UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



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

For the quarterly period ended March 31, ~~2018~~2019



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

For the transition period from to

Commission file number 001-09718

The PNC Financial Services Group, Inc.

(Exact name of registrant as specified in its charter)



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

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

(Address of principal executive offices, including zip code)

(888) 762-2265

(Registrant’s telephone number including area code)

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

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

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

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

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

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

Yes ☐ No ☒

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



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

As of April ~~20, 2018,~~19, 2019, there were ~~469,498,755~~451,437,916 shares of the registrant’s common stock ($5 par value) outstanding.

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to First Quarter ~~2018~~2019 Form 10-Q




	Pages
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Income Statement	4238
Consolidated Statement of Comprehensive Income	4339
Consolidated Balance Sheet	4440
Consolidated Statement of Cash Flows	4541
Notes To Consolidated Financial Statements (Unaudited)
Note 1 Accounting Policies	4743
Note 2 Loan Sale and Servicing Activities and Variable Interest Entities	5144
Note 3 Asset Quality	5346
Note 4 Allowance for Loan and Lease Losses	5951
Note 5 Investment Securities	6152
Note 6 Fair Value	6455
Note 7 Goodwill and Mortgage Servicing Rights	7362
Note 8 Employee Benefit Plans	7563
Note 9 Financial Derivatives	7664
Note 10 Earnings Per Share	8169
Note 11 Total Equity and Other Comprehensive Income	8270
Note 12 Legal Proceedings	8472
Note 13 Commitments	8673
Note 14 Segment Reporting	8774
Note 15 Fee-based Revenue from Contracts with Customers	8976
Note 16 Leases	79
Note 17 Subsequent Events	80
Statistical Information (Unaudited)
Average Consolidated Balance Sheet And Net Interest Analysis	9181
Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP)	93
~~Transitional Basel III and Fully Phased-In Basel III Common Equity Tier 1 Capital Ratios~~ ~~(Non-GAAP) – March 31, 2017~~	9383
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Financial Review	1
Consolidated Financial Highlights	1
Executive Summary	3
Consolidated Income Statement Review	5
Consolidated Balance Sheet Review	87
Business Segments Review	1210
Risk Management	2018
Recent Regulatory Developments	3733
Critical Accounting Estimates and Judgments	3834
Off-Balance Sheet Arrangements and Variable Interest Entities	4035
Internal Controls and Disclosure Controls and Procedures	4036
Glossary of Terms	4036
Cautionary Statement Regarding Forward-Looking Information	4036
Item 3. Quantitative and Qualitative Disclosures about Market Risk.	~~20-37, 64-73~~18-33, 55-61 and ~~76-81~~64-69
Item 4. Controls and Procedures.	4036
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.	9383
Item 1A. Risk Factors.	9383
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	9483
Item 6. Exhibits.	9483
Exhibit Index	9483
Corporate Information	9484
Signature	9685

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to First Quarter ~~2018~~2019 Form 10-Q (continued)



MD&A TABLE REFERENCE	MD&A TABLE REFERENCE		MD&A TABLE REFERENCE
Table	Description	Page	Description	Page
1	Consolidated Financial Highlights	1	Consolidated Financial Highlights	1
2	Summarized Average Balances and Net Interest Income	5	Summarized Average Balances and Net Interest Income	5
3	Noninterest Income	6	Noninterest Income	6
4	Noninterest Expense	7	Noninterest Expense	7
5	Summarized Balance Sheet Data	8	Summarized Balance Sheet Data	7
6	Loans	8	Loans	8
7	Investment Securities	9	Investment Securities	9
8	Weighted-Average Expected Maturities of Mortgage and Other Asset-Backed Debt Securities	10	Weighted-Average Expected Maturities of Mortgage and Asset-Backed Securities	9
9	Details of Funding Sources	11	Details of Funding Sources	10
10	Retail Banking Table	12	Retail Banking Table	11
11	Corporate & Institutional Banking Table	15	Corporate & Institutional Banking Table	14
12	Asset Management Group Table	18	Asset Management Group Table	17
13	BlackRock Table	19	BlackRock Table	18
14	Details of Loans	20	Details of Loans	19
15	Commercial Loans by Industry	21	Commercial Loans by Industry	19
16	Commercial Real Estate Loans by Geography	21	Commercial Real Estate Loans by Geography and Property Type	20
17	Home Equity Loans by Geography and by Lien Priority	22	Home Equity Loans by Geography and by Lien Priority	21
18	Residential Real Estate Loans by Geography	23	Residential Real Estate Loans by Geography	21
19	Nonperforming Assets by Type	24	Nonperforming Assets by Type	22
20	Change in Nonperforming Assets	24	Change in Nonperforming Assets	23
21	Accruing Loans Past Due	25	Accruing Loans Past Due	23
22	Consumer Real Estate Related Loan Modifications	25	Summary of Troubled Debt Restructurings	24
23	Summary of Troubled Debt Restructurings	26	Allowance for Loan and Lease Losses	25
24	Allowance for Loan and Lease Losses	27	Loan Charge-Offs and Recoveries	26
25	Loan Charge-Offs and Recoveries	28	Senior and Subordinated Debt	27
26	Senior and Subordinated Debt	29	PNC Bank Notes Issued	27
27	PNC Bank Notes Issued During First Quarter 2018	29	Credit Ratings for PNC and PNC Bank	28
28	Credit Ratings as of March 31, 2018 for PNC and PNC Bank	31	Basel III Capital	29
29	Basel III Capital	32	Interest Sensitivity Analysis	31
30	Interest Sensitivity Analysis	34	Net Interest Income Sensitivity to Alternative Rate Scenarios	31
31	Net Interest Income Sensitivity to Alternative Rate Scenarios (First Quarter 2018)	35	Alternate Interest Rate Scenarios: One Year Forward	32
32	Alternate Interest Rate Scenarios: One Year Forward	35	Equity Investments Summary	32
33	Equity Investments Summary	36
34	Fair Value Measurements – Summary	38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE
Table	Description	Page
35	Cash Flows Associated with Loan Sale and Servicing Activities	51
36	Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others	52
37	Non-Consolidated VIEs	52
38	Analysis of Loan Portfolio	54
39	Nonperforming Assets	55
40	Commercial Lending Asset Quality Indicators	56
41	Asset Quality Indicators for Home Equity and Residential Real Estate Loans – Excluding Purchased Impaired and Government Insured or Guaranteed Loans	57
42	Credit Card and Other Consumer Loan Classes Asset Quality Indicators	58
43	Financial Impact and TDRs by Concession Type	58
44	Impaired Loans	59
45	Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data	60
46	Investment Securities Summary	61
47	Gross Unrealized Loss and Fair Value of Debt Securities	62

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to First Quarter ~~2018~~2019 Form 10-Q (continued)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE
Table	Description	Page	Description	Page
33			Cash Flows Associated with Loan Sale and Servicing Activities	45
34			Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others	45
35			Non-Consolidated VIEs	46
36			Analysis of Loan Portfolio	47
37			Nonperforming Assets	48
38			Commercial Lending Asset Quality Indicators	48
39			Asset Quality Indicators for Home Equity and Residential Real Estate Loans	49
40			Asset Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loans	49
41			Financial Impact and TDRs by Concession Type	50
42			Impaired Loans	50
43			Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data	51
44			Investment Securities Summary	52
45			Gross Unrealized Loss and Fair Value of Securities	53
46			Gains (Losses) on Sales of Securities Available for Sale	53
47			Contractual Maturity of Securities	54
48	Gains (Losses) on Sales of Securities Available for Sale	63	Fair Value of Securities Pledged and Accepted as Collateral	54
49	Contractual Maturity of Debt Securities	63	Fair Value Measurements – Recurring Basis Summary	55
50	Fair Value of Securities Pledged and Accepted as Collateral	64	Reconciliation of Level 3 Assets and Liabilities	56
51	Fair Value Measurements – Recurring Basis Summary	65	Fair Value Measurements – Recurring Quantitative Information	58
52	Reconciliation of Level 3 Assets and Liabilities	66	Fair Value Measurements – Nonrecurring	59
53	Fair Value Measurements – Recurring Quantitative Information	68	Fair Value Option – Fair Value and Principal Balances	60
54	Fair Value Measurements – Nonrecurring	70	Fair Value Option – Changes in Fair Value	60
55	Fair Value Measurements – Nonrecurring Quantitative Information	70	Additional Fair Value Information Related to Other Financial Instruments	61
56	Fair Value Option – Fair Value and Principal Balances	71	Mortgage Servicing Rights	62
57	Fair Value Option – Changes in Fair Value	72	Commercial Mortgage Servicing Rights – Key Valuation Assumptions	63
58	Additional Fair Value Information Related to Other Financial Instruments	72	Residential Mortgage Servicing Rights – Key Valuation Assumptions	63
59	Mortgage Servicing Rights	74	Components of Net Periodic Benefit Cost	63
60	Commercial Mortgage Loan Servicing Rights – Key Valuation Assumptions	74	Total Gross Derivatives	65
61	Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions	75	Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement	66
62	Components of Net Periodic Benefit Cost	75	Hedged Items - Fair Value Hedges	67
63	Total Gross Derivatives	76	Gains (Losses) on Derivatives Not Designated for Hedging under GAAP	67
64	Gains(Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement	78	Derivative Assets and Liabilities Offsetting	68
65	Hedged Items - Fair Value Hedges	78	Basic and Diluted Earnings Per Common Share	69
66	Gains (Losses) on Derivatives Not Designated for Hedging under GAAP	79	Rollforward of Total Equity	70
67	Derivative Assets and Liabilities Offsetting	80	Dividends Per Share	70
68	Basic and Diluted Earnings Per Common Share	81	Other Comprehensive Income (Loss)	71
69	Rollforward of Total Equity	82	Accumulated Other Comprehensive Income (Loss) Components	72
70	Other Comprehensive Income	83	Commitments to Extend Credit and Other Commitments	73
71	Accumulated Other Comprehensive Income (Loss) Components	84	Results of Businesses	75
72	Commitments to Extend Credit and Other Commitments	86	BlackRock, Inc. Summarized Financial Data	76
73	Results of Businesses	88	Retail Banking Noninterest Income Disaggregation	77
74	Retail Banking Noninterest Income Disaggregation	89	Corporate & Institutional Banking Noninterest Income Disaggregation	78
75	Corporate & Institutional Banking Noninterest Income Disaggregation	90	Asset Management Group Noninterest Income Disaggregation	78
76	Asset Management Group Noninterest Income Disaggregation	90	Leases	79
77			Maturity of Lease Liabilities	79
78			Lease Term and Discount Rates	80

FINANCIAL REVIEW

THE PNC FINANCIAL SERVICES GROUP, INC.

This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Quarterly Report on Form 10-Q (the Report or Form 10-Q) and with Items 6, 7, 8 and 9A of our ~~2017~~2018 Annual Report on Form 10-K ~~(2017~~(2018 Form 10-K). We have reclassified certain prior period amounts to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. For information regarding certain business, regulatory and legal risks, see the following: the Risk Management section of this Financial Review and of Item 7 in our ~~2017~~2018 Form 10-K; Item 1A Risk Factors included in our ~~2017~~2018 Form 10-K; and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements included in Item 1 of this Report and Item 8 of our ~~2017~~2018 Form 10-K. Also, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates And Judgments section in this Financial Review and in our ~~2017~~2018 Form 10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 14 Segment Reporting in the Notes To Consolidated Financial Statements included in this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a generally accepted accounting principles (GAAP) basis. In this Report, “PNC”, “we” or “us” refers to The PNC Financial Services Group, Inc. and its subsidiaries on a consolidated basis (except when referring to PNC as a public company, its common stock or other securities issued by PNC, which just refer to The PNC Financial Services Group, Inc.). References to The PNC Financial Services Group, Inc. or to any of its subsidiaries are specifically made where applicable.

Table 1: Consolidated Financial Highlights


Dollars in millions, except per share data Unaudited	Three months ended March 31						Three months ended March 31
	2018			2017			2019			2018
Financial Results (a)
Revenue
Net interest income	$	2,361		$	2,160		$	2,475		$	2,361
Noninterest income	1,750			1,724			1,811			1,750
Total revenue	4,111			3,884			4,286			4,111
Provision for credit losses	92			88			189			92
Noninterest expense	2,527			2,402			2,578			2,527
Income before income taxes and noncontrolling interests	$	1,492		$	1,394		$	1,519		$	1,492
Net income	$	1,239		$	1,074		$	1,271		$	1,239
Less:
Net income attributable to noncontrolling interests	10			17			10			10
Preferred stock dividends	63			63			63			63
Preferred stock discount accretion and redemptions	1			21			1			1
Net income attributable to common shareholders	1,165			973			1,197			1,165
Less:
Dividends and undistributed earnings allocated to nonvested restricted shares	5			6
Dividends and undistributed earnings allocated to participating securities							5			5
Impact of BlackRock earnings per share dilution	2			4			3			2
Net income attributable to diluted common shares	$	1,158		$	963		$	1,189		$	1,158
Diluted earnings per common share	$	2.43		$	1.96		$	2.61		$	2.43
Cash dividends declared per common share	$	.75		$	.55		$	.95		$	.75
Effective tax rate (b)	17.0		%	23.0		%	16.3		%	17.0		%
Performance Ratios
Net interest margin (c)	2.91		%	2.77		%	2.98		%	2.91		%
Noninterest income to total revenue	43		%	44		%	42		%	43		%
Efficiency	61		%	62		%	60		%	61		%
Return on:
Average common shareholders’ equity	11.04		%	9.50		%	11.13		%	11.04		%
Average assets	1.34		%	1.19		%	1.34		%	1.34		%


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


(b)	The effective income tax rates are generally lower than the statutory rate due to the relationship of pretax income to tax credits and earnings that are not subject to tax. ~~The first quarter 2018 results reflected the change in the statutory federal income tax rate from 35% to 21%, effective as of January 1, 2018, as a result of the new federal tax legislation.~~

(c)

Calculated as annualized taxable-equivalent net interest income divided by average ~~earning~~interest-earning assets. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. For additional information, see Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.

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

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


Unaudited	March 31 2018			December 31 2017			March 31 2017			March 31 2019			December 31 2018			March 31 2018
Balance Sheet Data (dollars in millions, except per share data)
Assets	$	379,161		$	380,768		$	370,944		$	392,837		$	382,315		$	379,161
Loans	$	221,614		$	220,458		$	212,826		$	232,293		$	226,245		$	221,614
Allowance for loan and lease losses	$	2,604		$	2,611		$	2,561		$	2,692		$	2,629		$	2,604
Interest-earning deposits with banks (b)	$	28,821		$	28,595		$	27,877		$	15,261		$	10,893		$	28,821
Investment securities	$	74,562		$	76,131		$	76,432		$	83,869		$	82,701		$	74,562
Loans held for sale	$	965		$	2,655		$	1,414		$	686		$	994		$	965
Equity investments (c)	$	12,008		$	11,392		$	10,900		$	12,567		$	12,894		$	12,008
Mortgage servicing rights	$	1,979		$	1,832		$	1,867		$	1,812		$	1,983		$	1,979
Goodwill	$	9,218		$	9,173		$	9,103		$	9,218		$	9,218		$	9,218
Other assets	$	27,949		$	27,894		$	28,083		$	34,761		$	34,408		$	27,949
Noninterest-bearing deposits	$	78,303		$	79,864		$	79,246		$	71,606		$	73,960		$	78,303
Interest-bearing deposits	$	186,401		$	185,189		$	181,464		$	199,615		$	193,879		$	186,401
Total deposits	$	264,704		$	265,053		$	260,710		$	271,221		$	267,839		$	264,704
Borrowed funds	$	58,039		$	59,088		$	55,062		$	59,860		$	57,419		$	58,039
Total shareholders’ equity	$	46,969		$	47,513		$	45,754		$	48,536		$	47,728		$	46,969
Common shareholders’ equity	$	42,983		$	43,530		$	41,774		$	44,546		$	43,742		$	42,983
Accumulated other comprehensive income (loss)	$	(699	)	$	(148	)	$	(279	)	$	(5	)	$	(725	)	$	(699	)
Book value per common share	$	91.39		$	91.94		$	86.14		$	98.47		$	95.72		$	91.39
Period-end common shares outstanding (in millions)	470			473			485			452			457			470
Loans to deposits	84		%	83		%	82		%	86		%	84		%	84		%
Common shareholders’ equity to total assets										11.3		%	11.4		%	11.3		%
Client Assets (in billions)
Discretionary client assets under management	$	148		$	151		$	141		$	158		$	148		$	148
Nondiscretionary client assets under administration	129			131			123			130			124			129
Total client assets under administration	277			282			264			288			272			277
Brokerage account client assets	49			49			46			51			47			49
Total client assets	$	326		$	331		$	310		$	339		$	319		$	326
Capital Ratios
Basel III (d) (e) (f)
Basel III Capital Ratios (d)
Common equity Tier 1	9.6		%	N/A			N/A			9.8		%	9.6		%	9.6		%
Tier 1 risk-based	10.8		%	N/A			N/A			10.9		%	10.8		%	10.8		%
Total capital risk-based(e)	12.8		%	N/A			N/A			13.0		%	13.0		%	12.8		%
Leverage	9.4		%	N/A			N/A			9.6		%	9.4		%	9.4		%
Supplementary leverage	7.9		%	N/A			N/A			8.0		%	7.8		%	7.9		%
Fully Phased-In Basel III (Non-GAAP) (f) (g)
Common equity Tier 1	N/A			9.8		%	10.0		%
2017 Transitional Basel III (d) (f)
Common equity Tier 1	N/A			10.4		%	10.5		%
Tier 1 risk-based	N/A			11.6		%	11.8		%
Total capital risk-based	N/A			13.7		%	14.1		%
Leverage	N/A			9.9		%	9.9		%
Common shareholders’ equity to total assets	11.3		%	11.4		%	11.3		%
Asset Quality
Nonperforming loans to total loans	.83		%	.85		%	.94		%	.71		%	.75		%	.83		%
Nonperforming assets to total loans, OREO, foreclosed and other assets	.90		%	.92		%	1.04		%
Nonperforming assets to total loans, OREO and foreclosed assets										.77		%	.80		%	.90		%
Nonperforming assets to total assets	.53		%	.53		%	.60		%	.45		%	.47		%	.53		%
Net charge-offs to average loans (for the three months ended) (annualized)	.21		%	.22		%	.23		%	.24		%	.19		%	.21		%
Allowance for loan and lease losses to total loans	1.18		%	1.18		%	1.20		%	1.16		%	1.16		%	1.18		%
Allowance for loan and lease losses to total nonperforming loans	141		%	140		%	128		%	163		%	155		%	141		%
Accruing loans past due 90 days or more (in millions)	$	628		$	737		$	699		$	590		$	629		$	628


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


(b)	Amounts include balances held with the Federal Reserve Bank of Cleveland (Federal Reserve Bank) of ~~$28.6~~$15.0 billion, ~~$28.3~~$10.5 billion and ~~$27.5~~$28.6 billion as of March 31, ~~2018,~~2019, December 31, ~~2017~~2018 and March 31, ~~2017,~~2018, respectively.

(c)

Amounts include our equity interest in BlackRock. The amount at March 31, 2018 includes $.6 billion of trading and available for sale securities that were reclassified to Equity investments on January 1, 2018 in accordance with the adoption of Accounting Standard Update 2016-01. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in the Notes To Consolidated Financial Statements of this Report for additional detail on this adoption.


(d)	All ratios are calculated ~~using the regulatory capital methodology applicable to PNC during each period presented and calculated~~ based on the standardized approach.


~~(e)~~	The Basel III ratios for common equity Tier 1 capital, Tier 1 risk-based capital, Leverage and Supplementary leverage reflect the full phase-in of all Basel III adjustments to these metrics applicable to PNC. The Basel III total risk-based capital ratio includes $80 million of nonqualifying trust preferred capital securities that are subject to a phase-out period that runs through 2022.

~~(f)~~

See Basel III Capital discussion in the Capital Management portion of the Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business and Item 1A Risk Factors in our ~~2017~~2018 Form 10-K. See also the Transitional Basel III and Fully Phased-In Basel III Common Equity Tier 1 Capital Ratios (Non-GAAP) – March 31, 2017 table in the Statistical Information section of this Report for a reconciliation of the March 31, 2017 ratios.


~~(g)~~(e)	~~2017 Fully Phased-in~~The 2019 and 2018 Basel III ~~results~~Total risk-based capital ratios include nonqualifying trust preferred capital securities of $60 million and $80 million, respectively, that are ~~presented as Pro forma estimates.~~subject to a phase-out period that runs through 2021.

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

EXECUTIVE SUMMARY

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

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

Key Strategic Goals

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

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

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

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

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

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

Our capital priorities are to support client growth and business investment, maintain appropriate capital in light of economic conditions, ~~and~~ the Basel III framework, and other regulatory expectations, and return excess capital to shareholders, in accordance with the currently effective capital plan included in our Comprehensive Capital Analysis and Review (CCAR) submission to the Board of Governors of the Federal Reserve System (Federal Reserve).shareholders. For more detail, see the Capital Highlights portion of this Executive Summary and the Liquidity and Capital Management portion of the Risk Management section of this Financial Review and the Supervision and Regulation section in Item 1 Business of our ~~2017~~2018 Form 10-K.

Income Statement Highlights

Net income for the first quarter of ~~2018~~2019 increased ~~15%~~3% to $1.3 billion, or $2.61 per diluted common share, compared to $1.2 billion, or $2.43 per diluted common share, ~~compared to $1.1 billion, or $1.96 per diluted common share,~~ for the first quarter of ~~2017.~~2018.

Total revenue increased ~~$227~~$175 million, or 6%4%, to ~~$4.1~~$4.3 billion.

Net interest income increased ~~$201~~$114 million, or 9%5%, to ~~$2.4~~$2.5 billion.

Net interest margin increased to ~~2.91%~~2.98% compared to ~~2.77%~~2.91% for the first quarter of ~~2017.~~2018.

Noninterest income increased ~~$26~~$61 million, or 2%3%, to $1.8 billion.

Provision for credit losses was ~~$92~~$189 million compared to ~~$88~~$92 million for the first quarter of ~~2017.~~2018.

Noninterest expense increased ~~$125~~$51 million, or 5%2%, to ~~$2.5~~$2.6 billion.

~~Income tax expense decreased to $253 million compared to $320 million for the first quarter of 2017.~~

~~Federal tax reform legislation, the Tax Cuts and Jobs Act, lowered the statutory federal income tax rate for corporations to 21% from 35% effective January 1, 2018.~~

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

Balance Sheet Highlights

Our balance sheet was strong and well positioned at March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. In comparison to December 31, ~~2017:~~2018:

Total assets increased $10.5 billion to $392.8 billion.

Total loans increased $6.0 billion, or 3%, to $232.3 billion.

Total commercial lending grew $6.1 billion, or 4%.

Total consumer lending decreased $.1 billion.

Investment securities increased $1.2 billion, or 1%, to ~~$221.6~~$83.9 billion.

~~Total commercial lending grew $1.5~~Interest-earning deposits with banks, primarily with the Federal Reserve Bank, increased $4.4 billion, or ~~1%.~~

~~Total consumer lending decreased $.3~~40%, to $15.3 billion.

Total deposits ~~decreased $.3 billion to $264.7 billion.~~

~~Investment securities decreased $1.6~~increased $3.4 billion, or 2%1%, to ~~$74.6~~$271.2 billion.

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

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

Credit Quality Highlights

Overall credit quality remained ~~stable.~~strong.

At March 31, ~~2018~~2019 compared to December 31, ~~2017:~~2018:

Nonperforming assets decreased ~~$31~~$23 million, or ~~2%, to $2.0 billion.~~1%.

Overall loan delinquencies decreased ~~$131~~$49 million, or ~~9%.~~3%, to $1.4 billion.

Net charge-offs ~~of $113~~were $136 million in the first quarter of ~~2018 decreased 4%~~2019 compared to ~~net charge-offs of $118~~$113 million for the first quarter of ~~2017.~~2018.

The allowance for loan and lease losses to total loans of 1.16% at March 31, 2019 was unchanged compared to December 31, 2018.

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

Capital Highlights

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

The Basel III common equity Tier 1 capital ratio ~~which includes the full phase-in of all Basel III adjustments and became effective for PNC as of January 1, 2018,~~ was ~~9.6%~~9.8% at March 31, ~~2018,~~2019, compared with ~~9.8%~~9.6% at December 31, ~~2017, calculated on the same basis.~~2018.

In the first quarter of ~~2018,~~2019, we returned ~~$1.1~~$1.2 billion of capital to shareholders through repurchases of ~~4.8~~5.9 million common shares for ~~$.7 billion~~$725 million and dividends on common shares of ~~$.4 billion.~~$438 million.

Common shareholders' equity increased to $44.5 billion at March 31, 2019 compared to $43.7 billion at December 31, 2018.

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our ~~2018~~2019 liquidity and capital actions as well as our capital ratios.

Our ability to take certain capital actions, including plans to pay or increase common stock dividends or to repurchase shares under current or future programs, is subject to the results of the supervisory assessment of capital adequacy undertaken by the Board of Governors of the Federal Reserve System (Federal Reserve) as part of the ~~CCAR~~Comprehensive Capital Analysis and Review (CCAR) process. For additional information, see the Supervision and Regulation section in Item 1 Business of our ~~2017~~2018 Form 10-K.

Business Outlook

Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our ~~current~~ view ~~that~~ that:

U.S. economic growth ~~will accelerate somewhat in 2018, in light of stimulus from corporate and personal income tax cuts passed in late 2017 that are~~has accelerated over the past two years to above its long-run trend.

Growth is expected to ~~support business investment~~rebound in the second quarter following a soft first quarter 2019, and ~~consumer spending, respectively. We expect an increase in federal government spending will also support economic growth in 2018.~~ slow over the remaining course of 2019 and into 2020.

Further gradual improvement in the labor market will occur this year, including job gains and rising wages, ~~is another~~which would be a positive indicator for consumer spending. ~~Other sources of growth for the U.S. economy in 2018 will be the global economic expansion~~

Trade restrictions and ~~the housing market, although trade restrictions~~geopolitical concerns are a downside ~~risk~~risks to the forecast. ~~Although inflation~~

Inflation has slowed in ~~2017, it should pick up as the labor market continues~~early 2019, to ~~tighten. Short-term interest rates and bond yields are expected to rise throughout 2018; after~~below the Federal Open Market ~~Committee raised~~Committee's (FOMC) 2% objective, but is expected to rise in the second half of the year.

Our baseline forecast is for no change to the federal funds rate in ~~March, our baseline forecast is for two additional~~2019 and 2020, with the rate ~~hikes~~staying in ~~June and December 2018, pushing the federal funds rate to a~~its current range of ~~2.00~~2.25% to 2.25% by the end of the year. Longer-term rates are also expected to increase as the Federal Reserve slowly reduces the size of its balance sheet and the federal government borrows more. Long-term rates will rise more slowly than short-term rates, so we anticipate that the yield curve will flatten but not invert.2.50%.

For the second quarter of ~~2018~~2019 compared to the first quarter of ~~2018,~~2019, we expect:

~~Modest~~Average loan ~~growth;~~growth to be up approximately 1%;

Net interest income to increase by ~~low single~~low-single digits, on a percentage basis;

Fee income to increase by mid-single digits, on a percentage basis. Fee income consists of asset management, consumer services, corporate services, residential mortgage and service charges on deposits;

~~Provision for credit losses to be between $100 million and $150 million; and~~

~~Noninterest expense to increase by low single digits, on a percentage basis.~~

~~We expect the~~The quarterly run rate ~~for~~of other noninterest income to be in the range of ~~$225~~$275 million to ~~$275~~$325 million, excluding net securities gains (losses) and Visa ~~activity.~~activity;

Provision for credit losses to be between $125 million and $200 million; and

Noninterest expense to increase by low-single digits, on a percentage basis.

~~Our outlook for certain financial information for~~For full year ~~2018 is~~2019 compared to full year ~~2017 results as adjusted for~~2018, we expect:

Average loan growth to be between 3% and 4%;

Revenue growth on the ~~following fourth quarter 2017~~higher end of low-single digits, on a percentage basis;

Noninterest expense to increase on the lower end of low-single digits, on a percentage basis;

The effective tax ~~legislation~~rate to be approximately 17%; and significant items: $26 million in lower net interest income from the impact of tax legislation on leveraged leases; a total of $54 million of higher noninterest income, consisting of the flow through impact of tax legislation on our equity investment in BlackRock, Visa Class B derivative fair value adjustments, and the appreciation of BlackRock stock contributed to the PNC Foundation, partially offset by negative adjustments for residential mortgage servicing rights fair value assumption updates; a total of $502 million of higher noninterest expense, consisting of a contribution to the PNC Foundation, charges for real estate dispositions and exits, and employee cash payments and pension account credits; and a $1.2 billion tax benefit recognized as a result of the federal tax legislation, primarily attributable to revaluation of net deferred tax liabilities and $230 million from the tax

To generate positive operating leverage.

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

effect of the aforementioned significant items. For additional information on these fourth quarter 2017 items, see the Income Statement Highlights portion of the Executive Summary section in Item 7 of our 2017 Form 10-K.

~~For full year 2018 compared to full year 2017 on an adjusted basis, we expect:~~

~~Loan growth to be up mid-single digits, on a percentage basis;~~

~~Revenue to increase mid-single digits, on a percentage basis;~~

~~Noninterest expense to increase by low single digits, on a percentage basis; and~~

~~The effective tax rate to be approximately 17%.~~

See the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors in our ~~2017~~2018 Form 10-K for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.

CONSOLIDATED INCOME STATEMENT REVIEW

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

Net income for the first quarter of ~~2018~~2019 was ~~$1.2~~$1.3 billion, or ~~$2.43~~$2.61 per diluted common share, an increase of ~~15%~~3% compared to ~~$1.1~~$1.2 billion, or ~~$1.96~~$2.43 per diluted common share, for the first quarter of ~~2017.~~ 2018.The increase was driven by a 6%4% increase in revenue, ~~and a lower effective tax rate,~~ partially offset by a 5%higher provision for credit losses and a 2% increase in noninterest expense. Higher revenue in the comparison reflected a 9%5% increase in net interest income and a 2%3% increase in noninterest income.

Net Interest Income

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


	2018							2017							2019							2018
Three months ended March 31 Dollars in millions	Average Balances		Average Yields/ Rates		Interest Income/ Expense			Average Balances		Average Yields/ Rates		Interest Income/ Expense			Average Balances		Average Yields/ Rates		Interest Income/ Expense			Average Balances		Average Yields/ Rates		Interest Income/ Expense
Assets
Interest-earning assets
Investment securities	$	74,656	2.78	%	$	519		$	76,253	2.67	%	$	508		$	82,318	3.05	%	$	627		$	74,656	2.78	%	$	519
Loans	221,104		4.09	%	2,250			212,253		3.67	%	1,941			228,545		4.61	%	2,622			221,104		4.09	%	2,250
Interest-earning deposits with banks	25,667		1.52	%	98			24,192		.81	%	49			15,017		2.43	%	91			25,667		1.52	%	98
Other	7,904		4.11	%	80			8,395		3.54	%	74			11,068		4.14	%	115			7,904		4.11	%	80
Total interest-earning assets/interest income	$	329,331	3.59	%	2,947			$	321,093	3.22	%	2,572			$	336,948	4.11	%	3,455			$	329,331	3.59	%	2,947
Liabilities
Interest-bearing liabilities
Interest-bearing deposits	$	183,438	.47	%	213			$	176,871	.28	%	120			$	195,816	.98	%	472			$	183,438	.47	%	213
Borrowed funds	59,638		2.31	%	344			54,942		1.74	%	240			59,783		3.21	%	481			59,638		2.31	%	344
Total interest-bearing liabilities/interest expense	$	243,076	.91	%	557			$	231,813	.62	%	360			$	255,599	1.50	%	953			$	243,076	.91	%	557
Net interest margin/income (Non-GAAP)			2.91	%	2,390					2.77	%	2,212					2.98	%	2,502					2.91	%	2,390
Taxable-equivalent adjustments					(29		)					(52		)					(27		)					(29		)
Net interest income (GAAP)					$	2,361						$	2,160						$	2,475						$	2,361

(a)

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

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

Net interest income increased by ~~$201~~$114 million, or 9%5%, in the first quarter of ~~2018~~2019 compared with the first quarter of ~~2017,~~2018. This increase reflected higher loan and ~~net~~securities yields and balances, partially offset by higher deposit and borrowing costs and balances. Net interest margin increased 147 basis points. These increases reflected higher loans and securities yields from higher interest rates, partially offset by increased balances and rates paid on borrowed funds and deposits. Net interest income also benefited from higher loan balances in the comparison.

~~Higher average rates on borrowed funds reflected~~points reflecting the impact of ~~an increase in three-month LIBOR. Interest rates on our borrowed funds portfolio are largely indexed to three-month LIBOR, either issued at this floating rate or through~~higher interest ~~rate swaps.~~

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

rates.

Average investment securities ~~decreased $1.6~~increased $7.7 billion, or 2%10%, ~~reflecting portfolio runoff and lower reinvestments, including declines in average commercial~~driven by net purchase activity of agency residential mortgage-backed securities of ~~$1.9~~$4.4 billion and ~~asset-backed securities of $1.2 billion, partially offset by net purchases of~~ U.S. Treasury and government agency securities of ~~$1.4 billion and residential mortgage-backed securities of $1.3~~$3.9 billion.

~~The decline in average~~Average investment securities ~~also reflected the January 1, 2018 reclassification of $.6 billion of available for sale securities~~increased to equity investments in accordance with the adoption of Accounting Standards Update (ASU) 2016-01. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in the Notes To Consolidated Financial Statements of this Report for additional detail on this adoption.

~~Total investment securities were 23%~~24% of average interest-earning assets for the first quarter of ~~2018~~2019 compared to ~~24%~~23% for the first quarter of ~~2017.~~2018.

Average loans grew ~~$8.9~~$7.4 billion, or 4%3%, reflecting an increase in average commercial lending of ~~$8.5~~$6.5 billion, or 4%, driven by ~~broad-based~~ growth in ~~our~~the Corporate Banking ~~Equipment Finance~~ and Business Credit businesses in our Corporate & Institutional Banking segment. ~~Growth in Equipment Finance included the impact of the acquisition of a commercial and vendor finance business with $1.0 billion of loans and leases in the second quarter of 2017.~~

Average consumer lending increased ~~$.4~~$.9 billion, ~~in the comparison, as growth~~or 1%. Growth in residential real estate, automobile and credit card ~~loans~~ was ~~largely~~partially offset by declines in home equity and education loans. Lower home equity loans reflected paydowns and payoffs exceeding new originated volume. In addition, ~~run-off in the non-strategic consumer loan portfolios~~runoff of brokered home equity and government guaranteed education loans contributed to the

The PNC Financial Services Group, Inc. – Form 10-Q5

declines. Average loans represented ~~67%~~68% of average interest-earning assets for the first quarter of ~~2018~~2019 compared to ~~66%~~67% for the first quarter of ~~2017.~~2018.

Average ~~total~~interest-earning deposits ~~increased $5.7~~with banks decreased $10.7 billion, or ~~2%.~~ 41%, reflecting lower average balances held with the Federal Reserve Bank as investment of liquidity continued.

Average interest-bearing deposits grew ~~$6.6~~$12.4 billion, or 4%7%, reflecting ~~the higher interest rate environment~~overall deposit and customer growth. ~~Average savings~~Additionally, the increase reflects a shift of commercial deposits to interest-bearing from noninterest-bearing deposits, which declined $5.8 billion to $71.4 billion, as deposit rates have risen. In total, average interest-bearing deposits increased ~~$9.4 billion due in part~~ to a shift to relationship-based savings products from money market deposits, which decreased $5.4 billion. Additionally, average interest-bearing demand deposits grew $2.8 billion. Average interest-bearing deposits represented 75%77% of average interest-bearing liabilities compared to 75% for the first quarter of ~~2018 compared to 76% for the same period in 2017. Average noninterest-bearing deposits declined $.9 billion to $77.2 billion.~~2018.

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

Average borrowed funds increased $4.7 billion, or 9%, largely reflecting higher average bank notes and senior debt, partially offset by a decline in average subordinated debt. See the Consolidated Balance Sheet Review portion of this Financial Review for additional detail on the level and composition of borrowed funds.

Noninterest Income

Table 3: Noninterest Income


	Three months ended March 31									Three months ended March 31
					Change									Change
Dollars in millions	2018		2017		$			%		2019		2018		$			%
Noninterest income
Asset management	$	455	$	403	$	52		13	%	$	437	$	455	$	(18	)	(4	)%
Consumer services	357		332		25			8	%	371		357		14			4	%
Corporate services	429		414		15			4	%	462		429		33			8	%
Residential mortgage	97		113		(16		)	(14	)%	65		97		(32		)	(33	)%
Service charges on deposits	167		161		6			4	%	168		167		1			1	%
Other	245		301		(56		)	(19	)%	308		245		63			26	%
Total noninterest income	$	1,750	$	1,724	$	26		2	%	$	1,811	$	1,750	$	61		3	%

Noninterest income as a percentage of total revenue was ~~43%~~42% for the first quarter of ~~2018~~2019 compared to ~~44%~~43% for the same period in ~~2017.~~2018.

Asset management revenue ~~increased reflecting higher~~declined due to changes in the mix of assets under management and lower earnings from our equity investment in ~~BlackRock and stronger equity markets.~~BlackRock. PNC's discretionary client assets under management increased to $158 billion at March 31, 2019 compared to $148 billion at March 31, ~~2018 compared with $141 billion at March 31, 2017.~~

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

2018.

Growth in consumer service fees ~~included a $13 million increase~~resulted from increases in debit card, credit card, ~~fees,~~ net of rewards, and ~~debit card~~brokerage fees ~~which reflected~~reflecting continued momentum in customer activity in both transaction trends and customer growth. ~~In addition, brokerage fees increased $10 million,~~

Higher corporate services revenue was primarily driven by ~~higher brokerage assets under management.~~

~~Corporate services revenue reflected~~ growth in ~~treasury management~~merger and acquisition advisory fees of $15 million and treasury management product revenue of $14 million.

Residential mortgage revenue decreased as a ~~$13 million increase in operating lease income related to the commercial and vendor finance business acquired in the second quarter~~result of ~~2017. These increases were partially offset by~~ a ~~$12 million lower benefit from commercial~~negative adjustment for residential mortgage servicing rights valuation, net of economic ~~hedge.~~

~~Lower residential mortgage revenue was driven by~~hedge, compared with a ~~$12 million decline~~benefit in first quarter 2018, and lower loan sales ~~revenue, which reflected compressed pricing margins and lower refinancing origination volume.~~revenue.

The ~~decrease~~increase in other noninterest income was ~~driven by an $88 million decline in~~largely attributable to higher gains on asset sales and higher revenue from private equity investments, ~~which included the impact of first quarter 2017 positive valuation adjustments related to the Volcker Rule provisions of the Dodd-Frank Act. This decrease was~~ partially offset by ~~a $14 million decline in~~ negative derivative fair value adjustments related to Visa Class B common shares of $31 million in ~~the comparison.~~

In the first quarter of ~~2018, and as a result of the commercial and vendor finance business we acquired~~2019 compared to $2 million in the second quarter of 2017, we have reclassified operating lease income to corporate services noninterest income from other noninterest income on the Consolidated Income Statement. Operating lease income was $34 million for the first quarter of 2018. ~~First quarter 2017 operating lease income was $21 million and was reclassified to reflect this change.~~

Provision For Credit Losses

The provision for credit losses ~~was $92~~increased $97 million ~~for the first quarter of 2018 compared with $88~~to $189 million in the first quarter of ~~2017.~~2019 compared to $92 million in the first quarter of 2018 reflecting loan growth, including new loans and increased utilization, and reserve increases in the auto loan portfolio.

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

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

Noninterest Expense

Table 4: Noninterest Expense


	Three months ended March 31									Three months ended March 31
					Change									Change
Dollars in millions	2018		2017		$			%		2019		2018		$			%
Noninterest expense
Personnel	$	1,354	$	1,257	$	97		8	%	$	1,414	$	1,354	$	60		4	%
Occupancy	218		222		(4		)	(2	)%	215		218		(3		)	(1	)%
Equipment	273		251		22			9	%	273		273		—			—
Marketing	55		55		—			—		65		55		10			18	%
Other	627		617		10			2	%	611		627		(16		)	(3	)%
Total noninterest expense	$	2,527	$	2,402	$	125		5	%	$	2,578	$	2,527	$	51		2	%

~~The increase~~Noninterest expense increased in ~~noninterest expense was due to our ongoing~~the comparison as investments in ~~technology and~~support of business growth were reflected in ~~our businesses and employees, and was reflected primarily in~~higher personnel and ~~equipment expense.~~marketing expense, which included costs for PNC's national retail digital strategy. These increases ~~included operating expense related to~~were offset in part by a decrease in Federal Deposit Insurance Corporation (FDIC) deposit insurance as a result of the ~~second quarter 2017 acquisition~~elimination of ~~a commercial and vendor finance business, as well as~~ the ~~investments we have made in new markets and our announced increase in hourly wages for eligible employees and in enhanced employee benefits.~~surcharge assessment.

PNC continued to focus on disciplined expense ~~management. As of March 31, 2018,~~management, and for full-year 2019 we ~~were on track to achieve our full-year 2018~~have a goal of ~~$250~~$300 million in cost savings through our continuous improvement program, which we expect will ~~partially~~help fund a portion of our ~~ongoing business and technology~~strategic investments.

Effective Income Tax Rate

The effective income tax rate was 16.3% in the first quarter of 2019 compared to 17.0% in the first quarter of 2018 compared to 23.0% in the same period of 2017. First quarter 2018 reflected the change in the statutory federal income tax rate from 35% to 21%, effective as of January 1, 2018, as a result of the new federal tax legislation.2018.

