Good morning. My name is Kathy, and I will be your conference operator today. At this time, I would like to welcome everybody to the P&C Financial Services Group Earnings 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.
Relations, Mr. Brian Gill. Sir, please go ahead.
Well, thank you, Kathy, and good morning, everyone. Welcome to today's conference for the P&C Financial Services Group. Participating on this call are P&C'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 January 15, 2021, and PNC undertakes no obligation to update them. Now, I'd like to turn the call over to Bill.
Thanks, Brian. Good morning, everybody. As you've seen this morning, we had a solid Q4 and full year 20 20 amidst a challenging operating environment. Over the course of the year, we grew loans and deposits, delivered positive operating leverage and executed well on all of our strategic priorities. Our balance sheet finished the year in a very strong position, record levels of capital and liquidity and significant credit reserves.
In addition, we grew tangible book value per share 17% year over year. While the economy improved modestly this quarter and we're encouraged by the rollout of the vaccines, we continue to operate amidst the pandemic, a low rate environment and weak loan demand. And before Rob walks you through the full details of our results, I wanted to share a few high level observations. 1st, the investments we've made over the years in talent and technology have allowed us to navigate this pandemic, the related economic crisis, the widespread social unrest while supporting our stakeholders and coming out stronger as a company. In addition to taking the 70,000 loans worth approximately $13,000,000,000 through the federal government's first round of the Paycheck Protection social unrest and as part of our efforts to help address systemic racism, we committed $1,000,000,000 to advance social justice and economic empowerment among black Americans and low and moderate income communities.
And as you're aware, in the Q2 of 2020, we sold our passive stake passive equity stake in BlackRock in November announced our plan to redeploy those proceeds to acquire BBVA USA. Since that announcement, we spent a lot of time with BBVA's employees and have become even more excited about our combination given their talent in high growth markets and the similarities in how we serve clients, manage risk and support our communities. This transaction will create a leading national franchise, significantly accelerate our growth and enhance our profitability. And finally, I'd like to close by thanking our employees for their steadfast commitment to our customers through a very challenging year. And with that, I'll turn it over to Rob for a closer look at our results and then we'll take your questions.
Great. Thanks, Bill, and good morning, everyone. As you've seen, we've reported 4th quarter net income of $1,500,000,000 or $3.26 per diluted common share, resulting in full year 2020 net income from continuing operations of $3,000,000,000 or $6.36 per diluted common share. Our balance sheet is on Slide 4 and is presented on an average basis. During the quarter, lower utilization and soft loan demand drove a $7,000,000,000 or 3% decline in loans and low rates pressured investment securities, which declined $5,000,000,000 or 5%.
Our cash balances at the Federal Reserve grew to 70 $6,000,000,000 in the 4th quarter. Our elevated liquidity position is a result of continued deposit growth as well as lower loan and securities balances. On the liability side, deposit balances averaged $359,000,000,000 and were up $9,000,000,000 or 3% linked quarter. Borrowed funds decreased $5,000,000,000 compared to the 3rd quarter as we used our strong liquidity position to continue to debt. Our tangible book value was $97.43 per common share as of December 31, an increase of 2% linked quarter and 17% year over year.
And as of December 31, 2020, our CET1 ratio common stock of $1.15 per share or $500,000,000 And consistent with the Fed mandate, we had no share repurchases during the Q4. Our expectations for share repurchases in 2021 remains the same as we stated this past December, that is we'll refrain from share repurchases, excluding employee benefit related purchases, during the period leading up to our pending BBVA USA transaction close date, expected to be midsummer 2021. Following the close, all else being equal and subject to CCAR 20 21, we'd expect to resume share repurchases in the second half of the year. Slide 5 shows our average loans and deposits in more detail. Average loan balances of $246,000,000,000 in the 4th quarter were down $7,300,000,000 or 3% compared to the 3rd quarter.
