Generated positive operating leverage; grew NII and NIM; maintained 2.5% SCB requirementIncreased quarterly common stock dividend 5 cents to $1.60 per share on July 2, 2024 PITTSBURGH, July 16, 2024 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE:PNC) today reported: For the quarter In millions, except per share data and as noted 2Q24 1Q24 2Q23 Second Quarter Highlights Financial Results Comparisons reflect 2Q24 vs. 1Q24 Net interest income (NII) $    3,302 $    3,264 $    3,510 Income Statement Noninterest income 2,109 1,881 1,783 ▪   Generated positive operating leverage; PPNR increased 13% Revenue 5,411 5,145 5,293 Noninterest expense 3,357 3,334 3,372 ▪   Revenue increased 5% Pretax, pre-provision earnings (PPNR) (non-GAAP) 2,054 1,811 1,921 –  NII and NIM increased Provision for credit losses 235 155 146 ▪   Noninterest expense increased 1% Net income 1,477 1,344 1,500 ▪   Gain on Visa share exchange of$754 million substantially offset by other significant items, resulting in a 9 cent benefit to EPS Per Common Share Diluted earnings per share (EPS) $      3.39 $      3.10 $      3.36 Balance Sheet Average diluted common shares outstanding 400 400 401 ▪   Average loans and deposits were relatively stable Book value 116.70 113.30 105.67 Tangible book value (TBV) (non-GAAP) 89.12 85.70 77.80 ▪   Average securities increased 4% ▪   Net loan charge-offs were $262 million, or 0.33% annualized to average loans Balance Sheet & Credit Quality Average loans    In billions $    319.9 $    320.6 $    324.5 ▪   ACL to total loans stable at 1.7% Average securities    In billions 141.3 135.4 141.0 ▪   AOCI improved $0.6 billion, including securities repositioning impact Average deposits    In billions 417.2 420.2 425.7 Accumulated other comprehensive income (loss) (AOCI) In billions (7.4) (8.0) (9.5) ▪   TBV per share increased 4% Net loan charge-offs 262 243 194 ▪   Maintained strong capital position Allowance for credit losses (ACL) to total loans 1.67 % 1.68 % 1.68 % –  CET1 capital ratio of 10.2% –  Maintained regulatory minimum Stress Capital Buffer (SCB) of2.5% Selected Ratios Return on average common shareholders' equity 12.16 % 11.39 % 13.01 % –  Increased quarterly common stockdividend 5 cents to $1.60 per share on July 2, 2024 Return on average assets 1.05 0.97 1.08 Net interest margin (NIM) (non-GAAP) 2.60 2.57 2.79 Noninterest income to total revenue 39 37 34 Efficiency 62 65 64 Common equity Tier 1 (CET1) capital ratio 10.2 10.1 9.5 See non-GAAP financial measures in the Consolidated Financial Highlights accompanying this release. From Bill Demchak, PNC Chairman and Chief Executive Officer: "PNC delivered strong results in the second quarter; generating positive operating leverage through revenue growth and well controlled expenses while adding customers, and strengthening our capital levels. Importantly, net interest income and net interest margin increased, marking the beginning of our growth trajectory towards expected record NII in 2025. In June, the Federal Reserve announced the results of the annual stress test and PNC's start-to-trough CET1 ratio depletion was 1.6%, the best in our peer group. And earlier this month, our board approved a 5 cent increase to our quarterly common stock dividend." Significant Items In the second quarter of 2024, PNC participated in the Visa exchange program, allowing PNC to monetize 50% of its Visa Class B-1 shares and converting its remaining holdings into 1.8 million of Visa Class B-2 shares. The exchange resulted in a gain of $754 million. The second quarter of 2024 also included Visa Class B-2 derivative fair value adjustments of negative $116 million, primarily related to the extension of anticipated litigation resolution timing, and a $120 million expense related to a PNC Foundation contribution. During the quarter, PNC also repositioned the investment securities portfolio, selling available-for-sale securities with a market value of $3.8 billion and a weighted average yield of approximately 1.5%. The sale of securities resulted in a loss of $497 million. PNC redeployed the sale proceeds into available-for-sale securities with a market value of $3.8 billion and a