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

CONSOLIDATED BALANCE SHEET REVIEW

Table 5: Summarized Balance Sheet Data


	March 31			December 31			Change					March 31			December 31			Change
Dollars in millions	2018			2017			$			%		2019			2018			$			%
Assets
Interest-earning deposits with banks	$	28,821		$	28,595		$	226		1	%	$	15,261		$	10,893		$	4,368		40	%
Loans held for sale	965			2,655			(1,690		)	(64	)%	686			994			(308		)	(31	)%
Investment securities	74,562			76,131			(1,569		)	(2	)%	83,869			82,701			1,168			1	%
Loans	221,614			220,458			1,156			1	%	232,293			226,245			6,048			3	%
Allowance for loan and lease losses	(2,604		)	(2,611		)	7			—		(2,692		)	(2,629		)	(63		)	(2	)%
Mortgage servicing rights	1,979			1,832			147			8	%	1,812			1,983			(171		)	(9	)%
Goodwill	9,218			9,173			45			—		9,218			9,218			—			—
Other, net	44,606			44,535			71			—		52,390			52,910			(520		)	(1	)%
Total assets	$	379,161		$	380,768		$	(1,607	)	—		$	392,837		$	382,315		$	10,522		3	%
Liabilities
Deposits	$	264,704		$	265,053		$	(349	)	—		$	271,221		$	267,839		$	3,382		1	%
Borrowed funds	58,039			59,088			(1,049		)	(2	)%	59,860			57,419			2,441			4	%
Other	9,383			9,042			341			4	%	13,181			9,287			3,894			42	%
Total liabilities	332,126			333,183			(1,057		)	—		344,262			334,545			9,717			3	%
Equity
Total shareholders’ equity	46,969			47,513			(544		)	(1	)%	48,536			47,728			808			2	%
Noncontrolling interests	66			72			(6		)	(8	)%	39			42			(3		)	(7	)%
Total equity	47,035			47,585			(550		)	(1	)%	48,575			47,770			805			2	%
Total liabilities and equity	$	379,161		$	380,768		$	(1,607	)	—		$	392,837		$	382,315		$	10,522		3	%

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

Our balance sheet was strong and well positioned at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

Total assets ~~decreased due to lower loans held for sale~~increased driven by loan growth, higher interest-earning deposits with banks and higher investment ~~securities, partially offset by higher loans;~~securities;

Total liabilities ~~decreased~~increased due to ~~lower borrowed funds;~~deposit growth, higher federal funds purchased and timing of securities purchases;

Total equity ~~decreased due to share repurchases and lower accumulated other comprehensive income (loss) related to net unrealized securities losses, partially offset by~~increased as higher retained earnings driven by net ~~income.~~income and higher accumulated other comprehensive income (AOCI) was partially offset by share repurchases.

The PNC Financial Services Group, Inc. – Form 10-Q7

The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and regulatory compliance is included in the Liquidity and Capital Management portion of the Risk Management section in this Financial Review and in Note 18 Regulatory Matters in the Notes To Consolidated Financial Statements included in our ~~2017~~2018 Form 10-K.

Loans

Table 6: Loans

March 31
December 31
Change
Dollars in millions 2018
2017
$ %
Commercial lending
Commercial $ 112,308
$ 110,527
$ 1,781
2 %
Commercial real estate 28,835
28,978
(143 ) —

Equipment lease financing 7,802
7,934
(132 ) (2 )%
Total commercial lending 148,945
147,439
1,506
1 %
Consumer lending

Home equity 27,699
28,364
(665 ) (2 )%
Residential real estate 17,456
17,212
244
1 %
Credit card 5,657
5,699
(42 ) (1 )%
Other consumer

Automobile 13,295
12,880
415
3 %
Education 4,228
4,454
(226 ) (5 )%
Other 4,334
4,410
(76 ) (2 )
Total consumer lending 72,669
73,019
(350 ) —

Total loans $ 221,614
$ 220,458
$ 1,156
1 %

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

~~Loan growth was driven by commercial lending partially offset by a decline in consumer lending balances.~~



	March 31		December 31		Change
Dollars in millions	2019		2018		$			%
Commercial lending
Commercial	$	122,993	$	116,834	$	6,159		5	%
Commercial real estate	28,101		28,140		(39		)	—
Equipment lease financing	7,348		7,308		40			1	%
Total commercial lending	158,442		152,282		6,160			4	%
Consumer lending
Home equity	25,500		26,123		(623		)	(2	)%
Residential real estate	19,107		18,657		450			2	%
Automobile	14,707		14,419		288			2	%
Credit card	6,267		6,357		(90		)	(1	)%
Education	3,707		3,822		(115		)	(3	)%
Other consumer	4,563		4,585		(22		)	—
Total consumer lending	73,851		73,963		(112		)	—
Total loans	$	232,293	$	226,245	$	6,048		3	%

Commercial loans increased reflecting broad-based growth across our Corporate Banking, Business Credit and Real Estate ~~and Business Credit~~ businesses within our Corporate & Institutional Banking segment. In Corporate Banking, commercial loans increased ~~$.8 billion, or 1%, largely due to strong growth in~~primarily driven by asset-backed finance securitizations as well as ~~middle market~~increased lending to large and ~~large~~midsize corporate ~~lending. Commercial~~clients. In Business Credit, commercial loans ~~in our~~increased driven by new originations and higher utilization. In the Real Estate business, increased ~~$.6 billion, or 5%, primarily driven by higher~~ multifamily agency warehouse ~~lending. In Business Credit, higher utilization resulted in an increase~~lending also contributed to the growth in commercial ~~loans of $.4 billion, or 3%.~~loans.

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

Consumer lending balances ~~declined~~decreased as lower home equity loans, education loans, and credit card balances were partially offset by growth in ~~automobile and~~ residential real estate ~~loans were more than offset by lower home equity~~ and ~~education~~automobile loans.

Home equity loans declined as paydowns and payoffs exceeded new originated ~~volume. In addition, the declines in both home equity~~volume and ~~education loans included the continued runoff in our non-strategic~~ brokered home equity ~~and government~~loans continued to runoff. Education loans declined primarily due to runoff of the guaranteed education loan ~~portfolios.~~portfolio. Credit card balances declined due to seasonally lower consumer spending.

Residential real estate loans increased ~~as a result of growth in~~primarily from originations of nonconforming ~~residential mortgage~~ loans, ~~both nationwide and within our branch network. Nonconforming residential mortgage loans~~which are loans that do not meet government agency standards ~~such~~ as a ~~maximum loan amount, property type or credit requirements, among other factors. The growth in residential real estate loans was primarily due to nonconforming loans that exceeded~~result of exceeding agency conforming loan limits. ~~Automobile~~The growth in automobile loans ~~grew in part~~was due to higher indirect auto loans as a result of continued new loan growth and expansion into franchised dealers in ~~our Southeast~~new markets.

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

See the Credit Risk Management portion of the Risk Management section of this Financial Review, ~~and Note 1 Accounting Policies,~~ Note 3 Asset Quality and Note 4 Allowance for Loan and Lease Losses in our Notes To Consolidated Financial Statements included in this Report, and Note 1 Accounting Policies in our 2018 Form 10-K for additional information regarding our loan portfolio.

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

Investment Securities

Investment securities of $83.9 billion at March 31, 2019 increased $1.2 billion, or 1%, compared to December 31, 2018, driven by net purchases of U.S. Treasury and government agency securities of $.9 billion and asset-backed securities of $.6 billion, partially offset by a decline of other securities of $.5 billion.

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

Table 7: Investment Securities


	March 31, 2018				December 31, 2017				Ratings (a) as of March 31, 2018										March 31, 2019				December 31, 2018				Ratings (a) as of March 31, 2019
Dollars in millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value		AAA/ AA		A		BBB		BB and Lower		No Rating		Amortized Cost		Fair Value		Amortized Cost		Fair Value		AAA/ AA		A		BBB		BB and Lower		No Rating
U.S. Treasury and government agencies	$	14,390	$	14,335	$	15,173	$	15,286	100	%									$	19,621	$	19,778	$	18,862	$	18,863	100	%
Agency residential mortgage-backed	41,175		40,301		40,037		39,847		100	%									44,866		44,750		45,153		44,407		100	%
Non-agency residential mortgage-backed	2,483		2,802		2,610		2,932		11	%			3	%	66	%	20	%	1,983		2,278		2,076		2,365		13	%	2	%	2	%	48	%	35	%
Agency commercial mortgage-backed	2,222		2,146		2,367		2,315		100	%									2,705		2,681		2,773		2,720		100	%
Non-agency commercial mortgage-backed (b)	3,109		3,098		3,141		3,161		84	%	6	%					10	%	3,304		3,308		3,177		3,145		88	%	5	%					7	%
Asset-backed (c)	5,325		5,380		5,531		5,598		84	%	3	%	6	%	7	%			5,682		5,739		5,115		5,155		88	%	3	%	3	%	5	%	1	%
Other debt (d)	6,081		6,179		6,279		6,459		74	%	15	%	7	%	1	%	3	%
Other (e)					587		585
Total investment securities (f)	$	74,785	$	74,241	$	75,725	$	76,183	93	%	2	%	1	%	3	%	1	%
Other (d)																			5,181		5,325		5,670		5,753		72	%	15	%	9	%	1	%	3	%
Total investment securities (e)																			$	83,342	$	83,859	$	82,826	$	82,408	95	%	1	%	1	%	2	%	1	%


(a)	Ratings percentages allocated based on amortized cost.


(b)	Collateralized primarily by retail properties, office buildings, lodging properties and multi-family housing.


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


(d)	Includes state and municipal securities.


(e)	On January 1, 2018, $.6 billion of available for sale securities, primarily money market funds, were reclassified to equity investments in accordance with the adoption of ASU 2016-01. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in the Notes To Consolidated Financial Statements of this Report for additional detail on this adoption.


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

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

Investment securities decreased $1.6 billion at March 31, 2018 compared to December 31, 2017, driven by declines in U.S. Treasury and government agencies securities of $.9 billion, other debt securities of $.3 billion, commercial mortgage-backed securities of $.2 billion and asset-backed securities of $.2 billion. These declines were partially offset by net purchases of agency residential mortgage-backed securities of $.8 billion. The overall decrease includes a $.6 billion decline in the valuation of our available for sale securities portfolio reflecting the impact of higher interest rates, primarily for U.S. Treasury and government agencies and agency residential mortgage-backed securities.

The decline in total investment securities at March 31, 2018 compared to December 31, 2017 also reflected the reclassification of $.6 billion of available for sale securities, primarily money market funds, to equity investments as part of the adoption of ASU 2016-01. See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements for additional detail on our adoption of this ASU.

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

Table 7 presents the distribution of our total investment securities portfolio by amortized cost and fair value, as well as by credit rating. We have included credit ratings information because we believe that the information is an indicator of the degree of credit risk to which we are exposed, which could affect our risk-weighted assets and, therefore, our risk-based regulatory capital ratios under the current regulatory capital rules. Changes in credit ratings classifications could indicate increased or decreased credit risk and could be accompanied by a reduction or increase in the fair value of our investment securities portfolio.

At least quarterly, we conduct a comprehensive security-level impairment assessment on all securities. If economic conditions, including home prices, were to deteriorate from current levels, and if market volatility and liquidity were to deteriorate from current levels, or if market interest rates were to increase or credit spreads were to widen appreciably, the valuation of our investment securities portfolio would likely be adversely affected and we could incur additional other than temporary impairment (OTTI) credit losses that would impact our Consolidated Income Statement.

The duration of investment securities was ~~3.7~~3.1 years at March 31, ~~2018.~~2019. We estimate that at March 31, ~~2018~~2019 the effective duration of investment securities was ~~3.8~~3.3 years for an immediate 50 basis points parallel increase in interest rates and ~~3.5~~2.9 years for an immediate 50 basis points parallel decrease in interest rates.

Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio ~~(excluding other)~~ was ~~5.7~~4.9 years at March 31, ~~2018~~2019 compared to ~~5.2~~5.3 years at December 31, ~~2017.~~2018.

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



March 31, ~~2018~~2019	Years
Agency residential mortgage-backed	~~6.6~~5.6
Non-agency residential mortgage-backed	~~6.3~~6.2
Agency commercial mortgage-backed	~~3.5~~4.1
Non-agency commercial mortgage-backed	~~3.1~~2.7
Asset-backed	~~2.5~~2.1

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

10The PNC Financial Services Group, Inc. – Form 10-Q9

Funding Sources

Table 9: Details of Funding Sources


	March 31		December 31		Change					March 31		December 31		Change
Dollars in millions	2018		2017		$			%		2019		2018		$			%
Deposits
Noninterest-bearing	$	78,303	$	79,864	$	(1,561	)	(2	)%	$	71,606	$	73,960	$	(2,354	)	(3	)%
Interest-bearing
Money market	57,260		59,735		(2,475		)	(4	)%	53,037		53,368		(331		)	(1	)%
Demand	62,289		61,213		1,076			2	%	65,643		65,211		432			1	%
Savings	50,582		46,980		3,602			8	%	61,315		56,793		4,522			8	%
Time deposits	16,270		17,261		(991		)	(6	)%	19,620		18,507		1,113			6	%
Total interest-bearing deposits	186,401		185,189		1,212			1	%	199,615		193,879		5,736			3	%
Total deposits	264,704		265,053		(349		)	—		271,221		267,839		3,382			1	%
Borrowed funds
Federal Home Loan Bank (FHLB) borrowings	19,537		21,037		(1,500		)	(7	)%	20,501		21,501		(1,000		)	(5	)%
Bank notes and senior debt	28,773		28,062		711			3	%	25,598		25,018		580			2	%
Subordinated debt	5,121		5,200		(79		)	(2	)%	5,977		5,895		82			1	%
Other	4,608		4,789		(181		)	(4	)%	7,784		5,005		2,779			56	%
Total borrowed funds	58,039		59,088		(1,049		)	(2	)%	59,860		57,419		2,441			4	%
Total funding sources	$	322,743	$	324,141	$	(1,398	)	—		$	331,081	$	325,258	$	5,823		2	%

Total deposits ~~declined slightly in the comparison~~increased as growth in interest-bearing deposits was ~~more than~~partially offset by ~~decreases~~a decrease in noninterest-bearing deposits.

The increase in interest-bearing deposits reflected consumer deposit growth, including from the national retail digital strategy. Noninterest-bearing deposits decreased due to seasonal declines in commercial ~~deposits. Within interest-bearing~~ deposits ~~savings deposits grew reflecting, in part, a shift from consumer money market to relationship-based savings products,~~ as well as ~~growth in consumer demand deposit balances. The decline in time~~a shift of commercial deposits ~~largely reflected lower certificates of deposit~~to interest-bearing.

Borrowed funds increased due to ~~the net runoff of maturing accounts.~~

~~The decline~~higher federal funds purchased, included in other borrowed funds, ~~in the comparison was primarily due to lower FHLB borrowings, partially offset by growth in~~and bank notes and senior debt, ~~including $2.0 billion issued~~which were partially offset by decreases in ~~January 2018.~~FHLB borrowings. The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan, investment securities and deposit growth, and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity for our banking and other activities, considering our LCR and other internal and external guidelines and constraints.

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for additional information regarding our ~~2018~~2019 liquidity and capital activities.

Shareholders’ Equity

Total shareholders’ equity was ~~$47.0~~$48.5 billion at March 31, ~~2018, a decrease~~2019, an increase of ~~$.5~~$.8 billion compared to December 31, ~~2017.~~2018. The ~~decrease~~increase resulted from ~~common share repurchases~~net income of $1.3 billion and higher AOCI of $.7 billion ~~lower accumulated other comprehensive income (loss)~~ related to net unrealized securities ~~losses~~gains, partially offset by common share repurchases of ~~$.6 billion~~$725 million and common and preferred dividends of ~~$.4 billion, partially offset by net income of $1.2 billion.~~$438 million.

Common shares outstanding were ~~470~~452 million and ~~473~~457 million at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, as repurchases of ~~4.8~~5.9 million shares during the period were partially offset by ~~share issuances from treasury stock related to warrants exercised and~~ stock-based compensation activity.

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

BUSINESS SEGMENTS REVIEW

We have four reportable business segments:

Retail Banking

Corporate & Institutional Banking

Asset Management Group

BlackRock

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

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

~~Retail Banking~~

~~(Unaudited)~~

~~Table 10: Retail Banking Table~~

Three months ended March 31 Change
Dollars in millions, except as noted 2018 2017 $ %
Income Statement
Net interest income $ 1,218
$ 1,121
$ 97
9 %
Noninterest income 635
603
32
5 %
Total revenue 1,853
1,724
129
7 %
Provision for credit losses 69
71
(2 ) (3 )%
Noninterest expense 1,395
1,315
80
6 %
Pretax earnings 389
338
51
15 %
Income taxes 93
125
(32 ) (26 )%
Earnings $ 296
$ 213
$ 83
39 %
Average Balance Sheet
Loans held for sale $ 652
$ 843
$ (191 ) (23 )%
Loans
Consumer
Home equity $ 24,608
$ 25,601
$ (993 ) (4 )%
Automobile 13,105
12,146
959
8 %
Education 4,409
5,131
(722 ) (14 )%
Credit cards 5,619
5,121
498
10 %
Other 1,765
1,756
9
1 %
Total consumer 49,506
49,755
(249 ) (1 )%
Commercial and commercial real estate 10,527
11,006
(479 ) (4 )%
Residential mortgage 13,420
11,688
1,732
15 %
Total loans $ 73,453
$ 72,449
$ 1,004
1 %
Total assets $ 88,734
$ 87,109
$ 1,625
2 %
Deposits
Noninterest-bearing demand $ 29,779
$ 29,010
$ 769
3 %
Interest-bearing demand 41,939
40,649
1,290
3 %
Money market 32,330
39,321
(6,991 ) (18 )%
Savings 43,838
35,326
8,512
24 %
Certificates of deposit 12,082
13,735
(1,653 ) (12 )%
Total deposits $ 159,968
$ 158,041
$ 1,927
1 %
Performance Ratios
Return on average assets 1.35 % .99 %
Noninterest income to total revenue 34 % 35 %
Efficiency 75 % 76 %

1210 The PNC Financial Services Group, Inc. – Form 10-Q

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

Retail Banking

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

Table 10: Retail Banking Table

Three months ended March 31 Change
Dollars in millions, except as noted 2018
2017
$ %
Supplemental Noninterest Income Information
Consumer services $ 266
$ 250
$ 16
6 %
Brokerage $ 86
$ 76
$ 10
13 %
Residential mortgage $ 97
$ 113
$ (16 ) (14 )%
Service charges on deposits $ 160
$ 154
$ 6
4 %
Residential Mortgage Information
Residential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b) $ 125
$ 130
$ (5 ) (4 )%
Serviced portfolio acquisitions $ 1
$ 8
$ (7 ) (88 )%
MSR asset value (b) $ 1.3
$ 1.3
—
—

MSR capitalization value (in basis points) (b) 101
97
4
4 %
Servicing income: (in millions)
Servicing fees, net (c) $ 51
$ 52
$ (1 ) (2 )%
Mortgage servicing rights valuation, net of economic hedge $ 9
$ 12
$ (3 ) (25 )%
Residential mortgage loan statistics
Loan origination volume (in billions) $ 1.7
$ 1.9
$ (.2 ) (11 )%
Loan sale margin percentage 2.83 % 2.96 %
Percentage of originations represented by:
Purchase volume (d) 56 % 43 %
Refinance volume 44 % 57 %
Other Information (b)
Customer-related statistics (average)
Non-teller deposit transactions (e) 54 % 52 %
Digital consumer customers (f) 64 % 61 %
Credit-related statistics
Nonperforming assets (g) $ 1,131
$ 1,209
$ (78 ) (6 )%
Net charge-offs $ 100
$ 100
—
—

Other statistics
ATMs 9,047
8,976
71
1 %
Branches (h) 2,442
2,508
(66 ) (3 )%
Brokerage account client assets (in billions) (i) $ 49
$ 46
$ 3
7 %



(Unaudited)
Three months ended March 31							Change
Dollars in millions, except as noted	2019			2018			$			%
Income Statement
Net interest income	$	1,349		$	1,218		$	131		11	%
Noninterest income	595			635			(40		)	(6	)%
Total revenue	1,944			1,853			91			5	%
Provision for credit losses	128			69			59			86	%
Noninterest expense	1,468			1,456			12			1	%
Pretax earnings	348			328			20			6	%
Income taxes	84			79			5			6	%
Earnings	$	264		$	249		$	15		6	%
Average Balance Sheet
Loans held for sale	$	441		$	652		$	(211	)	(32	)%
Loans
Consumer
Home equity	$	22,990		$	24,608		$	(1,618	)	(7	)%
Automobile	14,608			13,105			1,503			11	%
Education	3,816			4,409			(593		)	(13	)%
Credit cards	6,204			5,619			585			10	%
Other	2,068			1,765			303			17	%
Total consumer	49,686			49,506			180			—
Commercial and commercial real estate	10,461			10,527			(66		)	(1	)%
Residential mortgage	15,034			13,420			1,614			12	%
Total loans	$	75,181		$	73,453		$	1,728		2	%
Total assets	$	91,255		$	88,734		$	2,521		3	%
Deposits
Noninterest-bearing demand	$	30,389		$	29,779		$	610		2	%
Interest-bearing demand	42,477			41,939			538			1	%
Money market	26,773			32,330			(5,557		)	(17	)%
Savings	53,100			43,838			9,262			21	%
Certificates of deposit	12,381			12,082			299			2	%
Total deposits	$	165,120		$	159,968		$	5,152		3	%
Performance Ratios
Return on average assets	1.17		%	1.14		%
Noninterest income to total revenue	31		%	34		%
Efficiency	76		%	79		%

The PNC Financial Services Group, Inc. – Form 10-Q11



Three months ended March 31							Change
Dollars in millions, except as noted	2019			2018			$			%
Supplemental Noninterest Income Information
Consumer services	$	277		$	266		$	11		4	%
Brokerage	$	89		$	86		$	3		3	%
Residential mortgage	$	65		$	97		$	(32	)	(33	)%
Service charges on deposits	$	162		$	160		$	2		1	%
Residential Mortgage Information
Residential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b)	$	123		$	125		$	(2	)	(2	)%
Serviced portfolio acquisitions	$	1		$	1		—			—
MSR asset value (b)	$	1.1		$	1.3		$	(.2	)	(15	)%
MSR capitalization value (in basis points) (b)	92			101			(9		)	(9	)%
Servicing income: (in millions)
Servicing fees, net (c)	$	53		$	51		$	2		4	%
Mortgage servicing rights valuation, net of economic hedge	$	(9	)	$	9		$	(18	)	(200	)%
Residential mortgage loan statistics
Loan origination volume (in billions)	$	1.7		$	1.7		—			—
Loan sale margin percentage	2.35		%	2.83		%
Percentage of originations represented by:
Purchase volume (d)	56		%	56		%
Refinance volume	44		%	44		%
Other Information (b)
Customer-related statistics (average)
Non-teller deposit transactions (e)	57		%	54		%
Digital consumer customers (f)	68		%	64		%
Credit-related statistics
Nonperforming assets (g)	$	1,109		$	1,131		$	(22	)	(2	)%
Net charge-offs	$	132		$	100		$	32		32	%
Other statistics
ATMs	9,112			9,047			65			1	%
Branches (h)	2,347			2,442			(95		)	(4	)%
Brokerage account client assets (in billions) (i)	$	51		$	49		$	2		4	%


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


(b)	Presented as of March 31, except for customer-related statistics, which are ~~quarterly~~ averages for the three months ended, and net charge-offs, which are for the three months ended.


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


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


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


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


(g)	Includes nonperforming loans of $1.0 billion and $1.1 billion at ~~both~~March 31, 2019 and March 31, 2018, ~~and March 31, 2017.~~respectively.


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


(i)	Includes cash and money market balances.

Retail Banking earned ~~$296~~$264 million in the first three months of ~~2018~~2019 compared with ~~$213~~$249 million for the same period in ~~2017.~~2018. The increase in earnings was ~~driven by~~attributable to higher net interest ~~and noninterest~~ income partially offset by ~~an increase in~~lower noninterest ~~expense. First quarter 2018 earnings also benefited from the lower statutory federal~~ income ~~tax rate.~~and increased noninterest expense and provision for credit losses.

Net interest income increased primarily due to wider interest rate spreads on the value of deposits.

The ~~increase~~decrease in noninterest income was largely attributed to lower residential mortgage noninterest income, reflecting a negative adjustment for residential mortgage servicing rights valuation, net of economic hedge, compared with a benefit in first quarter 2018, and a decline in loan sales revenue. The decline in loan sales revenue reflected ~~growth~~lower gain on sales margins as a result of increased competition in ~~credit card, brokerage, and debit card fees, higher service charges on deposits and lower~~the marketplace. In addition, the impact of negative derivative fair value adjustments related to ~~swap agreements with purchasers of~~ Visa Class B common shares of $31 million for the first quarter of 2019 compared with $2 million in ~~connection with all prior sales~~the same period in 2018 also contributed to ~~date.~~the decrease in noninterest income. These ~~increases~~decreases were partially offset by ~~lower residential mortgage loan sales revenue, which reflected compressed pricing margins~~growth in consumer service fees, including higher debit and ~~lower refinancing origination volume.~~credit card fees, as well as higher brokerage fees and service charges on deposits.

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

Provision for credit losses increased in 2019 compared to 2018 primarily due to portfolio growth and reserve increases in the auto portfolio.

Higher noninterest expense primarily resulted from an increase in ~~personnel expense,~~marketing activity, customer-related transactional costs and investments in ~~technology~~equipment and ~~compliance expense.~~technology.

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

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

~~The PNC Financial Services Group, Inc. –~~ ~~Form 10-Q~~13Average residential mortgages increased as a result of growth in nonconforming residential mortgage loans.

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

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

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

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

Average commercial and commercial real estate loans declined as paydowns and payoffs on loans exceeded new volume.

Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for consumers and small businesses. We are focused on meeting the financial needs of our customers by providing a broad range of liquidity, banking and investment products.

~~The deposit strategy of~~ In 2018, Retail Banking ~~is to remain disciplined on pricing and focused on growing and retaining relationship-based balances, executing on market-specific deposit growth strategies and providing~~launched its national retail digital strategy by offering a ~~source~~high yield savings account in markets outside of low-cost funding and liquidity to PNC. In the first quarter of 2018, average total deposits increased compared to the same period a year ago, as both interest-bearing and noninterest-bearing deposits increased. Savings deposits grew, reflecting, in part, a shift from money market deposits to relationship-based savings products. Additionally, interest-bearing demand deposits increased, while certificates of deposit declined due to the net runoff of maturing accounts.

~~Retail Banking average total loans increased in the first quarter of 2018 compared with the first quarter of 2017.~~

~~Average residential mortgages increased as a result of growth in originations of nonconforming residential mortgage loans, both nationwide and within our branch network.~~

~~Average automobile loans, which consisted of both direct and indirect auto loans, increased primarily due to portfolio growth, including in our Southeast markets.~~

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

~~Average home equity loans decreased~~retail branch network and opened a retail location in Kansas City. Deposit balances generated through the national retail digital strategy totaled $1.2 billion as ~~paydowns and payoffs on loans exceeded new originated volume.~~

~~Average commercial and commercial real estate loans declined as paydowns and payoffs on loans exceeded new volume.~~

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

~~Nonperforming assets decreased compared to~~ March 31, ~~2017 due to declines in both consumer and commercial nonperforming loans.~~2019.

Retail Banking continued to focus on its strategy of transforming the customer experience through transaction migration, branch network and home lending transformations and multi-channel engagement and service strategies.

Approximately ~~64%~~68% of consumer customers used non-teller channels for the majority of their transactions in the first ~~quarter~~three months of ~~2018~~2019 compared with ~~61%~~64% for the same period in ~~the first quarter of 2017.~~2018.

Deposit transactions via ATM and mobile channels increased to ~~54%~~57% of total deposit transactions versus ~~52%~~54% for the same period in ~~the comparison.~~

~~Instant debit card issuance, which enables us to print a customer’s debit card in minutes, was available in 91% of our branch network as of March 31,~~ 2018.

Retail Banking ~~continued~~continues to make progress on its multi-year initiative to redesign the home lending ~~process by integrating mortgage and~~process. In 2019, the home equity ~~lending into a common platform~~origination cycle will be the focus as we enhance current capabilities in order to ~~enhance product capability and~~ improve speed of delivery and ~~convenience.~~

~~We converted home equity loans to the new servicing platform in the first quarter of 2018. Both residential mortgage and home equity loans are now serviced on a single platform.~~

~~We implemented a new mortgage origination system in 2017.~~convenience for customers.

The PNC Financial Services Group, Inc. – Form 10-Q13

Corporate & Institutional Banking

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

Table 11: Corporate & Institutional Banking Table



(Unaudited)
Three months ended March 31							Change
Dollars in millions	2019			2018			$			%
Income Statement
Net interest income	$	898		$	882		$	16		2	%
Noninterest income	576			547			29			5	%
Total revenue	1,474			1,429			45			3	%
Provision for credit losses	71			41			30			73	%
Noninterest expense	686			653			33			5	%
Pretax earnings	717			735			(18		)	(2	)%
Income taxes	165			172			(7		)	(4	)%
Earnings	$	552		$	563		$	(11	)	(2	)%
Average Balance Sheet
Loans held for sale	$	347		$	1,189		$	(842	)	(71	)%
Loans
Commercial	$	108,641		$	100,802		$	7,839		8	%
Commercial real estate	25,971			26,732			(761		)	(3	)%
Equipment lease financing	7,264			7,845			(581		)	(7	)%
Total commercial lending	141,876			135,379			6,497			5	%
Consumer	20			77			(57		)	(74	)%
Total loans	$	141,896		$	135,456		$	6,440		5	%
Total assets	$	157,169		$	151,909		$	5,260		3	%
Deposits
Noninterest-bearing demand	$	39,551		$	45,896		$	(6,345	)	(14	)%
Money market	25,630			23,406			2,224			10	%
Other	23,374			18,592			4,782			26	%
Total deposits	$	88,555		$	87,894		$	661		1	%
Performance Ratios
Return on average assets	1.42		%	1.50		%
Noninterest income to total revenue	39		%	38		%
Efficiency	47		%	46		%
Other Information
Consolidated revenue from: (a)
Treasury Management (b)	$	445		$	419		$	26		6	%
Capital Markets (b)	$	246		$	258		$	(12	)	(5	)%
Commercial mortgage banking activities:
Commercial mortgage loans held for sale (c)	$	15		$	14		$	1		7	%
Commercial mortgage loan servicing income (d)	54			55			(1		)	(2	)%
Commercial mortgage servicing rights valuation, net of economic hedge (e)	5			4			1			25	%
Total	$	74		$	73		$	1		1	%
Commercial mortgage servicing rights asset value (f)	$	681		$	723		$	(42	)	(6	)%
Average Loans by C&IB business (g)
Corporate Banking	$	71,089		$	65,548		$	5,541		8	%
Real Estate	36,357			37,252			(895		)	(2	)%
Business Credit	21,728			20,197			1,531			8	%
Commercial Banking	8,118			8,118			—			—
Other	4,604			4,341			263			6	%
Total average loans	$	141,896		$	135,456		$	6,440		5	%
Credit-related statistics
Nonperforming assets (f) (h)	$	388		$	508		$	(120	)	(24	)%
Net charge-offs	$	5		$	9		$	(4	)	(44	)%

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

~~Corporate & Institutional Banking~~

~~(Unaudited)~~

~~Table 11: Corporate & Institutional Banking Table~~

Three months ended March 31 Change
Dollars in millions 2018 2017 $ %
Income Statement
Net interest income $ 882
$ 839
$ 43
5 %
Noninterest income 547
524
23
4 %
Total revenue 1,429
1,363
66
5 %
Provision for credit losses 41
25
16
64 %
Noninterest expense 626
584
42
7 %
Pretax earnings 762
754
8
1 %
Income taxes 178
270
(92 ) (34 )%
Earnings $ 584
$ 484
$ 100
21 %
Average Balance Sheet
Loans held for sale $ 1,189
$ 1,116
$ 73
7 %
Loans
Commercial $ 100,802
$ 92,116
$ 8,686
9 %
Commercial real estate 26,732
27,091
(359 ) (1 )%
Equipment lease financing 7,845
7,497
348
5 %
Total commercial lending 135,379
126,704
8,675
7 %
Consumer 77
331
(254 ) (77 )%
Total loans $ 135,456
$ 127,035
$ 8,421
7 %
Total assets $ 151,909
$ 142,592
$ 9,317
7 %
Deposits
Noninterest-bearing demand $ 45,896
$ 47,423
$ (1,527 ) (3 )%
Money market 23,406
21,086
2,320
11 %
Other 18,592
15,391
3,201
21 %
Total deposits $ 87,894
$ 83,900
$ 3,994
5 %
Performance Ratios
Return on average assets 1.56 % 1.38 %
Noninterest income to total revenue 38 % 38 %
Efficiency 44 % 43 %
Other Information
Consolidated revenue from: (a)
Treasury Management (b) $ 419
$ 359
$ 60
17 %
Capital Markets (b) $ 258
$ 247
$ 11
4 %
Commercial mortgage banking activities
Commercial mortgage loans held for sale (c) $ 14
$ 13
$ 1
8 %
Commercial mortgage loan servicing income (d) 55
58
(3 ) (5 )%
Commercial mortgage servicing rights valuation, net of economic hedge (e) 4
16
(12 ) (75 )%
Total $ 73
$ 87
$ (14 ) (16 )%
MSR asset value (f) $ 723
$ 606
$ 117
19 %
Average Loans by C&IB business
Corporate Banking $ 57,856
$ 53,839
$ 4,017
7 %
Real Estate 37,252
37,136
116
—

Business Credit 16,818
14,839
1,979
13 %
Equipment Finance 14,243
12,478
1,765
14 %
Commercial Banking 7,066
7,041
25
—

Other 2,221
1,702
519
30 %
Total average loans $ 135,456
$ 127,035
$ 8,421
7 %
Credit-related statistics
Nonperforming assets (f) (g) $ 508
$ 546
$ (38 ) (7 )%
Net charge-offs $ 9
$ 21
$ (12 ) (57 )%

~~(continued on following page)~~

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

~~(continued from previous page)~~


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


(b)	Includes amounts reported in net interest income and noninterest income.


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


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


(e)	Amounts are reported in corporate service fees.


(f)	As of March 31.


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


(h)	Includes nonperforming loans of $.4 billion at both March 31, ~~2018~~2019 and March 31, ~~2017.~~2018.

Corporate & Institutional Banking earned ~~$584~~$552 million in the first ~~quarter~~three months of ~~2018~~2019 compared to ~~$484~~$563 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~the impact of~~higher noninterest expense and a ~~lower statutory federal income tax rate and~~ higher ~~revenue,~~provision for credit losses, partially offset by higher ~~noninterest expense. We continue to focus on building client relationships where the risk-return profile is attractive.~~revenue.

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

Growth in noninterest income ~~in the comparison~~ was primarily driven by higher merger and acquisition advisory fees and treasury management ~~fees, increased operating lease income, mainly due~~product revenue. An equity investment gain in the first quarter of 2019 also contributed to the ~~commercial and vendor finance business acquired~~increase in ~~the second quarter of 2017, and higher capital markets-related revenue.~~noninterest income. These increases were partially offset by a lower ~~benefit~~revenue from ~~commercial mortgage servicing rights valuation, net of economic hedge, and lower commercial mortgage servicing income mostly due to higher amortization expense as a result of higher interest rates.~~credit valuations on customer-related derivative activities.

The increase in provision for credit losses ~~in the comparison~~ reflected ~~specific reserves for certain nonperforming credits in the first quarter of 2018~~loan growth, including new loans and ~~loan growth.~~increased utilization. Overall, credit quality remained stable, as nonperforming assets and net charge-offs declined in the ~~comparison to the prior year quarter.~~comparison.

Noninterest expense increased ~~in the comparison~~ largely ~~driven by operating expenses related~~due to ~~the acquired business and continued~~ investments in ~~technology~~strategic initiatives and ~~risk management activities.~~variable costs associated with increased business activity.

Average loans increased ~~in the comparison~~ primarily due to strong growth in Corporate Banking and Business ~~Credit and Equipment Finance businesses:~~Credit:

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

PNC Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business ~~increased slightly as growth in~~decreased primarily driven by project loan payoffs, partially offset by higher commercial mortgage ~~loans was mostly offset by a decrease in project loans.~~balances.

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

PNC Equipment Finance provides equipment financing solutions for clients throughout the U.S. and Canada. Average loans, including commercial loans and finance leases, and operating leases were $15.3 billion in the first quarter of 2018, an increase of $2.0 billion in the year over year comparison due to strong new production and the acquisition of the commercial and vendor finance business with $1.0 billion of loans and leases in the second quarter of 2017.

Commercial Banking provides lending, treasury management and capital markets-related products and services to smaller corporations and businesses. Average loans for this business ~~increased slightly as new production outpaced payoffs and maturities.~~were relatively unchanged.

The deposit strategy of Corporate & Institutional Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances over time, executing on customer and segment-specific deposit growth strategies and continuing to provide funding and liquidity to PNC. Average total deposits increased in the ~~first quarter of 2018 compared to the prior year quarter~~comparison driven by growth in interest-bearing deposits reflecting, in part, a shift from noninterest-bearing deposits in the rising rate environment. We continue to monitor and balance the relationship between increases to rates paid and the overall profitability of our deposit balances.

~~In 2017,~~ Corporate & Institutional Banking ~~opened offices~~is expanding its Corporate Banking business, focused on the middle market and larger sectors. We plan to expand into the Boston and Phoenix markets in 2019. This follows expansion into Denver, Houston and Nashville in 2018 and Dallas, Kansas City and Minneapolis ~~as part of a multi-year expansion of our middle market banking business.~~in 2017. These locations complement ~~national~~ Corporate & Institutional Banking national businesses with ~~operations~~a significant presence in these cities, and build on past ~~success~~successes in the markets where PNC’s retail banking presence was limited, such as in the Southeast. ~~We plan to offer our entire~~Our full suite of commercial products and ~~services. In 2018, similar efforts have begun to expand our middle market business into the Denver, Houston and Nashville markets.~~services is offered in these locations.

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

Product Revenue

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

The PNC Financial Services Group, Inc. – Form 10-Q15

The Treasury Management business provides payables, receivables, deposit and account services, liquidity and investments, and online and mobile banking products and services to our clients. Treasury management revenue ~~comprises fees from products and services~~is reported in noninterest income and net interest income. Noninterest income includes treasury management product revenue less earnings credits provided to customers on compensating deposit balances used to pay for products and services. Net interest income primarily includes revenue from all treasury management customer deposit balances. Compared with the first ~~quarter~~three months of ~~2017,~~2018, treasury management revenue increased primarily due to ~~liquidity-related revenue associated with customer deposit balances, including~~ interest rate spread expansion on deposit balances and higher ~~fee income.~~product revenue.

Capital markets-related products and services include foreign exchange, derivatives, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. ~~The increase in~~Capital markets-related revenue decreased in the comparison, ~~was broad based across most products and services and included higher foreign exchange,~~primarily due to lower revenue from credit valuations on customer-related derivatives activities, loan syndications ~~underwriting~~ and corporate securities, partially offset by higher merger and acquisition advisory ~~fees, partially offset by lower fixed income revenue.~~fees.

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (including net interest income and noninterest income) and revenue derived from commercial mortgage loans held for sale and related hedges. Total revenue from commercial mortgage banking activities ~~decreased in~~was stable with the ~~comparison primarily due to a lower benefit from commercial mortgage servicing rights valuation, net~~first quarter of ~~economic hedge.~~2018.

16The PNC Financial Services Group, Inc. – Form 10-Q17

Asset Management Group

~~(Unaudited)~~

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

Table 12: Asset Management Group Table


(Unaudited)
Three months ended March 31							Change											Change
Dollars in millions, except as noted	2018			2017			$			%		2019			2018			$			%
Income Statement
Net interest income	$	74		$	71		$	3		4	%	$	70		$	74		$	(4	)	(5	)%
Noninterest income	226			218			8			4	%	217			226			(9		)	(4	)%
Total revenue	300			289			11			4	%	287			300			(13		)	(4	)%
Provision for credit losses (benefit)	(7		)	(2		)	(5		)	*		(1		)	(7		)	6			*
Noninterest expense	218			217			1			—		230			225			5			2	%
Pretax earnings	89			74			15			20	%	58			82			(24		)	(29	)%
Income taxes	21			27			(6		)	(22	)%	13			20			(7		)	(35	)%
Earnings	$	68		$	47		$	21		45	%	$	45		$	62		$	(17	)	(27	)%
Average Balance Sheet
Loans
Consumer	$	4,785		$	5,113		$	(328	)	(6	)%	$	4,362		$	4,785		$	(423	)	(9	)%
Commercial and commercial real estate	733			728			5			1	%	752			733			19			3	%
Residential mortgage	1,517			1,190			327			27	%	1,723			1,517			206			14	%
Total loans	$	7,035		$	7,031		$	4		—		$	6,837		$	7,035		$	(198	)	(3	)%
Total assets	$	7,499		$	7,476		$	23		—		$	7,259		$	7,499		$	(240	)	(3	)%
Deposits
Noninterest-bearing demand	$	1,466		$	1,433		$	33		2	%	$	1,388		$	1,466		$	(78	)	(5	)%
Interest-bearing demand	3,540			3,829			(289		)	(8	)%	3,076			3,540			(464		)	(13	)%
Money market	2,577			3,500			(923		)	(26	)%	2,036			2,577			(541		)	(21	)%
Savings	4,613			3,768			845			22	%	5,723			4,613			1,110			24	%
Other	305			246			59			24	%	697			305			392			129	%
Total deposits	$	12,501		$	12,776		$	(275	)	(2	)%	$	12,920		$	12,501		$	419		3	%
Performance Ratios
Return on average assets	3.68		%	2.55		%						2.51		%	3.35		%
Noninterest income to total revenue	75		%	75		%						76		%	75		%
Efficiency	73		%	75		%						80		%	75		%
Supplemental Noninterest Income Information
Asset management fees	$	222		$	215		$	7		3	%	$	212		$	222		$	(10	)	(5	)%
Other Information
Nonperforming assets (a) (b)	$	52		$	51		$	1		2	%	$	48		$	52		$	(4	)	(8	)%
Net charge-offs	$	6		$	1		$	5		*		$	1		$	6		$	(5	)	(83	)%
Client Assets Under Administration (in billions) (a) (c)
Discretionary client assets under management	$	148		$	141		$	7		5	%	$	158		$	148		$	10		7	%
Nondiscretionary client assets under administration	129			123			6			5	%	130			129			1			1	%
Total	$	277		$	264		$	13		5	%	$	288		$	277		$	11		4	%
Discretionary client assets under management
Personal	$	92		$	87		$	5		6	%	$	95		$	92		$	3		3	%
Institutional	56			54			2			4	%	63			56			7			13	%
Total	$	148		$	141		$	7		5	%	$	158		$	148		$	10		7	%

* - Not meaningful


(a)	As of March 31.


