| Total average loans | $ | 161,185 |
| | $ | 145,917 |
| | $ | 15,268 |
| 10 | % | |
| Credit-related statistics | | | | | | | |
| Nonperforming assets (f) (g) | $ | 832 |
| | $ | 526 |
| | $ | 306 |
| 58 | % | |
| Net charge-offs - loans and leases | $ | 181 |
| | $ | 58 |
| | $ | 123 |
| 212 | % | |
| |
(a) | See the additional revenue discussion regarding treasury management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section. |
| |
(b) | Amounts are reported in net interest income and noninterest income. |
| |
(c) | Represents other noninterest income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, originations fees, gains on sale of loans held for sale and net interest income on loans held for sale. |
| |
(d) | Represents net interest income and noninterest income (primarily in corporate service fees) from loan servicing net of reduction in commercial mortgage servicing rights due to amortization expense and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately. |
| |
(e) | Amounts are reported in corporate service fees. |
| |
(g) | Primarily nonperforming loans of $.8 billion and $.5 billion at September 30, 2020 and September 30, 2019, respectively. |
16The PNC Financial Services Group, Inc. – Form 10-Q
19
(a)See the additional revenue discussion regarding treasury management, capital markets-related products and services and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section.
(b)Amounts are reported in net interest income and noninterest income.
(c)Represents other noninterest income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, originations fees, gains on sale of loans held for sale and net interest income on loans held for sale.
(d)Represents net interest income and noninterest income (primarily in corporate service fees) from loan servicing net of reduction in commercial mortgage servicing rights due to amortization expense and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge, is shown separately.
(e)Amounts are reported in corporate service fees.
(f)As of September 30.
Corporate & Institutional Banking earned $.7 billionearnings in the first nine months of 20202021 increased $2.3 billion compared to $1.8 billion forwith the same period in 2019, as2020 driven by a provision recapture and higher provision for credit losses wastotal revenue, partially offset by higher revenue.noninterest expense. Results for the first nine months of 2021 reflect the benefit of BBVA's business operations since the acquisition closed on June 1, 2021.
Net interest income increased in the comparison primarily due to higher average loan and deposit balances and wider interest rate spreads on the value of loans and higher average deposit balances, reflecting the BBVA acquisition, partially offset by narrower interest rate spreads on the value of deposits.
Growth in noninterest income in the comparison reflected broad-based increases, including higherthe benefit of BBVA, in capital markets-related revenue, treasury management product revenue and revenue from commercial mortgage banking activities and treasury management product revenue.activities.
Provision for credit losses increasedrecapture in the first nine months of 2020 compared2021 was driven by improvements in credit quality and macroeconomic factors along with changes in portfolio composition, partially offset by the additional provision for credit losses related to the same period in 2019, primarily reflecting changes in methodology due to the adoption of the CECL accounting standard, together with the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality.BBVA acquisition.
Nonperforming assets at September 30, 2020 and net loan and lease charge offs for the first nine months of 2020 increased over the comparative periods of 2019, primarily related to industries adversely impacted by the pandemic and the energy industry.
Noninterest expense decreasedincreased in the comparison largely due to lowerhigher variable costs associated with decreasedincreased business activity relatedand the BBVA acquisition.
Average loans decreased compared with the nine months ended September 30, 2020 due to the pandemicdeclines in Corporate Banking, partially offset by investmentsincreases in strategic initiatives.Commercial Banking, Real Estate and Business Credit:
Average loans increased in the comparison across all businesses:
•Corporate Banking provides lending, equipment finance, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Average loans for this business grewdeclined reflecting increased year-to-datelower average utilization due to the impact of draws made at the onset of the pandemic and new production, including PPP loan originations.
PNC Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased primarily driven by higher commercial mortgage and multifamily agency warehouse lending,commitments, partially offset by project loan payoffs.loans from BBVA and new production.
•Commercial Banking provides lending, treasury management and capital markets-related products and services to smaller corporations and businesses. Average loans for this business increased primarily driven by loans from BBVA and PPP loan originations.
•Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased reflecting loans from BBVA, partially offset by lower commercial mortgage and multifamily agency warehouse lending.
•Business Credit provides asset-based lending.lending and equipment financing solutions. The loan and lease portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by short-term assets.marketable collateral. Average loans for this business increased primarily due todriven by new originations,production and loans from BBVA, partially offset by lower utilization.average utilization of loan commitments.
The deposit strategy of Corporate & Institutional Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances over time, executing on customer and segment-specific deposit growth strategies and continuing to provide funding and liquidity to PNC. Average total deposits increased in the comparison reflecting customers maintaining liquidity due to the economic impactimpacts of the pandemic. We continue to actively monitor the interest rate environment and make adjustments in response to evolving market conditions, bank funding needs and client relationship dynamics.
Corporate & Institutional Banking continues to expand its Corporate Banking business, focused on the middle market and larger sectors. We are continuing to executeexecuted on our expansion plans into the Seattle and Portland markets in 2020, and in 2021, we will continuethe BBVA acquisition accelerated our middle market expansion in San Antonio, Austin and San Diego.efforts across the Southwest; however this has not changed our strategy regarding our de novo expansion efforts. This follows offices opened in Boston and Phoenix in 2019, Denver, Houston and Nashville in 2018, and Dallas, Kansas City and Minneapolis in 2017. These locations complement Corporate & Institutional Banking national businesses with a significant presence in these cities and build on past successes in the markets where PNC’s retail banking presence was limited, such as in the Southeast. Our full suite of commercial products and services is offered in these locations.
ProductProduct Revenue
In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital markets-related products and services and commercial mortgage banking activities, for customers of all business segments. On a consolidated basis, the revenue from these other services is included in net interest income, corporate service fees and other noninterest income. From a business perspective, the majority of the revenue and expense related to these services is reflected in the Corporate & Institutional Banking segment results and the remainder is reflected in the results of other businesses. The
The PNC Financial Services Group, Inc. – Form 10-Q 17
Other Information section in Table 1312 includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.
The Treasury Management business provides payables,corporations with cash and investment management services, receivables deposit and accountdisbursement management services, liquidityfunds transfer services, international payment services and investments,access to online/mobile information management and onlinereporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and mobile banking productsMexico and services to our clients.other countries primarily in Central America and South America. Treasury management revenue is reported in noninterest income and net interest income. Noninterest income includes treasury management product revenue less earnings credits provided to customers on compensating deposit balances used to pay for products and services. Net interest income primarily includes revenue from all treasury
20 The PNC Financial Services Group, Inc. – Form 10-Q
management customer deposit balances. Compared with the first nine months of 2019,2020, treasury management revenue increased primarily due to higher deposit balances and product revenue,higher noninterest income, partially offset by narrower interest rate spreads on the value of deposits.
Capital markets-related products and services include foreign exchange, derivatives, fixed income, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. The increase in capital markets-related revenue in the comparison was broad-based across most productsmostly driven by higher merger and services and includedacquisition advisory fees as well as higher underwritingequity capital market advisory fees, and fees on customer-related derivatives activities, partially offset by lower merger and acquisition advisorycustomer-related derivative fees.
Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (both net interest income and noninterest income) and revenue derived from commercial mortgage loans held for sale and related hedges. Total revenue from commercial mortgage banking activities increased in the comparison primarily due to higher commercial mortgage servicing income, partially offset by lower revenue across all activities.from commercial mortgage loans held for sale.
18The PNC Financial Services Group, Inc. – Form 10-Q
21
Asset Management Group
Asset Management Group is focused on being a premier bank-held individual and institutional asset manager in each of the markets it serves. The business seeks to deliver high quality banking, trust and investment management services to our high net worth, ultra high net worth and institutional client sectors through a broad array of products and services. Asset Management Group’s priorities are to serve our clients' financial objectives, grow and deepen customer relationships and deliver solid financial performance with prudent risk and expense management.
Table 14:13: Asset Management Group Table
| | | (Unaudited) | | | | | | | | (Unaudited) | | |
| Nine months ended September 30 | | | | | Change | | Nine months ended September 30 | | | | | Change | |
| Dollars in millions, except as noted | 2020 | | 2019 | | $ | % | | Dollars in millions, except as noted | 2021 | | 2020 | | $ | % | |
| Income Statement | | | | | | | | Income Statement | | |
| Net interest income | $ | 266 |
| | $ | 208 |
| | $ | 58 |
| 28 | % | | Net interest income | $ | 346 | | | $ | 266 | | | $ | 80 | | 30 | % | |
| Noninterest income | 629 |
| | 719 |
| | (90 | ) | (13 | )% | | Noninterest income | 729 | | | 629 | | | 100 | | 16 | % | |
| Total revenue | 895 |
| | 927 |
| | (32 | ) | (3 | )% | | Total revenue | 1,075 | | | 895 | | | 180 | | 20 | % | |
| Provision for (recapture of) credit losses | 23 |
| | (2 | ) | | 25 |
| * |
| | |
| Provision for credit losses | | Provision for credit losses | 8 | | | 23 | | | (15) | | (65) | % | |
| Noninterest expense | 647 |
| | 707 |
| | (60 | ) | (8 | )% | | Noninterest expense | 676 | | | 647 | | | 29 | | 4 | % | |
| Pretax earnings | 225 |
| | 222 |
| | 3 |
| 1 | % | | Pretax earnings | 391 | | | 225 | | | 166 | | 74 | % | |
| Income taxes | 52 |
| | 51 |
| | 1 |
| 2 | % | | Income taxes | 91 | | | 52 | | | 39 | | 75 | % | |
| Earnings | $ | 173 |
| | $ | 171 |
| | $ | 2 |
| 1 | % | | Earnings | $ | 300 | | | $ | 173 | | | $ | 127 | | 73 | % | |
| Average Balance Sheet | | | | | | | | Average Balance Sheet | | |
| Loans | | | | | | | | Loans | | |
| Consumer | | | | | | | | Consumer | | |
| Residential real estate | $ | 2,667 |
| | $ | 1,833 |
| | $ | 834 |
| 45 | % | | Residential real estate | $ | 4,608 | | | $ | 2,667 | | | $ | 1,941 | | 73 | % | |
| Other consumer | 4,031 |
| | 4,261 |
| | (230 | ) | (5 | )% | | Other consumer | 4,249 | | | 4,031 | | | 218 | | 5 | % | |
| Total consumer | 6,698 |
| | 6,094 |
| | 604 |
| 10 | % | | Total consumer | 8,857 | | | 6,698 | | | 2,159 | | 32 | % | |
| Commercial | 849 |
| | 747 |
| | 102 |
| 14 | % | | Commercial | 1,629 | | | 849 | | | 780 | | 92 | % | |
| Total loans | $ | 7,547 |
| | $ | 6,841 |
| | $ | 706 |
| 10 | % | | Total loans | $ | 10,486 | | | $ | 7,547 | | | $ | 2,939 | | 39 | % | |
| Total assets | $ | 8,041 |
| | $ | 7,247 |
| | $ | 794 |
| 11 | % | | Total assets | $ | 11,124 | | | $ | 8,041 | | | $ | 3,083 | | 38 | % | |
| Deposits | | | | | | | | Deposits | | | | | |
| Noninterest-bearing demand | $ | 1,528 |
| | $ | 1,344 |
| | $ | 184 |
| 14 | % | | Noninterest-bearing demand | $ | 2,884 | | | $ | 1,528 | | | $ | 1,356 | | 89 | % | |
| Interest-bearing demand | 7,566 |
| | 3,121 |
| | 4,445 |
| 142 | % | | Interest-bearing demand | 9,597 | | | 7,566 | | | 2,031 | | 27 | % | |
| Money market | 1,616 |
| | 1,852 |
| | (236 | ) | (13 | )% | | Money market | 3,610 | | | 1,616 | | | 1,994 | | 123 | % | |
| Savings | 7,279 |
| | 5,969 |
| | 1,310 |
| 22 | % | | Savings | 7,755 | | | 7,279 | | | 476 | | 7 | % | |
| Other | 707 |
| | 797 |
| | (90 | ) | (11 | )% | | Other | 628 | | | 707 | | | (79) | | (11) | % | |
| Total deposits | $ | 18,696 |
| | $ | 13,083 |
| | $ | 5,613 |
| 43 | % | | Total deposits | $ | 24,474 | | | $ | 18,696 | | | $ | 5,778 | | 31 | % | |
| Performance Ratios | | | | | | | | Performance Ratios | | |
| Return on average assets | 2.88 | % | | 3.15 | % | | | | | Return on average assets | 3.61 | % | | 2.88 | % | | |
| Noninterest income to total revenue | 70 | % | | 78 | % | | | | | Noninterest income to total revenue | 68 | % | | 70 | % | | |
| Efficiency | 72 | % | | 76 | % | | | | | Efficiency | 63 | % | | 72 | % | | | |
| Supplemental Noninterest Income Information | | | | | | | | Supplemental Noninterest Income Information | | |
| Asset management fees | $ | 615 |
| | $ | 646 |
| | $ | (31 | ) | (5 | )% | | Asset management fees | $ | 713 | | | $ | 615 | | | $ | 98 | | 16 | % | |
| Brokerage fees | | Brokerage fees | 6 | | | 6 | | * | |
| Total | | Total | $ | 719 | | | $ | 615 | | | $ | 104 | | 17 | % | |
| Other Information | | | | | | | | Other Information | | |
| Nonperforming assets (a) (b) | $ | 39 |
| | $ | 42 |
| | $ | (3 | ) | (7 | )% | | |
| Nonperforming assets (a) | | Nonperforming assets (a) | $ | 80 | | | $ | 39 | | | $ | 41 | | 105 | % | |
| Net charge-offs - loans and leases | — |
| | $ | 1 |
| | $ | (1 | ) | (100 | )% | | Net charge-offs - loans and leases | $ | 1 | | | $ | 1 | | * | |
Client Assets Under Administration (in billions) (a) (c) | | | | | | | | |
| Brokerage account client assets (in billions) (a) | | Brokerage account client assets (in billions) (a) | $ | 5 | | | $ | 5 | | * | |
Client Assets Under Administration (in billions) (a) (b) | | Client Assets Under Administration (in billions) (a) (b) | | |
| Discretionary client assets under management | $ | 158 |
| | $ | 163 |
| | $ | (5 | ) | (3 | )% | | Discretionary client assets under management | $ | 183 | | | $ | 158 | | | $ | 25 | | 16 | % | |
| Nondiscretionary client assets under administration | 142 |
| | 135 |
| | 7 |
| 5 | % | | Nondiscretionary client assets under administration | 170 | | | 142 | | | 28 | | 20 | % | |
| Total | $ | 300 |
| | $ | 298 |
| | $ | 2 |
| 1 | % | | Total | $ | 353 | | | $ | 300 | | | $ | 53 | | 18 | % | |
| Discretionary client assets under management | | | | | | | | Discretionary client assets under management | | | |
| Personal | $ | 99 |
| | $ | 98 |
| | $ | 1 |
| 1 | % | | Personal | $ | 117 | | | $ | 99 | | | $ | 18 | | 18 | % | |
| Institutional | 59 |
| | 65 |
| | (6 | ) | (9 | )% | | Institutional | 66 | | | 59 | | | 7 | | 12 | % | |
| Total | $ | 158 |
| | $ | 163 |
| | $ | (5 | ) | (3 | )% | | Total | $ | 183 | | | $ | 158 | | | $ | 25 | | 16 | % | |
* - Not meaningful
| |
(b) | Primarily nonperforming loans of $39 million at September 30, 2020 and $42 million at September 30, 2019. |
| |
(c) | Excludes brokerage account client assets. |
Asset Management Group earned $173 million in the first nine months of 2020 compared with earnings of $171 million for the same period in 2019.(b)Excludes brokerage account client assets.
Net interest income increased due to higher average loan and deposit balances partially offset by narrower interest rate spreads on the value of deposits.
22The PNC Financial Services Group, Inc. – Form 10-Q19
NoninterestNet interest income decreasedincreased due to lower asset management fees resulting fromgrowth in average loan and deposit balances, reflecting the impact of 2019 divestiture activitiesBBVA acquisition and the gain recognizedwider interest rate spreads on the retirement recordkeeping business divestiture in the prior period, whichloans. This was partially offset by narrower interest rate spreads on deposits.
The increase in noninterest income was primarily attributable to increases in the average equity markets.markets and the benefit of BBVA.
Noninterest expense decreased in the comparison and was primarily attributableincreased due to the impact of the 2019 divestitures and lower variable costs.BBVA operations, partially offset by intangible asset amortization run-off.
Provision for credit losses increased reflecting changes in methodology duethe first nine months of 2021 was driven by the additional provision for credit losses related to the adoption of the CECL accounting standard, together with the significantly adverse economic impact of the pandemic.BBVA acquisition, partially offset by improvements in credit quality and macroeconomic factors.
Asset Management Group’s discretionaryDiscretionary client assets under management decreasedincreased in comparison to the prior year primarily attributabledue to the salehigher equity markets as of components of the PNC Capital Advisors investment management business.September 30, 2021.
The Asset Management Group strives to be the leading relationship-based provider of investment, planning, bankingcredit and cash management solutions and fiduciary services to wealthy individuals and institutions by proactively delivering value-added ideas, solutions and exceptional service.
Wealth Management and Hawthorn have nearlyWith the inclusion of BBVA, PNC Private Bank has approximately 100 offices operating in sixeight out of the ten most affluent states in the U.S. with a majority co-located with retail banking branches. The businesses providebusiness provides customized investments, planning, trust and estate administration and private banking solutions to affluent individuals and ultra-affluent families.
Institutional Asset Management provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and retirement plan fiduciary retirement advisoryinvestment services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.
RISK MANAGEMENT
The Risk Management section included in Item 7 of our 20192020 Form 10-K describes our enterprise risk management framework including risk culture, enterprise strategy, risk governance and oversight framework, risk identification, risk assessment, risk controls and monitoring, and risk aggregation and reporting. Additionally, our 20192020 Form 10-K provides an analysis of the firm's Capital Management and our key areas of risk, which include but are not limited to credit, liquidityCredit, Market, Liquidity and capital, market, operational, complianceOperational (including Compliance and information security.
Upon closing of the acquisition of BBVA, the PNC Enterprise Risk Management Framework applied to the legal entities acquired from BBVA S.A., including BBVA USA. Prior to closing, PNC’s Independent Risk Management group evaluated and updated the frameworks, policies and procedures of the acquired BBVA entities as necessary. The updates were made to align the acquired BBVA entities with PNC’s risk appetite and connected the elements of their respective risk governance and reporting into PNC’s existing enterprise risk framework. Connecting the existing BBVA risk governance and reporting framework into PNC’s existing enterprise risk framework allowed separate risk profiles, governance, and reporting for PNC Bank and the acquired BBVA entities during the period from acquisition through conversion, while also providing the ability to consolidate into one enterprise risk profile that was communicated through the established risk governance and reporting for PNC. Upon the merger of BBVA USA into PNC Bank, completed on October 8, 2021, the updated BBVA risk governance and reporting framework is no longer applicable as all acquired BBVA entities are under PNC’s framework.
Credit Risk Management
Credit risk represents the possibility that a customer, counterparty or issuer may not perform in accordance with contractual terms. Credit risk is inherent in the financial services business and results from extending credit to customers, purchasing securities, and entering into financial derivative transactions and certain guarantee contracts. Credit risk is one of our most significant risks. Our processes for managing credit risk are designed to be embedded in our risk culture and in our decision-making processes using a systematic approach whereby credit risks and related exposures are identified and assessed, managed through specific policies and processes, measured and evaluated against our risk appetite and credit concentration limits, and reported, along with specific mitigation activities, to management and the Board of Directors through our governance structure. Our most significant concentration of credit risk is in our loan portfolio.
20The PNC Financial Services Group, Inc. – Form 10-Q
23
Loan Portfolio Characteristics and Analysis
Table 15:14: Details of Loans
In billions
We use several credit quality indicators, as further detailed in Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in Item 1 of this Report, to monitor and measure our exposure to credit risk within our loan portfolio. The following provides additional information about ourthe significant loan classes.classes that comprise our Commercial and Consumer portfolio segments.
Commercial
Commercial and Industrial
Commercial and industrial loans comprised 55%53% and 52%55% of our total loan portfolio at September 30, 20202021 and December 31, 2019,2020, respectively. The majority of our commercial and industrial loans are secured by collateral that provides a secondary source of repayment for the loan should the borrower experience cash generation difficulties. Examples of this collateral include short-term assets, such as accounts receivable, inventory and securities, and long-lived assets, such as equipment, owner-occupied real estate and other business assets.
We actively manage our commercial and industrial loans to assess any changes (both positive and negative) in the level of credit risk at both the borrower and portfolio level. To evaluate the level of credit risk, we assign internal risk ratings reflecting our estimates of the borrower’s probability of default (PD)PD and loss given default (LGD)LGD for each related credit facility. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process and is updated on an ongoing basis through our credit risk management processes. In addition to monitoring the level of credit risk, we also monitor concentrations of credit risk pertaining to both specific industries and geography that may exist in our portfolio. Our commercial and industrial portfolio is well-diversified as shown in the following table which provides a breakout by industry classification (classified based on the North American Industry Classification System (NAICS))NAICS).
Table 16:15: Commercial and Industrial Loans by Industry
| | | | September 30, 2020 | | | December 31, 2019 | | | September 30, 2021 | | | December 31, 2020 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | | Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Commercial and industrial | | | | | | | | | | Commercial and industrial | | | | |
| Manufacturing | $ | 22,551 |
| | 16 | % | | | $ | 21,540 |
| | 17 | % | | Manufacturing | $ | 22,760 | | | 15 | % | | | $ | 20,712 | | | 16 | % | |
| Retail/wholesale trade | 20,287 |
| | 15 |
| | | 21,565 |
| | 17 |
| | Retail/wholesale trade | 22,238 | | | 15 | | | | 20,218 | | | 15 | | |
| Service providers | 20,260 |
| | 15 |
| | | 16,112 |
| | 13 |
| | Service providers | 20,969 | | | 14 | | | | 19,419 | | | 15 | | |
| Financial services | | Financial services | 18,022 | | | 12 | | | | 14,909 | | | 11 | | |
| Real estate related (a) | 14,040 |
| | 10 |
| | | 12,346 |
| | 10 |
| | Real estate related (a) | 14,809 | | | 10 | | | | 13,369 | | | 10 | | |
| Financial services | 15,005 |
| | 11 |
| | | 11,318 |
| | 9 |
| | |
| Health care | 9,368 |
| | 7 |
| | | 8,035 |
| | 6 |
| | Health care | 10,567 | | | 7 | | | | 8,987 | | | 7 | | |
| Transportation and warehousing | 7,295 |
| | 5 |
| | | 7,474 |
| | 6 |
| | Transportation and warehousing | 7,318 | | | 5 | | | | 7,095 | | | 5 | | |
| Other industries | 28,381 |
| | 21 |
| | | 26,947 |
| | 22 |
| | Other industries | 36,052 | | | 22 | | | | 27,364 | | | 21 | | |
| Total commercial and industrial loans | $ | 137,187 |
| | 100 | % | | | $ | 125,337 |
| | 100 | % | | Total commercial and industrial loans | $ | 152,735 | | | 100 | % | | | $ | 132,073 | | | 100 | % | |
(a) Represents loans to customers in the real estate and construction industries.
24The PNC Financial Services Group, Inc. – Form 10-Q21
CommercialThe increase in commercial and industrial loan growth at September 30,loans compared to December 31, 2020 primarily reflects the impactacquisition of BBVA. Amounts also include $6.8 billion of PPP loans outstanding at September 30, 2021. PPP loans outstanding at December 31, 2020 totaled $12.0 billion. For additional information on PPP lending, undersee the CARES Act. COVID-19 Relief section within Item I of our 2020 Form 10-K.
See the Commercial High Impact Industries discussion within this Credit Risk Management section for additional discussion of the impact of COVID-19 on our commercial portfolio and how we are evaluating and monitoring the portfolio for elevated levels of credit risk.
Commercial Real Estate
Commercial real estate loans comprised $17.5$20.9 billion related to commercial mortgages, $6.8$8.4 billion of real estate project loans and $4.7$6.9 billion of intermediate term financing loans as of September 30, 2020.2021. Comparable amounts were $17.0 billion, $5.6 billion and $5.5 billion, respectively, as of December 31, 2019.2020 were $17.3 billion, $6.3 billion and $5.1 billion, respectively.
We monitor credit risk associated with our commercial real estate loans similar to commercial and industrial loans by analyzing PD and LGD. Additionally, risks associated with these types of credit activities tend to be correlated to the loan structure, collateral location, project progress and business environment. These attributes are also monitored and utilized in assessing credit risk. The portfolio is geographically diverse due to the nature of our business involving clients throughout the U.S.
The following table presents our commercial real estate loans by geography and property type.type:
Table 17:16: Commercial Real Estate Loans by Geography and Property Type
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | | December 31, 2020 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| California | $ | 5,953 | | | 16 | % | | | $ | 4,458 | | | 16 | % | |
| Texas | 4,052 | | | 11 | | | | 2,031 | | | 7 | | |
| Florida | 3,497 | | | 10 | | | | 2,991 | | | 10 | | |
| Virginia | 1,798 | | | 5 | | | | 1,586 | | | 6 | | |
| Maryland | 1,683 | | | 5 | | | | 1,770 | | | 6 | | |
| Pennsylvania | 1,556 | | | 4 | | | | 1,425 | | | 5 | | |
| Ohio | 1,262 | | | 3 | | | | 1,247 | | | 4 | | |
| Colorado | 1,237 | | | 3 | | | | 584 | | | 2 | | |
| Illinois | 1,182 | | | 3 | | | | 900 | | | 3 | | |
| Arizona | 1,141 | | | 3 | | | | 636 | | | 2 | | |
| Other | 12,834 | | | 37 | | | | 11,088 | | | 39 | | |
| Total commercial real estate loans | $ | 36,195 | | | 100 | % | | | $ | 28,716 | | | 100 | % | |
| Property Type | | | | | | | | | |
| Multifamily | $ | 12,148 | | | 34 | % | | | $ | 9,617 | | | 33 | % | |
| Office | 9,959 | | | 28 | | | | 7,691 | | | 27 | | |
| Retail | 3,759 | | | 10 | | | | 3,490 | | | 12 | | |
| Industrial/warehouse | 2,832 | | | 8 | | | | 1,999 | | | 7 | | |
| Seniors housing | 2,403 | | | 7 | | | | 1,417 | | | 5 | | |
| Hotel/motel | 2,355 | | | 7 | | | | 1,954 | | | 7 | | |
| Mixed use | 756 | | | 2 | | | | 835 | | | 3 | | |
| Other | 1,983 | | | 4 | | | | 1,713 | | | 6 | | |
| Total commercial real estate loans | $ | 36,195 | | | 100 | % | | | $ | 28,716 | | | 100 | % | |
(a) Presented in descending order based on loan balances at September 30, 2021.
|
| | | | | | | | | | | | | | | |
| | September 30, 2020 | | | December 31, 2019 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| California | $ | 4,444 |
| | 15 | % | | | $ | 4,393 |
| | 16 | % | |
| Florida | 2,996 |
| | 10 |
| | | 2,557 |
| | 9 |
| |
| Texas | 1,956 |
| | 7 |
| | | 1,717 |
| | 6 |
| |
| Maryland | 1,819 |
| | 6 |
| | | 1,889 |
| | 7 |
| |
| Virginia | 1,604 |
| | 6 |
| | | 1,547 |
| | 6 |
| |
| Pennsylvania | 1,362 |
| | 5 |
| | | 1,310 |
| | 4 |
| |
| Ohio | 1,288 |
| | 4 |
| | | 1,307 |
| | 4 |
| |
| New Jersey | 1,264 |
| | 4 |
| | | 1,106 |
| | 4 |
| |
| Illinois | 968 |
| | 3 |
| | | 1,001 |
| | 4 |
| |
| North Carolina | 957 |
| | 3 |
| | | 1,015 |
| | 4 |
| |
| Other | 10,370 |
| | 37 |
| | | 10,268 |
| | 36 |
| |
| Total commercial real estate loans | $ | 29,028 |
| | 100 | % | | | $ | 28,110 |
| | 100 | % | |
| Property Type | | | | | | | | | |
| Multifamily | $ | 9,732 |
| | 34 | % | | | $ | 9,003 |
| | 32 | % | |
| Office | 7,673 |
| | 26 |
| | | 7,641 |
| | 27 |
| |
| Retail | 3,568 |
| | 12 |
| | | 3,702 |
| | 13 |
| |
| Industrial/Warehouse | 2,071 |
| | 7 |
| | | 2,003 |
| | 7 |
| |
| Hotel/Motel | 1,933 |
| | 7 |
| | | 1,813 |
| | 7 |
| |
| Seniors Housing | 1,373 |
| | 5 |
| | | 1,123 |
| | 4 |
| |
| Mixed Use | 905 |
| | 3 |
| | | 943 |
| | 3 |
| |
| Other | 1,773 |
| | 6 |
| | | 1,882 |
| | 7 |
| |
| Total commercial real estate loans | $ | 29,028 |
| | 100 | % | | | $ | 28,110 |
| | 100 | % | |
| |
(a) | Presented in descending order based on loan balances at September 30, 2020. |
Commercial High Impact Industries
In light of the current economic circumstances related to COVID-19, we are evaluatingcontinuing to evaluate and monitoringmonitor our entire commercial portfolio for elevated levels of credit risk; however, we believe the industry sectors that have been and we believe will continue to be most likely to be impacted by the effects of the pandemic are:
•Non-real estate related
•Leisure recreation: restaurants, casinos, hotels, convention centers
•Non-essential retail: retail excluding auto, gas, staples
•Healthcare facilities: elective, private practices
•Consumer services: religious organizations, childcare
•Leisure travel: cruise, airlines, other travel/transportation
•Other impacted areas: shipping, senior living, specialty education
22The PNC Financial Services Group, Inc. – Form 10-Q
25
•Real estate related
•Non-essential retail and restaurants: malls, lifestyle centers, outlets, restaurants
•Hotel: full service, limited service, extended stay
•Seniors housing: assisted living, independent living
As of September 30, 2020,2021, our outstanding loan balances in these industries totaled $18.3$21.2 billion, or approximately 7% of our total loan portfolio, while additional unfunded loan commitments totaled $10.4$13.3 billion. We continue to carefully monitor and manage these loans, and while we have not yet experienced material charge-offs in these industries, we expectbelieve uncertainty relative to see charge-offs increase over time if the current economic trends continue.timing and level of long-term recovery remains high.
In our non-real estate related category we have $10.5$12.3 billion in loans outstanding, $1.9$1.7 billion of which are funded through the PPP and guaranteed by the Small Business Administration (SBA) under the CARES Act.SBA. Nonperforming loans in these industries totaled $.1$0.2 billion, or 1%2% of total loans outstanding in the non-real estate related category, while criticized assets totaled $1.4$1.8 billion at September 30, 20202021 with the greatest stress seen in the leisure recreation and leisure travel sectors.
Within the commercial real estate related category we have $7.8$8.9 billion in loans outstanding, which includes real estate projects of $4.9$6.6 billion and unsecured real estate of $2.9$2.3 billion. Nonperforming loans in this categorythese industries totaled $.2$0.2 billion at September 30, 2020,2021, or 3%2% of total loans outstanding in the commercial real estate related category, driven primarily by two real estate investment trust related loans.category. In this category, wewhile loan performance has not materially deteriorated, these industries continue to see substantial stressface headwinds that have resulted in a slower recovery compared with the non-essential retail and hotel segments.pace of the overall economy.
Oil and Gas Loan Portfolio
We are also monitoring our oil and gas portfolio closely for elevated levels of credit risk given the continued pressures on the energy industry. As of September 30, 2020,2021, our outstanding loans in the oil and gas sector totaled $3.6$3.9 billion, or 1.4%1% of total loans, which included $.1 billion funded through the PPP and guaranteed by the SBA under the CARES Act.loans. This portfolio comprised approximately $1.6$1.4 billion in the midstream and downstream sectors, $1.0 billion of oil services companies and $1.0$1.5 billion related to exploration and production companies. Of the oil services category, approximately $.2$0.3 billion is not asset-based or investment grade. Nonperforming loans in the oil and gas sector as of September 30, 20202021 totaled $.2$0.2 billion, or 5.6%5% of total loans outstanding in this sector. Additional unfunded loan commitments for the oil and gas portfolio totaled $7.1$10.1 billion at September 30, 2020.2021.
Consumer
Residential Real Estate
Residential real estate loans primarily consisted of residential mortgage loans at both September 30, 2021 and December 31, 2020.
We obtain loan attributes at origination, including original FICO scores and LTVs, and we update these and other credit metrics at least quarterly. We track borrower performance monthly. We also segment the mortgage portfolio into pools based on product type (e.g., nonconforming, conforming). This information is used for internal reporting and risk management. As part of our overall risk analysis and monitoring, we also segment the portfolio based upon loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV and geographic concentrations. Loan performance is evaluated by source originators and loan servicers.
Newly originated loans that we retained on our balance sheet over the last twelve months had a weighted-average LTV on originations of 67% and a weighted-average FICO score of 776.
The PNC Financial Services Group, Inc. – Form 10-Q 23
The following table presents our residential real estate loans by geography:
Table 17: Residential Real Estate Loans by Geography
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | | December 31, 2020 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| California | $ | 13,930 | | | 36 | % | | | $ | 7,828 | | | 35 | % | |
| Texas | 4,524 | | | 12 | | | | 409 | | | 2 | | |
| Florida | 3,089 | | | 8 | | | | 1,620 | | | 7 | | |
| Washington | 1,657 | | | 4 | | | | 1,104 | | | 5 | | |
| New Jersey | 1,594 | | | 4 | | | | 1,635 | | | 7 | | |
| Arizona | 1,464 | | | 4 | | | | 163 | | | 1 | | |
| New York | 1,184 | | | 3 | | | | 1,020 | | | 5 | | |
| Colorado | 1,174 | | | 3 | | | | 262 | | | 1 | | |
| Pennsylvania | 1,037 | | | 3 | | | | 1,036 | | | 5 | | |
| Illinois | 963 | | | 3 | | | | 1,039 | | | 5 | | |
| Other | 7,598 | | | 20 | | | | 6,444 | | | 27 | | |
| Total residential real estate loans | $ | 38,214 | | | 100 | % | | | $ | 22,560 | | | 100 | % | |
(a) Presented in descending order based on loan balances at September 30, 2021.
We originate residential mortgage loans nationwide through our national mortgage business as well as within our branch network. Residential mortgage loans underwritten to agency standards, including conforming loan amount limits, are typically sold with servicing retained by us. We also originate nonconforming residential mortgage loans that do not meet agency standards, which we retain on our balance sheet. Our portfolio of originated nonconforming residential mortgage loans totaled $29.9 billion at September 30, 2021 with 43% located in California. Comparable amounts at December 31, 2020 were $17.9 billion and 41%, respectively.
Home Equity
Home equity loans comprised $12.9$15.3 billion of primarily variable-rate home equity lines of credit and $11.6$9.2 billion of closed-end home equity installment loans at September 30, 2020.2021. Comparable amounts were $13.9$12.6 billion and $11.2$11.5 billion respectively, as of December 31, 2019.2020, respectively.
We track borrower performance of this portfolio monthly including obtaining original LTVs, updated FICO scores at least quarterly, updated LTVs at least semi-annually, and other credit metrics at least quarterly, including the historical performance of any related mortgage loans regardless of lien position that we do or do not hold. This information is used for internal reporting and risk management. For internal reporting and risk management wesimilarly to residential real estate loans. We also segment the population into pools based on product type (e.g., home equity loans, brokered home equity loans, home equity lines of credit, brokered home equity lines of credit). and track the historical performance of any related mortgage loans regardless of whether we hold the lien. This information is used for internal reporting and risk management. As part of our overall risk analysis and monitoring, we also segment the portfolio based upon the loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV, lien position and geographic concentration.
The credit quality of newlyNewly originated loans over the last twelve months was strong overall withhad a weighted-average LTV on originations of 67%66% and a weighted-average FICO score of 773.782.
The credit performance of the majority of the home equity portfolio where we hold the first lien position is superior to the portion of the portfolio where we hold the second lien position, but do not hold the first lien. Lien position information is generally determined at the time of origination and monitored on an ongoing basis for risk management purposes. We use an industry-leading third-party service provider to obtain updated loan information, including lien and collateral data that is aggregated from public and private sources.
2624 The PNC Financial Services Group, Inc. – Form 10-Q
The following table presents our home equity loans by geography and lien type.type:
Table 18: Home Equity Loans by Geography and by Lien Type
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | | December 31, 2020 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| Pennsylvania | $ | 5,169 | | | 21 | % | | | $ | 5,602 | | | 23 | % | |
| New Jersey | 3,151 | | | 13 | | | | 3,462 | | | 14 | | |
| Ohio | 2,459 | | | 10 | | | | 2,753 | | | 11 | | |
| Florida | 1,703 | | | 7 | | | | 1,536 | | | 6 | | |
| Michigan | 1,271 | | | 5 | | | | 1,398 | | | 6 | | |
| Maryland | 1,216 | | | 5 | | | | 1,332 | | | 6 | | |
| Illinois | 1,200 | | | 5 | | | | 1,411 | | | 6 | | |
| Texas | 1,026 | | | 4 | | | | 7 | | | | |
| North Carolina | 937 | | | 4 | | | | 1,043 | | | 4 | | |
| Kentucky | 800 | | | 3 | | | | 922 | | | 4 | | |
| Other | 5,547 | | | 23 | | | | 4,622 | | | 20 | | |
| Total home equity loans | $ | 24,479 | | | 100 | % | | | $ | 24,088 | | | 100 | % | |
| Lien type | | | | | | | | | |
| 1st lien | | | 61 | % | | | | | 63 | % | |
| 2nd lien | | | 39 | | | | | | 37 | | |
| Total | | | 100 | % | | | | | 100 | % | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2020 | | | December 31, 2019 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| Pennsylvania | $ | 5,701 |
| | 23 | % | | | $ | 5,812 |
| | 23 | % | |
| New Jersey | 3,555 |
| | 14 |
| | | 3,728 |
| | 15 |
| |
| Ohio | 2,801 |
| | 11 |
| | | 2,899 |
| | 12 |
| |
| Florida | 1,538 |
| | 6 |
| | | 1,340 |
| | 5 |
| |
| Illinois | 1,463 |
| | 6 |
| | | 1,544 |
| | 6 |
| |
| Michigan | 1,401 |
| | 6 |
| | | 1,371 |
| | 5 |
| |
| Maryland | 1,368 |
| | 6 |
| | | 1,420 |
| | 6 |
| |
| North Carolina | 1,050 |
| | 4 |
| | | 1,092 |
| | 4 |
| |
| Kentucky | 942 |
| | 4 |
| | | 990 |
| | 4 |
| |
| Indiana | 821 |
| | 3 |
| | | 820 |
| | 3 |
| |
| Other | 3,899 |
| | 17 |
| | | 4,069 |
| | 17 |
| |
| Total home equity loans | $ | 24,539 |
| | 100 | % | | | $ | 25,085 |
| | 100 | % | |
| Lien type | | | | | | | | | |
| 1st lien | | | 62 | % | | | | | 59 | % | |
| 2nd lien | | | 38 |
| | | | | 41 |
| |
| Total |
| | 100 | % | | | | | 100 | % | |
| |
(a) | (a) Presented in descending order based on loan balances at September 30, 2020. |
Residential Real Estate
Residential real estate loans primarily consisted of residential mortgage loans at both September 30, 2020 and December 31, 2019.
We track borrower performance of this portfolio monthly similarly to home equity loans. This information is used for internal reporting and risk management. For internal reporting and risk management we also segment the mortgage portfolio into pools based on product type (e.g., nonconforming, conforming). As part of our overall risk analysis and monitoring, we also segment the portfolio based upon loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV and geographic concentrations. Loan performance is evaluated by source originators and loan servicers.
The credit quality of newly originated loans that we retained on our balance sheet over the last twelve months was strong overall as evidenced by a weighted-average LTV on originations of 68% and a weighted-average FICO score of 773.
The following table presents our residential real estate loans by geography.
Table 19: Residential Real Estate Loans by Geography
|
| | | | | | | | | | | | | | | |
| | September 30, 2020 | | | December 31, 2019 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| California | $ | 7,898 |
| | 35 | % | | | $ | 6,800 |
| | 31 | % | |
| New Jersey | 1,724 |
| | 8 |
| | | 1,779 |
| | 8 |
| |
| Florida | 1,590 |
| | 7 |
| | | 1,580 |
| | 7 |
| |
| Pennsylvania | 1,065 |
| | 5 |
| | | 1,113 |
| | 5 |
| |
| Illinois | 1,058 |
| | 5 |
| | | 1,118 |
| | 5 |
| |
| Washington | 1,057 |
| | 5 |
| | | 646 |
| | 3 |
| |
| New York | 993 |
| | 4 |
| | | 1,008 |
| | 5 |
| |
| Virginia | 896 |
| | 4 |
| | | 868 |
| | 4 |
| |
| Maryland | 883 |
| | 4 |
| | | 923 |
| | 4 |
| |
| North Carolina | 833 |
| | 4 |
| | | 877 |
| | 4 |
| |
| Other | 4,889 |
| | 19 |
| | | 5,109 |
| | 24 |
| |
| Total residential real estate loans | $ | 22,886 |
| | 100 | % | | | $ | 21,821 |
| | 100 | % | |
| |
(a) | Presented in descending order based on loan balances at September 30, 2020. |
The PNC Financial Services Group, Inc. – Form 10-Q 27
We originate residential mortgage loans nationwide through our national mortgage business as well as within our branch network. Residential mortgage loans underwritten to agency standards, including conforming loan amount limits, are typically sold with servicing retained by us. We also originate nonconforming residential mortgage loans that do not meet agency standards, which we retain on our balance sheet. The originated nonconforming residential mortgage portfolio had strong credit quality at September 30, 2020 with an average original LTV of 69% and an average original FICO score of 774. Our portfolio of originated nonconforming residential mortgage loans totaled $17.9 billion at September 30, 2020 with 41% located in California.2021.
Automobile
Within autoAuto loans $13.4comprised $16.0 billion resided in the indirect auto portfolio while $1.6and $1.3 billion were in the direct auto portfolio as of September 30, 2020.2021. Comparable amounts as of December 31, 20192020 were $15.1$12.7 billion and $1.7$1.5 billion, respectively. The indirect auto portfolio pertains to loans originated through franchised dealers, including from expansion into new markets. This business is strategically aligned with our core retail banking business.
The following table presents certain key statistics related to our indirect and direct auto portfolios:
Table 19: Auto Loan Key Statistics
| | | | | | | | |
| September 30, 2021 | December 31, 2020 |
| Weighted-average loan origination FICO score (a) | | |
| Indirect auto | 793 | 784 |
| Direct auto | 774 | 768 |
| Weighted-average term of loan originations - in months (a) | | |
| Indirect auto | 72 | 72 |
| Direct auto | 62 | 62 |
(a)Weighted-averages calculated for the twelve months ended September 30, 2021 and December 31, 2020, respectively, using the auto enhanced FICO scale.
We continue to focus on borrowers with strong credit profiles as evidenced by athe weighted-average loan origination FICO score over the last twelve months of 777 for indirect auto loans and 769 for direct auto loans. The weighted-average term of loan originations over the last twelve months was 72 months for indirect auto loans and 62 months for direct auto loans.scores noted in Table 19. We offer both new and used auto financing to customers through our various channels. At September 30, 2020, theThe portfolio balance was composed of 56%53% new vehicle loans and 44%47% used vehicle loans.loans at September 30, 2021. Comparable amounts at December 31, 20192020 were 55%56% and 45%44%, respectively.
The auto loan portfolio'sportfolio’s performance is measured monthly, including updated collateral values that are obtained monthly and updated FICO scores that are obtained at least quarterly. For internal reporting and risk management, we analyze the portfolio by product channel and product type and regularly evaluate default and delinquency experience. As part of our overall risk analysis and monitoring, we segment the portfolio by loan structure,geography, channel, collateral attributes and credit metrics which include FICO score, LTV and term.
Nonperforming Assets and Loan Delinquencies
Nonperforming Assets
Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming troubled debt restructurings (TDRs), other real estate owned (OREO)TDRs and PCD loans, OREO and foreclosed assets. Loans held for sale, certain government insured or guaranteed loans and loans accounted for under the fair value option are excluded from
The PNC Financial Services Group, Inc. – Form 10-Q 25
nonperforming loans. Amounts as of December 31, 2019 also excluded purchased impaired loans as we were accreting interest income over the expected life of the loans. In connection with the adoption of the CECL standard, nonperforming loans as of September 30, 2020 include purchased credit deteriorated (PCD) loans which meet the criteria to be classified as nonperforming.See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in this ReportItem 8 of our 2020 Form 10-K for details on our nonaccrual policies and additional information related to the adoption of the CECL standard, including the discontinuation of purchased impaired loan accounting.policies.
28 The PNC Financial Services Group, Inc. – Form 10-Q
The following table presents a summary of nonperforming assets by major category.category:
Table 20: Nonperforming Assets by Type (a) | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | December 31, 2020 | | Change |
| Dollars in millions | $ | | % |
| Nonperforming loans | | | | | | |
| Commercial | $ | 1,204 | | $ | 923 | | | $ | 281 | | | 30 | % |
| Consumer (b) | 1,324 | | 1,363 | | | (39) | | | (3) | % |
| Total nonperforming loans | 2,528 | | 2,286 | | | 242 | | | 11 | % |
| OREO and foreclosed assets | 31 | | 51 | | | (20) | | | (39) | % |
| Total nonperforming assets | $ | 2,559 | | $ | 2,337 | | | $ | 222 | | | 9 | % |
| TDRs included in nonperforming loans | $ | 798 | | $ | 902 | | | $ | (104) | | | (12) | % |
| Percentage of total nonperforming loans | 32 | % | 39 | % | | | | |
| Nonperforming loans to total loans | 0.87 | % | 0.94 | % | | | | |
| Nonperforming assets to total loans, OREO and foreclosed assets | 0.88 | % | 0.97 | % | | | | |
| Nonperforming assets to total assets | 0.46 | % | 0.50 | % | | | | |
| Allowance for loan and lease losses to nonperforming loans | 212 | % | 235 | % | | | | |
|
| | | | | | | | | | | | | |
| | September 30, 2020 |
| December 31, 2019 |
| | Change |
| Dollars in millions | $ | | % |
| Nonperforming loans | | | | | | |
| Commercial | $ | 915 |
| $ | 501 |
| | $ | 414 |
| | 83 | % |
| Consumer (a) | 1,170 |
| 1,134 |
| | 36 |
| | 3 | % |
| Total nonperforming loans | 2,085 |
| 1,635 |
| | 450 |
| | 28 | % |
| OREO and foreclosed assets | 67 |
| 117 |
| | (50 | ) | | (43 | )% |
| Total nonperforming assets | $ | 2,152 |
| $ | 1,752 |
| | $ | 400 |
| | 23 | % |
| TDRs included in nonperforming loans | $ | 836 |
| $ | 843 |
| | $ | (7 | ) | | (1 | )% |
| Percentage of total nonperforming loans | 40 | % | 52 | % | | | | |
| Nonperforming loans to total loans | .84 | % | .68 | % | | | | |
| Nonperforming assets to total loans, OREO and foreclosed assets | .86 | % | .73 | % | | | | |
| Nonperforming assets to total assets | .47 | % | .43 | % | | | | |
| Allowance for loan and lease losses to nonperforming loans (b) | 276 | % | 168 | % | | | | |
| |
(a) | Excludes most unsecured consumer loans and lines(a)Includes $715 million of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status. |
| |
(b) | Ratio at September 30, 2020 reflects the changes in ALLL methodology due to the adoption of the CECL accounting standard on January 1, 2020, along with increases in reserves during 2020 due to the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth. |
The increase in nonperforming assets at September 30, 2020 was primarily attributable to higher nonperforming2021, $666 million in the commercial loansportfolio, $41 million in industries adversely impacted by the pandemicconsumer portfolio and the energy industry, partially offset by the decline in$8 million of OREO and foreclosed assets, attributable to BBVA.
(b)Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due to asset sales and are not placed on nonperforming status.
Increases in nonperforming assets from December 31, 2020 primarily reflects the suspensionimpact of pandemic-related foreclosures. See the discussion of Commercial High Impact Industries and the Oil and Gas Loan Portfolio within this Credit Risk Management section for further detail on these industries.BBVA, partially offset by improved credit performance throughout 2021.
The following table provides details on the change in nonperforming assets for the nine months ended September 30, 20202021 and 2019.
Table 21: Change in Nonperforming Assets
| | | | | | | | | | | | | | | | | |
| In millions | | 2021 | | 2020 | |
| January 1 | | $ | 2,337 | | | $ | 1,752 | | |
| New nonperforming assets | | 821 | | | 1,361 | | |
| Acquired nonperforming assets (a) | | 880 | | | | |
| Charge-offs and valuation adjustments | | (202) | | | (324) | | |
| Principal activity, including paydowns and payoffs | | (783) | | | (418) | | |
| Asset sales and transfers to loans held for sale | | (131) | | | (68) | | |
| Returned to performing status | | (363) | | | (151) | | |
| September 30 | | $ | 2,559 | | | $ | 2,152 | | |
(a)Represents the June 30, 2021 balance of nonperforming assets attributable to BBVA. Changes in this acquired portfolio for the three months ended September 30, 2021 are reflected in the appropriate category based on activity.
|
| | | | | | | | | |
| In millions | | 2020 |
| | 2019 |
| |
| January 1 | | $ | 1,752 |
| | $ | 1,808 |
| |
| New nonperforming assets | | 1,361 |
| | 985 |
| |
| Charge-offs and valuation adjustments | | (324 | ) | | (446 | ) | |
| Principal activity, including paydowns and payoffs | | (418 | ) | | (315 | ) | |
| Asset sales and transfers to loans held for sale | | (68 | ) | | (74 | ) | |
| Returned to performing status | | (151 | ) | | (111 | ) | |
| September 30 | | $ | 2,152 |
| | $ | 1,847 |
| |
As of September 30, 20202021, approximately 83%99% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses. As of September 30, 2020, commercial nonperforming loans were carried at approximately 78% of their unpaid principal balance, due to charge-offs and interest applied to principal, before consideration of the ALLL.
Within consumer nonperforming loans, residential real estate TDRs comprised 69% and 79%44% of total residential real estate nonperforming loans at September 30, 2020 and December 31, 2019, respectively, while home equity TDRs comprised 44% and 49%38% of home equity nonperforming loans at September 30, 2020 and2021. Comparable amounts at December 31, 2019,2020 were 47% and 41%, respectively. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status. Loans that have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act are not identified as TDRs. Refer to the Troubled Debt Restructurings and Loan Modifications discussion in this Credit Risk Management section for more information on the treatment of loan modifications under the CARES Act.
26The PNC Financial Services Group, Inc. – Form 10-Q
29
At September 30, 2020, our largest nonperforming asset was $142 million in the Real Estate and Rental and Leasing industry and the ten largest individual nonperforming assets represented 21% of total nonperforming assets.
Loan Delinquencies
We regularly monitor the level of loan delinquencies and believe these levels may be a key indicator of credit quality in our loan portfolio. Measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. Loan delinquencies include government insured or guaranteed loans, loans accounted for under the fair value option and at September 30, 2020 also include PCD loans. Amounts exclude loans held for sale, while amounts as of December 31, 2019 also excluded purchased impaired loans.sale.
Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the September 30, 2021 and December 31, 2020 delinquency status of loans modified due to COVID-19 related hardships aligns with the rules set forth for banks to report delinquency status to the credit agencies. These rules require that COVID-19 related loan modifications be reported as follows:
•if current at the time of modification, the loan remains current throughout the modification period,
•if delinquent at the time of modification and the borrower was not made current as part of the modification, the loan maintains its reported delinquent status during the modification period, or
•if delinquent at the time of modification and the borrower was made current as part of the modification or became current during the modification period, the loan is reported as current.
As a result, certain loans modified due to COVID-19 related hardships are not being reported as past due as of September 30, 2021 and December 31, 2020 based on the contractual terms of the loan, even where borrowers may not be making payments on their loans during the modification period. Loan modifications due to COVID-19 related hardships that permanently reduce either the contractual interest rate or the principal balance of a loan do not qualify for TDR relief under the CARES Act or the interagency guidance. See Recent Regulatory Developmentsthe COVID-19 Relief section in Item 21 of our first quarter 2020 Form 10-Q10-K for more information on the CARES Act and the related interagency guidance.
Table 22: Accruing Loans Past Due (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount | | | | % of Total Loans Outstanding | |
| | | September 30
2021 (b) | | December 31
2020 | | Change | | September 30
2021 | | December 31
2020 | |
| Dollars in millions | | $ | | % | | |
| Early stage loan delinquencies | | | | | | | | | | | | | |
| Accruing loans past due 30 to 59 days | | $ | 659 | | | $ | 620 | | | $ | 39 | | | 6 | % | | 0.23 | % | | 0.26 | % | |
| Accruing loans past due 60 to 89 days | | 245 | | | 234 | | | 11 | | | 5 | % | | 0.08 | % | | 0.10 | % | |
| Total early stage loan delinquencies | | 904 | | | 854 | | | 50 | | | 6 | % | | 0.31 | % | | 0.35 | % | |
| Late stage loan delinquencies | | | | | | | | | | | | | |
| Accruing loans past due 90 days or more | | 492 | | | 509 | | | (17) | | | (3) | % | | 0.17 | % | | 0.21 | % | |
| Total accruing loans past due | | $ | 1,396 | | | $ | 1,363 | | | $ | 33 | | | 2 | % | | 0.48 | % | | 0.56 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Amount | | | | % of Total Loans Outstanding | |
| | | September 30
2020 |
| | December 31
2019 |
| | Change | | September 30
2020 |
| | December 31
2019 |
| |
| Dollars in millions | | $ | | % | | |
| Early stage loan delinquencies | | | | | | | | | | | | | |
| Accruing loans past due 30 to 59 days | | $ | 539 |
| | $ | 661 |
| | $ | (122 | ) | | (18 | )% | | .22 | % | | .28 | % | |
| Accruing loans past due 60 to 89 days | | 251 |
| | 258 |
| | (7 | ) | | (3 | )% | | .10 | % | | .11 | % | |
| Total early stage loan delinquencies | | 790 |
| | 919 |
| | (129 | ) | | (14 | )% | | .32 | % | | .38 | % | |
| Late stage loan delinquencies | | | | | | | | | | | | | |
| Accruing loans past due 90 days or more | | 448 |
| | 585 |
| | (137 | ) | | (23 | )% | | .18 | % | | .24 | % | |
| Total accruing loans past due | | $ | 1,238 |
| | $ | 1,504 |
| | $ | (266 | ) | | (18 | )% | | .50 | % | | .63 | % | |
| |
(a) | Past due loan amounts include government insured or guaranteed loans of $.5 billion at September 30, 2020 and $.6 billion at December 31, 2019. |
(b)Amounts as of September 30, 2021 include $300 million of early stage loan delinquencies and $72 million of late stage loan delinquencies attributable to BBVA.
Accruing loans past due 90 days or more continue to accrue interest because they are (i) well secured by collateral and are in the process of collection, (ii) managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or (iii) certain government insured or guaranteed loans. As such, they are excluded from nonperforming loans.
Troubled Debt Restructurings and Loan Modifications
Troubled Debt Restructurings
A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs result from our loss mitigation activities and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from court-imposed concessions (e.g., a Chapter 7 bankruptcy where the debtor is discharged from personal liability to us and a court approved Chapter 13 bankruptcy repayment plan). Loans to borrowers experiencing COVID-19 related hardships that have been restructured but that meet certain criteria under the CARES Act are not categorized as TDRs.
30The PNC Financial Services Group, Inc. – Form 10-Q27
Table 23: Summary of Troubled Debt Restructurings (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30
2021 | | December 31
2020 | | Change | |
| Dollars in millions | | $ | | % | |
| Commercial | | $ | 486 | | | $ | 528 | | | $ | (42) | | | (8) | % | |
| Consumer | | 970 | | | 1,116 | | | (146) | | | (13) | % | |
| Total TDRs | | $ | 1,456 | | | $ | 1,644 | | | $ | (188) | | | (11) | % | |
| Nonperforming | | $ | 798 | | | $ | 902 | | | $ | (104) | | | (12) | % | |
| Accruing (b) | | 658 | | | 742 | | | (84) | | | (11) | % | |
| Total TDRs | | $ | 1,456 | | | $ | 1,644 | | | $ | (188) | | | (11) | % | |
|
| | | | | | | | | | | | | | | | |
| | | September 30
2020 |
| | December 31
2019 |
| | Change | |
| Dollars in millions | | $ | | % | |
| Commercial | | $ | 418 |
| | $ | 361 |
| | $ | 57 |
| | 16 | % | |
| Consumer | | 1,148 |
| | 1,303 |
| | (155 | ) | | (12 | )% | |
| Total TDRs | | $ | 1,566 |
| | $ | 1,664 |
| | $ | (98 | ) | | (6 | )% | |
| Nonperforming | | $ | 836 |
| | $ | 843 |
| | $ | (7 | ) | | (1 | )% | |
| Accruing (b) | | 730 |
| | 821 |
| | (91 | ) | | (11 | )% | |
| Total TDRs | | $ | 1,566 |
| | $ | 1,664 |
| | $ | (98 | ) | | (6 | )% | |
| |
(a) | Amounts in table do not include associated valuation allowances. |
| |
(b) | Accruing loans include consumer credit card loans and loans that have demonstrated a period of at least six months of performance under the restructured terms and are excluded from nonperforming loans. |
(b)Accruing loans include consumer credit card loans and certain loans that have demonstrated a period of at least six months of performance under the restructured terms and are excluded from nonperforming loans.
Nonperforming TDRs represented approximately 40% and 52%32% of total nonperforming loans at September 30, 2020 and December 31, 2019, respectively, and 53% and 51%55% of total TDRs at September 30, 2020 and2021. Comparable amounts at December 31, 2019,2020 were 39% and 55%, respectively. The remaining portion of TDRs represents TDRs that have been returned to accrual status after performing under the restructured terms for at least six consecutive months.
See Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses in the Notes to Consolidated Financial Statements included in Item 1 of this Report for additional information on TDRs. For additional information on the CARES Act, see the Recent Regulatory Developments section in Item 2 of our first quarter 2020 Form 10-Q.
Loan Modifications
During the third quarterfirst nine months of 2020,2021, PNC continued to provide relief to our customers from the economic impacts of COVID-19 through a variety of solutions, including additional grants and extensions of loan and lease modifications under our hardship relief programs. We continued to see a reduction in the number of customers in active assistance from the peak in the summer of 2020, which led to additional declines in loans under modification that present credit risk to PNC at September 30, 2021.
Under the CARES Act, loan modifications meeting certain criteria qualify the loan for relief from TDR treatment. These criteria include:
the loan modification resulted from a COVID-19 related hardship,
the borrower was no more than 30 days past due as of December 31, 2019, and
the loan modification did not result in a permanent reduction of interest or principal.
Loans that do not meet the criteria for TDR relief under the CARES Act may be evaluated under interagency guidance, which allows banks to not designate certain short-term modifications as TDRs for borrowers with COVID-19 hardships who were current on their payments prior to the modification. Loans that are permanently modified or receive longer term modifications under programs involving a change to loan terms due to customer financial difficulty and PNC concessions are evaluated for TDR accounting. For additional information on the CARES Act and interagency guidance, see the Recent Regulatory Developments section in Item 2 of our first quarter 2020 Form 10-Q.
The impact of these modifications was considered within the quarterly reserve determination. See the Allowance for Credit Losses discussion within the Critical Accounting Estimates and Judgments section of this Financial Review for additional information. Refer to the Loan Delinquencies discussion in this Credit Risk Management section for information on how these hardship related loan modifications are reported from a delinquency perspective as of September 30, 2020.
Commercial Loan and Lease Modifications Under COVID-19 Hardship Relief Programs2021.
PNC is granting temporary
Under the CARES Act, loan and lease modifications to our commercial clientsmeeting certain criteria qualify the loan for relief from TDR treatment. Loans that do not meet the criteria for TDR relief under the CARES Act may also be evaluated under interagency guidance. For additional information on this criteria, see the Loan Modifications discussion in the formCredit Risk Management section within Item 7 of principal and/or interest (payment) deferrals, covenant waivers and other types of modifications, including term extensions. We analyze and make decisions on these modifications based on each individual borrower's situation.
Initial payment deferrals are typically offered with terms up to 90 days. As noted in our second quarter 2020 Form 10-Q, we had granted deferrals on nearly 16,000 commercial accounts representing approximately $6.8 billion in hardship relief assistance through June 30, 2020. We have continued to selectively grant payment deferrals in the third quarter of 2020, although the volume of this activity has declined considerably from earlier in the year. Following the expiration of these initial deferral periods, we have also noted a low volume of clients requesting subsequent assistance. As of September 30, 2020, subsequent deferrals were minimal in our commercial hardship relief programs.
The PNC Financial Services Group, Inc. – Form 10-Q 31
The following table provides a summary of commercial accounts in active assistance under COVID-19 hardship relief payment deferral programs at September 30, 2020.
Table 24: Commercial Loans in Active COVID-19 Payment Deferral Programs (a) (b)
|
| | | | | | | | | | | |
| | | Number of Accounts |
| | Unpaid Principal Balance |
| | % of Loan Class (c) |
| |
| As of September 30, 2020 - Dollars in millions | | | | |
| Commercial | | | | | | | |
| Commercial and industrial | | 435 |
| | $ | 305 |
| | .2 | % | |
| Commercial real estate | | 39 |
| | 468 |
| | 1.6 | % | |
| Equipment lease financing | | 47 |
| | 9 |
| | .1 | % | |
| Total commercial | | 521 |
| | $ | 782 |
| | .5 | % | |
(a) In cases where individual loans have been modified more than once regardless of the number of modifications granted, each loan is counted only once in this table.
(b) The amount of loan modifications that qualify for TDR accounting included in this table was immaterial.
(c) Based on total loans outstanding at September 30, 2020.
These modifications are considered to have exited active assistance after the deferral period has expired or the borrower has exited the modification. We are monitoring the delinquency status of loans exiting relief programs as a measure to assess credit risk. As of September 30, 2020, approximately 99% of the accruing commercial loans that have exited COVID-19 payment deferral programs were current or less than 30 days past due.
Consumer Loan Modifications Under Hardship Relief Programs
Our consumer loan modification programs are being granted in response to customer hardships.hardships that extended beyond the initial relief period. These temporary loan and line modifications include all hardship related modifications, andmodifications. See the primary offerings asLoan Modifications discussion within Credit Risk Management in Item 7 of September 30, 2020 are described in the following matrix. |
| | | | | | |
Modification Type | Home Equity | Residential Real Estate | Automobile | Credit Card | Education | Other Consumer |
Extensions - Defers current payments and moves them to the end of the loan by extending the loan's maturity or the extension re-amortizes the remaining principal balance. | a | | a | | a | a |
Forbearance - Part or all of the payments are deferred and moved to the end of the forbearance period. Balance is due at the end of the forbearance period, but payment options may be available to repay the forborne amount, including for many borrowers an option to delay payment until the payoff or maturity of the loan. | a | a | | | | |
Minimum payment suspension - Reduces required minimum payment to $0 for a period of time. | a | | | a | | a |
New loan terms - Sets loan terms to a new monthly payment of principal and interest based on customer's financial situation. | a | | | a | | a |
Reduced payments - Allows the customer to make a lower payment for a period of time, with any deferred balance being moved to the end of the loan term or extending the loan's maturity. | | | a | | | a |
Repayment plan - Allows reduced payment and interest rate for a period of time. | | | | a | | |
Interest continues to accrue during the relief period for loans modified in these programs unless the loan was designated as a nonperforming TDR or was on nonaccrual at the date of modification. The method of collection of the accrued interest is dependent on the product type and modification offered.
As noted in our second quarter 2020 Form 10-Q, we had granted assistance on approximately 242,000 consumer accounts representing approximately $6.1 billion in hardship relief assistance through June 30, 2020. We continue to offer options to our customers in response to hardship that extended beyond the initial relief period, but have seen a notable decline in requests10-K for assistance from the peak this summer.additional details.
The following table provides a summary of consumer accounts in active assistance under hardship relief programs that were on our balance sheet at September 30, 2020. We have excluded2021. Excluded from Table 24 are government insured or guaranteed loans totaling $491$284 million and $268 million in each of the Residential real estate and Education loan classes, respectively, from Table 25 as theseclasses. These loans present minimal credit risk to PNC.
3228 The PNC Financial Services Group, Inc. – Form 10-Q
Table 25:24: Consumer Loans in Active Hardship Relief Programs (a) (b)
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2021 - Dollars in millions | | Number of
Accounts | | Unpaid
Principal
Balance | % of Loan Class (c) | % Making Payment in Last Payment Cycle | |
| Consumer | | | | | | | |
| Residential real estate | | 1,334 | | | $ | 234 | | 0.6 | % | 36.5 | % | |
| Home equity | | 665 | | | 46 | | 0.2 | % | 82.8 | % | |
| Automobile | | 2,556 | | | 57 | | 0.3 | % | 74.3 | % | |
| Credit card | | 6,519 | | | 41 | | 0.6 | % | 71.6 | % | |
| Education | | 2,449 | | | 37 | | 1.4 | % | 55.9 | % | |
| Other consumer | | 553 | | | 7 | | 0.1 | % | 77.2 | % | |
| Total consumer (d) | | 14,076 | | | $ | 422 | | 0.4 | % | 69.0 | % | |
|
| | | | | | | | | | | | |
| As of September 30, 2020 - Dollars in millions | | Number of Accounts |
| | Unpaid Principal Balance |
| % of Loan Class (c) |
| % Making Payment in Last Payment Cycle |
| |
| Consumer | | | | | | | |
| Home equity | | 1,588 |
| | $ | 152 |
| .6 | % | 62.6 | % | |
| Residential real estate | | 3,401 |
| | 1,181 |
| 5.2 | % | 44.6 | % | |
| Automobile | | 13,956 |
| | 361 |
| 2.4 | % | 71.7 | % | |
| Credit card | | 6,488 |
| | 50 |
| .8 | % | 65.6 | % | |
| Education | | 2,680 |
| | 39 |
| 1.3 | % | 13.5 | % | |
| Other consumer | | 2,946 |
| | 41 |
| .8 | % | 68.2 | % | |
| Total consumer (d) | | 31,059 |
| | $ | 1,824 |
| 2.4 | % | 62.3 | % | |
(a)In cases where there have been multiple modifications on an individual loan, regardless of the number of modifications granted, each loan is counted only once in this table.
(b)Amounts include loan modifications that qualify for TDR accounting totaling $170$101 million.
(c)Based on total loans outstanding at September 30, 2020.2021.
(d)Approximately 93%80% of these loansloan balances were secured by collateral at September 30, 2020.2021.
Modifications are considered to have exited active assistance after the modification period has expired or the modification was exited. As of September 30, 2020,2021, approximately 96%97% of the accruing consumer loans that have exited hardship relief program modifications offered by legacy PNC were current or less than 30 days past due.
The initial consumer loan modifications granted in response to
See the COVID-19 outbreak andCredit Risk Management section within Item 7 of our 2020 Form 10-K for information on the surrounding economic circumstances were short-term and temporary in nature and generally meet the qualifications for relief from TDR treatment under the CARES Act. However, in response to customers' hardships that have extended beyond the initial relief period, PNC has offered options to customers which include both temporary and permanent modifications that may reduce the payment, the interest rate or extend the term and/or defer principal and interest payments. Permanent modifications would not meet the qualifications for relief from TDR treatment under the CARES Act.impacts of our modification programs.
Allowance for Credit Losses
On January 1, 2020 we adopted the CECL standard which replaced the incurred loss methodology for our credit related reserves with an expected credit loss methodology for the remaining estimated contractual term of in-scope assets and off-balance sheet exposures. Our ACL is based on historical loss and performance experience, which is captured through PD, as well as current borrower risk characteristics including collateral type and quality, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We maintain the ACL at an appropriate level for expected losses on our existing investment securities, loans, equipment finance leases, trade receivables and other financial assets and off-balance sheet credit exposuresunfunded lending related commitments and determine this allowance based on quarterly assessments of the remaining estimated contractual term of the assets or exposures as of the balance sheet date.
Expected losses are estimated using a combination of (i) the expected losses over a reasonable and supportable forecast period (RSFP), (ii) a period of reversion to long run average expected losses (reversion period) where applicable, and (iii) long run average (LRA) expected losses for the remaining estimated contractual term.
We use forward-looking information in estimating expected credit losses for the RSFP. For this purpose, we have established a framework which includes a three year reasonable and supportable forecast period and the use of four economic scenarios and associated probability weights, which in combination create a forecast of expected economic outcomes over our RSFP of three years. Forward looking information, such as forecasted relevant macroeconomic variables, is incorporated into the expected credit loss estimates using quantitative techniques, as well as through analysis from PNC's economists and management’s judgment in qualitatively assessing the ACL.
The reversion period is used to bridge RSFP and LRA expected credit losses. We may consider a number of factors in determining the duration of the reversion period, such as contractual maturity of the asset, observed historical patterns and the estimated credit loss rates at the end of RSFP relative to the beginning of the LRA period.
The LRA expected credit losses are derived from our available historical credit information. We use LRA expected loss for the portfolio for the estimated remaining contractual term beyond the RSFP and reversion period.
The following discussion provides additional information related to our reserves under CECL for loans and leases as well as unfunded lending related commitments. See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in this ReportItem 8 of our 2020 Form 10-K and the Credit Risk Management section within Item 7 of our 2020 Form 10-K for furtheradditional discussion onof our ACL, including details of our methodologies and discussion of the allowances for investment securities and other financial assets.methodologies. See also the Critical Accounting Estimates and Judgments section of this Financial Review for further discussion of the assumptions used in the determination of the ACL as of September 30, 2021.
