10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 6, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________________
FORM 10-Q
______________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2021
or
| 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)
___________________________________________________________
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices, including zip code)
(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:
| Title of Each Class | Trading Symbol(s) |
Name of Each Exchange
on Which Registered
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Floating Rate Non-Cumulative Perpetual Preferred Stock, Series P |
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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.
| ☒ | 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 July 16, 2021, there were 424,993,233 shares of the registrant’s common stock ($5 par value) outstanding.
THE PNC FINANCIAL SERVICES GROUP, INC.
Cross-Reference Index to Second Quarter 2021 Form 10-Q
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| PART I – FINANCIAL INFORMATION | |||||
| Item 1. Financial Statements (Unaudited). | |||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). | |||||
| Item 3. Quantitative and Qualitative Disclosures about Market Risk. | 20-39, 50-51 and 88-94 | ||||
| Item 4. Controls and Procedures. | |||||
| MD&A TABLE REFERENCE | ||||||||
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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 2020 Annual Report on Form 10-K (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 2020 Form 10-K; Item 1A Risk Factors included in our 2020 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 Item 8 of our 2020 Form 10-K. Also, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates and Judgments section in this Financial Review and in our 2020 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 14 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 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 102 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 June 30 |
Six months ended June 30 |
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| 2021 | 2020 | 2021 | 2020 | ||||||||||||||
| Financial Results (a) | |||||||||||||||||
| Revenue | |||||||||||||||||
| Net interest income | $ | 2,581 | $ | 2,527 | $ | 4,929 | $ | 5,038 | |||||||||
| Noninterest income | 2,086 | 1,549 | 3,958 | 3,374 | |||||||||||||
| Total revenue | 4,667 | 4,076 | 8,887 | 8,412 | |||||||||||||
| Provision for (recapture of) credit losses | 302 | 2,463 | (249) | 3,377 | |||||||||||||
| Noninterest expense | 3,050 | 2,515 | 5,624 | 5,058 | |||||||||||||
| Income (loss) from continuing operations before income taxes and noncontrolling interests |
$ | 1,315 | $ | (902) | $ | 3,512 | $ | (23) | |||||||||
| Income taxes (benefit) from continuing operations |
212 | (158) | 583 | (38) | |||||||||||||
| Net income (loss) from continuing operations | $ | 1,103 | $ | (744) | $ | 2,929 | $ | 15 | |||||||||
| Income from discontinued operations before taxes |
$ | 5,596 | $ | 5,777 | |||||||||||||
| Income taxes from discontinued operations |
1,197 | 1,222 | |||||||||||||||
| Net income from discontinued operations |
$ | 4,399 | $ | 4,555 | |||||||||||||
| Net income | $ | 1,103 | $ | 3,655 | $ | 2,929 | $ | 4,570 | |||||||||
| Less: | |||||||||||||||||
| Net income attributable to noncontrolling interests | 12 | 7 | 22 | 14 | |||||||||||||
| Preferred stock dividends (b) | 48 | 55 | 105 | 118 | |||||||||||||
| Preferred stock discount accretion and redemptions | 1 | 1 | 2 | 2 | |||||||||||||
| Net income attributable to common shareholders | $ | 1,042 | $ | 3,592 | $ | 2,800 | $ | 4,436 | |||||||||
|
Per Common Share
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| Basic earnings (loss) from continuing operations | $ | 2.43 | $ | (1.90) | $ | 6.54 | $ | (0.29) | |||||||||
| Basic earnings from discontinued operations | 10.28 | 10.60 | |||||||||||||||
| Total basic earnings |
$ | 2.43 | $ | 8.40 | $ | 6.54 | $ | 10.33 | |||||||||
| Diluted earnings (loss) from continuing operations | $ | 2.43 | $ | (1.90) | $ | 6.53 | $ | (0.29) | |||||||||
Diluted earnings from discontinued operations |
10.28 | 10.59 | |||||||||||||||
| Total diluted earnings | $ | 2.43 | $ | 8.40 | $ | 6.53 | $ | 10.32 | |||||||||
| Cash dividends declared per common share | $ | 1.25 | $ | 1.15 | $ | 2.40 | $ | 2.30 | |||||||||
| Effective tax rate from continuing operations (c) | 16.1 | % | 17.5 | % | 16.6 | % | 165.2 | % | |||||||||
| Performance Ratios | |||||||||||||||||
| Net interest margin (d) | 2.29 | % | 2.52 | % | 2.28 | % | 2.67 | % | |||||||||
| Noninterest income to total revenue | 45 | % | 38 | % | 45 | % | 40 | % | |||||||||
| Efficiency | 65 | % | 62 | % | 63 | % | 60 | % | |||||||||
| Return on: | |||||||||||||||||
| Average common shareholders’ equity | 8.32 | % | 30.11 | % | 11.29 | % | 19.15 | % | |||||||||
| Average assets | 0.88 | % | 3.21 | % | 1.21 | % | 2.11 | % | |||||||||
(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.
(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. Beginning on August 1, dividends will be paid on the Series O on a quarterly basis (February 1, May 1, August 1 and November 1 of each year).
(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 1
Table 1: Consolidated Financial Highlights (Continued) (a)
| Unaudited | June 30 2021 |
December 31 2020 |
June 30 2020 |
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Balance Sheet Data (dollars in millions, except per share data)
|
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| Assets | $ | 554,212 | $ | 466,679 | $ | 458,978 | ||||||||
| Loans | $ | 294,704 | $ | 241,928 | $ | 258,236 | ||||||||
|
Allowance for loan and lease losses |
$ | 5,730 | $ | 5,361 | $ | 5,928 | ||||||||
| Interest-earning deposits with banks (b) | $ | 72,447 | $ | 85,173 | $ | 50,233 | ||||||||
| Investment securities | $ | 126,543 | $ | 88,799 | $ | 98,493 | ||||||||
| Loans held for sale | $ | 2,227 | $ | 1,597 | $ | 1,443 | ||||||||
| Equity investments | $ | 7,521 | $ | 6,052 | $ | 4,943 | ||||||||
| Mortgage servicing rights | $ | 1,793 | $ | 1,242 | $ | 1,067 | ||||||||
| Goodwill | $ | 10,958 | $ | 9,233 | $ | 9,233 | ||||||||
| Other assets | $ | 35,025 | $ | 30,999 | $ | 34,920 | ||||||||
| Noninterest-bearing deposits | $ | 154,190 | $ | 112,637 | $ | 99,458 | ||||||||
| Interest-bearing deposits | $ | 298,693 | $ | 252,708 | $ | 246,539 | ||||||||
| Total deposits | $ | 452,883 | $ | 365,345 | $ | 345,997 | ||||||||
| Borrowed funds | $ | 34,813 | $ | 37,195 | $ | 47,026 | ||||||||
| Allowance for unfunded lending related commitments |
$ | 645 | $ | 584 | $ | 662 | ||||||||
| Total shareholders’ equity | $ | 54,627 | $ | 54,010 | $ | 52,923 | ||||||||
| Common shareholders’ equity | $ | 51,107 | $ | 50,493 | $ | 48,928 | ||||||||
| Accumulated other comprehensive income | $ | 1,463 | $ | 2,770 | $ | 3,069 | ||||||||
| Book value per common share | $ | 120.25 | $ | 119.11 | $ | 115.26 | ||||||||
| Period-end common shares outstanding (in millions) | 425 | 424 | 425 | |||||||||||
| Loans to deposits | 65 | % | 66 | % | 75 | % | ||||||||
| Common shareholders’ equity to total assets | 9.2 | % | 10.8 | % | 10.7 | % | ||||||||
Client Assets (in billions)
|
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| Discretionary client assets under management | $ | 183 | $ | 170 | $ | 151 | ||||||||
| Nondiscretionary client assets under administration | 172 | 154 | 138 | |||||||||||
| Total client assets under administration | 355 | 324 | 289 | |||||||||||
| Brokerage account client assets | 88 | 59 | 53 | |||||||||||
| Total client assets | $ | 443 | $ | 383 | $ | 342 | ||||||||
| Basel III Capital Ratios (c) (d) | ||||||||||||||
| Common equity Tier 1 | 10.1 | % | 12.2 | % | 11.3 | % | ||||||||
| Common equity Tier 1 fully implemented (e) | 9.9 | % | 11.8 | % | 10.9 | % | ||||||||
| Tier 1 risk-based | 11.1 | % | 13.2 | % | 12.4 | % | ||||||||
| Total capital risk-based (f) | 13.2 | % | 15.6 | % | 14.9 | % | ||||||||
| Leverage | 8.7 | % | 9.5 | % | 9.4 | % | ||||||||
| Supplementary leverage | 7.3 | % | 9.9 | % | 9.3 | % | ||||||||
| Asset Quality | ||||||||||||||
| Nonperforming loans to total loans | 0.94 | % | 0.94 | % | 0.73 | % | ||||||||
| Nonperforming assets to total loans, OREO and foreclosed assets | 0.96 | % | 0.97 | % | 0.76 | % | ||||||||
| Nonperforming assets to total assets | 0.51 | % | 0.50 | % | 0.43 | % | ||||||||
| Net charge-offs to average loans (for the three months ended) (annualized) | 0.48 | % | 0.37 | % | 0.35 | % | ||||||||
| Allowance for loan and lease losses to total loans |
1.94 | % | 2.22 % | 2.30 | % | |||||||||
| Allowance for credit losses to total loans (g) | 2.16 | % | 2.46 | % | 2.55 | % | ||||||||
|
Allowance for loan and lease losses to nonperforming loans |
206 | % | 235 | % | 316 | % | ||||||||
| Accruing loans past due 90 days or more (in millions) | $ | 527 | $ | 509 | $ | 456 | ||||||||
(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)Amounts include balances held with the Federal Reserve Bank of $71.9 billion, $84.9 billion and $50.0 billion as of June 30, 2021, December 31, 2020 and June 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.
2 The PNC Financial Services Group, Inc. – Form 10-Q
EXECUTIVE SUMMARY
Headquartered in Pittsburgh, Pennsylvania, we are one of the largest diversified financial institutions in the 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, Southeast and Southwest. 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 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,
•Deepening customer relationships by delivering a superior banking experience and financial 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 2020 Form 10-K.
Acquisition of BBVA USA Bancshares, Inc.
On June 1, 2021, we acquired BBVA USA Bancshares, Inc. (BBVA) for cash consideration of $11.5 billion. BBVA, a U.S. financial holding company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA, operates more than 600 branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. Our results for the three and six months ended June 30, 2021 reflect BBVA's operations for the month of June 2021 and our June 30, 2021 balance sheet includes BBVA's balances, including $95.7 billion of total assets, $82.2 billion of deposits and $60.5 billion of loans.
Shortly after the acquisition, PNC merged BBVA into PNC, and PNC contributed all of the shares of BBVA USA to PNC
Bancorp, Inc, a wholly-owned subsidiary of PNC. As a result, BBVA USA is now a subsidiary of PNC Bancorp, Inc. and an affiliate of PNC Bank. PNC expects to merge BBVA USA into PNC Bank in October 2021.
Throughout this Report, BBVA USA Bancshares, Inc. will be referred to as BBVA.
Discontinued Operations
In the second quarter of 2020, we divested our entire 22.4% equity investment in BlackRock. Net proceeds from the sale were
$14.2 billion with an after-tax gain on sale of $4.3 billion. BlackRock's historical results are reported as discontinued operations. For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Acquisition and Divestiture Activity in the Notes to Consolidated Financial Statements in Item 1 of this Report.
Income Statement Highlights
Net income from continuing operations of $1.1 billion, or $2.43 per diluted common share, for the second quarter of 2021 increased $1.8 billion compared to a net loss from continuing operations of $0.7 billion, or $1.90 loss per diluted common share, for the second quarter of 2020 primarily due to a lower provision for credit losses.
•For the three months ended June 30, 2021 compared to the same period in 2020:
•Total revenue increased $591 million, or 14%, to $4.7 billion.
•Net interest income of $2.6 billion, including $236 million from BBVA, increased $54 million, or 2%.
The PNC Financial Services Group, Inc. – Form 10-Q 3
•Net interest margin decreased 23 basis points to 2.29% reflecting higher average balances held with the Federal Reserve Bank.
•Noninterest income increased $537 million, or 35%, to $2.1 billion, including $80 million from BBVA, primarily due to higher corporate and consumer services fee income as well as higher other noninterest income.
•Provision for credit losses was $302 million for the second quarter of 2021, as a provision recapture of $704 million, primarily driven by improvements in credit quality and macroeconomic factors, as well as balance reductions, was more than offset by an initial provision for credit losses of $1.0 billion related to the BBVA acquisition. Provision for credit losses was $2.5 billion for the second quarter of 2020.
•Noninterest expense increased $535 million, or 21%, to $3.1 billion, due to $179 million of BBVA operating expenses, $101 million of integration expenses, growth in business and marketing activity and additions to legal reserves during the second quarter of 2021.
For additional detail, see the Consolidated Income Statement Review section of this Financial Review.
Balance Sheet Highlights
Our balance sheet was strong and well positioned at June 30, 2021 and December 31, 2020. In comparison to December 31, 2020, changes in our balance sheet were primarily driven by the BBVA acquisition.
•Total assets increased $87.5 billion, or 19%, to $554.2 billion, including $95.7 billion from BBVA.
•Total loans increased $52.8 billion, or 22%, to $294.7 billion, including $60.5 billion from BBVA.
•Total commercial loans increased $32.4 billion, or 19%, to $199.6 billion driven by BBVA loans of $38.5 billion, partially offset by PNC legacy PPP loan forgiveness and lower multifamily agency warehouse lending.
•At June 30, 2021, PNC had $11.6 billion of PPP loans and included $2.1 billion from BBVA. PPP loans outstanding at December 31, 2020 were $12.0 billion.
•Total consumer loans increased $20.3 billion, or 27%, to $95.1 billion driven by loans from BBVA of $22.0 billion and increased originations of PNC legacy residential mortgages, partially offset by declines in remaining PNC legacy portfolios as paydowns outpaced new originations.
•Investment securities increased $37.7 billion, or 43%, to $126.5 billion, resulting from $17.6 in securities from BBVA and increased purchase activity.
•Interest-earning deposits with banks, primarily with the Federal Reserve Bank, decreased $12.7 billion to $72.4 billion, primarily due to the payment of $11.5 billion in cash for the purchase of BBVA and increased securities purchases, partially offset by $12.0 billion from BBVA.
•Total deposits increased $87.5 billion, or 24%, to $452.9 billion, including $82.2 billion from BBVA, due to growth in commercial and consumer deposits.
•Borrowed funds decreased $2.4 billion, or 6%, to $34.8 billion, due to lower FHLB borrowings reflecting the use of liquidity from deposit growth, partially offset by $2.3 billion from BBVA.
For additional detail, see the Consolidated Balance Sheet Review section of this Financial Review.
Credit Quality Highlights
Second quarter 2021 credit quality performance included the acquisition of BBVA and the associated purchase accounting impacts.
•At June 30, 2021 compared to December 31, 2020:
•Nonperforming assets of $2.8 billion, increased $481 million, or 21%, due to $880 million of nonperforming assets from BBVA, partially offset by lower PNC legacy nonperforming assets reflecting improved credit performance.
•Overall loan delinquencies of $1.3 billion decreased $73 million, or 5%, driven by lower PNC legacy consumer and commercial delinquencies, partially offset by $291 million in delinquencies resulting from the BBVA acquisition.
•The ACL related to loans increased to $6.4 billion, or 2.16% of total loans, at June 30, 2021 compared to $5.9 billion, or 2.46% of total loans, at December 31, 2020. The increase was attributable to the ACL associated with the BBVA portfolio, which was recognized through both a fair value purchase accounting mark of $1.2 billion and an initial provision for credit losses of $1.0 billion, partially offset by a provision recapture of $1.3 billion and net loan charge-offs of $0.5 billion.
•Net charge-offs were $306 million, or 0.48% of average loans on an annualized basis, in the second quarter of 2021. This included $248 million related to BBVA, which were largely the result of required purchase accounting treatment for the acquisition. Net charge-offs were $236 million, or 0.35%, for the same quarter of 2020.
For additional detail see the Credit Risk Management portion of the Risk Management section of this Financial Review.
4 The PNC Financial Services Group, Inc. – Form 10-Q
Capital Highlights
We maintained our strong capital and liquidity positions.
•Our CET1 ratio decreased to 10.1% at June 30, 2021 from 12.2% at December 31, 2020, primarily due to the BBVA acquisition.
•Capital was impacted by our election of a five-year transition period for CECL's estimated impact on CET1 capital. CECL'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 to $51.1 billion at June 30, 2021, compared to $50.5 billion at December 31, 2020.
•In the second quarter, we returned capital to shareholders through dividends on common shares of $0.5 billion and refrained from repurchasing shares through the second quarter of 2021 due to the BBVA transaction.
•During the second quarter, 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.
•On July 1, 2021, the PNC Board of Directors raised the quarterly cash dividend on common stock to $1.25 per share, an increase of 10 cents per share, or 9%, effective with the August 5, 2021 dividend payment.
See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our 2021 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 CCAR process. 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 2020 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 follows:
•The U.S. economy is in an economic recovery, following a very severe but very short economic contraction in the first half of 2020 due to the COVID-19 pandemic and public health measures to contain it.
•With passage of the American Rescue Plan Act of 2021 and continued vaccine distribution, economic growth has picked up in 2021 and will remain very strong through the rest of this year and into 2022. Real GDP returned to its pre-pandemic level in the second quarter of 2021. Employment in June 2021 was still down by 6.8 million from before the pandemic; PNC expects employment to return to its pre-pandemic level in the spring of 2022.
•Compared to the spring of 2020 (when prices were falling), inflation has accelerated in mid-2021 due to strong demand in specific segments and supply chain disruptions. Inflation will slow in the second half of 2021.
•PNC expects the FOMC to keep the fed funds rate in its current range of 0.00% to 0.25% until mid-2023.
For the third quarter of 2021, compared to the second quarter of 2021 where appropriate, we expect:
•Period-end loans to be up modestly,
•Net interest income to be up in the mid-teens, on a percentage basis,
•Fee income to be up mid-single digits, on a percentage basis,
•Other noninterest income to be between $325 million and $375 million,
•Noninterest expense excluding integration expense to be up high-single digits, on a percentage basis, and
•Net loan charge-offs to be between $150 million and $200 million.
For the full year 2021, compared to full year 2020 except as noted, we expect:
•Period-end loans to be up modestly from June 30, 2021,
•Revenue to be up approximately 12% to 14%,
•Noninterest expense excluding integration expense to be up approximately 13% to 15%, and
•The effective tax rate to be 17%.
Additionally, we are on track to realize $900 million in net expense savings of BBVA's expense base in 2022. We also expect to incur nonrecurring merger and integration costs of approximately $980 million; the majority of which we expect to recognize in 2021.
