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(a)	Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $1.1 billion, Loans of $.7 billion, and Other assets of

$.1 billion at December 31, 2019 and Loans held for sale of $.9 billion, Loans of $.8 billion, and Other assets of $.2 billion at December 31, 2018.

(b)	Represents our held for sale investment in BlackRock.

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

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

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(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)	Relates to the redemption of Perpetual Trust Securities in the first quarter of 2017. See Note 15 in our 2017 Annual Report on Form 10-K for additional information.

(c)	Common stock activity totaled less than .5 million shares issued.

(d)	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.

(e)	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 for additional detail.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE PNC FINANCIAL SERVICES GROUP, INC.

 

BUSINESS

The PNC Financial Services Group, Inc. (PNC) is one of the largest diversified financial services companies in the United States (U.S.) 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 primarily 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 considered the impact of subsequent events on these consolidated 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.

Discontinued Operations

A disposal of an asset or business that meets the criteria for held for sale classification is reported as discontinued operations when the disposal represents a strategic shift that has had, or will have a major effect on our operating results. We report an asset as held for sale when management has approved or received approval to sell the asset and is committed to a formal plan, the asset is available for immediate sale, the asset is being actively marketed, the sale is anticipated to occur during the ensuing year, and certain other specified criteria are met. An asset classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the asset exceeds its estimated fair value, the asset is written down to its fair value upon the held for sale designation. Our BlackRock held for sale asset is recorded at its carrying amount as we accounted for this investment under the equity method of accounting and the fair value of the asset exceeded the carrying value at each balance sheet date.

When presenting discontinued operations, assets classified as held for sale are segregated in the Consolidated Balance Sheet commencing in the period in which the asset meets all of the held for sale criteria described above and prior periods are recast. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Income for current and prior periods commencing in the period in which the asset or business is either disposed of or is classified as held for sale, including any gain or loss recognized on sale or adjustment of the carrying amount to fair value less cost to sell.

Variable Interest Entities

A variable interest entity (VIE) is a corporation, partnership, limited liability company, or any other legal structure used to conduct activities or hold assets generally that either:

•	Does not have equity investors with voting rights that can directly or indirectly make decisions about the entity’s activities through those voting rights or similar rights; or

•	Has equity investors that do not provide sufficient equity for the entity to finance its activities without additional subordinated financial support.

A VIE often holds financial assets, including loans or receivables, real estate or other property.

VIEs are assessed for consolidation under ASC 810 – Consolidation when we hold a variable interest in these entities. We consolidate a VIE if we are its primary beneficiary. The primary beneficiary of a VIE is determined to be the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the

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obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Upon consolidation of a VIE, we recognize all of the VIE’s assets, liabilities and noncontrolling interests on our Consolidated Balance Sheet. On a quarterly basis, we determine whether any changes occurred requiring a reassessment of whether we are the primary beneficiary of an entity.

See Note 3 Loan Sale and Servicing Activities and Variable Interest Entities for information about VIEs that we consolidate as well as those that we do not consolidate but in which we hold a significant variable interest.

Revenue Recognition

We earn interest and noninterest income from various sources, including:

•	Lending;

•	Securities portfolio;

•	Asset management;

•	Customer deposits;

•	Loan sales, loan securitizations, and servicing;

•	Brokerage services;

•	Sale of loans and securities;

•	Certain private equity activities; and

•	Securities, derivatives and foreign exchange activities.

In addition, we earn fees and commissions from:

•	Issuing loan commitments, standby letters of credit and financial guarantees;

•	Deposit account services;

•	Merchant services;

•	Selling various insurance products;

•	Providing treasury management services;

•	Providing merger and acquisition advisory and related services;

•	Debit and credit card transactions; and

•	Participating in certain capital markets transactions.

Service charges on deposit accounts are recognized when earned. Brokerage fees and gains and losses on the sale of securities and certain derivatives are recognized on a trade-date basis.

We record private equity income or loss based on changes in the valuation of the underlying investments or when we dispose of our interest.

We recognize gain/(loss) on changes in the fair value of certain financial instruments where we have elected the fair value option. These financial instruments include certain commercial and residential mortgage loans originated for sale, certain residential mortgage portfolio loans and resale agreements. We also recognize gain/(loss) on changes in the fair value of residential and commercial mortgage servicing rights (MSRs).

We recognize revenue from servicing residential mortgages, commercial mortgages and other consumer loans for others as earned based on the specific contractual terms. These revenues are reported on the Consolidated Income Statement in the line items Residential mortgage, Corporate services and Consumer services. We recognize revenue from securities, derivatives and foreign exchange customer-related trading, as well as securities underwriting activities, as these transactions occur or as services are provided. We generally recognize gains from the sale of loans upon meeting the derecognition criteria for transfers of financial assets. Mortgage revenue recognized is reported net of mortgage repurchase reserves.

For the fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers, revenue is recognized when or as those services are transferred to the customer. See Note 24 Fee-Based Revenue from Contracts with Customers for additional information related to revenue within the scope of Topic 606.

Cash and Cash Equivalents

Cash and due from banks are considered cash and cash equivalents for financial reporting purposes because they represent a primary source of liquidity.

Investments

We hold interests in various types of investments. The accounting for these investments is dependent on a number of factors including, but not limited to, items such as:

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•	Ownership interest;

•	Our plans for the investment; and

•	The nature of the investment.

Debt Securities

Debt securities are recorded on a trade-date basis. We classify debt securities as held to maturity and carry them at amortized cost if we have the positive intent and ability to hold the securities to maturity. Debt securities that we purchase for certain risk management activities or customer-related trading activities are carried at fair value and classified as trading securities and are reported in the Other assets line item on our Consolidated Balance Sheet. Realized and unrealized gains and losses on trading securities are included in Other noninterest income.

Debt securities not classified as held to maturity or trading are designated as securities available for sale and carried at fair value with unrealized gains and losses, net of income taxes, reflected in Accumulated other comprehensive income (AOCI).

 

On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for other than temporary impairment (OTTI). An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. Amortized cost includes adjustments (if any) made to the cost basis of an investment for accretion, amortization, previous other-than-temporary impairments and hedging gains and losses. After an investment security is determined to be impaired, we evaluate whether the decline in value is other-than-temporary. Declines in the fair value of available for sale and held to maturity debt securities that are deemed other-than-temporary and are attributable to credit deterioration are recognized in Other noninterest income on our Consolidated Income Statement in the period in which the determination is made. Declines in fair value which are deemed other-than-temporary and attributable to factors other than credit deterioration are recognized in AOCI on our Consolidated Balance Sheet.

We include all interest on debt securities, including amortization of premiums and accretion of discounts on investment securities, in net interest income using the constant effective yield method generally calculated over the contractual lives of the securities. Effective yields reflect either the effective interest rate implicit in the security at the date of acquisition or the effective interest rate determined based on improved cash flows subsequent to impairment. We compute gains and losses realized on the sale of available for sale debt securities on a specific security basis. These securities gains/(losses) are included in Other noninterest income on the Consolidated Income Statement.

Equity Securities and Partnership Interests

We account for equity securities, equity investments, private equity investments, and investments in limited partnerships, limited liability companies and other investments that are not required to be consolidated under one of the following methods:

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We use the equity method for general and limited partner ownership interests and limited liability companies in which we are considered to have significant influence over the operations of the investee. Under the equity method, we record our equity ownership share of net income or loss of the investee in Noninterest income and any dividends received on equity method investments are recorded as a reduction to the investment balance. When an equity investment experiences an other-than-temporary decline in value, we may be required to record a loss on the investment.

•	We measure equity securities that have a readily determinable fair value at fair value through Net income. Both realized and unrealized gains and losses are included in Noninterest income. Dividend income on these equity securities is included in Other interest income on our Consolidated Income Statement.

•

We generally use the practicability exception to fair value measurement for all other investments without a readily determinable fair value. When we elect this alternative measurement method, the carrying value is adjusted for impairment, if any, plus or minus changes in value resulting from observable price changes in orderly transactions for identical or similar instruments of the same issuer. These investments are written down to fair value if a qualitative assessment indicates impairment and the fair value is less than the carrying value. The amount of the write-down is accounted for as a loss included in Noninterest income. Distributions received on these investments are included in Noninterest income.

Investments described above are included in Equity investments on our Consolidated Balance Sheet.

Private Equity Investments

We report private equity investments, which include direct investments in companies, affiliated partnership interests and indirect investments in private equity funds, at estimated fair value. These estimates are based on available information and may not necessarily represent amounts that we will ultimately realize through distribution, sale or liquidation of the investments. Fair values of publicly-traded direct investments are determined using quoted market prices and are subject to various discount factors arising from security level restrictions, when appropriate. The valuation procedures applied to direct investments and indirect investments are

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detailed in Note 7 Fair Value. We include all private equity investments within Equity investments on our Consolidated Balance Sheet. Changes in fair value of private equity investments are recognized in Other noninterest income.

We consolidate affiliated partnerships when we have determined that we have control of the partnership or are the primary beneficiary if the entity is a VIE. The portion we do not own is reflected in Noncontrolling interests on our Consolidated Balance Sheet.

Loans

Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Management’s intent and view of the foreseeable future may change based on changes in business strategies, the economic environment, market conditions and the availability of government programs.

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.

Except as described below, loans held for investment are stated at recorded investment, which represents the principal amounts outstanding, net of unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Interest on performing loans (excluding interest on purchased impaired loans, which is further discussed below) is accrued based on the principal amount outstanding and recorded in Interest income as earned using the constant effective yield method. Loan origination fees, direct loan origination costs, and loan premiums and discounts are deferred and accreted or amortized into Net interest income using the constant effective yield method, over the contractual life of the loan.

In addition to originating loans, we also acquire loans through portfolio purchases or acquisitions of other financial services companies. For certain acquired loans that have experienced a deterioration of credit quality, we follow the guidance contained in ASC 310-30 – Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under this guidance, acquired purchased impaired loans are to be recorded at fair value without the carryover of any existing valuation allowances. When evidence of credit quality deterioration and evidence that it is probable that we will be unable to collect all contractual amounts due exist, we consider the loans to be purchased credit impaired and we estimate the amount and timing of undiscounted expected cash flows at acquisition for each loan either individually or on a pool basis. The excess of undiscounted cash flows expected to be collected on a purchased impaired loan (or pool of loans) over its carrying value represents the accretable yield which is recognized into interest income over the remaining life of the loan (or pool of loans) using the constant effective yield method. Subsequent decreases in expected cash flows that are attributable, at least in part, to credit quality are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the Allowance for Loan and Lease Losses (ALLL). Subsequent increases in expected cash flows are recognized as a provision recapture of previously recorded ALLL or prospectively through an adjustment of the loan’s or pool’s yield over its remaining life.

Loans Held for Sale

We designate loans as held for sale when we have the intent to sell them. We transfer loans to the Loans held for sale category at the lower of cost or estimated fair value less cost to sell. At the time of transfer, write-downs on the loans are recorded as charge-offs. We establish a new cost basis upon transfer. Any subsequent lower-of-cost-or-market adjustment is determined on an individual loan basis and is recognized as a valuation allowance with any charges included in Other noninterest income.

We have elected to account for certain commercial and residential mortgage loans held for sale at fair value. The changes in the fair value of the commercial mortgage loans are measured and recorded in Other noninterest income while the residential mortgage loans are measured and recorded in Residential mortgage noninterest income each period. See Note 7 Fair Value for additional information.

Interest income with respect to loans held for sale is accrued based on the principal amount outstanding and the loan’s contractual interest rate.

In certain circumstances, loans designated as held for sale may be transferred to held for investment based on a change in strategy. We transfer these loans at the lower of cost or estimated fair value; however, any loans originated or purchased for held for sale and designated at fair value remain at fair value for the life of the loan.

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. Leveraged leases, a form of financing leases, are carried net of nonrecourse debt. We recognize income over the term of the lease using the constant effective yield method. Lease residual values are reviewed for impairment at least annually. Gains or losses on the sale of leased assets are included in Other noninterest income while valuation adjustments on lease residuals are included in Other noninterest expense.

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We adopted Accounting Standards Update (ASU) 2016-02 – Leases as of January 1, 2019 and recognized lease liabilities and right-of-use (ROU) assets of $2.1 billion and $2.0 billion, respectively. In addition, we recognized a one-time pre-tax adjustment of $83 million to retained earnings, related primarily to deferred gains on previous sale-leaseback transactions. 

Loan Sales, Loan Securitizations and Retained Interests

We recognize the sale of loans or other financial assets when the transferred assets are legally isolated from our creditors and the appropriate accounting criteria are met. We have sold mortgage and other loans through securitization transactions. In a securitization, financial assets are transferred into trusts or to special purpose entities (SPEs) in transactions to effectively legally isolate the assets from us.

In a securitization, the trust or SPE issues beneficial interests in the form of senior and subordinated securities backed or collateralized by the assets sold to the trust. The senior classes of the asset-backed securities typically receive investment grade credit ratings at the time of issuance. These ratings are generally achieved through the creation of lower-rated subordinated classes of asset-backed securities, as well as subordinated or residual interests. In certain cases, we may retain a portion or all of the securities issued, interest-only strips, one or more subordinated tranches, servicing rights and, in some cases, cash reserve accounts. Securitized loans are removed from the balance sheet and a net gain or loss is recognized in Noninterest income at the time of initial sale. Gains or losses recognized on the sale of the loans depend on the fair value of the loans sold and the retained interests at the date of sale. We generally estimate the fair value of the retained interests based on the present value of future expected cash flows using assumptions as to discount rates, interest rates, prepayment speeds, credit losses and servicing costs, if applicable.

With the exception of loan sales to certain U.S. government-chartered entities, our loan sales and securitizations are generally structured without recourse to us except for representations and warranties and with no restrictions on the retained interests. We originate, sell and service commercial mortgage loans under the Federal National Mortgage Association (FNMA) Delegated Underwriting and Servicing (DUS) program. Under the provisions of the DUS program, we participate in a loss-sharing arrangement with FNMA. When we are obligated for loss-sharing or recourse, our policy is to record such liabilities initially at fair value and subsequently reserve for estimated losses in accordance with guidance contained in applicable GAAP.

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Commercial Lending
Loans Classified as Nonperforming and Accounted for as Nonaccrual	•  Loans accounted for at amortized cost where: –  The loan is 90 days or more past due. –  The loan is rated substandard or worse due to the determination that full collection of principal and     interest is not probable as demonstrated by the following conditions: •  The collection of principal or interest is 90 days or more past due; •  Reasonable doubt exists as to the certainty of the borrower’s future debt service ability,    according to the terms of the credit arrangement, regardless of whether 90 days have passed or not; •  The borrower has filed or will likely file for bankruptcy; •  The bank advances additional funds to cover principal or interest; •  We are in the process of liquidating a commercial borrower; or •  We are pursuing remedies under a guarantee.
Loans Excluded from Nonperforming Classification but Accounted for as Nonaccrual	•  Loans accounted for under the fair value option and full collection of principal and interest is not probable. •  Loans accounted for at the lower of cost or market less costs to sell (held for sale) and full collection of    principal and interest is not probable.
Loans Excluded from Nonperforming Classification and Nonaccrual Accounting	•  Loans that are well secured and in the process of collection.

Consumer Lending
Loans Classified as Nonperforming and Accounted for as Nonaccrual	•  Loans accounted for at amortized cost where full collection of contractual principal and interest is not    deemed probable as demonstrated in the policies below: –  The loan is 90 days past due for home equity and installment loans, and 180 days past due for well    secured residential real estate loans; –  The loan has been modified and classified as a troubled debt restructuring (TDR); –  Notification of bankruptcy has been received; –  The bank holds a subordinate lien position in the loan and the first lien mortgage loan is seriously    stressed (i.e., 90 days or more past due); –  Other loans within the same borrower relationship have been placed on nonaccrual or charge-offs have    been taken on them; –  The bank has ordered the repossession of non-real estate collateral securing the loan; or –  The bank has charged-off the loan to the value of the collateral.
Loans Excluded from Nonperforming Classification but Accounted for as Nonaccrual	•  Loans accounted for under the fair value option and full collection of principal and interest is not probable. •  Loans accounted for at the lower of cost or market less costs to sell (held for sale) and full collection of    principal and interest is not probable.
Loans Excluded from Nonperforming Classification and Nonaccrual Accounting	•  Purchased impaired loans because interest income is accreted through the accounting model. •  Certain government insured loans where substantially all principal and interest is insured. •  Residential real estate loans that are well secured and in the process of collection. •  Consumer loans and lines of credit, not secured by residential real estate or automobiles, as permitted by    regulatory guidance.

See Note 4 Asset Quality in this Report for additional detail on nonperforming assets and asset quality indicators for commercial and consumer loans.

Commercial Lending

We generally charge off Commercial Lending (Commercial, Commercial Real Estate, and Equipment Lease Financing) nonperforming loans when we determine that a specific loan, or portion thereof, is uncollectible. This determination is based on the specific facts and circumstances of the individual loans. In making this determination, we consider the viability of the business or project as a going concern, the past due status when the asset is not well-secured, the expected cash flows to repay the loan, the value of the collateral, and the ability and willingness of any guarantors to perform.

Additionally, in general, for smaller commercial loans of $1 million or less, a partial or full charge-off occurs at 120 days past due for term loans and 180 days past due for revolvers. Certain small business credit card balances that are placed on nonaccrual status when they become 90 days or more past due are charged-off at 180 days past due.

Consumer Lending

Home equity installment loans, home equity lines of credit, and residential real estate loans that are not well-secured and in the process of collection are charged-off at no later than 180 days past due. At that time, the basis in the loan is reduced to the fair value of the collateral less costs to sell. In addition to this policy, the bank recognizes a charge-off on a secured consumer loan when:

•	The bank holds a subordinate lien position in the loan and a foreclosure notice has been received on the first lien loan;

•	The bank holds a subordinate lien position in the loan which is 30 days or more past due with a combined loan to value ratio of greater than or equal to 110% and the first lien loan is seriously stressed (i.e., 90 days or more past due);

•	The loan is modified or otherwise restructured in a manner that results in the loan becoming collateral dependent;

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•	Notification of bankruptcy has been received within the last 60 days;

•	The borrower has been discharged from personal liability through Chapter 7 bankruptcy and has not formally reaffirmed his or her loan obligation to us; or

•	The collateral securing the loan has been repossessed and the value of the collateral is less than the recorded investment of the loan outstanding.

For loans that continue to meet any of the above policies, collateral values are updated annually and subsequent declines in collateral values are charged-off resulting in incremental provision for credit loss.

Most consumer loans and lines of credit, not secured by residential real estate, are charged off after 120-180 days past due.

Accounting for Nonperforming Assets and Leases and Other Nonaccrual Loans

For accrual loans, interest income is accrued on a daily basis and certain fees and costs are deferred upon origination and recognized in income over the term of the loan utilizing an effective yield method. For nonaccrual loans, interest income accrual and deferred fee/cost recognition is discontinued. Additionally, the current year accrued and uncollected interest is reversed through Net interest income and prior year accrued and uncollected interest is charged-off. Nonaccrual loans may also be charged-off to reduce the basis to the fair value of collateral less costs to sell.

If payment is received on a nonaccrual loan, generally the payment is first applied to the recorded investment; payments are then applied to recover any charged-off amounts related to the loan. Finally, if both recorded investment and any charge-offs have been recovered, then the payment will be recorded as interest income. For certain nonaccrual consumer loans, the receipt of interest payments is recognized as interest income on a cash basis. Cash basis income recognition is applied if a loan’s recorded investment is deemed fully collectible and the loan has performed under contractual terms for at least six months.

For TDRs, payments are applied based upon their contractual terms unless the related loan is deemed non-performing. TDRs are generally included in nonperforming and nonaccrual loans. However, after a reasonable period of time in which the loan performs under restructured terms and meets other performance indicators, it is returned to performing/accruing status. This return to performing/accruing status demonstrates that the bank expects to collect all of the loan’s remaining contractual principal and interest. TDRs resulting from i) borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and ii) borrowers that are not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

Other nonaccrual loans are generally not returned to accrual status until the borrower has performed in accordance with the contractual terms and other performance indicators for at least six months, the period of time which was determined to demonstrate the expected collection of the loan’s remaining contractual principal and interest. When a nonperforming loan is returned to accrual status, it is then considered a performing loan.

See Note 4 Asset Quality and Note 5 Allowance for Loan and Lease Losses in this Report for additional TDR information.

Foreclosed assets consist of any asset seized or property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure. Other real estate owned comprises principally commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. After obtaining a foreclosure judgment, or in some jurisdictions the initiation of proceedings under a power of sale in the loan instruments, the property will be sold. When we are awarded title or completion of deed-in-lieu of foreclosure, we transfer the loan to foreclosed assets included in Other assets on our Consolidated Balance Sheet. Property obtained in satisfaction of a loan is initially recorded at estimated fair value less cost to sell. Based upon the estimated fair value less cost to sell, the recorded investment of the loan is adjusted and, typically, a charge-off/recovery is recognized to the ALLL. We estimate fair values primarily based on appraisals, or sales agreements with third parties. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or estimated fair value less cost to sell. Valuation adjustments on these assets and gains or losses realized from disposition of such property are reflected in Other noninterest expense.

For certain mortgage loans that have a government agency guarantee, we establish a separate other receivable upon foreclosure. The receivable is measured based on the loan balance (inclusive of principal and interest) that is expected to be recovered from the guarantor.

Allowance for Loan and Lease Losses

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 portfolios as of the balance sheet date. Our determination of the allowance is based on periodic evaluations of these loan and lease portfolios and other relevant factors. This critical estimate includes significant use of our own historical data and complex methods to interpret this data. These evaluations are inherently subjective, as they require material estimates and may be susceptible to significant change, and include, among others:

•	Probability of default (PD);

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•	Loss given default (LGD);

•	Exposure at default (EAD);

•	Movement through delinquency stages;

•	Amounts and timing of expected future cash flows;

•	Value of collateral; and

•	Qualitative factors, such as changes in current economic conditions, that may not be reflected in modeled results.

For all loans, except purchased impaired loans, the ALLL is the sum of three components: (i) asset specific/individual impaired reserves, (ii) quantitative (formulaic or pooled) reserves and (iii) qualitative (judgmental) reserves.

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 portfolio performance experience, the financial strength of the borrowers, and economic conditions. Key reserve assumptions are periodically updated.

See Note 5 Allowance for Loan and Lease Losses for additional detail on our ALLL.

Asset Specific/Individual Component

Nonperforming loans that are considered impaired under ASC 310 – Receivables, which include all commercial and consumer TDRs, are evaluated for a specific reserve. Specific reserve allocations are determined as follows:

•	For commercial nonperforming loans and commercial TDRs greater than or equal to a defined dollar threshold, specific reserves are based on an analysis of the present value of the loan’s expected future cash flows, the loan’s observable market price or the fair value of the collateral.

•	For commercial nonperforming loans and commercial TDRs below the defined dollar threshold, the individual loan’s LGD percentage is multiplied by the loan balance and the results are aggregated for purposes of measuring specific reserve impairment.