The PNC Financial Services Group, Inc. – Form 10-Q 29 33
for further discussion of the assumptions used in the determination of the ACL.
Table 25: Allowance for Credit Losses by Loan Class (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | |
Dollars in millions | | Allowance Amount | Total Loans | % of Total Loans | | Allowance Amount | Total Loans | % of Total Loans | |
| Allowance for loans and lease losses | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 2,173 | | $ | 152,735 | | 1.42 | % | | $ | 2,300 | | $ | 132,073 | | 1.74 | % | |
| Commercial real estate | | 1,312 | | 36,195 | | 3.62 | % | | 880 | | 28,716 | | 3.06 | % | |
| Equipment lease financing | | 118 | | 6,257 | | 1.89 | % | | 157 | | 6,414 | | 2.45 | % | |
| Total commercial | | 3,603 | | 195,187 | | 1.85 | % | | 3,337 | | 167,203 | | 2.00 | % | |
| Consumer | | | | | | | | | |
| Residential real estate | | 42 | | 38,214 | | 0.11 | % | | 28 | | 22,560 | | 0.12 | % | |
| Home equity | | 167 | | 24,479 | | 0.68 | % | | 313 | | 24,088 | | 1.30 | % | |
| Automobile | | 365 | | 17,265 | | 2.11 | % | | 379 | | 14,218 | | 2.67 | % | |
| Credit card | | 701 | | 6,466 | | 10.84 | % | | 816 | | 6,215 | | 13.13 | % | |
| Education | | 81 | | 2,653 | | 3.05 | % | | 129 | | 2,946 | | 4.38 | % | |
| Other consumer | | 396 | | 5,966 | | 6.64 | % | | 359 | | 4,698 | | 7.64 | % | |
| Total consumer | | 1,752 | | 95,043 | | 1.84 | % | | 2,024 | | 74,725 | | 2.71 | % | |
| Total | | 5,355 | | $ | 290,230 | | 1.85 | % | | 5,361 | | $ | 241,928 | | 2.22 | % | |
| Allowance for unfunded lending related commitments | | 646 | | | | | 584 | | | | |
| Allowance for credit losses | | $ | 6,001 | | | | | $ | 5,945 | | | | |
| Allowance for credit losses to total loans | | | | 2.07 | % | | | | 2.46 | % | |
| Commercial | | | | 2.12 | % | | | | 2.29 | % | |
| Consumer | | | | 1.96 | % | | | | 2.84 | % | |
(a) Excludes allowances for investment securities and Lease Losses
Our pooled expected loss methodology is based upon the quantification of PD, LGD, exposureother financial assets, which together totaled $162 million and $109 million at default (EAD)September 30, 2021 and the remaining estimated contractual term for a loan or loan segment. We also consider the impact of prepayments and amortization on contractual maturity in our expected loss estimates. We use historical data, current borrower characteristics and forecasted economic variables in quantitative methods to estimate these risk parameters by loan or loan segments. PDs represent a quantification of risk that a borrower may not be able to pay their contractual obligation over a defined period of time. LGD describes the estimate of potential loss if a borrower were to default, and EAD (or utilization rates for revolving loans) is the estimated balance outstanding at the time of default and expected loss. These parameters are calculated for each forecasted scenario, and are combined to generate expected loss estimates by scenario in proportion to the scenario weights.
We use a discounted cash flow methodology for our consumer real estate related loan classes and for certain commercial and consumer TDR loans. For non-TDR residential real estate loans and lines, we determine effective interest rates considering contractual cash flows adjusted for prepayments and market interest rates. We then determine the net present value of expected cash flows and ALLL by discounting contractual cash flows adjusted for both prepayments and expected credit losses using the effective interest rates.
We establish individually assessed reserves for loans and leases that do not share similar risk characteristics with a pool of loans using methods prescribed by GAAP. Reserves for individual commercial nonperforming loans and commercial TDRs exceeding a defined dollar threshold are based on an analysis of the present value of the loan’s expected future cash flows or the fair value of the collateral, if appropriate under our policy for collateral dependent loans. Commercial loans that are below the defined threshold and accruing TDRs are collectively reserved for, as we believe these loans continue to share similar risk characteristics. For consumer nonperforming loans classified as collateral dependent, charge-off and ALLL related to recovery of amounts previously charged-off are evaluated through an analysis of the fair value of the collateral less costs to sell.
While our reserve methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between expected and actual outcomes. We may hold additional reserves that are designed to provide coverage for losses attributable to such risks. A portion of the allowance is related to qualitative measurement factors. These factors may include, but are not limited to, the following:
Industry concentrations and conditions,
Changes in market conditions, including regulatory and legal requirements,
Changes in the nature and volume of our portfolio,
Recent credit quality trends, including the impact of COVID-19 hardship related loan modifications,
Recent loss experience in particular portfolios, including specific and unique events,
Recent macro-economic factors that may not be reflected in the forecast information,
Limitations of available input data, including historical loss information and recent data such as collateral values,
Model imprecision,
Changes in lending policies and procedures, including changes in loss recognition and mitigation policies and procedures,
Timing of available information, including the performance of first lien positions, and
Other relevant factors.
Allowance for Unfunded Lending Related CommitmentsDecember 31, 2020, respectively.
We maintain the allowance for unfunded lending related commitments on off-balance sheet credit exposures that are not unconditionally cancelable, (e.g., unfunded loan commitments, letters of credit and certain financial guarantees) at a level we believe is appropriate as of the balance sheet date to absorb expected credit losses on these exposures. Other than the estimation of the probability of funding, this reserve is estimated in a manner similar to the methodology used for determining reserves for loans and leases. The allowance for unfunded lending related commitments is recorded as a liability on the Consolidated Balance Sheet. Net adjustments to this reserve are included in the provision for credit losses.
30The PNC Financial Services Group, Inc. – Form 10-Q
34
Table 26: Allowance for Credit Losses by Loan Class (a)
|
| | | | | | | | | | | | | | | | | | | |
| | | September 30, 2020 | | December 31, 2019 | |
Dollars in millions | | Allowance Amount | Total Loans | % of Total Loans | | Allowance Amount | Total Loans | % of Total Loans | |
| Allowance for loans and lease losses | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 2,735 |
| $ | 137,187 |
| 1.99 | % | | $ | 1,489 |
| $ | 125,337 |
| 1.19 | % | |
| Commercial real estate | | 630 |
| 29,028 |
| 2.17 | % | | 278 |
| 28,110 |
| .99 | % | |
| Equipment lease financing | | 163 |
| 6,479 |
| 2.52 | % | | 45 |
| 7,155 |
| .63 | % | |
| Total commercial | | 3,528 |
| 172,694 |
| 2.04 | % | | 1,812 |
| 160,602 |
| 1.13 | % | |
| Consumer | | | |
|
| | | |
|
| |
| Home equity | | 349 |
| 24,539 |
| 1.42 | % | | 87 |
| 25,085 |
| .35 | % | |
| Residential real estate | | 28 |
| 22,886 |
| .12 | % | | 258 |
| 21,821 |
| 1.18 | % | |
| Automobile | | 404 |
| 14,977 |
| 2.70 | % | | 160 |
| 16,754 |
| .95 | % | |
| Credit card | | 891 |
| 6,303 |
| 14.14 | % | | 288 |
| 7,308 |
| 3.94 | % | |
| Education | | 136 |
| 3,051 |
| 4.46 | % | | 17 |
| 3,336 |
| .51 | % | |
| Other consumer | | 415 |
| 4,829 |
| 8.59 | % | | 120 |
| 4,937 |
| 2.43 | % | |
| Total consumer | | 2,223 |
| 76,585 |
| 2.90 | % | | 930 |
| 79,241 |
| 1.17 | % | |
| Total | | 5,751 |
| $ | 249,279 |
| 2.31 | % | | 2,742 |
| $ | 239,843 |
| 1.14 | % | |
| Allowance for unfunded lending related commitments | | 689 |
| | | | 318 |
| | | |
| Allowance for credit losses | | $ | 6,440 |
| | | | $ | 3,060 |
| | | |
| Allowance for credit losses to total loans | |
|
| | 2.58 | % | | | | 1.28 | % | |
| Commercial | |
|
| | 2.38 | % | | | | 1.33 | % | |
| Consumer | |
|
| | 3.04 | % | | | | 1.18 | % | |
| |
(a) | Excludes allowances for investment securities and other financial assets, which together totaled $98 million at September 30, 2020. |
The PNC Financial Services Group, Inc. – Form 10-Q 35
The following table summarizes our loan charge-offs and recoveries.recoveries:
Table 27:26: Loan Charge-Offs and Recoveries
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30 | | Gross
Charge-offs | | Recoveries | | Net Charge-offs /
(Recoveries) | | % of Average
Loans (Annualized) | |
| Dollars in millions |
| 2021 | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 350 | | | $ | 68 | | | $ | 282 | | | 0.27 | % | |
| Commercial real estate | | 34 | | | 5 | | | 29 | | | 0.12 | % | |
| Equipment lease financing | | 9 | | | 8 | | | 1 | | | 0.02 | % | |
| Total commercial | | 393 | | | 81 | | | 312 | | | 0.23 | % | |
| Consumer | | | | | | | | | |
| Residential real estate | | 11 | | | 20 | | | (9) | | | (0.04) | % | |
| Home equity | | 16 | | | 63 | | | (47) | | | (0.26) | % | |
| Automobile | | 120 | | | 117 | | | 3 | | | 0.03 | % | |
| Credit card | | 196 | | | 36 | | | 160 | | | 3.52 | % | |
| Education | | 11 | | | 6 | | | 5 | | | 0.24 | % | |
| Other consumer | | 130 | | | 21 | | | 109 | | | 2.77 | % | |
| Total consumer | | 484 | | | 263 | | | 221 | | | 0.36 | % | |
| Total | | $ | 877 | | | $ | 344 | | | $ | 533 | | | 0.27 | % | |
| 2020 | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 249 | | | $ | 52 | | | $ | 197 | | | 0.19 | % | |
| Commercial real estate | | 1 | | | 6 | | | (5) | | | (0.02) | % | |
| Equipment lease financing | | 19 | | | 7 | | | 12 | | | 0.23 | % | |
| Total commercial | | 269 | | | 65 | | | 204 | | | 0.15 | % | |
| Consumer | | | | | | | | | |
| Residential real estate | | 4 | | | 12 | | | (8) | | | (0.05) | % | |
| Home equity | | 31 | | | 44 | | | (13) | | | (0.07) | % | |
| Automobile | | 210 | | | 95 | | | 115 | | | 0.93 | % | |
| Credit card | | 228 | | | 26 | | | 202 | | | 3.98 | % | |
| Education | | 13 | | | 6 | | | 7 | | | 0.29 | % | |
| Other consumer | | 110 | | | 14 | | | 96 | | | 2.61 | % | |
| Total consumer | | 596 | | | 197 | | | 399 | | | 0.68 | % | |
| Total | | $ | 865 | | | $ | 262 | | | $ | 603 | | | 0.32 | % | |
|
| | | | | | | | | | | | | | | | |
| Nine months ended September 30 | | Gross Charge-offs |
| | Recoveries |
| | Net Charge-offs / (Recoveries) |
| | % of Average Loans (Annualized) |
| |
| Dollars in millions |
| 2020 | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 249 |
| | $ | 52 |
| | $ | 197 |
| | .19 | % | |
| Commercial real estate | | 1 |
| | 6 |
| | (5 | ) | | (.02 | )% | |
| Equipment lease financing | | 19 |
| | 7 |
| | 12 |
| | .23 | % | |
| Total commercial | | 269 |
|
| 65 |
|
| 204 |
| | .15 | % | |
| Consumer | | | | | | | | | |
| Home equity | | 31 |
| | 44 |
| | (13 | ) | | (.07 | )% | |
| Residential real estate | | 4 |
| | 12 |
| | (8 | ) | | (.05 | )% | |
| Automobile | | 210 |
| | 95 |
| | 115 |
| | .93 | % | |
| Credit card | | 228 |
| | 26 |
| | 202 |
| | 3.98 | % | |
| Education | | 13 |
| | 6 |
| | 7 |
| | .29 | % | |
| Other consumer | | 110 |
| | 14 |
| | 96 |
| | 2.61 | % | |
| Total consumer | | 596 |
|
| 197 |
|
| 399 |
| | .68 | % | |
| Total | | $ | 865 |
|
| $ | 262 |
|
| $ | 603 |
| | .32 | % | |
| 2019 | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 116 |
| | $ | 45 |
| | $ | 71 |
| | .08 | % | |
| Commercial real estate | | 16 |
| | 8 |
| | 8 |
| | .04 | % | |
| Equipment lease financing | | 6 |
| | 6 |
| |
|
| | | |
| Total commercial | | 138 |
|
| 59 |
|
| 79 |
| | .07 | % | |
| Consumer | | | | | | | | | |
| Home equity | | 52 |
| | 56 |
| | (4 | ) | | (.02 | )% | |
| Residential real estate | | 5 |
| | 11 |
| | (6 | ) | | (.04 | )% | |
| Automobile | | 183 |
| | 85 |
| | 98 |
| | .86 | % | |
| Credit card | | 193 |
| | 21 |
| | 172 |
| | 3.58 | % | |
| Education | | 20 |
| | 6 |
| | 14 |
| | .51 | % | |
| Other consumer | | 92 |
| | 12 |
| | 80 |
| | 2.29 | % | |
| Total consumer | | 545 |
|
| 191 |
|
| 354 |
| | .63 | % | |
| Total | | $ | 683 |
|
| $ | 250 |
|
| $ | 433 |
| | .25 | % | |
Total net charge-offs increased $170decreased $70 million, or 39%12%, for the first nine months of 20202021 compared to the same period in 2019. The increase2020. Commercial net charge-offs increased in commercial net charge-offsthe comparative primarily related to industries adversely impactedcharge-offs attributable to BBVA, which were largely the result of required purchase accounting treatment for the acquisition. This increase was more than offset by the pandemicdeclines in consumer net-charge-offs, driven primarily by decreases in automobile and the energy industry, while the increases in credit card due to the continued favorable impact of government stimulus programs benefiting consumers, as well as the increase in automobile and other consumer loan net charge-offs were duecollateral values which has limited our losses in part to loan portfolio growth.the auto portfolio.
See Note 1 Accounting Policies in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K and Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements in Item 1 of this reportReport for additional information.
Liquidity and Capital Management
Liquidity risk, including our liquidity monitoring measures and tools, is described in further detail in the Liquidity and Capital Management section of our 20192020 Form 10-K.
One of the ways we monitor our liquidity is by reference to the Liquidity Coverage Ratio (LCR),LCR, a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a hypothetical 30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets (HQLA),HQLA, as defined and calculated in accordance with the LCR rules, by its estimated, weighted net cash outflows, with net cash outflows determined by applying the assumed outflow factors in the LCR rules. The resulting quotient is expressed as a percentage. Effective January 1, 2020, PNC and PNC Bank, as Category III institutions under the Tailoring Rules, were subject to a reduced LCR requirement, with each company's net outflows reduced by 15%,
The PNC Financial Services Group, Inc. – Form 10-Q 31
thereby reducing the amount of HQLA each institution must hold to meet the LCR minimum requirement. The minimum LCR that PNC and PNC Bank are required to
36 The PNC Financial Services Group, Inc. – Form 10-Q
maintain continues to be 100%. PNC and PNC Bank calculate the LCR daily, and as of September 30, 2020,2021, the LCR for PNC and PNC Bank exceeded the requirement of 100%.
Due to certain transition provisions in the LCR rules, BBVA USA was not subject to the LCR on a standalone basis prior to the merger into PNC Bank as the merger was completed prior to the effective date for BBVA USA’s LCR compliance in 2022.
We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation and Recent Regulatory Developments section of Item 1 Business and Item 1A Risk Factors of our 20192020 Form 10-K.
Sources of Liquidity
Our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable and low-cost funding. Total deposits increased to $355.1$448.9 billion at September 30, 20202021 from $288.5$365.3 billion at December 31, 2019,2020, driven by growth in both noninterest-bearing and interest-bearing and noninterest-bearing deposits.deposits primarily due to the BBVA acquisition. See the Funding Sources portion of the Consolidated Balance Sheet Review section of this Financial Review for additional information related to our deposits. Additionally, certain assets determined by us to be liquid as well as unused borrowing capacity from a number of sources are also available to manage our liquidity position.
At September 30, 2020,2021, our liquid assets consisted of cash and due from banks and short-term investments (federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling $80.0$87.0 billion and securities available for sale totaling $89.7$124.1 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Our liquid assets included $23.2$25.2 billion of securities available for sale and trading securities pledged as collateral to secure public and trust deposits, repurchase agreements and for other purposes. In addition, $.1$0.1 billion of securities held to maturity were also pledged as collateral for these purposes.
We also obtain liquidity through various forms of funding, including long-term debt (senior notes, subordinated debt and FHLB borrowings) and short-term borrowings (securities sold under repurchase agreements, commercial paper and other short-term borrowings). See Note 8 Borrowed Funds in the Notes To Consolidated Financial Statements, the Funding Sources section of the Consolidated Balance Sheet Review in this Report and Note 10 Borrowed Funds in Item 8 of our 20192020 Form 10-K for additional information related to our borrowings.
Total senior and subordinated debt, on a consolidated basis, decreased due to the following activity:
Table 28:27: Senior and Subordinated Debt
|
| | | | |
| In billions | 2020 |
| |
| January 1 | $ | 35.1 |
| |
| Issuances | 3.5 |
| |
| Calls and maturities | (6.6 | ) | |
| Other | 1.3 |
| |
| September 30 | $ | 33.3 |
| |
| | | | | | | | | |
| In billions | 2021 | | |
| January 1 | $ | 30.7 | | | |
| Issuances | 1.7 | | | |
| Calls and maturities | (3.9) | | | |
| Other | (0.7) | | | |
| Impact from BBVA acquisition | 2.2 | | | |
| September 30 | $ | 30.0 | | | |
Bank Liquidity
Under PNC Bank’s 2014 bank note program, as amended, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount outstanding at any one time of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. At September 30, 2020,2021, PNC Bank had $21.6$15.9 billion of notes outstanding under this program of which $16.6$10.9 billion were senior bank notes and $5.0 billion were subordinated bank notes.
At September 30, 2021, BBVA USA had $2.1 billion of notes outstanding, of which $1.3 billion were senior bank notes and $0.8 billion were subordinated banks notes.
See Note 16 Subsequent Events for details on the $750 million bank note redemption announced on October 29, 2021.
PNC Bank maintains additional secured borrowing capacity with the FHLB-PittsburghFHLB and through the Federal Reserve Bank
discount window. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities,
but rather as a potential source of liquidity in a stressed environment or during a market disruption. At September 30, 2020,2021, our
unused secured borrowing capacity at the FHLB-PittsburghFHLB and the Federal Reserve Bank totaled $79.4$95.3 billion.
32 The Federal Reserve also has established certain special liquidity facilities under its emergency lending authority in Section 13(3) of the Federal Reserve Act in response to the economic impact of the pandemic. For additional information on these special liquidity facilities see the Recent Regulatory Developments section of the first quarter 2020 PNC Financial Services Group, Inc. – Form 10-Q and second quarter 2020 Form 10-Q.
PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As ofAt September 30, 2020,2021, therewere no issuances outstanding under this program.
Additionally, PNC Bank may also access funding from the parent company through deposits placed at the bank, or through issuing senior unsecured notes.
Parent Company Liquidity
In addition to managing liquidity risk at the bank level, we monitor the parent company’s liquidity. The parent company’s contractual obligations consist primarily of debt service related to parent company borrowings and funding non-bank affiliates. Additionally, the
The PNC Financial Services Group, Inc. – Form 10-Q 37
parent company maintains adequate liquidity to fund discretionary activities such as paying dividends to our shareholders, share repurchases and acquisitions.
As ofAt September 30, 2020,2021, available parent company liquidity totaled $13.8$6.0 billion. Parent company liquidity is primarily held in intercompany short-term investments, the terms of which provide for the availability of cash in 31 days or less.cash. Investments with longer durations may also be acquired, butand if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.
The principal source of parent company liquidity is the dividends or other capital distributions it receives from PNC Bank, which may be impacted by the following:
•Bank-level capital needs,
•Laws and regulations,
•Corporate policies,
•Contractual restrictions, and
•Other factors.
There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was approximately $3.1 billion at September 30, 2020.2021. See Note 1820 Regulatory Matters in the Notes To Consolidated Financial Statements in our 20192020 Form 10-K for a further discussion of these limitations. Due to the net earnings restrictions on dividend distributions under Alabama law, BBVA USA was not permitted to pay dividends any time between the BBVA acquisition on June 1, 2021 and the bank merger on October 8, 2021 without regulatory approval.
See Note 16 Subsequent Events for details on PNC Bank's return of capital of $3.0 billion to the parent company.
In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As ofAt September 30, 2020,2021, there were no commercial paper issuances outstanding.
On August 4, 2021, PNC redeemed all of the outstanding senior notes due September 3, 2021 issued by PNC in the amount of $500 million. The securities had a distribution rate of 3.250%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.
On August 13, 2021, the parent company has an effective shelf registration statement pursuant to which we can issue additional debt, equityissued $700 million of senior notes with a maturity date of August 13, 2026. Interest is payable semi-annually in arrears at a fixed rate of 1.15% per annum, on August 13 and other capital instruments.February 13 of each year, beginning on February 13, 2022.
Parent company senior and subordinated debt outstanding totaled $10.7$11.4 billion and $9.8$10.6 billion at September 30, 20202021 and December 31, 2019,2020, respectively.
Contractual Obligations and Commitments
We have contractual obligations representing required future payments on borrowed funds, time deposits, leases, pension and postretirement benefits and purchase obligations. See the Liquidity and Capital Management portion of the Risk Management section in our 20192020 Form 10-K for more information on these future cash outflows. Additionally, in the normal course of business we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. We provide information on our commitments in Note 98 Commitments in the Notes To Consolidated Financial Statements of this Report.
Credit Ratings
PNC’s credit ratings affect the cost and availability of short and long-term funding, collateral requirements for certain derivative instruments and the ability to offer certain products.
The PNC Financial Services Group, Inc. – Form 10-Q 33
In general, rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current legislative and regulatory environment, including implied government support. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect liquidity and financial condition.
38The following table presents credit ratings for PNC Financial Services Group, Inc. – Form 10-Q
Table 29:28: Credit Ratings for PNC and PNC Bank
| | | | | | | | | | | |
| September 30, 2021 |
| Moody’s | Standard & Poor’s | Fitch |
| PNC | | | |
| Senior debt | A3 | A- | A |
| Subordinated debt | A3 | BBB+ | A- |
| Preferred stock | Baa2 | BBB- | BBB |
| PNC Bank | | | |
| Senior debt | A2 | A | A+ |
| Subordinated debt | A3 | A- | A |
| Long-term deposits | Aa3 | A | AA- |
| Short-term deposits | P-1 | A-1 | F1+ |
| Short-term notes | P-1 | A-1 | F1 |
| | | |
| | | |
| September 30, 2020 | | |
| Moody’s | Standard & Poor’s | Fitch |
PNC | | | |
Senior debt | A3 | A- | A |
Subordinated debt | A3 | BBB+ | A- |
Preferred stock | Baa2 | BBB- | BBB |
PNC Bank | | | |
Senior debt | A2 | A | A+ |
Subordinated debt | A3 | A- | A |
Long-term deposits | Aa2 | A | AA- |
Short-term deposits | P-1 | A-1 | F1+ |
Short-term notes | P-1 | A-1 | F1 |
On July 12, 2021, Moody’s downgraded PNC Bank’s long-term deposit rating from Aa2 to Aa3. The rating action was driven by a change in Moody’s rating methodology and no impact to PNC or its businesses is expected as a result of this downgrade. PNC Bank’s senior unsecured and subordinated debt ratings were affirmed at A2 and A3, respectively. At the same time, the Moody’s rating outlook on PNC Bank’s long-term deposit, senior unsecured debt and issuer ratings were raised from negative to stable. The credit rating agencies have withdrawn ratings on BBVA USA as the entity no longer exists.
Capital Management
Detailed information on our capital management processes and activities, including additional information on our previous CCAR submissions and capital plans, is included in the Capital Management portion of the Risk Management section in our 20192020 Form 10-K.
We manage our funding and capital positions by making adjustments to our balance sheet size and composition, issuing or redeeming debt, issuing equity or other capital instruments, executing treasury stock transactions and capital redemptions or repurchases, and managing dividend policies and retaining earnings.
We announced on March 16, 2020On September 13, 2021, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a temporary suspensionshare of our common3.400% fixed-rate reset non-cumulative perpetual preferred stock, repurchase program in conjunctionSeries T, with a par value of $1 per share.
In the Federal Reserve's effort to support the U.S. economy during the pandemic, and will continue the suspension through the fourththird quarter of 2020, consistent with the extension2021, we returned capital to shareholders through dividends on common shares of the Federal Reserve's special capital distribution restrictions. We repurchased $99 million$0.5 billion and $0.4 billion of common sharesshare repurchases, representing 2.1 million 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 to offset the effects of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve.2021.
On October 1, 2020,2021, the PNC boardBoard of directorsDirectors declared a quarterly cash dividend on common stock of $1.15$1.25 per share payable on November 5, 2020.2021.
Following completion of the 2020 CCAR/DFAST process, the Federal Reserve announced certain limitations on the capital distributions of any CCAR-participating bank holding company (including PNC) during the third quarter of 2020. Under these limitations, PNC and other CCAR-participating firms, absent Federal Reserve approval, were permitted to make only the following capital distributions during the third quarter of 2020:
Pay common dividends at the same per share level as paid during the second quarter of 2020, provided that the amount does not exceed the average of the firm's net income for the four preceding calendar quarters;
Purchase common shares in an amount that equals the amount of share issuances related to expensed employee compensation; and
Make scheduled payments on additional Tier 1 and Tier 2 capital instruments.
On September 30, 2020, the Federal Reserve extended these limitations, with minor modifications, to the fourth quarter of 2020, and it reserves the right to extend these limitations to additional quarters, potentially in modified form.
34The PNC Financial Services Group, Inc. – Form 10-Q
39
Table 30:29: Basel III Capital
| | | | | | | | | | | | | | |
| September 30, 2021 | |
| Dollars in millions | Basel III (a) | | Fully Implemented
(estimated) (b) | |
| Common equity Tier 1 capital | | | | |
| Common stock plus related surplus, net of treasury stock | $ | 630 | | | $ | 630 | | |
| Retained earnings | 50,598 | | | 49,541 | | |
| | | | |
| | | | |
| Goodwill, net of associated deferred tax liabilities | (10,673) | | | (10,673) | | |
| Other disallowed intangibles, net of deferred tax liabilities | (469) | | | (469) | | |
| Other adjustments/(deductions) | (48) | | | (53) | | |
| | | | |
| | | | |
| Common equity Tier 1 capital | 40,038 | | | 38,976 | | |
| Additional Tier 1 capital | | | | |
| Preferred stock plus related surplus | 5,009 | | | 5,009 | | |
| | | | |
| Tier 1 capital | 45,047 | | | 43,985 | | |
| Additional Tier 2 capital | | | | |
| Qualifying subordinated debt | 3,724 | | | 3,724 | | |
| Trust preferred capital securities | 20 | | | | |
| Eligible credit reserves includable in Tier 2 capital | 4,191 | | | 4,838 | | |
| Total Basel III capital | $ | 52,982 | | | $ | 52,547 | | |
| Risk-weighted assets | | | | |
| Basel III standardized approach risk-weighted assets (c) | $ | 389,911 | | | $ | 389,887 | | |
| | | | |
| Average quarterly adjusted total assets | $ | 547,840 | | | $ | 546,777 | | |
| Supplementary leverage exposure (d) | $ | 643,732 | | | $ | 643,727 | | |
| Basel III risk-based capital and leverage ratios (a)(e) | | | | |
| Common equity Tier 1 | 10.3 | % | | 10.0 | % | |
| Tier 1 | 11.6 | % | | 11.3 | % | |
| Total (f) | 13.6 | % | | 13.5 | % | |
| Leverage (g) | 8.2 | % | | 8.0 | % | |
| Supplementary leverage ratio (d) | 7.0 | % | | 6.8 | % | |
|
| | | | | | | | |
| Dollars in millions | Basel III September 30, 2020 (a) | | September 30, 2020 (Fully Implemented) (estimated) (b) | |
| Common equity Tier 1 capital | | | | |
| Common stock plus related surplus, net of treasury stock | $ | 816 |
| | $ | 816 |
| |
| Retained earnings | 47,306 |
| | 45,947 |
| |
| Goodwill, net of associated deferred tax liabilities | (9,023 | ) | | (9,023 | ) | |
| Other disallowed intangibles, net of deferred tax liabilities | (185 | ) | | (185 | ) | |
| Other adjustments/(deductions) | (63 | ) | | (65 | ) | |
| Common equity Tier 1 capital | $ | 38,851 |
| | $ | 37,490 |
| |
| Additional Tier 1 capital | | | | |
| Preferred stock plus related surplus | 3,516 |
| | 3,516 |
| |
| Other adjustments/(deductions) | — |
| | — |
| |
| Tier 1 capital | $ | 42,367 |
| | $ | 41,006 |
| |
| Additional Tier 2 capital | | | | |
| Qualifying subordinated debt | 3,949 |
| | 3,949 |
| |
| Trust preferred capital securities | 40 |
| | — |
| |
| Eligible credit reserves includable in Tier 2 capital | 4,129 |
| | 4,129 |
| |
| Total Basel III capital | $ | 50,485 |
| | $ | 49,084 |
| |
| Risk-weighted assets | | | | |
| Basel III standardized approach risk-weighted assets (c) | $ | 331,748 |
| | $ | 330,462 |
| |
| Average quarterly adjusted total assets | $ | 451,180 |
| | $ | 449,818 |
| |
| Supplementary leverage exposure (d) | $ | 444,492 |
| | $ | 534,027 |
| |
| Basel III risk-based capital and leverage ratios (a)(e) | | | | |
| Common equity Tier 1 | 11.7 | % | | 11.3 | % | |
| Tier 1 | 12.8 | % | | 12.4 | % | |
| Total (f) | 15.2 | % | | 14.9 | % | |
| Leverage (g) | 9.4 | % | | 9.1 | % | |
| Supplementary leverage ratio (d)(h) | 9.5 | % | | 7.7 | % | |
| |
(a) | (a)The ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision. |
| |
(b) | The ratios are calculated to reflect the full impact of CECL and excludes the benefits of the optional five-year transition provision. |
| |
(c) | Basel III standardized approach weighted-assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets. |
| |
(d) | As of September 30, 2020 the Supplementary leverage exposure and Supplementary leverage ratio reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks. |
| |
(e) | All ratios are calculated using the regulatory capital methodology applicable to PNC and calculated based on the standardized approach. |
| |
(f) | The Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $40 million that are subject to a phase-out period that runs through 2021. |
| |
(g) | Leverage ratio is calculated based on Tier 1 capital divided by Average quarterly adjusted total assets. |
| |
(h) | The Supplementary leverage ratio is calculated based on Tier 1 capital divided by Supplementary leverage exposure, which takes into account both on balance sheet assets as well as certain off-balance sheet items, including loan commitments and potential future exposure under derivative contracts. |
As of January 1, 2020, the 2019 Tailoring Rules became effective for PNC. The most significant changes involve the election to exclude specific AOCI items from common equityadopt the CECL optional five-year transition provision.
(b)The ratios are calculated to reflect the full impact of CECL and excludes the benefits of phase-ins.
(c)Basel III standardized approach weighted-assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets.
(d)The Supplementary leverage ratio is calculated based on Tier 1 (CET1) capital divided by Supplementary leverage exposure, which takes into account the quarterly average of both on balance sheet assets as well as certain off-balance sheet items, including loan commitments and higher thresholds usedpotential future exposure under derivative contracts.
(e)All ratios are calculated using the regulatory capital methodology applicable to calculate CET1PNC and calculated based on the standardized approach.
(f)The Basel III Total risk-based capital deductions. Effective Januaryratios include nonqualifying trust preferred capital securities of $20 million that are subject to a phase-out period that runs through 2021.
(g)Leverage ratio is calculated based on Tier 1 2020, PNC must deduct from CET1 capital (net of associated deferred tax liabilities) investments in unconsolidated financial institutions, mortgage servicing rights and deferred tax assets to the extent such items individually exceed 25% of the institution’sdivided by Average quarterly adjusted CET1 capital.total assets.
PNC’s regulatory risk-based capital ratios in 2020 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, nonaccruals, TDRs, past due exposures and equity exposures are generally subject to higher risk weights than other types of exposures.
The regulatory agencies have adopted a rule permitting banksbanking organizations to delay the estimated impact on regulatory capital stemming from implementing CECL. CECL’s estimated impact on CET1 capital, as defined by the rule, is the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date, excluding the initial allowance for PCD loans from BBVA, compared to the CECL ACL at transition. The estimated CECL impact is added to CET1 capital through December 31, 2021, then phased-out over the following three years. PNC elected to
40 The PNC Financial Services Group, Inc. – Form 10-Q
adopt this optional transition provision effective as of March 31, 2020. See additional discussion of this rule in the Recent Regulatory DevelopmentsSupervision and Regulation section of Item 1 Business and Item 21A Risk ManagementFactors of our first quarter 2020 Form 10-Q.
In response to the economic conditions caused by the pandemic, the Federal Reserve has adopted a final rule that revises, on a temporary basis, the calculation of supplementary leverage exposure (the denominator of the supplementary leverage ratio) by bank holding companies to exclude the on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks. The rule was effective as of April 14, 2020 and will remain in effect through March 31, 2021. See additional discussion of this rule in the Recent Regulatory Developments section of our first quarter 2020 Form 10-Q.
At September 30, 2020,2021, PNC, and PNC Bank our sole bank subsidiary,and BBVA USA were both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized”, PNC must have Basel III capital ratios of at least 6% for Tier 1 risk-based capital and 10% for Total risk-based capital, and PNC Bank and BBVA USA must have Basel III capital ratios of at least 6.5% for Common equity Tier 1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%.
The PNC Financial Services Group, Inc. – Form 10-Q 35
Federal banking regulators have stated that they expect the largest U.S. bank holding companies (BHCs),BHCs, including PNC, to have a level of regulatory capital well in excess of the regulatory minimum and have required the largest U.S. BHCs, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet the credit needs of their customers through estimated stress scenarios. We seek to manage our capital consistent with these regulatory principles, and believe that our September 30, 20202021 capital levels were aligned with them.
See the Recent Regulatory Developments section of our second quarter 2020 Form 10-Q for recent developments that could have a potential impact on our Basel III capital ratios. We provide additional information regarding regulatory capital requirements and some of their potential impacts on us in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 1820 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of our 20192020 Form 10-K.
Market Risk Management
See the Market Risk Management portion of the Risk Management Section in our 20192020 Form 10-K for additional discussion regarding market risk.
Market Risk Management – Interest Rate Risk
Interest rate risk results primarily from our traditional banking activities of gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences, affect the difference between the interest that we earn on assets and the interest that we pay on liabilities and the level of our noninterest-bearing funding sources. Due to the repricing term mismatches and embedded options inherent in certain of these products, changes in market interest rates not only affect expected near-term earnings, but also the economic values of these assets and liabilities.
Our Asset and Liability Management group centrally manages interest rate risk as prescribed in our risk management policies, which are approved by management’s Asset and Liability Committee and the Risk Committee of the Board of Directors.
Sensitivity results and market interest rate benchmarks for the third quarter of 2021 and 2020 and 2019 follow.follow:
Table 31:30: Interest Sensitivity Analysis
|
| | | | | | |
| | Third Quarter 2020 |
| | Third Quarter 2019 |
| |
| Net Interest Income Sensitivity Simulation (a) | | | | |
Effect on net interest income in first year from gradual interest rate change over the following 12 months of: | | | | |
| 100 basis point increase | 4.3 | % | | 1.9 | % | |
Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of: | | | | |
| 100 basis point increase | 10.9 | % | | 4.6 | % | |
| Duration of Equity Model (a) | | | | |
| Base case duration of equity (in years) | (8.3 | ) | | (6.5 | ) | |
| Key Period-End Interest Rates | | | | |
| One-month LIBOR | .15 | % | | 2.02 | % | |
| Three-month LIBOR | .23 | % | | 2.09 | % | |
| Three-year swap | .24 | % | | 1.55 | % | |
| |
(a) | Given the inherent limitations in certain of these measurement tools and techniques, results become less meaningful as interest rates approach zero. Senior management approved the suspension of the 100bps decrease in rate change sensitivities considering the current low rate environment. |
| | | | | | | | | | | | | | |
| Third Quarter 2021 (a) | | Third Quarter 2020 | |
| Net Interest Income Sensitivity Simulation | | | | |
Effect on net interest income in first year from gradual interest rate change over the
following 12 months of: | | | | |
| 100 basis point increase | 4.5 | % | | 4.3 | % | |
| | | | |
Effect on net interest income in second year from gradual interest rate change over the
preceding 12 months of: | | | | |
| 100 basis point increase | 11.3 | % | | 10.9 | % | |
| | | | |
| | | | |
| | | | |
| Key Period-End Interest Rates | | | | |
| One-month LIBOR | 0.08 | % | | 0.15 | % | |
| Three-month LIBOR | 0.13 | % | | 0.23 | % | |
| Three-year swap | 0.65 | % | | 0.24 | % | |
The PNC Financial Services Group, Inc. – (a) Results include BBVA USA.Form 10-Q 41
In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 3231 reflects the percentage change in net interest income over the next two 12-month periods, including BBVA USA, assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and (iii) yield curve slope flattening (a 50100 basis point yield curve slope flattening between one-month and ten-year rates superimposed on current base rates) scenario.
All changes in forecasted net interest income are relative to results in a base rate scenario where current market rates are assumed to remain unchanged over the forecast horizon.
Table 32:31: Net Interest Income Sensitivity to Alternative Rate Scenarios
| | | | | | | | | | | | | | |
| September 30, 2021 | |
| PNC
Economist | Market
Forward | Slope
Flattening | |
| First year sensitivity | 1.6 | % | 1.0 | % | (2.2) | % | |
| Second year sensitivity | 6.7 | % | 5.0 | % | (7.3) | % | |
|
| | | | | | | |
| | September 30, 2020 | |
| | PNC Economist |
| Market Forward |
| Slope Flattening |
| |
| First year sensitivity | — | % | .7 | % | (1.1 | )% | |
| Second year sensitivity | .7 | % | 2.5 | % | (3.2 | )% | |
When forecasting net interest income, we make assumptions about interest rates and the shape of the yield curve, the volume and characteristics of new business and the behavior of existing on- and off-balance sheet positions. These assumptions determine the
36 The PNC Financial Services Group, Inc. – Form 10-Q
future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 3130 and 32.31. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates.
The following graph presents the LIBOR/Swap yield curves for the base rate scenario and each of the alternate scenarios one year forward.
Table 33:32: Alternate Interest Rate Scenarios: One Year Forward
The third quarter 20202021 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.
TheAs discussed in Item 1A Risk Factors in our 2020 Form 10-K, the planned discontinuance of the requirement that banks submit rates for the calculation of LIBOR after 20212023 presents risks to the financial instruments originated, held or serviced by PNC that use LIBOR as a reference rate. PNC holds instruments and services its instruments and instruments owned by others that may be impacted by the likely discontinuance of LIBOR, including loans, investments, hedging products, floating-rate obligations, and other financial instruments that use LIBOR as a reference rate. The transition from LIBOR as an interest rate benchmark will subject PNC, like other financial participants, to financial, legal, operational, and reputational risks.
In order to address LIBOR cessation and the associated risks, PNC has established a cross functionalcross-functional governance structure to oversee the overall strategy for the transition from LIBOR and mitigate risks associated with the transition. A LIBOR impact and risk assessment has been performed, which identified the associated risks across products, systems, models, and processes. PNC also established an enterprise-level program, which is actively monitoring itsPNC’s overall firm-wide exposure to LIBOR and using these results to plan transitional strategies and track progress versus these goals. Program workstreams were formed by Line of Business to ensure accountability and alignment with the appropriate operational, technology, and customer-facing stakeholders, while establishing a centralized Program Management Office to ensure consistency in execution and communication. Project plans and established milestones have been developed and have continued to evolve and be refined in line with industry developments and internal decisions and progress. PNC is also involved in industry discussions, preparing milestones for readiness and assessing progress against those milestones, along with developing and delivering on internal and external LIBOR cessation communication plans.
We also continue to focus our transitionKey efforts on:in 2020 and the first nine months of 2021 included:
enhancing•Enhancing fallback language in new contracts and reviewing existing legal contracts/agreements to assess fallback language impacts;impacts,
making•Making preparations for internal operational readiness;readiness,
making•Making necessary enhancements to ourPNC's infrastructure, including systems, models, valuation tools and processes;processes,
developing•Developing and delivering on internal and external LIBOR cessation communication plans;
42 The PNC Financial Services Group, Inc. – Form 10-Qplans,
engaging•Engaging with ourPNC clients, industry working groups and regulators;regulators, and
monitoring•Monitoring developments associated with LIBOR alternatives and industry practices related to LIBOR-indexed instruments.
PNC also has been an active participant in efforts with the Federal Reserve and other regulatory agencies to explore the potential need for a credit-sensitive rate or add-on to SOFR for use in commercial loans. Those efforts led to the formation of the Credit Sensitivity
The PNC Financial Services Group, Inc. – Form 10-Q 37
Group, which has held a series of workshops to assess how a credit-sensitive rate or add-on to SOFR might be constructed and discuss associated implementation issues.
In the third quarter,late 2020, PNC began offering conforming adjustable rate mortgages using the Secured Overnight Financing Rate (SOFR)SOFR instead of USD LIBOR in line with FNMAFannie Mae and FHLMCFreddie Mac requirements.
See In the Risk Factors section in Item IAsecond quarter of 2021, PNC began offering nonconforming adjustable rate mortgages using SOFR and Risk Management Market Rate Management - Interest Rate Risk section in Item 7 disclosed inprivate student loans using Prime. Alternative rates including, but not limited to, the Bloomberg Short-Term Bank Yield Index and SOFR are currently being offered to our 2019 Form 10-Kcorporate and commercial customers. LIBOR will cease to be offered for additional informationnew loans by year end 2021. PNC has provided regular updates to Federal Reserve, OCC and Federal Deposit Insurance Corporation examination staff regarding the planned discontinuance ofits LIBOR as a reference rate.cessation and transition plans.
Market Risk Management – Customer-Related Trading Risk
We engage in fixed income securities, derivatives and foreign exchange transactions to support our customers’ investing and hedging activities. These transactions, related hedges and the credit valuation adjustment related to our customer derivatives portfolio are marked-to-market daily and reported as customer-related trading activities. Weactivities.We do not engage in proprietary trading of these products.
We use value-at-risk (VaR)VaR as the primary means to measure and monitor market risk in customer-related trading activities. VaR is used to estimate the probability of portfolio losses based on the statistical analysis of historical market risk factors. A diversified VaR reflects empirical correlations across different asset classes. We calculate a diversifiedis calculated for each of the portfolios that comprise our customer-related trading activities of which the majority are covered positions as defined by the Market Risk Rule. VaR at a 95% confidence intervalis computed with positions and the results for the first nine months of 2020 and 2019 weremarket risk factors updated daily to ensure each portfolio is operating within ourits acceptable limits.
See the Market Risk Management – Customer-Related Trading Risk section of our 20192020 Form 10-K for more information on our models used to calculate VaR and our backtesting process.
Customer relatedCustomer-related trading revenue was $293$278 million for the nine months ended September 30, 20202021, compared to $212$293 million for the same period in 2019.2020. The increasedecrease was primarily due to higherlower interest rate derivative client sales revenues and the impact of changes in credit valuations for customer-related derivative activities.partially offset by improved foreign exchange client sales revenues. For the quarterly period, customer relatedcustomer-related trading revenue was $108$99 million for the third quarter of 20202021, compared to $77$108 million in 2019.2020. The increasedecrease was primarily due to the impact of the changes in the credit valuationsvaluation for customer-related derivative activities.derivatives activities partially offset by improved foreign exchange client revenues.
Market Risk Management – Equity And Other Investment Risk
Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, underwriting securities and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations and growth financings in a variety of industries. We also have investments in affiliated and non-affiliated funds that make similar investments in private equity. The economic and/or book value of these investments and other assets are directly affected by changes in market factors.
Various PNC business units manage our equity and other investment activities. Our businesses are responsible for making investment decisions within the approved policy limits and associated guidelines.
A summary of our equity investments follows:
Table 34:33: Equity Investments Summary
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30
2021 (a) | | December 31
2020 | | Change | |
| Dollars in millions | | $ | | % | |
| Tax credit investments | $ | 3,723 | | | $ | 2,870 | | | $ | 853 | | | 30 | % | |
| Private equity and other | 4,014 | | | 3,182 | | | 832 | | | 26 | % | |
| Total | $ | 7,737 | | | $ | 6,052 | | | $ | 1,685 | | | 28 | % | |
(a)Includes $0.7 billion of investments from BBVA, of which $0.6 billion are tax credit investments and $0.1 billion are private equity and other.
|
| | | | | | | | | | | | | | | |
| | September 30
2020 |
| | December 31
2019 |
| | Change | |
| Dollars in millions | | $ |
| | % |
| |
| Tax credit investments | $ | 2,178 |
| | $ | 2,218 |
| | $ | (40 | ) | | (2 | )% | |
| Private equity and other | 2,760 |
| | 2,958 |
| | (198 | ) | | (7 | )% | |
| Total | $ | 4,938 |
| | $ | 5,176 |
| | $ | (238 | ) | | (5 | )% | |
Tax Credit Investments
Included in our equity investments are direct tax credit investments and equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $.8$2.0 billion and $1.0$1.4 billion at September 30, 20202021 and December 31, 2019,2020, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.
Note 25 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in our 20192020 Form 10-K has further information on Tax Credit Investments.
Private Equity and Other
The majoritylargest component of our other equity investments consists ofis our private equity portfolio. The private equity portfolio is an illiquid portfolio consisting of mezzanine and equity investments that vary by industry, stage and type of investment. Private equity investments carried at estimated fair value totaled $1.4$1.7 billion and $1.5 billion at September 30, 20202021 and December 31, 2019, 2020,
38 The PNC Financial Services Group, Inc. – Form 10-Q
respectively. As of September 30, 2020, $1.22021, $1.5 billion was invested directly in a variety of companies and $.2$0.2 billion was invested indirectly through various private equity funds. See the Recent Regulatory Developments section of our second quarter 2020 Form 10-
The PNC Financial Services Group, Inc. – Form 10-Q 43
Q and the Supervision and Regulation section in Item 1 of our 20192020 Form 10-K for discussion of the potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and other relationships with private funds covered by the Volcker Rule.
Included in our other equity investments are Visa Class B common shares, which are recorded at cost. Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly-traded Class A common shares, which cannot happen until the resolution of the pending interchange litigation. Based upon the September 30, 20202021 per share closing price of $199.97$222.75 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $1.1$1.3 billion at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was not significant. See Note 615 Fair Value and Note 1921 Legal Proceedings in the Notes To Consolidated Financial Statements in Item 8 of our 20192020 Form 10-K for additional information regarding our Visa shares and related agreements. The estimated value does not represent fair value of the Visa B common shares given the share’s limited transferability and the lack of observable transactions in the marketplace.
We also have certain other equity investments, the majority of which represent investments in affiliated and non-affiliated funds with both traditional and alternative investment strategies. Net gains related to these investments were $44 million for the nine months ended September 30, 2021 and were not significant atfor the nine months ended September 30, 2020 and September 30, 2019.2020.
Financial Derivatives
We use a variety of financial derivatives as part of the overall asset and liability risk management process to help manage exposure to market (primarily interest rate) and credit risk inherent in our business activities. We also enter into derivatives with customers to facilitate their risk management activities.
Financial derivatives involve, to varying degrees, market and credit risk. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional and an underlying as specified in the contract. Therefore, cash requirements and exposure to credit risk are significantly less than the notional amount on these instruments.
Further information on our financial derivatives is presented in Note 1 Accounting Policies, Note 615 Fair Value and Note 1316 Financial Derivatives in our Notes To Consolidated Financial Statements in our 20192020 Form 10-K and in Note 1211 Fair Value and Note 1312 Financial Derivatives in the Notes To Consolidated Financial Statements in Item 1 of this Report.
Not all elements of market and credit risk are addressed through the use of financial derivatives, and such instruments may be ineffective for their intended purposes due to unanticipated market changes, among other reasons.
RECENT REGULATORY DEVELOPMENTS
Capital, Capital Planning and Liquidity
In October 2020, the federal banking agencies finalized rules implementing the Net Stable Funding Ratio (NSFR). The final rules require covered banking organizations, including PNC and PNC Bank, to maintain an amount of available stable funding (ASF) equal to or greater than the banking organization’s projected minimum funding needs, or required stable funding (RSF), as calculated under the rules over a one-year time horizon. Consistent with the tailoring of the Liquidity Coverage Ratio requirements, Category III banking organizations with less than $75 billion in average weighted short-term wholesale funding, like PNC and PNC Bank, will need to meet a reduced NSFR requirement, with RSF adjusted by a 0.85 scalar. The final rule also requires covered holding companies like PNC to publicly disclose their NSFRs and other qualitative components of their liquidity profiles on a semi-annual basis. The final rules take effect on July 1, 2021. PNC has taken several actions to prepare for implementation of the NSFR, and we expect to be in compliance with the NSFR requirements when they become effective.
On October 1, 2020,8, 2021 and following regulatory approval from the Federal Reserve extended, until March 31,and the OCC, PNC consummated the merger of its U.S. state member bank subsidiary, BBVA USA, Birmingham, Alabama, with and into PNC Bank, with PNC Bank remaining as the surviving bank. The regulatory approval process also included approvals from the banking departments of the states of Alabama and Texas. With completion of the merger and conversion of BBVA USA branches to PNC Bank branches, PNC Bank has added branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. The merger of the two banks did not affect PNC or PNC Bank’s classification as Category III institutions for purposes of federal bank regulations.
Other Developments
In September 2021, certain temporary actions takenthe OCC issued a notice of proposed rulemaking to increaserescind its June 2020 CRA rule. The OCC's June 2020 rule made significant changes to the availability of intraday credit extended by Federal Reserve Banks. These actions include suspendingOCC’s regulations implementing the Federal Reserve's uncollateralized intraday credit limits (net debit caps), waiving overdraft feesCRA for institutions that are eligible fornational banks, like PNC Bank, and replaced the primary credit program, and suspending two collections of information that are used to calculate net debit caps.
On September 30, 2020,previous CRA rule jointly issued with the Federal Reserve announcedand the FDIC (1995 rule). The June 2020 rule would have required significant changes to PNC Bank’s CRA framework. The OCC is proposing to replace its June 2020 rule, including provisions of the rule that it would extend its special limitationswere effective October 1, 2020, with rules largely based on capital distributions by banking organizations that participated in the 2020 Comprehensive Capital Analysis and Review (CCAR) process, such as PNC, through the fourth quarter of 2020. These special limitations require covered banking organizations to suspend share repurchases (except those to offset the effects of employee benefit plan-related issuances) and allows organizations to maintain their common dividends1995 rule subject to a formula based on recent income. Additionally, in Septembertransition for certain aspects of the June 2020 rule. The proposal would facilitate the OCC’s ongoing work with the Federal Reserve releasedand the hypothetical supervisory scenariosFDIC to be usedmodernize the regulations implementing the CRA and create consistent rules for all insured depository institutions. Comments on the proposal are due October 29, 2021.
In September 2021, the CFPB issued a notice of proposed rulemaking to implement the small business lending data collection requirements set forth in section 1071 of the second round of stress testsDodd-Frank Act. Section 1071 amended the Equal Credit Opportunity Act to be conducted in the fourth quarter of 2020 duerequire financial institutions to collect and report to the continued economic uncertainty presented byCFPB data regarding certain small business credit applications. Under the COVID-19 pandemic.proposal, financial institutions that meet small business credit transaction thresholds, like PNC Bank, stress test submissions were due on November 2, 2020,would be required to collect and the Federal Reserve has indicated it will publicly release the results of the tests by the end of the year.
44The PNC Financial Services Group, Inc. – Form 10-Q39
In September 2020,significant amounts of data regarding applications for small business credit, including on the race, sex and ethnicity of the principal owners of the business, among other requirements. The CFPB has proposed that any final rule, when issued, would be effective 90 days after publication in the Federal Reserve requested comment on a proposal that would update the Federal Reserve’s capital planning requirements to be consistentRegister, with the capital and liquidity tailoring rules adopted last year. In addition to changing certain assumptions about material business changes under stress, the proposal invites comment on all aspects of the Federal Reserve’s existing capital planning guidance.compliance mandated 18 months after publication. Comments on the proposal are due by November 20, 2020.January 6, 2022.
In August and September 2020, the federal banking agencies adopted in final form several regulatory capital rules that were issued in interim final form earlier this year. These rules permit banking organizations that are subject to the CECL accounting standard during 2020 to delay CECL’s estimated impact on CET1 capital, revise the definition of “eligible retained income” for purposes of the Stress Capital Buffer (SCB) and other Basel III capital buffers and neutralize the regulatory capital and liquidity coverage ratio effects of participating in the Federal Reserve’s Money Market Mutual Fund Liquidity Facility and Paycheck Protection Program Liquidity Facility. For more information, see Item 2 Recent Regulatory Developments in our second quarter 2020 Form 10-Q.
Other Developments
In October 2020, the Office of the Comptroller of the Currency (OCC) issued a rule that determines when a national bank like PNC Bank makes a loan and is the "true lender," including in the context of a partnership between a bank and a third party. Under the final rule, a bank is the true lender if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan.
On August 13, 2020, an interim rule adopted by the Federal Acquisition Regulatory Council to implement certain provisions of the John S. McCain National Defense Authorization Act took effect. This rule prohibits the Department of Defense and all other executive branch agencies from contracting (or extending or renewing a contract) with an entity that uses covered telecommunication equipment or services provided by certain Chinese companies as a substantial or essential part of any system. It is possible that these restrictions may affect PNC’s ability to compete for U.S. government contracts, at least in the short-term.
In August 2020, the Consumer Financial Protection Bureau (Bureau) issued a notice of proposed rulemaking to create a new category of seasoned qualified mortgages (Seasoned QMs), which are presumed to meet the ability-to-pay requirements established by the Dodd-Frank Act. To be considered a Seasoned QM under the proposal, loans would have to be first-lien, fixed-rate mortgages that have met certain performance requirements over a 36-month seasoning period. Covered transactions would also have to be held on the creditor’s portfolio during the seasoning period, comply with general restrictions on product features and points and fees and meet certain underwriting requirements (including verification of the consumer’s debt-to-income ratio (DTI) or residual income at origination). The comment period for the proposal ended on October 1, 2020.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Note 1 Accounting Policies ofin our 20192020 Form 10-K describes the most significant accounting policies that we use to prepare our consolidated financial statements, including discussionstatements. Certain of our policies for the Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit, prior to the adoption of the CECL standard. See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in this Report regarding the impact of new accounting pronouncements, including CECL, that were adopted during 2020.
Certainthese policies require us to make estimates or economic assumptions that may vary under different assumptions or conditions, and
such variations may significantly affect our reported results and financial position for the period or in future periods.
The following critical accounting policies and judgments related to residential and commercial MSRs and fair value measurements are described in more detail in Critical Accounting Estimates and Judgments in Item 7 of our 20192020 Form 10-K:10-K. For additional information on fair value measurements of assets and liabilities assumed in the BBVA acquisition, see Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in this Report. The following details the critical estimates and judgments around the ACL.
Fair Value Measurements
Residential and Commercial Mortgage Servicing Rights
Allowance for Credit Losses
We maintain the ACL at levels that we believe to be appropriate as of the balance sheet date to absorb expected credit losses on our existing investment securities, loans, equipment finance leases, (including residual values), other financial assets and unfunded lending related commitments, for the remaining contractual term of the assets or exposures, taking into consideration expected prepayments. Our determination of the ACL is based on historical loss and performance experience, which is captured through PD, as well as current borrower characteristics including collateral type and quality, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We use methods sensitive to changes in economic conditions, to interpret these factors to estimate expected credit losses. We evaluate and, when appropriate, enhance the quality of our data and models and other methods used to estimate ACL on an ongoing basis. We apply qualitative factors to reflect in the ACL our best estimate of amounts that we do not expect to collect because of, among other things, idiosyncratic risk factors, changes in economic conditions that may not be reflected in forecasted results, or other potential methodology weaknesses.limitations. The major drivers of ACL estimates include, but are therefore susceptible to various factors, including, but not limited to, the following major factors:
The PNC Financial Services Group, Inc. – Form 10-Q 45
•Current economic conditions and borrower quality: Our forecast of expected losses depends on economic conditions and portfolio
portfolio quality as of the estimation date. As current economic conditions evolve, forecasted losses could be materially
affected.
•Scenario weights and design: Our loss estimates are sensitive to the shape, direction and severityrate of change of macroeconomic forecasts and thus
vary significantly between upside and downside scenarios. Change to probability weights assigned to these scenarios and
timing of peak business cycles reflected by the scenarios could materially affect our loss estimates.
•Portfolio volume and mix: Changes to portfolio volume and mix could materially affect our estimates, as CECL reserves
would be recognized upon origination or acquisition.
For all assets and unfunded lending related commitments within the scope of the CECL standard, the applicable ACL is composed of one or a combination of the following components: (i) collectively assessed or pooled reserves, (ii) individually assessed reserves, and
(iii) qualitative (judgmental) reserves. Our methodologies and key assumptions for each of these components are discussed in Note 1
Accounting Policies in the Notes To Consolidated Financial Statements of this Report.our 2020 Form 10-K.
Reasonable and Supportable Economic Forecast
Under CECL, we are required to consider reasonable and supportable forecasts in estimating expected credit losses. For this purpose,
we have established a framework which includes a three year reasonable and supportable economic forecast period and the use of four
economic scenarios with associated probability weights, which in combination create a forecast of expected economic outcomes over
our reasonable and supportable forecast period. Credit losses estimated in our reasonable and supportable forecast period (RSFP). Our RSFP credit loss estimates are sensitive to the shape and severity of the scenarios used and weights assigned to them.
To generate the four economic forecast scenarios we use a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking expert judgment to forecast the distribution of economic outcomes over the RSFP.reasonable and supportable forecast period. Each scenario is then given an associated probability (weight) in order to represent our current expectation within that distribution over the RSFP.forecast period. This process is informed by current economic conditions, expected business cycle evolution and the expert judgment of PNC’s CECL Reserve Adequacy Committee (CECL RAC).RAC. This approach seeks to provide a reasonable representation of the forecast of expected economic outcomes and is used to estimate expected credit losses across a variety of loans and securities. Each quarter the scenarios are presented for approval to PNC’s CECL RAC and the committee determines and approves CECL scenariosscenarios' weights for use for the current reporting period.
The scenarios used for the period ended September 30, 2020 were designed2021 reflect an improved near-term economic outlook compared to reflect the improved macroeconomicscenarios used for the period ended December 31, 2020. The overall improvement in the comparison was driven largely by
40 The PNC Financial Services Group, Inc. – Form 10-Q
improvements in both the outlook for consumer spending and the labor market, along with the impact from continued vaccine distribution, while also considering the lingering effects of COVID-19 that slowed the momentum of economic recovery that began in May which has outpaced market expectations,recent months, as the Delta variant continued to drive increased COVID-19 cases throughout the U.S. and was our best estimate as of September 30, 2020. abroad.
We used a number of economic variables in our scenarios, with the most significant drivers being Real GDP and the unemployment rate measures. Using the weighted-average of our four economic forecast scenarios, we estimated at September 30, 2020 thatthat:
•Real GDP finishesgrows 5.4% in 2021, ending the year down 4.2% from fourth quarter 2019 levels3.1% above pre-recession levels. Annual growth continues but slows to 2.9% and grows 3.8%1.9% in 2022 and 2023, respectively.
•Unemployment rates reflect continued recovery in the labor market in 2021, recoveringwith the unemployment rate falling to pre-recession peak levels5.3% by the first quarterend of 2022. the year. Employment gains were estimated to continue through the forecast period with the unemployment rate reaching 4.8% and 4.3% by the end of 2022 and 2023, respectively.
One of the scenarios included in our weighted-average is our baseline prediction of the most likely economic outcome, which is further discussedoutcome. This scenario includes estimated Real GDP growing to 5.8% in 2021 and ending the year 3.4% above its pre-recession peak levels, with annual growth slowing to 3.2% and 1.6% in 2022 and 2023, respectively. Unemployment rates in this most likely scenario reach 5.0% by the end of 2021, 4.3% by the end of 2022 and 3.9% by the end of 2023. See our Business Outlook and the Cautionary Statement Regarding Forward-Looking Information in this Financial Review for additional discussion on our baseline prediction of the most likely economic outcome.
Though the outlook of near-term growth is less optimistic than it was last quarter due to the emergence of the Delta COVID-19 variant and includes estimated GDP recovering to pre-pandemic levels by late 2021. The weighted-average unemployment rate was estimated to be 8.4% in the fourth quarter of 2020, with the labor market continuing to recover in 2021 and 2022. Whilecontinued supply chain challenges, the economy has seen significant recovery with national levelfrom the onset of the pandemic. National macroeconomic indicators, outperforming marketforecasts and performance expectations have all steadily improved, helping to lower overall loss expectations. These improvements have been reflected in the reserve releases through the first nine months of 2021. However, for certain portions of our commercial and consumer portfolios, considerable uncertainty remains regarding overall lifetime loss contentlosses. For commercial borrowers, there are still lingering concerns around industries that have been affected by COVID-19 related restrictions and emerging secular changes. For these industries, where unrestricted commerce has recently returned, the recovery will lag the broader economy. Where restrictions persist and/or secular changes have emerged, the impact and eventual level of recovery are less certain. For consumer borrowers, payment behavior upon expiration of government stimulus, including recently expired enhanced unemployment benefits is still difficult to predict. As such, for both our commercial and consumer loan portfolios, remains, specifically as it relates to our customers that are less likely to benefit from the economic recovery currently underway. For commercial borrowers, there are substantial concerns around industries that are dependent on in-person gatherings, hospitality and tourism. For consumer borrowers, payment behavior once the CARES Act stimulus wanes is also difficult to predict but we believe the highest uncertainty is concentrated within consumer borrowers who have been afforded accommodation as it relates to payment deferral/forbearance. As such, PNC identified and performed significant analysis around these key, high risk segments to ensure our reserves wereare adequate in light of the improvedcurrent economic environment. We believe that the economic assumptions usedscenarios have effectively provided sufficient variation to capture probable recovery paths. Additionally, through in depth and granular analysis of COVID-19 related impacts, we have adequately addressed reserve requirements for specific populations most affected in the scenarios forcurrent environment. Through this approach, we believe the third quarter of 2020, in combination with increased reserves for borrowers in segments most adversely impacted by the pandemic,reserve levels sufficiently reflect the expectation for life of loan losses inof the current portfolio.
For internal analytical purposes, we considered what our capital ratios would be if we had an ACL at December 31, 2020 equal to the Federal Reserve's estimated nine quarter credit losses for PNC under the 2020 CCAR supervisory severely adverse scenario of $12.1 billion, increasing the reserves by approximately $5.6 billion over the next quarter. This analysis resulted in a CET1 ratio of approximately 10.5% at December 31, 2020, a level well above 7.0%, which is our regulatory minimum of 4.5% plus our Stress Capital Buffer of 2.5%. This scenario was not our expectation at September 30, 2020 and does not reflect our current expectation, nor does it capture all the potential unknown variables that would likely arise through the remainder of 2020, but it provides an approximation of a possible outcome under hypothetical severe conditions. The CECL methodology inherently requires a high degree of judgment. As a result, it is possible that we may, at another point in time, reach different conclusions regarding our credit loss estimates.
46 The PNC Financial Services Group, Inc. – Form 10-Q
See the following for additional details on the components of our ACL, as well as the methodologies and related assumptions:ACL:
•Allowance For Credit Losses in the Credit Risk Management section of this Financial Review, and
Note 1 Accounting Policies, •Note 3 Investment Securities and Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.
OFF-BALANCE SHEET ARRANGEMENTS AND VARIABLE INTEREST ENTITIES
We engage in a variety of activities that involve entities that are not consolidated or otherwise reflected in our Consolidated Balance Sheet that are generally referred to as off-balance sheet arrangements. Additional information on these types of activities is included in our 20192020 Form 10-K and in Note 5 Loan Sale and Servicing Activities and Variable Interest Entities and Note 98 Commitments in the Notes To Consolidated Financial Statements included in this Report.
A summary and further description of variable interest entities (VIEs)VIEs is included in Note 1 Accounting Policies and Note 25 Loan Sale and Servicing Activities and Variable Interest Entities in our 20192020 Form 10-K.
Trust Preferred Securities
See Note 10 Borrowed Funds in the Notes To Consolidated Financial Statements in our 20192020 Form 10-K for additional information on trust preferred securities issued by PNC Capital Trust C including information on contractual limitations potentially imposed on payments (including dividends) with respect to PNC's equity securities.
INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND PROCEDURES
As of September 30, 2020,2021, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the
The PNC Financial Services Group, Inc. – Form 10-Q 41
effectiveness of the design and operation of our disclosure controls and procedures and of changes in our internal control over financial reporting.
Based on that evaluation, our Chairman, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective as of September 30, 2020,2021, and that there has been no change in PNC’s internal control over financial reporting that occurred during the third quarter of 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As permitted by SEC guidance that an assessment of internal controls over financial reporting of a recently acquired business may be excluded from management's evaluation of disclosure controls and procedures for up to a year from the date of acquisition, we have excluded BBVA from management's reporting on internal control over financial reporting for the quarter ended September 30, 2021. We will continue to evaluate the effectiveness of internal controls over financial reporting post-integration of BBVA, including BBVA USA, with that of PNC and PNC Bank and will make changes to our internal control framework, as necessary. The acquisition of BBVA contributed $86.6 billion of assets, or 16% of our total assets, to our balance sheet at September 30, 2021. The BBVA acquisition also contributed $737 million of revenue, or 14% of total revenue, for the three months ended September 30, 2021 and $1.1 billion of revenue, or 7% of total revenue, for the nine months ended September 30, 2021. G
LOSSARY
42 OF TERMS
For a glossary of terms commonly used in our filings, please see the glossary of terms updated in our first quarter 2020 Form 10-Q and our 2019 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q
47
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We also make statements in this Report, 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 us and our 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 necessarily subject to numerous assumptions, risks and uncertainties, which change over time. Future events or circumstances may change our outlook and may also affect the nature of the assumptions, risks and uncertainties to which our forward-looking statements are subject. Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake any obligation 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. As a result, we caution against placing undue reliance on any forward-looking statements.
Our forward-looking statements are subject to the following principal risks and uncertainties.
•Our businesses, financial results and balance sheet values are affected by business and economic conditions, including:
–Changes in interest rates and valuations in debt, equity and other financial markets,
–Disruptions in the U.S. and global financial markets,
–Actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply, market interest rates and inflation,
–Changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives,
–Changes in customers’, suppliers’ and other counterparties’ performance and creditworthiness,
–Impacts of tariffs and other trade policies of the following:U.S. and its global trading partners,
| |
– | Changes in interest rates and valuations in debt, equity and other financial markets. |
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– | Disruptions in the U.S. and global financial markets. |
| |
– | Actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply and market interest rates. |
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– | Changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives. |
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– | Changes in customers’, suppliers’ and other counterparties’ performance and creditworthiness. |
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– | Impacts of tariffs and other trade policies of the U.S. and its global trading partners. |
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– | The length and extent of economic contraction as a result of the COVID-19 pandemic. |
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– | The impact of the upcoming U.S. elections on the regulatory landscape, capital markets, and the response to and management of the COVID-19 pandemic. |
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– | Commodity price volatility. |
–The length and extent of the economic impacts of the COVID-19 pandemic,
–The impact of the results of the 2020 U.S. elections, including on the regulatory landscape, capital markets, tax policy, infrastructure spending and social programs, and
–Commodity price volatility.
•Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our view that:
| |
– | The U.S. economy is in a nascent–The U.S. economy is in an economic recovery, in the second half of 2020, following a very severe but very short economic contraction in the first half of the year due to the COVID-19 pandemic and public health measures to contain it. Real GDP declined significantly in the first and second quarters of 2020, as many firms closed, at least temporarily, and consumers stayed at home. Since the late spring/early summer, economic activity has picked up due to loosening restrictions on businesses, massive federal stimulus, and extremely low interest rates. Between May and September the economy added back slightly more than half of the 22 million jobs lost in March and April. |
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– | Despite the improvement in the economy in recent months, economic activity remains far below its pre-pandemic level and unemployment remains elevated. Real GDP growth in the third quarter was extremely strong, at an annual rate of 33.1%, but will slow in the fourth quarter and through 2021. PNC does not expect real GDP to return to its pre-pandemic level until late 2021, and does not expect employment to return to its pre-pandemic level until 2023. Risks to this outlook are weighted to the downside; they include a further resurgence in the spread of the coronavirus and a lack of additional stimulus from the federal government. |
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– | Monetary policy remains extremely supportive of economic growth. PNC expects the Federal Open Market Committee to keep the federal funds rate in its current range of 0.00% to 0.25% through at least mid-2024. |
Given the many unknowns and risks being heavily weightedfirst half of 2020 due to the downside, our forward-looking statements are subjectCOVID-19 pandemic and public health measures to contain it.
