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xbrli:shares iso4217:USD xbrli:shares pnc:my_loan

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

______________________________________

FORM 10-Q

______________________________________

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to         

    

Commission file number 001-09718

The PNC Financial Services Group, Inc.

(Exact name of registrant as specified in its charter)

___________________________________________________________

Pennsylvania		25-1435979
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

The Tower at PNC Plaza, 300 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2401

(Address of principal executive offices, including zip code)

(888) 762-2265

(Registrant’s telephone number including area code)

(Former name, former address and former fiscal year, if changed since last report)

___________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

    Yes  ☐  No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange     on Which Registered
Common Stock, par value $5.00	PNC	New York Stock Exchange
Depositary Shares Each Representing a 1/4,000 Interest in a Share of Fixed-to- Floating Rate Non-Cumulative Perpetual Preferred Stock, Series P	PNC P	New York Stock Exchange
Depositary Shares Each Representing a 1/4,000 Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series Q	PNC Q	New York Stock Exchange

As of October 17, 2019, there were 438,170,412 shares of the registrant’s common stock ($5 par value) outstanding.

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THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to Third Quarter 2019 Form 10-Q

	Pages
PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements (Unaudited).
Consolidated Income Statement	42
Consolidated Statement of Comprehensive Income	43
Consolidated Balance Sheet	44
Consolidated Statement of Cash Flows	45
Notes To Consolidated Financial Statements (Unaudited)
Note 1 Accounting Policies	47
Note 2   Loan Sale and Servicing Activities and Variable Interest Entities	48
Note 3  Asset Quality	50
Note 4  Allowance for Loan and Lease Losses	55
Note 5  Investment Securities	56
Note 6  Fair Value	59
Note 7  Goodwill and Mortgage Servicing Rights	68
Note 8  Employee Benefit Plans	69
Note 9  Financial Derivatives	70
Note 10 Earnings Per Share	76
Note 11 Total Equity and Other Comprehensive Income	77
Note 12 Legal Proceedings	79
Note 13 Commitments	80
Note 14 Segment Reporting	81
Note 15 Fee-based Revenue from Contracts with Customers	84
Note 16 Leases	87
Note 17 Subsequent Events	87
Statistical Information (Unaudited)
Average Consolidated Balance Sheet And Net Interest Analysis	88
Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP)	90
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Financial Review	1
Consolidated Financial Highlights	1
Executive Summary	3
Consolidated Income Statement Review	5
Consolidated Balance Sheet Review	9
Business Segments Review	12
Risk Management	20
Recent Regulatory Developments	36
Critical Accounting Estimates and Judgments	37
Off-Balance Sheet Arrangements and Variable Interest Entities	39
Internal Controls and Disclosure Controls and Procedures	39
Glossary of Terms	39
Cautionary Statement Regarding Forward-Looking Information	40
Item 3. Quantitative and Qualitative Disclosures about Market Risk.	18-33, 55-61 and 64-69
Item 4. Controls and Procedures.	39
PART II – OTHER INFORMATION
Item 1.    Legal Proceedings.	90
Item 1A.   Risk Factors.	90
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds.	90
Item 6.      Exhibits.	91
Exhibit Index	91
Corporate Information	91
Signature	93

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THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to Third Quarter 2019 Form 10-Q (continued)

MD&A TABLE REFERENCE
Table	Description	Page
1	Consolidated Financial Highlights	1
2	Summarized Average Balances and Net Interest Income	5
3	Noninterest Income	7
4	Noninterest Expense	8
5	Summarized Balance Sheet Data	9
6	Loans	9
7	Investment Securities	10
8	Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities	11
9	Details of Funding Sources	11
10	Retail Banking Table	13
11	Corporate & Institutional Banking Table	16
12	Asset Management Group Table	19
13	BlackRock Table	20
14	Details of Loans	21
15	Commercial Loans by Industry	21
16	Commercial Real Estate Loans by Geography and Property Type	22
17	Home Equity Loans by Geography and by Lien Priority	23
18	Residential Real Estate Loans by Geography	23
19	Nonperforming Assets by Type	24
20	Change in Nonperforming Assets	25
21	Accruing Loans Past Due	25
22	Summary of Troubled Debt Restructurings	26
23	Allowance for Loan and Lease Losses	27
24	Loan Charge-Offs and Recoveries	28
25	Senior and Subordinated Debt	29
26	PNC Bank Notes Issued	29
27	Credit Ratings for PNC and PNC Bank	31
28	Basel III Capital	32
29	Interest Sensitivity Analysis	33
30	Net Interest Income Sensitivity to Alternative Rate Scenarios	34
31	Alternate Interest Rate Scenarios: One Year Forward	34
32	Equity Investments Summary	35

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THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to Third Quarter 2019 Form 10-Q (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE
Table	Description	Page
33	Cash Flows Associated with Loan Sale and Servicing Activities	48
34	Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others	49
35	Non-Consolidated VIEs	49
36	Analysis of Loan Portfolio	51
37	Nonperforming Assets	52
38	Commercial Lending Asset Quality Indicators	52
39	Asset Quality Indicators for Home Equity and Residential Real Estate Loans	53
40	Asset Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loans	53
41	Financial Impact and TDRs by Concession Type	54
42	Impaired Loans	55
43	Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data	55
44	Investment Securities Summary	56
45	Gross Unrealized Loss and Fair Value of Securities	57
46	Gains (Losses) on Sales of Securities Available for Sale	57
47	Contractual Maturity of Securities	58
48	Fair Value of Securities Pledged and Accepted as Collateral	58
49	Fair Value Measurements – Recurring Basis Summary	59
50	Reconciliation of Level 3 Assets and Liabilities	60
51	Fair Value Measurements – Recurring Quantitative Information	64
52	Fair Value Measurements – Nonrecurring	65
53	Fair Value Option – Fair Value and Principal Balances	66
54	Fair Value Option – Changes in Fair Value	66
55	Additional Fair Value Information Related to Other Financial Instruments	67
56	Mortgage Servicing Rights	68
57	Commercial Mortgage Servicing Rights – Key Valuation Assumptions	69
58	Residential Mortgage Servicing Rights – Key Valuation Assumptions	69
59	Components of Net Periodic Benefit Cost	70
60	Total Gross Derivatives	71
61	Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement	73
62	Hedged Items - Fair Value Hedges	73
63	Gains (Losses) on Derivatives Not Designated for Hedging under GAAP	74
64	Derivative Assets and Liabilities Offsetting	75
65	Basic and Diluted Earnings Per Common Share	76
66	Rollforward of Total Equity	77
67	Other Comprehensive Income (Loss)	78
68	Accumulated Other Comprehensive Income (Loss) Components	79
69	Dividends Per Share	79
70	Commitments to Extend Credit and Other Commitments	81
71	Results of Businesses	83
72	Retail Banking Noninterest Income Disaggregation	85
73	Corporate & Institutional Banking Noninterest Income Disaggregation	86
74	Asset Management Group Noninterest Income Disaggregation	86
75	Maturity of Operating Lease Liabilities	87
76	Operating Lease Term and Discount Rates	87

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FINANCIAL REVIEW

THE PNC FINANCIAL SERVICES GROUP, INC.

This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Quarterly Report on Form 10-Q (the Report or Form 10-Q) and with Items 6, 7, 8 and 9A of our 2018 Annual Report on Form 10-K (2018 Form 10-K). We have reclassified certain prior period amounts to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. For information regarding certain business, regulatory and legal risks, see the following: the Risk Management section of this Financial Review and of Item 7 in our 2018 Form 10-K; Item 1A Risk Factors included in our 2018 Form 10-K; and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements included in Item 1 of this Report and Item 8 of our 2018 Form 10-K. Also, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates And Judgments section in this Financial Review and in our 2018 Form 10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 14 Segment Reporting in the Notes To Consolidated Financial Statements included in this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a generally accepted accounting principles (GAAP) basis. In this Report, “PNC”, “we” or “us” refers to The PNC Financial Services Group, Inc. and its subsidiaries on a consolidated basis (except when referring to PNC as a public company, its common stock or other securities issued by PNC, which just refer to The PNC Financial Services Group, Inc.). References to The PNC Financial Services Group, Inc. or to any of its subsidiaries are specifically made where applicable.

Table 1: Consolidated Financial Highlights

Dollars in millions, except per share data Unaudited	Three months ended September 30						Nine months ended September 30
	2019			2018			2019			2018
Financial Results (a)
Revenue
Net interest income	$	2,504		$	2,466		$	7,477		$	7,240
Noninterest income	1,989			1,891			5,741			5,552
Total revenue	4,493			4,357			13,218			12,792
Provision for credit losses	183			88			552			260
Noninterest expense	2,623			2,608			7,812			7,719
Income before income taxes and noncontrolling interests	$	1,687		$	1,661		$	4,854		$	4,813
Net income	$	1,392		$	1,400		$	4,037		$	3,995
Less:
Net income attributable to noncontrolling interests	13			11			35			31
Preferred stock dividends	63			63			181			181
Preferred stock discount accretion and redemptions	1			1			3			3
Net income attributable to common shareholders	1,315			1,325			3,818			3,780
Less:
Dividends and undistributed earnings allocated to participating securities	6			6			15			16
Impact of BlackRock earnings per share dilution	2			2			7			7
Net income attributable to diluted common shares	$	1,307		$	1,317		$	3,796		$	3,757
Diluted earnings per common share	$	2.94		$	2.82		$	8.42		$	7.96
Cash dividends declared per common share	$	1.15		$	.95		$	3.05		$	2.45
Effective tax rate (b)	17.5		%	15.7		%	16.8		%	17.0		%
Performance Ratios
Net interest margin (c)	2.84		%	2.99		%	2.91		%	2.95		%
Noninterest income to total revenue	44		%	43		%	43		%	43		%
Efficiency	58		%	60		%	59		%	60		%
Return on:
Average common shareholders’ equity	11.56		%	12.32		%	11.48		%	11.83		%
Average assets	1.36		%	1.47		%	1.36		%	1.42		%

(a)	The Executive Summary and Consolidated Income Statement Review portions of this Financial Review section provide information regarding items impacting the comparability of the periods presented.

(b)	The effective income tax rates are generally lower than the statutory rate due to the relationship of pretax income to tax credits and earnings that are not subject to tax.

(c)

Net interest margin is the total yield on interest-earning assets minus the total rate on interest-bearing liabilities and includes the benefit from use of noninterest-bearing sources. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating average yields used in the calculation of net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. For additional information, see Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.

The PNC Financial Services Group, Inc. – Form 10-Q    1

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Table 1: Consolidated Financial Highlights (Continued) (a)

Unaudited	September 30 2019			December 31 2018			September 30 2018
Balance Sheet Data (dollars in millions, except per share data)
Assets	$	408,916		$	382,315		$	380,080
Loans	$	237,377		$	226,245		$	223,053
Allowance for loan and lease losses	$	2,738		$	2,629		$	2,584
Interest-earning deposits with banks (b)	$	19,036		$	10,893		$	19,800
Investment securities	$	87,883		$	82,701		$	80,804
Loans held for sale	$	1,872		$	994		$	1,108
Equity investments (c)	$	13,325		$	12,894		$	12,446
Mortgage servicing rights	$	1,483		$	1,983		$	2,136
Goodwill	$	9,233		$	9,218		$	9,218
Other assets	$	35,774		$	34,408		$	28,851
Noninterest-bearing deposits	$	74,077		$	73,960		$	74,736
Interest-bearing deposits	$	211,506		$	193,879		$	190,148
Total deposits	$	285,583		$	267,839		$	264,884
Borrowed funds	$	61,354		$	57,419		$	57,955
Total shareholders’ equity	$	49,420		$	47,728		$	47,058
Common shareholders’ equity	$	45,428		$	43,742		$	43,076
Accumulated other comprehensive income (loss)	$	837		$	(725	)	$	(1,260	)
Book value per common share	$	103.37		$	95.72		$	93.22
Period-end common shares outstanding (in millions)	439			457			462
Loans to deposits	83		%	84		%	84		%
Common shareholders’ equity to total assets	11.1		%	11.4		%	11.3		%
Client Assets (in billions)
Discretionary client assets under management	$	163		$	148		$	159
Nondiscretionary client assets under administration	135			124			134
Total client assets under administration	298			272			293
Brokerage account client assets	52			47			51
Total client assets	$	350		$	319		$	344
Basel III Capital Ratios (d)
Common equity Tier 1	9.6		%	9.6		%	9.3		%
Tier 1 risk-based	10.7		%	10.8		%	10.5		%
Total capital risk-based (e)	12.7		%	13.0		%	12.7		%
Leverage	9.3		%	9.4		%	9.2		%
Supplementary leverage	7.8		%	7.8		%	7.7		%
Asset Quality
Nonperforming loans to total loans	.73		%	.75		%	.76		%
Nonperforming assets to total loans, OREO and foreclosed assets	.78		%	.80		%	.82		%
Nonperforming assets to total assets	.45		%	.47		%	.48		%
Net charge-offs to average loans (for the three months ended) (annualized)	.26		%	.19		%	.16		%
Allowance for loan and lease losses to total loans	1.15		%	1.16		%	1.16		%
Allowance for loan and lease losses to total nonperforming loans	158		%	155		%	153		%
Accruing loans past due 90 days or more (in millions)	$	532		$	629		$	619

(a)	The Executive Summary and Consolidated Balance Sheet Review portions of this Financial Review provide information regarding items impacting the comparability of the periods presented.

(b)	Amounts include balances held with the Federal Reserve Bank of Cleveland (Federal Reserve Bank) of $18.8 billion, $10.5 billion and $19.6 billion as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively.

(c)	Amounts include our equity interest in BlackRock, Inc..

(d)	All ratios are calculated based on the standardized approach. See Basel III Capital discussion in the Capital Management portion of the Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business and Item 1A Risk Factors in our 2018 Form 10-K.

(e)	The 2019 and 2018 Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $60 million and $80 million, respectively, that are subject to a phase-out period that runs through 2021.

2    The PNC Financial Services Group, Inc. – Form 10-Q

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EXECUTIVE SUMMARY

Headquartered in Pittsburgh, Pennsylvania, we are one of the largest diversified financial services companies in the United States. We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our retail branch network is located in markets across the Mid-Atlantic, Midwest and Southeast. We also have strategic international offices in four countries outside the U.S.

Key Strategic Goals

At PNC we manage our company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business.

We strive to expand and deepen customer relationships by offering a broad range of deposit, credit and fee-based products and services. We are focused on delivering those products and services to our customers with the goal of addressing their financial objectives and putting customers’ needs first. Our business model is built on customer loyalty and engagement, understanding our customers’ financial goals and offering our diverse products and services to help them achieve financial well-being. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.

We are focused on our strategic priorities, which are designed to enhance value over the long term, and consist of:

•	Expanding our leading banking franchise to new markets and digital platforms;

•	Deepening customer relationships by delivering a superior banking experience and financial solutions; and

•	Leveraging technology to innovate and enhance products, services, security and processes.

Our capital priorities are to support client growth and business investment, maintain appropriate capital in light of economic conditions, the Basel III framework, and other regulatory expectations, and return excess capital to shareholders. For more detail, see the Capital Highlights portion of this Executive Summary and the Liquidity and Capital Management portion of the Risk Management section of this Financial Review and the Supervision and Regulation section in Item 1 Business of our 2018 Form 10-K.

Income Statement Highlights

Net income of $1.4 billion, or $2.94 per diluted common share for the third quarter of 2019 decreased $8 million, or 1%, compared to $1.4 billion, or $2.82 per diluted common share, for the third quarter of 2018.

•	Total revenue increased $136 million, or 3%, to $4.5 billion.

•	Net interest income of $2.5 billion increased $38 million, or 2%.

•	Net interest margin decreased to 2.84% compared to 2.99% for the third quarter of 2018.

•	Noninterest income of $2.0 billion increased $98 million, or 5%.

•	Provision for credit losses increased to $183 million from $88 million for the third quarter of 2018.

•	Noninterest expense of $2.6 billion increased $15 million, or 1%.

•	We generated positive operating leverage in the third quarter of 2019.

•	Earnings per diluted common share increased reflecting lower average common shares outstanding due to share repurchases.

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

Balance Sheet Highlights

Our balance sheet was strong and well positioned at September 30, 2019 and December 31, 2018. In comparison to December 31, 2018:

•	Total assets increased $26.6 billion, or 7%, to $408.9 billion.

•	Total loans increased $11.1 billion, or 5%, to $237.4 billion.

•	Total commercial lending grew $7.9 billion, or 5%, to $160.2 billion.

•	Total consumer lending increased $3.2 billion, or 4%, to $77.2 billion.

•	Investment securities increased $5.2 billion, or 6%, to $87.9 billion.

•	Interest-earning deposits with banks, primarily with the Federal Reserve Bank, increased $8.1 billion to $19.0 billion.

•	Total deposits increased $17.7 billion, or 7%, to $285.6 billion.

•	Borrowed funds increased $3.9 billion, or 7%, to $61.4 billion.

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

The PNC Financial Services Group, Inc. – Form 10-Q    3

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Credit Quality Highlights

Overall credit quality remained strong.

•	At September 30, 2019 compared to December 31, 2018:

•	Nonperforming assets of $1.8 billion increased $39 million, or 2%.

•	Overall loan delinquencies decreased $137 million, or 9%, to $1.3 billion.

•	Net charge-offs were $155 million, or .26% of average loans on annualized basis, in the third quarter of 2019 compared to $91 million, or .16%, for the third quarter of 2018.

•	The allowance for loan and lease losses (ALLL) to total loans was 1.15% at September 30, 2019 and 1.16% at December 31, 2018.

For additional detail, see the Credit Risk Management portion of the Risk Management section of this Financial Review.

Capital Highlights

We maintained a strong capital position and continued to return capital to shareholders.

•	The Basel III common equity Tier 1 capital ratio was 9.6% at both September 30, 2019 and December 31, 2018.

•	Common shareholders' equity increased to $45.4 billion at September 30, 2019 compared to $43.7 billion at December 31, 2018.

•	In the third quarter of 2019, we returned $1.5 billion of capital to shareholders through repurchases of 7.5 million common shares for $1.0 billion and dividends on common shares of $.5 billion.

•	For the nine months ended September 30, 2019, we returned $3.9 billion of capital to shareholders through repurchases of 19.4 million common shares for $2.5 billion and dividends on common shares of $1.4 billion.

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our 2019 liquidity and capital actions as well as our capital ratios.

Our ability to take certain capital actions, including plans to pay or increase common stock dividends or to repurchase shares under current or future programs, is subject to the results of the supervisory assessment of capital adequacy undertaken by the Board of Governors of the Federal Reserve System (Federal Reserve) as part of the Comprehensive Capital Analysis and Review (CCAR) process. For additional information, see the Supervision and Regulation section in Item 1 Business of our 2018 Form 10-K.

Business Outlook

Our forward-looking financial statements are subject 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 view that:

•	U.S. economic growth, after accelerating a few years ago, has slowed since mid-2018 and is expected to slow further through the rest of this year and into 2020.

•	Job growth will continue into 2020, but at a slower pace due to both difficulty in finding workers and slower economic growth. The unemployment rate is expected to increase slightly in the near term, but the labor market will remain tight, pushing wages higher and supporting continued gains in consumer spending.

•	Slower global economic growth, trade restrictions and geopolitical concerns are downside risks to the forecast, which have increased in 2019, and risks are weighted to the downside.

•	Inflation has slowed in 2019, to below the Federal Open Market Committee's (FOMC's) 2% objective, but is expected to gradually increase over the next two years.

•	Our baseline forecast includes the 0.25% federal funds rate cut on October 30, 2019. We expect the funds rate to remain in a range of 1.50% to 1.75% through the rest of 2019.

For the fourth quarter of 2019 compared to the third quarter of 2019, we expect:

•	Average loans to be up approximately 1%;

•	Net interest income to be down approximately 1%;

•	Fee income to be stable to up 1%. Fee income consists of asset management, consumer services, corporate services, residential mortgage and service charges on deposits;

•	Other noninterest income to be in the range of $300 million to $350 million, excluding net securities gains (losses) and activity related to Visa Class B common shares;

•	Provision for credit losses to be between $175 million and $225 million; and

•	Noninterest expense to be up approximately 1%.

For the full year 2019, we expect the effective tax rate to be approximately 17%.

4    The PNC Financial Services Group, Inc. – Form 10-Q

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See the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors in our 2018 Form 10-K for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.

CONSOLIDATED INCOME STATEMENT REVIEW

Our Consolidated Income Statement is presented in Part I, Item 1 of this Report.

Net income for the third quarter of 2019 was $1.4 billion, or $2.94 per diluted common share, a decrease of $8 million, or 1%, compared to $1.4 billion, or $2.82 per diluted common share, for the third quarter of 2018. For the first nine months of 2019, net income was $4.0 billion, or $8.42 per diluted common share, an increase of $42 million, or 1%, compared to $4.0 billion, or $7.96 per diluted common share, for the first nine months of 2018.

Net income decreased slightly compared to the third quarter of 2018 as a result of higher provision for credit losses and noninterest expense, partially offset by increases in noninterest income and net interest income. Net income increased compared to the first nine months of 2018 driven by higher net interest income and noninterest income, partially offset by increases in provision for credit losses and noninterest expense.

Net Interest Income

Table 2: Summarized Average Balances and Net Interest Income (a)

		2019											2018
Three months ended September 30 Dollars in millions		Average Balances				Average Yields/ Rates			Interest Income/ Expense				Average Balances				Average Yields/ Rates			Interest Income/ Expense
Assets
Interest-earning assets
Investment securities		$	85,166			2.91	%		$	622			$	80,766			2.92	%		$	591
Loans		237,682				4.47	%		2,698				223,342				4.36	%		2,474
Interest-earning deposits with banks		15,632				2.17	%		85				19,151				1.97	%		95
Other		14,094				3.49	%		123				7,114				5.19	%		92
Total interest-earning assets/interest income		$	352,574			3.95	%		3,528				$	330,373			3.89	%		3,252
Liabilities
Interest-bearing liabilities
Interest-bearing deposits		$	206,942			1.02	%		531				$	186,320			.71	%		336
Borrowed funds		63,933				2.87	%		468				59,838				2.76	%		421
Total interest-bearing liabilities/interest expense		$	270,875			1.45	%		999				$	246,158			1.21	%		757
Net interest margin/income (Non-GAAP)						2.84	%		2,529								2.99	%		2,495
Taxable-equivalent adjustments									(25		)									(29		)
Net interest income (GAAP)									$	2,504										$	2,466

		2019											2018
Nine months ended September 30 Dollars in millions		Average Balances				Average Yields/ Rates			Interest Income/ Expense				Average Balances				Average Yields/ Rates			Interest Income/ Expense
Assets
Interest-earning assets
Investment securities		$	83,719			3.00	%		$	1,884			$	77,656			2.87	%		$	1,674
Loans		233,724				4.54	%		8,013				222,385				4.23	%		7,091
Interest-earning deposits with banks		14,708				2.32	%		256				21,921				1.74	%		286
Other		12,780				3.70	%		354				7,305				4.74	%		259
Total interest-earning assets/interest income		$	344,931			4.04	%		10,507				$	329,267			3.75	%		9,310
Liabilities
Interest-bearing liabilities
Interest-bearing deposits		$	201,371			1.01	%		1,518				$	184,716			.59	%		810
Borrowed funds		62,033				3.05	%		1,433				59,481				2.60	%		1,173
Total interest-bearing liabilities/interest expense		$	263,404			1.48	%		2,951				$	244,197			1.08	%		1,983
Net interest margin/income (Non-GAAP)						2.91	%		7,556								2.95	%		7,327
Taxable-equivalent adjustments									(79		)									(87		)
Net interest income (GAAP)									$	7,477										$	7,240

(a)	Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins by increasing the interest income

The PNC Financial Services Group, Inc. – Form 10-Q    5

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earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP on the Consolidated Income Statement. For more information, see Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information (Unaudited) – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

Net interest income increased $38 million, or 2%, and $237 million, or 3%, for the third quarter and first nine months of 2019, respectively, compared to the same periods in 2018. The increase in both comparisons reflected higher loan and securities balances and higher loan yields, partially offset by higher deposit and borrowing costs and balances. Net interest margin in both comparisons decreased as higher loan yields were more than offset by higher deposit costs.

Average investment securities increased $4.4 billion, or 5%, in the quarterly comparison and $6.1 billion, or 8% in the year-to-date comparison. Both increases were due to net purchase activity of agency residential mortgage-backed securities, U.S. Treasury and government agency securities and commercial mortgage-backed securities, partially offset by lower non-agency residential mortgage-backed securities and other securities.

Average investment securities represented 24% of average interest-earning assets for all periods presented.

Average loans grew $14.3 billion, or 6%, and $11.3 billion, or 5%, in the quarterly and year-to-date comparisons, respectively. Loan growth was driven by increases in commercial lending of $11.5 billion, or 8%, and $9.5 billion, or 6%, in the respective comparisons, reflecting broad-based growth primarily in the Corporate Banking and Business Credit businesses in our Corporate & Institutional Banking segment.

Average consumer lending increased $2.8 billion, or 4%, and $1.8 billion, or 2%, in the quarterly and year-to-date comparisons, respectively. Growth in residential mortgage, auto, credit card and unsecured installment loans was partially offset by declines in home equity and education loans. Lower home equity loans reflected paydowns and payoffs exceeding new originated volume. In addition, runoff of brokered home equity and government guaranteed education loans contributed to the declines. Average loans represented 67% of average interest-earning assets for the third quarter of 2019 compared to 68% for the third quarter of 2018 and both year-to-date periods.

Average interest-earning deposits with banks decreased $3.5 billion and $7.2 billion in the respective quarterly and year-to-date comparisons, reflecting lower average balances held with the Federal Reserve Bank as investment of liquidity continued.

Average interest-bearing deposits grew $20.6 billion, or 11%, and $16.7 billion, or 9%, in the respective quarterly and year-to-date comparisons, reflecting overall deposit and customer growth. Additionally, the increases reflected a shift of deposits to interest-bearing from noninterest-bearing deposits, which declined $4.0 billion and $4.9 billion in the respective comparisons. Consumer deposit growth from the retail national expansion strategy also contributed to the deposit increases.

Average borrowed funds increased $4.1 billion, or 7%, compared with the third quarter of 2018 primarily due to higher Federal Home Loan Bank (FHLB) borrowings. Average borrowed funds increased $2.6 billion, or 4%, compared with the first nine months of 2018 primarily due to higher FHLB borrowings and federal funds purchased partially offset by lower bank notes and senior debt.

Further details regarding average loans and deposits are included in the Business Segments Review section of this Financial Review.

6    The PNC Financial Services Group, Inc. – Form 10-Q

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Noninterest Income

Table 3: Noninterest Income

		Three months ended September 30															Nine months ended September 30
										Change															Change
Dollars in millions		2019				2018				$				%			2019				2018				$				%
Noninterest income
Asset management		$	464			$	486			$	(22	)		(5	)%		$	1,346			$	1,397			$	(51	)		(4	)%
Consumer services		402				377				25				7	%		1,165				1,115				50				4	%
Corporate services		469				465				4				1	%		1,415				1,381				34				2	%
Residential mortgage		134				76				58				76	%		281				257				24				9	%
Service charges on deposits		178				186				(8		)		(4	)%		517				522				(5		)		(1	)%
Other		342				301				41				14	%		1,017				880				137				16	%
Total noninterest income		$	1,989			$	1,891			$	98			5	%		$	5,741			$	5,552			$	189			3	%

 

Noninterest income to total revenue was 44% for the third quarter of 2019 and 43% for the third quarter of 2018 and first nine months of both 2019 and 2018.

Asset management revenue declined in both periods due to lower earnings from our equity investment in BlackRock and lower yielding assets under management for both periods. PNC's discretionary client assets under management increased to $163 billion at September 30, 2019 compared to $159 billion at September 30, 2018 as a result of increases in equity markets.

Growth in consumer services revenue in both comparisons resulted from higher debit and credit card fees, net of rewards, and higher brokerage fees, reflecting continued momentum in both transaction activity and customer growth.

Corporate services revenue increased in both comparisons due to higher treasury management product revenue, partially offset by lower merger and acquisition advisory fees. The year-to-date comparison also reflected a decrease in loan syndication fees.

Residential mortgage revenue increased in both comparisons due to a higher benefit from residential mortgage servicing rights, net of economic hedge, and higher loan sales revenue from increased origination volumes.

Other noninterest income for the third quarter of 2019 increased over the third quarter of 2018 primarily attributable to higher capital markets-related revenue, the benefit of lower negative Visa Class B derivative fair value adjustments and higher net gains on commercial mortgage loans held for sale partially offset by lower revenue from private equity investments. Other noninterest income increased in the first nine months of 2019 compared to 2018 primarily due to higher gains on asset sales, including the sale of the retirement recordkeeping business in second quarter 2019 and higher net securities gains, partially offset by larger negative derivative fair value adjustments related to Visa Class B common shares and lower revenue from private equity investments.

Provision For Credit Losses

The provision for credit losses increased $95 million to $183 million in the third quarter of 2019 compared to $88 million in the third quarter of 2018 and increased $292 million to $552 million for the first nine months of 2019 compared to the same period in 2018. The increases reflected growth in both the commercial and consumer lending portfolios and included higher reserves for auto and credit card loans.

The Credit Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding factors impacting the provision for credit losses.

The PNC Financial Services Group, Inc. – Form 10-Q    7

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Noninterest Expense

Table 4: Noninterest Expense

		Three months ended September 30															Nine months ended September 30
										Change															Change
Dollars in millions		2019				2018				$				%			2019				2018				$				%
Noninterest expense
Personnel		$	1,400			$	1,413			$	(13	)		(1	)%		$	4,179			$	4,123			$	56			1	%
Occupancy		206				195				11				6	%		633				616				17				3	%
Equipment		291				264				27				10	%		862				818				44				5	%
Marketing		76				71				5				7	%		224				201				23				11	%
Other		650				665				(15		)		(2	)%		1,914				1,961				(47		)		(2	)%
Total noninterest expense		$	2,623			$	2,608			$	15			1	%		$	7,812			$	7,719			$	93			1	%

 

Noninterest expense increased in both comparisons as investments in support of business growth were reflected in higher equipment and occupancy expense as well as higher marketing expense, which included costs for the retail national expansion strategy. In the third quarter of 2019, personnel expense declined due to lower variable compensation and in both comparisons other expense decreased as a result of lower Federal Deposit Insurance Corporation (FDIC) deposit insurance cost from the elimination of the surcharge assessment.

PNC continued to focus on disciplined expense management, and for full-year 2019 we are on track to achieve our goal of $300 million in cost savings through our continuous improvement program, which will contribute to funding a portion of our technology and business investments.

Effective Income Tax Rate

The effective income tax rate was 17.5% in the third quarter of 2019 compared to 15.7% in the third quarter of 2018 and 16.8% in the first nine months of 2019 compared to 17.0% in the same period of 2018.

8    The PNC Financial Services Group, Inc. – Form 10-Q

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CONSOLIDATED BALANCE SHEET REVIEW

Table 5: Summarized Balance Sheet Data

	September 30				December 31				Change
Dollars in millions	2019				2018				$			%
Assets
Interest-earning deposits with banks	$	19,036			$	10,893			$	8,143		75	%
Loans held for sale	1,872				994				878			88	%
Investment securities	87,883				82,701				5,182			6	%
Loans	237,377				226,245				11,132			5	%
Allowance for loan and lease losses	(2,738		)		(2,629		)		(109		)	(4	)%
Mortgage servicing rights	1,483				1,983				(500		)	(25	)%
Goodwill	9,233				9,218				15			—
Other	54,770				52,910				1,860			4	%
Total assets	$	408,916			$	382,315			$	26,601		7	%
Liabilities
Deposits	$	285,583			$	267,839			$	17,744		7	%
Borrowed funds	61,354				57,419				3,935			7	%
Other	12,524				9,287				3,237			35	%
Total liabilities	359,461				334,545				24,916			7	%
Equity
Total shareholders’ equity	49,420				47,728				1,692			4	%
Noncontrolling interests	35				42				(7		)	(17	)%
Total equity	49,455				47,770				1,685			4	%
Total liabilities and equity	$	408,916			$	382,315			$	26,601		7	%

The summarized balance sheet data in Table 5 is based upon our Consolidated Balance Sheet in Part I, Item 1 of this Report.