This decline included a $5,300,000,000 decrease in commercial loan balances, which was broad based, reflecting lower loan utilization and softer loan production, partially offset by higher multifamily warehouse lending. In our C and IB segment, utilization rates are currently running at historic lows and approximately 2.5% below pre pandemic levels as customers continue to maintain strong liquidity positions, evidenced by high levels of deposits. Consumer loans declined $2,000,000,000 and balances were lower across all consumer categories. Compared to the same period a year ago, total average loans grew percent or $7,000,000,000 As the slide shows, the yield on our loan balances is 3.35%, a 3 basis point increase compared to the 3rd quarter, reflecting higher PPP loan forgiveness and a shift in consumer loan mix. And we continue to reduce the rate paid on our interest bearing deposits to 8 basis points, a 4 basis point decline linked quarter.
Average deposit balances of $359,000,000,000 increased $9,000,000,000 or 3 percent as a result of enhanced liquidity of our customers as well as seasonal growth. Year over year deposits increased 70 $2,000,000,000 or 25 percent with strong growth in both interest bearing and non interest bearing deposits. As a result, our loan to deposit ratio has declined to a low of 66% at the end of the 4th quarter compared to 83% in the same period in 20 19. As you can see on Slide 6, full year 2020 revenue was $16,900,000,000 up slightly compared with 2019, driven by higher fee income. Expenses declined $277,000,000 or 3 percent and remain well controlled.
Our full year provision was $3,200,000,000 compared with $773,000,000 in 2019, reflecting the economic effects of the pandemic. Our effective tax rate from continuing operations was 12.4% for the full year 2020. Now let's discuss the key drivers of this performance in more detail. Turning to Slide 7, you can see our total revenue has grown consistently over the past several years, driven by our broad based business mix. For the 4th quarter, net interest income of $2,400,000,000 was down $60,000,000 or 2% from the 3rd quarter, primarily due to lower loan and security balances and lower securities yields.
Full year 2020 net interest income of $9,900,000,000 was down slightly by $19,000,000 year over year, as higher earning asset balances and lower rates paid on deposits were essentially offset by lower yields on earning assets. The 4th quarter net interest margin of 2.32 percent declined 7 basis points linked quarter. Notably, growth in Fed cash balances represented a 9 basis point decline, which accounts for more than the total linked quarter decrease Both full year and linked quarter net interest margin reflected the impact of substantially higher Fed cash balances. To size that impact, 4th quarter Fed balances averaged $76,000,000,000 exceeding our LCR requirement by approximately $55,000,000,000 This level of excess liquidity represented 35 basis points of compression to our reported 4th quarter NIM. 4th quarter non interest income declined $13,000,000 or 1% compared with the 3rd quarter.
Fee income of $1,500,000,000 increased $151,000,000 or 11% linked quarter, primarily driven by growth in corporate service fees of $171,000,000 or 36% due to higher merger and acquisition advisory activity. Partially offsetting this growth was a decline in residential mortgage non interest income of $38,000,000 reflecting a negative RMSR valuation adjustments and lower servicing fees. Other non interest income of $293,000,000 decreased 100 and $164,000,000 linked quarter. The decline was primarily driven by a negative $173,000,000 Visa derivative adjustment related to the extension of the expected timing of the litigation resolution. Importantly, we continue to execute on our strategies to grow our fee businesses across the franchise and those efforts helped to drive record fee income of $5,600,000,000 in 2020, an increase of $190,000,000 or 4% compared to 2019.
This growth was driven by higher corporate service fees, primarily related to increased activity in our advisory businesses and treasury management, as well as stronger residential mortgage non interest income. Partially offsetting this growth was a decline in both consumer services and service charges on deposits due to impact of the pandemic, particularly in the Q2, as well as our ongoing efforts to simplify products and reduce transaction fees for our customers. Other non interest income declined $109,000,000 year over year or 8%, reflecting lower private equity revenue and elevated 2019 gains on asset sales related to our asset management business, partially offset by higher net securities gains. Turning to Slide 8. Our full year 2020 noninterest expenses were $10,300,000,000 a decline of $277,000,000 or 3% compared with 2019 as we responded to the crises and we managed expenses down.
