Exhibit 99.1

 

LOGO

THE PNC FINANCIAL SERVICES GROUP, INC.

FINANCIAL SUPPLEMENT

FOURTH QUARTER AND FULL YEAR 2013

(Unaudited)


THE PNC FINANCIAL SERVICES GROUP, INC.

FINANCIAL SUPPLEMENT

FOURTH QUARTER AND FULL YEAR 2013

(UNAUDITED)

 

                 Page               

Consolidated Results:

  

Income Statement

     1   

Balance Sheet

     2   

Capital Ratios

     2   

Average Balance Sheet

     3-4   

Details of Net Interest Margin

     5   

Total and Core Net Interest Income and Net Interest Margin

     6   

Per Share Related Information

     7   

Selected Noninterest Income Information

     7   

Loans, Loans Held for Sale and Net Unfunded Commitments

     8   

Allowances for Credit Losses

     9   

Purchase Accounting Accretion, Accretable Yield and Valuation of Purchased Impaired Loans

     10   

Nonperforming Assets and Troubled Debt Restructurings

     11-12   

Accruing Loans Past Due

     13   

Business Segment Results:

  

Descriptions

     14   

Period End Employees

     14   

Income and Revenue

     15   

Retail Banking

     16-17   

Corporate & Institutional Banking

     18-19   

Asset Management Group

     20   

Residential Mortgage Banking

     21   

Non-Strategic Assets Portfolio

     22   

Glossary of Terms

     23-27   

The information contained in this Financial Supplement is preliminary, unaudited and based on data available on January 16, 2014. We have reclassified certain prior period amounts to be consistent with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. This information speaks only as of the particular date or dates included in the schedules. We do not undertake any obligation to, and disclaim any duty to, correct or update any of the information provided in this Financial Supplement. Our future financial performance is subject to risks and uncertainties as described in our United States Securities and Exchange Commission (SEC) filings.

BUSINESS

PNC is one of the largest diversified financial services companies in the United States and is headquartered in Pittsburgh, Pennsylvania. PNC has businesses engaged in retail banking, corporate and institutional banking, asset management and residential mortgage banking, providing many of its products and services nationally, as well as other products and services in PNC’s primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida, Kentucky, Washington, D.C., Delaware, Alabama, Virginia, Missouri, Georgia, Wisconsin and South Carolina. PNC also provides certain products and services internationally.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 1

 

Consolidated Income Statement (Unaudited)

 

     Three months ended              Year ended  
In millions, except per share data    December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
              December 31
2013
    December 31
2012
 

Interest Income

                     

Loans

   $     1,949     $     1,933     $     1,955     $     2,029     $     2,094            $     7,866     $ 8,284  

Investment securities

     434       423       422       470       478              1,749       2,035  

Other

     96       92       92       112       99              392       415  

Total interest income

     2,479       2,448       2,469       2,611       2,671              10,007       10,734  

Interest Expense

                     

Deposits

     81       84       86       93       97              344       386  

Borrowed funds

     132       130       125       129       150              516       708  

Total interest expense

     213       214       211       222       247              860       1,094  

Net interest income

     2,266       2,234       2,258       2,389       2,424              9,147       9,640  

Noninterest Income

                     

Asset management

     364       330       340       308       302              1,342       1,169  

Consumer services

     327       316       314       296       294              1,253       1,136  

Corporate services (a)

     301       306       326       277       349              1,210       1,166  

Residential mortgage (b) (c)

     271       199       167       234       -              871       284  

Service charges on deposits

     158       156       147       136       150              597       573  

Net gains on sales of securities

     3       21       61       14       45              99       204  

Net other-than-temporary impairments (d)

     -       (2     (4     (10     (15            (16     (111

Other (e)

     383       360       455       311       520              1,509       1,451  

Total noninterest income

     1,807       1,686       1,806       1,566       1,645              6,865       5,872  

Total revenue

     4,073       3,920       4,064       3,955       4,069              16,012       15,512  

Provision For Credit Losses

     113       137       157       236       318              643       987  

Noninterest Expense

                     

Personnel

     1,207       1,181       1,186       1,169       1,216              4,743       4,617  

Occupancy

     211       205       206       211       226              833       827  

Equipment

     197       194       189       183       194              763       735  

Marketing

     66       68       67       45       70              246       279  

Other

     866       776       787       787       1,123              3,216       4,124  

Total noninterest expense

     2,547       2,424       2,435       2,395       2,829              9,801       10,582  

Income before income taxes and noncontrolling interests

     1,413       1,359       1,472       1,324       922              5,568       3,943  

Income taxes

     352       320       349       320       203              1,341       942  

Net income

     1,061       1,039       1,123       1,004       719              4,227       3,001  

Less: Net income (loss) attributable to noncontrolling interests

     13       2       1       (9     1              7       (12

Preferred stock dividends and discount accretion and redemptions

     50       71       53       75       54              249       181  

Net income attributable to common shareholders

   $ 998     $ 966     $ 1,069     $ 938     $ 664            $ 3,971     $ 2,832  

Earnings Per Common Share

                     

Basic

   $ 1.87     $ 1.82     $ 2.02     $ 1.78     $ 1.26            $ 7.48     $ 5.36  

Diluted

   $ 1.85     $ 1.79     $ 1.99     $ 1.76     $ 1.24            $ 7.39     $ 5.30  

Average Common Shares Outstanding

                     

Basic

     530       529       528       526       526              528       526  

Diluted

     535       534       531       528       528              532       529  

Efficiency

     63     62     60     61     70            61     68

Noninterest income to total revenue

     44     43     44     40     40            43     38

Effective tax rate (f)

     24.9     23.5     23.7     24.2     22.0              24.1     23.9

For additional information regarding footnotes (c) and (e) below, refer to Selected Noninterest Income Statement Information on page 7.

 

(a) Includes commercial mortgage servicing rights valuation adjustments, net of economic hedge.

 

(b) Residential mortgage income for the three months ended December 31, 2012 was less than $.5 million.

 

(c) Includes benefit/provisions for residential mortgage repurchase obligations.

 

(d) Net other-than-temporary impairments for the three months ended December 31, 2013 was less than $.5 million.

 

(e) Includes gains on sales of Visa Class B common shares and credit valuations related to customer initiated hedging activities.

 

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


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 2

 

Consolidated Balance Sheet (Unaudited)

 

In millions, except par value   

December 31

2013

   

September 30

2013

   

June 30

2013

   

March 31

2013

   

December 31

2012

 

Assets

          

Cash and due from banks (a)

   $ 4,043     $ 4,908     $ 4,051     $ 3,948     $ 5,220  

Federal funds sold and resale agreements (b)

     1,986       911       1,613       1,274       1,463  

Trading securities

     3,073       1,603       2,109       2,243       2,096  

Interest-earning deposits with banks (a) (c)

     12,135       8,047       3,797       1,541       3,984  

Loans held for sale (b)

     2,255       2,399       3,814       3,295       3,693  

Investment securities (a)

     60,294       57,260       57,449       59,361       61,406  

Loans (a) (b)

     195,613       192,856       189,775       186,504       185,856  

Allowance for loan and lease losses (a)

     (3,609     (3,691     (3,772     (3,828     (4,036

Net loans

     192,004       189,165       186,003       182,676       181,820  

Goodwill

     9,074       9,074       9,075       9,075       9,072  

Other intangible assets

     2,216       2,194       2,153       1,921       1,797  

Equity investments (a) (d)

     10,664       10,303       10,054       11,008       10,877  

Other (a) (b)

     22,552       22,733       24,297       24,470       23,679  

Total assets

   $ 320,296     $ 308,597     $ 304,415     $ 300,812     $ 305,107  

Liabilities

          

Deposits

          

Noninterest-bearing

   $ 70,306     $ 68,747     $ 66,708     $ 64,652     $ 69,980  

Interest-bearing

         150,625           147,327           145,571           146,968           143,162  

Total deposits

     220,931       216,074       212,279       211,620       213,142  

Borrowed funds

          

Federal funds purchased and repurchase agreements

     4,289       3,165       4,303       4,000       3,327  

Federal Home Loan Bank borrowings

     12,912       8,479       8,481       5,483       9,437  

Bank notes and senior debt

     12,603       11,924       11,177       10,918       10,429  

Subordinated debt

     8,244       7,829       7,113       7,996       7,299  

Commercial paper (a)

     4,997       6,994       6,400       6,953       8,453  

Other (a) (b)

     3,060       1,882       2,390       2,297       1,962  

Total borrowed funds

     46,105       40,273       39,864       37,647       40,907  

Allowance for unfunded loan commitments and letters of credit

     242       235       242       238       250  

Accrued expenses (a)

     4,734       4,673       4,057       4,181       4,449  

Other (a)

     4,187       4,522       6,032       5,048       4,594  

Total liabilities

     276,199       265,777       262,474       258,734       263,342  

Equity

          

Preferred stock (e)

          

Common stock - $5 par value

          

Authorized 800 shares, issued 540, 539, 539, 538 and 538 shares

     2,698       2,695       2,693       2,690       2,690  

Capital surplus - preferred stock

     3,941       3,940       3,939       3,591       3,590  

Capital surplus - common stock and other

     12,416       12,310       12,234       12,174       12,193  

Retained earnings

     23,325       22,561       21,828       20,993       20,265  

Accumulated other comprehensive income (loss)

     436       47       45       767       834  

Common stock held in treasury at cost: 7, 7, 8, 9 and 10 shares

     (408     (423     (453     (552     (569

Total shareholders’ equity

     42,408       41,130       40,286       39,663       39,003  

Noncontrolling interests

     1,689       1,690       1,655       2,415       2,762  

Total equity

     44,097       42,820       41,941       42,078       41,765  

Total liabilities and equity

   $ 320,296     $ 308,597     $ 304,415     $ 300,812     $ 305,107  

Capital Ratios

          

Basel 1 Ratios

          

Tier 1 common (f)

     10.5     10.3     10.1     9.8     9.6

Tier 1 risk-based (f)

     12.4       12.3       12.0       11.6       11.6  

Total risk-based (f)

     15.8       15.6       15.2       14.9       14.7  

Leverage (f)

     11.0       11.1       10.9       10.4       10.4  

Common shareholders’ equity to assets

     12.0       12.1       11.9       12.0       11.6  

 

(a) Amounts include consolidated variable interest entities. Our 2013 Form 10-Qs included, and our 2013 Form 10-K will include, additional information regarding these items.
(b) Amounts include assets and liabilities for which PNC has elected the fair value option. Our 2013 Form 10-Qs included, and our 2013 Form 10-K will include, additional information regarding these items.
(c) Amounts include balances held with the Federal Reserve Bank of Cleveland of $11.7 billion, $7.6 billion, $3.3 billion, $1.1 billion and $3.5 billion as of December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013 and December 31, 2012, respectively.
(d) Amounts include our equity interest in BlackRock.
(e) Par value less than $.5 million at each date.
(f) The ratio as of December 31, 2013 is estimated.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 3

 

Average Consolidated Balance Sheet (Unaudited) (a)

 

     Three months ended              Year ended  
In millions    December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
              December 31
2013
    December 31
2012
 

Assets

                     

Interest-earning assets:

                     

Investment securities

                     

Securities available for sale

                     

Residential mortgage-backed

                     

Agency

   $ 22,327     $ 23,674     $ 24,339     $ 25,168     $ 25,552            $ 23,869     $ 26,522  

Non-agency

     5,539       5,862       5,889       6,025       6,245              5,828       6,506  

Commercial mortgage-backed

     4,460       4,349       3,855       3,745       3,674              4,105       3,682  

Asset-backed

     5,814       5,962       5,919       5,731       5,643              5,857       5,227  

U.S. Treasury and government agencies

     2,507       2,013       2,074       2,715       2,746              2,326       2,733  

State and municipal

     2,275       2,354       2,182       2,189       2,034              2,250       1,920  

Other debt

     2,523       2,630       2,728       2,649       2,860              2,632       3,019  

Corporate stocks and other

     359       339       304       368       346              342       350  

Total securities available for sale

     45,804       47,183       47,290       48,590       49,100              47,209       49,959  

Securities held to maturity

                     

Residential mortgage-backed

     5,726       3,794       3,833       4,146       4,377              4,374       4,423  

Commercial mortgage-backed

     3,153       3,276       3,521       3,747       3,967              3,422       4,288  

Asset-backed

     1,047       1,064       978       826       702              983       892  

U.S. Treasury and government agencies

     238       236       233       231       229              235       226  

State and municipal

     1,056       658       640       639       664              749       670  

Other

     341       346       349       352       355              347       358  

Total securities held to maturity

     11,561       9,374       9,554       9,941       10,294              10,110       10,857  

