PNC Reports Second Quarter 2020 Net Income Of $3.7 Billion, $8.40 Diluted EPS, Reflecting Gain On BlackRock Sale

Rhea-AI Summary

PNC Financial Services Group reported a net income of $3.655 billion for Q2 2020, significantly improving from $915 million in Q1 2020. Continuing operations faced a loss of $744 million due to a $2.5 billion loan loss reserve buildup related to the pandemic. The sale of its BlackRock investment generated $14.2 billion in proceeds, contributing an after-tax gain of $4.3 billion. Average loans increased by 10% to $268.1 billion. However, noninterest income dropped by 15%, reflecting lower consumer spending amid COVID-19. PNC declared a dividend of $1.15 per share.

Positive

• Net income for Q2 2020 was $3.655 billion, a substantial increase from Q1 2020.
• After-tax gain of $4.3 billion from the divestment of BlackRock investment.
• Average loans rose by 10%, reaching $268.1 billion.

Negative

• Loss from continuing operations of $744 million, a decline of $1.5 billion from the previous quarter.
• Loan loss reserve increased to $2.5 billion due to pandemic impact.
• Noninterest income decreased by 15% compared to Q1 2020.

PITTSBURGH, July 15, 2020 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

	For the quarter
	2Q20	1Q20	2Q19
Net income (loss) from continuing operations	($744)		$759		$1,185
Net income from discontinued operations	$4,399		$156		$189
Net income     $ millions	$3,655		$915		$1,374
Diluted earnings (loss) from continuing operations	($1.90)		$1.59		$2.47
Diluted earnings from discontinued operations	$10.28		$.36		$.41
Diluted earnings per common share	$8.40		$1.95		$2.88

"During this remarkable period in the midst of the pandemic and economic downturn, PNC has remained steadfast in our commitment to our customers, communities, employees and shareholders. While our pre-provision results for the second quarter were good in the context of a lower rate environment and business headwinds, the uncertainty in the economy related to the pandemic resulted in a substantial loan loss reserve build. The monetization of our BlackRock investment and recent CCAR results underscore the strength of our balance sheet. Our book value per share increased significantly, and PNC is very well positioned with substantial capital and liquidity flexibility to continue to support our constituents and capitalize on opportunities that may arise during these challenging times."

Bill Demchak, PNC Chairman, President and Chief Executive Officer

Sale of Equity Investment in BlackRock, Inc.

• PNC divested its 22.4% equity investment in BlackRock in May 2020 primarily through the sale of 31.6 million shares in a registered offering and 2.65 million shares repurchased by BlackRock. PNC also contributed .5 million BlackRock shares to the PNC Foundation. Net proceeds from the sale were $14.2 billion. The after-tax gain on the sale of $4.3 billion, and donation expense and BlackRock's historical results, are reported in PNC's consolidated financial statements as discontinued operations.

Income Statement Highlights - Continuing Operations

Second quarter 2020 compared with first quarter 2020

• Results from continuing operations reflected a loss of $744 million, a decrease of $1.5 billion due to a higher provision for credit losses.
• Provision for credit losses increased to $2.5 billion for the second quarter compared with $914 million for the first quarter due to the significant estimated economic impact of the pandemic. Provision was calculated under the Current Expected Credit Loss (CECL) accounting standard adopted January 1, 2020.
• Provision was $1.7 billion for the commercial portfolio and $720 million for the consumer portfolio.
• Total revenue of $4.1 billion declined $260 million, or 6%.
• Net interest income of $2.5 billion increased $16 million, or 1%, as lower rates on deposits and borrowings and higher average loans, balances held with the Federal Reserve Bank and securities were partially offset by lower yields on earning assets.
• Net interest margin decreased 32 basis points to 2.52% reflecting the full quarter impact of the 1.5 percentage point reduction in the federal funds rate by the Federal Reserve in March 2020.
• Noninterest income of $1.6 billion decreased $276 million, or 15%.
• Fee income of $1.3 billion declined $204 million, or 14%. Service charges on deposits and consumer service fees decreased $136 million reflecting lower consumer spending and fees waived to assist customers in the pandemic, and residential mortgage revenue decreased $52 million due to a lower benefit from residential mortgage servicing rights valuation, net of economic hedge.
• Other noninterest income of $271 million declined $72 million primarily due to lower net securities gains partially offset by higher capital markets-related revenue.
• Noninterest expense of $2.5 billion decreased $28 million, or 1%, reflecting lower business activity related to the economic impact of the pandemic and well-controlled expenses.
• The effective tax rate was 17.5% for the second quarter and 13.7% for the first quarter.

