PNC REPORTS FULL YEAR 2022 NET INCOME OF $6.1 BILLION, $13.85 DILUTED EPS OR $13.96 AS ADJUSTED

Fourth quarter net income was $1.5 billion, $3.47 diluted EPS or $3.49 as adjusted 3% avg. loan growth; 4% revenue increase; 10 basis point NIM expansion

PITTSBURGH, Jan. 18, 2023 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

From Bill Demchak, PNC Chairman, President and Chief Executive Officer:

"By focusing on serving customers and communities, PNC delivered strong results in 2022. Capitalizing on opportunities across our coast to coast franchise, we grew loans and generated record revenue during a rapidly rising rate environment. At the same time, we controlled expenses and delivered substantial positive operating leverage. Our credit quality metrics remained strong and our solid capital position allowed us to return $6 billion of capital to shareholders throughout the year. As we enter 2023, we are well positioned to continue generating value for our stakeholders."

Income Statement Highlights

Fourth quarter 2022 compared with third quarter 2022

• Net income of $1.5 billion decreased $92 million, or 6%, and included a higher provision for credit losses.
• Total revenue of $5.8 billion increased $214 million, or 4%, primarily due to higher net interest income.
• Net interest income of $3.7 billion increased $209 million, or 6%, driven by higher interest-earning asset yields and balances, partially offset by higher funding costs.
• Net interest margin of 2.92% increased 10 basis points due to higher interest-earning asset yields, partially offset by higher funding costs.
• Noninterest income of $2.1 billion increased $5 million.
• Fee income of $1.8 billion increased $75 million, or 4%, and included higher capital markets and advisory revenue.
• Other noninterest income of $247 million decreased $70 million driven by negative Visa Class B derivative fair value adjustments of $41 million related to litigation escrow funding and other valuation changes. The third quarter of 2022 included positive Visa Class B derivative fair value adjustments of $13 million.
• Noninterest expense of $3.5 billion increased $194 million, or 6%, primarily due to increased personnel costs, reflecting higher variable compensation related to increased business activity and market impacts on long-term incentive compensation as well as seasonally elevated medical benefits expense.
• Provision for credit losses of $408 million in the fourth quarter included the impact of a weaker economic outlook and continued loan growth. The third quarter of 2022 included a provision for credit losses of $241 million.
• The effective tax rate was 17.7% for the fourth quarter and 19.1% for the third quarter.

Balance Sheet Highlights

Fourth quarter 2022 compared with third quarter 2022 or December 31, 2022 compared with September 30, 2022

• Average loans of $321.9 billion increased $8.9 billion, or 3%.
• Average commercial loans of $221.6 billion increased $7.5 billion driven by growth in PNC's corporate banking, real estate and business credit businesses.
• Average consumer loans of $100.3 billion grew $1.4 billion due to higher residential mortgage, home equity and credit card loans, partially offset by lower auto loans.
• Credit quality performance:
• Delinquencies of $1.5 billion decreased $136 million, or 8%, as a result of lower commercial delinquencies.
• Total nonperforming loans of $2.0 billion decreased $83 million, or 4%, driven by lower commercial and consumer nonperforming loans.
• Net loan charge-offs of $224 million increased $105 million and included the impact of one large commercial loan credit.
• The allowance for credit losses of $5.4 billion increased $172 million. The allowance for credit losses to total loans was 1.67% at both December 31, 2022 and September 30, 2022.
• Average deposits of $434.9 billion were relatively stable.
• Average investment securities of $142.9 billion grew $5.9 billion, or 4%, reflecting net purchases.
• Average Federal Reserve Bank balances of $30.0 billion decreased $1.5 billion.
• Federal Reserve Bank balances at December 31, 2022 of $26.9 billion decreased $12.9 billion, driven by higher loans outstanding.
• PNC maintained strong capital and liquidity positions.
• On January 4, 2023, the PNC board of directors declared a quarterly cash dividend on common stock of $1.50 per share. The dividend, with a payment date of February 5, 2023, will be payable the next business day.
• PNC returned $1.2 billion of capital to shareholders, reflecting $0.6 billion of common share repurchases, representing 3.8 million shares, and $0.6 billion of dividends on common shares.
• The Basel III common equity Tier 1 capital ratio was an estimated 9.1% at December 31, 2022 and 9.3% at September 30, 2022.
• The Liquidity Coverage Ratio at December 31, 2022 for PNC exceeded the regulatory minimum requirement.

