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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________________
FORM 10-Q
______________________________________
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-09718
The PNC Financial Services Group, Inc.
(Exact name of registrant as specified in its charter)
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| Pennsylvania | | 25-1435979 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
The Tower at PNC Plaza, 300 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2401
(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:
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, par value $5.00 | PNC | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of July 15, 2024, there were 397,496,265 shares of the registrant’s common stock ($5 par value) outstanding.
THE PNC FINANCIAL SERVICES GROUP, INC.
Cross-Reference Index to Second Quarter 2024 Form 10-Q
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| PART I – FINANCIAL INFORMATION | |
| Item 1. Financial Statements (Unaudited). | |
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| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). | |
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| Item 3. Quantitative and Qualitative Disclosures about Market Risk. | 21-38, 49-50,
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| Item 4. Controls and Procedures. | |
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| 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 2023 Annual Report on Form 10-K (our “2023 Form 10-K”). 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 2023 Form 10-K; Item 1A Risk Factors included in our 2023 Form 10-K; and the Commitments and Legal Proceedings Notes included in this Report and Item 8 of our 2023 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 2023 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 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 100 for a glossary of certain terms and acronyms used in this Report.
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 coast-to-coast. We also have strategic international offices in four countries outside the U.S.
Key Strategic Goals
At PNC we manage our company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business.
We strive to serve our customers and expand and deepen relationships by offering a broad range of deposit, credit and fee-based products and services. We are focused on delivering those products and services to our customers with the goal of addressing their financial objectives and needs. Our business model is built on customer loyalty and engagement, understanding our customers’ financial goals and offering our diverse products and services to help them achieve financial well-being. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.
We are focused on our strategic priorities, which are designed to enhance value over the long term, and consist of:
•Expanding our leading banking franchise to new markets and digital platforms,
•Deepening customer relationships by delivering a superior banking experience and financial solutions, and
•Leveraging technology to create efficiencies that help us better serve customers.
Our capital and liquidity priorities are to support customers, fund business investments and return excess capital to shareholders, while maintaining appropriate capital and liquidity in light of economic conditions, the Basel III framework and other regulatory expectations. For more detail, see the Capital and Liquidity 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 2023 Form 10-K.
Signature Bank Portfolio Acquisition
On October 2, 2023, PNC acquired a portfolio of capital commitments facilities from Signature Bridge Bank, N.A. through an agreement with the FDIC as receiver of the former Signature Bank, New York. The acquired portfolio represented approximately $16.0 billion in total commitments, including approximately $9.0 billion of funded loans, at the time of acquisition.
Workforce Reduction
During the fourth quarter of 2023, PNC implemented a workforce reduction that is expected to reduce 2024 personnel expense by approximately $325 million, on a pre-tax basis. PNC incurred expenses of $150 million in the fourth quarter of 2023 in connection with this workforce reduction.
1 The PNC Financial Services Group, Inc. – Form 10-Q
FDIC Special Assessment
In November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. As a result, PNC incurred a pre-tax expense of $515 million during the fourth quarter of 2023. In the first quarter of 2024, PNC incurred an additional pre-tax expense of $130 million related to the increase in the FDIC’s expected losses.
Selected Financial Data
The following tables include selected financial data, which should be reviewed in conjunction with the Consolidated Financial Statements and Notes included in Item 1 of this Report as well as the other disclosures in this Report concerning our historical financial performance, our future prospects and the risks associated with our business and financial performance.
Table 1: Summary of Operations, Per Common Share Data and Performance Ratios
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Dollars in millions, except per share data
Unaudited | Three months ended | | Six months ended | |
| June 30 | March 31 | June 30 | | June 30 | June 30 | |
| 2024 | 2024 | 2023 | | 2024 | 2023 | |
| Summary of Operations (a) | | | | | | | |
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| Net interest income | $ | 3,302 | | $ | 3,264 | | $ | 3,510 | | | $ | 6,566 | | $ | 7,095 | | |
| Noninterest income | 2,109 | | 1,881 | | 1,783 | | | 3,990 | | 3,801 | | |
| Total revenue | 5,411 | | 5,145 | | 5,293 | | | 10,556 | | 10,896 | | |
| Provision for credit losses | 235 | | 155 | | 146 | | | 390 | | 381 | | |
| Noninterest expense | 3,357 | | 3,334 | | 3,372 | | | 6,691 | | 6,693 | | |
Income before income taxes and noncontrolling interests
| 1,819 | | 1,656 | | 1,775 | | | 3,475 | | 3,822 | | |
Income taxes
| 342 | | 312 | | 275 | | | 654 | | 628 | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income | $ | 1,477 | | $ | 1,344 | | $ | 1,500 | | | $ | 2,821 | | $ | 3,194 | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income attributable to common shareholders | $ | 1,362 | | $ | 1,247 | | $ | 1,354 | | | $ | 2,609 | | $ | 2,961 | | |
Per Common Share
| | | | | | | |
| Basic | $ | 3.39 | | $ | 3.10 | | $ | 3.36 | | | $ | 6.49 | | $ | 7.35 | | |
| | | | | | | |
| | | | | | | |
| Diluted | $ | 3.39 | | $ | 3.10 | | $ | 3.36 | | | $ | 6.48 | | $ | 7.34 | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Book value per common share | $ | 116.70 | | $ | 113.30 | | $ | 105.67 | | | | | |
| Performance Ratios | | | | | | | |
| Net interest margin (b) | 2.60 | % | 2.57 | % | 2.79 | % | | 2.58 | % | 2.81 | % | |
| Noninterest income to total revenue | 39 | % | 37 | % | 34 | % | | 38 | % | 35 | % | |
| Efficiency | 62 | % | 65 | % | 64 | % | | 63 | % | 61 | % | |
| Return on: | | | | | | | |
| Average common shareholders’ equity | 12.16 | % | 11.39 | % | 13.01 | % | | 11.78 | % | 14.53 | % | |
| Average assets | 1.05 | % | 0.97 | % | 1.08 | % | | 1.01 | % | 1.15 | % | |
(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)See explanation and reconciliation of this non-GAAP measure in the Average Consolidated Balance Sheet and Net Interest Analysis and Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) Statistical Information (Unaudited) section in Item 1 of this Report.
2 The PNC Financial Services Group, Inc. – Form 10-Q
Table 2: Balance Sheet Highlights and Other Selected Ratios
| | | | | | | | | | | | | | |
Dollars in millions, except as noted
Unaudited | June 30
2024 | December 31
2023 | June 30
2023 | |
| Balance Sheet Highlights (a) | | | | |
| Assets | $ | 556,519 | | $ | 561,580 | | $ | 558,207 | | |
| Loans | $ | 321,429 | | $ | 321,508 | | $ | 321,761 | | |
Allowance for loan and lease losses
| $ | 4,636 | | $ | 4,791 | | $ | 4,737 | | |
| Interest-earning deposits with banks | $ | 33,039 | | $ | 43,804 | | $ | 38,259 | | |
| Investment securities | $ | 138,645 | | $ | 132,569 | | $ | 135,661 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total deposits | $ | 416,391 | | $ | 421,418 | | $ | 427,489 | | |
| Borrowed funds | $ | 71,391 | | $ | 72,737 | | $ | 65,384 | | |
| | | | |
| Total shareholders’ equity | $ | 52,642 | | $ | 51,105 | | $ | 49,320 | | |
| Common shareholders’ equity | $ | 46,397 | | $ | 44,864 | | $ | 42,083 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Other Selected Ratios | | | | |
| Common equity Tier 1 | 10.2 | % | 9.9 | % | 9.5 | % | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Loans to deposits | 77 | % | 76 | % | 75 | % | |
| Common shareholders’ equity to total assets | 8.3 | % | 8.0 | % | 7.5 | % | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(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.
Income Statement Highlights
Net income of $1.5 billion, or $3.39 per diluted common share, for the second quarter of 2024 increased $133 million, or 10%, compared to $1.3 billion, or $3.10 per diluted common share, for the first quarter of 2024, primarily due to higher noninterest and net interest income, partially offset by a higher provision for credit losses.
•For the three months ended June 30, 2024 compared to the three months ended March 31, 2024:
•Total revenue increased $266 million, or 5%, to $5.4 billion.
•Net interest income of $3.3 billion increased $38 million, or 1%, reflecting higher yields on interest-earning assets.
•Net interest margin increased 3 basis points to 2.60%.
•Noninterest income increased $228 million, or 12%, and included the impact of a $754 million gain resulting from PNC’s participation in the Visa exchange program, as well as a securities loss of $497 million related to the repositioning of the investment securities portfolio. The second quarter of 2024 also included Visa Class B derivative fair value adjustments, primarily related to the extension of anticipated litigation resolution timing, of negative $116 million. The first quarter of 2024 included negative $7 million of Visa Class B derivative fair value adjustments.
•Provision for credit losses of $235 million in the second quarter of 2024 primarily reflected the impact of portfolio activity. The first quarter of 2024 included a provision for credit losses of $155 million.
•Noninterest expense increased $23 million, or 1%, to $3.4 billion. The modest increase was driven by higher marketing and equipment expenses, partially offset by seasonally lower incentive compensation. Other noninterest expense included a $120 million pre-tax expense in the second quarter of 2024 related to a PNC Foundation contribution. The first quarter of 2024 included a $130 million pre-tax expense related to the increase in the FDIC’s expected losses.
Net income of $2.8 billion, or $6.48 per diluted common share, for the first six months of 2024 decreased $373 million, or 12%, compared to $3.2 billion, or $7.34 per diluted common share, for the first six months of 2023 driven by lower net interest income, partially offset by higher noninterest income.
•For the six months ended June 30, 2024 compared to the six months ended June 30, 2023:
•Total revenue decreased $340 million, or 3%, to $10.6 billion.
•Net interest income decreased $529 million, or 7%, as the benefit of higher interest-earning asset yields was more than offset by increased funding costs.
•Net interest margin decreased 23 basis points.
•Noninterest income increased $189 million, or 5%, reflecting an increase in all categories. The first six months of 2024 included the impact of a $754 million gain resulting from PNC’s participation in the Visa exchange program, as well as a securities loss of $497 million related to the repositioning of the investment securities portfolio.
•Provision for credit losses of $390 million in the first six months of 2024 reflected the impact of portfolio activity and improved macroeconomic factors. The first six months of 2023 included a provision for credit losses of $381 million.
The PNC Financial Services Group, Inc. – Form 10-Q 3
•Noninterest expense was stable compared to the first six months of 2023, and reflected PNC’s continued focus on expense management. Other noninterest expense included a $120 million pre-tax expense in the second quarter of 2024 related to a PNC Foundation contribution, as well as a $130 million pre-tax expense in the first quarter of 2024 related to the increase in the FDIC’s expected losses.
For additional detail, see the Consolidated Income Statement Review section of this Financial Review.
Balance Sheet Highlights
Our balance sheet was well positioned at June 30, 2024. In comparison to December 31, 2023:
•Total assets of $556.5 billion decreased primarily due to lower balances held with the Federal Reserve Bank, partially offset by higher securities balances.
•Total loans were stable at $321.4 billion.
•Total commercial loans increased $1.3 billion to $220.8 billion, primarily due to new production.
•Total consumer loans declined $1.4 billion to $100.6 billion, as paydowns outpaced originations and the utilization of loan commitments.
•Investment securities increased $6.1 billion, or 5%, to $138.6 billion, due to increased net purchase activity, primarily of U.S. Treasury securities, partially offset by portfolio paydowns and maturities. During the second quarter of 2024, PNC took actions to reposition the investment securities portfolio. For additional details, see Investment Securities in the Consolidated Balance Sheet Review section of this Financial Review.
•Interest-earning deposits with banks, primarily with the Federal Reserve Bank, decreased $10.8 billion, or 25%, to $33.0 billion, primarily due to higher securities balances and lower deposits.
•Total deposits decreased $5.0 billion, to $416.4 billion, reflecting lower consumer and commercial deposits. Noninterest-bearing deposit balances decreased primarily driven by a decline in commercial balances. Interest-bearing deposits increased modestly reflecting higher commercial balances, partially offset by lower consumer balances.
•Borrowed funds decreased to $71.4 billion, due to lower FHLB borrowings, partially offset by parent company senior debt issuances.
For additional detail, see the Consolidated Balance Sheet Review section of this Financial Review.
Credit Quality Highlights
The second quarter of 2024 reflected relatively stable credit quality performance.
•At June 30, 2024 compared to December 31, 2023:
•Overall loan delinquencies of $1.3 billion decreased $112 million, or 8%, driven by lower consumer and commercial loan delinquencies.
•The ACL related to loans, which consists of the ALLL and the allowance for unfunded lending related commitments, totaled $5.4 billion and $5.5 billion at June 30, 2024 and December 31, 2023, respectively. The decrease in the comparison was driven by improved macroeconomic factors as well as portfolio activity. ACL to total loans was 1.67% and 1.70% at June 30, 2024 and December 31, 2023, respectively.
•Nonperforming assets increased $321 million, or 14%, to $2.5 billion, primarily due to higher commercial real estate nonperforming loans.
•Net loan charge-offs of $262 million, or 0.33% of average loans, in the second quarter of 2024 increased $19 million compared to the first quarter of 2024 primarily due to higher commercial real estate net loan charge-offs.
For additional detail see the Credit Risk Management portion of the Risk Management section of this Financial Review.
Capital and Liquidity Highlights
We maintained our strong capital and liquidity positions.
•Common shareholders’ equity of $46.4 billion at June 30, 2024 increased $1.5 billion compared to December 31, 2023, due to the benefit of net income and an improvement in AOCI, partially offset by common dividends paid and common shares repurchased.
•In the second quarter of 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.
•Consistent with the 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 43% were still available for repurchase at June 30, 2024. In light of the Federal banking agencies’ proposed rules to adjust the Basel III capital framework, third quarter 2024 share repurchase activity is expected to approximate recent quarterly average share repurchase levels. PNC continues to evaluate the potential impact of the proposed rules and may adjust share repurchase activity
4 The PNC Financial Services Group, Inc. – Form 10-Q
depending on market and economic conditions, as well as other factors. 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.
•Our CET1 ratio increased to 10.2% at June 30, 2024 from 9.9% at December 31, 2023.
•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 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. The estimated CET1 fully implemented ratio was 10.1% at June 30, 2024 compared to 9.8% at December 31, 2023.
See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our 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 an SCB 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, the Recent Regulatory Developments section in this Financial Review and the Supervision and Regulation section in our 2023 Form 10-K.
Business Outlook
Statements regarding our business outlook are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. 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 that:
•Job and income gains will continue to support consumer spending growth this year, but PNC’s baseline forecast is for slower economic growth in 2024 as higher interest rates remain a drag on the economy.
•Real GDP growth this year will trend close to 2%, and the unemployment rate will increase modestly to above 4% by the end of 2024. Inflation will continue to slow as wage pressures abate, gradually moving back to the Federal Reserve’s 2% long-term objective.
•With slowing inflation PNC expects two federal funds rate cuts of 25 basis points each at the FOMC’s September and December meetings, with the rate ending this year in a range between 4.75% and 5.00%. PNC expects multiple federal funds rate cuts in 2025 as inflation continues to ease.
Consistent with the forward guidance we provided on July 16, 2024, for the third quarter of 2024, compared to the second quarter of 2024, we expect:
•Average loans to be stable,
•Net interest income to be up 1% to 2%,
•Fee income to be up 1% to 2%,
•Other noninterest income, to be $150 million to $200 million,
•Noninterest expense to be down 1% to stable,
•Core noninterest expense to be up 3% to 4%, and
•Net loan charge-offs to be $250 million to $300 million.
Consistent with the forward guidance we provided on July 16, 2024, for the full year 2024, compared to the full year of 2023, we expect:
•Average loans to be down less than 1%,
•Net interest income to be down approximately 4%,
•Noninterest income, to be up 5% to 7%,
•Noninterest income, excluding significant items, to be up 3% to 5%,
•Revenue to be stable to down 1%,
•Revenue, excluding significant items, to be down 1% to 2%,
•Noninterest expense to be down approximately 4%,
•Core noninterest expense to be down approximately 1%, and
•The effective tax rate to be approximately 18.5%.
The PNC Financial Services Group, Inc. – Form 10-Q 5
Significant items in the second quarter of 2024 are composed of a $754 million gain resulting from PNC’s participation in the Visa exchange program, a $497 million securities loss related to the repositioning of the investment securities portfolio and a negative $116 million Visa Class B derivative fair value adjustment. See the Statistical Information (Unaudited) – Reconciliation of Noninterest income guidance, excluding significant items (non-GAAP) and Reconciliation of Revenue guidance, excluding significant items (non-GAAP) section of this Report. Other noninterest income, noninterest income and revenue guidance does not forecast net securities gains or losses and other Visa activity.
Core noninterest expense excludes the pre-tax impacts of the $120 million expense in the second quarter of 2024 related to a contribution to the PNC Foundation, $130 million related to the increase in the FDIC’s expected losses in the first quarter of 2024, and, for the fourth quarter of 2023, $515 million pertaining to the FDIC special assessment and $150 million of workforce reduction charges. See the Statistical Information (Unaudited) – Reconciliation of Core Noninterest Expense (non-GAAP) section of this Report.
We are unable to provide a meaningful or accurate reconciliation of forward-looking non-GAAP measures, without unreasonable effort, to their most directly comparable GAAP financial measures, except for full year Noninterest income and Revenue guidance, adjusted for $141 million in significant items incurred in the second quarter of 2024, and full year Core noninterest expense guidance adjusted for $250 million in non-core expenses incurred in the first half of 2024. This is due to the inherent difficulty of forecasting the timing and amounts necessary for the reconciliation, when such amounts are subject to events that cannot be reasonably predicted, as noted in our Cautionary Statement. Accordingly, we cannot address the probable significance of unavailable information.
See the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors included in our 2023 Form 10-K for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.
6 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED INCOME STATEMENT REVIEW
Our Consolidated Income Statement is presented in Item 1 of this Report.
Net income of $1.5 billion, or $3.39 per diluted common share, for the second quarter of 2024 increased $133 million, or 10%, compared to $1.3 billion, or $3.10 per diluted common share, for the first quarter of 2024 primarily due to higher noninterest and net interest income, partially offset by a higher provision for credit losses. Net income of $2.8 billion, or $6.48 per diluted common share, for the first six months of 2024 decreased $373 million, or 12%, compared to $3.2 billion, or $7.34 per diluted common share, for the same period in 2023 driven by lower net interest income, partially offset by higher noninterest income.
Net Interest Income
Table 3: Summarized Average Balances and Net Interest Income (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2024 | | March 31, 2024 | | |
Three months ended
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 | | $ | 141,306 | | | 2.84 | % | | $ | 1,006 | | | $ | 135,434 | | | | 2.62 | % | | | $ | 888 | | | |
| Loans | | 319,918 | | | 6.05 | % | | 4,871 | | | 320,609 | | | | 6.01 | % | | | 4,848 | | | |
| Interest-earning deposits with banks | | 41,113 | | | 5.47 | % | | 563 | | | 48,250 | | | | 5.47 | % | | | 660 | | | |
| Other | | 9,279 | | | 6.98 | % | | 162 | | | 8,002 | | | | 6.92 | % | | | 138 | | | |
| Total interest-earning assets/interest income | | $ | 511,616 | | | 5.13 | % | | 6,602 | | | $ | 512,295 | | | | 5.08 | % | | | 6,534 | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | 320,949 | | | 2.61 | % | | 2,084 | | | $ | 321,280 | | | | 2.60 | % | | | 2,077 | | | |
| Borrowed funds | | 77,456 | | | 6.04 | % | | 1,182 | | | 75,590 | | | | 6.07 | % | | | 1,159 | | | |
| Total interest-bearing liabilities/interest expense | | $ | 398,405 | | | 3.26 | % | | 3,266 | | | $ | 396,870 | | | | 3.24 | % | | | 3,236 | | | |
| Net interest margin/income (non-GAAP) | | | | 2.60 | % | | 3,336 | | | | | | 2.57 | % | | | 3,298 | | | |
| Taxable-equivalent adjustments | | | | | | (34) | | | | | | | | | (34) | | | |
| Net interest income (GAAP) | | | | | | $ | 3,302 | | | | | | | | | $ | 3,264 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2024 | | June 30, 2023 | |
Six months ended
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 | | $ | 138,370 | | | 2.74 | % | | $ | 1,894 | | | $ | 142,208 | | | 2.50 | % | | $ | 1,780 | | |
| Loans | | 320,263 | | | 6.03 | % | | 9,719 | | | 325,027 | | | 5.43 | % | | 8,844 | | |
| Interest-earning deposits with banks | | 44,682 | | | 5.47 | % | | 1,223 | | | 32,736 | | | 4.83 | % | | 790 | | |
| Other | | 8,641 | | | 6.95 | % | | 300 | | | 9,012 | | | 5.86 | % | | 264 | | |
| Total interest-earning assets/interest income | | $ | 511,956 | | | 5.11 | % | | 13,136 | | | $ | 508,983 | | | 4.58 | % | | 11,678 | | |
| Liabilities | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | 321,115 | | | 2.60 | % | | 4,161 | | | $ | 313,801 | | | 1.81 | % | | 2,822 | | |
| Borrowed funds | | 76,523 | | | 6.06 | % | | 2,341 | | | 64,337 | | | 5.22 | % | | 1,686 | | |
| Total interest-bearing liabilities/interest expense | | $ | 397,638 | | | 3.25 | % | | 6,502 | | | $ | 378,138 | | | 2.38 | % | | 4,508 | | |
| Net interest margin/income (non-GAAP) | | | | 2.58 | % | | 6,634 | | | | | 2.81 | % | | 7,170 | | |
| Taxable-equivalent adjustments | | | | | | (68) | | | | | | | (75) | | |
| Net interest income (GAAP) | | | | | | $ | 6,566 | | | | | | | $ | 7,095 | | |
(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.
The PNC Financial Services Group, Inc. – Form 10-Q 7
Net interest income increased $38 million, or 1%, and net interest margin increased 3 basis points compared to the first quarter of 2024, reflecting higher yields on interest-earning assets. In the year-to-date comparison, net interest income decreased $529 million, or 7%, and net interest margin decreased 23 basis points, as the benefit of higher interest-earning asset yields was more than offset by increased funding costs.
Average investment securities increased $5.9 billion, or 4%, compared to the first quarter of 2024 reflecting net purchase activity, primarily of U.S. Treasury securities, partially offset by portfolio paydowns and maturities. Average investment securities decreased $3.8 billion, or 3%, in the year-to-date comparison as net purchase activity was more than offset by portfolio paydowns and maturities. Average investment securities represented 28% of average interest-earning assets for the second quarter of 2024 compared to 26% for the first quarter of 2024, and 27% for the first six months of 2024 compared to 28% for the first six months of 2023.
Average loans were stable for the second quarter of 2024 compared to the first quarter of 2024, and included a modest decline in consumer balances reflecting lower residential real estate and home equity loans. Compared to the first six months of 2023, average loans decreased $4.8 billion, or 1%, primarily due to lower average utilization of commercial loan commitments. Average loans represented 63% of average interest-earning assets for both the second and first quarters of 2024, and 63% for the first six months of 2024 compared to 64% for the first six months of 2023.
Average interest-earning deposits with banks for the second quarter of 2024 decreased $7.1 billion, or 15%, compared to the first quarter of 2024, primarily reflecting net securities purchases. In the year-to-date comparison, average interest-earning deposits with banks increased $11.9 billion, or 36%, due to higher borrowed funds and lower loan and securities balances, partially offset by lower deposits.
Average interest-bearing deposits for the second quarter of 2024 were relatively stable compared to the first quarter of 2024, and included a modest decline in commercial balances reflecting seasonal declines in corporate deposits. Average interest-bearing deposits increased $7.3 billion, or 2%, in the year-to-date comparison. In total, average interest-bearing deposits represented 81% of average interest-bearing liabilities for both the second and first quarters of 2024, and 81% for the first six months of 2024 compared to 83%, for the first six months of 2023.
Average borrowed funds increased $1.9 billion, or 2%, and $12.2 billion, or 19%, in the quarterly and year-to-date comparisons, respectively. In both comparisons, the increase reflected parent company senior debt issuances.
Further details regarding average loans and deposits are included in the Business Segments Review section of this Financial Review.
Noninterest Income
Table 4: Noninterest Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | | | | | | Six months ended | | | | | |
| | | June 30 | | March 31 | | Change | | | June 30 | | June 30 | | Change | |
| Dollars in millions | | 2024 | | 2024 | | $ | | % | | | 2024 | | 2023 | | $ | | % | |
| Noninterest income | | | | | | | | | | | | | | | | | | |
| Asset management and brokerage | | $ | 364 | | | $ | 364 | | | | | | — | | | | $ | 728 | | | $ | 704 | | | $ | 24 | | | 3 | % | |
| Capital markets and advisory | | 272 | | | 259 | | | $ | 13 | | | 5 | % | | | 531 | | | 475 | | | 56 | | | 12 | % | |
| Card and cash management | | 706 | | | 671 | | | 35 | | | 5 | % | | | 1,377 | | | 1,356 | | | 21 | | | 2 | % | |
| Lending and deposit services | | 304 | | | 305 | | | (1) | | | — | | | | 609 | | | 604 | | | 5 | | | 1 | % | |
| Residential and commercial mortgage | | 131 | | | 147 | | | (16) | | | (11) | % | | | 278 | | | 275 | | | 3 | | | 1 | % | |
| Other income | | | | | | | | | | | | | | | | | | |
| Gain on Visa shares exchange program | | 754 | | | | | 754 | | | * | | | 754 | | | | | 754 | | | * | |
| Securities gains (losses) | | (499) | | | | | (499) | | | * | | | (499) | | | (2) | | | (497) | | | * | |
| Other | | 77 | | | 135 | | | (58) | | | (43) | % | | | 212 | | | 389 | | | (177) | | | (46) | % | |
| Total other income | | 332 | | | 135 | | | 197 | | | 146 | % | | | 467 | | | 387 | | | 80 | | | 21 | % | |
Total noninterest income | | $ | 2,109 | | | $ | 1,881 | | | $ | 228 | | | 12 | % | | | $ | 3,990 | | | $ | 3,801 | | | $ | 189 | | | 5 | % | |
*- Not Meaningful
Noninterest income as a percentage of total revenue was 39% for the second quarter of 2024 compared to 37% for the first quarter of 2024, and 38% for the first six months of 2024 compared to 35% for the same period in 2023.
Asset management and brokerage fees were stable compared to the first quarter of 2024. The increase in the year-to-date comparison reflected the impact of higher annuity sales as well as higher average equity markets. PNC’s discretionary client assets under management of $196 billion at June 30, 2024 increased from $195 billion and $176 billion at March 31, 2024 and June 30, 2023, respectively. In both comparisons, the increase was driven by higher spot equity markets.
8 The PNC Financial Services Group, Inc. – Form 10-Q
Capital markets and advisory fees increased compared to the first quarter of 2024, driven by higher merger and acquisition advisory activity and increased loan syndication revenue, partially offset by lower underwriting fees. The increase in the year-to-date comparison was primarily due to higher merger and acquisition advisory activity and increased underwriting fees, partially offset by lower trading revenue.
Card and cash management revenue increased compared to the first quarter of 2024, reflecting seasonally higher consumer transaction volumes and higher treasury management product revenue. The increase compared to the first six months of 2023 was primarily due to higher treasury management product revenue.
Lending and deposit services were relatively stable in both the quarterly and year-to-date comparisons.
Residential and commercial mortgage decreased compared to the first quarter of 2024, primarily due to lower residential mortgage activity. Residential and commercial mortgage were relatively stable compared to the first six months of 2023.
Other noninterest income increased in both the quarterly and year-to-date comparisons. The second quarter of 2024 included the impact of a $754 million gain resulting from PNC’s participation in the Visa exchange program, as well as a securities loss of $497 million related to the repositioning of the investment securities portfolio. The second quarter of 2024 also included Visa Class B derivative fair value adjustments, primarily related to the extension of anticipated litigation resolution timing, of negative $116 million. The first quarter of 2024 included negative $7 million of Visa Class B derivative fair value adjustments.
Noninterest Expense
Table 5: Noninterest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | | | | | Six months ended | | | | | |
| | | June 30 | | March 31 | | Change | | June 30 | | June 30 | | Change | |
| Dollars in millions | | 2024 | | 2024 | | $ | | % | | 2024 | | 2023 | | $ | | % | |
| Noninterest expense | | | | | | | | | | | | | | | | | |
| Personnel | | $ | 1,782 | | | $ | 1,794 | | | $ | (12) | | | (1) | % | | $ | 3,576 | | | $ | 3,672 | | | $ | (96) | | | (3) | % | |
| Occupancy | | 236 | | | 244 | | | (8) | | | (3) | % | | 480 | | | 495 | | | (15) | | | (3) | % | |
| Equipment | | 356 | | | 341 | | | 15 | | | 4 | % | | 697 | | | 699 | | | (2) | | | — | | |
| Marketing | | 93 | | | 64 | | | 29 | | | 45 | % | | 157 | | | 183 | | | (26) | | | (14) | % | |
| Other | | 890 | | | 891 | | | (1) | | | — | | | 1,781 | | | 1,644 | | | 137 | | | 8 | % | |
Total noninterest expense | | $ | 3,357 | | | $ | 3,334 | | | $ | 23 | | | 1 | % | | $ | 6,691 | | | $ | 6,693 | | | $ | (2) | | | — | | |
Noninterest expense increased 1% compared to the first quarter of 2024. The modest increase was driven by higher marketing and equipment expenses, partially offset by seasonally lower incentive compensation. Noninterest expense was stable compared to the first six months of 2023 and reflected PNC’s continued focus on expense management. Other noninterest expense included a $120 million pre-tax expense in the second quarter of 2024 related to a PNC Foundation contribution as well as a $130 million pre-tax expense in the first quarter of 2024 related to the increase in the FDIC’s expected losses.
Effective Income Tax Rate
The effective income tax rate was 18.8% in both the second and first quarters of 2024, and 18.8% in the first six months of 2024 compared to 16.4% for the same period in 2023.
Provision For Credit Losses
Table 6: Provision for Credit Losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | | | Six months ended | | | |
| | June 30 | | March 31 | | Change | | June 30 | June 30 | Change | | | | | | | |
| Dollars in millions | | 2024 | | 2024 | | $ | | 2024 | 2023 | $ | | | | | | | |
| Provision for (recapture of) credit losses | | | | | | | | | | | | | | | | | |
| Loans and leases | | $ | 204 | | | $ | 147 | | | $ | 57 | | | $ | 351 | | $ | 418 | | $ | (67) | | | | | | | | |
| Unfunded lending related commitments | | 45 | | | 9 | | | 36 | | | 54 | | (31) | | 85 | | | | | | | | |
| Investment securities | | (11) | | | 1 | | | (12) | | | (10) | | (1) | | (9) | | | | | | | | |
| Other financial assets | | (3) | | | (2) | | | (1) | | | (5) | | (5) | | | | | | | | | | |
| Total provision for credit losses | | $ | 235 | | | $ | 155 | | | $ | 80 | | | $ | 390 | | $ | 381 | | $ | 9 | | | | | | | | |
The PNC Financial Services Group, Inc. – Form 10-Q 9
Provision for credit losses of $235 million in the second quarter of 2024 primarily reflected the impact of portfolio activity. Provision for credit losses of $390 million for the first six months of 2024 reflected the impact of portfolio activity and improved macroeconomic factors.
CONSOLIDATED BALANCE SHEET REVIEW
The summarized balance sheet data in Table 7 is based upon our Consolidated Balance Sheet in Item 1 of this Report.
Table 7: Summarized Balance Sheet Data
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30 | | December 31 | | Change | |
| Dollars in millions | 2024 | | 2023 | | $ | % | |
| Assets | | | | | | | |
| Interest-earning deposits with banks | $ | 33,039 | | | $ | 43,804 | | | $ | (10,765) | | (25) | % | |
| Loans held for sale | 988 | | | 734 | | | 254 | | 35 | % | |
| Investment securities | 138,645 | | | 132,569 | | | 6,076 | | 5 | % | |
| Loans | 321,429 | | | 321,508 | | | (79) | | — | | |
| Allowance for loan and lease losses | (4,636) | | | (4,791) | | | 155 | | 3 | % | |
| Mortgage servicing rights | 3,739 | | | 3,686 | | | 53 | | 1 | % | |
| Goodwill | 10,932 | | | 10,932 | | | | | — | | |
| Other | 52,383 | | | 53,138 | | | (755) | | (1) | % | |
| Total assets | $ | 556,519 | | | $ | 561,580 | | | $ | (5,061) | | (1) | % | |
| Liabilities | | | | | | | |
| Deposits | $ | 416,391 | | | $ | 421,418 | | | $ | (5,027) | | (1) | % | |
| Borrowed funds | 71,391 | | | 72,737 | | | (1,346) | | (2) | % | |
| Allowance for unfunded lending related commitments | 717 | | | 663 | | | 54 | | 8 | % | |
| Other | 15,339 | | | 15,621 | | | (282) | | (2) | % | |
| Total liabilities | 503,838 | | | 510,439 | | | (6,601) | | (1) | % | |
| Equity | | | | | | | |
| Total shareholders’ equity | 52,642 | | | 51,105 | | | 1,537 | | 3 | % | |
| Noncontrolling interests | 39 | | | 36 | | | 3 | | 8 | % | |
| Total equity | 52,681 | | | 51,141 | | | 1,540 | | 3 | % | |
| Total liabilities and equity | $ | 556,519 | | | $ | 561,580 | | | $ | (5,061) | | (1) | % | |
Our balance sheet was well positioned at June 30, 2024. In comparison to December 31, 2023:
•Total assets decreased primarily due to lower balances held with the Federal Reserve Bank, partially offset by higher securities balances.
•Total liabilities decreased primarily due to lower deposits.
•Total equity increased due to the benefit of net income and an improvement in AOCI, partially offset by dividends paid and common shares repurchased.
The ACL related to loans totaled $5.4 billion and $5.5 billion at June 30, 2024 and December 31, 2023, respectively. The decrease in the comparison was driven by improved macroeconomic factors as well as portfolio activity. 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 3 Loans and Related Allowance for Credit Losses.
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 19 Regulatory Matters in our 2023 Form 10-K.
10 The PNC Financial Services Group, Inc. – Form 10-Q
Loans
Table 8: Loans
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30 | | December 31 | | Change | |
| Dollars in millions | 2024 | | 2023 | | $ | % | |
| Commercial | | | | | | | |
| Commercial and industrial | $ | 178,789 | | | $ | 177,580 | | | $ | 1,209 | | 1 | % | |
| Commercial real estate | 35,498 | | | 35,436 | | 62 | | — | | |
| Equipment lease financing | 6,555 | | | 6,542 | | 13 | | — | | |
| Total commercial | 220,842 | | | 219,558 | | | 1,284 | | 1 | % | |
| Consumer | | | | | | | |
| Residential real estate | 47,183 | | | 47,544 | | | (361) | | (1) | % | |
| Home equity | 25,917 | | | 26,150 | | | (233) | | (1) | % | |
| Automobile | 14,820 | | | 14,860 | | | (40) | | — | | |
| Credit card | 6,849 | | | 7,180 | | | (331) | | (5) | % | |
| Education | 1,732 | | | 1,945 | | | (213) | | (11) | % | |
| Other consumer | 4,086 | | | 4,271 | | | (185) | | (4) | % | |
| Total consumer | 100,587 | | | 101,950 | | | (1,363) | | (1) | % | |
| Total loans | $ | 321,429 | | | $ | 321,508 | | | $ | (79) | | — | | |
Commercial loans increased primarily due to new production.
Consumer loans declined as paydowns outpaced originations and utilization of loan commitments.
For additional information regarding our loan portfolio see the Credit Risk Management portion of the Risk Management section in this Financial Review and Note 3 Loans and Related Allowance for Credit Losses.
Investment Securities
Investment securities of $138.6 billion at June 30, 2024 increased $6.1 billion, or 5%, compared to December 31, 2023, due to increased net purchase activity, primarily of U.S. Treasury securities, partially offset by portfolio paydowns and maturities.
In the second quarter of 2024, we repositioned the investment securities portfolio and sold available for sale securities with a market value of $3.8 billion and a weighted average yield of approximately 1.5%. The sale of these securities resulted in a loss of $497 million. We deployed 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 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, NSFR and other internal and external guidelines and constraints.
Table 9: Investment Securities (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 | | | |
| Dollars in millions | Amortized
Cost (b) | | Fair
Value | | Amortized
Cost (b) | | Fair
Value | | | | | | | | | | | |
| U.S. Treasury and government agencies | $ | 52,336 | | | $ | 50,640 | | | $ | 44,125 | | | $ | 42,348 | | | | | | | | | | | | |
| Agency residential mortgage-backed | 72,099 | | | 65,169 | | | 73,329 | | | 67,925 | | | | | | | | | | | | |
| Non-agency residential mortgage-backed | 784 | | | 851 | | | 844 | | | 938 | | | | | | | | | | | | |
| Agency commercial mortgage-backed | 2,714 | | | 2,544 | | | 2,619 | | | 2,471 | | | | | | | | | | | | |
| Non-agency commercial mortgage-backed (c) | 2,013 | | | 1,971 | | | 2,286 | | | 2,217 | | | | | | | | | | | | |
| Asset-backed (d) | 6,930 | | | 6,945 | | | 6,982 | | | 6,984 | | | | | | | | | | | | |
| Other (e) | 5,477 | | | 5,323 | | | 5,952 | | | 5,850 | | | | | | | | | | | | |
| Total investment securities (f) | $ | 142,353 | | | $ | 133,443 | | | $ | 136,137 | | | $ | 128,733 | | | | | | | | | | | | |
(a)Of our total securities portfolio, 97% were rated AAA/AA at both June 30, 2024 and December 31, 2023.
(b)Amortized cost is presented net of the allowance for investment securities, which totaled $93 million at June 30, 2024 and primarily related to non-agency commercial mortgage-backed securities. The comparable amount at December 31, 2023 was $92 million.
(c)Collateralized primarily by multifamily housing, office buildings, retail properties, lodging properties and industrial properties.
(d)Collateralized primarily by consumer credit products, corporate debt and government guaranteed education loans.
(e)Includes state and municipal securities and corporate bonds.
(f)Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.
The PNC Financial Services Group, Inc. – Form 10-Q 11
Table 9 presents our investment securities portfolio by amortized cost and fair value. The relationship of fair value to amortized cost at June 30, 2024 primarily reflected the impact of higher interest rates on the valuation of fixed-rate securities. 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 2 Investment Securities for additional details regarding the allowance for investment securities.
The duration of investment securities was 3.6 years and 4.2 years at June 30, 2024 and December 31, 2023, respectively. We estimate that at June 30, 2024 the effective duration of investment securities was 3.5 years for an immediate 50 basis points parallel increase in interest rates and 3.6 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2023 for the effective duration of investment securities were 4.1 years and 4.2 years, respectively.
Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 5.5 years at both June 30, 2024 and December 31, 2023.
Table 10: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities
| | | | | | | | |
| June 30, 2024 | Years | |
| Agency residential mortgage-backed | 7.4 | | |
| Non-agency residential mortgage-backed | 10.5 | | |
| Agency commercial mortgage-backed | 4.8 | | |
| Non-agency commercial mortgage-backed | 0.9 | | |
| Asset-backed | 2.2 | | |
Additional information regarding our investment securities portfolio is included in Note 2 Investment Securities and Note 11 Fair Value.
Funding Sources
Table 11: Details of Funding Sources | | | | | | | | | | | | | | | | | | | | | | | |
| June 30 | | December 31 | | Change | |
| Dollars in millions | 2024 | | 2023 | | $ | % | |
| Deposits | | | | | | | |
| Noninterest-bearing | $ | 94,542 | | | $ | 101,285 | | | $ | (6,743) | | (7) | % | |
| Interest-bearing | | | | | | | |
| Money market | 69,119 | | | 65,594 | | | 3,525 | | 5 | % | |
| Demand | 120,207 | | | 124,848 | | | (4,641) | | (4) | % | |
| Savings | 96,618 | | | 98,122 | | | (1,504) | | (2) | % | |
| Time deposits | 35,905 | | | 31,569 | | | 4,336 | | 14 | % | |
| Total interest-bearing deposits | 321,849 | | | 320,133 | | | 1,716 | | 1 | % | |
| Total deposits | 416,391 | | | 421,418 | | | (5,027) | | (1) | % | |
| Borrowed funds | | | | | | | |
| Federal Home Loan Bank borrowings | 35,000 | | | 38,000 | | | (3,000) | | (8) | % | |
| Senior debt | 29,601 | | | 26,836 | | | 2,765 | | 10 | % | |
| Subordinated debt | 4,078 | | | 4,875 | | | (797) | | (16) | % | |
| Other | 2,712 | | | 3,026 | | | (314) | | (10) | % | |
| Total borrowed funds | 71,391 | | | 72,737 | | | (1,346) | | (2) | % | |
| Total funding sources | $ | 487,782 | | | $ | 494,155 | | | $ | (6,373) | | (1) | % | |
Deposits are considered an attractive source of funding due to their stability and relatively low cost to fund. Compared to December 31, 2023, both deposits and borrowed funds declined.
Total deposits decreased reflecting lower consumer and commercial deposits. Noninterest-bearing deposit balances decreased primarily driven by a decline in commercial balances. Interest-bearing deposits increased modestly reflecting higher commercial balances, partially offset by lower consumer balances. This shift in deposit composition contributed to an increase in funding costs compared to the first quarter of 2024. Our total brokered deposit balances of $10.5 billion at June 30, 2024 decreased compared to $11.0 billion at December 31, 2023, and were significantly below both our internal and regulatory guidelines and limits.
Borrowed funds decreased due to lower FHLB borrowings, partially offset by parent company senior debt issuances.
