PITTSBURGH, Jan. 15, 2020 /PRNewswire/ -- The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

Increase to Authorized Share Repurchases

• PNC received approval in January 2020 from the Federal Reserve to repurchase up to an additional $1.0 billion in common shares through the end of the second quarter of 2020. This is in addition to the share repurchase programs of up to $4.3 billion for the four-quarter period beginning in the third quarter of 2019, which were announced in June 2019.

Income Statement Highlights

Fourth quarter 2019 compared with third quarter 2019

• Net income was $1.4 billion, a decrease of $11 million, or 1 percent.
• Total revenue of $4.6 billion grew $116 million, or 3 percent.
• Net interest income of $2.5 billion decreased $16 million, or 1 percent, due to lower loan and securities yields substantially offset by lower rates on deposits and borrowings.
• Net interest margin decreased 6 basis points to 2.78 percent.
• Noninterest income of $2.1 billion increased $132 million, or 7 percent.
• Fee income of $1.7 billion increased $18 million, or 1 percent, driven by higher asset management revenue and corporate service fees partially offset by lower residential mortgage revenue and consumer service fees.
• Other noninterest income of $456 million increased $114 million reflecting higher revenue from private equity investments and a gain on the sale of proprietary mutual funds partially offset by negative derivative fair value adjustments related to Visa Class B common shares.
• Noninterest expense of $2.8 billion increased $139 million, or 5 percent, driven by equipment expense for technology-related write-offs and benefits expense, including a year-end employee award of an additional contribution to health savings accounts.
• Provision for credit losses of $221 million increased $38 million, or 21 percent, due to both the consumer lending portfolio and reserves attributable to certain commercial credits.
• The effective tax rate was 15.1 percent for the fourth quarter compared with 17.5 percent for the third quarter, and 16.4 percent for the full year 2019.

Balance Sheet Highlights

• Average loans increased $1.2 billion to $238.9 billion in the fourth quarter compared with the third quarter.
• Average consumer lending balances of $78.1 billion increased $1.9 billion, or 3 percent, due to growth in residential mortgage, auto, credit card and unsecured installment loans partially offset by lower education loans.
• Average commercial lending balances of $160.8 billion declined $.7 billion primarily in PNC's real estate business, including a decrease in multifamily agency warehouse lending balances, partially offset by growth in PNC's corporate banking business.
• Overall credit quality remained historically strong.
• Nonperforming assets of $1.8 billion at December 31, 2019 decreased $95 million, or 5 percent, compared with September 30, 2019.
• Net charge-offs were $209 million for the fourth quarter compared with $155 million for the third quarter as both consumer and commercial lending net charge-offs increased.
• The allowance for loan and lease losses to total loans remained relatively stable at 1.14 percent at December 31, 2019 compared with 1.15 percent at September 30, 2019.
• Average deposits increased $8.7 billion, or 3 percent, to $287.8 billion in the fourth quarter compared with the third quarter due to higher commercial deposits reflecting seasonal growth and the full quarter impact of a new sweep deposit product offering for current asset management clients.
• Average investment securities decreased $1.7 billion, or 2 percent, to $83.5 billion in the fourth quarter compared with the third quarter.
• Average balances held with the Federal Reserve of $23.0 billion increased $7.7 billion compared with the third quarter.
• PNC returned $1.5 billion of capital to shareholders in the fourth quarter through repurchases of 6.5 million common shares for $1.0 billion and dividends on common shares of $.5 billion.
• For the full year 2019, PNC returned $5.4 billion of capital to shareholders through repurchases of 25.9 million common shares for $3.5 billion and dividends on common shares of $1.9 billion.
• PNC maintained a strong capital position.
• The Basel III common equity Tier 1 capital ratio was an estimated 9.5 percent at December 31, 2019 and 9.6 percent at September 30, 2019.

The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported (GAAP) amounts. This information supplements results as reported in accordance with GAAP and should not be viewed in isolation from, or as a substitute for, GAAP results. Fee income, a non-GAAP financial measure, refers to noninterest income in the following categories: asset management, consumer services, corporate services, residential mortgage and service charges on deposits. Information in this news release, including the financial tables, is unaudited.

