Sale of Equity Investment in BlackRock, Inc.
- PNC divested its 22.4% equity investment in BlackRock in May 2020 primarily through the sale of 31.6 million shares in a registered offering and 2.65 million shares repurchased by BlackRock. PNC also contributed .5 million BlackRock shares to the PNC Foundation. Net proceeds from the sale were $14.2 billion. The after-tax gain on the sale of $4.3 billion, and donation expense and BlackRock’s historical results, are reported in PNC’s consolidated financial statements as discontinued operations.
Income Statement Highlights – Continuing Operations
Second quarter 2020 compared with first quarter 2020
- Results from continuing operations reflected a loss of $744 million, a decrease of $1.5 billion due to a higher provision for credit losses.
- Provision for credit losses increased to $2.5 billion for the second quarter compared with $914 million for the first quarter due to the significant estimated economic impact of the pandemic. Provision was calculated under the Current Expected Credit Loss (CECL) accounting standard adopted January 1, 2020.
- Provision was $1.7 billion for the commercial portfolio and $720 million for the consumer portfolio.
- Total revenue of $4.1 billion declined $260 million, or 6%.
- Net interest income of $2.5 billion increased $16 million, or 1%, as lower rates on deposits and borrowings and higher average loans, balances held with the Federal Reserve Bank and securities were partially offset by lower yields on earning assets.
- Net interest margin decreased 32 basis points to 2.52% reflecting the full quarter impact of the 1.5 percentage point reduction in the federal funds rate by the Federal Reserve in March 2020.
- Noninterest income of $1.6 billion decreased $276 million, or 15%.
- Fee income of $1.3 billion declined $204 million, or 14%. Service charges on deposits and consumer service fees decreased $136 million reflecting lower consumer spending and fees waived to assist customers in the pandemic, and residential mortgage revenue decreased $52 million due to a lower benefit from residential mortgage servicing rights valuation, net of economic hedge.
- Other noninterest income of $271 million declined $72 million primarily due to lower net securities gains partially offset by higher capital markets-related revenue.
- Noninterest expense of $2.5 billion decreased $28 million, or 1%, reflecting lower business activity related to the economic impact of the pandemic and well-controlled expenses.
- The effective tax rate was 17.5% for the second quarter and 13.7% for the first quarter.
Balance Sheet Highlights
- Average loans increased $24.5 billion, or 10%, to $268.1 billion in the second quarter compared with the first quarter.
- Average commercial loans of $189.3 billion increased $25.2 billion, or 15%, reflecting Paycheck Protection Program (PPP) lending under the CARES Act and higher utilization of loan commitments driven by the economic impact of the pandemic on customer liquidity preferences.
- Average consumer loans of $78.8 billion decreased $.7 billion, or 1%, primarily due to lower credit card, auto and student loans partially offset by higher residential mortgage loans.
- Loans at June 30, 2020 declined $6.4 billion, or 2%, to $258.2 billion compared with March 31, 2020.
- Commercial loans decreased $4.5 billion, or 2%. PNC funded $13.7 billion of PPP loans during the second quarter. New loans were more than offset by paydowns of March 2020 draws on loan commitments.
- Consumer loans decreased $1.9 billion, or 2%, primarily in auto, credit card and home equity loans.
- Credit quality performance:
- Overall delinquencies of $1.3 billion at June 30, 2020 decreased $173 million, or 12%, compared with March 31, 2020 due to lower consumer loan and commercial loan delinquencies reflecting CARES Act and other forbearance.
- Nonperforming assets of $2.0 billion at June 30, 2020 increased $200 million, or 11%, compared with March 31, 2020.
- Net loan charge-offs were $236 million for the second quarter compared with $212 million for the first quarter.
- The allowance for credit losses to total loans was 2.55% at June 30, 2020 and 1.66% at March 31, 2020.
- Average deposits increased $45.5 billion, or 16%, to $335.2 billion in the second quarter compared with the first quarter due to growth in commercial deposits reflecting pandemic-related accumulation of liquidity by customers. Consumer deposits also increased driven by government stimulus payments and lower consumer spending.
- Deposits at June 30, 2020 increased $40.8 billion, or 13%, to $346.0 billion compared with March 31, 2020.
- Average investment securities increased $4.0 billion, or 5%, to $88.4 billion in the second quarter compared with the first quarter.
- Investment securities at June 30, 2020 increased $8.0 billion, or 9%, to $98.5 billion compared with March 31, 2020.
- Average balances held with the Federal Reserve Bank of $34.2 billion for the second quarter increased $16.9 billion compared with the first quarter, and balances at June 30, 2020 of $50.0 billion increased $30.4 billion compared with March 31, 2020, reflecting higher liquidity from deposit growth and proceeds from the sale of the equity investment in BlackRock.
- PNC maintained strong capital and liquidity positions.
- The PNC board of directors declared a quarterly cash dividend on common stock payable on August 5, 2020 of $1.15 per share, consistent with the second quarter dividend paid on May 5, 2020.
- PNC announced on March 16, 2020 a temporary suspension of its common stock repurchase program in conjunction with the Federal Reserve’s effort to support the U.S. economy during the pandemic, and will continue the suspension through the third quarter of 2020, with the exception of permissible share repurchases to offset the effects of employee benefit plan-related issuances.
- The Basel III common equity Tier 1 capital ratio was an estimated 11.3 percent at June 30, 2020 and 9.4 percent at March 31, 2020.
- The Liquidity Coverage Ratio at June 30, 2020 for both PNC and PNC Bank, N.A. exceeded the regulatory minimum requirement.