Edgar Filing: PNC FINANCIAL SERVICES GROUP, INC.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2015

¨	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.)

One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707

(Address of principal executive offices, including zip code)

(412) 762-2000

(Registrant’s telephone number, including area code)

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

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

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

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

As of October 23, 2015, there were 507,805,789 shares of the registrant’s common stock ($5 par value) outstanding.

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to Third Quarter 2015 Form 10-Q


	Pages
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).
Consolidated Income Statement		56
Consolidated Statement of Comprehensive Income		57
Consolidated Balance Sheet		58
Consolidated Statement Of Cash Flows		59

Notes To Consolidated Financial Statements (Unaudited)
Note 1 Accounting Policies		61
Note 2 Loan Sale and Servicing Activities and Variable Interest Entities		65
Note 3 Asset Quality		69
Note 4 Purchased Loans		82
Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit		83
Note 6 Investment Securities		86
Note 7 Fair Value		90
Note 8 Goodwill and Intangible Assets		102
Note 9 Capital Securities of a Subsidiary Trust and Perpetual Trust Securities		104
Note 10 Certain Employee Benefit And Stock Based Compensation Plans		104
Note 11 Financial Derivatives		107
Note 12 Earnings Per Share		113
Note 13 Total Equity And Other Comprehensive Income		114
Note 14 Income Taxes		119
Note 15 Legal Proceedings		119
Note 16 Commitments and Guarantees		122
Note 17 Segment Reporting		127
Note 18 Subsequent Events		131

Statistical Information (Unaudited)
Average Consolidated Balance Sheet And Net Interest Analysis		132
Transitional Basel III and Pro forma Fully Phased-In Basel III Common Equity Tier 1 Capital Ratios – 2014 Periods		134

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Financial Review
Consolidated Financial Highlights		1
Executive Summary		3
Consolidated Income Statement Review		8
Consolidated Balance Sheet Review		11
Off-Balance Sheet Arrangements And Variable Interest Entities		21
Fair Value Measurements		22
Business Segments Review		22
Critical Accounting Estimates and Judgments		30
Status Of Qualified Defined Benefit Pension Plan		31
Recourse And Repurchase Obligations		31
Risk Management		32
Internal Controls And Disclosure Controls And Procedures		48
Glossary Of Terms		49
Cautionary Statement Regarding Forward-Looking Information		54

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		32-48, 90-101 and 107-113

Item 4. Controls and Procedures.		48

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.		135

Item 1A. RiskFactors.		135

Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.		136

Item 6. Exhibits.		136
Exhibit Index.		136
Corporate Information		137

Signature		139

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to Third Quarter 2015 Form 10-Q (continued)

MD&A TABLE REFERENCE


Table	Description	Page
1	Consolidated Financial Highlights		1
2	Summarized Average Balance Sheet		7
3	Results Of Businesses – Summary		8
4	Net Interest Income and Net Interest Margin		8
5	Noninterest Income		9
6	Summarized Balance Sheet Data		11
7	Details Of Loans		12
8	Accretion – Purchased Impaired Loans		13
9	Purchased Impaired Loans – Accretable Yield		13
10	Valuation of Purchased Impaired Loans		13
11	Weighted Average Life of the Purchased Impaired Portfolios		14
12	Estimated Derecognition Impact – Total ALLL to Total Loans		14
13	Accretable Difference Sensitivity – Total Purchased Impaired Loans		14
14	Commitments to Extend Credit		15
15	Investment Securities		15
16	Weighted-Average Expected Maturity of Mortgage and Other Asset-Backed Debt Securities		16
17	Loans Held For Sale		16
18	Details Of Funding Sources		17
19	Shareholders’ Equity		18
20	Basel III Capital		19
21	Fair Value Measurements – Summary		22
22	Retail Banking Table		23
23	Corporate & Institutional Banking Table		25
24	Asset Management Group Table		27
25	Residential Mortgage Banking Table		28
26	BlackRock Table		29
27	Non-Strategic Assets Portfolio Table		29
28	Pension Expense – Sensitivity Analysis		31
29	Nonperforming Assets By Type		33
30	Change in Nonperforming Assets		34
31	OREO and Foreclosed Assets		34
32	Accruing Loans Past Due		35
33	Home Equity Lines of Credit – Draw Period End Dates		36
34	Consumer Real Estate Related Loan Modifications		36
35	Summary of Troubled Debt Restructurings		37
36	Loan Charge-Offs And Recoveries		38
37	Allowance for Loan and Lease Losses		39
38	PNC Bank Bank Notes Issued During 2015		41
39	PNC Bank Senior and Subordinated Debt		41
40	FHLB Borrowings		42
41	Parent Company Senior and Subordinated Debt and Hybrid Capital Instruments		43
42	Credit Ratings as of September 30, 2015 for PNC and PNC Bank		43
43	Contractual Obligations		44
44	Other Commitments		44
45	Interest Sensitivity Analysis		45
46	Net Interest Income Sensitivity to Alternative Rate Scenarios (Third Quarter 2015)		45
47	Alternate Interest Rate Scenarios: One Year Forward		46
48	Enterprise-Wide Gains/Losses Versus Value-at-Risk		46
49	Equity Investments Summary		47
50	Financial Derivatives Summary		48

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to Third Quarter 2015 Form 10-Q (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE


Table	Description	Page
51	Cash Flows Associated with Loan Sale and Servicing Activities		66
52	Principal Balance, Delinquent Loans, and Net Charge-offs Related to Serviced Loans For Others		67
53	Consolidated VIEs – Carrying Value		68
54	Non-Consolidated VIEs		69
55	Analysis of Loan Portfolio		70
56	Nonperforming Assets		71
57	Commercial Lending Asset Quality Indicators		73
58	Home Equity and Residential Real Estate Balances		74
59	Home Equity and Residential Real Estate Asset Quality Indicators – Excluding Purchased Impaired Loans		74
60	Home Equity and Residential Real Estate Asset Quality Indicators – Purchased Impaired Loans		76
61	Credit Card and Other Consumer Loan Classes Asset Quality Indicators		77
62	Summary of Troubled Debt Restructurings		78
63	Financial Impact and TDRs by Concession Type		78
64	TDRs that were Modified in the Past Twelve Months which have Subsequently Defaulted		80
65	Impaired Loans		81
66	Purchased Impaired Loans – Balances		82
67	Purchased Impaired Loans – Accretable Yield		83
68	Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data		84
69	Rollforward of Allowance for Unfunded Loan Commitments and Letters of Credit		85
70	Investment Securities Summary		86
71	Gross Unrealized Loss and Fair Value of Securities Available for Sale		87
72	Gains (Losses) on Sales of Securities Available for Sale		89
73	Contractual Maturity of Debt Securities		89
74	Fair Value of Securities Pledged and Accepted as Collateral		90
75	Fair Value Measurements – Recurring Basis Summary		91
76	Reconciliation of Level 3 Assets and Liabilities		92
77	Fair Value Measurements – Recurring Quantitative Information		96
78	Fair Value Measurements – Nonrecurring		98
79	Fair Value Measurements – Nonrecurring Quantitative Information		98
80	Fair Value Option – Changes in Fair Value		99
81	Fair Value Option – Fair Value and Principal Balances		100
82	Additional Fair Value Information Related to Other Financial Instruments		101
83	Goodwill by Business Segment		102
84	Mortgage Servicing Rights		102
85	Commercial Mortgage Loan Servicing Rights – Key Valuation Assumptions		103
86	Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions		103
87	Fees from Mortgage Loan Servicing		103
88	Other Intangible Assets		103
89	Amortization Expense on Existing Intangible Assets		103
90	Net Periodic Pension and Postretirement Benefits Costs		105
91	Stock Option Rollforward		106
92	Nonvested Incentive/Performance Unit Share Awards and Restricted Stock/Share Unit Awards – Rollforward		106
93	Nonvested Cash-Payable Incentive/Performance Units and Restricted Share Units – Rollforward		106
94	Total Gross Derivatives		107
95	Derivatives Designated As Hedging Instruments under GAAP		108
96	Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges		108
97	Gains (Losses) on Derivatives and Related Cash Flows – Cash Flow Hedges		109
98	Gains (Losses) on Derivatives – Net Investment Hedges		109
99	Derivatives Not Designated As Hedging Instruments under GAAP		110
100	Gains (Losses) on Derivatives Not Designated As Hedging Instruments under GAAP		111
101	Derivative Assets and Liabilities Offsetting		112

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to Third Quarter 2015 Form 10-Q (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE (continued)


Table	Description	Page
102	Basic and Diluted Earnings per Common Share		113
103	Rollforward of Total Equity		114
104	Other Comprehensive Income		115
105	Accumulated Other Comprehensive Income (Loss) Components		118
106	Net Operating Loss Carryforwards and Tax Credit Carryforwards		119
107	Commitments to Extend Credit and Other Commitments		122
108	Internal Credit Ratings Related to Net Outstanding Standby Letters of Credit		122
109	Reinsurance Agreements Exposure		123
110	Reinsurance Reserves – Rollforward		123
111	Analysis of Commercial Mortgage Recourse Obligations		124
112	Analysis of Indemnification and Repurchase Liability for Asserted Claims and Unasserted Claims		125
113	Resale and Repurchase Agreements Offsetting		126
114	Repurchase Agreements By Type of Collateral Pledged		126
115	Results Of Businesses		129

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 Report and with Items 6, 7, 8 and 9A of our 2014 Annual Report on Form 10-K (2014 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 sections as they appear in this Report and in our 2014 Form 10-K and our First and Second Quarter 2015 Form 10-Q: the Risk Management and Recourse And Repurchase Obligations sections of the Financial Review portion of the respective reports; Item 1A Risk Factors included in our 2014 Form 10-K; and the Legal Proceedings and Commitments and Guarantees Notes of the Notes To Consolidated Financial Statements included in the respective report. 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 2014 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 17 Segment Reporting in the Notes To Consolidated Financial Statements included in Part I, Item 1 of this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a GAAP basis.

Table 1: Consolidated Financial Highlights

THE PNC FINANCIAL SERVICES GROUP, INC. (PNC)


Dollars in millions, except per share data Unaudited	Three months ended September 30						Nine months ended September 30
Dollars in millions, except per share data Unaudited	2015			2014			2015			2014
Financial Results (a)
Revenue
Net interest income	$	2,062		$	2,104		$	6,186		$	6,428
Noninterest income		1,713			1,737			5,186			5,000
Total revenue		3,775			3,841			11,372			11,428
Noninterest expense		2,352			2,357			7,067			6,949
Pretax, pre-provision earnings (b)		1,423			1,484			4,305			4,479
Provision for credit losses		81			55			181			221
Income before income taxes and noncontrolling interests	$	1,342		$	1,429		$	4,124		$	4,258
Net income	$	1,073		$	1,038		$	3,121		$	3,150
Less:
Net income (loss) attributable to noncontrolling interests		18			1			23			2
Preferred stock dividends and discount accretion and redemptions		64			71			182			189
Net income attributable to common shareholders	$	991		$	966		$	2,916		$	2,959
Less:
Dividends and undistributed earnings allocated to nonvested restricted shares		–			3			2			9
Impact of BlackRock earnings per share dilution		4			4			14			13
Net income attributable to diluted common shares	$	987		$	959		$	2,900		$	2,937
Diluted earnings per common share	$	1.90		$	1.79		$	5.52		$	5.45
Cash dividends declared per common share	$	.51		$	.48		$	1.50		$	1.40
Effective tax rate (c)		20.0	%		27.4	%		24.3	%		26.0	%
Performance Ratios
Net interest margin (d)		2.67	%		2.98	%		2.74	%		3.12	%
Noninterest income to total revenue		45			45			46			44
Efficiency		62			61			62			61
Return on:
Average common shareholders’ equity		9.61			9.52			9.56			9.99
Average assets		1.19			1.25			1.18			1.30

See page 49 for a glossary of certain terms used in this Report.

Certain prior period amounts have been reclassified to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements.

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

(b)	We believe that pretax, pre-provision earnings, a non-GAAP measure, is useful as a tool to help evaluate the ability to provide for credit costs through operations.

(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)

Calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles (GAAP) in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended September 30, 2015 and September 30, 2014 were $50 million and $47 million, respectively. The taxable-equivalent adjustments to net interest income for the nine months ended September 30, 2015 and September 30, 2014 were $148 million and $140 million, respectively.