Total revenue for the fourth quarter of 2019 increased $116 million compared with the third quarter and $269 million compared with the fourth quarter of 2018 driven by higher noninterest income.

Net interest income for the fourth quarter of 2019 decreased $16 million compared with the third quarter due to lower loan and securities yields substantially offset by lower rates on deposits and borrowings. Net interest income increased $7 million compared with the fourth quarter of 2018 as higher loan and securities balances and lower borrowing costs were substantially offset by lower loan and securities yields and higher deposit and borrowing balances. The net interest margin declined to 2.78 percent for the fourth quarter of 2019 from 2.84 percent for the third quarter due to lower earning asset yields and lower benefit from noninterest-bearing sources of funds substantially offset by lower rates on deposits and borrowings. The margin decreased from 2.96 percent in the fourth quarter of 2018 as a result of lower yields on earning assets partially offset by lower borrowing costs.

Noninterest income for the fourth quarter of 2019 increased $132 million compared with the third quarter driven by higher other noninterest income. Asset management revenue increased $40 million reflecting higher earnings from PNC's equity investment in BlackRock. Consumer services decreased $12 million due to seasonally higher credit card activity that was more than offset by a true up of credit card rewards costs. Corporate services grew $30 million reflecting broad-based increases including treasury management product revenue. Residential mortgage revenue decreased $47 million as a result of a lower benefit from residential mortgage servicing rights valuation, net of economic hedge, lower loan sales revenue and lower servicing fees. Service charges on deposits increased $7 million reflecting seasonally higher consumer spending. Other noninterest income increased $114 million due to higher revenue from private equity investments and a gain on the sale of proprietary mutual funds of $57 million partially offset by negative derivative fair value adjustments related to Visa Class B common shares of $45 million in the fourth quarter compared with $8 million in the third quarter and lower net gains on commercial mortgage loans held for sale.

Noninterest income for the fourth quarter of 2019 increased $262 million compared with the fourth quarter of 2018. Asset management revenue increased $76 million reflecting higher earnings from PNC's equity investment in BlackRock. Consumer services increased $3 million and included higher debit card revenue. Corporate services grew $31 million across businesses led by higher treasury management product revenue. Residential mortgage revenue increased $28 million due to higher results from residential mortgage servicing rights valuation, net of economic hedge, and higher loan sales revenue partially offset by lower servicing fees. Service charges on deposits decreased $7 million reflecting a reduction of customer fees charged partially offset by higher transaction volumes. Other noninterest income increased $131 million as a result of higher revenue from private equity investments, the gain on the sale of proprietary mutual funds and higher capital markets-related revenue partially offset by negative Visa derivative fair value adjustments in the fourth quarter of 2019 compared with positive adjustments of $42 million in the fourth quarter of 2018.

Noninterest expense for the fourth quarter of 2019 increased $139 million compared with the third quarter. Personnel expense increased $68 million due to higher benefits, including a $25 million year-end employee award of an additional contribution to health savings accounts, and higher incentive compensation associated with business activity. Equipment expense increased $57 largely million attributable to technology-related write-offs of $50 million primarily for decommissioned regulatory software.

Noninterest expense for the fourth quarter of 2019 increased $185 million compared with the fourth quarter of 2018. Personnel expense increased $120 million driven by business growth, and equipment expense increased reflecting the fourth quarter 2019 write-offs.

The effective tax rate was 15.1 percent for the fourth quarter of 2019, 17.5 percent for the third quarter of 2019 and 16.3 percent for the fourth quarter of 2018. The lower effective tax rate in the fourth quarter of 2019 compared with the third quarter was related to lower state income taxes and tax credit benefits. For the full year 2019, the effective tax rate was 16.4 percent.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets of $411.4 billion in the fourth quarter of 2019 increased 1 percent compared with $406.7 billion in the third quarter of 2019 primarily due to higher balances held with the Federal Reserve Bank. Average total assets increased 7 percent compared with $383.1 billion in the fourth quarter of 2018 reflecting loan growth and higher Federal Reserve Bank balances. Total assets were $410.3 billion at December 31, 2019, $408.9 billion at September 30, 2019 and $382.3 billion at December 31, 2018.