(b)	Includes nonperforming loans of $47 million ~~and $45 million~~ at both March 31, ~~2018~~2019 and March 31, ~~2017, respectively.~~2018.


(c)	Excludes brokerage account client assets.

Asset Management Group earned $68 million in the first quarter of 2018 and $47 million in the first quarter of 2017. Earnings increased due to higher noninterest income and net interest income, as well as an increased benefit from the provision for credit losses. First quarter 2018 earnings also benefited from the lower statutory federal income tax rate.

18The PNC Financial Services Group, Inc. – Form 10-Q17

~~Higher net interest income~~Asset Management Group earned $45 million in the ~~comparison was~~first three months of 2019 compared to $62 million for the same period in 2018. Earnings decreased due to ~~wider interest rate spreads on~~a decline in revenue and an increase in noninterest expense and the ~~value of deposits, partially offset~~provision for credit losses.

Lower revenue was driven by ~~declines in loan balances and narrower interest rate spreads on the value of loans. Higher noninterest income reflected growth~~a decline in asset management fees ~~driven by stronger average equity markets.~~due to changes in the mix of assets under management.

Noninterest expense increased primarily attributable to higher personnel expenses.

Asset Management Group’s discretionary client assets under management increased in the comparison to the prior year, primarily attributable to higher equity markets as of March 31, ~~2018.~~2019 and the impact of net business activities.

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

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

Institutional Asset Management provides advisory, custody and retirement administration services to institutional clients such as corporations, unions, municipalities, non-profits, foundations and endowments. The business also offers PNC proprietary mutual funds and investment strategies. Institutional Asset Management is strengthening its partnership with Corporate & Institutional Banking to drive growth and is focused on building retirement capabilities and expanding product solutions for all customers.

BlackRock

~~(Unaudited)~~

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

Table 13: BlackRock Table


(Unaudited)
Three months ended March 31
Dollars in millions	2018			2017			2019			2018
Business segment earnings (a)		$197			$145		$	197		$	197
PNC’s economic interest in BlackRock (b)	22		%	22		%	22		%	22		%


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


(b)	At March 31.


In billions	March 31 2018		December 31 2017		March 31, 2019		December 31, 2018
Carrying value of our investment in BlackRock (c)		$7.7		$7.7	$	8.2	$	8.2
Market value of our investment in BlackRock (d)		$18.8		$17.9	$	14.9	$	13.7


(c)	We account for our investment in BlackRock under the equity method of accounting, exclusive of a related deferred tax liability of ~~$1.6~~$1.7 billion at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. Our voting interest in BlackRock common stock was approximately ~~21%~~22% at March 31, ~~2018.~~2019.


(d)	Does not include liquidity discount.

~~Earnings for our BlackRock segment increased compared with~~In addition, in the first ~~three months~~quarter of ~~2017, and included the impact of the lower statutory federal income tax rate.~~

~~In addition~~2019 we transferred to BlackRock our ~~investment in BlackRock reflected in Table 13, at March 31, 2018, we held~~remaining 143,458 shares of BlackRock Series C Preferred Stock, ~~valued at $62 million,~~ which ~~are~~were available to fund our obligation in connection with certain BlackRock long-term incentive plan (LTIP) programs.

~~On January 31,~~Our 2018 we transferred 103,064 shares of Series C Preferred Stock to BlackRock to satisfy a portion of our LTIP obligation. The transfer reduced Other assets and Other liabilities on our Consolidated Balance Sheet by $42 million, representing the fair value of the shares transferred.

~~Our 2017~~ Form 10-K includes additional information about our investment in BlackRock.

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

RISK MANAGEMENT

The Risk Management section included in Item 7 of our ~~2017~~2018 Form 10-K describes our enterprise risk management framework including risk culture, enterprise strategy, risk governance and framework, risk identification, risk assessment, risk controls and monitoring, and risk aggregation and reporting. Additionally, our ~~2017~~2018 Form 10-K provides an analysis of our key areas of risk, which include but are not limited to credit, liquidity and capital, market, operational and compliance. ~~Our use of financial derivatives as part of our overall asset and liability risk management process is also addressed within the Risk Management section.~~

~~The following information updates our 2017 Form 10-K risk management disclosures.~~

Credit Risk Management

See the Credit Risk Management portion of the Risk Management section in our ~~2017~~2018 Form 10-K for additional discussion regarding credit risk.

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

Loan Portfolio Characteristics and Analysis

Table 14: Details of Loans

In billions

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

Commercial

Commercial loans comprised ~~51%~~53% and ~~50%~~52% of our total loan portfolio at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. ~~Most~~The majority of our commercial loans are secured by collateral that provides a secondary source of repayment for the loan should the borrower experience cash generation difficulties. Examples of this collateral include short-term assets, such as accounts receivable, inventory and securities, and long-lived assets, such as equipment, real estate and other business assets.

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

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

Table 15: Commercial Loans by Industry


	March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
Dollars in millions	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Commercial
Manufacturing	$	21,367	19	%	$	20,578	19	%	$	22,575	18	%	$	21,207	18	%
Retail/wholesale trade	18,232		16		17,846		16		21,655		18		20,850		18
Service providers	14,554		13		15,100		14		15,266		12		14,869		13
Real estate related (a)	12,701		11		12,496		11		12,287		10		12,312		11
Financial services									10,475		9		9,500		8
Health care	9,937		9		9,739		9		8,731		7		8,886		8
Financial services	9,479		8		8,532		8
Transportation and warehousing	5,488		5		5,609		5		6,744		5		5,781		5
Other industries	20,550		19		20,627		18		25,260		21		23,429		19
Total commercial loans	$	112,308	100	%	$	110,527	100	%	$	122,993	100	%	$	116,834	100	%

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

Commercial Real Estate

Commercial real estate loans comprised ~~$15.0~~$6.3 billion of real estate project loans, $6.9 billion of intermediate term financing loans and ~~$13.8~~$14.9 billion related to commercial mortgages as of March 31, ~~2018.~~2019. Comparable amounts were ~~$15.3~~$6.6 billion, $7.1 billion and ~~$13.7~~$14.4 billion, respectively, as of December 31, 2017. Our recent experience is that the competition for commercial real estate loans has become more aggressive in pricing and structure and is, at times, outside of our risk tolerance. As payoffs and maturities continue at a steady pace, the balance of our commercial real estate portfolio may decline.2018.

The PNC Financial Services Group, Inc. – Form 10-Q19

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

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


	March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
Dollars in millions	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Geography
California	$	4,239	15	%	$	4,192	14	%	$	4,131	15	%	$	4,154	15	%
Florida	2,263		8		2,221		8		2,235		8		2,157		8
Maryland	2,116		7		2,104		7		1,922		7		1,966		7
Virginia	1,667		6		1,609		5		1,683		6		1,682		6
Texas	1,592		5		1,639		6		1,689		6		1,531		5
Illinois									1,211		4		1,368		5
Pennsylvania	1,382		5		1,394		5		1,068		4		1,214		4
Illinois	1,333		5		1,325		5
New York	1,183		4		1,163		4		1,065		4		1,151		4
Ohio	1,149		4		1,134		4		1,146		4		1,053		4
New Jersey	972		3		964		3
North Carolina									899		3		915		3
All other states	10,939		38		11,233		39		11,052		39		10,949		39
Total commercial real estate loans	$	28,835	100	%	$	28,978	100	%	$	28,101	100	%	$	28,140	100	%
Property Type
Multifamily									$	8,588	31	%	$	8,770	31	%
Office									7,398		26		7,279		26
Retail									3,980		14		4,065		14
Hotel/Motel									1,666		6		1,686		6
Industrial/Warehouse									1,803		6		1,678		6
Senior Housing									1,201		4		1,092		4
Mixed Use									964		3		933		3
Other									2,501		10		2,637		10
Total commercial real estate loans									$	28,101	100	%	$	28,140	100	%

Home Equity

Home equity loans comprised ~~$16.4~~$15.0 billion of primarily variable-rate home equity lines of credit and ~~$11.3~~$10.5 billion of closed-end home equity installment loans at March 31, ~~2018.~~2019. Comparable amounts were ~~$16.8~~$15.5 billion and ~~$11.6~~$10.6 billion, respectively, as of December 31, ~~2017.~~2018.

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

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

analysis and monitoring, we also segment the portfolio based upon the loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV, lien position and geographic concentration.

The portfolio is primarily originated within ~~our primary geographic~~ markets located in the Mid-Atlantic, Midwest, and Southeast, with ~~only~~less than 5% of the portfolio in states outside of those markets at ~~both~~ March 31, ~~2018 and December 31, 2017.~~2019. The credit quality of newly originated loans over the last twelve months was strong overall as evidenced by a weighted-average LTV on originations of 67% and a weighted-average FICO score of ~~776.~~772.

The credit performance of the majority of the home equity portfolio where we hold the first lien position is superior to the portion of the portfolio where we hold the second lien position, but do not hold the first lien. Lien position information is generally based upon original LTV at the time of origination. We use an industry-leading third-party service provider to obtain updated loan, lien and collateral data that is aggregated from public and private sources.

The PNC Financial Services Group, Inc. – Form 10-Q20

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

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


	March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
Dollars in millions	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Geography
Pennsylvania	$	6,602	24	%	$	6,792	24	%	$	5,989	23	%	$	6,160	24	%
New Jersey	4,172		15		4,252		15		3,837		15		3,935		15
Ohio	3,316		12		3,413		12		3,012		12		3,095		12
Illinois	1,755		6		1,801		6		1,587		6		1,634		6
Maryland	1,544		6		1,572		6		1,450		6		1,481		6
Michigan	1,414		5		1,442		5		1,311		5		1,340		5
Florida	1,245		5		1,255		4		1,216		5		1,227		5
North Carolina	1,236		4		1,266		5		1,126		4		1,161		4
Kentucky	1,111		4		1,138		4		1,012		4		1,040		4
Indiana	895		3		924		3		826		3		845		3
All other states	4,409		16		4,509		16		4,134		17		4,205		16
Total home equity loans	$	27,699	100	%	$	28,364	100	%	$	25,500	100	%	$	26,123	100	%
Lien type
1st lien			58	%			58	%			58	%			58	%
2nd lien			42				42				42				42
Total home equity loans			100	%			100	%
Total											100	%			100	%

Residential Real Estate

Residential real estate loans primarily consisted of residential mortgage loans at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

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

The credit quality of newly originated loans that we retained on our balance sheet over the last twelve months was strong overall as evidenced by a weighted-average LTV on originations of 71% and a weighted-average FICO score of 769.

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

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

Table 18: Residential Real Estate Loans by Geography


	March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
Dollars in millions	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Geography
California	$	3,858	22	%	$	3,676	21	%	$	4,975	26	%	$	4,666	25	%
New Jersey	1,538		9		1,503		9		1,679		9		1,649		9
Florida	1,533		9		1,529		9		1,540		8		1,544		8
Illinois	1,206		7		1,230		7		1,145		6		1,161		6
Pennsylvania	965		5		962		5		1,039		5		1,031		6
New York									955		5		956		5
Maryland	903		5		902		5		906		5		913		5
New York	862		5		847		5
North Carolina	831		5		821		5		850		4		854		5
Virginia	822		5		824		5		834		4		825		4
Ohio	678		4		684		4		681		4		682		4
All other states	4,260		24		4,234		25		4,503		24		4,376		23
Total residential real estate loans	$	17,456	100	%	$	17,212	100	%	$	19,107	100	%	$	18,657	100	%

We originate residential mortgage loans nationwide through our national mortgage business as well as within our branch network. Residential mortgage loans underwritten to government agency standards, including conforming loan amount limits, are typically sold

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

with servicing retained by us. We also originate nonconforming residential mortgage loans that do not meet government agency standards, which we retain on our balance sheet. Growth in residential mortgage loans in the first quarter of 2018 was primarily due to nonconforming loans that exceeded agency conforming loan limits. Our portfolio of nonconforming residential mortgage loans totaled $10.9 billion at March 31, 2018, with 27% located in California. The nonconforming residential mortgage portfolio had strong credit quality at March 31, ~~2018~~2019 with an average original LTV of 70% and an average original FICO score of ~~771.~~772. Our portfolio of nonconforming residential mortgage loans totaled $13.1 billion at March 31, 2019 with 32% located in California.

Automobile

Within auto loans, ~~$11.8~~$13.2 billion resided in the indirect auto portfolio while $1.5 billion were in the direct auto portfolio as of March 31, ~~2018.~~2019. Comparable amounts as of December 31, ~~2017~~2018 were ~~$11.4~~$12.9 billion and ~~$1.4~~$1.5 billion, ~~respectively, and also included $.1 billion of securitized loans.~~respectively. The indirect auto portfolio relates to loan applications ~~generated from~~originated through franchised automobile dealers. This business is strategically aligned with our core retail banking business.

We continue to focus on borrowers with strong credit profiles as evidenced by a weighted-average loan origination FICO score over the last twelve months of ~~743~~742 for indirect auto loans and ~~766~~763 for direct auto loans. The weighted-average term of loan originations over the last twelve months was 7374 months for indirect auto loans and 62 months for direct auto loans. We offer both new and used automobile financing to customers through our various channels. At both March 31, 2019 and December 31, 2018, the portfolio was composed of 53% new vehicle loans and 47% used vehicle loans. ~~Comparable amounts were 54% and 46% at December 31, 2017, respectively.~~

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

Nonperforming Assets and Loan Delinquencies

Nonperforming Assets

Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming troubled debt restructurings (TDRs), other real estate owned (OREO), and foreclosed ~~and other~~ assets. Loans held for sale, certain government insured or guaranteed loans, purchased impaired loans and loans accounted for under the fair value option are excluded from nonperforming loans. Additional information regarding our nonperforming loans and nonaccrual policies is included in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in our ~~2017~~2018 Form 10-K. A summary of the major categories of nonperforming assets are presented in Table 19. See Note 3 Asset Quality in the Notes To Consolidated Financial Statements in this Report for further detail of nonperforming asset categories.

~~The PNC Financial Services Group, Inc. –~~ ~~Form 10-Q~~23

Table 19: Nonperforming Assets by Type


	March 31, 2018			December 31, 2017			Change					March 31, 2019			December 31, 2018			Change
Dollars in millions							$			%								$			%
Nonperforming loans
Commercial lending	$	537		$	554		$	(17	)	(3	)%	$	430		$	432		$	(2	)	—
Consumer lending (a)	1,305			1,311			(6		)	—		1,223			1,262			(39		)	(3	)%
Total nonperforming loans	1,842			1,865			(23		)	(1	)%	1,653			1,694			(41		)	(2	)%
OREO, foreclosed and other assets	162			170			(8		)	(5	)%
OREO and foreclosed assets												132			114			18			16	%
Total nonperforming assets	$	2,004		$	2,035		$	(31	)	(2	)%	$	1,785		$	1,808		$	(23	)	(1	)%
Amount of TDRs included in nonperforming loans	$	939		$	964		$	(25	)	(3	)%
TDRs included in nonperforming loans												$	869		$	863		$	6		1	%
Percentage of total nonperforming loans	51		%	52		%						53		%	51		%
Nonperforming loans to total loans	.83		%	.85		%						.71		%	.75		%
Nonperforming assets to total loans, OREO, foreclosed and other assets	.90		%	.92		%
Nonperforming assets to total loans, OREO and foreclosed assets												.77		%	.80		%
Nonperforming assets to total assets	.53		%	.53		%						.45		%	.47		%
Allowance for loan and lease losses to total nonperforming loans	141		%	140		%						163		%	155		%


(a)	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.

The PNC Financial Services Group, Inc. – Form 10-Q22

Table 20: Change in Nonperforming Assets


In millions	2018			2017			2019			2018
January 1	$	2,035		$	2,374		$	1,808		$	2,035
New nonperforming assets	249			330			287			249
Charge-offs and valuation adjustments	(137		)	(150		)	(164		)	(137		)
Principal activity, including paydowns and payoffs	(81		)	(228		)	(92		)	(81		)
Asset sales and transfers to loans held for sale	(29		)	(42		)	(13		)	(29		)
Returned to performing status	(33		)	(72		)	(41		)	(33		)
March 31	$	2,004		$	2,212		$	1,785		$	2,004

As of March 31, ~~2018,~~2019, approximately 87% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses in the event of default. As of March 31, ~~2018,~~2019, commercial lending nonperforming loans were carried at approximately ~~67%~~72% of their unpaid principal balance, due to charge-offs recorded to date, before consideration of the Allowance for loan and lease losses (ALLL).

Within consumer lending nonperforming loans, residential real estate TDRs ~~comprise 74%~~comprised 77% and 81% of total residential real estate nonperforming loans at March 31, ~~2018, down from 75% at~~2019 and December 31, ~~2017.~~2018, respectively. Home equity TDRs ~~comprise 50%~~comprised 47% of home equity nonperforming loans at both March 31, ~~2018 at~~2019 and December 31, ~~2017.~~2018. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

At March 31, ~~2018,~~2019, our largest nonperforming asset was ~~$41~~$35 million in the ~~Wholesale Trade~~Information industry and the ten largest individual nonperforming assets represented ~~12%~~11% of total nonperforming assets.

Loan Delinquencies

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

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

Table 21: Accruing Loans Past Due (a)


	Amount									Percentage of Total Loans Outstanding				Amount									Percentage of Total Loans Outstanding
	March 31 2018		December 31 2017		Change					March 31 2018		December 31 2017		March 31 2019		December 31 2018		Change					March 31 2019		December 31 2018
Dollars in millions	March 31 2018		December 31 2017		$			%		March 31 2018		December 31 2017		March 31 2019		December 31 2018		$			%		March 31 2019		December 31 2018
Early stage loan delinquencies
Accruing loans past due 30 to 59 days	$	527	$	545	$	(18	)	(3	)%	.24	%	.25	%	$	634	$	585	$	49		8	%	.27	%	.26	%
Accruing loans past due 60 to 89 days	234		238		(4		)	(2	)%	.11	%	.11	%	212		271		(59		)	(22	)%	.09	%	.12	%
Total	761		783		(22		)	(3	)%	.34	%	.36	%	846		856		(10		)	(1	)%	.36	%	.38	%
Late stage loan delinquencies
Accruing loans past due 90 days or more	628		737		(109		)	(15	)%	.28	%	.33	%	590		629		(39		)	(6	)%	.25	%	.28	%
Total	$	1,389	$	1,520	$	(131	)	(9	)%	.63	%	.69	%	$	1,436	$	1,485	$	(49	)	(3	)%	.62	%	.66	%


(a)	Past due loan amounts include government insured or guaranteed loans of ~~$.8~~$.6 billion at March 31, ~~2018~~2019 and ~~$.9~~$.7 billion at December 31, ~~2017.~~2018.

~~Accruing loans past due 90 days or more decreased at March 31, 2018 compared to December 31, 2017 primarily driven by a decline in government insured residential real estate loans.~~ Accruing loans past due 90 days or more are not included in nonperforming loans and continue to accrue interest because they are well secured by collateral and are in the process of collection, or are managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or are certain government insured or guaranteed loans.

~~Loan Modifications and~~ Troubled Debt Restructurings

~~Consumer~~ and Loan Modifications

We modify loans under government and PNC-developed programs based upon our commitment to help eligible homeowners and borrowers avoid foreclosure, where appropriate. Initially, a borrower is evaluated for a modification under a government program. If a borrower does not qualify under a government program, the borrower is then evaluated under a PNC program. Our programs utilize both temporary and permanent modifications and typically reduce the interest rate, extend the term and/or defer principal. Loans that are either temporarily or permanently modified under programs involving a change to loan terms are generally classified as TDRs. Further, loans that have certain types of payment plans and trial payment arrangements which do not include a contractual change to loan terms may be classified as TDRs.

A temporary modification, with a term up to 24 months, involves a change in original loan terms for a period of time and reverts to a calculated exit rate for the remaining term of the loan as of a specific date. A permanent modification, with a term greater than 24 months, is a modification in which the terms of the original loan are changed. Permanent modification programs generally result in principal forgiveness, interest rate reduction, term extension, capitalization of past due amounts, interest-only period or deferral of principal.

We also monitor the success rates and delinquency status of our loan modification programs to assess their effectiveness in serving our borrowers’ and servicing customers’ needs while mitigating credit losses. Table 22 provides the number of accounts and unpaid principal balance of modified consumer real estate related loans as of each date presented.

~~Table 22: Consumer Real Estate Related Loan Modifications~~

March 31, 2018 December 31, 2017
Dollars in millions
Number of
Accounts

Unpaid
Principal
Balance

Number of
Accounts

Unpaid
Principal
Balance

Temporary modifications 2,890
$ 203
3,033
$ 217

Permanent modifications 22,989
2,530
23,270
2,581

Total consumer real estate related loan modifications 25,879
$ 2,733
26,303
$ 2,798

~~Commercial Loan Modifications~~

Modifications of terms for commercial loans are based on individual facts and circumstances. Commercial loan modifications may involve reduction of the interest rate, extension of the loan term and/or forgiveness of principal. Modified commercial loans are usually already nonperforming prior to modification. We evaluate these modifications for TDR classification based upon whether we granted a concession to a borrower experiencing financial difficulties.

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

Troubled Debt Restructurings

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

The PNC Financial Services Group, Inc. – Form 10-Q23

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

Table ~~23:~~22: Summary of Troubled Debt Restructurings (a)


	March 31 2018		December 31 2017		Change					March 31 2019		December 31 2018		Change
Dollars in millions	March 31 2018		December 31 2017		$			%		March 31 2019		December 31 2018		$			%
Total commercial lending	$	384	$	409	$	(25	)	(6	)%	$	456	$	409	$	47		11	%
Total consumer lending	1,608		1,652		(44		)	(3	)%	1,412		1,442		(30		)	(2	)%
Total TDRs	$	1,992	$	2,061	$	(69	)	(3	)%	$	1,868	$	1,851	$	17		1	%
Nonperforming	$	939	$	964	$	(25	)	(3	)%	$	869	$	863	$	6		1	%
Accruing (b)	1,053		1,097		(44		)	(4	)%	999		988		11			1	%
Total TDRs	$	1,992	$	2,061	$	(69	)	(3	)%	$	1,868	$	1,851	$	17		1	%


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


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

Excluded from TDRs are ~~$1.2~~$1.1 billion of consumer loans held for sale, loans accounted for under the fair value option and pooled purchased impaired loans, as well as certain government insured or guaranteed loans at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. Nonperforming TDRs represented approximately ~~51%~~53% and ~~52%~~51% of total nonperforming loans at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, ~~and~~while representing 47% of total TDRs at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. The remaining portion of TDRs represents TDRs that have been returned to accrual ~~accounting~~status after performing under the restructured terms for at least six consecutive months.

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

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

We maintain an ALLL to absorb losses from the loan and lease portfolio and determine this allowance based on quarterly assessments of the estimated probable credit losses incurred in the loan and lease portfolio. Our total ALLL of ~~$2.6~~$2.7 billion at March 31, ~~2018~~2019 consisted of ~~$1.6~~$1.7 billion and $1.0 billion established for the commercial lending and consumer lending categories, respectively. We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolio as of the balance sheet date. The reserve calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan and lease portfolio performance experience, the financial strength of the borrower and economic conditions. Key reserve assumptions and estimation processes are periodically updated.

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

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

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

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

2624 The PNC Financial Services Group, Inc. – Form 10-Q

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

Industry concentrations and conditions,

Changes in market conditions,

Recent credit quality trends,

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

Recent macro-economic factors,

Model imprecision,

Changes in lending policies and procedures,

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

Limitations of available historical data.

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

Purchased impaired loans are initially recorded at fair value and applicable accounting guidance prohibits the carryover or creation of valuation allowances at acquisition. Because the initial fair values of these loans already reflect a credit component, additional reserves are established when performance is expected to be worse than our expectations as of the acquisition date. At March 31, ~~2018,~~2019, we had established reserves of $.3 billion for purchased impaired loans. In addition, loans (purchased impaired and non-impaired) acquired after January 1, 2009 were recorded at fair value. No allowance for loan losses was carried over and no allowance was created at the date of acquisition.

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

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

See Note 1 Accounting Policies in our ~~2017~~2018 Form 10-K and Note 3 Asset Quality in the Notes To Consolidated Financial Statements in this Report for further information on certain key asset quality indicators that we use to evaluate our portfolios and establish the allowances.

Table ~~24:~~23: Allowance for Loan and Lease Losses

Dollars in millions 2018 2017
January 1 $ 2,611
$ 2,589

Total net charge-offs (113 ) (118 )
Provision for credit losses 92
88

Net decrease / (increase) in allowance for unfunded loan commitments and letters of credit 7
(4 )
Other 7
6

March 31 $ 2,604
$ 2,561

Net charge-offs to average loans (for the three months ended) (annualized) .21 % .23 %
Total allowance for loan and lease losses to total loans 1.18 % 1.20 %
Commercial lending net charge-offs $ (10 ) $ (23 )
Consumer lending net charge-offs (103 ) (95 )
Total net charge-offs $ (113 ) $ (118 )
Net charge-offs to average loans (for the three months ended) (annualized)
Commercial lending .03 % .07 %
Consumer lending .57 % .53 %

At March 31, 2018, total ALLL to total nonperforming loans was 141%. The comparable amount for December 31, 2017 was 140%. These ratios are 101% and 102% when excluding the $.7 billion of ALLL at both March 31, 2018 and December 31, 2017 allocated to consumer loans and lines of credit not secured by residential real estate and purchased impaired loans. We have excluded these amounts from ALLL in these ratios as these asset classes are not included in nonperforming loans. See Table 19 within this Credit Risk Management section for additional information.



Dollars in millions	2019			2018
January 1	$	2,629		$	2,611
Total net charge-offs	(136		)	(113		)
Provision for credit losses	189			92
Net decrease / (increase) in allowance for unfunded loan commitments and letters of credit	6			7
Other	4			7
March 31	$	2,692		$	2,604
Net charge-offs to average loans (for the three months ended) (annualized)	.24		%	.21		%
Ratio of ALLL to total loans	1.16		%	1.18		%
Commercial lending net charge-offs	$	(12	)	$	(10	)
Consumer lending net charge-offs	(124		)	(103		)
Total net charge-offs	$	(136	)	$	(113	)
Net charge-offs to average loans (for the three months ended) (annualized)
Commercial lending	.03		%	.03		%
Consumer lending	.68		%	.57		%

The ALLL balance increases or decreases across periods in relation to fluctuating risk factors, including asset quality trends, net charge-offs and changes in aggregate portfolio balances. During the first three months of ~~2018,~~2019, overall credit quality remained ~~stable,~~strong, which resulted in an essentially flat ALLL balance as of March 31, ~~2018~~2019 compared to December 31, ~~2017.~~2018.

The PNC Financial Services Group, Inc. – Form 10-Q 2725

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

Table ~~25:~~24: Loan Charge-Offs and Recoveries


Three months ended March 31	Gross Charge-offs		Recoveries		Net Charge-offs / (Recoveries)			Percent of Average Loans (Annualized)		Gross Charge-offs		Recoveries		Net Charge-offs / (Recoveries)			Percent of Average Loans (Annualized)
Dollars in millions	Gross Charge-offs		Recoveries		Net Charge-offs / (Recoveries)			Percent of Average Loans (Annualized)		Gross Charge-offs		Recoveries		Net Charge-offs / (Recoveries)			Percent of Average Loans (Annualized)
2019
Commercial										$	25	$	14	$	11		.04	%
Commercial real estate										3		3
Equipment lease financing										3		2		1			.06	%
Home equity										23		18		5			.08	%
Residential real estate										2		3		(1		)	(.02	)%
Automobile										58		26		32			.89	%
Credit card										67		7		60			3.91	%
Education										6		2		4			.43	%
Other consumer										28		4		24			2.13	%
Total										$	215	$	79	$	136		.24	%
2018
Commercial	$	28	$	16	$	12		.04	%	$	28	$	16	$	12		.04	%
Commercial real estate	6		6							6		6
Equipment lease financing	2		4		(2		)	(.10	)%	2		4		(2		)	(.10	)%
Home equity	28		21		7			.10	%	28		21		7			.10	%
Residential real estate	2		4		(2		)	(.05	)%	2		4		(2		)	(.05	)%
Automobile										38		17		21			.65	%
Credit card	56		6		50			3.60	%	56		6		50			3.60	%
Education										9		2		7			.64	%
Other consumer										24		4		20			1.85	%
Automobile	38		17		21			.65	%
Education	9		2		7			.64	%
Other	24		4		20			1.85	%
Total	$	193	$	80	$	113		.21	%	$	193	$	80	$	113		.21	%
2017
Commercial	$	53	$	24	$	29		.11	%
Commercial real estate	1		7		(6		)	(.08	)%
Equipment lease financing	1		1
Home equity	34		20		14			.19	%
Residential real estate	4		4
Credit card	46		5		41			3.24	%
Other consumer
Automobile	30		13		17			.56	%
Education	7		2		5			.40	%
Other	22		4		18			1.64	%
Total	$	198	$	80	$	118		.23	%

See Note 1 Accounting Policies in our ~~2017~~2018 Form 10-K and Note 4 Allowance for Loan and Lease Losses in the Notes To Consolidated Financial Statements in this Report for additional information on the ALLL.

Liquidity and Capital Management

Liquidity risk, including our liquidity monitoring measures and tools, is described in further detail in the Liquidity and Capital Management section of our ~~2017~~2018 Form 10-K.

One of the ways we monitor our liquidity is by reference to the ~~Liquidity Coverage Ratio (LCR),~~LCR, a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a hypothetical 30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets (HQLA), as defined and calculated in accordance with the LCR rules, by its estimated net cash outflows, with net cash outflows determined by applying the assumed outflow factors in the LCR rules. The resulting quotient is expressed as a percentage. The minimum LCR that PNC and PNC Bank are required to maintain is 100% ~~in 2018.~~. PNC and PNC Bank calculate the LCR daily, and as of March 31, ~~2018,~~2019, the LCR for PNC and PNC Bank exceeded the requirement of 100%.

We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our ~~2017~~2018 Form 10-K.

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

Sources of Liquidity

Our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable and low-cost funding. Total deposits ~~decreased~~increased to ~~$264.7~~$271.2 billion at March 31, ~~2018~~2019 from ~~$265.1~~$267.8 billion at December 31, ~~2017,~~2018 driven by ~~decreases~~growth in ~~noninterest-bearing~~interest-bearing deposits partially offset by ~~growth~~a decrease in ~~interest-bearing~~noninterest-bearing deposits. See the Funding Sources portion of the Consolidated Balance Sheet Review section of this Financial Review for additional information related to our deposits. Additionally, certain assets determined by us to be liquid ~~and~~as well as unused borrowing capacity from a number of sources are also available to manage our liquidity position.

At March 31, ~~2018,~~2019, our liquid assets consisted of short-term investments ~~(Federal~~(federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling ~~$32.7~~$21.3 billion and securities available for sale totaling ~~$56.0~~$65.1 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet

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

management activities. Our liquid assets included ~~$3.3~~$1.6 billion of securities available for sale and trading securities pledged as collateral to secure public and trust deposits, repurchase agreements and for other purposes. In addition, ~~$5.0~~$4.4 billion of securities held to maturity were also pledged as collateral for these purposes.

We also obtain liquidity through various forms of funding, including long-term debt (senior notes, subordinated debt and FHLB borrowings) and short-term borrowings (securities sold under repurchase agreements, commercial paper and other short-term borrowings). See Note 10 Borrowed Funds in our ~~2017~~2018 Form 10-K and the Funding Sources section of the Consolidated Balance Sheet Review for additional information related to our borrowings.

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

Table ~~26:~~25: Senior and Subordinated Debt


In billions	2018			2019
January 1	$	33.3		$	30.9
Issuances	2.0			2.1
Calls and maturities	(1.0		)	(1.8		)
Other	(0.4		)	.4
March 31	$	33.9		$	31.6

Bank Liquidity

Under PNC Bank’s 2014 bank note program, as amended, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount outstanding at any one time of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. At March 31, ~~2018,~~2019, PNC Bank had ~~$27.7~~$23.8 billion of notes outstanding under this program of which ~~$24.1~~$19.6 billion were senior bank notes and ~~$3.6~~$4.2 billion were subordinated bank notes. The following table details issuances for the three months ended March 31, ~~2018.~~

2019.

Table ~~27:~~26: PNC Bank Notes Issued ~~During First Quarter 2018~~



Issuance Date	Amount	Description of Issuance
~~January 22, 2018~~March 12, 2019	$~~900 million~~	~~Senior notes with a maturity date of January 22, 2021. Interest is payable semi-annually at a fixed rate of 2.500% per annum on January 22 and July 22 of each year, beginning July 22, 2018.~~
~~January 22, 2018~~	~~$700 million~~	~~Senior notes with a maturity date of January 22, 2028. Interest is payable semi-annually at a fixed rate of 3.250% per annum on January 22 and July 22 of each year, beginning July 22, 2018.~~
~~January 22, 2018~~	~~$400 million~~1.1 billion	Floating rate senior notes with a maturity date of ~~January 22,~~March 12, 2021. Interest is payable at the 3-month LIBOR rate, reset quarterly, plus a spread of ~~.25%~~.35% on ~~January 22, April 22, July 22~~March 12, June 12, September 12 and ~~October 22~~December 12 of each year, beginning on ~~April 22, 2018.~~June 12, 2019.

PNC Bank maintains additional secured borrowing capacity with the FHLB-Pittsburgh and through the Federal Reserve Bank discount window. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities, but rather as a potential source of liquidity in a stressed environment or during a market disruption. At March 31, ~~2018,~~2019, our unused secured borrowing capacity at the FHLB-Pittsburgh and the Federal Reserve Bank totaled ~~$44.6~~$42.1 billion.

PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of March 31, ~~2018,~~2019, there were no issuances outstanding under this program.

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

Parent Company Liquidity

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

As of March 31, ~~2018,~~2019, available parent company liquidity totaled ~~$5.9~~$5.2 billion. Parent company liquidity is primarily held in intercompany short-term investments, the terms of which provide for the availability of cash in 31 days or less. Investments with longer durations may also be acquired, but if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

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

Bank-level capital needs,

Laws and regulations,

Corporate policies,

Contractual restrictions, and

Other factors.

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

There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was approximately ~~$1.4~~$2.7 billion at March 31, ~~2018.~~2019. See Note 18 Regulatory Matters in the Notes To Consolidated Financial Statements in our ~~2017~~2018 Form 10-K for a further discussion of these limitations.

In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As of March 31, ~~2018,~~2019, there were no commercial paper issuances outstanding.

The parent company has an effective shelf registration statement pursuant to which we can issue additional debt, equity and other capital instruments. Under this shelf registration statement, on January 23, 2019, the parent company issued $750 million in senior notes with a maturity date of January 23, 2024. Interest is payable semi-annually at a fixed rate of 3.50% per annum, on January 23 and July 23 of each year, beginning July 23, 2019. On February 15, 2019 the parent company issued an additional $300 million of these notes bringing the outstanding principal amount of the series to $1.05 billion.

Parent company senior and subordinated debt outstanding totaled ~~$6.8~~$7.8 billion and $6.7 billion at ~~both~~ March 31, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively.

Contractual Obligations and Commitments

We have contractual obligations representing required future payments on borrowed funds, time deposits, leases, pension and postretirement benefits and purchase obligations. See the Liquidity and Capital Management portion of the Risk Management section in our ~~2017~~2018 Form 10-K for more information on these future cash outflows. Additionally, in the normal course of business we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. We provide information on our commitments in Note 13 Commitments in the Notes To Consolidated Financial Statements of this Report.

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

Credit Ratings

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

In general, rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current legislative and regulatory environment, including implied government support. In addition, rating agencies themselves have been subject to scrutiny arising from the most recent financial crisis and could make or be required to make substantial changes to their ratings policies and practices, particularly in response to legislative and regulatory changes. Potential changes in the legislative and regulatory environment and the timing of those changes could impact our ratings, which as noted above, could impact our liquidity and financial condition. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect liquidity and financial condition.

Table ~~28:~~27: Credit Ratings ~~as of March 31, 2018~~ for PNC and PNC Bank



	March 31, 2019
	Moody’s	Standard & Poor’s	Fitch
PNC
Senior debt	A3	A-	A+
Subordinated debt	A3	BBB+	A
Preferred stock	Baa2	BBB-	BBB-
PNC Bank
Senior debt	A2	A	A+
Subordinated debt	A3	A-	A
Long-term deposits	Aa2	A	AA-
Short-term deposits	P-1	A-1	F1+
Short-term notes	P-1	A-1	F1

Capital Management

Detailed information on our capital management processes and activities, including additional information on our previous CCAR submissions and capital plans, is included in the Capital Management portion of the Risk Management section in our ~~2017~~2018 Form 10-K.

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

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

In connection with the capital plan accepted by the Federal Reserve as part of our ~~2017~~2018 CCAR submission, we repurchased ~~4.8~~5.9 million common shares for ~~$.7 billion~~$725 million in the first quarter of ~~2018 as part~~2019. As of ~~our common stock repurchase programs for the four quarter period ending June 30, 2018.~~March 31, 2019, PNC has repurchased a total of ~~12.7~~15.3 million shares for ~~$1.8~~$2.0 billion under current share repurchase programs ~~as of March 31, 2018.~~that will end June 30, 2019.

We paid dividends on common stock of ~~$.4 billion,~~$438 million, or ~~75 cents~~$.95 per common share, during the first quarter of ~~2018.~~2019. On April 4, ~~2018,~~2019, the PNC Board of Directors declared a quarterly common stock cash dividend of ~~75 cents~~$.95 per share with a payment date of May 5, ~~2018.~~2019.

~~The PNC Financial Services Group, Inc. –~~ ~~Form 10-Q~~31

Table ~~29:~~28: Basel III Capital


Dollars in millions	Basel III March 31, 2018 (a) (b)			Fully Phased-In Basel III (Non-GAAP) December 31, 2017 (c)				2017 Transitional Basel III December 31, 2017 (a)			Basel III March 31, 2019
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock	$	7,416		$	8,195			$	8,195		$	4,810
Retained earnings	36,265			35,481				35,481			39,742
Accumulated other comprehensive income for securities currently and those transferred from available for sale	(151		)	337				270
Accumulated other comprehensive income for pension and other postretirement plans	(494		)	(544		)		(436		)
Accumulated other comprehensive income (loss) for securities currently, and those transferred from, available for sale											419
Accumulated other comprehensive income (loss) for pension and other postretirement plans											(418		)
Goodwill, net of associated deferred tax liabilities	(9,028		)	(8,988		)		(8,988		)	(9,021		)
Other disallowed intangibles, net of deferred tax liabilities	(315		)	(319		)		(255		)	(239		)
Other adjustments/(deductions)	(121		)	(141		)		(138		)	(163		)
Total common equity Tier 1 capital before threshold deductions	33,572			34,021				34,129			35,130
Total threshold deductions ~~(d)~~	(3,272		)	(2,928		)		(1,983		)	(3,074		)
Common equity Tier 1 capital	30,300			31,093				32,146			$	32,056
Additional Tier 1 capital
Preferred stock plus related surplus	3,986			3,985				3,985			3,990
Other adjustments/(deductions)	(148		)	(146		)		(124		)	(157		)
Tier 1 capital	34,138			34,932				36,007			$	35,889
Additional Tier 2 capital
Qualifying subordinated debt	3,324			3,433				3,482			3,731
Trust preferred capital securities	80							100			60
Eligible credit reserves includable in Tier 2 capital	2,893			2,907				2,907			2,971
Total Basel III capital	$	40,435		$	41,272			$	42,496		$	42,651
Risk-weighted assets
Basel III standardized approach risk-weighted assets ~~(e)~~(a)	$	314,922		$	316,120			$	309,460		$	328,128
Basel III advanced approaches risk-weighted assets ~~(f)~~(b)	$	280,385		$	285,226			N/A			$	298,889
Average quarterly adjusted total assets	$	364,242		$	363,967			$	364,999		$	373,374
Supplementary leverage exposure ~~(g)~~(c)	$	433,233		$	434,698			$	435,731		$	448,129
Basel III risk-based capital and leverage ratios(d)
Common equity Tier 1 ~~(i)~~	9.6		%	9.8		%	(h)	10.4		%	9.8		%
Tier 1 ~~(j)~~	10.8		%	11.1		%	(h)	11.6		%	10.9		%
Total (k) (l) (m)	12.8		%	13.1		%	(h)	13.7		%
Total (e)											13.0		%
Leverage ~~(n)~~(f)	9.4		%	9.6		%		9.9		%	9.6		%
Supplementary leverage ratio ~~(o)~~(g)	7.9		%	8.0		%		8.3		%	8.0		%


(a)	~~All ratios are calculated using the regulatory capital methodology applicable to PNC during each period presented and calculated based on the standardized approach.~~


~~(b)~~	The Basel III Common equity Tier 1 capital, Tier 1 risk-based capital, Leverage and Supplementary ratios as of March 31, 2018 reflect the full phase-in of all Basel III adjustments to these metrics applicable to PNC.