12 The PNC Financial Services Group, Inc. – Form 10-Q
The level and composition of borrowed funds fluctuates over time based on many factors, including market conditions, capital considerations, and funding needs, which are primarily driven by changes in loan, deposit and investment securities balances. While our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses, we also manage our borrowed funds to provide a reliable source of liquidity for our banking and other activities, considering our LCR and NSFR requirements and other internal and external guidelines and constraints. See the Liquidity and Capital Management portion of the Risk Management section in this Financial Review for additional information regarding our liquidity and capital activities. See Note 7 Borrowed Funds in this Report and Note 9 Borrowed Funds in our 2023 Form 10-K for additional information related to our borrowings. See Average Consolidated Balance Sheet and Net Interest Analysis in the Statistical Information section of this Report for additional information on volume and related funding cost changes.
Shareholders’ Equity
Total shareholders’ equity was $52.6 billion at June 30, 2024, an increase of $1.5 billion compared to December 31, 2023, reflecting net income of $2.8 billion and an improvement in AOCI of $0.3 billion, partially offset by dividends paid of $1.4 billion and $0.2 billion of common share repurchases.
BUSINESS SEGMENTS REVIEW
We have three reportable business segments:
•Retail Banking
•Corporate & Institutional Banking
•Asset Management Group
Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in Other, as shown in Table 79 in Note 14 Segment Reporting. 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, corporate overhead net of allocations, tax adjustments that are not allocated to business segments, exited businesses and the residual impact from FTP operations.
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.
See Note 14 Segment Reporting for additional information on our business segments, including a description of each business.
The PNC Financial Services Group, Inc. – Form 10-Q 13
Retail Banking
Retail Banking’s core strategy is to build lifelong, primary relationships by creating a sense of financial well-being and ease for our clients. Over time, we seek to deepen those relationships by meeting the broad range of our clients’ financial needs across savings, liquidity, lending, payments, investment and retirement solutions. We work to deliver these solutions in the most seamless and efficient way possible, meeting our customers where they want to be met - whether in a branch, through digital channels, at an ATM or through our phone-based customer contact centers - while continuously optimizing the cost to sell and service. We believe that, over time, we can grow our customer base, enhance the breadth and depth of our client relationships and improve our efficiency through differentiated products and leading digital channels.
Table 12: Retail Banking Table | | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | |
| Six months ended June 30 | | | | | Change | |
| Dollars in millions, except as noted | 2024 | | 2023 | | $ | % | |
| Income Statement | | | | | | | |
| Net interest income | $ | 5,326 | | | $ | 4,729 | | | $ | 597 | | 13 | % | |
| Noninterest income | 2,173 | | | 1,445 | | | 728 | | 50 | % | |
| Total revenue | 7,499 | | | 6,174 | | | 1,325 | | 21 | % | |
| Provision for credit losses | 145 | | | 224 | | | (79) | | (35) | % | |
| Noninterest expense | 3,678 | | | 3,831 | | | (153) | | (4) | % | |
| Pretax earnings | 3,676 | | | 2,119 | | | 1,557 | | 73 | % | |
| Income taxes | 857 | | | 497 | | | 360 | | 72 | % | |
| Noncontrolling interests | 19 | | | 21 | | | (2) | | (10) | % | |
| Earnings | $ | 2,800 | | | $ | 1,601 | | | $ | 1,199 | | 75 | % | |
| Average Balance Sheet | | | | | | | |
| Loans held for sale | $ | 560 | | | $ | 578 | | | $ | (18) | | (3) | % | |
| Loans | | | | | | | |
| Consumer | | | | | | | |
| Residential real estate | $ | 34,372 | | | $ | 35,285 | | | $ | (913) | | (3) | % | |
| Home equity | 24,404 | | | 24,617 | | | (213) | | (1) | % | |
| Automobile | 14,812 | | | 14,962 | | | (150) | | (1) | % | |
| Credit card | 6,885 | | | 6,960 | | | (75) | | (1) | % | |
| Education | 1,877 | | | 2,151 | | | (274) | | (13) | % | |
| Other consumer | 1,759 | | | 1,959 | | | (200) | | (10) | % | |
| Total consumer | 84,109 | | | 85,934 | | | (1,825) | | (2) | % | |
| Commercial | 12,703 | | | 11,574 | | | 1,129 | | 10 | % | |
| Total loans | $ | 96,812 | | | $ | 97,508 | | | $ | (696) | | (1) | % | |
| Total assets | $ | 114,651 | | | $ | 115,103 | | | $ | (452) | | — | | |
| Deposits | | | | | | | |
| Noninterest-bearing | $ | 53,424 | | | $ | 60,129 | | | $ | (6,705) | | (11) | % | |
| Interest-bearing | 195,946 | | | 199,776 | | | (3,830) | | (2) | % | |
| Total deposits | $ | 249,370 | | | $ | 259,905 | | | $ | (10,535) | | (4) | % | |
| Performance Ratios | | | | | | | |
| Return on average assets | 4.92 | % | | 2.80 | % | | | | |
| Noninterest income to total revenue | 29 | % | | 23 | % | | | | |
| Efficiency | 49 | % | | 62 | % | | | | |
| Supplemental Noninterest Income Information | | | | | | | |
| Asset management and brokerage | $ | 272 | | | $ | 254 | | | $ | 18 | | 7 | % | |
| Card and cash management | $ | 636 | | | $ | 668 | | | $ | (32) | | (5) | % | |
| Lending and deposit services | $ | 360 | | | $ | 357 | | | $ | 3 | | 1 | % | |
| Residential and commercial mortgage | $ | 167 | | | $ | 179 | | | $ | (12) | | (7) | % | |
14 The PNC Financial Services Group, Inc. – Form 10-Q
| | | | | | | | | | | | | | | | | | | | | | | |
At or for six months ended June 30 | | | | | Change | |
| Dollars in millions, except as noted | 2024 | | 2023 | | $ | % | |
| Residential Mortgage Information | | | | | | | |
| Residential mortgage servicing statistics (in billions, except as noted) (a) | | | | | | | |
| Serviced portfolio balance (b) | $ | 204 | | | $ | 191 | | | $ | 13 | | 7 | % | |
| MSR asset value (b) | $ | 2.7 | | | $ | 2.3 | | | $ | 0.4 | | 17 | % | |
| Servicing income: (in millions) | | | | | | | |
| Servicing fees, net (c) | $ | 149 | | | $ | 145 | | | $ | 4 | | 3 | % | |
| Mortgage servicing rights valuation, net of economic hedge | $ | (20) | | | $ | 5 | | | $ | (25) | | * | |
| Residential mortgage loan statistics | | | | | | | |
| Loan origination volume (in billions) | $ | 3.0 | | | $ | 3.8 | | | $ | (0.8) | | (21) | % | |
| Loan sale margin percentage | 2.21 | % | | 2.24 | % | | | | |
| Other Information | | | | | | | |
| Credit-related statistics | | | | | | | |
| Nonperforming assets (b) | $ | 840 | | | $ | 981 | | | $ | (141) | | (14) | % | |
| Net charge-offs - loans and leases | $ | 277 | | | $ | 221 | | | $ | 56 | | 25 | % | |
| Other statistics | | | | | | | |
| Branches (b) (d) | 2,247 | | | 2,361 | | | (114) | | (5) | % | |
| Brokerage account client assets (in billions) (b) (e) | $ | 81 | | | $ | 75 | | | $ | 6 | | 8 | % | |
*- Not Meaningful
(a) Represents mortgage loan servicing balances for third parties and the related income.
(b)As of June 30.
(c)Servicing fees net of impact of decrease in MSR value due to passage of time, including the impact from regularly scheduled loan principal payments, prepayments and loans paid off during the period.
(d)Reflects all branches excluding standalone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.
(e)Includes cash and money market balances.
Retail Banking earnings for the first six months of 2024 increased $1.2 billion compared to the same period in 2023 primarily due to higher revenue and lower noninterest expense, as well as a lower provision for credit losses.
Net interest income increased in the comparison primarily due to wider interest rate spreads on the value of deposits, partially offset by declines in average deposit balances.
Noninterest income increased in the comparison, reflecting a gain resulting from PNC’s participation in the Visa exchange program, partially offset by lower card and cash management fees.
Provision for credit losses for the first six months of 2024 reflected the impact of portfolio activity and improved macroeconomic factors.
Noninterest expense decreased in the comparison, and included lower personnel expense.
Retail Banking average total loans remained relatively stable in the first six months of 2024 compared to the same period in 2023. Average consumer loans decreased driven by lower residential real estate as a result of paydowns outpacing new volume, as well as continued declines in education loans from runoff in the government guaranteed portfolio. Average commercial loans increased due to growth in automobile dealer segment balances.
Our focus on growing primary customer relationships is at the core of our deposit strategy in Retail, which is based on attracting and retaining stable, low-cost deposits as a key funding source for PNC. We have taken a disciplined approach to pricing, focused on retaining relationship-based balances and executing on targeted deposit growth and retention strategies aimed at more rate-sensitive customers. Our goal with regard to deposits is to optimize balances, economics and long-term customer growth. In the first six months of 2024, average total deposits decreased compared to the same period in 2023, and included the impact of quantitative tightening by the Federal Reserve and increased customer spending.
Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for consumers and small businesses.
As part of our strategic focus on growing customers and meeting their financial needs, we operate and continue to optimize a coast-to-coast network of retail branches and ATMs, which are complemented by PNC’s suite of digital capabilities. In February 2024, PNC announced it would be investing nearly $1.0 billion, through 2028, to open more than 100 new branches in key locations, including Austin, Dallas, Denver, Houston, Miami, and San Antonio, and to renovate more than 1,200 existing locations across the country to enhance the customer experience.
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. We are a coast-to-coast franchise and our full suite of commercial products and services is offered nationally.
Table 13: Corporate & Institutional Banking Table | | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | |
| Six months ended June 30 | | | | | Change | |
| Dollars in millions, except as noted | 2024 | | 2023 | | $ | % | |
| Income Statement | | | | | | | |
| Net interest income | $ | 3,109 | | | $ | 2,795 | | | $ | 314 | | 11 | % | |
| Noninterest income | 1,830 | | | 1,707 | | | 123 | | 7 | % | |
| Total revenue | 4,939 | | | 4,502 | | | 437 | | 10 | % | |
| Provision for credit losses | 275 | | | 181 | | | 94 | | 52 | % | |
| Noninterest expense | 1,833 | | | 1,860 | | | (27) | | (1) | % | |
| Pretax earnings | 2,831 | | | 2,461 | | | 370 | | 15 | % | |
| Income taxes | 654 | | | 575 | | | 79 | | 14 | % | |
| Noncontrolling interests | 10 | | | 10 | | | | | — | | |
| Earnings | $ | 2,167 | | | $ | 1,876 | | | $ | 291 | | 16 | % | |
| Average Balance Sheet | | | | | | | |
| Loans held for sale | $ | 181 | | | $ | 448 | | | $ | (267) | | (60) | % | |
| Loans | | | | | | | |
| Commercial | | | | | | | |
| Commercial and industrial | $ | 163,205 | | | $ | 168,110 | | | $ | (4,905) | | (3) | % | |
| Commercial real estate | 34,430 | | | 34,507 | | | (77) | | — | | |
| Equipment lease financing | 6,479 | | | 6,408 | | | 71 | | 1 | % | |
| Total commercial | 204,114 | | | 209,025 | | | (4,911) | | (2) | % | |
| Consumer | 3 | | | 7 | | | (4) | | (57) | % | |
| Total loans | $ | 204,117 | | | $ | 209,032 | | | $ | (4,915) | | (2) | % | |
| Total assets | $ | 229,151 | | | $ | 234,354 | | | $ | (5,203) | | (2) | % | |
| Deposits | | | | | | | |
| Noninterest-bearing | $ | 42,520 | | | $ | 55,221 | | | $ | (12,701) | | (23) | % | |
| Interest-bearing | 98,778 | | | 87,956 | | | 10,822 | | 12 | % | |
| Total deposits | $ | 141,298 | | | $ | 143,177 | | | $ | (1,879) | | (1) | % | |
| Performance Ratios | | | | | | | |
| Return on average assets | 1.91 | % | | 1.61 | % | | | | |
| Noninterest income to total revenue | 37 | % | | 38 | % | | | | |
| Efficiency | 37 | % | | 41 | % | | | | |
| Other Information | | | | | | | |
| Consolidated revenue from: (a) | | | | | | | |
| Treasury Management (b) | $ | 1,890 | | | $ | 1,563 | | | $ | 327 | | 21 | % | |
| Commercial mortgage banking activities: | | | | | | | |
| Commercial mortgage loans held for sale (c) | $ | 27 | | | $ | 40 | | | $ | (13) | | (33) | % | |
| Commercial mortgage loan servicing income (d) | 151 | | | 83 | | | 68 | | 82 | % | |
| Commercial mortgage servicing rights valuation, net of economic hedge | 76 | | | 45 | | | 31 | | 69 | % | |
| Total | $ | 254 | | | $ | 168 | | | $ | 86 | | 51 | % | |
| Commercial mortgage servicing statistics | | | | | | | |
| Serviced portfolio balance (in billions) (e) (f) | $ | 289 | | | $ | 280 | | | $ | 9 | | 3 | % | |
| MSR asset value (e) | $ | 1,082 | | | $ | 1,106 | | | $ | (24) | | (2) | % | |
| Average loans by C&IB business | | | | | | | |
| Corporate Banking | $ | 116,642 | | | $ | 118,424 | | | $ | (1,782) | | (2) | % | |
| Real Estate | 46,297 | | | 47,495 | | | (1,198) | | (3) | % | |
| Business Credit | 29,291 | | | 30,398 | | | (1,107) | | (4) | % | |
| Commercial Banking | 7,536 | | | 8,327 | | | (791) | | (9) | % | |
| Other | 4,351 | | | 4,388 | | | (37) | | (1) | % | |
| Total average loans | $ | 204,117 | | | $ | 209,032 | | | $ | (4,915) | | (2) | % | |
| Credit-related statistics | | | | | | | |
| Nonperforming assets (e) | $ | 1,528 | | | $ | 738 | | | $ | 790 | | * | |
| Net charge-offs - loans and leases | $ | 237 | | | $ | 178 | | | $ | 59 | | 33 | % | |
*- Not Meaningful
16 The PNC Financial Services Group, Inc. – Form 10-Q
(a)See the additional revenue discussion regarding treasury management 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 commercial mortgage banking income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, origination 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 from loan servicing, net of reduction in commercial mortgage servicing rights due to time and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.
(e)As of June 30.
(f)Represents balances related to capitalized servicing.
Corporate & Institutional Banking earnings in the first six months of 2024 increased $291 million compared to the same period in 2023 driven by higher revenue and a decline in noninterest expense, partially offset by a higher provision for credit losses.
Net interest income increased in the comparison primarily due to wider interest rate spreads on the value of deposits, partially offset by narrower interest rate spreads on the value of loans and lower average loan and deposit balances.
Noninterest income increased in the comparison and included higher capital markets and advisory fees and growth in treasury management product revenue.
Provision for credit losses for the first six months of 2024 reflected the impact of portfolio activity and improved macroeconomic factors.
Noninterest expense decreased in the comparison, reflecting a continued focus on expense management.
Average loans decreased compared with the six months ended June 30, 2023:
•Corporate Banking provides lending, equipment finance, treasury management and capital markets products and services to
mid-sized and large corporations, and government and not-for-profit entities. Average loans for this business decreased driven by lower average utilization of loan commitments and paydowns outpacing new production, partially offset by the acquisition of capital commitment facilities from Signature Bridge Bank in the fourth quarter of 2023.
•Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business declined largely due to paydowns outpacing new production, partially offset by a higher average utilization of loan commitments.
•Business Credit provides asset-based lending and equipment financing solutions. The loan and lease portfolio is mainly secured by business assets. Average loans for this business declined, reflecting a lower average utilization of loan commitments.
•Commercial Banking provides lending, treasury management and capital markets related products and services to smaller corporations and businesses. Average loans for this business declined driven by paydowns outpacing new production and a lower average utilization of loan commitments.
The deposit strategy of Corporate & Institutional Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances over time, executing on customer and segment-specific deposit growth strategies and continuing to provide funding and liquidity to PNC. Average total deposits were relatively stable compared to the six months ended June 30, 2023. We continue to actively monitor the interest rate environment and make adjustments to our deposit strategy in response to evolving market conditions, bank funding needs and client relationship dynamics.
Product Revenue
In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital markets and advisory 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 and noninterest income, as appropriate. 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 where the customer relationships exist. The Other Information section in Table 13 includes the consolidated revenue to PNC for treasury management and commercial mortgage banking 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 and access to online/mobile information management and reporting services. 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 includes funding credit from all treasury management customer deposit balances. Compared to the first six months of 2023, treasury management revenue increased due to wider interest rate spreads on the value of deposits and higher product revenue.
The PNC Financial Services Group, Inc. – Form 10-Q 17
Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (both net interest income and
noninterest income), revenue derived from commercial mortgage loans held for sale and hedges related to those activities. Total
revenue from commercial mortgage banking activities increased in the comparison primarily due to higher commercial mortgage loan
servicing income and a higher benefit from commercial mortgage servicing rights valuation, net of hedge, partially offset by lower revenue from commercial mortgage loans held for sale.
Capital markets and advisory includes services and activities primarily related to merger and acquisition advisory, equity capital markets advisory, asset-backed financing, loan syndication, securities underwriting and customer-related trading. The increase in capital markets and advisory fees in the comparison was mostly driven by higher merger and acquisition advisory fees, underwriting fees and loan syndication fees, partially offset by lower customer-related interest rate derivative trading revenue.
18 The PNC Financial Services Group, Inc. – Form 10-Q
Asset Management Group
The Asset Management Group strives to be a leading relationship-based provider of investment, planning, credit and cash management solutions and fiduciary services to affluent individuals and institutions by endeavoring to proactively deliver value-added ideas and solutions, and exceptional service. The Asset Management Group’s priorities are to serve our clients’ financial objectives, grow and deepen customer relationships and deliver solid financial performance with prudent risk and expense management.
Table 14: Asset Management Group Table
| | | | | | | | | | | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | |
| Six months ended June 30 | | | | | Change | |
| Dollars in millions, except as noted | 2024 | | 2023 | | $ | % | |
| Income Statement | | | | | | | |
| Net interest income | $ | 320 | | | $ | 252 | | | $ | 68 | | 27 | % | |
| Noninterest income | 465 | | | 458 | | | 7 | | 2 | % | |
| Total revenue | 785 | | | 710 | | | 75 | | 11 | % | |
| Provision for (recapture of) credit losses | (3) | | | (1) | | | (2) | | * | |
| Noninterest expense | 526 | | | 560 | | | (34) | | (6) | % | |
| Pretax earnings | 262 | | | 151 | | | 111 | | 74 | % | |
| Income taxes | 62 | | | 36 | | | 26 | | 72 | % | |
| Earnings | $ | 200 | | | $ | 115 | | | $ | 85 | | 74 | % | |
| Average Balance Sheet | | | | | | | |
| Loans | | | | | | | |
| Consumer | | | | | | | |
| Residential real estate | $ | 11,855 | | | $ | 9,517 | | | $ | 2,338 | | 25 | % | |
| Other consumer | 3,747 | | | 4,110 | | | (363) | | (9) | % | |
| Total consumer | 15,602 | | | 13,627 | | | 1,975 | | 14 | % | |
| Commercial | 832 | | | 1,237 | | | (405) | | (33) | % | |
| Total loans | $ | 16,434 | | | $ | 14,864 | | | $ | 1,570 | | 11 | % | |
| Total assets | $ | 16,873 | | | $ | 15,282 | | | $ | 1,591 | | 10 | % | |
| Deposits | | | | | | | |
| Noninterest-bearing | $ | 1,632 | | | $ | 1,817 | | | $ | (185) | | (10) | % | |
| Interest-bearing | 26,655 | | | 25,907 | | | 748 | | 3 | % | |
| Total deposits | $ | 28,287 | | | $ | 27,724 | | | $ | 563 | | 2 | % | |
| Performance Ratios | | | | | | | |
| Return on average assets | 2.39 | % | | 1.52 | % | | | | |
| Noninterest income to total revenue | 59 | % | | 65 | % | | | | |
| Efficiency | 67 | % | | 79 | % | | | | |
| Supplemental Noninterest Income Information | | | | | | | |
| Asset management fees | $ | 456 | | | $ | 446 | | | $ | 10 | | 2 | % | |
| Brokerage fees | | | | 4 | | | (4) | | (100) | % | |
| Total | $ | 456 | | | $ | 450 | | | $ | 6 | | 1 | % | |
Other Information (a) | | | | | | | |
| Nonperforming assets | $ | 51 | | | $ | 41 | | | $ | 10 | | 24 | % | |
| Net charge-offs (recoveries) - loans and leases | $ | | | | $ | (2) | | | $ | 2 | | * | |
Client Assets Under Administration (in billions) (a) (b) | | | | | | | |
| Discretionary client assets under management | | | | | | | |
| PNC Private Bank | $ | 123 | | | $ | 111 | | | $ | 12 | | 11 | % | |
| Institutional Asset Management | 73 | | | 65 | | | 8 | | 12 | % | |
| Total discretionary clients assets under management | 196 | | | 176 | | | $ | 20 | | 11 | % | |
| Nondiscretionary client assets under administration | 208 | | | 168 | | | 40 | | 24 | % | |
| Total | $ | 404 | | | $ | 344 | | | $ | 60 | | 17 | % | |
*- Not Meaningful
(a)As of June 30.
(b)Excludes brokerage account client assets.
The Asset Management Group consists of two primary businesses: PNC Private Bank and Institutional Asset Management.
The PNC Private Bank is focused on being a premier private bank in each of the markets it serves. This business seeks to deliver high quality banking, trust and investment management services to our emerging affluent, high net worth and ultra-high net worth clients through a broad array of products and services.
The PNC Financial Services Group, Inc. – Form 10-Q 19
Institutional Asset Management provides outsourced chief investment officer, custody, cash and fixed income client solutions, and retirement plan fiduciary investment services to institutional clients, including corporations, healthcare systems, insurance companies, municipalities and non-profits.
Asset Management Group earnings in the first six months of 2024 increased $85 million compared to the same period in 2023, primarily driven by higher net interest income and a decline in noninterest expense.
Net interest income increased in the comparison primarily due to wider interest rate spreads on the value of deposits and an increase in average loan and deposit balances, partially offset by narrower interest rate spreads on the value of loans.
Noninterest income increased in the comparison primarily driven by higher average equity markets, partially offset by the impact of client activity.
Noninterest expense decreased in the comparison, reflecting a continued focus on expense management.
Average loans increased compared with the six months ended June 30, 2023, primarily driven by growth in residential mortgage loans.
Average deposits increased in the comparison reflecting growth in CD and deposit sweep balances, partially offset by declines in savings and interest bearing deposits.
Discretionary client assets under management increased in comparison to the prior year, primarily due to higher equity markets as of June 30, 2024.
RISK MANAGEMENT
The Risk Management section included in Item 7 of our 2023 Form 10-K describes our enterprise risk management framework, including risk culture, enterprise strategy, risk governance and oversight framework, risk identification, risk assessments, risk controls and monitoring, and risk aggregation and reporting. Additionally, our 2023 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).
Credit Risk Management
Credit risk, including our credit risk management processes, is described in further detail in the Credit Risk Management section of our 2023 Form 10-K. The following provides additional information around our loan portfolio, which is our most significant concentration of credit risk.
Loan Portfolio Characteristics and Analysis
Table 15: Details of Loans
In billions
20 The PNC Financial Services Group, Inc. – Form 10-Q
We use several credit quality indicators, as further detailed in Note 3 Loans and Related Allowance for Credit Losses, 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 56% and 55% of our total loan portfolio at June 30, 2024 and December 31, 2023, respectively. The majority of our commercial and industrial loans are secured by collateral that provides a secondary source of repayment should a borrower experience cash generation difficulties. Examples of this collateral include short-term assets, such as accounts receivable, inventory and securities, and long-lived assets, such as equipment, owner-occupied real estate and other business assets.
We actively manage our commercial and industrial loans to assess any changes (both positive and negative) in the level of credit risk at both the borrower and portfolio level. To evaluate the level of credit risk, we assign internal risk ratings reflecting our estimates of the borrower’s 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 geographies that may exist in our portfolio. Our commercial and industrial portfolio is well-diversified across industries as shown in the following table (based on the North American Industry Classification System).
Table 16: Commercial and Industrial Loans by Industry
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2024 | | | December 31, 2023 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Commercial and industrial | | | | | | | | | |
| Retail/wholesale trade | $ | 30,128 | | | 17 | % | | | $ | 28,198 | | | 16 | % | |
| Manufacturing | 29,544 | | | 17 | | | | 28,989 | | | 16 | | |
| Financial services | 27,986 | | | 16 | | | | 28,422 | | | 16 | | |
| Service providers | 21,948 | | | 12 | | | | 21,354 | | | 12 | | |
| Real estate related (a) | 15,198 | | | 9 | | | | 16,235 | | | 9 | | |
| Technology, media & telecommunications | 9,621 | | | 5 | | | | 10,249 | | | 6 | | |
| Health care | 9,527 | | | 5 | | | | 9,808 | | | 6 | | |
| Transportation and warehousing | 8,036 | | | 4 | | | | 7,733 | | | 4 | | |
| Other industries | 26,801 | | | 15 | | | | 26,592 | | | 15 | | |
| Total commercial and industrial loans | $ | 178,789 | | | 100 | % | | | $ | 177,580 | | | 100 | % | |
(a) Represents loans to customers in the real estate and construction industries.
Owner occupied commercial real estate loans totaled $9.5 billion at June 30, 2024 and are included in commercial and industrial loans as the credit decisioning for servicing these loans is based on the financial conditions of the owner; not the ability of the collateral to generate income. Owner occupied commercial real estate loans are well-diversified across industries. The comparable amount of owner occupied commercial real estate loans at December 31, 2023 was $9.6 billion.
Commercial Real Estate
Commercial real estate loans of $35.5 billion as of June 30, 2024 comprised $20.2 billion related to commercial mortgages on income-producing properties, $9.2 billion of intermediate-term financing loans and $6.1 billion of real estate construction project loans. At December 31, 2023, comparable amounts were $35.4 billion, $21.0 billion, $8.0 billion and $6.4 billion, respectively. Commercial real estate primarily consists of an investment in land and/or buildings held to generate income, that income serves as the primary source for the repayment of the loan. However, for all commercial real estate assets, the disposition of the assigned collateral serves as a secondary source of repayment for the loan should the borrower experience cash generation difficulties.
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 commercial real estate loans tend to be correlated to the loan structure, collateral location and quality, project progress and business environment. These attributes are also monitored and utilized in assessing credit risk. The portfolio is geographically diverse due to the nature of our business involving clients throughout the U.S.
The PNC Financial Services Group, Inc. – Form 10-Q 21
The following table presents our commercial real estate loans by geography and property type:
Table 17: Commercial Real Estate Loans by Geography and Property Type
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2024 | | | December 31, 2023 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| California | $ | 5,909 | | | 17 | % | | | $ | 6,133 | | | 17 | % | |
| Texas | 3,935 | | | 11 | | | | 3,733 | | | 11 | | |
| Florida | 3,895 | | | 11 | | | | 3,738 | | | 11 | | |
| Virginia | 1,622 | | | 5 | | | | 1,590 | | | 4 | | |
| Pennsylvania | 1,447 | | | 4 | | | | 1,515 | | | 4 | | |
| Arizona | 1,390 | | | 4 | | | | 1,216 | | | 3 | | |
| Maryland | 1,246 | | | 4 | | | | 1,344 | | | 4 | | |
| North Carolina | 1,164 | | | 3 | | | | 1,142 | | | 3 | | |
| Colorado | 1,149 | | | 3 | | | | 1,182 | | | 3 | | |
| Illinois | 1,146 | | | 3 | | | | 1,201 | | | 3 | | |
| Other | 12,595 | | | 35 | | | | 12,642 | | | 37 | | |
| Total commercial real estate loans | $ | 35,498 | | | 100 | % | | | $ | 35,436 | | | 100 | % | |
| Property Type (a) | | | | | | | | | |
| Multifamily | $ | 16,453 | | | 46 | % | | | $ | 15,590 | | | 44 | % | |
| Office | 7,498 | | | 21 | | | | 8,019 | | | 23 | | |
| Industrial/warehouse | 4,110 | | | 12 | | | | 4,089 | | | 12 | | |
| Retail | 2,238 | | | 6 | | | | 2,490 | | | 7 | | |
| Seniors housing | 1,862 | | | 5 | | | | 1,772 | | | 5 | | |
| Hotel/motel | 1,709 | | | 5 | | | | 1,760 | | | 5 | | |
| Mixed use | 387 | | | 1 | | | | 388 | | | 1 | | |
| Other | 1,241 | | | 4 | | | | 1,328 | | | 3 | | |
| Total commercial real estate loans | $ | 35,498 | | | 100 | % | | | $ | 35,436 | | | 100 | % | |
(a) Presented in descending order based on loan balances at June 30, 2024.
Commercial Real Estate: Office Portfolio
Given the foundational change in office demand driven by the acceptance of remote work, real estate performance related to the office sector continues to be an area of uncertainty. At June 30, 2024, our outstanding loan balances in the office portfolio totaled $7.5 billion, or 2.3% of total loans, while additional unfunded loan commitments totaled $0.3 billion. The portfolio is well diversified geographically across our coast-to-coast franchise. Within the office portfolio at June 30, 2024, criticized loans totaled 29.3% and nonperforming loans totaled 11.0%, while delinquencies were 0.1%. As measured at origination, the weighted average LTV for the office portfolio was 59%; however, updated appraisals have increased the weighted average LTV to 69% as of June 30, 2024. While LTV is one consideration, our risk assessment considers a number of factors in assessing the changing conditions affecting the portfolio. As of June 30, 2024, we have established reserves of 10.3% against office loans.
The greatest stress in our office portfolio is observed in multi-tenant office loans, which represents 55% of the portfolio at June 30, 2024. Within the multi-tenant classification, criticized levels were 51.9% while nonperforming loans totaled 19.7%, accounting for almost all of the nonperforming office population. The weighted average LTV for multi-tenant is 76% at June 30, 2024. Additionally, commercial real estate charge-offs since the beginning of 2023 have primarily been multi-tenant office loans. Given the higher level of stress, this segment has a proportionally higher reserve rate of 15.5%. The remaining 45% of the office portfolio is primarily comprised of single-tenant, medical and government tenant properties. This subset of the portfolio is performing considerably better, with approximately 1% of the book in the criticized and nonperforming loan categories. As of June 30, 2024, the weighted average LTV of this book is 60%.
Portfolio management efforts remain an elevated area of focus for the office portfolio, with internal risk ratings completed for each asset quarterly, accelerated reappraisal requirements and elevated approval levels for any credit action. Refreshed appraisals have updated valuations on nearly all of the criticized office exposure since the beginning of 2023. Additionally, active management efforts include ongoing performance assessments as well as the review of property, lending and capital markets. Portfolio updates are distributed to senior management weekly.
Given the ongoing change in this area, we expect additional stress in the office sector, and a portion of this stress will bear itself out as we work through maturities that will approximate 41% through June 30, 2025. Upon maturity, and where the balance is not paid in full, an extension may be granted because contractual extension terms are met; alternatively, an extension may be granted based on
22 The PNC Financial Services Group, Inc. – Form 10-Q
negotiated terms, and a portion of these extensions may involve the curtailment or charge off of principal. We continue to actively manage the portfolio, and we believe reserve levels adequately reflect the expected credit losses in the portfolio.
Commercial Real Estate: Multifamily Portfolio
As of June 30, 2024, our outstanding loan balances in the multifamily portfolio totaled $16.5 billion, or 5.1% of total loans, while additional unfunded loan commitments totaled $3.1 billion. Although inflationary pressures and higher interest rates have impacted internal risk assessments and regulatory classification in this portfolio, we have not seen a notable change in loan performance at this time with regards to nonperformance, delinquency or charge-offs. We continue to closely monitor our exposure in this sector.
Consumer
Residential Real Estate
Residential real estate loans primarily consisted of residential mortgage loans at both June 30, 2024 and December 31, 2023.
We obtain loan attributes at origination, including 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 or 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.
The following table presents certain key statistics related to our residential real estate portfolio:
Table 18: Residential Real Estate Loan Statistics
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2024 | | | December 31, 2023 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| California | $ | 20,068 | | | 43 | % | | | $ | 19,911 | | | 42 | % | |
| Texas | 3,883 | | | 8 | | | | 4,009 | | | 8 | | |
| Washington | 3,496 | | | 7 | | | | 3,467 | | | 7 | | |
| Florida | 3,261 | | | 7 | | | | 3,356 | | | 7 | | |
| New Jersey | 1,890 | | | 4 | | | | 1,909 | | | 4 | | |
| New York | 1,515 | | | 3 | | | | 1,551 | | | 3 | | |
| Arizona | 1,388 | | | 3 | | | | 1,431 | | | 3 | | |
| Pennsylvania | 1,208 | | | 3 | | | | 1,229 | | | 3 | | |
| Colorado | 1,161 | | | 2 | | | | 1,187 | | | 2 | | |
| North Carolina | 976 | | | 2 | | | | 989 | | | 2 | | |
| Other | 8,337 | | | 18 | | | | 8,505 | | | 19 | | |
Total residential real estate loans | $ | 47,183 | | | 100 | % | | | $ | 47,544 | | | 100 | % | |
| June 30, 2024 | | | December 31, 2023 | |
| Weighted-average loan origination statistics (b) | | | | | | | | | |
| Loan origination FICO score | | | 771 | | | | | 772 | |
| LTV of loan originations | | | 73 | % | | | | | 73 | % | |
(a)Presented in descending order based on loan balances at June 30, 2024.
(b)Weighted-averages calculated for the twelve months ended June 30, 2024 and December 31, 2023, respectively.
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 $42.3 billion at June 30, 2024, with 46% located in California. Comparable amounts at December 31, 2023 were $42.4 billion and 45%, respectively.
Home Equity
Home equity loans of $25.9 billion as of June 30, 2024 were comprised of $20.8 billion of home equity lines of credit and $5.1 billion of closed-end home equity installment loans. At December 31, 2023, comparable amounts were $26.2 billion, $20.6 billion and $5.6 billion, respectively. Home equity lines of credit are a variable interest rate product with fixed rate conversion options available to certain borrowers.
Similar to residential real estate loans, we track borrower performance of this portfolio on a monthly basis. We also segment the population into pools based on product type (e.g., home equity loans, legacy brokered home equity loans, home equity lines of credit
The PNC Financial Services Group, Inc. – Form 10-Q 23
or legacy brokered home equity lines of credit) and track the historical performance of any related mortgage loans regardless of whether we hold such liens. 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, lien position and geographic concentration.
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 a 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 certain key statistics related to our home equity portfolio:
Table 19: Home Equity Loan Statistics
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2024 | | | December 31, 2023 | |
| Dollars in millions | Amount | | % of Total | | | Amount | | % of Total | |
| Geography (a) | | | | | | | | | |
| Pennsylvania | $ | 4,601 | | | 18 | % | | | $ | 4,745 | | | 18 | % | |
| New Jersey | 3,150 | | | 12 | | | | 3,184 | | | 12 | | |
| Florida | 2,223 | | | 9 | | | | 2,230 | | | 9 | | |
| Ohio | 2,180 | | | 8 | | | | 2,242 | | | 9 | | |
| California | 1,669 | | | 6 | | | | 1,580 | | | 6 | | |
| Texas | 1,255 | | | 5 | | | | 1,230 | | | 5 | | |
| Maryland | 1,216 | | | 5 | | | | 1,237 | | | 5 | | |
| Michigan | 1,182 | | | 5 | | | | 1,214 | | | 5 | | |
| Illinois | 1,036 | | | 4 | | | | 1,069 | | | 4 | | |
| North Carolina | 1,002 | | | 4 | | | | 1,001 | | | 4 | | |
| Other | 6,403 | | | 24 | | | | 6,418 | | | 23 | | |
| Total home equity loans | $ | 25,917 | | | 100 | % | | | $ | 26,150 | | | 100 | % | |
| Lien type | | | | | | | | | |
| 1st lien | | | 51 | % | | | | | 52 | % | |
| 2nd lien | | | 49 | | | | | | 48 | | |
| Total | | | 100 | % | | | | | 100 | % | |
| June 30, 2024 | | | December 31, 2023 | |
| Weighted-average loan origination statistics (b) | | | | | | | | | |
| Loan origination FICO score | | | 772 | | | | | 772 | |
| LTV of loan originations | | | 62 | % | | | | | 64 | % | |
(a)Presented in descending order based on loan balances at June 30, 2024.
(b)Weighted-averages calculated for the twelve months ended June 30, 2024 and December 31, 2023, respectively.
Automobile
Auto loans of $14.8 billion as of June 30, 2024 comprised $13.8 billion in the indirect auto portfolio and $1.0 billion in the direct auto portfolio as of June 30, 2024. At December 31, 2023, comparable amounts were $14.9 billion, $13.8 billion and $1.1 billion, respectively. The indirect auto portfolio consists of loans originated primarily through independent franchised dealers, including dealers located in our newer markets. This business is strategically aligned with our core retail banking business.
The following table presents certain key statistics related to our indirect and direct auto portfolios:
Table 20: Auto Loan Statistics
| | | | | | | | |
| June 30, 2024 | December 31, 2023 |
| Weighted-average loan origination FICO score (a) (b) | | |
| Indirect auto | 790 | 788 |
| Direct auto | 786 | 787 |
| Weighted-average term of loan originations - in months (a) | | |
| Indirect auto | 72 | 73 |
| Direct auto | 65 | 65 |
(a)Weighted-averages calculated for the twelve months ended June 30, 2024 and December 31, 2023, respectively.
(b)Calculated using the auto enhanced FICO scale.
24 The PNC Financial Services Group, Inc. – Form 10-Q
We continue to focus on borrowers with strong credit profiles as evidenced by the weighted-average loan origination FICO scores noted in Table 20. We offer both new and used auto financing to customers through our various channels. At June 30, 2024, the portfolio balance was composed of 43% new vehicle loans and 57% used vehicle loans. Comparable amounts at December 31, 2023 were 45% and 55%, respectively.
The auto loan portfolio’s performance is measured monthly, including both updated collateral values and 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, OREO and foreclosed assets. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent full collection of contractual principal and interest is not probable. 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 our 2023 Form 10-K for details on our nonaccrual policies.
The following table presents a summary of nonperforming assets by major category:
Table 21: Nonperforming Assets by Type | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | December 31, 2023 | | Change |
| Dollars in millions | $ | | % |
Nonperforming loans | | | | | | |
| Commercial | $ | 1,646 | | $ | 1,307 | | | $ | 339 | | | 26 | % |
Consumer (a) | 857 | | 873 | | | (16) | | | (2) | % |
| Total nonperforming loans | 2,503 | | 2,180 | | | 323 | | | 15 | % |
| OREO and foreclosed assets | 34 | | 36 | | | (2) | | | (6) | % |
| Total nonperforming assets | $ | 2,537 | | $ | 2,216 | | | $ | 321 | | | 14 | % |
| Nonperforming loans to total loans | 0.78 | % | 0.68 | % | | | | |
| Nonperforming assets to total loans, OREO and foreclosed assets | 0.79 | % | 0.69 | % | | | | |
| Nonperforming assets to total assets | 0.46 | % | 0.39 | % | | | | |
| Allowance for loan and lease losses to nonperforming loans | 185 | % | 220 | % | | | | |
Allowance for credit losses to nonperforming loans (b) | 214 | % | 250 | % | | | | |
(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)Calculated excluding allowances for investment securities and other financial assets.
Increases in nonperforming assets from December 31, 2023 were primarily driven by higher commercial real estate nonperforming loans.
The following table provides details on the change in nonperforming assets for the six months ended June 30, 2024 and 2023:
Table 22: Change in Nonperforming Assets
| | | | | | | | | | | | | | | | | |
| In millions | | 2024 | | 2023 | |
| January 1 | | $ | 2,216 | | | $ | 2,019 | | |
| | | | | |
| New nonperforming assets | | 1,187 | | | 862 | | |
| Charge-offs and valuation adjustments | | (311) | | | (257) | | |
| Principal activity, including paydowns and payoffs | | (389) | | | (469) | | |
| Asset sales and transfers to loans held for sale | | (32) | | | (58) | | |
| Returned to performing status | | (134) | | | (148) | | |
| June 30 | | $ | 2,537 | | | $ | 1,949 | | |
As of June 30, 2024, approximately 97% of total nonperforming loans were secured by collateral.
The PNC Financial Services Group, Inc. – Form 10-Q 25
Loan Delinquencies
We regularly monitor the level of loan delinquencies and believe these levels are 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 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.
We manage credit risk based on the risk profile of the borrower, repayment sources, underlying collateral, and other support given current events, economic conditions and expectations. We refine our practices to meet the changing environment, such as inflation levels, industry specific risks, interest rate levels, the level of consumer savings and deposit balances, and structural and secular changes such as those arising from the pandemic. To mitigate losses and enhance customer support, we offer loan modifications and collection programs to assist our customers.
The following table presents a summary of accruing loans past due by delinquency status:
Table 23: Accruing Loans Past Due (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount | | | | % of Total Loans Outstanding | |
| | | June 30, 2024 | | December 31, 2023 | | Change | | June 30, 2024 | | December 31, 2023 | |
| Dollars in millions | | $ | | % | | |
| Early stage loan delinquencies | | | | | | | | | | | | | |
| Accruing loans past due 30 to 59 days | | $ | 645 | | | $ | 685 | | | $ | (40) | | | (6) | % | | 0.20 | % | | 0.21 | % | |
| Accruing loans past due 60 to 89 days | | 259 | | | 270 | | | (11) | | | (4) | % | | 0.08 | % | | 0.08 | % | |
| Total early stage loan delinquencies | | 904 | | | 955 | | | (51) | | | (5) | % | | 0.28 | % | | 0.30 | % | |
| Late stage loan delinquencies | | | | | | | | | | | | | |
| Accruing loans past due 90 days or more | | 368 | | | 429 | | | (61) | | | (14) | % | | 0.11 | % | | 0.13 | % | |
| Total accruing loans past due | | $ | 1,272 | | | $ | 1,384 | | | $ | (112) | | | (8) | % | | 0.40 | % | | 0.43 | % | |
(a)Past due loan amounts include government insured or guaranteed loans of $0.3 billion at June 30, 2024 and $0.4 billion at December 31, 2023.