Average loans for the fourth quarter of 2019 grew $1.2 billion compared with the third quarter. Average commercial lending balances declined $.7 billion primarily in PNC's real estate business, including a decrease in multifamily agency warehouse lending balances, partially offset by growth in PNC's corporate banking business. Average consumer lending balances increased $1.9 billion due to growth in residential mortgage, auto, credit card and unsecured installment loans partially offset by lower education loans. Total loans at December 31, 2019 grew $2.5 billion compared with September 30, 2019. Consumer lending balances increased $2.1 billion and commercial lending balances increased $.4 billion.

Fourth quarter 2019 average and period end loans increased $13.0 billion and $13.6 billion, respectively, compared with fourth quarter 2018 driven by overall growth in both commercial and consumer lending.

Average investment securities for the fourth quarter of 2019 decreased $1.7 billion and period end balances decreased $1.1 billion compared with the third quarter primarily due to net sales of U.S. Treasury securities. Fourth quarter 2019 average and period-end investment securities increased $1.4 billion and $4.1 billion, respectively, compared with the fourth quarter of 2018 reflecting net increases in agency residential mortgage-backed securities partially offset by lower U.S. Treasury securities in the average comparison. Net unrealized gains on available for sale securities were $1.4 billion at both December 31, 2019 and September 30, 2019 compared with net unrealized losses of $.1 billion at December 31, 2018.

Average balances held with the Federal Reserve Bank increased to $23.0 billion in the fourth quarter of 2019 from $15.3 billion in the third quarter and $16.4 billion in the fourth quarter of 2018. Balances held with the Federal Reserve were $23.2 billion at December 31, 2019, $18.8 billion at September 30, 2019 and $10.5 billion at December 31, 2018. 

Average deposits for the fourth quarter of 2019 increased $8.7 billion compared with the third quarter due to higher commercial deposits reflecting seasonal growth and the full quarter impact of a new sweep deposit product offering for current asset management clients. Deposits at December 31, 2019 increased $2.9 billion over September 30, 2019 as an increase in consumer interest-bearing deposits at year end was partially offset by a decline in commercial noninterest-bearing deposits. Fourth quarter 2019 average and period-end deposits increased $21.3 billion and $20.6 billion, respectively, compared with fourth quarter 2018 driven by overall deposit and customer growth.

Average borrowed funds for the fourth quarter of 2019 decreased $3.9 billion and period end balances decreased $1.1 billion compared with the third quarter due to lower Federal Home Loan Bank borrowings partially offset by higher federal funds purchased, and higher bank notes and senior debt in the period end comparison. Average and period-end borrowed funds for the fourth quarter of 2019 increased $1.2 billion and $2.9 billion, respectively, compared with the fourth quarter of 2018 due to higher federal funds purchased and bank notes and senior debt partially offset by a decrease in Federal Home Loan Bank borrowings.

PNC maintained a strong capital position. Common shareholders' equity at December 31, 2019 decreased $.1 billion compared with September 30, 2019 as fourth quarter net income was more than offset by share repurchases and dividends.

PNC received approval in January 2020 from the Federal Reserve to repurchase up to an additional $1.0 billion in common shares through the end of the second quarter of 2020. Share repurchases will be made subject to market conditions. This is in addition to the share repurchase programs of up to $4.3 billion for the four-quarter period beginning in the third quarter of 2019, which were announced in June 2019.

PNC returned $1.5 billion of capital to shareholders in the fourth quarter of 2019 through repurchases of 6.5 million common shares for $1.0 billion and dividends on common shares of $.5 billion. For the full year 2019, PNC returned $5.4 billion of capital to shareholders through repurchases of 25.9 million common shares for $3.5 billion and dividends on common shares of $1.9 billion.

On January 2, 2020, the PNC board of directors declared a quarterly cash dividend on common stock of $1.15 per share effective with the February 5, 2020 dividend payment date.