–The Delta COVID-19 variant and supply chain difficulties have been drags on economic growth in the second half of 2021, although the economy continues to expand. Growth will pick up at the end of 2021 as the impact of the Delta variant fades and supply chains normalize and will remain solid into 2022. Employment in September 2021 was still down by almost 5 million from before the pandemic; PNC expects employment to return to its pre-pandemic level in mid-2022.
–Compared to the risk that conditions will be substantially different than we are currently expecting. If efforts to contain COVID-19 are unsuccessful and restrictions on businesses and activities are not further lifted or are reimposed, the recovery would be much weaker. There is even the potential that the economy could fall back into recession. PNC's baseline scenario assumes additional fiscal stimulus; continued inaction on stimulus is another major downside risk. The longer it takes to combat the pandemic, the more permanent damage it will cause to business and consumer fundamentals and sentiment; this could make the recovery weaker and resultspring of 2020 (when prices were falling), inflation accelerated in permanently lower long-run economic growth. An extended global recessionmid-2021 due to COVID-19 would weakenstrong demand in specific segments and supply chain disruptions. Inflation has started to slow on a month-over-month basis but will remain elevated in the U.S. recovery. As a result,near term.
–PNC expects the outbreak andFOMC to keep the fed funds rate in its consequences, including responsive measurescurrent range of 0.00% to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.
48 The PNC Financial Services Group, Inc. – Form 10-Q0.25 % until late 2022.
•PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding a stress capital buffer established by the Federal Reserve Board in connection with the Federal Reserve Board's CCAR process. The Federal Reserve also has imposed additional limitations on capital distributions through the fourth quarter of 2020 by CCAR-participating bank holding companies and may extend these limitations, potentially in modified form.
•PNC’s regulatory capital ratios in the future will depend on, among other things, the company’s financial performance, the scope and terms of final capital regulations then in effect and management actions affecting the composition of PNC’s balance sheet. In addition, PNC’s ability to determine, evaluate and forecast regulatory capital ratios, and to take actions (such as capital distributions) based on actual or forecasted capital ratios, will be dependent at least in part on the development, validation and regulatory review of related models.
•Legal and regulatory developments could have an impact on our ability to operate our businesses, financial condition, results of operations, competitive position, reputation, or pursuit of attractive acquisition opportunities. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and ability to attract and retain management. These developments could include:
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– | Changes to laws and regulations, including changes affecting oversight of the financial services industry, consumer protection, bank capital and liquidity standards, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles. |
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– | Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to PNC. |
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– | Results of the regulatory examination and supervision process, including our failure to satisfy requirements of agreements with governmental agencies. |
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– | Impact on business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of adequacy of our intellectual property protection in general. |
–Changes to laws and regulations, including changes affecting oversight of the financial services industry, consumer protection, bank capital and liquidity standards, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
The PNC Financial Services Group, Inc. – Form 10-Q 43
–Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to PNC.
–Results of the regulatory examination and supervision process, including our failure to satisfy requirements of agreements with governmental agencies.
–Impact on business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of adequacy of our intellectual property protection in general.
•Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.
We•Our acquisition of BBVA presents us with risks and uncertainties related to the integration of the acquired business into PNC including:
–The business of BBVA going forward may not perform as we project or in a manner consistent with historical performance. As a result, the anticipated benefits, including estimated cost savings, of the transaction may be significantly more difficult or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events, including those that are outside of our control.
–The integration of BBVA, including its U.S. banking subsidiary, BBVA USA, with that of PNC and PNC Bank may be more difficult to achieve than anticipated or have unanticipated adverse results. Our ability to integrate BBVA, including its U.S. banking subsidiary, BBVA USA, successfully may be adversely affected by the fact that this transaction results in us entering several geographic markets where we did not previously have any meaningful presence.
•In addition to the BBVA transaction, we grow our business in part through acquisitions and new strategic initiatives. Risks and uncertainties include those presented by the nature of the business acquired and strategic initiative, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into PNC after closing.
•Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues. Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.
•Business and operating results can also be affected by widespread natural and other disasters, pandemics, dislocations, terrorist activities, system failures, security breaches, cyberattacks or international hostilities through impacts on the economy and financial markets generally or on us or our counterparties specifically.
We provide greater detail regarding these as well as other factors in our 20192020 Form 10-K and subsequent Form 10-Qs and elsewhere in this Report, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements in these reports. In particular, our forward-looking statements are subject to risks and uncertainties related to the COVID-19 pandemic and the resulting governmental and societal responses. Our forward-looking statements may also be subject to other risks and uncertainties, including those we may discuss elsewhere in this Report or in our other filings with the SEC.
44The PNC Financial Services Group, Inc. – Form 10-Q
49
CONSOLIDATED INCOME STATEMENT
THE PNC FINANCIAL SERVICES GROUP, INC.
|
| | | | | | | | | | | | | | | |
| Unaudited | Three months ended
September 30 | | Nine months ended
September 30 |
| In millions, except per share data | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
|
| Interest Income | | | | | | | |
| Loans | $ | 2,116 |
| | $ | 2,678 |
| | $ | 6,853 |
| | $ | 7,952 |
|
| Investment securities | 490 |
| | 617 |
| | 1,599 |
| | 1,866 |
|
| Other | 70 |
| | 208 |
| | 279 |
| | 610 |
|
| Total interest income | 2,676 |
| | 3,503 |
| | 8,731 |
| | 10,428 |
|
| Interest Expense | | | | | | | |
| Deposits | 74 |
| | 531 |
| | 590 |
| | 1,518 |
|
| Borrowed funds | 118 |
| | 468 |
| | 619 |
| | 1,433 |
|
| Total interest expense | 192 |
| | 999 |
| | 1,209 |
| | 2,951 |
|
| Net interest income | 2,484 |
| | 2,504 |
| | 7,522 |
| | 7,477 |
|
| Noninterest Income | | | | | | | |
| Asset management | 215 |
| | 213 |
| | 615 |
| | 646 |
|
| Consumer services | 390 |
| | 402 |
| | 1,097 |
| | 1,165 |
|
| Corporate services | 479 |
| | 469 |
| | 1,517 |
| | 1,415 |
|
| Residential mortgage | 137 |
| | 134 |
| | 505 |
| | 281 |
|
| Service charges on deposits | 119 |
| | 178 |
| | 366 |
| | 517 |
|
| Other | 457 |
| | 342 |
| | 1,071 |
| | 1,017 |
|
| Total noninterest income | 1,797 |
| | 1,738 |
| | 5,171 |
| | 5,041 |
|
| Total revenue | 4,281 |
| | 4,242 |
| | 12,693 |
| | 12,518 |
|
| Provision For Credit Losses | 52 |
| | 183 |
| | 3,429 |
| | 552 |
|
| Noninterest Expense | | | | | | | |
| Personnel | 1,410 |
| | 1,400 |
| | 4,152 |
| | 4,179 |
|
| Occupancy | 205 |
| | 206 |
| | 611 |
| | 633 |
|
| Equipment | 292 |
| | 291 |
| | 880 |
| | 862 |
|
| Marketing | 67 |
| | 76 |
| | 172 |
| | 224 |
|
| Other | 557 |
| | 650 |
| | 1,774 |
| | 1,914 |
|
| Total noninterest expense | 2,531 |
| | 2,623 |
| | 7,589 |
| | 7,812 |
|
| Income from continuing operations before income taxes and noncontrolling interests | 1,698 |
| | 1,436 |
| | 1,675 |
| | 4,154 |
|
| Income taxes from continuing operations | 166 |
| | 255 |
| | 128 |
| | 706 |
|
| Net income from continuing operations | 1,532 |
| | 1,181 |
| | 1,547 |
| | 3,448 |
|
| Income from discontinued operations before taxes |
|
| | 251 |
| | 5,777 |
| | 700 |
|
| Income taxes from discontinued operations |
|
| | 40 |
| | 1,222 |
| | 111 |
|
| Net income from discontinued operations |
|
| | 211 |
| | 4,555 |
| | 589 |
|
| Net income | 1,532 |
| | 1,392 |
| | 6,102 |
| | 4,037 |
|
| Less: Net income attributable to noncontrolling interests | 13 |
| | 13 |
| | 27 |
| | 35 |
|
| Preferred stock dividends | 63 |
| | 63 |
| | 181 |
| | 181 |
|
| Preferred stock discount accretion and redemptions | 1 |
| | 1 |
| | 3 |
| | 3 |
|
| Net income attributable to common shareholders | $ | 1,455 |
| | $ | 1,315 |
| | $ | 5,891 |
| | $ | 3,818 |
|
| Earnings Per Common Share | | | | | | | |
| Basic earnings from continuing operations | $ | 3.40 |
| | $ | 2.47 |
| | $ | 3.11 |
| | $ | 7.15 |
|
| Basic earnings from discontinued operations |
|
| | .48 |
| | 10.61 |
| | 1.30 |
|
| Total basic earnings | $ | 3.40 |
| | $ | 2.95 |
| | $ | 13.73 |
| | $ | 8.45 |
|
| Diluted earnings from continuing operations | $ | 3.39 |
| | $ | 2.47 |
| | $ | 3.11 |
| | $ | 7.13 |
|
| Diluted earnings from discontinued operations |
| | .47 |
| | 10.59 |
| | 1.29 |
|
| Total diluted earnings | $ | 3.39 |
| | $ | 2.94 |
| | $ | 13.70 |
| | $ | 8.42 |
|
| Average Common Shares Outstanding | | | | | | | |
| Basic | 426 |
| | 444 |
| | 427 |
| | 450 |
|
| Diluted | 426 |
| | 445 |
| | 428 |
| | 451 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Unaudited | Three months ended
September 30 | | Nine months ended
September 30 |
| In millions, except per share data | 2021 | | 2020 | | 2021 | | 2020 |
| Interest Income | | | | | | | |
| Loans | $ | 2,437 | | | $ | 2,116 | | | $ | 6,593 | | | $ | 6,853 | |
| Investment securities | 460 | | | 490 | | | 1,350 | | | 1,599 | |
| Other | 78 | | | 70 | | | 216 | | | 279 | |
| Total interest income | 2,975 | | | 2,676 | | | 8,159 | | | 8,731 | |
| Interest Expense | | | | | | | |
| Deposits | 29 | | | 74 | | | 99 | | | 590 | |
| Borrowed funds | 90 | | | 118 | | | 275 | | | 619 | |
| Total interest expense | 119 | | | 192 | | | 374 | | | 1,209 | |
| Net interest income | 2,856 | | | 2,484 | | | 7,785 | | | 7,522 | |
| Noninterest Income | | | | | | | |
| Asset management | 248 | | | 215 | | | 713 | | | 615 | |
| Consumer services | 496 | | | 390 | | | 1,337 | | | 1,097 | |
| Corporate services | 842 | | | 479 | | | 2,085 | | | 1,517 | |
| Residential mortgage | 147 | | | 137 | | | 355 | | | 505 | |
| Service charges on deposits | 159 | | | 119 | | | 409 | | | 366 | |
| Other | 449 | | | 457 | | | 1,400 | | | 1,071 | |
| Total noninterest income | 2,341 | | | 1,797 | | | 6,299 | | | 5,171 | |
| Total revenue | 5,197 | | | 4,281 | | | 14,084 | | | 12,693 | |
| Provision For (Recapture of) Credit Losses | (203) | | | 52 | | | (452) | | | 3,429 | |
| Noninterest Expense | | | | | | | |
| Personnel | 1,986 | | | 1,410 | | | 5,103 | | | 4,152 | |
| Occupancy | 248 | | | 205 | | | 680 | | | 611 | |
| Equipment | 355 | | | 292 | | | 974 | | | 880 | |
| Marketing | 103 | | | 67 | | | 222 | | | 172 | |
| Other | 895 | | | 557 | | | 2,232 | | | 1,774 | |
| Total noninterest expense | 3,587 | | | 2,531 | | | 9,211 | | | 7,589 | |
| Income from continuing operations before income taxes and noncontrolling interests | 1,813 | | | 1,698 | | | 5,325 | | | 1,675 | |
| Income taxes from continuing operations | 323 | | | 166 | | | 906 | | | 128 | |
| Net income from continuing operations | 1,490 | | | 1,532 | | | 4,419 | | | 1,547 | |
| Income from discontinued operations before taxes | 0 | | 0 | | 0 | | 5,777 | |
| Income taxes from discontinued operations | 0 | | 0 | | 0 | | 1,222 | |
| Net income from discontinued operations | 0 | | 0 | | 0 | | 4,555 | |
| Net income | 1,490 | | | 1,532 | | | 4,419 | | | 6,102 | |
| Less: Net income attributable to noncontrolling interests | 16 | | | 13 | | | 38 | | | 27 | |
| Preferred stock dividends | 57 | | | 63 | | | 162 | | | 181 | |
| Preferred stock discount accretion and redemptions | 1 | | | 1 | | | 3 | | | 3 | |
| Net income attributable to common shareholders | $ | 1,416 | | | $ | 1,455 | | | $ | 4,216 | | | $ | 5,891 | |
| Earnings Per Common Share | | | | | | | |
| Basic earnings from continuing operations | $ | 3.31 | | | $ | 3.40 | | | $ | 9.84 | | | $ | 3.11 | |
| Basic earnings from discontinued operations | 0 | | 0 | | 0 | | 10.61 | |
| Total basic earnings | $ | 3.31 | | | $ | 3.40 | | | $ | 9.84 | | | $ | 13.73 | |
| Diluted earnings from continuing operations | $ | 3.30 | | | $ | 3.39 | | | $ | 9.83 | | | $ | 3.11 | |
| Diluted earnings from discontinued operations | 0 | | 0 | | 0 | | 10.59 | |
| Total diluted earnings | $ | 3.30 | | | $ | 3.39 | | | $ | 9.83 | | | $ | 13.70 | |
| Average Common Shares Outstanding | | | | | | | |
| Basic | 426 | | | 426 | | | 426 | | | 427 | |
| Diluted | 426 | | | 426 | | | 427 | | | 428 | |
See accompanying Notes To Consolidated Financial Statements.
50The PNC Financial Services Group, Inc. – Form 10-Q45
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THE PNC FINANCIAL SERVICES GROUP, INC.
| | Unaudited In millions | | Three months ended
September 30 | | Nine months ended
September 30 | | Unaudited
In millions | | Three months ended
September 30 | | Nine months ended
September 30 | |
| 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | 2021 | | 2020 | | 2021 | | 2020 | |
| Net income (loss) from continuing operations | | $ | 1,532 |
| | $ | 1,181 |
| | $ | 1,547 |
| | $ | 3,448 |
| | |
| Other comprehensive income (loss), before tax and net of reclassifications into Net income: | | | | | | | | | | |
| Net income from continuing operations | | Net income from continuing operations | | $ | 1,490 | | | $ | 1,532 | | | $ | 4,419 | | | $ | 1,547 | | |
| Other comprehensive income (loss), before tax and net of reclassifications into Net income | | Other comprehensive income (loss), before tax and net of reclassifications into Net income | |
| Net change in debt securities | | 10 |
| | 214 |
| | 2,028 |
| | 1,556 |
| | Net change in debt securities | | (323) | | | 10 | | | (1,471) | | | 2,028 | | |
| Net change in cash flow hedge derivatives | | (119 | ) | | 79 |
| | 678 |
| | 433 |
| | Net change in cash flow hedge derivatives | | (174) | | | (119) | | | (727) | | | 678 | | |
| Pension and other postretirement benefit plan adjustments | | 2 |
| | 2 |
| | (3 | ) | | 63 |
| | Pension and other postretirement benefit plan adjustments | | 2 | | | 2 | | | (11) | | | (3) | | |
| Net change in Other | | 0 |
| | 4 |
| | 10 |
| | 14 |
| | Net change in Other | | 1 | | | 2 | | | 10 | | |
| Other comprehensive income (loss) from continuing operations, before tax and net of reclassifications into Net income | | (107 | ) | | 299 |
| | 2,713 |
| | 2,066 |
| | Other comprehensive income (loss) from continuing operations, before tax and net of
reclassifications into Net income | | (494) | | | (107) | | | (2,207) | | | 2,713 | | |
| Income tax benefit (expense) from continuing operations related to items of other comprehensive income | | 35 |
| | (74 | ) | | (630 | ) | | (481 | ) | | Income tax benefit (expense) from continuing operations related to items of other
comprehensive income | | 110 | | | 35 | | | 516 | | | (630) | | |
| Other comprehensive income (loss) from continuing operations, after tax and net of reclassifications into Net income | | (72 | ) | | 225 |
| | 2,083 |
| | 1,585 |
| | Other comprehensive income (loss) from continuing operations, after tax and net of
reclassifications into Net income | | (384) | | | (72) | | | (1,691) | | | 2,083 | | |
| Net income from discontinued operations | |
|
| | 211 |
| | 4,555 |
| | 589 |
| | Net income from discontinued operations | | 0 | | 0 | | 0 | | 4,555 | | |
Other comprehensive income (loss) from discontinued operations, before tax and net of reclassifications into Net income
| | 0 |
| | (23 | ) | | 148 |
| | (29 | ) | | |
Other comprehensive income from discontinued operations, before tax and net of
reclassifications into Net income
| | Other comprehensive income from discontinued operations, before tax and net of
reclassifications into Net income
| | 0 | | 0 | | 148 | | |
Income tax benefit (expense) from discontinued operations related to items of other comprehensive income
| | 0 |
| | 4 |
| | (33 | ) | | 6 |
| | Income tax benefit (expense) from discontinued operations related to items of other
comprehensive income
| | 0 | | 0 | | (33) | | |
| Other comprehensive income (loss) from discontinued operations, after tax and net of reclassifications into Net income | | 0 |
| | (19 | ) | | 115 |
| | (23 | ) | | |
Other comprehensive income from discontinued operations, after tax and net of
reclassifications into Net income | | Other comprehensive income from discontinued operations, after tax and net of
reclassifications into Net income | | 0 | | 0 | | 0 | | 115 | | |
Other comprehensive income (loss), after tax and net of reclassifications into Net income
| | (72 | ) | | 206 |
| | 2,198 |
| | 1,562 |
| | Other comprehensive income (loss), after tax and net of reclassifications into Net income
| | (384) | | | (72) | | | (1,691) | | | 2,198 | | |
| Comprehensive income | | 1,460 |
| | 1,598 |
| | 8,300 |
| | 5,599 |
| | Comprehensive income | | 1,106 | | | 1,460 | | | 2,728 | | | 8,300 | | |
| Less: Comprehensive income attributable to noncontrolling interests | | 13 |
| | 13 |
| | 27 |
| | 35 |
| | Less: Comprehensive income attributable to noncontrolling interests | | 16 | | | 13 | | | 38 | | | 27 | | |
| Comprehensive income attributable to PNC | | $ | 1,447 |
| | $ | 1,585 |
| | $ | 8,273 |
| | $ | 5,564 |
| | Comprehensive income attributable to PNC | | $ | 1,090 | | | $ | 1,447 | | | $ | 2,690 | | | $ | 8,273 | | |
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 51
CONSOLIDATED BALANCE SHEET
THE PNC FINANCIAL SERVICES GROUP, INC.
|
| | | | | | | |
| Unaudited | September 30
2020 |
| | December 31
2019 |
|
| In millions, except par value |
| Assets | | | |
| Cash and due from banks | $ | 6,629 |
| | $ | 5,061 |
|
| Interest-earning deposits with banks | 70,959 |
| | 23,413 |
|
| Loans held for sale (a) | 1,787 |
| | 1,083 |
|
| Asset held for sale (b) |
|
| | 8,558 |
|
| Investment securities – available for sale | 89,747 |
| | 69,163 |
|
| Investment securities – held to maturity | 1,438 |
| | 17,661 |
|
| Loans (a) | 249,279 |
| | 239,843 |
|
| Allowance for loan and lease losses (c) | (5,751 | ) | | (2,742 | ) |
| Net loans | 243,528 |
| | 237,101 |
|
| Equity investments | 4,938 |
| | 5,176 |
|
| Mortgage servicing rights | 1,113 |
| | 1,644 |
|
| Goodwill | 9,233 |
| | 9,233 |
|
| Other (a) | 32,445 |
| | 32,202 |
|
| Total assets | $ | 461,817 |
| | $ | 410,295 |
|
| Liabilities | | | |
| Deposits | | | |
| Noninterest-bearing | $ | 107,281 |
| | $ | 72,779 |
|
| Interest-bearing | 247,798 |
| | 215,761 |
|
| Total deposits | 355,079 |
| | 288,540 |
|
| Borrowed funds | | | |
| Federal Home Loan Bank borrowings | 5,500 |
| | 16,341 |
|
| Bank notes and senior debt | 26,839 |
| | 29,010 |
|
| Subordinated debt | 6,465 |
| | 6,134 |
|
| Other (d) | 3,306 |
| | 8,778 |
|
| Total borrowed funds | 42,110 |
| | 60,263 |
|
| Allowance for unfunded lending related commitments (c) | 689 |
| | 318 |
|
| Accrued expenses and other liabilities | 10,629 |
| | 11,831 |
|
| Total liabilities | 408,507 |
| | 360,952 |
|
| Equity | | | |
| Preferred stock (e) |
| | |
| Common stock ($5 par value, Authorized 800 shares, issued 542 shares) | 2,712 |
| | 2,712 |
|
| Capital surplus | 15,836 |
| | 16,369 |
|
| Retained earnings | 45,947 |
| | 42,215 |
|
| Accumulated other comprehensive income | 2,997 |
| | 799 |
|
| Common stock held in treasury at cost: 118 and 109 shares | (14,216 | ) | | (12,781 | ) |
| Total shareholders’ equity | 53,276 |
| | 49,314 |
|
| Noncontrolling interests | 34 |
| | 29 |
|
| Total equity | 53,310 |
| | 49,343 |
|
| Total liabilities and equity | $ | 461,817 |
| | $ | 410,295 |
|
| |
(a) | Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $1.4 billion, Loans of $1.3 billion and Other assets of $.1 billion at September 30, 2020 and Loans held for sale of $1.1 billion, Loans of $.7 billion and Other assets of $.1 billion at December 31, 2019. |
| |
(b) | Represents our held for sale investment in BlackRock. In the second quarter of 2020, PNC divested its entire investment in BlackRock. Prior period BlackRock investment balances have been reclassified to the Asset held for sale line in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations. Refer to Note 1 Accounting Policies and Note 2 Discontinued Operations for additional details. |
| |
(c) | Amounts as of September 30, 2020 reflects the impact of adopting Accounting Standards Update 2016-13, Financial Instruments - Credit Losses, which is commonly referred to as the Current Expected Credit Losses (CECL) standard and our transition from an incurred loss methodology for these reserves to an expected credit loss methodology. Refer to Note 1 Accounting Policies in this Report for additional detail on the adoption of this standard.
|
| |
(d) | Our consolidated liabilities at September 30, 2020 and December 31, 2019 included Other borrowed funds of less than $.1 billion and $.1 billion, respectively, for which we have elected the fair value option. |
| |
(e) | Par value less than $.5 million at each date. |
See accompanying Notes To Consolidated Financial Statements.
5246 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED BALANCE SHEET
THE PNC FINANCIAL SERVICES GROUP, INC.
| | | | | | | | | | | |
| Unaudited | September 30
2021 | | December 31
2020 |
| In millions, except par value |
| Assets | | | |
| Cash and due from banks | $ | 8,843 | | | $ | 7,017 | |
| Interest-earning deposits with banks | 75,478 | | | 85,173 | |
| Loans held for sale (a) | 2,121 | | | 1,597 | |
| Investment securities – available for sale | 124,127 | | | 87,358 | |
| Investment securities – held to maturity | 1,479 | | | 1,441 | |
| Loans (a) | 290,230 | | | 241,928 | |
| Allowance for loan and lease losses | (5,355) | | | (5,361) | |
| Net loans | 284,875 | | | 236,567 | |
| Equity investments | 7,737 | | | 6,052 | |
| Mortgage servicing rights | 1,833 | | | 1,242 | |
| Goodwill | 10,885 | | | 9,233 | |
| Other (a) | 36,137 | | | 30,999 | |
| Total assets | $ | 553,515 | | | $ | 466,679 | |
| Liabilities | | | |
| Deposits | | | |
| Noninterest-bearing | $ | 156,305 | | | $ | 112,637 | |
| Interest-bearing | 292,597 | | | 252,708 | |
| Total deposits | 448,902 | | | 365,345 | |
| Borrowed funds | | | |
| Federal Home Loan Bank borrowings | | | 3,500 | |
| Bank notes and senior debt | 22,993 | | | 24,271 | |
| Subordinated debt | 7,074 | | | 6,403 | |
| Other (b) | 3,404 | | | 3,021 | |
| Total borrowed funds | 33,471 | | | 37,195 | |
| Allowance for unfunded lending related commitments | 646 | | | 584 | |
| Accrued expenses and other liabilities | 14,199 | | | 9,514 | |
| Total liabilities | 497,218 | | | 412,638 | |
| Equity | | | |
| Preferred stock (c) | 0 | | 0 |
| Common stock ($5 par value, Authorized 800 shares, issued 543 shares) | 2,713 | | | 2,713 | |
| Capital surplus | 17,453 | | | 15,884 | |
| Retained earnings | 49,541 | | | 46,848 | |
| Accumulated other comprehensive income | 1,079 | | | 2,770 | |
| Common stock held in treasury at cost: 120 and 119 shares | (14,527) | | | (14,205) | |
| Total shareholders’ equity | 56,259 | | | 54,010 | |
| Noncontrolling interests | 38 | | | 31 | |
| Total equity | 56,297 | | | 54,041 | |
| Total liabilities and equity | $ | 553,515 | | | $ | 466,679 | |
(a)Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $2.0 billion, Loans held for investment of $1.6 billion and Other assets of $0.1 billion at September 30, 2021. Comparable amounts at December 31, 2020 were $1.2 billion, $1.4 billion and $0.1 billion, respectively.
(b)Our consolidated liabilities included Other borrowed funds of less than $0.1 billion at both September 30, 2021 and December 31, 2020, for which we have elected the fair value option.
(c)Par value less than $0.5 million at each date.
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 47
CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
| | Unaudited In millions | | Nine months ended
September 30 | | Unaudited
In millions | | Nine months ended
September 30 | |
| 2020 |
| | 2019 |
| | 2021 | | 2020 | |
| Operating Activities | | | | | | Operating Activities | |
| Net income | | $ | 6,102 |
| | $ | 4,037 |
| | Net income | | $ | 4,419 | | | $ | 6,102 | | |
| Adjustments to reconcile net income to net cash provided (used) by operating activities | | | | | | Adjustments to reconcile net income to net cash provided (used) by operating activities | |
| Provision for credit losses | | 3,429 |
| | 552 |
| | |
| Provision for (recapture of) credit losses | | Provision for (recapture of) credit losses | | (452) | | | 3,429 | | |
| Depreciation and amortization | | 944 |
| | 904 |
| | Depreciation and amortization | | 1,215 | | | 944 | | |
| Deferred income taxes | | (2,505 | ) | | 83 |
| | Deferred income taxes | | (74) | | | (2,505) | | |
| Net gains on sales of securities | | (254 | ) | |
|
| | Net gains on sales of securities | | (50) | | | (254) | | |
| Changes in fair value of mortgage servicing rights | | 774 |
| | 715 |
| | Changes in fair value of mortgage servicing rights | | (8) | | | 774 | | |
| | Gain on sale of BlackRock | | (5,740 | ) | | | | Gain on sale of BlackRock | | (5,740) | | |
| Undistributed earnings of BlackRock | | (174 | ) | | (356 | ) | | Undistributed earnings of BlackRock | | (174) | | |
| Net change in | | | | | | Net change in | |
| Trading securities and other short-term investments | | 1,132 |
| | 741 |
| | Trading securities and other short-term investments | | 388 | | | 1,132 | | |
| Loans held for sale | | (533 | ) | | (882 | ) | | Loans held for sale | | (390) | | | (533) | | |
| Other assets | | (2,112 | ) | | (2,086 | ) | | Other assets | | (1,504) | | | (2,112) | | |
| Accrued expenses and other liabilities | | 1,044 |
| | 831 |
| | Accrued expenses and other liabilities | | 341 | | | 1,044 | | |
| Other | | 617 |
| | (291 | ) | | Other | | (165) | | | 617 | | |
| Net cash provided (used) by operating activities | | $ | 2,724 |
| | $ | 4,248 |
| | Net cash provided (used) by operating activities | | $ | 3,720 | | | $ | 2,724 | | |
| Investing Activities | | | | | | Investing Activities | |
| Sales | | | | | | Sales | |
| Securities available for sale | | $ | 12,512 |
| | $ | 5,201 |
| | Securities available for sale | | $ | 15,674 | | | $ | 12,512 | | |
| Net proceeds from sale of BlackRock | | 14,225 |
| |
|
| | Net proceeds from sale of BlackRock | | 14,225 | | |
| Loans | | 1,365 |
| | 1,237 |
| | Loans | | 1,409 | | | 1,365 | | |
| Repayments/maturities | | | | | | Repayments/maturities | |
| Securities available for sale | | 19,850 |
| | 7,962 |
| | Securities available for sale | | 23,829 | | | 19,850 | | |
| Securities held to maturity | | 52 |
| | 2,193 |
| | Securities held to maturity | | 67 | | | 52 | | |
| Purchases | | | | | | Purchases | |
| Securities available for sale | | (34,242 | ) | | (17,179 | ) | | Securities available for sale | | (57,911) | | | (34,242) | | |
| Securities held to maturity | | (49 | ) | | (1,739 | ) | | Securities held to maturity | | (83) | | | (49) | | |
| Loans | | (1,600 | ) | | (898 | ) | | Loans | | (1,564) | | | (1,600) | | |
| Net change in | | | | | | Net change in | |
| Federal funds sold and resale agreements | | 1,693 |
| | 3,192 |
| | Federal funds sold and resale agreements | | (119) | | | 1,693 | | |
| Interest-earning deposits with banks | | (47,546 | ) | | (8,143 | ) | | Interest-earning deposits with banks | | 23,008 | | | (47,546) | | |
| Loans | | (10,323 | ) | | (11,978 | ) | | Loans | | 14,001 | | | (10,323) | | |
| Net cash paid for acquisition (a) | | Net cash paid for acquisition (a) | | (10,511) | | | 0 | |
| Other | | (316 | ) | | (573 | ) | | Other | | (1,538) | | | (316) | | |
| Net cash provided (used) by investing activities | | $ | (44,379 | ) | | $ | (20,725 | ) | | Net cash provided (used) by investing activities | | $ | 6,262 | | | $ | (44,379) | | |
(continued on following page)
48The PNC Financial Services Group, Inc. – Form 10-Q
53
CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
(continued from previous page)
| | | | | | | | | | | | | | | | | |
Unaudited
In millions | | Nine Months Ended
September 30 | |
| 2021 | | 2020 | |
| Financing Activities | | | | | |
| Net change in | | | | | |
| Noninterest-bearing deposits | | $ | 7,832 | | | $ | 34,479 | | |
| Interest-bearing deposits | | (9,826) | | | 32,037 | | |
| Federal funds purchased and repurchase agreements | | 91 | | | (5,870) | | |
| Short-term Federal Home Loan Bank borrowings | | | | (6,300) | | |
| | | | | |
| Other borrowed funds | | 164 | | | 298 | | |
| Sales/issuances | | | | | |
| Federal Home Loan Bank borrowings | | | | 9,060 | | |
| Bank notes and senior debt | | 1,692 | | | 3,487 | | |
| | | | | |
| Other borrowed funds | | 551 | | | 458 | | |
| Preferred stock | | 1,485 | | | | |
| Common and treasury stock | | 58 | | | 54 | | |
| Repayments/maturities | | | | | |
| Federal Home Loan Bank borrowings | | (3,680) | | | (13,601) | | |
| Bank notes and senior debt | | (3,850) | | | (6,647) | | |
| | | | | |
| Other borrowed funds | | (547) | | | (479) | | |
| | | | | |
| Preferred stock redemption | | | | (480) | | |
| Acquisition of treasury stock | | (441) | | | (1,604) | | |
| Preferred stock cash dividends paid | | (162) | | | (181) | | |
| Common stock cash dividends paid | | (1,523) | | | (1,488) | | |
| | | | | |
| Net cash provided (used) by financing activities | | $ | (8,156) | | | $ | 43,223 | | |
| Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash | | $ | 1,826 | | | $ | 1,568 | | |
| Net cash provided by discontinued operations | | 0 | | 12,244 | | |
| Net cash provided (used) by continuing operations | | 1,826 | | | (10,676) | | |
| Cash and due from banks and restricted cash at beginning of period | | 7,017 | | | 5,061 | | |
| Cash and due from banks and restricted cash at end of period | | $ | 8,843 | | | $ | 6,629 | | |
| | | | | |
| Cash and due from banks and restricted cash | | | | | |
| Cash and due from banks at end of period (unrestricted cash) | | $ | 8,201 | | | $ | 6,297 | | |
| Restricted cash | | 642 | | 332 | |
| Cash and due from banks and restricted cash at end of period | | $ | 8,843 | | | $ | 6,629 | | |
| Supplemental Disclosures | | | | | |
| Interest paid | | $ | 395 | | | $ | 1,071 | | |
| Income taxes paid | | $ | 402 | | | $ | 2,762 | | |
| Income taxes refunded | | $ | 68 | | | $ | 9 | | |
| Leased assets obtained in exchange for new operating lease liabilities | | $ | 289 | | | $ | 71 | | |
| | | | | |
| Non-cash Investing and Financing Items | | | | | |
| Transfer from loans to loans held for sale, net | | $ | 677 | | | $ | 1,026 | | |
| Transfer from trading securities to investment securities | | 0 | | $ | 289 | | |
| Transfer from loans to foreclosed assets | | $ | 22 | | | $ | 57 | | |
| | | | | |
|
| | | | | | | | | |
Unaudited In millions | | Nine Months Ended
September 30 | |
| 2020 |
| | 2019 |
| |
| Financing Activities | | | | | |
| Net change in | | | | | |
| Noninterest-bearing deposits | | $ | 34,479 |
| | $ | 180 |
| |
| Interest-bearing deposits | | 32,037 |
| | 17,627 |
| |
| Federal funds purchased and repurchase agreements | | (5,870 | ) | | 1,934 |
| |
| Short-term Federal Home Loan Bank borrowings | | (6,300 | ) | | 1,400 |
| |
| Other borrowed funds | | 298 |
| | (77 | ) | |
| Sales/issuances | | | | | |
| Federal Home Loan Bank borrowings | | 9,060 |
| | 12,000 |
| |
| Bank notes and senior debt | | 3,487 |
| | 6,930 |
| |
| Other borrowed funds | | 458 |
| | 929 |
| |
| Common and treasury stock | | 54 |
| | 73 |
| |
| Repayments/maturities | | | | | |
| Federal Home Loan Bank borrowings | | (13,601 | ) | | (13,000 | ) | |
| Bank notes and senior debt | | (6,647 | ) | | (5,600 | ) | |
| Subordinated debt | | | | (700 | ) | |
| Other borrowed funds | | (479 | ) | | (963 | ) | |
| Preferred stock redemption | | (480 | ) | | | |
| Acquisition of treasury stock | | (1,604 | ) | | (2,626 | ) | |
| Preferred stock cash dividends paid | | (181 | ) | | (181 | ) | |
| Common stock cash dividends paid | | (1,488 | ) | | (1,386 | ) | |
| Net cash provided (used) by financing activities | | $ | 43,223 |
| | $ | 16,540 |
| |
| Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash | | 1,568 |
| | 63 |
| |
| Net cash provided by discontinued operations | | 12,244 |
| | 233 |
| |
| Net cash provided (used) by continuing operations | | (10,676 | ) | | (170 | ) | |
| Cash and due from banks and restricted cash at beginning of period | | 5,061 |
| | 5,608 |
| |
| Cash and due from banks and restricted cash at end of period | | $ | 6,629 |
| | $ | 5,671 |
| |
| Cash and due from banks and restricted cash | | | | | |
| Cash and due from banks at end of period (unrestricted cash) | | $ | 6,297 |
| | $ | 5,671 |
| |
| Restricted cash | | 332 |
| | | |
| Cash and due from banks and restricted cash at end of period | | $ | 6,629 |
| | $ | 5,671 |
| |
| Supplemental Disclosures | | | | | |
| Interest paid | | $ | 1,071 |
| | $ | 2,915 |
| |
| Income taxes paid | | $ | 2,762 |
| | $ | 321 |
| |
| Income taxes refunded | | $ | 9 |
| | $ | 7 |
| |
| Leased assets obtained in exchange for new operating lease liabilities | | $ | 71 |
| | $ | 238 |
| |
| Right-of-use assets recognized at adoption of ASU 2016-02 | | | | $ | 2,004 |
| |
| Non-cash Investing and Financing Items | | | | | |
| Transfer from loans to loans held for sale, net | | $ | 1,026 |
| | $ | 771 |
| |
| Transfer from trading securities to investment securities | | $ | 289 |
| | $ | 228 |
| |
| Transfer from loans to foreclosed assets | | $ | 57 |
| | $ | 131 |
| |
See accompanying Notes To Consolidated Financial Statements.
54The PNC Financial Services Group, Inc. – Form 10-Q49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE PNC FINANCIAL SERVICES GROUP, INC.
Unaudited
See page 104 for a glossary of certain terms and acronyms used in this Report.
BUSINESS
The PNC Financial Services Group, Inc. (PNC) is one of the largest diversified financial services companies in the United States (U.S.)U.S. and is headquartered in Pittsburgh, Pennsylvania.
We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our retail branch network is located primarily in markets across the Mid-Atlantic, Midwest and Southeast.coast-to-coast. We also have strategic international offices in four countries outside the U.S.
NOTE 1 ACCOUNTING POLICIES
Basis of Financial Statement Presentation
Our consolidated financial statements include the accounts of the parent company and its subsidiaries, most of which are wholly-owned, certain partnership interests and variable interest entities.VIEs.
On June 1, 2021, we acquired BBVA, a U.S. financial holding company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA. Our results for the first nine months of 2021 reflect BBVA's acquired business operations for the period since the acquisition closed on June 1, 2021. Our balance sheet at September 30, 2021 includes BBVA's balances. See Note 2 Acquisition and Divestiture Activity for additional information on this acquisition.
We prepared these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP).GAAP. We have eliminated intercompany accounts and transactions. We have also reclassified certain prior year amounts to conform to the current period presentation, which did not have a material impact on our consolidated financial condition or results of operations.
In our opinion, the unaudited interim consolidated financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.
We have also considered the impact of subsequent events on these consolidated financial statements.
When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our 20192020 Form 10-K. Reference is made to Note 1 Accounting Policies in our 2020 Form 10-K for a detailed description of significant accounting policies. These interim consolidated financial statements serve to update our 20192020 Form 10-K and may not include all information and Notes necessary to constitute a complete set of financial statements. There have been no significant changes to our accounting policies as disclosed in our 20192020 Form 10-K due to the adoption of the Current Expected Credit Losses (CECL) standard and our discontinued operation as a result of the disposal of our equity investment in BlackRock. As a result of this disposal, BlackRock’s historical results of operations are reported as discontinued operations in our consolidated financial statements for all periods presented. The updated policies impacted by these changes are included in this Note 1. Reference is made to Note 1 Accounting Policies in our 2019 Form 10-K for a detailed description of all other significant accounting policies.10-K.
Use of Estimates
We prepared these consolidated financial statements using financial information available at the time of preparation, which requires us to make estimates and assumptions that affect the amounts reported. Our most significant estimates pertain to the ACL and our fair value measurements, and allowanceincluding for credit losses (ACL).the BBVA acquisition. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.
Discontinued Operations
A disposal of an asset or business that meets the criteria for held for sale classification is reported as discontinued operations when the disposal represents a strategic shift that has had, or will have, a major effect on our operating results. We report an asset as held for sale when management has approved or received approval to sell the asset and is committed to a formal plan, the asset is available for immediate sale, the asset is being actively marketed, the sale is anticipated to occur during the ensuing year and certain other specified criteria are met. An asset classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the asset exceeds its estimated fair value, the asset is written down to its fair value upon the held for sale designation. Our BlackRock held for sale asset is recorded at its carrying amount as we accounted for this investment under the equity method of accounting and the fair value of the asset exceeded the carrying value at each balance sheet date.
When presenting discontinued operations, assets classified as held for sale are segregated in the Consolidated Balance Sheet commencing in the period in which the asset meets all of the held for sale criteria described above and prior periods are recast. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Income for current and
The PNC Financial Services Group, Inc. – Form 10-Q 55
prior periods commencing in the period in which the asset or business is either disposed of or is classified as held for sale, including any gain or loss recognized on the sale or adjustment of the carrying amount to fair value less cost to sell.
Earnings Per Common Share
Basic earnings per common share is calculated using the two-class method to determine income attributable to common shareholders. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities under the two-class method. Distributed dividends and dividend equivalents related to participating securities and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. In a period with a loss, no allocation will be made to the participating securities, as they do not have a contractual obligation to absorb losses. Income attributable to common shareholders is then divided by the weighted-average common shares outstanding for the period.
Diluted earnings per common share is calculated under the more dilutive of either the treasury method or the two-class method. For the diluted calculation, we increase the weighted-average number of shares of common stock outstanding by the assumed conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance, if later, and the number of shares of common stock that would be issued assuming the exercise of stock options and warrants and the issuance of incentive shares using the treasury stock method. These adjustments to the weighted-average number of shares of common stock outstanding are made only when such adjustments will dilute earnings per common share. For periods in which there is a loss from continuing operations, any potential dilutive shares will be anti-dilutive. In this scenario, no potential dilutive shares will be included in the continuing operations, discontinued operations or total earnings per common share calculations, even if overall net income is reported. See Note 11 Earnings Per Share for additional information.
5650 The PNC Financial Services Group, Inc. – Form 10-Q
Recently Adopted Accounting Standards
|
| | | | | | | |
Accounting Standards Update (ASU) | Description | Financial Statement Impact |
Credit Losses-Income Tax Simplification - ASU 2016-132019-12
Issued June 2016
Codification Improvements - ASU 2019-04
Various improvements related to Credit Losses (Topics 1, 2 and 5)
Issued AprilDecember 2019
Targeted Transition Relief - Credit Losses - ASU 2019-05
Issued May 2019
Codification Improvements - ASU 2019-11
Issued November 2019
| • Commonly referred to as the CECL standard.
• Replaces measurement, recognition and disclosure guidanceSimplifies the accounting for credit related reserves (income taxes by eliminating certain exceptions in ASC 740, i.e.Income Taxes, relating to the allowanceapproach for loan and lease losses (ALLL)intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences and the allowancemethodology for unfunded loan commitments and letters of credit) and Other than Temporary Impairment (OTTI) for debt securities.calculating income taxes in an interim period.
• Requires the use of an expected credit loss methodology; specifically, current expected credit losses for the remaining lifeClarifies areas of the asset will be recognized starting fromincome tax guidance around franchise taxes partially based on income, step-ups in the timetax basis of origination or acquisition.
• Methodology appliesSpecifies that an entity is no longer required to loans, net investmentallocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in leases, debt securities and certainits separate financial assets not accounted for at fair value through net income. It also applies to unfunded lending related commitments except for unconditionally cancellable commitments.statements.
• In-scope assets are presented at the net amount expected to be collected after the deduction or addition of the ACL from the amortized cost basis of the assets.
• Requires inclusion of expected recoveries of previously charged-off amounts for in-scope assets.
• Requires enhanced credit quality disclosures including disaggregation of credit quality indicators by vintage.
• Requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings at adoption.
| • Adopted January 1, 2020 under the modified retrospective approach. The cumulative-effect adjustment to retained earnings totaled $671 million at adoption.
• Amended presentation and disclosures are required prospectively. Refer to the disclosures in this Note 1, Note 3 Investment Securities, Note 4 Loans and Related Allowance for Credit Losses and Note 10 Total Equity and Other Comprehensive Income for additional information.
• With the adoption of CECL, we discontinued the accounting for purchased impaired loans and elected the one-time fair value option election for some of these loans and certain residential real estate collateral dependent loans. Loans that were previously accounted for as purchased impaired where the fair value option election was not made are now accounted for as purchased credit deteriorated (PCD) loans.
• There was no impact to the recorded investment of our investment securities or loans, except for our PCD loan portfolio. Accounting for these loans as PCD required an adjustment to the remaining accretable discount and recorded investment in addition to the impact on ACL due to the adoption of CECL methodology.
• Refer to Table 35 for a summary of the impact of the CECL standard adoption.
|
Accounting Standards Update (ASU) | Description | Financial Statement Impact |
Codification Improvements - ASU 2019-04
Topic 3: Codification Improvements to ASU 2017-12 and Other Hedging Items
Issued April 2019
| • Targeted improvements related to:
- Partial-term fair value hedges of interest rate risk
- Amortization of fair value hedge basis adjustments
- Disclosure of fair value hedge basis adjustments
- Consideration of the hedged contractually specified interest rate under the hypothetical derivative method
- Application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments
- Update to transition guidance for ASU 2017-12
• This ASU permits a one-time transfer out of held to maturity securities to provide entities the opportunity to hedge fixed rate, prepayable securities under a last of layer hedging strategy (although an entity is not required to hedge such securities subsequent to transfer).
| • Adopted January 1, 2020.
• As permitted by the eligibility requirements in this guidance, at adoption we elected to transfer debt securities with an amortized cost of $16.2 billion (fair value of $16.5 billion) from held to maturity to the available for sale portfolio. The transfer resulted in a pretax increase to AOCI of $306 million. There were no other impacts to PNC's consolidated financial statements from the adoption of this guidance.
|
Accounting Standards Update (ASU) | Description | Financial Statement Impact |
Goodwill -
ASU 2017-04
Issued January 2017
| • Eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill under which a loss was recognized only if the estimated implied fair value of the goodwill is below its carrying value.
• Requires impairment to be recognized if the reporting unit's carrying value exceeds the fair value.
| • Adopted January 1, 2020.2021.
• The adoption of this standard did not impact our consolidated results of operations or our consolidated financial position. PNC will no longer allocate the consolidated amount of current and deferred income tax expense to certain qualifying stand-alone entities, which will impact the presentation of parent company tax expense subsequent to adoption. |
The PNC Financial Services Group, Inc. – Form 10-Q 57
|
| | |
Accounting Standards Update (ASU) | Description | Financial Statement Impact |
Reference Rate Reform - ASU 2020-04
Issued March 2020
Reference Rate Reform Scope - ASU 2021-01
Issued January 2021
| • Provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.reform (codified in ASC 848). • Includes optional expedients related to contract modifications that allow an entity to account for modifications (if certain criteria are met) as if the modifications were only minor (assets within the scope of ASC 310, Receivables), were not substantial (assets within the scope of ASC 470, Debt), and/or did not result in remeasurements or reclassifications (assets within the scope of ASC 842, Leases, and other Topics) of the existing contract. • Includes optional expedients related to hedging relationships within the scope of ASC 815, Derivatives & Hedging, whereby changes to the critical terms of a hedging relationship do not require dedesignation if certain criteria are met. In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing some effectiveness assessments. • Includes optional expedients and exceptions for contract modifications and hedge accounting that apply to derivative instruments impacted by the market-wide discounting transition. • Allows for a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. • Guidance in this ASU isthese ASUs are effective as of March 12, 2020 through December 31, 2022.
| • AdoptedASU 2020-04 was adopted March 12, 2020. ASU 2021-01 was retrospectively adopted October 1, 2020. • Refer to Note 1 Accounting Policies in the 2020 willForm 10-K for more information on elections of optional expedients that occurred in 2020. • During the first quarter of 2021, we elected to apply prospectively.certain optional expedients to derivative instruments that were modified in the first quarter due to the adoption of fallback language recommended by the ISDA to address the anticipated cessation of LIBOR. These optional expedients remove the requirement to remeasure contract modifications or dedesignate hedging relationships due to reference rate reform. • As of September 30, 2020,2021, we have not yet elected to apply any optional expedients related tofor contract modifications orand hedging relationships as outlined in this ASU.to any other financial instruments. However, we plan to elect these optional expedients in the future.
|
| Accounting Standards Update | Description | Financial Statement Impact |
SEC Paragraph Amendments – ASU 2020-09
Issued October 2020 | • DuringAmends the second quarterfinancial disclosure requirements for guarantors and issuers of 2020,guaranteed securities registered or being registered, and issuers’ affiliates whose securities collateralize securities registered or being registered in Regulation S-X. • Improves disclosure requirements for both investors and registrants. • Provides investors with material information given the specific facts and circumstances, making the disclosures easier to understand and reducing the costs and burdens to registrants.
| • Adopted January 4, 2021. • In accordance with the requirements of this ASU, we electedincluded Exhibit 22 in the Exhibit Index of Item 6 of this Report to transfer all debt securities classified as held to maturity that are indexed to LIBOR to the available for sale portfolio. All securities were classified as held to maturity prior to January 1, 2020. These securities had an amortized cost and fair value of $49 million and $48 million, respectively, asdisclose PNC’s guarantee of the transfer date. See Note 3 Investment Securities for more information.
|
The PNC Financial Services Group, Inc. – Form 10-Q 51
NOTE 2 ACQUISITION AND DIVESTITURE ACTIVITY
On June 1, 2021, PNC acquired BBVA including its U.S. banking subsidiary, BBVA USA, for $11.5 billion in cash. PNC did not acquire the following entities as part of the acquisition: BBVA Securities, Inc., Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. This transaction has been accounted for as a business combination. Accordingly, the assets and liabilities from BBVA were recorded at fair value as of the acquisition date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Fair value estimates related to the assets and liabilities from BBVA are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, loans, certain deposits, certain other assets, customer relationships and the core deposit intangibles.
As of October 12, 2021, PNC has converted approximately 2.6 million customers, 9,000 employees and over 600 branches across 7 states, merging BBVA USA into PNC Bank.
PNC incurred merger and integration costs of $243 million and $360 million for the three and nine months ended September 30, 2021, in connection with the transaction. These costs are recorded as contra-revenue and expense on the Consolidated Income Statement. The integration expenses are primarily related to personnel, technology, advisory and legal, with $49 million direct acquisition-related costs. Cumulative costs through September 30, 2021 were $367 million.
The following table presentsincludes the impact of adopting the CECL standard on January 1, 2020 on our allowance and retained earnings.
Table 35: Impactpreliminary fair value of the CECL Standard Adoptionidentifiable tangible and intangible assets and liabilities from BBVA:
Table 34: Acquisition Consideration
| | | | | | |
| | June 1, 2021 |
| In millions | | Fair Value |
| Fair value of acquisition consideration | | $ | 11,480 | |
| Assets | | |
| Cash and due from banks | | $ | 969 | |
| Interest-earning deposits with banks | | 13,313 | |
| Loans held for sale | | 463 | |
| Investment securities – available for sale | | 18,358 | |
| Net loans | | 61,439 | |
| Equity investments | | 723 | |
| Mortgage servicing rights | | 35 | |
| Core deposit intangibles and other intangible assets | | 399 | |
| Other | | 3,531 | |
| Total assets | | $ | 99,230 | |
| Liabilities | | |
| Deposits | | $ | 85,562 | |
| Borrowed funds | | 2,449 | |
| Accrued expenses and other liabilities | | 1,285 | |
| Total liabilities | | $ | 89,296 | |
| Noncontrolling interests | | 22 | |
| Less: Net assets | | $ | 9,912 | |
| Goodwill | | $ | 1,568 | |
Preliminary goodwill of $1.6 billion recorded in connection with the transaction resulted from the reputation, operating model and expertise of BBVA. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets from BBVA. The goodwill was allocated to each of our three business segments on a preliminary basis and is not deductible for income tax purposes. See Note 6 Goodwill and Mortgage Servicing Rights for additional information on the allocation of goodwill to the segments.
|
| | | | | | | | | | |
| In millions | | December 31, 2019 | Transition Adjustment | January 1, 2020 |
| Allowance for credit losses | | | | |
| Allowance for loan and lease losses | | | | |
| Commercial | | $ | 1,812 |
| $ | (304 | ) | $ | 1,508 |
|
| Consumer | | 930 |
| 767 |
| 1,697 |
|
| Total allowance for loan and lease losses | | 2,742 |
| 463 |
| 3,205 |
|
| Unfunded lending related commitments | | 318 |
| 179 |
| 497 |
|
| Other | | 0 |
| 19 |
| 19 |
|
| Total allowance for credit losses | | $ | 3,060 |
| $ | 661 |
| $ | 3,721 |
|
| | | | | |
| In millions | | December 31, 2019 |
| Transition Adjustment |
| January 1, 2020 |
|
| Impact to retained earnings (a) | | $ | 42,215 |
| $ | (671 | ) | $ | 41,544 |
|
(a) Transition adjustment includes the increase in the total ACL of $.7 billion and the impact of the fair value option election of $.2 billion, offset by the tax impact of $.2 billion.
Cash, Cash Equivalents and Restricted Cash
Cash and due from banks are considered cash and cash equivalents for financial reporting purposes because they represent a primary source of liquidity. Certain cash balances within Cash and due from banks on our Consolidated Balance Sheet are restricted as to withdrawal or usage by legally binding contractual agreements or regulatory requirements.
Investments
We hold interests in various types of investments. The accounting for these investments is dependent on a number of factors including,
but not limited to, items such as:
• Ownership interest,
• Our plans for the investment, and
• The nature of the investment.
5852 The PNC Financial Services Group, Inc. – Form 10-Q
Debt Securities
Debt securities are recorded on a trade-date basis. We classify debt securities as either trading, held to maturity, or available for sale. Debt securities that we purchase for certain risk management activities or customer-related trading activities are classified as trading securities, are reported in the Other assets line item on our Consolidated Balance Sheet, and are carried at fair value. Realized and unrealized gains and losses on trading securities are included in Other noninterest income. We classify debt securities as held to maturity when we have the positive intent and ability to hold the securities to maturity, and carry them at amortized cost, less any allowance. Debt securities not classified as held to maturity or trading are classified as securities available for sale, and are carried at fair value. Unrealized gains and losses on available for sale securities are included in Accumulated other comprehensive income (AOCI) net of income taxes.
We include all interest on debt securities, including amortization of premiums and accretion of discounts on investment securities, in
net interest income using the constant effective yield method generally calculated over the contractual lives of the securities. Effective
yields reflect either the effective interest rate implicit in the security at the date of acquisition or, for debt securities where an other-than-temporary impairment was recorded, the effective interest rate determined based on improved cash flows subsequent to an
impairment. We compute gains and losses realized on the sale of available for sale debt securities on a specific security basis. These
securities gains/(losses) are included in Other noninterest income on the Consolidated Income Statement.
As discussed in the Recently Adopted Accounting Standards section of this Note 1, we adopted the CECL standard as of January 1,
2020, which requires expected credit losses on both held to maturity and available for sale securities to be recognized through a
valuation allowance, ACL, instead of as a direct write-down to the amortized cost basis of the security. An available for sale security is considered impaired ifThe following table includes the fair value is less than amortized cost basis. If any portionand unpaid principal balance of the decline in fair value is related to credit,loans from the amountBBVA acquisition:
Table 35: Fair Value and Unpaid Principal Balance of allowance is determinedLoans from the BBVA Acquisition
| | | | | | | | |
| June 1, 2021 |
| In millions | Unpaid Principal Balance | Fair Value |
| Loans | | |
| Commercial | | |
| Commercial and industrial | $ | 29,864 | | $ | 29,381 | |
| Commercial real estate | 10,632 | | 10,313 | |
| Equipment lease financing | 48 | | 48 | |
| Total commercial | 40,544 | | 39,742 | |
| Consumer | | |
| Residential real estate | 12,871 | | 12,977 | |
| Home equity | 2,430 | | 2,423 | |
| Automobile | 3,916 | | 3,910 | |
| Credit card | 820 | | 758 | |
| Other consumer | 1,688 | | 1,629 | |
| Total consumer | 21,725 | | 21,697 | |
| Total | $ | 62,269 | | $ | 61,439 | |
Other intangible assets from the BBVA acquisition as the portion related to credit, limited to the difference between the amortized cost basis and the fair valueof June 1, 2021 consisted of the security. If we have the intent to sell or believe itfollowing:
Table 36: Intangible Assets
| | | | | | | | | | | | |
| In millions | Fair Value | Weighted Life
(years) | Amortization Method | |
| Residential mortgage servicing rights | $ | 35 | | 5.5 | (a) | |
| Core deposits | $ | 283 | | 10.0 | Accelerated | |
| Other | 116 | | 9.8 | Straight-line | |
| Total core deposits and other | $ | 399 | | | | |
(a) Intangible asset accounted for at fair value.
The following is more likely than not we will be required to sell an impaired available for sale security before recoverya description of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Credit losses on investment securities are recognized through the Provision for credit losses on our Consolidated Income Statement. Declines in the fair value of available for sale securities that are not considered credit related are recognized in AOCI on our Consolidated Balance Sheet. The CECL standard is applied prospectively to debt securities and, as a result, the amortized cost basis of investment securities for which OTTI had previously been recorded did not change upon adoption. For information on the policies previously applied to determine OTTI, see the Debt Securities section of Note 1 Accounting Policies in our 2019 Form 10-K.
We consider a security to be past due in terms of payment based on its contractual terms. A security may be placed on nonaccrual, with interest no longer recognized until received, when collectability of principal or interest is doubtful.As of September 30, 2020, nonaccrual or past due held-to-maturity securities were immaterial.
A security may be partially or fully charged off against the allowance if it is determined to be uncollectible, including, for an available for sale security, if we have the intent to sell or believe it is more likely than not we will be required to sell the security before recovery of the amortized cost basis. Recoveries of previously charged-off available for sale securities are recognized when received, while recoveries on held to maturity securities are recognized when expected.
See the Allowance for Credit Loss section of this Note 1 for further discussion regarding the methodologies used to determine the
allowance for investment securities. See Note 3 Investment Securities for additional information about the investment securities portfolio and the related ACL.
Loans
Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable
future, or until maturity or payoff. Management’s intent and view of the foreseeable future may change based on changes in business
strategies, the economic environment, market conditions and the availability of government programs.
Measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of
payment are considered delinquent. See Note 4 Loans and Related Allowance for Credit Losses for additional information on how COVID-19 hardship related loan modifications are reported from a delinquency perspective as of September 30, 2020.
Loans held for investment, excluding PCD loans, are recorded at amortized cost basis unless we elect to measure these under the fair value option. Amortized cost basis represents principal amounts outstanding, net of unearned income, unamortized deferred fees, costs on originated loans, and premiums or discounts on purchased loans, and charge-offs. Amortized cost basis does not include accrued interest, as we include accrued interest in Other assets on our Consolidated Balance Sheet. Interest on performing loans is accrued based on the principal amount outstanding and recorded in Interest income as earned using the constant effective yield method. Loan origination fees, direct loan origination costs, and loan premiums and discounts are deferred and accreted or amortized into Net
The PNC Financial Services Group, Inc. – Form 10-Q 59
interest income using the constant effective yield method, over the contractual life of the loan. The processing fee received for loans originated under the Paycheck Protection Program (PPP) is deferred and accreted into Net interest income using the effective yield method, over the contractual life of the loan. Loans under the fair value option are reported at their fair value, with any changes to fair value reported as Noninterest income on the Consolidated Income Statement, and are excluded from measurement of ALLL.
In addition to originating loans, we also acquire loans through the secondary loan market, portfolio purchases or acquisitions of other
financial services companies. Certain acquired loans that have experienced a more than significant deterioration of credit quality since origination (i.e., PCD) are recognized at an amortized cost basis equal to their purchase price plus an ALLL measured at the acquisition date. Subsequent decreases in expected cash flows that are attributable, at least in part, to credit quality are recognized through a charge to the provision for credit losses resulting in an increase in the ALLL. Subsequent increases in expected cash flows are recognized as a provision recapture of previously recorded ALLL.
We consider a loan to be collateral dependent when we determine that substantially all of the expected cash flows will be generated
from the operation or sale of the collateral underlying the loan, the borrower is experiencing financial difficulty and we have elected to
measure the loan at the estimated fair value of collateral (less costs to sell if sale or foreclosure of the property is expected).
Additionally, we consider a loan to be collateral dependent when foreclosure or liquidation of the underlying collateral is probable.
A troubled debt restructuring (TDR) is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. A concession has been granted when we do not expect to collect all amounts due, including original interest accrued at the original contract rate, as a result of the restructuring, or there is a delay in payment that is more than insignificant. TDRs result from our loss mitigation activities, and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization, and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us. In those situations where principal is forgiven, the amount of such principal forgiveness is immediately charged off.
Potential incremental losses or recoveries on TDRs have been factored into the ALLL estimates for each loan class under the methodologies described in this Note. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, the collateral is foreclosed upon, or it is fully charged off.
PNC excludes consumer loans held for sale, loans accounted for under the fair value option and certain government insured or guaranteed loans from our TDR population. PCD loans that do not meet the criteria to be classified as TDRs are also excluded. In addition, PNC has elected not to apply a TDR designation to loans that have been restructured due to a COVID-19 hardship pursuant to specific criteria under the CARES Act. Since loans restructured due to a COVID-19 related hardship were not identified as TDRs, they are not placed on nonaccrual at the time of modification. However, these loans will be subject to our existing nonaccrual policy subsequent to the modification.
See the following for additional information related to loans, including further discussion regarding our policies, the methodologies and significant inputsmethods used to determine the ALLL,fair values of significant assets and additional detailsliabilities.
Cash and Due from Banks and Interest-earning Deposits with Banks
The carrying amount of these assets is a reasonable estimate of fair value based on the compositionshort-term nature of our loan portfolio:these assets.
Nonperforming Loans and Leases section of this Note 1,
Allowance for Credit Losses section of this Note 1, and
Note 4 Loans and Related Allowance for Credit Losses.
Loans Held for Sale
We designatesimilar characteristics, and purchase commitments and bid information received from market participants. The prices are adjusted as
necessary to include the embedded servicing value in the loans as heldand to take into consideration the specific characteristics of certain similar loans.
Personal installment loans are pooled based on delinquency status, and fair value of individual loans is calculated based on traded
consumer unsecured loans, dealer research and loan level performance characteristics.
Available For Sale Securities
All investment securities from the BBVA acquisition were classified within the available for sale portfolio at acquisition. Fair value
estimates for available for sale securities were determined by third-party pricing vendors. The third-party vendors use a variety of
methods when we havepricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the intentmarketplace
would pay for a security under current market conditions. These methods include the use of quoted prices for the identical or a similar
security, an alternative market-based approach or an income approach, such as a discounted cash flow pricing model.
Loans
Fair value for loans is based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market
interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated
on an individual loan basis. The PD, LGD, exposure at default and prepayment assumptions are the key factors driving credit losses
which are embedded into the estimated cash flows.
The PNC Financial Services Group, Inc. – Form 10-Q 53
Equity Investments
Equity investments primarily include LIHTC investments and preservation fund investments. The fair value of the LIHTC investments
was estimated based on LIHTC pricing observed for recent transactions in markets where the properties underlying the LIHTC
investments from the BBVA acquisition are located. The fair value of the preservation investments was estimated based on appraisals
and valuations of the properties in the investment portfolio using income and market projections.
Mortgage Servicing Rights
The fair value of mortgage servicing rights from the BBVA acquisition is estimated by using a discounted cash flow valuation model
which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage
loan prepayment rates, discount rates, servicing costs and other factors which are determined based on current market conditions.
Core Deposit Intangible
This intangible asset represents the value of certain client deposit relationships. The fair value was estimated utilizing the cost method.
Appropriate consideration was given to sell them. At deposit costs including servicing costs, client retention and alternative funding source costs at
the time of designation to held for sale, any allowance isacquisition. The discount rate used was derived taking into account the estimated cost of equity, risk-free return rate and
reversed, and a valuation allowancerisk premium for the shortfall betweenmarket and specific risk related to the asset’s cash flows. The core deposit intangible is being amortized cost basisover 10
years using an accelerated depreciation methodology.
Deposits
The fair values for time deposits were estimated by discounting contractual cash flows using current market rates for instruments with
similar maturities. For deposits with no defined maturity, carrying values approximate fair values.
Borrowed Funds
The fair values of long-term debt instruments were estimated based on quoted market prices.
The following table presents financial results of BBVA included in the Consolidated Income Statement from the date of acquisition through September 30, 2021.
Table 37: BBVA Financial Results
| | | | | | |
| In millions | Four months ended September 30, 2021 | |
| Net interest income | $ | 768 | | |
| Noninterest income | $ | 285 | | |
| Net income | $ | 378 | | |
The following table presents unaudited pro forma results as if the acquisition of BBVA by PNC had occurred on January 1, 2020 and includes the impact of amortizing and accreting certain estimated purchase accounting adjustments such as intangible assets as well as fair value adjustments to loans, deposits and long-term debt. Merger and integration costs of $360 million that have been incurred since January 1, 2021 are included in the pro forma results. PNC's financial results include the divestiture of BlackRock of $4.3 billion recorded in net realizable value is recognized, excluding the amounts already charged off. Similarly, when loans are no longer considered held for sale, the valuation allowance (net of writedowns) is reversed, and an allowance for credit losses is established, excluding the amounts already charged-off. Write-downs on these loans (if required) are recorded as charge-offsincome. Additionally, BBVA's financial results through the valuation allowance. Adjustments to the valuation allowance on held for sale loans are recognized in Other noninterest income.
We have elected to account for certain commercial and residential mortgage loans held for sale at fair value. The changes in the fair
value of the commercial mortgage loans are measured andnine months ended September 30, 2020 included a $2.2 billion goodwill impairment charge recorded in Other noninterest income while such changes forexpense. The pro forma information does not necessarily reflect the residentialresults that would have occurred had PNC acquired BBVA on January 1, 2020.
mortgage loans are measured and recorded in Residential mortgage noninterest income each period. See Note 12 Fair Value forTable 38: Unaudited Pro Forma Results
additional information. | | | | | | | | | | | | | | | |
| Three months ended September 30 | Nine months ended September 30 | |
| In millions | 2021 | 2020 | 2021 | 2020 | |
| Net interest income | $ | 2,837 | | $ | 3,099 | | $ | 8,812 | | $ | 9,349 | | |
| Noninterest income | $ | 2,341 | | $ | 2,007 | | $ | 6,695 | | $ | 5,832 | | |
| Net income | $ | 1,959 | | $ | 1,616 | | $ | 6,185 | | $ | 2,467 | | |
Interest income with respect to loans held for sale is accrued based on the principal amount outstanding and the loan’s contractual
interest rate.
6054 The PNC Financial Services Group, Inc. – Form 10-Q
In certain circumstances,Under CECL, PNC is required to determine whether purchased loans designated as held for sale may be transferred to held for investment based onhave experienced more-than-insignificant deterioration in credit quality since origination. PNC considers a changevariety of factors in strategy. We
transfer these loans atconnection with the loweridentification of cost or estimated fair value; however, any loans originated or purchased as held for sale for which the fair value option has been elected remain at fair value for the life of the loan.
Nonperforming Loansmore-than-insignificant deterioration in credit quality, including but not limited to nonperforming status, delinquency, risk ratings, TDR classification, FICO scores and Leases
The matrixother qualitative factors that follows summarizes our policies for classifying certain loans as nonperforming loans and/or discontinuing the accrual of loan interest income.
|
| | |
Commercial |
Loans Classified as Nonperforming and Accounted for as Nonaccrual | | • Loans accounted for at amortized cost where:
– The loan is 90 days or more past due.
– The loan is rated substandard or worse due to the determination that full collection of
principal and interest is not probable as demonstrated by the following conditions:
• The collection of principal or interest is 90 days or more past due;
• Reasonable doubt exists as to the certainty of the borrower’s future debt service
ability, according to the terms of the credit arrangement, regardless of whether 90
days have passed or not;
• The borrower has filed or will likely file for bankruptcy;
• The bank advances additional funds to cover principal or interest;
• We are in the process of liquidating a commercial borrower; or
• We are pursuing remedies under a guarantee.
|
Loans Excluded from Nonperforming Classification but Accounted for as Nonaccrual | | • Loans accounted for under the fair value option and full collection of principal and interest
is not probable.
• Loans accounted for at the lower of cost or market less costs to sell (held for sale) and full
collection of principal and interest is not probable.
|
Loans Excluded from Nonperforming Classification and Nonaccrual Accounting
| | • Loans that are well secured and in the process of collection.
• Certain government insured loans where substantially all principal and interest is insured.
• Commercial purchasing card assets which do not accrue interest.
|
|
| | |
Consumer |
Loans Classified as Nonperforming and Accounted for as Nonaccrual | | • Loans accounted for at amortized cost where full collection of contractual principal and
interest is not deemed probable as demonstrated in the policies below:
– The loan is 90 days past due for home equity and installment loans, and 180 days past
due for well secured residential real estate loans;
– The loan has been modified and classified as a troubled debt restructuring (TDR);
– Notification of bankruptcy has been received;
– The bank holds a subordinate lien position in the loan and the first lien mortgage loan is
seriously stressed (i.e., 90 days or more past due);
– Other loans within the same borrower relationship have been placed on nonaccrual or
charge-offs have been taken on them;
– The bank has ordered the repossession of non-real estate collateral securing the loan; or
– The bank has charged-off the loan to the value of the collateral.
|
Loans Excluded from Nonperforming Classification but Accounted for as Nonaccrual | | • Loans accounted for under the fair value option and full collection of principal and interest
is not probable.
• Loans accounted for at the lower of cost or market less costs to sell (held for sale) and full
collection of principal and interest is not probable.
|
Loans Excluded from Nonperforming Classification and Nonaccrual Accounting | | • Certain government insured loans where substantially all principal and interest is insured.
• Residential real estate loans that are well secured and in the process of collection.
• Consumer loans and lines of credit, not secured by residential real estate or automobiles, as
permitted by regulatory guidance.
|
Commercial
We generally charge off commercial (commercial and industrial, commercial real estate, and equipment lease financing)
nonperforming loans when we determine that a specific loan, or portion thereof, is uncollectible. This determination is based on the
specific facts and circumstances of the individual loans. In making this determination, we consider the viability of the business or
project as a going concern, the past due status when the asset is not well-secured, the expected cash flows to repay the loan, the
value of the collateral, and the ability and willingness of any guarantors to perform.
