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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, 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)
___________________________________________________________
Pennsylvania   25-1435979
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
The Tower at PNC Plaza, 300 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2401
(Address of principal executive offices, including zip code)

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

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

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s)
 Name of Each Exchange
    on Which Registered    
Common Stock, par value $5.00 PNC New York Stock Exchange
Depositary Shares Each Representing a 1/4,000 Interest in a Share of Fixed-to-
    Floating Rate Non-Cumulative Perpetual Preferred Stock, Series P
PNC P New York Stock Exchange

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 October 15, 2021, there were 422,640,807 shares of the registrant’s common stock ($5 par value) outstanding.


THE PNC FINANCIAL SERVICES GROUP, INC.
Cross-Reference Index to Third Quarter 2021 Form 10-Q

  Pages
PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements (Unaudited).
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
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Item 3. Quantitative and Qualitative Disclosures about Market Risk. 20-39, 50-51 and 88-94
Item 4. Controls and Procedures.
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MD&A TABLE REFERENCE
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE
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FINANCIAL REVIEW
THE PNC FINANCIAL SERVICES GROUP, INC.

This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Quarterly Report on Form 10-Q (the Report or Form 10-Q) and with Items 6, 7, 8 and 9A of our 2020 Annual Report on Form 10-K (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 2020 Form 10-K; Item 1A Risk Factors included in our 2020 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 Item 8 of our 2020 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 2020 Form 10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 14 Segment Reporting in the Notes To Consolidated Financial Statements included in this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a 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 104 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
September 30
Nine months ended
September 30
2021 2020 2021 2020
Financial Results (a)
Revenue
Net interest income $ 2,856  $ 2,484  $ 7,785  $ 7,522 
Noninterest income 2,341  1,797  6,299  5,171 
Total revenue 5,197  4,281  14,084  12,693 
Provision for (recapture of) credit losses (203) 52  (452) 3,429 
Noninterest expense 3,587  2,531  9,211  7,589 
Income from continuing operations before income taxes and noncontrolling interests
$ 1,813  $ 1,698  $ 5,325  $ 1,675 
Income taxes from continuing operations
323  166  906  128 
Net income from continuing operations $ 1,490  $ 1,532  $ 4,419  $ 1,547 
Income from discontinued operations before taxes
$ 5,777 
Income taxes from discontinued operations
1,222 
Net income from discontinued operations

$ 4,555 
Net income $ 1,490  $ 1,532  $ 4,419  $ 6,102 
Less:
Net income attributable to noncontrolling interests 16  13  38  27 
Preferred stock dividends (b) 57  63  162  181 
Preferred stock discount accretion and redemptions
Net income attributable to common shareholders $ 1,416  $ 1,455  $ 4,216  $ 5,891 
Per Common Share

Basic earnings from continuing operations $ 3.31  $ 3.40  $ 9.84  $ 3.11 
Basic earnings from discontinued operations 10.61 
Total basic earnings
$ 3.31  $ 3.40  $ 9.84  $ 13.73 
Diluted earnings from continuing operations $ 3.30  $ 3.39  $ 9.83  $ 3.11 
Diluted earnings from discontinued operations
10.59 
Total diluted earnings $ 3.30  $ 3.39  $ 9.83  $ 13.70 
Cash dividends declared per common share $ 1.25  $ 1.15  $ 3.65  $ 3.45 
Effective tax rate from continuing operations (c) 17.8  % 9.8  % 17.0  % 7.6  %
Performance Ratios
Net interest margin (d) 2.27  % 2.39  % 2.28  % 2.57  %
Noninterest income to total revenue 45  % 42  % 45  % 41  %
Efficiency 69  % 59  % 65  % 60  %
Return on:
Average common shareholders’ equity 10.95  % 11.76  % 11.17  % 16.57  %
Average assets 1.06  % 1.32  % 1.16  % 1.83  %
(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 R and Series S preferred stock, which are payable semiannually. On September 13, 2021, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 3.400% fixed-rate reset non-cumulative perpetual preferred stock, Series T, with a par value of $1 per share. Beginning on December 15, dividends will be paid on the Series T on a quarterly basis (March 15, June 15, September 15 and December 15 of each year).
(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)
Unaudited September 30
2021
December 31
2020
September 30
2020
Balance Sheet Data (dollars in millions, except per share data)
Assets $ 553,515  $ 466,679  $ 461,817 
Loans $ 290,230  $ 241,928  $ 249,279 
Allowance for loan and lease losses


$ 5,355  $ 5,361  $ 5,751 
Interest-earning deposits with banks (b) $ 75,478  $ 85,173  $ 70,959 
Investment securities $ 125,606  $ 88,799  $ 91,185 
Loans held for sale $ 2,121  $ 1,597  $ 1,787 
Equity investments $ 7,737  $ 6,052  $ 4,938 
Mortgage servicing rights $ 1,833  $ 1,242  $ 1,113 
Goodwill $ 10,885  $ 9,233  $ 9,233 
Other assets $ 36,137  $ 30,999  $ 32,445 
Noninterest-bearing deposits $ 156,305  $ 112,637  $ 107,281 
Interest-bearing deposits $ 292,597  $ 252,708  $ 247,798 
Total deposits $ 448,902  $ 365,345  $ 355,079 
Borrowed funds $ 33,471  $ 37,195  $ 42,110 
Allowance for unfunded lending related commitments
$ 646  $ 584  $ 689 
Total shareholders’ equity $ 56,259  $ 54,010  $ 53,276 
Common shareholders’ equity $ 51,250  $ 50,493  $ 49,760 
Accumulated other comprehensive income $ 1,079  $ 2,770  $ 2,997 
Book value per common share $ 121.16  $ 119.11  $ 117.44 
Period-end common shares outstanding (in millions) 423  424  424 
Loans to deposits 65  % 66  % 70  %
Common shareholders’ equity to total assets 9.3  % 10.8  % 10.8  %
Client Assets (in billions)
Discretionary client assets under management $ 183  $ 170  $ 158 
Nondiscretionary client assets under administration 170  154  142 
Total client assets under administration 353  324  300 
Brokerage account client assets 81  59  55 
Total client assets $ 434  $ 383  $ 355 
Basel III Capital Ratios (c) (d)
Common equity Tier 1 10.3  % 12.2  % 11.7  %
Common equity Tier 1 fully implemented (e) 10.0  % 11.8  % 11.3  %
Tier 1 risk-based 11.6  % 13.2  % 12.8  %
Total capital risk-based (f) 13.6  % 15.6  % 15.2  %
Leverage 8.2  % 9.5  % 9.4  %
Supplementary leverage 7.0  % 9.9  % 9.5  %
Asset Quality
Nonperforming loans to total loans 0.87  % 0.94  % 0.84  %
Nonperforming assets to total loans, OREO and foreclosed assets 0.88  % 0.97  % 0.86  %
Nonperforming assets to total assets 0.46  % 0.50  % 0.47  %
Net charge-offs to average loans (for the three months ended) (annualized) 0.11  % 0.37  % 0.24  %
Allowance for loan and lease losses to total loans
1.85  % 2.22 % 2.31  %
Allowance for credit losses to total loans (g) 2.07  % 2.46  % 2.58  %
Allowance for loan and lease losses to nonperforming loans

212  % 235  % 276  %
Accruing loans past due 90 days or more (in millions) $ 492  $ 509  $ 448 
(a)The Executive Summary and Consolidated Balance Sheet Review portions of this Financial Review provide information regarding items impacting the comparability of the periods presented.
(b)Amounts include balances held with the Federal Reserve Bank of $75.1 billion, $84.9 billion and $70.6 billion as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively.
(c)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.
(d)Ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision, unless noted differently.
(e)The fully implemented CET1 ratio is calculated to reflect the full impact of CECL and excludes the benefits of the five-year transition provision.
(f)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.
(g)Calculated as the Allowance for loan and lease losses plus the Allowance for unfunded lending related commitments divided by total loans.
2    The PNC Financial Services Group, Inc. – Form 10-Q



EXECUTIVE SUMMARY
Headquartered in Pittsburgh, Pennsylvania, we are one of the largest diversified financial institutions in the 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 coast-to-coast. 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 growing and deepening client relationships across our businesses that meet our risk/return measures.

We are focused on our strategic priorities, which are designed to enhance value over the long term, and consist of:
Expanding our leading banking franchise to new markets and digital platforms,
Deepening customer relationships by delivering a superior banking experience and financial solutions, and
Leveraging technology to innovate and enhance products, services, security and processes.

Our capital priorities are to support 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 2020 Form 10-K.

Acquisition of BBVA USA Bancshares, Inc.
On June 1, 2021, PNC acquired BBVA USA Bancshares Inc. (BBVA), a U.S. financial holding company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA. PNC paid $11.5 billion in cash as consideration for the acquisition.

On October 8, 2021, BBVA USA merged into PNC Bank. As of October 12, 2021, PNC has converted approximately 2.6 million customers, 9,000 employees and over 600 branches across seven states. PNC’s third quarter results reflect the full quarter benefit of BBVA’s acquired business operations. Our results for the first nine months of 2021 reflect the benefit of BBVA's acquired business operations for the period since the acquisition closed on June 1, 2021. PNC’s balance sheet at September 30, 2021 includes BBVA’s balances. See the Recent Regulatory Developments portion of this Report for more detail on the approval and merger process.

For additional information on the acquisition of BBVA, see Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report.

Throughout this Report, BBVA USA Bancshares, Inc. will be referred to as BBVA.

Discontinued Operations
In the second quarter of 2020, we divested our entire 22.4% equity investment in BlackRock. Net proceeds from the sale were
$14.2 billion with an after-tax gain on sale of $4.3 billion. BlackRock's historical results are reported as discontinued operations. For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements in Item 1 of this Report.

Income Statement Highlights

Net income from continuing operations of $1.5 billion for the third quarter of 2021 decreased $42.0 million compared to the third quarter of 2020. Earnings were $3.30 per diluted common share for the third quarter of 2021 compared to $3.39 per diluted common share for the third quarter of 2020. Other than the impact of the BBVA acquisition, the decrease was primarily due to a lower effective tax rate in the third quarter of 2020 as a result of tax credit benefits and the favorable resolution of certain tax matters.

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


For the three months ended September 30, 2021 compared to the same period in 2020:
Total revenue increased $916 million, or 21%, to $5.2 billion.
Net interest income of $2.9 billion increased $372 million, or 15%, primarily due to the benefit of BBVA.
Net interest margin decreased 12 basis points to 2.27% reflecting lower securities yields.
Noninterest income increased $544 million, or 30%, to $2.3 billion, primarily due to record merger and acquisition advisory fees and the benefit of BBVA.
Provision recapture was $203 million for the third quarter of 2021 driven by continued improvements in credit quality and changes in portfolio composition. Provision for credit losses was $52 million for the third quarter of 2020.
Noninterest expense increased $1.1 billion, or 42%, to $3.6 billion, due to BBVA operating expenses, integration expenses and increased business and marketing activity.

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

Balance Sheet Highlights
Our balance sheet was strong and well positioned at September 30, 2021 and December 31, 2020. In comparison to December 31, 2020, changes in our balance sheet were primarily driven by the BBVA acquisition.
Total assets increased $86.8 billion, or 19%, to $553.5 billion.
Total loans increased $48.3 billion, or 20%, to $290.2 billion.
Total commercial loans increased $28.0 billion, or 17%, to $195.2 billion driven by BBVA loans, partially offset by PPP loan forgiveness.
At September 30, 2021, PNC had $6.8 billion of PPP loans. PPP loans outstanding at December 31, 2020 were $12.0 billion.
Total consumer loans increased $20.3 billion, or 27%, to $95.0 billion driven by loans from BBVA and increased originations of PNC legacy residential mortgages, partially offset by declines in PNC legacy home equity and auto loan portfolios.
Investment securities increased $36.8 billion, or 41%, to $125.6 billion, resulting from increased purchase activity and securities from BBVA.
Interest-earning deposits with banks, primarily with the Federal Reserve Bank, decreased $9.7 billion to $75.5 billion, and included the payment for the purchase of BBVA.
Total deposits increased $83.6 billion, or 23%, to $448.9 billion, reflecting deposits from BBVA and growth in PNC legacy commercial and consumer liquidity.
Borrowed funds decreased $3.7 billion, or 10%, to $33.5 billion, due to lower FHLB borrowings reflecting the use of liquidity from deposit growth, partially offset by borrowed funds from BBVA.

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

Credit Quality Highlights
Third quarter 2021 credit quality performance reflected the acquisition of BBVA, continued improvements in credit quality and changes in portfolio composition.
At September 30, 2021 compared to December 31, 2020:
Nonperforming assets of $2.6 billion, increased $222 million, or 9%, due to nonperforming assets from BBVA, partially offset by lower PNC legacy nonperforming assets reflecting improved credit performance.
Overall loan delinquencies of $1.4 billion increased $33 million, or 2%, as lower PNC legacy consumer and commercial delinquencies were more than offset by delinquencies from the BBVA acquisition.
The ACL related to loans, which consists of the ALLL and the allowance for unfunded lending related commitments, totaled $6.0 billion at September 30, 2021, an increase of $0.1 billion since December 31, 2020. The increase was primarily attributable to the addition of reserves related to the BBVA acquisition, partially offset by continued improvements in credit quality and macroeconomic factors along with changes in portfolio composition.
Net charge-offs were $81 million, or 0.11% of average loans on an annualized basis in the third quarter of 2021 compared to $155 million, or 0.24%, for the same quarter of 2020.

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

Capital Highlights
We maintained our strong capital and liquidity positions.
Our CET1 ratio decreased to 10.3% at September 30, 2021 from 12.2% at December 31, 2020, primarily due to the BBVA acquisition.
4    The PNC Financial Services Group, Inc. – Form 10-Q



Capital was impacted by 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, excluding the initial allowance for PCD loans from BBVA, 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 to $51.3 billion at September 30, 2021, compared to $50.5 billion at December 31, 2020.
In the third quarter, we returned $0.9 billion of capital to shareholders through dividends on common shares of $0.5 billion and $0.4 billion of common share repurchases representing 2.1 million shares. Repurchases were made under the share repurchase programs of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021.
On October 1, 2021, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.25 per share payable on November 5, 2021.

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our 2021 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 CCAR process. 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 2020 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 follows:
The U.S. economy is in an economic recovery, following a very severe but very short economic contraction in the first half of 2020 due to the COVID-19 pandemic and public health measures to contain it.
The Delta COVID-19 variant and supply chain difficulties have been drags on economic growth in the second half of 2021, although the economy continues to expand. Growth will pick up at the end of 2021 as the impact of the Delta variant fades and supply chains normalize and will remain solid into 2022. Employment in September 2021 was still down by almost 5 million from before the pandemic; PNC expects employment to return to its pre-pandemic level in mid-2022.
Compared to the spring of 2020 (when prices were falling), inflation accelerated in mid-2021 due to strong demand in specific segments and supply chain disruptions. Inflation has started to slow on a month-over-month basis but will remain elevated in the near term.
PNC expects the FOMC to keep the fed funds rate in its current range of 0.00% to 0.25% until late 2022.

For the fourth quarter of 2021, compared to the third quarter of 2021 where appropriate, we expect:
Average loans, excluding PPP loans, up modestly,
Net interest income to be up modestly,
Fee income to be down approximately 3% to 5%,
Other noninterest income, excluding net securities gains and Visa activity, to be between $375 million and $425 million,
Noninterest expense, excluding integration expense, to be down 3% to 5%, and
Net loan charge-offs to be between $100 million and $150 million.

Additionally, we are on track to realize $900 million in net expense savings of our forecast of BBVA’s 2022 expense base. We also expect to incur merger and integration costs of approximately $980 million, inclusive of the write-off of certain technology and other assets. During the fourth quarter, we expect to incur the majority of the remaining merger and integration costs of $450 million.

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

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

Net income from continuing operations of $1.5 billion for the third quarter of 2021 decreased $42.0 million compared to the third quarter of 2020. Earnings were $3.30 per diluted common share for the third quarter of 2021 compared to $3.39 per diluted common share for the third quarter of 2020. Other than the impact of the BBVA acquisition, the decrease in the quarterly comparison was
The PNC Financial Services Group, Inc. – Form 10-Q 5  


primarily due to a lower effective tax rate in the third quarter of 2020 as a result of tax credit benefits and the favorable resolution of certain tax matters.

For the first nine months of 2021, net income from continuing operations was $4.4 billion, or $9.83 per diluted common share, compared to $1.5 billion, or $3.11 per diluted common share, for the first nine months of 2020. The year-to-date comparison reflects a lower provision for credit losses in 2021 due to continued improvements in credit quality and macroeconomic factors and higher noninterest income driven by the benefit of BBVA, partially offset by expenses related to the BBVA acquisition and increased business activity.
Net Interest Income
Table 2: Summarized Average Balances and Net Interest Income (a)
  2021 2020
Three months ended September 30
Dollars in millions
Average
Balances
Average
Yields/
Rates
Interest
Income/
Expense
Average
Balances
Average
Yields/
Rates
Interest
Income/
Expense
Assets
Interest-earning assets
Investment securities $ 120,586  1.54  % $ 465  $ 90,502  2.18  % $ 496 
Loans 291,326  3.32  % 2,454  253,092  3.32  % 2,127 
Interest-earning deposits with banks 80,274  0.16  % 31  60,327  0.10  % 15 
Other 9,113  2.03  % 47  9,752  2.23  % 55 
Total interest-earning assets/interest income $ 501,299  2.36  % 2,997  $ 413,673  2.57  % 2,693 
Liabilities
Interest-bearing liabilities
Interest-bearing deposits $ 298,471  0.04  % 29  $ 248,551  0.12  % 74 
Borrowed funds 34,352  1.03  % 90  43,344  1.06  % 118 
Total interest-bearing liabilities/interest expense $ 332,823  0.14  % 119  $ 291,895  0.26  % 192 
Net interest margin/income (non-GAAP) 2.27  % 2,878  2.39  % 2,501 
Taxable-equivalent adjustments (22) (17)
Net interest income (GAAP)     $ 2,856      $ 2,484 

  2021 2020
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 $ 105,287  1.73  % $ 1,366  $ 87,795  2.45  % $ 1,617 
Loans 261,884  3.36  % 6,629  254,919  3.58  % 6,893 
Interest-earning deposits with banks 81,383  0.12  % 74  37,582  0.28  % 80 
Other 8,345  2.27  % 142  10,028  2.64  % 199 
Total interest-earning assets/interest income $ 456,899  2.38  % 8,211  $ 390,324  2.98  % 8,789 
Liabilities
Interest-bearing liabilities
Interest-bearing deposits $ 273,498  0.05  % 99  $ 235,160  0.34  % 590 
Borrowed funds 34,562  1.05  % 275  51,225  1.59  % 619 
Total interest-bearing liabilities/interest expense $ 308,060  0.16  % 374  $ 286,385  0.56  % 1,209 
Net interest margin/income (non-GAAP) 2.28  % 7,837  2.57  % 7,580 
Taxable-equivalent adjustments (52) (58)
Net interest income (GAAP)     $ 7,785      $ 7,522 
(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.

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



Net interest income increased $372 million, or 15%, for the third quarter of 2021, and increased $263 million, or 3%, for the first nine months of 2021 compared to the same periods in 2020. The increase in both comparisons was primarily due to the benefit of BBVA interest-earning asset balances and lower deposit rates, partially offset by lower yields on securities.

Net interest margin in the quarterly and year-to-date comparisons decreased 12 basis points and 29 basis points, respectively. The decrease in both comparisons was largely due to lower yields on securities. The decrease in the year-to-date comparison also reflected higher balances held at the Federal Reserve Bank and lower yields on loans, partially offset by lower rates paid on deposits and borrowings.

Average investment securities increased $30.1 billion, or 33%, and $17.5 billion, or 20%, in the quarterly and year-to-date comparisons, respectively. Both comparisons increased primarily due to the acquisition of BBVA. The increase in the quarterly comparison was also attributable to increased purchase activity. Average investment securities represented 24% of average interest-earning assets for the third quarter of 2021 and 23% for the first nine months of 2021, compared to 22% for both periods in 2020.

Average loans increased $38.2 billion, or 15%, and $7.0 billion, or 3%, in the quarterly and year-to-date comparisons, respectively. The increase in both comparisons was primarily a result of the BBVA acquisition. In the year-to-date comparison, the increase was partially offset by lower utilization of loan commitments by commercial customers and lower consumer loans. Average loans represented 58% of average interest-earning assets for the third quarter of 2021 and 57% for the nine months ended September 30, 2021, compared to 61% and 65% for the same periods in 2020.

Average interest-earning deposits with banks increased $19.9 billion and $43.8 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.

Average interest-bearing deposits grew $49.9 billion, or 20%, and $38.3 billion, or 16% in the respective quarterly and year-to-date comparisons due to overall growth in commercial and consumer liquidity, including deposits from BBVA. In total, average interest-bearing deposits increased to 90% and 89% of average interest-bearing liabilities for the three and nine months ended September 30, 2021, compared to 85% and 82% for the same periods in 2020.

Average borrowed funds decreased $9.0 billion, or 21%, compared with the third quarter of 2020 and $16.7 billion, or 33%, compared with the first nine months of 2020 primarily due to a decline in FHLB borrowings reflecting the use of liquidity from deposit growth.

Further details regarding average loans and deposits are included in the Business Segments Review section of this Financial Review.
Noninterest Income
Table 3: Noninterest Income
  Three months ended September 30 Nine months ended September 30
      Change     Change
Dollars in millions 2021 2020 $ % 2021 2020 $ %
Noninterest income
Asset management $ 248  $ 215  $ 33  15  % $ 713  $ 615  $ 98  16  %
Consumer services 496  390  106  27  % 1,337  1,097  240  22  %
Corporate services 842  479  363  76  % 2,085  1,517  568  37  %
Residential mortgage 147  137  10  % 355  505  (150) (30) %
Service charges on deposits 159  119  40  34  % 409  366  43  12  %
Other 449  457  (8) (2) % 1,400  1,071  329  31  %
Total noninterest income
$ 2,341  $ 1,797  $ 544  30  % $ 6,299  $ 5,171  $ 1,128  22  %
 
Noninterest income as a percentage of total revenue was 45% for the third quarter and first nine months of 2021, compared to 42% and 41% for the same periods in 2020.

Asset management revenue increased in the quarterly and year-to-date comparisons due to the impact of higher average equity markets and the benefit of the BBVA acquisition. PNC's discretionary client assets under management increased to $183 billion at September 30, 2021 from $158 billion at September 30, 2020, primarily driven by higher spot equity markets and the BBVA acquisition.

Consumer services revenue increased in the quarterly and year-to-date comparisons reflecting the addition of BBVA customers and the impacts of higher consumer spending on debit cards, merchant services revenues, credit card fees and growth in brokerage fees primarily due to higher average equity markets.

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


Corporate services revenue increased in the quarterly and year-to-date comparisons primarily due to higher merger and acquisition advisory fees, treasury management product revenue and equity capital markets advisory fees. The year-to-date comparison also benefited from higher revenue from commercial mortgage servicing activities.

Residential Mortgage revenue increased in the quarterly comparison primarily due to higher loan sales revenue and higher mortgage servicing rights valuation, net of economic hedge. The decrease in the year-to-date comparison was primarily a result of lower servicing fee revenue primarily due to higher payoffs and lower mortgage servicing rights valuation, net of economic hedge.

Service charges on deposits increased in the quarterly and year-to-date comparisons primarily due to the addition of BBVA customers, partially offset by the impact of Low Cash ModeSM on overdraft revenue.

Other noninterest income decreased in the quarterly comparison due to a negative Visa Class B derivative fair value adjustment primarily related to the extension of anticipated litigation resolution timing, partially offset by higher private equity revenue. In the year-to-date comparison, the increase was primarily driven by higher private equity revenue and the addition of BBVA, partially offset by a larger negative Visa Class B derivative fair value adjustment.

Noninterest Expense

Table 4: Noninterest Expense
  Three months ended September 30 Nine months ended September 30
      Change     Change
Dollars in millions 2021 2020 $ % 2021 2020 $ %
Noninterest expense
Personnel $ 1,986  $ 1,410  $ 576  41  % $ 5,103  $ 4,152  $ 951  23  %
Occupancy 248  205  43  21  % 680  611  69  11  %
Equipment 355  292  63  22  % 974  880  94  11  %
Marketing 103  67  36  54  % 222  172  50  29  %
Other 895  557  338  61  % 2,232  1,774  458  26  %
Total noninterest expense
$ 3,587  $ 2,531  $ 1,056  42  % $ 9,211  $ 7,589  $ 1,622  21  %
 
The increase in noninterest expense in the quarterly and year-to-date comparisons reflected BBVA operating and integration expenses as well as increased business and marketing activity.

Effective Income Tax Rate

The effective income tax rate from continuing operations was 17.8% in the third quarter of 2021 compared to 9.8% in the third quarter of 2020, and 17.0% in the first nine months of 2021 compared to 7.6% in the same period of 2020. The increase in both comparisons was due to overall lower pre-tax income, tax benefits and the favorable resolution of certain tax matters in 2020.

Provision For (Recapture of) Credit Losses
Table 5: Provision for (Recapture of) Credit Losses
  Three months ended September 30 Nine months ended September 30
Change Change
Dollars in millions 2021 2020 $ 2021 2020 $
Provision for (recapture of) credit losses
Loans and leases $ (229) $ (23) $ (206) $ (525) $ 3,149  $ (3,674)
Unfunded lending related commitments 27  (26) 16  192 (176)
Investment securities 25  39  (14) 51  69  (18)
Other financial assets (9) 19 (13)
Total provision for (recapture of) credit losses $ (203) $ 52  $ (255) $ (452) $ 3,429  $ (3,881)

The provision recapture for the third quarter of 2021 reflected continued improvements in credit quality and changes in portfolio composition.

Net Income from Discontinued Operations

For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements of this Report.

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



CONSOLIDATED BALANCE SHEET REVIEW
The summarized balance sheet data in Table 6 is based upon our Consolidated Balance Sheet in Part I, Item 1 of this Report.
Table 6: Summarized Balance Sheet Data
  September 30 December 31 Change
Dollars in millions 2021 2020 $ %
Assets        
Interest-earning deposits with banks $ 75,478  $ 85,173  $ (9,695) (11) %
Loans held for sale 2,121  1,597  524  33  %
Investment securities 125,606  88,799  36,807  41  %
Loans 290,230  241,928  48,302  20  %
Allowance for loan and lease losses (5,355) (5,361) — 
Mortgage servicing rights 1,833  1,242  591  48  %
Goodwill 10,885  9,233  1,652  18  %
Other 52,717  44,068  8,649  20  %
Total assets $ 553,515  $ 466,679  $ 86,836  19  %
Liabilities
Deposits $ 448,902  $ 365,345  $ 83,557  23  %
Borrowed funds 33,471  37,195  (3,724) (10) %
Allowance for unfunded lending related commitments 646  584  62  11  %
Other 14,199  9,514  4,685  49  %
Total liabilities 497,218  412,638  84,580  20  %
Equity
Total shareholders’ equity 56,259  54,010  2,249  %
Noncontrolling interests 38  31  23  %
Total equity 56,297  54,041  2,256  %
Total liabilities and equity $ 553,515  $ 466,679  $ 86,836  19  %

Our balance sheet was strong and well positioned at September 30, 2021 and December 31, 2020.
Total asset growth reflected the addition of loans and investment securities from the BBVA acquisition, partially offset by a decrease in interest-earning deposits with banks.
Total liabilities increased primarily due to deposit growth reflecting higher commercial and consumer deposits driven by the acquisition of BBVA, partially offset by lower borrowed funds.
Total equity increased as net income and the issuance of preferred stock was partially offset by lower AOCI, reflecting the impact of higher rates on net unrealized securities gains, dividends and share repurchases.