weighted average yield of approximately 5.5%. The combined net income impact of these significant items was $35 million, or $0.09 per common share. Income Statement Impact of Significant Items In millions 2Q24 Noninterest Income Significant items impacting Other Noninterest Income Gain on exchange of Visa Class B-1 shares $                  754 Visa Class B-2 derivative fair value adjustments (116) Loss on sale of securities (497) Noninterest income increase from significant items $                  141 Noninterest Expense Significant items impacting Other Noninterest Expense Contribution to PNC Foundation $                  120 Noninterest expense increase from significant items $                  120 Net Income and EPS Pretax, pre-provision impact of significant items $                    21 Tax impact of significant items 14 Net Income increase from significant items $                    35 EPS impact of significant items $                  0.09 Tax impact of significant items includes the benefit of shares donated to the PNC Foundation, partially offset by the tax impact of pretax, pre-provision significant items at a statutory tax rate of 21%. Income Statement Highlights Second quarter 2024 compared with first quarter 2024 Total revenue of $5.4 billion increased $266 million, or 5%, due to higher noninterest and net interest income. Net interest income of $3.3 billion increased $38 million, or 1%, reflecting higher yields on interest-earning assets. Net interest margin of 2.60% increased 3 basis points. Noninterest income of $2.1 billion increased $228 million, or 12%. Fee income of $1.8 billion increased $31 million, or 2%, primarily due to seasonally higher card and cash management fees and increased capital markets and advisory activity, partially offset by lower residential mortgage revenue. Other noninterest income of $332 million increased $197 million reflecting the impact of $141 million of significant items in the second quarter of 2024. Noninterest expense of $3.4 billion increased $23 million, or 1%, and included a $120 million PNC Foundation contribution expense in the second quarter of 2024, while the first quarter included a $130 million FDIC special assessment expense. Provision for credit losses was $235 million in the second quarter, primarily reflecting the impact of portfolio activity. The first quarter of 2024 included a provision for credit losses of $155 million. The effective tax rate was 18.8% for both the second and first quarter. Balance Sheet Highlights Second quarter 2024 compared with first quarter 2024 or June 30, 2024 compared with March 31, 2024 Average loans of $319.9 billion were stable, reflecting average commercial loans of $219.1 billion and average consumer loans of $100.8 billion. Credit quality performance: Delinquencies of $1.3 billion were stable. Total nonperforming loans of $2.5 billion increased $123 million, or 5%, primarily due to higher commercial nonperforming loans. Net loan charge-offs of $262 million increased $19 million, primarily due to higher commercial real estate net loan charge-offs. The allowance for credit losses of $5.4 billion was relatively stable. The allowance for credit losses to total loans was 1.67% at June 30, 2024 and 1.68% at March 31, 2024. Average investment securities of $141.3 billion increased $5.9 billion, or 4%, reflecting net purchase activity, primarily of U.S. Treasury securities. Average Federal Reserve Bank balances of $40.7 billion decreased $7.1 billion, primarily reflecting net securities purchases. Average deposits of $417.2 billion were relatively stable and included seasonal declines in corporate deposits. Average borrowed funds of $77.5 billion increased $1.9 billion, or 2%, reflecting parent company senior debt issuances. PNC maintained a strong capital and liquidity position. Based on the results of the Federal Reserve's 2024 annual stress test, PNC's SCB for the four-quarter period beginning October 1, 2024 will remain at the regulatory minimum of 2.5%. On July 2, 2024, the PNC board of directors raised the quarterly cash dividend on common stock to $1.60 per share, an increase of 5 cents per share. The dividend is payable on August 5, 2024 to shareholders of record at the close of business July 15, 2024. PNC returned $0.7 billion of capital to shareholders, reflecting $0.6 billion of dividends on common shares and $0.1 billion of common share repurchases, representing 0.7 million shares. The Basel III common equity Tier 1 capital ratio was an estimated 10.2% at June 30, 2024 and was 10.1% at March 31, 2024. PNC's average LCR for the three months ended June 30, 2024 was 108%, exceeding the regulatory minimum requirement throughout the quarter.   