~~(c)~~	~~2017 Fully Phased-In Basel III results are presented as Pro forma estimates.~~

~~(d)~~

Under the Basel III rules, certain items such as significant common stock investments in unconsolidated financial institutions (primarily BlackRock), mortgage servicing rights and deferred tax assets must be deducted from capital (subject to a phase-in schedule that ended December 31, 2017 and net of associated deferred tax liabilities) to the extent they individually exceed 10%, or in the aggregate exceed 15%, of PNC's adjusted common equity Tier 1 capital.


~~(e)~~	Includes credit and market risk-weighted assets.

~~(f)~~(b)

Basel III advanced approaches risk-weighted assets are calculated based on the Basel III advanced approaches rules, and include credit, market, and operational risk-weighted assets. During the parallel run qualification phase, PNC has refined the data, models, and internal processes used as part of the advanced approaches for determining risk-weighted assets. ~~We anticipate additional refinements to this calculation through the parallel run qualification phase.~~


~~(g)~~(c)	Supplementary leverage exposure is the sum of Adjusted average assets and certain off-balance sheet exposures including undrawn credit commitments and derivative potential future exposures.


~~(h)~~	~~Pro forma fully phased-in Basel III capital ratios based on Basel III standardized approach risk-weighted assets and rules.~~

~~(i)~~(d)

For comparative purposes only, the advanced approaches Basel III Common equity Tier 1, ~~capital ratio~~Tier 1 risk-based and Total risk-based ratios for March 31, ~~2018 is 10.8%~~2019 were 10.7%, 12.0% and ~~for December 31, 2017 is 10.9% (estimated). This capital ratio is calculated using Common equity Tier 1 capital and dividing by Basel III advanced approaches risk-weighted assets.~~13.3%, respectively.


~~(j)~~(e)	~~For comparative purposes only, the advanced approaches~~The 2019 Basel III Tier 1 risk-based capital ratio for March 31, 2018 is 12.2% and for December 31, 2017 is 12.2% (estimated). This capital ratio is calculated using Tier 1 capital and dividing by Basel III advanced approaches risk-weighted assets.

~~(k)~~

~~For comparative purposes only, the advanced approaches Basel III~~ Total capital risk-based capital ratio for March 31, 2018 is 13.5% and for December 31, 2017 is 13.5% (estimated). This ratio is calculated using Total Basel III capital, which under the advanced approaches, Additional Tier 2 capital includes allowance for loan and lease losses in excess of Basel expected credit losses, if any, up to 0.6% of credit risk-weighted assets, and dividing by Basel III advanced approaches risk-weighted assets.


~~(l)~~	~~The Basel III total~~ risk-based capital ratio includes ~~$80 million of~~ nonqualifying trust preferred capital securities of $60 million that are subject to a phase-out period that runs through ~~2022.~~


~~(m)~~	2021. For comparative purposes only, as of March 31, ~~2018~~2019 the ratio ~~is 12.8%~~was 13.0%, assuming nonqualifying trust preferred capital securities are phased out.


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


~~(o)~~(g)	Supplementary leverage ratio is calculated based on Tier 1 capital divided by Supplementary leverage exposure. ~~As advanced approaches banking organizations, PNC and PNC Bank became subject to a 3% minimum supplementary leverage ratio effective January 1, 2018.~~

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

The decline in our Basel III Common equity Tier 1 capital ratio at March 31, 2018 compared to December 31, 2017 was driven by a decline in AOCI related to the impact of higher interest rates on the valuation of our available for sale securities portfolio.

Because PNC remains in the parallel run qualification phase for the advanced approaches, our regulatory risk-based capital ratios in ~~2018 and 2017~~2019 are calculated using the standardized approach for determining risk-weighted assets. Under the standardized approach for determining credit risk-weighted assets, exposures are generally assigned a pre-defined risk weight. Exposures to high volatility commercial real estate, past due exposures and equity exposures are generally subject to higher risk weights than other types of

The PNC Financial Services Group, Inc. – Form 10-Q29

exposures. Once we exit parallel run, our regulatory risk-based capital ratios will be the lower of the ratios calculated under the standardized approach and the advanced approaches.

Under the Basel III rules applicable to PNC, significant common stock investments in unconsolidated financial institutions ~~(primarily~~(for PNC, primarily BlackRock), mortgage servicing rights and deferred tax assets must be deducted from capital ~~(subject to a phase-in schedule that ended December 31, 2017 and net~~(net of associated deferred tax liabilities) to the extent they individually exceed 10%, or in the aggregate exceed 15%, of the institution's adjusted common equity Tier 1 capital. Also, Basel III regulatory capital includes ~~(subject to a phase-in schedule that ended December 31, 2017) accumulated other comprehensive income~~AOCI related to securities currently, and ~~previously held as~~those transferred from, available for sale, as well as pension and other postretirement plans. With the exception of certain nonqualifiying trust preferred capital securities included in PNC’s Total risk-based capital, the transitions and multi-year phase-in of the definition of capital under the Basel III rules were complete as of January 1, 2018. Accordingly, we refer to the capital ratios calculated using the definition of capital in effect as of January 1, 2018 and, for the risk-based ratios, standardized approach risk-weighted assets, as the Basel III ratios. The Basel III Total risk-based capital includes trust preferred capital securities in the amount of $80 million that are subject to a phase-out that runs through 2022. We refer to the capital ratios calculated using the phased-in Basel III provisions in effect for 2017 and, for the risk-based ratios, standardized approach risk-weighted assets, as the 2017 Transitional Basel III ratios. All current period capital ratios are calculated using the regulatory capital methodology applicable to us during 2018.

Federal banking regulators have stated that they expect the largest U.S. bank holding companies (BHCs), including PNC, to have a level of regulatory capital well in excess of the regulatory minimum and have required the largest U.S. ~~bank holding companies (BHCs),~~BHCs, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet the credit needs of their customers through estimated stress scenarios. We seek to manage our capital consistent with these regulatory principles, and believe that our March 31, ~~2018~~2019 capital levels were aligned with them.

At March 31, ~~2018,~~2019, PNC and PNC Bank, our sole bank subsidiary, were both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized”, PNC must have Basel III capital ratios of at least 6% for Tier 1 risk-based capital and 10% for Total risk-based capital, and PNC Bank must have Basel III capital ratios of at least 6.5% for Common equity Tier 1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%.

We provide additional information regarding regulatory capital requirements and some of their potential impacts on us in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 18 Regulatory Matters in our ~~2017~~2018 Form 10-K. ~~See the Statistical Information (Unaudited) section of this Report for details on our March 31, 2017 Transitional Basel III and Fully Phased-In Basel III Common equity Tier 1 capital ratios.~~

~~The PNC Financial Services Group, Inc. –~~ ~~Form 10-Q~~33

Market Risk Management

~~Market risk is~~See the risk of a loss in earnings or economic value due to adverse movements in market factors such as interest rates, credit spreads, foreign exchange rates, commodity prices and equity prices. We are exposed to market risk primarily by our involvement in the following activities, among others:

~~Traditional banking activities of gathering deposits and extending loans,~~

~~Equity and other investments and activities whose economic values are directly impacted by market factors, and~~

~~Fixed income securities, derivatives and foreign exchange activities, as a result of customer activities and securities underwriting.~~

~~We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk.~~ Market Risk Management ~~provides independent oversight by monitoring compliance with established guidelines and reporting significant risks in the business to~~portion of the Risk ~~Committee of the Board of Directors.~~Management Section in our 2018 Form 10-K for additional discussion regarding market risk.

Market Risk Management – Interest Rate Risk

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

The interest rates that we pay on customer deposits have risen in recent quarters ~~in part~~ as a result of higher short-term market interest rates. The rates paid on commercial deposits have had a higher correlation to ~~the increase~~increases in short-term interest rates, as compared to the rates paid on consumer deposits. During the remainder of 2019, we anticipate that the rates paid on our consumer deposits will continue to reflect any increases in short-term interest rates, although at a slower pace than previous years given the current Federal Reserve interest rate outlook. The rates paid on customer deposits are also impacted by ~~many~~ factors including the level of interest rates, competition for deposits, new product offerings, ~~and~~ changes in business ~~strategies. During the remainder of 2018, we anticipate that the rates paid on our consumer deposits will have a~~strategies and customer migration to higher ~~correlation to changes in short-term in interest rates.~~

A portion of our loans are indexed to one-month LIBOR, while the majority of our wholesale borrowings are indexed to three-month LIBOR. During the first quarter of 2018, the spread between three-month LIBOR and one-month LIBOR widened, resulting in a compression of net interest income and margin from what would have otherwise been recognized had the spread remained unchanged.rate accounts.

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

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

Sensitivity results and market interest rate benchmarks for the first quarters of 2019 and 2018 ~~and 2017 follow:~~follow.

Table ~~30:~~29: Interest Sensitivity Analysis


	First Quarter 2018		First Quarter 2017		First Quarter 2019		First Quarter 2018
Net Interest Income Sensitivity Simulation (a)
Effect on net interest income in first year from gradual interest rate change over the following 12 months of:
100 basis point increase	2.5	%	2.5	%	1.5	%	2.5	%
100 basis point decrease	(3.1	)%	(4.5	)%	(2.2	)%	(3.1	)%
Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of:
100 basis point increase	4.3	%	4.0	%	4.0	%	4.3	%
100 basis point decrease	(7.0	)%	(8.8	)%	(6.6	)%	(7.0	)%
Duration of Equity Model (a)
Base case duration of equity (in years)	(.7	)	(2.3	)	(3.7	)	(.7	)
Key Period-End Interest Rates
One-month LIBOR	1.88	%	.98	%	2.49	%	1.88	%
Three-month LIBOR	2.31	%	1.15	%	2.60	%	2.31	%
Three-year swap	2.66	%	1.81	%	2.31	%	2.66	%


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

In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 3130 reflects the percentage change in net interest income over the next two 12-month periods assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and

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

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

~~Table 31: Net Interest Income Sensitivity to Alternative Rate Scenarios (First Quarter 2018)~~

PNC
Economist

Market
Forward

Slope
Flattening

First year sensitivity .7 % 1.8 % (.8 )%
Second year sensitivity 1.3 % .4 % (3.5 )%

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

Table 30: Net Interest Income Sensitivity to Alternative Rate Scenarios



	March 31, 2019
	PNC Economist		Market Forward		Slope Flattening
First year sensitivity	.3	%	.3	%	(.8	)%
Second year sensitivity	1.4	%	(.3	)%	(3.7	)%

When forecasting net interest income, we make assumptions about interest rates and the shape of the yield curve, the volume and characteristics of new business and the behavior of existing on- and off-balance sheet positions. These assumptions determine the future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 3029 and ~~31.~~30. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates.

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

The PNC Financial Services Group, Inc. – Form 10-Q31

Table ~~32:~~31: Alternate Interest Rate Scenarios: One Year Forward

The first quarter ~~2018~~2019 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

Market Risk Management – Customer-Related Trading Risk

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

We use value-at-risk (VaR) as the primary means to measure and monitor market risk in customer-related trading activities. VaR is used to estimate the probability of portfolio losses based on the statistical analysis of historical market risk factors. A diversified VaR reflects empirical correlations across different asset classes. We calculate a diversified VaR at a 95% confidence interval and the results for the first three months of ~~2018~~2019 and ~~2017~~2018 were within our acceptable limits.

See the Market Risk Management – Customer-Related Trading Risk section of our ~~2017~~2018 Form 10-K for more information on our models used to calculate VaR and our backtesting process.

Customer related trading revenue was $48 million for the first quarter of 2019 compared to $77 million for the first quarter ~~of 2018 compared to $68 million for the first quarter of 2017.~~in 2018. The ~~increase~~decrease was primarily due to ~~higher~~the impact of changes in credit valuations for customer-related derivative activities and lower foreign exchange and derivative client sales ~~revenues.~~

~~The PNC Financial Services Group, Inc. –~~ ~~Form 10-Q~~35

revenue.

Market Risk Management – Equity And Other Investment Risk

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

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

A summary of our equity investments follows:

Table ~~33:~~32: Equity Investments Summary


	March 31 2018		December 31 2017		Change					March 31 2019		December 31 2018		Change
Dollars in millions	March 31 2018		December 31 2017		$			%		March 31 2019		December 31 2018		$			%
BlackRock	$	7,642	$	7,576	$	66		1	%	$	8,080	$	8,016	$	64		1	%
Tax credit investments	2,071		2,148		(77		)	(4	)%	2,057		2,219		(162		)	(7	)%
Private equity and other	2,295		1,668		627			38	%	2,430		2,659		(229		)	(9	)%
Total	$	12,008	$	11,392	$	616		5	%	$	12,567	$	12,894	$	(327	)	(3	)%

BlackRock

We owned approximately 35 million common stock equivalent shares of BlackRock equity at March 31, ~~2018,~~2019, accounted for under the equity method. The Business Segments Review section of this Financial Review includes additional information about BlackRock.

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

Tax Credit Investments

Included in our equity investments are direct tax credit investments and equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $.7 billion and $.8 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.

Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in our ~~2017~~2018 Form 10-K has further information on Tax Credit Investments.

Private Equity and Other

The majority of our other equity investments consists of our private equity portfolio. The private equity portfolio is an illiquid portfolio consisting of mezzanine and equity investments that vary by industry, stage and type of investment. Private equity investments carried at estimated fair value totaled $1.4 billion and ~~$1.3~~$1.5 billion at March 31, ~~2018 at~~2019 and December 31, ~~2017,~~2018, respectively. As of March 31, ~~2018,~~2019, $1.2 billion was invested directly in a variety of companies and $.2 billion was invested indirectly through various private equity funds. See ~~Item 1 Business -~~the Supervision and Regulation section in Item 1 of our ~~2017~~2018 Form 10-K for discussion of the potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and of private funds covered by the Volcker Rule.

Effective January 1, 2018, $.6 billion of available for sale securities were reclassified to equity investments as part of the adoption of ASU 2016-01. These securities were primarily money market funds.

Included in our other equity investments are Visa Class B common shares, which are recorded at cost. ~~At March 31, 2018, the estimated value of our investment in Visa Class B common shares was approximately $693 million and our cost basis was not significant.~~ Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly-traded ~~class of stock,~~Class A common shares, which cannot happen until the ~~settlement~~resolution of the pending interchange litigation. Based upon the March 31, 2019 per share closing price of $156.19 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $895 million at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was not significant. See Note 6 Fair Value and Note 19 Legal Proceedings in the Notes To Consolidated Financial Statements in Item 8 of our ~~2017 Form~~2018 10-K for additional information regarding our Visa agreements. The estimated value does not represent fair value of the Visa B common shares given the share’s limited transferability and the lack of observable transactions in the marketplace.

We also have certain other equity investments, the majority of which represent investments in affiliated and non-affiliated funds with both traditional and alternative investment strategies. Net gains related to these investments were not significant at March 31, ~~2018~~2019 and March 31, ~~2017.~~

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

2018.

Financial Derivatives

We use a variety of financial derivatives as part of the overall asset and liability risk management process to help manage exposure to market (primarily interest rate) and credit risk inherent in our business activities. Substantially all such instruments are used to manage risk related to changes in interest rates. Interest rate swaps, interest rate caps and floors, swaptions, options, forwards and futures contracts are the primary instruments we use for risk management. We also enter into derivatives with customers to facilitate their risk management activities.

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

Further information on our financial derivatives is presented in Note 1 Accounting Policies and Note 6 Fair Value in our Notes To Consolidated Financial Statements in our ~~2017~~2018 Form 10-K and in Note 6 Fair Value and Note 9 Financial Derivatives in the Notes To Consolidated Financial Statements in this Report.

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

RECENT REGULATORY DEVELOPMENTS

On ~~April 10, 2018,~~March 6, 2019, the Federal Reserve ~~requested public comment on~~released a ~~proposal that would integrate~~final rule amending its capital plan rule. Under the final rule, ~~stress test rules and~~the capital plan that PNC files in connection with the annual CCAR exercise, including the capital plan submitted on April 5, 2019 in connection with ~~its Basel III regulatory capital rules. The proposal would apply to BHCs with $50 billion or more in assets (including PNC). Among other things,~~ the proposal would introduce new common equity Tier 1 (CET1) and Tier 1 leverage stress capital buffers. The CET1 and Tier 1 leverage stress capital buffers for a covered BHC would equal (i) the percentage decline in the BHC’s CET1 and Tier 1 leverage ratios, respectively, in the most recently completed2019 CCAR exercise, ~~as projected~~is no longer subject to a potential objection by the Federal Reserve under its Supervisory Severely Adverse scenario, plus (ii) the BHC’s projected common stock dividends in the fourth through seventh quarter of that exercise (expressed as a ratio to the BHC’s total risk-weighted assets or average total consolidated assets, as applicable). The CET1 stress capital buffer would have a minimum “floor” of 2.5 percent.based on qualitative factors.

~~Under~~In a separate action on the ~~proposal, PNC would be subject to~~same date, the Basel III capital conservation buffer limitations on capital distributions and discretionary incentive compensation payments to senior management if PNC’s CET1 ratio fell below (i) 4.5%, plus (ii) PNC’s applicable CET1 stress capital buffer, plus (iii) any applicableFederal Reserve also affirmed a countercyclical capital buffer ~~(which is currently set at zero in the United States). Global systemically important banks (GSIBs) and BHCs that have exited parallel run~~of 0% applicable under the advanced approaches would be subject to additional capital buffer requirements. In connection with these changes, the Federal Reserve proposes to make a number of changes to the CCAR process, including eliminating (i) the quantitative “pass-fail” component, (ii) the required assumption that a BHC continues its base case capital actions in the Supervisory Adverse and Severely Adverse scenarios, and (iii) the stricter scrutiny applied by the Federal Reserve to common dividend payout ratios of greater than 30 percent. The proposal also would make changes to the capital action assumptions that the Federal Reserve and covered BHCs apply in conducting stress tests under the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFAST). The Federal Reserve has proposed implementing these changes for the 2019 CCAR exercise.

Also in April, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation requested public comment on a joint proposal that would, among other things, revise the agencies’ Basel III regulatory capital rules to ~~allow banking organizations to elect to phase-in, over a three-year period,~~PNC and other BHCs with at least $250 billion in total consolidated assets or more than $10 billion in on-balance sheet foreign exposure. For more information on the ~~regulatory~~ capital ~~effects~~plan rule, the CCAR exercise and the countercyclical capital buffer see the Supervision and Regulation section in Item 1 Business of ~~implementing~~our 2018 Form 10-K.

On March 29, 2019, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-13 Financial Instruments - Credit Losses (Topic 326), commonly referred to as the Current Expected Credit Losses (CECL) standard. The proposal also would generally replace references to the ALLL in the regulatory capital and certain other rules of the agencies with references to the allowanceFDIC released two proposals for ~~credit losses (ACL) for institutions~~public comment that have adopted CECL. As defined, ACL would include credit loss allowances established for on- and off-balance sheet assets in accordance with CECL through a charge against earnings, other than credit losses on purchased credit-deteriorated assets and available for sale securities and allocated transfer risk reserves. Under the proposal, an institution that has adopted CECL could include ACL in its regulatory Tier 2 capital to the same extent as ALLL is includable in Tier 2 capital currently (i.e., up to 1.25% of Standardized Approach risk-weighted assets). An institution that calculates capital under the advanced approaches and has implemented CECL also would use ACL to determine whether its expected credit losses exceed the institution’s eligible credit reserves (which would be defined as ACL), with the difference deducted from CET1. The proposal also would amend ~~the agencies’ capital stress test rules to provide that covered banking organizations that have adopted CECL must include the effects of CECL in their stress tests conducted after January 1, 2020.~~its (i) enhanced deposit insurance recordkeeping requirements for insured depository institutions (IDIs) with at least 2 million deposit accounts, including PNC Bank,

The PNC Financial Services Group, Inc. – Form 10-Q 3733

and (ii) deposit insurance recordkeeping requirements for joint deposit accounts applicable to all IDIs. Among other things, the proposals would revise the attestation requirement under the deposit insurance recordkeeping rules and allow covered IDIs to elect to extend the April 1, 2020 compliance date for the deposit insurance recordkeeping requirements by up to one year.

In April, the Federal Reserve and FDIC requested public comment on proposed rules that would tailor the resolution plan requirements for BHCs with at least $100 billion in total consolidated assets under Sec. 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the proposal, PNC generally would be required to submit a resolution plan to the Federal Reserve and FDIC on a triennial cycle, with the scope of the submissions alternating between a full and a targeted submission from one triennial cycle to the next. The agencies, however, could jointly adjust the timeline for submissions or request interim updates between filings. As proposed, these changes would become effective no later than November 24, 2019 and, once effective, PNC’s first full resolution plan submission under the proposal would be due July 1, 2021.

On April 16, 2019, the FDIC requested comment on an advance notice of proposed rulemaking that would alter the FDIC’s separate resolution plan requirements for IDIs with total consolidated assets of at least $50 billion (covered IDIs), including PNC Bank. Under the proposal, covered IDIs would potentially be grouped into three categories. The proposal requests comment on what metrics or characteristics could be used to classify covered IDIs into these groups. The proposal would also potentially change the content and submission requirements of resolution plans for some of the groups. The proposal also would delay the requirement for PNC Bank (as well as other covered IDIs) to file a resolution plan under the FDIC’s current rules until a future date to be specified by the FDIC. For more information on the resolution planning requirements applicable to PNC and PNC Bank see the Supervision and Regulation section in Item 1 Business of our 2018 Form 10-K.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Note 1 Accounting Policies of our ~~2017~~2018 Form 10-K describes the most significant accounting policies that we use to prepare our consolidated financial statements. Certain of these policies require us to make estimates or economic assumptions that may vary under different assumptions or conditions and such variations may significantly affect our reported results and financial position for the period or in future periods.

The following critical accounting policies and judgments are described in more detail in Critical Accounting Estimates and Judgments in Item 7 of our ~~2017~~2018 Form 10-K:

Fair Value Measurements

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

~~Goodwill~~

Residential and Commercial Mortgage Servicing Rights

~~Income Taxes~~

~~Legal Contingencies~~

~~Fair Value Measurements~~

The following table summarizes the assets and liabilities measured at fair value on a recurring basis at March 31, 2018 and December 31, 2017, respectively, and the portions of such assets and liabilities that are classified within Level 3 of the valuation hierarchy. Level 3 assets and liabilities are those where the fair value is estimated using significant unobservable inputs.

~~Table 34: Fair Value Measurements – Summary~~

March 31, 2018 December 31, 2017
Dollars in millions
Total Fair
Value

Level 3

Total Fair
Value

Level 3

Total assets $ 66,580
$ 6,546
$ 69,673
$ 6,475

Total assets at fair value as a percentage of consolidated assets 18 % 18 %
Level 3 assets as a percentage of total assets at fair value 10 % 9 %
Level 3 assets as a percentage of consolidated assets 2 % 2 %
Total liabilities $ 4,161
$ 488
$ 4,233
$ 531

Total liabilities at fair value as a percentage of consolidated liabilities 1 % 1 %
Level 3 liabilities as a percentage of total liabilities at fair value 12 % 13 %
Level 3 liabilities as a percentage of consolidated liabilities <1 % <1 %

The majority of assets recorded at fair value are included in the securities available for sale portfolio. The majority of Level 3 assets represent non-agency residential mortgage-backed securities in the available for sale portfolio, equity investments and mortgage servicing rights. For further information on fair value, see Note 6 Fair Value in the Notes To Consolidated Financial Statements in this Report.

~~Income Taxes~~

See the Critical Accounting Estimates and Judgments section in Item 7 of our 2017 Form 10-K for information on our accounting of certain income tax effects of the Tax Cuts and Jobs Act enacted on December 22, 2017. Where certain income tax effects could be reasonably estimated, these were included as provisional amounts as of December 31, 2017. During the measurement period, which will end in December 2018, these estimates may be adjusted upon obtaining or analyzing additional information about facts and circumstances or clarifications of uncertain aspects of the newly enacted tax law, which if known would have affected the initially reported provisional amounts. No changes were made to these provisional amounts during the first quarter of 2018.

3834 The PNC Financial Services Group, Inc. – Form 10-Q

Recently Issued Accounting Standards



Accounting Standards Update (ASU)	Description	Financial Statement Impact
~~Leases - ASU 2016-02~~ ~~Issued February 2016~~	~~• Required effective date of January 1, 2019.~~^(a) ~~• Requires lessees to recognize a right-of-use asset and related lease liability for all leases with lease terms of more than 12 months.~~ ~~• Recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease.~~ ~~• May be adopted using a modified retrospective approach through a cumulative-effect adjustment.~~ ~~• FASB approved an amendment which would permit the option to adopt the new standard prospectively as of the effective date, without adjusting comparative periods presented.~~	~~• We plan to adopt the guidance in the first quarter of 2019.~~ ~~• Implementation efforts are ongoing, including the deployment of a lease accounting software solution.~~ • We are currently evaluating the impact of various accounting policy elections, the discount rate to present value the future minimum payments under operating leases, and the impact of new disclosure requirements. • We are substantially complete with the evaluation of our initial lease population. We will continue to review service contracts through the effective date and may identify additional leases embedded within those arrangements that are within the scope of the ASU. • We expect, at a minimum, to recognize lease liabilities and corresponding right-of-use assets commensurate with the present value of the future minimum payments. Future minimum lease payments under operating leases totaled $2.6 billion as of December 31, 2017 as disclosed in Note 8 Premises, Equipment and Leasehold Improvements in our 2017 Form 10-K. ~~• We do not expect a material change to the timing of our expense recognition.~~
Credit Losses - ASU 2016-13 Issued June 2016	• Required effective date of January 1, 2020.^(a) • Requires the use of an expected credit loss methodology; specifically, current expected credit losses (CECL) for the remaining life of the asset will be recognized at the time of origination or acquisition. • Methodology will apply to loans, debt securities, and other financial assets and net investment in leases not accounted for at fair value through net income. It will also apply to off-balance sheet credit exposures except for unconditionally cancellable commitments. • In-scope assets will be presented at the net amount expected to be collected after deducting the allowance for credit losses from the amortized cost basis of the assets. • Requires enhanced credit quality disclosures including disaggregation of credit quality indicators by vintage. • Requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.	• We dodid not ~~plan to~~ adopt the standard at its early adoption date ~~in the first quarter~~ of January 2019. • We established a company-wide, cross-functional governance structure in the third quarter of 2016, which oversees overall strategy for implementation of ~~Topic 326, including model methodology, technology, development, data enhancements and governance issues.~~CECL. • We have prepared preliminary CECL accounting policies and interpretations, and continue to ~~design~~refine and ~~develop~~test our models, estimation techniques, data, operational processes and controls to be used in preparing the CECL ~~estimation methodologies and technological solutions.~~estimates. • ~~Concurrently,~~We expect that we ~~are assessing~~will be able to test-run our key processes by the end of the second quarter of 2019, pending any unforeseen circumstances or significant changes to the requirements. During 2019, we expect to continually address any gaps in our interpretations, methodology, data and ~~analyzing whether data that is required to comply with the standard is available~~operational processes based upon our reviews and ~~accurate.~~tests. • We are also participating in the FASB’s standard setting activity related to CECL. The FASB has issued a proposed ASU for technical corrections related to financial instruments, which has an impact on the implementation of CECL related to treatment of recoveries, accrued interest receivables and some disclosure requirements. We are awaiting final guidance from the FASB, and expect to be able to implement any changes. • We believe that given current conditions, our credit loss reserves will increase primarily for longer duration consumer loans, due to the difference between loss emergence periods currently used versus the remaining life of the asset required under CECL. We will continue to refine our estimates throughout 2019, as CECL models and techniques are implemented and the results are vetted. We continue to believe that total credit loss reserves will increase at the adoption ~~of the standard will result in an overall increase in the allowance for loan losses to cover credit losses over the estimated life of the financial assets. However,~~date and that the magnitude of the increase ~~in our allowance for loan losses at the adoption date~~ will depend upon the nature and characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date.
Goodwill - ASU 2017-04 Issued January 2017	• Required effective date of January 1, 2020.^(a) • Eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill under which a loss was recognized only if the estimated implied fair value of the goodwill is below its carrying value. • Requires impairment to be recognized if the carrying amount exceeds the reporting unit’s fair value.	• We plan to adopt the standard on its effective date and we do not expect the adoption of this standard to impact our consolidated results of operations or our consolidated financial position.

(a) Early adoption is permitted.

Recently Adopted Accounting Standards

See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in this Report regarding the impact of new accounting ~~pronouncements adopted in the first quarter of 2018.~~pronouncements.

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

OFF-BALANCE SHEET ARRANGEMENTS AND VARIABLE INTEREST ENTITIES

We engage in a variety of activities that involve entities that are not consolidated or otherwise reflected in our Consolidated Balance Sheet that are generally referred to as off-balance sheet arrangements. Additional information on these types of activities is included in our ~~2017~~2018 Form 10-K and in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities and Note 13 Commitments in the Notes To Consolidated Financial Statements included in this Report.

A summary and further description of variable interest entities (VIEs)~~, including those in which we hold variable interests but have not consolidated into our financial statements,~~ is included in Note 1 Accounting Policies and Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our ~~2017~~2018 Form 10-K.

The PNC Financial Services Group, Inc. – Form 10-Q35

Trust ~~Preferred Securities and REIT~~ Preferred Securities

See Note 10 Borrowed Funds ~~and Note 15 Equity~~ in the Notes To Consolidated Financial Statements in our ~~2017~~2018 Form 10-K for additional information on trust preferred securities issued by PNC Capital Trust C including information on contractual limitations potentially imposed on payments (including dividends) with respect to PNC's equity ~~securities and for additional information on the 2017 redemption of the REIT preferred securities issued by PNC Preferred Funding Trust I and PNC Preferred Funding Trust II.~~securities.

INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND PROCEDURES

As of March 31, ~~2018,~~2019, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures and of changes in our internal control over financial reporting.

Based on that evaluation, our Chairman, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective as of March 31, ~~2018,~~2019, and that there has been no change in PNC’s internal control over financial reporting that occurred during the first quarter of ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

GLOSSARY OF TERMS

For a glossary of terms commonly used in our filings, please see the glossary of terms included in our ~~2017~~2018 Form 10-K.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

Forward-looking statements speak only as of the date made. We do not assume any duty to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance.

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

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


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


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


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


–	Changes in customer behavior due to ~~newly~~recently enacted tax legislation, changing business and economic conditions or legislative or regulatory initiatives.


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


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


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


–	Commodity price volatility.


–	U.S. economic growth has accelerated over the past two years to above its long-run trend.


–	Growth is expected to rebound in the second quarter following a soft first quarter 2019, and slow over the remaining course of 2019 and into 2020.


–	Further gradual improvement in the labor market will occur this year, including job gains and rising wages, which would be a positive indicator for consumer spending.


–	Trade restrictions and geopolitical concerns are downside risks to the forecast.


–	Inflation has slowed in early 2019, to below the FOMC’s 2% objective, but is expected to rise in the second half of the year.


–	Our baseline forecast is for no change to the federal funds rate in 2019 and 2020, with the rate staying in its current range of 2.25 to 2.50%.

4036 The PNC Financial Services Group, Inc. – Form 10-Q

2018, in light of stimulus from corporate and personal income tax cuts passed in late 2017 that are expected to support business investment and consumer spending, respectively. We expect an increase in federal government spending will also support economic growth in 2018. Further gradual improvement in the labor market this year, including job gains and rising wages, is another positive for consumer spending. Other sources of growth for the U.S. economy in 2018 will be the global economic expansion and the housing market, although trade restrictions are a downside risk to the forecast. Although inflation slowed in 2017, it should pick up as the labor market continues to tighten. Short-term interest rates and bond yields are expected to rise throughout 2018; after the Federal Open Market Committee raised the federal funds rate in March, our baseline forecast is for two additional rate hikes in June and December 2018, pushing the rate to a range of 2.00 to 2.25% by the end of the year. Longer-term rates are also expected to increase as the Federal Reserve slowly reduces the size of its balance sheet and the federal government borrows more. Long-term rates will rise more slowly than short-term rates, so we anticipate that the yield curve will flatten but not invert.

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

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

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


–	Changes resulting from legislative and regulatory reforms, including changes affecting oversight of the financial services industry, consumer protection, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.


–	Changes to regulations governing bank capital and liquidity ~~standards, including due to the Dodd-Frank Act and initiatives of the Basel Committee.~~standards.


–	Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to us.


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


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

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

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

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

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

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

We provide greater detail regarding these as well as other factors in our ~~2017~~2018 Form 10-K and elsewhere in this Report, including ~~Item 1A~~in the Risk Factors ~~in our 2017 Form 10-K, the~~and Risk Management ~~section of this Financial Review and of Item 7 in our 2017 Form 10-K~~sections and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements ~~included~~ in ~~Item 1 of this Report and Item 8 of our 2017 Form 10-K.~~these reports. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.

The PNC Financial Services Group, Inc. – Form 10-Q 4137

CONSOLIDATED INCOME STATEMENT

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited	Three months ended March 31				Three months ended March 31
In millions, except per share data	2018		2017		2019		2018
Interest Income
Loans	$	2,228	$	1,904	$	2,602	$	2,228
Investment securities	512		493		620		512
Other	178		123		206		178
Total interest income	2,918		2,520		3,428		2,918
Interest Expense
Deposits	213		120		472		213
Borrowed funds	344		240		481		344
Total interest expense	557		360		953		557
Net interest income	2,361		2,160		2,475		2,361
Noninterest Income
Asset management	455		403		437		455
Consumer services	357		332		371		357
Corporate services	429		414		462		429
Residential mortgage	97		113		65		97
Service charges on deposits	167		161		168		167
Other	245		301		308		245
Total noninterest income	1,750		1,724		1,811		1,750
Total revenue	4,111		3,884		4,286		4,111
Provision For Credit Losses	92		88		189		92
Noninterest Expense
Personnel	1,354		1,257		1,414		1,354
Occupancy	218		222		215		218
Equipment	273		251		273		273
Marketing	55		55		65		55
Other	627		617		611		627
Total noninterest expense	2,527		2,402		2,578		2,527
Income before income taxes and noncontrolling interests	1,492		1,394		1,519		1,492
Income taxes	253		320		248		253
Net income	1,239		1,074		1,271		1,239
Less: Net income attributable to noncontrolling interests	10		17		10		10
Preferred stock dividends	63		63		63		63
Preferred stock discount accretion and redemptions	1		21		1		1
Net income attributable to common shareholders	$	1,165	$	973	$	1,197	$	1,165
Earnings Per Common Share
Basic	$	2.45	$	1.99	$	2.62	$	2.45
Diluted	$	2.43	$	1.96	$	2.61	$	2.43
Average Common Shares Outstanding
Basic	473		487		455		473
Diluted	476		492		456		476

See accompanying Notes To Consolidated Financial Statements.

4238 The PNC Financial Services Group, Inc. – Form 10-Q

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions	Three months ended March 31						Three months ended March 31
Unaudited In millions	2018			2017			2019			2018
Net income	$	1,239		$	1,074		$	1,271		$	1,239
Other comprehensive income (loss), before tax and net of reclassifications into Net income:
Net unrealized gains (losses) on non-OTTI securities	(646		)	69			639			(646		)
Net unrealized gains (losses) on OTTI securities	14			35			9			14
Net unrealized gains (losses) on cash flow hedge derivatives	(193		)	(77		)	100			(193		)
Pension and other postretirement benefit plan adjustments	63			(62		)	145			63
Other	27			4			34			27
Other comprehensive income (loss), before tax and net of reclassifications into Net income	(735		)	(31		)	927			(735		)
Income tax benefit (expense) related to items of other comprehensive income	178			17			(207		)	178
Other comprehensive income (loss), after tax and net of reclassifications into Net income	(557		)	(14		)	720			(557		)
Comprehensive income	682			1,060			1,991			682
Less: Comprehensive income (loss) attributable to noncontrolling interests	10			17			10			10
Comprehensive income attributable to PNC	$	672		$	1,043		$	1,981		$	672

See accompanying Notes To Consolidated Financial Statements.

The PNC Financial Services Group, Inc. – Form 10-Q 4339

CONSOLIDATED BALANCE SHEET

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited	March 31 2018			December 31 2017			March 31 2019			December 31 2018
In millions, except par value
Assets
Cash and due from banks	$	4,649		$	5,249		$	5,062		$	5,608
Interest-earning deposits with banks	28,821			28,595			15,261			10,893
Loans held for sale (a)	965			2,655			686			994
Investment securities – available for sale	56,018			57,618			65,051			63,389
Investment securities – held to maturity	18,544			18,513			18,818			19,312
Loans (a)	221,614			220,458			232,293			226,245
Allowance for loan and lease losses	(2,604		)	(2,611		)	(2,692		)	(2,629		)
Net loans	219,010			217,847			229,601			223,616
Equity investments (b)	12,008			11,392			12,567			12,894
Mortgage servicing rights	1,979			1,832			1,812			1,983
Goodwill	9,218			9,173			9,218			9,218
Other (a)	27,949			27,894			34,761			34,408
Total assets	$	379,161		$	380,768		$	392,837		$	382,315
Liabilities
Deposits
Noninterest-bearing	$	78,303		$	79,864		$	71,606		$	73,960
Interest-bearing	186,401			185,189			199,615			193,879
Total deposits	264,704			265,053			271,221			267,839
Borrowed funds
Federal Home Loan Bank borrowings	19,537			21,037			20,501			21,501
Bank notes and senior debt	28,773			28,062			25,598			25,018
Subordinated debt	5,121			5,200			5,977			5,895
Other (c)	4,608			4,789			7,784			5,005
Total borrowed funds	58,039			59,088			59,860			57,419
Allowance for unfunded loan commitments and letters of credit	290			297			279			285
Accrued expenses and other liabilities	9,093			8,745			12,902			9,002
Total liabilities	332,126			333,183			344,262			334,545
Equity
Preferred stock (d)
Common stock ($5 par value, Authorized 800 shares, issued 542 shares)	2,710			2,710			2,711			2,711
Capital surplus	16,227			16,374			16,173			16,277
Retained earnings	36,266			35,481			39,742			38,919
Accumulated other comprehensive income (loss)	(699		)	(148		)	(5		)	(725		)
Common stock held in treasury at cost: 72 and 69 shares	(7,535		)	(6,904		)
Common stock held in treasury at cost: 90 and 85 shares							(10,085		)	(9,454		)
Total shareholders’ equity	46,969			47,513			48,536			47,728
Noncontrolling interests	66			72			39			42
Total equity	47,035			47,585			48,575			47,770
Total liabilities and equity	$	379,161		$	380,768		$	392,837		$	382,315

(a)

Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $.6 billion, Loans of $.8 billion and Other assets of $.1 billion at March 31, 2019 and Loans held for sale of $.9 billion, Loans of $.8 billion and Other assets of ~~$.3 billion at March 31, 2018 and Loans held for sale of $1.7 billion, Loans of $.9 billion and Other assets of $.3~~$.2 billion at December 31, ~~2017.~~2018.

(b)

Amounts include our equity interest in BlackRock. The amount at March 31, 2018 includes $.6 billion of trading and available for sale securities, primarily money market funds, that were reclassified to Equity investments on January 1, 2018 in accordance with the adoption of Accounting Standards Update 2016-01, Financial Instruments - Overall: ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~.


(c)	Our consolidated liabilities at both March 31, ~~2018~~2019 and December 31, ~~2017~~2018 included Other borrowed funds of $.1 billion for which we have elected the fair value option.


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

See accompanying Notes To Consolidated Financial Statements.

4440 The PNC Financial Services Group, Inc. – Form 10-Q

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions	Three months ended March 31						Three months ended March 31
Unaudited In millions	2018			2017			2019			2018
Operating Activities
Net income	$	1,239		$	1,074		$	1,271		$	1,239
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for credit losses	92			88			189			92
Depreciation and amortization	280			279			272			280
Deferred income taxes	81			21			111			81
Changes in fair value of mortgage servicing rights	(85		)	33			210			(85		)
Undistributed earnings of BlackRock	(133		)	(100		)	(111		)	(133		)
Net change in
Trading securities and other short-term investments	176			(405		)	358			176
Loans held for sale	1,675			1,065			320			1,675
Other assets	(1,217		)	541			(2,931		)	(1,217		)
Accrued expenses and other liabilities	710			(884		)	1,796			710
Other	104			(122		)	(84		)	104
Net cash provided (used) by operating activities	$	2,922		$	1,590		$	1,401		$	2,922
Investing Activities
Sales
Securities available for sale	$	4,461		$	3,202		$	840		$	4,461
Loans	479			338			306			479
Repayments/maturities
Securities available for sale	2,027			2,790			2,103			2,027
Securities held to maturity	598			504			510			598
Purchases
Securities available for sale	(5,905		)	(5,142		)	(3,861		)	(5,905		)
Securities held to maturity	(662		)	(1,778		)	(23		)	(662		)
Loans	(224		)	(177		)	(468		)	(224		)
Net change in
Federal funds sold and resale agreements	97			(674		)	4,810			97
Interest-earning deposits with banks	(226		)	(2,166		)	(4,368		)	(226		)
Loans	(1,611		)	(2,359		)	(6,085		)	(1,611		)
Other	(284		)	(158		)	213			(284		)
Net cash provided (used) by investing activities	$	(1,250	)	$	(5,620	)	$	(6,023	)	$	(1,250	)

(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q 4541

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.