The ACL related to loans totaled $6.0 billion at September 30, 2021, an increase of $0.1 billion since December 31, 2020. The increase was primarily attributable to the addition of reserves related to the BBVA acquisition, partially offset by continued improvements in credit quality and macroeconomic factors along with changes in portfolio composition. 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,
Critical Accounting Estimates and Judgments section of this Financial Review, 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 20 Regulatory Matters in the Notes To Consolidated Financial Statements included in our 2020 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q  


Loans
Table 7: Loans
  September 30 December 31 Change
Dollars in millions 2021 2020 $ %
Commercial        
Commercial and industrial $ 152,735  $ 132,073  $ 20,662  16  %
Commercial real estate 36,195  28,716 7,479  26  %
Equipment lease financing 6,257  6,414 (157) (2) %
Total commercial 195,187  167,203  27,984  17  %
Consumer
Residential real estate 38,214  22,560  15,654  69  %
Home Equity 24,479  24,088  391  %
Automobile 17,265  14,218  3,047  21  %
Credit card 6,466  6,215  251  %
Education 2,653  2,946  (293) (10) %
Other consumer 5,966  4,698  1,268  27  %
Total consumer 95,043  74,725  20,318  27  %
Total loans $ 290,230  $ 241,928  $ 48,302  20  %

Commercial loans increased driven by BBVA loans, partially offset by PPP loan forgiveness. At September 30, 2021, PNC had $6.8 billion of PPP loans outstanding. 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.

Consumer loans increased primarily due to the addition of BBVA loans and increased originations of PNC legacy residential mortgages, partially offset by declines in the remaining PNC legacy portfolios as paydowns outpaced new originations.

For information on our residential real estate and home equity 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 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.

Investment Securities

Investment securities of $125.6 billion at September 30, 2021 increased $36.8 billion, or 41%, compared to December 31, 2020, resulting from increased purchase activity and the BBVA acquisition.

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 LCR and other internal and external guidelines and constraints.
Table 8: Investment Securities
  September 30, 2021 December 31, 2020 Ratings as of September 30, 2021 (a)
Dollars in millions Amortized
Cost (b)
Fair
Value
Amortized
Cost (b)
Fair
Value
AAA/
AA
A BBB BB and Lower No
Rating
U.S. Treasury and government agencies $ 41,437  $ 41,860  $ 20,616  $ 21,631  100  %
Agency residential mortgage-backed 64,412  65,185  47,355  48,911  100  %
Non-agency residential mortgage-backed 1,003  1,242  1,272  1,501  % % 49  % 41  %
Agency commercial mortgage-backed 2,008  2,060  2,571  2,688  100  %
Non-agency commercial mortgage-backed (c) 3,637  3,671  3,678  3,689  85  % % % 12  %
Asset-backed (d) 5,999  6,067  5,060  5,150  95  % % %
Other (e) 5,392  5,625  5,061  5,393  54  % 26  % 15  % %
Total investment securities (f) $ 123,888  $ 125,710  $ 85,613  $ 88,963  96  % % % % %
(a)Ratings percentages allocated based on amortized cost, net of allowance for investment securities.
10    The PNC Financial Services Group, Inc. – Form 10-Q



(b)Amortized cost is presented net of applicable allowance for investment securities of $133 million and $82 million at September 30, 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 investment 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 3 Investment Securities in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional details regarding the amount of the allowance for investment securities.

The duration of investment securities was 3.8 years at September 30, 2021. We estimate that at September 30, 2021 the effective duration of investment securities was 4 years for an immediate 50 basis points parallel increase in interest rates and 3.5 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 4.4 years at September 30, 2021 compared to 3.4 years at December 31, 2020.

Table 9: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities
September 30, 2021 Years
Agency residential mortgage-backed 4.6 
Non-agency residential mortgage-backed 6.8 
Agency commercial mortgage-backed 5.0 
Non-agency commercial mortgage-backed 2.1 
Asset-backed 2.8 

Additional information regarding our investment securities portfolio is included in Note 3 Investment Securities and Note 11 Fair Value in the Notes To Consolidated Financial Statements included in Item 1 of this Report.

Funding Sources
Table 10: Details of Funding Sources
September 30 December 31 Change
Dollars in millions 2021 2020 $ %
Deposits        
Noninterest-bearing $ 156,305  $ 112,637  $ 43,668  39  %
Interest-bearing
Money market 79,829  59,737  20,092  34  %
Demand 103,569  92,294  11,275  12  %
Savings 90,288  80,985  9,303  11  %
Time deposits 18,911  19,692  (781) (4) %
Total interest-bearing deposits 292,597  252,708  39,889  16  %
Total deposits 448,902  365,345  83,557  23  %
Borrowed funds
Federal Home Loan Bank borrowings 3,500  (3,500) (100) %
Bank notes and senior debt 22,993  24,271  (1,278) (5) %
Subordinated debt 7,074  6,403  671  10  %
Other 3,404  3,021  383  13  %
Total borrowed funds 33,471  37,195  (3,724) (10) %
Total funding sources $ 482,373  $ 402,540  $ 79,833  20  %

Total deposits increased reflecting deposits from BBVA and growth in PNC legacy commercial and consumer liquidity.

Borrowed funds decreased due to lower FHLB borrowings, bank notes and senior debt reflecting the use of liquidity from deposit growth, which more than offset borrowed funds from BBVA.

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


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 2021 liquidity and capital activities. See Note 10 Borrowed Funds in the Notes to Consolidated Financial Statements in Item 8 of our 2020 Form 10-K for additional information related to our borrowings.
Shareholders’ Equity

Total shareholders’ equity was $56.3 billion at September 30, 2021, an increase of $2.3 billion compared to December 31, 2020. The increase primarily resulted from net income of $4.4 billion and a preferred stock issuance of $1.5 billion, partially offset by lower AOCI of $1.7 billion reflecting the impact of higher rates on net unrealized securities gains, common and preferred stock dividends of $1.7 billion and common share repurchases of $0.4 billion.
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 14 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 14, primarily due to the presentation in this Financial Review of business net interest income on a taxable-equivalent basis.

Our business segment results for the first nine months of 2021 reflect the benefit of BBVA’s business operations for the period since the acquisition closed on June 1, 2021. Period end information presented includes BBVA's balances at September 30, 2021. Until the conversion of bank systems and branches as of October 12, 2021, PNC Bank and BBVA customers were served through their respective PNC Bank and BBVA USA branches, websites and mobile apps, financial advisors and relationship managers. Following conversion, there will be changes in the segmentation of BBVA USA customers as we continue to integrate data to PNC applications, finalize the review of customer relationships and better align customers with PNC’s products and services. These changes will be reflected in fourth quarter reporting. See Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional information on the acquisition of BBVA.

During the second quarter of 2020, we divested our entire 22.4% investment in BlackRock, which had previously been reported as a separate business segment. See Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional 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 82 in Note 14 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).




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



Retail Banking

Retail Banking's core strategy is to help all of our consumer and small business customers move financially forward. We aim to grow our primary checking and transaction relationships 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, 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 are focused on consistently engaging both our employees and customers, which is a strong driver of customer growth, retention and relationship expansion.

Table 11: Retail Banking Table
(Unaudited)
Nine months ended September 30       Change
Dollars in millions, except as noted 2021 2020 $ %
Income Statement
Net interest income $ 4,572  $ 4,229  $ 343  %
Noninterest income 2,022  2,046  (24) (1) %
Total revenue 6,594  6,275  319  %
Provision for (recapture of) credit losses (156) 1,049  (1,205) *
Noninterest expense 5,042  4,537  505  11  %
Pretax earnings 1,708  689  1,019  148  %
Income taxes 396  161  235  146  %
Noncontrolling interest 26  20  30  %
Earnings $ 1,286  $ 508  $ 778  153  %
Average Balance Sheet
Loans held for sale $ 1,296  $ 769  $ 527  69  %
Loans
Consumer
Residential real estate $ 23,323  $ 18,215  $ 5,108  28  %
Home equity 22,324  22,723  (399) (2) %
Automobile 15,398  16,449  (1,051) (6) %
Credit card 6,070  6,767  (697) (10) %
Education 2,820  3,226  (406) (13) %
Other consumer 2,326  2,417  (91) (4) %
Total consumer 72,261  69,797  2,464  %
Commercial 14,819  12,298  2,521  20  %
Total loans $ 87,080  $ 82,095  $ 4,985  %
Total assets $ 103,820  $ 98,764  $ 5,056  %
Deposits
Noninterest-bearing demand $ 55,107  $ 38,390  $ 16,717  44  %
Interest-bearing demand 58,700  46,501  12,199  26  %
Money market 31,639  23,210  8,429  36  %
Savings 78,907  67,000  11,907  18  %
Certificates of deposit 10,321  11,579  (1,258) (11) %
Total deposits $ 234,674  $ 186,680  $ 47,994  26  %
Performance Ratios
Return on average assets 1.66  % 0.69  %
Noninterest income to total revenue 31  % 33  %
Efficiency 76  % 72  %    
The PNC Financial Services Group, Inc. – Form 10-Q 13  


At or for nine months ended September 30
      Change
Dollars in millions, except as noted 2021 2020 $ %
Supplemental Noninterest Income Information
Consumer services $ 1,273  $ 1,058  $ 215  20  %
Residential mortgage $ 355  $ 505  $ (150) (30) %
Service charges on deposits $ 406  $ 364  $ 42  12  %
Residential Mortgage Information
Residential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b) $ 139  $ 119  $ 20  17  %
Serviced portfolio acquisitions $ 42  $ 21  $ 21  100  %
MSR asset value (b) $ 1.1  $ 0.6  $ 0.5  83  %
MSR capitalization value (in basis points) (b) 81  50  31  62  %
Servicing income: (in millions)
Servicing fees, net (c) $ 20  $ 105  $ (85) (81) %
Mortgage servicing rights valuation, net of economic hedge $ 62  $ 138  $ (76) (55) %
Residential mortgage loan statistics
Loan origination volume (in billions) $ 18.2  $ 11.4  $ 6.8  60  %
Loan sale margin percentage 2.95  % 3.51  %
Percentage of originations represented by:
Purchase volume (d) 45  % 38  %
Refinance volume 55  % 62  %    
Other Information (b)
Customer-related statistics (average) (e)
Non-teller deposit transactions (f) 66  % 63  %
Digital consumer customers (g) 80  % 73  %
Credit-related statistics
Nonperforming assets $ 1,220  $ 1,077  $ 143  13  %
Net charge-offs - loans and leases $ 269  $ 433  $ (164) (38) %
Other statistics
ATMs 9,572  9,058  514  %
Branches (h) 2,712  2,207  505  23  %
Brokerage account client assets (in billions) (i) $ 76  $ 55  $ 21  38  %
*- Not Meaningful
(a) Represents mortgage loan servicing balances for third parties and the related income.
(b)Presented as of period end, except for average customer-related statistics and net charge-offs, which are both shown 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)Represents PNC legacy only, statistics will include BBVA activity in the fourth quarter reporting following the conversion of bank systems and branches.
(f)Percentage of total consumer and business banking deposit transactions processed at an ATM or through our mobile banking application.
(g)Represents consumer checking relationships that process the majority of their transactions through non-teller channels.
(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 earnings for the first nine months of 2021 increased $778 million compared with the same period in 2020 driven by a provision recapture and higher net interest income, partially offset by higher noninterest expense. Results for the first nine months of 2021 reflect the benefit of BBVA's business operations since the acquisition closed on June 1, 2021.

Net interest income increased primarily due to growth in average deposit and loan balances, reflecting the BBVA acquisition, along with wider interest rate spreads on the value of loans, partially offset by narrower interest rate spreads on the value of deposits.

Noninterest income decreased due to a larger negative derivative Visa Class B fair value adjustment related to the extension of litigation timing in the first nine months of 2021, along with declines in residential mortgage revenue, driven by lower servicing fees primarily due to higher payoffs and lower revenue from residential mortgage servicing rights valuation, net of economic hedge. The decrease in noninterest income was partially offset by the BBVA acquisition, increased consumer services revenue driven by debit card and brokerage fees, as well as higher service charges on deposits.

Provision recapture in the first nine months of 2021 was driven by improvements in credit quality and macroeconomic factors along with changes in portfolio composition, partially offset by the additional provision for credit losses related to the BBVA acquisition.

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



Noninterest expense increased primarily as a result of the impact of BBVA operating expenses, increased marketing activity and non-credit losses due to additions to litigation reserves.

The deposit strategy of Retail Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances, executing on market-specific deposit growth strategies and providing a source of low-cost funding and liquidity to PNC. In the first nine months of 2021, average total deposits increased compared to the same period in 2020 primarily driven by growth in demand and savings deposits which benefited from the impact of continued government stimulus payments.

Retail Banking average total loans increased in the first nine months of 2021 compared with the same period in 2020 due to the impact of the BBVA acquisition on all loan classes except education loans, which BBVA did not have in their loan portfolio.
Average residential real estate loans increased due to originations outpacing paydowns.
Average commercial loans increased primarily due to PPP loans.
Average auto loan balances declined due to impacts of the pandemic on the auto industry and proactive credit tightening.
Average credit card balances decreased due to changes in customer behavior resulting in higher balance paydowns driven by government stimulus payments combined with credit tightening actions taken as a result of the pandemic.
Average education loans decreased driven by a continued decline in the runoff portfolio of government guaranteed education loans.
Average home equity loans decreased as paydowns and payoffs 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.

Our national expansion strategy is designed to grow customers with digitally-led banking and a thin branch network as we expand into new markets. In 2018, we began offering our 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 services, beyond deposits and withdrawals. In 2020, we expanded into three new markets, Boston, Houston and Nashville and opened seventeen new solution centers. In the first nine months of 2021 we opened ten new solution centers and expanded into two new markets, Denver and Phoenix. In total, we have thirty-two open solution centers within the markets of Boston, Dallas/Fort Worth, Denver, Houston, Kansas City, Nashville and Phoenix. We also offer digital unsecured installment and small business loans in the expansion markets. As a result of the BBVA acquisition, we have become a coast-to-coast Retail Bank and added over 600 branches across seven states to our network.

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 gives 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. Through the end of September, we have successfully rolled out Low Cash ModeSM to 3.8 million PNC legacy Virtual Wallet® customers and have delivered over 10 million Low Cash ModeSM alerts.

Upon conversion, BBVA customers became eligible for the full suite of PNC products and services, including Low Cash ModeSM. Our full year 2021 guidance includes the impact of fee reductions on both PNC legacy and the conversion of BBVA customers.
See the Executive Summary section in this Financial Review for additional information on our business outlook.

Retail Banking 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 112 branches in the first nine months of 2021, consistent with our plan.
The PNC Financial Services Group, Inc. – Form 10-Q 15  


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 12: Corporate & Institutional Banking Table
(Unaudited)
Nine months ended September 30       Change
Dollars in millions 2021 2020 $ %
Income Statement
Net interest income $ 3,343  $ 3,055  $ 288  %
Noninterest income 2,730  2,143  587  27  %
Total revenue 6,073  5,198  875  17  %
Provision for (recapture of) credit losses (277) 2,254  (2,531) *
Noninterest expense 2,504  2,055  449  22  %
Pretax earnings 3,846  889  2,957  333  %
Income taxes 846  201  645  321  %
Noncontrolling interest 10  67  %
Earnings $ 2,990  $ 682  $ 2,308  338  %
Average Balance Sheet
Loans held for sale $ 598  $ 669  $ (71) (11) %
Loans
Commercial
Commercial and industrial $ 123,505  $ 127,149  $ (3,644) (3) %
Commercial real estate 30,919  27,070  3,849  14  %
Equipment lease financing 6,321  6,957  (636) (9) %
Total commercial 160,745  161,176  (431) — 
Consumer 14  56  %
Total loans $ 160,759  $ 161,185  $ (426) — 
Total assets $ 184,964  $ 185,001  $ (37) — 
Deposits
Noninterest-bearing demand $ 76,105  $ 50,104  $ 26,001  52  %
Interest-bearing demand 30,718  26,182  4,536  17  %
Money market 33,706  34,373  (667) (2) %
Other 7,723  8,789  (1,066) (12) %
Total deposits $ 148,252  $ 119,448  $ 28,804  24  %
Performance Ratios
Return on average assets 2.16  % 0.49  %
Noninterest income to total revenue 45  % 41  %
Efficiency 41  % 40  %    
Other Information
Consolidated revenue from: (a)
Treasury Management (b) $ 1,609  $ 1,412  $ 197  14  %
Capital Markets (b) $ 1,412  $ 1,077  $ 335  31  %
Commercial mortgage banking activities:
Commercial mortgage loans held for sale (c) $ 103  $ 117  $ (14) (12) %
Commercial mortgage loan servicing income (d) 244  212  32  15  %
Commercial mortgage servicing rights valuation, net of economic hedge (e) 64  58  10  %
Total $ 411  $ 387  $ 24  %
MSR asset value (f) $ 703  $ 515  $ 188  37  %
Average loans by C&IB business
Corporate Banking $ 78,975  $ 83,762  $ (4,787) (6) %
Real Estate 42,313  40,030  2,283  %
Business Credit 23,367  23,009  358  %
Commercial Banking 12,435  10,093  2,342  23  %
Other 3,669  4,291  (622) (14) %
Total average loans $ 160,759  $ 161,185  $ (426) — 
Credit-related statistics
Nonperforming assets (f) $ 1,061  $ 832  $ 229  28  %
Net charge-offs - loans and leases $ 290  $ 181  $ 109  60  %
*- Not Meaningful
16    The PNC Financial Services Group, Inc. – Form 10-Q



(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.

Corporate & Institutional Banking earnings in the first nine months of 2021 increased $2.3 billion compared with the same period in 2020 driven by a provision recapture and higher total revenue, partially offset by higher noninterest expense. Results for the first nine months of 2021 reflect the benefit of BBVA's business operations since the acquisition closed on June 1, 2021.

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

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

Provision recapture in the first nine months of 2021 was driven by improvements in credit quality and macroeconomic factors along with changes in portfolio composition, partially offset by the additional provision for credit losses related to the BBVA acquisition.

Noninterest expense increased in the comparison largely due to higher variable costs associated with increased business activity and the BBVA acquisition.

Average loans decreased compared with the nine months ended September 30, 2020 due to declines in Corporate Banking, partially offset by increases in Commercial Banking, Real Estate and Business Credit:
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 declined reflecting lower average utilization of loan commitments, partially offset by loans from BBVA and new production.
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 loans from BBVA and PPP loan originations.
Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased reflecting loans from BBVA, partially offset by lower commercial mortgage and multifamily agency warehouse lending.
Business Credit provides asset-based lending and equipment financing solutions. The loan and lease portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by marketable collateral. Average loans for this business increased primarily driven by new production and loans from BBVA, partially offset by lower average utilization of loan commitments.

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 impacts 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 executed on our expansion plans into the Seattle and Portland markets in 2020, and in 2021, the BBVA acquisition accelerated our expansion efforts across the Southwest; however 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.

Product Revenue
In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital markets-related products and services and commercial mortgage banking activities, for customers of all business segments. On a consolidated basis, the revenue from these other services is included in net interest income, corporate service fees and other noninterest income. From a business 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
The PNC Financial Services Group, Inc. – Form 10-Q 17  


Other Information section in Table 12 includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.
The Treasury Management business provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and Mexico and other countries primarily in Central America and South America. Treasury management revenue is reported in noninterest income and net interest income. Noninterest income includes treasury management product revenue less earnings credits provided to customers on compensating deposit balances used to pay for products and services. Net interest income primarily includes revenue from all treasury management customer deposit balances. Compared with the first nine months of 2020, treasury management revenue increased due to higher deposit balances and higher noninterest income, partially 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 mostly driven by higher merger and acquisition advisory fees as well as higher equity capital market advisory fees, partially offset by lower customer-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 commercial mortgage servicing income, partially offset by lower revenue from commercial mortgage loans held for sale.

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



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 13: Asset Management Group Table
(Unaudited)
Nine months ended September 30       Change
Dollars in millions, except as noted 2021 2020 $ %
Income Statement
Net interest income $ 346  $ 266  $ 80  30  %
Noninterest income 729  629  100  16  %
Total revenue 1,075  895  180  20  %
Provision for credit losses 23  (15) (65) %
Noninterest expense 676  647  29  %
Pretax earnings 391  225  166  74  %
Income taxes 91  52  39  75  %
Earnings $ 300  $ 173  $ 127  73  %
Average Balance Sheet
Loans
Consumer
Residential real estate $ 4,608  $ 2,667  $ 1,941  73  %
Other consumer 4,249  4,031  218  %
Total consumer 8,857  6,698  2,159  32  %
Commercial 1,629  849  780  92  %
Total loans $ 10,486  $ 7,547  $ 2,939  39  %
Total assets $ 11,124  $ 8,041  $ 3,083  38  %
Deposits
Noninterest-bearing demand $ 2,884  $ 1,528  $ 1,356  89  %
Interest-bearing demand 9,597  7,566  2,031  27  %
Money market 3,610  1,616  1,994  123  %
Savings 7,755  7,279  476  %
Other 628  707  (79) (11) %
Total deposits $ 24,474  $ 18,696  $ 5,778  31  %
Performance Ratios
Return on average assets 3.61  % 2.88  %
Noninterest income to total revenue 68  % 70  %
Efficiency 63  % 72  %    
Supplemental Noninterest Income Information
Asset management fees $ 713  $ 615  $ 98  16  %
Brokerage fees *
Total $ 719  $ 615  $ 104  17  %
Other Information
Nonperforming assets (a) $ 80  $ 39  $ 41  105  %
Net charge-offs - loans and leases $ $ *
Brokerage account client assets (in billions) (a) $ $ *
Client Assets Under Administration (in billions) (a) (b)
Discretionary client assets under management $ 183  $ 158  $ 25  16  %
Nondiscretionary client assets under administration 170  142  28  20  %
Total $ 353  $ 300  $ 53  18  %
Discretionary client assets under management
Personal $ 117  $ 99  $ 18  18  %
Institutional 66  59  12  %
Total $ 183  $ 158  $ 25  16  %
* - Not meaningful
(a)As of September 30.
(b)Excludes brokerage account client assets. 



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


Asset Management Group earnings in the first nine months of 2021 increased $127 million compared with the same period in 2020 driven by higher revenue and lower provision for credit losses. Results for the first nine months of 2021 reflect the benefit of BBVA's business operations since the acquisition closed in June 2021.

Net interest income increased due to growth in average loan and deposit balances, reflecting the BBVA acquisition and wider interest rate spreads on loans. This was partially offset by narrower interest rate spreads on deposits.

The increase in noninterest income was primarily attributable to increases in the average equity markets and the benefit of BBVA.

Noninterest expense increased due to the impact of BBVA operations, partially offset by intangible asset amortization run-off.

Provision for credit losses in the first nine months of 2021 was driven by the additional provision for credit losses related to the BBVA acquisition, partially offset by improvements in credit quality and macroeconomic factors.

Discretionary client assets under management increased in comparison to the prior year primarily due to the higher equity markets as of September 30, 2021.

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

With the inclusion of BBVA, PNC Private Bank has approximately 100 offices operating in eight out of the ten most affluent states in the U.S. with a majority co-located with retail banking branches. The business 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 retirement plan fiduciary investment services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.

RISK MANAGEMENT

The Risk Management section included in Item 7 of our 2020 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 2020 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, Market, Liquidity and Operational (including Compliance and Information Security).

Upon closing of the acquisition of BBVA, the PNC Enterprise Risk Management Framework applied to the legal entities acquired from BBVA S.A., including BBVA USA. Prior to closing, PNC’s Independent Risk Management group evaluated and updated the frameworks, policies and procedures of the acquired BBVA entities as necessary. The updates were made to align the acquired BBVA entities with PNC’s risk appetite and connected the elements of their respective risk governance and reporting into PNC’s existing enterprise risk framework. Connecting the existing BBVA risk governance and reporting framework into PNC’s existing enterprise risk framework allowed separate risk profiles, governance, and reporting for PNC Bank and the acquired BBVA entities during the period from acquisition through conversion, while also providing the ability to consolidate into one enterprise risk profile that was communicated through the established risk governance and reporting for PNC. Upon the merger of BBVA USA into PNC Bank, completed on October 8, 2021, the updated BBVA risk governance and reporting framework is no longer applicable as all acquired BBVA entities are under PNC’s framework.

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.

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



Loan Portfolio Characteristics and Analysis
Table 14: Details of Loans
In billions
PNC-20210930_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 included 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 the significant loan classes that comprise our Commercial and Consumer portfolio segments.

Commercial

Commercial and Industrial
Commercial and industrial loans comprised 53% and 55% of our total loan portfolio at September 30, 2021 and December 31, 2020, respectively. 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, owner-occupied 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 PD and 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 NAICS).

Table 15: Commercial and Industrial Loans by Industry
September 30, 2021 December 31, 2020
Dollars in millions Amount % of Total Amount % of Total
Commercial and industrial
Manufacturing $ 22,760  15  % $ 20,712  16  %
Retail/wholesale trade 22,238  15  20,218  15 
Service providers 20,969  14  19,419  15 
Financial services 18,022  12  14,909  11 
Real estate related (a) 14,809  10  13,369  10 
Health care 10,567  8,987 
Transportation and warehousing 7,318  7,095 
Other industries 36,052  22  27,364  21 
Total commercial and industrial loans $ 152,735  100  % $ 132,073  100  %
(a)    Represents loans to customers in the real estate and construction industries.

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


The increase in commercial and industrial loans compared to December 31, 2020 primarily reflects the acquisition of BBVA. Amounts also include $6.8 billion of PPP loans outstanding at September 30, 2021. PPP loans outstanding at December 31, 2020 totaled $12.0 billion. For additional information on PPP lending, see the 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 $20.9 billion related to commercial mortgages, $8.4 billion of real estate project loans and $6.9 billion of intermediate term financing loans as of September 30, 2021. Comparable amounts as of December 31, 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:
Table 16: Commercial Real Estate Loans by Geography and Property Type
September 30, 2021 December 31, 2020
Dollars in millions Amount % of Total Amount % of Total
Geography (a)
California $ 5,953  16  % $ 4,458  16  %
Texas 4,052  11  2,031 
Florida 3,497  10  2,991  10 
Virginia 1,798  1,586 
Maryland 1,683  1,770 
Pennsylvania 1,556  1,425 
Ohio 1,262  1,247 
Colorado 1,237  584 
Illinois 1,182  900 
Arizona 1,141  636 
Other 12,834  37  11,088  39 
Total commercial real estate loans $ 36,195  100  % $ 28,716  100  %
Property Type
Multifamily $ 12,148  34  % $ 9,617  33  %
Office 9,959  28  7,691  27 
Retail 3,759  10  3,490  12 
Industrial/warehouse 2,832  1,999 
Seniors housing 2,403  1,417 
Hotel/motel 2,355  1,954 
Mixed use 756  835 
Other 1,983  1,713 
Total commercial real estate loans $ 36,195  100  % $ 28,716  100  %
(a)    Presented in descending order based on loan balances at September 30, 2021.

