false--12-31Q3202000007136760.9900.0000.6340.9700.1750.5821.0000.0360.7671.0001.0000.0360.0360.8990.8211.6231.6230.1600.1603/31/20216/30/202116.55.08.515.95.08.60.29350.05300.18890.02150.01880.14350.03200.07690.07690.44900.06300.27840.03350.02780.33480.03610.09270.09273702000000644000000021430000005950000000006000000000.0801.0000.0500.0000.0520.0480.1450.0800.0680.9840.0681.0000.0480.0000.0480.0000.0630.3500.0520.0320.1180.080500000P4Y1MP5Y2MP4Y4MP3Y2M558000000008000000005420000005420000000.010.010.012000000004000000000.03500.02200.00820.03900.00570.03500.04200.003400.02700.2200.0721.0000.0100.0100.3000.0750.0340.5760.3620.1410.9570.0100.0000.2660.0990.0430.5190.2200.0721.0000.0100.0100.3000.0730.0330.5910.3760.1220.9570.0100.0000.2500.0850.0470.48680000000000000000000049000000162000000004800000016500000000P10Y3060000000.1810.0810.0350.0560.0460.0790.5380.0000.1350.1920.0790.0370.0450.0470.0740.5600.0000.248109000000118000000 0000713676 us-gaap:ResidentialMortgageBackedSecuritiesMember srt:MaximumMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AvailableforsaleSecuritiesMember us-gaap:MeasurementInputDefaultRateMember pnc:PricedByThirdPartyVendorUsingDiscountedCashFlowPricingModelMember 2020-09-300000713676srt:WeightedAverageMemberpnc:DiscountedCashFlowMemberus-gaap:MeasurementInputConstantPrepaymentRateMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ResidentialMortgageMemberus-gaap:ServicingContractsMember2021-03-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020March 31, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to         
    
Commission file number 001-09718
The PNC Financial Services Group, Inc.
(Exact name of registrant as specified in its charter)

Pennsylvania25-1435979
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer
Identification No.)
The Tower at PNC Plaza,, 300 Fifth Avenue,, Pittsburgh,, Pennsylvania15222-2401
(Address of principal executive offices, including zip code)

(888) (888) 762-2265
(Registrant’s telephone number including area code)

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


Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)
 Name of Each Exchange
    on Which Registered    
Common Stock, par value $5.00PNCNew 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 PNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
    Yes  ☐  No  ☒
As of OctoberApril 16, 2020,2021, there were 423,701,045424,858,349 shares of the registrant’s common stock ($5 par value) outstanding.

THE PNC FINANCIAL SERVICES GROUP, INC.
Cross-Reference Index to ThirdFirst Quarter 20202021 Form 10-Q


Pages
PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements (Unaudited).
Consolidated Income Statement
5046
Consolidated Statement of Comprehensive Income
5147
Consolidated Balance Sheet
5248
Consolidated Statement of Cash Flows
5349
Notes To Consolidated Financial Statements (Unaudited)
Note 1 Accounting Policies
5551
Note 2 Discontinued OperationsAcquisition and Divestiture Activity
6753
Note 3  Investment Securities
6754
Note 4  Loans and Related Allowance for Credit Losses
7157
Note 5   Loan Sale and Servicing Activities and Variable Interest Entities
8066
Note 6  Goodwill and Mortgage Servicing Rights
8367
Note 7 Leases
8469
Note 8 Borrowed Funds Commitments
8570
Note 9 Commitments
86
Note 10 Total Equity and Other Comprehensive Income
8771
Note 1110 Earnings Per Share
9074
Note 1211 Fair Value
9074
Note 1312 Financial Derivatives
10082
Note 1413 Legal Proceedings
10687
Note 1514 Segment Reporting
10788
Note 1615 Fee-based Revenue from Contracts with Customers
10990
Note 16 Subsequent Events
92
Statistical Information (Unaudited)
Average Consolidated Balance Sheet And Net Interest Analysis
11293
Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP)
11495
Glossary
95
Defined Terms
95
Acronyms
95
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
75
Consolidated Balance Sheet Review
119
Business Segments Review
1513
Risk Management
2321
Recent Regulatory Developments
4440
Critical Accounting Estimates and Judgments
4541
Off-Balance Sheet Arrangements and Variable Interest Entities
4742
Internal Controls and Disclosure Controls and Procedures
4743
Glossary of Terms
47
Cautionary Statement Regarding Forward-Looking Information
4844
Item 3. Quantitative and Qualitative Disclosures about Market Risk.22-43, 54-6621-40, 51-52 and 99-10582-87
Item 4. Controls and Procedures.
4743
11496
11496
11496
11597
11597
11597
11799




MD&A TABLE REFERENCE
TableDescriptionPage
1
1
2
6
3
7
4
7
5
8
6
9
7
10
8
10
9
11
10
12
11
14
12
17
13
20
14
22
15
22
16
23
17
25
18
25
19
26
20
27
21
27
22
28
23
29
24
30
25
31
26
32
27
33
28
35
29
36
30
37
31
38
32
38
33
39



   
MD&A TABLE REFERENCE 
TableDescriptionPage
1
Consolidated Financial Highlights
1
2
Summarized Average Balances and Net Interest Income
7
3
Noninterest Income
9
4
Noninterest Expense
9
5
Provision for Credit Losses
10
6
Discontinued Operations
10
7
Summarized Balance Sheet Data
11
8
Loans
12
9
Investment Securities
12
10
Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities
13
11
Details of Funding Sources
14
12
Retail Banking Table
16
13
Corporate & Institutional Banking Table
19
14
Asset Management Group Table
22
15
Details of Loans
24
16
Commercial and Industrial Loans by Industry
24
17
Commercial Real Estate Loans by Geography and Property Type
25
18
Home Equity Loans by Geography and by Lien Type
27
19
Residential Real Estate Loans by Geography
27
20
Nonperforming Assets by Type
29
21
Change in Nonperforming Assets
29
22
Accruing Loans Past Due
30
23
Summary of Troubled Debt Restructurings
31
24
Unpaid Principal Balance of Commercial Loans with a COVID-19 Related Principal/Interest Deferral Modification
32
25
Unpaid Principal Balance of Consumer Loan Modifications Under Hardship Relief Programs
33
26
Allowance for Credit Losses by Loan Class
35
27
Loan Charge-Offs and Recoveries
36
28
Senior and Subordinated Debt
37
29
Credit Ratings for PNC and PNC Bank
39
30
Basel III Capital
40
31
Interest Sensitivity Analysis
41
32
Net Interest Income Sensitivity to Alternative Rate Scenarios
42
33
Alternate Interest Rate Scenarios: One Year Forward
42
34
Equity Investments Summary
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE
TableDescriptionPage
34
53
35
54
36
55
37
55
38
56
39
56
40
58
41
59
42
60
43
61
44
63
45
64
46
65
47
66
48
66
49
67
50
68
51
68
52
69
53
69
54
70
55
71
56
72
57
73
58
73
59
74
60
75
61
76
62
78
63
80
64
80
65
81
66
81
67
83
68
84
69
85
70
85
71
86
72
89
73
91
74
91
75
91



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE 
TableDescriptionPage
35
Impact of the CECL Standard Adoption
58
36
Consolidated Income Statement - Discontinued Operations
67
37
Consolidated Statement of Cash Flows - Discontinued Operations
67
38
Investment Securities Summary
68
39
Gross Unrealized Loss and Fair Value of Securities Available for Sale Without an Allowance for Credit Losses

69
40
Gross Unrealized Loss and Fair Value of Debt Securities
69
41
Gains (Losses) on Sales of Securities Available for Sale
69
42
Contractual Maturity of Debt Securities
70
43
Fair Value of Securities Pledged and Accepted as Collateral
70
44
Analysis of Loan Portfolio
72
45
Nonperforming Assets
73
46
Commercial Credit Quality Indicators
74
47
Home Equity and Residential Real Estate Credit Quality Indicators
75
48
Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes
77
49
Financial Impact and TDRs by Concession Type
78
50
Subsequently Defaulted TDRs
78
51
Rollforward of Allowance for Credit Losses
79
52
Analysis of Changes in the Allowance for Credit Losses
79
53
Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data
80
54
Cash Flows Associated with Loan Sale and Servicing Activities
81
55
Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others
82
56
Non-Consolidated VIEs
82
57
Mortgage Servicing Rights
83
58
Commercial Mortgage Servicing Rights – Key Valuation Assumptions
84
59
Residential Mortgage Servicing Rights – Key Valuation Assumptions
84
60
Lessor Income
84
61
Borrowed Funds
85
62
FHLB Borrowings, Senior Debt and Subordinated Debt
85
63
Commitments to Extend Credit and Other Commitments
86
64
Rollforward of Total Equity
87
65
Other Comprehensive Income (Loss)
88
66
Accumulated Other Comprehensive Income (Loss) Components
89
67
Dividends Per Share
89
68
Basic and Diluted Earnings Per Common Share
90
69
Fair Value Measurements – Recurring Basis Summary
91
70
Reconciliation of Level 3 Assets and Liabilities
92
71
Fair Value Measurements – Recurring Quantitative Information
96
72
Fair Value Measurements – Nonrecurring
97
73
Fair Value Option – Fair Value and Principal Balances
98
74
Fair Value Option – Changes in Fair Value
98
75
Additional Fair Value Information Related to Other Financial Instruments
99
76
Total Gross Derivatives
101
77
Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement
103
78
Hedged Items - Fair Value Hedges
103
79
Gains (Losses) on Derivatives Not Designated for Hedging
104
80
Derivative Assets and Liabilities Offsetting
105
81
Results of Businesses
108
82
Retail Banking Noninterest Income Disaggregation
110
83
Corporate & Institutional Banking Noninterest Income Disaggregation
110
84
Asset Management Group Noninterest Income Disaggregation
111




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 20192020 Annual Report on Form 10-K (2019(2020 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 20192020 Form 10-K; Item 1A Risk Factors included in our first quarter 2020 Form 10-Q and our 2019 Form 10-K; and the Commitments and Legal Proceedings Notes of the Notes To Consolidated Financial Statements included in Item 1 of this Report and our first quarter 2020 Form 10-Q and Item 8 of our 20192020 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 20192020 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 1514 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)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.

See page 95 for a glossary of certain terms and acronyms used in this Report.
Table 1: Consolidated Financial Highlights
Dollars in millions, except per share data
Unaudited		Three months ended
March 31
20212020
Financial Results (a)
Revenue
Net interest income$2,348 $2,511 
Noninterest income1,872 1,825 
Total revenue4,220 4,336 
Provision for (recapture of) credit losses(551)914 
Noninterest expense2,574 2,543 
Income from continuing operations before income taxes and noncontrolling interests
$2,197 $879 
Income taxes from continuing operations
371 120 
Net income from continuing operations$1,826 $759 
Income from discontinued operations before taxes
$181 
Income taxes from discontinued operations
25 
Net income from discontinued operations

$156 
Net income$1,826 $915 
Less:
Net income attributable to noncontrolling interests10 7 
Preferred stock dividends (b)57 63 
Preferred stock discount accretion and redemptions1 1 
Net income attributable to common shareholders$1,758 $844 
Per Common Share

Basic earnings from continuing operations$4.11 $1.59 
Basic earnings from discontinued operations0.37 
Total basic earnings
$4.11 $1.96 
Diluted earnings from continuing operations$4.10 $1.59 
Diluted earnings from discontinued operations0.36 
Total diluted earnings$4.10 $1.95 
Cash dividends declared per common share$1.15 $1.15 
Effective tax rate from continuing operations (c)16.9 %13.7 %
Performance Ratios
Net interest margin (d)2.27 %2.84 %
Noninterest income to total revenue44 %42 %
Efficiency61 %59 %
Return on:
Average common shareholders’ equity14.31 %7.51 %
Average assets1.58 %0.89 %
Dollars in millions, except per share data
Unaudited
Three months ended
September 30		Nine months ended
September 30		 
2020201920202019 
Financial Results (a)     
Revenue     
Net interest income$2,484
$2,504
$7,522
$7,477
 
Noninterest income1,797
1,738
5,171
5,041
 
Total revenue4,281
4,242
12,693
12,518
 
Provision for credit losses52
183
3,429
552
 
Noninterest expense2,531
2,623
7,589
7,812
 
Income from continuing operations before income taxes and noncontrolling interests

$1,698
$1,436
$1,675
$4,154
 
Income taxes from continuing operations

166
255
128
706
 
Net income from continuing operations$1,532
$1,181
$1,547
$3,448
 
Income from discontinued operations before taxes



$251
$5,777
$700
 
Income taxes from discontinued operations



40
1,222
111
 
Net income from discontinued operations



$211
$4,555
$589
 
Net income$1,532
$1,392
$6,102
$4,037
 
Less:     
Net income attributable to noncontrolling interests13
13
27
35
 
Preferred stock dividends (b)63
63
181
181
 
Preferred stock discount accretion and redemptions1
1
3
3
 
Net income attributable to common shareholders$1,455
$1,315
$5,891
$3,818
 
Per Common Share

     
Basic earnings from continuing operations$3.40
$2.47
$3.11
$7.15
 
Basic earnings from discontinued operations

.48
10.61
1.30
 
Total basic earnings

$3.40
$2.95
$13.73
$8.45
 
Diluted earnings from continuing operations$3.39
$2.47
$3.11
$7.13
 
Diluted earnings from discontinued operations

.47
10.59
1.29
 
Total diluted earnings$3.39
$2.94
$13.70
$8.42
 
Cash dividends declared per common share$1.15
$1.15
$3.45
$3.05
 
Effective tax rate from continuing operations (c)9.8%17.8%7.6%17.0% 
Performance Ratios     
Net interest margin (d)2.39%2.84%2.57%2.91% 
Noninterest income to total revenue42%41%41%40% 
Efficiency59%62%60%62% 
Return on:     
Average common shareholders’ equity11.76%11.56%16.57%11.48% 
Average assets1.32%1.36%1.83%1.36% 
(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.
(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)Dividends are payable quarterly other than Series O, Series R and Series S preferred stock, which are payable semiannually, with the Series O payable in different quarters than the Series R and Series S preferred stock.
(c)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.
(d)Net interest margin is the total yield on interest-earning assets minus the total rate on interest-bearing liabilities and includes the benefit from use of noninterest-bearing sources. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating average yields used in the calculation of net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. For additional information, see Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.

(b)Dividends are payable quarterly other than Series O, Series R and Series S preferred stock, which are payable semiannually, with the Series O payable in different quarters than the Series R and Series S preferred stock.
(c)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.
(d)Net interest margin is the total yield on interest-earning assets minus the total rate on interest-bearing liabilities and includes the benefit from use of noninterest-bearing sources. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating average yields used in the calculation of net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. For additional information, see Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.
The PNC Financial Services Group, Inc. – Form 10-Q 1  


Table 1: Consolidated Financial Highlights (Continued) (a)
UnauditedMarch 31
2021		December 31
2020		March 31
2020
Balance Sheet Data (dollars in millions, except per share data)
Assets$474,414 $466,679 $445,493 
Loans$237,013 $241,928 $264,643 
Allowance for loan and lease losses


$4,714 $5,361 $3,944 
Interest-earning deposits with banks (b)$86,161 $85,173 $19,986 
Investment securities$98,255 $88,799 $90,546 
Loans held for sale$1,967 $1,597 $1,693 
Equity investments$6,386 $6,052 $4,694 
Asset held for sale (c)
$8,511 
Mortgage servicing rights$1,680 $1,242 $1,082 
Goodwill$9,317 $9,233 $9,233 
Other assets$30,894 $30,999 $41,556 
Noninterest-bearing deposits$120,641 $112,637 $81,614 
Interest-bearing deposits$254,426 $252,708 $223,590 
Total deposits$375,067 $365,345 $305,204 
Borrowed funds$33,030 $37,195 $73,399 
Allowance for unfunded lending related commitments
$507 $584 $450 
Total shareholders’ equity$53,849 $54,010 $49,263 
Common shareholders’ equity$50,331 $50,493 $45,269 
Accumulated other comprehensive income$1,290 $2,770 $2,518 
Book value per common share$118.47 $119.11 $106.70 
Period-end common shares outstanding (in millions)425 424 424 
Loans to deposits63 %66 %87 %
Common shareholders’ equity to total assets10.6 %10.8 %10.2 %
Client Assets (in billions)
Discretionary client assets under management$173 $170 $136 
Nondiscretionary client assets under administration161 154 128 
Total client assets under administration334 324 264 
Brokerage account client assets61 59 49 
Total client assets$395 $383 $313 
Basel III Capital Ratios (d) (e)
Common equity Tier 112.6 %12.2 %9.4 %
Common equity Tier 1 fully implemented (f)12.3 %11.8 %9.2 %
Tier 1 risk-based13.7 %13.2 %10.5 %
Total capital risk-based (g)16.0 %15.6 %12.6 %
Leverage9.7 %9.5 %9.5 %
Supplementary leverage10.1 %9.9 %7.9 %
Asset Quality
Nonperforming loans to total loans0.90 %0.94 %0.62 %
Nonperforming assets to total loans, OREO and foreclosed assets0.92 %0.97 %0.66 %
Nonperforming assets to total assets0.46 %0.50 %0.39 %
Net charge-offs to average loans (for the three months ended) (annualized)0.25 %0.37 %0.35 %
Allowance for loan and lease losses to total loans
1.99 %2.22 %1.49 %
Allowance for credit losses to total loans (h)2.20 %2.46 %1.66 %
Allowance for loan and lease losses to nonperforming loans

220 %235 %240 %
Accruing loans past due 90 days or more (in millions)$479 $509 $534 
UnauditedSeptember 30
2020
December 31
2019
September 30
2019
 
Balance Sheet Data (dollars in millions, except per share data)
    
Assets$461,817
$410,295
$408,916
 
Loans$249,279
$239,843
$237,377
 
Allowance for loan and lease losses (b)



$5,751
$2,742
$2,738
 
Interest-earning deposits with banks (c)$70,959
$23,413
$19,036
 
Investment securities$91,185
$86,824
$87,883
 
Loans held for sale$1,787
$1,083
$1,872
 
Equity investments$4,938
$5,176
$5,004
 
Asset held for sale (d)

 $8,558
$8,321
 
Mortgage servicing rights$1,113
$1,644
$1,483
 
Goodwill$9,233
$9,233
$9,233
 
Other assets$32,445
$32,202
$35,774
 
Noninterest-bearing deposits$107,281
$72,779
$74,077
 
Interest-bearing deposits$247,798
$215,761
$211,506
 
Total deposits$355,079
$288,540
$285,583
 
Borrowed funds$42,110
$60,263
$61,354
 
Allowance for unfunded lending related commitments (b)

$689
$318
$304
 
Total shareholders’ equity$53,276
$49,314
$49,420
 
Common shareholders’ equity$49,760
$45,321
$45,428
 
Accumulated other comprehensive income$2,997
$799
$837
 
Book value per common share$117.44
$104.59
$103.37
 
Period-end common shares outstanding (in millions)424
433
439
 
Loans to deposits70%83%83% 
Common shareholders’ equity to total assets10.8%11.0%11.1% 
Client Assets (in billions)
    
Discretionary client assets under management$158
$154
$163
 
Nondiscretionary client assets under administration142
143
135
 
Total client assets under administration300
297
298
 
Brokerage account client assets55
54
52
 
Total client assets$355
$351
$350
 
Basel III Capital Ratios (e) (f)    
Common equity Tier 111.7%9.5%9.6% 
Common equity Tier 1 fully implemented (g)11.3%N/A
N/A
 
Tier 1 risk-based12.8%10.7%10.7% 
Total capital risk-based (h)15.2%12.7%12.7% 
Leverage9.4%9.1%9.3% 
Supplementary leverage9.5%7.6%7.8% 
Asset Quality    
Nonperforming loans to total loans.84%.68%.73% 
Nonperforming assets to total loans, OREO and foreclosed assets.86%.73%.78% 
Nonperforming assets to total assets.47%.43%.45% 
Net charge-offs to average loans (for the three months ended) (annualized).24%.35%.26% 
Allowance for loan and lease losses to total loans (i)

2.31%1.14%1.15% 
Allowance for credit losses to total loans (i) (j)2.58%1.28%1.28% 
Allowance for loan and lease losses to nonperforming loans (i)


276%168%158% 
Accruing loans past due 90 days or more (in millions)$448
$585
$532
 
(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.
(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)
(b)Amounts include balances held with the Federal Reserve Bank of Cleveland (Federal Reserve Bank) of $85.8 billion, $84.9 billion and $19.6 billion as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively.
(c)Represents our held for sale investment in BlackRock, Inc. In the second quarter of 2020, PNC divested its entire investment in BlackRock. Prior period BlackRock investment balances have been reclassified to the Asset held for sale line in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations. Refer to Note 2 Acquisition and Divestiture Activity in the Notes to Consolidated Financial Statements in Item 1 of this Report for additional details.
(d)All ratios are calculated using the regulatory capital methodology applicable to PNC during each period presented and calculated based on the standardized approach. See Basel III Capital discussion in the Capital Management portion of the Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business and Item 1A Risk Factors in our 2020 Form 10-K.
Amounts at September 30, 2020 reflect the impact of adopting Accounting Standards Update 2016-13 - Financial Instruments - Credit Losses, which is commonly referred to as the Current Expected Credit Losses (CECL) standard and our transition from an incurred loss methodology for these reserves to an expected credit loss methodology. See Note 1 Accounting Policies of this Report for additional information related to our adoption of this standard.
(c)Amounts include balances held with the Federal Reserve Bank of Cleveland (Federal Reserve Bank) of $70.6 billion, $23.2 billion and $18.8 billion as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively.

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



(d)Represents our held for sale investment in BlackRock, Inc. In the second quarter of 2020, PNC divested its entire investment in BlackRock. Prior period BlackRock investment balances have been reclassified to the Asset held for sale line in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations. Refer to Note 1 Accounting Policies and Note 2 Discontinued Operations for additional details.
(e)All ratios are calculated using the regulatory capital methodology applicable to PNC during each period presented and calculated based on the standardized approach. See Basel III Capital discussion in the Capital Management portion of the Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business and Item 1A Risk Factors in our 2019 Form 10-K.
(f)The September 30, 2020 ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision, unless noted differently.
(g)The September 30, 2020 fully implemented CET1 ratio is calculated to reflect the full impact of CECL and excludes the benefits of the five-year transition provision.
(h)The 2020 and 2019 Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $40 million and $60 million, respectively, that are subject to a phase-out period that runs through 2021.
(i)Ratios at September 30, 2020 reflect the changes in methodology due to the adoption of the CECL accounting standard on January 1, 2020, along with increases in reserves during 2020 due to the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth.
(j)Calculated as the Allowance for loan and lease losses plus the Allowance for unfunded lending related commitments divided by total loans.

(e)Ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision, unless noted differently.
(f)The fully implemented CET1 ratio is calculated to reflect the full impact of CECL and excludes the benefits of the five-year transition provision.
(g)The 2021 and 2020 Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $20 million and $40 million, respectively, that are subject to a phase-out period that runs through 2021.
(h)Calculated as the Allowance for loan and lease losses plus the Allowance for unfunded lending related commitments divided by total loans.

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

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 serve our customers and expand and deepen 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;platforms,
•Deepening customer relationships by delivering a superior banking experience and financial solutions;solutions, and
•Leveraging technology to innovate and enhance products, services, security and processes.

Our capital priorities are to support customers and business investment, maintain appropriate capital in light of economic conditions, the Basel III framework, and other regulatory expectations, and return excess capital to shareholders. For more detail, see the Capital Highlights portion of this Executive Summary, 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 20192020 Form 10-K.

Current Economic EnvironmentPending Acquisition of BBVA USA Bancshares, Inc.
On November 16, 2020, PNC announced a definitive agreement with BBVA, S.A. to acquire BBVA, a U.S. financial holding
company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA, for a fixed purchase price of
$11.6 billion in cash. BBVA USA has over 600 branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico.
The coronavirus (COVID-19) pandemictransaction is expected to add approximately $102 billion in total assets, $86 billion of deposits and public health response$66 billion of loans to contain it ledPNC’s
Consolidated Balance Sheet and to a severe recessionclose in mid-2021, subject to customary closing conditions, including receipt of regulatory approvals. Note 2 Acquisition and Divestiture Activity in the first half of 2020, after the U.S. economy reached a peakNotes to Consolidated Financial Statements in economic activity in February 2020. Most measures of economic activity contracted with enormous declines in consumer spending, employment, retail sales, business investment, industrial production and corporate profitability. The unemployment rate peaked at 14.7% in April and has declined since then, but still remained elevated at 7.9% in September. Real GDP growth in the third quarter was extremely strong, at an annual rate of 33.1%, after declining significantly in the first and second quarters of 2020. While economic conditions have improved, including a rebound in consumer spending and job growth, economic activity remains far below its pre-pandemic level. There is still a great deal of uncertainty about the length and severity of the pandemic and the strength or reversal of the economic rebound, including whether there will be additional fiscal stimulus from the federal government and, if so, its size and scope.

The Federal Reserve has undertaken extraordinary efforts to combat the economic weakness, reducing the federal funds rate 1.5 percentage points in March to a range of 0.00% to 0.25%. The Federal Reserve implemented multiple programs to support the flow of credit to businesses, consumers, and state and local governments, including, for the first time, direct purchases of corporate bonds and of bank loans to small and medium-sized businesses. In addition, the federal government authorized $2.4 trillion in federal spending to support household incomes and businesses, including the $1.8 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act.


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


PNC is committed to putting our resources to work to support our customers, communities and the broader financial system. PNC participated in funding Paycheck Protection Program (PPP) loans under the CARES Act and, at September 30, 2020, had $12.9 billion of PPP loans outstanding, down from the $13.7 billion funded during the second quarter of 2020. PNC continues to grant loan modifications for customers in need through various hardship relief programs. We analyze and make decisions on these modifications based on each individual borrower's situation. PNC is also assisting customers with PPP loan forgiveness under the CARES Act. See the Troubled Debt Restructurings and Loan Modifications in the Credit Risk Management portion of the Risk Management sectionItem 1 of this Financial Review for detailsReport and
our Current Reports on our commercialForm 8-K dated November 16, 2020, November 19, 2020 and consumer loan modifications.April 20, 2021 contain additional information regarding this pending acquisition.

Our retail branch operations are gradually returning to business as usual as we continue to prioritize the safety and well-being of our customers and employees. In the third quarter of 2020, we progressively reopened branches both for appointment banking and full banking operations. As of the end of October 2020, approximately 96% of branch lobbies were fully opened.

See the Recent Regulatory Developments section of this Financial Review as well as the Recent Regulatory Developments section in our first and second quarter 2020 Form 10-Q for additional detail on the CARES Act and other governmental responses to the pandemic and its economic and financial impacts. See also Risk Factors in Part II, Item 1A of our first quarter 2020 Form 10-Q for a description of the associated risks.

Community Support

In the second quarter of 2020, we announced a commitment of more than $1.0 billion to help end systemic racism and support economic empowerment of African Americans and low- and moderate-income communities including more than $50 million in additional charitable support for national and local work that is designed to help eliminate systemic racism and promote social justice, expand financial education and workforce development initiatives and enhance low-income neighborhood revitalization and affordable housing. In addition, this commitment will provide community development financing and capital for neighborhood revitalization, consumers, small businesses and enhancements to PNC's existing matching gift program to include support for qualifying non-profit organizations that support economic empowerment and social justice educational efforts.

Second Quarter Sale of Equity Investment in BlackRock, Inc.

Discontinued Operations
In the second quarter of 2020, PNC divested its entire 22.4% equity investment in BlackRock. Net proceeds from the sale were $14.2 billion. The
$14.2 billion with an after-tax gain on the sale of $4.3 billion, and donation expense andbillion. BlackRock's historical results for all periods presented, are reported as discontinued operations. For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Discontinued OperationsAcquisition and Divestiture Activity in the Notes Toto Consolidated Financial Statements in Item 1 of this Report and the second quarter Form 10-Q.Report.

Income Statement Highlights

Net income from continuing operations of $1.5$1.8 billion, or $3.39$4.10 per diluted common share, for the thirdfirst quarter of 20202021 increased $351 million, or 30%,$1.1 billion compared to net income from continuing operations of $1.2$0.8 billion, or $2.47$1.59 per diluted common share, for the thirdfirst quarter of 2019.2020 primarily due to a provision recapture, driven by improvements in macroeconomic factors and lower loans outstanding.
•Total revenue decreased $116 million, or 3%, to $4.2 billion.
•Net interest income of $2.3 billion decreased $163 million, or 6%, due to lower yields on earning assets partially offset by lower rates on deposits, higher average earning assets and a decline in borrowing costs and balances.
The PNC Financial Services Group, Inc. – Form 10-Q 3  

•Net interest margin decreased to 2.27% compared to 2.84% for the first quarter of 2020 reflecting the impact of higher balances held with the Federal Reserve Bank and lower yields on securities and loans, partially offset by lower rates on deposits.
•Noninterest income increased $39$47 million, or 3%, to $1.9 billion.
•Provision recapture was $551 million for the first quarter of 2021 driven by improvements in macroeconomic factors and lower loans outstanding. Provision for credit losses for securities and other assets was $28 million for the first quarter of 2021.
•Noninterest expense increased $31 million, or 1%, to $4.3 billion.
Net interest income of $2.5$2.6 billion, decreased $20 million, or 1%.
▪Net interest margin decreased to 2.39% compared to 2.84% for the third quarter of 2019.
Noninterest income increased $59 million, or 3%,due to $1.8 billion.
Provision for credit losses for the third quarter of 2020 of $52 million, which was calculated under the Current Expected Credit Losses (CECL) accounting standard adopted January 1, 2020, reflected a provision recapture for consumer loans,higher deferred compensation, partially offset by a provision for expected losses for certain borrowers in industries adversely impacted by the pandemic, primarily within the commercial real estate portfolio. In addition, the third quarter 2020 provision for credit losses included $39 million related to investment securities. Provision for credit losses decreased $131 million compared to the third quarter of 2019.lower costs associated with business travel and marketing activity.
Noninterest expense decreased $92 million, or 4%, to $2.5 billion, reflecting a continuous focus on expense management as well as lower business activity related to the economic impact of the pandemic.
We generated positive operating leverage of 4.4% in the third quarter of 2020 and 4.3% for the first nine months of 2020 compared to the same periods in 2019.

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

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



Balance Sheet Highlights
Our balance sheet was strong and well positioned at September 30, 2020March 31, 2021 and December 31, 2019.2020. In comparison to December 31, 2019:2020:
•Total assets increased $51.5$7.7 billion, or 13%2%, to $461.8$474.4 billion.
•Total loans increased $9.4decreased $4.9 billion, or 4%2%, to $249.3$237.0 billion.
•Total commercial loans grew $12.1 billion, or 8%, to $172.7 billion, reflecting broad based growth including PPP loan originations under the CARES Act.
Total consumer loans decreased $2.7 billion, or 2%, to $164.5 billion.
•At March 31, 2021, PNC had $14.0 billion of PPP loans outstanding, $10.1 billion from the first round of PPP and $3.9 billion from the second round.
•Total consumer loans decreased $2.2 billion, or 3%, to $76.6 billion primarily in auto, credit card and home equity loans, partially offset by higher residential mortgage loans.$72.5 billion.
•Investment securities increased $4.4$9.5 billion, or 5%11%, to $91.2 billion.$98.3 billion, resulting from accelerated purchase activity near the end of the first quarter as the interest rate environment improved. Purchase activity was primarily focused on U.S. Treasury and government agency securities as well as agency residential mortgage-backed securities.
•Interest-earning deposits with banks, primarily with the Federal Reserve Bank, increased $47.5$1.0 billion to $71.0 billion due to higher liquidity from deposit growth and proceeds from the sale of our equity investment in BlackRock.$86.2 billion.
•Total deposits increased $66.5$9.7 billion, or 23%3%, to $355.1$375.1 billion due to growth in commercial deposits reflecting customer liquidity accumulation and higher consumer deposits driven by government stimulus and lower consumer spending.payments.
•Borrowed funds decreased $18.2$4.2 billion, or 30%11%, to $42.1$33.0 billion reflecting use of liquidity from deposit growth and proceeds from the sale of our equity investment in BlackRock.lower loans outstanding.

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

Credit Quality Highlights
Credit quality metrics in the thirdfirst quarter of 20202021 reflected continued uncertaintyimprovements in the economic environment.
•At September 30, 2020March 31, 2021 compared to December 31, 2019:2020:
•Nonperforming assets of $2.2 billion increased $400decreased $158 million, or 23%7%, drivenprimarily due to lower commercial nonperforming loans, partially offset by higher consumer nonperforming commercial loans in industries adversely impacted by the pandemic and the energy industry.loans.
•Overall loan delinquencies of $1.2$1.1 billion decreased $266$217 million, or 18%16%, reflecting CARES Actdriven by lower consumer delinquencies primarily in auto and other forbearanceresidential real estate loans.
•The ACL related to loans decreased to $5.2 billion, or 2.20% of total loans, at March 31, 2021 compared to $5.9 billion, or 2.46% of total loans, at December 31, 2020. The decrease was primarily related to improvements in macroeconomic factors and extension treatments.lower loans outstanding in the first quarter.
•Net charge-offs were $155$146 million, in both third quarters of 2020 and 2019, representing .24%or 0.25% of average loans on an annualized basis, in the thirdfirst quarter of 2020 and .26%2021 compared to $212 million, or 0.35%, for the same quarter of 2019.2020.
The allowance for credit losses (ACL) related to loans increased to $6.4 billion, or 2.58% of total loans, at September 30, 2020, calculated under the CECL accounting standard adopted January 1, 2020, compared to $3.1 billion, or 1.28% of total loans, at December 31, 2019. The increase was due to the change in methodology together with the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth.

For additional detail including the adoption of the CECL accounting standard and the significant economic impact of the pandemic, see the Credit Risk Management portion of the Risk Management section of this Financial Review.

Capital Highlights
We grewmaintained our strong capital position.
•The Basel III common equity Tier 1 (CET1) capitalCET1 ratio increased to 11.7%12.6% at September 30, 2020March 31, 2021 from 9.5%12.2% at December 31, 2019.2020.
The September 30, 2020 ratio reflects higher capital due in part to the gain from the sale of our equity investment in BlackRock and changes under the Tailoring Rules, effective January 1, 2020 for PNC, partially offset by the impact of the CECL accounting standard.
Additionally, capital•Capital benefited from our election of a five-year transition period for CECL's estimated impact on CET1         capital. CECL's estimated impact on CET1 capital is defined as the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date compared to CECL ACL at transition. The estimated CECL impact is added to CET1 capital through December 31, 2021, then phased-out over the following three years.
•Common shareholders' equity increased 10%decreased to $49.8$50.3 billion at September 30, 2020,March 31, 2021, compared to $45.3$50.5 billion at December 31, 2019.2020.
•In the first quarter of 2021, PNC returned capital to shareholders through dividends on common shares of $0.5 billion.
4   The PNC Financial Services Group, Inc. – Form 10-Q


•On OctoberApril 1, 2020,2021, the PNC board of directors declared a quarterly cash dividend on common stock of $1.15 per share payable on NovemberMay 5, 2020.2021.
We announced on March 16, 2020 a temporary suspension•During the first quarter PNC refrained from repurchasing shares and expects to continue to do so for the remainder of the period leading up to the close of our common stock repurchase program in conjunction withpending BBVA transaction. Following the Federal Reserve's effortclose, PNC expects to support the U.S. economy during the pandemic, and will continue the suspension through the fourth quarter of 2020, consistent with the extension of the Federal Reserve's special capital distribution restrictions. We repurchased $99 million of common sharesresume repurchases in the third quarter to offset the effectssecond half of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve.2021.


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


See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our 20202021 liquidity and capital actions as well as our capital ratios.

PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding a stress capital buffer established by the Federal Reserve Board in connection with the Federal Reserve Board's Comprehensive Capital Analysis and Review (CCAR)CCAR process. The Federal Reserve also has imposed additional limitations on capital distributions through the fourthsecond quarter of 20202021 by CCAR-participating bank holding companies and may extend these limitations, potentially in modified form.companies. For additional information, see Capital Management in the Risk Management section in this Financial Review and the Supervision and Regulation section in Item 1 Business and Item 1A Risk Factors of our 20192020 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 views, as follow:follows:
•The U.S. economy is in a nascentan economic recovery, in the second half of 2020, following a very severe but very short economic contraction in the first half of the year2020 due to the COVID-19 pandemic and public health measures to contain it. Real GDP declined significantly in the first and second quarters of 2020, as many firms closed, at least temporarily, and consumers stayed at home. Since the late spring/early summer economic activity has picked up due to loosening restrictions on businesses, massive federal stimulus, and extremely low interest rates. Between May and September the economy added back slightly more than half of the 22 million jobs lost in March and April.
•Despite the improvement in the economy in recent months,since the spring of 2020, economic activity remains far below its pre-pandemic level and unemployment remains elevated. Real GDP growth
•Growth will pick up in the third quarter was extremely strong, at an annual ratespring of 33.1%, but will slow in2021 as vaccine distribution continues and the fourth quarterfederal government provides aid to households, small and through 2021.medium-sized businesses, and state and local governments. PNC does not expectexpects real GDP to return to its pre-pandemic level until latein the third quarter of 2021, and does not expect employment to return to its pre-pandemic level until 2023. Risks to this outlook are weighted to the downside; they include a further resurgence in the spreadsecond half of the coronavirus and a lack of additional stimulus from the federal government.2022.
Monetary policy remains extremely supportive of economic growth. •PNC expects the Federal Open Market CommitteeFOMC to keep the federalfed funds rate in its current range of 0.00% to 0.25% throughuntil at least mid-2024.late 2023.

Given the many unknowns and risks being heavily weighted to the downside, our forward-looking statements are subject to the risk that conditions will be substantially different than we are currently expecting. If efforts to contain COVID-19 are unsuccessful and restrictions on businesses and activities are not further lifted or are reimposed, the recovery would be much weaker. There is even the potential that the economy could fall back into recession. PNC’s baseline scenario assumes additional fiscal stimulus; continued inaction on stimulus is another major downside risk. The longer it takes to combat the pandemic the more permanent damage it will cause to business and consumer fundamentals and sentiment; this could make the recovery weaker and result in permanently lower long-run economic growth. An extended global recession due to COVID-19 would weaken the U.S. recovery. As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.

For the fourthsecond quarter of 20202021 compared to the thirdfirst quarter of 2020,2021 where appropriate, we expect:
•Average loans to decline in the low-single digits percentage range;be stable,
•Net interest income to be stable;up approximately 2%,
•Fee income to be stable and otherup approximately 3% to 5%,
•Other noninterest income to be between $275$300 million and $325$350 million, resulting in our expectation that total noninterest income will be down in the high-single digit percentage range;
•Noninterest expense to be up approximately 1%;stable, and
•Net loan charge-offs to be between $200$150 million and $250$200 million.

For the PNC standalone full year 2021, excluding one-time costs related to the BBVA transaction, compared to full year 2020 where appropriate, we expectexpect:
•Average loans to deliver positive operating leverage in the range ofbe down approximately 3% to 4%.,
•Revenue to be stable,
•Noninterest expense to be stable, and
•The effective tax rate to be 17%.

Assuming a mid-2021 close date and excluding one-time integration costs, we expect the pending BBVA acquisition to be approximately $700 million accretive to PNC’s 2021 pre-tax preprovision net revenue.

See the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors in our first quarter 2020 Form 10-Q and 2019 Form 10-K for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.

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



CONSOLIDATED INCOME STATEMENT REVIEW

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

Net income from continuing operations of $1.5$1.8 billion, or $3.39$4.10 per diluted common share for the thirdfirst quarter of 20202021 increased $351 million, or 30%,$1.1 billion compared to net income from continuing operations of $1.2$0.8 billion, or $2.47 per diluted common share, for the third quarter of 2019.For the first nine months of 2020, net income from continuing operations was $1.5 billion, or $3.11 per diluted common share, compared to $3.4 billion, or $7.13$1.59 per diluted common share, for the first nine monthsquarter of 2019.2020.The increase was primarily due to a provision recapture, driven by improvements in macroeconomic factors and lower loans outstanding.
The PNC Financial Services Group, Inc. – Form 10-Q 5  

Net Interest Income
Table 2: Summarized Average Balances and Net Interest Income (a)
20212020
 2020
2019 
Three months ended September 30
Dollars in millions		 
Average
Balances

 
Average
Yields/
Rates

 
Interest
Income/
Expense

 
Average
Balances

 
Average
Yields/
Rates

 
Interest
Income/
Expense

 
Three months ended March 31
Dollars in millions		Three months ended March 31
Dollars in millions		Average
Balances		Average
Yields/
Rates		Interest
Income/
Expense		Average
Balances		Average
Yields/
Rates		Interest
Income/
Expense
Assets             Assets
Interest-earning assets             Interest-earning assets
Investment securities $90,502
 2.18% $496
 $85,166
 2.91% $622
 Investment securities$86,396 1.97 %$426 $84,422 2.78 %$588 
Loans 253,092
 3.32% 2,127
 237,682
 4.47% 2,698
 Loans238,135 3.38 %2,006 243,572 4.08 %2,496 
Interest-earning deposits with banks 60,327
 .10% 15
 15,632
 2.17% 85
 Interest-earning deposits with banks85,410 0.10 %21 17,569 1.27 %56 
Other 9,752
 2.23% 55
 14,094
 3.49% 123
 Other7,829 2.34 %45 9,468 3.51 %82 
Total interest-earning assets/interest income $413,673
 2.57% 2,693
 $352,574
 3.95% 3,528
 Total interest-earning assets/interest income$417,770 2.40 %2,498 $355,031 3.62 %3,222 
Liabilities             Liabilities
Interest-bearing liabilities             Interest-bearing liabilities
Interest-bearing deposits $248,551
 .12% 74
 $206,942
 1.02% 531
 Interest-bearing deposits$252,077 0.06 %40 $215,336 0.70 %375 
Borrowed funds 43,344
 1.06% 118
 63,933
 2.87% 468
 Borrowed funds35,196 1.09 %95 57,188 2.18 %314 
Total interest-bearing liabilities/interest expense $291,895
 .26% 192
 $270,875
 1.45% 999
 Total interest-bearing liabilities/interest expense$287,273 0.19 %135 $272,524 1.00 %689 
Net interest margin/income (Non-GAAP)   2.39% 2,501
   2.84% 2,529
 Net interest margin/income (Non-GAAP)2.27 %2,363 2.84 %2,533 
Taxable-equivalent adjustments     (17)     (25) Taxable-equivalent adjustments(15)(22)
Net interest income (GAAP)     $2,484
     $2,504
 Net interest income (GAAP)  $2,348   $2,511 
  2020 2019 
Nine months ended September 30
Dollars in millions		 
Average
Balances

 
Average
Yields/
Rates

 
Interest
Income/
Expense

 
Average
Balances

 
Average
Yields/
Rates

 
Interest
Income/
Expense

 
Assets             
Interest-earning assets             
Investment securities $87,795
 2.45% $1,617
 $83,719
 3.00% $1,884
 
Loans 254,919
 3.58% 6,893
 233,724
 4.54% 8,013
 
Interest-earning deposits with banks 37,582
 .28% 80
 14,708
 2.32% 256
 
Other 10,028
 2.64% 199
 12,780
 3.70% 354
 
Total interest-earning assets/interest income $390,324
 2.98% 8,789
 $344,931
 4.04% 10,507
 
Liabilities             
Interest-bearing liabilities             
Interest-bearing deposits $235,160
 .34% 590
 $201,371
 1.01% 1,518
 
Borrowed funds 51,225
 1.59% 619
 62,033
 3.05% 1,433
 
Total interest-bearing liabilities/interest expense $286,385
 .56% 1,209
 $263,404
 1.48% 2,951
 
Net interest margin/income (Non-GAAP)   2.57% 7,580
   2.91% 7,556
 
Taxable-equivalent adjustments     (58)     (79) 
Net interest income (GAAP)     $7,522
     $7,477
 
(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 in Item 1 of this Report.
(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 in Item 1 of this Report.
Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information (Unaudited) – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.


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


Net interest income decreased $20$163 million, or 1%, and increased $45 million, or 1%6%, for the thirdfirst quarter and first nine months of 2020, respectively,2021 compared to the same periodsperiod in 2019.2020. The decrease in the quarterly comparison was attributabledue to lower yields on interest-earningearning assets partially offset by lower rates on deposits, and borrowings and higher average interest-earning assets. In the year-to-date comparison, the increase was driven by lower rates on deposits, higher average interest-earningearning assets and lowera decline in borrowing costs and balances, partially offset by lower yields on interest-earning assets and higher average deposit balances. Net interest margin decreased 4557 basis points in the quarterly comparison and 34 basis points in the year-to-date comparison reflecting the reduction in the federal funds rate byhigher balances held with the Federal Reserve in March 2020Bank and related changes in other short-term rates which resulted in lower yields on loanssecurities and securities,loans, partially offset by lower rates on deposits, lower borrowing costs and borrowings. Additionally, the impact of higher balances held with the Federal Reserve contributed to the margin declines.balances.

Average investment securities increased $5.3$2.0 billion, or 6%, in the quarterly comparison and $4.1 billion, or 5%, in the year-to-date comparison.2%. The increases wereincrease was primarily due to increasesan increase in agency residential mortgage-backedU.S. treasury and government securities partially offset by a decrease in U.S. Treasury and government agency securities in the year-to-date comparison.

lower residential mortgage-backed securities. Average investment securities represented 22%21% of average interest-earning assets for both the thirdfirst quarter and first nine months of 20202021 compared to 24% for the same periodsperiod in 2019.2020.

Average loans grew $15.4decreased $5.4 billion, or 6%2%, and $21.2 billion, or 9%, in the quarterly and year-to-date comparisons, respectively. Loan growth was driven by an increase in both commercial andprimarily due to lower consumer loans. Average commercial loans increased $14.2 billion and $17.5 billion in the respective comparisons reflecting broad based growth including PPP lending under the CARES Act and higher utilization of loan commitments driven by the economic impact of the pandemic on customer liquidity preferences in the year-to-date comparison.

Average consumer loans increased $1.2 billion and $3.7 billion in the quarterly and year-to-date comparisons, respectively. Growth in residential mortgage and home equity was partially offset by lower credit card, education, and auto loans in the quarterly comparison. The year-to-date comparison reflected growth in residential mortgage, auto, credit card and unsecured installment loans, partially offset by higher commercial loans as a decline in education loans due to runoff in the guaranteed governmentresult of PPP loan portfolio.

originations. Average loans represented 61%57% of average interest-earning assets for the thirdfirst quarter of 2020 and 65% for the first nine months of 20202021 compared to 67% and 68%69% for the same periodsperiod in 2019, respectively.2020.

Average interest-earning deposits with banks increased $44.7$67.8 billion and $22.9 billion in the respective quarterly and year-to-date comparisons, as average balances held with the Federal Reserve Bank increased due to higher liquidity from deposit growth and proceeds from the sale of our equity investment in BlackRock.deposits.

Average interest-bearing deposits grew $41.6$36.7 billion, or 20%, and $33.8 billion, or 17%, in the respective quarterly and year-to-date comparisons reflecting due to overall growth in commercial and consumer deposits as well as pandemic-related accumulation of customer liquidity. In total, average interest-bearing deposits increased to 85% and 82%88% of average interest-bearing liabilities for the third quarter and first nine months of 2020 compared to 76%79% for the same periodsperiod in 2019.2020.

Average borrowed funds decreased $20.6$22.0 billion, or 32%38%, compared with the third quarter of 2019 and $10.8 billion, or 17%, compared to the first nine months of 2019 primarily due to a decline in Federal Home Loan Bank (FHLB)FHLB borrowings reflecting the use of liquidity from deposit growth and proceeds from the sale of our equity investment in BlackRock.growth.

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

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



Noninterest Income
Table 3: Noninterest Income
 Three months ended September 30
Nine months ended September 30  Three months ended March 31
     Change     Change    Change
Dollars in millions 2020

2019
 $ % 2020
 2019
 $
 %
 Dollars in millions20212020$%
Noninterest income                 Noninterest income
Asset management $215
 $213
 $2
 1 % $615
 $646
 $(31) (5)% Asset management$226 $201 $25 12 %
Consumer services 390
 402
 (12) (3)% 1,097
 1,165
 (68) (6)% Consumer services384 377 7 2 %
Corporate services 479
 469
 10
 2 % 1,517
 1,415
 102
 7 % Corporate services555 526 29 6 %
Residential mortgage 137
 134
 3
 2 % 505
 281
 224
 80 % Residential mortgage105 210 (105)(50)%
Service charges on deposits 119
 178
 (59) (33)% 366
 517
 (151) (29)% Service charges on deposits119 168 (49)(29)%
Other 457
 342
 115
 34 % 1,071
 1,017
 54
 5 % Other483 343 140 41 %
Total noninterest income $1,797

$1,738

$59
 3 % $5,171

$5,041

$130
 3 % Total noninterest income$1,872 $1,825 $47 3 %
 
Noninterest income as a percentage of total revenue was 44% for the first quarter of 2021 compared to 42% for the third quarter of 2020 and 41% for the first nine months of 2020 compared to 41% and 40% for the same periodsperiod in 2019, respectively.2020.

Asset management revenue in the year-to-date comparison declinedincreased due to the impact of PNC's divestiture activity in 2019 of the retirement recordkeeping business and PNC's proprietary mutual funds partially offset by the impact of higher average equity markets. PNC's discretionary client assets under management decreasedincreased to $158$173 billion at September 30, 2020March 31, 2021 from $163$136 billion at September 30, 2019,March 31, 2020, primarily as a result of the fourth quarter 2019 sale of the proprietary mutual funds.driven by higher spot equity markets.

Consumer services revenue declined in the quarterly and year-to-date comparisons as a result of lower transaction volumes and activityincreased reflecting lower consumer spending.

Service charges on deposits decreased in both comparisons due to lower transaction volumes and fees waived for customers experiencing pandemic-related hardships and lower revenue related to the elimination of certain checking producthigher brokerage fees.

Corporate services revenue in the quarterly and year-to-date comparisons increased primarily due to higher revenue from commercial mortgage bankingservicing activities, asset-backed financing fees, loans commitmentsloan commitment fees and treasury management product revenue, partially offset by lower merger and acquisition advisory fees.revenue.

Residential mortgage revenue increased in both comparisons due to higher loan sales revenue partially offsetdecreased driven by lower servicing fees due to increased payoff volumes. Additionally, revenue from residential mortgage servicing rights (RMSR) valuation, net of economic hedge, washedge.

Service charges on deposits decreased primarily due to lower in the quarterly comparison and higher in the year-to-date comparison.transaction volumes.

Other noninterest income increased in the quarterly comparison and includedprimarily due to higher revenue from net securities gains, capital markets-related activities and positive valuation adjustments of private equity investments. In the year-to-date comparison, the increase was primarily attributable to higher net securities gainsrevenue and capital markets-related revenue, partially offset by lower revenue from private equity investments and lower gains on asset sales, including the second quarter 2019 divestiture of the retirement recordkeeping business.net securities gains.

Noninterest Expense

Table 4: Noninterest Expense
 Three months ended September 30 Nine months ended September 30  Three months ended March 31
     Change     Change    Change
Dollars in millions 2020

2019
 $ % 2020
 2019
 $
 %
 Dollars in millions20212020$%
Noninterest expense                 Noninterest expense
Personnel $1,410
 $1,400
 $10
 1 % $4,152
 $4,179
 $(27) (1)% Personnel$1,477 $1,369 $108 8 %
Occupancy 205
 206
 (1) —
 611
 633
 (22) (3)% Occupancy215 207 8 4 %
Equipment 292
 291
 1
 —
 880
 862
 18
 2 % Equipment293 287 6 2 %
Marketing 67
 76
 (9) (12)% 172
 224
 (52) (23)% Marketing45 58 (13)(22)%
Other 557
 650
 (93) (14)% 1,774
 1,914
 (140) (7)% Other544 622 (78)(13)%
Total noninterest expense $2,531

$2,623

$(92) (4)% $7,589
 $7,812
 $(223) (3)% Total noninterest expense$2,574 $2,543 $31 1 %
 
The decreaseincrease in noninterest expense in the quarterlyis due to higher personnel expense, reflecting higher deferred compensation and year-to-date comparisons reflectedbenefits expense, partially offset by lower business activity related to the economic impact of the pandemic, including costs associated with business travel and lower marketing expense. Inactivity.

Effective Income Tax Rate

The effective income tax rate from continuing operations was 16.9% in the year-to-datefirst quarter of 2021 compared to 13.7% in the first quarter of 2020. The increase is primarily due to higher earnings in the first quarter of 2021 and a favorable resolution of certain tax matters in the first quarter of 2020.

The PNC Financial Services Group, Inc. – Form 10-Q 97  


comparison, personnel and occupancy expenses declined due to variable costs associated with decreased business activity, partially offset by higher equipment expense related to technology investments.

Effective Income Tax Rate

The effective income tax rate from continuing operations was 9.8% in the third quarter of 2020 compared to 17.8% in the third quarter of 2019, and 7.6% in the first nine months of 2020 compared to 17.0% in the same period in 2019. The decrease in both comparisons was primarily due to tax credit benefits and the favorable resolution of certain tax matters in the third quarter of 2020.

Provision For (Recapture of) Credit Losses
Table 5: Provision for (Recapture of) Credit Losses
 Three months ended March 31
Dollars in millions20212020
Provision for (recapture of) credit losses
Loans and leases$(502)$952 
Unfunded lending related commitments(77)(47)
Investment securities26 
Other financial assets2 9
Total provision for (recapture of) credit losses$(551)$914 
  Three months ended September 30 Nine months ended September 30 
Dollars in millions 2020
 2019
 2020
 2019
 
Provision for (recapture of) credit losses         
Loans and leases $(23) $183
 $3,149
 $552
 
Unfunded lending related commitments (a) 27
   192
   
Investment securities 39
   69
   
Other financial assets 9
   19
   
Total provision for credit losses $52
 $183
 $3,429
 $552
 
(a) For the three and nine months ended September 30, 2019, the provision for unfunded lending related commitments was included in the provision for loans and leases.

The provision for credit losses decreased $131 million for the third quarter of 2020 compared to the third quarter of 2019 and increased $2.9 billionrecapture for the first nine months of 2020 compared with the same period in 2019. The provision in the 2020 periods was calculated under the CECL accounting standard adopted January 1, 2020. The provision for loans and leases in the third quarter of 20202021 reflected a provision recapture for consumerimprovements in macroeconomic factors and lower loans offset by a provision for expected losses for certain borrowers in industries adversely impacted by the pandemic, primarily within the commercial real estate loan portfolio. In addition, the third quarter 2020 provision for credit losses included $39 million related to investment securities. The higher provision for the nine months ended September 30, 2020 reflected the change in methodology together with the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth.outstanding.

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

Net Income from Discontinued Operations

Table 6: Discontinued Operations

The following table summarizes netNet income from our investment in BlackRock, which is now reported as discontinued operations as a result ofwas $156 million for the second quarter 2020 divestiture.
  Three months ended September 30 Nine months ended September 30 
          
Dollars in millions 2020 2019
 2020
 2019
 
Net income from discontinued operations 
 $211
 $4,555
 $589
 

three months ended March 31, 2020. For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Discontinued OperationsAcquisition and Divestiture Activity in the Notes To Consolidated Financial Statements of this Report and the second quarter Form 10-Q.