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Consumer nonperforming loans are collectively reserved for unless classified as consumer TDRs. For consumer TDRs, specific reserves are determined through an analysis of the present value of the loan’s expected future cash flows, except for those instances where loans have been deemed collateral dependent, including loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us. Once that determination has been made, those TDRs are charged down to the fair value of the collateral less costs to sell at each period end.

Commercial Lending Quantitative Component

The estimates of the quantitative component of ALLL for incurred losses within the commercial lending portfolio are determined through quantitative loss modeling utilizing PD, LGD and outstanding balance of the loan. Based upon borrower and transaction characteristics, we assign PDs and LGDs. Each of these parameters is determined based on internal historical data, supplemented with third party data and management judgment, as deemed necessary. PD is influenced by such factors as leverage, liquidity, industry, obligor financial structure, access to capital and cash flow. LGD is influenced by collateral type, original and/or updated loan-to-value ratio (LTV), facility structure and other factors.

Consumer Lending Quantitative Component

Quantitative estimates within the consumer lending portfolio segment are calculated primarily using 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 over our loss emergence period.

Qualitative Component

While our reserve methodologies strive to reflect all relevant risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between estimates and actual outcomes. We may adjust our reserve for such risks. The ALLL also includes factors that may not be directly measured in the determination of specific or pooled reserves. Such qualitative factors may include:

•	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.

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Allowance for Purchased Non-Impaired Loans

ALLL for purchased non-impaired loans is determined based upon a comparison between the methodologies described above and the remaining acquisition date fair value discount, if any, that has yet to be accreted into interest income. After making the comparison, an ALLL is recorded for the amount greater than the discount, or no ALLL is recorded if the discount is greater.

Allowance for Purchased Impaired Loans

ALLL for purchased impaired loans is determined in accordance with ASC 310-30 by comparing the net present value of management’s best estimate of cash flows expected to be collected over the life of the pool of loans to the recorded investment for a given pool of loans. In cases where the net present value of expected cash flows is lower than the recorded investment, ALLL is established.

Allowance for Unfunded Loan Commitments and Letters of Credit

We maintain the allowance for unfunded loan commitments and letters of credit at a level we believe is appropriate to absorb estimated probable credit losses incurred on these unfunded credit facilities as of the balance sheet date. We determine the allowance based on periodic evaluations of the unfunded credit facilities, including an assessment of the probability of commitment usage, credit risk factors, and, solely for commercial lending, the terms and expiration dates of the unfunded credit facilities. Other than the estimation of the probability of funding, the reserve for unfunded loan commitments is estimated in a manner similar to the methodology used for determining reserves for funded exposures. The allowance for unfunded loan commitments and letters of credit is recorded as a liability on the Consolidated Balance Sheet. Net adjustments to the allowance for unfunded loan commitments and letters of credit are included in the provision for credit losses.

Mortgage Servicing Rights

We provide servicing under various loan servicing contracts for commercial and residential loans. These contracts are either purchased in the open market or retained as part of a loan securitization or loan sale. All acquired or originated servicing rights are measured at fair value. Fair value is based on the present value of the expected future net cash flows, including assumptions as to:

•	Deposit balances and interest rates for escrow and commercial reserve earnings;

•	Discount rates;

•	Estimated prepayment speeds; and

•	Estimated servicing costs.

We measure commercial and residential MSRs at fair value in order to reduce any potential measurement mismatch between our economic hedges and the MSRs. We manage the risk by hedging the fair value of MSRs with derivatives and securities which are expected to increase in value when the value of the servicing right declines. Changes in the fair value of MSRs are recognized as gains/(losses). The fair value of these servicing rights is estimated by using a discounted cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other factors which are determined based on current market conditions.

Fair Value of Financial Instruments

The fair value of financial instruments and the methods and assumptions used in estimating fair value amounts and financial assets and liabilities for which fair value was elected are detailed in Note 7 Fair Value.

Goodwill

Goodwill arising from business acquisitions represents the value attributable to unidentifiable intangible elements in the business acquired. At least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date, management performs our goodwill impairment test at a reporting unit level.

If, after considering all relevant events and circumstances, PNC determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary. If PNC elects to bypass the qualitative analysis, or concludes via qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a two-step goodwill impairment test is performed. In the first step, inputs are generated and used in calculating the fair value of the reporting unit, which is compared to its carrying amount. The fair value of our reporting units is determined by using discounted cash flows and/or market comparability methodologies. If the fair value is greater than the carrying amount, then the reporting unit's goodwill is deemed not to be impaired. If the fair value is less than the carrying amount, then the second step is performed. In the second step, the implied fair value of reporting unit goodwill, which is determined as if the reporting unit had been acquired in a business combination, would be compared to the carrying amount of that goodwill. If the carrying amount of goodwill exceeds the implied fair value of goodwill, the difference is recognized as an impairment loss.

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Depreciation and Amortization

For financial reporting purposes, we depreciate premises and equipment, net of salvage value, principally using the straight-line method over their estimated useful lives.

We use estimated useful lives for furniture and equipment ranging from one to 10 years, and depreciate buildings over an estimated useful life of up to 40 years. We amortize leasehold improvements over their estimated useful lives of up to 15 years or the respective lease terms, whichever is shorter.

We purchase, as well as internally develop and customize, certain software to enhance or perform internal business functions. Software development costs incurred in the planning and post-development project stages are charged to Noninterest expense. Costs associated with designing software configuration and interfaces, installation, coding programs and testing systems are capitalized and amortized using the straight-line method over periods ranging from one to 10 years.

We review the remaining useful lives and carrying values of premises and equipment to determine whether an event has occurred that would indicate a change in useful life is warranted or if any impairment exists.

Other Comprehensive Income

Other comprehensive income, on an after-tax basis, primarily consists of unrealized gains or losses, excluding OTTI attributable to credit deterioration, on investment securities classified as available for sale, unrealized gains or losses on derivatives designated as cash flow hedges, and changes in pension and other postretirement benefit plan liability adjustments. Details of each component are included in Note 17 Other Comprehensive Income.

Treasury Stock

We record common stock purchased for treasury at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the first-in, first-out basis.

Derivative Instruments and Hedging Activities

We use a variety of financial derivatives to both mitigate exposure to market (primarily interest rate) and credit risks inherent in our business activities, as well as to facilitate customer risk management activities. We manage these risks as part of our asset and liability management process and through credit policies and procedures.

We recognize all derivative instruments at fair value as either Other assets or Other liabilities on the Consolidated Balance Sheet and the related cash flows in the Operating Activities section of the Consolidated Statement of Cash Flows. Adjustments for counterparty credit risk are included in the determination of fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a cash flow or net investment hedging relationship. For all other derivatives, changes in fair value are recognized in earnings.

We utilize a net presentation for derivative instruments on the Consolidated Balance Sheet taking into consideration the effects of legally enforceable master netting agreements. Cash collateral exchanged with counterparties is also netted against the applicable derivative exposures by offsetting obligations to return, or general rights to reclaim, cash collateral against the fair values of the net derivatives being collateralized.

For those derivative instruments that are designated and qualify as accounting hedges, we designate the hedging instrument, based on the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of the net investment in a foreign operation.

We formally document the relationship between the hedging instruments and hedged items, as well as the risk management objective and strategy, before undertaking an accounting hedge. To qualify for hedge accounting, the derivatives and related hedged items must be designated as a hedge at inception of the hedge relationship. In addition, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. For accounting hedge relationships, we formally assess, both at the inception of the hedge and on an ongoing basis, if the derivatives are highly effective in offsetting designated changes in the fair value or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective, hedge accounting is discontinued. We assess effectiveness using statistical regression analysis. Where the critical terms of the derivative and hedged item match, effectiveness may be assessed qualitatively.

For derivatives that are designated as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a liability attributable to a particular risk, such as changes in LIBOR), changes in the fair value of the hedging instrument are recognized in earnings and offset by also recognizing in earnings the changes in the fair value of the hedged item attributable to the hedged risk. To the extent the change in fair value of the derivative does not offset the change in fair value of the hedged item, the difference is reflected in the Consolidated Income Statement in the same income statement line as the hedged item.

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For derivatives designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows), the gain or loss on derivatives is reported as a component of AOCI and subsequently reclassified to income in the same period or periods during which the hedged cash flows affect earnings and recorded in the same income statement line item as the hedged cash flows. For derivatives designated as a hedge of net investment in a foreign operation, the gain or loss on the derivatives is reported as a component of AOCI.

We discontinue hedge accounting when it is determined that the derivative no longer qualifies as an effective hedge; the derivative expires or is sold, terminated or exercised; or the derivative is de-designated as a fair value or cash flow hedge or, for a cash flow hedge, it is no longer probable that the forecasted transaction will occur by the end of the originally specified time period.

We purchase or originate financial instruments that contain an embedded derivative. For financial instruments not measured at fair value with changes in fair value reported in earnings, we assess, at inception of the transaction, if the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the host contract, and whether a separate instrument with the same terms as the embedded derivative would be a derivative. If the embedded derivative is not clearly and closely related to the host contract and meets the definition of a derivative, the embedded derivative is recorded separately from the host contract with changes in fair value recorded in earnings, unless we elect to account for the hybrid instrument at fair value.

We have elected, on an instrument-by-instrument basis, fair value measurement for certain financial instruments with embedded derivatives.

We enter into commitments to originate residential and commercial mortgage loans for sale. We also enter into commitments to purchase or sell commercial and residential real estate loans. These commitments are accounted for as free-standing derivatives which are recorded at fair value in Other assets or Other liabilities on the Consolidated Balance Sheet. Any gain or loss from the change in fair value after the inception of the commitment is recognized in Noninterest income.

Income Taxes

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that we expect will apply at the time when we believe the differences will reverse. Changes in tax rates and tax law are accounted for in the period of enactment. Thus, at the enactment date, deferred taxes are remeasured and the change is recognized in Income Tax expense. The recognition of deferred tax assets requires an assessment to determine the realization of such assets. Realization refers to the incremental benefit achieved through the reduction in future taxes payable or refunds receivable from the deferred tax assets, assuming that the underlying deductible differences and carryforwards are the last items to enter into the determination of future taxable income. We establish a valuation allowance for tax assets when it is more likely than not that they will not be realized, based upon all available positive and negative evidence.

We use the deferral method of accounting on investments that generate investment tax credits. Under this method, the investment tax credits are recognized as a reduction to the related asset.

Earnings Per Common Share

Basic earnings per common share is calculated using the two-class method to determine income attributable to common shareholders. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities under the two-class method. Distributed dividends and dividend equivalents related to participating securities and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. Income attributable to common shareholders is then divided by the weighted-average common shares outstanding for the period.

Diluted earnings per common share is calculated under the more dilutive of either the treasury method or the two-class method. For the diluted calculation, we increase the weighted-average number of shares of common stock outstanding by the assumed conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance, if later, and the number of shares of common stock that would be issued assuming the exercise of stock options and warrants and the issuance of incentive shares using the treasury stock method. These adjustments to the weighted-average number of shares of common stock outstanding are made only when such adjustments will dilute earnings per common share. See Note 15 Earnings Per Share for additional information.

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Recently Adopted Accounting Standards

Accounting Standards Update (ASU)	Description	Financial Statement Impact
Leases - ASU 2016-02 Issued February 2016	• Requires lessees to recognize a right-of-use asset and related lease liability for all leases with lease terms of more than 12 months. • Recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. • Targeted changes have been made to the lessor accounting model to align the guidance with the new lessee model and revenue recognition guidance. • Permits option to adopt using a modified retrospective approach through a cumulative-effect adjustment to retained earnings at adoption.	• Adopted January 1, 2019 under the modified retrospective approach. • Amended presentation and disclosures are made prospectively. Refer to the lease disclosures in this Note 1 and Note 25 Leases for additional information. • The impact of adoption was immaterial to PNC's consolidated income statement. • The impact of adoption of the changes to the lessor accounting model did not have a material impact on our financial statements.
Accounting Standards Update (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 Codification Improvements - ASU 2019-11 Issued November 2019	• Required effective date of January 1, 2020. • Commonly referred to as the Current Expected Credit Losses (CECL) standard. • Replaces measurement, recognition and disclosure guidance for credit related reserves (i.e., ALLL and the allowance for unfunded loan commitments and letters of credit) and OTTI for debt securities. • Requires the use of an expected credit loss methodology; specifically, current expected credit losses for the remaining life of the asset will be recognized starting from the time of origination or acquisition. • Methodology applies 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 the deduction or addition of 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 at adoption.	Subsequent event • We adopted the CECL standard on January 1, 2020. • Based on current and forecasted economic conditions and portfolio balances as of January 1, 2020, the adoption of the CECL standard resulted in an ACL of $3.7 billion. See Table 34 for details of the ACL composition and a summary of the impact of adoption. The overall change in total reserves at December 31, 2019 was primarily due to the move to a life of loan reserve estimate as well as methodology changes required under CECL. • Our ACL estimate uses various models and estimation techniques based on our historical loss experience, current borrower characteristics, current conditions, reasonable and supportable forecasts and other relevant factors. Expected losses in our reasonable and supportable forecast period of three years are estimated using four macroeconomic scenarios and their estimated probabilities. These scenarios are produced by our economics team using a combination of structural models and expert judgment and are designed to reflect a range of plausible economic conditions and emerging business cycles over the next three years. After the end of the reasonable and supportable forecast period, expected losses are reverted to historical average losses, using a reversion period where applicable. • ACL also includes identified qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, and other relevant factors to ensure the ACL reflects our best estimate of current expected credit losses. • We expect that 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 conditions and portfolio quality as of the estimation date. 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. Changes to probability weights assigned to these scenarios and timing of peak business cycles reflected by the scenarios could materially affect our loss estimates. - Portfolio volume and mix: Changes to the volume and mix in our portfolios could materially affect our estimates, as CECL reserves would be recognized at origination or acquisition. • We implemented the CECL standard using the modified retrospective approach, and did not elect to maintain purchased credit impaired accounting upon adoption. We elected the one-time fair value option election for some of our purchased credit impaired loans and nonperforming assets.

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Accounting Standards Update (ASU)	Description	Financial Statement Impact
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. • 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 • This ASU permits a one-time transfer out of held to maturity securities to provide entities the opportunity to hedge fixed rate, prepayable securities under a last of layer hedging strategy (although an entity is not required to hedge such securities subsequent to transfer).	Subsequent event • We adopted this standard on January 1, 2020. • As permitted by the eligibility requirements in this guidance, at adoption we elected to transfer debt securities with an amortized cost of $16.2 billion (fair value of $16.5 billion) from held to maturity to the available for sale portfolio. The transfer resulted in a pretax increase to AOCI of $306 million. There were no other impacts to PNC's consolidated financial statements from the adoption of this guidance.

Table 33: Impact of the CECL Standard Adoption

		ALLL (a)						ACL (a)
In millions		December 31, 2019			Transition Adjustment			January 1, 2020
Allowance (a)
Loans and leases
Commercial lending		$	1,812		$	(304	)	$	1,508
Consumer lending		930			767			1,697
Total loans and leases allowance		2,742			463			3,205
Off-balance sheet credit exposures (b)		318			179			497
Other		—			19			19
Total allowance		$	3,060		$	661		$	3,721
In millions		December 31, 2019			Transition Adjustment			January 1, 2020
Impact to retained earnings (c)		$	42,215		$	(671	)	$	41,544

(a) Amounts at December 31, 2019 represent the ALLL and the allowance for unfunded loan commitments and letters of credit. The amounts at January 1, 2020 represent the ACL.

(b) Off-balance sheet credit exposures are primarily unfunded loan commitments and letters of credit.

(c) Transition adjustment includes the increase in the total allowance of $.7 billion and the impact of the fair value option election of $.2 billion, offset by the tax impact of $.2 billion.

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On May 15, 2020, PNC completed the sale of its 31.6 million shares of BlackRock, Inc., common and preferred stock through a registered secondary offering at a price of $420 per share. In addition, BlackRock repurchased 2.65 million shares from PNC at a price of $414.96 per share. The total proceeds from the sale were $14.2 billion in cash, net of $.2 billion in expenses, and resulted in a gain on sale of $4.3 billion. Additionally, PNC contributed 500,000 BlackRock shares to the PNC Foundation on May 18, 2020.

As a result, PNC has divested its entire holding in BlackRock. PNC and its affiliates only hold shares of BlackRock stock in a fiduciary capacity for clients of PNC and its affiliates. The divestiture of BlackRock represents a strategic shift that has a major effect on our operations and financial results. We have reported the historical results of operations and earnings per share for continuing and discontinued operations in the consolidated financial statements for all periods presented. All other notes to the consolidated financial statements have been revised to reflect only continuing operations. BlackRock activity and balances have been removed from Note 15 Earnings Per Share, Note 17 Other Comprehensive Income, Note 18 Income Taxes, Note 22 Parent Company and Note 23 Segment Reporting. The remaining Notes were not impacted by discontinued operations.

The following table summarizes the results from the discontinued operations of BlackRock included in the Consolidated Income Statement:

Table 34: Consolidated Income Statement - Discontinued Operations

	Year ended December 31
In millions	2019				2018				2017
Noninterest income	$	988			$	942			$	1,077
Total revenue	988				942				1,077
Income from discontinued operations before income taxes and noncontrolling interests	988				942				1,077
Income taxes	161				154				287
Net income from discontinued operations	$	827			$	788			$	790

The following table summarizes the cash flows of discontinued operations of BlackRock included in the Consolidated Statement of Cash Flows:

Table 35: Consolidated Statement of Cash Flows - Discontinued Operations

	Year ended December 31
In millions	2019				2018				2017
Cash flows from discontinued operations
Net cash provided by operating activities of discontinued operations	$	299			$	264			$	65

Loan Sale and Servicing Activities

We have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. These transfers have occurred through Agency securitization, Non-agency securitization, and loan sale transactions. Agency securitizations consist of securitization transactions with FNMA, Federal Home Loan Mortgage Corporation (FHLMC) and Government National Mortgage Association (GNMA) (collectively, the Agencies). FNMA and FHLMC generally securitize our transferred loans into mortgage-backed securities for sale into the secondary market through SPEs that they sponsor. As an authorized GNMA issuer/servicer, we pool Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) insured loans into mortgage-backed securities for sale into the secondary market. In Non-agency securitizations, we have transferred loans into securitization SPEs. In other instances, third-party investors have also purchased our loans in loan sale transactions and in certain instances have subsequently sold these loans into securitization SPEs. Securitization SPEs utilized in the Agency and Non-agency securitization transactions are VIEs.

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Our continuing involvement in the FNMA, FHLMC, and GNMA securitizations, Non-agency securitizations, and loan sale transactions 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 SPEs.

Depending on the transaction, we may act as the master, primary and/or special servicer to the securitization SPEs or third-party investors. 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. Servicing advances, which are generally reimbursable, are made for principal and interest and collateral protection and are carried in Other assets at cost.

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 7 Fair Value and Note 8 Goodwill and Mortgage Servicing Rights for further discussion of our servicing rights.

Certain loans transferred to the Agencies contain removal of account provisions (ROAPs). Under these ROAPs, we hold an option to repurchase at par individual delinquent loans that meet certain criteria. In other limited cases, GNMA has granted us the right to repurchase current loans when we intend to modify the borrower’s interest rate under established guidelines. When we have the unilateral ability to repurchase a loan, effective control over the loan has been regained and we recognize an asset (in either Loans or Loans held for sale) and a corresponding liability (in Other borrowed funds) on the balance sheet regardless of our intent to repurchase the loan.

The Agency and Non-agency mortgage-backed securities issued by the securitization SPEs that are purchased and held on our balance sheet are typically purchased in the secondary market. We do not retain any credit risk on our Agency mortgage-backed security positions as FNMA, FHLMC and the U.S. Government (for GNMA) guarantee losses of principal and interest.

We also have involvement with certain Agency and Non-agency commercial securitization SPEs where we have not transferred commercial mortgage loans. These SPEs were sponsored by independent third-parties and the loans held by these entities were purchased exclusively from other third-parties. Generally, our involvement with these SPEs is as servicer with servicing activities consistent with those described above.

We recognize a liability for our loss exposure associated with contractual obligations to repurchase previously transferred loans due to possible breaches of representations and warranties and also for loss sharing arrangements (recourse obligations) with the Agencies. Other than providing temporary liquidity under servicing advances and our loss exposure associated with our repurchase and recourse obligations, we have not provided nor are we required to provide any type of credit support, guarantees or commitments to the securitization SPEs or third-party investors in these transactions.

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Table 36: Cash Flows Associated with Loan Sale and Servicing Activities

In millions	Residential Mortgages				Commercial Mortgages (a)
Cash Flows - Year ended December 31, 2019
Sales of loans (b)	$	4,259				$	3,540
Repurchases of previously transferred loans (c)	$	321				$	30
Servicing fees (d)	$	352				$	130
Servicing advances recovered/(funded), net	$	45				$	63
Cash flows on mortgage-backed securities held (e)	$	4,362				$	84
Cash Flows - Year ended December 31, 2018
Sales of loans (b)	$	4,474				$	4,140
Repurchases of previously transferred loans (c)	$	393				$	32
Servicing fees (d)	$	362				$	135
Servicing advances recovered/(funded), net	$	45				$	(3	)
Cash flows on mortgage-backed securities held (e)	$	1,964				$	109

(a)	Represents cash flow information associated with both commercial mortgage loan transfer 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 ROAP 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 $17.8 billion in residential mortgage-backed securities and $.6 billion in commercial mortgage-backed securities at December 31, 2019 and $13.3 billion in residential mortgage-backed securities and $.6 billion in commercial mortgage-backed securities at December 31, 2018.

Table 37 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, 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 December 31, 2019 and 2018.

Table 37: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others

In millions	Residential Mortgages					Commercial Mortgages (a)
December 31, 2019
Total principal balance	$	49,323				$	42,414
Delinquent loans (b)	$	492				$	64
December 31, 2018
Total principal balance	$	54,028				$	47,969
Delinquent loans (b)	$	622				$	234
Year ended December 31, 2019
Net charge-offs (c)	$	40				$	520
Year ended December 31, 2018
Net charge-offs (c)	$	47				$	269

(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)

We are involved with various entities in the normal course of business that are deemed to be VIEs. We assess VIEs for consolidation based upon the accounting policies described in Note 1 Accounting Policies. Our consolidated VIEs were insignificant at both December 31, 2019 and 2018. We have not provided additional financial support to these entities which we are not contractually required to provide.

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 38 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

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course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 38. These loans are included as part of the asset quality disclosures that we make in Note 4 Asset Quality.

Table 38: Non-Consolidated VIEs

In millions	PNC Risk of Loss (a)					Carrying Value of Assets Owned by PNC						Carrying Value of Liabilities Owned by PNC
December 31, 2019
Mortgage-backed securitizations (b)	$	19,287				$	19,287		(c)
Tax credit investments and other	3,131					3,028			(d)			$	1,101		(e)
Total	$	22,418				$	22,315					$	1,101
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 credit 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.