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. Effective for the first quarter of 2022, the presentation of noninterest income has been recategorized. 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. See a description of each noninterest income revenue category in PNC's third quarter 2022 Form 10-Q. In the fourth quarter of 2022, PNC updated the name of the fee income line item "capital markets related" to "capital markets and advisory." This update did not impact the components of the category. All periods presented herein reflect these changes. Information in this news release, including the financial tables, is unaudited.

Total revenue for the fourth quarter of 2022 increased $214 million and $636 million compared with the third quarter of 2022 and the fourth quarter of 2021, respectively, driven by higher net interest income.

Net interest income of $3.7 billion for the fourth quarter of 2022 increased $209 million and $822 million compared to the third quarter of 2022 and fourth quarter of 2021, respectively. In both comparisons, the increase was driven by higher interest-earning asset yields and balances, partially offset by higher funding costs.

The net interest margin was 2.92% in the fourth quarter of 2022, increasing 10 basis points and 65 basis points compared with the third quarter of 2022 and the fourth quarter of 2021, respectively. In both comparisons, the increase was due to higher interest-earning asset yields, partially offset by higher funding costs.

Noninterest income for the fourth quarter of 2022 increased $5 million compared with the third quarter of 2022. Asset management and brokerage fees decreased $12 million, reflecting the impact of lower average equity markets. Capital markets and advisory revenue increased $37 million driven by higher merger and acquisition advisory fees, partially offset by lower loan syndication revenue. Lending and deposit services increased $9 million driven by higher loan commitment fees. Residential and commercial mortgage revenue increased $41 million due to higher results from residential mortgage servicing rights valuation, net of economic hedge, partially offset by lower commercial mortgage banking activities. Other noninterest income decreased $70 million driven by negative Visa Class B derivative fair value adjustments of $41 million related to litigation escrow funding and other valuation changes. The third quarter of 2022 included positive Visa Class B derivative fair value adjustments of $13 million.

Noninterest income for the fourth quarter of 2022 decreased $186 million compared with the fourth quarter of 2021, as lower results from market sensitive fee businesses and negative Visa Class B derivative fair value adjustments more than offset the benefit of business growth and lower integration costs. The fourth quarter of 2021 included positive Visa Class B derivative fair value adjustments of $1 million.

Noninterest expense for the fourth quarter of 2022 increased $194 million compared with the third quarter of 2022. Personnel costs increased $138 million, reflecting higher variable compensation related to increased business activity and market impacts on long-term incentive compensation as well as seasonally elevated medical benefits expense. Equipment and occupancy expense increased $25 million and $6 million, respectively, and included the impact of impairments. Marketing expense increased $13 million reflecting the timing of annual spend.

Noninterest expense decreased $317 million in comparison with the fourth quarter of 2021,  due to lower integration expenses and a decline in variable compensation related to lower business activity, partially offset by continued investments to support business growth.

The effective tax rate was 17.7% for the fourth quarter of 2022, 19.1% for the third quarter of 2022 and 21.5% for the fourth quarter of 2021.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets were $557.2 billion in the fourth quarter of 2022 compared with $547.1 billion in the third quarter of 2022 and $559.4 billion in the fourth quarter of 2021. Compared to the third quarter of 2022, the increase was primarily attributable to higher loan balances.

Average loans for the fourth quarter of 2022 were $321.9 billion, increasing $8.9 billion compared to the third quarter of 2022. Average commercial loans increased $7.5 billion driven by growth in PNC's corporate banking, real estate and business credit businesses. Average consumer loans grew $1.4 billion due to higher residential mortgage, home equity and credit card loans, partially offset by lower auto loans.