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




CONSOLIDATED BALANCE SHEET REVIEW
Table 7: Summarized Balance Sheet Data
 September 30
 December 31
 Change 
Dollars in millions2020
 2019
 $% 
Assets       
Interest-earning deposits with banks$70,959
 $23,413
 $47,546
203 % 
Loans held for sale1,787
 1,083
 704
65 % 
Asset held for sale (a)  8,558
 (8,558)(100)% 
Investment securities91,185
 86,824
 4,361
5 % 
Loans249,279
 239,843
 9,436
4 % 
Allowance for loan and lease losses (b)(5,751) (2,742) (3,009)(110)% 
Mortgage servicing rights1,113
 1,644
 (531)(32)% 
Goodwill9,233
 9,233
 —
—
 
Other44,012
 42,439
 1,573
4 % 
Total assets$461,817
 $410,295
 $51,522
13 % 
Liabilities    



 
Deposits$355,079
 $288,540
 $66,539
23 % 
Borrowed funds42,110
 60,263
 (18,153)(30)% 
Allowance for unfunded lending related commitments (b)689
 318
 371
117 % 
Other10,629
 11,831
 (1,202)(10)% 
Total liabilities408,507
 360,952
 47,555
13 % 
Equity    



 
Total shareholders’ equity53,276
 49,314
 3,962
8 % 
Noncontrolling interests34
 29
 5
17 % 
Total equity53,310
 49,343
 3,967
8 % 
Total liabilities and equity$461,817
 $410,295
 $51,522
13 % 
(a)Represents our held for sale investment in BlackRock. In the second quarter of 2020, PNC divested its entire investment in BlackRock. Prior period BlackRock investment balances have been reclassified to the Asset held for sale line in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations. Refer to Note 1 Accounting Policies and Note 2 Discontinued Operations in the Notes To Consolidated Financial Statements of this Report and the second quarter Form 10-Q for additional details.
(b)Amount as of September 30, 2020 reflects the impact of adopting the CECL accounting standard and our transition from an incurred loss methodology for these reserves to an expected credit loss methodology. Prior period amounts represent ALLL under the incurred loss methodology. Refer to Note 1 Accounting Policies in this Report for additional detail on the adoption of this standard.

The summarized balance sheet data in Table 76 is based upon our Consolidated Balance Sheet in Part I, Item 1 of this Report.
Table 6: Summarized Balance Sheet Data
 March 31December 31Change
Dollars in millions20212020$%
Assets    
Interest-earning deposits with banks$86,161 $85,173 $988 1 %
Loans held for sale1,967 1,597 370 23 %
Investment securities98,255 88,799 9,456 11 %
Loans237,013 241,928 (4,915)(2)%
Allowance for loan and lease losses(4,714)(5,361)647 12 %
Mortgage servicing rights1,680 1,242 438 35 %
Goodwill9,317 9,233 84 1 %
Other44,735 44,068 667 2 %
Total assets$474,414 $466,679 $7,735 2 %
Liabilities
Deposits$375,067 $365,345 $9,722 3 %
Borrowed funds33,030 37,195 (4,165)(11)%
Allowance for unfunded lending related commitments507 584 (77)(13)%
Other11,931 9,514 2,417 25 %
Total liabilities420,535 412,638 7,897 2 %
Equity
Total shareholders’ equity53,849 54,010 (161)— 
Noncontrolling interests30 31 (1)(3)%
Total equity53,879 54,041 (162)— 
Total liabilities and equity$474,414 $466,679 $7,735 2 %

Our balance sheet was strong and well positioned at September 30, 2020March 31, 2021 and December 31, 2019.2020.
•Total assets increased as a result of higher interest-earning deposits with banks, primarily the Federal Reserve Bank, loan growth, and higher investment securities;securities, partially offset by a decrease in loans.
•Total liabilities increased primarily due to deposit growth reflecting customer liquidity accumulation, partially offset by lower FHLB borrowings and federal funds purchased;borrowed funds.
•Total equity increaseddecreased primarily due to higher retained earnings driven by the gain on sale of our equity investment in BlackRocklower AOCI and higher accumulated other comprehensive income (AOCI), partially offset by dividends on common and preferred stock, share repurchases, the day-one effect of adopting the CECL accounting standard and the redemption of our Series Q preferred stock.partially offset by higher net income.

The ACL related to loans totaled $6.4$5.2 billion at September 30, 2020, an increaseMarch 31, 2021, a decrease of $3.3$0.7 billion since December 31, 2019.2020. The increasedecrease was attributable to lower expected losses within the loan portfolio, resulting in a $.6 billion day-one CECL transition adjustment and a $3.3$0.6 billion provision recapture for credit losses partially offset byand net charge-offs of $.6$0.1 billion. The provision reflects the significantly adverse economic impact of the pandemicrecapture primarily reflected improvements in macroeconomic factors and its resulting effects on loan portfolio credit quality and loan growth.lower loans outstanding. See the following for additional information regarding our ACL related to loans:
•Allowance for Credit Losses in the Credit Risk Management section of this Financial Review, and
Note 1 Accounting Policies and •Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.

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 1820 Regulatory Matters in the Notes To Consolidated Financial Statements included in our 20192020 Form 10-K.

The PNC Financial Services Group, Inc. – Form 10-Q 119  



Loans
Table 8:7: Loans
 March 31December 31Change
Dollars in millions20212020$%
Commercial    
Commercial and industrial$129,798 $132,073 $(2,275)(2)%
Commercial real estate28,319 28,716 (397)(1)%
Equipment lease financing6,389 6,414 (25)— 
Total commercial164,506 167,203 (2,697)(2)%
Consumer
Home equity23,493 24,088 (595)(2)%
Residential real estate22,418 22,560 (142)(1)%
Automobile13,584 14,218 (634)(4)%
Credit card5,675 6,215 (540)(9)%
Education2,842 2,946 (104)(4)%
Other consumer4,495 4,698 (203)(4)%
Total consumer72,507 74,725 (2,218)(3)%
Total loans$237,013 $241,928 $(4,915)(2)%
 September 30
 December 31
 Change 
Dollars in millions2020
 2019
 $% 
Commercial       
Commercial and industrial$137,187
 $125,337
 $11,850
9 % 
Commercial real estate29,028
 28,110
 918
3 % 
Equipment lease financing6,479
 7,155
 (676)(9)% 
Total commercial172,694
 160,602
 12,092
8 % 
Consumer    



 
Home equity24,539
 25,085
 (546)(2)% 
Residential real estate22,886
 21,821
 1,065
5 % 
Automobile14,977
 16,754
 (1,777)(11)% 
Credit card6,303
 7,308
 (1,005)(14)% 
Education3,051
 3,336
 (285)(9)% 
Other consumer4,829
 4,937
 (108)(2)% 
Total consumer76,585
 79,241
 (2,656)(3)% 
Total loans$249,279
 $239,843
 $9,436
4 % 

Commercial loans increaseddecreased reflecting lower utilization of loan growth including PPP lending under the CARES Act.commitments and softer loan demand. At September 30, 2020March 31, 2021, PNC had $12.9$14.0 billion of PPP loans outstanding, down$10.1 billion from the first round of PPP and $3.9 billion from the second quarter funded amount of $13.7round. PPP loans outstanding at December 31, 2020 were $12.0 billion.

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

Total consumer loans declined as paydowns outpaced new originations decreased due to the economic impact of the pandemic and lower consumer spending. Residential mortgage loans increased as the low interest rate environment resulted in an increase in origination volumes primarily of nonconforming loans, which are loans that do not meet agency standards as a result of exceeding agency conforming loan limits.originations.

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

For additional information regarding our loan portfolio see Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.

Investment Securities

Investment securities of $91.2$98.3 billion at September 30, 2020March 31, 2021 increased $4.4$9.5 billion, or 5%11%, compared to December 31, 2019, due2020, resulting from accelerated purchase activity near the end of the first quarter as the interest rate environment improved. Purchase activity was primarily to net purchasesfocused on U.S. Treasury and an increase in the fair value ofgovernment agency securities as well as agency residential mortgage-backed and U.S. Treasury securities.

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)LCR and other internal and external guidelines and constraints. During 2020, $16.2 billion of debt securities were transferred from held to maturity to available for sale pursuant to elections made under recently adopted accounting standards. See further discussion in Note 1 Accounting Policies.

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



Table 9: Investment Securities
 September 30, 2020 December 31, 2019 Ratings (a) as of September 30, 2020 
Dollars in millions
Amortized
Cost (b)

 
Fair
Value

 
Amortized
Cost

 
Fair
Value

 
AAA/
AA

 A
 BBB
 BB and Lower
 
No
Rating

 
U.S. Treasury and government agencies$18,063
 $19,157
 $16,926
 $17,348
 100% 
 
 
 
 
Agency residential mortgage-backed51,202
 52,928
 50,266
 50,984
 100% 
 
 
 
 
Non-agency residential mortgage-backed1,376
 1,603
 1,648
 1,954
 12% 1% 2% 47% 38% 
Agency commercial mortgage-backed2,824
 2,966
 3,153
 3,178
 100% 
 
 
 
 
Non-agency commercial mortgage-backed (c)3,851
 3,829
 3,782
 3,806
 87% 1%   5% 7% 
Asset-backed (d)5,158
 5,240
 5,096
 5,166
 92% 1%   6% 1% 
Other (e)5,308
 5,638
 4,580
 4,771
 67% 21% 10%   2% 
Total investment securities (f)$87,782
 $91,361
 $85,451
 $87,207
 96% 1% 1% 1% 1% 
(a)Ratings percentages allocated based on amortized cost, net of allowance for securities.
(b)
Amortized cost is presented net of applicable allowance for securities of $71 million at September 30, 2020 in accordance with the adoption of the CECL accounting standard. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies for additional detail on the adoption of this ASU.
(c)Collateralized primarily by retail properties, office buildings, lodging properties and multifamily housing.
(d)Collateralized primarily by corporate debt, government guaranteed education loans and other consumer credit products.
(e)Includes state and municipal securities.
(f)Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.

Table 98: Investment Securities
 March 31, 2021December 31, 2020Ratings (a) as of March 31, 2021
Dollars in millionsAmortized
Cost (b)		Fair
Value		Amortized
Cost (b)		Fair
Value		AAA/
AA		ABBBBB and LowerNo
Rating
U.S. Treasury and government agencies$26,470 $26,824 $20,616 $21,631 100 %
Agency residential mortgage-backed50,499 51,554 47,355 48,911 100 %
Non-agency residential mortgage-backed1,181 1,424 1,272 1,501 9 %1 %2 %48 %40 %
Agency commercial mortgage-backed2,219 2,284 2,571 2,688 100 %
Non-agency commercial mortgage-backed (c)4,191 4,236 3,678 3,689 88 %1 %1 %4 %6 %
Asset-backed (d)5,969 6,041 5,060 5,150 94 %1 %5 %
Other (e)5,733 5,995 5,061 5,393 58 %25 %15 %2 %
Total investment securities (f)$96,262 $98,358 $85,613 $88,963 95 %2 %1 %1 %1 %
(a)Ratings percentages allocated based on amortized cost, net of allowance for securities.
(b)Amortized cost is presented net of applicable allowance for securities of $108 million and $82 million at March 31, 2021 and December 31, 2020, in accordance with the adoption of the CECL accounting standard.
(c)Collateralized primarily by retail properties, office buildings, lodging properties and multifamily housing.
(d)Collateralized primarily by corporate debt, government guaranteed education loans and other consumer credit products.
(e)Includes state and municipal securities.
(f)Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.

Table 8 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. 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. We continually monitor the credit risk in our portfolio and maintain the allowance for securities at an appropriate level to absorb expected credit losses on our investment securities portfolio for the remaining contractual term of the securities adjusted for expected prepayments. See Note 1 Accounting Policies and Note 3 Investment Securities in the Notes To Consolidated Financial Statements of this Report for additional details regarding the methodology for determining the allowance and the amount of the allowance for investment securities, respectively.

The duration of investment securities was 2.23.8 years at September 30, 2020.March 31, 2021. We estimate that at September 30, 2020March 31, 2021 the effective duration of investment securities was 2.74.1 years for an immediate 50 basis points parallel increase in interest rates and 1.73.5 years for an immediate 50 basis points parallel decrease in interest rates.

Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 3.44.3 years at September 30, 2020March 31, 2021 compared to 4.13.4 years at December 31, 2019.2020.

Table 10:9: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities
September 30, 2020March 31, 2021Years
Agency residential mortgage-backed3.14.2 
Non-agency residential mortgage-backed6.4
Agency commercial mortgage-backed4.44.5 
Non-agency commercial mortgage-backed2.72.3 
Asset-backed2.22.6 

Additional information regarding our investment securities is included in Note 3 Investment Securities and Note 1211 Fair Value in the Notes To Consolidated Financial Statements included in this Report.


The PNC Financial Services Group, Inc. – Form 10-Q 1311  


Funding Sources
Table 11:10: Details of Funding Sources
March 31December 31Change
Dollars in millions20212020$%
Deposits    
Noninterest-bearing$120,641 $112,637 $8,004 7 %
Interest-bearing
Money market55,799 59,737 (3,938)(7)%
Demand93,840 92,294 1,546 2 %
Savings85,974 80,985 4,989 6 %
Time deposits18,813 19,692 (879)(4)%
Total interest-bearing deposits254,426 252,708 1,718 1 %
Total deposits375,067 365,345 9,722 3 %
Borrowed funds
Federal Home Loan Bank borrowings1,500 3,500 (2,000)(57)%
Bank notes and senior debt22,139 24,271 (2,132)(9)%
Subordinated debt6,241 6,403 (162)(3)%
Other3,150 3,021 129 4 %
Total borrowed funds33,030 37,195 (4,165)(11)%
Total funding sources$408,097 $402,540 $5,557 1 %
 September 30
 December 31
 Change 
Dollars in millions2020
 2019
 $% 
Deposits       
Noninterest-bearing$107,281
 $72,779
 $34,502
47 % 
Interest-bearing    



 
Money market62,948
 54,115
 8,833
16 % 
Demand86,866
 71,692
 15,174
21 % 
Savings78,229
 68,291
 9,938
15 % 
Time deposits19,755
 21,663
 (1,908)(9)% 
Total interest-bearing deposits247,798
 215,761
 32,037
15 % 
Total deposits355,079
 288,540
 66,539
23 % 
Borrowed funds    



 
FHLB borrowings5,500
 16,341
 (10,841)(66)% 
Bank notes and senior debt26,839
 29,010
 (2,171)(7)% 
Subordinated debt6,465
 6,134
 331
5 % 
Other3,306
 8,778
 (5,472)(62)% 
Total borrowed funds42,110
 60,263
 (18,153)(30)% 
Total funding sources$397,189
 $348,803
 $48,386
14 % 


GrowthTotal deposits increased reflecting growth in totalconsumer deposits reflected commercial and consumer customer liquidity accumulation, including fromprimarily driven by government stimulus and lower consumer spending.payments.

Borrowed funds decreased due to lower FHLB borrowings, federal funds purchased (included in other borrowed funds) and bank notes and senior debt as well as lower FHLB borrowings reflecting the use of liquidity from deposit growth and proceeds from the sale of our equity investment in BlackRock.growth.

The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan, investment securities and deposit growth, and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity for our banking and other activities, considering our LCR requirements and other internal and external guidelines and constraints.

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for additional information regarding our 20202021 liquidity and capital activities.activities. See Note 810 Borrowed Funds in the Notes to Consolidated Financial Statements in Item 18 of this Reportour 2020 Form 10-K for additional information related to our borrowings.
Shareholders’ Equity

Total shareholders’ equity was $53.3$53.8 billion at September 30, 2020, an increaseMarch 31, 2021, a decrease of $4.0$0.2 billion or 8%, compared to December 31, 2019.2020. The increasedecrease resulted from net income of $6.1 billion, which included the gain on sale of our equity investment in BlackRock, and higherlower AOCI of $2.2$1.5 billion partially offset byreflecting the impact of higher rates on net unrealized securities gains and common and preferred stock dividends of $1.7$0.5 billion, common share repurchasespartially offset by net income of $1.4 billion, a day-one transition adjustment of $.7 billion$1.8 billion.

During the first quarter, PNC refrained from repurchasing shares and expects to continue to do so for the adoptionremainder of the CECL accounting standard and $.5 billion forperiod leading up to the redemptionclose of our Series Q preferred stock.

pending BBVA transaction. Following the close, PNC announced on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve's effortexpects to support the U.S. economy during the pandemic, and will continue the suspension through the fourth quarter of 2020, consistent with the extension of the Federal Reserve's special capital distribution restrictions. PNC repurchased $99 million of common sharesresume repurchases in the third quarter to offset the effectssecond half of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve.2021.



1412    The PNC Financial Services Group, Inc. – Form 10-Q




BUSINESS SEGMENTS REVIEW

We have three reportable business segments:
•Retail Banking
•Corporate & Institutional Banking
•Asset Management Group

Business segment results and a description of each business are included in Note 1514 Segment Reporting in the Notes To Consolidated Financial Statements included in Item 1 of this Report. Certain amounts included in this Business Segments Review differ from those amounts shown in Note 15,14, primarily due to the presentation in this Financial Review of business net interest income on a taxable-equivalent basis.

During the second quarter of 2020, we divested our entire 22.4% investment in BlackRock.BlackRock, which had previously been reported as a separate business segment. See Note 2 Discontinued OperationsAcquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional information on the sale and details on our results and cash flows for the three and nine months ended September 30, 2020 and 2019. Following the sale and donation, PNC only holds shares of BlackRock stock in a fiduciary capacity for clients of PNC.information.

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors.
Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in the “Other” category as shown in Table 8172 in Note 1514 Segment Reporting in the Notes To Consolidated Financial Statements included 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, ACL for investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, exited businesses 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..

See the Executive Summary of this Financial Review for our discussion of the impact of pandemic-related developments on our business and operations, including pandemic relief efforts for our customers. We have granted loan modifications through various hardship relief programs to assist our customers in need during the pandemic. See Loan Modifications in the Troubled Debt Restructurings and Loan Modifications section of Credit Risk Management for details on these programs.



The PNC Financial Services Group, Inc. – Form 10-Q 1513  


Retail Banking

Retail Banking's core strategy is to acquirehelp all of our consumer and retainsmall business customers who maintain theirmove financially forward. We aim to grow our primary checking and transaction relationships with us.through strong acquisition and retention. 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.leveraging technology to make banking easier for our customers. 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 ofare focused on consistently engaging both our employees and customers, which is a strong driver of customer growth, retention and relationship expansion.

Table 12:11: Retail Banking Table
(Unaudited)       
Nine months ended September 30      Change 
Dollars in millions, except as noted2020 2019 $% 
Income Statement       
Net interest income$4,229
 $4,118
 $111
3 % 
Noninterest income2,046
 1,996
 50
3 % 
Total revenue6,275
 6,114
 161
3 % 
Provision for credit losses1,049
 356
 693
195 % 
Noninterest expense4,557
 4,531
 26
1 % 
Pretax earnings669
 1,227
 (558)(45)% 
Income taxes161
 291
 (130)(45)% 
Earnings$508
 $936
 $(428)(46)% 
Average Balance Sheet       
Loans held for sale$769
 $586
 $183
31 % 
Loans       
Consumer       
Home equity$22,723
 $22,679
 $44
—
 
Residential real estate18,215
 15,806
 2,409
15 % 
Automobile16,449
 15,201
 1,248
8 % 
Credit card6,767
 6,403
 364
6 % 
Education3,226
 3,672
 (446)(12)% 
Other consumer2,417
 2,187
 230
11 % 
Total consumer69,797
 65,948
 3,849
6 % 
Commercial12,298
 10,440
 1,858
18 % 
Total loans$82,095
 $76,388
 $5,707
7 % 
Total assets$98,764
 $92,282
 $6,482
7 % 
Deposits       
Noninterest-bearing demand$38,390
 $31,338
 $7,052
23 % 
Interest-bearing demand46,501
 42,207
 4,294
10 % 
Money market23,210
 25,786
 (2,576)(10)% 
Savings67,000
 55,659
 11,341
20 % 
Certificates of deposit11,579
 12,619
 (1,040)(8)% 
Total deposits$186,680
 $167,609
 $19,071
11 % 
Performance Ratios       
Return on average assets.69% 1.36%    
Noninterest income to total revenue33% 33%    
Efficiency73% 74%    

(Unaudited)
Three months ended March 31    Change
Dollars in millions, except as noted20212020$%
Income Statement
Net interest income$1,362 $1,456 $(94)(6)%
Noninterest income654 788 (134)(17)%
Total revenue2,016 2,244 (228)(10)%
Provision for (recapture of) credit losses(257)445 (702)(158)%
Noninterest expense1,476 1,528 (52)(3)%
Pretax earnings797 271 526 194 %
Income taxes183 62 121 195 %
Noncontrolling interest7 8 (1)(13)%
Earnings$607 $201 $406 202 %
Average Balance Sheet
Loans held for sale$891 $779 $112 14 %
Loans
Consumer
Home equity$21,833 $22,736 $(903)(4)%
Residential real estate17,468 17,964 (496)(3)%
Automobile13,890 17,096 (3,206)(19)%
Credit card5,819 7,207 (1,388)(19)%
Education2,938 3,343 (405)(12)%
Other consumer1,898 2,533 (635)(25)%
Total consumer63,846 70,879 (7,033)(10)%
Commercial13,743 10,524 3,219 31 %
Total loans$77,589 $81,403 $(3,814)(5)%
Total assets$92,891 $97,062 $(4,171)(4)%
Deposits
Noninterest-bearing demand$44,845 $32,225 $12,620 39 %
Interest-bearing demand54,269 42,865 11,404 27 %
Money market24,198 22,866 1,332 6 %
Savings75,180 62,781 12,399 20 %
Certificates of deposit9,742 12,233 (2,491)(20)%
Total deposits$208,234 $172,970 $35,264 20 %
Performance Ratios
Return on average assets2.65 %0.84 %
Noninterest income to total revenue32 %35 %
Efficiency73 %68 %  
1614    The PNC Financial Services Group, Inc. – Form 10-Q




At or for three months ended March 31    Change
Dollars in millions, except as noted20212020$%
Supplemental Noninterest Income Information
Consumer services$368 $372 $(4)(1)%
Residential mortgage$105 $210 $(105)(50)%
Service charges on deposits$119 $166 $(47)(28)%
Residential Mortgage Information
Residential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b)$117 $118 $(1)(1)%
Serviced portfolio acquisitions$7 $2 $5 250 %
MSR asset value (b)$1.0 $0.6 $0.4 67 %
MSR capitalization value (in basis points) (b)83 51 32 63 %
Servicing income: (in millions)
Servicing fees, net (c)$5 $44 $(39)(89)%
Mortgage servicing rights valuation, net of economic hedge$14 $101 $(87)(86)%
Residential mortgage loan statistics
Loan origination volume (in billions)$4.3 $3.2 $1.1 34 %
Loan sale margin percentage3.28 %3.16 %
Percentage of originations represented by:
Purchase volume (d)34 %36 %
Refinance volume66 %64 %  
Other Information (b)
Customer-related statistics (average)
Non-teller deposit transactions (e)66 %59 %
Digital consumer customers (f)79 %71 %
Credit-related statistics
Nonperforming assets$1,229 $1,011 $218 22 %
Net charge-offs - loans and leases$108 $166 $(58)(35)%
Other statistics
ATMs8,874 9,048 (174)(2)%
Branches (g)2,137 2,277 (140)(6)%
Brokerage account client assets (in billions) (h)$61 $49 $12 24 %
(a)Represents mortgage loan servicing balances for third parties and the related income.
At or for the nine months ended September 30      Change 
Dollars in millions, except as noted2020
 2019
 $% 
Supplemental Noninterest Income Information       
Consumer services$1,058
 $1,148
 $(90)(8)% 
Residential mortgage$505
 $281
 $224
80 % 
Service charges on deposits$364
 $504
 $(140)(28)% 
Residential Mortgage Information       
Residential mortgage servicing statistics (in billions, except as noted) (a)       
Serviced portfolio balance (b)$119
 $123
 $(4)(3)% 
Serviced portfolio acquisitions$21
 $9
 $12
133 % 
MSR asset value (b)$0.6
 $0.9
 $(0.3)(33)% 
MSR capitalization value (in basis points) (b)50
 72
 (22)(31)% 
Servicing income: (in millions)       
Servicing fees, net (c)$105
 $139
 $(34)(24)% 
Mortgage servicing rights valuation, net of economic hedge$138
 $38
 $100
*
 
Residential mortgage loan statistics       
Loan origination volume (in billions)$11.4
 $8.0
 $3.4
43 % 
Loan sale margin percentage3.51% 2.41%    
Percentage of originations represented by:       
Purchase volume (d)38% 50%    
Refinance volume62% 50%    
Other Information (b)       
Customer-related statistics (average)       
Non-teller deposit transactions (e)63% 57%    
Digital consumer customers (f)73% 69%    
Credit-related statistics       
Nonperforming assets (g)$1,077
 $1,056
 $21
2 % 
Net charge-offs - loans and leases$433
 $380
 $53
14 % 
Other statistics       
ATMs9,058
 9,102
 (44)—
 
Branches (h)2,207
 2,310
 (103)(4)% 
Brokerage account client assets (in billions) (i)$55
 $52
 $3
6 % 
(b)Presented as of period end, except for average customer-related statistics and net charge-offs, which are both shown for the three months ended.
* - Not Meaningful(c)Servicing fees net of impact of decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan payments, prepayments, and loans that were paid down or paid off during the period.
(a)Represents mortgage loan servicing balances for third parties and the related income.
(b)Presented as of September 30, except for average customer-related statistics and net charge-offs which are both for the nine months ended.
(c)
Servicing fees net of impact of decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan payments, prepayments, and loans that were paid down or paid off during the period.
(d)Mortgages with borrowers as part of residential real estate purchase transactions.
(e)Percentage of total consumer and business banking deposit transactions processed at an ATM or through our mobile banking application.
(f)Represents consumer checking relationships that process the majority of their transactions through non-teller channels.
(g)Excludes stand-alone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.
(h)Includes cash and money market balances.

(d)
Mortgages with borrowers as part of residential real estate purchase transactions.
(e)
Percentage of total consumer and business banking deposit transactions processed at an ATM or through our mobile banking application.
(f)
Represents consumer checking relationships that process the majority of their transactions through non-teller channels.
(g)Primarily nonperforming loans of $1.1 billion for both September 30, 2020 and September 30, 2019.
(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 had earnings of $508 million infor the first nine monthsquarter of 20202021 increased $406 million, or 202%, compared with $936 million for the same period in 2019.first quarter of 2020. The decrease in earningsincrease was attributable to a higher provision for credit lossesrecapture and increasedlower noninterest expense, partially offset by higher net interest income and noninterest income.a decline in total revenue.

Net interest income increaseddecreased primarily due to growth in loan and deposit balances, partially offset by narrower interest rate spreads on the value of deposits and loans, and deposits.as well as declines in average loan balances, partially offset by growth in average deposit balances.
Noninterest income increaseddecreased largely due to growthdeclines in residential mortgage revenue, attributable to increased loan sales revenue and higherdriven by lower revenue from residential mortgage servicing rights valuation, net of economic hedge partially offsetand lower service charges on deposits driven primarily by lower servicing fees.overdraft instances as a result of higher average deposit account balances due to government stimulus. The increasedecrease in noninterest income was partially offset by a decrease in service charges on deposits and consumer services fees reflecting lower transaction volumes, fees waived to assist customers in the pandemic, lower consumer spending and the eliminationfavorable impact of certain checking product fees. The increase in noninterest income was also driven by lower negative derivative fair value adjustments related to Visa Class B common shares of $22 million forin the first ninequarter of 2021.

Provision recapture in the first three months of 2020 compared with the negative adjustments2021 was driven by improvements in macroeconomic factors and lower loans outstanding.

Noninterest expense decreased primarily as a result of $55 million for the same period in 2019.lower customer related transaction costs, personnel, and marketing expenses, partially offset by increased technology investments.

The PNC Financial Services Group, Inc. – Form 10-Q 1715  


Provision for credit losses increased in the first nine months of 2020 compared to the same period in 2019 reflecting changes in methodology due to the adoption of the CECL accounting standard, together with the significantly adverse economic impact of the pandemic.

Higher noninterest expense primarily resulted from higher personnel, branch related expenses due in part to the impact of the pandemic, and equipment, partially offset by lower advertising and marketing.

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 ninethree months of 2020,2021, average total deposits increased compared to the same period in 20192020 primarily driven by growth in demand and savings deposits which increased due, in part, to a shift from money market deposits to relationship-based savings products. Savings and demand deposits also benefited from the impact of government stimulus payments and lower consumer spending due to the pandemic. Savings and demand deposits also increased due, in part, to a shift from money market deposits to relationship-based savings products.

Retail Banking average total loans increaseddecreased in the first ninethree months of 20202021 compared with the same period in 2019.2020:
•Average residential mortgages increased primarilyauto loan balances declined due to impacts of the pandemic on the auto industry and proactive credit tightening.
•Average credit card balances decreased due to credit tightening actions taken as a result of growththe pandemic combined with changes in nonconforming residential mortgage loanscustomer behavior resulting in lower consumer spending and a robust refinance markethigher balance paydowns driven by historically low interest rates.government stimulus.
Average commercial loans increased primarily due to PPP loans.
Average auto loans increased primarily due to new indirect auto loan volumes, including in our Southeast and expansion markets.
Average credit card balances increased as we continued to focus on our long-term objective of deepening penetration within our existing customer base as well as new client acquisition.
Average unsecured installment loans increased primarily driven by growth in originations through digital channels.
•Average home equity loans increaseddecreased as new originated volume exceeded paydowns and payoffs on loans.exceeded new originated volume.
•Average other consumer loans declined driven by lower originations due to the pandemic and the effects of government stimulus and credit tightening.
•Average residential real estate loans decreased due to paydowns outpacing originations.
•Average education loans decreased driven by a decline in the runoff portfolio of government guaranteed education loans.

•Average commercial loans increased primarily due to PPP loans.
In 2018, we launched our
Our national expansion strategy is designed to grow customers with digitally-led banking and a thin branch network in markets outside of our existing retail branch network and began offering aour digital high yield savings deposit product and opened our first solution center in Kansas City. Solution centers are an emerging branch operating model with a distinctive layout, where routine transactions are supported through a combination of technology and skilled banker assistance to create personalized experiences. The primary focus of the solution center is to bring a community element to our digital banking capabilities. The solution center provides a collaborative environment that connects our customers with our digital solutions and banking services, beyond deposits and withdrawals. Following the first solution center opening in 2018, four additional solution centers opened in 2019 with a second in Kansas City and three in the Dallas/Fort Worth market. In the third quarter of 2020, we expanded into three new markets, Boston, Houston and Nashville and opened elevenseventeen new solution centers. In the first quarter of 2021 we opened three new solution centers, including one location inbringing the total open solution centers to 25 within our existing markets of Boston, three inDallas/Fort Worth, Houston, three in Nashville,Kansas City and four in Dallas/Fort Worth.Nashville. We also offer digital unsecured installment and small business loans in the expansion markets. Beginning in mid-2021, we expect the BBVA acquisition will accelerate our Retail National expansion efforts to become a coast-to-coast Retail Bank.

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. In April 2021, we announced our Low Cash ModeSM Virtual Wallet® feature which will give all Virtual Wallet® customers the ability to avoid unnecessary overdraft fees through real-time intelligent alerts, extra time to prevent or address overdrafts, and controls to choose whether to return certain debits rather than the bank making the decision. During our pre-launch pilot to nearly 20,000 Virtual Wallet® customers, overdraft fees were collectively reduced by more than 60 percent. As a result of these changes, we expect to help Virtual Wallet® customers avoid $125 to $150 million in overdraft fees annually. Our full year 2021 revenue outlook anticipated this fee reduction, and as a result is not impacted by this change. See the Executive Summary section in this Financial Review for additional information on our business outlook.

Retail Banking also continued to execute on its strategy of transforming the customer experience through transaction channel migration, branch network and home lending process transformations and multi-channel engagement and service strategies. We are also continually assessing our current branch network for optimization opportunities as usage of alternative channels has increased and as a result have closed 11029 branches throughin the first ninethree months of 2020.2021 consistent with our plan.
•Approximately 73%79% of consumer customers used non-teller channels for the majority of their transactions in the first ninethree months of 20202021 compared with 69% for71% in 2020, in part reflecting consumer transaction behavior changes during the same period in 2019.pandemic.
•Deposit transactions via ATM and mobile channels increased to 63%66% of total deposit transactions in the first ninethree months of 2021 from 59% in 2020, from 57% forin part reflecting consumer transaction behavior changes during the same period in 2019.pandemic.

Retail Banking continues to make progress oncompleted its multi-year initiative to redesign the home lending process, including integrating mortgage and home equity lending into a common platform. Technology enhancements have supported increased residential mortgage origination volume. In addition, we enhanced the home equity origination process to make it easier and to reach additional customers.customers by offering the product in new states. The enhanced product is currently available in twenty-four43 states and we are moving toward offering the product in most of the remaining states in 2020 and 2021. Additional improvements for both mortgage and home equity are planned to continue through the remainder of 2020 andthroughout 2021.


1816    The PNC Financial Services Group, Inc. – Form 10-Q




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 13:12: Corporate & Institutional Banking Table
(Unaudited)
Three months ended March 31    Change
Dollars in millions20212020$%
Income Statement
Net interest income$1,001 $966 $35 4 %
Noninterest income807 694 113 16 %
Total revenue1,808 1,660 148 9 %
Provision for (recapture of) credit losses(282)458 (740)(162)%
Noninterest expense711 722 (11)(2)%
Pretax earnings1,379 480 899 187 %
Income taxes318 110 208 189 %
Noncontrolling interest3 3 *
Earnings$1,058 $370 $688 186 %
Average Balance Sheet
Loans held for sale$691 $395 $296 75 %
Loans
Commercial
Commercial and industrial$114,944 $117,288 $(2,344)(2)%
Commercial real estate27,182 26,589 593 2 %
Equipment lease financing6,332 7,066 (734)(10)%
Total commercial148,458 150,943 (2,485)(2)%
Consumer9 9 — — 
Total loans$148,467 $150,952 $(2,485)(2)%
Total assets$170,531 $172,502 $(1,971)(1)%
Deposits
Noninterest-bearing demand$66,666 $40,651 $26,015 64 %
Interest-bearing demand28,118 21,101 7,017 33 %
Money market33,182 28,468 4,714 17 %
Other8,368 7,868 500 6 %
Total deposits$136,334 $98,088 $38,246 39 %
Performance Ratios
Return on average assets2.52 %0.87 %
Noninterest income to total revenue45 %42 %
Efficiency39 %43 %  
Other Information
Consolidated revenue from: (a)
Treasury Management (b)$494 $491 $3 1 %
Capital Markets (b)$403 $344 $59 17 %
Commercial mortgage banking activities:
Commercial mortgage loans held for sale (c)$30 $29 $1 3 %
Commercial mortgage loan servicing income (d)90 69 21 30 %
Commercial mortgage servicing rights valuation, net of economic hedge (e)17 20 (3)(15)%
Total$137 $118 $19 16 %
MSR asset value (f)$702 $477 $225 47 %
Average Loans by C&IB business
Corporate Banking$74,459 $78,057 $(3,598)(5)%
Real Estate38,395 37,368 1,027 3 %
Business Credit21,552 23,251 (1,699)(7)%
Commercial Banking10,807 7,784 3,023 39 %
Other3,254 4,492 (1,238)(28)%
Total average loans$148,467 $150,952 $(2,485)(2)%
Credit-related statistics
Nonperforming assets (f)$658 $508 $150 30 %
Net charge-offs - loans and leases$44 $50 $(6)(12)%
(Unaudited)       
Nine months ended September 30      Change 
Dollars in millions2020 2019 $% 
Income Statement       
Net interest income$3,055
 $2,745
 $310
11 % 
Noninterest income2,143
 1,891
 252
13 % 
Total revenue5,198
 4,636
 562
12 % 
Provision for credit losses2,254
 219
 2,035
929 % 
Noninterest expense2,061
 2,087
 (26)(1)% 
Pretax earnings883
 2,330
 (1,447)(62)% 
Income taxes201
 531
 (330)(62)% 
Earnings$682
 $1,799
 $(1,117)(62)% 
Average Balance Sheet       
Loans held for sale$669
 $467
 $202
43 % 
Loans       
Commercial       
Commercial and industrial$127,149
 $112,371
 $14,778
13 % 
Commercial real estate27,070
 26,257
 813
3 % 
Equipment lease financing6,957
 7,273
 (316)(4)% 
Total commercial161,176
 145,901
 15,275
10 % 
Consumer9
 16
 (7)(44)% 
Total loans$161,185
 $145,917
 $15,268
10 % 
Total assets$185,001
 $163,126
 $21,875
13 % 
Deposits       
Noninterest-bearing demand$50,104
 $39,016
 $11,088
28 % 
Interest-bearing demand26,182
 19,027
 7,155
38 % 
Money market34,373
 27,358
 7,015
26 % 
Other8,789
 6,258
 2,531
40 % 
Total deposits$119,448
 $91,659
 $27,789
30 % 
Performance Ratios       
Return on average assets.49% 1.47%    
Noninterest income to total revenue41% 41%    
Efficiency40% 45%    
Other Information       
Consolidated revenue from: (a)       
Treasury Management (b)$1,412
 $1,372
 $40
3 % 
Capital Markets (b)$1,077
 $849
 $228
27 % 
Commercial mortgage banking activities:       
Commercial mortgage loans held for sale (c)$117
 $73
 $44
60 % 
Commercial mortgage loan servicing income (d)212
 190
 22
12 % 
Commercial mortgage servicing rights valuation, net of economic hedge (e)58
 17
 41
241 % 
Total$387
 $280
 $107
38 % 
MSR asset value (f)$515
 $595
 $(80)(13)% 
Average Loans by C&IB business       
Corporate Banking$83,762
 $73,460
 $10,302
14 % 
Real Estate40,030
 37,231
 2,799
8 % 
Business Credit23,009
 22,480
 529
2 % 
Commercial Banking10,093
 8,048
 2,045
25 % 
Other4,291
 4,698
 (407)(9)% 
Total average loans$161,185
 $145,917
 $15,268
10 % 
Credit-related statistics       
Nonperforming assets (f) (g)$832
 $526
 $306
58 % 
Net charge-offs - loans and leases$181
 $58
 $123
212 % 
*- Not Meaningful
(a)See the additional revenue discussion regarding treasury management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section.
(b)Amounts are reported in net interest income and noninterest income.
(c)Represents other noninterest income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, originations fees, gains on sale of loans held for sale and net interest income on loans held for sale.
(d)Represents net interest income and noninterest income (primarily in corporate service fees) from loan servicing net of reduction in commercial mortgage servicing rights due to amortization expense and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.
(e)Amounts are reported in corporate service fees.
(f)As of September 30.
(g)Primarily nonperforming loans of $.8 billion and $.5 billion at September 30, 2020 and September 30, 2019, respectively.

The PNC Financial Services Group, Inc. – Form 10-Q 1917  

(a)See the additional revenue discussion regarding treasury management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section.
(b)Amounts are reported in net interest income and noninterest income.
(c)Represents other noninterest income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, originations fees, gains on sale of loans held for sale and net interest income on loans held for sale.
(d)Represents net interest income and noninterest income (primarily in corporate service fees) from loan servicing net of reduction in commercial mortgage servicing rights due to amortization expense and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.
(e)Amounts are reported in corporate service fees.
(f)As of March 31.

Corporate & Institutional Banking earned $.7 billion inearnings for the first nine monthsquarter of 2021 increased $688 million, or 186%, compared with the first quarter of 2020 compared to $1.8 billion for the same period in 2019, asdriven by a provision recapture and higher provision for credit losses was partially offset by highertotal revenue.

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

Growth in noninterest income in the comparison reflected broad-based increases including higherin capital markets-related revenue, treasury management product revenue and revenue from commercial mortgage banking activities and treasury management product revenue.activities.

Provision for credit losses increasedrecapture in the first ninethree months of 2020 compared to the same period2021 was driven by improvements in 2019, primarily reflecting changes in methodology due to the adoption of the CECL accounting standard, together with the significantly adverse economic impact of the pandemicmacroeconomic factors and its resulting effects on loan portfolio credit quality.lower loans outstanding.

Nonperforming assets at September 30, 2020 and net loan and lease charge offs for the first nine months of 2020March 31, 2021 increased over the comparative periodsperiod of 2019,2020 primarily relateddue to industries adversely impacted byhigher nonperforming commercial real estate loans, reflecting the pandemic andimpacts of the energy industry.pandemic.

Noninterest expense decreased in the comparison largely due toand included lower variable costs associated with business travel.

Average loans decreased business activity relatedcompared with the three months ended March 31, 2020 due to the pandemicdeclines in Corporate Banking and Business Credit, partially offset by investmentsincreases in strategic initiatives.Commercial Banking and Real Estate:

Average loans increased in the comparison across all businesses:
•Corporate Banking provides lending, equipment finance, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Average loans for this business grewdeclined reflecting increased year-to-datelower average utilization due to the impact of draws made at the onset of the pandemic andloan commitments, partially offset by new production, including PPP loan originations.
PNC Real Estate•Business Credit provides banking,asset-based lending and equipment financing solutions. The loan and servicing solutions for commercial real estate clients acrosslease portfolio is relatively high yielding, with acceptable risk as the country.loans are mainly secured by marketable collateral. Average loans for this business increaseddeclined primarily driven by higher commercial mortgage and multifamily agency warehouse lending,lower average utilization of loan commitments, partially offset by projectnew production, including PPP loan payoffs.originations.
•Commercial Banking provides lending, treasury management and capital markets-related products and services to smaller corporations and businesses. Average loans for this business increased primarily driven by PPP loan originations.originations, partially offset by lower average utilization of loan commitments and softer new production.
Business Credit•Real Estate provides asset-based lending. The loan portfolio is relatively high yielding, with acceptable risk asbanking, financing and servicing solutions for commercial real estate clients across the loans are mainly secured by short-term assets.country. Average loans for this business increased primarily due to new originations, partially offset by lower utilization.reflecting higher multifamily agency warehouse lending and higher project loans.

The deposit strategy of Corporate & Institutional Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances over time, executing on customer and segment-specific deposit growth strategies and continuing to provide funding and liquidity to PNC. Average total deposits increased in the comparison reflecting customers maintaining liquidity due to the economic impactimpacts of the pandemic. We continue to actively monitor the interest rate environment and make adjustments in response to evolving market conditions, bank funding needs and client relationship dynamics.

Corporate & Institutional Banking continues to expand its Corporate Banking business, focused on the middle market and larger sectors. We are continuing to executeexecuted on our expansion plans into the Seattle and Portland markets in 2020, and in 2021, we will continueexpect the BBVA acquisition to accelerate our middle market expansion in San Antonio, Austin and San Diego.efforts across the Southwest, but this has not changed our strategy regarding our de novo expansion efforts. This follows offices opened in Boston and Phoenix in 2019, Denver, Houston and Nashville in 2018, and Dallas, Kansas City and Minneapolis in 2017. These locations complement Corporate & Institutional Banking national businesses with a significant presence in these cities and build on past successes in the markets where PNC’s retail banking presence was limited, such as in the Southeast. Our full suite of commercial products and services is offered in these locations.

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


Other Information section in Table 1312 includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.
The Treasury Management business provides payables, receivables, deposit and account services, liquidity and investments, and online and mobile banking products and services to our clients. Treasury management revenue is reported in noninterest income and net interest income. Noninterest income includes treasury management product revenue less earnings credits provided to customers on compensating deposit balances used to pay for products and services. Net interest income primarily includes revenue from all treasury

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



management customer deposit balances. Compared with the first ninethree months of 2019,2020, treasury management revenue increased primarily due towas relatively unchanged as higher deposit balances and product revenue, partiallyhigher noninterest income was mostly offset by narrower interest rate spreads on the value of deposits.

Capital markets-related products and services include foreign exchange, derivatives, fixed income, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. The increase in capital markets-related revenue in the comparison was broad-based across most products and services and includedprimarily driven by higher underwritingfixed income trading, equity capital market advisory fees and underwriting fees, on customer-related derivatives activities, partially offset by lower merger and acquisition advisorycustomer-related derivative fees.

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (both net interest income and noninterest income) and revenue derived from commercial mortgage loans held for sale and related hedges. Total revenue from commercial mortgage banking activities increased in the comparison primarily due to higher revenue across all activities.commercial mortgage servicing income.


The PNC Financial Services Group, Inc. – Form 10-Q 2119  


Asset Management Group

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

Table 14:13: Asset Management Group Table
(Unaudited)       (Unaudited)
Nine months ended September 30      Change 
Three months ended March 31Three months ended March 31    Change
Dollars in millions, except as noted2020 2019 $% Dollars in millions, except as noted20212020$%
Income Statement       Income Statement
Net interest income$266
 $208
 $58
28 % Net interest income$93 $88 $5 6 %
Noninterest income629
 719
 (90)(13)% Noninterest income229 204 25 12 %
Total revenue895
 927
 (32)(3)% Total revenue322 292 30 10 %
Provision for (recapture of) credit losses23
 (2) 25
*
 Provision for (recapture of) credit losses(9)3 (12)*
Noninterest expense647
 707
 (60)(8)% Noninterest expense202 219 (17)(8)%
Pretax earnings225
 222
 3
1 % Pretax earnings129 70 59 84 %
Income taxes52
 51
 1
2 % Income taxes30 16 14 88 %
Earnings$173
 $171
 $2
1 % Earnings$99 $54 $45 83 %
Average Balance Sheet       Average Balance Sheet
Loans       Loans
Consumer       Consumer
Residential real estate$2,667
 $1,833
 $834
45 % Residential real estate$3,635 $2,385 $1,250 52 %
Other consumer4,031
 4,261
 (230)(5)% Other consumer4,008 4,052 (44)(1)%
Total consumer6,698
 6,094
 604
10 % Total consumer7,643 6,437 1,206 19 %
Commercial849
 747
 102
14 % Commercial756 856 (100)(12)%
Total loans$7,547
 $6,841
 $706
10 % Total loans$8,399 $7,293 $1,106 15 %
Total assets$8,041
 $7,247
 $794
11 % Total assets$8,873 $7,801 $1,072 14 %
Deposits       Deposits
Noninterest-bearing demand$1,528
 $1,344
 $184
14 % Noninterest-bearing demand$1,754 $1,468 $286 19 %
Interest-bearing demand7,566
 3,121
 4,445
142 % Interest-bearing demand9,104 6,850 2,254 33 %
Money market1,616
 1,852
 (236)(13)% Money market1,520 1,709 (189)(11)%
Savings7,279
 5,969
 1,310
22 % Savings7,747 7,197 550 8 %
Other707
 797
 (90)(11)% Other454 847 (393)(46)%
Total deposits$18,696
 $13,083
 $5,613
43 % Total deposits$20,579 $18,071 $2,508 14 %
Performance Ratios       Performance Ratios
Return on average assets2.88% 3.15%    Return on average assets4.52 %2.81 %
Noninterest income to total revenue70% 78%    Noninterest income to total revenue71 %70 %
Efficiency72% 76%    Efficiency63 %75 % 
Supplemental Noninterest Income Information       Supplemental Noninterest Income Information
Asset management fees$615
 $646
 $(31)(5)% Asset management fees$226 $201 $25 12 %
Other Information       Other Information
Nonperforming assets (a) (b)$39
 $42
 $(3)(7)% 
Net charge-offs - loans and leases—
 $1
 $(1)(100)% 
Client Assets Under Administration (in billions) (a) (c)
       
Nonperforming assets (a)Nonperforming assets (a)$68 $34 $34 100 %
Net charge-offs (recoveries) - loans and leasesNet charge-offs (recoveries) - loans and leases $(1)$(1)(100)%
Client Assets Under Administration (in billions) (a) (b)
Client Assets Under Administration (in billions) (a) (b)
Discretionary client assets under management$158
 $163
 $(5)(3)% Discretionary client assets under management$173 $136 $37 27 %
Nondiscretionary client assets under administration142
 135
 7
5 % Nondiscretionary client assets under administration161 128 33 26 %
Total$300
 $298
 $2
1 % Total$334 $264 $70 27 %
Discretionary client assets under management       Discretionary client assets under management
Personal$99
 $98
 $1
1 % Personal$110 $84 $26 31 %
Institutional59
 65
 (6)(9)% Institutional63 52 11 21 %
Total$158
 $163
 $(5)(3)% Total$173 $136 $37 27 %
* - Not meaningful
(a)As of September 30.
(b)Primarily nonperforming loans of $39 million at September 30, 2020 and $42 million at September 30, 2019.
(c)Excludes brokerage account client assets. 
(a)As of March 31.
(b)Excludes brokerage account client assets. 

Asset Management Group earned $173 million inearnings for the first nine monthsquarter of 20202021 increased $45 million, or 83%, compared with earningsthe first quarter of $171 million for the same period in 2019.2020. The increase was attributable to a provision recapture, higher revenue and lower noninterest expense.

Net interest income increased due to higher average loan and deposit balances partially offset by narrower interest rate spreads on the value of deposits.

2220    The PNC Financial Services Group, Inc. – Form 10-Q




NoninterestNet interest income decreasedincreased due to lower asset management fees resulting from the impact of 2019 divestiture activitiesgrowth in average loan and the gain recognizeddeposit balances and wider interest rate spreads on loans, partially offset by narrower interest rate spreads on the retirement recordkeeping business divestiturevalue of deposits.

The increase in the prior period, whichnoninterest income was partially offset byprimarily attributable to increases in the average equity markets.

Noninterest expense decreaseddeclined due to intangible asset amortization run-off and lower costs associated with business travel.

Provision recapture in the comparison andfirst three months of 2021 was primarily attributable to the impact of the 2019 divestitures and lower variable costs.driven by improvements in macroeconomic factors.

Provision for credit losses increased reflecting changes in methodology due to the adoption of the CECL accounting standard, together with the significantly adverse economic impact of the pandemic.

Asset Management Group’s discretionary client assets under management decreasedincreased in comparison to the prior year primarily attributable to the salehigher equity markets as of components of the PNC Capital Advisors investment management business.March 31, 2021.

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

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

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

We expect that the BBVA acquisition will allow meaningful opportunities to grow the Asset Management Group segment by entering into new markets for both the Personal Wealth Management and Institutional Asset Management businesses.

RISK MANAGEMENT

The Risk Management section included in Item 7 of our 20192020 Form 10-K describes our enterprise risk management framework including risk culture, enterprise strategy, risk governance and oversight framework, risk identification, risk assessment, risk controls and monitoring, and risk aggregation and reporting. Additionally, our 20192020 Form 10-K provides an analysis of the firm's Capital Management and our key areas of risk, which include but are not limited to credit, liquidityCredit, Market, Liquidity and capital, market, operational, complianceOperational (including Compliance and information security.

Information Security).

Credit Risk Management
Credit risk represents the possibility that a customer, counterparty or issuer may not perform in accordance with contractual terms. Credit risk is inherent in the financial services business and results from extending credit to customers, purchasing securities, and entering into financial derivative transactions and certain guarantee contracts. Credit risk is one of our most significant risks. Our processes for managing credit risk are designed to be embedded in our risk culture and in our decision-making processes using a systematic approach whereby credit risks and related exposures are identified and assessed, managed through specific policies and processes, measured and evaluated against our risk appetite and credit concentration limits, and reported, along with specific mitigation activities, to management and the Board of Directors through our governance structure. Our most significant concentration of credit risk is in our loan portfolio.


The PNC Financial Services Group, Inc. – Form 10-Q 2321  


Loan Portfolio Characteristics and Analysis
Table 15:14: Details of Loans
In billions
chart-7760945518a05904964.jpgpnc-20210331_g1.jpg
We use several credit quality indicators, as further detailed in Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements in Item 1 of this Report, to monitor and measure our exposure to credit risk within our loan portfolio. The following provides additional information about ourthe significant loan classes.classes that comprise our Commercial and Consumer portfolio segments.

Commercial

Commercial and Industrial
Commercial and industrial loans comprised 55% and 52% of our total loan portfolio at September 30, 2020both March 31, 2021 and December 31, 2019, respectively.2020. The majority of our commercial and industrial 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 and industrial loans to assess any changes (both positive and negative) in the level of credit risk at both the borrower and portfolio level. To evaluate the level of credit risk, we assign internal risk ratings reflecting our estimates of the borrower’s probability of default (PD)PD and loss given default (LGD)LGD for each related credit facility. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process and is updated on an ongoing basis through our credit risk management processes. In addition to monitoring the level of credit risk, we also monitor concentrations of credit risk pertaining to both specific industries and geography that may exist in our portfolio. Our commercial and industrial portfolio is well-diversified as shown in the following table which provides a breakout by industry classification (classified based on the North American Industry Classification System (NAICS))NAICS).

Table 16:15: Commercial and Industrial Loans by Industry
September 30, 2020  December 31, 2019 March 31, 2021December 31, 2020
Dollars in millionsAmount % of Total  Amount % of Total Dollars in millionsAmount% of TotalAmount% of Total
Commercial and industrial         Commercial and industrial
Retail/wholesale tradeRetail/wholesale trade$20,349 16 %$20,218 15 %
Manufacturing$22,551
 16%  $21,540
 17% Manufacturing20,032 15 20,712 16 
Retail/wholesale trade20,287
 15
  21,565
 17
 
Service providers20,260
 15
  16,112
 13
 Service providers19,403 15 19,419 15 
Financial servicesFinancial services13,382 10 14,909 11 
Real estate related (a)14,040
 10
  12,346
 10
 Real estate related (a)13,052 10 13,369 10 
Financial services15,005
 11
  11,318
 9
 
Health care9,368
 7
  8,035
 6
 Health care8,741 7 8,987 7 
Transportation and warehousing7,295
 5
  7,474
 6
 Transportation and warehousing6,751 5 7,095 5 
Other industries28,381
 21
  26,947
 22
 Other industries28,088 22 27,364 21 
Total commercial and industrial loans$137,187
 100%  $125,337
 100% Total commercial and industrial loans$129,798 100 %$132,073 100 %
(a) Represents loans to customers in the real estate and construction industries.


2422    The PNC Financial Services Group, Inc. – Form 10-Q



CommercialThe decrease in commercial and industrial loans compared to December 31, 2020 reflects lower utilization of loan growth at September 30, 2020 primarily reflects the impactcommitments and softer loan demand. Amounts include $14.0 billion of PPP loans outstanding at March 31, 2021, $10.1 billion from the first round of PPP and $3.9 billion from the second round. PPP loans outstanding at December 31, 2020 totaled $12.0 billion. For additional information on PPP lending, undersee the CARES Act. COVID-19 Relief section within Item I of our 2020 Form 10-K.

See the Commercial High Impact Industries discussion within this Credit Risk Management section for additional discussion of the impact of COVID-19 on our commercial portfolio and how we are evaluating and monitoring the portfolio for elevated levels of credit risk.