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

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


Unaudited	September 30 2015			December 31 2014			September 30 2014
Balance Sheet Data (dollars in millions, except per share data)
Assets	$	362,125		$	345,072		$	334,424
Loans		204,983			204,817			200,872
Allowance for loan and lease losses		3,237			3,331			3,406
Interest-earning deposits with banks (b)		34,224			31,779			26,247
Investment securities		68,066			55,823			55,039
Loans held for sale		2,060			2,262			2,143
Goodwill		9,103			9,103			9,074
Mortgage servicing rights		1,467			1,351			1,510
Equity investments (c)		10,497			10,728			10,763
Other assets		27,285			23,482			23,123

Noninterest-bearing deposits		78,239			73,479			72,963
Interest-bearing deposits		166,740			158,755			153,341
Total deposits		244,979			232,234			226,304
Transaction deposits		208,768			198,267			192,222
Borrowed funds		56,663			56,768			52,327
Total shareholders’ equity		44,948			44,551			44,481
Common shareholders’ equity		41,498			40,605			40,536
Accumulated other comprehensive income		615			503			727

Book value per common share	$	81.42		$	77.61		$	76.71
Common shares outstanding (millions)		510			523			528
Loans to deposits		84	%		88	%		89	%

Client Investment Assets (billions)
Discretionary client assets under management	$	132		$	135		$	132
Nondiscretionary client assets under administration		124			128			127
Total client assets under administration		256			263			259
Brokerage account client assets		42			43			43
Total	$	298		$	306		$	302

Capital Ratios
Transitional Basel III (d) (e)
Common equity Tier 1		10.6	%		10.9	%		11.1	%
Tier 1 risk-based		12.0			12.6			12.8
Total capital risk-based		14.8			15.8			16.1
Leverage		10.2			10.8			11.1
Pro forma Fully Phased-In Basel III (e)
Common equity Tier 1		10.1	%		10.0	%		10.1	%
Common shareholders’ equity to assets		11.5	%		11.8	%		12.1	%

Asset Quality
Nonperforming loans to total loans		1.06	%		1.23	%		1.30	%
Nonperforming assets to total loans, OREO and foreclosed assets		1.21			1.40			1.48
Nonperforming assets to total assets		.69			.83			.89
Net charge-offs to average loans (for the three months ended) (annualized)		.19			.23			.16
Allowance for loan and lease losses to total loans (f)		1.58			1.63			1.70
Allowance for loan and lease losses to nonperforming loans (g)		149	%		133	%		130	%
Accruing loans past due 90 days or more (in millions)	$	890		$	1,105		$	1,178

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

(b)	Amounts include balances held with the Federal Reserve Bank of Cleveland (Federal Reserve Bank) of $33.8 billion, $31.4 billion, and $25.9 billion as of September 30, 2015, December 31, 2014 and September 30, 2014, respectively.

(c)	Amounts include our equity interest in BlackRock.

(d)	Calculated using the regulatory capital methodology applicable to PNC during each period presented.

(e)

See Basel III Capital discussion in the Capital portion of the Consolidated Balance Sheet Review section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business in our 2014 Form 10-K. See also the Estimated Pro forma Fully Phased-In Basel III Common Equity Tier 1 Capital Ratio – 2014 Periods table in the Statistical Information section of this Report for a reconciliation of the 2014 periods’ ratios.

(f)

The allowance for loan and lease losses includes impairment reserves attributable to purchased impaired loans. This ratio will be impacted by the expected change in our derecognition policy for purchased impaired loans that are pooled and accounted for as a single asset. For additional information on this policy change, see the Purchase Accounting Accretion and Valuation of Purchased Impaired Loans portion of the Consolidated Balance Sheet Review of this Financial Review.

(g)

The allowance for loan and lease losses includes impairment reserves attributable to purchased impaired loans. Nonperforming loans exclude certain government insured or guaranteed loans, loans held for sale, loans accounted for under the fair value option and purchased impaired loans. The allowance for loan and lease losses in this ratio will be impacted by the expected fourth quarter of 2015 change in our derecognition policy for purchased impaired loans that are pooled and accounted for as a single asset. For additional information on this policy change, see the Purchase Accounting Accretion and Valuation of Purchased Impaired Loans portion of the Consolidated Balance Sheet Review of this Financial Review.

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

EXECUTIVE SUMMARY

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

We have businesses engaged in retail banking, corporate and institutional banking, asset management and residential mortgage banking, providing many of our products and services nationally, as well as other products and services in our primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida, Kentucky, Washington, D.C., Delaware, Virginia, Alabama, Missouri, Georgia, Wisconsin and South Carolina. We also provide certain products and services internationally.

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 fee 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 corporate responsibility to the communities where we do business.

We strive to expand and deepen customer relationships by offering a broad range of deposit, fee-based and credit products and services. We are focused on delivering those products and services where, when and how our customers choose with the goal of offering insight that addresses their specific financial needs. Our approach is concentrated on organically growing and deepening client relationships that meet our risk/return measures. Our strategies for growing fee income across our lines of business are focused on achieving deeper market penetration and cross selling our diverse product mix.

Our strategic priorities are designed to enhance value over the long term. A key priority is to drive growth in acquired and underpenetrated geographic markets, including in the Southeast. In addition, we are seeking to attract more of the investable assets of new and existing clients. PNC is focused on transforming our retail banking business to a more customer-centric and sustainable model while lowering delivery costs as customer banking preferences evolve. We are also working to build a stronger residential mortgage banking business with the goal of becoming the provider of choice for our customers. Additionally, we continue to focus on expense management while investing in technology and business infrastructure and streamlining our processes.

Our capital priorities are to support client growth and business investment, maintain appropriate capital in light of economic conditions and the Basel III framework and return excess capital to shareholders, in accordance with the capital plan included in our 2015 Comprehensive Capital Analysis and

Review (CCAR) submission to the Board of Governors of the Federal Reserve System (Federal Reserve). New regulatory short-term liquidity standards became effective for PNC and PNC Bank, National Association (PNC Bank) beginning January 1, 2015. For more detail, see the Balance Sheet, Liquidity and Capital Highlights portion of this Executive Summary, the Capital portion of the Consolidated Balance Sheet Review section and the Liquidity Risk Management portion of the Risk Management section of this Financial Review and the Supervision and Regulation section in Item 1 Business of our 2014 Form 10-K.

Recent Market and Industry Developments

There have been numerous legislative and regulatory developments and significant changes in the competitive landscape of our industry over the last several years. The United States and other governments have undertaken major reform of the regulation of the financial services industry, including engaging in new efforts to impose requirements designed to strengthen the stability of the financial system and protect consumers and investors. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), enacted in July 2010, mandates the most wide-ranging overhaul of financial industry regulation in decades. Many parts of the law are now in effect, and others are now in the implementation stage, which is likely to continue for several years. We expect to face additional regulation of our industry as a result of Dodd-Frank as well as other current and future initiatives intended to enhance the regulation of financial services companies, the stability of the financial system, the protection of consumers and investors, and the liquidity and solvency of financial institutions and markets. We also expect the scrutiny from our supervisors in the examination process and the enforcement of laws and regulations on both the federal and state levels to remain at elevated levels. Compliance with new regulations will increase our costs and reduce our revenue. Some new regulations may limit our ability to pursue certain desirable business opportunities.

On October 3, 2015, rules requiring mortgage lenders to issue new integrated disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) became effective. These rules, among other things, impose new timelines for the provision of disclosures to borrowers and provide additional limitations on increases to the fees and charges estimated and disclosed by lenders.

On October 22, 2015, the Office of the Comptroller of the Currency (OCC) approved final interagency rules (developed jointly with the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) Farm Credit Administration and Federal Housing Finance Agency) governing margin and capital requirements for uncleared swaps entered into by swap dealers who are supervised by a prudential regulator. PNC Bank is registered as a swap dealer and will be subject to these rules. The compliance date for requirements under the final rules is subject to a substantial phase-in period that begins on September 1, 2016, for the largest market participants and, for

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

PNC Bank, no earlier than March 1, 2017. While we continue to analyze fully the various requirements under the final rules, we expect that the rules will not have a material effect on PNC Bank.

Also on October 22, 2015, the FDIC requested comment on a proposed rule that would impose a surcharge, equal to 4.5 basis points of an institution’s deposit insurance assessment base, on the quarterly deposit insurance assessments of all insured depository institutions with total consolidated assets of $10 billion or more (including PNC Bank). Under the proposal, the surcharge would take effect for assessments billed after the Deposit Insurance Fund (DIF) reserve ratio reaches 1.15 percent (estimated by the FDIC to most likely occur in the first quarter of 2016) or such later date as the proposed rule is finalized, and would continue until the reserve ratio reached 1.35 percent (estimated by the FDIC to occur under the proposal before the end of 2018). Based on data as of September 30, 2015, we estimate that the net effect of the proposed surcharge, together with the scheduled reduction of regular assessments that will go into effect when the DIF reserve ratio reaches 1.15 percent, would increase PNC Bank’s quarterly assessment by approximately $20 million. The comment period on the proposed surcharge will run for 60 days after the proposal is published in the Federal Register.

For additional information concerning recent legislative and regulatory developments, as well as certain governmental, legislative and regulatory inquiries and investigations that may affect PNC, please see the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors, and Note 21 Legal Proceedings and Note 22 Commitments and Guarantees in the Notes To Consolidated Financial Statements in our 2014 Form 10-K, Recent Market and Industry Developments in the Executive Summary section of our First Quarter 2015 Form 10-Q and Second Quarter 2015 Form 10-Q as well as Note 15 Legal Proceedings and Note 16 Commitments and Guarantees in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report.

Key Factors Affecting Financial Performance

PNC faces a variety of risks that may impact various aspects of our risk profile from time to time. The extent of such impacts may vary depending on factors such as the current economic, political and regulatory environment, merger and acquisition activity and operational challenges. Many of these risks and our risk management strategies are described in more detail in our 2014 Form 10-K and elsewhere in this Report.

Our financial performance is substantially affected by a number of external factors outside of our control, including the following:

•

General economic conditions, including the continuity, speed and stamina of the current U.S.

economic expansion in general and on our customers in particular,

•

The monetary policy actions and statements of the Federal Reserve and the Federal Open Market Committee (FOMC),

•

The level of, and direction, timing and magnitude of movement in, interest rates and the shape of the interest rate yield curve,

•

The functioning and other performance of, and availability of liquidity in, the capital and other financial markets,

•

Loan demand, utilization of credit commitments and standby letters of credit, and asset quality,

•

Customer demand for non-loan products and services,

•

Changes in the competitive and regulatory landscape and in counterparty creditworthiness and performance as the financial services industry restructures in the current environment,

•

The impact of the extensive reforms enacted in the Dodd-Frank legislation and other legislative, regulatory and administrative initiatives and actions, including those outlined elsewhere in this Report, in our 2014 Form 10-K and in subsequent filings with the SEC, and

•

The impact of market credit spreads on asset valuations.

In addition, our success will depend upon, among other things:

•

Focused execution of strategic priorities for organic customer growth opportunities,

•

Further success in growing profitability through the acquisition and retention of customers and deepening relationships,

•

Driving growth in acquired and underpenetrated geographic markets, including our Southeast markets,

•

Our ability to effectively manage PNC’s balance sheet and generate net interest income,

•

Revenue growth from fee income and our ability to provide innovative and valued products to our customers,

•

Our ability to utilize technology to develop and deliver products and services to our customers and protect PNC’s systems and customer information,

•

Our ability to bolster our critical infrastructure and streamline our core processes,

•

Our ability to manage and implement strategic business objectives within the changing regulatory environment,

•

A sustained focus on expense management,

•

Managing our credit risk in our portfolio,

•

Managing the non-strategic assets portfolio and impaired assets,

•

Continuing to maintain and grow our deposit base as a low-cost funding source,

•

Prudent risk, liquidity and capital management related to our efforts to manage risk to acceptable

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

levels and to meet evolving regulatory capital, capital planning, stress testing and liquidity standards,

•

Actions we take within the capital and other financial markets,

•

The impact of legal and regulatory-related contingencies, and

•

The appropriateness of reserves needed for critical accounting estimates and related contingencies.

For additional information, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors in our 2014 Form 10-K.

Income Statement Highlights

Net income increased $35 million, or 3%, in the third quarter of 2015 to $1.1 billion, or $1.90 per diluted common share, compared to $1.0 billion, or $1.79 per diluted common share for the third quarter of 2014. Third quarter net income benefitted from a lower effective tax rate and slightly lower noninterest expense, partially offset by declines in net interest income and noninterest income.

•

Net interest income of $2.1 billion for the third quarter of 2015 decreased 2% compared with the third quarter of 2014, reflective of the ongoing low rate environment, primarily resulting in lower interest-earning asset yields, and lower purchase accounting accretion, partially offset by commercial and commercial real estate loan growth and higher securities balances.

•

Net interest margin decreased to 2.67% for the third quarter of 2015 compared to 2.98% for the third quarter of 2014 principally due to the impact of increasing the company’s liquidity position, lower benefit from purchase accounting accretion, and lower loan and securities yields.

•

Noninterest income of $1.7 billion for the third quarter of 2015 decreased $24 million, or 1% compared to the third quarter of 2014, due to declines in asset management and residential mortgage, partially offset by strong fee income growth in consumer and corporate services.

•

The provision for credit losses increased to $81 million for the third quarter of 2015 compared to $55 million for the third quarter of 2014.

•

Noninterest expense of $2.4 billion for the third quarter of 2015 decreased $5 million compared to the third quarter of 2014 mainly driven by lower expense related to third party services and lower asset impairment charges related to historic tax credits, mostly offset by investments in technology and business infrastructure in support of PNC’s strategic priorities and higher personnel expense associated with higher business activity.

