PNC Financial Services : 2022 Annual Report

MAIN STREET

ROOTS.

NATIONWIDE

REACH.

2022 ANNUAL REPORT

THE PNC FINANCIAL SERVICES GROUP

The PNC Financial Services Group, Inc.

Financial Highlights

Year ended December 31

In millions, except per share data

		2022		2021		2020
FINANCIAL RESULTS
Net interest income	$	13,014	$	10,647	$	9,946
Noninterest income		8,106		8,564		6,955
Total revenue		21,120		19,211		16,901
Noninterest expense		13,170		13,002		10,297
Pretax, pre-provision earnings (non-GAAP)		7,950		6,209		6,604
Provision for (recapture of) credit losses		477		(779)		3,175
Income taxes from continuing operations		1,360		1,263		426
Net income from continuing operations	$	6,113	$	5,725	$	3,003
Net income from discontinued operations		-		-		4,555
Net income	$	6,113	$	5,725	$	7,558
PER COMMON SHARE
Diluted earnings from continuing operations	$	13.85	$	12.70	$	6.36
Diluted earnings from discontinued operations		-		-		10.60
Total diluted earnings		13.85		12.70		16.96
Total diluted earnings from continuing operations, as adjusted (non-GAAP)		13.96		14.18		6.37
Cash dividends		5.75		4.80		4.60
Closing price		157.94		200.52		149.00
Book value		99.93		120.61		119.11
Tangible book value (non-GAAP)		72.12		94.11		97.43
BALANCE SHEET At year end
Assets	$	557,263	$	557,191	$	466,679
Loans		326,025		288,372		241,928
Deposits		436,282		457,278		365,345
Common shareholders' equity		40,028		50,685		50,493
Common shares outstanding		401		420		424
SELECTED RATIOS
Return on average common shareholders' equity		13.52%		10.78%		15.21%
Return on average assets		1.11		1.09		1.68
Net interest margin (non-GAAP)		2.65		2.29		2.53
Noninterest income to total revenue		38		45		41
Efficiency		62		68		61
Basel III common equity Tier 1 capital ratio		9.1		10.3		12.2

Pretax pre-provision earnings is based on adjusting income from continuing operations before income taxes and noncontrolling interests to exclude provision for (recapture of) credit losses. Diluted earnings as adjusted is a non-GAAP measure calculated by excluding integration costs for BBVA USA. Additional information, including non-GAAP reconciliations, is located at the end of this shareholder letter.

Tangible book value per common share calculated as tangible common shareholders' equity divided by period end common shares outstanding. Net interest margin is calculated on a taxable-equivalent basis. See the Statistical Information (Unaudited) section in Item 8 of the accompanying 2022 Form 10-K for additional information, including non-GAAP reconciliations.

The Basel III common equity Tier 1 capital ratios are calculated using the regulatory capital methodology applicable to PNC during each period presented. Ratios for all periods were calculated based on the standardized approach. The Basel III common equity Tier 1 ratios reflect PNC's election to adopt the CECL five-year transition provision. See the regulatory capital rules discussion in the Supervision and Regulation section of Item 1, the Liquidity and Capital Management discussion in the Risk Management section of Item 7 and Note 20 Regulatory Matters in the Notes to Consolidated Financial Statements of Item 8 in the accompanying 2022 Form 10-K for additional information.

These Financial Highlights should be read in conjunction with disclosures in the accompanying 2022 Form 10-K, including the audited financial statements.

WILLIAM S. DEMCHAK

Chairman, President

and Chief Executive Officer

Dear Shareholder

2022 was a year of growth for our company. We delivered our main street bank model to serve more customers and communities across an expanded footprint, leveraging the power and potential of our coast-to-coast franchise. At the same time, we invested heavily to support and grow our talented team. And we came together to help create positive outcomes in the neighborhoods in which we work and live.

All of this helped us generate solid financial results in 2022 and put us in a position of strength as we entered 2023. In the following letter, I share my thoughts on our many successes over the past year, and what we expect as we look to the future.

OUR STRATEGIC PRIORITIES

Expanding our leading	Deepening customer	Leveraging technology
banking franchise	relationships by	to create efficiencies
to new markets and	delivering a superior	that help us better serve
digital platforms	banking experience	customers
	and financial solutions

I'd like to begin with a sincere thank you to my 61,000-plus colleagues, without whom none of this would be possible. Their passion and commitment to our customers is - and will always be - the driving force behind our success.

I would also like to thank our Board of Directors, whose guidance was instrumental as we navigated an operating environment characterized by change and volatility. This included a highly dynamic interest rate cycle in which rate hikes came at greater increments and at a faster pace than most foresaw at the beginning of 2022.

Through it all, our company remained focused on our three strategic priorities, which are detailed at the bottom of this page. And we executed well against those priorities in 2022 to create value for all of our stakeholders.

SUCCESSFUL INTEGRATION OF BBVA USA

Our acquisition of BBVA USA in 2021 provided us with the opportunity to leverage our capabilities and delivery model and deploy them in new

and expanded markets that are strategically important to the future of our franchise. And we began

2022 with BBVA USA fully integrated into our businesses.

2022 ANNUAL REPORT • THE PNC FINANCIAL SERVICES GROUP | 1

STRONG

2022 RESULTS

Record Revenue

$21.1B

Return on Assets

Our acquisition of BBVA USA in 2021 provided us with the opportunity to leverage our capabilities and delivery model and deploy them in new and expanded markets that are strategically important to the future of our franchise.