Commercial Real Estate
Commercial real estate loans comprised $17.5$17.0 billion related to commercial mortgages, $6.8$6.5 billion of real estate project loans and $4.7$4.8 billion of intermediate term financing loans as of September 30, 2020.March 31, 2021. Comparable amounts were $17.0 billion, $5.6 billion and $5.5 billion, respectively, as of December 31, 2019.2020 were $17.3 billion, $6.3 billion and $5.1 billion, respectively.
We monitor credit risk associated with our commercial real estate loans similar to commercial and industrial 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 geography and property type.type:
Table 17:16: Commercial Real Estate Loans by Geography and Property Type
March 31, 2021December 31, 2020
Dollars in millionsAmount% of TotalAmount% of Total
Geography (a)
California$4,367 15 %$4,458 16 %
Florida2,954 10 2,991 10 
Texas1,977 7 2,031 7 
Maryland1,741 6 1,770 6 
Virginia1,571 6 1,586 6 
Pennsylvania1,410 5 1,425 5 
Ohio1,190 4 1,247 4 
New Jersey1,051 4 1,117 4 
Illinois895 3 900 3 
North Carolina805 3 851 3 
Other10,358 37 10,340 36 
Total commercial real estate loans$28,319 100 %$28,716 100 %
Property Type
Multifamily$9,683 34 %$9,617 33 %
Office7,546 27 7,691 27 
Retail3,308 12 3,490 12 
Industrial/warehouse1,952 7 1,999 7 
Hotel/motel1,900 7 1,954 7 
Seniors housing1,434 5 1,417 5 
Mixed use805 3 835 3 
Other1,691 5 1,713 6 
Total commercial real estate loans$28,319 100 %$28,716 100 %
(a)    Presented in descending order based on loan balances at March 31, 2021.
 September 30, 2020  December 31, 2019 
Dollars in millionsAmount % of Total  Amount % of Total 
Geography (a)         
California$4,444
 15%  $4,393
 16% 
Florida2,996
 10
  2,557
 9
 
Texas1,956
 7
  1,717
 6
 
Maryland1,819
 6
  1,889
 7
 
Virginia1,604
 6
  1,547
 6
 
Pennsylvania1,362
 5
  1,310
 4
 
Ohio1,288
 4
  1,307
 4
 
New Jersey1,264
 4
  1,106
 4
 
Illinois968
 3
  1,001
 4
 
North Carolina957
 3
  1,015
 4
 
Other10,370
 37
  10,268
 36
 
Total commercial real estate loans$29,028
 100%  $28,110
 100% 
Property Type         
Multifamily$9,732
 34%  $9,003
 32% 
Office7,673
 26
  7,641
 27
 
Retail3,568
 12
  3,702
 13
 
Industrial/Warehouse2,071
 7
  2,003
 7
 
Hotel/Motel1,933
 7
  1,813
 7
 
Seniors Housing1,373
 5
  1,123
 4
 
Mixed Use905
 3
  943
 3
 
Other1,773
 6
  1,882
 7
 
Total commercial real estate loans$29,028
 100%  $28,110
 100% 

(a)Presented in descending order based on loan balances at September 30, 2020.

Commercial High Impact Industries
In light of the current economic circumstances related to COVID-19, we are evaluatingcontinuing to evaluate and monitoringmonitor our entire commercial portfolio for elevated levels of credit risk; however, we believe the industry sectors that have been and we believe will continue to be most likely to be impacted by the effects of the pandemic are:
•Non-real estate related
•Leisure recreation: restaurants, casinos, hotels, convention centers
•Non-essential retail: retail excluding auto, gas, staples
•Healthcare facilities: elective, private practices
•Consumer services: religious organizations, childcare
•Leisure travel: cruise, airlines, other travel/transportation
Other impacted areas: shipping, senior living, specialty education





The PNC Financial Services Group, Inc. – Form 10-Q 2523  


•Other impacted areas: shipping, senior living, specialty education

•Real estate related
•Non-essential retail and restaurants: malls, lifestyle centers, outlets, restaurants
•Hotel: full service, limited service, extended stay
•Seniors housing: assisted living, independent living

As of September 30, 2020,March 31, 2021, our outstanding loan balances in these industries totaled $18.3$17.1 billion, or approximately 7% of our total loan portfolio, while additional unfunded loan commitments totaled $10.4$11.0 billion. We continue to carefully monitor and manage these loans, and while we have not yet experienced material charge-offs in these industries, we do expect to see charge-offs increase over time if the current economic trends continue.continued stress.
In our non-real estate related category we have $10.5$9.9 billion in loans outstanding, $1.9$2.6 billion of which are funded through the PPP and guaranteed by the Small Business Administration (SBA) under the CARES Act.SBA. Nonperforming loans in these industries totaled $.1$0.1 billion, or 1% of total loans outstanding in the non-real estate related category, while criticized assets totaled $1.4$1.3 billion at September 30, 2020March 31, 2021 with the greatest stress seen in the leisure recreation and leisure travel sectors.

Within the commercial real estate related category we have $7.8$7.2 billion in loans outstanding, which includes real estate projects of $4.9$4.8 billion and unsecured real estate of $2.9$2.4 billion. Nonperforming loans in this categorythese industries totaled $.2$0.1 billion at September 30, 2020,March 31, 2021, or 3%1% of total loans outstanding in the commercial real estate related category, driven primarily by twoone real estate investment trust related loans.trust. In this category, we continue to see substantial stress in the non-essential retail and hotel segments.

Oil and Gas Loan Portfolio
We are also monitoring our oil and gas portfolio closely for elevated levels of credit risk given the continued pressures on the energy industry. As of September 30, 2020,March 31, 2021, our outstanding loans in the oil and gas sector totaled $3.6$3.0 billion, or 1.4%1.0% of total loans, which included $.1 billion funded through the PPP and guaranteed by the SBA under the CARES Act. Thisloans.This portfolio comprised approximately $1.6$1.3 billion in the midstream and downstream sectors, $1.0$0.9 billion of oil services companies and $1.0$0.8 billion related to exploration and production companies. Of the oil services category, approximately $.2$0.2 billion is not asset-based or investment grade. Nonperforming loans in the oil and gas sector as of September 30, 2020March 31, 2021 totaled $.2$0.1 billion, or 5.6%3% of total loans outstanding in this sector. Additional unfunded loan commitments for the oil and gas portfolio totaled $7.1$7.2 billion at September 30, 2020.March 31, 2021.

Consumer

Home Equity
Home equity loans comprised $12.9$12.6 billion of primarily variable-rate home equity lines of credit and $11.6$10.9 billion of closed-end home equity installment loans at September 30, 2020.March 31, 2021. Comparable amounts were $13.9$12.6 billion and $11.2$11.5 billion, respectively, as of December 31, 2019.2020, respectively.

We track borrower performance monthly, including obtaining original LTVs and 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 thatwhether we do or do not hold. This information is used for internal reporting and risk management. For internal reporting and risk management wehold the lien. 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). This information is used for internal reporting and risk management. As part of our overall risk analysis and monitoring, we also segment the portfolio based upon the loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV, lien position and geographic concentration.

The credit quality of newlyNewly originated loans over the last twelve months was strong overall withhad a weighted-average LTV on originations of 67%66% and a weighted-average FICO score of 773.779.

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 determined at the time of origination and monitored on an ongoing basis for risk management purposes. We use an industry-leading third-party service provider to obtain updated loan information, including lien and collateral data that is aggregated from public and private sources.


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




The following table presents our home equity loans by geography and lien type.type:

Table 18:17: Home Equity Loans by Geography and by Lien Type
March 31, 2021December 31, 2020
Dollars in millionsAmount% of TotalAmount% of Total
Geography (a)
Pennsylvania$5,416 23 %$5,602 23 %
New Jersey3,340 14 3,462 14 
Ohio2,647 11 2,753 11 
Florida1,520 6 1,536 6 
Michigan1,350 6 1,398 6 
Illinois1,346 6 1,411 6 
Maryland1,297 6 1,332 6 
North Carolina1,011 4 1,043 4 
Kentucky875 4 922 4 
Indiana779 3 813 3 
Other3,912 17 3,816 17 
Total home equity loans$23,493 100 %$24,088 100 %
Lien type
1st lien64 %63 %
2nd lien36 37 
Total100 %100 %
 September 30, 2020  December 31, 2019 
Dollars in millionsAmount % of Total  Amount % of Total 
Geography (a)         
Pennsylvania$5,701
 23%  $5,812
 23% 
New Jersey3,555
 14
  3,728
 15
 
Ohio2,801
 11
  2,899
 12
 
Florida1,538
 6
  1,340
 5
 
Illinois1,463
 6
  1,544
 6
 
Michigan1,401
 6
  1,371
 5
 
Maryland1,368
 6
  1,420
 6
 
North Carolina1,050
 4
  1,092
 4
 
Kentucky942
 4
  990
 4
 
Indiana821
 3
  820
 3
 
Other3,899
 17
  4,069
 17
 
Total home equity loans$24,539
 100%  $25,085
 100% 
Lien type         
1st lien  62%    59% 
2nd lien  38
    41
 
Total
 100%    100% 
(a)    Presented in descending order based on loan balances at March 31, 2021.
(a)Presented in descending order based on loan balances at September 30, 2020.

Residential Real Estate
Residential real estate loans primarily consisted of residential mortgage loans at both September 30, 2020March 31, 2021 and December 31, 2019.2020.

We track borrower performance of this portfolio monthly similarly to home equity loans. This information is used for internal reporting and risk management. For internal reporting and risk management weWe also segment the mortgage portfolio into pools based on product type (e.g., nonconforming, conforming). This information is used for internal reporting and risk management. 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 newlyNewly originated loans that we retained on our balance sheet over the last twelve months was strong overall as evidenced byhad a weighted-average LTV on originations of 68%67% and a weighted-average FICO score of 773.777.

The following table presents our residential real estate loans by geography.

geography:

Table 19:18: Residential Real Estate Loans by Geography
March 31, 2021December 31, 2020
Dollars in millionsAmount% of TotalAmount% of Total
Geography (a)
California$7,846 35 %$7,828 35 %
Florida1,604 7 1,620 7 
New Jersey1,565 7 1,635 7 
Washington1,160 5 1,104 5 
New York1,042 5 1,020 5 
Illinois1,014 5 1,039 5 
Pennsylvania1,005 4 1,036 5 
Maryland839 4 857 4 
Virginia839 4 864 4 
North Carolina786 4 796 4 
Other4,718 20 4,761 19 
Total residential real estate loans$22,418 100 %$22,560 100 %
(a)    Presented in descending order based on loan balances at March 31, 2021.

 September 30, 2020  December 31, 2019 
Dollars in millionsAmount % of Total  Amount % of Total 
Geography (a)         
California$7,898
 35%  $6,800
 31% 
New Jersey1,724
 8
  1,779
 8
 
Florida1,590
 7
  1,580
 7
 
Pennsylvania1,065
 5
  1,113
 5
 
Illinois1,058
 5
  1,118
 5
 
Washington1,057
 5
  646
 3
 
New York993
 4
  1,008
 5
 
Virginia896
 4
  868
 4
 
Maryland883
 4
  923
 4
 
North Carolina833
 4
  877
 4
 
Other4,889
 19
  5,109
 24
 
Total residential real estate loans$22,886
 100%  $21,821
 100% 
(a)Presented in descending order based on loan balances at September 30, 2020.


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


We originate residential mortgage loans nationwide through our national mortgage business as well as within our branch network. Residential mortgage loans underwritten to agency standards, including conforming loan amount limits, are typically sold with servicing retained by us. We also originate nonconforming residential mortgage loans that do not meet agency standards, which we retain on our balance sheet. The originated nonconforming residential mortgage portfolio had strong credit quality at September 30, 2020 withMarch 31, 2021 had an average original LTV of 69%68% and an average original FICO score of 774.776. Our portfolio of originated nonconforming residential mortgage loans totaled $17.9 billion at September 30, 2020March 31, 2021 with 41% located in California.

Automobile
Within autoAuto loans $13.4comprised $12.2 billion resided in the indirect auto portfolio while $1.6and $1.4 billion were in the direct auto portfolio as of September 30, 2020.March 31, 2021. Comparable amounts as of December 31, 20192020 were $15.1$12.7 billion and $1.7$1.5 billion, respectively. The indirect auto portfolio pertains to loans originated through franchised dealers, including from expansion into new markets. This business is strategically aligned with our core retail banking business.

The following table presents certain key statistics related to our indirect and direct auto portfolios:

Table 19: Auto Loan Key Statistics
March 31, 2021December 31, 2020
Weighted-average loan origination FICO score (a)
Indirect auto793784
Direct auto769768
Weighted-average term of loan originations - in months (a)
Indirect auto7172
Direct auto6262
(a)Weighted-averages calculated for the twelve months ended March 31, 2021 and December 31, 2020, respectively.

We continue to focus on borrowers with strong credit profiles as evidenced by athe weighted-average loan origination FICO score over the last twelve months of 777 for indirect auto loans and 769 for direct auto loans. The weighted-average term of loan originations over the last twelve months was 72 months for indirect auto loans and 62 months for direct auto loans.scores noted in Table 19. We offer both new and used auto financing to customers through our various channels. At September 30, 2020, theThe portfolio balance was composed of 56% new vehicle loans and 44% used vehicle loans. Comparable amountsloans at both March 31, 2021 and December 31, 2019 were 55% and 45%, respectively.2020.

The auto loan portfolio'sportfolio’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)TDRs and PCD loans, OREO and foreclosed assets. Loans held for sale, certain government insured or guaranteed loans and loans accounted for under the fair value option are excluded from nonperforming loans. Amounts as of December 31, 2019 also excluded purchased impaired loans as we were accreting interest income over the expected life of the loans. In connection with the adoption of the CECL standard, nonperforming loans as of September 30, 2020 include purchased credit deteriorated (PCD) loans which meet the criteria to be classified as nonperforming.See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in this ReportItem 8 of our 2020 Form 10-K for details on our nonaccrual policies and additional information related to the adoption of the CECL standard, including the discontinuation of purchased impaired loan accounting.policies.

















2826    The PNC Financial Services Group, Inc. – Form 10-Q




The following table presents a summary of nonperforming assets by major category.category:

Table 20: Nonperforming Assets by Type
 March 31, 2021December 31, 2020Change
Dollars in millions$%
Nonperforming loans    
Commercial$749 $923 $(174)(19)%
Consumer (a)1,389 1,363 26 2 %
Total nonperforming loans2,138 2,286 (148)(6)%
OREO and foreclosed assets41 51 (10)(20)%
Total nonperforming assets$2,179 $2,337 $(158)(7)%
TDRs included in nonperforming loans$870 $902 $(32)(4)%
Percentage of total nonperforming loans41 %39 %  
Nonperforming loans to total loans0.90 %0.94 %
Nonperforming assets to total loans, OREO and foreclosed assets0.92 %0.97 %
Nonperforming assets to total assets0.46 %0.50 %
Allowance for loan and lease losses to nonperforming loans220 %235 %  
 September 30, 2020
December 31, 2019
 Change
Dollars in millions$ %
Nonperforming loans      
Commercial$915
$501
 $414
 83 %
Consumer (a)1,170
1,134
 36
 3 %
Total nonperforming loans2,085
1,635
 450
 28 %
OREO and foreclosed assets67
117
 (50) (43)%
Total nonperforming assets$2,152
$1,752
 $400
 23 %
TDRs included in nonperforming loans$836
$843
 $(7) (1)%
Percentage of total nonperforming loans40%52%    
Nonperforming loans to total loans.84%.68%    
Nonperforming assets to total loans, OREO and foreclosed assets.86%.73%    
Nonperforming assets to total assets.47%.43%    
Allowance for loan and lease losses to nonperforming loans (b)276%168%    
(a)Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.
(a)Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.
(b)Ratio at September 30, 2020 reflects the changes in ALLL methodology due to the adoption of the CECL accounting standard on January 1, 2020, along with increases in reserves during 2020 due to the significantly adverse economic impact of the pandemic and its resulting effects on loan portfolio credit quality and loan growth.

The increasedecrease in nonperforming assets at September 30, 2020March 31, 2021 was primarily attributable to higherlower nonperforming commercial loans, in industries adversely impacted by the pandemic and the energy industry, partially offset by higher consumer nonperforming loans in the decline in OREOresidential real estate and foreclosed assets due to asset sales and the suspension of pandemic-related foreclosures.home equity loan classes. See the discussion of Commercial High Impact Industries and the Oil and Gas Loan Portfolio within this Credit Risk Management section for further detail on these industries.

The following table provides details on the change in nonperforming assets for the ninethree months ended September 30, 2020March 31, 2021 and 2019.

2020:

Table 21: Change in Nonperforming Assets
In millions20212020
January 1$2,337 $1,752 
New nonperforming assets249 391 
Charge-offs and valuation adjustments(70)(145)
Principal activity, including paydowns and payoffs(186)(158)
Asset sales and transfers to loans held for sale(86)(20)
Returned to performing status(65)(65)
March 31$2,179 $1,755 
In millions 2020
 2019
 
January 1 $1,752
 $1,808
 
New nonperforming assets 1,361
 985
 
Charge-offs and valuation adjustments (324) (446) 
Principal activity, including paydowns and payoffs (418) (315) 
Asset sales and transfers to loans held for sale (68) (74) 
Returned to performing status (151) (111) 
September 30 $2,152
 $1,847
 

As of September 30, 2020March 31, 2021 approximately 83%97% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses. As of September 30, 2020,March 31, 2021, commercial nonperforming loans were carried at approximately 78%75% of their unpaid principal balance, due to charge-offs and interest applied to principal, before consideration of the ALLL.

Within consumer nonperforming loans, residential real estate TDRs comprised 69% and 79%46% of total residential real estate nonperforming loans at September 30, 2020 and December 31, 2019, respectively, while home equity TDRs comprised 44% and 49%40% of home equity nonperforming loans at September 30, 2020 andMarch 31, 2021. Comparable amounts at December 31, 2019,2020 were 47% and 41%, respectively. 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. Loans that have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act are not identified as TDRs. Refer to the Troubled Debt Restructurings and Loan Modifications discussion in this Credit Risk Management section for more information on the treatment of loan modifications under the CARES Act.


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


At September 30, 2020,March 31, 2021, our largest nonperforming asset was $142$141 million in the Real Estate and Rental and Leasing industry and the ten largest individual nonperforming assets represented 21%17% of total nonperforming assets.


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

Loan Delinquencies
We regularly monitor the level of loan delinquencies and believe these levels may be a key indicator of credit quality in our loan portfolio. 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 include government insured or guaranteed loans, loans accounted for under the fair value option and at September 30, 2020 also include PCD loans. Amounts exclude loans held for sale, while amounts as of December 31, 2019 also excluded purchased impaired loans.sale.

Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the September 30,March 31, 2021 and December 31, 2020 delinquency status of loans modified due to COVID-19 related hardships aligns with the rules set forth for banks to report delinquency status to the credit agencies. These rules require that COVID-19 related loan modifications be reported as follows:
•if current at the time of modification, the loan remains current throughout the modification period,
•if delinquent at the time of modification and the borrower was not made current as part of the modification, the loan maintains its reported delinquent status during the modification period, or
•if delinquent at the time of modification and the borrower was made current as part of the modification or became current during the modification period, the loan is reported as current.

As a result, certain loans modified due to COVID-19 related hardships are not being reported as past due as of September 30,March 31, 2021 and December 31, 2020 based on the contractual terms of the loan, even where borrowers may not be making payments on their loans during the modification period. Loan modifications due to COVID-19 related hardships that permanently reduce either the contractual interest rate or the principal balance of a loan do not qualify for TDR relief under the CARES Act or the interagency guidance. See Recent Regulatory Developmentsthe COVID-19 Relief section in Item 21 of our first quarter 2020 Form 10-Q10-K for more information on the CARES Act and the related interagency guidance.
Table 22: Accruing Loans Past Due (a)
 Amount
  
% of Total Loans Outstanding
 March 31
2021		December 31
2020		ChangeMarch 31
2021		December 31
2020
Dollars in millions$%
Early stage loan delinquencies      
Accruing loans past due 30 to 59 days$485 $620 $(135)(22)%0.20 %0.26 %
Accruing loans past due 60 to 89 days182 234 (52)(22)%0.08 %0.10 %
Total early stage loan delinquencies667 854 (187)(22)%0.28 %0.35 %
Late stage loan delinquencies
Accruing loans past due 90 days or more479 509 (30)(6)%0.20 %0.21 %
Total accruing loans past due$1,146 $1,363 $(217)(16)%0.48 %0.56 %
  Amount 
  
 % of Total Loans Outstanding 
  September 30
2020
 December 31
2019
 Change September 30
2020
 December 31
2019
 
Dollars in millions $ %  
Early stage loan delinquencies             
Accruing loans past due 30 to 59 days $539
 $661
 $(122) (18)% .22% .28% 
Accruing loans past due 60 to 89 days 251
 258
 (7) (3)% .10% .11% 
Total early stage loan delinquencies 790
 919
 (129) (14)% .32% .38% 
Late stage loan delinquencies             
Accruing loans past due 90 days or more 448
 585
 (137) (23)% .18% .24% 
Total accruing loans past due $1,238
 $1,504
 $(266) (18)% .50% .63% 
(a)Past due loan amounts include government insured or guaranteed loans of $0.6 billion at both March 31, 2021 and December 31, 2020.
(a)Past due loan amounts include government insured or guaranteed loans of $.5 billion at September 30, 2020 and $.6 billion at December 31, 2019.
Accruing loans past due 90 days or more continue to accrue interest because they are (i) well secured by collateral and are in the process of collection, (ii) managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or (iii) certain government insured or guaranteed loans. As such, they are excluded from nonperforming loans.

Troubled Debt Restructurings and Loan Modifications
Troubled Debt Restructurings
A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs result from our loss mitigation activities and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of 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). Loans to borrowers experiencing COVID-19 related hardships that have been restructured but that meet certain criteria under the CARES Act are not categorized as TDRs.

 For additional information on the CARES Act, including TDR treatment under the CARES Act and interagency guidance, see the COVID-19 Relief section within Item 1 of our 2020 Form 10-K.
3028    The PNC Financial Services Group, Inc. – Form 10-Q



The following table provides a summary of Troubled Debt Restructurings at March 31, 2021 and December 31, 2020, respectively:
Table 23: Summary of Troubled Debt Restructurings (a)
 March 31
2021		December 31
2020		Change
Dollars in millions$%
Commercial$500 $528 $(28)(5)%
Consumer1,072 1,116 (44)(4)%
Total TDRs$1,572 $1,644 $(72)(4)%
Nonperforming$870 $902 $(32)(4)%
Accruing (b)702 742 (40)(5)%
Total TDRs$1,572 $1,644 $(72)(4)%
  September 30
2020
 December 31
2019
 Change 
Dollars in millions $ % 
Commercial $418
 $361
 $57
 16 % 
Consumer 1,148
 1,303
 (155) (12)% 
Total TDRs $1,566
 $1,664
 $(98) (6)% 
Nonperforming $836
 $843
 $(7) (1)% 
Accruing (b) 730
 821
 (91) (11)% 
Total TDRs $1,566
 $1,664
 $(98) (6)% 
(a)Amounts in table do not include associated valuation allowances.
(a)Amounts in table do not include associated valuation allowances.
(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.
(b)Accruing loans include consumer credit card loans and certain loans that have demonstrated a period of at least six months of performance under the restructured terms and are excluded from nonperforming loans.

Nonperforming TDRs represented approximately 40% and 52%41% of total nonperforming loans at September 30, 2020 and December 31, 2019, respectively, and 53% and 51%55% of total TDRs at September 30, 2020 andMarch 31, 2021. Comparable amounts at December 31, 2019,2020 were 39% and 55%, respectively. The remaining portion of TDRs represents TDRs that have been returned to accrual status after performing under the restructured terms for at least six consecutive months.

See Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses in the Notes to Consolidated Financial Statements included in Item 1 of this Report for additional information on TDRs. For additional information on the CARES Act, see the Recent Regulatory Developments section in Item 2 of our first quarter 2020 Form 10-Q.

Loan Modifications
During the thirdfirst quarter of 2020,2021, PNC continued to provide relief to our customers from the economic impacts of COVID-19 through a variety of solutions, including additional grants and extensions of loan and lease modifications under our hardship relief programs. We continued to see a reduction in the number of customers in active assistance from the peak in the summer of 2020, which led to additional declines in loans under modification that present credit risk to PNC at March 31, 2021.

Under the CARES Act, loan modifications meeting certain criteria qualify the loan for relief from TDR treatment. These criteria include:
the loan modification resulted from a COVID-19 related hardship,
the borrower was no more than 30 days past due as of December 31, 2019, and
the loan modification did not result in a permanent reduction of interest or principal.

Loans that do not meet the criteria for TDR relief under the CARES Act may be evaluated under interagency guidance, which allows banks to not designate certain short-term modifications as TDRs for borrowers with COVID-19 hardships who were current on their payments prior to the modification. Loans that are permanently modified or receive longer term modifications under programs involving a change to loan terms due to customer financial difficulty and PNC concessions are evaluated for TDR accounting. For additional information on the CARES Act and interagency guidance, see the Recent Regulatory Developments section in Item 2 of our first quarter 2020 Form 10-Q.
The impact of these modifications was considered within the quarterly reserve determination. See the Allowance for Credit Losses discussion within the Critical Accounting Estimates and Judgments section of this Financial Review for additional information. Refer to the Loan Delinquencies discussion in this Credit Risk Management section for information on how these hardship related loan modifications are reported from a delinquency perspective as of September 30, 2020.

Commercial Loan and Lease Modifications Under COVID-19 Hardship Relief ProgramsMarch 31, 2021.
PNC is granting temporary
Under the CARES Act, loan and lease modifications to our commercial clientsmeeting certain criteria qualify the loan for relief from TDR treatment. Loans that do not meet the criteria for TDR relief under the CARES Act may also be evaluated under interagency guidance. For additional information on this criteria, see the Loan Modifications discussion in the formCredit Risk Management section within Item 7 of principal and/or interest (payment) deferrals, covenant waivers and other types of modifications, including term extensions. We analyze and make decisions on these modifications based on each individual borrower's situation.

Initial payment deferrals are typically offered with terms up to 90 days. As noted in our second quarter 2020 Form 10-Q, we had granted deferrals on nearly 16,000 commercial accounts representing approximately $6.8 billion in hardship relief assistance through June 30, 2020. We have continued to selectively grant payment deferrals in the third quarter of 2020, although the volume of this activity has declined considerably from earlier in the year. Following the expiration of these initial deferral periods, we have also noted a low volume of clients requesting subsequent assistance. As of September 30, 2020, subsequent deferrals were minimal in our commercial hardship relief programs.




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


The following table provides a summary of commercial accounts in active assistance under COVID-19 hardship relief payment deferral programs at September 30, 2020.
Table 24: Commercial Loans in Active COVID-19 Payment Deferral Programs (a) (b)
  
Number of
Accounts

 
Unpaid
Principal
Balance

 % of Loan Class (c)
 
As of September 30, 2020 - Dollars in millions    
Commercial       
Commercial and industrial 435
 $305
 .2% 
Commercial real estate 39
 468
 1.6% 
Equipment lease financing 47
 9
 .1% 
Total commercial 521
 $782
 .5% 
10-K.
(a) In cases where individual loans have been modified more than once regardless of the number of modifications granted, each loan is counted only once in this table.
(b) The amount of loan modifications that qualify for TDR accounting included in this table was immaterial.
(c) Based on total loans outstanding at September 30, 2020.

These modifications are considered to have exited active assistance after the deferral period has expired or the borrower has exited the modification. We are monitoring the delinquency status of loans exiting relief programs as a measure to assess credit risk. As of September 30, 2020, approximately 99% of the accruing commercial loans that have exited COVID-19 payment deferral programs were current or less than 30 days past due.
Consumer Loan Modifications Under Hardship Relief Programs
Our consumer loan modification programs are being granted in response to customer hardships.hardships that extended beyond the initial relief period. These temporary loan and line modifications include all hardship related modifications, andmodifications. See the primary offerings asLoan Modifications discussion within Credit Risk Management in Item 7 of September 30, 2020 are described in the following matrix.
Modification TypeHome EquityResidential Real EstateAutomobileCredit CardEducationOther Consumer
Extensions - Defers current payments and moves them to the end of the loan by extending the loan's maturity or the extension re-amortizes the remaining principal balance.aaaa
Forbearance - Part or all of the payments are deferred and moved to the end of the forbearance period. Balance is due at the end of the forbearance period, but payment options may be available to repay the forborne amount, including for many borrowers an option to delay payment until the payoff or maturity of the loan.aa
Minimum payment suspension - Reduces required minimum payment to $0 for a period of time.aaa
New loan terms - Sets loan terms to a new monthly payment of principal and interest based on customer's financial situation.aaa
Reduced payments - Allows the customer to make a lower payment for a period of time, with any deferred balance being moved to the end of the loan term or extending the loan's maturity.aa
Repayment plan - Allows reduced payment and interest rate for a period of time.a
Interest continues to accrue during the relief period for loans modified in these programs unless the loan was designated as a nonperforming TDR or was on nonaccrual at the date of modification. The method of collection of the accrued interest is dependent on the product type and modification offered.
As noted in our second quarter 2020 Form 10-Q, we had granted assistance on approximately 242,000 consumer accounts representing approximately $6.1 billion in hardship relief assistance through June 30, 2020. We continue to offer options to our customers in response to hardship that extended beyond the initial relief period, but have seen a notable decline in requests10-K for assistance from the peak this summer.additional details.

The following table provides a summary of consumer accounts in active assistance under hardship relief programs that were on our balance sheet at September 30, 2020. We have excludedMarch 31, 2021. Excluded from Table 24 are government insured or guaranteed loans totaling $491$444 million and $268$282 million in the Residential real estate and Education loanloans classes, respectively, from Table 25 as theserespectively. These loans present minimal credit risk to PNC.

32The PNC Financial Services Group, Inc. – Form 10-Q29  




Table 25:24: Consumer Loans in Active Hardship Relief Programs (a) (b)
As of September 30, 2020 - Dollars in millions 
Number of
Accounts

 
Unpaid
Principal
Balance

% of Loan Class (c)
% Making Payment in Last Payment Cycle
 
As of March 31, 2021 - Dollars in millionsAs of March 31, 2021 - Dollars in millionsNumber of
Accounts		Unpaid
Principal
Balance		% of Loan Class (c)% Making Payment in Last Payment Cycle
Consumer      Consumer
Home equity 1,588
 $152
.6%62.6% Home equity1,031 $84 0.4 %69.0 %
Residential real estate 3,401
 1,181
5.2%44.6% Residential real estate2,080 540 2.4 %26.0 %
Automobile 13,956
 361
2.4%71.7% Automobile4,218 105 0.8 %70.7 %
Credit card 6,488
 50
.8%65.6% Credit card9,107 60 1.1 %72.4 %
Education 2,680
 39
1.3%13.5% Education4,219 64 2.3 %62.1 %
Other consumer 2,946
 41
.8%68.2% Other consumer1,244 16 0.4 %74.8 %
Total consumer (d) 31,059
 $1,824
2.4%62.3% Total consumer (d)21,899 $869 1.2 %67.9 %
(a) In cases where there have been multiple modifications on an individual loan, regardless of the number of modifications granted, each loan is counted only once in this table.
(b) Amounts include loan modifications that qualify for TDR accounting totaling $170$145 million.
(c) Based on total loans outstanding at September 30, 2020.March 31, 2021.
(d) Approximately 93%84% of these loansloan balances were secured by collateral at September 30, 2020.March 31, 2021.

Modifications are considered to have exited active assistance after the modification period has expired or the modification was exited. As of September 30, 2020,March 31, 2021, approximately 96%97% of the accruing consumer loans that have exited hardship relief program modifications were current or less than 30 days past due.
The initial consumer loan modifications granted in response to
See the COVID-19 outbreak andCredit Risk Management section within Item 7 of our 2020 Form 10-K for information on the surrounding economic circumstances were short-term and temporary in nature and generally meet the qualifications for relief from TDR treatment under the CARES Act. However, in response to customers' hardships that have extended beyond the initial relief period, PNC has offered options to customers which include both temporary and permanent modifications that may reduce the payment, the interest rate or extend the term and/or defer principal and interest payments. Permanent modifications would not meet the qualifications for relief from TDR treatment under the CARES Act.impacts of our modification programs.

Allowance for Credit Losses

On January 1, 2020 we adopted the CECL standard which replaced the incurred loss methodology for our credit related reserves with an expected credit loss methodology for the remaining estimated contractual term of in-scope assets and off-balance sheet exposures. Our ACL is based on historical loss experience, current borrower risk characteristics, current economic conditions, reasonable and
supportable forecasts of future conditions and other relevant factors. We maintain the ACL at an appropriate level for expected losses
on our existing investment securities, loans, equipment finance leases trade receivables and(including residual values), other financial assets and off-balance sheet credit exposuresunfunded lending related commitments and determine this allowance based on quarterly assessments of the remaining estimated contractual term of the assets or exposures as of the balance sheet date.

Expected losses are estimated using a combination of (i) the expected losses over a reasonable and supportable forecast period (RSFP), (ii) a period of reversion to long run average expected losses (reversion period) where applicable, and (iii) long run average (LRA) expected losses for the remaining estimated contractual term.

We use forward-looking information in estimating expected credit losses for the RSFP. For this purpose, we have established a framework which includes a three year reasonable and supportable forecast period and the use of four economic scenarios and associated probability weights, which in combination create a forecast of expected economic outcomes over our RSFP of three years. Forward looking information, such as forecasted relevant macroeconomic variables, is incorporated into the expected credit loss estimates using quantitative techniques, as well as through analysis from PNC's economists and management’s judgment in qualitatively assessing the ACL.

The reversion period is used to bridge RSFP and LRA expected credit losses. We may consider a number of factors in determining the duration of the reversion period, such as contractual maturity of the asset, observed historical patterns and the estimated credit loss rates at the end of RSFP relative to the beginning of the LRA period.

The LRA expected credit losses are derived from our available historical credit information. We use LRA expected loss for the portfolio for the estimated remaining contractual term beyond the RSFP and reversion period.

The following discussion provides additional information related to our reserves under CECL for loans and leases as well as unfunded lending related commitments. See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in this ReportItem 8 of our 2020 Form 10-K and the Credit Risk Management section within Item 7 of our 2020 Form 10-K for furtheradditional discussion onof our ACL, including details of our methodologies and discussion of the allowances for investment securities and other financial assets.methodologies. See also the Critical Accounting Estimates and Judgments section of this Financial Review for further discussion of the assumptions used in the determination of the ACL as of March 31, 2021.

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

The following table summarizes our allowance for credit losses by loan class:

Table 25: Allowance for Credit Losses by Loan Class (a)
March 31, 2021December 31, 2020

Dollars in millions		Allowance AmountTotal Loans% of Total LoansAllowance AmountTotal Loans% of Total Loans
Allowance for loans and lease losses
Commercial
Commercial and industrial$1,815 $129,798 1.40 %$2,300 $132,073 1.74 %
Commercial real estate1,126 28,319 3.98 %880 28,716 3.06 %
Equipment lease financing142 6,389 2.22 %157 6,414 2.45 %
Total commercial3,083 164,506 1.87 %3,337 167,203 2.00 %
Consumer
Home equity239 23,493 1.02 %313 24,088 1.30 %
Residential real estate(17)22,418 (0.08)%28 22,560 0.12 %
Automobile344 13,584 2.53 %379 14,218 2.67 %
Credit card693 5,675 12.21 %816 6,215 13.13 %
Education112 2,842 3.94 %129 2,946 4.38 %
Other consumer260 4,495 5.78 %359 4,698 7.64 %
Total consumer1,631 72,507 2.25 %2,024 74,725 2.71 %
Total4,714 $237,013 1.99 %5,361 $241,928 2.22 %
Allowance for unfunded lending related commitments507 584 
Allowance for credit losses$5,221 $5,945 
Allowance for credit losses to total loans2.20 %2.46 %
Commercial2.12 %2.29 %
Consumer2.39 %2.84 %
(a)    Excludes allowances for investment securities and other financial assets, which together totaled $136 million and $109 million at March 31, 2021 and December 31, 2020, respectively.

The PNC Financial Services Group, Inc. – Form 10-Q 3331  


for further discussion of the assumptions used in the determination of the ACL.

Allowance for Loan and Lease Losses
Our pooled expected loss methodology is based upon the quantification of PD, LGD, exposure at default (EAD) and the remaining estimated contractual term for a loan or loan segment. We also consider the impact of prepayments and amortization on contractual maturity in our expected loss estimates. We use historical data, current borrower characteristics and forecasted economic variables in quantitative methods to estimate these risk parameters by loan or loan segments. PDs represent a quantification of risk that a borrower may not be able to pay their contractual obligation over a defined period of time. LGD describes the estimate of potential loss if a borrower were to default, and EAD (or utilization rates for revolving loans) is the estimated balance outstanding at the time of default and expected loss. These parameters are calculated for each forecasted scenario, and are combined to generate expected loss estimates by scenario in proportion to the scenario weights.

We use a discounted cash flow methodology for our consumer real estate related loan classes and for certain commercial and consumer TDR loans. For non-TDR residential real estate loans and lines, we determine effective interest rates considering contractual cash flows adjusted for prepayments and market interest rates. We then determine the net present value of expected cash flows and ALLL by discounting contractual cash flows adjusted for both prepayments and expected credit losses using the effective interest rates.

We establish individually assessed reserves for loans and leases that do not share similar risk characteristics with a pool of loans using methods prescribed by GAAP. Reserves for individual commercial nonperforming loans and commercial TDRs exceeding a defined dollar threshold are based on an analysis of the present value of the loan’s expected future cash flows or the fair value of the collateral, if appropriate under our policy for collateral dependent loans. Commercial loans that are below the defined threshold and accruing TDRs are collectively reserved for, as we believe these loans continue to share similar risk characteristics. For consumer nonperforming loans classified as collateral dependent, charge-off and ALLL related to recovery of amounts previously charged-off are evaluated through an analysis of the fair value of the collateral less costs to sell.

While our reserve methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between expected and actual outcomes. We may hold additional reserves that are designed to provide coverage for losses attributable to such risks. A portion of the allowance 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, including regulatory and legal requirements,
Changes in the nature and volume of our portfolio,
Recent credit quality trends, including the impact of COVID-19 hardship related loan modifications,
Recent loss experience in particular portfolios, including specific and unique events,
Recent macro-economic factors that may not be reflected in the forecast information,
Limitations of available input data, including historical loss information and recent data such as collateral values,
Model imprecision,
Changes in lending policies and procedures, including changes in loss recognition and mitigation policies and procedures,
Timing of available information, including the performance of first lien positions, and
Other relevant factors.

Allowance for Unfunded Lending Related Commitments
We maintain the allowance for unfunded lending related commitments on off-balance sheet credit exposures that are not unconditionally cancelable, (e.g., unfunded loan commitments, letters of credit and certain financial guarantees) at a level we believe is appropriate as of the balance sheet date to absorb expected credit losses on these exposures. Other than the estimation of the probability of funding, this reserve is estimated in a manner similar to the methodology used for determining reserves for loans and leases. The allowance for unfunded lending related commitments is recorded as a liability on the Consolidated Balance Sheet. Net adjustments to this reserve are included in the provision for credit losses.



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


Table 26: Allowance for Credit Losses by Loan Class (a)
  September 30, 2020 December 31, 2019 

Dollars in millions		 Allowance AmountTotal Loans% of Total Loans Allowance AmountTotal Loans% of Total Loans 
Allowance for loans and lease losses         
Commercial         
Commercial and industrial $2,735
$137,187
1.99% $1,489
$125,337
1.19% 
Commercial real estate 630
29,028
2.17% 278
28,110
.99% 
Equipment lease financing 163
6,479
2.52% 45
7,155
.63% 
Total commercial 3,528
172,694
2.04% 1,812
160,602
1.13% 
Consumer   

   

 
Home equity 349
24,539
1.42% 87
25,085
.35% 
Residential real estate 28
22,886
.12% 258
21,821
1.18% 
Automobile 404
14,977
2.70% 160
16,754
.95% 
Credit card 891
6,303
14.14% 288
7,308
3.94% 
Education 136
3,051
4.46% 17
3,336
.51% 
Other consumer 415
4,829
8.59% 120
4,937
2.43% 
Total consumer 2,223
76,585
2.90% 930
79,241
1.17% 
Total 5,751
$249,279
2.31% 2,742
$239,843
1.14% 
Allowance for unfunded lending related commitments 689
   318
   
Allowance for credit losses $6,440
   $3,060
   
Allowance for credit losses to total loans 

 2.58%   1.28% 
Commercial 

 2.38%   1.33% 
Consumer 

 3.04%   1.18% 
(a)Excludes allowances for investment securities and other financial assets, which together totaled $98 million at September 30, 2020.


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


The following table summarizes our loan charge-offs and recoveries.recoveries:
Table 27:26: Loan Charge-Offs and Recoveries
Three months ended March 31Gross
Charge-offs		RecoveriesNet Charge-offs /
(Recoveries)		% of Average
Loans (Annualized)
Dollars in millions
2021
Commercial
Commercial and industrial$59 $14 $45 0.14 %
Commercial real estate5 1 4 0.06 %
Equipment lease financing5 3 2 0.13 %
Total commercial69 18 51 0.13 %
Consumer
Home equity7 17 (10)(0.17)%
Residential real estate4 5 (1)(0.02)%
Automobile52 38 14 0.41 %
Credit card69 12 57 3.97 %
Education5 2 3 0.41 %
Other consumer37 5 32 2.84 %
Total consumer174 79 95 0.53 %
  Total$243 $97 $146 0.25 %
2020
Commercial
Commercial and industrial$78 $18 $60 0.19 %
Commercial real estate4 (4)(0.06)%
Equipment lease financing5 2 3 0.17 %
Total commercial83 24 59 0.14 %
Consumer
Home equity11 14 (3)(0.05)%
Residential real estate2 4 (2)(0.04)%
Automobile84 35 49 1.15 %
Credit card78 8 70 3.90 %
Education6 2 4 0.48 %
Other consumer40 5 35 2.83 %
Total consumer221 68 153 0.77 %
  Total$304 $92 $212 0.35 %
Nine months ended September 30 
Gross
Charge-offs

 Recoveries
 
Net Charge-offs /
(Recoveries)

 
% of Average
Loans (Annualized)

 
Dollars in millions
2020         
Commercial         
Commercial and industrial $249
 $52
 $197
 .19 % 
Commercial real estate 1
 6
 (5) (.02)% 
Equipment lease financing 19
 7
 12
 .23 % 
Total commercial 269

65

204
 .15 % 
Consumer         
Home equity 31
 44
 (13) (.07)% 
Residential real estate 4
 12
 (8) (.05)% 
Automobile 210
 95
 115
 .93 % 
Credit card 228
 26
 202
 3.98 % 
Education 13
 6
 7
 .29 % 
Other consumer 110
 14
 96
 2.61 % 
Total consumer 596

197

399
 .68 % 
  Total $865

$262

$603
 .32 % 
2019         
Commercial         
Commercial and industrial $116
 $45
 $71
 .08 % 
Commercial real estate 16
 8
 8
 .04 % 
Equipment lease financing 6
 6
 

   
Total commercial 138

59

79
 .07 % 
Consumer         
Home equity 52
 56
 (4) (.02)% 
Residential real estate 5
 11
 (6) (.04)% 
Automobile 183
 85
 98
 .86 % 
Credit card 193
 21
 172
 3.58 % 
Education 20
 6
 14
 .51 % 
Other consumer 92
 12
 80
 2.29 % 
Total consumer 545

191

354
 .63 % 
  Total $683

$250

$433
 .25 % 

Total net charge-offs increased $170decreased $66 million, or 39%31%, for the first ninethree months of 20202021 compared to the same period in 2019. The increase2020, primarily driven by decreases in the commercial net charge-offs primarily related to industries adversely impacted by the pandemic and the energy industry, while the increases inindustrial, automobile, and credit card automobile and other consumer loan net charge-offs were due in part to loan portfolio growth.classes.

See Note 1 Accounting Policies in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K and Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements in Item 1 of this reportReport for additional information.
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 20192020 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),HQLA, as defined and calculated in accordance with the LCR rules, by its estimated, weighted 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. Effective January 1, 2020, PNC and PNC Bank, as Category III institutions under the Tailoring Rules, were subject to a reduced LCR requirement, with each company's net outflows reduced by 15%, thereby reducing the amount of HQLA each institution must hold to meet the LCR minimum requirement. The minimum LCR that PNC and PNC Bank are required to

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



maintain continues to be 100%. PNC and PNC Bank calculate the LCR daily, and as of September 30, 2020,March 31, 2021, the LCR for PNC and PNC Bank exceeded the requirement of 100%.

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


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 20192020 Form 10-K.

Sources of Liquidity
Our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable and low-cost funding. Total deposits increased to $355.1$375.1 billion at September 30, 2020March 31, 2021 from $288.5$365.3 billion at December 31, 2019,2020, driven by growth in both interest-bearingnoninterest-bearing and noninterest-bearinginterest-bearing deposits. See the Funding Sources portion of the Consolidated Balance Sheet Review section of this Financial Review for additional information related to our deposits. Additionally, certain assets determined by us to be liquid as well as unused borrowing capacity from a number of sources are also available to manage our liquidity position.
At September 30, 2020,March 31, 2021, our liquid assets consisted of cash and due from banks and short-term investments (federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling $80.0$96.0 billion and securities available for sale totaling $89.7$96.8 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Our liquid assets included $23.2$21.7 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, $.1$0.1 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 8 Borrowed Funds in the Notes To Consolidated Financial Statements, the Funding Sources section of the Consolidated Balance Sheet Review in this Report and Note 10 Borrowed Funds in Item 8 of our 20192020 Form 10-K for additional information related to our borrowings.
Total senior and subordinated debt, on a consolidated basis, decreased due to the following activity:
Table 28:27: Senior and Subordinated Debt
In billions2020
 
January 1$35.1
 
Issuances3.5
 
Calls and maturities(6.6) 
Other1.3
 
September 30$33.3
 
In billions2021
January 1$30.7 
Issuances
Calls and maturities(1.7)
Other(0.6)
March 31$28.4 
Bank Liquidity
Under PNC Bank’s 2014 bank note program, as amended, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount outstanding at any one time of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. At September 30, 2020,March 31, 2021, PNC Bank had $21.6$17.6 billion of notes outstanding under this program of which $16.6$12.6 billion were senior bank notes and $5.0 billion were subordinated bank notes.

On March 30, 2021, PNC Bank redeemed $1.25 billion of outstanding Senior Notes with an original scheduled maturity date of April 29, 2021. The securities had a distribution rate of 2.150%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of March 30, 2021.

PNC Bank maintains additional secured borrowing capacity with the FHLB-Pittsburgh and through the Federal Reserve Bank discount window. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities, but rather as a potential source of liquidity in a stressed environment or during a market disruption. At September 30, 2020,March 31, 2021, our unused secured borrowing capacity at the FHLB-Pittsburgh and the Federal Reserve Bank totaled $79.4$81.8 billion. The Federal Reserve also has established certain special liquidity facilities under its emergency lending authority in Section 13(3) ofIn March 2021, the Federal Reserve Act in responseextended its PPP Liquidity Facility to the economic impact of the pandemic.June 30, 2021. For additional information on thesethis special liquidity facilitiesfacility see the Recent Regulatory Developments section of the first quarter 2020 Form 10-Q and second quarter 2020 Form 10-Q.

this Report.

PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of September 30, 2020,March 31, 2021, therewere no issuances outstanding under this program.

Additionally, PNC Bank may also access funding from the parent company through deposits placed at the bank, or through issuing senior unsecured notes.



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

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

The PNC Financial Services Group, Inc. – Form 10-Q 37  


parent company maintains adequate liquidity to fund discretionary activities such as paying dividends to our shareholders, share repurchases and acquisitions.

As of September 30, 2020,March 31, 2021, available parent company liquidity totaled $13.8$14.2 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.cash. Investments with longer durations may also be acquired, butand if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

The principal source of parent company liquidity is the dividends it receives from PNC Bank, which may be impacted by the following:
•Bank-level capital needs,
•Laws and regulations,
•Corporate policies,
•Contractual restrictions, and
•Other factors.

There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was approximately $3.1$2.2 billion at September 30, 2020.March 31, 2021. See Note 1820 Regulatory Matters in the Notes To Consolidated Financial Statements in our 20192020 Form 10-K for a further discussion of these limitations.

In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As of September 30, 2020,March 31, 2021, 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. See Note 16 Subsequent Events for information on the April 2021 issuance of $1.0 billion of senior notes by the parent company.

Parent company senior and subordinated debt outstanding totaled $10.7$10.2 billion and $9.8$10.6 billion at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

PNC will use approximately $11.6 billion of parent company cash to acquire BBVA.

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 20192020 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 98 Commitments in the Notes To Consolidated Financial Statements of this Report.

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

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

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



The following table presents credit ratings for PNC and PNC Bank as of March 31, 2021:
Table 29:28: Credit Ratings for PNC and PNC Bank
September 30, 2020March 31, 2021
  
Moody’sStandard & Poor’sFitch
PNC
Senior debtA3A-A
Subordinated debtA3BBB+A-
Preferred stockBaa2BBB-BBB
PNC Bank
Senior debtA2AA+
Subordinated debtA3A-A
Long-term depositsAa2AAA-
Short-term depositsP-1A-1F1+
Short-term notesP-1A-1F1

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 20192020 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.

We announcedpaid dividends on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economyof $0.5 billion during the pandemic, and will continue the suspension through the fourthfirst quarter of 2020, consistent with the extension of the Federal Reserve's special capital distribution restrictions. We repurchased $99 million of common shares in the third quarter to offset the effects of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve.

2021. On OctoberApril 1, 2020,2021, the PNC board of directors declared a quarterly cash dividend on common stock of $1.15 per share payable on NovemberMay 5, 2020.2021.

Following completionDuring the first quarter, we refrained from repurchasing shares and expect to continue to do so for the remainder of the 2020 CCAR/DFAST process,period leading up to the close of our pending BBVA transaction. Following the close, we expect to resume repurchases in the second half of 2021.

The Federal Reserve announced certainhas also imposed special limitations on the capital distributions of anydividends and share repurchases by CCAR-participating bank holding company (including PNC) during the third quarter of 2020. Under these limitations, PNCBHCs. These restrictions limit increases in dividends and other CCAR-participating firms, absent Federal Reserve approval, were permittedgenerally restrict dividends and share repurchases to make only the following capital distributions during the third quarter of 2020:
Pay common dividends at the same per share level as paid during the second quarter of 2020, provided that the amount does not exceed the average of the firm's net income for the four preceding calendar quarters;
Purchase common shares in an amount based on income over the past year. For a firm with capital levels above those required by the current round of stress tests, these restrictions will end on June 30, 2021. Firms that equalsfall below any of their minimum risk-based requirements in the amount of share issuances relatedstress tests will remain subject to expensed employee compensation; and
Make scheduled payments onthe additional Tier 1 and Tier 2 capital instruments.

Onrestrictions for three extra months, through September 30, 2020, the Federal Reserve extended these limitations, with minor modifications, to the fourth quarter of 2020, and it reserves the right to extend these limitations to additional quarters, potentially in modified form.2021.


The PNC Financial Services Group, Inc. – Form 10-Q 3935  



Table 30:29: Basel III Capital
March 31, 2021
Dollars in millionsBasel III (a) Fully Implemented
(estimated) (b)
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock$927 $927 
Retained earnings$49,168 $48,113 
Goodwill, net of associated deferred tax liabilities$(9,109)$(9,109)
Other disallowed intangibles, net of deferred tax liabilities$(191)$(191)
Other adjustments/(deductions)$(36)$(42)
Common equity Tier 1 capital$40,759 $39,698 
Additional Tier 1 capital
Preferred stock plus related surplus$3,518 $3,518 
Tier 1 capital$44,277 $43,216 
Additional Tier 2 capital
Qualifying subordinated debt$3,498 $3,498 
Trust preferred capital securities$20 
Eligible credit reserves includable in Tier 2 capital$4,019 $4,019 
Total Basel III capital$51,814 $50,733 
Risk-weighted assets
Basel III standardized approach risk-weighted assets (c)$323,630 $322,649 
Average quarterly adjusted total assets$457,588 $456,526 
Supplementary leverage exposure (d)$437,601 $546,241 
Basel III risk-based capital and leverage ratios (a)(e)
Common equity Tier 112.6 %12.3 %
Tier 113.7 %13.4 %
Total (f)16.0 %15.7 %
Leverage (g)9.7 %9.5 %
Supplementary leverage ratio (d)10.1 %7.9 %
Dollars in millions
Basel III
September 30, 2020 (a)
 
September 30, 2020 (Fully Implemented)
(estimated) (b)
 
Common equity Tier 1 capital    
Common stock plus related surplus, net of treasury stock$816
 $816
 
Retained earnings47,306
 45,947
 
Goodwill, net of associated deferred tax liabilities(9,023) (9,023) 
Other disallowed intangibles, net of deferred tax liabilities(185) (185) 
Other adjustments/(deductions)(63) (65) 
Common equity Tier 1 capital$38,851
 $37,490
 
Additional Tier 1 capital    
Preferred stock plus related surplus3,516
 3,516
 
Other adjustments/(deductions)—
 —
 
Tier 1 capital$42,367
 $41,006
 
Additional Tier 2 capital    
Qualifying subordinated debt3,949
 3,949
 
Trust preferred capital securities40
 —
 
Eligible credit reserves includable in Tier 2 capital4,129
 4,129
 
Total Basel III capital$50,485
 $49,084
 
Risk-weighted assets    
Basel III standardized approach risk-weighted assets (c)$331,748
 $330,462
 
Average quarterly adjusted total assets$451,180
 $449,818
 
Supplementary leverage exposure (d)$444,492
 $534,027
 
Basel III risk-based capital and leverage ratios (a)(e)    
Common equity Tier 111.7% 11.3% 
Tier 112.8% 12.4% 
Total (f)15.2% 14.9% 
Leverage (g)9.4% 9.1% 
Supplementary leverage ratio (d)(h)9.5% 7.7% 
(a)The ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision.
(b)The ratios are calculated to reflect the full impact of CECL and excludes the benefits of the optional five-year transition provision.
(c)Basel III standardized approach weighted-assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets.
(d)As of September 30, 2020 the Supplementary leverage exposure and Supplementary leverage ratio reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks.
(e)All ratios are calculated using the regulatory capital methodology applicable to PNC and calculated based on the standardized approach.
(f)The Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $40 million that are subject to a phase-out period that runs through 2021.
(g)Leverage ratio is calculated based on Tier 1 capital divided by Average quarterly adjusted total assets.
(h)The Supplementary leverage ratio is calculated based on Tier 1 capital divided by Supplementary leverage exposure, which takes into account both on balance sheet assets as well as certain off-balance sheet items, including loan commitments and potential future exposure under derivative contracts.

(a)The ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision.
(b)The ratios are calculated to reflect the full impact of CECL and the expiration of the final SLR rule that temporarily revised the calculation of supplementary leverage exposure (the denominator of the SLR).
(c)Basel III standardized approach weighted-assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets.
(d)As of January 1, 2020,March 31, 2021, the 2019 Tailoring Rules became effective for PNC.BHC's Supplementary leverage exposure and Supplementary leverage ratio reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks. The most significant changes involve the election to exclude specific AOCI items from common equitySupplementary leverage ratio is calculated based on Tier 1 (CET1) capital divided by Supplementary leverage exposure, which takes into account both on balance sheets assets as well as certain off-balance sheet items, including loan commitments and higher thresholds usedpotential future exposure under derivative contracts.
(e)All ratios are calculated using the regulatory capital methodology applicable to calculate CET1PNC and calculated based on the standardized approach.
(f)The Basel III Total risk-based capital deductions. Effective Januaryratios include nonqualifying trust preferred capital securities of $20 million that are subject to a phase-out period that runs through 2021.
(g)Leverage ratio is calculated based on Tier 1 2020, PNC must deduct from CET1 capital (net of associated deferred tax liabilities) investments in unconsolidated financial institutions, mortgage servicing rights and deferred tax assets to the extent such items individually exceed 25% of the institution’sdivided by Average quarterly adjusted CET1 capital.total assets.