Our balance sheet was strong and well positioned at both September 30, 2019 and December 31, 2018.

•	Total assets increased as a result of loan growth, higher interest-earning deposits with banks and higher investment securities;

•	Total liabilities increased due to deposit growth and higher borrowed funds;

•	Total equity increased due to higher retained earnings driven by net income partially offset by share repurchases and common and preferred dividends and as a result of higher accumulated other comprehensive income (AOCI).

The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and regulatory compliance is included in the Liquidity and Capital Management portion of the Risk Management section in this Financial Review and in Note 18 Regulatory Matters in the Notes To Consolidated Financial Statements included in our 2018 Form 10-K.

Loans

Table 6: Loans

	September 30				December 31				Change
Dollars in millions	2019				2018				$			%
Commercial lending
Commercial	$	124,014			$	116,834			$	7,180		6	%
Commercial real estate	28,884				28,140				744			3	%
Equipment lease financing	7,290				7,308				(18		)	—
Total commercial lending	160,188				152,282				7,906			5	%
Consumer lending
Home equity	24,971				26,123				(1,152		)	(4	)%
Residential real estate	21,082				18,657				2,425			13	%
Automobile	16,004				14,419				1,585			11	%
Credit card	6,815				6,357				458			7	%
Education	3,461				3,822				(361		)	(9	)%
Other consumer	4,856				4,585				271			6	%
Total consumer lending	77,189				73,963				3,226			4	%
Total loans	$	237,377			$	226,245			$	11,132		5	%

The PNC Financial Services Group, Inc. – Form 10-Q    9

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Commercial loans increased reflecting broad-based growth across our Corporate Banking and Business Credit businesses within our Corporate & Institutional Banking segment. In Corporate Banking, commercial loan growth was primarily driven by asset-backed finance securitizations as well as increased lending to large and mid-size corporate clients. In Business Credit, commercial loans increased as a result of new originations and higher utilization. Commercial real estate loans increased due to higher commercial mortgage balances, partially offset by project loan payoffs.

For commercial loans by industry and commercial real estate loans by geography and property type, see Loan Portfolio Characteristics and Analysis in the Credit Risk Management portion of the Risk Management section in this Financial Review.

Consumer lending balances increased as growth in residential real estate, auto, credit card and other consumer loans was partially offset by lower home equity and education loans.

Residential real estate loans increased primarily from originations of nonconforming loans, which are loans that do not meet government agency standards as a result of exceeding agency conforming loan limits. The growth in auto loans reflected higher indirect auto loans from continued new loan originations and expansion into franchised dealers in new markets as well as growth in direct auto loans. Credit card balances increased as we continued to focus on our long-term objective of deepening penetration within our existing customer base as well as new client acquisition. The growth in other consumer balances due to unsecured installment loans was driven by product enhancements, including a new mobile-optimized digital application.

Home equity loans declined as paydowns and payoffs exceeded new originated volume and brokered home equity loans continued to run off. Education loans declined primarily due to continued runoff of the government guaranteed education loan portfolio.

For information on our home equity and residential real estate portfolios, including loans by geography, and our auto loan portfolio, see Loan Portfolio Characteristics and Analysis in the Credit Risk Management portion of the Risk Management section in this Financial Review.

For additional information regarding our loan portfolio see the Note 3 Asset Quality and Note 4 Allowance for Loan and Lease Losses in our Notes To Consolidated Financial Statements included in this Report, and Note 1 Accounting Policies in our 2018 Form 10-K.

Investment Securities

Investment securities of $87.9 billion at September 30, 2019 increased $5.2 billion, or 6%, compared to December 31, 2018, driven by net purchases and changes in unrealized gains and losses of agency residential mortgage backed securities of $5.4 billion.

The level and composition of the investment securities portfolio fluctuates over time based on many factors including market conditions, loan and deposit growth, and balance sheet management activities. We manage our investment securities portfolio to optimize returns, while providing a reliable source of liquidity for our banking and other activities, considering the Liquidity Coverage Ratio (LCR) and other internal and external guidelines and constraints.

Table 7: Investment Securities

	September 30, 2019								December 31, 2018								Ratings (a) as of September 30, 2019
Dollars in millions	Amortized Cost				Fair Value				Amortized Cost				Fair Value				AAA/ AA			A			BBB			BB and Lower			No Rating
U.S. Treasury and government agencies	$	18,369			$	18,852			$	18,862			$	18,863			100	%
Agency residential mortgage-backed	49,657				50,330				45,153				44,407				100	%
Non-agency residential mortgage-backed	1,766				2,078				2,076				2,365				13	%		2	%		2	%		47	%		36	%
Agency commercial mortgage-backed	2,998				3,031				2,773				2,720				100	%
Non-agency commercial mortgage-backed (b)	3,658				3,701				3,177				3,145				87	%		4	%								9	%
Asset-backed (c)	5,310				5,394				5,115				5,155				89	%		2	%		1	%		7	%		1	%
Other (d)	4,687				4,881				5,670				5,753				73	%		16	%		8	%		1	%		2	%
Total investment securities (e)	$	86,445			$	88,267			$	82,826			$	82,408			96	%		1	%		1	%		1	%		1	%

(a)	Ratings percentages allocated based on amortized cost.

(b)	Collateralized primarily by retail properties, office buildings, lodging properties and multifamily housing.

(c)	Collateralized primarily by corporate debt, government guaranteed education loans and other consumer credit products.

(d)	Includes state and municipal securities.

(e)	Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.

Table 7 presents the distribution of our total investment securities portfolio by amortized cost and fair value, as well as by credit rating. We have included credit ratings information because we believe that the information is an indicator of the degree of credit risk to which we are exposed, which could affect our risk-weighted assets and, therefore, our risk-based regulatory capital ratios under the

10    The PNC Financial Services Group, Inc. – Form 10-Q

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current regulatory capital rules. Changes in credit ratings classifications could indicate increased or decreased credit risk and could be accompanied by a reduction or increase in the fair value of our investment securities portfolio.

The duration of investment securities was 2.4 years at September 30, 2019. We estimate that at September 30, 2019 the effective duration of investment securities was 2.5 years for an immediate 50 basis points parallel increase in interest rates and 2.2 years for an immediate 50 basis points parallel decrease in interest rates.

Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 3.8 years at September 30, 2019 compared to 5.3 years at December 31, 2018.

Table 8: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities

September 30, 2019	Years
Agency residential mortgage-backed	3.6
Non-agency residential mortgage-backed	6.6
Agency commercial mortgage-backed	4.1
Non-agency commercial mortgage-backed	2.6
Asset-backed	2.0

Additional information regarding our investment securities is included in Note 5 Investment Securities and Note 6 Fair Value in the Notes To Consolidated Financial Statements included in this Report.

Funding Sources

Table 9: Details of Funding Sources

	September 30				December 31				Change
Dollars in millions	2019				2018				$			%
Deposits
Noninterest-bearing	$	74,077			$	73,960			$	117		—
Interest-bearing
Money market	55,215				53,368				1,847			3	%
Demand	69,161				65,211				3,950			6	%
Savings	65,195				56,793				8,402			15	%
Time deposits	21,935				18,507				3,428			19	%
Total interest-bearing deposits	211,506				193,879				17,627			9	%
Total deposits	285,583				267,839				17,744			7	%
Borrowed funds
FHLB borrowings	21,901				21,501				400			2	%
Bank notes and senior debt	27,148				25,018				2,130			9	%
Subordinated debt	5,473				5,895				(422		)	(7	)%
Other	6,832				5,005				1,827			37	%
Total borrowed funds	61,354				57,419				3,935			7	%
Total funding sources	$	346,937			$	325,258			$	21,679		7	%

Total deposits increased with growth primarily in interest-bearing deposits, including a shift from noninterest-bearing deposits driven by a higher rate environment in the comparison. The increase in deposits reflected both commercial and consumer deposit growth, including from the retail national expansion strategy which contributed to the increase in savings. Interest-bearing demand deposits at September 30, 2019 included $3.9 billion of balances for a new sweep deposit product for asset management clients previously held off-balance sheet primarily in PNC proprietary money market mutual funds.

Borrowed funds increased due to higher bank notes and senior debt as a result of net issuances in the first nine months of 2019. The increase in other borrowed funds included higher federal funds purchased. The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan, investment securities and deposit growth, and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity for our banking and other activities, considering our LCR requirements and other internal and external guidelines and constraints.

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for additional information regarding our 2019 liquidity and capital activities.

The PNC Financial Services Group, Inc. – Form 10-Q    11

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Shareholders’ Equity

Total shareholders’ equity was $49.4 billion at September 30, 2019, an increase of $1.7 billion compared to December 31, 2018. The increase resulted from net income of $4.0 billion and higher AOCI of $1.6 billion primarily related to net unrealized securities gains, partially offset by common share repurchases of $2.5 billion and common and preferred dividends of $1.6 billion.

Common shares outstanding declined to 439 million at September 30, 2019 from 457 million at December 31, 2018 as repurchases of 19.4 million shares during the period were partially offset by stock-based compensation activity.

BUSINESS SEGMENTS REVIEW

We have four reportable business segments:

•	Retail Banking

•	Corporate & Institutional Banking

•	Asset Management Group

•	BlackRock

Business segment results and a description of each business are included in Note 14 Segment Reporting in the Notes To Consolidated Financial Statements in this Report. Certain amounts included in this Business Segments Review differ from those amounts shown in Note 14, primarily due to the presentation in this Financial Review of business net interest income on a taxable-equivalent basis.

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors.

Total business segment financial results differ from total consolidated net income. These differences are reflected in the “Other” category as shown in Table 71 in Note 14 Segment Reporting in Item 1 of this Report. “Other” includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, gains or losses related to BlackRock transactions, exited businesses, and differences between business segment performance reporting and financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments’ results exclude their portion of net income attributable to noncontrolling interests.

12    The PNC Financial Services Group, Inc. – Form 10-Q

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Retail Banking

Retail Banking's core strategy is to acquire and retain customers who maintain their primary checking and transaction relationships with us. We seek to deepen relationships by meeting the broad range of our customers’ financial needs with savings, liquidity, lending, investment and retirement solutions. A strategic priority for us is to differentiate the customer experience and drive transformation and automation. A key element of our strategy is to expand the use of lower-cost alternative distribution channels, with an emphasis on digital capabilities, while continuing to optimize the traditional branch network. In addition, we have a disciplined process to continually improve the engagement of both our employees and customers, which is a strong driver of customer growth, retention and relationship expansion. In 2018, we launched our national expansion strategy designed to grow customers with digitally-led banking and an ultra-thin branch network in markets outside of our existing retail branch network, and began offering our digital high yield savings deposit product and opened our first solution center.

Table 10: Retail Banking Table

(Unaudited)
Nine months ended September 30									Change
Dollars in millions, except as noted	2019				2018				$			%
Income Statement
Net interest income	$	4,118			$	3,800			$	318		8	%
Noninterest income	1,996				1,935				61			3	%
Total revenue	6,114				5,735				379			7	%
Provision for credit losses	356				254				102			40	%
Noninterest expense	4,531				4,491				40			1	%
Pretax earnings	1,227				990				237			24	%
Income taxes	291				239				52			22	%
Earnings	$	936			$	751			$	185		25	%
Average Balance Sheet
Loans held for sale	$	586			$	662			$	(76	)	(11	)%
Loans
Consumer
Home equity	$	22,679			$	24,188			$	(1,509	)	(6	)%
Automobile	15,201				13,643				1,558			11	%
Education	3,672				4,208				(536		)	(13	)%
Credit cards	6,403				5,746				657			11	%
Other	2,187				1,794				393			22	%
Total consumer	50,142				49,579				563			1	%
Commercial and commercial real estate	10,440				10,397				43			—
Residential mortgage	15,806				13,767				2,039			15	%
Total loans	$	76,388			$	73,743			$	2,645		4	%
Total assets	$	92,282			$	89,259			$	3,023		3	%
Deposits
Noninterest-bearing demand	$	31,338			$	30,555			$	783		3	%
Interest-bearing demand	42,207				42,172				35			—
Money market	25,786				30,656				(4,870		)	(16	)%
Savings	55,659				46,091				9,568			21	%
Certificates of deposit	12,619				11,957				662			6	%
Total deposits	$	167,609			$	161,431			$	6,178		4	%
Performance Ratios
Return on average assets	1.36		%		1.12		%
Noninterest income to total revenue	33		%		34		%
Efficiency	74		%		78		%

The PNC Financial Services Group, Inc. – Form 10-Q    13

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Nine months ended September 30									Change
Dollars in millions, except as noted	2019				2018				$			%
Supplemental Noninterest Income Information
Consumer services	$	881			$	837			$	44		5	%
Brokerage	$	267			$	260			$	7		3	%
Residential mortgage	$	281			$	257			$	24		9	%
Service charges on deposits	$	504			$	503			$	1		—
Residential Mortgage Information
Residential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b)	$	123			$	127			$	(4	)	(3	)%
Serviced portfolio acquisitions	$	9			$	10			$	(1	)	(10	)%
MSR asset value (b)	$	0.9			$	1.4			$	(.5	)	(36	)%
MSR capitalization value (in basis points) (b)	72				108				(36		)	(33	)%
Servicing income: (in millions)
Servicing fees, net (c)	$	139			$	132			$	7		5	%
Mortgage servicing rights valuation, net of economic hedge	$	38			$	22			$	16		73	%
Residential mortgage loan statistics
Loan origination volume (in billions)	$	8.0			$	5.8			$	2.2		38	%
Loan sale margin percentage	2.41		%		2.39		%
Percentage of originations represented by:
Purchase volume (d)	50		%		67		%
Refinance volume	50		%		33		%
Other Information (b)
Customer-related statistics (average)
Non-teller deposit transactions (e)	57		%		54		%
Digital consumer customers (f)	69		%		65		%
Credit-related statistics
Nonperforming assets (g)	$	1,056			$	1,145			$	(89	)	(8	)%
Net charge-offs	$	380			$	308			$	72		23	%
Other statistics
ATMs	9,102				9,093				9			—
Branches (h)	2,310				2,388				(78		)	(3	)%
Brokerage account client assets (in billions) (i)	$	52			$	51			$	1		2	%

(a)	Represents mortgage loan servicing balances for third parties and the related income.

(b)	Presented as of September 30, except for customer-related statistics, which are averages for the nine months ended, and net charge-offs, which are for the nine months ended.

(c)	Servicing fees net of impact of decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan payments, prepayments, and loans that were paid down or paid off during the period.

(d)	Mortgages with borrowers as part of residential real estate purchase transactions.

(e)	Percentage of total consumer and business banking deposit transactions processed at an ATM or through our mobile banking application.

(f)	Represents consumer checking relationships that process the majority of their transactions through non-teller channels.

(g)	Primarily nonperforming loans of $1.1 billion for both September 30, 2019 and September 30, 2018.

(h)	Excludes stand-alone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.

(i)	Includes cash and money market balances.

Retail Banking earned $936 million in the first nine months of 2019 compared with $751 million for the same period in 2018. The increase in earnings was attributable to higher net interest income and noninterest income partially offset by an increase in provision for credit losses and higher noninterest expense.

Net interest income increased primarily due to wider interest rate spreads on the value of deposits as well as growth in deposit and loan balances.

Noninterest income increased largely due to growth in consumer services, including debit and credit card, brokerage, and merchant service fees, and higher residential mortgage revenue attributable to a higher benefit from residential mortgage servicing rights valuation, net of economic hedge, and increased loan sales revenue from higher origination volumes. These increases were partially offset by negative derivative fair value adjustments related to Visa Class B common shares of $55 million compared with negative adjustments of $7 million in the same period of 2018.

14    The PNC Financial Services Group, Inc. – Form 10-Q

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Provision for credit losses increased in the first nine months of 2019 compared to the same period of 2018 primarily as a result of higher auto loan, unsecured installment loan and credit card portfolio reserves attributed in part to loan growth.

Higher noninterest expense primarily resulted from an increase in ATM expense driven by enhanced checking product benefits, higher equipment expense, and increased marketing activity, including expenses related to our national expansion initiative.

The deposit strategy of Retail Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances, executing on market-specific deposit growth strategies and providing a source of low-cost funding and liquidity to PNC. In the first nine months of 2019, average total deposits increased compared to the same period in 2018, as both interest-bearing and noninterest-bearing demand deposits increased. Savings deposits increased due, in part, to a shift from money market deposits to relationship-based savings products as well as growth in consumer deposits, including from our national expansion initiative. Certificates of deposit increased reflecting shifts in consumer preferences to time deposits.

Retail Banking average total loans increased in the first nine months of 2019 compared with the same period in 2018.

•	Average residential mortgages increased primarily as a result of growth in nonconforming residential mortgage loans.

•	Average auto loans increased primarily due to strong new indirect auto loan volumes, including in our Southeast and expansion markets, as well as growth in direct auto loans.

•	Average credit card balances increased as we continued to focus on our long-term objective of deepening penetration within our existing customer base as well as new client acquisition.

•	Average home equity loans decreased as paydowns and payoffs on loans exceeded new originated volume.

•	Average education loans decreased driven by a decline in the runoff portfolio of government guaranteed education loans.

Our national expansion initiative launched in 2018. Deposit products are led by a digital high yield savings account. Following the first solution center opening in Kansas City in 2018, three additional solution centers have opened in 2019 with a second in Kansas City and two in the Dallas/Fort Worth market. We also offer digital unsecured installment and small business loans in the expansion markets.

Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for consumers and small businesses. We are focused on meeting the financial needs of our customers by providing a broad range of liquidity, banking and investment products. Retail Banking continued to execute on its strategy of transforming the customer experience through transaction migration, branch network and home lending transformations and multi-channel engagement and service strategies.

•	Approximately 69% of consumer customers used non-teller channels for the majority of their transactions in the first nine months of 2019 compared with 65% for the same period in 2018.

•	Deposit transactions via ATM and mobile channels increased to 57% of total deposit transactions in the first nine months of 2019 from 54% for the same period in 2018.

Retail Banking continues to make progress on its multi-year initiative to redesign the home lending process. Technology enhancements supported increased residential mortgage origination volumes in 2019. The home equity origination cycle is the focus in 2019 as we enhance current capabilities in order to improve speed of delivery and convenience for customers.

The PNC Financial Services Group, Inc. – Form 10-Q    15

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Corporate & Institutional Banking

 

Corporate & Institutional Banking’s strategy is to be the leading relationship-based provider of traditional banking products and services to its customers through the economic cycles. We aim to grow our market share and drive higher returns by delivering value-added solutions that help our clients better run their organizations, all while maintaining prudent risk and expense management. We continue to focus on building client relationships where the risk-return profile is attractive.

Table 11: Corporate & Institutional Banking Table

(Unaudited)
Nine months ended September 30									Change
Dollars in millions	2019				2018				$			%
Income Statement
Net interest income	$	2,745			$	2,707			$	38		1	%
Noninterest income	1,891				1,774				117			7	%
Total revenue	4,636				4,481				155			3	%
Provision for credit losses	219				43				176			409	%
Noninterest expense	2,087				2,019				68			3	%
Pretax earnings	2,330				2,419				(89		)	(4	)%
Income taxes	531				562				(31		)	(6	)%
Earnings	$	1,799			$	1,857			$	(58	)	(3	)%
Average Balance Sheet
Loans held for sale	$	467			$	763			$	(296	)	(39	)%
Loans
Commercial	$	112,371			$	102,342			$	10,029		10	%
Commercial real estate	26,257				26,699				(442		)	(2	)%
Equipment lease financing	7,273				7,512				(239		)	(3	)%
Total commercial lending	145,901				136,553				9,348			7	%
Consumer	16				49				(33		)	(67	)%
Total loans	$	145,917			$	136,602			$	9,315		7	%
Total assets	$	163,126			$	153,149			$	9,977		7	%
Deposits
Noninterest-bearing demand	$	39,016			$	44,577			$	(5,561	)	(12	)%
Money market	27,358				23,511				3,847			16	%
Other	25,285				19,182				6,103			32	%
Total deposits	$	91,659			$	87,270			$	4,389		5	%
Performance Ratios
Return on average assets	1.47		%		1.62		%
Noninterest income to total revenue	41		%		40		%
Efficiency	45		%		46		%
Other Information
Consolidated revenue from: (a)
Treasury Management (b)	$	1,372			$	1,318			$	54		4	%
Capital Markets (b)	$	849			$	816			$	33		4	%
Commercial mortgage banking activities:
Commercial mortgage loans held for sale (c)	$	73			$	78			$	(5	)	(6	)%
Commercial mortgage loan servicing income (d)	190				179				11			6	%
Commercial mortgage servicing rights valuation, net of economic hedge (e)	17				26				(9		)	(35	)%
Total	$	280			$	283			$	(3	)	(1	)%
Commercial mortgage servicing rights asset value (f)	$	595			$	766			$	(171	)	(22	)%
Average Loans by C&IB business (g)
Corporate Banking	$	73,460			$	66,145			$	7,315		11	%
Real Estate	37,231				37,379				(148		)	—
Business Credit	22,480				20,588				1,892			9	%
Commercial Banking	8,048				8,135				(87		)	(1	)%
Other	4,698				4,355				343			8	%
Total average loans	$	145,917			$	136,602			$	9,315		7	%
Credit-related statistics
Nonperforming assets (f) (h)	$	526			$	355			$	171		48	%
Net charge-offs	$	58			$	8			$	50		625	%

16    The PNC Financial Services Group, Inc. – Form 10-Q

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(a)	See the additional revenue discussion regarding treasury management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section.

(b)	Amounts are reported in net interest income and noninterest income.

(c)	Represents other noninterest income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, originations fees, gains on sale of loans held for sale and net interest income on loans held for sale.

(d)	Represents net interest income and noninterest income (primarily in corporate service fees) from loan servicing net of reduction in commercial mortgage servicing rights due to amortization expense and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.

(e)	Amounts are reported in corporate service fees.

(f)	As of September 30.

(g)	As a result of our first quarter 2019 C&IB business realignment, average loans previously reported as Equipment Finance were reclassified to other C&IB businesses for all periods presented.

(h)	Primarily nonperforming loans of $.5 billion and $.3 billion at September 30, 2019 and September 30, 2018, respectively.

Corporate & Institutional Banking earned $1.8 billion in the first nine months of 2019, down $58 million compared to the same period in 2018. Higher revenue was more than offset by an increase in the provision for credit losses and higher noninterest expense.

Net interest income increased in the comparison, primarily due to higher average loan and deposit balances, partially offset by narrower interest rate spreads on the value of loans.

Growth in noninterest income in the comparison was primarily driven by higher treasury management product revenue, capital markets-related revenue and gains on asset sales.

Overall credit quality remained stable. The increase in provision for credit losses was primarily driven by loan growth. Nonperforming assets and net charge-offs in the first nine months of 2019 reflect increases from recent historic lows.

Noninterest expense increased in the comparison largely due to investments in strategic initiatives and variable costs associated with increased business activity.

Average loans increased compared to the first nine months of 2018 mostly due to strong growth in Corporate Banking and Business Credit:

•	Corporate Banking provides lending, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Average loans for this business grew reflecting strong production in asset-backed financing as well as increased lending to large and mid-sized corporate clients.

•	PNC Real Estate provides banking, financing and servicing solutions for commercial real estate clients nationwide. Average loans for this business decreased primarily driven by project loan payoffs, partially offset by higher commercial mortgage balances.

•	PNC Business Credit provides asset-based lending. The loan portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by short-term assets. Average loans for this business increased as new originations and higher utilization were partially offset by payoffs.

•	Commercial Banking provides lending, treasury management and capital markets-related products and services to smaller corporations and businesses. Average loans for this business were relatively unchanged.

The deposit strategy of Corporate & Institutional Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances over time, executing on customer and segment-specific deposit growth strategies and continuing to provide funding and liquidity to PNC. Average total deposits increased in the comparison driven by growth in interest-bearing deposits including a shift from noninterest-bearing deposits. We continue to monitor and balance the relationship between rates paid and the overall profitability of our deposit balances.

Corporate & Institutional Banking expanded its Corporate Banking business, focused on the middle market and larger sectors, into the Boston and Phoenix markets in 2019. This followed offices opened in Dallas, Kansas City and Minneapolis in 2017, and offices opened in Denver, Houston and Nashville in 2018. These locations complement Corporate & Institutional Banking national businesses with a significant presence in these cities, and build on past successes in the markets where PNC’s retail banking presence was limited, such as in the Southeast. Our full suite of commercial products and services is offered in these locations. We have also formalized plans to expand into the Portland and Seattle markets in 2020.

Product Revenue

In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital markets-related products and services, and commercial mortgage banking activities, for customers of all business segments. On a consolidated basis, the revenue from these other services is included in net interest income, corporate service fees and other noninterest income. From a segment perspective, the majority of the revenue and expense related to these services is reflected in the Corporate & Institutional Banking segment results and the remainder is reflected in the results of other businesses. The Other Information section in Table 11 includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.

The PNC Financial Services Group, Inc. – Form 10-Q    17

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The Treasury Management business provides payables, receivables, deposit and account services, liquidity and investments, and online and mobile banking products and services to our clients. Treasury management revenue is reported in noninterest income and net interest income. Noninterest income includes treasury management product revenue less earnings credits provided to customers on compensating deposit balances used to pay for products and services. Net interest income primarily includes revenue from all treasury management customer deposit balances. Compared with the first nine months of 2018, treasury management revenue increased primarily due to higher product revenue and higher deposit balances.

Capital markets-related products and services include foreign exchange, derivatives, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. Capital markets-related revenue increased in the comparison primarily due to higher asset-backed finance structuring fees, corporate securities underwriting and customer-related derivatives fees, partially offset by lower loan syndication fees.

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (both net interest income and noninterest income) and revenue derived from commercial mortgage loans held for sale and related hedges. Total revenue from commercial mortgage banking activities decreased in the comparison due to a lower benefit from commercial mortgage servicing rights valuation, net of economic hedge and lower revenue from commercial mortgage loans held for sale and related hedges, mostly offset by higher commercial mortgage loan servicing income.

18    The PNC Financial Services Group, Inc. – Form 10-Q

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Asset Management Group

Asset Management Group is focused on being a premier bank-held individual and institutional asset manager in each of the markets it serves. The business seeks to deliver high quality banking, trust and investment management services to our high net worth, ultra high net worth and institutional client sectors through a broad array of products and services. Asset Management Group’s priorities are to serve our clients' financial objectives, grow and deepen customer relationships and deliver solid financial performance with prudent risk and expense management.

Table 12: Asset Management Group Table

(Unaudited)
Nine months ended September 30									Change
Dollars in millions, except as noted	2019				2018				$			%
Income Statement
Net interest income	$	208			$	217			$	(9	)	(4	)%
Noninterest income	719				676				43			6	%
Total revenue	927				893				34			4	%
Provision for credit losses (benefit)	(2		)		2				(4		)	*
Noninterest expense	707				681				26			4	%
Pretax earnings	222				210				12			6	%
Income taxes	51				50				1			2	%
Earnings	$	171			$	160			$	11		7	%
Average Balance Sheet
Loans
Consumer	$	4,261			$	4,702			$	(441	)	(9	)%
Commercial and commercial real estate	747				734				13			2	%
Residential mortgage	1,833				1,561				272			17	%
Total loans	$	6,841			$	6,997			$	(156	)	(2	)%
Total assets	$	7,247			$	7,455			$	(208	)	(3	)%
Deposits
Noninterest-bearing demand	$	1,344			$	1,455			$	(111	)	(8	)%
Interest-bearing demand	3,121				3,413				(292		)	(9	)%
Money market	1,852				2,339				(487		)	(21	)%
Savings	5,969				4,754				1,215			26	%
Other	797				408				389			95	%
Total deposits	$	13,083			$	12,369			$	714		6	%
Performance Ratios
Return on average assets	3.15		%		2.87		%
Noninterest income to total revenue	78		%		76		%
Efficiency	76		%		76		%
Supplemental Noninterest Income Information
Asset management fees	$	646			$	669			$	(23	)	(3	)%
Other Information
Nonperforming assets (a) (b)	$	42			$	51			$	(9	)	(18	)%
Net charge-offs	$	1			$	8			$	(7	)	(88	)%
Client Assets Under Administration (in billions) (a) (c)
Discretionary client assets under management	$	163			$	159			$	4		3	%
Nondiscretionary client assets under administration	135				134				1			1	%
Total	$	298			$	293			$	5		2	%
Discretionary client assets under management
Personal	$	98			$	97			$	1		1	%
Institutional	65				62				3			5	%
Total	$	163			$	159			$	4		3	%

* - Not meaningful

(a)	As of September 30.

(b)	Primarily nonperforming loans of $42 million at September 30, 2019 and $48 million at September 30, 2018.

(c)	Excludes brokerage account client assets.

The PNC Financial Services Group, Inc. – Form 10-Q    19

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Asset Management Group earned $171 million in the first nine months of 2019 compared to $160 million for the same period in 2018. Earnings increased due to higher revenue partially offset by higher noninterest expense.

Higher revenue in the comparison was driven by a gain on the sale of the retirement recordkeeping business in the second quarter partially offset by lower net interest income due to lower average loan balances and narrower interest rate spreads on loans, as well as lower asset management fees as a result of the retirement recordkeeping sale and lower yielding assets under management.

Noninterest expense increased in the comparison and was primarily attributable to higher personnel expenses and costs associated with the sale transaction, including asset write-offs.

Asset Management Group’s discretionary client assets under management increased in the comparison to the prior year, primarily attributable to higher equity markets as of September 30, 2019.

The Asset Management Group entered into a definitive agreement in May 2019 to divest components of its PNC Capital Advisor's investment management business, including its PNC family of proprietary mutual funds of approximately $16 billion in assets under management as of September, 30 2019. The transaction is expected to close in the fourth quarter of 2019.

The Asset Management Group strives to be the leading relationship-based provider of investment, planning, banking and fiduciary services to wealthy individuals and institutions by proactively delivering value-added ideas, solutions and exceptional service.

Wealth Management and Hawthorn have nearly 100 offices operating in seven out of the ten most affluent states in the U.S. with a majority co-located with retail banking branches. The businesses provide customized investments, wealth planning, trust and estate administration and private banking solutions to affluent individuals and ultra-affluent families.

Institutional Asset Management provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and fiduciary retirement advisory services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities, and non-profits.

BlackRock

We hold an equity investment in BlackRock, a leading publicly-traded investment management firm. Information related to our equity investment in BlackRock follows:

Table 13: BlackRock Table

(Unaudited)
Nine months ended September 30
Dollars in millions	2019			2018
Business segment earnings (a)	$	597		$	608
PNC’s economic interest in BlackRock (b)	22		%	22		%

(a)	Represents our share of BlackRock’s reported GAAP earnings net of income taxes on those earnings incurred by us.

(b)	At September 30.

In billions	September 30, 2019			December 31, 2018
Carrying value of our investment in BlackRock (c)	$	8.5		$	8.2
Market value of our investment in BlackRock (d)	$	15.5		$	13.7

(c)	We account for our investment in BlackRock under the equity method of accounting, exclusive of a related deferred tax liability of $1.8 billion and $1.7 billion at September 30, 2019 and December 31, 2018, respectively. Our voting interest in BlackRock common stock was approximately 22% at September 30, 2019.

(d)	Does not include liquidity discount.

