Fourth quarter 2023 net income was $0.9 billion, $1.85 diluted EPS or $3.16 as adjusted

Grew revenue; increased average loans and deposits

PITTSBURGH, Jan. 16, 2024 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

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

"During a challenging year for the banking industry, PNC demonstrated its strength and stability by growing customers, deepening relationships and managing the balance sheet for long-term success. We grew revenue, controlled core expenses, added to our loan portfolio and maintained strong credit metrics. We are well positioned for the year ahead to grow our businesses and deliver value for our stakeholders."

Income Statement Highlights

Fourth quarter 2023 compared with third quarter 2023

• Total revenue of $5.4 billion increased $128 million, or 2%, due to higher noninterest income.
• Net interest income of $3.4 billion was relatively stable.
  • Net interest margin of 2.66% decreased 5 basis points.
• Noninterest income of $2.0 billion increased $143 million, or 8%.
  • Fee income of $1.8 billion increased $99 million, or 6%, primarily due to higher capital markets and advisory fees.
  • Other noninterest income of $138 million increased $44 million, or 47%, and included favorable valuation adjustments and gains on sales. The fourth quarter also included negative Visa Class B derivative fair value adjustments of $100 million primarily related to the extension of anticipated litigation resolution timing. Visa Class B derivative fair value adjustments were negative $51 million in the third quarter.
• Noninterest expense of $4.1 billion increased $829 million, or 26%, and included $515 million related to the FDIC special assessment as well as $150 million of workforce reduction charges. Excluding the impact of these items, core noninterest expense was $3.4 billion increasing $164 million, or 5%, reflecting the impact of increased business activity, seasonality and asset impairments.
• Provision for credit losses was $232 million in the fourth quarter reflecting the impact of portfolio activity. The third quarter of 2023 included a provision for credit losses of $129 million.
• Net income of $0.9 billion decreased $687 million, or 44% and included $525 million of post-tax expenses related to the FDIC special assessment and workforce reduction charges.
• The effective tax rate was 16.3% for the fourth quarter and 15.5% for the third quarter.

Balance Sheet Highlights

Fourth quarter 2023 compared with third quarter 2023 or December 31, 2023 compared with September 30, 2023

• Average loans of $324.6 billion increased $5.1 billion, or 2%.
  • Average commercial loans of $222.6 billion increased $4.9 billion, driven by the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023, partially offset by lower utilization of loan commitments and paydowns outpacing new production.
  • Average consumer loans of $102.0 billion were relatively stable.
• Credit quality performance:
  • Delinquencies of $1.4 billion increased $97 million, or 8%, due to higher consumer and commercial loan delinquencies.
  • Total nonperforming loans of $2.2 billion increased $57 million, or 3%, due to higher commercial nonperforming loans, partially offset by lower consumer nonperforming loans.
  • Net loan charge-offs of $200 million increased $79 million, reflecting higher commercial and consumer net loan charge-offs.
  • The allowance for credit losses of $5.5 billion was relatively unchanged. The allowance for credit losses to total loans was 1.70% at both December 31, 2023 and September 30, 2023.
• Average deposits of $423.9 billion grew $1.4 billion as seasonal growth in commercial deposits more than offset a modest decline in consumer deposits.
  • Deposits at December 31, 2023 of $421.4 billion decreased $2.2 billion, or 1%, reflecting a decline in commercial deposits at year end.
• Average investment securities of $137.4 billion decreased $2.3 billion, or 2%.
• Average Federal Reserve Bank balances of $42.2 billion increased $4.3 billion.
  • Federal Reserve Bank balances at December 31, 2023 were $43.3 billion.
• Average borrowed funds of $72.9 billion increased $5.4 billion, or 8%, due to higher Federal Home Loan Bank borrowings and parent company senior debt issuances.
• PNC maintained a strong capital and liquidity position.
  • On January 4, 2024, the PNC board of directors declared a quarterly cash dividend on common stock of $1.55 per share payable on February 5, 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 0.5 million shares.
  • The Basel III common equity Tier 1 capital ratio was an estimated 9.9% at December 31, 2023 and 9.8% at September 30, 2023.
  • PNC's average LCR for the three months ended December 31, 2023 was 107%, exceeding the regulatory minimum requirement throughout the quarter.
  • PNC Bank average LCR for the three months ended December 31, 2023 was 127%.

Fourth quarter 2023 net income of $0.9 billion, or $1.85 per diluted common share, included $525 million of post-tax expenses pertaining to the FDIC special assessment for the recovery of losses related to the closure of SVB and Signature Bank as well as workforce reduction charges. Excluding the impact of these items, adjusted diluted earnings per common share was $3.16.

The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported (GAAP) amounts. This information supplements results as reported in accordance with GAAP and should not be viewed in isolation from, or as a substitute for, GAAP results. Information in this news release, including the financial tables, is unaudited.