Additionally,indicate deterioration in general, for smaller commercial loans of $1 million or less, a partial or full charge-off occurs at 120 days past due
Thecredit quality since origination. PNC Financial Services Group, Inc. – Form 10-Q 61
for term loans and 180 days past due for revolvers. Certain small business credit card balances that are placed on nonaccrual status
when they become 90 days or more past due are charged-off at 180 days past due.
Consumer
We generally charge off secured consumer (home equity, residential real estate and automobile) nonperforming loans to the fair
value of collateral less costs to sell, if lower thaninitially measures the amortized cost basis of a PCD loan by adding the loan outstanding, when delinquencyacquisition date estimate of expected credit losses to the loan, combined with other risk factors (e.g., bankruptcy, lien position, or troubled debt restructuring), indicates that the loan, or some portion thereof, is uncollectible as per our historical experience, or the collateral has been repossessed. We charge-off secured
consumerloan's purchase price. The initial ACL for PCD loans no later than 180 days past due. Most consumer loans and lines of credit, not secured by automobiles or residential real estate, are charged off once they have reached 120-180 days past due.
For secured collateral dependent loans, collateral values are updated at least annually and subsequent declines in collateral values are charged-off resulting in incremental provision for credit loss. Subsequent increases in collateral values may be reflected as$1.1 billion was established through an adjustment to the ALLL to reflect the expectation of recoveries in an amount greater than previously expected.
Accounting for Nonperforming AssetsBBVA loan balance and Leasesrelated purchase accounting mark. Non-PCD loans and Other Nonaccrual Loans
For nonaccrualPCD loans interest income accrual and deferred fee/cost recognition is discontinued. Additionally, the current year accrued and uncollected interest is reversed through Net interest income and prior year accrued and uncollected interest is charged-off, except for credit cards, where we reverse any accrued interest through Net interest income at the time of charge-off, as per industry standard practice. Nonaccrual loans that are also collateral dependent may be charged-off to reduce the basis to thehad a fair value of collateral less costs$52.1 billion and $9.4 billion at the acquisition date and unpaid principal balance of $52.0 billion and $10.3 billion, respectively. In accordance with U.S. GAAP, there was no carryover of the ACL that had been previously recorded by BBVA. Subsequent to sell.
If payment is receivedacquisition, PNC recorded an ACL on a nonaccrual loan, generally the payment is first appliednon-PCD loans of $1.0 billion through an increase to the remaining principal balance; payments are then applied to recover any charged-off amounts related to the loan. Finally, if both principal balance and any charge-offs have been recovered, then the payment will be recorded as fee and interest income. For certain consumer loans, the receipt of interest payments is recognized as interest income on a cash basis. Cash basis income recognition is applied if a loan’s amortized cost basis is deemed fully collectible and the loan has performedprovision for at least six months.credit losses.
For TDRs, payments are applied based upon their contractual terms unless the related loan is deemed non-performing. TDRs are
generally included in nonperforming and nonaccrual loans. However, after a reasonable period of time, generally six months, in which the loan performs under restructured terms and meets other performance indicators, it is returned to performing/accruing status. This return to performing/accruing status demonstrates that the bank expects to collect all of the loan’s remaining contractual principal and interest. TDRs resulting from (i) borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us, and (ii) borrowers that are not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.
Other nonaccrual loans are generally not returned to accrual status until the borrower has performed in accordance with the
contractual terms and other performance indicators for at least six months, the period of time which was determined to demonstrate the expected collection of the loan’s remaining contractual principal and interest. Nonaccrual loans with partially charged-off principal are not returned to accrual. When a nonperforming loan is returned to accrual status, it is then considered a performing loan.
Foreclosed assets consist of any asset seized or property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu
of foreclosure. Other real estate owned (OREO) comprises principally commercial and residential real estate properties obtained in
partial or total satisfaction of loan obligations. After obtaining a foreclosure judgment, or in some jurisdictions the initiation of
proceedings under a power of sale in the loan instruments, the property will be sold. When we are awarded title or completion of
deed-in-lieu of foreclosure, we transfer the loan to foreclosed assets included in Other assets on our Consolidated Balance Sheet.
Property obtained in satisfaction of a loan is initially recorded at estimated fair value less cost to sell. Based upon the estimated fair
value less cost to sell, the amortized cost basis of the loan is adjusted and a charge-off/recovery is recognized to the ALLL. We
estimate fair values primarily based on appraisals, or sales agreements with third parties. Subsequently, foreclosed assets are
valued at the lower of the amount recorded at acquisition date or estimated fair value less cost to sell. Valuation adjustments on
these assets and gains or losses realized from disposition of such property are reflected in Other noninterest expense.
For certain mortgage loans that have a government guarantee, we establish a separate other receivable upon foreclosure. The
receivable is measured based on the loan balance (inclusive of principal and interest) that is expected to be recovered from the
guarantor.
See Note 4 Loans and Related Allowance for Credit Losses in this Report for additional information on nonperforming assets, TDRs and credit quality indicators related to our loan portfolio.
62 The PNC Financial Services Group, Inc. – Form 10-Q
Allowance for Credit Losses
Our ACL, in accordance with the CECL standard, is based on historical loss experience, borrower risk characteristics, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We maintain the ACL at an
appropriate level for expected losses on our existing investment securities, loans, finance leases (including residual values), other financial assets and unfunded lending related commitments, for the estimated contractual term of the assets or exposures as of the balance sheet date. We estimate the estimated contractual term of assets in scope of CECL considering contractual maturity dates, prepayment expectations, utilization or draw expectations and any embedded extension options that do not allow us to unilaterally cancel the extension options. For products without a fixed contractual maturity date (e.g., credit cards), we rely on historical payment behavior to determine the length of the pay down or default time period.
We estimate expected losses on a pooled basis using a combination of (i) the expected losses over a reasonable and supportable
forecast period (RSFP), (ii) a period of reversion to long run average (LRA) expected losses (reversion period) where applicable, and (iii) the LRA expected losses for the remaining estimated contractual term. For all assets and unfunded lending related commitments in the scope of CECL, the ACL also includes individually assessed reserves and qualitative reserves, as applicable.
We use forward-looking information in estimating expected credit losses for the RSFP. For this purpose, we use the forecasted
scenarios produced by PNC's Economics Team, which are designed to reflect business cycles and their related estimated probabilities. The forecast length that we have determined to be reasonable and supportable is three years. As noted in the methodology discussions that follow, forward looking information is incorporated into the expected credit loss estimates. Such forward looking information includes forecasted relevant macroeconomic variables, which are estimated using quantitative techniques, analysis from PNC economists and management judgment.
The reversion period is used to bridge RSFP and LRA expected credit losses. We may consider a number of factors in determining the duration of the reversion period, such as contractual maturity of the asset, observed historical patterns and the estimated credit loss rates at the end of RSFP relative to the beginning of the LRA period.
The LRA expected credit losses are derived from long run historical credit loss information adjusted for the credit quality of the current portfolio, and therefore do not consider current and forecasted economic conditions.
See the following sections related to investment securities, loans, trade receivables, other financial assets and unfunded lending related commitments for details about specific methodologies.
Allowance for Investment Securities
A significant portion of our investment securities are issued or guaranteed by either the U.S. government (U.S. Treasury or Government National Mortgage Association (GNMA)) or a government-sponsored agency (Federal National Mortgage Association (FNMA) or Federal HomeTable 39: PCD Loan Mortgage Corporation (FHLMC)). Taking into consideration historical information and current and forecasted conditions, we do not expect to incur any credit losses on these securities.
Investment securities that are not issued or guaranteed by the U.S. government or a government-sponsored agency consist of both securitized products, such as non-agency mortgage and asset-backed securities, as well as non-securitized products, such as corporate and municipal debt securities. A discounted cash flow approach is primarily used to determine the amount of the allowance required. The estimates of expected cash flows are determined using macroeconomic sensitive models taking into consideration the RSFP and scenarios discussed above. Additional factors unique to a specific security may also be taken into consideration when estimating expected cash flows. The cash flows expected to be collected, after considering expected prepayments, are discounted at the effective interest rate. For an available-for-sale security, the amount of the allowance is limited to the difference between the amortized cost basis of the security and its estimated fair value.
See Note 3 Investment Securities in this Report for additional information about the investment securities portfolio.
Allowance for Loan and Lease Losses
Our pooled expected loss methodology is based upon the quantification of risk parameters, such as probability of default (PD), loss
given default (LGD) and exposure at default (EAD) for a loan or loan segment. We also consider the impact of prepayments and
amortization on contractual maturity in our expected loss estimates. We use historical credit loss information, current borrower risk
characteristics and forecasted economic variables for the RSFP, coupled with analytical methods, to estimate these risk parameters
by loan or loan segments. PD, LGD and EAD parameters are calculated for each forecasted scenario and the LRA period, and
combined to generate expected loss estimates by scenario. The following matrix provides key credit risk characteristics that we use to
estimate these risk parameters.
The PNC Financial Services Group, Inc. – Form 10-Q 63
|
| | | | | |
Loan Class | June 1, 2021 | Probability of Default (PD) | Loss Given Default (LGD) | Exposure at Default (EAD) |
Commercial |
Commercial and industrial / Equipment lease financing | | • For wholesale obligors: internal risk ratings based on borrower characteristics and industry
• For retail small balance obligors: credit score, delinquency status, and product type
| • Collateral type, collateral value, industry, size and outstanding exposure for secured loans
• Capital structure, industry and size for unsecured loans
• For retail small balance obligors, product type and credit scores
| • Outstanding balances, contractual maturities and historical prepayment experience for loans
• Current utilization and historical pre-default draw experience for lines
|
Commercial real estate | | • Property performance metrics, property type, market and risk pool for RSFP
• Internal risk ratings based on borrower characteristics for LRA
| • Property values and anticipated liquidation costs | • Commitment and historical prepayment experience |
Consumer |
Home equity / Residential real estate | | • Borrower credit scores, delinquency status, origination vintage, loan-to-value (LTV) ratios and contractual maturity | • Collateral characteristics, LTV and costs to sell | • Outstanding balances, contractual maturities and historical prepayment experience for loans
• Current utilization and historical pre-default draw experience for lines
|
Automobile | | • Borrower credit scores, delinquency status, borrower income, LTV and contractual maturity | • New vs. used, LTV and borrower credit scores | • Outstanding balances, contractual maturities and historical prepayment experience |
Credit card | | • Borrower credit scores, delinquency status, utilization, payment behavior and months on book | • Borrower credit scores and credit line amount | • Pay-down curves are developed using a pro-rata method and estimated using borrower behavior segments, payment ratios and borrower credit scores |
Education / Other consumer | | • Net charge-off and pay-down rates by vintage are used to estimate expected losses in lieu of discrete risk parameters |
64 The PNC Financial Services Group, Inc. – Form 10-Q
The following matrix describes the key economic variables that are consumed during the RSFP by loan class, as well as other
assumptions that are used for our reversion and LRA approaches.
|
| In millions | |
| Principal Balance | $ | 10,253 | | |
Loan ClassACL at acquisition | (1,102) | RSFP - Key Economic Variables | Reversion Method | LRA Approach |
Commercial
Non-credit premium | 219 | | |
Commercial and industrial / Equipment lease financingPurchase price | $ | • Gross Domestic Product and Gross Domestic Income measures, imports, employment related variables, House Price Index (HPI), credit spreads, personal income and consumption measures and stock market indices
9,370 | • Immediate reversion
| • Average parameters determined based on internal and external historical data
• Modeled parameters using long run economic conditions for retail small balance obligors
|
Commercial real estate | | • Unemployment rates, Commercial Property Price Index, GDP, corporate bond yield and interest rates | • Immediate reversion | • Average parameters determined based on internal and external historical data |
Consumer |
Home equity / Residential real estate | | • Unemployment rates, HPI and interest rates | • Straight-line over 3 years | • Modeled parameters using long run economic conditions |
Automobile | | • Unemployment rates, HPI, personal consumption expenditure, interest rates, Manheim used car index and domestic oil prices
| • Straight-line over 1 year
| • Average parameters determined based on internal and external historical data
|
Credit card | | • Unemployment rate, personal consumption expenditure, and HPI
| • Straight-line over 2 years
| • Modeled parameters using long run economic conditions
|
Education / Other consumer | | • Net charge-off and pay-down rates by vintage are used to estimate expected losses in lieu of discrete risk parameters |
After the RSFP, we revert to the LRA over the reversion period noted above, which is the period between the endSale of the RSFP and
when losses are estimated to have completely reverted to the LRA.
Once we have developed a combined estimate of credit losses (i.e., for the RSFP, reversion period and LRA) under each of the forecasted scenarios, we produce a probability-weighted credit loss estimate by loan class. We then add or deduct any qualitative components and other adjustments, such as individually assessed loans, to produce the ALLL. See the Individually Assessed Component and Qualitative Component sections of this Note 1 for additional information about those adjustments.
Discounted Cash Flow
In addition to TDRs, we also use a discounted cash flow methodology for our home equity and residential real estate loan classes. We determine effective interest rates considering contractual cash flows adjusted for estimated prepayments. ChangesEquity Investment in the ALLL due to the impact of the passage of time under the discounted cash flow estimate are recognized through the provision for credit losses.
Individually Assessed Component
Loans and leases that do not share similar risk characteristics with a pool of loans are individually assessed as follows:
For commercial nonperforming loans greater than or equal to a defined dollar threshold, reserves are based on an analysis of the present value of the loan’s expected future cash flows or the fair value of the collateral, if appropriate under our policy for collateral dependent loans. Nonperforming commercial loans below the defined threshold and accruing TDRs are reserved for under a pooled basis.
For consumer nonperforming loans classified as collateral dependent, charge-off and ALLL related to recovery of amounts previously charged-off are evaluated through an analysis of the fair value of the collateral less costs to sell.
Qualitative Component
While our reserve methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with,
but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal
variations between expected and actual outcomes. We may hold additional reserves that are designed to provide coverage for losses
attributable to such risks. The ACL also takes into account factors that may not be directly measured in the determination of
The PNC Financial Services Group,BlackRock, Inc. – Form 10-Q 65
individually assessed or pooled reserves. Such qualitative factors may include, but are not limited to:
Industry concentrations and conditions,
Changes in market conditions, including regulatory and legal requirements,
Changes in the nature and volume of our portfolio,
Recent credit quality trends, including the impact of COVID-19 hardship related loan modifications,
Recent loss experience in particular portfolios, including specific and unique events,
Recent macro-economic factors that may not be reflected in the forecast information,
Limitations of available input data, including historical loss information and recent data such as collateral values,
Model imprecision,
Changes in lending policies and procedures, including changes in loss recognition and mitigation policies and procedures,
Timing of available information, including the performance of first lien positions, and
Other relevant factors
See Note 4 Loans and Related Allowance for Credit Losses for additional information about our loan portfolio and the related allowance.
Accrued Interest
When accrued interest is reversed or charged-off in a timely manner the CECL standard provides a practical expedient to exclude
accrued interest from ACL measurement. We consider our nonaccrual and charge-off policies to be timely for all of our investment
securities, loans and leases, with the exception of consumer credit cards, education loans and certain unsecured consumer lines of credit. We consider the length of time before nonaccrual/charge-off and the use of appropriate other triggering events for nonaccrual and charge-offs in making this determination. Pursuant to these policy elections, we calculate reserves for accrued interest on credit cards, education loans and certain consumer lines of credit, which are then included within the ALLL. See the Debt Securities and Nonperforming Loans and Leases sections of this Note 1 for additional information on our nonaccrual and charge-off policies.
Additionally, pursuant to our use of a discounted cash flow methodology in estimating credit losses for our home equity and residential real estate loan classes, applicable reserves for accrued interest are also included within the ALLL for these loan classes.
Purchased Credit Deteriorated Loans or Securities
The allowance for PCD loans or securities is determined at the time of acquisition, as the estimated expected credit loss of the outstanding balance or par value, based on the methodologies described previously for loans and securities. In accordance with CECL, the allowance recognized at acquisition is added to the acquisition date purchase price to determine the asset’s amortized cost basis.
Allowance for Unfunded Lending Related Commitments
We maintain the allowance for unfunded lending related commitments on off-balance sheet credit exposures that are not unconditionally cancelable (e.g., unfunded loan commitments, letters of credit and certain financial guarantees), at a level we believe is appropriate as of the balance sheet date to absorb expected credit losses on these exposures. Other than the estimation of the probability of funding, this reserve is estimated in a manner similar to the methodology used for determining reserves for loans and leases. The allowance for unfunded lending related commitments is recorded as a liability on the Consolidated Balance Sheet. Net adjustments to this reserve are included in the provision for credit losses.
See Note 4 Loans and Related Allowance for Credit Losses for additional information about this allowance.
Allowance for Other Financial Assets
We determine the allowance for other financial assets (e.g., trade receivables, servicing advances on PNC-owned loans, balances with banks) considering historical loss information and other available indicators. In certain cases where there are no historical, current or forecast indicators of an expected credit loss, we may estimate the reserve to be close to zero. As of September 30, 2020, the allowance for other financial assets was immaterial.
Goodwill
Goodwill arising from business acquisitions represents the value attributable to unidentifiable intangible elements in the business acquired. At least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date, management performs our goodwill impairment test at a reporting unit level.
PNC has the ability to first perform a qualitative analysis to evaluate whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, PNC determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary. If PNC elects to bypass the qualitative analysis, or concludes via qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative goodwill impairment test is performed. Inputs
66 The PNC Financial Services Group, Inc. – Form 10-Q
are generated and used in calculating the fair value of the reporting unit, which is compared to its carrying amount. The fair value of our reporting units is determined by using discounted cash flows and/or market comparability methodologies. If the fair value is greater than the carrying amount, then the reporting unit's goodwill is deemed not to be impaired. If the fair value is less than the carrying amount, an entity should recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
NOTE 2 DISCONTINUED OPERATIONS
In May 2020, PNC completed the sale of its 31.6 million shares of BlackRock, Inc., common and preferred stock through a registered secondary offering at a price of $420 per share. In addition, BlackRock repurchased 2.65 million shares from PNC at a price of $414.96 per share. The total proceeds from the sale were $14.2 billion in cash, net of $0.2 billion in expenses, and resulted in a gain on sale of $4.3 billion. Additionally, PNC contributed 500,000 BlackRock shares to the PNC Foundation.
Following the sale and donation, PNC has divested its entire investment in BlackRock and only holds shares of BlackRock stock in a fiduciary capacity for clients of PNC. Refer to our second quarter 2020 Form 10-Q for additional information on the sale.
The following table summarizes the results from the discontinued operations of BlackRock included in the Consolidated Income Statement:
Table 36:40: Consolidated Income Statement - Discontinued Operations
| | | | | | | | | | | |
| | | | Nine months ended September 30 | |
| In millions | | | | 2020 | |
| Noninterest income | | | | $ | 5,777 | | |
| Total revenue | | | | 5,777 | | |
| | | | | |
| | | | | |
| Income from discontinued operations before income taxes and noncontrolling interests | | | | 5,777 | | |
| Income taxes | | | | 1,222 | | |
| Net income from discontinued operations | | | | $ | 4,555 | | |
|
| | | | | | | | | | | | | | | |
| | Three months ended
September 30 | Nine months ended
September 30 |
| In millions | 2020 | | 2019 | 2020 | | 2019 | |
| Noninterest income | | | $ | 251 |
| $ | 5,777 |
| | $ | 700 |
| |
| Total revenue |
| | 251 |
| 5,777 |
| | 700 |
| |
| Income from discontinued operations before income taxes and noncontrolling interests |
| | 251 |
| 5,777 |
| | 700 |
| |
| Income taxes | | | 40 |
| 1,222 |
| | 111 |
| |
| Net income from discontinued operations | $ | 0 |
| | $ | 211 |
| $ | 4,555 |
| | $ | 589 |
| |
The following table summarizes the cash flows of discontinued operations of BlackRock included in the Consolidated Statement of Cash Flows:
Table 37:41: Consolidated Statement of Cash Flows - Discontinued Operations
| | | | | |
| Nine months ended September 30 |
| In millions | 2020 |
| Cash from discontinued operations | |
| Net cash provided (used) by operating activities of discontinued operations | $ | (1,981) | |
| Net cash provided by investing activities of discontinued operations | $ | 14,225 | |
|
| | | | | | | | |
| | Nine months ended
September 30 | |
| In millions | 2020 | | 2019 | |
| Cash flows from discontinued operations | | | | |
| Net cash provided (used) by operating activities of discontinued operations | $ | (1,981 | ) | | $ | 233 |
| |
| Net cash provided by investing activities of discontinued operations | $ | 14,225 |
| | | |
The PNC Financial Services Group, Inc. – Form 10-Q 55
NOTE 3 INVESTMENT SECURITIES
With the adoption of the CECL standard on January 1, 2020, credit losses on investment securities are required to be recognized through an allowance, instead of as a direct write-down to the amortized cost basis of the security. The amortized cost basis of investment securities for which impairment had previously been recorded did not change upon adoption.
We maintain the allowance for investment securities at levels that we believe to be appropriate as of the balance sheet date to absorb expected credit losses on our portfolio. As of September 30, 2020, the allowance for investment securities was $71 million and primarily related to non-agency commercial mortgage-backed securities in the available for sale portfolio and other debt securities in the held to maturity portfolio. The provision for credit losses on investment securities totaled $39 million and $69 million for the three and nine months ended September 30, 2020.
In the first quarter of 2020, upon the adoption of ASU 2019-04, we elected to transfer debt securities with an amortized cost of $16.2 billion and a fair value of $16.5 billion from the held to maturity to the available for sale portfolio. During the second quarter of 2020, pursuant to the guidance in ASU 2020-04, we elected to transfer debt securities with an amortized cost of $49 million and a fair value of $48 million from the held to maturity to the available for sale portfolio.
See Note 1 Accounting Policies for additional information related to the adoption of the CECL standard, including the methodologies used to determine the allowance for investment securities, and the adoption of ASU 2019-04 and ASU 2020-04.
The PNC Financial Services Group, Inc. – Form 10-Q 67
The following table summarizes our available for sale and held to maturity portfolios by major security type.type:
Table 38:42: Investment Securities Summary
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2020 (a) | | | December 31, 2019 |
| In millions | | Amortized Cost (b) |
| | Unrealized | | Fair Value |
| | | Amortized Cost |
| | Unrealized | | Fair Value |
|
| Gains |
| | Losses |
| | | | Gains |
| | Losses |
| |
| Securities Available for Sale | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 17,273 |
| | $ | 954 |
| | $ | (2 | ) | | $ | 18,225 |
| | | $ | 16,150 |
| | $ | 382 |
| | $ | (16 | ) | | $ | 16,516 |
|
| Residential mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 51,202 |
| | 1,737 |
| | (11 | ) | | 52,928 |
| | | 35,847 |
| | 517 |
| | (43 | ) | | 36,321 |
|
| Non-agency | | 1,376 |
| | 243 |
| | (16 | ) | | 1,603 |
| | | 1,515 |
| | 302 |
| | (3 | ) | | 1,814 |
|
| Commercial mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 2,824 |
| | 144 |
| | (2 | ) | | 2,966 |
| | | 3,094 |
| | 42 |
| | (18 | ) | | 3,118 |
|
| Non-agency | | 3,851 |
| | 73 |
| | (95 | ) | | 3,829 |
| | | 3,352 |
| | 29 |
| | (9 | ) | | 3,372 |
|
| Asset-backed | | 5,158 |
| | 105 |
| | (23 | ) | | 5,240 |
| | | 5,044 |
| | 78 |
| | (8 | ) | | 5,114 |
|
| Other | | 4,660 |
| | 297 |
| | (1 | ) | | 4,956 |
| | | 2,788 |
| | 121 |
| | (1 | ) | | 2,908 |
|
| Total securities available for sale (b) | | $ | 86,344 |
| | $ | 3,553 |
| | $ | (150 | ) | | $ | 89,747 |
| | | $ | 67,790 |
| | $ | 1,471 |
| | $ | (98 | ) | | $ | 69,163 |
|
| Securities Held to Maturity | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 790 |
| | $ | 142 |
| | | | $ | 932 |
| | | $ | 776 |
| | $ | 56 |
| | | | $ | 832 |
|
| Residential mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | | |
|
| | | | | | | 14,419 |
| | 270 |
| | $ | (26 | ) | | 14,663 |
|
| Non-agency | | | |
|
| | | | | | | 133 |
| | 7 |
| | | | 140 |
|
| Commercial mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | | |
|
| | | | | | | 59 |
| | 1 |
| | | | 60 |
|
| Non-agency | | | |
|
| | | | | | | 430 |
| | 4 |
| | | | 434 |
|
| Asset-backed | | | | | | | | | | | 52 |
| |
|
| | | | 52 |
|
| Other | | 648 |
| | 42 |
| | $ | (8 | ) | | 682 |
| | | 1,792 |
| | 85 |
| | (14 | ) | | 1,863 |
|
| Total securities held to maturity (b) (c) | | $ | 1,438 |
| | $ | 184 |
| | $ | (8 | ) | | $ | 1,614 |
| | | $ | 17,661 |
| | $ | 423 |
| | $ | (40 | ) | | $ | 18,044 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 (a) | | | December 31, 2020 (a) |
| In millions | | Amortized
Cost | | Unrealized | | Fair
Value | | | Amortized
Cost | | Unrealized | | Fair
Value |
| Gains | | Losses | | | | Gains | | Losses | |
| Securities Available for Sale | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 40,628 | | | $ | 472 | | | $ | (131) | | | $ | 40,969 | | | | $ | 19,821 | | | $ | 903 | | | $ | (13) | | | $ | 20,711 | |
| Residential mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 64,412 | | | 957 | | | (184) | | | 65,185 | | | | 47,355 | | | 1,566 | | | (10) | | | 48,911 | |
| Non-agency | | 1,003 | | | 242 | | | (3) | | | 1,242 | | | | 1,272 | | | 243 | | | (14) | | | 1,501 | |
| Commercial mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 2,008 | | | 56 | | | (4) | | | 2,060 | | | | 2,571 | | | 119 | | | (2) | | | 2,688 | |
| Non-agency | | 3,637 | | | 48 | | | (14) | | | 3,671 | | | | 3,678 | | | 78 | | | (67) | | | 3,689 | |
| Asset-backed | | 5,999 | | | 75 | | | (7) | | | 6,067 | | | | 5,060 | | | 100 | | | (10) | | | 5,150 | |
| Other | | 4,722 | | | 216 | | | (5) | | | 4,933 | | | | 4,415 | | | 293 | | | 0 | | 4,708 | |
| Total securities available for sale (b) | | $ | 122,409 | | | $ | 2,066 | | | $ | (348) | | | $ | 124,127 | | | | $ | 84,172 | | | $ | 3,302 | | | $ | (116) | | | $ | 87,358 | |
| Securities Held to Maturity | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 809 | | | $ | 82 | | | | | $ | 891 | | | | $ | 795 | | | $ | 125 | | | | | $ | 920 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Other | | 670 | | | 29 | | | $ | (7) | | | 692 | | | | 646 | | | 42 | | | $ | (3) | | | 685 | |
| Total securities held to maturity (c) | | $ | 1,479 | | | $ | 111 | | | $ | (7) | | | $ | 1,583 | | | | $ | 1,441 | | | $ | 167 | | | $ | (3) | | | $ | 1,605 | |
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| | | | | | | | | | | | | | | | | |
(a) The accrued interest associated with our available for sale and held to maturity portfoliosportfolio totaled $242$284 million and $2$238 million at September 30, 2021 and December 31, 2020, respectively.
These amounts are included in Other assets on the Consolidated Balance Sheet.
(b) Amortized cost is presented net of allowance of $68$130 million and $79 million for securities available for sale and $3 million for securities held to maturity at September 30, 2021 and December 31, 2020, in accordance with the adoption of the CECL accounting standard. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies for additional detail on the adoption of this ASU.respectively.
(c) Credit ratings represent a primary credit quality indicator used to monitor and manage credit risk. As of September 30, 2020,84% and 85% of our securities held to maturity were rated AAA/AA.AA at September 30, 2021 and December 31, 2020, respectively.
The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Securities available for sale are carried at fair value with net unrealized gains and losses included in Shareholders’ equity as AOCI, unless credit related. Net unrealized gains and losses are determined by taking the difference between the fair value of a security and its amortized cost, net of any allowance. Securities held to maturity are carried at amortized cost less any allowance. Investment securities at September 30, 20202021 included $.7$2.4 billion of net unsettled purchases which represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows. The comparable amount for September 30, 20192020 was $.3$0.7 billion.
We maintain the allowance for investment securities at levels that we believe to be appropriate as of the balance sheet date based on estimation of expected credit losses on our portfolio. As of September 30, 2021, the allowance for investment securities was $133 million and primarily related to non-agency commercial mortgage-backed securities in the available for sale portfolio. The provision for credit losses on investment securities was $25 million and $51 million for the three and nine months ended September 30, 2021. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for a discussion of the methodologies used to determine the allowance for investment securities.
Table 3943 presents the gross unrealized losses and fair value of securities available for sale that do not have an associated allowance for investment securities as ofat September 30, 2021 and December 31, 2020. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities included in the table have been evaluated to determine if a credit loss exists. As part of that assessment, as of September 30, 2020,2021, we concluded that we do not intend to sell and believe we will not be required to sell these securities prior to recovery of the amortized cost basis.
6856 The PNC Financial Services Group, Inc. – Form 10-Q
Table 39:43: Gross Unrealized Loss and Fair Value of Securities Available for Sale Without an Allowance for Credit Losses
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unrealized loss position less than 12 months | | Unrealized loss position 12 months or more | | Total |
| In millions | | Unrealized Loss |
| | Fair Value |
| | Unrealized Loss |
| | Fair Value |
| | Unrealized Loss |
| | Fair Value |
|
| September 30, 2020 | | | | | | | | | |
| |
|
| U.S. Treasury and government agencies | | $ | (2 | ) | | $ | 167 |
| | | | | | $ | (2 | ) | | $ | 167 |
|
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | | (9 | ) | | 2,860 |
| | $ | (2 | ) | | $ | 102 |
| | (11 | ) | | 2,962 |
|
| Non-agency | | (9 | ) | | 160 |
| | (7 | ) | | 73 |
| | (16 | ) | | 233 |
|
| Commercial mortgage-backed | | | | | | | | | | | | |
| Agency | | | | | | (2 | ) | | 132 |
| | (2 | ) | | 132 |
|
| Non-agency | | (34 | ) | | 1,638 |
| | (2 | ) | | 236 |
| | (36 | ) | | 1,874 |
|
| Asset-backed | | (7 | ) | | 844 |
| | (16 | ) | | 741 |
| | (23 | ) | | 1,585 |
|
| Other | | (1 | ) | | 27 |
| | | | | | (1 | ) | | 27 |
|
| Total securities available for sale | | $ | (62 | ) | | $ | 5,696 |
| | $ | (29 | ) | | $ | 1,284 |
| | $ | (91 | ) | | $ | 6,980 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized loss position
less than 12 months | | Unrealized loss position
12 months or more | | Total |
| In millions | | Unrealized
Loss | | Fair
Value | | Unrealized
Loss | | Fair
Value | | Unrealized
Loss | | Fair
Value |
| September 30, 2021 | | | | | | | | | | | | |
| | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | (131) | | | $ | 21,970 | | | | | | | $ | (131) | | | $ | 21,970 | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | | (177) | | | 31,410 | | | $ | (7) | | | $ | 1,135 | | | (184) | | | 32,545 | |
| Non-agency | | | | | | (2) | | | 136 | | | (2) | | | 136 | |
| Commercial mortgage-backed | | | | | | | | | | | | |
| Agency | | (3) | | | 380 | | | (1) | | | 61 | | | (4) | | | 441 | |
| Non-agency | | (1) | | | 661 | | | (2) | | | 489 | | | (3) | | | 1,150 | |
| Asset-backed | | (5) | | | 1,585 | | | (2) | | | 331 | | | (7) | | | 1,916 | |
| Other | | (3) | | | 413 | | | | | | | (3) | | | 413 | |
| Total securities available for sale | | $ | (320) | | | $ | 56,419 | | | $ | (14) | | | $ | 2,152 | | | $ | (334) | | | $ | 58,571 | |
| December 31, 2020 | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | (13) | | | $ | 603 | | | | | | | $ | (13) | | | $ | 603 | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | | (8) | | | 3,152 | | | $ | (2) | | | $ | 82 | | | (10) | | | 3,234 | |
| Non-agency | | (7) | | | 119 | | | (7) | | | 73 | | | (14) | | | 192 | |
| Commercial mortgage-backed | | | | | | | | | | | | |
| Agency | | | | | | (2) | | | 149 | | | (2) | | | 149 | |
| Non-agency | | (13) | | | 972 | | | (7) | | | 714 | | | (20) | | | 1,686 | |
| Asset-backed | | (1) | | | 339 | | | (9) | | | 706 | | | (10) | | | 1,045 | |
| | | | | | | | | | | | |
| Total securities available for sale | | $ | (42) | | | $ | 5,185 | | | $ | (27) | | | $ | 1,724 | | | $ | (69) | | | $ | 6,909 | |
Table 40 presents the gross unrealized losses and fair value of debt securities at December 31, 2019, prior to the adoption of the CECL standard. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis.
Table 40: Gross Unrealized Loss and Fair Value of Debt Securities
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unrealized loss position less than 12 months | | Unrealized loss position 12 months or more | | Total | |
| In millions | | Unrealized Loss |
| | Fair Value |
| | Unrealized Loss |
| | Fair Value |
| | Unrealized Loss |
| | Fair Value |
| |
| December 31, 2019 | | | | | | | | | | | | | |
| Securities Available for Sale | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | (14 | ) | | $ | 2,451 |
| | $ | (2 | ) | | $ | 607 |
| | $ | (16 | ) | | $ | 3,058 |
| |
| Residential mortgage-backed | | | | | | | | | | | | | |
| Agency | | (6 | ) | | 2,832 |
| | (37 | ) | | 4,659 |
| | (43 | ) | | 7,491 |
| |
| Non-agency | |
| |
| | (3 | ) | | 102 |
| | (3 | ) | | 102 |
| |
| Commercial mortgage-backed | | | | | | | | | | | | | |
| Agency | | (6 | ) | | 852 |
| | (12 | ) | | 953 |
| | (18 | ) | | 1,805 |
| |
| Non-agency | | (4 | ) | | 1,106 |
| | (5 | ) | | 230 |
| | (9 | ) | | 1,336 |
| |
| Asset-backed | | (3 | ) | | 660 |
| | (5 | ) | | 561 |
| | (8 | ) | | 1,221 |
| |
| Other | |
| |
| | (1 | ) | | 403 |
| | (1 | ) | | 403 |
| |
| Total securities available for sale | | $ | (33 | ) | | $ | 7,901 |
| | $ | (65 | ) | | $ | 7,515 |
| | $ | (98 | ) | | $ | 15,416 |
| |
| Securities Held to Maturity | | | | | | | | | | | | | |
| Residential mortgage-backed - Agency | |
| |
| | $ | (26 | ) | | $ | 2,960 |
| | $ | (26 | ) | | $ | 2,960 |
| |
| Other | | $ | (1 | ) | | $ | 22 |
| | (13 | ) | | 105 |
| | (14 | ) | | 127 |
| |
| Total securities held to maturity | | $ | (1 | ) | | $ | 22 |
| | $ | (39 | ) | | $ | 3,065 |
| | $ | (40 | ) | | $ | 3,087 |
| |
Information relating to gross realized securities gains and losses from the sales of securities is set forth in the following table.table:
Table 41:44: Gains (Losses) on Sales of Securities Available for Sale
| | | | | | | | | | | | | | | | | | |
Nine months ended September 30
In millions | | Gross Gains | Gross Losses | Net Gains | Tax Expense | |
| 2021 | | $ | 275 | | $ | (225) | | $ | 50 | | $ | 11 | | |
| 2020 | | $ | 256 | | $ | (2) | | $ | 254 | | $ | 53 | | |
|
| | | | | | | | | | | | | |
Nine months ended September 30
In millions | Gross Gains |
| Gross Losses |
| Net Gains (Losses) |
| Tax Expense (Benefit) |
| |
| 2020 | $ | 256 |
| $ | (2 | ) | $ | 254 |
| $ | 53 |
| |
| 2019 | $ | 57 |
| $ | (21 | ) | $ | 36 |
| $ | 8 |
| |
The PNC Financial Services Group, Inc. – Form 10-Q 57 69
The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at September 30, 2020.2021:
Table 42:45: Contractual Maturity of Debt Securities
|
| | | | | | | | | | | | | | | | | | | | | |
September 30, 2020
Dollars in millions | | 1 Year or Less |
| | After 1 Year through 5 Years |
| | After 5 Years through 10 Years |
| | After 10 Years |
| | Total |
| |
| Securities Available for Sale | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 3,891 |
| | $ | 9,478 |
| | $ | 2,979 |
| | $ | 925 |
| | $ | 17,273 |
| |
| Residential mortgage-backed | | | | | | | | | | | |
| Agency | | 1 |
| | 155 |
| | 2,098 |
| | 48,948 |
| | 51,202 |
| |
| Non-agency | | | | | | | | 1,376 |
| | 1,376 |
| |
| Commercial mortgage-backed | | | | | | | | | | | |
| Agency | | 21 |
| | 609 |
| | 663 |
| | 1,531 |
| | 2,824 |
| |
| Non-agency | | | | 83 |
| | 247 |
| | 3,521 |
| | 3,851 |
| |
| Asset-backed | | 26 |
| | 2,625 |
| | 1,316 |
| | 1,191 |
| | 5,158 |
| |
| Other | | 889 |
| | 1,497 |
| | 1,292 |
| | 982 |
| | 4,660 |
| |
| Total securities available for sale at amortized cost | | $ | 4,828 |
| | $ | 14,447 |
| | $ | 8,595 |
| | $ | 58,474 |
| | $ | 86,344 |
| |
| Fair value | | $ | 4,848 |
| | $ | 15,081 |
| | $ | 9,048 |
| | $ | 60,770 |
| | $ | 89,747 |
| |
| Weighted-average yield, GAAP basis (a) | | 1.10 | % | | 2.08 | % | | 2.05 | % | | 2.92 | % | | 2.62 | % | |
| Securities Held to Maturity | | | | | | | | | | | |
| U.S. Treasury and government agencies | | | | $ | 199 |
| | $ | 309 |
| | $ | 282 |
| | $ | 790 |
| |
| Other | | $ | 14 |
| | 437 |
| | 112 |
| | 85 |
| | 648 |
| |
| Total securities held to maturity at amortized cost | | $ | 14 |
| | $ | 636 |
| | $ | 421 |
| | $ | 367 |
| | $ | 1,438 |
| |
| Fair value | | $ | 14 |
| | $ | 677 |
| | $ | 513 |
| | $ | 410 |
| | $ | 1,614 |
| |
| Weighted-average yield, GAAP basis (a) | | 2.93 | % | | 3.28 | % | | 3.93 | % | | 2.48 | % | | 3.29 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2021
Dollars in millions | | 1 Year or Less | | After 1 Year
through 5 Years | | After 5 Years
through 10 Years | | After 10
Years | | Total | |
| Securities Available for Sale | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 3,326 | | | $ | 24,754 | | | $ | 10,796 | | | $ | 1,752 | | | $ | 40,628 | | |
| Residential mortgage-backed | | | | | | | | | | | |
| Agency | | 1 | | | 108 | | | 2,448 | | | 61,855 | | | 64,412 | | |
| Non-agency | | | | | | 2 | | | 1,001 | | | 1,003 | | |
| Commercial mortgage-backed | | | | | | | | | | | |
| Agency | | 76 | | | 413 | | | 778 | | | 741 | | | 2,008 | | |
| Non-agency | | | | 147 | | | 182 | | | 3,308 | | | 3,637 | | |
| Asset-backed | | 97 | | | 2,104 | | | 711 | | | 3,087 | | | 5,999 | | |
| Other | | 317 | | | 2,080 | | | 1,593 | | | 732 | | | 4,722 | | |
| Total securities available for sale at amortized cost | | $ | 3,817 | | | $ | 29,606 | | | $ | 16,510 | | | $ | 72,476 | | | $ | 122,409 | | |
| Fair value | | $ | 3,836 | | | $ | 29,919 | | | $ | 16,673 | | | $ | 73,699 | | | $ | 124,127 | | |
| Weighted-average yield, GAAP basis (a) | | 1.29 | % | | 1.18 | % | | 1.63 | % | | 2.45 | % | | 2.00 | % | |
| Securities Held to Maturity | | | | | | | | | | | |
| U.S. Treasury and government agencies | | | | $ | 199 | | | $ | 321 | | | $ | 289 | | | $ | 809 | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other | | $ | 126 | | | 367 | | | 115 | | | 62 | | | 670 | | |
| Total securities held to maturity at amortized cost | | $ | 126 | | | $ | 566 | | | $ | 436 | | | $ | 351 | | | $ | 1,479 | | |
| Fair value | | $ | 128 | | | $ | 590 | | | $ | 502 | | | $ | 363 | | | $ | 1,583 | | |
| Weighted-average yield, GAAP basis (a) | | 3.47 | % | | 2.91 | % | | 3.91 | % | | 2.52 | % | | 3.16 | % | |
(a) Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security.
At September 30, 2020,2021, there were no securities of a single issuer, other than FNMA and FHLMC, that exceeded 10% of total shareholders’ equity. The FNMA and FHLMC investments had a total amortized cost of $36.9$33.1 billion and $9.8$21.6 billion and fair value of $38.3$33.8 billion and $10.1$21.6 billion, respectively.
The following table presents the fair value of securities that have been either pledged to or accepted from others to collateralize outstanding borrowings.borrowings:
Table 43:46: Fair Value of Securities Pledged and Accepted as Collateral
| | | | | | | | |
| In millions | September 30
2021 | December 31
2020 |
| Pledged to others | $ | 25,252 | | $ | 22,841 | |
| Accepted from others: | | |
| Permitted by contract or custom to sell or repledge | $ | 800 | | $ | 683 | |
| Permitted amount repledged to others | $ | 800 | | $ | 683 | |
|
| | | | | | |
| In millions | September 30
2020 |
| December 31
2019 |
|
| Pledged to others | $ | 23,268 |
| $ | 14,609 |
|
| Accepted from others: | | |
| Permitted by contract or custom to sell or repledge (a) | $ | 710 |
| $ | 2,349 |
|
| Permitted amount repledged to others | $ | 710 |
| $ | 360 |
|
| |
(a) | Balances at December 31, 2019 include $2.0 billion in fair value of securities accepted from others to collateralize short-term investments in resale agreements that were not repledged. |
The securities pledged to others include positions held in our portfolio of investment securities, trading securities and securities accepted as collateral from others that we are permitted by contract or custom to sell or repledge, and were used to secure public and trust deposits, repurchase agreements and for other purposes.
7058 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 4 Loans and Related Allowance for Credit LossesLOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
Loan Portfolio
Our loan portfolio consists of two2 portfolio segments – Commercial and Consumer. Each of these segments comprises multiple loan classes. Classes are characterized by similarities in risk attributes and the manner in which we monitor and assess credit risk.
|
| | | | | | | |
| Commercial | | Consumer |
|
• Commercial and industrial | | • Residential real estateHome equity |
• Commercial real estate | | • Home equityResidential real estate |
• Equipment lease financing | | • Automobile |
| | • Credit card |
| | • Education |
| | • Other consumer |
| | |
See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for additional information on our loan related policies.
Credit Quality
We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk within the loan portfolio based on our defined loan classes. In doing so, we use several credit quality indicators, including trends in delinquency rates, nonperforming status, analysis of PD and LGD ratings, updated credit scores, and originated and updated LTV ratios.
The measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. WithLoan delinquencies include government insured or guaranteed loans, loans accounted for under the adoption of the CECL standard, accruing loans past due as of September 30, 2020 includefair value option and PCD loans, while amounts as of December 31, 2019 excluded purchased impaired loans. See Note 1 Accounting Policies for additional information related to the adoption of this standard, including the discontinuation of purchased impaired loan accounting.
The following tableTable 47 presents the composition and delinquency status of our loan portfolio at September 30, 20202021 and December 31, 2019.2020. Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the September 30, 2020 delinquency status of loans modified due to COVID-19 related hardships aligns with the rules set forth for banks to report delinquency status to the credit agencies. These rules require that COVID-19 related loan modifications be reported as follows:
•if current at the time of modification, the loan remains current throughout the modification period,
•if delinquent at the time of modification and the borrower was not made current as part of the modification, the loan maintains its reported delinquent status during the modification period, or
•if delinquent at the time of modification and the borrower was made current as part of the modification or became current during the modification period, the loan is reported as current.
As a result, certain loans modified due to COVID-19 related hardships are not being reported as past due as of September 30, 2021 and December 31, 2020 based on the contractual terms of the loan, even where borrowers may not be making payments on their loans during the modification period. Loan modifications due to COVID-19 related hardships that permanently reduce either the contractual interest rate or the principal balance of a loan do not qualify for TDR relief under the CARES Act or the interagency guidance.
The PNC Financial Services Group, Inc. – Form 10-Q 59 71
Table 44:47: Analysis of Loan Portfolio (a) (b) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accruing | | | | | | | |
| Dollars in millions | Current or Less
Than 30 Days
Past Due | 30-59
Days
Past Due | 60-89
Days
Past Due | 90 Days
Or More
Past Due | Total
Past
Due (c) | | Nonperforming
Loans | Fair Value
Option
Nonaccrual
Loans (d) | Total Loans
(e)(f) | | | |
| September 30, 2021 | | | | | | | | | | | | |
| Commercial | | | | | | | | | | | | |
| Commercial and industrial | $ | 151,703 | | $ | 97 | | $ | 50 | | $ | 56 | | $ | 203 | | | $ | 829 | | | $ | 152,735 | | | | |
| Commercial real estate | 35,749 | | 68 | | 2 | | 11 | | 81 | | | 365 | | | 36,195 | | | | |
| Equipment lease financing | 6,238 | | 5 | | 4 | | | 9 | | | 10 | | | 6,257 | | | | |
| Total commercial | 193,690 | | 170 | | 56 | | 67 | | 293 | | | 1,204 | | | 195,187 | | | | |
| Consumer | | | | | | | | | | | | |
| Residential real estate | 36,504 | | 209 | | 80 | | 296 | | 585 | | (c) | 533 | | $ | 592 | | 38,214 | | | | |
| Home equity | 23,719 | | 45 | | 18 | | | 63 | | | 592 | | 105 | | 24,479 | | | | |
| Automobile | 16,940 | | 114 | | 23 | | 4 | | 141 | | | 184 | | | 17,265 | | | | |
| Credit card | 6,337 | | 42 | | 27 | | 53 | | 122 | | | 7 | | | 6,466 | | | | |
| Education | 2,521 | | 45 | | 26 | | 61 | | 132 | | (c) | | | 2,653 | | | | |
| Other consumer | 5,898 | | 34 | | 15 | | 11 | | 60 | | | 8 | | | 5,966 | | | | |
| Total consumer | 91,919 | | 489 | | 189 | | 425 | | 1,103 | | | 1,324 | | 697 | | 95,043 | | | | |
| Total | $ | 285,609 | | $ | 659 | | $ | 245 | | $ | 492 | | $ | 1,396 | | | $ | 2,528 | | $ | 697 | | $ | 290,230 | | | | |
| Percentage of total loans | 98.41 | % | 0.23 | % | 0.08 | % | 0.17 | % | 0.48 | % | | 0.87 | % | 0.24 | % | 100.00 | % | | | |
| December 31, 2020 | | | | | | | | | | | | |
| Commercial | | | | | | | | | | | | |
| Commercial and industrial | $ | 131,245 | | $ | 106 | | $ | 26 | | $ | 30 | | $ | 162 | | | $ | 666 | | | $ | 132,073 | | | | |
| Commercial real estate | 28,485 | | 6 | | 1 | | | 7 | | | 224 | | | 28,716 | | | | |
| Equipment lease financing | 6,345 | | 31 | | 5 | | | 36 | | | 33 | | | 6,414 | | | | |
| Total commercial | 166,075 | | 143 | | 32 | | 30 | | 205 | | | 923 | | | 167,203 | | | | |
| Consumer | | | | | | | | | | | | |
| Residential real estate | 20,945 | | 181 | | 78 | | 319 | | 578 | | (c) | 528 | | $ | 509 | | 22,560 | | | | |
| Home equity | 23,318 | | 50 | | 21 | | | 71 | | | 645 | | 54 | | 24,088 | | | | |
| Automobile | 13,863 | | 134 | | 34 | | 12 | | 180 | | | 175 | | | 14,218 | | | | |
| Credit card | 6,074 | | 43 | | 30 | | 60 | | 133 | | | 8 | | | 6,215 | | | | |
| Education | 2,785 | | 55 | | 29 | | 77 | | 161 | | (c) | | | 2,946 | | | | |
| Other consumer | 4,656 | | 14 | | 10 | | 11 | | 35 | | | 7 | | | 4,698 | | | | |
| Total consumer | 71,641 | | 477 | | 202 | | 479 | | 1,158 | | | 1,363 | | 563 | | 74,725 | | | | |
| Total | $ | 237,716 | | $ | 620 | | $ | 234 | | $ | 509 | | $ | 1,363 | | | $ | 2,286 | | $ | 563 | | $ | 241,928 | | | | |
| Percentage of total loans | 98.27 | % | 0.26 | % | 0.10 | % | 0.21 | % | 0.56 | % | | 0.94 | % | 0.23 | % | 100.00 | % | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accruing | | | | | |
| Dollars in millions | Current or Less Than 30 Days Past Due |
| 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 Days Or More Past Due |
| Total Past Due (c) |
| | Nonperforming Loans |
| Fair Value Option Nonaccrual Loans (d) |
| Total Loans (e)(f) |
| |
| September 30, 2020 (a) (b) | | | | | | | | | | |
| Commercial | | | | | | | | | | |
| Commercial and industrial | $ | 136,381 |
| $ | 56 |
| $ | 37 |
| $ | 36 |
| $ | 129 |
| | $ | 677 |
| | $ | 137,187 |
| |
| Commercial real estate | 28,799 |
| 6 |
| 6 |
| | 12 |
| | 217 |
| | 29,028 |
| |
| Equipment lease financing | 6,447 |
| 7 |
| 4 |
| | 11 |
| | 21 |
| | 6,479 |
| |
| Total commercial | 171,627 |
| 69 |
| 47 |
| 36 |
| 152 |
| | 915 |
| | 172,694 |
| |
| Consumer | | | | | | | | | | |
| Home equity | 23,774 |
| 48 |
| 22 |
| | 70 |
| | 639 |
| $ | 56 |
| 24,539 |
| |
| Residential real estate | 21,503 |
| 188 |
| 80 |
| 269 |
| 537 |
| (c) | 339 |
| 507 |
| 22,886 |
| |
| Automobile | 14,646 |
| 116 |
| 32 |
| 12 |
| 160 |
| | 171 |
| | 14,977 |
| |
| Credit card | 6,153 |
| 44 |
| 33 |
| 60 |
| 137 |
| | 13 |
| | 6,303 |
| |
| Education | 2,905 |
| 57 |
| 26 |
| 63 |
| 146 |
| (c) | | | 3,051 |
| |
| Other consumer | 4,785 |
| 17 |
| 11 |
| 8 |
| 36 |
| | 8 |
| | 4,829 |
| |
| Total consumer | 73,766 |
| 470 |
| 204 |
| 412 |
| 1,086 |
| | 1,170 |
| 563 |
| 76,585 |
| |
| Total | $ | 245,393 |
| $ | 539 |
| $ | 251 |
| $ | 448 |
| $ | 1,238 |
| | $ | 2,085 |
| $ | 563 |
| $ | 249,279 |
| |
| Percentage of total loans | 98.43 | % | .22 | % | .10 | % | .18 | % | .50 | % | | .84 | % | .23 | % | 100.00 | % | |
| |
(a) | Amounts in table represent loans held for investment and do not include any associated valuation allowance. |
| |
(b) | The accrued interest associated with our loan portfolio at September 30, 2020 totaled $.7 billion and is included in Other assets on the Consolidated Balance Sheet. |
| |
(c) | Past due loan amounts include government insured or guaranteed Residential real estate loans and Education loans totaling $.4 billion and $.1 billion, respectively, at September 30, 2020. |
| |
(d) | Consumer loans accounted for under the fair value option for which we do not expect to collect substantially all principal and interest are subject to nonaccrual accounting and classification upon meeting any of our nonaccrual policies. Given that these loans are not accounted for at amortized cost, these loans have been excluded from the nonperforming loan population. |
| |
(e) | Net of unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $1.4 billion at September 30, 2020. |
| |
(f) | Collateral dependent loans totaled $1.2 billion at September 30, 2020. The majority of these loans are within the Home equity and Residential real estate loan classes and are secured by consumer real estate. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accruing | | | | | | |
| Dollars in millions | Current or Less Than 30 Days Past Due |
| 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 Days Or More Past Due |
| Total Past Due (h) |
| | Nonperforming Loans |
| Fair Value Option Nonaccrual Loans (i) |
| Purchased Impaired Loans |
| Total Loans (j) |
| |
| December 31, 2019 (g) | | | | | | | | | | | |
| Commercial | | | | | | | | | | | |
| Commercial and industrial | $ | 124,695 |
| $ | 102 |
| $ | 30 |
| $ | 85 |
| $ | 217 |
| | $ | 425 |
| | | $ | 125,337 |
| |
| Commercial real estate | 28,061 |
| 4 |
| 1 |
| | 5 |
| | 44 |
| | | 28,110 |
| |
| Equipment lease financing | 7,069 |
| 49 |
| 5 |
| | 54 |
| | 32 |
| | | 7,155 |
| |
| Total commercial | 159,825 |
| 155 |
| 36 |
| 85 |
| 276 |
| | 501 |
| | | 160,602 |
| |
| Consumer | | | | | | | | | | | |
| Home equity | 23,791 |
| 58 |
| 24 |
| | 82 |
| | 669 |
| | $ | 543 |
| 25,085 |
| |
| Residential real estate | 19,640 |
| 140 |
| 69 |
| 315 |
| 524 |
| (h) | 315 |
| $ | 166 |
| 1,176 |
| 21,821 |
| |
| Automobile | 16,376 |
| 178 |
| 47 |
| 18 |
| 243 |
| | 135 |
| | | 16,754 |
| |
| Credit card | 7,133 |
| 60 |
| 37 |
| 67 |
| 164 |
| | 11 |
| | | 7,308 |
| |
| Education | 3,156 |
| 55 |
| 34 |
| 91 |
| 180 |
| (h) | | | | 3,336 |
| |
| Other consumer | 4,898 |
| 15 |
| 11 |
| 9 |
| 35 |
| | 4 |
| | | 4,937 |
| |
| Total consumer | 74,994 |
| 506 |
| 222 |
| 500 |
| 1,228 |
| | 1,134 |
| 166 |
| 1,719 |
| 79,241 |
| |
| Total | $ | 234,819 |
| $ | 661 |
| $ | 258 |
| $ | 585 |
| $ | 1,504 |
| | $ | 1,635 |
| $ | 166 |
| $ | 1,719 |
| $ | 239,843 |
| |
| Percentage of total loans | 97.90 | % | .28 | % | .11 | % | .24 | % | .63 | % | | .68 | % | .07 | % | .72 | % | 100.00 | % | |
| |
(g) | Amounts in table represent recorded investment and exclude loans held for sale. Recorded investment does not include any associated valuation allowance. |
| |
(h) | Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to receive payment in full based on the original contractual terms), as we accreted interest income over the expected life of the loans. Past due loan amounts include government insured or guaranteed Residential real estate loans totaling $.4 billion and Education loans totaling $.2 billion at December 31, 2019. |
| |
(i) | Consumer loans accounted for under the fair value option for which we do not expect to collect substantially all principal and interest are subject to nonaccrual accounting and classification upon meeting any of our nonaccrual policies. Given that these loans are not accounted for at amortized cost, these loans have been excluded from the nonperforming loan population. |
| |
(j) | Net of unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $1.1 billion at December 31, 2019. |
72 The PNC Financial Services Group, Inc. – Form 10-Q
(b)The accrued interest associated with our loan portfolio totaled $0.8 billion and $0.7 billion at September 30, 2021 and December 31, 2020, respectively. These amounts are included in Other assets on the Consolidated Balance Sheet.
(d)Consumer loans accounted for under the fair value option for which we do not expect to collect substantially all principal and interest are subject to nonaccrual accounting and classification upon meeting any of our nonaccrual policies. Given that these loans are not accounted for at amortized cost, these loans have been excluded from the nonperforming loan population.
(e)Includes unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $0.9 billion and $1.3 billion at September 30, 2021 and December 31, 2020, respectively.
(f)Collateral dependent loans totaled $1.7 billion and $1.5 billion at September 30, 2021 and December 31, 2020, respectively.
At September 30, 2020,2021, we pledged $30.5$25.6 billion of commercial and other loans to the Federal Reserve Bank and $68.9$77.8 billion of residential real estate and other loans to the Federal Home Loan BankFHLB as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, 20192020 were $16.9$30.1 billion and $68.0$69.0 billion, respectively. Amounts pledged reflect the unpaid principal balances.
Nonperforming Assets
Nonperforming assets include nonperforming loans and leases, OREO and foreclosed assets. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent that full collection of contractual principal and interest is not probable.probable and include nonperforming TDRs and PCD loans. Interest income is not recognized on these loans. Loans accounted for under the fair value option are reported as performing loans, however, when nonaccrual criteria is met interest income is not recognized on these loans. Additionally, certain government insured or guaranteed loans for which we expect to collect
60 The PNC Financial Services Group, Inc. – Form 10-Q
substantially all principal and interest are not reported as nonperforming loans and continue to accrue interest.
With the adoption of the CECL standard, nonperforming loans as of September 30, 2020 include PCD loans. Amounts as of December 31, 2019 excluded purchased impaired loans as we were accreting interest income over the expected life of the loans. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for additional information related to the adoption of this standard andon our nonperforming loan and lease policies.
The following table presents our nonperforming assets as of September 30, 20202021 and December 31, 2019, respectively.2020 , respectively:
Table 48: Nonperforming Assets
| | | | | | | | | | | | | | | | | |
| Dollars in millions | | September 30
2021 | | December 31
2020 | |
| Nonperforming loans | | | | | |
| Commercial | | $ | 1,204 | | | $ | 923 | | |
| Consumer (a) | | 1,324 | | | 1,363 | | |
| Total nonperforming loans (b) | | 2,528 | | | 2,286 | | |
| OREO and foreclosed assets | | 31 | | | 51 | | |
| Total nonperforming assets | | $ | 2,559 | | | $ | 2,337 | | |
| Nonperforming loans to total loans | | 0.87 | % | | 0.94 | % | |
| Nonperforming assets to total loans, OREO and foreclosed assets | | 0.88 | % | | 0.97 | % | |
| Nonperforming assets to total assets | | 0.46 | % | | 0.50 | % | |
Table 45: Nonperforming Assets(a)Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.
(b)Nonperforming loans for which there is no related ALLL totaled $1.0 billion at September 30, 2021 and primarily include loans with a fair value of collateral that exceeds the amortized cost basis. The comparable amount at December 31, 2020 was $0.8 billion. |
| | | | | | | | | |
| Dollars in millions | | September 30
2020 |
| | December 31
2019 |
| |
| Nonperforming loans | | | | | |
| Commercial | | $ | 915 |
| | $ | 501 |
| |
| Consumer (a) | | 1,170 |
| | 1,134 |
| |
| Total nonperforming loans (b) | | 2,085 |
| | 1,635 |
| |
| OREO and foreclosed assets | | 67 |
| | 117 |
| |
| Total nonperforming assets | | $ | 2,152 |
| | $ | 1,752 |
| |
| Nonperforming loans to total loans | | .84 | % | | .68 | % | |
| Nonperforming assets to total loans, OREO and foreclosed assets | | .86 | % | | .73 | % | |
| Nonperforming assets to total assets | | .47 | % | | .43 | % | |
| |
(a) | Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status. |
| |
(b) | Nonperforming loans for which there is no related ALLL totaled $.6 billion at September 30, 2020, and is primarily comprised of loans with a valuation that exceeds the amortized cost basis. |
Nonperforming loans also include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered TDRs. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K and the TDRTroubled Debt Restructurings section of this Note 4 for additional information on TDRs.
Total nonperforming loans in Table 4548 include TDRs of $.8$0.8 billion and $.9$0.9 billion at September 30, 20202021 and December 31, 2019,2020, respectively. TDRs that are performing, including consumer credit card TDR loans, are excluded from nonperforming loans and totaled $.8$0.7 billion at both September 30, 20202021 and December 31, 2019 and are excluded from nonperforming loans.2020.
Additional Credit Quality Indicators by Loan Class
Commercial Loan Classes
See Note 4 Loans and Industrial
For commercialRelated Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information related to these loan classes, including discussion around the credit quality indicators that we use to monitor and industrial loans, we monitormanage the performance of the borrower in a disciplined and regular manner based upon the level of credit risk inherent in the loan. To evaluate the level of credit risk, we assign an internal risk rating reflecting the borrower’s PD and LGD. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process. These ratings are reviewed and updated, generally at least once per year. For small balance homogeneous pools of commercial and industrial loans and leases, we apply scoring techniques to assist in determining the PD. The combination of the PD and LGD ratings assigned to commercial and industrial loans, capturing both the combination of expectations of default and loss severity in the event of default, reflects credit quality characteristics as of the reporting date and are used as inputs into our loss forecasting process.associated with each loan class.
Based upon the amount of the lending arrangement and our risk rating assessment, we follow a formal schedule of written periodic reviews. Quarterly, we conduct formal reviews of a market’s or business unit’s loan portfolio, focusing on those loans which we perceive to be of higher risk, based upon PDs and LGDs, or loans for which credit quality is weakening. If circumstances warrant, it is our practice to review any customer obligation and its level of credit risk more frequently. We attempt to proactively manage our loans by using various procedures that are customized to the risk of a given loan, including ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.
The PNC Financial Services Group, Inc. – Form 10-Q 61 73
Commercial Real Estate
We manageThe following table presents credit risk associated with our commercial real estate projects and commercial mortgages similar to commercial and industrial loans by evaluating PD and LGD. Risks associated with commercial real estate projects and commercial mortgage activities tend to be correlated to the loan structure and collateral location, project progress and business environment. As a result, these attributes are also monitored and utilized in assessing credit risk.
As withquality indicators for the commercial and industrial loan class, a formal schedule of periodic reviews is also performed to assess market/geographic risk and business unit/industry risk. Often as a result of these overviews, more in-depth reviews and increased scrutiny are placed on areas of higher risk, such as adverse changes in risk ratings, deteriorating operating trends, and/or areas that concern management. These reviews are designed to assess risk and facilitate actions to mitigate such risks.
Equipment Lease Financing
We manage credit risk associated with our equipment lease financing loan class similar to commercial and industrial loans by analyzing PD and LGD.
Based upon the dollar amount of the lease and the level of credit risk, we follow a formal schedule of periodic reviews. Generally, this occurs quarterly, although we have established practices to review such credit risk more frequently if circumstances warrant. Our review process entails analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk, guarantor requirements, and regulatory compliance as applicable.
Table 46:49: Commercial Credit Quality Indicators (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans by Origination Year | | | |
| September 30, 2021 - In millions | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total
Loans |
| Commercial and industrial | | | | | | | | | |
| Pass Rated | $ | 23,953 | | $ | 13,493 | | $ | 12,681 | | $ | 7,612 | | $ | 7,144 | | $ | 13,065 | | $ | 66,452 | | $ | 93 | | $ | 144,493 | |
| Criticized | 254 | | 487 | | 878 | | 906 | | 517 | | 997 | | 4,176 | | 27 | | 8,242 | |
| Total commercial and industrial | 24,207 | | 13,980 | | 13,559 | | 8,518 | | 7,661 | | 14,062 | | 70,628 | | 120 | | 152,735 | |
| Commercial real estate | | | | | | | | | |
| Pass Rated | 2,704 | | 4,531 | | 7,545 | | 4,956 | | 3,006 | | 8,375 | | 429 | | | 31,546 | |
| Criticized | 160 | | 287 | | 1,000 | | 710 | | 657 | | 1,812 | | 23 | | | 4,649 | |
| Total commercial real estate | 2,864 | | 4,818 | | 8,545 | | 5,666 | | 3,663 | | 10,187 | | 452 | | | 36,195 | |
| Equipment lease financing | | | | | | | | | |
| Pass Rated | 885 | | 1,257 | | 1,026 | | 777 | | 570 | | 1,551 | | | | 6,066 | |
| Criticized | 26 | | 59 | | 44 | | 33 | | 23 | | 6 | | | | 191 | |
| Total equipment lease financing | 911 | | 1,316 | | 1,070 | | 810 | | 593 | | 1,557 | | | | 6,257 | |
| Total commercial | $ | 27,982 | | $ | 20,114 | | $ | 23,174 | | $ | 14,994 | | $ | 11,917 | | $ | 25,806 | | $ | 71,080 | | $ | 120 | | $ | 195,187 | |
| | | | | | | | | | | | | | | | | | | | | | Term Loans by Origination Year | | | |
| | Term Loans by Origination Year | | | |
| September 30, 2020 - In millions | 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Revolving Loans |
| Revolving Loans Converted to Term |
| Total Loans |
| |
| December 31, 2020 - In millions | | December 31, 2020 - In millions | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total
Loans |
| Commercial and industrial | | | Commercial and industrial | | |
| Pass Rated | $ | 30,385 |
| $ | 14,778 |
| $ | 9,241 |
| $ | 6,474 |
| $ | 4,531 |
| $ | 7,916 |
| $ | 56,000 |
| $ | 55 |
| $ | 129,380 |
| Pass Rated | $ | 31,680 | | $ | 13,340 | | $ | 8,209 | | $ | 5,956 | | $ | 4,242 | | $ | 7,141 | | $ | 54,775 | | $ | 53 | | $ | 125,396 | |
| Criticized | 331 |
| 721 |
| 725 |
| 382 |
| 217 |
| 531 |
| 4,881 |
| 19 |
| 7,807 |
| Criticized | 339 | 702 | | 578 | | 334 | | 224 | | 351 | | 4,130 | | 19 | | 6,677 | |
| Total commercial and industrial | 30,716 |
| 15,499 |
| 9,966 |
| 6,856 |
| 4,748 |
| 8,447 |
| 60,881 |
| 74 |
| 137,187 |
| Total commercial and industrial | 32,019 | | 14,042 | | 8,787 | | 6,290 | | 4,466 | | 7,492 | | 58,905 | | 72 | | 132,073 | |
| Commercial real estate | | | Commercial real estate | | |
| Pass Rated | 3,226 |
| 6,552 |
| 3,625 |
| 3,384 |
| 2,622 |
| 7,574 |
| 164 |
| | 27,147 |
| Pass Rated | 3,709 | | 6,268 | | 3,426 | | 2,841 | | 2,341 | | 6,792 | | 218 | | | 25,595 | |
| Criticized | 194 |
| 139 |
| 53 |
| 305 |
| 340 |
| 753 |
| 97 |
| | 1,881 |
| Criticized | 319 | | 548 | | 148 | | 423 | | 400 | | 1,159 | | 124 | | | 3,121 | |
| Total commercial real estate | 3,420 |
| 6,691 |
| 3,678 |
| 3,689 |
| 2,962 |
| 8,327 |
| 261 |
|
| 29,028 |
| Total commercial real estate | 4,028 | | 6,816 | | 3,574 | | 3,264 | | 2,741 | | 7,951 | | 342 | | | 28,716 | |
| Equipment lease financing | | | Equipment lease financing | | |
| Pass Rated | 1,048 |
| 1,258 |
| 1,043 |
| 826 |
| 494 |
| 1,454 |
| | 6,123 |
| Pass Rated | 1,429 | | 1,202 | | 942 | | 738 | | 405 | | 1,350 | | | 6,066 | |
| Criticized | 61 |
| 95 |
| 95 |
| 46 |
| 26 |
| 33 |
| | 356 |
| Criticized | 78 | | 92 | | 86 | | 39 | | 22 | | 31 | | | 348 | |
| Total equipment lease financing | 1,109 |
| 1,353 |
| 1,138 |
| 872 |
| 520 |
| 1,487 |
|
| | 6,479 |
| Total equipment lease financing | 1,507 | | 1,294 | | 1,028 | | 777 | | 427 | | 1,381 | | | 6,414 | |
| Total commercial | $ | 35,245 |
| $ | 23,543 |
| $ | 14,782 |
| $ | 11,417 |
| $ | 8,230 |
| $ | 18,261 |
| $ | 61,142 |
| $ | 74 |
| $ | 172,694 |
| Total commercial | $ | 37,554 | | $ | 22,152 | | $ | 13,389 | | $ | 10,331 | | $ | 7,634 | | $ | 16,824 | | $ | 59,247 | | $ | 72 | | $ | 167,203 | |
(a)Loans in our commercial portfolio are classified as Pass Rated or Criticized based on the regulatory definitions, which are driven by the PD and LGD ratings that we assign. The Criticized classification includes loans that were rated special mention, substandard or doubtful as of September 30, 2021 and December 31, 2020. |
| | | | | | | | | | | | | |
| December 31, 2019 - In millions | | Pass Rated |
| | Criticized |
| | Total Loans |
| |
| Commercial and industrial | | $ | 119,761 |
| | $ | 5,576 |
| | $ | 125,337 |
| |
| Commercial real estate | | 27,424 |
| | 686 |
| | 28,110 |
| |
| Equipment lease financing | | 6,891 |
| | 264 |
| | 7,155 |
| |
| Total commercial | | $ | 154,076 |
| | $ | 6,526 |
| | $ | 160,602 |
| |
| |
(a) | Loans in our commercial portfolio are classified as Pass Rated or Criticized based on the regulatory definitions, which are driven by the PD and LGD ratings that we assign. The Criticized classification includes loans that were rated special mention, substandard or doubtful as of September 30, 2020 and December 31, 2019. |
Home EquityConsumer Loan Classes
See Note 4 Loans and Residential Real Estate
We use severalRelated Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information related to these loan classes, including discussion around the credit quality indicators including delinquency information, nonperforming loan information, updated credit scores, originated and updated LTV ratios,that we use to monitor and manage the credit risk within the home equity and residential real estate
associated with each loan classes. A summary of credit quality indicators follows:class.