Commercial High Impact Industries
In light of the economic circumstances related to COVID-19, we are continuing to evaluate and monitor our entire commercial portfolio for elevated levels of credit risk; however, the industry sectors that have been and we believe will continue to be most likely 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
22    The PNC Financial Services Group, Inc. – Form 10-Q



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, 2021, our outstanding loan balances in these industries totaled $21.2 billion, or approximately 7% of our total loan portfolio, while additional unfunded loan commitments totaled $13.3 billion. We continue to carefully monitor and manage these loans, and while we have not yet experienced material charge-offs in these industries, we believe uncertainty relative to the timing and level of long-term recovery remains high.
In our non-real estate related category we have $12.3 billion in loans outstanding, $1.7 billion of which are funded through the PPP and guaranteed by the SBA. Nonperforming loans in these industries totaled $0.2 billion, or 2% of total loans outstanding in the non-real estate related category, while criticized assets totaled $1.8 billion at September 30, 2021 with the greatest stress seen in the leisure recreation and leisure travel sectors.

Within the real estate related category we have $8.9 billion in loans outstanding, which includes real estate projects of $6.6 billion and unsecured real estate of $2.3 billion. Nonperforming loans in these industries totaled $0.2 billion at September 30, 2021, or 2% of total loans outstanding in the commercial real estate related category. In this category, while loan performance has not materially deteriorated, these industries continue to face headwinds that have resulted in a slower recovery compared with the pace of the overall economy.

Oil and Gas Loan Portfolio
As of September 30, 2021, our outstanding loans in the oil and gas sector totaled $3.9 billion, or 1% of total loans. This portfolio comprised approximately $1.4 billion in the midstream and downstream sectors, $1.0 billion of oil services companies and $1.5 billion related to exploration and production companies. Of the oil services category, approximately $0.3 billion is not asset-based or investment grade. Nonperforming loans in the oil and gas sector as of September 30, 2021 totaled $0.2 billion, or 5% of total loans outstanding in this sector. Additional unfunded loan commitments for the oil and gas portfolio totaled $10.1 billion at September 30, 2021.

Consumer

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

We obtain loan attributes at origination, including original FICO scores and LTVs, and we update these and other credit metrics at least quarterly. We track borrower performance monthly. We 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.

Newly originated loans that we retained on our balance sheet over the last twelve months had a weighted-average LTV on originations of 67% and a weighted-average FICO score of 776.

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


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

Table 17: Residential Real Estate Loans by Geography
September 30, 2021 December 31, 2020
Dollars in millions Amount % of Total Amount % of Total
Geography (a)
California $ 13,930  36  % $ 7,828  35  %
Texas 4,524  12  409 
Florida 3,089  1,620 
Washington 1,657  1,104 
New Jersey 1,594  1,635 
Arizona 1,464  163 
New York 1,184  1,020 
Colorado 1,174  262 
Pennsylvania 1,037  1,036 
Illinois 963  1,039 
Other 7,598  20  6,444  27 
Total residential real estate loans
$ 38,214  100  % $ 22,560  100  %
(a)    Presented in descending order based on loan balances at September 30, 2021.

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. Our portfolio of originated nonconforming residential mortgage loans totaled $29.9 billion at September 30, 2021 with 43% located in California. Comparable amounts at December 31, 2020 were $17.9 billion and 41%, respectively.

Home Equity
Home equity loans comprised $15.3 billion of primarily variable-rate home equity lines of credit and $9.2 billion of closed-end home equity installment loans at September 30, 2021. Comparable amounts were $12.6 billion and $11.5 billion as of December 31, 2020, respectively.

We track borrower performance of this portfolio monthly similarly to residential real estate loans. 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) and track the historical performance of any related mortgage loans regardless of whether we hold the lien. 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.

Newly originated loans over the last twelve months had a weighted-average LTV on originations of 66% and a weighted-average FICO score of 782.

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.

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



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

Table 18: Home Equity Loans by Geography and by Lien Type
September 30, 2021 December 31, 2020
Dollars in millions Amount % of Total Amount % of Total
Geography (a)
Pennsylvania $ 5,169  21  % $ 5,602  23  %
New Jersey 3,151  13  3,462  14 
Ohio 2,459  10  2,753  11 
Florida 1,703  1,536 
Michigan 1,271  1,398 
Maryland 1,216  1,332 
Illinois 1,200  1,411 
Texas 1,026 
North Carolina 937  1,043 
Kentucky 800  922 
Other 5,547  23  4,622  20 
Total home equity loans $ 24,479  100  % $ 24,088  100  %
Lien type
1st lien 61  % 63  %
2nd lien 39  37 
Total 100  % 100  %
(a)    Presented in descending order based on loan balances at September 30, 2021.

Automobile
Auto loans comprised $16.0 billion in the indirect auto portfolio and $1.3 billion in the direct auto portfolio as of September 30, 2021. Comparable amounts as of December 31, 2020 were $12.7 billion and $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
September 30, 2021 December 31, 2020
Weighted-average loan origination FICO score (a)
Indirect auto 793 784
Direct auto 774 768
Weighted-average term of loan originations - in months (a)
Indirect auto 72 72
Direct auto 62 62
(a)Weighted-averages calculated for the twelve months ended September 30, 2021 and December 31, 2020, respectively, using the auto enhanced FICO scale.

We continue to focus on borrowers with strong credit profiles as evidenced by the weighted-average loan origination FICO scores noted in Table 19. We offer both new and used auto financing to customers through our various channels. The portfolio balance was composed of 53% new vehicle loans and 47% used vehicle loans at September 30, 2021. Comparable amounts at December 31, 2020 were 56% and 44%, respectively.

The auto loan portfolio’s performance is measured monthly, including updated collateral values that are obtained monthly and updated FICO scores that are obtained at least quarterly. For internal reporting and risk management, we analyze the portfolio by product channel and product type and regularly evaluate default and delinquency experience. As part of our overall risk analysis and monitoring, we segment the portfolio by geography, channel, 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 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
The PNC Financial Services Group, Inc. – Form 10-Q 25  


nonperforming loans. See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K for details on our nonaccrual policies.

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

Table 20: Nonperforming Assets by Type (a)
  September 30, 2021 December 31, 2020 Change
Dollars in millions $ %
Nonperforming loans        
Commercial $ 1,204  $ 923  $ 281  30  %
Consumer (b) 1,324  1,363  (39) (3) %
Total nonperforming loans 2,528  2,286  242  11  %
OREO and foreclosed assets 31  51  (20) (39) %
Total nonperforming assets $ 2,559  $ 2,337  $ 222  %
TDRs included in nonperforming loans $ 798  $ 902  $ (104) (12) %
Percentage of total nonperforming loans 32  % 39  %    
Nonperforming loans to total loans 0.87  % 0.94  %
Nonperforming assets to total loans, OREO and foreclosed assets 0.88  % 0.97  %
Nonperforming assets to total assets 0.46  % 0.50  %
Allowance for loan and lease losses to nonperforming loans 212  % 235  %    
(a)Includes $715 million of nonperforming assets at September 30, 2021, $666 million in the commercial portfolio, $41 million in the consumer portfolio and $8 million of OREO and foreclosed assets, attributable to BBVA.
(b)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.

Increases in nonperforming assets from December 31, 2020 primarily reflects the impact of BBVA, partially offset by improved credit performance throughout 2021.

The following table provides details on the change in nonperforming assets for the nine months ended September 30, 2021 and 2020:

Table 21: Change in Nonperforming Assets
In millions 2021 2020
January 1 $ 2,337  $ 1,752 
New nonperforming assets 821  1,361 
Acquired nonperforming assets (a) 880 
Charge-offs and valuation adjustments (202) (324)
Principal activity, including paydowns and payoffs (783) (418)
Asset sales and transfers to loans held for sale (131) (68)
Returned to performing status (363) (151)
September 30 $ 2,559  $ 2,152 
(a)Represents the June 30, 2021 balance of nonperforming assets attributable to BBVA. Changes in this acquired portfolio for the three months ended September 30, 2021 are reflected in the appropriate category based on activity.

As of September 30, 2021, approximately 99% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses.

Within consumer nonperforming loans, residential real estate TDRs comprised 44% of total residential real estate nonperforming loans while home equity TDRs comprised 38% of home equity nonperforming loans at September 30, 2021. Comparable amounts at December 31, 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.


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



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 PCD loans. Amounts exclude loans held for 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, 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, 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 the COVID-19 Relief section in Item 1 of our 2020 Form 10-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
  September 30
2021 (b)
December 31
2020
Change September 30
2021
December 31
2020
Dollars in millions $ %
Early stage loan delinquencies            
Accruing loans past due 30 to 59 days $ 659  $ 620  $ 39  % 0.23  % 0.26  %
Accruing loans past due 60 to 89 days 245  234  11  % 0.08  % 0.10  %
Total early stage loan delinquencies 904  854  50  % 0.31  % 0.35  %
Late stage loan delinquencies
Accruing loans past due 90 days or more 492  509  (17) (3) % 0.17  % 0.21  %
Total accruing loans past due $ 1,396  $ 1,363  $ 33  % 0.48  % 0.56  %
(a)Past due loan amounts include government insured or guaranteed loans of $0.5 billion and $0.6 billion at September 30, 2021 and December 31, 2020, respectively.
(b)Amounts as of September 30, 2021 include $300 million of early stage loan delinquencies and $72 million of late stage loan delinquencies attributable to BBVA.

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


The following table provides a summary of troubled debt restructurings at September 30, 2021 and December 31, 2020, respectively:
Table 23: Summary of Troubled Debt Restructurings (a)
  September 30
2021
December 31
2020
Change
Dollars in millions $ %
Commercial $ 486  $ 528  $ (42) (8) %
Consumer 970  1,116  (146) (13) %
Total TDRs $ 1,456  $ 1,644  $ (188) (11) %
Nonperforming $ 798  $ 902  $ (104) (12) %
Accruing (b) 658  742  (84) (11) %
Total TDRs $ 1,456  $ 1,644  $ (188) (11) %
(a)Amounts in table do not include associated valuation allowances.
(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 32% of total nonperforming loans and 55% of total TDRs at September 30, 2021. Comparable amounts at December 31, 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 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.

Loan Modifications
During the first nine months of 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 September 30, 2021.

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, 2021.

Under the CARES Act, loan modifications meeting 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 Credit Risk Management section within Item 7 of our 2020 Form 10-K.

Consumer Loan Modifications Under Hardship Relief Programs
Our consumer loan modification programs are being granted in response to customer hardships that extended beyond the initial relief period. These loan and line modifications include all hardship related modifications. See the Loan Modifications discussion within Credit Risk Management in Item 7 of our 2020 Form 10-K for 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, 2021. Excluded from Table 24 are government insured or guaranteed loans totaling $284 million in each of the Residential real estate and Education loan classes. These loans present minimal credit risk to PNC. Loans in active hardship assistance programs offered by BBVA prior to acquisition were $59 million at September 30, 2021 and are excluded from Table 24.
28    The PNC Financial Services Group, Inc. – Form 10-Q



Table 24: Consumer Loans in Active Hardship Relief Programs (a) (b)
As of September 30, 2021 - Dollars in millions Number of
Accounts
Unpaid
Principal
Balance
% of Loan Class (c) % Making Payment in Last Payment Cycle
Consumer
Residential real estate 1,334  $ 234  0.6  % 36.5  %
Home equity 665  46  0.2  % 82.8  %
Automobile 2,556  57  0.3  % 74.3  %
Credit card 6,519  41  0.6  % 71.6  %
Education 2,449  37  1.4  % 55.9  %
Other consumer 553  0.1  % 77.2  %
Total consumer (d) 14,076  $ 422  0.4  % 69.0  %
(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 $101 million.
(c)Based on total loans outstanding at September 30, 2021.
(d)Approximately 80% of these loan balances were secured by collateral at September 30, 2021.

Modifications are considered to have exited active assistance after the modification period has expired or the modification was exited. As of September 30, 2021, approximately 97% of the accruing consumer loans that have exited hardship relief program modifications offered by legacy PNC were current or less than 30 days past due.

See the Credit Risk Management section within Item 7 of our 2020 Form 10-K for information on the TDR impacts of our modification programs.

Allowance for Credit Losses
Our ACL is based on historical loss and performance experience, which is captured through PD, as well as current borrower risk characteristics including collateral type and quality, 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, other financial assets and unfunded 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.

See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K and the Credit Risk Management section within Item 7 of our 2020 Form 10-K for additional discussion of our ACL, including details of our 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 September 30, 2021.
The PNC Financial Services Group, Inc. – Form 10-Q 29  


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

Table 25: Allowance for Credit Losses by Loan Class (a)
September 30, 2021 December 31, 2020

Dollars in millions
Allowance Amount Total Loans % of Total Loans Allowance Amount Total Loans % of Total Loans
Allowance for loans and lease losses
Commercial
Commercial and industrial $ 2,173  $ 152,735  1.42  % $ 2,300  $ 132,073  1.74  %
Commercial real estate 1,312  36,195  3.62  % 880  28,716  3.06  %
Equipment lease financing 118  6,257  1.89  % 157  6,414  2.45  %
Total commercial 3,603  195,187  1.85  % 3,337  167,203  2.00  %
Consumer
Residential real estate 42  38,214  0.11  % 28  22,560  0.12  %
Home equity 167  24,479  0.68  % 313  24,088  1.30  %
Automobile 365  17,265  2.11  % 379  14,218  2.67  %
Credit card 701  6,466  10.84  % 816  6,215  13.13  %
Education 81  2,653  3.05  % 129  2,946  4.38  %
Other consumer 396  5,966  6.64  % 359  4,698  7.64  %
Total consumer 1,752  95,043  1.84  % 2,024  74,725  2.71  %
Total 5,355  $ 290,230  1.85  % 5,361  $ 241,928  2.22  %
Allowance for unfunded lending related commitments
646  584 
Allowance for credit losses
$ 6,001  $ 5,945 
Allowance for credit losses to total loans 2.07  % 2.46  %
Commercial 2.12  % 2.29  %
Consumer 1.96  % 2.84  %
(a)    Excludes allowances for investment securities and other financial assets, which together totaled $162 million and $109 million at September 30, 2021 and December 31, 2020, respectively.

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



The following table summarizes our loan charge-offs and recoveries:
Table 26: Loan Charge-Offs and Recoveries
Nine months ended September 30 Gross
Charge-offs
Recoveries Net Charge-offs /
(Recoveries)
% of Average
Loans (Annualized)
Dollars in millions
2021
Commercial
Commercial and industrial $ 350  $ 68  $ 282  0.27  %
Commercial real estate 34  29  0.12  %
Equipment lease financing 0.02  %
Total commercial 393  81  312  0.23  %
Consumer
Residential real estate 11  20  (9) (0.04) %
Home equity 16  63  (47) (0.26) %
Automobile 120  117  0.03  %
Credit card 196  36  160  3.52  %
Education 11  0.24  %
Other consumer 130  21  109  2.77  %
Total consumer 484  263  221  0.36  %
  Total $ 877  $ 344  $ 533  0.27  %
2020
Commercial
Commercial and industrial $ 249  $ 52  $ 197  0.19  %
Commercial real estate (5) (0.02) %
Equipment lease financing 19  12  0.23  %
Total commercial 269  65  204  0.15  %
Consumer
Residential real estate 12  (8) (0.05) %
Home equity 31  44  (13) (0.07) %
Automobile 210  95  115  0.93  %
Credit card 228  26  202  3.98  %
Education 13  0.29  %
Other consumer 110  14  96  2.61  %
Total consumer 596  197  399  0.68  %
  Total $ 865  $ 262  $ 603  0.32  %

Total net charge-offs decreased $70 million, or 12%, for the first nine months of 2021 compared to the same period in 2020. Commercial net charge-offs increased in the comparative primarily related to charge-offs attributable to BBVA, which were largely the result of required purchase accounting treatment for the acquisition. This increase was more than offset by declines in consumer net-charge-offs, driven primarily by decreases in automobile and credit card due to the continued favorable impact of government stimulus programs benefiting consumers, as well as the increase in automobile collateral values which has limited our losses in the auto portfolio.

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 Report 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 2020 Form 10-K.

One of the ways we monitor our liquidity is by reference to the LCR, a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a hypothetical 30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s HQLA, as 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%,
The PNC Financial Services Group, Inc. – Form 10-Q 31  


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

Due to certain transition provisions in the LCR rules, BBVA USA was not subject to the LCR on a standalone basis prior to the merger into PNC Bank as the merger was completed prior to the effective date for BBVA USA’s LCR compliance in 2022.

We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation and Recent Regulatory Developments section of Item 1 Business and Item 1A Risk Factors of our 2020 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 $448.9 billion at September 30, 2021 from $365.3 billion at December 31, 2020, driven by growth in both noninterest-bearing and interest-bearing deposits primarily due to the BBVA acquisition. 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, 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 $87.0 billion and securities available for sale totaling $124.1 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Our liquid assets included $25.2 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, $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 the Funding Sources section of the Consolidated Balance Sheet Review in this Report and Note 10 Borrowed Funds in Item 8 of our 2020 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 27: Senior and Subordinated Debt
In billions 2021
January 1 $ 30.7 
Issuances 1.7 
Calls and maturities (3.9)
Other (0.7)
Impact from BBVA acquisition 2.2 
September 30 $ 30.0 
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, 2021, PNC Bank had $15.9 billion of notes outstanding under this program of which $10.9 billion were senior bank notes and $5.0 billion were subordinated bank notes.

At September 30, 2021, BBVA USA had $2.1 billion of notes outstanding, of which $1.3 billion were senior bank notes and $0.8 billion were subordinated banks notes.

See Note 16 Subsequent Events for details on the $750 million bank note redemption announced on October 29, 2021.

PNC Bank maintains additional secured borrowing capacity with the FHLB 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, 2021, our
unused secured borrowing capacity at the FHLB and the Federal Reserve Bank totaled $95.3 billion.

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



PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. At September 30, 2021, there were 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.

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

At September 30, 2021, available parent company liquidity totaled $6.0 billion. Parent company liquidity is primarily held in intercompany cash. Investments with longer durations may also be acquired, and 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 or other capital distributions 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 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 $3.1 billion at September 30, 2021. See Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements in our 2020 Form 10-K for further discussion of these limitations. Due to the net earnings restrictions on dividend distributions under Alabama law, BBVA USA was not permitted to pay dividends any time between the BBVA acquisition on June 1, 2021 and the bank merger on October 8, 2021 without regulatory approval.

See Note 16 Subsequent Events for details on PNC Bank's return of capital of $3.0 billion to the parent company.

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. At September 30, 2021, there were no commercial paper issuances outstanding.

On August 4, 2021, PNC redeemed all of the outstanding senior notes due September 3, 2021 issued by PNC in the amount of $500 million. The securities had a distribution rate of 3.250%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.

On August 13, 2021, the parent company issued $700 million of senior notes with a maturity date of August 13, 2026. Interest is payable semi-annually in arrears at a fixed rate of 1.15% per annum, on August 13 and February 13 of each year, beginning on February 13, 2022.

Parent company senior and subordinated debt outstanding totaled $11.4 billion and $10.6 billion at September 30, 2021 and December 31, 2020, respectively.

Contractual Obligations and Commitments
We have contractual obligations representing required future payments on borrowed funds, time deposits, leases, pension and postretirement benefits and purchase obligations. See the Liquidity and Capital Management portion of the Risk Management section in our 2020 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 8 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.
The PNC Financial Services Group, Inc. – Form 10-Q 33  


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.
The following table presents credit ratings for PNC and PNC Bank as of September 30, 2021:
Table 28: Credit Ratings for PNC and PNC Bank
September 30, 2021
  
Moody’s Standard & Poor’s Fitch
PNC
Senior debt A3 A- A
Subordinated debt A3 BBB+ A-
Preferred stock Baa2 BBB- BBB
PNC Bank
Senior debt A2 A A+
Subordinated debt A3 A- A
Long-term deposits Aa3 A AA-
Short-term deposits P-1 A-1 F1+
Short-term notes P-1 A-1 F1

On July 12, 2021, Moody’s downgraded PNC Bank’s long-term deposit rating from Aa2 to Aa3. The rating action was driven by a change in Moody’s rating methodology and no impact to PNC or its businesses is expected as a result of this downgrade. PNC Bank’s senior unsecured and subordinated debt ratings were affirmed at A2 and A3, respectively. At the same time, the Moody’s rating outlook on PNC Bank’s long-term deposit, senior unsecured debt and issuer ratings were raised from negative to stable. The credit rating agencies have withdrawn ratings on BBVA USA as the entity no longer exists.
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 2020 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.

On September 13, 2021, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 3.400% fixed-rate reset non-cumulative perpetual preferred stock, Series T, with a par value of $1 per share.

In the third quarter of 2021, we returned capital to shareholders through dividends on common shares of $0.5 billion and $0.4 billion of common share repurchases, representing 2.1 million shares. Repurchases were made under the share repurchase programs of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021.

On October 1, 2021, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.25 per share payable on November 5, 2021.
34    The PNC Financial Services Group, Inc. – Form 10-Q



Table 29: Basel III Capital
September 30, 2021
Dollars in millions Basel III (a)  Fully Implemented
(estimated) (b)
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock $ 630  $ 630 
Retained earnings 50,598  49,541 
Goodwill, net of associated deferred tax liabilities (10,673) (10,673)
Other disallowed intangibles, net of deferred tax liabilities (469) (469)
Other adjustments/(deductions) (48) (53)
Common equity Tier 1 capital 40,038  38,976 
Additional Tier 1 capital
Preferred stock plus related surplus 5,009  5,009 
Tier 1 capital 45,047  43,985 
Additional Tier 2 capital
Qualifying subordinated debt 3,724  3,724 
Trust preferred capital securities 20 
Eligible credit reserves includable in Tier 2 capital 4,191  4,838 
Total Basel III capital $ 52,982  $ 52,547 
Risk-weighted assets
Basel III standardized approach risk-weighted assets (c) $ 389,911  $ 389,887 
Average quarterly adjusted total assets $ 547,840  $ 546,777 
Supplementary leverage exposure (d) $ 643,732  $ 643,727 
Basel III risk-based capital and leverage ratios (a)(e)
Common equity Tier 1 10.3  % 10.0  %
Tier 1 11.6  % 11.3  %
Total (f) 13.6  % 13.5  %
Leverage (g) 8.2  % 8.0  %
Supplementary leverage ratio (d) 7.0  % 6.8  %
(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 phase-ins.
(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)The Supplementary leverage ratio is calculated based on Tier 1 capital divided by Supplementary leverage exposure, which takes into account the quarterly average of both on balance sheet assets as well as certain off-balance sheet items, including loan commitments and potential future exposure under derivative contracts.
(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 $20 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.

PNC’s regulatory risk-based capital ratios 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 banking organizations 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, excluding the initial allowance for PCD loans from BBVA, compared to CECL ACL at transition. PNC elected to adopt this optional transition provision effective as of March 31, 2020. See additional discussion of this rule in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2020 Form 10-K.
At September 30, 2021, PNC, PNC Bank and BBVA USA were 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 and BBVA USA 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%.

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


Federal banking regulators have stated that they expect the largest U.S. 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, 2021 capital levels were aligned with them.

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 20 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of our 2020 Form 10-K.

Market Risk Management
See the Market Risk Management portion of the Risk Management Section in our 2020 Form 10-K for additional discussion regarding market risk.

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

Our Asset and Liability Management group centrally manages interest rate risk as prescribed in our risk management policies, which are approved by management’s Asset and Liability Committee and the Risk Committee of the Board of Directors.
Sensitivity results and market interest rate benchmarks for the third quarter of 2021 and 2020 follow:

Table 30: Interest Sensitivity Analysis
Third Quarter 2021 (a) Third Quarter 2020
Net Interest Income Sensitivity Simulation
Effect on net interest income in first year from gradual interest rate change over the
   following 12 months of:
100 basis point increase 4.5  % 4.3  %
Effect on net interest income in second year from gradual interest rate change over the
    preceding 12 months of:
100 basis point increase 11.3  % 10.9  %
Key Period-End Interest Rates
One-month LIBOR 0.08  % 0.15  %
Three-month LIBOR 0.13  % 0.23  %
Three-year swap 0.65  % 0.24  %
(a) Results include BBVA USA.
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 31 reflects the percentage change in net interest income over the next two 12-month periods, including BBVA USA, assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and (iii) yield curve slope flattening (a 100 basis point yield curve slope flattening between one-month and ten-year rates superimposed on current base rates) scenario.

All changes in forecasted net interest income are relative to results in a base rate scenario where current market rates are assumed to remain unchanged over the forecast horizon.
Table 31: Net Interest Income Sensitivity to Alternative Rate Scenarios
September 30, 2021
PNC
Economist
Market
Forward
Slope
Flattening
First year sensitivity 1.6  % 1.0  % (2.2) %
Second year sensitivity 6.7  % 5.0  % (7.3) %

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



future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 30 and 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 32: Alternate Interest Rate Scenarios: One Year Forward

PNC-20210930_G2.JPG

The third quarter 2021 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.

As 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 2023 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-functional governance structure to oversee the overall strategy for the transition from LIBOR and mitigate risks associated with the transition. A 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 PNC’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.