•

The effective tax rate was 20.0% for the third quarter of 2015 compared to 27.4% for the third quarter of 2014 reflecting tax benefits and additions to reserves, the largest components of which were a benefit of

$75 million attributable to effectively settling acquired entity tax contingencies offset by additions to reserves of $10 million for various tax matters.

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

Credit Quality Highlights

Overall credit quality improved during the first nine months of 2015.

•

Nonperforming assets decreased $.4 billion, or 14%, to $2.5 billion at September 30, 2015 compared to December 31, 2014. Nonperforming assets to total assets were 0.69% at September 30, 2015, compared to 0.83% at December 31, 2014.

•

Overall loan delinquencies of $1.7 billion at September 30, 2015 decreased $.3 billion, or 15%, compared with December 31, 2014.

•

The allowance for loan and lease losses was 1.58% of total loans and 149% of nonperforming loans at September 30, 2015, compared with 1.63% and 133% at December 31, 2014, respectively.

•

Net charge-offs of $96 million for the third quarter of 2015 increased 17% compared to net charge-offs of $82 million for the third quarter of 2014. Annualized net charge-offs were 0.19% of average loans in the third quarter of 2015 and 0.16% of average loans in the third quarter of 2014. For the first nine months of 2015, net charge-offs were $266 million, and 0.17% of average loans on an annualized basis, compared with $413 million and 0.28% for the first nine months of 2014.

For additional detail, see the Credit Risk Management portion of the Risk Management section and the Purchase Accounting Accretion and Valuation of Purchased Impaired Loans portion of the Consolidated Balance Sheet Review of this Financial Review.

Balance Sheet, Liquidity and Capital Highlights

PNC’s balance sheet was well-positioned at September 30, 2015 reflecting strong liquidity and capital positions.

•

Total loans increased by $.2 billion to $205.0 billion at September 30, 2015 compared to December 31, 2014.

–

Total commercial lending increased $2.8 billion, or 2%, due to growth in PNC’s real estate business.

–

Total consumer lending decreased $2.6 billion, or 3%, due to declines in home equity, automobile, and education, including runoff in the non-strategic consumer loan portfolio.

•

Investment securities increased $12.2 billion, or 22%, to $68.1 billion at September 30, 2015 compared to December 31, 2014, primarily funded by deposit growth.

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

•

Total deposits increased $12.7 billion, or 5%, to $245.0 billion at September 30, 2015 compared with December 31, 2014, driven by higher Retail Banking and Corporate & Institutional Banking deposits.

•

PNC’s balance sheet remained core funded with a loans to deposits ratio of 84% at September 30, 2015.

•

PNC maintained a strong liquidity position.

–

New regulatory short-term liquidity standards became effective for PNC and PNC Bank as advanced approaches banking organizations beginning January 1, 2015, with a minimum phased-in Liquidity Coverage Ratio requirement of 80% in 2015, calculated as of month end.

–

The Liquidity Coverage Ratio (LCR) at September 30, 2015 exceeded 100% for both PNC and PNC Bank.

•

PNC maintained a strong capital position.

–

The Transitional Basel III common equity Tier 1 capital ratio was 10.6% at September 30, 2015 and 10.9% at December 31, 2014, calculated using the regulatory capital methodologies applicable to PNC during 2015 and 2014, respectively. The decline in the capital ratio during the comparable period was mainly due to higher risk weighting percentages applied to certain commercial real estate, equity and securities assets under the Basel III standardized rule which became effective in 2015.

–

Pro forma fully phased-in Basel III common equity Tier 1 capital ratio was an estimated 10.1% at September 30, 2015 and 10.0% at December 31, 2014 based on the standardized approach rules. See the Capital discussion and Table 20 in the Consolidated Balance Sheet Review section of this Financial Review and the December 31, 2014 capital ratio tables in the Statistical Information (Unaudited) section of this Report for more detail.

•

PNC returned capital to shareholders during the first nine months of 2015.

–

In the first quarter of 2015, in accordance with the 2014 capital plan, PNC repurchased 4.4 million common shares for an aggregate repurchase price of $.4 billion. These first quarter 2015 repurchases completed PNC’s common stock repurchase program for the four quarter period that began in second quarter 2014 with total repurchases of 17.3 million common shares for $1.5 billion.

–

In connection with the 2015 CCAR process, PNC submitted its 2015 capital plan, as approved by its Board of Directors, to the Federal Reserve in January 2015. As we announced on March 11, 2015, the Federal Reserve accepted the capital plan and did not object to our proposed capital actions, which

included the following that were completed during the second and third quarters of 2015:

–

PNC repurchased 6.2 million common shares for $.6 billion during the third quarter of 2015 and 5.9 million common shares for $.6 billion during the second quarter of 2015 under share repurchase programs of up to $2.875 billion for the five quarter period beginning in the second quarter of 2015. These programs include repurchases of up to $375 million related to stock issuances under employee benefit-related programs.

–

In April 2015, the Board of Directors raised the quarterly dividend on common stock to 51 cents per share, an increase of 3 cents per share, or 6%, effective with the May dividend. On October 1, 2015, the PNC Board of Directors declared a quarterly common stock cash dividend of 51 cents per share payable on November 5, 2015.

–

On May 4, 2015, we redeemed $500 million of PNC’s Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series K, as well as all Depositary Shares representing interests therein. Each Depositary Share represented a 1/10 interest in a share of the Series K Preferred Stock. All 50,000 shares of Series K Preferred Stock, as well as all 500,000 Depositary Shares representing interests therein, were redeemed. The redemption price was $10,000 per share of Series K Preferred Stock equivalent to $1,000 per Depositary Share, plus declared and unpaid dividends up to but excluding the redemption date.

Our Consolidated Income Statement and Consolidated Balance Sheet Review sections of this Financial Review describe in greater detail the various items that impacted our results during the first nine months of 2015 and 2014 and balances at September 30, 2015 and December 31, 2014, respectively.

Our ability to take certain capital actions, including plans to pay or increase common stock dividends or to repurchase shares under current or future programs, is subject to the results of the supervisory assessment of capital adequacy undertaken by the Federal Reserve as part of the CCAR process. For additional information, see the Supervision and Regulation section in Item 1 Business of our 2014 Form 10-K.

See the Capital portion of the Consolidated Balance Sheet Review and the Liquidity Risk Management portion of the Risk Management section of this Financial Review for more detail on our 2015 capital and liquidity actions.

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

Average Consolidated Balance Sheet Highlights

Table 2: Summarized Average Balance Sheet


Nine months ended September 30					Change
Dollars in millions	2015		2014		$		%
Average assets
Interest-earning assets
Investment securities	$	59,578	$	56,357	$	3,221		6	%
Loans		205,122		198,559		6,563		3	%
Interest-earning deposits with banks		33,380		16,341		17,039		104	%
Other		9,048		8,476		572		7	%
Total interest-earning assets		307,128		279,733		27,395		10	%
Noninterest-earning assets		46,005		44,145		1,860		4	%
Total average assets	$	353,133	$	323,878	$	29,255		9	%
Average liabilities and equity
Interest-bearing liabilities
Interest-bearing deposits	$	162,790	$	151,757	$	11,033		7	%
Borrowed funds		57,018		47,620		9,398		20	%
Total interest-bearing liabilities		219,808		199,377		20,431		10	%
Noninterest-bearing deposits		75,359		68,976		6,383		9	%
Other liabilities		12,091		10,389		1,702		16	%
Equity		45,875		45,136		739		2	%
Total average liabilities and equity	$	353,133	$	323,878	$	29,255		9	%

Seasonal and other factors may impact our period-end balances, whereas average balances are generally more indicative of underlying business trends apart from the impact of acquisitions and divestitures. The Consolidated Balance Sheet Review section of this Financial Review provides information on changes in selected Consolidated Balance Sheet categories at September 30, 2015 compared with December 31, 2014. Total assets were $362.1 billion at September 30, 2015 compared with $345.1 billion at December 31, 2014.

Average investment securities increased in the first nine months of 2015 compared with the first nine months of 2014, due to increases in average agency residential mortgage-backed securities and U.S. Treasury and government agency securities, partially offset by a decrease in average non-agency residential mortgage-backed securities. Total investment securities comprised 19% of average interest-earning assets for the first nine months of 2015 and 20% for the first nine months of 2014.

Average total loans in the first nine months of 2015 increased compared with the first nine months of 2014 driven by growth in average commercial loans of $6.7 billion and average commercial real estate loans of $2.2 billion, principally in our Corporate & Institutional Banking segment. These increases were partially offset by a decrease in consumer loans of $2.2 billion primarily attributable to lower home equity and education loans. Runoff in the non-strategic portfolio of residential mortgage and brokered home equity loans contributed to the decrease in consumer loans.

Loans represented 67% of average interest-earning assets for the first nine months of 2015 and 71% of average interest-earning assets for the first nine months of 2014.

Average interest-earning deposits with banks, which are primarily maintained with the Federal Reserve Bank, increased in the comparison to the prior year period in part due to regulatory short-term liquidity standards phased in starting January 1, 2015 and also due to deposit growth.

The increase in average noninterest-earning assets in the first nine months of 2015 compared with the first nine months of 2014 was primarily driven by higher accounts receivable from trade date securities sales, which are included in noninterest-earning assets for average balance sheet purposes, and an increase in trading assets, primarily net customer-related derivatives values.

Average total deposits increased $17.4 billion, or 8%, to $238.1 billion in the first nine months of 2015 compared with the first nine months of 2014, primarily due to an increase in average transaction deposits, which grew to $203.8 billion for the first nine months of 2015. Higher average money market deposits, average noninterest-bearing deposits and average interest-bearing demand deposits were driven by both commercial and consumer deposit growth. These increases were partially offset by a decrease of $1.5 billion in average retail certificates of deposit attributable to runoff of maturing accounts.

Average total deposits represented 67% of average total assets for the first nine months of 2015 and 68% for the first nine months of 2014.

The increase in average borrowed funds in the first nine months of 2015 compared with the first nine months of 2014 was primarily due to increases in average Federal Home Loan Bank (FHLB) borrowings and average bank notes and senior debt. These increases were partially offset by lower average commercial paper balances, in part due to actions to enhance PNC’s funding structure in light of regulatory liquidity standards and a rating agency methodology change. The Liquidity Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding our sources and uses of borrowed funds.

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

Business Segment Highlights

Total business segment earnings were $3.0 billion for both the first nine months of 2015 and 2014. The Business Segments Review section of this Financial Review includes further analysis of our business segment results over the first nine months of 2015 and 2014, including presentation differences from Note 17 Segment Reporting in our Notes To Consolidated Financial Statements of this Report. Note 17 Segment Reporting presents results of businesses for the three and nine months ended September 30, 2015 and 2014.

We provide a reconciliation of total business segment earnings to PNC total consolidated net income as reported on a GAAP basis in Note 17 Segment Reporting in our Notes To Consolidated Financial Statements of this Report.

Table 3: Results Of Businesses – Summary (a)

(Unaudited)


	Net Income				Revenue				Average Assets (b)
Nine months ended September 30 – in millions	2015		2014		2015		2014		2015		2014
Retail Banking	$	694	$	556	$	4,804	$	4,529	$	73,430	$	75,264
Corporate & Institutional Banking		1,492		1,542		4,010		4,032		131,678		121,232
Asset Management Group		143		136		873		826		7,922		7,687
Residential Mortgage Banking		43		44		579		618		6,962		7,889
BlackRock		407		399		532		528		6,813		6,562
Non-Strategic Assets Portfolio		205		291		336		447		6,880		8,563
Total business segments		2,984		2,968		11,134		10,980		233,685		227,197
Other (c) (d) (e)		137		182		238		448		119,448		96,681
Total	$	3,121	$	3,150	$	11,372	$	11,428	$	353,133	$	323,878

(a)

Our business information is presented based on our internal management reporting practices. We periodically refine our internal methodologies as management reporting practices are enhanced. Net interest income in business segment results reflects PNC’s 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. In the first quarter of 2015, enhancements were made to PNC’s funds transfer pricing methodology primarily for costs related to the new regulatory short-term liquidity standards. The enhancements incorporate an additional charge assigned to assets, including for unfunded loan commitments. Conversely, a higher transfer pricing credit has been assigned to those deposits that are accorded higher value under LCR rules for liquidity purposes. These adjustments apply to business segment results, primarily favorably impacting Retail Banking and adversely impacting Corporate & Institutional Banking, prospectively beginning with the first quarter of 2015. Prior periods have not been adjusted due to the impracticability of estimating the impact of the change for prior periods.

(b)	Period-end balances for BlackRock.

(c)	“Other” average assets include investment securities associated with asset and liability management activities.

(d)

“Other” includes differences between the total business segment financial results and our total consolidated net income. Additional detail is included in the Business Segments Review section of this Financial Review and in Note 17 Segment Reporting in the Notes To Consolidated Financial Statements in this Report.