Total investment securities

     57,365       56,557       56,844       58,531       59,394              57,319       60,816  

Loans

                     

Commercial

     88,185       86,456       86,015       83,476       80,876              86,047       76,654  

Commercial real estate

     20,587       19,558       18,860       18,850       18,678              19,469       18,115  

Equipment lease financing

     7,428       7,296       7,350       7,241       6,956              7,329       6,674  

Consumer

     63,203       62,277       61,587       61,411       61,430              62,125       59,752  

Residential real estate

     15,180       14,918       14,794       15,121       15,257              15,003       15,423  

Total loans

     194,583       190,505       188,606       186,099       183,197              189,973       176,618  

Loans held for sale

     2,225       3,071       3,072       3,279       3,025              2,909       2,977  

Federal funds sold and resale agreements

     864       664       1,141       1,176       1,290              960       1,594  

Other

     15,448       8,809       6,439       7,095       6,737              9,484       6,549  

Total interest-earning assets

     270,485       259,606       256,102       256,180       253,643              260,645       248,554  

Noninterest-earning assets:

                     

Allowance for loan and lease losses

     (3,667     (3,761     (3,821     (3,937     (3,987            (3,796     (4,157

Cash and due from banks

     3,904       3,984       3,869       4,055       4,126              3,953       3,877  

Other

     43,471       43,479       45,877       47,147       48,349              44,964       46,751  

Total assets

   $ 314,193     $ 303,308     $   302,027     $   303,445     $ 302,131              $ 305,766     $ 295,025  
(a)  Calculated using average daily balances.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 4
Average Consolidated Balance Sheet (Unaudited) (Continued) (a)   

 

     Three months ended              Year ended  
In millions    December 31
2013
     September 30
2013
    

June 30

2013

    

March 31

2013

    

December 31

2012

             

December 31

2013

    

December 31

2012

 

Liabilities and Equity

                          

Interest-bearing liabilities:

                          

Interest-bearing deposits

                          

Money market

   $       73,534      $       70,557      $       69,123      $       69,003      $       67,997            $       70,567      $       65,933  

Demand

     41,151        39,866        40,172        39,372        36,619              40,144        34,342  

Savings

     11,010        11,007        11,124        10,671        10,190              10,954        9,863  

Retail certificates of deposit

     21,138        21,859        22,641        23,488        24,394              22,274        26,609  

Time deposits in foreign offices and other time

     2,013        1,804        2,164        2,267        2,740              2,061        3,195  

Total interest-bearing deposits

     148,846        145,093        145,224        144,801        141,940              146,000        139,942  

Borrowed funds

                          

Federal funds purchased and repurchase agreements

     4,120        2,967        4,132        4,328        4,023              3,884        4,542  

Federal Home Loan Bank borrowings

     11,348        8,208        7,218        7,657        8,877              8,617        9,678  

Bank notes and senior debt

     12,252        11,256        10,886        10,469        9,702              11,221        10,275  

Subordinated debt

     7,900        7,334        7,003        7,249        6,668              7,373        7,019  

Commercial paper

     5,297        7,109        7,263        7,967        9,069              6,902        8,383  

Other

     2,156        1,792        2,099        2,057        1,961              2,025        1,947  

Total borrowed funds

     43,073        38,666        38,601        39,727        40,300              40,022        41,844  

Total interest-bearing liabilities

     191,919        183,759        183,825        184,528        182,240              186,022        181,786  

Noninterest-bearing liabilities and equity:

                          

Noninterest-bearing deposits

     68,193        66,834        64,749        64,850        65,527              66,168        61,610  

Allowance for unfunded loan commitments and letters of credit

     236        242        238        249        239              241        237  

Accrued expenses and other liabilities

     10,674        10,372        10,929        11,891        12,237              10,961        11,350  

Equity

     43,171        42,101        42,286        41,927        41,888              42,374        40,042  

Total liabilities and equity

   $ 314,193      $ 303,308      $ 302,027      $ 303,445      $ 302,131              $ 305,766      $ 295,025  

(a)    Calculated using average daily balances.

       

  

Supplemental Average Balance Sheet Information (Unaudited)

  

         

Deposits and Common Shareholders’ Equity

  

                  

Interest-bearing deposits

   $ 148,846      $ 145,093      $ 145,224      $ 144,801      $ 141,940            $ 146,000      $ 139,942  

Noninterest-bearing deposits

     68,193        66,834        64,749        64,850        65,527              66,168        61,610  

Total deposits

   $ 217,039      $ 211,927      $ 209,973      $ 209,651      $ 207,467            $ 212,168      $ 201,552  

Transaction deposits

   $ 182,878      $ 177,257      $ 174,044      $ 173,225      $ 170,143            $ 176,879      $ 161,885  

Common shareholders’ equity

   $ 37,543      $ 36,483      $ 36,310      $ 35,628      $ 35,296            $ 36,497      $ 34,066  
 

Other Interest-Earning Assets

                          

Interest-earning deposits with banks

   $ 10,455      $ 4,626      $ 2,063      $ 2,410      $ 2,547            $ 4,910      $ 1,913  

Trading securities

     2,616        1,901        2,177        2,549        2,436              2,310        2,741  

Other

     2,377        2,282        2,199        2,136        1,754              2,264        1,895  

Total other interest-earning assets

   $ 15,448      $ 8,809      $ 6,439      $ 7,095      $ 6,737              $ 9,484      $ 6,549  


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 5
Details of Net Interest Margin (Unaudited) (a)   

 

     Three months ended              Year ended  
      December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
             December 31
2013
    December 31
2012
 

Average yields/rates

                   

Yield on interest-earning assets

                   

Investment securities

                   

Securities available for sale

                   

Residential mortgage-backed

                   

Agency

     2.68     2.36     2.50     2.90     2.94          2.61     3.07

Non-agency

     5.14       5.70       5.51       5.40       5.39             5.44       5.38  

Commercial mortgage-backed

     3.83       3.82       4.00       4.02       3.81             3.90       4.24  

Asset-backed

     1.92       1.87       1.80       1.92       1.93             1.88       2.03  

U.S. Treasury and government agencies

     1.36       1.90       1.37       1.65       1.76             1.59       2.01  

State and municipal

     4.31       4.24       4.48       4.93       4.66             4.31       4.74  

Other debt

     2.30       2.38       2.39       2.58       2.91             2.43       2.72  

Corporate stocks and other

     .15       .12       .14       .12       .24            

Total securities available for sale

     2.96       2.91       2.93       3.16       3.19             2.98       3.31  

Securities held to maturity

                   

Residential mortgage-backed

     3.42       3.92       3.26       3.44       3.34             3.50       3.53  

Commercial mortgage-backed

     4.28       4.29       4.34       4.71       4.50             4.41       4.55  

Asset-backed

     1.57       1.59       1.74       1.80       1.76             1.63       1.91  

U.S. Treasury and government agencies

     3.82       3.81       3.80       3.77       3.82             3.83       3.98  

State and municipal

     5.65       5.55       4.27       4.23       4.23             5.61       4.18  

Other

     4.20       2.90       2.89       2.82       2.89             3.17       2.79  

Total securities held to maturity

     3.72       3.86       3.57       3.82       3.73             3.78       3.82  

Total investment securities

     3.11       3.06       3.04       3.27       3.28             3.12       3.40  
 

Loans

                   

Commercial

     3.53       3.62       3.71       4.03       4.16             3.77       4.50  

Commercial real estate

     4.50       4.64       4.84       5.05       5.57             4.81       5.55  

Equipment lease financing

     3.74       3.75       4.41       4.05       4.26             3.98       4.60  

Consumer

     4.29       4.31       4.40       4.67       4.68             4.42       4.69  

Residential real estate

     5.18       5.00       5.13       5.29       5.36             5.15       5.39  

Total loans

     4.02       4.06       4.19       4.45       4.58             4.21       4.75  

Loans held for sale

     5.40       5.34       4.22       6.49       5.34             5.40       5.64  

Federal funds sold and resale agreements

     .79       1.10       .61       .74       1.04             .83       1.38  

Other

     1.63       2.26       3.66       3.25       3.24             2.43       3.45  

Total yield on interest-earning assets

     3.69       3.79       3.91       4.15       4.24             3.90       4.38  
 

Rate on interest-bearing liabilities

                   

Interest-bearing deposits

                   

Money market

     .18       .18       .18       .19       .19             .18       .21  

Demand

     .05       .05       .05       .04       .04             .04       .04  

Savings

     .08       .10       .10       .10       .09             .09       .09  

Retail certificates of deposit

     .76       .79       .82       .85       .89             .81       .79  

Time deposits in foreign offices and other time

     .17       .22       .43       .61       .45             .39       .47  

Total interest-bearing deposits

     .22       .23       .24       .26       .27             .24       .28  
 

Borrowed funds

                   

Federal funds purchased and repurchase agreements

     .14       .15       .14       .16       .20             .15       .22  

Federal Home Loan Bank borrowings

     .48       .48       .53       .61       .70             .52       .74  

Bank notes and senior debt

     1.51       1.71       1.71       1.83       2.07             1.70       2.30  

Subordinated debt

     2.63       2.89       2.78       2.83       3.57             2.78       4.56  

Commercial paper

     .26       .22       .22       .25       .28             .23       .27  

Other

     2.44       2.91       2.62       2.28       2.78             2.62       2.41  

Total borrowed funds

     1.21       1.33       1.28       1.30       1.46             1.29       1.69  

Total rate on interest-bearing liabilities

     .44       .46       .46       .48       .54                 .46       .60  

Interest rate spread

     3.25       3.33       3.45       3.67       3.70             3.44       3.78  

Impact of noninterest-bearing sources

     .13       .14       .13       .14       .15                 .13       .16  

Net interest margin

     3.38     3.47     3.58     3.81     3.85              3.57     3.94
(a) Calculated as annualized taxable-equivalent net interest income divided by average earning assets. 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 yields and margins for all earning assets in calculating net interest margins, in this table we use net 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 generally accepted accounting principles (GAAP) in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013 and December 31, 2012, were $45 million, $43 million, $40 million, $40 million and $42 million, respectively. The taxable-equivalent adjustments to net interest income for the years ended December 31, 2013 and December 31, 2012 were $168 million and $144 million, respectively.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 6
Total and Core Net Interest Income and Net Interest Margin (Unaudited)   

 

Total and Core Net Interest Income

 

    Three months ended             Year ended  
In millions   December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
            December 31
2013
    December 31
2012
 

Core net interest income (a)

  $     2,075      $     2,035      $     2,054      $     2,140      $     2,151         $     8,304      $     8,516  

Total purchase accounting accretion (a) (b)

    191       199       204       249       273           843       1,124  

Total net interest income

  $ 2,266      $ 2,234      $ 2,258      $ 2,389      $ 2,424             $ 9,147      $ 9,640  

(a)    We believe that core net interest income and purchase accounting accretion are useful in evaluating the components of net interest income.

       

(b)    Total purchase accounting accretion includes purchase accounting accretion on purchased impaired loans. Refer to the Accretion - Purchased Impaired Loans table on page 10 for details.

        

Details of Net Interest Margin (c)                
    Three months ended             Year ended  
In millions   December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
           

December 31

2013

    December 31
2012
 

Average yields/rates

                 

Yield on interest earning assets

                 

Total investment securities

    3.11     3.06     3.04     3.27     3.28         3.12     3.40

Total loans

    4.02       4.06       4.19       4.45       4.58           4.21       4.75  

Other

    2.05       2.96       3.50       3.91       3.56           2.96       3.74  

Total yield on interest earning assets

    3.69       3.79       3.91       4.15       4.24           3.90       4.38  
 

Rate on interest-bearing liabilities

                 

Total interest-bearing deposits

    .22       .23       .24       .26       .27           .24       .28  

Total borrowed funds

    1.21       1.33       1.28       1.30       1.46           1.29       1.69  

Total rate on interest-bearing liabilities

    .44       .46       .46       .48       .54           .46       .60  
 

Interest rate spread

    3.25       3.33       3.45       3.67       3.70           3.44       3.78  

Impact of noninterest-bearing sources

    .13       .14       .13       .14       .15               .13       .16  

Net interest margin

    3.38     3.47     3.58     3.81     3.85             3.57     3.94

(c)    See note (a) on page 5.