Taking a look at the 4th quarter, expenses grew by $177,000,000 or 7% linked quarter, primarily driven by an increase in personnel expense of $111,000,000 due to higher incentive compensation associated with Importantly, we generated 3% positive operating leverage in 2020. And as a result, our efficiency ratio for the full year was 61 percent, improving from 63% last year. While the current environment presents revenue challenges, we remain deliberate and disciplined around our expense management. We had a 2020 goal of $300,000,000 in cost savings through our continuous improvement program and we successfully completed actions to achieve that goal. Looking forward to 2021, our annual CIP goal will once again be 300,000,000 dollars Slide 9 is an update regarding specific industries we've identified as most likely to be impacted by the effects of the pandemic.
Our outstanding loan balances in the COVID high impact categories declined in the 4th quarter to $17,200,000,000 as of December 31, compared to $18,300,000,000 at the end of the 3rd quarter, largely driven by commercial and industrial pay downs. Within the C and I identified industries, non performing loans remain relatively low, representing less than 1% of loans outstanding and charge offs have not been material. That being said, we do expect to see further stress in these industries. The lower half of this slide presents the highly impacted commercial real estate and related loan categories. These industries are experiencing the most pressure and downgrades continue to occur.
Our 2 largest charge offs in the 4th quarter were related to loans in this category. Overall, for all of these COVID high impact loans, we remain well reserved and continue to carefully monitor and manage these exposures. Moving to Slide 10, this is an update to our customer hardship relief. We continue to see a reduction in the number of consumers and small businesses requesting hardship assistance. And importantly, loans under modification that present credit risk to PNC continue to decline.
At the end of the year, we had $900,000,000 of consumer and small business balances in some form of payment assistance with credit risk to PNC down from $1,700,000,000 at September 30. On the commercial side, we're also continuing to selectively loan modifications based on each individual borrower situation. Within our C and IB segment, less than $150,000,000 of loan balances were in deferral as of December 31. When combining consumer and commercial customers, loans receiving assistance and posing credit risk to P and C are approximately $1,000,000,000 representing less than 0.5 percent of total loans outstanding and as I previously mentioned are appropriately reserved. Our credit metrics are presented on Slide 11.
Total delinquencies of $1,400,000,000 at December 31st increased $125,000,000 or 10%. Consumer loan delinquencies increased $72,000,000 primarily due to government insured mortgages that recently exited modification status and commercial loan delinquencies grew by $53,000,000 Non performing loans increased 2 $1,000,000 or 10% compared to September 30. This growth was almost entirely driven by $193,000,000 increase in consumer loans and within that $189,000,000 related to residential real estate, primarily as a result of borrowers exiting forbearance and deferring payments at the end of the term. Net charge offs for loans and leases were $229,000,000 up $74,000,000 from the 3rd Commercial net charge offs increased by $71,000,000 to $109,000,000 driven by specific commercial real estate related borrowers and included certain portfolio management activities. Consumer net charge offs were relatively stable at 120,000,000 dollars Annualized net charge offs to total loans in the 4th quarter was 37 basis points, an increase of only 2 basis points compared to the same period last year.
As you can see, the allowance for credit losses to loans was 2.46% atquarterend, down slightly from 2.58% last quarter. We believe that our reserves sufficiently reflect the life of loan losses in the current portfolio. Slide 12 highlights the components of the change in our allowance for credit losses throughout the year. In the 4th quarter, reserves declined by $495,000,000 Economic and qualitative factors represented $398,000,000 of the decline as improvement in our economic outlook was partially offset by increased reserves within our CRE portfolio. Correspondingly, our allowance for loan losses on our total commercial real estate portfolio have increased to 3.06% as of December 31.
The remaining $97,000,000 $9,000,000,000 have increased materially year over year and as I mentioned before now represent 2.46% of loans. Turning to Slide 13, I wanted to spend a few minutes reviewing our recently announced acquisition of BBVA USA with a focus on updates since the call in November. We expect this transaction to add significant value to our shareholders and we're excited about the power of the combined franchises. We remain confident in our ability to achieve the financial objectives we laid out at the time we announced the deal, including the $900,000,000 of expense saves through enhanced operational efficiencies. Through time, we do expect to generate additional meaningful revenue synergies, which will make the economics of the transaction even more compelling.
