(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 RegulationS-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, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” ~~and~~, “smaller reporting company”, and “emerging growth company” in Rule12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ¨☐ No x☒

As of ~~October~~April 21, ~~2016,~~2017, there were ~~486,501,562~~483,901,441 shares of the registrant’s common stock ($5 par value) outstanding.

Cross-Reference Index to ~~Third~~First Quarter ~~2016~~2017 Form 10-Q (continued)

Table

Description
                 Page
41

Cash Flows Associated with Loan Sale and Servicing Activities
   52
42

Principal Balance, Delinquent Loans, and Net Charge-offs Related to Serviced Loans For Others
   53
43

Consolidated VIEs – Carrying Value
   53
44

Non-Consolidated VIEs
   54
45

Analysis of Loan Portfolio
   55
46

Nonperforming Assets
   56
47

Commercial Lending Asset Quality Indicators
   57
48

Home Equity and Residential Real Estate Balances
   58
49

Home Equity and Residential Real Estate Asset Quality Indicators – Excluding Purchased Impaired Loans
   59
50

Home Equity and Residential Real Estate Asset Quality Indicators – Purchased Impaired Loans
   60
51

Credit Card and Other Consumer Loan Classes Asset Quality Indicators
   61
52

Summary of Troubled Debt Restructurings
   61
53

Financial Impact and TDRs by Concession Type
   62
54

Impaired Loans
   63
55

Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data
   64
56

Rollforward of Allowance for Unfunded Loan Commitments and Letters of Credit
   65
57

Investment Securities Summary
   66
58

Gross Unrealized Loss and Fair Value of Securities Available for Sale
   68
59

Gains (Losses) on Sales of Securities Available for Sale
   69
60

Contractual Maturity of Debt Securities
   69
61

Fair Value of Securities Pledged and Accepted as Collateral
   70
62

Fair Value Measurements – Recurring Basis Summary
   71
63

Reconciliation of Level 3 Assets and Liabilities
   72
64

Fair Value Measurements – Recurring Quantitative Information
   76
65

Fair Value Measurements – Nonrecurring
   78
66

Fair Value Measurements – Nonrecurring Quantitative Information
   78
67

Fair Value Option – Changes in Fair Value
   78
68

Fair Value Option – Fair Value and Principal Balances
   79
69

Additional Fair Value Information Related to Other Financial Instruments
   80
70

Mortgage Servicing Rights
   81
71

Commercial Mortgage Loan Servicing Rights – Key Valuation Assumptions
   82
72

Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions
   82
73

Net Periodic Pension and Postretirement Benefit Costs
   83
74

Total Gross Derivatives
   83
75

Derivatives Designated As Hedging Instruments under GAAP
   84
76

Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges
   84
77

Gains (Losses) on Derivatives and Related Cash Flows – Cash Flow Hedges
   85
78

Derivatives Not Designated As Hedging Instruments under GAAP
   86
79

Gains (Losses) on Derivatives Not Designated As Hedging Instruments under GAAP
   87
80

Derivative Assets and Liabilities Offsetting
   88
81

Basic and Diluted Earnings per Common Share
   89
82

Rollforward of Total Equity
   90
83

Other Comprehensive Income
   91
84

Accumulated Other Comprehensive Income (Loss) Components
   92
85

Commitments to Extend Credit and Other Commitments
   94
86

Internal Credit Ratings Related to Net Outstanding Standby Letters of Credit
   94
87

Resale and Repurchase Agreements Offsetting
   96
88

Results Of Businesses
   98


Table	Description	Page
49	Fair Value Measurements – Recurring Quantitative Information		59
50	Fair Value Measurements – Nonrecurring		61
51	Fair Value Measurements – Nonrecurring Quantitative Information		61
52	Fair Value Option – Fair Value and Principal Balances		62
53	Fair Value Option – Changes in Fair Value		62
54	Additional Fair Value Information Related to Other Financial Instruments		63
55	Mortgage Servicing Rights		64
56	Commercial Mortgage Loan Servicing Rights – Key Valuation Assumptions		65
57	Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions		65
58	Components of Net Periodic Benefit Cost		65
59	Total Gross Derivatives		66
60	Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges		67
61	Gains (Losses) on Derivatives and Related Cash Flows – Cash Flow Hedges		68
62	Gains (Losses) on Derivatives Not Designated for Hedging under GAAP		68
63	Derivative Assets and Liabilities Offsetting		69
64	Basic and Diluted Earnings Per Common Share		70
65	Rollforward of Total Equity		71
66	Other Comprehensive Income		72
67	Accumulated Other Comprehensive Income (Loss) Components		73
68	Commitments to Extend Credit and Other Commitments		75
69	Results of Businesses		77

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 ~~2015~~2016 Annual Report on Form10-K ~~(2015~~ (2016 Form10-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 2015 Form 10-K:~~following: the Risk Management section of ~~the~~this Financial Review ~~portion of this report~~ and of Item 7 in our ~~2015~~2016 Form10-K; Item 1A Risk Factors included in our ~~2015~~2016 Form10-K; and the Legal Proceedings and Commitments ~~and Guarantees~~ Notes of the Notes To Consolidated Financial Statements included in ~~our 2015 Form 10-K~~Item 1 of this Report and Item 8 of our ~~First and Second Quarter~~ 2016 Form ~~10-Q.~~10-K. Also, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates And Judgments section in this Financial Review and in our ~~2015~~2016 Form10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 14 Segment Reporting in the Notes To Consolidated Financial Statements included in ~~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~~generally accepted accounting principles (GAAP) basis. In this Report, “PNC”, “we” or “us” refers to The PNC Financial Services Group, Inc. and its subsidiaries on a consolidated basis. References to The PNC Financial Services Group, Inc. or to any of its subsidiaries are specifically made where applicable.

Table 1: Consolidated Financial Highlights


Dollars in millions, except per share data Unaudited	Three months ended September 30						Nine months ended September 30						Three months ended March 31
Dollars in millions, except per share data Unaudited	2016			2015			2016			2015			2017			2016
Financial Results (a)
Revenue
Net interest income	$	2,095		$	2,062		$	6,261		$	6,186		$	2,160		$	2,098
Noninterest income		1,734			1,713			5,027			5,186			1,724			1,567
Total revenue		3,829			3,775			11,288			11,372			3,884			3,665
Provision for credit losses		87			81			366			181			88			152
Noninterest expense		2,394			2,352			7,035			7,067			2,402			2,281
Income before income taxes and noncontrolling interests	$	1,348		$	1,342		$	3,887		$	4,124		$	1,394		$	1,232
Net income	$	1,006		$	1,073		$	2,938		$	3,121		$	1,074		$	943
Less:
Net income attributable to noncontrolling interests		18			18			60			23			17			19
Preferred stock dividends and discount accretion and redemptions		64			64			172			182
Preferred stock dividends														63			63
Preferred stock discount accretion and redemptions														21			2
Net income attributable to common shareholders	$	924		$	991		$	2,706		$	2,916		$	973		$	859
Less:
Dividends and undistributed earnings allocated to nonvested restricted shares		7						19			2			6			6
Impact of BlackRock earnings per share dilution		4			4			10			14			4			3
Net income attributable to diluted common shares	$	913		$	987		$	2,677		$	2,900		$	963		$	850
Diluted earnings per common share	$	1.84		$	1.90		$	5.33		$	5.52		$	1.96		$	1.68
Cash dividends declared per common share	$	.55		$	.51		$	1.57		$	1.50		$	.55		$	.51
Effective tax rate (b)		25.4	%		20.0	%		24.4	%		24.3	%		23.0	%		23.5	%
Performance Ratios
Net interest margin (c)		2.68	%		2.67	%		2.71	%		2.74	%		2.77	%		2.75	%
Noninterest income to total revenue		45	%		45	%		45	%		46	%		44	%		43	%
Efficiency		63	%		62	%		62	%		62	%		62	%		62	%
Return on:
Average common shareholders’ equity		8.74	%		9.61	%		8.69	%		9.56	%		9.50	%		8.44	%
Average assets		1.10	%		1.19	%		1.09	%		1.18	%		1.19	%		1.07	%

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

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

(c)

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, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned ontax-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)~~GAAP in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended ~~September 30,~~March 31, 2017 and March 31, 2016 ~~and September 30, 2015~~ were ~~$49~~$52 million and ~~$50 million, respectively. The taxable-equivalent adjustments to net interest income for the nine months ended September 30, 2016 and September 30, 2015 were $145 million and $148~~$48 million, respectively. For additional information, see the Statistical Information (Unaudited) section ~~in Item 1~~ of this Report.

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

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


Unaudited	September 30 2016			December 31 2015			September 30 2015			March 31 2017			December 31 2016			March 31 2016
Balance Sheet Data(dollars in millions, except per share data)
Assets	$	369,348		$	358,493		$	362,125		$	370,944		$	366,380		$	360,985
Loans	$	210,446		$	206,696		$	204,983		$	212,826		$	210,833		$	207,485
Allowance for loan and lease losses	$	2,619		$	2,727		$	3,237		$	2,561		$	2,589		$	2,711
Interest-earning deposits with banks (b)	$	27,058		$	30,546		$	34,224		$	27,877		$	25,711		$	29,478
Investment securities	$	78,514		$	70,528		$	68,066		$	76,432		$	75,947		$	72,569
Loans held for sale	$	2,053		$	1,540		$	2,060		$	1,414		$	2,504		$	1,541
Equity investments (c)										$	10,900		$	10,728		$	10,391
Mortgage servicing rights										$	1,867		$	1,758		$	1,323
Goodwill	$	9,103		$	9,103		$	9,103		$	9,103		$	9,103		$	9,103
Mortgage servicing rights	$	1,293		$	1,589		$	1,467
Equity investments (c)	$	10,605		$	10,587		$	10,497
Other assets	$	24,730		$	23,092		$	27,285		$	28,083		$	27,506		$	27,945

Noninterest-bearing deposits	$	82,159		$	79,435		$	78,239		$	79,246		$	80,230		$	78,151
Interest-bearing deposits	$	177,736		$	169,567		$	166,740		$	181,464		$	176,934		$	172,208
Total deposits	$	259,895		$	249,002		$	244,979		$	260,710		$	257,164		$	250,359
Borrowed funds	$	51,541		$	54,532		$	56,663		$	55,062		$	52,706		$	54,178
Total shareholders’ equity	$	45,707		$	44,710		$	44,948		$	45,754		$	45,699		$	45,130
Common shareholders’ equity	$	42,251		$	41,258		$	41,498		$	41,774		$	41,723		$	41,677
Accumulated other comprehensive income	$	646		$	130		$	615
Accumulated other comprehensive income (loss)										$	(279	)	$	(265	)	$	532

Book value per common share	$	86.57		$	81.84		$	81.42		$	86.14		$	85.94		$	83.47
Common shares outstanding (millions)		488			504			510
Common shares outstanding (in millions)											485			485			499
Loans to deposits		81	%		83	%		84	%		82	%		82	%		83	%

Client Assets(in billions)
Discretionary client assets under management	$	138		$	134		$	132		$	141		$	137		$	135
Nondiscretionary client assets under administration		128			125			124			123			120			118
Total client assets under administration (d)		266			259			256			264			257			253
Brokerage account client assets		44			43			42			46			44			43
Total client assets	$	310		$	302		$	298		$	310		$	301		$	296

Capital Ratios
Transitional Basel III (e) (f)
Common equity Tier 1		10.6	%		10.6	%		10.6	%		10.5	%		10.6	%		10.6	%
Tier 1 risk-based		11.9	%		12.0	%		12.0	%		11.8	%		12.0	%		11.9	%
Total capital risk-based		14.2	%		14.6	%		14.8	%		14.1	%		14.3	%		14.4	%
Leverage		10.1	%		10.1	%		10.2	%		9.9	%		10.1	%		10.2	%
Pro forma Fully Phased-In Basel III (Non-GAAP) (f)
Common equity Tier 1		10.2	%		10.0	%		10.1	%		10.0	%		10.0	%		10.1	%
Common shareholders’ equity to assets		11.4	%		11.5	%		11.5	%		11.3	%		11.4	%		11.5	%

Asset Quality
Nonperforming loans to total loans		1.02	%		1.03	%		1.06	%		.94	%		1.02	%		1.10	%
Nonperforming assets to total loans, OREO and foreclosed assets		1.13	%		1.17	%		1.21	%
Nonperforming assets to total loans, OREO, foreclosed and other assets											1.04	%		1.12	%		1.23	%
Nonperforming assets to total assets		.64	%		.68	%		.69	%		.60	%		.65	%		.71	%
Net charge-offs to average loans (for the three months ended) (annualized)		.29	%		.23	%		.19	%		.23	%		.20	%		.29	%
Allowance for loan and lease losses to total loans ~~(g)~~		1.24	%		1.32	%		1.58	%		1.20	%		1.23	%		1.31	%
Allowance for loan and lease losses to total nonperforming loans (g) (h)		122	%		128	%		149	%
Allowance for loan and lease losses to total nonperforming loans											128	%		121	%		119	%
Accruing loans past due 90 days or more (in millions)	$	766		$	881		$	890		$	699		$	782		$	782

(a)	The Executive Summary and Consolidated Balance Sheet Review portions of ~~the~~this 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 ~~$26.6~~$27.5 billion, ~~$30.0~~$25.1 billion and ~~$33.8~~$29.0 billion as of ~~September 30, 2016,~~March 31, 2017, December 31, ~~2015~~2016 and ~~September 30, 2015,~~March 31, 2016, respectively.

(c)	Amounts include our equity interest in BlackRock.

(d)

As a result of certain investment advisory services performed by one of our registered investment advisors, certain assets ~~are~~were previously reported as both discretionary client assets under management and nondiscretionary client assets under administration. ~~The amount~~Effective for the first quarter of ~~such~~2017, these amounts are only reported as discretionary assets ~~was~~under management. Prior periods were adjusted to remove amounts previously included in nondiscretionary assets under administration of approximately $9 billion ~~$6 billion~~ and $6$7 billion as of ~~September 30, 2016,~~ December 31, ~~2015~~2016 and ~~September 30, 2015,~~March 31, 2016, respectively.

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

(f)

See Basel III Capital discussion in the Capital Management portion of the ~~Consolidated Balance Sheet Review~~Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business in our ~~2015~~2016 Form10-K. See also the Transitional Basel III and Pro forma FullyPhased-In Basel III Common Equity Tier 1 Capital Ratios(Non-GAAP) – ~~2015~~2016 Periods table in the Statistical Information section of this Report for a reconciliation of the ~~2015~~2016 periods’ ratios.

~~(g)~~

~~See our 2015 Form 10-K for information on our change in derecognition policy effective December 31, 2015 for certain purchased impaired loans.~~

~~(h)~~

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.

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, including residential mortgage, corporate and institutional banking and asset management, ~~and residential mortgage banking,~~ providing many of our products and services ~~nationally, as well as other products and services in our~~nationally. Our primary geographic markets are located in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, Florida, North Carolina, Kentucky, Washington, D.C., Delaware, Virginia, Georgia, Alabama, ~~Georgia,~~ Missouri, 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 commitments to our customers, shareholders, employees and the communities where we do business.

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

Our strategic priorities are designed to enhance value over the long term. One of our priorities is to build a leading banking franchise in our underpenetrated geographic markets. We are focused on reinventing the retail banking experience by transforming the retail distribution network and the home lending process for a better customer experience and improved efficiency, and growing our consumer loan portfolio. In addition, we are seeking to attract more of the investable assets of new and existing ~~clients. PNC is focused on redefining the retail banking experience by transforming the retail distribution network~~clients and ~~the home lending process while lowering delivery costs as customer banking preferences evolve. Additionally,~~ we continue to focus on expense management while investing in technology to bolster critical business infrastructure and streamline core 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 currently effective capital plan included in our Comprehensive Capital

Analysis and Review (CCAR) submission to the Board of Governors of the Federal Reserve System (Federal Reserve). For more detail, see the Capital Highlights portion of this Executive Summary ~~the Capital portion of the Consolidated Balance Sheet Review section~~ and the Liquidity ~~Risk~~and Capital Management portion of the Risk Management section of this Financial Review and the Supervision and Regulation section in Item 1 Business of our ~~2015~~2016 Form10-K.

Income Statement Highlights

2016.

Total revenue increased $219 million, or 6%, to $3.9 billion.

Net interest income increased ~~$33~~$62 million, or 2%3%, to ~~$2.1~~$2.2 billion.

Net interest margin increased to ~~2.68%~~2.77% compared to ~~2.67% in third~~2.75% for the first quarter ~~2015.~~

of 2016.

Noninterest income increased ~~$21~~$157 million, or 1%10%, to $1.7 billion asprimarily due to growth in fee ~~income was mostly offset by a decline in other noninterest~~ income.

Provision for credit losses decreased to $88 million for the first quarter of 2017 compared to $152 million for the first quarter of 2016.

Noninterest expense increased ~~$42~~$121 million to $2.4 billion, reflecting ~~a new Federal Deposit Insurance Corporation (FDIC) deposit insurance surcharge and~~overall higher ~~costs associated with~~levels of business ~~activities as PNC continued to focus on disciplined expense management.~~

~~The effective tax rate was 25.4% compared to 20.0% in the third quarter of 2015.~~

activity.

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

Balance Sheet Highlights

Our balance sheet was strong and well positioned at March 31, 2017 and December 31, 2016.

Total loans increased $2.0 billion, or 1%, to $212.8 billion.

Total commercial lending grew $2.7 billion, or 2%.

Total consumer lending decreased $.7 billion, or 1%.

Total deposits increased $3.5 billion, or 1%, to $260.7 billion.

Investment securities increased $.5 billion, or 1%, to $76.4 billion.

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

The PNC Financial Services Group, Inc. –Form 10-Q3

Credit Quality Highlights

Overall credit quality remained ~~relatively~~ stable ~~at September 30,~~with the fourth quarter of 2016.

Nonperforming assets decreased ~~$50~~$162 million, or 2%7%, to ~~$2.4~~$2.2 billion at March 31, 2017 compared towith December 31, ~~2015.~~

2016.

Overall loan delinquencies ~~of $1.5 billion~~ decreased ~~$184~~$192 million, or ~~11%~~12%, as of March 31, 2017 compared with December 31, 2016.

Net charge-offs of $118 million in the first quarter of 2017 decreased compared to ~~December 31, 2015.~~

~~Provision for credit losses increased modestly to $87~~net charge-offs of $149 million for the ~~third~~first quarter of ~~2016 compared to $81 million for the third quarter of 2015.~~

~~Net charge-offs of $154 million for the third quarter of 2016 increased $58 million compared to the third quarter of 2015.~~

2016.

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

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

~~Balance Sheet and Liquidity Highlights~~

~~PNC’s balance sheet continued to be well positioned at September 30, 2016 compared to December 31, 2015.~~

~~Total loans increased $3.8 billion to $210.4 billion.~~

~~Total commercial lending grew $4.6 billion, or 3%.~~

~~Total consumer lending decreased $.8 billion, or 1%.~~

~~Total deposits increased $10.9 billion to $259.9 billion.~~

~~Investment securities increased $8.0 billion, or 11%, to $78.5 billion.~~

~~The Liquidity Coverage Ratio (LCR) at September 30, 2016 for both PNC and PNC Bank exceeded the 2017 fully phased-in requirement of 100%.~~

Capital Highlights

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

The Transitional Basel III common equity Tier 1 capital ratio ~~remained stable~~was 10.5% at March 31, 2017 compared to 10.6% at ~~September 30, 2016 compared to~~ December 31, ~~2015.~~

2016.

Pro forma fullyphased-in Basel III common equity Tier 1 capital ratio, anon-GAAP financial measure, ~~increased to~~remained stable at an estimated ~~10.2% at September 30, 2016 compared to~~ 10.0% at March 31, 2017 and December 31, ~~2015~~2016 based on the standardized approach rules.

In the ~~third~~first quarter of ~~2016,~~2017, we returned ~~$.8~~$.9 billion of capital to ~~common~~ shareholders through repurchases of ~~5.9~~5.0 million common shares for ~~$.5~~$.6 billion ~~made under new share repurchase programs,~~ and dividends on common shares of $.3 billion.

On ~~October~~January 30, 2017, PNC announced a $300 million increase to its common stock share repurchase programs, which now provide for repurchases of up to $2.3 billion for the four-quarter period ending June 30, 2017.

On April 4, ~~2016,~~2017, the PNC ~~Board~~board of ~~Directors~~directors declared a quarterly cash dividend on common stock of 55 cents per share ~~effective~~ with ~~the November~~a payment date of May 5, ~~2016 payment date.~~

2017.

See the ~~Capital portion of the Consolidated Balance Sheet Review~~Liquidity and ~~the Liquidity Risk~~Capital Management portion of the Risk Management section of this Financial Review for more detail on our ~~2016~~2017 capital and liquidity actions as well as our capital ratios.

Our ability to take certain capital actions, including plans to pay or increase common stock dividends or to repurchase shares under current or future programs, is subject to the results of the supervisory assessment of capital adequacy undertaken by the Federal Reserve as part of the CCAR

process. For additional information, see the Supervision and Regulation section in Item 1 Business of our ~~2015~~2016 Form10-K.

Our Consolidated Income Statement and Consolidated Balance Sheet Review sections of this Financial Review describe in greater detail our results during the first nine months of 2016 and 2015 and balances at September 30, 2016 and December 31, 2015, respectively.

Business Outlook

Statements regarding our business outlook are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. ~~These~~Our forward-looking statements are subject to ~~numerous assumptions, risks~~the risk that economic and ~~uncertainties, including~~financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our current view that the U.S. economy and the labor market will grow moderately in ~~the latter half of 2016,~~2017, boosted by stable oil/energy prices, improving consumer spending and housing activity, and ~~moderate job gains, and that short-term~~expanded federal fiscal policy stimulus as a result of the 2016 elections. Short-term interest rates and bond yields ~~will hold fairly steady before~~are expected to continue rising gradually ~~rising late this year and do not take into account the impact of potential legal and regulatory contingencies.~~in 2017, along with inflation. Specifically, our business outlook reflects our expectation of acontinued steady growth in GDP and two 25 basis point ~~increase~~increases in short-term interest rates by the Federal Reserve in June and December ~~2016.~~of 2017. We are also assuming that long-term rates rise at a slower pace than short-term rates. See the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and Item 1A Risk Factors in our ~~2015 From~~ 2016 Form10-K for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.

InFor the ~~fourth quarter of~~full year 2017 compared to full year 2016, we expect:

Loans to increase bymid-single digits, on a percentage basis;

Revenue growth in the upper end of themid-single digit range, on a percentage basis;

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

The effective tax rate to be approximately 25%, absent any tax reform.

For the remaining quarters of 2017, we expect quarterly other noninterest income to be between $225 million and $275 million.

~~Modest loan growth~~For the second quarter of 2017 compared to the ~~third~~first quarter of ~~2016;~~

2017, we expect:

~~Stable net~~Modest loan growth;

Net interest income ~~compared~~ to ~~the third quarter, and purchase accounting accretion~~increase by low single digits, on a percentage basis;

Fee income to ~~be approximately $50 million;~~

~~Stable fee~~increase bymid-single digits, on a percentage basis. Fee income ~~compared to the third quarter of 2016, with fee income consisting~~consists of asset management, consumer services, corporate services, residential mortgage and service charges on deposits;

Provision for credit losses to be between $75 million and $125 ~~million;~~million, and

could be at the higher end of this range as a result of an initial provision for acquired loans; and

Noninterest expense to increase by low single digits, on a percentage ~~basis, compared to the third quarter 2016.~~

basis.

~~We also expect full year 2016 noninterest expense to remain stable compared to full year 2015, and the full year 2016 effective tax rate to be approximately 25%.~~

4 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
Dollars in millions
               Change
   2016    2015    $ %
Average assets

Interest-earning assets

Investment securities
   $ 70,706       $ 59,578       $ 11,128    19 %
Loans
   208,124       205,122       3,002    1 %
Interest-earning deposits with banks
   26,691       33,380       (6,689 ) (20 )%
Other
   7,797       9,048       (1,251 ) (14 )%
Total interest-earning assets
   313,318       307,128       6,190    2 %
Noninterest-earning assets
   46,289       46,005       284    1 %
Total average assets
   $ 359,607       $ 353,133       $ 6,474    2 %
Average liabilities and equity

Interest-bearing liabilities

Interest-bearing deposits
   $ 171,635       $ 162,790       $ 8,845    5 %
Borrowed funds
   53,411       57,018       (3,607 ) (6 )%
Total interest-bearing liabilities
   225,046       219,808       5,238    2 %
Noninterest-bearing deposits
   77,133       75,359       1,774    2 %
Other liabilities
   11,169       12,091       (922 ) (8 )%
Equity
   46,259       45,875       384    1 %
Total average liabilities and equity
   $ 359,607       $ 353,133       $ 6,474    2 %

Average investment securities increased due to higher 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 increased from 19% to 23% of average interest-earning assets.

The increase in average loans was driven by growth in average commercial real estate loans of $3.9 billion and average commercial loans of $1.7 billion, partially offset by a decrease in consumer loans of $2.8 billion. The decline in consumer loans was primarily attributable to declines in the nonstrategic consumer and the government guaranteed education loan portfolios. Loans represented 66% of average interest-earning assets for the first nine months of 2016 and 67% in the same period of 2015.

Average interest-earning deposits with banks, which are primarily maintained with the Federal Reserve Bank, decreased in the comparison reflecting higher investment securities, loan growth and lower borrowed funds, partially offset by an increase in deposits.

Average total deposits increased $10.6 billion, primarily due to higher average savings deposits, which reflected a shift from money market deposits to relationship-based savings products. Additionally, average interest-bearing demand deposits and average noninterest-bearing deposits increased as

~~overall deposits grew. Average total deposits increased from 67% to 69% of average assets in the comparison.~~

Average borrowed funds declined due to decreases in average commercial paper and Federal Home Loan Bank (FHLB) borrowings, partially offset by an increase in average bank notes and senior debt. The Liquidity Risk Management portion of this Financial Review includes additional information regarding our sources and uses of borrowed funds.

Various seasonal and other factors impact our period-end balances, whereas average balances are generally more indicative of underlying business trends apart from the impact of acquisitions and divestitures. Total assets were $369.3 billion at September 30, 2016 compared with $358.5 billion at December 31, 2015. The Consolidated Balance Sheet Review section of this Financial Review provides information on changes in selected Consolidated Balance Sheet categories at September 30, 2016 compared with December 31, 2015.

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

~~Recent Market and Industry Developments~~

As previously disclosed in our First Quarter 2016 Form 10-Q, the final rules adopted by the FDIC imposing a deposit insurance assessment surcharge (Surcharge) on insured depository institutions with total consolidated assets of $10 billion or more (including PNC Bank) became effective on July 1, 2016. The Surcharge took effect beginning with the third quarter 2016 assessment period. Based on data as of September 30, 2016, PNC Bank’s quarterly assessment increased by approximately $25 million compared to the second quarter of 2016, reflecting the impact of the Surcharge and the reduction of regular assessments that went into effect at the same time.

In September 2016, the Office of the Comptroller of the Currency (OCC) issued final enforceable guidelines under section 39 of the Federal Deposit Insurance Act that establish standards for recovery planning for insured national banks with average total consolidated assets of $50 billion or more, including PNC Bank. The guidelines require a covered bank to develop and maintain a recovery plan that, among other things, identifies a range of options that could be undertaken by the covered bank to restore its financial strength and viability should identified triggering events occur. For PNC Bank the compliance date for these guidelines is January 1, 2018.

Also in September 2016, the Federal Reserve proposed amendments to its capital plan rule that would, among other things, reduce, from 1% to 0.25% of Tier 1 capital, the amount of capital distributions that a bank holding company may make above the amounts included in its most recently approved capital plan without seeking the Federal Reserve’s prior approval and prohibit bank holding companies from seeking to use this “de minimis” capital distribution authority during the second calendar quarter of each year. The comment period on the proposal closes on November 25, 2016. Governor Daniel Tarullo of the Federal Reserve also outlined additional changes that the Federal Reserve is considering to its capital plan rule and CCAR process, including the establishment of a new “stress capital buffer,” in a speech delivered on September 26, 2016. Governor Tarullo indicated that such potential changes would be issued for public comment at a later date and, accordingly, the precise nature of these additional potential changes is not known at this time.

CONSOLIDATED INCOME STATEMENT REVIEW

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

Net income for the ~~third~~first quarter of ~~2016~~2017 was ~~$1.0~~$1.1 billion, or ~~$1.84~~$1.96 per diluted common share, ~~a decrease~~an increase of 6%14%, compared ~~with $1.1 billion,~~to $943 million, or $1.90 per diluted common share, for the third quarter of 2015. For the first nine months of 2016, net income was $2.9 billion, or $5.33 per diluted common share, a decrease of 6% compared with $3.1 billion, or $5.52$1.68 per diluted common share, for the first ~~nine months~~quarter of ~~2015.~~

~~Net income decreased in the quarterly comparison as revenue growth,~~2016. The increase was driven by a 2%6% increase in revenue and lower provision for credit losses, partially offset by a 5% increase in noninterest expense. Higher revenue in the comparison reflected a 10% increase in noninterest income and a 3% increase in net interest income and a 1% increase in noninterest income, was more than offset by a higher effective tax rate and a 2% increase in noninterest expense. Net income decreased in the year-to-date comparison driven by higher provision for credit losses and a 3% decline in noninterest income, partially offset by a 1% increase in net interest income and lower noninterest expense.income.

Net Interest Income

Table 3:2: Summarized Average Balances and Net Interest Income ~~and Net Interest Margin~~(a)

   Three months ended
September 30    Nine months ended
September 30
Dollars in millions    2016 2015    2016    2015
Net interest income
   $ 2,095    $ 2,062       $ 6,261       $ 6,186
Net interest margin (a)
   2.68 % 2.67 %    2.71 %    2.74 %


	2017								2016
Three months ended March 31 Dollars in millions	Average Balances		Average Yields/ Rates			Interest Income/ Expense			Average Balances		Average Yields/ Rates			Interest Income/ Expense
Assets
Interest-earning assets
Investment securities	$	76,253		2.67	%	$	508		$	70,269		2.72	%	$	478
Loans		212,253		3.67	%		1,941			207,184		3.60	%		1,875
Interest-earning deposits with banks		24,192		.81	%		49			25,533		.50	%		32
Other		8,395		3.54	%		74			7,764		3.62	%		70
Total interest-earning assets/interest income	$	321,093		3.22	%		2,572		$	310,750		3.15	%		2,455
Liabilities
Interest-bearing liabilities
Interest-bearing deposits	$	176,871		.28	%		120		$	168,823		.25	%		105
Borrowed funds		54,942		1.74	%		240			53,626		1.51	%		204
Total interest-bearing liabilities/interest expense	$	231,813		.62	%		360		$	222,449		.55	%		309
Net interest margin/income(Non-GAAP)				2.77	%		2,212					2.75	%		2,146
Taxable-equivalent adjustments							(52	)							(48	)
Net interest income (GAAP)						$	2,160							$	2,098

(a)

~~See footnote (c)~~Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in ~~Table 1:~~calculating average yields and net interest margins by increasing the interest income earned ontax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP on the Consolidated ~~Financial Highlights on page 1.~~Income Statement.

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

Net interest income increased by ~~$33~~$62 million, or 2%3%, ~~and $75 million, or 1%, for~~in the ~~third~~first quarter ~~and~~of 2017 compared with the first ~~nine months~~quarter of 2016, ~~respectively,~~and net interest margin increased to 2.77% compared towith 2.75% in the ~~same periods in 2015. The~~prior year quarter. Both increases ~~in both comparisons were attributable to increases in loan and securities balances and~~reflected higher loan yields, partially offset by ~~lower purchase accounting accretion, lower securities yields and~~ an increase in borrowing and deposit costs.

~~Net interest margin increased in the quarterly comparison largely reflecting the impact of the December 2015~~ The increase in net interest income also was driven by growth in loans and securities balances.

Average investment securities increased $6.0 billion, or 9%, due to higher average U.S. Treasury and government agency securities and average agency residential mortgage-backed securities, partially offset by decreases in average commercial

mortgage-backed securities andnon-agency residential mortgage-backed securities. Total investment securities increased to 24% of average interest-earning assets for the ~~federal funds rate~~first quarter of 2017 compared to 23% for the first quarter of 2016.

Average loans grew $5.1 billion, or 2%, consisting of growth in average commercial loans of $4.0 billion and ~~decreased in the year-to-date comparison as the impact~~average commercial real estate loans of ~~the rate increase was more than~~$1.2 billion, driven by our Corporate Banking and Real Estate businesses within our Corporate & Institutional Banking segment. Additionally, average residential real estate loans increased $1.1 billion. These increases were partially offset by a ~~lower benefit from purchase accounting accretion.~~decline in consumer loans of $1.4 billion, which reflected decreases in thenon-strategic runoff consumer loan portfolios of brokered home equity and government guaranteed education loans. Average loans represented 66% of average interest-earning assets for the first quarter of 2017 and 67% of average interest-earning assets for the first quarter of 2016.

