Dear Shareholders,
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 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.
Dear Shareholder,
WILLIAM S. DEMCHAK
Chairman, President and Chief Executive Officer
OUR STRATEGIC PRIORITIES
Expanding our leading banking franchise to new markets and digital platforms
Deepening customer relationships by delivering a superior banking experience and financial solutions
Leveraging technology to create efficiencies that help us better serve customers
SUBSTANTIAL PPNR GROWTH
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.
STRONG 2022 RESULTS
Record Revenue $21.1B
Return on Assets 1.11%
Return on Common Equity 13.52%
Common Equity Tier 1 Capital Ratio 9.1%
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.
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.
GROWING THROUGH OUR DELIVERY MODEL
Our national main street bank model is a key differentiator for our brand. And that model comes to life within our markets where we deliver big bank capabilities at the local level. In each of our major markets, a PNC Regional President is responsible for bringing our whole bank to customers and communities. Each Regional President is supported by on-the-ground teams of bankers, advisors and specialists who build and nurture long-term relationships with our customers by delivering — not pushing — products that address their fundamental banking needs. This regional structure is complemented by our coast-to-coast network of more than 2,500 branches that serves millions of consumers and small businesses.
In 2022, we leveraged and strengthened our delivery model across our three lines of business to deliver for our customers and drive growth.
AWARDS & RECOGNITIONS
America’s Most JUST Companies JUST Capital (2023)
Most Trusted Bank Bankrate (2023)
Best Private Bank for New Customer Segments & Business Owners Global Finance Awards (2023)
Gender-Equality Index Bloomberg (2023)
U.S. Best Super-Regional Bank Euromoney Awards for Excellence (2022)
Best Veteran-Friendly Companies U.S. Veterans Magazine (2022)
Outstanding CRA Rating Since law was enacted in 1977
INTEGRATED INNOVATION
PNC began its journey toward intensive technology investment in 2013, before many of our peers. And we continue to invest heavily today to help us deliver simpler and more intuitive experiences for our customers and more efficient workflows for our employees. Key to our technology strategy is designing and building integrated platforms that allow to us to be agile in the market and show up for our customers as one company.
Currently, we are undertaking a massive, multi-year transformation project, which will move us to a state-of-the-art, real-time core deposit system. The resulting software and infrastructure will allow us to further enhance our customer experience, security, digital tools and customer service — all while increasing our ability to quickly launch products.
Technology investments are also integral to our expense management efforts — particularly as we expand our operations to serve a growing customer base. In 2022 alone, our Intelligent Automation team helped deliver approximately $37 million in savings by automating 65 processes using sophisticated mechanisms such as artificial intelligence and machine learning.
Our company is fortunate to have a wealth of top technology talent, and maintaining a culture where innovation is encouraged and celebrated is critical to our future success. In 2022, we launched our inaugural PNC Developer Day to showcase next-gen software engineering capabilities and spark cross-collaboration between our technology teams. And since 2020, PNC technology teams have filed over 70 patent applications related to financial technology.
CONSUMER ADVOCACY & PROTECTION
Today, perhaps more than ever, bad actors pose real and pervasive threats to security and privacy online. We recognize our role as a leader in helping protect and empower consumers and businesses through our advanced security platforms and industry advocacy.
That begins with our significant and sustained investments in cybersecurity and information security. Inside of those investments, we’ve focused on strengthening both our systems and our talent to help safeguard our platforms and customer data.
At the same time, we’re continuing to engage our customers directly and to help them recognize and protect themselves from fraud and scams. That includes extensive outreach across multiple channels — including within the Zelle® experience in our mobile app — to help customers identify and prevent peer-to-peer payment scams.
We’ve developed a full suite of fraud mitigation services to help protect our clients from cybercrime. That includes advanced check matching through our Positive Pay and Payee Positive Pay services, and ACH debit monitoring and restrictions through ACH Positive Pay and ACH Debit Block. We’ve also enhanced our Actimize® platform to help Treasury Management clients screen monetary and non-monetary transactions and reduce fraud.
We remain at the forefront of efforts within the industry to combat malicious messaging and phishing scams to our customers and, in 2022, we blocked more than 3,000 phone numbers used by bad actors to send fraudulent SMS messages.
RESPONSIBLE BUSINESS PRACTICES
To be successful as a national main street bank, we must be an agent of positive change for the people we serve and the places where we work and live. We thrive when our constituents thrive, and we run our business with a focus on delivering for all stakeholders, including through meaningful investments in our communities, and sound environmental, social and governance practices.