The Basel III common equity Tier 1 capital ratio was calculated based on the standardized approach for the risk-weighting of assets. See Capital Ratios in the Consolidated Financial Highlights.

Overall credit quality for the fourth quarter of 2019 remained historically strong. Provision for credit losses for the fourth quarter increased $38 million compared with the third quarter. Provision for consumer lending increased due to the credit card, auto and residential mortgage loan portfolios partially offset by a lower provision for home equity loans. Provision for commercial loans increased reflecting reserves attributable to certain commercial credits.

Nonperforming assets at December 31, 2019 decreased $95 million compared with September 30, 2019. Lower nonperforming commercial, commercial real estate, home equity and residential mortgage loans were partially offset by higher nonperforming equipment lease financing, auto and credit card loans. Nonperforming assets decreased $56 million compared with December 31, 2018 due to lower nonperforming home equity, residential mortgage and commercial real estate loans partially offset by higher nonperforming commercial, auto, equipment lease financing and credit card loans. Nonperforming assets to total assets were .43 percent at December 31, 2019, .45 percent at September 30, 2019 and .47 percent at December 31, 2018.

Overall delinquencies at December 31, 2019 increased $156 million, or 12 percent, compared with September 30, 2019. Loans past due 30 to 59 days increased $114 million driven by higher equipment lease financing, auto and commercial loan delinquencies. Loans past due 90 days or more increased $53 million primarily due to higher commercial, government insured residential mortgage, credit card and auto loan delinquencies. Overall delinquencies at December 31, 2019 increased $19 million, or 1 percent, compared with December 30, 2018 driven by higher past due auto, credit card and commercial loans partially offset by lower government insured education and residential mortgage loans.

Net charge-offs for the fourth quarter of 2019 increased $54 million compared with the third quarter. Consumer lending net charge-offs increased $30 million driven by credit card, auto and home equity loans, and commercial lending net charge-offs increased $24 million. Compared with fourth quarter 2018, net charge-offs increased $102 million as commercial net charge-offs increased $52 million and consumer net charge-offs increased $50 million. Net charge-offs were .35 percent of average loans on an annualized basis for the fourth quarter of 2019 compared with .26 percent for the third quarter of 2019 and .19 percent for the fourth quarter of 2018.

The allowance for loan and lease losses to total loans remained relatively stable at 1.14 percent at December 31, 2019 compared with 1.15 percent at September 30, 2019 and 1.16 percent at December 31, 2018. The allowance to nonperforming loans was 168 percent at December 31, 2019 compared with 158 percent at September 30, 2019 and 155 percent at December 31, 2018.

Retail Banking earnings for the fourth quarter of 2019 decreased in both comparisons. Noninterest income declined compared with the third quarter due to negative derivative fair value adjustments related to Visa Class B common shares and lower residential mortgage revenue attributable to a lower benefit from residential mortgage servicing rights valuation, net of economic hedge, and decreased loan sales and servicing revenue. Noninterest income decreased compared with the fourth quarter of 2018 due to negative Visa derivative fair value adjustments in the fourth quarter of 2019 compared with positive adjustments in the fourth quarter of 2018 partially offset by higher results from residential mortgage servicing rights valuation, net of economic hedge, increased loan sales revenue, and growth in consumer service fees. Provision for credit losses increased in both comparisons primarily due to higher credit card and auto loan portfolio reserves attributable to loan growth partially offset by a lower provision for home equity loans. Noninterest expense increased compared with the fourth quarter of 2018 reflecting higher customer-related transaction costs, noncredit losses and ATM expense resulting from enhanced checking product benefits.