Delinquency/Delinquency Rates: We monitor trending of delinquency/delinquency rates for home equity and residential real estate loans. See Table 44 for additional information.
Nonperforming Loans: We monitor trending of nonperforming loans for home equity and residential real estate loans. See Table 44 for additional information.
7462 The PNC Financial Services Group, Inc. – Form 10-Q
Credit Scores: We use a national third-party provider to update FICOThe following table presents credit scoresquality indicators for home equity andthe residential real estate loans at least quarterly. The updated scores are incorporated into a seriesloan class:
Table 50: Residential Real Estate Credit Quality Indicators | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | |
| September 30, 2021 - In millions | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | | | Total Loans |
| | | | | | | | | |
| PNC legacy | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than 100% | $ | 1 | | $ | 9 | | $ | 12 | | $ | 2 | | $ | 4 | | $ | 71 | | | | $ | 99 | |
| Greater than or equal to 80% to 100% | 711 | | 143 | | 107 | | 30 | | 34 | | 165 | | | | 1,190 | |
| Less than 80% | 9,359 | | 5,802 | | 2,193 | | 638 | | 1,179 | | 4,356 | | | | 23,527 | |
| Government insured or guaranteed loans | 1 | | 11 | | 24 | | 21 | | 30 | | 688 | | | | 775 | |
| Total PNC legacy portfolio | 10,072 | | 5,965 | | 2,336 | | 691 | | 1,247 | | 5,280 | | | | 25,591 | |
| Acquired loans | | | | | | | | | |
| Estimated LTV ratios (a) | | | | | | | | | |
| Greater than 100% | 13 | | 23 | | 2 | | 2 | | 4 | | 18 | | | | 62 | |
| Greater than or equal to 80% to 100% | 847 | | 1,225 | | 488 | | 241 | | 243 | | 534 | | | | 3,578 | |
| Less than 80% | 1,689 | | 1,941 | | 728 | | 287 | | 369 | | 3,248 | | | | 8,262 | |
| No LTV ratio available | 207 | | 320 | | 93 | | 26 | | 1 | | | | | 647 | |
| Government insured or guaranteed loans | | 4 | | 14 | | 11 | | 10 | | 35 | | | | 74 | |
| Total acquired loans | 2,756 | | 3,513 | | 1,325 | | 567 | | 627 | | 3,835 | | | | 12,623 | |
| Total residential real estate | $ | 12,828 | | $ | 9,478 | | $ | 3,661 | | $ | 1,258 | | $ | 1,874 | | $ | 9,115 | | | | $ | 38,214 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | $ | 7,778 | | $ | 6,577 | | $ | 2,405 | | $ | 701 | | $ | 1,170 | | $ | 4,549 | | | | $ | 23,180 | |
| 720 to 779 | 3,957 | | 1,917 | | 733 | | 250 | | 372 | | 1,670 | | | | 8,899 | |
| 660 to 719 | 498 | | 464 | | 292 | | 145 | | 144 | | 821 | | | | 2,364 | |
| Less than 660 | 52 | | 123 | | 92 | | 80 | | 85 | | 805 | | | | 1,237 | |
| No FICO score available | 542 | | 382 | | 101 | | 50 | | 63 | | 547 | | | | 1,685 | |
| Government insured or guaranteed loans | 1 | | 15 | | 38 | | 32 | | 40 | | 723 | | | | 849 | |
| Total residential real estate | $ | 12,828 | | $ | 9,478 | | $ | 3,661 | | $ | 1,258 | | $ | 1,874 | | $ | 9,115 | | | | $ | 38,214 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | |
| December 31, 2020 - In millions | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | | | Total Loans |
| | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than 100% | $ | 3 | | $ | 52 | | $ | 26 | | $ | 42 | | $ | 41 | | $ | 160 | | | | $ | 324 | |
| Greater than or equal to 80% to 100% | 495 | | 422 | | 127 | | 156 | | 124 | | 307 | | | | 1,631 | |
| Less than 80% | 7,491 | | 3,656 | | 992 | | 1,706 | | 1,847 | | 3,991 | | | | 19,683 | |
| Government insured or guaranteed loans | 7 | | 28 | | 27 | | 38 | | 57 | | 765 | | | | 922 | |
| Total residential real estate | $ | 7,996 | | $ | 4,158 | | $ | 1,172 | | $ | 1,942 | | $ | 2,069 | | $ | 5,223 | | | | $ | 22,560 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | $ | 5,425 | | $ | 3,099 | | $ | 814 | | $ | 1,432 | | $ | 1,538 | | $ | 2,551 | | | | $ | 14,859 | |
| 720 to 779 | 2,268 | | 820 | | 220 | | 340 | | 335 | | 818 | | | | 4,801 | |
| 660 to 719 | 252 | | 161 | | 76 | | 98 | | 92 | | 475 | | | | 1,154 | |
| Less than 660 | 40 | | 48 | | 33 | | 31 | | 41 | | 485 | | | | 678 | |
| No FICO score available | 4 | | 2 | | 2 | | 3 | | 6 | | 129 | | | | 146 | |
| Government insured or guaranteed loans | 7 | | 28 | | 27 | | 38 | | 57 | | 765 | | | | 922 | |
| Total residential real estate | $ | 7,996 | | $ | 4,158 | | $ | 1,172 | | $ | 1,942 | | $ | 2,069 | | $ | 5,223 | | | | $ | 22,560 | |
(a) LTV ratios, inclusive of credit management reports, which are utilized to monitor the riskCLTV for first lien and certain subordinate lien positions, in the BBVA loan classes.
LTV (inclusive of combined loan-to-value (CLTV)portfolio are calculated on a quarterly basis utilizing the real estate collateral values available at origination. These calculations will be refreshed for first and subordinate lien positions): At least annually, weour 2021 Form 10-K to update the property values of real estate collateral and calculate an updated current estimated LTV ratio. For open-end credit lines secured by real estateratio in regions experiencing significant declinesconnection with the conversion of bank systems, which occurred as of October 12, 2021. See Note 4 Loans and Related Allowance for Credit Losses included in property values, more frequent valuations may occur. We examineItem 8 of our 2020 Form 10-K for additional information on how current estimated LTV migration and stratify LTV into categories to monitor the riskratios are calculated in the loan classes.PNC legacy portfolio.
We use a combination of original LTV and updated LTV for internal risk management and reporting purposes (e.g., line management, loss mitigation strategies). In addition to the fact that estimated property values by their nature are estimates, given certain data limitations, it is important to note that updated LTVs may be based upon management’s assumptions (i.e., if an updated LTV is not provided by the third-party service provider, HPI changes will be incorporated in arriving at management’s estimate of updated LTV).
Updated LTV is estimated using modeled property values. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models, broker price opinions, HPI indices, property location, internal and external balance information, origination data and management assumptions. We generally utilize origination lien balances provided by a third-party, where applicable, which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of the calculations do not represent actual appraised loan level collateral or updated LTV based upon lien balances held by others, and as such, are necessarily imprecise and subject to change as we refine our methodology.
The following table presents credit quality indicators for the home equity and residential real estate loan classes.
Table 47: Home Equity and Residential Real Estate Credit Quality Indicators |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans by Origination Year | | | |
| September 30, 2020 - In millions | 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Revolving Loans |
| Revolving Loans Converted to Term |
| Total Loans |
|
| Home equity | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | . |
| Greater than or equal to 100% | $ | 5 |
| $ | 41 |
| $ | 18 |
| $ | 17 |
| $ | 10 |
| $ | 100 |
| $ | 605 |
| $ | 309 |
| $ | 1,105 |
|
| Greater than or equal to 90% to less than 100% | 29 |
| 95 |
| 21 |
| 15 |
| 8 |
| 69 |
| 687 |
| 226 |
| 1,150 |
|
| Less than 90% | 2,609 |
| 2,121 |
| 621 |
| 889 |
| 750 |
| 4,225 |
| 7,941 |
| 3,128 |
| 22,284 |
|
| Total home equity | $ | 2,643 |
| $ | 2,257 |
| $ | 660 |
| $ | 921 |
| $ | 768 |
| $ | 4,394 |
| $ | 9,233 |
| $ | 3,663 |
| $ | 24,539 |
|
| Updated FICO scores | | | | | | | | | |
| Greater than 660 | $ | 2,580 |
| $ | 2,156 |
| $ | 605 |
| $ | 867 |
| $ | 725 |
| $ | 3,955 |
| $ | 8,818 |
| $ | 2,846 |
| $ | 22,552 |
|
| Less than or equal to 660 | 62 |
| 101 |
| 54 |
| 53 |
| 42 |
| 429 |
| 402 |
| 732 |
| 1,875 |
|
| No FICO score available | 1 |
| | 1 |
| 1 |
| 1 |
| 10 |
| 13 |
| 85 |
| 112 |
|
| Total home equity | $ | 2,643 |
| $ | 2,257 |
| $ | 660 |
| $ | 921 |
| $ | 768 |
| $ | 4,394 |
| $ | 9,233 |
| $ | 3,663 |
| $ | 24,539 |
|
| Residential real estate | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than or equal to 100% | | $ | 34 |
| $ | 33 |
| $ | 49 |
| $ | 49 |
| $ | 189 |
| | | $ | 354 |
|
| Greater than or equal to 90% to less than 100% | $ | 15 |
| 69 |
| 32 |
| 54 |
| 37 |
| 114 |
| | | 321 |
|
| Less than 90% | 6,174 |
| 4,757 |
| 1,329 |
| 2,153 |
| 2,254 |
| 4,693 |
| | | 21,360 |
|
| Government insured or guaranteed loans | 5 |
| 23 |
| 23 |
| 34 |
| 49 |
| 717 |
| | | 851 |
|
| Total residential real estate | $ | 6,194 |
| $ | 4,883 |
| $ | 1,417 |
| $ | 2,290 |
| $ | 2,389 |
| $ | 5,713 |
| | | $ | 22,886 |
|
| Updated FICO scores | | | | | | | | | |
| Greater than 660 | $ | 6,151 |
| $ | 4,813 |
| $ | 1,362 |
| $ | 2,215 |
| $ | 2,272 |
| $ | 4,295 |
| | | $ | 21,108 |
|
| Less than or equal to 660 | 36 |
| 45 |
| 30 |
| 37 |
| 62 |
| 567 |
| | | 777 |
|
| No FICO score available | 2 |
| 2 |
| 2 |
| 4 |
| 6 |
| 134 |
| | | 150 |
|
| Government insured or guaranteed loans | 5 |
| 23 |
| 23 |
| 34 |
| 49 |
| 717 |
| | | 851 |
|
| Total residential real estate | $ | 6,194 |
| $ | 4,883 |
| $ | 1,417 |
| $ | 2,290 |
| $ | 2,389 |
| $ | 5,713 |
| | | $ | 22,886 |
|
The PNC Financial Services Group, Inc. – Form 10-Q 63 75
|
| | | | | | |
| | Home equity | Residential real estate |
|
| December 31, 2019 - In millions |
| Current estimated LTV ratios | | |
| Greater than or equal to 100% | $ | 1,243 |
| $ | 333 |
|
| Greater than or equal to 90% to less than 100% | 1,047 |
| 340 |
|
| Less than 90% | 22,068 |
| 19,305 |
|
| No LTV ratio available | 184 |
| 83 |
|
| Government insured or guaranteed loans | | 584 |
|
| Purchased impaired loans | 543 |
| 1,176 |
|
| Total loans | $ | 25,085 |
| $ | 21,821 |
|
| Updated FICO Scores | | |
| Greater than 660 | $ | 22,245 |
| $ | 19,341 |
|
| Less than or equal to 660 | 2,019 |
| 569 |
|
| No FICO score available | 278 |
| 151 |
|
| Government insured or guaranteed loans | | 584 |
|
| Purchased impaired loans | 543 |
| 1,176 |
|
| Total loans | $ | 25,085 |
| $ | 21,821 |
|
Automobile, Credit Card, Education and Other Consumer
We monitor a variety of credit quality information in the management of these consumer loan classes. For all loan types, we generally use a combination of internal loan parameters as well as an updated FICO score. We use FICO scores as a primary credit quality indicator for automobile and credit card loans, as well as non-government guaranteed or non-insured education loans and other secured and unsecured lines and loans. Internal credit metrics, such as delinquency status, are heavily relied upon asThe following table presents credit quality indicators for government guaranteed or insured education loansthe home equity loan class:
Table 51: Home Equity Credit Quality Indicators | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | |
| September 30, 2021 - In millions | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
| | | | | | | | | |
| PNC legacy | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than 100% | $ | 1 | | $ | 16 | | $ | 15 | | $ | 2 | | $ | 2 | | $ | 30 | | $ | 270 | | $ | 91 | | $ | 427 | |
| Greater than or equal to 80% to 100% | 17 | | 97 | | 87 | | 18 | | 13 | | 78 | | 847 | | 570 | | 1,727 | |
| Less than 80% | 201 | | 2,704 | | 1,315 | | 401 | | 600 | | 3,427 | | 6,473 | | 4,834 | | 19,955 | |
| Total PNC legacy portfolio | 219 | | 2,817 | | 1,417 | | 421 | | 615 | | 3,535 | | 7,590 | | 5,495 | | 22,109 | |
| Acquired loans | | | | | | | | | |
| Estimated LTV ratios (a) | | | | | | | | | |
| Greater than 100% | | | | | | 3 | | 68 | | | 71 | |
| Greater than or equal to 80% to 100% | 4 | | 4 | | 2 | | 2 | | 1 | | 14 | | 567 | | 1 | | 595 | |
| Less than 80% | 7 | | 4 | | 5 | | 5 | | 3 | | 80 | | 1,575 | | 1 | | 1,680 | |
| No LTV ratio available | 1 | | | | | | 4 | | 19 | | | 24 | |
| Total acquired loans | 12 | | 8 | | 7 | | 7 | | 4 | | 101 | | 2,229 | | 2 | | 2,370 | |
| Total home equity | $ | 231 | | $ | 2,825 | | $ | 1,424 | | $ | 428 | | $ | 619 | | $ | 3,636 | | $ | 9,819 | | $ | 5,497 | | $ | 24,479 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | $ | 129 | | $ | 1,756 | | $ | 787 | | $ | 221 | | $ | 403 | | $ | 2,237 | | $ | 5,812 | | $ | 2,706 | | $ | 14,051 | |
| 720 to 779 | 69 | | 745 | | 385 | | 107 | | 125 | | 712 | | 2,403 | | 1,405 | | 5,951 | |
| 660 to 719 | 24 | | 270 | | 192 | | 65 | | 59 | | 370 | | 1,140 | | 741 | | 2,861 | |
| Less than 660 | 3 | | 52 | | 59 | | 34 | | 31 | | 305 | | 411 | | 561 | | 1,456 | |
| No FICO score available | 6 | | 2 | | 1 | | 1 | | 1 | | 12 | | 53 | | 84 | | 160 | |
| Total home equity | $ | 231 | | $ | 2,825 | | $ | 1,424 | | $ | 428 | | $ | 619 | | $ | 3,636 | | $ | 9,819 | | $ | 5,497 | | $ | 24,479 | |
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| Term Loans by Origination Year | | | |
| December 31, 2020 - In millions | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
| | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | . |
| Greater than 100% | $ | 8 | | $ | 44 | | $ | 18 | | $ | 15 | | $ | 9 | | $ | 88 | | $ | 580 | | $ | 279 | | $ | 1,041 | |
| Greater than or equal to 80% to 100% | 517 | | 320 | | 59 | | 42 | | 25 | | 158 | | 1,781 | | 591 | | 3,493 | |
| Less than 80% | 2,909 | | 1,636 | | 513 | | 773 | | 660 | | 3,754 | | 6,433 | | 2,876 | | 19,554 | |
| Total home equity | $ | 3,434 | | $ | 2,000 | | $ | 590 | | $ | 830 | | $ | 694 | | $ | 4,000 | | $ | 8,794 | | $ | 3,746 | | $ | 24,088 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | $ | 2,019 | | $ | 1,094 | | $ | 311 | | $ | 525 | | $ | 449 | | $ | 2,467 | | $ | 5,382 | | $ | 1,480 | | $ | 13,727 | |
| 720 to 779 | 1,028 | | 558 | | 153 | | 181 | | 145 | | 777 | | 2,137 | | 941 | | 5,920 | |
| 660 to 719 | 334 | | 273 | | 86 | | 84 | | 66 | | 402 | | 985 | | 625 | | 2,855 | |
| Less than 660 | 52 | | 74 | | 39 | | 39 | | 33 | | 345 | | 277 | | 620 | | 1,479 | |
| No FICO score available | 1 | | 1 | | 1 | | 1 | | 1 | | 9 | | 13 | | 80 | | 107 | |
| Total home equity | $ | 3,434 | | $ | 2,000 | | $ | 590 | | $ | 830 | | $ | 694 | | $ | 4,000 | | $ | 8,794 | | $ | 3,746 | | $ | 24,088 | |
(a) LTV ratios, inclusive of CLTV for first lien and consumer loanscertain subordinate lien positions, in the BBVA loan portfolio are calculated on a quarterly basis utilizing the real estate collateral values available at origination. These calculations will be refreshed for our 2021 Form 10-K to high net worth individuals, as internal credit metrics are more relevant than FICO scores for these typesupdate the property values of loans.
Alongreal estate collateral and calculate an updated current estimated LTV ratio in connection with the monitoringconversion of delinquency trendsbank systems, which occurred as of October 12, 2021. See Note 4 Loans and lossesRelated Allowance for each class, FICO credit score updatesCredit Losses included in Item 8 of our 2020 Form 10-K for additional information on how current estimated LTV ratios are obtained at least quarterly along with a variety of credit bureau attributes. Loans with high FICO scores tend to have a lower likelihood of loss. Conversely, loans with low FICO scores tend to have a higher likelihood of loss.calculated in the PNC legacy portfolio.
7664 The PNC Financial Services Group, Inc. – Form 10-Q
Automobile, Credit Card, Education and Other Consumer
The following table presents credit quality indicators for the automobile, credit card, education and other consumer loan classes.classes:
Table 48:52: Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | |
| September 30, 2021 - In millions | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
| Updated FICO Scores | | | | | | | | | |
| Automobile | | | | | | | | | |
| FICO score greater than or equal to 780 | $ | 2,828 | | $ | 1,638 | | $ | 1,551 | | $ | 624 | | $ | 281 | | $ | 116 | | | | $ | 7,038 | |
| 720 to 779 | 1,694 | | 1,157 | | 1,225 | | 595 | | 248 | | 91 | | | | 5,010 | |
| 660 to 719 | 730 | | 705 | | 913 | | 505 | | 195 | | 65 | | | | 3,113 | |
| Less than 660 | 220 | | 349 | | 658 | | 504 | | 198 | | 79 | | | | 2,008 | |
| No FICO score available or required (a) | 45 | | 29 | | 13 | | 6 | | 3 | | | | | 96 | |
| Total automobile | $ | 5,517 | | $ | 3,878 | | $ | 4,360 | | $ | 2,234 | | $ | 925 | | $ | 351 | | | | $ | 17,265 | |
| Credit card | | | | | | | | | |
| FICO score greater than or equal to 780 | | | | | | | $ | 1,718 | | $ | 2 | | $ | 1,720 | |
| 720 to 779 | | | | | | | 1,796 | | 10 | | 1,806 | |
| 660 to 719 | | | | | | | 1,836 | | 22 | | 1,858 | |
| Less than 660 | | | | | | | 925 | | 33 | | 958 | |
| No FICO score available or required (a) | | | | | | | 121 | | 3 | | 124 | |
| Total credit card | | | | | | | $ | 6,396 | | $ | 70 | | $ | 6,466 | |
| Education | | | | | | | | | |
| FICO score greater than or equal to 780 | $ | 12 | | $ | 63 | | $ | 81 | | $ | 66 | | $ | 51 | | $ | 412 | | | | $ | 685 | |
| 720 to 779 | 11 | | 31 | | 39 | | 31 | | 22 | | 175 | | | | 309 | |
| 660 to 719 | 8 | | 9 | | 12 | | 12 | | 7 | | 75 | | | | 123 | |
| Less than 660 | 2 | | 1 | | 2 | | 2 | | 2 | | 27 | | | | 36 | |
| No FICO score available or required (a) | 12 | | 11 | | 9 | | 4 | | 1 | | 1 | | | | 38 | |
| Education loans using FICO credit metric | 45 | | 115 | | 143 | | 115 | | 83 | | 690 | | | | 1,191 | |
| Other internal credit metrics | | | | | | 1,462 | | | | 1,462 | |
| Total education | $ | 45 | | $ | 115 | | $ | 143 | | $ | 115 | | $ | 83 | | $ | 2,152 | | | | $ | 2,653 | |
| Other consumer | | | | | | | | | |
| FICO score greater than or equal to 780 | $ | 181 | | $ | 172 | | $ | 162 | | $ | 62 | | $ | 18 | | $ | 38 | | $ | 203 | | $ | 2 | | $ | 838 | |
| 720 to 779 | 229 | | 209 | | 209 | | 85 | | 21 | | 23 | | 200 | | | 976 | |
| 660 to 719 | 179 | | 170 | | 201 | | 105 | | 21 | | 14 | | 144 | | 1 | | 835 | |
| Less than 660 | 47 | | 73 | | 96 | | 67 | | 14 | | 9 | | 57 | | 1 | | 364 | |
| No FICO score available or required (a) | 20 | | 7 | | 1 | | 1 | | | 1 | | 24 | | | 54 | |
| Other consumer loans using FICO credit metric | 656 | | 631 | | 669 | | 320 | | 74 | | 85 | | 628 | | 4 | | 3,067 | |
| Other internal credit metrics | 64 | | 16 | | 26 | | 19 | | 22 | | 108 | | 2,617 | | 27 | | 2,899 | |
| Total other consumer | $ | 720 | | $ | 647 | | $ | 695 | | $ | 339 | | $ | 96 | | $ | 193 | | $ | 3,245 | | $ | 31 | | $ | 5,966 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans by Origination Year | | | |
| September 30, 2020 - In millions | 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Revolving Loans |
| Revolving Loans Converted to Term |
| Total Loans |
|
| Automobile | | | | | | | | | |
| FICO score greater than 719 | $ | 2,184 |
| $ | 3,573 |
| $ | 1,663 |
| $ | 916 |
| $ | 496 |
| $ | 141 |
| | | $ | 8,973 |
|
| 650 to 719 | 630 |
| 1,642 |
| 929 |
| 403 |
| 162 |
| 53 |
| | | 3,819 |
|
| 620 to 649 | 90 |
| 365 |
| 213 |
| 83 |
| 31 |
| 12 |
| | | 794 |
|
| Less than 620 | 75 |
| 532 |
| 474 |
| 202 |
| 78 |
| 30 |
| | | 1,391 |
|
| Total automobile | $ | 2,979 |
| $ | 6,112 |
| $ | 3,279 |
| $ | 1,604 |
| $ | 767 |
| $ | 236 |
| | | $ | 14,977 |
|
| Credit card | | | | | | | | | |
| FICO score greater than 719 | | | | | | | $ | 3,309 |
| $ | 13 |
| $ | 3,322 |
|
| 650 to 719 | | | | | | | 2,033 |
| 31 |
| 2,064 |
|
| 620 to 649 | | | | | | | 348 |
| 13 |
| 361 |
|
| Less than 620 | | | | | | | 419 |
| 40 |
| 459 |
|
| No FICO score available or required (a) | | | | | | | 94 |
| 3 |
| 97 |
|
| Total credit card | | | | | | | $ | 6,203 |
| $ | 100 |
| $ | 6,303 |
|
| Education | | | | | | | | | |
| FICO score greater than 719 | $ | 17 |
| $ | 88 |
| $ | 117 |
| $ | 89 |
| $ | 73 |
| $ | 651 |
| | | $ | 1,035 |
|
| 650 to 719 | 6 |
| 10 |
| 14 |
| 9 |
| 7 |
| 102 |
| | | 148 |
|
| 620 to 649 | | 1 |
| 2 |
| 1 |
| 1 |
| 15 |
| | | 20 |
|
| Less than 620 | | | 1 |
| 1 |
| 1 |
| 16 |
| | | 19 |
|
| No FICO score available or required (a) | 11 |
| 10 |
| 7 |
| 5 |
| 1 |
| 1 |
| | | 35 |
|
| Total loans using FICO credit metric | 34 |
| 109 |
| 141 |
| 105 |
| 83 |
| 785 |
| | | 1,257 |
|
| Other internal credit metrics | 30 |
| 58 |
| | | | 1,706 |
| | | 1,794 |
|
| Total education | $ | 64 |
| $ | 167 |
| $ | 141 |
| $ | 105 |
| $ | 83 |
| $ | 2,491 |
| | | $ | 3,051 |
|
| Other consumer | | | | | | | | | |
| FICO score greater than 719 | $ | 338 |
| $ | 487 |
| $ | 164 |
| $ | 50 |
| $ | 14 |
| $ | 69 |
| $ | 209 |
| $ | 1 |
| $ | 1,332 |
|
| 650 to 719 | 129 |
| 273 |
| 112 |
| 25 |
| 6 |
| 19 |
| 138 |
| 1 |
| 703 |
|
| 620 to 649 | 12 |
| 42 |
| 18 |
| 4 |
| 1 |
| 4 |
| 22 |
| | 103 |
|
| Less than 620 | 9 |
| 38 |
| 25 |
| 7 |
| 2 |
| 7 |
| 32 |
| 1 |
| 121 |
|
| Total loans using FICO credit metric | 488 |
| 840 |
| 319 |
| 86 |
| 23 |
| 99 |
| 401 |
| 3 |
| 2,259 |
|
| Other internal credit metrics | 63 |
| 41 |
| 40 |
| 28 |
| 61 |
| 77 |
| 2,246 |
| 14 |
| 2,570 |
|
| Total other consumer | $ | 551 |
| $ | 881 |
| $ | 359 |
| $ | 114 |
| $ | 84 |
| $ | 176 |
| $ | 2,647 |
| $ | 17 |
| $ | 4,829 |
|
|
| | | | | | | | | | | | | |
| | | | |
| December 31, 2019 - In millions | | Automobile | Credit Card | Education | Other Consumer |
| FICO score greater than 719 | | $ | 9,232 |
| $ | 3,867 |
| $ | 1,139 |
| $ | 1,421 |
|
| 650 to 719 | | 4,577 |
| 2,326 |
| 197 |
| 843 |
|
| 620 to 649 | | 1,001 |
| 419 |
| 25 |
| 132 |
|
| Less than 620 | | 1,603 |
| 544 |
| 27 |
| 143 |
|
| No FICO score available or required (a) | | 341 |
| 152 |
| 15 |
| 27 |
|
| Total loans using FICO credit metric | | 16,754 |
| 7,308 |
| 1,403 |
| 2,566 |
|
| Consumer loans using other internal credit metrics | | | | 1,933 |
| 2,371 |
|
| Total loans | | $ | 16,754 |
| $ | 7,308 |
| $ | 3,336 |
| $ | 4,937 |
|
| Weighted-average updated FICO score (b) | | 726 |
| 724 |
| 773 |
| 727 |
|
| |
(a) | Loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk. |
| |
(b) | Weighted-average updated FICO score excludes accounts with no FICO score available or required. |
Troubled Debt Restructurings (TDRs)
A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. Loans that have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act are not categorized as TDRs. See Note 1 Accounting Policies for additional information related to TDRs.
The PNC Financial Services Group, Inc. – Form 10-Q 65 77
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | |
| December 31, 2020 - In millions | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
| Updated FICO Scores | | | | | | | | | |
| Automobile | | | | | | | | | |
| FICO score greater than or equal to 780 | $ | 1,807 | | $ | 1,915 | | $ | 807 | | $ | 452 | | $ | 246 | | $ | 58 | | | | $ | 5,285 | |
| 720 to 779 | 1,098 | | 1,581 | | 789 | | 381 | | 167 | | 44 | | | | 4,060 | |
| 660 to 719 | 617 | | 1,222 | | 684 | | 288 | | 109 | | 31 | | | | 2,951 | |
| Less than 660 | 192 | | 776 | | 598 | | 240 | | 87 | | 29 | | | | 1,922 | |
| Total automobile | $ | 3,714 | | $ | 5,494 | | $ | 2,878 | | $ | 1,361 | | $ | 609 | | $ | 162 | | | | $ | 14,218 | |
| Credit card | | | | | | | | | |
| FICO score greater than or equal to 780 | | | | | | | $ | 1,635 | | $ | 3 | | $ | 1,638 | |
| 720 to 779 | | | | | | | 1,724 | | 11 | | 1,735 | |
| 660 to 719 | | | | | | | 1,765 | | 26 | | 1,791 | |
| Less than 660 | | | | | | | 902 | | 51 | | 953 | |
| No FICO score available or required (a) | | | | | | | 94 | | 4 | | 98 | |
| Total credit card | | | | | | | $ | 6,120 | | $ | 95 | | $ | 6,215 | |
| Education | | | | | | | | | |
| FICO score greater than or equal to 780 | $ | 34 | | $ | 90 | | $ | 74 | | $ | 59 | | $ | 50 | | $ | 428 | | | | $ | 735 | |
| 720 to 779 | 24 | | 46 | | 38 | | 28 | | 20 | | 190 | | | | 346 | |
| 660 to 719 | 15 | | 15 | | 14 | | 9 | | 6 | | 90 | | | | 149 | |
| Less than 660 | 3 | | 2 | | 3 | | 2 | | 2 | | 37 | | | | 49 | |
| No FICO score available or required (a) | 16 | | 10 | | 6 | | 3 | | 0 | 1 | | | | 36 | |
| Education loans using FICO credit metric | 92 | | 163 | | 135 | | 101 | | 78 | | 746 | | | | 1,315 | |
| Other internal credit metrics | | | | | | 1,631 | | | | 1,631 | |
| Total education | $ | 92 | | $ | 163 | | $ | 135 | | $ | 101 | | $ | 78 | | $ | 2,377 | | | | $ | 2,946 | |
| Other consumer | | | | | | | | | |
| FICO score greater than or equal to 780 | $ | 162 | | $ | 187 | | $ | 63 | | $ | 21 | | $ | 5 | | $ | 42 | | $ | 86 | | $ | 1 | | $ | 567 | |
| 720 to 779 | 197 | | 247 | | 82 | | 22 | | 5 | | 22 | | 123 | | | 698 | |
| 660 to 719 | 127 | | 210 | | 81 | | 17 | | 3 | | 14 | | 117 | | 1 | | 570 | |
| Less than 660 | 28 | | 86 | | 41 | | 9 | | 2 | | 8 | | 53 | | 1 | | 228 | |
| Other consumer loans using FICO credit metric | 514 | | 730 | | 267 | | 69 | | 15 | | 86 | | 379 | | 3 | | 2,063 | |
| Other internal credit metrics | 67 | | 33 | | 37 | | 26 | | 60 | | 75 | | 2,334 | | 3 | | 2,635 | |
| Total other consumer | $ | 581 | | $ | 763 | | $ | 304 | | $ | 95 | | $ | 75 | | $ | 161 | | $ | 2,713 | | $ | 6 | | $ | 4,698 | |
(a)Loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.
Troubled Debt Restructurings
Table 4953 quantifies the number of loans that were classified as TDRs as well as the change in the loans’ balance as a result of becoming a TDR during the three and nine months ended September 30, 20202021 and September 30, 2019.2020. Additionally, the table provides information about the types of TDR concessions. See Note 3 Asset Quality1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses included in Item 8 of our 20192020 Form 10-K for additional details on these TDR concessions.discussion of TDRs.
66 The PNC Financial Services Group, Inc. – Form 10-Q
Table 49:53: Financial Impact and TDRs by Concession Type (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Pre-TDR
Amortized Cost Basis (b) | | Post-TDR Amortized Cost Basis (c) | |
Three months ended September 30 Dollars in millions | Number
of Loans | | Principal
Forgiveness | | Rate
Reduction | | Other | | Total | |
| 2021 | | | | | | | | | | | | | |
| Commercial | | 13 | | | $ | 123 | | | | | | | $ | 139 | | | $ | 139 | | |
| Consumer | | 1,340 | | | 31 | | | | | $ | 21 | | | 7 | | | 28 | | |
| Total TDRs | | 1,353 | | | $ | 154 | | | | | $ | 21 | | | $ | 146 | | | $ | 167 | | |
| 2020 | | | | | | | | | | | | | |
| Commercial | | 16 | | | $ | 95 | | | | | $ | 10 | | | $ | 69 | | | $ | 79 | | |
| Consumer | | 2,769 | | | 46 | | | | | 26 | | | 14 | | | 40 | | |
| Total TDRs | | 2,785 | | | $ | 141 | | | 0 | | $ | 36 | | | $ | 83 | | | $ | 119 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Pre-TDR Amortized Cost Basis (b) |
| | Post-TDR Amortized Cost Basis (c) | |
During the three months ended September 30, 2020 (a)
Dollars in millions | Number
of Loans | | | Principal Forgiveness |
| | Rate Reduction |
| | Other |
| | Total |
| |
| Commercial | | 16 |
| | $ | 95 |
| | | | $ | 10 |
| | $ | 69 |
| | $ | 79 |
| |
| Consumer | | 2,769 |
| | 46 |
| | | | 26 |
| | 14 |
| | 40 |
| |
| Total TDRs | | 2,785 |
| | $ | 141 |
| |
| | $ | 36 |
| | $ | 83 |
| | $ | 119 |
| |
During the nine months ended September 30, 2020 (a)
Dollars in millions | | | | | | | | | | | | | |
| Commercial | | 58 |
| | $ | 304 |
| | $ | 39 |
| | $ | 10 |
| | $ | 231 |
| | $ | 280 |
| |
| Consumer | | 9,925 |
| | 139 |
| |
|
| | 67 |
| | 59 |
| | 126 |
| |
| Total TDRs | | 9,983 |
| | $ | 443 |
| | $ | 39 |
| | $ | 77 |
| | $ | 290 |
| | $ | 406 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Pre-TDR
Amortized Cost Basis (b) | | Post-TDR Amortized Cost Basis (c) | |
Nine months ended September 30 Dollars in millions | Number
of Loans | | Principal
Forgiveness | | Rate
Reduction | | Other | | Total | |
| 2021 | | | | | | | | | | | | | |
| Commercial | | 43 | | | $ | 320 | | | | | | | $ | 315 | | | $ | 315 | | |
| Consumer | | 4,822 | | | 86 | | | | | $ | 49 | | | 28 | | | 77 | | |
| Total TDRs | | 4,865 | | | $ | 406 | | | 0 | | $ | 49 | | | $ | 343 | | | $ | 392 | | |
| 2020 | | | | | | | | | | | | | |
| Commercial | | 58 | | | $ | 304 | | | $ | 39 | | | $ | 10 | | | $ | 231 | | | $ | 280 | | |
| Consumer | | 9,925 | | | 139 | | | | | 67 | | | 59 | | | 126 | | |
| Total TDRs | | 9,983 | | | $ | 443 | | | $ | 39 | | | $ | 77 | | | $ | 290 | | | $ | 406 | | |
(a) Impact of partial charge-offs at TDR date areis included in this table.
(b) Represents the amortized cost basis of the loans as of the quarter end prior to TDR designation.
(c) Represents the amortized cost basis of the TDRs as of the end of the quarter in which the TDR occurs.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Pre-TDR Recorded Investment (e) |
| | Post-TDR Recorded Investment (f) | |
During the three months ended September 30, 2019 (d)
Dollars in millions | Number
of Loans | | | Principal Forgiveness | | Rate Reduction |
| | Other |
| | Total |
| |
| Commercial |
| 21 |
| | $ | 97 |
| | | | | | $ | 72 |
| | $ | 72 |
| |
| Consumer | | 3,656 |
| | 45 |
| | | | $ | 24 |
| | 19 |
| | 43 |
| |
| Total TDRs | | 3,677 |
| | $ | 142 |
| |
| | $ | 24 |
| | $ | 91 |
| | $ | 115 |
| |
During the nine months ended September 30, 2019 (d)
Dollars in millions | | | | | | | | | | | | | |
| Commercial | | 58 |
| | $ | 233 |
| |
| | $ | 1 |
| | $ | 208 |
| | $ | 209 |
| |
| Consumer | | 11,009 |
| | 131 |
| |
| | 72 |
| | 51 |
| | 123 |
| |
| Total TDRs | | 11,067 |
| | $ | 364 |
| |
| | $ | 73 |
| | $ | 259 |
| | $ | 332 |
| |
(d) Impact of partial charge-offs at TDR date are included in this table.
(e) Represents the recorded investment of the loans as of the quarter end prior to TDR designation, and excludes immaterial amounts of accrued interest receivable.
(f) Represents the recorded investment of the TDRs as of the end of the quarter in which the TDR occurs, and excludes immaterial amounts of accrued interest receivable.
After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. We consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. The following table provides a summary of TDRs that subsequently defaulted during the periods presented and were classified as
TDRs during the applicable 12-month period preceding September 30, 20202021 and September 30, 2019.2020:
Table 50:54: Subsequently Defaulted TDRs
| | | | | | | | | | | | | | |
| In millions | 2021 | | 2020 | |
| Three months ended September 30 | $ | 6 | | | $ | 26 | | |
| Nine months ended September 30 | $ | 25 | | | $ | 46 | | |
The PNC Financial Services Group, Inc. – Form 10-Q 67
|
| | | | | | | | |
| In millions | | 2020 |
| | 2019 |
|
| Three months ended September 30 | | $ | 26 |
| | $ | 42 |
|
| Nine months ended September 30 | | $ | 46 |
| | $ | 68 |
|
Allowance for Credit Losses
We maintain the ACL related to loans at levels that we believe to be appropriate to absorb expected credit losses in the portfolios as of the balance sheet date. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for a discussion of the methodologies used to determine this allowance. A rollforward of the ACL related to loans follows.follows:
Table 55: Rollforward of Allowance for Credit Losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | | Nine months ended September 30 |
| 2021 | 2020 | | | 2021 | 2020 |
| In millions | Commercial | Consumer | Total | Commercial | Consumer | Total | | | Commercial | Consumer | Total | Commercial | Consumer | Total |
| Allowance for loan and lease losses | | | | | | | | | | | | | | |
| Beginning balance | $ | 3,812 | | $ | 1,918 | | $ | 5,730 | | $ | 3,380 | | $ | 2,548 | | $ | 5,928 | | | | $ | 3,337 | | $ | 2,024 | | $ | 5,361 | | $ | 1,812 | | $ | 930 | | $ | 2,742 | |
| Adoption of ASU 2016-13 (a) | | | | 0 | 0 | 0 | | | 0 | 0 | 0 | (304) | | 767 | | 463 | |
| Beginning balance, adjusted | 3,812 | | 1,918 | | 5,730 | | 3,380 | | 2,548 | | 5,928 | | | | 3,337 | | 2,024 | | 5,361 | | 1,508 | | 1,697 | | 3,205 | |
| Acquisition PCD reserves | (54) | | (5) | | (59) | | | | | | | 774 | | 282 | | 1,056 | | | | |
| Charge-offs | (50) | | (156) | | (206) | | (64) | | (183) | | (247) | | | | (393) | | (484) | | (877) | | (269) | | (596) | | (865) | |
| Recoveries | 29 | | 96 | | 125 | | 26 | | 66 | | 92 | | | | 81 | | 263 | | 344 | | 65 | | 197 | | 262 | |
| Net (charge-offs) (b) | (21) | | (60) | | (81) | | (38) | | (117) | | (155) | | | | (312) | | (221) | | (533) | | (204) | | (399) | | (603) | |
Provision for (recapture of) credit
losses | (129) | | (100) | | (229) | | 185 | | (208) | | (23) | | | | (193) | | (332) | | (525) | | 2,224 | | 925 | | 3,149 | |
| Other | (5) | | (1) | | (6) | | 1 | | | 1 | | | | (3) | | $ | (1) | | (4) | | 0 | | 0 |
| Ending balance | $ | 3,603 | | $ | 1,752 | | $ | 5,355 | | $ | 3,528 | | $ | 2,223 | | $ | 5,751 | | | | $ | 3,603 | | $ | 1,752 | | $ | 5,355 | | $ | 3,528 | | $ | 2,223 | | $ | 5,751 | |
| Allowance for unfunded lending related commitments (c) | | | | | | | | | | | | |
| Beginning balance | $ | 533 | | $ | 112 | | $ | 645 | | $ | 548 | | $ | 114 | | $ | 662 | | | | $ | 485 | | $ | 99 | | $ | 584 | | $ | 316 | | $ | 2 | | $ | 318 | |
| Adoption of ASU 2016-13 (a) | | | | 0 | 0 | 0 | | | 0 | 0 | 0 | 53 | | 126 | | 179 | |
| Beginning balance, adjusted | 533 | | 112 | | 645 | | 548 | | 114 | | 662 | | | | 485 | | 99 | | 584 | | 369 | | 128 | | 497 | |
| Acquisition PCD reserves | 0 | 0 | 0 | | | | | | 43 | | 3 | | 46 | | | | |
Provision for (recapture of) credit
losses | 2 | | (1) | | 1 | | 34 | | (7) | | 27 | | | | 7 | | 9 | | 16 | | 213 | | (21) | | 192 | |
| Ending balance | $ | 535 | | $ | 111 | | $ | 646 | | $ | 582 | | $ | 107 | | $ | 689 | | | | $ | 535 | | $ | 111 | | $ | 646 | | $ | 582 | | $ | 107 | | $ | 689 | |
| Allowance for credit losses at September 30 (d) | $ | 4,138 | | $ | 1,863 | | $ | 6,001 | | $ | 4,110 | | $ | 2,330 | | $ | 6,440 | | | | $ | 4,138 | | $ | 1,863 | | $ | 6,001 | | $ | 4,110 | | $ | 2,330 | | $ | 6,440 | |
(a) Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020 and our transition from an incurred loss methodology for our reserves to an expected credit loss methodology.
(b) Amounts for the nine months ended September 30, 2021 include amounts attributable to BBVA, primarily related to commercial loans, which were largely the result of required purchase accounting treatment for the BBVA acquisition.
(c) See Note 8 Commitments for additional information about the underlying commitments related to this allowance.
(d) Represents the ALLL plus allowance for unfunded lending related commitments and excludes allowances for investment securities and other financial assets, which together totaled $162 million and $98 million at September 30, 2021 and 2020, respectively.
The ACL at September 30, 2021 totaled $6.0 billion, an increase of $0.1 billion since December 31, 2020. This increase was primarily attributable to the addition of reserves related to the BBVA acquisition, partially offset by declines due to portfolio changes and an improved economic outlook. The following summarizes the changes in these factors that influenced the current ACL during the nine months ended September 30, 2021:
•Reserves in the current period include expected credit losses on the acquired BBVA loan portfolio.
•Portfolio changes that drove reserve declines included improvements in credit quality along with changes in portfolio composition reflecting both shifts in the portfolio mix and declines in certain legacy PNC loan balances.
•The economic scenarios used for the period ended September 30, 2021 reflect an improved near-term economic outlook compared to the scenarios used for the period ended December 31, 2020. The overall improvement in the comparison was driven largely by improvements in both the outlook for consumer spending and the labor market, along with the impact from continued vaccine distribution, while also considering the lingering effects of COVID-19 that slowed the momentum of economic recovery in recent months, as the Delta variant continued to drive increased COVID-19 cases throughout the U.S. and abroad.
7868 The PNC Financial Services Group, Inc. – Form 10-Q
Table 51: Rollforward of Allowance for Credit Losses(a) |
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2020 | | | Nine months ended September 30, 2020 |
| In millions | Commercial |
| Consumer |
| Total |
| | | Commercial |
| Consumer |
| Total |
|
| Allowance for loan and lease losses | | | | | | | | |
| Beginning balance | $ | 3,380 |
| $ | 2,548 |
| $ | 5,928 |
| | | $ | 1,812 |
| $ | 930 |
| $ | 2,742 |
|
| Adoption of ASU 2016-13 (b) | | |
|
| | | (304 | ) | 767 |
| 463 |
|
| Beginning balance, adjusted | 3,380 |
| 2,548 |
| 5,928 |
| | | 1,508 |
| 1,697 |
| 3,205 |
|
| Charge-offs | (64 | ) | (183 | ) | (247 | ) | | | (269 | ) | (596 | ) | (865 | ) |
| Recoveries | 26 |
| 66 |
| 92 |
| | | 65 |
| 197 |
| 262 |
|
| Net (charge-offs) | (38 | ) | (117 | ) | (155 | ) | | | (204 | ) | (399 | ) | (603 | ) |
| Provision for (recapture of) credit losses | 185 |
| (208 | ) | (23 | ) | | | 2,224 |
| 925 |
| 3,149 |
|
| Other | 1 |
| | 1 |
| | | | |
|
|
| Ending balance | $ | 3,528 |
| $ | 2,223 |
| $ | 5,751 |
| | | $ | 3,528 |
| $ | 2,223 |
| $ | 5,751 |
|
| Allowance for unfunded lending related commitments (c) | | | | | | | | |
| Beginning balance | $ | 548 |
| $ | 114 |
| $ | 662 |
| | | $ | 316 |
| $ | 2 |
| $ | 318 |
|
| Adoption of ASU 2016-13 (b) |
|
|
|
|
|
| | | 53 |
| 126 |
| 179 |
|
| Beginning balance, adjusted | 548 |
| 114 |
| 662 |
| | | 369 |
| 128 |
| 497 |
|
| Provision for (recapture of) credit losses | 34 |
| (7 | ) | 27 |
| | | 213 |
| (21 | ) | 192 |
|
| Ending balance | $ | 582 |
| $ | 107 |
| $ | 689 |
| | | $ | 582 |
| $ | 107 |
| $ | 689 |
|
| Allowance for credit losses at September 30 | $ | 4,110 |
| $ | 2,330 |
| $ | 6,440 |
| | | $ | 4,110 |
| $ | 2,330 |
| $ | 6,440 |
|
| |
(a) | Excludes allowances for investment securities and other financial assets, which together totaled $98 million at September 30, 2020. |
| |
(b) | Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020 and our transition from an incurred loss methodology for our reserves to an expected credit loss methodology.
|
| |
(c) | See Note 9 Commitments for additional information about the underlying commitments related to this allowance. |
The following presents an analysis of changes impacting the ACL related to loans for the nine months ended September 30, 2020.
Table 52: Analysis of Changes in the Allowance for Credit Losses (a)
In millions
(a) Excludes allowances for investment securities and other financial assets, which together totaled $98 million at September 30, 2020.(b) Portfolio changes primarily represents the impact of increases/decreases in loan balances, age and mix due to new originations/purchases, as well as credit quality and net charge-off activity.
(c) Economic and qualitative factors primarily represent our evaluation and determination of an economic forecast applied to our loan portfolio, as well as updates to qualitative factor adjustments.
The $2.7 billion increase in the ACL since January 1, 2020 was driven by the following factors in the commercial and consumer portfolios:
Commercial reserves increased $2.2 billion attributable to the significantly adverse economic impact of the pandemic and its resulting effects on credit quality and loan growth.
Consumer reserves increased $.5 billion primarily reflecting the significantly adverse economic impact of the pandemic.
The PNC Financial Services Group, Inc. – Form 10-Q 79
Allowance for Loan and Lease Losses
Prior to January 1, 2020, we maintained our ALLL at levels we believed to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. We used the two main portfolio segments - Commercial and Consumer, and developed and documented the ALLL under separate methodologies for each of these portfolio segments. See Note 1 Accounting Policies in our 2019 Form 10-K for a description of the accounting policies for ALLL.
A rollforward of the ALLL and associated loan data follows:
Table 53: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data |
| | | | | | | | | |
At or for the nine months ended September 30, 2019
Dollars in millions | Commercial |
| Consumer |
| Total |
|
| Allowance for loan and lease losses | | | |
| January 1, 2019 | $ | 1,663 |
| $ | 966 |
| $ | 2,629 |
|
| Charge-offs | (138 | ) | (545 | ) | (683 | ) |
| Recoveries | 59 |
| 191 |
| 250 |
|
| Net (charge-offs) | (79 | ) | (354 | ) | (433 | ) |
| Provision for credit losses | 247 |
| 305 |
| 552 |
|
Net decrease in allowance for unfunded loan commitments and letters of credit | (20 | ) | 1 |
| (19 | ) |
| Other |
|
| 9 |
| 9 |
|
| September 30, 2019 | $ | 1,811 |
| $ | 927 |
| $ | 2,738 |
|
| TDRs individually evaluated for impairment | $ | 34 |
| $ | 95 |
| $ | 129 |
|
| Other loans individually evaluated for impairment | 47 |
|
|
| 47 |
|
| Loans collectively evaluated for impairment | 1,730 |
| 554 |
| 2,284 |
|
| Purchased impaired loans |
|
| 278 |
| 278 |
|
| September 30, 2019 | $ | 1,811 |
| $ | 927 |
| $ | 2,738 |
|
| Loan portfolio | | | |
| TDRs individually evaluated for impairment | $ | 420 |
| $ | 1,343 |
| $ | 1,763 |
|
| Other loans individually evaluated for impairment | 265 |
|
|
| 265 |
|
| Loans collectively evaluated for impairment | 159,503 |
| 73,298 |
| 232,801 |
|
| Fair value option loans (a) |
|
| 754 |
| 754 |
|
| Purchased impaired loans |
|
| 1,794 |
| 1,794 |
|
| September 30, 2019 | $ | 160,188 |
| $ | 77,189 |
| $ | 237,377 |
|
(a) Loans accounted for under the fair value option were not evaluated for impairment as these loans are accounted for at fair value. Accordingly, there was no allowance recorded on those loans.
NOTE 5 LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES
Loan Sale and Servicing Activities
As more fully described in Note 25 Loan Sale and Servicing Activities and Variable Interest Entities in Item 8 of our 20192020 Form 10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization special purpose entities (SPEs).SPEs.
We earn servicing and other ancillary fees for our role as servicer and, depending on the contractual terms of the servicing arrangement, we can be terminated as servicer with or without cause. At the consummation date of each type of loan transfer where we retain the servicing, we recognize a servicing right at fair value. See Note 98 Commitments and Note 1211 Fair Value for information on our servicing rights, including the carrying value of servicing assets.
80 The PNC Financial Services Group, Inc. – Form 10-Q
The following table provides cash flows associated with our loan sale and servicing activities:
Table 54:56: Cash Flows Associated with Loan Sale and Servicing Activities
| | | | | | | | | | | | | | | | | |
| In millions | Residential
Mortgages | | Commercial
Mortgages (a) | |
| Cash Flows - Three months ended September 30, 2021 | | | | | |
| Sales of loans (b) | $ | 2,475 | | | | $ | 881 | | |
| Repurchases of previously transferred loans (c) | $ | 45 | | | | $ | 103 | | |
| Servicing fees (d) | $ | 105 | | | | $ | 43 | | |
| Servicing advances recovered/(funded), net | $ | (4) | | | | $ | 28 | | |
| Cash flows on mortgage-backed securities held (e) | $ | 2,041 | | | | $ | 18 | | |
| Cash Flows - Three months ended September 30, 2020 | | | | | |
| Sales of loans (b) | $ | 1,799 | | | | $ | 839 | | |
| Repurchases of previously transferred loans (c) | $ | 352 | | | | $ | 107 | | |
| Servicing fees (d) | $ | 85 | | | | $ | 33 | | |
| Servicing advances recovered/(funded), net | $ | (15) | | | | $ | (78) | | |
| Cash flows on mortgage-backed securities held (e) | $ | 2,829 | | | | $ | 14 | | |
| Cash Flows - Nine months ended September 30, 2021 | | | | | |
| Sales of loans (b) | $ | 5,997 | | | | $ | 2,604 | | |
| Repurchases of previously transferred loans (c) | $ | 189 | | | | $ | 145 | | |
| Servicing fees (d) | $ | 270 | | | | $ | 119 | | |
| Servicing advances recovered/(funded), net | $ | 8 | | | | $ | (8) | | |
| Cash flows on mortgage-backed securities held (e) | $ | 7,256 | | | | $ | 66 | | |
| Cash Flows - Nine months ended September 30, 2020 | | | | | |
| Sales of loans (b) | $ | 5,328 | | | | $ | 2,666 | | |
| Repurchases of previously transferred loans (c) | $ | 547 | | | | $ | 132 | | |
| Servicing fees (d) | $ | 251 | | | | $ | 97 | | |
| Servicing advances recovered/(funded), net | $ | 4 | | | | $ | (206) | | |
| Cash flows on mortgage-backed securities held (e) | $ | 6,374 | | | | $ | 65 | | |
(a)Represents cash flow information associated with both commercial mortgage loan transfers and servicing activities.
(b)Gains/losses recognized on sales of loans were insignificant for the periods presented. |
| | | | | | | | | |
| In millions | Residential
Mortgages |
| | Commercial
Mortgages (a) | | |
| Cash Flows - Three months ended September 30, 2020 | | | | | |
| Sales of loans (b) | $ | 1,799 |
| | | $ | 839 |
| |
| Repurchases of previously transferred loans (c) | $ | 352 |
| | | $ | 107 |
| |
| Servicing fees (d) | $ | 85 |
| | | $ | 33 |
| |
| Servicing advances recovered/(funded), net | $ | (15 | ) | | | $ | (78 | ) | |
| Cash flows on mortgage-backed securities held (e) | $ | 2,829 |
| | | $ | 14 |
| |
| Cash Flows - Three months ended September 30, 2019 | | | | | |
| Sales of loans (b) | $ | 1,296 |
| | | $ | 1,122 |
| |
| Repurchases of previously transferred loans (c) | $ | 81 |
| | |
|
| |
| Servicing fees (d) | $ | 90 |
| | | $ | 34 |
| |
| Servicing advances recovered/(funded), net | $ | 5 |
| | | $ | 45 |
| |
| Cash flows on mortgage-backed securities held (e) | $ | 1,394 |
| | | $ | 14 |
| |
| Cash Flows - Nine months ended September 30, 2020 | | | | | |
| Sales of loans (b) | $ | 5,328 |
| | | $ | 2,666 |
| |
| Repurchases of previously transferred loans (c) | $ | 547 |
| | | $ | 132 |
| |
| Servicing fees (d) | $ | 251 |
| | | $ | 97 |
| |
| Servicing advances recovered/(funded), net | $ | 4 |
| | | $ | (206 | ) | |
| Cash flows on mortgage-backed securities held (e) | $ | 6,374 |
| | | $ | 65 |
| |
| Cash Flows - Nine months ended September 30, 2019 | | | | | |
| Sales of loans (b) | $ | 2,902 |
| | | $ | 2,212 |
| |
| Repurchases of previously transferred loans (c) | $ | 235 |
| | | $ | 4 |
| |
| Servicing fees (d) | $ | 264 |
| | | $ | 97 |
| |
| Servicing advances recovered/(funded), net | $ | 33 |
| | | $ | 61 |
| |
| Cash flows on mortgage-backed securities held (e) | $ | 2,653 |
| | | $ | 43 |
| |
| |
(a) | Represents cash flow information associated with both commercial mortgage loan transfers and servicing activities. |
| |
(b) | Gains/losses recognized on sales of loans were insignificant for the periods presented. |
| |
(c) | Includes both residential and commercial mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our removal of account provision option, as well as residential mortgage loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers. |
| |
(d) | Includes contractually specified servicing fees, late charges and ancillary fees. |
| |
(e) | Represents cash flows on securities where we transferred to and/or service loans for a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $19.5 billion, $17.8 billion, and $17.7 billion in residential mortgage-backed securities and $.8 billion, $.6 billion, and $.6 billion in commercial mortgage-backed securities at September 30, 2020, December 31, 2019 and September 30, 2019, respectively. |
(d)Includes contractually specified servicing fees, late charges and ancillary fees.
(e)Represents cash flows on securities where we transferred to and/or service loans for a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $15.9 billion, $16.5 billion and $19.5 billion in residential mortgage-backed securities and $0.6 billion, $0.8 billion and $0.8 billion in commercial mortgage-backed securities at September 30, 2021, December 31, 2020 and September 30, 2020.
Table 5557 presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan, where the repurchase price exceeded the loan's fair value, due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans. The estimate of losses related to breaches in representations and warranties was insignificant at September 30, 2020.2021.
The PNC Financial Services Group, Inc. – Form 10-Q 6981
Table 55:57: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others
| | | | | | | | | | | | | | | | | |
| In millions | Residential Mortgages | | | Commercial Mortgages (a) | |
| September 30, 2021 | | | | | |
| Total principal balance | $ | 43,447 | | | | $ | 40,775 | | |
| Delinquent loans (b) | $ | 551 | | | | $ | 71 | | |
| December 31, 2020 | | | | | |
| Total principal balance | $ | 43,351 | | | | $ | 40,790 | | |
| Delinquent loans (b) | $ | 453 | | | | $ | 136 | | |
| Three months ended September 30, 2021 | | | | | |
| Net charge-offs (c) | $ | 1 | | | | $ | 2 | | |
| Three months ended September 30, 2020 | | | | | |
| Net charge-offs (c) | $ | 4 | | | | $ | 4 | | |
| Nine months ended September 30, 2021 | | | | | |
| Net charge-offs (c) | $ | 4 | | | | $ | 180 | | |
| Nine months ended September 30, 2020 | | | | | |
| Net charge-offs (c) | $ | 14 | | | | $ | 103 | | |
(a)Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization.
(b)Serviced delinquent loans are 90 days or more past due or are in process of foreclosure. |
| | | | | | | | | |
| In millions | Residential Mortgages |
| | | Commercial Mortgages (a) |
| |
| September 30, 2020 | | | | | |
| Total principal balance | $ | 45,795 |
| | | $ | 41,379 |
| |
| Delinquent loans (b) | $ | 460 |
| | | $ | 311 |
| |
| December 31, 2019 | | | | | |
| Total principal balance | $ | 49,323 |
| | | $ | 42,414 |
| |
| Delinquent loans (b) | $ | 492 |
| | | $ | 64 |
| |
| Three months ended September 30, 2020 | | | | | |
| Net charge-offs (c) | $ | 4 |
| | | $ | 4 |
| |
| Three months ended September 30, 2019 | | | | | |
| Net charge-offs (c) | $ | 8 |
| | | $ | 52 |
| |
| Nine months ended September 30, 2020 | | | | | |
| Net charge-offs (c) | $ | 14 |
| | | $ | 103 |
| |
| Nine months ended September 30, 2019 | | | | | |
| Net charge-offs (c) | $ | 32 |
| | | $ | 348 |
| |
| |
(a) | Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization. |
| |
(b) | Serviced delinquent loans are 90 days or more past due or are in process of foreclosure. |
| |
(c) | Net charge-offs for Residential mortgages represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for commercial mortgage-backed securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information. |
Variable Interest Entities (VIEs)
As discussed in Note 25 Loan Sale and Servicing Activities and Variable Interest Entities in Item 8 of our 20192020 Form 10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs.
The following table provides a summary of non-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 5658 where we have determined that our continuing involvement is not significant. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between us and the VIE. In addition, where we only have lending arrangements in the normal course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 56.58. These loans are included as part of the asset quality disclosures that we make in Note 4 Loans and Related Allowance for Credit Losses.
Table 56:58: Non-Consolidated VIEs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | PNC Risk of Loss (a) | | | Carrying Value of Assets
Owned by PNC | | | | Carrying Value of Liabilities
Owned by PNC | |
| September 30, 2021 | | | | | | | | | |
| Mortgage-backed securitizations (b) | $ | 17,223 | | | | $ | 17,223 | | (c) | | | $ | 1 | | |
| Tax credit investments and other | 3,778 | | | | 3,952 | | (d) | | | 1,847 | | (e) |
| Total | $ | 21,001 | | | | $ | 21,175 | | | | | $ | 1,848 | | |
| December 31, 2020 | | | | | | | | | |
| Mortgage-backed securitizations (b) | $ | 18,207 | | | | $ | 18,207 | | (c) | | | $ | 1 | | |
| Tax credit investments and other | 3,121 | | | | 2,894 | | (d) | | | 1,198 | | (e) |
| Total | $ | 21,328 | | | | $ | 21,101 | | | | | $ | 1,199 | | |
|
| | | | | | | | | | | | | | | |
| In millions | PNC Risk of Loss (a) |
| | | Carrying Value of Assets
Owned by PNC |
| | | | Carrying Value of Liabilities
Owned by PNC |
| |
| September 30, 2020 | | | | | | | | | |
| Mortgage-backed securitizations (b) | $ | 21,109 |
| | | $ | 21,109 |
| (c) | | | $ | 1 |
| |
| Tax credit investments and other | 3,005 |
| | | 2,886 |
| (d) | | | $ | 920 |
| (e) |
| Total | $ | 24,114 |
| | | $ | 23,995 |
| | | | $ | 921 |
| |
| December 31, 2019 | | | | | | | | | |
| Mortgage-backed securitizations (b) | $ | 19,287 |
| | | $ | 19,287 |
| (c) | | | | |
| Tax credit investments and other | 3,131 |
| | | 3,028 |
| (d) | | | $ | 1,101 |
| (e) |
| Total | $ | 22,418 |
| | | $ | 22,315 |
| | | | $ | 1,101 |
| |
| |
(a) | Represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). The risk of loss excludes any potential tax recapture associated with tax credit investments. |
| |
(b) | Amounts reflect involvement with securitization SPEs where we transferred to and/or service loans for an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings. |
| |
(c) | Included in Investment securities, Mortgage servicing rights and Other assets on our Consolidated Balance Sheet. |
| |
(d) | Included in Investment securities, Loans, Equity investments and Other assets on our Consolidated Balance Sheet. |
| |
(e) | Included in Deposits and Other liabilities on our Consolidated Balance Sheet. |
(b)Amounts reflect involvement with securitization SPEs where we transferred to and/or service loans for an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings.
(c)Included in Investment securities, Mortgage servicing rights and Other assets on our Consolidated Balance Sheet.
(d)Included in Investment securities, Loans, Equity investments and Other assets on our Consolidated Balance Sheet.
(e)Included in Deposits and Other liabilities on our Consolidated Balance Sheet.
We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs).LLCs. The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act.CRA. Within Income taxes, during both the nine months ended September 30, 2021 and September 30, 2020, we recognized $140 million$0.1 billion or less of amortization, tax credits and other tax benefits associated with qualified investments in low income housing tax credits.
8270 The PNC Financial Services Group, Inc. – Form 10-Q
amortization, $144 million of tax credits and $32 million of other tax benefits associated with qualified investments in low income housing tax credits. The amounts for the third quarter of 2020 were $44 million, $46 million and $10 million, respectively.
NOTE 6 GOODWILL AND MORTGAGE SERVICING RIGHTS
Goodwill
Allocations of Goodwill by business segment during 2021 and 2020 follow:
Table 59: Goodwill by Business Segment
| | | | | | | | | | | | | | |
| In millions | Retail Banking | Corporate & Institutional Banking | Asset Management Group | Total |
| September 30, 2021 (a) | $ | 6,459 | | $ | 4,239 | | $ | 187 | | $ | 10,885 | |
| December 31, 2020 | $ | 5,795 | | $ | 3,374 | | $ | 64 | | $ | 9,233 | |
(a)Includes $1.6 billion of goodwill from the BBVA acquisition.
Goodwill increased during the nine months ended September 30, 2021 primarily as a result of the acquisition of BBVA. Goodwill was recorded and allocated to each segment on a preliminary basis and is subject to change based on new information obtained related to the close date or reallocation of assets and liabilities to each segment. See Note 1 Accounting Policies2 Acquisition and Divestiture Activities for additional information.
We review goodwill in this Report and Note 7 Goodwill and Mortgage Servicing Rightseach of our reporting units for impairment at least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date. Based on results of our 2019 Form 10-Kreview for more information regarding our goodwill.triggering events, there were no impairment charges related to goodwill in the first nine months of 2021 or in 2020.
Mortgage Servicing Rights
We recognize the right to service mortgage loans for others as an intangible asset when the servicing income we receive is more than adequate compensation.our projected servicing costs. MSRs are purchased or originated when loans are sold with servicing retained. MSRs totaled $1.1$1.8 billion and $1.6$1.2 billion at September 30, 20202021 and December 31, 2019,2020, respectively, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.
MSRs are subject to declines in value from actual or expected prepayment of the underlying loans and defaults, as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of MSRs decreases (or increases).
See the Sensitivity Analysis section of this Note 6 as well asfor more detail on our fair value measurement of MSRs. See Note 15 Fair Value and Note 6 Fair ValueGoodwill and Mortgage Servicing Rights in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K for more detail on our fair value measurement of MSRs. Refer to Note 7 Goodwill and Mortgage Servicing Rights in our 2019 Form 10-K for more information on our accounting and measurement of MSRs.
Changes in the commercial and residential MSRs follow:
Table 57:60: Mortgage Servicing Rights
| | | | | | | | | | | | | | | | | | | | |
| | Commercial MSRs | | Residential MSRs | |
| In millions | 2021 | 2020 | | 2021 | 2020 | |
| January 1 | $ | 569 | | $ | 649 | | | $ | 673 | | $ | 995 | | |
| Additions: | | | | | | |
| BBVA Acquisition | | | | 35 | | | |
| From loans sold with servicing retained | 61 | | 65 | | | 61 | | 34 | | |
| Purchases | 26 | | 31 | | | 400 | | 113 | | |
| Changes in fair value due to: | | | | | | |
| Time and payoffs (a) | (87) | | (87) | | | (242) | | (136) | | |
| Other (b) | 134 | | (143) | | | 203 | | (408) | | |
| September 30 | $ | 703 | | $ | 515 | | | $ | 1,130 | | $ | 598 | | |
| Related unpaid principal balance at September 30 | $ | 263,862 | | $ | 234,897 | | | $ | 139,154 | | $ | 119,158 | | |
| Servicing advances at September 30 | $ | 445 | | $ | 363 | | | $ | 139 | | $ | 107 | | |
(a)Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period.
(b)Represents MSR value changes resulting primarily from market-driven changes in interest rates.
The PNC Financial Services Group, Inc. – Form 10-Q 71
|
| | | | | | | | | | | | | | |
| | Commercial MSRs | | Residential MSRs | |
| In millions | 2020 |
| 2019 |
| | 2020 |
| 2019 |
| |
| January 1 | $ | 649 |
| $ | 726 |
| | $ | 995 |
| $ | 1,257 |
| |
| Additions: | | | | | | |
| From loans sold with servicing retained | 65 |
| 29 |
| | 34 |
| 23 |
| |
| Purchases | 31 |
| 76 |
| | 113 |
| 87 |
| |
| Changes in fair value due to: | | | | | | |
| Time and payoffs (a) | (87 | ) | (110 | ) | | (136 | ) | (117 | ) | |
| Other (b) | (143 | ) | (126 | ) | | (408 | ) | (362 | ) | |
| September 30 | $ | 515 |
| $ | 595 |
| | $ | 598 |
| $ | 888 |
| |
| Related unpaid principal balance at September 30 | $ | 234,897 |
| $ | 203,808 |
| | $ | 119,158 |
| $ | 122,886 |
| |
| Servicing advances at September 30 | $ | 363 |
| $ | 159 |
| | $ | 107 |
| $ | 123 |
| |
| |
(a) | Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period. |
| |
(b) | Represents MSR value changes resulting primarily from market-driven changes in interest rates. |
Sensitivity Analysis
The fair value of commercial and residential MSRs and significant inputs to the valuation models as of September 30, 2021 and December 31, 2020 are shown in Tables 5861 and 59.62. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.
A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 5861 and 59.62. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in
The PNC Financial Services Group, Inc. – Form 10-Q 83
prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.
The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions.