(e)

The decreases in net income and revenue in the first nine months of 2015 compared to the first nine months of 2014 for “Other” primarily reflected a decline in net interest income, partially offset by lower income tax expense, which reflected the $75 million tax benefit recorded in the third quarter of 2015.

CONSOLIDATED INCOME STATEMENT REVIEW

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

Net income for the third quarter of 2015 was $1.1 billion, an increase of 3% compared with $1.0 billion for third quarter of 2014. The increase was primarily driven by a lower effective income tax rate and slightly lower noninterest expense, partially offset by a 2% decrease in net interest income, higher provision for credit losses, and a 1% decrease in noninterest income.

For the first nine months of 2015, net income was $3.1 billion, a decrease of 1% compared with $3.2 billion for the first nine months of 2014. The decrease resulted from a 4% decline in net interest income and a 2% increase in noninterest expense, partially offset by a 4% increase in noninterest income, a lower effective income tax rate and lower provision for credit losses.

Net Interest Income

Table 4: Net Interest Income and Net Interest Margin


	Three months ended September 30						Nine months ended September 30
Dollars in millions	2015			2014			2015			2014
Net interest income	$	2,062		$	2,104		$	6,186		$	6,428
Net interest margin		2.67	%		2.98	%		2.74	%		3.12	%

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 and the discussion of purchase accounting accretion on purchased impaired loans in the Consolidated Balance Sheet Review section of this Financial Review for additional information.

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

Net interest income decreased by $42 million, or 2%, and $242 million, or 4%, for the third quarter and first nine months of 2015, respectively, compared to the same periods in 2014. The declines in both comparisons are reflective of the decreased purchase accounting accretion and the ongoing low rate environment, primarily resulting in lower interest-earning asset yields, partially offset by commercial and commercial real estate loan growth and higher securities balances. The year-to-date decline also reflected the impact from the second quarter 2014 correction to reclassify certain commercial facility fees from net interest income to noninterest income.

Lower net interest margins in both comparisons were driven by 28 basis point and 35 basis point declines in the yields on total interest-earning assets in the quarterly and year-to-date comparisons, respectively, which were principally due to the impact of increasing the company’s liquidity position, lower loan and securities yields, and lower benefit from purchase accounting accretion. The year-to-date decline also included the impact of the second quarter 2014 correction to reclassify certain commercial facilities fees.

For full year 2015, we expect purchase accounting accretion to be down compared to 2014 by approximately $180 million to $200 million.

Noninterest Income

Table 5: Noninterest Income


	Three months ended September 30											Nine months ended September 30
						Change										Change
Dollars in millions	2015			2014		$			%			2015		2014		$			%
Noninterest income
Asset management	$	376		$	411	$	(35	)		(9	)%	$	1,168	$	1,137	$	31			3	%
Consumer services		341			320		21			7	%		986		933		53			6	%
Corporate services		384			374		10			3	%		1,097		1,018		79			8	%
Residential mortgage		125			140		(15	)		(11	)%		453		483		(30	)		(6	)%
Service charges on deposits		172			179		(7	)		(4	)%		481		482		(1	)		–	%
Net gains (losses) on sales of securities		(9	)		–		(9	)		*			41		4		37			*
Other		324			313		11			4	%		960		943		17			2	%
Total noninterest income	$	1,713		$	1,737	$	(24	)		(1	)%	$	5,186	$	5,000	$	186			4	%

*	– Not meaningful

Noninterest income decreased in the third quarter of 2015 compared to the same period in 2014 mainly attributable to declines in asset management and residential mortgage, partially offset by strong fee income growth in consumer and corporate services.

Year-to-date noninterest income increased compared to the first nine months of 2014 primarily driven by strong fee income growth in consumer and corporate services and higher gains on sales of securities.

Noninterest income as a percentage of total revenue was 45% for both the third quarters of 2015 and 2014. The comparable amounts for the year-to-date periods of 2015 and 2014 were 46% and 44%, respectively.

Asset management revenue decreased in the third quarter of 2015 compared to the same period of 2014 primarily as a result of elevated third quarter 2014 revenue attributable to PNC’s investment in BlackRock, partially offset by fee growth. On a year-to-date comparison, asset management revenue increased due to stronger average equity markets and

new business and reflected a benefit from a $30 million trust settlement during the second quarter of 2015. Discretionary client assets under management were $132 billion at both September 30, 2015 and September 30, 2014.

Consumer service fees increased in both the quarterly and year-to-date comparisons, primarily due to growth in customer-initiated transaction volumes.

Corporate services revenue increased in both comparisons due to increased treasury management fees, partially offset by lower mergers and acquisition advisory fees. The increase in the year-to-date comparison also reflected the impact of the correction to reclassify certain commercial facility fees from net interest income to noninterest income beginning in second quarter 2014.

Residential mortgage revenue decreased in both quarterly and year-to-date comparisons mainly driven by lower loan sales revenue, reflecting the impact from the second quarter 2014 sale of previously underperforming portfolio loans and lower servicing fee revenue. The year-to-date decrease was partially

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

offset by higher net hedging gains on residential mortgage servicing rights.

Other noninterest income for the third quarter of 2015 included gains of $43 million on the sale of 500,000 Visa Class B common shares compared with gains of $57 million on the sale of 1 million Visa Class B common shares in the third quarter of 2014. For the first nine months of 2015 and 2014, gains on sales of Visa Class B common shares were $122 million and $173 million on the sale of 1.5 million and 3 million shares, respectively. Gains on commercial mortgage loans held for sale increased on a year-to-date basis compared to the same period in 2014.

As of September 30, 2015, we held approximately 5.4 million Visa Class B common shares with a fair value of approximately $616 million and a recorded investment of approximately $43 million.

Other noninterest income typically fluctuates from period to period depending on the nature and magnitude of transactions completed. Details regarding our customer-related trading activities are included in the Market Risk Management – Customer-Related Trading Risk portion of the Risk Management section of this Financial Review. Details regarding private and other equity investments are included in the Market Risk Management – Equity And Other Investment Risk section, and further details regarding gains or losses related to our equity investment in BlackRock are included in the Business Segments Review section.

In the fourth quarter of 2015, we expect the fee categories of noninterest income (asset management, consumer services, corporate services, residential mortgage and service charges on deposits) to remain stable compared to third quarter of 2015.

Provision For Credit Losses

The provision for credit losses increased $26 million to $81 million in the third quarter of 2015 compared to the third quarter of 2014. The provision for credit losses decreased $40 million to $181 million for first nine months of 2015 compared to the same period in 2014 due to improved credit quality.

We expect our provision for credit losses in the fourth quarter of 2015 to be between $50 million and $100 million.

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

Noninterest Expense

Noninterest expense decreased $5 million to $2.4 billion for the third quarter of 2015 compared to the third quarter of 2014. For the first nine months of 2015, noninterest expense increased $118 million, or 2%, to $7.1 billion compared to the same period of 2014.

Both comparisons reflected increased noninterest expense related to investments in technology and business infrastructure in support of PNC’s strategic priorities and higher personnel expense associated with higher business activity. These increases were partially offset by lower asset impairment charges related to historic tax credits recorded as reductions to the associated investment asset balance beginning in the second quarter of 2015. In prior periods, these credits were recorded as a reduction to income tax expense. This change in application of historic tax credits was not material to PNC’s financial results. In the quarterly comparison, expense for third party services also declined.

During the second quarter of 2015, we increased the savings goal of our annual continuous improvement program, which focuses on reducing costs in part to fund investments in technology and infrastructure, to $500 million for 2015. Through the first nine months of 2015, PNC has completed actions to capture 75% of this goal and is on track to reach the full year target.

For the fourth quarter of 2015, we expect noninterest expense to remain stable compared to third quarter 2015. We expect our full year 2015 expenses to be approximately one percent lower than full year 2014 expenses.

Effective Income Tax Rate

The effective income tax rate was 20.0% in the third quarter of 2015, compared to 27.4% in the third quarter of 2014 and 24.3% in the first nine months of 2015 compared to 26.0% in the same period of 2014. The effective tax rate is generally lower than the statutory rate primarily due to tax credits PNC receives from our investments in low income housing and new markets investments, as well as earnings in other tax exempt investments.

The lower effective tax rate for both 2015 periods reflected tax benefits of $75 million attributable to effectively settling acquired entity tax contingencies offset by additions to reserves of $10 million for various tax matters. These decreases were partially offset by the impact beginning in second quarter 2015 of historic tax credits recorded as a reduction to the associated investment asset balances, while in prior periods these credits were recorded as a reduction of income tax expense.

We expect our fourth quarter of 2015 effective tax rate to be approximately 26%.

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

CONSOLIDATED BALANCE SHEET REVIEW

Table 6: Summarized Balance Sheet Data


Dollars in millions	September 30 2015			December 31 2014			Change
Dollars in millions	September 30 2015			December 31 2014			$			%
Assets
Interest-earning deposits with banks	$	34,224		$	31,779		$	2,445			8	%
Loans held for sale		2,060			2,262			(202	)		(9	)%
Investment securities		68,066			55,823			12,243			22	%
Loans		204,983			204,817			166			–	%
Allowance for loan and lease losses		(3,237	)		(3,331	)		94			(3	)%
Goodwill		9,103			9,103			–			–	%
Mortgage servicing rights		1,467			1,351			116			9	%
Other intangible assets		407			493			(86	)		(17	)%
Other, net		45,052			42,775			2,277			5	%
Total assets	$	362,125		$	345,072		$	17,053			5	%
Liabilities
Deposits	$	244,979		$	232,234		$	12,745			5	%
Borrowed funds		56,663			56,768			(105	)		–	%
Other		14,205			9,996			4,209			42	%
Total liabilities		315,847			298,998			16,849			6	%
Equity
Total shareholders’ equity		44,948			44,551			397			1	%
Noncontrolling interests		1,330			1,523			(193	)		(13	)%
Total equity		46,278			46,074			204			–	%
Total liabilities and equity	$	362,125		$	345,072		$	17,053			5	%

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

PNC’s balance sheet reflected asset growth and strong liquidity and capital positions at September 30, 2015.

•

Total assets increased $17.1 billion, or 5%, mainly due to an increase of $12.2 billion in investment securities driven by deposit growth and a $2.4 billion increase in interest-earning deposits with banks reflecting the impact of regulatory short-term liquidity standards phased in starting January 1, 2015.

•

Total liabilities increased $16.8 billion, or 6%, mainly due to an increase in deposits.

•

Total equity increased $.2 billion mainly due to increased retained earnings driven by net income, partially offset by share repurchases and redemption of preferred stock.

An analysis of changes in selected balance sheet categories follows.

Loans

Outstanding loan balances of $205.0 billion at September 30, 2015 and $204.8 billion at December 31, 2014 were net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.5 billion at September 30, 2015 and $1.7 billion at December 31, 2014. The balances include purchased impaired loans but do not include future accretable net interest (i.e., the difference between the undiscounted expected cash flows and the carrying value of the loan) on those loans.

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

Table 7: Details Of Loans


Dollars in millions	September 30 2015		December 31 2014		Change
Dollars in millions	September 30 2015		December 31 2014		$			%
Commercial lending
Commercial
Retail/wholesale trade	$	16,986	$	16,972	$	14			–	%
Manufacturing		19,649		18,744		905			5	%
Service providers		13,550		14,103		(553	)		(4	)%
Real estate related (a)		11,492		10,812		680			6	%
Financial services		5,511		6,178		(667	)		(11	)%
Health care		9,397		9,017		380			4	%
Other industries		20,842		21,594		(752	)		(3	)%
Total commercial		97,427		97,420		7			–	%
Commercial real estate
Real estate projects (b)		15,333		14,577		756			5	%
Commercial mortgage		10,760		8,685		2,075			24	%
Total commercial real estate		26,093		23,262		2,831			12	%
Equipment lease financing		7,644		7,686		(42	)		(1	)%
Total commercial lending (c)		131,164		128,368		2,796			2	%
Consumer lending
Home equity
Lines of credit		19,309		20,361		(1,052	)		(5	)%
Installment		13,697		14,316		(619	)		(4	)%
Total home equity		33,006		34,677		(1,671	)		(5	)%
Residential real estate
Residential mortgage		14,038		13,885		153			1	%
Residential construction		454		522		(68	)		(13	)%
Total residential real estate		14,492		14,407		85			1	%
Credit card		4,600		4,612		(12	)		–	%
Other consumer
Education		6,070		6,626		(556	)		(8	)%
Automobile		11,039		11,616		(577	)		(5	)%
Other		4,612		4,511		101			2	%
Total consumer lending		73,819		76,449		(2,630	)		(3	)%
Total loans	$	204,983	$	204,817	$	166			–	%

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

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

(c)	Construction loans with interest reserves and A/B Note restructurings are not significant to PNC.

The slight increase in loans was the result of an increase in total commercial lending driven by commercial real estate loans, offset by a decline in consumer lending due to lower home equity, automobile and education loans.

Loans represented 57% of total assets at September 30, 2015 and 59% at December 31, 2014. Commercial lending represented 64% of the loan portfolio at September 30, 2015 and 63% at December 31, 2014. Consumer lending represented 36% of the loan portfolio at September 30, 2015 and 37% at December 31, 2014.