6The PNC Financial Services Group, Inc. –Form 10-Q5

Average total deposits of $254.9 billion grew $8.8 billion, or 4%, in the first quarter of 2017 compared to the first quarter of 2016. Average interest-bearing deposits increased $8.0 billion primarily due to higher average savings deposits, which largely reflected a shift from money market deposits to relationship-based savings products, as well as higher average interest-bearing demand deposits. Average interest-bearing deposits represented 76% of average interest-bearing liabilities in both quarters in the comparison.

Noninterest Income

Table 4:3: Noninterest Income


	Three months ended September 30											Nine months ended September 30
	2016		2015			Change						2016		2015			Change
Dollars in millions	2016		2015			$			%					2015		$				%
Three months ended March 31 Dollars in millions																											Change
Three months ended March 31 Dollars in millions																							2017		2016		$			%
Noninterest income												2016
Asset management	$	404	$	376		$	28			7	%	$	1,122	$	1,168		$	(46	)		(4	)%	$	403	$	341	$	62			18	%
Consumer services		348		341			7			2	%		1,039		986			53			5	%		332		337		(5	)		(1	)%
Corporate services		389		384			5			1	%		1,117		1,097			20			2	%		393		325		68			21	%
Residential mortgage		160		125			35			28	%		425		453			(28	)		(6	)%		113		100		13			13	%
Service charges on deposits		174		172			2			1	%		495		481			14			3	%		161		158		3			2	%
Net gains on sales of securities		7		(9	)		16			(178	)%		20		41			(21	)		(51	)%
Other		252		324			(72	)		(22	)%		809		960			(151	)		(16	)%		322		306		16			5	%
Total noninterest income	$	1,734	$	1,713		$	21			1	%	$	5,027	$	5,186		$	(159	)		(3	)%	$	1,724	$	1,567	$	157			10	%

~~Noninterest income increased in the third quarter of 2016 compared to the third quarter of 2015 and decreased in the first nine months compared to the same period in 2015.~~ Noninterest income as a percentage of total revenue was ~~45%~~44% in ~~both~~ the ~~third quarters~~first quarter of ~~2016 and 2015 and 45% and 46% on a year-to-date basis, respectively.~~2017 compared to 43% in the first quarter of 2016.

Asset management revenue ~~increased~~growth in the ~~quarterly~~ comparison ~~primarily due to~~reflected higher earnings from BlackRock and the impact of higher average equity markets ~~on both BlackRock and our asset management~~as well as net new business ~~segment. The year-to-date comparison decreased mainly due to lower earnings from BlackRock and the impact from a $30 million trust settlement during the second quarter of 2015~~activity in our asset management ~~business segment.~~business. Discretionary client assets under management ~~were $138~~increased $6 billion to $141 billion at ~~September 30, 2016~~March 31, 2017 compared ~~with $132 billion at September 30, 2015.~~

~~Consumer services fees increased in the year-to-date comparison primarily due~~ to ~~growth in payment-related products including debit card, credit card and merchant services, as well as higher brokerage fees.~~March 31, 2016.

Corporate services revenue increased ~~in the year-to-date comparison primarily reflecting~~due to higher merger and acquisition advisory fees and other capital ~~markets-related~~markets revenue, ~~and~~ higher ~~treasury management fees.~~

~~Residential mortgage revenue increased in the quarterly comparison as a result of higher loan sales revenue from higher origination volumes and increased benefit from residential~~commercial mortgage servicing rights valuation, net of economic ~~hedge. The year-to-date~~hedge, and higher treasury management revenue.

Residential mortgage revenue was higher in the comparison ~~decreased mainly due to lower loan sales revenue and~~as a ~~lower~~result of an increased benefit from residential mortgage servicing rights valuation, net of economic hedge.

Other noninterest income ~~decreased in both comparisons primarily~~for the first quarter of 2017 increased over the first quarter of 2016 largely attributable to ~~the impact of third quarter 2015 net gains of $43 million on sales of 0.5 million Visa Class B~~

~~common shares and lower~~higher revenue from private equity ~~investments. There were no sales~~investments, including positive valuation adjustments of ~~Visa shares in~~$47 million associated with

our receipt of a five-year extension of the ~~third~~prior July 2017 deadline to conform certain equity investments subject to the Volcker Rule provisions of the Dodd-Frank Act. The increase was partially offset by the impact of first quarter ~~of 2016. Net~~2016 net gains on the sale of Visa shares for the first nine months of 2016 were $52 million on sales of 1.35 million shares compared with net gains of $124 million on sales of 1.5 million shares in the first nine months of 2015. Net gains on Visa sales include derivative fair value adjustments related to swap agreements with purchasers of Visa shares in connection with all sales to date.Class B common shares.

Provision For Credit Losses

The provision for credit losses ~~increased modestly to $87 million in the third quarter of 2016 compared to $81 million in the third quarter of 2015 and increased $185 million to $366~~was $88 million for the first ~~nine months~~quarter of 2017 compared with $152 million for the first quarter of 2016, ~~compared to the same period in 2015. The increase in the year-to-date comparison was attributable to~~which included a higher provision for energy related loans in the oil, gas and coal sectors of $130 million in the first nine months of 2016 compared to $86 million for the first nine months of 2015, as well as slowing credit quality improvement in our commercial and consumer lending portfolios and the impact of continued loan growth.sectors.

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

Table 4: Noninterest ~~expense for the third quarter of 2016 increased $42 million to $2.4 billion compared to the third quarter of 2015, while~~Expense


Three months ended March 31 Dollars in millions					Change
Three months ended March 31 Dollars in millions	2017		2016		$			%
Noninterest expense
Personnel	$	1,249	$	1,145	$	104			9	%
Occupancy		222		221		1			–
Equipment		251		234		17			7	%
Marketing		55		54		1			2	%
Other		625		627		(2	)		–
Total noninterest expense	$	2,402	$	2,281	$	121			5	%

Higher noninterest expense ~~for~~in the ~~first nine months~~comparison reflected the impact of ~~2016 compared to the same period in 2015 decreased $32 million to $7.0 billion. Both comparisons reflected increases to noninterest expense resulting from a new FDIC deposit insurance surcharge,~~overall higher ~~variable compensation costs associated with increased~~levels of business activity on personnel and ~~investments~~equipment expense. We remained focused on disciplined expense management while continuing to invest in technology and business ~~infrastructure as PNC continued~~infrastructure.

As of March 31, 2017, we were on track to achieve our full-year 2017 goal of $350 million in cost savings through our continuous improvement program, which we expect will substantially fund our 2017 business and technology investments.

Effective Income Tax Rate

The effective income tax rate was 23.0% in the first quarter of 2017 compared with 23.5% in the first quarter of 2016. Income taxes for first quarter 2017 included higher tax deductions for stock-based compensation related to vesting of restricted shares and options exercised at a higher common stock price.

6The PNC Financial Services Group, Inc. –Form 10-Q7

~~focus on disciplined expense management. These were offset by net lower contingency accruals and the impact from our effective expense management.~~

As of September 30, 2016, we have completed actions to capture more than 75% of our 2016 continuous improvement savings goal of $400 million, and are on track to achieve the full-year goal. Through this program, we are helping to fund our continued investments in technology and business infrastructure.

~~Effective Income Tax Rate~~

The effective income tax rate was 25.4% in the third quarter of 2016 compared to 20.0% in the third quarter of 2015 and 24.4% in the first nine months of 2016 compared to 24.3% in the same period of 2015. The lower effective tax rate for the third quarter of 2015 reflected tax benefits attributable to effectively settling acquired entity tax contingencies.

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.

CONSOLIDATED BALANCE SHEET REVIEW

Table 5: Summarized Balance Sheet Data


	September 30 2016			December 31 2015			Change												Change
Dollars in millions	September 30 2016			December 31 2015			$			%			March 31 2017			December 31 2016			$			%
Assets
Interest-earning deposits with banks	$	27,058		$	30,546		$	(3,488	)		(11	)%	$	27,877		$	25,711		$	2,166			8	%
Loans held for sale		2,053			1,540			513			33	%		1,414			2,504			(1,090	)		(44	)%
Investment securities		78,514			70,528			7,986			11	%		76,432			75,947			485			1	%
Loans		210,446			206,696			3,750			2	%		212,826			210,833			1,993			1	%
Allowance for loan and lease losses		(2,619	)		(2,727	)		108			4	%		(2,561	)		(2,589	)		28			1	%
Mortgage servicing rights														1,867			1,758			109			6	%
Goodwill		9,103			9,103			–			–			9,103			9,103			–			–
Mortgage servicing rights		1,293			1,589			(296	)		(19	)%
Other intangible assets		304			379			(75	)		(20	)%
Other, net		43,196			40,839			2,357			6	%		43,986			43,113			873			2	%

Total assets	$	369,348		$	358,493		$	10,855			3	%	$	370,944		$	366,380		$	4,564			1	%
Liabilities
Deposits	$	259,895		$	249,002		$	10,893			4	%	$	260,710		$	257,164		$	3,546			1	%
Borrowed funds		51,541			54,532			(2,991	)		(5	)%		55,062			52,706			2,356			4	%
Other		11,067			8,979			2,088			23	%		9,269			9,656			(387	)		(4	)%

Total liabilities		322,503			312,513			9,990			3	%		325,041			319,526			5,515			2	%
Equity
Total shareholders’ equity		45,707			44,710			997			2	%		45,754			45,699			55			–
Noncontrolling interests		1,138			1,270			(132	)		(10	)%		149			1,155			(1,006	)		(87	)%

Total equity		46,845			45,980			865			2	%		45,903			46,854			(951	)		(2	)%

Total liabilities and equity	$	369,348		$	358,493		$	10,855			3	%	$	370,944		$	366,380		$	4,564			1	%

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

~~PNC’s~~Our balance sheet ~~reflected asset growth compared to~~was strong and well positioned at both March 31, 2017 and December 31, ~~2015 and strong liquidity and capital positions at September 30,~~ 2016.

Total assets increased primarily ~~due to~~driven by loan growth and higher ~~investment securities and loan balances, partially offset by lower~~ interest-earning deposits with ~~banks.~~banks;

~~Higher total~~Total liabilities ~~were driven by~~increased due to deposit ~~growth.~~growth and higher borrowed funds;

Total equity decreased due to a decline in noncontrolling interests related to the redemption of Perpetual Trust Securities.

The ~~increase to total equity reflected increased retained earnings driven by net income, partially offset by share repurchases.~~following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and regulatory compliance is included in the Liquidity and Capital Management portion of the Risk Management section of this Financial Review and in Note 18 Regulatory Matters in the Notes To Consolidated Financial Statements included in our 2016 Form10-K.

8The PNC Financial Services Group, Inc. –Form 10-Q7

Loans

Outstanding loan balances of $210.4 billion at September 30, 2016 and $206.7 billion at December 31, 2015 were net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.3 billion at September 30, 2016 and $1.4 billion at December 31, 2015.

Table 6: Details Ofof Loans


	September 30 2016			December 31 2015			Change
Dollars in millions															Change
Dollars in millions	September 30 2016		September 30 2016					December 31 2015		$				%			March 31 2017			December 31 2016		$			%
Commercial lending								December 31 2015
Commercial			September 30 2016
Manufacturing	$	19,813		$	19,014			$	799		4	%		$	20,054		$	18,891		$	1,163		6	%
Retail/wholesale trade		17,211			16,661	��		550		3	%			17,446			16,752			694		4	%
Service providers		14,159			13,970			189		1	%			14,185			14,707			(522	)	(4	)%
Real estate related (a)		12,045			11,659			386		3	%			11,690			11,920			(230	)	(2	)%
Health care		9,148			9,210			(62	)	(1	)%			9,603			9,491			112		1	%
Financial services		7,203			7,234			(31	)	–				7,710			7,241			469		6	%
Other industries		21,933			20,860			1,073		5	%			23,077			22,362			715		3	%

Total commercial		101,512			98,608			2,904		3	%			103,765			101,364			2,401		2	%

Commercial real estate														29,435			29,010			425		1	%
Real estate projects (b)		16,851			15,697			1,154		7	%
Commercial mortgage		12,422			11,771			651		6	%
Total commercial real estate		29,273			27,468			1,805		7	%
Equipment lease financing		7,378			7,468			(90	)	(1	)%			7,462			7,581			(119	)	(2	)%

Total commercial lending		138,163			133,544			4,619		3	%			140,662			137,955			2,707		2	%

Consumer lending
Home equity														29,577			29,949			(372	)	(1	)%
Lines of credit		18,014			18,828			(814	)	(4	)%
Installment		12,418			13,305			(887	)	(7	)%
Total home equity		30,432			32,133			(1,701	)	(5	)%
Residential real estate														15,781			15,598			183		1	%
Residential mortgage		14,915			14,162			753		5	%
Residential construction		226			249			(23	)	(9	)%
Total residential real estate		15,141			14,411			730		5	%
Credit card		5,029			4,862			167		3	%			5,112			5,282			(170	)	(3	)%
Other consumer
Automobile		11,898			11,157			741		7	%			12,337			12,380			(43	)	–
Education		5,337			5,881			(544	)	(9	)%			4,974			5,159			(185	)	(4	)%
Other		4,446			4,708			(262	)	(6	)%			4,383			4,510			(127	)	(3	)%

Total consumer lending		72,283			73,152			(869	)	(1	)%			72,164			72,878			(714	)	(1	)%

Total loans	$	210,446		$	206,696		$	3,750		2	%		$	212,826		$	210,833		$	1,993		1	%

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

~~(b)~~

~~Includes both construction loans and intermediate financing for projects.~~

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

~~Loan growth was the result of an increase~~Growth in ~~total~~ commercial lending was driven by ~~higher commercial~~increased utilization from manufacturing, retail/wholesale trade and ~~commercial real estate loans, while~~financial services customers. Lower consumer lending ~~declined due to lower~~was driven by declines in home equity loans, education loans and credit cards. The decreases in home equity and education ~~loans, partially offset by higher automobile~~reflected runoff in thenon-strategic brokered home equity and ~~residential mortgage loans.~~

~~Loans represented 57% of total assets at September 30, 2016 and 58% at December 31, 2015. Commercial lending represented 66% of the~~government guaranteed education loan ~~portfolio at September 30, 2016 and 65% at December 31, 2015. Consumer lending represented 34% of the loan portfolio at September 30, 2016 and 35% at December 31, 2015.~~ portfolios.

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 $3.1 billion, or 1% of total loans, at September 30, 2016,~~ and ~~$3.5 billion, or 2% of total loans, at December 31, 2015.~~

~~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,~~ Note 1 Accounting Policies, ~~in our 2015 Form 10-K and~~ Note ~~3 Asset~~3Asset Quality and Note 4 Allowances for Loan and Lease Losses ~~and Unfunded Loan Commitments and Letters of Credit~~ in our Notes To Consolidated Financial Statements included in this ~~Report.~~Report for additional information regarding our loan portfolio.

~~Purchased Impaired Loans~~Investment Securities

~~The following table provides further detail on purchased impaired loans at September 30, 2016 and December 31, 2015:~~

Table 7: ~~Purchased Impaired Loans – Balances~~Investment Securities

   September 30, 2016    December 31, 2015
In millions
Outstanding
Balance
   Recorded
Investment    Carrying
Value
Outstanding
Balance
   Recorded
Investment    Carrying
Value
Total commercial lending
   $ 156       $ 122       $ 80       $ 249       $ 169       $ 120
Total consumer lending
   3,211       2,958       2,677       3,684       3,353       3,092
Total
   $ 3,367       $ 3,080       $ 2,757       $ 3,933       $ 3,522       $ 3,212

The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized as interest income over the remaining life of the loan using the constant effective yield method. Activity for the accretable yield during the first nine months of 2016 and 2015 follows:

~~Table 8: Purchased Impaired Loans – Accretable Yield~~

In millions    2016 2015
January 1
   $ 1,250    $ 1,558
Accretion (including excess cash recoveries)
   (292 ) (359 )
Net reclassifications to accretable from non-accretable
   155    218
Disposals
   (5 ) (66 )
September 30
   $ 1,108    $ 1,351

We currently expect to collect total cash flows of $3.9 billion on purchased impaired loans, representing the $2.8 billion carrying value at September 30, 2016 and accretable net interest of $1.1 billion.

~~The table below provides the weighted average life (WAL) for each of the purchased impaired portfolios as of September 30, 2016.~~

~~Table 9: Weighted Average Life of the Purchased Impaired Portfolios~~

As of September 30, 2016
Dollars in millions
   Recorded
Investment    WAL (a)
Commercial
   $ 21       2.2 years
Commercial real estate
   101       1.7 years
Consumer (b)
   1,188       3.9 years
Residential real estate
   1,770       4.6 years
Total
   $ 3,080       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.~~

~~For more information on purchased impaired loans and the accretable yield, see Note 1 Accounting Policies in our 2015 Form10-K.~~


	March 31, 2017				December 31, 2016				Ratings (a) As of March 31, 2017
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	$	13,318	$	13,459	$	13,627	$	13,714		100	%
Agency residential mortgage-backed		38,673		38,427		37,319		37,109		100
Non-agency residential mortgage-backed		3,196		3,394		3,382		3,564		11						4	%		76	%		9	%
Agency commercial mortgage-backed		2,919		2,906		3,053		3,046		100
Non-agency commercial mortgage-backed (b)		4,407		4,434		4,590		4,602		85			4	%		1			1			9
Asset-backed (c)		6,486		6,532		6,496		6,524		85			5			3			7
Other debt (d)		6,610		6,782		6,679		6,810		73			15			8			1			3
Corporate stock and other		517		515		603		601														100

Total investment securities(e)	$	76,126	$	76,449	$	75,749	$	75,970		91	%		2	%		1	%		4	%		2	%

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

~~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.

~~Table 10: Investment Securities~~

September 30, 2016 December 31, 2015
Ratings (a)
As of September 30, 2016

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
$ 12,327    $ 12,680    $ 10,022    $ 10,172    100 %
Agency residential mortgage-backed
39,066    39,868    34,250    34,408    100
Non-agency residential mortgage-backed
3,576    3,754    4,225    4,392    11    4 % 80 % 5 %
Agency commercial mortgage-backed
3,352    3,408    3,045    3,086    100
Non-agency commercial mortgage-backed (b)
4,762    4,837    5,624    5,630    80    7 % 3    1    9
Asset-backed (c)
6,922    6,958    6,134    6,130    90    3    7
State and municipal
3,883    4,146    3,936    4,126    89    6    5
Other debt
2,830    2,878    2,211    2,229    51    32    16    1
Corporate stock and other
525    525    590    589    100
Total investment securities(d)
$ 77,243    $ 79,054    $ 70,037    $ 70,762    91 % 2 % 1 % 4 % 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 corporate debt, government guaranteed education loans and other consumer credit products.

(d)	Includes state and municipal securities.

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

Investment securities ~~represented 21% of total assets~~increased $.5 billion at ~~September 30, 2016 and 20% at~~March 31, 2017 compared to December 31, ~~2015.~~2016. Growth in investment securities was driven by net purchases of agency residential mortgage-backed securities, partially offset by maturities and prepayments of U.S. Treasury and government agencies,non-agency commercial mortgage-backed andnon-agency residential mortgage-backed securities.

~~We evaluate~~Table 7 presents the distribution of our investment securities portfolio ~~in light of changing market conditions and other factors and, where appropriate, take steps to improve our overall positioning.~~by credit rating. We ~~consider~~have included credit ratings information because we believe that the ~~portfolio to be well-diversified and of high quality. At September 30, 2016, 91%~~information is an indicator 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 71%degree of ~~the portfolio.~~

~~The investment securities portfolio includes both available for sale and held~~credit risk to ~~maturity securities. Securities classified as available for sale~~which we 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.

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 increased to $1.8 billion at September 30, 2016 from $.7 billion at December 31, 2015. The comparable amounts for the securities available for sale portfolio were $1.3 billion at September 30, 2016 and $.5 billion at December 31, 2015.

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,exposed, which could affect our risk-weighted assets and, therefore, our risk-based regulatory capital ratios under the regulatory capital rules. ~~In addition,~~Changes in credit ratings classifications could indicate increased or decreased credit risk and could be accompanied by a reduction or increase in the ~~amount representing the credit-related portion~~fair value of ~~other-than-temporary impairment (OTTI) on securities would reduce~~ our ~~earnings and regulatory capital ratios.~~

~~The duration of~~ investment securities was 1.8 years at September 30, 2016. We estimate that at September 30, 2016 the effective duration of investment securities was 2.0 years for an immediate 50 basis points parallel increase in interest rates and 1.6 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2015 for the effective duration of investment securities were 2.8 years and 2.6 years, respectively.portfolio.

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

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 4.0 years at September 30, 2016 compared to 4.8 years at December 31, 2015. The weighted-average expected maturities of mortgage and other asset-backed debt securities were as follows as of September 30, 2016:

~~Table 11: Weighted-Average Expected Maturities of Mortgage and Other Asset-Backed Debt Securities~~


~~September 30, 2016~~	~~Years~~
~~Agency residential mortgage-backed securities~~		~~3.4~~
~~Non-agency residential mortgage-backed securities~~		~~5.3~~
~~Agency commercial mortgage-backed securities~~		~~3.5~~
~~Non-agency commercial mortgage-backed securities~~		~~3.5~~
~~Asset-backed securities~~		~~2.5~~

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. ~~For those~~

The duration of investment securities was 3.2 years at March 31, 2017. We estimate that at March 31, 2017 the effective duration of investment securities was 3.3 years for an immediate 50 basis points parallel increase in interest rates and 3.1 years for an immediate 50 basis points parallel decrease in interest rates.

Based on ~~our balance sheet~~expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio (excluding corporate stock and other) was 5.1 years at ~~September 30, 2016, where during our quarterly security-level impairment assessments we determined losses represented OTTI, we have recorded cumulative credit losses~~March 31, 2017 compared to 5.0 years at December 31, 2016.

Table 8: Weighted-Average Expected Maturities of ~~$1.1 billion in earnings~~Mortgage 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.Other Asset-Backed Debt Securities


March 31, 2017	Years
Agency residential mortgage-backed		5.4
Non-agency residential mortgage-backed		5.8
Agency commercial mortgage-backed		3.5
Non-agency commercial mortgage-backed		3.7
Asset-backed		2.5

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

~~Loans Held for Sale~~

~~Table 12: Loans Held For Sale~~

September 30
2016

December 31
2015
Change
In millions $ %
Commercial mortgages
$ 876    $668   $ 208    31 %
Residential mortgages
1,129    850   279    33 %
Other
48    22   26    118 %
Total
$ 2,053    $1,540   $ 513    33 %

~~Loans held for sale increased in the comparison as origination volumes exceeded loan sales during the first nine months of 2016 in both commercial and residential mortgages.~~

We sold $2.8 billion of commercial mortgage loans to agencies during the first nine months of 2016 compared to $3.0 billion during the first nine months of 2015. Total revenue of $51 million was recognized on the valuation and sale of commercial mortgage loans held for sale, net of hedges, during the first nine months of 2016, including $18 million in the third quarter. Comparable amounts for 2015 were $64 million and $13 million, respectively. These amounts are included in Other noninterest income on the Consolidated Income Statement.

Residential mortgage loan origination volume was $7.6 billion during the first nine months of 2016 compared to $8.2 billion in the same period in 2015. The majority of such loans were originated under agency or Federal Housing Administration (FHA) standards. We sold $4.8 billion of loans and recognized loan sales revenue of $262 million during the first nine months of 2016, of which $103 million occurred in the third quarter. The comparable amounts for 2015 were $6.2 billion and $278 million, respectively, including $75 million in the third quarter. These loan sales revenue amounts are included in Residential mortgage noninterest income on the Consolidated Income Statement.

Interest income on loans held for sale was $55 million during the first nine months of 2016, including $21 million in the third quarter. Comparable amounts for 2015 were $68 million and $22 million, respectively. These amounts are included in Other interest income on the 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 6 Fair Value in our Notes To Consolidated Financial Statements included in Part 1, Item 1 of this Report.

Funding Sources

Table ~~13:~~9: Details Ofof Funding Sources

September 30
2016

December 31
2015
Change
Dollars in millions $ %
Deposits

Money market
$ 115,324    $ 118,079    $ (2,755 ) (2 )%
Demand
92,282    90,038    2,244    2 %
Savings
33,540    20,375    13,165    65 %
Retail certificates of deposit
16,979    17,405    (426 ) (2 )%
Time deposits in foreign offices and other time deposits
1,770    3,105    (1,335 ) (43 )%
Total deposits
259,895    249,002    10,893    4 %
Borrowed funds

Federal funds purchased and repurchase agreements
1,235    1,777    (542 ) (31 )%
FHLB borrowings
17,050    20,108    (3,058 ) (15 )%
Bank notes and senior debt
22,431    21,298    1,133    5 %
Subordinated debt
8,708    8,556    152    2 %
Other
2,117    2,793    (676 ) (24 )%
Total borrowed funds
51,541    54,532    (2,991 ) (5 )%
Total funding sources
$ 311,436    $ 303,534    $ 7,902    3 %


Dollars in millions	March 31 2017		December 31 2016		Change
Dollars in millions	March 31 2017		December 31 2016		$			%
Deposits
Money market	$	105,230	$	105,849	$	(619	)		(1	)%
Demand		97,076		96,799		277			–
Savings		41,428		36,956		4,472			12	%
Time deposits		16,976		17,560		(584	)		(3	)%
Total deposits		260,710		257,164		3,546			1	%
Borrowed funds
FHLB borrowings		19,549		17,549		2,000			11	%
Bank notes and senior debt		23,745		22,972		773			3	%
Subordinated debt		6,889		8,009		(1,120	)		(14	)%
Other		4,879		4,176		703			17	%
Total borrowed funds		55,062		52,706		2,356			4	%
Total funding sources	$	315,772	$	309,870	$	5,902			2	%

Growth in total deposits was driven by higher consumer savings and demand deposits, partially offset by seasonal declines in commercial deposits. The overall increase in savings deposits reflected in part a shift from money market deposits to relationship-based savings products. The decline in time deposits reflected the net runoff of maturing accounts.

12The ~~PNC Financial Services Group, Inc. –~~~~Form 10-Q~~increase in total borrowed funds reflected net increases in FHLB borrowings and bank notes and senior debt, as new issuances outpaced maturities and calls. These increases were partially offset by subordinated debt maturities.

See the Liquidity ~~Risk~~and Capital Management portion of the Risk Management section of this Financial Review for additional information regarding our ~~2016~~2017 capital and liquidity activities.

Total deposits increased in the comparison mainly due to growth in savings deposits reflecting in part a shift from money market deposits to relationship-based savings products. Interest-bearing deposits represented 68% of total deposits at both September 30, 2016 and December 31, 2015.Shareholders’ Equity

Total ~~borrowed funds decreased in the comparison due to maturities of FHLB borrowings, partially offset by higher bank notes and senior debt.~~

~~Capital~~

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

We repurchase shares of PNC common stock under common stock repurchase authorizations approved by PNC’s Board of Directors and consistent with capital plans submitted to, and accepted by, the Federal Reserve. The extent and timing of share repurchases under authorizations 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 second quarter of 2016, we completed our common stock repurchase programs for the five quarter period that ended in June 2016 with total repurchases of 29.9 million common shares for $2.7 billion. These repurchases were included in our capital plan accepted by the Federal Reserve as part of our 2015 CCAR submission. Additionally, we paid $1.3 billion in common stock dividends for a total of $4.0 billion of capital returned to shareholders during this five quarter period.

In connection with the 2016 CCAR process, we submitted our capital plan as approved by PNC’s Board of Directors, to the Federal Reserve in April 2016. The Federal Reserve accepted the capital plan and did not object to our proposed capital actions. As provided for in the 2016 capital plan, PNC announced new share repurchase programs of up to $2.0 billion for the four-quarter period beginning in the third quarter of 2016, including repurchases of up to $200 million related to employee benefit plans. In the third quarter of 2016, we repurchased 5.9 million common shares for $.5 billion.

We paid dividends on common stock of $.3 billion, or 55 cents per common share, during the third quarter of 2016. On October 4, 2016, the PNC Board of Directors declared a quarterly common stock cash dividend of 55 cents per share payable on November 5, 2016. In July 2016, the Board of Directors raised the quarterly dividend on common stock to 55 cents per share, an increase of 4 cents per share, or 8%, effective with the August dividend.

See the Supervision and Regulation section of Item 1 Business of our 2015 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. See also the Capital section of the Consolidated Balance Sheet Review in our 2015 Form 10-K for additional information on our 2015 CCAR submission and current capital plan.

~~Table 14: Shareholders’ Equity~~

September 30
2016

December 31
2015
Change
Dollars in millions $ %
Shareholders’ equity

Preferred stock (a)

Common stock
$ 2,709    $ 2,708    $ 1    –
Capital surplus – preferred stock
3,456    3,452    4    –
Capital surplus – common stock and other
12,703    12,745    (42 ) –
Retained earnings
30,958    29,043    1,915    7 %
Accumulated other comprehensive income
646    130    516    397 %
Common stock held in treasury at cost
(4,765 ) (3,368 ) (1,397 ) (41 )%
Total shareholders’ equity
$ 45,707    $ 44,710    $ 997    2 %

~~(a)~~

~~Par value less than $.5 million at each date.~~

~~The growth in total~~ shareholders’ equity as of ~~September 30, 2016~~March 31, 2017 remained relatively stable compared to December 31, ~~2015 was mainly due to an increase in~~2016. Increased retained earnings, driven by net income of $1.1 billion partially offset by $.3 billion of common and ~~higher accumulated other comprehensive income primarily related to net securities gains, partially~~preferred dividends, was largely offset by common share repurchases of ~~$1.5 billion. The growth in retained earnings resulted from net income of $2.9~~$.6 billion ~~during the period, reduced by $1.0 billion of common~~ and preferred dividends declared. Common shares outstanding were 488 million and 504 million at September 30, 2016, and December 31, 2015, respectively, reflecting repurchases of 17.9 million shares during the period.lower capital surplus.

The PNC Financial Services Group, Inc. –Form 10-Q 139

~~Table 15: Basel III Capital~~

   September 30, 2016
Dollars in millions
2016
Transitional
Basel III (a)
   Pro forma Fully
Phased-In Basel III
(Non-GAAP)
(estimated) (b)(c)
Common equity Tier 1 capital

Common stock plus related surplus, net of treasury stock
   $ 10,646       $ 10,646
Retained earnings
   30,958       30,958
Accumulated other comprehensive income for securities currently and previously held as available for sale
   504       840
Accumulated other comprehensive income for pension and other postretirement plans
   (323 )    (538 )
Goodwill, net of associated deferred tax liabilities
   (8,830 )    (8,830 )
Other disallowed intangibles, net of deferred tax liabilities
   (163 )    (272 )
Other adjustments/(deductions)
   (177 )    (180 )
Total common equity Tier 1 capital before threshold deductions
   32,615       32,624
Total threshold deductions
   (731 )    (1,218 )
Common equity Tier 1 capital
   31,884       31,406
Additional Tier 1 capital

Preferred stock plus related surplus
   3,456       3,456
Noncontrolling interests (d)
   418       45
Other adjustments/(deductions)
   (86 )    (111 )
Tier 1 capital
   35,672       34,796
Additional Tier 2 capital

Qualifying subordinated debt
   3,929       3,755
Trust preferred capital securities
   119       –
Allowance for loan and lease losses included in Tier 2 capital
   2,929       2,929
Other (d)
   6       11
Total Basel III capital
   $ 42,655       $ 41,491
Risk-weighted assets

Basel III standardized approach risk-weighted assets (e)
   $ 300,308       $ 308,665
Basel III advanced approaches risk-weighted assets (f)
   N/A       $ 280,150
Average quarterly adjusted total assets
   $ 352,860       $ 352,231
Supplementary leverage exposure (g)
   $ 417,565       $ 416,937
Basel III risk-based capital and leverage ratios

Common equity Tier 1
   10.6 %    10.2 %(h)(i)
Tier 1
   11.9 %    11.3 %(h)(j)
Total
   14.2 %    13.4 %(h)(k)
Leverage (l)
   10.1 %    9.9 %
Supplementary leverage ratio (m)
   8.5 %    8.3 %

~~(a)~~

~~Calculated using the regulatory capital methodology applicable to PNC during 2016.~~

~~(b)~~

PNC utilizes the pro forma fully phased-in Basel III capital ratios to assess its capital position (without the benefit of phase-ins), as these ratios represent the regulatory capital standards that will ultimately be applicable to PNC under the final Basel III rules. Pro forma fully phased-in capital amounts, ratios and risk-weighted and leverage-related assets are estimates.

~~(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, may be subject to variability based on 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 for transitional and pro forma fully phased-in.~~

~~(e)~~

~~Includes credit and market risk-weighted assets.~~

~~(f)~~

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

~~(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 Basel III standardized approach risk-weighted assets and rules.~~

~~(i)~~

For comparative purposes only, the pro forma fully phased-in advanced approaches Basel III Common equity Tier 1 capital ratio estimate is 11.2%. 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.