PNC’s regulatory risk-based capital ratios in 2020 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, nonaccruals, TDRs, past due exposures and equity exposures are generally subject to higher risk weights than other types of exposures.
The regulatory agencies have adopted a rule permitting banks to delay the estimated impact on regulatory capital stemming from implementing CECL. CECL’s estimated impact on CET1 capital, as defined by the rule, is the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date compared to the CECL ACL at transition. The estimated CECL impact is added to CET1 capital through December 31, 2021, then phased-out over the following three years. PNC elected to

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



adopt this optional transition provision effective as of March 31, 2020. See additional discussion of this rule in the Recent Regulatory DevelopmentsSupervision and Regulation section of Item 1 Business and Item 21A Risk ManagementFactors of our first quarter 2020 Form 10-Q.10-K.
In response to the economic conditions caused by the pandemic, the Federal Reserve has adopted a final rule that revises, on a temporary basis, the calculation of supplementary leverage exposure (the denominator of the supplementary leverage ratio)SLR) by bank holding companiesBHCs to exclude the on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks. The rule was effective as of April 14, 2020 and will remainremained in effect through March 31, 2021. See additional discussionThe OCC also has permitted national banks to exclude such on-balance sheet amounts
36   The PNC Financial Services Group, Inc. – Form 10-Q


from the bank’s supplementary leverage exposure, provided the bank agrees to obtain OCC approval of capital distributions during the effective period of the exclusion. PNC Bank has not elected to take advantage of this rule in the Recent Regulatory Developments section of our first quarter 2020 Form 10-Q.OCC rule.

At September 30, 2020,March 31, 2021, 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%.

Federal banking regulators have stated that they expect the largest U.S. bank holding companies (BHCs),BHCs, including PNC, to have a level of regulatory capital well in excess of the regulatory minimum and have required the largest U.S. BHCs, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet the credit needs of their customers through estimated stress scenarios. We seek to manage our capital consistent with these regulatory principles, and believe that our September 30, 2020March 31, 2021 capital levels were aligned with them.

See the Recent Regulatory Developments section of our second quarter 2020 Form 10-Q for recent developments that could have a potential impact on our Basel III capital ratios. 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 1820 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of our 20192020 Form 10-K.

Market Risk Management
See the Market Risk Management portion of the Risk Management Section in our 20192020 Form 10-K for additional discussion regarding market risk.

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

Our Asset and Liability Management group centrally manages interest rate risk as prescribed in our risk management policies, which are approved by management’s Asset and Liability Committee and the Risk Committee of the Board of Directors.
Sensitivity results and market interest rate benchmarks for the thirdfirst quarter of 20202021 and 20192020 follow.

Table 31:30: Interest Sensitivity Analysis
 Third Quarter 2020
 Third Quarter 2019
 
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 increase4.3% 1.9% 
Effect on net interest income in second year from gradual interest rate change over the
    preceding 12 months of:
    
100 basis point increase10.9% 4.6% 
Duration of Equity Model (a)    
Base case duration of equity (in years)(8.3) (6.5) 
Key Period-End Interest Rates    
One-month LIBOR.15% 2.02% 
Three-month LIBOR.23% 2.09% 
Three-year swap.24% 1.55% 
(a)Given the inherent limitations in certain of these measurement tools and techniques, results become less meaningful as interest rates approach zero. Senior management approved the suspension of the 100bps decrease in rate change sensitivities considering the current low rate environment.

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


First Quarter 2021First Quarter 2020
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 increase4.8 %1.4 %
Effect on net interest income in second year from gradual interest rate change over the
    preceding 12 months of:
100 basis point increase12.1 %6.1 %
Key Period-End Interest Rates
One-month LIBOR0.11 %0.99 %
Three-month LIBOR0.19 %1.45 %
Three-year swap0.51 %0.46 %
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 3231 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 (iii) yield curve slope flattening (a 50100 basis point yield curve slope flattening between one-month and ten-year rates superimposed on current base rates) scenario.

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


The PNC Financial Services Group, Inc. – Form 10-Q 37  

Table 32:31: Net Interest Income Sensitivity to Alternative Rate Scenarios
March 31, 2021
PNC
Economist		Market
Forward		Slope
Flattening
First year sensitivity0.0 %0.8 %(2.1)%
Second year sensitivity1.3 %4.7 %(6.7)%
 September 30, 2020 
 
PNC
Economist

Market
Forward

Slope
Flattening

 
First year sensitivity—%.7%(1.1)% 
Second year sensitivity.7%2.5%(3.2)% 

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 3130 and 32.31. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates.

The following graph presents the LIBOR/Swap yield curves for the base rate scenario and each of the alternate scenarios one year forward.
Table 33:32: Alternate Interest Rate Scenarios: One Year Forward
irfinalq320.jpg
pnc-20210331_g2.jpg

The thirdfirst quarter 20202021 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.

TheAs discussed in Item 1A Risk Factors in our 2020 Form 10-K, the planned discontinuance of the requirement that banks submit rates for the calculation of LIBOR after 20212023 presents risks to the financial instruments originated, held or serviced by PNC that use LIBOR as a reference rate. PNC holds instruments and services its instruments and instruments owned by others that may be impacted by the likely discontinuance of LIBOR, including loans, investments, hedging products, floating-rate obligations, and other financial instruments that use LIBOR as a reference rate. The transition from LIBOR as an interest rate benchmark will subject PNC, like other financial participants, to financial, legal, operational, and reputational risks.

In order to address LIBOR cessation and the associated risks, PNC has established a cross functionalcross-functional governance structure to oversee the overall strategy for the transition from LIBOR and mitigate risks associated with the transition. AAn initial LIBOR impact and risk assessment has been performed, which identified the associated risks across products, systems, models, and processes. PNC also established an enterprise-level program, which is actively monitoring itsPNC’s overall firm-wide exposure to LIBOR and using these results to plan transitional strategies and track progress versus these goals. Program workstreams were formed by Line of Business to ensure accountability and alignment with the appropriate operational, technology, and customer-facing stakeholders, while establishing a centralized Program Management Office to ensure consistency in execution and communication. Project plans and established milestones have been developed and have continued to evolve and be refined in line with industry developments and internal decisions and progress. PNC is also involved in industry discussions, preparing milestones for readiness and assessing progress against those milestones, along with developing and delivering on internal and external LIBOR cessation communication plans.

We also continue to focus our transitionKey efforts on:in 2020 included:
enhancing•Enhancing fallback language in new contracts and reviewing existing legal contracts/agreements to assess fallback language impacts;impacts,
making•Making preparations for internal operational readiness;readiness,
making•Making necessary enhancements to ourPNC's infrastructure, including systems, models, valuation tools and processes;
developing and delivering on internal and external LIBOR cessation communication plans;

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



•Developing and delivering on internal and external LIBOR cessation communication plans,
engaging•Engaging with ourPNC clients, industry working groups and regulators;regulators, and
monitoring•Monitoring developments associated with LIBOR alternatives and industry practices related to LIBOR-indexed instruments.

PNC also has been an active participant in efforts with the Federal Reserve and other regulatory agencies to explore the potential need for a credit-sensitive rate or add-on to SOFR for use in commercial loans. Those efforts led to the formation of the Credit Sensitive Group, which has held a series of workshops to assess how a credit-sensitive rate or add-on to SOFR might be constructed and discuss associated implementation issues.

In addition, in the third quarter of 2020, PNC began offering conforming adjustable rate mortgages using the Secured Overnight Financing Rate (SOFR)SOFR instead of USD LIBOR in line with FNMAFannie Mae and FHLMCFreddie Mac requirements.

See Plans are in place to begin offering private student loans and portfolio loans using non-LIBOR rates in the Risk Factors section in Item IAsecond quarter of 2021. PNC has provided regular updates to Federal Reserve, OCC and Risk Management Market Rate Management - Interest Rate Risk section in Item 7 disclosed in our 2019 Form 10-K for additional informationFederal Deposit Insurance Corporation examination staff regarding the planned discontinuance ofits LIBOR as a reference rate.cessation and transition plans.
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)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 diversifiedis calculated for each of the portfolios that comprise our customer related trading activities of which the majority are covered positions as defined by the Market Risk Rule. VaR at a 95% confidence intervalis computed with positions and the results for the first nine months of 2020 and 2019 weremarket risk factors updated daily to ensure each portfolio is operating within ourits acceptable limits.
See the Market Risk Management – Customer-Related Trading Risk section of our 20192020 Form 10-K for more information on our models used to calculate VaR and our backtesting process.
Customer related trading revenue was $293$111 million for the ninethree months ended September 30, 2020March 31, 2021 compared to $212$71 million for the same period in 2019.2020. The increase was primarily due to higher derivativeimproved client sales revenues and the impact of changes in credit valuations for customer-related derivative activities. For the quarterly period, customer related trading revenueresults as 2020 was $108 million for the third quarter of 2020 compared to $77 million in 2019. The increase was primarily duenegatively impacted by liquidity concerns and market volatility related to the impact of the changes in credit valuations for customer-related derivative activities.pandemic.
Market Risk Management – Equity And Other Investment Risk
Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, underwriting securities and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations and growth financings in a variety of industries. We also have investments in affiliated and non-affiliated funds that make similar investments in private equity. The economic and/or book value of these investments and other assets are directly affected by changes in market factors.
Various PNC business units manage our equity and other investment activities. Our businesses are responsible for making investment decisions within the approved policy limits and associated guidelines.
A summary of our equity investments follows:
Table 34:33: Equity Investments Summary
 March 31
2021		December 31
2020		Change
Dollars in millions$%
Tax credit investments$2,808 $2,870 $(62)(2)%
Private equity and other3,578 3,182 396 12 %
Total$6,386 $6,052 $334 6 %
 September 30
2020
 December 31
2019
 Change 
Dollars in millions $
 %
 
Tax credit investments$2,178
 $2,218
 $(40) (2)% 
Private equity and other2,760
 2,958
 (198) (7)% 
Total$4,938
 $5,176
 $(238) (5)% 

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 $.8 billion and $1.0$1.4 billion at September 30, 2020both March 31, 2021 and December 31, 2019, respectively.2020. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.

Note 25 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in our 20192020 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 $1.5 billion at September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, $1.2 billionwas invested directly in a variety of companies and $.2 billion was invested indirectly through various private equity funds. See the Recent Regulatory Developments section of our second quarter 2020 Form 10-

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


Qinvestments carried at estimated fair value totaled $1.5 billion at both March 31, 2021 and December 31, 2020. As of March 31, 2021, $1.3 billionwas invested directly in a variety of companies and $0.2 billion was invested indirectly through various private equity funds. See the Supervision and Regulation section in Item 1 of our 20192020 Form 10-K for discussion of the potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and other relationships with private funds covered by the Volcker Rule.

Included in our other equity investments are Visa Class B common shares, which are recorded at cost. Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly-traded Class A common shares, which cannot happen until the resolution of the pending interchange litigation. Based upon the September 30, 2020March 31, 2021 per share closing price of $199.97$211.73 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $1.1$1.2 billion at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was not significant. See Note 615 Fair Value and Note 1921 Legal Proceedings in the Notes To Consolidated Financial Statements in Item 8 of our 20192020 Form 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 $38 million at March 31, 2021 and were not significant at September 30, 2020 and September 30, 2019.March 31, 2020.

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

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

Further information on our financial derivatives is presented in Note 1 Accounting Policies, Note 615 Fair Value and Note 1316 Financial Derivatives in our Notes To Consolidated Financial Statements in our 20192020 Form 10-K and in Note 1211 Fair Value and Note 1312 Financial Derivatives in the Notes To Consolidated Financial Statements in Item 1 of 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

The U.S. Government continues to take action in order to aid businesses and consumers financially impacted by COVID-19, facilitate the orderly functioning of financial markets, and assist banking organizations in being able to meet the credit and other banking needs of their customers and communities. In March 2021, President Biden signed the American Rescue Plan (The American Rescue Plan Act of 2021), which provides an additional $1.9 trillion in relief. Among other things, the American Rescue Plan provides for stimulus payments of up to $1,400 per-person, funding for various housing and education programs, grants to small businesses, extension of expanded unemployment benefits, and expansion of the child tax credit. The President also signed the PPP Extension Act of 2021, which extends the PPP application deadline to May 31, 2021, and extends the PPP authorization through June 30, 2021, to provide the SBA additional time to process applications received by the application deadline. PNC continues to participate in the PPP and assist customers with their PPP loans.

In March 2021, the Federal Reserve extended its PPP Liquidity Facility by three months to June 30, 2021. The PPP Liquidity Facility extends term credit to financial institutions making PPP loans, accepting the PPP loans as collateral. The other currently active Federal Reserve liquidity facilities—the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility—expired on March 31, 2021.

Capital, Capital Planning and Liquidity
In October 2020, the federal banking agencies finalized rules implementing the Net Stable Funding Ratio (NSFR). The final rules require covered banking organizations, including PNC and PNC Bank, to maintain an amount of available stable funding (ASF) equal to or greater than the banking organization’s projected minimum funding needs, or required stable funding (RSF), as calculated under the rules over a one-year time horizon. Consistent with the tailoring of the Liquidity Coverage Ratio requirements, Category III banking organizations with less than $75 billion in average weighted short-term wholesale funding, like PNC and PNC Bank, will need to meet a reduced NSFR requirement, with RSF adjusted by a 0.85 scalar. The final rule also requires covered holding companies like PNC to publicly disclose their NSFRs and other qualitative components of their liquidity profiles on a semi-annual basis. The final rules take effect on July 1, 2021. PNC has taken several actions to prepare for implementation of the NSFR, and we expect to be in compliance with the NSFR requirements when they become effective.

On October 1, 2020, the Federal Reserve extended, until March 31, 2021, certain temporary actions taken to increase the availability of intraday credit extended by Federal Reserve Banks. These actions include suspending the Federal Reserve's uncollateralized intraday credit limits (net debit caps), waiving overdraft fees for institutions that are eligible for the primary credit program, and suspending two collections of information that are used to calculate net debit caps.

On September 30, 2020, the Federal Reserve announced that its temporary modifications to the SLR to exclude U.S. Treasury securities and central bank reserves would expire on March 31, 2021. The temporary modifications had allowed BHCs like PNC to exclude U.S. Treasury securities and balances held at Federal Reserve Banks from the BHCs’ total leverage exposure for purposes of calculating its SLR. The Federal Reserve also announced that it would extend its special limitationsseek comment on capital distributions by banking organizations that participatedmeasures to ensure the SLR remains effective in the 2020 Comprehensive Capital Analysis and Review (CCAR) process, such as PNC, through the fourth quarteran environment of 2020. These special limitations require covered banking organizations to suspend share repurchases (except those to offset the effects of employee benefit plan-related issuances) and allows organizations to maintain their common dividends subject to a formula based on recent income. Additionally, in September 2020, the Federal Reserve released the hypothetical supervisory scenarios to be used in the second round of stress tests to be conducted in the fourth quarter of 2020 due to the continued economic uncertainty presented by the COVID-19 pandemic. Bank stress test submissions were due on November 2, 2020, and the Federal Reserve has indicated it will publicly release the results of the tests by the end of the year.higher reserves.

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



In September 2020,Separately, the Federal Reserve requested commentextended the temporary and additional restrictions on BHC dividends and share repurchases that it put in place as a result of ongoing economic uncertainty from COVID-19. These restrictions limit increases in dividends and generally restrict dividends and share repurchases to an amount based on income over the past year. For a firm with capital levels above those required by the current round of stress tests, these restrictions will end on June 30, 2021. Firms that fall below any of their minimum risk-based requirements in the stress tests will remain subject to the additional restrictions for three extra months, through September 30, 2021.

Other Developments
In April 2021, the CFPB proposed a set of rule changes intended to prevent foreclosures as the emergency federal foreclosure protections expire. The CFPB’s proposal would provide a special pre-foreclosure review period that would updategenerally prohibit servicers from starting foreclosure until after December 31, 2021, permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the Federal Reserve’s capital planning requirementsevaluation of an incomplete application, and make temporary changes to be consistent with the capital and liquidity tailoring rules adopted last year. In addition to changing certain assumptions about material business changes under stress, the proposal invites comment on all aspects of the Federal Reserve’s existing capital planning guidance.required servicer communications that borrowers receive regarding their options. Comments on the proposal are due by November 20, 2020.May 10, 2021.

In August and September 2020, the federal banking agencies adopted in final form several regulatory capital rules that were issued in interim final form earlier this year. These rules permit banking organizations that are subject to the CECL accounting standard during 2020 to delay CECL’s estimated impact on CET1 capital, revise the definition of “eligible retained income” for purposes of the Stress Capital Buffer (SCB) and other Basel III capital buffers and neutralize the regulatory capital and liquidity coverage ratio effects of participating in the Federal Reserve’s Money Market Mutual Fund Liquidity Facility and Paycheck Protection Program Liquidity Facility. For more information, see Item 2 Recent Regulatory Developments in our second quarter 2020 Form 10-Q.

Other Developments
In October 2020, the Office of the Comptroller of the Currency (OCC) issued a rule that determines when a national bank like PNC Bank makes a loan and is the "true lender," including in the context of a partnership between a bank and a third party. Under the final rule, a bank is the true lender if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan.

On August 13, 2020, an interim rule adopted by the Federal Acquisition Regulatory Council to implement certain provisions of the John S. McCain National Defense Authorization Act took effect. This rule prohibits the Department of Defense and all other executive branch agencies from contracting (or extending or renewing a contract) with an entity that uses covered telecommunication equipment or services provided by certain Chinese companies as a substantial or essential part of any system. It is possible that these restrictions may affect PNC’s ability to compete for U.S. government contracts, at least in the short-term.

In August 2020, the Consumer Financial Protection Bureau (Bureau) issued a notice of proposed rulemaking to create a new category of seasoned qualified mortgages (Seasoned QMs), which are presumed to meet the ability-to-pay requirements established by the Dodd-Frank Act. To be considered a Seasoned QM under the proposal, loans would have to be first-lien, fixed-rate mortgages that have met certain performance requirements over a 36-month seasoning period. Covered transactions would also have to be held on the creditor’s portfolio during the seasoning period, comply with general restrictions on product features and points and fees and meet certain underwriting requirements (including verification of the consumer’s debt-to-income ratio (DTI) or residual income at origination). The comment period for the proposal ended on October 1, 2020.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Note 1 Accounting Policies ofin our 20192020 Form 10-K describes the most significant accounting policies that we use to prepare our consolidated financial statements, including discussionstatements. Certain of our policies for the Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit, prior to the adoption of the CECL standard. See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in this Report regarding the impact of new accounting pronouncements, including CECL, that were adopted during 2020.

Certainthese 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 related to residential and commercial MSRs and fair value measurements are described in more detail in Critical Accounting Estimates and Judgments in Item 7 of our 20192020 Form 10-K:10-K. The following details the critical estimates and judgments around the ACL.
Fair Value Measurements
Residential and Commercial Mortgage Servicing Rights

Allowance for Credit Losses

We maintain the ACL at levels that we believe to be appropriate as of the balance sheet date to absorb expected credit losses on our existing investment securities, loans, equipment finance leases (including residual values), other financial assets and unfunded lending related commitments, for the remaining contractual term of the assets or exposures, taking into consideration expected prepayments. Our determination of the ACL is based on historical loss experience, current borrower characteristics, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We use methods sensitive to changes in economic conditions, to interpret these factors to estimate expected credit losses. We evaluate and, when appropriate, enhance the quality of our data and models and other methods used to estimate ACL on an ongoing basis. We apply qualitative factors to reflect in the ACL our best estimate of amounts that we do not expect to collect because of, among other things, idiosyncratic risk factors, changes in economic conditions that may not be reflected in forecasted results, or other potential methodology weaknesses.limitations. The ACL estimates are therefore susceptible to various factors, including, but not limited to, the following major factors:

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


•Current economic conditions and borrower quality: Our forecast of expected losses depends on economic conditions and portfolio
portfolio quality as of the estimation date. As current economic conditions evolve, forecasted losses could be materially         
affected.
•Scenario weights and design: Our loss estimates are sensitive to the shape, direction and severityrate of change of macroeconomic forecasts and thus
vary significantly between upside and downside scenarios. Change to probability weights assigned to these scenarios and
timing of peak business cycles reflected by the scenarios could materially affect our loss estimates.
•Portfolio volume and mix: Changes to portfolio volume and mix could materially affect our estimates, as CECL reserves
would be recognized upon origination or acquisition.

For all assets and unfunded lending related commitments within the scope of the CECL standard, the applicable ACL is composed of one or a combination of the following components: (i) collectively assessed or pooled reserves, (ii) individually assessed reserves, and
(iii) qualitative (judgmental) reserves. Our methodologies and key assumptions for each of these components are discussed in Note 1
Accounting Policies in the Notes To Consolidated Financial Statements of this Report.our 2020 Form 10-K.

Reasonable and Supportable Economic Forecast
Under CECL, we are required to consider reasonable and supportable forecasts in estimating expected credit losses. For this purpose,
we have established a framework which includes a three year reasonable and supportable economic forecast period and the use of four
economic scenarios with associated probability weights, which in combination create a forecast of expected economic outcomes over
our reasonable and supportable forecast period. Credit losses estimated in our reasonable and supportable forecast period (RSFP). Our RSFP credit loss estimates are sensitive to the shape and severity of the scenarios used and weights assigned to them.

To generate the four economic forecast scenarios we use a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking expert judgment to forecast the distribution of economic outcomes over the RSFP.reasonable and supportable forecast period. Each scenario is then given an associated probability (weight) in order to represent our current expectation
The PNC Financial Services Group, Inc. – Form 10-Q 41  

within that distribution over the RSFP.forecast period. This process is informed by current economic conditions, expected business cycle evolution and the expert judgment of PNC’s CECL Reserve Adequacy Committee (CECL RAC).RAC. This approach seeks to provide a reasonable representation of the forecast of expected economic outcomes and is used to estimate expected credit losses across a variety of loans and securities. Each quarter the scenarios are presented for approval to PNC’s CECL RAC and the committee determines and approves CECL scenariosscenarios' weights for use for the current reporting period.

The scenarios used for the period ended September 30, 2020March 31, 2021 were designed to reflect an improved near-term economic outlook in comparison to the improved macroeconomic outlookscenarios used for the period ended December 31, 2020. This improvement was the result of declining COVID-19 cases, more rapid vaccine distribution, the passage of the American Rescue Plan stimulus package and the recovery that began in May which has outpaced market expectations, and was our best estimate as of September 30, 2020.economic momentum fueled by increased consumer spending. We used a number of economic variables in our scenarios, with the most significant drivers being GDP and the unemployment rate measures. Using the weighted-average of our four economic forecast scenarios, we estimated at September 30, 2020 that GDP finishes the year down 4.2% from fourth quarter 2019 levels and grows 3.8%4.3% in 2021, recovering to pre-recession peak levels in the third quarter of 2021. The weighted-average unemployment rate reflects continued recovery in the labor market in 2021, with the unemployment rate estimated at 5.9% by the first quarterend of 2022.the year. Employment gains were estimated to continue through the forecast period with the unemployment rate reaching 4.9% and 4.4% by the end of 2022 and 2023, respectively. One of the scenarios included in our weighted-average is our baseline prediction of the most likely economic outcome,outcome; which is further discussedincludes estimated GDP recovering to pre-pandemic levels in third quarter of 2021, with unemployment expected to return to its pre-pandemic levels in the second half of 2022. See our Business Outlook and the Cautionary Statement Regarding Forward-Looking Information in this Financial Review and includes estimated GDP recovering to pre-pandemic levels by late 2021. The weighted-average unemployment rate was estimated to be 8.4% infor additional discussion on our baseline prediction of the fourth quarter of 2020, with the labor market continuing to recover in 2021 and 2022.most likely economic outcome. While the economy has seensaw significant recovery withfrom the onset of the pandemic in national level macroeconomic indicators, outperforming market expectations, considerable uncertainty remains regarding overall lifetime loss content for both our commercial and consumer portfolios, remains, specifically as it relates to our customers that are less likely to benefit from the economic recovery currently underway. For commercial borrowers, there are substantial concerns around industries that are dependent on in-person gatherings, hospitality and tourism. For consumer borrowers, payment behavior once the CARES Actgovernment stimulus wanes is also difficult to predict but wepredict. We believe the highest uncertainty is concentrated withinwith consumer borrowers who have been afforded accommodation as it relates to payment deferral/forbearance.deferrals or forbearance and borrowers at the low end of our credit standards. As such, for both our commercial and consumer loan portfolios, PNC identified and performed significant analysis around these key, high riskhighly impacted segments to ensure our reserves were adequate in light of the improved economic environment. We believe that the economic assumptions used in the scenarios for the thirdfirst quarter of 2020,2021, in combination with increased reserves for borrowers in segments most adversely impacted by the pandemic, sufficiently reflect the life of loan losses in the current portfolio.

For internal analytical purposes,To provide additional context regarding the sensitivity of the ACL to a more pessimistic forecast of expected economic outcomes, we considered what our capital ratiosACL would be if we had an ACL at December 31, 2020 equalwhen applying a 100% probability weighting to the Federal Reserve's estimated nine quarter credit losses for PNC under the 2020 CCAR supervisorymost severely adverse scenario. This severely adverse scenario estimates real GDP contracting and ending 2021 down 1.3% compared to 2020 levels, with recovery to pre-pandemic levels not expected until first quarter 2023, while the unemployment rate increases to end 2021 at 10.5% with the labor market beginning to improve again in 2022. Excluding consideration of $12.1 billion, increasing the reserves by approximately $5.6 billion over the next quarter. Thisqualitative adjustments, this sensitivity analysis resultedwould result in a CET1 ratiohypothetical increase in our ACL of approximately 10.5%$2.0 billion at DecemberMarch 31, 2020, a level well above 7.0%, which is our regulatory minimum of 4.5% plus our Stress Capital Buffer of 2.5%.2021. This scenario was not our expectation at September 30, 2020March 31, 2021 and does not reflect our current expectation, nor does it capture all the potential unknown variables that would likely arise through the remainder of 2020,over 2021, but it provides an approximation of a possible outcome under hypothetical severe conditions. The CECL methodology inherently requires a high degree of judgment. Asjudgment, and as a result, it is possible that we may, at another point in time, reach different conclusions regarding our credit loss estimates.estimates



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



See the following for additional details on the components of our ACL, as well as the methodologies and related assumptions:ACL:
•Allowance For Credit Losses in the Credit Risk Management section of this Financial Review, and
Note 1 Accounting Policies, •Note 3 Investment Securities and Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.

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 20192020 Form 10-K and in Note 5 Loan Sale and Servicing Activities and Variable Interest Entities and Note 98 Commitments in the Notes To Consolidated Financial Statements included in this Report.

A summary and further description of variable interest entities (VIEs)VIEs is included in Note 1 Accounting Policies and Note 25 Loan Sale and Servicing Activities and Variable Interest Entities in our 20192020 Form 10-K.




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


Trust Preferred Securities
See Note 10 Borrowed Funds in the Notes To Consolidated Financial Statements in our 20192020 Form 10-K for additional information on trust preferred securities issued by PNC Capital Trust C including information on contractual limitations potentially imposed on payments (including dividends) with respect to PNC's equity securities.
INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND PROCEDURES

As of September 30, 2020,March 31, 2021, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures and of changes in our internal control over financial reporting.

Based on that evaluation, our Chairman, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective as of September 30, 2020,March 31, 2021, and that there has been no change in PNC’s internal control over financial reporting that occurred during the thirdfirst quarter of 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

GLOSSARYOF TERMS

For a glossary of terms commonly used in our filings, please see the glossary of terms updated in our first quarter 2020 Form 10-Q and our 2019 Form 10-K.

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



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We also 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 necessarily subject to numerous assumptions, risks and uncertainties, which change over time. Future events or circumstances may change our outlook and may also affect the nature of the assumptions, risks and uncertainties to which our forward-looking statements are subject. Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake any obligation to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance. As a result, we caution against placing undue reliance on any forward-looking statements.
Our forward-looking statements are subject to the following principal risks and uncertainties. 
•Our businesses, financial results and balance sheet values are affected by business and economic conditions, including the following:
–Changes in interest rates and valuations in debt, equity and other financial markets.
–Disruptions in the U.S. and global financial markets.
–Actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply and market interest rates.
–Changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives.
–Changes in customers’, suppliers’ and other counterparties’ performance and creditworthiness.
–Impacts of tariffs and other trade policies of the U.S. and its global trading partners.
–The length and extent of economic contraction as a result of the COVID-19 pandemic.
–The impact of the upcoming U.S. elections on the regulatory landscape, capital markets, and the response to and management of the COVID-19 pandemic.
–Commodity price volatility.
–Changes in interest rates and valuations in debt, equity and other financial markets,
–Disruptions in the U.S. and global financial markets,
–Actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply and market interest rates,
–Changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives,
–Changes in customers’, suppliers’ and other counterparties’ performance and creditworthiness,
–Impacts of tariffs and other trade policies of the U.S. and its global trading partners,
–The length and extent of economic contraction as a result of the COVID-19 pandemic,
–The impact of the results of the recent U.S. elections on the regulatory landscape, capital markets, and the response to and management of the COVID-19 pandemic, including the effectiveness of already-enacted fiscal stimulus from the federal government and a potential infrastructure bill, and
–Commodity price volatility.
•Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our view that:
–The U.S. economy is in a nascent
–The U.S. economy is in an economic recovery, in the second half of 2020, following a very severe but very short economic contraction in the first half of the year due to the COVID-19 pandemic and public health measures to contain it. Real GDP declined significantly in the first and second quarters of 2020, as many firms closed, at least temporarily, and consumers stayed at home. Since the late spring/early summer, economic activity has picked up due to loosening restrictions on businesses, massive federal stimulus, and extremely low interest rates. Between May and September the economy added back slightly more than half of the 22 million jobs lost in March and April.
–Despite the improvement in the economy in recent months, economic activity remains far below its pre-pandemic level and unemployment remains elevated. Real GDP growth in the third quarter was extremely strong, at an annual rate of 33.1%, but will slow in the fourth quarter and through 2021. PNC does not expect real GDP to return to its pre-pandemic level until late 2021, and does not expect employment to return to its pre-pandemic level until 2023. Risks to this outlook are weighted to the downside; they include a further resurgence in the spread of the coronavirus and a lack of additional stimulus from the federal government.
–Monetary policy remains extremely supportive of economic growth. PNC expects the Federal Open Market Committee to keep the federal funds rate in its current range of 0.00% to 0.25% through at least mid-2024.
Given the many unknowns and risks being heavily weightedfirst half of 2020 due to the downside, our forward-looking statements are subject to the risk that conditions will be substantially different than we are currently expecting. If effortsCOVID-19 pandemic and public health measures to contain COVID-19 are unsuccessfulit.
–Despite the improvement in the economy since the spring of 2020, economic activity remains below its pre-pandemic level and restrictions onunemployment remains elevated.
–Growth will pick up in the spring of 2021 as vaccine distribution continues and the federal government provides aid to households, small and medium-sized businesses, and activities are not further lifted or are reimposed,state and local governments. PNC expects real GDP to return to its pre-pandemic level in the recovery would be much weaker. There is eventhird quarter of 2021, and employment in the potential thatsecond half of 2022.
–PNC expects the economy could fall back into recession. PNC's baseline scenario assumes additional fiscal stimulus; continued inaction on stimulus is another major downside risk. The longer it takesFOMC to combatkeep the pandemic, the more permanent damage it will causefed funds rate in its current range of 0.00% to business and consumer fundamentals and sentiment; this could make the recovery weaker and result in permanently lower long-run economic growth. An extended global recession due to COVID-19 would weaken the U.S. recovery. As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.

48   The PNC Financial Services Group, Inc. – Form 10-Q0.25 % until at least late 2023.



•PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding a stress capital buffer established by the Federal Reserve Board in connection with the Federal Reserve Board's CCAR process. The Federal Reserve also has imposed additional limitations on capital distributions through the fourthsecond quarter of 20202021 by CCAR-participating bank holding companies and may extend these limitations, potentially in modified form.companies.
•PNC’s regulatory capital ratios in the future will depend on, among other things, the company’s financial performance, the scope and terms of final capital regulations then in effect and management actions affecting the composition of PNC’s balance sheet. In addition, PNC’s ability to determine, evaluate and forecast regulatory capital ratios, and to take actions (such as capital distributions) based on actual or forecasted capital ratios, will be dependent at least in part on the development, validation and regulatory review of related models.
•Legal and regulatory developments could have an impact on our ability to operate our businesses, financial condition, results of operations, competitive position, reputation, or pursuit of attractive acquisition opportunities. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and ability to attract and retain management. These developments could include:
–Changes to laws and regulations, including changes affecting oversight of the financial services industry, consumer protection, bank capital and liquidity standards, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
–Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to PNC.
–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.
–Changes to laws and regulations, including changes affecting oversight of the financial services industry, consumer protection, bank capital and liquidity standards, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
44   The PNC Financial Services Group, Inc. – Form 10-Q


–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 PNC.
–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.
We•Our planned acquisition of BBVA presents us with risks and uncertainties related both to the acquisition transaction itself and to the integration of the acquired business into PNC after closing:
–The business of BBVA, including its U.S. banking subsidiary, BBVA USA, going forward may not perform as we currently project or in a manner consistent with historical performance. As a result, the anticipated benefits, including estimated cost savings, of the transaction may be significantly more difficult or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events, including those that are outside of our control.
–The combination of BBVA, including its U.S. banking subsidiary, BBVA USA, with PNC and PNC Bank, respectively, may be more difficult to achieve than anticipated or have unanticipated adverse results relating to BBVA, including its U.S. banking subsidiary, BBVA USA, or our existing businesses.
–Completion of the transaction is dependent on the satisfaction of customary closing conditions, which cannot be assured. The timing of completion of the transaction is dependent on various factors that cannot be predicted with precision at this point.
•In addition to the planned BBVA transaction, we grow our business in part through acquisitions and new strategic initiatives. Risks and uncertainties include those presented by the nature of the business acquired and strategic initiative, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into PNC after closing.
•Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues. Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.
•Business and operating results can also be affected by widespread natural and other disasters, pandemics, dislocations, terrorist activities, system failures, security breaches, cyberattacks or international hostilities through impacts on the economy and financial markets generally or on us or our counterparties specifically.
We provide greater detail regarding these as well as other factors in our 20192020 Form 10-K and subsequent Form 10-Qs and elsewhere in this Report, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements in these reports. In particular, our forward-looking statements are subject to risks and uncertainties related to the COVID-19 pandemic and the resulting governmental and societal responses. Our forward-looking statements may also be subject to other risks and uncertainties, including those we may discuss elsewhere in this Report or in our other filings with the SEC.




The PNC Financial Services Group, Inc. – Form 10-Q 4945  


CONSOLIDATED INCOME STATEMENT
THE PNC FINANCIAL SERVICES GROUP, INC.
UnauditedThree months ended
September 30		 Nine months ended
September 30
In millions, except per share data2020
 2019
 2020
 2019
Interest Income       
Loans$2,116
 $2,678
 $6,853
 $7,952
Investment securities490
 617
 1,599
 1,866
Other70
 208
 279
 610
Total interest income2,676
 3,503
 8,731
 10,428
Interest Expense       
Deposits74
 531
 590
 1,518
Borrowed funds118
 468
 619
 1,433
Total interest expense192
 999
 1,209
 2,951
Net interest income2,484
 2,504
 7,522
 7,477
Noninterest Income       
Asset management215
 213
 615
 646
Consumer services390
 402
 1,097
 1,165
Corporate services479
 469
 1,517
 1,415
Residential mortgage137
 134
 505
 281
Service charges on deposits119
 178
 366
 517
Other457
 342
 1,071
 1,017
Total noninterest income1,797
 1,738
 5,171
 5,041
Total revenue4,281
 4,242
 12,693
 12,518
Provision For Credit Losses52
 183
 3,429
 552
Noninterest Expense       
Personnel1,410
 1,400
 4,152
 4,179
Occupancy205
 206
 611
 633
Equipment292
 291
 880
 862
Marketing67
 76
 172
 224
Other557
 650
 1,774
 1,914
Total noninterest expense2,531
 2,623
 7,589
 7,812
Income from continuing operations before income taxes and noncontrolling interests1,698
 1,436
 1,675
 4,154
Income taxes from continuing operations166
 255
 128
 706
Net income from continuing operations1,532
 1,181
 1,547
 3,448
Income from discontinued operations before taxes


 251
 5,777
 700
Income taxes from discontinued operations


 40
 1,222
 111
Net income from discontinued operations


 211
 4,555
 589
Net income1,532
 1,392
 6,102
 4,037
Less: Net income attributable to noncontrolling interests13
 13
 27
 35
Preferred stock dividends63
 63
 181
 181
Preferred stock discount accretion and redemptions1
 1
 3
 3
Net income attributable to common shareholders$1,455
 $1,315
 $5,891
 $3,818
Earnings Per Common Share       
Basic earnings from continuing operations$3.40
 $2.47
 $3.11
 $7.15
Basic earnings from discontinued operations


 .48
 10.61
 1.30
Total basic earnings$3.40
 $2.95
 $13.73
 $8.45
Diluted earnings from continuing operations$3.39
 $2.47
 $3.11
 $7.13
Diluted earnings from discontinued operations

 .47
 10.59
 1.29
Total diluted earnings$3.39
 $2.94
 $13.70
 $8.42
Average Common Shares Outstanding       
Basic426
 444
 427
 450
Diluted426
 445
 428
 451

UnauditedThree months ended
March 31
In millions, except per share data20212020
Interest Income
Loans$1,996 $2,480 
Investment securities421 582 
Other66 138 
Total interest income2,483 3,200 
Interest Expense
Deposits40 375 
Borrowed funds95 314 
Total interest expense135 689 
Net interest income2,348 2,511 
Noninterest Income
Asset management226 201 
Consumer services384 377 
Corporate services555 526 
Residential mortgage105 210 
Service charges on deposits119 168 
Other483 343 
Total noninterest income1,872 1,825 
Total revenue4,220 4,336 
Provision For (Recapture of) Credit Losses(551)914 
Noninterest Expense
Personnel1,477 1,369 
Occupancy215 207 
Equipment293 287 
Marketing45 58 
Other544 622 
Total noninterest expense2,574 2,543 
Income from continuing operations before income taxes and noncontrolling interests2,197 879 
Income taxes from continuing operations371 120 
Net income from continuing operations1,826 759 
Income from discontinued operations before taxes0181 
Income taxes from discontinued operations025 
Net income from discontinued operations00156 
Net income1,826 915 
Less: Net income attributable to noncontrolling interests10 7 
Preferred stock dividends57 63 
Preferred stock discount accretion and redemptions1 1 
Net income attributable to common shareholders$1,758 $844 
Earnings Per Common Share
Basic earnings from continuing operations$4.11 $1.59 
Basic earnings from discontinued operations00.37 
Total basic earnings$4.11 $1.96 
Diluted earnings from continuing operations$4.10 $1.59 
Diluted earnings from discontinued operations00.36 
Total diluted earnings$4.10 $1.95 
Average Common Shares Outstanding
Basic426 429 
Diluted426 430 
See accompanying Notes To Consolidated Financial Statements.

5046    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
September 30		 Nine months ended
September 30		 Unaudited
In millions		Three months ended
March 31
2020
 2019
 2020
 2019
 20212020
Net income (loss) from continuing operations $1,532
 $1,181
 $1,547
 $3,448
 
Other comprehensive income (loss), before tax and net of reclassifications into Net income:         
Net income from continuing operationsNet income from continuing operations$1,826 $759 
Other comprehensive income (loss), before tax and net of reclassifications into Net incomeOther comprehensive income (loss), before tax and net of reclassifications into Net income
Net change in debt securities 10
 214
 2,028
 1,556
 Net change in debt securities(1,194)1,480 
Net change in cash flow hedge derivatives (119) 79
 678
 433
 Net change in cash flow hedge derivatives(775)785 
Pension and other postretirement benefit plan adjustments 2
 2
 (3) 63
 Pension and other postretirement benefit plan adjustments30 12 
Net change in Other 0
 4
 10
 14
 Net change in Other1 8 
Other comprehensive income (loss) from continuing operations, before tax and net of reclassifications into Net income (107) 299
 2,713
 2,066
 Other comprehensive income (loss) from continuing operations, before tax and net of reclassifications into Net
income		(1,938)2,285 
Income tax benefit (expense) from continuing operations related to items of other comprehensive income 35
 (74) (630) (481) Income tax benefit (expense) from continuing operations related to items of other comprehensive income458 (540)
Other comprehensive income (loss) from continuing operations, after tax and net of reclassifications into Net income (72) 225
 2,083
 1,585
 Other comprehensive income (loss) from continuing operations, after tax and net of reclassifications into Net
income		(1,480)1,745 
Net income from discontinued operations 


 211
 4,555
 589
 Net income from discontinued operations00156 
Other comprehensive income (loss) from discontinued operations, before tax and net of reclassifications into Net income

 0
 (23) 148
 (29) Other comprehensive income (loss) from discontinued operations, before tax and net of reclassifications into Net
income

(34)
Income tax benefit (expense) from discontinued operations related to items of other comprehensive income
 0
 4
 (33) 6
 Income tax benefit (expense) from discontinued operations related to items of other comprehensive income
8 
Other comprehensive income (loss) from discontinued operations, after tax and net of reclassifications into Net income 0
 (19) 115
 (23) Other comprehensive income (loss) from discontinued operations, after tax and net of reclassifications into Net
income		0(26)
Other comprehensive income (loss), after tax and net of reclassifications into Net income
 (72) 206
 2,198
 1,562
 Other comprehensive income (loss), after tax and net of reclassifications into Net income
(1,480)1,719 
Comprehensive income 1,460
 1,598
 8,300
 5,599
 Comprehensive income346 2,634 
Less: Comprehensive income attributable to noncontrolling interests 13
 13
 27
 35
 Less: Comprehensive income attributable to noncontrolling interests10 7 
Comprehensive income attributable to PNC $1,447
 $1,585
 $8,273
 $5,564
 Comprehensive income attributable to PNC$336 $2,627 
See accompanying Notes To Consolidated Financial Statements.

The PNC Financial Services Group, Inc. – Form 10-Q 5147  



CONSOLIDATED BALANCE SHEET
THE PNC FINANCIAL SERVICES GROUP, INC.
UnauditedMarch 31
2021		December 31
2020
In millions, except par value
Assets
Cash and due from banks$7,455 $7,017 
Interest-earning deposits with banks86,161 85,173 
Loans held for sale (a)1,967 1,597 
Investment securities – available for sale96,799 87,358 
Investment securities – held to maturity1,456 1,441 
Loans (a)237,013 241,928 
Allowance for loan and lease losses(4,714)(5,361)
Net loans232,299 236,567 
Equity investments6,386 6,052 
Mortgage servicing rights1,680 1,242 
Goodwill9,317 9,233 
Other (a)30,894 30,999 
Total assets$474,414 $466,679 
Liabilities
Deposits
Noninterest-bearing$120,641 $112,637 
Interest-bearing254,426 252,708 
Total deposits375,067 365,345 
Borrowed funds
Federal Home Loan Bank borrowings1,500 3,500 
Bank notes and senior debt22,139 24,271 
Subordinated debt6,241 6,403 
Other (b)3,150 3,021 
Total borrowed funds33,030 37,195 
Allowance for unfunded lending related commitments507 584 
Accrued expenses and other liabilities11,931 9,514 
Total liabilities420,535 412,638 
Equity
Preferred stock (c)00
Common stock ($5 par value, Authorized 800 shares, issued 543 shares)2,713 2,713 
Capital surplus15,879 15,884 
Retained earnings48,113 46,848 
Accumulated other comprehensive income1,290 2,770 
Common stock held in treasury at cost: 118 and 119 shares(14,146)(14,205)
Total shareholders’ equity53,849 54,010 
Noncontrolling interests30 31 
Total equity53,879 54,041 
Total liabilities and equity$474,414 $466,679 
UnauditedSeptember 30
2020
 December 31
2019
In millions, except par value
Assets   
Cash and due from banks$6,629
 $5,061
Interest-earning deposits with banks70,959
 23,413
Loans held for sale (a)1,787
 1,083
Asset held for sale (b)


 8,558
Investment securities – available for sale89,747
 69,163
Investment securities – held to maturity1,438
 17,661
Loans (a)249,279
 239,843
Allowance for loan and lease losses (c)(5,751) (2,742)
Net loans243,528
 237,101
Equity investments4,938
 5,176
Mortgage servicing rights1,113
 1,644
Goodwill9,233
 9,233
Other (a)32,445
 32,202
Total assets$461,817
 $410,295
Liabilities   
Deposits   
Noninterest-bearing$107,281
 $72,779
Interest-bearing247,798
 215,761
Total deposits355,079
 288,540
Borrowed funds   
Federal Home Loan Bank borrowings5,500
 16,341
Bank notes and senior debt26,839
 29,010
Subordinated debt6,465
 6,134
Other (d)3,306
 8,778
Total borrowed funds42,110
 60,263
Allowance for unfunded lending related commitments (c)689
 318
Accrued expenses and other liabilities10,629
 11,831
Total liabilities408,507
 360,952
Equity   
Preferred stock (e)

  
Common stock ($5 par value, Authorized 800 shares, issued 542 shares)2,712
 2,712
Capital surplus15,836
 16,369
Retained earnings45,947
 42,215
Accumulated other comprehensive income2,997
 799
Common stock held in treasury at cost: 118 and 109 shares(14,216) (12,781)
Total shareholders’ equity53,276
 49,314
Noncontrolling interests34
 29
Total equity53,310
 49,343
Total liabilities and equity$461,817
 $410,295
(a)Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $1.6 billion, Loans of $1.4 billion and Other assets of $0.1 billion at March 31, 2021. Comparable amounts at December 31, 2020 were $1.2 billion, $1.4 billion and $0.1 billion, respectively.
(a)Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $1.4 billion, Loans of $1.3 billion and Other assets of $.1 billion at September 30, 2020 and Loans held for sale of $1.1 billion, Loans of $.7 billion and Other assets of $.1 billion at December 31, 2019.
(b)Represents our held for sale investment in BlackRock. In the second quarter of 2020, PNC divested its entire investment in BlackRock. Prior period BlackRock investment balances have been reclassified to the Asset held for sale line in accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations. Refer to Note 1 Accounting Policies and Note 2 Discontinued Operations for additional details.
(c)
Amounts as of September 30, 2020 reflects the impact of adopting Accounting Standards Update 2016-13, Financial Instruments -
(b)Our consolidated liabilities included Other borrowed funds of less than $0.1 billion at both March 31, 2021 and December 31, 2020, for which we have elected the fair value option.
(c)Par value less than $0.5 million at each date.

Credit Losses, which is commonly referred to as the Current Expected Credit Losses (CECL) standard and our transition from an incurred loss methodology for these reserves to an expected credit loss methodology. Refer to Note 1 Accounting Policies in this Report for additional detail on the adoption of this standard.
(d)Our consolidated liabilities at September 30, 2020 and December 31, 2019 included Other borrowed funds of less than $.1 billion and $.1 billion, respectively, for which we have elected the fair value option.
(e)Par value less than $.5 million at each date.

See accompanying Notes To Consolidated Financial Statements.

5248    The PNC Financial Services Group, Inc. – Form 10-Q




CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
 
Unaudited
In millions
 Nine months ended
September 30		 Unaudited
In millions		Three months ended
March 31
2020
 2019
 20212020
Operating Activities     Operating Activities
Net income $6,102
 $4,037
 Net income$1,826 $915 
Adjustments to reconcile net income to net cash provided (used) by operating activities     Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for credit losses 3,429
 552
 
Provision for (recapture of) credit lossesProvision for (recapture of) credit losses(551)914 
Depreciation and amortization 944
 904
 Depreciation and amortization375 328 
Deferred income taxes (2,505) 83
 Deferred income taxes(138)(226)
Net gains on sales of securities (254) 


 
Changes in fair value of mortgage servicing rights 774
 715
 Changes in fair value of mortgage servicing rights(323)620 
Gain on sale of BlackRock (5,740)   
Undistributed earnings of BlackRock (174) (356) Undistributed earnings of BlackRock(56)
Net change in     Net change in
Trading securities and other short-term investments 1,132
 741
 Trading securities and other short-term investments564 (1,014)
Loans held for sale (533) (882) Loans held for sale(342)(452)
Other assets (2,112) (2,086) Other assets(822)(6,912)
Accrued expenses and other liabilities 1,044
 831
 Accrued expenses and other liabilities245 5,376 
Other 617
 (291) Other(54)(189)
Net cash provided (used) by operating activities $2,724
 $4,248
 Net cash provided (used) by operating activities$780 $(696)
Investing Activities     Investing Activities
Sales     Sales
Securities available for sale $12,512
 $5,201
 Securities available for sale$5,558 $5,447 
Net proceeds from sale of BlackRock 14,225
 


 
Loans 1,365
 1,237
 Loans406 314 
Repayments/maturities     Repayments/maturities
Securities available for sale 19,850
 7,962
 Securities available for sale7,263 4,332 
Securities held to maturity 52
 2,193
 Securities held to maturity14 12 
Purchases     Purchases
Securities available for sale (34,242) (17,179) Securities available for sale(22,094)(11,889)
Securities held to maturity (49) (1,739) Securities held to maturity(21)(4)
Loans (1,600) (898) Loans(778)(100)
Net change in     Net change in
Federal funds sold and resale agreements 1,693
 3,192
 Federal funds sold and resale agreements(136)965 
Interest-earning deposits with banks (47,546) (8,143) Interest-earning deposits with banks(988)3,427 
Loans (10,323) (11,978) Loans5,043 (25,758)
Other (316) (573) Other(339)(125)
Net cash provided (used) by investing activities $(44,379) $(20,725) Net cash provided (used) by investing activities$(6,072)$(23,379)
(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q 5349  


CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
(continued from previous page)
 
Unaudited
In millions
 Nine Months Ended
September 30		 Unaudited
In millions		Three Months Ended
March 31
2020
 2019
 20212020
Financing Activities     Financing Activities
Net change in     Net change in
Noninterest-bearing deposits $34,479
 $180
 Noninterest-bearing deposits$8,096 $8,857 
Interest-bearing deposits 32,037
 17,627
 Interest-bearing deposits1,718 7,829 
Federal funds purchased and repurchase agreements (5,870) 1,934
 Federal funds purchased and repurchase agreements(3)2,306 
Short-term Federal Home Loan Bank borrowings (6,300) 1,400
 Short-term Federal Home Loan Bank borrowings(400)
Other borrowed funds 298
 (77) Other borrowed funds168 1,044 
Sales/issuances     Sales/issuances
Federal Home Loan Bank borrowings 9,060
 12,000
 Federal Home Loan Bank borrowings9,060 
Bank notes and senior debt 3,487
 6,930
 Bank notes and senior debt3,486 
Other borrowed funds 458
 929
 Other borrowed funds188 172 
Common and treasury stock 54
 73
 Common and treasury stock27 23 
Repayments/maturities     Repayments/maturities
Federal Home Loan Bank borrowings (13,601) (13,000) Federal Home Loan Bank borrowings(2,000)(1,510)
Bank notes and senior debt (6,647) (5,600) Bank notes and senior debt(1,650)(2,100)
Subordinated debt   (700) 
Other borrowed funds (479) (963) Other borrowed funds(198)(172)
Preferred stock redemption (480)   
Acquisition of treasury stock (1,604) (2,626) Acquisition of treasury stock(66)(1,522)
Preferred stock cash dividends paid (181) (181) Preferred stock cash dividends paid(57)(63)
Common stock cash dividends paid (1,488) (1,386) Common stock cash dividends paid(493)(503)
Net cash provided (used) by financing activities $43,223
 $16,540
 Net cash provided (used) by financing activities$5,730 $26,507 
Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash 1,568
 63
 Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash$438 $2,432 
Net cash provided by discontinued operations 12,244
 233
 Net cash provided by discontinued operations0126 
Net cash provided (used) by continuing operations (10,676) (170) Net cash provided (used) by continuing operations438 2,306 
Cash and due from banks and restricted cash at beginning of period 5,061
 5,608
 Cash and due from banks and restricted cash at beginning of period7,017 5,061 
Cash and due from banks and restricted cash at end of period $6,629
 $5,671
 Cash and due from banks and restricted cash at end of period$7,455 $7,493 
Cash and due from banks and restricted cash     Cash and due from banks and restricted cash
Cash and due from banks at end of period (unrestricted cash) $6,297
 $5,671
 Cash and due from banks at end of period (unrestricted cash)$6,698 $7,161 
Restricted cash 332
   Restricted cash757 332
Cash and due from banks and restricted cash at end of period $6,629
 $5,671
 Cash and due from banks and restricted cash at end of period$7,455 $7,493 
Supplemental Disclosures     Supplemental Disclosures
Interest paid $1,071
 $2,915
 Interest paid$188 $638 
Income taxes paid $2,762
 $321
 Income taxes paid$15 $36 
Income taxes refunded $9
 $7
 Income taxes refunded$4 $5 
Leased assets obtained in exchange for new operating lease liabilities $71
 $238
 Leased assets obtained in exchange for new operating lease liabilities$12 $57 
Right-of-use assets recognized at adoption of ASU 2016-02   $2,004
 
Non-cash Investing and Financing Items     Non-cash Investing and Financing Items
Transfer from loans to loans held for sale, net $1,026
 $771
 Transfer from loans to loans held for sale, net$344 $313 
Transfer from trading securities to investment securities $289
 $228
 
Transfer from loans to foreclosed assets $57
 $131
 Transfer from loans to foreclosed assets$7 $37 
See accompanying Notes To Consolidated Financial Statements.

5450    The PNC Financial Services Group, Inc. – Form 10-Q




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE PNC FINANCIAL SERVICES GROUP, INC.
Unaudited

See page 95 for a glossary of certain terms and acronyms used in this Report.

BUSINESS

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

We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our retail branch network is located primarily in markets across the Mid-Atlantic, Midwest and Southeast. We also have strategic international offices in four countries outside the U.S.
NOTE 1 ACCOUNTING POLICIES

Basis of Financial Statement Presentation

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

We prepared these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP).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 20192020 Form 10-K. Reference is made to Note 1 Accounting Policies in our 2020 Form 10-K for a detailed description of significant accounting policies. These interim consolidated financial statements serve to update our 20192020 Form 10-K and may not include all information and Notes necessary to constitute a complete set of financial statements. There have been no significant changes to our accounting policies as disclosed in our 20192020 Form 10-K due to the adoption of the Current Expected Credit Losses (CECL) standard and our discontinued operation as a result of the disposal of our equity investment in BlackRock. As a result of this disposal, BlackRock’s historical results of operations are reported as discontinued operations in our consolidated financial statements for all periods presented. The updated policies impacted by these changes are included in this Note 1. Reference is made to Note 1 Accounting Policies in our 2019 Form 10-K for a detailed description of all other significant accounting policies.10-K.

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 the ACL and our fair value measurements and allowance for credit losses (ACL).measurements. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.

Discontinued Operations

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

When presenting discontinued operations, assets classified as held for sale are segregated in the Consolidated Balance Sheet commencing in the period in which the asset meets all of the held for sale criteria described above and prior periods are recast. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Income for current and











The PNC Financial Services Group, Inc. – Form 10-Q 5551  


prior periods commencing in the period in which the asset or business is either disposed of or is classified as held for sale, including any gain or loss recognized on the sale or adjustment of the carrying amount to fair value less cost to sell.

