PNC FINANCIAL SERVICES GROUP INC

Table 2: Balance Sheet Highlights and Other Selected Ratios

The PNC Financial Services Group, Inc. –2023 Form 10-K 39

Income Statement Highlights

Net income for 2023 was $5.6 billion or $12.79 per diluted common share, a decrease of $0.5 billion, or 8%, compared to net income of $6.1 billion, or $13.85 per diluted common share, for 2022. The decrease was driven by higher expenses, which included the impact of the FDIC special assessment and workforce reduction charges, as well as lower noninterest income and a higher provision for credit losses, partially offset by higher net interest income.

•Total revenue increased $0.4 billion, or 2%, to $21.5 billion.

•Net interest income increased $0.9 billion, or 7%, to $13.9 billion, primarily due to higher interest-earning asset yields and balances, partially offset by higher funding costs.

•Net interest margin increased to 2.76% for 2023 compared to 2.65% for 2022, reflecting higher yields on interest-earning assets, partially offset by increased funding costs.

•Noninterest income decreased $0.5 billion, or 7%, to $7.6 billion, primarily due to lower capital markets and advisory income and a decline in private equity revenue. The decrease also included negative Visa Class B derivative fair value adjustments of $279 million for 2023 compared to $40 million of negative adjustments for 2022.

•Provision for credit losses was $742 million in 2023, primarily driven by portfolio activity, including changes in credit quality related to the commercial real estate portfolio. Provision for credit losses was $477 million in 2022.

•Noninterest expense increased $842 million, or 6%, to $14.0 billion, and included $515 million pertaining to the FDIC special assessment for the recovery of losses related to the closures of Silicon Valley Bank and Signature Bank as well as $150 million of workforce reduction charges.

For additional detail, see the Consolidated Income Statement Review section of this Item 7.

Balance Sheet Highlights

Our balance sheet was strong and well positioned at December 31, 2023. In comparison to December 31, 2022:

•Total assets increased modestly due to higher balances held with the Federal Reserve Bank, partially offset by lower securities and loan balances.

•Total loans decreased $4.5 billion, to $321.5 billion.

•Total commercial loans decreased $5.5 billion, or 2%, to $219.6 billion, driven by lower utilization of loan commitments and paydowns outpacing new production, partially offset by the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023.

•Total consumer loans increased $1.0 billion, to $102.0 billion, due to growth in residential mortgages, home equity, credit card and automobile loans, partially offset by declines in the remaining portfolios as paydowns outpaced new originations and draws on existing accounts.

•Investment securities decreased $6.8 billion, or 5%, to $132.6 billion, as limited purchase activity was more than offset by portfolio paydowns and maturities.

•Interest earning deposits with banks, primarily with the Federal Reserve Bank, increased $16.5 billion, or 60%, to $43.8 billion, primarily due to higher borrowed funds and lower securities and loan balances, partially offset by lower deposits.

•Total deposits decreased $14.9 billion, or 3%, to $421.4 billion, as a result of lower consumer and commercial deposits, reflecting the impact of competitive pricing dynamics and inflationary pressures.

•Borrowed funds of $72.7 billion increased $14.0 billion, or 24%, due to parent company senior debt issuances and higher FHLB borrowings.

For additional detail, see the Consolidated Balance Sheet Review section of this Item 7.

Credit Quality Highlights

2023 reflected strong credit quality performance.

•At December 31, 2023 compared to December 31, 2022:

•Overall loan delinquencies of $1.4 billion decreased $106 million, or 7%, driven by lower commercial and consumer delinquencies.

•The ACL related to loans, which consists of the ALLL and the allowance for unfunded lending related commitments, totaled $5.5 billion, or 1.70% of total loans at December 31, 2023, and was relatively stable in comparison to reserves at December 31, 2022. The slight increase in reserves was primarily driven by portfolio activity, including changes in credit quality related to the commercial real estate portfolio, partially offset by an updated economic outlook.

•Nonperforming assets of $2.2 billion increased $197 million, or 10%, due to higher commercial nonperforming loans, partially offset by lower consumer nonperforming loans.

•Net charge-offs of $710 million or 0.22% of average loans in 2023 increased $147 million compared to net charge-offs of $563 million or 0.18% of average loans for 2022, reflecting higher commercial and consumer net loan charge-offs.

40 The PNC Financial Services Group, Inc. –2023 Form 10-K

For additional detail, see the Credit Risk Management portion of the Risk Management section of this Item 7.

Capital and Liquidity Highlights

We maintained strong capital and liquidity positions during 2023.