See the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors in our 2020 Form 10-K for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.
The PNC Financial Services Group, Inc. – Form 10-Q 5
CONSOLIDATED INCOME STATEMENT REVIEW
Our Consolidated Income Statement is presented in Part I, Item 1 of this Report.
Net income from continuing operations of $1.1 billion, or $2.43 per diluted common share for the second quarter of 2021, increased $1.8 billion compared to a net loss from continuing operations of $0.7 billion, or $1.90 loss per diluted common share, for the second quarter of 2020. For the first six months of 2021, net income from continuing operations was $2.9 billion, or $6.54 per diluted common share, compared to $15 million, or $0.29 loss per diluted common share, for the first six months of 2020. In both comparisons the increase was primarily due to a lower provision for credit losses in 2021 due to improvements in credit quality and macroeconomic factors.
Net Interest Income
Table 2: Summarized Average Balances and Net Interest Income (a)
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| Three months ended June 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 | $ | 108,503 | 1.75 | % | $ | 475 | $ | 88,430 | 2.41 | % | $ | 533 | |||||||||||||||||||||||||||||
| Loans | 255,607 | 3.38 | % | 2,169 | 268,114 | 3.37 | % | 2,270 | |||||||||||||||||||||||||||||||||
| Interest-earning deposits with banks | 78,522 | 0.11 | % | 22 | 34,600 | 0.10 | % | 9 | |||||||||||||||||||||||||||||||||
| Other | 8,079 | 2.46 | % | 50 | 10,867 | 2.26 | % | 62 | |||||||||||||||||||||||||||||||||
| Total interest-earning assets/interest income | $ | 450,711 | 2.40 | % | 2,716 | $ | 402,011 | 2.85 | % | 2,874 | |||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 269,436 | 0.05 | % | 30 | $ | 241,445 | 0.23 | % | 141 | |||||||||||||||||||||||||||||||
| Borrowed funds | 34,149 | 1.04 | % | 90 | 53,229 | 1.39 | % | 187 | |||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities/interest expense | $ | 303,585 | 0.16 | % | 120 | $ | 294,674 | 0.44 | % | 328 | |||||||||||||||||||||||||||||||
Net interest margin/income (Non-GAAP) |
2.29 | % | 2,596 | 2.52 | % | 2,546 | |||||||||||||||||||||||||||||||||||
| Taxable-equivalent adjustments | (15) | (19) | |||||||||||||||||||||||||||||||||||||||
| Net interest income (GAAP) | $ | 2,581 | $ | 2,527 | |||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| Six months ended June 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 | $ | 97,511 | 1.85 | % | $ | 901 | $ | 86,426 | 2.59 | % | $ | 1,121 | |||||||||||||||||||||||||||||
| Loans | 246,919 | 3.38 | % | 4,175 | 255,843 | 3.71 | % | 4,766 | |||||||||||||||||||||||||||||||||
| Interest-earning deposits with banks | 81,947 | 0.10 | % | 43 | 26,085 | 0.50 | % | 65 | |||||||||||||||||||||||||||||||||
| Other | 7,955 | 2.40 | % | 95 | 10,167 | 2.84 | % | 144 | |||||||||||||||||||||||||||||||||
| Total interest-earning assets/interest income | $ | 434,332 | 2.40 | % | 5,214 | $ | 378,521 | 3.21 | % | 6,096 | |||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 260,804 | 0.05 | % | 70 | $ | 228,390 | 0.45 | % | 516 | |||||||||||||||||||||||||||||||
| Borrowed funds | 34,670 | 1.06 | % | 185 | 55,209 | 1.80 | % | 501 | |||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities/interest expense | $ | 295,474 | 0.17 | % | 255 | $ | 283,599 | 0.71 | % | 1,017 | |||||||||||||||||||||||||||||||
Net interest margin/income (Non-GAAP) |
2.28 | % | 4,959 | 2.67 | % | 5,079 | |||||||||||||||||||||||||||||||||||
| Taxable-equivalent adjustments | (30) | (41) | |||||||||||||||||||||||||||||||||||||||
| Net interest income (GAAP) | $ | 4,929 | $ | 5,038 | |||||||||||||||||||||||||||||||||||||
(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.
6 The PNC Financial Services Group, Inc. – Form 10-Q
Net interest income increased $54 million, or 2%, for the second quarter of 2021, and decreased $109 million, or 2%, for the first six months of 2021 compared to the same periods in 2020. In the quarterly comparison, the increase was due to interest earning assets from the BBVA acquisition and lower rates on deposits, partially offset by lower PNC legacy loans outstanding and securities yields. In the year-to-date comparison, the decrease was due to lower PNC legacy loans outstanding and lower securities yields, partially offset by lower deposit rates and interest earning assets from BBVA.
Net interest margin in the quarterly and year-to-date comparisons decreased 23 basis points and 39 basis points, respectively. The decrease in both comparisons reflected higher balances held with the Federal Reserve Bank and lower yields on securities, partially offset by the impact of BBVA's interest earning assets.
Average investment securities increased $20.1 billion, or 23%, and $11.1 billion, or 13%, in the quarterly and year-to-date comparisons, respectively. Both comparisons increased primarily due to higher U.S. Treasury and government securities, resulting from increased purchase activity and the acquisition of BBVA. Average investment securities represented 24% of average interest-earning assets for the second quarter of 2021 and 22% for the first six months of 2021, compared to 22% and 23% for the same periods in 2020.
Average loans decreased $12.5 billion, or 5%, and $8.9 billion, or 3% in the quarterly and year-to-date comparisons, respectively. In the quarterly comparison, the decrease was due to lower utilization of loan commitments by commercial customers. In the year-to-date comparison, the decrease was due to lower commercial and consumer loans. The decrease in both comparisons was partially offset by loans from the BBVA acquisition. Average loans represented 57% of average interest-earning assets for the three and six months ended June 30, 2021, compared to 67% and 68% for the same periods in 2020.
Average interest-earning deposits with banks increased $43.9 billion and $55.9 billion in the respective quarterly and year-to-date comparisons, as average balances held with the Federal Reserve Bank increased due to higher deposits.
Average interest-bearing deposits grew $28.0 billion, or 12%, and $32.4 billion, or 14% in the respective quarterly and year-to-date comparisons due to overall growth in commercial and consumer liquidity, including deposits from BBVA. In total, average interest-bearing deposits increased to 89% and 88% of average interest-bearing liabilities for the three and six months ended June 30, 2021, compared to 82% and 81% for the same periods in 2020.
Average borrowed funds decreased $19.1 billion, or 36%, compared with the second quarter of 2020 and $20.5 billion, or 37%, compared with the first six months of 2020 primarily due to a decline in FHLB borrowings reflecting the use of liquidity from deposit growth.
Further details regarding average loans and deposits are included in the Business Segments Review section of this Financial Review.
Noninterest Income
Table 3: Noninterest Income
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | $ | % | 2021 | 2020 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Noninterest income | |||||||||||||||||||||||||||||||||||||||||||||||
| Asset management | $ | 239 | $ | 199 | $ | 40 | 20 | % | $ | 465 | $ | 400 | $ | 65 | 16 | % | |||||||||||||||||||||||||||||||
| Consumer services | 457 | 330 | 127 | 38 | % | 841 | 707 | 134 | 19 | % | |||||||||||||||||||||||||||||||||||||
| Corporate services | 688 | 512 | 176 | 34 | % | 1,243 | 1,038 | 205 | 20 | % | |||||||||||||||||||||||||||||||||||||
| Residential mortgage | 103 | 158 | (55) | (35) | % | 208 | 368 | (160) | (43) | % | |||||||||||||||||||||||||||||||||||||
| Service charges on deposits | 131 | 79 | 52 | 66 | % | 250 | 247 | 3 | 1 | % | |||||||||||||||||||||||||||||||||||||
| Other | 468 | 271 | 197 | 73 | % | 951 | 614 | 337 | 55 | % | |||||||||||||||||||||||||||||||||||||
Total noninterest income |
$ | 2,086 | $ | 1,549 | $ | 537 | 35 | % | $ | 3,958 | $ | 3,374 | $ | 584 | 17 | % | |||||||||||||||||||||||||||||||
Noninterest income as a percentage of total revenue was 45% for both the second quarter and first six months of 2021, compared to 38% and 40% for the same periods in 2020.
Asset management revenue increased in the quarterly and year-to-date comparisons due to the impact of higher average equity markets. PNC's discretionary client assets under management increased to $183 billion at June 30, 2021 from $151 billion at June 30, 2020, primarily driven by higher spot equity markets.
Consumer services revenue increased in the quarterly and year-to-date comparisons reflecting the impacts of higher consumer spending on debit card, merchant services, and credit card fees and higher average equity markets on brokerage fees.
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, revenue from commercial mortgage servicing activities and loan commitment fees.
Residential mortgage revenue decreased in the quarterly comparison primarily due to lower servicing fee revenue and decreased in the year-to-date comparison due to both lower mortgage servicing rights valuation, net of economic hedge and lower servicing fee revenue. Servicing fee revenue in both comparisons declined due to higher MSR amortization.
Service charges on deposits increased in the quarterly and year-to-date comparisons primarily due to higher transaction volumes and fewer pandemic related fee waivers.
Other noninterest income increased in the quarterly and year-to-date comparisons primarily due to higher private equity revenue.
Noninterest Expense
Table 4: Noninterest Expense
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | $ | % | 2021 | 2020 | $ | % | |||||||||||||||||||||||||||||||||||||||||||||
| Noninterest expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Personnel | $ | 1,640 | $ | 1,373 | $ | 267 | 19 | % | $ | 3,117 | $ | 2,742 | $ | 375 | 14 | % | |||||||||||||||||||||||||||||||||||||
| Occupancy | 217 | 199 | 18 | 9 | % | 432 | 406 | 26 | 6 | % | |||||||||||||||||||||||||||||||||||||||||||
| Equipment | 326 | 301 | 25 | 8 | % | 619 | 588 | 31 | 5 | % | |||||||||||||||||||||||||||||||||||||||||||
| Marketing | 74 | 47 | 27 | 57 | % | 119 | 105 | 14 | 13 | % | |||||||||||||||||||||||||||||||||||||||||||
| Other | 793 | 595 | 198 | 33 | % | 1,337 | 1,217 | 120 | 10 | % | |||||||||||||||||||||||||||||||||||||||||||
Total noninterest expense |
$ | 3,050 | $ | 2,515 | $ | 535 | 21 | % | $ | 5,624 | $ | 5,058 | $ | 566 | 11 | % | |||||||||||||||||||||||||||||||||||||
The increase in noninterest expense in the quarterly and year-to-date comparisons reflected BBVA operating and integration expenses, growth in business and marketing activity and additions to legal reserves during the second quarter of 2021.
Effective Income Tax Rate
The effective income tax rate from continuing operations was 16.1% in the second quarter of 2021 compared to 17.5% in the second quarter of 2020, and 16.6% in the first six months of 2021 compared to 165.2% in the same period in 2020.
Provision For (Recapture of) Credit Losses
Table 5: Provision for (Recapture of) Credit Losses
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||||||||||||||||
| Change | Change | ||||||||||||||||||||||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | $ | 2021 | 2020 | $ | |||||||||||||||||||||||||||||||||||
| Provision for (recapture of) credit losses | |||||||||||||||||||||||||||||||||||||||||
| Loans and leases | $ | 206 | $ | 2,220 | $ | (2,014) | $ | (296) | $ | 3,172 | $ | (3,468) | |||||||||||||||||||||||||||||
| Unfunded lending related commitments | 92 | 212 | (120) | 15 | 165 | (150) | |||||||||||||||||||||||||||||||||||
| Investment securities | 30 | (30) | 26 | 30 | (4) | ||||||||||||||||||||||||||||||||||||
| Other financial assets | 4 | 1 | 3 | 6 | 10 | (4) | |||||||||||||||||||||||||||||||||||
| Total provision for (recapture of) credit losses | $ | 302 | $ | 2,463 | $ | (2,161) | $ | (249) | $ | 3,377 | $ | (3,626) | |||||||||||||||||||||||||||||
The provision for credit losses for the second quarter of 2021 included a $1.0 billion initial provision for the BBVA acquisition, partially offset by a provision recapture of $704 million.
Net Income from Discontinued Operations
For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements of this Report.
8 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED BALANCE SHEET REVIEW
The summarized balance sheet data in Table 6 is based upon our Consolidated Balance Sheet in Part I, Item 1 of this Report.
Table 6: Summarized Balance Sheet Data
| June 30 | December 31 | Change | |||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | $ | % | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Interest-earning deposits with banks | $ | 72,447 | $ | 85,173 | $ | (12,726) | (15) | % | |||||||||||||||
| Loans held for sale | 2,227 | 1,597 | 630 | 39 | % | ||||||||||||||||||
| Investment securities | 126,543 | 88,799 | 37,744 | 43 | % | ||||||||||||||||||
| Loans | 294,704 | 241,928 | 52,776 | 22 | % | ||||||||||||||||||
| Allowance for loan and lease losses | (5,730) | (5,361) | (369) | (7) | % | ||||||||||||||||||
| Mortgage servicing rights | 1,793 | 1,242 | 551 | 44 | % | ||||||||||||||||||
| Goodwill | 10,958 | 9,233 | 1,725 | 19 | % | ||||||||||||||||||
| Other | 51,270 | 44,068 | 7,202 | 16 | % | ||||||||||||||||||
| Total assets | $ | 554,212 | $ | 466,679 | $ | 87,533 | 19 | % | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Deposits | $ | 452,883 | $ | 365,345 | $ | 87,538 | 24 | % | |||||||||||||||
| Borrowed funds | 34,813 | 37,195 | (2,382) | (6) | % | ||||||||||||||||||
| Allowance for unfunded lending related commitments | 645 | 584 | 61 | 10 | % | ||||||||||||||||||
| Other | 11,186 | 9,514 | 1,672 | 18 | % | ||||||||||||||||||
| Total liabilities | 499,527 | 412,638 | 86,889 | 21 | % | ||||||||||||||||||
| Equity | |||||||||||||||||||||||
| Total shareholders’ equity | 54,627 | 54,010 | 617 | 1 | % | ||||||||||||||||||
| Noncontrolling interests | 58 | 31 | 27 | 87 | % | ||||||||||||||||||
| Total equity | 54,685 | 54,041 | 644 | 1 | % | ||||||||||||||||||
| Total liabilities and equity | $ | 554,212 | $ | 466,679 | $ | 87,533 | 19 | % | |||||||||||||||
Our balance sheet was strong and well positioned at June 30, 2021 and December 31, 2020.
•Total asset growth reflected the addition of loans and investment securities from the BBVA acquisition, partially offset by a decrease in interest-earning deposits with banks.
•Total liabilities increased primarily due to deposit growth reflecting higher commercial and consumer deposits driven by the acquisition of BBVA, partially offset by lower borrowed funds.
•Total equity increased primarily due to second quarter net income, partially offset by lower AOCI and dividends paid on common and preferred stock.
The ACL related to loans totaled $6.4 billion at June 30, 2021, an increase of $0.4 billion since December 31, 2020. The increase was attributable to the ACL associated with the BBVA portfolio, which was recognized through both a fair value purchase accounting mark of $1.2 billion and an initial provision for credit losses of $1.0 billion, partially offset by a provision recapture of $1.3 billion and net loan charge-offs of $0.5 billion. 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 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 20 Regulatory Matters in the Notes To Consolidated Financial Statements included in our 2020 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q 9
Loans
Table 7: Loans
| June 30 | December 31 | Change | |||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | $ | % | |||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Commercial and industrial | $ | 155,300 | $ | 132,073 | $ | 23,227 | 18 | % | |||||||||||||||
| Commercial real estate | 37,964 | 28,716 | 9,248 | 32 | % | ||||||||||||||||||
| Equipment lease financing | 6,376 | 6,414 | (38) | (1) | % | ||||||||||||||||||
| Total commercial | 199,640 | 167,203 | 32,437 | 19 | % | ||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Residential real estate | 36,846 | 22,560 | 14,286 | 63 | % | ||||||||||||||||||
| Home Equity | 25,174 | 24,088 | 1,086 | 5 | % | ||||||||||||||||||
| Automobile | 17,551 | 14,218 | 3,333 | 23 | % | ||||||||||||||||||
| Credit card | 6,528 | 6,215 | 313 | 5 | % | ||||||||||||||||||
| Education | 2,726 | 2,946 | (220) | (7) | % | ||||||||||||||||||
| Other consumer | 6,239 | 4,698 | 1,541 | 33 | % | ||||||||||||||||||
| Total consumer | 95,064 | 74,725 | 20,339 | 27 | % | ||||||||||||||||||
| Total loans | $ | 294,704 | $ | 241,928 | $ | 52,776 | 22 | % | |||||||||||||||
Commercial loans increased driven by $38.5 billion of BBVA loans, partially offset by PNC legacy PPP loan forgiveness and lower multifamily agency warehouse lending. At June 30, 2021, PNC had $11.6 billion of PPP loans outstanding which included $2.1 billion from BBVA. PPP loans outstanding at 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.
Consumer loans increased primarily due to $22.0 billion of loans from BBVA and increased originations of PNC legacy residential mortgages, partially offset by declines in the remaining PNC legacy portfolios as paydowns outpaced new originations.
For information on our 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 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.
Investment Securities
Investment securities of $126.5 billion at June 30, 2021, increased $37.7 billion, or 43%, compared to December 31, 2020, resulting from the $17.6 billion related to the BBVA acquisition and increased purchase activity.
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 LCR and other internal and external guidelines and constraints.
Table 8: Investment Securities
| June 30, 2021 | December 31, 2020 | Ratings as of June 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 | $ | 39,368 | $ | 39,902 | $ | 20,616 | $ | 21,631 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Agency residential mortgage-backed | 66,393 | 67,314 | 47,355 | 48,911 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-agency residential mortgage-backed | 1,081 | 1,323 | 1,272 | 1,501 | 9 | % | 2 | % | 49 | % | 40 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Agency commercial mortgage-backed | 2,263 | 2,331 | 2,571 | 2,688 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-agency commercial mortgage-backed (c) | 4,033 | 4,079 | 3,678 | 3,689 | 86 | % | 1 | % | 1 | % | 4 | % | 8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Asset-backed (d) | 5,625 | 5,697 | 5,060 | 5,150 | 94 | % | 1 | % | 5 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Other (e) | 5,741 | 6,010 | 5,061 | 5,393 | 57 | % | 24 | % | 14 | % | 5 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total investment securities (f) | $ | 124,504 | $ | 126,656 | $ | 85,613 | $ | 88,963 | 96 | % | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||||||||||||||||||||||||||||||||
10 The PNC Financial Services Group, Inc. – Form 10-Q
(a)Ratings percentages allocated based on amortized cost, net of allowance for investment securities.