Since the announcement, we've continued to make steady progress towards completing the transaction. Notably, we've established cross functional business teams to support the integration, submitted required regulatory applications and confirmed the mapping of the technology migration. There's a lot of hard work ahead, but based on our due diligence as well as the progress we've made to date working alongside the BBVA USA team, we're confident in our ability to execute and deliver on our objectives. This transaction will significantly accelerate our expansion efforts into attractive growth markets, is financially compelling and leverages our technology and acquisition expertise. In summary, P and C reported a strong 4th quarter and a successful 2020 and we're well positioned for 2021 and beyond.
During 2021, naturally, the biggest variable impact in the economy will be the duration of this pandemic and along with that, the efficacy of the government support plans as well as the vaccine distribution. Our current expectations are for real GDP to return to pre recession levels by the end of the year and the Fed funds rate to remain near 0 throughout the duration of the year. Looking ahead at the Q1 of 2021 compared to the Q4 of 2020, we expect total average loans to be stable to down modestly. Inside of that, PPP loans are expected to be up approximately 2,000,000,000 dollars We expect NII to be down approximately 1%, which includes the impact of 2 fewer days in the Q1. Excluding the impact of PPP, net interest income is expected to decline approximately 3%.
We expect total non interest income to be down mid single digits. Within that, other non interest income is expected to be between $275,000,000 $325,000,000 We expect total non interest expense to be down in the mid single digit range. In regard to net charge offs, we expect 1st quarter levels to be between $200,000,000 $250,000,000 Looking at the full year 2021 guidance, we thought it would be helpful to provide our expectation for P and C's standalone performance, excluding any one time costs related to the BBVA USA transaction. For the full year 2021 compared to the full year 2020 results, we expect average loan growth to be down in the low single digit range. The significant increase in loan utilization However, we do expect to have loan growth throughout 2021 resulting in low single digit spot growth for the year.
We expect total revenue to be stable. We expect expenses to be stable. This represents I'm sorry, I backed that up. We expect revenues to be stable and this represents the current net interest income forecast of down modestly. But we acknowledge potential deposit growth and further rates deepening in excess of our current forecast, it is plausible and that's relative to revenues.
We expect our expenses to be stable and we expect our effective tax rate to be approximately 17%. Regarding the pending acquisition of BBVA USA, as I mentioned, we recently filed the required applications and we're still targeting a mid year close subject to regulatory approval. BBVA will not be releasing the results until later this month. Therefore, we will not be providing updates to the previously disclosed financial metrics and estimates related to BBVA USA at this time. However, in an effort to provide some context for the transaction in relation to our full year guidance, assuming we close mid year and excluding integration costs, we expect the acquisition to be approximately $600,000,000 accretive to PNC's 2021 pre provision net revenue.
And all of that is consistent with our original assumptions. And with that, Bill and I are ready to take your questions.
Okay. Kathy, could you please open up the line for questions?
Thank you. And our first question comes from the line of Betsy Graseck with Morgan Stanley. Please proceed. Hi, thanks and good morning.
Hi, good morning, Betsy.
I had a question on the outlook here for revenue full year stable. And obviously that's without that's a standalone basis, right? I just wanted to understand how you get there and what's going on given the fact that the guide for NII in 1Q is down. And so can you talk through what you're doing and how much of that is loan growth and yes, thanks.
Yes, sure. So I'm glad you asked that question because I included that in the forecast in terms of our guidance for the full year that we expect total revenues to be stable. And inside that, our current net interest income forecast is down modestly. But we do acknowledge potential for deposit growth and further rate deepening in excess of our current forecast. So there's potential upside there.
And it's offset by higher fees? In terms of total rent, yes, in terms of that. That's right. In regard to the NII, it's tough. You take a look in terms of the rate backdrop.