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

~~(j)~~

For comparative purposes only, the pro forma fully phased-in advanced approaches Basel III Tier 1 risk-based capital ratio estimate is 12.4%. This capital ratio is calculated using fully phased-in 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 Total capital risk-based capital ratio estimate is 13.8%. This ratio is calculated using fully phased-in Total Basel III capital, which under the advanced approaches, Additional Tier 2 capital includes allowance for loan and lease losses in excess of Basel expected credit losses, if any, up to 0.6% of credit risk related risk-weighted assets, and dividing by estimated Basel III advanced approach risk-weighted assets.

~~(l)~~

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

~~(m)~~

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.

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 2016 are calculated using the standardized approach 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 2016). We refer to the capital ratios calculated using the phased-in Basel III provisions in effect for 2016 and, for the risk-based ratios, standardized approach risk-weighted assets, as the 2016 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 and net of associated deferred tax liabilities) to the extent they individually exceed 10%, or in the aggregate exceed 15%, of the institution’s adjusted common equity Tier 1 capital. Also, Basel III regulatory capital includes (subject to a phase-in schedule) 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, 2016 capital levelsCommon shares outstanding were ~~aligned with them.~~

~~At September 30, 2016, PNC and PNC Bank, our sole bank subsidiary, were~~485 million at both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized”, PNC must have Transitional Basel III capital ratios of at least 6% for Tier 1 risk-based

capital and 10% for Total risk-based capital, and PNC Bank must have Transitional Basel III capital ratios of at least 6.5% for Common equity Tier 1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital, and a Leverage ratio of at least 5%.

We provide additional information regarding regulatory capital requirements and some of their potential impacts on PNC in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 19 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of our 2015 Form 10-K. See the Statistical Information (Unaudited) section of this Report for details on PNC’s DecemberMarch 31, ~~2015 and September 30, 2015 Transitional Basel III and Pro forma fully phased-in Basel III common equity tier 1 capital ratios.~~

OFF-B~~ALANCE~~ S~~HEET~~ A~~RRANGEMENTS~~ AND V~~ARIABLE~~ I~~NTEREST~~ E~~NTITIES~~

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 2015 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, and~~

~~Note 13 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, 2016~~2017, and December 31, ~~2015, is included in Note 2~~2016, as repurchases of ~~this Report.~~

5.0 million shares during the first quarter of 2017 were largely offset by share issuances from treasury stock related to warrants exercised and stock based compensation activity.

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

~~Trust Preferred Securities and REIT Preferred Securities~~

See Note 11 Borrowed Funds and Note 16 Equity in the Notes To Consolidated Financial Statements in Item 8 of our 2015 Form 10-K for additional information on trust preferred securities issued by PNC Capital Trust C and REIT preferred securities issued by PNC Preferred Funding Trust I and PNC Preferred Funding Trust II including information on contractual limitations potentially imposed on payments (including dividends) with respect to PNC and PNC Bank’s equity capital securities.

F~~AIR~~ V~~ALUE~~ M~~EASUREMENTS~~

~~In addition to the following, see Note 6 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, 2016 and December 31, 2015, 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 16: Fair Value Measurements – Summary~~

   September 30, 2016    December 31, 2015
Dollars in millions    Total Fair
Value Level 3    Total Fair
Value    Level 3
Total assets
   $ 78,010    $ 7,929       $ 68,804       $ 8,606
Total assets at fair value as a percentage of consolidated assets
   21 %    19 %
Level 3 assets as a percentage of total assets at fair value
   10 %       13 %
Level 3 assets as a percentage of consolidated assets
   2 %       2 %
Total liabilities
   $ 6,040    $ 424       $ 4,892       $ 495
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
   7 %       10 %
Level 3 liabilities as a percentage of consolidated liabilities
   <1 %       <1 %

BUSINESS SEGMENTS REVIEW

WeEffective for the first quarter of 2017, as a result of changes to how we manage our businesses, we realigned our segments and, accordingly, 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~~changed the basis of presentation of ~~inter-segment revenues,~~our segments, resulting in four reportable business segments:

Retail Banking

Corporate & Institutional Banking

Asset Management Group

BlackRock

Our changes in business segment presentation resulting from the realignment included the following:

The Residential Mortgage Banking segment was combined into Retail Banking as a result of our strategic initiative to transform the home lending process by integrating mortgage and home equity lending to enhance product capability and speed of delivery for a better customer experience and to improve efficiency. In conjunction with this shift, residential mortgages previously reported within the “Other” category were also moved to Retail Banking.

TheNon-Strategic Assets Portfolio segment was eliminated. The segment’s remaining consumer assets were moved to the “Other” category as they are unrelated to the ongoing strategy of any segment, while its commercial assets were transferred to Corporate & Institutional Banking in order to continue the relationships we have with those customers.

A portion of business banking clients was moved from Retail Banking to Corporate & Institutional Banking to facilitate enhanced product offerings to meet the financial needs of our business banking clients.

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors. Effective for the first quarter of 2017, we made certain adjustments to our internal funds transfer pricing methodology primarily relating to weighted average lives of certainnon-maturity deposits based on our recent historical experience. These changes in methodology affected business segment results, primarily adversely impacting net interest income for Corporate & Institutional Banking and Retail Banking, offset by increased net interest income in the “Other” category.

The prior period presented was revised to conform to the new segment alignment and to our change in internal funds transfer pricing methodology.

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

~~Net interest income in~~Total business segment financial results ~~reflects PNC’s internal funds transfer pricing methodology. Assets receive~~differ from total consolidated net income. The impact of these differences is reflected in the “Other” category in the business segment tables. “Other” includes residual activities that do not meet the criteria for disclosure as a ~~funding charge~~separate reportable business, such as gains or losses related to BlackRock transactions, integration costs, asset and ~~liabilities~~liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and ~~capital receive a funding credit based on a transfer pricing methodology~~certain trading activities, exited businesses, certainnon-strategic runoff consumer loan portfolios, private equity investments, intercompany eliminations, most corporate overhead, tax adjustments that ~~incorporates product repricing characteristics, tenor~~are not allocated to business segments and ~~other factors.~~differences between business segment performance reporting and financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments’ results exclude their portion of net income attributable to noncontrolling interests.

1610 The PNC Financial Services Group, Inc. –Form 10-Q

Retail Banking

(Unaudited)

Table ~~17:~~10: Retail Banking Table


Nine months ended September 30 Dollars in millions, except as noted							Change
	2016			2015			$			%
Three months ended March 31 Dollars in millions, except as noted																			Change
													2017			2016			$			%
Income Statement
Net interest income	$	3,351		$	3,152		$	199			6	%	$	1,121		$	1,122		$	(1	)		–
Noninterest income		1,628			1,652			(24	)		(1	)%		603			633			(30	)		(5	)%

Total revenue		4,979			4,804			175			4	%		1,724			1,755			(31	)		(2	)%
Provision for credit losses		210			151			59			39	%		71			72			(1	)		(1	)%
Noninterest expense		3,509			3,558			(49	)		(1	)%		1,315			1,299			16			1	%

Pretax earnings		1,260			1,095			165			15	%		338			384			(46	)		(12	)%
Income taxes		462			401			61			15	%		125			141			(16	)		(11	)%

Earnings	$	798		$	694		$	104			15	%	$	213		$	243		$	(30	)		(12	)%
Average Balance Sheet
Loans held for sale													$	843		$	801		$	42			5	%
Loans
Consumer
Home equity	$	26,351		$	27,810		$	(1,459	)		(5	)%	$	25,601		$	26,743		$	(1,142	)		(4	)%
Automobile		11,040			10,374			666			6	%		12,146			10,787			1,359			13	%
Education		5,653			6,402			(749	)		(12	)%		5,131			5,865			(734	)		(13	)%
Credit cards		4,818			4,476			342			8	%		5,121			4,722			399			8	%
Other		1,800			1,886			(86	)		(5	)%		1,756			1,823			(67	)		(4	)%

Total consumer		49,662			50,948			(1,286	)		(3	)%		49,755			49,940			(185	)		–
Commercial and commercial real estate		12,268			12,744			(476	)		(4	)%		11,006			11,801			(795	)		(7	)%
Residential mortgage		546			704			(158	)		(22	)%		11,688			10,268			1,420			14	%

Total loans	$	62,476		$	64,396		$	(1,920	)		(3	)%	$	72,449		$	72,009		$	440			1	%
Total assets	$	71,658		$	73,430		$	(1,772	)		(2	)%	$	87,109		$	86,213		$	896			1	%
Deposits
Noninterest-bearing demand	$	26,895		$	23,353		$	3,542			15	%	$	29,010		$	26,980		$	2,030			8	%
Interest-bearing demand		38,432			36,009			2,423			7	%		40,649			37,815			2,834			7	%
Money market		47,230			54,775			(7,545	)		(14	)%		39,321			49,336			(10,015	)		(20	)%
Savings		25,738			13,471			12,267			91	%		35,326			21,780			13,546			62	%
Certificates of deposit		15,008			16,763			(1,755	)		(10	)%		13,735			15,320			(1,585	)		(10	)%

Total deposits	$	153,303		$	144,371		$	8,932			6	%	$	158,041		$	151,231		$	6,810			5	%
Performance Ratios
Return on average assets		1.49	%		1.26	%								.99	%		1.14	%
Noninterest income to total revenue		33	%		34	%								35	%		36	%
Efficiency		70	%		74	%								76	%		74	%
Supplemental Noninterest Income Information
Service charges on deposits	$	474		$	459		$	15			3	%
Brokerage	$	222		$	212		$	10			5	%
Consumer services	$	792		$	747		$	45			6	%
Other Information (a)
Customer-related statistics (average):
Non-teller deposit transactions (b)		49	%		43	%
Digital consumer customers (c)		57	%		52	%
Credit-related statistics:
Nonperforming assets (d)	$	970		$	1,092		$	(122	)		(11	)%
Net charge-offs	$	260		$	251		$	9			4	%
Other statistics:
ATMs		9,045			8,996			49			1	%
Branches (e)		2,600			2,645			(45	)		(2	)%
Universal branches (f)		475			355			120			34	%
Brokerage account client assets (billions) (g)	$	44		$	42		$	2			5	%

(continued on following page)

The PNC Financial Services Group, Inc. –Form 10-Q 1711

(continued from previous page)


							Change
Dollars in millions, except as noted	2017			2016			$			%
Supplemental Noninterest Income Information
Consumer services	$	250		$	254		$	(4	)		(2	)%
Brokerage	$	76		$	75		$	1			1	%
Residential mortgage	$	113		$	100		$	13			13	%
Service charges on deposits	$	154		$	151		$	3			2	%
Residential Mortgage Information
Residential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b)	$	130		$	125		$	5			4	%
Serviced portfolio acquisitions	$	8		$	5		$	3			60	%
MSR asset value (b)	$	1.3		$	.9		$	.4			44	%
MSR capitalization value (in basis points) (b)		97			69			28			41	%
Servicing income: (in millions)
Servicing fees, net (c)	$	52		$	55		$	(3	)		(5	)%
Mortgage servicing rights valuation, net of economic hedge	$	12		$	(8	)	$	20			250	%
Residential mortgage loan statistics
Loan origination volume (in billions)	$	1.9		$	1.9			–			–
Loan sale margin percentage		2.96	%		3.21	%
Percentage of originations represented by:
Purchase volume (d)		43	%		40	%
Refinance volume		57	%		60	%
Other Information (b)
Customer-related statistics (average)
Non-teller deposit transactions (e)		52	%		47	%
Digital consumer customers (f)		61	%		56	%
Credit-related statistics
Nonperforming assets (g)	$	1,209		$	1,298		$	(89	)		(7	)%
Net charge-offs	$	100		$	97		$	3			3	%
Other statistics
ATMs		8,976			8,940			36			–
Branches (h)		2,508			2,613			(105	)		(4	)%
Universal branches (i)		527			362			165			46	%
Brokerage account client assets (in billions) (j)	$	46		$	43		$	3			7	%

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

(b)	Presented as of ~~September 30,~~March 31, except for customer-related statistics, which are averages for the ~~nine~~three months ended, and net charge-offs, which are for the ~~nine~~three months ended.

~~(b)~~(c)

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

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

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

~~(c)~~(f)

Represents consumer checking relationships that process the majority of their transactions throughnon-teller channels.

~~(d)~~(g)

Includes nonperforming loans of ~~$.9~~$1.1 billion at ~~September 30, 2016~~March 31, 2017 and ~~$1.0~~$1.2 billion at ~~September 30, 2015.~~March 31, 2016.

~~(e)~~(h)

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

~~(f)~~(i)

Included in total branches, represents branches operating under our ~~Universal~~universal model.

~~(g)~~(j)

~~Amounts include~~Includes cash and money market balances.

Retail Banking earned ~~$798~~$213 million in the first ~~nine~~three months of ~~2016~~2017 compared with ~~$694~~$243 million for the ~~first nine months of 2015.~~same period in 2016. The ~~increase~~decrease in earnings was driven by ~~higher net interest~~lower noninterest income and increased expenses.

Noninterest income declined compared to the same period a ~~decrease~~year ago due to the impact of first quarter of 2016 net gains on the sale of Visa Class B common shares, partially offset by a higher benefit from residential mortgage servicing rights valuation, net of economic hedge.

The increase in noninterest expense in the comparison resulted primarily from investments in technology.

The deposit strategy of Retail Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances, executing on market specific deposit growth strategies and providing a source oflow-cost funding and liquidity to PNC. In the first three months of 2017, average total deposits increased compared to the same period a year ago, driven by growth in savings deposits reflecting in part a shift from money market deposits to relationship-based savings products. Additionally, demand deposits increased, partially offset by a decline in certificates of deposit due to the net runoff of maturing accounts.

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

Retail Banking continued to focus on a relationship-based lending strategy. Total average loans increased ~~provision~~in the comparison due to increases in residential mortgage and automobile loans partially offset by declines in home equity and commercial loans, as well as runoff of certain portfolios, as more fully described below.

Average home equity loans decreased aspay-downs and payoffs on loans exceeded new originated volume. Retail Banking’s home equity loan portfolio is relationship based, with over 97% of the portfolio attributable to borrowers in our primary geographic footprint. The weighted-average updated FICO scores for this portfolio were 746 at both March 31, 2017 and December 31, 2016.

Average commercial and commercial real estate loans declined aspay-downs and payoffs on loans exceeded new volume.

Average residential mortgages increased as a result of new volumes exceeding portfolio liquidations.

Average automobile loans, which consisted of both direct and indirect auto loans, increased primarily due to portfolio growth in previously underpenetrated markets.

Average credit ~~losses.~~ card balances increased as a result of organic growth as we continue to focus on delivering on our long-term objective of deepening penetration within our existing customer base.

In the first three months of 2017, average loan balances for the education and other loan portfolios decreased $801 million, or 10%, compared to same period in 2016, driven by declines in the government guaranteed education and indirect other portfolios, which are primarily runoff portfolios.

Nonperforming assets decreased compared to March 31, 2016 driven by declines in both consumer and commercial nonperforming loans.

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 meeting the financial needs of our customers by providing a broad range 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, home lending transformation and multi-channel engagement and service strategies.

In the first ~~nine~~three months of ~~2016,~~2017, approximately ~~57%~~61% of consumer customers usednon-teller channels for the majority of their transactions compared with ~~52%~~56% for the same period ~~in 2015.~~

a year ago.

Deposit transactions via ATM and mobile channels increased to ~~49%~~52% of total deposit transactions in the first ~~nine~~three months of ~~2016~~2017 compared with ~~43%~~47% for the same period in ~~2015.~~

2016.

~~PNC~~We had a network of ~~2,600~~2,508 branches and ~~9,045~~8,976 ATMs at ~~September 30, 2016.~~March 31, 2017. Approximately ~~18%~~21% of the branch network operates under the universal model.

Instant debit card issuance, which enables us to print a customer’s debit card in minutes, was available in ~~1,812~~2,224 branches, or ~~70%~~89% of the branch network, as of ~~September 30, 2016.~~

March 31, 2017.

~~Net interest income increased in the comparison due to growth in deposit balances partially offset by lower~~Mortgage loan ~~balances and interest rate spread compression on the value of loans.~~

~~The decline in noninterest income compared to the prior year period reflected the impact of higher net gains on sales of Visa Class B common shares in the 2015 period, as~~originations for the first ~~nine~~three months of ~~2016 reflected net gains of $52 million on sales of 1.35 million Visa shares compared with net gains of $124 million on the sale of 1.5 million shares for~~2017 were comparable to the same period in ~~2015. Net gains on Visa sales include derivative fair value adjustments related~~2016. Loans continue to ~~swap agreements with purchasers~~be originated primarily through direct channels under Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal Housing Administration (FHA)/Department of ~~Visa shares in connection with all sales to date.~~

Excluding the impact of these Visa sales, noninterest income grew in the comparison, reflecting execution on our strategy to provide diverse product and service offerings, which contributed to higher consumer service fee income from payment-related products, specifically in debit card, credit card and merchant services, as well as increased brokerage fees.

The decline in noninterest expense in the comparison was due to a decrease in compensation expense, lower marketing expense and reduced branch network expenses as a result of network transformation and transaction migration to lower cost digital and ATM channels.

~~Provision for credit losses increased compared to the same period a year ago, reflecting slowing credit quality improvement.~~

Veterans Affairs agency guidelines.

The PNC Financial Services Group, Inc. –Form 10-Q1813

Corporate & Institutional Banking

(Unaudited)

Table 11: Corporate & Institutional Banking Table


Three months ended March 31							Change
Dollars in millions, except as noted	2017			2016			$			%
Income Statement
Net interest income	$	839		$	817		$	22			3	%
Noninterest income		524			441			83			19	%

Total revenue		1,363			1,258			105			8	%
Provision for credit losses		25			102			(77	)		(75	)%
Noninterest expense		584			533			51			10	%

Pretax earnings		754			623			131			21	%
Income taxes		270			225			45			20	%

Earnings	$	484		$	398		$	86			22	%
Average Balance Sheet
Loans held for sale	$	1,116		$	708		$	408			58	%
Loans
Commercial	$	92,116		$	87,324		$	4,792			5	%
Commercial real estate		27,091			25,959			1,132			4	%
Equipment lease financing		7,497			7,420			77			1	%

Total commercial lending		126,704			120,703			6,001			5	%
Consumer		331			503			(172	)		(34	)%

Total loans	$	127,035		$	121,206		$	5,829			5	%
Total assets	$	142,592		$	137,270		$	5,322			4	%
Deposits
Noninterest-bearing demand	$	47,423		$	48,715		$	(1,292	)		(3	)%
Money market		21,086			22,298			(1,212	)		(5	)%
Interest-bearing demand and other		15,391			11,391			4,000			35	%
								��
Total deposits	$	83,900		$	82,404		$	1,496			2	%
Performance Ratios
Return on average assets		1.38	%		1.18	%
Noninterest income to total revenue		38	%		35	%
Efficiency		43	%		42	%
Other Information
Commercial loan servicing portfolio (in billions) (a) (b)	$	490		$	453		$	37			8	%
Consolidated revenue from: (c)
Treasury Management (d)	$	359		$	315		$	44			14	%
Capital Markets (d)	$	247		$	152		$	95			63	%
Commercial mortgage banking activities
Commercial mortgage loans held for sale (e)	$	13		$	26		$	(13	)		(50	)%
Commercial mortgage loan servicing income (f)		58			62			(4	)		(6	)%
Commercial mortgage servicing rights valuation, net of economic hedge (g)		16			1			15			*

Total	$	87		$	89		$	(2	)		(2	)%
Net carrying amount of commercial mortgage servicing rights (a)	$	606		$	460		$	146			32	%
Average Loans (by C&IB business)
Corporate Banking	$	53,839		$	49,533		$	4,306			9	%
Real Estate		37,136			35,784			1,352			4	%
Business Credit		14,839			14,672			167			1	%
Equipment Finance		12,478			11,652			826			7	%
Commercial Banking		7,041			7,384			(343	)		(5	)%
Other		1,702			2,181			(479	)		(22	)%

Total average loans	$	127,035		$	121,206		$	5,829			5	%
Credit-related statistics
Nonperforming assets (a) (h)	$	546		$	760		$	(214	)		(28	)%
Net charge-offs	$	21		$	38		$	(17	)		(45	)%

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

In the first nine months of 2016, average total deposits increased compared to the same period a year ago, driven by growth in savings deposits reflecting in part a shift from money market deposits to relationship-based savings products. Additionally, demand deposit categories increased, partially offset by a decline in certificates of deposit due to the net runoff of maturing accounts.

Retail Banking continued to focus on a relationship-based lending strategy. The decrease in average total loans in the comparison was due to a decline in home equity and commercial loans, as well as runoff of certain portions of the portfolios, as more fully described below.

Average home equity loans decreased as pay-downs and payoffs on loans exceeded new originated volume. Retail Banking’s home equity loan portfolio is relationship based, with over 97% of the portfolio attributable to borrowers in our primary geographic footprint. The weighted-average updated FICO scores for this portfolio were 748 at September 30, 2016 and 752 at December 31, 2015.

~~Average commercial and commercial real estate loans declined as pay-downs and payoffs on loans exceeded new volume.~~

~~Average automobile loans, comprised of both direct and indirect auto loans, increased primarily due to portfolio growth in previously underpenetrated markets.~~

~~Average credit card balances increased as a result of efforts to increase credit card share of wallet through organic growth.~~

In the first nine months of 2016, average loan balances for the remainder of the portfolio declined $993 million, or 11%, compared to the same period in 2015, driven by declines in the discontinued government guaranteed education, indirect other, and residential mortgage portfolios, which are primarily runoff portfolios.

~~Nonperforming assets decreased compared to September 30, 2015 driven by declines in both consumer and commercial nonperforming loans.~~

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

~~Corporate & Institutional Banking~~

~~(Unaudited)~~

~~Table 18: Corporate & Institutional Banking Table~~

Nine months ended September 30
Dollars in millions, except as noted
         Change
   2016 2015 $    %
Income Statement

Net interest income
   $ 2,597    $ 2,613    $ (16 )    (1 )%
Noninterest income
   1,484    1,397    87       6 %
Total revenue
   4,081    4,010    71       2 %
Provision for credit losses
   188    83    105       127 %
Noninterest expense
   1,625    1,594    31       2 %
Pretax earnings
   2,268    2,333    (65 )    (3 )%
Income taxes
   810    841    (31 )    (4 )%
Earnings
   $ 1,458    $ 1,492    $ (34 )    (2 )%
Average Balance Sheet

Loans held for sale
   $ 835    $ 973    $ (138 )    (14 )%
Loans

Commercial
   $ 87,625    $ 85,304    $ 2,321       3 %
Commercial real estate
   26,395    22,536    3,859       17 %
Equipment lease financing
   6,843    6,965    (122 )    (2 )%
Total commercial lending
   120,863    114,805    6,058       5 %
Consumer
   445    971    (526 )    (54 )%
Total loans
   $ 121,308    $ 115,776    $ 5,532       5 %
Total assets
   $ 137,884    $ 131,678    $ 6,206       5 %
Deposits

Noninterest-bearing demand
   $ 45,712    $ 48,168    $ (2,456 )    (5 )%
Money market
   21,452    22,319    (867 )    (4 )%
Other
   13,111    9,776    3,335       34 %
Total deposits
   $ 80,275    $ 80,263    $ 12       –
Performance Ratios

Return on average assets
   1.41 % 1.51 %
Noninterest income to total revenue
   36 % 35 %
Efficiency
   40 % 40 %
Other Information

Commercial loan servicing portfolio (in billions) (a) (b)
   $ 461    $ 441    $ 20       5 %
Consolidated revenue from: (c)

Treasury Management (d)
   $ 1,162    $ 999    $ 163       16 %
Capital Markets (d)
   $ 600    $ 592    $ 8       1 %
Commercial mortgage banking activities

Commercial mortgage loans held for sale (e)
   $ 77    $ 94    $ (17 )    (18 )%
Commercial mortgage loan servicing income (f)
   198    191    7       4 %
Commercial mortgage servicing rights valuation, net of economic hedge (g)
   22    25    (3 )    (12 )%
Total
   $ 297    $ 310    $ (13 )    (4 )%
Net carrying amount of commercial mortgage servicing rights (a)
   $ 473    $ 505    $ (32 )    (6 )%
Average Loans (by C&IB business)

Corporate Banking
   $ 57,372    $ 58,108    $ (736 )    (1 )%
Real Estate
   36,235    30,621    5,614       18 %
Business Credit
   14,770    14,503    267       2 %
Equipment Finance
   11,094    10,956    138       1 %
Other
   1,837    1,588    249       16 %
Total average loans
   $ 121,308    $ 115,776    $ 5,532       5 %
Credit-related statistics:

Nonperforming assets (a) (h)
   $ 671    $ 484    $ 187       39 %
Net charge-offs
   $ 169    $ 6    $ 163       *

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

* – Not meaningful.

* -	Not meaningful.

(a)	As of ~~September 30.~~March 31.

(b)	Represents loans serviced for PNC and others.

(c)

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.

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

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

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

(g)	Amounts reported in corporate ~~services revenue.~~service fees.

(h)	Includes nonperforming loans of $.4 billion at March 31, 2017 and $.6 billion at ~~September 30, 2016 and $.4 billion at September 30, 2015.~~March 31, 2016.

Corporate & Institutional Banking earned ~~$1.5 billion~~$484 million in the first ~~nine months~~quarter of ~~both 2016 and 2015. Earnings decreased by $34~~2017 compared to $398 million for the same period in 2016. The increase of $86 million, or 22%, was primarily due to ~~an increase~~a decrease in the provision for credit losses and higher revenue, partially offset by higher noninterest ~~income.~~expense. We continue to focus on building client relationships where the risk-return profile is ~~attractive, including in the Southeast.~~attractive.

Net interest income ~~decreased in~~increased compared with the ~~comparison, driven by continued interest rate spread compression on loans and lower purchase accounting accretion, which were mostly offset by~~first quarter of 2016, reflecting the impact of ~~higher average loans as well as~~ interest rate spread expansion on ~~deposits.~~deposits as well as higher average loan balances.

~~Higher~~Growth in noninterest income in the comparison was driven primarily ~~due to an equity investment gain, an increase in gains on asset sales,~~by higher merger and acquisition advisory fees and other capital markets-related revenue, a higher benefit from commercial mortgage servicing rights valuation, net of economic hedge, and higher treasury management ~~fees. These increases were partially offset by lower noninterest income from commercial mortgage loan servicing and commercial mortgage loans held for sale activities.~~revenue.

~~Overall credit quality for the first nine months of 2016 remained relatively stable, except for deterioration of certain energy related loans, which was the primary driver for the increase~~The decrease in provision for credit losses ~~net charge-offs and nonperforming assets~~reflected a lower provision for energy related loans in the ~~year over year comparisons. Increased provision for credit losses also reflected~~oil, gas and coal sectors in the ~~impact~~first quarter of ~~continued loan growth.~~2017.

Noninterest expense increased in the comparison ~~due to~~largely driven by higher variable compensation ~~and other costs associated~~commensurate with increased business ~~activity and investments in technology and infrastructure, partially offset by our continued expense management.~~activity.

Average loans increased incompared to the ~~comparison~~first quarter of 2016 due to strong growth in the Corporate Banking, Real Estate ~~partially offset by a decline~~and Equipment Finance businesses:

Corporate Banking provides lending, treasury management and capital markets-related products and services to midsized and large corporations, government andnot-for-profit entities. Average loans for this business grew in ~~Corporate Banking:~~the comparison reflecting increased lending to large corporate clients and strong production in specialty lending verticals.

PNC Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Higher average loans for this business were primarily due to growth in commercial ~~lending~~real estate driven by higher term ~~and REIT~~ lending.

Corporate Banking 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 declined in the comparison, reflecting the impact of capital and liquidity management activities, partially offset by increased lending to large corporate clients.

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 modestly in the comparison ~~due to~~as new ~~originations.~~originations were offset by payoffs and decreased utilization.

PNC Equipment Finance provides equipment financing solutions for clients throughout the U.S.

and Canada. Average loans, including commercial loans and finance leases, and operating leases were $13.2 billion in the first quarter of 2017, an increase of $.8 billion in the year over year comparison due to strong new production.

Commercial Banking provides lending, treasury management and capital markets-related products and services to smaller corporations and businesses. Average loans ~~including commercial loans and finance leases, and operating leases were $11.8 billion~~for this business decreased in the ~~first nine months of 2016, stable with the first nine months of 2015.~~

~~Average deposits increased nominally compared~~comparison primarily due to the ~~prior year period, as interest-bearing demand deposit growth was essentially offset by decreases in noninterest-bearing demand deposits and money market deposits.~~

impact of capital management activities.

Growth in the commercial loan servicing portfolio was driven by servicing additions from new and existing customers exceeding portfolio runoff.

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

Product Revenue

In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, for customers of all business segments, including treasury management, capital markets-related products and services, and commercial mortgage banking ~~activities, for customers of all business segments.~~activities. 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 1811 includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.

Treasury management revenue, ~~comprised~~composed of fees and net interest income from customer deposit balances, increased incompared with the ~~comparison to the prior year period,~~first quarter of 2016 driven by liquidity-related ~~revenue.~~revenue associated with customer deposit balances mostly due to interest rate spread expansion.

Capital markets-related products and services include foreign exchange, derivatives, securities, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. Revenue from capital markets-related products and services increased ~~slightly~~ in the comparison asprimarily due to higher merger and acquisition advisory fees, ~~and structuring fees on asset securitizations were mostly offset by lower~~higher revenue ~~associated with~~from credit valuations ~~for~~on customer-related derivative ~~activities.~~activities and higher derivative sales to customers.

~~Revenue~~

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

Commercial mortgage banking activities include revenue derived from commercial mortgage ~~banking activities~~servicing (including net interest income and noninterest income) ~~includes those~~and revenue derived ~~from commercial mortgage servicing and~~ from commercial mortgage loans held for sale and related hedges. Total revenue from commercial mortgage banking

activities decreased slightly in the comparison ~~due to lower~~as a decline in revenue from commercial mortgage loans held for sale ~~partially offset by higher~~and lower commercial mortgage loan servicing ~~income.~~income was mostly offset by a higher benefit from commercial mortgage servicing rights valuation, net of economic hedge.

Asset Management Group

(Unaudited)

Table 12: Asset Management Group Table


Three months ended March 31							Change
Dollars in millions, except as noted	2017			2016			$			%
Income Statement
Net interest income	$	71		$	77		$	(6	)		(8	)%
Noninterest income		218			203			15			7	%

Total revenue		289			280			9			3	%
Provision for credit losses (benefit)		(2	)		(3	)		1			33	%
Noninterest expense		217			206			11			5	%

Pretax earnings		74			77			(3	)		(4	)%
Income taxes		27			28			(1	)		(4	)%

Earnings	$	47		$	49		$	(2	)		(4	)%
Average Balance Sheet
Loans
Consumer	$	5,113		$	5,630		$	(517	)		(9	)%
Commercial and commercial real estate		728			788			(60	)		(8	)%
Residential mortgage		1,190			1,003			187			19	%

Total loans	$	7,031		$	7,421		$	(390	)		(5	)%
Total assets	$	7,476		$	7,887		$	(411	)		(5	)%
Deposits
Noninterest-bearing demand	$	1,433		$	1,407		$	26			2	%
Interest-bearing demand		3,829			4,280			(451	)		(11	)%
Money market		3,500			4,758			(1,258	)		(26	)%
Savings		3,768			1,563			2,205			141	%
Other		246			275			(29	)		(11	)%

Total deposits	$	12,776		$	12,283		$	493			4	%
Performance Ratios
Return on average assets		2.55	%		2.52	%
Noninterest income to total revenue		75	%		73	%
Efficiency		75	%		74	%
Other Information
Nonperforming assets (a) (b)	$	51		$	54		$	(3	)		(6	)%
Net charge-offs	$	1		$	4		$	(3	)		(75	)%
Client Assets Under Administration(in billions) (a) (c) (d)
Discretionary client assets under management	$	141		$	135		$	6			4	%
Nondiscretionary client assets under administration		123			118			5			4	%

Total	$	264		$	253		$	11			4	%
Discretionary client assets under management
Personal	$	87		$	84		$	3			4	%
Institutional		54			51			3			6	%

Total	$	141		$	135		$	6			4	%
Equity	$	71		$	66		$	5			8	%
Fixed Income		50			45			5			11	%
Liquidity/Other		20			24			(4	)		(17	)%

Total	$	141		$	135		$	6			4	%

2216 The PNC Financial Services Group, Inc. –Form 10-Q

~~Asset Management Group~~

~~(Unaudited)~~

~~Table 19: Asset Management Group Table~~

Nine months ended September 30
Dollars in millions, except as noted
            Change
   2016 2015    $    %
Income Statement

Net interest income
   $ 227    $ 215       $ 12       6 %
Noninterest income
   636    658       (22 )    (3 )%
Total revenue
   863    873       (10 )    (1 )%
Provision for credit losses
   –    11       (11 )    (100 )%
Noninterest expense
   618    636       (18 )    (3 )%
Pretax earnings
   245    226       19       8 %
Income taxes
   90    83       7       8 %
Earnings
   $ 155    $ 143       $ 12       8 %
Average Balance Sheet

Loans

Consumer
   $ 5,493    $ 5,656       $ (163 )    (3 )%
Commercial and commercial real estate
   759    901       (142 )    (16 )%
Residential mortgage
   1,032    899       133       15 %
Total loans
   $ 7,284    $ 7,456       $ (172 )    (2 )%
Total assets
   $ 7,743    $ 7,922       $ (179 )    (2 )%
Deposits

Noninterest-bearing demand
   $ 1,409    $ 1,207       $ 202       17 %
Interest-bearing demand
   4,069    4,126       (57 )    (1 )%
Money market
   4,278    5,072       (794 )    (16 )%
Savings
   2,032    193       1,839       953 %
Other
   275    279       (4 )    (1 )%
Total deposits
   $ 12,063    $ 10,877       $ 1,186       11 %
Performance Ratios

Return on average assets
   2.68 % 2.41 %
Noninterest income to total revenue
   74 % 75 %
Efficiency
   72 % 73 %
Other Information

Nonperforming assets (a) (b)
   $ 51    $ 52       $ (1 )    (2 )%
Net charge-offs
   $ 7    $ 14       $ (7 )    (50 )%
Client Assets Under Administration(in billions) (a) (c) (d)

Discretionary client assets under management
   $ 138    $ 132       $ 6       5 %
Nondiscretionary client assets under administration
   128    124       4       3 %
Total
   $ 266    $ 256       $ 10       4 %
Discretionary client assets under management

Personal
   $ 85    $ 84       $ 1       1 %
Institutional
   53    48       $ 5       10 %
Total
   $ 138    $ 132
Equity
   $ 73    $ 70       $ 3       4 %
Fixed Income
   40    40       –       –
Liquidity/Other
   25    22       $ 3       14 %
Total
   $ 138    $ 132

(a)	As of ~~September 30.~~March 31.