(b)Amortized cost is presented net of applicable allowance for investment securities of $108 million and $82 million at June 30, 2021 and December 31, 2020, in accordance with the adoption of the CECL accounting standard.
(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 8 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 3 Investment Securities in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional details regarding the amount of the allowance for investment securities.
The duration of investment securities was 4 years at June 30, 2021. We estimate that at June 30, 2021 the effective duration of investment securities was 4.1 years for an immediate 50 basis points parallel increase in interest rates and 3.8 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 4.4 years at June 30, 2021 compared to 3.4 years at December 31, 2020.
Table 9: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities
| June 30, 2021 | Years | |||||||
| Agency residential mortgage-backed | 4.4 | |||||||
| Non-agency residential mortgage-backed | 6.6 | |||||||
| Agency commercial mortgage-backed | 4.1 | |||||||
| Non-agency commercial mortgage-backed | 2.2 | |||||||
| Asset-backed | 2.8 | |||||||
Additional information regarding our investment securities is included in Note 3 Investment Securities and Note 11 Fair Value in the Notes To Consolidated Financial Statements included in Item 1 of this Report.
Funding Sources
Table 10: Details of Funding Sources
| June 30 | December 31 | Change | |||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | $ | % | |||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Noninterest-bearing | $ | 154,190 | $ | 112,637 | $ | 41,553 | 37 | % | |||||||||||||||
| Interest-bearing | |||||||||||||||||||||||
| Money market | 83,215 | 59,737 | 23,478 | 39 | % | ||||||||||||||||||
| Demand | 106,415 | 92,294 | 14,121 | 15 | % | ||||||||||||||||||
| Savings | 88,972 | 80,985 | 7,987 | 10 | % | ||||||||||||||||||
| Time deposits | 20,091 | 19,692 | 399 | 2 | % | ||||||||||||||||||
| Total interest-bearing deposits | 298,693 | 252,708 | 45,985 | 18 | % | ||||||||||||||||||
| Total deposits | 452,883 | 365,345 | 87,538 | 24 | % | ||||||||||||||||||
| Borrowed funds | |||||||||||||||||||||||
| Federal Home Loan Bank borrowings | 3,500 | (3,500) | (100) | % | |||||||||||||||||||
| Bank notes and senior debt | 24,408 | 24,271 | 137 | 1 | % | ||||||||||||||||||
| Subordinated debt | 7,120 | 6,403 | 717 | 11 | % | ||||||||||||||||||
| Other | 3,285 | 3,021 | 264 | 9 | % | ||||||||||||||||||
| Total borrowed funds | 34,813 | 37,195 | (2,382) | (6) | % | ||||||||||||||||||
| Total funding sources | $ | 487,696 | $ | 402,540 | $ | 85,156 | 21 | % | |||||||||||||||
Total deposits increased reflecting growth in commercial and consumer deposits primarily due to the BBVA acquisition.
Borrowed funds decreased due to lower FHLB borrowings reflecting the use of liquidity from deposit growth, which more than offset borrowed funds from 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 2021 liquidity and capital activities. See Note 10 Borrowed Funds in the Notes to Consolidated Financial Statements in Item 8 of our 2020 Form 10-K for additional information related to our borrowings.
Shareholders’ Equity
Total shareholders’ equity was $54.6 billion at June 30, 2021, an increase of $0.6 billion compared to December 31, 2020. The increase resulted from net income of $2.9 billion, partially offset by lower AOCI of $1.3 billion reflecting the impact of higher rates on net unrealized securities gains and common and preferred stock dividends of $1.0 billion.
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 14 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 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 six months of 2021 reflect BBVA's business operations for the month of June 2021 and our balance sheet at June 30, 2021 includes BBVA's balances. Until conversion of bank systems and branches, PNC Bank and BBVA customers will continue to be served through their respective PNC Bank and BBVA USA branches, websites and mobile apps, financial advisors and relationship managers. Upon conversion, which is expected to occur in October 2021, there will be changes in the segmentation of BBVA USA customers as we integrate data to PNC applications, finalize the review of customer relationships and better align customers with PNC's products and services. 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, which had previously been reported as a separate business segment. See Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional 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 83 in Note 14 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).
12 The PNC Financial Services Group, Inc. – Form 10-Q
Retail Banking
Retail Banking's core strategy is to help all of our consumer and small business customers move financially forward. We aim to grow our primary checking and transaction relationships 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, 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 are focused on consistently engaging both our employees and customers, which is a strong driver of customer growth, retention and relationship expansion.
Table 11: Retail Banking Table
| (Unaudited) | |||||||||||||||||||||||
| Six months ended June 30 | Change | ||||||||||||||||||||||
| Dollars in millions, except as noted | 2021 | 2020 | $ | % | |||||||||||||||||||
| Income Statement | |||||||||||||||||||||||
| Net interest income | $ | 2,859 | $ | 2,846 | $ | 13 | * | ||||||||||||||||
| Noninterest income | 1,360 | 1,373 | (13) | (1) | % | ||||||||||||||||||
| Total revenue | 4,219 | 4,219 | |||||||||||||||||||||
| Provision for (recapture of) credit losses | (43) | 1,206 | (1,249) | (104) | % | ||||||||||||||||||
| Noninterest expense | 3,153 | 3,025 | 128 | 4 | % | ||||||||||||||||||
| Pretax earnings | 1,109 | (12) | 1,121 | * | |||||||||||||||||||
| Income taxes (benefit) | 256 | (1) | 257 | * | |||||||||||||||||||
| Noncontrolling interest | 14 | 11 | 3 | 27 | % | ||||||||||||||||||
| Earnings | $ | 839 | $ | (22) | $ | 861 | * | ||||||||||||||||
| Average Balance Sheet | |||||||||||||||||||||||
| Loans held for sale | $ | 1,150 | $ | 804 | $ | 346 | 43 | % | |||||||||||||||
| Loans | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Home equity | $ | 21,957 | $ | 22,763 | $ | (806) | (4) | % | |||||||||||||||
| Residential real estate | 19,573 | 18,104 | 1,469 | 8 | % | ||||||||||||||||||
| Automobile | 14,392 | 16,892 | (2,500) | (15) | % | ||||||||||||||||||
| Credit card | 5,860 | 6,948 | (1,088) | (16) | % | ||||||||||||||||||
| Education | 2,875 | 3,281 | (406) | (12) | % | ||||||||||||||||||
| Other consumer | 2,036 | 2,494 | (458) | (18) | % | ||||||||||||||||||
| Total consumer | 66,693 | 70,482 | (3,789) | (5) | % | ||||||||||||||||||
| Commercial | 14,272 | 12,068 | 2,204 | 18 | % | ||||||||||||||||||
| Total loans | $ | 80,965 | $ | 82,550 | $ | (1,585) | (2) | % | |||||||||||||||
| Total assets | $ | 96,942 | $ | 99,583 | $ | (2,641) | (3) | % | |||||||||||||||
| Deposits | |||||||||||||||||||||||
| Noninterest-bearing demand | $ | 49,578 | $ | 35,680 | $ | 13,898 | 39 | % | |||||||||||||||
| Interest-bearing demand | 56,813 | 45,102 | 11,711 | 26 | % | ||||||||||||||||||
| Money market | 27,115 | 22,903 | 4,212 | 18 | % | ||||||||||||||||||
| Savings | 77,361 | 65,364 | 11,997 | 18 | % | ||||||||||||||||||
| Certificates of deposit | 9,922 | 11,947 | (2,025) | (17) | % | ||||||||||||||||||
| Total deposits | $ | 220,789 | $ | 180,996 | $ | 39,793 | 22 | % | |||||||||||||||
| Performance Ratios | |||||||||||||||||||||||
| Return on average assets | 1.75 | % | (0.04) | % | |||||||||||||||||||
| Noninterest income to total revenue | 32 | % | 33 | % | |||||||||||||||||||
| Efficiency | 75 | % | 72 | % | |||||||||||||||||||
The PNC Financial Services Group, Inc. – Form 10-Q 13
At or for six months ended June 30 |
Change | ||||||||||||||||||||||
| Dollars in millions, except as noted | 2021 | 2020 | $ | % | |||||||||||||||||||
| Supplemental Noninterest Income Information | |||||||||||||||||||||||
| Consumer services | $ | 803 | $ | 687 | $ | 116 | 17 | % | |||||||||||||||
| Residential mortgage | $ | 208 | $ | 368 | $ | (160) | (43) | % | |||||||||||||||
| Service charges on deposits | $ | 248 | $ | 246 | $ | 2 | 1 | % | |||||||||||||||
| Residential Mortgage Information | |||||||||||||||||||||||
| Residential mortgage servicing statistics (in billions, except as noted) (a) | |||||||||||||||||||||||
| Serviced portfolio balance (b) | $ | 145 | $ | 122 | $ | 23 | 19 | % | |||||||||||||||
| Serviced portfolio acquisitions | $ | 40 | $ | 13 | $ | 27 | 208 | % | |||||||||||||||
| MSR asset value (b) | $ | 1.1 | $ | 0.6 | $ | 0.5 | 83 | % | |||||||||||||||
| MSR capitalization value (in basis points) (b) | 77 | 47 | 30 | 64 | % | ||||||||||||||||||
| Servicing income: (in millions) | |||||||||||||||||||||||
| Servicing fees, net (c) | $ | 2 | $ | 80 | $ | (78) | (98) | % | |||||||||||||||
| Mortgage servicing rights valuation, net of economic hedge | $ | 38 | $ | 121 | $ | (83) | (69) | % | |||||||||||||||
| Residential mortgage loan statistics | |||||||||||||||||||||||
| Loan origination volume (in billions) | $ | 10.8 | $ | 7.4 | $ | 3.4 | 46 | % | |||||||||||||||
| Loan sale margin percentage | 2.92 | % | 3.45 | % | |||||||||||||||||||
| Percentage of originations represented by: | |||||||||||||||||||||||
| Purchase volume (d) | 43 | % | 35 | % | |||||||||||||||||||
| Refinance volume | 57 | % | 65 | % | |||||||||||||||||||
| Other Information (b) | |||||||||||||||||||||||
| Customer-related statistics (average) | |||||||||||||||||||||||
| Non-teller deposit transactions (e) | 66 | % | 61 | % | |||||||||||||||||||
| Digital consumer customers (f) | 80 | % | 72 | % | |||||||||||||||||||
| Credit-related statistics | |||||||||||||||||||||||
| Nonperforming assets | $ | 1,245 | $ | 1,037 | $ | 208 | 20 | % | |||||||||||||||
| Net charge-offs - loans and leases | $ | 187 | $ | 308 | $ | (121) | (39) | % | |||||||||||||||
| Other statistics | |||||||||||||||||||||||
| ATMs | 9,636 | 9,058 | 578 | 6 | % | ||||||||||||||||||
| Branches (g) | 2,724 | 2,256 | 468 | 21 | % | ||||||||||||||||||
| Brokerage account client assets (in billions) (h) | $ | 83 | $ | 53 | $ | 30 | 57 | % | |||||||||||||||
*- 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 six 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)Excludes stand-alone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.
(h)Includes cash and money market balances.
Retail Banking earnings for the first six months of 2021 increased $861 million compared with the same period in 2020 driven by a provision recapture, partially offset by higher noninterest expense. Results for the first six months of 2021 include the impact of BBVA's business operations for the month of June 2021. Retail banking added $26.2 billion in loans and $41.4 billion in deposits at June 30, 2021 attributable to the acquisition, along with 647 branches and 824 ATMs.
Net interest income was $2.9 billion, including $143 million from BBVA, and increased primarily due to growth in average deposit balances, partially offset by narrower interest rate spreads on the value of deposits and loans, as well as declines in average loan balances.
Noninterest income was $1.4 billion, including $35 million from BBVA, and decreased largely due to declines in residential mortgage revenue, driven by lower revenue from residential mortgage servicing rights valuation, net of economic hedge and servicing fees primarily due to higher payoffs. The decrease in noninterest income was partially offset by increased consumer services revenue driven by debit card, brokerage fees, and credit card, as well as the favorable impact of derivative fair value adjustments related to Visa Class B common shares in the first half of 2021 compared to unfavorable adjustments in the same period of 2020.
14 The PNC Financial Services Group, Inc. – Form 10-Q
Provision recapture in the first six months of 2021 was driven by improvements in credit quality and macroeconomic factors, coupled with lower loans outstanding, partially offset by the initial provision for credit losses of $500 million related to the BBVA acquisition.
Noninterest expense was $3.2 billion, including $111 million related to BBVA, and increased primarily as a result of higher non-credit losses due to additions to litigation reserves, technology investments, personnel, and customer related transaction costs.
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 six months of 2021, average total deposits increased compared to the same period in 2020 primarily driven by growth in demand and savings deposits which benefited from the impact of government stimulus payments.
Retail Banking average total loans decreased in the first six months of 2021 compared with the same period in 2020:
•Average auto loan balances declined due to impacts of the pandemic on the auto industry and proactive credit tightening.
•Average credit card balances decreased due to credit tightening actions taken as a result of the pandemic combined with changes in customer behavior resulting in higher balance paydowns driven by government stimulus payments.
•Average home equity loans decreased as paydowns and payoffs exceeded new originated volume.
•Average other consumer loans declined driven by lower originations due to the pandemic and the effects of government stimulus and credit tightening.
•Average education loans decreased driven by a decline in the runoff portfolio of government guaranteed education loans.
•Average commercial loans increased primarily due to PPP loans.
•Average residential real estate loans increased due to originations outpacing paydowns.
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. In 2018, we began offering our digital high yield savings deposit product and opened our first solution center in Kansas City, Kansas. 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 services, beyond deposits and withdrawals. In 2020, we expanded into three new markets, Boston, Houston and Nashville and opened seventeen new solution centers. In the first six months of 2021 we opened eight new solution centers and expanded into two new markets, Denver and Phoenix. In total, we have thirty open solution centers within the markets of Boston, Dallas/Fort Worth, Denver, Houston, Kansas City, Nashville and Phoenix. We also offer digital unsecured installment and small business loans in the expansion markets. As a result of the BBVA acquisition, as of June 2021 we have become a coast-to-coast Retail Bank.
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 will give 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 July we have successfully rolled out Low Cash ModeSM to 3.7 million Virtual Wallet® customers, 2.5 million of which were rolled out through the end of June. Since April, we've delivered over 10 million Low Cash ModeSM alerts.
Upon conversion, BBVA customers will be eligible for the full suite of PNC products and services, including Low Cash ModeSM. Our full year 2021 revenue outlook 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 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 95 legacy PNC branches in the first six months of 2021 consistent with our plan.
•Approximately 80% of consumer customers used non-teller channels for the majority of their transactions in the first six months of 2021 compared with 72% in 2020, in part reflecting consumer transaction behavior changes during the pandemic.
•Deposit transactions via ATM and mobile channels increased to 66% of total deposit transactions in the first six months of 2021 from 61% in 2020, in part reflecting consumer transaction behavior changes during the pandemic.
The PNC Financial Services Group, Inc. – Form 10-Q 15
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 12: Corporate & Institutional Banking Table
| (Unaudited) | |||||||||||||||||||||||
| Six months ended June 30 | Change | ||||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | $ | % | |||||||||||||||||||
| Income Statement | |||||||||||||||||||||||
| Net interest income | $ | 2,093 | $ | 2,030 | $ | 63 | 3 | % | |||||||||||||||
| Noninterest income | 1,674 | 1,420 | 254 | 18 | % | ||||||||||||||||||
| Total revenue | 3,767 | 3,450 | 317 | 9 | % | ||||||||||||||||||
| Provision for (recapture of) credit losses | (178) | 2,043 | (2,221) | (109) | % | ||||||||||||||||||
| Noninterest expense | 1,524 | 1,392 | 132 | 9 | % | ||||||||||||||||||
| Pretax earnings | 2,421 | 15 | 2,406 | * | |||||||||||||||||||
| Income taxes | 547 | 547 | * | ||||||||||||||||||||
| Noncontrolling interest | 7 | 3 | 4 | 133 | % | ||||||||||||||||||
| Earnings | $ | 1,867 | $ | 12 | $ | 1,855 | * | ||||||||||||||||
| Average Balance Sheet | |||||||||||||||||||||||
| Loans held for sale | $ | 627 | $ | 550 | $ | 77 | 14 | % | |||||||||||||||
| Loans | |||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Commercial and industrial | $ | 118,106 | $ | 128,139 | $ | (10,033) | (8) | % | |||||||||||||||
| Commercial real estate | 28,658 | 26,848 | 1,810 | 7 | % | ||||||||||||||||||
| Equipment lease financing | 6,332 | 7,051 | (719) | (10) | % | ||||||||||||||||||
| Total commercial | 153,096 | 162,038 | (8,942) | (6) | % | ||||||||||||||||||
| Consumer | 10 | 9 | 1 | 11 | % | ||||||||||||||||||
| Total loans | $ | 153,106 | $ | 162,047 | $ | (8,941) | (6) | % | |||||||||||||||
| Total assets | $ | 176,182 | $ | 185,878 | $ | (9,696) | (5) | % | |||||||||||||||
| Deposits | |||||||||||||||||||||||
| Noninterest-bearing demand | $ | 71,142 | $ | 46,904 | $ | 24,238 | 52 | % | |||||||||||||||
| Interest-bearing demand | 29,143 | 24,388 | 4,755 | 19 | % | ||||||||||||||||||
| Money market | 32,481 | 32,532 | (51) | * | |||||||||||||||||||
| Other | 7,931 | 8,706 | (775) | (9) | % | ||||||||||||||||||
| Total deposits | $ | 140,697 | $ | 112,530 | $ | 28,167 | 25 | % | |||||||||||||||
| Performance Ratios | |||||||||||||||||||||||
| Return on average assets | 2.14 | % | 0.01 | % | |||||||||||||||||||
| Noninterest income to total revenue | 44 | % | 41 | % | |||||||||||||||||||
| Efficiency | 40 | % | 40 | % | |||||||||||||||||||
| Other Information | |||||||||||||||||||||||
| Consolidated revenue from: (a) | |||||||||||||||||||||||
| Treasury Management (b) | $ | 1,017 | $ | 960 | $ | 57 | 6 | % | |||||||||||||||
| Capital Markets (b) | $ | 835 | $ | 732 | $ | 103 | 14 | % | |||||||||||||||
| Commercial mortgage banking activities: | |||||||||||||||||||||||
| Commercial mortgage loans held for sale (c) | $ | 59 | $ | 71 | $ | (12) | (17) | % | |||||||||||||||
| Commercial mortgage loan servicing income (d) | 156 | 136 | 20 | 15 | % | ||||||||||||||||||
| Commercial mortgage servicing rights valuation, net of economic hedge (e) | 50 | 42 | 8 | 19 | % | ||||||||||||||||||
| Total | $ | 265 | $ | 249 | $ | 16 | 6 | % | |||||||||||||||
| MSR asset value (f) | $ | 682 | $ | 490 | $ | 192 | 39 | % | |||||||||||||||
| Average Loans by C&IB business | |||||||||||||||||||||||
| Corporate Banking | $ | 75,806 | $ | 84,846 | $ | (9,040) | (11) | % | |||||||||||||||
| Real Estate | 39,799 | 39,746 | 53 | * | |||||||||||||||||||
| Business Credit | 22,263 | 23,597 | (1,334) | (6) | % | ||||||||||||||||||
| Commercial Banking | 11,919 | 9,246 | 2,673 | 29 | % | ||||||||||||||||||
| Other | 3,319 | 4,612 | (1,293) | (28) | % | ||||||||||||||||||
| Total average loans | $ | 153,106 | $ | 162,047 | $ | (8,941) | (6) | % | |||||||||||||||
| Credit-related statistics | |||||||||||||||||||||||
| Nonperforming assets (f) | $ | 1,274 | $ | 674 | $ | 600 | 89 | % | |||||||||||||||
| Net charge-offs - loans and leases | $ | 277 | $ | 149 | $ | 128 | 86 | % | |||||||||||||||
*- Not Meaningful
16 The PNC Financial Services Group, Inc. – Form 10-Q
(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 June 30.