 

Mortgage-Backed Securitizations

In connection with each Agency and Non-agency residential and commercial mortgage-backed securitization discussed above, we evaluate each SPE utilized in these transactions for consolidation. In performing these assessments, we evaluate our level of continuing involvement in these transactions as the nature of our involvement ultimately determines whether or not we hold a variable interest and/or are the primary beneficiary of the SPE. Factors we consider in our consolidation assessment include the significance of (i) our role as servicer, (ii) our holdings of mortgage-backed securities issued by the securitization SPE and (iii) the rights of third-party variable interest holders.

The first step in our assessment is to determine whether we hold a variable interest in the securitization SPE. We hold variable interests in Agency and Non-agency securitization SPEs through our holding of residential and commercial mortgage-backed securities issued by the SPEs and/or our recourse obligations. Each SPE in which we hold a variable interest is evaluated to determine whether we are the primary beneficiary of the entity. For Agency securitization transactions, our contractual role as servicer does not give us the power to direct the activities that most significantly affect the economic performance of the SPEs. Thus, we are not the primary beneficiary of these entities. For Non-agency securitization transactions, we would be the primary beneficiary to the extent our servicing activities give us the power to direct the activities that most significantly affect the economic performance of the SPE and we hold a more than insignificant variable interest in the entity.

Details about the Agency and Non-agency securitization SPEs where we hold a variable interest and are not the primary beneficiary are included in Table 38. Our maximum exposure to loss as a result of our involvement with these SPEs is the carrying value of the mortgage-backed securities, servicing assets, servicing advances and our liabilities associated with our recourse obligations. Creditors of the securitization SPEs have no recourse to our assets or general credit.

Tax Credit Investments and Other

For tax credit investments in which we do not have the right to make decisions that will most significantly impact the economic performance of the entity, we are not the primary beneficiary and thus do not consolidate the entity. These investments are disclosed in Table 38. The table also reflects our maximum exposure to loss exclusive of any potential tax credit recapture. Our maximum exposure to loss is equal to our legally binding equity commitments adjusted for recorded impairment, partnership results or amortization for qualifying low income housing tax credit investments when applicable. For all legally binding unfunded equity commitments, we increase our recognized investment and recognize a liability. As of December 31, 2019, we had a liability for unfunded commitments of $.6 billion related to investments in qualified affordable housing projects which is reflected in Other liabilities on our Consolidated Balance Sheet.

Table 38 also includes our involvement in lease financing transactions with limited liability companies (LLCs) engaged in solar power generation that, to a large extent, provided returns in the form of tax credits. The outstanding financings and operating lease assets are reflected as Loans and Other assets, respectively, on our Consolidated Balance Sheet, whereas related liabilities are reported in Deposits and Other liabilities.

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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. 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 for additional information on our loan related policies.

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

Table 39: 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)
December 31, 2019
Commercial Lending
Commercial		$	124,695			$	102			$	30			$	85			$	217				$	425											$	125,337
Commercial real estate		28,061				4				1								5					44												28,110
Equipment lease financing		7,069				49				5								54					32												7,155
Total commercial lending		159,825				155				36				85				276					501												160,602
Consumer Lending
Home equity		23,791				58				24								82					669								$	543			25,085
Residential real estate		19,640				140				69				315				524			(b)		315				$	166			1,176				21,821
Automobile		16,376				178				47				18				243					135												16,754
Credit card		7,133				60				37				67				164					11												7,308
Education		3,156				55				34				91				180			(b)														3,336
Other consumer		4,898				15				11				9				35					4												4,937
Total consumer lending		74,994				506				222				500				1,228					1,134				166				1,719				79,241
Total		$	234,819			$	661			$	258			$	585			$	1,504				$	1,635			$	166			$	1,719			$	239,843
Percentage of total loans		97.90		%		.28		%		.11		%		.24		%		.63		%			.68		%		.07		%		.72		%		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 loans totaling $.4 billion and $.5 billion at December 31, 2019 and 2018, respectively, and Education loans totaling $.2 billion at both December 31, 2019 and 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, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $1.1 billion and $1.2 billion December 31, 2019 and 2018, respectively.

In the normal course of business, we originate or purchase loan products with contractual characteristics that, when concentrated, may increase our exposure as a holder of those loan products. Possible product features that may create a concentration of credit risk would include a high original or updated loan-to-value (LTV) ratio, terms that may expose the borrower to future increases in repayments above increases in market interest rates, and interest-only loans, among others.

We originate interest-only loans to commercial borrowers. Such credit arrangements are usually designed to match borrower cash flow expectations (e.g., working capital lines, revolvers). These products are standard in the financial services industry and product features

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are considered during the underwriting process to mitigate the increased risk that the interest-only feature may result in borrowers not being able to make interest and principal payments when due. We do not believe that these product features create a concentration of credit risk.

Table 40: Nonperforming Assets

Dollars in millions		December 31 2019				December 31 2018
Nonperforming loans
Total commercial lending		$	501			$	432
Total consumer lending (a)		1,134				1,262
Total nonperforming loans		1,635				1,694
OREO and foreclosed assets		117				114
Total nonperforming assets		$	1,752			$	1,808
Nonperforming loans to total loans		.68		%		.75		%
Nonperforming assets to total loans, OREO and foreclosed assets		.73		%		.80		%
Nonperforming assets to total assets		.43		%		.47		%
Interest on nonperforming loans (b)
Computed on original terms		$	124			$	123
Recognized prior to nonperforming status		$	17			$	17

(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.

(b)	Amounts are for the year ended.

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 TDRs. See Note 1 Accounting Policies and the TDR section of this Note 4 for additional information on TDRs.

Total nonperforming loans in Table 40 include TDRs of $.9 billion at both December 31, 2019 and 2018. TDRs that are performing, including consumer credit card TDR loans, totaled $.8 billion and $1.0 billion at December 31, 2019 and 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

Commercial Loan Class

For commercial loans, we monitor the performance of the borrower in a disciplined and regular manner based upon the level of credit risk inherent in the loan. To evaluate the level of credit risk, we assign internal risk ratings reflecting our estimates of the borrower’s PD and LGD for each related credit facility. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process on an ongoing basis. These ratings are reviewed and updated, generally at least once per year. Additionally, no less frequently than on an annual basis, we review PD rates related to each rating grade based upon internal historical data. These rates are updated as needed and augmented by market data as deemed necessary. For small balance homogeneous pools of commercial loans, mortgages and leases, we apply statistical modeling to assist in determining the PD within these pools. Further, on a periodic basis, we update our LGD estimation methodology based upon historical data. The combination of the PD and LGD ratings assigned to commercial loans, capturing both the combination of expectations of default and loss severity in event of default, reflects the relative estimated likelihood of loss at the reporting date. In general, loans with better PD and LGD tend to have a lower likelihood of loss compared to loans with worse PD and LGD. The loss amount also considers an estimate of EAD, which we also periodically update based upon historical data.

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Based upon the amount of the lending arrangement and our risk rating assessment, we follow a formal schedule of written periodic review. Quarterly, we conduct formal reviews of a market’s or business unit’s loan portfolio, focusing on those loans which we perceive to be of higher risk, based upon PDs and LGDs, or loans for which credit quality is weakening. If circumstances warrant, it is our practice to review any customer obligation and its level of credit risk more frequently. We attempt to proactively manage our loans by using various procedures that are customized to the risk of a given loan, including ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.

Commercial Real Estate Loan Class

We manage credit risk associated with our commercial real estate loan class similar to commercial loans by analyzing PD and LGD. Additionally, risks associated with commercial real estate activities tend to be correlated to the loan structure and collateral location, project progress and business environment. As a result, these attributes are also monitored and utilized in assessing credit risk.

As with the commercial class, a formal schedule of periodic review is also performed to assess market/geographic risk and business unit/industry risk. Often as a result of these overviews, increased scrutiny can be placed on areas of higher risk, including adverse changes in risk ratings, deteriorating operating trends, and/or areas that concern management. These reviews are designed to assess risk and take actions to mitigate our exposure to such risks.

Equipment Lease Financing Loan Class

We manage credit risk associated with our equipment lease financing loan class similar to commercial loans by analyzing PD and LGD.

Based upon the dollar amount of the lease and the level of credit risk, we follow a formal schedule of periodic review. Generally, this occurs quarterly, although we have established practices to review such credit risk more frequently if circumstances warrant. Our review process entails analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk and guarantor requirements as applicable.

Table 41: Commercial Lending Asset Quality Indicators (a)

In millions		Pass Rated				Criticized				Total Loans
December 31, 2019
Commercial		$	119,761			$	5,576			$	125,337
Commercial real estate		27,424				686				28,110
Equipment lease financing		6,891				264				7,155
Total commercial lending		$	154,076			$	6,526			$	160,602
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 December 31, 2019 and 2018. We use PD and LGD to rate loans in the commercial lending portfolio.

Consumer Lending Loan Classes

Home Equity and Residential Real Estate Loan Classes

We use several credit quality indicators, including delinquency information, nonperforming loan information, updated credit scores, and originated and updated LTV ratios to monitor and manage credit risk within the home equity and residential real estate loan classes. A summary of asset quality indicators follows:

Delinquency/Delinquency Rates: We monitor trending of delinquency/delinquency rates for home equity and residential real estate loans. See Table 39 for additional information.

Nonperforming Loans: We monitor trending of nonperforming loans for home equity and residential real estate loans. See Table 39 for additional information.

Credit Scores: We use a national third-party provider to update FICO credit scores for home equity loans and lines of credit and residential real estate loans at least quarterly. The updated scores are incorporated into a series of credit management reports, which are utilized to monitor the risk in the loan classes.

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LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions): At least annually, we update the property values of real estate collateral and calculate an updated LTV ratio. For open-end credit lines secured by real estate in regions experiencing significant declines in property values, more frequent valuations may occur. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.

We use a combination of original LTV and updated LTV for internal risk management and reporting purposes (e.g., line management, loss mitigation strategies). In addition to the fact that estimated property values by their nature are estimates, given certain data limitations it is important to note that updated LTVs may be based upon management’s assumptions (e.g., if an updated LTV is not provided by the third-party service provider, house price index (HPI) changes will be incorporated in arriving at management’s estimate of updated LTV).

Updated LTV is estimated using modeled property values. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models, broker price opinions, HPI indices, property location, internal and external balance information, origination data and management assumptions. We generally utilize origination lien balances provided by a third-party, where applicable, which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of the calculations do not represent actual appraised loan level collateral or updated LTV based upon lien balances held by others, and as such, are necessarily imprecise and subject to change as we refine our methodology.

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

Table 42: Asset Quality Indicators for Home Equity and Residential Real Estate Loans

	December 31, 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%	$	366		$	112		$	461		$	116
Greater than or equal to 100% to less than 125%	877			221			1,020			255
Greater than or equal to 90% to less than 100%	1,047			340			1,174			335
Less than 90%	22,068			19,305			22,644			15,922
No LTV ratio available	184			83			145			6
Government insured or guaranteed loans				584						685
Purchased impaired loans	543			1,176			679			1,338
Total loans	$	25,085		$	21,821		$	26,123		$	18,657
Updated FICO Scores
Greater than 660	$	22,245		$	19,341		$	22,996		$	15,956
Less than or equal to 660	2,019			569			2,210			585
No FICO score available	278			151			238			93
Government insured or guaranteed loans				584						685
Purchased impaired loans	543			1,176			679			1,338
Total loans	$	25,085		$	21,821		$	26,123		$	18,657

Automobile, Credit Card, Education and Other Consumer Loan Classes

We monitor a variety of asset quality information in the management of these consumer loan classes. For all loan types, we generally use a combination of internal loan parameters as well as an updated FICO score. We use FICO scores as a primary asset quality indicator for automobile and credit card loans, as well as non-government guaranteed or non-insured education loans and other secured and unsecured lines and loans. Internal credit metrics, such as delinquency status, are relied upon heavily as asset quality indicators for government guaranteed or insured education loans and consumer loans to high net worth individuals, as internal credit metrics tend to be more relevant than FICO scores for these types of loans.

Along with the monitoring of delinquency trends and losses for each class, FICO credit score updates are obtained at least quarterly along with a variety of credit bureau attributes. Loans with high FICO scores tend to have a lower likelihood of loss. Conversely, loans with low FICO scores tend to have a higher likelihood of loss.

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Table 43: Asset Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loans

Dollars in millions		Automobile			Credit Card			Education			Other Consumer
December 31, 2019
FICO score greater than 719		$	9,232		$	3,867		$	1,139		$	1,421
650 to 719		4,577			2,326			197			843
620 to 649		1,001			419			25			132
Less than 620		1,603			544			27			143
No FICO score available or required (a)		341			152			15			27
Total loans using FICO credit metric		16,754			7,308			1,403			2,566
Consumer loans using other internal credit metrics								1,933			2,371
Total loans		$	16,754		$	7,308		$	3,336		$	4,937
Weighted-average updated FICO score (b)		726			724			773			727
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.

Troubled Debt Restructurings (TDRs)

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. 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 collateral. Additionally, TDRs also result from borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us. In those situations where principal is forgiven, the amount of such principal forgiveness is immediately charged off.

Some TDRs may not ultimately result in the full collection of principal and interest, as restructured, and result in potential incremental losses. These potential incremental losses have been factored into our overall ALLL estimate. The level of any subsequent defaults will likely be affected by future economic conditions. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, the collateral is foreclosed upon, or it is fully charged off. We held specific reserves in the ALLL of $.1 billion and $.2 billion at December 31, 2019 and 2018, respectively, for the total TDR portfolio.

Table 44 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 2019, 2018 and 2017. Additionally, the table provides information about the types of TDR concessions. The Principal Forgiveness TDR category includes principal forgiveness and accrued interest forgiveness. The Rate Reduction TDR category includes reduced interest rate and interest deferral. The Other TDR category primarily includes consumer borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us, as well as postponement/reduction of scheduled amortization and contractual extensions for both consumer and commercial borrowers.

In some cases, there have been multiple concessions granted on one loan. This is most common within the commercial loan portfolio. When there have been multiple concessions granted in the commercial loan portfolio, the principal forgiveness concession was prioritized for purposes of determining the inclusion in Table 44. Second in priority would be rate reduction. In the event that multiple concessions are granted on a consumer loan, concessions resulting from discharge from personal liability through Chapter 7 bankruptcy without formal affirmation of the loan obligations to us would be prioritized and included in the Other type of concession

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in Table 44. After that, consumer loan concessions would follow the previously discussed priority of concessions for the commercial loan portfolio.

Table 44: Financial Impact and TDRs by Concession Type (a)

		Number of Loans				Pre-TDR Recorded Investment (b)					Post-TDR Recorded Investment (c)
During the year ended December 31, 2019 Dollars in millions											Principal Forgiveness				Rate Reduction				Other					Total
Total commercial lending		75				$	278								$	11			$	241				$	252
Total consumer lending		14,548				172									97				64					161
Total TDRs		14,623				$	450								$	108			$	305				$	413
During the year ended December 31, 2018 Dollars in millions
Total commercial lending		85				$	272				$	2			$	67			$	179				$	248
Total consumer lending		12,096				163					1				86				63					150
Total TDRs		12,181				$	435				$	3			$	153			$	242				$	398
During the year ended December 31, 2017 Dollars in millions
Total commercial lending		120				$	293				$	18			$	7			$	227				$	252
Total consumer lending		11,993				248									146				97					243
Total TDRs		12,113				$	541				$	18			$	153			$	324				$	495

(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, 2018 and 2017, and (ii) subsequently defaulted during the 12-month period following each of January 1, 2019, 2018 and 2017, totaled $.1 billion for all periods presented.

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 2019 and 2018. Table 45 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.

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Table 45: Impaired Loans

In millions		Unpaid Principal Balance				Recorded Investment				Associated Allowance				Average Recorded Investment (a)
December 31, 2019
Impaired loans with an associated allowance
Total commercial lending		$	527			$	386			$	98			$	371
Total consumer lending		702				668				93				753
Total impaired loans with an associated allowance		1,229				1,054				191				1,124
Impaired loans without an associated allowance
Total commercial lending		228				195								276
Total consumer lending		1,022				635								623
Total impaired loans without an associated allowance		1,250				830								899
Total impaired loans		$	2,479			$	1,884			$	191			$	2,023
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 years ended December 31, 2019 and 2018.

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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 for a description of the accounting policies for the ALLL. A rollforward of the ALLL and associated loan data follows.

Table 46: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data

		2019												2018												2017
At or for the year ended December 31 Dollars in millions		Commercial Lending				Consumer Lending				Total				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			$	1,534			$	1,055			$	2,589
Charge-offs		(216		)		(758		)		(974		)		(124		)		(640		)		(764		)		(221		)		(565		)		(786		)
Recoveries		78				254				332				99				245				344				116				213				329
Net (charge-offs)		(138		)		(504		)		(642		)		(25		)		(395		)		(420		)		(105		)		(352		)		(457		)
Provision for credit losses		320				453				773				97				311				408				147				294				441
Net decrease / (increase) in allowance for unfunded loan commitments and letters of credit		(34		)		1				(33		)		11				1				12				5				(1		)		4
Other		1				14				15				(2		)		20				18				1				33				34
December 31		$	1,812			$	930			$	2,742			$	1,663			$	966			$	2,629			$	1,582			$	1,029			$	2,611
TDRs individually evaluated for impairment		$	40			$	93			$	133			$	25			$	136			$	161			$	35			$	195			$	230
Other loans individually evaluated for impairment		58								58				48								48				41								41
Loans collectively evaluated for impairment		1,714				563				2,277				1,590				555				2,145				1,506				561				2,067
Purchased impaired loans						274				274								275				275								273				273
December 31		$	1,812			$	930			$	2,742			$	1,663			$	966			$	2,629			$	1,582			$	1,029			$	2,611
Loan Portfolio
TDRs individually evaluated for impairment		$	361			$	1,303			$	1,664			$	409			$	1,442			$	1,851			$	409			$	1,652			$	2,061
Other loans individually evaluated for impairment		220								220				232								232				310								310
Loans collectively evaluated for impairment		160,021				75,477				235,498				151,641				69,722				221,363				146,720				68,102				214,822
Fair value option loans (a)						742				742								782				782								869				869
Purchased impaired loans						1,719				1,719								2,017				2,017								2,396				2,396
December 31		$	160,602			$	79,241			$	239,843			$	152,282			$	73,963			$	226,245			$	147,439			$	73,019			$	220,458
Portfolio segment ALLL as a percentage of total ALLL		66		%		34		%		100		%		63		%		37		%		100		%		61		%		39		%		100		%
Ratio of ALLL to total loans		1.13		%		1.17		%		1.14		%		1.09		%		1.31		%		1.16		%		1.07		%		1.41		%		1.18		%

(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.

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Table 47: Investment Securities Summary

		December 31, 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		$	16,150			$	382			$	(16	)		$	16,516				$	18,104			$	133			$	(137	)		$	18,100
Residential mortgage-backed
Agency		35,847				517				(43		)		36,321					29,413				104				(524		)		28,993
Non-agency		1,515				302				(3		)		1,814					1,924				300				(13		)		2,211
Commercial mortgage-backed
Agency		3,094				42				(18		)		3,118					2,630				13				(66		)		2,577
Non-agency		3,352				29				(9		)		3,372					2,689				5				(37		)		2,657
Asset-backed		5,044				78				(8		)		5,114					4,933				59				(20		)		4,972
Other		2,788				121				(1		)		2,908					3,821				96				(38		)		3,879
Total securities available for sale		$	67,790			$	1,471			$	(98	)		$	69,163				$	63,514			$	710			$	(835	)		$	63,389
Securities Held to Maturity
U.S. Treasury and government agencies		$	776			$	56							$	832				$	758			$	28			$	(23	)		$	763
Residential mortgage-backed
Agency		14,419				270				(26		)		14,663					15,740				32				(358		)		15,414
Non-agency		133				7								140					152				2								154
Commercial mortgage-backed
Agency		59				1								60					143				1				(1		)		143
Non-agency		430				4								434					488				1				(1		)		488
Asset-backed		52												52					182				1								183
Other		1,792				85				(14		)		1,863					1,849				53				(28		)		1,874
Total securities held to maturity		$	17,661			$	423			$	(40	)		$	18,044				$	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 AOCI unless credit-related. Securities held to maturity are carried at amortized cost. Investment securities at December 31, 2019 included $549 million of net unsettled purchases which represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows. The comparable amount for December 31, 2018 was $430 million.

At December 31, 2019, AOCI included an insignificant amount of pretax gains 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 48 presents gross unrealized losses and fair value of debt securities at December 31, 2019 and 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.

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Table 48: Gross Unrealized Loss and Fair Value of Debt 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
December 31, 2019
Securities Available for Sale
U.S. Treasury and government agencies		$	(14	)		$	2,451			$	(2	)		$	607			$	(16	)		$	3,058
Residential mortgage-backed
Agency		(6		)		2,832				(37		)		4,659				(43		)		7,491
Non-agency										(3		)		102				(3		)		102
Commercial mortgage-backed
Agency		(6		)		852				(12		)		953				(18		)		1,805
Non-agency		(4		)		1,106				(5		)		230				(9		)		1,336
Asset-backed		(3		)		660				(5		)		561				(8		)		1,221
Other										(1		)		403				(1		)		403
Total securities available for sale		$	(33	)		$	7,901			$	(65	)		$	7,515			$	(98	)		$	15,416
Securities Held to Maturity
Residential mortgage-backed - Agency										(26		)		2,960				(26		)		2,960
Other		(1		)		22				(13		)		105				(14		)		127
Total securities held to maturity		$	(1	)		$	22			$	(39	)		$	3,065			$	(40	)		$	3,087
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 Other-than-Temporary Impairment

For the securities in Table 48, as of December 31, 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. For those securities on our Consolidated Balance Sheet at December 31, 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 2019, 2018 and 2017, the OTTI credit losses recognized in noninterest income and the OTTI noncredit losses recognized in AOCI on securities were not significant.

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Table 49: Gains (Losses) on Sales of Securities Available for Sale

Year ended December 31 In millions	Gross Gains				Gross Losses				Net Gains				Tax Expense
2019	$	69			$	(21	)		$	48			$	10
2018	$	57			$	(57	)
2017	$	38			$	(31	)		$	7			$	2

The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at December 31, 2019.