We had headwinds all during 2020 and we expect that to continue through 2021. We will put more money to work on the securities balances and we do expect loan growth. And there may be some room in terms on the liability side to reduce some of those costs. So that's how we get to the NII
component. But one of the internal debates that we're having, so the forecast stays as the forecast stays, but one of the internal debates that there's no winner on is this basic notion that as the Fed continues the size of their balance sheet and grows it and we have loan growth towards the back end of 2021, that drives deposit growth, right. It's a closed system. And as that happens P and C benefits disproportionately, at least has and I suspect will given some constraints on the largest banks on deposit growth, which in turn gives us NII. So we kind of say fine call NII flat, but there's a macro variable in here that will hit the industry as a function of loan growth and what the Fed does that's going to drive this opportunity.
Yes, I get that. Okay. Yes. Maybe you could speak a little bit to the loan growth and where that's going
come from. That's probably the biggest single debate point that
we're having with investors right now. What will drive
it to come back up?
So Rob can jump in here, but a chunk of it simply comes back because utilizations are so low. So as the economy comes back yes, as the economy comes back on, you just see utilization and the basic revolvers we have. But the other issues, the delevering of the consumer balances ought to pick up once the vaccine is widely distributed and people kind of go back to more normalized behavior. That remains to be seen, but I think those are the 2 biggest opportunity sets.
And some consumer on the back end of the year.
And our next question comes from the line of Scott Siefers with Piper Sandler. Please proceed.
Good morning, guys. Thanks for taking the question. Hey, Rob, in response to the last question, you alluded to the possibility of potentially investing a little of the securities portfolio. I feel like you guys just have such a mass of money just sitting at the Fed. So we've had this back up in higher rates.
How much in your mind more attractive is it to potentially invest some of that stuff that's just sort of sitting there earning virtually nothing at this point?
Well, it's more attractive than it was a couple of months ago. You would have seen that the outright security balances declined just as we got into the low, low rates in the prepays. We have been more aggressively investing money of recent. We'll continue to do that. We have a lot to go as you point out.
We don't do it all at once and you should assume it will accelerate into a steepening curve and moderate into a flattening curve as you would expect. But we have an awful lot of money to put to work and then that issue compounds again if we get the deposit growth that at least I expect is going to happen across the industry given the macro factors.
And that's that piece that we talk about that could be potentially above our current forecast.
Yes.
Okay, perfect. Thank you. And then, this second question, I know it's not necessarily huge for me, but I think a lot of investors are trying to figure out what is this new round of PPP going to look like. Just sort of qualitatively, how are you guys thinking about your own participation in it to the degree that any benefit is baked into the guidance for 2021? How does that end up looking quantitatively as well?
Sure. I can answer that. So, particularly as it relates to the Q1. So, we will participate in the 2nd wave. We anticipate that the total balance is because the program is smaller will be less than the 1st wave.
But to just give you numbers, we finished 2020 with the average balances under the first PPP program of $12,500,000,000 We expect $2,000,000,000 of forgiveness in the Q1. So that first wave would be about $10,500,000,000 And then for the 2nd wave, we expect to originate approximately $4,000,000,000 in the Q1. So that would take our total PPP in the Q1 to about $14,500,000,000 So that's how I size it and that's how I think it. Beyond that, we'll have to see because the levels of forgiveness and how that goes is fluid.
Okay, perfect.
All right.
Thank you very much.
Sure.
And our next question comes from the line of Ken Usdin with Jefferies. Please proceed.
Hey, thanks. Good morning, guys. If I can follow-up that last question, Rob, can you help us understand, I know there's so many moving parts with Part 1 and Part 2. You had said, I think you had less forgiveness in the Q4 than you expected. Can you help us understand just like what the PPP benefit to NII was in 2020?
And then how much are you expecting in 2021 or how much that informs that flat slightly down NII?
Yes, I think it's probably best, Kenya, to look at the 2021 Q1 and give you a number. Of that $14,500,000,000 that we expect to have in total PPP loans, the NII will be approximately $140,000,000 And inside that, and these are approximate numbers, approximately $30,000,000 represents the forgiveness of that $2,000,000,000 that we expect from Program 1.