Commercial real estate loans represented 13% of total loans at September 30, 2015 and 11% of total loans at December 31, 2014 and represented 7% of total assets at both September 30, 2015 and December 31, 2014. See the Credit Risk Management portion of the Risk Management section of this Financial Review for additional information regarding our loan portfolio.

Total loans above include purchased impaired loans of $4.2 billion, or 2% of total loans, at September 30, 2015, and $4.9 billion, or 2% of total loans, at December 31, 2014.

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

Our loan portfolio continued to be diversified among numerous industries, types of businesses and consumers across our principal geographic markets.

Allowance for Loan and Lease Losses (ALLL)

Information regarding our higher risk loans and ALLL is included in the Credit Risk Management portion of the Risk Management section of this Financial Review and Note 1 Accounting Policies, Note 3 Asset Quality and Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in our Notes To Consolidated Financial Statements included in Part 1, Item 1 of this Report.

Purchase Accounting Accretion and Valuation of Purchased Impaired Loans

Information related to purchase accounting accretion and accretable yield for the third quarter and first nine months of 2015 and 2014 follows. Additional information on our policies for ALLL for purchased impaired loans is provided in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements of this Report. A description of our purchased impaired loan accounting and loan data is included in Note 4 Purchased Loans in the Notes To Consolidated Financial Statements of this Report.

Table 8: Accretion – Purchased Impaired Loans


	Three months ended September 30						Nine months ended September 30
In millions	2015			2014			2015			2014
Accretion on purchased impaired loans
Scheduled accretion	$	88		$	109		$	279		$	354
Reversal of contractual interest on impaired loans		(57	)		(57	)		(164	)		(195	)
Scheduled accretion net of contractual interest		31			52			115			159
Excess cash recoveries (a)		19			31			80			95
Total	$	50		$	83		$	195		$	254

(a)	Relates to excess cash recoveries for purchased impaired commercial loans.

Table 9: Purchased Impaired Loans – Accretable Yield


In millions	2015			2014
January 1	$	1,558		$	2,055
Accretion (including excess cash recoveries)		(359	)		(449	)
Net reclassification to accretable from non-accretable and other activity (a)		218			237
Disposals		(66	)		(24	)
September 30 (b)	$	1,351		$	1,819

(a)

Approximately 66% and 68% of the net reclassification for the first nine months of 2015 and 2014, respectively, were driven by the consumer portfolio and were due to improvements of cash expected to be collected on loans in future periods. The remaining net reclassifications were predominantly due to future cash flow changes in the commercial portfolio.

(b)	As of September 30, 2015, we estimate that the reversal of contractual interest on purchased impaired loans will total approximately $0.7 billion in future periods. This will offset the total net accretable interest in future interest income of $1.4 billion on purchased impaired loans.

Information related to the valuation of purchased impaired loans at September 30, 2015 and December 31, 2014 follows.

Table 10: Valuation of Purchased Impaired Loans


	September 30, 2015						December 31, 2014
Dollars in millions	Balance			Net Investment			Balance			Net Investment
Commercial and commercial real estate loans:
Outstanding balance (a)	$	296					$	466
Recorded investment	$	204					$	310
Allowance for loan losses		(67	)					(79	)
Net investment/Carrying value	$	137			46	%	$	231			50	%
Consumer and residential real estate loans:
Outstanding balance (a)	$	3,854					$	4,541
Recorded investment	$	3,963					$	4,548
Allowance for loan losses		(751	)					(793	)
Net investment/Carrying value	$	3,212			83	%	$	3,755			83	%
Total purchased impaired loans:
Outstanding balance (a)	$	4,150					$	5,007
Recorded investment	$	4,167					$	4,858
Allowance for loan losses		(818	)					(872	)
Net investment/Carrying value	$	3,349			81	%	$	3,986			80	%

(a)

Outstanding balance represents the balance on the loan servicing system for active loans. It is possible for the outstanding balance to be lower than the recorded investment for certain loans due to the use of pool accounting. See Note 4 Purchased Loans for additional information on purchased impaired loans.

The PNC Financial Services Group, Inc. – Form 10-Q 13

At September 30, 2015, our largest individual purchased impaired loan had a recorded investment of $9 million. We currently expect to collect total cash flows of $4.7 billion on purchased impaired loans, representing the $3.3 billion net investment at September 30, 2015 and the accretable net interest of $1.4 billion shown in Table 9.

Weighted Average Life of the Purchased Impaired Portfolios

The table below provides the weighted average life (WAL) for each of the purchased impaired portfolios as of September 30, 2015.

Table 11: Weighted Average Life of the Purchased Impaired Portfolios


As of September 30, 2015 Dollars in millions	Recorded Investment		WAL (a)
Commercial	$	43		2.1 years
Commercial real estate		161		1.4 years
Consumer (b)		1,753		4.0 years
Residential real estate		2,210		4.7 years
Total	$	4,167		4.2 years

(a)	Weighted average life represents the average number of years for which each dollar of unpaid principal remains outstanding.

(b)	Portfolio primarily consists of nonrevolving home equity products.

Through the National City Corporation (National City) and RBC Bank (USA) acquisitions, we acquired purchased impaired loans with a recorded investment of $14.7 billion. As noted in Table 11 above, at September 30, 2015, those balances are now $4.2 billion, of which $4.0 billion in consumer and residential real estate loans is accounted for using pool accounting. In anticipation of the end of the life of our purchased impaired pooled consumer and residential real estate loans and pursuant to supervisory direction received regarding such loans, we will change our derecognition policy for these loans effective December 31, 2015. Pursuant to this change in policy, we will remove loans that have been paid off, sold, short sold, foreclosed upon, or that have nominal collateral value/expected cash flows from our loan pools. The result of this change will accelerate the derecognition of a pool’s recorded investment and associated ALLL balance. As the loans that will be removed effective December 31, 2015 have been fully reserved for, this change will not impact the net carrying values of the pools, accretion accounting or result in additional provision for credit losses for purchased impaired loans that are pooled, as a pool’s recorded investment and associated ALLL balance will be reduced in equal amounts. Upon implementation of this policy change in the fourth quarter of 2015, which is immaterial to our financial statements taken as a whole, we estimate that the recorded investment and associated ALLL balances for our purchased impaired pooled consumer and residential real estate loans will each be reduced by approximately $475 million. These amounts represent the net loss from loan dispositions or expected cash flow shortfalls that have been retained as part of the pools’ recorded investment per our accounting for the pool

as a single asset. We expect the future impact of this policy change to the Consolidated Income Statement and Consolidated Balance Sheet to be immaterial on a quarterly basis. See Note 4 Purchased Loans and Note 5 Allowance for Loan and Lease Losses and Unfunded Commitments and Letters of Credit in the Notes To Consolidated Financial Statements in this Report for additional information.

The following table represents on a proforma basis as of September 30, 2015 the estimated impact of the change in our derecognition policy to total ALLL, total loans and ratio of total ALLL to total loans.

Table 12: Estimated Derecognition Impact – Total ALLL to Total Loans


	September 30, 2015
(Dollars in millions)	Actual			Adjustment (a)			Proforma
Total ALLL	$	3,237		$	(475	)	$	2,762
Total Loans		204,983			(475	)		204,508
Ratio of Total ALLL to Total Loans		1.58	%					1.35	%

(a)	The estimated reduction of ALLL and corresponding reduction in the purchased impaired loans recorded investment as of September 30, 2015 would be approximately the same as the expected amounts as of December 31, 2015.

Purchased Impaired Loans – Accretable Difference Sensitivity Analysis

The following table provides a sensitivity analysis on the Total Purchased Impaired Loans portfolio. The analysis reflects hypothetical changes in key drivers for expected cash flows over the life of the loans under declining and improving conditions at a point in time. Any unusual significant economic events or changes, as well as other variables not considered below (e.g., natural or widespread disasters), could result in impacts outside of the ranges represented below. Additionally, commercial and commercial real estate loan settlements or sales proceeds can vary widely from appraised values due to a number of factors including, but not limited to, special use considerations, liquidity premiums and improvements/deterioration in other income sources.

Table 13: Accretable Difference Sensitivity – Total Purchased Impaired Loans


In billions	September 30, 2015			Declining Scenario (a)			Improving Scenario (b)
Expected cash flows	$	4.7		$	(.1	)	$	.2
Accretable difference		1.4			–			–
Allowance for loan and lease losses		(.8	)		(.1	)		.2

(a)

Declining Scenario – Reflects hypothetical changes that would decrease future cash flow expectations. For consumer loans, we assume home price forecast decreases by ten percent and unemployment rate forecast increases by two percentage points; for commercial loans, we assume that collateral values decrease by ten percent.

(b)

Improving Scenario – Reflects hypothetical changes that would increase future cash flow expectations. For consumer loans, we assume home price forecast increases by ten percent, unemployment rate forecast decreases by two percentage points and interest rate forecast increases by two percentage points; for commercial loans, we assume that collateral values increase by ten percent.

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

The present value impact of declining cash flows is primarily reflected as an immediate impairment charge resulting in a provision for credit losses and an increase to the allowance for loan and lease losses. The present value impact of increased cash flows is first recognized as a reversal of the allowance with any additional cash flow increases reflected as an increase in accretable yield over the life of the loan.

Commitments to Extend Credit

Commitment to extend credit comprise the following:

Table 14: Commitments to Extend Credit (a)


In millions	September 30 2015		December 31 2014
Total commercial lending	$	100,323	$	98,742
Home equity lines of credit		17,350		17,839
Credit card		19,622		17,833
Other		4,075		4,178
Total	$	141,370	$	138,592

(a)	Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions.

In addition to the credit commitments set forth in the table above, our net outstanding standby letters of credit totaled $9.1 billion at September 30, 2015 and $10.0 billion at December 31, 2014. Standby letters of credit commit us to make payments on behalf of our customers if specified future events occur.

Information regarding our commitments to extend credit and our allowance for unfunded loan commitments and letters of credit is included in Note 1 Accounting Policies, Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit and Note 16 Commitments and Guarantees in the Notes To Consolidated Financial Statements in Part 1, Item 1 of this Report.

INVESTMENT SECURITIES

The following table presents the distribution of our investment securities portfolio 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. For those securities on our balance sheet at September 30, 2015, where during our quarterly security-level impairment assessments we determined losses represented other-than-temporary impairment (OTTI), we have recorded cumulative credit losses of $1.1 billion in earnings and accordingly have reduced the amortized cost of our securities. The majority of these cumulative impairment charges related to non-agency residential mortgage-backed and asset-backed securities rated BB or lower.

Table 15: Investment Securities


	September 30, 2015				December 31, 2014				Ratings (a) As of September 30, 2015
Dollars in millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value		AAA/ AA			A			BBB			BB and Lower			No Rating
U.S. Treasury and government agencies	$	8,368	$	8,593	$	5,485	$	5,714		100	%
Agency residential mortgage-backed		33,185		33,685		23,382		23,935		100
Non-agency residential mortgage-backed		4,392		4,591		4,993		5,225		10			1	%		2	%		82	%		5	%
Agency commercial mortgage-backed		3,077		3,155		3,378		3,440		100
Non-agency commercial mortgage-backed (b)		5,477		5,544		5,095		5,191		77			12			2			3			6
Asset-backed (c)		5,921		5,950		5,900		5,940		89			3						7			1
State and municipal		3,972		4,140		3,995		4,191		88			6									6
Other debt		2,157		2,194		2,099		2,142		56			35			9
Corporate stock and other		576		576		442		441														100
Total investment securities (d)	$	67,125	$	68,428	$	54,769	$	56,219		88	%		3	%		1	%		6	%		2	%

(a)	Ratings percentages allocated based on amortized cost.

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

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

(d)	Includes available for sale and held to maturity securities.

Investment securities represented 19% of total assets at September 30, 2015 and 16% at December 31, 2014.

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

We evaluate our investment securities portfolio in light of changing market conditions and other factors and, where appropriate, take steps to improve our overall positioning. We consider the portfolio to be well-diversified and of high quality. At September 30, 2015, 88% of the securities in the portfolio were rated AAA/AA, with U.S. Treasury and government agencies, agency residential mortgage-backed and agency commercial mortgage-backed securities collectively representing 66% of the portfolio.

The investment securities portfolio includes both available for sale and held to maturity securities. Securities classified as available for sale are carried at fair value with net unrealized gains and losses, representing the difference between amortized cost and fair value, included in Shareholders’ equity as Accumulated other comprehensive income or loss, net of tax, on our Consolidated Balance Sheet. Securities classified as held to maturity are carried at amortized cost. As of September 30, 2015, the amortized cost and fair value of available for sale securities totaled $52.7 billion and $53.7 billion, respectively, compared to an amortized cost and fair value as of December 31, 2014 of $43.2 billion and $44.2 billion, respectively. The amortized cost and fair value of held to maturity securities were $14.4 billion and $14.8 billion, respectively, at September 30, 2015, compared to $11.6 billion and $12.0 billion, respectively, at December 31, 2014.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of investment securities generally decreases when interest rates increase and vice versa. In addition, the fair value generally decreases when credit spreads widen and vice versa. Net unrealized gains in the total investment securities portfolio decreased to $1.3 billion at September 30, 2015 from $1.5 billion at December 31, 2014. The comparable amounts for the securities available for sale portfolio were $.9 billion at September 30, 2015 and $1.1 billion at December 31, 2014.