Table 50: Contractual Maturity of Securities

December 31, 2019		1 Year or Less				After 1 Year through 5 Years				After 5 Years through 10 Years				After 10 Years				Total
Dollars in millions
Securities Available for Sale
U.S. Treasury and government agencies		$	2,198			$	10,189			$	2,984			$	779			$	16,150
Residential mortgage-backed
Agency		2				65				1,194				34,586				35,847
Non-agency														1,515				1,515
Commercial mortgage-backed
Agency		8				565				490				2,031				3,094
Non-agency						75				350				2,927				3,352
Asset-backed		8				2,511				1,267				1,258				5,044
Other		337				1,314				486				651				2,788
Total securities available for sale at amortized cost		$	2,553			$	14,719			$	6,771			$	43,747			$	67,790
Fair value		$	2,573			$	14,881			$	6,924			$	44,785			$	69,163
Weighted-average yield, GAAP basis		2.94		%		2.28		%		2.66		%		3.19		%		2.93		%
Securities Held to Maturity
U.S. Treasury and government agencies						$	198			$	300			$	278			$	776
Residential mortgage-backed
Agency						55				516				13,848				14,419
Non-agency														133				133
Commercial mortgage-backed
Agency						10								49				59
Non-agency														430				430
Asset-backed						6				19				27				52
Other		$	45			785				625				337				1,792
Total securities held to maturity at amortized cost		$	45			$	1,054			$	1,460			$	15,102			$	17,661
Fair value		$	45			$	1,089			$	1,543			$	15,367			$	18,044
Weighted-average yield, GAAP basis		3.75		%		3.59		%		3.53		%		3.32		%		3.35		%

Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security. At December 31, 2019, there were no securities of a single issuer, other than the FNMA and FHLMC, that exceeded 10% of Total shareholders’ equity. The FNMA and FHLMC investments had a total amortized cost of $40.5 billion and $7.7 billion and fair value of $41.1 billion and $7.7 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 51: Fair Value of Securities Pledged and Accepted as Collateral

In millions	December 31 2019				December 31 2018
Pledged to others	$	14,609			$	7,597
Accepted from others:
Permitted by contract or custom to sell or repledge (a)	$	2,349			$	6,905
Permitted amount repledged to others	$	360			$	923

(a)	Includes $2.0 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 to others at December 31, 2019 and December 31, 2018, respectively.

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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 and repurchase agreements, as well as for other purposes.

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, and is 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. The three levels of the fair value hierarchy are:

•	Level 1: Fair value is determined using a quoted price in an active market for identical assets or liabilities. Level 1 assets and liabilities may include debt securities, equity securities and listed derivative contracts that are traded in an active exchange market, and certain U.S. Treasury securities that are actively traded in over-the-counter markets.

•

Level 2: Fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly. The majority of Level 2 assets and liabilities include debt securities and listed derivative contracts with quoted prices that are traded in markets that are not active, and certain debt and equity securities and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable inputs.

•

Level 3: Fair value is estimated using unobservable inputs that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models and discounted cash flow methodologies, or similar techniques for which the significant valuation inputs are not observable and the determination of fair value requires significant management judgment or estimation.

We characterize active markets as those where transaction volumes are sufficient to provide objective pricing information, with reasonably narrow bid/ask spreads, and where dealer quotes received do not vary widely and are based on current information. Inactive markets are typically characterized by low transaction volumes, price quotations that vary substantially among market participants or are not based on current information, wide bid/ask spreads, a significant increase in implied liquidity risk premiums, yields, or performance indicators for observed transactions or quoted prices compared to historical periods, a significant decline or absence of a market for new issuance, or any combination of the above factors. We also consider nonperformance risks, including credit risk, as part of our valuation methodology for all assets and liabilities measured at fair value.

Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. Assets and liabilities classified within Level 3 inherently require the use of various assumptions, estimates and judgments when measuring their fair value. As observable market activity is commonly not available to use when estimating the fair value of Level 3 assets and liabilities, we must estimate fair value using various modeling techniques. These techniques include the use of a variety of inputs/assumptions including credit quality, liquidity, interest rates or other relevant inputs across the entire population of our Level 3 assets and liabilities. Changes in the significant underlying factors or assumptions (either an increase or a decrease) in any of these areas underlying our estimates may result in a significant increase/decrease in the Level 3 fair value measurement of a particular asset and/or liability from period to period.

Any models used to determine fair values or to validate dealer quotes are subject to review and independent testing as part of our model validation and internal control testing processes. Our Model Risk Management Group reviews significant models on at least an annual basis. In addition, the Valuation Committee approves valuation methodologies and reviews the results of independent valuation reviews and processes for assets and liabilities measured at fair value on a recurring basis.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Residential Mortgage Loans Held for Sale

We account for certain residential mortgage loans originated for sale at fair value on a recurring basis. The election of the fair value option aligns the accounting for the residential mortgages with the related hedges. Residential mortgage loans are valued based on quoted market prices, where available, prices for other traded mortgage loans with similar characteristics, and purchase commitments and bid information received from market participants. The prices are adjusted as necessary to include the embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans that are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation but are not considered significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans. Accordingly, the majority of residential mortgage loans held for sale are classified as Level 2.

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Commercial Mortgage Loans Held for Sale

We account for certain commercial mortgage loans classified as held for sale in whole loan transactions at fair value. We determine the fair value of commercial mortgage loans held for sale based upon discounted cash flows. Fair value is determined using sale valuation assumptions that management believes a market participant would use in pricing the loans.

 

Valuation assumptions may include observable inputs based on the benchmark interest rate swap curve, whole loan sales and agency sales transactions. The significant unobservable input for commercial mortgage loans held for sale, excluding those to be sold to agencies, is management’s assumption of the spread applied to the benchmark rate. The spread over the benchmark curve includes management’s assumptions of the impact of credit and liquidity risk. Significant increases (decreases) in the spread applied to the benchmark would result in a significantly lower (higher) asset value. The wide range of the spread over the benchmark curve is due to the varying risk and underlying property characteristics within our portfolio. Based on the significance of the unobservable input we classified this portfolio as Level 3.

For loans to be sold to agencies with servicing retained, the fair value is adjusted for the estimated servicing cash flows, which is an unobservable input. This adjustment is not considered significant given the relative insensitivity of the value to changes in the input to the fair value of the loans. Accordingly, commercial mortgage loans held for sale to agencies are classified as Level 2.

Securities Available for Sale and Trading Securities

Securities accounted for at fair value include both the available for sale and trading portfolios. We primarily use prices obtained from pricing services, dealer quotes or recent trades to determine the fair value of securities. The majority of securities were priced by third-party vendors. The third-party vendors use a variety of methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. We monitor and validate the reliability of vendor pricing on an ongoing basis through pricing methodology reviews, including detailed reviews of the assumptions and inputs used by the vendor to price individual securities, and through price validation testing. Securities not priced by one of our pricing vendors may be valued using a dealer quote, which are also subject to price validation testing. Price validation testing is performed independent of the risk-taking function and involves corroborating the prices received from third-party vendors and dealers with prices from another third party or through other sources, such as internal valuations or sales of similar securities. Security prices are also validated through actual cash settlement upon sale of a security.

Securities are classified within the fair value hierarchy after giving consideration to the activity level in the market for the security type and the observability of the inputs used to determine the fair value. When a quoted price in an active market exists for the identical security, this price is used to determine fair value and the security is classified within Level 1 of the hierarchy. Level 1 securities include U.S. Treasury securities.

When a quoted price in an active market for the identical security is not available, fair value is estimated using either an alternative market approach, such as a recent trade or matrix pricing, or an income approach, such as a discounted cash flow pricing model. If the inputs to the valuation are based primarily on market observable information, then the security is classified within Level 2 of the hierarchy. Level 2 securities include agency debt securities, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities, certain non-agency residential mortgage-backed securities, asset-backed securities collateralized by non-mortgage-related corporate and consumer loans, and other debt securities. Level 2 securities are predominantly priced by third parties, either by a pricing vendor or dealer.

In certain cases where there is limited activity or less transparency around the inputs to the valuation, securities are classified within Level 3 of the hierarchy. Securities classified as Level 3 consist primarily of non-agency residential mortgage-backed and asset-backed securities collateralized by first- and second-lien residential mortgage loans. Fair value for these securities is primarily estimated using pricing obtained from third-party vendors. In some cases, fair value is estimated using a dealer quote, by reference to prices of securities of a similar vintage and collateral type or by reference to recent sales of similar securities. Market activity for these security types is limited with little price transparency. As a result, these securities are generally valued by the third-party vendor using a discounted cash flow approach that incorporates significant unobservable inputs and observable market activity where available. Significant inputs to the valuation include prepayment projections and credit loss assumptions (default rate and loss severity) and discount rates that are deemed representative of current market conditions. Significant increases (decreases) in any of those assumptions in isolation would result in a significantly lower (higher) fair value measurement.

Certain infrequently traded debt securities within Other debt securities available for sale and Trading securities are also classified in Level 3 and are included in the Insignificant Level 3 assets, net of liabilities line item in Table 54. The significant unobservable inputs used to estimate the fair value of these securities include an estimate of expected credit losses and a discount for liquidity risk. These inputs are incorporated into the fair value measurement by either increasing the spread over the benchmark curve or by applying a credit and liquidity discount to the par value of the security. Significant increases (decreases) in credit and/or liquidity risk could result in a significantly lower (higher) fair value estimate.

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Loans

Loans accounted for at fair value consist primarily of residential mortgage loans. These loans are generally valued similarly to residential mortgage loans held for sale and are classified as Level 2. However, similar to residential mortgage loans held for sale, if these loans are repurchased and unsalable, they are classified as Level 3. In addition, repurchased VA loans, where only a portion of the principal will be reimbursed, are classified as Level 3. The fair value is determined using a discounted cash flow calculation based on our historical loss rate. We have elected to account for certain home equity lines of credit at fair value. These loans are classified as Level 3. Significant inputs to the valuation of these loans include credit and liquidity discount, cumulative default rate, loss severity and gross discount rate and are deemed representative of current market conditions. Significant increases (decreases) in any of these assumptions would result in a significantly lower (higher) fair value measurement.

Equity Investments

Equity investments includes money market mutual funds as well as direct and indirect private equity investments. Money market mutual funds are valued based on quoted prices in active markets for identical securities and classified within Level 1 of the hierarchy. The valuation of direct and indirect private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. Various valuation techniques are used for direct investments, including multiples of adjusted earnings of the entity, independent appraisals, anticipated financing and sale transactions with third parties, or the pricing used to value the entity in a recent financing transaction. A multiple of adjusted earnings calculation is the valuation technique utilized most frequently and is the most significant unobservable input used in such calculation. Significant decreases (increases) in the multiple of earnings could result in a significantly lower (higher) fair value measurement. Direct equity investments are classified as Level 3.

Indirect investments are not redeemable; however, we receive distributions over the life of the partnerships from liquidation of the underlying investments by the investee, which we expect to occur over the next 12 years. We value indirect investments in private equity funds using the net asset value (NAV) practical expedient as provided in the financial statements that we receive from fund managers. Due to the time lag in our receipt of the financial information and based on a review of investments and valuation techniques applied, adjustments to the manager-provided value are made when available recent portfolio company information or market information indicates a significant change in value from that provided by the manager of the fund. Indirect investments valued using NAV are not classified in the fair value hierarchy.

Mortgage Servicing Rights (MSRs)

MSRs are carried at fair value on a recurring basis. Assumptions incorporated into the MSRs valuation model reflect management’s best estimate of factors that a market participant would use in valuing the MSRs. Although sales of MSRs do occur and can offer some market insight, MSRs do not trade in an active, open market with readily observable prices so the precise terms and conditions of sales are not available.

Residential MSRs

As a benchmark for the reasonableness of our residential MSRs fair value, we obtained opinions of value from independent brokers. These brokers provided a range (+/-10 bps) based upon their own discounted cash flow calculations of our portfolio that reflect conditions in the secondary market and any recently executed servicing transactions. We compare our internally-developed residential MSRs value to the ranges of values received from the brokers. If our residential MSRs fair value falls outside of the brokers’ ranges, management will assess whether a valuation adjustment is warranted. For the periods presented, our residential MSRs value did not fall outside of the brokers’ ranges. We consider our residential MSRs value to represent a reasonable estimate of fair value.

Due to the nature of the unobservable valuation inputs, residential MSRs are classified as Level 3. The significant unobservable inputs used in the fair value measurement of residential MSRs are constant prepayment rates and spread over the benchmark curve. Significant increases (decreases) in prepayment rates and spread over the benchmark curve would result in lower (higher) fair market value of residential MSRs.

Commercial MSRs

The fair value of commercial MSRs is estimated by using a discounted cash flow model incorporating unobservable inputs for assumptions such as constant prepayment rates, discount rates and other factors. Due to the nature of the unobservable valuation inputs and the limited availability of market pricing, commercial MSRs are classified as Level 3. Significant increases (decreases) in constant prepayment rates and discount rates would result in significantly lower  (higher) commercial MSR value determined based on current market conditions and expectations.

Financial Derivatives

Exchange-traded derivatives are valued using quoted market prices and are classified as Level 1. The majority of derivatives that we enter into are executed over-the-counter and are valued using internal models. These derivatives are primarily classified as Level 2, as the readily observable market inputs to these models are validated to external sources, such as industry pricing services, or are corroborated through recent trades, dealer quotes, yield curves, implied volatility or other market-related data. Level 2 financial derivatives are primarily estimated using a combination of Eurodollar future prices and observable benchmark interest rate swaps to construct projected discounted cash flows.

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Financial derivatives that are priced using significant management judgment or assumptions are classified as Level 3. Unobservable inputs related to interest rate contracts include probability of funding of residential mortgage loan commitments and estimated servicing cash flows of commercial and residential mortgage loan commitments. Probability of default and loss severity are the significant unobservable inputs used in the valuation of risk participation agreements. The fair values of Level 3 assets and liabilities related to these interest rate contract financial derivatives as of December 31, 2019 and 2018 are included in the Insignificant Level 3 assets, net of liabilities line item in Table 54 of this Note 7.

In connection with the sales of portions of our Visa Class B common shares, we entered into swap agreements with the purchasers of the shares to retain any future risk of decreases in the conversion rate of Class B common shares to Class A common shares resulting from increases in the escrow funded by Visa to pay for the costs of resolution of specified litigation (see Note 20 Legal Proceedings). These swaps also require PNC to make periodic payments based on the market price of the Class A common shares at a fixed rate of interest (in certain cases subject to step-up provisions) until the Visa litigation is resolved. An increase in the estimated length of litigation resolution date, a decrease in the estimated conversion rate, or an increase in the estimated growth rate of the Class A share price will each have a negative impact on the fair value of the swaps and vice versa.

The fair values of our derivatives include a credit valuation adjustment to reflect our own and our counterparties’ nonperformance risk. Our credit valuation adjustment is computed using new loan pricing and considers externally available bond spreads, in conjunction with internal historical recovery observations.

Other Assets and Liabilities

Other assets held at fair value on a recurring basis primarily include assets related to PNC’s deferred compensation and supplemental incentive savings plans.

The assets related to PNC’s deferred compensation and supplemental incentive savings plans primarily consist of a prepaid forward contract referencing an amount of shares of PNC stock, equity mutual funds and fixed income funds, and are valued based on the underlying investments. These assets are valued either by reference to the market price of PNC’s stock or by using the quoted market prices for investments other than PNC’s stock and are classified in Levels 1 and 2.

All Level 3 other assets and liabilities are included in the Insignificant Level 3 assets, net of liabilities line item in Table 54 in this Note 7.

Other Borrowed Funds

Other borrowed funds primarily consist of U.S. Treasury securities sold short which are classified as Level 1. Other borrowed funds also includes the related liability for certain repurchased loans for which we have elected the fair value option and are classified as either Level 2 or Level 3, consistent with the level classification of the corresponding loans. All Level 3 amounts are included in the Insignificant Level 3 assets, net of liabilities line item in Table 54 in this Note 7.

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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 52: Fair Value Measurements – Recurring Basis Summary

	December 31, 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					$	817			$	2			$	819								$	493			$	2			$	495
Commercial mortgage loans held for sale					182				64				246									309				87				396
Securities available for sale
U.S. Treasury and government agencies	$	16,236			280								16,516					$	17,753			347								18,100
Residential mortgage-backed
Agency					36,321								36,321									28,993								28,993
Non-agency					73				1,741				1,814									83				2,128				2,211
Commercial mortgage-backed
Agency					3,118								3,118									2,577								2,577
Non-agency					3,372								3,372									2,657								2,657
Asset-backed					4,874				240				5,114									4,698				274				4,972
Other					2,834				74				2,908									3,795				84				3,879
Total securities available for sale	16,236				50,872				2,055				69,163					17,753				43,150				2,486				63,389
Loans					442				300				742									510				272				782
Equity investments (a)	855								1,276				2,421					751								1,255				2,209
Residential mortgage servicing rights									995				995													1,257				1,257
Commercial mortgage servicing rights									649				649													726				726
Trading securities (b)	433				2,787								3,220					2,137				1,777				2				3,916
Financial derivatives (b) (c)					3,448				54				3,502					3				2,053				25				2,081
Other assets	339				131								470					291				157				45				493
Total assets (d)	$	17,863			$	58,679			$	5,395			$	82,227				$	20,935			$	48,449			$	6,157			$	75,744
Liabilities
Other borrowed funds	$	385			$	126			$	7			$	518				$	868			$	132			$	7			$	1,007
Financial derivatives (c) (e)					1,819				200				2,019					1				2,021				268				2,290
Other liabilities									137				137													58				58
Total liabilities (f)	$	385			$	1,945			$	344			$	2,674				$	869			$	2,153			$	333			$	3,355

(a)	Certain investments that are measured at fair value using the 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 December 31, 2019 and 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 14 Financial Derivatives for additional information related to derivative offsetting.

(d)	Total assets at fair value as a percentage of total consolidated assets was 20% at both December 31, 2019 and 2018. Level 3 assets as a percentage of total assets at fair value was 7% and 8% as of December 31, 2019 and 2018, respectively. Level 3 assets as a percentage of total consolidated assets was 1% and 2% as of December 31, 2019 and 2018, respectively.

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

(f)	Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both December 31, 2019 and 2018. Level 3 liabilities as a percentage of total liabilities at fair value was 13% and 10% as of December 31, 2019 and 2018, respectively. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both December 31, 2019 and 2018.

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Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for 2019 and 2018 follow:

Table 53: Reconciliation of Level 3 Assets and Liabilities

Year Ended December 31, 2019

				Total realized / unrealized gains or losses for the  period (a)																													Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at December 31, 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 Dec. 31, 2019
Assets
Residential mortgage loans held for sale	$	2									$	5		$	(2	)				$	(2	)	$	16		$	(17	)	(c)	$	2
Commercial mortgage loans held for sale	87			$	1															(24		)								64			$	1
Securities available for sale
Residential mortgage- backed non-agency	2,128			73				$	15											(475		)								1,741
Asset-backed	274			6				3												(43		)								240
Other	84			1				(6		)	9			(3		)				(11		)								74
Total securities available for sale	2,486			80				12			9			(3		)				(529		)								2,055
Loans	272			13							142			(42		)				(54		)				(31		)	(c)	300			7
Equity investments	1,255			262							374			(615		)														1,276			57
Residential mortgage servicing rights	1,257			(250		)					114						$	36		(162		)								995			(235		)
Commercial mortgage servicing rights	726			(87		)					103						53			(146		)								649			(87		)
Trading securities	2																			(2		)
Financial derivatives	25			70							22									(63		)								54			94
Other assets	45																			(45		)
Total assets	$	6,157		$	89			$	12		$	769		$	(662	)	$	89		$	(1,027	)	$	16		$	(48	)		$	5,395		$	(163	)
Liabilities
Other borrowed funds	$	7															$	52		$	(52	)								$	7
Financial derivatives	268			$	101									$	10					(179		)								200			$	112
Other liabilities	58			68							$	16		2			81			(88		)								137			49
Total liabilities	$	333		$	169						$	16		$	12		$	133		$	(319	)								$	344		$	161
Net gains (losses)				$	(80	)	(d)																										$	(324	)	(e)

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Year Ended December 31, 2018

				Total realized / unrealized gains or losses for the  period (a)																														Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at December 31, 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 Dec. 31, 2018
Assets
Residential mortgage loans held for sale	$	3									$	4		$	(3	)							$	14			$	(16	)	(c)	$	2
Commercial mortgage loans held for sale	107																			$	(20	)									87			$	1
Securities available for sale
Residential mortgage- backed non-agency	2,661			$	53			$	(24	)										(562		)									2,128
Asset-backed	332			5				(7		)										(56		)									274
Other	87			5				6			7									(16		)					(5		)		84
Total securities available for sale	3,080			63				(25		)	7									(634		)					(5		)		2,486
Loans	298			13							102			(25		)				(74		)	10				(52		)	(c)	272			2
Equity investments	1,036			204							411			(396		)															1,255			110
Residential mortgage servicing rights	1,164			90							129						$	44		(170		)									1,257			83
Commercial mortgage servicing rights	668			51							93						57			(143		)									726			51
Trading securities	2																														2
Financial derivatives	10			59							4									(48		)									25			47
Other assets	107			(14		)														(48		)									45			(14		)
Total assets	$	6,475		$	466			$	(25	)	$	750		$	(424	)	$	101		$	(1,137	)	$	24			$	(73	)		$	6,157		$	280
Liabilities
Other borrowed funds	$	11															$	64		$	(68	)									$	7
Financial derivatives	487			$	(53	)								$	12					(178		)									268			$	(42	)
Other liabilities	33			15							$	12					103			(105		)									58			13
Total liabilities	$	531		$	(38	)					$	12		$	12		$	167		$	(351	)									$	333		$	(29	)
Net gains (losses)				$	504		(d)																											$	309		(e)

(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)	Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment.

(d)	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.

(e)	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.

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

Table 54: Fair Value Measurements – Recurring Quantitative Information

December 31, 2019

Level 3 Instruments Only Dollars in millions	Fair Value			Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Commercial mortgage loans held for sale	$	64		Discounted cash flow	Spread over the benchmark curve (a)	530bps - 2,935bps (1,889bps)
Residential mortgage-backed non-agency securities	1,741			Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 36.2% (9.9%)
					Constant default rate	0.0% - 14.1% (4.3%)
					Loss severity	26.6% - 95.7% (51.9%)
					Spread over the benchmark curve (a)	188bps weighted-average
Asset-backed securities	240			Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 22.0% (7.5%)
					Constant default rate	1.0% - 7.2% (3.4%)
					Loss severity	30.0% - 100.0% (57.6%)
					Spread over the benchmark curve (a)	215bps weighted-average
Loans	184			Consensus pricing (b)	Cumulative default rate	3.6% - 100.0% (76.7%)
					Loss severity	0.0% - 100.0% (14.5%)
					Discount rate	5.0% - 8.0% (5.2%)
	72			Discounted cash flow	Loss severity	8.0% weighted-average
					Discount rate	4.8% weighted-average
	44			Consensus pricing (b)	Credit and Liquidity discount	0.0% - 99.0% (63.4%)
Equity investments	1,276			Multiple of adjusted earnings	Multiple of earnings	5.0x - 16.5x (8.5x)
Residential mortgage servicing rights	995			Discounted cash flow	Constant prepayment rate	0.0% - 53.8% (13.5%)
					Spread over the benchmark curve (a)	320bps - 1,435bps (769bps)
Commercial mortgage servicing rights	649			Discounted cash flow	Constant prepayment rate	3.5% - 18.1% (4.6%)
					Discount rate	5.6% - 8.1% (7.9%)
Financial derivatives - Swaps related to sales of certain Visa Class B common shares	(176		)	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	Q1 2021
Insignificant Level 3 assets, net of liabilities (c)	(38		)
Total Level 3 assets, net of liabilities (d)	$	5,051

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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 $5.4 billion and total Level 3 liabilities of $.3 billion as of December 31, 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 55.