Balance Sheet Highlights

• Average loans increased $24.5 billion, or 10%, to $268.1 billion in the second quarter compared with the first quarter.
• Average commercial loans of $189.3 billion increased $25.2 billion, or 15%, reflecting Paycheck Protection Program (PPP) lending under the CARES Act and higher utilization of loan commitments driven by the economic impact of the pandemic on customer liquidity preferences.
• Average consumer loans of $78.8 billion decreased $.7 billion, or 1%, primarily due to lower credit card, auto and student loans partially offset by higher residential mortgage loans.
• Loans at June 30, 2020 declined $6.4 billion, or 2%, to $258.2 billion compared with March 31, 2020.
• Commercial loans decreased $4.5 billion, or 2%. PNC funded $13.7 billion of PPP loans during the second quarter. New loans were more than offset by paydowns of March 2020 draws on loan commitments.
• Consumer loans decreased $1.9 billion, or 2%, primarily in auto, credit card and home equity loans.
• Credit quality performance:
• Overall delinquencies of $1.3 billion at June 30, 2020 decreased $173 million, or 12%, compared with March 31, 2020 due to lower consumer loan and commercial loan delinquencies reflecting CARES Act and other forbearance.
• Nonperforming assets of $2.0 billion at June 30, 2020 increased $200 million, or 11%, compared with March 31, 2020.
• Net loan charge-offs were $236 million for the second quarter compared with $212 million for the first quarter.
• The allowance for credit losses to total loans was 2.55% at June 30, 2020 and 1.66% at March 31, 2020.
• Average deposits increased $45.5 billion, or 16%, to $335.2 billion in the second quarter compared with the first quarter due to growth in commercial deposits reflecting pandemic-related accumulation of liquidity by customers. Consumer deposits also increased driven by government stimulus payments and lower consumer spending.
• Deposits at June 30, 2020 increased $40.8 billion, or 13%, to $346.0 billion compared with March 31, 2020.
• Average investment securities increased $4.0 billion, or 5%, to $88.4 billion in the second quarter compared with the first quarter.
• Investment securities at June 30, 2020 increased $8.0 billion, or 9%, to $98.5 billion compared with March 31, 2020.
• Average balances held with the Federal Reserve Bank of $34.2 billion for the second quarter increased $16.9 billion compared with the first quarter, and balances at June 30, 2020 of $50.0 billion increased $30.4 billion compared with March 31, 2020, reflecting higher liquidity from deposit growth and proceeds from the sale of the equity investment in BlackRock.
• PNC maintained strong capital and liquidity positions.
• The PNC board of directors declared a quarterly cash dividend on common stock payable on August 5, 2020 of $1.15 per share, consistent with the second quarter dividend paid on May 5, 2020.
• PNC announced on March 16, 2020 a temporary suspension of its 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 third quarter of 2020, with the exception of permissible share repurchases to offset the effects of employee benefit plan-related issuances.
• The Basel III common equity Tier 1 capital ratio was an estimated 11.3 percent at June 30, 2020 and 9.4 percent at March 31, 2020.
• The Liquidity Coverage Ratio at June 30, 2020 for both PNC and PNC Bank, N.A. exceeded the regulatory minimum requirement.

 

Earnings Summary
In millions, except per share data		2Q20		1Q20		2Q19
Net income		$	3,655			$	915			$	1,374
Net income attributable to diluted common shares		$	3,569			$	839			$	1,300
Diluted earnings per common share		$	8.40			$	1.95			$	2.88
Average diluted common shares outstanding		426			430			452
Return on average assets		3.21	%		.89	%		1.39	%
Return on average common equity		30.11	%		7.51	%		11.75	%
Book value per common share	Quarter end	$	115.26			$	106.70			$	101.53
Tangible book value per common share (non-GAAP)	Quarter end	$	93.54			$	84.93			$	80.76
Cash dividends declared per common share		$	1.15			$	1.15			$	.95

The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported (GAAP) amounts. This information supplements results as reported in accordance with GAAP and should not be viewed in isolation from, or as a substitute for, GAAP results. Fee income, a non-GAAP financial measure, refers to noninterest income in the following categories: asset management, consumer services, corporate services, residential mortgage and service charges on deposits. Information in this news release, including the financial tables, is unaudited.

CONSOLIDATED REVENUE REVIEW
Revenue						Change	Change
						2Q20 vs	2Q20 vs
In millions	2Q20		1Q20		2Q19	1Q20	2Q19
Net interest income	$	2,527			$	2,511			$	2,498		1	%	1	%
Noninterest income	1,549			1,825			1,717		(15)	%	(10)	%
Total revenue	$	4,076			$	4,336			$	4,215		(6)	%	(3)	%

Total revenue for the second quarter of 2020 decreased $260 million compared with the first quarter and $139 million compared with the second quarter of 2019 due to lower noninterest income.

Net interest income for the second quarter of 2020 increased $16 million compared with the first quarter and $29 million compared with the second quarter of 2019. In both comparisons, lower rates on deposits and borrowings and higher average loans, balances held with the Federal Reserve Bank and securities were partially offset by lower yields on earning assets. The net interest margin declined to 2.52% for the second quarter of 2020 from 2.84% in the first quarter and 2.91% in the second quarter of 2019 as a result of lower yields on earning assets partially offset by lower funding costs reflecting the full quarter impact of the 1.5 percentage point reduction in the federal funds rate by the Federal Reserve in March 2020 and the related decline in other market interest rates.