Our 2018 Form 10-K includes additional information about our investment in BlackRock.

RISK MANAGEMENT

The Risk Management section included in Item 7 of our 2018 Form 10-K describes our enterprise risk management framework including risk culture, enterprise strategy, risk governance and framework, risk identification, risk assessment, risk controls and monitoring, and risk aggregation and reporting. Additionally, our 2018 Form 10-K provides an analysis of our key areas of risk, which include but are not limited to credit, liquidity and capital, market, operational and compliance.

20    The PNC Financial Services Group, Inc. – Form 10-Q

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Credit Risk Management

See the Credit Risk Management portion of the Risk Management section in our 2018 Form 10-K for additional discussion regarding credit risk.

Loan Portfolio Characteristics and Analysis

Table 14: Details of Loans

In billions

We use several asset quality indicators, as further detailed in Note 3 Asset Quality, to monitor and measure our exposure to credit risk within our loan portfolio. The following provides additional information about our significant loan classes.

Commercial

Commercial loans comprised 52% of our total loan portfolio at both September 30, 2019 and December 31, 2018. The majority of our commercial loans are secured by collateral that provides a secondary source of repayment for the loan should the borrower experience cash generation difficulties. Examples of this collateral include short-term assets, such as accounts receivable, inventory and securities, and long-lived assets, such as equipment, real estate and other business assets.

We actively manage our commercial loans to assess any changes (both positive and negative) in the level of credit risk at both the borrower and portfolio level. To evaluate the level of credit risk, we assign internal risk ratings reflecting our estimates of the borrower’s probability of default (PD) and loss given default (LGD) for each related credit facility. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process and is updated on an ongoing basis through our credit risk management processes. In addition to monitoring the level of credit risk, we also monitor concentrations of credit risk pertaining to both specific industries and geography that may exist in our portfolio. Our portfolio is well-diversified as shown in the following table which provides a breakout of our commercial loans by industry classification (classified based on the North American Industry Classification System (NAICS)).

Table 15: Commercial Loans by Industry

	September 30, 2019								December 31, 2018
Dollars in millions	Amount				% of Total				Amount				% of Total
Commercial
Manufacturing	$	21,846			18	%			$	21,207			18	%
Retail/wholesale trade	21,761				18				20,850				18
Service providers	16,189				13				14,869				13
Real estate related (a)	12,294				10				12,312				11
Financial services	10,437				8				9,500				8
Health care	8,137				7				8,886				8
Transportation and warehousing	7,216				6				5,781				5
Other industries	26,134				20				23,429				19
Total commercial loans	$	124,014			100	%			$	116,834			100	%

(a) Represents loans to customers in the real estate and construction industries.

The PNC Financial Services Group, Inc. – Form 10-Q    21

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Commercial Real Estate

Commercial real estate loans comprised $6.0 billion of real estate project loans, $6.2 billion of intermediate term financing loans and $16.7 billion related to commercial mortgages as of September 30, 2019. Comparable amounts were $6.6 billion, $7.1 billion and $14.4 billion, respectively, as of December 31, 2018.

We monitor credit risk associated with our commercial real estate loans similar to commercial loans by analyzing PD and LGD. Additionally, risks associated with these types of credit activities tend to be correlated to the loan structure, collateral location, project progress and business environment. These attributes are also monitored and utilized in assessing credit risk. The portfolio is geographically diverse due to the nature of our business involving clients throughout the U.S. The following table presents our commercial real estate loans by geographic market and property type.

Table 16: Commercial Real Estate Loans by Geography and Property Type

	September 30, 2019								December 31, 2018
Dollars in millions	Amount				% of Total				Amount				% of Total
Geography
California	$	4,383			15	%			$	4,154			15	%
Florida	2,425				8				2,157				8
Maryland	1,832				6				1,966				7
Virginia	1,533				5				1,682				6
Texas	1,866				6				1,531				5
Illinois	1,117				4				1,368				5
Pennsylvania	1,235				4				1,214				4
New York	884				3				1,151				4
Ohio	1,151				4				1,053				4
North Carolina	1,035				4				915				3
All other states	11,423				41				10,949				39
Total commercial real estate loans	$	28,884			100	%			$	28,140			100	%
Property Type
Multifamily	$	9,099			32	%			$	8,770			31	%
Office	7,620				26				7,279				26
Retail	3,811				13				4,065				14
Hotel/Motel	1,801				6				1,686				6
Industrial/Warehouse	1,759				6				1,678				6
Senior Housing	1,195				4				1,092				4
Mixed Use	1,051				4				933				3
Other	2,548				9				2,637				10
Total commercial real estate loans	$	28,884			100	%			$	28,140			100	%

Home Equity

Home equity loans comprised $14.3 billion of primarily variable-rate home equity lines of credit and $10.7 billion of closed-end home equity installment loans at September 30, 2019. Comparable amounts were $15.5 billion and $10.6 billion, respectively, as of December 31, 2018.

We track borrower performance monthly, including obtaining original loan-to-value ratios (LTV), updated FICO scores at least quarterly, updated LTVs at least semi-annually, and other credit metrics at least quarterly, including the historical performance of any related mortgage loans regardless of lien position that we do or do not hold. This information is used for internal reporting and risk management. For internal reporting and risk management we also segment the population into pools based on product type (e.g., home equity loans, brokered home equity loans, home equity lines of credit, brokered home equity lines of credit). As part of our overall risk analysis and monitoring, we also segment the portfolio based upon the loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV, lien position and geographic concentration.

The home equity portfolio is primarily originated within markets located in the Mid-Atlantic, Midwest, and Southeast, with less than 5% of the portfolio in states outside of those markets at September 30, 2019. The credit quality of newly originated loans over the last twelve months was strong overall with a weighted-average LTV on originations of 68% and a weighted-average FICO score of 769.

The credit performance of the majority of the home equity portfolio where we hold the first lien position is superior to the portion of the portfolio where we hold the second lien position, but do not hold the first lien. Lien position information is generally based upon

22    The PNC Financial Services Group, Inc. – Form 10-Q

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original LTV at the time of origination. We use an industry-leading third-party service provider to obtain updated loan, lien and collateral data that is aggregated from public and private sources.

The following table presents our home equity loans by geographic market and lien type.

Table 17: Home Equity Loans by Geography and by Lien Type

	September 30, 2019								December 31, 2018
Dollars in millions	Amount				% of Total				Amount				% of Total
Geography
Pennsylvania	$	5,835			23	%			$	6,160			24	%
New Jersey	3,741				15				3,935				15
Ohio	2,913				12				3,095				12
Illinois	1,535				6				1,634				6
Maryland	1,419				6				1,481				6
Michigan	1,325				5				1,340				5
Florida	1,248				5				1,227				5
North Carolina	1,098				4				1,161				4
Kentucky	987				4				1,040				4
Indiana	813				3				845				3
All other states	4,057				17				4,205				16
Total home equity loans	$	24,971			100	%			$	26,123			100	%
Lien type
1st lien					58	%							58	%
2nd lien					42								42
Total					100	%							100	%

Residential Real Estate

Residential real estate loans primarily consisted of residential mortgage loans at both September 30, 2019 and December 31, 2018.

We track borrower performance of this portfolio monthly similarly to home equity loans. This information is used for internal reporting and risk management. For internal reporting and risk management we also segment the mortgage portfolio into pools based on product type (e.g., nonconforming, conforming). As part of our overall risk analysis and monitoring, we also segment the portfolio based upon loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV and geographic concentrations. Loan performance is evaluated by source originators and loan servicers.

The credit quality of newly originated loans that we retained on our balance sheet over the last twelve months was strong overall as evidenced by a weighted-average LTV on originations of 70% and a weighted-average FICO score of 768.

The following table presents our residential real estate loans by geographic market.

Table 18: Residential Real Estate Loans by Geography

	September 30, 2019								December 31, 2018
Dollars in millions	Amount				% of Total				Amount				% of Total
Geography
California	$	6,249			30	%			$	4,666			25	%
New Jersey	1,747				8				1,649				9
Florida	1,574				8				1,544				8
Illinois	1,122				5				1,161				6
Pennsylvania	1,093				5				1,031				6
New York	992				5				956				5
Maryland	927				4				913				5
North Carolina	873				4				854				5
Virginia	858				4				825				4
Ohio	696				3				682				4
All other states	4,951				24				4,376				23
Total residential real estate loans	$	21,082			100	%			$	18,657			100	%

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We originate residential mortgage loans nationwide through our national mortgage business as well as within our branch network. Residential mortgage loans underwritten to government agency standards, including conforming loan amount limits, are typically sold with servicing retained by us. We also originate nonconforming residential mortgage loans that do not meet government agency standards, which we retain on our balance sheet. The nonconforming residential mortgage portfolio had strong credit quality at September 30, 2019 with an average original LTV of 70% and an average original FICO score of 772. Our portfolio of nonconforming residential mortgage loans totaled $15.1 billion at September 30, 2019 with 36% located in California.

Automobile

Within auto loans, $14.4 billion resided in the indirect auto portfolio while $1.6 billion were in the direct auto portfolio as of September 30, 2019. Comparable amounts as of December 31, 2018 were $12.9 billion and $1.5 billion, respectively. The indirect auto portfolio relates to loan applications originated through franchised dealers. This business is strategically aligned with our core retail banking business.

We continue to focus on borrowers with strong credit profiles as evidenced by a weighted-average loan origination FICO score over the last twelve months of 745 for indirect auto loans and 765 for direct auto loans. The weighted-average term of loan originations over the last twelve months was 74 months for indirect auto loans and 63 months for direct auto loans. We offer both new and used auto financing to customers through our various channels. At both September 30, 2019 and December 31, 2018, the portfolio was composed of 53% new vehicle loans and 47% used vehicle loans.

The auto loan portfolio's performance is measured monthly, including updated collateral values that are obtained monthly and updated FICO scores that are obtained at least quarterly. For internal reporting and risk management, we analyze the portfolio by product channel and product type and regularly evaluate default and delinquency experience. As part of our overall risk analysis and monitoring, we segment the portfolio by loan structure, collateral attributes and credit metrics which include FICO score, LTV and term.

Nonperforming Assets and Loan Delinquencies

Nonperforming Assets

Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming troubled debt restructurings (TDRs), other real estate owned (OREO) and foreclosed assets. Loans held for sale, certain government insured or guaranteed loans, purchased impaired loans and loans accounted for under the fair value option are excluded from nonperforming loans. Additional information regarding our nonperforming loans and nonaccrual policies is included in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in our 2018 Form 10-K. A summary of the major categories of nonperforming assets are presented in Table 19. See Note 3 Asset Quality in the Notes To Consolidated Financial Statements in this Report for further detail of nonperforming asset categories.

Table 19: Nonperforming Assets by Type

	September 30, 2019			December 31, 2018				Change
Dollars in millions								$				%
Nonperforming loans
Commercial lending	$	576		$	432			$	144			33	%
Consumer lending (a)	1,152			1,262				(110		)		(9	)%
Total nonperforming loans	1,728			1,694				34				2	%
OREO and foreclosed assets	119			114				5				4	%
Total nonperforming assets	$	1,847		$	1,808			$	39			2	%
TDRs included in nonperforming loans	$	911		$	863			$	48			6	%
Percentage of total nonperforming loans	53		%	51		%
Nonperforming loans to total loans	.73		%	.75		%
Nonperforming assets to total loans, OREO and foreclosed assets	.78		%	.80		%
Nonperforming assets to total assets	.45		%	.47		%
Allowance for loan and lease losses to total nonperforming loans	158		%	155		%

(a)	Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.

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Table 20: Change in Nonperforming Assets

In millions		2019				2018
January 1		$	1,808			$	2,035
New nonperforming assets		985				785
Charge-offs and valuation adjustments		(446		)		(408		)
Principal activity, including paydowns and payoffs		(315		)		(379		)
Asset sales and transfers to loans held for sale		(74		)		(101		)
Returned to performing status		(111		)		(107		)
September 30		$	1,847			$	1,825

As of September 30, 2019, approximately 88% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses in the event of default. As of September 30, 2019, commercial lending nonperforming loans were carried at approximately 78% of their unpaid principal balance, due to charge-offs recorded to date, before consideration of the ALLL.

Within consumer lending nonperforming loans, residential real estate TDRs comprised 78% and 81% of total residential real estate nonperforming loans at September 30, 2019 and December 31, 2018, respectively. Home equity TDRs comprised 50% of home equity nonperforming loans at September 30, 2019, up from 47% at December 31, 2018. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

At September 30, 2019, our largest nonperforming asset was $33 million in the Information industry and the ten largest individual nonperforming assets represented 13% of total nonperforming assets.

Loan Delinquencies

We regularly monitor the level of loan delinquencies and believe these levels may be a key indicator of loan portfolio asset quality. Measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. Loan delinquencies exclude loans held for sale and purchased impaired loans, but include government insured or guaranteed loans and loans accounted for under the fair value option.

Table 21: Accruing Loans Past Due (a)

		Amount															Percentage of Total Loans Outstanding
		September 30 2019				December 31 2018				Change							September 30 2019			December 31 2018
Dollars in millions										$				%
Early stage loan delinquencies
Accruing loans past due 30 to 59 days		$	547			$	585			$	(38	)		(6	)%		.23	%		.26	%
Accruing loans past due 60 to 89 days		269				271				(2		)		(1	)%		.11	%		.12	%
Total		816				856				(40		)		(5	)%		.34	%		.38	%
Late stage loan delinquencies
Accruing loans past due 90 days or more		532				629				(97		)		(15	)%		.22	%		.28	%
Total		$	1,348			$	1,485			$	(137	)		(9	)%		.57	%		.66	%

(a)	Past due loan amounts include government insured or guaranteed loans of $.6 billion at September 30, 2019 and $.7 billion at December 31, 2018.

Accruing loans past due 90 days or more are not included in nonperforming loans and continue to accrue interest because they are well secured by collateral and are in the process of collection, or are managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or are certain government insured or guaranteed loans.

Troubled Debt Restructurings and Loan Modifications

Troubled Debt Restructurings

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs result from our loss mitigation activities and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of

The PNC Financial Services Group, Inc. – Form 10-Q    25

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collateral. Additionally, TDRs also result from court imposed concessions (e.g., a Chapter 7 bankruptcy where the debtor is discharged from personal liability to us and a court approved Chapter 13 bankruptcy repayment plan).

Table 22: Summary of Troubled Debt Restructurings (a)

		September 30 2019				December 31 2018				Change
Dollars in millions										$				%
Total commercial lending		$	420			$	409			$	11			3	%
Total consumer lending		1,343				1,442				(99		)		(7	)%
Total TDRs		$	1,763			$	1,851			$	(88	)		(5	)%
Nonperforming		$	911			$	863			$	48			6	%
Accruing (b)		852				988				(136		)		(14	)%
Total TDRs		$	1,763			$	1,851			$	(88	)		(5	)%

(a)	Amounts in table represent recorded investment, which includes the unpaid principal balance plus net accounting adjustments, less any charge-offs. Recorded investment does not include any associated valuation allowance.

(b)	Accruing loans include consumer credit card loans and loans that have demonstrated a period of at least six months of performance under the restructured terms and are excluded from nonperforming loans.

Excluded from TDRs are $1.0 billion and $1.1 billion of consumer loans held for sale, loans accounted for under the fair value option and pooled purchased impaired loans, as well as certain government insured or guaranteed loans at September 30, 2019 and December 31, 2018, respectively. Nonperforming TDRs represented approximately 53% and 51% of total nonperforming loans at September 30, 2019 and December 31, 2018, respectively, and 52% and 47% of total TDRs at September 30, 2019 and December 31, 2018, respectively. The remaining portion of TDRs represents TDRs that have been returned to accrual status after performing under the restructured terms for at least six consecutive months.

See Note 3 Asset Quality in the Notes to Consolidated Financial Statements in this Report for additional information on TDRs. See the Credit Risk Management portion of the Risk Management section in our 2018 Form 10-K for information related to loan modifications.

Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit

We maintain an ALLL to absorb losses from the loan and lease portfolio and determine this allowance based on quarterly assessments of the estimated probable credit losses incurred in the loan and lease portfolio. Our total ALLL of $2.7 billion at September 30, 2019 consisted of $1.8 billion and $.9 billion established for the commercial lending and consumer lending categories, respectively. We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolio as of the balance sheet date. The reserve calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan and lease portfolio performance experience, the financial strength of the borrower and economic conditions. Key reserve assumptions and estimation processes are periodically updated.

Reserves are established for non-impaired commercial loan classes based primarily on PD and LGD.

Our commercial pool reserve methodology is sensitive to changes in key risk parameters such as PD and LGD. The results of these parameters are then applied to the loan balance and unfunded loan commitments and letters of credit to determine the amount of the respective reserves. The majority of the commercial portfolio is secured by collateral, including loans to asset-based lending customers, which generally demonstrate lower LGD compared to loans not secured by collateral. Our PDs and LGDs are primarily determined using internal commercial loan loss data. This internal data is supplemented with third-party data and management judgment, as deemed necessary. We continue to evaluate and enhance our use of internal commercial loss data and will periodically update our PDs and LGDs as well as consider third-party data, regulatory guidance and management judgment.

Allowances for non-impaired consumer loan classes are primarily based upon transition matrices, including using a roll-rate model. The roll-rate model uses statistical relationships, calculated from historical data that estimate the movement of loan outstandings through the various stages of delinquency and ultimately charge-off.

We establish specific allowances for loans considered impaired using methods prescribed by GAAP. All impaired loans are subject to individual analysis, except leases and large groups of smaller-balance homogeneous loans which may include, but are not limited to, credit card, residential real estate secured and consumer installment loans. Specific allowances for individual loans (including commercial and consumer TDRs) are determined based on an analysis of the present value of expected future cash flows from the loans discounted at their effective interest rate, observable market price or the fair value of the underlying collateral.

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A portion of the ALLL is related to qualitative measurement factors. These factors may include, but are not limited to, the following:

•	Industry concentrations and conditions,

•	Changes in market conditions,

•	Recent credit quality trends,

•	Recent loss experience in particular portfolios, including specific and unique events,

•	Recent macro-economic factors,

•	Model imprecision,

•	Changes in lending policies and procedures,

•	Timing of available information, including the performance of first lien positions, and

•	Limitations of available historical data.

Our determination of the ALLL for non-impaired loans is sensitive to the risk grades assigned to commercial loans and loss rates for consumer loans. There are several other qualitative and quantitative factors considered in determining the ALLL. Periodically, reserve sensitivity analyses are performed. Such analyses provide insight into the impact of adverse changes to risk grades and loss rates. Given the current processes used, we believe the risk grades and loss rates currently assigned are appropriate.

Purchased impaired loans are initially recorded at fair value and applicable accounting guidance prohibits the carryover or creation of valuation allowances at acquisition. Because the initial fair values of these loans already reflect a credit component, additional reserves are established when performance is expected to be worse than our expectations as of the acquisition date. At September 30, 2019, we had established reserves of $.3 billion for purchased impaired loans. In addition, loans (purchased impaired and non-impaired) acquired after January 1, 2009 were recorded at fair value. No allowance for loan losses was carried over and no allowance was created at the date of acquisition.

In determining the appropriateness of the ALLL, we make specific allocations to impaired loans and allocations to portfolios of commercial and consumer loans. We also allocate reserves to provide coverage for probable losses incurred in the portfolio at the balance sheet date based upon current market conditions, which may not be reflected in historical loss data. Commercial lending is the largest category of credits and is sensitive to changes in assumptions and judgments underlying the determination of the ALLL.

In addition to the ALLL, we maintain an allowance for unfunded loan commitments and letters of credit. We report this allowance as a liability on our Consolidated Balance Sheet. We maintain the allowance for unfunded loan commitments and letters of credit at a level we believe is appropriate to absorb estimated probable losses on these unfunded credit facilities. We determine this amount using estimates of the probability of the ultimate funding and losses related to those credit exposures. Other than the estimation of the probability of funding, this methodology is very similar to the one we use for determining our ALLL.

See Note 1 Accounting Policies in our 2018 Form 10-K and Note 3 Asset Quality in the Notes To Consolidated Financial Statements in this Report for further information on certain key asset quality indicators that we use to evaluate our portfolios and establish the allowances.

Table 23: Allowance for Loan and Lease Losses

Dollars in millions		2019				2018
January 1		$	2,629			$	2,611
Total net charge-offs		(433		)		(313		)
Provision for credit losses		552				260
Net (increase) / decrease in allowance for unfunded loan commitments and letters of credit		(19		)		9
Other		9				17
September 30		$	2,738			$	2,584
Net charge-offs to average loans (for the nine months ended) (annualized)		.25		%		.19		%
Ratio of ALLL to total loans		1.15		%		1.16		%
Commercial lending net charge-offs		$	(79	)		$	(18	)
Consumer lending net charge-offs		(354		)		(295		)
Total net charge-offs		$	(433	)		$	(313	)
Net charge-offs to average loans (for the nine months ended) (annualized)
Commercial lending		.07		%		.02		%
Consumer lending		.63		%		.54		%

The ALLL balance increases or decreases across periods in relation to fluctuating risk factors, including asset quality trends, net charge-offs and changes in aggregate portfolio balances. During the first nine months of 2019, overall credit quality remained strong, which resulted in an essentially flat ratio of ALLL to total loans as of September 30, 2019 compared to December 31, 2018.

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The following table summarizes our loan charge-offs and recoveries.

Table 24: Loan Charge-Offs and Recoveries

Nine months ended September 30		Gross Charge-offs				Recoveries				Net Charge-offs / (Recoveries)				Percent of Average Loans (Annualized)
Dollars in millions
2019
Commercial		$	116			$	45			$	71			.08	%
Commercial real estate		16				8				8				.04	%
Equipment lease financing		6				6				—				—	%
Home equity		52				56				(4		)		(.02	)%
Residential real estate		5				11				(6		)		(.04	)%
Automobile		183				85				98				.86	%
Credit card		193				21				172				3.58	%
Education		20				6				14				.51	%
Other consumer		92				12				80				2.29	%
Total		$	683			$	250			$	433			.25	%
2018
Commercial		$	78			$	50			$	28			.03	%
Commercial real estate		8				18				(10		)		(.05	)%
Equipment lease financing		6				6				—				—	%
Home equity		85				67				18				.09	%
Residential real estate		9				18				(9		)		(.07	)%
Automobile		117				56				61				.60	%
Credit card		161				18				143				3.32	%
Education		24				6				18				.57	%
Other consumer		76				12				64				1.94	%
Total		$	564			$	251			$	313			.19	%

Total net charge-offs increased $120 million, or 38%, for the first nine months of 2019 compared to the same period in 2018. The increase in commercial net charge-offs reflected the impact of certain individual credits, while the increases in automobile, credit card and other consumer loan net charge-offs were due in part to loan portfolio growth. See Note 1 Accounting Policies in our 2018 Form 10-K and Note 4 Allowance for Loan and Lease Losses in the Notes To Consolidated Financial Statements in this Report for additional information on the ALLL.

The Recently Issued Accounting Standards section within Critical Accounting Estimates and Judgments of this Financial Review describes our upcoming implementation of Accounting Standards Update (ASU) 2016-13 - Credit Losses, including our estimated impact upon adoption on its effective date of January 1, 2020.

Liquidity and Capital Management

Liquidity risk, including our liquidity monitoring measures and tools, is described in further detail in the Liquidity and Capital Management section of our 2018 Form 10-K.

One of the ways we monitor our liquidity is by reference to the LCR, a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a hypothetical 30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets (HQLA), as defined and calculated in accordance with the LCR rules, by its estimated net cash outflows, with net cash outflows determined by applying the assumed outflow factors in the LCR rules. The resulting quotient is expressed as a percentage. The minimum LCR that PNC and PNC Bank are required to maintain is 100%. PNC and PNC Bank calculate the LCR daily, and as of September 30, 2019, the LCR for PNC and PNC Bank exceeded the requirement of 100%.

See the Recent Regulatory Developments section of this Report for information on the Final Tailoring Rules and the impact on LCR requirements.

We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2018 Form 10-K.

28    The PNC Financial Services Group, Inc. – Form 10-Q

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Sources of Liquidity

Our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable and low-cost funding. Total deposits increased to $285.6 billion at September 30, 2019 from $267.8 billion at December 31, 2018 driven by growth in both interest-bearing and non-interest bearing deposits. See the Funding Sources portion of the Consolidated Balance Sheet Review section of this Financial Review for additional information related to our deposits. Additionally, certain assets determined by us to be liquid as well as unused borrowing capacity from a number of sources are also available to manage our liquidity position.

At September 30, 2019, our liquid assets consisted of short-term investments (federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling $26.3 billion and securities available for sale totaling $69.1 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Our liquid assets included $4.0 billion of securities available for sale and trading securities pledged as collateral to secure public and trust deposits, repurchase agreements and for other purposes. In addition, $8.7 billion of securities held to maturity were also pledged as collateral for these purposes.

We also obtain liquidity through various forms of funding, including long-term debt (senior notes, subordinated debt and FHLB borrowings) and short-term borrowings (securities sold under repurchase agreements, commercial paper and other short-term borrowings). See Note 10 Borrowed Funds in our 2018 Form 10-K and the Funding Sources section of the Consolidated Balance Sheet Review for additional information related to our borrowings.

Total senior and subordinated debt, on a consolidated basis, increased due to the following activity:

Table 25: Senior and Subordinated Debt

In billions	2019
January 1	$	30.9
Issuances	6.9
Calls and maturities	(6.3		)
Other	1.1
September 30	$	32.6

Bank Liquidity

Under PNC Bank’s 2014 bank note program, as amended, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount outstanding at any one time of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. At September 30, 2019, PNC Bank had $22.9 billion of notes outstanding under this program of which $18.6 billion were senior bank notes and $4.3 billion were subordinated bank notes. The following table details issuances for the three months ended September 30, 2019.

Table 26: PNC Bank Notes Issued

Issuance Date	Amount	Description of Issuance
July 23, 2019	$900 million	Senior floating rate notes with a maturity date of July 22, 2022. Redeemable in whole, but not in part, on July 22, 2021, and in whole or in part on or after June 22, 2022. Interest is payable quarterly, at the 3-month LIBOR rate, reset quarterly, plus 45 basis points, on January 22, April 22, July 22 and October 22 of each year, beginning October 22, 2019.
July 23, 2019	$600 million	Senior fixed-to-floating rate notes with a maturity date of July 22, 2022. Redeemable in whole, but not in part, on July 22, 2021, and in whole or in part on or after June 22, 2022. Interest is initially payable semi-annually at a fixed rate of 2.232% on July 22 and January 22 of each year, beginning January 22, 2020, and ending on July 22, 2021. Beginning on July 22, 2021, interest is payable quarterly, at the 3-month LIBOR rate, reset quarterly, plus 44 basis points, on January 22, April 22, July 22, and October 22, beginning on October 22, 2021.

See Note 17 Subsequent Events for information on the October 2019 issuance of $750 million of subordinated notes by PNC Bank.

PNC Bank maintains additional secured borrowing capacity with the FHLB-Pittsburgh and through the Federal Reserve Bank discount window. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities, but rather as a potential source of liquidity in a stressed environment or during a market disruption. At September 30, 2019, our unused secured borrowing capacity at the FHLB-Pittsburgh and the Federal Reserve Bank totaled $44.3 billion.

PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of September 30, 2019, there were no issuances outstanding under this program.

The PNC Financial Services Group, Inc. – Form 10-Q    29

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Parent Company Liquidity

In addition to managing liquidity risk at the bank level, we monitor the parent company’s liquidity. The parent company’s contractual obligations consist primarily of debt service related to parent company borrowings and funding non-bank affiliates. Additionally, the parent company maintains adequate liquidity to fund discretionary activities such as paying dividends to our shareholders, share repurchases and acquisitions.

As of September 30, 2019, available parent company liquidity totaled $6.3 billion. Parent company liquidity is primarily held in intercompany short-term investments, the terms of which provide for the availability of cash in 31 days or less. Investments with longer durations may also be acquired, but if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

The principal source of parent company liquidity is the dividends it receives from PNC Bank, which may be impacted by the following:

•	Bank-level capital needs,

•	Laws and regulations,

•	Corporate policies,

•	Contractual restrictions, and

•	Other factors.

There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was approximately $3.0 billion at September 30, 2019. See Note 18 Regulatory Matters in the Notes To Consolidated Financial Statements in our 2018 Form 10-K for a further discussion of these limitations.

In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As of September 30, 2019, there were no commercial paper issuances outstanding.

The parent company has an effective shelf registration statement pursuant to which we can issue additional debt, equity and other capital instruments. Under this shelf registration statement, on July 23, 2019, the parent company issued $1.0 billion of senior notes with a maturity date of July 23, 2026. Interest is payable semi-annually at a fixed rate of 2.60% on July 23 and January 23 of each year, beginning on January 23, 2020. See Note 17 Subsequent Events in the Notes To Consolidated Financial Statements of this Report for information on the November 1, 2019 issuance of $650 million of senior fixed rate notes by the parent company utilizing this shelf registration.

Parent company senior and subordinated debt outstanding totaled $9.3 billion and $6.7 billion at September 30, 2019 and December 31, 2018, respectively.

Contractual Obligations and Commitments

We have contractual obligations representing required future payments on borrowed funds, time deposits, leases, pension and postretirement benefits and purchase obligations. See the Liquidity and Capital Management portion of the Risk Management section in our 2018 Form 10-K for more information on these future cash outflows. Additionally, in the normal course of business we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. We provide information on our commitments in Note 13 Commitments in the Notes To Consolidated Financial Statements of this Report.

Credit Ratings

PNC’s credit ratings affect the cost and availability of short and long-term funding, collateral requirements for certain derivative instruments and the ability to offer certain products.

In general, rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current legislative and regulatory environment, including implied government support. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect liquidity and financial condition.

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Table 27: Credit Ratings for PNC and PNC Bank

	September 30, 2019
	Moody’s	Standard & Poor’s	Fitch
PNC
Senior debt	A3	A-	A+
Subordinated debt	A3	BBB+	A
Preferred stock	Baa2	BBB-	BBB-
PNC Bank
Senior debt	A2	A	A+
Subordinated debt	A3	A-	A
Long-term deposits	Aa2	A	AA-
Short-term deposits	P-1	A-1	F1+
Short-term notes	P-1	A-1	F1

Capital Management

Detailed information on our capital management processes and activities, including additional information on our previous CCAR submissions and capital plans, is included in the Capital Management portion of the Risk Management section in our 2018 Form 10-K.

We manage our funding and capital positions by making adjustments to our balance sheet size and composition, issuing or redeeming debt, issuing equity or other capital instruments, executing treasury stock transactions and capital redemptions or repurchases, and managing dividend policies and retaining earnings.

In connection with the 2019 CCAR process, we submitted our capital plan, as approved by PNC's Board of Directors, to the Federal Reserve in April 2019. The Federal Reserve accepted the capital plan and did not object to our proposed capital actions. As provided in the 2019 capital plan, we announced new share repurchase programs of up to $4.3 billion for the four-quarter period beginning in the third quarter of 2019. In the third quarter of 2019, we repurchased 7.5 million common shares for $1.0 billion.

 

We paid dividends on common stock of $.5 billion, or $1.15 per common share, during the third quarter of 2019. On October 3, 2019, the PNC Board of Directors declared a quarterly common stock cash dividend of $1.15 per share, with a payment date of November 5, 2019.

We completed our common stock repurchase programs for the four quarter period that ended June 30, 2019, with total repurchases of 21.4 million common shares for $2.8 billion. These repurchases were included in our capital plan accepted by the Federal Reserve as part of our 2018 CCAR submission. Additionally, we paid $1.7 billion in common stock dividends for a total of $4.5 billion of capital returned to shareholders during this four quarter period.