Unrealized gains and losses on available for sale debt securities do not impact liquidity. However these gains and losses do affect capital under the regulatory capital rules. Also, a change in the securities’ credit ratings could impact the liquidity of the securities and may be indicative of a change in credit quality, which could affect our risk-weighted assets and, therefore, our risk-based regulatory capital ratios under the regulatory capital rules. In addition, the amount representing the credit-related portion of OTTI on securities would reduce our earnings and regulatory capital ratios.

The duration of investment securities was 2.5 years at September 30, 2015. We estimate that, at September 30, 2015, the effective duration of investment securities was 2.7 years for an immediate 50 basis points parallel increase in interest rates and 2.4 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2014 for the effective duration of investment securities were 2.2 years and 2.1 years, respectively.

Based on current interest rates and expected prepayment speeds, the weighed-average expected maturity of the investment securities portfolio (excluding corporate stock and other) was 4.4 years at September 30, 2015 compared to 4.3 years at December 31, 2014. The weighted-average expected maturities of mortgage and other asset-backed debt securities were as follows as of September 30, 2015:

Table 16: Weighted-Average Expected Maturity of Mortgage and Other Asset-Backed Debt Securities


September 30, 2015	Years
Agency residential mortgage-backed securities		4.2
Non-agency residential mortgage-backed securities		5.4
Agency commercial mortgage-backed securities		3.2
Non-agency commercial mortgage-backed securities		3.1
Asset-backed securities		3.0

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

Additional information regarding our investment securities is included in Note 6 Investment Securities and Note 7 Fair Value in the Notes To Consolidated Financial Statements included in Part I, Item 1 of this Report.

Loans Held for Sale

Table 17: Loans Held For Sale


In millions	September 30 2015		December 31 2014
Commercial mortgages at fair value	$	802	$	893
Commercial mortgages at lower of cost or fair value		58		29
Total commercial mortgages		860		922
Residential mortgages at fair value		1,086		1,261
Residential mortgages at lower of cost or fair value		42		18
Total residential mortgages		1,128		1,279
Other		72		61
Total	$	2,060	$	2,262

As of September 1, 2014, we have elected to apply the fair value option to commercial mortgage loans held for sale to agencies. This election applies to all new commercial

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

mortgage loans held for sale that have been originated for sale to the agencies effective on or after September 1, 2014. The election of fair value option aligns the accounting for the commercial mortgages with the related commitments to sell the loans.

We sold $3.0 billion of commercial mortgage loans to agencies during the first nine months of 2015 compared to $2.0 billion during the first nine months of 2014. Total gains of $64 million were recognized on the valuation and sale of commercial mortgage loans held for sale, net of hedges, during the first nine months of 2015, including $13 million in the third quarter. Comparable amounts for 2014 were $49 million and $20 million, respectively. These amounts are included in Other noninterest income on our Consolidated Income Statement.

Residential mortgage loan origination volume was $8.2 billion during the first nine months of 2015 compared to $7.1 billion during the first nine months of 2014. The majority of such loans were originated under agency or Federal Housing

Administration (FHA) standards. We sold $6.2 billion of loans and recognized loan sales revenue of $278 million during the first nine months of 2015, including $75 million in the third quarter. The comparable amounts for the first nine months of 2014 were $6.4 billion and $327 million, respectively, including $85 million in the third quarter. These loan sales revenue amounts are included in Residential mortgage noninterest income on our Consolidated Income Statement.

Interest income on loans held for sale was $68 million during the first nine months of 2015, including $22 million in the third quarter. Comparable amounts for 2014 were $73 million and $26 million, respectively. These amounts are included in Other interest income on our Consolidated Income Statement.

Additional information regarding our loan sale and servicing activities is included in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities and Note 7 Fair Value in our Notes To Consolidated Financial Statements included in Part 1, Item 1 of this Report.

Funding Sources

Table 18: Details Of Funding Sources


Dollars in millions	September 30 2015		December 31 2014		Change
Dollars in millions	September 30 2015		December 31 2014		$			%
Deposits
Money market	$	125,135	$	115,438	$	9,697			8	%
Demand		83,632		82,829		803			1	%
Retail certificates of deposit		18,337		18,544		(207	)		(1	)%
Savings		15,330		12,571		2,759			22	%
Time deposits in foreign offices and other time deposits		2,545		2,852		(307	)		(11	)%
Total deposits		244,979		232,234		12,745			5	%
Borrowed funds
Federal funds purchased and repurchase agreements		2,077		3,510		(1,433	)		(41	)%
FHLB borrowings		21,664		20,005		1,659			8	%
Bank notes and senior debt		19,749		15,750		3,999			25	%
Subordinated debt		9,242		9,151		91			1	%
Commercial paper		1,125		4,995		(3,870	)		(77	)%
Other		2,806		3,357		(551	)		(16	)%
Total borrowed funds		56,663		56,768		(105	)		–	%
Total funding sources	$	301,642	$	289,002	$	12,640			4	%

See the Liquidity Risk Management portion of the Risk Management section of this Financial Review for additional information regarding our 2015 capital and liquidity activities.

Total deposits increased $12.7 billion at September 30, 2015 compared with December 31, 2014 due to strong growth in money market, savings and demand deposits, partially offset by time deposits in foreign offices and other time deposits and retail certificates of deposit. Interest-bearing deposits represented 68% of total deposits at both September 30, 2015 and December 31, 2014.

The PNC Financial Services Group, Inc. – Form 10-Q 17

Total borrowed funds decreased $.1 billion since December 31, 2014 as a decline in commercial paper, federal funds purchased and repurchase agreements, and other borrowed funds were partially offset by higher issuances of bank notes and senior debt and FHLB borrowings. The changes in the composition of funding sources are attributable to PNC’s actions to enhance its funding structure in light of regulatory liquidity standards and a rating agency methodology change.

Capital

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

We repurchase shares of PNC common stock under common stock repurchase authorizations approved from time to time by PNC’s Board of Directors and consistent with capital plans submitted to, and accepted by, the Federal Reserve. Through the first quarter of 2015, we repurchased stock under our 2007 common stock repurchase program authorization that permitted us to purchase up to 25 million shares of PNC common stock on the open market or in privately negotiated transactions. Effective as of March 31, 2015, PNC’s Board of Directors approved the termination of the 2007 common stock repurchase program authorization, and replaced it with a new stock repurchase program authorization in the amount of 100 million shares of PNC common stock, effective April 1, 2015. The extent and timing of share repurchases under this authorization will depend on a number of factors including, among others, market and general economic conditions, economic and regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, contractual and regulatory limitations, and the results of future supervisory assessments of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process.

In the first quarter of 2015, we completed our common stock repurchase programs for the four quarter period that began in second quarter 2014 with total repurchases over that period of 17.3 million common shares for $1.5 billion. These repurchases were included in our 2014 capital plan accepted by the Federal Reserve as part of our 2014 CCAR submission.

In connection with the 2015 CCAR process, we submitted our 2015 capital plan, as approved by PNC’s Board of Directors, to the Federal Reserve in January 2015. The Federal Reserve accepted the capital plan and did not object to our proposed capital actions in March 2015. As provided for in the 2015 capital plan, we announced new share repurchase programs of up to $2.875 billion for the five quarter period beginning in the second quarter of 2015. These programs include repurchases of up to $375 million over the five quarter period related to stock issuances under employee benefit-related programs.

In the first quarter of 2015, PNC repurchased 4.4 million common shares for $.4 billion. In the second quarter of 2015, PNC repurchased 5.9 million common shares for $.6 billion. In the third quarter of 2015, PNC repurchased 6.2 million common shares for $.6 billion. All of these repurchases were under the authorizations and programs then in effect, as described above.

Under the Federal Reserve’s capital plan rule, a bank holding company must resubmit a new capital plan prior to the annual submission date if, among other things, there has been or will be a material change in the bank holding company’s risk profile, financial condition, or corporate structure since its last capital plan submission.

See the Supervision and Regulation section of Item 1 Business of our 2014 Form 10-K for further information concerning the CCAR process and the factors the Federal Reserve takes into consideration in its evaluation of capital plans and the Balance Sheet, Liquidity and Capital Highlights portion of the Executive Summary section of this Financial Review for the impact of the Federal Reserve’s current supervisory assessment of the capital adequacy program.

Table 19: Shareholders’ Equity


Dollars in millions	September 30 2015			December 31 2014			Change
Dollars in millions	September 30 2015			December 31 2014			$			%
Shareholders’ equity
Preferred stock (a)
Common stock	$	2,708		$	2,705		$	3			–	%
Capital surplus – preferred stock		3,450			3,946			(496	)		(13	)%
Capital surplus – common stock and other		12,675			12,627			48			–	%
Retained earnings		28,337			26,200			2,137			8	%
Accumulated other comprehensive income		615			503			112			22	%
Common stock held in treasury at cost		(2,837	)		(1,430	)		(1,407	)		(98	)%
Total shareholders’ equity	$	44,948		$	44,551		$	397			1	%

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

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

The increase in total shareholders’ equity compared to December 31, 2014 was mainly due to a $2.1 billion increase in retained earnings, partially offset by common share repurchases of $1.6 billion and the redemption of $500 million of preferred stock. The increase in retained earnings was driven by net income of $3.1 billion, reduced by $957 million of common and preferred dividends declared and continued share repurchases. Common shares outstanding were 510 million at September 30, 2015 and 523 million at December 31, 2014.

Table 20: Basel III Capital


	September 30, 2015
Dollars in millions	Transitional Basel III (a)			Pro forma Fully Phased-In Basel III (b)(c)
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock	$	12,546		$	12,546
Retained earnings		28,337			28,337
Accumulated other comprehensive income for securities currently and previously held as available for sale		257			642
Accumulated other comprehensive income for pension and other postretirement plans		(193	)		(483	)
Goodwill, net of associated deferred tax liabilities		(8,845	)		(8,845	)
Other disallowed intangibles, net of deferred tax liabilities		(141	)		(352	)
Other adjustments/(deductions)		(111	)		(148	)
Total common equity Tier 1 capital before threshold deductions		31,850			31,697
Total threshold deductions		(448	)		(1,135	)
Common equity Tier 1 capital		31,402			30,562
Additional Tier 1 capital
Preferred stock plus related surplus		3,450			3,450
Trust preferred capital securities		50
Noncontrolling interests (d)		604			45
Other adjustments/(deductions)		(91	)		(107	)
Tier 1 capital		35,415			33,950
Additional Tier 2 capital
Qualifying subordinated debt		4,709			4,298
Trust preferred capital securities		149
Allowance for loan and lease losses included in Tier 2 capital		3,502			356
Other		6			10
Total Basel III capital	$	43,781		$	38,614
Risk-weighted assets
Basel III standardized approach risk-weighted assets (e)	$	295,384		$	303,343
Estimated Basel III advanced approaches risk-weighted assets (f)		N/A			284,215
Average quarterly adjusted total assets		348,477			347,541
Supplementary leverage exposure (g)		411,182			410,369
Basel III risk-based capital and leverage ratios
Common equity Tier 1		10.6	%		10.1	%(h)(j)
Tier 1		12.0			11.2	(h)(k)
Total		14.8			13.6	(i)(l)
Leverage (m)		10.2			9.8
Supplementary leverage ratio (n)		8.6			8.3

(a)	Calculated using the regulatory capital methodology applicable to PNC during 2015.

(b)

PNC utilizes the pro forma fully phased-in Basel III capital ratios to assess its capital position (without the benefit of phase-ins), including comparison to similar estimates made by other financial institutions. Pro forma fully phased-in capital amounts, ratios and risk-weighted and leverage-related assets are estimated.

(c)

Basel III capital ratios and estimates may be impacted by additional regulatory guidance or analysis and, in the case of those ratios calculated using the advanced approaches, the ongoing evolution, validation and regulatory approval of PNC’s models integral to the calculation of advanced approaches risk-weighted assets.

(d)	Primarily includes REIT Preferred Securities.

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

(f)	Includes credit, market and operational risk-weighted assets.

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

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

(i)	Pro forma fully phased-in Basel III capital ratio based on estimated Basel III advanced approaches risk-weighted assets and rules.

(j)

For comparative purposes only, the pro forma fully phased-in advanced approaches Basel III Common equity Tier 1 capital ratio estimate is 10.8%. This capital ratio is calculated using pro forma fully phased-in Common equity Tier 1 capital and dividing by estimated Basel III advanced approaches risk-weighted assets.

(k)	For comparative purposes only, the pro forma fully phased-in advanced approaches Basel III Tier 1 risk-based capital ratio estimate is 12.0%. This capital ratio is calculated using fully phased-in Tier 1 capital and dividing by estimated Basel III advanced approaches risk-weighted assets.