Average loans for the fourth quarter of 2022 increased $33.0 billion compared to the fourth quarter of 2021. Average commercial loans increased $27.8 billion driven by growth in PNC's corporate banking and business credit businesses. Average consumer loans increased $5.2 billion primarily due to growth in residential mortgage loans.

Average investment securities for the fourth quarter of 2022 were $142.9 billion, increasing $5.9 billion and $15.1 billion from the third quarter of 2022 and fourth quarter of 2021, respectively, reflecting net purchases, primarily of agency residential mortgage-backed securities within the held to maturity portfolio. Net unrealized losses on available for sale securities were $4.4 billion at December 31, 2022 and $4.8 billion at September 30, 2022, compared with net unrealized gains of $0.7 billion at December 31, 2021.

Average Federal Reserve Bank balances for the fourth quarter of 2022 were $30.0 billion, decreasing $1.5 billion from the third quarter of 2022. Average Federal Reserve Bank balances decreased $45.1 billion from the fourth quarter of 2021, primarily due to the redeployment of liquidity into higher interest-earning assets.

Federal Reserve Bank balances at December 31, 2022 were $26.9 billion, decreasing $12.9 billion from September 30, 2022, driven by higher loans outstanding.

Average deposits for the fourth quarter of 2022 were $434.9 billion, decreasing $4.3 billion compared with the third quarter of 2022 due to lower consumer deposits. The decrease in consumer deposits reflected the impact of inflationary pressures and competitive pricing dynamics. Compared with the fourth quarter of 2021, average deposits decreased $17.9 billion driven by lower commercial deposits, which were impacted by competitive pricing dynamics. In both comparisons, noninterest-bearing balances decreased due to deposit outflows and the shift of commercial deposits to interest-bearing as deposit rates have risen.

Deposits at December 31, 2022 of $436.3 billion, decreased $1.9 billion from September 30, 2022 due to a decline in commercial deposits at year end, partially offset by an increase in consumer deposits reflecting higher time deposits.

Average borrowed funds of $59.2 billion in the fourth quarter of 2022 increased $14.9 billion and $24.9 billion compared with the third quarter of 2022 and fourth quarter of 2021, respectively, driven by Federal Home Loan Bank borrowings near the end of the third quarter. In comparison to September 30, 2022, the increase was also driven by higher senior debt.

PNC maintained a strong capital position. Common shareholders' equity at December 31, 2022 increased $0.6 billion from September 30, 2022, driven by the benefit of fourth quarter net income and an increase in accumulated other comprehensive income, partially offset by share repurchases and dividends paid in the fourth quarter.

 As a Category III institution, PNC has elected to exclude accumulated other comprehensive income when calculating Basel III capital ratios. Accumulated other comprehensive income at December 31, 2022 improved $0.3 billion compared to September 30, 2022, and included the accretion of unrealized losses on securities and swaps. Accumulated other comprehensive income decreased $10.6 billion compared to December 31, 2021, driven by the negative impact of higher interest rates on securities and swaps valuations.

In the fourth quarter of 2022, PNC returned $1.2 billion of capital to shareholders, comprising $0.6 billion of common share repurchases, representing 3.8 million shares, and $0.6 billion of dividends on common shares. Consistent with the Stress Capital Buffer (SCB) framework, which allows for capital return in amounts in excess of the SCB minimum levels, our board of directors has authorized a repurchase framework under the previously approved repurchase program of up to 100 million common shares, of which approximately 49% were still available for repurchase at December 31, 2022. Under this framework, PNC expects quarterly repurchases of up to $500 million with the ability to adjust those levels as conditions warrant. PNC's SCB for the four-quarter period beginning October 1, 2022 is 2.9%.

On January 4, 2023, the PNC board of directors declared a quarterly cash dividend on common stock of $1.50 per share. The dividend, with a payment date of February 5, 2023, will be payable the next business day.

For information regarding PNC's Basel III capital ratios, see Capital Ratios in the Consolidated Financial Highlights. PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the Current Expected Credit Losses (CECL) standard on regulatory capital, followed by a three-year transition period. Effective for the first quarter of 2022, PNC is now in the three-year transition period, and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024. The fully implemented ratios reflect the full impact of CECL and exclude the benefits of this transition provision.