Got it. And then there'll be some moving parts with regards to like run rating versus forgiveness as we go through the year as well? Yes,
that's right. And we'll keep you posted. But that's my best thinking for the first
quarter. Okay, great. And the second question is, following on your BBVA second half PPNR comments, Rob, just wondering, is that $600,000,000 also inclusive of the initial saves you're expecting this year? Or is that just like a, what they're bringing over kind of on day 1? Because I think you did say you were expecting some saves to happen in the back half.
Yes, it's that Ken. There are some saves in the back half that are included in that number.
Okay. And is there anything changed with regards to your expected trajectory of the timing around when you think the saves would come in?
No, no. Our original assumptions are holding.
Okay, got it. Great. Thanks very much, Rob.
Sure.
And I have a follow-up question from the line of Scott Siefers from Piper Sandler. Please go ahead.
Hey guys, thank you for taking this one. I guess one of the questions that I've gotten about you guys over the course of the last couple of months since the BBVA transaction was announced is just given the somewhat different credit profiles between legacy PNC and the BBVA franchise, how much of that loan book that you'll carry over do you anticipate keeping? And will there be some sort of a runoff portfolio that sort of impairs what would eventually be a higher growth trajectory from that franchise? Or are we going to be sort of steady state and all the stuff will get rationalized in the upfront mark?
There's a lot embedded in that question. There's parts of BBVA's balance sheet that and it's more sectors. It's not necessarily quote credit risk, but things we choose to focus on versus what we don't. So there's parts of their balance sheet that will run off over time. At the same time because of many of our lending specialties and thus the presence we'll have in the market, we expect that we will grow balances in the new franchise.
So you're going to see both. Our base assumptions assume a rundown. I don't know when the trough is, but a rundown in balance sheet
for
a short period of time before we sort of offset it with new growth.
Yes, beginning 2022 and 2023. So there is some revenue reconfiguration along those lines. But of course, we'll keep you up to speed. We don't own the bank yet. So that'll be something that once we close, we'll be able to give you more color.
Yes, good. That makes sense. And I appreciate sort of the early color there. So thank you.
And our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please proceed.
Hi.
You had positive operating leverage last year, your efficiency improved. 4th quarter, it didn't look as good though. Was there anything that's unusual? And also your guidance for next year is for flat operating leverage when I know you guys pride yourself in having positive operating leverage on a core basis? Thanks.
Want me to answer that?
Well, hit it with the Q4.
Sure. Well, the Q4, most of those expenses that jumped, as you saw, were incentive compensation for much, much higher activity, particularly in our Harris Williams unit. So those are good expenses. When Harris Williams and activity goes up, that's a good thing, but there's obviously expenses associated with that. And then there are some seasonal things that we expect.
But you're right, for the full year, our expense management was successful, full positive operating leverage for the year, which was our So it's going to require tight expense management. But, now we're going to battle for it.
Okay. And as far as BBVA, your loan loss reserve assumptions, might they have improved since you only had you had the Pfizer vaccine out, you didn't have Moderna or J and J. So wouldn't the outlook be a little better and the same reason you had reserve releases when you have a better outlook for BBVA? Thanks.
We didn't even actually have Pfizer out when those were put together. So in theory, you're right, Mike.
Well, again, we don't own the bank. They're going to release their results. These are in our assumptions. But in our assumptions, yes, in our assumptions, all else being equal, they'd be less.
Okay. I guess we just have to wait for BBA's results to come out and then we can hopefully get an update from you. Okay. Thanks a lot.
Sure.
And our next question comes from the line of Bill Quicchi with Wolfe Research. Please proceed.
Thank you. Good morning, Bill and Rob. I wanted to follow-up on your comments about investing more of the securities portfolio into curve deepening. Some of the dynamics around QE have led Agency MBS spreads over treasuries to turn negative. And you guys, along with most other banks, have a substantial portion of your securities portfolios invested in Agency MBS.