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Table 28: Basel III Capital

Dollars in millions	Basel III September 30, 2019
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock	$	3,179
Retained earnings	41,413
Accumulated other comprehensive income (loss) for securities currently, and those transferred from, available for sale	1,119
Accumulated other comprehensive income (loss) for pension and other postretirement plans	(481		)
Goodwill, net of associated deferred tax liabilities	(9,030		)
Other disallowed intangibles, net of deferred tax liabilities	(238		)
Other adjustments/(deductions)	(209		)
Total common equity Tier 1 capital before threshold deductions	35,753
Total threshold deductions	(2,952		)
Common equity Tier 1 capital	$	32,801
Additional Tier 1 capital
Preferred stock plus related surplus	3,992
Other adjustments/(deductions)	(162		)
Tier 1 capital	$	36,631
Additional Tier 2 capital
Qualifying subordinated debt	3,481
Trust preferred capital securities	60
Eligible credit reserves includable in Tier 2 capital	3,042
Total Basel III capital	$	43,214
Risk-weighted assets
Basel III standardized approach risk-weighted assets (a)	$	340,912
Basel III advanced approaches risk-weighted assets (b)	$	319,960
Average quarterly adjusted total assets	$	393,009
Supplementary leverage exposure (c)	$	471,906
Basel III risk-based capital and leverage ratios (d)
Common equity Tier 1	9.6		%
Tier 1	10.7		%
Total (e)	12.7		%
Leverage (f)	9.3		%
Supplementary leverage ratio (g)	7.8		%

(a)	Includes credit and market risk-weighted assets.

(b)	Basel III advanced approaches risk-weighted assets are calculated based on the Basel III advanced approaches rules, and include credit, market, and operational risk-weighted assets. During the parallel run qualification phase, PNC has refined the data, models, and internal processes used as part of the advanced approaches for determining risk-weighted assets.

(c)	Supplementary leverage exposure is the sum of Average quarterly adjusted total assets and certain off-balance sheet exposures including undrawn credit commitments and derivative potential future exposures.

(d)	For comparative purposes only, the advanced approaches Basel III Common equity Tier 1, Tier 1 risk-based and Total risk-based ratios for September 30, 2019 were 10.3%, 11.4% and 12.5%, respectively.

(e)	The 2019 Basel III Total risk-based capital ratio includes nonqualifying trust preferred capital securities of $60 million that are subject to a phase-out period that runs through 2021. For comparative purposes only, as of September 30, 2019 the ratio was 12.7%, assuming nonqualifying trust preferred capital securities are phased out.

(f)	Leverage ratio is calculated based on Tier 1 capital divided by Average quarterly adjusted total assets.

(g)	Supplementary leverage ratio is calculated based on Tier 1 capital divided by Supplementary leverage exposure.

Because PNC remains in the parallel run qualification phase for the advanced approaches, our regulatory risk-based capital ratios in 2019 are calculated using the standardized approach for determining risk-weighted assets. Under the standardized approach for determining credit risk-weighted assets, exposures are generally assigned a pre-defined risk weight. Exposures to high volatility commercial real estate, past due exposures and equity exposures are generally subject to higher risk weights than other types of exposures. Once we exit parallel run, our regulatory risk-based capital ratios will be the lower of the ratios calculated under the standardized approach and the advanced approaches.

Under the Basel III rules applicable to PNC, significant common stock investments in unconsolidated financial institutions (for PNC, primarily BlackRock), mortgage servicing rights and deferred tax assets must be deducted from capital (net of associated deferred tax liabilities) to the extent they individually exceed 10%, or in the aggregate exceed 15%, of the institution's adjusted common equity

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Tier 1 capital. Also, Basel III regulatory capital includes AOCI related to securities currently, and those transferred from, available for sale, as well as pension and other postretirement plans.

Federal banking regulators have stated that they expect the largest U.S. bank holding companies (BHCs), including PNC, to have a level of regulatory capital well in excess of the regulatory minimum and have required the largest U.S. BHCs, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet the credit needs of their customers through estimated stress scenarios. We seek to manage our capital consistent with these regulatory principles, and believe that our September 30, 2019 capital levels were aligned with them.

At September 30, 2019, PNC and PNC Bank, our sole bank subsidiary, were both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized”, PNC must have Basel III capital ratios of at least 6% for Tier 1 risk-based capital and 10% for Total risk-based capital, and PNC Bank must have Basel III capital ratios of at least 6.5% for Common equity Tier 1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%.

See the Recent Regulatory Developments section of this Report for information regarding the Final Tailoring Rules and the impact to Basel III capital rules. We provide additional information regarding regulatory capital requirements and some of their potential impacts on us in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 18 Regulatory Matters in our 2018 Form 10-K.

Market Risk Management

See the Market Risk Management portion of the Risk Management Section in our 2018 Form 10-K for additional discussion regarding market risk.

Market Risk Management – Interest Rate Risk

Interest rate risk results primarily from our traditional banking activities of gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences, affect the difference between the interest that we earn on assets and the interest that we pay on liabilities and the level of our noninterest-bearing funding sources. Due to the repricing term mismatches and embedded options inherent in certain of these products, changes in market interest rates not only affect expected near-term earnings, but also the economic values of these assets and liabilities.

Our Asset and Liability Management group centrally manages interest rate risk as prescribed in our risk management policies, which are approved by management’s Asset and Liability Committee and the Risk Committee of the Board of Directors.

Sensitivity results and market interest rate benchmarks for the third quarters of 2019 and 2018 follow.

Table 29: Interest Sensitivity Analysis

	Third Quarter 2019			Third Quarter 2018
Net Interest Income Sensitivity Simulation (a)
Effect on net interest income in first year from gradual interest rate change over the    following 12 months of:
100 basis point increase	1.9	%		1.8	%
100 basis point decrease	(2.6	)%		(2.3	)%
Effect on net interest income in second year from gradual interest rate change over the     preceding 12 months of:
100 basis point increase	4.6	%		3.6	%
100 basis point decrease	(7.3	)%		(5.9	)%
Duration of Equity Model (a)
Base case duration of equity (in years)	(6.5	)		.2
Key Period-End Interest Rates
One-month LIBOR	2.02	%		2.26	%
Three-month LIBOR	2.09	%		2.40	%
Three-year swap	1.55	%		3.05	%

(a)	Given the inherent limitations in certain of these measurement tools and techniques, results become less meaningful as interest rates approach zero.

In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 30 reflects the percentage change in net interest income over the next two 12-month periods assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and

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(iii) yield curve slope flattening (a 100 basis point yield curve slope flattening between one-month and ten-year rates superimposed on current base rates) scenario.

All changes in forecasted net interest income are relative to results in a base rate scenario where current market rates are assumed to remain unchanged over the forecast horizon.

Table 30: Net Interest Income Sensitivity to Alternative Rate Scenarios

	September 30, 2019
	PNC Economist		Market Forward		Slope Flattening
First year sensitivity	.2	%	.7	%	(1.2	)%
Second year sensitivity	1.3	%	.5	%	(4.7	)%

When forecasting net interest income, we make assumptions about interest rates and the shape of the yield curve, the volume and characteristics of new business and the behavior of existing on- and off-balance sheet positions. These assumptions determine the future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 29 and 30. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates.

The following graph presents the LIBOR/Swap yield curves for the base rate scenario and each of the alternate scenarios one year forward.

Table 31: Alternate Interest Rate Scenarios: One Year Forward

The third quarter 2019 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

The planned discontinuance of the requirement that banks submit rates for the calculation of LIBOR after 2021 presents risks to the financial instruments originated, held or serviced by PNC that use LIBOR as a reference rate.  PNC holds instruments and services its instruments and instruments owned by others that may be impacted by the likely discontinuance of LIBOR, including loans, investments, hedging products, floating-rate obligations, and other financial instruments that use LIBOR as a benchmark rate. PNC is coordinating with regulators and industry groups to identify an appropriate replacement reference rate for contracts expiring after 2021, as well as preparing for this transition as it relates to both new and existing exposures. PNC has established a cross-functional governance structure to oversee the overall strategy for the transition from LIBOR. An initial LIBOR impact and risk assessment has been performed, which identified the associated risks across products, systems, models, and processes.

See the Risk Factors section in Part I, Item IA disclosed in PNC's 2018 Form 10-K for additional information regarding the planned discontinuance of LIBOR as a reference rate.

Market Risk Management – Customer-Related Trading Risk

We engage in fixed income securities, derivatives and foreign exchange transactions to support our customers’ investing and hedging activities. These transactions, related hedges and the credit valuation adjustment related to our customer derivatives portfolio are marked-to-market daily and reported as customer-related trading activities. We do not engage in proprietary trading of these products.

We use value-at-risk (VaR) as the primary means to measure and monitor market risk in customer-related trading activities. VaR is used to estimate the probability of portfolio losses based on the statistical analysis of historical market risk factors. A diversified VaR

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reflects empirical correlations across different asset classes. We calculate a diversified VaR at a 95% confidence interval and the results for the first nine months of 2019 and 2018 were within our acceptable limits.

See the Market Risk Management – Customer-Related Trading Risk section of our 2018 Form 10-K for more information on our models used to calculate VaR and our backtesting process.

Customer related trading revenue was $212 million for the nine months ended September 30, 2019 compared to $196 million for the same period in 2018. The increase was primarily due to improved derivative clients sales revenue partially offset by a reduction in foreign exchange client revenue. For the quarterly period, customer related trading revenue was $77 million for the third quarter of 2019 compared to $53 million in 2018. The increase was driven by the improved derivative client sales revenue and, to a lesser extent, improved client related trading results and the impact of changes in credit valuations for customer-related derivatives.

Market Risk Management – Equity And Other Investment Risk

Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, underwriting securities and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations and growth financings in a variety of industries. We also have investments in affiliated and non-affiliated funds that make similar investments in private equity. The economic and/or book value of these investments and other assets are directly affected by changes in market factors.

Various PNC business units manage our equity and other investment activities. Our businesses are responsible for making investment decisions within the approved policy limits and associated guidelines.

A summary of our equity investments follows:

Table 32: Equity Investments Summary

	September 30 2019				December 31 2018				Change
Dollars in millions									$				%
BlackRock	$	8,321			$	8,016			$	305			4	%
Tax credit investments	2,252				2,219				33				1	%
Private equity and other	2,752				2,659				93				3	%
Total	$	13,325			$	12,894			$	431			3	%

BlackRock

We owned approximately 35 million common stock equivalent shares of BlackRock equity at September 30, 2019, accounted for under the equity method. The Business Segments Review section of this Financial Review includes additional information about BlackRock.

Tax Credit Investments

Included in our equity investments are direct tax credit investments and equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $.9 billion and $.8 billion at September 30, 2019 and December 31, 2018, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.

Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in our 2018 Form 10-K has further information on Tax Credit Investments.

Private Equity and Other

The majority of our other equity investments consists of our private equity portfolio. The private equity portfolio is an illiquid portfolio consisting of mezzanine and equity investments that vary by industry, stage and type of investment. Private equity investments carried at estimated fair value totaled $1.6 billion and $1.5 billion at September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, $1.4 billion was invested directly in a variety of companies and $.2 billion was invested indirectly through various private equity funds. See the Supervision and Regulation section in Item 1 of our 2018 Form 10-K for discussion of the potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and other relationships with private funds covered by the Volcker Rule.

Included in our other equity investments are Visa Class B common shares, which are recorded at cost. Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly-traded Class A common shares, which cannot happen until the resolution of the pending interchange litigation. Based upon the September 30, 2019 per share closing price of $172.01 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $981 million at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was not significant. See Note 6 Fair Value and Note 19 Legal Proceedings in the Notes To Consolidated Financial Statements in Item 8

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of our 2018 10-K for additional information regarding our Visa agreements. The estimated value does not represent fair value of the Visa B common shares given the share’s limited transferability and the lack of observable transactions in the marketplace.

We also have certain other equity investments, the majority of which represent investments in affiliated and non-affiliated funds with both traditional and alternative investment strategies. Net gains related to these investments were not significant at September 30, 2019 and September 30, 2018.

Financial Derivatives

We use a variety of financial derivatives as part of the overall asset and liability risk management process to help manage exposure to market (primarily interest rate) and credit risk inherent in our business activities. We also enter into derivatives with customers to facilitate their risk management activities.

Financial derivatives involve, to varying degrees, market and credit risk. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional and an underlying as specified in the contract. Therefore, cash requirements and exposure to credit risk are significantly less than the notional amount on these instruments.

Further information on our financial derivatives is presented in Note 1 Accounting Policies and Note 6 Fair Value in our Notes To Consolidated Financial Statements in our 2018 Form 10-K and in Note 6 Fair Value and Note 9 Financial Derivatives in the Notes To Consolidated Financial Statements in this Report.

Not all elements of market and credit risk are addressed through the use of financial derivatives, and such instruments may be ineffective for their intended purposes due to unanticipated market changes, among other reasons.

RECENT REGULATORY DEVELOPMENTS

Agency Actions to Better Tailor Regulations to An Institution’s Risk Profile

In October 2019, the Federal Reserve, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) adopted final rules to tailor the application of the agencies’ capital (including stress testing) and liquidity rules, and the Federal Reserve’s enhanced prudential standards adopted under Section 165 of Dodd-Frank, to banking organizations with $100 billion or more in consolidated total assets (the Final Tailoring Rules). The Final Tailoring Rules classify all bank holding companies (BHCs) with $100 billion or more in total assets into one of four categories (Category I, Category II, Category III and Category IV), with the most stringent capital, liquidity and enhanced prudential requirements applying to Category I firms and the least restrictive requirements applying to Category IV firms. The classification of any bank subsidiary of a BHC will generally follow that of its parent BHC. PNC and PNC Bank are considered Category III firms under the Final Tailoring Rules because PNC (i) has more than $250 billion in consolidated total assets, (ii) is not designated as a globally systemically important bank (GSIB), and (iii) has less than $75 billion in cross-jurisdictional activity (as defined in the final rules). The Final Tailoring Rules become effective on December 31, 2019 or allow organizations to begin complying with the new rules beginning December 31, 2019, although certain related changes (such as the changes to the Basel III threshold deductions applicable to PNC and PNC Bank described below) do not become effective until January 1, 2020. As such, we expect the changes to be fully effective for PNC and PNC Bank no later than the first quarter of 2020.

As described below, the Final Tailoring Rules make several important changes to the capital, liquidity and enhanced prudential standards requirements applicable to PNC and PNC Bank.

First, the Final Tailoring Rules significantly modify the threshold deductions for significant common stock investments in unconsolidated financial institutions, as well as mortgage servicing rights and deferred tax assets, from Common equity Tier 1 (CET1) capital (in each case, net of associated deferred tax liabilities) applicable to PNC and PNC Bank. Under the Final Tailoring Rules, PNC and PNC Bank will have to deduct its significant common stock investments in unconsolidated financial institutions, mortgage servicing rights and deferred tax assets from CET1 capital (in each case, net of associated deferred tax liabilities) only to the extent such items individually exceed 25% of the institution's adjusted CET1 capital. PNC's common stock investment in BlackRock is treated as a significant common stock investment in an unconsolidated financial institution for these purposes. As of September 30, 2019, a portion of PNC’s common stock investment in BlackRock was required to be deducted from CET1 capital. If the Final Tailoring Rules had been in effect as of September 30, 2019, no portion of PNC’s common stock investment in BlackRock would have been deducted from CET1 capital.

As a result, upon effectiveness of the Final Tailoring Rules, PNC may have the ability to return more capital to shareholders, through dividends or buybacks, while still maintaining capital in excess of regulatory and policy minimums. We are evaluating how best to deploy that excess capital in light of the impact of the Final Tailoring Rules and will continue to do so. The timing and amount of any dividends and buybacks will continue to be subject, among other things, to the CCAR process described in the Supervision and Regulation section of Item 1 Business in our 2018 Form 10-K.

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Second, under the Final Tailoring Rules, PNC and PNC Bank will have the ability to opt-out of the inclusion of accumulated other comprehensive income (AOCI) related to both available for sale securities and pension and other post-retirement plans in CET1 capital. PNC and PNC Bank must make this election in the organization’s relevant regulatory reporting forms for the first period ending after the effective date of the Final Tailoring Rules. We expect to make this election.

Third, the Final Tailoring Rules reduce the LCR requirements for Category III banking organizations that, like PNC and PNC Bank, have less than $75 billion in weighted short-term wholesale funding (as defined by the rules). Under the Final Tailoring Rules, the net cash outflows of PNC and PNC Bank under the LCR rules are scaled by a factor of 85% (rather than the 100% standard under current rules), thereby reducing the amount of HQLA that the organization has to maintain to meet its LCR requirements.

In addition, under the Final Tailoring Rules:

•	PNC and PNC Bank will no longer be required to use the model-based advanced approaches to calculate risk-weighted assets for capital purposes;

•	PNC will no longer have to conduct a mid-cycle company-run stress test using balance sheet data as of June 30 and publicly disclose the results of such test; and

•	PNC and PNC Bank will have to conduct a company-run stress test under the Dodd-Frank Act stress testing regulations of the Federal Reserve and OCC (a “DFAST stress test”) biennially (rather than annually) using two scenarios (a baseline and severely adverse scenario), and publicly disclose the results of such tests.

Finally, the Federal Reserve and FDIC in October 2019 adopted modifications to their resolution plan regulations for covered BHCs, including PNC. Under the modifications, which we expect to go into effect in the first quarter of 2020, PNC will generally have to file a resolution plan on a 3-year cycle, with submissions alternating between a full plan and a targeted plan. Pursuant to these modifications and a filing extension received from the Federal Reserve and FDIC in July 2019, PNC’s next resolution plan is scheduled to be filed by July 1, 2021. The modifications, however, provide the agencies with the ability to alter the scheduled filing date for a covered company, request an interim update before a covered company’s next scheduled filing date, and require a covered company to submit a full resolution plan in lieu of a scheduled targeted plan.

Volcker Rule

In October, the U.S. banking agencies, SEC, and Commodity Futures Trading Commission approved changes to the regulations implementing the Volcker Rule that, among other things, simplify and tailor the compliance program requirements for banking entities, like PNC, that have trading assets and liabilities of more than $1 billion, but less than $20 billion. The final regulations also provide that for institutions subject to the market risk capital rule, like PNC, only certain market risk capital rules and dealer positions are subject to the Volcker Rule’s restrictions on proprietary trading. The final regulations also simplify the requirements for underwriting, market-making, and risk-mitigating hedging activities. Banking entities must comply with the final regulations by January 1, 2021, but may elect to comply with the modifications beginning January 1, 2020.

FDIC Recordkeeping Requirements

In July 2019, the FDIC approved amendments to its regulations regarding (i) enhanced deposit insurance recordkeeping requirements for insured depository institutions (IDIs) with at least 2 million deposit accounts, including PNC Bank, and (ii) deposit insurance recordkeeping requirements for joint deposit accounts applicable to all IDIs.  Among other things, the amendments revise the attestation requirement under the deposit insurance recordkeeping regulations and allow covered IDIs to elect to extend the April 1, 2020 compliance date for the enhanced deposit insurance recordkeeping requirements by up to one year.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Note 1 Accounting Policies of our 2018 Form 10-K describes the most significant accounting policies that we use to prepare our consolidated financial statements. Certain of these policies require us to make estimates or economic assumptions that may vary under different assumptions or conditions and such variations may significantly affect our reported results and financial position for the period or in future periods.

The following critical accounting policies and judgments are described in more detail in Critical Accounting Estimates and Judgments in Item 7 of our 2018 Form 10-K:

•	Fair Value Measurements

•	Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit

•	Residential and Commercial Mortgage Servicing Rights

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Recently Issued Accounting Standards

ASU	Description	Financial Statement Impact
Credit Losses - ASU 2016-13 Issued June 2016 Codification Improvements - ASU 2019-04 Various improvements related to Credit Losses (Topics 1, 2 and 5) Issued April 2019 Targeted Transition Relief - Credit Losses - ASU 2019-05 Issued May 2019	• Required effective date of January 1, 2020.  • Requires the use of an expected credit loss methodology; specifically, current expected credit losses (CECL) for the remaining life of the asset will be recognized at the time of origination or acquisition. • Methodology will apply to loans, net investment in leases, debt securities and certain financial assets not accounted for at fair value through net income. It will also apply to off-balance sheet credit exposures except for unconditionally cancellable commitments. • In-scope assets will be presented at the net amount expected to be collected after deducting the allowance for credit losses (ACL) from the amortized cost basis of the assets. • Requires inclusion of expected recoveries of previously charged-off amounts for in-scope assets. • Requires enhanced credit quality disclosures including disaggregation of credit quality indicators by vintage. • Requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.	• We plan to adopt the CECL standard on its effective date. • We have a company-wide, cross-functional governance structure that we established in the third quarter of 2016 to oversee overall strategy for implementation of the CECL standard. • We have prepared CECL accounting policies and continue to refine and test our models, estimation techniques, data, operational processes and financial controls which will be used to calculate our ACL under the CECL standard. We will continue to refine our interpretations, methodology, data and operational processes based upon our reviews and tests. • The Financial Accounting Standards Board (FASB) recently issued ASU's 2019-04 and 2019-05. ASU 2019-04 clarified treatment of several topics in the CECL standard, including recoveries and accrued interest, which we plan to implement. ASU 2019-05 provided an option to elect fair value option at transition for certain assets in scope for CECL, which we plan to utilize. The FASB is also expected to publish an ASU providing additional guidance on selected topics and we are awaiting final guidance to implement any necessary changes. • The ACL will be developed using various models and estimation techniques utilizing our historical loss experience, current borrower characteristics, current conditions, reasonable and supportable forecasts and other relevant factors. For expected losses in our reasonable and supportable forecast period of three years, we will use four macroeconomic scenarios and their estimated probabilities. These will be produced by our economics team using a combination of structural models and expert judgment and will be designed to reflect a range of plausible economic conditions and emerging business cycles over the next three years. • We will also apply qualitative factors that could be related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, or other relevant factors to ensure the ACL reflects our best estimate of current expected credit losses. • Based on our analysis of results from the parallel run periods in 2019 thus far, our CECL estimate will be sensitive to various factors, including, but not limited to, the following major factors: - Current economic conditions and borrower quality: Our forecast of expected losses depends on current conditions and portfolio quality. As current conditions evolve, forecasted losses could be materially affected. - Scenario weights and design: Our loss estimates are sensitive to the shape and severity of macroeconomic forecasts and thus vary significantly between upside and downside scenarios. Change to probabilities and timing of peak business cycles could materially affect our loss estimates. - Methodology changes: Enhancements to our CECL methodologies could materially affect our reserve estimates. • Based on our forecasted economic conditions and portfolio balances at September 30, 2019, the adoption of the CECL standard could result in an overall ACL increase of approximately 20%, as compared to our current aggregate reserve levels. The overall change is primarily due to the difference between current loss reserve periods versus the estimated remaining contractual lives, as required by the CECL standard. We believe that given current conditions, our consumer loss reserves will increase significantly, while our commercial loan reserves will decrease slightly. Additionally, the CECL ACL could produce higher volatility in the quarterly provision for credit losses than our current reserve process. • The estimated impact of the CECL standard implementation is based on the current state of our end-to-end CECL process and is inclusive of quantitative results and qualitative factors. This process is still under development, including refinement and development of certain models, estimation techniques and the build-out of the operational and control structure supporting the end-to-end process. The reserve amount to be recorded at the January 1, 2020 transition date may differ from our estimate due to the factors noted above, further process refinements and other assumptions.
Goodwill - ASU 2017-04 Issued January 2017	• Required effective date of January 1, 2020. • Eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill under which a loss was recognized only if the estimated implied fair value of the goodwill is below its carrying value. • Requires impairment to be recognized if the carrying amount exceeds the reporting unit’s fair value.	• We plan to adopt the standard on its effective date and we do not expect the adoption of this standard to impact our consolidated results of operations or our consolidated financial position.

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Codification Improvements - ASU 2019-04 Topic 3: Codification Improvements to ASU 2017-12 and Other Hedging Items Issued April 2019	• Required effective date of January 1, 2020 with early adoption permitted if ASU 2017-12 was previously adopted. • Targeted improvements related to:      - Partial-term fair value hedges of interest rate risk      - Amortization of fair value hedge basis adjustments      - Disclosure of fair value hedge basis adjustments      - Consideration of the hedged contractually specified interest rate under the hypothetical derivative method      - Application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments      - Update to transition guidance for ASU 2017-12	• We are currently assessing the potential impact to PNC upon adoption of these codification improvements.

OFF-BALANCE SHEET ARRANGEMENTS AND VARIABLE INTEREST ENTITIES

We engage in a variety of activities that involve entities that are not consolidated or otherwise reflected in our Consolidated Balance Sheet that are generally referred to as off-balance sheet arrangements. Additional information on these types of activities is included in our 2018 Form 10-K and in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities and Note 13 Commitments in the Notes To Consolidated Financial Statements included in this Report.

A summary and further description of variable interest entities (VIEs) is included in Note 1 Accounting Policies and Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2018 Form 10-K.

Trust Preferred Securities

See Note 10 Borrowed Funds in the Notes To Consolidated Financial Statements in our 2018 Form 10-K for additional information on trust preferred securities issued by PNC Capital Trust C including information on contractual limitations potentially imposed on payments (including dividends) with respect to PNC's equity securities.

INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND PROCEDURES

As of September 30, 2019, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures and of changes in our internal control over financial reporting.

Based on that evaluation, our Chairman, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective as of September 30, 2019, and that there has been no change in PNC’s internal control over financial reporting that occurred during the third quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

GLOSSARY OF TERMS

For a glossary of terms commonly used in our filings, please see the glossary of terms included in our 2018 Form 10-K.

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

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We make statements in this Report, and we may from time to time make other statements, regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting us and our future business and operations that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “look,” “intend,” “outlook,” “project,” “forecast,” “estimate,” “goal,” “will,” “should” and other similar words and expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Future events or circumstances may change our outlook and may also affect the nature of the assumptions, risks and uncertainties to which our forward-looking statements are subject. Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance. As a result, we caution against undue reliance on any forward-looking statements.

Our forward-looking statements are subject to the following principal risks and uncertainties.

•	Our businesses, financial results and balance sheet values are affected by business and economic conditions, including the following:

–	Changes in interest rates and valuations in debt, equity and other financial markets.

–	Disruptions in the U.S. and global financial markets.

–	Actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply and market interest rates.

–	Changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives.

–	Changes in customers’, suppliers’ and other counterparties’ performance and creditworthiness.

–	Impacts of tariffs and other trade policies of the U.S. and its global trading partners.

–	Slowing or reversal of the current U.S. economic expansion.

–	Commodity price volatility.

•	Our forward-looking financial statements are subject 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:

–	U.S. economic growth, after accelerating a few years ago, has slowed since mid-2018 and is expected to slow further through the rest of this year and into 2020.

–	Job growth will continue into 2020, but at a slower pace due to both difficulty in finding workers and slower economic growth. The unemployment rate is expected to increase slightly in the near term, but the labor market will remain tight, pushing wages higher and supporting continued gains in consumer spending.

–	Slower global economic growth, trade restrictions and geopolitical concerns are downside risks to the forecast, which have increased in 2019, and risks are weighted to the downside.

–	Inflation has slowed in 2019, to below the FOMC’s 2% objective, but is expected to gradually increase over the next two years.

–	Our baseline forecast includes the 0.25% federal funds rate cut on October 30, 2019. We expect the funds rate to remain in a range of 1.50% to 1.75% through the rest of 2019.

•	Our ability to take certain capital actions, including returning capital to shareholders, is subject to review by the Federal Reserve Board as part of our comprehensive capital plan for the applicable period in connection with the Federal Reserve Board’s CCAR process and to the acceptance of such capital plan and non-objection to such capital actions by the Federal Reserve Board.

•

Our regulatory capital ratios in the future will depend on, among other things, the company’s financial performance, the scope and terms of final capital regulations then in effect and management actions affecting the composition of our balance sheet. In addition, our ability to determine, evaluate and forecast regulatory capital ratios, and to take actions (such as capital distributions) based on actual or forecasted capital ratios, will be dependent at least in part on the development, validation and regulatory review of related models.

•

Legal and regulatory developments could have an impact on our ability to operate our businesses, financial condition, results of operations, competitive position, reputation, or pursuit of attractive acquisition opportunities. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and ability to attract and retain management. These developments could include:

–	Changes to laws and regulations, including changes affecting oversight of the financial services industry, consumer protection, bank capital and liquidity standards, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.

–	Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties,

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

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restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to us.

–	Results of the regulatory examination and supervision process, including our failure to satisfy requirements of agreements with governmental agencies.

–	Impact on business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of adequacy of our intellectual property protection in general.

•	Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.

•	Business and operating results also include impacts relating to our equity interest in BlackRock, Inc. and rely to a significant extent on information provided to us by BlackRock. Risks and uncertainties that could affect BlackRock are discussed in more detail by BlackRock in its SEC filings.

•

We grow our business in part through acquisitions and new strategic initiatives. Risks and uncertainties include those presented by the nature of the business acquired and strategic initiative, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into PNC after closing.

•	Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues. Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.

•	Business and operating results can also be affected by widespread natural and other disasters, pandemics, dislocations, terrorist activities, system failures, security breaches, cyberattacks or international hostilities through impacts on the economy and financial markets generally or on us or our counterparties specifically.

We provide greater detail regarding these as well as other factors in our 2018 Form 10-K and elsewhere in this Report, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements in these reports. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.

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

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CONSOLIDATED INCOME STATEMENT

THE PNC FINANCIAL SERVICES GROUP, INC.

 

Unaudited	Three months ended September 30								Nine months ended September 30
In millions, except per share data	2019				2018				2019				2018
Interest Income
Loans	$	2,678			$	2,452			$	7,952			$	7,025
Investment securities	617				584				1,866				1,653
Other	208				187				610				545
Total interest income	3,503				3,223				10,428				9,223
Interest Expense
Deposits	531				336				1,518				810
Borrowed funds	468				421				1,433				1,173
Total interest expense	999				757				2,951				1,983
Net interest income	2,504				2,466				7,477				7,240
Noninterest Income
Asset management	464				486				1,346				1,397
Consumer services	402				377				1,165				1,115
Corporate services	469				465				1,415				1,381
Residential mortgage	134				76				281				257
Service charges on deposits	178				186				517				522
Other	342				301				1,017				880
Total noninterest income	1,989				1,891				5,741				5,552
Total revenue	4,493				4,357				13,218				12,792
Provision For Credit Losses	183				88				552				260
Noninterest Expense
Personnel	1,400				1,413				4,179				4,123
Occupancy	206				195				633				616
Equipment	291				264				862				818
Marketing	76				71				224				201
Other	650				665				1,914				1,961
Total noninterest expense	2,623				2,608				7,812				7,719
Income before income taxes and noncontrolling interests	1,687				1,661				4,854				4,813
Income taxes	295				261				817				818
Net income	1,392				1,400				4,037				3,995
Less: Net income attributable to noncontrolling interests	13				11				35				31
Preferred stock dividends	63				63				181				181
Preferred stock discount accretion and redemptions	1				1				3				3
Net income attributable to common shareholders	$	1,315			$	1,325			$	3,818			$	3,780
Earnings Per Common Share
Basic	$	2.95			$	2.84			$	8.45			$	8.03
Diluted	$	2.94			$	2.82			$	8.42			$	7.96
Average Common Shares Outstanding
Basic	444				465				450				469
Diluted	445				467				451				472

See accompanying Notes To Consolidated Financial Statements.

42    The PNC Financial Services Group, Inc. – Form 10-Q

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

THE PNC FINANCIAL SERVICES GROUP, INC.