Provision for credit losses of $408 million in the fourth quarter of 2022 included the impact of a weaker economic outlook and continued loan growth. The third quarter of 2022 included a provision for credit losses of $241 million.

Net loan charge-offs were $224 million in the fourth quarter of 2022, increasing $105 million and $100 million from the third quarter of 2022 and fourth quarter of 2021, respectively, and included the impact of one large commercial loan credit.

The allowance for credit losses was $5.4 billion at December 31, 2022, $5.3 billion at September 30, 2022 and $5.5 billion at December 31, 2021. The allowance for credit losses as a percentage of total loans was 1.67% at both December 31, 2022 and September 30, 2022 and 1.92% at December 31, 2021.

Nonperforming loans were $2.0 billion at December 31, 2022, decreasing $83 million and $495 million compared to September 30, 2022 and December 31, 2021, respectively, driven by lower commercial and consumer nonperforming loans.

Delinquencies at December 31, 2022 of $1.5 billion decreased $136 million and $495 million compared to September 30, 2022 and December 31, 2021, respectively. In both comparisons, the decrease reflected lower commercial loan delinquencies. Compared to December 31, 2021, the decrease was also driven by lower consumer loan delinquencies.

Retail Banking Highlights

Fourth quarter 2022 compared with third quarter 2022

• Earnings increased 34%, primarily due to higher net interest income, partially offset by a higher provision for credit losses.
• Noninterest income increased 3%, reflecting higher residential mortgage banking activities.
• Noninterest expense was relatively stable.
• Provision for credit losses of $193 million in the fourth quarter of 2022 included the impact of a weaker economic outlook.
• Average loans increased 2%, due to higher residential mortgage, home equity and credit card loans, partially offset by lower auto loans.
• Average deposits decreased 2%, reflecting inflationary pressures and competitive pricing dynamics.

Fourth quarter 2022 compared with fourth quarter 2021

• Earnings increased 108%, reflecting higher net interest income, partially offset by a higher provision for credit losses.
• Noninterest income decreased 3%, driven by negative Visa Class B derivative fair value adjustments of $41 million related to litigation escrow funding and other valuation changes. The fourth quarter of 2021 included positive Visa Class B derivative fair value adjustments of $1 million.
• Noninterest expense was relatively stable.
• Average loans increased 2%, driven by growth in residential mortgage loans.
• Average deposits decreased modestly, or 1%.

Corporate & Institutional Banking Highlights

Fourth quarter 2022 compared with third quarter 2022

• Earnings increased 6%, due to higher net interest income and noninterest income, partially offset by higher noninterest expense and a higher provision for credit losses.
• Noninterest income increased 8%, and included higher merger and acquisition advisory fees, lower commercial mortgage banking activities and a decline in loan syndication revenue.
• Noninterest expense increased 11%, reflecting higher variable compensation associated with increased business activity.
• Provision for credit losses of $183 million in the fourth quarter of 2022 included the impact of a weaker economic outlook and continued loan growth.
• Average loans increased 4%, driven by growth in PNC's corporate banking, real estate and business credit businesses.
• Average deposits increased modestly, or 1%, reflecting seasonal growth.

Fourth quarter 2022 compared with fourth quarter 2021

• Earnings decreased 26%, as higher net interest income was more than offset by a higher provision for credit losses, lower noninterest income and higher noninterest expense.
• Noninterest income decreased 9%, primarily due to lower merger and acquisition advisory fees.
• Noninterest expense increased 2%, due to continued investments to support business growth, partially offset by lower variable compensation associated with decreased business activity.
• Average loans increased 17%, primarily driven by growth in PNC's corporate banking, business credit and real estate businesses, partially offset by Paycheck Protection Program loan forgiveness.
• Average deposits decreased 8%, and included the impact of competitive pricing dynamics.