• Average loans increased 2 percent compared with the third quarter and 6 percent compared with fourth quarter 2018 due to growth in residential mortgage, auto, credit card and unsecured installment loans partially offset by lower education loans.
• Average deposits increased 1 percent compared with the third quarter and 6 percent compared with fourth quarter 2018 due to increases in savings and demand deposits partially offset by lower money market deposits reflecting a shift to relationship-based savings products.
• Net charge-offs were $154 million for the fourth quarter of 2019 compared with $128 million in the third quarter and $112 million in the fourth quarter of 2018 with increases primarily in credit card and auto loan portfolio net charge-offs.
• Residential mortgage loan origination volume was $3.5 billion for the fourth quarter of 2019 compared with $3.4 billion for the third quarter and $1.6 billion for the fourth quarter of 2018. Approximately 40 percent of fourth quarter 2019 volume was for home purchase transactions compared with 44 percent and 67 percent for the third quarter of 2019 and fourth quarter of 2018, respectively.
• The third party residential mortgage servicing portfolio was $120 billion at December 31, 2019 compared with $123 billion at September 30, 2019 and $125 billion at December 31, 2018. Residential mortgage loan servicing acquisitions were $3 billion for both the fourth and third quarters of 2019 and $2 billion for the fourth quarter of 2018.
• Approximately 71 percent of consumer customers used non-teller channels for the majority of their transactions during the fourth quarter of 2019 compared with 70 percent in the third quarter and 67 percent in the fourth quarter of 2018.
• Deposit transactions via ATM and mobile channels were 58 percent of total deposit transactions in both the fourth and third quarters of 2019 compared with 55 percent in the fourth quarter of 2018.

Corporate & Institutional Banking earnings for the fourth quarter of 2019 were relatively consistent in the comparisons. Noninterest income decreased compared with the third quarter primarily due to lower revenue from commercial mortgage banking activities, partially offset by higher treasury management product revenue. Noninterest income increased compared with the fourth quarter of 2018 driven by higher treasury management product revenue and higher capital markets-related revenue partially offset by lower gains on asset sales. Provision for credit losses in the fourth quarter of 2019 increased compared with the third quarter due to reserves attributable to certain commercial credits. Noninterest expense increased in both comparisons largely due to investments in strategic initiatives and variable costs associated with increased business activity.

• Average loans decreased $.7 billion, or less than 1 percent, compared with the third quarter due to a decrease in multifamily agency warehouse lending partially offset by loan growth in PNC's corporate banking business. Average loans grew 6 percent compared with the fourth quarter of 2018 driven by loan growth in PNC's corporate banking and business credit businesses partially offset by a decrease in multifamily agency warehouse lending.
• Average deposits increased 3 percent over the third quarter reflecting seasonal growth and increased 7 percent compared with the fourth quarter of 2018 due to growth in interest-bearing deposits, including a shift from noninterest-bearing demand deposits.
• Net charge-offs were $47 million in the fourth quarter of 2019 compared with $30 million in the third quarter and $2 million in the fourth quarter of 2018.

Asset Management Group earnings for the fourth quarter of 2019 increased in both comparisons. Noninterest income increased as a result of a gain of $57 million on the sale of components of the PNC Capital Advisors investment management business, including its PNC family of proprietary mutual funds of approximately $14 billion. Noninterest expense increased over the third quarter due to costs associated with the sale transaction.

Client assets under administration at December 31, 2019 included discretionary client assets under management of $154 billion and nondiscretionary client assets under administration of $143 billion. Discretionary client assets under management decreased $9 billion compared with September 30, 2019. The sale transaction resulted in a decline of $11 billion in discretionary assets under management, with the Asset Management Group remaining the wealth manager of approximately $3 billion of funds sold. This decline was partially offset by increases in equity markets. Discretionary client assets under management increased $6 billion compared with December 31, 2018 as the impact of the sale transaction was more than offset by increases in equity markets.

Other, including BlackRock

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

CONFERENCE CALL AND SUPPLEMENTAL FINANCIAL INFORMATION

PNC Chairman, President and Chief Executive Officer William S. Demchak and Chief Financial Officer Robert Q. Reilly will hold a conference call for investors today at 9:30 a.m. Eastern Time regarding the topics addressed in this news release and the related financial supplement. Dial-in numbers for the conference call are (800) 616-4018 and (303) 223-4381 (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 and full year 2019 earnings release, related financial supplement, and presentation slides to accompany the conference call remarks will be available at www.pnc.com/investorevents prior to the beginning of the call. A telephone replay of the call will be available for one week at (800) 633-8284 and (402) 977-9140 (international), conference ID 21934065 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.

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