(continued from previous page)


Unaudited In millions	Three Months Ended March 31						Three Months Ended March 31
Unaudited In millions	2018			2017			2019			2018
Financing Activities
Net change in
Noninterest-bearing deposits	$	(1,683	)	$	(944	)	$	(2,337	)	$	(1,683	)
Interest-bearing deposits	1,212			4,530			5,736			1,212
Federal funds purchased and repurchase agreements	87			8			2,232			87
Commercial paper	(100		)							(100		)
Other borrowed funds	(11		)	795			250			(11		)
Sales/issuances
Federal Home Loan Bank borrowings				4,500			5,000
Bank notes and senior debt	1,991			1,820			2,147			1,991
Other borrowed funds	123			26			397			123
Common and treasury stock	33			60			22			33
Repayments/maturities
Federal Home Loan Bank borrowings	(1,500		)	(2,500		)	(6,000		)	(1,500		)
Bank notes and senior debt	(1,000		)	(1,000		)	(1,750		)	(1,000		)
Subordinated debt				(1,100		)
Other borrowed funds	(163		)	(19		)	(296		)	(163		)
Redemption of noncontrolling interests				(1,000		)
Acquisition of treasury stock	(840		)	(688		)	(826		)	(840		)
Preferred stock cash dividends paid	(63		)	(63		)	(63		)	(63		)
Common stock cash dividends paid	(358		)	(271		)	(436		)	(358		)
Net cash provided (used) by financing activities	(2,272		)	4,154			$	4,076		$	(2,272	)
Net Increase (Decrease) In Cash And Due From Banks	(600		)	124			(546		)	(600		)
Cash and due from banks at beginning of period	5,249			4,879			5,608			5,249
Cash and due from banks at end of period	$	4,649		$	5,003		$	5,062		$	4,649
Supplemental Disclosures
Interest paid	$	501		$	347		$	907		$	501
Income taxes paid	$	7		$	8		$	30		$	7
Income taxes refunded	$	11		$	9		$	2		$	11
Leased assets obtained in exchange for new finance lease liabilities							$	25
Leased assets obtained in exchange for new operating lease liabilities							$	155
Right-of-use assets recognized at adoption of ASU 2016-02							$	2,004
Non-cash Investing and Financing Items
Transfer from loans to loans held for sale, net	$	173		$	107		$	139		$	173
Transfer from loans to foreclosed assets	$	45		$	57		$	48		$	45

See accompanying Notes To Consolidated Financial Statements.

4642 The PNC Financial Services Group, Inc. – Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE PNC FINANCIAL SERVICES GROUP, INC.

Unaudited

BUSINESS

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

We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our ~~primary geographic~~retail branch network is located in markets ~~are located in~~across the Mid-Atlantic, Midwest and Southeast. We also ~~provide certain products and services internationally.~~

have strategic international offices in four countries outside the U.S.

NOTE 1 ACCOUNTING POLICIES

Basis of Financial Statement Presentation

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

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

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

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

When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our ~~2017~~2018 Form 10-K. Reference is made to Note 1 Accounting Policies in our ~~2017~~2018 Form 10-K for a detailed description of significant accounting policies. There have been no significant changes to our accounting policies as disclosed in our ~~2017~~2018 Form 10-K, except for ~~those accounting policies~~the adoption of the new leasing standard included in this Note ~~as a result of the adoption of new accounting standards that were effective~~1 in the first quarter of ~~2018.~~2019. These interim consolidated financial statements serve to update our ~~2017~~2018 Form 10-K and may not include all information and Notes necessary to constitute a complete set of financial statements.

Use of Estimates

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

~~Revenue Recognition~~Leases

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

We also enter into various ~~sources, including:~~

~~Lending,~~

~~Securities portfolio,~~

~~Asset management,~~

~~Customer deposits,~~

~~Loan sales, loan securitizations,~~lease arrangements, primarily involving real estate, and ~~servicing,~~

~~Brokerage services,~~

~~Sale~~other equipment, as the lessee. For those classified as operating leases, we recognize a lease liability, representing the present value of ~~securities,~~

~~Certain private equity activities,~~the minimum lease payments, and

~~Securities, derivatives~~ a corresponding right of use (ROU) asset. On the consolidated balance sheet, the ROU asset and ~~foreign exchange activities~~lease liability are included in Other assets and Other liabilities, respectively.

The PNC Financial Services Group, Inc. – Form 10-Q 4743

When we adopted the Accounting Standards Update (ASU) 2016-02 - Leases as of January 1, 2019, we recognized lease liabilities and right-of-use assets of $2.1 billion and $2.0 billion, respectively. In addition, we ~~earn fees and commissions from:~~

~~Issuing loan commitments, standby letters~~recognized a one-time pretax adjustment of ~~credit and financial guarantees,~~

~~Deposit account services,~~

~~Merchant services,~~

~~Selling various insurance products,~~

~~Providing treasury management services,~~

~~Providing merger and acquisition advisory and~~$83 million to retained earnings, related ~~services~~

~~Debit and credit card transactions, and~~

~~Participating in certain capital markets~~primarily to deferred gains on previous sale-leaseback transactions.

~~Our Asset management noninterest income also includes our share of the earnings of BlackRock recognized under the equity method of accounting.~~

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

We recognize gain/(loss) on changes in the fair value of certain financial instruments where we have elected the fair value option. These financial instruments include certain commercial and residential mortgage loans originated See Note 16 Leases for sale, certain residential mortgage portfolio loans, resale agreements and our investment in BlackRock Series C preferred stock. We also recognize gain/(loss) on changes in the fair value of residential and commercial mortgage servicing rights (MSRs).

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

~~For the fee-based revenue~~additional information related to leases within the scope of ASC ~~Topic 606 -~~ ~~Revenue from Contracts with Customers~~ (Topic 606), revenue is recognized when or as those services are transferred to the customer. See Note 15 Fee-based Revenue from Contracts with Customers for additional information related to revenue within the scope of Topic 606.842.

~~Equity Securities and Partnership Interests~~

~~We account for equity securities and equity investments other than BlackRock and private equity investments under one of the following methods:~~

Equity securities that have a readily determinable fair value are included in Equity investments on our Consolidated Balance Sheet. Both realized and unrealized gains and losses are included in Noninterest income. Dividend income on these equity securities is included in Other interest income on our consolidated income statement.

For investments in limited partnerships, limited liability companies and other investments that are not required to be consolidated, we use either the equity method of accounting or the practicability exception to fair value. We use the equity method for general and limited partner ownership interests and limited liability companies in which we are considered to have significant influence over the operations of the investee. Under the equity method, we record our equity ownership share of net income or loss of the investee in Noninterest income and any dividends received on equity method investments are recorded as a reduction to the investment balance. When an equity investment experiences an other-than-temporary decline in value, we may be required to record a loss on the investment.

We generally use the practicability exception to fair value for all other investments. When we elect this alternative measurement method, the carrying value is adjusted for impairment, if any, plus or minus changes in value resulting from observable price changes in orderly transactions for identical or similar instruments of the same issuer. These investments are written down to fair value if a qualitative assessment indicates impairment and the fair value is less than the carrying value. The amount of the write-down is accounted for as a loss included in Noninterest income. Distributions received on these investments are included in Noninterest income.

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

~~See Note 1 Accounting Policies of our 2017 Form 10-K for a discussion on our accounting for our investment in BlackRock and private equity investments.~~

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

~~Derivative Instruments and Hedging Activities~~

We use a variety of financial derivatives as part of our overall asset and liability risk management process to help manage exposure to interest rate, market and credit risk inherent in our business activities. Interest rate and total return swaps, swaptions, interest rate caps and floors, options, forwards, and futures contracts are the primary instruments we use for risk management. Financial derivatives involve, to varying degrees, interest rate, market and credit risk. We manage these risks as part of our asset and liability management process and through credit policies and procedures.

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

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

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

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

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

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

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

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

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

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

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

Recently Adopted Accounting Standards



~~Accounting Standards Update (ASU)~~	~~Description~~	~~Financial Statement Impact~~
~~Revenue Recognition -~~ ~~ASU 2014-09~~ ~~ASU 2015-14~~ ~~ASU 2016-08~~ ~~ASU 2016-10~~ ~~ASU 2016-12~~ ~~ASU 2016-20~~ ~~Issued May 2014~~	~~• Replaces nearly all existing revenue recognition guidance in U.S. GAAP.~~ ~~• Revenue recognized when an entity satisfies its performance obligation by transferring a promised good or service to a customer.~~ ~~• Additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.~~	~~• Adopted January 1, 2018 under the modified retrospective approach.~~ ~~• Cumulative-effect adjustment was immaterial to our consolidated results of operations and financial position.~~ ~~• Most significant impact of adoption is expanded disclosures related to disaggregation of in-scope revenue, see Note 15 Fee-based Revenue from Contracts with Customers.~~
~~Financial Instruments -~~ ~~ASU 2016-01~~ ~~ASU 2018-03~~ ~~Issued January 2016~~	~~• Changes the accounting for certain equity investments, financial liabilities under the fair value option and presentation and disclosure requirements for financial instruments.~~ ~~• Equity investments not accounted for under the equity method of accounting are required to be measured at fair value with any changes in fair value recognized in net income.~~ • For an equity investment which does not have a readily determinable fair value, an election can be made to measure the investment at cost, less any impairment, plus or minus changes in value resulting from observable price changes in identical or similar instruments of the issuer. ~~• Simplifies the impairment assessment of equity investments for which fair value is not readily determinable.~~ • Changes the presentation of certain fair value changes for financial liabilities measured at fair value and amends certain disclosure requirements relating to the fair value of financial instruments. In addition, separate presentation is required of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the notes to the financial statements.	~~• Adopted January 1, 2018 under the modified retrospective approach, except for the amendment related to equity securities without readily determinable fair values, which is applied prospectively.~~ ~~• Cumulative-effect adjustment was immaterial to our consolidated results of operations and financial position.~~ • For the standard’s requirement for a separate presentation of financial assets and financial liabilities by measurement category, refer to the disclosures in this Note 1, and Note 6 Fair Value and Note 1 Accounting Policies in our 2017 Form 10-K for further discussion of our measurement categories.
~~Statement of Cash Flows -~~ ~~ASU 2016-15~~ ~~Issued August 2016~~	~~• Provides guidance on eight specific issues related to classification within the statement of cash flows with the objective of reducing existing diversity in practice.~~ ~~• The specific issues cover:~~ ~~• cash payments for debt prepayment or debt extinguishment costs;~~ ~~• cash outflows for settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant;~~ ~~• contingent consideration payments that are not made soon after a business combination;~~ ~~• proceeds from the settlement of insurance claims;~~ ~~• proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;~~ ~~• distributions received from equity method investees;~~ ~~• beneficial interests received in securitization transactions; and~~ • clarifies that when no specific GAAP guidance exists and the source of the cash flows are not separately identifiable, then the predominant source of cash flows should be used to determine the classification for the item.	~~• Adopted January 1, 2018 under the retrospective transition method.~~ ~~• Impact of adoption was immaterial to our consolidated statement of cash flows.~~
~~Compensation-Retirement Benefits - ASU 2017-07~~ ~~Issued March 2017~~	• Requires the service cost component of net periodic pension cost and net periodic postretirement benefit cost (net benefit cost) to be included in the same income statement line as other employee compensation cost arising from services rendered during the period. • Other components of net benefit cost are required to be presented separately from the line item that includes the service cost component and outside a subtotal of income from operations, if one is presented. ~~• Allows only the service cost component to be eligible for capitalization when applicable.~~	~~• Adopted January 1, 2018.~~ ~~• Presentation requirements in our Consolidated Income Statement have been applied retrospectively.~~ ~~• Impact of adoption was immaterial to our consolidated results of operations and financial position.~~

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



Accounting Standards Update (ASU)	Description	Financial Statement Impact
~~Derivatives and Hedging -~~ ~~ASU 2017-12~~ ~~Issued August 2017~~	~~• Simplifies the application of hedge accounting by easing the requirements for effectiveness testing, hedge documentation and the application of the critical terms match method.~~ ~~• Provides new alternatives for applying hedge accounting to additional hedging strategies and measuring the hedged item in fair value hedges of interest rate risk.~~	~~• Adopted January 1, 2018 using the modified retrospective approach.~~ ~~• Amended presentation and disclosures are required prospectively.~~ ~~• One-time transition elections were available to modify existing hedge documentation.~~ ~~• Cumulative-effect adjustment was immaterial to our consolidated results of operations and financial position.~~
~~Comprehensive Income -~~Leases ASU ~~2018-02~~2016-02 Issued February ~~2018~~2016	• ~~Permits~~Requires lessees to recognize a right-of-use asset and related lease liability for all leases with lease terms of more than 12 months. • Recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. • Targeted changes have been made to the ~~reclassification~~lessor accounting model to align the guidance with the new lessee model and revenue recognition guidance. • May be adopted using a modified retrospective approach through a cumulative-effect adjustment. • Financial Accounting Standards Board (FASB) issued an ASU which permits the option to adopt the new standard prospectively as of the effective date, without adjusting comparative periods presented. Under this new transition method, an entity initially applies the new leases standard at the effective date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings ~~of the income tax effects stranded within Accumulated other comprehensive income (loss) (AOCI) as a result of the enactment of the Tax Cuts and Jobs Act.~~ • Requires qualitative disclosures of the accounting policy relating to releasing income tax effects from AOCI and if the reclassification election is made, the impacts of the change on the financial statements.	~~• Adopted January 1, 2018 and elected to reclassify the income tax effects from AOCI to Retained earnings at the beginning of~~in the period of adoption.	• We adopted this standard under the modified retrospective approach as of January 1, 2019, without adjusting comparative periods presented. We recognized lease liabilities and right-of-use assets of $2.1 billion and $2.0 billion respectively, as of January 1, 2019. We recognized a one-time pretax adjustment of $83 million to retained earnings, related primarily to deferred gains on previous sale-leaseback transactions. • The impact of adoption was immaterial to PNC’s consolidated income statement. • The impact of adoption of the changes to the lessor accounting model did not have a material impact on our ~~consolidated~~ financial ~~position.~~statements.

NOTE 2 LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES

Loan Sale and Servicing Activities

As more fully described in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our ~~2017~~2018 Form 10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization special purpose entities (SPEs).

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

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

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

Table ~~35:~~33: Cash Flows Associated with Loan Sale and Servicing Activities


In millions	Residential Mortgages		Commercial Mortgages (a)			Residential Mortgages		Commercial Mortgages (a)
Cash Flows - Three months ended March 31, 2019
Sales of loans (b)						$	715		$	644
Repurchases of previously transferred loans (c)						$	93
Servicing fees (d)						$	87		$	30
Servicing advances recovered/(funded), net						$	18		$	(23	)
Cash flows on mortgage-backed securities held (e)						$	507		$	14
Cash Flows - Three months ended March 31, 2018
Sales of loans (b)	$	1,193		$	1,202	$	1,193		$	1,202
Repurchases of previously transferred loans (c)	$	119				$	119
Servicing fees (d)	$	92		$	31	$	92		$	31
Servicing advances recovered/(funded), net	$	4		$	17	$	4		$	17
Cash flows on mortgage-backed securities held (e)	$	422		$	21	$	422		$	21
Cash Flows - Three months ended March 31, 2017
Sales of loans (b)	$	1,594		$	1,617
Repurchases of previously transferred loans (c)	$	131
Servicing fees (d)	$	94		$	33
Servicing advances recovered/(funded), net	$	42		$	31
Cash flows on mortgage-backed securities held (e)	$	349		$	129


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


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


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


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

(e)

Represents cash flows on securities where we ~~hold issued by~~transferred to and/or service loans for a securitization SPE ~~in which~~and we ~~transferred to and services loans.~~hold securities issued by that SPE. The carrying values of such securities held were $14.6 billion, $13.3 billion, and $9.4 billion in residential mortgage-backed securities and $.6 billion, $.6 billion, and $.7 billion in commercial mortgage-backed securities at March 31, 2019, December 31, 2018, and ~~$6.9 billion in residential mortgage-backed securities and $.7 billion in commercial mortgage-backed securities at~~ March 31, 2017. Additionally, at December 31, 2017, the carrying values of such securities held were $8.8 billion in residential mortgage-backed securities and $.6 billion in commercial mortgage-backed securities.2018, respectively.

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

Table 3634 presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan, where the repurchase price exceeded the loan's fair value, due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans. The estimate of losses related to breaches in representations and warranties was insignificant at March 31, ~~2018.~~2019.

Table ~~36:~~34: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others


In millions	Residential Mortgages		Commercial Mortgages (a)		Residential Mortgages		Commercial Mortgages (a)
March 31, 2018
March 31, 2019
Total principal balance	$	57,339	$	47,480	$	53,055	$	46,767
Delinquent loans (b)	$	796	$	298	$	599	$	131
December 31, 2017
December 31, 2018
Total principal balance	$	58,320	$	49,116	$	54,028	$	47,969
Delinquent loans (b)	$	899	$	355	$	622	$	234
Three months ended March 31, 2019
Net charge-offs (c)					$	11	$	119
Three months ended March 31, 2018
Net charge-offs (c)	$	12	$	30	$	12	$	30
Three months ended March 31, 2017
Net charge-offs (c)	$	25	$	355


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


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

(c)

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

Variable Interest Entities (VIEs)

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our ~~2017~~2018 Form 10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs.

The following table provides a summary of non-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 35 where we have determined that our continuing involvement is not significant. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between us and the VIE. ~~We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 37 where we have determined that our continuing involvement is not significant.~~ In addition, where we only have lending arrangements in the normal

The PNC Financial Services Group, Inc. – Form 10-Q45

course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table ~~37.~~35. These loans are included as part of the asset quality disclosures that we make in Note 3 Asset Quality.

Table ~~37:~~35: Non-Consolidated VIEs

In millions PNC Risk of Loss (a)
Carrying Value of Assets
Owned by PNC
Carrying Value of Liabilities
Owned by PNC

March 31, 2018
Mortgage-Backed Securitizations (b) $ 10,481
$ 10,481
(c)
Tax Credit Investments and Other 3,033
2,979
(d) $ 799
(e)
Total $ 13,514
$ 13,460
$ 799

December 31, 2017
Mortgage-Backed Securitizations (b) $ 9,738
$ 9,738
(c)
Tax Credit Investments and Other 3,069
3,001
(d) $ 858
(e)
Total $ 12,807
$ 12,739
$ 858



In millions	PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
March 31, 2019
Mortgage-backed securitizations (b)	$	15,551	$	15,551	(c)
Tax credit investments and other	2,854		2,826		(d)	$	763	(e)
Total	$	18,405	$	18,377		$	763
December 31, 2018
Mortgage-backed securitizations (b)	$	14,266	$	14,266	(c)
Tax credit investments and other	2,949		2,911		(d)	$	806	(e)
Total	$	17,215	$	17,177		$	806


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


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


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


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


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

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

We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs). The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act. During the three months ended March 31, ~~2018,~~2019, we recognized ~~$56~~$55 million of amortization, ~~$60~~$57 million of tax credits and $13 million of other tax benefits associated with qualified investments in low income housing tax credits within Income taxes.

NOTE 3 ASSET QUALITY

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

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

See Note 1 Accounting Policies in our ~~2017~~2018 Form 10-K for additional information on our loan related policies.

46The PNC Financial Services Group, Inc. – Form 10-Q53

The following tables ~~display~~present the delinquency status of our loans and our nonperforming assets at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Table ~~38:~~36: Analysis of Loan Portfolio (a)


	Accruing																												Accruing
Dollars in millions	Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (b)				Nonperforming Loans			Fair Value Option Nonaccrual Loans (c)			Purchased Impaired Loans			Total Loans (d)			Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (b)				Nonperforming Loans			Fair Value Option Nonaccrual Loans (c)			Purchased Impaired Loans			Total Loans (d)
March 31, 2018
March 31, 2019
Commercial Lending
Commercial	$	111,754		$	53		$	22		$	53		$	128			$	426								$	112,308		$	122,448		$	80		$	25		$	71		$	176			$	369								$	122,993
Commercial real estate	28,695			21			12						33				107									28,835			28,003			43			1						44				54									28,101
Equipment lease financing	7,779			18			1						19				4									7,802			7,252			84			5						89				7									7,348
Total commercial lending	148,228			92			35			53			180				537									148,945			157,703			207			31			71			309				430									158,442
Consumer Lending
Home equity	25,919			94			31						125				820						$	835		27,699			24,011			59			21						80				763						$	646		25,500
Residential real estate	14,824			130			70			373			573			(b)	391			$	189		1,479			17,456			16,743			153			62			323			538			(b)	339			$	184		1,303			19,107
Automobile																													14,467			97			26			10			133				107									14,707
Credit card	5,540			40			26			45			111				6									5,657			6,134			45			28			53			126				7									6,267
Education																													3,480			63			38			126			227			(b)										3,707
Other consumer																													4,533			10			6			7			23				7									4,563
Automobile	13,112			77			18			9			104				79									13,295
Education and other	8,257			94			54			148			296			(b)	9									8,562
Total consumer lending	67,652			435			199			575			1,209				1,305			189			2,314			72,669			69,368			427			181			519			1,127				1,223			184			1,949			73,851
Total	$	215,880		$	527		$	234		$	628		$	1,389			$	1,842		$	189		$	2,314		$	221,614		$	227,071		$	634		$	212		$	590		$	1,436			$	1,653		$	184		$	1,949		$	232,293
Percentage of total loans	97.41		%	.24		%	.11		%	.28		%	.63		%		.83		%	.09		%	1.04		%	100.00		%	97.75		%	.27		%	.09		%	.25		%	.62		%		.71		%	.08		%	.84		%	100.00		%
December 31, 2017
December 31, 2018
Commercial Lending
Commercial	$	109,989		$	45		$	25		$	39		$	109			$	429								$	110,527		$	116,300		$	82		$	54		$	52		$	188			$	346								$	116,834
Commercial real estate	28,826			27			2						29				123									28,978			28,056			6			3						9				75									28,140
Equipment lease financing	7,914			17			1						18				2									7,934			7,229			56			12						68				11									7,308
Total commercial lending	146,729			89			28			39			156				554									147,439			151,585			144			69			52			265				432									152,282
Consumer Lending
Home equity	26,561			78			26						104				818						$	881		28,364			24,556			66			25						91				797						$	679		26,123
Residential real estate	14,389			151			74			486			711			(b)	400			$	197		1,515			17,212			16,216			135			73			363			571			(b)	350			$	182		1,338			18,657
Automobile																													14,165			113			29			12			154				100									14,419
Credit card	5,579			43			26			45			114				6									5,699			6,222			46			29			53			128				7									6,357
Education																													3,571			69			41			141			251			(b)										3,822
Other consumer																													4,552			12			5			8			25				8									4,585
Automobile	12,697			79			20			8			107				76									12,880
Education and other	8,525			105			64			159			328			(b)	11									8,864
Total consumer lending	67,751			456			210			698			1,364				1,311			197			2,396			73,019			69,282			441			202			577			1,220				1,262			182			2,017			73,963
Total	$	214,480		$	545		$	238		$	737		$	1,520			$	1,865		$	197		$	2,396		$	220,458		$	220,867		$	585		$	271		$	629		$	1,485			$	1,694		$	182		$	2,017		$	226,245
Percentage of total loans	97.29		%	.25		%	.11		%	.33		%	.69		%		.85		%	.09		%	1.08		%	100.00		%	97.62		%	.26		%	.12		%	.28		%	.66		%		.75		%	.08		%	.89		%	100.00		%


(a)	Amounts in table represent recorded investment and exclude loans held for sale. ~~Recorded investment in a loan includes the unpaid principal balance plus net accounting adjustments, less any charge-offs.~~ Recorded investment does not include any associated valuation allowance.

(b)

Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to receive payment in full based on the original contractual terms), as we are currently accreting interest income over the expected life of the loans. Past due loan amounts include government insured or guaranteed Residential real estate mortgages totaling ~~$.5~~$.4 billion and ~~$.6~~$.5 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and Education ~~and other consumer~~ loans totaling ~~$.3~~$.2 billion at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.


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


(d)	Net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.2 billion at both March 31, ~~2018 and~~2019 December 31, ~~2017.~~2018.

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

At March 31, ~~2018,~~2019, we pledged ~~$19.1~~$16.9 billion of commercial loans to the Federal Reserve Bank ~~(FRB)~~ and ~~$64.6~~$64.5 billion of residential real estate and other loans to the Federal Home Loan Bank ~~(FHLB)~~ as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, ~~2017~~2018 were ~~$18.7~~$17.3 billion and ~~$62.8~~$63.2 billion, respectively. Amounts pledged reflect the unpaid principal balances.

The PNC Financial Services Group, Inc. – Form 10-Q47

Table ~~39:~~37: Nonperforming Assets


Dollars in millions	March 31 2018			December 31 2017			March 31 2019			December 31 2018
Nonperforming loans
Total commercial lending	$	537		$	554		$	430		$	432
Total consumer lending (a)	1,305			1,311			1,223			1,262
Total nonperforming loans	1,842			1,865			1,653			1,694
OREO, foreclosed and other assets	162			170
OREO and foreclosed assets							132			114
Total nonperforming assets	$	2,004		$	2,035		$	1,785		$	1,808
Nonperforming loans to total loans	.83		%	.85		%	.71		%	.75		%
Nonperforming assets to total loans, OREO, foreclosed and other assets	.90		%	.92		%
Nonperforming assets to total loans, OREO and foreclosed assets							.77		%	.80		%
Nonperforming assets to total assets	.53		%	.53		%	.45		%	.47		%


(a)	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.

Nonperforming loans also include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered troubled debt restructurings (TDRs). See Note 1 Accounting Policies in our ~~2017~~2018 Form 10-K and the TDR section of this Note 3.3 for additional information on TDRs.

Total nonperforming loans in Table 3937 include TDRs of $.9 billion at both March 31, ~~2018~~2019 and ~~$1.0 billion at~~ December 31, ~~2017.~~2018. TDRs that are performing, including consumer credit card TDR loans, totaled ~~$1.1~~$1.0 billion at both March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, and are excluded from nonperforming loans. Nonperforming TDRs are returned to accrual status and classified as performing after demonstrating a period of at least six months of consecutive performance under the restructured terms. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status. ~~See the TDRs section of this Note 3 for more information on TDRs.~~

Additional Asset Quality Indicators

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

Commercial Lending Loan Classes

The following table presents asset quality indicators for the Commercial Lending loan classes. See Note 3 Asset Quality in our ~~2017~~2018 Form 10-K for additional information related to our Commercial Lending loan classes, including discussion around the asset quality indicators that we use to monitor and manage the credit risk associated with each loan class.

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

Table ~~40:~~38: Commercial Lending Asset Quality Indicators (a)


			Criticized Commercial Loans
In millions	Pass Rated		Special Mention (b)		Substandard (c)		Doubtful (d)		Total Loans		Pass Rated		Criticized		Total Loans
March 31, 2018
March 31, 2019
Commercial	$	106,681	$	2,075	$	3,449	$	103	$	112,308	$	117,366	$	5,627	$	122,993
Commercial real estate	28,274		163		397		1		28,835		27,251		850		28,101
Equipment lease financing	7,606		91		102		3		7,802		7,206		142		7,348
Total commercial lending	$	142,561	$	2,329	$	3,948	$	107	$	148,945	$	151,823	$	6,619	$	158,442
December 31, 2017
December 31, 2018
Commercial	$	105,280	$	1,858	$	3,331	$	58	$	110,527	$	111,276	$	5,558	$	116,834
Commercial real estate	28,380		148		435		15		28,978		27,682		458		28,140
Equipment lease financing	7,754		77		102		1		7,934		7,180		128		7,308
Total commercial lending	$	141,414	$	2,083	$	3,868	$	74	$	147,439	$	146,138	$	6,144	$	152,282

(a)

Loans are classified as ~~“Pass”, “Special Mention”, “Substandard”~~Pass and ~~“Doubtful”~~Criticized based on the Regulatory Classification definitions. The Criticized classification includes loans that were rated Special Mention, Substandard or Doubtful as of March 31, 2019 and December 31, 2018. We use ~~PDs~~probability of default and ~~LGDs~~loss given default to rate loans in the commercial ~~loans.~~lending portfolio.


~~(b)~~	Special Mention rated loans have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects at some future date. These loans do not expose us to sufficient risk to warrant a more adverse classification at the reporting date.


~~(c)~~	Substandard rated loans have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.


~~(d)~~	Doubtful rated loans possess all the inherent weaknesses of a Substandard rated loan with the additional characteristics that the weakness makes collection or liquidation in full improbable due to existing facts, conditions and values.

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

Consumer Lending Loan Classes

See Note 3 Asset Quality in our ~~2017~~2018 Form 10-K for additional information related to our Consumer Lending loan classes, including discussion around the asset quality indicators that we use to monitor and manage the credit risk associated with each loan class.

Home Equity and Residential Real Estate Loan Classes

The following table presents asset quality indicators for the home equity and residential real estate loan classes, excluding consumer purchased impaired loans of $2.3 billion and $2.4 billion at March 31, 2018 and December 31, 2017, respectively, and government insured or guaranteed residential real estate mortgages of $.7 billion and $.8 billion at March 31, 2018 and December 31, 2017, respectively.classes.

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

Table ~~41:~~39: Asset Quality Indicators for Home Equity and Residential Real Estate Loans ~~– Excluding Purchased Impaired and Government Insured or Guaranteed Loans (a)~~

Home Equity
Residential
Real Estate

Total

March 31, 2018 - in millions 1st Liens
2nd Liens

Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660 $ 99
$ 359
$ 123
$ 581

Less than or equal to 660 (b) 16
58
24
98

Missing FICO 1
4
1
6

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660 277
794
249
1,320

Less than or equal to 660 (b) 45
133
49
227

Missing FICO 1
8
5
14

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660 333
853
300
1,486

Less than or equal to 660 51
132
51
234

Missing FICO 2
8
3
13

Less than 90% and updated FICO scores:
Greater than 660 13,678
7,877
13,795
35,350

Less than or equal to 660 1,212
775
555
2,542

Missing FICO 42
56
97
195

Total home equity and residential real estate loans $ 15,757
$ 11,057
$ 15,252
$ 42,066



	March 31, 2019				December 31, 2018
	Home equity		Residential real estate		Home equity		Residential real estate
In millions
Current estimated LTV ratios
Greater than or equal to 125%	$	464	$	119	$	461	$	116
Greater than or equal to 100% to less than 125%	1,012		261		1,020		255
Greater than or equal to 90% to less than 100%	1,201		358		1,174		335
Less than 90%	22,014		16,337		22,644		15,922
No LTV ratio available	163		71		145		6
Government insured or guaranteed loans			658				685
Purchased impaired loans	646		1,303		679		1,338
Total loans	$	25,500	$	19,107	$	26,123	$	18,657
Updated FICO Scores
Greater than 660	$	22,378	$	16,396	$	22,996	$	15,956
Less than or equal to 660	2,207		602		2,210		585
No FICO score available	269		148		238		93
Government insured or guaranteed loans			658				685
Purchased impaired loans	646		1,303		679		1,338
Total loans	$	25,500	$	19,107	$	26,123	$	18,657

December 31, 2017 - in millions Home Equity
Residential
Real Estate

Total

1st Liens
2nd Liens

Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660 $ 108
$ 385
$ 126
$ 619

Less than or equal to 660 (b) 21
64
23
108

Missing FICO 1
5
1
7

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660 300
842
253
1,395

Less than or equal to 660 (b) 46
143
45
234

Missing FICO 2
9
5
16

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660 331
890
324
1,545

Less than or equal to 660 55
134
55
244

Missing FICO 2
9
4
15

Less than 90% and updated FICO scores:
Greater than 660 13,954
8,066
13,445
35,465

Less than or equal to 660 1,214
774
507
2,495

Missing FICO 42
57
95
194

Total home equity and residential real estate loans $ 16,076
$ 11,378
$ 14,883
$ 42,337


~~(a)~~	~~Amounts shown represent recorded investment.~~

~~(b)~~

Higher risk loans are defined as loans with both an updated FICO score of less than or equal to 660 and an updated LTV greater than or equal to 100%. The following states had the highest percentage of higher risk loans at March 31, 2018: New Jersey 16%, Pennsylvania 13%, Illinois 12%, Ohio 10%, Maryland 8%, Florida 6%, North Carolina 5% and Michigan 4%. The remainder of the states had lower than 4% of the higher risk loans individually, and collectively they represent approximately 26% of the higher risk loans. The following states had the highest percentage of higher risk loans at December 31, 2017: New Jersey 17%, Pennsylvania 13%, Illinois 13%, Ohio 9%, Maryland 8%, Florida 6%, North Carolina 5% and Michigan 4%. The remainder of the states had lower than 4% of the higher risk loans individually, and collectively they represent approximately 25% of the higher risk loans.

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

Automobile, Credit Card, Education and Other Consumer Loan Classes

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

Table ~~42:~~40: Asset Quality Indicators for Automobile, Credit Card, Education and Other Consumer ~~Loan Classes Asset Quality Indicators~~Loans


	Credit Card				Other Consumer (a)
Dollars in millions	Amount		% of Total Loans Using FICO Credit Metric		Amount		% of Total Loans Using FICO Credit Metric		Automobile		Credit Card		Education		Other Consumer
March 31, 2018
March 31, 2019
FICO score greater than 719	$	3,368	60	%	$	10,235	61	%	$	7,694	$	3,753	$	1,245	$	1,306
650 to 719	1,603		28	%	4,611		27	%	4,452		1,781		192		678
620 to 649	254		5	%	815		5	%	1,071		284		25		111
Less than 620	297		5	%	844		5	%	1,191		336		26		109
No FICO score available or required (b)	135		2	%	316		2	%
No FICO score available or required (a)									299		113		46		25
Total loans using FICO credit metric	5,657		100	%	16,821		100	%	14,707		6,267		1,534		2,229
Consumer loans using other internal credit metrics (a)					5,036
Total loan balance	$	5,657			$	21,857
Consumer loans using other internal credit metrics													2,173		2,334
Total loans									$	14,707	$	6,267	$	3,707	$	4,563
Weighted-average updated FICO score (b)			733				737		723		733		774		731
December 31, 2017
December 31, 2018
FICO score greater than 719	$	3,457	61	%	$	10,366	63	%	$	7,740	$	3,809	$	1,240	$	1,280
650 to 719	1,596		28	%	4,352		27	%	4,365		1,759		194		641
620 to 649	250		4	%	659		4	%	1,007		280		26		106
Less than 620	272		5	%	715		4	%	1,027		332		24		105
No FICO score available or required (b)	124		2	%	314		2	%
No FICO score available or required (a)									280		177		57		25
Total loans using FICO credit metric	5,699		100	%	16,406		100	%	14,419		6,357		1,541		2,157
Consumer loans using other internal credit metrics (a)					5,338
Total loan balance	$	5,699			$	21,744
Consumer loans using other internal credit metrics													2,281		2,428
Total loans									$	14,419	$	6,357	$	3,822	$	4,585
Weighted-average updated FICO score (b)			735				741		726		733		774		732

(a)

We use updated FICO scores as an asset quality indicator for non-government guaranteed or insured education loans, automobile loans and other secured and unsecured lines and loans. We use internal credit metrics, such as delinquency status, geography or other factors, as an asset quality indicator for government guaranteed or insured education loans and consumer loans to high net worth individuals, as internal credit metrics are more relevant than FICO scores for these types of loans.

~~(b)~~

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


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

The PNC Financial Services Group, Inc. – Form 10-Q49

Troubled Debt Restructurings (TDRs)

Table 4341 quantifies the number of loans that were classified as TDRs, as well as the change in the loans’ recorded investment as a result of becoming a TDR during the three months ended March 31, ~~2018~~2019 and March 31, ~~2017.~~2018. Additionally, the table provides information about the types of TDR concessions. See Note 3 Asset Quality in our ~~2017~~2018 Form 10-K for additional discussion of TDRs.

Table ~~43:~~41: Financial Impact and TDRs by Concession Type (a)


			Pre-TDR Recorded Investment (b)		Post-TDR Recorded Investment (c)											Pre-TDR Recorded Investment (b)		Post-TDR Recorded Investment (c)
During the three months ended March 31, 2019 Dollars in millions											Number of Loans		Principal Forgiveness		Rate Reduction	Pre-TDR Recorded Investment (b)			Other		Total
Total commercial lending														22		$	105				$	109	$	109
Total consumer lending														3,814		42			$	24	16		40
Total TDRs														3,836		$	147		$	24	$	125	$	149
During the three months ended March 31, 2018 Dollars in millions	Number of Loans		Pre-TDR Recorded Investment (b)		Pre-TDR Recorded Investment (b)		Principal Forgiveness		Rate Reduction		Other		Total
Total commercial lending		32			Pre-TDR Recorded Investment (b)		$	1	$	7	$	8		32		$	10		$	1	$	7	$	8
Total consumer lending		2,979	49				30		16		46			2,979		49			30		16		46
Total TDRs		3,011	$	59			$	31	$	23	$	54		3,011		$	59		$	31	$	23	$	54
During the three months ended March 31, 2017 Dollars in millions
Total commercial lending		49	$	35	$	4	$	6	$	5	$	15
Total consumer lending		2,899	73				37		31		68
Total TDRs		2,948	$	108	$	4	$	43	$	36	$	83


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


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


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

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

After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. We consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. The recorded investment of loans that were both (i) classified as TDRs or were subsequently modified during each 12-month period preceding January 1, ~~2018~~2019 and January 1, ~~2017,~~2018, respectively, and (ii) subsequently defaulted during the three months ended March 31, ~~2018~~2019 and March 31, ~~2017~~2018 totaled ~~$21~~$18 million and ~~$32~~$21 million, respectively.

Impaired Loans

Impaired loans include commercial and consumer nonperforming loans and TDRs, regardless of nonperforming status. TDRs that were previously recorded at amortized cost and are now classified and accounted for as held for sale are also included. Excluded from impaired loans are nonperforming leases, loans accounted for as held for sale other than the TDRs described in the preceding sentence, loans accounted for under the fair value option, smaller balance homogeneous type loans and purchased impaired loans. We did not recognize any interest income on impaired loans that have not returned to performing status, while they were impaired during the three months ended March 31, ~~2018~~2019 and March 31, ~~2017.~~2018. Table 4442 provides further detail on impaired loans individually evaluated for impairment and the associated ~~allowance for loan and lease losses (ALLL).~~ALLL. Certain commercial and consumer impaired loans do not have a related ALLL as the valuation of these impaired loans exceeded the recorded investment.

Table ~~44:~~42: Impaired Loans


In millions	Unpaid Principal Balance		Recorded Investment		Associated Allowance		Average Recorded Investment (a)		Unpaid Principal Balance		Recorded Investment		Associated Allowance		Average Recorded Investment (a)
March 31, 2018
March 31, 2019
Impaired loans with an associated allowance
Total commercial lending	$	537	$	371	$	101	$	363	$	481	$	383	$	87	$	349
Total consumer lending	980		915		152		964		855		808		130		813
Total impaired loans with an associated allowance	1,517		1,286		253		1,327		1,336		1,191		217		1,162
Impaired loans without an associated allowance
Total commercial lending	427		326				345		358		263				295
Total consumer lending	1,158		693				666		1,014		604				614
Total impaired loans without an associated allowance	1,585		1,019				1,011		1,372		867				909
Total impaired loans	$	3,102	$	2,305	$	253	$	2,338	$	2,708	$	2,058	$	217	$	2,071
December 31, 2017
December 31, 2018
Impaired loans with an associated allowance
Total commercial lending	$	580	$	353	$	76	$	419	$	440	$	315	$	73	$	349
Total consumer lending	1,061		1,014		195		1,072		863		817		136		904
Total impaired loans with an associated allowance	1,641		1,367		271		1,491		1,303		1,132		209		1,253
Impaired loans without an associated allowance
Total commercial lending	494		366				330		413		326				294
Total consumer lending	1,019		638				648		1,042		625				645
Total impaired loans without an associated allowance	1,513		1,004				978		1,455		951				939
Total impaired loans	$	3,154	$	2,371	$	271	$	2,469	$	2,758	$	2,083	$	209	$	2,192


(a)	Average recorded investment is for the three months ended March 31, ~~2018~~2019 and the year ended December 31, ~~2017,~~2018, respectively.

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

NOTE 4 ALLOWANCE FOR LOAN AND LEASE LOSSES

We maintain the ALLL at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. We ~~use the~~have two ~~main~~ portfolio segments – Commercial Lending and Consumer Lending, and develop and document the ALLL under separate methodologies for each of these portfolio segments. See Note 1 Accounting Policies in our ~~2017~~2018 Form 10-K for a description of the accounting policies for ALLL.