Asset Management Group Highlights

Fourth quarter 2022 compared with third quarter 2022

• Earnings decreased 42%, driven by lower net interest and noninterest income as well as higher noninterest expense and an increase in the provision for credit losses.
• Noninterest income decreased 3%, reflecting the impact of lower average equity markets.
• Noninterest expense increased 6%, and included higher personnel costs.
• Provision for credit losses of $17 million in the fourth quarter of 2022 included the impact of a weaker economic outlook and charge-offs related to certain acquired loans.
• Discretionary client assets under management increased 4%, primarily driven by higher spot equity markets.
• Average loans were relatively stable.
• Average deposits decreased 5%, reflecting the impact of competitive pricing dynamics and inflationary pressures.

Fourth quarter 2022 compared with fourth quarter 2021

• Earnings decreased 51%, as higher net interest income was more than offset by lower noninterest income, an increase in the provision for credit losses and higher noninterest expense.
• Noninterest income decreased 14%, primarily due to the impact of lower average equity markets.
• Noninterest expense increased 10%, reflecting continued investments to support business growth.
• Discretionary client assets under management decreased 10%, driven by lower spot equity markets.
• Average loans increased 12%, due to growth in residential mortgage loans.
• Average deposits decreased 5%, and included the impact of client activity, competitive pricing dynamics and inflationary pressures.

Other

The "Other" category, for the purposes of this release, 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, other-than-temporary impairment of 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 under generally accepted accounting principles.

CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION

PNC Chairman, President and Chief Executive Officer William S. Demchak and Executive Vice President and Chief Financial Officer Robert Q. Reilly will hold a conference call for investors today at 9:00 a.m. Eastern Time regarding the topics addressed in this news release and the related financial supplement. Dial-in numbers for the conference call are (877) 224-6304 and (303) 223-0120 (international) and Internet access to the live audio listen-only webcast of the call is available at www.pnc.com/investorevents. PNC's fourth quarter 2022, related financial supplement, and presentation slides to accompany the conference call remarks will be available at www.pnc.com/investorevents prior to the beginning of the call. A telephone replay of the call will be available for one week at (800) 633-8284 and (402) 977-9140 (international), conference ID 22021446 and a replay of the audio webcast will be available on PNC's website for 30 days.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

[TABULAR MATERIAL FOLLOWS]

CAPITAL RATIOS

PNC's regulatory risk-based capital ratios in 2022 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, past due exposures and equity exposures are generally subject to higher risk weights than other types of exposures.

PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the CECL standard on regulatory capital, followed by a three-year transition period. Effective for the first quarter 2022, PNC is now in the three-year transition period, and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024. See the table below for the September 30, 2022, December 31, 2021 and estimated December 31, 2022 ratios. For the full impact of PNC's adoption of CECL, which excludes the benefits of the five-year transition provision, see the December 31, 2022 and September 30, 2022 (Fully Implemented) estimates presented in the table below.

Our Basel III capital ratios may be impacted by changes to the regulatory capital rules and additional regulatory guidance or analysis.

NON-GAAP MEASURES

Pretax pre-provision earnings is a non-GAAP measure and is based on adjusting income before income taxes and noncontrolling interests to exclude provision for (recapture of) credit losses. We believe that pretax, pre-provision earnings is a useful tool to help evaluate the ability to provide for credit costs through operations and provides an additional basis to compare results between periods by isolating the impact of provision for (recapture of) credit losses, which can vary significantly between periods.

Pretax pre-provision earnings excluding integration costs is a non-GAAP measure and is based on adjusting pretax pre-provision earnings to exclude integration costs during the period. We believe that pretax, pre-provision earnings excluding integration costs is a useful tool in understanding PNC's results by providing greater comparability between periods, as well as demonstrating the effect of significant items.

The adjusted diluted earnings per common share excluding integration costs is a non-GAAP measure and excludes the integration costs related to the BBVA USA acquisition. It is calculated based on adjusting net income attributable to diluted common shareholders by removing post-tax integration costs in the period. We believe this non-GAAP measure serves as a useful tool in understanding PNC's results by providing greater comparability between periods, as well as demonstrating the effect of significant items.