PNC Financial Services (NYSE:PNC)
Q3 2021 Earnings Call
Oct 15, 2021, 9:00 a.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good morning. My name is Jennifer and I’ll be your conference operator today. At this time I’d like to welcome everyone to the PNC Bank’s third-quarter conference call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question and answer session. [Operator instruction] As a reminder, this call is being recorded. I will now turn the call over to the director of investor relations, Mr. Bryan Gill.
Sir, please go ahead.
Bryan Gill — Director of Investor Relations
Thank you, Jennifer, and good morning everyone. Welcome to today’s conference call for the PNC financial services group. Participating in this call our PNC’s chairman, president, and CEO, Bill Demchak; and Rob Reilly, executive vice president and CFO. Today’s presentation contains forward-looking information cautionary statements about this information.
As well as reconciliations of non-GAAP measures are included in today’s earnings release materials, as well as our SEC filings and other investor materials. These materials are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of October 15, 2021, and PNC undertakes no obligation to update them. Now I’d like to turn the call over to Bill.
Bill Demchak — Chairman, President, and Chief Executive Officer
Thanks, Bryan. Good morning, everybody. I imagine you have seen that earlier this week we completed our conversion of BBVA USA. And I got to say I’m really proud of the team and our ability to sign, close, and convert a hundred billion dollar banking institution within a year.
The dedication of our employees and our sustained investments in technology allowed us to convert roughly 9,000 employees, 2.6 million customers, and nearly 600 branches across seven states. BBVA USA is now integrated into PNC and its customers can bank with us from coast to coast. We’re bringing our technology talent and the full suite of best-in-class products and services to 29 of the nation’s 30 largest markets with attractive growth opportunities, as you’ve heard me talk about it for years to come. Now while we still have some more work to do, which is to be expected for a bank conversion of this size.
We’re making solid progress with our staffing levels and the branch operations, and BBVA USA legacy markets. In addition, we’re encouraged to see the teams build pipelines and importantly growing new clients. Now with BBVA legacy employees now on PNC systems, we believe our momentum is going to continue to accelerate. As we previously were following the same game plan that we’ve used in previous acquisitions.
And we know what to do, we just have to execute on it. With respect to our third-quarter results, we had a solid quarter highlighted by strong revenue growth, which included record fee income in our PNC legacy businesses and continued improvements in credit quality, similar to last quarter. And pretty much as expected, we had a lot of moving parts in our reported results and, of course, Rob will take you through those in a few minutes. Loan growth continues to be impacted by supply chain issues and the continued runoff of PPP loans.
And also, the strategic repositioning of the BBVA portfolios, which is consistent with our acquisition projections. That said, total PNC legacy loans, if we back out that PPP runoff, actually grew almost 5 billion with growth in both commercial and consumer categories and while the environment is still challenging we’re actually pretty encouraged by what we’re seeing on the corporate side. With spot utilization rates stabilizing and even rising a little on the back of strong new originations in our secured lending and corporate banking businesses. And on the consumer side, we’re also seeing promising origination activity, particularly in the residential real estate business.
Importantly and as you see our balance sheet remains very strong and we’re well-positioned with substantial capital and liquidity to continue to support our expanding customer base while making strategic investments in our technology and businesses. Another exciting development this quarter was the announcement of our integration with a clear data access network. This is through an application programming interface. And the integration is going to allow millions of our customers, if they choose to do so, to safely share their financial information with fintech and data aggregators.
It’s an important step in our efforts to help our customers protect their data while also giving them the choice to share their data with third-party applications. Similar to low cash mode, this integration positions us as a leader in technology and innovation and enables us to best serve our customers. And I’d like to close just by thanking our employees throughout the newly combined franchise for all their hard work, which enabled this conversion. Our significant collaboration across all divisions is impressive and it gives me great confidence that will capitalize on the enormous opportunities ahead of us.
And with that, I’m going to turn it over to Rob for a closer look at our results, and then we’ll take your questions.
Rob Reilly — Executive Vice President and Chief Financial Officer
Thanks, Bill, and good morning, everyone. As Bill just mentioned, and notable during the third quarter we converted the BBVA USA franchise to the PNC platform in less than 11 months, following the announcement of the deal. PNC’s increased scale from this acquisition underscores the opportunity we have with the BBVA USA franchise. We have a proven track record of acquiring attractive strategic opportunities, identifying and reducing inherent risks, and successfully growing franchises to deliver enhance shareholder value.
And as Bill just mentioned, we’re well on our way to accomplishing this with BBVA USA. Due to the June 1 closing of the acquisition, our average balance sheet growth for the third quarter reflected the full quarter impact of the acquisition. As loans grew $36 billion, securities increased $12 billion, and deposits grew $53 billion. For comparative purposes to the second quarter, which you’ll recall included just one month of BBVA USA results our balance sheet on Slide 3 is presented on a spot basis.
Total spot loans declined $4.5 billion or 2% linked quarter. Excluding the impact of PPP forgiveness, loans grew and I’ll cover the drivers in more detail over the next few slides. Investment securities declined approximately $900 million or 1% as we slowed purchase activity throughout much of the quarter during the relatively unattractive rate environment. Our cash balances at the Federal Reserve continue to grow and enter the third quarter at $75 billion.
On the liability side, deposit balances were $449 billion on September 30th and declined $4 billion reflecting the repositioning of certain BBVA USA portfolios. We ended the quarter with a tangible book value of $94.82 per share and an estimated CET1 ratio of 10.2%. Both are substantially above the pro forma levels we anticipated at the time of the deal announcement. During the quarter, we return capital to shareholders with common dividends of $537 million and share repurchases of $393 million.
Given our strong capital ratios, we continue to be well-positioned with significant capital flexibility going forward. Slide 4 shows our loans in more detail. Average loans increased $36 billion linked quarter to $291 billion reflecting the full quarter impact of the ac
quisition. Taking a closer look at the linked quarter change in our spot balances total loans declined $4.5 billion.
The PNC legacy portfolio excluding PPP loans grew by $4.7 billion or 2% with growth in both commercial and consumer loans. PNC legacy commercial loans grew $3.7 billion driven by growth within corporate banking and asset-based lending. This growth in balances has been aided by a slight uptick in spot utilization. And while still near historic lows, utilization did reach its highest level since December 2020.
Growth in PNC’s legacy consumer loans linked quarter was driven by higher residential real estate balances. Within the BBVA USA portfolio, loans declined $4.4 billion primarily due to…