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Text: These statements speak only as of October 15, 2021, and PNC undertakes no obligation to update them.
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.
Our significant collaboration across all divisions is impressive and it gives me great confidence that will capitalize on the enormous opportunities ahead of us.
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 acquisition.
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 intentional runoff relating to the overlapping exposures and nonstrategic loans.
Looking ahead we have approximately $5 billion of additional BBVA USA loans that we intend to let roll off over the next few years, which is in line with our acquisition assumptions.
Finally, PPP loans declined $4.8 billion due to forgiveness activity and as of September 30th, $6.8 billion of PPP loans remain on our balance sheet.
Moving to Slide 5, average deposits of $454 billion increased $53 billion compared to the second quarter driven by the acquisition.
On the right, you can see total period-end deposits were $449 billion dollars on September 30th, a decline of $4 billion or 1% linked quarter.
Inside of this PNC legacy deposits increased $5.4 billion, as deposits continue to grow reflecting the strong liquidity position of our customers.
BBVA USA deposits declined approximately $9.4 billion during the third quarter, which was anticipated as we rationalize the rate paid on certain acquired commercial deposit portfolios and exited several noncore deposit-related businesses.
Overall, our rate paid on interest-bearing deposits is now four basis points or one basis point decline linked quarter.
Slide 6 details the change in our period and securities and Federal Reserve balance.
And as most of you know we have been disciplined in deploying our excess liquidity with rates at historically low levels.
Back to the beginning of the year as the yield curve steepened, we accelerated our rate of purchasing activity.
However, toward the end of the second quarter, we deliberately slowed our purchases as yields declined.
With the increase in rates at the end of the third quarter, we resumed our increased levels of purchasing including $5.4 billion of forward-settling security, which will be reflected in the fourth quarter.
Average security balances now represent approximately 24% of interest-earning assets and we still expect to be in the range of approximately 25% to 30% by year-end.
As you can see on Slide 7, our third- quarter income statement includes the full quarter impact of the acquisition.
The reported earnings per share with $3.30 which included pre-tax integration costs of $243 million.
Excluding integration, costs adjusted earnings per share with $3.75.
Third-quarter revenue was up 11% compared with the second quarter reflecting the acquisition as well as strong organic feed growth.
Expenses increased $537 million or 18% linked quarter.
Including $235 million of integration expenses and two additional months of BBVA USA operating expense.
Legacy PNC expenses increased $76 million or 2.7%.
Virtually all of which was driven by higher fee business activity.
Pretax pre-provisioned earnings excluding integration costs were $1.9 billion and $25 million, or 7%.
The provision recapture of $203 million was primarily driven by improved credit quality and changes in portfolio composition and our effective tax rate with 17.8%.
For the full year, we expect our effective tax rate to be approximately 17%.
As a result, total net income was $1.5 billion in the third quarter.
Now, let's discuss the key drivers of this performance in more detail.
Turning to Slide 8, these charts illustrate our diversified business.
In total, revenue of $5.2 billion increased $530 million linked quarter.
Net interest income of $2.9 billion was up $275 million or 11%, reflecting the full quarter benefit of the earning asset balances acquired from BBVA USA.
Inside of that interest income on loans increased $277 million or 13% while investment securities income declined $9 million, driven by elevated premium amortization on the acquired BBVA USA portfolio.
Net interest margin of 2.27% was down 2 basis points driven primarily by lower security yield.
Importantly in the fourth quarter, we expect premium amortization to decline meaningfully and on the yield on securities portfolio to increase.
The third-quarter fee income of $1.9 billion increased $274 million or 17% linked quarter.
BBVA USA contributed fee income of $184 million, an increase of $122 million linked quarter driven by two additional months of operating results.
Legacy PNC fees grew by $152 million linked quarter were 10%, driven by higher corporate service fees related to recording M&A advisory activity, as well as growth in residential mortgage revenue.
