01—Abstract
Summary
Summary of the 10-K filed February 25, 2022. Cited figures are marked; the original filing is the authoritative source.
PNC Financial Services Group's 2021 results were shaped by the June 1, 2021 acquisition of BBVA USA for $11.5 billiona in cash, which lifted total assets 19% to $557.2 billion, total deposits 25% to $457.3 billion, and total loans 19% to $288.4 billion.
Net income from continuing operations rose to $5.7 billionb, or $12.70 per diluted share, up from $3.0 billion ($6.36) in 2020. The increase was driven mainly by a $779 million provision recapture versus a $3.2 billion provision in 2020, plus higher noninterest income (up 23% to $8.6 billion). These gains were partly offset by a 26% rise in noninterest expense to $13.0 billion, which included BBVA integration costs, and by net interest margin compression from 2.53% to 2.29%.
Capital and credit metrics remained solid but reflect the acquisition. The CET1 ratio fell to 10.3% from 12.2%, largely due to BBVA, while PNC stayed well capitalized and reinstated buybacks of up to $2.9 billionc for the four quarters beginning Q3 2021. Credit quality held up well: net charge-offs fell 21% to $657 million (0.24% of average loans), and the ACL on loans declined to 1.92% of loans from 2.46%.
Nonperforming assets rose 7% to $2.5 billiond, mostly from BBVA, and accruing loan delinquencies rose 46% to $2.0 billion, with BBVA conversion-related delays cited as a driver. Management's 2022 outlook calls for average loan growth of about 10%, revenue growth of 8% to 10%, expense growth of 4% to 6% excluding integration costs, and an effective tax rate near 18%.
Management also expects five 25-basis-point federal funds rate hikes in 2022. The main risks flagged include the BBVA integration, the Visa interchange litigation and USAA patent suits, LIBOR transition, and the COVID-19 pandemic's lingering effects on consumer and commercial credit.
02—Key points
Key Highlights
- Total revenue rose 14% to $19.2 billion, with noninterest income up 23% to $8.6 billion, and noninterest income now 45% of total revenue, boosted by BBVA, higher M&A advisory fees, and corporate services growth.
- Net income from continuing operations was $5.7 billion ($12.70 per diluted share), versus $3.0 billion ($6.36) in 2020, driven primarily by a $779 million provision recapture compared with a $3.2 billion provision in 2020.
- Net interest margin compressed to 2.29% from 2.53%, as lower asset yields and higher Federal Reserve balances outweighed deposit-rate savings, although net interest income grew 7% to $10.6 billion.
- Noninterest expense increased 26% to $13.0 billion on BBVA operating and integration costs (about 95% of the expected $980 million integration total already incurred) and higher business activity; the $900 million BBVA savings are expected to be fully realized in 2022.
- Capital remained above well-capitalized thresholds, but the CET1 ratio declined to 10.3% from 12.2%; PNC returned $3.0 billion to shareholders in 2021 and reinstated buybacks of up to $2.9 billion.
- Credit quality stayed solid, with net charge-offs down 21% to $657 million (0.24% of average loans), but nonperforming assets rose 7% to $2.5 billion and accruing loans 30+ days past due rose 46% to $2.0 billion, largely from BBVA.
- 2022 guidance calls for average loan growth of about 10%, revenue growth of 8% to 10%, and expense growth of 4% to 6% excluding integration costs, with an effective tax rate near 18%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 25, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $19.21B$16.90B | +13.7% |
| Operating Income | $5.67B$2.96B | +91.6% |
| Interest Expense | $487.00M$1.36B | −64.2% |
| Net Income | $5.72B$7.56B | −24.3% |
| EPS (Basic) | $12.71$16.99 | −25.2% |
| EPS (Diluted) | $12.70$16.96 | −25.1% |
| Shares Outstanding (Basic) | 426.00M427.00M | −0.2% |
| Shares Outstanding (Diluted) | 426.00M427.00M | −0.2% |
05—Questions
Frequently Asked Questions
Why did PNC's reported earnings rise so sharply in 2021?
Net income from continuing operations rose to $5.7 billion from $3.0 billion, mainly because the company recorded a $779 million provision recapture in 2021 versus a $3.2 billion provision expense in 2020, as credit conditions improved and reserves were released. Higher noninterest income, including the BBVA contribution and stronger M&A advisory fees, also contributed, partly offset by higher expenses tied to the acquisition.
How did the BBVA acquisition change PNC's financial profile?
PNC paid $11.5 billion in cash for BBVA USA on June 1, 2021, and converted about 2.6 million customers and over 600 branches in October 2021. The deal added roughly $90 billion to total assets, $92 billion of deposits, and $46 billion of loans year over year. It also brought goodwill of about $1.6 billion, $378 million of intangibles, and integration costs of $798 million in 2021, and it lowered the CET1 ratio by about 2 percentage points.
Is PNC's dividend and capital return program at risk?
The filing indicates the Board intends to continue its quarterly dividend, declaring $1.25 per share in January 2022, and PNC returned $3.0 billion to shareholders in 2021. Payouts depend on meeting the Federal Reserve's stress capital buffer (set at 2.5% for Q4 2021 through Q3 2022) and on regulatory limits, so future dividend and buyback levels are subject to CCAR results and capital conditions.
What are the main risks investors should monitor?
Key risks include integration of BBVA and realization of the $900 million cost savings, the still-pending Visa interchange litigation and USAA patent infringement suits, the transition away from LIBOR (about $100 billion of loans and $370 billion of derivatives referencing it), potential credit deterioration if pandemic-related stimulus fades, and continued margin pressure from a low-rate environment that the company expects to change as the Federal Reserve raises rates.
06—Continue