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.
Loan Modifications
We provide relief to our customers experiencing financial hardships through a variety of solutions. Commercial loan and lease modifications are based on each individual borrower’s situation, while consumer loan modifications are evaluated under our hardship relief programs. For additional information on our commercial real estate, office-related modification offerings, see the Commercial Real Estate portion of the Credit Risk Management section of this Financial Review.
See Note 3 Loans and Related Allowance for Credit Losses for additional information on loan modifications to borrowers experiencing financial difficulty.
Allowance for Credit Losses
Our determination of the ACL is based on historical loss and performance experience, current economic conditions, the reasonable and supportable forecasts of future economic conditions and other relevant factors, including current borrower and/or transaction characteristics and assessments of the remaining estimated contractual term as of the balance sheet date. We maintain the ACL at an appropriate level for expected losses on our existing investment securities, loans, equipment finance leases, other financial assets and unfunded lending related commitments.
See Note 1 Accounting Policies and the Credit Risk Management section in our 2023 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 Report for further discussion of the assumptions used in the determination of the ACL as of June 30, 2024.
26 The PNC Financial Services Group, Inc. – Form 10-Q
The following table summarizes our ACL related to loans:
Table 24: Allowance for Credit Losses by Loan Class (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 | |
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 | | $ | 1,728 | | $ | 178,789 | | 0.97 | % | | $ | 1,806 | | $ | 177,580 | | 1.02 | % | |
| Commercial real estate | | 1,441 | | 35,498 | | 4.06 | % | | 1,371 | | 35,436 | | 3.87 | % | |
| Equipment lease financing | | 74 | | 6,555 | | 1.13 | % | | 82 | | 6,542 | | 1.25 | % | |
| Total commercial | | 3,243 | | 220,842 | | 1.47 | % | | 3,259 | | 219,558 | | 1.48 | % | |
| Consumer | | | | | | | | | |
| Residential real estate | | 48 | | 47,183 | | 0.10 | % | | 61 | | 47,544 | | 0.13 | % | |
| Home equity | | 260 | | 25,917 | | 1.00 | % | | 276 | | 26,150 | | 1.06 | % | |
| Automobile | | 163 | | 14,820 | | 1.10 | % | | 173 | | 14,860 | | 1.16 | % | |
| Credit card | | 698 | | 6,849 | | 10.19 | % | | 766 | | 7,180 | | 10.67 | % | |
| Education | | 52 | | 1,732 | | 3.00 | % | | 56 | | 1,945 | | 2.88 | % | |
| Other consumer | | 172 | | 4,086 | | 4.21 | % | | 200 | | 4,271 | | 4.68 | % | |
| Total consumer | | 1,393 | | 100,587 | | 1.38 | % | | 1,532 | | 101,950 | | 1.50 | % | |
| Total | | 4,636 | | $ | 321,429 | | 1.44 | % | | 4,791 | | $ | 321,508 | | 1.49 | % | |
Allowance for unfunded lending related commitments | | 717 | | | | | 663 | | | | |
Allowance for credit losses | | $ | 5,353 | | | | | $ | 5,454 | | | | |
| Allowance for credit losses to total loans | | | | 1.67 | % | | | | 1.70 | % | |
| Commercial | | | | 1.73 | % | | | | 1.73 | % | |
| Consumer | | | | 1.52 | % | | | | 1.62 | % | |
(a) Excludes allowances for investment securities and other financial assets, which together totaled $112 million and $120 million at June 30, 2024 and December 31, 2023, respectively.
The PNC Financial Services Group, Inc. – Form 10-Q 27
The following table summarizes our loan charge-offs and recoveries:
Table 25: 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 |
| 2024 | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 161 | | | $ | 58 | | | $ | 103 | | | 0.12 | % | |
| Commercial real estate | | 169 | | | 9 | | | 160 | | | 0.91 | % | |
| Equipment lease financing | | 16 | | | 8 | | | 8 | | | 0.25 | % | |
| Total commercial | | 346 | | | 75 | | | 271 | | | 0.25 | % | |
| Consumer | | | | | | | | | |
| Residential real estate | | 2 | | | 6 | | | (4) | | | (0.02) | % | |
| Home equity | | 19 | | | 21 | | | (2) | | | (0.02) | % | |
| Automobile | | 64 | | | 49 | | | 15 | | | 0.20 | % | |
| Credit card | | 182 | | | 27 | | | 155 | | | 4.52 | % | |
| Education | | 9 | | | 3 | | | 6 | | | 0.64 | % | |
| Other consumer | | 83 | | | 19 | | | 64 | | | 3.09 | % | |
| Total consumer | | 359 | | | 125 | | | 234 | | | 0.47 | % | |
| Total | | $ | 705 | | | $ | 200 | | | $ | 505 | | | 0.32 | % | |
| 2023 | | | | | | | | | |
| Commercial | | | | | | | | | |
| Commercial and industrial | | $ | 149 | | | $ | 53 | | | $ | 96 | | | 0.11 | % | |
| Commercial real estate | | 99 | | | 2 | | | 97 | | | 0.54 | % | |
| Equipment lease financing | | 7 | | | 6 | | | 1 | | | 0.03 | % | |
| Total commercial | | 255 | | | 61 | | | 194 | | | 0.17 | % | |
| Consumer | | | | | | | | | |
| Residential real estate | | 5 | | | 7 | | | (2) | | | (0.01) | % | |
| Home equity | | 11 | | | 24 | | | (13) | | | (0.10) | % | |
| Automobile | | 61 | | | 51 | | | 10 | | | 0.13 | % | |
| Credit card | | 154 | | | 22 | | | 132 | | | 3.82 | % | |
| Education | | 9 | | | 4 | | | 5 | | | 0.47 | % | |
| Other consumer | | 80 | | | 17 | | | 63 | | | 2.65 | % | |
| Total consumer | | 320 | | | 125 | | | 195 | | | 0.39 | % | |
| Total | | $ | 575 | | | $ | 186 | | | $ | 389 | | | 0.24 | % | |
Total net charge-offs increased $116 million, or 30%, for the first six months of 2024 compared to the same period in 2023. The increase in the comparison was primarily attributable to higher commercial real estate and credit card net charge-offs.
See Note 1 Accounting Policies in our 2023 Form 10-K and Note 3 Loans and Related Allowance for Credit Losses of this Report for additional information.
Liquidity and Capital Management
Our liquidity risk framework and related monitoring measures and tools, including internal liquidity stress testing as well as compliance with internal and regulatory limits and guidelines, are described in further detail in the Liquidity and Capital Management section of our 2023 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. PNC and PNC Bank calculate the LCR daily and are required to maintain a regulatory minimum of 100%. The LCR for both PNC and PNC Bank exceeded the regulatory minimum requirement throughout the second quarter of 2024. Fluctuations in our average LCR result from changes to the components of the calculation, including high-quality liquid assets and net cash outflows, as a result of ongoing business activity.
The NSFR is designed to measure the stability of the maturity structure of assets and liabilities of banking organizations over a one-year time horizon. PNC and PNC Bank calculate the NSFR daily and are required to maintain a regulatory minimum of 100%. The NSFR for both PNC and PNC Bank exceeded the regulatory minimum requirement throughout the second quarter of 2024.
28 The PNC Financial Services Group, Inc. – Form 10-Q
We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2023 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 decreased to $416.4 billion at June 30, 2024 from $421.4 billion at December 31, 2023. Noninterest-bearing deposit balances decreased primarily driven by a decline in commercial balances. Interest-bearing deposits increased modestly reflecting higher commercial balances, partially offset by lower consumer balances. As of June 30, 2024, uninsured deposits represented approximately 42% of our total deposit base, which is estimated based on the regulatory instructions in the Consolidated Reports of Condition and Income - FFIEC 031. The majority of our uninsured deposits are related to commercial operating and relationship accounts, which we define as commercial deposit customers who utilize two or more PNC products. See the Funding Sources portion of the Consolidated Balance Sheet Review and Business Segments Review sections of this Financial Review for additional information on our deposits and related strategies.
We may 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 Financial Review and Note 7 Borrowed Funds in this Report for additional information related to our borrowings.
Total senior and subordinated debt, on a consolidated basis, increased due to the following activity:
Table 26: Senior and Subordinated Debt
| | | | | | | | | |
| In billions | 2024 | | |
| January 1 | $ | 31.7 | | | |
| Issuances | 4.2 | | | |
| Calls and maturities | (1.8) | | | |
| Other | (0.4) | | | |
| June 30 | $ | 33.7 | | | |
Additionally, certain liquid assets and unused borrowing capacity from a number of sources are also available to manage our liquidity position. PNC has a contingency funding plan designed to ensure that liquidity sources are sufficient to meet ongoing obligations and commitments, particularly in the event of liquidity stress. This plan is designed to examine and quantify the organization’s liquidity under various internal liquidity stress scenarios and is periodically tested to assess the plan’s reliability. Additionally, the plan provides the strategies for addressing liquidity needs and responsive actions we would consider during liquidity stress events, which could include the issuance of incremental debt, preferred stock, or additional deposit actions, including the issuance of brokered CDs. The plan also addresses the governance, frequency of reporting and the responsibilities of key departments in the event of liquidity stress.
PNC defines our primary contingent liquidity sources as cash held at the Federal Reserve Bank, investment securities and unused borrowing capacity at the FHLB and Federal Reserve Bank. The following table summarizes our primary contingent liquidity sources at June 30, 2024 and December 31, 2023:
Table 27: Primary Contingent Liquidity Sources
| | | | | | | | | | | | | |
In billions | June 30, 2024 | | December 31, 2023 | | |
| Cash balance with Federal Reserve Bank | $ | 32.6 | | | $ | 43.3 | | | |
| Available investment securities (a) | 62.8 | | | 98.5 | | |
| Unused borrowing capacity from FHLB (b) | 37.6 | | | 35.4 | | |
| Unused borrowing capacity from Federal Reserve Bank (c) | 85.3 | | | 47.2 | | |
| Total available contingent liquidity | $ | 218.3 | | | $ | 224.4 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(a)Represents the fair value of investment securities that can be used for pledging or to secure other sources of funding.
(b)At June 30, 2024, total FHLB borrowing capacity was $72.7 billion and total FHLB borrowings and letters of credit were $35.1 billion. Comparable amounts at December 31, 2023 were $73.4 billion and $38.0 billion, respectively.
(c)Total borrowing capacity with the Federal Reserve Bank was $85.3 billion at June 30, 2024 and $47.2 billion at December 31, 2023. PNC had no outstanding borrowings with the Federal Reserve Bank at June 30, 2024 and December 31, 2023.
As part of PNC’s contingency planning, we pledged a portion of our available held to maturity investment securities at the Federal Reserve Bank’s Discount Window during the first half of 2024, supporting our resilience and operational readiness.
The PNC Financial Services Group, Inc. – Form 10-Q 29
Bank Liquidity
In addition to our primary contingent liquidity sources, 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, 2024, PNC Bank’s remaining capacity to issue under the program was $33.3 billion.
Under PNC Bank’s 2013 commercial paper program, PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. At June 30, 2024, 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 issuing intercompany senior unsecured notes.
Parent Company Liquidity
In addition to managing liquidity risk at the bank level, we manage 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 liquidity to fund discretionary activities such as paying dividends to our shareholders, share repurchases and acquisitions.
At June 30, 2024, available parent company liquidity totaled $22.9 billion. Parent company liquidity is held in intercompany cash and investments. For investments with longer durations, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.
The principal source of parent company liquidity is the dividends or other capital distributions it receives from PNC Bank, which may be impacted by the following:
•Bank-level capital needs,
•Laws, regulations and the results of supervisory activities,
•Corporate policies,
•Contractual restrictions, and
•Other factors.
There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was $6.2 billion at June 30, 2024. See Note 19 Regulatory Matters in our 2023 Form 10-K for further discussion of these limitations.
In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. Under the parent company’s 2014 commercial paper program, the parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. At June 30, 2024, there were no issuances outstanding under this program.
The following table details parent company note issuances in the second quarter of 2024:
Table 28: Parent Company Notes Issued
| | | | | | | | |
| Issuance Date | Amount | Description of Issuance |
| May 14, 2024 | $1.75 billion | $1.75 billion of senior fixed-to-floating notes with a maturity date of May 14, 2030. Interest is payable semi-annually in arrears at a fixed rate of 5.492% per annum, on May 14 and November 14 of each year, beginning on November 14, 2024. Beginning on May 14, 2029, 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 as described in the Prospectus Supplement), plus 1.198%, on August 14, 2029, November 14, 2029, February 14, 2030 and at the maturity date. |
| | |
Parent company senior and subordinated debt carrying value totaled $26.0 billion and $24.0 billion at June 30, 2024 and December 31, 2023, respectively.
See Note 16 Subsequent Events for details on the parent company’s issuances of $1.0 billion of its 5.102% senior fixed-to-floating rate notes that mature on July 23, 2027, and $1.5 billion of its 5.401% senior fixed-to-floating rate notes that mature on July 23, 2035.
30 The PNC Financial Services Group, Inc. – Form 10-Q
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 of our 2023 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.
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. For additional information on the potential impacts from a downgrade to our credit ratings, see Item 1A Risk Factors in our 2023 Form 10-K.
The following table presents credit ratings and outlook for PNC as of June 30, 2024:
Table 29: Credit Ratings and Outlook
| | | | | | | | | | | |
| June 30, 2024 |
| Moody’s | Standard & Poor’s (a) | Fitch |
Parent Company | | | |
| Senior debt | A3 | A- | A |
| Subordinated debt | A3 | BBB+ | A- |
| Preferred stock | Baa2 | BBB- | BBB |
| PNC Bank | | | |
| Senior debt | A2 | A | A+ |
| Subordinated debt | A3 | A- | A |
| Long-term deposits | Aa3 | no rating | AA- |
| Short-term deposits | P-1 | no rating | F1+ |
| Short-term notes | P-1 | A-1 | F1 |
PNC | | | |
Agency rating outlook | Negative | Stable | Stable |
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(a)S&P does not provide depositor ratings. PNC Bank’s long term issuer rating is A and short term issuer rating is A-1.
Capital Management
Detailed information on our capital management processes and activities is included in the Supervision and Regulation section of Item 1 of our 2023 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.
In the second quarter of 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. Consistent with the 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 43% were still available for repurchase at June 30, 2024. In light of the Federal banking agencies’ proposed rules to adjust the Basel III capital framework, third quarter 2024 share repurchase activity is expected to approximate recent quarterly average share repurchase levels. PNC continues to evaluate the potential impact of the proposed rules and may adjust share repurchase activity depending on market and economic conditions, as well as other factors. 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.
The PNC Financial Services Group, Inc. – Form 10-Q 31
The following table summarizes our Basel III capital balances and ratios:
Table 30: Basel III Capital
| | | | | | | | |
| June 30, 2024 |
| Dollars in millions | Basel III (a) | Fully Implemented
(estimated) (b) |
| Common equity Tier 1 capital | | |
| Common stock plus related surplus, net of treasury stock | $ | (3,809) | | $ | (3,809) | |
| Retained earnings | 57,893 | | 57,652 | |
| | |
| | |
| Goodwill, net of associated deferred tax liabilities | (10,700) | | (10,700) | |
| Other disallowed intangibles, net of deferred tax liabilities | (265) | | (265) | |
| Other adjustments/(deductions) | (102) | | (104) | |
| | |
| | |
| Common equity Tier 1 capital (c) | $ | 43,017 | | $ | 42,774 | |
| Additional Tier 1 capital | | |
| Preferred stock plus related surplus | 6,245 | | 6,245 | |
| | |
| Tier 1 capital | $ | 49,262 | | $ | 49,019 | |
| Additional Tier 2 capital | | |
| Qualifying subordinated debt | 2,715 | | 2,715 | |
| | |
| Eligible credit reserves includable in Tier 2 capital | 4,997 | | 5,235 | |
| Total Basel III capital | $ | 56,974 | | $ | 56,969 | |
| Risk-weighted assets | | |
| Basel III standardized approach risk-weighted assets (d) | $ | 423,503 | | $ | 423,593 | |
| Average quarterly adjusted total assets | $ | 556,811 | | $ | 556,567 | |
| Supplementary leverage exposure (e) | $ | 666,072 | | $ | 666,070 | |
| Basel III risk-based capital and leverage ratios (f) | | |
| Common equity Tier 1 | 10.2 | % | 10.1 | % |
| Tier 1 | 11.6 | % | 11.6 | % |
| Total | 13.5 | % | 13.4 | % |
| Leverage (g) | 8.8 | % | 8.8 | % |
| Supplementary leverage ratio (e) | 7.4 | % | 7.4 | % |
(a)The ratios are calculated to reflect PNC’s election to adopt the CECL five-year transition provisions. 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.
(b)The ratios are calculated to reflect the full impact of CECL and exclude the benefits of the optional five-year transition.
(c)As permitted, PNC and PNC Bank have elected to exclude AOCI related to both available for sale securities and pension and other post-retirement plans from CET1 capital.
(d)Basel III standardized approach risk-weighted assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets.
(e)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.
(f)All ratios are calculated using the regulatory capital methodology applicable to PNC and calculated based on the standardized approach.
(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, FDMs, 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 certain banks, including PNC, 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 allowance for PCD loans, compared to CECL ACL at adoption. 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. See additional discussion of this rule in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2023 Form 10-K.
At June 30, 2024, PNC and PNC Bank 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 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%.
32 The PNC Financial Services Group, Inc. – Form 10-Q
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 we believe that our June 30, 2024 capital levels were aligned with them.
We provide additional information regarding regulatory capital requirements and some of their potential impacts, including the proposed rules to adjust the Basel III framework, in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 19 Regulatory Matters in our 2023 Form 10-K.
Market Risk Management
See the Market Risk Management portion of the Risk Management section in our 2023 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, 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 market risk-related risk management policies, which are approved by management’s ALCO and the Risk Committee of the Board of Directors.
PNC utilizes sensitivities of NII and EVE to a set of interest rate scenarios to identify and measure its short-term and long-term structural interest rate risks.
NII Sensitivity results for the second quarters of 2024 and 2023 follow:
Table 31: Net Interest Income Sensitivity Analysis | | | | | | | | | | | | | | |
| Second Quarter 2024 | | Second Quarter 2023 | |
| Net Interest Income Sensitivity Simulation | | | | |
| Effect on NII in first year from shocked interest rate: | | | | |
| 200 basis point instantaneous increase | (0.6) | % | | 0.9 | % | |
| 200 basis point instantaneous decrease | (0.2) | % | | (1.3) | % | |
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When forecasting net interest income, we make certain key assumptions that can materially impact the resulting sensitivities, including the following:
Future Balance Sheet Composition: Our balance sheet composition is dynamic and based on our forecasted expectations. As of the second quarter of 2024, the projected balance sheet composition by the end of year one is generally consistent with the spot composition as of the second quarter of 2024.
Deposit Betas: Deposit pricing changes are primarily driven by changes in the Federal Funds rate, with the relationship between deposit rates and Federal Funds rate defined as deposit beta. We define cumulative deposit beta as the change in deposit rate paid on interest-bearing non-maturity deposits divided by the change in the upper level of the stated Federal Funds rate range since the first quarter of 2022, the start of the current rising rate cycle. As of June 30, 2024, PNC’s cumulative deposit beta was 45%, an increase from 39% at June 30, 2023. For interest rate risk modeling, PNC uses dynamic beta models to adjust assumed repricing sensitivity depending on market rate levels as well as other factors. The dynamic beta assumptions reflect historical experience and future expectations. Our scenario assumes that deposit betas increased slightly from current levels. Actual deposit rates paid may differ from modeled projections due to variables such as competition for deposits and customer behavior.
Asset Prepayments: PNC includes prepayment assumptions for both loan and investment portfolios. Mortgage and home equity portfolios utilize an industry standard model to drive estimated prepayments that increase in lower rate environments. Commercial and consumer loan portfolios assume static constant prepayment rates that are consistent across rate scenarios, as those portfolios historically do not exhibit significantly different prepayment behaviors based upon the level of market rates.
Impact of Derivatives: PNC uses interest rate derivatives, some of which are forward starting, to hedge floating rate commercial loans. PNC had $52.8 billion in receive fix/pay float swaps as of June 30, 2024, with a weighted average duration of 2.2 years and an average fixed rate of 3.13%. As of June 30, 2024 PNC also had collars in place, reflecting $12.5 billion of caps and $12.5 billion of floors, that are used to hedge these commercial loans. Additionally, PNC utilizes receive fix/pay float swaps as a means of hedging
The PNC Financial Services Group, Inc. – Form 10-Q 33
fixed rate debt, as well as pay fix/receive float swaps as a means of hedging the investment securities portfolio. See Note 12 Financial Derivatives in this Report for additional information on how we use derivatives to hedge commercial loans, investment securities and fixed rate debt.
EVE sensitivity results for the second quarters of 2024 and 2023 follow:
Table 32: Economic Value of Equity Sensitivity Analysis
| | | | | | | | | | | |
| Second Quarter 2024 | Second Quarter 2023 | |
| Economic Value of Equity Sensitivity Simulation | | | |
| 200 basis point instantaneous increase | (6.7) | % | (5.3) | % | |
| 200 basis point instantaneous decrease | 0.1 | % | (2.4) | % | |
EVE measures the present value of all projected future cash flows associated with a point-in-time balance sheet and does not include projected new volume. EVE sensitivity to interest rate changes is a complementary metric to NII sensitivity analysis and represents an estimation of long-term interest rate risk. PNC calculates its EVE sensitivity by measuring the changes in the economic value of assets, liabilities and off-balance sheet instruments in response to an instantaneous +/-200 bps parallel shift in interest rates. Similar to the NII sensitivity analysis, we incorporate dynamic deposit repricing and loan prepayment assumptions. These methodologies are largely consistent between the EVE and NII sensitivity analyses. Additionally, deposit attrition is a significant contributor to EVE sensitivity. Deposit attrition is projected based on a dynamic model developed using long-term historical deposit behavior in addition to management assumptions including accelerated attrition for pandemic related excess deposits. PNC performs various sensitivity analyses to understand the impact of faster and slower deposit attrition on our risk metrics, with the results reported to ALCO.
Compared to the second quarter of 2023, there have been no material changes to our NII sensitivity and EVE sensitivity assumptions, including data sources that drive assumptions setting.
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 2023 Form 10-K for more information on our models used to calculate VaR and our backtesting process.
Customer-related trading revenue was $34 million for the six months ended June 30, 2024, compared to $107 million for the six months ended June 30, 2023. The decrease was primarily due to lower derivative client sales revenues, partially offset by higher securities client sales 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, consistent with regulatory limitations. 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 33: Equity Investments Summary
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 | | Change | |
| Dollars in millions | | $ | | % | |
| Tax credit investments | $ | 4,547 | | | $ | 4,331 | | | $ | 216 | | | 5 | % | |
| Private equity and other | 4,490 | | | 3,983 | | | 507 | | | 13 | % | |
| Total | $ | 9,037 | | | $ | 8,314 | | | $ | 723 | | | 9 | % | |
34 The PNC Financial Services Group, Inc. – Form 10-Q
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 $2.4 billion and $2.5 billion at June 30, 2024 and December 31, 2023, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.
Note 4 Loan Sale and Servicing Activities and Variable Interest Entities in our 2023 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 $2.2 billion at both June 30, 2024 and December 31, 2023. As of June 30, 2024, $2.0 billion was invested directly in a variety of companies and $0.2 billion was invested indirectly through various private equity funds.
During the second quarter of 2024, PNC participated in the Visa exchange program, allowing PNC to convert its Visa Class B-1 common shares into 1.8 million of Visa Class B-2 common shares and 0.7 million of Visa Class C common shares. The Visa Class B-2 common shares remain subject to the same restrictions that were imposed on the Visa Class B-1 common shares. Participation in the exchange required PNC to agree to a make-whole agreement that subjects PNC to the same indemnity obligations to Visa as prior to participation in the exchange program.
In the second quarter of 2024, we recorded a $754 million gain related to the Visa Class C common shares received. Included in our other equity investments at June 30, 2024, are Visa Class B-2 common shares, which are recorded at cost, and Visa Class C common shares that are recorded at fair value. The fair value of our remaining Visa Class C common shares was approximately $0.2 billion at June 30, 2024.
Visa Class B-2 common shares that we own are transferable only under limited circumstances until the resolution of the pending interchange litigation or Visa launches another exchange program allowing PNC to convert a portion of its Visa Class B-2 common shares into freely transferable Visa Class C common shares. The estimated value of our total investment in the Visa Class B-2 common shares was approximately $0.7 billion, while our cost basis was insignificant. The estimated value does not represent fair value of the Visa Class B-2 common shares given the shares’ limited transferability and the lack of observable transactions in the marketplace. See Note 14 Fair Value and Note 20 Legal Proceedings in our 2023 Form 10-K for additional information regarding our Visa agreements.
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 $19 million for both the six months ended June 30, 2024 and June 30, 2023.
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 14 Fair Value and Note 15 Financial Derivatives in our 2023 Form 10-K and in Note 11 Fair Value and Note 12 Financial Derivatives in 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.
The PNC Financial Services Group, Inc. – Form 10-Q 35
RECENT REGULATORY DEVELOPMENTS
Resolution and Recovery Planning
In June 2024, the FDIC revised its rule requiring certain insured depository institutions, including PNC Bank, to periodically submit a resolution plan that, in the event of a hypothetical failure, should enable the FDIC to resolve the bank under the Federal Deposit Insurance Act. Under the final rule, most banks with $100 billion or more in assets, including PNC Bank, are required to submit full resolution plans on a three-year cycle, with interim informational supplements due in off-years. The FDIC may also engage in capabilities testing between full resolution plan submissions. The final rule significantly expands the required content elements and adds virtual data room and valuation capabilities as significant components of the resolution planning process. The final rule indicates that covered institutions will not be required to submit a resolution submission or interim informational supplement until at least 270 days from the effective date of October 1, 2024.
The OCC has proposed revisions to its recovery planning guidelines that apply to certain large insured national banks, including PNC Bank. The proposal would incorporate an annual testing requirement into recovery plans, and would require covered banks to consider both financial risks and non-financial risks – including operational and strategic risks – in their recovery plans. The proposal contemplates that PNC Bank would have 12 months from the effective date of the amendments to comply with the changes.
Capital, Capital Planning and Liquidity
In June 2024, the Federal Reserve announced the results of its supervisory stress tests conducted as part of the 2024 CCAR process. PNC remained well above its risk-based minimum capital requirements in the supervisory stress tests, and PNC’s SCB for the four-quarter period beginning October 1, 2024, will remain the regulatory minimum of 2.5%. See the Liquidity and Capital Management portion of the Risk Management section in this Financial Review for a discussion of PNC’s capital actions.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Our consolidated financial statements are prepared by applying certain accounting policies. Note 1 Accounting Policies in our 2023 Form 10-K describes the most significant accounting policies that we use. 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 Level 3 fair value measurements are described in Critical Accounting Estimates and Judgments in our 2023 Form 10-K. 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, other financial assets and unfunded lending related commitments, for the remaining estimated contractual term of the assets or exposures, taking into consideration expected prepayments and estimated recoveries. Our determination of the ACL is based on historical loss and performance experience, as well as current borrower and transaction characteristics including collateral type and quality, current economic conditions, reasonable and supportable forecasts of future economic conditions and other relevant factors. We use methods sensitive to changes in economic conditions to interpret these factors and to estimate expected credit losses. We evaluate and, when appropriate, enhance the quality of our data and models and other methods used to estimate the ACL on an ongoing basis. We incorporate qualitative factors in the ACL that reflect our best estimate of expected losses that may not be adequately represented in our quantitative methods or economic assumptions. The major drivers of ACL estimates include, but are not limited to:
•Current economic conditions: Our forecast of expected losses depends on economic conditions as of the estimation date. As current economic conditions evolve, forecasted losses could be materially affected.
•Scenario weights and design: Our loss estimates are sensitive to the shape, direction and rate of change of macroeconomic forecasts and thus vary significantly between upside and downside scenarios. Changes to the probability weights assigned to these scenarios and the timing of peak business cycles reflected by the scenarios could materially affect our loss estimates.
•Current borrower quality: Our forecast of expected losses depends on current borrower and transaction characteristics, including credit metrics and collateral type/quality. As borrower quality evolves, forecasted losses could be materially affected.
•Portfolio composition: Changes to portfolio volume and mix could materially affect our estimates, as CECL reserves
would be recognized upon origination or acquisition and derecognized upon paydown, maturity or sale.
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 2023 Form 10-K.
36 The PNC Financial Services Group, Inc. – Form 10-Q
Reasonable and Supportable Economic Forecast
Pursuant to the CECL standard, we are required to consider reasonable and supportable forecasts in estimating expected credit losses. For this purpose, we have established a framework that 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. 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 forecast the distribution of economic outcomes over the reasonable and supportable forecast period, we generate four economic forecast scenarios using a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking expert judgment. Each scenario is then given an associated probability (weight) 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, securities and other financial assets. Each quarter, the scenarios and their respective weights are presented to RAC for approval.
The scenarios used for the period ended June 30, 2024 consider, among other factors, ongoing inflationary pressures and the corresponding tightness of monetary policy and credit availability. Given these factors, growth is expected to slow from current levels starting in the second half of 2024. While recession risks remain elevated, our most-likely expectation at June 30, 2024 is that the U.S. economy avoids a recession in 2024.
We used a number of economic variables in our scenarios, with two of the most significant drivers being real GDP and the U.S. unemployment rate. The following table presents a comparison of these two economic variables based on the weighted-average scenario forecasts used in determining our ACL at June 30, 2024 and December 31, 2023.
Table 34: Key Macroeconomic Variables in CECL Weighted-Average Scenarios
| | | | | | | | | | | |
| Assumptions as of June 30, 2024 |
| 2024 | 2025 | 2026 |
| U.S. real GDP (a) | 1.1% | 1.2% | 2.2% |
| U.S. unemployment rate (b) | 4.3% | 4.9% | 4.4% |
| Assumptions as of December 31, 2023 |
| 2024 | 2025 | 2026 |
| U.S. real GDP (a) | 0.1% | 1.5% | 2.0% |
| U.S. unemployment rate (b) | 4.5% | 4.6% | 4.2% |
(a)Represents year-over-year growth rates.
(b)Represents quarterly average rate at December 31, 2024, 2025 and 2026, respectively.
Real GDP growth is expected to end 2024 at 1.1% on a weighted average basis, up from the 0.1% assumed at December 31, 2023, primarily due to stronger economic activity in 2024 than what was expected at the end of 2023. Growth then rises to 1.2% in 2025, before jumping to 2.2% in 2026. The weighted-average unemployment rate is expected to end 2024 at 4.3%, down from the 4.5% assumed at December 31, 2023. The weighted-average unemployment rate is then expected to increase through 2025, peaking at 4.9% during the second half of the year, before gradually improving to 4.4% by the fourth quarter of 2026.
The current state of the economy continues to reflect uncertainty due to the foundational change in office demand from the acceptance of remote work, combined with inflationary pressures, interest rate movements and declining consumer savings and deposit balances. As such, for both our commercial and consumer loan portfolios, PNC identified and performed significant analyses around segments impacted by such uncertainties to ensure our reserves are adequate, given our current macroeconomic expectations.
We believe the economic scenarios effectively reflect the distribution of potential economic outcomes. Additionally, through in-depth and granular analysis we have addressed reserve requirements for the specific populations most affected in the current environment. Through this approach, we believe the reserve levels appropriately reflect the expected credit losses in the portfolio as of the balance sheet date.
See the following for additional information related to our ACL:
•Allowance for Credit Losses in the Credit Risk Management section of this Financial Review,
•Note 2 Investment Securities and Note 3 Loans and Related Allowance for Credit Losses in this Report, and
•Note 1 Accounting Policies in our 2023 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q 37
Recently Issued Accounting Standards
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| Accounting Standards Update | Description | Financial Statement Impact |
Improvements to Reportable Segment Disclosures - ASU 2023-07
Issued November 2023
| • Required with issuance of 2024 Form 10-K; early adoption is permitted. • Requires that a public entity disclose significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss. • Requires that a public entity disclose an amount for other segment items by reportable segment and a description of its composition. • Requires that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280 in interim periods. • Clarifies that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. • Requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. • Requires a retrospective transition approach for all prior periods presented in the financial statements. | • We are currently evaluating the disclosure requirements within this ASU and do not plan to early adopt. • This ASU will not impact our Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity or Consolidated Statement of Cash Flows. • We expect to provide enhanced disclosures of significant segment level noninterest expenses as a result of this ASU.
|
| Accounting Standards Update | Description | Financial Statement Impact |
Improvements to Income Tax Disclosures - ASU 2023-09
Issued December 2023 | • Required effective date of January 1, 2025; early adoption is permitted. • Requires public business entities to, on an annual basis, (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. • Requires that all entities disclose, on an annual basis, (1) the amount of income taxes paid (net of refunds received), disaggregated by federal (national), state and foreign taxes, and (2) the amount of income taxes paid (net of refunds received), disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). • Requires a prospective transition approach, with an optional retrospective transition approach. | • We are currently evaluating the disclosure requirements within this ASU and do not plan to early adopt. • This ASU will not impact our Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity or Consolidated Statement of Cash Flows. • We expect to provide additional disaggregated income tax disclosures in accordance with this ASU. |
Recently Adopted Accounting Pronouncements
See Note 1 Accounting Policies in our 2023 Form 10-K for recently adopted accounting standards. We did not adopt any new accounting standards during the first six months of 2024 that impacted our financial statements.
INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND PROCEDURES
As of June 30, 2024, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman 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 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, 2024, and that there has been no change in PNC’s internal control over financial reporting that occurred during
38 The PNC Financial Services Group, Inc. – Form 10-Q
the second quarter of 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 financial performance, such as 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, including our sustainability strategy, 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 sanctions, tariffs and other trade policies of the U.S. and its global trading partners,
–Impacts of changes in federal, state and local governmental policy, including on the regulatory landscape, capital markets, taxes, infrastructure spending and social programs,
–Our ability to attract, recruit and retain skilled employees, 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. These statements are based on our views that:
–Job and income gains will continue to support consumer spending growth this year, but PNC’s baseline forecast is for slower economic growth in 2024 as higher interest rates remain a drag on the economy.
–Real GDP growth this year will trend close to 2%, and the unemployment rate will increase modestly to above 4% by the end of 2024. Inflation will continue to slow as wage pressures abate, gradually moving back to the Federal Reserve’s 2% long-term objective.
–With slowing inflation PNC expects two federal funds rate cuts of 25 basis points each at the FOMC’s September and December meetings, with the rate ending this year in a range between 4.75% and 5.00%. PNC expects multiple federal funds rate cuts in 2025 as inflation continues to ease.
•PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding minimum capital levels, including 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, PNC’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 and the reliability of and risks resulting from extensive use of such 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 employees. These developments could include:
–Changes to laws and regulations, including changes affecting oversight of the financial services industry, changes in the enforcement and interpretation of such laws and regulations and changes in accounting and reporting standards.
–Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries resulting in monetary losses, costs, or alterations in our business practices and potentially causing reputational harm to PNC.
The PNC Financial Services Group, Inc. – Form 10-Q 39
–Results of the regulatory examination and supervision process, including our failure to satisfy requirements of agreements with governmental agencies.
–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 reputation and business and operating results may be affected by our ability to appropriately meet or address environmental, social or governance targets, goals, commitments or concerns that may arise.
•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, the integration of the acquired businesses into PNC after closing or any failure to execute strategic or operational plans.
•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 manmade, natural and other disasters (including severe weather events), health emergencies, dislocations, geopolitical instabilities or events, terrorist activities, system failures or disruptions, security breaches, cyberattacks, international hostilities, or other extraordinary events beyond PNC’s control through impacts on the economy and financial markets generally or on us or our counterparties, customers or third-party vendors and service providers specifically.
We provide greater detail regarding these as well as other factors in our 2023 Form 10-K and subsequent Form 10-Qs and elsewhere in this Report, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements in these reports. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.
40 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 |
| In millions, except per share data | 2024 | | 2023 | | 2024 | | 2023 |
| Interest Income | | | | | | | |
| Loans | $ | 4,842 | | | $ | 4,523 | | | $ | 9,661 | | | $ | 8,781 | |
| Investment securities | 1,001 | | | 883 | | | 1,884 | | | 1,768 | |
| Other | 725 | | | 538 | | | 1,523 | | | 1,054 | |
| Total interest income | 6,568 | | | 5,944 | | | 13,068 | | | 11,603 | |
| Interest Expense | | | | | | | |
| Deposits | 2,084 | | | 1,531 | | | 4,161 | | | 2,822 | |
| Borrowed funds | 1,182 | | | 903 | | | 2,341 | | | 1,686 | |
| Total interest expense | 3,266 | | | 2,434 | | | 6,502 | | | 4,508 | |
| Net interest income | 3,302 | | | 3,510 | | | 6,566 | | | 7,095 | |
| Noninterest Income | | | | | | | |
| Asset management and brokerage | 364 | | | 348 | | | 728 | | | 704 | |
| Capital markets and advisory | 272 | | | 213 | | | 531 | | | 475 | |
| Card and cash management | 706 | | | 697 | | | 1,377 | | | 1,356 | |
| Lending and deposit services | 304 | | | 298 | | | 609 | | | 604 | |
| Residential and commercial mortgage | 131 | | | 98 | | | 278 | | | 275 | |
| Other income | | | | | | | |
| Gain on Visa shares exchange program | 754 | | | | | 754 | | | |
| Securities gains (losses) | (499) | | | (2) | | | (499) | | | (2) | |
| Other | 77 | | | 131 | | | 212 | | | 389 | |
| Total other income | 332 | | | 129 | | | 467 | | | 387 | |
| Total noninterest income | 2,109 | | | 1,783 | | | 3,990 | | | 3,801 | |
| Total revenue | 5,411 | | | 5,293 | | | 10,556 | | | 10,896 | |
| Provision For Credit Losses | 235 | | | 146 | | | 390 | | | 381 | |
| Noninterest Expense | | | | | | | |
| Personnel | 1,782 | | | 1,846 | | | 3,576 | | | 3,672 | |
| Occupancy | 236 | | | 244 | | | 480 | | | 495 | |
| Equipment | 356 | | | 349 | | | 697 | | | 699 | |
| Marketing | 93 | | | 109 | | | 157 | | | 183 | |
| Other | 890 | | | 824 | | | 1,781 | | | 1,644 | |
| Total noninterest expense | 3,357 | | | 3,372 | | | 6,691 | | | 6,693 | |
| Income before income taxes and noncontrolling interests | 1,819 | | | 1,775 | | | 3,475 | | | 3,822 | |
| Income taxes | 342 | | | 275 | | | 654 | | | 628 | |
| Net income | 1,477 | | | 1,500 | | | 2,821 | | | 3,194 | |
| Less: Net income attributable to noncontrolling interests | 18 | | | 17 | | | 32 | | | 34 | |
| Preferred stock dividends | 95 | | | 127 | | | 176 | | | 195 | |
| Preferred stock discount accretion and redemptions | 2 | | | 2 | | | 4 | | | 4 | |
| Net income attributable to common shareholders | $ | 1,362 | | | $ | 1,354 | | | $ | 2,609 | | | $ | 2,961 | |
| Earnings Per Common Share | | | | | | | |
| Basic | $ | 3.39 | | | $ | 3.36 | | | $ | 6.49 | | | $ | 7.35 | |
| Diluted | $ | 3.39 | | | $ | 3.36 | | | $ | 6.48 | | | $ | 7.34 | |
| Average Common Shares Outstanding | | | | | | | |
| Basic | 400 | | | 401 | | | 400 | | | 401 | |
| Diluted | 400 | | | 401 | | | 400 | | | 401 | |
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 41
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THE PNC FINANCIAL SERVICES GROUP, INC.
| | | | | | | | | | | | | | | | | | | | |
Unaudited
In millions | | Three months ended
June 30 | Six months ended
June 30 |
| 2024 | 2023 | | 2024 | 2023 |
| Net income | | $ | 1,477 | | $ | 1,500 | | | $ | 2,821 | | $ | 3,194 | |
| Other comprehensive income (loss), before tax and net of reclassifications into Net income | | | | | | |
| Net change in debt securities | | 475 | | (241) | | | 296 | | 628 | |
| Net change in cash flow hedge derivatives | | 308 | | (316) | | | 58 | | 211 | |
| Pension and other postretirement benefit plan adjustments | | 1 | | 6 | | | (1) | | (4) | |
| Net change in Other | | | | 3 | | | (2) | | 7 | |
| Other comprehensive income (loss), before tax and net of reclassifications into Net income | | 784 | | (548) | | | 351 | | 842 | |
| Income tax benefit (expense) related to items of other comprehensive income | | (188) | | 131 | | | (85) | | (195) | |
| Other comprehensive income (loss), after tax and net of reclassifications into Net income | | 596 | | (417) | | | 266 | | 647 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Comprehensive income | | 2,073 | | 1,083 | | | 3,087 | | 3,841 | |
| Less: Comprehensive income attributable to noncontrolling interests | | 18 | 17 | | 32 | | 34 | |
| Comprehensive income attributable to PNC | | $ | 2,055 | | $ | 1,066 | | | $ | 3,055 | | $ | 3,807 | |
See accompanying Notes To Consolidated Financial Statements.