Earnings Per Common Share

Basic earnings per common share is calculated using the two-class method to determine income attributable to common shareholders. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities under the two-class method. Distributed dividends and dividend equivalents related to participating securities and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. In a period with a loss, no allocation will be made to the participating securities, as they do not have a contractual obligation to absorb losses. Income attributable to common shareholders is then divided by the weighted-average common shares outstanding for the period.

Diluted earnings per common share is calculated under the more dilutive of either the treasury method or the two-class method. For the diluted calculation, we increase the weighted-average number of shares of common stock outstanding by the assumed conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance, if later, and the number of shares of common stock that would be issued assuming the exercise of stock options and warrants and the issuance of incentive shares using the treasury stock method. These adjustments to the weighted-average number of shares of common stock outstanding are made only when such adjustments will dilute earnings per common share. For periods in which there is a loss from continuing operations, any potential dilutive shares will be anti-dilutive. In this scenario, no potential dilutive shares will be included in the continuing operations, discontinued operations or total earnings per common share calculations, even if overall net income is reported. See Note 11 Earnings Per Share for additional information.

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



Recently Adopted Accounting Standards

Accounting Standards Update (ASU)DescriptionFinancial Statement Impact
Credit Losses-Income Tax Simplification - ASU 2016-132019-12

Issued June 2016

Codification Improvements - ASU 2019-04

Various improvements related to Credit Losses (Topics 1, 2 and 5)

Issued AprilDecember 2019

Targeted Transition Relief - Credit Losses - ASU 2019-05

Issued May 2019

Codification Improvements - ASU 2019-11

Issued November 2019


• Commonly referred to as the CECL standard.

• Replaces measurement, recognition and disclosure guidanceSimplifies the accounting for credit related reserves (income taxes by eliminating certain exceptions in ASC 740, i.e.Income Taxes, relating to the allowanceapproach for loan and lease losses (ALLL)intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences and the allowancemethodology for unfunded loan commitments and letters of credit) and Other than Temporary Impairment (OTTI) for debt securities.calculating income taxes in an interim period.

• Requires the use of an expected credit loss methodology; specifically, current expected credit losses for the remaining lifeClarifies areas of the asset will be recognized starting fromincome tax guidance around franchise taxes partially based on income, step-ups in the timetax basis of origination or acquisition.

goodwill, and enacted changes in tax laws.
• Methodology appliesSpecifies that an entity is no longer required to loans, net investmentallocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in leases, debt securities and certainits separate financial assets not accounted for at fair value through net income. It also applies to unfunded lending related commitments except for unconditionally cancellable commitments.statements.

• In-scope assets are presented at the net amount expected to be collected after the deduction or addition of the ACL from the amortized cost basis of the assets.

• Requires inclusion of expected recoveries of previously charged-off amounts for in-scope assets.

• Requires enhanced credit quality disclosures including disaggregation of credit quality indicators by vintage.

• Requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings at adoption.


• Adopted January 1, 2020 under the modified retrospective approach. The cumulative-effect adjustment to retained earnings totaled $671 million at adoption.

• Amended presentation and disclosures are required prospectively. Refer to the disclosures in this Note 1, Note 3 Investment Securities, Note 4 Loans and Related Allowance for Credit Losses and Note 10 Total Equity and Other Comprehensive Income for additional information.

• With the adoption of CECL, we discontinued the accounting for purchased impaired loans and elected the one-time fair value option election for some of these loans and certain residential real estate collateral dependent loans. Loans that were previously accounted for as purchased impaired where the fair value option election was not made are now accounted for as purchased credit deteriorated (PCD) loans.

• There was no impact to the recorded investment of our investment securities or loans, except for our PCD loan portfolio. Accounting for these loans as PCD required an adjustment to the remaining accretable discount and recorded investment in addition to the impact on ACL due to the adoption of CECL methodology.

• Refer to Table 35 for a summary of the impact of the CECL standard adoption.




Accounting Standards Update (ASU)DescriptionFinancial Statement Impact
Codification Improvements - ASU 2019-04

Topic 3: Codification Improvements to ASU 2017-12 and Other Hedging Items

Issued April 2019
• Targeted improvements related to:
     - Partial-term fair value hedges of interest rate risk
     - Amortization of fair value hedge basis adjustments
     - Disclosure of fair value hedge basis adjustments
     - Consideration of the hedged contractually specified interest rate under the hypothetical derivative method
     - Application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments
     - Update to transition guidance for ASU 2017-12
• This ASU permits a one-time transfer out of held to maturity securities to provide entities the opportunity to hedge fixed rate, prepayable securities under a last of layer hedging strategy (although an entity is not required to hedge such securities subsequent to transfer).


• Adopted January 1, 2020.
• As permitted by the eligibility requirements in this guidance, at adoption we elected to transfer debt securities with an amortized cost of $16.2 billion (fair value of $16.5 billion) from held to maturity to the available for sale portfolio. The transfer resulted in a pretax increase to AOCI of $306 million. There were no other impacts to PNC's consolidated financial statements from the adoption of this guidance.



Accounting Standards Update (ASU)DescriptionFinancial Statement Impact
Goodwill -
ASU 2017-04

Issued January 2017
• 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 reporting unit's carrying value exceeds the fair value.
• Adopted January 1, 2020.2021.
• The adoption of this standard did not impact our consolidated results of operations or our consolidated financial position. PNC will no longer allocate the consolidated amount of current and deferred income tax expense to certain qualifying stand-alone entities, which may impact the presentation of parent company tax expense subsequent to adoption.


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


Accounting Standards Update (ASU)DescriptionFinancial Statement Impact
Reference Rate Reform - ASU 2020-04

Issued March 2020

Reference Rate Reform Scope - ASU 2021-01

Issued January 2021


• Provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.reform (codified in ASC 848).
• Includes optional expedients related to contract modifications that allow an entity to account for modifications (if certain criteria are met) as if the modifications were only minor (assets within the scope of ASC 310, Receivables), were not substantial (assets within the scope of ASC 470, Debt), and/or did not result in remeasurements or reclassifications (assets within the scope of ASC 842, Leases, and other Topics) of the existing contract.
• Includes optional expedients related to hedging relationships within the scope of ASC 815, Derivatives & Hedging, whereby changes to the critical terms of a hedging relationship do not require dedesignation if certain criteria are met. In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing some effectiveness assessments.
• Includes optional expedients and exceptions for contract modifications and hedge accounting that apply to derivative instruments impacted by the market-wide discounting transition.
• Allows for a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.
• Guidance in this ASU isthese ASUs are effective as of March 12, 2020 through December 31, 2022.




• AdoptedASU 2020-04 was adopted March 12, 2020. ASU 2021-01 was retrospectively adopted October 1, 2020.
 • Refer to Note 1 Accounting Policies in the 2020 willForm 10-K for more information on elections of optional expedients that occurred in 2020.
 • During the first quarter of 2021, we elected to apply prospectively.certain optional expedients to derivative instruments that were modified in the first quarter due to the adoption of fallback language recommended by the ISDA to address the anticipated cessation of LIBOR. These optional expedients remove the requirement to remeasure contract modifications or dedesignate hedging relationships due to reference rate reform.
• As of September 30, 2020,March 31, 2021, we have not yet elected to apply any optional expedients related tofor contract modifications orand hedging relationships as outlined in this ASU.to any other financial instruments. However, we plan to elect these optional expedients in the future.




Accounting Standards UpdateDescriptionFinancial Statement Impact
SEC Paragraph Amendments – ASU 2020-09

Issued October 2020
• DuringAmends the second quarterfinancial disclosure requirements for guarantors and issuers of 2020,guaranteed securities registered or being registered, and issuers’ affiliates whose securities collateralize securities registered or being registered in Regulation S-X.
• Improves disclosure requirements for both investors and registrants.
• Provides investors with material information given the specific facts and circumstances, making the disclosures easier to understand and reducing the costs and burdens to registrants.


• Adopted January 4, 2021.
• In accordance with the requirements of this ASU, we electedincluded Exhibit 22 in the Exhibit Index of Item 6 of this Report to transfer all debt securities classified as held to maturity that are indexed to LIBOR to the available for sale portfolio. All securities were classified as held to maturity prior to January 1, 2020. These securities had an amortized cost and fair value of $49 million and $48 million, respectively, asdisclose PNC’s guarantee of the transfer date. See Note 3 Investment Securities for more information.



PNC Capital Trust C preferred securities.


The following table presents the impact of adopting the CECL standard on January 1, 2020 on our allowance and retained earnings.

Table 35: Impact of the CECL Standard Adoption
In millions December 31, 2019Transition AdjustmentJanuary 1, 2020
Allowance for credit losses    
Allowance for loan and lease losses    
Commercial $1,812
$(304)$1,508
Consumer 930
767
1,697
Total allowance for loan and lease losses 2,742
463
3,205
Unfunded lending related commitments 318
179
497
Other 0
19
19
Total allowance for credit losses $3,060
$661
$3,721
     
In millions December 31, 2019
Transition Adjustment
January 1, 2020
Impact to retained earnings (a) $42,215
$(671)$41,544
(a) Transition adjustment includes the increase in the total ACL of $.7 billion and the impact of the fair value option election of $.2 billion, offset by the tax impact of $.2 billion.

Cash, Cash Equivalents and Restricted Cash

Cash and due from banks are considered cash and cash equivalents for financial reporting purposes because they represent a primary source of liquidity. Certain cash balances within Cash and due from banks on our Consolidated Balance Sheet are restricted as to withdrawal or usage by legally binding contractual agreements or regulatory requirements.

Investments

We hold interests in various types of investments. The accounting for these investments is dependent on a number of factors including,
but not limited to, items such as:
• Ownership interest,
• Our plans for the investment, and
• The nature of the investment.

5852    The PNC Financial Services Group, Inc. – Form 10-Q



Debt Securities
Debt securities are recorded on a trade-date basis. We classify debt securities as either trading, held to maturity, or available for sale. Debt securities that we purchase for certain risk management activities or customer-related trading activities are classified as trading securities, are reported in the Other assets line item on our Consolidated Balance Sheet, and are carried at fair value. Realized and unrealized gains and losses on trading securities are included in Other noninterest income. We classify debt securities as held to maturity when we have the positive intent and ability to hold the securities to maturity, and carry them at amortized cost, less any allowance. Debt securities not classified as held to maturity or trading are classified as securities available for sale, and are carried at fair value. Unrealized gains and losses on available for sale securities are included in Accumulated other comprehensive income (AOCI) net of income taxes.

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

As discussed in the Recently Adopted Accounting Standards section of this Note 1, we adopted the CECL standard as of January 1,
2020, which requires expected credit losses on both held to maturity and available for sale securities to be recognized through a
valuation allowance, ACL, instead of as a direct write-down to the amortized cost basis of the security. An available for sale security is considered impaired if the fair value is less than amortized cost basis. If any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If we have the intent to sell or believe it is more likely than not we will be required to sell an impaired available for sale security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Credit losses on investment securities are recognized through the Provision for credit losses on our Consolidated Income Statement. Declines in the fair value of available for sale securities that are not considered credit related are recognized in AOCI on our Consolidated Balance Sheet. The CECL standard is applied prospectively to debt securities and, as a result, the amortized cost basis of investment securities for which OTTI had previously been recorded did not change upon adoption. For information on the policies previously applied to determine OTTI, see the Debt Securities section of Note 1 Accounting Policies in our 2019 Form 10-K.

We consider a security to be past due in terms of payment based on its contractual terms. A security may be placed on nonaccrual, with interest no longer recognized until received, when collectability of principal or interest is doubtful.As of September 30, 2020, nonaccrual or past due held-to-maturity securities were immaterial.

A security may be partially or fully charged off against the allowance if it is determined to be uncollectible, including, for an available for sale security, if we have the intent to sell or believe it is more likely than not we will be required to sell the security before recovery of the amortized cost basis. Recoveries of previously charged-off available for sale securities are recognized when received, while recoveries on held to maturity securities are recognized when expected.

See the Allowance for Credit Loss section of this Note 1 for further discussion regarding the methodologies used to determine the
allowance for investment securities. See Note 3 Investment Securities for additional information about the investment securities portfolio and the related ACL.

Loans

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

Measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of
payment are considered delinquent. See Note 4 Loans and Related Allowance for Credit Losses for additional information on how COVID-19 hardship related loan modifications are reported from a delinquency perspective as of September 30, 2020.

Loans held for investment, excluding PCD loans, are recorded at amortized cost basis unless we elect to measure these under the fair value option. Amortized cost basis represents principal amounts outstanding, net of unearned income, unamortized deferred fees, costs on originated loans, and premiums or discounts on purchased loans, and charge-offs. Amortized cost basis does not include accrued interest, as we include accrued interest in Other assets on our Consolidated Balance Sheet. Interest on performing loans is accrued based on the principal amount outstanding and recorded in Interest income as earned using the constant effective yield method. Loan origination fees, direct loan origination costs, and loan premiums and discounts are deferred and accreted or amortized into Net

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


interest income using the constant effective yield method, over the contractual life of the loan. The processing fee received for loans originated under the Paycheck Protection Program (PPP) is deferred and accreted into Net interest income using the effective yield method, over the contractual life of the loan. Loans under the fair value option are reported at their fair value, with any changes to fair value reported as Noninterest income on the Consolidated Income Statement, and are excluded from measurement of ALLL.

In addition to originating loans, we also acquire loans through the secondary loan market, portfolio purchases or acquisitions of other
financial services companies. Certain acquired loans that have experienced a more than significant deterioration of credit quality since origination (i.e., PCD) are recognized at an amortized cost basis equal to their purchase price plus an ALLL measured at the acquisition date. Subsequent decreases in expected cash flows that are attributable, at least in part, to credit quality are recognized through a charge to the provision for credit losses resulting in an increase in the ALLL. Subsequent increases in expected cash flows are recognized as a provision recapture of previously recorded ALLL.

We consider a loan to be collateral dependent when we determine that substantially all of the expected cash flows will be generated
from the operation or sale of the collateral underlying the loan, the borrower is experiencing financial difficulty and we have elected to
measure the loan at the estimated fair value of collateral (less costs to sell if sale or foreclosure of the property is expected).
Additionally, we consider a loan to be collateral dependent when foreclosure or liquidation of the underlying collateral is probable.

A troubled debt restructuring (TDR) is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. A concession has been granted when we do not expect to collect all amounts due, including original interest accrued at the original contract rate, as a result of the restructuring, or there is a delay in payment that is more than insignificant. TDRs result from our loss mitigation activities, and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization, and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us. In those situations where principal is forgiven, the amount of such principal forgiveness is immediately charged off.
Potential incremental losses or recoveries on TDRs have been factored into the ALLL estimates for each loan class under the methodologies described in this Note. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, the collateral is foreclosed upon, or it is fully charged off.
PNC excludes consumer loans held for sale, loans accounted for under the fair value option and certain government insured or guaranteed loans from our TDR population. PCD loans that do not meet the criteria to be classified as TDRs are also excluded. In addition, PNC has elected not to apply a TDR designation to loans that have been restructured due to a COVID-19 hardship pursuant to specific criteria under the CARES Act. Since loans restructured due to a COVID-19 related hardship were not identified as TDRs, they are not placed on nonaccrual at the time of modification. However, these loans will be subject to our existing nonaccrual policy subsequent to the modification.

See the following for additional information related to loans, including further discussion regarding our policies, the methodologies and significant inputs used to determine the ALLL, and additional details on the composition of our loan portfolio:
Nonperforming Loans and Leases section of this Note 1,
Allowance for Credit Losses section of this Note 1, and
Note 4 Loans and Related Allowance for Credit Losses.

Loans Held for Sale

We designate loans as held for sale when we have the intent to sell them. At the time of designation to held for sale, any allowance is
reversed, and a valuation allowance for the shortfall between the amortized cost basis and the net realizable value is recognized, excluding the amounts already charged off. Similarly, when loans are no longer considered held for sale, the valuation allowance (net of writedowns) is reversed, and an allowance for credit losses is established, excluding the amounts already charged-off. Write-downs on these loans (if required) are recorded as charge-offs through the valuation allowance. Adjustments to the valuation allowance on held for sale loans are recognized in Other noninterest income.

We have elected to account for certain commercial and residential mortgage loans held for sale at fair value. The changes in the fair
value of the commercial mortgage loans are measured and recorded in Other noninterest income while such changes for the residential
mortgage loans are measured and recorded in Residential mortgage noninterest income each period. See Note 12 Fair Value for
additional information.

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


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



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

Nonperforming Loans and Leases

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

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

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

Additionally, in general, for smaller commercial loans of $1 million or less, a partial or full charge-off occurs at 120 days past due

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


for term loans and 180 days past due for revolvers. Certain small business credit card balances that are placed on nonaccrual status
when they become 90 days or more past due are charged-off at 180 days past due.

Consumer
We generally charge off secured consumer (home equity, residential real estate and automobile) nonperforming loans to the fair
value of collateral less costs to sell, if lower than the amortized cost basis of the loan outstanding, when delinquency of the loan, combined with other risk factors (e.g., bankruptcy, lien position, or troubled debt restructuring), indicates that the loan, or some portion thereof, is uncollectible as per our historical experience, or the collateral has been repossessed. We charge-off secured
consumer loans no later than 180 days past due. Most consumer loans and lines of credit, not secured by automobiles or residential real estate, are charged off once they have reached 120-180 days past due.

For secured collateral dependent loans, collateral values are updated at least annually and subsequent declines in collateral values are charged-off resulting in incremental provision for credit loss. Subsequent increases in collateral values may be reflected as an adjustment to the ALLL to reflect the expectation of recoveries in an amount greater than previously expected.

Accounting for Nonperforming Assets and Leases and Other Nonaccrual Loans
For nonaccrual loans, interest income accrual and deferred fee/cost recognition is discontinued. Additionally, the current year accrued and uncollected interest is reversed through Net interest income and prior year accrued and uncollected interest is charged-off, except for credit cards, where we reverse any accrued interest through Net interest income at the time of charge-off, as per industry standard practice. Nonaccrual loans that are also collateral dependent may be charged-off to reduce the basis to the fair value of collateral less costs to sell.

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

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

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

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

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

See Note 4 Loans and Related Allowance for Credit Losses in this Report for additional information on nonperforming assets, TDRs and credit quality indicators related to our loan portfolio.



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



Allowance for Credit Losses
Our ACL, in accordance with the CECL standard, is based on historical loss experience, borrower risk characteristics, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We maintain the ACL at an
appropriate level for expected losses on our existing investment securities, loans, finance leases (including residual values), other financial assets and unfunded lending related commitments, for the estimated contractual term of the assets or exposures as of the balance sheet date. We estimate the estimated contractual term of assets in scope of CECL considering contractual maturity dates, prepayment expectations, utilization or draw expectations and any embedded extension options that do not allow us to unilaterally cancel the extension options. For products without a fixed contractual maturity date (e.g., credit cards), we rely on historical payment behavior to determine the length of the pay down or default time period.

We estimate expected losses on a pooled basis using a combination of (i) the expected losses over a reasonable and supportable
forecast period (RSFP), (ii) a period of reversion to long run average (LRA) expected losses (reversion period) where applicable, and (iii) the LRA expected losses for the remaining estimated contractual term. For all assets and unfunded lending related commitments in the scope of CECL, the ACL also includes individually assessed reserves and qualitative reserves, as applicable.

We use forward-looking information in estimating expected credit losses for the RSFP. For this purpose, we use the forecasted
scenarios produced by PNC's Economics Team, which are designed to reflect business cycles and their related estimated probabilities. The forecast length that we have determined to be reasonable and supportable is three years. As noted in the methodology discussions that follow, forward looking information is incorporated into the expected credit loss estimates. Such forward looking information includes forecasted relevant macroeconomic variables, which are estimated using quantitative techniques, analysis from PNC economists and management judgment.

The reversion period is used to bridge RSFP and LRA expected credit losses. We may consider a number of factors in determining the duration of the reversion period, such as contractual maturity of the asset, observed historical patterns and the estimated credit loss rates at the end of RSFP relative to the beginning of the LRA period.

The LRA expected credit losses are derived from long run historical credit loss information adjusted for the credit quality of the current portfolio, and therefore do not consider current and forecasted economic conditions.

See the following sections related to investment securities, loans, trade receivables, other financial assets and unfunded lending related commitments for details about specific methodologies.

Allowance for Investment Securities
A significant portion of our investment securities are issued or guaranteed by either the U.S. government (U.S. Treasury or Government National Mortgage Association (GNMA)) or a government-sponsored agency (Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)). Taking into consideration historical information and current and forecasted conditions, we do not expect to incur any credit losses on these securities.

Investment securities that are not issued or guaranteed by the U.S. government or a government-sponsored agency consist of both securitized products, such as non-agency mortgage and asset-backed securities, as well as non-securitized products, such as corporate and municipal debt securities. A discounted cash flow approach is primarily used to determine the amount of the allowance required. The estimates of expected cash flows are determined using macroeconomic sensitive models taking into consideration the RSFP and scenarios discussed above. Additional factors unique to a specific security may also be taken into consideration when estimating expected cash flows. The cash flows expected to be collected, after considering expected prepayments, are discounted at the effective interest rate. For an available-for-sale security, the amount of the allowance is limited to the difference between the amortized cost basis of the security and its estimated fair value.

See Note 3 Investment Securities in this Report for additional information about the investment securities portfolio.

Allowance for Loan and Lease Losses
Our pooled expected loss methodology is based upon the quantification of risk parameters, such as probability of default (PD), loss
given default (LGD) and exposure at default (EAD) for a loan or loan segment. We also consider the impact of prepayments and
amortization on contractual maturity in our expected loss estimates. We use historical credit loss information, current borrower risk
characteristics and forecasted economic variables for the RSFP, coupled with analytical methods, to estimate these risk parameters
by loan or loan segments. PD, LGD and EAD parameters are calculated for each forecasted scenario and the LRA period, and
combined to generate expected loss estimates by scenario. The following matrix provides key credit risk characteristics that we use to
estimate these risk parameters.


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


Loan ClassProbability of Default (PD)Loss Given Default (LGD)Exposure at Default (EAD)
Commercial
Commercial and industrial / Equipment lease financing
• For wholesale obligors: internal risk ratings based on borrower characteristics and industry

•  For retail small balance obligors: credit score, delinquency status, and product type




•  Collateral type, collateral value, industry, size and outstanding exposure for secured loans

•  Capital structure, industry and size for unsecured loans

•  For retail small balance obligors, product type and credit scores






•  Outstanding balances, contractual maturities and historical prepayment experience for loans

•  Current utilization and historical pre-default draw experience for lines



Commercial real estate
•  Property performance metrics, property type, market and risk pool for RSFP

• Internal risk ratings based on borrower characteristics for LRA

•  Property values and anticipated liquidation costs•  Commitment and historical prepayment experience
Consumer
Home equity / Residential real estate•  Borrower credit scores, delinquency status, origination vintage, loan-to-value (LTV) ratios and contractual maturity•  Collateral characteristics, LTV and costs to sell
•  Outstanding balances, contractual maturities and historical prepayment experience for loans
• Current utilization and historical pre-default draw experience for lines
Automobile•  Borrower credit scores, delinquency status, borrower income, LTV and contractual maturity•  New vs. used, LTV and borrower credit scores•  Outstanding balances, contractual maturities and historical prepayment experience
Credit card•  Borrower credit scores, delinquency status, utilization, payment behavior and months on book• Borrower credit scores and credit line amount•  Pay-down curves are developed using a pro-rata method and estimated using borrower behavior segments, payment ratios and borrower credit scores
Education / Other consumer• Net charge-off and pay-down rates by vintage are used to estimate expected losses in lieu of discrete risk parameters


























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



The following matrix describes the key economic variables that are consumed during the RSFP by loan class, as well as other
assumptions that are used for our reversion and LRA approaches.

Loan ClassRSFP - Key Economic VariablesReversion MethodLRA Approach
Commercial

Commercial and industrial / Equipment lease financing
•  Gross Domestic Product and Gross Domestic Income measures, imports, employment related variables, House Price Index (HPI), credit spreads, personal income and consumption measures and stock market indices

•  Immediate reversion

•  Average parameters determined based on internal and external historical data

•  Modeled parameters using long run economic conditions for retail small balance obligors

Commercial real estate•  Unemployment rates, Commercial Property Price Index, GDP, corporate bond yield and interest rates•  Immediate reversion•  Average parameters determined based on internal and external historical data
Consumer
Home equity / Residential real estate•  Unemployment rates, HPI and interest rates•  Straight-line over 3 years•  Modeled parameters using long run economic conditions
Automobile
•  Unemployment rates, HPI, personal consumption expenditure, interest rates, Manheim used car index and domestic oil prices

•  Straight-line over 1 year

•  Average parameters determined based on internal and external historical data

Credit card
•  Unemployment rate, personal consumption expenditure, and HPI

•  Straight-line over 2 years

•  Modeled parameters using long run economic conditions

Education / Other consumer•  Net charge-off and pay-down rates by vintage are used to estimate expected losses in lieu of discrete risk parameters

After the RSFP, we revert to the LRA over the reversion period noted above, which is the period between the end of the RSFP and
when losses are estimated to have completely reverted to the LRA.

Once we have developed a combined estimate of credit losses (i.e., for the RSFP, reversion period and LRA) under each of the forecasted scenarios, we produce a probability-weighted credit loss estimate by loan class. We then add or deduct any qualitative components and other adjustments, such as individually assessed loans, to produce the ALLL. See the Individually Assessed Component and Qualitative Component sections of this Note 1 for additional information about those adjustments.

Discounted Cash Flow
In addition to TDRs, we also use a discounted cash flow methodology for our home equity and residential real estate loan classes. We determine effective interest rates considering contractual cash flows adjusted for estimated prepayments. Changes in the ALLL due to the impact of the passage of time under the discounted cash flow estimate are recognized through the provision for credit losses.

Individually Assessed Component
Loans and leases that do not share similar risk characteristics with a pool of loans are individually assessed as follows:
For commercial nonperforming loans greater than or equal to a defined dollar threshold, reserves are based on an analysis of the present value of the loan’s expected future cash flows or the fair value of the collateral, if appropriate under our policy for collateral dependent loans. Nonperforming commercial loans below the defined threshold and accruing TDRs are reserved for under a pooled basis.
For consumer nonperforming loans classified as collateral dependent, charge-off and ALLL related to recovery of amounts previously charged-off are evaluated through an analysis of the fair value of the collateral less costs to sell.

Qualitative Component
While our reserve methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with,
but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal
variations between expected and actual outcomes. We may hold additional reserves that are designed to provide coverage for losses
attributable to such risks. The ACL also takes into account factors that may not be directly measured in the determination of

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


individually assessed or pooled reserves. Such qualitative factors may include, but are not limited to:
Industry concentrations and conditions,
Changes in market conditions, including regulatory and legal requirements,
Changes in the nature and volume of our portfolio,
Recent credit quality trends, including the impact of COVID-19 hardship related loan modifications,
Recent loss experience in particular portfolios, including specific and unique events,
Recent macro-economic factors that may not be reflected in the forecast information,
Limitations of available input data, including historical loss information and recent data such as collateral values,
Model imprecision,
Changes in lending policies and procedures, including changes in loss recognition and mitigation policies and procedures,
Timing of available information, including the performance of first lien positions, and
Other relevant factors

See Note 4 Loans and Related Allowance for Credit Losses for additional information about our loan portfolio and the related allowance.

Accrued Interest
When accrued interest is reversed or charged-off in a timely manner the CECL standard provides a practical expedient to exclude
accrued interest from ACL measurement. We consider our nonaccrual and charge-off policies to be timely for all of our investment
securities, loans and leases, with the exception of consumer credit cards, education loans and certain unsecured consumer lines of credit. We consider the length of time before nonaccrual/charge-off and the use of appropriate other triggering events for nonaccrual and charge-offs in making this determination. Pursuant to these policy elections, we calculate reserves for accrued interest on credit cards, education loans and certain consumer lines of credit, which are then included within the ALLL. See the Debt Securities and Nonperforming Loans and Leases sections of this Note 1 for additional information on our nonaccrual and charge-off policies.

Additionally, pursuant to our use of a discounted cash flow methodology in estimating credit losses for our home equity and residential real estate loan classes, applicable reserves for accrued interest are also included within the ALLL for these loan classes.

Purchased Credit Deteriorated Loans or Securities
The allowance for PCD loans or securities is determined at the time of acquisition, as the estimated expected credit loss of the outstanding balance or par value, based on the methodologies described previously for loans and securities. In accordance with CECL, the allowance recognized at acquisition is added to the acquisition date purchase price to determine the asset’s amortized cost basis.

Allowance for Unfunded Lending Related Commitments
We maintain the allowance for unfunded lending related commitments on off-balance sheet credit exposures that are not unconditionally cancelable (e.g., unfunded loan commitments, letters of credit and certain financial guarantees), at a level we believe is appropriate as of the balance sheet date to absorb expected credit losses on these exposures. Other than the estimation of the probability of funding, this reserve is estimated in a manner similar to the methodology used for determining reserves for loans and leases. The allowance for unfunded lending related commitments is recorded as a liability on the Consolidated Balance Sheet. Net adjustments to this reserve are included in the provision for credit losses.

See Note 4 Loans and Related Allowance for Credit Losses for additional information about this allowance.

Allowance for Other Financial Assets
We determine the allowance for other financial assets (e.g., trade receivables, servicing advances on PNC-owned loans, balances with banks) considering historical loss information and other available indicators. In certain cases where there are no historical, current or forecast indicators of an expected credit loss, we may estimate the reserve to be close to zero. As of September 30, 2020, the allowance for other financial assets was immaterial.

Goodwill

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

PNC has the ability to first perform a qualitative analysis to evaluate whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, PNC determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary. If PNC elects to bypass the qualitative analysis, or concludes via qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative goodwill impairment test is performed. Inputs

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



are generated and used in calculating the fair value of the reporting unit, which is compared to its carrying amount. The fair value of our reporting units is determined by using discounted cash flows and/or market comparability methodologies. If the fair value is greater than the carrying amount, then the reporting unit's goodwill is deemed not to be impaired. If the fair value is less than the carrying amount, an entity should recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
NOTE 2 ACQUISITION ANDDISCONTINUEDIVESTITURE OAPERATIONSCTIVITY

Pending Acquisition of BBVA USA Bancshares, Inc.
On November 16, 2020, we announced a definitive agreement with BBVA, S.A. to acquire BBVA including its U.S. banking subsidiary, BBVA USA, for a fixed purchase price of $11.6 billion in cash.
BBVA USA has over 600 branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. The transaction is expected to add approximately $102 billion in total assets, $86 billion of deposits and $66 billion of loans to PNC’s Consolidated Balance Sheet and to close in mid-2021, subject to customary closing conditions, including receipt of regulatory approvals.

Sale of Equity Investment in BlackRock, Inc.
In May 2020, PNC completed the sale of its 31.6 million shares of BlackRock, Inc., common and preferred stock through a registered secondary offering at a price of $420 per share. In addition, BlackRock repurchased 2.65 million shares from PNC at a price of $414.96 per share. The total proceeds from the sale were $14.2 billion in cash, net of $0.2 billion in expenses, and resulted in a gain on sale of $4.3 billion. Additionally, PNC contributed 500,000 BlackRock shares to the PNC Foundation.

Following the sale and donation, PNC has divested its entire investment in BlackRock and only holds shares of BlackRock stock in a fiduciary capacity for clients of PNC. Refer to our second quarter 2020 Form 10-Q for additional information on the sale.

The following table summarizes the results from the discontinued operations of BlackRock included in the Consolidated Income Statement:
Table 36:34: Consolidated Income Statement - Discontinued Operations
Three months ended March 31
In millions2020
Noninterest income$181 
   Total revenue181 
Income from discontinued operations before income taxes and noncontrolling interests181 
Income taxes25 
    Net income from discontinued operations$156 
 Three months ended
September 30		Nine months ended
September 30
In millions2020 20192020 2019 
Noninterest income  $251
$5,777
 $700
 
   Total revenue

 251
5,777
 700
 
Income from discontinued operations before income taxes and noncontrolling interests

 251
5,777
 700
 
Income taxes  40
1,222
 111
 
    Net income from discontinued operations$0
 $211
$4,555
 $589
 


The following table summarizes thenet cash flowsprovided by operating activities of discontinued operations of BlackRockwas $126 million for the three months ended March 31, 2020 and is included in the Consolidated Statement of Cash Flows:Flows.
Table 37: Consolidated Statement of Cash Flows - Discontinued Operations
 Nine months ended
September 30		 
In millions2020 2019 
Cash flows from discontinued operations    
   Net cash provided (used) by operating activities of discontinued operations$(1,981) $233
 
Net cash provided by investing activities of discontinued operations$14,225
   


NOTE 3 INVESTMENT SECURITIES

With the adoption of the CECL standard on January 1, 2020, credit losses on investment securities are required to be recognized through an allowance, instead of as a direct write-down to the amortized cost basis of the security. The amortized cost basis of investment securities for which impairment had previously been recorded did not change upon adoption.

We maintain the allowance for investment securities at levels that we believe to be appropriate as of the balance sheet date to absorb expected credit losses on our portfolio. As of September 30, 2020, the allowance for investment securities was $71 million and primarily related to non-agency commercial mortgage-backed securities in the available for sale portfolio and other debt securities in the held to maturity portfolio. The provision for credit losses on investment securities totaled $39 million and $69 million for the three and nine months ended September 30, 2020.

In the first quarter of 2020, upon the adoption of ASU 2019-04, we elected to transfer debt securities with an amortized cost of $16.2 billion and a fair value of $16.5 billion from the held to maturity to the available for sale portfolio. During the second quarter of 2020, pursuant to the guidance in ASU 2020-04, we elected to transfer debt securities with an amortized cost of $49 million and a fair value of $48 million from the held to maturity to the available for sale portfolio.

See Note 1 Accounting Policies for additional information related to the adoption of the CECL standard, including the methodologies used to determine the allowance for investment securities, and the adoption of ASU 2019-04 and ASU 2020-04.


The PNC Financial Services Group, Inc. – Form 10-Q 6753  

NOTE 3 INVESTMENT SECURITIES

The following table summarizes our available for sale and held to maturity portfolios by major security type.type:
Table 38:35: Investment Securities Summary
  September 30, 2020 (a)  December 31, 2019
In millions 
Amortized
Cost (b)

 Unrealized 
Fair
Value

  
Amortized
Cost

 Unrealized 
Fair
Value

Gains
 Losses
   Gains
 Losses
 
Securities Available for Sale                 
U.S. Treasury and government agencies $17,273
 $954
 $(2) $18,225
  $16,150
 $382
 $(16) $16,516
Residential mortgage-backed                 
Agency 51,202
 1,737
 (11) 52,928
  35,847
 517
 (43) 36,321
Non-agency 1,376
 243
 (16) 1,603
  1,515
 302
 (3) 1,814
Commercial mortgage-backed                 
Agency 2,824
 144
 (2) 2,966
  3,094
 42
 (18) 3,118
Non-agency 3,851
 73
 (95) 3,829
  3,352
 29
 (9) 3,372
Asset-backed 5,158
 105
 (23) 5,240
  5,044
 78
 (8) 5,114
Other 4,660
 297
 (1) 4,956
  2,788
 121
 (1) 2,908
Total securities available for sale (b) $86,344
 $3,553
 $(150) $89,747
  $67,790
 $1,471
 $(98) $69,163
Securities Held to Maturity                 
U.S. Treasury and government agencies $790
 $142
   $932
  $776
 $56
   $832
Residential mortgage-backed                 
Agency   

      14,419
 270
 $(26) 14,663
Non-agency   

      133
 7
   140
Commercial mortgage-backed                 
Agency   

      59
 1
   60
Non-agency   

      430
 4
   434
Asset-backed          52
 

   52
Other 648
 42
 $(8) 682
  1,792
 85
 (14) 1,863
Total securities held to maturity (b) (c) $1,438
 $184
 $(8) $1,614
  $17,661
 $423
 $(40) $18,044

March 31, 2021 (a)December 31, 2020 (a)
In millionsAmortized
Cost		UnrealizedFair
Value		Amortized
Cost		UnrealizedFair
Value
GainsLossesGainsLosses
Securities Available for Sale
U.S. Treasury and government agencies$25,670 $546 $(266)$25,950 $19,821 $903 $(13)$20,711 
Residential mortgage-backed
Agency50,499 1,227 (172)51,554 47,355 1,566 (10)48,911 
Non-agency1,181 252 (9)1,424 1,272 243 (14)1,501 
Commercial mortgage-backed
Agency2,219 68 (3)2,284 2,571 119 (2)2,688 
Non-agency4,191 60 (15)4,236 3,678 78 (67)3,689 
Asset-backed5,969 89 (17)6,041 5,060 100 (10)5,150 
Other5,077 238 (5)5,310 4,415 293 04,708 
Total securities available for sale (b)$94,806 $2,480 $(487)$96,799 $84,172 $3,302 $(116)$87,358 
Securities Held to Maturity
U.S. Treasury and government agencies$800 $74 $874 $795 $125 $920 
Other656 36 $(7)685 646 42 $(3)685 
Total securities held to maturity (c)$1,456 $110 $(7)$1,559 $1,441 $167 $(3)$1,605 
(a) The accrued interest associated with our available for sale and held to maturity portfoliosportfolio totaled $242$244 million and $2$238 million at September 30,March 31, 2021 and December 31, 2020, respectively. These amounts are included in Other assets on the Consolidated Balance Sheet.
(b) Amortized cost is presented net of allowance of $68$105 million and $79 million for securities available for sale at March 31, 2021 and $3 million for securities held to maturity at September 30,December 31, 2020, in accordance with the adoption of the CECL accounting standard. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies for additional detail on the adoption of this ASU.respectively.
(c) Credit ratings represent a primary credit quality indicator used to monitor and manage credit risk. As of September 30, 2020, 85% of our securities held to maturity were rated AAA/AA.AA as of both March 31, 2021 and December 31, 2020.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Securities available for sale are carried at fair value with net unrealized gains and losses included in Shareholders’ equity as AOCI, unless credit related. Net unrealized gains and losses are determined by taking the difference between the fair value of a security and its amortized cost, net of any allowance. Securities held to maturity are carried at amortized cost less any allowance. Investment securities at September 30, 2020March 31, 2021 included $.7$1.8 billion of net unsettled purchases which represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows. The comparable amount for September 30, 2019March 31, 2020 was $.3$0.4 billion.

We maintain the allowance for investment securities at levels that we believe to be appropriate as of the balance sheet date based on estimation of expected credit losses on our portfolio. As of March 31, 2021, the allowance for investment securities was $108 million and primarily related to non-agency commercial mortgage-backed securities in the available for sale portfolio. The provision for credit losses on investment securities totaled $26 million for the three months ended March 31, 2021.

Table 3936 presents the gross unrealized losses and fair value of securities available for sale that do not have an associated allowance for investment securities as of September 30, 2020.March 31, 2021. These securities are segregated between investments that had 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. All securities included in the table have been evaluated to determine if a credit loss exists. As part of that assessment, as of September 30, 2020,March 31, 2021, we concluded that we do not intend to sell and believe we will not be required to sell these securities prior to recovery of the amortized cost basis.



68







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




Table 39:36: Gross Unrealized Loss and Fair Value of Securities Available for Sale Without an Allowance for Credit Losses

  
Unrealized loss position
less than 12 months
 
Unrealized loss position
12 months or more
 Total
In millions 
Unrealized
Loss

 
Fair
Value

 
Unrealized
Loss

 
Fair
Value

 
Unrealized
Loss

 
Fair
Value

September 30, 2020         
 
U.S. Treasury and government agencies $(2) $167
     $(2) $167
Residential mortgage-backed            
Agency (9) 2,860
 $(2) $102
 (11) 2,962
Non-agency (9) 160
 (7) 73
 (16) 233
Commercial mortgage-backed            
Agency     (2) 132
 (2) 132
Non-agency (34) 1,638
 (2) 236
 (36) 1,874
Asset-backed (7) 844
 (16) 741
 (23) 1,585
Other (1) 27
     (1) 27
Total securities available for sale $(62) $5,696
 $(29) $1,284
 $(91) $6,980


Unrealized loss position
less than 12 months		Unrealized loss position
12 months or more		Total
In millionsUnrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value
March 31, 2021
U.S. Treasury and government agencies$(266)$12,798 $(266)$12,798 
Residential mortgage-backed
Agency(170)19,019 $(2)$75 (172)19,094 
Non-agency(9)165 (9)165 
Commercial mortgage-backed
Agency(2)190 (1)69 (3)259 
Non-agency(1)275 (5)911 (6)1,186 
Asset-backed(12)1,707 (5)794 (17)2,501 
Other(4)457 (4)457 
Total securities available for sale$(455)$34,446 $(22)$2,014 $(477)$36,460 
December 31, 2020
U.S. Treasury and government agencies$(13)$603 $(13)$603 
Residential mortgage-backed
Agency(8)3,152 $(2)$82 (10)3,234 
Non-agency(7)119 (7)73 (14)192 
Commercial mortgage-backed
Agency00(2)149 (2)149 
Non-agency(13)972 (7)714 (20)1,686 
Asset-backed(1)339 (9)706 (10)1,045 
Total securities available for sale$(42)$5,185 $(27)$1,724 $(69)$6,909 
Table 40 presents the gross unrealized losses and fair value of debt securities at December 31, 2019, prior to the adoption of the CECL standard. These securities are segregated between investments that had 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.

Table 40: Gross Unrealized Loss and Fair Value of Debt Securities
  Unrealized loss position less than 12 months Unrealized loss position 12 months or more Total 
In millions 
Unrealized
Loss

 
Fair
Value

 
Unrealized
Loss

 
Fair
Value

 
Unrealized
Loss

 
Fair
Value

 
December 31, 2019             
Securities Available for Sale             
U.S. Treasury and government agencies $(14) $2,451
 $(2) $607
 $(16) $3,058
 
Residential mortgage-backed             
Agency (6) 2,832
 (37) 4,659
 (43) 7,491
 
Non-agency 

 

 (3) 102
 (3) 102
 
Commercial mortgage-backed             
Agency (6) 852
 (12) 953
 (18) 1,805
 
Non-agency (4) 1,106
 (5) 230
 (9) 1,336
 
Asset-backed (3) 660
 (5) 561
 (8) 1,221
 
Other 

 

 (1) 403
 (1) 403
 
Total securities available for sale $(33) $7,901
 $(65) $7,515
 $(98) $15,416
 
Securities Held to Maturity             
Residential mortgage-backed - Agency 

 

 $(26) $2,960
 $(26) $2,960
 
Other $(1) $22
 (13) 105
 (14) 127
 
Total securities held to maturity $(1) $22
 $(39) $3,065
 $(40) $3,087
 


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

Table 41:37: Gains (Losses) on Sales of Securities Available for Sale
Three months ended March 31
In millions		Gross GainsGross LossesNet GainsTax Expense
2021$159 $(134)$25 $5 
2020$184 $(2)$182 $38 
Nine months ended September 30
In millions		Gross Gains
Gross Losses
Net Gains (Losses)
Tax Expense (Benefit)
 
2020$256
$(2)$254
$53
 
2019$57
$(21)$36
$8
 


The PNC Financial Services Group, Inc. – Form 10-Q 6955  



The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at September 30, 2020.March 31, 2021:
Table 42:38: Contractual Maturity of Debt Securities
September 30, 2020
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 $3,891
 $9,478
 $2,979
 $925
 $17,273
 
Residential mortgage-backed           
Agency 1
 155
 2,098
 48,948
 51,202
 
Non-agency       1,376
 1,376
 
Commercial mortgage-backed           
Agency 21
 609
 663
 1,531
 2,824
 
Non-agency   83
 247
 3,521
 3,851
 
Asset-backed 26
 2,625
 1,316
 1,191
 5,158
 
Other 889
 1,497
 1,292
 982
 4,660
 
Total securities available for sale at amortized cost $4,828
 $14,447
 $8,595
 $58,474
 $86,344
 
Fair value $4,848
 $15,081
 $9,048
 $60,770
 $89,747
 
Weighted-average yield, GAAP basis (a) 1.10% 2.08% 2.05% 2.92% 2.62% 
Securities Held to Maturity           
U.S. Treasury and government agencies   $199
 $309
 $282
 $790
 
Other $14
 437
 112
 85
 648
 
Total securities held to maturity at amortized cost $14
 $636
 $421
 $367
 $1,438
 
Fair value $14
 $677
 $513
 $410
 $1,614
 
Weighted-average yield, GAAP basis (a) 2.93% 3.28% 3.93% 2.48% 3.29% 

March 31, 2021
Dollars in millions		1 Year or LessAfter 1 Year
through 5 Years		After 5 Years
through 10 Years		After 10
Years		Total
Securities Available for Sale
U.S. Treasury and government agencies$2,685 $15,164 $6,237 $1,584 $25,670 
Residential mortgage-backed
Agency2 205 2,248 48,044 50,499 
Non-agency2 1,179 1,181 
Commercial mortgage-backed
Agency545 662 1,012 2,219 
Non-agency202 210 3,779 4,191 
Asset-backed86 2,322 1,274 2,287 5,969 
Other733 1,826 1,672 846 5,077 
Total securities available for sale at amortized cost$3,506 $20,264 $12,305 $58,731 $94,806 
Fair value$3,529 $20,700 $12,405 $60,165 $96,799 
Weighted-average yield, GAAP basis (a)1.68 %1.58 %1.72 %2.62 %2.25 %
Securities Held to Maturity
U.S. Treasury and government agencies$199 $315 $286 $800 
Other$71 396 109 80 656 
Total securities held to maturity at amortized cost$71 $595 $424 $366 $1,456 
Fair value$72 $626 $490 $371 $1,559 
Weighted-average yield, GAAP basis (a)3.70 %3.21 %3.93 %2.48 %3.28 %
(a) Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security.
At September 30, 2020,March 31, 2021, there were no securities of a single issuer, other than FNMA and FHLMC, that exceeded 10% of total shareholders’ equity. The FNMA and FHLMC investments had a total amortized cost of $36.9$30.8 billion and $9.8$18.9 billion and fair value of $38.3$31.7 billion and $10.1$18.8 billion, respectively.
The following table presents the fair value of securities that have been either pledged to or accepted from others to collateralize outstanding borrowings.
Table 43:39: Fair Value of Securities Pledged and Accepted as Collateral
In millionsMarch 31
2021		December 31
2020
Pledged to others$21,794 $22,841 
Accepted from others:
Permitted by contract or custom to sell or repledge$817 $683 
Permitted amount repledged to others$817 $683 
In millionsSeptember 30
2020
December 31
2019
Pledged to others$23,268
$14,609
Accepted from others:  
Permitted by contract or custom to sell or repledge (a)$710
$2,349
Permitted amount repledged to others$710
$360

(a)Balances at December 31, 2019 include $2.0 billion in fair value of securities accepted from others to collateralize short-term investments in resale agreements that were not repledged.

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.















7056    The PNC Financial Services Group, Inc. – Form 10-Q




NOTE 4 Loans and Related Allowance for Credit LossesLOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

Loan Portfolio
Our loan portfolio consists of two2 portfolio segments – Commercial and Consumer. Each of these segments comprises multiple loan classes. Classes are characterized by similarities in risk attributes and the manner in which we monitor and assess credit risk.
CommercialConsumer
• Commercial and industrial
• Home equity
• Commercial real estate
• Residential real estate
• Equipment lease financing
• Automobile
• Credit card
• Education
• Other consumer
See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for additional information on our loan related policies.

Credit Quality
We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk within the loan portfolio based on our defined loan classes. In doing so, we use several credit quality indicators, including trends in delinquency rates, nonperforming status, analysis of PD and LGD ratings, updated credit scores, and originated and updated LTV ratios.

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. WithLoan delinquencies include government insured or guaranteed loans, loans accounted for under the adoption of the CECL standard, accruing loans past due as of September 30, 2020 includefair value option and PCD loans, while amounts as of December 31, 2019 excluded purchased impaired loans. See Note 1 Accounting Policies for additional information related to the adoption of this standard, including the discontinuation of purchased impaired loan accounting.

The following table presents the composition and delinquency status of our loan portfolio at September 30, 2020March 31, 2021 and December 31, 2019.2020. Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the September 30, 2020 delinquency status of loans modified due to COVID-19 related hardships aligns with the rules set forth for banks to report delinquency status to the credit agencies. These rules require that COVID-19 related loan modifications be reported as follows:
•if current at the time of modification, the loan remains current throughout the modification period,
•if delinquent at the time of modification and the borrower was not made current as part of the modification, the loan maintains its reported delinquent status during the modification period, or
•if delinquent at the time of modification and the borrower was made current as part of the modification or became current during the modification period, the loan is reported as current.

As a result, certain loans modified due to COVID-19 related hardships are not being reported as past due as of September 30,March 31, 2021 and December 31, 2020 based on the contractual terms of the loan, even where borrowers may not be making payments on their loans during the modification period. Loan modifications due to COVID-19 related hardships that permanently reduce either the contractual interest rate or the principal balance of a loan do not qualify for TDR relief under the CARES Act or the interagency guidance.

The PNC Financial Services Group, Inc. – Form 10-Q 7157  



Table 44:40: Analysis of Loan Portfolio (a) (b)
 Accruing    
Dollars in millionsCurrent 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 (c)		 Nonperforming
Loans		Fair Value
Option
Nonaccrual
Loans (d)		Total Loans
(e)(f)
March 31, 2021 
Commercial 
Commercial and industrial$129,130 $80 $13 $63 $156   $512 $129,798 
Commercial real estate28,085 12 1 13   221 28,319 
Equipment lease financing6,351 21 1 22   16 6,389 
Total commercial163,566 113 15 63 191   749 164,506 
Consumer 
Home equity22,706 43 20 63   656 $68 23,493 
Residential real estate20,862 162 73 275 510 (c) 541 505 22,418 
Automobile13,305 76 19 6 101   178 13,584 
Credit card5,561 31 24 52 107   7 5,675 
Education2,692 49 25 76 150 (c)2,842 
Other consumer4,464 11 6 7 24 7 4,495 
Total consumer69,590 372 167 416 955   1,389 573 72,507 
Total$233,156 $485 $182 $479 $1,146   $2,138 $573 $237,013 
Percentage of total loans98.38 %0.20 %0.08 %0.20 %0.48 %0.90 %0.24 %100.00 %
December 31, 2020
Commercial
Commercial and industrial$131,245 $106 $26 $30 $162 $666 $132,073 
Commercial real estate28,485 6 1 7 224 28,716 
Equipment lease financing6,345 31 5 36 33 6,414 
Total commercial166,075 143 32 30 205 923 167,203 
Consumer
Home equity23,318 50 21 71 645 $54 24,088 
Residential real estate20,945 181 78 319 578 (c)528 509 22,560 
Automobile13,863 134 34 12 180 175 14,218 
Credit card6,074 43 30 60 133 8 6,215 
Education2,785 55 29 77 161 (c)2,946 
Other consumer4,656 14 10 11 35 7 4,698 
Total consumer71,641 477 202 479 1,158 1,363 563 74,725 
Total$237,716 $620 $234 $509 $1,363 $2,286 $563 $241,928 
Percentage of total loans98.27 %0.26 %0.10 %0.21 %0.56 %0.94 %0.23 %100.00 %
(a)
 Accruing     
Dollars in millions
Current or Less
Than 30 Days
Past Due

30-59
Days
Past Due

60-89
Days
Past Due

90 Days
Or More
Past Due

Total
Past
Due (c)

 
Nonperforming
Loans

Fair Value
Option
Nonaccrual
Loans (d)

Total Loans
(e)(f)

 
September 30, 2020 (a) (b)          
Commercial          
Commercial and industrial$136,381
$56
$37
$36
$129
  $677
 $137,187
 
Commercial real estate28,799
6
6
 12
  217
 29,028
 
Equipment lease financing6,447
7
4
 11
  21
 6,479
 
Total commercial171,627
69
47
36
152
  915
 172,694
 
Consumer          
Home equity23,774
48
22
 70
  639
$56
24,539
 
Residential real estate21,503
188
80
269
537
(c) 339
507
22,886
 
Automobile14,646
116
32
12
160
  171
 14,977
 
Credit card6,153
44
33
60
137
  13
 6,303
 
Education2,905
57
26
63
146
(c)  3,051
 
Other consumer4,785
17
11
8
36
 8
 4,829
 
Total consumer73,766
470
204
412
1,086
  1,170
563
76,585
 
Total$245,393
$539
$251
$448
$1,238
  $2,085
$563
$249,279
 
Percentage of total loans98.43%.22%.10%.18%.50% .84%.23%100.00% 
(a)Amounts in table represent loans held for investment and do not include any associated valuation allowance.
(b)The accrued interest associated with our loan portfolio at September 30, 2020 totaled $.7 billion and is included in Other assets on the Consolidated Balance Sheet.
(c)Past due loan amounts include government insured or guaranteed Residential real estate loans and Education loans totaling $.4 billion and $.1 billion, respectively, at September 30, 2020.
(d)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.
(e)Net of unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $1.4 billion at September 30, 2020.
(f)Collateral dependent loans totaled $1.2 billion at September 30, 2020. The majority of these loans are within the Home equity and Residential real estate loan classes and are secured by consumer real estate.

 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 (h)

 
Nonperforming
Loans

Fair Value
Option
Nonaccrual
Loans (i)

Purchased
Impaired
Loans

Total
Loans (j)

 
December 31, 2019 (g)           
Commercial           
Commercial and industrial$124,695
$102
$30
$85
$217
 $425
  $125,337
 
Commercial real estate28,061
4
1
 5
 44
  28,110
 
Equipment lease financing7,069
49
5
 54
 32
  7,155
 
Total commercial159,825
155
36
85
276
 501
  160,602
 
Consumer           
Home equity23,791
58
24
 82
 669
 $543
25,085
 
Residential real estate19,640
140
69
315
524
(h) 315
$166
1,176
21,821
 
Automobile16,376
178
47
18
243
 135
  16,754
 
Credit card7,133
60
37
67
164
 11
  7,308
 
Education3,156
55
34
91
180
(h)    3,336
 
Other consumer4,898
15
11
9
35
 4
  4,937
 
Total consumer74,994
506
222
500
1,228
 1,134
166
1,719
79,241
 
Total$234,819
$661
$258
$585
$1,504
 $1,635
$166
$1,719
$239,843
 
Percentage of total loans97.90%.28%.11%.24%.63% .68%.07%.72%100.00% 
(g)Amounts in table represent recorded investment and exclude loans held for sale. Recorded investment does not include any associated valuation allowance.
(h)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 accreted interest income over the expected life of the loans. Past due loan amounts include government insured or guaranteed Residential real estate loans totaling $.4 billion and Education loans totaling $.2 billion at December 31, 2019.
(i)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.
(j)Net of unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $1.1 billion at December 31, 2019.

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


(b)The accrued interest associated with our loan portfolio totaled $0.7 billion at both March 31, 2021 and December 31, 2020 and is included in Other assets on the Consolidated Balance Sheet.