 

Unaudited In millions		Three months ended September 30								Nine months ended September 30
		2019				2018				2019				2018
Net income		$	1,392			$	1,400			$	4,037			$	3,995
Other comprehensive income (loss), before tax and net of reclassifications into Net income:
Net unrealized gains (losses) on non-OTTI securities		196				(324		)		1,529				(1,125		)
Net unrealized gains (losses) on OTTI securities		18				(1		)		27				16
Net unrealized gains (losses) on cash flow hedge derivatives		79				(71		)		433				(377		)
Pension and other postretirement benefit plan adjustments		2				1				63				70
Other		(19		)		(17		)		(15		)		(25		)
Other comprehensive income (loss), before tax and net of reclassifications into Net income		276				(412		)		2,037				(1,441		)
Income tax benefit (expense) related to items of other comprehensive income		(70		)		92				(475		)		323
Other comprehensive income (loss), after tax and net of reclassifications into Net income		206				(320		)		1,562				(1,118		)
Comprehensive income		1,598				1,080				5,599				2,877
Less: Comprehensive income attributable to noncontrolling interests		13				11				35				31
Comprehensive income attributable to PNC		$	1,585			$	1,069			$	5,564			$	2,846

See accompanying Notes To Consolidated Financial Statements.

The PNC Financial Services Group, Inc. – Form 10-Q    43

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CONSOLIDATED BALANCE SHEET

THE PNC FINANCIAL SERVICES GROUP, INC.

 

Unaudited	September 30 2019				December 31 2018
In millions, except par value
Assets
Cash and due from banks	$	5,671			$	5,608
Interest-earning deposits with banks	19,036				10,893
Loans held for sale (a)	1,872				994
Investment securities – available for sale	69,057				63,389
Investment securities – held to maturity	18,826				19,312
Loans (a)	237,377				226,245
Allowance for loan and lease losses	(2,738		)		(2,629		)
Net loans	234,639				223,616
Equity investments (b)	13,325				12,894
Mortgage servicing rights	1,483				1,983
Goodwill	9,233				9,218
Other (a)	35,774				34,408
Total assets	$	408,916			$	382,315
Liabilities
Deposits
Noninterest-bearing	$	74,077			$	73,960
Interest-bearing	211,506				193,879
Total deposits	285,583				267,839
Borrowed funds
Federal Home Loan Bank borrowings	21,901				21,501
Bank notes and senior debt	27,148				25,018
Subordinated debt	5,473				5,895
Other (c)	6,832				5,005
Total borrowed funds	61,354				57,419
Allowance for unfunded loan commitments and letters of credit	304				285
Accrued expenses and other liabilities	12,220				9,002
Total liabilities	359,461				334,545
Equity
Preferred stock (d)
Common stock ($5 par value, Authorized 800 shares, issued 542 shares)	2,711				2,711
Capital surplus	16,297				16,277
Retained earnings	41,413				38,919
Accumulated other comprehensive income (loss)	837				(725		)
Common stock held in treasury at cost: 103 and 85 shares	(11,838		)		(9,454		)
Total shareholders’ equity	49,420				47,728
Noncontrolling interests	35				42
Total equity	49,455				47,770
Total liabilities and equity	$	408,916			$	382,315

(a)	Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $1.5 billion, Loans of $.8 billion and Other assets of $.1 billion at September 30, 2019 and Loans held for sale of $.9 billion, Loans of $.8 billion and Other assets of $.2 billion at December 31, 2018.

(b)	Amounts include our equity interest in BlackRock.

(c)	Our consolidated liabilities at both September 30, 2019 and December 31, 2018 included Other borrowed funds of $.1 billion for which we have elected the fair value option.

(d)	Par value less than $.5 million at each date.

See accompanying Notes To Consolidated Financial Statements.

44    The PNC Financial Services Group, Inc. – Form 10-Q

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CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.

 

Unaudited In millions		Nine months ended September 30
		2019				2018
Operating Activities
Net income		$	4,037			$	3,995
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for credit losses		552				260
Depreciation and amortization		904				839
Deferred income taxes		83				(116		)
Changes in fair value of mortgage servicing rights		715				(57		)
Undistributed earnings of BlackRock		(356		)		(421		)
Net change in
Trading securities and other short-term investments		741				293
Loans held for sale		(882		)		910
Other assets		(2,086		)		(2,194		)
Accrued expenses and other liabilities		831				2,195
Other		(291		)		(1		)
Net cash provided (used) by operating activities		$	4,248			$	5,703
Investing Activities
Sales
Securities available for sale		$	5,201			$	5,422
Loans		1,237				1,180
Repayments/maturities
Securities available for sale		7,962				6,941
Securities held to maturity		2,193				1,917
Purchases
Securities available for sale		(17,179		)		(17,635		)
Securities held to maturity		(1,739		)		(3,072		)
Loans		(898		)		(430		)
Net change in
Federal funds sold and resale agreements		3,192				313
Interest-earning deposits with banks		(8,143		)		8,795
Loans		(11,978		)		(4,120		)
Other		(573		)		(965		)
Net cash provided (used) by investing activities		$	(20,725	)		$	(1,654	)

(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q    45

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CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.

(continued from previous page)

 

Unaudited In millions		Nine Months Ended September 30
		2019				2018
Financing Activities
Net change in
Noninterest-bearing deposits		$	180			$	(5,114	)
Interest-bearing deposits		17,627				4,959
Federal funds purchased and repurchase agreements		1,934				1,037
Federal Home Loan Bank borrowings		1,400
Commercial paper						(100		)
Other borrowed funds		(77		)		(109		)
Sales/issuances
Federal Home Loan Bank borrowings		12,000				6,500
Bank notes and senior debt		6,930				3,238
Subordinated debt						1,243
Other borrowed funds		929				400
Common and treasury stock		73				61
Repayments/maturities
Federal Home Loan Bank borrowings		(13,000		)		(7,501		)
Bank notes and senior debt		(5,600		)		(4,175		)
Subordinated debt		(700		)		(575		)
Other borrowed funds		(963		)		(429		)
Acquisition of treasury stock		(2,626		)		(2,145		)
Preferred stock cash dividends paid		(181		)		(181		)
Common stock cash dividends paid		(1,386		)		(1,159		)
Net cash provided (used) by financing activities		$	16,540			$	(4,050	)
Net Increase (Decrease) In Cash And Due From Banks		63				(1		)
Cash and due from banks at beginning of period		5,608				5,249
Cash and due from banks at end of period		$	5,671			$	5,248
Supplemental Disclosures
Interest paid		$	2,915			$	1,881
Income taxes paid		$	321			$	324
Income taxes refunded		$	7			$	463
Leased assets obtained in exchange for new operating lease liabilities		$	238
Right-of-use assets recognized at adoption of ASU 2016-02		$	2,004
Non-cash Investing and Financing Items
Transfer from loans to loans held for sale, net		$	771			$	359
Transfer from loans to foreclosed assets		$	131			$	145
Transfer from trading securities to investment securities		$	228

See accompanying Notes To Consolidated Financial Statements.

46    The PNC Financial Services Group, Inc. – Form 10-Q

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE PNC FINANCIAL SERVICES GROUP, INC.

Unaudited

BUSINESS

The PNC Financial Services Group, Inc. (PNC) is one of the largest diversified financial services companies in the United States and is headquartered in Pittsburgh, Pennsylvania.

We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our retail branch network is located in markets across the Mid-Atlantic, Midwest and Southeast. We also have strategic international offices in four countries outside the U.S.

NOTE 1 ACCOUNTING POLICIES

Basis of Financial Statement Presentation

Our consolidated financial statements include the accounts of the parent company and its subsidiaries, most of which are wholly-owned, certain partnership interests and variable interest entities.

We prepared these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). We have eliminated intercompany accounts and transactions. We have also reclassified certain prior year amounts to conform to the current period presentation, which did not have a material impact on our consolidated financial condition or results of operations.

In our opinion, the unaudited interim consolidated financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

We have also considered the impact of subsequent events on these consolidated financial statements.

When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2018 Form 10-K. Reference is made to Note 1 Accounting Policies in our 2018 Form 10-K for a detailed description of significant accounting policies. There have been no significant changes to our accounting policies as disclosed in our 2018 Form 10-K, except for the adoption of the new leasing standard included in this Note 1 in the first quarter of 2019. These interim consolidated financial statements serve to update our 2018 Form 10-K and may not include all information and Notes necessary to constitute a complete set of financial statements.

Use of Estimates

We prepared these consolidated financial statements using financial information available at the time of preparation, which requires us to make estimates and assumptions that affect the amounts reported. Our most significant estimates pertain to our fair value measurements and allowances for loan and lease losses and unfunded loan commitments and letters of credit. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.

Leases

We provide financing for various types of equipment, including aircraft, energy and power systems, and vehicles through a variety of lease arrangements. Direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased equipment, less unearned income. We recognize income over the term of the lease using the constant effective yield method. Direct financing lease residual values are reviewed for impairment in accordance with the Allowance for Loan and Lease (ALLL) processes. Gains or losses on the sale of leased assets are included in Other noninterest income while impairment on the net investment of leases is included in Provision for credit losses.

We also enter into various lease arrangements, primarily involving real estate, and other equipment, as the lessee. For those classified as operating leases, we recognize a lease liability, representing the present value of the minimum lease payments, and a corresponding right of use (ROU) asset. On the consolidated balance sheet, the ROU asset and lease liability are included in Other assets and Other liabilities, respectively.

The PNC Financial Services Group, Inc. – Form 10-Q    47

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When we adopted the Accounting Standards Update (ASU) 2016-02 - Leases as of January 1, 2019, we recognized lease liabilities and right-of-use assets of $2.1 billion and $2.0 billion, respectively. In addition, we recognized a one-time pretax adjustment of $83 million to retained earnings, related primarily to deferred gains on previous sale-leaseback transactions. See Note 16 Leases for additional information related to leases within the scope of ASC 842.

NOTE 2 LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES

Loan Sale and Servicing Activities

As more fully described in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2018 Form 10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization special purpose entities (SPEs).

We earn servicing and other ancillary fees for our role as servicer and, depending on the contractual terms of the servicing arrangement, we can be terminated as servicer with or without cause. At the consummation date of each type of loan transfer where we retain the servicing, we recognize a servicing right at fair value. See Note 6 Fair Value and Note 7 Goodwill and Mortgage Servicing Rights for information on our servicing rights, including the carrying value of servicing assets.

The following table provides cash flows associated with our loan sale and servicing activities:

Table 33: Cash Flows Associated with Loan Sale and Servicing Activities

In millions	Residential Mortgages				Commercial Mortgages (a)
Cash Flows - Three months ended September 30, 2019
Sales of loans (b)	$	1,296				$	1,122
Repurchases of previously transferred loans (c)	$	81
Servicing fees (d)	$	90				$	34
Servicing advances recovered/(funded), net	$	5				$	45
Cash flows on mortgage-backed securities held (e)	$	1,394				$	14
Cash Flows - Three months ended September 30, 2018
Sales of loans (b)	$	1,242				$	953
Repurchases of previously transferred loans (c)	$	90
Servicing fees (d)	$	88				$	34
Servicing advances recovered/(funded), net	$	2				$	19
Cash flows on mortgage-backed securities held (e)	$	574				$	51
Cash Flows - Nine months ended September 30, 2019
Sales of loans (b)	$	2,902				$	2,212
Repurchases of previously transferred loans (c)	$	235				$	4
Servicing fees (d)	$	264				$	97
Servicing advances recovered/(funded), net	$	33				$	61
Cash flows on mortgage-backed securities held (e)	$	2,653				$	43
Cash Flows - Nine months ended September 30, 2018
Sales of loans (b)	$	3,486				$	2,613
Repurchases of previously transferred loans (c)	$	286
Servicing fees (d)	$	269				$	100
Servicing advances recovered/(funded), net	$	45				$	24
Cash flows on mortgage-backed securities held (e)	$	1,445				$	100

(a)	Represents cash flow information associated with both commercial mortgage loan transfers and servicing activities.

(b)	Gains/losses recognized on sales of loans were insignificant for the periods presented.

(c)	Includes both residential and commercial mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our removal of account provision option, as well as residential mortgage loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers.

(d)	Includes contractually specified servicing fees, late charges and ancillary fees.

(e)

Represents cash flows on securities where we transferred to and/or service loans for a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $17.7 billion, $13.3 billion, and $13.0 billion in residential mortgage-backed securities and $.6 billion, $.6 billion, and $.6 billion in commercial mortgage-backed securities at September 30, 2019, December 31, 2018, and September 30, 2018, respectively.

Table 34 presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan,

48    The PNC Financial Services Group, Inc. – Form 10-Q

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where the repurchase price exceeded the loan's fair value, due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans. The estimate of losses related to breaches in representations and warranties was insignificant at September 30, 2019.

Table 34: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others

In millions	Residential Mortgages					Commercial Mortgages (a)
September 30, 2019
Total principal balance	$	50,786				$	50,723
Delinquent loans (b)	$	529				$	64
December 31, 2018
Total principal balance	$	54,028				$	47,969
Delinquent loans (b)	$	622				$	234
Three months ended September 30, 2019
Net charge-offs (c)	$	8				$	52
Three months ended September 30, 2018
Net charge-offs (c)	$	9				$	117
Nine months ended September 30, 2019
Net charge-offs (c)	$	32				$	348
Nine months ended September 30, 2018
Net charge-offs (c)	$	34				$	169

(a)	Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization.

(b)	Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.

(c)

Net charge-offs for Residential mortgages represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for commercial mortgage-backed securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.

Variable Interest Entities (VIEs)

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2018 Form 10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs.

The following table provides a summary of non-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 35 where we have determined that our continuing involvement is not significant. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between us and the VIE. In addition, where we only have lending arrangements in the normal course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 35. These loans are included as part of the asset quality disclosures that we make in Note 3 Asset Quality.

Table 35: Non-Consolidated VIEs

In millions	PNC Risk of Loss (a)					Carrying Value of Assets Owned by PNC						Carrying Value of Liabilities Owned by PNC
September 30, 2019
Mortgage-backed securitizations (b)	$	19,084				$	19,084		(c)
Tax credit investments and other	3,077					3,048			(d)			$	1,111		(e)
Total	$	22,161				$	22,132					$	1,111
December 31, 2018
Mortgage-backed securitizations (b)	$	14,266				$	14,266		(c)
Tax credit investments and other	2,949					2,911			(d)			$	806		(e)
Total	$	17,215				$	17,177					$	806

(a)	Represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). The risk of loss excludes any potential tax recapture associated with tax credits investments.

(b)	Amounts reflect involvement with securitization SPEs where we transferred to and/or service loans for an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings.

(c)	Included in Investment securities, Mortgage servicing rights and Other assets on our Consolidated Balance Sheet.

(d)	Included in Investment securities, Loans, Equity investments and Other assets on our Consolidated Balance Sheet.

(e)	Included in Deposits and Other liabilities on our Consolidated Balance Sheet.

The PNC Financial Services Group, Inc. – Form 10-Q    49

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We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs). The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act. During the nine months ended September 30, 2019, we recognized $152 million of amortization, $165 million of tax credits and $35 million of other tax benefits associated with qualified investments in low income housing tax credits within Income taxes. The amounts for the third quarter of 2019 were $52 million, $54 million and $11 million, respectively.

NOTE 3 ASSET QUALITY

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency rates may be a key indicator, among other considerations, of credit risk within the loan portfolios. The measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent.

Nonperforming assets include nonperforming loans and leases, other real estate owned (OREO) and foreclosed assets. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent that full collection of contractual principal and interest is not probable. Interest income is not recognized on these loans. Loans accounted for under the fair value option are reported as performing loans as these loans are accounted for at fair value. However, when nonaccrual criteria is met, interest income is not recognized on these loans. Additionally, certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest are not reported as nonperforming loans and continue to accrue interest. Purchased impaired loans are excluded from nonperforming loans as we are currently accreting interest income over the expected life of the loans.

See Note 1 Accounting Policies in our 2018 Form 10-K for additional information on our loan related policies.

50    The PNC Financial Services Group, Inc. – Form 10-Q

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The following tables present the delinquency status of our loans and our nonperforming assets at September 30, 2019 and December 31, 2018, respectively.

Table 36: Analysis of Loan Portfolio (a)

	Accruing
Dollars in millions	Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (b)				Nonperforming Loans			Fair Value Option Nonaccrual Loans (c)			Purchased Impaired Loans			Total Loans (d)
September 30, 2019
Commercial Lending
Commercial	$	123,328		$	82		$	49		$	64		$	195			$	491								$	124,014
Commercial real estate	28,803			3			3						6				75									28,884
Equipment lease financing	7,270			6			4						10				10									7,290
Total commercial lending	159,401			91			56			64			211				576									160,188
Consumer Lending
Home equity	23,631			53			24						77				685						$	578		24,971
Residential real estate	18,867			129			77			302			508			(b)	325			$	166		1,216			21,082
Automobile	15,684			145			36			11			192				128									16,004
Credit card	6,660			56			33			57			146				9									6,815
Education	3,280			56			35			90			181			(b)										3,461
Other consumer	4,818			17			8			8			33				5									4,856
Total consumer lending	72,940			456			213			468			1,137				1,152			166			1,794			77,189
Total	$	232,341		$	547		$	269		$	532		$	1,348			$	1,728		$	166		$	1,794		$	237,377
Percentage of total loans	97.88		%	.23		%	.11		%	.22		%	.56		%		.73		%	.07		%	.76		%	100.00		%
December 31, 2018
Commercial Lending
Commercial	$	116,300		$	82		$	54		$	52		$	188			$	346								$	116,834
Commercial real estate	28,056			6			3						9				75									28,140
Equipment lease financing	7,229			56			12						68				11									7,308
Total commercial lending	151,585			144			69			52			265				432									152,282
Consumer Lending
Home equity	24,556			66			25						91				797						$	679		26,123
Residential real estate	16,216			135			73			363			571			(b)	350			$	182		1,338			18,657
Automobile	14,165			113			29			12			154				100									14,419
Credit card	6,222			46			29			53			128				7									6,357
Education	3,571			69			41			141			251			(b)										3,822
Other consumer	4,552			12			5			8			25				8									4,585
Total consumer lending	69,282			441			202			577			1,220				1,262			182			2,017			73,963
Total	$	220,867		$	585		$	271		$	629		$	1,485			$	1,694		$	182		$	2,017		$	226,245
Percentage of total loans	97.62		%	.26		%	.12		%	.28		%	.66		%		.75		%	.08		%	.89		%	100.00		%

(a)	Amounts in table represent recorded investment and exclude loans held for sale. Recorded investment does not include any associated valuation allowance.

(b)

Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to receive payment in full based on the original contractual terms), as we are currently accreting interest income over the expected life of the loans. Past due loan amounts include government insured or guaranteed Residential real estate mortgages totaling $.4 billion and $.5 billion at September 30, 2019 and December 31, 2018, respectively, and Education loans totaling $.2 billion at both September 30, 2019 and December 31, 2018.

(c)	Consumer loans accounted for under the fair value option for which we do not expect to collect substantially all principal and interest are subject to nonaccrual accounting and classification upon meeting any of our nonaccrual policies. Given that these loans are not accounted for at amortized cost, these loans have been excluded from the nonperforming loan population.

(d)	Net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.2 billion at both September 30, 2019 December 31, 2018.

At September 30, 2019, we pledged $16.2 billion of commercial loans to the Federal Reserve Bank and $66.7 billion of residential real estate and other loans to the Federal Home Loan Bank as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, 2018 were $17.3 billion and $63.2 billion, respectively. Amounts pledged reflect the unpaid principal balances.

The PNC Financial Services Group, Inc. – Form 10-Q    51

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Table 37: Nonperforming Assets

Dollars in millions		September 30 2019				December 31 2018
Nonperforming loans
Total commercial lending		$	576			$	432
Total consumer lending (a)		1,152				1,262
Total nonperforming loans		1,728				1,694
OREO and foreclosed assets		119				114
Total nonperforming assets		$	1,847			$	1,808
Nonperforming loans to total loans		.73		%		.75		%
Nonperforming assets to total loans, OREO and foreclosed assets		.78		%		.80		%
Nonperforming assets to total assets		.45		%		.47		%

(a)	Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.

Nonperforming loans also include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered troubled debt restructurings (TDRs). See Note 1 Accounting Policies in our 2018 Form 10-K and the TDR section of this Note 3 for additional information on TDRs.

Total nonperforming loans in Table 37 include TDRs of $.9 billion at both September 30, 2019 and December 31, 2018. TDRs that are performing, including consumer credit card TDR loans, totaled $.9 billion and $1.0 billion at September 30, 2019 and December 31, 2018, respectively, and are excluded from nonperforming loans.

Additional Asset Quality Indicators

We have two portfolio segments – Commercial Lending and Consumer Lending. Each of these segments comprises multiple loan classes. Classes are characterized by similarities in initial measurement, risk attributes and the manner in which we monitor and assess credit risk. The Commercial Lending segment is composed of the commercial, commercial real estate and equipment lease financing loan classes. The Consumer Lending segment is composed of the home equity, residential real estate, automobile, credit card, education and other consumer loan classes.

Commercial Lending Loan Classes

The following table presents asset quality indicators for the Commercial Lending loan classes. See Note 3 Asset Quality in our 2018 Form 10-K for additional information related to our Commercial Lending loan classes, including discussion around the asset quality indicators that we use to monitor and manage the credit risk associated with each loan class.

Table 38: Commercial Lending Asset Quality Indicators (a)

In millions		Pass Rated				Criticized				Total Loans
September 30, 2019
Commercial		$	118,316			$	5,698			$	124,014
Commercial real estate		28,050				834				28,884
Equipment lease financing		7,065				225				7,290
Total commercial lending		$	153,431			$	6,757			$	160,188
December 31, 2018
Commercial		$	111,276			$	5,558			$	116,834
Commercial real estate		27,682				458				28,140
Equipment lease financing		7,180				128				7,308
Total commercial lending		$	146,138			$	6,144			$	152,282

(a)	Loans are classified as Pass Rated and Criticized based on the Regulatory classification definitions. The Criticized classification includes loans that were rated special mention, substandard or doubtful as of September 30, 2019 and December 31, 2018. We use probability of default and loss given default to rate loans in the commercial lending portfolio.

Consumer Lending Loan Classes

See Note 3 Asset Quality in our 2018 Form 10-K for additional information related to our Consumer Lending loan classes, including discussion around the asset quality indicators that we use to monitor and manage the credit risk associated with each loan class.

52    The PNC Financial Services Group, Inc. – Form 10-Q

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Home Equity and Residential Real Estate Loan Classes

The following table presents asset quality indicators for the home equity and residential real estate loan classes.

Table 39: Asset Quality Indicators for Home Equity and Residential Real Estate Loans

	September 30, 2019						December 31, 2018
	Home equity			Residential real estate			Home equity			Residential real estate
In millions
Current estimated LTV ratios
Greater than or equal to 125%	$	382		$	123		$	461		$	116
Greater than or equal to 100% to less than 125%	911			228			1,020			255
Greater than or equal to 90% to less than 100%	1,096			340			1,174			335
Less than 90%	21,821			18,384			22,644			15,922
No LTV ratio available	183			218			145			6
Government insured or guaranteed loans				573						685
Purchased impaired loans	578			1,216			679			1,338
Total loans	$	24,971		$	21,082		$	26,123		$	18,657
Updated FICO Scores
Greater than 660	$	22,066		$	18,455		$	22,996		$	15,956
Less than or equal to 660	2,045			547			2,210			585
No FICO score available	282			291			238			93
Government insured or guaranteed loans				573						685
Purchased impaired loans	578			1,216			679			1,338
Total loans	$	24,971		$	21,082		$	26,123		$	18,657

Automobile, Credit Card, Education and Other Consumer Loan Classes

The following table presents asset quality indicators for the automobile, credit card, education and other consumer loan classes.

Table 40: Asset Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loans

Dollars in millions		Automobile			Credit Card			Education			Other Consumer
September 30, 2019
FICO score greater than 719		$	8,444		$	3,989		$	1,184		$	1,452
650 to 719		4,845			1,955			185			755
620 to 649		1,152			325			22			122
Less than 620		1,240			376			22			107
No FICO score available or required (a)		323			170			42			27
Total loans using FICO credit metric		16,004			6,815			1,455			2,463
Consumer loans using other internal credit metrics								2,006			2,393
Total loans		$	16,004		$	6,815		$	3,461		$	4,856
Weighted-average updated FICO score (b)		724			731			775			731
December 31, 2018
FICO score greater than 719		$	7,740		$	3,809		$	1,240		$	1,280
650 to 719		4,365			1,759			194			641
620 to 649		1,007			280			26			106
Less than 620		1,027			332			24			105
No FICO score available or required (a)		280			177			57			25
Total loans using FICO credit metric		14,419			6,357			1,541			2,157
Consumer loans using other internal credit metrics								2,281			2,428
Total loans		$	14,419		$	6,357		$	3,822		$	4,585
Weighted-average updated FICO score (b)		726			733			774			732

(a)

Loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.

(b)	Weighted-average updated FICO score excludes accounts with no FICO score available or required.

The PNC Financial Services Group, Inc. – Form 10-Q    53

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Troubled Debt Restructurings (TDRs)

Table 41 quantifies the number of loans that were classified as TDRs, as well as the change in the loans’ recorded investment as a result of becoming a TDR during the three and nine months ended September 30, 2019 and September 30, 2018. Additionally, the table provides information about the types of TDR concessions. See Note 3 Asset Quality in our 2018 Form 10-K for additional discussion of TDRs.

Table 41: Financial Impact and TDRs by Concession Type (a)

					Pre-TDR Recorded Investment (b)				Post-TDR Recorded Investment (c)
During the three months ended September 30, 2019 Dollars in millions	Number of Loans								Principal Forgiveness				Rate Reduction				Other				Total
Total commercial lending		21			$	97											$	72			$	72
Total consumer lending		3,656			45								$	24			19				43
Total TDRs		3,677			$	142							$	24			$	91			$	115
During the three months ended September 30, 2018 Dollars in millions
Total commercial lending		18			$	115			$	2			$	24			$	81			$	107
Total consumer lending		3,147			45								19				23				42
Total TDRs		3,165			$	160			$	2			$	43			$	104			$	149

					Pre-TDR Recorded Investment (b)				Post-TDR Recorded Investment (c)
During the nine months ended September 30, 2019 Dollars in millions	Number of Loans								Principal Forgiveness				Rate Reduction				Other				Total
Total commercial lending		58			$	233							$	1			$	208			$	209
Total consumer lending		11,009			131								72				51				123
Total TDRs		11,067			$	364							$	73			$	259			$	332
During the nine months ended September 30, 2018 Dollars in millions
Total commercial lending		65			$	145			$	2			$	26			$	105			$	133
Total consumer lending		9,015			129				1				66				52				119
Total TDRs		9,080			$	274			$	3			$	92			$	157			$	252

(a) Impact of partial charge-offs at TDR date are included in this table.

(b) Represents the recorded investment of the loans as of the quarter end prior to TDR designation, and excludes immaterial amounts of accrued interest receivable.

(c) Represents the recorded investment of the TDRs as of the end of the quarter in which the TDR occurs, and excludes immaterial amounts of accrued interest receivable.

After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. We consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. The recorded investment of loans that were both (i) classified as TDRs or were subsequently modified during each 12-month period preceding January 1, 2019 and January 1, 2018, respectively, and (ii) subsequently defaulted during three and nine months ended September 30, 2019 totaled $42 million and $68 million, respectively. The comparable amounts for the three and nine months ended September 30, 2018 totaled $19 million and $44 million, respectively.

Impaired Loans

Impaired loans include commercial and consumer nonperforming loans and TDRs, regardless of nonperforming status. TDRs that were previously recorded at amortized cost and are now classified and accounted for as held for sale are also included. Excluded from impaired loans are nonperforming leases, loans accounted for as held for sale other than the TDRs described in the preceding sentence, loans accounted for under the fair value option, smaller balance homogeneous type loans and purchased impaired loans. We did not recognize any interest income on impaired loans that have not returned to performing status, while they were impaired during the nine months ended September 30, 2019 and September 30, 2018. Table 42 provides further detail on impaired loans individually evaluated for impairment and the associated ALLL. Certain commercial and consumer impaired loans do not have a related ALLL as the valuation of these impaired loans exceeded the recorded investment.

54    The PNC Financial Services Group, Inc. – Form 10-Q

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Table 42: Impaired Loans

In millions		Unpaid Principal Balance				Recorded Investment				Associated Allowance				Average Recorded Investment (a)
September 30, 2019
Impaired loans with an associated allowance
Total commercial lending		$	491			$	375			$	81			$	367
Total consumer lending		734				697				95				775
Total impaired loans with an associated allowance		1,225				1,072				176				1,142
Impaired loans without an associated allowance
Total commercial lending		360				310								297
Total consumer lending		1,045				646								620
Total impaired loans without an associated allowance		1,405				956								917
Total impaired loans		$	2,630			$	2,028			$	176			$	2,059
December 31, 2018
Impaired loans with an associated allowance
Total commercial lending		$	440			$	315			$	73			$	349
Total consumer lending		863				817				136				904
Total impaired loans with an associated allowance		1,303				1,132				209				1,253
Impaired loans without an associated allowance
Total commercial lending		413				326								294
Total consumer lending		1,042				625								645
Total impaired loans without an associated allowance		1,455				951								939
Total impaired loans		$	2,758			$	2,083			$	209			$	2,192

(a)	Average recorded investment is for the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively.

NOTE 4 ALLOWANCE FOR LOAN AND LEASE LOSSES

We maintain the ALLL at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. We have two portfolio segments – Commercial Lending and Consumer Lending, and develop and document the ALLL under separate methodologies for each of these portfolio segments. See Note 1 Accounting Policies in our 2018 Form 10-K for a description of the accounting policies for the ALLL. A rollforward of the ALLL and associated loan data follows:

Table 43: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data

		2019												2018
At or for the nine months ended September 30 Dollars in millions		Commercial Lending				Consumer Lending				Total				Commercial Lending				Consumer Lending				Total
Allowance for Loan and Lease Losses
January 1		$	1,663			$	966			$	2,629			$	1,582			$	1,029			$	2,611
Charge-offs		(138		)		(545		)		(683		)		(92		)		(472		)		(564		)
Recoveries		59				191				250				74				177				251
Net (charge-offs)		(79		)		(354		)		(433		)		(18		)		(295		)		(313		)
Provision for credit losses		247				305				552				48				212				260
Net (increase) / decrease in allowance for unfunded loan   commitments and letters of credit		(20		)		1				(19		)		7				2				9
Other						9				9				(1		)		18				17
September 30		$	1,811			$	927			$	2,738			$	1,618			$	966			$	2,584
TDRs individually evaluated for impairment		$	34			$	95			$	129			$	28			$	145			$	173
Other loans individually evaluated for impairment		47								47				37								37
Loans collectively evaluated for impairment		1,730				554				2,284				1,553				547				2,100
Purchased impaired loans						278				278								274				274
September 30		$	1,811			$	927			$	2,738			$	1,618			$	966			$	2,584
Loan Portfolio
TDRs individually evaluated for impairment		$	420			$	1,343			$	1,763			$	389			$	1,497			$	1,886
Other loans individually evaluated for impairment		265								265				206								206
Loans collectively evaluated for impairment		159,503				73,298				232,801				148,853				69,253				218,106
Fair value option loans (a)						754				754								753				753
Purchased impaired loans						1,794				1,794								2,102				2,102
September 30		$	160,188			$	77,189			$	237,377			$	149,448			$	73,605			$	223,053
Portfolio segment ALLL as a percentage of total ALLL		66		%		34		%		100		%		63		%		37		%		100		%
Ratio of ALLL to total loans		1.13		%		1.20		%		1.15		%		1.08		%		1.31		%		1.16		%

(a)	Loans accounted for under the fair value option are not evaluated for impairment as these loans are accounted for at fair value. Accordingly, there is no allowance recorded on these loans.