Noninterest Income					Change	Change
						2Q20 vs	2Q20 vs
In millions	2Q20		1Q20		2Q19	1Q20	2Q19
Asset management	$	199			$	201			$	221		(1)	%	(10)	%
Consumer services	330			377			392		(12)	%	(16)	%
Corporate services	512			526			484		(3)	%	6	%
Residential mortgage	158			210			82		(25)	%	93	%
Service charges on deposits	79			168			171		(53)	%	(54)	%
Other	271			343			367		(21)	%	(26)	%
	$	1,549			$	1,825			$	1,717		(15)	%	(10)	%

Noninterest income for the second quarter of 2020 decreased $276 million compared with the first quarter. Asset management revenue declined $2 million reflecting the impact of lower average equity markets. Consumer services decreased $47 million and service charges on deposits decreased $89 million due to lower transaction volumes and activity reflecting lower consumer spending and fees waived to assist customers in the pandemic. Corporate services declined $14 million primarily due to lower merger and acquisition advisory fees partially offset by higher loan syndication and asset-backed financing fees. Residential mortgage revenue decreased $52 million as a lower benefit from residential mortgage servicing rights valuation, net of economic hedge, was partially offset by higher loan sales revenue. Other noninterest income declined $72 million primarily due to lower net securities gains partially offset by higher capital markets-related revenue.

Noninterest income for the second quarter of 2020 decreased $168 million compared with the second quarter of 2019. Asset management revenue declined $22 million reflecting the impact of 2019 sales of proprietary mutual funds and the retirement recordkeeping business. Consumer services decreased $62 million and service charges on deposits decreased $92 million largely due to pandemic-related lower transaction volumes and fees waived for customers experiencing hardships. Corporate services grew $28 million as a result of higher revenue from commercial mortgage banking activities and higher asset-backed financing and loan syndication fees partially offset by lower merger and acquisition advisory fees. Residential mortgage revenue increased $76 million due to higher loan sales revenue from higher origination volumes. Other noninterest income decreased $96 million reflecting negative valuation adjustments of private equity investments and the second quarter 2019 gain on the sale of the retirement recordkeeping business partially offset by higher capital markets-related revenue.

CONSOLIDATED EXPENSE REVIEW
Noninterest Expense					Change	Change
						2Q20 vs	2Q20 vs
In millions	2Q20		1Q20		2Q19	1Q20	2Q19
Personnel	$	1,373			$	1,369			$	1,365		—		1	%
Occupancy	199			207			212		(4)	%	(6)	%
Equipment	301			287			298		5	%	1	%
Marketing	47			58			83		(19)	%	(43)	%
Other	595			622			653		(4)	%	(9)	%
	$	2,515			$	2,543			$	2,611		(1)	%	(4)	%

Noninterest expense for the second quarter of 2020 decreased $28 million compared with the first quarter and $96 million compared with the second quarter of 2019. Lower business activity related to the economic impact of the pandemic contributed to the declines, including lower marketing expense and costs associated with business travel, as PNC continued to focus on managing expenses. Equipment expense increased in the second quarter of 2020 compared with the first quarter reflecting higher depreciation.

The effective tax rate from continuing operations was 17.5% for the second quarter of 2020, 13.7% for the first quarter and 16.8% for the second quarter of 2019. The lower effective tax rate in the first quarter included a benefit from resolution of certain tax matters.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets were $457.3 billion in the second quarter of 2020 compared with $412.4 billion in the first quarter of 2020 and $397.0 billion in the second quarter of 2019. Total assets were $459.0 billion at June 30, 2020, $445.5 billion at March 31, 2020 and $405.8 billion at June 30, 2019. Balance sheet growth in the second quarter of 2020 in all comparisons reflected higher deposits maintained with the Federal Reserve Bank and higher investment securities. Loans declined at June 30, 2020 compared with March 31, 2020, and increased compared with June 30, 2019 and in both average balance comparisons.

Loans						Change	Change
						2Q20 vs <

FAQ

What is PNC's net income for Q2 2020?

PNC reported a net income of $3.655 billion for Q2 2020.

How much did PNC gain from the BlackRock equity investment sale?

PNC realized an after-tax gain of $4.3 billion from the sale of its BlackRock investment.

What was the loan loss reserve for PNC in Q2 2020?

The loan loss reserve for PNC increased to $2.5 billion in Q2 2020.

Did PNC's average loans increase or decrease in Q2 2020?

Average loans increased by 10% to $268.1 billion in Q2 2020.

What did PNC declare as a dividend for its common stock?

PNC declared a dividend of $1.15 per share for its common stock.