(b)	Includes nonperforming loans of $45 million at ~~September 30, 2016~~March 31, 2017 and ~~$48~~$49 million at ~~September 30, 2015.~~March 31, 2016.

(c)	Excludes brokerage account client assets.

(d)

AsEffective for the first quarter of 2017, we have adjusted nondiscretionary client assets under administration for prior periods to remove assets which, as a result of certain investment advisory services performed by one of our registered investment advisors, ~~certain assets are~~were previously reported as both discretionary client assets under management and nondiscretionary client assets under administration. Effective for the first quarter of 2017, these amounts are only reported as discretionary assets under management. The ~~amount~~prior period presented was adjusted to remove approximately $7 billion as of ~~such~~March 31, 2016 previously included in nondiscretionary assets ~~was approximately $9 billion at September 30, 2016 and $6 billion at September 30, 2015.~~under administration. In addition, effective for the first quarter of 2017, we have refined our methodologies for allocating discretionary client assets under management by asset type. As a result, we have updated the presentation of discretionary client assets under management by asset type for the prior period presented.

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

Asset Management Group earned ~~$155 million through the first nine months of 2016 compared with $143~~$47 million in the ~~same period~~first quarter of ~~2015. Earnings for~~2017 and $49 million in the first ~~nine months~~quarter of ~~2016 increased due to lower~~2016. Earnings decreased slightly as an increase in noninterest expense ~~and a decline in the provision for credit losses, partially~~was mostly offset by ~~decreased~~higher revenue.

~~The decrease in total~~Higher revenue in the comparison was driven by ~~lower noninterest income, partially offset by an increase in net interest income. The decline~~growth in noninterest income, ~~reflected~~reflecting stronger average equity markets. Net interest income decreased primarily due to lower average loan balances and interest rate spread compression within the ~~impact of a $30 million trust settlement in the second quarter of 2015, which was partially offset by net business growth.~~loan portfolio.

Noninterest expense ~~decreased~~increased in the first ~~nine months~~quarter of ~~2016~~2017 compared to the prior year ~~period,~~ primarily attributable to ~~lower personnel expense.~~higher variable compensation and technology expenses. Asset Management Group remains focused on disciplined expense management as it ~~makes~~invests in strategic ~~investments.~~growth opportunities.

Asset Management Group’s ~~growth~~ strategy is focused on ~~capturing more~~growing investable assets by ~~delivering an enhanced~~continually evolving the client experience and ~~involves new client acquisition and expanding~~ products and ~~services based on our clients’ needs and investment objectives while leveraging our~~services. The business offers an open architecture platform with a full array of investment products and banking solutions for all clients. Key considerations are maximizing front line productivity, a relationship-based focus with other line of business partners, and optimizing market presence in high opportunity markets.solutions.

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

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

Asset Management Group’s discretionary client assets under management increased in the comparison to the prior year, primarily attributable to higher equity markets ~~as of September 30, 2016~~ and net business growth.

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

~~Residential Mortgage Banking~~

~~(Unaudited)~~

~~Table 20: Residential Mortgage Banking Table~~

Nine months ended September 30          Change
Dollars in millions, except as noted    2016 2015 $    %
Income Statement

Net interest income
   $ 81    $ 91    $ (10 )    (11 )%
Noninterest income
   450    488    (38 )    (8 )%
Total revenue
   531    579    (48 )    (8 )%
Provision for credit losses
   –    2    (2 )    (100 )%
Noninterest expense
   458    510    (52 )    (10 )%
Pretax earnings
   73    67    6       9 %
Income taxes
   27    24    3       13 %
Earnings
   $ 46    $ 43    $ 3       7 %
Average Balance Sheet

Loans held for sale
   $ 897    $ 1,160    $ (263 )    (23 )%
Loans
   $ 979    $ 1,175    $ (196 )    (17 )%
Mortgage servicing rights (MSR)
   $ 913    $ 967    $ (54 )    (6 )%
Total assets
   $ 6,078    $ 6,962    $ (884 )    (13 )%
Total deposits
   $ 2,685    $ 2,415    $ 270       11 %
Performance Ratios

Return on average assets
   1.01 % .83 %
Noninterest income to total revenue
   85 % 84 %
Efficiency
   86 % 88 %
Supplemental Noninterest Income Information

Loan servicing revenue

Servicing fees
   $ 171    $ 143    $ 28       20 %
Mortgage servicing rights valuation, net of economic hedge (a)
   $ 16    $ 70    $ (54 )    (77 )%
Loan sales revenue
   $ 262    $ 278    $ (16 )    (6 )%
Residential Mortgage Servicing Portfolio(in billions) (b)

Serviced portfolio balance (c)
   $ 126    $ 122    $ 4       3 %
Portfolio acquisitions
   $ 16    $ 24    $ (8 )    (33 )%
MSR asset value (c)
   $ .8    $ 1.0    $ (.2 )    (20 )%
MSR capitalization value (in basis points) (c)
   65    79    (14 )    (18 )%
Other Information

Loan origination volume (in billions)
   $ 7.6    $ 8.2    $ (.6 )    (7 )%
Loan sale margin percentage
   3.33 % 3.43 %
Percentage of originations represented by:

Purchase volume (d)
   43 % 46 %
Refinance volume
   57 % 54 %
Nonperforming assets (c) (e)
   $ 57    $ 88    $ (31 )    (35 )%

~~(a)~~

Consolidated PNC amounts, which include asset and liability management activities reported in the “Other” business segment, were $57 million and $83 million for the nine months ended September 30, 2016 and 2015, respectively.

~~(b)~~

~~Represents loans serviced for third parties.~~

~~(c)~~

~~As of September 30.~~

~~(d)~~

~~Mortgages with borrowers as part of residential real estate purchase transactions.~~

~~(e)~~

~~Includes nonperforming loans of $33 million at September 30, 2016 and $53 million at September 30, 2015.~~

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

Residential Mortgage Banking earned $46 million in the first nine months of 2016 compared with earnings of $43 million in the first nine months of 2015, primarily driven by a decline in noninterest expense, which was mostly offset by lower noninterest income and net interest income.

The strategic focus of the business is the acquisition of new customers through a retail loan officer sales force with an emphasis on home purchase transactions, competing on the basis of superior service, and leveraging the bank footprint markets.

~~Residential Mortgage Banking overview:~~

Total loan originations declined 7% compared to the same period in 2015. Loans continue to be originated primarily through direct channels under Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal Housing Administration (FHA)/Department of Veterans Affairs agency guidelines. Refinancings were 57% of originations in the first nine months of 2016 and 54% in the first nine months of 2015.

~~The decline in net interest income was driven by the decrease in loan originations and lower balances of portfolio loans held for investment.~~

Noninterest income declined in the comparison, as increased servicing fee income was more than offset by lower benefit from residential mortgage servicing rights valuation, net of economic hedge, and decreased loan sales revenue.

~~Noninterest expense declined primarily as a result of lower residential mortgage foreclosure-related expenses, including reserve releases of $24 million, as well as lower servicing costs.~~

BlackRock

(Unaudited)

~~Table 21: BlackRock Table~~

Information related to our equity investment in BlackRock follows:

Table 13: BlackRock Table

Nine months ended September 30
Dollars in millions
   2016 2015
Business segment earnings (a)
   $ 390    $ 407
PNC’s economic interest in BlackRock (b)
   22 % 22 %


Three months ended March 31
Dollars in millions	2017			2016
Business segment earnings (a)	$	145		$	114
PNC’s economic interest in BlackRock (b)		22	%		22	%

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

(b)	At ~~September 30.~~March 31.

In billions    September 30
2016    December 31
2015
Carrying value of PNC’s investment in BlackRock (c)
   $ 6.9       $ 6.7
Market value of PNC’s investment in BlackRock (d)
   12.8       12.0


	March 31		December 31
In billions	2017		2016
Carrying value of our investment in BlackRock (c)	$	7.1	$	7.0
Market value of our investment in BlackRock (d)		13.5		13.4

(c)

~~PNC accounts~~We account for ~~its~~our investment in BlackRock under the equity method of accounting, exclusive of a related deferred tax liability of ~~$2.2~~$2.3 billion at both ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. Our voting interest in BlackRock common stock was approximately 21% at ~~September 30, 2016.~~March 31, 2017.

(d)	Does not include liquidity discount.

In addition to our investment in BlackRock reflected in Table ~~21,~~13, at ~~September 30, 2016,~~March 31, 2017, we held approximately ~~0.8~~0.25 million shares of BlackRock Series C Preferred Stock valued at ~~$221~~$76 million, which are available to fund our obligation in connection with certain BlackRock long-term incentive plan (LTIP) programs. ~~We account for the~~

On February 1, 2017, we transferred 0.52 million shares of BlackRock Series C Preferred Stock ~~at fair value, which offsets the impact~~to BlackRock to satisfy a portion of ~~marking-to-market the obligation to deliver these shares to BlackRock.~~our LTIP obligation. The ~~fair value amount of the BlackRock Series C Preferred Stock is included~~transfer reduced Other assets and Other liabilities on our Consolidated Balance Sheet inby $155 million, representing the ~~caption Other assets. Additional information regarding the valuation~~fair value of the BlackRock Series C Preferred Stock is included in Note 6 Fair Value in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report and in Note 7 Fair Value in the Notes To Consolidated Financial Statements in Item 8 of our 2015 Form 10-K.shares transferred.

Our ~~2015~~2016 Form10-K includes additional information about our investment in BlackRock.

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

RISK MANAGEMENT

The Risk Management section included in Item 7 of our 2016 Form10-K describes our enterprise risk management framework including risk culture, enterprise strategy, risk governance and oversight, risk identification, risk assessment, risk controls and monitoring, and risk aggregation and reporting. Additionally, our 2016 Form10-K provides an analysis of our key areas of risk, which include but are not limited to credit, liquidity and capital, market, operational and compliance. Our use of financial derivatives as part of our overall asset and liability risk management process is also addressed within the Risk Management section.

The following information updates our 2016 Form10-K risk management disclosures.

Credit Risk Management

See the Credit Risk Management portion of the Risk Management section in our 2016 Form10-K for additional discussion regarding credit risk.

Nonperforming Assets and Loan Delinquencies

Nonperforming Assets

Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming troubled debt restructurings (TDRs), other real estate owned (OREO), foreclosed and other assets. Loans held for sale, certain government insured or guaranteed loans, purchased impaired loans and loans accounted for under the fair value option are excluded from nonperforming loans. Additional information regarding our nonperforming loans and nonaccrual policies is included in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in our 2016 Form10-K. A summary of the major categories of nonperforming assets are presented in Table 14. See Note 3 Asset Quality in the Notes To Consolidated Financial Statements in this Report for further detail of nonperforming asset categories.

Table 14: Nonperforming Assets by Type


	March 31 2017			December 31 2016			Change
Dollars in millions	March 31 2017			December 31 2016			$		%
Nonperforming loans
Commercial lending	$	549		$	655		$	(106)		(16	)%
Consumer lending (a)		1,449			1,489			(40)		(3	)%

Total nonperforming loans (b)		1,998			2,144			(146)		(7	)%
OREO, foreclosed and other assets		214			230			(16)		(7	)%

Total nonperforming assets	$	2,212		$	2,374		$	(162)		(7	)%
Amount of TDRs included in nonperforming loans	$	1,009		$	1,112		$	(103)		(9	)%
Percentage of total nonperforming loans		51	%		52	%
Nonperforming loans to total loans		.94	%		1.02	%
Nonperforming assets to total loans, OREO, foreclosed and other assets		1.04	%		1.12	%
Nonperforming assets to total assets		.60	%		.65	%
Allowance for loan and lease losses to total nonperforming loans		128	%		121	%

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

(b)	The recorded investment of loans collateralized by residential real estate property that are in process of foreclosure was $.4 billion at both March 31, 2017 and December 31, 2016, which included $.2 billion of loans that are government insured/guaranteed.

Table 15: Change in Nonperforming Assets


In millions	2017			2016
January 1	$	2,374		$	2,425
New nonperforming assets		330			542
Charge-offs and valuation adjustments		(150	)		(161	)
Principal activity, including paydowns and payoffs		(228	)		(98	)
Asset sales and transfers to loans held for sale		(42	)		(90	)
Returned to performing status		(72	)		(66	)
March 31	$	2,212		$	2,552

As of March 31, 2017, approximately 85% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses in the event of default. As of March 31, 2017, commercial lending nonperforming loans were carried at approximately 54% of their unpaid principal balance, due to charge-offs recorded to date, before consideration of the ALLL.

Within consumer nonperforming loans, residential real estate TDRs comprise 73% of total residential real estate nonperforming loans at March 31, 2017, up from 70% at

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

December 31, 2016. Home equity TDRs comprise 51% of home equity nonperforming loans at March 31, 2017 and 52% at December 31, 2016. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

At March 31, 2017, our largest nonperforming asset was $51 million in the Wholesale Trade Industry and our average nonperforming loan associated with commercial lending was

less than $1 million. The ten largest individual nonperforming assets are from the commercial lending portfolio and represented 42% and 10% of total commercial lending nonperforming loans and total nonperforming assets, respectively, as of March 31, 2017.

Loan Delinquencies

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

Table 16: Accruing Loans Past Due (a)


	Amount										Percentage of Total Loans Outstanding
	March 31 2017		December 31 2016		Change						March 31 2017			December 31 2016
Dollars in millions	March 31 2017		December 31 2016		$			%			March 31 2017			December 31 2016
Early stage loan delinquencies
Accruing loans past due 30 to 59 days	$	458	$	562	$	(104	)		(19	)%		.22	%		.27	%
Accruing loans past due 60 to 89 days		227		232		(5	)		(2	)%		.11	%		.11	%

Total		685		794		(109	)		(14	)%		.32	%		.38	%
Late stage loan delinquencies
Accruing loans past due 90 days or more		699		782		(83	)		(11	)%		.33	%		.37	%

Total	$	1,384	$	1,576	$	(192	)		(12	)%		.65	%		.75	%

(a)	Past due loan amounts include government insured or guaranteed loans of $.9 billion at both March 31, 2017 and December 31, 2016.

Accruing loans past due 90 days or more decreased at March 31, 2017 compared to December 31, 2016 primarily driven by declines in government insured residential real estate and other consumer loans. Accruing loans past due 90 days or more are not included in nonperforming loans and continue to accrue interest because they are well secured by collateral and are in the process of collection, or are managed in homogeneous portfolios with specifiedcharge-off timeframes adhering to regulatory guidelines, or are certain government insured or guaranteed loans.

Home Equity and Auto Loan Portfolios

Home Equity Loan Portfolio

Our home equity loan portfolio totaled $29.6 billion as of March 31, 2017, or 14% of the total loan portfolio. Of that total, $17.4 billion, or 59%, were outstanding under primarily variable-rate home equity lines of credit and $12.2 billion, or 41%, consisted ofclosed-end home equity installment loans. Approximately 4% of the home equity portfolio was purchased impaired and 3% of the home equity portfolio was on nonperforming status as of March 31, 2017.

As of March 31, 2017, we were in an originated first lien position for approximately 57% of the total outstanding portfolio and, where originated as a second lien, we held and serviced the first lien position for an additional 1% of the portfolio. The remaining 42% of the portfolio was secured by second liens where we do not hold the first lien position. The credit performance of the majority of the home equity portfolio where we are in, hold or service the first lien position, is superior to the portion of the portfolio where we hold the second lien position but do not hold the first lien. Lien position information is generally based upon original LTV at the time of origination. We use an industry-leading third-party service provider to obtain updated loan, lien and collateral data that is aggregated from public and private sources.

We track borrower performance monthly, including obtaining original LTVs and updated FICO scores at least quarterly, updated LTVs semi-annually, and other credit metrics at least quarterly, including the historical performance of any mortgage loans regardless of lien position that we do or do not hold. This information is used for internal reporting and risk management. For internal reporting and risk management we also segment the population into pools based on product type

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

(e.g., home equity loans, brokered home equity loans, home equity lines of credit, brokered home equity lines of credit). As part of our overall risk analysis and monitoring, we segment the home equity portfolio based upon the loan delinquency, modification status and bankruptcy status, as well as the delinquency, modification status and bankruptcy status of any mortgage loan with the same borrower (regardless of whether it is a first lien senior to our second lien).

In establishing our ALLL fornon-impaired loans, we utilize a delinquency roll-rate methodology for pools of loans. The roll-rate methodology estimates transition/roll of loan balances from one delinquency state to the next delinquency state and ultimately tocharge-off. The roll through tocharge-off is based on our actual loss experience for each type of pool. Each of our home equity pools contains both first and second liens. Our experience has been that the ratio of first to second lien loans has been consistent over time and thecharge-off amounts for the pools, used to establish our allowance, include losses on both first and second lien loans.

Generally, our variable-rate home equity lines of credit have either a seven or ten year draw period, followed by a20-year amortization term. During the draw period, we have home equity lines of credit where borrowers pay either interest only or principal and interest. We view home equity lines of credit where borrowers are paying principal and interest under the draw period as less risky than those where the borrowers are paying interest only, as these borrowers have a demonstrated ability to make some level of principal and interest payments. The risk associated with the borrower’s ability to satisfy the loan terms upon the draw period ending is considered in establishing our ALLL. Based upon outstanding balances at March 31, 2017, the following table presents the periods when home equity lines of credit draw periods are scheduled to end.

Table 17: Home Equity Lines of Credit – Draw Period End Dates


In millions	Interest Only Product		Principal and Interest Product
Remainder of 2017	$	1,257	$	308
2018		757		606
2019		518		460
2020		416		412
2021		436		638
2022 and thereafter		2,536		6,054
Total (a) (b)	$	5,920	$	8,478

(a)	Includes all home equity lines of credit that mature in the remainder of 2017 or later, including those with borrowers where we have terminated borrowing privileges.

(b)

Includes home equity lines of credit with balloon payments, including those where we have terminated borrowing privileges, of $25 million, $25 million, $18 million, $69 million, $62 million and $340 million with draw periods scheduled to end in the remainder of 2017, 2018, 2019, 2020, 2021 and 2022 and thereafter, respectively.

Based upon outstanding balances, and excluding purchased impaired loans, at March 31, 2017, for home equity lines of credit for which the borrower can no longer draw (e.g., draw period has ended or borrowing privileges have been terminated), approximately 3% were30-89 days past due and approximately 5% were 90 days or more past due, which are accounted for as nonperforming. Generally, when a borrower becomes 60 days past due, we terminate borrowing privileges and those privileges are not subsequently reinstated. At that point, we continue our collection/recovery processes, which may include loan modification resulting in a loan that is classified as a TDR.

Auto Loan Portfolio

The auto loan portfolio totaled $12.3 billion as of March 31, 2017, or 6% of our total loan portfolio. Of that total, $10.8 billion resides in the indirect auto portfolio, $1.3 billion in the direct auto portfolio and $.2 billion in acquired or securitized portfolios, which have been declining as no pools have been recently acquired. Indirect auto loan applications are generated from franchised automobile dealers. This business is strategically aligned with our core retail business.

We have elected not to pursuenon-prime auto lending. Our average new loan origination FICO score over the last twelve months was 758 for indirect auto loans and 773 for direct auto loans. As of March 31, 2017, .5% of our auto loan portfolio was nonperforming and .4% of the portfolio was accruing past due. We offer both new and used automobile financing to customers through our various channels. The portfolio was composed of 56% new vehicle loans and 44% used vehicle loans at March 31, 2017.

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

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

Loan Modifications and Troubled Debt Restructurings

Consumer Loan Modifications

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

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

We also monitor the success rates and delinquency status of our loan modification programs to assess their effectiveness in serving our borrowers’ and servicing customers’ needs while mitigating credit losses. Table 18 provides the number of accounts and unpaid principal balance of modified consumer real estate related loans at the end of each year presented.

Table 18: Consumer Real Estate Related Loan Modifications


	March 31, 2017				December 31, 2016
Dollars in millions	Number of Accounts		Unpaid Principal Balance		Number of Accounts		Unpaid Principal Balance
Temporary modifications		3,315	$	242		3,484	$	258
Permanent modifications		24,024		2,718		23,904		2,693
Total consumer real estate related loan modifications		27,339	$	2,960		27,388	$	2,951

Commercial Loan Modifications

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

Troubled Debt Restructurings

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs result from our loss mitigation activities and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from court imposed concessions (e.g. a Chapter 7 bankruptcy where the debtor is discharged from personal liability to us and a court approved Chapter 13 bankruptcy repayment plan).

Table 19: Summary of Troubled Debt Restructurings (a)


	March 31 2017		December 31 2016		Change
In millions	March 31 2017		December 31 2016		$			%
Total commercial lending	$	366	$	428	$	(62	)		(14	)%
Total consumer lending		1,764		1,793		(29	)		(2	)%

Total TDRs	$	2,130	$	2,221	$	(91	)		(4	)%
Nonperforming	$	1,009	$	1,112	$	(103	)		(9	)%
Accruing (b)		1,121		1,109		12			1	%

Total TDRs	$	2,130	$	2,221	$	(91	)		(4	)%

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

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

Excluded from TDRs are $1.2 billion of consumer loans held for sale, loans accounted for under the fair value option and pooled purchased impaired loans, as well as certain government insured or guaranteed loans at both March 31, 2017 and December 31, 2016. Nonperforming TDRs represented approximately 51% and 52% of total nonperforming loans and 47% and 50% of total TDRs at March 31, 2017 and December 31, 2016, respectively. The remaining portion of TDRs represents TDRs that have been returned to accrual accounting after performing under the restructured terms for at least six consecutive months.

The PNC Financial Services Group, Inc. –Form 10-Q21

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

We maintain an ALLL to absorb losses from the loan and lease portfolio and determine this allowance based on quarterly assessments of the estimated probable credit losses incurred in the loan and lease portfolio. Our total ALLL of $2.6 billion at March 31, 2017 consisted of $1.5 billion and $1.1 billion established for the commercial lending and consumer lending categories, respectively. We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolio as of the balance sheet date. The reserve calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan and lease portfolio performance experience, the financial strength of the borrower and economic conditions. Key reserve assumptions are periodically updated.

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

Reserves are established fornon-impaired commercial loan classes based on probability of default (PD) and loss given default (LGD) credit risk ratings.

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

Allocations tonon-impaired consumer loan classes are primarily based upon a roll-rate model which uses statistical relationships, calculated from historical data that estimate the movement of loan outstandings through the various stages of delinquency and ultimatelycharge-off.

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

Industry concentrations and conditions,

Recent credit quality trends,

Recent loss experience in particular portfolios,

Recent macro-economic factors,

Model imprecision,

Changes in lending policies and procedures,

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

Limitations of available historical data.

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

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

See Note 1 Accounting Policies in our 2016 Form10-K and Note 3 Asset Quality in the Notes To Consolidated Financial Statements in this Report for further information on certain key asset quality indicators that we use to evaluate our portfolios and establish the allowances.

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

Table 20: Allowance for Loan and Lease Losses


Dollars in millions	2017			2016
January 1	$	2,589		$	2,727
Total net charge-offs		(118	)		(149	)
Provision for credit losses		88			152
Net change in allowance for unfunded loan commitments and letters of credit		(4	)		(21	)
Other		6			2
March 31	$	2,561		$	2,711
Net charge-offs to average loans (for the three months ended) (annualized)		.23	%		.29	%
Total allowance for loan and lease losses to total loans		1.20	%		1.31	%
Commercial lending net charge-offs	$	(23	)	$	(43	)
Consumer lending net charge-offs		(95	)		(106	)
Total net charge-offs	$	(118	)	$	(149	)
Net charge-offs to average loans (for the three months ended) (annualized)
Commercial lending		.07	%		.13	%
Consumer lending		.53	%		.59	%

At March 31, 2017, total ALLL to total nonperforming loans was 128%. The comparable amount for December 31, 2016 was 121%. These ratios are 94% and 89%, respectively, when excluding the $.7 billion of ALLL at both March 31, 2017 and December 31, 2016, allocated to consumer loans and lines of credit not secured by residential real estate and purchased impaired loans. We have excluded from these ratios purchased impaired loans, consumer loans and consumer lines of credit not secured by real estate that are excluded from nonperforming loans. See Table 14 within this Credit Risk Management section for additional information.

The ALLL balance increases or decreases across periods in relation to fluctuating risk factors, including asset quality trends, net charge-offs and changes in aggregate portfolio balances. During the first three months of 2017, overall credit quality remained relatively stable, which resulted in an essentially flat ALLL balance as of March 31, 2017 compared to December 31, 2016.

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

Table 21: Loan Charge-Offs and Recoveries


Three months ended March 31 Dollars in millions	Gross Charge-offs		Recoveries		Net Charge-offs / (Recoveries)			Percent of Average Loans (Annualized)
2017
Commercial	$	53	$	24	$	29			.11	%
Commercial real estate		1		7		(6	)		(.08	)%
Equipment lease financing		1		1
Home equity		34		20		14			.19	%
Residential real estate		4		4
Credit card		46		5		41			3.24	%
Other consumer		59		19		40			.74	%
Total	$	198	$	80	$	118			.23	%
2016
Commercial	$	78	$	33	$	45			.18	%
Commercial real estate		10		12		(2	)		(.03	)%
Equipment lease financing		1		1
Home equity		48		21		27			.34	%
Residential real estate		8		3		5			.14	%
Credit card		42		4		38			3.23	%
Other consumer		49		13		36			.67	%
Total	$	236	$	87	$	149			.29	%

See Note 1 Accounting Policies in our 2016 Form10-K and Note 4 Allowance for Loan and Lease Losses in the Notes To Consolidated Financial Statements in this Report for additional information on the ALLL.

Residential Mortgage Repurchase Obligations

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in our 2016 Form10-K, we have sold residential mortgage loans directly or indirectly through securitization and loan sale transactions in which we have continuing involvement. One form of continuing involvement includes certain loan repurchase obligations associated with the transferred assets. For additional information regarding our residential mortgage repurchase obligations, see the Credit Risk Management portion of the Risk Management section in our 2016 Form10-K.

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

Liquidity and Capital Management

Liquidity risk, including our liquidity monitoring measures and tools, is described in further detail in the Liquidity and Capital Management section of our 2016 Form10-K.

One of the ways we monitor our liquidity is by reference to the Liquidity Coverage Ratio (LCR), a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets (HQLA), as defined and calculated in accordance with the LCR rules, by its estimated net cash outflows, with net cash outflows determined by applying the assumed outflow factors in the LCR rules. The resulting quotient is expressed as a percentage. The minimum LCR that PNC and PNC Bank were required to maintain was 90% in 2016 and the minimum increased to 100% in 2017. PNC and PNC Bank calculate the LCR on a daily basis and as of March 31, 2017, the LCR for PNC and PNC Bank exceeded the fullyphased-in requirement of 100%.

We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2016 Form10-K.

Sources of Funding

Our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable andlow-cost funding. Total deposits increased to $260.7 billion at March 31, 2017 from $257.2 billion at December 31, 2016, driven by growth in consumer savings and demand deposits, partially offset by seasonal declines in commercial deposits. The overall increase in savings deposits reflected in part a shift from money market deposits to relationship-based savings products. Additionally, certain assets determined by us to be liquid and unused borrowing capacity from a number of sources are also available to maintain our liquidity position.

At March 31, 2017, our liquid assets consisted of short-term investments (Federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling $32.4 billion and securities available for sale totaling $59.3 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Of our total liquid assets of $91.7 billion, we had $4.4 billion of securities available for sale and trading securities pledged as collateral to secure public and trust deposits, repurchase agreements and for other purposes. In addition, $4.5 billion of securities held to maturity were also pledged as collateral for these purposes.

We also obtain liquidity through the issuance of traditional forms of funding, including long-term debt (senior notes, subordinated debt and FHLB advances) and short-term borrowings (Federal funds purchased, securities sold under repurchase agreements, commercial paper and other short-term borrowings).

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

Table 22: Senior and Subordinated Debt


In billions	2017
January 1	$	31.0
Issuances		1.8
Calls and maturities		(2.2	)
March 31	$	30.6

Under PNC Bank’s 2014 bank note program, as amended, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount outstanding at any one time of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. At March 31, 2017, PNC Bank had $24.6 billion of notes outstanding under this program of which $19.4 billion were senior bank notes and $5.2 billion were subordinated bank notes. The following table details issuances for the three months ended March 31, 2017:

Table 23: PNC Bank Notes Issued During First Quarter 2017

Issuance Date

Amount

Description of Issuance

February 17, 2017

March 8, 2017 (re-opening)

$1.0 billion

$250 million

Senior notes with a maturity date of February 17, 2022. Interest is payable semi-annually at a fixed rate of 2.625% on February 17 and August��17 of each year, beginning August 17, 2017. Following there-opening, the aggregate outstanding principal amount of this series of notes increased to $1.25 billion.

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

PNC Bank is a member of the FHLB-Pittsburgh and, as such, has access to advances from FHLB-Pittsburgh secured generally by residential mortgage loans, other mortgage-related loans and commercial mortgage-backed securities. At March 31, 2017, our unused secured borrowing capacity was $25.6 billion with the FHLB-Pittsburgh. Total FHLB borrowings increased to $19.5 billion at March 31, 2017 compared with $17.5 billion at December 31, 2016 as draws outpaced maturities.

The FHLB-Pittsburgh also periodically provides standby letters of credit on behalf of PNC Bank to secure certain public deposits. If the FHLB-Pittsburgh is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to PNC Bank. At March 31, 2017, standby letters of credit issued on our behalf by the FHLB-Pittsburgh totaled $4.4 billion.

PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of March 31, 2017, there were no issuances outstanding under this program.

PNC Bank can also borrow from the Federal Reserve Bank discount window to meet short-term liquidity requirements. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities, but rather as a potential source of liquidity in a stressed environment or during a market disruption. These potential borrowings are secured by commercial loans. At March 31, 2017, our unused secured borrowing capacity was $17.5 billion with the Federal Reserve Bank.

Borrowed funds come from a diverse mix of short-term and long-term funding sources. See Note 10 Borrowed Funds in our 2016 Form10-K and the Funding Sources section of the Consolidated Balance Sheet Review for additional information related to our Borrowings.

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

As of March 31, 2017, available parent company liquidity totaled $4.5 billion. Parent company liquidity is primarily held in intercompany short-term investments, the terms of which provide for the availability of cash in 31 days or less. Investments with longer durations may also be acquired, but if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

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

Bank-level capital needs,

Laws and regulations,

Corporate policies,

Contractual restrictions, and

Other factors.

There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or itsnon-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was approximately $1.1 billion at March 31, 2017. See Note 18 Regulatory Matters in the Notes To Consolidated Financial Statements in our 2016 Form10-K for a further discussion of these limitations.

In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’snon-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As of March 31, 2017, there were no commercial paper issuances outstanding.

The parent company has an effective shelf registration statement pursuant to which it can issue additional debt, equity and other capital instruments. Under this shelf registration statement, on February 7, 2017, the parent company issued $575 million in Floating Rate Senior Notes with a maturity date of August 7, 2018. Interest is payable at the3-month LIBOR rate reset quarterly, plus a spread of 0.25% per annum, on February 7, May 7, August 7 and November 7 of each year, commencing on May 7, 2017.

Total parent company borrowings outstanding totaled $6.2 billion at both March 31, 2017 and December 31, 2016. As of March 31, 2017, there were no parent company borrowings with contractual maturities of less than one year.

Contractual Obligations and Commitments

We have contractual obligations representing required future payments on borrowed funds, time deposits, leases, pension and postretirement benefits and purchase obligations. See the Liquidity and Capital Management portion of the Risk Management section in our 2016 Form10-K for more information on these future cash outflows. Additionally, in the normal course of business we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. We provide information on our commitments in Note 13 Commitments in the Notes To Consolidated Financial Statements of this Report.