Earnings Summary In millions, except per share data 2Q24 1Q24 2Q23 Net income $      1,477 $      1,344 $      1,500 Net income attributable to diluted common shares $      1,355 $      1,240 $      1,347 Diluted earnings per common share $         3.39 $         3.10 $         3.36 Average diluted common shares outstanding 400 400 401 Cash dividends declared per common share $         1.55 $         1.55 $         1.50 The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported (GAAP) amounts. This information supplements results as reported in accordance with GAAP and should not be viewed in isolation from, or as a substitute for, GAAP results. Fee income, a non-GAAP financial measure, refers to noninterest income in the following categories: asset management and brokerage, capital markets and advisory, card and cash management, lending and deposit services, and residential and commercial mortgage. Information in this news release, including the financial tables, is unaudited. CONSOLIDATED REVENUE REVIEW Revenue Change Change 2Q24 vs 2Q24 vs In millions 2Q24 1Q24 2Q23 1Q24 2Q23 Net interest income $         3,302 $         3,264 $         3,510 1 % (6) % Noninterest income 2,109 1,881 1,783 12 % 18 % Total revenue $         5,411 $         5,145 $         5,293 5 % 2 % Total revenue for the second quarter of 2024 increased $266 million from the first quarter of 2024 and $118 million compared with the second quarter of 2023. In both comparisons, the increase was driven by higher noninterest income. The linked quarter increase also reflected the benefit of higher net interest income. Net interest income of $3.3 billion increased $38 million from the first quarter of 2024, reflecting higher yields on interest-earning assets. Net interest margin was 2.60% in the second quarter of 2024, increasing 3 basis points from the first quarter of 2024. Compared to the second quarter of 2023, net interest income decreased $208 million and net interest margin declined 19 basis points, as the benefit of higher interest-earning asset yields was more than offset by increased funding costs and lower loan balances. Noninterest Income Change Change 2Q24 vs 2Q24 vs In millions 2Q24 1Q24 2Q23 1Q24 2Q23 Asset management and brokerage $          364 $          364 $          348 — 5 % Capital markets and advisory 272 259 213 5 % 28 % Card and cash management 706 671 697 5 % 1 % Lending and deposit services 304 305 298 — 2 % Residential and commercial mortgage 131 147 98 (11) % 34 % Fee income 1,777 1,746 1,654 2 % 7 % Other 332 135 129 146 % 157 % Total noninterest income $      2,109 $      1,881 $      1,783 12 % 18 % Noninterest income for the second quarter of 2024 increased $228 million compared with the first quarter of 2024. Capital markets and advisory revenue increased $13 million, driven by higher merger and acquisition advisory activity and increased loan syndication revenue, partially offset by lower underwriting fees. Card and cash management fees grew $35 million reflecting seasonally higher consumer transaction volumes and higher treasury management product revenue. Residential and commercial mortgage revenue decreased $16 million primarily due to lower residential mortgage activity. Other noninterest income increased $197 million primarily reflecting the impact of $141 million of significant items in the second quarter of 2024. Noninterest income for the second quarter of 2024, increased $326 million from the second quarter of 2023. Fee income increased $123 million driven by growth across all categories. Other noninterest income increased $203 million primarily reflecting the impact of $141 million of significant items in the second quarter of 2024. The second quarter of 2023 also included negative Visa derivative fair value adjustments of $83 million.    