Key efforts in 2020 and the first nine months of 2021 included:
Enhancing fallback language in new contracts and reviewing existing legal contracts/agreements to assess fallback language impacts,
Making preparations for internal operational readiness,
Making necessary enhancements to PNC's infrastructure, including systems, models, valuation tools and processes,
Developing and delivering on internal and external LIBOR cessation communication plans,
Engaging with PNC clients, industry working groups and regulators, and
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 Sensitivity
The PNC Financial Services Group, Inc. – Form 10-Q 37  


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 late 2020, PNC began offering conforming adjustable rate mortgages using SOFR instead of USD LIBOR in line with Fannie Mae and Freddie Mac requirements. In the second quarter of 2021, PNC began offering nonconforming adjustable rate mortgages using SOFR and private student loans using Prime. Alternative rates including, but not limited to, the Bloomberg Short-Term Bank Yield Index and SOFR are currently being offered to our corporate and commercial customers. LIBOR will cease to be offered for new loans by year end 2021. PNC has provided regular updates to Federal Reserve, OCC and Federal Deposit Insurance Corporation examination staff regarding its LIBOR 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 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. VaR is 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 is computed with positions and market risk factors updated daily to ensure each portfolio is operating within its acceptable limits.
See the Market Risk Management – Customer-Related Trading Risk section of our 2020 Form 10-K for more information on our models used to calculate VaR and our backtesting process.
Customer-related trading revenue was $278 million for the nine months ended September 30, 2021, compared to $293 million for the same period in 2020. The decrease was primarily due to lower interest rate derivative client sales revenues partially offset by improved foreign exchange client sales revenues. For the quarterly period, customer-related trading revenue was $99 million for the third quarter of 2021, compared to $108 million in 2020. The decrease was primarily due to changes in the credit valuation for customer-related derivatives activities partially offset by improved foreign exchange client revenues.
Market Risk Management – Equity And Other Investment Risk
Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, underwriting securities and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations and growth financings in a variety of industries. We also have investments in affiliated and non-affiliated funds that make similar investments in private equity. The economic and/or book value of these investments and other assets are directly affected by changes in market factors.
Various PNC business units manage our equity and other investment activities. Our businesses are responsible for making investment decisions within the approved policy limits and associated guidelines.
A summary of our equity investments follows:
Table 33: Equity Investments Summary
  September 30
2021 (a)
December 31
2020
Change
Dollars in millions $ %
Tax credit investments $ 3,723  $ 2,870  $ 853  30  %
Private equity and other 4,014  3,182  832  26  %
Total $ 7,737  $ 6,052  $ 1,685  28  %
(a)Includes $0.7 billion of investments from BBVA, of which $0.6 billion are tax credit investments and $0.1 billion are private equity and other.

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 $2.0 billion and $1.4 billion at September 30, 2021 and December 31, 2020, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.

Note 5 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in our 2020 Form 10-K has further information on Tax Credit Investments.

Private Equity and Other
The largest component of our other equity investments is 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 $1.7 billion and $1.5 billion at September 30, 2021 and December 31, 2020,
38    The PNC Financial Services Group, Inc. – Form 10-Q



respectively. As of September 30, 2021, $1.5 billion was 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 2020 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, 2021 per share closing price of $222.75 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $1.3 billion at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was not significant. See Note 15 Fair Value and Note 21 Legal Proceedings in the Notes To Consolidated Financial Statements in Item 8 of our 2020 Form 10-K for additional information regarding our Visa shares and related 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 $44 million for the nine months ended September 30, 2021 and were not significant for the nine months ended September 30, 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 15 Fair Value and Note 16 Financial Derivatives in our Notes To Consolidated Financial Statements in our 2020 Form 10-K and in Note 11 Fair Value and Note 12 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

BBVA USA Merger
On October 8, 2021 and following regulatory approval from the Federal Reserve and the OCC, PNC consummated the merger of its U.S. state member bank subsidiary, BBVA USA, Birmingham, Alabama, with and into PNC Bank, with PNC Bank remaining as the surviving bank. The regulatory approval process also included approvals from the banking departments of the states of Alabama and Texas. With completion of the merger and conversion of BBVA USA branches to PNC Bank branches, PNC Bank has added branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. The merger of the two banks did not affect PNC or PNC Bank’s classification as Category III institutions for purposes of federal bank regulations.

Other Developments
In September 2021, the OCC issued a notice of proposed rulemaking to rescind its June 2020 CRA rule. The OCC's June 2020 rule made significant changes to the OCC’s regulations implementing the CRA for national banks, like PNC Bank, and replaced the previous CRA rule jointly issued with the Federal Reserve and the FDIC (1995 rule). The June 2020 rule would have required significant changes to PNC Bank’s CRA framework. The OCC is proposing to replace its June 2020 rule, including provisions of the rule that were effective October 1, 2020, with rules largely based on the 1995 rule subject to a transition for certain aspects of the June 2020 rule. The proposal would facilitate the OCC’s ongoing work with the Federal Reserve and the FDIC to modernize the regulations implementing the CRA and create consistent rules for all insured depository institutions. Comments on the proposal are due October 29, 2021.

In September 2021, the CFPB issued a notice of proposed rulemaking to implement the small business lending data collection requirements set forth in section 1071 of the Dodd-Frank Act. Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to collect and report to the CFPB data regarding certain small business credit applications. Under the proposal, financial institutions that meet small business credit transaction thresholds, like PNC Bank, would be required to collect and report
The PNC Financial Services Group, Inc. – Form 10-Q 39  


significant amounts of data regarding applications for small business credit, including on the race, sex and ethnicity of the principal owners of the business, among other requirements. The CFPB has proposed that any final rule, when issued, would be effective 90 days after publication in the Federal Register, with compliance mandated 18 months after publication. Comments on the proposal are due January 6, 2022.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Note 1 Accounting Policies in our 2020 Form 10-K describes the most significant accounting policies that we use to prepare our consolidated financial statements. Certain of these policies require us to make estimates or economic assumptions that may vary under different assumptions or conditions, and such variations may significantly affect our reported results and financial position for the period or in future periods. The policies and judgments related to residential and commercial MSRs and fair value measurements are described in Critical Accounting Estimates and Judgments in Item 7 of our 2020 Form 10-K. For additional information on fair value measurements of assets and liabilities assumed in the BBVA acquisition, see Note 2 Acquisition and Divestiture Activity in the Notes To Consolidated Financial Statements included in this Report. The following details the critical estimates and judgments around the ACL.

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, 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 and performance experience, which is captured through PD, as well as current borrower characteristics including collateral type and quality, 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 limitations. The major drivers of ACL estimates include, but are not limited to:
Current economic conditions and borrower quality: Our forecast of expected losses depends on economic conditions and
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 rate 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 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 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 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 reasonable and supportable forecast period. Each scenario is then given an associated probability (weight) in order to represent our current expectation within that distribution over the forecast period. This process is informed by current economic conditions, expected business cycle evolution and the expert judgment of PNC’s 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 RAC and the committee determines and approves CECL scenarios' weights for use for the current reporting period.

The scenarios used for the period ended September 30, 2021 reflect an improved near-term economic outlook compared to the scenarios used for the period ended December 31, 2020. The overall improvement in the comparison was driven largely by
40    The PNC Financial Services Group, Inc. – Form 10-Q



improvements in both the outlook for consumer spending and the labor market, along with the impact from continued vaccine distribution, while also considering the lingering effects of COVID-19 that slowed the momentum of economic recovery in recent months, as the Delta variant continued to drive increased COVID-19 cases throughout the U.S. and abroad.

We used a number of economic variables in our scenarios, with the most significant drivers being Real GDP and unemployment rate measures. Using the weighted-average of our four economic forecast scenarios, we estimated that:
Real GDP grows 5.4% in 2021, ending the year 3.1% above pre-recession levels. Annual growth continues but slows to 2.9% and 1.9% in 2022 and 2023, respectively.
Unemployment rates reflect continued recovery in the labor market in 2021, with the unemployment rate falling to 5.3% by the end of the year. Employment gains were estimated to continue through the forecast period with the unemployment rate reaching 4.8% and 4.3% 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. This scenario includes estimated Real GDP growing to 5.8% in 2021 and ending the year 3.4% above its pre-recession peak levels, with annual growth slowing to 3.2% and 1.6% in 2022 and 2023, respectively. Unemployment rates in this most likely scenario reach 5.0% by the end of 2021, 4.3% by the end of 2022 and 3.9% by the end of 2023. See our Business Outlook and the Cautionary Statement Regarding Forward-Looking Information in this Financial Review for additional discussion on our baseline prediction of the most likely economic outcome.

Though the outlook of near-term growth is less optimistic than it was last quarter due to the emergence of the Delta COVID-19 variant and continued supply chain challenges, the economy has seen significant recovery from the onset of the pandemic. National macroeconomic indicators, forecasts and performance expectations have all steadily improved, helping to lower overall loss expectations. These improvements have been reflected in the reserve releases through the first nine months of 2021. However, for certain portions of our commercial and consumer portfolios, considerable uncertainty remains regarding lifetime losses. For commercial borrowers, there are still lingering concerns around industries that have been affected by COVID-19 related restrictions and emerging secular changes. For these industries, where unrestricted commerce has recently returned, the recovery will lag the broader economy. Where restrictions persist and/or secular changes have emerged, the impact and eventual level of recovery are less certain. For consumer borrowers, payment behavior upon expiration of government stimulus, including recently expired enhanced unemployment benefits is still difficult to predict. As such, for both our commercial and consumer loan portfolios, PNC identified and performed significant analysis around these segments to ensure our reserves are adequate in the current economic environment. We believe the economic scenarios have effectively provided sufficient variation to capture probable recovery paths. Additionally, through in depth and granular analysis of COVID-19 related impacts, we have adequately addressed reserve requirements for specific populations most affected in the current environment. Through this approach, we believe the reserve levels sufficiently reflect the expectation for life of loan losses of the current portfolio.

See the following for additional details on the components of our ACL:
Allowance For Credit Losses in the Credit Risk Management section of this Financial Review, and
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 2020 Form 10-K and in Note 5 Loan Sale and Servicing Activities and Variable Interest Entities and Note 8 Commitments in the Notes To Consolidated Financial Statements included in this Report.

A summary and further description of VIEs is included in Note 1 Accounting Policies and Note 5 Loan Sale and Servicing Activities and Variable Interest Entities in our 2020 Form 10-K.

Trust Preferred Securities
See Note 10 Borrowed Funds in the Notes To Consolidated Financial Statements in our 2020 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, 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
The PNC Financial Services Group, Inc. – Form 10-Q 41  


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, 2021, and that there has been no change in PNC’s internal control over financial reporting that occurred during the third quarter of 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As permitted by SEC guidance that an assessment of internal controls over financial reporting of a recently acquired business may be excluded from management's evaluation of disclosure controls and procedures for up to a year from the date of acquisition, we have excluded BBVA from management's reporting on internal control over financial reporting for the quarter ended September 30, 2021. We will continue to evaluate the effectiveness of internal controls over financial reporting post-integration of BBVA, including BBVA USA, with that of PNC and PNC Bank and will make changes to our internal control framework, as necessary. The acquisition of BBVA contributed $86.6 billion of assets, or 16% of our total assets, to our balance sheet at September 30, 2021. The BBVA acquisition also contributed $737 million of revenue, or 14% of total revenue, for the three months ended September 30, 2021 and $1.1 billion of revenue, or 7% of total revenue, for the nine months ended September 30, 2021.


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



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We make statements in this Report, and we may from time to time make other statements, regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting us and our future business and operations that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “look,” “intend,” “outlook,” “project,” “forecast,” “estimate,” “goal,” “will,” “should” and other similar words and expressions.
Forward-looking statements are 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:
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, market interest rates and inflation,
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 the economic impacts of the COVID-19 pandemic,
The impact of the results of the 2020 U.S. elections, including on the regulatory landscape, capital markets, tax policy, infrastructure spending and social programs, 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 an economic recovery, following a very severe but very short economic contraction in the first half of 2020 due to the COVID-19 pandemic and public health measures to contain it.
The Delta COVID-19 variant and supply chain difficulties have been drags on economic growth in the second half of 2021, although the economy continues to expand. Growth will pick up at the end of 2021 as the impact of the Delta variant fades and supply chains normalize and will remain solid into 2022. Employment in September 2021 was still down by almost 5 million from before the pandemic; PNC expects employment to return to its pre-pandemic level in mid-2022.
Compared to the spring of 2020 (when prices were falling), inflation accelerated in mid-2021 due to strong demand in specific segments and supply chain disruptions. Inflation has started to slow on a month-over-month basis but will remain elevated in the near term.
PNC expects the FOMC to keep the fed funds rate in its current range of 0.00% to 0.25 % until late 2022.
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.
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.
The PNC Financial Services Group, Inc. – Form 10-Q 43  


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.
Our acquisition of BBVA presents us with risks and uncertainties related to the integration of the acquired business into PNC including:
The business of BBVA going forward may not perform as we 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 integration of BBVA, including its U.S. banking subsidiary, BBVA USA, with that of PNC and PNC Bank may be more difficult to achieve than anticipated or have unanticipated adverse results. Our ability to integrate BBVA, including its U.S. banking subsidiary, BBVA USA, successfully may be adversely affected by the fact that this transaction results in us entering several geographic markets where we did not previously have any meaningful presence.
In addition to the 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 2020 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. 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.



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



CONSOLIDATED INCOME STATEMENT
THE PNC FINANCIAL SERVICES GROUP, INC.
Unaudited Three months ended
September 30
Nine months ended
September 30
In millions, except per share data 2021 2020 2021 2020
Interest Income
Loans $ 2,437  $ 2,116  $ 6,593  $ 6,853 
Investment securities 460  490  1,350  1,599 
Other 78  70  216  279 
Total interest income 2,975  2,676  8,159  8,731 
Interest Expense
Deposits 29  74  99  590 
Borrowed funds 90  118  275  619 
Total interest expense 119  192  374  1,209 
Net interest income 2,856  2,484  7,785  7,522 
Noninterest Income
Asset management 248  215  713  615 
Consumer services 496  390  1,337  1,097 
Corporate services 842  479  2,085  1,517 
Residential mortgage 147  137  355  505 
Service charges on deposits 159  119  409  366 
Other 449  457  1,400  1,071 
Total noninterest income 2,341  1,797  6,299  5,171 
Total revenue 5,197  4,281  14,084  12,693 
Provision For (Recapture of) Credit Losses (203) 52  (452) 3,429 
Noninterest Expense
Personnel 1,986  1,410  5,103  4,152 
Occupancy 248  205  680  611 
Equipment 355  292  974  880 
Marketing 103  67  222  172 
Other 895  557  2,232  1,774 
Total noninterest expense 3,587  2,531  9,211  7,589 
Income from continuing operations before income taxes and noncontrolling interests 1,813  1,698  5,325  1,675 
Income taxes from continuing operations 323  166  906  128 
Net income from continuing operations 1,490  1,532  4,419  1,547 
Income from discontinued operations before taxes 5,777 
Income taxes from discontinued operations 1,222 
Net income from discontinued operations 4,555 
Net income 1,490  1,532  4,419  6,102 
Less: Net income attributable to noncontrolling interests 16  13  38  27 
Preferred stock dividends 57  63  162  181 
Preferred stock discount accretion and redemptions
Net income attributable to common shareholders $ 1,416  $ 1,455  $ 4,216  $ 5,891 
Earnings Per Common Share
Basic earnings from continuing operations $ 3.31  $ 3.40  $ 9.84  $ 3.11 
Basic earnings from discontinued operations 10.61 
Total basic earnings $ 3.31  $ 3.40  $ 9.84  $ 13.73 
Diluted earnings from continuing operations $ 3.30  $ 3.39  $ 9.83  $ 3.11 
Diluted earnings from discontinued operations 10.59 
Total diluted earnings $ 3.30  $ 3.39  $ 9.83  $ 13.70 
Average Common Shares Outstanding
Basic 426  426  426  427 
Diluted 426  426  427  428 
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 45  


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THE PNC FINANCIAL SERVICES GROUP, INC.
 
Unaudited
In millions
Three months ended
September 30
Nine months ended
September 30
2021 2020 2021 2020
Net income from continuing operations $ 1,490  $ 1,532  $ 4,419  $ 1,547 
Other comprehensive income (loss), before tax and net of reclassifications into Net income
Net change in debt securities (323) 10  (1,471) 2,028 
Net change in cash flow hedge derivatives (174) (119) (727) 678 
Pension and other postretirement benefit plan adjustments (11) (3)
Net change in Other 10 
Other comprehensive income (loss) from continuing operations, before tax and net of
 reclassifications into Net income
(494) (107) (2,207) 2,713 
Income tax benefit (expense) from continuing operations related to items of other
 comprehensive income
110  35  516  (630)
Other comprehensive income (loss) from continuing operations, after tax and net of
 reclassifications into Net income
(384) (72) (1,691) 2,083 
Net income from discontinued operations 4,555 
Other comprehensive income from discontinued operations, before tax and net of
 reclassifications into Net income

148 
Income tax benefit (expense) from discontinued operations related to items of other
 comprehensive income
(33)
Other comprehensive income from discontinued operations, after tax and net of
 reclassifications into Net income
115 
Other comprehensive income (loss), after tax and net of reclassifications into Net income
(384) (72) (1,691) 2,198 
Comprehensive income 1,106  1,460  2,728  8,300 
Less: Comprehensive income attributable to noncontrolling interests 16  13  38  27 
Comprehensive income attributable to PNC $ 1,090  $ 1,447  $ 2,690  $ 8,273 
See accompanying Notes To Consolidated Financial Statements.
46    The PNC Financial Services Group, Inc. – Form 10-Q



CONSOLIDATED BALANCE SHEET
THE PNC FINANCIAL SERVICES GROUP, INC.
Unaudited September 30
2021
December 31
2020
In millions, except par value
Assets
Cash and due from banks $ 8,843  $ 7,017 
Interest-earning deposits with banks 75,478  85,173 
Loans held for sale (a) 2,121  1,597 
Investment securities – available for sale 124,127  87,358 
Investment securities – held to maturity 1,479  1,441 
Loans (a) 290,230  241,928 
Allowance for loan and lease losses (5,355) (5,361)
Net loans 284,875  236,567 
Equity investments 7,737  6,052 
Mortgage servicing rights 1,833  1,242 
Goodwill 10,885  9,233 
Other (a) 36,137  30,999 
Total assets $ 553,515  $ 466,679 
Liabilities
Deposits
Noninterest-bearing $ 156,305  $ 112,637 
Interest-bearing 292,597  252,708 
Total deposits 448,902  365,345 
Borrowed funds
Federal Home Loan Bank borrowings 3,500 
Bank notes and senior debt 22,993  24,271 
Subordinated debt 7,074  6,403 
Other (b) 3,404  3,021 
Total borrowed funds 33,471  37,195 
Allowance for unfunded lending related commitments 646  584 
Accrued expenses and other liabilities 14,199  9,514 
Total liabilities 497,218  412,638 
Equity
Preferred stock (c)
Common stock ($5 par value, Authorized 800 shares, issued 543 shares)
2,713  2,713 
Capital surplus 17,453  15,884 
Retained earnings 49,541  46,848 
Accumulated other comprehensive income 1,079  2,770 
Common stock held in treasury at cost: 120 and 119 shares
(14,527) (14,205)
Total shareholders’ equity 56,259  54,010 
Noncontrolling interests 38  31 
Total equity 56,297  54,041 
Total liabilities and equity $ 553,515  $ 466,679 
(a)Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $2.0 billion, Loans held for investment of $1.6 billion and Other assets of $0.1 billion at September 30, 2021. Comparable amounts at December 31, 2020 were $1.2 billion, $1.4 billion and $0.1 billion, respectively.
(b)Our consolidated liabilities included Other borrowed funds of less than $0.1 billion at both September 30, 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.

See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 47  


CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
 
Unaudited
In millions
Nine months ended
September 30
2021 2020
Operating Activities
Net income $ 4,419  $ 6,102 
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for (recapture of) credit losses (452) 3,429 
Depreciation and amortization 1,215  944 
Deferred income taxes (74) (2,505)
Net gains on sales of securities (50) (254)
Changes in fair value of mortgage servicing rights (8) 774 
Gain on sale of BlackRock (5,740)
Undistributed earnings of BlackRock (174)
Net change in
Trading securities and other short-term investments 388  1,132 
Loans held for sale (390) (533)
Other assets (1,504) (2,112)
Accrued expenses and other liabilities 341  1,044 
Other (165) 617 
Net cash provided (used) by operating activities $ 3,720  $ 2,724 
Investing Activities
Sales
Securities available for sale $ 15,674  $ 12,512 
Net proceeds from sale of BlackRock 14,225 
Loans 1,409  1,365 
Repayments/maturities
Securities available for sale 23,829  19,850 
Securities held to maturity 67  52 
Purchases
Securities available for sale (57,911) (34,242)
Securities held to maturity (83) (49)
Loans (1,564) (1,600)
Net change in
Federal funds sold and resale agreements (119) 1,693 
Interest-earning deposits with banks 23,008  (47,546)
Loans 14,001  (10,323)
Net cash paid for acquisition (a) (10,511)
Other (1,538) (316)
Net cash provided (used) by investing activities $ 6,262  $ (44,379)
(continued on following page)
48    The PNC Financial Services Group, Inc. – Form 10-Q



CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
(continued from previous page)
 
Unaudited
In millions
Nine Months Ended
September 30
2021 2020
Financing Activities
Net change in
Noninterest-bearing deposits $ 7,832  $ 34,479 
Interest-bearing deposits (9,826) 32,037 
Federal funds purchased and repurchase agreements 91  (5,870)
Short-term Federal Home Loan Bank borrowings (6,300)
Other borrowed funds 164  298 
Sales/issuances
Federal Home Loan Bank borrowings 9,060 
Bank notes and senior debt 1,692  3,487 
Other borrowed funds 551  458 
Preferred stock 1,485 
Common and treasury stock 58  54 
Repayments/maturities
Federal Home Loan Bank borrowings (3,680) (13,601)
Bank notes and senior debt (3,850) (6,647)
Other borrowed funds (547) (479)
   Preferred stock redemption (480)
Acquisition of treasury stock (441) (1,604)
Preferred stock cash dividends paid (162) (181)
Common stock cash dividends paid (1,523) (1,488)
Net cash provided (used) by financing activities $ (8,156) $ 43,223 
Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash $ 1,826  $ 1,568 
Net cash provided by discontinued operations 12,244 
Net cash provided (used) by continuing operations 1,826  (10,676)
Cash and due from banks and restricted cash at beginning of period 7,017  5,061 
Cash and due from banks and restricted cash at end of period $ 8,843  $ 6,629 
Cash and due from banks and restricted cash
Cash and due from banks at end of period (unrestricted cash) $ 8,201  $ 6,297 
Restricted cash 642 332
Cash and due from banks and restricted cash at end of period $ 8,843  $ 6,629 
Supplemental Disclosures
Interest paid $ 395  $ 1,071 
Income taxes paid $ 402  $ 2,762 
Income taxes refunded $ 68  $
Leased assets obtained in exchange for new operating lease liabilities $ 289  $ 71 
Non-cash Investing and Financing Items
Transfer from loans to loans held for sale, net $ 677  $ 1,026 
Transfer from trading securities to investment securities $ 289 
Transfer from loans to foreclosed assets $ 22  $ 57 
(a)Cash paid to acquire BBVA was $11,480 million. The amount of $10,511 million represents the cash paid for the acquisition less $969 million in cash acquired. See Note 2 Acquisition & Divestiture Activity for more detailed information on the BBVA acquisition.
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 49  


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

See page 104 for a glossary of certain terms and acronyms used in this Report.

BUSINESS

PNC is one of the largest diversified financial services companies in the 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 coast-to-coast. 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 VIEs.

On June 1, 2021, we acquired BBVA, a U.S. financial holding company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA. Our results for the first nine months of 2021 reflect BBVA's acquired business operations for the period since the acquisition closed on June 1, 2021. Our balance sheet at September 30, 2021 includes BBVA's balances. See Note 2 Acquisition and Divestiture Activity for additional information on this acquisition.
We prepared these consolidated financial statements in accordance with 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 2020 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 2020 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 2020 Form 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, including for the BBVA acquisition. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.











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



Recently Adopted Accounting Standards

Accounting Standards Update Description Financial Statement Impact
Income Tax Simplification - ASU 2019-12

Issued December 2019



• Simplifies the accounting for income taxes by eliminating certain exceptions in ASC 740, Income Taxes, relating to the approach for intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences and the methodology for calculating income taxes in an interim period.
• Clarifies areas of the income tax guidance around franchise taxes partially based on income, step-ups in the tax basis of goodwill, and enacted changes in tax laws.
• Specifies that an entity is no longer required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements.


• Adopted January 1, 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 will impact the presentation of parent company tax expense subsequent to adoption.
Accounting Standards Update Description Financial 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 (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 these ASUs are effective as of March 12, 2020 through December 31, 2022.



 • ASU 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 Form 10-K for more information on elections of optional expedients that occurred in 2020.
 • During the first quarter of 2021, we elected to apply 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, 2021, we have not yet elected to apply any optional expedients for contract modifications and hedging relationships to any other financial instruments. However, we plan to elect these optional expedients in the future.




Accounting Standards Update Description Financial Statement Impact
SEC Paragraph Amendments – ASU 2020-09

Issued October 2020
• Amends the financial disclosure requirements for guarantors and issuers of 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 included Exhibit 22 in the Exhibit Index of Item 6 of this Report to disclose PNC’s guarantee of the PNC Capital Trust C preferred securities.
The PNC Financial Services Group, Inc. – Form 10-Q 51  


NOTE 2 ACQUISITION AND DIVESTITURE ACTIVITY

Acquisition of BBVA USA Bancshares, Inc.
On June 1, 2021, PNC acquired BBVA including its U.S. banking subsidiary, BBVA USA, for $11.5 billion in cash. PNC did not acquire the following entities as part of the acquisition: BBVA Securities, Inc., Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. This transaction has been accounted for as a business combination. Accordingly, the assets and liabilities from BBVA were recorded at fair value as of the acquisition date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Fair value estimates related to the assets and liabilities from BBVA are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, loans, certain deposits, certain other assets, customer relationships and the core deposit intangibles.
As of October 12, 2021, PNC has converted approximately 2.6 million customers, 9,000 employees and over 600 branches across seven states, merging BBVA USA into PNC Bank.
PNC incurred merger and integration costs of $243 million and $360 million for the three and nine months ended September 30, 2021, in connection with the transaction. These costs are recorded as contra-revenue and expense on the Consolidated Income Statement. The integration expenses are primarily related to personnel, technology, advisory and legal, with $49 million direct acquisition-related costs. Cumulative costs through September 30, 2021 were $367 million.
The following table includes the preliminary fair value of the identifiable tangible and intangible assets and liabilities from BBVA:
Table 34: Acquisition Consideration
June 1, 2021
In millions Fair Value
Fair value of acquisition consideration $ 11,480 
Assets
Cash and due from banks $ 969 
Interest-earning deposits with banks 13,313 
Loans held for sale 463 
Investment securities – available for sale 18,358 
Net loans 61,439 
Equity investments 723 
Mortgage servicing rights 35 
Core deposit intangibles and other intangible assets 399 
Other 3,531 
Total assets $ 99,230 
Liabilities
Deposits $ 85,562 
Borrowed funds 2,449 
Accrued expenses and other liabilities 1,285 
Total liabilities $ 89,296 
Noncontrolling interests 22 
Less: Net assets $ 9,912 
Goodwill $ 1,568 

Preliminary goodwill of $1.6 billion recorded in connection with the transaction resulted from the reputation, operating model and expertise of BBVA. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets from BBVA. The goodwill was allocated to each of our three business segments on a preliminary basis and is not deductible for income tax purposes. See Note 6 Goodwill and Mortgage Servicing Rights for additional information on the allocation of goodwill to the segments.