Nonaccrual Loans

Nonaccrual loans represent the fair value of those loans which have been adjusted due to impairment. The impairment is primarily based on the appraised value of the collateral.

Appraisals are obtained by licensed or certified appraisers at least annually and more recently in certain instances. All third-party appraisals are reviewed and any adjustments to the initial appraisal are incorporated into the final issued appraisal report. In instances where an appraisal is not obtained, collateral value is determined consistent with external third-party appraisal standards by an internal person independent of the asset manager.

OREO and Foreclosed Assets

The carrying value of OREO and foreclosed assets includes valuation adjustments recorded subsequent to the transfer to OREO and foreclosed assets. These valuation adjustments are based on the fair value less cost to sell of the property. Fair value is based on appraised value or sales price and the appraisal process for OREO and foreclosed assets is the same as described above for nonaccrual loans.

Long-Lived Assets

Long-lived assets consists of buildings for which valuation adjustments were recorded during the period. A facility classified as held and used is impaired to the extent its carrying value is not recoverable and exceeds fair value. Valuation adjustments on buildings held for sale are based on the fair value of the property less an estimated cost to sell and are recorded subsequent to the transfer of the asset

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to held for sale status. Fair value is determined either by a third-party appraisal, recent sales offer, changes in market or property conditions, or, where we have agreed to sell the building to a third party, the contractual sales price. Impairment on these long-lived assets is recorded in Other noninterest expense on our Consolidated Income Statement.

Table 55: Fair Value Measurements – Nonrecurring (a) (b) (c)

Year ended December 31 In millions	Fair Value							Gains (Losses)
	2019			2018					2019				2018				2017
Assets
Nonaccrual loans	$	136		$	128				$	(76	)		$	(28	)		$	(8	)
OREO and foreclosed assets	57			59					(5		)		(7		)		(10		)
Long-lived assets	5			11					(3		)		(4		)		(168		)
Total assets	$	198		$	198				$	(84	)		$	(39	)		$	(186	)

(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.

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, please refer to the Fair Value Measurement section of this Note 7. These financial instruments are initially measured at fair value. Gains and losses from initial measurement and any changes in fair value are subsequently recognized in earnings.

Interest income related to changes in the fair values of these financial instruments is recorded on the Consolidated Income Statement in Other interest income, except for certain Residential mortgage loans, for which income is also recorded in Loan interest income. Changes in the value on prepaid forward contracts included in Other Assets is reported in Noninterest expense and interest expense on the Other borrowed funds is reported in Borrowed funds interest expense.

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

Table 56: Fair Value Option – Fair Value and Principal Balances

	December 31, 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	$	813		$	792		$	21			$	489		$	472		$	17
Accruing loans 90 days or more past due	2			2							2			2
Nonaccrual loans	4			4							4			4
Total	$	819		$	798		$	21			$	495		$	478		$	17
Commercial mortgage loans held for sale (a)
Performing loans	$	245		$	263		$	(18	)		$	396		$	411		$	(15	)
Nonaccrual loans	1			2			(1		)
Total	$	246		$	265		$	(19	)		$	396		$	411		$	(15	)
Residential mortgage loans
Performing loans	$	291		$	304		$	(13	)		$	279		$	298		$	(19	)
Accruing loans 90 days or more past due	285			296			(11		)		321			329			(8		)
Nonaccrual loans	166			265			(99		)		182			292			(110		)
Total	$	742		$	865		$	(123	)		$	782		$	919		$	(137	)
Other assets	$	132		$	125		$	7			$	156		$	176		$	(20	)
Liabilities
Other borrowed funds	$	63		$	64		$	(1	)		$	64		$	65		$	(1	)

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

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

Table 57: Fair Value Option – Changes in Fair Value (a)

Year ended December 31 In millions	Gains (Losses)
	2019				2018				2017
Assets
Residential mortgage loans held for sale	$	84			$	38			$	121
Commercial mortgage loans held for sale	$	61			$	67			$	87
Residential mortgage loans	$	23			$	24			$	27
Other assets	$	40			$	(40	)		$	60

(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

This section presents fair value information for all other financial instruments that are not recorded on the Consolidated Balance Sheet at fair value. We used the following methods and assumptions to estimate the fair value amounts for these financial instruments.

Cash and Due from Banks and Interest-earning Deposits with Banks

Due to their short-term nature, the carrying amounts for Cash and due from banks and Interest-earning deposits with banks reported on our Consolidated Balance Sheet approximate fair value.

Securities Held to Maturity

We primarily use prices obtained from pricing services, dealer quotes or recent trades to determine the fair value of securities. Refer to the Fair Value Measurement section of this Note 7 for additional information relating to our pricing processes and procedures.

Net Loans

Fair values are estimated based on the discounted value of expected net cash flows incorporating assumptions about prepayment rates, net credit losses and servicing fees. Nonaccrual loans are valued at their estimated recovery value. Loans are presented net of the ALLL.

Other Assets

Other assets includes accrued interest receivable, cash collateral, federal funds sold and resale agreements, certain loans held for sale, and FHLB and FRB stock. The aggregate carrying value of our FHLB and FRB stock was $1.6 billion and $1.8 billion at December 31, 2019 and 2018, respectively, which approximated fair value at each date.

Deposits

For time deposits, fair values are estimated by discounting contractual cash flows using current market rates for instruments with similar maturities. For deposits with no defined maturity, such as noninterest-bearing and interest-bearing demand and interest-bearing money market and savings deposits, carrying values approximate fair values.

Borrowed Funds

For short-term borrowed funds, including federal funds purchased, commercial paper, repurchase agreements and certain other short-term borrowings and payables, carrying values approximated fair values. For long-term borrowed funds, quoted market prices are used, when available, to estimate fair value. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar terms and maturities.

Unfunded Loan Commitments and Letters of Credit

The fair value of unfunded loan commitments and letters of credit is determined from a market participant’s view including the impact of changes in interest rates and credit. We establish a liability on these facilities related to the creditworthiness of our counterparty.

Other Liabilities

Other liabilities includes interest-bearing cash collateral held related to derivatives and other accrued liabilities. Due to its short-term nature, the carrying value of Other liabilities reported on our Consolidated Balance Sheet approximates fair value.

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The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of these financial instruments as of December 31, 2019 and 2018 are as follows.

Table 58: Additional Fair Value Information Related to Other Financial Instruments 

In millions	Carrying Amount				Fair Value
					Total				Level 1				Level 2				Level 3
December 31, 2019
Assets
Cash and due from banks	$	5,061			$	5,061			$	5,061
Interest-earning deposits with banks	23,413				23,413								$	23,413
Securities held to maturity	17,661				18,044				832				17,039				$	173
Net loans (excludes leases)	229,205				232,670												232,670
Other assets	5,700				5,700								5,692				8
Total assets	$	281,040			$	284,888			$	5,893			$	46,144			$	232,851
Liabilities
Time deposits	$	21,663			$	21,425							$	21,425
Borrowed funds	59,745				60,399								58,622				$	1,777
Unfunded loan commitments and letters of credit	318				318												318
Other liabilities	506				506								506
Total liabilities	$	82,232			$	82,648							$	80,553			$	2,095
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 58 represent only a portion of the total market value of our total 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 52);

•	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.

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Assets and liabilities of acquired entities are recorded at estimated fair value as of the acquisition date.

Goodwill

Allocations of Goodwill by business segment during 2019, 2018 and 2017 follow:

Table 59: Goodwill by Business Segment (a)

In millions	Retail Banking			Corporate & Institutional Banking			Asset Management Group			Total
December 31, 2019 (b)	$	5,795		$	3,374		$	64		$	9,233
December 31, 2018 (b)	$	5,795		$	3,359		$	64		$	9,218
December 31, 2017	$	5,795		$	3,314		$	64		$	9,173

(a)	The BlackRock business segment did not have any allocated goodwill during 2019, 2018 and 2017.

(b)	Corporate & Institutional Banking's goodwill balances include the impacts of $15 million at December 31, 2019 and $45 million at December 31, 2018 resulting from business acquisitions.

We review goodwill in each of our reporting units for impairment at least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date. Based on the results of our analysis, there were no impairment charges related to goodwill in 2019, 2018 or 2017.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others as an intangible asset when the servicing income we receive is more than adequate compensation. MSRs are purchased or originated when loans are sold with servicing retained. MSRs totaled $1.6 billion at December 31, 2019 and $2.0 billion at December 31, 2018, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.

Commercial Mortgage Servicing Rights

We recognize gains/(losses) on changes in the fair value of commercial MSRs. Commercial MSRs are subject to changes 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 commercial MSRs with securities, derivative instruments and resale agreements which are expected to increase (or decrease) in value when the value of commercial MSRs decreases (or increases).

The fair value of commercial MSRs is estimated by using a discounted cash flow model incorporating inputs for assumptions as to constant prepayment rates, discount rates and other factors determined based on current market conditions and expectations.

Changes in the commercial MSRs follow:

Table 60: Commercial Mortgage Servicing Rights

In millions	2019				2018				2017
January 1	$	726			$	668			$	576
Additions:
From loans sold with servicing retained	53				57				88
Purchases	103				93				69
Changes in fair value due to:
Time and payoffs (a)	(146		)		(143		)		(111		)
Other (b)	(87		)		51				46
December 31	$	649			$	726			$	668
Related unpaid principal balance at December 31	$	216,992			$	180,496			$	162,182
Servicing advances at December 31	$	157			$	220			$	217

(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.

Residential Mortgage Servicing Rights

Residential MSRs are subject to changes 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 residential MSRs with

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securities and derivative instruments which are expected to increase (or decrease) in value when the value of residential MSRs decreases (or increases).

The fair value of residential MSRs is estimated by using a discounted cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other factors which are determined based on current market conditions.

Changes in the residential MSRs follow:

Table 61: Residential Mortgage Servicing Rights

In millions	2019				2018				2017
January 1	$	1,257			$	1,164			$	1,182
Additions:
From loans sold with servicing retained	36				44				55
Purchases	114				129				185
Changes in fair value due to:
Time and payoffs (a)	(162		)		(170		)		(175		)
Other (b)	(250		)		90				(83		)
December 31	$	995			$	1,257			$	1,164
Unpaid principal balance of loans serviced for others at December 31	$	120,464			$	125,388			$	126,769
Servicing advances at December 31	$	111			$	156			$	201

(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 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 December 31, 2019 are shown in Tables 62 and 63. 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 62 and 63. 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.

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 62: Commercial Mortgage Servicing Rights – Key Valuation Assumptions

Dollars in millions	December 31 2019				December 31 2018
Fair value	$	649			$	726
Weighted-average life (years)	4.1				4.1
Weighted-average constant prepayment rate	4.56		%		5.65		%
Decline in fair value from 10% adverse change	$	9			$	10
Decline in fair value from 20% adverse change	$	17			$	19
Effective discount rate	7.91		%		8.39		%
Decline in fair value from 10% adverse change	$	17			$	19
Decline in fair value from 20% adverse change	$	34			$	39

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Table 63: Residential Mortgage Servicing Rights – Key Valuation Assumptions

Dollars in millions	December 31 2019				December 31 2018
Fair value	$	995			$	1,257
Weighted-average life (years)	5.2				6.9
Weighted-average constant prepayment rate	13.51			%	8.69			%
Decline in fair value from 10% adverse change	$	46			$	41
Decline in fair value from 20% adverse change	$	89			$	79
Weighted-average option adjusted spread	769			bps	806			bps
Decline in fair value from 10% adverse change	$	27			$	37
Decline in fair value from 20% adverse change	$	52			$	73

Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $.5 billion for each of 2019, 2018 and 2017. 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 on our Consolidated Income Statement in Corporate services and Residential mortgage, respectively.

Premises, equipment and leasehold improvements, stated at cost less accumulated depreciation and amortization, were as follows:

Table 64: Premises, Equipment and Leasehold Improvements

In millions	December 31 2019				December 31 2018
Premises, equipment and leasehold improvements	$	14,681			$	11,864
Accumulated depreciation and amortization	(6,953		)		(6,137		)
Net book value	$	7,728			$	5,727

The following table includes depreciation expense on premises, equipment and leasehold improvements, as well as amortization expense, excluding intangible assets, primarily for capitalized internally developed software.

Table 65: Depreciation and Amortization Expense

Year ended December 31 In millions	2019				2018				2017
Depreciation	$	778			$	754			$	743
Amortization	109				78				56
Total depreciation and amortization	$	887			$	832			$	799

Total time deposits of $21.7 billion at December 31, 2019 have future contractual maturities as follows:

Table 66: Time Deposits

In billions
2020	$	18.6
2021	$	1.6
2022	$	.6
2023	$	.4
2024	$	.2
2025 and thereafter	$	.3

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The following shows the carrying value of total borrowed funds of $60.3 billion at December 31, 2019 (including adjustments related to purchase accounting, accounting hedges and unamortized original issuance discounts) by remaining contractual maturity:

Table 67: Borrowed Funds

In billions
2020	$	27.1
2021	$	8.5
2022	$	8.0
2023	$	2.3
2024	$	3.0
2025 and thereafter	$	11.4

The following table presents the contractual rates and maturity dates of our FHLB borrowings, senior debt and subordinated debt as of December 31, 2019 and the carrying values as of December 31, 2019 and 2018.

Table 68: FHLB Borrowings, Senior Debt and Subordinated Debt

	Stated Rate		Maturity		Carrying Value
Dollars in millions	2019		2019		2019				2018
Parent Company
Senior debt	2.20%-5.13%		2020-2029		$	8,843			$	5,063
Subordinated debt	3.90%		2024		777				1,447
Junior subordinated debt	2.48%		2028		205				205
Subtotal					9,825				6,715
Bank
FHLB (a)	zero-6.35%		2020-2030		16,341				21,501
Senior debt	1.38%-3.50%		2020-2043		20,167				19,955
Subordinated debt	2.70%-4.20%		2022-2029		5,152				4,243
Subtotal					41,660				45,699
Total					$	51,485			$	52,414

(a)	FHLB borrowings are generally collateralized by residential mortgage loans, other mortgage-related loans and investment securities.

In Table 68, the carrying values for Parent Company senior and subordinated debt include basis adjustments of $177 million and $34 million, respectively, whereas Bank senior and subordinated debt include basis adjustments of $167 million and $170 million, respectively, related to fair value accounting hedges as of December 31, 2019.

Certain borrowings are reported at fair value, refer to Note 7 Fair Value for more information on those borrowings.

Junior Subordinated Debentures

PNC Capital Trust C, a wholly-owned finance subsidiary of The PNC Financial Services Group, Inc., owns junior subordinated debentures issued by PNC with a carrying value of $205 million. In June 1998, PNC Capital Trust C issued $200 million of trust preferred securities which bear interest at an annual rate of 3 month LIBOR plus 57 basis points. The trust preferred securities are currently redeemable by PNC Capital Trust C at par. In accordance with GAAP, the financial statements of the Trust are not included in our consolidated financial statements.

The obligations of The PNC Financial Services Group, Inc., as the parent of the Trust, when taken collectively, are the equivalent of a full and unconditional guarantee of the obligations of the Trust under the terms of the trust preferred securities. Such guarantee is subordinate in right of payment in the same manner as other junior subordinated debt. There are certain restrictions on our overall ability to obtain funds from our subsidiaries. For additional disclosure on these funding restrictions, see Note 19 Regulatory Matters.

We are subject to certain restrictions, including restrictions on dividend payments, in connection with the outstanding junior subordinated debentures. Generally, if there is (i) an event of default under the debenture, (ii) we elect to defer interest on the debenture, (iii) we exercise our right to defer payments on the related trust preferred securities, or (iv) there is a default under our guarantee of such payment obligations, subject to certain limited exceptions, we would be unable during the period of such default or deferral to make payments on our debt securities that rank equal or junior to the debentures as well as to make payments on our equity securities, including dividend payments.

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Pension and Postretirement Plans

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. Earnings credit percentages for those employees who were plan participants on December 31, 2009 are frozen at the level earned to that point. Earnings credits for all employees who became participants on or after January 1, 2010 are a flat 3% of eligible compensation. All plan participants earn interest on their cash balances based on 30-year Treasury securities rates with those who were participants at December 31, 2009 earning a minimum rate. New participants on or after January 1, 2010 are not subject to the minimum rate. Beginning in 2018, the plan provides for a minimum annual earnings credit amount of $2,000, subject to eligibility criteria. Pension contributions to the plan are typically based on an actuarially determined amount necessary to fund total benefits payable to plan participants. Assets of the qualified pension plan are held in a separate Trust (Trust).

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. PNC reserves the right to terminate or make changes to these plans at any time. The nonqualified pension plan is unfunded. Contributions from PNC and, in the case of the postretirement benefit plans, participant contributions cover all benefits paid under the nonqualified pension plan and postretirement benefit plans. The postretirement plan provides benefits to certain retirees that are at least actuarially equivalent to those provided by Medicare Part D and accordingly, we receive a federal subsidy as shown in Table 69. In November of 2015, we established a voluntary employee beneficiary association (VEBA) to partially fund postretirement medical and life insurance benefit obligations.

We use a measurement date of December 31 for plan assets and benefit obligations. The qualified pension plan assets and benefit obligation were re-measured as of January 31, 2019 as a result of a plan amendment. A reconciliation of the changes in the projected benefit obligation for qualified pension, nonqualified pension and postretirement benefit plans as well as the change in plan assets for the qualified pension plan follows.

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Table 69: Reconciliation of Changes in Projected Benefit Obligation and Change in Plan Assets

	Qualified Pension								Nonqualified Pension								Postretirement Benefits
In millions	2019				2018				2019				2018				2019				2018
Accumulated benefit obligation at December 31	$	4,740			$	4,315			$	259			$	253
Projected benefit obligation at January 1	$	4,355			$	4,789			$	258			$	286			$	322			$	355
Service cost	115				116				3				3				4				5
Interest cost	186				171				10				9				13				12
Amendments	21
Actuarial (gains)/losses and changes in assumptions	498				(424		)		25				(16		)		18				(28		)
Participant contributions																	3				3
Federal Medicare subsidy on benefits paid																					1
Benefits paid	(288		)		(297		)		(31		)		(24		)		(27		)		(26		)
Projected benefit obligation at December 31	$	4,887			$	4,355			$	265			$	258			$	333			$	322
Fair value of plan assets at January 1	$	4,963			$	5,253											$	232			$	230
Actual return on plan assets	979				(193		)										15				3
Employer contribution					200				$	31			$	24			24				21
Participant contributions																	3				3
Federal Medicare subsidy on benefits paid																					1
Benefits paid	(288		)		(297		)		(31		)		(24		)		(27		)		(26		)
Fair value of plan assets at December 31	$	5,654			$	4,963			$	—			$	—			$	247			$	232
Funded status	$	767			$	608			$	(265	)		$	(258	)		$	(86	)		$	(90	)
Amounts recognized on the consolidated balance sheet
Noncurrent asset	$	767			$	608
Current liability									$	(26	)		$	(26	)		$	(2	)		$	(2	)
Noncurrent liability									(239		)		(232		)		(84		)		(88		)
Net amount recognized on the consolidated balance sheet	$	767			$	608			$	(265	)		$	(258	)		$	(86	)		$	(90	)
Amounts recognized in AOCI consist of:
Prior service cost (credit)	$	29			$	12											$	2			$	1
Net actuarial loss (gain)	411				608				$	78			$	57			1				(7		)
Amount of loss (gain) recognized in AOCI	$	440			$	620			$	78			$	57			$	3			$	(6	)

PNC Pension Plan Assets

The long-term investment strategy for pension plan assets in our qualified pension plan (the Plan) is to:

•	Meet present and future benefit obligations to all participants and beneficiaries;

•	Cover reasonable expenses incurred to provide such benefits, including expenses incurred in the administration of the Trust and the Plan;

•	Provide sufficient liquidity to meet benefit and expense payment requirements on a timely basis; and

•	Provide a total return that, over the long term, maximizes the ratio of trust assets to liabilities by maximizing investment return, at an appropriate level of risk.

The Plan’s named investment fiduciary has the ability to make short to intermediate term asset allocation shifts under the dynamic asset allocation strategy based on factors such as the Plan’s funded status, the named investment fiduciary’s view of return on equities relative to long term expectations, the named investment fiduciary’s view on the direction of interest rates and credit spreads, and other relevant financial or economic factors which would be expected to impact the ability of the Trust to meet its obligation to participants and beneficiaries. Accordingly, the allowable asset allocation ranges have been updated to incorporate the flexibility required by the dynamic allocation policy.

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The asset strategy allocations for the Plan at the end of 2019 and 2018, and the target allocation range at the end of 2019, by asset category, are as follows.

Table 70: Asset Strategy Allocations

	Target Allocation Range		Percentage of Plan Assets by Strategy at December 31
			2019		2018
Asset Category
Domestic Equity	20 – 40%		27	%	27	%
International Equity	10 – 25%		17	%	22	%
Private Equity	0 – 15%		10	%	11	%
Total Equity	40 – 70%		54	%	60	%
Domestic Fixed Income	10 – 40%		23	%	18	%
High Yield Fixed Income	0 – 25%		8	%	9	%
Total Fixed Income	10 – 65%		31	%	27	%
Real estate	0 – 10%		5	%	5	%
Other	0 – 15%		10	%	8	%
Total	100	%	100	%	100	%

The asset category represents the allocation of Plan assets in accordance with the investment objective of each of the Plan’s investment managers. Certain domestic equity investment managers utilize derivatives and fixed income securities as described in their Investment Management Agreements to achieve their investment objective under the Investment Policy Statement. Other investment managers may invest in eligible securities outside of their assigned asset category to meet their investment objectives. The actual percentage of the fair value of total Plan assets held as of December 31, 2019 for equity securities, fixed income securities, real estate and all other assets are 61%, 24%, 4% and 11%, respectively.

We believe that, over the long term, asset allocation is the single greatest determinant of risk. Asset allocation will deviate from the target percentages due to market movement, cash flows, investment manager performance and implementation of shifts under the dynamic asset allocation policy. Material deviations from the asset allocation targets can alter the expected return and risk of the Trust. However, frequent rebalancing of the asset allocation targets may result in significant transaction costs, which can impair the Trust’s ability to meet its investment objective. Accordingly, the Trust portfolio is periodically rebalanced to maintain asset allocation within the target ranges described above.

In addition to being diversified across asset classes, the Trust is diversified within each asset class. Secondary diversification provides a reasonable basis for the expectation that no single security or class of securities will have a disproportionate impact on the total risk and return of the Trust.

Where investment strategies permit the use of derivatives and/or currency management, language is incorporated in the managers’ guidelines to define allowable and prohibited transactions and/or strategies. Derivatives are typically employed by investment managers to modify risk/return characteristics of their portfolio(s), implement asset allocation changes in a cost effective manner, or reduce transaction costs. Under the managers’ investment guidelines, derivatives may not be used solely for speculation or leverage. Derivatives are to be used only in circumstances where they offer the most efficient economic means of improving the risk/reward profile of the portfolio.