The PNC Financial Services Group, Inc. – Form 10-Q    55

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NOTE 5 INVESTMENT SECURITIES

Table 44: Investment Securities Summary

		September 30, 2019																	December 31, 2018
In millions		Amortized Cost				Unrealized								Fair Value					Amortized Cost				Unrealized								Fair Value
						Gains				Losses													Gains				Losses
Securities Available for Sale
U.S. Treasury and government agencies		$	17,597			$	420			$	(12	)		$	18,005				$	18,104			$	133			$	(137	)		$	18,100
Residential mortgage-backed
Agency		34,130				506				(56		)		34,580					29,413				104				(524		)		28,993
Non-agency		1,626				308				(3		)		1,931					1,924				300				(13		)		2,211
Commercial mortgage-backed
Agency		2,909				54				(24		)		2,939					2,630				13				(66		)		2,577
Non-agency		3,209				41				(4		)		3,246					2,689				5				(37		)		2,657
Asset-backed		5,256				89				(6		)		5,339					4,933				59				(20		)		4,972
Other		2,892				126				(1		)		3,017					3,821				96				(38		)		3,879
Total securities available for sale		$	67,619			$	1,544			$	(106	)		$	69,057				$	63,514			$	710			$	(835	)		$	63,389
Securities Held to Maturity
U.S. Treasury and government agencies		$	772			$	75							$	847				$	758			$	28			$	(23	)		$	763
Residential mortgage-backed
Agency		15,527				257				$	(34	)		15,750					15,740				32				(358		)		15,414
Non-agency		140				7								147					152				2								154
Commercial mortgage-backed
Agency		89				3								92					143				1				(1		)		143
Non-agency		449				6								455					488				1				(1		)		488
Asset-backed		54				1								55					182				1								183
Other		1,795				85				(16		)		1,864					1,849				53				(28		)		1,874
Total securities held to maturity		$	18,826			$	434			$	(50	)		$	19,210				$	19,312			$	118			$	(411	)		$	19,019

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the securities available for sale portfolio are included in Shareholders’ equity as accumulated other comprehensive income (AOCI), unless credit-related. Securities held to maturity are carried at amortized cost. Investment securities at September 30, 2019 included $280 million of net unsettled purchases which represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows.

At September 30, 2019, AOCI included pretax gains of $28 million from derivatives that hedged the purchase of investment securities classified as held to maturity. The gains will be accreted into interest income as an adjustment of yield on the securities.

Table 45 presents gross unrealized losses and fair value of debt securities at September 30, 2019 and December 31, 2018. The securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and twelve months or more based on the point in time that the fair value declined below the amortized cost basis. The table includes debt securities where a portion of other than temporary impairment (OTTI) has been recognized in AOCI.

56    The PNC Financial Services Group, Inc. – Form 10-Q

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Table 45: Gross Unrealized Loss and Fair Value of Securities

		Unrealized loss position less than 12 months								Unrealized loss position 12 months or more								Total
In millions		Unrealized Loss				Fair Value				Unrealized Loss				Fair Value				Unrealized Loss				Fair Value
September 30, 2019
Securities Available for Sale
U.S. Treasury and government agencies		$	(11	)		$	2,300			$	(1	)		$	248			$	(12	)		$	2,548
Residential mortgage-backed
Agency		(5		)		1,329				(51		)		5,471				(56		)		6,800
Non-agency										(3		)		242				(3		)		242
Commercial mortgage-backed
Agency										(24		)		1,121				(24		)		1,121
Non-agency		(1		)		413				(3		)		217				(4		)		630
Asset-backed		(2		)		464				(4		)		794				(6		)		1,258
Other										(1		)		503				(1		)		503
Total securities available for sale		$	(19	)		$	4,506			$	(87	)		$	8,596			$	(106	)		$	13,102
Securities Held to Maturity
Residential mortgage-backed - Agency										$	(34	)		$	3,709			$	(34	)		$	3,709
Other		$	(1	)		$	27			(15		)		119				(16		)		146
Total securities held to maturity		$	(1	)		$	27			$	(49	)		$	3,828			$	(50	)		$	3,855
December 31, 2018
Securities Available for Sale
U.S. Treasury and government agencies		$	(21	)		$	4,125			$	(116	)		$	5,423			$	(137	)		$	9,548
Residential mortgage-backed
Agency		(57		)		4,823				(467		)		13,830				(524		)		18,653
Non-agency		(1		)		74				(12		)		310				(13		)		384
Commercial mortgage-backed
Agency		(1		)		65				(65		)		1,516				(66		)		1,581
Non-agency		(23		)		1,809				(14		)		498				(37		)		2,307
Asset-backed		(11		)		2,149				(9		)		1,032				(20		)		3,181
Other		(12		)		868				(26		)		1,293				(38		)		2,161
Total securities available for sale		$	(126	)		$	13,913			$	(709	)		$	23,902			$	(835	)		$	37,815
Securities Held to Maturity
U.S. Treasury and government agencies										$	(23	)		$	446			$	(23	)		$	446
Residential mortgage-backed - Agency		$	(58	)		$	4,191			(300		)		7,921				(358		)		12,112
Commercial mortgage-backed
Agency		(1		)		88												(1		)		88
Non-agency		(1		)		152												(1		)		152
Other		(2		)		75				(26		)		123				(28		)		198
Total securities held to maturity		$	(62	)		$	4,506			$	(349	)		$	8,490			$	(411	)		$	12,996

Evaluating Investment Securities for OTTI

For the securities in Table 45, as of September 30, 2019 we do not intend to sell and believe we will not be required to sell the securities prior to recovery of the amortized cost basis.

On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for OTTI, as discussed in Note 1 Accounting Policies of our 2018 Form 10-K. For those securities on our Consolidated Balance Sheet at September 30, 2019, where during our quarterly security-level impairment assessments we determined losses represented OTTI, we have recorded cumulative credit losses of $1.1 billion in earnings and accordingly have reduced the amortized cost of our securities.

The majority of these cumulative impairment charges related to non-agency residential mortgage-backed and asset-backed securities rated BB or lower. During the first nine months of 2019 and 2018, the OTTI credit losses recognized in noninterest income and the OTTI noncredit losses recognized in AOCI on securities were not significant.

Information relating to gross realized securities gains and losses from the sales of securities is set forth in the following table.

Table 46: Gains (Losses) on Sales of Securities Available for Sale

Nine months ended September 30 In millions	Gross Gains			Gross Losses			Net Gains (Losses)			Tax Expense (Benefit)
2019	$	57		$	(21	)	$	36		$	8
2018	$	43		$	(48	)	$	(5	)	$	(1	)

The PNC Financial Services Group, Inc. – Form 10-Q    57

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The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at September 30, 2019.

Table 47: Contractual Maturity of Securities

September 30, 2019 Dollars in millions		1 Year or Less				After 1 Year through 5 Years				After 5 Years through 10 Years				After 10 Years				Total
Securities Available for Sale
U.S. Treasury and government agencies		$	2,456			$	11,133			$	3,111			$	897			$	17,597
Residential mortgage-backed
Agency						61				1,149				32,920				34,130
Non-agency														1,626				1,626
Commercial mortgage-backed
Agency		17				610				292				1,990				2,909
Non-agency										331				2,878				3,209
Asset-backed		34				2,350				1,652				1,220				5,256
Other		286				1,421				436				749				2,892
Total securities available for sale at amortized cost		$	2,793			$	15,575			$	6,971			$	42,280			$	67,619
Fair value		$	2,811			$	15,754			$	7,163			$	43,329			$	69,057
Weighted-average yield, GAAP basis		2.64		%		2.27		%		2.84		%		3.30		%		2.98		%
Securities Held to Maturity
U.S. Treasury and government agencies						$	198			$	297			$	277			$	772
Residential mortgage-backed
Agency						59				500				14,968				15,527
Non-agency														140				140
Commercial mortgage-backed
Agency						40								49				89
Non-agency														449				449
Asset-backed						6				20				28				54
Other		$	37			732				664				362				1,795
Total securities held to maturity at amortized cost		$	37			$	1,035			$	1,481			$	16,273			$	18,826
Fair value		$	37			$	1,070			$	1,573			$	16,530			$	19,210
Weighted-average yield, GAAP basis		3.92		%		3.56		%		3.56		%		3.33		%		3.36		%

Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security. At September 30, 2019, there were no securities of a single issuer, other than the Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corp (FHLMC), that exceeded 10% of Total shareholders’ equity. The FNMA and FHLMC investments had a total amortized cost of $40.4 billion and $6.4 billion and fair value of $41.0 billion and $6.5 billion, respectively.

The following table presents the fair value of securities that have been either pledged to or accepted from others to collateralize outstanding borrowings.

Table 48: Fair Value of Securities Pledged and Accepted as Collateral

In millions	September 30 2019			December 31 2018
Pledged to others	$	12,666		$	7,597
Accepted from others:
Permitted by contract or custom to sell or repledge (a)	$	3,980		$	6,905
Permitted amount repledged to others	$	702		$	923

(a)	Includes $3.3 billion and $6.0 billion in fair value of securities accepted from others to collateralize short-term investments in resale agreements that were not repledged at September 30, 2019 and December 31, 2018, respectively.

The securities pledged to others include positions held in our portfolio of investment securities, trading securities and securities accepted as collateral from others that we are permitted by contract or custom to sell or repledge, and were used to secure public and trust deposits, repurchase agreements and for other purposes.

58    The PNC Financial Services Group, Inc. – Form 10-Q

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NOTE 6 FAIR VALUE

Fair Value Measurement

We measure certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date, determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy, see Note 6 Fair Value in our 2018 Form 10-K.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For more information on the valuation methodologies used to measure assets and liabilities at fair value on a recurring basis, see Note 6 Fair Value in our 2018 Form 10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which we have elected the fair value option.

Table 49: Fair Value Measurements – Recurring Basis Summary

	September 30, 2019																	December 31, 2018
In millions	Level 1				Level 2				Level 3				Total Fair Value					Level 1				Level 2				Level 3				Total Fair Value
Assets
Residential mortgage loans held for sale					$	781			$	4			$	785								$	493			$	2			$	495
Commercial mortgage loans held for sale					678				72				750									309				87				396
Securities available for sale
U.S. Treasury and government agencies	$	17,725			280								18,005					$	17,753			347								18,100
Residential mortgage-backed
Agency					34,580								34,580									28,993								28,993
Non-agency					78				1,853				1,931									83				2,128				2,211
Commercial mortgage-backed
Agency					2,939								2,939									2,577								2,577
Non-agency					3,246								3,246									2,657								2,657
Asset-backed					5,087				252				5,339									4,698				274				4,972
Other					2,940				77				3,017									3,795				84				3,879
Total securities available for sale	17,725				49,150				2,182				69,057					17,753				43,150				2,486				63,389
Loans					425				329				754									510				272				782
Equity investments (a)	590								1,390				2,177					751								1,255				2,209
Residential mortgage servicing rights									888				888													1,257				1,257
Commercial mortgage servicing rights									595				595													726				726
Trading securities (b)	854				2,243								3,097					2,137				1,777				2				3,916
Financial derivatives (b) (c)	2				4,546				90				4,638					3				2,053				25				2,081
Other assets	323				129								452					291				157				45				493
Total assets	$	19,494			$	57,952			$	5,550			$	83,193				$	20,935			$	48,449			$	6,157			$	75,744
Liabilities
Other borrowed funds	$	723			$	91			$	6			$	820				$	868			$	132			$	7			$	1,007
Financial derivatives (c) (d)	3				2,123				206				2,332					1				2,021				268				2,290
Other liabilities									105				105													58				58
Total liabilities	$	726			$	2,214			$	317			$	3,257				$	869			$	2,153			$	333			$	3,355

(a)	Certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

(b)	Included in Other assets on the Consolidated Balance Sheet.

(c)	Amounts at September 30, 2019 and December 31, 2018 are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 9 Financial Derivatives for additional information related to derivative offsetting.

(d)	Included in Other liabilities on the Consolidated Balance Sheet.

The PNC Financial Services Group, Inc. – Form 10-Q    59

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Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three and nine months ended September 30, 2019 and 2018 follow:

Table 50: Reconciliation of Level 3 Assets and Liabilities

Three Months Ended September 30, 2019

				Total realized / unrealized gains or losses for the  period (a)																													Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2019 (a) (b)
Level 3 Instruments Only In millions	Fair Value June 30, 2019			Included in Earnings			Included in Other comprehensive income				Purchases			Sales			Issuances			Settlements			Transfers into Level 3				Transfers out of Level 3			Fair Value Sept. 30, 2019
Assets
Residential mortgage loans held for sale	$	2									$	3								$	(1	)	$	8			$	(8	)	$	4
Commercial mortgage loans held for sale	73																			(1		)								72
Securities available for sale
Residential mortgage- backed non-agency	1,976			$	23			$	(3	)										(143		)								1,853
Asset-backed	261			2							1									(12		)								252
Other	80			1				(3		)	5									(6		)								77
Total securities available for sale	2,317			26				(6		)	6									(161		)								2,182
Loans	259			5							93			$	(7	)	$	1		(14		)	2				(10		)	329			$	4
Equity investments	1,323			48							65			(46		)														1,390			50
Residential mortgage servicing rights	997			(100		)					22						9			(40		)								888			(97		)
Commercial mortgage servicing rights	630			(38		)					25						13			(35		)								595			(38		)
Trading securities
Financial derivatives	86			17							6									(19		)								90			16
Other assets
Total assets	$	5,687		$	(42	)		$	(6	)	$	220		$	(53	)	$	23		$	(271	)	$	10			$	(18	)	$	5,550		$	(65	)
Liabilities
Other borrowed funds	$	5															$	13		$	(12	)								$	6
Financial derivatives	221			$	8									$	4					(27		)								206			$	13
Other liabilities	78			14							$	16					13			(16		)								105			8
Total liabilities	$	304		$	22						$	16		$	4		$	26		$	(55	)								$	317		$	21
Net gains (losses)				$	(64	)	(c)																										$	(86	)	(d)

60    The PNC Financial Services Group, Inc. – Form 10-Q

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Three Months Ended September 30, 2018

				Total realized / unrealized gains or losses for the  period (a)																													Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2018 (a) (b)
Level 3 Instruments Only In millions	Fair Value June 30, 2018			Included in Earnings			Included in Other comprehensive income				Purchases			Sales			Issuances			Settlements			Transfers into Level 3			Transfers out of Level 3				Fair Value Sept. 30, 2018
Assets
Residential mortgage loans held for sale	$	4									$	2		$	(1	)							$	5		$	(7	)		$	3
Commercial mortgage loans held for sale	91			$	1															$	(3	)								89
Securities available for sale
Residential mortgage- backed non-agency	2,405			18				$	(1	)										(154		)								2,268
Asset-backed	308			2				(3		)										(14		)								293
Other	91							1			2															(5		)		89
Total securities available for sale	2,804			20				(3		)	2									(168		)				(5		)		2,650
Loans	282			4							25			(18		)				(1		)	8			(19		)		281
Equity investments	1,167			81							52			(258		)														1,042			$	18
Residential mortgage servicing rights	1,297			41							66						$	12		(46		)								1,370			41
Commercial mortgage servicing rights	748			23							16						16			(37		)								766			23
Trading securities	2																													2
Financial derivatives	16			9																(17		)								8			11
Other assets	63			(3		)														(2		)								58			(3		)
Total assets	$	6,474		$	176			$	(3	)	$	163		$	(277	)	$	28		$	(274	)	$	13		$	(31	)		$	6,269		$	90
Liabilities
Other borrowed funds	$	7															$	18		$	(16	)								$	9
Financial derivatives	384			$	26									$	5					(73		)								342			$	32
Other liabilities	47			4													58			(54		)								55
Total liabilities	$	438		$	30									$	5		$	76		$	(143	)								$	406		$	32
Net gains (losses)				$	146		(c)																										$	58		(d)

(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q    61

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(continued from previous page)

Nine Months Ended September 30, 2019

				Total realized / unrealized gains or losses for the  period (a)																													Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2019 (a) (b)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2018			Included in Earnings			Included in Other comprehensive income				Purchases			Sales			Issuances			Settlements			Transfers into Level 3			Transfers out of Level 3				Fair Value Sept. 30, 2019
Assets
Residential mortgage loans held for sale	$	2									$	5		$	(1	)				$	(1	)	$	12		$	(13	)		$	4
Commercial mortgage loans held for sale	87			$	2															(17		)								72			$	2
Securities available for sale
Residential mortgage- backed non-agency	2,128			59				$	18											(352		)								1,853
Asset-backed	274			4				6			1									(33		)								252
Other	84			1				(4		)	8			(3		)				(9		)								77
Total securities available for sale	2,486			64				20			9			(3		)				(394		)								2,182
Loans	272			10							126			(18		)				(39		)	5			(27		)		329			6
Equity investments	1,255			104							260			(229		)														1,390			53
Residential mortgage servicing rights	1,257			(362		)					87						$	23		(117		)								888			(353		)
Commercial mortgage servicing rights	726			(126		)					76						29			(110		)								595			(126		)
Trading securities	2																			(2		)
Financial derivatives	25			104							6									(45		)								90			100
Other assets	45																			(45		)
Total assets	$	6,157		$	(204	)		$	20		$	569		$	(251	)	$	52		$	(770	)	$	17		$	(40	)		$	5,550		$	(318	)
Liabilities
Other borrowed funds	$	7															$	39		$	(40	)								$	6
Financial derivatives	268			$	58									$	5					(125		)								206			$	65
Other liabilities	58			34							$	16		2			66			(71		)								105			20
Total liabilities	$	333		$	92						$	16		$	7		$	105		$	(236	)								$	317		$	85
Net gains (losses)				$	(296	)	(c)																										$	(403	)	(d)

62    The PNC Financial Services Group, Inc. – Form 10-Q

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Nine Months Ended September 30, 2018

				Total realized / unrealized gains or losses for the  period (a)																													Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2018 (a) (b)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2017			Included in Earnings			Included in Other comprehensive income				Purchases			Sales			Issuances			Settlements			Transfers into Level 3			Transfers out of Level 3				Fair Value Sept. 30, 2018
Assets
Residential mortgage loans held for sale	$	3									$	4		$	(2	)							$	10		$	(12	)		$	3
Commercial mortgage loans held for sale	107																			$	(18	)								89
Securities available for sale
Residential mortgage- backed non-agency	2,661			$	38			$	7											(438		)								2,268
Asset-backed	332			2				1												(42		)								293
Other	87			5				8			6									(12		)				(5		)		89
Total securities available for sale	3,080			45				16			6									(492		)				(5		)		2,650
Loans	298			9							80			(27		)				(44		)	8			(43		)		281			$	1
Equity investments	1,036			169							213			(376		)														1,042			77
Residential mortgage servicing rights	1,164			188							113						$	35		(130		)								1,370			180
Commercial mortgage servicing rights	668			104							60						39			(105		)								766			104
Trading securities	2																													2
Financial derivatives	10			33							2									(37		)								8			37
Other assets	107			(5		)														(44		)								58			(5		)
Total assets	$	6,475		$	543			$	16		$	478		$	(405	)	$	74		$	(870	)	$	18		$	(60	)		$	6,269		$	394
Liabilities
Other borrowed funds	$	11															$	50		$	(52	)								$	9
Financial derivatives	487			$	3									$	10					(158		)								342			$	5
Other liabilities	33			9							$	12					92			(91		)								55			8
Total liabilities	$	531		$	12						$	12		$	10		$	142		$	(301	)								$	406		$	13
Net gains (losses)				$	531		(c)																										$	381		(d)

(a)	Losses for assets are bracketed while losses for liabilities are not.

(b)	The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period.

(c)	Net gains (losses) realized and unrealized included in earnings related to Level 3 assets and liabilities included amortization and accretion. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net gains (losses) realized and unrealized were included in Noninterest income on the Consolidated Income Statement.

(d)	Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in Noninterest income on the Consolidated Income Statement.

An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels. Our policy is to recognize transfers in and transfers out as of the end of the reporting period.

The PNC Financial Services Group, Inc. – Form 10-Q    63

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Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities follows:

Table 51: Fair Value Measurements – Recurring Quantitative Information

September 30, 2019

Level 3 Instruments Only Dollars in millions	Fair Value			Valuation Techniques	Unobservable Inputs	Range (Weighted-Average)
Commercial mortgage loans held for sale	$	72		Discounted cash flow	Spread over the benchmark curve (a)	530bps - 2,535bps (1,603bps)
Residential mortgage-backed non-agency securities	1,853			Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 36.2% (10.2%)
					Constant default rate	0.0% - 13.4% (4.6%)
					Loss severity	25.0% - 95.7% (52.3%)
					Spread over the benchmark curve (a)	194bps weighted-average
Asset-backed securities	252			Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 21.0% (7.5%)
					Constant default rate	1.0% - 7.2% (3.6%)
					Loss severity	20.0% - 100.0% (59.7%)
					Spread over the benchmark curve (a)	214bps weighted-average
Loans	209			Consensus pricing (b)	Cumulative default rate	3.6% - 100.0% (75.9%)
					Loss severity	0.0% - 100.0% (15.1%)
					Discount rate	5.0% - 8.0% (5.2%)
	74			Discounted cash flow	Loss severity	8.0% weighted-average
					Discount rate	4.9% weighted-average
	46			Consensus pricing (b)	Credit and Liquidity discount	0.0% - 99.0% (63.0%)
Equity investments	1,390			Multiple of adjusted earnings	Multiple of earnings	5.0x - 16.5x (8.7x)
Residential mortgage servicing rights	888			Discounted cash flow	Constant prepayment rate	0.0% - 56.9% (17.4%)
					Spread over the benchmark curve (a)	173bps - 1,445bps (773bps)
Commercial mortgage servicing rights	595			Discounted cash flow	Constant prepayment rate	3.5% - 21.8% (4.6%)
					Discount rate	5.2% - 8.1% (7.9%)
Financial derivatives - Swaps related to sales of certain Visa Class B common shares	(186		)	Discounted cash flow	Estimated conversion factor of Visa Class B shares into Class A shares	162.3% weighted-average
					Estimated annual growth rate of Visa Class A share price	16.0%
					Estimated length of litigation resolution date	Q4 2020
Insignificant Level 3 assets, net of liabilities (c)	40
Total Level 3 assets, net of liabilities (d)	$	5,233

64    The PNC Financial Services Group, Inc. – Form 10-Q

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December 31, 2018

Level 3 Instruments Only Dollars in millions	Fair Value			Valuation Techniques	Unobservable Inputs	Range (Weighted-Average)
Commercial mortgage loans held for sale	$	87		Discounted cash flow	Spread over the benchmark curve (a)	535bps - 1,900bps (1,217bps)
Residential mortgage-backed non-agency securities	2,128			Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 33.0% (11.8%)
					Constant default rate	0.0% - 18.8% (5.1%)
					Loss severity	10.0% - 100.0% (50.8%)
					Spread over the benchmark curve (a)	216bps weighted-average
Asset-backed securities	274			Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 19.0% (8.5%)
					Constant default rate	1.0% - 18.5% (4.0%)
					Loss severity	15.0% - 100.0% (63.8%)
					Spread over the benchmark curve (a)	198bps weighted-average
Loans	129			Consensus pricing (b)	Cumulative default rate	11.0% - 100.0% (81.8%)
					Loss severity	0.0% - 100.0% (17.2%)
					Discount rate	5.5% - 8.3% (5.8%)
	90			Discounted cash flow	Loss severity	8.0% weighted-average
					Discount rate	5.8% weighted-average
	53			Consensus pricing (b)	Credit and Liquidity discount	0.0% - 99.0% (61.3%)
Equity investments	1,255			Multiple of adjusted earnings	Multiple of earnings	4.5x - 16.0x (8.4x)
Residential mortgage servicing rights	1,257			Discounted cash flow	Constant prepayment rate	0.0% - 54.5% (8.7%)
					Spread over the benchmark curve (a)	492bps - 1,455bps (806bps)
Commercial mortgage servicing rights	726			Discounted cash flow	Constant prepayment rate	4.6% - 14.7% (5.7%)
					Discount rate	6.9% - 8.5% (8.4%)
Financial derivatives - Swaps related to sales of certain Visa Class B common shares	(210		)	Discounted cash flow	Estimated conversion factor of Visa Class B shares into Class A shares	163.0% weighted-average
					Estimated annual growth rate of Visa Class A share price	16.0%
					Estimated length of litigation resolution date	Q4 2020
Insignificant Level 3 assets, net of liabilities (c)	35
Total Level 3 assets, net of liabilities (d)	$	5,824

(a)	The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporate non-interest rate risks, such as credit and liquidity risks.

(b)	Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices.

(c)	Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities.

(d)	Consisted of total Level 3 assets of $5.5 billion and total Level 3 liabilities of $.3 billion as of September 30, 2019 and $6.1 billion and $.3 billion as of December 31, 2018, respectively.

Financial Assets Accounted for at Fair Value on a Nonrecurring Basis

We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 52. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 6 Fair Value in our 2018 Form 10-K.

Table 52: Fair Value Measurements – Nonrecurring (a) (b) (c)

	Fair Value								Gains (Losses) Three months ended								Gains (Losses) Nine months ended
In millions	September 30 2019				December 31 2018				September 30 2019				September 30 2018				September 30 2019				September 30 2018
Assets
Nonaccrual loans	$	166			$	128			$	(22	)		$	(11	)		$	(55	)		$	(14	)
OREO and foreclosed assets	46				59				(2		)		(2		)		(6		)		(2		)
Long-lived assets	3				11				(1		)		(1		)		—				(1		)
Total assets	$	215			$	198			$	(25	)		$	(14	)		$	(61	)		$	(17	)

(a)	All Level 3 for the periods presented.

(b)	Valuation techniques applied were fair value of property or collateral.

(c)	Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented.

The PNC Financial Services Group, Inc. – Form 10-Q    65

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Financial Instruments Accounted for under Fair Value Option

We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, see Note 6 Fair Value in our 2018 Form 10-K.

Fair values and aggregate unpaid principal balances of certain items for which we elected the fair value option follow:

Table 53: Fair Value Option – Fair Value and Principal Balances

	September 30, 2019												December 31, 2018
In millions	Fair Value				Aggregate Unpaid Principal Balance				Difference				Fair Value				Aggregate Unpaid Principal Balance				Difference
Assets
Residential mortgage loans held for sale
Performing loans	$	780			$	759			$	21			$	489			$	472			$	17
Accruing loans 90 days or more past due	1				1								2				2
Nonaccrual loans	4				4								4				4
Total	$	785			$	764			$	21			$	495			$	478			$	17
Commercial mortgage loans held for sale (a)
Performing loans	$	749			$	751			$	(2	)		$	396			$	411			$	(15	)
Nonaccrual loans	1				2				(1		)
Total	$	750			$	753			$	(3	)		$	396			$	411			$	(15	)
Residential mortgage loans
Performing loans	$	318			$	333			$	(15	)		$	279			$	298			$	(19	)
Accruing loans 90 days or more past due	270				281				(11		)		321				329				(8		)
Nonaccrual loans	166				266				(100		)		182				292				(110		)
Total	$	754			$	880			$	(126	)		$	782			$	919			$	(137	)
Other assets	$	128			$	121			$	7			$	156			$	176			$	(20	)
Liabilities
Other borrowed funds	$	54			$	55			$	(1	)		$	64			$	65			$	(1	)

(a)	There were no accruing loans 90 days or more past due within this category at September 30, 2019 or December 31, 2018.

The changes in fair value for items for which we elected the fair value option are as follows:

Table 54: Fair Value Option – Changes in Fair Value (a)

	Gains (Losses)								Gains (Losses)
	Three months ended								Nine months ended
	September 30				September 30				September 30				September 30
In millions	2019				2018				2019				2018
Assets
Residential mortgage loans held for sale	$	29			$	13			$	63			$	25
Commercial mortgage loans held for sale	$	25			$	16			$	48			$	41
Residential mortgage loans	$	7			$	7			$	16			$	17
Other assets	$	3			$	(1	)		$	24			$	(11	)

(a)	The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.

Additional Fair Value Information Related to Financial Instruments Not Recorded at Fair Value

The following table presents the carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of all other financial instruments that are not recorded on our Consolidated Balance Sheet at fair value as of September 30, 2019 and December 31, 2018. For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 55, see Note 6 Fair Value in our 2018 Form 10-K.

66    The PNC Financial Services Group, Inc. – Form 10-Q

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Table 55: Additional Fair Value Information Related to Other Financial Instruments

	Carrying				Fair Value
In millions	Amount				Total				Level 1				Level 2				Level 3
September 30, 2019
Assets
Cash and due from banks	$	5,671			$	5,671			$	5,671
Interest-earning deposits with banks	19,036				19,036								$	19,036
Securities held to maturity	18,826				19,210				847				18,201				$	162
Net loans (excludes leases)	226,595				229,838												229,838
Other assets	8,143				8,143								8,142				1
Total assets	$	278,271			$	281,898			$	6,518			$	45,379			$	230,001
Liabilities
Time deposits	$	21,935			$	21,790							$	21,790
Borrowed funds	60,534				60,904								59,141				$	1,763
Unfunded loan commitments and letters of credit	304				304												304
Other liabilities	440				440								440
Total liabilities	$	83,213			$	83,438							$	81,371			$	2,067
December 31, 2018
Assets
Cash and due from banks	$	5,608			$	5,608			$	5,608
Interest-earning deposits with banks	10,893				10,893								$	10,893
Securities held to maturity	19,312				19,019				763				18,112				$	144
Net loans (excludes leases)	215,525				216,492												216,492
Other assets	11,065				11,065								11,060				5
Total assets	$	262,403			$	263,077			$	6,371			$	40,065			$	216,641
Liabilities
Time deposits	$	18,507			$	18,246							$	18,246
Borrowed funds	56,412				56,657								54,872				$	1,785
Unfunded loan commitments and letters of credit	285				285												285
Other liabilities	393				393								393
Total liabilities	$	75,597			$	75,581							$	73,511			$	2,070

The aggregate fair values in Table 55 represent only a portion of the total market value of our assets and liabilities as, in accordance with the guidance related to fair values about financial instruments, we exclude the following:

•	financial instruments recorded at fair value on a recurring basis (as they are disclosed in Table 49);

•	investments accounted for under the equity method;

•	equity securities without a readily determinable fair value that apply for the alternative measurement approach to fair value under ASU 2016-01;

•	real and personal property;

•	lease financing;

•	loan customer relationships;

•	deposit customer intangibles;

•	mortgage servicing rights (MSRs);

•	retail branch networks;

•	fee-based businesses, such as asset management and brokerage;

•	trademarks and brand names;

•	trade receivables and payables due in one year or less; and

•	deposit liabilities with no defined or contractual maturities under ASU 2016-01.

The PNC Financial Services Group, Inc. – Form 10-Q    67

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NOTE 7 GOODWILL AND MORTGAGE SERVICING RIGHTS

Goodwill

See Note 7 Goodwill and Mortgage Servicing Rights in our 2018 Form 10-K for more information regarding our goodwill.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others when we recognize it as an intangible asset and the servicing income we receive is more than adequate compensation. MSRs totaled $1.5 billion and $2.0 billion at September 30, 2019 and December 31, 2018, respectively, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.

MSRs are subject to declines in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of MSRs decreases (or increases).

See the Sensitivity Analysis section of this Note 7, as well as Note 6 Fair Value in our 2018 Form 10-K for more detail on our fair value measurement of MSRs. Refer to Note 7 Goodwill and Mortgage Servicing Rights in our 2018 Form 10-K for more information on our accounting and measurement of MSRs.

Changes in the commercial and residential MSRs follow:

Table 56: Mortgage Servicing Rights

	Commercial MSRs							Residential MSRs
In millions	2019			2018				2019			2018
January 1	$	726		$	668			$	1,257		$	1,164
Additions:
From loans sold with servicing retained	29			39				23			35
Purchases	76			60				87			113
Changes in fair value due to:
Time and payoffs (a)	(110		)	(105		)		(117		)	(130		)
Other (b)	(126		)	104				(362		)	188
September 30	$	595		$	766			$	888		$	1,370
Related unpaid principal balance at September 30	$	203,808		$	174,664			$	122,886		$	127,099
Servicing advances at September 30	$	159		$	193			$	123		$	156

(a)	Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period.