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



The following table includes the fair value and unpaid principal balance of the loans from the BBVA acquisition:

Table 35: Fair Value and Unpaid Principal Balance of Loans from the BBVA Acquisition

June 1, 2021
In millions Unpaid Principal Balance Fair Value
Loans
Commercial
Commercial and industrial $ 29,864  $ 29,381 
Commercial real estate 10,632  10,313 
Equipment lease financing 48  48 
Total commercial 40,544  39,742 
Consumer
Residential real estate 12,871  12,977 
Home equity 2,430  2,423 
Automobile 3,916  3,910 
Credit card 820  758 
Other consumer 1,688  1,629 
Total consumer 21,725  21,697 
Total $ 62,269  $ 61,439 

Other intangible assets from the BBVA acquisition as of June 1, 2021 consisted of the following:

Table 36: Intangible Assets

In millions  Fair Value Weighted Life
(years)
Amortization Method
Residential mortgage servicing rights $ 35  5.5 (a)
Core deposits $ 283  10.0 Accelerated
Other 116  9.8 Straight-line
Total core deposits and other $ 399 
(a) Intangible asset accounted for at fair value.

The following is a description of the methods used to determine the fair values of significant assets and liabilities.

Cash and Due from Banks and Interest-earning Deposits with Banks
The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Loans Held for Sale
Residential mortgage loans are valued based on quoted market prices, where available, prices for other traded mortgage loans with
similar characteristics, and purchase commitments and bid information received from market participants. The prices are adjusted as
necessary to include the embedded servicing value in the loans and to take into consideration the specific characteristics of certain similar loans.

Personal installment loans are pooled based on delinquency status, and fair value of individual loans is calculated based on traded
consumer unsecured loans, dealer research and loan level performance characteristics.

Available For Sale Securities
All investment securities from the BBVA acquisition were classified within the available for sale portfolio at acquisition. Fair value
estimates for available for sale securities were determined by third-party pricing vendors. The third-party vendors use a variety of
methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace
would pay for a security under current market conditions. These methods include the use of quoted prices for the identical or a similar
security, an alternative market-based approach or an income approach, such as a discounted cash flow pricing model.

Loans
Fair value for loans is based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market
interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated
on an individual loan basis. The PD, LGD, exposure at default and prepayment assumptions are the key factors driving credit losses
which are embedded into the estimated cash flows.

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


Equity Investments
Equity investments primarily include LIHTC investments and preservation fund investments. The fair value of the LIHTC investments
was estimated based on LIHTC pricing observed for recent transactions in markets where the properties underlying the LIHTC
investments from the BBVA acquisition are located. The fair value of the preservation investments was estimated based on appraisals
and valuations of the properties in the investment portfolio using income and market projections.

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

Core Deposit Intangible
This intangible asset represents the value of certain client deposit relationships. The fair value was estimated utilizing the cost method.
Appropriate consideration was given to deposit costs including servicing costs, client retention and alternative funding source costs at
the time of acquisition. The discount rate used was derived taking into account the estimated cost of equity, risk-free return rate and
risk premium for the market and specific risk related to the asset’s cash flows. The core deposit intangible is being amortized over 10
years using an accelerated depreciation methodology.

Deposits
The fair values for time deposits were estimated by discounting contractual cash flows using current market rates for instruments with
similar maturities. For deposits with no defined maturity, carrying values approximate fair values.

Borrowed Funds
The fair values of long-term debt instruments were estimated based on quoted market prices.

The following table presents financial results of BBVA included in the Consolidated Income Statement from the date of acquisition through September 30, 2021.

Table 37: BBVA Financial Results

In millions  Four months ended September 30, 2021
Net interest income $ 768 
Noninterest income $ 285 
Net income $ 378 


The following table presents unaudited pro forma results as if the acquisition of BBVA by PNC had occurred on January 1, 2020 and includes the impact of amortizing and accreting certain estimated purchase accounting adjustments such as intangible assets as well as fair value adjustments to loans, deposits and long-term debt. Merger and integration costs of $360 million that have been incurred since January 1, 2021 are included in the pro forma results. PNC's financial results include the divestiture of BlackRock of $4.3 billion recorded in net income. Additionally, BBVA's financial results through the nine months ended September 30, 2020 included a $2.2 billion goodwill impairment charge recorded in noninterest expense. The pro forma information does not necessarily reflect the results that would have occurred had PNC acquired BBVA on January 1, 2020.
Table 38: Unaudited Pro Forma Results
Three months ended September 30 Nine months ended September 30
In millions 2021 2020 2021 2020
Net interest income $ 2,837  $ 3,099  $ 8,812  $ 9,349 
Noninterest income $ 2,341  $ 2,007  $ 6,695  $ 5,832 
Net income $ 1,959  $ 1,616  $ 6,185  $ 2,467 

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



Under CECL, PNC is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination. PNC considers a variety of factors in connection with the identification of more-than-insignificant deterioration in credit quality, including but not limited to nonperforming status, delinquency, risk ratings, TDR classification, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination. PNC initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price. The initial ACL for PCD loans of $1.1 billion was established through an adjustment to the BBVA loan balance and related purchase accounting mark. Non-PCD loans and PCD loans had a fair value of $52.1 billion and $9.4 billion at the acquisition date and unpaid principal balance of $52.0 billion and $10.3 billion, respectively. In accordance with U.S. GAAP, there was no carryover of the ACL that had been previously recorded by BBVA. Subsequent to acquisition, PNC recorded an ACL on non-PCD loans of $1.0 billion through an increase to the provision for credit losses.

Table 39: PCD Loan Activity
June 1, 2021
In millions
Principal Balance $ 10,253 
ACL at acquisition (1,102)
Non-credit premium 219 
Purchase price $ 9,370 
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.

The following table summarizes the results from the discontinued operations of BlackRock included in the Consolidated Income Statement:
Table 40: Consolidated Income Statement - Discontinued Operations
Nine months ended September 30
In millions 2020
Noninterest income $ 5,777 
   Total revenue 5,777 
Income from discontinued operations before income taxes and noncontrolling interests 5,777 
Income taxes 1,222 
    Net income from discontinued operations $ 4,555 

The following table summarizes the cash flows of discontinued operations of BlackRock included in the Consolidated Statement of Cash Flows:
Table 41: Consolidated Statement of Cash Flows - Discontinued Operations
Nine months ended September 30
In millions 2020
Cash from discontinued operations
Net cash provided (used) by operating activities of discontinued operations $ (1,981)
Net cash provided by investing activities of discontinued operations $ 14,225 

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


NOTE 3 INVESTMENT SECURITIES

The following table summarizes our available for sale and held to maturity portfolios by major security type:
Table 42: Investment Securities Summary
September 30, 2021 (a) December 31, 2020 (a)
In millions Amortized
Cost
Unrealized Fair
Value
Amortized
Cost
Unrealized Fair
Value
Gains Losses Gains Losses
Securities Available for Sale
U.S. Treasury and government agencies $ 40,628  $ 472  $ (131) $ 40,969  $ 19,821  $ 903  $ (13) $ 20,711 
Residential mortgage-backed
Agency 64,412  957  (184) 65,185  47,355  1,566  (10) 48,911 
Non-agency 1,003  242  (3) 1,242  1,272  243  (14) 1,501 
Commercial mortgage-backed
Agency 2,008  56  (4) 2,060  2,571  119  (2) 2,688 
Non-agency 3,637  48  (14) 3,671  3,678  78  (67) 3,689 
Asset-backed 5,999  75  (7) 6,067  5,060  100  (10) 5,150 
Other 4,722  216  (5) 4,933  4,415  293  4,708 
Total securities available for sale (b) $ 122,409  $ 2,066  $ (348) $ 124,127  $ 84,172  $ 3,302  $ (116) $ 87,358 
Securities Held to Maturity
U.S. Treasury and government agencies $ 809  $ 82  $ 891  $ 795  $ 125  $ 920 
Other 670  29  $ (7) 692  646  42  $ (3) 685 
Total securities held to maturity (c) $ 1,479  $ 111  $ (7) $ 1,583  $ 1,441  $ 167  $ (3) $ 1,605 
(a) The accrued interest associated with our available for sale portfolio totaled $284 million and $238 million at September 30, 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 $130 million and $79 million for securities available for sale at September 30, 2021 and December 31, 2020, respectively.
(c) Credit ratings represent a primary credit quality indicator used to monitor and manage credit risk. 84% and 85% of our securities held to maturity were rated AAA/AA at September 30, 2021 and December 31, 2020, respectively.

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, 2021 included $2.4 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, 2020 was $0.7 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 September 30, 2021, the allowance for investment securities was $133 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 was $25 million and $51 million for the three and nine months ended September 30, 2021. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for a discussion of the methodologies used to determine the allowance for investment securities.

Table 43 presents the gross unrealized losses and fair value of securities available for sale that do not have an associated allowance for investment securities at September 30, 2021 and December 31, 2020. 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, 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.
 
56    The PNC Financial Services Group, Inc. – Form 10-Q


Table 43: 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, 2021
U.S. Treasury and government agencies $ (131) $ 21,970  $ (131) $ 21,970 
Residential mortgage-backed
Agency (177) 31,410  $ (7) $ 1,135  (184) 32,545 
Non-agency (2) 136  (2) 136 
Commercial mortgage-backed
Agency (3) 380  (1) 61  (4) 441 
Non-agency (1) 661  (2) 489  (3) 1,150 
Asset-backed (5) 1,585  (2) 331  (7) 1,916 
Other (3) 413  (3) 413 
Total securities available for sale $ (320) $ 56,419  $ (14) $ 2,152  $ (334) $ 58,571 
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
Agency (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 

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

Table 44: Gains (Losses) on Sales of Securities Available for Sale
Nine months ended September 30
In millions
Gross Gains Gross Losses Net Gains Tax Expense
2021 $ 275  $ (225) $ 50  $ 11 
2020 $ 256  $ (2) $ 254  $ 53 












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


The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at September 30, 2021:
Table 45: Contractual Maturity of Debt Securities
September 30, 2021
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 $ 3,326  $ 24,754  $ 10,796  $ 1,752  $ 40,628 
Residential mortgage-backed
Agency 108  2,448  61,855  64,412 
Non-agency 1,001  1,003 
Commercial mortgage-backed
Agency 76  413  778  741  2,008 
Non-agency 147  182  3,308  3,637 
Asset-backed 97  2,104  711  3,087  5,999 
Other 317  2,080  1,593  732  4,722 
Total securities available for sale at amortized cost $ 3,817  $ 29,606  $ 16,510  $ 72,476  $ 122,409 
Fair value $ 3,836  $ 29,919  $ 16,673  $ 73,699  $ 124,127 
Weighted-average yield, GAAP basis (a) 1.29  % 1.18  % 1.63  % 2.45  % 2.00  %
Securities Held to Maturity
U.S. Treasury and government agencies $ 199  $ 321  $ 289  $ 809 
Other $ 126  367  115  62  670 
Total securities held to maturity at amortized cost $ 126  $ 566  $ 436  $ 351  $ 1,479 
Fair value $ 128  $ 590  $ 502  $ 363  $ 1,583 
Weighted-average yield, GAAP basis (a) 3.47  % 2.91  % 3.91  % 2.52  % 3.16  %
(a) Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security.
At September 30, 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 $33.1 billion and $21.6 billion and fair value of $33.8 billion and $21.6 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 46: Fair Value of Securities Pledged and Accepted as Collateral
In millions September 30
2021
December 31
2020
Pledged to others $ 25,252  $ 22,841 
Accepted from others:
Permitted by contract or custom to sell or repledge $ 800  $ 683 
Permitted amount repledged to others $ 800  $ 683 

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
















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


NOTE 4 LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

Loan Portfolio
Our loan portfolio consists of two 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.
Commercial Consumer
• Commercial and industrial
• Residential real estate
• Commercial real estate
• Home equity
• 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. Loan delinquencies include government insured or guaranteed loans, loans accounted for under the fair value option and PCD loans.

Table 47 presents the composition and delinquency status of our loan portfolio at September 30, 2021 and December 31, 2020. Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the 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, 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 59  


Table 47: Analysis of Loan Portfolio (a) (b)
  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, 2021  
Commercial  
Commercial and industrial $ 151,703  $ 97  $ 50  $ 56  $ 203     $ 829  $ 152,735 
Commercial real estate 35,749  68  11  81     365  36,195 
Equipment lease financing 6,238     10  6,257 
Total commercial 193,690  170  56  67  293     1,204  195,187 
Consumer  
Residential real estate 36,504  209  80  296  585  (c) 533  $ 592  38,214 
Home equity 23,719  45  18  63  592  105  24,479 
Automobile
16,940  114  23  141     184  17,265 
Credit card 6,337  42  27  53  122     6,466 
Education
2,521  45  26  61  132  (c) 2,653 
Other consumer
5,898  34  15  11  60  5,966 
Total consumer 91,919  489  189  425  1,103     1,324  697  95,043 
Total $ 285,609  $ 659  $ 245  $ 492  $ 1,396     $ 2,528  $ 697  $ 290,230 
Percentage of total loans 98.41  % 0.23  % 0.08  % 0.17  % 0.48  % 0.87  % 0.24  % 100.00  %
December 31, 2020
Commercial
Commercial and industrial $ 131,245  $ 106  $ 26  $ 30  $ 162  $ 666  $ 132,073 
Commercial real estate 28,485  224  28,716 
Equipment lease financing 6,345  31  36  33  6,414 
Total commercial 166,075  143  32  30  205  923  167,203 
Consumer
Residential real estate 20,945  181  78  319  578  (c) 528  $ 509  22,560 
Home equity 23,318  50  21  71  645  54  24,088 
Automobile
13,863  134  34  12  180  175  14,218 
Credit card 6,074  43  30  60  133  6,215 
Education
2,785  55  29  77  161  (c) 2,946 
Other consumer
4,656  14  10  11  35  4,698 
Total consumer 71,641  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 loans 98.27  % 0.26  % 0.10  % 0.21  % 0.56  % 0.94  % 0.23  % 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 totaled $0.8 billion and $0.7 billion at September 30, 2021 and December 31, 2020, respectively. These amounts are 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 September 30, 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)Includes unearned income, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans totaling $0.9 billion and $1.3 billion at September 30, 2021 and December 31, 2020, respectively.
(f)Collateral dependent loans totaled $1.7 billion and $1.5 billion at September 30, 2021 and December 31, 2020, respectively.
At September 30, 2021, we pledged $25.6 billion of commercial and other loans to the Federal Reserve Bank and $77.8 billion of residential real estate and other loans to the FHLB as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, 2020 were $30.1 billion and $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 and include nonperforming TDRs and PCD loans. 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
60    The PNC Financial Services Group, Inc. – Form 10-Q


substantially all principal and interest are not reported as nonperforming loans and continue to accrue interest. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for additional information on our nonperforming loan and lease policies.
The following table presents our nonperforming assets as of September 30, 2021 and December 31, 2020 , respectively:
Table 48: Nonperforming Assets
Dollars in millions September 30
2021
December 31
2020
Nonperforming loans
Commercial $ 1,204  $ 923 
Consumer (a) 1,324  1,363 
Total nonperforming loans (b) 2,528  2,286 
OREO and foreclosed assets 31  51 
Total nonperforming assets $ 2,559  $ 2,337 
Nonperforming loans to total loans 0.87  % 0.94  %
Nonperforming assets to total loans, OREO and foreclosed assets 0.88  % 0.97  %
Nonperforming assets to total assets 0.46  % 0.50  %
(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 $1.0 billion at September 30, 2021 and primarily include loans with a fair value of collateral that exceeds the amortized cost basis. The comparable amount at December 31, 2020 was $0.8 billion.

Nonperforming loans 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 Troubled Debt Restructurings section of this Note 4 for additional information on TDRs.

Total nonperforming loans in Table 48 include TDRs of $0.8 billion and $0.9 billion at September 30, 2021 and December 31, 2020, respectively. TDRs that are performing, including consumer credit card TDR loans, are excluded from nonperforming loans and totaled $0.7 billion at both September 30, 2021 and December 31, 2020.
Additional Credit Quality Indicators by Loan Class

Commercial Loan Classes
See Note 4 Loans and Related 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 manage the credit risk associated with each loan class.
The PNC Financial Services Group, Inc. – Form 10-Q 61  


The following table presents credit quality indicators for the commercial loan classes:
Table 49: Commercial Credit Quality Indicators (a)
  Term Loans by Origination Year  
September 30, 2021 - In millions 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total
Loans
Commercial and industrial
Pass Rated $ 23,953  $ 13,493  $ 12,681  $ 7,612  $ 7,144  $ 13,065  $ 66,452  $ 93  $ 144,493 
Criticized 254  487  878  906  517  997  4,176  27  8,242 
Total commercial and industrial 24,207  13,980  13,559  8,518  7,661  14,062  70,628  120  152,735 
Commercial real estate
Pass Rated 2,704  4,531  7,545  4,956  3,006  8,375  429  31,546 
Criticized 160  287  1,000  710  657  1,812  23  4,649 
Total commercial real estate 2,864  4,818  8,545  5,666  3,663  10,187  452  36,195 
Equipment lease financing
Pass Rated 885  1,257  1,026  777  570  1,551  6,066 
Criticized 26  59  44  33  23  191 
Total equipment lease financing 911  1,316  1,070  810  593  1,557  6,257 
Total commercial $ 27,982  $ 20,114  $ 23,174  $ 14,994  $ 11,917  $ 25,806  $ 71,080  $ 120  $ 195,187 
  Term Loans by Origination Year  
December 31, 2020 - In millions 2020 2019 2018 2017 2016 Prior Revolving Loans Revolving Loans Converted to Term Total
Loans
Commercial and industrial
Pass Rated $ 31,680  $ 13,340  $ 8,209  $ 5,956  $ 4,242  $ 7,141  $ 54,775  $ 53  $ 125,396 
Criticized 339 702  578  334  224  351  4,130  19  6,677 
Total commercial and industrial 32,019  14,042  8,787  6,290  4,466  7,492  58,905  72  132,073 
Commercial real estate
Pass Rated 3,709  6,268  3,426  2,841  2,341  6,792  218  25,595 
Criticized 319  548  148  423  400  1,159  124  3,121 
Total commercial real estate
4,028  6,816  3,574  3,264  2,741  7,951  342  28,716 
Equipment lease financing
Pass Rated 1,429  1,202  942  738  405  1,350  6,066 
Criticized 78  92  86  39  22  31  348 
Total equipment lease financing
1,507  1,294  1,028  777  427  1,381  6,414 
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 September 30, 2021 and December 31, 2020.

Consumer Loan Classes
See Note 4 Loans and Related 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 manage the credit risk
associated with each loan class.










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


Residential Real Estate and Home Equity
The following table presents credit quality indicators for the residential real estate loan class:
Table 50: Residential Real Estate Credit Quality Indicators
Term Loans by Origination Year
September 30, 2021 - In millions 2021 2020 2019 2018 2017 Prior Total Loans
PNC legacy
Current estimated LTV ratios
Greater than 100% $ $ $ 12  $ $ $ 71  $ 99 
Greater than or equal to 80% to 100% 711  143  107  30  34  165  1,190 
Less than 80% 9,359  5,802  2,193  638  1,179  4,356  23,527 
Government insured or guaranteed loans 11  24  21  30  688  775 
Total PNC legacy portfolio 10,072  5,965  2,336  691  1,247  5,280  25,591 
Acquired loans
Estimated LTV ratios (a)
Greater than 100% 13  23  18  62 
Greater than or equal to 80% to 100% 847  1,225  488  241  243  534  3,578 
Less than 80% 1,689  1,941  728  287  369  3,248  8,262 
No LTV ratio available 207  320  93  26  647 
Government insured or guaranteed loans 14  11  10  35  74 
Total acquired loans 2,756  3,513  1,325  567  627  3,835  12,623 
Total residential real estate $ 12,828  $ 9,478  $ 3,661  $ 1,258  $ 1,874  $ 9,115  $ 38,214 
Updated FICO scores
Greater than or equal to 780 $ 7,778  $ 6,577  $ 2,405  $ 701  $ 1,170  $ 4,549  $ 23,180 
720 to 779 3,957  1,917  733  250  372  1,670  8,899 
660 to 719 498  464  292  145  144  821  2,364 
Less than 660 52  123  92  80  85  805  1,237 
No FICO score available 542  382  101  50  63  547  1,685 
Government insured or guaranteed loans 15  38  32  40  723  849 
Total residential real estate $ 12,828  $ 9,478  $ 3,661  $ 1,258  $ 1,874  $ 9,115  $ 38,214 
Term Loans by Origination Year
December 31, 2020 - In millions 2020 2019 2018 2017 2016 Prior Total Loans
Current estimated LTV ratios
Greater than 100% $ $ 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 loans 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 779 2,268  820  220  340  335  818  4,801 
660 to 719 252  161  76  98  92  475  1,154 
Less than 660 40  48  33  31  41  485  678 
No FICO score available 129  146 
Government insured or guaranteed loans 28  27  38  57  765  922 
Total residential real estate $ 7,996  $ 4,158  $ 1,172  $ 1,942  $ 2,069  $ 5,223  $ 22,560 
(a) LTV ratios, inclusive of CLTV for first lien and certain subordinate lien positions, in the BBVA loan portfolio are calculated on a quarterly basis utilizing the real estate collateral values available at origination. These calculations will be refreshed for our 2021 Form 10-K to update the property values of real estate collateral and calculate an updated current estimated LTV ratio in connection with the conversion of bank systems, which occurred as of October 12, 2021. See Note 4 Loans and Related Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information on how current estimated LTV ratios are calculated in the PNC legacy portfolio.


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


The following table presents credit quality indicators for the home equity loan class:
Table 51: Home Equity Credit Quality Indicators
Term Loans by Origination Year
September 30, 2021 - In millions 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total Loans
PNC legacy
Current estimated LTV ratios
Greater than 100% $ $ 16  $ 15  $ $ $ 30  $ 270  $ 91  $ 427 
Greater than or equal to 80% to 100% 17  97  87  18  13  78  847  570  1,727 
Less than 80% 201  2,704  1,315  401  600  3,427  6,473  4,834  19,955 
Total PNC legacy portfolio 219  2,817  1,417  421  615  3,535  7,590  5,495  22,109 
Acquired loans
Estimated LTV ratios (a)
Greater than 100% 68  71 
Greater than or equal to 80% to 100% 14  567  595 
Less than 80% 80  1,575  1,680 
No LTV ratio available 19  24 
Total acquired loans 12  101  2,229  2,370 
Total home equity $ 231  $ 2,825  $ 1,424  $ 428  $ 619  $ 3,636  $ 9,819  $ 5,497  $ 24,479 
Updated FICO scores
Greater than or equal to 780 $ 129  $ 1,756  $ 787  $ 221  $ 403  $ 2,237  $ 5,812  $ 2,706  $ 14,051 
720 to 779 69  745  385  107  125  712  2,403  1,405  5,951 
660 to 719 24  270  192  65  59  370  1,140  741  2,861 
Less than 660 52  59  34  31  305  411  561  1,456 
No FICO score available 12  53  84  160 
Total home equity $ 231  $ 2,825  $ 1,424  $ 428  $ 619  $ 3,636  $ 9,819  $ 5,497  $ 24,479 
Term Loans by Origination Year
December 31, 2020 - In millions 2020 2019 2018 2017 2016 Prior Revolving Loans Revolving Loans Converted to Term Total Loans
Current estimated LTV ratios .
Greater than 100% $ $ 44  $ 18  $ 15  $ $ 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 779 1,028  558  153  181  145  777  2,137  941  5,920 
660 to 719 334  273  86  84  66  402  985  625  2,855 
Less than 660 52  74  39  39  33  345  277  620  1,479 
No FICO score available 13  80  107 
Total home equity $ 3,434  $ 2,000  $ 590  $ 830  $ 694  $ 4,000  $ 8,794  $ 3,746  $ 24,088 
(a) LTV ratios, inclusive of CLTV for first lien and certain subordinate lien positions, in the BBVA loan portfolio are calculated on a quarterly basis utilizing the real estate collateral values available at origination. These calculations will be refreshed for our 2021 Form 10-K to update the property values of real estate collateral and calculate an updated current estimated LTV ratio in connection with the conversion of bank systems, which occurred as of October 12, 2021. See Note 4 Loans and Related Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional information on how current estimated LTV ratios are calculated in the PNC legacy portfolio.