       

Details of Core Net Interest Margin (d)                
    Three months ended             Year ended  
In millions   December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
            December 31
2013
    December 31
2012
 

Average yields/rates

                 

Yield on interest earning assets

                 

Total investment securities

    3.02     2.96     2.95     3.21     3.17         3.03     3.30

Total loans

    3.65       3.68       3.77       3.96       4.02           3.79       4.20  

Other

    1.99       2.74       3.69       3.22       3.35           2.77       3.46  

Total yield on interest earning assets

    3.40       3.48       3.58       3.75       3.80           3.57       3.95  
 

Rate on interest-bearing liabilities

                 

Total interest-bearing deposits

    .24       .26       .27       .29       .31           .27       .39  

Total borrowed funds

    1.06       1.18       1.12       1.09       1.23           1.12       1.46  

Total rate on interest-bearing liabilities

    .43       .45       .45       .46       .52           .45       .63  
 

Interest rate spread

    2.97       3.03       3.13       3.29       3.28           3.12       3.32  

Impact of noninterest-bearing sources

    .13       .14       .13       .14       .15           .13       .16  

Core net interest margin

    3.10       3.17       3.26       3.43       3.43           3.25       3.48  

Purchase accounting accretion impact on net interest margin

    .28       .30       .32       .38       .42           .32       .46  

Net interest margin

    3.38     3.47     3.58     3.81     3.85             3.57     3.94

 

(d) We believe that core net interest margin, a non-GAAP measure, is useful as a tool to help evaluate the impact of purchase accounting accretion on net interest margin. To calculate core net interest margin, each calculated margin in the table has been adjusted by annualized purchase accounting accretion divided by average interest-earning assets.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 7
Per Share Related Information (Unaudited)   

 

     Three months ended              Year ended  
In millions, except per share data    December 31
2013
    September 30
2013
      June 30
2013
    March 31
2013
    December 31
2012
             December 31
2013
     December 31
2012
 

Basic

                    

Net income

   $ 1,061     $ 1,039     $ 1,123     $ 1,004     $ 719          $ 4,227      $ 3,001  

Less:

                    

Net income (loss) attributable to noncontrolling interests

     13       2       1       (9     1            7        (12

Preferred stock dividends and discount accretion and redemptions

     50       71       53       75       54            249        181  

Dividends and undistributed earnings allocated to nonvested restricted shares

     5       4       5       4       4            18        14  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Net income attributable to basic common shares

   $ 993     $ 962     $ 1,064     $ 934     $ 660          $ 3,953      $ 2,818  

Basic weighted-average common shares outstanding

     530       529       528       526       526            528        526  

Basic earnings per common share

   $ 1.87     $ 1.82     $ 2.02     $ 1.78     $ 1.26          $ 7.48      $ 5.36  

Diluted

                    

Net income attributable to basic common shares

   $ 993     $ 962     $ 1,064     $ 934     $ 660          $ 3,953      $ 2,818  

Less: Impact of BlackRock earnings per share dilution

     5       4       4       5       4            18        14  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Net income attributable to diluted common shares

   $ 988     $ 958     $ 1,060     $ 929     $ 656          $ 3,935      $ 2,804  

Basic weighted-average common shares outstanding

     530       529       528       526       526            528        526  

Dilutive potential common shares

     5       5       3       2       2            4        3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

    

 

 

 

Diluted weighted-average common shares outstanding

     535       534       531       528       528            532        529  

Diluted earnings per common share

   $ 1.85     $ 1.79     $ 1.99     $ 1.76     $ 1.24              $ 7.39      $ 5.30  
Selected Noninterest Income Information (Unaudited)                        
     Three months ended        

 

   Year ended  
In millions, except per share data    December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
             December 31
2013
     December 31
2012
 

Increase (Decrease) to Noninterest Income and Impact on Diluted Earnings per Share

                    

Commercial mortgage servicing rights (impairment) / recovery, net of economic hedge (After-tax)

   $ (5   $ 18     $ 44     $ 11     $ 16          $ 68      $ 31  

Impact on diluted earnings per share (a)

     (.01     .02       .05       .01       .02            .08        .04  
 

Benefit / (provision) for residential mortgage repurchase obligations (Pre-tax)

   $ 124     $ 6     $ (73   $ (4   $ (254        $ 53      $ (761

Impact on diluted earnings per share (a)

     .15       .01       (.09     (.00     (.31          .06        (.93
 

Net gains on sales of securities (Pre-tax)

   $ 3     $ 21     $ 61     $ 14     $ 45          $ 99      $ 204  

Impact on diluted earnings per share (a)

     .00        .02       .08       .02       .06            .12        .25  
 

Gains on sales of Visa Class B common shares (Pre-tax)

     $ 85     $ 83       $ 130          $ 168      $ 267  

Impact on diluted earnings per share (a)

       .10       .10         .16            .21        .33  
 

Credit valuations related to customer initiated hedging activities (Pre-tax)

   $ 16     $ (1   $ 39     $ 2     $ 17          $ 56      $ 7  

Impact on diluted earnings per share (a)

     .02       (.00     .05       .00        .02                .07        .01  
(a) In calculating impact on diluted earnings per share in the table above, after-tax amounts for the income statement items were calculated using a statutory federal income tax rate of 35%.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 8
Details of Loans (Unaudited)   

 

In millions    December 31
2013
     September 30
2013
     June 30
2013
     March 31
2013
     December 31
2012
 

Commercial

              

Retail/wholesale trade

   $ 15,530      $ 15,178      $ 15,192      $ 14,784      $ 14,353  

Manufacturing

     16,208        15,406        15,525        15,349        14,841  

Service providers

     13,052        12,973        13,267        13,057        12,606  

Real estate related (a)

     10,729        10,554        10,248        10,274        10,616  

Financial services (b)

     4,927        5,177        5,326        4,740        4,356  

Health care

     8,690        8,266        8,228        7,912        7,763  

Other industries (b)

     19,242        19,436        19,144        18,169        18,505  

Total commercial (c)

     88,378        86,990        86,930        84,285        83,040  

Commercial real estate

              

Real estate projects (d)

     13,613        13,036        12,636        12,596        12,347  

Commercial mortgage

     7,578        7,095        6,355        6,183        6,308  

Total commercial real estate

     21,191        20,131        18,991        18,779        18,655  

Equipment lease financing

     7,576        7,314        7,349        7,240        7,247  

Total commercial lending

     117,145        114,435        113,270        110,304        108,942  

Consumer

              

Home equity

              

Lines of credit

     21,696        22,043        22,559        23,029        23,576  

Installment

     14,751        14,548        13,857        13,001        12,344  

Credit card

     4,425        4,242        4,135        4,081        4,303  

Other consumer

              

Education

     7,534        7,711        7,814        8,048        8,238  

Automobile

     10,827        10,259        9,066        8,716        8,708  

Other

     4,170        4,226        4,297        4,340        4,505  

Total consumer

     63,403        63,029        61,728        61,215        61,674  

Residential real estate

              

Residential mortgage

     14,418        14,709        14,051        14,217        14,430  

Residential construction

     647        683        726        768        810  

Total residential real estate

     15,065        15,392        14,777        14,985        15,240  

Total consumer lending

     78,468        78,421        76,505        76,200        76,914  

Total loans (e)

   $     195,613      $     192,856      $     189,775      $     186,504      $     185,856  

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

       

(b)    Total commercial loans as of December 31, 2013 in the table above reflects a reclassification between Financial services and Other industries related to the wind down of Market Street Funding LLC. The corresponding loan balances as of September 30, 2013 were also reclassified to conform to the December 2013 presentation. There was no impact to periods prior to September 30, 2013.

         

(c)    During the third quarter of 2013, PNC revised its policy to classify commercial loans initiated through a Special Purpose Entity (SPE) to be reported based upon the industry of the sponsor of the SPE. This resulted in a reclassification of loans amounting to $5.5 billion, $4.9 billion and $4.7 billion at June 30, 2013, March 31, 2013 and December 31, 2012, respectively, that were previously classified as Financial Services to other categories within Commercial Lending.

         

(d)    Includes both construction loans and intermediate financing for projects.

       

(e)    Includes purchased impaired loans:

   $ 6,105      $ 6,398      $ 6,778      $ 7,073      $ 7,406  
Details of Loans Held for Sale (Unaudited)   
In millions    December 31
2013
     September 30
2013
     June 30
2013
     March 31
2013
     December 31
2012
 

Commercial mortgage

   $ 867      $ 785      $ 1,072      $ 895      $ 1,392  

Residential mortgage

     1,356        1,613        2,353        2,331        2,220  

Other

     32        1        389        69        81  

Total

   $ 2,255      $ 2,399      $ 3,814      $ 3,295      $ 3,693  
Net Unfunded Commitments (Unaudited)   
In millions   

December 31

2013

     September 30
2013
    

June 30

2013

    

March 31

2013

    

December 31

2012

 

Net unfunded commitments

   $ 129,870      $ 126,577      $ 124,142      $ 121,812      $ 120,592  


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 9

 

Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit (Unaudited)

Change in Allowance for Loan and Lease Losses

 

Three months ended - in millions    December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
 

Beginning balance

   $ 3,691     $ 3,772     $ 3,828     $ 4,036     $ 4,039  

Gross charge-offs:

          

Commercial

     (87     (113     (81     (114     (126

Commercial real estate

     (24     (42     (51     (86     (72

Equipment lease financing

     (2     (2     (1     (3     (4

Home equity (a)

     (114     (86     (92     (194     (141

Residential real estate (a)

     (2     (9     (43     (79     (18

Credit card (a)

     (42     (41     (45     (50     (43

Other consumer (a)

     (52     (47     (43     (43     (56

Total gross charge-offs (b)

     (323     (340     (356     (569     (460

Recoveries:

          

Commercial

     65       54       66       63       77  

Commercial real estate

     23       24       33       13       29  

Equipment lease financing

     3       3       4       6       8  

Home equity

     18       18       24       13       15  

Residential real estate

     6       (2     1       (1  

Credit card

     5       6       6       5       9  

Other consumer

     14       13       14       14       12  

Total recoveries

     134       116       148       113       150  

Net (charge-offs) recoveries:

          

Commercial

     (22     (59     (15     (51     (49

Commercial real estate

     (1     (18     (18     (73     (43

Equipment lease financing

     1       1       3       3       4  

Home equity

     (96     (68     (68     (181     (126

Residential real estate

     4       (11     (42     (80     (18

Credit card

     (37     (35     (39     (45     (34

Other consumer

     (38     (34     (29     (29     (44

Total net charge-offs

     (189     (224     (208     (456     (310

Provision for credit losses

     113       137       157       236       318  

Other

     1       (1     (1    

Net change in allowance for unfunded loan commitments and letters of credit

     (7     7       (4     12       (11

Ending balance

   $ 3,609     $ 3,691     $     3,772     $ 3,828     $ 4,036  

Supplemental Information

          

Net charge-offs to average loans (for the three months ended) (annualized) (b)

     .39     .47     .44     .99     .67

Allowance for loan and lease losses to total loans

     1.84       1.91       1.99       2.05       2.17  

Commercial lending net charge-offs

   $ (22   $ (76   $ (30   $ (121   $ (88

Consumer lending net charge-offs

     (167     (148     (178     (335     (222

Total net charge-offs

   $ (189   $ (224   $ (208   $ (456   $ (310

Net charge-offs to average loans

          

Commercial lending

     .08     .27     .11     .45     .33

Consumer lending

     .85       .76       .93       1.78       1.15  
(a) Pursuant to regulatory guidance issued in the third quarter of 2012, additional consumer charge-offs of $45.2 million were taken as of December 31, 2012 related to changes in treatment of certain loans where borrowers have been discharged from personal liability under bankruptcy protection where no formal affirmation of the loan obligation was provided by the borrower. Such loans have been classified as troubled debt restructurings (TDRs) and have been reported based upon fair value of the collateral less costs to sell.
(b) Pursuant to alignment with interagency guidance on practices for loans and lines of credit related to consumer lending in the first quarter of 2013, additional charge-offs of $134 million were taken. Excluding the impact of these additional charge-offs, annualized net charge-offs to average loans for the first quarter 2013 was 0.70%.