Table 58:61: Commercial Mortgage Servicing Rights – Key Valuation Assumptions
| | | | | | | | | | | | | | |
| Dollars in millions | September 30
2021 | | December 31
2020 | |
| Fair value | $ | 703 | | | $ | 569 | | |
| Weighted-average life (years) | 4.4 | | 4.4 | |
| Weighted-average constant prepayment rate | 5.46 | % | | 4.87 | % | |
| Decline in fair value from 10% adverse change | $ | 10 | | | $ | 9 | | |
| Decline in fair value from 20% adverse change | $ | 20 | | | $ | 18 | | |
| Effective discount rate | 7.55 | % | | 7.33 | % | |
| Decline in fair value from 10% adverse change | $ | 19 | | | $ | 15 | | |
| Decline in fair value from 20% adverse change | $ | 39 | | | $ | 31 | | |
|
| | | | | | | | |
| Dollars in millions | September 30
2020 |
| | December 31
2019 |
| |
| Fair value | $ | 515 |
| | $ | 649 |
| |
| Weighted-average life (years) | 4.3 |
| | 4.1 |
| |
| Weighted-average constant prepayment rate | 4.70 | % | | 4.56 | % | |
| Decline in fair value from 10% adverse change | $ | 9 |
| | $ | 9 |
| |
| Decline in fair value from 20% adverse change | $ | 17 |
| | $ | 17 |
| |
| Effective discount rate | 7.37 | % | | 7.91 | % | |
| Decline in fair value from 10% adverse change | $ | 14 |
| | $ | 17 |
| |
| Decline in fair value from 20% adverse change | $ | 27 |
| | $ | 34 |
| |
Table 59:62: Residential Mortgage Servicing Rights – Key Valuation Assumptions
| | | | | | | | | | | | | | |
| Dollars in millions | September 30
2021 | | December 31
2020 | |
| Fair value | $ | 1,130 | | | $ | 673 | | |
| Weighted-average life (years) | 5.9 | | 3.8 | |
| Weighted-average constant prepayment rate | 11.49 | % | | 21.13 | % | |
| Decline in fair value from 10% adverse change | $ | 47 | | | $ | 41 | | |
| Decline in fair value from 20% adverse change | $ | 94 | | | $ | 82 | | |
| Weighted-average option adjusted spread | 909 | | bps | 922 | | bps |
| Decline in fair value from 10% adverse change | $ | 37 | | | $ | 20 | | |
| Decline in fair value from 20% adverse change | $ | 72 | | | $ | 38 | | |
|
| | | | | | | | |
| Dollars in millions | September 30
2020 |
| | December 31
2019 |
| |
| Fair value | $ | 598 |
| | $ | 995 |
| |
| Weighted-average life (years) | 3.2 |
| | 5.2 |
| |
| Weighted-average constant prepayment rate | 24.82 | % | | 13.51 | % | |
| Decline in fair value from 10% adverse change | $ | 40 |
| | $ | 46 |
| |
| Decline in fair value from 20% adverse change | $ | 78 |
| | $ | 89 |
| |
| Weighted-average option adjusted spread | 927 |
| bps | 769 |
| bps |
| Decline in fair value from 10% adverse change | $ | 16 |
| | $ | 27 |
| |
| Decline in fair value from 20% adverse change | $ | 30 |
| | $ | 52 |
| |
Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $.2$0.2 billion for the three months ended September 30, 2021 and 2020 and 2019 and $.4$0.4 billion for the nine months ended September 30, 20202021 and 2019.2020. We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Corporate services and Residential mortgage, respectively.
72 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 7 LEASES
PNC's lessor arrangements primarily consist of operating,direct financing, sales-type and direct financingoperating leases for equipment. Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term. Lease income from sales-type and direct financing leases is included in Loan interest income and operating lease income is included in Corporate services on our Consolidated Income Statement. For more information on lease accounting see Note 1 Accounting Policies and Note 247 Leases in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.
Table 60:63: Lessor Income | | | | | | | | | | | | | | | | | |
| Three months ended
September 30 | Nine months ended
September 30 | |
| In millions | 2021 | 2020 | 2021 | 2020 | |
| Product | | | | | |
| Sales-type leases and direct financing leases (a) | $ | 61 | | $ | 66 | | $ | 184 | | $ | 207 | | |
| Operating leases (b) | 18 | | 22 | | 58 | | 74 | | |
| Lessor income | $ | 79 | | $ | 88 | | $ | 242 | | $ | 281 | | |
|
| | | | | | | | | | | | | |
| | Three months ended
September 30 | Nine months ended
September 30 | |
| In millions | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |
| Product | | | | | |
| Sales-type leases and direct financing leases | $ | 66 |
| $ | 72 |
| $ | 207 |
| $ | 223 |
| |
| Operating leases | 22 |
| 29 |
| 74 |
| 90 |
| |
| Lessor Income | $ | 88 |
| $ | 101 |
| $ | 281 |
| $ | 313 |
| |
(b)Included in Corporate services on the Consolidated Income Statement.
84 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 8 BORROWED FUNDS
The following table shows the carrying value of total borrowed funds of $42.1 billion at September 30, 2020 (including adjustments related to accounting hedges and unamortized original issuance discounts) by remaining contractual maturity:
Table 61: Borrowed Funds
|
| | | | |
| In billions | |
| Less than 1 year | $ | 11.8 |
| |
| 1 to 2 years | $ | 5.9 |
| |
| 2 to 3 years | $ | 6.9 |
| |
| 3 to 4 years | $ | 2.0 |
| |
| 4 to 5 years | $ | 3.2 |
| |
| Over 5 years | $ | 12.3 |
| |
The following table presents the contractual rates and maturity dates of our FHLB borrowings, senior debt and subordinated debt as of September 30, 2020, and the carrying values as of September 30, 2020 and December 31, 2019.
Table 62: FHLB Borrowings, Senior Debt and Subordinated Debt
|
| | | | | | | | | | | | | |
| | Stated Rate | | Maturity | | Carrying Value | |
| Dollars in millions | 2020 | | 2020 | | 2020 | | 2019 | |
| Parent Company | | | | | | | | |
| Senior debt | 2.20%-3.50% |
| | 2021-2030 | | $ | 9,674 |
| | $ | 8,843 |
| |
| Subordinated debt | 3.90 | % | | 2024 | | 811 |
| | 777 |
| |
| Junior subordinated debt | 0.82 | % | | 2028 | | 205 |
| | 205 |
| |
| Subtotal | | | | | 10,690 |
| | 9,825 |
| |
| Bank | | | | | | | | |
| FHLB (a) | 0.34%-0.57% |
| | 2020-2021 | | 5,500 |
| | 16,341 |
| |
| Senior debt | 0.00%-3.50% |
| | 2020-2043 | | 17,165 |
| | 20,167 |
| |
| Subordinated debt | 2.70%-4.20% |
| | 2022-2029 | | 5,449 |
| | 5,152 |
| |
| Subtotal | | | | | 28,114 |
| | 41,660 |
| |
| Total | | | | | $ | 38,804 |
| | $ | 51,485 |
| |
| |
(a) | FHLB borrowings are generally collateralized by residential mortgage loans, other mortgage-related loans and investment securities. |
In Table 62, the carrying values for Parent Company senior and subordinated debt include basis adjustments of $763 million and $63 million, respectively, whereas Bank senior and subordinated debt include basis adjustments of $555 million and $469 million, respectively, related to fair value accounting hedges as of September 30, 2020.
Certain borrowings are reported at fair value. Refer to Note 12 Fair Value for more information on those borrowings.
For further information regarding junior subordinated debentures refer to Note 10 Borrowed Funds in our 2019 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q 85
NOTE 9 COMMITMENTS
In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with significant other commitments as of September 30, 20202021 and December 31, 2019,2020, respectively.
Table 63:64: Commitments to Extend Credit and Other Commitments
| | | | | | | | | | | | | | |
| In millions | September 30
2021 | | December 31
2020 | |
| Commitments to extend credit | | | | |
| Commercial | $ | 177,033 | | | $ | 153,089 | | |
| Home equity lines of credit | 19,300 | | | 16,626 | | |
| Credit card | 34,488 | | | 31,019 | | |
| Other | 10,693 | | | 7,087 | | |
| Total commitments to extend credit | 241,514 | | | 207,821 | | |
| Net outstanding standby letters of credit (a) | 9,495 | | | 9,053 | | |
| Standby bond purchase agreements (b) | 1,300 | | | 1,448 | | |
| Other commitments (c) | 2,745 | | | 2,046 | | |
| Total commitments to extend credit and other commitments | $ | 255,054 | | | $ | 220,368 | | |
(a)Net outstanding standby letters of credit include $3.4 billion and $3.8 billion at September 30, 2021 and December 31, 2020, respectively, which support remarketing programs.
(b)We enter into standby bond purchase agreements to support municipal bond obligations. |
| | | | | | | | |
| In millions | September 30
2020 |
| | December 31
2019 |
| |
| Commitments to extend credit | | | | |
| Total commercial lending | $ | 145,312 |
| | $ | 131,762 |
| |
| Home equity lines of credit | 16,793 |
| | 16,803 |
| |
| Credit card | 31,841 |
| | 30,862 |
| |
| Other | 6,905 |
| | 6,162 |
| |
| Total commitments to extend credit | 200,851 |
| | 185,589 |
| |
| Net outstanding standby letters of credit (a) | 9,080 |
| | 9,843 |
| |
| Reinsurance agreements (b) | 85 |
| | 1,393 |
| |
| Standby bond purchase agreements (c) | 1,434 |
| | 1,295 |
| |
| Other commitments (d) | 1,475 |
| | 1,498 |
| |
| Total commitments to extend credit and other commitments | $ | 212,925 |
| | $ | 199,618 |
| |
| |
(a) | Net outstanding standby letters of credit include $3.9 billion and $4.1 billion at September 30, 2020 and December 31, 2019, respectively, which support remarketing programs. |
| |
(b) | Represents aggregate maximum exposure up to the specified limits of the reinsurance contracts provided by our wholly-owned captive insurance subsidiary. These amounts reflect estimates based on availability of financial information from insurance carriers. As of September 30, 2020, the aggregate maximum exposure amount was zero for accidental death and dismemberment contracts, and $.1 billion for credit life, accident and health contracts. Comparable amounts at December 31, 2019 were $1.3 billion and $.1 billion, respectively. |
| |
(c) | We enter into standby bond purchase agreements to support municipal bond obligations. |
| |
(d) | Includes $.6 billion related to investments in qualified affordable housing projects for both September 30, 2020 and December 31, 2019. |
Commitments to Extend Credit
Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee, and generally contain termination clauses in the event the customer’s credit quality deteriorates.
Net Outstanding Standby Letters of Credit
We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Approximately 96%97% of our net outstanding standby letters of credit were rated as Pass as of September 30, 2020,2021, with the remainder rated as Criticized. An internal credit rating of Pass indicates the expected risk of loss is currently low, while a rating of Criticized indicates a higher degree of risk.
If the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on September 30, 20202021 had terms ranging from less than one year to sixeight years.
The PNC Financial Services Group, Inc. – Form 10-Q 73
As of September 30, 2020,2021, assets of $1.1$1.5 billion secured certain specifically identified standby letters of credit. In addition, a portion of the remaining standby letters of credit issued on behalf of specific customers is also secured by collateral or guarantees that secure the customers’ other obligations to us. The carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $.2$0.1 billion at September 30, 20202021 and is included in Other liabilities on our Consolidated Balance Sheet.
8674 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 109 TOTAL EQUITY AND OTHER COMPREHENSIVE INCOME
Activity in total equity for the three and nine months ended September 30, 20202021 and 20192020 is as follows.follows:
Table 64:65: Rollforward of Total Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Shareholders’ Equity | | | | |
| In millions | Shares
Outstanding
Common
Stock | | Common
Stock | Capital
Surplus -
Preferred
Stock | Capital
Surplus -
Common
Stock and
Other | Retained
Earnings | Accumulated
Other
Comprehensive
Income (Loss) | Treasury
Stock | | Non-
controlling
Interests | Total Equity | |
| Three months ended | | | | | | | | | | | | |
| Balance at June 30, 2020 (a) | 425 | | | $ | 2,712 | | $ | 3,995 | | $ | 12,289 | | $ | 44,986 | | $ | 3,069 | | $ | (14,128) | | | $ | 25 | | $ | 52,948 | | |
| Net income | | | | | | 1,519 | | | | | 13 | | 1,532 | | |
| Other comprehensive income, net of tax | | | | | | | (72) | | | | | (72) | | |
| Cash dividends declared - Common | | | | | | (494) | | | | | | (494) | | |
| Cash dividends declared - Preferred | | | | | | (63) | | | | | | (63) | | |
| Preferred stock discount accretion | | | | 1 | | | (1) | | | | | | | |
| | | | | | | | | | | | |
| Treasury stock activity | (1) | | | | | 1 | | | | (88) | | | | (87) | | |
| Preferred stock redemption - Series Q (b) | | | | (480) | | | | | | | | (480) | | |
| Other | | | | | 30 | | | | | | (4) | | 26 | | |
| Balance at September 30, 2020 (a) | 424 | | | $ | 2,712 | | $ | 3,516 | | $ | 12,320 | | $ | 45,947 | | $ | 2,997 | | $ | (14,216) | | | $ | 34 | | $ | 53,310 | | |
| Balance at June 30, 2021 (a) | 425 | | | $ | 2,713 | | $ | 3,519 | | $ | 12,409 | | $ | 48,663 | | $ | 1,463 | | $ | (14,140) | | | $ | 58 | | $ | 54,685 | | |
| Net income | | | | | | 1,474 | | | | | 16 | | 1,490 | | |
| Other comprehensive income, net of tax | | | | | | | (384) | | | | | (384) | | |
| Cash dividends declared - Common | | | | | | (538) | | | | | | (538) | | |
| Cash dividends declared - Preferred | | | | | | (57) | | | | | | (57) | | |
| Preferred stock discount accretion | | | | 1 | | | (1) | | | | | | 0 | |
| Preferred stock issuance (c) | | | | 1,489 | | | | | | | | 1,489 | | |
| | | | | | | | | | | | |
| Treasury stock activity | (2) | | | | | 5 | | | | (387) | | | | (382) | | |
| | | | | | | | | | | | |
| Other | | | | | 30 | | | | | | (36) | | (6) | | |
| Balance at September 30, 2021 (a) | 423 | | | $ | 2,713 | | $ | 5,009 | | $ | 12,444 | | $ | 49,541 | | $ | 1,079 | | $ | (14,527) | | | $ | 38 | | $ | 56,297 | | |
| Nine months ended | | | | | | | | | | | | |
| Balance at December 31, 2019 (a) | 433 | | | $ | 2,712 | | $ | 3,993 | | $ | 12,376 | | $ | 42,215 | | $ | 799 | | $ | (12,781) | | | $ | 29 | | $ | 49,343 | | |
| Cumulative effect of ASU 2016-13 adoption (d) | | | | | | (671) | | | | | | (671) | | |
| Balance at January 1, 2020 (a) | 433 | | | $ | 2,712 | | $ | 3,993 | | $ | 12,376 | | $ | 41,544 | | $ | 799 | | $ | (12,781) | | | $ | 29 | | $ | 48,672 | | |
| Net income | | | | | | 6,075 | | | | | 27 | | 6,102 | | |
| Other comprehensive income, net of tax | | | | | | | 2,198 | | | | | 2,198 | | |
| Cash dividends declared - Common | | | | | | (1,488) | | | | | | (1,488) | | |
| Cash dividends declared - Preferred | | | | | | (181) | | | | | | (181) | | |
| Preferred stock discount accretion | | | | 3 | | | (3) | | | | | | | |
| Common stock activity | | | | | 11 | | | | | | | 11 | | |
| Treasury stock activity | (9) | | | | | 52 | | | | (1,435) | | | | (1,383) | | |
| Preferred stock redemption - Series Q (b) | | | | (480) | | | | | | | | (480) | | |
| Other | | | | | (119) | | | | | | (22) | | (141) | | |
| Balance at September 30, 2020 (a) | 424 | | | $ | 2,712 | | $ | 3,516 | | $ | 12,320 | | $ | 45,947 | | $ | 2,997 | | $ | (14,216) | | | $ | 34 | | $ | 53,310 | | |
| Balance at December 31, 2020 (a) | 424 | | | $ | 2,713 | | $ | 3,517 | | $ | 12,367 | | $ | 46,848 | | $ | 2,770 | | $ | (14,205) | | | $ | 31 | | $ | 54,041 | | |
| Net income | | | | | | 4,381 | | | | | 38 | | 4,419 | | |
| Other comprehensive income, net of tax | | | | | | | (1,691) | | | | | (1,691) | | |
| Cash dividends declared - Common | | | | | | (1,523) | | | | | | (1,523) | | |
| Cash dividends declared - Preferred | | | | | | (162) | | | | | | (162) | | |
| Preferred stock discount accretion | | | | 3 | | | (3) | | | | | | | |
| Preferred stock issuance (c) | | | | 1,489 | | | | | | | | 1,489 | | |
| Common stock activity | | | | | 12 | | | | | | | 12 | | |
| Treasury stock activity | (1) | | | | | 78 | | | | (322) | | | | (244) | | |
| | | | | | | | | | | | |
| Other | | | | | (13) | | | | | | (31) | | (44) | | |
| Balance at September 30, 2021 (a) | 423 | | | $ | 2,713 | | $ | 5,009 | | $ | 12,444 | | $ | 49,541 | | $ | 1,079 | | $ | (14,527) | | | $ | 38 | | $ | 56,297 | | |
| | | | | | | | | | | | |
(a)The par value of our preferred stock outstanding was less than $0.5 million at each date and, therefore, is excluded from this presentation.
(b)On September 1, 2020, PNC redeemed all 4,800 shares of its Series Q Preferred Stock, as well as all 19.2 million Depositary Shares representing fractional interests in such shares. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Shareholders’ Equity | | | | |
| In millions | Shares Outstanding Common Stock |
| | Common Stock |
| Capital Surplus - Preferred Stock |
| Capital Surplus - Common Stock and Other |
| Retained Earnings |
| Accumulated Other Comprehensive Income (Loss) |
| Treasury Stock |
| | Non- controlling Interests |
| Total Equity |
| |
| Three months ended | | | | | | | | | | | | |
| Balance at June 30, 2019 (a) | 447 |
| | $ | 2,711 |
| $ | 3,991 |
| $ | 12,257 |
| $ | 40,616 |
| $ | 631 |
| $ | (10,866 | ) | | $ | 41 |
| $ | 49,381 |
| |
| Net income | | | | | | 1,379 |
| | | | 13 |
| 1,392 |
| |
| Other comprehensive income (loss), net of tax | | | | | | | 206 |
| | | | 206 |
| |
| Cash dividends declared - Common | | | | | | (518 | ) | | | | | (518 | ) | |
| Cash dividends declared - Preferred | | | | | | (63 | ) | | | | | (63 | ) | |
| Preferred stock discount accretion | | | | 1 |
| | (1 | ) | | | | |
|
| |
| Common stock activity | | | | |
|
| | | | | |
|
| |
| Treasury stock activity | (8 | ) | | | | (5 | ) | | | (972 | ) | | | (977 | ) | |
| Other | | | |
| 53 |
| | | | | (19 | ) | 34 |
| |
| Balance at September 30, 2019 (a) | 439 |
| | $ | 2,711 |
| $ | 3,992 |
| $ | 12,305 |
| $ | 41,413 |
| $ | 837 |
| $ | (11,838 | ) | | $ | 35 |
| $ | 49,455 |
| |
| Balance at June 30, 2020 (a) | 425 |
| | $ | 2,712 |
| $ | 3,995 |
| $ | 12,289 |
| $ | 44,986 |
| $ | 3,069 |
| $ | (14,128 | ) | | $ | 25 |
| $ | 52,948 |
| |
| Net income | | | | | | 1,519 |
| | | | 13 |
| 1,532 |
| |
| Other comprehensive income, net of tax | | | | | | | (72 | ) | | | | (72 | ) | |
| Cash dividends declared - Common | | | | | | (494 | ) | | | | | (494 | ) | |
| Cash dividends declared - Preferred | | | | | | (63 | ) | | | | | (63 | ) | |
| Preferred stock discount accretion | | | | 1 |
| | (1 | ) | | | | |
| |
| Common stock activity | | | | |
|
| | | | | |
|
| |
| Treasury stock activity | (1 | ) | | | | 1 |
| | | (88 | ) | | | (87 | ) | |
| Preferred stock redemption - Series Q (b) | | | | (480 | ) | | | | | | | (480 | ) | |
| Other | | | | | 30 |
| | | | | (4 | ) | 26 |
| |
| Balance at September 30, 2020 (a) | 424 |
| | $ | 2,712 |
| $ | 3,516 |
| $ | 12,320 |
| $ | 45,947 |
| $ | 2,997 |
| $ | (14,216 | ) | | $ | 34 |
| $ | 53,310 |
| |
| Nine months ended | | | | | | | | | | | | |
| Balance at December 31, 2018 (a) | 457 |
| | $ | 2,711 |
| $ | 3,986 |
| $ | 12,291 |
| $ | 38,919 |
| $ | (725 | ) | $ | (9,454 | ) | | $ | 42 |
| $ | 47,770 |
| |
| Cumulative effect of ASU 2016-02 adoption (c) | | | | | | 62 |
|
| | | | 62 |
| |
| Balance at January 1, 2019 (a) | 457 |
| | $ | 2,711 |
| $ | 3,986 |
| $ | 12,291 |
| $ | 38,981 |
| $ | (725 | ) | $ | (9,454 | ) | | $ | 42 |
| $ | 47,832 |
| |
| Net income | | | | | | 4,002 |
| | | | 35 |
| 4,037 |
| |
| Other comprehensive income (loss), net of tax | | | | | | | 1,562 |
| | | | 1,562 |
| |
| Cash dividends declared - Common | | | | | | (1,386 | ) | | | | | (1,386 | ) | |
| Cash dividends declared - Preferred | | | | | | (181 | ) | | | | | (181 | ) | |
| Preferred stock discount accretion | | | | 3 |
| | (3 | ) | | | | |
|
| |
| Common stock activity | | | | | 10 |
| | | | | | 10 |
| |
| Treasury stock activity | (18 | ) | | | | 4 |
| | | (2,384 | ) | | | (2,380 | ) | |
| Other | | | | 3 |
|
|
| | | | | (42 | ) | (39 | ) | |
| Balance at September 30, 2019 (a) | 439 |
| | $ | 2,711 |
| $ | 3,992 |
| $ | 12,305 |
| $ | 41,413 |
| $ | 837 |
| $ | (11,838 | ) | | $ | 35 |
| $ | 49,455 |
| |
| Balance at December 31, 2019 (a) | 433 |
| | $ | 2,712 |
| $ | 3,993 |
| $ | 12,376 |
| $ | 42,215 |
| $ | 799 |
| $ | (12,781 | ) | | $ | 29 |
| $ | 49,343 |
| |
| Cumulative effect of ASU 2016-13 adoption (d) | | | | | | (671 | ) | | | | | (671 | ) | |
| Balance at January 1, 2020 (a) | 433 |
| | $ | 2,712 |
| $ | 3,993 |
| $ | 12,376 |
| $ | 41,544 |
| $ | 799 |
| $ | (12,781 | ) | | $ | 29 |
| $ | 48,672 |
| |
| Net income | | | | | | 6,075 |
| | | | 27 |
| 6,102 |
| |
| Other comprehensive income, net of tax | | | | | | | 2,198 |
| | | | 2,198 |
| |
| Cash dividends declared - Common | | | | | | (1,488 | ) | | | | | (1,488 | ) | |
| Cash dividends declared - Preferred | | | | | | (181 | ) | | | | | (181 | ) | |
| Preferred stock discount accretion | | | | 3 |
| | (3 | ) | | | | |
|
| |
| Common stock activity | | | | | 11 |
| | | | | | 11 |
| |
| Treasury stock activity | (9 | ) | | | | 52 |
| | | (1,435 | ) | | | (1,383 | ) | |
| Preferred stock redemption - Series Q (b) | | | | (480 | ) | | | | | | | (480 | ) | |
| Other | | | | | (119 | ) | | | | | (22 | ) | (141 | ) | |
| Balance at September 30, 2020 (a) | 424 |
| | $ | 2,712 |
| $ | 3,516 |
| $ | 12,320 |
| $ | 45,947 |
| $ | 2,997 |
| $ | (14,216 | ) | | $ | 34 |
| $ | 53,310 |
| |
| |
(a) | The par value of our preferred stock outstanding was less than $.5 million at each date and, therefore, is excluded from this presentation. |
| |
(b) | On September 1, 2020, PNC redeemed all 4,800 shares of its Series Q Preferred Stock, as well as all 19.2 million Depositary Shares representing fractional interests in such shares. |
| |
(c) | (d)Represents the cumulative effect of adopting ASU 2016-13 - Financial Instruments - Credit Losses. Represents the cumulative effect of adopting ASU 2016-02 - Leases related primarily to deferred gains on previous sale-leaseback transactions. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in our 2019 Form 10-K for additional detail.
|
| |
(d) | Represents the cumulative effect of adopting ASU 2016-13 - Financial Instruments - Credit Losses. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in this Report for additional detail on this adoption.
|
The PNC Financial Services Group, Inc. – Form 10-Q 7587
Table 65: Other Comprehensive Income (Loss)
Details of other comprehensive income (loss) are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| | 2020 | 2019 | 2020 | 2019 |
| In millions | Pre-tax |
| Tax effect |
| After-tax |
| Pre-tax |
| Tax effect |
| After-tax |
| Pre-tax |
| Tax effect |
| After-tax |
| Pre-tax |
| Tax effect |
| After-tax |
|
| Debt securities | | | | | | | | | | | | |
| Increase in net unrealized gains (losses) on securities | $ | 42 |
| $ | (9 | ) | $ | 33 |
| $ | 221 |
| $ | (51 | ) | $ | 170 |
| $ | 2,283 |
| $ | (525 | ) | $ | 1,758 |
| $ | 1,583 |
| $ | (363 | ) | $ | 1,220 |
|
| Less: Net realized gains (losses) reclassified to earnings (a) | 32 |
| (7 | ) | 25 |
| 7 |
| (2 | ) | 5 |
| 255 |
| (59 | ) | 196 |
| 27 |
| (6 | ) | 21 |
|
| Net change | 10 |
| (2 | ) | 8 |
| 214 |
| (49 | ) | 165 |
| 2,028 |
| (466 | ) | 1,562 |
| 1,556 |
| (357 | ) | 1,199 |
|
| Cash flow hedge derivatives | | | | | | | | | | | | |
| Increase in net unrealized gains (losses) on cash flow hedges | 15 |
| (3 | ) | 12 |
| 84 |
| (19 | ) | 65 |
| 960 |
| (221 | ) | 739 |
| 438 |
| (100 | ) | 338 |
|
| Less: Net realized gains (losses) reclassified to earnings (a) | 134 |
| (30 | ) | 104 |
| 5 |
| (1 | ) | 4 |
| 282 |
| (65 | ) | 217 |
| 5 |
| (1 | ) | 4 |
|
| Net change | (119 | ) | 27 |
| (92 | ) | 79 |
| (18 | ) | 61 |
| 678 |
| (156 | ) | 522 |
| 433 |
| (99 | ) | 334 |
|
| Pension and other postretirement benefit plan adjustments | | | | | | | | | | | | |
| Net pension and other postretirement benefit plan activity and other reclassified to earnings (b) | 2 |
| | 2 |
| 2 |
| | 2 |
| (3 | ) | 1 |
| (2 | ) | 63 |
| (14 | ) | 49 |
|
| Net change | 2 |
|
|
| 2 |
| 2 |
|
|
| 2 |
| (3 | ) | 1 |
| (2 | ) | 63 |
| (14 | ) | 49 |
|
| Other | | | | | | | | | | | | |
| Net unrealized gains (losses) on other transactions | | 10 |
| 10 |
| 4 |
| (7 | ) | (3 | ) | 10 |
| (9 | ) | 1 |
| 14 |
| (11 | ) | 3 |
|
| Net change | 0 |
| 10 |
| 10 |
| 4 |
| (7 | ) | (3 | ) | 10 |
| (9 | ) | 1 |
| 14 |
| (11 | ) | 3 |
|
| Total other comprehensive income (loss) from continuing operations | (107 | ) | 35 |
| (72 | ) | 299 |
| (74 | ) | 225 |
| 2,713 |
| (630 | ) | 2,083 |
| 2,066 |
| (481 | ) | 1,585 |
|
| Total other comprehensive income (loss) from discontinued operations | | | | (23 | ) | 4 |
| (19 | ) | 148 |
| (33 | ) | 115 |
| (29 | ) | 6 |
| (23 | ) |
| Total other comprehensive income (loss) | $ | (107 | ) | $ | 35 |
| $ | (72 | ) | $ | 276 |
| $ | (70 | ) | $ | 206 |
| $ | 2,861 |
| $ | (663 | ) | $ | 2,198 |
| $ | 2,037 |
| $ | (475 | ) | $ | 1,562 |
|
| |
(a) | Reclassifications for pre-tax debt securities and cash flow hedges are recorded in interest income and noninterest income on the Consolidated Income Statement. |
| |
(b) | Reclassifications include amortization of actuarial losses (gains) and amortization of prior period services costs (credits) which are recorded in noninterest expense on the Consolidated Income Statement. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| 2021 | 2020 | 2021 | 2020 |
| In millions | Pre-tax | Tax effect | After-tax | Pre-tax | Tax effect | After-tax | Pre-tax | Tax effect | After-tax | Pre-tax | Tax effect | After-tax |
| Debt securities | | | | | | | | | | | | |
| Net unrealized gains (losses) on securities | $ | (320) | | $ | 76 | | $ | (244) | | $ | 42 | | $ | (9) | | $ | 33 | | $ | (1,446) | | $ | 341 | | $ | (1,105) | | $ | 2,283 | | $ | (525) | | $ | 1,758 | |
Less: Net realized gains (losses) reclassified to
earnings (a) | 3 | | (1) | | 2 | | 32 | | (7) | | 25 | | 25 | | (6) | | 19 | | 255 | | (59) | | 196 | |
| Net change | (323) | | 77 | | (246) | | 10 | | (2) | | 8 | | (1,471) | | 347 | | (1,124) | | 2,028 | | (466) | | 1,562 | |
| Cash flow hedge derivatives | | | | | | | | | | | | |
Net unrealized gains (losses) on cash flow
hedge derivatives | (59) | | 14 | | (45) | | 15 | | (3) | | 12 | | (369) | | 87 | | (282) | | 960 | | (221) | | 739 | |
Less: Net realized gains (losses) reclassified to
earnings (a) | 115 | | (27) | | 88 | | 134 | | (30) | | 104 | | 358 | | (84) | | 274 | | 282 | | (65) | | 217 | |
| Net change | (174) | | 41 | | (133) | | (119) | | 27 | | (92) | | (727) | | 171 | | (556) | | 678 | | (156) | | 522 | |
Pension and other postretirement benefit
plan adjustments | | | | | | | | | | | | |
Net pension and other postretirement benefit
plan activity and other reclassified to earnings (b) | 2 | | 0 | 2 | | 2 | | 0 | 2 | | (11) | | 3 | | (8) | | (3) | | 1 | | (2) | |
| Net change | 2 | | 0 | 2 | | 2 | | 0 | 2 | | (11) | | 3 | | (8) | | (3) | | 1 | | (2) | |
| Other | | | | | | | | | | | | |
| Net unrealized gains (losses) on other transactions | 1 | | (8) | | (7) | | 0 | 10 | | 10 | | 2 | | (5) | | (3) | | 10 | | (9) | | 1 | |
| Net change | 1 | | (8) | | (7) | | 0 | 10 | | 10 | | 2 | | (5) | | (3) | | 10 | | (9) | | 1 | |
Total other comprehensive income (loss) from
continuing operations | (494) | | 110 | | (384) | | (107) | | 35 | | (72) | | (2,207) | | 516 | | (1,691) | | 2,713 | | (630) | | 2,083 | |
Total other comprehensive income (loss) from
discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 148 | | (33) | | 115 | |
| Total other comprehensive income (loss) | $ | (494) | | $ | 110 | | $ | (384) | | $ | (107) | | $ | 35 | | $ | (72) | | $ | (2,207) | | $ | 516 | | $ | (1,691) | | $ | 2,861 | | $ | (663) | | $ | 2,198 | |
(a)Reclassifications for pre-tax debt securities and cash flow hedges are recorded in interest income and noninterest income on the Consolidated Income Statement.
(b)Reclassifications include amortization of actuarial losses (gains) and amortization of prior period services costs (credits) which are recorded in noninterest expense on the Consolidated Income Statement.
8876 The PNC Financial Services Group, Inc. – Form 10-Q
Table 66:67: Accumulated Other Comprehensive Income (Loss) Components
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions, after-tax | Debt securities |
| | Cash flow hedge derivatives |
| | Pension and other postretirement benefit plan adjustments |
| | Other |
| | Accumulated other Comprehensive Income from Continuing Operations |
| | Accumulated other Comprehensive Income from Discontinued Operations
|
| Total |
| |
| Three months ended | | | | | | | | | | | | | |
| Balance at June 30, 2019 | $ | 954 |
| | $ | 320 |
| | $ | (483 | ) | | $ | (37 | ) | | $ | 754 |
| | $ | (123 | ) | $ | 631 |
| |
| Net activity | 165 |
| | 61 |
| | 2 |
| | (3 | ) | | 225 |
| | (19 | ) | 206 |
| |
| Balance at September 30, 2019 | $ | 1,119 |
| | $ | 381 |
| | $ | (481 | ) | | $ | (40 | ) | | $ | 979 |
| | $ | (142 | ) | $ | 837 |
| |
| Balance at June 30, 2020 | $ | 2,621 |
| | $ | 890 |
| | $ | (412 | ) | | $ | (30 | ) | | $ | 3,069 |
| | $ | 0 |
| $ | 3,069 |
| |
| Net activity | 8 |
| | (92 | ) | | 2 |
| | 10 |
| | (72 | ) | | | (72 | ) | |
| Balance at September 30, 2020 | $ | 2,629 |
| | $ | 798 |
| | $ | (410 | ) | | $ | (20 | ) | | $ | 2,997 |
| | $ | 0 |
| $ | 2,997 |
| |
| Nine months ended | | | | | | | | | | | | | |
| Balance at December 31, 2018 | $ | (80 | ) | | $ | 47 |
| | $ | (530 | ) | | $ | (43 | ) | | $ | (606 | ) | | $ | (119 | ) | $ | (725 | ) | |
| Net activity | 1,199 |
| | 334 |
| | 49 |
| | 3 |
| | 1,585 |
| | (23 | ) | 1,562 |
| |
| Balance at September 30, 2019 | $ | 1,119 |
| | $ | 381 |
| | $ | (481 | ) | | $ | (40 | ) | | $ | 979 |
| | $ | (142 | ) | $ | 837 |
| |
| Balance at December 31, 2019 | $ | 1,067 |
| | $ | 276 |
| | $ | (408 | ) | | $ | (21 | ) | | $ | 914 |
| | $ | (115 | ) | $ | 799 |
| |
| Net activity | 1,562 |
| | 522 |
| | (2 | ) | | 1 |
| | 2,083 |
| | 115 |
| 2,198 |
| |
| Balance at September 30, 2020 | $ | 2,629 |
| | $ | 798 |
| | $ | (410 | ) | | $ | (20 | ) | | $ | 2,997 |
| | $ | 0 |
| $ | 2,997 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions, after-tax | Debt securities | | Cash flow hedge derivatives | | Pension and other postretirement benefit plan adjustments | | Other | | Accumulated other Comprehensive Income from Continuing Operations | | Accumulated other Comprehensive Income from Discontinued Operations | Total | |
| Three months ended | | | | | | | | | | | | | |
| Balance at June 30, 2020 | $ | 2,621 | | | $ | 890 | | | $ | (412) | | | $ | (30) | | | $ | 3,069 | | | 0 | $ | 3,069 | | |
| Net activity | 8 | | | (92) | | | 2 | | | 10 | | | (72) | | | 0 | (72) | | |
| Balance at September 30, 2020 | $ | 2,629 | | | $ | 798 | | | $ | (410) | | | $ | (20) | | | $ | 2,997 | | | 0 | $ | 2,997 | | |
| Balance at June 30, 2021 | $ | 1,584 | | | $ | 236 | | | $ | (355) | | | $ | (2) | | | $ | 1,463 | | | 0 | $ | 1,463 | | |
| Net activity | (246) | | | (133) | | | 2 | | | (7) | | | (384) | | | 0 | (384) | | |
| Balance at September 30, 2021 | $ | 1,338 | | | $ | 103 | | | $ | (353) | | | $ | (9) | | | $ | 1,079 | | | 0 | $ | 1,079 | | |
| Nine months ended | | | | | | | | | | | | | |
| Balance at December 31, 2019 | $ | 1,067 | | | $ | 276 | | | $ | (408) | | | $ | (21) | | | $ | 914 | | | $ | (115) | | $ | 799 | | |
| Net activity | 1,562 | | | 522 | | | (2) | | | 1 | | | 2,083 | | | 115 | | 2,198 | | |
| Balance at September 30, 2020 | $ | 2,629 | | | $ | 798 | | | $ | (410) | | | $ | (20) | | | $ | 2,997 | | | 0 | $ | 2,997 | | |
| Balance at December 31, 2020 | $ | 2,462 | | | $ | 659 | | | $ | (345) | | | $ | (6) | | | $ | 2,770 | | | 0 | $ | 2,770 | | |
| Net activity | (1,124) | | | (556) | | | (8) | | | (3) | | | (1,691) | | | 0 | (1,691) | | |
| Balance at September 30, 2021 | $ | 1,338 | | | $ | 103 | | | $ | (353) | | | $ | (9) | | | $ | 1,079 | | | 0 | $ | 1,079 | | |
The following table provides the dividends per share for PNC's common and preferred stock.stock:
Table 67:68: Dividends Per Share (a)
| | | | | | | | | | | | | | |
| Three months ended September 30 | Nine months ended September 30 |
| 2021 | 2020 | 2021 | 2020 |
| Common Stock | $ | 1.25 | | $ | 1.15 | | $ | 3.55 | | $ | 3.45 | |
| Preferred Stock | | | | |
| Series B | $ | 0.45 | | $ | 0.45 | | $ | 1.35 | | $ | 1.35 | |
| Series O | $ | 3,375 | | $ | 3,375 | | $ | 6,750 | | $ | 6,750 | |
| Series P | $ | 1,531 | | $ | 1,531 | | $ | 4,594 | | $ | 4,594 | |
| Series Q (b) | | $ | 1,343 | | | $ | 4,031 | |
| Series R | | 0 | $ | 2,425 | | $ | 2,425 | |
| Series S | | 0 | $ | 2,500 | | $ | 2,500 | |
|
| | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| | 2020 | 2019 | 2020 | 2019 |
| Common Stock | $ | 1.15 |
| $ | 1.15 |
| $ | 3.45 |
| $ | 3.05 |
|
| Preferred Stock | | | | |
| Series B | $ | .45 |
| $ | .45 |
| $ | 1.35 |
| $ | 1.35 |
|
| Series O | $ | 3,375 |
| $ | 3,375 |
| $ | 6,750 |
| $ | 6,750 |
|
| Series P | $ | 1,531 |
| $ | 1,531 |
| $ | 4,594 |
| $ | 4,594 |
|
| Series Q | $ | 1,343 |
| $ | 1,343 |
| $ | 4,031 |
| $ | 4,031 |
|
| Series R | |
| $ | 2,425 |
| $ | 2,425 |
|
| Series S | |
| $ | 2,500 |
| $ | 2,500 |
|
(a)Dividends are payable quarterly other than Series O, Series R and Series S preferred stock, which are payable semiannually,semiannually. On September 13, 2021, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 3.400% fixed-rate reset non-cumulative perpetual preferred stock, Series T, with a par value of $1 per share. Beginning on December 15, dividends will be paid on the Series O payableT on a quarterly basis (March 15, June 15, September 15 and December 15 of each year).
(b)On September 1, 2020, PNC redeemed all 4,800 shares of its Series Q Preferred Stock, as well as all 19.2 million Depositary Shares representing fractional interest in different quarterssuch shares.
from
On October 1, 2021, the Series R and Series S preferred stock.
The PNC board of directors declared a quarterly cash dividend on common stock of $1.25 per share payable on November 5, 2020 of $1.15 per share, consistent with the second quarter dividend paid on August 5, 2020.2021.
The PNC Financial Services Group, Inc. – Form 10-Q 7789
NOTE 1110 EARNINGS PER SHARE
Table 68:69: Basic and Diluted Earnings Per Common Share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended
September 30 | | Nine months ended
September 30 | |
| In millions, except per share data | | 2021 | | 2020 | | 2021 | | 2020 | |
| Basic | | | | | | | | | |
| Net income from continuing operations | | $ | 1,490 | | | $ | 1,532 | | | $ | 4,419 | | | $ | 1,547 | | |
| Less: | | | | | | | | | |
| Net income attributable to noncontrolling interests | | 16 | | | 13 | | | 38 | | | 27 | | |
| Preferred stock dividends | | 57 | | | 63 | | | 162 | | | 181 | | |
| Preferred stock discount accretion and redemptions | | 1 | | | 1 | | | 3 | | | 3 | | |
| Net income from continuing operations attributable to common shareholders | | 1,416 | | | 1,455 | | | 4,216 | | | 1,336 | | |
| Less: Dividends and undistributed earnings allocated to nonvested restricted shares | | 8 | | | 8 | | | 21 | | | 7 | | |
| Net income from continuing operations attributable to basic common shareholders | | $ | 1,408 | | | $ | 1,447 | | | $ | 4,195 | | | $ | 1,329 | | |
| Net income from discontinued operations attributable to common shareholders | | 0 | | 0 | | 0 | | $ | 4,555 | | |
| Less: Undistributed earnings allocated to nonvested restricted shares | | | | | | | | 22 | | |
| Net income from discontinued operations attributable to basic common shareholders | | 0 | | 0 | | 0 | | $ | 4,533 | | |
| Basic weighted-average common shares outstanding | | 426 | | | 426 | | | 426 | | | 427 | | |
| Basic earnings per common share from continuing operations (a) | | $ | 3.31 | | | $ | 3.40 | | | $ | 9.84 | | | $ | 3.11 | | |
| Basic earnings per common share from discontinued operations (a) | | 0 | | 0 | | 0 | | $ | 10.61 | | |
| Basic earnings per common share (b) | | $ | 3.31 | | | $ | 3.40 | | | $ | 9.84 | | | $ | 13.73 | | |
| Diluted | | | | | | | | | |
Net income from continuing operations attributable to diluted common shareholders
| | $ | 1,408 | | | $ | 1,447 | | | $ | 4,195 | | | $ | 1,329 | | |
Net income from discontinued operations attributable to basic common shareholders
| | 0 | | 0 | | 0 | | $ | 4,533 | | |
| Less: Impact of earnings per share dilution from discontinued operations | | 0 | | 0 | | 0 | | 2 | | |
Net income from discontinued operations attributable to diluted common shareholders
| | 0 | | 0 | | 0 | | $ | 4,531 | | |
| Basic weighted-average common shares outstanding | | 426 | | | 426 | | 426 | | | 427 | |
| Dilutive potential common shares | | | | | | 1 | | | 1 | | |
| Diluted weighted-average common shares outstanding | | 426 | | | 426 | | | 427 | | | 428 | | |
| Diluted earnings per common share from continuing operations (a) | | $ | 3.30 | | | $ | 3.39 | | | $ | 9.83 | | | $ | 3.11 | | |
| Diluted earnings per common share from discontinued operations (a) | | 0 | | 0 | | 0 | | $ | 10.59 | | |
| Diluted earnings per common share (b) | | $ | 3.30 | | | $ | 3.39 | | | $ | 9.83 | | | $ | 13.70 | | |
|
| | | | | | | | | | | | | | | | | |
| | | Three months ended
September 30 | | Nine months ended
September 30 | |
| In millions, except per share data | | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| |
| Basic | | | | | | | | | |
| Net income from continuing operations | | $ | 1,532 |
| | $ | 1,181 |
| | $ | 1,547 |
| | $ | 3,448 |
| |
| Less: | | | | | | | | | |
| Net income attributable to noncontrolling interests | | 13 |
| | 13 |
| | 27 |
| | 35 |
| |
| Preferred stock dividends | | 63 |
| | 63 |
| | 181 |
| | 181 |
| |
| Preferred stock discount accretion and redemptions | | 1 |
| | 1 |
| | 3 |
| | 3 |
| |
| Net income from continuing operations attributable to common shareholders | | 1,455 |
|
| 1,104 |
|
| 1,336 |
|
| 3,229 |
| |
| Less: Dividends and undistributed earnings allocated to nonvested restricted shares | | 8 |
| | 5 |
| | 7 |
| | 13 |
| |
| Net income from continuing operations attributable to basic common shareholders | | $ | 1,447 |
|
| $ | 1,099 |
| | $ | 1,329 |
|
| $ | 3,216 |
| |
| Net income from discontinued operations attributable to common shareholders | |
|
| | $ | 211 |
| | $ | 4,555 |
| | $ | 589 |
| |
| Less: Undistributed earnings allocated to nonvested restricted shares | | | | 1 |
| | 22 |
| | 2 |
| |
| Net income from discontinued operations attributable to basic common shareholders | |
|
| | $ | 210 |
| | $ | 4,533 |
| | $ | 587 |
| |
| Basic weighted-average common shares outstanding | | 426 |
| | 444 |
| | 427 |
| | 450 |
| |
| Basic earnings per common share from continuing operations (a) | | $ | 3.40 |
| | $ | 2.47 |
| | $ | 3.11 |
| | $ | 7.15 |
| |
| Basic earnings per common share from discontinued operations (a) | |
| | $ | .48 |
| | $ | 10.61 |
| | $ | 1.30 |
| |
| Basic earnings per common share (b) | | $ | 3.40 |
| | $ | 2.95 |
| | $ | 13.73 |
| | $ | 8.45 |
| |
| Diluted | |
| | | | | | | |
Net income from continuing operations attributable to diluted common shareholders
| | $ | 1,447 |
| | $ | 1,099 |
| | $ | 1,329 |
| | $ | 3,216 |
| |
Net income from discontinued operations attributable to basic common shareholders
| |
|
| | $ | 210 |
| | $ | 4,533 |
| | $ | 587 |
| |
| Less: Impact of earnings per share dilution from discontinued operations | | | | 2 |
| | 2 |
| | 7 |
| |
Net income from discontinued operations attributable to diluted common shareholders
| |
|
| | $ | 208 |
| | $ | 4,531 |
| | $ | 580 |
| |
| Basic weighted-average common shares outstanding | | 426 |
| | 444 |
| | 427 |
| | 450 |
| |
| Dilutive potential common shares | | | | 1 |
| | 1 |
| | 1 |
| |
| Diluted weighted-average common shares outstanding | | 426 |
| | 445 |
| | 428 |
| | 451 |
| |
| Diluted earnings per common share from continuing operations (a) | | $ | 3.39 |
| | $ | 2.47 |
| | $ | 3.11 |
| | $ | 7.13 |
| |
| Diluted earnings per common share from discontinued operations (a) | |
|
| | $ | .47 |
| | $ | 10.59 |
| | $ | 1.29 |
| |
| Diluted earnings per common share (b) | | $ | 3.39 |
| | $ | 2.94 |
| | $ | 13.70 |
| | $ | 8.42 |
| |
| |
(a) | Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares and restricted share units with nonforfeitable dividends and dividend rights (participating securities). |
| |
(b) | See Note 1 Accounting Policies in the Notes to Consolidated Financial Statements of this Report for additional information on our policy for not allocating losses to participating securities. |
(b)For additional information on our policy for not allocating losses to participating securities, see the Earnings Per Common Share section of Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K.
NOTE 1211 FAIR VALUE
Fair Value Measurement
We measure certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date, and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K. Additionally, for more information regarding the fair value of assets and liabilities from our BBVA acquisition, see Note 2 Acquisition and Divestiture Activity in this Report.
9078 The PNC Financial Services Group, Inc. – Form 10-Q
Assets and Liabilities Measured at Fair Value on a Recurring Basis
For more information on the valuation methodologies used to measure assets and liabilities at fair value on a recurring basis, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which we have elected the fair value option.
Table 69:70: Fair Value Measurements – Recurring Basis Summary
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | | December 31, 2020 | |
| In millions | Level 1 | | Level 2 | | Level 3 | | Total
Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Total
Fair Value | |
| Assets | | | | | | | | | | | | | | | | | |
| Residential mortgage loans held for sale | | | $ | 1,433 | | | $ | 86 | | | $ | 1,519 | | | | | | $ | 691 | | | $ | 163 | | | $ | 854 | | |
| Commercial mortgage loans held for sale | | | 457 | | | 51 | | | 508 | | | | | | 305 | | | 57 | | | 362 | | |
| | | | | | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | $ | 36,613 | | | 4,356 | | | | | 40,969 | | | | $ | 16,675 | | | 4,036 | | | | | 20,711 | | |
| Residential mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | | 65,185 | | | | | 65,185 | | | | | | 48,911 | | | | | 48,911 | | |
| Non-agency | | | 74 | | | 1,168 | | | 1,242 | | | | | | 136 | | | 1,365 | | | 1,501 | | |
| Commercial mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | | 2,060 | | | | | 2,060 | | | | | | 2,688 | | | | | 2,688 | | |
| Non-agency | | | 3,668 | | | 3 | | | 3,671 | | | | | | 3,678 | | | 11 | | 3,689 | | |
| Asset-backed | | | 5,895 | | | 172 | | | 6,067 | | | | | | 4,951 | | | 199 | | | 5,150 | | |
| Other | | | 4,864 | | | 69 | | | 4,933 | | | | | | 4,636 | | | 72 | | | 4,708 | | |
| Total securities available for sale | 36,613 | | | 86,102 | | | 1,412 | | | 124,127 | | | | 16,675 | | | 69,036 | | | 1,647 | | | 87,358 | | |
| Loans | | | 673 | | | 936 | | | 1,609 | | | | | | 718 | | | 647 | | | 1,365 | | |
| Equity investments (a) | 1,071 | | | | | 1,530 | | | 2,804 | | | | 1,070 | | | | | 1,263 | | | 2,629 | | |
| Residential mortgage servicing rights | | | | | 1,130 | | | 1,130 | | | | | | | | 673 | | | 673 | | |
| Commercial mortgage servicing rights | | | | | 703 | | | 703 | | | | | | | | 569 | | | 569 | | |
| Trading securities (b) | 570 | | | 1,308 | | | | | 1,878 | | | | 548 | | | 1,690 | | | | | 2,238 | | |
| Financial derivatives (b) (c) | 1 | | | 6,978 | | | 56 | | | 7,035 | | | | | | 6,415 | | | 118 | | | 6,533 | | |
| Other assets | 395 | | | 102 | | | | | 497 | | | | 373 | | | 81 | | | | | 454 | | |
| Total assets (d) | $ | 38,650 | | | $ | 97,053 | | | $ | 5,904 | | | $ | 141,810 | | | | $ | 18,666 | | | $ | 78,936 | | | $ | 5,137 | | | $ | 103,035 | | |
| Liabilities | | | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 832 | | | $ | 116 | | | $ | 4 | | | $ | 952 | | | | $ | 661 | | | $ | 44 | | | $ | 2 | | | $ | 707 | | |
| Financial derivatives (c) (e) | | | 4,450 | | | 331 | | | 4,781 | | | | | | 2,483 | | | 273 | | | 2,756 | | |
| Other liabilities | | | | | 167 | | | 167 | | | | | | | | 43 | | | 43 | | |
| Total liabilities (f) | $ | 832 | | | $ | 4,566 | | | $ | 502 | | | $ | 5,900 | | | | $ | 661 | | | $ | 2,527 | | | $ | 318 | | | $ | 3,506 | | |
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Included in Other assets on the Consolidated Balance Sheet. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | | December 31, 2019 | |
| In millions | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total Fair Value |
| | | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total Fair Value |
| |
| Assets | | | | | | | | | | | | | | | | | |
| Residential mortgage loans held for sale | | | $ | 583 |
| | $ | 77 |
| | $ | 660 |
| | | | | $ | 817 |
| | $ | 2 |
| | $ | 819 |
| |
| Commercial mortgage loans held for sale | | | 647 |
| | 59 |
| | 706 |
| | | | | 182 |
| | 64 |
| | 246 |
| |
| Securities available for sale | | | | | | | | | | | | | | | |
|
| |
| U.S. Treasury and government agencies | $ | 17,946 |
| | 279 |
| | | | 18,225 |
| | | $ | 16,236 |
| | 280 |
| | | | 16,516 |
| |
| Residential mortgage-backed | | | | | | | | | | | | | | | |
|
| |
| Agency | | | 52,928 |
| | | | 52,928 |
| | | | | 36,321 |
| | | | 36,321 |
| |
| Non-agency | | | 165 |
| | 1,438 |
| | 1,603 |
| | | | | 73 |
| | 1,741 |
| | 1,814 |
| |
| Commercial mortgage-backed | | | | | | | | | | | | | | | |
|
| |
| Agency | | | 2,966 |
| | | | 2,966 |
| | | | | 3,118 |
| | | | 3,118 |
| |
| Non-agency | | | 3,818 |
| | 11 |
| | 3,829 |
| | | | | 3,372 |
| | | | 3,372 |
| |
| Asset-backed | | | 5,032 |
| | 208 |
| | 5,240 |
| | | | | 4,874 |
| | 240 |
| | 5,114 |
| |
| Other | | | 4,885 |
| | 71 |
| | 4,956 |
| | | | | 2,834 |
| | 74 |
| | 2,908 |
| |
| Total securities available for sale | 17,946 |
| | 70,073 |
| | 1,728 |
| | 89,747 |
| | | 16,236 |
| | 50,872 |
| | 2,055 |
| | 69,163 |
| |
| Loans | | | 654 |
| | 647 |
| | 1,301 |
| | | | | 442 |
| | 300 |
| | 742 |
| |
| Equity investments (a) | 691 |
| | | | 1,259 |
| | 2,236 |
| | | 855 |
| | | | 1,276 |
| | 2,421 |
| |
| Residential mortgage servicing rights | | | | | 598 |
| | 598 |
| | | | | | | 995 |
| | 995 |
| |
| Commercial mortgage servicing rights | | | | | 515 |
| | 515 |
| | | | | | | 649 |
| | 649 |
| |
| Trading securities (b) | 660 |
| | 1,061 |
| | | | 1,721 |
| | | 433 |
| | 2,787 |
| | | | 3,220 |
| |
| Financial derivatives (b) (c) | | | 7,206 |
| | 137 |
| | 7,343 |
| | | | | 3,448 |
| | 54 |
| | 3,502 |
| |
| Other assets | 344 |
| | 60 |
| | | | 404 |
| | | 339 |
| | 131 |
| | | | 470 |
| |
| Total assets (d) | $ | 19,641 |
| | $ | 80,284 |
| | $ | 5,020 |
| | $ | 105,231 |
| | | $ | 17,863 |
|
| $ | 58,679 |
|
| $ | 5,395 |
|
| $ | 82,227 |
| |
| Liabilities | | | | | | | | | | | | | | | |
|
| |
| Other borrowed funds | $ | 777 |
| | $ | 41 |
| | $ | 2 |
| | $ | 820 |
| | | $ | 385 |
| | $ | 126 |
| | $ | 7 |
| | $ | 518 |
| |
| Financial derivatives (c) (e) | 2 |
| | 2,565 |
| | 143 |
| | 2,710 |
| | | | | 1,819 |
| | 200 |
| | 2,019 |
| |
| Other liabilities | | | | | 90 |
| | 90 |
| | | | | | | 137 |
| | 137 |
| |
| Total liabilities (f) | $ | 779 |
| | $ | 2,606 |
| | $ | 235 |
| | $ | 3,620 |
| | | $ | 385 |
| | $ | 1,945 |
| | $ | 344 |
| | $ | 2,674 |
| |
| |
(a) | Certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. |
| |
(b) | Included in Other assets on the Consolidated Balance Sheet. |
| |
(c) | Amounts at September 30, 2020 and December 31, 2019 are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 13 Financial Derivatives for additional information related to derivative offsetting. |
| |
(d) | Total assets at fair value as a percentage of total consolidated assets was 23% and 20% as of September 30, 2020 and December 31, 2019, respectively. Level 3 assets as a percentage of total assets at fair value was 5% and 7% as of September 30, 2020 and December 31, 2019, respectively. Level 3 assets as a percentage of total consolidated assets was 1% at both September 30, 2020 and December 31, 2019. |
| |
(e) | Included in Other liabilities on the Consolidated Balance Sheet. |
| |
(f) | Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both September 30, 2020 and December 31, 2019. Level 3 liabilities as a percentage of total liabilities at fair value was 6% and 13% as of September 30, 2020 and December 31, 2019, respectively. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both September 30, 2020 and December 31, 2019. |
(d)Total assets at fair value as a percentage of total consolidated assets was 26% and 22% as of September 30, 2021 and December 31, 2020, respectively. Level 3 assets as a percentage of total assets at fair value was 4% and 5% at September 30, 2021 and December 31, 2020, respectively. Level 3 assets as a percentage of total consolidated assets was 1% at both September 30, 2021 and December 31, 2020.
(e)Included in Other liabilities on the Consolidated Balance Sheet.
(f)Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both September 30, 2021 and December 31, 2020. Level 3 liabilities as a percentage of total liabilities at fair value was 9% at both September 30, 2021 and December 31, 2020. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both September 30, 2021 and December 31, 2020.
The PNC Financial Services Group, Inc. – Form 10-Q 7991
Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three and nine months ended September 30, 20202021 and 20192020 follow:
Table 70:71: Reconciliation of Level 3 Assets and Liabilities
Three Months Ended September 30, 20202021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | | Unrealized
gains / losses
on assets and
liabilities held on
Consolidated
Balance Sheet at
Sept. 30, 2021
(a) (c) |
Level 3 Instruments Only
In millions | Fair Value June 30, 2021 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | Transfers
into
Level 3 | | Transfers
out of
Level 3 | | Impact from BBVA Acquisition | Fair
Value Sept. 30, 2021 |
| Assets | | | | | | | | | | | | | | | | |
Residential mortgage
loans held for sale | $ | 119 | | $ | (1) | | | | $ | 5 | | $ | (29) | | | $ | (6) | | $ | 4 | | | $ | (6) | | (e) | | $ | 86 | | $ | (1) | | |
Commercial mortgage
loans held for sale | 52 | | (1) | | | | | | | | | | | | | 51 | | | |
Other consumer loans
held for sale | 239 | | | | | | (256) | | | | | | | | $ | 17 | | | | |
| Securities available for sale | | | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 1,237 | | 10 | | | $ | (2) | | | | | (77) | | | | | | | 1,168 | | | |
Commercial mortgage-
backed non-agency | 11 | | | | (8) | | | | | | | | | | | 3 | | | |
| Asset-backed | 175 | | 1 | | | 5 | | | | | (9) | | | | | | | 172 | | | |
| Other | 73 | | | | | 2 | | (9) | | | 3 | | | | | | | 69 | | | |
Total securities
available for sale | 1,496 | | 11 | | | (5) | | 2 | | (9) | | | (83) | | | | | | | 1,412 | | | |
| Loans | 979 | | 12 | | | | 14 | | (6) | | | (58) | | | | (5) | | (e) | | 936 | | 12 | | |
| Equity investments | 1,540 | | 265 | | | | 158 | | (433) | | | | | | | | | 1,530 | | 95 | | |
Residential mortgage
servicing rights | 1,111 | | 49 | | | | 28 | | | $ | 24 | | (82) | | | | | | | 1,130 | | 49 | | |
Commercial mortgage
servicing rights | 682 | | 24 | | | | 5 | | | 22 | | (30) | | | | | | | 703 | | 24 | | |
| | | | | | | | | | | | | | | | |
| Financial derivatives | 87 | | 23 | | | | 1 | | | | (55) | | | | | | | 56 | | 39 | | |
| | | | | | | | | | | | | | | | |
| Total assets | $ | 6,305 | | $ | 382 | | | $ | (5) | | $ | 213 | | $ | (733) | | $ | 46 | | $ | (314) | | $ | 4 | | | $ | (11) | | | $ | 17 | | $ | 5,904 | | $ | 218 | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 2 | | | | | | | $ | 3 | | $ | (1) | | | | | | | $ | 4 | | | |
| Financial derivatives | 200 | | $ | 165 | | | | | $ | 3 | | | (37) | | | | | | | 331 | | $ | 171 | | |
| Other liabilities | 124 | | 45 | | | | | | 4 | | (6) | | | | | | | 167 | | 44 | | |
| Total liabilities | $ | 326 | | $ | 210 | | | | | $ | 3 | | $ | 7 | | $ | (44) | | | | | | | $ | 502 | | $ | 215 | | |
| Net gains (losses) | | $ | 172 | | (f) | | | | | | | | | | | | $ | 3 | | (g) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized
gains / losses
on assets and
liabilities held on
Consolidated
Balance Sheet at
Sept. 30, 2020
(a) (c) |
Level 3 Instruments Only
In millions | Fair Value June 30, 2020 |
| Included in
Earnings |
| Included
in Other
comprehensive
income (b) | | Purchases |
| Sales |
| Issuances |
| Settlements |
| | Transfers
into
Level 3 |
| Transfers
out of
Level 3 |
| | Fair
Value Sept. 30, 2020 |
|
| Assets | | | | | | | | | | | | | | | |
Residential mortgage loans
held for sale | $ | 88 |
| | | | $ | 15 |
| $ | (10 | ) | | $ | (9 | ) | | $ | 3 |
| $ | (10 | ) | | $ | 77 |
| | |
Commercial mortgage
loans held for sale | 60 |
| $ | (1 | ) | | | | | | | | | | | 59 |
| | |
| Securities available for sale | | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 1,491 |
| 12 |
| | $ | 18 |
| | | | (83 | ) | | | | | 1,438 |
| | |
Commercial mortgage-
backed non-agency | 19 |
| | | (8 | ) | | | | | | | | | 11 |
| | |
| Asset-backed | 210 |
| 1 |
| | 5 |
| | | | (8 | ) | | | | | 208 |
| | |
| Other | 72 |
| | | | (1 | ) | | | | | | | | 71 |
| | |
Total securities
available for sale | 1,792 |
| 13 |
|
| 15 |
| (1 | ) |
|
|
|
| (91 | ) | |
|
|
|
| | 1,728 |
| | |
| Loans | 607 |
| 7 |
| | | 63 |
| (3 | ) | | (27 | ) | | | | | 647 |
| $ | 7 |
| |
| Equity investments | 1,183 |
| 63 |
| | | 60 |
| (47 | ) | | | | | | | 1,259 |
| 56 |
| |
Residential mortgage
servicing rights | 577 |
| 11 |
| | | 52 |
| | $ | 12 |
| (54 | ) | | | | | 598 |
| 11 |
| |
Commercial mortgage
servicing rights | 490 |
| 23 |
| | | 8 |
| | 20 |
| (26 | ) | | | | | 515 |
| 23 |
| |
| Trading securities | | | | | | | | | | | | |
|
| | |
| Financial derivatives | 141 |
| 41 |
| | | 3 |
| | | (48 | ) | | | | | 137 |
| 52 |
| |
| Other assets | | | | | | | | | | | | |
|
| | |
| Total assets | $ | 4,938 |
| $ | 157 |
| | $ | 15 |
| $ | 200 |
| $ | (60 | ) | $ | 32 |
| $ | (255 | ) | | $ | 3 |
| $ | (10 | ) | | $ | 5,020 |
| $ | 149 |
| |
| Liabilities | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 2 |
| | | | | | $ | 2 |
| $ | (2 | ) | | | | | $ | 2 |
| | |
| Financial derivatives | 209 |
| $ | (10 | ) | | | | $ | 1 |
| | (57 | ) | | | | | 143 |
| $ | (7 | ) | |
| Other liabilities | 85 |
| 7 |
| | | | | 17 |
| (19 | ) | | | | | 90 |
| 6 |
| |
| Total liabilities | $ | 296 |
| $ | (3 | ) | | |
|
| $ | 1 |
| $ | 19 |
| $ | (78 | ) | |
|
|
|
| | $ | 235 |
| $ | (1 | ) | |
| Net gains (losses) | | $ | 160 |
| (f) | | | | | | | | | | | $ | 150 |
| (g) |
9280 The PNC Financial Services Group, Inc. – Form 10-Q
Three Months Ended September 30, 20192020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2020
(a) (c) |
Level 3 Instruments Only
In millions | Fair Value June 30, 2020 | Included in Earnings | Included in Other comprehensive income (b) | Purchases | Sales | Issuances | Settlements | | Transfers into Level 3 | Transfers out of Level 3 | | Fair Value Sept. 30, 2020 |
| Assets | | | | | | | | | | | | | | | |
Residential mortgage
loans held for sale | $ | 88 | | | | | $ | 15 | | $ | (10) | | | $ | (9) | | | $ | 3 | | $ | (10) | | | $ | 77 | | | |
Commercial mortgage
loans held for sale | 60 | | $ | (1) | | | | | | | | | | | | 59 | | | |
| Securities available for sale | | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 1,491 | | 12 | | | $ | 18 | | | | | (83) | | | | | | 1,438 | | | |
| Commercial mortgage-backed non-agency | 19 | | | | (8) | | | | | | | | | | 11 | | | |
| Asset-backed | 210 | | 1 | | | 5 | | | | | (8) | | | | | | 208 | | | |
| Other | 72 | | | | | (1) | | | | | | | | | 71 | | | |
Total securities
available for sale | 1,792 | | 13 | | | 15 | | (1) | | | | (91) | | | | | | 1,728 | | | |
| Loans | 607 | | 7 | | | | 63 | | (3) | | | (27) | | | | | | 647 | | $ | 7 | | |
| Equity investments | 1,183 | | 63 | | | | 60 | | (47) | | | | | | | | 1,259 | | 56 | | |
Residential mortgage
servicing rights | 577 | | 11 | | | | 52 | | | $ | 12 | | (54) | | | | | | 598 | | 11 | | |
Commercial mortgage
servicing rights | 490 | | 23 | | | | 8 | | | 20 | | (26) | | | | | | 515 | | 23 | | |
| | | | | | | | | | | | | | | |
| Financial derivatives | 141 | | 41 | | | | 3 | | | | (48) | | | | | | 137 | | 52 | | |
| | | | | | | | | | | | | | | |
| Total assets | $ | 4,938 | | $ | 157 | | | $ | 15 | | $ | 200 | | $ | (60) | | $ | 32 | | $ | (255) | | | $ | 3 | | $ | (10) | | | $ | 5,020 | | $ | 149 | | |
| Liabilities | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 2 | | | | | | | $ | 2 | | $ | (2) | | | | | | $ | 2 | | | |
| Financial derivatives | 209 | | $ | (10) | | | | | $ | 1 | | | (57) | | | | | | 143 | | $ | (7) | | |
| Other liabilities | 85 | | 7 | | | | | | 17 | | (19) | | | | | | 90 | | 6 | | |
| Total liabilities | $ | 296 | | $ | (3) | | | | | $ | 1 | | $ | 19 | | $ | (78) | | | | | | $ | 235 | | $ | (1) | | |
| Net gains (losses) | | $ | 160 | | (f) | | | | | | | | | | | $ | 150 | | (g) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2019
(a) (c) |
Level 3 Instruments Only
In millions | Fair Value June 30, 2019 |
| Included in Earnings |
| Included in Other comprehensive income (b) | | Purchases |
| Sales |
| Issuances |
| Settlements |
| Transfers into Level 3 |
| Transfers out of Level 3 |
| | Fair Value Sept. 30, 2019 |
|
| Assets | | | | | | | | | | | | | | |
Residential mortgage loans
held for sale | $ | 2 |
| | | | $ | 3 |
|
| | $ | (1 | ) | $ | 8 |
| $ | (8 | ) | (e) | $ | 4 |
| | |
Commercial mortgage
loans held for sale | 73 |
| | | | |
|
| (1 | ) | | | | 72 |
|
| |
| Securities available for sale | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 1,976 |
| $ | 23 |
| | $ | (3 | ) | | | | (143 | ) | | | | 1,853 |
| | |
| Asset-backed | 261 |
| 2 |
| |
| 1 |
|
| | (12 | ) | | | | 252 |
| | |
| Other | 80 |
| 1 |
| | (3 | ) | 5 |
|
| | (6 | ) | |
| | 77 |
| | |
Total securities
available for sale | 2,317 |
| 26 |
| | (6 | ) | 6 |
|
| | (161 | ) | |
| | 2,182 |
| | |
| Loans | 259 |
| 5 |
| | | 93 |
| $ | (7 | ) | $ | 1 |
| (14 | ) | 2 |
| (10 | ) | (e) | 329 |
| $ | 4 |
| |
| Equity investments | 1,323 |
| 48 |
| | | 65 |
| (46 | ) | | | | | | 1,390 |
| 50 |
| |
Residential mortgage
servicing rights | 997 |
| (100 | ) | | | 22 |
| | 9 |
| (40 | ) | | | | 888 |
| (97 | ) | |
Commercial mortgage
servicing rights | 630 |
| (38 | ) | | | 25 |
| | 13 |
| (35 | ) | | | | 595 |
| (38 | ) | |
| Trading securities |
| | | | | | |
| | | | | | |
| Financial derivatives | 86 |
| 17 |
| | | 6 |
| | | (19 | ) | | | | 90 |
| 16 |
| |
| Other assets |
|
| | | | | |
| | | | |
| |
| Total assets | $ | 5,687 |
| $ | (42 | ) | | $ | (6 | ) | $ | 220 |
| $ | (53 | ) | $ | 23 |
| $ | (271 | ) | $ | 10 |
| $ | (18 | ) | | $ | 5,550 |
| $ | (65 | ) | |
| Liabilities | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 5 |
| | | | | | $ | 13 |
| $ | (12 | ) | | | | $ | 6 |
| | |
| Financial derivatives | 221 |
| $ | 8 |
| | | | $ | 4 |
| | (27 | ) | | | | 206 |
| $ | 13 |
| |
| Other liabilities | 78 |
| 14 |
| | | $ | 16 |
| | 13 |
| (16 | ) | | | | 105 |
| 8 |
| |
| Total liabilities | $ | 304 |
| $ | 22 |
| | | $ | 16 |
| $ | 4 |
| $ | 26 |
| $ | (55 | ) | | | | $ | 317 |
| $ | 21 |
| |
| Net gains (losses) | | $ | (64 | ) | (f) | | | | | | | | | | $ | (86 | ) | (g) |
The PNC Financial Services Group, Inc. – Form 10-Q 8193
(continued from previous page)
Nine Months Ended September 30, 20202021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2021 (a) (c) |
Level 3 Instruments Only
In millions | Fair
Value
Dec. 31,
2020 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | Transfers
into
Level 3 | Transfers
out of
Level 3 | | Impact from BBVA Acquisition | Fair Value Sept. 30, 2021 |
| Assets | | | | | | | | | | | | | | | |
Residential mortgage
loans held for sale | $ | 163 | | $ | (1) | | | | $ | 43 | | $ | (81) | | | $ | (34) | | $ | 12 | | $ | (16) | | (e) | | $ | 86 | | $ | (1) | | |
Commercial mortgage
loans held for sale | 57 | | (1) | | | | | (6) | | | 1 | | | | | | 51 | | 1 | | |
| Other consumer loans held for sale | | | | | | (256) | | | | | | | $ | 256 | | | | |
| Securities available for sale | | | | | | | | | | | | | | | |
Residential
mortgage-backed
non-agency | 1,365 | | 30 | | | $ | 14 | | | | | (241) | | | | | | 1,168 | | | |
Commercial
mortgage-backed
non-agency | 11 | | | | (8) | | | | | | | | | | 3 | | | |
| Asset-backed | 199 | | 2 | | | 10 | | | | | (39) | | | | | | 172 | | | |
| Other | 72 | | | | 1 | | 5 | | (9) | | | | | | | | 69 | | | |
Total securities
available for sale | 1,647 | | 32 | | | 17 | | 5 | | (9) | | | (280) | | | | | | 1,412 | | | |
| Loans | 647 | | 32 | | | | 111 | | (12) | | | (121) | | | (13) | | (e) | 292 | | 936 | | 32 | | |
| Equity investments | 1,263 | | 489 | | | | 290 | | (512) | | | | | | | | 1,530 | | 294 | | |
Residential mortgage
servicing rights | 673 | | 203 | | | | 400 | | | $ | 61 | | (242) | | | | | 35 | | 1,130 | | 203 | | |
Commercial mortgage
servicing rights | 569 | | 134 | | | | 26 | | | 61 | | (87) | | | | | | 703 | | 134 | | |
| | | | | | | | | | | | | | | |
| Financial derivatives | 118 | | 69 | | | | 4 | | | | (140) | | | | | 5 | | 56 | | 87 | | |
| | | | | | | | | | | | | | | |
| Total assets | $ | 5,137 | | $ | 957 | | | $ | 17 | | $ | 879 | | $ | (876) | | $ | 122 | | $ | (903) | | $ | 12 | | $ | (29) | | | $ | 588 | | $ | 5,904 | | $ | 750 | | |
| Liabilities | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 2 | | | | | | | $ | 4 | | $ | (2) | | | | | | $ | 4 | | | |
| Financial derivatives | 273 | | $ | 155 | | | | | $ | 6 | | | (110) | | | | | $ | 7 | | 331 | | $ | 156 | | |
| Other liabilities | 43 | | 108 | | | | | | 321 | | (305) | | | | | | 167 | | 81 | | |
| Total liabilities | $ | 318 | | $ | 263 | | | | | $ | 6 | | $ | 325 | | $ | (417) | | | | | $ | 7 | | $ | 502 | | $ | 237 | | |
| Net gains (losses) | | $ | 694 | | (f) | | | | | | | | | | | $ | 513 | | (g) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2020 (a) (c) |
Level 3 Instruments Only In millions | Fair
Value
Dec. 31,
2019 |
| Included in
Earnings |
| Included
in Other
comprehensive
income (b) | | Purchases |
| Sales |
| Issuances |
| Settlements |
| | Transfers
into
Level 3 |
| Transfers
out of
Level 3 |
| | Fair Value Sept. 30, 2020 |
|
| Assets | | | | | | | | | | | | | | | |
Residential mortgage loans
held for sale | $ | 2 |
| | | | $ | 22 |
| $ | (12 | ) | | $ | (12 | ) | | $ | 90 |
| $ | (13 | ) | (e) | $ | 77 |
| | |
Commercial mortgage
loans held for sale | 64 |
| $ | (2 | ) | | | | | | (3 | ) | | | | | 59 |
| $ | (1 | ) | |
| Securities available for sale | | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 1,741 |
| 40 |
| | $ | (81 | ) | | | | (262 | ) | | | | | 1,438 |
| | |
Commercial mortgage-
backed non-agency | | | | (8 | ) | | | | | | 19 |
| | | 11 |
| | |
| Asset-backed | 240 |
| 5 |
| | (8 | ) | | | | (29 | ) | | | | | 208 |
| | |
| Other | 74 |
| | | (3 | ) | 3 |
| | | (3 | ) | | | | | 71 |
| | |
Total securities
available for sale | 2,055 |
| 45 |
| | (100 | ) | 3 |
|
| | (294 | ) | | 19 |
|
| | 1,728 |
|
| |
| Loans | 300 |
| 20 |
| | | 134 |
| (34 | ) | | 313 |
| (d) | | (86 | ) | (e) | 647 |
| 20 |
| |
| Equity investments | 1,276 |
| (68 | ) | | | 173 |
| (122 | ) | | | | | | | 1,259 |
| (69 | ) | |
Residential mortgage
servicing rights | 995 |
| (408 | ) | | | 113 |
| | $ | 34 |
| (136 | ) | | | | | 598 |
| (408 | ) | |
Commercial mortgage
servicing rights | 649 |
| (143 | ) | | | 31 |
| | 65 |
| (87 | ) | | | | | 515 |
| (144 | ) | |
| Trading securities |
| | | | | | | | | | | |
| | |
| Financial derivatives | 54 |
| 192 |
| | | 9 |
| | | (118 | ) | | | | | 137 |
| 200 |
| |
| Other assets |
| | | | | | | | | | | |
| | |
| Total assets | $ | 5,395 |
| $ | (364 | ) | | $ | (100 | ) | $ | 485 |
| $ | (168 | ) | $ | 99 |
| $ | (337 | ) | | $ | 109 |
| $ | (99 | ) | | $ | 5,020 |
| $ | (402 | ) | |
| Liabilities | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 7 |
| | | | | | $ | 27 |
| $ | (32 | ) | | | | | $ | 2 |
| | |
| Financial derivatives | 200 |
| $ | 26 |
| | | | $ | 3 |
| | (86 | ) | | | | | 143 |
| $ | 30 |
| |
| Other liabilities | 137 |
| 13 |
| | | | | 54 |
| (116 | ) | | $ | 2 |
| | | 90 |
| (2 | ) | |
| Total liabilities | $ | 344 |
| $ | 39 |
| | |
| $ | 3 |
| $ | 81 |
| $ | (234 | ) | | $ | 2 |
| | | $ | 235 |
| $ | 28 |
| |
| Net gains (losses) | | $ | (403 | ) | (f) | | | | | | | | | | | $ | (430 | ) | (g) |
9482 The PNC Financial Services Group, Inc. – Form 10-Q
Nine Months Ended September 30, 20192020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2020
(a) (c) |
Level 3 Instruments Only
In millions | Fair
Value
Dec. 31,
2019 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | | Transfers
into
Level 3 | Transfers
out of
Level 3 | | Fair Value Sept. 30, 2020 |
| Assets | | | | | | | | | | | | | | | |
Residential mortgage loans
held for sale | $ | 2 | | | | | $ | 22 | | $ | (12) | | | $ | (12) | | | $ | 90 | | $ | (13) | | (e) | $ | 77 | | | |
Commercial mortgage
loans held for sale | 64 | | $ | (2) | | | | | | | (3) | | | | | | 59 | | $ | (1) | | |
| Securities available for sale | | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 1,741 | | 40 | | | $ | (81) | | | | | (262) | | | | | | 1,438 | | | |
Commercial mortgage-
backed non-agency | | | | (8) | | | | | | | 19 | | | 11 | | | |
| Asset-backed | 240 | | 5 | | | (8) | | 0 | | | (29) | | | | | | 208 | | | |
| Other | 74 | | | | (3) | | 3 | | | | (3) | | | | | | 71 | | | |
Total securities
available for sale | 2,055 | | 45 | | | (100) | | 3 | | 0 | | (294) | | | 19 | | | | 1,728 | | | |
| Loans | 300 | | 20 | | | | 134 | | (34) | | 0 | 313 | | (d) | | (86) | | (e) | 647 | | 20 | | |
| Equity investments | 1,276 | | (68) | | | | 173 | | (122) | | | | | | | | 1,259 | | (69) | | |
Residential mortgage
servicing rights | 995 | | (408) | | | | 113 | | | $ | 34 | | (136) | | | | | | 598 | | (408) | | |
Commercial mortgage
servicing rights | 649 | | (143) | | | | 31 | | | 65 | | (87) | | | | | | 515 | | (144) | | |
| | | | | | | | | | | | | | | |
| Financial derivatives | 54 | | 192 | | | | 9 | | | | (118) | | | | | | 137 | | 200 | | |
| | | | | | | | | | | | | | | |
| Total assets | $ | 5,395 | | $ | (364) | | | $ | (100) | | $ | 485 | | $ | (168) | | $ | 99 | | $ | (337) | | | $ | 109 | | $ | (99) | | | $ | 5,020 | | $ | (402) | | |
| Liabilities | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 7 | | | | | | | $ | 27 | | $ | (32) | | | | | | $ | 2 | | | |
| Financial derivatives | 200 | | $ | 26 | | | | | $ | 3 | | | (86) | | | | | | 143 | | $ | 30 | | |
| Other liabilities | 137 | | 13 | | | | | | 54 | | (116) | | | $ | 2 | | | | 90 | | (2) | | |
| Total liabilities | $ | 344 | | $ | 39 | | | | | $ | 3 | | $ | 81 | | $ | (234) | | | $ | 2 | | | | $ | 235 | | $ | 28 | | |
| Net gains (losses) | | $ | (403) | | (f) | | | | | | | | | | | $ | (430) | | (g) |
(a)Losses for assets are bracketed while losses for liabilities are not.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2019 (a) (c) |
Level 3 Instruments Only In millions | Fair
Value
Dec. 31,
2018 |
| Included in
Earnings |
| Included
in Other
comprehensive
income (b) | | Purchases |
| Sales |
| Issuances |
| Settlements |
| Transfers
into
Level 3 |
| Transfers
out of
Level 3 |
| | Fair Value Sept. 30, 2019 |
|
| Assets | | | | | | | | | | | | | | |
Residential mortgage loans
held for sale | $ | 2 |
| | | | $ | 5 |
| $ | (1 | ) | | $ | (1 | ) | $ | 12 |
| $ | (13 | ) | (e) | $ | 4 |
| | |
Commercial mortgage
loans held for sale | 87 |
| $ | 2 |
| | | | | | (17 | ) | | | | 72 |
| $ | 2 |
| |
| Securities available for sale | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 2,128 |
| 59 |
| | $ | 18 |
| | | | (352 | ) | | | | 1,853 |
|
| |
| Asset-backed | 274 |
| 4 |
| | 6 |
| 1 |
|
| | (33 | ) | | | | 252 |
| | |
| Other | 84 |
| 1 |
| | (4 | ) | 8 |
| (3 | ) | | (9 | ) | | | | 77 |
| | |
Total securities
available for sale | 2,486 |
| 64 |
|
| 20 |
| 9 |
| (3 | ) |
| (394 | ) |
|
|
| 2,182 |
|
| |
| Loans | 272 |
| 10 |
| | | 126 |
| (18 | ) |
| (39 | ) | 5 |
| (27 | ) | (e) | 329 |
| 6 |
| |
| Equity investments | 1,255 |
| 104 |
| | | 260 |
| (229 | ) | | | | | | 1,390 |
| 53 |
| |
Residential mortgage
servicing rights | 1,257 |
| (362 | ) | | | 87 |
| | $ | 23 |
| (117 | ) | | | | 888 |
| (353 | ) | |
Commercial mortgage
servicing rights | 726 |
| (126 | ) | | | 76 |
| | 29 |
| (110 | ) | | | | 595 |
| (126 | ) | |
| Trading securities | 2 |
| | | | | | | (2 | ) | | | |
| | |
| Financial derivatives | 25 |
| 104 |
| | | 6 |
| | | (45 | ) | | | | 90 |
| 100 |
| |
| Other assets | 45 |
| | | | | | | (45 | ) | | | |
| | |
| Total assets | $ | 6,157 |
| $ | (204 | ) |
| $ | 20 |
| $ | 569 |
| $ | (251 | ) | $ | 52 |
| $ | (770 | ) | $ | 17 |
| $ | (40 | ) |
| $ | 5,550 |
| $ | (318 | ) | |
| Liabilities | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 7 |
| | | | | | $ | 39 |
| $ | (40 | ) | | | | $ | 6 |
| | |
| Financial derivatives | 268 |
| $ | 58 |
| | | | $ | 5 |
| | (125 | ) | | | | 206 |
| $ | 65 |
| |
| Other liabilities | 58 |
| 34 |
| | | $ | 16 |
| 2 |
| 66 |
| (71 | ) | | | | 105 |
| 20 |
| |
| Total liabilities | $ | 333 |
| $ | 92 |
|
|
|
| $ | 16 |
| $ | 7 |
| $ | 105 |
| $ | (236 | ) |
|
|
|
|
| $ | 317 |
| $ | 85 |
| |
| Net gains (losses) | | $ | (296 | ) | (f) | | | | | | | | | | $ | (403 | ) | (g) |
| |
(a) | Losses for assets are bracketed while losses for liabilities are not. |
| |
(b) | The difference in unrealized gains and losses for the period included in Other comprehensive income and changes in unrealized gains and losses for the period included in Other comprehensive income for securities available for sale held at the end of the reporting period were not significant. |
| |
(c) | The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period. |
| |
(d) | (c)The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period. (d)Upon adoption of ASU 2016-13 - Credit Losses, we discontinued the accounting for purchased impaired loans and elected the one-time fair value option election for some of these loans and certain nonperforming loans. (e)Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment. (f)Net gains (losses) realized and unrealized included in earnings related to Level 3 assets and liabilities included amortization and accretion. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net gains (losses) realized and unrealized were included in Noninterest income on the Consolidated Income Statement. (g)Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in Noninterest income on the Consolidated Income Statement. |
| |
(e) | Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment. |
| |
(f) | Net gains (losses) realized and unrealized included in earnings related to Level 3 assets and liabilities included amortization and accretion. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net gains (losses) realized and unrealized were included in Noninterest income on the Consolidated Income Statement. |
| |
(g) | Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in Noninterest income on the Consolidated Income Statement. |
An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels.