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Fair Value Measurements

As further described in Note 7 Fair Value, GAAP establishes the framework for measuring fair value, including a hierarchy used to classify the inputs used in measuring fair value.

A description of the valuation methodologies used for assets measured at fair value at both December 31, 2019 and 2018 follows:

Asset	Valuation Methodology
Money market funds	• Valued at the net asset value of the shares held by the pension plan at year end.
U.S. government and agency securities Corporate debt Common stock	• Valued at the closing price reported on the active market on which the individual securities are traded. • If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Such securities are generally classified within Level 2 of the valuation hierarchy but may be a Level 3 depending on the level of liquidity and activity in the market for the security.
Mutual funds	• Valued based on third-party pricing of the fund which is not actively traded.
Other investments    Derivative financial instruments    Group annuity contracts    Preferred stock	• Derivative financial instruments - recorded at estimated fair value as determined by third-party appraisals and pricing models. • Group annuity contracts - measured at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. • Preferred stock - Valued at the closing price reported on an active market on which the securities are traded.
Investments measured at NAV    Collective trust fund investments    Limited partnerships	• Collective trust fund investments - Valued based upon the units of such collective trust fund held by the Plan at year end multiplied by the respective unit value. The unit value of the collective trust fund is based upon significant observable inputs, although it is not based upon quoted marked prices in an active market. The underlying investments of the collective trust funds consist primarily of equity securities, debt obligations, short-term investments, and other marketable securities. Due to the nature of these securities, there are no unfunded commitments or redemption restrictions. • Limited partnerships - Valued by investment managers based on recent financial information used to estimate fair value. The unit value of limited partnerships is based upon significant observable inputs, although it is not based upon quoted marked prices in an active market.

These methods may result in fair value calculations that may not be indicative of net realizable values or future fair values. Furthermore, while the pension plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2019 and 2018.

Table 71: Pension Plan Assets - Fair Value Hierarchy

	December 31, 2019																	December 31, 2018
In millions	Level 1				Level 2				Level 3				Total Fair Value					Level 1				Level 2				Level 3				Total Fair Value
Interest bearing cash					$	1							$	1				$	7			$	2							$	9
Money market funds	$	456											456					149												149
U.S. government and agency securities	582				135				$	1			718					512				130								642
Corporate debt					660				3				663									580				$	6			586
Common stock	620				1				4				625					623				6								629
Mutual funds					253								253									236								236
Other					126								126					4				42				4				50
Investments measured at net asset value (a)													2,812																	2,662
Total	$	1,658			$	1,176			$	8			$	5,654				$	1,295			$	996			$	10			$	4,963

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

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The following table provides information regarding our estimated future cash flows related to our various plans.

Table 72: Estimated Cash Flows

	Pension Plans								Postretirement Benefits
In millions	Qualified Pension				Nonqualified Pension				Gross PNC Benefit Payments
Estimated 2020 employer contributions					$	26			$	28
Estimated future benefit payments
2020	$	300			$	26			$	28
2021	$	315			$	26			$	27
2022	$	329			$	23			$	26
2023	$	327			$	23			$	25
2024	$	316			$	21			$	25
2025-2029	$	1,557			$	92			$	111

The components of net periodic benefit cost/(income) and other amounts recognized in Other comprehensive income (OCI) were as follows.

Table 73: Components of Net Periodic Benefit Cost (a)

	Qualified Pension Plan									Nonqualified Pension Plan									Postretirement Benefits
Year ended December 31 – in millions	2019 (b)			2018			2017			2019			2018			2017			2019			2018			2017
Net periodic cost consists of:
Service cost	$	115		$	116		$	160		$	3		$	3		$	3		$	4		$	5		$	5
Interest cost	186			171			179			10			9			10			13			12			14
Expected return on plan assets	(288		)	(306		)	(285		)										(5		)	(6		)	(5		)
Amortization of prior service cost/(credit)	4			1			(3		)																(1		)
Amortization of actuarial (gain)/loss	4						43			4			5			4
Net periodic cost (benefit)	21			(18		)	94			17			17			17			12			11			13
Other changes in plan assets and benefit obligations recognized in OCI:
Current year prior service cost/(credit)	21						17																		2
Amortization of prior service (cost)/credit	(4		)	(1		)	3																		1
Current year actuarial loss/(gain)	(193		)	75			(264		)	25			(16		)	7			9			(25		)	(22		)
Amortization of actuarial gain/(loss)	(4		)				(43		)	(4		)	(5		)	(4		)
Total recognized in OCI	(180		)	74			(287		)	21			(21		)	3			9			(25		)	(19		)
Total amounts recognized in net periodic cost and OCI	$	(159	)	$	56		$	(193	)	$	38		$	(4	)	$	20		$	21		$	(14	)	$	(6	)

(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.

(b)	Includes the effects of the qualified pension plan remeasurement as of January 31, 2019 as a result of a plan amendment.

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The weighted-average assumptions used (as of the beginning of each year) to determine the net periodic costs shown in Table 73 were as follows.

Table 74: Net Periodic Costs - Assumptions

	Net Periodic Cost Determination
As of January 1	2019		2018		2017
Discount rate
Qualified pension (a)	4.30	%	3.60	%	4.00	%
Nonqualified pension	4.15	%	3.45	%	3.80	%
Postretirement benefits	4.20	%	3.55	%	3.90	%
Rate of compensation increase (average)	3.50	%	3.50	%	3.50	%
Assumed health care cost trend rate
Initial trend	6.50	%	6.75	%	7.00	%
Ultimate trend	5.00	%	5.00	%	5.00	%
Year ultimate trend reached	2025		2025		2025
Expected long-term return on plan assets	5.75	%	6.00	%	6.38	%

(a) The 2019 qualified pension discount rate was 4.15% at the time of remeasurement on January 31, 2019 as a result of a plan amendment.

The weighted-average assumptions used (as of the end of each year) to determine year end obligations for pension and postretirement benefits were as follows.

Table 75: Other Pension Assumptions

Year ended December 31	2019			2018
Discount rate
Qualified pension	3.30	%		4.30	%
Nonqualified pension	3.05	%		4.15	%
Postretirement benefits	3.20	%		4.20	%
Rate of compensation increase (average)	4.25	%		3.50	%
Assumed health care cost trend rate
Initial trend	6.25	%		6.50	%
Ultimate trend	5.00	%		5.00	%
Year ultimate trend reached	2025			2025

The discount rates are determined independently for each plan by comparing the expected future benefits that will be paid under each plan with yields available on high quality corporate bonds of similar duration. For this analysis, 10% of bonds with the highest yields and 40% with the lowest yields were removed from the bond universe.

 

The expected return on plan assets is a long-term assumption established by considering historical and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes. For purposes of setting and reviewing this assumption, “long- term” refers to the period over which the plan’s projected benefit obligations will be disbursed. We review this assumption at each measurement date and adjust it if warranted. Our selection process references certain historical data and the current environment, but primarily utilizes qualitative judgment regarding future return expectations. We also examine the assumption used by other companies with similar pension investment strategies. Taking into account all of these factors, the expected long-term return on plan assets for determining net periodic pension cost for 2019 was 5.75%. We are reducing our expected long-term return on assets to 5.50% for determining pension cost for 2020. This decision was made after considering the views of both internal and external capital market advisors, particularly with regard to the effects of the recent economic environment on long-term prospective equity and fixed income returns.

PNC’s net periodic benefit cost recognized for the plans is sensitive to the discount rate and expected long-term return on plan assets. With all other assumptions held constant, a .5% decline in the discount rate would have resulted in an immaterial increase in net periodic benefit cost for the qualified pension plan in 2019, and to be recognized in 2020. For the nonqualified pension plan and postretirement benefits, a .5% decline in the discount rate would also have resulted in an immaterial increase in net periodic benefit cost.

The health care cost trend rate assumptions shown in Tables 74 and 75 relate only to the postretirement benefit plans. The effect of a one-percentage-point increase or decrease in assumed health care cost trend rates would be insignificant.

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Defined Contribution Plans

The PNC Incentive Savings Plan (ISP) is a qualified defined contribution plan that covers all of our eligible employees. Newly-hired full time employees and part-time employees who are eligible to participate in the ISP are automatically enrolled in the ISP with a deferral rate equal to 4% of eligible compensation in the absence of an affirmative election otherwise. Employee benefits expense related to the ISP was $139 million in 2019, $139 million in 2018 and $125 million in 2017, representing cash contributed to the ISP by PNC.

The ISP is a 401(k) Plan and includes an employee stock ownership (ESOP) feature. Employee contributions are invested in a number of investment options, including pre-mixed portfolios and individual core funds, available under the ISP at the direction of the employee.

We have long-term incentive award plans (Incentive Plans) that provide for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, incentive shares/performance units, restricted shares, restricted share units, other share-based awards and dollar-denominated awards to executives and, other than incentive stock options, to non-employee directors. Certain Incentive Plan awards may be paid in stock, cash or a combination of stock and cash. We typically grant a substantial portion of our stock-based compensation awards during the first quarter of each year.

Incentive/Performance Unit Awards and Restricted Share/Restricted Share Unit Awards

The fair value of nonvested incentive/performance unit awards and restricted share/restricted share unit awards is initially determined based on prices not less than the market value of our common stock on the date of grant with a reduction for estimated forfeitures. The value of certain incentive/performance unit awards is subsequently remeasured based on the achievement of one or more financial and other performance goals. Additionally, certain incentive/performance unit awards require subsequent adjustment to their current market value due to certain discretionary risk review triggers.

The weighted-average grant date fair value of incentive/performance unit awards and restricted share/restricted share unit awards granted in 2019, 2018 and 2017 was $117.53, $149.38 and $122.10 per share, respectively. The total intrinsic value of incentive/performance unit and restricted share/restricted share unit awards vested during 2019, 2018 and 2017 was approximately $218 million, $254 million and $235 million, respectively. We recognize compensation expense for such awards ratably over the corresponding vesting and/or performance periods for each type of program.

Table 76: Nonvested Incentive/Performance Unit Awards and Restricted Share/Restricted Share Unit Awards Rollforward

Shares in thousands	Nonvested Incentive/Performance Units Shares		Weighted-Average Grant Date Fair Value			Nonvested Restricted Share/Restricted Share Units		Weighted-Average Grant Date Fair Value
December 31, 2018	1,134		$	104.02		3,104		$	115.57
Granted (a)	207		$	115.36		1,560		$	117.82
Vested/Released (a)	(494	)	$	88.29		(1,278	)	$	84.37
Forfeitures	(3	)	$	105.43		(81	)	$	132.03
December 31, 2019	844		$	116.00		3,305		$	128.29

(a)	Includes adjustments for achieving specific performance goals for Incentive/Performance Unit Share Awards granted in prior periods.

In Table 76, the units and related weighted-average grant date fair value of the incentive/performance unit share awards exclude the effect of dividends on the underlying shares, as those dividends will be paid in cash if and when the underlying shares are issued to the participants.

We use a variety of financial derivatives to both mitigate exposure to market (primarily interest rate) and credit risks inherent in our business activities, as well as to facilitate customer risk management activities. We manage these risks as part of our overall asset and liability management process and through our credit policies and procedures. 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.

Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and it is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate (commonly LIBOR), security price, credit spread or other

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index. Residential and commercial real estate loan commitments associated with loans to be sold also qualify as derivative instruments.

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

Table 77: Total Gross Derivatives (a)

	December 31, 2019									December 31, 2018
In millions	Notional /Contract Amount			Asset Fair Value (b)			Liability Fair Value (c)			Notional /Contract Amount			Asset Fair Value (b)			Liability Fair Value (c)
Derivatives used for hedging
Interest rate contracts (d):
Fair value hedges	$	30,663								$	30,919		$	7
Cash flow hedges	23,642			$	6					17,337			1
Foreign exchange contracts:
Net investment hedges	1,102						$	6		1,012						$	10
Total derivatives designated for hedging	$	55,407		$	6		$	6		$	49,268		$	8		$	10
Derivatives not used for hedging
Derivatives used for mortgage banking activities (e):
Interest rate contracts:
Swaps	$	52,007		$	1					$	43,084					$	3
Futures (f)	3,487									10,658
Mortgage-backed commitments	7,738			60			$	44		5,771			$	47		39
Other	3,134			32			23			6,509			10			3
Total interest rate contracts	66,366			93			67			66,022			57			45
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps	249,075			2,769			1,187			218,496			1,352			1,432
Futures (f)	703									914
Mortgage-backed commitments	3,721			2			6			2,246			7			10
Other	21,379			113			33			20,109			77			33
Total interest rate contracts	274,878			2,884			1,226			241,765			1,436			1,475
Commodity contracts:
Swaps	5,204			234			229			4,813			244			238
Other	4,203			72			72			1,418			67			67
Total commodity contracts	9,407			306			301			6,231			311			305
Foreign exchange contracts and other	27,120			204			162			23,253			194			192
Total foreign exchange contracts and other	311,405			3,394			1,689			271,249			1,941			1,972
Derivatives used for other risk management activities:
Foreign exchange contracts and other	10,201			9			257			7,908			75			263
Total derivatives not designated for hedging	$	387,972		$	3,496		$	2,013		$	345,179		$	2,073		$	2,280
Total gross derivatives	$	443,379		$	3,502		$	2,019		$	394,447		$	2,081		$	2,290
Less: Impact of legally enforceable master netting agreements				690			690						688			688
Less: Cash collateral received/paid				616			790						341			539
Total derivatives				$	2,196		$	539					$	1,052		$	1,063

(a)	Centrally cleared derivatives are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.

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

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

(d)	Represents primarily swaps.

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

(f)	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 below. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.

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Further discussion on how derivatives are accounted for is included in Note 1 Accounting Policies.

Derivatives Designated As Hedging Instruments

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. 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 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.

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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 78: 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
Year ended December 31, 2019
Total amounts on the Consolidated Income Statement	$	10,525		$	2,426		$	1,811		$	1,473
Gains (losses) on fair value hedges recognized on:
Hedged items (c)				$	187		$	(808	)
Derivatives				$	(178	)	$	659
Amounts related to interest settlements on derivatives				$	13		$	79
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	9		$	9					$	19
Year ended December 31, 2018
Total amounts on the Consolidated Income Statement	$	9,580		$	2,261		$	1,632		$	1,205
Gains (losses) on fair value hedges recognized on:
Hedged items (c)				$	(53	)	$	151
Derivatives				$	60		$	(262	)
Amounts related to interest settlements on derivatives				$	3		$	80
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	41		$	11					$	8
Year ended December 31, 2017
Total amounts on the Consolidated Income Statement	$	8,238		$	1,998		$	1,083		$	1,077
Gains (losses) on fair value hedges recognized on (e):
Hedged items (c)				$	(50	)	$	268
Derivatives				$	48		$	(284	)
Amounts related to interest settlements on derivatives				$	(41	)	$	234
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	159		$	21					$	17

(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 related to discontinued 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.

(e)	The difference between the gains (losses) recognized in income on derivatives and their related hedged items represents the ineffective portion of the change in value of our fair value hedged derivatives.

Further detail regarding gains (losses) on derivatives and related cash flows is presented in the following table:

Table 79: Hedged Items - Fair Value Hedges

	December 31, 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)	$	5,666			$	59			$	6,216			$	(103	)
Borrowed funds	$	28,616			$	548			$	27,121			$	(260	)

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

(b)	Carrying value shown represents amortized cost.

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. For 2018 and 2017, there was no net investment hedge ineffectiveness. Net gains (losses) on net investment hedge derivatives recognized in OCI were $(24) million in 2019, $76 million in 2018 and $(81) million in 2017.

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Derivatives Not Designated As Hedging Instruments

Residential mortgage loans that will be sold in the secondary market, and the related loan commitments, which are considered derivatives, are accounted for at fair value. Changes in the fair value of the loans and commitments due to interest rate risk are hedged with forward contracts to sell mortgage-backed securities, as well as U.S. Treasury and Eurodollar futures and options. Gains and losses on the loans and commitments held for sale and the derivatives used to economically hedge them are included in Residential mortgage noninterest income on the Consolidated Income Statement.

Residential mortgage servicing rights are accounted for at fair value with changes in fair value influenced primarily by changes in interest rates. Derivatives used to hedge the fair value of residential mortgage servicing rights include interest rate futures, swaps, options, and forward contracts to purchase mortgage-backed securities. Gains and losses on residential mortgage servicing rights and the related derivatives used for hedging are included in Residential mortgage noninterest income.

Commercial mortgage loans held for sale and the related loan commitments, which are considered derivatives, are accounted for at fair value. Derivatives used to economically hedge these loans and commitments from changes in fair value due to interest rate risk and credit risk include forward loan sale contracts, interest rate swaps, and credit default swaps. Gains and losses on the commitments, loans and derivatives are included in Other noninterest income. Derivatives used to economically hedge the change in value of commercial mortgage servicing rights include interest rate futures, swaps and options. Gains or losses on these derivatives are included in Corporate services noninterest income.

The residential and commercial mortgage loan commitments associated with loans to be sold which are accounted for as derivatives are valued based on the estimated fair value of the underlying loan and the probability that the loan will fund within the terms of the commitment. The fair value also takes into account the fair value of the embedded servicing right.

We offer derivatives to our customers in connection with their risk management needs. These derivatives primarily consist of interest rate and commodity swaps, interest rate and commodity caps and floors, swaptions and foreign exchange contracts. We primarily manage our market risk exposure from customer transactions by entering into a variety of hedging transactions with third-party dealers. Gains and losses on customer-related derivatives are included in Other noninterest income.

Included in the customer, mortgage banking risk management, and other risk management portfolios are written interest-rate caps and floors entered into with customers and for risk management purposes. We receive an upfront premium from the counterparty and are obligated to make payments to the counterparty if the underlying market interest rate rises above or falls below a certain level designated in the contract. Our ultimate obligation under written options is based on future market conditions.

We have entered into risk participation agreements to share some of the credit exposure with other counterparties related to interest rate derivative contracts or to take on credit exposure to generate revenue. The notional amount of risk participation agreements sold was $8.0 billion at December 31, 2019 and $6.0 billion at December 31, 2018. Assuming all underlying third party customers referenced in the swap contracts defaulted, the exposure from these agreements would be $.3 billion at December 31, 2019 and $.2 billion at December 31, 2018 based on the fair value of the underlying swaps.

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

Table 80: Gains (Losses) on Derivatives Not Designated for Hedging

	Year ended December 31
In millions	2019				2018				2017
Derivatives used for mortgage banking activities:
Interest rate contracts (a)	$	405			$	(56	)		$	75
Derivatives used for customer-related activities:
Interest rate contracts	125				99				95
Foreign exchange contracts and other (b)	114				104				146
Gains (losses) from customer-related activities (c)	239				203				241
Derivatives used for other risk management activities:
Foreign exchange contracts and other (c)	(137		)		268				(525		)
Total gains (losses) from derivatives not designated as hedging instruments	$	507			$	415			$	(209	)

(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.

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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. In certain cases, minimum thresholds must be exceeded before any collateral is exchanged. Collateral is typically exchanged daily on unsettled positions based on the net fair value of the positions with the counterparty as of the preceding day. Collateral representing initial margin, which is based on potential future exposure, is also required to be pledged by us in relation to derivative instruments with central clearing house counterparties. Any cash collateral exchanged with counterparties under these master netting agreements is also netted, when appropriate, against the applicable derivative fair values on the Consolidated Balance Sheet. However, the fair value of any securities held or pledged is not included in the net presentation on the balance sheet. In order for derivative instruments under a master netting agreement to be eligible for closeout netting under GAAP, we must conduct sufficient legal review to conclude with a well-founded basis that the offsetting rights included in the master netting agreement would be legally enforceable upon an event of default, including upon an event of bankruptcy, insolvency, or a similar proceeding of the counterparty. Enforceability is evidenced by a legal opinion that supports, with sufficient confidence, the enforceability of the master netting agreement in such circumstances.

Table 81 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of December 31, 2019 and 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.

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Table 81: Derivative Assets and Liabilities Offsetting

In millions	Gross Fair Value				Amounts Offset on the Consolidated Balance Sheet								Net Fair Value				Securities Collateral Held /Pledged Under Master Netting Agreements				Net Amounts
					Fair Value Offset Amount				Cash Collateral
December 31, 2019
Derivative assets
Interest rate contracts:
Over-the-counter cleared	$	14											$	14							$	14
Over-the-counter	2,969				$	365			$	593			2,011				$	215			1,796
Commodity contracts	306				198				18				90								90
Foreign exchange and other contracts	213				127				5				81								81
Total derivative assets	$	3,502			$	690			$	616			$	2,196		(a)	$	215			$	1,981
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared	$	14											$	14							$	14
Over-the-counter	1,279				$	475			$	692			112								112
Commodity contracts	301				152				17				132								132
Foreign exchange and other contracts	425				63				81				281								281
Total derivative liabilities	$	2,019			$	690			$	790			$	539		(b)					$	539
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 December 31, 2019, we held cash, U.S. government securities and mortgage-backed securities totaling $1.1 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.

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 December 31, 2019 was $1.7 billion for which we had posted collateral of $.5 billion in the normal course of business. The maximum additional amount of collateral we would have been required

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to post if the credit-risk related contingent features underlying these agreements had been triggered on December 31, 2019 would be $1.2 billion.

Table 82: Basic and Diluted Earnings Per Common Share

In millions, except per share data		2019				2018				2017
Basic
Net income from continuing operations		$	4,591			$	4,558			$	4,598
Less:
Net income attributable to noncontrolling interests		49				45				50
Preferred stock dividends		236				236				236
Preferred stock discount accretion and redemptions		4				4				26
Net income from continuing operations attributable to common shareholders		4,302				4,273				4,286
Less: Dividends and undistributed earnings allocated to nonvested restricted shares		18				18				15
Net income from continuing operations attributable to basic common shareholders		$	4,284			$	4,255			$	4,271
Net income from discontinued operations attributable to common shareholders		$	827			$	788			$	790
Less: Undistributed earnings allocated to nonvested restricted shares		3				3				8
Net income from discontinued operations attributable to basic common shareholders		$	824			$	785			$	782
Basic weighted-average common shares outstanding		447				467				481
Basic earnings per common share from continuing operations (a)		$	9.59			$	9.11			$	8.87
Basic earnings per common share from discontinued operations (a)		1.84				1.68				1.62
Basic earnings per common share		$	11.43			$	10.79			$	10.49
Diluted
Net income from continuing operations attributable to diluted common shareholders		$	4,284			$	4,255			$	4,271
Net income from discontinued operations attributable to basic common shareholders		$	824			$	785			$	782
Less: Impact of earnings per share dilution from discontinued operations		10				9				16
Net income from discontinued operations attributable to diluted common shareholders		$	814			$	776			$	766
Basic weighted-average common shares outstanding		447				467				481
Dilutive potential common shares		1				3				5
Diluted weighted-average common shares outstanding		448				470				486
Diluted earnings per common share from continuing operations (a)		$	9.57			$	9.06			$	8.79
Diluted earnings per common share from discontinued operations (a)		1.82				1.65				1.57
Diluted earnings per common share		$	11.39			$	10.71			$	10.36

(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).