The PNC Financial Services Group, Inc. –Form 10-Q25

Credit Ratings

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

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

Table 24: Credit Ratings as of March 31, 2017 for PNC and PNC Bank

Moody’s

Standard &
Poor’s

Fitch

PNC

Senior debt

A-

A+

Subordinated debt

BBB+

Preferred stock

Baa2

BBB-

PNC Bank

Senior debt

A+

Subordinated debt

A-

Long-term deposits

Aa2

AA-

Short-term deposits

P-1

A-1

F1+

Short-term notes

P-1

A-1

Capital Management

Detailed information on our capital management processes and activities, including additional information on our share repurchase programs and our previous CCAR submissions and capital plans, is included in the Capital Management portion of the Risk Management section in our 2016 Form10-K.

In January 2017, we announced a $300 million increase to our share repurchase programs, which now provide for repurchases of up to $2.3 billion for the four quarter period ended June 30, 2017. In the first quarter of 2017, we repurchased 5.0 million common shares for $.6 billion. PNC has repurchased a total of 15.8 million shares for $1.6 billion under these repurchase programs as of March 31, 2017.

We paid dividends on common stock of $.3 billion, or 55 cents per common share, during the first quarter of 2017. On April 4, 2017, the PNC Board of Directors declared a quarterly common stock cash dividend of 55 cents per share payable on May 5, 2017.

See Note 11 Total Equity and Other Comprehensive Income in the Notes To Consolidated Financial Statements in this Report for additional information on the March 15, 2017 redemption of $1.0 billion ofFixed-to-Floating RateNon-Cumulative Exchangeable Perpetual Trust Securities issued by PNC Preferred Funding Trusts I and II.

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

~~Non-Strategic Assets Portfolio~~

~~(Unaudited)~~

Table ~~22: Non-Strategic Assets Portfolio Table~~25: Basel III Capital

Nine months ended September 30             Change
Dollars in millions    2016 2015    $    %
Income Statement

Net interest income
   $ 220    $ 302       $ (82 )    (27 )%
Noninterest income
   35    34       1       3 %
Total revenue
   255    336       (81 )    (24 )%
Provision for credit losses (benefit)
   (16 ) (61 )    45       74 %
Noninterest expense
   57    73       (16 )    (22 )%
Pretax earnings
   214    324       (110 )    (34 )%
Income taxes
   79    119       (40 )    (34 )%
Earnings
   $ 135    $ 205       $ (70 )    (34 )%
Average Balance Sheet

Loans

Commercial lending
   $ 702    $ 742       $ (40 )    (5 )%
Consumer lending

Home equity
   2,015    2,859       (844 )    (30 )%
Residential real estate
   3,125    3,981       (856 )    (22 )%
Total consumer lending
   5,140    6,840       (1,700 )    (25 )%
Total loans
   5,842    7,582       (1,740 )    (23 )%
Other assets (a)
   (262 ) (702 )    440       63 %
Total assets
   $ 5,580    $ 6,880       $ (1,300 )    (19 )%
Performance Ratios

Return on average assets
   3.23 % 3.98 %
Noninterest income to total revenue
   14 % 10 %
Efficiency
   22 % 22 %
Other Information

Nonperforming assets (b) (c)
   $ 433    $ 571       $ (138 )    (24 )%
Purchased impaired loans (b) (d)
   $ 2,512    $ 3,411       $ (899 )    (26 )%
Net charge-offs (recoveries)
   $ –    $ (8 )    $ 8       100 %
Loans (b)

Commercial lending
   $ 693    $ 731       $ (38 )    (5 )%
Consumer lending

Home equity
   1,826    2,586       (760 )    (29 )%
Residential real estate
   2,933    3,625       (692 )    (19 )%
Total consumer lending
   4,759    6,211       (1,452 )    (23 )%
Total loans
   $ 5,452    $ 6,942       $ (1,490 )    (21 )%


	March 31, 2017
Dollars in millions	2017 Transitional Basel III (a)			Pro forma Fully Phased-In Basel III (Non-GAAP) (estimated) (b) (c)
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock	$	9,681		$	9,681
Retained earnings		32,372			32,372
Accumulated other comprehensive income for securities currently and previously held as available for sale		179			223
Accumulated other comprehensive income for pension and other postretirement plans		(474	)		(592	)
Goodwill, net of associated deferred tax liabilities		(8,824	)		(8,824	)
Other disallowed intangibles, net of deferred tax liabilities		(183	)		(228	)
Other adjustments/(deductions)		(183	)		(180	)
Total common equity Tier 1 capital before threshold deductions		32,568			32,452
Total threshold deductions		(1,064	)		(1,585	)
Common equity Tier 1 capital		31,504			30,867
Additional Tier 1 capital
Preferred stock plus related surplus		3,980			3,980
Other adjustments/(deductions)		(94	)		(104	)
Tier 1 capital		35,390			34,743
Additional Tier 2 capital
Qualifying subordinated debt		3,846			3,778
Trust preferred capital securities		100			–
Eligible credit reserves includable in Tier 2 capital		2,866			2,866
Total Basel III capital	$	42,202		$	41,387
Risk-weighted assets
Basel III standardized approach risk-weighted assets (d)	$	300,233		$	308,392
Basel III advanced approaches risk-weighted assets (e)		N/A		$	278,938
Average quarterly adjusted total assets	$	356,237		$	355,657
Supplementary leverage exposure (f)	$	423,122		$	422,542
Basel III risk-based capital and leverage ratios
Common equity Tier 1		10.5	%		10.0	% (g) (h)
Tier 1		11.8	%		11.3	% (g) (i)
Total		14.1	%		13.4	% (g) (j)
Leverage (k)		9.9	%		9.8	%
Supplementary leverage ratio (l)		8.4	%		8.2	%

(a)	~~Other assets were negative in both periods due~~Calculated using the regulatory capital methodology applicable to ~~the ALLL.~~us during 2017.

(b)

AsPNC utilizes the pro forma fullyphased-in Basel III capital ratios to assess its capital position (without the benefit of ~~September 30.~~phase-ins), as these ratios represent the regulatory capital standards that will ultimately be applicable to PNC under the final Basel III rules. Pro forma fullyphased-in capital amounts, ratios and risk-weighted and leverage-related assets are estimates.

(c)

~~Includes nonperforming loans~~Basel III capital ratios and estimates may be impacted by additional regulatory guidance or analysis and, in the case of ~~$.4 billion at September 30, 2016~~those ratios calculated using the advanced approaches, may be subject to variability based on the ongoing evolution, validation and ~~$.5 billion at September 30, 2015.~~regulatory approval of PNC’s models integral to the calculation of advanced approaches risk-weighted assets.

(d)	~~Recorded investment~~Includes credit and market risk-weighted assets.

(e)

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

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

(g)	Pro forma fullyphased-in Basel III capital ratio based on Basel III standardized approach risk-weighted assets and rules.

(h)

For comparative purposes only, the pro forma fullyphased-in advanced approaches Basel III Common equity Tier 1 capital ratio estimate is 11.1%. This capital ratio is calculated using pro forma fullyphased-in Common equity Tier 1 capital and dividing by estimated Basel III advanced approaches risk-weighted assets.

(i)	For comparative purposes only, the pro forma fullyphased-in advanced approaches Basel III Tier 1 risk-based capital ratio estimate is 12.5%. This capital ratio is calculated using fullyphased-in Tier 1 capital and dividing by estimated Basel III advanced approaches risk-weighted assets.

(j)

For comparative purposes only, the pro forma fullyphased-in advanced approaches Basel III Total capital risk-based capital ratio estimate is 13.8%. This ratio is calculated using fullyphased-in Total Basel III capital, which under the advanced approaches, Additional Tier 2 capital includes allowance for loan and lease losses in excess of Basel expected credit losses, if any, up to 0.6% of credit risk related ~~to acquisitions. This segment contained 82% of PNC’s purchased impaired loans at both September 30, 2016~~risk-weighted assets, and ~~September 30, 2015.~~dividing by estimated Basel III advanced approach risk-weighted assets.

This business segment consists of non-strategic assets primarily obtained through acquisitions of other companies. The business activity of this segment is to manage the liquidation of the portfolios while maximizing the value and mitigating risk.

Non-Strategic Assets Portfolio earned $135 million in the first nine months of 2016 compared with $205 million in the first nine months of 2015. Earnings decreased primarily due to a declining loan portfolio and lower benefit from provision for credit losses in 2016.

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

(l)	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 27

~~Non-Strategic Assets Portfolio overview:~~As a result of thephase-in periods included in the final U.S. Basel III regulatory capital rules (Basel III rules), as well as the fact that we remain in the parallel run qualification phase for the advanced approaches, our regulatory risk-based capital ratios in 2017 are based on the definitions of, and deductions from, regulatory capital under the Basel III rules (as such definitions and deductions arephased-in for 2017) and the standardized approach for determining risk-weighted assets. Until we have exited parallel run, our regulatory risk-based Basel III ratios will be calculated using the standardized approach for determining risk-weighted assets, and the definitions of, and deductions from, capital under Basel III (as such definitions and deductions arephased-in through 2019). Once we exit parallel run, our regulatory risk-based capital ratios will be the lower of the ratios calculated under the standardized approach and the advanced approaches. We refer to the capital ratios calculated using thephased-in Basel III provisions in effect for 2017 and, for the risk-based ratios, standardized approach risk-weighted assets, as the 2017 Transitional Basel III ratios. Under the standardized approach for determining credit risk-weighted assets, exposures are generally assigned apre-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 aphase-in schedule and net of associated deferred tax liabilities) to the extent they individually exceed 10%, or in the aggregate exceed 15%, of the institution’s adjusted common equity Tier 1 capital. Also, Basel III regulatory capital includes (subject to aphase-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 March 31, 2017 capital levels were aligned with them.

At March 31, 2017, PNC and PNC Bank, our sole bank subsidiary, were both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized”, PNC must have Transitional Basel III capital ratios of at least 6% for Tier 1 risk-based

We provide additional information regarding regulatory capital requirements and some of their potential impacts on us in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 18 Regulatory Matters in our 2016 Form10-K. See the Statistical Information (Unaudited) section of this Report for details on our December 31, 2016 and March 31, 2016 Transitional Basel III and Pro forma fullyphased-in Basel III common equity tier 1 capital ratios.

Market Risk Management

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

Traditional banking activities of gathering deposits and extending loans,

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

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

We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. Market Risk Management provides independent oversight by monitoring compliance with established guidelines and reporting significant risks in the business to the Risk Committee of the Board of Directors.

Market Risk Management – Interest Rate Risk

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

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

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

Sensitivity results and market interest rate benchmarks for the first quarters of 2017 and 2016 follow:

Table 26: Interest Sensitivity Analysis


	First Quarter 2017			First Quarter 2016
Net Interest Income Sensitivity Simulation (a)
Effect on net interest income in first year from gradual interest rate change over the following 12 months of:
100 basis point increase		2.5	%		2.7	%
100 basis point decrease		(4.5	)%		(2.9	)%
Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of:
100 basis point increase		4.0	%		6.7	%
100 basis point decrease		(8.8	)%		(7.8	)%
Duration of Equity Model (a)
Base case duration of equity (in years)		(2.3	)		(7.1	)
KeyPeriod-End Interest Rates
One-month LIBOR		.98	%		.44	%
Three-year swap		1.81	%		.95	%

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

~~Lower~~In addition to measuring the effect on net interest income ~~resulted from lower purchase accounting accretion~~assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 27 reflects the percentage change in net interest income over the next two12-month periods assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and (iii) yield curve slope flattening (a 100 basis point yield curve slope flattening between1-month andten-year rates superimposed on current base rates) scenario.

Table 27: Net Interest Income Sensitivity to Alternative Rate Scenarios (First Quarter 2017)


	PNC Economist			Market Forward			Slope Flattening
First year sensitivity		1.8	%		2.0	%		(2.3	)%
Second year sensitivity		4.8	%		2.6	%		(6.5	)%

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

When forecasting net interest income, we make assumptions about interest rates and the ~~impact~~shape of the ~~declining average balance~~yield curve, the volume and characteristics of new business and the ~~loan portfolio.~~behavior of existingon- andoff-balance sheet positions. These assumptions determine the future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 26 and 27 above. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates.

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

Table 28: Alternate Interest Rate Scenarios: One Year Forward

LOGO

The first quarter 2017 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from ~~provision~~an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

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

Market Risk Management – Customer-Related Trading Risk

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

We usevalue-at-risk (VaR) as the primary means to measure and monitor market risk in customer-related trading activities. VaR is used to estimate the probability of portfolio losses based on the statistical analysis of historical market risk factors. A diversified VaR reflects empirical correlations across different asset classes. We calculate a diversified VaR at a 95% confidence interval and the results for the first three months of 2017 and 2016 were within our acceptable limits.

See the Market Risk Management – Customer-Related Trading Risk section of our 2016 Form10-K for more information on our models used to calculate VaR and our backtesting process.

Customer-related trading revenue was $68 million for the first quarter of 2017 compared with $39 million for the first quarter of 2016. The increase was primarily due to market rate changes impacting valuations for customer-related derivatives and higher derivative sales.

Market Risk Management – Equity And Other Investment Risk

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

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

A summary of ~~reserves in 2015.~~our equity investments follows:

Table 29: Equity Investments Summary


	March 31		December 31	Change
In millions	2017		2016	$		%
BlackRock	$	6,907	$6,886	$	21		–
Tax credit investments		2,204	2,090		114		5	%
Private equity and other		1,789	1,752		37		2	%
Total	$	10,900	$10,728	$	172		2	%

~~Noninterest expense declined~~BlackRock

We owned approximately 35 million common stock equivalent shares of BlackRock equity at March 31, 2017, accounted for under the equity method. The primary risk measurement, similar to other equity investments, is economic capital. The Business Segments Review section of this Financial Review includes additional information about BlackRock.

Tax Credit Investments

Included in our equity investments are direct tax credit investments and equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $.8 billion and $.7 billion at March 31, 2017 and December 31, 2016, respectively. These unfunded commitments are included in Other Liabilities on our Consolidated Balance Sheet.

Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in the ~~comparison, driven~~Notes To Consolidated Financial Statements in our 2016 Form10-K has further information on Tax Credit Investments.

Private Equity and Other

The majority of our other equity investments consists of our private equity portfolio. The private equity portfolio is an illiquid portfolio consisted of mezzanine and equity investments that vary by ~~lower costs~~industry, stage and type of ~~managing~~investment. Private equity investments carried at estimated fair value totaled $1.4 billion at both March 31, 2017 and ~~servicing~~December 31, 2016. As of March 31, 2017, $1.1 billion was invested directly in a variety of companies and $.3 billion was invested indirectly through various private equity funds. See Item 1 Business – Supervision and Regulation and Item 1A Risk Factors in our 2016 Form10-K for discussion of the ~~loan portfolios~~potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and of private funds covered by the Volcker Rule, including the five-year extension we received in February 2017 to conform certain equity investments subject to the Volcker Rule.

Included in our other equity investments are Visa Class B common shares, which are recorded at cost. At March 31, 2017, the fair value of our investment in Visa Class B common shares was approximately $515 million and our cost basis was not significant. Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock, which cannot happen until the settlement of the pending interchange litigation. Please see Note 6 Fair Value and Note 12 Legal Proceedings in the Notes To Consolidated Financial Statements in our 2016 Form10-K for additional information regarding our Visa agreements.

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

Financial Derivatives

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

Financial derivatives involve, to varying degrees, market and credit risk. Periodic cash payments are exchanged for interest rate swaps, options and future contracts. Premiums are also exchanged for options contracts. Therefore, cash requirements and exposure to credit risk are significantly less than the notional amount on these instruments.

Further information on our financial derivatives is presented in Note 1 Accounting Policies and Note 6 Fair Value in our Notes To Consolidated Financial Statements in our 2016 Form10-K and in Note 6 Fair Value and Note 9 Financial Derivatives in the Notes To Consolidated Financial Statements in this Report.

Not all elements of market and credit risk are addressed through the use of financial derivatives, and such instruments

may be ineffective for their intended purposes due to unanticipated market changes, among other reasons.

RECENT REGULATORY DEVELOPMENTS

The Department of Labor (DOL) has issued final rules expanding the definition of “investment advice” related to retirement accounts and certain other accounts that are subject to DOL interpretive authority. The rules were scheduled to take effect on April 10, 2017 with a transition period between April 10, 2017 and January 1, 2018, during which time reduced requirements were to apply. A presidential memorandum issued on February 3, 2017 directed the DOL to review the rules to determine whether, among other things, the rules harm investors or increase the cost of retirement services. In light of the presidential memorandum, on April 5, 2017, the DOL delayed the applicability date of the rule until June 9, 2017 and further reduced the requirements during the transition period. Full compliance is still required on January 1, 2018, although the DOL continues to ~~decline.~~

~~Average portfolio loans decreased due~~conduct a review of the rules and has left open the possibility of additional extension of the full compliance date or modification to ~~customer payment activity and portfolio management activities to reduce under-performing assets. The decrease also reflects~~ the ~~impact of our change in derecognition policy effective December 31, 2015 for certain purchased impaired loans.~~rules.

CRITICAL ACCOUNTING ESTIMATESAND JUDGMENTS

Note 1 Accounting Policies ~~in Item 8~~ of our ~~2015~~2016 Form10-K ~~and in the Notes To Consolidated Financial Statements included in Part I, Item 1 of this Report describe~~ describes the most significant accounting policies that we use to prepare our consolidated financial statements. Certain of these policies

require us to make estimates or economic assumptions that may vary under different assumptions or conditions and such variations may significantly affect our reported results and financial position for the period or in future periods.

The following critical accounting policies and judgments are described in more detail in Critical Accounting Estimates and Judgments in Item 7 of our ~~2015~~2016 Form10-K:

Fair Value Measurements

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

~~Estimated Cash Flows on Purchased Impaired Loans~~

Goodwill

~~Goodwill~~

~~Lease Residuals~~

~~Revenue Recognition~~

Residential and Commercial Mortgage Servicing Rights

Income Taxes

~~We provide~~Goodwill

Goodwill arising from business acquisitions represents the value attributable to unidentifiable intangible elements in the business acquired. Most of our goodwill relates to value inherent in the Retail Banking and Corporate & Institutional Banking businesses.

The value of goodwill is supported by earnings, which is driven by our invested assets and transaction volume and, for certain businesses, the market value of assets under administration or for which processing services are provided. Lower earnings and realized profitability resulting from a lack of growth or our inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill, which could result in a current period charge to earnings. At least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date, management reviews the current operating environment and strategic direction of each reporting unit taking into consideration any events or changes in circumstances that may have an effect on the unit. For this review, inputs are generated and used in calculating the fair value of the reporting unit, which is compared to its carrying amount (“Step 1” of the goodwill impairment test) as further discussed below. The fair values of our reporting units are determined using a discounted cash flow valuation model with assumptions based upon market comparables. Additionally, we may also evaluate certain financial metrics that are indicative of fair value, including market quotes, price to earnings ratios and recent acquisitions involving other financial institutions.

Given our segment realignment, as described in the Business Segments Review section of this Financial Review, we performed an interim impairment test as of March 31, 2017. The results indicated that the estimated fair value of our reporting units exceeded their carrying values by at least 10% and are not considered to be at risk of not passing Step 1.

See the Critical Accounting Estimates and Judgments section in Item 7 of our 2016 Form10-K for additional information ~~about many~~on our annual impairment test processes.

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

Fair Value Measurements

The following table summarizes the assets and liabilities measured at fair value on a recurring basis at March 31, 2017 and December 31, 2016, respectively, and the portions of ~~these items~~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 30: Fair Value Measurements – Summary


	March 31, 2017						December 31, 2016
Dollars in millions	Total Fair Value			Level 3			Total Fair Value			Level 3
Total assets	$	71,352		$	7,526		$	74,608		$	8,830
Total assets at fair value as a percentage of consolidated assets		19	%					20	%
Level 3 assets as a percentage of total assets at fair value					11	%					12	%
Level 3 assets as a percentage of consolidated assets					2	%					2	%
Total liabilities	$	4,315		$	292		$	4,818		$	433
Total liabilities at fair value as a percentage of consolidated liabilities		1	%					2	%
Level 3 liabilities as a percentage of total liabilities at fair value					7	%					9	%
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 representnon-agency residential mortgage-backed securities in the available for sale portfolio, equity investments and mortgage servicing rights. For further information on fair value, see Note 6 Fair Value in the Notes To Consolidated Financial Statements ~~included~~ in ~~Part I, Item l of~~ this Report.

Recently Issued Accounting Standards

Revenue Recognition

In May 2014, the Financial Accounting Standard Board ~~(“FASB”)~~(FASB) issued Accounting Standards Update ~~(“ASU”)~~ (ASU)2014-09, Revenue from Contracts with Customers (Topic 606). This ASU clarifies the principles for recognizing revenue and replaces nearly all existing revenue recognition guidance in U.S. GAAP with one accounting model. The core principle of the guidance is that an entity should recognize

revenue to depict the satisfaction of a performance obligation by transfer of promised goods or services to customers. The ASU also requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

In August 2015, the FASB issued guidance deferring the mandatory effective date of ASU2014-09 for one year, to annual reporting periods beginning after December 15, 2017. During 2016, the FASB ~~has~~ also issued ~~three~~four separate ASUs which amend the original standard to clarify guidance regarding principal versus agent considerations, identifying performance obligations and licensing, ~~and~~ certain narrow-scope amendments which address the presentation of sales tax, noncash consideration, contract modifications at transition and assessing ~~collectability.~~collectability and other minor technical corrections and improvements.

The requirements within ASU2014-09 and its subsequent amendments should be applied retrospectively to each prior period presented (with several practical expedients for certain completed contracts) or retrospectively with the cumulative effect of initially applying ASU2014-09 recognized at the date of initial application (i.e., modified retrospective application). We plan to adopt the ASU consistent with the deferred mandatory effective date using the modified retrospective approach. Based on our evaluation to date, we do not expect the adoption of this standard to have a significant impact on our consolidated results of operations or our consolidated financial position. We expect that the most significant impact related to the standard’s expanded disclosure requirements will be the disaggregation of revenue.

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

Financial Instruments

In January 2016, the FASB issued ASU2016-01, Financial Instruments – Overall (Subtopic825-10):Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU changes the accounting for certain equity investments, financial liabilities under the fair value option and presentation and disclosure requirements for financial instruments. Equity investments not accounted for under the equity method of accounting will be measured at fair value with any changes in fair value recognized in net income. The ASU also simplifies the impairment assessment of equity investments for which fair value is not readily determinable. Additionally, the ASU changes the presentation of certain fair value changes for financial liabilities measured at fair ~~value;~~value and amends certain disclosure requirements relating to the fair value of financial instruments. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 and should be applied using a modified retrospective approach through a cumulative-effect adjustment to the balance sheet, except for the amendment related to equity securities without readily determinable fair values, which should be applied prospectively. We plan to adopt all provisions consistent with the effective date and are currently evaluating the impact of this ASU on our results of operations and financial position.

However, we expect the standard will most significantly impact equity investments that are currently accounted for under the cost method which will likely have a positive impact on income when transitioned to fair value measurement.

Leases

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

~~Leases~~

In February 2016, the FASB issued ASU2016-02, Leases (Topic 842). The primary change in the new guidance is the recognition of lease assets and lease liabilities by lessees for operating leases. The ASU requires lessees to recognize aright-of-use asset and related lease liability for all leases with lease terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 using a modified retrospective approach through a cumulative-effect adjustment. Early adoption is permitted. We are currently evaluating the impact of adopting this standard.

Credit Losses

In June 2016, the FASB issued ASU2016-13, Financial Instruments – Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments. The ASU requires the use of an expected credit loss methodology; specifically, expected credit losses for the remaining life of the asset will be recognized at the time of origination or acquisition. The expected credit loss methodology will apply to loans, debt securities and other financial assets accounted for at amortized cost and net investment in leases not accounted for at fair value through net income. It will also apply tooff-balance

sheet credit exposures except for unconditionally cancellable commitments. Assets in the scope of the ASU, except for purchased credit deteriorated assets, will be presented at the net amount expected to be collected after deducting the allowance for credit losses from the amortized cost basis of the assets.

Enhanced credit quality disclosures will be required including disaggregation of credit quality indicators by vintage. The development of an expected credit loss methodology and new disclosures will require significant data collection, building or enhancing loss ~~model upgrades,~~models, and processre-development prior to adoption. The ASU is effective for ~~annual periods, and interim periods within those annual periods, beginning after December 15, 2019~~us for the first quarter of 2020 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the ~~first reporting period in which the guidance is effective. Early adoption is permitted for fiscal years beginning after December 15, 2018.~~year of adoption. We have established a company-wide, cross-functional governance structure. We are ~~currently evaluating~~in the process of determining the required changes to our credit loss estimation methodologies, data and systems to be able to comply with the standard. We continue to assess the impact of ~~adopting this standard.~~the standard; however, we expect the guidance will result in an increase in the allowance for loan losses to cover credit losses over the estimated life of the financial assets. The magnitude of the increase in our allowance for loan losses at the adoption date will be dependent upon the nature of the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date.

Statement of Cash Flows

In August 2016, the FASB issued ASU2016-15, Statement of Cash Flows (Topic 230):Classification of Certain Cash Receipts and Cash Payments.The ASU provides guidance on eight specific issues related to classification within the statement of cash flows with the objective of reducing existing diversity in practice. The specific issues cover cash payments for debt prepayment or debt extinguishment costs; cash outflows for settlement ofzero-coupon debt instruments or other debt instruments with coupon interest rates that are

insignificant; contingent consideration payments that are not made soon after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests received in securitization transactions; and clarifies that when no specific GAAP guidance exists and the source of the cash flows are not separately identifiable, then the predominant source of cash flows should be used to determine the classification for the item. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. Based on our evaluation to date, we do not expect the adoption of this standard to have a significant impact on our consolidated statement of cash flows.

The PNC Financial Services Group, Inc. –Form 10-Q33

Goodwill

In January 2017, the FASB issued ASU2017-04, Intangibles – Goodwill and Other (Topic 350):Simplifying the Accounting for Goodwill Impairment.This ASU eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill. Under Step 2, an entity had to calculate the implied fair value of goodwill at the impairment testing date of its assets and liabilities as if those assets and liabilities had been acquired in a business combination. Under the ASU, the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, and an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying amount of goodwill. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We ~~are currently evaluating~~do not expect the adoption of this standard to impact our consolidated results of ~~adopting this standard.~~operations or our consolidated financial position.

Recently Adopted Accounting Standards

See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements ~~included~~ in ~~Part I, Item I of~~ this Report regarding the impact of new accounting pronouncements adopted in ~~2016.~~2017.

RO~~ECOURSE~~FF-B~~AND~~ALANCE RS~~EPURCHASE~~HEET OA~~BLIGATIONS~~RRANGEMENTS AND VARIABLE INTEREST ENTITIES

~~As discussed~~We engage in a variety of activities that involve entities that are not consolidated or otherwise reflected in our Consolidated Balance Sheet that are generally referred to asoff-balance sheet arrangements. Additional information on these types of activities is included in our 2016 Form10-K and in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities and Note 13 Commitments in the Notes To Consolidated Financial Statements included in this Report.

A summary of variable interest entities (VIEs), including those in which we hold variable interests but have not consolidated into our financial statements, is included in Note 2 in our 2016 Form10-K.

Trust Preferred Securities and REIT Preferred Securities

See Note 10 Borrowed Funds and Note 15 Equity in the Notes To Consolidated Financial Statements in our ~~2015~~2016 Form10-K ~~PNC has sold commercial mortgage, residential mortgage~~ and ~~home equity loans/lines of credit directly or indirectly through securitization~~Note 11 Total Equity and loan sale transactions in which we have continuing involvement. One form of continuing involvement includes certain recourse and loan repurchase obligations associated with the transferred assets. For additional discussion regarding our recourse and repurchase obligations, see the Recourse and Repurchase Obligations section in Item 7 of our 2015 Form 10-K.

R~~ISK~~ M~~ANAGEMENT~~

The Risk Management section included in Item 7 of our 2015 Form 10-K describes our enterprise risk management framework including risk appetite and strategy, risk culture, risk organization and governance, risk identification and quantification, risk control and limits, and risk monitoring and reporting. Additionally, our 2015 Form 10-K provides an analysis of our key areas of risk, which include but are not limited to credit, operational, compliance, model, liquidity and market. Our use of financial derivatives as part of our overall asset and liability risk management process is also addressed within the Risk Management section.

~~The following information updates our 2015 Form 10-K risk management disclosures.~~

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

~~Credit Risk Management~~

~~See the Credit Risk Management portion of the Risk Management section in our 2015 Form 10-K for additional discussion regarding credit risk.~~

~~Asset Quality Overview~~

~~Asset quality trends remained relatively stable during the first nine months of 2016.~~

Provision for credit losses for the third quarter of 2016 increased modestly to $87 million compared to $81 million for the third quarter of 2015. For the nine months ended September 30, 2016, provision for credit losses increased to $366 million compared with $181 million for the nine months ended September 30, 2015. During the first nine months of 2016, the provision included $130 million for energy related loans in the oil, gas, and coal sectors compared to $86 million for the first nine months of 2015. The increase in provision also reflected slowing credit quality improvement in the commercial and consumer lending portfolios and the impact of continued loan growth.

Nonperforming assets at September 30, 2016 decreased $50 million compared with December 31, 2015 due to declining home equity and residential real estate nonperforming loans, and lower other real estate owned (OREO) and foreclosed assets, partially offset by higher nonperforming commercial loans driven by energy related loans. Nonperforming assets were 0.64% of total assets at September 30, 2016 compared with 0.68% at December 31, 2015.

~~Overall loan delinquencies totaled $1.5 billion at September 30, 2016, a decrease of $184 million, or 11%, from year-end 2015. The reduction was due in~~

~~large part to a decrease in accruing government insured residential real estate and education past due loans of $117 million.~~

Net charge-offs for the third quarter of 2016 increased to $154 million compared to $96 million for the third quarter of 2015. For the nine months ended September 30, 2016, net charge-offs increased to $437 million compared with $266 million for the nine months ended September 30, 2015. Increases were driven by higher commercial loan net charge-offs.

~~The level of ALLL decreased to $2.6 billion at September 30, 2016 from $2.7 billion at December 31, 2015.~~

~~Nonperforming Assets and Loan Delinquencies~~

~~Nonperforming Assets, including OREO and Foreclosed Assets~~

Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming troubled debt restructurings (TDRs), OREO and foreclosed assets. Loans held for sale, certain government insured or guaranteed loans, purchased impaired loans and loans accounted for under the fair value option are excluded from nonperforming loans. Additional information regarding our nonperforming loans and nonaccrual policies is included in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in our 2015 Form 10-K. A summary of the major categories of nonperforming assets are presented in Table 23. See Note 3 Asset QualityOther Comprehensive Income in the Notes To Consolidated Financial Statements in this Report for ~~further detail of nonperforming asset categories.~~

~~Table 23: Nonperforming Assets By Type~~

Dollars in millions

September 30
2016

December 31
2015
   Change
      $    %
Nonperforming loans

Commercial lending
   $ 691    $ 545       $ 146       27 %
Consumer lending (a)
   1,455    1,581       (126 )    (8 )%
Total nonperforming loans (b) (c)
   2,146    2,126       20       1 %
OREO and foreclosed assets
   229    299       (70 )    (23 )%
Total nonperforming assets
   $ 2,375    $ 2,425       $ (50 )    (2 )%
Amount of TDRs included in nonperforming loans
   $ 1,177    $ 1,119       $ 58       5 %
Percentage of total nonperforming loans
   55 % 53 %
Nonperforming loans to total loans
   1.02 % 1.03 %
Nonperforming assets to total loans, OREO and foreclosed assets
   1.13 % 1.17 %
Nonperforming assets to total assets
   .64 % .68 %
Allowance for loan and lease losses to total nonperforming loans
   122 % 128 %

~~(a)~~

~~Excludes most consumer loans and lines of credit, not secured~~additional information on trust preferred securities issued by ~~residential real estate, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.~~

~~(b)~~

~~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.~~

~~(c)~~

The recorded investment of loans collateralized by residential real estate property that are in process of foreclosure was $.4 billion and $.6 billion at September 30, 2016 and December 31, 2015, respectively. Both periods included $.3 billion of loans that are government insured/guaranteed.

30 ~~The~~ PNC ~~Financial Services Group, Inc. –~~~~Form 10-Q~~Capital Trust C andFixed-to-Floating

Rate~~Table 24: Change in Nonperforming Assets~~Non-Cumulative

In millions    2016 2015
January 1
   $ 2,425    $ 2,880
New nonperforming assets
   1,317    1,089
Charge-offs and valuation adjustments
   (472 ) (367 )
Principal activity, including paydowns and payoffs
   (418 ) (544 )
Asset sales and transfers to loans held for sale
   (279 ) (296 )
Returned to performing status
   (198 ) (272 )
September 30
   $ 2,375    $ 2,490

~~As of September 30, 2016, approximately 84% of total nonperforming loans were secured~~ Exchangeable Perpetual Trust Securities (Perpetual Trust Securities) issued by ~~collateral which lessened reserve requirements~~PNC Preferred Funding Trust I and is expected to reduce credit losses in the event of default. As of September 30, 2016, commercial lending nonperforming loans were carried at approximately 66% of their unpaid principal balance, due to charge-offs recorded to date, before consideration of the ALLL.