64    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:

Table 52: Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes
Term Loans by Origination Year
September 30, 2021 - In millions 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total Loans
Updated FICO Scores
Automobile
FICO score greater than or equal to 780 $ 2,828  $ 1,638  $ 1,551  $ 624  $ 281  $ 116  $ 7,038 
720 to 779 1,694  1,157  1,225  595  248  91  5,010 
660 to 719 730  705  913  505  195  65  3,113 
Less than 660 220  349  658  504  198  79  2,008 
No FICO score available or required (a) 45  29  13  96 
Total automobile $ 5,517  $ 3,878  $ 4,360  $ 2,234  $ 925  $ 351  $ 17,265 
Credit card
FICO score greater than or equal to 780 $ 1,718  $ $ 1,720 
720 to 779 1,796  10  1,806 
660 to 719 1,836  22  1,858 
Less than 660 925  33  958 
No FICO score available or required (a) 121  124 
Total credit card $ 6,396  $ 70  $ 6,466 
Education
FICO score greater than or equal to 780 $ 12  $ 63  $ 81  $ 66  $ 51  $ 412  $ 685 
720 to 779 11  31  39  31  22  175  309 
660 to 719 12  12  75  123 
Less than 660 27  36 
No FICO score available or required (a) 12  11  38 
Education loans using FICO credit metric 45  115  143  115  83  690  1,191 
Other internal credit metrics 1,462  1,462 
Total education $ 45  $ 115  $ 143  $ 115  $ 83  $ 2,152  $ 2,653 
Other consumer
FICO score greater than or equal to 780 $ 181  $ 172  $ 162  $ 62  $ 18  $ 38  $ 203  $ $ 838 
720 to 779 229  209  209  85  21  23  200  976 
660 to 719 179  170  201  105  21  14  144  835 
Less than 660 47  73  96  67  14  57  364 
No FICO score available or required (a) 20  24  54 
Other consumer loans using FICO credit metric 656  631  669  320  74  85  628  3,067 
Other internal credit metrics 64  16  26  19  22  108  2,617  27  2,899 
Total other consumer $ 720  $ 647  $ 695  $ 339  $ 96  $ 193  $ 3,245  $ 31  $ 5,966 

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


Term Loans by Origination Year
December 31, 2020 - In millions 2020 2019 2018 2017 2016 Prior Revolving Loans Revolving Loans Converted to Term Total 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 779 1,098  1,581  789  381  167  44  4,060 
660 to 719 617  1,222  684  288  109  31  2,951 
Less than 660 192  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  $ $ 1,638 
720 to 779 1,724  11  1,735 
660 to 719 1,765  26  1,791 
Less than 660 902  51  953 
No FICO score available or required (a) 94  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 779 24  46  38  28  20  190  346 
660 to 719 15  15  14  90  149 
Less than 660 37  49 
No FICO score available or required (a) 16  10  36 
Education loans using FICO credit metric 92  163  135  101  78  746  1,315 
Other internal credit metrics 1,631  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  $ $ 42  $ 86  $ $ 567 
720 to 779 197  247  82  22  22  123  698 
660 to 719 127  210  81  17  14  117  570 
Less than 660 28  86  41  53  228 
Other consumer loans using FICO credit metric 514  730  267  69  15  86  379  2,063 
Other internal credit metrics 67  33  37  26  60  75  2,334  2,635 
Total other consumer $ 581  $ 763  $ 304  $ 95  $ 75  $ 161  $ 2,713  $ $ 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 53 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, 2021 and September 30, 2020. Additionally, the table provides information about the types of TDR concessions. See Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses included in Item 8 of our 2020 Form 10-K for additional discussion of TDRs.
66    The PNC Financial Services Group, Inc. – Form 10-Q


Table 53: Financial Impact and TDRs by Concession Type (a)
  Pre-TDR
Amortized Cost Basis (b)
Post-TDR Amortized Cost Basis (c)
Three months ended September 30
Dollars in millions
Number
of Loans
Principal
Forgiveness
Rate
Reduction
Other Total
2021
Commercial 13  $ 123  $ 139  $ 139 
Consumer 1,340  31  $ 21  28 
Total TDRs 1,353  $ 154  $ 21  $ 146  $ 167 
2020
Commercial 16  $ 95  $ 10  $ 69  $ 79 
Consumer 2,769  46  26  14  40 
Total TDRs 2,785  $ 141  $ 36  $ 83  $ 119 
  Pre-TDR
Amortized Cost Basis (b)
Post-TDR Amortized Cost Basis (c)
Nine months ended September 30
Dollars in millions
Number
of Loans
Principal
Forgiveness
Rate
Reduction
Other Total
2021
Commercial 43  $ 320  $ 315  $ 315 
Consumer 4,822  86  $ 49  28  77 
Total TDRs 4,865  $ 406  $ 49  $ 343  $ 392 
2020
Commercial 58  $ 304  $ 39  $ 10  $ 231  $ 280 
Consumer 9,925  139  67  59  126 
Total TDRs 9,983  $ 443  $ 39  $ 77  $ 290  $ 406 
(a) Impact of partial charge-offs at TDR date is 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.
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 of TDRs that subsequently defaulted during the periods presented and were classified as TDRs during the applicable 12-month period preceding September 30, 2021 and September 30, 2020:
Table 54: Subsequently Defaulted TDRs

In millions 2021 2020
Three months ended September 30 $ $ 26 
Nine months ended September 30 $ 25  $ 46 




















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


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:
Table 55: Rollforward of Allowance for Credit Losses
Three months ended September 30 Nine months ended September 30
2021 2020 2021 2020
In millions Commercial Consumer Total Commercial Consumer Total Commercial Consumer Total Commercial Consumer Total
Allowance for loan and lease losses
Beginning balance $ 3,812  $ 1,918  $ 5,730  $ 3,380  $ 2,548  $ 5,928  $ 3,337  $ 2,024  $ 5,361  $ 1,812  $ 930  $ 2,742 
Adoption of ASU 2016-13 (a) (304) 767  463 
Beginning balance, adjusted 3,812  1,918  5,730  3,380  2,548  5,928  3,337  2,024  5,361  1,508  1,697  3,205 
Acquisition PCD reserves (54) (5) (59) 774  282  1,056 
Charge-offs (50) (156) (206) (64) (183) (247) (393) (484) (877) (269) (596) (865)
Recoveries 29  96  125  26  66  92  81  263  344  65  197  262 
Net (charge-offs) (b) (21) (60) (81) (38) (117) (155) (312) (221) (533) (204) (399) (603)
Provision for (recapture of) credit
  losses
(129) (100) (229) 185  (208) (23) (193) (332) (525) 2,224  925  3,149 
Other (5) (1) (6) (3) $ (1) (4)
Ending balance $ 3,603  $ 1,752  $ 5,355  $ 3,528  $ 2,223  $ 5,751  $ 3,603  $ 1,752  $ 5,355  $ 3,528  $ 2,223  $ 5,751 
Allowance for unfunded lending related commitments (c)
Beginning balance $ 533  $ 112  $ 645  $ 548  $ 114  $ 662  $ 485  $ 99  $ 584  $ 316  $ $ 318 
Adoption of ASU 2016-13 (a) 53  126  179 
Beginning balance, adjusted 533  112  645  548  114  662  485  99  584  369  128  497 
Acquisition PCD reserves 43  46 
Provision for (recapture of) credit
  losses
(1) 34  (7) 27  16  213  (21) 192 
Ending balance $ 535  $ 111  $ 646  $ 582  $ 107  $ 689  $ 535  $ 111  $ 646  $ 582  $ 107  $ 689 
Allowance for credit losses at September 30 (d)
$ 4,138  $ 1,863  $ 6,001  $ 4,110  $ 2,330  $ 6,440  $ 4,138  $ 1,863  $ 6,001  $ 4,110  $ 2,330  $ 6,440 
(a)     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)    Amounts for the nine months ended September 30, 2021 include amounts attributable to BBVA, primarily related to commercial loans, which were largely the result of required purchase accounting treatment for the BBVA acquisition.
(c)    See Note 8 Commitments for additional information about the underlying commitments related to this allowance.
(d)    Represents the ALLL plus allowance for unfunded lending related commitments and excludes allowances for investment securities and other financial assets, which together totaled $162 million and $98 million at September 30, 2021 and 2020, respectively.

The ACL at September 30, 2021 totaled $6.0 billion, an increase of $0.1 billion since December 31, 2020. This increase was primarily attributable to the addition of reserves related to the BBVA acquisition, partially offset by declines due to portfolio changes and an improved economic outlook. The following summarizes the changes in these factors that influenced the current ACL during the nine months ended September 30, 2021:

Reserves in the current period include expected credit losses on the acquired BBVA loan portfolio.
Portfolio changes that drove reserve declines included improvements in credit quality along with changes in portfolio composition reflecting both shifts in the portfolio mix and declines in certain legacy PNC loan balances.
The economic scenarios used for the period ended September 30, 2021 reflect an improved near-term economic outlook compared to the scenarios used for the period ended December 31, 2020. The overall improvement in the comparison was driven largely by improvements in both the outlook for consumer spending and the labor market, along with the impact from continued vaccine distribution, while also considering the lingering effects of COVID-19 that slowed the momentum of economic recovery in recent months, as the Delta variant continued to drive increased COVID-19 cases throughout the U.S. and abroad.

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


NOTE 5 LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES

Loan Sale and Servicing Activities

As more fully described in Note 5 Loan Sale and Servicing Activities and Variable Interest Entities in Item 8 of our 2020 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 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 8 Commitments and Note 11 Fair Value for information on our servicing rights, including the carrying value of servicing assets.

The following table provides cash flows associated with our loan sale and servicing activities:
Table 56: Cash Flows Associated with Loan Sale and Servicing Activities
In millions Residential
Mortgages
Commercial
Mortgages (a)
Cash Flows - Three months ended September 30, 2021
Sales of loans (b) $ 2,475  $ 881 
Repurchases of previously transferred loans (c) $ 45  $ 103 
Servicing fees (d) $ 105  $ 43 
Servicing advances recovered/(funded), net $ (4) $ 28 
Cash flows on mortgage-backed securities held (e) $ 2,041  $ 18 
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 - Nine months ended September 30, 2021
Sales of loans (b) $ 5,997  $ 2,604 
Repurchases of previously transferred loans (c) $ 189  $ 145 
Servicing fees (d) $ 270  $ 119 
Servicing advances recovered/(funded), net $ $ (8)
Cash flows on mortgage-backed securities held (e) $ 7,256  $ 66 
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 $ $ (206)
Cash flows on mortgage-backed securities held (e) $ 6,374  $ 65 
(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 ROAP option, as well as residential mortgage loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers.
(d)Includes contractually specified servicing fees, late charges and ancillary fees.
(e)Represents cash flows on securities where we transferred to and/or service loans for a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $15.9 billion, $16.5 billion and $19.5 billion in residential mortgage-backed securities and $0.6 billion, $0.8 billion and $0.8 billion in commercial mortgage-backed securities at September 30, 2021, December 31, 2020 and September 30, 2020.
Table 57 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, 2021.
The PNC Financial Services Group, Inc. – Form 10-Q 69  


Table 57: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others
In millions Residential Mortgages Commercial Mortgages (a)
September 30, 2021
Total principal balance $ 43,447  $ 40,775 
Delinquent loans (b) $ 551  $ 71 
December 31, 2020
Total principal balance $ 43,351  $ 40,790 
Delinquent loans (b) $ 453  $ 136 
Three months ended September 30, 2021
Net charge-offs (c) $ $
Three months ended September 30, 2020
Net charge-offs (c) $ $
Nine months ended September 30, 2021
Net charge-offs (c) $ $ 180 
Nine months ended September 30, 2020
Net charge-offs (c) $ 14  $ 103 
(a)Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization.
(b)Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.
(c)Net charge-offs for Residential mortgages represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for commercial mortgage-backed securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.

Variable Interest Entities (VIEs)

As discussed in Note 5 Loan Sale and Servicing Activities and Variable Interest Entities in Item 8 of our 2020 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 58 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 58. 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 58: Non-Consolidated VIEs
In millions PNC Risk of Loss (a) Carrying Value of Assets
Owned by PNC
  Carrying Value of Liabilities
Owned by PNC
 
September 30, 2021  
Mortgage-backed securitizations (b) $ 17,223  $ 17,223  (c)  $  
Tax credit investments and other 3,778  3,952  (d)  1,847  (e) 
Total $ 21,001  $ 21,175    $ 1,848   
December 31, 2020  
Mortgage-backed securitizations (b) $ 18,207  $ 18,207  (c)  $  
Tax credit investments and other 3,121  2,894  (d)  1,198  (e) 
Total $ 21,328  $ 21,101    $ 1,199   
(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.

We make certain equity investments in various tax credit limited partnerships or LLCs. The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the CRA. Within Income taxes, during both the nine months ended September 30, 2021 and September 30, 2020, we recognized $0.1 billion or less of amortization, tax credits and other tax benefits associated with qualified investments in low income housing tax credits.

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



NOTE 6 GOODWILL AND MORTGAGE SERVICING RIGHTS

Goodwill

Allocations of Goodwill by business segment during 2021 and 2020 follow:

Table 59: Goodwill by Business Segment
In millions Retail Banking Corporate & Institutional Banking Asset Management Group Total
September 30, 2021 (a) $ 6,459  $ 4,239  $ 187  $ 10,885 
December 31, 2020 $ 5,795  $ 3,374  $ 64  $ 9,233 
(a)Includes $1.6 billion of goodwill from the BBVA acquisition.
Goodwill increased during the nine months ended September 30, 2021 primarily as a result of the acquisition of BBVA. Goodwill was recorded and allocated to each segment on a preliminary basis and is subject to change based on new information obtained related to the close date or reallocation of assets and liabilities to each segment. See Note 2 Acquisition and Divestiture Activities for additional information.

We review goodwill in each of our reporting units for impairment at least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date. Based on results of our review for triggering events, there were no impairment charges related to goodwill in the first nine months of 2021 or in 2020.

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 our projected servicing costs. MSRs are purchased or originated when loans are sold with servicing retained. MSRs totaled $1.8 billion and $1.2 billion at September 30, 2021 and December 31, 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).

See the Sensitivity Analysis section of this Note 6 for more detail on our fair value measurement of MSRs. See Note 15 Fair Value and Note 6 Goodwill and Mortgage Servicing Rights in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K for more detail on our fair value measurement and our accounting of MSRs.

Changes in the commercial and residential MSRs follow:

Table 60: Mortgage Servicing Rights
  Commercial MSRs Residential MSRs
In millions 2021 2020 2021 2020
January 1 $ 569  $ 649  $ 673  $ 995 
Additions:
BBVA Acquisition 35 
From loans sold with servicing retained 61  65  61  34 
Purchases 26  31  400  113 
Changes in fair value due to:
Time and payoffs (a) (87) (87) (242) (136)
Other (b) 134  (143) 203  (408)
September 30 $ 703  $ 515  $ 1,130  $ 598 
Related unpaid principal balance at September 30 $ 263,862  $ 234,897  $ 139,154  $ 119,158 
Servicing advances at September 30 $ 445  $ 363  $ 139  $ 107 
(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.

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


Sensitivity Analysis
The fair value of commercial and residential MSRs and significant inputs to the valuation models as of September 30, 2021 and December 31, 2020 are shown in Tables 61 and 62. 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 61 and 62. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

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

Table 61: Commercial Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millions September 30
2021
December 31
2020
Fair value $ 703  $ 569 
Weighted-average life (years) 4.4 4.4
Weighted-average constant prepayment rate 5.46  % 4.87  %
Decline in fair value from 10% adverse change $ 10  $
Decline in fair value from 20% adverse change $ 20  $ 18 
Effective discount rate 7.55  % 7.33  %
Decline in fair value from 10% adverse change $ 19  $ 15 
Decline in fair value from 20% adverse change $ 39  $ 31 

Table 62: Residential Mortgage Servicing Rights – Key Valuation Assumptions
Dollars in millions
September 30
2021
  December 31
2020
 
Fair value $ 1,130    $ 673   
Weighted-average life (years) 5.9   3.8  
Weighted-average constant prepayment rate 11.49  % 21.13  %
Decline in fair value from 10% adverse change $ 47    $ 41   
Decline in fair value from 20% adverse change $ 94    $ 82   
Weighted-average option adjusted spread 909  bps 922  bps
Decline in fair value from 10% adverse change $ 37    $ 20   
Decline in fair value from 20% adverse change $ 72    $ 38   

Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $0.2 billion for the three months ended September 30, 2021 and 2020 and $0.4 billion for the nine months ended September 30, 2021 and 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.

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



NOTE 7 LEASES
PNC's lessor arrangements primarily consist of direct financing, sales-type and operating 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. For more information on lease accounting see Note 1 Accounting Policies and Note 7 Leases in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K.

Table 63: Lessor Income
Three months ended
September 30
Nine months ended
September 30
In millions 2021 2020 2021 2020
Product
 Sales-type leases and direct financing leases (a) $ 61  $ 66  $ 184  $ 207 
 Operating leases (b) 18  22  58  74 
Lessor income $ 79  $ 88  $ 242  $ 281 
(a)Included in Loan interest income on the Consolidated Income Statement.
(b)Included in Corporate services on the Consolidated Income Statement.

NOTE 8 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 other commitments as of September 30, 2021 and December 31, 2020, respectively.
Table 64: Commitments to Extend Credit and Other Commitments
In millions September 30
2021
December 31
2020
Commitments to extend credit
Commercial $ 177,033  $ 153,089 
Home equity lines of credit 19,300  16,626 
Credit card 34,488  31,019 
Other 10,693  7,087 
Total commitments to extend credit 241,514  207,821 
Net outstanding standby letters of credit (a) 9,495  9,053 
Standby bond purchase agreements (b) 1,300  1,448 
Other commitments (c) 2,745  2,046 
Total commitments to extend credit and other commitments $ 255,054  $ 220,368 
(a)Net outstanding standby letters of credit include $3.4 billion and $3.8 billion at September 30, 2021 and December 31, 2020, respectively, which support remarketing programs.
(b)We enter into standby bond purchase agreements to support municipal bond obligations.
(c)Includes $1.7 billion and $1.1 billion related to investments in qualified affordable housing projects for September 30, 2021 and December 31, 2020, respectively.

Commitments to Extend Credit

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

Net Outstanding Standby Letters of Credit

We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Approximately 97% of our net outstanding standby letters of credit were rated as Pass as of September 30, 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, 2021 had terms ranging from less than one year to eight years.
The PNC Financial Services Group, Inc. – Form 10-Q 73  


As of September 30, 2021, assets of $1.5 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 $0.1 billion at September 30, 2021 and is included in Other liabilities on our Consolidated Balance Sheet.

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



NOTE 9 TOTAL EQUITY AND OTHER COMPREHENSIVE INCOME

Activity in total equity for the three and nine months ended September 30, 2021 and 2020 is as follows:
Table 65: Rollforward of Total Equity
    Shareholders’ Equity      
In millions Shares
Outstanding
Common
Stock
Common
Stock
Capital
Surplus -
Preferred
Stock
Capital
Surplus -
Common
Stock and
Other
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Non-
controlling
Interests
Total Equity
Three months ended
Balance at June 30, 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)
Treasury stock activity (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 
Balance at June 30, 2021 (a) 425  $ 2,713  $ 3,519  $ 12,409  $ 48,663  $ 1,463  $ (14,140) $ 58  $ 54,685 
Net income 1,474  16  1,490 
Other comprehensive income, net of tax (384) (384)
Cash dividends declared - Common (538) (538)
Cash dividends declared - Preferred (57) (57)
Preferred stock discount accretion (1)
Preferred stock issuance (c) 1,489  1,489 
Treasury stock activity (2) (387) (382)
Other 30  (36) (6)
Balance at September 30, 2021 (a) 423  $ 2,713  $ 5,009  $ 12,444  $ 49,541  $ 1,079  $ (14,527) $ 38  $ 56,297 
Nine 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 (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)
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 
Balance at December 31, 2020 (a) 424  $ 2,713  $ 3,517  $ 12,367  $ 46,848  $ 2,770  $ (14,205) $ 31  $ 54,041 
Net income 4,381  38  4,419 
Other comprehensive income, net of tax (1,691) (1,691)
Cash dividends declared - Common (1,523) (1,523)
Cash dividends declared - Preferred (162) (162)
Preferred stock discount accretion (3)
Preferred stock issuance (c) 1,489  1,489 
Common stock activity 12  12 
Treasury stock activity (1) 78  (322) (244)
Other (13) (31) (44)
Balance at September 30, 2021 (a) 423  $ 2,713  $ 5,009  $ 12,444  $ 49,541  $ 1,079  $ (14,527) $ 38  $ 56,297 
(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)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)On September 13, 2021, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 3.400% fixed-rate reset non-cumulative perpetual preferred stock, Series T, with a par value of $1 per share.
(d)Represents the cumulative effect of adopting ASU 2016-13 - Financial Instruments - Credit Losses.
The PNC Financial Services Group, Inc. – Form 10-Q 75  


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

Table 66: Other Comprehensive Income (Loss)


  Three months ended September 30 Nine months ended September 30
2021 2020 2021 2020
In millions Pre-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
Net unrealized gains (losses) on securities $ (320) $ 76  $ (244) $ 42  $ (9) $ 33  $ (1,446) $ 341  $ (1,105) $ 2,283  $ (525) $ 1,758 
Less: Net realized gains (losses) reclassified to
 earnings (a)
(1) 32  (7) 25  25  (6) 19  255  (59) 196 
Net change (323) 77  (246) 10  (2) (1,471) 347  (1,124) 2,028  (466) 1,562 
Cash flow hedge derivatives
Net unrealized gains (losses) on cash flow
 hedge derivatives
(59) 14  (45) 15  (3) 12  (369) 87  (282) 960  (221) 739 
Less: Net realized gains (losses) reclassified to
 earnings (a)
115  (27) 88  134  (30) 104  358  (84) 274  282  (65) 217 
Net change (174) 41  (133) (119) 27  (92) (727) 171  (556) 678  (156) 522 
Pension and other postretirement benefit
 plan adjustments
Net pension and other postretirement benefit
 plan activity and other reclassified to earnings (b)
(11) (8) (3) (2)
Net change (11) (8) (3) (2)
Other
Net unrealized gains (losses) on other transactions (8) (7) 10  10  (5) (3) 10  (9)
Net change (8) (7) 10  10  (5) (3) 10  (9)
Total other comprehensive income (loss) from
 continuing operations
(494) 110  (384) (107) 35  (72) (2,207) 516  (1,691) 2,713  (630) 2,083 
Total other comprehensive income (loss) from
 discontinued operations
148  (33) 115 
Total other comprehensive income (loss) $ (494) $ 110  $ (384) $ (107) $ 35  $ (72) $ (2,207) $ 516  $ (1,691) $ 2,861  $ (663) $ 2,198 
(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.


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



Table 67: Accumulated Other Comprehensive Income (Loss) Components
In millions, after-tax Debt 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, 2020 $ 2,621  $ 890  $ (412) $ (30) $ 3,069  $ 3,069 
Net activity (92) 10  (72) (72)
Balance at September 30, 2020 $ 2,629  $ 798  $ (410) $ (20) $ 2,997    $ 2,997 
Balance at June 30, 2021 $ 1,584  $ 236  $ (355) $ (2) $ 1,463  $ 1,463 
Net activity (246) (133) (7) (384) (384)
Balance at September 30, 2021 $ 1,338  $ 103  $ (353) $ (9) $ 1,079    $ 1,079 
Nine months ended
Balance at December 31, 2019 $ 1,067  $ 276  $ (408) $ (21) $ 914  $ (115) $ 799 
Net activity 1,562  522  (2) 2,083  115  2,198 
Balance at September 30, 2020 $ 2,629  $ 798  $ (410) $ (20) $ 2,997    $ 2,997 
Balance at December 31, 2020 $ 2,462  $ 659  $ (345) $ (6) $ 2,770  $ 2,770 
Net activity (1,124) (556) (8) (3) (1,691) (1,691)
Balance at September 30, 2021 $ 1,338  $ 103  $ (353) $ (9) $ 1,079    $ 1,079 
The following table provides the dividends per share for PNC's common and preferred stock:

Table 68: Dividends Per Share (a)
Three months ended September 30 Nine months ended September 30
2021 2020 2021 2020
Common Stock $ 1.25  $ 1.15  $ 3.55  $ 3.45 
Preferred Stock
   Series B $ 0.45  $ 0.45  $ 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 (b) $ 1,343  $ 4,031 
   Series R $ 2,425  $ 2,425 
   Series S $ 2,500  $ 2,500 
(a)Dividends are payable quarterly other than Series R and Series S preferred stock, which are payable semiannually. On September 13, 2021, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 3.400% fixed-rate reset non-cumulative perpetual preferred stock, Series T, with a par value of $1 per share. Beginning on December 15, dividends will be paid on the Series T on a quarterly basis (March 15, June 15, September 15 and December 15 of each year).
(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.

On October 1, 2021, the PNC board of directors declared a quarterly cash dividend on common stock of $1.25 per share payable on November 5, 2021.

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


NOTE 10 EARNINGS PER SHARE

Table 69: Basic and Diluted Earnings Per Common Share
  Three months ended
September 30
Nine months ended
September 30
In millions, except per share data 2021 2020 2021 2020
Basic
Net income from continuing operations $ 1,490  $ 1,532  $ 4,419  $ 1,547 
Less:
Net income attributable to noncontrolling interests 16  13  38  27 
Preferred stock dividends 57  63  162  181 
Preferred stock discount accretion and redemptions
Net income from continuing operations attributable to common shareholders 1,416  1,455  4,216  1,336 
Less: Dividends and undistributed earnings allocated to nonvested restricted shares 21 
Net income from continuing operations attributable to basic common shareholders $ 1,408  $ 1,447  $ 4,195  $ 1,329 
Net income from discontinued operations attributable to common shareholders $ 4,555 
Less: Undistributed earnings allocated to nonvested restricted shares 22 
Net income from discontinued operations attributable to basic common shareholders $ 4,533 
Basic weighted-average common shares outstanding 426  426  426  427 
Basic earnings per common share from continuing operations (a) $ 3.31  $ 3.40  $ 9.84  $ 3.11 
Basic earnings per common share from discontinued operations (a) $ 10.61 
Basic earnings per common share (b) $ 3.31  $ 3.40  $ 9.84  $ 13.73 
Diluted
Net income from continuing operations attributable to diluted common shareholders
$ 1,408  $ 1,447  $ 4,195  $ 1,329 
Net income from discontinued operations attributable to basic common shareholders
$ 4,533 
Less: Impact of earnings per share dilution from discontinued operations
Net income from discontinued operations attributable to diluted common shareholders
$ 4,531 
Basic weighted-average common shares outstanding 426  426 426  427
Dilutive potential common shares
Diluted weighted-average common shares outstanding 426  426  427  428 
Diluted earnings per common share from continuing operations (a) $ 3.30  $ 3.39  $ 9.83  $ 3.11 
Diluted earnings per common share from discontinued operations (a) $ 10.59 
Diluted earnings per common share (b) $ 3.30  $ 3.39  $ 9.83  $ 13.70 
(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)For additional information on our policy for not allocating losses to participating securities, see the Earnings Per Common Share section of Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K.

NOTE 11 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 15 Fair Value in Item 8 of our 2020 Form 10-K. Additionally, for more information regarding the fair value of assets and liabilities from our BBVA acquisition, see Note 2 Acquisition and Divestiture Activity in this Report.

78    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 15 Fair Value in Item 8 of our 2020 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 70: Fair Value Measurements – Recurring Basis Summary
  September 30, 2021 December 31, 2020
In millions Level 1 Level 2 Level 3 Total
Fair Value
Level 1 Level 2 Level 3 Total
Fair Value
Assets
Residential mortgage loans held for sale $ 1,433  $ 86  $ 1,519  $ 691  $ 163  $ 854 
Commercial mortgage loans held for sale 457  51  508  305  57  362 
Securities available for sale
U.S. Treasury and government agencies $ 36,613  4,356  40,969  $ 16,675  4,036  20,711 
Residential mortgage-backed
Agency 65,185  65,185  48,911  48,911 
Non-agency 74  1,168  1,242  136  1,365  1,501 
Commercial mortgage-backed
Agency 2,060  2,060  2,688  2,688 
Non-agency 3,668  3,671  3,678  11 3,689 
Asset-backed 5,895  172  6,067  4,951  199  5,150 
Other 4,864  69  4,933  4,636  72  4,708 
Total securities available for sale 36,613  86,102  1,412  124,127  16,675  69,036  1,647  87,358 
Loans 673  936  1,609  718  647  1,365 
Equity investments (a) 1,071  1,530  2,804  1,070  1,263  2,629 
Residential mortgage servicing rights 1,130  1,130  673  673 
Commercial mortgage servicing rights 703  703  569  569 
Trading securities (b) 570  1,308  1,878  548  1,690  2,238 
Financial derivatives (b) (c) 6,978  56  7,035  6,415  118  6,533 
Other assets 395  102  497  373  81  454 
Total assets (d) $ 38,650  $ 97,053  $ 5,904  $ 141,810  $ 18,666  $ 78,936  $ 5,137  $ 103,035 
Liabilities
Other borrowed funds $ 832  $ 116  $ $ 952  $ 661  $ 44  $ $ 707 
Financial derivatives (c) (e) 4,450  331  4,781  2,483  273  2,756 
Other liabilities 167  167  43  43 
Total liabilities (f) $ 832  $ 4,566  $ 502  $ 5,900  $ 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.
(c)Amounts at September 30, 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 26% and 22% as of September 30, 2021 and December 31, 2020, respectively. Level 3 assets as a percentage of total assets at fair value was 4% and 5% at September 30, 2021 and December 31, 2020, respectively. Level 3 assets as a percentage of total consolidated assets was 1% at both September 30, 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 September 30, 2021 and December 31, 2020. Level 3 liabilities as a percentage of total liabilities at fair value was 9% at both September 30, 2021 and December 31, 2020. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both September 30, 2021 and December 31, 2020.