42 The PNC Financial Services Group, Inc. – Form 10-Q
CONSOLIDATED BALANCE SHEET
THE PNC FINANCIAL SERVICES GROUP, INC.
| | | | | | | | | | | |
| Unaudited | June 30
2024 | | December 31
2023 |
| In millions, except par value |
| Assets | | | |
| Cash and due from banks | $ | 6,242 | | | $ | 6,921 | |
| Interest-earning deposits with banks | 33,039 | | | 43,804 | |
| Loans held for sale (a) | 988 | | | 734 | |
| Investment securities – available for sale | 51,188 | | | 41,785 | |
| Investment securities – held to maturity | 87,457 | | | 90,784 | |
| Loans (a) | 321,429 | | | 321,508 | |
| Allowance for loan and lease losses | (4,636) | | | (4,791) | |
| Net loans | 316,793 | | | 316,717 | |
| Equity investments | 9,037 | | | 8,314 | |
| Mortgage servicing rights | 3,739 | | | 3,686 | |
| Goodwill | 10,932 | | | 10,932 | |
| Other (a) | 37,104 | | | 37,903 | |
| Total assets | $ | 556,519 | | | $ | 561,580 | |
| Liabilities | | | |
| Deposits | | | |
| Noninterest-bearing | $ | 94,542 | | | $ | 101,285 | |
| Interest-bearing | 321,849 | | | 320,133 | |
| Total deposits | 416,391 | | | 421,418 | |
| Borrowed funds | | | |
| Federal Home Loan Bank borrowings | 35,000 | | | 38,000 | |
| Senior debt | 29,601 | | | 26,836 | |
| Subordinated debt | 4,078 | | | 4,875 | |
| Other (b) | 2,712 | | | 3,026 | |
| Total borrowed funds | 71,391 | | | 72,737 | |
| Allowance for unfunded lending related commitments | 717 | | | 663 | |
| Accrued expenses and other liabilities (b) | 15,339 | | | 15,621 | |
| Total liabilities | 503,838 | | | 510,439 | |
| Equity | | | |
| Preferred stock (c) | | | |
Common stock ($5 par value, Authorized 800,000,000 shares, issued 543,225,979 and 543,116,271 shares) | 2,716 | | | 2,716 | |
| Capital surplus | 19,098 | | | 19,020 | |
| Retained earnings | 57,652 | | | 56,290 | |
| Accumulated other comprehensive income (loss) | (7,446) | | | (7,712) | |
Common stock held in treasury at cost: 145,667,981 and 145,087,054 shares | (19,378) | | | (19,209) | |
| Total shareholders’ equity | 52,642 | | | 51,105 | |
| Noncontrolling interests | 39 | | | 36 | |
| Total equity | 52,681 | | | 51,141 | |
| Total liabilities and equity | $ | 556,519 | | | $ | 561,580 | |
(a)Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $0.9 billion, Loans held for investment of $1.2 billion and Other assets of $0.1 billion at June 30, 2024. Comparable amounts at December 31, 2023 were $0.7 billion, $1.2 billion and $0.1 billion, respectively.
(b)Our consolidated liabilities included the following for which we have elected the fair value option: Other borrowed funds of less than $0.1 billion and Other liabilities of $0.1 billion at June 30, 2024. Comparable amounts at December 31, 2023 were less than $0.1 billion and $0.1 billion, respectively.
(c)Par value less than $0.5 million at each date.
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 43
CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
| | | | | | | | | | | | | | | | | |
Unaudited
In millions | | Six months ended June 30 | |
| 2024 | | 2023 | |
| Operating Activities | | | | | |
| Net income | | $ | 2,821 | | | $ | 3,194 | | |
| Adjustments to reconcile net income to net cash provided (used) by operating activities | | | | | |
Provision for credit losses | | 390 | | | 381 | | |
| Depreciation, amortization and accretion | | 74 | | | 125 | | |
| Deferred income taxes (benefit) | | (21) | | | (75) | | |
| Net losses on sales of securities | | 499 | | | 2 | | |
| Changes in fair value of mortgage servicing rights | | 23 | | | 136 | | |
| | | | | |
| Gain on Visa shares exchange program | | (754) | | | | | |
| | | | | |
| Net change in | | | | | |
| Trading securities and other short-term investments | | 416 | | | (601) | | |
| Loans held for sale and related securitization activity | | (238) | | | 522 | | |
| Other assets | | (142) | | | 1,410 | | |
| Accrued expenses and other liabilities | | (934) | | | (494) | | |
| Other operating activities, net | | 659 | | | 532 | | |
| Net cash provided (used) by operating activities | | $ | 2,793 | | | $ | 5,132 | | |
| Investing Activities | | | | | |
| Sales | | | | | |
| Securities available for sale | | $ | 3,745 | | | $ | (70) | | |
| | | | | |
| Loans | | 237 | | | 605 | | |
| Repayments/maturities | | | | | |
| Securities available for sale | | 2,747 | | | 4,038 | | |
| Securities held to maturity | | 4,714 | | | 3,076 | | |
| Purchases | | | | | |
| Securities available for sale | | (16,246) | | | (1,272) | | |
| Securities held to maturity | | (933) | | | (1,513) | | |
| Loans | | (865) | | | (416) | | |
| Net change in | | | | | |
| Federal funds sold and resale agreements | | 167 | | | 229 | | |
| | | | | |
| Loans | | 206 | | | 3,305 | | |
| | | | | |
| Other investing activities, net | | (357) | | | (445) | | |
| Net cash provided (used) by investing activities | | $ | (6,585) | | | $ | 7,537 | | |
44 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 | |
| 2024 | | 2023 | |
| Financing Activities | | | | | |
| Net change in | | | | | |
| Noninterest-bearing deposits | | $ | (6,755) | | | $ | (13,982) | | |
| Interest-bearing deposits | | 1,716 | | | 5,166 | | |
| Federal funds purchased and repurchase agreements | | (178) | | | 94 | | |
| | | | | |
| | | | | |
| Other borrowed funds | | (129) | | | (35) | | |
| Sales/issuances | | | | | |
| Federal Home Loan Bank borrowings | | | | | 2,000 | | |
| Senior debt | | 4,236 | | | 6,235 | | |
| | | | | |
| Other borrowed funds | | 338 | | | 486 | | |
| Preferred stock | | | | | 1,484 | | |
| Common and treasury stock | | 33 | | | 36 | | |
| Repayments/maturities | | | | | |
| Federal Home Loan Bank borrowings | | (3,000) | | | (75) | | |
| Senior debt | | (1,050) | | | (750) | | |
| Subordinated debt | | (750) | | | (750) | | |
| Other borrowed funds | | (354) | | | (495) | | |
| | | | | |
| | | | | |
| Acquisition of treasury stock | | (336) | | | (588) | | |
| Preferred stock cash dividends paid | | (176) | | | (195) | | |
| Common stock cash dividends paid | | (1,247) | | | (1,213) | | |
| | | | | |
| Net cash provided (used) by financing activities | | $ | (7,652) | | | $ | (2,582) | | |
| Net Increase (Decrease) In Cash, Cash Equivalents And Restricted Cash (a) | | $ | (11,444) | | | $ | 10,087 | | |
| | | | | |
| | | | | |
| Cash, cash equivalents and restricted cash at beginning of period | | 50,725 | | | 34,363 | | |
| Cash, cash equivalents and restricted cash at end of period | | $ | 39,281 | | | $ | 44,450 | | |
| | | | | |
| Cash, Cash Equivalents And Restricted Cash | | | | | |
| Cash and cash equivalents at end of period (unrestricted cash) | | $ | 38,407 | | | $ | 43,863 | | |
| Restricted cash | | 874 | | 587 | |
| Cash, cash equivalents and restricted cash at end of period | | $ | 39,281 | | | $ | 44,450 | | |
| Supplemental Disclosures | | | | | |
| Interest paid | | $ | 6,314 | | | $ | 2,586 | | |
| Income taxes paid | | $ | 288 | | | $ | 719 | | |
| Income taxes refunded | | $ | 44 | | | $ | 824 | | |
| Leased assets obtained in exchange for new operating lease liabilities | | $ | 129 | | | $ | 113 | | |
| | | | | |
| Non-cash Investing And Financing Items | | | | | |
| | | | | |
| Transfer from loans to loans held for sale, net | | $ | 58 | | | $ | 712 | | |
| | | | | |
| Transfer from loans to foreclosed assets | | $ | 24 | | | $ | 32 | | |
| | | | | |
(a)In the second quarter of 2024, we updated our policy for cash and cash equivalents to include interest-earning deposits with banks. See Note 1 Accounting Policies for additional information regarding this change to our cash and cash equivalents policy.
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE PNC FINANCIAL SERVICES GROUP, INC.
Unaudited
See page 100 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.
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 coast-to-coast. We also have strategic international offices in four countries outside the U.S.
NOTE 1 ACCOUNTING POLICIES
Basis of Financial Statement Presentation
Our consolidated financial statements include the accounts of the parent company and its subsidiaries, most of which are wholly-owned, certain partnership interests and VIEs.
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. Effective for the second quarter of 2024, we updated our policy to classify Interest-earning deposits with banks as Cash and cash equivalents on the Consolidated Statement of Cash Flows when reconciling Cash and due from banks and restricted cash.
In our opinion, the unaudited interim consolidated financial statements reflect all normal, recurring adjustments needed to state 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 through the date of issuance of the consolidated financials.
When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2023 Form 10-K. Reference is made to Note 1 Accounting Policies in our 2023 Form 10-K for a detailed description of significant accounting policies. These interim consolidated financial statements serve to update our 2023 Form 10-K and may not include all information and Notes necessary to constitute a complete set of financial statements.
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. Actual results may differ from the estimates, and the differences may be material to the consolidated financial statements.
Cash, Cash Equivalents and Restricted Cash
Cash and due from banks are considered cash and cash equivalents for financial reporting purposes because they represent a
source of liquidity. Certain cash balances within Cash and due from banks on our Consolidated Balance Sheet are restricted as to
withdrawal or usage by legally binding contractual agreements or regulatory requirements.
Effective for the second quarter of 2024, we updated our policy to classify Interest-earning deposits with banks as Cash and cash equivalents on the Consolidated Statement of Cash Flows when reconciling Cash and due from banks and restricted cash. We believe this presentation enhances the usefulness of financial reporting because management views these funds as a source of liquidity for future transactions, while enhancing comparability to align with industry practice. There is no impact to our Consolidated Income Statement (including EPS), Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, or Consolidated Statement of Changes in Equity. All periods presented herein reflect this change.
46 The PNC Financial Services Group, Inc. – Form 10-Q
To reflect the change in accounting policy, we adjusted the Consolidated Statement of Cash Flows for the six months ended June 30, 2023. This included an adjustment of $10.9 billion from Net cash provided (used) by investing activities to Net increase (decrease) in cash, cash equivalents and restricted cash at end of period. The $10.9 billion was comprised of $10.8 billion reported in Net change in Interest-earning deposits with banks and $0.1 billion reported in Other investing activities, net. Additionally, we included $27.3 billion of Interest-earning deposits with banks in Cash, cash equivalents and restricted cash at beginning of period, and $38.2 billion of Interest-earning deposits with banks in Cash, cash equivalents and restricted cash at end of period.
Recently Adopted Accounting Standards
See Note 1 Accounting Policies in our 2023 Form 10-K for recently adopted accounting standards. We did not adopt any new accounting standards during the first six months of 2024 that impacted our financial statements.
NOTE 2 INVESTMENT SECURITIES
The following table summarizes our available for sale and held to maturity portfolios by major security type:
Table 35: Investment Securities Summary (a)(b)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | | December 31, 2023 |
| In millions | | Amortized
Cost (c) | | Unrealized | | Fair
Value | | | Amortized
Cost (c) | | Unrealized | | Fair
Value |
| Gains | | Losses | | | | Gains | | Losses | |
| Securities Available for Sale | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 16,868 | | | $ | 19 | | | $ | (413) | | | $ | 16,474 | | | | $ | 7,596 | | | $ | 22 | | | $ | (667) | | | $ | 6,951 | |
| Residential mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 30,234 | | | 15 | | | (3,153) | | | 27,096 | | | | 30,643 | | | 46 | | | (2,809) | | | 27,880 | |
| Non-agency | | 534 | | | 99 | | | (9) | | | 624 | | | | 585 | | | 118 | | | (7) | | | 696 | |
| Commercial mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 1,758 | | | | | | (141) | | | 1,617 | | | | 1,680 | | | 1 | | | (135) | | | 1,546 | |
| Non-agency | | 824 | | | 1 | | | (28) | | | 797 | | | | 913 | | | 1 | | | (45) | | | 869 | |
| Asset-backed | | 2,097 | | | 27 | | | (4) | | | 2,120 | | | | 1,092 | | | 25 | | | (1) | | | 1,116 | |
| Other | | 2,581 | | | 41 | | | (162) | | | 2,460 | | | | 2,844 | | | 44 | | | (161) | | | 2,727 | |
| Total securities available for sale | | $ | 54,896 | | | $ | 202 | | | $ | (3,910) | | | $ | 51,188 | | | | $ | 45,353 | | | $ | 257 | | | $ | (3,825) | | | $ | 41,785 | |
| Securities Held to Maturity | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 35,468 | | | | | | $ | (1,302) | | | $ | 34,166 | | | | $ | 36,529 | | | $ | 9 | | | $ | (1,141) | | | $ | 35,397 | |
| Residential mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 41,865 | | | $ | 13 | | | (3,805) | | | 38,073 | | | | 42,686 | | | 92 | | | (2,733) | | | 40,045 | |
| Non-agency | | 250 | | | | | (23) | | | 227 | | | | 259 | | | | | | (17) | | | 242 | |
| Commercial mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | 956 | | | 2 | | | (31) | | | 927 | | | | 939 | | | 9 | | | (23) | | | 925 | |
| Non-agency | | 1,189 | | | 2 | | | (17) | | | 1,174 | | | | 1,373 | | | 2 | | | (27) | | | 1,348 | |
| Asset-backed | | 4,833 | | | 22 | | | (30) | | | 4,825 | | | | 5,890 | | | 17 | | | (39) | | | 5,868 | |
| Other | | 2,896 | | | 23 | | | (56) | | | 2,863 | | | | 3,108 | | | 50 | | | (35) | | | 3,123 | |
| Total securities held to maturity (d) | | $ | 87,457 | | | $ | 62 | | | $ | (5,264) | | | $ | 82,255 | | | | $ | 90,784 | | | $ | 179 | | | $ | (4,015) | | | $ | 86,948 | |
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(a) At June 30, 2024, the accrued interest associated with our held to maturity and available for sale portfolios totaled $268 million and $252 million, respectively. The comparable amounts at December 31, 2023 were $281 million and $144 million, respectively. These amounts are included in Other assets on the Consolidated Balance Sheet.
(b) Credit ratings represent a primary credit quality indicator used to monitor and manage credit risk. Of our total securities portfolio, 97% were rated AAA/AA at both June 30, 2024 and December 31, 2023.
(c) Amortized cost is presented net of allowance of $88 million for securities available for sale, primarily related to non-agency commercial mortgage-backed securities, and $5 million for securities held to maturity at June 30, 2024. The comparable amounts at December 31, 2023 were $86 million and $6 million, respectively.
(d) Held to maturity securities transferred from available for sale are included in held to maturity at fair value at the time of the transfer. The amortized cost of held to maturity securities included net unrealized losses of $3.8 billion at June 30, 2024 related to securities transferred, which are offset in AOCI, net of tax. The comparable amount at December 31, 2023 was $4.2 billion.
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 Total 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, net of any allowance. Investment securities at June 30, 2024 included $151 million of net unsettled purchases that represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows. The comparable amount for June 30, 2023 was $197 million of net unsettled purchases.
The PNC Financial Services Group, Inc. – Form 10-Q 47
We maintain the allowance for investment securities at levels that we believe to be appropriate as of the balance sheet date to absorb expected credit losses on our portfolio. At June 30, 2024, the allowance for investment securities was $93 million and primarily related to non-agency commercial mortgage-backed securities in the available for sale portfolio. The comparable amount at December 31, 2023 was $92 million. See Note 1 Accounting Policies in our 2023 Form 10-K for a discussion of the methodologies used to determine the allowance for investment securities.
At June 30, 2024, AOCI included pretax losses of $285 million from derivatives that hedged the purchase of investment securities classified as held to maturity. The losses will be accreted to interest income as an adjustment of yield on the securities.
Table 36 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, 2024 and December 31, 2023. 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, 2024, 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.
Table 36: Gross Unrealized Loss and Fair Value of Securities Available for Sale Without an Allowance for Credit Losses
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| | 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, 2024 | | | | | | | | | | | | |
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| U.S. Treasury and government agencies | | $ | (30) | | | $ | 10,966 | | | $ | (383) | | | $ | 2,960 | | | $ | (413) | | | $ | 13,926 | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | | (22) | | | 2,576 | | | (3,131) | | | 21,752 | | | (3,153) | | | 24,328 | |
| Non-agency | | | | | | | | (6) | | | 87 | | | (6) | | | 87 | |
| Commercial mortgage-backed | | | | | | | | | | | | |
| Agency | | (2) | | | 189 | | | (139) | | | 1,397 | | | (141) | | | 1,586 | |
| Non-agency | | | | | | | | (28) | | | 654 | | | (28) | | | 654 | |
| Asset-backed | | (3) | | | 694 | | | (1) | | | 93 | | | (4) | | | 787 | |
| Other | | (1) | | | 105 | | | (139) | | | 1,932 | | | (140) | | | 2,037 | |
| Total securities available for sale | | $ | (58) | | | $ | 14,530 | | | $ | (3,827) | | | $ | 28,875 | | | $ | (3,885) | | | $ | 43,405 | |
| December 31, 2023 | | | | | | | | | | | | |
| U.S. Treasury and government agencies | | | | | | | | $ | (666) | | | $ | 6,035 | | | $ | (666) | | | $ | 6,035 | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | | $ | (4) | | | $ | 1,015 | | | (2,805) | | | 24,306 | | | (2,809) | | | 25,321 | |
| Non-agency | | (1) | | | 15 | | | (4) | | | 84 | | | (5) | | | 99 | |
| Commercial mortgage-backed | | | | | | | | | | | | |
| Agency | | | | | | | | (135) | | | 1,495 | | | (135) | | | 1,495 | |
| Non-agency | | | | | | (45) | | | 731 | | | (45) | | | 731 | |
| Asset-backed | | | | | | | | (1) | | | 9 | | | (1) | | | 9 | |
| Other | | (3) | | | 78 | | | (136) | | | 2,106 | | | (139) | | | 2,184 | |
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| Total securities available for sale | | $ | (8) | | | $ | 1,108 | | | $ | (3,792) | | | $ | 34,766 | | | $ | (3,800) | | | $ | 35,874 | |
Table 37: Gains (Losses) on Sales of Securities Available for Sale
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Six months ended June 30 In millions | | Gross Gains | Gross Losses | Net Gains (Losses) | Tax Expense (Benefit) | |
| 2024 | | $ | 2 | | $ | (501) | | $ | (499) | | $ | (105) | | |
| 2023 | | | $ | (2) | | $ | (2) | | | |
In the second quarter of 2024, we sold available for sale securities with a market value of $3.8 billion, resulting in a loss of $497 million.
48 The PNC Financial Services Group, Inc. – Form 10-Q
The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at June 30, 2024:
Table 38: Contractual Maturity of Debt Securities
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June 30, 2024
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 | | $ | 1,202 | | | $ | 2,470 | | | $ | 10,854 | | | $ | 2,342 | | | $ | 16,868 | | |
| Residential mortgage-backed | | | | | | | | | | | |
| Agency | | 1 | | | 222 | | | 3,472 | | | 26,539 | | | 30,234 | | |
| Non-agency | | | | | | 11 | | | 523 | | | 534 | | |
| Commercial mortgage-backed | | | | | | | | | | | |
| Agency | | 6 | | | 664 | | | 751 | | | 337 | | | 1,758 | | |
| Non-agency | | 1 | | | 105 | | | 73 | | | 645 | | | 824 | | |
| Asset-backed | | | | 667 | | | 318 | | | 1,112 | | | 2,097 | | |
| Other | | 280 | | | 1,866 | | | 291 | | | 144 | | | 2,581 | | |
| Total securities available for sale at amortized cost | | $ | 1,490 | | | $ | 5,994 | | | $ | 15,770 | | | $ | 31,642 | | | $ | 54,896 | | |
| Fair value | | $ | 1,480 | | | $ | 5,808 | | | $ | 15,422 | | | $ | 28,478 | | | $ | 51,188 | | |
| Weighted-average yield, GAAP basis (a) | | 1.43 | % | | 3.57 | % | | 4.13 | % | | 3.50 | % | | 3.63 | % | |
| Securities Held to Maturity | | | | | | | | | | | |
| U.S. Treasury and government agencies | | $ | 10,363 | | | $ | 22,586 | | | $ | 1,635 | | | $ | 884 | | | $ | 35,468 | | |
| Residential mortgage-backed | | | | | | | | | | | |
| Agency | | | | 9 | | | 309 | | | 41,547 | | | 41,865 | | |
| Non-agency | | | | | | | | 250 | | | 250 | | |
| Commercial mortgage-backed | | | | | | | | | | | |
| Agency | | | | 158 | | | 587 | | | 211 | | | 956 | | |
| Non-agency | | | | | 49 | | | | | | 1,140 | | | 1,189 | | |
| Asset-backed | | 20 | | | 1,329 | | | 2,228 | | | 1,256 | | | 4,833 | | |
| Other | | 202 | | | 968 | | | 433 | | | 1,293 | | | 2,896 | | |
| Total securities held to maturity at amortized cost | | $ | 10,585 | | | $ | 25,099 | | | $ | 5,192 | | | $ | 46,581 | | | $ | 87,457 | | |
| Fair value | | $ | 10,461 | | | $ | 24,133 | | | $ | 4,989 | | | $ | 42,672 | | | $ | 82,255 | | |
| Weighted-average yield, GAAP basis (a) | | 0.96 | % | | 1.60 | % | | 3.79 | % | | 2.97 | % | | 2.38 | % | |
(a)Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security. Actual maturities and yields may differ as certain securities may be prepaid.
At June 30, 2024, 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 $35.9 billion and $31.4 billion, and fair value of $32.4 billion and $28.7 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 39: Fair Value of Securities Pledged and Accepted as Collateral
| | | | | | | | |
| In millions | June 30, 2024 | December 31, 2023 |
| Pledged to others | $ | 70,186 | | $ | 29,878 | |
| Accepted from others: | | |
| Permitted by contract or custom to sell or repledge | $ | 681 | | $ | 755 | |
| Permitted amount repledged to others | $ | 681 | | $ | 755 | |
The securities pledged to others include positions held in our portfolio of investment securities, trading securities and securities accepted as collateral from others that we are permitted by contract or custom to sell or repledge, and were used to secure public and trust deposits, repurchase agreements and for other purposes. See Note 12 Financial Derivatives for information related to securities pledged and accepted as collateral for derivatives.
The PNC Financial Services Group, Inc. – Form 10-Q 49
NOTE 3 LOANS 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 in our 2023 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, but not limited to, trends in delinquency rates, nonperforming status, analyses of PD and LGD ratings, updated credit scores and originated and updated LTV ratios.
We manage credit risk based on the risk profile of the borrower, repayment sources, underlying collateral and other support given current events, economic conditions and expectations. We refine our practices to meet the changing environment such as inflation levels, industry specific risks, interest rate levels, the level of consumer savings and deposit balances, and structural and secular changes such as those arising from the pandemic. To mitigate losses and enhance customer support, we offer loan modifications and collection programs to assist our customers.
Table 40 presents the composition and delinquency status of our loan portfolio at June 30, 2024 and December 31, 2023. Loan delinquencies include government insured or guaranteed loans and loans accounted for under the fair value option.
50 The PNC Financial Services Group, Inc. – Form 10-Q
Table 40: 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, 2024 | | | | | | | | | | | | |
| Commercial | | | | | | | | | | | | |
| Commercial and industrial | $ | 177,853 | | $ | 95 | | $ | 53 | | $ | 86 | | $ | 234 | | | $ | 702 | | | $ | 178,789 | | | | |
| Commercial real estate | 34,559 | | 8 | | 2 | | 1 | | 11 | | | 928 | | | 35,498 | | | | |
| Equipment lease financing | 6,514 | | 19 | | 6 | | | 25 | | | 16 | | | 6,555 | | | | |
| Total commercial | 218,926 | | 122 | | 61 | | 87 | | 270 | | | 1,646 | | | 220,842 | | | | |
| Consumer | | | | | | | | | | | | |
| Residential real estate | 45,984 | | 278 | | 91 | | 155 | | 524 | | (c) | 275 | | $ | 400 | | 47,183 | | | | |
| Home equity | 25,296 | | 64 | | 24 | | | 88 | | | 468 | | 65 | | 25,917 | | | | |
Automobile | 14,607 | | 92 | | 22 | | 6 | | 120 | | | 93 | | | 14,820 | | | | |
| Credit card | 6,673 | | 50 | | 37 | | 76 | | 163 | | | 13 | | | 6,849 | | | | |
Education | 1,654 | | 27 | | 15 | | 36 | | 78 | | (c) | | | 1,732 | | | | |
Other consumer | 4,049 | | 12 | | 9 | | 8 | | 29 | | | 8 | | | 4,086 | | | | |
| Total consumer | 98,263 | | 523 | | 198 | | 281 | | 1,002 | | | 857 | | 465 | | 100,587 | | | | |
| Total | $ | 317,189 | | $ | 645 | | $ | 259 | | $ | 368 | | $ | 1,272 | | | $ | 2,503 | | $ | 465 | | $ | 321,429 | | | | |
| Percentage of total loans | 98.68 | % | 0.20 | % | 0.08 | % | 0.11 | % | 0.40 | % | | 0.78 | % | 0.14 | % | 100.00 | % | | | |
| December 31, 2023 | | | | | | | | | | | | |
| Commercial | | | | | | | | | | | | |
| Commercial and industrial | $ | 176,796 | | $ | 104 | | $ | 45 | | $ | 76 | | $ | 225 | | | $ | 559 | | | $ | 177,580 | | | | |
| Commercial real estate | 34,685 | | 7 | | | | 9 | | 16 | | | 735 | | | 35,436 | | | | |
| Equipment lease financing | 6,480 | | 41 | | 8 | | | 49 | | | 13 | | | 6,542 | | | | |
| Total commercial | 217,961 | | 152 | | 53 | | 85 | | 290 | | | 1,307 | | | 219,558 | | | | |
| Consumer | | | | | | | | | | | | |
| Residential real estate | 46,159 | | 282 | | 101 | | 192 | | 575 | | (c) | 294 | | $ | 516 | | 47,544 | | | | |
| Home equity | 25,533 | | 63 | | 27 | | | 90 | | | 458 | | 69 | | 26,150 | | | | |
Automobile | 14,638 | | 91 | | 20 | | 7 | | 118 | | | 104 | | | 14,860 | | | | |
| Credit card | 6,991 | | 54 | | 39 | | 86 | | 179 | | | 10 | | | 7,180 | | | | |
Education | 1,850 | | 27 | | 19 | | 49 | | 95 | | (c) | | | 1,945 | | | | |
Other consumer | 4,227 | | 16 | | 11 | | 10 | | 37 | | | 7 | | | 4,271 | | | | |
| Total consumer | 99,398 | | 533 | | 217 | | 344 | | 1,094 | | | 873 | | 585 | | 101,950 | | | | |
| Total | $ | 317,359 | | $ | 685 | | $ | 270 | | $ | 429 | | $ | 1,384 | | | $ | 2,180 | | $ | 585 | | $ | 321,508 | | | | |
| Percentage of total loans | 98.71 | % | 0.21 | % | 0.08 | % | 0.13 | % | 0.43 | % | | 0.68 | % | 0.18 | % | 100.00 | % | | | |
(a)Amounts in table represent loans held for investment and do not include any associated ALLL.
(b)The accrued interest associated with our loan portfolio totaled $1.5 billion at both June 30, 2024 and December 31, 2023. 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 $0.2 billion and $0.1 billion at June 30, 2024. Comparable amounts at December 31, 2023 were $0.3 billion and $0.1 billion, respectively.
(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 policy criteria. Given that these loans are not accounted for at amortized cost, they have been excluded from the nonperforming loan population.
(e)Includes unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans totaling $0.9 billion and $1.0 billion at June 30, 2024 and December 31, 2023, respectively.
(f)Collateral dependent loans totaled $1.6 billion and $1.4 billion at June 30, 2024 and December 31, 2023, respectively.
At June 30, 2024, we pledged $49.8 billion of commercial and other loans to the Federal Reserve Bank and $88.8 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, 2023 were $51.3 billion and $89.5 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. 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 substantially all principal and interest are not reported as nonperforming loans and continue to accrue interest. See Note 1 Accounting Policies in our 2023 Form 10-K for additional information on our nonperforming loan and lease policies.
The PNC Financial Services Group, Inc. – Form 10-Q 51
The following table presents our nonperforming assets as of June 30, 2024 and December 31, 2023:
Table 41: Nonperforming Assets
| | | | | | | | | | | | | | | | | |
| Dollars in millions | | June 30, 2024 | | December 31, 2023 | |
| Nonperforming loans | | | | | |
| Commercial | | $ | 1,646 | | | $ | 1,307 | | |
| Consumer (a) | | 857 | | | 873 | | |
| Total nonperforming loans (b) | | 2,503 | | | 2,180 | | |
| OREO and foreclosed assets | | 34 | | | 36 | | |
| Total nonperforming assets | | $ | 2,537 | | | $ | 2,216 | | |
| Nonperforming loans to total loans | | 0.78 | % | | 0.68 | % | |
| Nonperforming assets to total loans, OREO and foreclosed assets | | 0.79 | % | | 0.69 | % | |
| Nonperforming assets to total assets | | 0.46 | % | | 0.39 | % | |
(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 $0.5 billion at both June 30, 2024 and December 31, 2023. This primarily includes loans with a fair value of collateral that exceeds the amortized cost basis.
Additional Credit Quality Indicators by Loan Class
Commercial Loan Classes
See Note 3 Loans and Related Allowance for Credit Losses in our 2023 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.
52 The PNC Financial Services Group, Inc. – Form 10-Q
The following table presents credit quality indicators for our commercial loan classes:
Table 42: Commercial Credit Quality Indicators (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans by Origination Year | | | |
June 30, 2024 In millions | 2024 | | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total |
| Commercial and industrial | | | | | | | | | | |
| Pass Rated | $ | 11,419 | | | $ | 18,080 | | $ | 19,842 | | $ | 6,104 | | $ | 5,190 | | $ | 14,021 | | $ | 92,363 | | $ | 695 | | $ | 167,714 | |
| Criticized | 298 | | | 1,094 | | 2,448 | | 803 | | 189 | | 803 | | 5,361 | | 79 | | 11,075 | |
| Total commercial and industrial loans | 11,717 | | | 19,174 | | 22,290 | | 6,907 | | 5,379 | | 14,824 | | 97,724 | | 774 | | 178,789 | |
| Gross charge-offs (b) | 11 | | (c) | 14 | | 21 | | 18 | | 3 | | 4 | | 42 | | 48 | | 161 | |
| Commercial real estate | | | | | | | | | | |
| Pass Rated | 1,113 | | | 5,125 | | 8,166 | | 2,759 | | 1,761 | | 10,946 | | 420 | | | 30,290 | |
| Criticized | 91 | | | 190 | | 1,632 | | 461 | | 477 | | 2,286 | | 20 | | 51 | | 5,208 | |
| Total commercial real estate loans | 1,204 | | | 5,315 | | 9,798 | | 3,220 | | 2,238 | | 13,232 | | 440 | | 51 | | 35,498 | |
| Gross charge-offs (b) | | | | 5 | | | | 2 | | 1 | | 161 | | | | | | 169 | |
| Equipment lease financing | | | | | | | | | | |
| Pass Rated | 746 | | | 1,392 | | 1,281 | | 591 | | 580 | | 1,590 | | | | | 6,180 | |
| Criticized | 24 | | | 107 | | 85 | | 72 | | 42 | | 45 | | | | 375 | |
| Total equipment lease financing loans | 770 | | | 1,499 | | 1,366 | | 663 | | 622 | | 1,635 | | | | | 6,555 | |
| Gross charge-offs (b) | | | | 5 | | 6 | | 2 | | 2 | | 1 | | | | | | 16 | |
| Total commercial loans | $ | 13,691 | | | $ | 25,988 | | $ | 33,454 | | $ | 10,790 | | $ | 8,239 | | $ | 29,691 | | $ | 98,164 | | $ | 825 | | $ | 220,842 | |
| Total commercial gross charge-offs | $ | 11 | | | $ | 24 | | $ | 27 | | $ | 22 | | $ | 6 | | $ | 166 | | $ | 42 | | $ | 48 | | $ | 346 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans by Origination Year | | | |
December 31, 2023 In millions | 2023 | | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total |
| Commercial and industrial | | | | | | | | | | |
| Pass Rated | $ | 23,019 | | | $ | 26,657 | | $ | 7,562 | | $ | 5,783 | | $ | 4,110 | | $ | 11,982 | | $ | 88,467 | | $ | 573 | | $ | 168,153 | |
| Criticized | 838 | | | 1,781 | | 739 | | 331 | | 281 | | 698 | | 4,708 | | 51 | | 9,427 | |
| Total commercial and industrial loans | 23,857 | | | 28,438 | | 8,301 | | 6,114 | | 4,391 | | 12,680 | | 93,175 | | 624 | | 177,580 | |
| Gross charge-offs (b) | 25 | | (c) | 32 | | 33 | | 8 | | 3 | | 26 | | 105 | | 12 | | 244 | |
| Commercial real estate | | | | | | | | | | |
| Pass Rated | 4,182 | | | 8,571 | | 2,986 | | 2,190 | | 4,887 | | 7,411 | | 383 | | | 30,610 | |
| Criticized | 155 | | | 1,300 | | 455 | | 490 | | 622 | | 1,753 | | 51 | | | 4,826 | |
| Total commercial real estate loans | 4,337 | | | 9,871 | | 3,441 | | 2,680 | | 5,509 | | 9,164 | | 434 | | | 35,436 | |
| Gross charge-offs (b) | | | | | | | | 12 | | 31 | | 137 | | | | | | 180 | |
| Equipment lease financing | | | | | | | | | | |
| Pass Rated | 1,522 | | | 1,424 | | 689 | | 690 | | 452 | | 1,378 | | | | 6,155 | |
| Criticized | 90 | | | 81 | | 81 | | 51 | | 35 | | 49 | | | | 387 | |
| Total equipment lease financing loans | 1,612 | | | 1,505 | | 770 | | 741 | | 487 | | 1,427 | | | | 6,542 | |
| Gross charge-offs (b) | 4 | | | 4 | | 4 | | 4 | | 1 | | 1 | | | | | | 18 | |
| Total commercial loans | $ | 29,806 | | | $ | 39,814 | | $ | 12,512 | | $ | 9,535 | | $ | 10,387 | | $ | 23,271 | | $ | 93,609 | | $ | 624 | | $ | 219,558 | |
| Total commercial gross charge-offs | $ | 29 | | | $ | 36 | | $ | 37 | | $ | 24 | | $ | 35 | | $ | 164 | | $ | 105 | | $ | 12 | | $ | 442 | |
(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, 2024 and December 31, 2023.
(b)Gross charge-offs are presented on a year-to-date basis, as of the period end date.
(c)Includes charge-offs of deposit overdrafts.
Consumer Loan Classes
See Note 3 Loans and Related Allowance for Credit Losses in our 2023 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 53
Residential Real Estate and Home Equity
The following table presents credit quality indicators for our residential real estate and home equity loan classes:
Table 43: Credit Quality Indicators for Residential Real Estate and Home Equity Loan Classes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | |
June 30, 2024 In millions | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total |
| Residential real estate | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than 100% | $ | 5 | | $ | 39 | | $ | 133 | | $ | 68 | | $ | 30 | | $ | 33 | | | | $ | 308 | |
| Greater than or equal to 80% to 100% | 507 | | 838 | | 1,256 | | 740 | | 199 | | 147 | | | | 3,687 | |
| Less than 80% | 976 | | 4,054 | | 8,374 | | 14,236 | | 6,315 | | 8,554 | | | | 42,509 | |
| No LTV available | | | 41 | | | | 11 | | | 3 | | | | 55 | |
| Government insured or guaranteed loans | | | 14 | | 21 | | 15 | | 64 | | 510 | | | | 624 | |
| Total residential real estate loans | $ | 1,488 | | $ | 4,986 | | $ | 9,784 | | $ | 15,070 | | $ | 6,608 | | $ | 9,247 | | | | $ | 47,183 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | $ | 813 | | $ | 3,411 | | $ | 7,691 | | $ | 12,061 | | $ | 4,889 | | $ | 5,190 | | | | $ | 34,055 | |
| 720 to 779 | 601 | | 1,030 | | 1,581 | | 2,160 | | 1,042 | | 1,684 | | | | 8,098 | |
| 660 to 719 | 71 | | 286 | | 399 | | 594 | | 346 | | 827 | | | | 2,523 | |
| Less than 660 | 2 | | 111 | | 84 | | 150 | | 110 | | 733 | | | | 1,190 | |
| No FICO score available | 1 | | 134 | | 8 | | 90 | | 157 | | 303 | | | | 693 | |
| Government insured or guaranteed loans | | | 14 | | 21 | | 15 | | 64 | | 510 | | | | 624 | |
| Total residential real estate loans | $ | 1,488 | | $ | 4,986 | | $ | 9,784 | | $ | 15,070 | | $ | 6,608 | | $ | 9,247 | | | | $ | 47,183 | |
| Gross charge-offs (a) | | | | | | | | | | | $ | 2 | | | | $ | 2 | |
| Home equity (b) | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than 100% | | | | $ | 2 | | $ | 12 | | $ | 17 | | $ | 336 | | $ | 356 | | $ | 723 | |
| Greater than or equal to 80% to 100% | | | | 5 | | 34 | | 32 | | 1,068 | | 1,631 | | 2,770 | |
| Less than 80% | | | | 149 | | 1,773 | | 3,106 | | 6,733 | | 10,663 | | 22,424 | |
| Total home equity loans | | | | $ | 156 | | $ | 1,819 | | $ | 3,155 | | $ | 8,137 | | $ | 12,650 | | $ | 25,917 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | | | | $ | 100 | | $ | 1,209 | | $ | 1,930 | | $ | 4,597 | | $ | 6,203 | | $ | 14,039 | |
| 720 to 779 | | | | 36 | | 383 | | 643 | | 2,179 | | 3,243 | | 6,484 | |
| 660 to 719 | | | | 15 | | 166 | | 320 | | 1,155 | | 1,967 | | 3,623 | |
| Less than 660 | | | | 5 | | 59 | | 255 | | 199 | | 1,188 | | 1,706 | |
| No FICO score available | | | | | | 2 | | 7 | | 7 | | 49 | | 65 | |
| Total home equity loans | | | | $ | 156 | | $ | 1,819 | | $ | 3,155 | | $ | 8,137 | | $ | 12,650 | | $ | 25,917 | |
| Gross charge-offs (a) | | | | | | | | | | | $ | 1 | | $ | 9 | | $ | 9 | | $ | 19 | |
54 The PNC Financial Services Group, Inc. – Form 10-Q
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Continued from previous page) | Term Loans by Origination Year | | | |
December 31, 2023 In millions | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total |
| Residential real estate | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than 100% | $ | 15 | | $ | 139 | | $ | 79 | | $ | 31 | | $ | 10 | | $ | 28 | | | | $ | 302 | |
| Greater than or equal to 80% to 100% | 1,665 | | 1,928 | | 955 | | 221 | | 69 | | 92 | | | | 4,930 | |
| Less than 80% | 3,585 | | 7,977 | | 14,421 | | 6,514 | | 2,154 | | 6,935 | | | | 41,586 | |
| No LTV available | 56 | | | | 13 | | | | | | 4 | | | | 73 | |
| Government insured or guaranteed loans | 14 | | 20 | | 16 | | 66 | | 37 | | 500 | | | | 653 | |
| Total residential real estate loans | $ | 5,335 | | $ | 10,064 | | $ | 15,484 | | $ | 6,832 | | $ | 2,270 | | $ | 7,559 | | | | $ | 47,544 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | $ | 3,206 | | $ | 7,797 | | $ | 12,197 | | $ | 5,035 | | $ | 1,492 | | $ | 4,004 | | | | $ | 33,731 | |
| 720 to 779 | 1,482 | | 1,659 | | 2,389 | | 1,107 | | 432 | | 1,388 | | | | 8,457 | |
| 660 to 719 | 400 | | 508 | | 657 | | 334 | | 171 | | 721 | | | | 2,791 | |
| Less than 660 | 93 | | 71 | | 133 | | 122 | | 82 | | 680 | | | | 1,181 | |
| No FICO score available | 140 | | 9 | | 92 | | 168 | | 56 | | 266 | | | | 731 | |
| Government insured or guaranteed loans | 14 | | 20 | | 16 | | 66 | | 37 | | 500 | | | | 653 | |
| Total residential real estate loans | $ | 5,335 | | $ | 10,064 | | $ | 15,484 | | $ | 6,832 | | $ | 2,270 | | $ | 7,559 | | | | $ | 47,544 | |
| Gross charge-offs (a) | | | $ | 2 | | $ | 1 | | $ | 1 | | | | $ | 4 | | | | $ | 8 | |
| Home equity (b) | | | | | | | | | |
| Current estimated LTV ratios | | | | | | | | | |
| Greater than 100% | | | $ | 1 | | $ | 12 | | $ | 6 | | $ | 14 | | $ | 306 | | $ | 309 | | $ | 648 | |
| Greater than or equal to 80% to 100% | | | 4 | | 40 | | 17 | | 22 | | 1,116 | | 1,743 | | 2,942 | |
| Less than 80% | | | 157 | | 1,866 | | 845 | | 2,556 | | 6,843 | | 10,293 | | 22,560 | |
| Total home equity loans | | | | $ | 162 | | $ | 1,918 | | $ | 868 | | $ | 2,592 | | $ | 8,265 | | $ | 12,345 | | $ | 26,150 | |
| Updated FICO scores | | | | | | | | | |
| Greater than or equal to 780 | | | $ | 102 | | $ | 1,254 | | $ | 489 | | $ | 1,605 | | $ | 4,604 | | $ | 6,083 | | $ | 14,137 | |
| 720 to 779 | | | 38 | | 423 | | 216 | | 488 | | 2,222 | | 3,225 | | 6,612 | |
| 660 to 719 | | | 17 | | 174 | | 110 | | 271 | | 1,207 | | 1,894 | | 3,673 | |
| Less than 660 | | | 5 | | 65 | | 52 | | 220 | | 223 | | 1,089 | | 1,654 | |
| No FICO score available | | | | | 2 | | 1 | | 8 | | 9 | | 54 | | 74 | |
| Total home equity loans | | | | $ | 162 | | $ | 1,918 | | $ | 868 | | $ | 2,592 | | $ | 8,265 | | $ | 12,345 | | $ | 26,150 | |
| Gross charge-offs (a) | | | | | | | | | | | $ | 4 | | $ | 7 | | $ | 10 | | $ | 21 | |
(a)Gross charge-offs are presented on a year-to-date basis, as of the period end date.