Preferred Stock

The following table provides the number of preferred shares issued and outstanding, the liquidation value per share and the number of authorized preferred shares.

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Table 83: Preferred Stock – Authorized, Issued and Outstanding

						Preferred Shares
December 31 Shares in thousands		Liquidation value per share				2019			2018
Authorized
$1 par value						20,000			20,000
Issued and outstanding
Series B		$	40			1			1
Series O		$	100,000			10			10
Series P		$	100,000			15			15
Series Q		$	100,000			5			5
Series R		$	100,000			5			5
Series S		$	100,000			5			5
Total issued and outstanding						41			41

The following table discloses information related to the preferred stock outstanding as of December 31, 2019.

Table 84: Terms of Outstanding Preferred Stock

Preferred Stock	Issue Date	Number of Depositary Shares Issued and Outstanding		Fractional Interest in a share of preferred stock represented by each Depositary Share	Dividend Dates (a)	Annual Per Share Dividend Rate				Optional Redemption Date (b)
Series B (c)	(c)	N/A		N/A	Quarterly from March 10th		$	1.80		None
Series O (d)	July 27, 2011	1 million		1/100th	Semi-annually beginning on February 1, 2012 until August 1, 2021   Quarterly beginning on November 1, 2021	6.75% until August 1, 2021   3 Mo. LIBOR plus 3.678% per annum beginning on August 1, 2021				August 1, 2021
Series P (d)	April 24, 2012	60 million		1/4,000th	Quarterly beginning on August 1, 2012	6.125% until May 1, 2022 3 Mo. LIBOR plus 4.0675% per annum beginning on May 1, 2022				May 1, 2022
Series Q (d)	September 21, 2012  October 9, 2012	18 million  1.2 million		1/4,000th	Quarterly beginning on December 1, 2012		5.375		%	December 1, 2017
Series R (d)	May 7, 2013	500,000		1/100th	Semi-annually beginning on December 1, 2013 until June 1, 2023   Quarterly beginning on September 1, 2023	4.85% until June 1, 2023   3 Mo. LIBOR plus 3.04% per annum beginning June 1, 2023				June 1, 2023
Series S (d)	November 1, 2016	525,000		1/100th	Semi-annually beginning on May 1, 2017 until November 1, 2026   Quarterly beginning on February 1, 2027	5.00% until November 1, 2026   3 Mo. LIBOR plus 3.30% per annum beginning November 1, 2026				November 1, 2026

(a)	Dividends are payable when, as, and if declared by our Board of Directors or an authorized committee of our Board of Directors.

(b)	Redeemable at our option on or after the date stated. With the exception of the Series B preferred stock, redeemable at our option within 90 days of a regulatory capital treatment event as defined in the designations.

(c)	Cumulative preferred stock. Holders of Series B preferred stock are entitled to 8 votes per share, which is equal to the number of full shares of common stock into which the Series B preferred stock is convertible. The Series B preferred stock was issued in connection with the consolidation of Pittsburgh National Corporation and Provident National Corporation in 1983.

(d)	Non-Cumulative preferred stock.

Each outstanding series of preferred stock other than the Series B contains restrictions on our ability to pay dividends and make other shareholder payments.  Subject to limited exceptions, if dividends are not paid on any such series of preferred stock, we cannot declare dividends on or repurchase shares of our common stock.  In addition, if we would like to repurchase shares of preferred stock, such repurchases must be on a pro rata basis with respect to all such series of preferred stock.

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

Table 85: Dividends Per Share

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December 31	2019			2018			2017
Common Stock	$	4.20		$	3.40		$	2.60
Preferred Stock
Series B	$	1.80		$	1.80		$	1.80
Series O	$	6,750		$	6,750		$	6,750
Series P	$	6,125		$	6,125		$	6,125
Series Q	$	5,375		$	5,375		$	5,375
Series R	$	4,850		$	4,850		$	4,850
Series S	$	5,000		$	5,000		$	5,000

On January 2, 2020, we declared a quarterly common stock cash dividend of $1.15 per share payable on February 5, 2020.

Other Shareholders’ Equity Matters

At December 31, 2019, we had reserved approximately 83 million common shares to be issued in connection with certain stock plans.

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, which may be purchased on the open market or in privately negotiated transactions, effective July 1, 2019.  The previous 2015 authorization was terminated as of end of day on June 30, 2019. Under these program authorizations, we repurchased 25.9 million shares in 2019 and 19.9 million shares in 2018. A maximum amount of 86.1 million shares remained available for repurchase under the new stock program authorization at December 31, 2019. This program authorization will remain in effect until fully utilized or until modified, superseded or terminated.

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

Table 86: Other Comprehensive Income (Loss)

In millions	2019			2018			2017
Net unrealized gains (losses) on non-OTTI securities
Increase in net unrealized gains (losses) on non-OTTI securities	$	1,505		$	(522	)	$	29
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income	11			12			25
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income	29			(8		)	(12		)
Net increase (decrease), pre-tax	1,465			(526		)	16
Effect of income taxes	(337		)	121			(6		)
Net increase (decrease), after-tax	1,128			(405		)	10
Net unrealized gains (losses) on OTTI securities
Increase in net unrealized gains (losses) on OTTI securities	24			(14		)	173
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income							2
Less: OTTI losses realized on securities reclassified to noninterest income							(1		)
Net increase (decrease), pre-tax	24			(14		)	172
Effect of income taxes	(5		)	3			(63		)
Net increase (decrease), after-tax	19			(11		)	109
Net unrealized gains (losses) on cash flow hedge derivatives
Increase in net unrealized gains (losses) on cash flow hedge derivatives	334			(118		)	(90		)
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income	9			41			159
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income	9			11			21
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income	19			8			17
Net increase (decrease), pre-tax	297			(178		)	(287		)
Effect of income taxes	(68		)	41			105
Net increase (decrease), after-tax	229			(137		)	(182		)
Pension and other postretirement benefit plan adjustments
Net pension and other postretirement benefit activity	146			10			126
Amortization of actuarial loss (gain) reclassified to other noninterest expense	8			5			47
Amortization of prior service cost (credit) reclassified to other noninterest expense	4			1			(4		)
Net increase (decrease), pre-tax	158			16			169
Effect of income taxes	(36		)	(4		)	(62		)
Net increase (decrease), after-tax	122			12			107
Other
Net investment hedge derivatives	(24		)	76			(81		)
Foreign currency translation adjustments	41			(58		)	90
Net increase (decrease), pre-tax	17			18			9
Effect of income taxes	5			(17		)	29
Net increase (decrease), after-tax	22			1			38
Total other comprehensive income (loss) from continuing operations, pre-tax	1,961			(684		)	79
Total other comprehensive income (loss) from continuing operations, tax effect	(441		)	144			3
Total other comprehensive income (loss) from continuing operations, after-tax	$	1,520		$	(540	)	$	82
Total other comprehensive income (loss) from discontinued operations, after-tax	4			(43		)	35
Total other comprehensive income (loss), after-tax	$	1,524		$	(583	)	$	117

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Table 87: 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				Accumulated other Comprehensive Income from Continuing Operations				Accumulated other Comprehensive Income from Discontinued Operations				Total
Balance at December 31, 2016	$	52			$	106			$	333			$	(553	)		$	(106	)		$	(168	)		$	(97	)		$	(265	)
Net activity	10				109				(182		)		107				38				82				35				117
Balance at December 31, 2017	$	62			$	215			$	151			$	(446	)		$	(68	)		$	(86	)		$	(62	)		$	(148	)
Cumulative effect of adopting ASU 2018-02 (a)	59								33				(96		)		24				20				(14		)		6
Balance at January 1, 2018	121				215				184				(542		)		(44		)		$	(66	)		$	(76	)		$	(142	)
Net activity	(405		)		(11		)		(137		)		12				1				(540		)		(43		)		(583		)
Balance at December 31, 2018	$	(284	)		$	204			$	47			$	(530	)		$	(43	)		$	(606	)		$	(119	)		$	(725	)
Net activity	1,128				19				229				122				22				1,520				4				1,524
Balance at December 31, 2019	$	844			$	223			$	276			$	(408	)		$	(21	)		$	914			$	(115	)		$	799

(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 components of income tax expense from continuing operations are as follows:

Table 88: Components of Income Tax Expense

Year ended December 31 In millions	2019				2018				2017
Current
Federal	$	570			$	739			$	303
State	152				178				53
Total current	722				917				356
Deferred
Federal	187				13				(602		)
State	(8		)		(2		)		61
Total deferred	179				11				(541		)
Total	$	901			$	928			$	(185	)

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Significant components of deferred tax assets and liabilities are as follows:

Table 89: Deferred Tax Assets and Liabilities

December 31 – in millions	2019				2018
Deferred tax assets
Allowance for loan and lease losses	$	661			$	637
Compensation and benefits	270				279
Partnership investments	120				184
Loss and credit carryforward	203				366
Accrued expenses	195				207
Lease obligations	545
Other	161				193
Total gross deferred tax assets	2,155				1,866
Valuation allowance	(31		)		(37		)
Total deferred tax assets	2,124				1,829
Deferred tax liabilities
Leasing	1,703				1,169
Goodwill and intangibles	194				196
Fixed assets	412				379
Mortgage servicing rights	99				179
Net unrealized gains on securities and financial instruments	401
Other	176				129
Total deferred tax liabilities	2,985				2,052
Net deferred tax liability	$	861			$	223

A reconciliation between the statutory and effective tax rates from continuing operations follows:

Table 90: Reconciliation of Statutory and Effective Tax Rates

Year ended December 31	2019			2018			2017
Statutory tax rate	21.0	%		21.0	%		35.0	%
Increases (decreases) resulting from:
State taxes net of federal benefit	2.3			2.5			1.8
Tax-exempt interest	(1.5	)		(1.7	)		(3.2	)
Life insurance	(1.0	)		(1.0	)		(2.2	)
Tax credits	(4.2	)		(4.0	)		(5.3	)
Federal deferred tax revaluation				(2.1	)		(27.0	)
Unrecognized tax benefits	(.1	)		1.3			(.2	)
Other	(.1	)		.9			(3.1	)
Effective tax rate	16.4	%		16.9	%		(4.2	)%

The net operating loss carryforwards at December 31, 2019 and 2018 follow:

Table 91: Net Operating Loss Carryforwards

Dollars in millions	December 31, 2019				December 31, 2018				Expiration
Net Operating Loss Carryforwards:
Federal	$	402			$	521			2032
State	$	1,197			$	1,577			2020-2039

The majority of the tax credit carryforwards expire in 2038 and were $149 million at December 31, 2019 and $323 million at December 31, 2018. Some federal and state net operating loss and credit carryforwards are from acquired entities and utilization is subject to various statutory limitations. We anticipate that we will be able to fully utilize our carryforwards for federal tax purposes, but we have recorded an insignificant valuation allowance against certain state tax carryforwards as of December 31, 2019.

Retained earnings included $.1 billion at both December 31, 2019 and 2018 in allocations for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current law, if certain subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to Federal income tax at the current corporate tax rate.

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A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

Table 92: Change in Unrecognized Tax Benefits

In millions	2019				2018				2017
Balance of gross unrecognized tax benefits at January 1	$	207			$	18			$	22
Increases:
Positions taken during a prior period					212				4
Decreases:
Positions taken during a prior period	(77		)		(16		)		(3		)
Settlements with taxing authorities					(7		)		(4		)
Reductions resulting from lapse of statute of limitations									(1		)
Balance of gross unrecognized tax benefits at December 31	$	130			$	207			$	18
Favorable (unfavorable) impact if recognized	$	76			$	76			$	17

It is reasonably possible that the balance of unrecognized tax benefits could decrease in the next twelve months due to ongoing or completion of examinations by various tax authorities or the expiration of statutes of limitations.

We are subject to U.S. federal income tax as well as income tax in most states and some foreign jurisdictions. Table 93 summarizes the status of significant IRS examinations.

Table 93: IRS Tax Examination Status

	Years under examination		Status at December 31
Federal	2016 – 2017		Under Exam

In addition, we are under continuous examinations by various state taxing authorities. With few exceptions, we are no longer subject to state and local and foreign income tax examinations by taxing authorities for periods before 2013. For all open audits, any potential adjustments have been considered in establishing our unrecognized tax benefits as of December 31, 2019.

Our policy is to classify interest and penalties associated with income taxes as income tax expense. For 2019 and 2018, the amount of gross interest and penalties was insignificant. At December 31, 2019 and 2018, the related amounts of accrued interest and penalties were also insignificant.

We are subject to the regulations of certain federal, state and foreign agencies and undergo periodic examinations by such regulatory authorities.

The ability to undertake new business initiatives (including acquisitions), the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit insurance costs, and the level and nature of regulatory oversight depend, in large part, on a financial institution’s capital strength.

At December 31, 2019 and 2018, PNC and PNC Bank, our domestic banking subsidiary, were both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements.

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The following table sets forth the Basel III regulatory capital ratios at December 31, 2019 and 2018, respectively for PNC and PNC Bank.

Table 94: Basel Regulatory Capital (a)

	Amount								Ratios
December 31 Dollars in millions	2019				2018				2019			2018			“Well Capitalized” Requirements
Risk-based capital
Common equity Tier 1
PNC	$	32,478			$	30,905			9.5	%		9.6	%		N/A
PNC Bank	$	32,215			$	30,046			9.9	%		9.8	%		6.5	%
Tier 1
PNC	$	36,306			$	34,735			10.7	%		10.8	%		6.0	%
PNC Bank	$	32,215			$	30,046			9.9	%		9.8	%		8.0	%
Total
PNC	$	43,331			$	41,606			12.7	%		13.0	%		10.0	%
PNC Bank	$	39,074			$	36,510			12.1	%		11.9	%		10.0	%
Leverage
PNC	$	36,306			$	34,735			9.1	%		9.4	%		N/A
PNC Bank	$	32,215			$	30,046			8.3	%		8.3	%		5.0	%

(a)	Calculated using the regulatory capital methodology applicable to us during both 2019 and 2018.

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

•	Capital needs;

•	Laws and regulations;

•	Corporate policies;

•	Contractual restrictions; and

•	Other factors.

Also, there are statutory and regulatory limitations on the ability of national banks to pay dividends or make other capital distributions. The amount available for dividend payments to the parent company by PNC Bank without prior regulatory approval was approximately $3.1 billion at December 31, 2019.

Under federal law, a bank subsidiary generally may not extend credit to, or engage in other types of covered transactions (including the purchase of assets) with, the parent company or its non-bank subsidiaries on terms and under circumstances that are not substantially the same as comparable transactions with nonaffiliates. A bank subsidiary may not extend credit to, or engage in a covered transaction with, the parent company or a non-bank subsidiary if the aggregate amount of the bank’s extensions of credit and other covered transactions with the parent company or non-bank subsidiary exceeds 10% of the capital stock and surplus of such bank subsidiary or the aggregate amount of the bank’s extensions of credit and other covered transactions with the parent company and all non-bank subsidiaries exceeds 20% of the capital stock and surplus of such bank subsidiary. Such extensions of credit, with limited exceptions, must be at least fully collateralized in accordance with specified collateralization thresholds, with the thresholds varying based on the type of assets serving as collateral. In certain circumstances, federal regulatory authorities may impose more restrictive limitations.

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 this Note 20). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of December 31, 2019, we estimate that it is reasonably possible that we could incur losses in excess of related accrued 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

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question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.

In our experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; we have not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; the possible outcomes may not be amenable to the use of statistical or quantitative analytical tools; predicting possible outcomes depends on making assumptions about future decisions of courts or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for us to estimate losses or ranges of losses that it is reasonably possible we could incur.

As a result of these types of factors, 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.

Interchange Litigation

Beginning in June 2005, a series of antitrust lawsuits were filed against Visa®, Mastercard®, and several major financial institutions, including cases naming National City (since merged into The PNC Financial Services Group, Inc.) and its subsidiary, National City Bank of Kentucky (since merged into National City Bank which in turn was merged into PNC Bank). The plaintiffs in these cases are merchants operating commercial businesses throughout the U.S., as well as trade associations. Some of these cases (including those naming National City entities) were brought as class actions on behalf of all persons or business entities that have accepted Visa or Mastercard. The cases have been consolidated for pre-trial proceedings in the U.S. District Court for the Eastern District of New York under the caption In re Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation (Master File No. 1:05-md-1720-MKB-JO).

In July 2012, the parties entered into a memorandum of understanding with the class plaintiffs and an agreement in principle with certain individual plaintiffs with respect to a settlement of these cases, under which the defendants agreed to pay approximately $6.6 billion collectively to the class and individual settling plaintiffs and agreed to changes in the terms applicable to their respective card networks (including an eight-month reduction in default credit interchange rates). The parties entered into a definitive agreement with respect to this settlement in October 2012. The court granted final approval of the settlement in December 2013. Several objectors appealed the order of approval to the U.S. Court of Appeals for the Second Circuit, which issued an order in June 2016, reversing approval of the settlement and remanding for further proceedings. In November 2016, the plaintiffs filed a petition for a writ of certiorari with the U.S. Supreme Court to challenge the court of appeal’s decision. The Supreme Court denied the petition in March 2017.

As a result of the reversal of the approval of the settlement, the class actions have resumed in the district court. In November 2016, the district court appointed separate interim class counsel for a proposed class seeking damages and a proposed class seeking equitable (injunctive) relief. In February 2017, each of these counsel filed a proposed amended and supplemental complaint on behalf of its respective proposed class. These complaints make similar allegations, including that the defendants conspired to monopolize and to fix the prices for general purpose card network services, that the restructuring of Visa and Mastercard, each of which included an initial public offering, violated the antitrust laws, and that the defendants otherwise imposed unreasonable restraints on trade, resulting in the

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payment of inflated interchange fees and other fees, which also violated the antitrust laws. In their complaints, collectively the plaintiffs seek, among other things, injunctive relief, unspecified damages (trebled under the antitrust laws) and attorneys’ fees. PNC is named as a defendant in the complaint seeking damages but is not named as a defendant in the complaint that seeks equitable relief.

In September 2017, the magistrate judge at the district court granted in part and denied in part the plaintiffs’ motions to file their proposed amended complaints. The dispute over amendment arose in part from the decision in United States v. American Express, Co., 838 F.3d 179 (2d Cir. 2016), in which the court held that the relevant market in a similar complaint against American Express is “two-sided,” i.e., requires consideration of effects on consumers as well as merchants. In June 2018, the U.S. Supreme Court affirmed (under the caption Ohio v. American Express Co.) the court of appeals decision. Previously, the plaintiffs in this litigation had alleged a one-sided market, and, as a result of the court’s decision in American Express, they sought leave to add claims based on a two-sided market. The order allowed the complaint to be amended to include allegations pertaining to a two-sided market only to the extent those claims are not time-barred, but held that the two-sided market allegations do not relate back to the time of the original complaint and are not subject to tolling. In October 2017, the plaintiffs appealed this order to the presiding district court judge. In August 2018, the judge overruled this decision, finding that the two-sided market allegations do relate back.

In September 2018, the relevant parties entered an amended definitive agreement to resolve the claims of the class seeking damages. In this amended settlement agreement, the parties agreed, among other things, to the following terms:

    

•	An additional settlement payment from all defendants of $900 million, with Visa’s share of the additional settlement payment being $600 million. The additional settlement payment will be added to the approximately $5.3 billion previously paid by the defendants pursuant to the original 2012 settlement agreement.

    

•	Up to $700 million may be returned to the defendants (with up to $467 million to Visa) if more than 15% of class members (by payment volume) opt out of the class. As more than 15% of class members opted out of the class, $700 million has been returned to the defendants ($467 million to Visa).

This amended settlement agreement is subject to court approval. Following preliminary approval in January 2019, and after class notice, the submission of opt-outs, and the filing of objections, the district court granted final approval of the settlement in December 2019. Several objectors have appealed the district court’s order granting final approval to the U.S. Court of Appeals for the Second Circuit. Some merchants that opted out from the settlement have brought lawsuits against Visa and Mastercard and one or more of the other issuing banks. Resolution by Visa of claims by merchants that opted out of the settlement, including those that file lawsuits, have

been or will be paid from the Visa litigation escrow account.

National City and National City Bank entered into judgment and loss sharing agreements with Visa and certain other banks with respect to all of the above referenced litigation. We were not originally named as defendants in any of the Visa or Mastercard related antitrust litigation nor were we initially parties to the judgment or loss sharing agreements. However, we became responsible for National City’s and National City Bank’s position in the litigation and responsibilities under the agreements through our acquisition of National City. In addition, following Visa’s reorganization in 2007 in contemplation of its initial public offering, U.S. Visa members received shares of Class B Visa common stock, convertible upon resolution of specified litigation, including the remaining litigation described above, into shares of Class A Visa common stock, with the conversion rate adjusted to reflect amounts paid or escrowed to resolve the specified litigation, and also remained responsible for indemnifying Visa against the specified litigation. Our Class B Visa common stock is all subject to this conversion adjustment provision, and we are now responsible for the indemnification obligations of our predecessors as well as ourselves. We have also entered into a Mastercard Settlement and Judgment Sharing Agreement with Mastercard and other financial institution defendants and an Omnibus Agreement Regarding Interchange Litigation Sharing and Settlement Sharing with Visa, Mastercard and other financial institution defendants. The Omnibus Agreement, in substance, apportions resolution of the claims in this litigation into a Visa portion and a Mastercard portion, with the Visa portion being two-thirds and the Mastercard portion being one-third. This apportionment only applies in the case of either a global settlement involving all defendants or an adverse judgment against the defendants, to the extent that damages either are related to the merchants’ inter-network conspiracy claims or are otherwise not attributed to specific Mastercard or Visa conduct or damages. The Mastercard portion (or any Mastercard-related liability not subject to the Omnibus Agreement) will then be apportioned under the Mastercard Settlement and Judgment Sharing Agreement among Mastercard and PNC and the other financial institution defendants that are parties to this agreement. The responsibility for the Visa portion (or any Visa-related liability not subject to the Omnibus Agreement) will be apportioned under the pre-existing indemnification responsibilities and judgment and loss sharing agreements.

Residential Mortgage-Backed Securities Indemnification Demands

We have received indemnification demands from several entities sponsoring residential mortgage-backed securities and their affiliates where purchasers of the securities, trustees for the securitization trusts, or monoline insurers have asserted claims against the sponsors and other parties involved in the securitization transactions. National City Mortgage and its predecessors had sold whole loans to the sponsors or their affiliates that were allegedly included in certain of these securitization transactions. According to the indemnification

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demands, the claims for which indemnity is being sought are based on alleged misstatements and omissions in the offering documents for these transactions or breaches of representations and warranties relating to the loans made in connection with the transactions. The indemnification demands assert that agreements governing the sale of these loans or the securitization transactions to which National City Mortgage was a party require us to indemnify the sponsors and their affiliates for losses suffered in connection with these claims. The parties have settled several of these disputes. Several of the entities asserting a right to indemnification submitted a demand for our purported share of the settlement amount of claims asserted against it and its affiliates. There has not been any determination that the parties seeking indemnification have any liability to the plaintiffs in connection with the other claims and the amount, if any, for which we are responsible in the settled cases has not been determined.