The PNC Financial Services Group, Inc. – Form 10-Q 8395
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities follows:
Table 71:72: Fair Value Measurements – Recurring Quantitative Information
September 30, 20202021
| | | | | | | | | | | | | | |
Level 3 Instruments Only
Dollars in millions | Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted-Average) (a) |
| Commercial mortgage loans held for sale | $ | 51 | | Discounted cash flow | Spread over the benchmark curve (b) | 610bps - 10,580bps (2,442bps) |
Residential mortgage-backed
non-agency securities | 1,168 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 30.7% (11.2%) |
| Constant default rate | 0.0% - 16.9% (4.6%) |
| Loss severity | 20.0% - 95.7% (47.7%) |
| Spread over the benchmark curve (b) | 160bps weighted-average |
| Asset-backed securities | 172 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 40.0% (10.5%) |
| Constant default rate | 1.4% - 20.0% (3.3%) |
| Loss severity | 8.0% - 100.0% (52.1%) |
| Spread over the benchmark curve (b) | 198bps weighted-average |
| Loans - Residential real estate | 640 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (77.2%) |
| Loss severity | 0.0% - 100.0% (8.9%) |
| Discount rate | 4.8% - 6.8% (5.1%) |
| 116 | | Discounted cash flow | Loss severity | 8.0% weighted-average |
| Discount rate | 3.2% weighted-average |
| Loans - Home equity | 18 | | Consensus pricing (c) | Cumulative default rate | 3.6% -100.0% (83.9%) |
| Loss severity | 0.0% - 98.4% (29.6%) |
| Discount rate | 4.8% - 6.8% (6.2%) |
| 162 | | Consensus pricing (c) | Credit and liquidity discount | 0.0% - 100.0% (23.1%) |
| Equity investments | 1,530 | | Multiple of adjusted earnings | Multiple of earnings | 5.0x - 14.8x (9.0x) |
| Residential mortgage servicing rights | 1,130 | | Discounted cash flow | Constant prepayment rate | 0.0% - 40.0% (11.5%) |
| Spread over the benchmark curve (b) | 380bps - 2,271bps (909bps) |
| Commercial mortgage servicing rights | 703 | | Discounted cash flow | Constant prepayment rate | 4.9% - 13.9% (5.5%) |
| Discount rate | 5.3% - 7.8% (7.6%) |
Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | (314) | | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 162.3% weighted-average |
| Estimated annual growth rate of Visa Class A share price | 16.0% |
| Estimated length of litigation resolution date | Q2 2023 |
Insignificant Level 3 assets, net of
liabilities (d) | 26 | | | | |
| Total Level 3 assets, net of liabilities (e) | $ | 5,402 | | | | |
|
| | | | | | |
Level 3 Instruments Only Dollars in millions | Fair Value |
| Valuation Techniques | Unobservable Inputs | Range (Weighted-Average) (a) |
| Commercial mortgage loans held for sale | $ | 59 |
| Discounted cash flow | Spread over the benchmark curve (b) | 630bps - 4,490bps (2,784bps) |
Residential mortgage-backed
non-agency securities | 1,438 |
| Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 37.6% (8.5%) |
| Constant default rate | 0.0% - 12.2% (4.7%) |
| Loss severity | 25.0% - 95.7% (48.6%) |
| Spread over the benchmark curve (b) | 278bps weighted-average |
| Asset-backed securities | 208 |
| Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 22.0% (7.3%) |
| Constant default rate | 1.0% - 7.2% (3.3%) |
| Loss severity | 30.0% - 100.0% (59.1%) |
| Spread over the benchmark curve (b) | 335bps weighted-average |
| Loans - Residential real estate | 436 |
| Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (82.1%) |
| Loss severity | 0.0% - 100.0% (11.8%) |
| Discount rate | 4.8% - 6.8% (5.2%) |
| | 125 |
| Discounted cash flow | Loss severity | 8.0% weighted-average |
| Discount rate | 3.2% weighted-average |
| Loans - Home equity | 22 |
| Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (89.9%) |
| Loss severity | 0.0% - 98.4% (35.0%) |
| Discount rate | 4.8% - 6.8% (6.3%) |
| | 64 |
| Consensus pricing (c) | Credit and liquidity discount | 17.5% - 97.0% (58.2%) |
| Equity investments | 1,259 |
| Multiple of adjusted earnings | Multiple of earnings | 5.0x - 15.9x (8.6x) |
| Residential mortgage servicing rights | 598 |
| Discounted cash flow | Constant prepayment rate | 0.0% - 56.0% (24.8%) |
| Spread over the benchmark curve (b) | 361bps - 3,348bps (927bps) |
| Commercial mortgage servicing rights | 515 |
| Discounted cash flow | Constant prepayment rate | 3.7% - 19.2% (4.7%) |
| Discount rate | 4.5% - 7.9% (7.4%) |
Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | (112 | ) | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 162.3% weighted-average |
| Estimated annual growth rate of Visa Class A share price | 16.0% |
| Estimated length of litigation resolution date | Q2 2021 |
Insignificant Level 3 assets, net of
liabilities (d) | 173 |
| | | |
| Total Level 3 assets, net of liabilities (e) | $ | 4,785 |
| | | |
9684 The PNC Financial Services Group, Inc. – Form 10-Q
December 31, 20192020
|
| | | | | | |
Level 3 Instruments Only Dollars in millions | Fair Value |
| Valuation Techniques | Unobservable Inputs | Range (Weighted-Average) (a) |
| Commercial mortgage loans held for sale | $ | 64 |
| Discounted cash flow | Spread over the benchmark curve (b) | 530bps - 2,935bps (1,889bps) |
Residential mortgage-backed
non-agency securities | 1,741 |
| Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 36.2% (9.9%) |
| Constant default rate | 0.0% - 14.1% (4.3%) |
| Loss severity | 26.6% - 95.7% (51.9%) |
| Spread over the benchmark curve (b) | 188bps weighted-average |
| Asset-backed securities | 240 |
| Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 22.0% (7.5%) |
| Constant default rate | 1.0% - 7.2% (3.4%) |
| Loss severity | 30.0% - 100.0% (57.6%) |
| Spread over the benchmark curve (b) | 215bps weighted-average |
| Loans | 184 |
| Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (76.7%) |
| Loss severity | 0.0% - 100.0% (14.5%) |
| Discount rate | 5.0% - 8.0% (5.2%) |
| | 72 |
| Discounted cash flow | Loss severity | 8.0% weighted-average |
| Discount rate | 4.8% weighted-average |
| | 44 |
| Consensus pricing (c) | Credit and Liquidity discount | 0.0% - 99.0% (63.4%) |
| Equity investments | 1,276 |
| Multiple of adjusted earnings | Multiple of earnings | 5.0x - 16.5x (8.5x) |
| Residential mortgage servicing rights | 995 |
| Discounted cash flow | Constant prepayment rate | 0.0% - 53.8% (13.5%) |
| Spread over the benchmark curve (b) | 320bps - 1,435bps (769bps) |
| Commercial mortgage servicing rights | 649 |
| Discounted cash flow | Constant prepayment rate | 3.5% - 18.1% (4.6%) |
| Discount rate | 5.6% - 8.1% (7.9%) |
Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | (176 | ) | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 162.3% weighted-average |
| Estimated annual growth rate of Visa Class A share price | 16.0% |
Estimated length of litigation
resolution date | Q1 2021 |
Insignificant Level 3 assets, net of
liabilities (d) | (38 | ) | | | |
| Total Level 3 assets, net of liabilities (e) | $ | 5,051 |
| | | |
| | | | | | | | | | | | | | |
(a)Level 3 Instruments Only
Dollars in millions | Fair Value | Valuation Techniques | Unobservable inputs were weighted by the relative fair value of the instruments. |
| Inputs | Range (Weighted-Average) (a) |
(b)Commercial mortgage loans held for sale | The assumed yield spread$ | 57 | | Discounted cash flow | Spread over the benchmark curve for each instrument is generally intended to incorporate non-interest(b) | 630bps - 5,275bps (3,406bps) |
Residential mortgage-backed
non-agency securities | 1,365 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate risks, such as credit | 1.0% - 37.6% (8.6%) |
| Constant default rate | 0.0% - 12.2% (4.7%) |
| Loss severity | 25.0% - 95.7% (48.8%) |
| Spread over the benchmark curve (b) | 242bps weighted-average |
| Asset-backed securities | 199 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% -22.0% (7.4%) |
| Constant default rate | 1.0% - 6.0% (3.3%) |
| Loss severity | 30.0% - 100.0% (58.1%) |
| Spread over the benchmark curve (b) | 291bps weighted-average |
| Loans - Residential real estate | 434 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (82.1%) |
| Loss severity | 0.0% - 100.0% (11.2%) |
| Discount rate | 4.8% - 6.8% (5.1%) |
| 132 | | Discounted cash flow | Loss severity | 8.0% weighted-average |
| Discount rate | 3.2% weighted-average |
| Loans - Home equity | 21 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (88.5%) |
| Loss severity | 0.0% - 98.4% (33.3%) |
| Discount rate | 4.8% - 6.8% (6.3%) |
| 60 | | Consensus pricing (c) | Credit and liquidity risks.Liquidity discount | 17.5% - 97.0% (57.7%) |
| Equity investments | 1,263 | | Multiple of adjusted earnings | Multiple of earnings | 5.0x - 15.9x (8.7x) |
| Residential mortgage servicing rights | 673 | | Discounted cash flow | Constant prepayment rate | 0.0% - 77.5% (21.1%) |
| Spread over the benchmark curve (b) | 325bps - 2,783bps (922bps) |
| Commercial mortgage servicing rights | 569 | | Discounted cash flow | Constant prepayment rate | 4.0% - 16.1% (4.9%) |
| Discount rate | 4.7% - 7.8% (7.3%) |
| | | |
(c) | Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices. |
| | |
(d)Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | Represents the aggregate amount(252) | | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 162.3% weighted-average |
| Estimated annual growth rate of Visa Class A share price | 16.0% |
Estimated length of litigation
resolution date | Q2 2022 |
Insignificant Level 3 assets, andnet of
liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities.(d) |
| 298 | | | | |
(e) | Consisted of totalTotal Level 3 assets, net of $5.0 billion and total Level 3 liabilities of $.2 billion as of September 30, 2020 and $5.4 billion and $.3 billion as of December 31, 2019, respectively.(e) | $ | 4,819 | | | | |
(a)Unobservable inputs were weighted by the relative fair value of the instruments.
(b)The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporate non-interest rate risks, such as credit and liquidity risks.
(c)Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices.
(d)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities.
(e)Consisted of total Level 3 assets of $5.9 billion and total Level 3 liabilities of $0.5 billion as of September 30, 2021 and $5.1 billion and $0.3 billion as of December 31, 2020, respectively.
Financial Assets Accounted for at Fair Value on a Nonrecurring Basis
We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 72.73. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K.
Table 72: Fair Value Measurements – Nonrecurring (a) (b) (c)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Gains (Losses) Three months ended | | Gains (Losses)
Nine months ended | |
| In millions | September 30
2020 |
| | December 31
2019 |
| | September 30
2020 |
| | September 30
2019 |
| | September 30
2020 |
| | September 30
2019 |
| |
| Assets | | | | | | | | | | | | |
| Nonaccrual loans | $ | 346 |
| | $ | 136 |
| | $ | (38 | ) | | $ | (22 | ) | | $ | (73 | ) | | $ | (55 | ) | |
| OREO and foreclosed assets | 25 |
| | 57 |
| | (1 | ) | | (2 | ) | | (2 | ) | | (6 | ) | |
| Long-lived assets | 9 |
| | 5 |
| | (4 | ) | | (1 | ) | | (7 | ) | | 0 |
| |
| Total assets | $ | 380 |
| | $ | 198 |
| | $ | (43 | ) | | $ | (25 | ) | | $ | (82 | ) | | $ | (61 | ) | |
| |
(a) | All Level 3 for the periods presented. |
| |
(b) | Valuation techniques applied were fair value of property or collateral. |
| |
(c) | Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented. |
The PNC Financial Services Group, Inc. – Form 10-Q 8597
Assets measured at fair value on a nonrecurring basis follow:
Table 73: Fair Value Measurements – Nonrecurring (a) (b) (c)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Gains (Losses)
Three months ended | | Gains (Losses)
Nine months ended | |
| In millions | September 30
2021 | | December 31
2020 | | September 30
2021 | | September 30
2020 | | September 30
2021 | | September 30
2020 | |
| Assets | | | | | | | | | | | | |
| Nonaccrual loans | $ | 209 | | | $ | 332 | | | $ | (3) | | | $ | (38) | | | $ | (3) | | | $ | (73) | | |
| Loans held for sale | 39 | | | | | (1) | | | | | (18) | | | | |
| OREO and foreclosed assets | 5 | | | 18 | | | | | (1) | | | | | (2) | | |
| Long-lived assets | 12 | | | 20 | | | (6) | | | (4) | | | (17) | | | (7) | | |
| Total assets | $ | 265 | | | $ | 370 | | | $ | (10) | | | $ | (43) | | | $ | (38) | | | $ | (82) | | |
(a)All Level 3 as of September 30, 2021 and December 31, 2020, except for $39 million included in Loans held for sale which was categorized as Level 2 as of September 30, 2021.
(b)Valuation techniques applied were fair value of property or collateral.
(c)Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented.
Financial Instruments Accounted for under Fair Value Option
We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K.
Fair values and aggregate unpaid principal balances of certain items for which we elected the fair value option follow:
Table 73:74: Fair Value Option – Fair Value and Principal Balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 | |
| In millions | Fair Value | | Aggregate Unpaid
Principal Balance | | Difference | | Fair Value | | Aggregate Unpaid
Principal Balance | | Difference | |
| Assets | | | | | | | | | | | | |
| Residential mortgage loans held for sale | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 1,465 | | | $ | 1,422 | | | $ | 43 | | | $ | 831 | | | $ | 793 | | | $ | 38 | | |
| Accruing loans 90 days or more past due | 4 | | | 4 | | | | | 4 | | | 4 | | | | |
| Nonaccrual loans | 50 | | | 59 | | | (9) | | | 20 | | | 24 | | | (4) | | |
| Total | $ | 1,519 | | | $ | 1,485 | | | $ | 34 | | | $ | 855 | | | $ | 821 | | | $ | 34 | | |
| Commercial mortgage loans held for sale (a) | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 508 | | | $ | 520 | | | $ | (12) | | | $ | 357 | | | $ | 370 | | | $ | (13) | | |
| Nonaccrual loans | | | | | 0 | | 5 | | | 6 | | | (1) | | |
| Total | $ | 508 | | | $ | 520 | | | $ | (12) | | | $ | 362 | | | $ | 376 | | | $ | (14) | | |
| Loans | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 652 | | | $ | 669 | | | $ | (17) | | | $ | 519 | | | $ | 530 | | | $ | (11) | | |
| Accruing loans 90 days or more past due | 260 | | | 278 | | | (18) | | | 283 | | | 295 | | | (12) | | |
| Nonaccrual loans | 697 | | | 971 | | | (274) | | | 563 | | | 820 | | | (257) | | |
| Total | $ | 1,609 | | | $ | 1,918 | | | $ | (309) | | | $ | 1,365 | | | $ | 1,645 | | | $ | (280) | | |
| Other assets | $ | 96 | | | $ | 93 | | | $ | 3 | | | $ | 81 | | | $ | 69 | | | $ | 12 | | |
| Liabilities | | | | | | | | | | | | |
| Other borrowed funds | $ | 31 | | | $ | 31 | | | | | $ | 32 | | | $ | 33 | | | $ | (1) | | |
(a)There were no accruing loans 90 days or more past due within this category at September 30, 2021 or December 31, 2020.
86 The PNC Financial Services Group, Inc. – Form 10-Q
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| In millions | Fair Value |
| | Aggregate Unpaid Principal Balance |
| | Difference |
| | Fair Value |
| | Aggregate Unpaid Principal Balance |
| | Difference |
| |
| Assets | | | | | | | | | | | | |
| Residential mortgage loans held for sale | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 642 |
| | $ | 613 |
| | $ | 29 |
| | $ | 813 |
| | $ | 792 |
| | $ | 21 |
| |
| Accruing loans 90 days or more past due | 3 |
| | 3 |
| |
|
| | 2 |
| | 2 |
| |
|
| |
| Nonaccrual loans | 15 |
| | 17 |
| | (2 | ) | | 4 |
| | 4 |
| |
| |
| Total | $ | 660 |
| | $ | 633 |
| | $ | 27 |
| | $ | 819 |
| | $ | 798 |
| | $ | 21 |
| |
| Commercial mortgage loans held for sale (a) | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 706 |
| | $ | 700 |
| | $ | 6 |
| | $ | 245 |
| | $ | 263 |
| | $ | (18 | ) | |
| Nonaccrual loans | | | | |
|
| | 1 |
| | 2 |
| | (1 | ) | |
| Total | $ | 706 |
| | $ | 700 |
| | $ | 6 |
| | $ | 246 |
| | $ | 265 |
| | $ | (19 | ) | |
| Loans | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 491 |
| | $ | 504 |
| | $ | (13 | ) | | $ | 291 |
| | $ | 304 |
| | $ | (13 | ) | |
| Accruing loans 90 days or more past due | 247 |
| | 259 |
| | (12 | ) | | 285 |
| | 296 |
| | (11 | ) | |
| Nonaccrual loans | 563 |
| | 828 |
| | (265 | ) | | 166 |
| | 265 |
| | (99 | ) | |
| Total | $ | 1,301 |
| | $ | 1,591 |
| | $ | (290 | ) | | $ | 742 |
| | $ | 865 |
| | $ | (123 | ) | |
| Other assets | $ | 60 |
| | $ | 61 |
| | $ | (1 | ) | | $ | 132 |
| | $ | 125 |
| | $ | 7 |
| |
| Liabilities | | | | | | | | | | | | |
| Other borrowed funds | $ | 28 |
| | $ | 28 |
| |
|
| | $ | 63 |
| | $ | 64 |
| | $ | (1 | ) | |
| |
(a) | There were no accruing loans 90 days or more past due within this category at September 30, 2020 or December 31, 2019. |
The changes in fair value for items for which we elected the fair value option are as follows:
Table 74:75: Fair Value Option – Changes in Fair Value (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gains (Losses) | | Gains (Losses) | |
| | Three months ended | | Nine months ended | |
| September 30 | | September 30 | | September 30 | | September 30 | |
| In millions | 2021 | | 2020 | | 2021 | | 2020 | |
| Assets | | | | | | | | |
| Residential mortgage loans held for sale | $ | 47 | | | $ | 53 | | | $ | 120 | | | $ | 151 | | |
| Commercial mortgage loans held for sale | $ | 31 | | | $ | 46 | | | $ | 77 | | | $ | 106 | | |
| Loans | $ | 21 | | | $ | 5 | | | $ | 52 | | | $ | 31 | | |
| Other assets | $ | 3 | | | $ | 3 | | | $ | 25 | | | $ | (24) | | |
|
| | | | | | | | | | | | | | | | |
| | Gains (Losses) | | Gains (Losses) | |
| | Three months ended | | Nine months ended | |
| | September 30 |
| | September 30 |
| | September 30 |
| | September 30 |
| |
| In millions | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| |
| Assets | | | | | | | | |
| Residential mortgage loans held for sale | $ | 53 |
| | $ | 29 |
| | $ | 151 |
| | $ | 63 |
| |
| Commercial mortgage loans held for sale | $ | 46 |
| | $ | 25 |
| | $ | 106 |
| | $ | 48 |
| |
| Loans | $ | 5 |
| | $ | 7 |
| | $ | 31 |
| | $ | 16 |
| |
| Other assets | $ | 3 |
| | $ | 3 |
| | $ | (24 | ) | | $ | 24 |
| |
| |
(a) | The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts. |
Additional Fair Value Information Related to Financial Instruments Not Recorded at Fair Value
The following table presents the carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of all other financial instruments that are not recorded on our Consolidated Balance Sheet at fair value as of September 30, 20202021 and December 31, 2019.2020. For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 75,76, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K.
98 The PNC Financial Services Group, Inc. – Form 10-Q
Table 75:76: Additional Fair Value Information Related to Other Financial Instruments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair Value | |
| In millions | Amount | | Total | | Level 1 | | Level 2 | | Level 3 | |
| September 30, 2021 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Cash and due from banks | $ | 8,843 | | | $ | 8,843 | | | $ | 8,843 | | | | | | |
| Interest-earning deposits with banks | 75,478 | | | 75,478 | | | | | $ | 75,478 | | | | |
| Securities held to maturity | 1,482 | | | 1,583 | | | 890 | | | 483 | | | $ | 210 | | |
| Net loans (excludes leases) | 277,010 | | | 282,407 | | | | | | | 282,407 | | |
| Other assets | 4,265 | | | 4,265 | | | | | 4,262 | | | 3 | | |
| Total assets | $ | 367,078 | | | $ | 372,576 | | | $ | 9,733 | | | $ | 80,223 | | | $ | 282,620 | | |
| Liabilities | | | | | | | | | | |
| Time deposits | $ | 18,911 | | | $ | 18,779 | | | | | $ | 18,779 | | | | |
| Borrowed funds | 32,520 | | | 33,203 | | | | | 31,528 | | | $ | 1,675 | | |
| Unfunded lending related commitments | 646 | | | 646 | | | | | | | 646 | | |
| Other liabilities | 467 | | | 467 | | | | | 467 | | | | |
| Total liabilities | $ | 52,544 | | | $ | 53,095 | | | | | $ | 50,774 | | | $ | 2,321 | | |
| December 31, 2020 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Cash and due from banks | $ | 7,017 | | | $ | 7,017 | | | $ | 7,017 | | | | | | |
| Interest-earning deposits with banks | 85,173 | | | 85,173 | | | | | $ | 85,173 | | | | |
| Securities held to maturity | 1,445 | | | 1,604 | | | 920 | | | 489 | | | $ | 195 | | |
| Net loans (excludes leases) | 228,788 | | | 233,688 | | | | | | | 233,688 | | |
| Other assets | 3,601 | | | 3,600 | | | | | 3,559 | | | 41 | | |
| Total assets | $ | 326,024 | | | $ | 331,082 | | | $ | 7,937 | | | $ | 89,221 | | | $ | 233,924 | | |
| Liabilities | | | | | | | | | | |
| Time deposits | $ | 19,692 | | | $ | 19,662 | | | | | $ | 19,662 | | | | |
| Borrowed funds | 36,488 | | | 37,192 | | | | | 35,571 | | | $ | 1,621 | | |
| Unfunded lending related commitments | 584 | | | 584 | | | | | | | 584 | | |
| Other liabilities | 413 | | | 413 | | | | | 413 | | | | |
| Total liabilities | $ | 57,177 | | | $ | 57,851 | | | | | $ | 55,646 | | | $ | 2,205 | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Carrying |
| | Fair Value | |
| In millions | Amount |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| |
| September 30, 2020 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Cash and due from banks | $ | 6,629 |
| | $ | 6,629 |
| | $ | 6,629 |
| | | | | |
| Interest-earning deposits with banks | 70,959 |
| | 70,959 |
| | | | $ | 70,959 |
| | | |
| Securities held to maturity | 1,442 |
| | 1,614 |
| | 932 |
| | 489 |
| | $ | 193 |
| |
| Net loans (excludes leases) | 235,747 |
| | 241,681 |
| | | | | | 241,681 |
| |
| Other assets | 4,071 |
| | 4,071 |
| | | | 3,945 |
| | 126 |
| |
| Total assets | $ | 318,848 |
| | $ | 324,954 |
| | $ | 7,561 |
| | $ | 75,393 |
| | $ | 242,000 |
| |
| Liabilities | | | | | | | | | | |
| Time deposits | $ | 19,755 |
| | $ | 19,756 |
| | | | $ | 19,756 |
| | | |
| Borrowed funds | 41,290 |
| | 41,716 |
| | | | 39,996 |
| | $ | 1,720 |
| |
| Unfunded lending related commitments | 689 |
| | 689 |
| | | | | | 689 |
| |
| Other liabilities | 395 |
| | 395 |
| | | | 395 |
| | | |
| Total liabilities | $ | 62,129 |
| | $ | 62,556 |
| | | | $ | 60,147 |
| | $ | 2,409 |
| |
| December 31, 2019 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Cash and due from banks | $ | 5,061 |
| | $ | 5,061 |
| | $ | 5,061 |
| | | | | |
| Interest-earning deposits with banks | 23,413 |
| | 23,413 |
| | | | $ | 23,413 |
| | | |
| Securities held to maturity | 17,661 |
| | 18,044 |
| | 832 |
| | 17,039 |
| | $ | 173 |
| |
| Net loans (excludes leases) | 229,205 |
| | 232,670 |
| | | | | | 232,670 |
| |
| Other assets | 5,700 |
| | 5,700 |
| | | | 5,692 |
| | 8 |
| |
| Total assets | $ | 281,040 |
| | $ | 284,888 |
| | $ | 5,893 |
| | $ | 46,144 |
| | $ | 232,851 |
| |
| Liabilities | | | | | | | | | | |
| Time deposits | $ | 21,663 |
| | $ | 21,425 |
| | | | $ | 21,425 |
| | | |
| Borrowed funds | 59,745 |
| | 60,399 |
| | | | 58,622 |
| | $ | 1,777 |
| |
| Unfunded lending related commitments | 318 |
| | 318 |
| | | | | | 318 |
| |
| Other liabilities | 506 |
| | 506 |
| | | | 506 |
| | | |
| Total liabilities | $ | 82,232 |
| | $ | 82,648 |
| |
| | $ | 80,553 |
| | $ | 2,095 |
| |
The aggregate fair values in Table 7576 represent only a portion of the total market value of our assets and liabilities as, in accordance with the guidance related to fair values about financial instruments, we exclude the following:
•financial instruments recorded at fair value on a recurring basis (as they are disclosed in Table 69);70),
•investments accounted for under the equity method;method,
The PNC Financial Services Group, Inc. – Form 10-Q 87
•equity securities without a readily determinable fair value that apply for the alternative measurement approach to fair value under ASU 2016-01;2016-01,
•real and personal property;property,
•lease financing;financing,
•loan customer relationships;relationships,
•deposit customer intangibles;intangibles,
•mortgage servicing rights (MSRs);,
•retail branch networks;networks,
•fee-based businesses, such as asset management and brokerage;brokerage,
•trademarks and brand names;names,
•trade receivables and payables due in one year or less; andless,
•deposit liabilities with no defined or contractual maturities under ASU 2016-01.2016-01, and
The PNC Financial Services Group, Inc. – Form 10-Q 99
NOTE 1312 FINANCIAL DERIVATIVES
We use a variety of financial derivatives to both mitigate exposure to market (primarily interest rate) and credit riskrisks inherent in our business activities, as well as to facilitate customer risk management activities. We manage these risks as part of our overall asset and liability management process and through our credit policies and procedures. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.
Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and it is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate, (commonly LIBOR), security price, credit spread or other index. Residential and commercial real estate loan commitments associated with loans to be sold also qualify as derivative instruments.
For more information regarding derivatives see Note 1 Accounting Policies and Note 1316 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.
10088 The PNC Financial Services Group, Inc. – Form 10-Q
The following table presents the notional amounts and gross fair valuesvalue amounts of all derivative assets and liabilities held by us.us:
Table 76:77: Total Gross Derivatives (a)
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | December 31, 2020 |
| In millions | Notional /
Contract Amount | Asset Fair
Value (b) | Liability Fair
Value (c) | Notional /
Contract Amount | Asset Fair
Value (b) | Liability Fair
Value (c) |
| Derivatives used for hedging | | | | | | |
| Interest rate contracts (d): | | | | | | |
| Fair value hedges | $ | 24,837 | | | | $ | 24,153 | | | |
| Cash flow hedges | 42,018 | | $ | 12 | | $ | 38 | | 22,875 | | $ | 14 | | |
| Foreign exchange contracts: | | | | | | |
| Net investment hedges | 1,148 | | 1 | | 3 | | 1,075 | | 0 | $ | 22 | |
| Total derivatives designated for hedging | $ | 68,003 | | $ | 13 | | $ | 41 | | $ | 48,103 | | $ | 14 | | $ | 22 | |
| Derivatives not used for hedging | | | | | | |
| Derivatives used for mortgage banking activities (e): | | | | | | |
| Interest rate contracts: | | | | | | |
| Swaps | $ | 33,994 | | | | $ | 50,511 | | 0 | |
| Futures (f) | 3,666 | | | | 2,841 | | | |
| Mortgage-backed commitments | 13,702 | | $ | 98 | | $ | 54 | | 11,288 | | $ | 147 | | $ | 77 | |
| Other | 13,732 | | 38 | | 11 | | 1,831 | | 11 | | 2 | |
| Total interest rate contracts | 65,094 | | 136 | | 65 | | 66,471 | | 158 | | 79 | |
| Derivatives used for customer-related activities: | | | | | | |
| Interest rate contracts: | | | | | | |
| Swaps | 304,724 | | 3,961 | | 1,508 | | 280,125 | | 5,475 | | 1,601 | |
| Futures (f) | 1,006 | | | | 1,235 | | | |
| Mortgage-backed commitments | 4,692 | | 18 | | 16 | | 4,178 | | 11 | | 14 | |
| Other | 25,333 | | 143 | | 88 | | 20,125 | | 193 | | 88 | |
| Total interest rate contracts | 335,755 | | 4,122 | | 1,612 | | 305,663 | | 5,679 | | 1,703 | |
| Commodity contracts: | | | | | | |
| Swaps | 9,249 | | 2,099 | | 2,114 | | 6,149 | | 350 | | 323 | |
| Other | 3,236 | | 422 | | 422 | | 2,770 | | 61 | | 61 | |
| Total commodity contracts | 12,485 | | 2,521 | | 2,536 | | 8,919 | | 411 | | 384 | |
| Foreign exchange contracts and other | 27,995 | | 192 | | 182 | | 26,620 | | 267 | | 243 | |
| Total derivatives for customer-related activities | 376,235 | | 6,835 | | 4,330 | | 341,202 | | 6,357 | | 2,330 | |
| Derivatives used for other risk management activities: | | | | | | |
| Foreign exchange contracts and other | 12,782 | | 51 | | 345 | | 10,931 | | 4 | | 325 | |
| Total derivatives not designated for hedging | $ | 454,111 | | $ | 7,022 | | $ | 4,740 | | $ | 418,604 | | $ | 6,519 | | $ | 2,734 | |
| Total gross derivatives | $ | 522,114 | | $ | 7,035 | | $ | 4,781 | | $ | 466,707 | | $ | 6,533 | | $ | 2,756 | |
| Less: Impact of legally enforceable master netting agreements | | 1,027 | | 1,027 | | | 720 | | 720 | |
| Less: Cash collateral received/paid | | 757 | | 2,403 | | | 1,434 | | 1,452 | |
| Total derivatives | | $ | 5,251 | | $ | 1,351 | | | $ | 4,379 | | $ | 584 | |
|
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | December 31, 2019 |
| In millions | Notional / Contract Amount |
| Asset Fair Value (b) |
| Liability Fair Value (c) |
| Notional / Contract Amount |
| Asset Fair Value (b) |
| Liability Fair Value (c) |
|
| Derivatives used for hedging | | | | | | |
| Interest rate contracts (d): | | | | | | |
| Fair value hedges | $ | 27,007 |
| | | $ | 30,663 |
| | |
| Cash flow hedges | 20,229 |
| $ | 9 |
| | 23,642 |
| $ | 6 |
| |
| Foreign exchange contracts: | | | | | | |
| Net investment hedges | 1,160 |
| 33 |
| | 1,102 |
|
|
| $ | 6 |
|
| Total derivatives designated for hedging | $ | 48,396 |
| $ | 42 |
|
|
| $ | 55,407 |
| $ | 6 |
| $ | 6 |
|
| Derivatives not used for hedging | | | | | | |
| Derivatives used for mortgage banking activities (e): | | | | | | |
| Interest rate contracts: | | | | | | |
| Swaps | $ | 55,056 |
| | | $ | 52,007 |
| $ | 1 |
| |
| Futures (f) | 2,809 |
| | | 3,487 |
| | |
| Mortgage-backed commitments | 13,460 |
| $ | 139 |
| $ | 82 |
| 7,738 |
| 60 |
| $ | 44 |
|
| Other | 3,580 |
| 7 |
| 5 |
| 3,134 |
| 32 |
| 23 |
|
| Total interest rate contracts | 74,905 |
| 146 |
| 87 |
| 66,366 |
| 93 |
| 67 |
|
| Derivatives used for customer-related activities: | | | | | | |
| Interest rate contracts: | | | | | | |
| Swaps | 278,984 |
| 6,167 |
| 1,717 |
| 249,075 |
| 2,769 |
| 1,187 |
|
| Futures (f) | 1,252 |
| | | 703 |
| | |
| Mortgage-backed commitments | 4,187 |
| 12 |
| 11 |
| 3,721 |
| 2 |
| 6 |
|
| Other | 22,057 |
| 231 |
| 83 |
| 21,379 |
| 113 |
| 33 |
|
| Total interest rate contracts | 306,480 |
| 6,410 |
| 1,811 |
| 274,878 |
| 2,884 |
| 1,226 |
|
| Commodity contracts: | | | | | | |
| Swaps | 5,566 |
| 397 |
| 375 |
| 5,204 |
| 234 |
| 229 |
|
| Other | 3,042 |
| 100 |
| 100 |
| 4,203 |
| 72 |
| 72 |
|
| Total commodity contracts | 8,608 |
| 497 |
| 475 |
| 9,407 |
| 306 |
| 301 |
|
| Foreign exchange contracts and other | 25,044 |
| 211 |
| 208 |
| 27,120 |
| 204 |
| 162 |
|
| Total derivatives for customer-related activities | 340,132 |
| 7,118 |
| 2,494 |
| 311,405 |
| 3,394 |
| 1,689 |
|
| Derivatives used for other risk management activities: | | | | | | |
| Foreign exchange contracts and other | 10,107 |
| 37 |
| 129 |
| 10,201 |
| 9 |
| 257 |
|
| Total derivatives not designated for hedging | $ | 425,144 |
| $ | 7,301 |
| $ | 2,710 |
| $ | 387,972 |
| $ | 3,496 |
| $ | 2,013 |
|
| Total gross derivatives | $ | 473,540 |
| $ | 7,343 |
| $ | 2,710 |
| $ | 443,379 |
| $ | 3,502 |
| $ | 2,019 |
|
| Less: Impact of legally enforceable master netting agreements | | 864 |
| 864 |
|
| 690 |
| 690 |
|
| Less: Cash collateral received/paid | | 1,699 |
| 1,308 |
| | 616 |
| 790 |
|
| Total derivatives | | $ | 4,780 |
| $ | 538 |
|
|
| $ | 2,196 |
| $ | 539 |
|
| |
(a) | Centrally cleared derivatives are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet(b)Included in Other assets on our Consolidated Balance Sheet. (c)Included in Other liabilities on our Consolidated Balance Sheet. (d)Represents primarily swaps. (e)Includes both residential and commercial mortgage banking activities. (f)Futures contracts are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.
.
|
| |
(b) | Included in Other assets on our Consolidated Balance Sheet. |
| |
(c) | Included in Other liabilities on our Consolidated Balance Sheet. |
| |
(d) | Represents primarily swaps. |
| |
(e) | Includes both residential and commercial mortgage banking activities. |
| |
(f) | Futures contracts settle in cash daily and, therefore, no derivative asset or derivative liability is recognized on our Consolidated Balance Sheet. |
All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk and Contingent Features section of this Note 13.12. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.
The PNC Financial Services Group, Inc. – Form 10-Q 89101
Derivatives Designated As Hedging Instruments
Certain derivatives used to manage interest rate and foreign exchange risk as part of our asset and liability risk management activities are designated as accounting hedges. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of expected future cash flows are considered cash flow hedges and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives to be recognized in the same period and in the same income statement line item as the earnings impact of the hedged items.
Fair Value Hedges
We enter into receive-fixed, pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt caused by fluctuations in market interest rates. We also enter into pay-fixed, receive-variable interest rate swaps and zero-coupon swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. Gains and losses on the interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item.
Cash Flow Hedges
We enter into receive-fixed, pay-variable interest rate swaps and interest rate caps and floors to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. We also periodically enter into forward purchase and sale contracts to hedge the variability of the consideration that will be paid or received related to the purchase or sale of investment securities. The forecasted purchase or sale is consummated upon gross settlement of the forward contract itself. For these cash flow hedges, gains and losses on the interest rate swaps and forward contractshedging instruments are recorded in AOCI and are then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line as the hedged cash flows.
In the 12 months that follow September 30, 2020,2021, we expect to reclassify net derivative gains of $402$312 million pretax, or $310$240 million after-tax, from AOCI to interest income for boththese cash flow hedge strategies. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2020.2021. As of September 30, 2020,2021, the maximum length of time over which forecasted transactions are hedged is ten years.
10290 The PNC Financial Services Group, Inc. – Form 10-Q
Further detail regarding gains (losses) related to our fair value and cash flow hedge derivatives is presented in the following table.table:
Table 77:78: Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement (a) (b)
| | | | | | | | | | | | | | |
| | Location and Amount of Gains (Losses) Recognized in Income |
| Interest Income | Interest Expense | Noninterest Income |
| In millions | Loans | Investment Securities | Borrowed Funds | Other |
| For the three months ended September 30, 2021 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 2,437 | | $ | 460 | | $ | 90 | | $ | 449 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | 2 | | $ | 155 | | |
| Derivatives | | | $ | (169) | | |
| Amounts related to interest settlements on derivatives | | $ | (1) | | $ | 129 | | |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | 91 | | $ | 11 | | | $ | 13 | |
| For the three months ended September 30, 2020 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 2,116 | | $ | 490 | | $ | 118 | | $ | 457 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | (13) | | $ | 141 | | |
| Derivatives | | $ | 14 | | $ | (166) | | |
| Amounts related to interest settlements on derivatives | | $ | (3) | | $ | 149 | | |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | 118 | | $ | 16 | | | 0 |
| For the nine months ended September 30, 2021 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 6,593 | | $ | 1,350 | | $ | 275 | | $ | 1,400 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | (3) | | $ | 695 | | |
| Derivatives | | $ | 7 | | $ | (740) | | |
| Amounts related to interest settlements on derivatives | | $ | (3) | | $ | 394 | | |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | 282 | | $ | 49 | | | $ | 27 | |
| For the nine months ended September 30, 2020 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 6,853 | | $ | 1,599 | | $ | 619 | | $ | 1,071 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | 224 | | $ | (1,300) | | |
| Derivatives | | $ | (219) | | $ | 1,220 | | |
| Amounts related to interest settlements on derivatives | | $ | (7) | | $ | 341 | | |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | 262 | | $ | 19 | | | $ | 1 | |
|
| | | | | | | | | | | | |
| | Location and Amount of Gains (Losses) Recognized in Income |
| | Interest Income | Interest Expense | Noninterest Income |
| In millions | Loans | Investment Securities | Borrowed Funds | Other |
| For the three months ended September 30, 2020 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 2,116 |
| $ | 490 |
| $ | 118 |
| $ | 457 |
|
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | (13 | ) | $ | 141 |
| |
| Derivatives | | $ | 14 |
| $ | (166 | ) | |
| Amounts related to interest settlements on derivatives | | $ | (3 | ) | $ | 149 |
| |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | 118 |
| $ | 16 |
|
|
| |
| For the three months ended September 30, 2019 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 2,678 |
| $ | 617 |
| $ | 468 |
| $ | 342 |
|
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | 76 |
| $ | (271 | ) | |
| Derivatives | | $ | (73 | ) | $ | 235 |
| |
| Amounts related to interest settlements on derivatives | | $ | 4 |
| $ | 16 |
| |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | 2 |
| $ | 3 |
| |
|
|
| For the nine months ended September 30, 2020 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 6,853 |
| $ | 1,599 |
| $ | 619 |
| $ | 1,071 |
|
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | 224 |
| $ | (1,300 | ) | |
| Derivatives | | $ | (219 | ) | $ | 1,220 |
| |
| Amounts related to interest settlements on derivatives | | $ | (7 | ) | $ | 341 |
| |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | 262 |
| $ | 19 |
| | $ | 1 |
|
| For the nine months ended September 30, 2019 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 7,952 |
| $ | 1,866 |
| $ | 1,433 |
| $ | 1,017 |
|
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | 250 |
| $ | (1,068 | ) | |
| Derivatives | | $ | (241 | ) | $ | 948 |
| |
| Amounts related to interest settlements on derivatives | | $ | 14 |
| $ | 36 |
| |
| Gains (losses) on cash flow hedges (d): | | | | |
| Amount of derivative gains (losses) reclassified from AOCI | $ | (18 | ) | $ | 5 |
| | $ | 18 |
|
| |
(a) | For all periods presented, there were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the fair value or cash flow hedge strategies. |
| |
(b) | All cash flow and fair value hedge derivatives were interest rate contracts for the periods presented. |
| |
(c) | Includes an insignificant amount of fair value hedge adjustments related to discontinued hedge relationships. |
| |
(d) | For all periods presented, there were no gains or losses from cash flow hedge derivatives reclassified to income because it became probable that the original forecasted transaction would not occur. |
(b)All cash flow and fair value hedge derivatives were interest rate contracts for the periods presented. (c)Includes an insignificant amount of fair value hedge adjustments related to discontinued hedge relationships.
(d)For all periods presented, there were no gains or losses from cash flow hedge derivatives reclassified to income because it became probable that the original forecasted transaction would not occur.
Detail regarding the impact of fair value hedge accounting on the carrying value of the hedged items is presented in the following table.table:
Table 78:79: Hedged Items - Fair Value Hedges
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| In millions | Carrying Value of the Hedged Items | | Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a) | | Carrying Value of the Hedged Items | | Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a) | |
| Investment securities - available for sale (b) | $ | 2,905 | | | $ | 25 | | | $ | 2,785 | | | $ | 30 | | |
| Borrowed funds | $ | 25,924 | | | $ | 906 | | | $ | 25,797 | | | $ | 1,611 | | |
|
| | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| In millions | Carrying Value of the Hedged Items |
| | Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a) |
| | Carrying Value of the Hedged Items |
| | Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a) |
| |
| Investment securities - available for sale (b) | $ | 3,237 |
| | $ | 59 |
| | $ | 5,666 |
| | $ | 59 |
| |
| Borrowed funds | $ | 28,326 |
| | $ | 1,850 |
| | $ | 28,616 |
| | $ | 548 |
| |
| |
(a) | Includes $(.2) billion and $(.3) billion of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships for September 30, 2020 and December 31, 2019, respectively. |
| |
(b) | Carrying value shown represents amortized cost. |
(b)Carrying value shown represents amortized cost.
The PNC Financial Services Group, Inc. – Form 10-Q 91103
Net Investment Hedges
We enter into foreign currency forward contracts to hedge non-U.S. dollar net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. Net investment hedge derivatives are classified as foreign exchange contracts. There were 0no components of derivative gains or losses excluded from the assessment of the hedge effectiveness for all periods presented. GainsNet gains (losses) on net investment hedge derivatives recognized in OCI were $(42)$28 million and $38$20 million for the three and nine months ended September 30, 2020, respectively,2021, compared with $36$(42) million and $50$38 million for the same periods in 2019.2020, respectively.
Derivatives Not Designated As Hedging Instruments
For additional information on derivatives not designated as hedging instruments under GAAP, see Note 1316 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.
Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table.table:
Table 79:80: Gains (Losses) on Derivatives Not Designated for Hedging
| | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended
September 30 | Nine months ended
September 30 | |
| In millions | | | | 2021 | 2020 | 2021 | 2020 | |
| Derivatives used for mortgage banking activities: | | | | | | | | |
| Interest rate contracts (a) | | | | $ | 6 | | $ | 20 | | $ | (100) | | $ | 799 | | |
| Derivatives used for customer-related activities: | | | | | | | | |
| Interest rate contracts | | | | (4) | | 59 | | 93 | | 99 | | |
| Foreign exchange contracts and other | | | | 23 | | 43 | | 88 | | 83 | | |
| Gains (losses) from customer-related activities (b) | | | | 19 | | 102 | | 181 | | 182 | | |
| Derivatives used for other risk management activities: | | | | | | | | |
| Foreign exchange contracts and other (b) | | | | (72) | | (106) | | (53) | | (1) | | |
| Total gains (losses) from derivatives not designated as hedging instruments | | | | $ | (47) | | $ | 16 | | $ | 28 | | $ | 980 | | |
|
| | | | | | | | | | | | | |
| | Three months ended
September 30 | Nine months ended
September 30 | |
| In millions | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |
| Derivatives used for mortgage banking activities: | | | | | |
| Interest rate contracts (a) | $ | 20 |
| $ | 184 |
| $ | 799 |
| $ | 530 |
| |
| Derivatives used for customer-related activities: | | | | | |
| Interest rate contracts | 59 |
| 45 |
| 99 |
| 84 |
| |
| Foreign exchange contracts and other (b) | 43 |
| 11 |
| 83 |
| 64 |
| |
| Gains (losses) from customer-related activities (c) | 102 |
| 56 |
| 182 |
| 148 |
| |
| Derivatives used for other risk management activities: | | | | | |
| Foreign exchange contracts and other (c) | (106 | ) | 103 |
| (1 | ) | 39 |
| |
| Total gains (losses) from derivatives not designated as hedging instruments | $ | 16 |
| $ | 343 |
| $ | 980 |
| $ | 717 |
| |
| |
(a) | Included in Residential mortgage, Corporate services and Other noninterest income on our Consolidated Income Statement. |
| |
(b) | Includes an insignificant amount of gains (losses) on commodity contracts for all periods presented. |
| |
(c) | Included in Other noninterest income on our Consolidated Income Statement. |
(b)Included in Other noninterest income on our Consolidated Income Statement.
Offsetting, Counterparty Credit Risk and Contingent Features
We generally utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of all outstanding derivative instruments under the master netting agreement with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party’s net position. For additional information on derivative offsetting, counterparty credit risk and contingent features, see Note 1316 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.
Table 8081 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of September 30, 20202021 and December 31, 2019.2020. The table includes cash collateral held or pledged under legally enforceable master netting agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.
Table 8081 includes over-the-counter (OTC)OTC derivatives and OTC derivatives cleared through a central clearing house. OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or directly cleared through a central clearing house. The majority of OTC derivatives are governed by the International Swaps and Derivatives Association (ISDA)ISDA documentation or other legally enforceable master netting agreements. OTC cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house who then becomes our counterparty. OTC cleared derivative instruments are typically settled in cash each day based on the prior day value.
10492 The PNC Financial Services Group, Inc. – Form 10-Q
Table 80:81: Derivative Assets and Liabilities Offsetting
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | | | Amounts Offset on the
Consolidated Balance Sheet | | | | | | Securities Collateral Held/Pledged Under Master Netting Agreements | | | |
Gross
Fair Value | | Fair Value
Offset Amount | | Cash
Collateral | | Net
Fair Value | | | | Net Amounts | |
| September 30, 2021 | | | | | | | | | | | | | | | |
| Derivative assets | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 51 | | | | | | | $ | 51 | | | | | | | $ | 51 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 4,219 | | | $ | 556 | | | $ | 723 | | | 2,940 | | | | | $ | 287 | | | 2,653 | | |
| Commodity contracts | | 2,521 | | | 343 | | | 28 | | | 2,150 | | | | | | | 2,150 | | |
| Foreign exchange and other contracts | | 244 | | | 128 | | | 6 | | | 110 | | | | | | | 110 | | |
| Total derivative assets | | $ | 7,035 | | | $ | 1,027 | | | $ | 757 | | | $ | 5,251 | | | (a) | | $ | 287 | | | $ | 4,964 | | |
| Derivative liabilities | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 68 | | | | | | | $ | 68 | | | | | | | $ | 68 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 1,647 | | | $ | 613 | | | $ | 813 | | | 221 | | | | | | | 221 | | |
| Commodity contracts | | 2,536 | | | 353 | | | 1,511 | | | 672 | | | | | | | 672 | | |
| Foreign exchange and other contracts | | 530 | | | 61 | | | 79 | | | 390 | | | | | | | 390 | | |
| Total derivative liabilities | | $ | 4,781 | | | $ | 1,027 | | | $ | 2,403 | | | $ | 1,351 | | | (b) | | | | $ | 1,351 | | |
| December 31, 2020 | | | | | | | | | | | | | | | |
| Derivative assets | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 48 | | | | | | | $ | 48 | | | | | | | $ | 48 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 5,803 | | | $ | 430 | | | $ | 1,426 | | | 3,947 | | | | | $ | 531 | | | 3,416 | | |
| Commodity contracts | | 411 | | | 209 | | | 4 | | | 198 | | | | | | | 198 | | |
| Foreign exchange and other contracts | | 271 | | | 81 | | | 4 | | | 186 | | | | | 1 | | | 185 | | |
| Total derivative assets | | $ | 6,533 | | | $ | 720 | | | $ | 1,434 | | | $ | 4,379 | | | (a) | | $ | 532 | | | $ | 3,847 | | |
| Derivative liabilities | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 42 | | | | | | | $ | 42 | | | | | | | $ | 42 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 1,740 | | | $ | 462 | | | $ | 1,179 | | | 99 | | | | | | | 99 | | |
| Commodity contracts | | 384 | | | 182 | | | 103 | | | 99 | | | | | | | 99 | | |
| Foreign exchange and other contracts | | 590 | | | 76 | | | 170 | | | 344 | | | | | | | 344 | | |
| Total derivative liabilities | | $ | 2,756 | | | $ | 720 | | | $ | 1,452 | | | $ | 584 | | | (b) | | 0 | | $ | 584 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | | | Amounts Offset on the Consolidated Balance Sheet | | | | | | Securities Collateral Held/Pledged Under Master Netting Agreements |
| | | |
Gross Fair Value |
| | Fair Value Offset Amount |
| | Cash Collateral |
| | Net Fair Value |
| | | | Net Amounts |
| |
| September 30, 2020 | | | | | | | | | | | | | | | |
| Derivative assets | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 31 |
| | | | | | $ | 31 |
| | | | | | $ | 31 |
| |
| Over-the-counter | | 6,534 |
| | $ | 433 |
| | $ | 1,673 |
| | 4,428 |
| | | | $ | 616 |
| | 3,812 |
| |
| Commodity contracts | | 497 |
| | 299 |
| | 14 |
| | 184 |
| | | | | | 184 |
| |
| Foreign exchange and other contracts | | 281 |
| | 132 |
| | 12 |
| | 137 |
| | | | 1 |
| | 136 |
| |
| Total derivative assets | | $ | 7,343 |
|
| $ | 864 |
|
| $ | 1,699 |
|
| $ | 4,780 |
| | (a) | | $ | 617 |
| | $ | 4,163 |
| |
| Derivative liabilities | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 23 |
| | | | | | $ | 23 |
| | | | | | $ | 23 |
| |
| Over-the-counter | | 1,875 |
| | $ | 589 |
| | $ | 1,159 |
| | 127 |
| | | | | | 127 |
| |
| Commodity contracts | | 475 |
| | 206 |
| | 59 |
| | 210 |
| | | | | | 210 |
| |
| Foreign exchange and other contracts | | 337 |
| | 69 |
| | 90 |
| | 178 |
| | | | | | 178 |
| |
| Total derivative liabilities | | $ | 2,710 |
| | $ | 864 |
| | $ | 1,308 |
| | $ | 538 |
| | (b) | |
|
| | $ | 538 |
| |
| December 31, 2019 | | | | | | | | | | | | | | | |
| Derivative assets | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 14 |
| | | | | | $ | 14 |
| | | | | | $ | 14 |
| |
| Over-the-counter | | 2,969 |
| | $ | 365 |
| | $ | 593 |
| | 2,011 |
| | | | $ | 215 |
| | 1,796 |
| |
| Commodity contracts | | 306 |
| | 198 |
| | 18 |
| | 90 |
| | | | | | 90 |
| |
| Foreign exchange and other contracts | | 213 |
| | 127 |
| | 5 |
| | 81 |
| | | | | | 81 |
| |
| Total derivative assets | | $ | 3,502 |
|
| $ | 690 |
|
| $ | 616 |
|
| $ | 2,196 |
| | (a) | | $ | 215 |
| | $ | 1,981 |
| |
| Derivative liabilities | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 14 |
| | | | | | $ | 14 |
| | | | | | $ | 14 |
| |
| Over-the-counter | | 1,279 |
| | $ | 475 |
| | $ | 692 |
| | 112 |
| | | | | | 112 |
| |
| Commodity contracts | | 301 |
| | 152 |
| | 17 |
| | 132 |
| | | | | | 132 |
| |
| Foreign exchange and other contracts | | 425 |
| | 63 |
| | 81 |
| | 281 |
| | | | | | 281 |
| |
| Total derivative liabilities | | $ | 2,019 |
| | $ | 690 |
| | $ | 790 |
| | $ | 539 |
| | (b) | |
|
| | $ | 539 |
| |
| |
(a) | Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet. |
| |
(b) | Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet. |
(b)Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.
In addition to using master netting agreements and other collateral agreements to reduce credit risk associated with derivative instruments, we also seek to manage credit risk by evaluating credit ratings of counterparties and by using internal credit analysis, limits and monitoring procedures.
At September 30, 2020,2021, we held cash U.S. governmentand debt securities and(primarily agency mortgage-backed securitiessecurities) totaling $2.6$1.6 billion under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties, and we pledged cash totaling $2.1$3.4 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral held or pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.
The PNC Financial Services Group, Inc. – Form 10-Q 93105
Certain derivative agreements contain various credit-risk related contingent provisions, such as those that require our debt to maintain a specified credit rating from one or more of the major credit rating agencies. If our debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on September 30, 20202021 was $2.9$3.5 billion for which we had posted collateral of $2.6$2.8 billion in the normal course of business. The maximum additional amount of collateral we would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 20202021 would be $.3$0.7 billion.
NOTE 1413 LEGAL PROCEEDINGS
We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in this Note 1413 as well as those matters disclosed in Note 1921 Legal Proceedings in Part II, Item 8 of our 20192020 Form 10-K and in Note 13 Legal Proceedings in Part I, Item 1 of our first quarter 2020 Form 10-Q, and in Note 14 Legal Proceedings in Part I, Item 1 of our second quarter 20202021 Form 10-Q (such prior disclosure referred to as “Prior Disclosure”)). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of September 30, 2020,2021, we estimate that it is reasonably possible that we could incur losses in excess of related accrued liabilities, if any, in an aggregate amount less than $100 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.
As a result of the types of factors described in Note 1921 Legal Proceedings in Part II, Item 8 of our 20192020 Form 10-K, we are unable, at this time, to estimate the losses that are reasonably possible to be incurred or ranges of such losses with respect to some of the matters disclosed, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the Disclosed Matters. The estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”
We include in some of the descriptions of individual Disclosed Matters certain quantitative information related to the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings or otherwise publicly available information. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual.
Some of our exposure in Disclosed Matters may be offset by applicable insurance coverage. We do not consider the possible availability of insurance coverage in determining the amounts of any accruals (although we record the amount of related insurance recoveries that are deemed probable up to the amount of the accrual) or in determining any estimates of possible losses or ranges of possible losses.
Pre-need Funeral Arrangements
National City Bank and PNC Bank (collectively, "the PNC defendants") were defendants in a lawsuit filed in the U.S. District Court for the Eastern District of Missouri under the caption Jo Ann Howard and Associates, P.C., et al. v. Cassity, et al (No. 4:09-CV-1252-ERW) arising out of trustee services provided by Allegiant Bank, a National City Bank and PNC Bank predecessor, with respect to Missouri trusts that held pre-need funeral contract assets.
In July 2019, following a new trial on remand from the court of appeals, the district court awarded the plaintiffs $72 million in compensatory damages, $15 million in interest, and $15 million in punitive damages. The PNC defendants appealed this judgment to the court of appeals, and the plaintiffs cross-appealed. In December 2019, the court reduced the judgment by approximately $2.6 million to correct a mathematical error in calculating pre-judgment interest, reducing the total judgment to $99.5 million. In March 2020, the court dismissed the plaintiffs’ cross-appeal on the plaintiffs’ motion. In February 2020, the district court awarded $7 million in fees and costs to the plaintiffs, and the PNC defendants appealed this judgment to the court of appeals. The consolidated appeals of the district court’s judgments were argued in January 2021.