Corporate & Institutional Banking earnings in the first six months of 2021 increased $1.9 billion compared with the same period in 2020 driven by a provision recapture and higher total revenue, partially offset by higher noninterest expense. Results for the first six months of 2021 include the impact of BBVA's business operations for the month of June 2021. Corporate & Institutional Banking added $30.6 billion in loans and $32.8 billion in deposits at June 30, 2021 attributable to the acquisition.
Net interest income, including $99 million from BBVA, increased in the comparison primarily due to wider interest rate spreads on the value of loans and higher average deposit balances, partially offset by narrower interest rate spreads on the value of deposits and lower average loan balances.
Growth in noninterest income, including $35 million from BBVA, in the comparison reflected broad-based increases in treasury management product revenue, capital markets-related revenue and revenue from commercial mortgage banking activities.
Provision recapture in the first six months of 2021 was driven by improvements in credit quality and macroeconomic factors, coupled with lower loans outstanding, partially offset by the initial provision for credit losses of $462 million related to the BBVA acquisition.
Nonperforming assets at June 30, 2021 increased over the comparative period of 2020 primarily due to $763 million of nonperforming assets from BBVA.
Noninterest expense, including $55 million from BBVA, increased in the comparison largely due to higher variable costs associated with increased business activity.
Average loans decreased compared with the six months ended June 30, 2020 due to declines in Corporate Banking and Business Credit, partially offset by increases in Commercial Banking and Real Estate:
•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 declined reflecting lower average utilization of loan commitments, partially offset by new production and loans from BBVA.
•Business Credit provides asset-based lending and equipment financing solutions. The loan and lease portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by marketable collateral. Average loans for this business declined primarily driven by lower average utilization of loan commitments, partially offset by new production and loans from BBVA.
•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 PPP loan originations and loans from BBVA, partially offset by softer new production and lower average utilization of loan commitments.
•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, mostly offset by lower commercial mortgage and multifamily agency warehouse lending.
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 impacts 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 executed on our expansion plans into the Seattle and Portland markets in 2020, and in 2021, the BBVA acquisition accelerated our expansion 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.
The PNC Financial Services Group, Inc. – Form 10-Q 17
Product 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 Other Information section in Table 12 includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.
The Treasury Management business 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 throughout Mexico, Central America, South America and the Caribbean. 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 management customer deposit balances. Compared with the first six months of 2020, treasury management revenue increased due to higher deposit balances and higher noninterest income, including $25 million from BBVA, 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 primarily driven by higher merger and acquisition advisory fees, revenue from credit valuations on customer-related derivatives activities and equity capital market advisory fees. These increases were partially offset by lower customer-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.
18 The PNC Financial Services Group, Inc. – Form 10-Q
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 13: Asset Management Group Table
| (Unaudited) | |||||||||||||||||||||||
| Six months ended June 30 | Change | ||||||||||||||||||||||
| Dollars in millions, except as noted | 2021 | 2020 | $ | % | |||||||||||||||||||
| Income Statement | |||||||||||||||||||||||
| Net interest income | $ | 205 | $ | 177 | $ | 28 | 16 | % | |||||||||||||||
| Noninterest income | 473 | 408 | 65 | 16 | % | ||||||||||||||||||
| Total revenue | 678 | 585 | 93 | 16 | % | ||||||||||||||||||
| Provision for credit losses | 14 | 42 | (28) | (67) | % | ||||||||||||||||||
| Noninterest expense | 421 | 436 | (15) | (3) | % | ||||||||||||||||||
| Pretax earnings | 243 | 107 | 136 | 127 | % | ||||||||||||||||||
| Income taxes | 57 | 25 | 32 | 128 | % | ||||||||||||||||||
| Earnings | $ | 186 | $ | 82 | $ | 104 | 127 | % | |||||||||||||||
| Average Balance Sheet | |||||||||||||||||||||||
| Loans | |||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Residential real estate | $ | 4,040 | $ | 2,511 | $ | 1,529 | 61 | % | |||||||||||||||
| Other consumer | 4,099 | 4,013 | 86 | 2 | % | ||||||||||||||||||
| Total consumer | 8,139 | 6,524 | 1,615 | 25 | % | ||||||||||||||||||
| Commercial | 1,087 | 869 | 218 | 25 | % | ||||||||||||||||||
| Total loans | $ | 9,226 | $ | 7,393 | $ | 1,833 | 25 | % | |||||||||||||||
| Total assets | $ | 9,761 | $ | 7,880 | $ | 1,881 | 24 | % | |||||||||||||||
| Deposits | |||||||||||||||||||||||
| Noninterest-bearing demand | $ | 2,148 | $ | 1,445 | $ | 703 | 49 | % | |||||||||||||||
| Interest-bearing demand | 9,291 | 7,296 | 1,995 | 27 | % | ||||||||||||||||||
| Money market | 2,297 | 1,653 | 644 | 39 | % | ||||||||||||||||||
| Savings | 7,768 | 7,297 | 471 | 6 | % | ||||||||||||||||||
| Other | 509 | 785 | (276) | (35) | % | ||||||||||||||||||
| Total deposits | $ | 22,013 | $ | 18,476 | $ | 3,537 | 19 | % | |||||||||||||||
| Performance Ratios | |||||||||||||||||||||||
| Return on average assets | 3.84 | % | 2.10 | % | |||||||||||||||||||
| Noninterest income to total revenue | 70 | % | 70 | % | |||||||||||||||||||
| Efficiency | 62 | % | 75 | % | |||||||||||||||||||
| Supplemental Noninterest Income Information | |||||||||||||||||||||||
| Asset management fees | $ | 465 | $ | 400 | $ | 65 | 16 | % | |||||||||||||||
| Brokerage fees | 2 | 2 | * | ||||||||||||||||||||
| Total | $ | 467 | $ | 400 | $ | 67 | 17 | % | |||||||||||||||
| Other Information | |||||||||||||||||||||||
| Nonperforming assets (a) | $ | 85 | $ | 38 | $ | 47 | 124 | % | |||||||||||||||
| Net charge-offs (recoveries) - loans and leases | $ | 2 | $ | (1) | $ | 3 | 300 | % | |||||||||||||||
| Brokerage account client assets (in billions) (a) | $ | 5 | $ | 5 | * | ||||||||||||||||||
Client Assets Under Administration (in billions) (a) (b)
|
|||||||||||||||||||||||
| Discretionary client assets under management | $ | 183 | $ | 151 | $ | 32 | 21 | % | |||||||||||||||
| Nondiscretionary client assets under administration | 172 | 138 | 34 | 25 | % | ||||||||||||||||||
| Total | $ | 355 | $ | 289 | $ | 66 | 23 | % | |||||||||||||||
| Discretionary client assets under management | |||||||||||||||||||||||
| Personal | $ | 119 | $ | 94 | $ | 25 | 27 | % | |||||||||||||||
| Institutional | 64 | 57 | 7 | 12 | % | ||||||||||||||||||
| Total | $ | 183 | $ | 151 | $ | 32 | 21 | % | |||||||||||||||
* - Not meaningful
(a)As of June 30.
(b)Excludes brokerage account client assets.
The PNC Financial Services Group, Inc. – Form 10-Q 19
Asset Management Group earnings in the first six months of 2021 increased $104 million compared with the same period in 2020 driven by higher revenue, lower noninterest expense and lower provision for credit losses. Results for the first six months of 2021 include the impact of BBVA's business operations for the month of June 2021. Asset Management Group added $3.7 billion in loans and $8.7 billion in deposits at June 30, 2021 attributable to the acquisition.
Net interest income, including $21 million from BBVA, increased due to growth in average loan and deposit balances, wider interest rate spreads on loans and purchase accounting impacts. This was partially offset by narrower interest rate spreads on deposits.
The increase in noninterest income, including $6 million from BBVA, was primarily attributable to increases in the average equity markets.
Noninterest expense, including $10 million from BBVA, declined due to intangible asset amortization run-off and lower costs associated with decreased business travel.
Provision for credit losses in the first six months of 2021 was driven by an initial provision for credit losses of $45 million related to the acquisition of BBVA, partially offset by improvements in credit quality and macroeconomic factors.
Discretionary client assets under management, including $4.6 billion from BBVA, increased in comparison to the prior year primarily due to the higher equity markets as of June 30, 2021.
The Asset Management Group strives to be the leading relationship-based provider of investment, planning, banking and fiduciary services to wealthy individuals and institutions by proactively delivering value-added ideas, solutions and exceptional service.
With the inclusion of BBVA, Personal Wealth Management has approximately 100 offices operating in eight out of the ten most affluent states in the U.S. with a majority co-located with retail banking branches. The business 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 investment services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.
We expect that the BBVA acquisition will continue to allow meaningful opportunities to grow the Asset Management Group segment by entering into new markets for both the Personal Wealth Management and Institutional Asset Management businesses.
RISK MANAGEMENT
The Risk Management section included in Item 7 of our 2020 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 2020 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, Market, Liquidity and Operational (including Compliance and Information Security).
Upon closing of the acquisition of BBVA, the PNC Enterprise Risk Management Framework applies 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 allows 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 will be communicated through the established risk governance and reporting for PNC. Upon the merger of BBVA USA into PNC Bank, anticipated for October 2021, the updated BBVA risk governance and reporting framework will no longer be applicable as all entities will be 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
20 The PNC Financial Services Group, Inc. – Form 10-Q
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.
Loan Portfolio Characteristics and Analysis
Table 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 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 the significant loan classes that comprise our Commercial and Consumer portfolio segments.
Commercial
Commercial and Industrial
Commercial and industrial loans comprised 53% and 55% of our total loan portfolio at June 30, 2021 and December 31, 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, real estate and other business assets.
The PNC Financial Services Group, Inc. – Form 10-Q 21
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 PD and 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 NAICS).
Table 15: Commercial and Industrial Loans by Industry
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| Dollars in millions | Amount | % of Total | Amount | % of Total | |||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| Manufacturing | $ | 22,709 | 15 | % | $ | 20,712 | 16 | % | |||||||||||||||||||||
| Retail/wholesale trade | 22,596 | 15 | 20,218 | 15 | |||||||||||||||||||||||||
| Service providers | 22,303 | 14 | 19,419 | 15 | |||||||||||||||||||||||||
| Financial services | 15,947 | 10 | 14,909 | 11 | |||||||||||||||||||||||||
| Real estate related (a) | 14,945 | 10 | 13,369 | 10 | |||||||||||||||||||||||||
| Health care | 11,713 | 8 | 8,987 | 7 | |||||||||||||||||||||||||
| Transportation and warehousing | 7,967 | 5 | 7,095 | 5 | |||||||||||||||||||||||||
| Other industries | 37,120 | 23 | 27,364 | 21 | |||||||||||||||||||||||||
| Total commercial and industrial loans | $ | 155,300 | 100 | % | $ | 132,073 | 100 | % | |||||||||||||||||||||
(a) Represents loans to customers in the real estate and construction industries.
The increase in commercial and industrial loans compared to December 31, 2020 primarily reflects the $28.3 billion of commercial and industrial loans from BBVA. Amounts also include $11.6 billion of PPP loans outstanding at June 30, 2021, $2.1 billion of which were from BBVA. PPP loans outstanding at December 31, 2020 totaled $12.0 billion. For additional information on PPP lending, see the 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 $21.4 billion related to commercial mortgages, $8.6 billion of real estate project loans and $8.0 billion of intermediate term financing loans as of June 30, 2021. Comparable amounts as of December 31, 2020 were $17.3 billion, $6.3 billion and $5.1 billion, respectively. Balances at June 30, 2021 include BBVA contributions of $4.6 billion, $1.8 billion and $3.8 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.
22 The PNC Financial Services Group, Inc. – Form 10-Q
The following table presents our commercial real estate loans by geography and property type:
Table 16: Commercial Real Estate Loans by Geography and Property Type
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| Dollars in millions | Amount | % of Total | Amount | % of Total | |||||||||||||||||||||||||
| Geography (a) | |||||||||||||||||||||||||||||
| California | $ | 6,173 | 16 | % | $ | 4,458 | 16 | % | |||||||||||||||||||||
| Texas | 4,292 | 11 | 2,031 | 7 | |||||||||||||||||||||||||
| Florida | 3,741 | 10 | 2,991 | 10 | |||||||||||||||||||||||||
| Maryland | 1,879 | 5 | 1,770 | 6 | |||||||||||||||||||||||||
| Virginia | 1,765 | 5 | 1,586 | 6 | |||||||||||||||||||||||||
| Pennsylvania | 1,577 | 4 | 1,425 | 5 | |||||||||||||||||||||||||
| Illinois | 1,368 | 4 | 900 | 3 | |||||||||||||||||||||||||
| Ohio | 1,330 | 4 | 1,247 | 4 | |||||||||||||||||||||||||
| Arizona | 1,327 | 3 | 636 | 2 | |||||||||||||||||||||||||
| Colorado | 1,200 | 3 | 584 | 2 | |||||||||||||||||||||||||
| Other | 13,312 | 35 | 11,088 | 39 | |||||||||||||||||||||||||
| Total commercial real estate loans | $ | 37,964 | 100 | % | $ | 28,716 | 100 | % | |||||||||||||||||||||
| Property Type | |||||||||||||||||||||||||||||
| Multifamily | $ | 12,794 | 34 | % | $ | 9,617 | 33 | % | |||||||||||||||||||||
| Office | 10,556 | 28 | 7,691 | 27 | |||||||||||||||||||||||||
| Retail | 4,053 | 11 | 3,490 | 12 | |||||||||||||||||||||||||
| Industrial/warehouse | 2,776 | 7 | 1,999 | 7 | |||||||||||||||||||||||||
| Hotel/motel | 2,440 | 6 | 1,954 | 7 | |||||||||||||||||||||||||
| Seniors housing | 2,450 | 6 | 1,417 | 5 | |||||||||||||||||||||||||
| Mixed use | 838 | 2 | 835 | 3 | |||||||||||||||||||||||||
| Other | 2,057 | 6 | 1,713 | 6 | |||||||||||||||||||||||||
| Total commercial real estate loans | $ | 37,964 | 100 | % | $ | 28,716 | 100 | % | |||||||||||||||||||||
(a) Presented in descending order based on loan balances at June 30, 2021.
Commercial High Impact Industries
In light of the economic circumstances related to COVID-19, we are continuing to evaluate and monitor our entire commercial portfolio for elevated levels of credit risk; however, the industry sectors that have been and we believe will continue to be most likely 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
•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 June 30, 2021, our outstanding loan balances in these industries totaled $22.9 billion, or approximately 8% of our total loan portfolio, while additional unfunded loan commitments totaled $13.8 billion. BBVA contributed $7.0 billion of outstanding loans and $2.4 billion of unfunded loan commitments to these high impact industries at June 30, 2021. We continue to carefully monitor and manage these loans, and while we have not yet experienced material charge-offs in these industries, we do expect to see continued stress.
In our non-real estate related category we have $13.6 billion in loans outstanding, $2.7 billion of which are funded through the PPP and guaranteed by the SBA. Nonperforming loans in these industries totaled $0.2 billion, or 1% of total loans outstanding in the non-real estate related category, while criticized assets totaled $1.9 billion at June 30, 2021 with the greatest stress seen in the leisure recreation and leisure travel sectors.
The PNC Financial Services Group, Inc. – Form 10-Q 23
Within the real estate related category we have $9.3 billion in loans outstanding, which includes real estate projects of $6.9 billion and unsecured real estate of $2.4 billion. Nonperforming loans in these industries totaled $0.3 billion at June 30, 2021, or 3% of total loans outstanding in the commercial real estate related category. In this category, while loan performance has not materially deteriorated, these industries continue to face headwinds that have resulted in a slower recovery compared with the pace of the overall economy.
Oil and Gas Loan Portfolio
As of June 30, 2021, our outstanding loans in the oil and gas sector totaled $4.7 billion, or 2% of total loans. This portfolio comprised approximately $1.8 billion in the midstream and downstream sectors, $1.0 billion of oil services companies and $1.9 billion related to exploration and production companies. Of the oil services category, approximately $0.2 billion is not asset-based or investment grade. Nonperforming loans in the oil and gas sector as of June 30, 2021 totaled $0.3 billion, or 6% of total loans outstanding in this sector. Additional unfunded loan commitments for the oil and gas portfolio totaled $10.3 billion at June 30, 2021. BBVA contributed $2.1 billion of outstanding loans and $3.5 billion of unfunded loan commitments to the oil and gas loan portfolio at June 30, 2021.
Consumer
Residential Real Estate
Residential real estate loans primarily consisted of residential mortgage loans at both June 30, 2021 and December 31, 2020. BBVA contributed $13.0 billion of residential real estate loans to PNC's portfolio at June 30, 2021.
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 777.