(c)Past due loan amounts include government insured or guaranteed Residential real estate loans and Education loans totaling $0.4 billion and $0.1 billion at March 31, 2021. Comparable amounts at December 31, 2020 were $0.4 billion and $0.2 billion.
(d)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.
(e)Net of unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $1.4 billion and $1.3 billion at March 31, 2021 and December 31, 2020, respectively.
(f)Collateral dependent loans totaled $1.4 billion and $1.5 billion at March 31, 2021 and December 31, 2020, respectively. The majority of these loans are within the Home equity and Residential real estate loan classes and are secured by consumer real estate.
At September 30, 2020,March 31, 2021, we pledged $30.5$28.6 billion of commercial loans to the Federal Reserve Bank and $68.9$66.9 billion of residential real estate and other loans to the Federal Home Loan BankFHLB as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, 20192020 were $16.9$30.1 billion and $68.0$69.0 billion, respectively. Amounts pledged reflect the unpaid principal balances.

Nonperforming Assets
Nonperforming assets include nonperforming loans and leases, OREO and foreclosed assets. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent that full collection of contractual principal and interest is not probable. Interest income is not recognized on these loans. Loans accounted for under the fair value option are reported as performing loans, however, when nonaccrual criteria is met interest income is not recognized on these loans. Additionally, certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest are not reported as
58   The PNC Financial Services Group, Inc. – Form 10-Q


nonperforming loans and continue to accrue interest.

With the adoption of the CECL standard, Amounts include nonperforming loans as of September 30, 2020 include PCD loans. Amounts as of December 31, 2019 excluded purchased impaired loans as we were accreting interest income over the expected life of the loans. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for additional information related to the adoption of this standard andon our nonperforming loan and lease policies.
The following table presents our nonperforming assets as of September 30, 2020March 31, 2021 and December 31, 2019, respectively.2020 , respectively:
Table 41: Nonperforming Assets
Dollars in millionsMarch 31
2021		December 31
2020
Nonperforming loans
Commercial$749 $923 
Consumer (a)1,389 1,363 
Total nonperforming loans (b)2,138 2,286 
OREO and foreclosed assets41 51 
Total nonperforming assets$2,179 $2,337 
Nonperforming loans to total loans0.90 %0.94 %
Nonperforming assets to total loans, OREO and foreclosed assets0.92 %0.97 %
Nonperforming assets to total assets0.46 %0.50 %
Table 45: Nonperforming Assets(a)Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.
(b)Nonperforming loans for which there is no related ALLL totaled $0.7 billion at March 31, 2021, and is primarily comprised of loans with a fair value of collateral that exceeds the amortized cost basis. The comparable amount at December 31, 2020 was $0.8 billion.
Dollars in millions September 30
2020
 December 31
2019
 
Nonperforming loans     
Commercial $915
 $501
 
Consumer (a) 1,170
 1,134
 
Total nonperforming loans (b) 2,085
 1,635
 
OREO and foreclosed assets 67
 117
 
Total nonperforming assets $2,152
 $1,752
 
Nonperforming loans to total loans .84% .68% 
Nonperforming assets to total loans, OREO and foreclosed assets .86% .73% 
Nonperforming assets to total assets .47% .43% 
(a)Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.
(b)Nonperforming loans for which there is no related ALLL totaled $.6 billion at September 30, 2020, and is primarily comprised of loans with a valuation that exceeds the amortized cost basis.

Nonperforming loans also include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered TDRs. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K and the TDRTroubled Debt Restructurings section of this Note 4 for additional information on TDRs.

Total nonperforming loans in Table 4541 include TDRs of $.8 billion and $.9$0.9 billion at September 30, 2020both March 31, 2021 and December 31, 2019, respectively.2020. TDRs that are performing, including consumer credit card TDR loans, totaled $.8$0.7 billion at both September 30, 2020March 31, 2021 and December 31, 20192020 and are excluded from nonperforming loans.

Additional Credit Quality Indicators by Loan Class

Commercial Loan Classes
See Note 4 Loans and Industrial
For commercialRelated Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information related to these loan classes, including discussion around the credit quality indicators that we use to monitor and industrial loans, we monitormanage the performance of the borrower in a disciplined and regular manner based upon the level of credit risk inherent in the loan. To evaluate the level of credit risk, we assign an internal risk rating reflecting the borrower’s PD and LGD. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process. These ratings are reviewed and updated, generally at least once per year. For small balance homogeneous pools of commercial and industrial loans and leases, we apply scoring techniques to assist in determining the PD. The combination of the PD and LGD ratings assigned to commercial and industrial loans, capturing both the combination of expectations of default and loss severity in the event of default, reflects credit quality characteristics as of the reporting date and are used as inputs into our loss forecasting process.associated with each loan class.
Based upon the amount of the lending arrangement and our risk rating assessment, we follow a formal schedule of written periodic reviews. Quarterly, we conduct formal reviews of a market’s or business unit’s loan portfolio, focusing on those loans which we perceive to be of higher risk, based upon PDs and LGDs, or loans for which credit quality is weakening. If circumstances warrant, it is our practice to review any customer obligation and its level of credit risk more frequently. We attempt to proactively manage our loans by using various procedures that are customized to the risk of a given loan, including ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.


The PNC Financial Services Group, Inc. – Form 10-Q 7359  


The following table presents credit quality indicators for the Commercial Real Estate
We manage credit risk associated with our commercial real estate projects and commercial mortgages similar to commercial and industrial loans by evaluating PD and LGD. Risks associated with commercial real estate projects and commercial mortgage activities tend to be correlated to the loan structure and collateral location, project progress and business environment. As a result, these attributes are also monitored and utilized in assessing credit risk.
As with the commercial and industrial loan class, a formal schedule of periodic reviews is also performed to assess market/geographic risk and business unit/industry risk. Often as a result of these overviews, more in-depth reviews and increased scrutiny are placed on areas of higher risk, such as adverse changes in risk ratings, deteriorating operating trends, and/or areas that concern management. These reviews are designed to assess risk and facilitate actions to mitigate such risks.
Equipment Lease Financing
We manage credit risk associated with our equipment lease financing loan class similar to commercial and industrial loans by analyzing PD and LGD.

Based upon the dollar amount of the lease and the level of credit risk, we follow a formal schedule of periodic reviews. Generally, this occurs quarterly, although we have established practices to review such credit risk more frequently if circumstances warrant. Our review process entails analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk, guarantor requirements, and regulatory compliance as applicable.
classes:
Table 46:42: Commercial Credit Quality Indicators (a)
 Term Loans by Origination Year 
March 31, 2021 - In millions20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal
Loans
Commercial and industrial
Pass Rated$13,796 $19,870 $12,404 $7,540 $5,559 $10,715 $53,161 $51 $123,096 
Criticized158 429 725 603 317 594 3,856 20 6,702 
Total commercial and industrial13,954 20,299 13,129 8,143 5,876 11,309 57,017 71 129,798 
Commercial real estate
Pass Rated1,041 3,261 6,034 3,195 2,675 8,673 239 25,118 
Criticized132 137 663 166 487 1,597 19 3,201 
Total commercial real estate1,173 3,398 6,697 3,361 3,162 10,270 258 028,319 
Equipment lease financing
Pass Rated339 1,360 1,142 868 678 1,711 6,098 
Criticized11 71 73 79 34 23 291 
Total equipment lease financing350 1,431 1,215 947 712 1,734 6,389 
Total commercial$15,477 $25,128 $21,041 $12,451 $9,750 $23,313 $57,275 $71 $164,506 
Term Loans by Origination Year 
Term Loans by Origination Year  
September 30, 2020 - In millions2020
2019
2018
2017
2016
Prior
Revolving Loans
Revolving Loans Converted to Term
Total
Loans

December 31, 2020 - In millionsDecember 31, 2020 - In millions20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal
Loans
Commercial and industrial  Commercial and industrial
Pass Rated$30,385
$14,778
$9,241
$6,474
$4,531
$7,916
$56,000
$55
$129,380
Pass Rated$31,680 $13,340 $8,209 $5,956 $4,242 $7,141 $54,775 $53 $125,396 
Criticized331
721
725
382
217
531
4,881
19
7,807
Criticized339702 578 334 224 351 4,130 19 6,677 
Total commercial and industrial30,716
15,499
9,966
6,856
4,748
8,447
60,881
74
137,187
Total commercial and industrial32,019 14,042 8,787 6,290 4,466 7,492 58,905 72 132,073 
Commercial real estate  Commercial real estate
Pass Rated3,226
6,552
3,625
3,384
2,622
7,574
164
 27,147
Pass Rated3,709 6,268 3,426 2,841 2,341 6,792 218 25,595 
Criticized194
139
53
305
340
753
97
 1,881
Criticized319 548 148 423 400 1,159 124 3,121 
Total commercial real estate3,420
6,691
3,678
3,689
2,962
8,327
261

29,028
Total commercial real estate4,028 6,816 3,574 3,264 2,741 7,951 342 028,716 
Equipment lease financing  Equipment lease financing
Pass Rated1,048
1,258
1,043
826
494
1,454
 6,123
Pass Rated1,429 1,202 942 738 405 1,350 6,066 
Criticized61
95
95
46
26
33
 356
Criticized78 92 86 39 22 31 348 
Total equipment lease financing1,109
1,353
1,138
872
520
1,487

 6,479
Total equipment lease financing1,507 1,294 1,028 777 427 1,381 6,414 
Total commercial$35,245
$23,543
$14,782
$11,417
$8,230
$18,261
$61,142
$74
$172,694
Total commercial$37,554 $22,152 $13,389 $10,331 $7,634 $16,824 $59,247 $72 $167,203 
(a)Loans in our commercial portfolio are classified as Pass Rated or Criticized based on the regulatory definitions, which are driven by the PD and LGD ratings that we assign. The Criticized classification includes loans that were rated special mention, substandard or doubtful as of March 31, 2021 and December 31, 2020.
December 31, 2019 - In millions Pass Rated
 Criticized
 Total Loans
 
Commercial and industrial $119,761
 $5,576
 $125,337
 
Commercial real estate 27,424
 686
 28,110
 
Equipment lease financing 6,891
 264
 7,155
 
Total commercial $154,076
 $6,526
 $160,602
 
(a)Loans in our commercial portfolio are classified as Pass Rated or Criticized based on the regulatory definitions, which are driven by the PD and LGD ratings that we assign. The Criticized classification includes loans that were rated special mention, substandard or doubtful as of September 30, 2020 and December 31, 2019.

Home EquityConsumer Loan Classes
See Note 4 Loans and Residential Real Estate
We use severalRelated Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information related to these loan classes, including discussion around the credit quality indicators including delinquency information, nonperforming loan information, updated credit scores, originated and updated LTV ratios,that we use to monitor and manage the credit risk within the home equity and residential real estate
associated with each loan classes. A summary of credit quality indicators follows:class.
Delinquency/Delinquency Rates: We monitor trending of delinquency/delinquency rates for home equity and residential real estate loans. See Table 44 for additional information.
Nonperforming Loans: We monitor trending of nonperforming loans for home equity and residential real estate loans. See Table 44 for additional information.








7460    The PNC Financial Services Group, Inc. – Form 10-Q



Credit Scores: We use a national third-party provider to update FICO credit scores for home equityHome Equity and residential real estate loans at least quarterly. The updated scores are incorporated into a series of credit management reports, which are utilized to monitor the risk in the loan classes.
LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions): At least annually, we update the property values of real estate collateral and calculate an updated LTV ratio. For open-end credit lines secured by real estate in regions experiencing significant declines in property values, more frequent valuations may occur. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.
We use a combination of original LTV and updated LTV for internal risk management and reporting purposes (e.g., line management, loss mitigation strategies). In addition to the fact that estimated property values by their nature are estimates, given certain data limitations, it is important to note that updated LTVs may be based upon management’s assumptions (i.e., if an updated LTV is not provided by the third-party service provider, HPI changes will be incorporated in arriving at management’s estimate of updated LTV).
Updated LTV is estimated using modeled property values. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models, broker price opinions, HPI indices, property location, internal and external balance information, origination data and management assumptions. We generally utilize origination lien balances provided by a third-party, where applicable, which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of the calculations do not represent actual appraised loan level collateral or updated LTV based upon lien balances held by others, and as such, are necessarily imprecise and subject to change as we refine our methodology.

Residential Real Estate
The following table presents credit quality indicators for the home equity and residential real estate loan classes.classes:
Table 47:43: Home Equity and Residential Real Estate Credit Quality Indicators
 Term Loans by Origination Year   
September 30, 2020 - In millions2020
2019
2018
2017
2016
Prior
Revolving Loans
Revolving Loans Converted to Term
Total Loans
Home equity         
Current estimated LTV ratios        .
Greater than or equal to 100%$5
$41
$18
$17
$10
$100
$605
$309
$1,105
Greater than or equal to 90% to less than 100%29
95
21
15
8
69
687
226
1,150
Less than 90%2,609
2,121
621
889
750
4,225
7,941
3,128
22,284
Total home equity$2,643
$2,257
$660
$921
$768
$4,394
$9,233
$3,663
$24,539
Updated FICO scores         
Greater than 660$2,580
$2,156
$605
$867
$725
$3,955
$8,818
$2,846
$22,552
Less than or equal to 66062
101
54
53
42
429
402
732
1,875
No FICO score available1
 1
1
1
10
13
85
112
Total home equity$2,643
$2,257
$660
$921
$768
$4,394
$9,233
$3,663
$24,539
Residential real estate         
Current estimated LTV ratios         
Greater than or equal to 100% $34
$33
$49
$49
$189
  $354
Greater than or equal to 90% to less than 100%$15
69
32
54
37
114
  321
Less than 90%6,174
4,757
1,329
2,153
2,254
4,693
  21,360
Government insured or guaranteed loans5
23
23
34
49
717
  851
Total residential real estate$6,194
$4,883
$1,417
$2,290
$2,389
$5,713
  $22,886
Updated FICO scores         
Greater than 660$6,151
$4,813
$1,362
$2,215
$2,272
$4,295
  $21,108
Less than or equal to 66036
45
30
37
62
567
  777
No FICO score available2
2
2
4
6
134
  150
Government insured or guaranteed loans5
23
23
34
49
717
  851
Total residential real estate$6,194
$4,883
$1,417
$2,290
$2,389
$5,713
  $22,886

Term Loans by Origination Year
March 31, 2021 - In millions20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal Loans
Home equity
Current estimated LTV ratios.
Greater than 100%$8 $41 $13 $10 $73 $471 $254 $870 
Greater than or equal to 80% to 100%$35 253 200 39 27 139 1,384 615 2,692 
Less than 80%196 3,019 1,560 482 712 4,081 6,418 3,463 19,931 
Total home equity$231 $3,280 $1,801 $534 $749 $4,293 $8,273 $4,332 $23,493 
Updated FICO scores
Greater than or equal to 780$127 $1,925 $960 $273 $467 $2,640 $5,148 $1,844 $13,384 
720 to 77984 947 505 138 164 865 1,950 1,084 5,737 
660 to 71919 346 264 83 80 428 905 678 2,803 
Less than 6601 61 71 39 37 350 255 628 1,442 
No FICO score available1 1 1 1 10 15 98 127 
Total home equity$231 $3,280 $1,801 $534 $749 $4,293 $8,273 $4,332 $23,493 
Residential real estate
Current estimated LTV ratios
Greater than 100%0$4 $56 $23 $28 $150 $261 
Greater than or equal to 80% to 100%$346 142 274 70 113 328 1,273 
Less than 80%2,175 7,157 2,995 856 1,485 5,286 19,954 
Government insured or guaranteed loans8 29 25 39 829 930 
Total residential real estate$2,521 $7,311 $3,354 $974 $1,665 $6,593 $22,418 
Updated FICO scores
Greater than or equal to 780$1,409 $5,220 $2,411 $661 $1,206 $3,564 $14,471 
720 to 7791,061 1,767 708 182 308 1,056 5,082 
660 to 71951 267 166 81 85 518 1,168 
Less than 66043 38 23 24 501 629 
No FICO score available6 2 2 3 125 138 
Government insured or guaranteed loans8 29 25 39 829 930 
Total residential real estate$2,521 $7,311 $3,354 $974 $1,665 $6,593 $22,418 

The PNC Financial Services Group, Inc. – Form 10-Q 7561  


Term Loans by Origination Year
December 31, 2020 - In millions20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal Loans
Home equity
Current estimated LTV ratios.
Greater than 100%$8 $44 $18 $15 $9 $88 $580 $279 $1,041 
Greater than or equal to 80% to 100%517 320 59 42 25 158 1,781 591 3,493 
Less than 80%2,909 1,636 513 773 660 3,754 6,433 2,876 19,554 
Total home equity$3,434 $2,000 $590 $830 $694 $4,000 $8,794 $3,746 $24,088 
Updated FICO scores
Greater than or equal to 780$2,019 $1,094 $311 $525 $449 $2,467 $5,382 $1,480 $13,727 
720 to 7791,028 558 153 181 145 777 2,137 941 5,920 
660 to 719334 273 86 84 66 402 985 625 2,855 
Less than 66052 74 39 39 33 345 277 620 1,479 
No FICO score available1 1 1 1 1 9 13 80 107 
Total home equity$3,434 $2,000 $590 $830 $694 $4,000 $8,794 $3,746 $24,088 
Residential real estate
Current estimated LTV ratios
Greater than 100%$3 $52 $26 $42 $41 $160 $324 
Greater than or equal to 80% to 100%495 422 127 156 124 307 1,631 
Less than 80%7,491 3,656 992 1,706 1,847 3,991 19,683 
Government insured or guaranteed loans7 28 27 38 57 765 922 
Total residential real estate$7,996 $4,158 $1,172 $1,942 $2,069 $5,223 $22,560 
Updated FICO scores
Greater than or equal to 780$5,425 $3,099 $814 $1,432 $1,538 $2,551 $14,859 
720 to 7792,268 820 220 340 335 818 4,801 
660 to 719252 161 76 98 92 475 1,154 
Less than 66040 48 33 31 41 485 678 
No FICO score available4 2 2 3 6 129 146 
Government insured or guaranteed loans7 28 27 38 57 765 922 
Total residential real estate$7,996 $4,158 $1,172 $1,942 $2,069 $5,223 $22,560 
 Home equityResidential real estate
December 31, 2019 - In millions
Current estimated LTV ratios  
Greater than or equal to 100%$1,243
$333
Greater than or equal to 90% to less than 100%1,047
340
Less than 90%22,068
19,305
No LTV ratio available184
83
Government insured or guaranteed loans 584
Purchased impaired loans543
1,176
Total loans$25,085
$21,821
Updated FICO Scores  
Greater than 660$22,245
$19,341
Less than or equal to 6602,019
569
No FICO score available278
151
Government insured or guaranteed loans 584
Purchased impaired loans543
1,176
Total loans$25,085
$21,821


Automobile, Credit Card, Education and Other Consumer
We monitor a variety of credit quality information in the management of these consumer loan classes. For all loan types, we generally use a combination of internal loan parameters as well as an updated FICO score. We use FICO scores as a primary credit quality indicator for automobile and credit card loans, as well as non-government guaranteed or non-insured education loans and other secured and unsecured lines and loans. Internal credit metrics, such as delinquency status, are heavily relied upon as credit quality indicators 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.

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


7662    The PNC Financial Services Group, Inc. – Form 10-Q



Automobile, Credit Card, Education and Other Consumer
The following table presents credit quality indicators for the automobile, credit card, education and other consumer loan classes.classes:

Table 48:44: Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes
Term Loans by Origination Year
March 31, 2021 - In millions20212020201920182017PriorRevolving LoansRevolving Loans Converted to TermTotal Loans
Updated FICO Scores
Automobile
FICO score greater than or equal to 780$775 $1,545 $1,701 $688 $362 $216 $5,287 
720 to 779242 1,067 1,380 678 320 157 3,844 
660 to 71963 591 1,076 590 240 106 2,666 
Less than 6604 228 723 535 208 89 1,787 
Total automobile$1,084 $3,431 $4,880 $2,491 $1,130 $568 $13,584 
Credit card
FICO score greater than or equal to 780$1,513 $3 $1,516 
720 to 7791,541 11 1,552 
660 to 7191,621 25 1,646 
Less than 660817 46 863 
No FICO score available or required (a)94 4 98 
Total credit card$5,586 $89 $5,675 
Education
FICO score greater than or equal to 780$1 $64 $86 $70 $55 $450 $726 
720 to 7794 34 44 37 27 202 348 
660 to 7194 10 14 14 8 90 140 
Less than 6601 1 3 2 2 35 44 
No FICO score available or required (a)3 12 9 5 3 1 33 
Education loans using FICO credit metric13 121 156 128 95 778 1,291 
Other internal credit metrics1,551 1,551 
Total education$13 $121 $156 $128 $95 $2,329 $2,842 
Other consumer
FICO score greater than or equal to 780$31 $135 $150 $49 $15 $40 $73 $1 $494 
720 to 77933 169 206 65 16 23 109 621 
660 to 71927 111 185 68 13 14 107 0525 
Less than 6601 34 81 34 7 7 47 1 212 
Other consumer loans using FICO credit metric92 449 622 216 51 84 336 2 1,852 
Other internal credit metrics32 29 28 29 26 126 2,365 8 2,643 
Total other consumer$124 $478 $650 $245 $77 $210 $2,701 $10 $4,495 
 Term Loans by Origination Year   
September 30, 2020 - In millions2020
2019
2018
2017
2016
Prior
Revolving Loans
Revolving Loans Converted to Term
Total Loans
Automobile         
FICO score greater than 719$2,184
$3,573
$1,663
$916
$496
$141
  $8,973
650 to 719630
1,642
929
403
162
53
  3,819
620 to 64990
365
213
83
31
12
  794
Less than 62075
532
474
202
78
30
  1,391
Total automobile$2,979
$6,112
$3,279
$1,604
$767
$236
  $14,977
Credit card         
FICO score greater than 719      $3,309
$13
$3,322
650 to 719      2,033
31
2,064
620 to 649      348
13
361
Less than 620      419
40
459
No FICO score available or required (a)      94
3
97
Total credit card      $6,203
$100
$6,303
Education         
FICO score greater than 719$17
$88
$117
$89
$73
$651
  $1,035
650 to 7196
10
14
9
7
102
  148
620 to 649 1
2
1
1
15
  20
Less than 620  1
1
1
16
  19
No FICO score available or required (a)11
10
7
5
1
1
  35
Total loans using FICO credit metric34
109
141
105
83
785
  1,257
Other internal credit metrics30
58
   1,706
  1,794
Total education$64
$167
$141
$105
$83
$2,491
  $3,051
Other consumer         
FICO score greater than 719$338
$487
$164
$50
$14
$69
$209
$1
$1,332
650 to 719129
273
112
25
6
19
138
1
703
620 to 64912
42
18
4
1
4
22
 103
Less than 6209
38
25
7
2
7
32
1
121
Total loans using FICO credit metric488
840
319
86
23
99
401
3
2,259
Other internal credit metrics63
41
40
28
61
77
2,246
14
2,570
Total other consumer$551
$881
$359
$114
$84
$176
$2,647
$17
$4,829

    
December 31, 2019 - In millions AutomobileCredit CardEducationOther Consumer
FICO score greater than 719 $9,232
$3,867
$1,139
$1,421
650 to 719 4,577
2,326
197
843
620 to 649 1,001
419
25
132
Less than 620 1,603
544
27
143
No FICO score available or required (a) 341
152
15
27
Total loans using FICO credit metric 16,754
7,308
1,403
2,566
Consumer loans using other internal credit metrics   1,933
2,371
Total loans $16,754
$7,308
$3,336
$4,937
Weighted-average updated FICO score (b) 726
724
773
727
(a)Loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.
(b)Weighted-average updated FICO score excludes accounts with no FICO score available or required.

Troubled Debt Restructurings (TDRs)
A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. Loans that have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act are not categorized as TDRs. See Note 1 Accounting Policies for additional information related to TDRs.


The PNC Financial Services Group, Inc. – Form 10-Q 7763  

Term Loans by Origination Year
December 31, 2020 - In millions20202019201820172016PriorRevolving LoansRevolving Loans Converted to TermTotal Loans
Updated FICO Scores
Automobile
FICO score greater than or equal to 780$1,807 $1,915 $807 $452 $246 $58 $5,285 
720 to 7791,098 1,581 789 381 167 44 4,060 
660 to 719617 1,222 684 288 109 31 2,951 
Less than 660192 776 598 240 87 29 1,922 
Total automobile$3,714 $5,494 $2,878 $1,361 $609 $162 $14,218 
Credit card
FICO score greater than or equal to 780$1,635 $3 $1,638 
720 to 7791,724 11 1,735 
660 to 7191,765 26 1,791 
Less than 660902 51 953 
No FICO score available or required (a)94 4 98 
Total credit card$6,120 $95 $6,215 
Education
FICO score greater than or equal to 780$34 $90 $74 $59 $50 $428 $735 
720 to 77924 46 38 28 20 190 346 
660 to 71915 15 14 9 6 90 149 
Less than 6603 2 3 2 2 37 49 
No FICO score available or required (a)16 10 6 3 01 36 
Education loans using FICO credit metric92 163 135 101 78 746 1,315 
Other internal credit metrics001,631 1,631 
Total education$92 $163 $135 $101 $78 $2,377 $2,946 
Other consumer
FICO score greater than or equal to 780$162 $187 $63 $21 $5 $42 $86 $1 $567 
720 to 779197 247 82 22 5 22 123 0698 
660 to 719127 210 81 17 3 14 117 1 570 
Less than 66028 86 41 9 2 8 53 1 228 
Other consumer loans using FICO credit metric514 730 267 69 15 86 379 3 2,063 
Other internal credit metrics67 33 37 26 60 75 2,334 3 2,635 
Total other consumer$581 $763 $304 $95 $75 $161 $2,713 $6 $4,698 
(a)Loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.

Troubled Debt Restructurings
Table 4945 quantifies the number of loans that were classified as TDRs as well as the change in the loans’ balance as a result of becoming a TDR during the three and nine months ended September 30, 2020March 31, 2021 and September 30, 2019.March 31, 2020. Additionally, the table provides information about the types of TDR concessions. See Note 3 Asset Quality1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses included in Item 8 of our 20192020 Form 10-K for additional details on these TDR concessions.discussion of TDRs.
Table 49:45: Financial Impact and TDRs by Concession Type (a)
   
Pre-TDR
Amortized Cost Basis (b)

 Post-TDR Amortized Cost Basis (c) 
During the three months ended September 30, 2020 (a)
Dollars in millions		Number
of Loans		  
Principal
Forgiveness

 
Rate
Reduction

 Other
 Total
 
Commercial 16
 $95
   $10
 $69
 $79
 
Consumer 2,769
 46
   26
 14
 40
 
Total TDRs 2,785
 $141
 

 $36
 $83
 $119
 
During the nine months ended September 30, 2020 (a)
Dollars in millions		             
Commercial 58
 $304
 $39
 $10
 $231
 $280
 
Consumer 9,925
 139
 


 67
 59
 126
 
Total TDRs 9,983
 $443
 $39
 $77
 $290
 $406
 

 Pre-TDR
Amortized Cost Basis (b)		Post-TDR Amortized Cost Basis (c)
During the three months ended March 31, 2021
Dollars in millions		Number
of Loans		Principal
Forgiveness		Rate
Reduction		OtherTotal
Commercial19 $93 $94 $94 
Consumer2,096 32 $16 12 28 
Total TDRs2,115 $125 $16 $106 $122 
During the three months ended March 31, 2020
Dollars in millions		      
Commercial13 $62 $6 0$37 $43 
Consumer3,567 36 0$22 10 32 
Total TDRs3,580 $98 $6 $22 $47 $75 
(a) Impact of partial charge-offs at TDR date areis included in this table.
(b) Represents the amortized cost basis of the loans as of the quarter end prior to TDR designation.
(c) Represents the amortized cost basis of the TDRs as of the end of the quarter in which the TDR occurs.
64   The PNC Financial Services Group, Inc. – Form 10-Q

   
Pre-TDR
Recorded
Investment (e)

 Post-TDR Recorded Investment (f) 
During the three months ended September 30, 2019 (d)
Dollars in millions		Number
of Loans		  
Principal
Forgiveness
 
Rate
Reduction

 Other
 Total
 
Commercial
21
 $97
     $72
 $72
 
Consumer 3,656
 45
   $24
 19
 43
 
Total TDRs 3,677
 $142
 

 $24
 $91
 $115
 
During the nine months ended September 30, 2019 (d)
Dollars in millions		             
Commercial 58
 $233
 

 $1
 $208
 $209
 
Consumer 11,009
 131
 

 72
 51
 123
 
Total TDRs 11,067
 $364
 

 $73
 $259
 $332
 

(d) Impact of partial charge-offs at TDR date are included in this table.
(e) Represents the recorded investment of the loans as of the quarter end prior to TDR designation, and excludes immaterial amounts of accrued interest receivable.
(f) Represents the recorded investment of the TDRs as of the end of the quarter in which the TDR occurs, and excludes immaterial amounts of accrued interest receivable.

After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. We consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. The following table provides a summary ofLoans that were both (i) classified as TDRs thatwithin the last twelve months from the balance sheet date, and (ii) subsequently defaulted during the periods presentedthe three months ended March 31, 2021 and were classified as
TDRs during the applicable 12-month period preceding September 30,March 31, 2020 totaled $15 million and September 30, 2019.

$29 million, respectively.
Table 50: Subsequently Defaulted TDRs
In millions 2020
 2019
Three months ended September 30 $26
 $42
Nine months ended September 30 $46
 $68

Allowance for Credit Losses
We maintain the ACL related to loans at levels that we believe to be appropriate to absorb expected credit losses in the portfolios as of the balance sheet date. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for a discussion of the methodologies used to determine this allowance. A rollforward of the ACL related to loans follows.follows:

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



Table 51:46: Rollforward of Allowance for Credit Losses (a)
Three months ended March 31, 2021Three Months Ended March 31, 2020
In millionsCommercialConsumerTotalCommercialConsumerTotal
Allowance for loan and lease losses
Beginning balance$3,337 $2,024 $5,361 $1,812 $930 $2,742 
Adoption of ASU 2016-13 (b)(304)767 463 
Beginning balance, adjusted3,337 2,024 5,361 1,508 1,697 3,205 
Charge-offs(69)(174)(243)(83)(221)(304)
Recoveries18 79 97 24 68 92 
Net (charge-offs)(51)(95)(146)(59)(153)(212)
Provision for (recapture of) credit losses(204)(298)(502)531 421 952 
Other1 1 (1)(1)
Ending balance$3,083 $1,631 $4,714 $1,979 $1,965 $3,944 
Allowance for unfunded lending related commitments (c)
Beginning balance$485 $99 $584 $316 $2 $318 
Adoption of ASU 2016-13 (b)53 126 179 
Beginning balance, adjusted485 99 584 369 128 497 
Provision for (recapture of) credit losses(82)5 (77)(25)(22)(47)
Ending balance$403 $104 $507 $344 $106 $450 
Allowance for credit losses at March 31$3,486 $1,735 $5,221 $2,323 $2,071 $4,394 
Allowance for credit losses at December 31$3,822 $2,123 $5,945 $2,128 $932 $3,060 
 Three months ended September 30, 2020  Nine months ended September 30, 2020
In millionsCommercial
Consumer
Total
  Commercial
Consumer
Total
Allowance for loan and lease losses        
Beginning balance$3,380
$2,548
$5,928
  $1,812
$930
$2,742
Adoption of ASU 2016-13 (b)  


  (304)767
463
Beginning balance, adjusted3,380
2,548
5,928
  1,508
1,697
3,205
Charge-offs(64)(183)(247)  (269)(596)(865)
Recoveries26
66
92
  65
197
262
Net (charge-offs)(38)(117)(155)  (204)(399)(603)
Provision for (recapture of) credit losses185
(208)(23)  2,224
925
3,149
Other1
 1
    


Ending balance$3,528
$2,223
$5,751
  $3,528
$2,223
$5,751
Allowance for unfunded lending related commitments (c)        
Beginning balance$548
$114
$662
  $316
$2
$318
Adoption of ASU 2016-13 (b)






  53
126
179
Beginning balance, adjusted548
114
662
  369
128
497
Provision for (recapture of) credit losses34
(7)27
  213
(21)192
Ending balance$582
$107
$689
  $582
$107
$689
Allowance for credit losses at September 30$4,110
$2,330
$6,440
  $4,110
$2,330
$6,440
(a)Excludes allowances for investment securities and other financial assets, which together totaled $98 million at September 30, 2020.
(b)
Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020 and our transition from an incurred loss methodology for our reserves to an expected credit loss methodology.
(c)See Note 9 Commitments for additional information about the underlying commitments related to this allowance.

The following presents an analysis of changes impacting the ACL related to loans for the nine months ended September 30, 2020.

Table 52: Analysis of Changes in the Allowance for Credit Losses (a)
In millions
chart-8470b7f46d6e595aa14.jpg(a)    Excludes allowances for investment securities and other financial assets, which together totaled $98$136 million and $21 million at September 30, 2020.March 31, 2021 and March 31, 2020, respectively.
(b)     Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020 and our transition from an incurred loss methodology for our reserves to an expected credit loss methodology.
(b) (c)    See Note 8 Commitments for additional information about the underlying commitments related to this allowance.
The ACL at March 31, 2021 totaled $5.2 billion, a $0.7 billion decrease compared to December 31, 2020. This decrease in reserves was primarily attributable to the improved economic outlook and portfolio changes, partially offset by increases in qualitative factor reserves due to portfolio sensitivity from specific customers and segments still impacted by the pandemic. The following summarizes the changes in these factors that influenced the current ACL:

•The economic scenarios used for the period ended March 31, 2021 were designed to reflect an improved near-term economic outlook in comparison to the scenarios used for the period ended December 31, 2020. This improvement was the result of declining COVID-19 cases, more rapid vaccine distribution, the passage of the American Rescue Plan stimulus package and economic momentum fueled by increased consumer spending.

•Portfolio changes primarily represents the impact of increases/reflecting decreases in both commercial and consumer loan balances agedrove reserve declines at March 31, 2021. Declines were attributable to lower utilization of loan commitments and mix duesofter loan production in the commercial portfolio and paydowns outpacing new originations in the consumer portfolio.

•Increases in qualitative factor reserves at March 31, 2021 were attributable to new originations/purchases,the considerable uncertainty that remains regarding overall lifetime loss content for both our commercial and consumer portfolios, specifically as well as credit quality and net charge-off activity.
(c) Economic and qualitative factors primarily represent our evaluation and determination of an economic forecast appliedit relates to our loan portfolio, as well as updatescustomers that are less likely to qualitative factor adjustments.benefit from the economic recovery currently underway. For commercial borrowers, there are concerns around industries that are dependent on in-person gatherings, hospitality and tourism. For consumer borrowers, payment behavior once the government stimulus wanes is also difficult to predict.

The $2.7ACL at March 31, 2020 totaled $4.4 billion, a $1.3 billion increase in reserves compared to December 31, 2019. This increase reflected the ACL since January 1, 2020 was driven by the following factors in the commercial and consumer portfolios:
Commercial reserves increased $2.2 billion attributable today-one CECL transition adjustment along with the significantly adverse economic impactimpacts of the pandemic and its resulting effects on credit quality and loan growth.growth in the first quarter of 2020.
Consumer reserves increased $.5 billion primarily reflecting the significantly adverse economic impact of the pandemic.

The PNC Financial Services Group, Inc. – Form 10-Q 7965  


Allowance for Loan and Lease Losses
Prior to January 1, 2020, we maintained our ALLL at levels we believed to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. We used the two main portfolio segments - Commercial and Consumer, and developed and documented the ALLL under separate methodologies for each of these portfolio segments. See Note 1 Accounting Policies in our 2019 Form 10-K for a description of the accounting policies for ALLL.

A rollforward of the ALLL and associated loan data follows:

Table 53: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data
At or for the nine months ended September 30, 2019
Dollars in millions		Commercial
Consumer
Total
Allowance for loan and lease losses   
January 1, 2019$1,663
$966
$2,629
Charge-offs(138)(545)(683)
Recoveries59
191
250
Net (charge-offs)(79)(354)(433)
Provision for credit losses247
305
552
Net decrease in allowance for unfunded loan commitments and letters
    of credit
(20)1
(19)
Other


9
9
September 30, 2019$1,811
$927
$2,738
TDRs individually evaluated for impairment$34
$95
$129
Other loans individually evaluated for impairment47


47
Loans collectively evaluated for impairment1,730
554
2,284
Purchased impaired loans


278
278
September 30, 2019$1,811
$927
$2,738
Loan portfolio   
TDRs individually evaluated for impairment$420
$1,343
$1,763
Other loans individually evaluated for impairment265


265
Loans collectively evaluated for impairment159,503
73,298
232,801
Fair value option loans (a)

754
754
Purchased impaired loans


1,794
1,794
September 30, 2019$160,188
$77,189
$237,377
(a) Loans accounted for under the fair value option were not evaluated for impairment as these loans are accounted for at fair value. Accordingly, there was no allowance recorded on those loans.

NOTE 5 LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES

Loan Sale and Servicing Activities

As more fully described in Note 25 Loan Sale and Servicing Activities and Variable Interest Entities in Item 8 of our 20192020 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).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 98 Commitments and Note 1211 Fair Value for information on our servicing rights, including the carrying value of servicing assets.


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



The following table provides cash flows associated with our loan sale and servicing activities:
Table 54:47: Cash Flows Associated with Loan Sale and Servicing Activities
In millionsResidential
Mortgages		Commercial
Mortgages (a)
Cash Flows - Three months ended March 31, 2021
Sales of loans (b)$1,239 $988 
Repurchases of previously transferred loans (c)$93 $33 
Servicing fees (d)$82 $38 
Servicing advances recovered/(funded), net$17 $(10)
Cash flows on mortgage-backed securities held (e)$2,555 $29 
Cash Flows - Three months ended March 31, 2020
Sales of loans (b)$1,334 $493 
Repurchases of previously transferred loans (c)$95 $15 
Servicing fees (d)$85 $33 
Servicing advances recovered/(funded), net$12 $12 
Cash flows on mortgage-backed securities held (e)$1,361 $37 
(a)Represents cash flow information associated with both commercial mortgage loan transfers and servicing activities.
(b)Gains/losses recognized on sales of loans were insignificant for the periods presented.
In millionsResidential
Mortgages
 Commercial
Mortgages (a)		  
Cash Flows - Three months ended September 30, 2020     
Sales of loans (b)$1,799
  $839
 
Repurchases of previously transferred loans (c)$352
  $107
 
Servicing fees (d)$85
  $33
 
Servicing advances recovered/(funded), net$(15)  $(78) 
Cash flows on mortgage-backed securities held (e)$2,829
  $14
 
Cash Flows - Three months ended September 30, 2019     
Sales of loans (b)$1,296
  $1,122
 
Repurchases of previously transferred loans (c)$81
  


 
Servicing fees (d)$90
  $34
 
Servicing advances recovered/(funded), net$5
  $45
 
Cash flows on mortgage-backed securities held (e)$1,394
  $14
 
Cash Flows - Nine months ended September 30, 2020     
Sales of loans (b)$5,328
  $2,666
 
Repurchases of previously transferred loans (c)$547
  $132
 
Servicing fees (d)$251
  $97
 
Servicing advances recovered/(funded), net$4
  $(206) 
Cash flows on mortgage-backed securities held (e)$6,374
  $65
 
Cash Flows - Nine months ended September 30, 2019     
Sales of loans (b)$2,902
  $2,212
 
Repurchases of previously transferred loans (c)$235
  $4
 
Servicing fees (d)$264
  $97
 
Servicing advances recovered/(funded), net$33
  $61
 
Cash flows on mortgage-backed securities held (e)$2,653
  $43
 
(c)Includes both residential and commercial mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our ROAP option, as well as residential mortgage loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers.
(a)Represents cash flow information associated with both commercial mortgage loan transfers and servicing activities.
(b)Gains/losses recognized on sales of loans were insignificant for the periods presented.
(c)Includes both residential and commercial mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our removal of account provision option, as well as residential mortgage loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers.
(d)Includes contractually specified servicing fees, late charges and ancillary fees.
(e)Represents cash flows on securities where we transferred to and/or service loans for a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $19.5 billion, $17.8 billion, and $17.7 billion in residential mortgage-backed securities and $.8 billion, $.6 billion, and $.6 billion in commercial mortgage-backed securities at September 30, 2020, December 31, 2019 and September 30, 2019, respectively.
(d)Includes contractually specified servicing fees, late charges and ancillary fees.
(e)Represents cash flows on securities where we transferred to and/or service loans for a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $15.4 billion, $16.5 billion and $17.1 billion in residential mortgage-backed securities and $0.8 billion in commercial mortgage-backed securities at March 31, 2021, December 31, 2020 and March 31, 2020.
Table 5548 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 September 30, 2020.March 31, 2021.

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


Table 55:48: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others
In millionsResidential MortgagesCommercial Mortgages (a)
March 31, 2021
Total principal balance$41,096 $41,735 
Delinquent loans (b)$450 $126 
December 31, 2020
Total principal balance$43,351 $40,790 
Delinquent loans (b)$453 $136 
Three months ended March 31, 2021
Net charge-offs (c)$2 $153 
Three months ended March 31, 2020
Net charge-offs (c)$8 $99 
66   The PNC Financial Services Group, Inc. – Form 10-Q


In millionsResidential Mortgages
  Commercial Mortgages (a)
 
September 30, 2020     
Total principal balance$45,795
  $41,379
 
Delinquent loans (b)$460
  $311
 
December 31, 2019     
Total principal balance$49,323
  $42,414
 
Delinquent loans (b)$492
  $64
 
Three months ended September 30, 2020     
Net charge-offs (c)$4
  $4
 
Three months ended September 30, 2019     
Net charge-offs (c)$8
  $52
 
Nine months ended September 30, 2020     
Net charge-offs (c)$14
  $103
 
Nine months ended September 30, 2019     
Net charge-offs (c)$32
  $348
 
(a)Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization.
(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.
(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 25 Loan Sale and Servicing Activities and Variable Interest Entities in Item 8 of our 20192020 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 5649 where we have determined that our continuing involvement is not significant. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between us and the VIE. In addition, where we only have lending arrangements in the normal course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 56.49. These loans are included as part of the asset quality disclosures that we make in Note 4 Loans and Related Allowance for Credit Losses.
Table 56:49: Non-Consolidated VIEs
In millionsPNC Risk of Loss (a)Carrying Value of Assets
Owned by PNC		 Carrying Value of Liabilities
Owned by PNC		 
March 31, 2021 
Mortgage-backed securitizations (b)$16,883 $16,883 (c) $1  
Tax credit investments and other3,094 3,077 (d) 1,425 (e) 
Total$19,977 $19,960  $1,426  
December 31, 2020 
Mortgage-backed securitizations (b)$18,207 $18,207 (c) $1  
Tax credit investments and other3,121 2,894 (d) 1,198 (e) 
Total$21,328 $21,101  $1,199  
In millionsPNC Risk of Loss (a)
  Carrying Value of Assets
Owned by PNC
   Carrying Value of Liabilities
Owned by PNC
 
September 30, 2020         
Mortgage-backed securitizations (b)$21,109
  $21,109
(c)   $1
 
Tax credit investments and other3,005
  2,886
(d)   $920
(e) 
Total$24,114
  $23,995
   $921
 
December 31, 2019         
Mortgage-backed securitizations (b)$19,287
  $19,287
(c)     
Tax credit investments and other3,131
  3,028
(d)   $1,101
(e) 
Total$22,418
  $22,315
   $1,101
 
(a)Represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). The risk of loss excludes any potential tax recapture associated with tax credit investments.
(a)Represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). The risk of loss excludes any potential tax recapture associated with tax credit investments.
(b)Amounts reflect involvement with securitization SPEs where we transferred to and/or service loans for an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings.
(c)Included in Investment securities, Mortgage servicing rights and Other assets on our Consolidated Balance Sheet.
(d)Included in Investment securities, Loans, Equity investments and Other assets on our Consolidated Balance Sheet.
(e)Included in Deposits and Other liabilities on our Consolidated Balance Sheet.
(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.

We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs).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.CRA. Within Income taxes, during both the ninethree months ended September 30,March 31, 2021 and March 31, 2020, we recognized $140 millionless than $0.1 billion of

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



amortization, $144 million of tax credits and $32 million of other tax benefits associated with qualified investments in low income housing tax credits. The amounts for the third quarter of 2020 were $44 million, $46 million and $10 million, respectively.

NOTE 6 GOODWILL AND MORTGAGE SERVICING RIGHTS

Goodwill

See Note 1 Accounting Policies in this Report and Note 76 Goodwill and Mortgage Servicing Rights in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K for more information regarding our goodwill.

Mortgage Servicing Rights
We recognize the right to service mortgage loans for others as an intangible asset when the servicing income we receive is more than adequate compensation. MSRs are purchased or originated when loans are sold with servicing retained. MSRs totaled $1.1$1.7 billion and $1.6$1.2 billion at September 30, 2020March 31, 2021 and December 31, 2019,2020, 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).

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

See the Sensitivity Analysis section of this Note 6 as well asfor more detail on our fair value measurement of MSRs. See Note 15 Fair Value and Note 6 Fair ValueGoodwill and Mortgage Servicing Rights in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K for more detail on our fair value measurement of MSRs. Refer to Note 7 Goodwill and Mortgage Servicing Rights in our 2019 Form 10-K for more information on our accounting and measurement of MSRs.

Changes in the commercial and residential MSRs follow:

Table 57:50: Mortgage Servicing Rights
 Commercial MSRsResidential MSRs
In millions2021202020212020
January 1$569 $649 $673 $995 
Additions:
From loans sold with servicing retained18 11 13 10 
Purchases13 19 71 18 
Changes in fair value due to:
Time and payoffs (a)(28)(35)(73)(39)
Other (b)129 (167)295 (379)
March 31$701 $477 $979 $605 
Related unpaid principal balance at March 31$256,198 $225,769 $117,287 $118,104 
Servicing advances at March 31$447 $145 $126 $99 
 Commercial MSRs Residential MSRs 
In millions2020
2019
 2020
2019
 
January 1$649
$726
 $995
$1,257
 
Additions:      
From loans sold with servicing retained65
29
 34
23
 
Purchases31
76
 113
87
 
Changes in fair value due to:      
Time and payoffs (a)(87)(110) (136)(117) 
Other (b)(143)(126) (408)(362) 
September 30$515
$595
 $598
$888
 
Related unpaid principal balance at September 30$234,897
$203,808
 $119,158
$122,886
 
Servicing advances at September 30$363
$159
 $107
$123
 
(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.
(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.
(b)Represents MSR value changes resulting primarily from market-driven changes in interest rates.

Sensitivity Analysis
The fair value of commercial and residential MSRs and significant inputs to the valuation models as of September 30,March 31, 2021 and December 31, 2020 are shown in Tables 5851 and 59.52. 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 5851 and 59.52. 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

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


prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

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

Table 58:51: Commercial Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millionsMarch 31
2021		December 31
2020
Fair value$701 $569 
Weighted-average life (years)4.74.4
Weighted-average constant prepayment rate4.87 %4.87 %
Decline in fair value from 10% adverse change$11 $9 
Decline in fair value from 20% adverse change$22 $18 
Effective discount rate7.39 %7.33 %
Decline in fair value from 10% adverse change$20 $15 
Decline in fair value from 20% adverse change$40 $31 
Dollars in millionsSeptember 30
2020
 December 31
2019
 
Fair value$515
 $649
 
Weighted-average life (years)4.3
 4.1
 
Weighted-average constant prepayment rate4.70% 4.56% 
Decline in fair value from 10% adverse change$9
 $9
 
Decline in fair value from 20% adverse change$17
 $17
 
Effective discount rate7.37% 7.91% 
Decline in fair value from 10% adverse change$14
 $17
 
Decline in fair value from 20% adverse change$27
 $34
 

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


Table 59:52: Residential Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millionsMarch 31
2021		 December 31
2020		 
Fair value$979  $673  
Weighted-average life (years)6.2 3.8 
Weighted-average constant prepayment rate10.72 %21.13 %
Decline in fair value from 10% adverse change$38  $41  
Decline in fair value from 20% adverse change$79  $82  
Weighted-average option adjusted spread944 bps922 bps
Decline in fair value from 10% adverse change$34  $20  
Decline in fair value from 20% adverse change$66  $38  
Dollars in millionsSeptember 30
2020
 December 31
2019
 
Fair value$598
 $995
 
Weighted-average life (years)3.2
 5.2
 
Weighted-average constant prepayment rate24.82% 13.51% 
Decline in fair value from 10% adverse change$40
 $46
 
Decline in fair value from 20% adverse change$78
 $89
 
Weighted-average option adjusted spread927
bps769
bps
Decline in fair value from 10% adverse change$16
 $27
 
Decline in fair value from 20% adverse change$30
 $52
 


Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $.2$0.1 billion for the three months ended September 30, 2020March 31, 2021 and 2019 and $.4 billion for the nine months ended September 30, 2020 and 2019.2020. We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Corporate services and Residential mortgage, respectively.

NOTE 7 LEASES
PNC's lessor arrangements primarily consist of operating,direct financing, sales-type and direct financingoperating leases for equipment. Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term. Lease income from sales-type and direct financing leases is included in Loan interest income and operating lease income is included in Corporate services on our Consolidated Income Statement. For more information on lease accounting see Note 1 Accounting Policies and Note 247 Leases in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.

Table 60:53: Lessor Income
Three months ended
March 31
In millions20212020
Product
 Sales-type leases and direct financing leases (a)$62 $71 
 Operating leases (b)20 27 
Lessor income$82 $98 
 Three months ended
September 30		Nine months ended
September 30		 
In millions2020
2019
2020
2019
 
Product     
 Sales-type leases and direct financing leases$66
$72
$207
$223
 
 Operating leases22
29
74
90
 
Lessor Income$88
$101
$281
$313
 

(a)Included in Loan interest income on the Consolidated Income Statement.

84(b)   The PNC Financial Services Group, Inc. – Form 10-QIncluded in Corporate services on the Consolidated Income Statement.



NOTE 8 BORROWED FUNDS
The following table shows the carrying value of total borrowed funds of $42.1 billion at September 30, 2020 (including adjustments related to accounting hedges and unamortized original issuance discounts) by remaining contractual maturity:
Table 61: Borrowed Funds
In billions 
Less than 1 year$11.8
 
1 to 2 years$5.9
 
2 to 3 years$6.9
 
3 to 4 years$2.0
 
4 to 5 years$3.2
 
Over 5 years$12.3
 


The following table presents the contractual rates and maturity dates of our FHLB borrowings, senior debt and subordinated debt as of September 30, 2020, and the carrying values as of September 30, 2020 and December 31, 2019.
Table 62: FHLB Borrowings, Senior Debt and Subordinated Debt
 Stated Rate Maturity Carrying Value 
Dollars in millions2020 2020 2020 2019 
Parent Company        
Senior debt2.20%-3.50%
 2021-2030 $9,674
 $8,843
 
Subordinated debt3.90% 2024 811
 777
 
Junior subordinated debt0.82% 2028 205
 205
 
Subtotal    10,690
 9,825
 
Bank        
FHLB (a)0.34%-0.57%
 2020-2021 5,500
 16,341
 
Senior debt0.00%-3.50%
 2020-2043 17,165
 20,167
 
Subordinated debt2.70%-4.20%
 2022-2029 5,449
 5,152
 
Subtotal    28,114
 41,660
 
Total    $38,804
 $51,485
 
(a)FHLB borrowings are generally collateralized by residential mortgage loans, other mortgage-related loans and investment securities.
In Table 62, the carrying values for Parent Company senior and subordinated debt include basis adjustments of $763 million and $63 million, respectively, whereas Bank senior and subordinated debt include basis adjustments of $555 million and $469 million, respectively, related to fair value accounting hedges as of September 30, 2020.
Certain borrowings are reported at fair value. Refer to Note 12 Fair Value for more information on those borrowings.
For further information regarding junior subordinated debentures refer to Note 10 Borrowed Funds in our 2019 Form 10-K.


The PNC Financial Services Group, Inc. – Form 10-Q 8569  



NOTE 98 COMMITMENTS
In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with significant other commitments as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
Table 63:54: Commitments to Extend Credit and Other Commitments
In millionsMarch 31
2021		December 31
2020
Commitments to extend credit
Commercial$154,482 $153,089 
Home equity lines of credit16,604 16,626 
Credit card31,132 31,019 
Other8,195 7,087 
Total commitments to extend credit210,413 207,821 
Net outstanding standby letters of credit (a)9,090 9,053 
Standby bond purchase agreements (b)1,543 1,448 
Other commitments (c)2,733 2,046 
Total commitments to extend credit and other commitments$223,779 $220,368 
(a)Net outstanding standby letters of credit include $3.7 billion and $3.8 billion at March 31, 2021 and December 31, 2020, respectively, which support remarketing programs.
(b)We enter into standby bond purchase agreements to support municipal bond obligations.
In millionsSeptember 30
2020
 December 31
2019
 
Commitments to extend credit    
Total commercial lending$145,312
 $131,762
 
Home equity lines of credit16,793
 16,803
 
Credit card31,841
 30,862
 
Other6,905
 6,162
 
Total commitments to extend credit200,851
 185,589
 
Net outstanding standby letters of credit (a)9,080
 9,843
 
Reinsurance agreements (b)85
 1,393
 
Standby bond purchase agreements (c)1,434
 1,295
 
Other commitments (d)1,475
 1,498
 
Total commitments to extend credit and other commitments$212,925
 $199,618
 
(c)Includes $1.1 billion related to investments in qualified affordable housing projects for both March 31, 2021 and December 31, 2020.
(a)Net outstanding standby letters of credit include $3.9 billion and $4.1 billion at September 30, 2020 and December 31, 2019, respectively, which support remarketing programs.
(b)Represents aggregate maximum exposure up to the specified limits of the reinsurance contracts provided by our wholly-owned captive insurance subsidiary. These amounts reflect estimates based on availability of financial information from insurance carriers. As of September 30, 2020, the aggregate maximum exposure amount was zero for accidental death and dismemberment contracts, and $.1 billion for credit life, accident and health contracts. Comparable amounts at December 31, 2019 were $1.3 billion and $.1 billion, respectively.
(c)We enter into standby bond purchase agreements to support municipal bond obligations.
(d)Includes $.6 billion related to investments in qualified affordable housing projects for both September 30, 2020 and December 31, 2019.

Commitments to Extend Credit

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

Net Outstanding Standby Letters of Credit

We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Approximately 96%97% of our net outstanding standby letters of credit were rated as Pass as of September 30, 2020,March 31, 2021, with the remainder rated as Criticized. An internal credit rating of Pass indicates the expected risk of loss is currently low, while a rating of Criticized indicates a higher degree of risk.

If the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on September 30, 2020March 31, 2021 had terms ranging from less than one year to six years.

As of September 30, 2020,March 31, 2021, assets of $1.1$1.3 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$0.1 billion at September 30, 2020March 31, 2021 and is included in Other liabilities on our Consolidated Balance Sheet.