(l)

For comparative purposes only, the pro forma fully phased-in standardized approach Basel III Total capital risk-based capital ratio estimate is 13.8%. This ratio is calculated using fully phased-in additional Tier 2 capital which, under the standardized approach, reflects allowance for loan and lease losses of up to 1.25% of credit risk related risk-weighted assets and dividing by estimated Basel III standardized approach risk-weighted assets.

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

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

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

The Basel II framework, which was adopted by the Basel Committee on Banking Supervision in 2004, seeks to provide more risk-sensitive regulatory capital calculations and promote enhanced risk management practices among large, internationally active banking organizations. The U.S. banking agencies initially adopted rules to implement the Basel II capital framework in 2004. In July 2013, the U.S. banking agencies adopted final rules (referred to as the advanced approaches) that modified the Basel II framework effective January 1, 2014. See the Supervision and Regulation section in Item 1 Business and Item 1A Risk Factors of our 2014 Form 10-K for additional information. Prior to fully implementing the advanced approaches to calculate risk-weighted assets, PNC and PNC Bank must successfully complete a “parallel run” qualification phase. Both PNC and PNC Bank entered this parallel run phase on January 1, 2013. Although the minimum parallel run qualification period is four quarters, the parallel run period for PNC and PNC Bank, now in its third year, is consistent with the experience of other U.S. advanced approaches banks that have all had multi-year parallel run periods. After PNC exits parallel run, its regulatory risk-based capital ratio for each measure (e.g., Common equity Tier 1 capital ratio) will be the lower of the ratios as calculated under the standardized approach and the advanced approaches.

As a result of the staggered effective dates of the final U.S. Basel III regulatory capital rules (Basel III rules), as well as the fact that PNC remains in the parallel run qualification phase for the advanced approaches, PNC’s regulatory risk-based ratios in 2015 are calculated using the standardized approach, effective January 1, 2015, for determining risk-weighted assets, and the definitions of, and deductions from, regulatory capital under the Basel III rules (as such definitions and deductions are phased-in for 2015). We refer to the capital ratios calculated using the phased-in Basel III provisions in effect for 2015 and, for the risk-based ratios, standardized approach risk-weighted assets as the 2015 Transitional Basel III ratios. Under the standardized approach for determining credit risk-weighted assets, exposures are generally assigned a pre-defined risk weight. Exposures to high volatility commercial real estate, past due exposures, equity exposures and securitization exposures are generally subject to higher risk weights than other types of exposures.

Under the Basel III rules adopted by the U.S. banking agencies, significant common stock investments in unconsolidated financial institutions, mortgage servicing rights and deferred tax assets must be deducted from capital (subject to a phase-in schedule) to the extent they individually exceed 10%, or in the aggregate exceed 15%, of the institution’s adjusted common equity Tier 1 capital. Also, Basel III regulatory capital includes (subject to a phase-in schedule) accumulated other comprehensive income related to securities currently and previously held as available for sale, as well as pension and other postretirement plans.

Federal banking regulators have stated that they expect the largest U.S. bank holding companies, including PNC, to have a level of regulatory capital well in excess of the regulatory minimum and have required the largest U.S. bank holding companies, 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, 2015 capital levels were aligned with them.

At September 30, 2015, PNC and PNC Bank, our sole bank subsidiary, were both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized” during 2015, PNC and PNC Bank must have Transitional Basel III capital ratios of at least 6.5% for Common equity Tier 1 capital, 8% for Tier 1 risk-based and 10% for Total risk-based, and PNC Bank is required to have a Transitional Basel III leverage ratio of at least 5%.

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

We provide additional information regarding regulatory capital requirements and some of their potential impacts on PNC 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 2014 Form 10-K.

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

OFF-BALANCE SHEET ARRANGEMENTS AND VARIABLE INTEREST ENTITIES

We engage in a variety of activities that involve unconsolidated entities or that are otherwise not 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 2014 Form 10-K and in the following sections of this Report:

•

Commitments, including contractual obligations and other commitments, included within the Risk Management section of this Financial Review,

•

Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements,

•

Note 9 Capital Securities of a Subsidiary Trust and Perpetual Trust Securities in the Notes To Consolidated Financial Statements, and

•

Note 16 Commitments and Guarantees in the Notes To Consolidated Financial Statements.

PNC consolidates variable interest entities (VIEs) when we are deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.

A summary of VIEs, including those that we have consolidated and those in which we hold variable interests but have not consolidated into our financial statements, as of September 30, 2015 and December 31, 2014 is included in Note 2 of this Report.

Trust Preferred Securities

We are subject to certain restrictions, including restrictions on dividend payments, in connection with $206 million in principal amount of an outstanding junior subordinated debenture associated with $200 million of trust preferred securities that were issued by PNC Capital Trust C, a subsidiary statutory trust (both amounts as of September 30, 2015). Generally, if there is (i) an event of default under the debenture, (ii) PNC elects to defer interest on the debenture, (iii) PNC exercises its right to defer payments on the related trust preferred security issued by the statutory trust or (iv) there is a default under PNC’s guarantee of such payment obligations, as specified in the applicable governing documents, then PNC would be subject during the period of such default or deferral to restrictions on dividends and other provisions protecting the status of the debenture holders similar to or in some ways more restrictive than those potentially imposed under the Exchange Agreement with PNC Preferred Funding Trust II. See Note 12 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities in the Notes To Consolidated Financial Statements in Item 8 of our 2014 Form 10-K for information on contractual limitations on dividend payments resulting from securities issued by PNC Preferred Funding Trust I and PNC Preferred Funding Trust II.

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

FAIR VALUE MEASUREMENTS

In addition to the following, see Note 7 Fair Value in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for further information regarding fair value.

The following table summarizes the assets and liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014, respectively, and the portions of such assets and liabilities that are classified within Level 3 of the valuation hierarchy. Level 3 assets and liabilities are those where the fair value is estimated using significant unobservable inputs.

Table 21: Fair Value Measurements – Summary


	September 30, 2015						December 31, 2014
Dollars in millions	Total Fair Value			Level 3			Total Fair Value			Level 3
Total assets	$	68,612		$	9,384		$	58,973		$	10,257
Total assets at fair value as a percentage of consolidated assets		19	%					17	%
Level 3 assets as a percentage of total assets at fair value					14	%					17	%
Level 3 assets as a percentage of consolidated assets					3	%					3	%
Total liabilities	$	5,783		$	515		$	5,799		$	716
Total liabilities at fair value as a percentage of consolidated liabilities		2	%					2	%
Level 3 liabilities as a percentage of total liabilities at fair value					9	%					12	%
Level 3 liabilities as a percentage of consolidated liabilities					<1	%					<1	%

The majority of assets recorded at fair value are included in the securities available for sale portfolio. The majority of Level 3 assets represent non-agency residential mortgage-backed securities in the securities available for sale portfolio, equity investments and mortgage servicing rights.

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. PNC’s policy is to recognize transfers in and transfers out as of the end of the reporting period. For additional information regarding the transfers of assets or liabilities between hierarchy levels, see Note 7 Fair Value in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report.

BUSINESS SEGMENTS REVIEW

We have six reportable business segments:

•

Retail Banking

•

Corporate & Institutional Banking

•

Asset Management Group

•

Residential Mortgage Banking

•

BlackRock

•

Non-Strategic Assets Portfolio

Business segment results, including inter-segment revenues, and a description of each business are included in Note 17 Segment Reporting included in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report. Certain amounts included in this Financial Review differ from those amounts shown in Note 17 primarily due to the presentation in this Financial Review of business net interest revenue on a taxable-equivalent basis. Note 17 presents results of businesses for the first nine months and third quarter of 2015 and 2014.

Net interest income in business segment results reflects PNC’s 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. In the first quarter of 2015, enhancements were made to PNC’s funds transfer pricing methodology primarily for costs related to the new regulatory short-term liquidity standards. The enhancements incorporate an additional charge assigned to assets, including for unfunded loan commitments. Conversely, a higher transfer pricing credit has been assigned to those deposits that are accorded higher value under LCR rules for liquidity purposes. Please see the Supervision and Regulation section in Item 1 and the Liquidity Risk Management section in Item 7 of our 2014 Form 10-K for more information about the LCR. These adjustments apply to business segment results, primarily favorably impacting Retail Banking and adversely impacting Corporate & Institutional Banking, prospectively beginning with the first quarter of 2015. Prior periods have not been adjusted due to the impracticability of estimating the impact of the change for prior periods.

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

Retail Banking

(Unaudited)

Table 22: Retail Banking Table


Nine months ended September 30 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	3,152		$	2,938
Noninterest income
Service charges on deposits		459			461
Brokerage		212			176
Consumer services		747			714
Other		234			240
Total noninterest income		1,652			1,591
Total revenue		4,804			4,529
Provision for credit losses		151			223
Noninterest expense		3,558			3,430
Pretax earnings		1,095			876
Income taxes		401			320
Earnings	$	694		$	556
Average Balance Sheet
Loans
Consumer
Home equity	$	27,810		$	28,985
Indirect auto		9,318			9,093
Indirect other		559			726
Education		6,402			7,314
Credit cards		4,476			4,327
Other		2,383			2,200
Total consumer		50,948			52,645
Commercial and commercial real estate		10,580			10,924
Floor plan		2,164			2,227
Residential mortgage		704			618
Total loans		64,396			66,414
Goodwill and other intangible assets		5,975			6,043
Other assets		3,059			2,807
Total assets	$	73,430		$	75,264
Deposits
Noninterest-bearing demand	$	23,353		$	21,890
Interest-bearing demand		36,009			33,889
Money market		54,775			49,945
Total transaction deposits		114,137			105,724
Savings		13,471			11,713
Certificates of deposit		16,763			19,314
Total deposits		144,371			136,751
Other liabilities		612			440
Total liabilities	$	144,983		$	137,191
Performance Ratios
Return on average assets		1.26	%		.99	%
Noninterest income to total revenue		34			35
Efficiency		74			76
Other Information (a)
Credit-related statistics:
Commercial nonperforming assets	$	116		$	146
Consumer nonperforming assets		976			1,037
Total nonperforming assets (b)	$	1,092		$	1,183
Purchased impaired loans (c)	$	516		$	600
Commercial lending net (recoveries) charge-offs	$	(5	)	$	33
Credit card lending net charge-offs		104			109
Consumer lending (excluding credit card) net charge-offs		152			212
Total net charge-offs	$	251		$	354
Commercial lending annualized net (recovery) charge-off ratio		(.06	)%		.34	%
Credit card lending annualized net charge-off ratio		3.11	%		3.37	%
Consumer lending (excluding credit card) annualized net charge-off ratio		.43	%		.58	%
Total annualized net charge-off ratio		.52	%		.71	%


At September 30	2015			2014
Other Information (Continued) (a)
Home equity portfolio credit statistics: (d)
% of first lien positions at origination (e)		56	%		53	%
Weighted-average loan-to-value ratios (LTVs) (e) (f)		74	%		78	%
Weighted-average updated FICO scores (g)		751			747
Annualized net charge-off ratio		.31	%		.55	%
Delinquency data – % of total loans: (h)
Loans 30 – 59 days past due		.20	%		.19	%
Loans 60 – 89 days past due		.09	%		.07	%
Accruing loans past due		.29	%		.26	%
Nonperforming loans		3.09	%		3.04	%
Other statistics:
ATMs		8,996			8,178
Branches (i)		2,645			2,691
Brokerage account client assets (in billions) (j)	$	42		$	43
Customer-related statistics (average):
Non-teller deposit transactions (k)		43	%		34	%
Digital consumer customers (l)		52	%		45	%

(a)	Presented as of September 30, except for net charge-offs, net charge-off ratios, which are for the nine months ended and customer-related statistics which are averages for the nine months ended.

(b)	Includes nonperforming loans of $1.0 billion at September 30, 2015 and $1.1 billion at September 30, 2014.

(c)	Recorded investment of purchased impaired loans related to acquisitions.

(d)	Lien position, LTV and FICO statistics are based upon customer balances.

(e)	Lien position and LTV calculations reflect management assumptions where data limitations exist.

(f)	LTV statistics are based upon current information.

(g)	Represents FICO scores that are updated at least quarterly.

(h)	Data based upon recorded investment. Past due amounts exclude purchased impaired loans, even if contractually past due, as we are currently accreting interest income over the expected life of the loans.

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

(j)	Amounts include cash and money market balances.

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

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

Retail Banking earned $694 million in the first nine months of 2015 compared with earnings of $556 million for the same period a year ago. The increase in earnings was driven by increased net interest income and noninterest income and lower provision for credit losses partially offset by higher noninterest expense. Noninterest income included lower gains on sales of Visa Class B common shares.

Retail Banking continues to enhance the customer experience with refinements to product offerings that drive product value for consumers and small businesses. We are focused on growing customer share of wallet through the sale of liquidity, banking, and investment products.

Retail Banking continued to focus on the strategic priority of transforming the customer experience through transaction migration, branch network transformation and multi-channel sales strategies.