Total revenue for the fourth quarter of 2023 increased $128 million from the third quarter of 2023 due to higher noninterest income. Compared with the fourth quarter of 2022, total revenue declined $402 million due to lower net interest income and noninterest income.

Net interest income of $3.4 billion for the fourth quarter of 2023 was relatively stable compared to the third quarter of 2023. Net interest margin was 2.66% in the fourth quarter of 2023, decreasing 5 basis points in comparison with the third quarter of 2023.

Compared to the fourth quarter of 2022, net interest income decreased $281 million and net interest margin declined 26 basis points. In both comparisons, the benefit of higher interest-earning asset yields was more than offset by increased funding costs.

Noninterest income for the fourth quarter of 2023 increased $143 million compared with the third quarter of 2023. Asset management and brokerage revenue increased $12 million and included the impact from favorable market conditions. Capital markets and advisory revenue grew $141 million, driven by higher merger and acquisition advisory fees. Residential and commercial mortgage revenue declined $52 million due to a $61 million decrease in mortgage servicing rights valuation, net of economic hedge. Other noninterest income increased $44 million, and included positive valuation adjustments and gains on sales. The fourth quarter also included negative Visa Class B derivative fair value adjustments of $100 million primarily related to the extension of anticipated litigation resolution timing. Visa Class B derivative fair value adjustments were negative $51 million in the third quarter.

Noninterest income for the fourth quarter of 2023 decreased $121 million from the fourth quarter of 2022. Asset management and brokerage revenue grew $15 million and included the impact from favorable market conditions. Capital markets and advisory revenue declined $27 million driven by lower trading revenue. Card and cash management fees increased $17 million due to growth in treasury management product revenue. Lending and deposit services increased $18 million, reflecting increased customer activity. Residential and commercial mortgage revenue declined $35 million primarily due to a decrease in mortgage servicing rights valuation, net of economic hedge. Other noninterest income decreased $109 million, primarily driven by lower private equity revenue. The fourth quarter of 2022 also included negative Visa Class B derivative fair value adjustments of $41 million.

Noninterest expense for the fourth quarter of 2023 increased $829 million in comparison to the third quarter of 2023, and included $515 million pertaining to the FDIC special assessment for the recovery of losses related to the closure of SVB and Signature Bank as well as $150 million of workforce reduction charges. Excluding the impact of these items, core noninterest expense was $3.4 billion for the fourth quarter of 2023, increasing $164 million, or 5%, reflecting the impact of increased business activity, seasonality and asset impairments.

Noninterest expense increased $600 million from the fourth quarter of 2022 due to the FDIC special assessment and workforce reduction charges, partially offset by a continued focus on expense management.

The effective tax rate was 16.3% for the fourth quarter of 2023, 15.5% for the third quarter of 2023 and 17.7% for the fourth quarter of 2022.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets were $562.3 billion in the fourth quarter of 2023 compared with $555.0 billion in the third quarter of 2023 and $557.2 billion in the fourth quarter of 2022. In both comparisons, the increase was attributable to higher loans and Federal Reserve Bank balances, partially offset by lower investment securities.

Average loans for the fourth quarter of 2023 increased $5.1 billion compared to the third quarter of 2023 and $2.7 billion in comparison to the fourth quarter of 2022. Average commercial loans increased $4.9 billion and $1.0 billion compared to the third quarter of 2023 and the fourth quarter of 2022, respectively, driven by the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023, partially offset by lower utilization of loan commitments and paydowns outpacing new production. Average consumer loans were relatively stable compared to the third quarter of 2023. Compared to the fourth quarter of 2022, average consumer loans increased $1.7 billion reflecting higher residential mortgage, home equity, and credit card loans.

Average investment securities for the fourth quarter of 2023 of $137.4 billion declined $2.3 billion and $5.5 billion from the third quarter of 2023 and the fourth quarter of 2022, respectively, as limited purchase activity was more than offset by portfolio paydowns and maturities. The duration of the investment securities portfolio was 4.1 years at December 31, 2023, 4.2 years at September 30, 2023 and 4.5 years at December 31, 2022.

Net unrealized losses on available for sale securities were $3.6 billion at December 31, 2023 decreasing from $5.4 billion at September 30, 2023 and $4.4 billion at December 31, 2022. In both comparisons, the decrease primarily reflected the favorable impact of interest rate movements. 

Average Federal Reserve Bank balances for the fourth quarter of 2023 were $42.2 billion, increasing $4.3 billion from the third quarter of 2023, primarily due to higher borrowed funds and lower investment securities, partially offset by higher loans outstanding. Average Federal Reserve Bank balances increased $12.2 billion from the fourth quarter of 2022, primarily due to higher borrowed funds and a decline in investment securities, partially offset by lower deposits.