The following table presents our residential real estate loans by geography:
Table 17: Residential Real Estate Loans by Geography
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| Dollars in millions | Amount | % of Total | Amount | % of Total | |||||||||||||||||||||||||
| Geography (a) | |||||||||||||||||||||||||||||
| California | $ | 12,752 | 35 | % | $ | 7,828 | 35 | % | |||||||||||||||||||||
| Texas | 4,644 | 13 | 409 | 2 | |||||||||||||||||||||||||
| Florida | 3,097 | 8 | 1,620 | 7 | |||||||||||||||||||||||||
| New Jersey | 1,561 | 4 | 1,635 | 7 | |||||||||||||||||||||||||
| Arizona | 1,470 | 4 | 163 | 1 | |||||||||||||||||||||||||
| Washington | 1,446 | 4 | 1,104 | 5 | |||||||||||||||||||||||||
| Colorado | 1,192 | 3 | 262 | 1 | |||||||||||||||||||||||||
| New York | 1,098 | 3 | 1,020 | 5 | |||||||||||||||||||||||||
| Pennsylvania | 1,023 | 3 | 1,036 | 5 | |||||||||||||||||||||||||
| Illinois | 984 | 3 | 1,039 | 5 | |||||||||||||||||||||||||
| Other | 7,579 | 20 | 6,444 | 27 | |||||||||||||||||||||||||
Total residential real estate loans |
$ | 36,846 | 100 | % | $ | 22,560 | 100 | % | |||||||||||||||||||||
(a) Presented in descending order based on loan balances at June 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 $28.0 billion at June 30, 2021 with 41% located in California.
24 The PNC Financial Services Group, Inc. – Form 10-Q
Home Equity
Home equity loans comprised $15.1 billion of primarily variable-rate home equity lines of credit and $10.1 billion of closed-end home equity installment loans at June 30, 2021. Comparable amounts were $12.6 billion and $11.5 billion as of December 31, 2020, respectively. Balances at June 30, 2021 include BBVA contributions of $2.3 billion and $0.1 billion, respectively.
We track borrower performance of this portfolio monthly similarly 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.
Newly originated loans over the last twelve months had a weighted-average LTV on originations of 65% and a weighted-average FICO score of 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.
The following table presents our home equity loans by geography and lien type:
Table 18: Home Equity Loans by Geography and by Lien Type
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| Dollars in millions | Amount | % of Total | Amount | % of Total | |||||||||||||||||||||||||
| Geography (a) | |||||||||||||||||||||||||||||
| Pennsylvania | $ | 5,279 | 21 | % | $ | 5,602 | 23 | % | |||||||||||||||||||||
| New Jersey | 3,244 | 13 | 3,462 | 14 | |||||||||||||||||||||||||
| Ohio | 2,545 | 10 | 2,753 | 11 | |||||||||||||||||||||||||
| Florida | 1,724 | 7 | 1,536 | 6 | |||||||||||||||||||||||||
| Michigan | 1,312 | 5 | 1,398 | 6 | |||||||||||||||||||||||||
| Illinois | 1,271 | 5 | 1,411 | 6 | |||||||||||||||||||||||||
| Maryland | 1,255 | 5 | 1,332 | 6 | |||||||||||||||||||||||||
| Texas | 1,052 | 4 | 7 | ||||||||||||||||||||||||||
| North Carolina | 977 | 4 | 1,043 | 4 | |||||||||||||||||||||||||
| Kentucky | 836 | 3 | 922 | 4 | |||||||||||||||||||||||||
| Other | 5,679 | 23 | 4,622 | 20 | |||||||||||||||||||||||||
| Total home equity loans | $ | 25,174 | 100 | % | $ | 24,088 | 100 | % | |||||||||||||||||||||
| Lien type | |||||||||||||||||||||||||||||
| 1st lien | 60 | % | 63 | % | |||||||||||||||||||||||||
| 2nd lien | 40 | 37 | |||||||||||||||||||||||||||
| Total | 100 | % | 100 | % | |||||||||||||||||||||||||
(a) Presented in descending order based on loan balances at June 30, 2021.
Automobile
Auto loans comprised $16.2 billion in the indirect auto portfolio and $1.4 billion in the direct auto portfolio as of June 30, 2021. Comparable amounts as of December 31, 2020 were $12.7 billion and $1.5 billion, respectively. Balances at June 30, 2021 include BBVA contributions of $3.8 billion and $0.1 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 PNC Financial Services Group, Inc. – Form 10-Q 25
The following table presents certain key statistics related to our indirect and direct auto portfolios:
Table 19: Auto Loan Key Statistics
| June 30, 2021 | December 31, 2020 | |||||||
| Weighted-average loan origination FICO score (a) | ||||||||
| Indirect auto | 794 | 784 | ||||||
| Direct auto | 770 | 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 June 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 the weighted-average loan origination FICO scores noted in Table 19. We offer both new and used auto financing to customers through our various channels. The portfolio balance was composed of 54% new vehicle loans and 46% used vehicle loans at June 30, 2021. Comparable amounts at December 31, 2020 were 56% and 44%, respectively.
The auto loan portfolio’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 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 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 nonperforming loans. See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K for details on our nonaccrual policies.
The following table presents a summary of nonperforming assets by major category:
Table 20: Nonperforming Assets by Type
| June 30, 2021 | December 31, 2020 | Change | ||||||||||||||||||
| Dollars in millions | $ | % | ||||||||||||||||||
| Nonperforming loans | ||||||||||||||||||||
| Commercial | $ | 1,446 | $ | 923 | $ | 523 | 57 | % | ||||||||||||
| Consumer (a) | 1,333 | 1,363 | (30) | (2) | % | |||||||||||||||
| Total nonperforming loans | 2,779 | 2,286 | 493 | 22 | % | |||||||||||||||
| OREO and foreclosed assets | 39 | 51 | (12) | (24) | % | |||||||||||||||
| Total nonperforming assets | $ | 2,818 | $ | 2,337 | $ | 481 | 21 | % | ||||||||||||
| TDRs included in nonperforming loans | $ | 762 | $ | 902 | $ | (140) | (16) | % | ||||||||||||
| Percentage of total nonperforming loans | 27 | % | 39 | % | ||||||||||||||||
| Nonperforming loans to total loans | 0.94 | % | 0.94 | % | ||||||||||||||||
| Nonperforming assets to total loans, OREO and foreclosed assets | 0.96 | % | 0.97 | % | ||||||||||||||||
| Nonperforming assets to total assets | 0.51 | % | 0.50 | % | ||||||||||||||||
| Allowance for loan and lease losses to nonperforming loans | 206 | % | 235 | % | ||||||||||||||||
(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.
Nonperforming assets at June 30, 2021 included $880 million of nonperforming assets from BBVA, of which $847 million was in the commercial portfolio, $24 million in the consumer portfolio and $9 million of OREO and foreclosed assets. Declines in PNC legacy nonperforming assets from December 31, 2020 reflected improved credit performance.
26 The PNC Financial Services Group, Inc. – Form 10-Q
The following table provides details on the change in nonperforming assets for the six months ended June 30, 2021 and 2020:
Table 21: Change in Nonperforming Assets
| In millions | 2021 | 2020 | |||||||||||||||
| January 1 | $ | 2,337 | $ | 1,752 | |||||||||||||
| New nonperforming assets | 456 | 849 | |||||||||||||||
| Charge-offs and valuation adjustments | (131) | (249) | |||||||||||||||
| Principal activity, including paydowns and payoffs | (450) | (243) | |||||||||||||||
| Asset sales and transfers to loans held for sale | (101) | (48) | |||||||||||||||
| Returned to performing status | (173) | (106) | |||||||||||||||
| Acquired nonperforming assets | 880 | ||||||||||||||||
| June 30 | $ | 2,818 | $ | 1,955 | |||||||||||||
As of June 30, 2021 approximately 97% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses.
Within consumer nonperforming loans, residential real estate TDRs comprised 47% of total residential real estate nonperforming loans while home equity TDRs comprised 38% of home equity nonperforming loans at June 30, 2021. Comparable amounts at December 31, 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.
At June 30, 2021, our largest nonperforming asset was $141 million in the Real Estate and Rental and Leasing industry and the ten largest individual nonperforming assets represented 17% 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 PCD loans. Amounts exclude loans held for sale.
Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the June 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 June 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 the COVID-19 Relief section in Item 1 of our 2020 Form 10-K for more information on the CARES Act and the related interagency guidance.
The PNC Financial Services Group, Inc. – Form 10-Q 27
Table 22: Accruing Loans Past Due (a) (b)
| Amount | % of Total Loans Outstanding | ||||||||||||||||||||||||||||||||||||||||
| June 30 2021 |
December 31 2020 |
Change | June 30 2021 |
December 31 2020 |
|||||||||||||||||||||||||||||||||||||
| Dollars in millions | $ | % | |||||||||||||||||||||||||||||||||||||||
| Early stage loan delinquencies | |||||||||||||||||||||||||||||||||||||||||
| Accruing loans past due 30 to 59 days | $ | 548 | $ | 620 | $ | (72) | (12) | % | 0.19 | % | 0.26 | % | |||||||||||||||||||||||||||||
| Accruing loans past due 60 to 89 days | 215 | 234 | (19) | (8) | % | 0.07 | % | 0.10 | % | ||||||||||||||||||||||||||||||||
| Total early stage loan delinquencies | 763 | 854 | (91) | (11) | % | 0.26 | % | 0.35 | % | ||||||||||||||||||||||||||||||||
| Late stage loan delinquencies | |||||||||||||||||||||||||||||||||||||||||
| Accruing loans past due 90 days or more | 527 | 509 | 18 | 4 | % | 0.18 | % | 0.21 | % | ||||||||||||||||||||||||||||||||
| Total accruing loans past due | $ | 1,290 | $ | 1,363 | $ | (73) | (5) | % | 0.44 | % | 0.56 | % | |||||||||||||||||||||||||||||
(a)Past due loan amounts include government insured or guaranteed loans of $0.5 billion and $0.6 billion at June 30, 2021 and December 31, 2020, respectively.
(b)Amounts as of June 30, 2021 include $197 million of early stage loan delinquencies and $94 million of late stage loan delinquencies from the BBVA acquisition.
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. For additional information on the CARES Act, including TDR treatment under the CARES Act and interagency guidance, see the COVID-19 Relief section within Item 1 of our 2020 Form 10-K.
The following table provides a summary of Troubled Debt Restructurings at June 30, 2021 and December 31, 2020, respectively:
Table 23: Summary of Troubled Debt Restructurings (a)
| June 30 2021 |
December 31 2020 |
Change | |||||||||||||||||||||||||||
| Dollars in millions | $ | % | |||||||||||||||||||||||||||
| Commercial | $ | 470 | $ | 528 | $ | (58) | (11) | % | |||||||||||||||||||||
| Consumer | 1,015 | 1,116 | (101) | (9) | % | ||||||||||||||||||||||||
| Total TDRs | $ | 1,485 | $ | 1,644 | $ | (159) | (10) | % | |||||||||||||||||||||
| Nonperforming | $ | 762 | $ | 902 | $ | (140) | (16) | % | |||||||||||||||||||||
| Accruing (b) | 723 | 742 | (19) | (3) | % | ||||||||||||||||||||||||
| Total TDRs | $ | 1,485 | $ | 1,644 | $ | (159) | (10) | % | |||||||||||||||||||||
(a)Amounts in table do not include associated valuation allowances.
(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 27% of total nonperforming loans and 51% of total TDRs at June 30, 2021. Comparable amounts at December 31, 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 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.
Loan Modifications
During the first six months of 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 June 30, 2021.
28 The PNC Financial Services Group, Inc. – 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 June 30, 2021.
Under the CARES Act, loan modifications meeting 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 Credit Risk Management section within Item 7 of our 2020 Form 10-K.
Consumer Loan Modifications Under Hardship Relief Programs
Our consumer loan modification programs are being granted in response to customer hardships that extended beyond the initial relief period. These loan and line modifications include all hardship related modifications. See the Loan Modifications discussion within Credit Risk Management in Item 7 of our 2020 Form 10-K for 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 June 30, 2021. Excluded from Table 24 are government insured or guaranteed loans totaling $371 million and $282 million in the Residential real estate and Education loans classes, respectively. These loans present minimal credit risk to PNC. Loans in active hardship assistance programs offered by BBVA prior to acquisition were $69 million at June 30, 2021 and are excluded from Table 24.
Table 24: Consumer Loans in Active Hardship Relief Programs (a) (b)
| As of June 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 | 1,727 | $ | 390 | 1.1 | % | 28.2 | % | ||||||||||||||||
| Home equity | 697 | 50 | 0.2 | % | 84.5 | % | |||||||||||||||||
| Automobile | 2,475 | 61 | 0.3 | % | 75.8 | % | |||||||||||||||||
| Credit card | 7,845 | 50 | 0.8 | % | 77.2 | % | |||||||||||||||||
| Education | 3,527 | 53 | 1.9 | % | 61.6 | % | |||||||||||||||||
| Other consumer | 661 | 9 | 0.1 | % | 78.7 | % | |||||||||||||||||
| Total consumer (d) | 16,932 | $ | 613 | 0.6 | % | 71.8 | % | ||||||||||||||||
(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 $123 million.
(c) Based on total loans outstanding at June 30, 2021.
(d) Approximately 82% of these loan balances were secured by collateral at June 30, 2021.
Modifications are considered to have exited active assistance after the modification period has expired or the modification was exited. As of June 30, 2021, approximately 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.
See the Credit Risk Management section within Item 7 of our 2020 Form 10-K for information on the TDR impacts of our modification programs.
Allowance for Credit Losses
Our ACL is based on historical loss experience, current 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, equipment finance leases (including residual values), other financial assets and unfunded 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.
See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K and the Credit Risk Management section within Item 7 of our 2020 Form 10-K for additional discussion of our ACL, including details of our 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 June 30, 2021.
The PNC Financial Services Group, Inc. – Form 10-Q 29
The following table summarizes our allowance for credit losses by loan class:
Table 25: Allowance for Credit Losses by Loan Class (a)
| June 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 | $ | 2,282 | $ | 155,300 | 1.47 | % | $ | 2,300 | $ | 132,073 | 1.74 | % | |||||||||||||||||
| Commercial real estate | 1,404 | 37,964 | 3.70 | % | 880 | 28,716 | 3.06 | % | |||||||||||||||||||||
| Equipment lease financing | 126 | 6,376 | 1.98 | % | 157 | 6,414 | 2.45 | % | |||||||||||||||||||||
| Total commercial | 3,812 | 199,640 | 1.91 | % | 3,337 | 167,203 | 2.00 | % | |||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Residential real estate | 63 | 36,846 | 0.17 | % | 28 | 22,560 | 0.12 | % | |||||||||||||||||||||
| Home equity | 188 | 25,174 | 0.75 | % | 313 | 24,088 | 1.30 | % | |||||||||||||||||||||
| Automobile | 421 | 17,551 | 2.40 | % | 379 | 14,218 | 2.67 | % | |||||||||||||||||||||
| Credit card | 711 | 6,528 | 10.89 | % | 816 | 6,215 | 13.13 | % | |||||||||||||||||||||
| Education | 98 | 2,726 | 3.60 | % | 129 | 2,946 | 4.38 | % | |||||||||||||||||||||
| Other consumer | 437 | 6,239 | 7.00 | % | 359 | 4,698 | 7.64 | % | |||||||||||||||||||||
| Total consumer | 1,918 | 95,064 | 2.02 | % | 2,024 | 74,725 | 2.71 | % | |||||||||||||||||||||
| Total | 5,730 | $ | 294,704 | 1.94 | % | 5,361 | $ | 241,928 | 2.22 | % | |||||||||||||||||||
Allowance for unfunded lending related commitments |
645 | 584 | |||||||||||||||||||||||||||
Allowance for credit losses |
$ | 6,375 | $ | 5,945 | |||||||||||||||||||||||||
| Allowance for credit losses to total loans | 2.16 | % | 2.46 | % | |||||||||||||||||||||||||
| Commercial | 2.18 | % | 2.29 | % | |||||||||||||||||||||||||
| Consumer | 2.14 | % | 2.84 | % | |||||||||||||||||||||||||
(a) Excludes allowances for investment securities and other financial assets, which together totaled $138 million and $109 million at June 30, 2021 and December 31, 2020, respectively.
30 The PNC Financial Services Group, Inc. – Form 10-Q
The following table summarizes our loan charge-offs and recoveries:
Table 26: Loan Charge-Offs and Recoveries
| Six months ended June 30 | Gross Charge-offs |
Recoveries | Net Charge-offs / (Recoveries) |
% of Average Loans (Annualized) |
|||||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Commercial and industrial | $ | 304 | $ | 43 | $ | 261 | 0.39 | % | |||||||||||||||||||||
| Commercial real estate | 33 | 3 | 30 | 0.20 | % | ||||||||||||||||||||||||
| Equipment lease financing | 6 | 6 | |||||||||||||||||||||||||||
| Total commercial | 343 | 52 | 291 | 0.34 | % | ||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Residential real estate | 7 | 11 | (4) | (0.03) | % | ||||||||||||||||||||||||
| Home equity | 14 | 38 | (24) | (0.20) | % | ||||||||||||||||||||||||
| Automobile | 87 | 79 | 8 | 0.11 | % | ||||||||||||||||||||||||
| Credit card | 134 | 23 | 111 | 3.81 | % | ||||||||||||||||||||||||
| Education | 8 | 4 | 4 | 0.28 | % | ||||||||||||||||||||||||
| Other consumer | 78 | 12 | 66 | 2.75 | % | ||||||||||||||||||||||||
| Total consumer | 328 | 167 | 161 | 0.42 | % | ||||||||||||||||||||||||
| Total | $ | 671 | $ | 219 | $ | 452 | 0.37 | % | |||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Commercial and industrial | $ | 190 | $ | 31 | $ | 159 | 0.23 | % | |||||||||||||||||||||
| Commercial real estate | 4 | (4) | (0.03) | % | |||||||||||||||||||||||||
| Equipment lease financing | 15 | 4 | 11 | 0.31 | % | ||||||||||||||||||||||||
| Total commercial | 205 | 39 | 166 | 0.19 | % | ||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Residential real estate | 2 | 8 | (6) | (0.05) | % | ||||||||||||||||||||||||
| Home equity | 19 | 29 | (10) | (0.08) | % | ||||||||||||||||||||||||
| Automobile | 153 | 64 | 89 | 1.06 | % | ||||||||||||||||||||||||
| Credit card | 154 | 17 | 137 | 3.96 | % | ||||||||||||||||||||||||
| Education | 10 | 4 | 6 | 0.37 | % | ||||||||||||||||||||||||
| Other consumer | 75 | 9 | 66 | 2.69 | % | ||||||||||||||||||||||||
| Total consumer | 413 | 131 | 282 | 0.72 | % | ||||||||||||||||||||||||
| Total | $ | 618 | $ | 170 | $ | 448 | 0.35 | % | |||||||||||||||||||||
Total net charge-offs of $452 million for the first six months of 2021 included $248 million attributable to BBVA, primarily related to commercial and industrial loans, which were largely the result of required purchase accounting treatment for the acquisition.
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 Report 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 2020 Form 10-K.
One of the ways we monitor our liquidity is by reference to the 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 HQLA, as 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%, 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 maintain continues to be 100%. PNC and PNC Bank calculate the LCR daily, and as of June 30, 2021, the LCR for PNC and PNC Bank exceeded the requirement of 100%.