•

In the first nine months of 2015, approximately 52% of consumer customers used non-teller channels for the majority of their transactions compared with 45% for the same period in 2014.

•

Deposit transactions via ATM and mobile channels increased to 43% of total deposit transactions in the first nine months of 2015 compared with 34% for the same period a year ago.

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

•

Integral to PNC’s retail branch transformation strategy, more than 300 branches operate under the universal model designed to enhance sales opportunities for branch personnel, in part, by driving higher ATM and mobile deposits. During the first nine months of 2015, the total branch network was reduced by 52 branches and the ATM network was increased by 391 ATMs. PNC had a network of 2,645 branches and 8,996 ATMs at September 30, 2015.

•

Instant debit card issuance, which enables us to print a customer’s debit card in a matter of minutes, is now available in more than 500 branches, approximately 20% of the branch network.

•

At the end of third quarter, Apple iPad™ technology was available in the majority of our branches to demonstrate product capabilities to customers and prospects. The remainder of the branch network will have this technology by year-end.

Total revenue for the first nine months of 2015 increased $275 million compared to the same period a year ago, which included a $214 million increase in net interest income primarily from the enhancements to internal funds transfer pricing methodology in the first quarter of 2015.

Noninterest income increased $61 million compared to the first nine months of 2014. Noninterest income included gains on sales of Visa Class B common shares of $122 million on 1.5 million shares and $173 million on three million shares, in the first nine months of 2015 and 2014, respectively. Excluding these gains, noninterest income increased $112 million, or 8%, in the comparison. Execution on our share of wallet strategy resulted in increased fee income from payment-related products, specifically in debit, credit and merchant services, as well as increased brokerage fees.

Provision for credit losses and net charge-offs in the first nine months of 2015 declined by $72 million and $103 million, respectively, in the comparison to the same period a year ago due to improved credit quality.

Noninterest expense increased $128 million in the first nine months of 2015 compared to the same period in 2014. Increases in technology investments, sales-related and other compensation, marketing, and customer transaction-related costs were offset by reduced third party service expense and lower branch network expenses as a result of transaction migration to lower cost digital and ATM channels.

Growing core checking deposits is key to Retail Banking’s growth and to providing a source of low-cost funding and liquidity to PNC. The deposit product strategy of Retail Banking is to remain disciplined on pricing, target specific products and markets for growth, and focus on the retention and growth of customer balances. In the first nine months of 2015, average total deposits increased $7.6 billion, or 6%, compared with the same period in 2014.

•

Organic deposit growth drove the increases in average transaction deposits and savings deposits,

which increased $8.4 billion and $1.8 billion, or 8% and 15%, respectively, in the comparison. Transaction deposits include demand and money market deposits, which increased $3.6 billion and $4.8 billion, respectively.

•

The expected run-off of maturing certificates of deposit partially offset these increases, reflecting a decline of $2.6 billion, or 13%, in the comparison.

Retail Banking continued to focus on a relationship-based lending strategy that targets specific products and markets for growth. In the first nine months of 2015, average total loans declined $2.0 billion, or 3%, compared to the same period a year ago, driven by a decline in home equity loans and declines from run-off of non-strategic portions of the portfolios, as more fully described below.

•

Average home equity loans decreased $1.2 billion, or 4%, compared to the first nine months of 2014. The overall portfolio decline resulted from pay-downs and payoffs on loans exceeding new booked volume, consistent with lower mortgage demand. Retail Banking’s home equity loan portfolio is relationship based, with 97% of the portfolio attributable to borrowers in our primary geographic footprint.

•

Average commercial & commercial real estate loans declined $344 million, or 3%, as pay-downs and payoffs on loans exceeded new volume.

•

Average auto dealer floor plan loans declined $63 million, or 3%, in the first nine months of 2015 compared to the same period in 2014, primarily resulting from lower dealer line utilization.

•

Average indirect auto loans increased $225 million, or 2%, compared to the first nine months of 2014. The increase was primarily due to portfolio growth in previously underpenetrated markets.

•

Average credit card balances increased $149 million, or 3%, over the same period in 2014 as a result of efforts to increase credit card share of wallet through organic growth.

•

Average residential mortgage balances increased $86 million, or 14%, compared to the first nine months of 2014. The increase was due to the transfer of $198 million in Community Reinvestment Act (CRA) mortgage loans from the Residential Mortgage Banking business segment in January 2015.

•

In the first nine months of 2015, average loan balances for the remainder of the portfolio declined a net $896 million, compared to the same period a year ago, driven by declines in the education and indirect other portfolios of $912 million and $167 million, respectively, as the discontinued government guaranteed education loan and indirect other balances are primarily run-off portfolios.

Nonperforming assets declined $91 million, or 8%, at September 30, 2015 compared to September 30, 2014. The decrease was driven by declines in both consumer and commercial non-performing loans.

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

Corporate & Institutional Banking

(Unaudited)

Table 23: Corporate & Institutional Banking Table


Nine months ended September 30 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	2,613		$	2,777
Noninterest income
Corporate service fees		1,007			926
Other		390			329
Noninterest income		1,397			1,255
Total revenue		4,010			4,032
Provision for credit losses		83			86
Noninterest expense		1,594			1,520
Pretax earnings		2,333			2,426
Income taxes		841			884
Earnings	$	1,492		$	1,542
Average Balance Sheet
Loans
Commercial	$	85,304		$	77,550
Commercial real estate		22,536			20,927
Equipment lease financing		6,965			6,863
Total commercial lending		114,805			105,340
Consumer		971			1,116
Total loans		115,776			106,456
Goodwill and other intangible assets		3,850			3,812
Loans held for sale		973			973
Other assets		11,079			9,991
Total assets	$	131,678		$	121,232
Deposits
Noninterest-bearing demand	$	48,168		$	43,348
Money market		22,319			20,930
Other		9,776			7,646
Total deposits		80,263			71,924
Other liabilities		7,893			7,454
Total liabilities	$	88,156		$	79,378
Performance Ratios
Return on average assets		1.51	%		1.70	%
Noninterest income to total revenue		35			31
Efficiency		40			38
Commercial Loan Servicing Portfolio – Serviced For PNC and Others (in billions)
Beginning of period	$	377		$	347
Acquisitions/additions		125			64
Repayments/transfers		(61	)		(48	)
End of period	$	441		$	363
Other Information
Consolidated revenue from: (a)
Treasury Management (b)	$	999		$	950
Capital Markets (b)	$	592		$	547
Commercial mortgage banking activities
Commercial mortgage loans held for sale (c)	$	94		$	84
Commercial mortgage loan servicing income (d)		191			164
Commercial mortgage servicing rights valuation, net of economic hedge (e)		25			33
Total	$	310		$	281
Average Loans (by C&IB business)
Corporate Banking	$	58,108		$	53,530
Real Estate		30,621			27,260
Business Credit		14,503			13,074
Equipment Finance		10,956			10,362
Other		1,588			2,230
Total average loans	$	115,776		$	106,456
Total loans (f)	$	116,238		$	109,792
Net carrying amount of commercial mortgage servicing rights (f)	$	505		$	532
Credit-related statistics:
Nonperforming assets (f) (g)	$	484		$	616
Purchased impaired loans (f) (h)	$	153		$	316
Net charge-offs (recoveries)	$	6		$	10

(a)

Represents consolidated PNC amounts. See the additional revenue discussion regarding treasury management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of the Corporate & Institutional Banking portion of this Business Segments Review section.

(b)	Includes amounts reported in net interest income, corporate service fees and other noninterest income.

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

(d)

Includes net interest income and noninterest income, primarily in corporate services fees, from loan servicing and ancillary services, net of changes in fair value on commercial mortgage servicing rights due to time and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.

(e)	Includes amounts reported in corporate services fees.

(f)	As of September 30.

(g)	Includes nonperforming loans of $.4 billion at September 30, 2015 and $.5 billion at September 30, 2014.

(h)	Recorded investment of purchased impaired loans related to acquisitions.

Corporate & Institutional Banking earned $1.5 billion in the first nine months of 2015, a decrease of $50 million compared to the same period a year ago. The slight decrease in earnings was due to lower net interest income and an increase in noninterest expense, largely offset by higher noninterest income. We continue to focus on building client relationships where the risk-return profile is attractive, including the Southeast.

Net interest income decreased $164 million in the first nine months of 2015 compared to the first nine months of 2014. The decline was due to the impact of first quarter 2015 enhancements to internal funds transfer pricing methodology, continued spread compression on loans and deposits, and lower purchase accounting accretion, partially offset by the impact of higher average loans and deposits. Decreased net interest income in the comparison also reflected the impact from the second quarter 2014 correction to reclassify certain commercial facility usage fees from net interest income to corporate service fees.

Corporate service fees increased $81 million in the first nine months of 2015 compared to the first nine months of 2014. This increase was primarily due to the impact of the second quarter 2014 correction to reclassify certain commercial facility fees from net interest income to corporate service fees and increases in treasury management and equity capital markets advisory fees, partially offset by lower merger and acquisition advisory fees.

Other noninterest income increased $61 million in the first nine months of 2015 compared to the first nine months of 2014. This increase was driven by higher revenue associated with credit valuations for customer-related derivatives activities and related derivatives sales, higher multifamily loans originated for sale to agencies and higher corporate securities underwriting activity.

Noninterest expense increased $74 million in the first nine months of 2015 compared to the prior year period, primarily driven by investments in technology and treasury management operations, higher asset writedowns, and expenses related to equity capital markets advisory fees.

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

Average loans increased $9.3 billion, or 9%, for the first nine months of 2015 compared to the first nine months of 2014, reflecting solid growth in Corporate Banking, Real Estate, Business Credit and Equipment Finance:

•

Corporate Banking business provides lending, treasury management and capital markets-related products and services to midsized and large corporations, government and not-for-profit entities. Average loans for this business increased $4.6 billion, or 9%, in the first nine months of 2015 compared with the first nine months of 2014, primarily due to an increase in loan commitments from specialty lending businesses and large corporate clients.

•

PNC Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased $3.4 billion, or 12%, in first nine months of 2015 compared with the first nine months of 2014 due to increased originations and higher utilization.

•

PNC Business Credit provides asset-based lending. The loan portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by short-term assets. Average loans for this business increased $1.4 billion, or 11%, in first nine months of 2015 compared with the first nine months of 2014 due to new originations, increasing deal sizes and higher utilization.

•

PNC Equipment Finance provides equipment financing solutions for clients throughout the U.S. and Canada. Average equipment finance loans and operating leases were $11.8 billion in the first nine months of 2015, an increase of $.7 billion, or 6% compared with the first nine months of 2014.

Period-end loan balances increased 6%, or $6.4 billion at September 30, 2015 compared to September 30, 2014, primarily due to growth in our Corporate Banking, Real Estate and Business Credit businesses.

Average deposits for the first nine months of 2015 increased $8.3 billion, or 12%, compared with the first nine months of 2014 as a result of business growth and inflows into demand, money market and certificates of deposit products.

The commercial loan servicing portfolio increased $78 billion, or 21% at September 30, 2015, compared to September 30, 2014, as servicing additions from new and existing customers exceeded portfolio run-off.

Nonperforming assets declined 21% at September 30, 2015 compared to September 30, 2014 reflecting improved credit quality.

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 segment perspective, the majority of the revenue and expense related to these services is reflected in the Corporate & Institutional Banking segment results and the remainder is reflected in the results of other businesses. The Other Information section in Table 23 in the Corporate & Institutional Banking portion of this Business Segments Review section includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.

Treasury management revenue, comprised of fees and net interest income from customer deposit balances, increased $49 million in the comparison of the first nine months of 2015 to the first nine months of 2014, driven by growth in our commercial card, wholesale lockbox, PINACLE ^® and liquidity-related revenue.

Capital markets revenue includes merger and acquisition advisory fees, loan syndications, derivatives, foreign exchange, asset-backed finance revenue and fixed income and equity capital markets advisory activities. Revenue from capital markets-related products and services increased $45 million in the first nine months of 2015 compared with the first nine months of 2014. The increase in the comparison was primarily driven by higher revenue associated with credit valuations for customer-related derivatives activities and related derivatives sales, higher equity capital markets advisory fees and increased corporate securities underwriting activity, partially offset by lower merger and acquisition advisory fees.

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (including net interest income and noninterest income) and revenue derived from commercial mortgage loans held for sale and related hedges. Revenue from total commercial mortgage banking activities increased $29 million in the first nine months of 2015 compared with the first nine months of 2014. The increase in the comparison was mainly due to higher mortgage servicing revenue and higher multifamily loans originated for sale to agencies.

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

Asset Management Group

(Unaudited)

Table 24: Asset Management Group Table


Nine months ended September 30 Dollars in millions, except as noted	2015		2014
Income Statement
Net interest income	$	215	$	215
Noninterest income		658		611
Total revenue		873		826
Provision for credit losses		11		2
Noninterest expense		636		610
Pretax earnings		226		214
Income taxes		83		78
Earnings	$	143	$	136
Averag