•Common shareholders’ equity increased $4.9 billion to $44.9 billion at December 31, 2023, due to the benefit of net income and an improvement in AOCI, partially offset by common dividends paid and common share repurchases.

•In 2023, we returned $3.1 billion of capital to shareholders through dividends on common shares of $2.5 billion and repurchases of 4.0 million common shares for $0.6 billion.

•Consistent with the SCB framework, which allows for capital return in amounts in excess of the SCB minimum levels, our Board of Directors has authorized a repurchase framework under the previously approved repurchase program of up to 100 million common shares, of which approximately 45% were still available for repurchase at December 31, 2023. In light of the Federal banking agencies proposed rules to adjust the Basel III capital framework, share repurchase activity is expected to remain modest during the first quarter of 2024. PNC continues to evaluate the potential impact of the proposed rules and may adjust share repurchase activity depending on market and economic conditions, as well as other factors. PNC’s SCB for the four-quarter period beginning October 1, 2023 is the regulatory minimum of 2.5%.

•On January 4, 2024, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.55 per share paid on February 5, 2024.

•The Basel III CET1 capital ratio increased to 9.9% at December 31, 2023 from 9.1% at December 31, 2022.

•PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the CECL standard on regulatory capital, followed by a three-year transition period. Effective for the first quarter of 2022, PNC is now in the three-year transition period, and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024. The estimated fully implemented ratios reflect the full impact of CECL and exclude the benefits of this transition provision. The estimated CET1 fully implemented ratio was 9.8% at December 31, 2023 compared to 8.9% at December 31, 2022.

PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding an SCB established by the Federal Reserve Board in connection with the Federal Reserve Board’s CCAR process. See additional discussion of the CCAR process in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of this Report.

See the Liquidity and Capital Management portion of the Risk Management section of this Item 7 for more detail on our 2023 capital and liquidity actions as well as our capital ratios.

Business Outlook

Statements regarding our business outlook are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking financial statements are subject, among other things, to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our views that:

•PNC’s baseline forecast is for slower economic growth in 2024 as consumer spending growth slows and higher interest rates remain a drag on the economy. The ongoing strength of the labor market will continue to support consumer spending. Slowing inflation will allow for federal funds rate cuts starting in the late spring or early summer; this will support economic growth in the second half of 2024.

•GDP growth this year will be below trend at slightly above 1%, and the unemployment rate will increase modestly to somewhat above 4% by the end of 2024. Inflation will continue to slow as wage pressures abate, moving back to the Federal Reserve’s 2% long-term objective by the end of the year.

•PNC expects the federal funds rate to remain unchanged in the first part of 2024, between 5.25% and 5.50%, with federal funds rate cuts starting in May 2024 as inflation slows further. PNC expects the federal funds rate to end 2024 between 4.25% and 4.50%.

See Item 1A Risk Factors and the Cautionary Statement Regarding Forward-Looking Information section in this Item 7 for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.

For the full year 2024, compared to full year 2023, we expect:

•Spot loans to be up 3% to 4%,

•Average loans to be up approximately 1%,

•Net interest income to be down 4% to 5%,

•Noninterest income, excluding net securities gains and Visa activity, to be up 4% to 6%,

•Revenue to be stable to down 2%,

The PNC Financial Services Group, Inc. –2023 Form 10-K 41

•Core noninterest expense to be stable, and

•The effective tax rate to be approximately 18.5%.

For the first quarter of 2024, compared to the fourth quarter of 2023, we expect:

•Average loans to be down approximately 1%,

•Net interest income to be down 3% to 5%,

•Fee income to be down 6% to 8%,

•Other noninterest income, excluding net securities gains and Visa activity, to be between $150 million and $200 million,

•Total revenue to be down 3% to 4%,

•Core noninterest expense to be down 3% to 4%, and

•Net loan charge-offs to be between $200 million and $250 million.

Core noninterest expense guidance excludes the $515 million pre-tax impact of the FDIC’s special assessment related to the closures of Silicon Valley Bank and Signature Bank as well as $150 million of pre-tax workforce reduction charges incurred in the fourth quarter of 2023. See the Statistical Information (Unaudited) – Reconciliation of Core Noninterest Expense Guidance (non-GAAP) section of this Report.

We are unable to provide a meaningful or accurate reconciliation of forward-looking non-GAAP measures, without unreasonable effort, to their most directly comparable GAAP financial measures except for the impact of charges related to the FDIC special assessment and the workforce reduction to noninterest expense. This is due to the inherent difficulty of forecasting the timing and amounts necessary for the reconciliation when such amounts are subject to events that cannot be reasonably predicted, as noted in our Cautionary Statement. Accordingly, we cannot address the probable significance of unavailable information.