The PNC Financial Services Group, Inc. – Form 10-Q 31
Additionally, the acquisition of BBVA moved BBVA USA from a Category IV bank to a Category III bank. Due to certain transition provisions in the LCR rules, as a Category III bank, BBVA USA will not be subject to the LCR on a standalone basis as it is anticipated to be merged into PNC Bank prior to the effective date for 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 2020 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 $452.9 billion at June 30, 2021 from $365.3 billion at December 31, 2020, driven by growth in both interest-bearing and noninterest-bearing deposits primarily due to $82.2 billion from 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 June 30, 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 $83.8 billion and securities available for sale totaling $125.1 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 $24.0 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, $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 the Funding Sources section of the Consolidated Balance Sheet Review in this Report and Note 10 Borrowed Funds in Item 8 of our 2020 Form 10-K for additional information related to our borrowings.
Total senior and subordinated debt, on a consolidated basis, increased due to the following activity:
Table 27: Senior and Subordinated Debt
| In billions | 2021 | |||||||
| January 1 | $ | 30.7 | ||||||
| Issuances | 1.0 | |||||||
| Calls and maturities | (1.9) | |||||||
| Other | (0.5) | |||||||
| Impact from BBVA acquisition | 2.2 | |||||||
| June 30 | $ | 31.5 | ||||||
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 June 30, 2021, PNC Bank had $17.4 billion of notes outstanding under this program of which $12.4 billion were senior bank notes and $5.0 billion were subordinated bank notes.
At June 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 bank notes.
Table 28: PNC Bank Notes Redeemed
| Redemption Date | Amount | Description of Redemption | ||||||
| July 22, 2021 | $900 million | All outstanding Senior Floating Rate Notes with an original scheduled maturity date of July 22, 2022. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of July 22, 2021. | ||||||
| July 22, 2021 | $600 million | All outstanding Senior Fixed Rate/Floating Rate Notes with an original scheduled maturity date of July 22, 2022. The securities had a distribution rate of 2.232%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of July 22, 2021. | ||||||
32 The PNC Financial Services Group, Inc. – Form 10-Q
PNC Bank and BBVA USA maintain additional secured borrowing capacity with the FHLB 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 June 30, 2021, our unused secured borrowing capacity at the FHLB and the Federal Reserve Bank totaled $96.4 billion, of which $17.3 billion is from the BBVA acquisition.
PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of June 30, 2021, there were 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 parent company maintains adequate liquidity to fund discretionary activities such as paying dividends to our shareholders, share repurchases and acquisitions.
On April 23, 2021, the parent company issued $1.0 billion of senior fixed-to-floating rate notes with a maturity date of April 23, 2032. Interest is payable semi-annually in arrears at a fixed rate of 2.307% per annum, on April 23 and October 23 of each year, beginning on October 23, 2021. Beginning on April 23, 2031, interest is payable quarterly in arrears at a floating rate per annum equal to
Compounded SOFR (determined with respect to each quarterly interest period using the SOFR Index), plus 0.97926%, on July 23, 2031, October 23, 2031, January 23, 2032 and at the maturity date.
As of June 30, 2021, available parent company liquidity totaled $4.5 billion. During the second quarter of 2021, PNC used approximately $11.5 billion of parent company cash to acquire BBVA. Parent company liquidity is primarily held in intercompany cash. Investments with longer durations may also be acquired, and 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 it receives from PNC Bank and BBVA USA, 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 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 $3.0 billion at June 30, 2021. See Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements in our 2020 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 at June 30, 2021 without regulatory approval.
In addition to dividends from PNC Bank or BBVA USA, 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 of June 30, 2021, there were no commercial paper issuances outstanding.
The parent company has an effective shelf registration statement pursuant of which we can issue debt, equity and other capital instruments. See Note 16 Subsequent Events for information on the August 2021 redemption of $500 million of senior notes by the parent company.
Parent company senior and subordinated debt outstanding totaled $11.3 billion and $10.6 billion at June 30, 2021 and December 31, 2020, respectively.
The PNC Financial Services Group, Inc. – Form 10-Q 33
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 2020 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 8 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.
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.
The following table presents credit ratings for PNC, PNC Bank and BBVA USA as of June 30, 2021:
Table 29: Credit Ratings for PNC, PNC Bank and BBVA USA
| June 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 | Aa2 | A | AA- | ||||||||
| Short-term deposits | P-1 | A-1 | F1+ | ||||||||
| Short-term notes | P-1 | A-1 | F1 | ||||||||
| BBVA USA | |||||||||||
| 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 | ||||||||
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 2020 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.
On June 24, 2021, the Federal Reserve released the results of its supervisory stress tests conducted as part of the 2021 CCAR process. Based on the results of the Federal Reserve’s supervisory stress tests, PNC’s SCB for the four-quarter period beginning October 1, 2021, applicable to PNC inclusive of the BBVA acquisition, is 2.5%, which is the regulatory floor and the minimum SCB amount.
We returned capital to shareholders through dividends on common shares of $0.5 billion and refrained from repurchasing shares through the second quarter of 2021 due to the BBVA transaction.
In June 2021, we announced the reinstatement of our share repurchase programs with repurchases of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021. The timing and amount of executed repurchases will be based on market conditions and other factors including the integration of BBVA. Common share repurchases will be made under the 100 million share repurchase program approved by PNC's Board of Directors in April 2019.
34 The PNC Financial Services Group, Inc. – Form 10-Q
On July 1, 2021, our Board of Directors raised the quarterly cash dividend on common stock to $1.25 per share, an increase of 10 cents per share, or 9%, effective with the August 5, 2021 dividend payment.
Table 30: Basel III Capital
| June 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 | $ | 982 | $ | 982 | ||||||||||
| Retained earnings | $ | 49,793 | $ | 48,663 | ||||||||||
| Goodwill, net of associated deferred tax liabilities | $ | (10,746) | $ | (10,746) | ||||||||||
| Other disallowed intangibles, net of deferred tax liabilities | $ | (485) | $ | (485) | ||||||||||
| Other adjustments/(deductions) | $ | (27) | $ | (33) | ||||||||||
| Common equity Tier 1 capital | $ | 39,517 | $ | 38,381 | ||||||||||
| Additional Tier 1 capital | ||||||||||||||
| Preferred stock plus related surplus | $ | 3,520 | $ | 3,520 | ||||||||||
| Tier 1 capital | $ | 43,037 | $ | 41,901 | ||||||||||
| Additional Tier 2 capital | ||||||||||||||
| Qualifying subordinated debt | $ | 3,878 | $ | 3,878 | ||||||||||
| Trust preferred capital securities | $ | 20 | ||||||||||||
| Eligible credit reserves includable in Tier 2 capital | $ | 4,410 | $ | 4,836 | ||||||||||
| Total Basel III capital | $ | 51,345 | $ | 50,615 | ||||||||||
| Risk-weighted assets | ||||||||||||||
| Basel III standardized approach risk-weighted assets (c) | $ | 389,429 | $ | 388,957 | ||||||||||
| Average quarterly adjusted total assets | $ | 493,037 | $ | 491,901 | ||||||||||
| Supplementary leverage exposure (d) | $ | 586,208 | $ | 586,202 | ||||||||||
| Basel III risk-based capital and leverage ratios (a)(e) | ||||||||||||||
| Common equity Tier 1 | 10.1 | % | 9.9 | % | ||||||||||
| Tier 1 | 11.1 | % | 10.8 | % | ||||||||||
| Total (f) | 13.2 | % | 13.0 | % | ||||||||||
| Leverage (g) | 8.7 | % | 8.5 | % | ||||||||||
| Supplementary leverage ratio (d) | 7.3 | % | 7.1 | % | ||||||||||
(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 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 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 potential future exposure under derivative contracts.
(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 $20 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.
PNC’s regulatory risk-based capital ratios 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 banking 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 CECL ACL at transition. PNC elected to adopt this optional transition provision effective as of June 30, 2020. See additional discussion of this rule in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2020 Form 10-K.
At June 30, 2021, PNC, PNC Bank and BBVA USA were 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. 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 June 30, 2021 capital levels were aligned with them.
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 20 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of our 2020 Form 10-K.
Market Risk Management
See the Market Risk Management portion of the Risk Management Section in our 2020 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 second quarter of 2021 and 2020 follow:
Table 31: Interest Sensitivity Analysis
| Second Quarter 2021 (a) | Second Quarter 2020 | |||||||||||||
| 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 | 5.2 | % | 3.2 | % | ||||||||||
| Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of: |
||||||||||||||
| 100 basis point increase | 13.1 | % | 11.2 | % | ||||||||||
| Key Period-End Interest Rates | ||||||||||||||
| One-month LIBOR | 0.10 | % | 0.16 | % | ||||||||||
| Three-month LIBOR | 0.15 | % | 0.30 | % | ||||||||||
| Three-year swap | 0.57 | % | 0.23 | % | ||||||||||
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 32 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 100 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: Net Interest Income Sensitivity to Alternative Rate Scenarios
| June 30, 2021 | ||||||||||||||
| PNC Economist |
Market Forward |
Slope Flattening |
||||||||||||
| First year sensitivity | 1.2 | % | 1.2 | % | (2.0) | % | ||||||||
| Second year sensitivity | 4.2 | % | 5.3 | % | (6.6) | % | ||||||||
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 31 and 32. 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: Alternate Interest Rate Scenarios: One Year Forward
The second quarter 2021 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.
As 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 2023 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-functional governance structure to oversee the overall strategy for the transition from LIBOR and mitigate risks associated with the transition. An initial 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 PNC’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.
Key efforts in 2020 and the first six months of 2021 included:
•Enhancing fallback language in new contracts and reviewing existing legal contracts/agreements to assess fallback language impacts,
•Making preparations for internal operational readiness,
•Making necessary enhancements to PNC's infrastructure, including systems, models, valuation tools and processes,
•Developing and delivering on internal and external LIBOR cessation communication plans,
•Engaging with PNC clients, industry working groups and regulators, and
•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 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.
The PNC Financial Services Group, Inc. – Form 10-Q 37
In late 2020, PNC began offering conforming adjustable rate mortgages using SOFR instead of USD LIBOR in line with Fannie Mae and Freddie Mac requirements. In the second quarter of 2021, PNC began offering nonconforming adjustable rate mortgages using SOFR and private student loans using Prime. Plans are in place to begin offering alternative rates to our corporate and commercial customers in the third quarter of 2021. PNC has provided regular updates to Federal Reserve, OCC and Federal Deposit Insurance Corporation examination staff regarding its LIBOR 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.We do not engage in proprietary trading of these products.
We use 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. VaR is 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 is computed with positions and market risk factors updated daily to ensure each portfolio is operating within its acceptable limits.
See the Market Risk Management – Customer-Related Trading Risk section of our 2020 Form 10-K for more information on our models used to calculate VaR and our backtesting process.
Customer related trading revenue was $179 million for the six months ended June 30, 2021, of which $5.2 million was from BBVA, compared to $185 million for the same period in 2020. The decrease was primarily due to lower interest rate derivative client sales revenues partially offset by changes in the credit valuation for customer-related derivatives activities. For the quarterly period, customer related trading revenue was $68 million for the second quarter of 2021 compared to $114 million in 2020. The decrease was primarily due to lower customer-related trading 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: Equity Investments Summary
| June 30 2021 (a) |
December 31 2020 |
Change | ||||||||||||||||||||||||
| Dollars in millions | $ | % | ||||||||||||||||||||||||
| Tax credit investments | $ | 3,699 | $ | 2,870 | $ | 829 | 29 | % | ||||||||||||||||||
| Private equity and other | 3,822 | 3,182 | 640 | 20 | % | |||||||||||||||||||||
| Total | $ | 7,521 | $ | 6,052 | $ | 1,469 | 24 | % | ||||||||||||||||||
(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.
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 $1.8 billion and $1.4 billion at June 30, 2021 and December 31, 2020. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.
Note 5 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in our 2020 Form 10-K has further information on Tax Credit Investments.
Private Equity and Other
The largest component of our other equity investments is 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 $1.7 billion and $1.5 billion at June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021, $1.5 billion was invested directly in a variety of companies and $0.2 billion was invested indirectly through various private equity funds. See the Supervision and Regulation section in Item 1 of our 2020 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.
38 The PNC Financial Services Group, Inc. – Form 10-Q
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 June 30, 2021 per share closing price of $233.82 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $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 15 Fair Value and Note 21 Legal Proceedings in the Notes To Consolidated Financial Statements in Item 8 of our 2020 Form 10-K for additional information regarding our Visa 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 $42 million for the six months ended June 30, 2021 and were not significant for the six months ended June 30, 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 15 Fair Value and Note 16 Financial Derivatives in our Notes To Consolidated Financial Statements in our 2020 Form 10-K and in Note 11 Fair Value and Note 12 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
BBVA Acquisition
On June 1, 2021, and following regulatory approval from the Federal Reserve and the OCC, PNC acquired BBVA, a BHC registered under the BHC Act and a financial holding company under the GLB Act, and its U.S. state member bank subsidiary, BBVA USA, headquartered in Birmingham, Alabama. The regulatory approval process also included approvals from the banking departments of the states of Alabama and Texas. BBVA USA is primarily regulated by the Federal Reserve and the Alabama State Banking Department. BBVA USA, like PNC Bank, is also subject to regulation by the FDIC, which insures certain deposits of BBVA USA, and the CFPB, among other regulatory agencies.
PNC also acquired certain nonbanking subsidiaries of BBVA that are subject to regulation by various federal and state bodies, including state regulators of money transfer and insurance entities. This includes BBVA Transfer Holdings, Inc. (now known as PNC Payment Holdings, Inc.), a company engaged in money transfer services and related activities, including money transmission and foreign exchange services, through its two subsidiaries, BBVA Transfer Services, Inc. (now known as PNC Global Transfers, Inc.) and BBVA Foreign Exchange, Inc. (now known as PNC Global Transfers FX, Inc.). PNC also acquired BBVA USA’s subsidiaries, including BBVA Wealth Solutions, Inc. (now known as PNC Managed Account Solutions, Inc.), an SEC-registered investment adviser, and BBVA Insurance Agency, Inc. (now known as PNC Insurance Agency, Inc.), a state-regulated insurance agency. PNC also expects its broker-dealer subsidiary PNC Investments to assume responsibility for approximately 100,000 retail brokerage accounts of the U.S. broker-dealer subsidiary of BBVA S.A., BBVA Securities, Inc.
Shortly after the acquisition, PNC merged BBVA into PNC, and PNC contributed all of the shares of BBVA USA to PNC Bancorp, Inc, a wholly-owned subsidiary of PNC. As a result, BBVA USA is now a subsidiary of PNC Bancorp, Inc. and an affiliate of PNC Bank. PNC expects to merge BBVA USA into PNC Bank in October 2021. In addition, PNC Payment Holdings, Inc., and its two subsidiaries are now nonbank subsidiaries of PNC and affiliates of PNC Bank and BBVA USA.
Capital, Capital Planning and Liquidity
BBVA USA has been incorporated into PNC’s consolidated capital and liquidity metrics and reporting, capital planning, stress testing, and other regulatory requirements. Additionally, as a result of the acquisition of BBVA USA by PNC, a Category III banking organization under the Federal Reserve’s Enhanced Prudential Standards, BBVA USA is now a Category III bank. Subject to certain
The PNC Financial Services Group, Inc. – Form 10-Q 39
transition provisions and any relief granted by the Federal Reserve, we expect BBVA USA to be merged with PNC Bank prior to the LCR or NSFR becoming effective for BBVA USA.
In June 2021, the Federal Reserve announced the results of its supervisory stress tests for 2021. See the Liquidity and Capital Management portion of the Risk Management section in this Item 2 for a discussion of PNC’s results and capital actions. PNC remained well above its risk-based minimum capital requirements in the supervisory stress tests, and as a result, will no longer be subject to the Federal Reserve’s temporary restrictions on BHC dividends and share repurchases that it put in place last year as a result of ongoing uncertainty from COVID-19.
Other Developments
In June 2021, the FDIC released a statement outlining its modified approach to implementing its rule requiring insured depository institutions like PNC Bank and BBVA USA to submit resolution plans. These resolution plans must describe, among other things, how the banks could be resolved in an orderly and timely manner in the event of receivership, and the failure to submit a credible plan
could result in regulatory actions or restrictions. The modified approach extends the frequency of insured depository institution resolution plans to a three-year cycle, streamlines the content requirements, and places greater emphasis on continued engagement with firms. PNC Bank and BBVA USA expect to receive additional information from the FDIC detailing certain plan contents and the due date for their next filings. PNC does not expect BBVA USA to have to file a resolution plan before BBVA USA is merged into
PNC Bank.
On July 31, 2021, the federal foreclosure moratorium imposed by various federal agencies in response to the COVID-19 pandemic expired. However, on July 30, 2021, the Federal Housing Finance Agency and the Federal Housing Administration extended their eviction moratoria through September 30, 2021. On August 3, 2021, the Centers for Disease Control and Prevention issued a revised eviction moratorium applying to U.S. counties experiencing substantial and high levels of community transmission of COVID-19 through October 3, 2021. Around the same time, the CFPB finalized a set of Regulation X changes to provide foreclosure protections to borrowers as the emergency federal foreclosure protections expire. The CFPB’s final rule generally bars mortgage servicers like PNC Bank and BBVA USA from filing new foreclosure filings until December 31, 2021, unless certain procedural safeguards are met or an exception applies; permits mortgage servicers to offer streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application; and makes temporary changes to certain required servicer communications that borrowers receive regarding their options. The final rule is effective August 31, 2021.
In July 2021, the OCC announced it plans to rescind its June 2020 rule that significantly altered the regulations implementing the CRA for national banks like PNC Bank. The OCC also does not plan to finalize its December 4, 2020 proposed rule regarding performance metrics under the June 2020 rule.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Note 1 Accounting Policies in our 2020 Form 10-K describes the most significant accounting policies that we use to prepare our consolidated financial statements. Certain of these 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 policies and judgments related to residential and commercial MSRs and fair value measurements are described in Critical Accounting Estimates and Judgments in Item 7 of our 2020 Form 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.
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 experience, current borrower characteristics, 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 limitations. The ACL estimates are therefore susceptible to various factors, including, but not limited to, the following major factors:
•Current economic conditions and borrower quality: Our forecast of expected losses depends on economic conditions and
portfolio quality as of the estimation date. As current economic conditions evolve, forecasted losses could be materially
affected.
40 The PNC Financial Services Group, Inc. – Form 10-Q
•Scenario weights and design: Our loss estimates are sensitive to the shape, direction and rate 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 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 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 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 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 forecast period. This process is informed by current economic conditions, expected business cycle evolution and the expert judgment of PNC’s 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 RAC and the committee determines and approves CECL scenarios' weights for use for the current reporting period.