8670    The PNC Financial Services Group, Inc. – Form 10-Q




NOTE 109 TOTAL EQUITY AND OTHER COMPREHENSIVE INCOME

Activity in total equity for the ninethree months ended September 30,March 31, 2021 and 2020 and 2019 is as follows.follows:
Table 64:55: Rollforward of Total Equity
  Shareholders’ Equity    
In millionsShares
Outstanding
Common
Stock		Common
Stock		Capital
Surplus -
Preferred
Stock		Capital
Surplus -
Common
Stock and
Other		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Non-
controlling
Interests		Total Equity
Three months ended
Balance at December 31, 2019 (a)433 $2,712 $3,993 $12,376 $42,215 $799 $(12,781)$29 $49,343 
Cumulative effect of ASU 2016-13 adoption (b)(671)(671)
Balance at January 1, 2020 (a)433 $2,712 $3,993 $12,376 $41,544 $799 $(12,781)$29 $48,672 
Net income908 7 915 
Other comprehensive income, net of tax1,719 1,719 
Cash dividends declared - Common(503)(503)
Cash dividends declared - Preferred(63)(63)
Preferred stock discount accretion1 (1)
Treasury stock activity(9)49 (1,359)(1,310)
Other(131)(9)(140)
Balance at March 31, 2020 (a)424 $2,712 $3,994 $12,294 $41,885 $2,518 $(14,140)$27 $49,290 
Balance at December 31, 2020 (a)424 $2,713 $3,517 $12,367 $46,848 $2,770 $(14,205)$31 $54,041 
Net income1,816 10 1,826 
Other comprehensive income (loss), net of tax(1,480)(1,480)
Cash dividends declared - Common(493)(493)
Cash dividends declared - Preferred(57)(57)
Preferred stock discount accretion1 (1)
Treasury stock activity1 69 59 128 
Other(75)(11)(86)
Balance at March 31, 2021 (a)425 $2,713 $3,518 $12,361 $48,113 $1,290 $(14,146)$30 $53,879 
(a)The par value of our preferred stock outstanding was less than $0.5 million at each date and, therefore, is excluded from this presentation.
(b)Represents the cumulative effect of adopting ASU 2016-13 - Financial Instruments - Credit Losses.
   Shareholders’ Equity      
In millions
Shares
Outstanding
Common
Stock

 
Common
Stock

Capital
Surplus -
Preferred
Stock

Capital
Surplus -
Common
Stock and
Other

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

 
Non-
controlling
Interests

Total Equity
 
Three months ended            
Balance at June 30, 2019 (a)447
 $2,711
$3,991
$12,257
$40,616
$631
$(10,866) $41
$49,381
 
Net income     1,379
   13
1,392
 
Other comprehensive income (loss), net of tax      206
   206
 
Cash dividends declared - Common     (518)    (518) 
Cash dividends declared - Preferred     (63)    (63) 
Preferred stock discount accretion   1
 (1)    

 
Common stock activity    

     

 
Treasury stock activity(8)   (5)  (972)  (977) 
Other   
53
    (19)34
 
Balance at September 30, 2019 (a)439
 $2,711
$3,992
$12,305
$41,413
$837
$(11,838) $35
$49,455
 
Balance at June 30, 2020 (a)425
 $2,712
$3,995
$12,289
$44,986
$3,069
$(14,128) $25
$52,948
 
Net income     1,519
   13
1,532
 
Other comprehensive income, net of tax      (72)   (72) 
Cash dividends declared - Common     (494)    (494) 
Cash dividends declared - Preferred     (63)    (63) 
Preferred stock discount accretion   1
 (1)    
 
Common stock activity    

     

 
Treasury stock activity(1)   1
  (88)  (87) 
Preferred stock redemption - Series Q (b)   (480)      (480) 
Other    30
    (4)26
 
Balance at September 30, 2020 (a)424
 $2,712
$3,516
$12,320
$45,947
$2,997
$(14,216) $34
$53,310
 
Nine months ended            
Balance at December 31, 2018 (a)457
 $2,711
$3,986
$12,291
$38,919
$(725)$(9,454) $42
$47,770
 
Cumulative effect of ASU 2016-02 adoption (c)     62

   62
 
Balance at January 1, 2019 (a)457
 $2,711
$3,986
$12,291
$38,981
$(725)$(9,454) $42
$47,832
 
Net income     4,002
   35
4,037
 
Other comprehensive income (loss), net of tax      1,562
   1,562
 
Cash dividends declared - Common     (1,386)    (1,386) 
Cash dividends declared - Preferred     (181)    (181) 
Preferred stock discount accretion   3
 (3)    

 
Common stock activity    10
     10
 
Treasury stock activity(18)   4
  (2,384)  (2,380) 
Other   3


    (42)(39) 
Balance at September 30, 2019 (a)439
 $2,711
$3,992
$12,305
$41,413
$837
$(11,838) $35
$49,455
 
Balance at December 31, 2019 (a)433
 $2,712
$3,993
$12,376
$42,215
$799
$(12,781) $29
$49,343
 
Cumulative effect of ASU 2016-13 adoption (d)     (671)    (671) 
Balance at January 1, 2020 (a)433
 $2,712
$3,993
$12,376
$41,544
$799
$(12,781) $29
$48,672
 
Net income     6,075
   27
6,102
 
Other comprehensive income, net of tax      2,198
   2,198
 
Cash dividends declared - Common     (1,488)    (1,488) 
Cash dividends declared - Preferred     (181)    (181) 
Preferred stock discount accretion   3
 (3)    

 
Common stock activity    11
     11
 
Treasury stock activity(9)   52
  (1,435)  (1,383) 
Preferred stock redemption - Series Q (b)   (480)      (480) 
Other    (119)    (22)(141) 
Balance at September 30, 2020 (a)424
 $2,712
$3,516
$12,320
$45,947
$2,997
$(14,216) $34
$53,310
 
(a)The par value of our preferred stock outstanding was less than $.5 million at each date and, therefore, is excluded from this presentation.
(b)On September 1, 2020, PNC redeemed all 4,800 shares of its Series Q Preferred Stock, as well as all 19.2 million Depositary Shares representing fractional interests in such shares.
(c)
Represents the cumulative effect of adopting ASU 2016-02 - Leases related primarily to deferred gains on previous sale-leaseback transactions. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in our 2019 Form 10-K for additional detail.
(d)
Represents the cumulative effect of adopting ASU 2016-13 - Financial Instruments - Credit Losses. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in this Report for additional detail on this adoption.

The PNC Financial Services Group, Inc. – Form 10-Q 8771  



Table 65: Other Comprehensive Income (Loss)

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

 Three months ended September 30Nine months ended September 30
 2020201920202019
In millionsPre-tax
Tax effect
After-tax
Pre-tax
Tax effect
After-tax
Pre-tax
Tax effect
After-tax
Pre-tax
Tax effect
After-tax
Debt securities            
Increase in net unrealized gains (losses) on securities$42
$(9)$33
$221
$(51)$170
$2,283
$(525)$1,758
$1,583
$(363)$1,220
Less: Net realized gains (losses) reclassified to earnings (a)32
(7)25
7
(2)5
255
(59)196
27
(6)21
Net change10
(2)8
214
(49)165
2,028
(466)1,562
1,556
(357)1,199
Cash flow hedge derivatives            
Increase in net unrealized gains (losses) on cash flow hedges15
(3)12
84
(19)65
960
(221)739
438
(100)338
Less: Net realized gains (losses) reclassified to earnings (a)134
(30)104
5
(1)4
282
(65)217
5
(1)4
Net change(119)27
(92)79
(18)61
678
(156)522
433
(99)334
Pension and other postretirement benefit plan adjustments            
Net pension and other postretirement benefit plan activity and other reclassified to earnings (b)2
 2
2
 2
(3)1
(2)63
(14)49
Net change2


2
2


2
(3)1
(2)63
(14)49
Other            
Net unrealized gains (losses) on other transactions 10
10
4
(7)(3)10
(9)1
14
(11)3
Net change0
10
10
4
(7)(3)10
(9)1
14
(11)3
Total other comprehensive income (loss) from continuing operations(107)35
(72)299
(74)225
2,713
(630)2,083
2,066
(481)1,585
Total other comprehensive income (loss) from discontinued operations   (23)4
(19)148
(33)115
(29)6
(23)
Total other comprehensive income (loss)$(107)$35
$(72)$276
$(70)$206
$2,861
$(663)$2,198
$2,037
$(475)$1,562

(a)Reclassifications for pre-tax debt securities and cash flow hedges are recorded in interest income and noninterest income on the Consolidated Income Statement.
(b)Reclassifications include amortization of actuarial losses (gains) and amortization of prior period services costs (credits) which are recorded in noninterest expense on the Consolidated Income Statement.

Table 56: Other Comprehensive Income (Loss)


 Three months ended March 31
20212020
In millionsPre-taxTax effectAfter-taxPre-taxTax effectAfter-tax
Debt securities
Net unrealized gains (losses) on securities$(1,181)$278 $(903)$1,662 $(381)$1,281 
Less: Net realized gains (losses) reclassified to earnings (a)13 (3)10 182 (42)140 
Net change(1,194)281 (913)1,480 (339)1,141 
Cash flow hedge derivatives
Net unrealized gains (losses) on cash flow hedge derivatives(640)151 (489)830 (190)640 
Less: Net realized gains (losses) reclassified to earnings (a)135 (32)103 45 (10)35 
Net change(775)183 (592)785 (180)605 
Pension and other postretirement benefit plan adjustments
Net pension and other postretirement benefit plan activity and other reclassified to
  earnings (b)		30 (7)23 12 (3)9 
Net change30 (7)23 12 (3)9 
Other
Net unrealized gains (losses) on other transactions1 1 2 8 (18)(10)
Net change1 1 2 8 (18)(10)
Total other comprehensive income (loss) from continuing operations(1,938)458 (1,480)2,285 (540)1,745 
Total other comprehensive income (loss) from discontinued operations(34)8 (26)
Total other comprehensive income (loss)$(1,938)$458 $(1,480)$2,251 $(532)$1,719 
(a)Reclassifications for pre-tax debt securities and cash flow hedges are recorded in interest income and noninterest income on the Consolidated Income Statement.
(b)Reclassifications include amortization of actuarial losses (gains) and amortization of prior period services costs (credits) which are recorded in noninterest expense on the Consolidated Income Statement.


8872    The PNC Financial Services Group, Inc. – Form 10-Q



Table 66:57: Accumulated Other Comprehensive Income (Loss) Components
In millions, after-taxDebt securities
 Cash flow hedge derivatives
 Pension and  other postretirement benefit plan adjustments
 Other
 Accumulated other Comprehensive Income from Continuing Operations
 Accumulated other Comprehensive Income from Discontinued Operations

Total
 
Three months ended             
Balance at June 30, 2019$954
 $320
 $(483) $(37) $754
 $(123)$631
 
Net activity165
 61
 2
 (3) 225
 (19)206
 
Balance at September 30, 2019$1,119
 $381
 $(481) $(40) $979
 $(142)$837
 
Balance at June 30, 2020$2,621
 $890
 $(412) $(30) $3,069
 $0
$3,069
 
Net activity8
 (92) 2
 10
 (72)  (72) 
Balance at September 30, 2020$2,629
 $798
 $(410) $(20) $2,997
 $0
$2,997
 
Nine months ended             
Balance at December 31, 2018$(80) $47
 $(530) $(43) $(606) $(119)$(725) 
Net activity1,199
 334
 49
 3
 1,585
 (23)1,562
 
Balance at September 30, 2019$1,119
 $381
 $(481) $(40) $979
 $(142)$837
 
Balance at December 31, 2019$1,067
 $276
 $(408) $(21) $914
 $(115)$799
 
Net activity1,562
 522
 (2) 1
 2,083
 115
2,198
 
Balance at September 30, 2020$2,629
 $798
 $(410) $(20) $2,997
 $0
$2,997
 

In millions, after-taxDebt securitiesCash flow hedge derivativesPension and  other postretirement benefit plan adjustmentsOtherAccumulated other Comprehensive Income from Continuing OperationsAccumulated other Comprehensive Income from Discontinued OperationsTotal
Three months ended
Balance at December 31, 2019$1,067 $276 $(408)$(21)$914 $(115)$799 
Net activity1,141 605 9 (10)1,745 (26)1,719 
Balance at March 31, 2020$2,208 $881 $(399)$(31)$2,659 $(141)$2,518 
Balance at December 31, 2020$2,462 $659 $(345)$(6)$2,770 $2,770 
Net activity(913)(592)23 2 (1,480)(1,480)
Balance at March 31, 2021$1,549 $67 $(322)$(4)$1,290 0 $1,290 
The following table provides the dividends per share for PNC's common and preferred stock.stock:

Table 67:58: Dividends Per Share (a)
Three months ended March 31
20212020
Common Stock$1.15 $1.15 
Preferred Stock
   Series B$0.45 $0.45 
   Series O$3,375 $3,375 
   Series P$1,531 $1,531 
   Series Q (b)$1,344 
 Three months ended September 30Nine months ended September 30
 2020201920202019
Common Stock$1.15
$1.15
$3.45
$3.05
Preferred Stock    
   Series B$.45
$.45
$1.35
$1.35
   Series O$3,375
$3,375
$6,750
$6,750
   Series P$1,531
$1,531
$4,594
$4,594
   Series Q$1,343
$1,343
$4,031
$4,031
   Series R 

$2,425
$2,425
   Series S 

$2,500
$2,500
(a)Dividends are payable quarterly other than Series O, Series R and Series S preferred stock, which are payable semiannually, with the Series O payable in different quarters
from the Series R and Series S preferred stock.

(b)On September 1, 2020, PNC redeemed all 4,800 shares of its Series Q Preferred Stock, as well as all 19.2 million Depositary Shares representing fractional interest in such shares.
The
On April 1, 2021, the PNC boardBoard of directorsDirectors declared a quarterly cash dividend on common stock payable on November 5, 2020 of $1.15 per share consistent with the second quarter dividend paidpayable on AugustMay 5, 2020.2021.


The PNC Financial Services Group, Inc. – Form 10-Q 8973  



NOTE 1110 EARNINGS PER SHARE

Table 68:59: Basic and Diluted Earnings Per Common Share
 Three months ended
March 31
In millions, except per share data20212020
Basic
Net income from continuing operations$1,826 $759 
Less:
Net income attributable to noncontrolling interests10 7 
Preferred stock dividends57 63 
Preferred stock discount accretion and redemptions1 1 
Net income from continuing operations attributable to common shareholders1,758 688 
Less: Dividends and undistributed earnings allocated to nonvested restricted shares8 3 
Net income from continuing operations attributable to basic common shareholders$1,750 $685 
Net income from discontinued operations attributable to common shareholders00$156 
Less: Undistributed earnings allocated to nonvested restricted shares1 
Net income from discontinued operations attributable to basic common shareholders0$155 
Basic weighted-average common shares outstanding426 429 
Basic earnings per common share from continuing operations (a)$4.11 $1.59 
Basic earnings per common share from discontinued operations (a)0$0.37 
Basic earnings per common share$4.11 $1.96 
Diluted
Net income from continuing operations attributable to diluted common shareholders
$1,750 $685 
Net income from discontinued operations attributable to basic common shareholders
0$155 
Less: Impact of earnings per share dilution from discontinued operations1 
Net income from discontinued operations attributable to diluted common shareholders
0$154 
Basic weighted-average common shares outstanding426 429
Dilutive potential common shares1 
Diluted weighted-average common shares outstanding426 430 
Diluted earnings per common share from continuing operations (a)$4.10 $1.59 
Diluted earnings per common share from discontinued operations (a)0$0.36 
Diluted earnings per common share$4.10 $1.95 
  Three months ended
September 30		 Nine months ended
September 30		 
In millions, except per share data 2020
 2019
 2020
 2019
 
Basic         
Net income from continuing operations $1,532
 $1,181
 $1,547
 $3,448
 
Less:         
Net income attributable to noncontrolling interests 13
 13
 27
 35
 
Preferred stock dividends 63
 63
 181
 181
 
Preferred stock discount accretion and redemptions 1
 1
 3
 3
 
Net income from continuing operations attributable to common shareholders 1,455

1,104

1,336

3,229
 
Less: Dividends and undistributed earnings allocated to nonvested restricted shares 8
 5
 7
 13
 
Net income from continuing operations attributable to basic common shareholders $1,447

$1,099
 $1,329

$3,216
 
Net income from discontinued operations attributable to common shareholders 

 $211
 $4,555
 $589
 
Less: Undistributed earnings allocated to nonvested restricted shares   1
 22
 2
 
Net income from discontinued operations attributable to basic common shareholders 


 $210
 $4,533
 $587
 
Basic weighted-average common shares outstanding 426
 444
 427
 450
 
Basic earnings per common share from continuing operations (a) $3.40
 $2.47
 $3.11
 $7.15
 
Basic earnings per common share from discontinued operations (a) 

 $.48
 $10.61
 $1.30
 
Basic earnings per common share (b) $3.40
 $2.95
 $13.73
 $8.45
 
Diluted 
       
Net income from continuing operations attributable to diluted common shareholders
 $1,447
 $1,099
 $1,329
 $3,216
 
Net income from discontinued operations attributable to basic common shareholders
 


 $210
 $4,533
 $587
 
Less: Impact of earnings per share dilution from discontinued operations   2
 2
 7
 
Net income from discontinued operations attributable to diluted common shareholders
 


 $208
 $4,531
 $580
 
Basic weighted-average common shares outstanding 426
 444
 427
 450
 
Dilutive potential common shares   1
 1
 1
 
Diluted weighted-average common shares outstanding 426
 445
 428
 451
 
Diluted earnings per common share from continuing operations (a) $3.39
 $2.47
 $3.11
 $7.13
 
Diluted earnings per common share from discontinued operations (a) 


 $.47
 $10.59
 $1.29
 
Diluted earnings per common share (b) $3.39
 $2.94
 $13.70
 $8.42
 
(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).
(b)See Note 1 Accounting Policies in the Notes to Consolidated Financial Statements of this Report for additional information on our policy for not allocating losses to participating securities.

(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).

NOTE 1211 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, and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K.


9074    The PNC Financial Services Group, Inc. – Form 10-Q




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 615 Fair Value in Item 8 of our 20192020 Form 10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which we have elected the fair value option.

Table 69:60: Fair Value Measurements – Recurring Basis Summary
 March 31, 2021December 31, 2020
In millionsLevel 1Level 2Level 3Total
Fair Value		Level 1Level 2Level 3Total
Fair Value
Assets
Residential mortgage loans held for sale$1,087 $165 $1,252 $691 $163 $854 
Commercial mortgage loans held for sale329 56 385 305 57 362 
Securities available for sale
U.S. Treasury and government agencies$21,997 3,953 25,950 $16,675 4,036 20,711 
Residential mortgage-backed
Agency51,554 51,554 48,911 48,911 
Non-agency108 1,316 1,424 136 1,365 1,501 
Commercial mortgage-backed
Agency2,284 2,284 2,688 2,688 
Non-agency4,225 11 4,236 3,678 113,689 
Asset-backed5,847 194 6,041 4,951 199 5,150 
Other5,238 72 5,310 4,636 72 4,708 
Total securities available for sale21,997 73,209 1,593 96,799 16,675 69,036 1,647 87,358 
Loans730 711 1,441 718 647 1,365 
Equity investments (a)1,133 1,343 2,725 1,070 1,263 2,629 
Residential mortgage servicing rights979 979 673 673 
Commercial mortgage servicing rights701 701 569 569 
Trading securities (b)576 1,012 1,588 548 1,690 2,238 
Financial derivatives (b) (c)4,853 63 4,916 6,415 118 6,533 
Other assets384 93 477 373 81 454 
Total assets (d)$24,090 $81,313 $5,611 $111,263 $18,666 $78,936 $5,137 $103,035 
Liabilities
Other borrowed funds$790 $46 $2 $838 $661 $44 $2 $707 
Financial derivatives (c) (e)2,796 227 3,023 2,483 273 2,756 
Other liabilities73 73 43 43 
Total liabilities (f)$790 $2,842 $302 $3,934 $661 $2,527 $318 $3,506 
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Included in Other assets on the Consolidated Balance Sheet.
 September 30, 2020  December 31, 2019 
In millionsLevel 1
 Level 2
 Level 3
 
Total
Fair Value

  Level 1
 Level 2
 Level 3
 
Total
Fair Value

 
Assets                 
Residential mortgage loans held for sale  $583
 $77
 $660
    $817
 $2
 $819
 
Commercial mortgage loans held for sale  647
 59
 706
    182
 64
 246
 
Securities available for sale               

 
U.S. Treasury and government agencies$17,946
 279
   18,225
  $16,236
 280
   16,516
 
Residential mortgage-backed               

 
Agency  52,928
   52,928
    36,321
   36,321
 
Non-agency  165
 1,438
 1,603
    73
 1,741
 1,814
 
Commercial mortgage-backed               

 
Agency  2,966
   2,966
    3,118
   3,118
 
Non-agency  3,818
 11
 3,829
    3,372
   3,372
 
Asset-backed  5,032
 208
 5,240
    4,874
 240
 5,114
 
Other  4,885
 71
 4,956
    2,834
 74
 2,908
 
Total securities available for sale17,946
 70,073
 1,728
 89,747
  16,236
 50,872
 2,055
 69,163
 
Loans  654
 647
 1,301
    442
 300
 742
 
Equity investments (a)691
   1,259
 2,236
  855
   1,276
 2,421
 
Residential mortgage servicing rights    598
 598
      995
 995
 
Commercial mortgage servicing rights    515
 515
      649
 649
 
Trading securities (b)660
 1,061
   1,721
  433
 2,787
   3,220
 
Financial derivatives (b) (c)  7,206
 137
 7,343
    3,448
 54
 3,502
 
Other assets344
 60
   404
  339
 131
   470
 
Total assets (d)$19,641
 $80,284
 $5,020
 $105,231
  $17,863

$58,679

$5,395

$82,227
 
Liabilities               

 
Other borrowed funds$777
 $41
 $2
 $820
  $385
 $126
 $7
 $518
 
Financial derivatives (c) (e)2
 2,565
 143
 2,710
    1,819
 200
 2,019
 
Other liabilities    90
 90
      137
 137
 
Total liabilities (f)$779
 $2,606
 $235
 $3,620
  $385
 $1,945
 $344
 $2,674
 
(a)Certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Included in Other assets on the Consolidated Balance Sheet.
(c)Amounts at September 30, 2020 and December 31, 2019 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 13 Financial Derivatives for additional information related to derivative offsetting.
(d)Total assets at fair value as a percentage of total consolidated assets was 23% and 20% as of September 30, 2020 and December 31, 2019, respectively. Level 3 assets as a percentage of total assets at fair value was 5% and 7% as of September 30, 2020 and December 31, 2019, respectively. Level 3 assets as a percentage of total consolidated assets was 1% at both September 30, 2020 and December 31, 2019.
(e)Included in Other liabilities on the Consolidated Balance Sheet.
(f)Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both September 30, 2020 and December 31, 2019. Level 3 liabilities as a percentage of total liabilities at fair value was 6% and 13% as of September 30, 2020 and December 31, 2019, respectively. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both September 30, 2020 and December 31, 2019.

(c)Amounts at March 31, 2021 and December 31, 2020 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 12 Financial Derivatives for additional information related to derivative offsetting.
(d)Total assets at fair value as a percentage of total consolidated assets was 23% and 22% as of March 31, 2021 and December 31, 2020, respectively. Level 3 assets as a percentage of total assets at fair value was 5% at both March 31, 2021 and December 31, 2020. Level 3 assets as a percentage of total consolidated assets was 1% at both March 31, 2021 and December 31, 2020.
(e)Included in Other liabilities on the Consolidated Balance Sheet.
(f)Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both March 31, 2021 and December 31, 2020. Level 3 liabilities as a percentage of total liabilities at fair value was 8% and 9% as of March 31, 2021 and December 31, 2020, respectively. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both March 31, 2021 and December 31, 2020.

The PNC Financial Services Group, Inc. – Form 10-Q 9175  


Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 follow:
Table 70:61: Reconciliation of Level 3 Assets and Liabilities
Three Months Ended September 30, 2020March 31, 2021
   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, 2021
(a) (c)
Level 3 Instruments Only
In millions		Fair Value Dec. 31, 2020Included in
Earnings		Included
in Other
comprehensive
income (b)		PurchasesSalesIssuancesSettlementsTransfers
into
Level 3		Transfers
out of
Level 3		Fair
Value Mar. 31, 2021
Assets             
Residential mortgage loans
    held for sale		$163 $1 $35 $(16)$(16)$3 $(5)(e)$165  
Commercial mortgage
    loans held for sale		57 (1) 56  
Securities available for sale
Residential mortgage-
    backed non-agency		1,365 9  $16 (74)1,316  
Commercial mortgage-
    backed non-agency		11  11  
Asset-backed199 1  3 (9)194  
Other72  1 (1)72  
Total securities
    available for sale		1,647 10 19 1 (84)1,593  
Loans647 10 88 (3)(28)(3)(e)711 $11 
Equity investments1,263 67  40 (27)1,343 63  
Residential mortgage
    servicing rights		673 295 71 $13 (73)979 295 
Commercial mortgage
    servicing rights		569 129  13 18 (28)701 129  
Financial derivatives118 (14) 1 (42)63 (11) 
Total assets$5,137 $497 $19 $249 $(46)$31 $(271)$3 $(8)$5,611 $487 
Liabilities 
Other borrowed funds$2 $1 $(1)$2  
Financial derivatives273 $(14) $2 (34)227 $(30) 
Other liabilities43 35  30 (35)73 4  
Total liabilities$318 $21 $2 $31 $(70)$302 $(26) 
Net gains (losses) $476 (f)        $513 (g) 
   Total realized / unrealized
gains or losses for the 
period (a)		                Unrealized
gains / losses
on assets and
liabilities held on
Consolidated
Balance Sheet at
Sept. 30, 2020
(a) (c)
Level 3 Instruments Only
In millions		Fair Value June 30, 2020
Included in
Earnings
Included
in Other
comprehensive
income (b)		 Purchases
Sales
Issuances
Settlements
 Transfers
into
Level 3
Transfers
out of
Level 3
 Fair
Value Sept. 30, 2020
Assets               
Residential mortgage loans
held for sale		$88
   $15
$(10) $(9) $3
$(10) $77
  
Commercial mortgage
loans held for sale		60
$(1)          59
  
Securities available for sale               
Residential mortgage-
backed non-agency		1,491
12
 $18
   (83)    1,438
  
Commercial mortgage-
backed non-agency		19
  (8)        11
  
Asset-backed210
1
 5
   (8)    208
  
Other72
   (1)       71
  
Total securities
available for sale		1,792
13

15
(1)



(91) 



 1,728
  
Loans607
7
  63
(3) (27)    647
$7
 
Equity investments1,183
63
  60
(47)      1,259
56
 
Residential mortgage
servicing rights		577
11
  52
 $12
(54)    598
11
 
Commercial mortgage
servicing rights		490
23
  8
 20
(26)    515
23
 
Trading securities            

  
Financial derivatives141
41
  3
  (48)    137
52
 
Other assets            

  
Total assets$4,938
$157
 $15
$200
$(60)$32
$(255) $3
$(10) $5,020
$149
 
Liabilities               
Other borrowed funds$2
     $2
$(2)    $2
  
Financial derivatives209
$(10)   $1
 (57)    143
$(7) 
Other liabilities85
7
    17
(19)    90
6
 
Total liabilities$296
$(3)  

$1
$19
$(78) 



 $235
$(1) 
Net gains (losses) $160
(f)          $150
(g) 



9276    The PNC Financial Services Group, Inc. – Form 10-Q



Three Months Ended September 30, 2019March 31, 2020
   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, 2020
 (a) (c)
Level 3 Instruments Only
In millions		Fair Value Dec. 31, 2019Included in EarningsIncluded in Other comprehensive income (b)PurchasesSalesIssuancesSettlementsTransfers into Level 3Transfers out of Level 3Fair Value Mar. 31, 2020
Assets             
Residential mortgage loans
    held for sale		$2 $2 $(1)$4 $(3)(e)$4 
Commercial mortgage
    loans held for sale		64 $(1)$(3)60 $(1)
Securities available for sale
Residential mortgage-
    backed non-agency		1,741 16 $(222)(93)1,442 
Asset-backed240 2 (29)(11)202 
Other74 (5)4 73 
Total securities
    available for sale		2,055 18 (256)4 (104)1,717 
Loans300 11 16 (26)0362 (d)(8)(e)655 11 
Equity investments1,276 (69)71 (58)1,220 (64)
Residential mortgage
    servicing rights		995 (379)18 $10 (39)605 (379)
Commercial mortgage
    servicing rights		649 (167)19 11 (35)477 (166)
Trading securities
Financial derivatives54 101 2 (22)135 75 
Other assets
Total assets$5,395 $(486)$(256)$132 $(85)$21 $159 $4 $(11)$4,873 $(524)
Liabilities
Other borrowed funds$7 $12 $(14)$5 
Financial derivatives200 $8 $1 (24)185 $10 
Other liabilities137 2 11 (78)$2 $(2)72 (6)
Total liabilities$344 $10 0$1 $23 $(116)$2 $(2)$262 $4 
Net gains (losses)$(496)(f)$(528)(g)
   Total realized / unrealized
gains or losses for the 
period (a)		              Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2019
(a) (c)
Level 3 Instruments Only
In millions		Fair Value June 30, 2019
Included in Earnings
Included in Other comprehensive income (b) Purchases
Sales
Issuances
Settlements
Transfers into Level 3
Transfers out of Level 3
 Fair Value Sept. 30, 2019
Assets              
Residential mortgage loans
held for sale		$2
   $3

 $(1)$8
$(8)(e)$4
  
Commercial mortgage
loans held for sale		73
    

(1)   72

 
Securities available for sale              
Residential mortgage-
backed non-agency		1,976
$23
 $(3)   (143)   1,853
  
Asset-backed261
2
 
1

 (12)   252
  
Other80
1
 (3)5

 (6) 
 77
  
Total securities
available for sale		2,317
26
 (6)6

 (161) 
 2,182
  
Loans259
5
  93
$(7)$1
(14)2
(10)(e)329
$4
 
Equity investments1,323
48
  65
(46)     1,390
50
 
Residential mortgage
servicing rights		997
(100)  22
 9
(40)   888
(97) 
Commercial mortgage
servicing rights		630
(38)  25
 13
(35)   595
(38) 
Trading securities

      

      
Financial derivatives86
17
  6
  (19)   90
16
 
Other assets

     
    
 
Total assets$5,687
$(42) $(6)$220
$(53)$23
$(271)$10
$(18) $5,550
$(65) 
Liabilities              
Other borrowed funds$5
     $13
$(12)   $6
  
Financial derivatives221
$8
   $4
 (27)   206
$13
 
Other liabilities78
14
  $16
 13
(16)   105
8
 
Total liabilities$304
$22
  $16
$4
$26
$(55)   $317
$21
 
Net gains (losses) $(64)(f)         $(86)(g)

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




(b)The PNC Financial Services Group, Inc. – difference in unrealized gains and losses for the period included in Other comprehensive income and changes in unrealized gains and losses for the period included in Other comprehensive income for securities available for sale held at the end of the reporting period were not significant.Form 10-Q 93  


(continued from previous page)

Nine Months Ended September 30, 2020(c)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.
   Total realized / unrealized
gains or losses for the 
period (a)		                Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2020 (a) (c)
Level 3 Instruments Only
In millions
Fair
Value
Dec. 31,
2019
Included in
Earnings
Included
in Other
comprehensive
income (b)		 Purchases
Sales
Issuances
Settlements
 Transfers
into
Level 3
Transfers
out of
Level 3
 Fair Value Sept. 30, 2020
Assets               
Residential mortgage loans
held for sale		$2
   $22
$(12) $(12) $90
$(13)(e) $77
  
Commercial mortgage
loans held for sale		64
$(2)     (3)    59
$(1) 
Securities available for sale               
Residential mortgage-
backed non-agency		1,741
40
 $(81)   (262)    1,438
  
Commercial mortgage-
backed non-agency		   (8)     19
  11
  
Asset-backed240
5
 (8)   (29)    208
  
Other74
  (3)3
  (3)    71
  
Total securities
available for sale		2,055
45
 (100)3

 (294) 19

 1,728

 
Loans300
20
  134
(34) 313
(d)  (86)(e) 647
20
 
Equity investments1,276
(68)  173
(122)      1,259
(69) 
Residential mortgage
servicing rights		995
(408)  113
 $34
(136)    598
(408) 
Commercial mortgage
servicing rights		649
(143)  31
 65
(87)    515
(144) 
Trading securities
           
  
Financial derivatives54
192
  9
  (118)    137
200
 
Other assets
           
  
Total assets$5,395
$(364) $(100)$485
$(168)$99
$(337) $109
$(99) $5,020
$(402) 
Liabilities               
Other borrowed funds$7
     $27
$(32)    $2
  
Financial derivatives200
$26
   $3
 (86)    143
$30
 
Other liabilities137
13
    54
(116) $2
  90
(2) 
Total liabilities$344
$39
  
$3
$81
$(234) $2
  $235
$28
 
Net gains (losses) $(403)(f)           $(430)(g) 


94(d)Upon adoption of ASU 2016-13 -    The PNC Financial Services Group, Inc. – Credit LossesForm 10-Q, we discontinued the accounting for purchased impaired loans and elected the one-time fair value option election for some of these loans and certain nonperforming loans.



(e)Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment.
Nine Months Ended September 30, 2019(f)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.
   Total realized / unrealized
gains or losses for the 
period (a)		               Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2019 (a) (c)
Level 3 Instruments Only
In millions
Fair
Value
Dec. 31,
2018
Included in
Earnings
Included
in Other
comprehensive
income (b)		 Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
 Fair Value Sept. 30, 2019
Assets              
Residential mortgage loans
held for sale		$2
   $5
$(1) $(1)$12
$(13)(e)$4
  
Commercial mortgage
loans held for sale		87
$2
     (17)   72
$2
 
Securities available for sale              
Residential mortgage-
backed non-agency		2,128
59
 $18
   (352)   1,853

 
Asset-backed274
4
 6
1

 (33)   252
  
Other84
1
 (4)8
(3) (9)   77
  
Total securities
available for sale		2,486
64

20
9
(3)
(394)


2,182

 
Loans272
10
  126
(18)

(39)5
(27)(e)329
6
 
Equity investments1,255
104
  260
(229)     1,390
53
 
Residential mortgage
servicing rights		1,257
(362)  87
 $23
(117)   888
(353) 
Commercial mortgage
servicing rights		726
(126)  76
 29
(110)   595
(126) 
Trading securities2
      (2)   
  
Financial derivatives25
104
  6
  (45)   90
100
 
Other assets45
      (45)   
  
Total assets$6,157
$(204)
$20
$569
$(251)$52
$(770)$17
$(40)
$5,550
$(318) 
Liabilities              
Other borrowed funds$7
     $39
$(40)   $6
  
Financial derivatives268
$58
   $5
 (125)   206
$65
 
Other liabilities58
34
  $16
2
66
(71)   105
20
 
Total liabilities$333
$92



$16
$7
$105
$(236)




$317
$85
 
Net gains (losses) $(296)(f)         $(403)(g)

(g)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.
(a)Losses for assets are bracketed while losses for liabilities are not.
(b)The difference in unrealized gains and losses for the period included in Other comprehensive income and changes in unrealized gains and losses for the period included in Other comprehensive income for securities available for sale held at the end of the reporting period were not significant.
(c)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.
(d)
Upon adoption of ASU 2016-13 - Credit Losses, we discontinued the accounting for purchased impaired loans and elected the one-time fair value option election for some of these loans and certain nonperforming loans.
(e)Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment.
(f)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.
(g)Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in Noninterest income on the Consolidated Income Statement.
An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels.




The PNC Financial Services Group, Inc. – Form 10-Q 9577  



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

Table 71:62: Fair Value Measurements – Recurring Quantitative Information

March 31, 2021
Level 3 Instruments Only
Dollars in millions		Fair ValueValuation TechniquesUnobservable InputsRange (Weighted-Average) (a)
Commercial mortgage loans held for sale$56 Discounted cash flowSpread over the benchmark curve (b)620bps - 6,350bps (4,038bps)
Residential mortgage-backed
    non-agency securities		1,316 Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate1.0% - 37.6% (10.2%)
Constant default rate0.0% - 18.8% (6.0%)
Loss severity25.0% -95.7% (48.6%)
Spread over the benchmark curve (b)155bps weighted-average
Asset-backed securities194 Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate1.0% - 40.0% (8.4%)
Constant default rate1.4% - 6.0% (2.9%)
Loss severity30.0% - 100.0% (55.3%)
Spread over the benchmark curve (b)197bps weighted-average
Loans - Residential real estate429 Consensus pricing (c)Cumulative default rate3.6% - 100.0% (81.5%)
Loss severity0.0% - 100.0% (10.0%)
Discount rate4.8% - 6.8% (5.1%)
130 Discounted cash flowLoss severity8.0% weighted-average
Discount rate3.2% weighted-average
Loans - Home equity20 Consensus pricing (c)Cumulative default rate3.6% -100.0% (85.5%)
Loss severity0.0% - 98.4% (31.5%)
Discount rate4.8% - 6.8% (6.2%)
132 Consensus pricing (c)Credit and liquidity discount4.7% - 92.0% (44.0%)
Equity investments1,343 Multiple of adjusted earningsMultiple of earnings4.0x - 20.1x (8.8x)
Residential mortgage servicing rights979 Discounted cash flowConstant prepayment rate0.0% - 31.4% (10.7%)
Spread over the benchmark curve (b)383bps - 2,893bps (944bps)
Commercial mortgage servicing rights701 Discounted cash flowConstant prepayment rate4.1% - 13.6% (4.9%)
Discount rate5.5% - 7.6% (7.4%)
Financial derivatives - Swaps related to
    sales of certain Visa Class B
    common shares		(201)Discounted cash flowEstimated conversion factor of Visa Class B shares into Class A shares162.3% weighted-average
Estimated annual growth rate of Visa Class A share price16.0%
Estimated length of litigation resolution dateQ2 2022
Insignificant Level 3 assets, net of
    liabilities (d)		210 
Total Level 3 assets, net of liabilities (e)$5,309 
September 30, 2020
Level 3 Instruments Only
Dollars in millions
Fair Value
Valuation TechniquesUnobservable InputsRange (Weighted-Average) (a)
Commercial mortgage loans held for sale$59
Discounted cash flowSpread over the benchmark curve (b)630bps - 4,490bps (2,784bps)
Residential mortgage-backed
non-agency securities		1,438
Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate1.0% - 37.6% (8.5%)
Constant default rate0.0% - 12.2% (4.7%)
Loss severity25.0% - 95.7% (48.6%)
Spread over the benchmark curve (b)278bps weighted-average
Asset-backed securities208
Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate1.0% - 22.0% (7.3%)
Constant default rate1.0% - 7.2% (3.3%)
Loss severity30.0% - 100.0% (59.1%)
Spread over the benchmark curve (b)335bps weighted-average
Loans - Residential real estate436
Consensus pricing (c)Cumulative default rate3.6% - 100.0% (82.1%)
Loss severity0.0% - 100.0% (11.8%)
Discount rate4.8% - 6.8% (5.2%)
 125
Discounted cash flowLoss severity8.0% weighted-average
Discount rate3.2% weighted-average
Loans - Home equity22
Consensus pricing (c)Cumulative default rate3.6% - 100.0% (89.9%)
Loss severity0.0% - 98.4% (35.0%)
Discount rate4.8% - 6.8% (6.3%)
 64
Consensus pricing (c)Credit and liquidity discount17.5% - 97.0% (58.2%)
Equity investments1,259
Multiple of adjusted earningsMultiple of earnings5.0x - 15.9x (8.6x)
Residential mortgage servicing rights598
Discounted cash flowConstant prepayment rate0.0% - 56.0% (24.8%)
Spread over the benchmark curve (b)361bps - 3,348bps (927bps)
Commercial mortgage servicing rights515
Discounted cash flowConstant prepayment rate3.7% - 19.2% (4.7%)
Discount rate4.5% - 7.9% (7.4%)
Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares		(112)Discounted cash flowEstimated conversion factor of Visa Class B shares into Class A shares162.3% weighted-average
Estimated annual growth rate of Visa Class A share price16.0%
Estimated length of litigation resolution dateQ2 2021
Insignificant Level 3 assets, net of
liabilities (d)		173
   
Total Level 3 assets, net of liabilities (e)$4,785
   

9678    The PNC Financial Services Group, Inc. – Form 10-Q



December 31, 20192020
Level 3 Instruments Only
Dollars in millions
Fair Value
Valuation TechniquesUnobservable InputsRange (Weighted-Average) (a)
Commercial mortgage loans held for sale$64
Discounted cash flowSpread over the benchmark curve (b)530bps - 2,935bps (1,889bps)
Residential mortgage-backed
non-agency securities		1,741
Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate1.0% - 36.2% (9.9%)
Constant default rate0.0% - 14.1% (4.3%)
Loss severity26.6% - 95.7% (51.9%)
Spread over the benchmark curve (b)188bps weighted-average
Asset-backed securities240
Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate1.0% - 22.0% (7.5%)
Constant default rate1.0% - 7.2% (3.4%)
Loss severity30.0% - 100.0% (57.6%)
Spread over the benchmark curve (b)215bps weighted-average
Loans184
Consensus pricing (c)Cumulative default rate3.6% - 100.0% (76.7%)
Loss severity0.0% - 100.0% (14.5%)
Discount rate5.0% - 8.0% (5.2%)
 72
Discounted cash flowLoss severity8.0% weighted-average
Discount rate4.8% weighted-average
 44
Consensus pricing (c)Credit and Liquidity discount0.0% - 99.0% (63.4%)
Equity investments1,276
Multiple of adjusted earningsMultiple of earnings5.0x - 16.5x (8.5x)
Residential mortgage servicing rights995
Discounted cash flowConstant prepayment rate0.0% - 53.8% (13.5%)
Spread over the benchmark curve (b)320bps - 1,435bps (769bps)
Commercial mortgage servicing rights649
Discounted cash flowConstant prepayment rate3.5% - 18.1% (4.6%)
Discount rate5.6% - 8.1% (7.9%)
Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares		(176)Discounted cash flowEstimated conversion factor of Visa Class B shares into Class A shares162.3% weighted-average
Estimated annual growth rate of Visa Class A share price16.0%
Estimated length of litigation
resolution date		Q1 2021
Insignificant Level 3 assets, net of
liabilities (d)		(38)   
Total Level 3 assets, net of liabilities (e)$5,051
   
(a)Level 3 Instruments Only
Dollars in millions		Fair ValueValuation TechniquesUnobservable inputs were weighted by the relative fair value of the instruments.
InputsRange (Weighted-Average) (a)
(b)Commercial mortgage loans held for saleThe assumed yield spread$57 Discounted cash flowSpread over the benchmark curve for each instrument is generally intended to incorporate non-interest(b)630bps - 5,275bps (3,406bps)
Residential mortgage-backed
    non-agency securities		1,365 Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate risks, such as credit1.0% - 37.6% (8.6%)
Constant default rate0.0% - 12.2% (4.7%)
Loss severity25.0% - 95.7% (48.8%)
Spread over the benchmark curve (b)242bps weighted-average
Asset-backed securities199 Priced by a third-party vendor using a discounted cash flow pricing modelConstant prepayment rate1.0% -22.0% (7.4%)
Constant default rate1.0% - 6.0% (3.3%)
Loss severity30.0% - 100.0% (58.1%)
Spread over the benchmark curve (b)291bps weighted-average
Loans - Residential real estate434 Consensus pricing (c)Cumulative default rate3.6% - 100.0% (82.1%)
Loss severity0.0% - 100.0% (11.2%)
Discount rate4.8% - 6.8% (5.1%)
132 Discounted cash flowLoss severity8.0% weighted-average
Discount rate3.2% weighted-average
Loans - Home equity21 Consensus pricing (c)Cumulative default rate3.6% - 100.0% (88.5%)
Loss severity0.0% -98.4% (33.3%)
Discount rate4.8% - 6.8% (6.3%)
60 Consensus pricing (c)Credit and liquidity risks.Liquidity discount17.5% -97.0% (57.7%)
Equity investments1,263 Multiple of adjusted earningsMultiple of earnings5.0x - 15.9x (8.7x)
Residential mortgage servicing rights673 Discounted cash flowConstant prepayment rate0.0% - 77.5% (21.1%)
Spread over the benchmark curve (b)325bps - 2,783bps (922bps)
Commercial mortgage servicing rights569 Discounted cash flowConstant prepayment rate4.0% - 16.1% (4.9%)
Discount rate4.7% - 7.8% (7.3%)
(c)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.
(d)Financial derivatives - Swaps related to
    sales of certain Visa Class B
    common shares		Represents the aggregate amount(252)Discounted cash flowEstimated conversion factor of Visa Class B shares into Class A shares162.3% weighted-average
Estimated annual growth rate of Visa Class A share price16.0%
Estimated length of litigation
    resolution date		Q2 2022
Insignificant Level 3 assets, andnet of
    liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities.(d)
298 
(e)Consisted of totalTotal Level 3 assets, net of $5.0 billion and total Level 3 liabilities of $.2 billion as of September 30, 2020 and $5.4 billion and $.3 billion as of December 31, 2019, respectively.(e)$4,819 
(a)Unobservable inputs were weighted by the relative fair value of the instruments.
(b)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.
(c)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.
(d)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities.
(e)Consisted of total Level 3 assets of $5.6 billion and total Level 3 liabilities of $0.3 billion as of March 31, 2021 and $5.1 billion and $0.3 billion as of December 31, 2020, respectively.

Financial Assets Accounted for at Fair Value on a Nonrecurring Basis

We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 72.63. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K.


Table 72: Fair Value Measurements – Nonrecurring (a) (b) (c)

 Fair Value 
Gains (Losses)
Three months ended
 Gains (Losses)
Nine months ended		 
In millionsSeptember 30
2020
 December 31
2019
 September 30
2020
 September 30
2019
 September 30
2020
 September 30
2019
 
Assets            
Nonaccrual loans$346
 $136
 $(38) $(22) $(73) $(55) 
OREO and foreclosed assets25
 57
 (1) (2) (2) (6) 
Long-lived assets9
 5
 (4) (1) (7) 0
 
Total assets$380
 $198
 $(43) $(25) $(82) $(61) 
(a)All Level 3 for the periods presented.
(b)Valuation techniques applied were fair value of property or collateral.
(c)Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented.








The PNC Financial Services Group, Inc. – Form 10-Q 9779  

Assets measured at fair value on a nonrecurring basis follow:

Table 63: Fair Value Measurements – Nonrecurring (a) (b) (c)
 Fair ValueGains (Losses)
Three months ended
In millionsMarch 31
2021		December 31
2020		March 31
2021		March 31
2020
Assets
Nonaccrual loans$345 $332 $(17)$(28)
Loans held for sale243 (17)
OREO and foreclosed assets2 18 (1)
Long-lived assets6 20 (2)(1)
Total assets$596 $370 $(36)$(30)
(a)All Level 3 as of March 31, 2021 and December 31, 2020, except for $243 million included in Loans held for sale which was categorized as Level 2 as of March 31, 2021.
(b)Valuation techniques applied were fair value of property or collateral.
(c)Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented.

Financial Instruments Accounted for under Fair Value Option

We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K.

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

Table 73:64: Fair Value Option – Fair Value and Principal Balances
March 31, 2021December 31, 2020
In millionsFair ValueAggregate Unpaid
Principal Balance		DifferenceFair ValueAggregate Unpaid
Principal Balance		Difference
Assets
Residential mortgage loans held for sale
Accruing loans less than 90 days past due$1,204 $1,172 $32 $831 $793 $38 
Accruing loans 90 days or more past due3 3 4 4 
Nonaccrual loans45 54 (9)20 24 (4)
Total$1,252 $1,229 $23 $855 $821 $34 
Commercial mortgage loans held for sale (a)
Accruing loans less than 90 days past due$380 $396 $(16)$357 $370 $(13)
Nonaccrual loans56(1)5 6 (1)
Total$385 $402 $(17)$362 $376 $(14)
Loans
Accruing loans less than 90 days past due$622 $632 $(10)$519 $530 $(11)
Accruing loans 90 days or more past due246 260 (14)283 295 (12)
Nonaccrual loans573 845 (272)563 820 (257)
Total$1,441 $1,737 $(296)$1,365 $1,645 $(280)
Other assets$93 $91 $2 $81 $69 $12 
Liabilities
Other borrowed funds$28 $28 $32 $33 $(1)
(a)There were no accruing loans 90 days or more past due within this category at March 31, 2021 or December 31, 2020.

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

 September 30, 2020 December 31, 2019 
In millionsFair Value
 
Aggregate Unpaid
Principal Balance

 Difference
 Fair Value
 
Aggregate Unpaid
Principal Balance

 Difference
 
Assets            
Residential mortgage loans held for sale            
Accruing loans less than 90 days past due$642
 $613
 $29
 $813
 $792
 $21
 
Accruing loans 90 days or more past due3
 3
 

 2
 2
 

 
Nonaccrual loans15
 17
 (2) 4
 4
 

 
Total$660
 $633
 $27
 $819
 $798
 $21
 
Commercial mortgage loans held for sale (a)            
Accruing loans less than 90 days past due$706
 $700
 $6
 $245
 $263
 $(18) 
Nonaccrual loans    


 1
 2
 (1) 
Total$706
 $700
 $6
 $246
 $265
 $(19) 
Loans            
Accruing loans less than 90 days past due$491
 $504
 $(13) $291
 $304
 $(13) 
Accruing loans 90 days or more past due247
 259
 (12) 285
 296
 (11) 
Nonaccrual loans563
 828
 (265) 166
 265
 (99) 
Total$1,301
 $1,591
 $(290) $742
 $865
 $(123) 
Other assets$60
 $61
 $(1) $132
 $125
 $7
 
Liabilities            
Other borrowed funds$28
 $28
 


 $63
 $64
 $(1) 
(a)There were no accruing loans 90 days or more past due within this category at September 30, 2020 or December 31, 2019.

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

Table 74:65: Fair Value Option – Changes in Fair Value (a)
Gains (Losses)
 Three months ended
March 31March 31
In millions20212020
Assets
Residential mortgage loans held for sale$16 $46 
Commercial mortgage loans held for sale$20 $48 
Loans$14 $18 
Other assets$14 $(36)
 Gains (Losses) Gains (Losses) 
 Three months ended Nine months ended 
 September 30
 September 30
 September 30
 September 30
 
In millions2020
 2019
 2020
 2019
 
Assets        
Residential mortgage loans held for sale$53
 $29
 $151
 $63
 
Commercial mortgage loans held for sale$46
 $25
 $106
 $48
 
Loans$5
 $7
 $31
 $16
 
Other assets$3
 $3
 $(24) $24
 
(a)The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.
(a)The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.

Additional Fair Value Information Related to Financial Instruments Not Recorded at Fair Value
The following table presents the carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of all other financial instruments that are not recorded on our Consolidated Balance Sheet at fair value as of September 30, 2020March 31, 2021 and December 31, 2019.2020. For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 75,66, see Note 615 Fair Value in Item 8 of our 20192020 Form 10-K.

Table 66: Additional Fair Value Information Related to Other Financial Instruments

 CarryingFair Value
In millionsAmountTotalLevel 1Level 2Level 3
March 31, 2021
Assets
Cash and due from banks$7,455 $7,455 $7,455 
Interest-earning deposits with banks86,161 86,161 $86,161 
Securities held to maturity1,459 1,559 874 485 $200 
Net loans (excludes leases)224,468 228,650 228,650 
Other assets3,783 3,782 3,780 2 
Total assets$323,326 $327,607 $8,329 $90,426 $228,852 
Liabilities
Time deposits$18,813 $18,651 $18,651 
Borrowed funds32,192 32,790 31,129 $1,661 
Unfunded lending related commitments507 507 507 
Other liabilities486 486 486 
Total liabilities$51,998 $52,434  $50,266 $2,168 
December 31, 2020
Assets
Cash and due from banks$7,017 $7,017 $7,017 
Interest-earning deposits with banks85,173 85,173 $85,173 
Securities held to maturity1,445 1,604 920 489 $195 
Net loans (excludes leases)228,788 233,688 233,688 
Other assets3,601 3,600 3,559 41 
Total assets$326,024 $331,082 $7,937 $89,221 $233,924 
Liabilities
Time deposits$19,692 $19,662 $19,662 
Borrowed funds36,488 37,192 35,571 $1,621 
Unfunded lending related commitments584 584 584 
Other liabilities413 413 413 
Total liabilities$57,177 $57,851 $55,646 $2,205 




98The PNC Financial Services Group, Inc. – Form 10-Q81  



Table 75: Additional Fair Value Information Related to Other Financial Instruments
 Carrying
 Fair Value 
In millionsAmount
 Total
 Level 1
 Level 2
 Level 3
 
September 30, 2020          
Assets          
Cash and due from banks$6,629
 $6,629
 $6,629
     
Interest-earning deposits with banks70,959
 70,959
   $70,959
   
Securities held to maturity1,442
 1,614
 932
 489
 $193
 
Net loans (excludes leases)235,747
 241,681
     241,681
 
Other assets4,071
 4,071
   3,945
 126
 
Total assets$318,848
 $324,954
 $7,561
 $75,393
 $242,000
 
Liabilities          
Time deposits$19,755
 $19,756
   $19,756
   
Borrowed funds41,290
 41,716
   39,996
 $1,720
 
Unfunded lending related commitments689
 689
     689
 
Other liabilities395
 395
   395
   
Total liabilities$62,129
 $62,556
   $60,147
 $2,409
 
December 31, 2019          
Assets          
Cash and due from banks$5,061
 $5,061
 $5,061
     
Interest-earning deposits with banks23,413
 23,413
   $23,413
   
Securities held to maturity17,661
 18,044
 832
 17,039
 $173
 
Net loans (excludes leases)229,205
 232,670
     232,670
 
Other assets5,700
 5,700
   5,692
 8
 
Total assets$281,040
 $284,888
 $5,893
 $46,144
 $232,851
 
Liabilities          
Time deposits$21,663
 $21,425
   $21,425
   
Borrowed funds59,745
 60,399
   58,622
 $1,777
 
Unfunded lending related commitments318
 318
     318
 
Other liabilities506
 506
   506
   
Total liabilities$82,232
 $82,648
 
 $80,553
 $2,095
 


The aggregate fair values in Table 7566 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 69)60);
•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 under ASU 2016-01.2016-01, and

•insurance contracts.

The PNC Financial Services Group, Inc. – Form 10-Q 99  


NOTE 1312 FINANCIAL DERIVATIVES

We use a variety of financial derivatives to both mitigate exposure to market (primarily interest rate) and credit riskrisks inherent in our business activities, as well as to facilitate customer risk management activities. We manage these risks as part of our overall asset and liability management process and through our credit policies and procedures. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.

Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and it is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate, (commonly LIBOR), security price, credit spread or other index. Residential and commercial real estate loan commitments associated with loans to be sold also qualify as derivative instruments.

For more information regarding derivatives see Note 1 Accounting Policies and Note 1316 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.