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

A rollforward of the ALLL and associated loan data follows:

Table ~~45:~~43: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data


Dollars in millions	Commercial Lending			Consumer Lending			Total
March 31, 2018
										2019									2018
At or for the three months ended March 31 Dollars in millions										Commercial Lending			Consumer Lending			Total			Commercial Lending			Consumer Lending			Total
Allowance for Loan and Lease Losses
January 1	$	1,582		$	1,029		$	2,611		$	1,663		$	966		$	2,629		$	1,582		$	1,029		$	2,611
Charge-offs	(36		)	(157		)	(193		)	(31		)	(184		)	(215		)	(36		)	(157		)	(193		)
Recoveries	26			54			80			19			60			79			26			54			80
Net (charge-offs)	(10		)	(103		)	(113		)	(12		)	(124		)	(136		)	(10		)	(103		)	(113		)
Provision for credit losses	37			55			92			80			109			189			37			55			92
Net (increase) / decrease in allowance for unfunded loan commitments and letters of credit	5			2			7
Net decrease / (increase) in allowance for unfunded loan commitments and letters of credit										5			1			6			5			2			7
Other				7			7						4			4						7			7
March 31	$	1,614		$	990		$	2,604		$	1,736		$	956		$	2,692		$	1,614		$	990		$	2,604
TDRs individually evaluated for impairment	$	34		$	152		$	186		$	27		$	130		$	157		$	34		$	152		$	186
Other loans individually evaluated for impairment	67						67			60						60			67						67
Loans collectively evaluated for impairment	1,513			556			2,069			1,649			551			2,200			1,513			556			2,069
Purchased impaired loans				282			282						275			275						282			282
March 31	$	1,614		$	990		$	2,604		$	1,736		$	956		$	2,692		$	1,614		$	990		$	2,604
Loan Portfolio
TDRs individually evaluated for impairment	$	384		$	1,608		$	1,992		$	456		$	1,412		$	1,868		$	384		$	1,608		$	1,992
Other loans individually evaluated for impairment	313						313			190						190			313						313
Loans collectively evaluated for impairment	148,248			67,934			216,182			157,796			69,732			227,528			148,248			67,934			216,182
Fair value option loans (a)				813			813						758			758						813			813
Purchased impaired loans				2,314			2,314						1,949			1,949						2,314			2,314
March 31	$	148,945		$	72,669		$	221,614		$	158,442		$	73,851		$	232,293		$	148,945		$	72,669		$	221,614
Portfolio segment ALLL as a percentage of total ALLL	62		%	38		%	100		%	64		%	36		%	100		%	62		%	38		%	100		%
Ratio of ALLL to total loans	1.08		%	1.36		%	1.18		%	1.10		%	1.29		%	1.16		%	1.08		%	1.36		%	1.18		%
March 31, 2017
Allowance for Loan and Lease Losses
January 1	$	1,534		$	1,055		$	2,589
Charge-offs	(55		)	(143		)	(198		)
Recoveries	32			48			80
Net (charge-offs)	(23		)	(95		)	(118		)
Provision for credit losses	23			65			88
Net (increase) / decrease in allowance for unfunded loan commitments and letters of credit	(5		)	1			(4		)
Other	1			5			6
March 31	$	1,530		$	1,031		$	2,561
TDRs individually evaluated for impairment	$	37		$	215		$	252
Other loans individually evaluated for impairment	53						53
Loans collectively evaluated for impairment	1,412			526			1,938
Purchased impaired loans	28			290			318
March 31	$	1,530		$	1,031		$	2,561
Loan Portfolio
TDRs individually evaluated for impairment	$	366		$	1,764		$	2,130
Other loans individually evaluated for impairment	351						351
Loans collectively evaluated for impairment	139,863			66,797			206,660
Fair value option loans (a)				874			874
Purchased impaired loans	82			2,729			2,811
March 31	$	140,662		$	72,164		$	212,826
Portfolio segment ALLL as a percentage of total ALLL	60		%	40		%	100		%
Ratio of ALLL to total loans	1.09		%	1.43		%	1.20		%


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

60The PNC Financial Services Group, Inc. – Form 10-Q51

NOTE 5 INVESTMENT SECURITIES

Table ~~46:~~44: Investment Securities Summary

In millions
Amortized
Cost

Unrealized
Fair
Value

Gains
Losses

March 31, 2018
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies $ 13,645
$ 123
$ (179 ) $ 13,589

Residential mortgage-backed
Agency 26,512
74
(584 ) 26,002

Non-agency 2,320
333
(17 ) 2,636

Commercial mortgage-backed
Agency 1,884
1
(78 ) 1,807

Non-agency 2,585
9
(24 ) 2,570

Asset-backed 5,129
71
(17 ) 5,183

Other debt 4,166
103
(38 ) 4,231

Total securities available for sale $ 56,241
$ 714
$ (937 ) $ 56,018

Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies $ 745
$ 28
$ (27 ) $ 746

Residential mortgage-backed
Agency 14,663
18
(382 ) 14,299

Non-agency 163
3
166

Commercial mortgage-backed
Agency 338
2
(1 ) 339

Non-agency 524
4
528

Asset-backed 196
1
197

Other debt 1,915
59
(26 ) 1,948

Total securities held to maturity $ 18,544
$ 115
$ (436 ) $ 18,223

December 31, 2017
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies $ 14,432
$ 173
$ (84 ) $ 14,521

Residential mortgage-backed
Agency 25,534
121
(249 ) 25,406

Non-agency 2,443
336
(21 ) 2,758

Commercial mortgage-backed
Agency 1,960
2
(58 ) 1,904

Non-agency 2,603
19
(9 ) 2,613

Asset-backed 5,331
74
(8 ) 5,397

Other debt 4,322
129
(17 ) 4,434

Total debt securities 56,625
854
(446 ) 57,033

Other (a) 587
(2 ) 585

Total securities available for sale $ 57,212
$ 854
$ (448 ) $ 57,618

Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies $ 741
$ 37
$ (13 ) $ 765

Residential mortgage-backed
Agency 14,503
77
(139 ) 14,441

Non-agency 167
7
174

Commercial mortgage-backed
Agency 407
4
411

Non-agency 538
10
548

Asset-backed 200
1

201

Other debt 1,957
88
(20 ) 2,025

Total securities held to maturity $ 18,513
$ 224
$ (172 ) $ 18,565


~~(a)~~	On January 1, 2018, $.6 billion of available for sale securities, primarily money market funds, were reclassified to equity investments in accordance with the adoption of ASU 2016-01. See the Recently Adopted Accounting Standards portion of Note 1 for additional detail on this adoption.

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



	March 31, 2019									December 31, 2018
In millions	Amortized Cost		Unrealized					Fair Value		Amortized Cost		Unrealized					Fair Value
In millions	Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses			Fair Value
Securities Available for Sale
U.S. Treasury and government agencies	$	18,858	$	200	$	(67	)	$	18,991	$	18,104	$	133	$	(137	)	$	18,100
Residential mortgage-backed
Agency	29,549		229		(250		)	29,528		29,413		104		(524		)	28,993
Non-agency	1,834		302		(11		)	2,125		1,924		300		(13		)	2,211
Commercial mortgage-backed
Agency	2,598		27		(52		)	2,573		2,630		13		(66		)	2,577
Non-agency	2,831		16		(15		)	2,832		2,689		5		(37		)	2,657
Asset-backed	5,508		69		(12		)	5,565		4,933		59		(20		)	4,972
Other	3,346		104		(13		)	3,437		3,821		96		(38		)	3,879
Total securities available for sale	$	64,524	$	947	$	(420	)	$	65,051	$	63,514	$	710	$	(835	)	$	63,389
Securities Held to Maturity
U.S. Treasury and government agencies	$	763	$	35	$	(11	)	$	787	$	758	$	28	$	(23	)	$	763
Residential mortgage-backed
Agency	15,317		90		(185		)	15,222		15,740		32		(358		)	15,414
Non-agency	149		4					153		152		2					154
Commercial mortgage-backed
Agency	107		1					108		143		1		(1		)	143
Non-agency	473		3					476		488		1		(1		)	488
Asset-backed	174							174		182		1					183
Other	1,835		75		(22		)	1,888		1,849		53		(28		)	1,874
Total securities held to maturity	$	18,818	$	208	$	(218	)	$	18,808	$	19,312	$	118	$	(411	)	$	19,019

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the securities available for sale portfolio are included in Shareholders’ equity as AOCI, unless credit-related. Securities held to maturity are carried at amortized cost. Investment securities at March 31, 2019 included $623 million of net unsettled purchases which represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows.

At March 31, ~~2018,~~2019, AOCI included pretax gains of ~~$50~~$25 million from derivatives that hedged the purchase of investment securities classified as held to maturity. The gains will be accreted into interest income as an adjustment of yield on the securities.

Table 4745 presents gross unrealized losses and fair value of debt securities at March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. The securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and twelve months or more based on the point in time that the fair value declined below the amortized cost basis. The table includes debt securities where a portion of other than temporary impairment (OTTI) has been recognized in AOCI.

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

Table ~~47:~~45: Gross Unrealized Loss and Fair Value of ~~Debt~~ Securities


	Unrealized loss position less than 12 months					Unrealized loss position 12 months or more					Total					Unrealized loss position less than 12 months					Unrealized loss position 12 months or more					Total
In millions	Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value
March 31, 2018
March 31, 2019
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies	$	(120	)	$	6,937	$	(59	)	$	1,142	$	(179	)	$	8,079	$	(2	)	$	1,699	$	(65	)	$	5,908	$	(67	)	$	7,607
Residential mortgage-backed
Agency	(229		)	11,684		(355		)	8,965		(584		)	20,649		(2		)	1,230		(248		)	14,184		(250		)	15,414
Non-agency	(1		)	94		(16		)	352		(17		)	446							(11		)	332		(11		)	332
Commercial mortgage-backed
Agency	(16		)	499		(62		)	1,243		(78		)	1,742							(52		)	1,500		(52		)	1,500
Non-agency	(15		)	1,284		(9		)	325		(24		)	1,609		(3		)	801		(12		)	646		(15		)	1,447
Asset-backed	(14		)	2,366		(3		)	383		(17		)	2,749		(5		)	1,108		(6		)	1,178		(11		)	2,286
Other debt	(16		)	1,675		(22		)	787		(38		)	2,462
Total debt securities available for sale	$	(411	)	$	24,539	$	(526	)	$	13,197	$	(937	)	$	37,736
Other																					(14		)	1,324		(14		)	1,324
Total securities available for sale																$	(12	)	$	4,838	$	(408	)	$	25,072	$	(420	)	$	29,910
Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies	$	(7	)	$	191	$	(20	)	$	246	$	(27	)	$	437						$	(11	)	$	460	$	(11	)	$	460
Residential mortgage-backed - Agency	(133		)	7,080		(249		)	5,830		(382		)	12,910							(185		)	9,778		(185		)	9,778
Commercial mortgage-backed - Agency	(1		)	170							(1		)	170
Other debt	(7		)	105		(19		)	85		(26		)	190
Total debt securities held to maturity	$	(148	)	$	7,546	$	(288	)	$	6,161	$	(436	)	$	13,707
December 31, 2017
Other																$	(1	)	$	38	(21		)	137		(22		)	175
Total securities held to maturity																$	(1	)	$	38	$	(217	)	$	10,375	$	(218	)	$	10,413
December 31, 2018
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies	$	(42	)	$	6,099	$	(42	)	$	1,465	$	(84	)	$	7,564	$	(21	)	$	4,125	$	(116	)	$	5,423	$	(137	)	$	9,548
Residential mortgage-backed
Agency	(47		)	8,151		(202		)	9,954		(249		)	18,105		(57		)	4,823		(467		)	13,830		(524		)	18,653
Non-agency						(21		)	383		(21		)	383		(1		)	74		(12		)	310		(13		)	384
Commercial mortgage-backed
Agency	(11		)	524		(47		)	1,302		(58		)	1,826		(1		)	65		(65		)	1,516		(66		)	1,581
Non-agency	(3		)	400		(6		)	333		(9		)	733		(23		)	1,809		(14		)	498		(37		)	2,307
Asset-backed	(4		)	1,697		(4		)	462		(8		)	2,159		(11		)	2,149		(9		)	1,032		(20		)	3,181
Other debt	(3		)	966		(14		)	798		(17		)	1,764
Total debt securities available for sale	$	(110	)	$	17,837	$	(336	)	$	14,697	$	(446	)	$	32,534
Other																(12		)	868		(26		)	1,293		(38		)	2,161
Total securities available for sale																$	(126	)	$	13,913	$	(709	)	$	23,902	$	(835	)	$	37,815
Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies	$	(3	)	$	195	$	(10	)	$	255	$	(13	)	$	450						$	(23	)	$	446	$	(23	)	$	446
Residential mortgage-backed - Agency	(10		)	3,167		(129		)	6,168		(139		)	9,335		$	(58	)	$	4,191	(300		)	7,921		(358		)	12,112
Other debt	(12		)	83		(8		)	67		(20		)	150
Total debt securities held to maturity	$	(25	)	$	3,445	$	(147	)	$	6,490	$	(172	)	$	9,935
Commercial mortgage-backed
Agency																(1		)	88							(1		)	88
Non-agency																(1		)	152							(1		)	152
Other																(2		)	75		(26		)	123		(28		)	198
Total securities held to maturity																$	(62	)	$	4,506	$	(349	)	$	8,490	$	(411	)	$	12,996

Evaluating Investment Securities for OTTI

For the securities in Table ~~47,~~45, as of March 31, ~~2018~~2019 we do not intend to sell and believe we will not be required to sell the securities prior to recovery of the amortized cost basis.

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

On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for OTTI, as discussed in Note 1 Accounting Policies of our ~~2017~~2018 Form 10-K. For those securities on our Consolidated Balance Sheet at March 31, ~~2018,~~2019, where during our quarterly security-level impairment assessments we determined losses represented OTTI, we have recorded cumulative credit losses of $1.1 billion in earnings and accordingly have reduced the amortized cost of our securities.

The majority of these cumulative impairment charges related to non-agency residential mortgage-backed and asset-backed securities rated BB or lower. During the first ~~quarters~~three months of ~~2018~~2019 and ~~2017,~~2018, the OTTI credit losses recognized in noninterest income and the OTTI noncredit losses recognized in AOCI on securities were not significant.

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

Table ~~48:~~46: Gains (Losses) on Sales of Securities Available for Sale


Three months ended March 31 In millions	Proceeds		Gross Gains		Gross Losses			Net Losses			Tax Benefit			Gross Gains		Gross Losses			Net Gains (Losses)			Tax Expense
2019														$	27	$	(14	)	$	13		$	3
2018	$	4,490	$	37	$	(38	)	$	(1	)				$	37	$	(38	)	$	(1	)
2017	$	3,222	$	14	$	(16	)	$	(2	)	$	(1	)

The PNC Financial Services Group, Inc. – Form 10-Q53

The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at March 31, ~~2018.~~2019.

Table ~~49:~~47: Contractual Maturity of ~~Debt~~ Securities

March 31, 2018
Dollars in millions 1 Year or Less

After 1 Year
through 5 Years

After 5 Years
through 10 Years

After 10
Years

Total

Securities Available for Sale
U.S. Treasury and government agencies $ 85
$ 7,752
$ 5,335
$ 473
$ 13,645

Residential mortgage-backed
Agency 3
50
568
25,891
26,512

Non-agency 2,320
2,320

Commercial mortgage-backed
Agency 313
560
1,011
1,884

Non-agency 450
2,135
2,585

Asset-backed 19
1,877
1,940
1,293
5,129

Other debt 683
1,784
632
1,067
4,166

Total debt securities available for sale $ 790
$ 11,776
$ 9,485
$ 34,190
$ 56,241

Fair value $ 789
$ 11,676
$ 9,462
$ 34,091
$ 56,018

Weighted-average yield, GAAP basis 2.39 % 2.18 % 2.40 % 3.05 % 2.75 %
Securities Held to Maturity
U.S. Treasury and government agencies $ 478
$ 267
$ 745

Residential mortgage-backed
Agency $ 79
334
14,250
14,663

Non-agency 163
163

Commercial mortgage-backed
Agency $ 156
125
5
52
338

Non-agency 524
524

Asset-backed 113
83
196

Other debt 14
431
848
622
1,915

Total debt securities held to maturity $ 170
$ 635
$ 1,778
$ 15,961
$ 18,544

Fair value $ 170
—
$ 646
—
$ 1,821
$ 15,586
$ 18,223

Weighted-average yield, GAAP basis 3.53 % 3.84 % 3.52 % 3.21 % 3.26 %

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



March 31, 2019 Dollars in millions	1 Year or Less			After 1 Year through 5 Years			After 5 Years through 10 Years			After 10 Years			Total
Securities Available for Sale
U.S. Treasury and government agencies	$	679		$	13,599		$	3,795		$	785		$	18,858
Residential mortgage-backed
Agency	2			52			867			28,628			29,549
Non-agency										1,834			1,834
Commercial mortgage-backed
Agency				590			309			1,699			2,598
Non-agency							332			2,499			2,831
Asset-backed	31			2,529			1,616			1,332			5,508
Other	476			1,522			475			873			3,346
Total securities available for sale	$	1,188		$	18,292		$	7,394		$	37,650		$	64,524
Fair value	$	1,188		$	18,294		$	7,484		$	38,085		$	65,051
Weighted-average yield, GAAP basis	2.58		%	2.29		%	2.98		%	3.25		%	2.93		%
Securities Held to Maturity
U.S. Treasury and government agencies							$	490		$	273		$	763
Residential mortgage-backed
Agency				$	78		523			14,716			15,317
Non-agency										149			149
Commercial mortgage-backed
Agency	$	11		42			4			50			107
Non-agency										473			473
Asset-backed				7			100			67			174
Other	23			621			749			442			1,835
Total securities held to maturity	$	34		$	748		$	1,866		$	16,170		$	18,818
Fair value	$	34		$	768		$	1,928		$	16,078		$	18,808
Weighted-average yield, GAAP basis	4.87		%	3.84		%	3.45		%	3.27		%	3.31		%

Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security. At March 31, ~~2018,~~2019, there were no securities of a single issuer, other than the Federal National Mortgage Association (FNMA), that exceeded 10% of Total shareholders’ equity. The FNMA investments had a total amortized cost of ~~$32.7~~$37.1 billion and fair value of ~~$31.9~~$37.0 billion.

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

Table ~~50:~~48: Fair Value of Securities Pledged and Accepted as Collateral


In millions	March 31 2018		December 31 2017		March 31 2019		December 31 2018
Pledged to others	$	8,264	$	8,175	$	6,055	$	7,597
Accepted from others:					��
Permitted by contract or custom to sell or repledge(a)	$	1,134	$	1,152	$	2,235	$	6,905
Permitted amount repledged to others	$	1,098	$	1,097	$	1,151	$	923


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

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

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

NOTE 6 FAIR VALUE

Fair Value Measurement

We measure certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date, determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy, see Note 6 Fair Value in our ~~2017~~2018 Form 10-K.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For more information on the valuation methodologies used to measure assets and liabilities at fair value on a recurring basis, see Note 6 Fair Value in our ~~2017~~2018 Form 10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which we have elected the fair value option.

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

Table ~~51:~~49: Fair Value Measurements – Recurring Basis Summary


	March 31, 2018								December 31, 2017								March 31, 2019								December 31, 2018
In millions	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Assets
Residential mortgage loans held for sale			$	615	$	2	$	617			$	829	$	3	$	832			$	471	$	2	$	473			$	493	$	2	$	495
Commercial mortgage loans held for sale			153		92		245				723		107		830				90		73		163				309		87		396
Securities available for sale
U.S. Treasury and government agencies	$	13,158	431				13,589		$	14,088	433				14,521		$	18,642	349				18,991		$	17,753	347				18,100
Residential mortgage-backed
Agency			26,002				26,002				25,406				25,406				29,528				29,528				28,993				28,993
Non-agency			91		2,545		2,636				97		2,661		2,758				83		2,042		2,125				83		2,128		2,211
Commercial mortgage-backed
Agency			1,807				1,807				1,904				1,904				2,573				2,573				2,577				2,577
Non-agency			2,570				2,570				2,613				2,613				2,832				2,832				2,657				2,657
Asset-backed			4,862		321		5,183				5,065		332		5,397				5,299		266		5,565				4,698		274		4,972
Other debt			4,137		94		4,231				4,347		87		4,434
Total debt securities	13,158		39,900		2,960		56,018		14,088		39,865		3,080		57,033
Other (a)									524		61				585
Other																			3,352		85		3,437				3,795		84		3,879
Total securities available for sale	13,158		39,900		2,960		56,018		14,612		39,926		3,080		57,618		18,642		44,016		2,393		65,051		17,753		43,150		2,486		63,389
Loans			511		302		813				571		298		869				486		272		758				510		272		782
Equity investments (b)	489		60		1,129		1,905						1,036		1,265
Equity investments (a)																	569				1,217		1,974		751				1,255		2,209
Residential mortgage servicing rights					1,256		1,256						1,164		1,164						1,131		1,131						1,257		1,257
Commercial mortgage servicing rights					723		723						668		668						681		681						726		726
Trading securities (c)	827		1,678		2		2,507		1,243		1,670		2		2,915
Financial derivatives (c) (d)	2		1,889		12		1,903				2,864		10		2,874
Trading securities (b)																	1,991		1,552		2		3,545		2,137		1,777		2		3,916
Financial derivatives (b) (c)																	4		2,308		56		2,368		3		2,053		25		2,081
Other assets	275		250		68		593		278		253		107		638		318		129				447		291		157		45		493
Total assets	$	14,751	$	45,056	$	6,546	$	66,580	$	16,133	$	46,836	$	6,475	$	69,673	$	21,524	$	49,052	$	5,827	$	76,591	$	20,935	$	48,449	$	6,157	$	75,744
Liabilities
Other borrowed funds	$	963	$	205	$	9	$	1,177	$	1,079	$	254	$	11	$	1,344	$	1,389	$	99	$	6	$	1,494	$	868	$	132	$	7	$	1,007
Financial derivatives (d) (e)			2,505		437		2,942				2,369		487		2,856
Financial derivatives (c) (d)																	3		1,672		230		1,905		1		2,021		268		2,290
Other liabilities					42		42						33		33						62		62						58		58
Total liabilities	$	963	$	2,710	$	488	$	4,161	$	1,079	$	2,623	$	531	$	4,233	$	1,392	$	1,771	$	298	$	3,461	$	869	$	2,153	$	333	$	3,355


(a)	Prior period amounts included $.6 billion of available for sale securities, primarily money market funds, that were reclassified to equity investments on January 1, 2018 as the result of the adoption of ASU 2016-01. See the Recently Adopted Accounting Standards portion of Note 1 for additional details on this adoption.


~~(b)~~	Certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. ~~The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the Consolidated Balance Sheet.~~


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


~~(d)~~(c)	Amounts at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 9 Financial Derivatives for additional information related to derivative offsetting.


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

The PNC Financial Services Group, Inc. – Form 10-Q 6555

Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 follow:

Table ~~52:~~50: Reconciliation of Level 3 Assets and Liabilities

Three Months Ended March 31, ~~2018~~ 2019


			Total realized / unrealized gains or losses for the period (a)																							Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Mar. 31, 2018 (a) (b)					Total realized / unrealized gains or losses for the period (a)																							Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Mar. 31, 2019 (a) (b)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2017		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value Mar. 31, 2018					Fair Value Dec. 31, 2018		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value Mar. 31, 2019
Assets
Residential mortgage loans held for sale	$	3							$	1	$	(1	)						$	2	$	(3	)	$	2				$	2							$	1	$	(1	)						$	3	$	(3	)	$	2
Commercial mortgage loans held for sale	107															$	(15	)						92					87		$	1												$	(15	)						73		$	1
Securities available for sale
Residential mortgage- backed non-agency	2,661		$	19			$	3								(138		)						2,545					2,128		18				$	2								(106		)						2,042
Asset-backed	332		(1		)		5									(15		)						321					274						2									(10		)						266
Other debt	87		5				1		2							(1		)						94
Other																													84								1															85
Total securities available for sale	3,080		23				9		2							(154		)						2,960					2,486		18				4		1							(116		)						2,393
Loans	298		2						37		(7		)			(18		)	2		(12		)	302		$	2		272		3						20		(3		)			(14		)	2		(8		)	272		1
Equity investments	1,036		26						82		(15		)											1,129		25			1,255		52						45		(135		)											1,217
Residential mortgage servicing rights	1,164		107						9					$	13	(37		)						1,256		105			1,257		(106		)				6					7		(33		)						1,131		(106		)
Commercial mortgage servicing rights	668		48						23					17		(33		)						723		48			726		(33		)				19					7		(38		)						681		(33		)
Trading securities	2																							2					2																							2
Financial derivatives	10		7						1							(6		)						12		9			25		39						2							(10		)						56		41
Other assets	107		3													(42		)						68		3			45															(45		)
Total assets	$	6,475	$	216			$	9	$	155	$	(23	)	$	30	$	(305	)	$	4	$	(15	)	$	6,546	$	192		$	6,157	$	(26	)		$	4	$	94	$	(139	)	$	14	$	(271	)	$	5	$	(11	)	$	5,827	$	(96	)
Liabilities
Other borrowed funds	$	11												$	19	$	(21	)						$	9				$	7												$	14	$	(15	)						$	6
Financial derivatives	487		$	10							$	3				(63		)						437		$	5		268		$	30							$	2				(70		)						230		$	34
Other liabilities	33		2						$	12				5		(10		)						42		2			58		9											2		(7		)						62		9
Total liabilities	$	531	$	12					$	12	$	3		$	24	$	(94	)						$	488	$	7		$	333	$	39							$	2		$	16	$	(92	)						$	298	$	43
Net gains (losses)			$	204		(c)																				$	185	(d)			$	(65	)	(c)																				$	(139	)	(d)

6656 The PNC Financial Services Group, Inc. – Form 10-Q

Three Months Ended March 31, ~~2017~~2018


			Total realized / unrealized gains or losses for the period (a)																								Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Mar. 31, 2017 (a) (b)						Total realized / unrealized gains or losses for the period (a)																							Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Mar. 31, 2018 (a) (b)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2016		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3		Transfers out of Level 3				Fair Value Mar. 31, 2017						Dec. 31, 2017		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value Mar. 31, 2018
Assets
Residential mortgage loans held for sale	$	2							$	2									$	2	$	(2	)		$	4					$	3							$	1	$	(1	)						$	2	$	(3	)	$	2
Commercial mortgage loans held for sale	1,400		$	9							$	(1,617	)	$	801	$	(12	)							581		$	(5	)		107															$	(15	)						92
Securities available for sale
Residential mortgage- backed non-agency	3,254		26				$	18								(202		)							3,096						2,661		$	19			$	3								(138		)						2,545
Asset-backed	403		4				4				(25		)			(20		)							366						332		(1		)		5									(15		)						321
Other debt	66						9		1		(1		)												75
Other																															87		5				1		2							(1		)						94
Total securities available for sale	3,723		30				31		1		(26		)			(222		)							3,537						3,080		23				9		2							(154		)						2,960
Loans	335		1						22		(4		)			(19		)	2		(14		)		323						298		2						37		(7		)			(18		)	2		(12		)	302		$	2
Equity investments	1,331		96						37		(175		)								(183		)	(e)	1,106		67				1,036		26						82		(15		)											1,129		25
Residential mortgage servicing rights	1,182		18						83					17		(39		)							1,261		17				1,164		107						9					$	13	(37		)						1,256		105
Commercial mortgage servicing rights	576		13						13					29		(25		)							606		13				668		48						23					17		(33		)						723		48
Trading securities	2																								2						2																							2
Financial derivatives	40		(1		)											(15		)							24		22				10		7						1							(6		)						12		9
Other assets	239		(2		)											(155		)							82		(2		)		107		3													(42		)						68		3
Total assets	$	8,830	$	164			$	31	$	158	$	(1,822	)	$	847	$	(487	)	$	4	$	(199	)		$	7,526	$	112			$	6,475	$	216			$	9	$	155	$	(23	)	$	30	$	(305	)	$	4	$	(15	)	$	6,546	$	192
Liabilities
Other borrowed funds	$	10												$	19	$	(22	)							$	7					$	11												$	19	$	(21	)						$	9
Financial derivatives	414		$	9							$	2				(171		)							254		$	7			487		$	10							$	3				(63		)						437		$	5
Other liabilities	9		16											77		(71		)							31		16				33		2						$	12				5		(10		)						42		2
Total liabilities	$	433	$	25							$	2		$	96	$	(264	)							$	292	$	23			$	531	$	12					$	12	$	3		$	24	$	(94	)						$	488	$	7
Net gains (losses)			$	139		(c)																					$	89		(d)			$	204		(c)																				$	185	(d)


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


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


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


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


~~(e)~~	~~Reflects transfer out of Level 3 associated with change in valuation methodology for certain equity investments subject to the Volcker Rule provisions of the Dodd-Frank Act.~~

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

The PNC Financial Services Group, Inc. – Form 10-Q 6757

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

Table ~~53:~~51: Fair Value Measurements – Recurring Quantitative Information

March 31, ~~2018~~2019

Level 3 Instruments Only

Dollars in millions

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted-Average)

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted-Average)

Commercial mortgage loans held for sale

Discounted cash flow

Spread over the benchmark curve (a)

525bps - 1,580bps (1,069bps)

Discounted cash flow

Spread over the benchmark curve (a)

530bps - 2,060bps (1,368bps)

Residential mortgage-backed
non-agency securities

2,545

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate (CPR)

1.0% - 33.0% (10.9%)

2,042

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate

1.0% - 36.2% (10.5%)

Constant default rate (CDR)

0.0% - 17.8% (5.7%)

Constant default rate

0.0% - 15.9% (5.0%)

Loss severity

20.0% - 100.0% (50.5%)

Loss severity

10.0% - 95.7% (49.3%)

Spread over the benchmark curve (a)

196bps weighted-average

Spread over the benchmark curve (a)

206bps weighted-average

Asset-backed securities

321

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate (CPR)

1.0% - 19.0% (7.9%)

266

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate

1.0% - 22.0% (8.2%)

Constant default rate (CDR)

2.0% - 11.8% (5.1%)

Constant default rate

1.0% - 18.5% (3.6%)

Loss severity

16.0% - 100.0% (67.1%)

Loss severity

15.0% - 100.0% (58.0%)

Spread over the benchmark curve (a)

126bps weighted-average

Spread over the benchmark curve (a)

220bps weighted-average

Loans

142

Consensus pricing (b)

Cumulative default rate

11.0% - 100.0% (82.5%)

131

Consensus pricing (b)

Cumulative default rate

11.0% - 100.0% (79.8%)

Loss severity

0.0% - 100.0% (18.5%)

Loss severity

0.0% - 100.0% (16.5%)

Discount rate

5.5% - 8.0% (5.7%)

Discount rate

5.5% - 8.3% (5.8%)

Discounted cash flow

Loss severity

8.0% weighted-average

Discounted cash flow

Loss severity

8.0% weighted-average

Discount rate

5.4% weighted-average

Discount rate

5.5% weighted-average

Consensus pricing (b)

Credit and Liquidity discount

0.0% - 99.0% (61.1%)

Consensus pricing (b)

Credit and Liquidity discount

0.0% - 99.0% (61.2%)

Equity investments

1,129

Multiple of adjusted earnings

Multiple of earnings

4.9x - 29.7x (8.3x)

1,217

Multiple of adjusted earnings

Multiple of earnings

5.0x - 19.7x (8.5x)

Residential mortgage servicing rights

1,256

Discounted cash flow

Constant prepayment rate (CPR)

0.0% - 44.4% (8.7%)

1,131

Discounted cash flow

Constant prepayment rate

0.0% - 60.3% (10.5%)

Spread over the benchmark curve (a)

346bps - 1,811bps (831bps)

Spread over the benchmark curve (a)

280bps - 1,438bps (805bps)

Commercial mortgage servicing rights

723

Discounted cash flow

Constant prepayment rate (CPR)

7.0% - 13.7% (7.9%)

681

Discounted cash flow

Constant prepayment rate

4.3% - 15.7% (5.5%)

Discount rate

6.3% - 8.3% (8.1%)

Discount rate

6.2% - 8.3% (8.2%)

Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares

(363

)

Discounted cash flow

Estimated conversion factor of Visa
Class B shares into Class A shares

163.8% weighted-average

(216

)

Discounted cash flow

Estimated conversion factor of Visa Class B shares into Class A shares

163.0% weighted-average

Estimated growth rate of Visa
Class A share price

16.0%

Estimated annual growth rate of Visa Class A share price

16.0%

Estimated length of litigation
resolution date

Q2 2021

Estimated length of litigation resolution date

Q4 2020

Insignificant Level 3 assets, net of
liabilities (c)

Total Level 3 assets, net of liabilities (d)

6,058

5,529

6858 The PNC Financial Services Group, Inc. – Form 10-Q

December 31, ~~2017~~2018

Level 3 Instruments Only

Dollars in millions

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted-Average)

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted-Average)

Commercial mortgage loans held for sale

107

Discounted cash flow

Spread over the benchmark curve (a)

525bps - 1,470bps (1020bps)

Discounted cash flow

Spread over the benchmark curve (a)

535bps - 1,900bps (1,217bps)

Residential mortgage-backed
non-agency securities

2,661

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate (CPR)

1.0% - 31.6% (10.8%)

2,128

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate

1.0% - 33.0% (11.8%)

Constant default rate (CDR)

0.1% - 18.8% (5.4%)

Constant default rate

0.0% - 18.8% (5.1%)

Loss severity

15.0% - 100.0% (51.5%)

Loss severity

10.0% - 100.0% (50.8%)

Spread over the benchmark curve (a)

190bps weighted-average

Spread over the benchmark curve (a)

216bps weighted-average

Asset-backed securities

332

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate (CPR)

1.0% - 19.0% (7.9%)

274

Priced by a third-party vendor using a discounted cash flow pricing model

Constant prepayment rate

1.0% - 19.0% (8.5%)

Constant default rate (CDR)

2.0% - 11.8% (5.4%)

Constant default rate

1.0% - 18.5% (4.0%)

Loss severity

15.0% - 100.0% (68.5%)

Loss severity

15.0% - 100.0% (63.8%)

Spread over the benchmark curve (a)

179bps weighted-average

Spread over the benchmark curve (a)

198bps weighted-average

Loans

133

Consensus pricing (b)

Cumulative default rate

11.0% - 100.0% (85.7%)

129

Consensus pricing (b)

Cumulative default rate

11.0% - 100.0% (81.8%)

Loss severity

0.0% - 100.0% (20.6%)

Loss severity

0.0% - 100.0% (17.2%)

Discount rate

5.5% - 8.0% (5.7%)

Discount rate

5.5% - 8.3% (5.8%)

104

Discounted cash flow

Loss severity

8.0% weighted-average

Discounted cash flow

Loss severity

8.0% weighted-average

Discount rate

4.9% weighted-average

Discount rate

5.8% weighted-average

Consensus pricing (b)

Credit and Liquidity discount

0.0% - 99.0% (61.1%)

Consensus pricing (b)

Credit and Liquidity discount

0.0% - 99.0% (61.3%)

Equity investments

1,036

Multiple of adjusted earnings

Multiple of earnings

4.5x - 29.7x (8.3x)

1,255

Multiple of adjusted earnings

Multiple of earnings

4.5x - 16.0x (8.4x)

Residential mortgage servicing rights

1,164

Discounted cash flow

Constant prepayment rate (CPR)

0.0% - 36.7% (10.0%)

1,257

Discounted cash flow

Constant prepayment rate

0.0% - 54.5% (8.7%)

Spread over the benchmark curve (a)

390bps - 1,839bps (830bps)

Spread over the benchmark curve (a)

492bps - 1,455bps (806bps)

Commercial mortgage servicing rights

668

Discounted cash flow

Constant prepayment rate (CPR)

7.7% - 14.2% (8.5%)

726

Discounted cash flow

Constant prepayment rate

4.6% - 14.7% (5.7%)

Discount rate

6.4% - 7.9% (7.8%)

Discount rate

6.9% - 8.5% (8.4%)

Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares

(380

)

Discounted cash flow

Estimated conversion factor of Visa Class B shares into Class A shares

163.8% weighted-average

(210

)

Discounted cash flow

Estimated conversion factor of Visa Class B shares into Class A shares

163.0% weighted-average

Estimated growth rate of Visa Class
A share price

16.0%

Estimated annual growth rate of Visa Class A share price

16.0%

Estimated length of litigation
resolution date

Q2 2021

Estimated length of litigation
resolution date

Q4 2020

Insignificant Level 3 assets, net of
liabilities (c)

Total Level 3 assets, net of liabilities (d)

5,944

5,824


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


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


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


(d)	Consisted of total Level 3 assets of ~~$6.5~~$5.8 billion and total Level 3 liabilities of ~~$.5~~$.3 billion as of March 31, ~~2018~~2019 and ~~$6.4~~$6.1 billion and ~~$.5~~$.3 billion as of December 31, ~~2017,~~2018, respectively.

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

Financial Assets Accounted for at Fair Value on a Nonrecurring Basis

We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table ~~54 and Table 55.~~52. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 6 Fair Value in our ~~2017~~2018 Form 10-K.

Table ~~54:~~52: Fair Value Measurements – Nonrecurring (a) (b) (c)


	Fair Value (a)				Gains (Losses) Three months ended						Fair Value				Gains (Losses) Three months ended
In millions	March 31 2018		December 31 2017		March 31 2018			March 31 2017			March 31 2019		December 31 2018		March 31 2019			March 31 2018
Assets
Nonaccrual loans	$	137	$	100	$	(23	)	$	(6	)	$	127	$	128	$	(18	)	$	(23	)
OREO, foreclosed and other assets	35		70					(4		)
OREO and foreclosed assets											31		59		(2		)
Long-lived assets	15		80		(2		)	3			8		11		(4		)	(2		)
Total assets	$	187	$	250	$	(25	)	$	(7	)	$	166	$	198	$	(24	)	$	(25	)


(a)	All Level 3 asfor the periods presented.


(b)	Valuation techniques applied were fair value of ~~March 31, 2018 and December 31, 2017.~~property or collateral.

~~Quantitative information about the significant unobservable inputs within Level 3 nonrecurring assets follows:~~

~~Table 55: Fair Value Measurements – Nonrecurring Quantitative Information~~

Level 3 Instruments Only
In millions
Fair Value
Valuation Techniques Unobservable Inputs
March 31, 2018
Assets
Nonaccrual loans $ 137
Fair value of property or collateral Appraised value/sales price
OREO, foreclosed and other assets 35
Fair value of property or collateral Appraised value/sales price
Long-lived assets 15
Fair value of property or collateral Appraised value/sales price
Total assets $ 187

December 31, 2017
Assets
Nonaccrual loans $ 100
Fair value of property or collateral Appraised value/sales price
OREO, foreclosed and other assets 70
Fair value of property or collateral Appraised value/sales price
Long-lived assets 47
Fair value of property or collateral Appraised value/sales price
20
Fair value of property or collateral Broker opinion
13
Fair value of property or collateral Projected income/required improvement costs
Total assets $ 250


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

70The PNC Financial Services Group, Inc. – Form 10-Q59

Financial Instruments Accounted for under Fair Value Option

We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, see Note 6 Fair Value in our ~~2017~~2018 Form 10-K.

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

Table ~~56:~~53: Fair Value Option – Fair Value and Principal Balances


								March 31, 2019							December 31, 2018
In millions	Fair Value		Aggregate Unpaid Principal Balance		Difference			Fair Value		Aggregate Unpaid Principal Balance		Difference			Fair Value		Aggregate Unpaid Principal Balance		Difference
March 31, 2018
Assets
Residential mortgage loans held for sale
Performing loans	$	604	$	591	$	13		$	467	$	450	$	17		$	489	$	472	$	17
Accruing loans 90 days or more past due	3		3					3		3					2		2
Nonaccrual loans	10		11		(1		)	3		4		(1		)	4		4
Total	$	617	$	605	$	12		$	473	$	457	$	16		$	495	$	478	$	17
Commercial mortgage loans held for sale (a)
Performing loans	$	244	$	264	$	(20	)	$	163	$	183	$	(20	)	$	396	$	411	$	(15	)
Nonaccrual loans	1		2		(1		)
Total	$	245	$	266	$	(21	)	$	163	$	183	$	(20	)	$	396	$	411	$	(15	)
Residential mortgage loans
Performing loans	$	290	$	319	$	(29	)	$	288	$	306	$	(18	)	$	279	$	298	$	(19	)
Accruing loans 90 days or more past due	334		344		(10		)	286		294		(8		)	321		329		(8		)
Nonaccrual loans	189		307		(118		)	184		291		(107		)	182		292		(110		)
Total	$	813	$	970	$	(157	)	$	758	$	891	$	(133	)	$	782	$	919	$	(137	)
Other assets	$	216	$	221	$	(5	)	$	128	$	127	$	1		$	156	$	176	$	(20	)
Liabilities
Other borrowed funds	$	56	$	57	$	(1	)	$	49	$	50	$	(1	)	$	64	$	65	$	(1	)
December 31, 2017
Assets
Residential mortgage loans held for sale
Performing loans	$	822	$	796	$	26
Accruing loans 90 days or more past due	3		3
Nonaccrual loans	7		8		(1		)
Total	$	832	$	807	$	25
Commercial mortgage loans held for sale (a)
Performing loans	$	828	$	842	$	(14	)
Nonaccrual loans	2		3		(1		)
Total	$	830	$	845	$	(15	)
Residential mortgage loans
Performing loans	$	251	$	280	$	(29	)
Accruing loans 90 days or more past due	421		431		(10		)
Nonaccrual loans	197		317		(120		)
Total	$	869	$	1,028	$	(159	)
Other assets	$	216	$	212	$	4
Liabilities
Other borrowed funds	$	84	$	85	$	(1	)


(a)	There were no accruing loans 90 days or more past due within this category at March 31, ~~2018~~2019 or December 31, ~~2017.~~2018.

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

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

Table ~~57:~~54: Fair Value Option – Changes in Fair Value (a)


	Gains (Losses)						Gains (Losses)
	Three months ended						Three months ended
	Mar. 31			Mar. 31			March 31		March 31
In millions	2018			2017			2019		2018
Assets
Residential mortgage loans held for sale	$	4		$	30		$	14	$	4
Commercial mortgage loans held for sale	$	14		$	18		$	5	$	14
Residential mortgage loans	$	3		$	4		$	4	$	3
Other assets	$	11		$	7		$	9	$	11
Liabilities
Other liabilities	$	(2	)	$	(16	)


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

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

The following table presents the carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of all other financial instruments that are not recorded on our Consolidated Balance Sheet at fair value as of March 31, ~~2018~~2019 and December 31, ~~2017.~~

2018. For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table ~~58: Additional~~55, see Note 6 Fair Value ~~Information Related to Other Financial Instruments~~in our 2018 Form 10-K.

Carrying
Fair Value
In millions Amount
Total
Level 1
Level 2
Level 3

March 31, 2018
Assets
Cash and due from banks $ 4,649
$ 4,649
$ 4,649

Interest-earning deposits with banks 28,821
28,821
$ 28,821

Securities held to maturity 18,544
18,223
746
17,333
$ 144

Net loans (excludes leases) 210,395
211,926
211,926

Other assets 4,954
4,954
4,940
14

Total assets $ 267,363
$ 268,573
$ 5,395
$ 51,094
$ 212,084

Liabilities
Time deposits (a) $ 16,270
$ 15,976
$ 15,976

Borrowed funds 56,862
57,514
55,838
$ 1,676

Unfunded loan commitments and letters of credit 290
290
290

Other liabilities 416
416
416

Total liabilities $ 73,838
$ 74,196
$ 72,230
$ 1,966

December 31, 2017
Assets
Cash and due from banks $ 5,249
$ 5,249
$ 5,249

Interest-earning deposits with banks 28,595
28,595
$ 28,595

Securities held to maturity 18,513
18,565
765
17,658
$ 142

Net loans (excludes leases) 209,044
211,175
211,175

Other assets 6,078
6,736
5,949
787

Total assets $ 267,479
$ 270,320
$ 6,014
$ 52,202
$ 212,104

Liabilities
Deposits $ 265,053
$ 264,854
$ 264,854

Borrowed funds 57,744
58,503
56,853
$ 1,650

Unfunded loan commitments and letters of credit 297
297
297

Other liabilities 399
399
399

Total liabilities $ 323,493
$ 324,053
$ 322,106
$ 1,947


~~(a)~~	The amount at March 31, 2018 excludes deposit liabilities with no defined or contractual maturities in accordance with the adoption of ASU 2016-01. See the Recently Adopted Accounting Standards portion of Note 1 for additional details on this adoption.