 Federal Reserve Bank balances at December 31, 2023 were $43.3 billion, increasing $2.2 billion from September 30, 2023.

Average deposits for the fourth quarter of 2023 were $423.9 billion, increasing $1.4 billion from the third quarter of 2023 as seasonal growth in commercial deposits more than offset a modest decline in consumer deposits. Compared to the fourth quarter of 2022, average deposits decreased $11.0 billion due to lower commercial and consumer deposits, which included the impact of quantitative tightening by the Federal Reserve and increased customer spending. Noninterest-bearing balances as a percentage of average deposits decreased in both comparisons due to the continued shift into interest-bearing deposit products as interest rates have risen.

Deposits at December 31, 2023 of $421.4 billion decreased $2.2 billion, or 1%, from September 30, 2023 reflecting a decline in commercial deposits at year end.

Average borrowed funds of $72.9 billion in the fourth quarter of 2023 increased $5.4 billion compared to the third quarter of 2023 and $13.7 billion compared to the fourth quarter of 2022. In both comparisons, the increase was due to higher Federal Home Loan Bank borrowings and parent company senior debt issuances.

PNC maintained a strong capital position. Common shareholders' equity at December 31, 2023 increased $2.7 billion from September 30, 2023, driven by an improvement in accumulated other comprehensive income and the benefit of net income, partially offset by dividends paid and share repurchases.

As a Category III institution, PNC has elected to exclude accumulated other comprehensive income related to both available for sale securities and pension and other post-retirement plans from CET1 capital. Accumulated other comprehensive income at December 31, 2023 improved $2.6 billion from September 30, 2023 and $2.5 billion from December 31, 2022. In both comparisons, the improvement reflected securities and swaps valuation changes related to the favorable impact of interest rate movements and the continued accretion of unrealized losses.

In the fourth quarter of 2023, 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 0.5 million shares. Consistent with the Stress Capital Buffer (SCB) framework, which allows for capital return in amounts in excess of the SCB minimum levels, our board of directors has authorized a repurchase framework under the previously approved repurchase program of up to 100 million common shares, of which approximately 45% were still available for repurchase at December 31, 2023.

In light of the Federal banking agencies proposed rules to adjust the Basel III capital framework, share repurchase activity is expected to remain modest during the first quarter of 2024. 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.

PNC's SCB for the four-quarter period beginning October 1, 2023 is the regulatory minimum of 2.5%.

On January 4, 2024, the PNC board of directors declared a quarterly cash dividend on common stock of $1.55 per share payable on February 5, 2024.

At December 31, 2023, PNC was considered "well capitalized" based on applicable U.S. regulatory capital ratio requirements. For additional information regarding PNC's Basel III capital ratios, see Capital Ratios in the Consolidated Financial Highlights. PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the Current Expected Credit Losses (CECL) standard on regulatory capital, followed by a three-year transition period. Effective for the first quarter of 2022, PNC is now in the three-year transition period, and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024. The fully implemented ratios reflect the full impact of CECL and exclude the benefits of this transition provision.

Provision for credit losses was $232 million in the fourth quarter of 2023 reflecting the impact of portfolio activity. The third quarter of 2023 included a provision for credit losses of $129 million.

Net loan charge-offs of $200 million in the fourth quarter of 2023 increased $79 million compared to the third quarter of 2023, reflecting higher commercial and consumer net loan charge-offs. Compared to the fourth quarter of 2022, net loan charge-offs decreased $24 million, primarily reflecting lower commercial net loan charge-offs.

The allowance for credit losses was $5.5 billion at December 31, 2023 and $5.4 billion at both September 30, 2023 and December 31, 2022. The allowance for credit losses as a percentage of total loans was 1.70% at both December 31, 2023 and September 30, 2023 and 1.67% at December 31, 2022.

 Delinquencies at December 31, 2023 were $1.4 billion, increasing $97 million from September 30, 2023 due to higher consumer and commercial loan delinquencies. Compared to December 31, 2022, delinquencies decreased $106 million due to lower commercial and consumer loan delinquencies.

Nonperforming loans at December 31, 2023 were $2.2 billion, increasing $57 million from September 30, 2023 and $195 million from December 31, 2022. In both comparisons, the increase was driven by higher commercial nonperforming loans, partially offset by lower consumer nonperforming loans.

Retail Banking Highlights

Fourth quarter 2023 compared with third quarter 2023

• Earnings decreased 2%, driven by a higher provision for credit losses and lower noninterest income, partially offset by higher net interest income and lower noninterest expense.
  • Noninterest income decreased 8%, due to negative Visa Class B derivative fair value adjustments of $100 million and lower residential mortgage banking activity, partially offset by increased brokerage fees reflecting the impact from favorable market conditions. The third quarter included negative Visa Class B derivative fair value adjustments of $51 million.
  • Noninterest expense decreased 1%, primarily driven by a decline in marketing spend.
  • Provision for credit losses of $130 million in the fourth quarter of 2023 reflected the impact of portfolio activity.
• Average loans were stable.
• Average deposits decreased 1%, as consumer spending levels have remained elevated.