Change in Allowance for Unfunded Loan Commitments and Letters of Credit

 

Three months ended - in millions    December 31
2013
     September 30
2013
    June 30
2013
     March 31
2013
    December 31
2012
 

Beginning balance

   $ 235      $ 242     $         238      $ 250     $ 239  

Net change in allowance for unfunded loan commitments and letters of credit

     7        (7     4        (12     11  

Ending balance

   $ 242      $ 235     $ 242      $ 238     $ 250  


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 10

 

Purchase Accounting Accretion, Accretable Yield and Valuation of Purchased Impaired Loans (Unaudited)

Accretion - Purchased Impaired Loans

 

     Three months ended          Year ended  
In millions   

December 31

2013

   

September 30

2013

   

December 31

2012

        

December 31

2013

    December 31
2012
 

Impaired loans

             

Scheduled accretion

       $ 128         $ 145         $ 160            $ 580         $ 671  

Reversal of contractual interest on impaired loans

     (64     (82     (93        (314     (404

Scheduled accretion net of contractual interest

     64       63       67          266       267  

Excess cash recoveries

     28       26       45          115       157  

Total impaired loans

       $ 92         $ 89         $ 112              $ 381         $ 424  

Purchased Impaired Loans - Accretable Yield

 

In millions                                              

October 1, 2013

   $     2,184        January 1, 2013    $     2,166        January 1, 2012    $     2,109  
               

Addition due to RBC Bank (USA) acquisition

on March 2, 2012

     587  

Scheduled accretion

     (128      Scheduled accretion      (580      Scheduled accretion      (671

Excess cash recoveries

     (28      Excess cash recoveries      (115      Excess cash recoveries      (157

Net reclassifications to accretable from non-accretable and other activity

     27          Net reclassifications to accretable from non-accretable and other activity (a)      584        Net reclassifications to accretable from non-accretable and other activity (a)      298  

December 31, 2013 (b)

   $ 2,055          December 31, 2013 (b)    $ 2,055          December 31, 2012    $ 2,166  

(a)    Approximately 63% and 13% of the net reclassifications for the years ended December 31, 2013 and 2012, respectively, were driven by the consumer portfolio and were due to improvements of cash expected to be collected on both RBC Bank (USA) and National City loans in future periods. The remaining net reclassifications were predominantly due to future cash flow changes in the commercial portfolio.

         

(b)    As of December 31, 2013, we estimate that the reversal of contractual interest on purchased impaired loans will total approximately $1.1 billion in future periods. This will offset the total net accretable interest in future interest income of $2.1 billion on purchased impaired loans.

        

Valuation of Purchased Impaired Loans

 

     December 31, 2013           September 30, 2013           December 31, 2012  
Dollars in millions    Balance     Net Investment               Balance     Net Investment               Balance     Net Investment  

Commercial and commercial real estate loans:

                    

Unpaid principal balance

   $     937           $     1,071           $     1,680    

Purchased impaired mark

     (264           (289           (431  
  

 

 

         

 

 

         

 

 

   

Recorded investment

     673             782             1,249    

Allowance for loan losses

     (133           (154           (239  
  

 

 

         

 

 

         

 

 

   

Net investment

     540       58%             628       59%             1,010       60
  

 

 

         

 

 

         

 

 

   

Consumer and residential mortgage loans:

                    

Unpaid principal balance

     5,548             5,805             6,639    

Purchased impaired mark

     (115           (189           (482  
  

 

 

         

 

 

         

 

 

   

Recorded investment

     5,433             5,616             6,157    

Allowance for loan losses

     (871           (907           (858  
  

 

 

         

 

 

         

 

 

   

Net investment

     4,562       82%             4,709       81%             5,299       80
  

 

 

         

 

 

         

 

 

   

Total purchased impaired loans:

                    

Unpaid principal balance

     6,485             6,876             8,319    

Purchased impaired mark

     (379           (478           (913  
  

 

 

         

 

 

         

 

 

   

Recorded investment

     6,106             6,398             7,406    

Allowance for loan losses

     (1,004           (1,061           (1,097  
  

 

 

         

 

 

         

 

 

   

Net investment

   $     5,102       79%             $ 5,337       78%             $ 6,309       76


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 11

 

Details of Nonperforming Assets (Unaudited)

Nonperforming Assets by Type

 

In millions    December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
 

Nonperforming loans, including TDRs (a)

          

Commercial lending

          

Commercial

          

Retail/wholesale trade

   $ 57     $ 72     $ 63     $ 62     $ 61  

Manufacturing

     58       61       62       75       73  

Service providers

     108       109       110       112       124  

Real estate related (b)

     124       142       163       161       178  

Financial services

     7       11       14       13       9  

Health care

     19       26       24       21       25  

Other industries

     84       77       85       98       120  

Total commercial

     457       498       521       542       590  

Commercial real estate

          

Real estate projects

     436       493       516       606       654  

Commercial mortgage

     82       105       123       138       153  

Total commercial real estate

     518       598       639       744       807  

Equipment lease financing

     5       6       7       9       13  

Total commercial lending

     980       1,102       1,167       1,295       1,410  

Consumer lending (c)

          

Home equity (d)

     1,139       1,137       1,131       1,088       951  

Residential real estate

          

Residential mortgage (d)

     890       891       947       952       824  

Residential construction

     14       11       15       13       21  

Credit card

     4       4       4       6       5  

Other consumer (d)

     61       61       57       68       43  

Total consumer lending (e)

     2,108       2,104       2,154       2,127       1,844  

Total nonperforming loans (f)

     3,088       3,206       3,321       3,422       3,254  

OREO and foreclosed assets

          

Other real estate owned (OREO) (g)

     360       403       432       472       507  

Foreclosed and other assets

     9       13       25       33       33  

Total OREO and foreclosed assets

     369       416       457       505       540  

Total nonperforming assets

   $     3,457     $     3,622     $     3,778     $     3,927     $     3,794  

Nonperforming loans to total loans

     1.58     1.66     1.75     1.83     1.75

Nonperforming assets to total loans, OREO and foreclosed assets

     1.76       1.87       1.99       2.10       2.04  

Nonperforming assets to total assets

     1.08       1.17       1.24       1.31       1.24  

Allowance for loan and lease losses to nonperforming loans (h)

     117       115       114       112       124  

 

(a) See analysis of troubled debt restructurings (TDRs) on page 12.

 

(b) Includes loans related to customers in the real estate and construction industries.

 

(c) Excludes most consumer loans and lines of credit, not secured by residential real estate, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.

 

(d) Pursuant to alignment with interagency guidance on practices for loans and lines of credit related to consumer lending in the first quarter of 2013, nonperforming home equity loans increased $214 million, nonperforming residential mortgage loans increased $187 million and nonperforming other consumer loans increased $25 million. Charge-offs were taken on these loans where the fair value less costs to sell the collateral was less than the recorded investment of the loan and were $134 million.

 

(e) Pursuant to regulatory guidance issued in the third quarter of 2012, nonperforming consumer loans, primarily home equity and residential mortgage, increased $199 million in the fourth quarter of 2012 related to changes in treatment of certain loans classified as TDRs, net of charge-offs, resulting from bankruptcy where no formal reaffirmation was provided by the borrower and therefore a concession has been granted based upon discharge from personal liability. Charge-offs were taken where the fair value less costs to sell the collateral was less than the recorded investment of the loan and were $45.2 million.

 

(f) 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.

 

(g) OREO excludes $245 million, $264 million, $311 million, $383 million and $380 million at December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013 and December 31, 2012, respectively, related to residential real estate that was acquired by us upon foreclosure of serviced loans because they are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).

 

(h) The allowance for loan and lease losses includes impairment reserves attributable to purchased impaired loans.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 12

 

Details of Nonperforming Assets and Troubled Debt Restructurings (Unaudited)

Change in Nonperforming Assets

 

In millions    October 1, 2013 -
December 31, 2013
    July 1, 2013 -
September 30, 2013
    April 1, 2013 -
June 30, 2013
    January 1, 2013 -
March 31, 2013
    October 1, 2012 -
December 31, 2012
 

Beginning balance

   $             3,622     $             3,778     $             3,927     $             3,794     $             4,021  

New nonperforming assets

     714       824       773       1,032       804  

Charge-offs and valuation adjustments

     (223     (220     (216     (343     (297

Principal activity, including paydowns and payoffs

     (141     (289     (328     (258     (532

Asset sales and transfers to loans held for sale

     (115     (117     (146     (114     (134

Returned to performing status

     (400     (354     (232     (184     (68

Ending balance

   $ 3,457     $ 3,622     $ 3,778     $ 3,927     $ 3,794  

Largest Individual Nonperforming Assets at December 31, 2013 (a)

 

In millions
Ranking   

 

Outstandings

     Industry

1

   $ 36              Real Estate, Rental and Leasing

2

     16              Real Estate, Rental and Leasing

3

     14              Construction

4

     13              Real Estate, Rental and Leasing

5

     11              Other Services

6

     10              Real Estate, Rental and Leasing

7

     10              Other Services

8

     8              Real Estate, Rental and Leasing

9

     8              Other Real Estate Owned

10

     7              Construction

 

Total

   $ 133               

As a percent of total nonperforming assets 4%

 

(a) Amounts shown are not net of related allowance for loan and lease losses, if applicable.

Summary of Troubled Debt Restructurings

 

     December 31      September 30      June 30      March 31      December 31  
In millions    2013      2013      2013      2013      2012  

Total consumer lending (a)

   $ 2,161      $             2,221      $             2,243      $             2,231      $             2,318  

Total commercial lending

     578        581        599        610        541  

Total TDRs

   $             2,739      $ 2,802      $ 2,842      $ 2,841      $ 2,859  

Nonperforming

   $ 1,511      $ 1,451      $ 1,531      $ 1,517      $ 1,589  

Accruing (b)

     1,062        1,178        1,103        1,103        1,037  

Credit card

     166        173        208        221        233  

Total TDRs

   $ 2,739      $ 2,802      $ 2,842      $ 2,841      $ 2,859  

Loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties are considered troubled debt restructurings (TDRs). TDRs typically 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. Certain consumer government insured or guaranteed loans which were evaluated for TDR consideration, loans held for sale, loans accounted for under the fair value option, and pooled purchased impaired loans are not classified as TDRs.

 

(a) Pursuant to regulatory guidance issued in the third quarter of 2012, additional troubled debt restructurings related to changes in treatment of certain loans of $245.7 million in the fourth quarter of 2012, net of charge-offs, resulting from bankruptcy where no formal reaffirmation was provided by the borrower and therefore a concession has been granted based upon discharge from personal liability were added to the consumer lending population. The additional TDR population increased nonperforming loans by $199 million. Charge-offs were taken where the fair value less costs to sell the collateral was less than the recorded investment of the loan and were $45.2 million.

 

(b) Accruing loans have demonstrated a period of at least six months of current performance under the restructured terms and are excluded from nonperforming loans. Loans where borrowers have been discharged from bankruptcy and have not formally reaffirmed their loan obligation are generally not returned to accrual status.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 13

Accruing Loans Past Due (Unaudited)

  

 

Accruing Loans Past Due 30 to 59 Days (a) (b)

 

     Amount         Percent of Total Outstandings  
Dollars in millions            Dec. 31
2013
     Sept. 30
2013
     Jun. 30
2013
     Mar. 31
2013
     Dec. 31
2012
        Dec. 31
2013
    Sept. 30
2013
    Jun. 30
2013
    Mar. 31
2013
    Dec. 31
2012
 

Commercial

   $ 81      $ 73      $ 85      $ 163      $    115         .09     .08     .10     .19     .14

Commercial real estate

     54        54        66        111      100         .25       .27       .35       .59       .54  

Equipment lease financing

     31        6        2        34      17         .41       .08       .03       .47       .23  

Home equity

     86        88        76        86      117         .24       .24       .21       .24       .33  

Residential real estate

                            

Non government insured

     112        118        120        145      151         .74       .77       .81       .97       .99  

Government insured

     105        109        110        114      127         .70       .71       .74       .76       .83  

Credit card

     29        30        27        30      34         .66       .71       .65       .74       .79  

Other consumer

                            

Non government insured

     62        56        52        49      65         .28       .25       .25       .23       .30  

Government insured

     154        170        148        162      193         .68       .77       .70       .77       .90  

Total

   $ 714      $ 704      $ 686      $ 894      $    919         .37       .37       .36       .48       .49  

Accruing Loans Past Due 60 to 89 Days (a) (b)

  

     Amount         Percent of Total Outstandings  
Dollars in millions    Dec. 31
2013
     Sept. 30
2013
     Jun. 30
2013
     Mar. 31
2013
     Dec. 31
2012
        Dec. 31
2013
    Sept. 30
2013
    Jun. 30
2013
    Mar. 31
2013
    Dec. 31
2012
 

Commercial

   $ 20      $ 37      $ 53      $ 35      $        55         .02     .04     .06     .04     .07

Commercial real estate

     11        31        22        36      57         .05       .15       .12       .19       .31  