7260 The PNC Financial Services Group, Inc. – Form 10-Q

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



	Carrying		Fair Value
In millions	Amount		Total		Level 1		Level 2		Level 3
March 31, 2019
Assets
Cash and due from banks	$	5,062	$	5,062	$	5,062
Interest-earning deposits with banks	15,261		15,261				$	15,261
Securities held to maturity	18,818		18,808		787		17,859		$	162
Net loans (excludes leases)	221,495		223,547						223,547
Other assets	6,268		6,267				6,262		5
Total assets	$	266,904	$	268,945	$	5,849	$	39,382	$	223,714
Liabilities
Time deposits	$	19,620	$	19,428			$	19,428
Borrowed funds	58,365		58,907				57,002		$	1,905
Unfunded loan commitments and letters of credit	279		279						279
Other liabilities	447		447				447
Total liabilities	$	78,711	$	79,061			$	76,877	$	2,184
December 31, 2018
Assets
Cash and due from banks	$	5,608	$	5,608	$	5,608
Interest-earning deposits with banks	10,893		10,893				$	10,893
Securities held to maturity	19,312		19,019		763		18,112		$	144
Net loans (excludes leases)	215,525		216,492						216,492
Other assets	11,065		11,065				11,060		5
Total assets	$	262,403	$	263,077	$	6,371	$	40,065	$	216,641
Liabilities
Time deposits	$	18,507	$	18,246			$	18,246
Borrowed funds	56,412		56,657				54,872		$	1,785
Unfunded loan commitments and letters of credit	285		285						285
Other liabilities	393		393				393
Total liabilities	$	75,597	$	75,581			$	73,511	$	2,070

The aggregate fair values in Table 5855 represent only a portion of the total market value of our assets and liabilities as, in accordance with the guidance related to fair values about financial instruments, we exclude the following:

financial instruments recorded at fair value on a recurring basis (as they are disclosed in Table ~~51),~~49);

investments accounted for under the equity ~~method,~~method;

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

real and personal ~~property,~~property;

lease ~~financing,~~financing;

loan customer ~~relationships,~~relationships;

deposit customer ~~intangibles,~~intangibles;

mortgage servicing rights (MSRs);

retail branch ~~networks,~~networks;

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

trademarks and brand ~~names,~~names;

trade receivables and payables due in one year or ~~less,~~less; and

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

The balance of equity securities without a readily determinable fair value that apply the alternative measurement approach to fair value was $105 million and $106 million at March 31, 2018 and December 31, 2017, respectively. Impairment taken on those equity securities was immaterial in the first quarter of 2018.PNC Financial Services Group, Inc. – Form 10-Q61

~~For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 58, see Note 6 Fair Value in our 2017 Form 10-K.~~

NOTE 7 GOODWILL AND MORTGAGE SERVICING RIGHTS

Goodwill

See Note 7 Goodwill and Mortgage Servicing Rights in our ~~2017~~2018 Form 10-K for more information regarding our goodwill.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others when we recognize it as an intangible asset and the servicing income we receive is more than adequate compensation. MSRs totaled ~~$2.0~~$1.8 billion and ~~$1.8~~$2.0 billion at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.

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

See the Sensitivity Analysis section of this Note 7, as well as Note 6 Fair Value in our ~~2017~~2018 Form 10-K for more detail on our fair value measurement of MSRs. Refer to Note 7 Goodwill and Mortgage Servicing Rights in our ~~2017~~2018 Form 10-K for more information on our accounting and measurement of MSRs.

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

Changes in the commercial and residential MSRs follow:

Table ~~59:~~56: Mortgage Servicing Rights


	Commercial MSRs						Residential MSRs						Commercial MSRs						Residential MSRs
In millions	2018			2017			2018			2017			2019			2018			2019			2018
January 1	$	668		$	576		$	1,164		$	1,182		$	726		$	668		$	1,257		$	1,164
Additions:
From loans sold with servicing retained	17			29			13			17			7			17			7			13
Purchases	23			13			9			83			19			23			6			9
Changes in fair value due to:
Time and payoffs (a)	(33		)	(25		)	(37		)	(39		)	(38		)	(33		)	(33		)	(37		)
Other (b)	48			13			107			18			(33		)	48			(106		)	107
March 31	$	723		$	606		$	1,256		$	1,261		$	681		$	723		$	1,131		$	1,256
Related unpaid principal balance at March 31	$	169,172		$	143,908		$	124,696		$	130,382		$	186,946		$	169,172		$	123,079		$	124,696
Servicing advances at March 31	$	200		$	234		$	197		$	260		$	243		$	200		$	138		$	197


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


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

Sensitivity Analysis

The fair value of commercial and residential MSRs and significant inputs to the valuation models as of March 31, ~~2018~~2019 are shown in Tables 6057 and ~~61.~~58. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 6057 and ~~61.~~58. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

The PNC Financial Services Group, Inc. – Form 10-Q62

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

Table ~~60:~~57: Commercial Mortgage ~~Loan~~ Servicing Rights – Key Valuation Assumptions


Dollars in millions	March 31 2018			December 31 2017			March 31 2019			December 31 2018
Fair value	$	723		$	668		$	681		$	726
Weighted-average life (years)	4.4			4.4			4.1			4.1
Weighted-average constant prepayment rate	7.89		%	8.51		%	5.45		%	5.65		%
Decline in fair value from 10% adverse change	$	12		$	12		$	10		$	10
Decline in fair value from 20% adverse change	$	22		$	23		$	19		$	19
Effective discount rate	8.09		%	7.81		%	8.23		%	8.39		%
Decline in fair value from 10% adverse change	$	19		$	18		$	18		$	19
Decline in fair value from 20% adverse change	$	39		$	36		$	36		$	39

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

Table ~~61:~~58: Residential Mortgage ~~Loan~~ Servicing Rights – Key Valuation Assumptions


Dollars in millions	March 31 2018				December 31 2017				March 31 2019				December 31 2018
Fair value	$	1,256			$	1,164			$	1,131			$	1,257
Weighted-average life (years)	7.0				6.4				6.2				6.9
Weighted-average constant prepayment rate	8.72		%		10.04		%		10.46		%		8.69		%
Decline in fair value from 10% adverse change	$	40			$	44			$	43			$	41
Decline in fair value from 20% adverse change	$	78			$	85			$	83			$	79
Weighted-average option adjusted spread	831			bps	830			bps	805			bps	806			bps
Decline in fair value from 10% adverse change	$	38			$	35			$	32			$	37
Decline in fair value from 20% adverse change	$	74			$	67			$	63			$	73

Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $.1 billion for both the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018. We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in ~~the line items~~ Corporate services and Residential mortgage, respectively.

NOTE 8 EMPLOYEE BENEFIT PLANS

Pension and Postretirement Plans

As described in Note 11 Employee Benefit Plans in our ~~2017~~2018 Form 10-K, we have a noncontributory, qualified defined benefit pension plan covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are a percentage of eligible ~~compensation. Beginning in 2018, these earnings credits~~compensation and are subject to a minimum annual amount. Any pension contributions to the plan are based on an actuarially determined amount necessary to fund total benefits payable to plan participants.

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

The components of our net periodic benefit cost for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, were as follows:

The PNC Financial Services Group, Inc. – Form 10-Q63

Table ~~62:~~59: Components of Net Periodic Benefit Cost (a)


	Qualified Pension Plan						Nonqualified Pension Plan				Postretirement Benefits						Qualified Pension Plan						Nonqualified Pension Plan				Postretirement Benefits
Three months ended March 31 In millions	2018			2017			2018		2017		2018			2017			2019			2018			2019		2018		2019			2018
Net periodic cost consists of:
Service cost	$	28		$	26		$	1	$	1	$	1		$	1		$	28		$	28		$	1	$	1	$	1		$	1
Interest cost	43			45			2		3		3			4			46			43			2		2		3			3
Expected return on plan assets	(76		)	(71		)					(1		)	(1		)	(72		)	(76		)					(1		)	(1		)
Amortization of prior service credit				(1		)											1
Amortization of actuarial losses				12			1		1														1		1
Net periodic cost/(benefit)	$	(5	)	$	11		$	4	$	5	$	3		$	4		$	3		$	(5	)	$	4	$	4	$	3		$	3


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

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

NOTE 9 FINANCIAL DERIVATIVES

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

For more information regarding derivatives see Note 1 Accounting Policies and Note 13 Financial Derivatives in our ~~2017~~2018 Form 10-K.

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

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

Table ~~63:~~60: Total Gross Derivatives


	March 31, 2018						December 31, 2017						March 31, 2019						December 31, 2018
In millions	Notional / Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional / Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional / Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional / Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)
Derivatives used for hedging under GAAP
Interest rate contracts (c):
Fair value hedges	$	32,810	$	75	$	105	$	34,059	$	114	$	94	$	30,701	$	7			$	30,919	$	7
Cash flow hedges	25,647		54		9		23,875		60		6		21,946		3				17,337		1
Foreign exchange contracts:
Net investment hedges	1,112				51		1,060				11		1,008				$	29	1,012				$	10
Total derivatives designated for hedging	$	59,569	$	129	$	165	$	58,994	$	174	$	111
Total derivatives designated for hedging under GAAP													$	53,655	$	10	$	29	$	49,268	$	8	$	10
Derivatives not used for hedging under GAAP
Derivatives used for mortgage banking activities (d):
Interest rate contracts:
Swaps	$	54,578			$	4	$	48,335	$	162	$	42	$	41,334	$	14	$	4	$	43,084			$	3
Futures (e)	52,555						47,494						4,535						10,658
Mortgage-backed commitments	6,796		$	30	18		8,999		19		9		6,277		64		57		5,771		$	47	39
Other	6,370		15		3		2,530		11		2		9,880		26		12		6,509		10		3
Subtotal	120,299		45		25		107,358		192		53		62,026		104		73		66,022		57		45
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps	200,489		1,182		1,807		194,042		2,079		1,772		224,133		1,780		1,213		218,496		1,352		1,432
Futures (e)	3,274						3,453						564						914
Mortgage-backed commitments	1,894		6		4		2,228		2		2		2,708		6		9		2,246		7		10
Other	18,784		70		64		17,775		75		36		22,059		83		25		20,109		77		33
Subtotal	224,441		1,258		1,875		217,498		2,156		1,810		249,464		1,869		1,247		241,765		1,436		1,475
Commodity contracts:
Swaps													4,620		144		139		4,813		244		238
Other													1,387		15		15		1,418		67		67
Subtotal													6,007		159		154		6,231		311		305
Foreign exchange contracts and other	30,043		451		432		27,330		349		332		23,624		186		180		23,253		194		192
Subtotal	254,484		1,709		2,307		244,828		2,505		2,142		279,095		2,214		1,581		271,249		1,941		1,972
Derivatives used for other risk management activities:
Foreign exchange contracts and other (f)	7,142		20		445		7,445		3		550
Total derivatives not designated for hedging	$	381,925	$	1,774	$	2,777	$	359,631	$	2,700	$	2,745
Foreign exchange contracts and other													8,711		40		222		7,908		75		263
Total derivatives not designated for hedging under GAAP													$	349,832	$	2,358	$	1,876	$	345,179	$	2,073	$	2,280
Total gross derivatives	$	441,494	$	1,903	$	2,942	$	418,625	$	2,874	$	2,856	$	403,487	$	2,368	$	1,905	$	394,447	$	2,081	$	2,290
Less: Impact of legally enforceable master netting agreements			795		795				1,054		1,054				695		695				688		688
Less: Cash collateral received/paid			45		648				636		763				302		626				341		539
Total derivatives			$	1,063	$	1,499			$	1,184	$	1,039			$	1,371	$	584			$	1,052	$	1,063


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


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


(c)	Represents primarily swaps.


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


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


~~(f)~~	~~Includes our obligation to fund a portion of certain BlackRock LTIP programs and the swaps entered into in connection with sales of a portion of Visa Class B common shares.~~

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

All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk and Contingent Features section of this Note 9. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives. Exchange-traded and over-the-counter cleared derivative instruments are typically settled in cash each day based on the prior day value. In the first quarter of 2018, we changed our presentation for variation margin related to derivative instruments cleared through a central clearinghouse as a result of changes made by that clearinghouse to its rules governing such instruments with its counterparties. This variation margin is now recorded as a settlement payment instead of collateral. The impact at March 31, 2018 was a reduction of gross derivative assets and gross derivative liabilities of $1.3 billion and $.5 billion, respectively. The accounting change had no impact on the net fair value of the derivative assets and liabilities that otherwise would have been reported on our Consolidated Balance Sheet. See Table 67 for more information.

Derivatives Designated As Hedging Instruments under GAAP

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

The PNC Financial Services Group, Inc. – Form 10-Q65

derivatives as accounting hedges allows for gains and losses on those derivatives to be recognized in the same period and in the same income statement line item as the earnings impact of the hedged items.

Fair Value Hedges

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

Cash Flow Hedges

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

In the 12 months that follow March 31, ~~2018,~~2019, we expect to reclassify net derivative ~~gains~~losses of ~~$38~~$7 million pretax, or ~~$30~~$5 million after-tax, from ~~Accumulated other comprehensive income~~AOCI to interest income for both cash flow hedge strategies. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to March 31, ~~2018.~~2019. As of March 31, ~~2018,~~2019, the maximum length of time over which forecasted transactions are hedged is ~~seven~~ten years.

~~The amount of cash flow hedge ineffectiveness recognized in income was not significant for the 2017 period presented.~~

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

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

Table ~~64:~~61: Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement (a) (b)


	Location and Amount of Gains (Losses) Recognized in Income										Location and Amount of Gains (Losses) Recognized in Income
	Interest Income					Interest Expense			Noninterest Income		Interest Income						Interest Expense			Noninterest Income
In millions	Loans		Investment Securities			Borrowed Funds			Other		Loans			Investment Securities			Borrowed Funds			Other
For the three months ended March 31, 2019
Total amounts on the Consolidated Income Statement											$	2,602		$	620		$	481		$	308
Gains (losses) on fair value hedges recognized on:
Hedged items (c)														$	58		$	(274	)
Derivatives														$	(55	)	$	228
Amounts related to interest settlements on derivatives														$	5		$	11
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI											$	(8	)	$	1					$	15
For the three months ended March 31, 2018
Total amounts on the Consolidated Income Statement	$	2,228	$	512		$	344		$	245	$	2,228		$	512		$	344		$	245
Gains (losses) on fair value hedges recognized on:
Hedged items (c)			$	(90	)	$	370							$	(90	)	$	370
Derivatives			$	92		$	(370	)						$	92		$	(370	)
Amounts related to interest settlements on derivatives			$	(3	)	$	26							$	(3	)	$	26
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from accumulated OCI	$	26	$	4					$	2
For the three months ended March 31, 2017
Total amounts on the Consolidated Income Statement	$	1,904	$	493		$	240		$	301
Gains (losses) on fair value hedges recognized on:
Hedged items			$	(21	)	$	86
Derivatives			$	22		$	(95	)
Amounts related to interest settlements on derivatives			$	(15	)	$	76
Gains (losses) on cash flow hedges - interest rate contracts (d):
Amount of derivative gains (losses) reclassified from accumulated OCI	$	46	$	6					$	3
Amount of derivative gains (losses) reclassified from AOCI											$	26		$	4					$	2


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


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


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


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

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

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

Table ~~65:~~62: Hedged Items - Fair Value Hedges


	March 31, 2018					March 31, 2019					December 31, 2018
In millions	Carrying Value of the Hedged Items		Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)			Carrying Value of the Hedged Items		Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)			Carrying Value of the Hedged Items		Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)
Investment securities - Available for Sale (b)	$	6,228	$	(178	)
Investment securities - available for sale (b)						$	6,418	$	(54	)	$	6,216	$	(103	)
Borrowed funds	$	28,788	$	(480	)	$	26,740	$	14		$	27,121	$	(260	)


(a)	Includes ~~an insignificant amount~~$(.5) billion of fair value hedge adjustments primarily related to discontinued ~~relationships.~~borrowed funds hedge relationships for both periods presented.


(b)	Carrying value shown represents amortized cost.

Net Investment Hedges

We enter into foreign currency forward contracts to hedge non-U.S. dollar net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. Net investment hedge derivatives are classified as foreign exchange contracts. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness for all periods presented. ~~During the first three months of 2017 there was no net investment hedge ineffectiveness.~~ Net losses on net investment hedge derivatives recognized in OCI were $18 million and $39 million for the three months ended March 31, 2019 and 2018, ~~compared with $14 million for the three months ended March 31, 2017.~~

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

respectively.

Derivatives Not Designated As Hedging Instruments under GAAP

We also enter into derivatives that are not designated as accounting hedges under GAAP. For additional information on derivatives not designated as hedging instruments under GAAP, see Note 13 Financial Derivatives in our ~~2017~~2018 Form 10-K.

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

Table ~~66:~~63: Gains (Losses) on Derivatives Not Designated for Hedging under GAAP


	Three months ended March 31						Three months ended March 31
In millions	2018			2017			2019			2018
Derivatives used for mortgage banking activities:
Interest rate contracts (a)	$	(114	)	$	(7	)	$	128		$	(114	)
Derivatives used for customer-related activities:
Interest rate contracts	56			34			(2		)	56
Foreign exchange contracts and other(b)	44			32			23			44
Gains (losses) from customer-related activities ~~(b)~~(c)	100			66			21			100
Derivatives used for other risk management activities:
Foreign exchange contracts and other (b) (c)	(17		)	(50		)
Foreign exchange contracts and other (c)							(54		)	(17		)
Total gains (losses) from derivatives not designated as hedging instruments	$	(31	)	$	9		$	95		$	(31	)


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


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


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


~~(c)~~	~~Includes BlackRock LTIP funding obligation and the swaps entered into in connection with sales of a portion of Visa Class B common shares.~~

Offsetting, Counterparty Credit Risk and Contingent Features

We generally utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of all outstanding derivative instruments under the master netting agreement with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party’s net position. For additional information on derivative offsetting, counterparty credit risk and contingent features, see Note 13 Financial Derivatives in our ~~2017~~2018 Form 10-K.

Table 6764 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. The table includes cash collateral held or pledged under legally enforceable master netting agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

The PNC Financial Services Group, Inc. – Form 10-Q 7967

~~Table 67: Derivative Assets and Liabilities Offsetting~~

In millions
Amounts Offset on the
Consolidated Balance Sheet

Securities
Collateral Held
/ (Pledged)
Under Master
Netting
Agreements


Gross
Fair Value

Fair Value
Offset Amount

Cash
Collateral

Net
Fair Value

Net Amounts

March 31, 2018
Derivative assets
Interest rate contracts:
Over-the-counter cleared (a) $ 24
$ 24
$ 24

Exchange-traded 2
2
2

Over-the-counter 1,406
$ 602
$ 41
763
$ 12
751

Foreign exchange and other contracts 471
193
4
274
274

Total derivative assets $ 1,903

$ 795

$ 45

$ 1,063
(b) $ 12
$ 1,051

Derivative liabilities
Interest rate contracts:
Over-the-counter cleared (a) $ 18
$ 18
$ 18

Over-the-counter 1,996
$ 629
$ 570
797
797

Foreign exchange and other contracts 928
166
78
684
684

Total derivative liabilities $ 2,942
$ 795
$ 648
$ 1,499
(c)

$ 1,499

December 31, 2017
Derivative assets
Interest rate contracts:
Over-the-counter cleared $ 827
$ 251
$ 567
$ 9
$ 9

Over-the-counter 1,695
668
67
960
$ 32
928

Foreign exchange and other contracts 352
135
2
215
215

Total derivative assets $ 2,874

$ 1,054

$ 636

$ 1,184
(b) $ 32
$ 1,152

Derivative liabilities
Interest rate contracts:
Over-the-counter cleared $ 260
$ 251

$ 9
$ 9

Over-the-counter 1,703
662
669
372
372

Foreign exchange and other contracts 893
141
94
658
658

Total derivative liabilities $ 2,856
$ 1,054
$ 763
$ 1,039
(c)

$ 1,039


~~(a)~~	Reflects our first quarter 2018 change in accounting presentation for variation margin for certain derivative instruments cleared through a central clearing house. The accounting change reduced the asset and liability gross fair values with corresponding reductions to the fair value and cash collateral offsets, resulting in no changes to the net fair value amounts.


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


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

Table 6764 includes over-the-counter (OTC) derivatives and OTC cleared ~~derivatives and exchange-traded~~ derivatives. OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or cleared through a central clearing house. The majority of OTC derivatives are governed by the International Swaps and Derivatives Association (ISDA) documentation or other legally enforceable master netting agreements. OTC cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house who then becomes our counterparty. ~~Exchange-traded derivatives represent standardized futures~~OTC cleared derivative instruments are typically settled in cash each day based on the prior day value.

Table 64: Derivative Assets and ~~options contracts executed directly on an organized exchange.~~Liabilities Offsetting



In millions			Amounts Offset on the Consolidated Balance Sheet							Securities Collateral Held/Pledged Under Master Netting Agreements
In millions	Gross Fair Value		Fair Value Offset Amount		Cash Collateral		Net Fair Value					Net Amounts
March 31, 2019
Derivative assets
Interest rate contracts:
Over-the-counter cleared	$	18					$	18				$	18
Over-the-counter	1,965		$	431	$	295	1,239			$	70	1,169
Commodity contracts	159		117		1		41					41
Foreign exchange and other contracts	226		147		6		73					73
Total derivative assets	$	2,368	$	695	$	302	$	1,371	(a)	$	70	$	1,301
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared	$	23					$	23				$	23
Over-the-counter	1,297		$	543	$	537	217					217
Commodity contracts	154		90		39		25					25
Foreign exchange and other contracts	431		62		50		319					319
Total derivative liabilities	$	1,905	$	695	$	626	$	584	(b)			$	584
December 31, 2018
Derivative assets
Interest rate contracts:
Over-the-counter cleared	$	29					$	29				$	29
Over-the-counter	1,472		$	450	$	117	905			$	25	880
Commodity contracts	311		76		210		25					25
Foreign exchange and other contracts	269		162		14		93					93
Total derivative assets	$	2,081	$	688	$	341	$	1,052	(a)	$	25	$	1,027
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared	$	24					$	24				$	24
Over-the-counter	1,496		$	557	$	489	450			$	11	439
Commodity contracts	305		56		17		232					232
Foreign exchange and other contracts	465		75		33		357					357
Total derivative liabilities	$	2,290	$	688	$	539	$	1,063	(b)	$	11	$	1,052


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


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

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

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

At March 31, ~~2018,~~2019, we held cash, U.S. government securities and mortgage-backed securities totaling ~~$.2~~$.5 billion under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties, and we pledged cash totaling $1.4 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral

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

held or pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.

Certain derivative agreements contain various credit-risk related contingent provisions, such as those that require our debt to maintain a specified credit rating from one or more of the major credit rating agencies. If our debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on March 31, ~~2018~~2019 was ~~$1.9~~$1.1 billion for which we had posted collateral of ~~$.7~~$.6 billion in the normal course of business. The maximum additional amount of collateral we would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on March 31, ~~2018~~2019 would be ~~$1.2~~$.5 billion.

NOTE 10 EARNINGS PER SHARE

Table ~~68:~~65: Basic and Diluted Earnings Per Common Share


	Three months ended March 31				Three months ended March 31
In millions, except per share data	2018		2017		2019		2018
Basic
Net income	$	1,239	$	1,074	$	1,271	$	1,239
Less:
Net income (loss) attributable to noncontrolling interests	10		17
Net income attributable to noncontrolling interests					10		10
Preferred stock dividends	63		63		63		63
Preferred discount accretion and redemptions	1		21
Preferred stock discount accretion and redemptions					1		1
Net income attributable to common shares	1,165		973		1,197		1,165
Less:
Dividends and undistributed earnings allocated to participating securities	5		6
Less: Dividends and undistributed earnings allocated to participating securities					5		5
Net income attributable to basic common shares	$	1,160	$	967	$	1,192	$	1,160
Basic weighted-average common shares outstanding	473		487		455		473
Basic earnings per common share (a)	$	2.45	$	1.99	$	2.62	$	2.45
Diluted
Net income attributable to basic common shares	$	1,160	$	967	$	1,192	$	1,160
Less: Impact of BlackRock earnings per share dilution	2		4		3		2
Net income attributable to diluted common shares	$	1,158	$	963	$	1,189	$	1,158
Basic weighted-average common shares outstanding	473		487		455		473
Dilutive potential common shares	3		5		1		3
Diluted weighted-average common shares outstanding	476		492		456		476
Diluted earnings per common share (a)	$	2.43	$	1.96	$	2.61	$	2.43


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

The PNC Financial Services Group, Inc. – Form 10-Q 8169

NOTE 11 TOTAL EQUITY AND OTHER COMPREHENSIVE INCOME

Activity in total equity for the three months ended March 31, 2019 and 2018 ~~and 2017 follows:~~follows.

Table ~~69:~~66: Rollforward of Total Equity


			Shareholders’ Equity																								Shareholders’ Equity
In millions	Shares Outstanding Common Stock		Common Stock		Capital Surplus - Preferred Stock		Capital Surplus - Common Stock and Other			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non- controlling Interests			Total Equity			Shares Outstanding Common Stock		Common Stock		Capital Surplus - Preferred Stock		Capital Surplus - Common Stock and Other			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non- controlling Interests			Total Equity
Balance at January 1, 2017	485		$	2,709	$	3,977	$	12,674		$	31,670		$	(265	)	$	(5,066	)	$	1,155		$	46,854
Balance at December 31, 2017 (a)																									473		$	2,710	$	3,985	$	12,389		$	35,481		$	(148	)	$	(6,904	)	$	72		$	47,585
Cumulative effect of ASU adoptions (b)																																		(22		)	6									(16		)
Balance at January 1, 2018 (a)																									473		$	2,710	$	3,985	$	12,389		$	35,459		$	(142	)	$	(6,904	)	$	72		$	47,569
Net income										1,057									17			1,074												1,229									10			1,239
Other comprehensive income (loss), net of tax													(14		)							(14		)													(557		)							(557		)
Cash dividends declared
Common ($.55 per share)										(271		)										(271		)
Preferred										(63		)										(63		)
Preferred stock discount accretion					2					(2		)
Redemption of noncontrolling interests (a)										(19		)							(981		)	(1,000		)
Treasury stock activity (b)							(216		)							(257		)				(473		)
Other							(162		)										(42		)	(204		)
Balance at March 31, 2017 (c)	485		$	2,709	$	3,979	$	12,296		$	32,372		$	(279	)	$	(5,323	)	$	149		$	45,903
Balance at December 31, 2017	473		$	2,710	$	3,985	$	12,389		$	35,481		$	(148	)	$	(6,904	)	$	72		$	47,585
Cumulative effect of ASU adoptions (d)										(22		)	6									(16		)
Balance at January 1, 2018	473		$	2,710	$	3,985	$	12,389		$	35,459		$	(142	)	$	(6,904	)	$	72		$	47,569
Net income										1,229									10			1,239
Other comprehensive income (loss), net of tax													(557		)							(557		)
Cash dividends declared
Common ($.75 per share)										(358		)										(358		)
Common																																		(358		)										(358		)
Preferred										(63		)										(63		)										(63		)										(63		)
Preferred stock discount accretion					1					(1		)																	1					(1		)
Treasury stock activity	(3	)					6									(631		)				(625		)	(3	)					6									(631		)				(625		)
Other							(154		)										(16		)	(170		)							(154		)										(16		)	(170		)
Balance at March 31, 2018 (c)	470		$	2,710	$	3,986	$	12,241		$	36,266		$	(699	)	$	(7,535	)	$	66		$	47,035
Balance at March 31, 2018 (a)																									470		$	2,710	$	3,986	$	12,241		$	36,266		$	(699	)	$	(7,535	)	$	66		$	47,035
Balance at December 31, 2018 (a)																									457		$	2,711	$	3,986	$	12,291		$	38,919		$	(725	)	$	(9,454	)	$	42		$	47,770
Cumulative effect of ASU 2016-02 adoption (c)																																		62												62
Balance at January 1, 2019 (a)																									457		$	2,711	$	3,986	$	12,291		$	38,981		$	(725	)	$	(9,454	)	$	42		$	47,832
Net income																																		1,261									10			1,271
Other comprehensive income (loss), net of tax																																					720									720
Cash dividends declared
Common																																		(436		)										(436		)
Preferred																																		(63		)										(63		)
Preferred stock discount accretion																													1					(1		)
Treasury stock activity																									(5	)					10									(631		)				(621		)
Other																													3		(118		)										(13		)	(128		)
Balance at March 31, 2019 (a)																									452		$	2,711	$	3,990	$	12,183		$	39,742		$	(5	)	$	(10,085	)	$	39		$	48,575


(a)	~~See Note 15 Equity in our 2017 Form 10-K for additional information on the redemption of Perpetual Trust Securities.~~


~~(b)~~	~~Treasury stock activity totaled less than .5 million shares issued.~~


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


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


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

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

~~We had 2.8 million~~

Table 67: Dividends Per Share (a)



	March 31, 2019		March 31, 2018
Common Stock	$	.95	$	.75
Preferred Stock
Series B	$	.45	$	.45
Series O	$	3,375	$	3,375
Series P	$	1,531	$	1,531
Series Q	$	1,344	$	1,344
Series R	—		—
Series S	—		—

(a) Dividends are payable quarterly other than Series O, Series R, and ~~3.5 million warrants outstanding at March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, each warrant entitles the holder to purchase one share of PNC common~~Series S preferred stock, ~~at an exercise price of $67.20 per share. In accordance~~which are payable semiannually, with the ~~terms of~~Series O payable in different quarters

than the ~~warrants, the warrants are exercised on a non-cash net basis with the warrant holder receiving PNC common shares determined based on the excess of the market price of PNC common~~Series R and Series S preferred stock on the exercise date over the exercise price of the warrant. The outstanding warrants will expire as of December 31, 2018 and are considered in the calculation of diluted earnings per common share in Note 10 Earnings Per Share in this Report.

On April 4, ~~2018, PNC~~2019, we declared a quarterly common stock cash dividend of ~~$.75~~$.95 per share to shareholders of record as of April 16, 2018. In accordance with the terms of the warrants, the declaration of a dividend in excess of $.66 per share may result in an adjustment to the warrant exercise price and to the warrant share number. As a result of this dividend, the warrant exercise price was reduced from $67.20 to $67.16 per sharepayable on ~~April 16, 2018 and the warrant share number remained 1.00.~~May 5, 2019.

8270 The PNC Financial Services Group, Inc. – Form 10-Q

Other Comprehensive Income

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

Table ~~70:~~68: Other Comprehensive Income (Loss)


	Three months ended March 31						Three months ended March 31
In millions	2018			2017			2019			2018
Net unrealized gains (losses) on non-OTTI securities
Increase in net unrealized gains (losses) on non-OTTI securities	$	(645	)	$	67		$	640		$	(645	)
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income	4			5			3			4
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income	(3		)	(7		)	(2		)	(3		)
Net increase (decrease), pre-tax	(646		)	69			639			(646		)
Effect of income taxes	150			(25		)	(147		)	150
Net increase (decrease), after-tax	(496		)	44			492			(496		)
Net unrealized gains (losses) on OTTI securities
Increase in net unrealized gains (losses) on OTTI securities	14			37			9			14
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income				2
Net increase (decrease), pre-tax	14			35			9			14
Effect of income taxes	(4		)	(13		)	(2		)	(4		)
Net increase (decrease), after-tax	10			22			7			10
Net unrealized gains (losses) on cash flow hedge derivatives
Increase in net unrealized gains (losses) on cash flow hedge derivatives	(161		)	(22		)	108			(161		)
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income	26			46			(8		)	26
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income	4			6			1			4
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income	2			3			15			2
Net increase (decrease), pre-tax	(193		)	(77		)	100			(193		)
Effect of income taxes	44			28			(23		)	44
Net increase (decrease), after-tax	(149		)	(49		)	77			(149		)
Pension and other postretirement benefit plan adjustments
Net pension and other postretirement benefit activity	61			(74		)	143			61
Amortization of actuarial loss (gain) reclassified to other noninterest expense	1			13			1			1
Amortization of prior service cost (credit) reclassified to other noninterest expense	1			(1		)	1			1
Net increase (decrease), pre-tax	63			(62		)	145			63
Effect of income taxes	(15		)	23			(33		)	(15		)
Net increase (decrease), after-tax	48			(39		)	112			48
Other
PNC’s portion of BlackRock’s OCI	22			2			29			22
Net investment hedge derivatives	(39		)	(14		)	(18		)	(39		)
Foreign currency translation adjustments and other	44			16			23			44
Net increase (decrease), pre-tax	27			4			34			27
Effect of income taxes	3			4			(2		)	3
Net increase (decrease), after-tax	30			8			32			30
Total other comprehensive income, pre-tax	(735		)	(31		)
Total other comprehensive income, tax effect	178			17
Total other comprehensive income, after-tax	$	(557	)	$	(14	)
Total other comprehensive income (loss), pre-tax							927			(735		)
Total other comprehensive income (loss), tax effect							(207		)	178
Total other comprehensive income (loss), after-tax							$	720		$	(557	)

The PNC Financial Services Group, Inc. – Form 10-Q 8371

Table ~~71:~~69: Accumulated Other Comprehensive Income (Loss) Components


In millions, after-tax	Net unrealized gains (losses) on non-OTTI securities			Net unrealized gains (losses) on OTTI securities		Net unrealized gains (losses) on cash flow hedge derivatives			Pension and other postretirement benefit plan adjustments			Other			Total			Net unrealized gains (losses) on non-OTTI securities			Net unrealized gains (losses) on OTTI securities		Net unrealized gains (losses) on cash flow hedge derivatives			Pension and other postretirement benefit plan adjustments			Other			Total
Balance at December 31, 2016	$	52		$	106	$	333		$	(553	)	$	(203	)	$	(265	)
Net activity	44			22		(49		)	(39		)	8			(14		)
Balance at March 31, 2017	$	96		$	128	$	284		$	(592	)	$	(195	)	$	(279	)
Balance at December 31, 2017	$	62		$	215	$	151		$	(446	)	$	(130	)	$	(148	)	$	62		$	215	$	151		$	(446	)	$	(130	)	$	(148	)
Cumulative effect of adopting ASU 2018-02 (a)	59					33			(96		)	10			6			59					33			(96		)	10			6
Balance at January 1, 2018	$	121		$	215	$	184		$	(542	)	$	(120	)	$	(142	)	121			215		184			(542		)	(120		)	(142		)
Net activity	(496		)	10		(149		)	48			30			(557		)	(496		)	10		(149		)	48			30			(557		)
Balance at March 31, 2018	$	(375	)	$	225	$	35		$	(494	)	$	(90	)	$	(699	)	$	(375	)	$	225	$	35		$	(494	)	$	(90	)	$	(699	)
Balance at December 31, 2018																		$	(284	)	$	204	$	47		$	(530	)	$	(162	)	$	(725	)
Net activity																		492			7		77			112			32			720
Balance at March 31, 2019																		$	208		$	211	$	124		$	(418	)	$	(130	)	$	(5	)


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

NOTE 12 LEGAL PROCEEDINGS

We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in this Note 12 as well as those matters disclosed in Note 19 Legal Proceedings in Part II, Item 8 of our ~~2017~~2018 Form 10-K (such prior disclosure referred to as “Prior Disclosure”)). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of March 31, ~~2018,~~2019, we estimate that it is reasonably possible that we could incur losses in an aggregate amount ~~of up to approximately~~less than $100 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.

As a result of the types of factors described in Note 19 in our ~~2017~~2018 Form 10-K, we are unable, at this time, to estimate the losses that ~~it is~~are reasonably possible ~~that we could incur~~to be incurred or ranges of such losses with respect to some of the matters disclosed, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the Disclosed Matters. The estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”

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

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

~~Captive Mortgage Reinsurance Litigation~~

~~PNC has reached an agreement in principle with the plaintiffs to settle~~ ~~White et. al v. The PNC Financial Services Group, Inc. et al. (Civil Action No. 11-7928)~~, pending in the U.S. District Court for the Eastern District of Pennsylvania. This settlement is subject to, among other things, final documentation. The financial impact of the settlement will not be material to PNC.

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

~~Residential Mortgage-Backed Securities Indemnification Demands~~DD Growth Premium Master Fund

In March ~~2018, one~~2019, the parties to the proceedings brought by the liquidator of the entities asserting a right to indemnification from us against claims in lawsuits brought by purchasers of residential mortgage-backed securities allegedly including loans sold by National City Mortgage submitted a demand for our purported share of the settlement amount of some of these lawsuits.

~~Mortgage Foreclosure False Claims Act Lawsuit~~

~~PNC Bank was named as a defendant, along with 13 other mortgage servicers~~DD Growth Premium Master Fund (DD Growth) and ~~several law firms and affiliated entities, in a qui tam lawsuit brought~~pending in the ~~United States District~~High Court, ~~for the Southern District of New York by an individual plaintiff on behalf of the United States under the federal False Claims Act (United States ex rel. Grubea v. Rosicki, Rosicki & Associates, P.C., et al.~~ ~~(12 Civ. 7199 (JSR)).~~Dublin, Ireland entered into a settlement agreement to resolve this lawsuit. The lawsuit was originally filed under seal, with a second amended complaint unsealed by the district court in March 2018 and a third amended complaint filed in April 2018. A related lawsuit was filed against two other mortgage servicers at the same time.

In the third amended complaint, the plaintiff alleges, as relevant to PNC Bank and the other mortgage servicers, that the mortgage servicers made excessive claims for reimbursement from the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Housing Administration (FHA) for costs incurred in connection with foreclosures on residential mortgage loans purchased or guaranteed by FNMA or FHLMC or insured by FHA in violation of the relevant regulations and applicable contractual reimbursement terms. The plaintiff seeks,settlement is conditioned, among other things, unspecified damages equal to the damage to the United States (including treble damages under the False Claims Act), unspecified civil penalties, and attorneys’ fees and other costs of bringing this lawsuit. The government declined to interveneon court approval in the ~~action, but~~Cayman Islands where DD Growth is ~~prosecuting a related suit against one~~organized. PNC and BNY Mellon have agreed on the amount of ~~the law firms and certain affiliated entities. The district court has set a trial date for March 2019.~~

~~This lawsuit~~PNC’s contribution to this settlement, which is related to the subject matter of the 2013 subpoena from the U.S. Attorney’s Office for the Southern District of New York described in Note 19 in our 2017 Form 10-K under “Other Regulatory and Governmental Inquiries.”not material.

Other Regulatory and Governmental Inquiries

We are the subject of investigations, audits and other forms of regulatory and governmental inquiry covering a broad range of issues in our consumer, mortgage, brokerage, securities and other financial services businesses, as well as other aspects of our operations. In some

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

cases, these inquiries are part of reviews of specified activities at multiple industry participants; in others, they are directed at PNC individually. These inquiries, including those described in Prior Disclosure, may lead to administrative, civil or criminal proceedings, and possibly result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs and other consequences. These inquiries may result in significant reputational harm or other adverse collateral consequences even if direct resulting remedies are not material to us.

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

Other

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

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

NOTE 13 COMMITMENTS

In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with significant other commitments as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Table ~~72:~~70: Commitments to Extend Credit and Other Commitments


In millions	March 31 2018		December 31 2017		March 31 2019		December 31 2018
Commitments to extend credit
Total commercial lending	$	113,268	$	112,125	$	122,014	$	120,165
Home equity lines of credit	16,888		17,852		17,094		16,944
Credit card	25,861		24,911		28,187		27,100
Other	4,812		4,753		5,844		5,069
Total commitments to extend credit	160,829		159,641		173,139		169,278
Net outstanding standby letters of credit (a)	8,350		8,651		9,236		8,655
Reinsurance agreements (b)	1,622		1,654		1,492		1,549
Standby bond purchase agreements (c)	1,014		843		1,145		1,000
Other commitments (d)	1,129		1,732		1,472		1,130
Total commitments to extend credit and other commitments	$	172,944	$	172,521	$	186,484	$	181,612


(a)	Net outstanding standby letters of credit include ~~$3.1 billion and $3.5~~$3.7 billion at both March 31, ~~2018~~2019 and December 31, ~~2017, respectively,~~2018, which support remarketing programs.

(b)

Represents aggregate maximum exposure up to the specified limits of the reinsurance contracts provided by our wholly-owned captive insurance subsidiary. These amounts reflect estimates based on availability of financial information from insurance carriers. As of both March 31, 2019 and December 31, 2018, the aggregate maximum exposure amount comprised ~~$1.4~~$1.3 billion for accidental death & dismemberment contracts and $.2 billion for credit life, accident and health contracts. ~~Comparable amounts at December 31, 2017 were $1.5 billion and $.2 billion, respectively.~~


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


(d)	Includes $.5 billion related to investments in qualified affordable housing projects at both March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

Commitments to Extend Credit

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

Net Outstanding Standby Letters of Credit

We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to ~~third-parties,~~third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Approximately ~~90% and 91%~~98% of our net outstanding standby letters of credit were rated as Pass as of March 31, ~~2018 and December 31, 2017, respectively,~~2019, with the remainder rated as ~~Below Pass.~~Criticized. An internal credit rating of Pass indicates the expected risk of loss is currently low, while a rating of ~~Below Pass~~Criticized indicates a higher degree of risk.

The PNC Financial Services Group, Inc. – Form 10-Q73

If the customer fails to meet its financial or performance obligation to the ~~third-party~~third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on March 31, ~~2018~~2019 had terms ranging from less than one year to ~~seven~~six years.