(b)Beginning January 1, 2022, new originations consist of revolving Home Equity Lines of Credit.
The PNC Financial Services Group, Inc. – Form 10-Q 55
Automobile, Credit Card, Education and Other Consumer
The following table presents credit quality indicators for our automobile, credit card, education and other consumer loan classes:
Table 44: Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | | |
June 30, 2024 In millions | 2024 | | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total |
| Automobile | | | | | | | | | | |
| Updated FICO scores | | | | | | | | | | |
| Greater than or equal to 780 | $ | 1,663 | | | $ | 2,086 | | $ | 1,387 | | $ | 1,171 | | $ | 377 | | $ | 259 | | | | $ | 6,943 | |
| 720 to 779 | 1,000 | | | 1,496 | | 842 | | 578 | | 202 | | 184 | | | | 4,302 | |
| 660 to 719 | 469 | | | 860 | | 473 | | 307 | | 129 | | 144 | | | | 2,382 | |
| Less than 660 | 67 | | | 352 | | 252 | | 209 | | 119 | | 194 | | | | 1,193 | |
| | | | | | | | | | |
| Total automobile loans | $ | 3,199 | | | $ | 4,794 | | $ | 2,954 | | $ | 2,265 | | $ | 827 | | $ | 781 | | | | $ | 14,820 | |
| Gross charge-offs (a) | | | | $ | 23 | | $ | 13 | | $ | 9 | | $ | 6 | | $ | 13 | | | | $ | 64 | |
| Credit card | | | | | | | | | | |
| Updated FICO scores | | | | | | | | | | |
| Greater than or equal to 780 | | | | | | | | $ | 1,975 | | $ | 1 | | $ | 1,976 | |
| 720 to 779 | | | | | | | | 1,885 | | 4 | | 1,889 | |
| 660 to 719 | | | | | | | | 1,857 | | 14 | | 1,871 | |
| Less than 660 | | | | | | | | 952 | | 53 | | 1,005 | |
| No FICO score available or required (b) | | | | | | | | 105 | | 3 | | 108 | |
| Total credit card loans | | | | | | | | $ | 6,774 | | $ | 75 | | $ | 6,849 | |
| Gross charge-offs (a) | | | | | | | | $ | 164 | | $ | 18 | | $ | 182 | |
| Education | | | | | | | | | | |
| Updated FICO scores | | | | | | | | | | |
| Greater than or equal to 780 | $ | 7 | | | $ | 65 | | $ | 87 | | $ | 42 | | $ | 37 | | $ | 347 | | | | $ | 585 | |
| 720 to 779 | 7 | | | 41 | | 41 | | 22 | | 16 | | 131 | | | | 258 | |
| 660 to 719 | 4 | | | 14 | | 15 | | 7 | | 5 | | 55 | | | | 100 | |
| Less than 660 | 1 | | | 3 | | 3 | | 1 | | 1 | | 22 | | | | 31 | |
| No FICO score available or required (b) | 3 | | | 6 | | 4 | | 3 | | 1 | | 1 | | | | 18 | |
| Total loans using FICO credit metric | 22 | | | 129 | | 150 | | 75 | | 60 | | 556 | | | | 992 | |
| Other internal credit metrics | | | | | | | 740 | | | | 740 | |
| Total education loans | $ | 22 | | | $ | 129 | | $ | 150 | | $ | 75 | | $ | 60 | | $ | 1,296 | | | | $ | 1,732 | |
| Gross charge-offs (a) | | | | | | $ | 1 | | | | $ | 1 | | $ | 7 | | | | $ | 9 | |
| Other consumer | | | | | | | | | | |
| Updated FICO scores | | | | | | | | | | |
| Greater than or equal to 780 | $ | 123 | | | $ | 190 | | $ | 90 | | $ | 30 | | $ | 11 | | $ | 12 | | $ | 37 | | $ | 1 | | $ | 494 | |
| 720 to 779 | 156 | | | 205 | | 109 | | 36 | | 14 | | 13 | | 75 | | 1 | | 609 | |
| 660 to 719 | 101 | | | 114 | | 104 | | 37 | | 16 | | 14 | | 82 | | 1 | | 469 | |
| Less than 660 | 2 | | | 30 | | 45 | | 22 | | 11 | | 10 | | 41 | | 1 | | 162 | |
| | | | | | | | | | |
| Total loans using FICO credit metric | 382 | | | 539 | | 348 | | 125 | | 52 | | 49 | | 235 | | 4 | | 1,734 | |
| Other internal credit metrics | 7 | | | 10 | | 95 | | 18 | | 13 | | 94 | | 2,105 | | 10 | | 2,352 | |
| Total other consumer loans | $ | 389 | | | $ | 549 | | $ | 443 | | $ | 143 | | $ | 65 | | $ | 143 | | $ | 2,340 | | $ | 14 | | $ | 4,086 | |
| Gross charge-offs (a) | $ | 34 | | (c) | $ | 12 | | $ | 13 | | $ | 8 | | $ | 4 | | $ | 6 | | $ | 6 | | | | $ | 83 | |
56 The PNC Financial Services Group, Inc. – Form 10-Q
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Continued from previous page) | Term Loans by Origination Year | | | |
December 31, 2023 In millions | 2023 | | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total |
| Automobile | | | | | | | | | | |
| Updated FICO Scores | | | | | | | | | | |
| Greater than or equal to 780 | $ | 2,722 | | | $ | 1,650 | | $ | 1,483 | | $ | 535 | | $ | 368 | | $ | 88 | | | | $ | 6,846 | |
| 720 to 779 | 1,797 | | | 1,104 | | 778 | | 301 | | 250 | | 80 | | | | 4,310 | |
| 660 to 719 | 1,014 | | | 604 | | 408 | | 186 | | 186 | | 70 | | | | 2,468 | |
| Less than 660 | 264 | | | 272 | | 243 | | 152 | | 200 | | 105 | | | | 1,236 | |
| Total automobile loans | $ | 5,797 | | | $ | 3,630 | | $ | 2,912 | | $ | 1,174 | | $ | 1,004 | | $ | 343 | | | | $ | 14,860 | |
| Gross charge-offs (a) | $ | 8 | | | $ | 24 | | $ | 22 | | $ | 17 | | $ | 30 | | $ | 20 | | | | | | $ | 121 | |
| Credit card | | | | | | | | | | |
| Updated FICO scores | | | | | | | | | | |
| Greater than or equal to 780 | | | | | | | | $ | 2,017 | | $ | 1 | | $ | 2,018 | |
| 720 to 779 | | | | | | | | 1,976 | | 4 | | 1,980 | |
| 660 to 719 | | | | | | | | 1,979 | | 13 | | 1,992 | |
| Less than 660 | | | | | | | | 1,036 | | 48 | | 1,084 | |
| No FICO score available or required (b) | | | | | | | | 103 | | 3 | | 106 | |
| Total credit card loans | | | | | | | | $ | 7,111 | | $ | 69 | | $ | 7,180 | |
| Gross charge-offs (a) | | | | | | | | | | | | | | $ | 290 | | $ | 29 | | $ | 319 | |
| Education | | | | | | | | | | |
| Updated FICO scores | | | | | | | | | | |
| Greater than or equal to 780 | $ | 35 | | | $ | 88 | | $ | 45 | | $ | 40 | | $ | 51 | | $ | 331 | | | | $ | 590 | |
| 720 to 779 | 32 | | | 47 | | 24 | | 19 | | 24 | | 131 | | | | 277 | |
| 660 to 719 | 20 | | | 17 | | 8 | | 6 | | 8 | | 54 | | | | 113 | |
| Less than 660 | 4 | | | 3 | | 2 | | 1 | | 2 | | 21 | | | | 33 | |
| No FICO score available or required (b) | 15 | | | 5 | | 4 | | 2 | | | 1 | | | | 27 | |
| Total loans using FICO credit metric | 106 | | | 160 | | 83 | | 68 | | 85 | | 538 | | | | 1,040 | |
| Other internal credit metrics | | | | | | | 905 | | | | 905 | |
| Total education loans | $ | 106 | | | $ | 160 | | $ | 83 | | $ | 68 | | $ | 85 | | $ | 1,443 | | | | $ | 1,945 | |
| Gross charge-offs (a) | | | | | | $ | 1 | | $ | 1 | | $ | 2 | | $ | 13 | | | | | | $ | 17 | |
| Other consumer | | | | | | | | | | |
| Updated FICO scores | | | | | | | | | | |
| Greater than or equal to 780 | $ | 241 | | | $ | 127 | | $ | 47 | | $ | 21 | | $ | 14 | | $ | 11 | | $ | 39 | | $ | 1 | | $ | 501 | |
| 720 to 779 | 286 | | | 157 | | 54 | | 26 | | 17 | | 11 | | 80 | | 1 | | 632 | |
| 660 to 719 | 147 | | | 140 | | 57 | | 27 | | 21 | | 11 | | 87 | | 2 | | 492 | |
| Less than 660 | 19 | | | 52 | | 31 | | 17 | | 14 | | 8 | | 43 | | 1 | | 185 | |
| Total loans using FICO credit metric | 693 | | | 476 | | 189 | | 91 | | 66 | | 41 | | 249 | | 5 | | 1,810 | |
| Other internal credit metrics | 19 | | | 97 | | 33 | | 48 | | 71 | | 34 | | 2,149 | | 10 | | 2,461 | |
| Total other consumer loans | $ | 712 | | | $ | 573 | | $ | 222 | | $ | 139 | | $ | 137 | | $ | 75 | | $ | 2,398 | | $ | 15 | | $ | 4,271 | |
| Gross charge-offs (a) | $ | 75 | | (c) | $ | 23 | | $ | 18 | | $ | 14 | | $ | 14 | | $ | 8 | | $ | 11 | | $ | 1 | | $ | 164 | |
(a)Gross charge-offs are presented on a year-to-date basis, as of the period end date.
(b)Loans where FICO scores are not available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.
(c)Includes charge-offs of deposit overdrafts.
The PNC Financial Services Group, Inc. – Form 10-Q 57
Loan Modifications to Borrowers Experiencing Financial Difficulty
Loan modifications to borrowers experiencing financial difficulty (FDMs) result from our loss mitigation activities and include principal forgiveness, interest rate reductions, term extensions, payment delays, repayment plans or combinations thereof. See Note 1 Accounting Policies in our 2023 Form 10-K for additional information on FDMs.
The following table presents the amortized cost basis, as of the period end date, of FDMs granted during the three and six months ended June 30, 2024 and 2023:
Table 45: Loan Modifications Granted to Borrowers Experiencing Financial Difficulty (a) (b)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2024 Dollars in millions | Interest Rate Reduction | Term Extension | Payment Delay | Repayment Plan | Payment Delay and Term Extension | Interest Rate Reduction and Term Extension | | Other (c) | Total | % of Loan Class | |
| Commercial | | | | | | | | | | | |
| Commercial and industrial | $ | 18 | | $ | 372 | | $ | 94 | | | $ | 65 | | $ | 102 | | | $ | 67 | | $ | 718 | | 0.40 | % | |
| Commercial real estate | | 454 | | | | | 84 | | | | | | 538 | | 1.52 | % | |
| | | | | | | | | | | |
| Total commercial | 18 | | 826 | | 94 | | | 149 | | 102 | | | 67 | | 1,256 | | 0.57 | % | |
| Consumer | | | | | | | | | | | |
| Residential real estate | | | | 30 | | | | 1 | | | 5 | | 36 | | 0.08 | % | |
| Home equity | | | 5 | | $ | 1 | | | | | | 6 | | 12 | | 0.05 | % | |
| | | | | | | | | | | |
| Credit card | | | | 21 | | | | | | 21 | | 0.31 | % | |
| Education | | 1 | | | | | | | | 1 | | 0.06 | % | |
| | | | | | | | | | | |
| Total consumer | | | 1 | | 35 | | 22 | | | 1 | | | 11 | | 70 | | 0.07 | % | |
| Total | $ | 18 | | $ | 827 | | $ | 129 | | $ | 22 | | $ | 149 | | $ | 103 | | | $ | 78 | | $ | 1,326 | | 0.41 | % | |
Three months ended June 30, 2023 Dollars in millions | | | | | | | | | | | |
| Commercial | | | | | | | | | | | |
| Commercial and industrial | | $ | 366 | | $ | 59 | | | | | | $ | 87 | | $ | 512 | | 0.29 | % | |
| Commercial real estate | | 228 | | | | | | | 60 | | 288 | | 0.80 | % | |
| | | | | | | | | | | |
| Total commercial | | | 594 | | 59 | | | | | | | | | 147 | | 800 | | 0.36 | % | |
| Consumer | | | | | | | | | | | | |
| Residential real estate | $ | 1 | | | 35 | | | | $ | 1 | | | 2 | | 39 | | 0.08 | % | |
| Home equity | | | 3 | | $ | 2 | | | | | 5 | | 10 | | 0.04 | % | |
| | | | | | | | | | | |
| Credit card | | | | 18 | | | | | | 18 | | 0.25 | % | |
| Education | | 1 | | | | | | | | 1 | | 0.05 | % | |
| Other consumer | | | | 1 | | | | | 1 | 0.02 | % | |
| Total consumer | 1 | | 1 | | 38 | | 21 | | | | 1 | | | 7 | | 69 | | 0.07 | % | |
| Total | $ | 1 | | $ | 595 | | $ | 97 | | $ | 21 | | | | $ | 1 | | | $ | 154 | | $ | 869 | | 0.27 | % | |
58 The PNC Financial Services Group, Inc. – Form 10-Q
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2024 Dollars in millions | Principal Forgiveness | Interest Rate Reduction | Term Extension | Payment Delay | Repayment Plan | Payment Delay and Term Extension | Interest Rate Reduction and Term Extension | Interest Rate Reduction and Payment Delay | Other (c) | Total | % of Loan Class | |
| Commercial | | | | | | | | | | | | |
| Commercial and industrial | | $ | 18 | | $ | 720 | | $ | 83 | | | $ | 109 | | $ | 112 | | $ | 15 | | $ | 97 | | $ | 1,154 | | 0.65 | % | |
| Commercial real estate | | | 779 | | 25 | | | 148 | | | | | | 952 | | 2.68 | % | |
| | | | | | | | | | | | |
| Total commercial | | 18 | | 1,499 | | 108 | | | 257 | | 112 | | 15 | | 97 | | 2,106 | | 0.95 | % | |
| Consumer | | | | | | | | | | | | |
| Residential real estate | | | | | 55 | | | | 1 | | | 8 | | 64 | | 0.14 | % | |
| Home equity | | | | 8 | | $ | 2 | | | | | | 10 | | 20 | | 0.08 | % | |
| | | | | | | | | | | | |
| Credit card | | | | | 39 | | | | | | 39 | | 0.57 | % | |
| Education | | | 3 | | | | | | | | 3 | | 0.17 | % | |
| Other consumer | | | | | 1 | | | | | 1 | 0.02 | % | |
| Total consumer | | | | 3 | | 63 | | 42 | | | 1 | | | 18 | | 127 | | 0.13 | % | |
| Total | | $ | 18 | | $ | 1,502 | | $ | 171 | | $ | 42 | | $ | 257 | | $ | 113 | | $ | 15 | | $ | 115 | | $ | 2,233 | | 0.69 | % | |
Six months ended June 30, 2023 Dollars in millions | | | | | | | | | | | | |
| Commercial | | | | | | | | | | | | |
| Commercial and industrial | $ | 1 | | | $ | 432 | | $ | 72 | | | | | | $ | 91 | | $ | 596 | | 0.34 | % | |
| Commercial real estate | | | 493 | | | | | | | 60 | | 553 | | 1.54 | % | |
| | | | | | | | | | | | |
| Total commercial | 1 | | | | 925 | | 72 | | | | | | | | | | 151 | | 1,149 | | 0.52 | % | |
| Consumer | | | | | | | | | | | | |
| Residential real estate | | $ | 1 | | | 72 | | | | $ | 2 | | | 3 | | 78 | | 0.17 | % | |
| Home equity | | | | 4 | | $ | 5 | | | | | 6 | | 15 | | 0.06 | % | |
| | | | | | | | | | | | |
| Credit card | | | | | 30 | | | | | | 30 | | 0.42 | % | |
| Education | | | 2 | | | | | | | | 2 | | 0.10 | % | |
| Other consumer | | | | | 1 | | | | | | 1 | | 0.02 | % | |
| Total consumer | | | 1 | | 2 | | 76 | | 36 | | | | 2 | | | | 9 | | 126 | | 0.12 | % | |
| Total | $ | 1 | | $ | 1 | | $ | 927 | | $ | 148 | | $ | 36 | | | | $ | 2 | | | | $ | 160 | | $ | 1,275 | | 0.40 | % | |
(a)The unfunded lending related commitments on FDMs granted during the six months ended June 30, 2024 and 2023 were $0.3 billion and $0.1 billion, respectively.
(b)Excludes the amortized cost basis of modified loans that were paid off, charged off or otherwise liquidated as of the period end date.
(c)Represents all other modifications, and includes trial modifications and loans where we have received notification that a borrower has filed for Chapter 7 bankruptcy relief, but specific instructions as to the terms of the relief have not been formally ruled upon by the court.
The PNC Financial Services Group, Inc. – Form 10-Q 59
Table 46 presents the weighted average financial effect of FDMs granted during the three and six months ended June 30, 2024 and 2023.
Table 46: Financial Effect of FDMs (a)
| | | | | | | | | | | | | | | | | |
Three months ended June 30, 2024 Dollars in millions | | Amortized cost basis (b) | | Financial Effect | |
| Term Extension | | | | | |
| Commercial and industrial | | $539 | | Extended contractual term by 15 months. | |
| Commercial real estate | | $538 | | Extended contractual term by 14 months. | |
| | | | | |
| Residential real estate | | $1 | | Extended contractual term by 105 months. | |
| | | | | |
| | | | | |
| Education | | $1 | | Extended contractual term by 16 months. | |
| Interest Rate Reduction | | | | | |
| Commercial and industrial | | $120 | | Reduced contractual interest rate by 1.12%. | |
| | | | | |
| | | | | |
| Residential real estate | | $1 | | Reduced contractual interest rate by 1.30%. | |
| | | | | |
| | | | | |
| | | | | |
| Payment Delay | | | | | |
| Commercial and industrial | | $159 | | Provided 5 months of payment deferral. | |
| Commercial real estate | | $84 | | Provided 23 months of payment deferral. | |
| | | | | |
| Residential real estate | | $30 | | Provided 10 months of payment deferral. | |
| Home equity | | $5 | | Provided 5 months of payment deferral. | |
| | | | | |
| | | | | |
| | | | | |
Three months ended June 30, 2023 Dollars in millions | | Amortized cost basis (b) | | Financial Effect | |
| | | | | |
| | | | | |
| Term Extension | | | | | |
| Commercial and industrial | | $366 | | Extended contractual term by 9 months. | |
| Commercial real estate | | $228 | | Extended contractual term by 20 months. | |
| | | | | |
| Residential real estate | | $1 | | Extended contractual term by 123 months. | |
| | | | | |
| | | | | |
| Education | | $1 | | Extended contractual term by 19 months. | |
| Interest Rate Reduction | | | | | |
| | | | | |
| | | | | |
| | | | | |
| Residential real estate | | $2 | | Reduced contractual interest rate by 1.17%. | |
| | | | | |
| | | | | |
| | | | | |
| Payment Delay | | | | | |
| Commercial and industrial | | $59 | | Provided 10 months of payment deferral. | |
| | | | | |
| | | | | |
| Residential real estate | | $35 | | Provided 8 months of payment deferral. | |
| Home equity | | $3 | | Provided 3 months of payment deferral. | |
| | | | | |
60 The PNC Financial Services Group, Inc. – Form 10-Q
| | | | | | | | | | | | | | | | | |
Six months ended June 30, 2024 Dollars in millions | | Amortized cost basis (b) | | Financial Effect | |
| Term Extension | | | | | |
| Commercial and industrial | | $941 | | Extended contractual term by 14 months. | |
| Commercial real estate | | $927 | | Extended contractual term by 14 months. | |
| Residential real estate | | $1 | | Extended contractual term by 98 months. | |
| Education | | $3 | | Extended contractual term by 12 months. | |
| Interest Rate Reduction | | | | | |
| Commercial and industrial | | $145 | | Reduced contractual interest rate by 1.64%. | |
| Residential real estate | | $1 | | Reduced contractual interest rate by 1.15%. | |
| Payment Delay | | | | | |
| Commercial and industrial | | $207 | | Provided 7 months of payment deferral. | |
| Commercial real estate | | $173 | | Provided 9 months of payment deferral. | |
| Residential real estate | | $55 | | Provided 9 months of payment deferral. | |
| Home equity | | $8 | | Provided 4 months of payment deferral. | |
| | | | | |
Six months ended June 30, 2023 Dollars in millions | | Amortized cost basis (b) | | Financial Effect | |
| Principal Forgiveness | | | | | |
| Commercial and industrial | | $1 | (c) | Forgave $2 million of principal balances. | |
| Term Extension | | | | | |
| Commercial and industrial | | $432 | | Extended contractual term by 10 months. | |
| Commercial real estate | | $493 | | Extended contractual term by 17 months. | |
| | | | | |
| Residential real estate | | $2 | | Extended contractual term by 111 months. | |
| | | | | |
| | | | | |
| Education | | $2 | | Extended contractual term by 17 months. | |
| Interest Rate Reduction | | | | | |
| | | | | |
| | | | | |
| | | | | |
| Residential real estate | | $3 | | Reduced contractual interest rate by 1.34%. | |
| | | | | |
| | | | | |
| | | | | |
| Payment Delay | | | | | |
| Commercial and industrial | | $72 | | Provided 6 months of payment deferral. | |
| | | | | |
| | | | | |
| Residential real estate | | $72 | | Provided 8 months of payment deferral. | |
| Home equity | | $4 | | Provided 4 months of payment deferral. | |
| | | | | |
| | | | | |
(a)Excludes the financial effects of modifications for loans that were paid off, charged off or otherwise liquidated as of the period end date.
(b)The amortized cost basis presented in Table 46 includes combination modification categories in addition to the standalone modification categories presented in Table 45. Primarily due to this reason, the amortized cost basis presented in Table 46 may not agree to the amortized cost basis presented alongside the standalone modification categories in Table 45. Amortized cost basis is as of the period end date.
(c)Amounts are recorded as charge-offs.
Repayment plans are excluded from Table 46. The terms of these programs, which are offered for certain consumer products, are as follows:
•Credit card and unsecured lines of credit
•Short-term programs are granted for periods of 6 and 12 months. These programs are structurally similar such that the interest rate is reduced to a standard rate of 4.99% and the minimum payment percentage is adjusted to 1.90% of the outstanding balance. At the end of the 6 or 12 months, the borrower is returned to the original contractual interest rate and minimum payment amount specified in the original lending agreement.
•Fully-amortized repayment plans are also granted, the most common of which being a 60 month program. In this program, we convert the borrower’s drawn and unpaid balances into a fully-amortized repayment plan consisting of an interest rate of 4.99% and an adjusted minimum payment percentage of 1.90% of the outstanding balance. This fully-amortized program is designed in a manner that allows the drawn and unpaid amounts to be recaptured at the end of the 60 months.
•Home equity loans and lines of credit
•Fixed payment plan programs establish a modified monthly payment that is informed by the borrower’s financial situation and the current market environment at the time of modification, among other factors. As such, we may change the borrower’s interest rate, modify the term of the loan, and/or defer payment to arrive at the modified monthly payment. Each of the aforementioned terms may increase or decrease, and may vary from loan to loan, based on the individual loan and borrower characteristics.
The PNC Financial Services Group, Inc. – Form 10-Q 61
After we modify a loan, we continue to track its performance under its most recent modified terms. The following table presents the performance, as of the period end date, of FDMs granted during the twelve months preceding June 30, 2024.
Table 47: Payment Performance of FDMs Modified in the Last 12 Months (a) (b)
| | | | | | | | | | | | | | | | | | | | |
Twelve months ended June 30, 2024 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 | Nonperforming
Loans | Total |
| Commercial | | | | | | |
| Commercial and industrial | $ | 1,318 | | $ | 1 | | $ | 8 | | | | $ | 235 | | $ | 1,562 | |
| Commercial real estate | 978 | | | | | | | | 433 | | 1,411 | |
| | | | | | |
| Total commercial | 2,296 | | 1 | | 8 | | | | 668 | | 2,973 | |
| Consumer | | | | | | | |
| Residential real estate | 9 | | 1 | | | | $ | 1 | | 86 | | 97 | |
| Home equity | 3 | | | | | | | | 29 | | 32 | |
| | | | | | |
| Credit card | 45 | | 4 | | 4 | | 7 | | 1 | | 61 | |
| Education | 6 | | | | | | | | | | 6 | |
| Other consumer | 1 | | | | | | | | 1 | | 2 | |
| Total consumer | 64 | | 5 | | 4 | | 8 | | 117 | | 198 | |
| Total | $ | 2,360 | | $ | 6 | | $ | 12 | | $ | 8 | | $ | 785 | | $ | 3,171 | |
(a)Represents amortized cost basis.
(b)Loans in our Payment Delay category are reported as past due in accordance with their contractual terms. Once contractually modified, these loans are reported as past due in accordance with their restructured terms.
The following table presents the performance as of June 30, 2023 for FDMs granted since January 1, 2023:
Table 48: Payment Performance of FDMs (a) (b)
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2023 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 | Nonperforming
Loans | Total |
| Commercial | | | | | | |
| Commercial and industrial | $ | 494 | | | | $ | 4 | | $ | 1 | | $ | 97 | | $ | 596 | |
| Commercial real estate | 520 | | | | | | | | 33 | | 553 | |
| | | | | | |
| Total commercial | 1,014 | | | | 4 | | 1 | | 130 | | 1,149 | |
| Consumer | | | | | | | |
| Residential real estate | 1 | | | | | | | | 77 | | 78 | |
| Home equity | | | | | | | | | 15 | | 15 | |
| | | | | | |
| Credit card | 20 | | $ | 3 | | 3 | | 4 | | | | 30 | |
| Education | 2 | | | | | | | | | | 2 | |
| Other consumer | | | | | | | | | 1 | | 1 | |
| Total consumer | 23 | | 3 | | 3 | | 4 | | 93 | | 126 | |
| Total | $ | 1,037 | | $ | 3 | | $ | 7 | | $ | 5 | | $ | 223 | | $ | 1,275 | |
(a)Represents amortized cost basis.
(b)Loans in our Payment Delay category are reported as past due in accordance with their contractual terms. Once contractually modified, these loans are reported as past due in accordance with their restructured terms.
62 The PNC Financial Services Group, Inc. – Form 10-Q
We generally consider FDMs to have subsequently defaulted when they become 60 days past due after the most recent date the loan
was modified. The following table presents loans that were both (i) classified as FDMs, and (ii) subsequently defaulted during the period.
Table 49: Subsequently Defaulted FDMs (a)
| | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2024 Dollars in millions | Term Extension | Payment Delay | Repayment Plan | Payment Delay/Term Extension | All Other Modifications (b) | Total |
| Commercial | | | | | | |
| Commercial and industrial | $ | 14 | | $ | 1 | | | | | $ | 15 | |
| Commercial real estate | | 32 | | | $ | 37 | | | 69 | |
| | | | | | |
| Total commercial | 14 | | 33 | | | | 37 | | | | 84 | |
| Consumer | | | | | | | |
| Residential real estate | | 6 | | | | $ | 1 | | 7 | |
| Home equity | | 1 | | | | 3 | | 4 | |
| | | | | | |
| Credit card | | | $ | 7 | | | | 7 | |
| | | | | | |
| | | | | | |
| Total consumer | | | 7 | | 7 | | | | 4 | | 18 | |
| Total | $ | 14 | | $ | 40 | | $ | 7 | | $ | 37 | | $ | 4 | | $ | 102 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2024 Dollars in millions | Term Extension | Payment Delay | Repayment Plan | Payment Delay/Term Extension | All Other Modifications (b) | Total |
| Commercial | | | | | | |
| Commercial and industrial | $ | 26 | | $ | 9 | | | | | $ | 35 | |
| Commercial real estate | 1 | | 33 | | | $ | 37 | | | 71 | |
| | | | | | |
| Total commercial | 27 | | 42 | | | | 37 | | | | 106 | |
| Consumer | | | | | | | |
| Residential real estate | | 19 | | | | $ | 2 | | 21 | |
| Home equity | | 1 | | $ | 1 | | | 5 | | 7 | |
| | | | | | |
| Credit card | | | 16 | | | | 16 | |
| | | | | | |
| | | | | | |
| Total consumer | | | 20 | | 17 | | | | 7 | | 44 | |
| Total | $ | 27 | | $ | 62 | | $ | 17 | | $ | 37 | | $ | 7 | | $ | 150 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(a)Represents amortized cost basis.
(b)Includes the following modification categories: interest rate reduction, combinations of interest rate reduction/payment delay and interest rate reduction/term extension and other.
Subsequently defaulted loans during the three and six months ended June 30, 2023 were $46 million and $48 million, respectively.
The PNC Financial Services Group, Inc. – Form 10-Q 63
Allowance for Credit Losses
We maintain the ACL related to loans at levels that we believe to be appropriate to absorb expected credit losses in the portfolios as of the balance sheet date. See Note 1 Accounting Policies in our 2023 Form 10-K for a discussion of the methodologies used to determine this allowance. A rollforward of the ACL related to loans follows:
Table 50: Rollforward of Allowance for Credit Losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30 | | | Six months ended June 30 |
| 2024 | 2023 | | | 2024 | 2023 |
| In millions | Commercial | Consumer | Total | Commercial | Consumer | Total | | | Commercial | Consumer | Total | Commercial | Consumer | Total |
| Allowance for loan and lease losses | | | | | | | | | | | |
| Beginning balance | $ | 3,217 | | $ | 1,476 | | $ | 4,693 | | $ | 3,046 | | $ | 1,695 | | $ | 4,741 | | | | $ | 3,259 | | $ | 1,532 | | $ | 4,791 | | $ | 3,114 | | $ | 1,627 | | $ | 4,741 | |
| Adoption of ASU 2022-02 (a) | | | | | | | | | | | | | | | | (35) | | (35) | |
| Beginning balance, adjusted | 3,217 | | 1,476 | | 4,693 | | 3,046 | | 1,695 | | 4,741 | | | | 3,259 | | 1,532 | | 4,791 | | 3,114 | | 1,592 | | 4,706 | |
| Charge-offs | (198) | | (177) | | (375) | | (135) | | (158) | | (293) | | | | (346) | | (359) | | (705) | | (255) | | (320) | | (575) | |
| Recoveries | 52 | | 61 | | 113 | | 36 | | 63 | | 99 | | | | 75 | | 125 | | 200 | | 61 | | 125 | | 186 | |
| Net (charge-offs) | (146) | | (116) | | (262) | | (99) | | (95) | | (194) | | | | (271) | | (234) | | (505) | | (194) | | (195) | | (389) | |
Provision for (recapture of) credit losses | 172 | | 32 | | 204 | | 195 | | (6) | | 189 | | | | 257 | | 94 | | 351 | | 220 | | 198 | | 418 | |
| Other | | | 1 | | 1 | | | 1 | | 1 | | | | (2) | | 1 | | (1) | | 2 | | | 2 | |
| Ending balance | $ | 3,243 | | $ | 1,393 | | $ | 4,636 | | $ | 3,142 | | $ | 1,595 | | $ | 4,737 | | | | $ | 3,243 | | $ | 1,393 | | $ | 4,636 | | $ | 3,142 | | $ | 1,595 | | $ | 4,737 | |
| Allowance for unfunded lending related commitments (b) | | | | | | | | | | | |
| Beginning balance | $ | 528 | | $ | 144 | | $ | 672 | | $ | 560 | | $ | 112 | | $ | 672 | | | | $ | 545 | | $ | 118 | | $ | 663 | | $ | 613 | | $ | 81 | | $ | 694 | |
| Provision for (recapture of) credit losses | 53 | | (8) | | 45 | | (5) | | (4) | | (9) | | | | 36 | | 18 | | 54 | | (58) | | 27 | | (31) | |
| Ending balance | $ | 581 | | $ | 136 | | $ | 717 | | $ | 555 | | $ | 108 | | $ | 663 | | | | $ | 581 | | $ | 136 | | $ | 717 | | $ | 555 | | $ | 108 | | $ | 663 | |
Allowance for credit losses at June 30 (c) | $ | 3,824 | | $ | 1,529 | | $ | 5,353 | | $ | 3,697 | | $ | 1,703 | | $ | 5,400 | | | | $ | 3,824 | | $ | 1,529 | | $ | 5,353 | | $ | 3,697 | | $ | 1,703 | | $ | 5,400 | |
(a)Represents the impact of adopting ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023. As a result of adoption, we eliminated the accounting guidance for TDRs, including the use of a discounted cash flow approach to measure the allowance for TDRs.
(b)See Note 8 Commitments for additional information about the underlying commitments related to this allowance.
(c)Represents the ALLL plus allowance for unfunded lending related commitments and excludes allowances for investment securities and other financial assets, which together totaled $112 million and $171 million at June 30, 2024 and 2023, respectively.
The ACL related to loans totaled $5.4 billion at June 30, 2024 and $5.5 billion at December 31, 2023. The reserve change was driven by improved macroeconomic factors as well as portfolio activity.
NOTE 4 LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES
Loan Sale and Servicing Activities
As more fully described in Note 4 Loan Sale and Servicing Activities and Variable Interest Entities in our 2023 Form 10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement in the FNMA, FHLMC and GNMA securitizations, Non-agency securitizations and loan sale transactions generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization SPEs.
We earn servicing and other ancillary fees for our role as servicer and, depending on the contractual terms of the servicing arrangement, we can be terminated as servicer with or without cause. At the consummation date of each type of loan transfer where we retain the servicing, we recognize a servicing right at fair value. See Note 8 Commitments and Note 11 Fair Value for information on our servicing rights, including the carrying value of servicing assets.
64 The PNC Financial Services Group, Inc. – Form 10-Q
The following table provides our loan sale and servicing activities:
Table 51: Loan Sale and Servicing Activities
| | | | | | | | | | | | | | |
| In millions | Residential Mortgages | Commercial Mortgages (a) | |
| Cash Flows - Three months ended June 30, 2024 | | | | |
| Sales of loans and related securitization activity (b) | $ | 703 | | | $ | 344 | | |
| Repurchases of previously transferred loans (c) | $ | 18 | | | | | |
| Servicing fees (d) | $ | 138 | | | $ | 52 | | |
| Servicing advances recovered/(funded), net | $ | 17 | | | $ | (41) | | |
| Cash flows on mortgage-backed securities held (e) | $ | 978 | | | $ | 27 | | |
| Cash Flows - Three months ended June 30, 2023 | | | | |
| Sales of loans and related securitization activity (b) | $ | 655 | | | $ | 1,202 | | |
| Repurchases of previously transferred loans (c) | $ | 22 | | | | | |
| Servicing fees (d) | $ | 127 | | | $ | 49 | | |
| Servicing advances recovered/(funded), net | $ | 11 | | | $ | (15) | | |
| Cash flows on mortgage-backed securities held (e) | $ | 695 | | | $ | 18 | | |
| Cash Flows - Six months ended June 30, 2024 | | | | |
| Sales of loans and related securitization activity (b) | $ | 1,228 | | | $ | 667 | | |
| Repurchases of previously transferred loans (c) | $ | 41 | | | $ | 9 | | |
| Servicing fees (d) | $ | 277 | | | $ | 99 | | |
| Servicing advances recovered/(funded), net | $ | 40 | | | $ | (17) | | |
| Cash flows on mortgage-backed securities held (e) | $ | 1,820 | | | $ | 101 | | |
| Cash Flows - Six months ended June 30, 2023 | | | | |
| Sales of loans and related securitization activity (b) | $ | 1,171 | | | $ | 2,156 | | |
| Repurchases of previously transferred loans (c) | $ | 51 | | | $ | 9 | | |
| Servicing fees (d) | $ | 255 | | | $ | 95 | | |
| Servicing advances recovered/(funded), net | $ | 39 | | | $ | (64) | | |
| Cash flows on mortgage-backed securities held (e) | $ | 1,298 | | | $ | 30 | | |
(a)Represents both commercial mortgage loan transfer and servicing activities.
(b)Gains/losses recognized on sales of loans were insignificant for the periods presented.
(c)Includes both residential and commercial mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our ROAP option, as well as residential mortgage loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers.
(d)Includes contractually specified servicing fees, late charges and ancillary fees.
(e)Represents cash flows on securities where we transferred to and/or service loans for a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $18.9 billion, $20.4 billion and $21.2 billion in residential mortgage-backed securities at June 30, 2024, December 31, 2023 and June 30, 2023, respectively. The carrying values of commercial mortgage-backed securities were $0.7 billion at each June 30, 2024, December 31, 2023 and June 30, 2023.
Table 52 presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan, where the repurchase price exceeded the loan’s fair value, due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans. The estimate of losses related to breaches in representations and warranties was insignificant at June 30, 2024 and December 31, 2023.
Table 52: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others
| | | | | | | | | | | | | | | | | |
| In millions | Residential Mortgages | | | Commercial Mortgages (a) | |
| June 30, 2024 | | | | | |
| Total principal balance | $ | 38,132 | | | | $ | 55,099 | | |
| Delinquent loans (b) | $ | 281 | | | | $ | 107 | | |
| December 31, 2023 | | | | | |
| Total principal balance | $ | 39,016 | | | | $ | 57,492 | | |
| Delinquent loans (b) | $ | 329 | | | | $ | 89 | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Six months ended June 30, 2024 (c) | | | | | |
| Net charge-offs (d) | $ | 1 | | | | $ | 61 | | |
| Six months ended June 30, 2023 (c) | | | | | |
| Net charge-offs (d) | $ | 2 | | | | $ | 4 | | |
(a)Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization.
(b)Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.
(c)There were no net charge-offs for Residential or Commercial mortgages for the three months ended June 30, 2024 and June 30, 2023.
The PNC Financial Services Group, Inc. – Form 10-Q 65
(d)Net charge-offs for Residential mortgages represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for commercial mortgage-backed securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.
Variable Interest Entities (VIEs)
As discussed in Note 4 Loan Sale and Servicing Activities and Variable Interest Entities included in our 2023 Form 10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs.
The following table provides a summary of non-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 53 where we have determined that our continuing involvement is insignificant. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between us and the VIE. In addition, where we only have lending arrangements in the normal course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 53. These loans are included as part of the credit quality disclosures that we make in Note 3 Loans and Related Allowance for Credit Losses.
Table 53: Non-Consolidated VIEs | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | PNC Risk of Loss (a) | | | Carrying Value of Assets | Carrying Value of Liabilities |
| June 30, 2024 | | | | | | | |
| Mortgage-backed securitizations (b) | $ | 20,081 | | | | $ | 20,085 | | (c) | | | |
| Tax credit investments and other | 5,037 | | | | 4,926 | | (d) (e) | $ | 2,072 | | (f) (g) |
| Total | $ | 25,118 | | | | $ | 25,011 | | | $ | 2,072 | | |
| December 31, 2023 | | | | | | | |
| Mortgage-backed securitizations (b) | $ | 21,451 | | | | $ | 21,453 | | (c) | | | |
| Tax credit investments and other | 4,709 | | | | 4,631 | | (d) (e) | $ | 2,119 | | (f) (g) |
| Total | $ | 26,160 | | | | $ | 26,084 | | | $ | 2,119 | | |
(a)Represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). The risk of loss excludes any potential tax recapture associated with tax credit investments.
(b)Amounts reflect involvement with securitization SPEs where we transferred to and/or service loans for an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings.
(c)Included in Investment securities, Mortgage servicing rights and Other assets on our Consolidated Balance Sheet.
(d)Included in Investment securities, Loans, Equity investments and Other assets on our Consolidated Balance Sheet.
(e)Amount includes $3.3 billion of LIHTCs and $0.2 billion of NMTCs at June 30, 2024, which are included in Equity investments on our Consolidated Balance Sheet. Comparable amounts at December 31, 2023 were $3.0 billion and $0.2 billion, respectively.
(f)Included in Deposits and Other liabilities on our Consolidated Balance Sheet.
(g)Amount includes $1.8 billion of LIHTCs and less than $0.1 billion of NMTCs at June 30, 2024, which are included in Other liabilities on our Consolidated Balance Sheet. Comparable amounts at December 31, 2023 were $1.6 billion and $0.2 billion, respectively.
We make certain equity investments in various tax credit limited partnerships or LLCs. The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act. Within Income taxes, during the six months ended June 30, 2024, we recognized $0.2 billion of amortization, $0.2 billion of tax credits and less than $0.1 billion of other tax benefits associated with qualified investments in LIHTCs and NMTCs. During the six months ended June 30, 2023, we recognized $0.2 billion of amortization, $0.2 billion of tax credits and less than $0.1 billion of other tax benefits associated with qualified investments in LIHTCs.
NOTE 5 GOODWILL AND MORTGAGE SERVICING RIGHTS
Goodwill
See Note 5 Goodwill and Mortgage Servicing Rights in our 2023 Form 10-K for more information regarding our goodwill.
Mortgage Servicing Rights
We recognize the right to service mortgage loans for others as an intangible asset when the benefits of servicing are expected to be more than adequate compensation to a servicer for performing the servicing. MSRs are recognized either when purchased or when originated loans are sold with servicing retained. MSRs totaled $3.7 billion at both June 30, 2024 and December 31, 2023, and consisted of loan servicing contracts for commercial and residential mortgages which are measured at fair value.