Equipment lease financing

     2        1        4        1      1         .03       .01       .05       .01       .01  

Home equity

     34        32        29        33      58         .09       .09       .08       .09       .16  

Residential real estate

                            

Non government insured

     30        31        29        41      49         .20       .20       .20       .27       .32  

Government insured

     57        57        79        86      97         .38       .37       .53       .57       .64  

Credit card

     19        19        19        20      23         .43       .45       .46       .49       .53  

Other consumer

                            

Non government insured

     18        18        14        15      21         .08       .08       .07       .07       .10  

Government insured

     94        106        100        86      110         .42       .48       .47       .41       .51  

Total

   $ 285      $ 332      $ 349      $ 353      $      471         .15       .17       .18       .19       .25  

Accruing Loans Past Due 90 Days or More (a) (b)

 

     Amount         Percent of Total Outstandings  
Dollars in millions          Dec. 31
2013
     Sept. 30
2013
     Jun. 30
2013
     Mar. 31
2013
     Dec. 31
2012
        Dec. 31
2013
    Sept. 30
2013
    Jun. 30
2013
    Mar. 31
2013
    Dec. 31
2012
 

Commercial

   $ 42      $ 33      $ 31      $ 27      $         42         .05     .04     .04     .03     .05

Commercial real estate

     2        3           3      15         .01       .01         .02       .08  

Equipment lease financing

        2            2           .03           .03  

Residential real estate

                            

Non government insured

     35        35        50        59      46         .23       .23       .34       .39       .30  

Government insured

     1,025        1,187        1,326        1,458      1,855         6.80       7.71       8.97       9.73       12.17  

Credit card

     34        31        33        35      36         .77       .73       .80       .86       .84  

Other consumer

                            

Non government insured

     14        13        12        13      18         .06       .06       .06       .06       .08  

Government insured

     339        329        310        311      337         1.50       1.48       1.46       1.47       1.57  

Total

   $   1,491      $   1,633      $   1,762      $   1,906      $    2,351         .76       .85       .93       1.02       1.26  
(a) Excludes loans held for sale and purchased impaired loans.
(b) Pursuant to alignment with interagency guidance on practices for loans and lines of credit related to consumer lending in the first quarter of 2013, accruing consumer loans past due 30 - 59 days decreased $44 million, accruing consumer loans past due 60—89 days decreased $36 million and accruing consumer loans past due 90 days or more decreased $315 million, of which $295 million related to residential real estate government insured loans. As part of this alignment, these loans were moved into nonaccrual status.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 14

Business Segment Descriptions (Unaudited)

  

 

Retail Banking provides deposit, lending, brokerage, investment management and cash management services to consumer and small business customers within our primary geographic markets. Our customers are serviced through our branch network, ATMs, call centers, online banking and mobile channels. The branch network is located primarily in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida, Kentucky, Washington, D.C., Delaware, Alabama, Virginia, Georgia, Missouri, Wisconsin and South Carolina.

Corporate & Institutional Banking provides lending, treasury management, and capital markets-related products and services to mid-sized corporations, government and not-for-profit entities, and selectively to large corporations. Lending products include secured and unsecured loans, letters of credit and equipment leases. Treasury management services include cash and investment management, receivables management, disbursement services, funds transfer services, information reporting, and global trade services. Capital markets-related products and services include foreign exchange, derivatives, loan syndications, mergers and acquisitions advisory and related services to middle-market companies, securities underwriting, and securities sales and trading. Corporate & Institutional Banking also provides commercial loan servicing, and real estate advisory and technology solutions, for the commercial real estate finance industry. Corporate & Institutional Banking provides products and services generally within our primary geographic markets, with certain products and services offered nationally and internationally.

Asset Management Group includes personal wealth management for high net worth and ultra high net worth clients and institutional asset management. Wealth management products and services include investment and retirement planning, customized investment management, private banking, tailored credit solutions, and trust management and administration for individuals and their families. Institutional asset management provides investment management, custody and retirement administration services. Institutional clients include corporations, unions, municipalities, non-profits, foundations and endowments, primarily located in our geographic footprint.

Residential Mortgage Banking directly originates primarily first lien residential mortgage loans on a nationwide basis with a significant presence within the retail banking footprint, and also originates loans through majority owned affiliates. Mortgage loans represent loans collateralized by one-to-four-family residential real estate. These loans are typically underwritten to government agency and/or third-party standards, and sold, servicing retained, to secondary mortgage conduits of FNMA, FHLMC, Federal Home Loan Banks and third-party investors, or are securitized and issued under the GNMA program. The mortgage servicing operation performs all functions related to servicing mortgage loans, primarily those in first lien position, for various investors and for loans owned by PNC. Certain loan applications are brokered by majority owned affiliates to others.

Non-Strategic Assets Portfolio includes a consumer portfolio of mainly residential mortgage and brokered home equity loans and a small commercial loan and lease portfolio. We obtained a significant portion of these non-strategic assets through acquisitions of other companies.

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. BlackRock provides diversified investment management services to institutional clients, intermediary and individual investors through various investment vehicles. Investment management services primarily consist of the management of equity, fixed income, multi-asset class, alternative investment and cash management products. BlackRock offers its investment products in a variety of vehicles, including open-end and closed-end mutual funds, iShares® exchange-traded funds (ETFs), collective investment trusts and separate accounts. In addition, BlackRock provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution. We hold an equity investment in BlackRock, which is a key component of our diversified revenue strategy. BlackRock is a publicly traded company, and additional information regarding its business is available in its filings with the Securities and Exchange Commission (SEC). At December 31, 2013, our economic interest in BlackRock was 22%.

Period End Employees

 

                                         
     December 31
2013
     September 30
2013
     June 30
2013
     March 31
2013
     December 31
2012
 

Full-time employees

              

Retail Banking

     22,226        22,192        22,476        22,985        23,331  

Other full-time employees (a)

     27,695        27,973        27,975        27,957        27,616  

Total full-time employees

     49,921        50,165        50,451        50,942        50,947  

Part-time employees

              

Retail Banking

     4,030        4,194        4,394        4,496        4,563  

Other part-time employees (a)

     482        575        935        734        775  

Total part-time employees

     4,512        4,769        5,329        5,230        5,338  

Total

     54,433        54,934        55,780        56,172        56,285  

 

(a) Includes period end employees for all businesses other than Retail Banking and includes operations, technology and staff services employees other than staff directly employed by Retail Banking.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 15
Summary of Business Segment Income and Revenue (Unaudited) (a) (b)   

 

     Three months ended         Year ended  
In millions    December 31      September 30      June 30      March 31      December 31               December 31      December 31  
Income (Loss)    2013      2013      2013      2013      2012               2013      2012  

Retail Banking (c)

       $ 107          $ 165      $ 158      $ 120          $ 121            $ 550      $ 596  

Corporate & Institutional Banking

     569        542        612        541        649              2,264        2,328  

Asset Management Group

     36        47        36        43        34              162        145  

Residential Mortgage Banking (d)

     55        28        20        45        (192            148        (308

Non-Strategic Assets Portfolio

     118        121        60        79        59              379        237  

Other, including BlackRock (b) (e)

     176        136        237        176        48              724        3  

Net income

       $ 1,061          $ 1,039      $ 1,123      $ 1,004          $ 719              $ 4,227      $ 3,001  

Revenue

                                                                      

Retail Banking (c)

       $ 1,500          $ 1,563      $ 1,554      $ 1,483          $ 1,677            $ 6,100      $ 6,328  

Corporate & Institutional Banking

     1,389        1,356        1,420        1,341        1,576              5,506        5,697  

Asset Management Group

     269        262        254        255        247              1,040        973  

Residential Mortgage Banking (d)

     327        254        228        291        58              1,100        526  

Non-Strategic Assets Portfolio

     167        181        175        219        218              742        843  

Other, including BlackRock (b) (e)

     421        304        433        366        293              1,524        1,145  

Total revenue

       $     4,073          $     3,920      $     4,064      $     3,955          $     4,069              $     16,012      $     15,512  

 

(a) Our business information is presented based on our internal management reporting practices. We periodically refine our internal methodologies as management reporting practices are enhanced.

 

(b) We consider BlackRock to be a separate reportable business segment but have combined its results with Other for this presentation. Our 2013 Form 10-K will include additional information regarding BlackRock.

 

(c) Includes gains on sales of a portion of Visa Class B common shares in the second and third quarters of 2013 and the third and fourth quarters of 2012. For more information, refer to Selected Noninterest Income Information on page 7.

 

(d) Includes benefit/provision for residential mortgage repurchase obligations. For more information, refer to Selected Noninterest Income Information on page 7.

 

(e) Includes earnings and gains or losses related to PNC’s equity interest in BlackRock and residual activities that do not meet the criteria for disclosure as a separate reportable business, such as gains or losses related to BlackRock transactions, integration costs, asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and certain trading activities, exited businesses, private equity investments, intercompany eliminations, most corporate overhead, tax adjustments that are not allocated to business segments 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 PNC FINANCIAL SERVICES GROUP, INC.    Page 16

 

Retail Banking (Unaudited) (a)

 

    Three months ended             Year ended  
    December 31     September 30     June 30     March 31     December 31              December 31     December 31  
Dollars in millions   2013     2013     2013     2013     2012              2013     2012  

INCOME STATEMENT

                   

Net interest income

  $ 1,012      $ 1,006      $ 1,012      $ 1,049      $ 1,081           $ 4,079      $ 4,316  

Noninterest income

                   

Service charges on deposits

    151       149       141       129       143             570       547  

Brokerage

    57       57       58       52       48             224       189  

Consumer services

    256       234       229       216       220             935       838  

Other

    24       117       114       37       185             292       438  

Total noninterest income

    488       557       542       434       596             2,021       2,012  

Total revenue

    1,500       1,563       1,554       1,483       1,677             6,100       6,328  

Provision for credit losses

    195       152       148       162       280             657       800  

Noninterest expense

    1,138       1,151       1,156       1,131       1,206             4,576       4,586  

Pretax earnings

    167       260       250       190       191             867       942  

Income taxes

    60       95       92       70       70             317       346  

Earnings

  $ 107      $ 165      $ 158      $ 120      $ 121           $ 550      $ 596  

AVERAGE BALANCE SHEET

                   

Loans

                   

Consumer

                   

Home equity

  $ 29,588      $ 29,477      $ 29,212      $ 28,913      $ 28,920           $ 29,300      $ 28,321  

Indirect auto

    8,671       7,971       7,314       7,006       6,718             7,746       5,467  

Indirect other

    822       877       939       1,000       1,063             909       1,174  

Education

    7,680       7,818       7,982       8,220       8,370             7,923       8,878  

Credit cards

    4,250       4,148       4,061       4,108       4,138             4,142       4,063  

Other

    2,157       2,152       2,141       2,141       2,145             2,148       2,039  

Total consumer

    53,168       52,443       51,649       51,388       51,354             52,168       49,942  

Commercial and commercial real estate

    11,131       11,299       11,345       11,290       11,266             11,266       11,198  

Floor plan

    2,226       1,931       2,048       2,014       1,915             2,055       1,788  

Residential mortgage

    676       715       767       811       862             741       946  

Total loans

    67,201       66,388       65,809       65,503       65,397             66,230       63,874  

Goodwill and other intangible assets

    6,083       6,105       6,127       6,148       6,174             6,116       6,123  

Other assets

    2,730       2,722       2,580       2,465       2,565             2,625       2,576  

Total assets

  $ 76,014      $ 75,215      $ 74,516      $ 74,116      $ 74,136           $ 74,971      $ 72,573  

Deposits

                   

Noninterest-bearing demand

  $ 21,699      $ 21,349      $ 21,187      $ 20,744      $ 20,900           $ 21,248      $ 20,179  

Interest-bearing demand

    32,298       31,748       32,004       31,183       29,526             31,811       28,007  

Money market

    49,250       48,939       48,645       48,291       47,859             48,784       46,578  

Total transaction deposits

    103,247       102,036       101,836       100,218       98,285             101,843       94,764  

Savings

    10,901       10,900       10,997       10,537       10,068             10,835       9,751  

Certificates of deposit

    20,425       21,050       21,823       22,683       23,531             21,488       25,715  

Total deposits

    134,573       133,986       134,656       133,438       131,884             134,166       130,230  

Other liabilities

    369       364       343       273       285             337       340  

Total liabilities

  $     134,942      $     134,350      $     134,999      $     133,711      $     132,169           $     134,503      $     130,570  

PERFORMANCE RATIOS

                   

Return on average assets

    .56     .87     .85     .66     .65           .73     .82

Noninterest income to total revenue

    33       36       35       29       36             33       32  

Efficiency

    76       74       74       76       72               75       72  
(a) See note (a) on page 15.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 17

 

Retail Banking (Unaudited) (Continued)

 

    Three months ended             Year ended  
    December 31     September 30             June 30             March 31     December 31              December 31     December 31  
Dollars in millions, except as noted   2013     2013     2013     2013     2012              2013     2012  

OTHER INFORMATION (a)

        .                 