Within consumer nonperforming loans, residential real estate TDRs comprise 72% of total residential real estate nonperforming loans at September 30, 2016, up from 68% at December 31, 2015. Home equity TDRs comprise 53% of home equity nonperforming loans at September 30, 2016, up from 51% at December 31, 2015. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC ~~and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.~~

At September 30, 2016, our largest nonperforming asset was $50 million in the Mining, Quarrying, Oil and Gas Extraction Industry and our average nonperforming loan associated with commercial lending was less than $1 million. The ten largest individual nonperforming assets are from the commercial lending portfolio and represented 44% and 13% of total commercial lending nonperforming loans and total nonperforming assets, respectively, as of September 30, 2016.

~~Table 25: OREO and Foreclosed Assets~~

September 30
2016

December 31
2015
   Change
In millions          $    %
Other real estate owned (OREO):

Residential properties
   $ 116       $ 146       $ (30 )    (21 )%
Residential development properties
   23       31       (8 )    (26 )%
Commercial properties
   78       102       (24 )    (24 )%
Total OREO
   217       279       (62 )    (22 )%
Foreclosed and other assets
   12       20       (8 )    (40 )%
Total OREO and foreclosed assets
   $ 229       $ 299       $ (70 )    (23 )%

Total OREO and foreclosed assets were 10% of total nonperforming assets at September 30, 2016, compared to 12% at December 31, 2015. As of September 30, 2016, 61% of our OREO and foreclosed assets were comprised of residential related properties, compared to 59% at December 31, 2015.

~~Loan Delinquencies~~

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

~~Table 26: Accruing Loans Past Due (a)~~

   Amount             Percentage of Total Loans
Outstanding

September 30
2016

December 31
2015
   Change
September 30
2016

December 31
2015
Dollars in millions          $    %
Early stage loan delinquencies

Accruing loans past due 30 to 59 days
   $ 454       $ 511       $ (57 )    (11 )% .22%    .25%
Accruing loans past due 60 to 89 days
   236       248       (12 )    (5 )% .11%    .12%
Total
   690       759       (69 )    (9 )% .33%    .37%
Late stage loan delinquencies

Accruing loans past due 90 days or more
   766       881       (115 )    (13 )% .36%    .43%
Total
   $ 1,456       $ 1,640       $ (184 )    (11 )% .69%    .80%

~~(a)~~

Past due loan amounts at September 30, 2016 include government insured or guaranteed loans of $.2 billion, $.1 billion, and $.7 billion for accruing loans past due 30 to 59 days, past due 60 to 89 days, and past due 90 days or more, respectively. The comparative amounts as of December 31, 2015 were $.2 billion, $.1 billion, and $.8 billion, respectively.

Total early stage loan delinquencies (accruing loans past due 30 to 89 days) decreased at September 30, 2016 compared to December 31, 2015 due primarily to reductions in consumer early stage delinquencies.

Accruing loans past due 90 days or more decreased at September 30, 2016 compared to December 31, 2015 driven by declines in government insured residential real estate and other consumer loans. Accruing loans past due 90 days or more are not included in nonperforming loans and continue to accrue interest because they are well secured by collateral and are in the process of collection, or are managed in homogenous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or are certain government insured or guaranteed loans.

On a regular basis our Special Asset Committee closely monitors loans, primarily commercial loans, that are not included in the nonperforming or accruing past due categories and for which we are uncertain about the borrower’s ability to comply with existing repayment terms. These loans totaled $.3 billion and $.1 billion at September 30, 2016 and December 31, 2015, respectively.

~~Home Equity Loan Portfolio~~

Our home equity loan portfolio totaled $30.4 billion as of September 30, 2016, or 14% of the total loan portfolio. Of that total, $18.0 billion, or 59%, were outstanding under primarily variable-rate home equity lines of credit and $12.4 billion, or 41%, consisted of closed-end home equity installment loans. Approximately 4% of the home equity portfolio was purchased impaired and 3% of the home equity portfolio was on nonperforming status as of September 30, 2016.

As of September 30, 2016, we were in an originated first lien position for approximately 54% of the total outstanding portfolio and, where originated as a second lien, we held or serviced the first lien position for an additional 3% of the portfolio. The remaining 43% of the portfolio was secured by second liens where we do not hold the first lien position. The credit performance of the majority of the home equity

~~portfolio where we are in, hold or service the first lien position, is superior to the portion of the portfolio where we hold the second lien position but do not hold the first lien.~~

Generally, our variable-rate home equity lines of credit have either a seven or ten year draw period, followed by a 20-year amortization term. During the draw period, we have home equity lines of credit where borrowers pay either interest only or principal and interest. We view home equity lines of credit where borrowers are paying principal and interest under the draw period as less risky than those where the borrowers are paying interest only, as these borrowers have a demonstrated ability to make some level of principal and interest payments. The risk associated with the borrower’s ability to satisfy the loan terms upon the draw period ending is considered in establishing our ALLL. Based upon outstanding balances at September 30, 2016, the following table presents the periods when home equity lines of credit draw periods are scheduled to end.

~~Table 27: Home Equity Lines of Credit – Draw Period End Dates~~

In millions
Interest Only
Product

Principal and
Interest Product

Remainder of 2016
   $ 223       $ 72
2017
   1,813       473
2018
   830       660
2019
   575       508
2020
   461       457
2021 and thereafter
   2,927       6,134
Total (a) (b)
   $ 6,829       $ 8,304

~~(a)~~

~~Includes all home equity lines of credit that mature in the remainder 2016 or later,~~Preferred Funding Trust II, including ~~those with borrowers where we have terminated borrowing privileges.~~

~~(b)~~

Includes home equity lines of credit with balloon payments, including those where we have terminated borrowing privileges of $9 million, $39 million, $28 million, $21 million, $73 million and $427 million with draw periods scheduled to end in the remainder of 2016, 2017, 2018, 2019, 2020 and 2021 and thereafter, respectively.

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

~~Based upon outstanding balances, and excluding purchased impaired loans, at September 30, 2016, for home equity lines of credit for which the borrower can no longer draw (~~~~e.g.~~, draw period has ended or borrowing privileges have been terminated), approximately 3% were 30-89 days past due and approximately 5% were 90 days or more past due, which are accounted for as nonperforming. Generally, when a borrower becomes 60 days past due, we terminate borrowing privileges and those privileges are not subsequently reinstated. At that point, we continue our collection/recovery processes, which may include loan modification resulting in a loan that is classified as a TDR.

~~See the Credit Risk Management portion of the Risk Management section in our 2015 Form 10-K for more~~ information on our ~~home equity loan portfolio. See also Note 3 Asset Quality in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report.~~

~~Auto Loan Portfolio~~

The auto loan portfolio totaled $11.9 billion as of September 30, 2016, or 6% of our total loan portfolio. Of that total, $10.4 billion resides in the indirect auto portfolio, $1.2 billion in the direct auto portfolio, and $.3 billion in acquired or securitized portfolios, which has been declining as no pools have been recently acquired. Indirect auto loan applications are generated from franchised automobile dealers. This business is strategically aligned with our core retail business.

We have elected not to pursue non-prime auto lending as evidenced by an average new loan origination FICO score over the last twelve months of 760 for indirect auto loans and 776 for direct auto loans. As of September 30, 2016, .3% of our auto loan portfolio was nonperforming and .4%March 15, 2017 redemption of the ~~portfolio was accruing past due. We offer both new~~Perpetual Trust Securities and ~~used automobile financing to customers through our various channels. The portfolio was composed of 58% new vehicle loans and 42% used vehicle loans at September 30, 2016.~~

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

~~Energy Related Loan Portfolio~~

Our portfolio of loans outstanding in the oil and gas industry totaled $2.5 billion as of September 30, 2016, or 1% of our total loan portfolio and 2% of our total commercial lending portfolio. This portfolio comprised approximately $1.0 billion in the midstream and downstream sectors, $.9 billion to oil services companies and $.6 billion to upstream sectors. Of the oil services portfolio, approximately $.2 billion is not asset-

~~based or investment grade. Nonperforming loans in the oil and gas sector as of September 30, 2016 totaled $197 million, or 8% of total nonperforming assets.~~

Our portfolio of loans outstanding in the coal industry totaled $.5 billion as of September 30, 2016, or less than 1% of both our total loan portfolio and our total commercial lending portfolio. Nonperforming loans in the coal industry as of September 30, 2016 totaled $63 million, or 3% of total nonperforming assets.

~~Loan Modifications and Troubled Debt Restructurings~~

~~Consumer Loan Modifications~~

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

~~A temporary modification, with a term between three and 24 months, involves a change in original loan terms for a period of time and reverts to a calculated exit rate for the remaining term~~related termination of the ~~loan as of a specific date. A permanent modification, with a term greater than 24 months, is a modification in~~replacement capital covenants which the terms of the original loan are changed. Permanent modification programs, including both government-created Home Affordable Modification Program (HAMP) and PNC-developed modification programs, generally result in principal forgiveness, interest rate reduction, term extension, capitalization of past due amounts, interest-only period or deferral of principal.

We also monitor the success rates and delinquency status of our loan modification programs to assess their effectiveness in serving our borrowers’ and servicing customers’ needs while mitigating credit losses. Table 28 provides the number of accounts and unpaid principal balance of modified consumer real estate related loans at the end of each year presented.

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

~~Table 28: Consumer Real Estate Related Loan Modifications~~

September 30, 2016 December 31, 2015
Dollars in millions Number of
Accounts Unpaid
Principal
Balance Number of
Accounts Unpaid
Principal
Balance
Temporary modifications (a)
3,672    $ 273    4,469    $ 337
Permanent modifications

Home equity
15,543    1,108    15,268    1,088
Residential real estate
8,410    1,615    8,787    1,721
Total permanent modifications
23,953    2,723    24,055    2,809
Total consumer real estate related loan modifications
27,625    $ 2,996    28,524    $ 3,146

~~(a)~~

~~All temporary modifications are home equity loans.~~

In addition to temporary loan modifications, we may make a payment plan or a HAMP trial payment period available to a borrower. Under a payment plan or a HAMP trial payment period, there is no change to the loan’s contractual terms so the borrower remains legally responsible for payment of the loan under its original terms.

Payment plans may include extensions, re-ages and/or forbearance plans. All payment plans bring an account current once certain requirements are achieved and are primarily intended to demonstrate a borrower’s renewed willingness and ability to repay. Due to the short term nature of the payment plan, there is a minimal impact to the ALLL.

Under a HAMP trial payment period, we establish an alternate payment, generally at an amount less than the contractual payment amount, for the borrower during this short time period. This allows a borrower to demonstrate successful payment performance before permanently restructuring the loan into a HAMP modification. Subsequent to successful borrower performance under the trial payment period, we will capitalize the original contractual amount past due, to include accrued interest and fees receivable, and restructure the loan’s contractual terms, along with bringing the restructured account current. As the borrower is often already delinquent at the time of participation in the HAMP trial payment period, generally enrollment in the program does not significantly increase the ALLL. If the trial payment period is unsuccessful, the loan will be evaluated for further action based upon our existing policies. After December 31, 2016, the government-created HAMP program will expire. As such, no new modifications will be offered under the program after that date.

~~Commercial Loan Modifications and Payment Plans~~

We have established certain commercial loan modification and payment programs for small business loans, Small Business Administration loans, and investment real estate loans. As of September 30, 2016 and December 31, 2015, the loan balances covered under these modification and payment plan programs, including those determined to be TDRs, were not significant.

~~Troubled Debt Restructurings~~

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs result from our loss mitigation activities and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from court imposed concessions (~~e.g.~~ ~~a Chapter 7 bankruptcy where the debtor is discharged from personal liability to PNC and a court approved Chapter 13 bankruptcy repayment plan).~~

TDRs totaled $2.4 billion at September 30, 2016, an increase of $8 million during the first nine months of 2016. Excluded from TDRs are $1.1 billion and $1.2 billion of consumer loans held for sale, loans accounted for under the fair value option and pooled purchased impaired loans,Capital Trust C, as well as certain government insured or guaranteed loans at September 30, 2016 and December 31, 2015, respectively. Nonperforming TDRs represented approximately 55% and 53% of total nonperforming loans, and 50% and 48% of total TDRs at September 30, 2016 and December 31, 2015, respectively. The remaining portion of TDRs represents TDRs that have been returned to accrual accounting after performing under the restructured terms for at least six consecutive months.

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

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

~~Table 29: Loan Charge-Offs And Recoveries~~

Nine months ended September 30
Dollars in millions
   Gross
Charge-offs    Recoveries
Net
Charge-offs /
(Recoveries)
   Percent of Average
Loans (annualized)
2016

Commercial
   $ 271       $ 87       $ 184       .25 %
Commercial real estate
   22       37       (15 )    (.07 )%
Equipment lease financing
   4       9       (5 )    (.09 )%
Home equity
   115       63       52       .22 %
Residential real estate
   11       7       4       .04 %
Credit card
   122       14       108       2.99 %
Other consumer
   147       38       109       .67 %
Total
   $ 692       $ 255       $ 437       .28 %
2015

Commercial
   $ 145       $ 139       $ 6       .01 %
Commercial real estate
   29       46       (17 )    (.09 )%
Equipment lease financing
   2       3       (1 )    (.02 )%
Home equity
   139       69       70       .28 %
Residential real estate
   17       10       7       .07 %
Credit card
   121       16       105       3.13 %
Other consumer
   136       40       96       .58 %
Total
   $ 589       $ 323       $ 266       .17 %

Net charge-offs increased by $171 million, or 64%, in the first nine months of 2016 compared to the first nine months of 2015 due to higher commercial loan net charge-offs. Total net charge-offs exclude write-offs and recoveries related to purchased impaired loans.

We maintain an ALLL to absorb losses from the loan and lease portfolio and determine this allowance based on quarterly assessments of the estimated probable credit losses incurred in the loan and lease portfolio. Our total ALLL of $2.6 billion at September 30, 2016 consisted of $1.5 billion and $1.1 billion established for the commercial lending and consumer lending categories, respectively. We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolio as of the balance sheet date. The reserve calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan and lease portfolio performance experience, the financial strength of the borrower, and economic conditions. Key reserve assumptions are periodically updated.

consumer TDRs) are determined based on an analysis of the present value of expected future cash flows from the loans discounted at their effective interest rate, observable market price or the fair value of the underlying collateral.

~~Reserves allocated to non-impaired commercial loan classes are based on probability of default (PD) and loss given default (LGD) credit risk ratings.~~

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

Allocations to non-impaired consumer loan classes are primarily based upon a roll-rate model which uses statistical relationships, calculated from historical data that estimate the movement of loan outstandings through the various stages of delinquency and ultimately charge-off.

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

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

~~Industry concentrations and conditions,~~

~~Recent credit quality trends,~~

~~Recent loss experience in particular portfolios,~~

~~Recent macro-economic factors,~~

~~Model imprecision,~~

~~Changes in lending policies and procedures,~~

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

~~Limitations of available historical data.~~

Purchased impaired loans are initially recorded at fair value and applicable accounting guidance prohibits the carry over or creation of valuation allowances at acquisition. Because the initial fair values of these loans already reflect a credit component, additional reserves are established when performance is expected to be worse than our expectations as of the acquisition date. At September 30, 2016, we had reserves of $.3 billion for purchased impaired loans. In addition, loans (purchased impaired and non-impaired) acquired after January 1, 2009 were recorded at fair value. ~~No allowance for loan losses was carried over and no allowance was created at the date of acquisition.~~

~~See Note 1 Accounting Policies in our 2015 Form 10-K and Note 3 Asset Quality in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for further~~ information on ~~certain key asset quality indicators that we use to evaluate our portfolios and establish the allowances.~~

~~Table 30: Allowance for Loan and Lease Losses~~

Dollars in millions 2016 2015
January 1
$ 2,727    $ 3,331
Total net charge-offs
(437 ) (266 )
Provision for credit losses
366    181
Net change in allowance for unfunded loan commitments and letters of credit
(49 ) (7 )
Net recoveries of purchased impaired loans and other
12    (2 )
September 30
$ 2,619    $ 3,237
Net charge-offs to average loans (for the nine months ended) (annualized)
.28 % .17 %
Total allowance for loan and lease losses to total loans (a)
1.24 % 1.58 %
Commercial lending (net charge-offs) / recoveries
$ (164 ) $ 12
Consumer lending net charge-offs
(273 ) (278 )
Total net charge-offs
$ (437 ) $ (266 )
Net charge-offs / (recoveries) to average loans (for the nine months ended) (annualized)

Commercial lending
.16 % (.01 )%
Consumer lending
.50 % .50 %

~~(a)~~

~~See Note 1 Accounting Policies in our 2015 Form 10-K for information on our change in derecognition policy effective December 31, 2015 for certain purchased impaired loans.~~

The provision for credit losses increased to $366 million for the first nine months of 2016 compared to $181 million for the first nine months of 2015, primarily driven by energy related exposure, slowing credit quality improvement and the impact of continued loan growth.

At September 30, 2016, total ALLL to total nonperforming loans was 122%. The comparable amount for December 31, 2015 was 128%. These ratios are 91% and 98%, respectively, when excluding the $.7 billion and $.6 billion of ALLL at September 30, 2016 and December 31, 2015, respectively, allocated to consumer loans and lines of credit not secured by residential real estate and purchased impaired loans. We have excluded consumer loans and lines of credit not secured by real estate as they are charged off after 120 to 180 days past due and not placed on nonperforming status. Additionally, we have excluded purchased impaired loans as they are considered performing regardless of their delinquency status as interest is accreted in accordance with ASC 310-30 based on the recorded investment balance. See Table 23 within this Credit Risk Management section for additional information.

The ALLL balance increases or decreases across periods in relation to fluctuating risk factors, including asset quality trends, net charge-offs and changes in aggregate portfolio balances. During the first nine months of 2016, overall credit quality remained relatively stable offsetting impacts from certain energy related loans, which resulted in a slight ALLL balance decline of $.1 billion, or 4% to $2.6 billion as of September 30, 2016 compared to December 31, 2015.

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

See Note 1 Accounting Policies in our 2015 Form 10-K and Note 4 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for additional information on the ALLL and the allowance for unfunded loan commitments and letters of credit.

~~Liquidity Risk Management~~

~~Liquidity risk, including our liquidity monitoring measures and tools, is described in further detail in the Liquidity Risk Management section of our 2015 Form 10-K.~~

One of the ways PNC monitors its liquidity is by reference to the Liquidity Coverage Ratio (LCR), a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a 30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets (HQLA), as defined and calculated in accordance with the LCR rules, by its estimated net cash outflows, with net cash outflows determined by applying the assumed outflow factors in the LCR rules. The resulting quotient is expressed as a percentage. The minimum LCR that PNC and PNC Bank are required to maintain is 90% in 2016. Between January 1, 2016 and June 30, 2016, PNC and PNC Bank were required to calculate the LCR on a month-end basis. Effective July 1, 2016, PNC and PNC Bank began calculating the LCR on a daily basis. As of September 30, 2016, the LCR for PNC and PNC Bank exceeded the 2017 fully phased-in requirement of 100%.

We provide additional information regarding regulatory liquidity requirements and their potential impact on PNC in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2015 Form 10-K.

~~Bank Level Liquidity – Uses~~

~~At the bank level, primary~~ contractual obligations include funding loan commitments, satisfying deposit withdrawal requests and maturities and debt service related to bank borrowings. As of September 30, 2016, there were approximately $10.5 billion of bank borrowings with contractual maturities of less than one year, including $1.1 billion in borrowings from an affiliate. We also maintain adequate bank liquidity to meet future potential loan demand and provide for other business needs, as necessary.

~~Bank Level Liquidity – Sources~~

Our largest source of bank liquidity on a consolidated basis is the deposit base generated by our retail and commercial banking businesses. Total deposits increased to $259.9 billion at September 30, 2016 from $249.0 billion at December 31, 2015, driven by growth in savings deposits and demand deposits, partially offset by a decline in money market deposits and time deposits in foreign offices and other time deposits. Assets determinedlimitations potentially imposed by PNC to be liquid (liquid assets) and unused borrowing capacity from a number of sources are also available to maintain our liquidity position. Borrowed funds come from a diverse mix of short-term and long-term funding sources.

~~At September 30, 2016, our liquid assets consisted of short-term investments (Federal funds sold, resale agreements, trading securities and interest-earning deposits~~Capital Trust C on payments (including dividends) with banks) totaling $30.4 billion and securities available for sale totaling $61.9 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Of our total liquid assets of $92.3 billion, we had $3.5 billion of securities available for sale and trading securities pledged as collateral to secure public and trust deposits, repurchase agreements and for other purposes. In addition to the liquid assets we pledged, $6.5 billion of securities held to maturity were also pledged as collateral for these purposes.

In addition to the customer deposit base, which has historically provided the single largest source of relatively stable and low-cost funding, the bank also obtains liquidity through the issuance of traditional forms of funding, including long-term debt (senior notes, subordinated debt and FHLB advances) and short-term borrowings (Federal funds purchased, securities sold under repurchase agreements, commercial paper and other short-term borrowings).

Under PNC Bank’s 2014 bank note program, dated January 16, 2014 and amended May 22, 2015 and May 27, 2016, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount at any one time outstanding of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. The $40.0 billion of notes includes notes issued by PNC Bank under the 2004 bank note program and those notes PNC Bank has assumed through the acquisition of other banks, in each case for so long as such notes remain outstanding. The terms of the 2014 bank note program, as amended, do not affect any of the bank notes issued prior to January 16, 2014. At September 30, 2016, PNC Bank had $24.9 billion of notes outstanding under this program of which $18.7 billion was senior bank notes and $6.2 billion was subordinated bank notes. The following table details all issuances during 2016:

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

~~Table 31: PNC Bank Notes Issued During 2016~~


~~Issuance Date~~	~~Amount~~	~~Description of Issuance~~
~~March 4, 2016~~	~~$1.0 billion~~	~~Senior notes with a maturity date of March 4, 2019. Interest is payable semi-annually at a fixed rate of 1.950% on March 4 and September 4 of each year, beginning September 4, 2016.~~
~~April 29, 2016~~	~~$600 million~~	~~Senior notes with a maturity date of June 1, 2025. Interest is payable semi-annually at a fixed rate of 3.250% on June 1 and December 1 of each year, beginning June 1, 2016.~~
~~April 29, 2016~~	~~$1.25 billion~~	~~Senior notes with a maturity date of April 29, 2021. Interest is payable semi-annually at a fixed rate of 2.150% on April 29 and October 29 of each year, beginning October 29, 2016.~~
~~July 29, 2016~~	~~$1.0 billion~~	~~Senior notes with a maturity date of July 29, 2019. Interest is payable semi-annually at a fixed rate of 1.450% on January 29 and July 29 of each year, beginning January 29, 2017.~~

~~Total senior and subordinated debt of PNC Bank increased to $26.7 billion at September 30, 2016 from $25.5 billion at December 31, 2015 due to the following activity in the period.~~

~~Table 32: PNC Bank Senior and Subordinated Debt~~

In billions    2016
January 1
   $ 25.5
Issuances
   3.9
Calls and maturities
   (3.0 )
Other
   .3
September 30
   $ 26.7

PNC Bank is a member of the FHLB-Pittsburgh and, as such, has access to advances from FHLB-Pittsburgh secured generally by residential mortgage loans, other mortgage-related loans and commercial mortgage-backed securities. At September 30, 2016, our unused secured borrowing capacity was $26.8 billion with the FHLB-Pittsburgh. Total FHLB borrowings decreased to $17.1 billion at September 30, 2016 from $20.1 billion at December 31, 2015 due to the following activity in the period.

~~Table 33: FHLB Borrowings~~

In billions    2016
January 1
   $ 20.1
Issuances
   4.5
Calls and maturities
   (7.5 )
September 30
   $ 17.1

The FHLB-Pittsburgh also periodically provides standby letters of credit on behalf of PNC Bank to secure certain public deposits. If the FHLB-Pittsburgh is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to PNC Bank. At September 30, 2016, standby letters of credit issued on our behalf by the FHLB-Pittsburgh totaled $4.7 billion.

~~PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of September 30, 2016, there were no issuances outstanding under this program.~~

PNC Bank can also borrow from the Federal Reserve Bank discount window to meet short-term liquidity requirements. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities, but rather as a potential source of liquidity in a stressed environment or during a market disruption. These potential borrowings are secured by commercial loans. At September 30, 2016, our unused secured borrowing capacity was $17.2 billion with the Federal Reserve Bank.

~~Parent Company Liquidity~~

As of September 30, 2016, available parent company liquidity totaled $3.3 billion. Parent company liquidity is primarily held in intercompany short-term investments, the terms of which provide for the availability of cash in 31 days or less. Investments with longer durations may also be acquired, but if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

~~Parent Company Liquidity – Uses~~

The parent company’s contractual obligations consist primarily of debt service related to parent company borrowings and funding non-bank affiliates. As of September 30, 2016, there were approximately $.6 billion of parent company borrowings with contractual maturities of less than one year. Additionally, the parent company maintains adequate liquidity to fund discretionary activities such as paying dividends to PNC shareholders, share repurchases, and acquisitions.

See the Capital portion of the Consolidated Balance Sheet Review section of this Financial Review for information on our 2016 capital plan that was accepted by the Federal Reserve. Our capital plan included a recommendation to

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

increase the quarterly common stock dividend in the third quarter of 2016 and also included share repurchase programs of up to $2.0 billion for the four-quarter period beginning in the third quarter of 2016. More information on our share repurchase programs, including detail on our third quarter repurchase of 5.9 million common shares for $.5 billion, is included in the Capital portion of the Consolidated Balance Sheet Review in this Financial Review.

~~On July 7, 2016, consistent with our 2016 capital plan, our Board of Directors approved an increase~~respect to PNC’s ~~quarterly common stock dividend from 51 cents per common share to 55 cents per common share beginning with the August 5, 2016 dividend payment.~~securities.

See the Supervision and Regulation section in Item 1 Business of our 2015 Form 10-K for additional information regarding the Federal Reserve’s CCAR process and the factors the Federal Reserve takes into consideration in evaluating capital plans, qualitative and quantitative liquidity risk management standards proposed by the U.S. banking agencies, and final rules issued by the Federal Reserve that make certain modifications to the Federal Reserve’s capital planning and stress testing rules.

~~Parent Company Liquidity – Sources~~

~~The principal source of parent company liquidity is the dividends it receives from its subsidiary bank, which may be impacted by the following:~~

~~Bank-level capital needs,~~

~~Laws and regulations,~~

~~Corporate policies,~~

~~Contractual restrictions, and~~

~~Other factors.~~

There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was approximately $1.5 billion at September 30, 2016. See Note 19 Regulatory Matters in our 2015 Form 10-K for a further discussion of these limitations. We provide additional information on certain contractual restrictions in Note 16 Equity in our 2015 Form 10-K.

We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper.

~~Total parent company senior and subordinated debt and hybrid capital instruments decreased to $6.4 billion at September 30,~~

~~2016 from $7.5 billion at December 31, 2015 due to the following activity in the period.~~

~~See Note 15 Subsequent Events in the Notes to Consolidated Financial Statements of this Report for information on the issuance of depository shares, each representing a 1/100~~^th~~interest in a share of our Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series S.~~

~~Table 34: Parent Company Senior and Subordinated Debt and Hybrid Capital Instruments~~

In billions    2016
January 1
   $ 7.5
Calls and Maturities
   (1.2 )
Other
   .1
September 30
   $ 6.4

~~The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As of September 30, 2016, there were no issuances outstanding under this program.~~

~~Status of Credit Ratings~~

The cost and availability of short-term and long-term funding, as well as collateral requirements for certain derivative instruments, is influenced by PNC’s credit ratings. See the Liquidity Risk Management portion of the Risk Management section in our 2015 Form 10-K for more information on credit ratings.

~~Table 35: Credit Ratings as of September 30, 2016 for PNC and PNC Bank~~


	~~Moody’s~~		~~Standard &~~ ~~Poor’s~~	~~Fitch~~
~~PNC~~
~~Senior debt~~		A3	A-	A+
~~Subordinated debt~~		A3	~~BBB+~~	A
~~Preferred stock~~		~~Baa2~~	~~BBB-~~	~~BBB-~~

~~PNC Bank~~
~~Senior debt~~		A2	A	A+
~~Subordinated debt~~		A3	A-	A
~~Long-term deposits~~		~~Aa2~~	A	~~AA-~~
~~Short-term deposits~~		~~P-1~~	~~A-1~~	~~F1+~~
~~Short-term notes~~		~~P-1~~	~~A-1~~	F1

~~Contractual Obligations and Commitments~~

We have contractual obligations representing required future payments on borrowed funds, time deposits, leases, pension and postretirement benefits, and purchase obligations. See the Liquidity Risk Management portion of the Risk Management section in our 2015 Form 10-K for more information on these future cash outflows. Additionally, in the normal course of business we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet.

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

~~We provide information on our commitments in Note 13 Commitments and Guarantees in Part I, Item 1 of this Report.~~

~~Market Risk Management~~

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

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

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

We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. Market Risk Management provides independent oversight by monitoring compliance with established guidelines, and reporting significant risks in the business to the Risk Committee of the Board.

~~Market Risk Management~~–~~Interest Rate Risk~~

~~Sensitivity results and market interest rate benchmarks for the third quarters of 2016 and 2015 follow:~~

~~Table 36: Interest Sensitivity Analysis~~

Third
Quarter
2016 Third
Quarter
2015
Net Interest Income Sensitivity Simulation (a)

Effect on net interest income in first year from gradual interest rate change over the following 12 months of:

100 basis point increase
3.0 % 2.7 %
100 basis point decrease
(3.9 )% (.7 )%
Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of:

100 basis point increase
6.1 % 6.4 %
100 basis point decrease
(8.3 )% (5.3 )%
Duration of Equity Model (a)

Base case duration of equity (in years)
(6.5 ) (5.2 )
Key Period-End Interest Rates

One-month LIBOR
.53 % .19 %
Three-year swap
1.07 % .98 %

~~(a)~~

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

In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 37 reflects the percentage change in net interest income over the next two 12-month periods assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and (iii) Yield Curve Slope Flattening (a 100 basis point yield curve slope flattening between 1-month and ten-year rates superimposed on current base rates) scenario.

~~Table 37: Net Interest Income Sensitivity to Alternative Rate Scenarios (Third Quarter 2016)~~

      PNC
Economist    Market
Forward    Slope
Flattening
First year sensitivity
   2.6 %
3.1%

(3.1)%
Second year sensitivity
   6.7 %
3.6%

(8.6)%

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

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

When forecasting net interest income, we make assumptions about interest rates and the shape of the yield curve, the volume and characteristics of new business and the behavior of existing on- and off-balance sheet positions. These assumptions determine the future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 36 and 37 above. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates. We also consider forward projections of purchase accounting accretion when forecasting net interest income.

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

~~Table 38: Alternate Interest Rate Scenarios: One Year Forward~~

The third quarter 2016 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

~~Market Risk Management – Customer-Related Trading Risk~~

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

factors. A diversified VaR reflects empirical correlations across different asset classes. We calculate a diversified VaR at a 95% confidence interval and the results for the first nine months of 2016 and 2015 were within our acceptable limits.

~~See the Market Risk Management – Customer-Related Trading Risk section of our 2015 Form 10-K for more information on the models and backtesting.~~

Customer related trading revenue was $140 million for the first nine months of 2016 compared with $155 million for the first nine months of 2015. This decrease was primarily due to changes in credit valuations for customer-related derivatives.

Customer related trading revenue was $51 million for the third quarter of 2016 compared with $53 million for the third quarter of 2015. This decrease was primarily due to reduced client related foreign exchange results.

~~Market Risk Management – Equity And Other Investment Risk~~

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

The primary risk measurement for equity and other investments is economic capital. Economic capital is a common measure of risk for credit, market and operational risk. It is an estimate of the potential value depreciation over a one year horizon commensurate with solvency expectations of an institution rated single-A by the credit rating agencies. Given the illiquid nature of many of these types of investments, it can be a challenge to determine their fair values. See Note 6 Fair Value in the Notes To Consolidated Financial Statements in this Report and Note 7 Fair Value in our 2015 Form 10-K for additional information.

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

~~A summary of our equity investments follows:~~

~~Table 39: Equity Investments Summary~~

September 30
2016

December 31
2015
   Change
In millions          $ %
BlackRock
   $ 6,805       $ 6,626       $ 179    3 %
Tax credit investments
   2,141       2,254       (113 ) (5 )%
Private equity
   1,340       1,441       (101 ) (7 )%
Visa
   2       31       (29 ) (94 )%
Other
   317       235       82    35 %
Total
   $ 10,605       $ 10,587       $ 18    0 %

~~BlackRock~~

PNC owned approximately 35 million common stock equivalent shares of BlackRock equity at September 30, 2016, accounted for under the equity method. The primary risk measurement, similar to other equity investments, is economic capital. The Business Segments Review section of this Financial Review includes additional information about BlackRock.