Community Benefits Plan In 2022, we initiated and made significant progress delivering our 4-year $88 billion Community Benefits Plan (the “Plan”) aimed at advancing economic opportunities for LMI individuals, communities and people of color. This work builds on and expands our longstanding commitment to help meet community needs, advance economic empowerment and challenge systemic racism.
A key driver in this effort is our commitment to promoting access to affordable housing. In the Plan’s first 6 months, we provided roughly $13.3 billion in residential mortgage and home equity loans for more than 11,000 LMI borrowers and minority borrowers.
Over the same period, we also provided more than $2.7 billion in financing dedicated to supporting business development and minority entrepreneurs in LMI neighborhoods coast to coast through the Plan. And in April we launched the Minority Business Development Group, a Business Banking resource team dedicated to developing and accelerating minority-owned businesses.
Additionally, we delivered more than $1.3 billion in the Plan’s first 6 months to support community development and revitalization initiatives in LMI neighborhoods and majority-minority communities. This includes financing for Low Income Housing Tax Credits and New Markets Tax Credits, and investment in Community Development Financial Institutions that assist traditionally underserved communities.
In July 2022, we hosted the first meeting of the Community Advisory Council. Comprised of representatives from national, regional and local community organizations, the council assists our company in identifying and addressing emerging areas of community needs, as well as monitoring our progress delivering the Plan.
Philanthropy with Purpose As a company, our purpose is to help all move forward financially. Core to that purpose is the understanding that education is a powerful means for economic and social mobility. With that in mind, we continue to expand the scale and ambition of our signature Grow Up Great® initiative. Since its launch in 2004, the $500 million bilingual program has provided funding for early education, supporting more than 8 million children and providing $225 million in grants to nonprofits to advance high-quality early learning.
The Grow Up Great initiative continues to inspire significant contributions from our team. Since 2004, employees have volunteered over 1 million hours and donated more than 1.4 million goods and supplies. And I’m proud and grateful for everything our employees do to help promote opportunities for success in the lives of young children.
In 2018, our company launched PartnerUp® in Pittsburgh to help high school graduates find immediate career opportunities in high-growth industries. Through the program, our company has partnered with 30 schools and 16 employers to help provide career paths to more than 6,000 students. The goal of the PartnerUp program has always been to create a scalable pathway program that can be tailored and leveraged to meet the needs of the communities in which we operate, connecting local employers with often overlooked talent pools. In 2022, as demand for skilled workers increased dramatically, we were thrilled to announce an expansion of this groundbreaking program into Cleveland and Birmingham.
For PNC, PartnerUp is much more than just a program to benefit the community. It is a valuable platform for identifying and recruiting talent: Since 2018, we have hired roughly 90 graduates.
Additionally, in 2022, we scaled our pilot program for corporate racial and social justice volunteerism across our company. The marquee opportunity, Sky’s the Limit, connects underrepresented, young adult entrepreneurs across the U.S. with PNC business professionals, who serve as one-to-one volunteer advisors and mentors. In just over 1 year, we’ve seen more than 150 employees get involved, contributing nearly 1,200 volunteer hours and earning $25,000 in volunteer grants that directly benefit Sky’s the Limit entrepreneurs.
Transition to a Low Carbon Economy We are committed to supporting the transition to a low carbon economy, and we recognize the role we play as a financial institution — in concert with stakeholders from across public, private and non-profit sectors — in helping accelerate that transition. We believe we can have the greatest positive impact on the environment by taking tangible action to lower our carbon footprint while providing critical financing and expertise to help our customers make their own transition.
Over the past few years, we’ve taken significant steps to monitor and reduce the environmental impact of our operations. Through these efforts, we have already reduced our direct and indirect carbon emissions by 66% (compared to 2009 levels), our energy usage by 50% (compared to 2009 levels) and our water usage by 55% (compared to 2012 levels). In 2023, we plan to establish new, ambitious, science-aligned environmental targets with an aim toward reducing those measures even further.
At the same time, we remain focused on supporting our clients as they pursue their own climate transition plans. In addition to expanding our 5-year environmental finance goal from $20 billion to $30 billion.
Sincerely,
William S. Demchak
Chairman, President and Chief Executive Officer
March 1, 2023
Read the original letter here.