Fourth quarter 2023 compared with fourth quarter 2022

• Earnings increased 43%, primarily due to higher net interest income.
  • Noninterest income decreased 4%, driven by negative Visa Class B derivative fair value adjustments, partially offset by higher lending and deposit related customer activity and increased brokerage fees. The fourth quarter of 2022 included negative Visa Class B derivative fair value adjustments of $41 million.
  • Noninterest expense decreased 2%, driven by lower personnel expense and a continued focus on expense management.
• Average loans increased 1%, as growth in commercial, home equity, and credit card loans was largely offset by declines in residential real estate, education and other consumer loans.
• Average deposits decreased 3%, reflecting the impact of quantitative tightening by the Federal Reserve and increased customer spending.

Corporate & Institutional Banking Highlights

Fourth quarter 2023 compared with third quarter 2023

• Earnings increased 26%, driven by higher net interest and noninterest income, partially offset by higher noninterest expense and an increase in provision for credit losses.
  • Noninterest income increased 19%, due to higher capital markets and advisory fees and gains on sales, partially offset by a decrease in commercial mortgage servicing rights valuation, net of economic hedge.
  • Noninterest expense increased 9%, reflecting higher variable compensation associated with increased business activity.
  • Provision for credit losses of $115 million in the fourth quarter of 2023 reflected the impact of portfolio activity.
• Average loans increased 3%, driven by the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023, partially offset by lower utilization of loan commitments and paydowns outpacing new production.
• Average deposits increased 2%, reflecting seasonality.

Fourth quarter 2023 compared with fourth quarter 2022

• Earnings increased 24%, due to higher net interest and noninterest income, a lower provision for credit losses and a decline in noninterest expense.
  • Noninterest income increased 3%, driven by higher capital markets and advisory fees and growth in treasury management product revenue, partially offset by lower commercial mortgage banking activities.
  • Noninterest expense decreased 2%, reflecting a continued focus on expense management.
• Average loans modestly increased, driven by the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023, partially offset by lower utilization of loan commitments and paydowns outpacing new production.
• Average deposits decreased 2%, and included the impact of quantitative tightening by the Federal Reserve.

Asset Management Group Highlights

Fourth quarter 2023 compared with third quarter 2023

• Earnings decreased 1%, primarily due to higher noninterest expense and a provision for credit losses, partially offset by higher net interest income.
  • Noninterest income was largely stable.
  • Noninterest expense increased 5%, and included higher personnel costs and marketing spend.
• Discretionary client assets under management increased 7%, driven by higher spot equity markets.
• Average loans increased 3%, due to growth in residential mortgage loans.
• Average deposits increased 4%, reflecting growth in deposit sweep balances.

Fourth quarter 2023 compared with fourth quarter 2022

• Earnings increased 38%, primarily driven by a lower provision for credit losses, a decline in noninterest expense and higher net interest income.
  • Noninterest income was relatively stable.
  • Noninterest expense decreased 2%, reflecting a continued focus on expense management.
• Discretionary client assets under management increased 9%, driven by higher spot equity markets.
• Average loans increased 11%, driven by growth in residential mortgage loans.
• Average deposits increased 1%, reflecting growth in deposit sweep and CD balances, partially offset by the impact of quantitative tightening by the Federal Reserve and the redeployment of funds to assets under management.

Other

The "Other" category, for the purposes of this release, includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as asset and liability management activities, including net securities gains or losses, ACL for investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, exited businesses and differences between business segment performance reporting and financial statement reporting under generally accepted accounting principles.

CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION

PNC Chairman, President and Chief Executive Officer William S. Demchak and Executive Vice President and Chief Financial Officer Robert Q. Reilly will hold a conference call for investors today at 11:00 a.m. Eastern Time regarding the topics addressed in this news release and the related earnings materials. Dial-in numbers for the conference call are (800) 728-2056 and (312) 429-0440 (international) and Internet access to the live audio listen-only webcast of the call is available at www.pnc.com/investorevents. PNC's fourth quarter 2023 earnings materials to accompany the conference call remarks will be available at www.pnc.com/investorevents prior to the beginning of the call. A telephone replay of the call will be available for one week at (800) 633-8284 and (402) 977-9140 (international), Conference ID 22028514 and a replay of the audio webcast will be available on PNC's website for 30 days.

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

CONTACTS

MEDIA:

Timothy Miller

(412) 762-4550

media.relations@pnc.com 

INVESTORS:

Bryan Gill

(412) 768-4143

investor.relations@pnc.com 

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