As of March 31, ~~2018,~~2019, assets of ~~$1.2~~$1.0 billion secured certain specifically identified standby letters of credit. In addition, a portion of the remaining standby letters of credit issued on behalf of specific customers is also secured by collateral or guarantees that secure the customers’ other obligations to us. The carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $.2 billion at March 31, ~~2018~~2019 and is included in Other liabilities on our Consolidated Balance Sheet.

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

NOTE 14 SEGMENT REPORTING

We have four reportable business segments:

• Retail Banking

• Corporate & Institutional Banking

• Asset Management Group

• BlackRock

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

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

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

~~Our allocation of the costs incurred by shared support areas not directly aligned with the businesses is primarily~~Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on ~~the use of services.~~a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors.

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

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

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

Business Segment Results

Table 71: Results of Businesses



Three months ended March 31 In millions	Retail Banking		Corporate & Institutional Banking		Asset Management Group			BlackRock		Other			Consolidated (a)
2019
Income Statement
Net interest income	$	1,349	$	877	$	70				$	179		$	2,475
Noninterest income	595		576		217			$	233	190			1,811
Total revenue	1,944		1,453		287			233		369			4,286
Provision for credit losses (benefit)	128		71		(1		)			(9		)	189
Depreciation and amortization	51		50		12					121			234
Other noninterest expense	1,417		636		218					73			2,344
Income before income taxes and noncontrolling interests	348		696		58			233		184			1,519
Income taxes (benefit)	84		144		13			36		(29		)	248
Net income	$	264	$	552	$	45		$	197	$	213		$	1,271
Average Assets (b)	$	91,255	$	157,169	$	7,259		$	8,080	$	122,135		$	385,898
2018
Income Statement
Net interest income	$	1,218	$	861	$	74				$	208		$	2,361
Noninterest income	635		547		226			$	235	107			1,750
Total revenue	1,853		1,408		300			235		315			4,111
Provision for credit losses (benefit)	69		41		(7		)			(11		)	92
Depreciation and amortization	45		48		12					128			233
Other noninterest expense	1,411		605		213					65			2,294
Income before income taxes and noncontrolling interests	328		714		82			235		133			1,492
Income taxes (benefit)	79		151		20			38		(35		)	253
Net income	$	249	$	563	$	62		$	197	$	168		$	1,239
Average Assets (b)	$	88,734	$	151,909	$	7,499		$	7,704	$	120,429		$	376,275


(a)	There were no material intersegment revenues for the three months ended March 31, 2019 and 2018.


(b)	Period-end balances for BlackRock.

Business Segment Products and Services

Retail Banking provides deposit, lending, brokerage, insurance services, investment management and cash management products and services to consumer and small business ~~customers within our primary geographic markets.~~customers. 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, Florida, North Carolina, Kentucky, Washington, D.C., Delaware, Virginia, Georgia, Alabama, Missouri, Wisconsin~~markets across the Mid-Atlantic, Midwest and ~~South Carolina.~~Southeast. In 2018, Retail Banking launched its national retail digital strategy designed to grow customers with digitally-led banking and an ultra-thin branch network in markets outside of our existing retail branch network. Deposit products include checking, savings and money market accounts and certificates of deposit. Lending products include residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans and personal and small business loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to government agency and/or third-party standards, and either sold, servicing retained, or held on our balance sheet. Brokerage, investment management and cash management products and services include managed, education, retirement and trust accounts.

Corporate & Institutional Banking provides lending, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. Treasury management services include cash and investment management, receivables

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

management, disbursement services, funds transfer services, information reporting and global trade services. Capital markets-related products and services include foreign exchange, derivatives, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. We also provide commercial loan servicing and technology solutions for the commercial real estate finance industry. Products and services are provided nationally. ~~We offer certain products and services internationally.~~

Asset Management Group provides 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. Our Hawthorn unit provides multi-generational family planning including estate, financial, tax planning, fiduciary, investment management and consulting, private banking, personal administrative services, asset custody and customized performance reporting to

The PNC Financial Services Group, Inc. – Form 10-Q75

ultra high net worth families. Institutional asset management provides ~~advisory,~~outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and retirement administration ~~services.~~services to institutional clients such as corporations, healthcare systems, insurance companies, unions, municipalities and non-profits. The business also offers PNC proprietary mutual ~~funds. Institutional clients include corporations, unions, municipalities, non-profits, foundations~~funds and ~~endowments, largely within our primary geographic markets.~~investment strategies.

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

Our equity investment in BlackRock is significant and accounted for under the equity method. It provides us with an additional source of noninterest income and increases our overall revenue diversification. At March 31, 2019, our economic interest in BlackRock was 22%. We received cash dividends from BlackRock of $115 million and $101 million during the first three months of 2019 and 2018, respectively. BlackRock is a publicly-traded company, and additional information regarding its business is available in its filings with the Securities and Exchange Commission (SEC). ~~At March 31, 2018, our economic interest in BlackRock was 22%. We received cash dividends from BlackRock of $101 million and $89 million during the first three months of 2018 and 2017, respectively.~~

~~Table 73: Results of Businesses~~

Three months ended March 31
In millions Retail
Banking
Corporate &
Institutional
Banking
Asset
Management
Group
BlackRock
Other
Consolidated (a)
2018
Income Statement
Net interest income $ 1,218
$ 861
$ 74
$ 208
$ 2,361
Noninterest income 635
547
226
$ 235
107
1,750
Total revenue 1,853
1,408
300
235
315
4,111
Provision for credit losses (benefit) 69
41
(7 ) (11 ) 92
Depreciation and amortization 45
48
12
128
233
Other noninterest expense 1,350
578
206
160
2,294
Income before income taxes and noncontrolling interests 389
741
89
235
38
1,492
Income taxes (benefit) 93
157
21
38
(56 ) 253
Net income $ 296
$ 584
$ 68
$ 197
$ 94
$ 1,239
Average Assets (b) $ 88,734
$ 151,909
$ 7,499
$ 7,704
$ 120,429
$ 376,275
2017
Income Statement
Net interest income $ 1,120
$ 802
$ 71
$ 167
$ 2,160
Noninterest income 603
524
218
$ 186
193
1,724
Total revenue 1,723
1,326
289
186
360
3,884
Provision for credit losses (benefit) 71
25
(2 ) (6 ) 88
Depreciation and amortization 42
36
11
125
214
Other noninterest expense 1,273
548
206
161
2,188
Income before income taxes and noncontrolling interests 337
717
74
186
80
1,394
Income taxes (benefit) 124
233
27
41
(105 ) 320
Net income $ 213
$ 484
$ 47
$ 145
$ 185
$ 1,074
Average Assets (b) $ 87,109
$ 142,592
$ 7,476
$ 6,983
$ 122,256
$ 366,416


~~(a)~~	~~There were no material intersegment revenues for the three months ended March 31, 2018 and 2017.~~


~~(b)~~	~~Period-end balances for BlackRock.~~

The following table presents summarized income statement information for BlackRock, Inc.

88Table ~~The PNC~~72: BlackRock, Inc. Summarized Financial ~~Services Group, Inc. –~~ Data~~Form 10-Q~~



	Three months ended March 31
In millions	2019		2018
Total revenue	$	3,346	$	3,583
Total expense	2,113		2,208
Operating income	1,233		1,375
Total nonoperating income (expense)	125		(16		)
Income before income taxes	1,358		1,359
Income tax expense	298		265
Net income	1,060		1,094
Less: Net income attributable to noncontrolling interests	7		5
Net income attributable to BlackRock, Inc.	$	1,053	$	1,089

NOTE 15 FEE-BASED REVENUE FROM CONTRACTS WITH CUSTOMERS

AAs more fully described in Note 23 Fee-based Revenue from Contracts with Customers in our 2018 Form 10-K, a subset of our noninterest income relates to certain fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606). The objective of the standard is to clarify the principles for recognizing revenue from contracts with customers across all industries and to develop a common revenue standard under U.S. GAAP. The standard requires the application of a five-step recognition model to contracts, allocating the amount of consideration we expect to be entitled to across distinct promises in the contract, called performance obligations, and recognizing revenue when or as those services are transferred to the customer.

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

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

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

Retail Banking

Table ~~74:~~73: Retail Banking Noninterest Income Disaggregation


			Three months ended March 31
In millions	Three months ended March 31, 2018		2019		2018
Product
Deposit account fees	$	144	$	148	$	144
Debit card fees	117		124		117
Brokerage fees	86		89		86
Merchant services	47		48		47
Net credit card fees (a)	45		48		45
Other	70		66		70
Total in-scope noninterest income by product	$	509	$	523	$	509
Reconciliation to total Retail Banking noninterest income
Total in-scope noninterest income	$	509	$	523	$	509
Total out-of-scope noninterest income (b)	126		72		126
Total Retail Banking noninterest income	$	635	$	595	$	635


(a)	Net credit card fees consists of interchange fees of $112 million and $102 million and credit card reward costs of $64 million and $57 million for the three months ended March 31, ~~2018.~~2019 and 2018, respectively.


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

Deposit Account Fees

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

Debit Card and Net Credit Card Fees

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

Brokerage Fees

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

Merchant Services

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

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

Other

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

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

Corporate & Institutional Banking

Table ~~75:~~74: Corporate & Institutional Banking Noninterest Income Disaggregation


In millions			Three months ended March 31
In millions	Three months ended March 31, 2018		2019		2018
Product
Treasury management fees	$	185	$	199	$	185
Capital markets fees	115		127		115
Commercial mortgage banking activities	21		25		21
Other	16		17		16
Total in-scope noninterest income by product	$	337	$	368	$	337
Reconciliation to total Corporate & Institutional Banking noninterest income
Total in-scope noninterest income	$	337	$	368	$	337
Total out-of-scope noninterest income (a)	210		208		210
Total Corporate & Institutional Banking noninterest income	$	547	$	576	$	547


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

Treasury Management Fees

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

Capital Markets Fees

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

Commercial Mortgage Banking Activities

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

Other

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

Asset Management Group

Table ~~76:~~75: Asset Management Group Noninterest Income Disaggregation


			Three months ended March 31
In millions	Three months ended March 31, 2018		2019		2018
Customer Type
Personal	$	154	$	147	$	154
Institutional	68		65		68
Total in-scope noninterest income by customer type	$	222	$	212	$	222
Reconciliation to Asset Management Group noninterest income
Total in-scope noninterest income	$	222	$	212	$	222
Total out-of-scope noninterest income (a)	4		5		4
Total Asset Management Group noninterest income	$	226	$	217	$	226


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

Asset Management Services

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

90The PNC Financial Services Group, Inc. – Form 10-Q78

NOTE16 LEASES

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

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

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

Operating and finance lease assets and liabilities at March 31, 2019 were as follows:

Table 76: Leases



In millions	March 31, 2019
Assets
Operating	$	2,041
Finance	103
Total lease assets	$	2,144
Liabilities
Operating	$	2,198
Finance	109
Total lease liabilities	$	2,307

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

Table 77: Maturity of Lease Liabilities



	March 31, 2019
In millions	Operating Leases			Finance Leases			Total Leases
Remainder of 2019	$	266		$	31		$	297
2020	342			36			378
2021	313			27			340
2022	275			6			281
2023	243			2			245
After 2023	1,015			12			1,027
Total lease payments	$	2,454		$	114		$	2,568
Less: Interest	(256		)	(5		)
Present value of lease liabilities	$	2,198		$	109

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

The PNC Financial Services Group, Inc. – Form 10-Q79

Lease term and discount rates at March 31, 2019 were as follows:

Table 78: Lease Term and Discount Rates



	March 31, 2019
Weighted-average remaining lease term (years)
Operating leases	9.2
Finance leases	4.2
Weighted-average discount rate
Operating leases	2.34	%
Finance leases	2.31	%

NOTE 17 SUBSEQUENT EVENTS

On April 22, 2019, the parent company issued $1.5 billion of senior notes with a maturity date of April 23, 2029. Interest is payable semi-annually at a fixed rate of 3.45% per annum, on April 23 and October 23 of each year, beginning on October 23, 2019.

The PNC Financial Services Group, Inc. – Form 10-Q80

STATISTICAL INFORMATION (UNAUDITED)

THE PNC FINANCIAL SERVICES GROUP, INC.

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


	Three months ended March 31												Three months ended March 31
	2018						2017						2019						2018
Taxable-equivalent basis Dollars in millions	Average Balances		Interest Income/ Expense		Average Yields/ Rates		Average Balances		Interest Income/ Expense		Average Yields/ Rates		Average Balances		Interest Income/ Expense		Average Yields/ Rates		Average Balances		Interest Income/Expense		Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed
Agency	$	25,438	$	165	2.60	%	$	26,385	$	169	2.57	%	$	29,002	$	213	2.94	%	$	25,438	$	165	2.60	%
Non-agency	2,398		36		5.99	%	3,127		44		5.59	%	1,890		35		7.31	%	2,398		36		5.99	%
Commercial mortgage-backed	4,534		31		2.75	%	5,919		35		2.35	%	5,368		42		3.13	%	4,534		31		2.75	%
Asset-backed	5,158		37		2.87	%	5,992		37		2.50	%	5,136		43		3.35	%	5,158		37		2.87	%
U.S. Treasury and government agencies	14,307		74		2.07	%	13,101		54		1.66	%	18,240		114		2.49	%	14,307		74		2.07	%
Other	4,233		34		3.17	%	5,293		39		2.93	%	3,671		30		3.34	%	4,233		34		3.17	%
Total securities available for sale	56,068		377		2.69	%	59,817		378		2.53	%	63,307		477		3.01	%	56,068		377		2.69	%
Securities held to maturity
Residential mortgage-backed	14,818		105		2.84	%	11,852		83		2.79	%	15,627		118		3.01	%	14,818		105		2.84	%
Commercial mortgage-backed	902		8		3.76	%	1,458		13		3.50	%	600		5		3.53	%	902		8		3.76	%
Asset-backed	199		1		2.90	%	556		3		2.21	%	177		2		3.83	%	199		1		2.90	%
U.S. Treasury and government agencies	743		5		2.80	%	529		4		3.07	%	760		5		2.81	%	743		5		2.80	%
Other	1,926		23		4.44	%	2,041		27		5.34	%	1,847		20		4.40	%	1,926		23		4.44	%
Total securities held to maturity	18,588		142		3.05	%	16,436		130		3.16	%	19,011		150		3.16	%	18,588		142		3.05	%
Total investment securities	74,656		519		2.78	%	76,253		508		2.67	%	82,318		627		3.05	%	74,656		519		2.78	%
Loans
Commercial	111,462		1,044		3.74	%	103,084		835		3.24	%	119,345		1,291		4.33	%	111,462		1,044		3.74	%
Commercial real estate	28,901		276		3.81	%	29,178		239		3.27	%	28,147		307		4.37	%	28,901		276		3.81	%
Equipment lease financing	7,845		73		3.68	%	7,497		63		3.34	%	7,263		71		3.93	%	7,845		73		3.68	%
Consumer	55,588		667		4.87	%	56,843		626		4.47	%	54,996		751		5.54	%	55,588		667		4.87	%
Residential real estate	17,308		190		4.40	%	15,651		178		4.55	%	18,794		202		4.29	%	17,308		190		4.40	%
Total loans	221,104		2,250		4.09	%	212,253		1,941		3.67	%	228,545		2,622		4.61	%	221,104		2,250		4.09	%
Interest-earning deposits with banks	25,667		98		1.52	%	24,192		49		.81	%	15,017		91		2.43	%	25,667		98		1.52	%
Other interest-earning assets	7,904		80		4.11	%	8,395		74		3.54	%	11,068		115		4.14	%	7,904		80		4.11	%
Total interest-earning assets/interest income	329,331		$	2,947	3.59	%	321,093		$	2,572	3.22	%	336,948		3,455		4.11	%	329,331		2,947		3.59	%
Noninterest-earning assets	46,944						45,323						48,950						46,944
Total assets	$	376,275					$	366,416					$	385,898					$	376,275
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market	$	58,523	$	78	.54	%	$	63,921	$	36	.23	%	$	54,702	155		1.15	%	$	58,523	$	78	.54	%
Demand	59,620		31		.21	%	56,797		14		.10	%	63,480		81		.52	%	59,620		31		.21	%
Savings	48,451		68		.57	%	39,095		41		.42	%	58,821		164		1.13	%	48,451		68		.57	%
Time deposits	16,844		36		.88	%	17,058		29		.69	%	18,813		72		1.55	%	16,844		36		.88	%
Total interest-bearing deposits	183,438		213		.47	%	176,871		120		.28	%	195,816		472		.98	%	183,438		213		.47	%
Borrowed funds
Federal Home Loan Bank borrowings	20,721		91		1.76	%	20,416		56		1.09	%	21,491		149		2.77	%	20,721		91		1.76	%
Bank notes and senior debt	28,987		176		2.43	%	22,992		107		1.85	%	25,418		223		3.50	%	28,987		176		2.43	%
Subordinated debt	5,179		51		3.91	%	7,102		62		3.49	%	5,883		66		4.50	%	5,179		51		3.91	%
Other	4,751		26		2.18	%	4,432		15		1.36	%	6,991		43		2.44	%	4,751		26		2.18	%
Total borrowed funds	59,638		344		2.31	%	54,942		240		1.74	%	59,783		481		3.21	%	59,638		344		2.31	%
Total interest-bearing liabilities/interest expense	243,076		557		.91	%	231,813		360		.62	%	255,599		953		1.50	%	243,076		557		.91	%
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits	77,222						78,050						71,402						77,222
Accrued expenses and other liabilities	9,118						10,081						11,242						9,118
Equity	46,859						46,472						47,655						46,859
Total liabilities and equity	$	376,275					$	366,416					$	385,898					$	376,275
Interest rate spread					2.68	%					2.60	%					2.61	%					2.68	%
Impact of noninterest-bearing sources					.23						.17						.37						.23
Net interest income/margin			$	2,390	2.91	%			$	2,212	2.77	%			$	2,502	2.98	%			$	2,390	2.91	%

(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q 9181

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


	Three months ended December 31						Three months ended December 31
	2017						2018
Taxable-equivalent basis Dollars in millions	Average Balances		Interest Income/ Expense		Average Yields/ Rates		Average Balances		Interest Income/ Expense		Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed
Agency	$	25,338	$	164	2.58	%	$	28,375	$	203	2.86	%
Non-agency	2,577		27		4.29	%	1,993		35		7.08	%
Commercial mortgage-backed	4,542		53		4.68	%	4,830		36		2.99	%
Asset-backed	5,330		38		2.82	%	5,186		42		3.24	%
U.S. Treasury and government agencies	13,646		62		1.79	%	18,443		113		2.41	%
Other	4,940		42		3.32	%	3,920		33		3.37	%
Total securities available for sale	56,373		386		2.73	%	62,747		462		2.93	%
Securities held to maturity
Residential mortgage-backed	13,976		96		2.74	%	15,941		119		2.98	%
Commercial mortgage-backed	963		10		4.11	%	648		6		3.68	%
Asset-backed	220		2		2.66	%	185		2		3.76	%
U.S. Treasury and government agencies	739		5		2.85	%	756		5		2.86	%
Other	1,974		25		5.28	%	1,856		21		4.41	%
Total securities held to maturity	17,872		138		3.10	%	19,386		153		3.14	%
Total investment securities	74,245		524		2.82	%	82,133		615		2.98	%
Loans
Commercial	111,365		1,020		3.59	%	116,596		1,243		4.17	%
Commercial real estate	29,432		277		3.68	%	28,382		320		4.42	%
Equipment lease financing	7,670		45		2.33	%	7,216		68		3.77	%
Consumer	55,814		665		4.72	%	55,331		742		5.32	%
Residential real estate	16,840		186		4.41	%	18,405		203		4.41	%
Total loans	221,121		2,193		3.91	%	225,930		2,576		4.49	%
Interest-earning deposits with banks	25,567		85		1.33	%	16,691		93		2.25	%
Other interest-earning assets	8,759		77		3.55	%	10,431		103		3.93	%
Total interest-earning assets/interest income	329,692		$	2,879	3.45	%	335,185		3,387		3.99	%
Noninterest-earning assets	47,136						47,906
Total assets	$	376,828					$	383,091
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market	$	60,954	$	69	.45	%	$	55,228	$	137	.99	%
Demand	57,128		25		.17	%	62,207		73		.46	%
Savings	45,817		59		.51	%	55,065		144		1.04	%
Time deposits	17,438		37		.85	%	18,743		65		1.38	%
Total interest-bearing deposits	181,337		190		.42	%	191,243		419		.87	%
Borrowed funds
Federal Home Loan Bank borrowings	19,565		75		1.48	%	20,683		136		2.57	%
Bank notes and senior debt	27,778		145		2.04	%	26,380		224		3.31	%
Subordinated debt	5,433		48		3.49	%	5,874		65		4.44	%
Other	5,261		22		1.74	%	5,847		34		2.36	%
Total borrowed funds	58,037		290		1.96	%	58,784		459		3.07	%
Total interest-bearing liabilities/interest expense	239,374		480		.79	%	250,027		878		1.38	%
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits	80,152						75,228
Accrued expenses and other liabilities	10,801						10,833
Equity	46,501						47,003
Total liabilities and equity	$	376,828					$	383,091
Interest rate spread					2.66	%					2.61	%
Impact of noninterest-bearing sources					.22						.35
Net interest income/margin			$	2,399	2.88	%			$	2,509	2.96	%

(a)

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


(b)	Loan fees for the three months ended March 31, ~~2018,~~2019, December 31, ~~2017~~2018 and March 31, ~~2017~~2018 were ~~$32~~$28 million, ~~$37~~$40 million and ~~$24~~$32 million, respectively.

(c)

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

9282 The PNC Financial Services Group, Inc. – Form 10-Q

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


	Three months ended						Three months ended
In millions	March 31, 2018		December 31, 2017		March 31, 2017		March 31, 2019		December 31, 2018		March 31, 2018
Net interest income (GAAP)	$	2,361	$	2,345	$	2,160	$	2,475	$	2,481	$	2,361
Taxable-equivalent adjustments	29		54		52		27		28		29
Net interest income (Non-GAAP)	$	2,390	$	2,399	$	2,212	$	2,502	$	2,509	$	2,390

(a)

The interest income earned on certain ~~earning~~interest-earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. As a result of the Tax Cuts and Jobs Act, which was enacted into law during the fourth quarter of 2017, the statutory tax rate for corporations was lowered to 21% from 35%, effective January 1, 2018. Amounts for the 2017 periods were calculated using the previously applicable statutory federal income tax rate of 35%.

T~~RANSITIONAL~~ B~~ASEL~~ ~~III A~~ND F~~ULLY~~ P~~HASED~~-IN B~~ASEL~~ ~~III COMMON~~ E~~QUITY~~ T~~IER~~ ~~1 CAPITAL~~ R~~ATIOS~~ (NON-G~~AAP) –~~ M~~ARCH~~ ~~31, 2017~~

2017 Transitional Basel III (a) Fully Phased-In Basel III (Non-GAAP) (b)
Dollars in millions March 31
2017
March 31
2017

Common stock, related surplus and retained earnings, net of treasury stock $ 42,053
$ 42,053

Less regulatory capital adjustments:
Goodwill and disallowed intangibles, net of deferred tax liabilities (9,007 ) (9,052 )
Basel III total threshold deductions (1,064 ) (1,585 )
Accumulated other comprehensive income (c) (295 ) (369 )
All other adjustments (183 ) (180 )
Basel III Common equity Tier 1 capital $ 31,504
$ 30,867

Basel III standardized approach risk-weighted assets (d) $ 300,233
$ 308,392

Basel III advanced approaches risk-weighted assets (e) N/A
$ 278,938

Basel III Common equity Tier 1 capital ratio 10.5 % 10.0 %
Risk weight and associated rules utilized Standardized (with 2017 transition adjustments)
Standardized


~~(a)~~	~~Calculated using the regulatory capital methodology applicable to PNC during 2017.~~


~~(b)~~	~~2017 Fully Phased-In Basel III results are presented as Pro forma estimates.~~


~~(c)~~	~~Represents net adjustments related to accumulated other comprehensive income for securities currently and previously held as available for sale, as well as pension and other postretirement plans.~~


~~(d)~~	~~Includes credit and market risk-weighted assets.~~

~~(e)~~

Basel III advanced approaches risk-weighted assets are calculated based on the Basel III advanced approaches rules, and include credit, market, and operational risk-weighted assets. During the parallel run qualification phase, PNC has refined the data, models, and internal processes used as part of the advanced approaches for determining risk-weighted assets. We anticipate additional refinements to this calculation through the parallel run qualification phase.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the information set forth in Note 12 Legal Proceedings in the Notes To Consolidated Financial Statements under Part I, Item 1 of this Report, which is incorporated by reference in response to this item.

ITEM 1A. RISK FACTORS

There are no material changes in our risk factors from those previously disclosed in PNC’s ~~2017~~2018 Form 10-K in response to Part I, Item 1A.

~~The PNC Financial Services Group, Inc. –~~ ~~Form 10-Q~~93

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Details of our repurchases of PNC common stock during the first quarter of ~~2018~~2019 are included in the following table:


2018 period In thousands, except per share data	Total shares purchased (a)	Average price paid per share		Total shares purchased as part of publicly announced programs (b)	Maximum number of shares that may yet be purchased under the programs (b)
2019 period In thousands, except per share data						Total shares purchased (a)	Average price paid per share		Total shares purchased as part of publicly announced programs (b)	Maximum number of shares that may yet be purchased under the programs (b)
January 1 - 31	1,708	$	152.08	1,698	38,939	4,014	$	121.50	4,010	16,704
February 1 - 28	2,001	$	155.77	1,493	37,446	1,481	$	122.97	914	15,790
March 1 - 31	1,660	$	157.08	1,629	35,817	992	$	125.83	992	14,798
Total	5,369	$	155.00			6,487	$	122.50

(a)

Includes PNC common stock purchased in connection with our various employee benefit plans generally related to shares used to cover employee payroll tax withholding requirements. Note 11 Employee Benefit Plans and Note 12 Stock Based Compensation Plans in the Notes To Consolidated Financial Statements of our ~~2017~~2018 Annual Report on Form 10-K include additional information regarding our employee benefit and equity compensation plans that use PNC common stock.

(b)

On March 11, 2015, we announced that our Board of Directors approved the establishment of a stock repurchase program authorization in the amount of 100 million shares of PNC common stock, effective April 1, 2015. Repurchases are made in open market or privately negotiated transactions and the timing and exact amount of common stock repurchases will depend on a number of factors including, among others, market and general economic conditions, regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations, including the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process. In June ~~2017,~~2018, we announced share repurchase programs of up to ~~$2.7~~$2.0 billion for the four quarter period beginning with the third quarter of ~~2017,~~2018, including repurchases of up to $300 million related to employee benefit plans, in accordance with PNC's ~~2017~~2018 capital plan. In the first quarter of ~~2018,~~2019, we repurchased ~~4.8~~5.9 million shares of common stock on the open market, with an average price of ~~$155.07~~$122.54 per share and an aggregate repurchase price of $.7 billion.

ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this Quarterly Report on Form 10-Q:



EXHIBIT INDEX
~~12.1~~		~~Computation of Ratio of Earnings to Fixed Charges~~

~~12.2~~		~~Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends~~

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101		Interactive Data File (XBRL)

You can obtain copies of these Exhibits electronically at the SEC’s website at ~~www.sec.gov or by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549 at prescribed rates.~~www.sec.gov. The Exhibits are also available as part of this Form 10-Q on PNC’s corporate website at www.pnc.com/secfilings. Shareholders and bondholders may also obtain copies of Exhibits, without charge, by contacting Shareholder Relations at 800-843-2206 or via e-mail at investor.relations@pnc.com. The interactive data file (XBRL) exhibit is only available electronically.

The PNC Financial Services Group, Inc. – Form 10-Q83

CORPORATE INFORMATION

The PNC Financial Services Group, Inc.

Corporate Headquarters

The PNC Financial Services Group, Inc.

The Tower at PNC Plaza

300 Fifth Avenue

Pittsburgh, Pennsylvania 15222-2401

888-762-2265

Stock Listing

The common stock of The PNC Financial Services Group, Inc. is listed on the New York Stock Exchange under the symbol “PNC”.

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

Internet Information

Our financial reports and information about our products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under “About Us – Investor Relations.” We use our Twitter account, @pncnews, as an additional way of disseminating to the public information that may be relevant to investors.

We generally post the following under “About Us – Investor Relations” shortly before or promptly following its first use or release: financially-related press releases, including earnings releases and supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor conference calls or events, and access to live and recorded audio from earnings and other investor conference calls or events. In some cases, we may post the presentation materials for other investor conference calls or events several days prior to the call or event. When warranted, we will also use our website to expedite public access to time-critical information regarding PNC in advance of distribution of a press release or a filing with the SEC disclosing the same information. For earnings and other conference calls or events, we generally include in our posted materials a cautionary statement regarding forward-looking and ~~adjusted~~non-GAAP financial information, and we provide GAAP reconciliations when we ~~refer to adjusted information and results. Where applicable, we provide~~include non-GAAP financial information. Such GAAP reconciliations ~~for such additional information~~may be in materials for ~~that event or~~the applicable presentation, in materials for ~~other~~ prior ~~investor~~ presentations or in our annual, quarterly or current reports.

We may on occasion use our corporate website to expedite public access to time-critical information regarding PNC instead of using a press release or a filing with the SEC for first disclosure of the information. In some circumstances, the information may be relevant to investors but directed at customers, in which case it may be accessed directly through the home page rather than "About Us--Investor Relations."

We are required ~~periodically~~ to provide additional public disclosure regarding estimated income, losses and pro forma regulatory capital ratios under supervisory and PNC-developed hypothetical severely adverse economic scenarios, as well as information concerning our capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. We are also required to make certain additional regulatory capital-related public disclosures about our capital structure, risk exposures, risk assessment processes, risk-weighted assets and overall capital adequacy, including market risk-related disclosures and certain public disclosures regarding our liquidity position and liquidity risk management, under ~~the regulatory capital~~ rules adopted by the Federal banking agencies. Under these regulations, we may satisfy these requirements through postings on our website, and we have done so and expect to continue to do so without also providing disclosure of this information through filings with the SEC.

Other information posted on our corporate website that may not be available in our filings with the SEC includes information relating to our corporate governance and annual communications from our chairman to shareholders, as well as our corporate social responsibility activities under ~~“About~~"About Us – Corporate Responsibility.”"

Where we have included web addresses in this Report, such as our web address and the web address of the SEC, we have included those web addresses as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part hereof.

Financial Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act) and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC File Number is 001-09718. You can obtain copies of these and other filings, including exhibits, electronically at the SEC’s internet website at www.sec.gov or on our corporate internet website at www.pnc.com/secfilings. Shareholders and bond holders may also obtain copies of these filings without charge by contacting Shareholder Services at 800-982-7652 or via the online contact form at www.computershare.com/contactus for copies without exhibits, ~~and by contacting Shareholder Relations at 800-843-2206~~ or via email atto investor.relations@pnc.com for copies of exhibits, including financial statement and schedule exhibits where applicable. The interactive data file (XBRL) exhibit is only available electronically.

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

Corporate Governance at PNC

Information about our Board of Directors and its committees and corporate governance, atincluding our PNC Code of Business Conduct and Ethics (as amended from time to time), is available on our corporate website at www.pnc.com/~~corporategovernance including our PNC Code of Business Conduct and Ethics.~~corporategovernance. In addition, any future amendments to, or waivers from, a provision of the PNC Code of Business Conduct and Ethics that applies to our directors or executive officers (including our principal executive officer, principal financial officer and principal accounting officer or controller) will be posted at this internet address.

Shareholders who would like to request printed copies of the PNC Code of Business Conduct and Ethics or our Corporate Governance Guidelines or the charters of our Board’s Audit, Nominating and Governance, Personnel and Compensation, or Risk Committees (all of which are posted on the PNC corporate website) may do so by sending their requests to our Corporate Secretary at corporate headquarters at the above address. Copies will be provided without charge to shareholders.

Inquiries

For financial services call 888-762-2265.

Registered shareholders should contact Shareholder Services at 800-982-7652.

~~The PNC Financial Services Group, Inc. –~~ ~~Form 10-Q~~95

Analysts and institutional investors should contact Bryan Gill, Executive Vice President, Director of Investor Relations, at 412-768-4143 or via email at investor.relations@pnc.com.

News media representatives should contact ~~Diane Zappas, Vice President, Corporate Communications,~~PNC Media Relations at 412-762-4550 or via email at media.relations@pnc.com.

~~Common Stock Prices/Dividends Declared~~

~~The table below sets forth by quarter the range of high and low sale and quarter-end closing prices for our common stock and the cash dividends declared per common share.~~

High
Low
Close
Cash Dividends Declared (a)

2018 Quarter
First $ 163.59
$ 143.94
$ 151.24
$ .75

2017 Quarter
First $ 131.83
$ 113.66
$ 120.24
$ .55

Second $ 128.25
$ 115.45
$ 124.87
.55

Third $ 135.73
$ 119.77
$ 134.77
.75

Fourth $ 147.28
$ 130.46
$ 144.29
.75

Total $ 2.60


~~(a)~~	~~Our Board approved a second quarter 2018 cash dividend of $.75 per common share, with a payment date of May 5, 2018.~~

Dividend Policy

Holders of PNC common stock are entitled to receive dividends when declared by the Board of Directors out of funds legally available for this purpose. Our Board of Directors may not pay or set apart dividends on the common stock until dividends for all past dividend periods on any series of outstanding preferred stock have been paid or declared and set apart for payment. The Board presently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions, our financial condition and operating results, and other factors, including contractual restrictions and applicable government regulations and policies (such as those relating to the ability of bank and non-bank subsidiaries to pay dividends to the parent company and regulatory capital limitations). The amount of our dividend is also currently subject to the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process as described in the Capital Management portion of the Risk Management section of the Financial Review of this Report and in the Supervision and Regulation section in Item 1 of our ~~2017~~2018 Form 10-K.

Dividend Reinvestment and Stock Purchase Plan

The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common stock to conveniently purchase additional shares of common stock. You can obtain a prospectus and enrollment form by contacting Shareholder Services at 800-982-7652. Registered shareholders may also contact this phone number regarding dividends and other shareholder services.

Stock Transfer Agent and Registrar

Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

800-982-7652

www.computershare.com/pnc

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on May 3, ~~2018~~2019 on its behalf by the undersigned thereunto duly authorized.



/s/ Robert Q. Reilly

Robert Q. Reilly

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

96The PNC Financial Services Group, Inc. – Form 10-Q85



	Home Equity				Residential Real Estate		Total
March 31, 2018 - in millions	1st Liens		2nd Liens		Residential Real Estate		Total
Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	99	$	359	$	123	$	581
Less than or equal to 660 (b)	16		58		24		98
Missing FICO	1		4		1		6
Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660	277		794		249		1,320
Less than or equal to 660 (b)	45		133		49		227
Missing FICO	1		8		5		14
Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660	333		853		300		1,486
Less than or equal to 660	51		132		51		234
Missing FICO	2		8		3		13
Less than 90% and updated FICO scores:
Greater than 660	13,678		7,877		13,795		35,350
Less than or equal to 660	1,212		775		555		2,542
Missing FICO	42		56		97		195
Total home equity and residential real estate loans	$	15,757	$	11,057	$	15,252	$	42,066



December 31, 2017 - in millions	Home Equity				Residential Real Estate		Total
December 31, 2017 - in millions	1st Liens		2nd Liens		Residential Real Estate		Total
Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	108	$	385	$	126	$	619
Less than or equal to 660 (b)	21		64		23		108
Missing FICO	1		5		1		7
Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660	300		842		253		1,395
Less than or equal to 660 (b)	46		143		45		234
Missing FICO	2		9		5		16
Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660	331		890		324		1,545
Less than or equal to 660	55		134		55		244
Missing FICO	2		9		4		15
Less than 90% and updated FICO scores:
Greater than 660	13,954		8,066		13,445		35,465
Less than or equal to 660	1,214		774		507		2,495
Missing FICO	42		57		95		194
Total home equity and residential real estate loans	$	16,076	$	11,378	$	14,883	$	42,337



March 31, 2018 Dollars in millions	1 Year or Less				After 1 Year through 5 Years				After 5 Years through 10 Years			After 10 Years			Total
Securities Available for Sale
U.S. Treasury and government agencies	$	85			$	7,752			$	5,335		$	473		$	13,645
Residential mortgage-backed
Agency	3				50				568			25,891			26,512
Non-agency												2,320			2,320
Commercial mortgage-backed
Agency					313				560			1,011			1,884
Non-agency									450			2,135			2,585
Asset-backed	19				1,877				1,940			1,293			5,129
Other debt	683				1,784				632			1,067			4,166
Total debt securities available for sale	$	790			$	11,776			$	9,485		$	34,190		$	56,241
Fair value	$	789			$	11,676			$	9,462		$	34,091		$	56,018
Weighted-average yield, GAAP basis	2.39		%		2.18		%		2.40		%	3.05		%	2.75		%
Securities Held to Maturity
U.S. Treasury and government agencies									$	478		$	267		$	745
Residential mortgage-backed
Agency					$	79			334			14,250			14,663
Non-agency												163			163
Commercial mortgage-backed
Agency	$	156			125				5			52			338
Non-agency												524			524
Asset-backed									113			83			196
Other debt	14				431				848			622			1,915
Total debt securities held to maturity	$	170			$	635			$	1,778		$	15,961		$	18,544
Fair value	$	170		—	$	646		—	$	1,821		$	15,586		$	18,223
Weighted-average yield, GAAP basis	3.53		%		3.84		%		3.52		%	3.21		%	3.26		%



In millions			Amounts Offset on the Consolidated Balance Sheet							Securities Collateral Held / (Pledged) Under Master Netting Agreements
In millions	Gross Fair Value		Fair Value Offset Amount		Cash Collateral		Net Fair Value					Net Amounts
March 31, 2018
Derivative assets
Interest rate contracts:
Over-the-counter cleared (a)	$	24					$	24				$	24
Exchange-traded	2						2					2
Over-the-counter	1,406		$	602	$	41	763			$	12	751
Foreign exchange and other contracts	471		193		4		274					274
Total derivative assets	$	1,903	$	795	$	45	$	1,063	(b)	$	12	$	1,051
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared (a)	$	18					$	18				$	18
Over-the-counter	1,996		$	629	$	570	797					797
Foreign exchange and other contracts	928		166		78		684					684
Total derivative liabilities	$	2,942	$	795	$	648	$	1,499	(c)			$	1,499
December 31, 2017
Derivative assets
Interest rate contracts:
Over-the-counter cleared	$	827	$	251	$	567	$	9				$	9
Over-the-counter	1,695		668		67		960			$	32	928
Foreign exchange and other contracts	352		135		2		215					215
Total derivative assets	$	2,874	$	1,054	$	636	$	1,184	(b)	$	32	$	1,152
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared	$	260	$	251			$	9				$	9
Over-the-counter	1,703		662		669		372					372
Foreign exchange and other contracts	893		141		94		658					658
Total derivative liabilities	$	2,856	$	1,054	$	763	$	1,039	(c)			$	1,039



Three months ended March 31 In millions	Retail Banking		Corporate & Institutional Banking		Asset Management Group			BlackRock		Other			Consolidated (a)
2018
Income Statement
Net interest income	$	1,218	$	861	$	74				$	208		$	2,361
Noninterest income	635		547		226			$	235	107			1,750
Total revenue	1,853		1,408		300			235		315			4,111
Provision for credit losses (benefit)	69		41		(7		)			(11		)	92
Depreciation and amortization	45		48		12					128			233
Other noninterest expense	1,350		578		206					160			2,294
Income before income taxes and noncontrolling interests	389		741		89			235		38			1,492
Income taxes (benefit)	93		157		21			38		(56		)	253
Net income	$	296	$	584	$	68		$	197	$	94		$	1,239
Average Assets (b)	$	88,734	$	151,909	$	7,499		$	7,704	$	120,429		$	376,275
2017
Income Statement
Net interest income	$	1,120	$	802	$	71				$	167		$	2,160
Noninterest income	603		524		218			$	186	193			1,724
Total revenue	1,723		1,326		289			186		360			3,884
Provision for credit losses (benefit)	71		25		(2		)			(6		)	88
Depreciation and amortization	42		36		11					125			214
Other noninterest expense	1,273		548		206					161			2,188
Income before income taxes and noncontrolling interests	337		717		74			186		80			1,394
Income taxes (benefit)	124		233		27			41		(105		)	320
Net income	$	213	$	484	$	47		$	145	$	185		$	1,074
Average Assets (b)	$	87,109	$	142,592	$	7,476		$	6,983	$	122,256		$	366,416



	2017 Transitional Basel III (a)			Fully Phased-In Basel III (Non-GAAP) (b)
Dollars in millions	March 31 2017			March 31 2017
Common stock, related surplus and retained earnings, net of treasury stock	$	42,053		$	42,053
Less regulatory capital adjustments:
Goodwill and disallowed intangibles, net of deferred tax liabilities	(9,007		)	(9,052		)
Basel III total threshold deductions	(1,064		)	(1,585		)
Accumulated other comprehensive income (c)	(295		)	(369		)
All other adjustments	(183		)	(180		)
Basel III Common equity Tier 1 capital	$	31,504		$	30,867
Basel III standardized approach risk-weighted assets (d)	$	300,233		$	308,392
Basel III advanced approaches risk-weighted assets (e)	N/A			$	278,938
Basel III Common equity Tier 1 capital ratio	10.5		%	10.0		%
Risk weight and associated rules utilized	Standardized (with 2017 transition adjustments)			Standardized



	High		Low		Close		Cash Dividends Declared (a)
2018 Quarter
First	$	163.59	$	143.94	$	151.24	$	.75
2017 Quarter
First	$	131.83	$	113.66	$	120.24	$	.55
Second	$	128.25	$	115.45	$	124.87	.55
Third	$	135.73	$	119.77	$	134.77	.75
Fourth	$	147.28	$	130.46	$	144.29	.75
Total							$	2.60

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company