Pre-need Funeral Arrangements

National City Bank and PNC Bank are defendants in a lawsuit filed in the U.S. District Court for the Eastern District of Missouri under the caption Jo Ann Howard and Associates, P.C., et al. v. Cassity, et al. (No. 4:09-CV-1252-ERW) arising out of trustee services provided by Allegiant Bank, a National City Bank and PNC Bank predecessor, with respect to Missouri trusts that held pre-need funeral contract assets. Under a pre-need funeral contract, a customer pays an amount up front in exchange for payment of funeral expenses following the customer’s death. In a number of states, including Missouri, pre-need funeral contract sellers are required to deposit a portion of the proceeds of the sale of pre-need funeral contracts in a trust account.

The lawsuit was filed in August 2009 by the Special Deputy Receiver for three insolvent affiliated companies, National Prearranged Services, Inc. a seller of pre-need funeral contracts (NPS), Lincoln Memorial Life Insurance Company (Lincoln), and Memorial Service Life Insurance Company (Memorial). Seven individual state life and health insurance guaranty associations, who claim they are liable under state law for payment of certain benefits under life insurance policies sold by Lincoln and Memorial, and the National Organization of Life & Health Guaranty Associations have also joined the action as plaintiffs. In addition to National City Bank and PNC Bank (added following filing of the lawsuit as successor-in-interest to National City Bank) (the PNC defendants), other defendants included members of the Cassity family, who controlled NPS, Lincoln, and Memorial; officers and directors of NPS, Lincoln, and Memorial; auditors and attorneys for NPS, Lincoln, and Memorial; the trustees of each of the trusts that held pre-need funeral contract assets; and the investment advisor to the Pre-need Trusts. NPS retained several banks to act as trustees for the trusts holding NPS pre-need funeral contract assets (the NPS Trusts), with Allegiant Bank acting as one of these trustees with respect to seven Missouri NPS Trusts. All of the other defendants have settled with the plaintiffs, are otherwise no longer a party to the lawsuit, or are insolvent.

In their Third Amended Complaint, filed in 2012 following the granting by the court in part of motions to dismiss made by the PNC defendants and the other NPS Trust trustees, the plaintiffs allege that Allegiant Bank breached its fiduciary duties and acted negligently as the trustee for the Missouri NPS Trusts. In part as a result of these breaches, the plaintiffs allege, members of the Cassity family, acting in concert with other defendants, were able to improperly remove millions of dollars from the NPS Trusts, which in turn caused NPS, Lincoln, and Memorial to become insolvent. The complaint alleges $600 million in present and future losses to the plaintiffs due to the insolvency of NPS, Lincoln, and Memorial. The lawsuit seeks, among other things, unspecified actual and punitive damages, various equitable remedies including restitution, attorneys’ fees, costs of suit and interest.

In July 2013, five of the six defendants in a parallel federal criminal action, including two members of the Cassity family, entered into plea agreements with the U.S. to resolve criminal charges arising out of their conduct at NPS, Lincoln and Memorial. In August 2013, after a jury trial, the sixth defendant, the investment advisor to the NPS Trusts, was convicted on all criminal counts against him. The criminal charges against the defendants alleged, among other thing, a scheme to defraud Allegiant Bank and the other trustees of the NPS Trusts.

In May 2014, the court granted the plaintiffs’ motion to disallow the PNC defendants’ affirmative defense relating to the plaintiffs’ alleged failure to mitigate damages. In July 2014, the PNC defendants’ motion for reconsideration was denied. In September 2014, the plaintiffs filed a motion seeking leave to amend their complaint to reassert aiding and abetting claims, previously dismissed by the court in 2012. The court denied this motion in December 2014. Also in December 2014, the court granted in part and denied in part the PNC defendants’ motion for summary judgment.

In March 2015, following a jury trial, the court entered a judgment against the PNC defendants in the amount of $356 million in compensatory damages and $36 million in punitive damages. In April 2015, the plaintiffs filed motions with the court seeking $179 million in pre-judgment interest. Also, in April 2015, the PNC defendants filed motions with the court to reduce the compensatory damages by the amounts paid in settlement by other defendants, to strike the punitive damages award, for judgment as a matter of law, and for a new trial. In November 2015, the court granted the motion to reduce the compensatory damages by amounts paid in settlement by other defendants and denied the other motions by the PNC defendants, with the judgment being reduced as a result to a total of $289 million, and also denied the plaintiffs’ motion for pre-judgment interest.

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In December 2015, the PNC defendants appealed the judgment to the U.S. Court of Appeals for the Eighth Circuit. Also in December 2015, the plaintiffs cross-appealed from the court's orders reducing the judgment by amounts paid in settlement by other defendants, denying plaintiffs’ motion for pre-judgment interest, and dismissing the plaintiffs’ aiding and abetting claims. In August 2017, the court of appeals reversed the judgment to the extent that it was based on tort rather than trust law. The court accordingly held that any damages awarded to the plaintiff will be limited to losses to the trusts in Missouri caused by Allegiant’s breaches during the time it acted as trustee; plaintiffs cannot recover for damages to the Missouri trusts after Allegiant’s trusteeship or outside of the Missouri trusts, which had been included in the judgment under appeal. The court of appeals otherwise affirmed the judgment, including the dismissal of the aiding and abetting claims, and remanded the case to the district court for further proceedings in light of its decision. In September 2017, plaintiffs filed a motion for rehearing by the panel solely seeking to remove the prohibition on damages being sought for the period following Allegiant’s trusteeship. In December 2017, the court denied the petition for rehearing. In July 2019, following a new trial on remand from the court of appeals, the district court awarded the plaintiffs $72 million in compensatory damages, $15 million in interest, and $15 million in punitive damages. The PNC defendants have appealed this judgment to the court of appeals, and plaintiffs have cross-appealed. In December 2019, the court reduced the judgment by approximately $2.6 million to correct a mathematical error in calculating pre-judgment interest, reducing the total judgment to $99.5 million. In February 2020, the district court awarded $7 million in fees and costs to the plaintiffs.

Regulatory and Governmental Inquiries

We are the subject of investigations, audits, examinations 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. From time to time, these inquiries involve or lead to regulatory enforcement actions and other administrative proceedings, and may lead to civil or criminal judicial proceedings. Some of these inquiries result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs and other consequences. Such remedies and other consequences typically have not been material to us from a financial standpoint, but could be in the future. Even if not financially material, they may result in significant reputational harm or other adverse consequences.

As has been publicly reported, the U.S. Department of Justice is conducting an inquiry relating to the federal Low Income Housing Tax Credit (LIHTC) program directed at program participants. In connection with that inquiry, the Department of Justice has requested information from PNC Bank. We are cooperating with the inquiry. 

Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including that described in this Note 20.

Other

In addition to the proceedings or other matters described above, 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.

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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 December 31, 2019 and 2018, respectively.

Table 95: Commitments to Extend Credit and Other Commitments

In millions		December 31 2019				December 31 2018
Commitments to extend credit
Total commercial lending		$	131,762			$	120,165
Home equity lines of credit		16,803				16,944
Credit card		30,862				27,100
Other		6,162				5,069
Total commitments to extend credit		185,589				169,278
Net outstanding standby letters of credit (a)		9,843				8,655
Reinsurance agreements (b)		1,393				1,549
Standby bond purchase agreements (c)		1,295				1,000
Other commitments (d)		1,498				1,130
Total commitments to extend credit and other commitments		$	199,618			$	181,612

(a)	Net outstanding standby letters of credit include $4.1 billion and $3.7 billion at December 31, 2019 and 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 December 31, 2019, the aggregate maximum exposure amount comprised $1.3 billion for accidental death & dismemberment contracts and $.1 billion for credit life, accident & 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 $.6 billion and $.5 billion related to investments in qualified affordable housing projects at December 31, 2019 and 2018, respectively.

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 at December 31, 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 December 31, 2019 had terms ranging from less than one year to six years.

As of December 31, 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 December 31, 2019 and is included in Other liabilities on our Consolidated Balance Sheet.

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Summarized financial information of the parent company is as follows:

Table 96: Parent Company – Income Statement

Year ended December 31 – in millions	2019				2018				2017
Operating Revenue
Dividends from:
Bank subsidiaries and bank holding company	$	3,570			$	2,639			$	2,926
Non-bank subsidiaries	170				157				376
Interest income	169				147				109
Noninterest income	48				(1		)		37
Total operating revenue	3,957				2,942				3,448
Operating Expense
Interest expense	325				281				215
Other expense	146				139				175
Total operating expense	471				420				390
Income before income taxes and equity in undistributed net income of subsidiaries	3,486				2,522				3,058
Equity in undistributed net income of subsidiaries:
Bank subsidiaries and bank holding company	671				1,602				1,249
Non-bank subsidiaries	164				181				(98		)
Income from continuing operations before taxes	$	4,321			$	4,305			4,209
Income tax benefit from continuing operations	(221		)		(208		)		(339		)
Net income from continuing operations	4,542				4,513				4,548
Dividends from discontinued operations
Bank subsidiaries and bank holding company	460				418				352
Equity in undistributed net income of subsidiaries from discontinued operations:
Bank subsidiaries and bank holding company	528				524				725
Income from discontinued operations before taxes	988				942				1,077
Income taxes from discontinued operations	161				154				287
Net income from discontinued operations	827				788				790
Net income	$	5,369			$	5,301			$	5,338
Other comprehensive income, net of tax:
Net pension and other postretirement benefit plan activity arising during the period	(2		)		1				1
Other comprehensive income (loss)	(2		)		1				1
Comprehensive income	$	5,367			$	5,302			$	5,339

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Table 97: Parent Company – Balance Sheet

December 31 – in millions	2019				2018
Assets
Cash held at banking subsidiary	$	6			$	6
Restricted deposits with banking subsidiary	175				175
Nonrestricted interest-earning deposits	7,024				4,655
Investments in:
Bank subsidiaries and bank holding company	41,882				39,623
Non-bank subsidiaries	2,054				1,886
Net investment held for sale	6,772				6,240
Loans with affiliates	730				1,397
Other assets	1,512				1,159
Total assets	$	60,155			$	55,141
Liabilities
Subordinated debt (a)	$	986			$	1,652
Senior debt (a)	8,849				5,061
Other borrowed funds from affiliates	307				79
Accrued expenses and other liabilities	699				619
Total liabilities	10,841				7,411
Equity
Shareholders’ equity	49,314				47,730
Total liabilities and equity	$	60,155			$	55,141

(a)	See Note 11 Borrowed Funds for additional information on contractual rates and maturity dates of senior debt and subordinated debt for parent company.

In connection with certain affiliates’ commercial and residential mortgage servicing operations, the parent company has committed to maintain such affiliates’ net worth above minimum requirements.

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Table 98: Parent Company – Interest Paid and Income Tax Refunds (Payments)

Year ended December 31 – in millions		Interest Paid				Income Tax Refunds/(Payments)
2019		$	300			$	26
2018		$	288			$	88
2017		$	287			$	40

Table 99: Parent Company – Statement of Cash Flows

Year ended December 31 – in millions	2019				2018				2017
Operating Activities
Net income	$	5,369			$	5,301			$	5,338
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net earnings of subsidiaries	(1,363		)		(2,307		)		(1,974		)
Return on investment in subsidiary									98
Other	218				155				194
Net cash provided (used) by operating activities	$	4,224			$	3,149			$	3,656
Investing Activities
Net change in loans and securities from affiliates	$	664			$	540			$	114
Net change in nonrestricted interest-earning deposits	(2,369		)		1,145				(1,116		)
Other	(8		)		2
Net cash provided (used) by investing activities	$	(1,713	)		$	1,687			$	(1,002	)
Financing Activities
Net change in other borrowed funds from affiliates	$	228			$	(29	)		$	316
Proceeds from long-term borrowings	4,180				498				1,325
Repayments of long-term borrowings	(1,300		)		(553		)		(580		)
Net change in commercial paper					(100		)		100
Common and treasury stock issuances	90				69				132
Acquisition of treasury stock	(3,578		)		(2,877		)		(2,447		)
Preferred stock cash dividends paid	(236		)		(236		)		(236		)
Common stock cash dividends paid	(1,895		)		(1,603		)		(1,264		)
Net cash provided (used) by financing activities	$	(2,511	)		$	(4,831	)		$	(2,654	)
Net increase (decrease) in cash and due from banks	$	—			$	5			$	—
Net cash provided by operating activities of discontinued operations	299				264				65
Net cash activity from continuing operations	(299		)		(259		)		(65		)
Cash and restricted deposits held at banking subsidiary at beginning of year	181				176				176
Cash and restricted deposits held at banking subsidiary at end of year	$	181			$	181			$	176

We have three reportable business segments:

•	Retail Banking

•	Corporate & Institutional Banking

•	Asset Management Group

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 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, exited businesses,

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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. The “Other” category also includes our BlackRock held for sale asset. Assets, revenue and earnings attributable to foreign activities were not material in the periods presented for comparative purposes.

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.

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.

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 primarily in markets across the Mid-Atlantic, Midwest and Southeast. In 2018, Retail Banking launched its 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. 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 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.

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Table 100: Results of Businesses

Year ended December 31 In millions		Retail Banking				Corporate & Institutional Banking				Asset Management Group				Other				Consolidated (a)
2019
Income Statement
Net interest income		$	5,520			$	3,637			$	288			$	520			$	9,965
Noninterest income		2,648				2,537				991				698				6,874
Total revenue		8,168				6,174				1,279				1,218				16,839
Provision for credit losses (benefit)		517				284				(1		)		(27		)		773
Depreciation and amortization		230				198				62				545				1,035
Other noninterest expense		5,831				2,615				877				216				9,539
Income from continuing operations before income taxes (benefit) and noncontrolling interests		1,590				3,077				341				484				5,492
Income taxes (benefit)		377				629				79				(184		)		901
Net income from continuing operations		$	1,213			$	2,448			$	262			$	668			$	4,591
Average Assets		$	92,959			$	164,243			$	7,360			$	135,773			$	400,335
2018
Income Statement
Net interest income		$	5,119			$	3,551			$	287			$	764			$	9,721
Noninterest income		2,631				2,406				892				540				6,469
Total revenue		7,750				5,957				1,179				1,304				16,190
Provision for credit losses (benefit)		373				85				2				(52		)		408
Depreciation and amortization		206				186				52				496				940
Other noninterest expense		5,772				2,520				861				203				9,356
Income from continuing operations before income taxes (benefit) and noncontrolling interests		1,399				3,166				264				657				5,486
Income taxes (benefit)		335				658				62				(127		)		928
Net income from continuing operations		$	1,064			$	2,508			$	202			$	784			$	4,558
Average Assets		$	89,739			$	154,119			$	7,423			$	126,954			$	378,235
2017
Income Statement
Net interest income		$	4,625			$	3,396			$	287			$	800			$	9,108
Noninterest income		2,236				2,271				881				756				6,144
Total revenue		6,861				5,667				1,168				1,556				15,252
Provision for credit losses (benefit)		347				160				1				(67		)		441
Depreciation and amortization		177				184				50				510				921
Other noninterest expense		5,569				2,370				855				683				9,477
Income from continuing operations before income taxes (benefit) and noncontrolling interests		768				2,953				262				430				4,413
Income taxes (benefit)		321				520				75				(1,101		)		(185		)
Net income from continuing operations		$	447			$	2,433			$	187			$	1,531			$	4,598
Average Assets		$	88,663			$	148,414			$	7,511			$	127,181			$	371,769

(a)	There were no material intersegment revenues for 2019, 2018 and 2017.

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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). The objective of the standard is to clarify the principles for recognizing revenue from contracts with customers across all industries and to develop a common revenue standard under GAAP. The standard requires the application of a five-step recognition model to contracts, allocating the amount of consideration we expect to be entitled to across distinct promises in the contract, called performance obligations, and recognizing revenue when or as those services are transferred to the customer.

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. 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.

Retail Banking

Table 101: Retail Banking Noninterest Income Disaggregation

	Year ended December 31
In millions	2019			2018
Product
Deposit account fees	$	642		$	618
Debit card fees	535			505
Brokerage fees	356			350
Merchant services	216			212
Net credit card fees (a)	186			189
Other	255			284
Total in-scope noninterest income by product	$	2,190		$	2,158
Reconciliation to total Retail Banking noninterest income
Total in-scope noninterest income	$	2,190		$	2,158
Total out-of-scope noninterest income (b)	458			473
Total Retail Banking noninterest income	$	2,648		$	2,631

(a)	Net credit card fees consists of interchange fees of $498 million and $452 million and credit card reward costs of $312 million and $263 million for the years ended December 31, 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 in Table 101 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.

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Other

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

Table 102: Corporate & Institutional Banking Noninterest Income Disaggregation

	Year ended December 31
In millions	2019			2018
Product
Treasury management fees	$	840		$	776
Capital markets fees	547			510
Commercial mortgage banking activities	102			87
Other	77			81
Total in-scope noninterest income by product	$	1,566		$	1,454
Reconciliation to total Corporate & Institutional Banking noninterest income
Total in-scope noninterest income	$	1,566		$	1,454
Total out-of-scope noninterest income (a)	971			952
Total Corporate & Institutional Banking noninterest income	$	2,537		$	2,406

(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.

Table 103: Asset Management Group Noninterest Income Disaggregation

	Year ended December 31
In millions	2019			2018
Customer Type
Personal	$	620		$	611
Institutional	242			272
Total in-scope noninterest income by customer type	$	862		$	883
Reconciliation to Asset Management Group noninterest income
Total in-scope noninterest income	$	862		$	883
Total out-of-scope noninterest income (a)	129			9
Total Asset Management Group noninterest income	$	991		$	892

(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.

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PNC enters into both lessor and lessee arrangements. On January 1, 2019, we adopted ASU 2016-02 - Leases, which required lessees to recognize on the balance sheet all leases with lease terms greater than twelve months as a lease liability with a corresponding right-of-use asset. For more information on lease accounting and the impact of adoption, see Note 1 Accounting Policies and for additional details on our equipment lease financing receivables see Note 4 Asset Quality.

Lessor Arrangements

The following table provides the components of our equipment lease financing assets:

Table 104: Sales-Type and Direct Financing Leases

In millions	December 31, 2019
Lease receivables (a)	$	7,353
Unguaranteed residual asset values	741
Unearned income	(939		)
Equipment lease financing	$	7,155

(a)	In certain cases, PNC obtains third-party residual value insurance to reduce its residual risk. The carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $.3 billion.

In addition, we had $1.1 billion in operating lease assets, which includes the residual asset values, at December 31, 2019, with accumulated depreciation of $.3 billion. Depreciation expense for the lease assets was not material for the year ended December 31, 2019. We had no lease transactions with related parties or deferred selling profits at December 31, 2019.

The future minimum lease payments based on maturity of our lessor arrangements at December 31, 2019 were as follows:

Table 105: Future Minimum Lease Payments of Lessor Arrangements

In millions	Operating Leases			Sales-type and Direct Financing Leases
2020	$	159		$	1,620
2021	159			1,432
2022	112			1,161
2023	136			801
2024	128			668
2025 and thereafter	192			1,671
Total future minimum lease payments	$	886		$	7,353

Lessee Arrangements

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 61 years, some of which may include options to renew the leases for up to 99 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 right of-use-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.

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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 December 31, 2019.

Operating lease term and discount rates of our lessee arrangements at December 31, 2019 were as follows:

Table 106: Operating Lease Term and Discount Rates of Lessee Arrangements

	December 31, 2019
Weighted-average remaining lease term (years)	9
Weighted-average discount rate	2.42	%

Future undiscounted cash flows on our lessee arrangements at December 31, 2019 are as follows:

Table 107: Future Lease Payments of Operating Lease Liabilities

In millions		December 31, 2019
2020		$	355
2021		339
2022		307
2023		275
2024		226
2025 and thereafter		923
Total future lease payments		$	2,425
Less: Interest		255
Present value of operating lease liabilities		$	2,170

On January 22, 2020, the parent company issued $2.0 billion of senior notes with a maturity date of January 22, 2030. Interest is payable semi-annually at a fixed rate of 2.55% per annum, on January 22 and July 22 of each year, beginning on July 22, 2020.

On February 25, 2020, PNC Bank issued the following:

•	$1.0 billion of senior floating rate notes with a maturity date of February 24, 2023. Interest is payable quarterly at the 3-month LIBOR rate, reset quarterly, plus 32.5 basis points, on February 24, May 24, August 24, and November 24, beginning on May 24, 2020.

•

$500 million of senior fixed-to-floating rate notes with a maturity date of February 24, 2023. Interest is payable semi-annually at a fixed rate of 1.74% per annum, on February 24 and August 24 of each year, beginning on August 24, 2020. Beginning on February 24, 2022, interest is payable quarterly at the floating rate equal to the 3-month LIBOR rate, reset quarterly, plus 32.3 basis points, on February 24, May 24, August 24, and November 24, commencing on May 24, 2022.

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(a)	On January 2, 2020, we declared a quarterly common stock cash dividend of $1.15 per share payable on February 5, 2020.

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(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 years ended December 31, 2019, 2018 and 2017 were $163 million, $139 million and $126 million, respectively.

(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.

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(a)	Changes attributable to rate/volume are prorated into rate and volume components.

(b)

Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of 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. This adjustment is not permitted under GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in this Statistical Information section for more information.

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(a)

The interest income earned on certain 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. This adjustment is not permitted under GAAP.

(a)	We believe this non-GAAP financial measure serves as a useful tool to help evaluate the strength and discipline of a company’s capital management strategies and as an additional conservative measure of total company value.

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(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.

(b)	Nonperforming loans exclude certain government insured or guaranteed loans, loans held for sale, loans accounted for under the fair value option and purchased impaired loans.

(c)	Amounts are for the year ended.

(d)	Past due loan amounts include government insured or guaranteed consumer loans of $.6 billion $.5 billion, $.6 billion, $.7 billion and $.8 billion at December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

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(a)	Includes automobile, education and other consumer.

(b)	Includes $468 million in write-offs of purchased impaired loans in 2015 due to the change in derecognition policy effective December 31, 2015 for certain consumer purchased impaired loans. See Note 1 Accounting Policies in our 2015 Form 10-K for additional information.

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(a)	Pro forma fully phased-in Basel III ratios are calculated without the benefit of phase-ins. We believe that the pro forma fully phased-in Basel III capital ratios are a useful tool to assess our capital position (without the benefit of phase-ins), for the periods presented.

(b)	Represented net adjustments related to accumulated other comprehensive income for securities, and those transferred from, available for sale, as well as pension and other postretirement plans.

(c)	Basel III standardized approach risk-weighted assets were based on the Basel III standardized approach rules and include credit and market risk-weighted assets.

(d)	Basel III advanced approaches risk-weighted assets were based on the Basel III advanced approaches rules, and include credit, market and operational risk-weighted assets.