94 The PNC Financial Services Group, Inc. – Form 10-Q
In August 2021, the court of appeals affirmed the judgment of the district court. The PNC defendants paid the judgment and a satisfaction of judgment was filed by plaintiffs with the district court.
USAA Patent Infringement Litigation
In September 2020, a lawsuit 2021, in( United Services Automobile Association v. PNC Bank N.A. (Case No. 2:20-cv-319), pending in the United States District Court for the Eastern District of Texas (“the first Texas case”), the Court denied our motion to dismiss and our motion to transfer the case.
In April 2021, in United Services Automobile Association v. PNC Bank N.A., Case (Case No. 2:20-cv-319)21-cv-110), pending in the United States District Court for the Eastern District of Texas, we moved to consolidate this action with the first Texas case and we filed motions to dismiss and transfer this action. In July 2021, this action was consolidated with the first Texas case. In September 2021, the Court denied our motion to dismiss and our motion to transfer, for the same reasons set forth in its September 2021 orders in the first Texas case. Trial in the two consolidated cases is presently scheduled to commence on April 18, 2022.
In July 2021, in United Services Automobile Association v. PNC Bank N.A (case No. 2:21-cv-246), pending in the United States District Court for the Eastern District of Texas, we filed motions to dismiss and transfer this action.
In August 2021, USAA filed a lawsuit, United Services Automobile Association v. BBVA USA was filed(Case No. 2:21-cv-311), in the United States District Court for the Eastern District of Texas against PNC BankBBVA USA for patent infringement. The plaintiffcomplaint alleges that PNC’s mobileBBVA USA’s remote deposit capture systems infringe on twosix patents owned by the plaintiff. The plaintiff seeks, among other things, a judgment that PNCBBVA USA is infringing each of the patents, damages for willful infringement and attorneys’ fees. In October 2021, BBVA USA was merged into PNC Bank. Also in October 2021, we answered the complaint and asserted counterclaims for a declaratory judgment that the asserted patents are invalid and not infringed.
Other Regulatory and Governmental Inquiries
We are the subject of investigations, audits, examinations and other forms of regulatory and governmental inquiry covering a broad
range of issues in our consumer, mortgage, brokerage, securities and other financial services businesses, as well as other aspects of our
operations. In some cases, these inquiries are part of reviewsreview of specified activities at multiple industry participants; in others, they are directed at PNC individually. From time to time, these inquiries including those describedhave involved and may in Prior Disclosure, maythe future involve or lead to regulatory enforcement actions and other administrative proceedings,proceedings. These inquiries have also led to and may in the future lead to civil or criminal judicial proceedings. Some of these inquiries result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral
106 The PNC Financial Services Group, Inc. – Form 10-Q
costs and other consequences. Such remedies and other consequences typically have not been material to us from a financial standpoint but could be in the future. Even if not financially material, they may result in significant reputational harm or other adverse consequences.
Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including those described in Prior Disclosure.
Other
In addition to the proceedings or other matters described in Prior Disclosure, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position. However, we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.
NOTE 1514 SEGMENT REPORTING
We have 3 reportable business segments:
•Retail Banking
•Corporate & Institutional Banking
•Asset Management Group
Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual
The PNC Financial Services Group, Inc. – Form 10-Q 95
businesses are not necessarily comparable with similar information for any other company. We periodically refine our internal methodologies as management reporting practices are enhanced. To the extent significant and practicable, retrospective application of new methodologies is made to prior period reportable business segment results and disclosures to create comparability with the current period.
Our third quarter 2021 business segment results reflect the full quarter of BBVA's business operations, while results for the nine months ended September 2021 also include the impact of BBVA for the month of June. Until conversion of bank systems and branches as of October 12, 2021, PNC Bank and BBVA customers were served through their respective PNC Bank and BBVA branches, websites and mobile apps, financial advisors and relationship managers. Following conversion, there will be changes in the segmentation of BBVA USA customers as we continue to integrate data to PNC applications, finalize the review of customer relationships and better align customers with PNC's products and services. These changes will be reflected in fourth quarter reporting. See Note 2 Acquisition and Divestiture Activity for additional information on the acquisition of BBVA.
During the second quarter of 2020, we divested our entire 22.4% investment in BlackRock.BlackRock, which had previously been reported as a separate business segment. See Note 2 Discontinued OperationsAcquisition and Divestiture Activity for additional information on the sale and details on our results and cash flows for the three and nine months ended September 30, 2020 and 2019. Following the sale and donation, PNC only holds shares of BlackRock stock in a fiduciary capacity for clients of PNC.information.
Total business segment financial results differ from total consolidated net income. These differences are reflected in the “Other” category in Table 81.82. “Other” 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, ACL for 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 (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments’ results exclude their portion of net income attributable to noncontrolling interests. The “Other” category also includes our BlackRock held for sale asset.. Assets, revenue and earnings attributable to foreign activities were not material in the periodperiods presented for comparison.
Financial results are presented, to the extent practicable, as if each business operated on a stand-alone basis. Additionally, we have aggregated the results for corporate support functions within “Other” for financial reporting purposes.
Net interest income in business segment results reflects our 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.
We have allocated the ALLL and the allowance for unfunded lending related commitments based on the loan exposures within each business segment’s portfolio. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower and economic conditions. Key reserve assumptions are periodically updated.
The PNC Financial Services Group, Inc. – Form 10-Q 107
Business Segment Results
Table 81: Results of Businesses |
| | | | | | | | | | | | | | | | | | | | |
Three months ended September 30
In millions | | Retail Banking |
| | Corporate &
Institutional
Banking |
| | Asset
Management
Group |
| | Other |
| | Consolidated (a) |
|
| 2020 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 1,383 |
| | $ | 1,012 |
| | $ | 89 |
| | $ | 0 |
| | $ | 2,484 |
|
| Noninterest income | | 673 |
| | 723 |
| | 221 |
| | 180 |
| | 1,797 |
|
| Total revenue | | 2,056 |
| | 1,735 |
| | 310 |
| | 180 |
| | 4,281 |
|
| Provision for (recapture of) credit losses | | (157 | ) | | 211 |
| | (19 | ) | | 17 |
| | 52 |
|
| Depreciation and amortization | | 64 |
| | 50 |
| | 11 |
| | 121 |
| | 246 |
|
| Other noninterest expense | | 1,457 |
| | 616 |
| | 200 |
| | 12 |
| | 2,285 |
|
Income from continuing operations before income taxes (benefit) and noncontrolling interests | | 692 |
| | 858 |
| | 118 |
| | 30 |
| | 1,698 |
|
| Income taxes (benefit) | | 162 |
| | 188 |
| | 27 |
| | (211 | ) | | 166 |
|
| Net income from continuing operations | | $ | 530 |
| | $ | 670 |
| | $ | 91 |
| | $ | 241 |
| | $ | 1,532 |
|
| Average Assets | | $ | 98,731 |
| | $ | 183,266 |
| | $ | 8,361 |
| | $ | 171,781 |
| | $ | 462,139 |
|
| 2019 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 1,393 |
| | $ | 911 |
| | $ | 70 |
| | $ | 130 |
| | $ | 2,504 |
|
| Noninterest income | | 744 |
| | 654 |
| | 216 |
| | 124 |
| | 1,738 |
|
| Total revenue | | 2,137 |
| | 1,565 |
| | 286 |
| | 254 |
| | 4,242 |
|
| Provision for (recapture of) credit losses | | 147 |
| | 48 |
| | (1 | ) | | (11 | ) | | 183 |
|
| Depreciation and amortization | | 60 |
| | 51 |
| | 11 |
| | 125 |
| | 247 |
|
| Other noninterest expense | | 1,476 |
| | 652 |
| | 217 |
| | 31 |
| | 2,376 |
|
Income from continuing operations before income taxes (benefit) and
noncontrolling interests | | 454 |
| | 814 |
| | 59 |
| | 109 |
| | 1,436 |
|
| Income taxes (benefit) | | 107 |
| | 169 |
| | 13 |
| | (34 | ) | | 255 |
|
| Net income from continuing operations | | $ | 347 |
| | $ | 645 |
| | $ | 46 |
| | $ | 143 |
| | $ | 1,181 |
|
| Average Assets | | $ | 93,222 |
| | $ | 168,193 |
| | $ | 7,331 |
| | $ | 137,963 |
| | $ | 406,709 |
|
Nine months ended September 30
In millions | | Retail
Banking |
| | Corporate &
Institutional
Banking |
| | Asset
Management
Group |
| | Other |
| | Consolidated (a) |
|
| 2020 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 4,229 |
| | $ | 3,014 |
| | $ | 266 |
| | $ | 13 |
| | $ | 7,522 |
|
| Noninterest income | | 2,046 |
| | 2,143 |
| | 629 |
| | 353 |
| | 5,171 |
|
| Total revenue | | 6,275 |
| | 5,157 |
| | 895 |
| | 366 |
| | 12,693 |
|
| Provision for credit losses | | 1,049 |
| | 2,254 |
| | 23 |
| | 103 |
| | 3,429 |
|
| Depreciation and amortization | | 188 |
| | 149 |
| | 34 |
| | 366 |
| | 737 |
|
| Other noninterest expense | | 4,369 |
| | 1,912 |
| | 613 |
| | (42 | ) | | 6,852 |
|
Income (loss) from continuing operations before income taxes (benefit) and
noncontrolling interests | | 669 |
| | 842 |
| | 225 |
| | (61 | ) | | 1,675 |
|
| Income taxes (benefit) | | 161 |
| | 160 |
| | 52 |
| | (245 | ) | | 128 |
|
| Net income from continuing operations | | $ | 508 |
| | $ | 682 |
| | $ | 173 |
| | $ | 184 |
| | $ | 1,547 |
|
| Average Assets | | $ | 98,764 |
| | $ | 185,001 |
| | $ | 8,041 |
| | $ | 152,223 |
| | $ | 444,029 |
|
| 2019 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 4,118 |
| | $ | 2,685 |
| | $ | 208 |
| | $ | 466 |
| | $ | 7,477 |
|
| Noninterest income | | 1,996 |
| | 1,891 |
| | 719 |
| | 435 |
| | 5,041 |
|
| Total revenue | | 6,114 |
| | 4,576 |
| | 927 |
| | 901 |
| | 12,518 |
|
| Provision for (recapture of) credit losses | | 356 |
| | 219 |
| | (2 | ) | | (21 | ) | | 552 |
|
| Depreciation and amortization | | 170 |
| | 151 |
| | 51 |
| | 366 |
| | 738 |
|
| Other noninterest expense | | 4,361 |
| | 1,936 |
| | 656 |
| | 121 |
| | 7,074 |
|
Income from continuing operations before income taxes (benefit) and
noncontrolling interests | | 1,227 |
| | 2,270 |
| | 222 |
| | 435 |
| | 4,154 |
|
| Income taxes (benefit) | | 291 |
| | 471 |
| | 51 |
| | (107 | ) | | 706 |
|
| Net income from continuing operations | | $ | 936 |
| | $ | 1,799 |
| | $ | 171 |
| | $ | 542 |
| | $ | 3,448 |
|
| Average Assets | | $ | 92,282 |
| | $ | 163,126 |
| | $ | 7,247 |
| | $ | 133,944 |
| | $ | 396,599 |
|
| |
(a) | There were no material intersegment revenues for the three and nine months ended September 30, 2020 and 2019. |
10896 The PNC Financial Services Group, Inc. – Form 10-Q
Business Segment Results
Table 82: Results of Businesses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30
In millions | | Retail Banking | | Corporate &
Institutional
Banking | | Asset
Management
Group | | Other | | Consolidated (a) |
| 2021 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 1,713 | | | $ | 1,241 | | | $ | 141 | | | $ | (239) | | | $ | 2,856 | |
| Noninterest income | | 662 | | | 1,056 | | | 256 | | | 367 | | | 2,341 | |
| Total revenue | | 2,375 | | | 2,297 | | | 397 | | | 128 | | | 5,197 | |
| Provision for (recapture of) credit losses | | (113) | | | (99) | | | (6) | | | 15 | | | (203) | |
| Depreciation and amortization | | 78 | | | 54 | | | 7 | | | 138 | | | 277 | |
| Other noninterest expense | | 1,811 | | | 926 | | | 248 | | | 325 | | | 3,310 | |
Income (loss) from continuing operations before income taxes (benefit) and
noncontrolling interests | | 599 | | | 1,416 | | | 148 | | | (350) | | | 1,813 | |
| Income taxes (benefit) from continuing operations | | 140 | | | 290 | | | 34 | | | (141) | | | 323 | |
| Net income (loss) from continuing operations | | 459 | | | 1,126 | | | 114 | | | (209) | | | 1,490 | |
| Less: Net income attributable to noncontrolling interests | | 12 | | | 3 | | | 0 | | 1 | | | 16 | |
Net income (loss) from continuing operations excluding noncontrolling
interests | | $ | 447 | | | $ | 1,123 | | | $ | 114 | | | $ | (210) | | | $ | 1,474 | |
| Average Assets | | $ | 117,394 | | | $ | 202,268 | | | $ | 13,805 | | | $ | 225,775 | | | $ | 559,242 | |
| 2020 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 1,383 | | | $ | 1,012 | | | $ | 89 | | | 0 | | $ | 2,484 | |
| Noninterest income | | 673 | | | 723 | | | 221 | | | $ | 180 | | | 1,797 | |
| Total revenue | | 2,056 | | | 1,735 | | | 310 | | | 180 | | | 4,281 | |
| Provision for (recapture of) credit losses | | (157) | | | 211 | | | (19) | | | 17 | | | 52 | |
| Depreciation and amortization | | 64 | | | 50 | | | 11 | | | 121 | | | 246 | |
| Other noninterest expense | | 1,448 | | | 613 | | | 200 | | | 24 | | | 2,285 | |
Income from continuing operations before income taxes (benefit) and
noncontrolling interests | | 701 | | | 861 | | | 118 | | | 18 | | | 1,698 | |
| Income taxes (benefit) from continuing operations | | 162 | | | 188 | | | 27 | | | (211) | | | 166 | |
| Net income from continuing operations | | 539 | | | 673 | | | 91 | | | 229 | | | 1,532 | |
| Less: Net income attributable to noncontrolling interests | | 9 | | | 3 | | | 0 | | 1 | | | 13 | |
Net income from continuing operations excluding noncontrolling
interests | | $ | 530 | | | $ | 670 | | | $ | 91 | | | $ | 228 | | | $ | 1,519 | |
| Average Assets | | $ | 98,731 | | | $ | 183,266 | | | $ | 8,361 | | | $ | 171,781 | | | $ | 462,139 | |
| | | | | | | | | | |
The PNC Financial Services Group, Inc. – Form 10-Q 97
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Continued from previous page) | | | | | | | | | | |
Nine months ended September 30
In millions | | Retail
Banking | | Corporate &
Institutional
Banking | | Asset
Management
Group | | Other | | Consolidated (a) |
| 2021 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 4,572 | | | $ | 3,315 | | | $ | 346 | | | $ | (448) | | | $ | 7,785 | |
| Noninterest income | | 2,022 | | | 2,730 | | | 729 | | | 818 | | | 6,299 | |
| Total revenue | | 6,594 | | | 6,045 | | | 1,075 | | | 370 | | | 14,084 | |
| Provision for (recapture of) credit losses | | (156) | | | (277) | | | 8 | | | (27) | | | (452) | |
| Depreciation and amortization | | 214 | | | 152 | | | 16 | | | 385 | | | 767 | |
| Other noninterest expense | | 4,828 | | | 2,352 | | | 660 | | | 604 | | | 8,444 | |
Income (loss) from continuing operations before income taxes (benefit) and
noncontrolling interests | | 1,708 | | | 3,818 | | | 391 | | | (592) | | | 5,325 | |
| Income taxes (benefit) from continuing operations | | 396 | | | 818 | | | 91 | | | (399) | | | 906 | |
| Net income (loss) from continuing operations | | 1,312 | | | 3,000 | | | 300 | | | (193) | | | 4,419 | |
| Less: Net income attributable to noncontrolling interests | | 26 | | | 10 | | | 0 | | 2 | | | 38 | |
Net income (loss) from continuing operations excluding noncontrolling
interests | | $ | 1,286 | | | $ | 2,990 | | | $ | 300 | | | $ | (195) | | | $ | 4,381 | |
| Average Assets | | $ | 103,820 | | | $ | 184,964 | | | $ | 11,124 | | | $ | 211,056 | | | $ | 510,964 | |
| 2020 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 4,229 | | | $ | 3,014 | | | $ | 266 | | | $ | 13 | | | $ | 7,522 | |
| Noninterest income | | 2,046 | | | 2,143 | | | 629 | | | 353 | | | 5,171 | |
| Total revenue | | 6,275 | | | 5,157 | | | 895 | | | 366 | | | 12,693 | |
| Provision for credit losses | | 1,049 | | | 2,254 | | | 23 | | | 103 | | | 3,429 | |
| Depreciation and amortization | | 188 | | | 149 | | | 34 | | | 366 | | | 737 | |
| Other noninterest expense | | 4,349 | | | 1,906 | | | 613 | | | (16) | | | 6,852 | |
Income (loss) from continuing operations before income taxes (benefit) and
noncontrolling interests | | 689 | | | 848 | | | 225 | | | (87) | | | 1,675 | |
| Income taxes (benefit) from continuing operations | | 161 | | | 160 | | | 52 | | | (245) | | | 128 | |
| Net income from continuing operations | | 528 | | | 688 | | | 173 | | | 158 | | | 1,547 | |
| Less: Net income attributable to noncontrolling interests | | 20 | | | 6 | | | 0 | | 1 | | | 27 | |
Net income from continuing operations excluding noncontrolling
interests | | $ | 508 | | | $ | 682 | | | $ | 173 | | | $ | 157 | | | $ | 1,520 | |
| Average Assets | | $ | 98,764 | | | $ | 185,001 | | | $ | 8,041 | | | $ | 152,223 | | | $ | 444,029 | |
(a)There were no material intersegment revenues for the three and nine months ended September 30, 2021 and 2020.
Business Segment Products and Services
Retail Banking provides deposit, lending, brokerage, insurance services, investment management and cash management products and services to consumer and small business customers. Our customers are serviced through our branch network, ATMs, call centers, online banking and mobile channels. The branch network is located primarily in markets acrossAs a result of the Mid-Atlantic, Midwest and Southeast. In 2018,BBVA acquisition, we have become a coast-to-coast Retail Banking launched itsBank. Our national expansion strategy is designed to grow customers with digitally-led banking and a thin branch network in markets outside of our existing retail branch network.as we expand into new markets. Deposit products include checking, savings and money market accounts and certificates of deposit. Lending products include residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans and personal and small business loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to agency and/or third-party standards, and either sold, servicing retained or held on our balance sheet. Brokerage, investment management and cash management products and services include managed, education, retirement and trust accounts.
Corporate & Institutional Banking provides lending, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. The Treasury Management business provides payables,corporations with cash and investment management services, receivables deposit and accountdisbursement management services, liquidityfunds transfer services, international payment services and investments,access to online/mobile information management and onlinereporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and mobile banking productsMexico and services to our clients.other countries primarily in Central America and South America. Capital markets-related products and services include foreign exchange, derivatives, fixed income, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. We also provide commercial loan servicing and technology solutions for the commercial real estate finance industry. Products and services are provided nationally.
98 The PNC Financial Services Group, Inc. – Form 10-Q
Asset Management Group provides personal wealth managementprivate banking for high net worth and ultra high net worth clients and institutional asset management. The Asset Management group is composed of three2 distinct operating units:
Wealth Management•PNC Private Bank provides products and services to emerging affluent, high net worth and ultra high net worth individuals and their families including investment and retirement planning, customized investment management, private banking,credit and cash management solutions, and trust management and administration for individuals and their families.
Our Hawthorn unit providesadministration. In addition, multi-generational family planning including estate, financial, tax planning, fiduciary, investment management and consulting, private banking, personal administrative services asset custody and customized performance reportingare also provided to ultra high net worth clients.individuals and families which include estate, financial, tax, fiduciary and customized performance reporting through PNC Private Bank Hawthorn.
•Institutional asset managementAsset Management provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and retirement plan fiduciary retirement advisoryinvestment services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.
NOTE 1615 FEE-BASED REVENUE FROM CONTRACTS WITH CUSTOMERS
As more fully described in Note 2324 Fee-based Revenue from Contracts with Customers in our 20192020 Form 10-K, a subset of our noninterest income relates to certain fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606).
Fee-based revenue within the scope of Topic 606 is recognized within three of our 3 reportable business segments,segments: Retail Banking, Corporate & Institutional Banking and Asset Management Group. Topic 606 also excludes interestInterest income, income from lease contracts, fair value gains from financial instruments (including derivatives), income from mortgage servicing rights and guarantee products, letter of credit fees, non-refundable fees associated with acquiring or originating a loan and gains from the sale of financial assets.assets are outside of the scope of Topic 606.
The PNC Financial Services Group, Inc. – Form 10-Q 109
The following tables present noninterest income within the scope of Topic 606 disaggregated by segment. A description of the fee-based revenue and how it is recognized for each segment’s principal services and products is included in our 20192020 Form 10-K.
Retail Banking
Table 82:83: Retail Banking Noninterest Income Disaggregation
| | | | | | | | | | | | | | | | | |
| Three months ended
September 30 | Nine months ended
September 30 | | | |
| In millions | 2021 | 2020 | 2021 | 2020 | | | |
| Product | | | | | | | |
| Debit card fees | $ | 184 | | $ | 136 | | $ | 486 | | $ | 385 | | | | |
| Deposit account fees | 142 | | 108 | | 367 | | 339 | | | | |
| Brokerage fees | 123 | | 94 | | 334 | | 273 | | | | |
| Net credit card fees (a) | 53 | | 50 | | 157 | | 130 | | | | |
| Merchant services | 46 | | 40 | | 125 | | 112 | | | | |
| Other | 76 | | 62 | | 201 | | 170 | | | | |
| Total in-scope noninterest income by product | $ | 624 | | $ | 490 | | $ | 1,670 | | $ | 1,409 | | | | |
| Reconciliation to total Retail Banking noninterest income | | | | | | | |
| Total in-scope noninterest income | $ | 624 | | $ | 490 | | $ | 1,670 | | $ | 1,409 | | | | |
| Total out-of-scope noninterest income (b) | 38 | | 183 | | 352 | | 637 | | | | |
| Total Retail Banking noninterest income | $ | 662 | | $ | 673 | | $ | 2,022 | | $ | 2,046 | | | | |
(a)Net credit card fees consists of interchange fees of $155 million and $121 million and credit card reward costs of $102 million and $71 million for the three months ended September 30, 2021 and 2020, respectively. Net credit card fees consists of interchange fees of $421 million and $341 million and credit card reward costs of $264 million and $211 million for the nine months ended September 30, 2021 and 2020, respectively.
(b)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.
The PNC Financial Services Group, Inc. – Form 10-Q 99
|
| | | | | | | | | | | | |
| | Three months ended
September 30 | Nine months ended
September 30 |
| In millions | 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| Product | | | | |
| Deposit account fees | $ | 108 |
| $ | 166 |
| $ | 339 |
| $ | 468 |
|
| Debit card fees | 136 |
| 139 |
| 385 |
| 399 |
|
| Brokerage fees | 94 |
| 92 |
| 273 |
| 267 |
|
| Merchant services | 40 |
| 55 |
| 112 |
| 159 |
|
| Net credit card fees (a) | 50 |
| 50 |
| 130 |
| 149 |
|
| Other | 62 |
| 65 |
| 170 |
| 193 |
|
| Total in-scope noninterest income by product | $ | 490 |
| $ | 567 |
| $ | 1,409 |
| $ | 1,635 |
|
| Reconciliation to total Retail Banking noninterest income | | | | |
| Total in-scope noninterest income | $ | 490 |
| $ | 567 |
| $ | 1,409 |
| $ | 1,635 |
|
| Total out-of-scope noninterest income (b) | 183 |
| 177 |
| 637 |
| 361 |
|
| Total Retail Banking noninterest income | $ | 673 |
| $ | 744 |
| $ | 2,046 |
| $ | 1,996 |
|
| |
(a) | Net credit card fees consists of interchange fees of $121 million and $128 million and credit card reward costs of $71 million and $78 million for the three months ended September 30, 2020 and 2019, respectively. Net credit card fees consists of interchange fees of $341 million and $366 million and credit card reward costs of $211 million and $217 million for the nine months ended September 30, 2020 and 2019, respectively. |
| |
(b) | Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606. |
Corporate & Institutional Banking
Table 83:84: Corporate & Institutional Banking Noninterest Income Disaggregation
| | | | | | | | | | | | | | | | | |
| Three months ended
September 30 | Nine months ended
September 30 | | | |
| In millions | 2021 | 2020 | 2021 | 2020 | | | |
| Product | | | | | | | |
| Treasury management fees | $ | 323 | | $ | 231 | | $ | 837 | | $ | 665 | | | | |
| Capital markets fees | 354 | | 132 | | 778 | | 494 | | | | |
| Commercial mortgage banking activities | 36 | | 31 | | 102 | | 81 | | | | |
| Other | 17 | | 18 | | 64 | | 55 | | | | |
| Total in-scope noninterest income by product | $ | 730 | | $ | 412 | | $ | 1,781 | | $ | 1,295 | | | | |
| Reconciliation to total Corporate & Institutional Banking noninterest income | | | | | | | |
| Total in-scope noninterest income | $ | 730 | | $ | 412 | | $ | 1,781 | | $ | 1,295 | | | | |
| Total out-of-scope noninterest income (a) | 326 | | 311 | | 949 | | 848 | | | | |
| Total Corporate & Institutional Banking noninterest income | $ | 1,056 | | $ | 723 | | $ | 2,730 | | $ | 2,143 | | | | |
(a)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.
Treasury Management Fees
Corporate & Institutional Banking provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and Mexico and other countries primarily in Central America and South America. Treasury management fees are primarily recognized over time as we perform these services.
Asset Management Group
Table 85: Asset Management Group Noninterest Income Disaggregation
| | | | | | | | | | | | | | | | | | |
| Three months ended
September 30 | Nine months ended
September 30 | | | | |
| In millions | 2021 | 2020 | 2021 | 2020 | | | | |
| Customer Type | | | | | | | | |
| Personal | $ | 196 | | $ | 164 | | $ | 554 | | $ | 465 | | | | | |
| Institutional | 56 | | 51 | | 165 | | 150 | | | | | |
| Total in-scope noninterest income by customer type (a) | $ | 252 | | $ | 215 | | $ | 719 | | $ | 615 | | | | | |
| Reconciliation to Asset Management Group noninterest income | | | | | | | | |
| Total in-scope noninterest income | $ | 252 | | $ | 215 | | $ | 719 | | $ | 615 | | | | | |
| Total out-of-scope noninterest income (b) | 4 | | 6 | | 10 | | 14 | | | | | |
| Total Asset Management Group noninterest income | $ | 256 | | $ | 221 | | $ | 729 | | $ | 629 | | | | | |
(a)Amounts include $248 million of Asset Management Fees and $4 million of Brokerage Fees for the three months ended September 30, 2021. Amounts include $713 million of Asset Management Fees and $6 million of Brokerage Fees for the nine months ended September 30, 2021. Amounts for the three and nine months ended September 30, 2020 consist only of Asset Management Fees. As described in the "Asset Management Services and Brokerage Fees" narrative following this table 85, Brokerage Fees were assumed by the Asset Management Group as a result of the BBVA acquisition..
(b)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.
Asset Management Services and Brokerage Fees
Asset Management Group provides both personal wealth and institutional asset management services including investment management, custody services, retirement planning, family planning, trust management and retirement plan fiduciary investment services. As a result of the acquisition of BBVA, the Asset Management Group assumed brokerage account client assets, resulting in brokerage fee revenue, included in the table above for the three and nine months ended September 30, 2021. We recognize fee revenue over the term of the customer contract based on the value of assets under management at a point in time.
|
| | | | | | | | | | | | |
| | Three months ended
September 30 | Nine months ended
September 30 |
| In millions | 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| Product | | | | |
| Treasury management fees | $ | 231 |
| $ | 210 |
| $ | 665 |
| $ | 621 |
|
| Capital markets fees | 132 |
| 131 |
| 494 |
| 407 |
|
| Commercial mortgage banking activities | 31 |
| 26 |
| 81 |
| 75 |
|
| Other | 18 |
| 17 |
| 55 |
| 53 |
|
| Total in-scope noninterest income by product | $ | 412 |
| $ | 384 |
| $ | 1,295 |
| $ | 1,156 |
|
| Reconciliation to total Corporate & Institutional Banking noninterest income | | | | |
| Total in-scope noninterest income | $ | 412 |
| $ | 384 |
| $ | 1,295 |
| $ | 1,156 |
|
| Total out-of-scope noninterest income (a) | 311 |
| 270 |
| 848 |
| 735 |
|
| Total Corporate & Institutional Banking noninterest income | $ | 723 |
| $ | 654 |
| $ | 2,143 |
| $ | 1,891 |
|
| |
(a) | Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606. |
110100 The PNC Financial Services Group, Inc. – Form 10-Q
Asset Management Group
Table 84: Asset Management Group Noninterest Income Disaggregation
On October 14, 2021, following completion of the bank merger on October 8, 2021, PNC Bank completed a one-time return of capital of $3.0 billion to the parent company.
On October 29, 2021, PNC announced the redemption on November 9, 2021 of all of the outstanding senior notes due December 9, 2021 issued by PNC Bank, National Association in the amount of $750 million. The securities have a distribution rate of 2.550% and an original scheduled maturity date of December 9, 2021. The redemption price will be equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.
|
| | | | | | | | | | | | |
| | Three months ended
September 30 | Nine months ended
September 30 |
| In millions | 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| Customer Type | | | | |
| Personal | $ | 164 |
| $ | 155 |
| $ | 465 |
| $ | 459 |
|
| Institutional | 51 |
| 58 |
| 150 |
| 187 |
|
| Total in-scope noninterest income by customer type | $ | 215 |
| $ | 213 |
| $ | 615 |
| $ | 646 |
|
| Reconciliation to Asset Management Group noninterest income | | | | |
| Total in-scope noninterest income | $ | 215 |
| $ | 213 |
| $ | 615 |
| $ | 646 |
|
| Total out-of-scope noninterest income (a) | 6 |
| 3 |
| 14 |
| 73 |
|
| Total Asset Management Group noninterest income | $ | 221 |
| $ | 216 |
| $ | 629 |
| $ | 719 |
|
| |
(a) | Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606. |
The PNC Financial Services Group, Inc. – Form 10-Q 101111
STATISTICAL INFORMATION (UNAUDITED)
THE PNC FINANCIAL SERVICES GROUP, INC.
Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c)
| | | | Nine months ended September 30 | | Nine months ended September 30 |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Taxable-equivalent basis Dollars in millions | Average Balances |
| | Interest Income/Expense |
| | Average Yields/Rates |
| | Average
Balances |
| | Interest Income/
Expense |
| | Average Yields/
Rates |
| | Taxable-equivalent basis
Dollars in millions | Average
Balances | | Interest Income/Expense | | Average Yields/Rates | | Average
Balances | | Interest Income/
Expense | | Average Yields/
Rates | |
| Assets | | | | | | | | | | | | | Assets | | |
| Interest-earning assets: | | | | | | | | | | | | | Interest-earning assets: | | |
| Investment securities | | | | | | | | | | | | | Investment securities | | |
| Securities available for sale | | | | | | | | | | | | | Securities available for sale | | |
| Residential mortgage-backed | | | | | | | | | | | | | Residential mortgage-backed | | |
| Agency | $ | 51,453 |
| | $ | 891 |
| | 2.31 | % | | $ | 30,714 |
| | $ | 657 |
| | 2.85 | % | | Agency | $ | 54,900 | | | $ | 644 | | | 1.56 | % | | $ | 51,453 | | | $ | 891 | | | 2.31 | % | |
| Non-agency | 1,527 |
| | 85 |
| | 7.43 | % | | 1,802 |
| | 109 |
| | 8.04 | % | | Non-agency | 1,142 | | 66 | | | 7.70 | % | | 1,527 | | | 85 | | | 7.43 | % | |
| Commercial mortgage-backed | 6,964 |
| | 140 |
| | 2.68 | % | | 5,549 |
| | 127 |
| | 3.05 | % | | Commercial mortgage-backed | 6,280 | | 116 | | | 2.47 | % | | 6,964 | | | 140 | | | 2.68 | % | |
| Asset-backed | 5,115 |
| | 103 |
| | 2.70 | % | | 5,247 |
| | 131 |
| | 3.33 | % | | Asset-backed | 5,590 | | 76 | | | 1.80 | % | | 5,115 | | | 103 | | | 2.70 | % | |
| U.S. Treasury and government agencies | 16,714 |
| | 240 |
| | 1.88 | % | | 18,207 |
| | 341 |
| | 2.47 | % | | U.S. Treasury and government agencies | 31,017 | | 315 | | | 1.34 | % | | 16,714 | | | 240 | | | 1.88 | % | |
| Other | 4,567 |
| | 120 |
| | 3.51 | % | | 3,316 |
| | 83 |
| | 3.36 | % | | Other | 4,889 | | 112 | | | 3.05 | % | | 4,567 | | | 120 | | | 3.51 | % | |
| Total securities available for sale | 86,340 |
| | 1,579 |
| | 2.43 | % | | 64,835 |
| | 1,448 |
| | 2.97 | % | | Total securities available for sale | 103,818 | | 1,329 | | | 1.70 | % | | 86,340 | | | 1,579 | | | 2.43 | % | |
| Securities held to maturity | | | | | | | | | | | | | Securities held to maturity | | |
| Residential mortgage-backed | — |
| | — |
| | — |
| | 15,582 |
| | 340 |
| | 2.91 | % | | |
| Commercial mortgage-backed | — |
| | — |
| | — |
| | 571 |
| | 15 |
| | 3.59 | % | | |
| | Asset-backed | 24 |
| | — |
| | 2.66 | % | | 143 |
| | 4 |
| | 4.18 | % | | Asset-backed | | 24 | | | 2.66 | % | |
| U.S. Treasury and government agencies | 783 |
| | 17 |
| | 2.85 | % | | 765 |
| | 16 |
| | 2.84 | % | | U.S. Treasury and government agencies | 802 | | 17 | | | 2.86 | % | | 783 | | | 17 | | | 2.85 | % | |
| Other | 648 |
| | 21 |
| | 4.32 | % | | 1,823 |
| | 61 |
| | 4.41 | % | | Other | 667 | | 20 | | | 4.05 | % | | 648 | | | 21 | | | 4.32 | % | |
| Total securities held to maturity | 1,455 |
| | 38 |
| | 3.50 | % | | 18,884 |
| | 436 |
| | 3.08 | % | | Total securities held to maturity | 1,469 | | 37 | | | 3.40 | % | | 1,455 | | | 38 | | | 3.50 | % | |
| Total investment securities | 87,795 |
| | 1,617 |
| | 2.45 | % | | 83,719 |
| | 1,884 |
| | 3.00 | % | | Total investment securities | 105,287 | | 1,366 | | | 1.73 | % | | 87,795 | | | 1,617 | | | 2.45 | % | |
| Loans | | | | | | | | | | | | | Loans | | |
| Commercial and industrial | 140,701 |
| | 3,286 |
| | 3.07 | % | | 123,069 |
| | 3,919 |
| | 4.20 | % | | Commercial and industrial | 140,368 | | 3,049 | | | 2.87 | % | | 140,701 | | | 3,286 | | | 3.07 | % | |
| Commercial real estate | 28,689 |
| | 663 |
| | 3.03 | % | | 28,477 |
| | 950 |
| | 4.40 | % | | Commercial real estate | 32,452 | | 734 | | | 2.98 | % | | 28,689 | | | 663 | | | 3.03 | % | |
| Equipment lease financing | 6,958 |
| | 201 |
| | 3.85 | % | | 7,273 |
| | 215 |
| | 3.94 | % | | Equipment lease financing | 6,321 | | 182 | | | 3.83 | % | | 6,958 | | | 201 | | | 3.85 | % | |
| Consumer | 56,279 |
| | 2,099 |
| | 4.98 | % | | 55,303 |
| | 2,304 |
| | 5.57 | % | | Consumer | 53,695 | | 1,934 | | | 4.82 | % | | 56,279 | | | 2,099 | | | 4.98 | % | |
| Residential real estate | 22,292 |
| | 644 |
| | 3.85 | % | | 19,602 |
| | 625 |
| | 4.25 | % | | Residential real estate | 29,048 | | 730 | | | 3.35 | % | | 22,292 | | | 644 | | | 3.85 | % | |
| Total loans | 254,919 |
| | 6,893 |
| | 3.58 | % | | 233,724 |
| | 8,013 |
| | 4.54 | % | | Total loans | 261,884 | | 6,629 | | | 3.36 | % | | 254,919 | | | 6,893 | | | 3.58 | % | |
| Interest-earning deposits with banks | 37,582 |
| | 80 |
| | .28 | % | | 14,708 |
| | 256 |
| | 2.32 | % | | Interest-earning deposits with banks | 81,383 | | 74 | | | 0.12 | % | | 37,582 | | | 80 | | | 0.28 | % | |
| Other interest-earning assets | 10,028 |
| | 199 |
| | 2.64 | % | | 12,780 |
| | 354 |
| | 3.70 | % | | Other interest-earning assets | 8,345 | | 142 | | | 2.27 | % | | 10,028 | | | 199 | | | 2.64 | % | |
| Total interest-earning assets/interest income | 390,324 |
| | 8,789 |
| | 2.98 | % | | 344,931 |
| | 10,507 |
| | 4.04 | % | | Total interest-earning assets/interest income | 456,899 | | 8,211 | | | 2.38 | % | | 390,324 | | | 8,789 | | | 2.98 | % | |
| Noninterest-earning assets | 53,705 |
| | | | | | 51,668 |
| | | | | | Noninterest-earning assets | 54,065 | | 53,705 | | | |
| Total assets | $ | 444,029 |
| | | | | | $ | 396,599 |
| | | | | | Total assets | $ | 510,964 | | | $ | 444,029 | | | |
| Liabilities and Equity | | | | | | | | | | | | | Liabilities and Equity | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | Interest-bearing liabilities: | | |
| Interest-bearing deposits | | | | | | | | | | | | | Interest-bearing deposits | | |
| Money market | $ | 59,426 |
| | $ | 130 |
| | .29 | % | | $ | 55,268 |
| | $ | 477 |
| | 1.15 | % | | Money market | $ | 69,105 | | | $ | 15 | | | 0.03 | % | | $ | 59,426 | | | $ | 130 | | | 0.29 | % | |
| Demand | 80,371 |
| | 100 |
| | .17 | % | | 64,459 |
| | 265 |
| | .55 | % | | Demand | 99,154 | | 23 | | | 0.03 | % | | 80,371 | | | 100 | | | 0.17 | % | |
| Savings | 74,279 |
| | 217 |
| | .39 | % | | 61,627 |
| | 532 |
| | 1.15 | % | | Savings | 86,662 | | 32 | | | 0.05 | % | | 74,279 | | | 217 | | | 0.39 | % | |
| Time deposits | 21,084 |
| | 143 |
| | .91 | % | | 20,017 |
| | 244 |
| | 1.63 | % | | Time deposits | 18,577 | | 29 | | | 0.21 | % | | 21,084 | | | 143 | | | 0.91 | % | |
| Total interest-bearing deposits | 235,160 |
| | 590 |
| | .34 | % | | 201,371 |
| | 1,518 |
| | 1.01 | % | | Total interest-bearing deposits | 273,498 | | 99 | | | 0.05 | % | | 235,160 | | | 590 | | | 0.34 | % | |
| Borrowed funds | | | | | | | | | | | | | Borrowed funds | | |
| Federal Home Loan Bank borrowings | 11,051 |
| | 98 |
| | 1.16 | % | | 23,368 |
| | 467 |
| | 2.63 | % | | Federal Home Loan Bank borrowings | 883 | | 3 | | | 0.42 | % | | 11,051 | | | 98 | | | 1.16 | % | |
| Bank notes and senior debt | 28,040 |
| | 366 |
| | 1.72 | % | | 26,571 |
| | 675 |
| | 3.35 | % | | Bank notes and senior debt | 22,663 | | 172 | | | 1.00 | % | | 28,040 | | | 366 | | | 1.72 | % | |
| Subordinated debt | 5,935 |
| | 91 |
| | 2.05 | % | | 5,530 |
| | 169 |
| | 4.09 | % | | Subordinated debt | 6,315 | | 64 | | | 1.35 | % | | 5,935 | | | 91 | | | 2.05 | % | |
| Other | 6,199 |
| | 64 |
| | 1.33 | % | | 6,564 |
| | 122 |
| | 2.44 | % | | Other | 4,701 | | 36 | | | 1.02 | % | | 6,199 | | | 64 | | | 1.33 | % | |
| Total borrowed funds | 51,225 |
| | 619 |
| | 1.59 | % | | 62,033 |
| | 1,433 |
| | 3.05 | % | | Total borrowed funds | 34,562 | | 275 | | | 1.05 | % | | 51,225 | | | 619 | | | 1.59 | % | |
| Total interest-bearing liabilities/interest expense | 286,385 |
| | 1,209 |
| | .56 | % | | 263,404 |
| | 2,951 |
| | 1.48 | % | | Total interest-bearing liabilities/interest expense | 308,060 | | 374 | | | 0.16 | % | | 286,385 | | | 1,209 | | | 0.56 | % | |
| Noninterest-bearing liabilities and equity: | | | | | | | | | | | | | Noninterest-bearing liabilities and equity: | | |
| Noninterest-bearing deposits | 90,078 |
| | | | | | 71,736 |
| | | | | | Noninterest-bearing deposits | 133,999 | | 90,078 | | | |
| Accrued expenses and other liabilities | 16,251 |
| | | | | | 12,975 |
| | | | | | Accrued expenses and other liabilities | 14,787 | | 16,251 | | | |
| Equity | 51,315 |
| | | | | | 48,484 |
| | | | | | Equity | 54,118 | | 51,315 | | | |
| Total liabilities and equity | $ | 444,029 |
| | | | | | $ | 396,599 |
| | | | | | Total liabilities and equity | $ | 510,964 | | | | | | | $ | 444,029 | | | | | | |
| Interest rate spread | | | | | 2.42 | % | | | | | | 2.56 | % | | Interest rate spread | | | 2.22 | % | | | 2.42 | % | |
| Impact of noninterest-bearing sources | | | | | .15 |
| | | | | | .35 |
| | Impact of noninterest-bearing sources | | | | | 0.06 | | | | | | | 0.15 | | |
| Net interest income/margin | | | $ | 7,580 |
| | 2.57 | % | | | | $ | 7,556 |
| | 2.91 | % | | Net interest income/margin | | | $ | 7,837 | | | 2.28 | % | | | | $ | 7,580 | | | 2.57 | % | |
(continued on following page)
112102 The PNC Financial Services Group, Inc. – Form 10-Q
Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c) (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 |
| | 2021 | | 2020 | |
Taxable-equivalent basis
Dollars in millions | Average
Balances | | Interest Income/Expense | | Average Yields/Rates | | Average
Balances | | Interest Income/
Expense | | Average Yields/
Rates | |
| Assets | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | |
| Investment securities | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | $ | 63,163 | | | $ | 223 | | | 1.41 | % | | $ | 52,215 | | | $ | 265 | | | 2.03 | % | |
| Non-agency | 1,051 | | 21 | | | 8.07 | % | | 1,437 | | | 26 | | | 7.26 | % | |
| Commercial mortgage-backed | 6,134 | | 35 | | | 2.34 | % | | 6,927 | | | 44 | | | 2.50 | % | |
| Asset-backed | 5,608 | | 21 | | | 1.50 | % | | 5,033 | | | 30 | | | 2.44 | % | |
| U.S. Treasury and government agencies | 38,149 | | 115 | | | 1.18 | % | | 18,724 | | | 79 | | | 1.64 | % | |
| Other | 4,994 | | 37 | | | 2.90 | % | | 4,723 | | | 39 | | | 3.39 | % | |
| Total securities available for sale | 119,099 | | 452 | | | 1.51 | % | | 89,059 | | | 483 | | | 2.16 | % | |
| Securities held to maturity | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Asset-backed | | | | | | | | | | | | |
| U.S. Treasury and government agencies | 807 | | 6 | | | 2.88 | % | | 788 | | | 6 | | | 2.86 | % | |
| Other | 680 | | 7 | | | 4.33 | % | | 655 | | | 7 | | | 4.20 | % | |
| Total securities held to maturity | 1,487 | | 13 | | | 3.54 | % | | 1,443 | | | 13 | | | 3.47 | % | |
| Total investment securities | 120,586 | | 465 | | | 1.54 | % | | 90,502 | | | 496 | | | 2.18 | % | |
| Loans | | | | | | | | | | | | |
| Commercial and industrial | 152,964 | | 1,095 | | | 2.80 | % | | 139,795 | | | 1,008 | | | 2.82 | % | |
| Commercial real estate | 37,054 | | 300 | | | 3.17 | % | | 29,081 | | | 197 | | | 2.65 | % | |
| Equipment lease financing | 6,300 | | 61 | | | 3.83 | % | | 6,771 | | | 64 | | | 3.80 | % | |
| Consumer | 57,533 | | 703 | | | 4.85 | % | | 54,692 | | | 645 | | | 4.69 | % | |
| Residential real estate | 37,475 | | 295 | | | 3.15 | % | | 22,753 | | | 213 | | | 3.74 | % | |
| Total loans | 291,326 | | 2,454 | | | 3.32 | % | | 253,092 | | | 2,127 | | | 3.32 | % | |
| Interest-earning deposits with banks | 80,274 | | 31 | | | 0.16 | % | | 60,327 | | | 15 | | | 0.10 | % | |
| Other interest-earning assets | 9,113 | | 47 | | | 2.03 | % | | 9,752 | | | 55 | | | 2.23 | % | |
| Total interest-earning assets/interest income | 501,299 | | 2,997 | | | 2.36 | % | | 413,673 | | | 2,693 | | | 2.57 | % | |
| Noninterest-earning assets | 57,943 | | | | | | 48,466 | | | | | | |
| Total assets | $ | 559,242 | | | | | | | $ | 462,139 | | | | | | |
| Liabilities and Equity | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | |
| Interest-bearing deposits | | | | | | | | | | | | |
| Money market | $ | 82,911 | | | $ | 6 | | | 0.03 | % | | $ | 63,598 | | | $ | 12 | | | 0.07 | % | |
| Demand | 106,588 | | 7 | | | 0.03 | % | | 87,226 | | | 12 | | | 0.05 | % | |
| Savings | 89,679 | | 10 | | | 0.04 | % | | 77,479 | | | 22 | | | 0.11 | % | |
| Time deposits | 19,293 | | 6 | | | 0.12 | % | | 20,248 | | | 28 | | | 0.58 | % | |
| Total interest-bearing deposits | 298,471 | | 29 | | | 0.04 | % | | 248,551 | | | 74 | | | 0.12 | % | |
| Borrowed funds | | | | | | | | | | | | |
| Federal Home Loan Bank borrowings | | | | | | | 7,196 | | | 9 | | | 0.47 | % | |
| Bank notes and senior debt | 22,573 | | 56 | | | 0.97 | % | | 25,858 | | | 71 | | | 1.08 | % | |
| Subordinated debt | 6,787 | | 22 | | | 1.28 | % | | 5,936 | | | 22 | | | 1.51 | % | |
| Other | 4,992 | | 12 | | | 0.93 | % | | 4,354 | | | 16 | | | 1.31 | % | |
| Total borrowed funds | 34,352 | | 90 | | | 1.03 | % | | 43,344 | | | 118 | | | 1.06 | % | |
| Total interest-bearing liabilities/interest expense | 332,823 | | 119 | | | 0.14 | % | | 291,895 | | | 192 | | | 0.26 | % | |
| Noninterest-bearing liabilities and equity: | | | | | | | | | | | | |
| Noninterest-bearing deposits | 155,948 | | | | | | 101,931 | | | | | | |
| Accrued expenses and other liabilities | 15,332 | | | | | | 15,341 | | | | | | |
| Equity | 55,139 | | | | | | 52,972 | | | | | | |
| Total liabilities and equity | $ | 559,242 | | | | | | | $ | 462,139 | | | | | | |
| Interest rate spread | | | | | 2.22 | % | | | | | | 2.31 | % | |
| Impact of noninterest-bearing sources | | | | | 0.05 | | | | | | | 0.08 | | |
| Net interest income/margin | | | $ | 2,878 | | | 2.27 | % | | | | $ | 2,501 | | | 2.39 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 |
| | 2020 | | 2019 | |
Taxable-equivalent basis Dollars in millions | Average Balances |
| | Interest Income/Expense |
| | Average Yields/Rates |
| | Average
Balances |
| | Interest Income/
Expense |
| | Average Yields/
Rates |
| |
| Assets | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | |
| Investment securities | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | $ | 52,215 |
| | $ | 265 |
| | 2.03 | % | | $ | 32,926 |
| | $ | 223 |
| | 2.70 | % | |
| Non-agency | 1,437 |
| | 26 |
| | 7.26 | % | | 1,716 |
| | 38 |
| | 8.89 | % | |
| Commercial mortgage-backed | 6,927 |
| | 44 |
| | 2.50 | % | | 5,728 |
| | 43 |
| | 2.97 | % | |
| Asset-backed | 5,033 |
| | 30 |
| | 2.44 | % | | 5,208 |
| | 43 |
| | 3.31 | % | |
| U.S. Treasury and government agencies | 18,724 |
| | 79 |
| | 1.64 | % | | 17,573 |
| | 109 |
| | 2.44 | % | |
| Other | 4,723 |
| | 39 |
| | 3.39 | % | | 3,053 |
| | 26 |
| | 3.41 | % | |
| Total securities available for sale | 89,059 |
| | 483 |
| | 2.16 | % | | 66,204 |
| | 482 |
| | 2.90 | % | |
| Securities held to maturity | | | | | | | | | | | | |
| Residential mortgage-backed | — |
| | — |
| | — |
| | 15,768 |
| | 110 |
| | 2.78 | % | |
| Commercial mortgage-backed | — |
| | — |
| | — |
| | 544 |
| | 5 |
| | 3.68 | % | |
| Asset-backed | — |
| | — |
| | — |
| | 79 |
| | 1 |
| | 5.48 | % | |
| U.S. Treasury and government agencies | 788 |
| | 6 |
| | 2.86 | % | | 769 |
| | 5 |
| | 2.86 | % | |
| Other | 655 |
| | 7 |
| | 4.20 | % | | 1,802 |
| | 19 |
| | 4.40 | % | |
| Total securities held to maturity | 1,443 |
| | 13 |
| | 3.47 | % | | 18,962 |
| | 140 |
| | 2.98 | % | |
| Total investment securities | 90,502 |
| | 496 |
| | 2.18 | % | | 85,166 |
| | 622 |
| | 2.91 | % | |
| Loans | | | | | | | | | | | | |
| Commercial and industrial | 139,795 |
| | 1,008 |
| | 2.82 | % | | 125,356 |
| | 1,300 |
| | 4.06 | % | |
| Commercial real estate | 29,081 |
| | 197 |
| | 2.65 | % | | 28,855 |
| | 325 |
| | 4.40 | % | |
| Equipment lease financing | 6,771 |
| | 64 |
| | 3.80 | % | | 7,272 |
| | 70 |
| | 3.82 | % | |
| Consumer | 54,692 |
| | 645 |
| | 4.69 | % | | 55,702 |
| | 787 |
| | 5.61 | % | |
| Residential real estate | 22,753 |
| | 213 |
| | 3.74 | % | | 20,497 |
| | 216 |
| | 4.21 | % | |
| Total loans | 253,092 |
| | 2,127 |
| | 3.32 | % | | 237,682 |
| | 2,698 |
| | 4.47 | % | |
| Interest-earning deposits with banks | 60,327 |
| | 15 |
| | .10 | % | | 15,632 |
| | 85 |
| | 2.17 | % | |
| Other interest-earning assets | 9,752 |
| | 55 |
| | 2.23 | % | | 14,094 |
| | 123 |
| | 3.49 | % | |
| Total interest-earning assets/interest income | 413,673 |
| | 2,693 |
| | 2.57 | % | | 352,574 |
| | 3,528 |
| | 3.95 | % | |
| Noninterest-earning assets | 48,466 |
| | | | | | 54,135 |
| | | | | |
| Total assets | $ | 462,139 |
| | | | | | $ | 406,709 |
| | | | | |
| Liabilities and Equity | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | |
| Interest-bearing deposits | | | | | | | | | | | | |
| Money market | $ | 63,598 |
| | $ | 12 |
| | .07 | % | | $ | 56,271 |
| | $ | 162 |
| | 1.14 | % | |
| Demand | 87,226 |
| | 12 |
| | .05 | % | | 65,444 |
| | 95 |
| | .58 | % | |
| Savings | 77,479 |
| | 22 |
| | .11 | % | | 64,054 |
| | 185 |
| | 1.14 | % | |
| Time deposits | 20,248 |
| | 28 |
| | .58 | % | | 21,173 |
| | 89 |
| | 1.66 | % | |
| Total interest-bearing deposits | 248,551 |
| | 74 |
| | .12 | % | | 206,942 |
| | 531 |
| | 1.02 | % | |
| Borrowed funds | | | | | | | | | | | | |
| Federal Home Loan Bank borrowings | 7,196 |
| | 9 |
| | .47 | % | | 25,883 |
| | 164 |
| | 2.48 | % | |
| Bank notes and senior debt | 25,858 |
| | 71 |
| | 1.08 | % | | 27,409 |
| | 224 |
| | 3.21 | % | |
| Subordinated debt | 5,936 |
| | 22 |
| | 1.51 | % | | 5,189 |
| | 45 |
| | 3.53 | % | |
| Other | 4,354 |
| | 16 |
| | 1.31 | % | | 5,452 |
| | 35 |
| | 2.43 | % | |
| Total borrowed funds | 43,344 |
| | 118 |
| | 1.06 | % | | 63,933 |
| | 468 |
| | 2.87 | % | |
| Total interest-bearing liabilities/interest expense | 291,895 |
| | 192 |
| | .26 | % | | 270,875 |
| | 999 |
| | 1.45 | % | |
| Noninterest-bearing liabilities and equity: | | | | | | | | | | | | |
| Noninterest-bearing deposits | 101,931 |
| | | | | | 72,149 |
| | | | | |
| Accrued expenses and other liabilities | 15,341 |
| | | | | | 14,529 |
| | | | | |
| Equity | 52,972 |
| | | | | | 49,156 |
| | | | | |
| Total liabilities and equity | $ | 462,139 |
| | | | | | $ | 406,709 |
| | | | | |
| Interest rate spread | | | | | 2.31 | % | | | | | | 2.50 | % | |
| Impact of noninterest-bearing sources | | | | | .08 |
| | | | | | .34 |
| |
| Net interest income/margin | | | $ | 2,501 |
| | 2.39 | % | | | | $ | 2,529 |
| | 2.84 | % | |
| |
(a) | Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value are included in noninterest-earning assets and noninterest-bearing liabilities, with changes in fair value recorded in Noninterest income. |
| |
(b) | Loan fees for the three months ended September 30, 2020 and September 30, 2019 were $38 million and $49 million, respectively. Loan fees for the nine months ended September 30, 2020 and September 30, 2019 were $117 million and $120 million, respectively. |
| |
(c) | Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and 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 GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in this Statistical Information section for more information. |
(c)Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and 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 GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in this Statistical Information section for more information.
The PNC Financial Services Group, Inc. – Form 10-Q 103113
RECONCILIATION OF TAXABLE-EQUIVALENT NET INTEREST INCOME (NON-GAAP)(non-GAAP) (a)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended | Three months ended |
| In millions | | September 30, 2021 | | | | September 30, 2020 | September 30, 2021 | September 30, 2020 |
| Net interest income (GAAP) | | $ | 7,785 | | | | | $ | 7,522 | | $ | 2,856 | | $ | 2,484 | |
| Taxable-equivalent adjustments | | 52 | | | | | 58 | | 22 | | 17 | |
| Net interest income (non-GAAP) | | $ | 7,837 | | | | | $ | 7,580 | | $ | 2,878 | | $ | 2,501 | |
(a)The interest income earned on certain interest-earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.
GLOSSARY
|
| | | | | | | | | | | | | | |
| | | Nine months ended | Three months ended |
| In millions | | September 30, 2020 |
| | September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 |
|
| Net interest income (GAAP) | | $ | 7,522 |
| | $ | 7,477 |
| $ | 2,484 |
| $ | 2,504 |
|
| Taxable-equivalent adjustments | | 58 |
| | 79 |
| 17 |
| 25 |
|
| Net interest income (Non-GAAP) | | $ | 7,580 |
| | $ | 7,556 |
| $ | 2,501 |
| $ | 2,529 |
|
DEFINEDTERMS
For a glossary of terms commonly used in our filings, please see the glossary of terms included in our 2020 Form 10-K.
ACRONYMS
| | | | | | | | | | | | | | |
(a)ACL | TheAllowance for credit losses | | LIHTC | Low income housing tax credit |
| ALLL | Allowance for loan and lease losses | | LLC | Limited liability company |
| AOCI | Accumulated other comprehensive income | | LTV | Loan-to-value ratio |
| ASC | Accounting Standards Codification | | MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ASU | Accounting Standards Update | | MSR | Mortgage servicing right |
| BBVA | BBVA USA Bancshares, Inc. | | NAICS | North American Industry Classification System |
| BBVA, S.A. | Banco Bilbao Vizcaya Argentaria, S.A. | | NSFR | Net Stable Funding Ratio |
| BBVA USA | BBVA USA, the Alabama-chartered bank subsidiary of BBVA USA Bancshares, Inc. | | OCC | Office of the Comptroller of the Currency |
| BHC | Bank holding company | | OCI | Other comprehensive income |
| bps | Basis points | | OREO | Other real estate owned |
| CARES Act | Coronavirus Aid, Relief and Economic Security Act | | OTC | Over-the-counter |
| CCAR | Comprehensive Capital Analysis and Review | | PCD | Purchased credit deteriorated |
| CECL | Current expected credit losses | | PD | Probability of default |
| CET1 | Common equity tier 1 | | PPP | Paycheck Protection Program |
| CFPB | Consumer Financial Protection Bureau | | RAC | PNC’s Reserve Adequacy Committee |
| CRA | Community Reinvestment Act | | ROAP | Removal of account provisions |
| FHLB | Federal Home Loan Bank | | SBA | Small Business Administration |
| FHLMC | Federal Home Loan Mortgage Corporation | | SCB | Stress capital buffer |
| FICO | Fair Isaac Corporation (credit score) | | SEC | Securities and Exchange Commission |
| FNMA | Federal National Mortgage Association | | SLR | Supplementary leverage ratio |
| FOMC | Federal Open Market Committee | | SOFR | Secured Overnight Financing Rate |
| GAAP | Accounting principles generally accepted in the United States of America | | SPE | Special purpose entity |
| GDP | Gross Domestic Product | | TDR | Troubled debt restructuring |
| HQLA | High quality, unencumbered liquid assets | | U.S. | United States of America |
| ISDA | International Swaps and Derivatives Association | | VA | Department of Veterans Affairs |
| LCR | Liquidity Coverage Ratio | | VaR | Value-at-risk |
| LGD | Loss given default | | VIE | Variable interest income earned on certain interest-earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.entity |
| LIBOR | London Interbank Offered Rate | | | |
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the information set forth in Note 1413 Legal Proceedings in the Notes To Consolidated Financial Statements under Part I, Item 1 of this Report, which is incorporated by reference in response to this item.
ITEM 1A. RISK FACTORS
There are no material changes from any of the risk factors previously disclosed in our first quarter 2020 Form 10-Q and 2019 Form 10-K in response to Part II, Item 1A and Part I, Item 1A, respectively.
104 The PNC Financial Services Group, Inc. – Form 10-Q
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Equity Security Repurchases
Details of our repurchases of PNC common stock during the third quarter of 20202021 are included in the following table.
| | | | | | | | | | | | | | |
2021 period
In thousands, except per share data | Total shares purchased (a) | Average price paid per share | Total shares purchased as part of publicly announced programs (b) | Maximum number of shares that may yet be purchased under the programs (b) |
| July 1 - 31 | 3 | | $ | 183.43 | | | 75,109 | |
| August 1 – 31 | 956 | | $ | 188.93 | | 956 | | 74,153 | |
| September 1 – 30 | 1,105 | | $ | 191.85 | | 1,105 | | 73,048 | |
| Total | 2,064 | | $ | 190.49 | | | |
|
| | | | | | | | | |
2020 period
In thousands, except per share data | Total shares purchased (a) |
| Average price paid per share |
| Total shares purchased as part of publicly announced programs (b) |
| Maximum number of shares that may yet be purchased under the programs (b) |
|
| July 1 - 31 | 8 |
| $ | 103.19 |
| — |
| 76,028 |
|
| August 1 – 31 | — |
| $ | — |
| — |
| 76,028 |
|
| September 1 – 30 | 919 |
| $ | 107.50 |
| 919 |
| 75,109 |
|
| Total | 927 |
| $ | 107.47 |
| | |
| |
(a) | Includes PNC common stock purchased in connection with our various employee benefit plans generally related to shares used to cover employee payroll tax withholding requirements. Note 11 Employee Benefit Plans and Note 12 Stock Based Compensation Plans in the Notes To Consolidated Financial Statements of our 2019 Annual Report on Form 10-K include additional information regarding our employee benefit and equity compensation plans that use PNC common stock. |
| |
(b) | On April 4, 2019, our Board of Directors approved the establishment of a new stock repurchase program authorization in the amount of 100 million shares of PNC common stock, effective July 1, 2019. Under this authorization, repurchases may be made in the open market or privately negotiated transactions, with the timing and exact amount of common stock repurchases depending on a number of factors including, among others, market and general economic conditions, regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations, including the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process. In June 2019, we announced share repurchase programs of up to $4.3 billion for the four quarter period beginning with the third quarter of 2019, in accordance with PNC's 2019 capital plan. In January 2020, we announced an increase to these programs to repurchase up to an additional $1.0 billion in common shares through the end of the second quarter of 2020. We announced on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economy during the pandemic, and will continue the suspension through the fourth quarter of 2020, consistent with the extension of the Federal Reserve's special capital distribution restrictions. We repurchased $99 million of common shares in the third quarter to offset the effects of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve. |
(b)On April 4, 2019, our Board of Directors approved the establishment of a stock repurchase program authorization in the amount of 100 million shares of PNC common
stock, effective July 1, 2019. Under this authorization, repurchases may be made in open market or privately negotiated transactions, with the timing and exact amount of
common stock repurchases depending on a number of factors including, among others, market and general economic conditions, regulatory capital considerations, alternative
uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations, including the results of the supervisory assessment of capital adequacy
and capital planning processes undertaken by the Federal Reserve as part of the CCAR process. PNC announced on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve’s effort to support the U.S. economy during the pandemic. We continued the suspension through the second quarter of 2021, with the exception of employee benefit-related purchases in the third quarter of 2020, consistent with extension of the Federal Reserves's special capital distribution restrictions. During the second quarter of 2021, PNC announced the reinstatement of share repurchase programs with repurchases of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021. In the third quarter of 2021, we returned $0.4 billion of capital to shareholders through common share repurchases, representing 2.1 million shares.
114The PNC Financial Services Group, Inc. – Form 10-Q105
ITEM 6. EXHIBITS
The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this Quarterly Report on Form 10-Q:
|
| | | | | | | |
EXHIBIT INDEX |
31.13.1.8 | | |
| | |
| 4.11 | |
|
| | |
| 10.6.1 | | |
| | |
| 22 | | |
| | |
| 31.1 | | |
| |
| 31.2 | | |
| |
| 32.1 | | |
| |
| 32.2 | | |
| | |
| 101.INS | | Inline XBRL Instance Document * |
| | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| | |
*The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL.
You can obtain copies of these Exhibits electronically at the SEC’s website at www.sec.gov. The Exhibits are also available as part of this Form 10-Q on PNC’s corporate website at www.pnc.com/secfilings. Shareholders and bondholders may also obtain copies of Exhibits, without charge, by contacting Shareholder Relations at 800-843-2206 or via e-mail at investor.relations@pnc.com.
CORPORATE INFORMATION
The PNC Financial Services Group, Inc.
Corporate Headquarters
The PNC Financial Services Group, Inc.
The Tower at PNC Plaza
300 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2401
Internet Information
The PNC Financial Services Group, Inc.'s financial reports and information about its products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under “About Us – Investor Relations.” We use our Twitter account, @pncnews, as an additional way of disseminating to the public information that may be relevant to investors.
We generally post the following under “About Us – Investor Relations” shortly before or promptly following its first use or release: financially-related press releases, including earnings releases and supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor conference calls or events, and access to live and recorded audio from earnings and other investor conference calls or events. In some cases, we may post the presentation materials for other investor conference calls or events several days prior to the call or event. For earnings and other conference calls or events, we generally include in our posted materials a cautionary statement regarding forward-looking and non-GAAP financial information, and we provide GAAP reconciliations when we include non-GAAP financial
106 The PNC Financial Services Group, Inc. – Form 10-Q
information. Such GAAP reconciliations may be in materials for the applicable presentation, in materials for prior presentations or in our annual, quarterly or current reports.
When warranted, we will also use our website to expedite public access to time-critical information regarding PNC instead of using a press release or a filing with the SEC for first disclosure of the information. In some circumstances, the information may be relevant to investors but directed at customers, in which case it may be accessed directly through the home page rather than “About Us – Investor Relations.”
We are required to provide additional public disclosure regarding estimated income, losses and pro forma regulatory capital ratios under supervisory and PNC-developed hypothetical severely adverse economic scenarios, as well as information concerning our capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. We are also
The PNC Financial Services Group, Inc. – Form 10-Q 115
required to make certain additional regulatory capital-related public disclosures about our capital structure, risk exposures, risk assessment processes, risk-weighted assets and overall capital adequacy, including market risk-related disclosures, under the regulatory capital rules adopted by the Federal banking agencies. Similarly, the Federal Reserve's rules require quantitative and qualitative disclosures about LCR and, beginning in 2023, our NSFR. Under these regulations, we may satisfy these requirements through postings on our website, and we have done so and expect to continue to do so without also providing disclosure of this information through filings with the SEC.
Other information posted on our corporate website that may not be available in our filings with the SEC includes information relating to our corporate governance and annual communications from our chairman to shareholders.
Where we have included internet addresses in this Report, such as our internet address and the internet address of the SEC, we have included those internet addresses as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part hereof.
Financial Information
We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act) and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC File Number is 001-09718. You can obtain copies of these and other filings, including exhibits, electronically at the SEC’s internet website at www.sec.gov or on our corporate internet website at www.pnc.com/secfilings.secfilings. Shareholders and bond holders may also obtain copies of these filings without charge by contacting Shareholder Services at 800-982-7652 or via the online contact form at www.computershare.com/contact uscontactus for copies without exhibits, or via email to investor.relations@pnc.com for copies of exhibits, including financial statement and schedule exhibits where applicable.
Corporate Governance at PNC
Information about our Board of Directors and its committees and corporate governance, including our PNC Code of Business Conduct and Ethics (as amended from time to time), is available on our corporate website at www.pnc.com/corporategovernance. In addition, any future amendments to, or waivers from a provision of the PNC Code of Business Conduct and Ethics covering any of our directors or executive officers (including our principal executive officer, principal financial officer and principal accounting officer or controller) will be posted at this internet address.
Shareholders who would like to request printed copies of the PNC Code of Business Conduct and Ethics or our Corporate Governance Guidelines or the charters of our Board’s Audit, Nominating and Governance, Personnel and Compensation, or Risk Committees (all of which are posted on the PNCour corporate website)website at www.pnc.com/corporategovernance) may do so by sending their requests to our Corporate Secretary at corporate headquarters at the above address. Copies will be provided without charge to shareholders.charge.
Inquiries
For financial services, call 888-762-2265.
Registered shareholders should contact Shareholder Services at 800-982-7652.
Analysts and institutional investors should contact Bryan Gill, Executive Vice President, Director of Investor Relations, at 412-768-4143 or via email at investor.relations@pnc.com.
News media representatives should contact PNC Media Relations at 412-762-4550 or via email at media.relations@pnc.com.
Dividend Policy
Holders of PNC common stock are entitled to receive dividends when declared by theour Board of Directors out of funds legally available for this purpose. Our Board of Directors may not pay or set apart dividends on the common stock until dividends for all past dividend periods on any series of outstanding preferred stock and certain outstanding capital securities issued by the parent company
The PNC Financial Services Group, Inc. – Form 10-Q 107
have been paid or declared and set apart for payment. The Board of Directors presently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions, our financial condition and operating results, and other factors, including contractual restrictions and applicable government regulations and policies (such as those relating to the ability of bank and non-bank subsidiaries to pay dividends to the parent company and regulatory capital limitations). The amount of our dividend is also currently subject to the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process as described in the Capital Management portion of the Risk Management section of the Financial Review of this Report and in the Supervision and Regulation section in Item 1 of our 20192020 Form 10-K.
116 The PNC Financial Services Group, Inc. – Form 10-Q
Dividend Reinvestment and Stock Purchase Plan
The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common stock to conveniently purchase additional shares of common stock. You can obtain a prospectus and enrollment form by contacting Shareholder Services at 800-982-7652. Registered shareholders may also contact this phone number regarding dividends and other shareholder services.
Stock Transfer Agent and Registrar
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
800-982-7652
www.computershare.com/pnc
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on November 3, 20202021 on its behalf by the undersigned thereunto duly authorized.
|
| |
| /s/ Robert Q. Reilly |
| Robert Q. Reilly |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
108The PNC Financial Services Group, Inc. – Form 10-Q
117