(b)	Represents MSR value changes resulting primarily from market-driven changes in interest rates.

Sensitivity Analysis

The fair value of commercial and residential MSRs and significant inputs to the valuation models as of September 30, 2019 are shown in Tables 57 and 58. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 57 and 58. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

68    The PNC Financial Services Group, Inc. – Form 10-Q

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The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions.

Table 57: Commercial Mortgage Servicing Rights – Key Valuation Assumptions

Dollars in millions	September 30 2019				December 31 2018
Fair value	$	595			$	726
Weighted-average life (years)	4.0				4.1
Weighted-average constant prepayment rate	4.60		%		5.65		%
Decline in fair value from 10% adverse change	$	8			$	10
Decline in fair value from 20% adverse change	$	16			$	19
Effective discount rate	7.88		%		8.39		%
Decline in fair value from 10% adverse change	$	15			$	19
Decline in fair value from 20% adverse change	$	30			$	39

Table 58: Residential Mortgage Servicing Rights – Key Valuation Assumptions

Dollars in millions	September 30 2019				December 31 2018
Fair value	$	888			$	1,257
Weighted-average life (years)	4.3				6.9
Weighted-average constant prepayment rate	17.44		%		8.69		%
Decline in fair value from 10% adverse change	$	46			$	41
Decline in fair value from 20% adverse change	$	87			$	79
Weighted-average option adjusted spread	773			bps	806			bps
Decline in fair value from 10% adverse change	$	22			$	37
Decline in fair value from 20% adverse change	$	43			$	73

Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $.2 billion for both three months ended September 30, 2019 and 2018 and $.4 billion for the nine months ended September 30, 2019 and 2018. We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Corporate services and Residential mortgage, respectively.

NOTE 8 EMPLOYEE BENEFIT PLANS

Pension and Postretirement Plans

As described in Note 11 Employee Benefit Plans in our 2018 Form 10-K, we have a noncontributory, qualified defined benefit pension plan covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are a percentage of eligible compensation and are subject to a minimum annual amount. Any pension contributions to the plan are based on an actuarially determined amount necessary to fund total benefits payable to plan participants.

We also maintain nonqualified supplemental retirement plans for certain employees and provide certain health care and life insurance benefits for qualifying retired employees (postretirement benefits) through various plans. We reserve the right to terminate or make changes to these plans at any time.

The PNC Financial Services Group, Inc. – Form 10-Q    69

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The components of our net periodic benefit cost for the three and nine months ended September 30, 2019 and 2018, respectively, were as follows:

 

Table 59: Components of Net Periodic Benefit Cost (a)

	Qualified Pension Plan									Nonqualified Pension Plan									Postretirement Benefits
Three months ended September 30 In millions	2019				2018					2019				2018					2019				2018
Net periodic cost consists of:
Service cost	$	29			$	29				$	1			$	1				$	1			$	1
Interest cost	46				43					3				2					3				3
Expected return on plan assets	(72		)		(76		)												(1		)		(1		)
Amortization of prior service credit	1
Amortization of actuarial losses										1				1
Net periodic cost/(benefit)	$	4			$	(4	)			$	5			$	4				$	3			$	3

	Qualified Pension Plan									Nonqualified Pension Plan									Postretirement Benefits
Nine months ended September 30 In millions	2019				2018					2019				2018					2019				2018
Net periodic cost consists of:
Service cost	$	86			$	87				$	2			$	2				$	3			$	3
Interest cost	139				128					8				7					10				9
Expected return on plan assets	(215		)		(229		)												(4		)		(4		)
Amortization of prior service credit	3				1
Amortization of actuarial losses	3									3				3
Net periodic cost/(benefit)	$	16			$	(13	)			$	13			$	12				$	9			$	8

(a)	The service cost component is included in Personnel expense on the Consolidated Income Statement. All other components are included in Other noninterest expense on the Consolidated Income Statement.

NOTE 9 FINANCIAL DERIVATIVES

We use a variety of financial derivatives as part of our overall asset and liability risk management process to help manage exposure to market (primarily interest rate) and credit risk inherent in our business activities. We also enter into derivatives with customers to facilitate their risk management activities. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.

For more information regarding derivatives see Note 1 Accounting Policies and Note 13 Financial Derivatives in our 2018 Form 10-K.

70    The PNC Financial Services Group, Inc. – Form 10-Q

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The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by us.

Table 60: Total Gross Derivatives

	September 30, 2019									December 31, 2018
In millions	Notional / Contract Amount			Asset Fair Value (a)			Liability Fair Value (b)			Notional / Contract Amount			Asset Fair Value (a)			Liability Fair Value (b)
Derivatives used for hedging under GAAP
Interest rate contracts (c):
Fair value hedges	$	31,474								$	30,919		$	7
Cash flow hedges	23,427			$	8		$	4		17,337			1
Foreign exchange contracts:
Net investment hedges	1,097			40						1,012						$	10
Total derivatives designated for hedging under GAAP	$	55,998		$	48		$	4		$	49,268		$	8		$	10
Derivatives not used for hedging under GAAP
Derivatives used for mortgage banking activities (d):
Interest rate contracts:
Swaps	$	50,776		$	9		$	3		$	43,084					$	3
Futures (e)	3,697									10,658
Mortgage-backed commitments	12,046			97			85			5,771			$	47		39
Other	6,867			54			40			6,509			10			3
Subtotal	73,386			160			128			66,022			57			45
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps	243,626			3,553			1,329			218,496			1,352			1,432
Futures (e)	704									914
Mortgage-backed commitments	5,615			6			6			2,246			7			10
Other	22,062			167			43			20,109			77			33
Subtotal	272,007			3,726			1,378			241,765			1,436			1,475
Commodity contracts:
Swaps	4,619			242			239			4,813			244			238
Other	4,080			139			138			1,418			67			67
Subtotal	8,699			381			377			6,231			311			305
Foreign exchange contracts and other	25,491			270			253			23,253			194			192
Subtotal	306,197			4,377			2,008			271,249			1,941			1,972
Derivatives used for other risk management activities:
Foreign exchange contracts and other	11,372			53			192			7,908			75			263
Total derivatives not designated for hedging under GAAP	$	390,955		$	4,590		$	2,328		$	345,179		$	2,073		$	2,280
Total gross derivatives	$	446,953		$	4,638		$	2,332		$	394,447		$	2,081		$	2,290
Less: Impact of legally enforceable master netting agreements				890			890						688			688
Less: Cash collateral received/paid				914			770						341			539
Total derivatives				$	2,834		$	672					$	1,052		$	1,063

(a)	Included in Other assets on our Consolidated Balance Sheet.

(b)	Included in Other liabilities on our Consolidated Balance Sheet.

(c)	Represents primarily swaps.

(d)	Includes both residential and commercial mortgage banking activities.

(e)	Futures contracts settle in cash daily and, therefore, no derivative asset or derivative liability is recognized on our Consolidated Balance Sheet.

All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk and Contingent Features section of this Note 9. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.

Derivatives Designated As Hedging Instruments under GAAP

Certain derivatives used to manage interest rate and foreign exchange risk as part of our asset and liability risk management activities are designated as accounting hedges under GAAP. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of expected future cash flows are considered cash flow

The PNC Financial Services Group, Inc. – Form 10-Q    71

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hedges, and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives to be recognized in the same period and in the same income statement line item as the earnings impact of the hedged items.

Fair Value Hedges

We enter into receive-fixed, pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt caused by fluctuations in market interest rates. We also enter into pay-fixed, receive-variable interest rate swaps and zero-coupon swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. Gains and losses on the interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item.

Cash Flow Hedges

We enter into receive-fixed, pay-variable interest rate swaps to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. We also periodically enter into forward purchase and sale contracts to hedge the variability of the consideration that will be paid or received related to the purchase or sale of investment securities. The forecasted purchase or sale is consummated upon gross settlement of the forward contract itself. For these cash flow hedges, gains and losses on the interest rate swaps and forward contracts are recorded in AOCI and are then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line as the hedged cash flows.

In the 12 months that follow September 30, 2019, we expect to reclassify net derivative gains of $165 million pretax, or $130 million after-tax, from AOCI to interest income for both cash flow hedge strategies. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to September 30, 2019. As of September 30, 2019, the maximum length of time over which forecasted transactions are hedged is ten years.

72    The PNC Financial Services Group, Inc. – Form 10-Q

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Further detail regarding gains (losses) related to our fair value and cash flow hedge derivatives is presented in the following table.

Table 61: Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement (a) (b)

	Location and Amount of Gains (Losses) Recognized in Income
	Interest Income						Interest Expense			Noninterest Income
In millions	Loans			Investment Securities			Borrowed Funds			Other
For the three months ended September 30, 2019
Total amounts on the Consolidated Income Statement	$	2,678		$	617		$	468		$	342
Gains (losses) on fair value hedges recognized on:
Hedged items (c)				$	76		$	(271	)
Derivatives				$	(73	)	$	235
Amounts related to interest settlements on derivatives				$	4		$	16
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	2		$	3
For the three months ended September 30, 2018
Total amounts on the Consolidated Income Statement	$	2,452		$	584		$	421		$	301
Gains (losses) on fair value hedges recognized on:
Hedged items (c)				$	(31	)	$	107
Derivatives				$	30		$	(137	)
Amounts related to interest settlements on derivatives				$	2		$	24
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	6		$	2					$	1
For the nine months ended September 30, 2019
Total amounts on the Consolidated Income Statement	$	7,952		$	1,866		$	1,433		$	1,017
Gains (losses) on fair value hedges recognized on:
Hedged items (c)				$	250		$	(1,068	)
Derivatives				$	(241	)	$	948
Amounts related to interest settlements on derivatives				$	14		$	36
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	(18	)	$	5					$	18
For the nine months ended September 30, 2018
Total amounts on the Consolidated Income Statement	$	7,025		$	1,653		$	1,173		$	880
Gains (losses) on fair value hedges recognized on:
Hedged items (c)				$	(145	)	$	577
Derivatives				$	149		$	(632	)
Amounts related to interest settlements on derivatives							$	57
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	43		$	9					$	8

(a)	For all periods presented, there were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the fair value or cash flow hedge strategies.

(b)	All cash flow and fair value hedge derivatives were interest rate contracts for the periods presented.

(c)	Includes an insignificant amount of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships.

(d)	For all periods presented, there were no gains or losses from cash flow hedge derivatives reclassified to income because it became probable that the original forecasted transaction would not occur.

Detail regarding the impact of fair value hedge accounting on the carrying value of the hedged items is presented in the following table.

Table 62: Hedged Items - Fair Value Hedges

 

	September 30, 2019								December 31, 2018
In millions	Carrying Value of the Hedged Items				Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)				Carrying Value of the Hedged Items				Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)
Investment securities - available for sale (b)	$	6,787			$	132			$	6,216			$	(103	)
Borrowed funds	$	26,873			$	807			$	27,121			$	(260	)

(a)	Includes $(.3) billion and $(.5) billion of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships for September 30, 2019 and December 31, 2018, respectively.

(b)	Carrying value shown represents amortized cost.

The PNC Financial Services Group, Inc. – Form 10-Q    73

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Net Investment Hedges

We enter into foreign currency forward contracts to hedge non-U.S. dollar net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. Net investment hedge derivatives are classified as foreign exchange contracts. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness for all periods presented. Gains on net investment hedge derivatives recognized in OCI were $36 million and $50 million for the three and nine months ended September 30, 2019, respectively, compared with $17 million and $47 million for the three and nine months ended September 30, 2018, respectively.

Derivatives Not Designated As Hedging Instruments under GAAP

We also enter into derivatives that are not designated as accounting hedges under GAAP. For additional information on derivatives not designated as hedging instruments under GAAP, see Note 13 Financial Derivatives in our 2018 Form 10-K.

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table.

Table 63: Gains (Losses) on Derivatives Not Designated for Hedging under GAAP

   

	Three months ended September 30							Nine months ended September 30
In millions	2019			2018				2019			2018
Derivatives used for mortgage banking activities:
Interest rate contracts (a)	$	184		$	(34	)		$	530		$	(166	)
Derivatives used for customer-related activities:
Interest rate contracts	45			15				84			96
Foreign exchange contracts and other (b)	11			22				64			79
Gains (losses) from customer-related activities (c)	56			37				148			175
Derivatives used for other risk management activities:
Foreign exchange contracts and other (c)	103			(19		)		39			111
Total gains (losses) from derivatives not designated as hedging instruments	$	343		$	(16	)		$	717		$	120

(a)	Included in Residential mortgage, Corporate services and Other noninterest income on our Consolidated Income Statement.

(b)	Includes an insignificant amount of gains (losses) on commodity contracts for all periods presented.

(c)	Included in Other noninterest income on our Consolidated Income Statement.

Offsetting, Counterparty Credit Risk and Contingent Features

We generally utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of all outstanding derivative instruments under the master netting agreement with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party’s net position. For additional information on derivative offsetting, counterparty credit risk and contingent features, see Note 13 Financial Derivatives in our 2018 Form 10-K.

Table 64 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of September 30, 2019 and December 31, 2018. The table includes cash collateral held or pledged under legally enforceable master netting agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

Table 64 includes over-the-counter (OTC) derivatives and OTC derivatives cleared through a central clearing house. OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or cleared through a central clearing house. The majority of OTC derivatives are governed by the International Swaps and Derivatives Association (ISDA) documentation or other legally enforceable master netting agreements. OTC cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house who then becomes our counterparty. OTC cleared derivative instruments are typically settled in cash each day based on the prior day value.

74    The PNC Financial Services Group, Inc. – Form 10-Q

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Table 64: Derivative Assets and Liabilities Offsetting

In millions						Amounts Offset on the Consolidated Balance Sheet														Securities Collateral Held/Pledged Under Master Netting Agreements
		Gross Fair Value				Fair Value Offset Amount				Cash Collateral				Net Fair Value										Net Amounts
September 30, 2019
Derivative assets
Interest rate contracts:
Over-the-counter cleared		$	24											$	24									$	24
Over-the-counter		3,870				$	399			$	848			2,623						$	297			2,326
Commodity contracts		381				244				58				79										79
Foreign exchange and other contracts		363				247				8				108						1				107
Total derivative assets		$	4,638			$	890			$	914			$	2,834			(a)		$	298			$	2,536
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared		$	26											$	26									$	26
Over-the-counter		1,484				$	648			$	722			114										114
Commodity contracts		377				163				2				212										212
Foreign exchange and other contracts		445				79				46				320										320
Total derivative liabilities		$	2,332			$	890			$	770			$	672			(b)						$	672
December 31, 2018
Derivative assets
Interest rate contracts:
Over-the-counter cleared		$	29											$	29									$	29
Over-the-counter		1,472				$	450			$	117			905						$	25			880
Commodity contracts		311				76				210				25										25
Foreign exchange and other contracts		269				162				14				93										93
Total derivative assets		$	2,081			$	688			$	341			$	1,052			(a)		$	25			$	1,027
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared		$	24											$	24									$	24
Over-the-counter		1,496				$	557			$	489			450						$	11			439
Commodity contracts		305				56				17				232										232
Foreign exchange and other contracts		465				75				33				357										357
Total derivative liabilities		$	2,290			$	688			$	539			$	1,063			(b)		$	11			$	1,052

(a)	Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet.

(b)	Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.

In addition to using master netting agreements and other collateral agreements to reduce credit risk associated with derivative instruments, we also seek to manage credit risk by evaluating credit ratings of counterparties and by using internal credit analysis, limits and monitoring procedures.

At September 30, 2019, we held cash, U.S. government securities and mortgage-backed securities totaling $1.4 billion under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties, and we pledged cash totaling $1.4 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral held or pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.

 

The PNC Financial Services Group, Inc. – Form 10-Q    75

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Certain derivative agreements contain various credit-risk related contingent provisions, such as those that require our debt to maintain a specified credit rating from one or more of the major credit rating agencies. If our debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on September 30, 2019 was $2.0 billion for which we had posted collateral of $1.4 billion in the normal course of business. The maximum additional amount of collateral we would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 2019 would be $.6 billion.

NOTE 10 EARNINGS PER SHARE

Table 65: Basic and Diluted Earnings Per Common Share

		Three months ended September 30								Nine months ended September 30
In millions, except per share data		2019				2018				2019				2018
Basic
Net income		$	1,392			$	1,400			$	4,037			$	3,995
Less:
Net income attributable to noncontrolling interests		13				11				35				31
Preferred stock dividends		63				63				181				181
Preferred stock discount accretion and redemptions		1				1				3				3
Net income attributable to common shareholders		1,315				1,325				3,818				3,780
Less: Dividends and undistributed earnings allocated to participating securities		6				6				15				16
Net income attributable to basic common shareholders		$	1,309			$	1,319			$	3,803			$	3,764
Basic weighted-average common shares outstanding		444				465				450				469
Basic earnings per common share (a)		$	2.95			$	2.84			$	8.45			$	8.03
Diluted
Net income attributable to basic common shareholders		$	1,309			$	1,319			$	3,803			$	3,764
Less: Impact of BlackRock earnings per share dilution		2				2				7				7
Net income attributable to diluted common shareholders		$	1,307			$	1,317			$	3,796			$	3,757
Basic weighted-average common shares outstanding		444				465				450				469
Dilutive potential common shares		1				2				1				3
Diluted weighted-average common shares outstanding		445				467				451				472
Diluted earnings per common share (a)		$	2.94			$	2.82			$	8.42			$	7.96

(a)	Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares and restricted share units with nonforfeitable dividends and dividend rights (participating securities).

76    The PNC Financial Services Group, Inc. – Form 10-Q

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NOTE 11 TOTAL EQUITY AND OTHER COMPREHENSIVE INCOME

Activity in total equity for the three and nine months ended September 30, 2019 and 2018 follows.

Table 66: Rollforward of Total Equity

				Shareholders’ Equity
in millions	Shares Outstanding Common Stock			Common Stock			Capital Surplus - Preferred Stock			Capital Surplus - Common Stock and Other			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock				Non- controlling Interests			Total Equity
Three months ended
Balance at June 30, 2018 (a)	465			$	2,710		$	3,987		$	12,263		$	37,201		$	(940	)	$	(8,317	)		$	71		$	46,975
Net income													1,389										11			1,400
Other comprehensive income (loss), net of tax																(320		)								(320		)
Cash dividends declared - Common													(446		)											(446		)
Cash dividends declared - Preferred													(63		)											(63		)
Preferred stock discount accretion							1						(1		)
Common stock activity										1																1
Treasury stock activity	(3	)								(5		)							(454		)					(459		)
Other							(6		)	58													(38		)	14
Balance at September 30, 2018 (a)	462			$	2,710		$	3,982		$	12,317		$	38,080		$	(1,260	)	$	(8,771	)		$	44		$	47,102
Balance at June 30, 2019 (a)	447			$	2,711		$	3,991		$	12,257		$	40,616		$	631		$	(10,866	)		$	41		$	49,381
Net income													1,379										13			1,392
Other comprehensive income, net of tax																206										206
Cash dividends declared - Common													(518		)											(518		)
Cash dividends declared - Preferred													(63		)											(63		)
Preferred stock discount accretion							1						(1		)
Treasury stock activity	(8	)								(5		)							(972		)					(977		)
Other										53													(19		)	34
Balance at September 30, 2019 (a)	439			$	2,711		$	3,992		$	12,305		$	41,413		$	837		$	(11,838	)		$	35		$	49,455
Nine months ended
Balance at December 31, 2017 (a)	473			$	2,710		$	3,985		$	12,389		$	35,481		$	(148	)	$	(6,904	)		$	72		$	47,585
Cumulative effect of ASU adoptions (b)													(22		)	6										(16		)
Balance at January 1, 2018 (a)	473			$	2,710		$	3,985		$	12,389		$	35,459		$	(142	)	$	(6,904	)		$	72		$	47,569
Net income													3,964										31			3,995
Other comprehensive income (loss), net of tax																(1,118		)								(1,118		)
Cash dividends declared - Common													(1,159		)											(1,159		)
Cash dividends declared - Preferred													(181		)											(181		)
Preferred stock discount accretion							3						(3		)
Common stock activity										10																10
Treasury stock activity	(11	)								(31		)							(1,867		)					(1,898		)
Other							(6		)	(51		)											(59		)	(116		)
Balance at September 30, 2018 (a)	462			$	2,710		$	3,982		$	12,317		$	38,080		$	(1,260	)	$	(8,771	)		$	44		$	47,102
Balance at December 31, 2018 (a)	457			$	2,711		$	3,986		$	12,291		$	38,919		$	(725	)	$	(9,454	)		$	42		$	47,770
Cumulative effect of ASU 2016-02 adoption (c)													62													62
Balance at January 1, 2019 (a)	457			$	2,711		$	3,986		$	12,291		$	38,981		$	(725	)	$	(9,454	)		$	42		$	47,832
Net income													4,002										35			4,037
Other comprehensive income, net of tax																1,562										1,562
Cash dividends declared - Common													(1,386		)											(1,386		)
Cash dividends declared - Preferred													(181		)											(181		)
Preferred stock discount accretion							3						(3		)
Common stock activity										10																10
Treasury stock activity	(18	)								4									(2,384		)					(2,380		)
Other							3																(42		)	(39		)
Balance at September 30, 2019 (a)	439			$	2,711		$	3,992		$	12,305		$	41,413		$	837		$	(11,838	)		$	35		$	49,455

(a)	The par value of our preferred stock outstanding was less than $.5 million at each date and, therefore, is excluded from this presentation.

(b)	Represents the cumulative effect of adopting ASU 2014-09, ASU 2016-01, ASU 2017-12 and ASU 2018-02. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in our 2018 Form 10-K for additional detail on the adoption of these ASUs.

(c)	Represents the impact of the adoption of ASU 2016-02 related primarily to deferred gains on previous sale-leaseback transactions. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in the first quarter Form 10-Q for additional detail.

The PNC Financial Services Group, Inc. – Form 10-Q    77

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Other Comprehensive Income

Details of other comprehensive income (loss) are as follows:

Table 67: Other Comprehensive Income (Loss)

	Three months ended September 30								Nine months ended September 30
In millions	2019			2018					2019			2018
Net unrealized gains (losses) on non-OTTI securities
Increase in net unrealized gains (losses) on non-OTTI securities	$	203		$	(323	)			$	1,556		$	(1,129	)
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest     income	3			3					9			9
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income	4			(2		)			18			(13		)
Net increase (decrease), pre-tax	196			(324		)			1,529			(1,125		)
Effect of income taxes	(45		)	73					(351		)	259
Net increase (decrease), after-tax	151			(251		)			1,178			(866		)
Net unrealized gains (losses) on OTTI securities
Increase in net unrealized gains (losses) on OTTI securities	18			(1		)			27			16
Net increase (decrease), pre-tax	18			(1		)			27			16
Effect of income taxes	(4		)	1					(6		)	(4		)
Net increase (decrease), after-tax	14			—					21			12
Net unrealized gains (losses) on cash flow hedge derivatives
Increase in net unrealized gains (losses) on cash flow hedge derivatives	84			(62		)			438			(317		)
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income	2			6					(18		)	43
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest     income	3			2					5			9
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income				1					18			8
Net increase (decrease), pre-tax	79			(71		)			433			(377		)
Effect of income taxes	(18		)	17					(99		)	87
Net increase (decrease), after-tax	61			(54		)			334			(290		)
Pension and other postretirement benefit plan adjustments
Net pension and other postretirement benefit activity									54			66
Amortization of actuarial loss (gain) reclassified to other noninterest expense	1			1					6			3
Amortization of prior service cost (credit) reclassified to other noninterest expense	1								3			1
Net increase (decrease), pre-tax	2			1					63			70
Effect of income taxes									(14		)	(16		)
Net increase (decrease), after-tax	2			1					49			54
Other
PNC’s portion of BlackRock’s OCI	(23		)	(22		)			(29		)	(37		)
Net investment hedge derivatives	36			17					50			47
Foreign currency translation adjustments and other	(32		)	(12		)			(36		)	(35		)
Net increase (decrease), pre-tax	(19		)	(17		)			(15		)	(25		)
Effect of income taxes	(3		)	1					(5		)	(3		)
Net increase (decrease), after-tax	(22		)	(16		)			(20		)	(28		)
Total other comprehensive income (loss), pre-tax	276			(412		)			2,037			(1,441		)
Total other comprehensive income (loss), tax effect	(70		)	92					(475		)	323
Total other comprehensive income (loss), after-tax	$	206		$	(320	)			$	1,562		$	(1,118	)

78    The PNC Financial Services Group, Inc. – Form 10-Q

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Table 68: Accumulated Other Comprehensive Income (Loss) Components

In millions, after-tax	Net unrealized gains (losses) on non-OTTI securities				Net unrealized gains (losses) on OTTI securities				Net unrealized gains (losses) on cash flow hedge derivatives				Pension and other postretirement benefit plan adjustments				Other				Total
Balance at June 30, 2018	$	(494	)		$	227			$	(52	)		$	(489	)		$	(132	)		$	(940	)
Net activity	(251		)						(54		)		1				(16		)		(320		)
Balance at September 30, 2018	$	(745	)		$	227			$	(106	)		$	(488	)		$	(148	)		$	(1,260	)
Balance at June 30, 2019	$	743			$	211			$	320			$	(483	)		$	(160	)		$	631
Net activity	151				14				61				2				(22		)		206
Balance at September 30, 2019	$	894			$	225			$	381			$	(481	)		$	(182	)		$	837
Balance at December 31, 2017	$	62			$	215			$	151			$	(446	)		$	(130	)		$	(148	)
Cumulative effect of adopting ASU 2018-02 (a)	59								33				(96		)		10				6
Balance at January 1, 2018	121				215				184				(542		)		(120		)		(142		)
Net activity	(866		)		12				(290		)		54				(28		)		(1,118		)
Balance at September 30, 2018	$	(745	)		$	227			$	(106	)		$	(488	)		$	(148	)		$	(1,260	)
Balance at December 31, 2018	$	(284	)		$	204			$	47			$	(530	)		$	(162	)		$	(725	)
Net activity	1,178				21				334				49				(20		)		1,562
Balance at September 30, 2019	$	894			$	225			$	381			$	(481	)		$	(182	)		$	837

(a)	Represents the cumulative impact of adopting ASU 2018-02 which permits the reclassification to retained earnings of the income tax effects stranded within AOCI. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in our 2018 Form 10-K for additional detail on this adoption.

The following table provides the dividends per share for PNC's common and preferred stock.

Table 69: Dividends Per Share (a)

	Three months ended September 30						Nine months ended September 30
	2019			2018			2019			2018
Common Stock	$	1.15		$	.95		$	3.05		$	2.45
Preferred Stock
Series B	$	.45		$	.45		$	1.35		$	1.35
Series O	$	3,375		$	3,375		$	6,750		$	6,750
Series P	$	1,531		$	1,531		$	4,594		$	4,594
Series Q	$	1,343		$	1,343		$	4,031		$	4,031
Series R							$	2,425		$	2,425
Series S							$	2,500		$	2,500

(a) Dividends are payable quarterly other than Series O, Series R, and Series S preferred stock, which are payable semiannually, with the Series O payable in different quarters

than the Series R and Series S preferred stock

On October 3, 2019, we declared a quarterly common stock cash dividend of $1.15 per share payable on November 5, 2019.

NOTE 12 LEGAL PROCEEDINGS

 

We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in Note 19 Legal Proceedings in Part II, Item 8 of our 2018 Form 10-K and in Note 12 Legal Proceedings in Part I, Item 1 of our first and second quarter 2019 Form 10-Q (such prior disclosure referred to as “Prior Disclosure”)). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of September 30, 2019, we estimate that it is reasonably possible that we could incur losses in excess of related accrual liabilities, if any, in an aggregate amount less than $100 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.

The PNC Financial Services Group, Inc. – Form 10-Q    79

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As a result of the types of factors described in Note 19 in our 2018 Form 10-K, we are unable, at this time, to estimate the losses that are reasonably possible to be incurred or ranges of such losses with respect to some of the matters disclosed, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the Disclosed Matters. The estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”

We include in some of the descriptions of individual Disclosed Matters certain quantitative information related to the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings or otherwise publicly available information. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual.

Some of our exposure in Disclosed Matters may be offset by applicable insurance coverage. We do not consider the possible availability of insurance coverage in determining the amounts of any accruals (although we record the amount of related insurance recoveries that are deemed probable up to the amount of the accrual) or in determining any estimates of possible losses or ranges of possible losses.

Other Regulatory and Governmental Inquiries

We are the subject of investigations, audits and other forms of regulatory and governmental inquiry covering a broad range of issues in our consumer, mortgage, brokerage, securities and other financial services businesses, as well as other aspects of our operations. In some cases, these inquiries are part of reviews of specified activities at multiple industry participants; in others, they are directed at PNC individually. These inquiries, including those described in Prior Disclosure, may lead to administrative, civil or criminal proceedings, and possibly result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs and other consequences. These inquiries may result in significant reputational harm or other adverse collateral consequences even if direct resulting remedies are not material to us.

Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including those described in Prior Disclosure.

Other

In addition to the proceedings or other matters described in Prior Disclosure, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position. However, we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.

NOTE 13 COMMITMENTS

In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with significant other commitments as of September 30, 2019 and December 31, 2018, respectively.

80    The PNC Financial Services Group, Inc. – Form 10-Q

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Table 70: Commitments to Extend Credit and Other Commitments

In millions	September 30 2019				December 31 2018
Commitments to extend credit
Total commercial lending	$	129,787			$	120,165
Home equity lines of credit	16,881				16,944
Credit card	29,886				27,100
Other	6,527				5,069
Total commitments to extend credit	183,081				169,278
Net outstanding standby letters of credit (a)	9,763				8,655
Reinsurance agreements (b)	1,431				1,549
Standby bond purchase agreements (c)	1,302				1,000
Other commitments (d)	2,291				1,130
Total commitments to extend credit and other commitments	$	197,868			$	181,612

(a)	Net outstanding standby letters of credit include $4.1 billion and $3.7 billion at September 30, 2019 and December 31, 2018, respectively, which support remarketing programs.

(b)

Represents aggregate maximum exposure up to the specified limits of the reinsurance contracts provided by our wholly-owned captive insurance subsidiary. These amounts reflect estimates based on availability of financial information from insurance carriers. As of September 30, 2019, the aggregate maximum exposure amount comprised $1.3 billion for accidental death and dismemberment contracts, and $.1 billion for credit life, accident and health contracts. Comparable amounts at December 31, 2018 were $1.3 billion and $.2 billion, respectively.

(c)	We enter into standby bond purchase agreements to support municipal bond obligations.

(d)	Includes $.5 billion related to investments in qualified affordable housing projects at both September 30, 2019 and December 31, 2018.

Commitments to Extend Credit

Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee, and generally contain termination clauses in the event the customer’s credit quality deteriorates.

Net Outstanding Standby Letters of Credit

We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Approximately 98% of our net outstanding standby letters of credit were rated as Pass as of September 30, 2019, with the remainder rated as Criticized. An internal credit rating of Pass indicates the expected risk of loss is currently low, while a rating of Criticized indicates a higher degree of risk.

If the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on September 30, 2019 had terms ranging from less than one year to six years.

As of September 30, 2019, assets of $1.0 billion secured certain specifically identified standby letters of credit. In addition, a portion of the remaining standby letters of credit issued on behalf of specific customers is also secured by collateral or guarantees that secure the customers’ other obligations to us. The carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $.2 billion at September 30, 2019 and is included in Other liabilities on our Consolidated Balance Sheet.