The scenarios used for the period ended June 30, 2021 were designed to reflect an improved near-term economic outlook in comparison to the scenarios used for the period ended December 31, 2020. This improvement was driven largely by improvements in both the outlook for consumer spending and the labor market due to the passage of the American Rescue Plan Act of 2021 and continued vaccine distribution. We used a number of economic variables in our scenarios, with the most significant drivers being Real GDP and unemployment rate measures. Using the weighted-average of our four economic forecast scenarios, we estimated that:
•Real GDP grows 6.1% in 2021, ending the year 3.6% above pre-recession levels. Annual growth continues but slows to 2.9% and 2.2% in 2022 and 2023, respectively.
•Unemployment rates reflect continued recovery in the labor market in 2021, with the unemployment rate falling to 5.6% by the end of the year. Employment gains were estimated to continue through the forecast period with the unemployment rate reaching 4.7% and 4.1% 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. This scenario includes estimated Real GDP ending 2021 4.2% above its pre-recession peak levels, with annual growth slowing to 2.9% and 2.0% in 2022 and 2023, respectively, with unemployment rates expected to reach 5.0% by the end of 2021, 4.2% by the end of 2022 and 3.8% 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.
The economy has seen significant recovery from the onset of the pandemic. National macroeconomic indicators, forecasts and performance expectations have all improved, helping to lower overall loss expectations. These improvements have been reflected in the reserve releases through the first half of 2021. However, for certain portions of our commercial and consumer portfolios considerable uncertainty remains regarding lifetime losses. 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 once the government stimulus wanes is still difficult to predict. As such, for both our commercial and consumer loan portfolios, PNC identified and performed significant analysis around these segments to ensure our reserves are adequate in the current economic environment. We believe the economic scenarios 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 current environment. Through this approach we believe the reserve levels sufficiently reflect the expectation for life of loan losses of the current portfolio.
To provide additional context regarding the sensitivity of the ACL to a more pessimistic forecast of expected economic outcomes, we considered what the ACL for the legacy PNC portfolio would be when applying a 100% probability weighting to the most severely adverse of the four scenarios used in PNC's CECL framework. This severely adverse scenario estimated Real GDP growing 1.6% and ending 2021 down 0.8% compared to pre-recession peak levels, with year over year growth continuing through 2023, with the
The PNC Financial Services Group, Inc. – Form 10-Q 41
unemployment rate increasing to end 2021 at 9.0% with the labor market showing improvement again beginning in 2022. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in our ACL of $2.2 billion at June 30, 2021. This scenario was not our expectation at June 30, 2021 and does not reflect our current expectation, nor does it capture all the potential unknown variables that could arise, but it provides an approximation of a possible outcome under hypothetical severe conditions. The CECL methodology inherently requires a high degree of judgment, and as a result, it is possible that we may, at another point in time, reach different conclusions regarding our credit loss estimates.
See the following for additional details on the components of our ACL:
•Allowance For Credit Losses in the Credit Risk Management section of this Financial Review, and
•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 2020 Form 10-K and in Note 5 Loan Sale and Servicing Activities and Variable Interest Entities and Note 8 Commitments in the Notes To Consolidated Financial Statements included in this Report.
A summary and further description of VIEs is included in Note 1 Accounting Policies and Note 5 Loan Sale and Servicing Activities and Variable Interest Entities in our 2020 Form 10-K.
Trust Preferred Securities
See Note 10 Borrowed Funds in the Notes To Consolidated Financial Statements in our 2020 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 June 30, 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 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 June 30, 2021, and that there has been no change in PNC’s internal control over financial reporting that occurred during the second quarter of 2021 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 June 30, 2021. We will continue to evaluate the effectiveness of internal controls over financial reporting as we complete the 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 $95.7 of assets, or 17% of our total assets, at June 30, 2021 and $306 million of revenue, or 7% of our total revenue, for the three months ended June 30, 2021 and 3% of our total revenue for the six months ended June 30, 2021.
42 The PNC Financial Services Group, Inc. – Form 10-Q
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We 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 U.S. and its global trading partners,
–The length and extent of the economic impacts of the COVID-19 pandemic,
–The impact of the results of the recent U.S. elections on the regulatory landscape, capital markets, and the response to and management of the COVID-19 pandemic, including the effectiveness of already-enacted fiscal stimulus from the federal government, a potential infrastructure bill and changes in tax laws, 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 an economic recovery, following a very severe but very short economic contraction in the first half of 2020 due to the COVID-19 pandemic and public health measures to contain it.
–With passage of the American Rescue Plan Act of 2021 and continued vaccine distribution, economic growth has picked up in 2021 and will remain very strong through the rest of this year and into 2022. Real GDP returned to its pre-pandemic level in the second quarter of 2021. Employment in June 2021 was still down by 6.8 million from before the pandemic; PNC expects employment to return to its pre-pandemic level in the spring of 2022.
–Compared to the spring of 2020 (when prices were falling), inflation has accelerated in mid-2021 due to strong demand in specific segments and supply chain disruptions. Inflation will slow in the second half of 2021.
–PNC expects the FOMC to keep the fed funds rate in its current range of 0.00% to 0.25 % until mid-2023.
•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.
•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:
–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.
–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,
The PNC Financial Services Group, Inc. – Form 10-Q 43
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.
•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, including its U.S. banking subsidiary, BBVA USA, going forward may not perform as we currently 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 relating to BBVA, including its U.S. banking subsidiary, BBVA USA, or our existing businesses. 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 2020 Form 10-K and first quarter 2021 Form 10-Q 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. 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.
44 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED INCOME STATEMENT
THE PNC FINANCIAL SERVICES GROUP, INC.
| Unaudited | Three months ended June 30 |
Six months ended June 30 |
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| In millions, except per share data | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Interest Income | |||||||||||||||||||||||
| Loans | $ | $ | $ | $ | |||||||||||||||||||
| Investment securities | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| Interest Expense | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Borrowed funds | |||||||||||||||||||||||
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| Noninterest Income | |||||||||||||||||||||||
| Asset management | |||||||||||||||||||||||
| Consumer services | |||||||||||||||||||||||
| Corporate services | |||||||||||||||||||||||
| Residential mortgage | |||||||||||||||||||||||
| Service charges on deposits | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Provision For (Recapture of) Credit Losses | ( |
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| Noninterest Expense | |||||||||||||||||||||||
| Personnel | |||||||||||||||||||||||
| Occupancy | |||||||||||||||||||||||
| Equipment | |||||||||||||||||||||||
| Marketing | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes and noncontrolling interests | ( |
( |
|||||||||||||||||||||
| Income taxes (benefit) from continuing operations | ( |
( |
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| Net income (loss) from continuing operations | ( |
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| Income from discontinued operations before taxes | |||||||||||||||||||||||
| Income taxes from discontinued operations | |||||||||||||||||||||||
| Net income from discontinued operations | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Preferred stock discount accretion and redemptions | |||||||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Earnings Per Common Share | |||||||||||||||||||||||
| Basic earnings (loss) from continuing operations | $ | $ | ( |
$ | $ | ( |
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| Basic earnings from discontinued operations | |||||||||||||||||||||||
| Total basic earnings | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings (loss) from continuing operations | $ | $ | ( |
$ | $ | ( |
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| Diluted earnings from discontinued operations | |||||||||||||||||||||||
| Total diluted earnings | $ | $ | $ | $ | |||||||||||||||||||
| Average Common Shares Outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 45
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THE PNC FINANCIAL SERVICES GROUP, INC.
| Unaudited In millions |
Three months ended June 30 |
Six months ended June 30 |
|||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | $ | ( |
$ | $ | ||||||||||||||||||||||||
| Other comprehensive income (loss), before tax and net of reclassifications into Net income | |||||||||||||||||||||||||||||
| Net change in debt securities | ( |
||||||||||||||||||||||||||||
| Net change in cash flow hedge derivatives | ( |
||||||||||||||||||||||||||||
| Pension and other postretirement benefit plan adjustments | ( |
( |
( |
( |
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| Net change in Other | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) from continuing operations, before tax and net of reclassifications into Net income |
( |
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| Income tax benefit (expense) from continuing operations related to items of other comprehensive income |
( |
( |
( |
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| Other comprehensive income (loss) from continuing operations, after tax and net of reclassifications into Net income |
( |
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| Net income from discontinued operations | |||||||||||||||||||||||||||||
|
Other comprehensive income from discontinued operations, before tax and net of reclassifications into Net income |
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| Income tax benefit (expense) from discontinued operations related to items of other comprehensive income |
( |
( |
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| Other comprehensive income from discontinued operations, after tax and net of reclassifications into Net income |
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| Other comprehensive income (loss), after tax and net of reclassifications into Net income |
( |
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| Comprehensive income | |||||||||||||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||||||||
| Comprehensive income attributable to PNC | $ | $ | $ | $ | |||||||||||||||||||||||||
See accompanying Notes To Consolidated Financial Statements.
46 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED BALANCE SHEET
THE PNC FINANCIAL SERVICES GROUP, INC.
| Unaudited | June 30 2021 |
December 31 2020 |
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| In millions, except par value | |||||||||||
| Assets | |||||||||||
| Cash and due from banks | $ | $ | |||||||||
| Interest-earning deposits with banks | |||||||||||
| Loans held for sale (a) | |||||||||||
| Investment securities – available for sale | |||||||||||
| Investment securities – held to maturity | |||||||||||
| Loans (a) | |||||||||||
| Allowance for loan and lease losses | ( |
( |
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| Net loans | |||||||||||
| Equity investments | |||||||||||
| Mortgage servicing rights | |||||||||||
| Goodwill | |||||||||||
| Other (a) | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Deposits | |||||||||||
| Noninterest-bearing | $ | $ | |||||||||
| Interest-bearing | |||||||||||
| Total deposits | |||||||||||
| Borrowed funds | |||||||||||
| Federal Home Loan Bank borrowings | |||||||||||
| Bank notes and senior debt | |||||||||||
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| Other (b) | |||||||||||
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| Allowance for unfunded lending related commitments | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Equity | |||||||||||
| Preferred stock (c) | |||||||||||
Common stock ($ |
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| Capital surplus | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income | |||||||||||
Common stock held in treasury at cost: |
( |
( |
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| Total shareholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
(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 $1.7 billion and Other assets of $0.1 billion at June 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
(c)Par value less than $0.5
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 |
Six months ended June 30 |
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| 2021 | 2020 | ||||||||||||||||
| Operating Activities | |||||||||||||||||
| Net income | $ | $ | |||||||||||||||
| Adjustments to reconcile net income to net cash provided (used) by operating activities | |||||||||||||||||
| Provision for (recapture of) credit losses | ( |
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| Depreciation and amortization | |||||||||||||||||
| Deferred income taxes | ( |
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| Net gains on sales of securities | ( |
( |
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| Changes in fair value of mortgage servicing rights | ( |
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| Gain on sale of BlackRock | ( |
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| Undistributed earnings of BlackRock | ( |
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| Net change in | |||||||||||||||||
| Trading securities and other short-term investments | ( |
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| Loans held for sale | ( |
( |
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| Other assets | ( |
( |
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| Accrued expenses and other liabilities | ( |
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| Other | ( |
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| Net cash provided (used) by operating activities | $ | $ | |||||||||||||||
| Investing Activities | |||||||||||||||||
| Sales | |||||||||||||||||
| Securities available for sale | $ | $ | |||||||||||||||
| Net proceeds from sale of BlackRock | |||||||||||||||||
| Loans | |||||||||||||||||
| Repayments/maturities | |||||||||||||||||
| Securities available for sale | |||||||||||||||||
| Securities held to maturity | |||||||||||||||||
| Purchases | |||||||||||||||||
| Securities available for sale | ( |
( |
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| Securities held to maturity | ( |
( |
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| Loans | ( |
( |
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| Net change in | |||||||||||||||||
| Federal funds sold and resale agreements | ( |
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| Interest-earning deposits with banks | ( |
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| Loans | ( |
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| Net cash paid for acquisition (a) | ( |
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| Other | ( |
( |
|||||||||||||||
| Net cash provided (used) by investing activities | $ | $ | ( |
||||||||||||||
(continued on following page)
48 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
(continued from previous page)
| Unaudited In millions |
Six Months Ended June 30 |
||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Financing Activities | |||||||||||||||||
| Net change in | |||||||||||||||||
| Noninterest-bearing deposits | $ | $ | |||||||||||||||
| Interest-bearing deposits | ( |
||||||||||||||||
| Federal funds purchased and repurchase agreements | ( |
||||||||||||||||
| Short-term Federal Home Loan Bank borrowings | ( |
||||||||||||||||
| Other borrowed funds | |||||||||||||||||
| Sales/issuances | |||||||||||||||||
| Federal Home Loan Bank borrowings | |||||||||||||||||
| Bank notes and senior debt | |||||||||||||||||
| Other borrowed funds | |||||||||||||||||
| Common and treasury stock | |||||||||||||||||
| Repayments/maturities | |||||||||||||||||
| Federal Home Loan Bank borrowings | ( |
( |
|||||||||||||||
| Bank notes and senior debt | ( |
( |
|||||||||||||||
| Other borrowed funds | ( |
( |
|||||||||||||||
| Acquisition of treasury stock | ( |
( |
|||||||||||||||
| Preferred stock cash dividends paid | ( |
( |
|||||||||||||||
| Common stock cash dividends paid | ( |
( |
|||||||||||||||
| Net cash provided (used) by financing activities | $ | ( |
$ | ||||||||||||||
| Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash | $ | $ | |||||||||||||||
| Net cash provided by discontinued operations | |||||||||||||||||
| Net cash provided (used) by continuing operations | ( |
||||||||||||||||
| Cash and due from banks and restricted cash at beginning of period | |||||||||||||||||
| Cash and due from banks and restricted cash at end of period | $ | $ | |||||||||||||||
| Cash and due from banks and restricted cash | |||||||||||||||||
| Cash and due from banks at end of period (unrestricted cash) | $ | $ | |||||||||||||||
| Restricted cash | |||||||||||||||||
| Cash and due from banks and restricted cash at end of period | $ | $ | |||||||||||||||
| Supplemental Disclosures | |||||||||||||||||
| Interest paid | $ | $ | |||||||||||||||
| Income taxes paid | $ | $ | |||||||||||||||
| Income taxes refunded | $ | $ | |||||||||||||||
| Leased assets obtained in exchange for new operating lease liabilities | $ | $ | |||||||||||||||
| Non-cash Investing and Financing Items | |||||||||||||||||
| Transfer from loans to loans held for sale, net | $ | $ | |||||||||||||||
| Transfer from trading securities to investment securities | $ | ||||||||||||||||
| Transfer from loans to foreclosed assets | $ | $ | |||||||||||||||
(a)Cash paid to acquire BBVA was $11,480 million. The amount of $10,511 million represents the cash paid for the acquisition less $969 million in cash acquired. See Note 2 Acquisition & Divestiture Activity for more detailed information on the BBVA acquisition.
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE PNC FINANCIAL SERVICES GROUP, INC.
Unaudited
See page 102 for a glossary of certain terms and acronyms used in this Report.
BUSINESS
PNC is one of the largest diversified financial services companies in the U.S. and is headquartered in Pittsburgh, Pennsylvania.
NOTE 1 A CCOUNTING 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 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 three and six months ended June 30, 2021 reflect BBVA's business operations for the month of June 2021 and our balance sheet at June 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 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 2020 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 2020 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 2020 Form 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, including for the BBVA acquisition. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.
50 The PNC Financial Services Group, Inc. – Form 10-Q
Recently Adopted Accounting Standards
| Accounting Standards Update | Description | Financial Statement Impact | ||||||
|
Income Tax Simplification - ASU 2019-12
Issued December 2019
|
• Simplifies the accounting for income taxes by eliminating certain exceptions in ASC 740, Income Taxes, relating to the approach for intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences and the methodology for calculating income taxes in an interim period.
• Clarifies areas of the income tax guidance around franchise taxes partially based on income, step-ups in the tax basis of goodwill, and enacted changes in tax laws.
• Specifies that an entity is no longer required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements.
|
• Adopted January 1, 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.
|
||||||
| Accounting Standards Update | 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 (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 these ASUs are effective as of March 12, 2020 through December 31, 2022.
|
• ASU 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 Form 10-K for more information on elections of optional expedients that occurred in 2020.
• During the first quarter of 2021, we elected to apply 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 June 30, 2021, we have not yet elected to apply any optional expedients for contract modifications and hedging relationships 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
|
• Amends the financial disclosure requirements for guarantors and issuers of 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 included Exhibit 22 in the Exhibit Index of Item 6 of this Report to disclose PNC’s guarantee of the PNC Capital Trust C preferred securities.
|
||||||
The PNC Financial Services Group, Inc. – Form 10-Q 51
NOTE 2 A CQUISITION AND DIVESTITURE ACTIVITY
Acquisition of BBVA USA Bancshares, Inc.
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.
PNC incurred $111 million and $117 million in costs for the three and six months ended June 30, 2021, in connection with the transaction. These expenses are primarily comprised of legal, advisory and technology related costs. Cumulative nonrecurring merger and integration costs through June 30, 2021 were $124 million.
Table 35: Acquisition Consideration
| June 1, 2021 | |||||
| In millions | Fair Value | ||||
| Fair value of acquisition consideration | $ | ||||
| Assets | |||||
| Cash and due from banks | $ | ||||
| Interest-earning deposits with banks | |||||
| Loans held for sale | |||||
| Investment securities – available for sale | |||||
| Net loans | |||||
| Equity investments | |||||
| Mortgage servicing rights | |||||
| Core deposit intangibles and other intangible assets | |||||
| Other | |||||
| Total assets | $ | ||||
| Liabilities | |||||
| Deposits | $ | ||||
| Borrowed funds | |||||
| Accrued expenses and other liabilities | |||||
| Total liabilities | $ | ||||
| Noncontrolling interests | |||||
| Less: Net assets | $ | ||||
| Goodwill | $ | ||||
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.
52 The PNC Financial Services Group, Inc. – Form 10-Q
Table 36: Fair Value and Unpaid Principal Balance of Loans from the BBVA Acquisition
| June 1, 2021 | ||||||||
| In millions | Unpaid Principal Balance | Fair Value | ||||||
| Loans | ||||||||
| Commercial | ||||||||
| Commercial and industrial | $ | $ | ||||||
| Commercial real estate | ||||||||
| Equipment lease financing | ||||||||
| Total commercial | ||||||||
| Consumer | ||||||||
| Residential real estate | ||||||||
| Home equity | ||||||||
| Automobile | ||||||||
| Credit card | ||||||||
| Other consumer | ||||||||
| Total consumer | ||||||||
| Total | $ | $ | ||||||
Other intangible assets from the BBVA acquisition, as of June 1, 2021 consisted of the following:
Table 37: Intangible Assets
| In millions | Fair Value | Weighted Life (years) |
Amortization Method | ||||||||
| Residential mortgage servicing rights | $ | (a) | |||||||||
| Core deposits | $ | Accelerated | |||||||||
| Other | Straight-line | ||||||||||
| Total core deposits and other | $ | ||||||||||
(a) Intangible asset accounted for at fair value.