We recognize gains (losses) on changes in the fair value of MSRs. MSRs are subject to changes in value from actual or expected prepayment of the underlying loans and defaults, as well as market driven changes in interest rates. We manage this risk by
66 The PNC Financial Services Group, Inc. – Form 10-Q
economically hedging the fair value of MSRs with securities, derivative instruments and resale agreements, which are expected to increase (or decrease) in value when the value of MSRs decreases (or increases).
See the Sensitivity Analysis section of this Note 5 for more detail on our fair value measurement of MSRs. See Note 5 Goodwill and Mortgage Servicing Rights and Note 14 Fair Value in our 2023 Form 10-K for more detail on our fair value measurement and our accounting of MSRs.
Changes in the commercial and residential MSRs follow:
Table 54: Mortgage Servicing Rights
| | | | | | | | | | | | | | | | | | | | |
| | Commercial MSRs | | Residential MSRs | |
| In millions | 2024 | 2023 | | 2024 | 2023 | |
| January 1 | $ | 1,032 | | $ | 1,113 | | | $ | 2,654 | | $ | 2,310 | | |
| Additions: | | | | | | |
| | | | | | |
| From loans sold with servicing retained | 11 | | 32 | | | 12 | | 10 | | |
| Purchases | 24 | | 17 | | | 29 | | 109 | | |
| Changes in fair value due to: | | | | | | |
| Time and payoffs (a) | (157) | | (164) | | | (126) | | (113) | | |
| Other (b) | 172 | | 108 | | | 88 | | 33 | | |
| June 30 | $ | 1,082 | | $ | 1,106 | | | $ | 2,657 | | $ | 2,349 | | |
| Related unpaid principal balance of loans serviced at June 30 | $ | 288,746 | | $ | 280,023 | | | $ | 203,543 | | $ | 191,274 | | |
| Servicing advances at June 30 | $ | 578 | | $ | 485 | | | $ | 132 | | $ | 126 | | |
(a)Represents decrease in MSR value due to passage of time, including the impact from regularly scheduled loan principal payments, prepayments and loans that were paid off during the period.
(b)Includes MSR value changes resulting from changes in interest rates and other market-driven conditions.
Sensitivity Analysis
The fair value of commercial and residential MSRs and significant inputs to the valuation models as of June 30, 2024 and December 31, 2023 are shown in Tables 55 and 56. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.
A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 55 and 56. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. Changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.
The PNC Financial Services Group, Inc. – Form 10-Q 67
The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions:
Table 55: Commercial Mortgage Servicing Rights – Key Valuation Assumptions
| | | | | | | | | | | | | | |
| Dollars in millions | June 30, 2024 | | December 31, 2023 | |
| Fair value | $ | 1,082 | | | $ | 1,032 | | |
| Weighted-average life (years) | 3.9 | | 3.9 | |
| Weighted-average constant prepayment rate | 5.30 | % | | 5.51 | % | |
| Decline in fair value from 10% adverse change | $ | 9 | | | $ | 9 | | |
| Decline in fair value from 20% adverse change | $ | 16 | | | $ | 17 | | |
| Effective discount rate | 9.98 | % | | 9.64 | % | |
| Decline in fair value from 10% adverse change | $ | 32 | | | $ | 31 | | |
| Decline in fair value from 20% adverse change | $ | 64 | | | $ | 61 | | |
Table 56: Residential Mortgage Servicing Rights – Key Valuation Assumptions
| | | | | | | | | | | | | | |
Dollars in millions | June 30, 2024 | | December 31, 2023 | |
| Fair value | $ | 2,657 | | | $ | 2,654 | | |
| Weighted-average life (years) | 8.1 | | 8.1 | |
| Weighted-average constant prepayment rate | 6.25 | % | | 6.42 | % | |
| Decline in fair value from 10% adverse change | $ | 57 | | | $ | 60 | | |
| Decline in fair value from 20% adverse change | $ | 110 | | | $ | 117 | | |
| Weighted-average option adjusted spread | 764 | | bps | 765 | | bps |
| Decline in fair value from 10% adverse change | $ | 82 | | | $ | 83 | | |
| Decline in fair value from 20% adverse change | $ | 160 | | | $ | 161 | | |
Fees from mortgage loan servicing, which include contractually specified servicing fees, late fees and ancillary fees were $0.2 billion for both the three months ended June 30, 2024 and 2023, and $0.4 billion for both the six months ended June 30, 2024 and 2023. We also generate servicing fees from activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Residential and commercial mortgage.
NOTE 6 LEASES
PNC’s lessor arrangements primarily consist of direct financing, sales-type and operating leases for equipment. Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term. For more information on lease accounting, see Note 1 Accounting Policies and Note 6 Leases in our 2023 Form 10-K.
Table 57: Lessor Income | | | | | | | | | | | | | | | | |
| Three months ended
June 30 | Six months ended
June 30 | |
| In millions | 2024 | 2023 | 2024 | 2023 | | |
| Sales-type and direct financing leases (a) | $ | 88 | | $ | 73 | | $ | 172 | | $ | 143 | | | |
| Operating leases (b) | 5 | | 15 | | 11 | | 31 | | | |
| Lease income | $ | 93 | | $ | 88 | | $ | 183 | | $ | 174 | | | |
(a)Included in Loans interest income on the Consolidated Income Statement.
(b)Included in Lending and deposit services on the Consolidated Income Statement.
68 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 7 BORROWED FUNDS
The following table shows the carrying value of total borrowed funds at June 30, 2024 (including adjustments related to accounting hedges, purchase accounting and unamortized original issuance discounts) by remaining contractual maturity:
Table 58: Borrowed Funds
| | | | | |
| In millions |
| Less than 1 year | $ | 28,984 | |
| 1 to 2 years | 13,638 | |
| 2 to 3 years | 4,566 | |
| 3 to 4 years | 4,065 | |
| 4 to 5 years | 6,015 | |
| Over 5 years | 14,123 | |
| Total | $ | 71,391 | |
The following table presents the contractual rates and maturity dates of our FHLB borrowings, senior debt and subordinated debt as of June 30, 2024, and the carrying values as of June 30, 2024 and December 31, 2023.
Table 59: FHLB Borrowings, Senior Debt and Subordinated Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stated Rate | | Maturity | | Carrying Value | |
| Dollars in millions | June 30, 2024 | | June 30, 2024 | | June 30, 2024 | | December 31, 2023 | |
| Parent Company | | | | | | | | |
| Senior debt | 1.15% - 6.88% | | 2024-2035 | | $ | 24,979 | | | $ | 22,221 | | |
| Subordinated debt | 4.63 | % | | 2033 | | 778 | | | 1,544 | | |
| Junior subordinated debt | 6.18 | % | | 2028 | | 206 | | | 206 | | |
| Total Parent Company | | | | | 25,963 | | | 23,971 | | |
| Bank | | | | | | | | |
| Federal Home Loan Bank borrowings (a) | 5.53% - 5.93% | | 2024-2026 | | 35,000 | | | 38,000 | | |
| Senior debt | 2.50% - 6.07% | | 2024-2043 | | 4,622 | | | 4,615 | | |
| Subordinated debt | 2.70% - 5.90% | | 2025-2029 | | 3,094 | | | 3,125 | | |
| Total Bank | | | | | 42,716 | | | 45,740 | | |
| Total | | | | | $ | 68,679 | | | $ | 69,711 | | |
(a)FHLB borrowings are generally collateralized by residential mortgage loans, other mortgage-related loans and investment securities.
In Table 59, the carrying values for parent company senior and subordinated debt include basis adjustments of $(766) million and $(68) million, respectively, whereas Bank senior and subordinated debt include basis adjustments of $(151) million and $(187) million, respectively, related to fair value accounting hedges as of June 30, 2024.
Certain borrowings are reported at fair value. Refer to Note 11 Fair Value for more information on those borrowings.
For further information regarding junior subordinated debentures, refer to Note 9 Borrowed Funds in our 2023 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q 69
NOTE 8 COMMITMENTS
In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with other commitments as of June 30, 2024 and December 31, 2023, respectively.
Table 60: Commitments to Extend Credit and Other Commitments
| | | | | | | | | | |
| In millions | June 30, 2024 | | December 31, 2023 | |
| Commitments to extend credit | | | | |
| Commercial | $ | 202,054 | | | $ | 203,080 | | |
| Home equity | 24,102 | | | 23,970 | | |
| Credit card | 35,249 | | | 33,978 | | |
| Other | 7,457 | | | 7,363 | | |
| Total commitments to extend credit | 268,862 | | | 268,391 | | |
| Net outstanding standby letters of credit (a) | 10,680 | | | 10,913 | | |
| Standby bond purchase agreements (b) | 1,167 | | | 1,078 | | |
| Other commitments (c) | 5,077 | | | 4,386 | | |
| Total commitments to extend credit and other commitments | $ | 285,786 | | | $ | 284,768 | | |
(a)Net outstanding standby letters of credit include $3.6 billion and $3.9 billion at June 30, 2024 and December 31, 2023, respectively, which support remarketing programs.
(b)We enter into standby bond purchase agreements to support municipal bond obligations.
(c)Includes $2.1 billion related to investments in qualified affordable housing projects at both June 30, 2024 and December 31, 2023.
Commitments to Extend Credit
Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee and generally contain termination clauses in the event the customer’s credit quality deteriorates.
Net Outstanding Standby Letters of Credit
We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Approximately 97% of our net outstanding standby letters of credit were rated as Pass at June 30, 2024, with the remainder rated as Criticized. An internal credit rating of Pass indicates the expected risk of loss is currently low, while a rating of Criticized indicates a higher degree of risk.
If the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on June 30, 2024 had terms ranging from less than one year to seven years.
As of June 30, 2024, assets of $1.0 billion secured certain specifically identified standby letters of credit. In addition, a portion of the remaining standby letters of credit issued on behalf of specific customers is secured by collateral or guarantees that secure the customers’ other obligations to us. The carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $0.1 billion at June 30, 2024 and is included in Other liabilities on our Consolidated Balance Sheet.
70 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 9 TOTAL EQUITY AND OTHER COMPREHENSIVE INCOME
Activity in total equity for the three and six months ended June 30, 2024 and 2023 is as follows:
Table 61: Rollforward of Total Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Shareholders’ Equity | | | | |
| In millions | Shares
Outstanding
Common
Stock | | Common
Stock | Capital
Surplus -
Preferred
Stock | Capital
Surplus -
Common
Stock and
Other | Retained
Earnings | Accumulated
Other
Comprehensive
Income (Loss) | Treasury
Stock | | Non-
controlling
Interests | Total Equity | |
| Three months ended | | | | | | | | | | | | |
| Balance at March 31, 2023 (a) | 399 | | $ | 2,714 | | $ | 7,235 | | $ | 12,629 | | $ | 54,598 | | $ | (9,108) | | $ | (19,024) | | | $ | 30 | | $ | 49,074 | | |
| Net income | | | | | | 1,483 | | | | | 17 | | 1,500 | | |
| Other comprehensive loss, net of tax | | | | | | | (417) | | | | | (417) | | |
| Cash dividends declared - Common | | | | | | (606) | | | | | | (606) | | |
| Cash dividends declared - Preferred | | | | | | (127) | | | | | | (127) | | |
| Preferred stock discount accretion | | | | 2 | | | (2) | | | | | | | | |
| | | | | | | | | | | | |
| Common stock activity | | | 1 | | 16 | | | | | | | 17 | | |
| Treasury stock activity | (1) | | | | | 3 | | | | (126) | | | | (123) | | |
| Other | | | | | 49 | | | | | | (21) | | 28 | | |
| Balance at June 30, 2023 (a) | 398 | | | $ | 2,715 | | $ | 7,237 | | $ | 12,697 | | $ | 55,346 | | $ | (9,525) | | $ | (19,150) | | | $ | 26 | | $ | 49,346 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance at March 31, 2024 (a) | 398 | | $ | 2,716 | | $ | 6,243 | | $ | 12,789 | | $ | 56,913 | | $ | (8,042) | | $ | (19,279) | | | $ | 34 | | $ | 51,374 | | |
| Net income | | | | | | 1,459 | | | | | 18 | | 1,477 | | |
| Other comprehensive income, net of tax | | | | | | | 596 | | | | | 596 | | |
| Cash dividends declared - Common | | | | | | (623) | | | | | | (623) | | |
| Cash dividends declared - Preferred | | | | | | (95) | | | | | | (95) | | |
| Preferred stock discount accretion | | | | 2 | | | (2) | | | | | | | | |
| | | | | | | | | | | | |
| Common stock activity | | | | | | | 16 | | | | | | | 16 | | |
| Treasury stock activity | | | | | | 6 | | | | (99) | | | | (93) | | |
| Other | | | | | 42 | | | | | | (13) | | 29 | | |
| Balance at June 30, 2024 (a) | 398 | | | $ | 2,716 | | $ | 6,245 | | $ | 12,853 | | $ | 57,652 | | $ | (7,446) | | $ | (19,378) | | | $ | 39 | | $ | 52,681 | | |
| Six months ended | | | | | | | | | | | | |
| Balance at December 31, 2022 (a) | 401 | | | $ | 2,714 | | $ | 5,746 | | $ | 12,630 | | $ | 53,572 | | $ | (10,172) | | $ | (18,716) | | | $ | 38 | | $ | 45,812 | | |
| Cumulative effect of ASU adoption (b) | | | | | | 26 | | | | | | 26 | | |
| Balance at January 1, 2023 (a) | 401 | | $ | 2,714 | | $ | 5,746 | | $ | 12,630 | | $ | 53,598 | | $ | (10,172) | | $ | (18,716) | | | $ | 38 | | $ | 45,838 | | |
| Net income | | | | | | 3,160 | | | | | 34 | | 3,194 | | |
| Other comprehensive income, net of tax | | | | | | | 647 | | | | | 647 | | |
| Cash dividends declared - Common | | | | | | (1,213) | | | | | | (1,213) | | |
| Cash dividends declared - Preferred | | | | | | (195) | | | | | | (195) | | |
| Preferred stock discount accretion | | | | 4 | | | (4) | | | | | | | |
| Preferred stock issuance (c) | | | | 1,487 | | | | | | | | 1,487 | | |
| Common stock activity | | | 1 | | | 16 | | | | | | | 17 | | |
| Treasury stock activity | (3) | | | | | 73 | | | | (434) | | | | (361) | | |
| | | | | | | | | | | | |
| Other | | | | | (22) | | | | | | (46) | | (68) | | |
| Balance at June 30, 2023 (a) | 398 | | | $ | 2,715 | | $ | 7,237 | | $ | 12,697 | | $ | 55,346 | | $ | (9,525) | | $ | (19,150) | | | $ | 26 | | $ | 49,346 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance at December 31, 2023 (a) | 398 | | $ | 2,716 | | $ | 6,241 | | $ | 12,779 | | $ | 56,290 | | $ | (7,712) | | $ | (19,209) | | | $ | 36 | | $ | 51,141 | | |
| Net income | | | | | | 2,789 | | | | | 32 | | 2,821 | | |
| Other comprehensive income, net of tax | | | | | | | 266 | | | | | 266 | | |
| Cash dividends declared - Common | | | | | | (1,247) | | | | | | (1,247) | | |
| Cash dividends declared - Preferred | | | | | | (176) | | | | | | (176) | | |
| Preferred stock discount accretion | | | | 4 | | | (4) | | | | | | | |
| | | | | | | | | | | | |
| Common stock activity | | | | | | | 16 | | | | | | | 16 | | |
| Treasury stock activity | | | | | | 77 | | | | (169) | | | | (92) | | |
| | | | | | | | | | | | |
| Other | | | | | (19) | | | | | | (29) | | (48) | | |
| Balance at June 30, 2024 (a) | 398 | | | $ | 2,716 | | $ | 6,245 | | $ | 12,853 | | $ | 57,652 | | $ | (7,446) | | $ | (19,378) | | | $ | 39 | | $ | 52,681 | | |
(a)The par value of our preferred stock outstanding was less than $0.5 million at each date and, therefore, is excluded from this presentation.
(b)Represents the cumulative effect of adopting ASU 2022-02.
(c)On February 7, 2023, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 6.250% fixed-rate reset non-cumulative perpetual preferred stock, Series W, with a par value of $1 per share.
The PNC Financial Services Group, Inc. – Form 10-Q 71
Details of other comprehensive income (loss) are as follows:
Table 62: Other Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 | |
| 2024 | | 2023 | | 2024 | | 2023 | |
| In millions | Pre-tax | Tax effect | After-tax | | Pre-tax | Tax effect | After-tax | | Pre-tax | Tax effect | After-tax | | Pre-tax | Tax effect | After-tax | |
| Debt securities | | | | | | | | | | | | | | | | |
| Net unrealized gains (losses) on securities | $ | (216) | | $ | 52 | | $ | (164) | | | $ | (476) | | $ | 112 | | $ | (364) | | | $ | (611) | | $ | 147 | | $ | (464) | | | $ | 178 | | $ | (42) | | $ | 136 | | |
| Less: Net realized (losses) reclassified to earnings (a) | (691) | | 166 | | (525) | | | (235) | | 55 | | (180) | | | (907) | | 218 | | (689) | | | (450) | | 106 | | (344) | | |
| Net change | 475 | | (114) | | 361 | | | (241) | | 57 | | (184) | | | 296 | | (71) | | 225 | | | 628 | | (148) | | 480 | | |
| Cash flow hedge derivatives | | | | | | | | | | | | | | | | |
| Net unrealized (losses) on cash flow hedge derivatives | (75) | | 18 | | (57) | | | (689) | | 162 | | (527) | | | (701) | | 168 | | (533) | | | (492) | | 116 | | (376) | | |
| Less: Net realized (losses) reclassified to earnings (a) | (383) | | 92 | | (291) | | | (373) | | 88 | | (285) | | | (759) | | 182 | | (577) | | | (703) | | 166 | | (537) | | |
| Net change | 308 | | (74) | | 234 | | | (316) | | 74 | | (242) | | | 58 | | (14) | | 44 | | | 211 | | (50) | | 161 | | |
| Pension and other postretirement benefit plan adjustments | | | | | | | | | | | | | | | | |
| Net pension and other postretirement benefit plan activity and other reclassified to earnings (b) | 1 | | | | 1 | | | 6 | | (1) | | 5 | | | (1) | | | | (1) | | | (4) | | 1 | | (3) | | |
| Net change | 1 | | | | 1 | | | 6 | | (1) | | 5 | | | (1) | | | | (1) | | | (4) | | 1 | | (3) | | |
| Other | | | | | | | | | | | | | | | | |
| Net unrealized gains (losses) on other transactions | | | | | | | | 3 | | 1 | | 4 | | | (2) | | | | (2) | | | 7 | | 2 | | 9 | | |
| Net change | | | | | | | | 3 | | 1 | | 4 | | | (2) | | | | (2) | | | 7 | | 2 | | 9 | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total other comprehensive income (loss) | $ | 784 | | $ | (188) | | $ | 596 | | | $ | (548) | | $ | 131 | | $ | (417) | | | $ | 351 | | $ | (85) | | $ | 266 | | | $ | 842 | | $ | (195) | | $ | 647 | | |
(a)Reclassifications for pre-tax debt securities and cash flow hedges are recorded in Interest income and Noninterest income on the Consolidated Income Statement.
(b)Reclassifications include amortization of actuarial losses (gains) and amortization of prior period service costs (credits), which are recorded in Noninterest expense on the Consolidated Income Statement.
Table 63: Accumulated Other Comprehensive Income (Loss) Components
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions, after-tax | Debt securities | | Cash flow hedge derivatives | | Pension and other postretirement benefit plan adjustments | | Other | | | | | Total | |
| Three months ended | | | | | | | | | | | | | |
| Balance at March 31, 2023 | $ | (6,500) | | | $ | (2,302) | | | $ | (259) | | | $ | (47) | | | | | | $ | (9,108) | | |
| Net activity | (184) | | | (242) | | | 5 | | | 4 | | | | | | (417) | | |
| Balance at June 30, 2023 (a) | $ | (6,684) | | | $ | (2,544) | | | $ | (254) | | | $ | (43) | | | | | | $ | (9,525) | | |
| Balance at March 31, 2024 | $ | (5,966) | | | $ | (1,903) | | | $ | (127) | | | $ | (46) | | | | | | $ | (8,042) | | |
| Net activity | 361 | | | 234 | | | 1 | | | | | | | | | 596 | | |
| Balance at June 30, 2024 (a) | $ | (5,605) | | | $ | (1,669) | | | $ | (126) | | | $ | (46) | | | | | | $ | (7,446) | | |
| Six months ended | | | | | | | | | | | | | |
| Balance at December 31, 2022 | $ | (7,164) | | | $ | (2,705) | | | $ | (251) | | | $ | (52) | | | | | | $ | (10,172) | | |
| Net activity | 480 | | | 161 | | | (3) | | | 9 | | | | | | 647 | | |
| Balance at June 30, 2023 (a) | $ | (6,684) | | | $ | (2,544) | | | $ | (254) | | | $ | (43) | | | | | | $ | (9,525) | | |
| Balance at December 31, 2023 | $ | (5,830) | | | $ | (1,713) | | | $ | (125) | | | $ | (44) | | | | | | $ | (7,712) | | |
| Net activity | 225 | | | 44 | | | (1) | | | (2) | | | | | | 266 | | |
| Balance at June 30, 2024 (a) | $ | (5,605) | | | $ | (1,669) | | | $ | (126) | | | $ | (46) | | | | | | $ | (7,446) | | |
(a)AOCI included pretax losses of $285 million and $301 million from derivatives that hedged the purchase of investment securities classified as held to maturity at June 30, 2024 and June 30, 2023, respectively.
72 The PNC Financial Services Group, Inc. – Form 10-Q
The following table provides the dividends per share for PNC’s common and preferred stock:
Table 64: Dividends Per Share (a)
| | | | | | | | | | | | | | |
| Three months ended June 30 | Six months ended June 30 |
| 2024 | 2023 | 2024 | 2023 |
| Common Stock | $ | 1.55 | | $ | 1.50 | | $ | 3.10 | | $ | 3.00 | |
| Preferred Stock | | | | |
| Series B | $ | 0.45 | | $ | 0.45 | | $ | 0.90 | | $ | 0.90 | |
| Series O | | | $ | 2,100 | | | | $ | 4,174 | |
| Series R | $ | 2,209 | | $ | 2,425 | | $ | 4,403 | | $ | 2,425 | |
| Series S | $ | 2,500 | | $ | 2,500 | | $ | 2,500 | | $ | 2,500 | |
| Series T | $ | 850 | | $ | 850 | | $ | 1,700 | | $ | 1,700 | |
| Series U | $ | 1,500 | | $ | 1,500 | | $ | 3,000 | | $ | 3,000 | |
| Series V | $ | 1,550 | | $ | 1,550 | | $ | 3,100 | | $ | 3,100 | |
| Series W | $ | 1,562 | | $ | 2,222 | | $ | 3,125 | | $ | 2,222 | |
(a) Dividends are payable quarterly, other than Series S preferred stock, which is payable semiannually.
On July 2, 2024, the PNC Board of Directors raised the quarterly cash dividend on common stock to $1.60 per share to be paid on August 5, 2024 to shareholders of record at the close of business July 15, 2024.
The PNC Financial Services Group, Inc. – Form 10-Q 73
NOTE 10 EARNINGS PER SHARE
Table 65: Basic and Diluted Earnings Per Common Share | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30 | Six months ended June 30 | | | |
| In millions, except per share data | | 2024 | 2023 | 2024 | 2023 | | | | |
| Basic | | | | | | | | | |
| Net income | | $ | 1,477 | | $ | 1,500 | | $ | 2,821 | | $ | 3,194 | | | | | |
| Less: | | | | | | | | | |
| Net income attributable to noncontrolling interests | | 18 | | 17 | | 32 | | 34 | | | | | |
| Preferred stock dividends | | 95 | | 127 | | 176 | | 195 | | | | | |
| Preferred stock discount accretion and redemptions | | 2 | | 2 | | 4 | | 4 | | | | | |
| Net income attributable to common shareholders | | 1,362 | | 1,354 | | 2,609 | | 2,961 | | | | | |
| Less: Dividends and undistributed earnings allocated to nonvested restricted shares | | 7 | | 7 | | 14 | | 15 | | | | | |
| Net income attributable to basic common shareholders | | $ | 1,355 | | $ | 1,347 | | $ | 2,595 | | $ | 2,946 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Basic weighted-average common shares outstanding | | 400 | | 401 | | 400 | | 401 | | | | | |
| Basic earnings per common share (a) | | $ | 3.39 | | $ | 3.36 | | $ | 6.49 | | $ | 7.35 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Diluted | | | | | | | | | |
Net income attributable to diluted common shareholders
| | $ | 1,355 | | $ | 1,347 | | $ | 2,595 | | $ | 2,946 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Basic weighted-average common shares outstanding | | 400 | | 401 | 400 | 401 | | | | |
| Dilutive potential common shares | | | | | | | | | |
| Diluted weighted-average common shares outstanding | | 400 | | 401 | | 400 | | 401 | | | | | |
| Diluted earnings per common share (a) | | $ | 3.39 | | $ | 3.36 | | $ | 6.48 | | $ | 7.34 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(a)Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares and restricted share units with nonforfeitable dividends and dividend rights (participating securities).
74 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 11 FAIR VALUE
Fair Value Measurement
We measure certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy, see Note 14 Fair Value in our 2023 Form 10-K.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
For more information on the valuation methodologies used to measure assets and liabilities at fair value on a recurring basis, see Note 14 Fair Value in our 2023 Form 10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which we have elected the fair value option.
Table 66: Fair Value Measurements – Recurring Basis Summary
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | | December 31, 2023 | |
| In millions | Level 1 | | Level 2 | | Level 3 | | Total
Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Total
Fair Value | |
| Assets | | | | | | | | | | | | | | | | | |
| Residential mortgage loans held for sale | | | $ | 547 | | | $ | 95 | | | $ | 642 | | | | | | $ | 371 | | | $ | 103 | | | $ | 474 | | |
| Commercial mortgage loans held for sale | | | 291 | | | 4 | | | 295 | | | | | | 227 | | | 11 | | | 238 | | |
| | | | | | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | | | | | | |
| U.S. Treasury and government agencies | $ | 15,513 | | | 961 | | | | | 16,474 | | | | $ | 6,292 | | | 659 | | | | | 6,951 | | |
| Residential mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | | 27,096 | | | | | 27,096 | | | | | | 27,880 | | | | | 27,880 | | |
| Non-agency | | | | | 624 | | | 624 | | | | | | | | | 696 | | | 696 | | |
| Commercial mortgage-backed | | | | | | | | | | | | | | | | | |
| Agency | | | 1,617 | | | | | 1,617 | | | | | | 1,546 | | | | | 1,546 | | |
| Non-agency | | | 694 | | | 103 | | | 797 | | | | | | 766 | | | 103 | | 869 | | |
| Asset-backed | | | 2,024 | | | 96 | | | 2,120 | | | | | | 1,014 | | | 102 | | | 1,116 | | |
| Other | | | 2,406 | | | 54 | | | 2,460 | | | | | | 2,672 | | | 55 | | | 2,727 | | |
| Total securities available for sale | 15,513 | | | 34,798 | | | 877 | | | 51,188 | | | | 6,292 | | | 34,537 | | | 956 | | | 41,785 | | |
| Loans | | | 490 | | | 701 | | | 1,191 | | | | | | 512 | | | 726 | | | 1,238 | | |
| Equity investments (a) | 972 | | (b) | | | 2,030 | | | 3,203 | | | | 574 | | | | | 1,952 | | | 2,717 | | |
| Residential mortgage servicing rights | | | | | 2,657 | | | 2,657 | | | | | | | | 2,654 | | | 2,654 | | |
| Commercial mortgage servicing rights | | | | | 1,082 | | | 1,082 | | | | | | | | 1,032 | | | 1,032 | | |
| Trading securities (c) | 515 | | | 1,835 | | | | | 2,350 | | | | 377 | | | 2,422 | | | | | 2,799 | | |
| Financial derivatives (c) (d) | 5 | | | 3,103 | | | 12 | | | 3,120 | | | | 29 | | 3,394 | | | 6 | | | 3,429 | | |
| Other assets | 431 | | | 129 | | | 8 | | | 568 | | | | 403 | | | 85 | | | 8 | | | 496 | | |
| Total assets (e) | $ | 17,436 | | | $ | 41,193 | | | $ | 7,466 | | | $ | 66,296 | | | | $ | 7,675 | | | $ | 41,548 | | | $ | 7,448 | | | $ | 56,862 | | |
| Liabilities | | | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 661 | | | $ | 121 | | | $ | 9 | | | $ | 791 | | | | $ | 724 | | | $ | 84 | | | $ | 9 | | | $ | 817 | | |
| Financial derivatives (d) (f) | 6 | | | 6,027 | | | 183 | | | 6,216 | | | | 11 | | | 5,736 | | | 152 | | | 5,899 | | |
| Other liabilities | | | | | 194 | | | 194 | | | | | | | | 237 | | | 237 | | |
| Total liabilities (g) | $ | 667 | | | $ | 6,148 | | | $ | 386 | | | $ | 7,201 | | | | $ | 735 | | | $ | 5,820 | | | $ | 398 | | | $ | 6,953 | | |
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Included Visa C shares with an unrealized gain of $244 million at June 30, 2024.
(c)Included in Other assets on the Consolidated Balance Sheet.
(d)Amounts at June 30, 2024 and December 31, 2023 are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 12 Financial Derivatives for additional information related to derivative offsetting.
(e)Total assets at fair value as a percentage of total consolidated assets was 12% and 10% at June 30, 2024 and December 31, 2023, respectively. Level 3 assets as a percentage of total assets at fair value was 11% and 13% at June 30, 2024 and December 31, 2023, respectively. Level 3 assets as a percentage of total consolidated assets was 1% at both June 30, 2024 and December 31, 2023.
(f)Included in Other liabilities on the Consolidated Balance Sheet.
(g)Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both June 30, 2024 and December 31, 2023. Level 3 liabilities as a percentage of total liabilities at fair value was 5% and 6% at June 30, 2024 and December 31, 2023, respectively. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both June 30, 2024 and December 31, 2023.
The PNC Financial Services Group, Inc. – Form 10-Q 75
Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three and six months ended June 30, 2024 and 2023 are as follows:
Table 67: Reconciliation of Level 3 Assets and Liabilities
Three Months Ended June 30, 2024
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | | Unrealized
gains/losses for the period
on assets and
liabilities held on
Consolidated
Balance Sheet at
June 30, 2024 (a) (c) |
Level 3 Instruments Only
In millions | Fair Value Mar. 31, 2024 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | Transfers
into
Level 3 | | Transfers
out of
Level 3 | | | Fair
Value June 30, 2024 |
| Assets | | | | | | | | | | | | | | | | |
Residential mortgage
loans held for sale | $ | 98 | | | | | | | $ | 12 | | $ | (11) | | | | $ | (2) | | $ | 1 | | | $ | (3) | | (d) | | $ | 95 | | $ | (1) | | |
Commercial mortgage
loans held for sale | 11 | | | | | | | | | | | | | (7) | | | | | | | | 4 | | | |
| | | | | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 668 | | $ | 3 | | | $ | (5) | | | | | | | | (42) | | | | | | | | 624 | | | |
| Commercial mortgage- backed non-agency | 103 | | | | | | | | | | | | | | | | | | | | | 103 | | | |
| Asset-backed | 100 | | | | | (1) | | | | | | | | (3) | | | | | | | | 96 | | | |
| Other | 53 | | | | | | | 3 | | | | | | (2) | | | | | | | | 54 | | | | |
Total securities
available for sale | 924 | | 3 | | | (6) | | 3 | | | | (47) | | | | | | | | 877 | | | | |
| Loans | 713 | | 4 | | | | | 7 | | (2) | | | | (18) | | | | | (3) | | (d) | | 701 | | 4 | | |
| Equity investments | 2,030 | | 31 | | | | | 47 | | (78) | | | | | | | | | | | | | 2,030 | | 23 | | |
Residential mortgage
servicing rights | 2,687 | | 16 | | | | | 16 | | | | $ | 7 | | (69) | | | | | | | | 2,657 | | 16 | | |
Commercial mortgage
servicing rights | 1,075 | | 65 | | | | | 12 | | | | 8 | | (78) | | | | | | | | 1,082 | | 65 | | |
| | | | | | | | | | | | | | | | |
| Financial derivatives | 9 | | 9 | | | | | 2 | | | | | | (8) | | | | | | | | 12 | | 11 | | |
| Other assets | 8 | | | | | | | | | | | | | | | | | 8 | | | |
| Total assets | $ | 7,555 | | $ | 128 | | | $ | (6) | | $ | 99 | | $ | (91) | | $ | 15 | | $ | (229) | | $ | 1 | | | $ | (6) | | | | $ | 7,466 | | $ | 118 | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 9 | | | | | | | $ | 4 | | $ | (4) | | | | | | | $ | 9 | | | |
| Financial derivatives | 113 | | $ | 110 | | | | | $ | 2 | | | | (42) | | | | | | | 183 | | $ | 115 | | |
| Other liabilities | 189 | | 6 | | | | | | | | 15 | | (16) | | | | | | | 194 | | 7 | | |
| Total liabilities | $ | 311 | | $ | 116 | | | | | | $ | 2 | | $ | 19 | | $ | (62) | | | | | | | $ | 386 | | $ | 122 | | |
| Net gains (losses) | | $ | 12 | | (e) | | | | | | | | | | | | $ | (4) | | (f) |
76 The PNC Financial Services Group, Inc. – Form 10-Q
(Continued from previous page)
Three Months Ended June 30, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | Unrealized gains/losses for the period on assets and liabilities held on Consolidated Balance Sheet at June 30, 2023 (a) (c) |
Level 3 Instruments Only
In millions | Fair Value Mar. 31, 2023 | Included in Earnings | Included in Other comprehensive income (b) | Purchases | Sales | Issuances | Settlements | Transfers into Level 3 | Transfers out of Level 3 | | Fair Value June 30, 2023 |
| Assets | | | | | | | | | | | | | | |
Residential mortgage
loans held for sale | $ | 242 | | $ | (4) | | | | $ | 3 | | $ | (41) | | | $ | (2) | | | | $ | (7) | | (d) | $ | 191 | | $ | (3) | | |
Commercial mortgage
loans held for sale | 32 | | 1 | | | | | | | (8) | | | | | 25 | | | |
| | | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 787 | | 4 | | | $ | 14 | | | | | (37) | | | | | 768 | | | |
| Commercial mortgage-backed non-agency | 3 | | | | | | | | | | | | | 3 | | | |
| Asset-backed | 121 | | 1 | | | (1) | | | | | (4) | | | | | 117 | | | |
| Other | 53 | | | | | | 3 | | | | | (2) | | | | | | 54 | | | |
Total securities
available for sale | 964 | | 5 | | | 13 | | 3 | | | | | (43) | | | | | | 942 | | | |
| Loans | 757 | | 3 | | | | 11 | | (1) | | | (28) | | $ | 8 | | (5) | | (d) | 745 | | 3 | | |
| Equity investments | 1,835 | | 24 | | | | 92 | | (328) | | | | | | | | 1,623 | | 2 | | |
Residential mortgage
servicing rights | 2,232 | | 81 | | | | 91 | | | $ | 5 | | (60) | | | | | 2,349 | | 80 | | |
Commercial mortgage
servicing rights | 1,061 | | 99 | | | | 9 | | | 19 | | (82) | | | | | 1,106 | | 100 | | |
| | | | | | | | | | | | | | |
| Financial derivatives | 19 | | (10) | | | | 2 | | | | (5) | | | | | 6 | | 4 | | |
| | | | | | | | | | | | | | |
| Total assets | $ | 7,142 | | $ | 199 | | | $ | 13 | | $ | 211 | | $ | (370) | | $ | 24 | | $ | (228) | | $ | 8 | | $ | (12) | | | $ | 6,987 | | $ | 186 | | |
| Liabilities | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 5 | | | | | | | $ | 3 | | $ | (3) | | | | | $ | 5 | | | |
| Financial derivatives | 97 | | $ | 79 | | | | | $ | 1 | | | (37) | | | | | 140 | | $ | 80 | | |
| Other liabilities | 229 | | 31 | | | | | | | 89 | | (110) | | | | | 239 | | 21 | | |
| Total liabilities | $ | 331 | | $ | 110 | | | | | | $ | 1 | | $ | 92 | | $ | (150) | | | | | $ | 384 | | $ | 101 | | |
| Net gains (losses) | | $ | 89 | | (e) | | | | | | | | | | $ | 85 | | (f) |
The PNC Financial Services Group, Inc. – Form 10-Q 77
(Continued from previous page)
Six Months Ended June 30, 2024
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | Unrealized
gains/losses for the period
on assets and
liabilities held on
Consolidated
Balance Sheet at
June 30, 2024 (a) (c) |
Level 3 Instruments Only
In millions | Fair
Value
Dec. 31,
2023 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | Transfers
into
Level 3 | Transfers
out of
Level 3 | | Fair
Value June 30, 2024 |
| Assets | | | | | | | | | | | | | | |
Residential mortgage
loans held for sale | $ | 103 | | $ | (1) | | | | $ | 14 | | $ | (11) | | | $ | (4) | | $ | 3 | | $ | (9) | | (d) | $ | 95 | | $ | (2) | | |
Commercial mortgage
loans held for sale | 11 | | | | | | | | | (7) | | | | | 4 | | | | |
| | | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 696 | | 6 | | | $ | (11) | | | | | (67) | | | | | 624 | | | |
Commercial mortgage-
backed non-agency | 103 | | | | | | | | | | | | | 103 | | | |
| Asset-backed | 102 | | | | | (1) | | | | | (5) | | | | | 96 | | | |
| Other | 55 | | (2) | | | 1 | | 3 | | | | (3) | | | | | | 54 | | (2) | | |
Total securities
available for sale | 956 | | 4 | | | (11) | | 3 | | | | (75) | | | | | | 877 | | (2) | | |
| Loans | 726 | | 8 | | | | 12 | | (2) | | | (38) | | | | (5) | | (d) | 701 | | 8 | | |
| Equity investments | 1,952 | | 26 | | | | 136 | | (84) | | | | | | | | 2,030 | | 18 | | |
Residential mortgage
servicing rights | 2,654 | | 88 | | | | 29 | | | $ | 12 | | (126) | | | | | 2,657 | | 88 | | |
Commercial mortgage
servicing rights | 1,032 | | 172 | | | | 24 | | | 11 | | (157) | | | | | 1,082 | | 172 | | |
| | | | | | | | | | | | | | |
| Financial derivatives | 6 | | 18 | | | | 2 | | | | (14) | | | | | 12 | | 21 | | |
| Other assets | 8 | | | | | | | | | | | | | | 8 | | | |
| Total assets | $ | 7,448 | | $ | 315 | | | $ | (11) | | $ | 220 | | $ | (97) | | $ | 23 | | $ | (421) | | $ | 3 | | $ | (14) | | | $ | 7,466 | | $ | 303 | | |
| Liabilities | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 9 | | | | | | | $ | 7 | | $ | (7) | | | | | $ | 9 | | | |
| Financial derivatives | 152 | | $ | 118 | | | | | $ | 2 | | | (89) | | | | | 183 | | $ | 120 | | |
| Other liabilities | 237 | | (14) | | | | | | | 28 | | (57) | | | | | 194 | | 9 | | |
| Total liabilities | $ | 398 | | $ | 104 | | | | | | $ | 2 | | $ | 35 | | $ | (153) | | | | | $ | 386 | | $ | 129 | | |
| Net gains (losses) | | $ | 211 | | (e) | | | | | | | | | | $ | 174 | | (f) |
78 The PNC Financial Services Group, Inc. – Form 10-Q
(Continued from previous page)
Six Months Ended June 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized
gains / losses for the period
on assets and
liabilities held on
Consolidated
Balance Sheet at
June 30, 2023 (a) (c) |
Level 3 Instruments Only
In millions | Fair
Value
Dec. 31,
2022 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | Transfers
into
Level 3 | Transfers
out of
Level 3 | | | Fair Value June 30, 2023 |
| Assets | | | | | | | | | | | | | | | |
Residential mortgage
loans held for sale | $ | 243 | | | | | | $ | 9 | | $ | (42) | | | $ | (7) | | $ | 3 | | $ | (15) | | (d) | | $ | 191 | | $ | 1 | | |
Commercial mortgage
loans held for sale | 33 | | | | | | | | | | (8) | | | | | | 25 | | | |
| | | | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | | | | |
Residential mortgage-
backed non-agency | 819 | | $ | 8 | | | $ | 4 | | | | | (63) | | | | | | 768 | | | |
Commercial mortgage-
backed non-agency | 3 | | | | | | | | | | | | | | 3 | | | |
| Asset-backed | 124 | | 1 | | | | | | | | (8) | | | | | | 117 | | | |
| Other | 55 | | | | (4) | | 3 | | | | | (3) | | 3 | | | | 54 | | | |
Total securities
available for sale | 1,001 | | 9 | | | | | 3 | | | | | (74) | | 3 | | | | | 942 | | | |
| Loans | 769 | | 6 | | | | 20 | | (1) | | | (50) | | 15 | | (14) | | (d) | | 745 | | 6 | | |
| Equity investments | 1,778 | | 145 | | | | 232 | | (398) | | | | | (134) | | (g) | | 1,623 | | 119 | | |
Residential mortgage
servicing rights | 2,310 | | 33 | | | | 109 | | | $ | 10 | | (113) | | | | | | 2,349 | | 33 | | |
Commercial mortgage
servicing rights | 1,113 | | 108 | | | | 17 | | | 32 | | (164) | | | | | | 1,106 | | 108 | | |
| | | | | | | | | | | | | | | |
| Financial derivatives | 5 | | 7 | | | | 3 | | | | (9) | | | | | | 6 | | 10 | | |
| | | | | | | | | | | | | | | |
| Total assets | $ | 7,252 | | $ | 308 | | | | | $ | 393 | | $ | (441) | | $ | 42 | | $ | (425) | | $ | 21 | | $ | (163) | | | | $ | 6,987 | | $ | 277 | | |
| Liabilities | | | | | | | | | | | | | | | |
| Other borrowed funds | $ | 4 | | | | | | | $ | 6 | | $ | (5) | | | | | | $ | 5 | | | |
| Financial derivatives | 123 | | $ | 118 | | | | | $ | 3 | | | (104) | | | | | | 140 | | $ | 122 | | |
| Other liabilities | 294 | | 55 | | | | | | | 107 | | (217) | | | | | | 239 | | 42 | | |
| Total liabilities | $ | 421 | | $ | 173 | | | | | | $ | 3 | | $ | 113 | | $ | (326) | | | | | | $ | 384 | | $ | 164 | | |
| Net gains (losses) | | $ | 135 | | (e) | | | | | | | | | | | $ | 113 | | (f) |
(a)Losses for assets are bracketed while losses for liabilities are not.