NOTE 14 SEGMENT REPORTING

We have four reportable business segments:

•	Retail Banking

•	Corporate & Institutional Banking

•	Asset Management Group

•	BlackRock

Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual businesses are not necessarily comparable with similar information for any other company. We periodically refine our internal methodologies as management reporting practices are enhanced. To the extent significant and practicable, retrospective application of

The PNC Financial Services Group, Inc. – Form 10-Q    81

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new methodologies is made to prior period reportable business segment results and disclosures to create comparability with the current period.

Total business segment financial results differ from total consolidated net income. These differences are reflected in the “Other” category in the business segment tables. “Other” includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, gains or losses related to BlackRock transactions, exited businesses and differences between business segment performance reporting and financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments’ results exclude their portion of net income attributable to noncontrolling interests.

Financial results are presented, to the extent practicable, as if each business operated on a stand-alone basis. Additionally, we have aggregated the results for corporate support functions within “Other” for financial reporting purposes.

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors.

A portion of capital is intended to cover unexpected losses and is assigned to our business segments using our risk-based economic capital model, including consideration of the goodwill at those business segments, as well as the diversification of risk among the business segments, ultimately reflecting our portfolio risk adjusted capital allocation.

We have allocated the allowances for loan and lease losses and for unfunded loan commitments and letters of credit based on the loan exposures within each business segment’s portfolio. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower and economic conditions. Key reserve assumptions are periodically updated.

82    The PNC Financial Services Group, Inc. – Form 10-Q

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Business Segment Results

Table 71: Results of Businesses

Three months ended September 30 In millions		Retail Banking				Corporate & Institutional Banking				Asset Management Group				BlackRock				Other				Consolidated (a)
2019
Income Statement
Net interest income		$	1,393			$	911			$	70							$	130			$	2,504
Noninterest income		744				654				216				$	251			124				1,989
Total revenue		2,137				1,565				286				251				254				4,493
Provision for credit losses (benefit)		147				48				(1		)						(11		)		183
Depreciation and amortization		60				51				11								125				247
Other noninterest expense		1,476				652				217								31				2,376
Income before income taxes and noncontrolling interests		454				814				59				251				109				1,687
Income taxes (benefit)		107				169				13				40				(34		)		295
Net income		$	347			$	645			$	46			$	211			$	143			$	1,392
Average Assets (b)		$	93,222			$	168,193			$	7,331			$	8,321			$	129,642			$	406,709
2018
Income Statement
Net interest income		$	1,305			$	903			$	71							$	187			$	2,466
Noninterest income		622				592				228				$	265			184				1,891
Total revenue		1,927				1,495				299				265				371				4,357
Provision for credit losses (benefit)		113				(13		)		2								(14		)		88
Depreciation and amortization		52				47				13								112				224
Other noninterest expense		1,462				651				212								59				2,384
Income before income taxes and noncontrolling interests		300				810				72				265				214				1,661
Income taxes (benefit)		73				168				17				49				(46		)		261
Net income		$	227			$	642			$	55			$	216			$	260			$	1,400
Average Assets (b)		$	89,963			$	153,897			$	7,397			$	7,964			$	118,656			$	377,877
Nine months ended September 30 In millions		Retail Banking				Corporate & Institutional Banking				Asset Management Group				BlackRock				Other				Consolidated (a)
2019
Income Statement
Net interest income		$	4,118			$	2,685			$	208							$	466			$	7,477
Noninterest income		1,996				1,891				719				$	708			427				5,741
Total revenue		6,114				4,576				927				708				893				13,218
Provision for credit losses (benefit)		356				219				(2		)						(21		)		552
Depreciation and amortization		170				151				51								366				738
Other noninterest expense		4,361				1,936				656								121				7,074
Income before income taxes and noncontrolling interests		1,227				2,270				222				708				427				4,854
Income taxes (benefit)		291				471				51				111				(107		)		817
Net income		$	936			$	1,799			$	171			$	597			$	534			$	4,037
Average Assets (b)		$	92,282			$	163,126			$	7,247			$	8,321			$	125,623			$	396,599
2018
Income Statement
Net interest income		$	3,800			$	2,641			$	217							$	582			$	7,240
Noninterest income		1,935				1,774				676				$	732			435				5,552
Total revenue		5,735				4,415				893				732				1,017				12,792
Provision for credit losses (benefit)		254				43				2								(39		)		260
Depreciation and amortization		144				140				38								372				694
Other noninterest expense		4,347				1,879				643								156				7,025
Income before income taxes and noncontrolling interests		990				2,353				210				732				528				4,813
Income taxes (benefit)		239				496				50				124				(91		)		818
Net income		$	751			$	1,857			$	160			$	608			$	619			$	3,995
Average Assets (b)		$	89,259			$	153,149			$	7,455			$	7,964			$	118,772			$	376,599

(a)	There were no material intersegment revenues for the three and nine months ended September 30, 2019 and 2018.

(b)	Period-end balances for BlackRock.

The PNC Financial Services Group, Inc. – Form 10-Q    83

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Business Segment Products and Services

   

Retail Banking provides deposit, lending, brokerage, insurance services, investment management and cash management products and services to consumer and small business customers. Our customers are serviced through our branch network, ATMs, call centers, online banking and mobile channels. The branch network is located in markets across the Mid-Atlantic, Midwest and Southeast. In 2018, Retail Banking launched its national retail digital strategy designed to grow customers with digitally-led banking and an ultra-thin branch network in markets outside of our existing retail branch network. Deposit products include checking, savings and money market accounts and certificates of deposit. Lending products include residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans and personal and small business loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to government agency and/or third-party standards, and either sold, servicing retained, or held on our balance sheet. Brokerage, investment management and cash management products and services include managed, education, retirement and trust accounts.

Corporate & Institutional Banking provides lending, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. The Treasury Management business provides payables, receivables, deposit and account services, liquidity and investments, and online and mobile banking products and services to our clients. Capital markets-related products and services include foreign exchange, derivatives, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. We also provide commercial loan servicing and technology solutions for the commercial real estate finance industry. Products and services are provided nationally.

Asset Management Group provides personal wealth management for high net worth and ultra high net worth clients and institutional asset management. The Asset Management group is composed of three distinct operating units:

•	Wealth Management provides products and services to individuals and their families including investment and retirement planning, customized investment management, private banking, and trust management and administration for individuals and their families.

•	Our Hawthorn unit provides multi-generational family planning including estate, financial, tax planning, fiduciary, investment management and consulting, private banking, personal administrative services, asset custody and customized performance reporting to ultra high net worth clients.

•	Institutional asset management provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and fiduciary retirement advisory services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.

BlackRock, in which we hold an equity investment, is a leading publicly-traded investment management firm providing a broad range of investment and technology services to institutional and retail clients worldwide. Using a diverse platform of alpha-seeking active, index and cash management investment strategies across asset classes, BlackRock tailors investment outcomes and asset allocation solutions for clients. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments. BlackRock also offers technology services, including an investment and risk management technology platform, as well as advisory services and solutions to a broad base of institutional and wealth management clients.

Our equity investment in BlackRock provides us with an additional source of noninterest income and increases our overall revenue diversification. At September 30, 2019, our economic interest in BlackRock was 22%. We received cash dividends from BlackRock of $344 million and $310 million during the first nine months of 2019 and 2018, respectively. BlackRock is a publicly-traded company, and additional information regarding its business is available in its filings with the Securities and Exchange Commission (SEC).

NOTE 15 FEE-BASED REVENUE FROM CONTRACTS WITH CUSTOMERS

As more fully described in Note 23 Fee-based Revenue from Contracts with Customers in our 2018 Form 10-K, a subset of our noninterest income relates to certain fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606).

Fee-based revenue within the scope of Topic 606 is recognized within three of our reportable business segments, Retail Banking, Corporate & Institutional Banking and Asset Management Group. Income recognized from our investment in BlackRock, also a reportable segment, is outside of the scope of the standard. Topic 606 also excludes interest income, income from lease contracts, fair value gains from financial instruments (including derivatives), income from mortgage servicing rights and guarantee products, letter of credit fees, non-refundable fees associated with acquiring or originating a loan and gains from the sale of financial assets.

The following tables present noninterest income within the scope of Topic 606 disaggregated by segment. A description of the fee-based revenue and how it is recognized for each segment’s principal services and products follows each table.

84    The PNC Financial Services Group, Inc. – Form 10-Q

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Retail Banking

Table 72: Retail Banking Noninterest Income Disaggregation

	Three months ended September 30						Nine months ended September 30
In millions	2019			2018			2019			2018
Product
Deposit account fees	$	166		$	162		$	468		$	451
Debit card fees	139			130			399			374
Brokerage fees	92			86			267			260
Merchant services	55			54			159			156
Net credit card fees (a)	50			45			149			139
Other	65			71			193			214
Total in-scope noninterest income by product	$	567		$	548		$	1,635		$	1,594
Reconciliation to total Retail Banking noninterest income
Total in-scope noninterest income	$	567		$	548		$	1,635		$	1,594
Total out-of-scope noninterest income (b)	177			74			361			341
Total Retail Banking noninterest income	$	744		$	622		$	1,996		$	1,935

(a)

Net credit card fees consists of interchange fees of $128 million and $115 million and credit card reward costs of $78 million and $70 million for the three months ended September 30, 2019 and 2018, respectively. Net credit card fees consists of interchange fees of $366 million and $332 million and credit card reward costs of $217 million and $193 million for the nine months ended September 30, 2019 and 2018, respectively.

(b)	Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

Deposit Account Fees

Retail Banking provides demand deposit, money market and savings account products for consumer and small business customers. Services include online and branch banking, overdraft and wire transfer services, imaging services and cash alternative services such as money orders and cashier's checks. We recognize fee income at the time these services are performed for the customer.

Debit Card and Net Credit Card Fees

As an issuing bank, Retail Banking earns interchange fee revenue from debit and credit card transactions. By offering card products, we maintain and administer card-related services, such as credit card reward programs, account data and statement information, card activation, card renewals, and card suspension and blockage. Interchange fees are earned when cardholders make purchases and are presented net of credit card reward costs.

Brokerage Fees

Retail Banking earns fee revenue by providing its customers a wide range of investment options through its brokerage services including mutual funds, annuities, stocks, bonds, long-term care and insurance products, and managed accounts. We earn fee revenue for transaction-based brokerage services, such as the execution of market trades, once the transaction has been completed as of the trade date. In other cases, such as investment management services, we earn fee revenue over the term of the customer contract.

Merchant Services

Retail Banking earns fee revenue for debit and credit card processing services. We provide these services to merchant businesses including point-of-sale payment acceptance capabilities and customized payment processing built around the merchant’s specific requirements. We earn fee revenue as the merchant's customers make purchases.

Other

Other noninterest income primarily includes ATM fees earned from our customers and non-PNC customers. These fees are recognized as transactions occur.

The PNC Financial Services Group, Inc. – Form 10-Q    85

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Corporate & Institutional Banking

Table 73: Corporate & Institutional Banking Noninterest Income Disaggregation

	Three months ended September 30						Nine months ended September 30
In millions	2019			2018			2019			2018
Product
Treasury management fees	$	210		$	196		$	621		$	578
Capital markets fees	131			147			407			397
Commercial mortgage banking activities	26			23			75			65
Other	17			16			53			51
Total in-scope noninterest income by product	$	384		$	382		$	1,156		$	1,091
Reconciliation to total Corporate & Institutional Banking noninterest income
Total in-scope noninterest income	$	384		$	382		$	1,156		$	1,091
Total out-of-scope noninterest income (a)	270			210			735			683
Total Corporate & Institutional Banking noninterest income	$	654		$	592		$	1,891		$	1,774

(a)	Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

Treasury Management Fees

Corporate & Institutional Banking provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services and access to online/mobile information management and reporting services. Treasury management fees are recognized over time as we perform these services.

Capital Markets Fees

Capital markets fees include securities underwriting fees, merger and acquisition advisory fees and other advisory related fees. We recognize these fees when the related transaction closes.

Commercial Mortgage Banking Activities

Commercial mortgage banking activities include servicing responsibilities where we do not own the servicing rights. Servicing responsibilities typically consist of collecting and remitting monthly borrower principal and interest payments, maintaining escrow deposits, performing loss mitigation and foreclosure activities, and, in certain instances, funding of servicing advances. We recognize servicing fees over time as we perform these activities.

Other

Other noninterest income within Corporate & Institutional Banking primarily comprised fees from collateral management and asset management services. We earn these fees over time as we perform these services.

Asset Management Group

Table 74: Asset Management Group Noninterest Income Disaggregation

	Three months ended September 30						Nine months ended September 30
In millions	2019			2018			2019			2018
Customer Type
Personal	$	155		$	156		$	459		$	462
Institutional	58			70			187			206
Total in-scope noninterest income by customer type	$	213		$	226		$	646		$	668
Reconciliation to Asset Management Group noninterest income
Total in-scope noninterest income	$	213		$	226		$	646		$	668
Total out-of-scope noninterest income (a)	3			2			73			8
Total Asset Management Group noninterest income	$	216		$	228		$	719		$	676

(a)	Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

Asset Management Services

Asset Management Group provides both personal wealth and institutional asset management services including investment management, custody services, retirement planning, family planning, trust management and retirement administration services. We recognize fee revenue over the term of the customer contract based on the value of assets under management at a point in time.

86    The PNC Financial Services Group, Inc. – Form 10-Q

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NOTE 16 LEASES

We lease retail branches, datacenters, office space, land and equipment under operating and finance leases. Our leases have remaining lease terms of one year to sixty-two years, some of which may include options to renew the leases for up to ninety-nine years, and some of which may include options to terminate the leases prior to the end date. Certain leases also include options to purchase the leased asset. The exercise of lease renewal, termination and purchase options is at our sole discretion.

At adoption of ASU 2016-02 on January 1, 2019, we elected to account for the lease and nonlease components of existing real estate leases and leases of advertising assets, such as signage, as a single lease component. Effective January 1, 2019, lease and nonlease components of new lease agreements are accounted for separately. Lease components include fixed payments including rent, real estate taxes and insurance costs and nonlease components include common-area maintenance costs. Generally, we have elected to use the Overnight Indexed Swap rate corresponding to the term of the lease at the lease measurement date as our incremental borrowing rate to measure the ROU asset and lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Certain of our lease agreements include rental payments based on a percentage of revenue and others include rental payments if certain bank deposit levels are met. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Subleases to third parties were not material at September 30, 2019.

Operating lease assets and liabilities totaled $2.0 billion and $2.2 billion at September 30, 2019, respectively. Finance lease assets and liabilities at September 30, 2019 were not material.

Future undiscounted cash flows on our operating leases are as follows:

Table 75: Maturity of Operating Lease Liabilities

In millions	September 30, 2019
Remainder of 2019	$	85
2020	352
2021	331
2022	297
2023	264
After 2023	1,098
Total operating lease payments	$	2,427
Less: Interest	263
Present value of operating lease liabilities	$	2,164

At December 31, 2018, operating lease commitments under lessee arrangements were $374 million, $346 million, $308 million, $258 million, $228 million for 2019 through 2023, respectively, and $941 million in the aggregate for all years thereafter.

Operating lease term and discount rates at September 30, 2019 were as follows:

Table 76: Operating Lease Term and Discount Rates

	September 30, 2019
Weighted-average remaining lease term (years)	9
Weighted-average discount rate	2.46	%

NOTE 17 SUBSEQUENT EVENTS

On October 22, 2019, PNC Bank issued $750 million of subordinated notes with a maturity date of October 22, 2029. Interest is payable semi-annually at a fixed rate of 2.70% per annum, on April 22 and October 22 of each year, beginning on April 22, 2020.

On November 1, 2019, the parent company issued $650 million of senior notes with a maturity date of November 1, 2024. Interest is payable semi-annually at a fixed rate of 2.20% per annum, on May 1 and November 1 of each year, beginning on May 1, 2020.

The PNC Financial Services Group, Inc. – Form 10-Q    87

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STATISTICAL INFORMATION (UNAUDITED)

THE PNC FINANCIAL SERVICES GROUP, INC.

Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c)

	Nine months ended September 30
	2019											2018
Taxable-equivalent basis Dollars in millions	Average Balances				Interest Income/ Expense				Average Yields/ Rates			Average Balances				Interest Income/Expense				Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed
Agency	$	30,714			$	657			2.85	%		$	26,746			$	537			2.68	%
Non-agency	1,802				109				8.04	%		2,265				111				6.54	%
Commercial mortgage-backed	5,549				127				3.05	%		4,449				92				2.75	%
Asset-backed	5,247				131				3.33	%		5,260				123				3.12	%
U.S. Treasury and government agencies	18,207				341				2.47	%		15,603				260				2.20	%
Other	3,316				83				3.36	%		4,113				109				3.50	%
Total securities available for sale	64,835				1,448				2.97	%		58,436				1,232				2.80	%
Securities held to maturity
Residential mortgage-backed	15,582				340				2.91	%		15,578				337				2.88	%
Commercial mortgage-backed	571				15				3.59	%		807				23				3.73	%
Asset-backed	143				4				4.18	%		194				5				3.34	%
U.S. Treasury and government agencies	765				16				2.84	%		747				16				2.83	%
Other	1,823				61				4.41	%		1,894				61				4.42	%
Total securities held to maturity	18,884				436				3.08	%		19,220				442				3.07	%
Total investment securities	83,719				1,884				3.00	%		77,656				1,674				2.87	%
Loans
Commercial	123,069				3,919				4.20	%		112,907				3,363				3.93	%
Commercial real estate	28,477				950				4.40	%		28,883				873				3.98	%
Equipment lease financing	7,273				215				3.94	%		7,512				199				3.54	%
Consumer	55,303				2,304				5.57	%		55,474				2,075				5.00	%
Residential real estate	19,602				625				4.25	%		17,609				581				4.40	%
Total loans	233,724				8,013				4.54	%		222,385				7,091				4.23	%
Interest-earning deposits with banks	14,708				256				2.32	%		21,921				286				1.74	%
Other interest-earning assets	12,780				354				3.70	%		7,305				259				4.74	%
Total interest-earning assets/interest income	344,931				10,507				4.04	%		329,267				9,310				3.75	%
Noninterest-earning assets	51,668											47,332
Total assets	$	396,599										$	376,599
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market	$	55,268			477				1.15	%		$	56,732			$	279			.66	%
Demand	64,459				265				.55	%		60,058				117				.26	%
Savings	61,627				532				1.15	%		50,845				284				.75	%
Time deposits	20,017				244				1.63	%		17,081				130				1.02	%
Total interest-bearing deposits	201,371				1,518				1.01	%		184,716				810				.59	%
Borrowed funds
Federal Home Loan Bank borrowings	23,368				467				2.63	%		21,067				342				2.14	%
Bank notes and senior debt	26,571				675				3.35	%		28,352				594				2.76	%
Subordinated debt	5,530				169				4.09	%		5,096				159				4.16	%
Other	6,564				122				2.44	%		4,966				78				2.04	%
Total borrowed funds	62,033				1,433				3.05	%		59,481				1,173				2.60	%
Total interest-bearing liabilities/interest expense	263,404				2,951				1.48	%		244,197				1,983				1.08	%
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits	71,736											76,666
Accrued expenses and other liabilities	12,975											8,971
Equity	48,484											46,765
Total liabilities and equity	$	396,599										$	376,599
Interest rate spread									2.56	%										2.67	%
Impact of noninterest-bearing sources									.35											.28
Net interest income/margin					$	7,556			2.91	%						$	7,327			2.95	%

(continued on following page)

88    The PNC Financial Services Group, Inc. – Form 10-Q

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Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c) (Continued)

	Three months ended September 30
	2019											2018
Taxable-equivalent basis Dollars in millions	Average Balances				Interest Income/Expense				Average Yields/Rates			Average Balances				Interest Income/ Expense				Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed
Agency	$	32,926			$	223			2.70	%		$	28,241			$	194			2.76	%
Non-agency	1,716				38				8.89	%		2,128				38				7.18	%
Commercial mortgage-backed	5,728				43				2.97	%		4,366				30				2.72	%
Asset-backed	5,208				43				3.31	%		5,459				46				3.37	%
U.S. Treasury and government agencies	17,573				109				2.44	%		16,757				96				2.25	%
Other	3,053				26				3.41	%		3,996				34				3.28	%
Total securities available for sale	66,204				482				2.90	%		60,947				438				2.86	%
Securities held to maturity
Residential mortgage-backed	15,768				110				2.78	%		16,292				119				2.92	%
Commercial mortgage-backed	544				5				3.68	%		715				7				3.71	%
Asset-backed	79				1				5.48	%		189				2				3.65	%
U.S. Treasury and government agencies	769				5				2.86	%		752				6				2.85	%
Other	1,802				19				4.40	%		1,871				19				4.42	%
Total securities held to maturity	18,962				140				2.98	%		19,819				153				3.10	%
Total investment securities	85,166				622				2.91	%		80,766				591				2.92	%
Loans
Commercial	125,356				1,300				4.06	%		113,883				1,183				4.06	%
Commercial real estate	28,855				325				4.40	%		28,860				302				4.10	%
Equipment lease financing	7,272				70				3.82	%		7,202				68				3.78	%
Consumer	55,702				787				5.61	%		55,449				722				5.17	%
Residential real estate	20,497				216				4.21	%		17,948				199				4.45	%
Total loans	237,682				2,698				4.47	%		223,342				2,474				4.36	%
Interest-earning deposits with banks	15,632				85				2.17	%		19,151				95				1.97	%
Other interest-earning assets	14,094				123				3.49	%		7,114				92				5.19	%
Total interest-earning assets/interest income	352,574				3,528				3.95	%		330,373				3,252				3.89	%
Noninterest-earning assets	54,135											47,504
Total assets	$	406,709										$	377,877
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market	$	56,271			162				1.14	%		$	55,507			$	112			.80	%
Demand	65,444				95				.58	%		60,138				49				.32	%
Savings	64,054				185				1.14	%		52,919				122				.92	%
Time deposits	21,173				89				1.66	%		17,756				53				1.18	%
Total interest-bearing deposits	206,942				531				1.02	%		186,320				336				.71	%
Borrowed funds
Federal Home Loan Bank borrowings	25,883				164				2.48	%		21,516				133				2.42	%
Bank notes and senior debt	27,409				224				3.21	%		27,301				204				2.92	%
Subordinated debt	5,189				45				3.53	%		5,253				54				4.10	%
Other	5,452				35				2.43	%		5,768				30				2.11	%
Total borrowed funds	63,933				468				2.87	%		59,838				421				2.76	%
Total interest-bearing liabilities/interest expense	270,875				999				1.45	%		246,158				757				1.21	%
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits	72,149											76,155
Accrued expenses and other liabilities	14,529											8,853
Equity	49,156											46,711
Total liabilities and equity	$	406,709										$	377,877
Interest rate spread									2.50	%										2.68	%
Impact of noninterest-bearing sources									.34											.31
Net interest income/margin					$	2,529			2.84	%						$	2,495			2.99	%

(a)

Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value are included in noninterest-earning assets and noninterest-bearing liabilities, with changes in fair value recorded in Noninterest income.

(b)	Loan fees for the three months ended September 30, 2019 and September 30, 2018 were $49 million and $34 million, respectively. Loan fees for the nine months ended September 30, 2019 and September 30, 2018 were $120 million and $99 million, respectfully.

(c)

Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in this Statistical Information section for more information.

The PNC Financial Services Group, Inc. – Form 10-Q    89

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RECONCILIATION OF TAXABLE-EQUIVALENT NET INTEREST INCOME (NON-GAAP) (a)

 

		Nine months ended						Three months ended
In millions		September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net interest income (GAAP)		$	7,477		$	7,240		$	2,504		$	2,466
Taxable-equivalent adjustments		79			87			25			29
Net interest income (Non-GAAP)		$	7,556		$	7,327		$	2,529		$	2,495

(a)

The interest income earned on certain interest-earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the information set forth in Note 12 Legal Proceedings in the Notes To Consolidated Financial Statements under Part I, Item 1 of this Report, which is incorporated by reference in response to this item.

ITEM 1A. RISK FACTORS

There are no material changes in our risk factors from those previously disclosed in PNC’s 2018 Form 10-K in response to Part I, Item 1A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Details of our repurchases of PNC common stock during the third quarter of 2019 are included in the following table.

2019 period In thousands, except per share data	Total shares purchased (a)		Average price paid per share			Total shares purchased as part of publicly announced programs (b)		Maximum number of shares that may yet be purchased under the programs (b)
July 1 - 31	2,364		$	140.77		2,358		97,642
August 1 – 31	3,588		$	129.28		3,588		94,054
September 1 – 30	1,512		$	135.09		1,512		92,542
Total	7,464		$	134.10

(a)

Includes PNC common stock purchased in connection with our various employee benefit plans generally related to shares used to cover employee payroll tax withholding requirements. Note 11 Employee Benefit Plans and Note 12 Stock Based Compensation Plans in the Notes To Consolidated Financial Statements of our 2018 Annual Report on Form 10-K include additional information regarding our employee benefit and equity compensation plans that use PNC common stock.

(b)

On April 4, 2019, our Board of Directors approved the establishment of a new stock repurchase program authorization in the amount of 100 million shares of PNC common stock, effective July 1, 2019.  The previous 2015 authorization was terminated as of end of day on June 30, 2019. Repurchases are made in open market or privately negotiated transactions and the timing and exact amount of common stock repurchases will depend on a number of factors including, among others, market and general economic conditions, regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations, including the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process. In June 2019, we announced share repurchase programs of up to $4.3 billion for the four quarter period beginning with the third quarter of 2019, in accordance with PNC's 2019 capital plan. In the third quarter of 2019, we repurchased 7.5 million shares of common stock on the open market, with an average price of $134.09 per share and an aggregate repurchase price of $1.0 billion.

90    The PNC Financial Services Group, Inc. – Form 10-Q

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ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this Quarterly Report on Form 10-Q:

EXHIBIT INDEX
10.45		2019 Form of Performance Share Units Award Agreement
10.46		2019 Form of Restricted Share Units Award Agreement
10.47		2019 Form of Restricted Share Units Award Agreement - Senior Leader Program
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

You can obtain copies of these Exhibits electronically at the SEC’s website at www.sec.gov. The Exhibits are also available as part of this Form 10-Q on PNC’s corporate website at www.pnc.com/secfilings. Shareholders and bondholders may also obtain copies of Exhibits, without charge, by contacting Shareholder Relations at 800-843-2206 or via e-mail at investor.relations@pnc.com. The interactive data file (XBRL) exhibit is only available electronically.

CORPORATE INFORMATION

The PNC Financial Services Group, Inc.

Corporate Headquarters

The PNC Financial Services Group, Inc.

The Tower at PNC Plaza

300 Fifth Avenue

Pittsburgh, Pennsylvania 15222-2401

888-762-2265

Internet Information

Our financial reports and information about our products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under “About Us – Investor Relations.” We use our Twitter account, @pncnews, as an additional way of disseminating to the public information that may be relevant to investors.

We generally post the following under “About Us – Investor Relations” shortly before or promptly following its first use or release: financially-related press releases, including earnings releases and supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor conference calls or events, and access to live and recorded audio from earnings and other investor conference calls or events. In some cases, we may post the presentation materials for other investor conference calls or events several days prior to the call or event. For earnings and other conference calls or events, we generally include in our posted materials a cautionary statement regarding forward-looking and non-GAAP financial information, and we provide GAAP reconciliations when we include non-GAAP financial information. Such GAAP reconciliations may be in materials for the applicable presentation, in materials for prior presentations or in our annual, quarterly or current reports.

We may on occasion use our corporate website to expedite public access to time-critical information regarding PNC instead of using a press release or a filing with the SEC for first disclosure of the information. In some circumstances, the information may be relevant to investors but directed at customers, in which case it may be accessed directly through the home page rather than “About Us – Investor Relations.”

The PNC Financial Services Group, Inc. – Form 10-Q    91

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We are required to provide additional public disclosure regarding estimated income, losses and pro forma regulatory capital ratios under supervisory and PNC-developed hypothetical severely adverse economic scenarios, as well as information concerning our capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. We are also required to make certain additional regulatory capital-related public disclosures about our capital structure, risk exposures, risk assessment processes, risk-weighted assets and overall capital adequacy, including market risk-related disclosures and certain public disclosures regarding our liquidity position and liquidity risk management, under rules adopted by the Federal banking agencies. Under these regulations, we may satisfy these requirements through postings on our website, and we have done so and expect to continue to do so without also providing disclosure of this information through filings with the SEC.

Other information posted on our corporate website that may not be available in our filings with the SEC includes information relating to our corporate governance and annual communications from our chairman to shareholders, as well as our corporate social responsibility activities under “About Us – Corporate Responsibility.”

Where we have included web addresses in this Report, such as our web address and the web address of the SEC, we have included those web addresses as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part hereof.

Financial Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act) and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC File Number is 001-09718. You can obtain copies of these and other filings, including exhibits, electronically at the SEC’s internet website at www.sec.gov or on our corporate internet website at www.pnc.com/secfilings. Shareholders and bond holders may also obtain copies of these filings without charge by contacting Shareholder Services at 800-982-7652 or via the online contact form at www.computershare.com/contactus for copies without exhibits, or via email to investor.relations@pnc.com for copies of exhibits, including financial statement and schedule exhibits where applicable. The interactive data file (XBRL) exhibit is only available electronically.

Corporate Governance at PNC

Information about our Board of Directors and its committees and corporate governance, including our PNC Code of Business Conduct and Ethics (as amended from time to time), is available on our corporate website at www.pnc.com/corporategovernance. In addition, any future amendments to, or waivers from, a provision of the PNC Code of Business Conduct and Ethics that applies to our directors or executive officers (including our principal executive officer, principal financial officer and principal accounting officer or controller) will be posted at this internet address.

Shareholders who would like to request printed copies of the PNC Code of Business Conduct and Ethics or our Corporate Governance Guidelines or the charters of our Board’s Audit, Nominating and Governance, Personnel and Compensation, or Risk Committees (all of which are posted on the PNC corporate website) may do so by sending their requests to our Corporate Secretary at corporate headquarters at the above address. Copies will be provided without charge to shareholders.

Inquiries

For financial services call 888-762-2265.

Registered shareholders should contact Shareholder Services at 800-982-7652.

Analysts and institutional investors should contact Bryan Gill, Executive Vice President, Director of Investor Relations, at 412-768-4143 or via email at investor.relations@pnc.com.

News media representatives should contact PNC Media Relations at 412-762-4550 or via email at media.relations@pnc.com.

Dividend Policy

Holders of PNC common stock are entitled to receive dividends when declared by the Board of Directors out of funds legally available for this purpose. Our Board of Directors may not pay or set apart dividends on the common stock until dividends for all past dividend periods on any series of outstanding preferred stock have been paid or declared and set apart for payment. The Board presently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions, our financial condition and operating results, and other factors, including contractual restrictions and applicable government regulations and policies (such as those relating to the ability of bank and non-bank subsidiaries to pay dividends to the parent company and regulatory capital limitations). The amount of our dividend is also currently subject to the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process as described in the Capital Management portion of the Risk Management section of the Financial Review of this Report and in the Supervision and Regulation section in Item 1 of our 2018 Form 10-K.

92    The PNC Financial Services Group, Inc. – Form 10-Q

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Dividend Reinvestment and Stock Purchase Plan

The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common stock to conveniently purchase additional shares of common stock. You can obtain a prospectus and enrollment form by contacting Shareholder Services at 800-982-7652. Registered shareholders may also contact this phone number regarding dividends and other shareholder services.

Stock Transfer Agent and Registrar

Computershare

462 South 4th Street, Suite 1600

Louisville, KY 40202

800-982-7652

www.computershare.com/pnc

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on November 4, 2019 on its behalf by the undersigned thereunto duly authorized.

/s/ Robert Q. Reilly

Robert Q. Reilly

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

The PNC Financial Services Group, Inc. – Form 10-Q    93