Credit-related statistics:

                   

Commercial nonperforming assets

      $ 208         $ 212         $ 222         $ 230         $ 245            

Consumer nonperforming assets

    1,077       1,074       1,068       1,050       902            

Total nonperforming assets

      $     1,285         $     1,286         $     1,290         $     1,280         $     1,147            

Purchased impaired loans (b)

      $ 692         $ 718         $ 750         $ 788         $ 819            

Commercial lending net charge-offs

      $ 13         $ 17         $ 22         $ 37         $ 34               $ 89         $ 119  

Credit card lending net charge-offs

    37       35       39       45       35             156       174  

Consumer lending (excluding credit card) net charge-offs

    118       91       91       168       148             468       521  

Total net charge-offs

      $ 168         $ 143         $ 152         $ 250         $ 217               $     713         $     814  

Commercial lending annualized net charge-off ratio

    .39     .51     .66     1.13     1.03           .67     .92

Credit card lending annualized net charge-off ratio

    3.45     3.35     3.85     4.44     3.36           3.77     4.28

Consumer lending (excluding credit card) annualized net charge-off ratio (c)

    .94     .74     .75     1.42     1.22           .96     1.11

Total annualized net charge-off ratio (c)

    .99     .85     .93     1.55     1.32           1.08     1.27

Home equity portfolio credit statistics: (d)

                   

% of first lien positions at origination (e)

    52     52     50     48     42          

Weighted-average loan-to-value ratios (LTVs) (e) (f)

    81     83     85     85     81          

Weighted-average updated FICO scores (g)

    745       745       745       743       742            

Annualized net charge-off ratio (d)

    1.06     .75     .82     1.97     1.35           1.14     1.22

Delinquency data: (h)

                   

Loans 30 - 59 days past due

    .20     .22     .20     .23     .42          

Loans 60 - 89 days past due

    .09     .09     .08     .10     .22          

Total accruing loans past due

    .29     .32     .28     .33     .64          

Nonperforming loans

    3.15     3.13     3.12     3.01     2.64          

Other statistics:

                   

ATMs

    7,445       7,441       7,335       7,303       7,282            

Branches (i)

    2,714       2,724       2,780       2,856       2,881            

Brokerage account assets (billions)

      $     41         $ 40         $ 39         $ 39         $ 38            

Customer-related statistics: (in thousands)

                   

Retail Banking checking relationships

    6,648       6,658       6,589       6,534       6,475            

Retail online banking active customers

    4,592       4,534       4,271       4,234       4,227            

Retail online bill payment active customers

    1,293       1,285       1,270       1,260       1,236                          

 

(a) Presented as of period end, except for net charge-offs and annualized net charge-off ratios, which are for the three months ended and year ended, respectively.
(b) Recorded investment of purchased impaired loans related to acquisitions.
(c) Ratios for the three months ended March 31, 2013 and year ended December 31, 2013 include additional consumer charge-offs taken as a result of alignment with interagency guidance on practices for loans and lines of credit we implemented in the first quarter of 2013.
(d) Lien position, LTV and FICO statistics are based upon customer balances.
(e) Lien positions and LTV calculations at December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013 reflect the use of revised assumptions where data is missing.
(f) LTV statistics are based upon current information.
(g) Represents FICO scores that are updated at least quarterly.
(h) Data based upon recorded investment. Past due amounts exclude purchased impaired loans, even if contractually past due, as we are currently accreting interest income over the expected life of the loans. In the first quarter of 2012, we adopted a policy stating that Home equity loans past due 90 days or more would be placed on nonaccrual status.
(i) Excludes satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 18

 

Corporate & Institutional Banking (Unaudited) (a)

 

    Three months ended             Year ended  
Dollars in millions   December 31
2013
    September 30
2013
   

June 30

2013

   

March 31

2013

    December 31
2012
             December 31
2013
    December 31
2012
 

INCOME STATEMENT

                   

Net interest income

  $         960      $         945     $         943      $         956      $       1,057           $       3,804      $       4,099  

Noninterest income

                   

Corporate service fees

    277       277       297       246       324             1,097       1,030  

Other

    152       134       180       139       195             605       568  

Noninterest income

    429       411       477       385       519             1,702       1,598  

Total revenue

    1,389       1,356       1,420       1,341       1,576             5,506       5,697  

Provision for credit losses (benefit)

    (29)        30       (40)        14       9             (25)        -  

Noninterest expense

    525       495       499       480       549             1,999       2,028  

Pretax earnings

    893       831       961       847       1,018             3,532       3,669  

Income taxes

    324       289       349       306       369             1,268       1,341  

Earnings

  $ 569      $ 542     $ 612      $ 541      $ 649           $ 2,264      $ 2,328  

AVERAGE BALANCE SHEET

                   

Loans

                   

Commercial

  $ 74,199      $ 72,753     $ 72,202      $ 69,817      $ 67,444           $ 72,256      $ 63,480  

Commercial real estate

    18,938       17,830       17,002       16,876       16,517             17,668       15,768  

Equipment lease financing

    6,749       6,610       6,655       6,552       6,272             6,642       5,997  

Total commercial lending

    99,886       97,193       95,859       93,245       90,233             96,566       85,245  

Consumer

    1,032       801       876       1,083       1,092             947       821  

Total loans

    100,918       97,994       96,735       94,328       91,325             97,513       86,066  

Goodwill and other intangible assets

    3,841       3,848       3,775       3,752       3,724             3,804       3,656  

Loans held for sale

    893       975       968       1,236       1,190             1,017       1,222  

Other assets

    9,746       9,750       10,729       12,355       12,842             10,636       12,018  

Total assets

  $ 115,398      $ 112,567     $ 112,207      $ 111,671      $ 109,081           $ 112,970      $ 102,962  

Deposits

                   

Noninterest-bearing demand

  $ 43,482      $ 42,053     $ 39,910      $ 40,572      $ 40,607           $ 41,514      $ 38,337  

Money market

    20,579       18,099       16,932       17,023       16,500             18,168       15,590  

Other

    7,609       6,992       6,914       6,979       6,842             7,124       6,108  

Total deposits

    71,670       67,144       63,756       64,574       63,949             66,806       60,035  

Other liabilities

    8,207       13,932       17,059       18,779       19,107             14,465       17,969  

Total liabilities

  $ 79,877      $ 81,076     $ 80,815      $ 83,353      $ 83,056           $ 81,271      $ 78,004  

PERFORMANCE RATIOS

                   

Return on average assets

    1.96     1.91     2.19     1.96     2.37           2.00     2.26

Noninterest income to total revenue

    31       30       34       29       33             31       28  

Efficiency

    38       37       35       36       35               36       36  

(a) See note (a) on page 15.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 19

 

Corporate & Institutional Banking (Unaudited) (Continued) (a)

 

     Three months ended              Year ended  
Dollars in millions, except as noted    December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
              December 31
2013
    December 31
2012
 

COMMERCIAL MORTGAGE SERVICING PORTFOLIO (in billions)

                     

Beginning of period

   $       298     $       294     $         290     $         282     $       265            $       282     $       267  

Acquisitions/additions

     26       18       18       21       35              83       64  

Repayments/transfers

     (16     (14     (14     (13     (18            (57     (49

End of period

   $ 308     $ 298     $ 294     $ 290     $ 282            $ 308     $ 282  

OTHER INFORMATION

                     

Consolidated revenue from: (b)

                     

Treasury Management (c)

   $ 309     $ 309     $ 313     $ 329     $ 337            $ 1,260     $ 1,380  

Capital Markets (d)

   $ 220     $ 175     $ 196     $ 131     $ 228            $ 722     $ 710  

Commercial mortgage loans held for sale (e)

   $ 37     $ 27     $ 31     $ 38     $ 44            $ 133     $ 104  

Commercial mortgage loan servicing income, net of amortization (f)

     60       60       53       53       57              226       195  

Commercial mortgage servicing rights (impairment)/recovery, net of economic hedge (g)

     (5     18       44       11       16              68       31  

Total commercial mortgage banking activities

   $ 92     $ 105     $ 128     $ 102     $ 117            $ 427     $ 330  

Average Loans (by C&IB business)

                     

Corporate Banking

   $ 51,689     $ 50,844     $ 50,678     $ 49,241     $ 47,522            $ 50,620     $ 44,945  

Real Estate

     24,333       22,622       21,361       20,790       19,861              22,287       18,418  

Business Credit

     12,182       11,726       11,611       11,181       10,893              11,678       10,083  

Equipment Finance

     10,095       10,035       10,034       9,811       9,438              9,994       9,035  

Other

     2,619       2,767       3,051       3,305       3,611              2,934       3,585  

Total average loans

     100,918       97,994       96,735       94,328       91,325              97,513       86,066  

Total loans (h)

   $ 101,773     $ 99,337     $ 97,708     $ 94,843     $ 93,721             

Net carrying amount of commercial mortgage servicing rights (h)

   $ 549     $ 541     $ 525     $ 452     $ 420             

Credit-related statistics:

                     

Nonperforming assets (h)

   $ 804     $ 949     $ 999     $ 1,082     $ 1,181             

Purchased impaired loans (h) (i)

   $ 515     $ 600     $ 708     $ 768     $ 875             

Net charge-offs (recoveries)

   $ 10     $ 56     $ (19   $ 58     $ 34              $ 105     $ 142  
(a)  See note (a) on page 15.
(b)  Represents consolidated PNC amounts. Our 2013 Form 10-K will include additional information regarding these items.
(c)  Includes amounts reported in net interest income and corporate service fees.
(d)  Includes amounts reported in net interest income, corporate service fees and other noninterest income.
(e)  Includes other noninterest income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, origination fees, and gains on sale of loans held for sale and net interest income on loans held for sale.
(f)  Includes net interest income and noninterest income, primarily in corporate services fees, from loan servicing and ancillary services, net of commercial mortgage servicing rights amortization and a direct write-down of commercial mortgage servicing rights of $24 million recognized in the first quarter of 2012. Commercial mortgage servicing rights (impairment)/recovery, net of economic hedge is shown separately.
(g)  Includes amounts reported in corporate service fees.
(h)  Presented as of period end.
(i)  Recorded investment of purchased impaired loans related to acquisitions.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 20

 

Asset Management Group (Unaudited) (a)

 

     Three months ended                Year ended  
Dollars in millions, except as noted    December 31
2013
    September 30
2013
   

June 30

2013

    March 31
2013
    December 31
2012
              December 31
2013
    December 31
2012
 

INCOME STATEMENT

                     

Net interest income

   $ 71      $ 74      $ 70      $ 73      $ 74            $ 288      $ 297  

Noninterest income

     198       188       184       182       173              752       676  

Total revenue

     269       262       254       255       247              1,040       973  

Provision for credit losses (benefit)

     8       (4     1       5       (2            10       11  

Noninterest expense

     204       192       195       183       195              774       732  

Pretax earnings

     57       74       58       67       54              256       230  

Income taxes

     21       27       22       24       20              94       85  

Earnings

   $ 36      $ 47      $ 36      $ 43      $ 34              $ 162      $ 145  

AVERAGE BALANCE SHEET

                     

Loans

                     

Consumer

   $ 5,248      $ 5,107      $ 4,947      $ 4,793      $ 4,671            $ 5,025      $ 4,416  

Commercial and commercial real estate

     1,057       1,049       1,042       1,037       1,021              1,047       1,076  

Residential mortgage

     778       784       772       772       706              776       695  

Total loans

     7,083       6,940       6,761       6,602       6,398              6,848       6,187  

Goodwill and other intangible assets

     281       289       298       306       315              293       329  

Other assets

     230       216       230       223       226              225       219  

Total assets

   $ 7,594      $ 7,445      $ 7,289      $ 7,131      $ 6,939              $ 7,366      $ 6,735  

Deposits

                     

Noninterest-bearing demand

   $ 1,442      $ 1,220      $ 1,249      $ 1,331      $ 1,573            $ 1,311      $ 1,462  

Interest-bearing demand

     3,547       3,329       3,475       3,616       3,009              3,491       2,746  