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


Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2021 and 2020 follow:
Table 71: Reconciliation of Level 3 Assets and Liabilities
Three Months Ended September 30, 2021
     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, 2021
(a) (c)
Level 3 Instruments Only
In millions
Fair Value June 30, 2021 Included in
Earnings
Included
in Other
comprehensive
income (b)
Purchases Sales Issuances Settlements Transfers
into
Level 3
Transfers
out of
Level 3
Impact from BBVA Acquisition Fair
Value Sept. 30, 2021
Assets                          
Residential mortgage
    loans held for sale
$ 119  $ (1) $ $ (29) $ (6) $ $ (6) (e) $ 86  $ (1)  
Commercial mortgage
    loans held for sale
52  (1)   51   
Other consumer loans
    held for sale
239  (256) $ 17 
Securities available for sale
Residential mortgage-
  backed non-agency
1,237  10    $ (2) (77) 1,168   
Commercial mortgage-
  backed non-agency
11    (8)  
Asset-backed 175    (9) 172   
Other 73    (9) 69   
Total securities
    available for sale
1,496  11  (5) (9) (83) 1,412   
Loans 979  12  14  (6) (58) (5) (e) 936  12 
Equity investments 1,540  265    158  (433) 1,530  95   
Residential mortgage
    servicing rights
1,111  49  28  $ 24  (82) 1,130  49 
Commercial mortgage
    servicing rights
682  24    22  (30) 703  24   
Financial derivatives 87  23    (55) 56  39   
Total assets $ 6,305  $ 382  $ (5) $ 213  $ (733) $ 46  $ (314) $ $ (11) $ 17  $ 5,904  $ 218 
Liabilities  
Other borrowed funds $ $ $ (1) $  
Financial derivatives 200  $ 165    $ (37) 331  $ 171   
Other liabilities 124  45    (6) 167  44   
Total liabilities $ 326  $ 210  $ $ $ (44) $ 502  $ 215   
Net gains (losses)   $ 172  (f)                 $ (g) 

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



Three Months Ended September 30, 2020
     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) $ $ (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-backed 210  (8) 208 
Other 72  (1) 71 
Total securities
    available for sale
1,792  13  15  (1) (91) 1,728 
Loans 607  63  (3) (27) 647  $
Equity investments 1,183  63  60  (47) 1,259  56 
Residential mortgage
    servicing rights
577  11  52  $ 12  (54) 598  11 
Commercial mortgage
    servicing rights
490  23  20  (26) 515  23 
Financial derivatives 141  41  (48) 137  52 
Total assets $ 4,938  $ 157  $ 15  $ 200  $ (60) $ 32  $ (255) $ $ (10) $ 5,020  $ 149 
Liabilities
Other borrowed funds $ $ $ (2) $
Financial derivatives 209  $ (10) $ (57) 143  $ (7)
Other liabilities 85  17  (19) 90 
Total liabilities $ 296  $ (3) $ $ 19  $ (78) $ 235  $ (1)
Net gains (losses) $ 160  (f) $ 150  (g)

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


(continued from previous page)

Nine Months Ended September 30, 2021
     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, 2021 (a) (c)
Level 3 Instruments Only
In millions
Fair
Value
Dec. 31,
2020
Included in
Earnings
Included
in Other
comprehensive
income (b)
Purchases Sales Issuances Settlements Transfers
into
Level 3
Transfers
out of
Level 3
  Impact from BBVA Acquisition Fair Value Sept. 30, 2021
Assets                            
Residential mortgage
    loans held for sale
$ 163  $ (1) $ 43  $ (81) $ (34) $ 12  $ (16) (e) $ 86  $ (1)  
Commercial mortgage
    loans held for sale
57  (1)   (6) 51   
Other consumer loans held for sale (256) $ 256 
Securities available for sale  
Residential
  mortgage-backed
  non-agency
1,365  30  $ 14  (241) 1,168 
Commercial
    mortgage-backed
    non-agency
11  (8)
Asset-backed 199  10  (39) 172   
Other 72  (9)   69     
Total securities
    available for sale
1,647  32    17  (9) (280)   1,412 
Loans 647  32  111  (12) (121) (13) (e) 292  936  32 
Equity investments 1,263  489    290  (512) 1,530  294   
Residential mortgage
    servicing rights
673  203  400  $ 61  (242) 35  1,130  203 
Commercial mortgage
    servicing rights
569  134    26  61  (87) 703  134   
Financial derivatives 118  69  (140) 56  87   
Total assets $ 5,137  $ 957    $ 17  $ 879  $ (876) $ 122  $ (903) $ 12  $ (29) $ 588  $ 5,904  $ 750   
Liabilities  
Other borrowed funds $ $ $ (2) $  
Financial derivatives 273  $ 155  $ (110) $ 331  $ 156   
Other liabilities 43  108  321  (305)     167  81   
Total liabilities $ 318  $ 263      $ $ 325  $ (417) $ $ 502  $ 237   
Net gains (losses)   $ 694  (f)                    $ 513  (g) 

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



Nine Months Ended September 30, 2020
     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
$ $ 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-backed 240  (8) (29) 208 
Other 74  (3) (3) 71 
Total securities
    available for sale
2,055  45  (100) (294) 19  1,728 
Loans 300  20  134  (34) 313  (d) (86) (e) 647  20 
Equity investments 1,276  (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)
Financial derivatives 54  192  (118) 137  200 
Total assets $ 5,395  $ (364) $ (100) $ 485  $ (168) $ 99  $ (337) $ 109  $ (99) $ 5,020  $ (402)
Liabilities
Other borrowed funds $ $ 27  $ (32) $
Financial derivatives 200  $ 26  $ (86) 143  $ 30 
Other liabilities 137  13  54  (116) $ 90  (2)
Total liabilities $ 344  $ 39  $ $ 81  $ (234) $ $ 235  $ 28 
Net gains (losses) $ (403) (f) $ (430) (g)
(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 83  


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

Table 72: Fair Value Measurements – Recurring Quantitative Information

September 30, 2021
Level 3 Instruments Only
Dollars in millions
Fair Value Valuation Techniques Unobservable Inputs Range (Weighted-Average) (a)
Commercial mortgage loans held for sale $ 51  Discounted cash flow Spread over the benchmark curve (b)
610bps - 10,580bps (2,442bps)
Residential mortgage-backed
    non-agency securities
1,168  Priced by a third-party vendor using a discounted cash flow pricing model Constant prepayment rate
1.0% - 30.7% (11.2%)
Constant default rate
0.0% - 16.9% (4.6%)
Loss severity
20.0% - 95.7% (47.7%)
Spread over the benchmark curve (b)
160bps weighted-average
Asset-backed securities 172  Priced by a third-party vendor using a discounted cash flow pricing model Constant prepayment rate
1.0% - 40.0% (10.5%)
Constant default rate
1.4% - 20.0% (3.3%)
Loss severity
8.0% - 100.0% (52.1%)
Spread over the benchmark curve (b)
198bps weighted-average
Loans - Residential real estate 640  Consensus pricing (c) Cumulative default rate
3.6% - 100.0% (77.2%)
Loss severity
0.0% - 100.0% (8.9%)
Discount rate
4.8% - 6.8% (5.1%)
116  Discounted cash flow Loss severity
8.0% weighted-average
Discount rate
3.2% weighted-average
Loans - Home equity 18  Consensus pricing (c) Cumulative default rate
3.6% -100.0% (83.9%)
Loss severity
0.0% - 98.4% (29.6%)
Discount rate
4.8% - 6.8% (6.2%)
162  Consensus pricing (c) Credit and liquidity discount
0.0% - 100.0% (23.1%)
Equity investments 1,530  Multiple of adjusted earnings Multiple of earnings
5.0x - 14.8x (9.0x)
Residential mortgage servicing rights 1,130  Discounted cash flow Constant prepayment rate
0.0% - 40.0% (11.5%)
Spread over the benchmark curve (b)
380bps - 2,271bps (909bps)
Commercial mortgage servicing rights 703  Discounted cash flow Constant prepayment rate
4.9% - 13.9% (5.5%)
Discount rate
5.3% - 7.8% (7.6%)
Financial derivatives - Swaps related to
    sales of certain Visa Class B
    common shares
(314) Discounted cash flow Estimated conversion factor of Visa Class B shares into Class A shares
162.3% weighted-average
Estimated annual growth rate of Visa Class A share price
16.0%
Estimated length of litigation resolution date
Q2 2023
Insignificant Level 3 assets, net of
    liabilities (d)
26 
Total Level 3 assets, net of liabilities (e) $ 5,402 














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



(continued from previous page)

December 31, 2020
Level 3 Instruments Only
Dollars in millions
Fair Value Valuation Techniques Unobservable Inputs Range (Weighted-Average) (a)
Commercial mortgage loans held for sale $ 57  Discounted cash flow Spread over the benchmark curve (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 model Constant prepayment rate
1.0% - 37.6% (8.6%)
Constant default rate
0.0% - 12.2% (4.7%)
Loss severity
25.0% - 95.7% (48.8%)
Spread over the benchmark curve (b)
242bps weighted-average
Asset-backed securities 199  Priced by a third-party vendor using a discounted cash flow pricing model Constant prepayment rate
1.0% -22.0% (7.4%)
Constant default rate
1.0% - 6.0% (3.3%)
Loss severity
30.0% - 100.0% (58.1%)
Spread over the benchmark curve (b)
291bps weighted-average
Loans - Residential real estate 434  Consensus pricing (c) Cumulative default rate
3.6% - 100.0% (82.1%)
Loss severity
0.0% - 100.0% (11.2%)
Discount rate
4.8% - 6.8% (5.1%)
132  Discounted cash flow Loss severity
8.0% weighted-average
Discount rate
3.2% weighted-average
Loans - Home equity 21  Consensus pricing (c) Cumulative default rate
3.6% - 100.0% (88.5%)
Loss severity
0.0% - 98.4% (33.3%)
Discount rate
4.8% - 6.8% (6.3%)
60  Consensus pricing (c) Credit and Liquidity discount
17.5% - 97.0% (57.7%)
Equity investments 1,263  Multiple of adjusted earnings Multiple of earnings
5.0x - 15.9x (8.7x)
Residential mortgage servicing rights 673  Discounted cash flow Constant prepayment rate
0.0% - 77.5% (21.1%)
Spread over the benchmark curve (b)
325bps - 2,783bps (922bps)
Commercial mortgage servicing rights 569  Discounted cash flow Constant prepayment rate
4.0% - 16.1% (4.9%)
Discount rate
4.7% - 7.8% (7.3%)
Financial derivatives - Swaps related to
    sales of certain Visa Class B
    common shares
(252) Discounted cash flow Estimated conversion factor of Visa Class B shares into Class A shares
162.3% weighted-average
Estimated annual growth rate of Visa Class A share price
16.0%
Estimated length of litigation
    resolution date
Q2 2022
Insignificant Level 3 assets, net of
    liabilities (d)
298   
Total Level 3 assets, net of liabilities (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 $5.9 billion and total Level 3 liabilities of $0.5 billion as of September 30, 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 73. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 15 Fair Value in Item 8 of our 2020 Form 10-K.










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


Assets measured at fair value on a nonrecurring basis follow:

Table 73: Fair Value Measurements – Nonrecurring (a) (b) (c)
  Fair Value Gains (Losses)
Three months ended
Gains (Losses)
Nine months ended
In millions September 30
2021
December 31
2020
September 30
2021
September 30
2020
September 30
2021
September 30
2020
Assets
Nonaccrual loans $ 209  $ 332  $ (3) $ (38) $ (3) $ (73)
Loans held for sale 39  (1) (18)
OREO and foreclosed assets 18  (1) (2)
Long-lived assets 12  20  (6) (4) (17) (7)
Total assets $ 265  $ 370  $ (10) $ (43) $ (38) $ (82)
(a)All Level 3 as of September 30, 2021 and December 31, 2020, except for $39 million included in Loans held for sale which was categorized as Level 2 as of September 30, 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 15 Fair Value in Item 8 of our 2020 Form 10-K.

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

Table 74: Fair Value Option – Fair Value and Principal Balances
September 30, 2021 December 31, 2020
In millions Fair 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 $ 1,465  $ 1,422  $ 43  $ 831  $ 793  $ 38 
Accruing loans 90 days or more past due
Nonaccrual loans 50  59  (9) 20  24  (4)
Total $ 1,519  $ 1,485  $ 34  $ 855  $ 821  $ 34 
Commercial mortgage loans held for sale (a)
Accruing loans less than 90 days past due $ 508  $ 520  $ (12) $ 357  $ 370  $ (13)
Nonaccrual loans (1)
Total $ 508  $ 520  $ (12) $ 362  $ 376  $ (14)
Loans
Accruing loans less than 90 days past due $ 652  $ 669  $ (17) $ 519  $ 530  $ (11)
Accruing loans 90 days or more past due 260  278  (18) 283  295  (12)
Nonaccrual loans 697  971  (274) 563  820  (257)
Total $ 1,609  $ 1,918  $ (309) $ 1,365  $ 1,645  $ (280)
Other assets $ 96  $ 93  $ $ 81  $ 69  $ 12 
Liabilities
Other borrowed funds $ 31  $ 31  $ 32  $ 33  $ (1)
(a)There were no accruing loans 90 days or more past due within this category at September 30, 2021 or December 31, 2020.

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



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

Table 75: Fair Value Option – Changes in Fair Value (a)
Gains (Losses) Gains (Losses)
  Three months ended Nine months ended
September 30 September 30 September 30 September 30
In millions 2021 2020 2021 2020
Assets
Residential mortgage loans held for sale $ 47  $ 53  $ 120  $ 151 
Commercial mortgage loans held for sale $ 31  $ 46  $ 77  $ 106 
Loans $ 21  $ $ 52  $ 31 
Other assets $ $ $ 25  $ (24)
(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, 2021 and December 31, 2020. For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 76, see Note 15 Fair Value in Item 8 of our 2020 Form 10-K.

Table 76: Additional Fair Value Information Related to Other Financial Instruments
  Carrying Fair Value
In millions Amount Total Level 1 Level 2 Level 3
September 30, 2021
Assets
Cash and due from banks $ 8,843  $ 8,843  $ 8,843 
Interest-earning deposits with banks 75,478  75,478  $ 75,478 
Securities held to maturity 1,482  1,583  890  483  $ 210 
Net loans (excludes leases) 277,010  282,407  282,407 
Other assets 4,265  4,265  4,262 
Total assets $ 367,078  $ 372,576  $ 9,733  $ 80,223  $ 282,620 
Liabilities
Time deposits $ 18,911  $ 18,779  $ 18,779 
Borrowed funds 32,520  33,203  31,528  $ 1,675 
Unfunded lending related commitments 646  646  646 
Other liabilities 467  467  467 
Total liabilities $ 52,544  $ 53,095    $ 50,774  $ 2,321 
December 31, 2020
Assets
Cash and due from banks $ 7,017  $ 7,017  $ 7,017 
Interest-earning deposits with banks 85,173  85,173  $ 85,173 
Securities held to maturity 1,445  1,604  920  489  $ 195 
Net loans (excludes leases) 228,788  233,688  233,688 
Other assets 3,601  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 funds 36,488  37,192  35,571  $ 1,621 
Unfunded lending related commitments 584  584  584 
Other liabilities 413  413  413 
Total liabilities $ 57,177  $ 57,851  $ 55,646  $ 2,205 

The aggregate fair values in Table 76 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 70),
investments accounted for under the equity method,
The PNC Financial Services Group, Inc. – Form 10-Q 87  


equity securities without a readily determinable fair value that apply for the alternative measurement approach to fair value under ASU 2016-01,
real and personal property,
lease financing,
loan customer relationships,
deposit customer intangibles,
mortgage servicing rights (MSRs),
retail branch networks,
fee-based businesses, such as asset management and brokerage,
trademarks and brand names,
trade receivables and payables due in one year or less,
deposit liabilities with no defined or contractual maturities under ASU 2016-01, and
insurance contracts.
NOTE 12 FINANCIAL DERIVATIVES

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

Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and it is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate, 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 16 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K.
88    The PNC Financial Services Group, Inc. – Form 10-Q



The following table presents the notional and gross fair value amounts of all derivative assets and liabilities held by us:
Table 77: Total Gross Derivatives (a)
  September 30, 2021 December 31, 2020
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 $ 24,837  $ 24,153 
Cash flow hedges 42,018  $ 12  $ 38  22,875  $ 14 
Foreign exchange contracts:
Net investment hedges 1,148  1,075  $ 22 
Total derivatives designated for hedging $ 68,003  $ 13  $ 41  $ 48,103  $ 14  $ 22 
Derivatives not used for hedging
Derivatives used for mortgage banking activities (e):
Interest rate contracts:
Swaps $ 33,994  $ 50,511 
Futures (f) 3,666  2,841 
Mortgage-backed commitments 13,702  $ 98  $ 54  11,288  $ 147  $ 77 
Other 13,732  38  11  1,831  11 
Total interest rate contracts 65,094  136  65  66,471  158  79 
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps 304,724  3,961  1,508  280,125  5,475  1,601 
Futures (f) 1,006  1,235 
Mortgage-backed commitments 4,692  18  16  4,178  11  14 
Other 25,333  143  88  20,125  193  88 
Total interest rate contracts 335,755  4,122  1,612  305,663  5,679  1,703 
Commodity contracts:
Swaps 9,249  2,099  2,114  6,149  350  323 
Other 3,236  422  422  2,770  61  61 
Total commodity contracts 12,485  2,521  2,536  8,919  411  384 
Foreign exchange contracts and other 27,995  192  182  26,620  267  243 
Total derivatives for customer-related activities 376,235  6,835  4,330  341,202  6,357  2,330 
Derivatives used for other risk management activities:
Foreign exchange contracts and other 12,782  51  345  10,931  325 
Total derivatives not designated for hedging $ 454,111  $ 7,022  $ 4,740  $ 418,604  $ 6,519  $ 2,734 
Total gross derivatives $ 522,114  $ 7,035  $ 4,781  $ 466,707  $ 6,533  $ 2,756 
Less: Impact of legally enforceable master netting agreements 1,027  1,027  720  720 
Less: Cash collateral received/paid   757  2,403    1,434  1,452 
Total derivatives   $ 5,251  $ 1,351  $ 4,379  $ 584 
(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.

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 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 89  


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 hedging 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, 2021, we expect to reclassify net derivative gains of $312 million pretax, or $240 million after-tax, from AOCI to interest income for these 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, 2021. As of September 30, 2021, the maximum length of time over which forecasted transactions are hedged is ten years.

90    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 78: Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement (a) (b)
  Location and Amount of Gains (Losses) Recognized in Income
Interest Income Interest Expense Noninterest Income
In millions Loans Investment Securities Borrowed Funds Other
For the three months ended September 30, 2021
Total amounts on the Consolidated Income Statement $ 2,437  $ 460  $ 90  $ 449 
Gains (losses) on fair value hedges recognized on:
Hedged items (c) $ $ 155 
Derivatives $ (169)
Amounts related to interest settlements on derivatives $ (1) $ 129 
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI $ 91  $ 11  $ 13 
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 nine months ended September 30, 2021
Total amounts on the Consolidated Income Statement $ 6,593  $ 1,350  $ 275  $ 1,400 
Gains (losses) on fair value hedges recognized on:
Hedged items (c) $ (3) $ 695 
Derivatives $ $ (740)
Amounts related to interest settlements on derivatives $ (3) $ 394 
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI $ 282  $ 49  $ 27 
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  $
(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 79: Hedged Items - Fair Value Hedges
 
  September 30, 2021 December 31, 2020
In millions Carrying Value of the Hedged Items Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a) Carrying Value of the Hedged Items Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)
Investment securities - available for sale (b) $ 2,905  $ 25  $ 2,785  $ 30 
Borrowed funds $ 25,924  $ 906  $ 25,797  $ 1,611 
(a)Includes $(0.1) billion of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships at both September 30, 2021 and December 31, 2020, respectively.
(b)Carrying value shown represents amortized cost.

The PNC Financial Services Group, Inc. – Form 10-Q 91  


Net Investment Hedges
We enter into foreign currency forward contracts to hedge non-U.S. dollar net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. Net investment hedge derivatives are classified as foreign exchange contracts. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness for all periods presented. Net gains (losses) on net investment hedge derivatives recognized in OCI were $28 million and $20 million for the three and nine months ended September 30, 2021, compared with $(42) million and $38 million for the same periods in 2020, respectively.

Derivatives Not Designated As Hedging Instruments

For additional information on derivatives not designated as hedging instruments under GAAP, see Note 16 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K.

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table:
Table 80: Gains (Losses) on Derivatives Not Designated for Hedging
  Three months ended
September 30
Nine months ended
September 30
In millions 2021 2020 2021 2020
Derivatives used for mortgage banking activities:
Interest rate contracts (a) $ $ 20  $ (100) $ 799 
Derivatives used for customer-related activities:
Interest rate contracts (4) 59  93  99 
Foreign exchange contracts and other 23  43  88  83 
Gains (losses) from customer-related activities (b) 19  102  181  182 
Derivatives used for other risk management activities:
Foreign exchange contracts and other (b) (72) (106) (53) (1)
Total gains (losses) from derivatives not designated as hedging instruments $ (47) $ 16  $ 28  $ 980 
(a)Included in Residential mortgage, Corporate services and 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 16 Financial Derivatives in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K.

Table 81 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of September 30, 2021 and December 31, 2020. The table includes cash collateral held or pledged under legally enforceable master netting agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

Table 81 includes 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 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.

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



Table 81: Derivative Assets and Liabilities Offsetting
In millions    Amounts Offset on the
Consolidated Balance Sheet
     Securities Collateral Held/Pledged Under Master Netting Agreements   
Gross
Fair Value
Fair Value
Offset Amount
Cash
Collateral
Net
Fair Value
  Net Amounts
September 30, 2021
Derivative assets
Interest rate contracts:
Over-the-counter cleared $ 51  $ 51    $ 51 
Over-the-counter 4,219  $ 556  $ 723  2,940    $ 287  2,653 
Commodity contracts 2,521  343  28  2,150  2,150 
Foreign exchange and other contracts 244  128  110    110 
Total derivative assets $ 7,035  $ 1,027  $ 757  $ 5,251  (a)  $ 287  $ 4,964 
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared $ 68  $ 68    $ 68 
Over-the-counter 1,647  $ 613  $ 813  221    221 
Commodity contracts 2,536  353  1,511  672  672 
Foreign exchange and other contracts 530  61  79  390    390 
Total derivative liabilities $ 4,781  $ 1,027  $ 2,403  $ 1,351  (b) $ 1,351 
December 31, 2020
Derivative assets
Interest rate contracts:
Over-the-counter cleared $ 48  $ 48    $ 48 
Over-the-counter 5,803  $ 430  $ 1,426  3,947    $ 531  3,416 
Commodity contracts 411  209  198  198 
Foreign exchange and other contracts 271  81  186    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-counter 1,740  $ 462  $ 1,179  99    99 
Commodity contracts 384  182  103  99  99 
Foreign exchange and other contracts 590  76  170  344    344 
Total derivative liabilities $ 2,756  $ 720  $ 1,452  $ 584  (b) $ 584 
(a)Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet.
(b)Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.

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

At September 30, 2021, we held cash and debt securities (primarily agency mortgage-backed securities) totaling $1.6 billion under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties, and we pledged cash totaling $3.4 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral held or pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.
The PNC Financial Services Group, Inc. – Form 10-Q 93  


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, 2021 was $3.5 billion for which we had posted collateral of $2.8 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, 2021 would be $0.7 billion.
NOTE 13 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 13 as well as those matters disclosed in Note 21 Legal Proceedings in Part II, Item 8 of our 2020 Form 10-K and in Note 13 Legal Proceedings in Part I, Item 1 of our first and second quarter 2021 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, 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 21 Legal Proceedings in Part II, Item 8 of our 2020 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.

Pre-need Funeral Arrangements

National City Bank and PNC Bank (collectively, "the PNC defendants") were defendants in a lawsuit filed in the U.S. District Court for the Eastern District of Missouri under the caption Jo Ann Howard and Associates, P.C., et al. v. Cassity, et al (No. 4:09-CV-1252-ERW) arising out of trustee services provided by Allegiant Bank, a National City Bank and PNC Bank predecessor, with respect to Missouri trusts that held pre-need funeral contract assets.

In July 2019, following a new trial on remand from the court of appeals, the district court awarded the plaintiffs $72 million in compensatory damages, $15 million in interest, and $15 million in punitive damages. The PNC defendants appealed this judgment to the court of appeals, and the plaintiffs cross-appealed. In December 2019, the court reduced the judgment by approximately $2.6 million to correct a mathematical error in calculating pre-judgment interest, reducing the total judgment to $99.5 million. In March 2020, the court dismissed the plaintiffs’ cross-appeal on the plaintiffs’ motion. In February 2020, the district court awarded $7 million in fees and costs to the plaintiffs, and the PNC defendants appealed this judgment to the court of appeals. The consolidated appeals of the district court’s judgments were argued in January 2021.

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



In August 2021, the court of appeals affirmed the judgment of the district court. The PNC defendants paid the judgment and a satisfaction of judgment was filed by plaintiffs with the district court.

USAA Patent Infringement Litigation

In September 2021, in United Services Automobile Association v. PNC Bank N.A. (Case No. 2:20-cv-319), pending in the United States District Court for the Eastern District of Texas (“the first Texas case”), the Court denied our motion to dismiss and our motion to transfer the case.

In April 2021, in United Services Automobile Association v. PNC Bank N.A. (Case No. 2:21-cv-110), pending in the United States District Court for the Eastern District of Texas, we moved to consolidate this action with the first Texas case and we filed motions to dismiss and transfer this action. In July 2021, this action was consolidated with the first Texas case. In September 2021, the Court denied our motion to dismiss and our motion to transfer, for the same reasons set forth in its September 2021 orders in the first Texas case. Trial in the two consolidated cases is presently scheduled to commence on April 18, 2022.

In July 2021, in United Services Automobile Association v. PNC Bank N.A (case No. 2:21-cv-246), pending in the United States District Court for the Eastern District of Texas, we filed motions to dismiss and transfer this action.

In August 2021, USAA filed a lawsuit, United Services Automobile Association v. BBVA USA (Case No. 2:21-cv-311), in the United States District Court for the Eastern District of Texas against BBVA USA for patent infringement. The complaint alleges that BBVA USA’s remote deposit capture systems infringe six patents owned by the plaintiff. The plaintiff seeks, among other things, a judgment that BBVA USA is infringing each of the patents, damages for willful infringement and attorneys’ fees. In October 2021, BBVA USA was merged into PNC Bank. Also in October 2021, we answered the complaint and asserted counterclaims for a declaratory judgment that the asserted patents are invalid and not infringed.

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 review of specified activities at multiple industry participants; in others, they are directed at PNC individually. From time to time, these inquiries have involved and may in the future involve or lead to regulatory enforcement actions and other administrative 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 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 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 14 SEGMENT REPORTING

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

Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual
The PNC Financial Services Group, Inc. – Form 10-Q 95  


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.