1.11%

Return on Common Equity

13.52%

Common Equity Tier 1

Capital Ratio

9.1%

SUBSTANTIAL PPNR GROWTH

$ billions

		$8.0 $8.0
	$7.0
$6.6 $6.6
	$6.2
2020	2021	2022

• PPNR  PPNR ex. Integration Costs

Pretax, pre-provision earnings (PPNR) and PPNR ex. Integration Costs are non-GAAP measures. Additional information regarding these measures, including non-GAAP reconciliations, are located at the end of this shareholder letter.

Today, we operate in all 30 of the country's largest metropolitan statistical areas (MSAs), and our progress within BBVA-influenced markets continues to exceed our expectations. Revenue synergies coming out of the acquisition have been larger and at a faster pace than what we assumed at deal announcement due to new client growth, our ability to cross-sell and the competitiveness of our product set.

We continue to see powerful growth opportunities across our lines of business in these new markets. And our ability to attract top talent at a local level has helped us generate new client relationships and quickly build momentum on the ground.

EXECUTING WELL TO DRIVE SHAREHOLDER VALUE

We delivered net income of

$6.1 billion in 2022, which translates to $13.85 per diluted share, or $13.96 as adjusted to exclude the impact

of BBVA USA integration costs.

We grew loans and generated record revenue of $21.1 billion, supported by our business mix and diverse product offerings. As interest rates rose, net interest income increased

22% during 2022 and our net interest margin expanded significantly to 2.65%. Noninterest income of

$8.1 billion decreased 5% in 2022 due to lower contributions from market-sensitive fee businesses.

Our return on average assets was 1.11%, up from 1.09% in 2021, and our return on average common equity was 13.52%, up from 10.78% in 2021.

At the same time, we controlled expenses well in 2022, resulting in pretax pre-provision earnings (PPNR) of $8.0 billion and positive operating leverage of 9%. We achieved this while continuing to invest in our technology, our employees and other priorities.

Our Continuous Improvement Program (CIP) remains a key driver of expense control, helping us identify opportunities for savings and drive efficiencies across our company. In 2022, we once again exceeded our CIP goal of $300 million in cost savings, and we have increased our annual CIP goal to $400 million for 2023.

We also maintained a strong balance sheet throughout 2022.

2 | FROM THE CEO | MARCH 1, 2023

During the year, we had sizable growth in our interest earning assets. Average loans grew 15% in 2022, driven by strong commercial lending. And average investment securities increased 24% for the year as we opportunistically deployed liquidity into higher yielding securities.

On the liabilities side of the balance sheet, average deposits increased $24.5 billion in 2022, reflecting the full year benefit of the BBVA USA acquisition. However, on a spot basis, deposits decreased 5% at year-end due to ongoing competitive pricing dynamics and inflationary pressures.

Average borrowed funds for 2022 increased $7.9 billion over the prior year as we strategically added liquidity at attractive rates to support growth.

Our credit quality metrics remained solid during 2022. Provision for credit losses for the full year was $477 million, reflecting the underlying growth in our loan book and a weakened economic outlook. At the same time, delinquencies decreased 25% and nonperforming loans declined 20% during the year.

As I write this letter today, in the middle of the first quarter of 2023, we continue to operate the company with the expectation of a shallow recession this year and a continued normalization in the credit environment. Our year-end 2022 ratio of allowance for credit losses to total loans of 1.67% reflects these expectations. Regardless of the economic environment, we believe

our disciplined approach to growing loans and managing credit risk positions us well for the future.

Additionally, our capital levels remained solid during 2022 and our common equity tier 1 capital ratio was 9.1% at year end. We ended the year with a tangible book value per common share at $72.12, down

23% from the prior year, as organic growth in our capital levels was more than offset by a decrease in accumulated other comprehensive income (AOCI) - reflecting the negative impact of higher interest rates on securities and interest rate swap values. Importantly, we expect these amounts will fully accrete back into income over the remaining lives of the securities and swaps.

We also doubled the amount of capital we returned to shareholders - through common stock dividends and share repurchases - to a record $6 billion. At the same time, we continued to generate strong annualized total returns for our shareholders. Our

5-year annualized total shareholder return was 5.1% compared to a 1.8% average for our peer group and we rank 4th among our peers for both

3- and 5-year shareholder returns as of December 31, 2022.

Overall, our strong performance in 2022 reflects the way in which we show up every day as a national main street bank to serve our customers, communities and all of our stakeholders. Here's what that looks like in practice.

POSITIVE LOAN TRENDS

Loans at December 31
$ billions
$242	$288	$326
2020	2021	2022

RECORD REVENUE

FROM DIVERSIFIED MIX

$ billions		$21.1
	$19.2
$16.9
		38%
41%	45%
59%	55%	62%
2020	2021	2022

• Net Interest Income  Noninterest Income

CAPITAL RETURNED

TO OUR SHAREHOLDERS

$ billions
$3.6	+ $2.4	=	$6.0
Repurchased	Common		Total capital
21 million	stock		returned to
common	dividends		shareholders
shares

2022 ANNUAL REPORT • THE PNC FINANCIAL SERVICES GROUP | 3