~~Tax Credit Investments~~

Included in our equity investments are direct tax credit investments and equity investments held by consolidated partnerships. These equity investment balances include unfunded commitments totaling $719 million and $669 million at September 30, 2016 and December 31, 2015, respectively. These unfunded commitments are included in Other Liabilities on our Consolidated Balance Sheet.

Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in Item 8 of our 2015 Form 10-K has further information on Tax Credit Investments.

~~Private Equity~~

The private equity portfolio is an illiquid portfolio comprised of mezzanine and equity investments that vary by industry, stage and type of investment and are carried at estimated fair value. As of September 30, 2016, $1.1 billion was invested directly in a variety of companies and $.3 billion was invested indirectly through various private equity funds. Included in direct investments are investment activities of two private equity funds that are consolidated for financial reporting purposes. The interests held in indirect private equity funds are not redeemable, but PNC may receive distributions over the life of the partnership from liquidation of the underlying investments. See Item 1 Business – Supervision and Regulation and Item 1A Risk Factors included in our 2015 Form 10-K for discussions of the potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and sponsorship of private funds covered by the Volcker Rule.

~~Our unfunded commitments related to private equity totaled $128 million at September 30, 2016 and $126 million at December 31, 2015.~~

~~Visa~~

Our 2015 Form 10-K includes information regarding the October 2007 Visa restructuring, our involvement with judgment and loss sharing agreements with Visa and certain other banks, the status of pending interchange litigation, the sales of portions of our Visa Class B common shares and the related swap agreements with the purchaser. See Note 12 Legal Proceedings in our Second Quarter 2016 Form 10-Q for more detail on the status of the pending interchange litigation.

During the first nine months of 2016, we sold 1.35 million Visa Class B common shares, in addition to the 18.5 million shares sold in previous years. We have entered into swap agreements with the purchasers of the shares as part of these sales. At September 30, 2016, our investment in Visa Class B common shares totaled approximately 3.5 million shares. Based on the September 30, 2016 closing price of $82.70 for the Visa Class A common shares, the fair value of our total investment was $479 million at the current conversion rate. The Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock, which cannot happen until the final resolution of all of the specified litigation.

~~Other Investments~~

We also have certain other equity investments, the majority of which represent investments in affiliated and non-affiliated funds with both traditional and alternative investment strategies. The economic values could be driven by either the fixed-income market or the equity markets, or both. Given the nature of these investments, if market conditions affecting their valuation were to worsen, we could incur future losses. Net gains related to these investments were not significant for the first nine months of 2016 and 2015.

~~Our unfunded commitments related to other investments at September 30, 2016 and December 31, 2015 were not significant.~~

~~Financial Derivatives~~

Information on our financial derivatives is presented in Note 1 Accounting Policies and Note 7 Fair Value in our Notes To Consolidated Financial Statements under Item 8 of our 2015 Form 10-K and in Note 6 Fair Value and Note 9 Financial Derivatives in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report, which is incorporated here by reference.

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

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

~~The following table summarizes the notional or contractual amounts and net fair value of financial derivatives at September 30, 2016 and December 31, 2015.~~

~~Table 40: Financial Derivatives Summary~~

   September 30, 2016    December 31, 2015
In millions    Notional/
Contractual
Amount    Net Fair
Value (a)    Notional/
Contractual
Amount    Net Fair
Value (a)
Derivatives designated as hedging instruments under GAAP

Total derivatives designated as hedging instruments
   $ 52,466       $ 1,336       $ 52,074       $ 985
Derivatives not designated as hedging instruments under GAAP

Total derivatives used for residential mortgage banking activities
   72,281       516       73,891       376
Total derivatives used for commercial mortgage banking activities
   9,689       80       24,091       36
Total derivatives used for customer-related activities
   208,437       170       192,621       151
Total derivatives used for other risk management activities
   5,914       (362 )    5,299       (409 )
Total derivatives not designated as hedging instruments
   296,321       404       295,902       154
Total Derivatives
   $ 348,787       $ 1,740       $ 347,976       $ 1,139

~~(a)~~

~~Represents the net fair value of assets and liabilities.~~

INTERNAL CONTROLS A~~AND~~ND DISCLOSURE CONTROLS A~~AND~~ND PROCEDURES

As of ~~September 30, 2016,~~March 31, 2017, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures and of changes in our internal control over financial reporting.

Based on that evaluation, our Chairman, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities and Exchange Act of 1934) were effective as of ~~September 30, 2016,~~March 31, 2017, and that there has been no change in PNC’s internal control over financial reporting that occurred during the ~~third~~first quarter of ~~2016~~2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

GLOSSARY OOFF TERMS

For a glossary of terms commonly used in our filings, please see the glossary of terms included in our ~~2015~~2016 Form10-K.

34The PNC Financial Services Group, Inc. –Form 10-Q43

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

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

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

–

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

–

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

–

The impact on financial markets and the economy of any changes in the credit ratings of U.S. Treasury obligations and other U.S. government-backed debt, as well as issues surrounding the levels of U.S. and European government debt and concerns regarding the creditworthiness of certain sovereign governments, supranationals and financial institutions in Europe.

–

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

–

Changes in law and policy accompanying the new presidential administration and uncertainty or speculation pending the enactment of such changes.

–

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

–

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

–

Continued residual effects of recessionary conditions and uneven spread of positive impacts of recovery on the economy and our counterparties, including adverse impacts on levels of unemployment, loan utilization rates, delinquencies, defaults and counterparty ability to meet credit and other obligations.

–

Commodity price volatility.

–

Changes in customer preferences and behavior, whether due to changing business and economic conditions, legislative and regulatory initiatives, or other factors.

Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting. These statements are based on our current view that the U.S. economy will grow moderately in the latter half of 2016, boosted by stable oil/energy prices, improving housing activity and moderate job gains, and that short-term interest rates and bond yields will hold fairly steady before gradually rising late this year. Specifically, our business outlook reflects our expectation of a 25 basis point increase in short-term interest rates by the Federal Reserve in December 2016. These forward-looking statements also do not, unless otherwise indicated, take into account the impact of potential legal and regulatory contingencies.

~~PNC’s~~
expecting. These statements are based on our current view that the U.S. economy and the labor market will grow moderately in 2017, boosted by stable oil/energy prices, improving consumer spending and housing activity, and expanded federal fiscal policy stimulus as a result of the 2016 elections. Short-term interest rates and bond yields are expected to continue rising gradually in 2017, along with inflation. These forward-looking statements also do not, unless otherwise indicated, take into account the impact of potential legal and regulatory contingencies.

Our ability to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs, or issue or redeem preferred stock or other regulatory capital instruments, is subject to the review of such proposed actions by the Federal Reserve Board as part of ~~PNC’s~~our comprehensive capital plan for the applicable period in connection with the Federal ~~Reserve’s CCAR~~Reserve Board’s Comprehensive Capital Analysis and Review (CCAR) process and to the acceptance of such capital plan andnon-objection to such capital actions by the Federal ~~Reserve.~~

Reserve Board.

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

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

–

Changes resulting from legislative and regulatory reforms, including ~~major reform of the regulatory~~changes affecting oversight ~~structure~~ of the financial services industry, consumer protection, bank capital and ~~changes to laws and regulations involving~~liquidity standards, tax, pension, bankruptcy ~~consumer protection,~~ and other industry aspects, and changes in accounting policies

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

and principles. We will be impacted by extensive reforms provided for in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and otherwise growing out of the most recent financial crisis, the precise nature, extent and timing of which, and their impact on us, remains uncertain.

–

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

–

Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. ~~In addition to matters relating to PNC’s current and historical business and activities, such matters may include proceedings, claims, investigations, or inquiries relating topre-acquisition~~ ~~business and activities of acquired companies, such as National City.~~ These matters may

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

result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to ~~PNC.~~us.

–

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

–

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

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

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

~~BlackRock. Risks and uncertainties that could affect BlackRock are discussed in more detail by BlackRock in its SEC filings.~~

We grow our business in part by acquiring from time to time other financial services companies, financial services assets and related deposits and other liabilities. Acquisition risks and uncertainties include those presented by the nature of the business acquired, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into PNC after closing.

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

Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues. Industry restructuring in the current environment could also impact our business and financial performance through changes in counterparty creditworthiness and performance and in the competitive and regulatory landscape. Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.

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

We provide greater detail regarding these as well as other factors in our ~~2015 Form 10-K, our~~ 2016 Form ~~10-Qs~~10-K, and elsewhere in this Report, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments ~~and Guarantees~~ Notes of the Notes To Consolidated Financial Statements in ~~those reports.~~that Report. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.

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

CONSOLIDATED INCOME STATEMENT

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions, except per share data	Three months ended March 31
Unaudited In millions, except per share data	2017		2016
Interest Income
Loans	$	1,904	$	1,843
Investment securities		493		462
Other		123		102
Total interest income		2,520		2,407
Interest Expense
Deposits		120		105
Borrowed funds		240		204
Total interest expense		360		309
Net interest income		2,160		2,098
Noninterest Income
Asset management		403		341
Consumer services		332		337
Corporate services		393		325
Residential mortgage		113		100
Service charges on deposits		161		158
Other		322		306
Total noninterest income		1,724		1,567
Total revenue		3,884		3,665
Provision For Credit Losses		88		152
Noninterest Expense
Personnel		1,249		1,145
Occupancy		222		221
Equipment		251		234
Marketing		55		54
Other		625		627
Total noninterest expense		2,402		2,281
Income before income taxes and noncontrolling interests		1,394		1,232
Income taxes		320		289
Net income		1,074		943
Less: Net income attributable to noncontrolling interests		17		19
Preferred stock dividends		63		63
Preferred stock discount accretion and redemptions		21		2
Net income attributable to common shareholders	$	973	$	859
Earnings Per Common Share
Basic	$	1.99	$	1.70
Diluted		1.96		1.68
Average Common Shares Outstanding
Basic		487		501
Diluted		492		507

See accompanying Notes To Consolidated Financial Statements.

The PNC Financial Services Group, Inc. –Form 10-Q 4537

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ~~STATEMENT~~

THE PNC FINANCIAL SERVICES GROUP, INC.

Unaudited
In millions, except per share data
   Three months ended
September 30 Nine months ended
September 30
   2016    2015 2016    2015
Interest Income

Loans
   $ 1,856       $ 1,804    $ 5,528       $ 5,397
Investment securities
   451       423    1,369       1,236
Other
   101       114    302       332
Total interest income
   2,408       2,341    7,199       6,965
Interest Expense

Deposits
   107       107    316       297
Borrowed funds
   206       172    622       482
Total interest expense
   313       279    938       779
Net interest income
   2,095       2,062    6,261       6,186
Noninterest Income

Asset management
   404       376    1,122       1,168
Consumer services
   348       341    1,039       986
Corporate services
   389       384    1,117       1,097
Residential mortgage
   160       125    425       453
Service charges on deposits
   174       172    495       481
Net gains (losses) on sales of securities
   7       (9 ) 20       41
Other
   252       324    809       960
Total noninterest income
   1,734       1,713    5,027       5,186
Total revenue
   3,829       3,775    11,288       11,372
Provision For Credit Losses
   87       81    366       181
Noninterest Expense

Personnel
   1,239       1,222    3,610       3,579
Occupancy
   215       209    651       634
Equipment
   246       227    720       680
Marketing
   72       64    187       193
Other
   622       630    1,867       1,981
Total noninterest expense
   2,394       2,352    7,035       7,067
Income before income taxes and noncontrolling interests
   1,348       1,342    3,887       4,124
Income taxes
   342       269    949       1,003
Net income
   1,006       1,073    2,938       3,121
Less: Net income (loss) attributable to noncontrolling interests
   18       18    60       23
Preferred stock dividends and discount accretion and redemptions
   64       64    172       182
Net income attributable to common shareholders
   $ 924       $ 991    $ 2,706       $ 2,916
Earnings Per Common Share

Basic
   $ 1.87       $ 1.93    $ 5.41       $ 5.64
Diluted
   $ 1.84       $ 1.90    $ 5.33       $ 5.52
Average Common Shares Outstanding

Basic
   490       512    496       516
Diluted
   496       520    502       525


Unaudited In millions	Three months ended March 31
Unaudited In millions	2017			2016
Net income	$	1,074		$	943
Other comprehensive income (loss), before tax and net of reclassifications into Net income:
Net unrealized gains (losses) onnon-OTTI securities		69			504
Net unrealized gains (losses) on OTTI securities		35			(38	)
Net unrealized gains (losses) on cash flow hedge derivatives		(77	)		200
Pension and other postretirement benefit plan adjustments		(62	)		12
Other		4			(27	)
Other comprehensive income (loss), before tax and net of reclassifications into Net income		(31	)		651
Income tax benefit (expense) related to items of other comprehensive income		17			(249	)
Other comprehensive income (loss), after tax and net of reclassifications into Net income		(14	)		402
Comprehensive income		1,060			1,345
Less: Comprehensive income (loss) attributable to noncontrolling interests		17			19
Comprehensive income attributable to PNC	$	1,043		$	1,326

See accompanying Notes To Consolidated Financial Statements.

4638 The PNC Financial Services Group, Inc. –Form 10-Q

CONSOLIDATED ~~STATEMENT OF COMPREHENSIVE INCOME~~BALANCE SHEET

THE PNC FINANCIAL SERVICES GROUP, INC.

Unaudited
In millions
   Three months ended
September 30 Nine months ended
September 30
   2016 2015 2016 2015
Net income
   $ 1,006    $ 1,073    $ 2,938    $ 3,121
Other comprehensive income (loss), before tax and net of reclassifications into Net income:

Net unrealized gains (losses) on non-OTTI securities
   (25 ) 154    752    (137 )
Net unrealized gains (losses) on OTTI securities
   38    4    17    11
Net unrealized gains (losses) on cash flow hedge derivatives
   (125 ) 234    138    303
Pension and other postretirement benefit plan adjustments
   11    7    26    57
Other
   (25 ) (1 ) (40 ) (37 )
Other comprehensive income (loss), before tax and net of reclassifications into Net income
   (126 ) 398    893    197
Income tax benefit (expense) related to items of other comprehensive income
   36    (162 ) (377 ) (85 )
Other comprehensive income (loss), after tax and net of reclassifications into Net income
   (90 ) 236    516    112
Comprehensive income
   916    1,309    3,454    3,233
Less: Comprehensive income (loss) attributable to noncontrolling interests
   18    18    60    23
Comprehensive income attributable to PNC
   $ 898    $ 1,291    $ 3,394    $ 3,210

~~See accompanying Notes To Consolidated Financial Statements.~~

~~The PNC Financial Services Group, Inc. –~~~~Form 10-Q~~47

~~CONSOLIDATED BALANCE SHEET~~

~~THE PNC FINANCIAL SERVICES GROUP, INC.~~


Unaudited In millions, except par value	September 30 2016			December 31 2015			March 31 2017			December 31 2016
*Assets*
Cash and due from banks ~~(a)~~	$	4,531		$	4,065		$	5,003		$	4,879
Federal funds sold and resale agreements (b)		718			1,369
Trading securities		2,612			1,726
Interest-earning deposits with banks (a)		27,058			30,546
Loans held for sale (b)		2,053			1,540
Investment securities		78,514			70,528
Loans (b)		210,446			206,696
Interest-earning deposits with banks								27,877			25,711
Loans held for sale (a)								1,414			2,504
Investment securities – available for sale								59,339			60,104
Investment securities – held to maturity								17,093			15,843
Loans (a)								212,826			210,833
Allowance for loan and lease losses		(2,619	)		(2,727	)		(2,561	)		(2,589	)
Net loans (a)		207,827			203,969
Net loans								210,265			208,244
Equity investments								10,900			10,728
Mortgage servicing rights								1,867			1,758
Goodwill		9,103			9,103			9,103			9,103
Mortgage servicing rights		1,293			1,589
Other intangible assets		304			379
Equity investments (a)		10,605			10,587
Other (a) (b)		24,730			23,092
Other (a)								28,083			27,506
Total assets	$	369,348		$	358,493		$	370,944		$	366,380
*Liabilities*
Deposits
Noninterest-bearing	$	82,159		$	79,435		$	79,246		$	80,230
Interest-bearing		177,736			169,567			181,464			176,934
Total deposits		259,895			249,002			260,710			257,164
Borrowed funds
Federal funds purchased and repurchase agreements		1,235			1,777
Federal Home Loan Bank borrowings		17,050			20,108			19,549			17,549
Bank notes and senior debt		22,431			21,298			23,745			22,972
Subordinated debt		8,708			8,556			6,889			8,009
Other (c) (d)		2,117			2,793
Other (b)								4,879			4,176
Total borrowed funds		51,541			54,532			55,062			52,706
Allowance for unfunded loan commitments and letters of credit		310			261			305			301
Accrued expenses (c)		5,226			4,975
Other (c)		5,531			3,743
Accrued expenses and other liabilities								8,964			9,355
Total liabilities		322,503			312,513			325,041			319,526
*Equity*
Preferred stock (e)
Common stock ($5 par value, authorized 800 shares, issued 542 shares)		2,709			2,708
Capital surplus – preferred stock		3,456			3,452
Capital surplus – common stock and other		12,703			12,745
Preferred stock (c)
Common stock ($5 par value, Authorized 800 shares, issued 542 shares)								2,709			2,709
Capital surplus								16,275			16,651
Retained earnings		30,958			29,043			32,372			31,670
Accumulated other comprehensive income (loss)		646			130			(279	)		(265	)
Common stock held in treasury at cost: 54 and 38 shares		(4,765	)		(3,368	)
Common stock held in treasury at cost: 57 shares								(5,323	)		(5,066	)
Total shareholders’ equity		45,707			44,710			45,754			45,699
Noncontrolling interests		1,138			1,270			149			1,155
Total equity		46,845			45,980			45,903			46,854
Total liabilities and equity	$	369,348		$	358,493		$	370,944		$	366,380

(a)

Our consolidated assets at September 30, 2016 included the following assets of certain variable interest entities (VIEs): Equity investments of $205 million and Other assets of $21 million. Our consolidated assets at December 31, 2015 included the following assets of certain VIEs: Cash and due from banks of $11 million, Interest-earning deposits with banks of $4 million, Net loans of $1.3 billion, Equity investments of $183 million, and Other assets of $402 million.

~~(b)~~

~~Our consolidated assets at September 30, 2016~~ included the following for which we have elected the fair value option: ~~Federal funds sold and resale agreements of $136 million,~~ Loans held for sale of ~~$2.0~~$1.3 billion, Loans of $.9 billion and Other assets of ~~$384 million. Our consolidated assets~~$.3 billion at ~~December~~March 31, ~~2015 included the following for which we have elected the fair value option: Federal funds sold~~2017 and ~~resale agreements of $137 million,~~ Loans held for sale of ~~$1.5~~$2.4 billion, Loans of $.9 billion and Other assets of ~~$521 million.~~$.5 billion at December 31, 2016.

~~(c)~~(b)

Our consolidated liabilities at September 30, 2016 included liabilities of $9 million for certain VIEs. Our consolidated liabilities at December 31, 2015 included the following liabilities of certain VIEs: Other borrowed funds of $148 million, Accrued expenses of $44 million, and Other liabilities of $202 million.

~~(d)~~

~~Our consolidated liabilities at September 30, 2016 and December 31, 2015~~ included Other borrowed funds of ~~$78 million~~$.1 billion at both March 31, 2017 and ~~$93 million, respectively,~~December 31, 2016, for which we have elected the fair value option.

~~(e)~~(c)

Par value less than $.5 million at each date.

See accompanying Notes To Consolidated Financial Statements.

The PNC Financial Services Group, Inc. –Form 10-Q4839

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions	Three months ended March 31
Unaudited In millions	2017			2016
Operating Activities
Net income	$	1,074		$	943
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for credit losses		88			152
Depreciation and amortization		279			270
Deferred income taxes		21			(49	)
Changes in fair value of mortgage servicing rights		33			341
Gain on sales of Visa Class B common shares					(44	)
Undistributed earnings of BlackRock		(100	)		(61	)
Net change in
Trading securities and other short-term investments		(405	)		(946	)
Loans held for sale		1,065			51
Other assets		554			(1,310	)
Accrued expenses and other liabilities		(884	)		1,084
Other		(116	)		(155	)
Net cash provided (used) by operating activities		1,609			276
Investing Activities
Sales
Securities available for sale		3,202			782
Loans		338			371
Repayments/maturities
Securities available for sale		2,790			2,005
Securities held to maturity		504			523
Purchases
Securities available for sale		(5,142	)		(3,441	)
Securities held to maturity		(1,778	)		(687	)
Loans		(177	)		(363	)
Net change in
Federal funds sold and resale agreements		(674	)		246
Interest-earning deposits with banks		(2,166	)		1,067
Loans		(2,359	)		(1,530	)
Other		(177	)		119
Net cash provided (used) by investing activities		(5,639	)		(908	)

(continued on following page)

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


Unaudited In millions	Three months ended March 31
Unaudited In millions	2017			2016
Financing Activities
Net change in
Noninterest-bearing deposits	$	(944	)	$	(877	)
Interest-bearing deposits		4,530			2,641
Federal funds purchased and repurchase agreements		8			718
Other borrowed funds		795			128
Sales/issuances
Federal Home Loan Bank borrowings		4,500
Bank notes and senior debt		1,820			997
Other borrowed funds		26			80
Common and treasury stock		60			18
Repayments/maturities
Federal Home Loan Bank borrowings		(2,500	)		(1,050	)
Bank notes and senior debt		(1,000	)		(997	)
Subordinated debt		(1,100	)		18
Other borrowed funds		(19	)		(373	)
Redemption of noncontrolling interests		(1,000	)
Acquisition of treasury stock		(688	)		(551	)
Preferred stock cash dividends paid		(63	)		(64	)
Common stock cash dividends paid		(271	)		(260	)
Net cash provided (used) by financing activities		4,154			428
Net Increase (Decrease) In Cash And Due From Banks		124			(204	)
Cash and due from banks at beginning of period		4,879			4,065
Cash and due from banks at end of period	$	5,003		$	3,861
Supplemental Disclosures
Interest paid	$	347		$	345
Income taxes paid	$	8		$	19
Income taxes refunded	$	9		$	33
Non-cash Investing and Financing Items
Transfer from loans to loans held for sale, net	$	107		$	191
Transfer from loans to foreclosed assets	$	57		$	81

~~CONSOLIDATED STATEMENT OF CASH FLOWS~~

~~THE PNC FINANCIAL SERVICES GROUP, INC.~~

Unaudited
In millions
   Nine months ended
September 30
   2016 2015
Operating Activities

Net income
   $ 2,938    $ 3,121
Adjustments to reconcile net income to net cash provided (used) by operating activities

Provision for credit losses
   366    181
Depreciation and amortization
   917    802
Deferred income taxes
   (171 ) 128
Net gains on sales of securities
   (20 ) (41 )
Changes in fair value of mortgage servicing rights
   559    297
Gain on sales of Visa Class B common shares
   (126 ) (122 )
Undistributed earnings of BlackRock
   (256 ) (292 )
Net change in

Trading securities and other short-term investments
   (1,029 ) 165
Loans held for sale
   (490 ) (86 )
Other assets
   (2,179 ) (2,415 )
Accrued expenses and other liabilities
   2,197    2,280
Other
   (411 ) (385 )
Net cash provided (used) by operating activities
   2,295    3,633
Investing Activities

Sales

Securities available for sale
   2,517    3,341
Loans
   1,538    1,613
Repayments/maturities

Securities available for sale
   7,683    6,013
Securities held to maturity
   2,013    1,541
Purchases

Securities available for sale
   (15,179 ) (17,546 )
Securities held to maturity
   (3,741 ) (3,735 )
Loans
   (963 ) (564 )
Net change in

Federal funds sold and resale agreements
   651    317
Interest-earning deposits with banks
   3,487    (2,445 )
Loans
   (5,451 ) (1,502 )
Other
   (159 ) (567 )
Net cash provided (used) by investing activities
   (7,604 ) (13,534 )

~~(continued on following page)~~See accompanying Notes To Consolidated Financial Statements.

The PNC Financial Services Group, Inc. –Form 10-Q 4941

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.

(continued from previous page)

Unaudited
In millions
   Nine months ended
September 30
   2016 2015
Financing Activities

Net change in

Noninterest-bearing deposits
   $ 3,162    $ 4,772
Interest-bearing deposits
   8,169    7,985
Federal funds purchased and repurchase agreements
   (542 ) (1,433 )
Commercial paper
   (2 )
Other borrowed funds
   (15 ) 276
Sales/issuances

Federal Home Loan Bank borrowings
   2,250
Bank notes and senior debt
   3,855    6,428
Commercial paper
   1,394
Other borrowed funds
   143    613
Common and treasury stock
   63    130
Repayments/maturities

Federal Home Loan Bank borrowings
   (3,058 ) (591 )
Bank notes and senior debt
   (3,000 ) (2,629 )
Subordinated debt
   57
Commercial paper
   (14 ) (5,262 )
Other borrowed funds
   (470 ) (1,557 )
Preferred stock redemption
   (500 )
Acquisition of treasury stock
   (1,559 ) (1,598 )
Preferred stock cash dividends paid
   (168 ) (178 )
Common stock cash dividends paid
   (791 ) (779 )
Net cash provided (used) by financing activities
   5,775    9,376
Net Increase (Decrease) In Cash And Due From Banks
   466    (525 )
Cash and due from banks at beginning of period
   4,065    4,360
Cash and due from banks at end of period
   $ 4,531    $ 3,835
Supplemental Disclosures

Interest paid
   $ 980    $ 764
Income taxes paid
   $ 461    $ 527
Income taxes refunded
   $ 97    $ 2
Non-cash Investing and Financing Items

Transfer from (to) loans to (from) loans held for sale, net
   $ 497    $ 153
Transfer from loans to foreclosed assets
   $ 225    $ 340

~~See accompanying Notes To Consolidated Financial Statements.~~

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE PNC FINANCIAL SERVICES GROUP, INC.

Unaudited

BUSINESS

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

NOTE 1 ACCOUNTING POLICIES

Basis of Financial Statement Presentation

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

We prepared these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). We have eliminated intercompany accounts and transactions. We have also reclassified certain prior year amounts to conform to the ~~2016~~2017 presentation, which did not have a material impact on our consolidated financial condition or results of operations. Additionally, we evaluate the materiality of identified errors in the financial statements using both an income statement and a balance sheet approach, based on relevant quantitative and qualitative factors.

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

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

When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our ~~2015~~

2016 Annual Report on Form10-K. Reference is made to Note 1 Accounting Policies in the ~~2015~~2016 Form10-K for a detailed

description of significant accounting policies. There have been no significant changes to our accounting policies as disclosed in the ~~2015~~2016 Annual Report on Form10-K. These interim consolidated financial statements serve to update the ~~2015~~2016 Form10-K and may not include all information and notes necessary to constitute a complete set of financial statements.

Use of Estimates

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

Recently Adopted Accounting Standards

We did not adopt any new accounting standards that had a significant impact during the ~~third~~first quarter of ~~2016.~~2017.

NOTE 2 LOAN SALEAND SERVICING ACTIVITIESAND VARIABLE INTEREST ENTITIES

Loan Sale and Servicing Activities

As more fully described in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our ~~2015~~2016 Form10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization special purpose entities (SPEs).

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

42The PNC Financial Services Group, Inc. –Form 10-Q51

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

Table ~~41:~~31: Cash Flows Associated with Loan Sale and Servicing Activities

In millions    Residential
Mortgages    Commercial
Mortgages (a)    Home Equity
Loans/Lines (b)
CASH FLOWS – Three months ended September 30, 2016

Sales of loans (c)
   $ 1,950       $ 1,342
Repurchases of previously transferred loans (d)
   $ 133
Servicing fees (e)
   $ 95       $ 31       $ 2
Servicing advances recovered/(funded), net
   $ 13       $ (7 )    $ 1
Cash flows on mortgage-backed securities held (f)
   $ 466       $ 31
CASH FLOWS – Three months ended September 30, 2015

Sales of loans (c)
   $ 2,329       $ 846
Repurchases of previously transferred loans (d)
   $ 129          $ 90
Servicing fees (e)
   $ 84       $ 35       $ 4
Servicing advances recovered/(funded), net
   $ 32       $ (6 )    $ 3
Cash flows on mortgage-backed securities held (f)
   $ 424       $ 41
CASH FLOWS – Nine months ended September 30, 2016

Sales of loans (c)
   $ 4,796       $ 2,796
Repurchases of previously transferred loans (d)
   $ 396
Servicing fees (e)
   $ 281       $ 93       $ 8
Servicing advances recovered/(funded), net
   $ 89          $ 21
Cash flows on mortgage-backed securities held (f)
   $ 1,235       $ 228
CASH FLOWS – Nine months ended September 30, 2015

Sales of loans (c)
   $ 6,284       $ 3,025
Repurchases of previously transferred loans (d)
   $ 432          $ 92
Servicing fees (e)
   $ 249       $ 103       $ 12
Servicing advances recovered/(funded), net
   $ 70       $ 22       $ 28
Cash flows on mortgage-backed securities held (f)
   $ 1,093       $ 155


In millions	Residential Mortgages		Commercial Mortgages (a)
CASH FLOWS – Three months ended March 31, 2017
Sales of loans (b)	$	1,594	$	1,617
Repurchases of previously transferred loans (c)	$	131
Servicing fees (d)	$	94	$	33
Servicing advances recovered/(funded), net	$	42	$	31
Cash flows on mortgage-backed securities held (e)	$	349	$	129
CASH FLOWS – Three months ended March 31, 2016
Sales of loans (b)	$	1,438	$	650
Repurchases of previously transferred loans (c)	$	160
Servicing fees (d)	$	93	$	30
Servicing advances recovered/(funded), net	$	28	$	31
Cash flows on mortgage-backed securities held (e)	$	352	$	105

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

(b)	~~These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged.~~

~~(c)~~

Gains/losses recognized on sales of loans were ~~insignificant for the periods presented.~~insignificant.

~~(d)~~(c)

Includes residential mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our ~~Removal~~removal of ~~Account Provision (ROAP)~~account provision option, and loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers. ~~Includes home equity lines of credit repurchased at the end of their draw periods due to contractual requirements.~~

~~(e)~~(d)

Includes contractually specified servicing fees, late charges and ancillary fees.

~~(f)~~(e)

Represents cash flows on securities we hold issued by a securitization SPE in which ~~PNC~~we transferred to and/or services loans. The carrying values of such securities held were ~~$6.7~~$6.9 billion in residential mortgage-backed securities and ~~$1.0~~$.7 billion in commercial mortgage-backed securities at ~~September 30, 2016~~March 31, 2017 and ~~$5.8~~$6.6 billion in residential mortgage-backed securities and ~~$1.1~~$1.2 billion in commercial mortgage-backed securities at ~~September 30, 2015.~~March 31, 2016. Additionally, at December 31, ~~2015,~~2016, the carrying values of such securities held were ~~$6.6~~$6.9 billion in residential mortgage-backed securities and ~~$1.3~~$.9 billion in commercial mortgage-backed securities.

~~The table below~~Table 32 presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans. For more information regarding our recourse and repurchase obligations, including our reserve of estimated losses, see the Recourse and Repurchase Obligations section of Note 21 Commitments and Guarantees in our 2015 Form 10-K.

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

Table ~~42:~~32: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others

In millions    Residential
Mortgages    Commercial
Mortgages (a)    Home Equity
Loans/Lines (b)
September 30, 2016

Total principal balance
   $ 67,585       $ 46,652       $ 2,410
Delinquent loans (c)
   $ 1,485       $ 1,082       $ 889
December 31, 2015

Total principal balance
   $ 72,898       $ 53,789       $ 2,806
Delinquent loans (c)
   $ 1,923       $ 1,057       $ 904
Three months ended September 30, 2016

Net charge-offs (d)
   $ 24       $ 168       $ 9
Three months ended September 30, 2015

Net charge-offs (d)
   $ 23       $ 236       $ 6
Nine months ended September 30, 2016

Net charge-offs (d)
   $ 78       $ 1,237       $ 25
Nine months ended September 30, 2015

Net charge-offs (d)
   $ 92       $ 491       $ 21


In millions	Residential Mortgages		Commercial Mortgages (a)
March 31, 2017
Total principal balance	$	64,825	$	45,043
Delinquent loans (b)	$	1,248	$	1,148
December 31, 2016
Total principal balance	$	66,081	$	45,855
Delinquent loans (b)	$	1,422	$	941
Three months ended March 31, 2017
Net charge-offs (c)	$	25	$	355
Three months ended March 31, 2016
Net charge-offs (c)	$	26	$	912

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

(b)	~~These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged.~~

~~(c)~~

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

~~(d)~~(c)

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

Variable Interest Entities (VIEs)

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our ~~2015~~2016 Form10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs. The following provides 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, 2016 and December 31, 2015, respectively. Amounts presented for September 30, 2016 are based on the assessments performed in accordance with ASC 810 as amended by ASU 2015-02 and adopted in the first quarter of 2016. Specifically, the ASU modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities (VOEs). We have not provided additional financial support to these entities which we are not contractually required to provide.