Our third quarter 2021 business segment results reflect the full quarter of BBVA's business operations, while results for the nine months ended September 2021 also include the impact of BBVA for the month of June. Until conversion of bank systems and branches as of October 12, 2021, PNC Bank and BBVA customers were served through their respective PNC Bank and BBVA branches, websites and mobile apps, financial advisors and relationship managers. Following conversion, there will be changes in the segmentation of BBVA USA customers as we continue to integrate data to PNC applications, finalize the review of customer relationships and better align customers with PNC's products and services. These changes will be reflected in fourth quarter reporting. See Note 2 Acquisition and Divestiture Activity for additional information on the acquisition of BBVA.

During the second quarter of 2020, we divested our entire 22.4% investment in BlackRock, which had previously been reported as a separate business segment. See Note 2 Acquisition and Divestiture Activity for additional information.

Total business segment financial results differ from total consolidated net income. These differences are reflected in the “Other” category in Table 82. “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). Assets, revenue and earnings attributable to foreign activities were not material in the periods 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.
























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



Business Segment Results

Table 82: Results of Businesses
Three months ended September 30
In millions
Retail Banking Corporate &
Institutional
Banking
Asset
Management
Group
Other Consolidated (a) 
2021
Income Statement
Net interest income $ 1,713  $ 1,241  $ 141  $ (239) $ 2,856 
Noninterest income 662  1,056  256  367  2,341 
Total revenue 2,375  2,297  397  128  5,197 
Provision for (recapture of) credit losses (113) (99) (6) 15  (203)
Depreciation and amortization 78  54  138  277 
Other noninterest expense 1,811  926  248  325  3,310 
Income (loss) from continuing operations before income taxes (benefit) and
 noncontrolling interests
599  1,416  148  (350) 1,813 
Income taxes (benefit) from continuing operations 140  290  34  (141) 323 
Net income (loss) from continuing operations 459  1,126  114  (209) 1,490 
Less: Net income attributable to noncontrolling interests 12  16 
Net income (loss) from continuing operations excluding noncontrolling
 interests
$ 447  $ 1,123  $ 114  $ (210) $ 1,474 
Average Assets $ 117,394  $ 202,268  $ 13,805  $ 225,775  $ 559,242 
2020
Income Statement
Net interest income $ 1,383  $ 1,012  $ 89  $ 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 1,448  613  200  24  2,285 
Income from continuing operations before income taxes (benefit) and
 noncontrolling interests
701  861  118  18  1,698 
Income taxes (benefit) from continuing operations 162  188  27  (211) 166 
Net income from continuing operations 539  673  91  229  1,532 
Less: Net income attributable to noncontrolling interests 13 
Net income from continuing operations excluding noncontrolling
 interests
$ 530  $ 670  $ 91  $ 228  $ 1,519 
Average Assets $ 98,731  $ 183,266  $ 8,361  $ 171,781  $ 462,139 
The PNC Financial Services Group, Inc. – Form 10-Q 97  


(Continued from previous page)
Nine months ended September 30
In millions
Retail
Banking
Corporate &
Institutional
Banking
Asset
Management
Group
Other Consolidated (a) 
2021
Income Statement
Net interest income $ 4,572  $ 3,315  $ 346  $ (448) $ 7,785 
Noninterest income 2,022  2,730  729  818  6,299 
Total revenue 6,594  6,045  1,075  370  14,084 
Provision for (recapture of) credit losses (156) (277) (27) (452)
Depreciation and amortization 214  152  16  385  767 
Other noninterest expense 4,828  2,352  660  604  8,444 
Income (loss) from continuing operations before income taxes (benefit) and
 noncontrolling interests
1,708  3,818  391  (592) 5,325 
Income taxes (benefit) from continuing operations 396  818  91  (399) 906 
Net income (loss) from continuing operations 1,312  3,000  300  (193) 4,419 
Less: Net income attributable to noncontrolling interests 26  10  38 
Net income (loss) from continuing operations excluding noncontrolling
 interests
$ 1,286  $ 2,990  $ 300  $ (195) $ 4,381 
Average Assets $ 103,820  $ 184,964  $ 11,124  $ 211,056  $ 510,964 
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 4,349  1,906  613  (16) 6,852 
Income (loss) from continuing operations before income taxes (benefit) and
 noncontrolling interests
689  848  225  (87) 1,675 
Income taxes (benefit) from continuing operations 161  160  52  (245) 128 
Net income from continuing operations 528  688  173  158  1,547 
Less: Net income attributable to noncontrolling interests 20  27 
Net income from continuing operations excluding noncontrolling
  interests
$ 508  $ 682  $ 173  $ 157  $ 1,520 
Average Assets $ 98,764  $ 185,001  $ 8,041  $ 152,223  $ 444,029 
(a)There were no material intersegment revenues for the three and nine months ended September 30, 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. As a result of the BBVA acquisition, we have become a coast-to-coast Retail Bank. Our national expansion strategy is designed to grow customers with digitally-led banking and a thin branch network as we expand into new markets. Deposit products include checking, savings and money market accounts and certificates of deposit. Lending products include residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans and personal and small business loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to agency and/or third-party standards, and either sold, servicing retained or held on our balance sheet. Brokerage, investment management and cash management products and services include managed, education, retirement and trust accounts.

Corporate & Institutional Banking provides lending, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. The Treasury Management business provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and Mexico and other countries primarily in Central America and South America. 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.
98    The PNC Financial Services Group, Inc. – Form 10-Q



Asset Management Group provides private banking for high net worth and ultra high net worth clients and institutional asset management. The Asset Management group is composed of two distinct operating units:
PNC Private Bank provides products and services to emerging affluent, high net worth and ultra high net worth individuals and their families including investment and retirement planning, customized investment management, credit and cash management solutions, and trust management and administration. In addition, multi-generational family planning services are also provided to ultra high net worth individuals and families which include estate, financial, tax, fiduciary and customized performance reporting through PNC Private Bank Hawthorn.
Institutional Asset Management provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and retirement plan fiduciary investment services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.

NOTE 15 FEE-BASED REVENUE FROM CONTRACTS WITH CUSTOMERS
As more fully described in Note 24 Fee-based Revenue from Contracts with Customers in our 2020 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 our three reportable business segments: Retail Banking, Corporate & Institutional Banking and Asset Management Group. Interest income, income from lease contracts, fair value gains from financial instruments (including derivatives), income from mortgage servicing rights and guarantee products, letter of credit fees, non-refundable fees associated with acquiring or originating a loan and gains from the sale of financial assets are outside of the scope of Topic 606.
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 2020 Form 10-K.

Retail Banking

Table 83: Retail Banking Noninterest Income Disaggregation
Three months ended
September 30
Nine months ended
September 30
In millions 2021 2020 2021 2020
Product
 Debit card fees $ 184  $ 136  $ 486  $ 385 
 Deposit account fees 142  108  367  339 
 Brokerage fees 123  94  334  273 
 Net credit card fees (a) 53  50  157  130 
 Merchant services 46  40  125  112 
 Other 76  62  201  170 
Total in-scope noninterest income by product $ 624  $ 490  $ 1,670  $ 1,409 
Reconciliation to total Retail Banking noninterest income
Total in-scope noninterest income $ 624  $ 490  $ 1,670  $ 1,409 
Total out-of-scope noninterest income (b) 38  183  352  637 
Total Retail Banking noninterest income $ 662  $ 673  $ 2,022  $ 2,046 
(a)Net credit card fees consists of interchange fees of $155 million and $121 million and credit card reward costs of $102 million and $71 million for the three months ended September 30, 2021 and 2020, respectively. Net credit card fees consists of interchange fees of $421 million and $341 million and credit card reward costs of $264 million and $211 million for the nine months ended September 30, 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.

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


Corporate & Institutional Banking

Table 84: Corporate & Institutional Banking Noninterest Income Disaggregation
Three months ended
September 30
Nine months ended
September 30
In millions 2021 2020 2021 2020
Product
 Treasury management fees $ 323  $ 231  $ 837  $ 665 
 Capital markets fees 354  132  778  494 
 Commercial mortgage banking activities 36  31  102  81 
 Other 17  18  64  55 
Total in-scope noninterest income by product $ 730  $ 412  $ 1,781  $ 1,295 
Reconciliation to total Corporate & Institutional Banking noninterest income
Total in-scope noninterest income $ 730  $ 412  $ 1,781  $ 1,295 
Total out-of-scope noninterest income (a) 326  311  949  848 
Total Corporate & Institutional Banking noninterest income $ 1,056  $ 723  $ 2,730  $ 2,143 
(a)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

Treasury Management Fees
Corporate & Institutional Banking provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and Mexico and other countries primarily in Central America and South America. Treasury management fees are primarily recognized over time as we perform these services.
Asset Management Group

Table 85: Asset Management Group Noninterest Income Disaggregation
Three months ended
September 30
Nine months ended
September 30
In millions 2021 2020 2021 2020
Customer Type
 Personal $ 196  $ 164  $ 554  $ 465 
 Institutional 56  51  165  150 
Total in-scope noninterest income by customer type (a) $ 252  $ 215  $ 719  $ 615 
Reconciliation to Asset Management Group noninterest income
Total in-scope noninterest income $ 252  $ 215  $ 719  $ 615 
Total out-of-scope noninterest income (b) 10  14 
Total Asset Management Group noninterest income $ 256  $ 221  $ 729  $ 629 
(a)Amounts include $248 million of Asset Management Fees and $4 million of Brokerage Fees for the three months ended September 30, 2021. Amounts include $713 million of Asset Management Fees and $6 million of Brokerage Fees for the nine months ended September 30, 2021. Amounts for the three and nine months ended September 30, 2020 consist only of Asset Management Fees. As described in the "Asset Management Services and Brokerage Fees" narrative following this table 85, Brokerage Fees were assumed by the Asset Management Group as a result of the BBVA acquisition..
(b)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

Asset Management Services and Brokerage Fees
Asset Management Group provides both personal wealth and institutional asset management services including investment management, custody services, retirement planning, family planning, trust management and retirement plan fiduciary investment services. As a result of the acquisition of BBVA, the Asset Management Group assumed brokerage account client assets, resulting in brokerage fee revenue, included in the table above for the three and nine months ended September 30, 2021. We recognize fee revenue over the term of the customer contract based on the value of assets under management at a point in time.

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



NOTE 16 SUBSEQUENT EVENTS

On October 14, 2021, following completion of the bank merger on October 8, 2021, PNC Bank completed a one-time return of capital of $3.0 billion to the parent company.

On October 29, 2021, PNC announced the redemption on November 9, 2021 of all of the outstanding senior notes due December 9, 2021 issued by PNC Bank, National Association in the amount of $750 million. The securities have a distribution rate of 2.550% and an original scheduled maturity date of December 9, 2021. The redemption price will be equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.



The PNC Financial Services Group, Inc. – Form 10-Q 101  


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
  2021 2020
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 $ 54,900  $ 644  1.56  % $ 51,453  $ 891  2.31  %
Non-agency 1,142 66  7.70  % 1,527  85  7.43  %
Commercial mortgage-backed 6,280 116  2.47  % 6,964  140  2.68  %
Asset-backed 5,590 76  1.80  % 5,115  103  2.70  %
U.S. Treasury and government agencies 31,017 315  1.34  % 16,714  240  1.88  %
Other 4,889 112  3.05  % 4,567  120  3.51  %
Total securities available for sale 103,818 1,329  1.70  % 86,340  1,579  2.43  %
Securities held to maturity
Asset-backed 24  2.66  %
U.S. Treasury and government agencies 802 17  2.86  % 783  17  2.85  %
Other 667 20  4.05  % 648  21  4.32  %
Total securities held to maturity 1,469 37  3.40  % 1,455  38  3.50  %
Total investment securities 105,287 1,366  1.73  % 87,795  1,617  2.45  %
Loans
Commercial and industrial 140,368 3,049  2.87  % 140,701  3,286  3.07  %
Commercial real estate 32,452 734  2.98  % 28,689  663  3.03  %
Equipment lease financing 6,321 182  3.83  % 6,958  201  3.85  %
Consumer 53,695 1,934  4.82  % 56,279  2,099  4.98  %
Residential real estate 29,048 730  3.35  % 22,292  644  3.85  %
Total loans 261,884 6,629  3.36  % 254,919  6,893  3.58  %
Interest-earning deposits with banks 81,383 74  0.12  % 37,582  80  0.28  %
Other interest-earning assets 8,345 142  2.27  % 10,028  199  2.64  %
Total interest-earning assets/interest income 456,899 8,211  2.38  % 390,324  8,789  2.98  %
Noninterest-earning assets 54,065 53,705 
Total assets $ 510,964  $ 444,029 
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market $ 69,105  $ 15  0.03  % $ 59,426  $ 130  0.29  %
Demand 99,154 23  0.03  % 80,371  100  0.17  %
Savings 86,662 32  0.05  % 74,279  217  0.39  %
Time deposits 18,577 29  0.21  % 21,084  143  0.91  %
Total interest-bearing deposits 273,498 99  0.05  % 235,160  590  0.34  %
Borrowed funds
Federal Home Loan Bank borrowings 883 0.42  % 11,051  98  1.16  %
Bank notes and senior debt 22,663 172  1.00  % 28,040  366  1.72  %
Subordinated debt 6,315 64  1.35  % 5,935  91  2.05  %
Other 4,701 36  1.02  % 6,199  64  1.33  %
Total borrowed funds 34,562 275  1.05  % 51,225  619  1.59  %
Total interest-bearing liabilities/interest expense 308,060 374  0.16  % 286,385  1,209  0.56  %
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits 133,999 90,078 
Accrued expenses and other liabilities 14,787 16,251 
Equity 54,118 51,315 
Total liabilities and equity $ 510,964      $ 444,029     
Interest rate spread 2.22  % 2.42  %
Impact of noninterest-bearing sources     0.06      0.15 
Net interest income/margin   $ 7,837  2.28  %   $ 7,580  2.57  %
(continued on following page)

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



Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c) (Continued)
   Three months ended September 30
  2021 2020
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 $ 63,163  $ 223  1.41  % $ 52,215  $ 265  2.03  %
Non-agency 1,051 21  8.07  % 1,437  26  7.26  %
Commercial mortgage-backed 6,134 35  2.34  % 6,927  44  2.50  %
Asset-backed 5,608 21  1.50  % 5,033  30  2.44  %
U.S. Treasury and government agencies 38,149 115  1.18  % 18,724  79  1.64  %
Other 4,994 37  2.90  % 4,723  39  3.39  %
Total securities available for sale 119,099 452  1.51  % 89,059  483  2.16  %
Securities held to maturity
Asset-backed
U.S. Treasury and government agencies 807 2.88  % 788  2.86  %
Other 680 4.33  % 655  4.20  %
Total securities held to maturity 1,487 13  3.54  % 1,443  13  3.47  %
Total investment securities 120,586 465  1.54  % 90,502  496  2.18  %
Loans
Commercial and industrial 152,964 1,095  2.80  % 139,795  1,008  2.82  %
Commercial real estate 37,054 300  3.17  % 29,081  197  2.65  %
Equipment lease financing 6,300 61  3.83  % 6,771  64  3.80  %
Consumer 57,533 703  4.85  % 54,692  645  4.69  %
Residential real estate 37,475 295  3.15  % 22,753  213  3.74  %
Total loans 291,326 2,454  3.32  % 253,092  2,127  3.32  %
Interest-earning deposits with banks 80,274 31  0.16  % 60,327  15  0.10  %
Other interest-earning assets 9,113 47  2.03  % 9,752  55  2.23  %
Total interest-earning assets/interest income 501,299 2,997  2.36  % 413,673  2,693  2.57  %
Noninterest-earning assets 57,943 48,466 
Total assets $ 559,242  $ 462,139 
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market $ 82,911  $ 0.03  % $ 63,598  $ 12  0.07  %
Demand 106,588 0.03  % 87,226  12  0.05  %
Savings 89,679 10  0.04  % 77,479  22  0.11  %
Time deposits 19,293 0.12  % 20,248  28  0.58  %
Total interest-bearing deposits 298,471 29  0.04  % 248,551  74  0.12  %
Borrowed funds
Federal Home Loan Bank borrowings 7,196  0.47  %
Bank notes and senior debt 22,573 56  0.97  % 25,858  71  1.08  %
Subordinated debt 6,787 22  1.28  % 5,936  22  1.51  %
Other 4,992 12  0.93  % 4,354  16  1.31  %
Total borrowed funds 34,352 90  1.03  % 43,344  118  1.06  %
Total interest-bearing liabilities/interest expense 332,823 119  0.14  % 291,895  192  0.26  %
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits 155,948 101,931 
Accrued expenses and other liabilities 15,332 15,341 
Equity 55,139 52,972 
Total liabilities and equity $ 559,242      $ 462,139     
Interest rate spread 2.22  % 2.31  %
Impact of noninterest-bearing sources     0.05      0.08 
Net interest income/margin   $ 2,878  2.27  %   $ 2,501  2.39  %
(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, 2021 and September 30, 2020 were $54 million and $38 million, respectively. Loan fees for the nine months ended September 30, 2021 and September 30, 2020 were $151 million and $117 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.
The PNC Financial Services Group, Inc. – Form 10-Q 103  


RECONCILIATION OF TAXABLE-EQUIVALENT NET INTEREST INCOME (non-GAAP) (a)
  Nine months ended Three months ended
In millions September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Net interest income (GAAP) $ 7,785  $ 7,522  $ 2,856  $ 2,484 
Taxable-equivalent adjustments 52  58  22  17 
Net interest income (non-GAAP) $ 7,837  $ 7,580  $ 2,878  $ 2,501 
(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
DEFINED TERMS
For a glossary of terms commonly used in our filings, please see the glossary of terms included in our 2020 Form 10-K.

ACRONYMS
ACL Allowance for credit losses LIHTC Low income housing tax credit
ALLL Allowance for loan and lease losses LLC Limited liability company
AOCI Accumulated other comprehensive income LTV Loan-to-value ratio
ASC Accounting Standards Codification MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations
ASU Accounting Standards Update MSR Mortgage servicing right
BBVA BBVA USA Bancshares, Inc. NAICS North American Industry Classification System
BBVA, S.A. Banco Bilbao Vizcaya Argentaria, S.A. NSFR Net Stable Funding Ratio
BBVA USA BBVA USA, the Alabama-chartered bank subsidiary of BBVA USA Bancshares, Inc. OCC Office of the Comptroller of the Currency
BHC Bank holding company OCI Other comprehensive income
bps Basis points OREO Other real estate owned
CARES Act Coronavirus Aid, Relief and Economic Security Act OTC Over-the-counter
CCAR Comprehensive Capital Analysis and Review PCD Purchased credit deteriorated
CECL Current expected credit losses PD Probability of default
CET1 Common equity tier 1 PPP Paycheck Protection Program
CFPB Consumer Financial Protection Bureau RAC PNC’s Reserve Adequacy Committee
CRA Community Reinvestment Act ROAP Removal of account provisions
FHLB Federal Home Loan Bank SBA Small Business Administration
FHLMC Federal Home Loan Mortgage Corporation SCB Stress capital buffer
FICO Fair Isaac Corporation (credit score) SEC Securities and Exchange Commission
FNMA Federal National Mortgage Association SLR Supplementary leverage ratio
FOMC Federal Open Market Committee SOFR Secured Overnight Financing Rate
GAAP Accounting principles generally accepted in the United States of America SPE Special purpose entity
GDP Gross Domestic Product TDR Troubled debt restructuring
HQLA High quality, unencumbered liquid assets U.S. United States of America
ISDA International Swaps and Derivatives Association VA Department of Veterans Affairs
LCR Liquidity Coverage Ratio VaR Value-at-risk
LGD Loss given default VIE Variable interest entity
LIBOR London Interbank Offered Rate
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the information set forth in Note 13 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 2020 Form 10-K in response to Part II, Item 1A and Part I, Item 1A, respectively.
104    The PNC Financial Services Group, Inc. – Form 10-Q



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 third quarter of 2021 are included in the following table.
2021 period
In thousands, except per share data
Total shares purchased (a) Average price paid per share Total shares purchased as part of publicly announced programs (b) Maximum number of shares that may yet be purchased under the programs (b)
July 1 - 31 $ 183.43  75,109 
August 1 – 31 956  $ 188.93  956  74,153 
September 1 – 30 1,105  $ 191.85  1,105  73,048 
Total 2,064  $ 190.49     
(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 second 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. During the second quarter of 2021, PNC announced the reinstatement of share repurchase programs with repurchases of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021. In the third quarter of 2021, we returned $0.4 billion of capital to shareholders through common share repurchases, representing 2.1 million shares.

The PNC Financial Services Group, Inc. – Form 10-Q 105  


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
3.1.8
4.11


10.6.1
22
31.1   
31.2   
32.1   
32.2   
101.INS    Inline XBRL Instance Document *
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*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
106    The PNC Financial Services Group, Inc. – Form 10-Q



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 capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. We are also required to make certain additional regulatory capital-related public disclosures about our capital structure, risk exposures, risk assessment processes, risk-weighted assets and overall capital adequacy, including market risk-related disclosures, 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 Exchange Act and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC File Number is 001-09718. You can obtain copies of these and other filings, including exhibits, electronically at the SEC’s internet website at www.sec.gov or on our corporate internet website at www.pnc.com/secfilings. Shareholders and bond holders may also obtain copies of these filings without charge by contacting Shareholder Services at 800-982-7652 or via the online contact form at www.computershare.com/contactus for copies without exhibits, or via email to investor.relations@pnc.com for copies of exhibits, including financial statement and schedule exhibits where applicable.
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 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 our corporate 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.
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 our 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
The PNC Financial Services Group, Inc. – Form 10-Q 107  


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 2020 Form 10-K.
Dividend Reinvestment and Stock Purchase Plan
The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common stock to conveniently purchase additional shares of common stock. You can obtain a prospectus and enrollment form by contacting Shareholder Services at 800-982-7652. Registered shareholders may also contact this phone number regarding dividends and other shareholder services.
Stock Transfer Agent and Registrar
Computershare
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, 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)

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

1 AMENDMENT 2021-1 THE PNC FINANCIAL SERVICES GROUP, INC. AND AFFILIATES DEFERRED COMPENSATION AND INCENTIVE PLAN (as amended and restated as of January 1, 2020) WHEREAS, The PNC Financial Services Group, Inc. (“PNC”) sponsors The PNC Financial Services Group, Inc. and Affiliates Deferred Compensation and Incentive Plan (the “Plan”); WHEREAS, Section 10 of the Plan authorizes PNC to amend the Plan; and WHEREAS, PNC wishes to amend the Plan to (i) include compensation reflected on the payroll of BBVA USA Bancshares, Inc. and its affiliates (“BBVA”) during calendar year 2021 for purposes of determining eligibility of former BBVA employees to participate in the Plan during the 2022 Plan year; (ii) extend the eligibility determination date for determining whether BBVA employees are eligible to participate in the Plan; and (iii) make other clarifying changes. NOW, THEREFORE, IT IS RESOLVED, that, effective as of October 9, 2021 (or such other date as set forth below, the Plan is hereby amended as follows: 1. Effective as of October 9, 2021, Section 1.22 of the Plan (“Eligibility Determination Date”) is amended in its entirety to read as follows: “1.22 “Eligibility Determination Date” means the last day of the payroll period that includes October 1st immediately preceding the Plan Year with respect to which an Employee who is eligible to participate in the Plan pursuant to the criteria set forth in Section 2 of the Plan may submit a Deferral Election. For individuals who become Employees of an Employer as the result of the transaction described in Share Purchase Agreement, dated as of November 15, 2020 (as amended), between Banco Bilbao Vizcaya Argentaria, S.A. and The PNC Financial Services Group, Inc. (as determined by the Plan Manager in its sole discretion), the Eligibility Determination Date in 2021 may be extended to a date after October 1, 2021, but in no event after December 31, 2021, as determined by the Plan Manager in its sole discretion.” 2. Effective as of October 9, 2021, Section 2 of the Plan (“ELIGIBILITY FOR PARTICIPATION”) is amended to add new second and third sentences immediately after the existing first sentence (which begins with “In general, an Employee may be eligible to participate in the Plan for a Plan Year if. . .”) and immediately before the current second sentence (which begins with “The decision as to whether an Employee is eligible to participate in the Plan. . .”) to read as follows: “Notwithstanding the foregoing, in determining the eligibility of former employees of BBVA USA Bancshares, Inc. and its affiliates (“BBVA” and such former employees of BBVA “Former BBVA Employees”) to participate in the Plan for the 2022 Plan Year, the determination of a Former BBVA Employee’s Annualized Base Salary and Year-to- Exhibit 10.6.1


 
2 Date Short-Term Incentive Pay shall be determined by the Plan Manager in his or her sole discretion.” [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


 
[Signature Page to Amendment 2021-1 to The PNC Financial Services Group, Inc. and Affiliates Deferred Compensation and Incentive Plan] Executed and adopted by the Chief Human Resources Officer of The PNC Financial Services Group, Inc. this 8th day of October, 2021 pursuant to the authority delegated by the PNC’s Personnel and Compensation Committee. /S/ Vicki C. Henn Vicki C. Henn Executive Vice President Chief Human Resources Officer


 

EXHIBIT 22
Subsidiary Issuers of Guaranteed Securities

The 100% owned finance subsidiary of The PNC Financial Services Group, Inc. (“PNC”) identified in the table below, has issued the securities listed opposite each of such subsidiary issuer in the table below. PNC has fully and unconditionally guaranteed (or effectively provided for the full and unconditional guarantee of) all such securities:

Subsidiary Issuer Guaranteed Securities
PNC Capital Trust C Floating rate preferred trust securities





EXHIBIT 31.1
In accordance with Exchange Act Rules 13a-14(f) and 15d-14(f), this certification does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, William S. Demchak, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 of The PNC Financial Services Group, Inc.;
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2021
/s/ William S. Demchak
William S. Demchak
Chairman, President and Chief Executive Officer



EXHIBIT 31.2
In accordance with Exchange Act Rules 13a-14(f) and 15d-14(f), this certification does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Robert Q. Reilly, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 of The PNC Financial Services Group, Inc.;
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2021
/s/ Robert Q. Reilly
Robert Q. Reilly
Executive Vice President and Chief Financial Officer



EXHIBIT 32.1
In accordance with Exchange Act Rules 13a-14(f) and 15d-14(f), this certification does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T.
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, William S. Demchak, Chairman, President and Chief Executive Officer of the Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation for the dates and periods covered by the Report.
This certificate is being made for the exclusive purpose of compliance by the Chief Executive Officer of the Corporation with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law.
 
/s/ William S. Demchak
William S. Demchak
Chairman, President and Chief Executive Officer
November 3, 2021



EXHIBIT 32.2
In accordance with Exchange Act Rules 13a-14(f) and 15d-14(f), this certification does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T.
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, Robert Q. Reilly, Executive Vice President and Chief Financial Officer of the Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation for the dates and periods covered by the Report.
This certificate is being made for the exclusive purpose of compliance by the Chief Financial Officer of the Corporation with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law.



/s/ Robert Q. Reilly
Robert Q. Reilly
Executive Vice President and Chief Financial Officer
November 3, 2021