So it seems like the benefits of the steeper curve are being tempered somewhat by those dynamics. Can you give a little bit of color on where you're seeing the opportunity to invest on the security side? And then maybe on the lending side, if you could remind us what percentage of the loan portfolio is anchored to the short versus the long end of the interest rate complex? And just frame how we think about the benefit to P and C of a steeper curve on the lending side
as well? You're way too far into the weeds. But you should assume that for now in terms of where current spreads against the mix of the portfolio we'd otherwise normally be buying, our reinvestment yield is about 80 basis points. How we get there, I'm not going to go into detail. The front book.
But that's not our front book. That's on average what we would be purchasing today. Fixed and floating component and the 1 3 month LIBOR component of our loans, I don't remember those numbers off the top of it.
Yes. I mean, we're short on the commercial loans, they tend to be 3 year type commitments and on the consumer it's floating.
The other thing that makes us somewhat unique is our entire debt stack is floating as well and you see that in our liability costs. That's one of the reason our wholesale funding cost has dropped last time I looked much more material in most of our competitors.
Got it
and separately on expenses, some investors have expressed a little bit of concern that after so many years of you guys having the benefit of being able to reinvest a strong growth from BlackRock into the business that the loss of that strong growth is going to make it more challenging to continue to invest at the same pace without hurting the efficiency ratio. Rob, I heard your CIP targets sound like they're unchanged for the year, but I was hoping you guys could just broadly speak to that notion.
I don't fully understand that.
It's more
driven by CIP rather
than Yes,
I mean our investment capability obviously comes from just the firm growing and then recycling expenses, which we'll continue to do. BlackRock's growth through time in terms of revenue to us was helpful. Of course, as we go forward here, we're in and assuming we close, the which is a good assumption, the BBVA acquisition, we have a whole new set of expenses in effect to recycle that gives rise to this investment.
And revenues. And revenues.
Yes. So it won't
slow down our investment. At all.
Okay.
Thanks, Bill. Thanks, guys. That's helpful. If I can squeeze one more in on credit.
So I had a question on
how to think about the excess capital as it relates to Slide 12. So in the absence of the BBVA deal, one could make the case that that 1.54% reserve rate on day 1 is the level that we should revert to once we get past COVID. And so any level of reserves above that could be viewed as excess. But can you speak to the reasonableness of that thought process and then maybe frame for us how to think about the onboarding of BBVA onto this slide and what it would mean for your reserve rate and
excess capital?
I don't think look, our reserve as of
we can But there's 2 parts to that question. 1 was the BBVA USA overlay and that's to come when their results come out. The second question just is what is the normal level of reserves under CECL. 1.54 was our day 1 after CECL level. Were those normal times?
Maybe. And if so, that's the normal level.
Understood. Thank you guys for taking my questions. Appreciate it.
Sure.
And our next question comes from the line of Gerard Cassidy with RBC. Please go
ahead. Hi, Rob. Hi, Gerard.
Hey, Gerard. Hi, Gerard.
Can you guys share with us and I apologize if you addressed this already, I may have missed it. Obviously, prior to the BBVA transaction, you guys were growing organically in the commercial footprint around the country. Is that strategy still underway or has that been put on pause as you integrate the BBVA transaction?
No, no, not on pause, Gerard. So naturally in cases where the BBVA USA footprint was where we were going to go, that's part of that transaction. But everything else holds in terms of opening offices, both consumer and commercial throughout the country.
The other thing, Gerard, is going back to kind of the prior question on investments, We're actually ramping up investments in those markets prior to close. So we're not going to wait to close before we think about the totality of the products and services we want in a particular market. We're going to have it ideally the day we close and then convert.
Very good. You guys give very good detail on your non performing assets. And I noticed in Table 11 that you had some nice rise in return to performing status of non accrual loans. Can you share with us any color on what success you had in bringing them back into performing status? I think just in general,
status? I think just in general, Gerard, it's just some of these companies have adapted, particularly on commercial side, have adapted to the new economy and are actually performing well. Simple as that.
Got it. Okay. Appreciate it, Rob. Thank you.
Sure.
There are no other questions at this time. I will turn the call back over to you, Mr. Gao.
Okay. Well, thank you all for your support of P&C and we look forward to working with you in 2021. Thank you.
Thanks, everybody.
Thank you.
Thank you. That does conclude the call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.