10082    The PNC Financial Services Group, Inc. – Form 10-Q




The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by us.us:
Table 76:67: Total Gross Derivatives (a)
 March 31, 2021December 31, 2020
In millionsNotional /
Contract Amount		Asset Fair
Value (b)		Liability Fair
Value (c)		Notional /
Contract Amount		Asset Fair
Value (b)		Liability Fair
Value (c)
Derivatives used for hedging
Interest rate contracts (d):
Fair value hedges$22,802 $24,153 
Cash flow hedges35,017 $14 $99 22,875 $14 
Foreign exchange contracts:
Net investment hedges1,081 0301,075 0$22 
Total derivatives designated for hedging$58,900 $14 $129 $48,103 $14 $22 
Derivatives not used for hedging
Derivatives used for mortgage banking activities (e):
Interest rate contracts:
Swaps$26,974 $50,511 0
Futures (f)2,883 2,841 
Mortgage-backed commitments14,979 $144 $82 11,288 $147 $77 
Other4,307 58 16 1,831 11 2 
Total interest rate contracts49,143 202 98 66,471 158 79 
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps278,447 3,614 1,578 280,125 5,475 1,601 
Futures (f)965 1,235 
Mortgage-backed commitments7,324 36 30 4,178 11 14 
Other22,475 157 123 20,125 193 88 
Total interest rate contracts309,211 3,807 1,731 305,663 5,679 1,703 
Commodity contracts:
Swaps7,032 558 533 6,149 350 323 
Other3,247 120 120 2,770 61 61 
Total commodity contracts10,279 678 653 8,919 411 384 
Foreign exchange contracts and other26,183 186 172 26,620 267 243 
Total derivatives for customer-related activities345,673 4,671 2,556 341,202 6,357 2,330 
Derivatives used for other risk management activities:
Foreign exchange contracts and other10,836 29 240 10,931 4 325 
Total derivatives not designated for hedging$405,652 $4,902 $2,894 $418,604 $6,519 $2,734 
Total gross derivatives$464,552 $4,916 $3,023 $466,707 $6,533 $2,756 
Less: Impact of legally enforceable master netting agreements904 904 720 720 
Less: Cash collateral received/paid 716 1,295  1,434 1,452 
Total derivatives $3,296 $824 $4,379 $584 
 September 30, 2020December 31, 2019
In millions
Notional /
Contract Amount

Asset Fair
Value (b)

Liability Fair
Value (c)

Notional /
Contract Amount

Asset Fair
Value (b)

Liability Fair
Value (c)

Derivatives used for hedging      
Interest rate contracts (d):      
Fair value hedges$27,007
  $30,663
  
Cash flow hedges20,229
$9
 23,642
$6
 
Foreign exchange contracts:      
Net investment hedges1,160
33
 1,102


$6
Total derivatives designated for hedging$48,396
$42


$55,407
$6
$6
Derivatives not used for hedging      
Derivatives used for mortgage banking activities (e):      
Interest rate contracts:      
Swaps$55,056
  $52,007
$1
 
Futures (f)2,809
  3,487
  
Mortgage-backed commitments13,460
$139
$82
7,738
60
$44
Other3,580
7
5
3,134
32
23
Total interest rate contracts74,905
146
87
66,366
93
67
Derivatives used for customer-related activities:      
Interest rate contracts:      
Swaps278,984
6,167
1,717
249,075
2,769
1,187
Futures (f)1,252
  703
  
Mortgage-backed commitments4,187
12
11
3,721
2
6
Other22,057
231
83
21,379
113
33
Total interest rate contracts306,480
6,410
1,811
274,878
2,884
1,226
Commodity contracts:      
Swaps5,566
397
375
5,204
234
229
Other3,042
100
100
4,203
72
72
Total commodity contracts8,608
497
475
9,407
306
301
Foreign exchange contracts and other25,044
211
208
27,120
204
162
Total derivatives for customer-related activities340,132
7,118
2,494
311,405
3,394
1,689
Derivatives used for other risk management activities:      
Foreign exchange contracts and other10,107
37
129
10,201
9
257
Total derivatives not designated for hedging$425,144
$7,301
$2,710
$387,972
$3,496
$2,013
Total gross derivatives$473,540
$7,343
$2,710
$443,379
$3,502
$2,019
Less: Impact of legally enforceable master netting agreements 864
864

690
690
Less: Cash collateral received/paid 1,699
1,308
 616
790
Total derivatives $4,780
$538


$2,196
$539
(a)Centrally cleared derivatives are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.
(a)
Centrally cleared derivatives are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet
(b)Included in Other assets on our Consolidated Balance Sheet.
(c)Included in Other liabilities on our Consolidated Balance Sheet.
(d)Represents primarily swaps.
(e)Includes both residential and commercial mortgage banking activities.
(f)Futures contracts are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.

.
(b)Included in Other assets on our Consolidated Balance Sheet.
(c)Included in Other liabilities on our Consolidated Balance Sheet.
(d)Represents primarily swaps.
(e)Includes both residential and commercial mortgage banking activities.
(f)Futures contracts settle in cash daily and, therefore, no derivative asset or derivative liability is recognized on our Consolidated Balance Sheet.

All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk and Contingent Features section of this Note 13.12. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.





The PNC Financial Services Group, Inc. – Form 10-Q 10183  


Derivatives Designated As Hedging Instruments

Certain derivatives used to manage interest rate and foreign exchange risk as part of our asset and liability risk management activities are designated as accounting hedges. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of expected future cash flows are considered cash flow hedges, and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives to be recognized in the same period and in the same income statement line item as the earnings impact of the hedged items.

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

Cash Flow Hedges
We enter into receive-fixed, pay-variable interest rate swaps and interest rate caps and floors 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 contractshedging instruments are recorded in AOCI and are then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line as the hedged cash flows.

In the 12 months that follow September 30, 2020,March 31, 2021, we expect to reclassify an insignificant amount of net derivative gains of $402 million pretax, or $310 million after-tax, from AOCI to interest income for boththese cash flow hedge strategies. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2020.March 31, 2021. As of September 30, 2020,March 31, 2021, the maximum length of time over which forecasted transactions are hedged is ten years.


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



Further detail regarding gains (losses) related to our fair value and cash flow hedge derivatives is presented in the following table.table:
Table 77:68: Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement (a) (b)
 Location and Amount of Gains (Losses) Recognized in Income
Interest IncomeInterest ExpenseNoninterest Income
In millionsLoansInvestment SecuritiesBorrowed FundsOther
For the three months ended March 31, 2021
Total amounts on the Consolidated Income Statement$1,996 $421 $95 $483 
Gains (losses) on fair value hedges recognized on:
Hedged items (c)$(8)$646 
Derivatives$9 $(664)
Amounts related to interest settlements on derivatives$(1)$134 
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI$100 $22 $13 
For the three months ended March 31, 2020
Total amounts on the Consolidated Income Statement$2,480 $582 $314 $343 
Gains (losses) on fair value hedges recognized on:
Hedged items (c)$234 $(1,361)
Derivatives$(231)$1,339 
Amounts related to interest settlements on derivatives$(2)$59 
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI$42 $2 $1 
(a)For all periods presented, there were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the fair value or cash flow hedge strategies.
(b)All cash flow and fair value hedge derivatives were interest rate contracts for the periods presented.
(c)Includes an insignificant amount of fair value hedge adjustments related to discontinued hedge relationships.
(d)For all periods presented, there were no gains or losses from cash flow hedge derivatives reclassified to income because it became probable that the original forecasted transaction would not occur.
84   The PNC Financial Services Group, Inc. – Form 10-Q

 Location and Amount of Gains (Losses) Recognized in Income
 Interest IncomeInterest ExpenseNoninterest Income
In millionsLoansInvestment SecuritiesBorrowed FundsOther
For the three months ended September 30, 2020    
Total amounts on the Consolidated Income Statement$2,116
$490
$118
$457
Gains (losses) on fair value hedges recognized on:    
Hedged items (c) $(13)$141
 
Derivatives $14
$(166) 
Amounts related to interest settlements on derivatives $(3)$149
 
Gains (losses) on cash flow hedges (d):    
Amount of derivative gains (losses) reclassified from AOCI$118
$16


 
For the three months ended September 30, 2019    
Total amounts on the Consolidated Income Statement$2,678
$617
$468
$342
Gains (losses) on fair value hedges recognized on:    
Hedged items (c) $76
$(271) 
Derivatives $(73)$235
 
Amounts related to interest settlements on derivatives $4
$16
 
Gains (losses) on cash flow hedges (d):    
Amount of derivative gains (losses) reclassified from AOCI$2
$3
 


For the nine months ended September 30, 2020    
Total amounts on the Consolidated Income Statement$6,853
$1,599
$619
$1,071
Gains (losses) on fair value hedges recognized on:    
Hedged items (c) $224
$(1,300) 
Derivatives $(219)$1,220
 
Amounts related to interest settlements on derivatives $(7)$341
 
Gains (losses) on cash flow hedges (d):    
Amount of derivative gains (losses) reclassified from AOCI$262
$19
 $1
For the nine months ended September 30, 2019    
Total amounts on the Consolidated Income Statement$7,952
$1,866
$1,433
$1,017
Gains (losses) on fair value hedges recognized on:    
Hedged items (c) $250
$(1,068) 
Derivatives $(241)$948
 
Amounts related to interest settlements on derivatives $14
$36
 
Gains (losses) on cash flow hedges (d):    
Amount of derivative gains (losses) reclassified from AOCI$(18)$5
 $18
(a)For all periods presented, there were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the fair value or cash flow hedge strategies.
(b)All cash flow and fair value hedge derivatives were interest rate contracts for the periods presented.
(c)Includes an insignificant amount of fair value hedge adjustments related to discontinued hedge relationships.
(d)For all periods presented, there were no gains or losses from cash flow hedge derivatives reclassified to income because it became probable that the original forecasted transaction would not occur.

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

Table 78:69: Hedged Items - Fair Value Hedges
 
 March 31, 2021December 31, 2020
In millionsCarrying Value of the Hedged ItemsCumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)Carrying Value of the Hedged ItemsCumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)
Investment securities - available for sale (b)$2,778 $22 $2,785 $30 
Borrowed funds$23,936 $966 $25,797 $1,611 
 September 30, 2020 December 31, 2019
In millionsCarrying 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)$3,237
 $59
 $5,666
 $59
 
Borrowed funds$28,326
 $1,850
 $28,616
 $548
 
(a)Includes $(.2) billion and $(.3) billion of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships for September 30, 2020 and December 31, 2019, respectively.
(b)Carrying value shown represents amortized cost.

(a)Includes $(0.1) billion of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships at both March 31, 2021 and December 31, 2020, respectively.
(b)Carrying value shown represents amortized cost.
The PNC Financial Services Group, Inc. –
Form 10-Q 103  


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 0 components of derivative gains or losses excluded from the assessment of the hedge effectiveness for all periods presented. GainsNet gains (losses) on net investment hedge derivatives recognized in OCI were $(42)$(8) million and $38$75 million for the three and nine months ended September 30,March 31, 2021 and 2020, respectively, compared with $36 million and $50 million for the same periods in 2019.respectively.

Derivatives Not Designated As Hedging Instruments

For additional information on derivatives not designated as hedging instruments under GAAP, see Note 1316 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table.table:
Table 79:70: Gains (Losses) on Derivatives Not Designated for Hedging
 Three months ended
March 31
In millions20212020
Derivatives used for mortgage banking activities:
Interest rate contracts (a)$(322)$654 
Derivatives used for customer-related activities:
Interest rate contracts82 2 
Foreign exchange contracts and other22 11 
Gains (losses) from customer-related activities (b)104 13 
Derivatives used for other risk management activities:
Foreign exchange contracts and other (b)48 207 
Total gains (losses) from derivatives not designated as hedging instruments$(170)$874 
 Three months ended
September 30		Nine months ended
September 30		 
In millions2020
2019
2020
2019
 
Derivatives used for mortgage banking activities:     
Interest rate contracts (a)$20
$184
$799
$530
 
Derivatives used for customer-related activities:     
Interest rate contracts59
45
99
84
 
Foreign exchange contracts and other (b)43
11
83
64
 
Gains (losses) from customer-related activities (c)102
56
182
148
 
Derivatives used for other risk management activities:     
Foreign exchange contracts and other (c)(106)103
(1)39
 
Total gains (losses) from derivatives not designated as hedging instruments$16
$343
$980
$717
 
(a)Included in Residential mortgage, Corporate services and Other noninterest income on our Consolidated Income Statement.
(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.
(b)Included in Other noninterest income on our Consolidated Income Statement.

Offsetting, Counterparty Credit Risk and Contingent Features

We generally utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of all outstanding derivative instruments under the master netting agreement with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party’s net position. For additional information on derivative offsetting, counterparty credit risk and contingent features, see Note 1316 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 20192020 Form 10-K.

Table 8071 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of September 30, 2020March 31, 2021 and December 31, 2019.2020. The table includes cash collateral held or pledged under legally enforceable master netting
The PNC Financial Services Group, Inc. – Form 10-Q 85  

agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

Table 8071 includes over-the-counter (OTC)OTC derivatives and OTC derivatives cleared through a central clearing house. OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or directly cleared through a central clearing house. The majority of OTC derivatives are governed by the International Swaps and Derivatives Association (ISDA)ISDA documentation or other legally enforceable master netting agreements. OTC cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house who then becomes our counterparty. OTC cleared derivative instruments are typically settled in cash each day based on the prior day value.


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



Table 80:71: 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, 2021
Derivative assets
Interest rate contracts:
Over-the-counter cleared$101 $101  $101 
Over-the-counter3,922 $620 $700 2,602  $263 2,339 
Commodity contracts678 190 8 480 480 
Foreign exchange and other contracts215 94 8 113  1 112 
Total derivative assets$4,916 $904 $716 $3,296 (a) $264 $3,032 
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared$158 $158  $158 
Over-the-counter1,770 $653 $792 325  325 
Commodity contracts653 184 407 62 62 
Foreign exchange and other contracts442 67 96 279  279 
Total derivative liabilities$3,023 $904 $1,295 $824 (b)$824 
December 31, 2020
Derivative assets
Interest rate contracts:
Over-the-counter cleared$48 $48  $48 
Over-the-counter5,803 $430 $1,426 3,947  $531 3,416 
Commodity contracts411 209 4 198 198 
Foreign exchange and other contracts271 81 4 186  1 185 
Total derivative assets$6,533 $720 $1,434 $4,379 (a)$532 $3,847 
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared$42 $42  $42 
Over-the-counter1,740 $462 $1,179 99  99 
Commodity contracts384 182 103 99 99 
Foreign exchange and other contracts590 76 170 344  344 
Total derivative liabilities$2,756 $720 $1,452 $584 (b)0$584 
In millions    
Amounts Offset on the
Consolidated Balance Sheet
      Securities Collateral Held/Pledged Under Master Netting Agreements
    
Gross
Fair Value

 
Fair Value
Offset Amount

 
Cash
Collateral

 
Net
Fair Value

   Net Amounts
 
September 30, 2020               
Derivative assets               
Interest rate contracts:               
Over-the-counter cleared $31
     $31
     $31
 
Over-the-counter 6,534
 $433
 $1,673
 4,428
   $616
 3,812
 
Commodity contracts 497
 299
 14
 184
     184
 
Foreign exchange and other contracts 281
 132
 12
 137
   1
 136
 
Total derivative assets $7,343

$864

$1,699

$4,780
 (a)  $617
 $4,163
 
Derivative liabilities               
Interest rate contracts:               
Over-the-counter cleared $23
     $23
     $23
 
Over-the-counter 1,875
 $589
 $1,159
 127
     127
 
Commodity contracts 475
 206
 59
 210
     210
 
Foreign exchange and other contracts 337
 69
 90
 178
     178
 
Total derivative liabilities $2,710
 $864
 $1,308
 $538
 (b) 

 $538
 
December 31, 2019               
Derivative assets               
Interest rate contracts:               
Over-the-counter cleared $14
     $14
     $14
 
Over-the-counter 2,969
 $365
 $593
 2,011
   $215
 1,796
 
Commodity contracts 306
 198
 18
 90
     90
 
Foreign exchange and other contracts 213
 127
 5
 81
     81
 
Total derivative assets $3,502

$690

$616

$2,196
 (a) $215
 $1,981
 
Derivative liabilities               
Interest rate contracts:               
Over-the-counter cleared $14
     $14
     $14
 
Over-the-counter 1,279
 $475
 $692
 112
     112
 
Commodity contracts 301
 152
 17
 132
     132
 
Foreign exchange and other contracts 425
 63
 81
 281
     281
 
Total derivative liabilities $2,019
 $690
 $790
 $539
 (b) 


 $539
 
(a)Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet.
(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.
(b)Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.

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

At September 30, 2020,March 31, 2021, we held cash, U.S. government securities and mortgage-backed securities totaling $2.6$1.5 billion under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties, and we pledged cash
86   The PNC Financial Services Group, Inc. – Form 10-Q


totaling $2.1$2.0 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral held or pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.

The PNC Financial Services Group, Inc. – Form 10-Q 105  


Certain derivative agreements contain various credit-risk related contingent provisions, such as those that require our debt to maintain a specified credit rating from one or more of the major credit rating agencies. If our debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on September 30, 2020March 31, 2021 was $2.9$1.8 billion for which we had posted collateral of $2.6$1.3 billion in the normal course of business. The maximum additional amount of collateral we would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 2020March 31, 2021 would be $.3$0.5 billion.
NOTE 1413 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 1413 as well as those matters disclosed in Note 1921 Legal Proceedings in Part II, Item 8 of our 20192020 Form 10-K in Note 13 Legal Proceedings in Part I, Item 1 of our first quarter 2020 Form 10-Q, and in Note 14 Legal Proceedings in Part I, Item 1 of our second quarter 2020 Form 10-Q (such prior disclosure referred to as “Prior Disclosure”)). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of September 30, 2020,March 31, 2021, we estimate that it is reasonably possible that we could incur losses in excess of related accrued liabilities, if any, in an aggregate amount less than $100 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in 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 1921 Legal Proceedings in Part II, Item 8 of our 20192020 Form 10-K, we are unable, at this time, to estimate the losses that are reasonably possible to be incurred or ranges of such losses with respect to some of the matters disclosed, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the Disclosed Matters. The estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”

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

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

USAA Patent Infringement Litigation

In September 2020,January 2021, USAA filed a lawsuitmotion to dismiss or transfer PNC Bank’s declaratory judgment complaint in (PNC Bank, N.A. v. United Services Automobile Association (Case No. 2:20-cv-1886), pending in the United States District Court for the Western District of Pennsylvania.

In February 2021, in United Services Automobile Association v. PNC Bank N.A., Case (Case No. 2:20-cv-319), pending in the United States District Court for the Eastern District of Texas, we answered the amended complaint and asserted counterclaims alleging that the
The PNC Financial Services Group, Inc. – Form 10-Q 87  

plaintiff infringed four patents owned by PNC Bank, as well as for a declaratory judgment that PNC Bank does not infringe certain patents asserted by the plaintiff. In March 2021, the plaintiff filed a motion to dismiss two of the patent infringement
counterclaims, as well as to sever the patent infringement counterclaims for trial.

In March 2021, USAA filed another lawsuit (United Services Automobile Association v. PNC Bank N.A. was filed(Case No. 2:21-cv-110)) in the United States District Court for the Eastern District of Texas against PNC Bank for patent infringement. The plaintiffcomplaint alleges that PNC’s mobile remote deposit capture systems infringe on two patents owned by the plaintiff. The plaintiff seeks, among other things, a judgment that PNC is infringing each of the patents, damages for willful infringement, and attorneys’ fees. On April 19, 2021, we moved to consolidate this action with the other action brought by USAA pending in the same district. On April 22, 2021, we filed motions to dismiss and transfer this action.

Other Regulatory and Governmental Inquiries

We are the subject of investigations, audits, examinations and other forms of regulatory and governmental inquiry covering a broad range of issues in our consumer, mortgage, brokerage, securities and other financial services businesses, as well as other aspects of our operations. In some cases, these inquiries are part of reviews of specified activities at multiple industry participants; in others, they are directed at PNC individually. From time to time, these inquiries including those describedhave involved and may in Prior Disclosure, maythe future involve or lead to regulatory enforcement actions and other administrative proceedings,proceedings. These inquiries have also led to and may in the future lead to civil or criminal judicial proceedings. Some of these inquiries result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral

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



costs and other consequences. Such remedies and other consequences typically have not been material to us from a financial standpoint, but could be in the future. Even if not financially material, they may result in significant reputational harm or other adverse consequences.

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

Other

In addition to the proceedings or other matters described in Prior Disclosure, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position. However, we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.
NOTE 1514 SEGMENT REPORTING

We have 3 reportable business segments:
•Retail Banking
•Corporate & Institutional Banking
•Asset Management Group

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

During the second quarter of 2020, we divested our entire 22.4% investment in BlackRock.BlackRock, which had previously been reported as a separate business segment. See Note 2 Discontinued OperationsAcquisition and Divestiture Activity for additional information on the sale and details on our results and cash flows for the three and nine months ended September 30, 2020 and 2019. Following the sale and donation, PNC only holds shares of BlackRock stock in a fiduciary capacity for clients of PNC.information.

Total business segment financial results differ from total consolidated net income. These differences are reflected in the “Other” category in the Table 81.72. “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, ACL for investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, exited businesses and differences between business segment performance reporting and financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments’ results exclude their portion of net income attributable to noncontrolling interests.. The “Other” category also includesincluded our BlackRock held for
88   The PNC Financial Services Group, Inc. – Form 10-Q


sale asset.asset for the three months ended March 31, 2020. Assets, revenue and earnings attributable to foreign activities were not material in the periodperiods presented for comparison.

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

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

We have allocated the ALLL and the allowance for unfunded lending related commitments 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.




The PNC Financial Services Group, Inc. – Form 10-Q 107  


Business Segment Results

Table 81:72: Results of Businesses
Three months ended March 31
In millions		Retail BankingCorporate &
Institutional
Banking		Asset
Management
Group		OtherConsolidated (a) 
2021
Income Statement
Net interest income$1,362 $991 $93 $(98)$2,348 
Noninterest income654 807 229 182 1,872 
Total revenue2,016 1,798 322 84 4,220 
Provision for (recapture of) credit losses(257)(282)(9)(3)(551)
Depreciation and amortization63 47 4 120 234 
Other noninterest expense1,413 664 198 65 2,340 
Income (loss) from continuing operations before income taxes (benefit) and
 noncontrolling interests		797 1,369 129 (98)2,197 
Income taxes (benefit) from continuing operations183 308 30 (150)371 
Net income from continuing operations614 1,061 99 52 1,826 
Less: Net income attributable to noncontrolling interests7 3 00 10 
Net income from continuing operations excluding noncontrolling interests$607 $1,058 $99 $52 $1,816 
Average Assets$92,891 $170,531 $8,873 $195,925 $468,220 
2020
Income Statement
Net interest income$1,456 $950 $88 $17 $2,511 
Noninterest income788 694 204 139 1,825 
Total revenue2,244 1,644 292 156 4,336 
Provision for credit losses445 458 3 8 914 
Depreciation and amortization57 48 11 124 240 
Other noninterest expense1,471 674 208 (50)2,303 
Income from continuing operations before income taxes (benefit) and
 noncontrolling interests		271 464 70 74 879 
Income taxes (benefit) from continuing operations62 94 16 (52)120 
Net income from continuing operations209 370 54 126 759 
Less: Net income attributable to noncontrolling interests8 00(1)7 
Net income from continuing operations excluding noncontrolling interests$201 $370 $54 $127 $752 
Average Assets$97,062 $172,502 $7,801 $135,071 $412,436 
Three months ended September 30
In millions		 Retail Banking
 Corporate &
Institutional
Banking
 Asset
Management
Group
 Other
 Consolidated (a) 
2020          
Income Statement          
Net interest income $1,383
 $1,012
 $89
 $0
 $2,484
Noninterest income 673
 723
 221
 180
 1,797
Total revenue 2,056
 1,735
 310
 180
 4,281
Provision for (recapture of) credit losses (157) 211
 (19) 17
 52
Depreciation and amortization 64
 50
 11
 121
 246
Other noninterest expense 1,457
 616
 200
 12
 2,285
Income from continuing operations before income taxes (benefit) and
 noncontrolling interests
 692
 858
 118
 30
 1,698
Income taxes (benefit) 162
 188
 27
 (211) 166
Net income from continuing operations $530
 $670
 $91
 $241
 $1,532
Average Assets $98,731
 $183,266
 $8,361
 $171,781
 $462,139
2019          
Income Statement          
Net interest income $1,393
 $911
 $70
 $130
 $2,504
Noninterest income 744
 654
 216
 124
 1,738
Total revenue 2,137
 1,565
 286
 254
 4,242
Provision for (recapture of) credit losses 147
 48
 (1) (11) 183
Depreciation and amortization 60
 51
 11
 125
 247
Other noninterest expense 1,476
 652
 217
 31
 2,376
Income from continuing operations before income taxes (benefit) and
noncontrolling interests		 454
 814
 59
 109
 1,436
Income taxes (benefit) 107
 169
 13
 (34) 255
Net income from continuing operations $347
 $645
 $46
 $143
 $1,181
Average Assets $93,222
 $168,193
 $7,331
 $137,963
 $406,709
Nine months ended September 30
In millions		 Retail
Banking
 Corporate &
Institutional
Banking
 Asset
Management
Group
 Other
 Consolidated (a) 
2020          
Income Statement          
Net interest income $4,229
 $3,014
 $266
 $13
 $7,522
Noninterest income 2,046
 2,143
 629
 353
 5,171
Total revenue 6,275
 5,157
 895
 366
 12,693
Provision for credit losses 1,049
 2,254
 23
 103
 3,429
Depreciation and amortization 188
 149
 34
 366
 737
Other noninterest expense 4,369
 1,912
 613
 (42) 6,852
Income (loss) from continuing operations before income taxes (benefit) and
noncontrolling interests		 669
 842
 225
 (61) 1,675
Income taxes (benefit) 161
 160
 52
 (245) 128
Net income from continuing operations $508
 $682
 $173
 $184
 $1,547
Average Assets $98,764
 $185,001
 $8,041
 $152,223
 $444,029
2019          
Income Statement          
Net interest income $4,118
 $2,685
 $208
 $466
 $7,477
Noninterest income 1,996
 1,891
 719
 435
 5,041
Total revenue 6,114
 4,576
 927
 901
 12,518
Provision for (recapture of) credit losses 356
 219
 (2) (21) 552
Depreciation and amortization 170
 151
 51
 366
 738
Other noninterest expense 4,361
 1,936
 656
 121
 7,074
Income from continuing operations before income taxes (benefit) and
noncontrolling interests		 1,227
 2,270
 222
 435
 4,154
Income taxes (benefit) 291
 471
 51
 (107) 706
Net income from continuing operations $936
 $1,799
 $171
 $542
 $3,448
Average Assets $92,282
 $163,126
 $7,247
 $133,944
 $396,599
(a)There were no material intersegment revenues for the three and nine months ended September 30, 2020 and 2019.


108   The PNC Financial Services Group, Inc. – Form 10-QThere were no material intersegment revenues for the three months ended March 31, 2021 and 2020.



Business Segment Products and Services
Retail Banking provides deposit, lending, brokerage, insurance services, investment management and cash management products and services to consumer and small business customers. Our customers are serviced through our branch network, ATMs, call centers, online banking and mobile channels. The branch network is located primarily in markets across the Mid-Atlantic, Midwest and Southeast. In 2018, Retail Banking launched itsOur national expansion strategy is designed to grow customers with digitally-led banking and a 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,
The PNC Financial Services Group, Inc. – Form 10-Q 89  

education loans and personal and small business loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to agency and/or third-party standards, and either sold, servicing retained, or held on our balance sheet. Brokerage, investment management and cash management products and services include managed, education, retirement and trust accounts.

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

Asset Management Group provides personal wealth management for high net worth and ultra high net worth clients and institutional asset management. The Asset Management group is composed of three2 distinct operating units:
•Personal Wealth Management, inclusive of Hawthorn, provides products and services to individuals and their families including investment and retirement planning, customized investment management, private banking, and trust management and administration for individuals and their families.
Our Hawthorn unit The business also provides multi-generational family planning including estate, financial, tax planning, fiduciary, investment management and consulting, private banking, personal administrative services, asset custody and customized performance reporting to ultra high net worth clients.
•Institutional asset management provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and fiduciary retirement advisory services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.

NOTE 1615 FEE-BASED REVENUE FROM CONTRACTS WITH CUSTOMERS
As more fully described in Note 2324 Fee-based Revenue from Contracts with Customers in our 20192020 Form 10-K, a subset of our noninterest income relates to certain fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606).
Fee-based revenue within the scope of Topic 606 is recognized within three of our 3 reportable business segments,segments: Retail Banking, Corporate & Institutional Banking and Asset Management Group. Topic 606 also excludes interestInterest 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.

assets are outside of the scope of Topic 606.
90The PNC Financial Services Group, Inc. – Form 10-Q
109  



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 is included in our 20192020 Form 10-K.

Retail Banking

Table 82:73: Retail Banking Noninterest Income Disaggregation
Three months ended
March 31
In millions20212020
Product
 Debit card fees$138 $129 
 Deposit account fees108 158 
 Brokerage fees102 93 
 Net credit card fees (a)47 41 
 Merchant services32 49 
 Other57 56 
Total in-scope noninterest income by product$484 $526 
Reconciliation to total Retail Banking noninterest income
Total in-scope noninterest income$484 $526 
Total out-of-scope noninterest income (b)170 262 
Total Retail Banking noninterest income$654 $788 
 Three months ended
September 30		Nine months ended
September 30
In millions2020
2019
2020
2019
Product    
 Deposit account fees$108
$166
$339
$468
 Debit card fees136
139
385
399
 Brokerage fees94
92
273
267
 Merchant services40
55
112
159
 Net credit card fees (a)50
50
130
149
 Other62
65
170
193
Total in-scope noninterest income by product$490
$567
$1,409
$1,635
Reconciliation to total Retail Banking noninterest income    
Total in-scope noninterest income$490
$567
$1,409
$1,635
Total out-of-scope noninterest income (b)183
177
637
361
Total Retail Banking noninterest income$673
$744
$2,046
$1,996
(a)Net credit card fees consists of interchange fees of $121 million and $128 million and credit card reward costs of $71 million and $78 million for the three months ended September 30, 2020 and 2019, respectively. Net credit card fees consists of interchange fees of $341 million and $366 million and credit card reward costs of $211 million and $217 million for the nine months ended September 30, 2020 and 2019, 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.

(a)Net credit card fees consists of interchange fees of $120 million and $118 million and credit card reward costs of $73 million and $77 million for the three months ended March 31, 2021 and 2020, 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.

Corporate & Institutional Banking

Table 83:74: Corporate & Institutional Banking Noninterest Income Disaggregation
Three months ended
March 31
In millions20212020
Product
 Treasury management fees$235 $216 
 Capital markets fees192 175 
 Commercial mortgage banking activities31 26 
 Other29 20 
Total in-scope noninterest income by product$487 $437 
Reconciliation to total Corporate & Institutional Banking noninterest income
Total in-scope noninterest income$487 $437 
Total out-of-scope noninterest income (a)320 257 
Total Corporate & Institutional Banking noninterest income$807 $694 
(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 Group

Table 75: Asset Management Group Noninterest Income Disaggregation
Three months ended
March 31
In millions20212020
Customer Type
 Personal$173 $150 
 Institutional53 51 
Total in-scope noninterest income by customer type$226 $201 
Reconciliation to Asset Management Group noninterest income
Total in-scope noninterest income$226 $201 
Total out-of-scope noninterest income (a)3 3 
Total Asset Management Group noninterest income$229 $204 
(a)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.
The PNC Financial Services Group, Inc. – Form 10-Q 91  
 Three months ended
September 30		Nine months ended
September 30
In millions2020
2019
2020
2019
Product    
 Treasury management fees$231
$210
$665
$621
 Capital markets fees132
131
494
407
 Commercial mortgage banking activities31
26
81
75
 Other18
17
55
53
Total in-scope noninterest income by product$412
$384
$1,295
$1,156
Reconciliation to total Corporate & Institutional Banking noninterest income    
Total in-scope noninterest income$412
$384
$1,295
$1,156
Total out-of-scope noninterest income (a)311
270
848
735
Total Corporate & Institutional Banking noninterest income$723
$654
$2,143
$1,891
(a)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

NOTE16 SUBSEQUENT EVENTS

On April 23, 2021, the parent company issued $1.0 billion of senior fixed-to-floating rate notes with a maturity date of April 23, 2032. Interest is payable semi-annually in arrears at a fixed rate of 2.307% per annum, on April 23 and October 23 of each year, beginning on October 23, 2021. Beginning on April 23, 2031, interest is payable quarterly in arrears at a floating rate per annum equal to Compounded SOFR (determined with respect to each quarterly interest period using the SOFR Index as described in the Prospectus Supplement), plus 0.97926%, on July 23, 2031, October 23, 2031, January 23, 2032 and at the maturity date.




11092    The PNC Financial Services Group, Inc. – Form 10-Q



Asset Management Group

Table 84: Asset Management Group Noninterest Income Disaggregation
 Three months ended
September 30		Nine months ended
September 30
In millions2020
2019
2020
2019
Customer Type    
 Personal$164
$155
$465
$459
 Institutional51
58
150
187
Total in-scope noninterest income by customer type$215
$213
$615
$646
Reconciliation to Asset Management Group noninterest income    
Total in-scope noninterest income$215
$213
$615
$646
Total out-of-scope noninterest income (a)6
3
14
73
Total Asset Management Group noninterest income$221
$216
$629
$719
(a)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

The PNC Financial Services Group, Inc. – Form 10-Q 111  


STATISTICAL INFORMATION (UNAUDITED)
THE PNC FINANCIAL SERVICES GROUP, INC.
Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c)
Nine months ended September 30 Three months ended March 31
2020 2019  20212020
Taxable-equivalent basis
Dollars in millions
Average
Balances

 Interest Income/Expense
 Average Yields/Rates
 Average
Balances
 Interest Income/
Expense
 Average Yields/
Rates
 Taxable-equivalent basis
Dollars in millions		Average
Balances		Interest Income/ExpenseAverage Yields/RatesAverage
Balances		Interest Income/
Expense		Average Yields/
Rates
Assets            Assets
Interest-earning assets:            Interest-earning assets:
Investment securities            Investment securities
Securities available for sale            Securities available for sale
Residential mortgage-backed            Residential mortgage-backed
Agency$51,453
 $891
 2.31% $30,714
 $657
 2.85% Agency$45,298 $195 1.72 %$49,636 $326 2.63 %
Non-agency1,527
 85
 7.43% 1,802
 109
 8.04% Non-agency1,23622 7.24 %1,617 32 7.87 %
Commercial mortgage-backed6,964
 140
 2.68% 5,549
 127
 3.05% Commercial mortgage-backed6,24140 2.58 %6,734 50 2.95 %
Asset-backed5,115
 103
 2.70% 5,247
 131
 3.33% Asset-backed5,30424 1.84 %5,003 38 3.05 %
U.S. Treasury and government agencies16,714
 240
 1.88% 18,207
 341
 2.47% U.S. Treasury and government agencies22,30994 1.68 %15,938 92 2.29 %
Other4,567
 120
 3.51% 3,316
 83
 3.36% Other4,56139 3.28 %4,024 37 3.69 %
Total securities available for sale86,340
 1,579
 2.43% 64,835
 1,448
 2.97% Total securities available for sale84,949414 1.95 %82,952 575 2.77 %
Securities held to maturity            Securities held to maturity
Residential mortgage-backed—
 —
 —
 15,582
 340
 2.91% 
Commercial mortgage-backed—
 —
 —
 571
 15
 3.59% 
Asset-backed24
 —
 2.66% 143
 4
 4.18% Asset-backed51 2.77 %
U.S. Treasury and government agencies783
 17
 2.85% 765
 16
 2.84% U.S. Treasury and government agencies7976 2.83 %779 6 2.84 %
Other648
 21
 4.32% 1,823
 61
 4.41% Other6506 4.17 %640 7 4.48 %
Total securities held to maturity1,455
 38
 3.50% 18,884
 436
 3.08% Total securities held to maturity1,44712 3.43 %1,470 13 3.56 %
Total investment securities87,795
 1,617
 2.45% 83,719
 1,884
 3.00% Total investment securities86,396426 1.97 %84,422 588 2.78 %
Loans            Loans
Commercial and industrial140,701
 3,286
 3.07% 123,069
 3,919
 4.20% Commercial and industrial129,996948 2.91 %128,723 1,180 3.62 %
Commercial real estate28,689
 663
 3.03% 28,477
 950
 4.40% Commercial real estate28,598200 2.80 %28,275 260 3.64 %
Equipment lease financing6,958
 201
 3.85% 7,273
 215
 3.94% Equipment lease financing6,33262 3.90 %7,066 69 3.93 %
Consumer56,279
 2,099
 4.98% 55,303
 2,304
 5.57% Consumer50,904599 4.78 %57,680 771 5.38 %
Residential real estate22,292
 644
 3.85% 19,602
 625
 4.25% Residential real estate22,305197 3.53 %21,828 216 3.96 %
Total loans254,919
 6,893
 3.58% 233,724
 8,013
 4.54% Total loans238,1352,006 3.38 %243,572 2,496 4.08 %
Interest-earning deposits with banks37,582
 80
 .28% 14,708
 256
 2.32% Interest-earning deposits with banks85,41021 0.10 %17,569 56 1.27 %
Other interest-earning assets10,028
 199
 2.64% 12,780
 354
 3.70% Other interest-earning assets7,82945 2.34 %9,468 82 3.51 %
Total interest-earning assets/interest income390,324
 8,789
 2.98% 344,931
 10,507
 4.04% Total interest-earning assets/interest income417,7702,498 2.40 %355,031 3,222 3.62 %
Noninterest-earning assets53,705
     51,668
     Noninterest-earning assets50,45057,405 
Total assets$444,029
     $396,599
     Total assets$468,220 $412,436 
Liabilities and Equity            Liabilities and Equity
Interest-bearing liabilities:            Interest-bearing liabilities:
Interest-bearing deposits            Interest-bearing deposits
Money market$59,426
 $130
 .29% $55,268
 $477
 1.15% Money market$59,083 5 0.03 %$53,287 95 0.72 %
Demand80,371
 100
 .17% 64,459
 265
 .55% Demand91,6199 0.04 %70,931 72 0.41 %
Savings74,279
 217
 .39% 61,627
 532
 1.15% Savings82,92612 0.06 %69,977 138 0.79 %
Time deposits21,084
 143
 .91% 20,017
 244
 1.63% Time deposits18,44914 0.32 %21,141 70 1.34 %
Total interest-bearing deposits235,160
 590
 .34% 201,371
 1,518
 1.01% Total interest-bearing deposits252,07740 0.06 %215,336 375 0.70 %
Borrowed funds            Borrowed funds
Federal Home Loan Bank borrowings11,051
 98
 1.16% 23,368
 467
 2.63% Federal Home Loan Bank borrowings2,4113 0.43 %13,440 58 1.69 %
Bank notes and senior debt28,040
 366
 1.72% 26,571
 675
 3.35% Bank notes and senior debt22,79960 1.04 %29,988 183 2.41 %
Subordinated debt5,935
 91
 2.05% 5,530
 169
 4.09% Subordinated debt5,92921 1.43 %5,934 40 2.73 %
Other6,199
 64
 1.33% 6,564
 122
 2.44% Other4,05711 1.21 %7,826 33 1.69 %
Total borrowed funds51,225
 619
 1.59% 62,033
 1,433
 3.05% Total borrowed funds35,19695 1.09 %57,188 314 2.18 %
Total interest-bearing liabilities/interest expense286,385
 1,209
 .56% 263,404
 2,951
 1.48% Total interest-bearing liabilities/interest expense287,273135 0.19 %272,524 689 1.00 %
Noninterest-bearing liabilities and equity:            Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits90,078
     71,736
     Noninterest-bearing deposits113,29974,396 
Accrued expenses and other liabilities16,251
     12,975
     Accrued expenses and other liabilities14,25816,437 
Equity51,315
     48,484
     Equity53,39049,079 
Total liabilities and equity$444,029
     $396,599
     Total liabilities and equity$468,220   $412,436   
Interest rate spread    2.42%     2.56% Interest rate spread2.21 %2.62 %
Impact of noninterest-bearing sources    .15
     .35
 Impact of noninterest-bearing sources  0.06   0.22 
Net interest income/margin  $7,580
 2.57%   $7,556
 2.91% Net interest income/margin $2,363 2.27 % $2,533 2.84 %
(continued on following page)






112The PNC Financial Services Group, Inc. – Form 10-Q93




Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c) (Continued)
  Three months ended December 31
 2020
Taxable-equivalent basis
Dollars in millions		Average BalancesInterest Income/
Expense		Average Yields/
Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed
Agency$48,036 $218 1.81 %
Non-agency1,337 24 7.15 %
Commercial mortgage-backed6,56843 2.66 %
Asset-backed5,01726 2.04 %
U.S. Treasury and government agencies18,78384 1.77 %
Other4,56140 3.45 %
Total securities available for sale84,302435 2.05 %
Securities held to maturity
U.S. Treasury and government agencies7935 2.88 %
Other6507 4.20 %
Total securities held to maturity1,44312 3.47 %
Total investment securities85,745447 2.08 %
Loans
Commercial and industrial134,944990 2.87 %
Commercial real estate28,991195 2.63 %
Equipment lease financing6,38062 3.90 %
Consumer52,872631 4.74 %
Residential real estate22,638208 3.69 %
Total loans245,8252,086 3.35 %
Interest-earning deposits with banks76,37420 0.10 %
Other interest-earning assets8,13440 1.99 %
Total interest-earning assets/interest income416,0782,593 2.46 %
Noninterest-earning assets48,901
Total assets$464,979 
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market$62,621 8 0.05 %
Demand88,0269 0.04 %
Savings79,43016 0.08 %
Time deposits19,44820 0.41 %
Total interest-bearing deposits249,52553 0.08 %
Borrowed funds
Federal Home Loan Bank borrowings4,7615 0.40 %
Bank notes and senior debt24,02262 1.00 %
Subordinated debt5,93621 1.38 %
Other3,43311 1.39 %
Total borrowed funds38,15299 1.02 %
Total interest-bearing liabilities/interest expense287,677152 0.21 %
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits109,878
Accrued expenses and other liabilities14,348
Equity53,076
Total liabilities and equity$464,979   
Interest rate spread2.25 %
Impact of noninterest-bearing sources  0.07 
Net interest income/margin $2,441 2.32 %
  Three months ended September 30
 2020 2019 
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$52,215
 $265
 2.03% $32,926
 $223
 2.70% 
Non-agency1,437
 26
 7.26% 1,716
 38
 8.89% 
Commercial mortgage-backed6,927
 44
 2.50% 5,728
 43
 2.97% 
Asset-backed5,033
 30
 2.44% 5,208
 43
 3.31% 
U.S. Treasury and government agencies18,724
 79
 1.64% 17,573
 109
 2.44% 
Other4,723
 39
 3.39% 3,053
 26
 3.41% 
Total securities available for sale89,059
 483
 2.16% 66,204
 482
 2.90% 
Securities held to maturity            
Residential mortgage-backed—
 —
 —
 15,768
 110
 2.78% 
Commercial mortgage-backed—
 —
 —
 544
 5
 3.68% 
Asset-backed—
 —
 —
 79
 1
 5.48% 
U.S. Treasury and government agencies788
 6
 2.86% 769
 5
 2.86% 
Other655
 7
 4.20% 1,802
 19
 4.40% 
Total securities held to maturity1,443
 13
 3.47% 18,962
 140
 2.98% 
Total investment securities90,502
 496
 2.18% 85,166
 622
 2.91% 
Loans            
Commercial and industrial139,795
 1,008
 2.82% 125,356
 1,300
 4.06% 
Commercial real estate29,081
 197
 2.65% 28,855
 325
 4.40% 
Equipment lease financing6,771
 64
 3.80% 7,272
 70
 3.82% 
Consumer54,692
 645
 4.69% 55,702
 787
 5.61% 
Residential real estate22,753
 213
 3.74% 20,497
 216
 4.21% 
Total loans253,092
 2,127
 3.32% 237,682
 2,698
 4.47% 
Interest-earning deposits with banks60,327
 15
 .10% 15,632
 85
 2.17% 
Other interest-earning assets9,752
 55
 2.23% 14,094
 123
 3.49% 
Total interest-earning assets/interest income413,673
 2,693
 2.57% 352,574
 3,528
 3.95% 
Noninterest-earning assets48,466
     54,135
     
Total assets$462,139
     $406,709
     
Liabilities and Equity            
Interest-bearing liabilities:            
Interest-bearing deposits            
Money market$63,598
 $12
 .07% $56,271
 $162
 1.14% 
Demand87,226
 12
 .05% 65,444
 95
 .58% 
Savings77,479
 22
 .11% 64,054
 185
 1.14% 
Time deposits20,248
 28
 .58% 21,173
 89
 1.66% 
Total interest-bearing deposits248,551
 74
 .12% 206,942
 531
 1.02% 
Borrowed funds            
Federal Home Loan Bank borrowings7,196
 9
 .47% 25,883
 164
 2.48% 
Bank notes and senior debt25,858
 71
 1.08% 27,409
 224
 3.21% 
Subordinated debt5,936
 22
 1.51% 5,189
 45
 3.53% 
Other4,354
 16
 1.31% 5,452
 35
 2.43% 
Total borrowed funds43,344
 118
 1.06% 63,933
 468
 2.87% 
Total interest-bearing liabilities/interest expense291,895
 192
 .26% 270,875
 999
 1.45% 
Noninterest-bearing liabilities and equity:            
Noninterest-bearing deposits101,931
     72,149
     
Accrued expenses and other liabilities15,341
     14,529
     
Equity52,972
     49,156
     
Total liabilities and equity$462,139
     $406,709
     
Interest rate spread    2.31%     2.50% 
Impact of noninterest-bearing sources    .08
     .34
 
Net interest income/margin  $2,501
 2.39%   $2,529
 2.84% 
(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.
(a)Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value are included in noninterest-earning assets and noninterest-bearing liabilities, with changes in fair value recorded in Noninterest income.
(b)Loan fees for the three months ended September 30, 2020 and September 30, 2019 were $38 million and $49 million, respectively. Loan fees for the nine months ended September 30, 2020 and September 30, 2019 were $117 million and $120 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.

(b)Loan fees for the three months ended March 31, 2021, December 31, 2020 and March 31, 2020 were $55 million, $39 million and $44 million, respectively.
94The PNC Financial Services Group, Inc. – Form 10-Q113  

(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.


RECONCILIATION OF TAXABLE-EQUIVALENT NET INTEREST INCOME (NON-GAAP) (a)
 Three months ended
In millionsMarch 31, 2021December 31, 2020March 31, 2020
Net interest income (GAAP)$2,348 $2,424 $2,511 
Taxable-equivalent adjustments15 17 22 
Net interest income (Non-GAAP)$2,363 $2,441 $2,533 
(a)The interest income earned on certain interest-earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.

GLOSSARY
  Nine months endedThree months ended
In millions September 30, 2020
 September 30, 2019
September 30, 2020
September 30, 2019
Net interest income (GAAP) $7,522
 $7,477
$2,484
$2,504
Taxable-equivalent adjustments 58
 79
17
25
Net interest income (Non-GAAP) $7,580
 $7,556
$2,501
$2,529
DEFINEDTERMS
For a glossary of terms commonly used in our filings, please see the glossary of terms included in our 2020 Form 10-K.

ACRONYMS
(a)ACLTheAllowance for credit lossesLGDLoss given default
ALLLAllowance for loan and lease lossesLIBORLondon Interbank Offered Rate
AOCIAccumulated other comprehensive incomeLIHTCLow income housing tax credit
ASCAccounting Standards CodificationLLCLimited liability company
ASFAvailable stable fundingLTVLoan-to-value ratio
ASUAccounting Standards UpdateMD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
BBVABBVA USA Bancshares, Inc.MSRMortgage servicing right
BBVA, S.A.Banco Bilbao Vizcaya Argentaria, S.A.NAICSNorth American Industry Classification System
BBVA USABBVA USA, the Alabama-chartered bank subsidiary of BBVA USA Bancshares, Inc.NSFRNet Stable Funding Ratio
BHCBank holding companyOCCOffice of the Comptroller of the Currency
bpsBasis pointsOCIOther comprehensive income
CARES ActCoronavirus Aid, Relief and Economic Security ActOREOOther real estate owned
CCARComprehensive Capital Analysis and ReviewOTCOver-the-counter
CECLCurrent expected credit lossesPCAOBPublic Company Accounting Oversight Board
CET1Common equity tier 1PCDPurchased credit deteriorated
CFPBConsumer Financial Protection BureauPDProbability of default
CRACommunity Reinvestment ActPPPPaycheck Protection Program
DFASTDodd-Frank capital stress testingRACPNC’s Reserve Adequacy Committee
EADExposure at defaultROAPRemoval of account provisions
ERMEnterprise Risk ManagementRSFRequired stable funding
FHLBFederal Home Loan BankSBASmall Business Administration
FHLMCFederal Home Loan Mortgage CorporationSCBStress capital buffer
FICOFair Isaac Corporation (credit score)SECSecurities and Exchange Commission
FNMAFederal National Mortgage AssociationSLRSupplementary leverage ratio
FOMCFederal Open Market CommitteeSOFRSecured Overnight Financing Rate
GAAPAccounting principles generally accepted in the United States of AmericaSPESpecial purpose entity
GDPGross Domestic ProductTDRTroubled debt restructuring
GLB ActGramm-Leach-Bliley ActU.S.United States of America
HQLAHigh quality, unencumbered liquid assetsVADepartment of Veterans Affairs
ISDAInternational Swaps and Derivatives AssociationVaRValue-at-risk
LCRLiquidity Coverage RatioVIEVariable interest income earned on certain interest-earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.entity




The PNC Financial Services Group, Inc. – Form 10-Q 95

PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the information set forth in Note 1413 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 from any of the risk factors previously disclosed in our first quarter 2020 Form 10-Q and 2019 Form 10-K in response to Part II, Item 1A and Part I, Item 1A, respectively.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities
None.

Equity Security Repurchases
Details of our repurchases of PNC common stock during the thirdfirst quarter of 20202021 are included in the following table.
2021 period
In thousands, except per share data		Total shares purchased (a)Average price paid per shareTotal shares purchased as part of publicly announced programs (b)Maximum number of shares that may yet be purchased under the programs (b)
January 1 - 313 $154.78 75,109 
February 1 – 28406 $162.47 75,109 
March 1 - 3175,109 
Total409 $162.41   
2020 period
In thousands, except per share data		Total shares purchased (a)
Average price paid per share
Total shares purchased as part of publicly announced programs (b)
Maximum number of shares that may yet be purchased under the programs (b)
July 1 - 318
$103.19
—
76,028
August 1 – 31—
$—
—
76,028
September 1 – 30919
$107.50
919
75,109
Total927
$107.47
  
(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 2019 Annual Report on Form 10-K include additional information regarding our employee benefit and equity compensation plans that use PNC common stock.
(b)On April 4, 2019, our Board of Directors approved the establishment of a new stock repurchase program authorization in the amount of 100 million shares of PNC common stock, effective July 1, 2019. Under this authorization, repurchases may be made in the open market or privately negotiated transactions, with the timing and exact amount of common stock repurchases depending on a number of factors including, among others, market and general economic conditions, regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations, including the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process. In June 2019, we announced share repurchase programs of up to $4.3 billion for the four quarter period beginning with the third quarter of 2019, in accordance with PNC's 2019 capital plan. In January 2020, we announced an increase to these programs to repurchase up to an additional $1.0 billion in common shares through the end of the second quarter of 2020. We announced on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve's effort to support the U.S. economy during the pandemic, and will continue the suspension through the fourth quarter of 2020, consistent with the extension of the Federal Reserve's special capital distribution restrictions. We repurchased $99 million of common shares in the third quarter to offset the effects of employee benefit plan-related issuances in 2020 as permitted by guidance from the Federal Reserve.

(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. See Note 17 Employee Benefit Plans and Note 18 Stock Based Compensation Plans in the Notes To Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K which include additional information regarding our employee benefit and equity compensation plans that use PNC common stock.
(b)On April 4, 2019, our Board of Directors approved the establishment of a stock repurchase program authorization in the amount of 100 million shares of PNC common
stock, effective July 1, 2019. Under this authorization, repurchases may be made in open market or privately negotiated transactions, with the timing and exact amount of
common stock repurchases depending 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. PNC announced on March 16, 2020 a temporary suspension of our common stock repurchase program in conjunction with the Federal Reserve’s effort to support the U.S. economy during the pandemic. We continued the suspension through the first quarter of 2021, with the exception of employee benefit-related purchases in the third quarter of 2020, consistent with extension of the Federal Reserves's special capital distribution restrictions. We expect to continue to refrain from share repurchases for the remainder of the period leading up to the close of our pending BBVA transaction. Following the close, PNC expects to resume repurchases in the second half of 2021.

11496    The PNC Financial Services Group, Inc. – Form 10-Q




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
31.122
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document *
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL.
You can obtain copies of these Exhibits electronically at the SEC’s website at www.sec.gov. The Exhibits are also available as part of this Form 10-Q on PNC’s corporate website at www.pnc.com/secfilings. Shareholders and bondholders may also obtain copies of Exhibits, without charge, by contacting Shareholder Relations at 800-843-2206 or via e-mail at investor.relations@pnc.com.
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
Internet Information

The PNC Financial Services Group, Inc.'s financial reports and information about its products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under “About Us – Investor Relations.” We use our Twitter account, @pncnews, as an additional way of disseminating to the public information that may be relevant to investors.
We generally post the following under “About Us – Investor Relations” shortly before or promptly following its first use or release: financially-related press releases, including earnings releases and supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor conference calls or events, and access to live and recorded audio from earnings and other investor conference calls or events. In some cases, we may post the presentation materials for other investor conference calls or events several days prior to the call or event. For earnings and other conference calls or events, we generally include in our posted materials a cautionary statement regarding forward-looking and non-GAAP financial information, and we provide GAAP reconciliations when we include non-GAAP financial information. Such GAAP reconciliations may be in materials for the applicable presentation, in materials for prior presentations or in our annual, quarterly or current reports.
When warranted, we will also use our 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 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
The PNC Financial Services Group, Inc. – Form 10-Q 97  

capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. We are also

The PNC Financial Services Group, Inc. – Form 10-Q 115  


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, under the regulatory capital rules adopted by the Federal banking agencies. Similarly, the Federal Reserve's rules require quantitative and qualitative disclosures about LCR and, beginning in 2023, our NSFR. 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.
Where we have included internet addresses in this Report, such as our internet address and the internet address of the SEC, we have included those internet 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.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/contact uscontactus for copies without exhibits, or via email to investor.relations@pnc.com for copies of exhibits, including financial statement and schedule exhibits where applicable.
Corporate Governance at PNC
Information about our Board of Directors and its committees and corporate governance, including our PNC Code of Business Conduct and Ethics (as amended from time to time), is available on our corporate website at www.pnc.com/corporategovernance. In addition, any future amendments to, or waivers from a provision of the PNC Code of Business Conduct and Ethics covering any of 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 PNCour corporate website)website at www.pnc.com/corporategovernance) 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.charge.
Inquiries
For financial services, call 888-762-2265.
Registered shareholders should contact Shareholder Services at 800-982-7652.
Analysts and institutional investors should contact Bryan Gill, Executive Vice President, Director of Investor Relations, at 412-768-4143 or via email at investor.relations@pnc.com.
News media representatives should contact PNC Media Relations at 412-762-4550 or via email at media.relations@pnc.com.
Dividend Policy
Holders of PNC common stock are entitled to receive dividends when declared by theour 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 and certain outstanding capital securities issued by the parent company
have been paid or declared and set apart for payment. The Board of Directors 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 20192020 Form 10-K.




11698    The PNC Financial Services Group, Inc. – Form 10-Q



Dividend Reinvestment and Stock Purchase Plan
The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common stock to conveniently purchase additional shares of common stock. You can obtain a prospectus and enrollment form by contacting Shareholder Services at 800-982-7652. Registered shareholders may also contact this phone number regarding dividends and other shareholder services.
Stock Transfer Agent and Registrar
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
800-982-7652
www.computershare.com/pnc
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on November 3, 2020May 5, 2021 on its behalf by the undersigned thereunto duly authorized.
/s/ Robert Q. Reilly
Robert Q. Reilly
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

The PNC Financial Services Group, Inc. – Form 10-Q 11799