CONSOLIDATED EXPENSE REVIEW Noninterest Expense Change Change 2Q24 vs 2Q24 vs In millions 2Q24 1Q24 2Q23 1Q24 2Q23 Personnel $       1,782 $       1,794 $       1,846 (1) % (3) % Occupancy 236 244 244 (3) % (3) % Equipment 356 341 349 4 % 2 % Marketing 93 64 109 45 % (15) % Other 890 891 824 — 8 % Total noninterest expense $       3,357 $       3,334 $       3,372 1 % — Noninterest expense for the second quarter of 2024 increased $23 million compared to the first quarter of 2024 and reflected PNC's continued focus on expense management. The modest increase was driven by the timing of marketing spend and higher equipment expense, partially offset by seasonally lower incentive compensation. Other noninterest expense included a $120 million PNC Foundation contribution expense in the second quarter of 2024, while the first quarter of 2024 included a $130 million FDIC special assessment expense. Noninterest expense of $3.4 billion for the second quarter of 2024, which included a $120 million PNC Foundation contribution expense, decreased $15 million compared with the second quarter of 2023, reflecting a continued focus on expense management. The effective tax rate was 18.8% for both the second and first quarter of 2024 and 15.5% for the second quarter of 2023. CONSOLIDATED BALANCE SHEET REVIEW Average total assets of $563.0 billion were relatively stable in comparison to both the first quarter of 2024 and the second quarter of 2023. Average Loans Change Change 2Q24 vs 2Q24 vs In billions 2Q24 1Q24 2Q23 1Q24 2Q23 Commercial $                  219.1 $                  219.2 $                  223.2 — (2) % Consumer 100.8 101.4 101.3 (1) % (1) % Total $                  319.9 $                  320.6 $                  324.5 — (1) % Average loans for the second quarter of 2024 were stable compared to the first quarter of 2024 and included a modest decline in consumer balances reflecting lower residential real estate and home equity loans. Average loans for the second quarter of 2024 decreased $4.6 billion in comparison to the second quarter of 2023. Average commercial loans declined $4.1 billion from the second quarter of 2023, driven by lower utilization of loan commitments. Average consumer loans decreased $0.5 billion and included lower home equity balances. Average Investment Securities Change Change 2Q24 vs 2Q24 vs In billions 2Q24 1Q24 2Q23 1Q24 2Q23 Available for sale $                    53.4 $                       46.0 $                    46.6 16 % 15 % Held to maturity 87.9 89.4 94.4 (2) % (7) % Total $                  141.3 $                     135.4 $                  141.0 4 % — Average investment securities of $141.3 billion in the second quarter of 2024 increased $5.9 billion and $0.3 billion from the first quarter of 2024 and the second quarter of 2023, respectively. In both comparisons, the increase reflected net purchase activity, primarily of U.S. Treasury securities, partially offset by portfolio paydowns and maturities. The duration of the investment securities portfolio was 3.5 years at June 30, 2024, 4.1 years at March 31, 2024 and 4.3 years at June 30, 2023. Net unrealized losses on available-for-sale securities were $3.7 billion at June 30, 2024, decreasing from $4.0 billion at March 31, 2024 and $4.2 billion at June 30, 2023. In both comparisons, the decrease primarily reflected the impact of securities repositioning during the second quarter of 2024.   Average Federal Reserve Bank balances for the second quarter of 2024 were $40.7 billion, decreasing $7.1 billion from the first quarter of 2024 primarily reflecting net securities purchases. Compared to the second quarter of 2023, average Federal Reserve Bank balances increased $10.1 billion primarily due to higher borrowed funds outstanding and lower loan balances, partially offset by lower deposit balances. Average Deposits Change Change 2Q24 vs 2Q24 vs In billions 2Q24 1Q24 2Q23 1Q24 2Q23 Commercial $                  199.7 $                  202.5 $                  204.1 (1) %