(b)The difference in unrealized gains and losses for the period included in Other comprehensive income and changes in unrealized gains and losses for the period included in Other comprehensive income for securities available for sale held at the end of the reporting period were insignificant.
(c)The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period.
(d)Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment.
(e)Net gains (losses) realized and unrealized included in earnings related to Level 3 assets and liabilities included amortization and accretion. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net gains (losses) realized and unrealized were included in Noninterest income on the Consolidated Income Statement.
(f)Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in Noninterest income on the Consolidated Income Statement.
(g)Transfers out of Level 3 during the prior period were due to valuation methodology changes for certain private company investments. See Note 1 Accounting Policies in our 2023 Form 10-K for more information on our accounting for private company investments.
An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels.
The PNC Financial Services Group, Inc. – Form 10-Q 79
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities follows:
Table 68: Fair Value Measurements – Recurring Quantitative Information
June 30, 2024
| | | | | | | | | | | | | | |
Level 3 Instruments Only
Dollars in millions | Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted-Average) (a) |
| Commercial mortgage loans held for sale | $ | 4 | | Discounted cash flow | Spread over the benchmark curve (b) | 575bps - 1,090bps (985bps) |
Residential mortgage-backed
non-agency securities | 624 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 27.9% (2.9%) |
| Constant default rate | 0.0% - 12.0% (1.9%) |
| Loss severity | 10.0% - 77.4% (42.2%) |
| Spread over the benchmark curve (b) | 272bps weighted-average |
| Asset-backed securities | 96 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 28.0% (4.5%) |
| Constant default rate | 0.0% - 8.1% (1.6%) |
| Loss severity | 30.0% - 100.0% (48.7%) |
| Spread over the benchmark curve (b) | 227bps weighted-average |
| Loans - Residential real estate - Uninsured | 532 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (57.4%) |
| Loss severity | 0.0% - 100.0% (5.1%) |
| Discount rate | 5.5% - 7.5% (5.8%) |
| Loans - Residential real estate | 71 | | Discounted cash flow | Loss severity | 6.0% weighted-average |
| Discount rate | 8.0% weighted-average |
| Loans - Home equity - First-lien | 16 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (58.6%) |
| Loss severity | 0.0% - 100.0% (12.9%) |
| Discount rate | 5.5% - 7.5% (6.1%) |
| Loans - Home equity | 82 | | Consensus pricing (c) | Credit and liquidity discount | 0.0% - 100.0% (42.1%) |
| Equity investments | 2,030 | | Multiple of adjusted earnings | Multiple of earnings | 5.0x - 27.0x (10.3x) |
| Residential mortgage servicing rights | 2,657 | | Discounted cash flow | Constant prepayment rate | 0.0% - 40.7% (6.3%) |
| Spread over the benchmark curve (b) | 336bps - 2,338bps (764bps) |
| Commercial mortgage servicing rights | 1,082 | | Discounted cash flow | Constant prepayment rate | 5.1% - 8.3% (5.3%) |
| Discount rate | 8.1% - 10.3% (10.0%) |
Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | (180) | | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 1.59 weighted-average |
| Estimated annual growth rate of Visa Class A share price | 16.0% |
| Estimated litigation resolution date | Q1 2026 |
Insignificant Level 3 assets, net of
liabilities (d) | 66 | | | | |
| Total Level 3 assets, net of liabilities (e) | $ | 7,080 | | | | |
80 The PNC Financial Services Group, Inc. – Form 10-Q
(Continued from previous page)
December 31, 2023
| | | | | | | | | | | | | | |
Level 3 Instruments Only
Dollars in millions | Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted-Average) (a) |
| Commercial mortgage loans held for sale | $ | 11 | | Discounted cash flow | Spread over the benchmark curve (b) | 575bps - 3,610bps (1,647bps) |
Residential mortgage-backed
non-agency securities | 696 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 27.9% (3.7%) |
| Constant default rate | 0.0% - 12.0% (2.7%) |
| Loss severity | 10.0% - 69.0% (41.2%) |
| Spread over the benchmark curve (b) | 285bps weighted-average |
| Asset-backed securities | 102 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 28.0% (5.1%) |
| Constant default rate | 0.0% - 4.3% (1.7%) |
| Loss severity | 20.0% - 100.0% (49.5%) |
| Spread over the benchmark curve (b) | 248bps weighted-average |
| Loans - Residential real estate - Uninsured | 546 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (59.1%) |
| Loss severity | 0.0% - 100.0% (5.4%) |
| Discount rate | 5.5% - 7.5% (5.8%) |
| Loans - Residential real estate | 75 | | Discounted cash flow | Loss severity | 6.0% weighted-average |
| Discount rate | 7.8% weighted-average |
| Loans - Home equity - First-lien | 18 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (60.9%) |
| Loss severity | 0.0% - 100.0% (14.4%) |
| Discount rate | 5.5% - 7.5% (6.2%) |
| Loans - Home equity | 87 | | Consensus pricing (c) | Credit and liquidity discount | 0.3% - 100.0% (43.8%) |
| Equity investments | 1,952 | | Multiple of adjusted earnings | Multiple of earnings | 4.5x - 26.7x (10.1x) |
| Residential mortgage servicing rights | 2,654 | | Discounted cash flow | Constant prepayment rate | 0.0% - 33.6% (6.4%) |
| Spread over the benchmark curve (b) | 337bps - 1,668bps (765bps) |
| Commercial mortgage servicing rights | 1,032 | | Discounted cash flow | Constant prepayment rate | 5.3% - 9.7% (5.5%) |
| Discount rate | 7.6% - 10.0% (9.6%) |
| | | |
| | | | |
Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | (145) | | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 1.59 weighted-average |
| Estimated annual growth rate of Visa Class A share price | 16.0% |
| Estimated litigation resolution date | Q3 2024 |
Insignificant Level 3 assets, net of
liabilities (d) | 22 | | | | |
| Total Level 3 assets, net of liabilities (e) | $ | 7,050 | | | | |
(a)Unobservable inputs were weighted by the relative fair value of the instruments.
(b)The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporate non-interest rate risks, such as credit and liquidity risks.
(c)Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices.
(d)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities.
(e)Consisted of total Level 3 assets of $7.5 billion and total Level 3 liabilities of $0.4 billion as of June 30, 2024 and $7.4 billion and $0.4 billion as of December 31, 2023, respectively.
Financial Assets Accounted for at Fair Value on a Nonrecurring Basis
We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 69. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 14 Fair Value in our 2023 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q 81
Assets measured at fair value on a nonrecurring basis follow:
Table 69: Fair Value Measurements – Nonrecurring (a) (b) (c)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Gains (Losses)
Three months ended | | Gains (Losses)
Six months ended | |
| In millions | June 30
2024 | | December 31
2023 | | June 30
2024 | | June 30
2023 | | June 30
2024 | | June 30
2023 | |
| Assets | | | | | | | | | | | | |
| Nonaccrual loans | $ | 769 | | | $ | 578 | | | $ | (192) | | | $ | (99) | | | $ | (245) | | | $ | (174) | | |
| Equity investments | 170 | | | 203 | | | 8 | | | (5) | | | (1) | | | (8) | | |
| Loans held for sale | 25 | | | | | | | | | | | | | |
| OREO and foreclosed assets | 6 | | | 12 | | | (1) | | | | | (2) | | | (1) | | |
| Long-lived assets | 10 | | | 9 | | | (3) | | | (10) | | | (6) | | | (15) | | |
| Total assets | $ | 980 | | | $ | 802 | | | $ | (188) | | | $ | (114) | | | $ | (254) | | | $ | (198) | | |
(a)All Level 3 for the periods presented, except for $25 million included in Loans held for sale which was categorized as Level 2 as of June 30, 2024 and $30 million included in Equity investments which was categorized as Level 1 as of December 31, 2023.
(b)Valuation techniques applied were fair value of property or collateral.
(c)Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented.
Financial Instruments Accounted for under Fair Value Option
We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, see Note 14 Fair Value in our 2023 Form 10-K.
Fair values and aggregate unpaid principal balances of items for which we elected the fair value option are as follows:
Table 70: Fair Value Option – Fair Value and Principal Balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 | |
| In millions | Fair Value | | Aggregate Unpaid
Principal Balance | | Difference | | Fair Value | | Aggregate Unpaid
Principal Balance | | Difference | |
| Assets | | | | | | | | | | | | |
| Residential mortgage loans held for sale | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 604 | | | $ | 601 | | | $ | 3 | | | $ | 432 | | | $ | 429 | | | $ | 3 | | |
| Accruing loans 90 days or more past due | 8 | | | 8 | | | | | 6 | | | 6 | | | | |
| Nonaccrual loans | 30 | | | 36 | | | (6) | | | 36 | | | 43 | | | (7) | | |
| Total | $ | 642 | | | $ | 645 | | | $ | (3) | | | $ | 474 | | | $ | 478 | | | $ | (4) | | |
| Commercial mortgage loans held for sale (a) (b) | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 295 | | | $ | 289 | | | $ | 6 | | | $ | 238 | | | $ | 228 | | | $ | 10 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Loans | | | | | | | | | | | | |
| Accruing loans less than 90 days past due | $ | 607 | | | $ | 646 | | | $ | (39) | | | $ | 507 | | | $ | 520 | | | $ | (13) | | |
| Accruing loans 90 days or more past due | 119 | | | 130 | | | (11) | | | 146 | | | 156 | | | (10) | | |
| Nonaccrual loans | 465 | | | 631 | | | (166) | | | 585 | | | 793 | | | (208) | | |
| Total | $ | 1,191 | | | $ | 1,407 | | | $ | (216) | | | $ | 1,238 | | | $ | 1,469 | | | $ | (231) | | |
| Other assets | $ | 129 | | | $ | 132 | | | $ | (3) | | | $ | 85 | | | $ | 69 | | | $ | 16 | | |
| Liabilities | | | | | | | | | | | | |
| Other borrowed funds | $ | 32 | | | $ | 33 | | | $ | (1) | | | $ | 39 | | | $ | 40 | | | $ | (1) | | |
| Other liabilities | $ | 104 | | | | | $ | 104 | | | $ | 124 | | | | | $ | 124 | | |
(a)There were no accruing loans 90 days or more past due within this category at June 30, 2024 or December 31, 2023.
(b)There were no nonaccrual loans within this category at June 30, 2024 or December 31, 2023.
82 The PNC Financial Services Group, Inc. – Form 10-Q
The changes in fair value for items for which we elected the fair value option are as follows:
Table 71: Fair Value Option – Changes in Fair Value (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gains (Losses) | | Gains (Losses) | |
| | Three months ended | | Six months ended | |
| June 30 | | June 30 | | June 30 | | June 30 | |
| In millions | 2024 | | 2023 | | 2024 | | 2023 | |
| Assets | | | | | | | | |
| Residential mortgage loans held for sale | $ | 6 | | | $ | 2 | | | $ | 14 | | | $ | 17 | | |
| Commercial mortgage loans held for sale | $ | 14 | | | $ | 22 | | | $ | 9 | | | $ | 23 | | |
| Loans | $ | 6 | | | $ | 5 | | | $ | 12 | | | $ | 9 | | |
| Other assets | $ | (2) | | | $ | 2 | | | $ | 3 | | | $ | (12) | | |
| Liabilities | | | | | | | | |
| Other liabilities | $ | (7) | | | $ | (21) | | | $ | (9) | | | $ | (41) | | |
(a)The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.
Additional Fair Value Information Related to Financial Instruments Not Recorded at Fair Value
The following table presents the carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of all other financial instruments that are not recorded on our Consolidated Balance Sheet at fair value as of June 30, 2024 and December 31, 2023. For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 72, see Note 14 Fair Value in our 2023 Form 10-K.
Table 72: Additional Fair Value Information Related to Other Financial Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair Value | |
| In millions | Amount | | Total | | Level 1 | | Level 2 | | Level 3 | |
| June 30, 2024 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Cash and due from banks | $ | 6,242 | | | $ | 6,242 | | | $ | 6,242 | | | | | | |
| Interest-earning deposits with banks (a) | 33,039 | | | 33,039 | | | 32,630 | | | $ | 409 | | | | |
| Securities held to maturity | 87,462 | | | 82,255 | | | 29,716 | | | 52,387 | | | $ | 152 | | |
| Net loans (excludes leases) | 309,047 | | | 302,613 | | | | | | | 302,613 | | |
| Other assets | 5,734 | | | 5,709 | | | | | 5,700 | | | 9 | | |
| Total assets | $ | 441,524 | | | $ | 429,858 | | | $ | 68,588 | | | $ | 58,496 | | | $ | 302,774 | | |
| Liabilities | | | | | | | | | | |
| Time deposits | $ | 35,905 | | | $ | 35,910 | | | | | $ | 35,910 | | | | |
| Borrowed funds | 70,511 | | | 71,325 | | | | | 70,240 | | | $ | 1,085 | | |
| Unfunded lending related commitments | 717 | | | 717 | | | | | | | 717 | | |
| Other liabilities | 1,229 | | | 1,229 | | | | | 1,229 | | | | |
| Total liabilities | $ | 108,362 | | | $ | 109,181 | | | | | $ | 107,379 | | | $ | 1,802 | | |
| December 31, 2023 | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Cash and due from banks | $ | 6,921 | | | $ | 6,921 | | | $ | 6,921 | | | | | | |
| Interest-earning deposits with banks (a) | 43,804 | | | 43,804 | | | 43,313 | | | $ | 491 | | | | |
| Securities held to maturity | 90,790 | | | 86,948 | | | 30,943 | | | 55,850 | | | $ | 155 | | |
| Net loans (excludes leases) | 308,936 | | | 299,645 | | | | | | | 299,645 | | |
| Other assets | 5,872 | | | 5,872 | | | | | 5,872 | | | | | |
| Total assets | $ | 456,323 | | | $ | 443,190 | | | $ | 81,177 | | | $ | 62,213 | | | $ | 299,800 | | |
| Liabilities | | | | | | | | | | |
| Time deposits | $ | 31,569 | | | $ | 31,602 | | | | | $ | 31,602 | | | | |
| Borrowed funds | 71,816 | | | 72,369 | | | | | 71,194 | | | $ | 1,175 | | |
| Unfunded lending related commitments | 663 | | | 663 | | | | | | | 663 | | |
| Other liabilities | 1,091 | | | 1,091 | | | | | 1,091 | | | | |
| Total liabilities | $ | 105,139 | | | $ | 105,725 | | | | | $ | 103,887 | | | $ | 1,838 | | |
(a)In the second quarter of 2024, we reclassified balances held at the Federal Reserve Bank from Level 2 to Level 1 to align with our updated cash and cash equivalents policy. For additional details, see Note 1 Accounting Policies.
The PNC Financial Services Group, Inc. – Form 10-Q 83
The aggregate fair values in Table 72 represent only a portion of the total market value of our assets and liabilities as, in accordance with the guidance related to fair values about financial instruments, we exclude the following:
•financial instruments recorded at fair value on a recurring basis (as they are disclosed in Table 66),
•investments accounted for under the equity method,
•equity securities without a readily determinable fair value that apply for the alternative measurement approach to fair value under ASU 2016-01,
•real and personal property,
•lease financing,
•loan customer relationships,
•deposit customer intangibles,
•MSRs,
•retail branch networks,
•fee-based businesses, such as asset management and brokerage,
•trademarks and brand names,
•trade receivables and payables due in one year or less,
•deposit liabilities with no defined or contractual maturities under ASU 2016-01, and
•insurance contracts.
NOTE 12 FINANCIAL DERIVATIVES
We use a variety of financial derivatives to both mitigate exposure to market (primarily interest rate) and credit risks inherent in our business activities, as well as to facilitate customer risk management activities. We manage these risks as part of our overall asset and liability management process and through our credit policies and procedures. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.
Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and it is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate, security price, credit spread or other index. Residential and commercial real estate loan commitments associated with loans to be sold also qualify as derivative instruments.
For more information regarding derivatives, see Note 1 Accounting Policies and Note 15 Financial Derivatives in our 2023 Form 10-K.
84 The PNC Financial Services Group, Inc. – Form 10-Q
The following tables presents the notional and gross fair value amounts of all derivative assets and liabilities held by us:
Table 73: Total Gross Derivatives (a)
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | December 31, 2023 |
| In millions | Notional /
Contract Amount | Asset Fair
Value (b) | Liability Fair
Value (c) | Notional /
Contract Amount | Asset Fair
Value (b) | Liability Fair
Value (c) |
| Derivatives used for hedging | | | | | | |
| Interest rate contracts: | | | | | | |
| Fair value hedges (d) | $ | 45,627 | | | | $ | 32,079 | | | |
| Cash flow hedges (d) | 52,797 | | $ | 2 | | | | 33,302 | | | |
| Cash flow hedges - other (e) | 25,000 | | 209 | | $ | 217 | | 25,000 | | $ | 327 | | $ | 137 | |
| Foreign exchange contracts: | | | | | | |
| Net investment hedges | 1,235 | | 7 | | | | 1,174 | | | 2 | |
| Total derivatives designated for hedging | $ | 124,659 | | $ | 218 | | $ | 217 | | $ | 91,555 | | $ | 327 | | $ | 139 | |
| Derivatives not used for hedging | | | | | | |
| Derivatives used for mortgage banking activities (f): | | | | | | |
| Interest rate contracts: | | | | | | |
| Swaps | $ | 46,247 | | | | | $ | 43,450 | | | | |
| Futures (g) | 8,920 | | | | 10,370 | | | |
| Mortgage-backed commitments | 4,573 | | $ | 58 | | $ | 51 | | 3,093 | | $ | 66 | | $ | 67 | |
| Other | 15,695 | | 18 | | 11 | | 15,544 | | 46 | | 22 | |
| Total interest rate contracts | 75,435 | | 76 | | 62 | | 72,457 | | 112 | | 89 | |
| Derivatives used for customer-related activities: | | | | | | |
| Interest rate contracts: | | | | | | |
| Swaps | 395,502 | | 1,733 | | 4,815 | | 401,607 | | 1,723 | | 4,228 | |
| Futures (g) | 110 | | | | 73 | | | |
| Mortgage-backed commitments | 4,595 | | 5 | | 9 | | 2,592 | | 9 | | 25 | |
| Other | 27,749 | | 185 | | 138 | | 28,489 | | 186 | | 169 | |
| Total interest rate contracts | 427,956 | | 1,923 | | 4,962 | | 432,761 | | 1,918 | | 4,422 | |
| Commodity contracts: | | | | | | |
| Swaps | 6,498 | | 380 | | 356 | | 6,714 | | 577 | | 569 | |
| Other | 9,130 | | 230 | | 230 | | 4,797 | | 188 | | 188 | |
| Total commodity contracts | 15,628 | | 610 | | 586 | | 11,511 | | 765 | | 757 | |
| Foreign exchange contracts and other | 31,280 | | 248 | | 196 | | 32,885 | | 295 | | 239 | |
| Total derivatives for customer-related activities | 474,864 | | 2,781 | | 5,744 | | 477,157 | | 2,978 | | 5,418 | |
| Derivatives used for other risk management activities: | | | | | | |
| Foreign exchange contracts and other | 12,372 | | 45 | | 193 | | 14,882 | | 12 | | 253 | |
| Total derivatives not designated for hedging | $ | 562,671 | | $ | 2,902 | | $ | 5,999 | | $ | 564,496 | | $ | 3,102 | | $ | 5,760 | |
| Total gross derivatives | $ | 687,330 | | $ | 3,120 | | $ | 6,216 | | $ | 656,051 | | $ | 3,429 | | $ | 5,899 | |
| Less: Impact of legally enforceable master netting agreements | | 1,321 | | 1,321 | | | 1,406 | | 1,406 | |
| Less: Cash collateral received/paid | | 1,139 | | 1,189 | | | 1,126 | | 955 | |
| Total derivatives | | $ | 660 | | $ | 3,706 | | | $ | 897 | | $ | 3,538 | |
(a)Centrally cleared derivatives are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.
(b)Included in Other assets on our Consolidated Balance Sheet.
(c)Included in Other liabilities on our Consolidated Balance Sheet.
(d)Represents primarily swaps.
(e)Represents caps and floors.
(f)Includes both residential and commercial mortgage banking activities.
(g)Futures contracts are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.
All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting and Counterparty Credit Risk section of this Note 12. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.
The PNC Financial Services Group, Inc. – Form 10-Q 85
Derivatives Designated As Hedging Instruments
Certain derivatives used to manage interest rate and foreign exchange risk as part of our asset and liability risk management activities are designated as accounting hedges. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of expected future cash flows are considered cash flow hedges and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives to be recognized in the same period and in the same income statement line item as the earnings impact of the hedged items.
Fair Value Hedges
We enter into receive-fixed, pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt caused by fluctuations in market interest rates. We also enter into pay-fixed, receive-variable interest rate swaps and zero-coupon swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. Gains and losses on the interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item.
Cash Flow Hedges
We enter into receive-fixed, pay-variable interest rate swaps and interest rate caps and floors to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. We also periodically enter into forward purchase and sale contracts to hedge the variability of the consideration that will be paid or received related to the purchase or sale of investment securities. The forecasted purchase or sale is consummated upon gross settlement of the forward contract itself. For these cash flow hedges, gains and losses on the hedging instruments are recorded in AOCI and are then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line as the hedged cash flows.
In the 12 months that follow June 30, 2024, we expect to reclassify net derivative losses of $1.1 billion pretax, or $0.9 billion after-tax, from AOCI to interest income for these cash flow hedge strategies. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to June 30, 2024. As of June 30, 2024, the maximum length of time over which forecasted transactions are hedged is ten years.
86 The PNC Financial Services Group, Inc. – Form 10-Q
Further detail regarding gains (losses) related to our fair value and cash flow hedge derivatives is presented in the following table:
Table 74: Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement (a) (b)
| | | | | | | | | | | | | | |
| | Location and Amount of Gains (Losses) Recognized in Income |
| Interest Income | Interest Expense | Noninterest Income |
| In millions | Loans | Investment Securities | Borrowed Funds | Other |
| For the three months ended June 30, 2024 | | | | |
| Total amounts in the Consolidated Income Statement | $ | 4,842 | | $ | 1,001 | | $ | 1,182 | | $ | 332 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | 182 | | $ | 22 | | |
| Derivatives | | $ | (185) | | $ | (19) | | |
| Amounts related to interest settlements on derivatives | | $ | 29 | | $ | (190) | | |
| Gains (losses) on cash flow hedges (d): | | | | |
Amount of derivative gains (losses) reclassified from accumulated
other comprehensive income | $ | (347) | | $ | (8) | | | $ | (28) | |
| Other amounts related to interest settlements on derivatives | $ | 20 | | | | |
| For the three months ended June 30, 2023 | | | | |
| Total amounts in the Consolidated Income Statement | $ | 4,523 | | $ | 883 | | $ | 903 | | $ | 129 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | (48) | | $ | 432 | | |
| Derivatives | | $ | 50 | | $ | (439) | | |
| Amounts related to interest settlements on derivatives | | $ | 7 | | $ | (147) | | |
| Gains (losses) on cash flow hedges (d): | | | | |
Amount of derivative gains (losses) reclassified from accumulated
other comprehensive income | $ | (365) | | $ | (8) | | | |
| Other amounts related to interest settlements on derivatives | $ | 27 | | | | |
| For the six months ended June 30, 2024 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 9,661 | | $ | 1,884 | | $ | 2,341 | | $ | 467 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | 108 | | $ | 435 | | |
| Derivatives | | $ | (111) | | $ | (447) | | |
| Amounts related to interest settlements on derivatives | | $ | 39 | | $ | (365) | | |
| Gains (losses) on cash flow hedges (d): | | | | |
Amount of derivative gains (losses) reclassified from accumulated
other comprehensive income | $ | (716) | | $ | (15) | | | $ | (28) | |
| Other amounts related to interest settlements on derivatives | $ | 42 | | | | |
| For the six months ended June 30, 2023 | | | | |
| Total amounts on the Consolidated Income Statement | $ | 8,781 | | $ | 1,768 | | $ | 1,686 | | $ | 387 | |
| Gains (losses) on fair value hedges recognized on: | | | | |
| Hedged items (c) | | $ | (1) | | $ | 135 | | |
| Derivatives | | $ | 5 | | $ | (148) | | |
| Amounts related to interest settlements on derivatives | | $ | 12 | | $ | (260) | | |
| Gains (losses) on cash flow hedges (d): | | | | |
Amount of derivative gains (losses) reclassified from accumulated
other comprehensive income | $ | (690) | | $ | (13) | | | |
| Other amounts related to interest settlements on derivatives | $ | 55 | | | | |
(a)For all periods presented, there were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the fair value or cash flow hedge strategies.
(b)All cash flow and fair value hedge derivatives were interest rate contracts for the periods presented.
(c)Includes an insignificant amount of fair value hedge adjustments related to discontinued hedge relationships.
(d)For all periods presented, there were no gains or losses from cash flow hedge derivatives reclassified to income because it became probable that the original forecasted transaction would not occur.
The PNC Financial Services Group, Inc. – Form 10-Q 87
Detail regarding the impact of fair value hedge accounting on the carrying value of the hedged items is presented in the following table:
Table 75: Hedged Items - Fair Value Hedges
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 |
| In millions | Carrying Value of the Hedged Items | | Cumulative Fair
Value Hedge Adjustment
included in the Carrying
Value of Hedged Items (a) | | Carrying Value of the Hedged Items | | Cumulative Fair Value
Hedge Adjustment
included in the Carrying
Value of Hedged Items (a) | |
| Investment securities - available for sale (b) | $ | 12,000 | | | $ | (12) | | | $ | 2,076 | | | $ | (122) | | |
| Borrowed funds | $ | 32,543 | | | $ | (1,172) | | | $ | 30,503 | | | $ | (737) | | |
(a)Includes less than $(0.1) billion of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships at both June 30, 2024 and December 31, 2023.
(b)Carrying value shown represents amortized cost.
Net Investment Hedges
We enter into foreign currency forward contracts to hedge non-U.S. dollar net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. Net investment hedge derivatives are classified as foreign exchange contracts. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness for the periods presented. Net gains (losses) on net investment hedge derivatives recognized in OCI were $(2) million for the three months ended June 30, 2024 compared to $(28) million for the three months ended June 30, 2023 and $9 million for the six months ended June 30, 2024 compared to $(46) million for the same period in 2023.
Derivatives Not Designated As Hedging Instruments
For additional information on derivatives not designated as hedging instruments under GAAP, see Note 15 Financial Derivatives in our 2023 Form 10-K.
Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table:
Table 76: Gains (Losses) on Derivatives Not Designated for Hedging
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended June 30 | | Six months ended June 30 | |
| In millions | | | | 2024 | 2023 | | 2024 | 2023 | |
| Derivatives used for mortgage banking activities: | | | | | | | | | |
| Interest rate contracts (a) | | | | $ | (45) | | $ | (184) | | | $ | (168) | | $ | (77) | | |
| Derivatives used for customer-related activities: | | | | | | | | | |
| Interest rate contracts | | | | (21) | | 33 | | | (37) | | 35 | | |
| Foreign exchange contracts and other | | | | 46 | | 58 | | | 75 | | 114 | | |
| Gains from customer-related activities (b) | | | | 25 | | 91 | | | 38 | | 149 | | |
| Derivatives used for other risk management activities: | | | | | | | | | |
| Foreign exchange contracts and other (b) | | | | (93) | | (137) | | | 32 | | (214) | | |
| Total gains (losses) from derivatives not designated as hedging instruments | | | | $ | (113) | | $ | (230) | | | $ | (98) | | $ | (142) | | |
(a)Included in Residential and commercial mortgage noninterest income on our Consolidated Income Statement.
(b)Included in Capital markets and advisory and Other noninterest income on our Consolidated Income Statement.
Offsetting and Counterparty Credit Risk
We generally utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of all outstanding derivative instruments under the master netting agreement with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party’s net position. For additional information on derivative offsetting and counterparty credit risk, see Note 15 Financial Derivatives in our 2023 Form 10-K.
Table 77 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities at June 30, 2024 and December 31, 2023. The table includes cash collateral held or pledged under legally enforceable master netting
88 The PNC Financial Services Group, Inc. – Form 10-Q
agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.
Table 77 includes OTC derivatives not settled through an exchange (“OTC derivatives”) and OTC derivatives cleared through a central clearing house (“OTC cleared derivatives”). OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or directly cleared through a central clearing house. The majority of OTC derivatives are governed by the ISDA documentation or other legally enforceable master netting agreements. OTC cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house that then becomes our counterparty. OTC cleared derivative instruments are typically settled in cash each day based on the prior day value.
Table 77: Derivative Assets and Liabilities Offsetting
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | | | Amounts Offset on the
Consolidated Balance Sheet | | | | | | Securities Collateral Held/Pledged Under Master Netting Agreements | | | |
Gross
Fair Value | | Fair Value
Offset Amount | | Cash
Collateral | | Net
Fair Value | | | | Net Amounts | |
| June 30, 2024 | | | | | | | | | | | | | | | |
| Derivative assets | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 11 | | | | | | | $ | 11 | | | | | | | $ | 11 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 2,199 | | | $ | 914 | | | $ | 870 | | | 415 | | | | | $ | 31 | | | 384 | | |
| Commodity contracts | | 610 | | | 324 | | | 156 | | | 130 | | | | | 2 | | 128 | | |
| Foreign exchange and other contracts | | 300 | | | 83 | | | 113 | | | 104 | | | | | | | 104 | | |
| Total derivative assets | | $ | 3,120 | | | $ | 1,321 | | | $ | 1,139 | | | $ | 660 | | | (a) | | $ | 33 | | | $ | 627 | | |
| Derivative liabilities | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 15 | | | | | | | $ | 15 | | | | | | | $ | 15 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 5,226 | | | $ | 802 | | | $ | 1,188 | | | 3,236 | | | | | $ | 64 | | | 3,172 | | |
| Commodity contracts | | 586 | | | 418 | | | | | | 168 | | | | | | | 168 | | |
| Foreign exchange and other contracts | | 389 | | | 101 | | | 1 | | | 287 | | | | | | | 287 | | |
| Total derivative liabilities | | $ | 6,216 | | | $ | 1,321 | | | $ | 1,189 | | | $ | 3,706 | | | (b) | | $ | 64 | | | $ | 3,642 | | |
| December 31, 2023 | | | | | | | | | | | | | | | |
| Derivative assets | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 19 | | | | | | | $ | 19 | | | | | | | $ | 19 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 2,338 | | | $ | 976 | | | $ | 767 | | | 595 | | | | | $ | 61 | | | 534 | | |
| Commodity contracts | | 765 | | | 316 | | | 283 | | | 166 | | | | | 5 | | | 161 | | |
| Foreign exchange and other contracts | | 307 | | | 114 | | | 76 | | | 117 | | | | | | | | 117 | | |
| Total derivative assets | | $ | 3,429 | | | $ | 1,406 | | | $ | 1,126 | | | $ | 897 | | | (a) | | $ | 66 | | | $ | 831 | | |
| Derivative liabilities | | | | | | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | | | | | | |
| Over-the-counter cleared | | $ | 36 | | | | | | | $ | 36 | | | | | | | $ | 36 | | |
| | | | | | | | | | | | | | | |
| Over-the-counter | | 4,612 | | | $ | 885 | | | $ | 942 | | | 2,785 | | | | | $ | 58 | | | 2,727 | | |
| Commodity contracts | | 757 | | | 332 | | | | | | 425 | | | | | | | | 425 | | |
| Foreign exchange and other contracts | | 494 | | | 189 | | | 13 | | | 292 | | | | | | | 292 | | |
| Total derivative liabilities | | $ | 5,899 | | | $ | 1,406 | | | $ | 955 | | | $ | 3,538 | | | (b) | | $ | 58 | | | $ | 3,480 | | |
(a)Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet.
(b)Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.
In addition to using master netting agreements and other collateral agreements to reduce credit risk associated with derivative instruments, we also seek to manage credit risk by evaluating credit ratings of counterparties and by using internal credit analysis, limits and monitoring procedures.
At June 30, 2024, cash and debt securities (primarily agency mortgage-backed securities) totaling $2.5 billion were pledged to us under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties and to
The PNC Financial Services Group, Inc. – Form 10-Q 89
meet initial margin requirements, and we pledged cash and debt securities (primarily agency mortgage-backed securities) totaling $2.5 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities pledged to us by counterparties are not recognized on our balance sheet. Likewise, securities we have pledged to counterparties remain on our balance sheet.
Credit-Risk Contingent Features
Certain derivative agreements contain various credit-risk-related contingent provisions, such as those that require our debt to maintain a specified credit rating from one or more of the major credit rating agencies. If our debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions. The following table presents the aggregate fair value of derivative instruments with credit-risk-related contingent features, the associated collateral posted in the normal course of business and the maximum amount of collateral we would be required to post if the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2024 and December 31, 2023.
Table 78: Credit-Risk Contingent Features
| | | | | | | | | | | | | | |
| In billions | June 30, 2024 | | December 31, 2023 | |
| Net derivative liabilities with credit-risk contingent features | $ | 4.8 | | | $ | 4.2 | | |
| Less: Collateral posted | 1.3 | | | 1.0 | | |
| Maximum additional amount of collateral exposure | $ | 3.5 | | | $ | 3.2 | | |
NOTE 13 LEGAL PROCEEDINGS
We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. When we are able to do so, we also determine estimates of reasonably possible losses or ranges of reasonably possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in this Note 13 as well as those matters disclosed in Note 20 Legal Proceedings in our 2023 Form 10-K (such prior disclosure referred to as “Prior Disclosure”)). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of June 30, 2024, we estimate that it is reasonably possible that we could incur losses in excess of related accrued liabilities, if any, in an aggregate amount less than $300 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.
As a result of the types of factors described in Note 20 Legal Proceedings in our 2023 Form 10-K, we are unable, at this time, to estimate the losses that are reasonably possible to be incurred or ranges of such losses with respect to some of the Disclosed Matters, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the Disclosed Matters. The estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”
We include in some of the descriptions of individual Disclosed Matters certain quantitative information related to the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings or otherwise publicly available information. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual.
Some of our exposure in Disclosed Matters may be offset by applicable insurance coverage. We do not consider the possible availability of insurance coverage in determining the amounts of any accruals (although we would record the amount of related insurance recoveries that are deemed probable up to the amount of the accrual) or in determining any estimates of possible losses or ranges of possible losses.
90 The PNC Financial Services Group, Inc. – Form 10-Q
Interchange Litigation
In June 2024, the district court denied preliminary approval of the settlement agreement to resolve the class action seeking equitable relief in the U.S. District Court for the Eastern District of New York under the caption In re Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation (Master File No. 1:05-md-1720-MKB-JAM).
Regulatory and Governmental Inquiries
We are the subject of investigations, audits, examinations and other forms of regulatory and governmental inquiry covering a broad
range of issues in our consumer, mortgage, brokerage, securities and other financial services businesses, as well as other aspects of our operations. In some cases, these inquiries are part of reviews of specified activities at multiple industry participants; in others, they are directed at PNC individually. From time to time, these inquiries have involved and may in the future involve or lead to regulatory enforcement actions and other administrative proceedings. These inquiries have also led to and may in the future lead to civil or criminal judicial proceedings. Some of these inquiries result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs and other consequences. Such remedies and other consequences typically have not been material to us from a financial standpoint, but could be in the future. Even if not financially material, they may result in significant reputational harm or other adverse consequences. Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries.
Other
In addition to the proceedings or other matters described in Prior Disclosure, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position. However, we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.
NOTE 14 SEGMENT REPORTING
We have three reportable business segments: Retail Banking, Corporate & Institutional Banking and Asset Management Group:
Retail Banking provides deposit, lending, brokerage, insurance services, investment management and cash management products and services to consumer and small business customers who are serviced through our coast-to-coast branch network, digital channels, ATMs, or through our phone-based customer contact centers. Deposit products include checking, savings and money market accounts and time deposits. Lending products include residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans and personal and small business loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to agency and/or third-party standards, and either sold, servicing retained or held on our balance sheet. Brokerage, investment management and cash management products and services include managed, education, retirement and trust accounts.
Corporate & Institutional Banking provides lending, treasury management, capital markets and advisory products and services to mid-sized and large corporations and government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. The Treasury Management business provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services and access to online/mobile information management and reporting services. Capital markets and advisory includes services and activities primarily related to merger and acquisitions advisory, equity capital markets advisory, asset-backed financing, loan syndication, securities underwriting and customer-related trading. We also provide commercial loan servicing and technology solutions for the commercial real estate finance industry. Products and services are provided nationally.
Asset Management Group provides private banking for high net worth and ultra high net worth clients and institutional asset management. The Asset Management group is composed of two operating units:
•PNC Private Bank provides products and services to emerging affluent, high net worth and ultra high net worth individuals and their families including investment and retirement planning, customized investment management, credit and cash management solutions, trust management and administration. In addition, multi-generational family planning services are also provided to ultra high net worth individuals and their families, which include estate, financial, tax, fiduciary and customized performance reporting through PNC Private Bank Hawthorn.
The PNC Financial Services Group, Inc. – Form 10-Q 91
•Institutional Asset Management provides outsourced chief investment officer, custody, 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.
The remaining corporate operations are reflected in Other:
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, corporate overhead net of allocations, tax adjustments that are not allocated to business segments, exited businesses and the residual impact from FTP operations. Other earnings declined in both the quarterly and year-to-date comparisons. Amounts for the second quarter of 2024 were driven by the residual impacts from FTP due to the interest rate environment, and the loss related to the repositioning of the investment securities portfolio, along with the expense related to a PNC Foundation contribution. Other earnings for the first six months of 2024 also included the additional expense related to the increase in the FDIC’s expected losses.
Basis of Presentation
Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual businesses are not necessarily comparable with similar information for any other company. We periodically refine our internal methodologies as management reporting practices are enhanced. To the extent significant and practicable, retrospective application of new methodologies is made to prior period reportable business segment results and disclosures to create comparability with the current period.
Funds Transfer Pricing
Net interest income in business segment results reflects our internal FTP methodology, which is designed to consider interest rate and liquidity risks. Under our methodology, assets receive a funding charge while liabilities and capital receive a funding credit based on market interest rates, product characteristics and other factors.
Our transfer pricing framework considers the application of funding curves and methodologies consistently across the balance sheet. A residual gain or loss from FTP operations is retained within Other. This residual gain or loss is reviewed by management quarterly, in accordance with the interagency guidance of the FDIC, Federal Reserve and OCC.
Segment Allocations
Financial results are presented, to the extent practicable, as if each business operated on a standalone basis, and includes expense allocations for corporate overhead services used by the business segments.
Certain costs are retained within Other. These costs are not allocated to our business segments because they (i) are transitory or highly irregular in nature, (ii) exist solely to support corporate activities unrelated to business segment operations, or (iii) reflect residual costs for an exited business. During the first six months of 2024, Other noninterest expense for the Other category included the additional expense related to the increase in the FDIC’s expected losses, as well as a PNC Foundation contribution. These costs were not allocated to our business segments as the FDIC special assessment expense was irregular in nature, and the contribution expense supported corporate activities.
We have allocated the ALLL and the allowance for unfunded lending related commitments based on the loan exposures within each business segment’s portfolio.