The following is a description of the methods used to determine the fair values of significant assets and liabilities.
Cash and 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 short-term nature of these assets.
Loans Held for Sale
Residential mortgage loans are valued based on quoted market prices, where available, prices for other traded mortgage loans with similar 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 and to take into consideration the specific characteristics of certain loans that are priced based on the pricing of 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 pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace 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 deposit costs including servicing costs, client retention and alternative funding source costs at the time of acquisition. The discount rate used was derived taking into account the estimated cost of equity, risk-free return rate and risk premium for the market and specific risk related to the asset’s cash flows. The core deposit intangible is being amortized over 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 Statement of Income from the date of acquisition through June 30, 2021.
Table 38: BBVA Financial Results
| In millions | One month ended June 30, 2021 | ||||
| Net interest income | $ | ||||
| Noninterest income | $ | ||||
| Net income | $ | ||||
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. Acquisition costs of $117 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 income. Additionally, BBVA's financial results through the six months ended June 30, 2020 included a $2.2 billion goodwill impairment charge recorded in noninterest expense. The pro forma information does not necessarily reflect the results that would have occurred had PNC acquired BBVA on January 1, 2020.
Table 39: Unaudited Pro Forma Results
| Three months ended June 30 | Six months ended June 30 | |||||||||||||
| In millions | 2021 | 2020 | 2021 | 2020 | ||||||||||
| Net interest income | $ | $ | $ | $ | ||||||||||
| Noninterest income | $ | $ | $ | $ | ||||||||||
| Net income | $ | $ | $ | $ | ||||||||||
54 The PNC Financial Services Group, Inc. – Form 10-Q
Under CECL, PNC is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination. PNC considers a variety of factors in connection with the identification of more-than-insignificant deterioration in credit quality, including but not limited to nonperforming status, delinquency, risk ratings, TDR classification, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination. PNC initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price. The initial ACL for PCD loans of $1.2 billion was established through an adjustment to the BBVA loan balance and related purchase accounting mark. Non-PCD loans and PCD loans had a fair value of $52.1 billion and $9.3 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 acquisition, PNC recorded an ACL on non-PCD loans of $1.0 billion through an increase to the provision for credit losses.
Table 40: PCD Loan Activity
| June 1, 2021 | |||||
| In millions | |||||
| Principal Balance | $ | ||||
| ACL at acquisition | ( |
||||
| Non-credit premium | |||||
| Purchase price | $ | ||||
Sale of Equity Investment in BlackRock, Inc.
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.
The following table summarizes the results from the discontinued operations of BlackRock included in the Consolidated Income Statement:
Table 41: Consolidated Income Statement - Discontinued Operations
| Three months ended June 30 | Six months ended June 30 | |||||||||||||
| In millions | 2020 | 2020 | ||||||||||||
| Noninterest income | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||
| Income from discontinued operations before income taxes and noncontrolling interests | ||||||||||||||
| Income taxes | ||||||||||||||
| Net income from discontinued operations | $ | $ | ||||||||||||
The following table summarizes the cash flows of discontinued operations of BlackRock included in the Consolidated Statement of Cash Flows:
Table 42: Consolidated Statement of Cash Flows - Discontinued Operations
| Six months ended June 30 | |||||
| In millions | 2020 | ||||
| Cash from discontinued operations | |||||
| Net cash provided (used) by operating activities of discontinued operations | $ | ||||
| Net cash provided by investing activities of discontinued operations | $ | ||||
The PNC Financial Services Group, Inc. – Form 10-Q 55
NOTE 3 I NVESTMENT SECURITIES
Table 43: Investment Securities Summary
| June 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 | $ | $ | $ | ( |
$ | $ | $ | $ | ( |
$ | |||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-agency | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-agency | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( |
||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total securities available for sale (b) | $ | $ | $ | ( |
$ | $ | $ | $ | ( |
$ | |||||||||||||||||||||||||||||||||||||||||||
| Securities Held to Maturity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and government agencies | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | $ | ( |
$ | ( |
|||||||||||||||||||||||||||||||||||||||||||||||||
| Total securities held to maturity (c) | $ | $ | $ | ( |
$ | $ | $ | $ | ( |
$ | |||||||||||||||||||||||||||||||||||||||||||
(a) The accrued interest associated with our available for sale portfolio totaled $311 million and $238 million at June 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 $105 million and $79 million for securities available for sale at June 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 both June 30, 2021 and June 30, 2020 included $0.3
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 June 30, 2021, the allowance for investment securities was $108 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 zero and $26 million for the three and six months ended June 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 44 presents the gross unrealized losses and fair value of securities available for sale that do not have an associated allowance for investment securities at June 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 June 30, 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.
56 The PNC Financial Services Group, Inc. – Form 10-Q
Table 44: 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 |
||||||||||||||||||||||||||||||||
| June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and government agencies | $ | ( |
$ | $ | ( |
$ | ||||||||||||||||||||||||||||||||
| Residential mortgage-backed | ||||||||||||||||||||||||||||||||||||||
| Agency | ( |
$ | ( |
$ | ( |
|||||||||||||||||||||||||||||||||
| Non-agency | ( |
( |
||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed | ||||||||||||||||||||||||||||||||||||||
| Agency | ( |
( |
( |
|||||||||||||||||||||||||||||||||||
| Non-agency | ( |
( |
||||||||||||||||||||||||||||||||||||
| Asset-backed | ( |
( |
( |
|||||||||||||||||||||||||||||||||||
| Other | ( |
( |
||||||||||||||||||||||||||||||||||||
| Total securities available for sale | $ | ( |
$ | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and government agencies | $ | ( |
$ | $ | ( |
$ | ||||||||||||||||||||||||||||||||
| Residential mortgage-backed | ||||||||||||||||||||||||||||||||||||||
| Agency | ( |
$ | ( |
$ | ( |
|||||||||||||||||||||||||||||||||
| Non-agency | ( |
( |
( |
|||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed | ||||||||||||||||||||||||||||||||||||||
| Agency | ( |
( |
||||||||||||||||||||||||||||||||||||
| Non-agency | ( |
( |
( |
|||||||||||||||||||||||||||||||||||
| Asset-backed | ( |
( |
( |
|||||||||||||||||||||||||||||||||||
| Total securities available for sale | $ | ( |
$ | $ | ( |
$ | $ | ( |
$ | |||||||||||||||||||||||||||||
Information relating to gross realized securities gains and losses from the sales of securities is set forth in the following table:
Table 45: Gains (Losses) on Sales of Securities Available for Sale
| Six months ended June 30 In millions |
Gross Gains | Gross Losses | Net Gains | Tax Expense | |||||||||||||
| 2021 | $ | $ | ( |
$ | $ | ||||||||||||
| 2020 | $ | $ | ( |
$ | $ | ||||||||||||
The PNC Financial Services Group, Inc. – Form 10-Q 57
The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at June 30, 2021:
Table 46: Contractual Maturity of Debt Securities
| June 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 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Residential mortgage-backed | |||||||||||||||||||||||||||||||||||
| Agency | |||||||||||||||||||||||||||||||||||
| Non-agency | |||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed | |||||||||||||||||||||||||||||||||||
| Agency | |||||||||||||||||||||||||||||||||||
| Non-agency | |||||||||||||||||||||||||||||||||||
| Asset-backed | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total securities available for sale at amortized cost | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Fair value | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Weighted-average yield, GAAP basis (a) | % | % | % | % | % | ||||||||||||||||||||||||||||||
| Securities Held to Maturity | |||||||||||||||||||||||||||||||||||
| U.S. Treasury and government agencies | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Other | $ | ||||||||||||||||||||||||||||||||||
| Total securities held to maturity at amortized cost | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Fair value | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Weighted-average yield, GAAP basis (a) | % | % | % | % | % | ||||||||||||||||||||||||||||||
(a) Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security.
At June 30, 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 $32.3 billion and $22.5 billion and fair value of $33.2 billion and $22.6 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:
Table 47: Fair Value of Securities Pledged and Accepted as Collateral
| In millions | June 30 2021 |
December 31 2020 |
||||||
| Pledged to others | $ | $ | ||||||
| Accepted from others: | ||||||||
| Permitted by contract or custom to sell or repledge | $ | $ | ||||||
| Permitted amount repledged to others | $ | $ | ||||||
58 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 4 L OANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
Loan Portfolio
Our loan portfolio consists of two 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 estate
|
|||||||
• Commercial real estate
|
• Home equity | |||||||
• 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. Loan delinquencies include government insured or guaranteed loans, loans accounted for under the fair value option and PCD loans.
Table 48 presents the composition and delinquency status of our loan portfolio at June 30, 2021 and December 31, 2020. Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the 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 June 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
Table 48: 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) |
||||||||||||||||||||||||
| June 30, 2021 | ||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||
| Equipment lease financing | ||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Residential real estate | (c) | $ | ||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||
Automobile |
||||||||||||||||||||||||||||||||
| Credit card | ||||||||||||||||||||||||||||||||
Education |
(c) | |||||||||||||||||||||||||||||||
Other consumer |
||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Percentage of total loans | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||
| Equipment lease financing | ||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Residential real estate | (c) | $ | ||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||
Automobile |
||||||||||||||||||||||||||||||||
| Credit card | ||||||||||||||||||||||||||||||||
Education |
(c) | |||||||||||||||||||||||||||||||
Other consumer |
||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Percentage of total loans | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
(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 totaled $0.8 billion and $0.7 billion at June 30, 2021 and December 31, 2020, respectively. These amounts are 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 $0.4 billion and $0.1 billion at June 30, 2021. Comparable amounts at December 31, 2020 were $0.4 billion and $0.2 billion.
(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 $1.0 billion and $1.3 billion at June 30, 2021 and December 31, 2020, respectively.
(f)Collateral dependent loans totaled $1.9 billion and $1.5 billion at June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021, we pledged $45.5 billion of commercial and other loans to the Federal Reserve Bank and $78.5 billion of residential real estate and other loans to the FHLB as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, 2020 were $30.1 billion and $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 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
The following table presents our nonperforming assets as of June 30, 2021 and December 31, 2020 , respectively:
Table 49: Nonperforming Assets
| Dollars in millions | June 30 2021 |
December 31 2020 |
|||||||||||||||
| Nonperforming loans | |||||||||||||||||
| Commercial | $ | $ | |||||||||||||||
| Consumer (a) | |||||||||||||||||
| Total nonperforming loans (b) | |||||||||||||||||
| OREO and foreclosed assets | |||||||||||||||||
| Total nonperforming assets | $ | $ | |||||||||||||||
| Nonperforming loans to total loans | % | % | |||||||||||||||
| Nonperforming assets to total loans, OREO and foreclosed assets | % | % | |||||||||||||||
| Nonperforming assets to total 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 June 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.
Nonperforming loans 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 Troubled Debt Restructurings section of this Note 4 for additional information on TDRs.
Total nonperforming loans in Table 49 include TDRs of $0.8 billion and $0.9 billion at June 30, 2021 and December 31, 2020, respectively. TDRs that are performing, including consumer credit card TDR loans, totaled $0.7
Additional Credit Quality Indicators by Loan Class
Commercial Loan Classes
See Note 4 Loans and Related 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 manage the credit risk associated with each loan class.
The PNC Financial Services Group, Inc. – Form 10-Q 61
The following table presents credit quality indicators for the commercial loan classes:
Table 50: Commercial Credit Quality Indicators (a)
| Term Loans by Origination Year | |||||||||||||||||||||||||||||
| June 30, 2021 - In millions | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| Pass Rated | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Criticized | |||||||||||||||||||||||||||||
| Total commercial and industrial | |||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||
| Pass Rated | |||||||||||||||||||||||||||||
| Criticized | |||||||||||||||||||||||||||||
| Total commercial real estate | |||||||||||||||||||||||||||||
| Equipment lease financing | |||||||||||||||||||||||||||||
| Pass Rated | |||||||||||||||||||||||||||||
| Criticized | |||||||||||||||||||||||||||||
| Total equipment lease financing | |||||||||||||||||||||||||||||
| Total commercial | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| 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 |
||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| Pass Rated | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Criticized | |||||||||||||||||||||||||||||
| Total commercial and industrial | |||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||
| Pass Rated | |||||||||||||||||||||||||||||
| Criticized | |||||||||||||||||||||||||||||
Total commercial real estate |
|||||||||||||||||||||||||||||
Equipment lease financing |
|||||||||||||||||||||||||||||
| Pass Rated | |||||||||||||||||||||||||||||
| Criticized | |||||||||||||||||||||||||||||
Total equipment lease financing |
|||||||||||||||||||||||||||||
Total commercial |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
(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 June 30, 2021 and December 31, 2020.
Consumer Loan Classes
See Note 4 Loans and Related 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 manage the credit risk
associated with each loan class.
62 The PNC Financial Services Group, Inc. – Form 10-Q
Residential Real Estate and Home Equity
The following table presents credit quality indicators for the residential real estate loan class:
Table 51: Residential Real Estate Credit Quality Indicators
| Term Loans by Origination Year | |||||||||||||||||||||||
| June 30, 2021 - In millions | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total Loans | ||||||||||||||||
| PNC legacy | |||||||||||||||||||||||
| Current estimated LTV ratios | |||||||||||||||||||||||
| Greater than 100% | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Greater than or equal to 80% to 100% | |||||||||||||||||||||||
| Less than 80% | |||||||||||||||||||||||
| Government insured or guaranteed loans | |||||||||||||||||||||||
| Total PNC legacy portfolio | |||||||||||||||||||||||
| Acquired loans | |||||||||||||||||||||||
| Estimated LTV ratios (a) | |||||||||||||||||||||||
| Greater than 100% | |||||||||||||||||||||||
| Greater than or equal to 80% to 100% | |||||||||||||||||||||||
| Less than 80% | |||||||||||||||||||||||
| No LTV ratio available | |||||||||||||||||||||||
| Government insured or guaranteed loans | |||||||||||||||||||||||
| Total acquired loans | |||||||||||||||||||||||
| Total residential real estate | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Updated FICO scores | |||||||||||||||||||||||
| Greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||
| No FICO score available | |||||||||||||||||||||||
| Government insured or guaranteed loans | |||||||||||||||||||||||
| Total residential real estate | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| 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% | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Greater than or equal to 80% to 100% | |||||||||||||||||||||||
| Less than 80% | |||||||||||||||||||||||
| Government insured or guaranteed loans | |||||||||||||||||||||||
Total residential real estate |
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Updated FICO scores | |||||||||||||||||||||||
| Greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||
| No FICO score available | |||||||||||||||||||||||
| Government insured or guaranteed loans | |||||||||||||||||||||||
| Total residential real estate | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
(a) LTV ratios, inclusive of CLTV for first lien and certain 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 to update the property values of real estate collateral and calculate an updated current estimated LTV ratio upon conversion of bank systems, which is expected to occur in October 2021. See Note 4 Loans and Related Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information on how current estimated LTV ratios are calculated in the PNC legacy portfolio.
The PNC Financial Services Group, Inc. – Form 10-Q 63
The following table presents credit quality indicators for the home equity loan class:
Table 52: Home Equity Credit Quality Indicators
| Term Loans by Origination Year | |||||||||||||||||||||||||||||
| June 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% | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Greater than or equal to 80% to 100% | $ | ||||||||||||||||||||||||||||
| Less than 80% | |||||||||||||||||||||||||||||
| Total PNC legacy portfolio | |||||||||||||||||||||||||||||
| Acquired loans | |||||||||||||||||||||||||||||
| Estimated LTV ratios (a) | |||||||||||||||||||||||||||||
| Greater than 100% | |||||||||||||||||||||||||||||
| Greater than or equal to 80% to 100% | |||||||||||||||||||||||||||||
| Less than 80% | |||||||||||||||||||||||||||||
| No LTV ratio available | |||||||||||||||||||||||||||||
| Total acquired loans | |||||||||||||||||||||||||||||
| Total home equity | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Updated FICO scores | |||||||||||||||||||||||||||||
| Greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available | |||||||||||||||||||||||||||||
| Total home equity | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| 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% | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Greater than or equal to 80% to 100% | |||||||||||||||||||||||||||||
| Less than 80% | |||||||||||||||||||||||||||||
| Total home equity | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Updated FICO scores | |||||||||||||||||||||||||||||
| Greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available | |||||||||||||||||||||||||||||
| Total home equity | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
(a) LTV ratios, inclusive of CLTV for first lien and certain 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 to update the property values of real estate collateral and calculate an updated current estimated LTV ratio upon conversion of bank systems, which is expected to occur in October 2021. See Note 4 Loans and Related Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information on how current estimated LTV ratios are calculated in the PNC legacy portfolio.
64 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:
Table 53: Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes
| Term Loans by Origination Year | |||||||||||||||||||||||||||||
| June 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 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available or required (a) | |||||||||||||||||||||||||||||
| Total automobile | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Credit card | |||||||||||||||||||||||||||||
| FICO score greater than or equal to 780 | $ | $ | $ | ||||||||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available or required (a) | |||||||||||||||||||||||||||||
| Total credit card | $ | $ | $ | ||||||||||||||||||||||||||
| Education | |||||||||||||||||||||||||||||
| FICO score greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available or required (a) | |||||||||||||||||||||||||||||
| Education loans using FICO credit metric | |||||||||||||||||||||||||||||
| Other internal credit metrics | |||||||||||||||||||||||||||||
| Total education | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||
| FICO score greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available or required (a) | |||||||||||||||||||||||||||||
| Other consumer loans using FICO credit metric | |||||||||||||||||||||||||||||
| Other internal credit metrics | |||||||||||||||||||||||||||||
| Total other consumer | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
The PNC Financial Services Group, Inc. – Form 10-Q 65
| 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 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| Total automobile | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Credit card | |||||||||||||||||||||||||||||
| FICO score greater than or equal to 780 | $ | $ | $ | ||||||||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available or required (a) | |||||||||||||||||||||||||||||
| Total credit card | $ | $ | $ | ||||||||||||||||||||||||||
| Education | |||||||||||||||||||||||||||||
| FICO score greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||
| Less than 660 | |||||||||||||||||||||||||||||
| No FICO score available or required (a) | |||||||||||||||||||||||||||||
| Education loans using FICO credit metric | |||||||||||||||||||||||||||||
| Other internal credit metrics | |||||||||||||||||||||||||||||
| Total education | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||
| FICO score greater than or equal to 780 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| 720 to 779 | |||||||||||||||||||||||||||||
| 660 to 719 | |||||||||||||||||||||||||||||