Money market

     3,760       3,693       3,722       3,841       3,562              3,754       3,553  

Total transaction deposits

     8,749       8,242       8,446       8,788       8,144              8,556       7,761  

CDs/IRAs/savings deposits

     427       431       441       454       461              438       491  

Total deposits

     9,176       8,673       8,887       9,242       8,605              8,994       8,252  

Other liabilities

     61       62       58       60       65              60       68  

Total liabilities

   $ 9,237      $ 8,735      $ 8,945      $ 9,302      $ 8,670              $ 9,054      $ 8,320  

PERFORMANCE RATIOS

                     

Return on average assets

     1.88     2.50     1.98     2.45     1.95            2.20     2.15

Noninterest income to total revenue

     74       72       72       71       70              72       69  

Efficiency

     76       73       77       72       79                74       75  

OTHER INFORMATION

                     

Total nonperforming assets (b)

   $ 75      $ 68      $ 69      $ 65      $ 69             

Purchased impaired loans (b) (c)

   $ 99      $ 100      $ 102      $ 105      $ 109             

Total net charge-offs (recoveries)

   $ 3      $ (7   $ 2      $ 3      $ 2            $ 1      $ 6  

ASSETS UNDER ADMINISTRATION (in billions) (b) (d)

                     

Personal

   $ 111      $ 106      $ 112      $ 112      $ 107             

Institutional

     136       131       121       124       117             

Total

   $ 247      $ 237      $ 233      $ 236      $ 224             

Asset Type

                     

Equity

   $ 142      $ 132      $ 130      $ 130      $ 120             

Fixed income

     70       70       70       70       69             

Liquidity/Other

     35       35       33       36       35             

Total

   $ 247      $ 237      $ 233      $ 236      $ 224             

Discretionary assets under management

                     

Personal

   $ 83      $ 80      $ 78      $ 77      $ 73             

Institutional

     44       42       39       41       39             

Total

   $ 127      $ 122      $ 117      $ 118      $ 112             

Asset Type

                     

Equity

   $ 70      $ 65      $ 62      $ 62      $ 56             

Fixed income

     39       40       39       39       39             

Liquidity/Other

     18       17       16       17       17             

Total

   $ 127      $ 122      $ 117      $ 118      $ 112             

Nondiscretionary assets under administration

                     

Personal

   $ 28      $ 26      $ 34      $ 35      $ 34             

Institutional

     92       89       82       83       78             

Total

   $ 120      $ 115      $ 116      $ 118      $ 112             

Asset Type

                     

Equity

   $ 72      $ 67      $ 68      $ 68      $ 64             

Fixed income

     31       30       31       31       30             

Liquidity/Other

     17       18       17       19       18             

Total

   $ 120      $ 115      $ 116      $ 118      $ 112                           
(a) See note (a) on page 15.
(b) As of period end.
(c) Recorded investment of purchased impaired loans related to acquisitions.
(d) Excludes brokerage account assets.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 21

 

Residential Mortgage Banking (Unaudited) (a)

 

     Three months ended              Year ended  
Dollars in millions, except as noted    December 31
2013
    September 30
2013
   

      June 30

2013

          March 31
2013
    December 31
2012
             

December 31

2013

    December 31
2012
 

INCOME STATEMENT

                     

Net interest income

   $ 49     $ 46     $ 51     $ 48     $ 53            $ 194     $ 209  

Noninterest income

                     

Loan servicing revenue

                     

Servicing fees

     56       40       37       41       48              174       205  

Net MSR hedging gains

     1       57       26       37       2              121       119  

Loan sales revenue

                     

Benefit / (provision) for residential mortgage repurchase obligations

     124       6       (73     (4     (254            53       (761

Loan sales revenue

     98       108       190       172       213              568       747  

Other

     (1     (3     (3     (3     (4            (10     7  

Total noninterest income

     278       208       177       243       5              906       317  

Total revenue

     327       254       228       291       58              1,100       526  

Provision for credit losses (benefit)

     (3     -       4       20       2              21       (5

Noninterest expense

     243       210       192       200       333              845       992  

Pretax earnings (loss)

     87       44       32       71       (277            234       (461

Income taxes (benefit)

     32       16       12       26       (85            86       (153

Earnings (loss)

   $ 55     $ 28     $ 20     $ 45     $ (192          $ 148     $ (308

AVERAGE BALANCE SHEET

                     

Portfolio loans

   $ 2,219     $ 2,334     $ 2,403     $ 2,553     $ 2,559            $ 2,376     $ 2,719  

Loans held for sale

     1,340       2,104       2,106       2,038       1,832              1,896       1,758  

Mortgage servicing rights (MSR)

     1,066       1,068       849       764       620              938       632  

Other assets

     4,458       3,811       5,049       5,448       6,120              4,686       6,420  

Total assets

   $ 9,083     $ 9,317     $ 10,407     $ 10,803     $ 11,131            $ 9,896     $ 11,529  

Deposits

   $ 2,388     $ 2,936     $ 3,260     $ 3,106     $ 3,286            $ 2,920     $ 2,560  

Borrowings and other liabilities

     3,553       2,316       3,216       3,487       3,729              3,142       4,086  

Total liabilities

   $ 5,941     $ 5,252     $ 6,476     $ 6,593     $ 7,015            $ 6,062     $ 6,646  

PERFORMANCE RATIOS

                     

Return on average assets

     2.40     1.19     .77     1.69     (6.86 )%             1.50     (2.67 )% 

Noninterest income to total revenue

     85       82       78       84       9              82       60  

Efficiency

     74       83       84       69       574              77       189  

RESIDENTIAL MORTGAGE SERVICING PORTFOLIO - SERVICED FOR THIRD PARTIES (in billions)

                     

Beginning of period

   $ 115     $ 116     $ 120     $ 119     $ 119            $ 119     $ 118  

Acquisitions

     2       2         6       6              10       21  

Additions

     3       4       4       4       4              15       14  

Repayments/transfers

     (6     (7     (8     (9     (10            (30     (34

End of period

   $ 114     $ 115     $ 116     $ 120     $ 119            $ 114     $ 119  

Servicing portfolio - third-party statistics: (b)

                     

Fixed rate

     93     92     92     92     92           

Adjustable rate/balloon

     7     8     8     8     8           

Weighted-average interest rate

     4.59     4.63     4.72     4.80     4.94           

MSR capitalized value (in billions)

   $ 1.1     $ 1.1     $ 1.0     $ .8     $ .7             

MSR capitalization value (in basis points)

     95       90       84       65       54             

Weighted-average servicing fee (in basis points)

     28       28       28       28       28                         

RESIDENTIAL MORTGAGE REPURCHASE RESERVE

                     

Beginning of period

   $ 471     $ 523     $ 522     $ 614     $ 421            $ 614     $ 83  

(Benefit) / Provision

     (124     (6     73       4       254              (53     761  

RBC Bank (USA) acquisition

                        26  

Agency settlements

     (191                    (191  

Losses - loan repurchases

     (25     (46     (72     (96     (61            (239     (256

End of period

   $ 131     $ 471     $ 523     $ 522     $ 614            $ 131     $ 614  

OTHER INFORMATION

                     

Loan origination volume (in billions)

   $ 2.5     $ 3.7     $ 4.7     $ 4.2     $ 4.4            $ 15.1     $ 15.2  

Loan sale margin percentage

     3.96     2.92     4.04     4.07     4.87            3.76     4.92

Percentage of originations represented by:

                     

Agency and government programs

     100     99     100     100     100            99     100

Purchase volume (c)

     41     38     28     19     20            30     23

Refinance volume

     59     62     72     81     80            70     77

Total nonperforming assets (b)

   $ 189     $ 205     $ 220     $ 236     $ 134             

Purchased impaired loans (b) (d)

   $ (12   $ (2   $ 8     $ 24     $ 38                           
(a) See note (a) on page 15.
(b) As of period end.
(c) Mortgages with borrowers as part of residential real estate purchase transactions.
(d) Recorded investment of purchased impaired loans related to acquisitions.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 22

 

Non-Strategic Assets Portfolio (Unaudited) (a)

 

     Three months ended              Year ended  
Dollars in millions    December 31
2013
    September 30
2013
    June 30
2013
    March 31
2013
    December 31
2012
              December 31
2013
    December 31
2012
 

INCOME STATEMENT

                     

Net interest income

   $ 161     $ 161     $ 164     $ 203     $ 197            $ 689     $ 830  

Noninterest income

     6       20       11       16       21              53       13  

Total revenue

     167       181       175       219       218              742       843  

Provision for credit losses (benefit)

     (59     (43     39       42       52              (21     181  

Noninterest expense

     39       33       41       52       73              163       287  

Pretax earnings

     187       191       95       125       93              600       375  

Income taxes

     69       70       35       46       34              221       138  

Earnings

   $ 118     $ 121     $ 60     $ 79     $ 59              $ 379     $ 237  

AVERAGE BALANCE SHEET

                     

Commercial Lending:

                     

Commercial/Commercial real estate

   $ 246     $ 319     $ 437     $ 537     $ 720            $ 382     $ 894  

Lease financing

     678       686       694       688       684              687       677  

Total commercial lending

     924       1,005       1,131       1,225       1,404              1,069       1,571  

Consumer Lending:

                     

Home equity

     3,764       3,935       4,122       4,158       4,325              3,993       4,584  

Residential real estate

     5,312       5,496       5,709       5,938       6,130              5,613       6,259  

Total consumer lending

     9,076       9,431       9,831       10,096       10,455              9,606       10,843  

Total portfolio loans

     10,000       10,436       10,962       11,321       11,859              10,675       12,414  

Other assets (b)

     (757     (735     (672     (586     (481            (688     (364

Total assets

   $ 9,243     $ 9,701     $ 10,290     $ 10,735     $ 11,378              $ 9,987     $ 12,050  

Deposits and other liabilities

   $ 236     $ 261     $ 275     $ 168     $ 186            $ 236     $ 183  

Total liabilities

   $ 236     $ 261     $ 275     $ 168     $ 186              $ 236     $ 183  

PERFORMANCE RATIOS

                     

Return on average assets

     5.06     4.95     2.34     2.98     2.06            3.79     1.97

Noninterest income to total revenue

     4       11       6       7       10              7       2  

Efficiency

     23       18       23       24       33                22       34  

OTHER INFORMATION

                     

Nonperforming assets (c)

   $ 834     $ 863     $ 935     $ 999     $ 999             

Purchased impaired loans (c) (d)

   $ 4,797     $ 4,966     $ 5,193     $ 5,372     $ 5,547             

Net charge-offs

   $ 9     $ 23     $ 53     $ 87     $ 60            $ 172     $ 299  

Annualized net charge-off ratio

     .36     .87     1.94     3.12     2.01            1.61     2.41

LOANS (c)

                     

Commercial Lending:

                     

Commercial/Commercial real estate

   $ 236     $ 270     $ 388     $ 493     $ 665             

Lease financing

     680       675       696       690       686             

Total commercial lending

     916       945       1,084       1,183       1,351             

Consumer Lending:

                     

Home equity

     3,692       3,844       4,029       4,209       4,237             

Residential real estate

     5,267       5,434       5,659       5,880       6,093             

Total consumer lending

     8,959       9,278       9,688       10,089       10,330             

Total loans

   $ 9,875     $ 10,223     $ 10,772     $ 11,272     $ 11,681                           
(a) See note (a) on page 15.
(b) Other assets were negative in all periods presented due to the allowance for loan and lease losses.
(c) As of period end.
(d) Recorded investment of purchased impaired loans related to acquisitions.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 23

Glossary Of Terms

Accretable net interest (Accretable yield) - The excess of cash flows expected to be collected on a purchased impaired loan over the carrying value of the loan. The accretable net interest is recognized into interest income over the remaining life of the loan using the constant effective yield method.

Adjusted average total assets - Primarily comprised of total average quarterly (or annual) assets plus (less) unrealized losses (gains) on investment securities, less goodwill and certain other intangible assets (net of eligible deferred taxes).

Annualized - Adjusted to reflect a full year of activity.

Assets under management - Assets over which we have sole or shared investment authority for our customers/clients. We do not include these assets on our Consolidated Balance Sheet.

Basel I Tier 1 common capital - Basel I Tier 1 risk-based capital, less preferred equity, less trust preferred capital securities, and less noncontrolling interests.

Basel I Tier 1 common capital ratio - Basel I Tier 1 common capital divided by period-end Basel I risk-weighted assets.

Basel I Leverage ratio - Basel I Tier 1 risk-based capital divided by adjusted average total assets.