92 The PNC Financial Services Group, Inc. – Form 10-Q
Business Segment Results
Table 79: Results of Businesses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30
In millions | | Retail Banking | | Corporate &
Institutional
Banking | | Asset
Management
Group | | Other | | Consolidated (a) |
| 2024 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 2,709 | | | $ | 1,531 | | | $ | 163 | | | $ | (1,101) | | | $ | 3,302 | |
| Noninterest income | | 1,409 | | | 942 | | | 235 | | | (477) | | | 2,109 | |
| Total revenue | | 4,118 | | | 2,473 | | | 398 | | | (1,578) | | | 5,411 | |
| Provision for (recapture of) credit losses | | 27 | | | 228 | | | 2 | | | (22) | | | 235 | |
| Depreciation and amortization | | 80 | | | 51 | | | 9 | | | 145 | | | 285 | |
| Other noninterest expense | | 1,761 | | | 860 | | | 252 | | | 199 | | | 3,072 | |
| Income (loss) before income taxes (benefit) and noncontrolling interests | | 2,250 | | | 1,334 | | | 135 | | | (1,900) | | | 1,819 | |
| Income taxes (benefit) | | 524 | | | 283 | | | 32 | | | (497) | | | 342 | |
| Net income (loss) | | 1,726 | | | 1,051 | | | 103 | | | (1,403) | | | 1,477 | |
| Less: Net income attributable to noncontrolling interests | | 11 | | | 5 | | | | | 2 | | | 18 | |
| Net income (loss) excluding noncontrolling interests | | $ | 1,715 | | | $ | 1,046 | | | $ | 103 | | | $ | (1,405) | | | $ | 1,459 | |
| Average Assets | | $ | 115,102 | | | $ | 229,604 | | | $ | 17,018 | | | $ | 201,306 | | | $ | 563,030 | |
| 2023 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 2,448 | | | $ | 1,349 | | | $ | 125 | | | $ | (412) | | | $ | 3,510 | |
| Noninterest income | | 702 | | | 821 | | | 228 | | | 32 | | | 1,783 | |
| Total revenue | | 3,150 | | | 2,170 | | | 353 | | | (380) | | | 5,293 | |
| Provision for (recapture of) credit losses | | (14) | | | 209 | | | (10) | | | (39) | | | 146 | |
| Depreciation and amortization | | 81 | | | 53 | | | 7 | | | 143 | | | 284 | |
| Other noninterest expense | | 1,823 | | | 868 | | | 273 | | | 124 | | | 3,088 | |
| Income (loss) before income taxes (benefit) and noncontrolling interests | | 1,260 | | | 1,040 | | | 83 | | | (608) | | | 1,775 | |
| Income taxes (benefit) | | 295 | | | 218 | | | 20 | | | (258) | | | 275 | |
| Net income (loss) | | 965 | | | 822 | | | 63 | | | (350) | | | 1,500 | |
| Less: Net income attributable to noncontrolling interests | | 11 | | | 5 | | | | | | 1 | | | 17 | |
| Net income (loss) excluding noncontrolling interests | | $ | 954 | | | $ | 817 | | | $ | 63 | | | $ | (351) | | | $ | 1,483 | |
| Average Assets | | $ | 114,826 | | | $ | 234,174 | | | $ | 15,562 | | | $ | 190,945 | | | $ | 555,507 | |
| | | | | | | | | | |
The PNC Financial Services Group, Inc. – Form 10-Q 93
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Continued from previous page) | | | | | | | | | | |
Six months ended June 30
In millions | | Retail
Banking | | Corporate &
Institutional
Banking | | Asset
Management
Group | | Other | | Consolidated (a) |
| 2024 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 5,326 | | | $ | 3,051 | | | $ | 320 | | | $ | (2,131) | | | $ | 6,566 | |
| Noninterest income | | 2,173 | | | 1,830 | | | 465 | | | (478) | | | 3,990 | |
| Total revenue | | 7,499 | | | 4,881 | | | 785 | | | (2,609) | | | 10,556 | |
| Provision for (recapture of) credit losses | | 145 | | | 275 | | | (3) | | | (27) | | | 390 | |
| Depreciation and amortization | | 159 | | | 101 | | | 16 | | | 289 | | | 565 | |
| Other noninterest expense | | 3,519 | | | 1,732 | | | 510 | | | 365 | | | 6,126 | |
| Income (loss) before income taxes (benefit) and noncontrolling interests | | 3,676 | | | 2,773 | | | 262 | | | (3,236) | | | 3,475 | |
| Income taxes (benefit) | | 857 | | | 596 | | | 62 | | | (861) | | | 654 | |
| Net income (loss) | | 2,819 | | | 2,177 | | | 200 | | | (2,375) | | | 2,821 | |
| Less: Net income attributable to noncontrolling interests | | 19 | | | 10 | | | | | 3 | | | 32 | |
| Net income (loss) excluding noncontrolling interests | | $ | 2,800 | | | $ | 2,167 | | | $ | 200 | | | $ | (2,378) | | | $ | 2,789 | |
| Average Assets | | $ | 114,651 | | | $ | 229,151 | | | $ | 16,873 | | | $ | 202,264 | | | $ | 562,939 | |
| 2023 | | | | | | | | | | |
| Income Statement | | | | | | | | | | |
| Net interest income | | $ | 4,729 | | | $ | 2,732 | | | $ | 252 | | | $ | (618) | | | $ | 7,095 | |
| Noninterest income | | 1,445 | | | 1,707 | | | 458 | | | 191 | | | 3,801 | |
| Total revenue | | 6,174 | | | 4,439 | | | 710 | | | (427) | | | 10,896 | |
| Provision for (recapture of) credit losses | | 224 | | | 181 | | | (1) | | | (23) | | | 381 | |
| Depreciation and amortization | | 159 | | | 107 | | | 13 | | | 286 | | | 565 | |
| Other noninterest expense | | 3,672 | | | 1,753 | | | 547 | | | 156 | | | 6,128 | |
| Income (loss) before income taxes (benefit) and noncontrolling interests | | 2,119 | | | 2,398 | | | 151 | | | (846) | | | 3,822 | |
| Income taxes (benefit) | | 497 | | | 512 | | | 36 | | | (417) | | | 628 | |
| Net income (loss) | | 1,622 | | | 1,886 | | | 115 | | | (429) | | | 3,194 | |
Less: Net income attributable to noncontrolling interests | | 21 | | | 10 | | | | | 3 | | | 34 | |
| Net income (loss) excluding noncontrolling interests | | $ | 1,601 | | | $ | 1,876 | | | $ | 115 | | | $ | (432) | | | $ | 3,160 | |
| Average Assets | | $ | 115,103 | | | $ | 234,354 | | | $ | 15,282 | | | $ | 194,162 | | | $ | 558,901 | |
(a)There were no material intersegment revenues for the three and six months ended June 30, 2024 and 2023.
94 The PNC Financial Services Group, Inc. – Form 10-Q
NOTE 15 FEE-BASED REVENUE FROM CONTRACTS WITH CUSTOMERS
As more fully described in Note 23 Fee-based Revenue from Contracts with Customers in our 2023 Form 10-K, a subset of our noninterest income relates to certain fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606).
Fee-based revenue within the scope of Topic 606 is recognized within our three reportable business segments: Retail Banking, Corporate & Institutional Banking and Asset Management Group. Interest income, income from lease contracts, fair value gains from financial instruments (including derivatives), income from mortgage servicing rights and guarantee products, letter of credit fees, non-refundable fees associated with acquiring or originating a loan and gains from the sale of financial assets are outside of the scope of Topic 606.
Table 80 presents the noninterest income recognized within the scope of Topic 606 for each of our three reportable business segments’ principal products and services, along with the relationship to the noninterest income revenue streams shown on our Consolidated Income Statement. For a description of the fee-based revenue and how it is recognized for each segment’s principal products and services, see Note 23 Fee-based Revenue from Contracts with Customers in our 2023 Form 10-K.
Table 80: Noninterest Income by Business Segment and Reconciliation to Consolidated Noninterest Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, 2024 | Three Months Ended
June 30, 2023 |
In millions | | Retail Banking | | Corporate &
Institutional
Banking | | Asset Management Group | Retail Banking | | Corporate &
Institutional
Banking | | Asset Management Group |
| Asset management and brokerage | | | | | | | | | | | |
| Asset management fees | | | | | | $ | 229 | | | | | | $ | 222 | |
| Brokerage fees | | $ | 135 | | | | | | | $ | 124 | | | | | 2 | |
| Total asset management and brokerage | | 135 | | | | | 229 | | 124 | | | | | 224 | |
| Card and cash management | | | | | | | | | | | |
| Treasury management fees | | 11 | | | $ | 371 | | | | 11 | | | $ | 345 | | | |
| Debit card fees | | 176 | | | | | | | 178 | | | | | |
| Net credit card fees (a) | | 58 | | | | | | | 61 | | | | | |
| Merchant services | | 41 | | | 19 | | | | 45 | | | 19 | | | |
| Other | | 22 | | | | | | | 25 | | | | | |
| Total card and cash management | | 308 | | | 390 | | | | 320 | | | 364 | | | |
| Lending and deposit services | | | | | | | | | | | |
| Deposit account fees | | 158 | | | | | | 151 | | | | | |
| Other | | 19 | | | 8 | | | | 18 | | | 8 | | | |
| Total lending and deposit services | | 177 | | | 8 | | | | 169 | | | 8 | | | |
| Residential and commercial mortgage (b) | | | | 28 | | | | | | 40 | | | |
| Capital markets and advisory | | | | 193 | | | | | | 130 | | | |
| Other | | | | 11 | | | | | | 14 | | | |
| Total in-scope noninterest income | | 620 | | | 630 | | | 229 | | 613 | | | 556 | | | 224 | |
| Out-of-scope noninterest income (c) | | 789 | | | 312 | | | 6 | | 89 | | | 265 | | | 4 | |
| Noninterest income by business segment | | $ | 1,409 | | | $ | 942 | | | $ | 235 | | $ | 702 | | | $ | 821 | | | $ | 228 | |
| Reconciliation to consolidated noninterest income | | | |
| Total in-scope business segment noninterest income | | | | | | $ | 1,479 | | | | | | $ | 1,393 | |
| Out-of-scope business segment noninterest income (c) | | | | | | 1,107 | | | | | | 358 | |
| Noninterest income from other segments | | | | | | (477) | | | | | | 32 | |
| Noninterest income as shown on the Consolidated Income Statement | | | | | | $ | 2,109 | | | | | | $ | 1,783 | |
| | | | | | | |
The PNC Financial Services Group, Inc. – Form 10-Q 95
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Continued from previous page) | | Six Months Ended
June 30, 2024 | Six Months Ended
June 30, 2023 |
In millions | | Retail Banking | | Corporate &
Institutional
Banking | | Asset
Management
Group | Retail Banking | | Corporate &
Institutional
Banking | | Asset
Management
Group |
| Asset management and brokerage | | | | | | | | | | | |
| Asset management fees | | | | | | $ | 456 | | | | | | $ | 446 | |
| Brokerage fees | | $ | 272 | | | | | | | $ | 254 | | | | | 4 | |
| Total asset management and brokerage | | 272 | | | | | 456 | | 254 | | | | | 450 | |
| Card and cash management | | | | | | | | | | | |
| Treasury management fees | | 21 | | | $ | 728 | | | | 21 | | | $ | 673 | | | |
| Debit card fees | | 343 | | | | | | | 343 | | | | | | |
| Net credit card fees (a) | | 103 | | | | | | | 119 | | | | | | |
| Merchant services | | 78 | | | 38 | | | | 84 | | | 38 | | | |
| Other | | 44 | | | | | | | 49 | | | | | | |
| Total card and cash management | | 589 | | | 766 | | | | 616 | | | 711 | | | |
| Lending and deposit services | | | | | | | | | | | |
| Deposit account fees | | 313 | | | | | | 306 | | | | | |
| Other | | 35 | | | 17 | | | | 36 | | | 16 | | | |
| Total lending and deposit services | | 348 | | | 17 | | | | 342 | | | 16 | | | |
| Residential and commercial mortgage (b) | | | | 58 | | | | | | 82 | | | |
| Capital markets and advisory | | | | 383 | | | | | | 286 | | | |
| Other | | | | 28 | | | | | | 22 | | | |
| Total in-scope noninterest income | | 1,209 | | | 1,252 | | | 456 | | 1,212 | | | 1,117 | | | 450 | |
| Out-of-scope noninterest income (c) | | 964 | | | 578 | | | 9 | | 233 | | | 590 | | | 8 | |
| Noninterest income by business segment | | $ | 2,173 | | | $ | 1,830 | | | $ | 465 | | $ | 1,445 | | | $ | 1,707 | | | $ | 458 | |
| Reconciliation to consolidated noninterest income | | | | | | | |
| Total in-scope business segment noninterest income | | | | | | $ | 2,917 | | | | | | $ | 2,779 | |
| Out-of-scope business segment noninterest income (c) | | | | | | 1,551 | | | | | | 831 | |
| Noninterest income from other segments | | | | | | (478) | | | | | | 191 | |
| Noninterest income as shown on the Consolidated Income Statement | | | | | | $ | 3,990 | | | | | | $ | 3,801 | |
(a)Net credit card fees consists of interchange fees of $170 million and $173 million and credit card reward costs of $113 million and $112 million for the three months ended June 30, 2024 and 2023, respectively. Net credit card fees consists of interchange fees of $328 million and $333 million and credit card reward costs of $226 million and $214 million for the six months ended June 30, 2024 and 2023, respectively.
(b)Residential mortgage noninterest income falls under the scope of other accounting and disclosure requirements outside of Topic 606 and is included within the out-of-scope noninterest income line for the Retail Banking segment.
(c)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.
NOTE 16 SUBSEQUENT EVENTS
On July 23, 2024, the parent company issued $1.0 billion of senior fixed-to-floating rate notes with a maturity date of July 23, 2027 (the “2027 Senior Notes”) and $1.5 billion of senior fixed-to-floating rate notes with a maturity date of July 23, 2035 (the “2035 Senior Notes”). Interest is payable on the 2027 Senior Notes semi-annually in arrears at a fixed rate of 5.102% per annum, on January 23 and July 23 of each year, beginning on January 23, 2025. Beginning on July 23, 2026, interest is payable on the 2027 Senior Notes 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 as described in the Prospectus Supplement), plus 0.796%, on October 23, 2026, January 23, 2027, April 23, 2027 and at the maturity date. Interest is payable on the 2035 Senior Notes semi-annually in arrears at a fixed rate of 5.401% per annum, on January 23 and July 23 of each year, beginning on January 23, 2025. Beginning on July 23, 2034, interest is payable on the 2035 Senior Notes 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 as described in the Prospectus Supplement), plus 1.599%, on October 23, 2034, January 23, 2035, April 23, 2035 and at the maturity date.
96 The PNC Financial Services Group, Inc. – Form 10-Q
STATISTICAL INFORMATION (UNAUDITED)
THE PNC FINANCIAL SERVICES GROUP, INC.
Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30 |
| | 2024 | | 2023 | |
Taxable-equivalent basis
Dollars in millions | Average
Balances | | Interest Income/Expense | | Average Yields/Rates | | Average
Balances | | Interest Income/
Expense | | Average Yields/
Rates | |
| Assets | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | |
| Investment securities | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | $ | 30,320 | | | $ | 444 | | | 2.93 | % | | $ | 31,513 | | | $ | 421 | | | 2.67 | % | |
| Non-agency | 565 | | 28 | | | 9.96 | % | | 676 | | | 30 | | | 8.95 | % | |
| Commercial mortgage-backed | 2,660 | | 40 | | | 3.03 | % | | 3,025 | | | 41 | | | 2.72 | % | |
| Asset-backed | 1,701 | | 51 | | | 5.96 | % | | 397 | | | 13 | | | 6.67 | % | |
| U.S. Treasury and government agencies | 11,775 | | 221 | | | 3.72 | % | | 8,657 | | | 92 | | | 2.12 | % | |
| Other | 2,697 | | 36 | | | 2.64 | % | | 3,129 | | | 40 | | | 2.51 | % | |
| Total securities available for sale | 49,718 | | 820 | | | 3.29 | % | | 47,397 | | | 637 | | | 2.69 | % | |
| Securities held to maturity | | | | | | | | | | | | |
| Residential mortgage-backed | 42,433 | | | 590 | | | 2.78 | % | | 45,323 | | | 618 | | | 2.73 | % | |
| Commercial mortgage-backed | 2,213 | | | 60 | | | 5.42 | % | | 2,424 | | | 62 | | | 5.15 | % | |
| Asset-backed | 5,331 | | | 122 | | | 4.57 | % | | 6,868 | | | 138 | | | 4.03 | % | |
| U.S. Treasury and government agencies | 35,663 | | | 234 | | | 1.31 | % | | 36,831 | | | 245 | | | 1.33 | % | |
| Other | 3,012 | | 68 | | | 4.61 | % | | 3,365 | | | 80 | | | 4.63 | % | |
| Total securities held to maturity | 88,652 | | 1,074 | | | 2.42 | % | | 94,811 | | | 1,143 | | | 2.41 | % | |
| Total investment securities | 138,370 | | 1,894 | | | 2.74 | % | | 142,208 | | | 1,780 | | | 2.50 | % | |
| Loans | | | | | | | | | | | | |
| Commercial and industrial | 177,194 | | 5,557 | | | 6.20 | % | | 181,444 | | | 5,041 | | | 5.52 | % | |
| Commercial real estate | 35,523 | | 1,197 | | | 6.67 | % | | 36,023 | | | 1,121 | | | 6.19 | % | |
| Equipment lease financing | 6,478 | | 171 | | | 5.27 | % | | 6,408 | | | 141 | | | 4.40 | % | |
| Consumer | 53,718 | | 1,924 | | | 7.20 | % | | 55,045 | | | 1,762 | | | 6.46 | % | |
| Residential real estate | 47,350 | | 870 | | | 3.67 | % | | 46,107 | | | 779 | | | 3.38 | % | |
| Total loans | 320,263 | | 9,719 | | | 6.03 | % | | 325,027 | | | 8,844 | | | 5.43 | % | |
| Interest-earning deposits with banks | 44,682 | | 1,223 | | | 5.47 | % | | 32,736 | | | 790 | | | 4.83 | % | |
| Other interest-earning assets | 8,641 | | 300 | | | 6.95 | % | | 9,012 | | | 264 | | | 5.86 | % | |
| Total interest-earning assets/interest income | 511,956 | | 13,136 | | | 5.11 | % | | 508,983 | | | 11,678 | | | 4.58 | % | |
| Noninterest-earning assets | 50,983 | | | | | | 49,918 | | | | | | |
| Total assets | $ | 562,939 | | | | | | | $ | 558,901 | | | | | | |
| Liabilities and Equity | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | |
| Interest-bearing deposits | | | | | | | | | | | | |
| Money market | $ | 67,735 | | | 1,152 | | | 3.42 | % | | $ | 64,716 | | | 832 | | | 2.59 | % | |
| Demand | 122,085 | | 1,369 | | | 2.25 | % | | 124,243 | | | 1,069 | | | 1.74 | % | |
| Savings | 97,476 | | 886 | | | 1.83 | % | | 103,406 | | | 585 | | | 1.14 | % | |
| Time deposits | 33,819 | | 754 | | | 4.46 | % | | 21,436 | | | 336 | | | 3.14 | % | |
| Total interest-bearing deposits | 321,115 | | 4,161 | | | 2.60 | % | | 313,801 | | | 2,822 | | | 1.81 | % | |
| Borrowed funds | | | | | | | | | | | | |
| Federal Home Loan Bank borrowings | 36,839 | | 1,054 | | | 5.66 | % | | 32,909 | | | 835 | | | 5.04 | % | |
| Senior debt | 29,096 | | 966 | | | 6.57 | % | | 20,298 | | | 577 | | | 5.66 | % | |
| Subordinated debt | 4,824 | | 160 | | | 6.64 | % | | 5,974 | | | 177 | | | 5.94 | % | |
| Other | 5,764 | | 161 | | | 5.54 | % | | 5,156 | | | 97 | | | 3.74 | % | |
| Total borrowed funds | 76,523 | | | 2,341 | | | 6.06 | % | | 64,337 | | | 1,686 | | | 5.22 | % | |
| Total interest-bearing liabilities/interest expense | 397,638 | | 6,502 | | | 3.25 | % | | 378,138 | | | 4,508 | | | 2.38 | % | |
| Noninterest-bearing liabilities and equity: | | | | | | | | | | | | |
| Noninterest-bearing deposits | 97,579 | | | | | | 117,155 | | | | | | |
| Accrued expenses and other liabilities | 16,774 | | | | | | 15,536 | | | | | | |
| Equity | 50,948 | | | | | | 48,072 | | | | | | |
| Total liabilities and equity | $ | 562,939 | | | | | | | $ | 558,901 | | | | | | |
| Interest rate spread | | | | | 1.86 | % | | | | | | 2.20 | % | |
| Impact of noninterest-bearing sources | | | | | 0.72 | | | | | | | 0.61 | | |
| Net interest income/margin | | | $ | 6,634 | | | 2.58 | % | | | | $ | 7,170 | | | 2.81 | % | |
(Continued on the following page)
The PNC Financial Services Group, Inc. – Form 10-Q 97
STATISTICAL INFORMATION (UNAUDITED)
THE PNC FINANCIAL SERVICES GROUP, INC.
Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Continued from previous page) | Three months ended June 30 |
| | 2024 | | 2023 | |
Taxable-equivalent basis
Dollars in millions | Average
Balances | | Interest Income/Expense | | Average Yields/Rates | | Average
Balances | | Interest Income/
Expense | | Average Yields/
Rates | |
| Assets | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | |
| Investment securities | | | | | | | | | | | | |
| Securities available for sale | | | | | | | | | | | | |
| Residential mortgage-backed | | | | | | | | | | | | |
| Agency | $ | 30,229 | | | $ | 225 | | | 2.98 | % | | $ | 31,180 | | | $ | 208 | | | 2.67 | % | |
| Non-agency | 551 | | 14 | | | 10.30 | % | | 663 | | | 15 | | | 9.39 | % | |
| Commercial mortgage-backed | 2,698 | | 20 | | | 3.07 | % | | 2,948 | | | 21 | | | 2.84 | % | |
| Asset-backed | 1,987 | | 30 | | | 5.92 | % | | 575 | | | 9 | | | 6.56 | % | |
| U.S. Treasury and government agencies | 15,350 | | 166 | | | 4.28 | % | | 8,231 | | | 45 | | | 2.20 | % | |
| Other | 2,620 | | 18 | | | 2.66 | % | | 2,997 | | | 21 | | | 2.55 | % | |
| Total securities available for sale | 53,435 | | 473 | | | 3.53 | % | | 46,594 | | | 319 | | | 2.73 | % | |
| Securities held to maturity | | | | | | | | | | | | |
| Residential mortgage-backed | 42,234 | | | 295 | | | 2.79 | % | | 45,033 | | | 306 | | | 2.72 | % | |
| Commercial mortgage-backed | 2,174 | | | 29 | | | 5.38 | % | | 2,396 | | | 32 | | | 5.35 | % | |
| Asset-backed | 5,035 | | | 59 | | | 4.65 | % | | 6,712 | | | 68 | | | 4.10 | % | |
| U.S. Treasury and government agencies | 35,467 | | 117 | | | 1.31 | % | | 36,912 | | | 123 | | | 1.34 | % | |
| Other | 2,961 | | 33 | | | 4.69 | % | | 3,391 | | | 41 | | | 4.65 | % | |
| Total securities held to maturity | 87,871 | | 533 | | | 2.43 | % | | 94,444 | | | 570 | | | 2.41 | % | |
| Total investment securities | 141,306 | | 1,006 | | | 2.84 | % | | 141,038 | | | 889 | | | 2.52 | % | |
| Loans | | | | | | | | | | | | |
| Commercial and industrial | 177,130 | | 2,786 | | | 6.22 | % | | 180,878 | | | 2,608 | | | 5.70 | % | |
| Commercial real estate | 35,523 | | 598 | | | 6.66 | % | | 35,938 | | | 578 | | | 6.37 | % | |
| Equipment lease financing | 6,490 | | 87 | | | 5.37 | % | | 6,364 | | | 72 | | | 4.51 | % | |
| Consumer | 53,503 | | 963 | | | 7.24 | % | | 55,070 | | | 901 | | | 6.57 | % | |
| Residential real estate | 47,272 | | 437 | | | 3.70 | % | | 46,284 | | | 395 | | | 3.41 | % | |
| Total loans | 319,918 | | 4,871 | | | 6.05 | % | | 324,534 | | | 4,554 | | | 5.57 | % | |
| Interest-earning deposits with banks | 41,113 | | 563 | | | 5.47 | % | | 31,433 | | | 400 | | | 5.10 | % | |
| Other interest-earning assets | 9,279 | | 162 | | | 6.98 | % | | 9,215 | | | 138 | | | 5.96 | % | |
| Total interest-earning assets/interest income | 511,616 | | 6,602 | | | 5.13 | % | | 506,220 | | | 5,981 | | | 4.70 | % | |
| Noninterest-earning assets | 51,414 | | | | | | 49,287 | | | | | | |
| Total assets | $ | 563,030 | | | | | | | $ | 555,507 | | | | | | |
| Liabilities and Equity | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | |
| Interest-bearing deposits | | | | | | | | | | | | |
| Money market | $ | 67,631 | | | 570 | | | 3.39 | % | | $ | 63,691 | | | 443 | | | 2.79 | % | |
| Demand | 121,423 | | 679 | | | 2.25 | % | | 124,111 | | | 584 | | | 1.89 | % | |
| Savings | 97,232 | | 447 | | | 1.85 | % | | 102,415 | | | 321 | | | 1.26 | % | |
| Time deposits | 34,663 | | 388 | | | 4.48 | % | | 22,342 | | | 183 | | | 3.26 | % | |
| Total interest-bearing deposits | 320,949 | | 2,084 | | | 2.61 | % | | 312,559 | | | 1,531 | | | 1.96 | % | |
| Borrowed funds | | | | | | | | | | | | |
| Federal Home Loan Bank borrowings | 35,962 | | 515 | | | 5.66 | % | | 33,752 | | | 451 | | | 5.28 | % | |
| Senior debt | 29,717 | | 492 | | | 6.55 | % | | 20,910 | | | 312 | | | 5.91 | % | |
| Subordinated debt | 4,567 | | 75 | | | 6.65 | % | | 5,850 | | | 90 | | | 6.19 | % | |
| Other | 7,210 | | 100 | | | 5.51 | % | | 5,180 | | | 50 | | | 3.79 | % | |
| Total borrowed funds | 77,456 | | | 1,182 | | | 6.04 | % | | 65,692 | | | 903 | | | 5.44 | % | |
| Total interest-bearing liabilities/interest expense | 398,405 | | 3,266 | | | 3.26 | % | | 378,251 | | | 2,434 | | | 2.56 | % | |
| Noninterest-bearing liabilities and equity: | | | | | | | | | | | | |
| Noninterest-bearing deposits | 96,284 | | | | | | 113,178 | | | | | | |
| Accrued expenses and other liabilities | 17,144 | | | | | | 15,063 | | | | | | |
| Equity | 51,197 | | | | | | 49,015 | | | | | | |
| Total liabilities and equity | $ | 563,030 | | | | | | | $ | 555,507 | | | | | | |
| Interest rate spread | | | | | 1.87 | % | | | | | | 2.14 | % | |
| Impact of noninterest-bearing sources | | | | | 0.73 | | | | | | | 0.65 | | |
| Net interest income/margin | | | $ | 3,336 | | | 2.60 | % | | | | $ | 3,547 | | | 2.79 | % | |
(a)Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value are included in noninterest-earning assets and noninterest-bearing liabilities, with changes in fair value recorded in Noninterest income.
(b)Loan fees for both the three months ended June 30, 2024 and 2023 were $44 million. Loan fees for the six months ended June 30, 2024 and 2023 were $91 million and $90 million, respectively.
(c)Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in this Statistical Information section for more information.
98 The PNC Financial Services Group, Inc. – Form 10-Q
RECONCILIATION OF TAXABLE-EQUIVALENT NET INTEREST INCOME (non-GAAP) (a)
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| | | Six months ended | | Three months ended |
| In millions | | June 30, 2024 | | | | June 30, 2023 | | June 30, 2024 | June 30, 2023 |
| Net interest income (GAAP) | | $ | 6,566 | | | | | $ | 7,095 | | | $ | 3,302 | | $ | 3,510 | |
| Taxable-equivalent adjustments | | 68 | | | | | 75 | | | 34 | | 37 | |
| Net interest income (non-GAAP) | | $ | 6,634 | | | | | $ | 7,170 | | | $ | 3,336 | | $ | 3,547 | |
(a)The interest income earned on certain interest-earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP.
RECONCILIATION OF NONINTEREST INCOME GUIDANCE, EXCLUDING SIGNIFICANT ITEMS (non-GAAP) (a)
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| | Actual | | Actual | | Outlook - low end | | Outlook - high end | | | | |
| | | | | Year ended | % Change | | Year ended | % Change | | | | | |
| | | Three months ended | | Year ended | | December 31, 2024 | | December 31, 2024 | | | | |
Dollars in millions | | | June 30, 2024 | | December 31, 2023 | | Adjustments | | Adjustments | | | | |
| Noninterest income | | | $ | 2,109 | | | $ | 7,574 | | | | 5 | % | | | 7 | % | | | | | |
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| Less significant items: | | | | | | | | | | | | | | | | |
| Gain on Visa shares exchange program | | | 754 | | | | | $ | 754 | | | | $ | 754 | | | | | | | |
| Visa Class B derivative fair value adjustments | | | (116) | | | | | (116) | | | | (116) | | | | | | | |
| Loss on sale of securities | | | (497) | | | | | (497) | | | | (497) | | | | | | | |
| Total significant items | | | $ | 141 | | | | | $ | 141 | | | | $ | 141 | | | | | | | |
| Noninterest income, excluding significant items (non-GAAP) | | | | | | | | 3 | % | | | 5 | % | | | | | |
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(a)We believe Noninterest income, excluding significant items to be a useful tool for comparison of noninterest income recognized during the normal course of business.
RECONCILIATION OF REVENUE GUIDANCE, EXCLUDING SIGNIFICANT ITEMS (non-GAAP) (a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Actual | | Outlook - low end | | Outlook - high end | | | | |
| | | | | Year ended | % Change | | Year ended | % Change | | | | | |
| | | Three months ended | | Year ended | | December 31, 2024 | | December 31, 2024 | | | | |
Dollars in millions | | | June 30, 2024 | | December 31, 2023 | | Adjustments | | Adjustments | | | | |
| Revenue | | | $ | 5,411 | | | $ | 21,490 | | | | (1) | % | | | — | | | | | | |
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| Less significant items: | | | | | | | | | | | | | | | | |
| Gain on Visa shares exchange program | | | 754 | | | | | $ | 754 | | | | $ | 754 | | | | | | | |
| Visa Class B derivative fair value adjustments | | | (116) | | | | | (116) | | | | (116) | | | | | | | |
| Loss on sale of securities | | | (497) | | | | | (497) | | | | (497) | | | | | | | |
| Total significant items | | | $ | 141 | | | | | $ | 141 | | | | $ | 141 | | | | | | | |
| Revenue, excluding significant items (non-GAAP) | | | | | | | | (2) | % | | | (1) | % | | | | | |
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(a)We believe Revenue, excluding significant items to be a useful tool for comparison of revenue recognized during the normal course of business.
The PNC Financial Services Group, Inc. – Form 10-Q 99
RECONCILIATION OF CORE NONINTEREST EXPENSE GUIDANCE (non-GAAP) (a)
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| | | Actual | | Outlook - Low End | | Actual | | Outlook - High End |
| | | | | Three months ended | % Change | | Three months ended | | Three months ended | % Change |
| | | | Three months ended | | September 30, 2024 | | June 30, 2024 | | September 30, 2024 |
Dollars in millions | | | | June 30, 2024 | | Adjustments | | Adjustments | | Adjustments |
| Noninterest expense | | | | $ | 3,357 | | | | — | | | $ | 3,357 | | | | (1) | % |
| Less non-core noninterest expense adjustments: | | | | | | | | | | | | |
| 2Q24 PNC Foundation Contribution Expense | | | | 120 | | | | | | 120 | | | | |
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Core noninterest expense (non-GAAP) | | | | $ | 3,237 | | | | 4 | % | | $ | 3,237 | | | | 3 | % |
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| | | Actual | | Outlook | | | | |
| | | | | Year ended | | | | | | |
| | | | Year ended | | December 31, 2024 | Approximate | | | | | |
Dollars in millions | | | | December 31, 2023 | | Adjustments | % Change | | | | |
| Noninterest expense | | | | $ | 14,012 | | | | (4) | % | | | | | |
| Less non-core noninterest expense adjustments: | | | | | | | | | | | | |
| 2Q24 PNC Foundation Contribution Expense | | | | | | $ | 120 | | | | | | | |
| FDIC special assessment costs | | | | 515 | | | 130 | | | | | | | |
| Workforce reduction charges | | | | 150 | | | | | | | | | |
| Total non-core noninterest expense adjustments | | | | $ | 665 | | | $ | 250 | | | | | | | |
Core noninterest expense (non-GAAP) | | | | $ | 13,347 | | | | (1) | % | | | | | |
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(a)Core noninterest expense is a non-GAAP measure calculated based on Noninterest expense less the pre-tax impacts of the expense related to a contribution to the PNC Foundation, costs related to the FDIC’s special assessment and the workforce reduction that were incurred outside of our core business operations. We believe this non-GAAP measure to be a useful tool for comparison of operating expenses incurred during the normal course of business.
GLOSSARY
DEFINED TERMS
For a glossary of terms commonly used in our filings, please see the glossary of terms included in our 2023 Form 10-K.
ACRONYMS
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| ACL | Allowance for credit losses | | LGD | Loss given default |
| ALCO | PNC’s Asset and Liability Committee | | LIHTC | Low income housing tax credit |
| ALLL | Allowance for loan and lease losses | | LLC | Limited liability company |
| AOCI | Accumulated other comprehensive income | | LTV | Loan-to-value ratio |
| ASC | Accounting Standards Codification | | MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ASU | Accounting Standards Update | | MSR | Mortgage servicing right |
| BHC | Bank holding company | | NMTC | New market tax credit |
| bps | Basis points | | NSFR | Net Stable Funding Ratio |
| CCAR | Comprehensive Capital Analysis and Review | | OCC | Office of the Comptroller of the Currency |
| CECL | Current expected credit losses | | OREO | Other real estate owned |
| CET1 | Common equity tier 1 | | OTC | Over-the-counter |
| FDIC | Federal Deposit Insurance Corporation | | PCD | Purchased credit deteriorated |
| FDM | Financial Difficulty Modification | | PD | Probability of default |
| FHLB | Federal Home Loan Bank | | RAC | PNC’s Reserve Adequacy Committee |
| FHLMC | Federal Home Loan Mortgage Corporation | | ROAP | Removal of account provisions |
| FICO | Fair Isaac Corporation (credit score) | | SCB | Stress capital buffer |
| FNMA | Federal National Mortgage Association | | SEC | Securities and Exchange Commission |
| FOMC | Federal Open Market Committee | | SOFR | Secured Overnight Financing Rate |
| FTP | Funds Transfer Pricing | | SPE | Special purpose entity |
| GAAP | Accounting principles generally accepted in the United States of America | | TDR | Troubled debt restructuring |
| GDP | Gross Domestic Product | | U.S. | United States of America |
| GNMA | Government National Mortgage Association | | VaR | Value-at-risk |
| ISDA | International Swaps and Derivatives Association | | VIE | Variable interest entity |
| LCR | Liquidity Coverage Ratio | | | |
100 The PNC Financial Services Group, Inc. – Form 10-Q
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the information set forth in Note 13 Legal Proceedings, which is incorporated by reference in response to this item.
ITEM 1A. RISK FACTORS
There are no material changes from any of the risk factors previously disclosed in our 2023 Form 10-K in response to Part I, Item 1A.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Equity Security Repurchases
Details of our repurchases of PNC common stock during the second quarter of 2024 are included in the following table:
| | | | | | | | | | | | | | |
2024 period
In thousands, except per share data | Total shares purchased (a) | Average price paid per share | Total shares purchased as part of publicly announced programs (b) | Maximum number of shares that may yet be purchased under the programs (b) |
| April 1 - 30 | 288 | | $ | 153.71 | | 264 | | 43,815 | |
| May 1 - 31 | 190 | | $ | 155.69 | | 190 | | 43,625 | |
| June 1 - 30 | 241 | | $ | 152.85 | | 241 | | 43,384 | |
| Total | 719 | | $ | 153.95 | | 695 | | |
(a)Includes PNC common stock purchased in connection with our various employee benefit plans generally related to forfeitures of unvested restricted stock awards and shares used to cover employee payroll tax withholding requirements. See Note 16 Employee Benefit Plans and Note 17 Stock Based Compensation Plans in our 2023 Form 10-K, which include additional information regarding our employee benefit and equity compensation plans that use PNC common stock.
(b)Consistent with the 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 43% were still available for repurchase at June 30, 2024. In light of the Federal banking agencies’ proposed rules to adjust the Basel III capital framework, third quarter 2024 share repurchase activity is expected to approximate recent quarterly average share repurchase levels. PNC continues to evaluate the potential impact of the proposed rules and may adjust share repurchase activity depending on market and economic conditions, as well as other factors. 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%.
ITEM 5. OTHER INFORMATION
Director or Executive Officer Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
During the three months ended June 30, 2024, none of PNC’s directors or executive officers adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.
The PNC Financial Services Group, Inc. – Form 10-Q 101
ITEM 6. EXHIBITS
The following exhibit index lists Exhibits filed or furnished with this Quarterly Report on Form 10-Q:
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EXHIBIT INDEX |
| | |
| 10.30 | | |
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| 10.31 | | |
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| 10.32 | | |
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| 18 | | |
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| 22 | | |
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| 31.1 | | |
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| 31.2 | | |
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| 32.1 | | |
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| 32.2 | | |
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| 101.INS | | Inline XBRL Instance Document* |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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*The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL.
You can obtain copies of these Exhibits electronically at the SEC’s website at www.sec.gov. The Exhibits are also available as part of this Form 10-Q on PNC’s corporate website at www.pnc.com/secfilings. Shareholders and bondholders may also obtain copies of Exhibits, without charge, by contacting Investor Relations at 800-843-2206 or via e-mail at investor.relations@pnc.com. The Interactive Data File (XBRL) exhibit is only available electronically.
CORPORATE INFORMATION
The PNC Financial Services Group, Inc.
Internet Information
The PNC Financial Services Group, Inc.’s financial reports and information about its products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under “About Us – Investor Relations.” We use our account with X, formerly known as Twitter, @pncnews, as an additional way of disseminating to the public information that may be relevant to investors.
We generally post the following under “About Us – Investor Relations” shortly before or promptly following its first use or release: financially-related press releases, including earnings releases and supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor conference calls or events, and access to live and recorded audio from earnings and other investor conference calls or events. In some cases, we may post the presentation materials for other investor conference calls or events several days prior to the call or event. For earnings and other conference calls or events, we generally include in our posted materials a cautionary statement regarding forward-looking and non-GAAP financial information and we provide GAAP reconciliations when we include non-GAAP financial information. Such GAAP reconciliations may be in materials for the applicable presentation, in materials for prior presentations or in our annual, quarterly or current reports.
When warranted, we will also use our website to expedite public access to time-critical information regarding PNC instead of using a press release or a filing with the SEC for first disclosure of the information. In some circumstances, the information may be relevant to
102 The PNC Financial Services Group, Inc. – Form 10-Q
investors but directed at customers, in which case it may be accessed directly through the home page rather than “About Us – Investor Relations.”
We are required to provide additional public disclosure regarding estimated income, losses and pro forma regulatory capital ratios under supervisory and PNC-developed hypothetical severely adverse economic scenarios, as well as information concerning our capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. We are also required to make certain additional regulatory capital-related public disclosures about our capital structure, risk exposures, risk assessment processes, risk-weighted assets and overall capital adequacy, including market risk-related disclosures, under the regulatory capital rules adopted by the Federal banking agencies. Similarly, the Federal Reserve’s rules require quantitative and qualitative disclosures about our LCR and NSFR. Under these regulations, we may satisfy these requirements through postings on our website, and, subject to limited exceptions, we have done so and expect to continue to do so without also providing disclosure of this information through filings with the SEC.
Other information posted on our corporate website that may not be available in our filings with the SEC includes information relating to our corporate governance and annual communications from our chairman to shareholders.
Where we have included internet addresses in this Report, such as our internet address and the internet address of the SEC, we have included those internet addresses as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part hereof.
Financial Information
We are subject to the informational requirements of the Exchange Act and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC File Number is 001-09718. You can obtain copies of these and other filings, including exhibits, electronically at the SEC’s internet website at www.sec.gov or on our corporate internet website at www.pnc.com/secfilings. Shareholders and bond holders may also obtain copies of these filings without charge by contacting PNC Investor Relations at 800-843-2206, via the information request form at www.pnc.com/investorrelations for copies without exhibits, or via email to investor.relations@pnc.com for copies of exhibits, including financial statements and schedule exhibits where applicable. The interactive date file (XBRL) is only available electronically.
Corporate Governance at PNC
Information about our Board of Directors and its committees and corporate governance, including our PNC Code of Business Conduct and Ethics (as amended from time to time), is available on our website at www.pnc.com/corporategovernance. In addition, any future waivers from a provision of the PNC Code of Business Conduct and Ethics covering any of our directors or executive officers (including our principal executive officer, principal financial officer and principal accounting officer or controller) will be posted at this internet address.
Shareholders who would like to request printed copies of the PNC Code of Business Conduct and Ethics or our Corporate Governance Guidelines or the charters of our Board’s Audit, Nominating and Governance, Human Resources or Risk Committees (all of which are posted on our website at www.pnc.com/corporategovernance) may do so by sending their requests to our Corporate Secretary at The PNC Financial Services Group, Inc. at The Tower at PNC Plaza, 300 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2401. Copies will be provided without charge.
Inquiries
For customer inquiries, call 800-PNC-BANK.
Registered shareholders should contact Shareholder Services at 800-982-7652. Hearing impaired: 800-952-9245.
Analysts and institutional investors should contact Bryan Gill, Executive Vice President, Director of Investor Relations, at 412-768-4143 or via email at investor.relations@pnc.com.
News media representatives should contact PNC Media Relations at 412-762-4550 or via email at media.relations@pnc.com.
Dividend Policy
Holders of PNC common stock are entitled to receive dividends when declared by our Board of Directors out of funds legally available for this purpose. Our Board of Directors may not pay or set apart dividends on the common stock until dividends for all past dividend periods on any series of outstanding preferred stock and certain outstanding capital securities issued by the parent company
have been paid or declared and set apart for payment. The Board of Directors currently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions, our financial condition and operating results, and other factors, including contractual restrictions and applicable government regulations and policies (such as those relating to the ability of bank and non-bank subsidiaries to pay dividends to the parent company and regulatory capital
The PNC Financial Services Group, Inc. – Form 10-Q 103
limitations). The amount of our dividend is also currently subject to the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process, which includes setting PNC’s SCB, as described in the Capital Management portion of the Risk Management section of this Report and in the Supervision and Regulation section in Item 1 of our 2023 Form 10-K.
Dividend Reinvestment and Stock Purchase Plan
The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common stock to conveniently purchase additional shares of common stock. Obtain a prospectus and enroll at www.computershare.com/pnc or contact Computershare at 800-982-7652. Registered shareholders may also contact this phone number regarding dividends and other shareholder services.
Stock Transfer Agent and Registrar
Computershare
150 Royall Steet, Suite 101
Canton, MA 02021
800-982-7652
Hearing impaired: 800-952-9245
www.computershare.com/pnc
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on August 2, 2024 on its behalf by the undersigned thereunto duly authorized.
| | |
| /s/ Robert Q. Reilly |
| Robert Q. Reilly |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
104 The PNC Financial Services Group, Inc. – Form 10-Q