Other noninterest income of $449 million, decreased $19 million linked quarter as higher private equity revenue was more than offset by the impact of $169 million negative visa derivative adjustments.
This adjustment relates to the extension of the expected timing of litigation resolution.
Turning to Slide 9, our third-quarter expenses were up by $537 million or 18% linked quarter.
The increase was primarily driven by the impact of higher BBVA USA expenses of $327 million and higher integration expenses of $134 million.
PNC legacy expenses increased $76 million or 2.7% due to higher incentive compensation commensurate with a strong performance in our fee businesses including a record quarter in M&A advisory fees.
Our efficiency ratio adjusted for integration costs was 64%.
Obviously, with the acquisition, our expense base is now higher but nevertheless, we remain disciplined around our expense management.
And as we've stated previously we have a goal to reduce PNC stand-alone expenses by $300 million in 2021 through our continuous improvement program, and we're on track to achieve our full-year targets.
Additionally, we're confident we'll realize the full $900 million and net expense savings off of our forecast of BBVA USA 2022 expense base, and expect virtually all of the actions that drive the $900 million of savings to be completed by the end of 2021.
We still expect to incur integration costs of approximately $980 million related to the acquisition.
Since the announcement of the acquisition, we've incurred approximately half of these integration costs.
And as Bill mentioned, we appreciate all the hard work our teammates have done to keep us on track and to achieve these goals.
Our credit metrics are presented on Slide 10 and reflect strong credit performance.
Nonperforming loans of $2.5 billion decreased $251 million or 9% compared to June 30th and continue to represent less than 1% of total loans.
Total delinquencies of $1.4 billion that September 30th increase a $106 million or 8%.
However, this increase includes approximately $75 million of operational delays in early stage delinquencies primarily related to BBVA USA acquired loans.
Subsequent to quarter end all of these operational delinquencies have been or are in the process of being resolved.
Excluding these total delinquencies would have increased $31 million or 2%.
Net charge offs for loans and leases were $81 million a decline of $225 million linked quarter.
The second quarter included $248 million of charge offs related to BBVA USA loans.
Mostly the result of required purchase accounting and treatment for the acquisition.
Our annualized net charge offs loans in the third quarter was 11 basis points.
During the third quarter are allowance for credit losses declined $374 million primarily driven by improvement in credit quality, as well as changes in portfolio composition.
At quarter-end, our reserves were $6 billion representing 2.0 -- 2.07% of loans.
In summary, the PNC reported a strong third quarter and notably earlier this week converted the BBVA USA franchise.
With its debt completed, we expect to add significant value to our shareholders as we continue to realize the potential of the combined company.
In regard to our view of the overall economy, after somewhat slower growth during the third quarter of 2021 due in part to the delta variant and supply chain problems, we expect GDP to accelerate to above 6% annualized in the fourth quarter.
We also expect the Fed funds rate to remain near zero for the remainder of the year.
Looking at the fourth quarter of 2021, compared to the recent third-quarter results, we expect the average loan balances excluding PPP to be up modestly, we expect NII to be up modestly, on a percentage basis, we expect fee income to be down between 3% and 5%, mostly reflecting the elevated third quarter M&A activity.
We expect other noninterest income to be between $375 and $425 million excluding net securities and fees activities.
On [Audio gap] percent, we expect total noninterest expense to be down between 3% and 5% excluding integration expense, which we approximate to be $450 million during the fourth quarter and we expect fourth-quarter net charge offs to be between $100 and $150 million.

user
compname reports q3 net income of $1.5 bln.
compname reports third quarter 2021 net income of $1.5 billion, $3.30 diluted earnings per share or $3.75 as adjusted.
q3 adjusted earnings per share $3.75.
qtrly net interest income of $2.9 billion increased $275 million, or 11% versus q2.
qtrly total revenue of $5.2 billion increased $530 million, or 11% q-o-q.
basel iii common equity tier 1 capital ratio was an estimated 10.2% at september 30, 2021.

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