Basel I Tier 1 risk-based capital - Total shareholders’ equity, plus trust preferred capital securities, plus certain noncontrolling interests that are held by others, less goodwill and certain other intangible assets (net of eligible deferred taxes relating to taxable and nontaxable combinations), less equity investments in nonfinancial companies, less ineligible servicing assets, and less net unrealized holding losses on available for sale equity securities. Net unrealized holding gains on available for sale equity securities, net unrealized holding gains (losses) on available for sale debt securities and net unrealized holding gains (losses) on cash flow hedge derivatives are excluded from total shareholders’ equity for Basel I Tier 1 risk-based capital purposes.

Basel I Tier 1 risk-based capital ratio - Basel I Tier 1 risk-based capital divided by period-end Basel I risk-weighted assets.

Basel I Total risk-based capital - Basel I Tier 1 risk-based capital plus qualifying subordinated debt and trust preferred securities, other noncontrolling interests not qualified as Basel I Tier 1, eligible gains on available for sale equity securities and the allowance for loan and lease losses, subject to certain limitations.

Basel I Total risk-based capital ratio - Basel I Total risk-based capital divided by period-end Basel I risk-weighted assets.

Basis point - One hundredth of a percentage point.

Carrying value of purchased impaired loans - The net value on the balance sheet which represents the recorded investment less any valuation allowance.

Cash recoveries - Cash recoveries used in the context of purchased impaired loans represent cash payments from customers that exceeded the recorded investment of the designated impaired loan.

Charge-off - Process of removing a loan or portion of a loan from our balance sheet because it is considered uncollectible. We also record a charge-off when a loan is transferred from portfolio holdings to held for sale by reducing the loan carrying amount to the fair value of the loan, if fair value is less than carrying amount.

Commercial mortgage banking activities - Includes commercial mortgage servicing, originating commercial mortgages for sale and related hedging activities. Commercial mortgage banking activities revenue includes revenue derived from commercial mortgage servicing (including net interest income and noninterest income from loan servicing and ancillary services, net of commercial mortgage servicing rights amortization, and commercial mortgage servicing rights valuations net of economic hedge), and revenue derived from commercial mortgage loans intended for sale and related hedges (including loan origination fees, net interest income, valuation adjustments and gains or losses on sales).

Common shareholders’ equity to total assets - Common shareholders’ equity divided by total assets. Common shareholders’ equity equals total shareholders’ equity less the liquidation value of preferred stock.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 24

 

Core net interest income - Core net interest income is total net interest income less purchase accounting accretion.

Credit spread - The difference in yield between debt issues of similar maturity. The excess of yield attributable to credit spread is often used as a measure of relative creditworthiness, with a reduction in the credit spread reflecting an improvement in the borrower’s perceived creditworthiness.

Derivatives - Financial contracts whose value is derived from changes in publicly traded securities, interest rates, currency exchange rates or market indices. Derivatives cover a wide assortment of financial contracts, including but not limited to forward contracts, futures, options and swaps.

Duration of equity - An estimate of the rate sensitivity of our economic value of equity. A negative duration of equity is associated with asset sensitivity (i.e., positioned for rising interest rates), while a positive value implies liability sensitivity (i.e., positioned for declining interest rates). For example, if the duration of equity is -1.5 years, the economic value of equity increases by 1.5% for each 100 basis point increase in interest rates.

Earning assets - Assets that generate income, which include: federal funds sold; resale agreements; trading securities; interest-earning deposits with banks; loans held for sale; loans; investment securities; and certain other assets.

Effective duration - A measurement, expressed in years, that, when multiplied by a change in interest rates, would approximate the percentage change in value of on- and off- balance sheet positions.

Efficiency - Noninterest expense divided by total revenue.

Fair value - The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

FICO score - A credit bureau-based industry standard score created by Fair Isaac Co. which predicts the likelihood of borrower default. We use FICO scores both in underwriting and assessing credit risk in our consumer lending portfolio. Lower FICO scores indicate likely higher risk of default, while higher FICO scores indicate likely lower risk of default. FICO scores are updated on a periodic basis.

Funds transfer pricing - A management accounting methodology designed to recognize the net interest income effects of sources and uses of funds provided by the assets and liabilities of a business segment. We assign these balances LIBOR-based funding rates at origination that represent the interest cost for us to raise/invest funds with similar maturity and repricing structures.

Futures and forward contracts - Contracts in which the buyer agrees to purchase and the seller agrees to deliver a specific financial instrument at a predetermined price or yield. May be settled either in cash or by delivery of the underlying financial instrument.

GAAP - Accounting principles generally accepted in the United States of America.

Impaired loans - Loans are determined to be impaired when, based on current information and events, it is probable that all contractually required payments will not be collected. Impaired loans include commercial nonperforming loans and consumer and commercial TDRs, regardless of nonperforming status. Excluded from impaired loans are nonperforming leases, loans held for sale, loans accounted for under the fair value option, smaller balance homogenous type loans and purchased impaired loans.

Investment securities - Collectively, securities available for sale and securities held to maturity.

LIBOR - Acronym for London InterBank Offered Rate. LIBOR is the average interest rate charged when banks in the London wholesale money market (or interbank market) borrow unsecured funds from each other. LIBOR rates are used as a benchmark for interest rates on a global basis. PNC’s product set includes loans priced using LIBOR as a benchmark.

Loan-to-value ratio (LTV) - A calculation of a loan’s collateral coverage that is used both in underwriting and assessing credit risk in our lending portfolio. LTV is the sum total of loan obligations secured by collateral divided by the market value of that same collateral. Market values of the collateral are based on an independent valuation of the collateral. For example, a LTV of less than 90% is better secured and has less credit risk than a LTV of greater than or equal to 90%.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 25

 

Loss given default (LGD) - An estimate of loss, net of recovery based on collateral type, collateral value, loan exposure, or the guarantor(s) quality and guaranty type (full or partial). Each loan has its own LGD. The LGD risk rating measures the percentage of exposure of a specific credit obligation that we expect to lose if default occurs. LGD is net of recovery, through either liquidation of collateral or deficiency judgments rendered from foreclosure or bankruptcy proceedings.

Net interest margin - Annualized taxable-equivalent net interest income divided by average earning assets.

Nonaccretable difference - Contractually required payments receivable on a purchased impaired loan in excess of the cash flows expected to be collected.

Nonaccrual loans - Loans for which we do not accrue interest income. Nonaccrual loans include nonperforming loans, in addition to loans accounted for under fair value option and loans accounted for as held for sale for which full collection of contractual principal and/or interest is not probable.

Nondiscretionary assets under administration - Assets we hold for our customers/clients in a nondiscretionary, custodial capacity. We do not include these assets on our Consolidated Balance Sheet.

Nonperforming assets - Nonperforming assets include nonperforming loans and OREO and foreclosed assets, but exclude certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest, loans held for sale, loans accounted for under the fair value option and purchased impaired loans. We do not accrue interest income on assets classified as nonperforming.

Nonperforming loans - Loans accounted for at amortized cost for which we do not accrue interest income. Nonperforming loans include loans to commercial, commercial real estate, equipment lease financing, home equity, residential real estate, credit card and other consumer customers as well as TDRs which have not returned to performing status. Nonperforming loans exclude certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest, loans held for sale, loans accounted for under the fair value option and purchased impaired loans. Nonperforming loans exclude purchased impaired loans as we are currently accreting interest income over the expected life of the loans.

Notional amount - A number of currency units, shares, or other units specified in a derivative contract.

Operating leverage - The period to period dollar or percentage change in total revenue (GAAP basis) less the dollar or percentage change in noninterest expense. A positive variance indicates that revenue growth exceeded expense growth (i.e., positive operating leverage) while a negative variance implies expense growth exceeded revenue growth (i.e., negative operating leverage).

Options - Contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to either purchase or sell the associated financial instrument at a set price during a specified period or at a specified date in the future.

Other real estate owned (OREO) and foreclosed assets - Assets taken in settlement of troubled loans primarily through deed-in-lieu of foreclosure or foreclosure. Foreclosed assets include real and personal property, equity interests in corporations, partnerships, and limited liability companies.

Other-than-temporary impairment (OTTI) - When the fair value of a security is less than its amortized cost basis, an assessment is performed to determine whether the impairment is other-than-temporary. If we intend to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, an other-than-temporary impairment is considered to have occurred. In such cases, an other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Further, if we do not expect to recover the entire amortized cost of the security, an other-than-temporary impairment is considered to have occurred. However for debt securities, if we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before its recovery, the other-than-temporary loss is separated into (a) the amount representing the credit loss, and (b) the amount related to all other factors. The other-than-temporary impairment related to credit losses is recognized in earnings while the amount related to all other factors is recognized in other comprehensive income, net of tax.

Parent company liquidity coverage - Liquid assets divided by funding obligations within a two year period.

Pretax earnings - Income before income taxes and noncontrolling interests.

Pretax, pre-provision earnings - Total revenue less noninterest expense.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 26

 

Primary client relationship - A corporate banking client relationship with annual revenue generation of $10,000 to $50,000 or more, and for Asset Management Group, a client relationship with annual revenue generation of $10,000 or more.

Probability of default (PD) - An internal risk rating that indicates the likelihood that a credit obligor will enter into default status.

Purchase accounting accretion - Accretion of the discounts and premiums on acquired assets and liabilities. The purchase accounting accretion is recognized in net interest income over the weighted-average life of the financial instruments using the constant effective yield method. Accretion for purchased impaired loans includes any cash recoveries received in excess of the recorded investment.

Purchased impaired loans - Acquired loans determined to be credit impaired under FASB ASC 310-30 (AICPA SOP 03-3). Loans are determined to be impaired if there is evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected.

Recorded investment (purchased impaired loans) - The initial investment of a purchased impaired loan plus interest accretion and less any cash payments and writedowns to date. The recorded investment excludes any valuation allowance which is included in our allowance for loan and lease losses.

Recovery - Cash proceeds received on a loan that we had previously charged off. We credit the amount received to the allowance for loan and lease losses.

Residential development loans - Project-specific loans to commercial customers for the construction or development of residential real estate including land, single family homes, condominiums and other residential properties.

Residential mortgage servicing rights hedge gains/(losses), net - We have elected to measure acquired or originated residential mortgage servicing rights (MSRs) at fair value under GAAP. We employ a risk management strategy designed to protect the economic value of MSRs from changes in interest rates. This strategy utilizes securities and a portfolio of derivative instruments to hedge changes in the fair value of MSRs arising from changes in interest rates. These financial instruments are expected to have changes in fair value which are negatively correlated to the change in fair value of the MSR portfolio. Net MSR hedge gains/(losses) represent the change in the fair value of MSRs, exclusive of changes due to time decay and payoffs, combined with the change in the fair value of the associated securities and derivative instruments.

Return on average assets - Annualized net income divided by average assets.

Return on average capital - Annualized net income divided by average capital.

Return on average common shareholders’ equity - Annualized net income attributable to common shareholders divided by average common shareholders’ equity.

Risk-weighted assets - Computed by the assignment of specific risk-weights (as defined by the Board of Governors of the Federal Reserve System) to assets and off-balance sheet instruments.

Securitization - The process of legally transforming financial assets into securities.

Servicing rights - An intangible asset or liability created by an obligation to service assets for others. Typical servicing rights include the right to receive a fee for collecting and forwarding payments on loans and related taxes and insurance premiums held in escrow.

Taxable-equivalent interest - The interest income earned on certain 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 yields and margins for all interest-earning assets, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on other taxable investments. This adjustment is not permitted under GAAP on the Consolidated Income Statement.

Total equity - Total shareholders’ equity plus noncontrolling interests.

Transaction deposits - The sum of interest-bearing money market deposits, interest-bearing demand deposits, and noninterest-bearing deposits.


THE PNC FINANCIAL SERVICES GROUP, INC.    Page 27

 

Troubled debt restructuring (TDR) - A loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties.

Watchlist - A list of criticized loans, credit exposure or other assets compiled for internal monitoring purposes. We define criticized exposure for this purpose as exposure with an internal risk rating of other assets especially mentioned, substandard, doubtful or loss.

Yield curve - A graph showing the relationship between the yields on financial instruments or market indices of the same credit quality with different maturities. For example, a “normal” or “positive” yield curve exists when long-term bonds have higher yields than short-term bonds. A “flat” yield curve exists when yields are the same for short-term and long-term bonds. A “steep” yield curve exists when yields on long-term bonds are significantly higher than on short-term bonds. An “inverted” or “negative” yield curve exists when short-term bonds have higher yields than long-term bonds.