~~Table 43: Consolidated VIEs – Carrying Value (a)~~

September 30, 2016 (b)
In millions
   Total
Assets

Equity investments
   $ 205
Other assets
   21
Total assets
   $ 226
Total liabilities
   $ 9
Noncontrolling interests
   $ 121

December 31, 2015
In millions
   Total
Assets

Cash and due from banks
   $ 11
Interest-earning deposits with banks
   4
Loans
   1,341
Allowance for loan and lease losses
   (48 )
Equity investments
   183
Other assets
   402
Total assets
   $ 1,893
Liabilities

Other borrowed funds
   $ 148
Accrued expenses
   44
Other liabilities
   202
Total liabilities
   $ 394
Noncontrolling interests
   $ 99

~~(a)~~

~~Amounts represent carrying value on PNC’s Consolidated Balance Sheet.~~

~~(b)~~

~~Amounts for September 30, 2016 reflect the first quarter 2016 adoption of ASU 2015-02.~~

The following table provides a summary ofnon-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between ~~PNC~~us and the VIE. We have excluded certain transactions withnon-consolidated VIEs from the balances presented in Table 4433 where we have determined that our continuing involvement is not significant.

In addition, where ~~PNC~~we only ~~has~~have lending arrangements in the normal course of business with entities that could be VIEs, we have excluded these transactions withnon-consolidated entities from the balances presented in Table ~~44.~~33. These loans are included as part of the asset quality disclosures that we make in Note 3 Asset Quality.

The PNC Financial Services Group, Inc. –Form 10-Q 5343

Table ~~44:~~ 33:Non-Consolidated VIEs

In millions
   PNC Risk of Loss (a)    Carrying Value of Assets
Owned by PNC    Carrying Value of Liabilities
Owned by PNC
September 30, 2016 (b)

Commercial Mortgage-Backed Securitizations (c)
   $ 1,089       $ 1,089 (d)
Residential Mortgage-Backed Securitizations (c)
   6,764       6,764 (d)    $ 1 (f)
Tax Credit Investments and Other
   3,138       3,072 (e)    807 (g)
Total
   $ 10,991       $ 10,925       $ 808
December 31, 2015

Commercial Mortgage-Backed Securitizations (c)
   $ 1,498       $ 1,498 (d)    $ 1 (f)
Residential Mortgage-Backed Securitizations (c)
   6,680       6,680 (d)    1 (f)
Tax Credit Investments and Other
   2,551       2,622 (e)    836 (g)
Total
   $ 10,729       $ 10,800       $ 838


In millions	PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
March 31, 2017
Mortgage-Backed Securitizations (b)	$	7,771	$	7,771	(c)
Tax Credit Investments and Other		3,194		3,173	(d)	$	865	(e)
Total	$	10,965	$	10,944		$	865
December 31, 2016
Mortgage-Backed Securitizations (b)	$	8,003	$	8,003	(c)
Tax Credit Investments and Other		3,083		3,043	(d)	$	823	(e)
Total	$	11,086	$	11,046		$	823

(a)	This represents loans, investments and other assets related tonon-consolidated VIEs, net of collateral (if applicable).

(b)	Amounts ~~for September 30, 2016 reflect the first quarter 2016 adoption of ASU 2015-02.~~

~~(c)~~

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

~~(d)~~(c)

Included in ~~Trading securities,~~ Investment securities ~~Other intangible assets~~ and Other assets on our Consolidated Balance Sheet.

~~(e)~~(d)

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

~~(f)~~

~~Included in Other liabilities on our Consolidated Balance Sheet.~~

~~(g)~~(e)

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

We make certain equity investments in various tax credit limited partnerships or limited liability companies (LLCs). The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the Community Reinvestment Act. During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, we recognized ~~$160 million~~$.1 billion of amortization, ~~$167 million~~$.1 billion of tax credits and ~~$58~~$21 million of other tax benefits associated with qualified investments in low income housing tax credits within Income taxes. ~~The amounts for the third quarter of 2016 were $55 million, $56 million and $20 million, respectively.~~

NOTE 3 ASSET QUALITY

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency rates may be a key indicator, among other considerations, of credit risk within the loan portfolios. The measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. Loan delinquencies exclude loans held for sale, purchased impaired loans, nonperforming loans and loans accounted for under the fair value option which are on nonaccrual status, but include government insured or guaranteed loans and accruing loans accounted for under the fair value option.

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

See Note 1 Accounting Policies in our ~~2015~~2016 Form10-K for additional ~~delinquency, nonperforming, and charge-off information.~~information on our loan related policies.

5444 The PNC Financial Services Group, Inc. –Form 10-Q

The following tables display the delinquency status of our loans and our nonperforming assets at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

Table ~~45:~~34: Analysis of Loan Portfolio (a)


	Accruing																											Accruing
Dollars in millions	Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (b)			Nonperforming Loans			Fair Value Option Nonaccrual Loans (c)			Purchased Impaired Loans			Total Loans (d) (e)			Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (b)			Nonperforming Loans			Fair Value Option Nonaccrual Loans (c)			Purchased Impaired Loans			Total Loans (d)
September 30, 2016
March 31, 2017
Commercial Lending
Commercial	$	100,845		$	64		$	24		$	37		$	125		$	521					$	21		$	101,512		$	103,217		$	62		$	29		$	40		$	131		$	400					$	17		$	103,765
Commercial real estate		28,993			26			1						27			152						101			29,273			29,212			15			6						21			137						65			29,435
Equipment lease financing		7,357			1			2						3			18									7,378			7,431			19									19			12									7,462
Total commercial lending		137,195			91			27			37			155			691						122			138,163			139,860			96			35			40			171			549						82			140,662
Consumer Lending
Home equity		28,267			55			27						82			895						1,188			30,432			27,541			57			23						80			900						1,056			29,577
Residential real estate		11,969			110			71			496			677	(f)		502		$	223			1,770			15,141			12,787			122			77			432			631	(b)		473		$	217			1,673			15,781
Credit card		4,947			28			19			31			78			4									5,029			5,018			32			21			37			90			4									5,112
Other consumer		21,163			170			92			202			464	(g)		54									21,681
Automobile																													12,226			35			10			5			50			61									12,337
Education and other																													8,984			116			61			185			362	(b)		11									9,357
Total consumer lending		66,346			363			209			729			1,301			1,455			223			2,958			72,283			66,556			362			192			659			1,213			1,449			217			2,729			72,164
Total	$	203,541		$	454		$	236		$	766		$	1,456		$	2,146		$	223		$	3,080		$	210,446		$	206,416		$	458		$	227		$	699		$	1,384		$	1,998		$	217		$	2,811		$	212,826
Percentage of total loans		96.72	%		.22	%		.11	%		.36	%		.69	%		1.02	%		.11	%		1.46	%		100.00	%		96.99	%		.22	%		.11	%		.33	%		.65	%		.94	%		.10	%		1.32	%		100.00	%
December 31, 2015
December 31, 2016
Commercial Lending
Commercial	$	98,075		$	69		$	32		$	45		$	146		$	351					$	36		$	98,608		$	100,710		$	81		$	20		$	39		$	140		$	496					$	18		$	101,364
Commercial real estate		27,134			10			4						14			187						133			27,468			28,769			5			2						7			143						91			29,010
Equipment lease financing		7,440			19			2						21			7									7,468			7,535			29			1						30			16									7,581
Total commercial lending		132,649			98			38			45			181			545						169			133,544			137,014			115			23			39			177			655						109			137,955
Consumer Lending
Home equity		29,656			63			30						93			977						1,407			32,133			27,820			64			30						94			914						1,121			29,949
Residential real estate		10,918			142			65			566			773	(f)		549		$	225			1,946			14,411			12,425			159			68			500			727	(b)		501		$	219			1,726			15,598
Credit card		4,779			28			19			33			80			3									4,862			5,187			33			21			37			91			4									5,282
Other consumer		21,181			180			96			237			513	(g)		52									21,746
Automobile																													12,257			51			12			5			68			55									12,380
Education and other																													9,235			140			78			201			419	(b)		15									9,669
Total consumer lending		66,534			413			210			836			1,459			1,581			225			3,353			73,152			66,924			447			209			743			1,399			1,489			219			2,847			72,878
Total	$	199,183		$	511		$	248		$	881		$	1,640		$	2,126		$	225		$	3,522		$	206,696		$	203,938		$	562		$	232		$	782		$	1,576		$	2,144		$	219		$	2,956		$	210,833
Percentage of total loans		96.36	%		.25	%		.12	%		.43	%		.80	%		1.03	%		.11	%		1.70	%		100.00	%		96.73	%		.27	%		.11	%		.37	%		.75	%		1.02	%		.10	%		1.40	%		100.00	%

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

(b)

Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to receive payment in full based on the original contractual terms), as we are currently accreting interest income over the expected life of the loans. Past due loan amounts include government insured or guaranteed Residential real estate mortgages totaling $.6 billion and $.6 billion and Education and other consumer loans totaling $.3 billion and $.4 billion at March 31, 2017 and December 31, 2016, respectively.

(c)

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

(d)	Net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.2 billion and $1.3 billion ~~and $1.4 billion~~ at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

~~(e)~~

~~Future accretable yield related to purchased impaired loans is not included in the analysis of loan portfolio.~~

~~(f)~~

~~Past due loan amounts include government insured or guaranteed Residential real estate mortgages totaling $579 million and $646 million at September 30, 2016 and December 31, 2015, respectively.~~

~~(g)~~

~~Past due loan amounts include government insured or guaranteed Other consumer loans totaling $361 million and $411 million at September 30, 2016 and December 31, 2015, respectively.~~

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

At ~~September 30, 2016,~~March 31, 2017, we pledged ~~$21.9~~$21.6 billion of commercial loans to the Federal Reserve Bank (FRB) and ~~$59.1~~$61.1 billion of residential real estate and other loans to the Federal Home Loan Bank (FHLB) as collateral for the contingent ability to borrow, if necessary. The comparable amounts at December 31, ~~2015~~2016 were ~~$20.2~~$22.0 billion and ~~$56.4~~$60.8 billion, respectively.

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

Table ~~46:~~35: Nonperforming Assets


Dollars in millions	September 30 2016			December 31 2015			March 31 2017			December 31 2016
Nonperforming loans
Total commercial lending	$	691		$	545		$	549		$	655
Total consumer lending (a)		1,455			1,581			1,449			1,489
Total nonperforming loans (b) (c)		2,146			2,126
OREO and foreclosed assets
Other real estate owned (OREO)		217			279
Foreclosed and other assets		12			20
Total OREO and foreclosed assets		229			299
Total nonperforming loans (b)								1,998			2,144
OREO, foreclosed and other assets								214			230
Total nonperforming assets	$	2,375		$	2,425		$	2,212		$	2,374
Nonperforming loans to total loans		1.02	%		1.03	%		.94	%		1.02	%
Nonperforming assets to total loans, OREO and foreclosed assets		1.13	%		1.17	%
Nonperforming assets to total loans, OREO, foreclosed and other assets								1.04	%		1.12	%
Nonperforming assets to total assets		.64	%		.68	%		.60	%		.65	%

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

(b)	~~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.~~

~~(c)~~

The recorded investment of loans collateralized by residential real estate property that are in process of foreclosure was $.4 billion ~~and $.6 billion~~ at ~~September 30, 2016~~both March 31, 2017 and December 31, ~~2015, both~~2016, which included ~~$.3~~$.2 billion of loans that are government insured/guaranteed.

Nonperforming loans also include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered TDRs. See Note 1 Accounting Policies in our ~~2015~~2016 Form10-K and the TDR section ~~within~~of this ~~Note.~~Note 3.

Total nonperforming loans in ~~the nonperforming assets table above~~Table 35 include TDRs of ~~$1.2~~$1.0 billion ~~at September 30, 2016~~ and $1.1 billion at March 31, 2017 and December 31, ~~2015.~~2016, respectively. TDRs that are performing, including consumer credit card TDR loans, totaled ~~$1.2~~$1.1 billion at both ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016 and are excluded from nonperforming loans. Nonperforming TDRs are returned to accrual status and classified as performing after demonstrating a period of at least six months of consecutive performance under the restructured terms. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to ~~PNC~~us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status. See the TDRs section of this Note 3 for more information on TDRs.

Additional Asset Quality Indicators

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

Commercial Lending Asset Classes

The following table presents asset quality indicators for the Commercial ~~Loan Class~~Lending asset classes. See Note 3 Asset Quality in our 2016 Form10-K

~~For commercial loans,~~ for additional information related to our Commercial Lending asset classes, including discussion around the asset quality indicators that we use to monitor ~~the performance of the borrower in a disciplined~~ and ~~regular manner based upon~~manage the ~~level of~~ credit risk inherent in the loan. To evaluate the level of credit risk, we assign an internal risk rating reflecting the borrower’s PD and LGD. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process on an ongoing basis. These ratings are reviewed and updated, generally at least once per year. Additionally, no less frequently than on an annual basis, we review PD rates related to each rating grade based upon internal historical data. These rates are updated as needed and augmented by market data as deemed necessary. For small balance homogeneous pools of commercial loans, mortgages and leases, we apply statistical modeling to assist in determining the probability of default within these pools. Further, on a periodic basis, we update our LGD estimates associated with each ~~rating grade based upon historical data. The combination of the PD and LGD ratings assigned to a commercial~~ loan capturing both the combination of expectations of default and loss severity in event of default, reflects the relative estimated likelihood of loss for that loan at the reporting date. In general, loans with better PD and LGD tend to have a lower likelihood of loss compared to loans with worse PD and LGD. The loss amount also considers an estimate of exposure at date of default, which we also periodically update based upon historical data.

Based upon the amount of the lending arrangement and our risk rating assessment, we follow a formal schedule of written periodic review. Quarterly, we conduct formal reviews of a market’s or business unit’s entire loan portfolio, focusing on those loans which we perceive to be of higher risk, based upon PDs and LGDs, or loans for which credit quality is weakening. If circumstances warrant, it is our practice to review any customer obligation and its level of credit risk more frequently. We attempt to proactively manage our loans by using various procedures that are customized to the risk of a given loan, including ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.class.

Table 36: Commercial Lending Asset Quality Indicators (a)


			Criticized Commercial Loans
In millions	Pass Rated		Special Mention (b)		Substandard (c)		Doubtful (d)		Total Loans
March 31, 2017
Commercial	$	98,379	$	1,894	$	3,367	$	125	$	103,765
Commercial real estate		28,983		122		309		21		29,435
Equipment lease financing		7,294		70		92		6		7,462
Total commercial lending	$	134,656	$	2,086	$	3,768	$	152	$	140,662
December 31, 2016
Commercial	$	96,231	$	1,612	$	3,449	$	72	$	101,364
Commercial real estate		28,561		98		327		24		29,010
Equipment lease financing		7,395		89		91		6		7,581
Total commercial lending	$	132,187	$	1,799	$	3,867	$	102	$	137,955

5646 The PNC Financial Services Group, Inc. –Form 10-Q

~~Commercial Real Estate Loan Class~~

We manage credit risk associated with our commercial real estate projects and commercial mortgage activities similar to commercial loans by analyzing PD and LGD. Additionally, risks connected with commercial real estate projects and commercial mortgage activities tend to be correlated to the loan structure and collateral location, project progress and business environment. As a result, these attributes are also monitored and utilized in assessing credit risk.

As with the commercial class, a formal schedule of periodic review is also performed to assess market/geographic risk and business unit/industry risk. Often as a result of these overviews, more in-depth reviews and increased scrutiny are placed on areas of higher risk, including adverse changes in risk ratings, deteriorating operating trends, and/or areas that concern management. These reviews are designed to assess risk and take actions to mitigate our exposure to such risks.

~~Equipment Lease Financing Loan Class~~

~~We manage credit risk associated with our equipment lease financing loan class similar to commercial loans by analyzing PD and LGD.~~

Based upon the dollar amount of the lease and of the level of credit risk, we follow a formal schedule of periodic review. Generally, this occurs quarterly, although we have established practices to review such credit risk more frequently if circumstances warrant. Our review process entails analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk, guarantor requirements, and regulatory compliance.

~~Commercial Purchased Impaired Loan Class~~

Estimates of the expected cash flows primarily determine the valuation of commercial purchased impaired loans. Commercial cash flow estimates are influenced by a number of credit related items, which include but are not limited to: estimated collateral value, receipt of additional collateral, secondary trading prices, circumstances of possible and/or ongoing liquidation, capital availability, business operations and payment patterns.

We attempt to proactively manage these factors by using various procedures that are customized to the risk of a given loan. These procedures include a review by our Special Asset Committee, ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.

~~Table 47: Commercial Lending Asset Quality Indicators (a)(b)~~

         Criticized Commercial Loans
In millions    Pass
Rated    Special
Mention (c)    Substandard (d)    Doubtful (e)    Total Loans
September 30, 2016

Commercial
   $ 96,035       $ 2,046       $ 3,335       $ 75       $ 101,491
Commercial real estate
   28,768       60       328       16       29,172
Equipment lease financing
   7,185       69       116       8       7,378
Purchased impaired loans
   35       1       80       6       122
Total commercial lending
   $ 132,023       $ 2,176       $ 3,859       $ 105       $ 138,163
December 31, 2015

Commercial
   $ 93,364       $ 2,029       $ 3,089       $ 90       $ 98,572
Commercial real estate
   26,729       120       481       5       27,335
Equipment lease financing
   7,230       87       150       1       7,468
Purchased impaired loans
      6       157       6       169
Total commercial lending
   $ 127,323       $ 2,242       $ 3,877       $ 102       $ 133,544

(a)

~~Based upon~~Loans are classified as “Pass”, “Special Mention”, “Substandard” and “Doubtful” based on the Regulatory Classification definitions. We use PDs and ~~LGDs. We~~LGDs to rate commercial loans and apply a split rating classification to certain loans meeting threshold criteria. By assigning a split classification, a loan’s exposure amount may be split into more than one classification category in ~~the above~~this table.

(b)	~~Loans are included above based on the Regulatory Classification definitions of “Pass”, “Special Mention”, “Substandard” and “Doubtful”.~~

~~(c)~~

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

~~(d)~~(c)

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

~~(e)~~(d)

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

Consumer Lending Asset Classes

See Note 3 Asset Quality in our 2016 Form10-K for additional information related to our Consumer Lending asset classes, including discussion around the asset quality indicators that we use to monitor and manage the credit risk associated with each loan class.

Home Equity and Residential Real Estate Loan Classes

The following table presents asset quality indicators for home equity and residential real estate balances, excluding consumer purchased impaired loans of $2.7 billion and $2.8 billion at March 31, 2017 and December 31, 2016, respectively, and government insured or guaranteed residential real estate mortgages of $.8 billion at both March 31, 2017 and December 31, 2016.

Table 37: Asset Quality Indicators for Home Equity and Residential Real Estate Loans – Excluding Purchased Impaired and Government Insured or Guaranteed Loans (a)


	Home Equity				Residential Real Estate
March 31, 2017 – in millions	1st Liens		2nd Liens		Residential Real Estate		Total
Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	149	$	576	$	146	$	871
Less than or equal to 660 (b)		25		101		33		159
Missing FICO		1		9		3		13
Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		360		1,112		320		1,792
Less than or equal to 660 (b)		67		200		81		348
Missing FICO		3		10		5		18
Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		430		1,047		431		1,908
Less than or equal to 660		69		161		75		305
Missing FICO		2		8		6		16
Less than 90% and updated FICO scores:
Greater than 660		14,150		7,815		11,499		33,464
Less than or equal to 660		1,323		808		597		2,728
Missing FICO		42		54		90		186
Total home equity and residential real estate loans	$	16,621	$	11,901	$	13,286	$	41,808

(continued on following page)

The PNC Financial Services Group, Inc. –Form 10-Q 5747

~~Consumer Lending Asset Classes~~

~~Home Equity and Residential Real Estate Loan Classes~~

We use several credit quality indicators, including delinquency information, nonperforming loan information, updated credit scores, originated and updated loan-to-value (LTV) ratios, and geography, to monitor and manage credit risk within the home equity and residential real estate loan classes. We evaluate mortgage loan performance by source originators and loan servicers. A summary of asset quality indicators follows:

~~Delinquency/Delinquency Rates: We monitor trending of delinquency/delinquency rates for home equity and residential real estate loans. See the Asset Quality section of this Note 3 for additional information.~~

~~Nonperforming Loans: We monitor trending of nonperforming loans for home equity and residential real estate loans. See the Asset Quality section of this Note 3 for additional information.~~

~~Credit Scores~~: We use a national third-party provider to update FICO credit scores for home equity loans and lines of credit and residential real estate loans at least quarterly. The updated scores are incorporated into a series of credit management reports, which are utilized to monitor the risk in the loan classes.

~~LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions)~~: At least annually, we update the property values of real estate collateral and calculate an updated LTV ratio. For open-end credit lines secured by real estate in regions experiencing significant declines in property values, more frequent valuations may occur. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.

~~Historically, we used, and we continue to use, a combination of original LTV and updated LTV for internal risk management and reporting purposes~~ (~~e.g.~~, line management, loss mitigation strategies). In addition to the fact that estimated property values by their nature are estimates, given certain data limitations it is important to note that updated LTVs may be based upon management’s assumptions (~~e.g.~~~~, if an updated LTV is not provided by the third-party service provider, home price index (HPI) changes will be incorporated in arriving at management’s estimate of updated LTV).~~

~~Geography~~: Geographic concentrations are monitored to evaluate and manage exposures. Loan purchase programs are sensitive to, and focused within, certain regions to manage geographic exposures and associated risks.

A combination of updated FICO scores, originated and updated LTV ratios and geographic location assigned to home equity loans and lines of credit and residential real estate loans is used to monitor the risk in the loan classes. Loans with higher FICO scores and lower LTVs tend to have a lower level of risk. Conversely, loans with lower FICO scores, higher LTVs, and in certain geographic locations tend to have a higher level of risk.

~~Consumer Purchased Impaired Loan Class~~

Estimates of the expected cash flows primarily determine the valuation of consumer purchased impaired loans. Consumer cash flow estimates are influenced by a number of credit related items, which include, but are not limited to: estimated real estate values, payment patterns, updated FICO scores, the current economic environment, updated LTV ratios and the date of origination. These key factors are monitored to help ensure that concentrations of risk are managed and cash flows are maximized.

~~Table 48: Home Equity and Residential Real Estate Balances~~continued from previous page)

In millions    September 30
2016 December 31
2015
Home equity and residential real estate loans – excluding purchased impaired loans (a)
   $ 41,764    $ 42,268
Home equity and residential real estate loans – purchased impaired loans (b)
   3,211    3,684
Government insured or guaranteed residential real estate mortgages (a)
   851    923
Difference between outstanding balance and recorded investment in purchased impaired loans
   (253 ) (331 )
Total home equity and residential real estate loans (a)
   $ 45,573    $ 46,544


	Home Equity				Residential Real Estate
December 31, 2016 – in millions	1st Liens		2nd Liens		Residential Real Estate		Total
Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	161	$	629	$	174	$	964
Less than or equal to 660 (b)		32		110		35		177
Missing FICO		1		9		2		12
Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		394		1,190		345		1,929
Less than or equal to 660 (b)		66		211		76		353
Missing FICO		3		10		7		20
Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		453		1,100		463		2,016
Less than or equal to 660		77		171		78		326
Missing FICO		1		8		6		15
Less than 90% and updated FICO scores:
Greater than 660		14,047		7,913		11,153		33,113
Less than or equal to 660		1,323		822		586		2,731
Missing FICO		42		55		102		199
Missing LTV and updated FICO scores:
Greater than 660						1		1
Total home equity and residential real estate loans	$	16,600	$	12,228	$	13,028	$	41,856

(a)	~~Represents recorded investment.~~

~~(b)~~

~~Represents outstanding balance.~~

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

~~Table 49: Home Equity and Residential Real Estate Asset Quality Indicators – Excluding Purchased Impaired Loans (a) (b)~~

   Home Equity    Residential Real Estate
September 30, 2016 – in millions    1st Liens    2nd Liens          Total
Current estimated LTV ratios (c)

Greater than or equal to 125% and updated FICO scores:

Greater than 660
   $ 197       $ 726       $ 205       $ 1,128
Less than or equal to 660 (d) (e)
   40       135       38       213
Missing FICO
      5       3       8

Greater than or equal to 100% to less than 125% and updated FICO scores:

Greater than 660
   480       1,372       391       2,243
Less than or equal to 660 (d) (e)
   78       240       88       406
Missing FICO
   1       3       12       16

Greater than or equal to 90% to less than 100% and updated FICO scores:

Greater than 660
   535       1,233       520       2,288
Less than or equal to 660
   77       195       78       350
Missing FICO
   2       2       12       16

Less than 90% and updated FICO scores:

Greater than 660
   13,934       7,771       10,458       32,163
Less than or equal to 660
   1,334       850       593       2,777
Missing FICO
   22       12       122       156
Total home equity and residential real estate loans
   $ 16,700       $ 12,544       $ 12,520       $ 41,764

   Home Equity    Residential Real Estate
December 31, 2015 – in millions    1st Liens    2nd Liens       Total
Current estimated LTV ratios (c)

Greater than or equal to 125% and updated FICO scores:

Greater than 660
   $ 283       $ 960       $ 284       $ 1,527
Less than or equal to 660 (d) (e)
   40       189       68       297
Missing FICO
   1       8       5       14

Greater than or equal to 100% to less than 125% and updated FICO scores:

Greater than 660
   646       1,733       564       2,943
Less than or equal to 660 (d) (e)
   92       302       102       496
Missing FICO
   3       4       8       15

Greater than or equal to 90% to less than 100% and updated FICO scores:

Greater than 660
   698       1,492       615       2,805
Less than or equal to 660
   88       226       94       408
Missing FICO
   1       3       10       14

Less than 90% and updated FICO scores:

Greater than 660
   13,895       7,808       9,117       30,820
Less than or equal to 660
   1,282       923       570       2,775
Missing FICO
   31       18       105       154
Total home equity and residential real estate loans
   $ 17,060       $ 13,666       $ 11,542       $ 42,268

~~(a)~~

Excludes purchased impaired loans of approximately $3.0 billion and $3.4 billion in recorded investment at September 30, 2016 and December 31, 2015, respectively, certain government insured or guaranteed residential real estate mortgages of approximately $.9 billion, and loans held for sale at both September 30, 2016 and December 31, 2015. See the Home Equity and Residential Real Estate Asset Quality Indicators – Purchased Impaired Loans table below for additional information on purchased impaired loans.

~~(b)~~

Amounts shown represent recorded investment.

~~(c)~~

Based upon updated LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions). Updated LTV is estimated using modeled property values. These ratios are updated at least semi-annually. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models (AVMs), broker price opinions (BPOs), HPI indices, property location, internal and external balance information, origination data and management assumptions. We generally utilize origination lien balances provided by a third-party, where applicable, which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of these calculations do not represent actual appraised loan level collateral or updated LTV based upon lien balances held by others, and as such, are necessarily imprecise and subject to change as we enhance our methodology.

~~(d)~~(b)

Higher risk loans are defined as loans with both an updated FICO score of less than or equal to 660 and an updated LTV greater than or equal to 100%.

~~(e)~~

The following states had the highest percentage of higher risk loans at ~~September 30, 2016:~~March 31, 2017: New Jersey ~~17%~~16%, Pennsylvania 13%, Illinois ~~11%~~12%, Ohio ~~11%~~9%, Maryland 8%, Florida ~~7%, Maryland 7%~~6%, Michigan ~~4%,~~5% and North Carolina 4%5%. The remainder of the states had lower than 4% of the higher risk loans individually, and collectively they represent approximately 26% of the higher risk loans. The following states had the highest percentage of higher risk loans at December 31, ~~2015:~~2016: New Jersey ~~14%~~16%, Pennsylvania ~~12%~~14%, Illinois ~~11%~~12%, Ohio ~~11%~~10%, Florida 7%, Maryland 7%6%, Michigan 4% and ~~Michigan 5%~~North Carolina 4%. The remainder of the states had lower than 4% of the high risk loans individually, and collectively they represent approximately ~~33%~~27% of the higher risk loans.

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

~~Table 50: Home Equity and Residential Real Estate Asset Quality Indicators – Purchased Impaired Loans (a)~~

   Home Equity (b) (c)    Residential Real Estate (b) (c)
September 30, 2016 – in millions    1st Liens    2nd Liens       Total
Current estimated LTV ratios (d)

Greater than or equal to 125% and updated FICO scores:

Greater than 660
   $ 4       $ 118       $ 144       $ 266
Less than or equal to 660
   4       53       49       106
Missing FICO
      3       6       9

Greater than or equal to 100% to less than 125% and updated FICO scores:

Greater than 660
   8       284       146       438
Less than or equal to 660
   8       117       94       219
Missing FICO
      4       9       13

Greater than or equal to 90% to less than 100% and updated FICO scores:

Greater than 660
   7       152       106       265
Less than or equal to 660
   5       66       55       126
Missing FICO
      2       6       8

Less than 90% and updated FICO scores:

Greater than 660
   110       322       607       1,039
Less than or equal to 660
   83       166       399       648
Missing FICO
   1       5       48       54

Missing LTV and updated FICO scores:

Greater than 660
   1          14       15
Less than or equal to 660
   1          3       4
Missing FICO
         1       1
Total home equity and residential real estate loans
   $ 232       $ 1,292       $ 1,687       $ 3,211

   Home Equity (b) (c)    Residential Real Estate (b) (c)
December 31, 2015 – in millions    1st Liens    2nd Liens       Total
Current estimated LTV ratios (d)

Greater than or equal to 125% and updated FICO scores:

Greater than 660
   $ 6       $ 164       $ 147       $ 317
Less than or equal to 660
   6       79       76       161
Missing FICO
      7       5       12

Greater than or equal to 100% to less than 125% and updated FICO scores:

Greater than 660
   12       331       186       529
Less than or equal to 660
   9       145       118       272
Missing FICO
      8       7       15

Greater than or equal to 90% to less than 100% and updated FICO scores:

Greater than 660
   10       167       133       310
Less than or equal to 660
   6       75       68       149
Missing FICO
      4       3       7

Less than 90% and updated FICO scores:

Greater than 660
   106       345       665       1,116
Less than or equal to 660
   91       182       455       728
Missing FICO
   1       13       31       45

Missing LTV and updated FICO scores:

Greater than 660
   1          14       15
Less than or equal to 660
   1          6       7
Missing FICO
         1       1
Total home equity and residential real estate loans
   $ 249       $ 1,520       $ 1,915       $ 3,684

~~(a)~~

~~Amounts shown represent outstanding balance.~~

~~(b)~~

For the estimate of cash flows utilized in our purchased impaired loan accounting, other assumptions and estimates are made, including amortization of first lien balances, pre-payment rates, etc., which are not reflected in this table.

~~(c)~~

The following states had the highest percentage of purchased impaired loans at both September 30, 2016 and December 31, 2015: California 16%, Florida 14%, Illinois 11%, Ohio 9%, North Carolina 7%, and Michigan 5%. The remainder of the states had lower than a 4% concentration of purchased impaired loans individually, and collectively they represent approximately 38% of the purchased impaired portfolio.

~~(d)~~

Based upon updated LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions) which is estimated using modeled property values and updated at least semi-annually. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models (AVMs), broker price opinions (BPOs), HPI indices, property location, internal and external balance information, origination data and management assumptions. We generally utilize origination lien balances provided by a third-party, where applicable, which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of these calculations do not represent actual appraised loan level collateral or updated LTV based upon lien balances held by others, and as such, are necessarily imprecise and subject to change as we enhance our methodology.

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

Credit Card and Other Consumer Loan Classes

~~We monitor a variety of~~The following table presents asset quality ~~information in the management of~~indicators for the credit card and other consumer loan classes. Other consumer loan classes include education, automobile, and other secured and unsecured lines and loans. Along with the trending of delinquencies and losses for each class, FICO credit score updates are generally obtained monthly, as well as a variety of credit bureau attributes. Loans with high FICO scores tend to have a lower likelihood of loss. Conversely, loans with low FICO scores tend to have a higher likelihood of loss.

Table ~~51:~~38: Credit Card and Other Consumer Loan Classes Asset Quality Indicators


	Credit Card (a)					Other Consumer (b)					Credit Card					Other Consumer (a)
Dollars in millions	Amount		% of Total Loans Using FICO Credit Metric			Amount		% of Total Loans Using FICO Credit Metric			Amount		% of Total Loans Using FICO Credit Metric			Amount		% of Total Loans Using FICO Credit Metric
September 30, 2016
March 31, 2017
FICO score greater than 719	$	3,029		60	%	$	10,073		66	%	$	3,071		60	%	$	10,062		64	%
650 to 719		1,412		28			3,717		24			1,448		28			4,025		26
620 to 649		209		4			512		3			219		4			596		4
Less than 620		225		5			577		4			239		5			674		4
No FICO score available or required (c)		154		3			438		3
No FICO score available or required (b)												135		3			390		2
Total loans using FICO credit metric		5,029		100	%		15,317		100	%		5,112		100	%		15,747		100	%
Consumer loans using other internal credit metrics (b)							6,364
Consumer loans using other internal credit metrics (a)																	5,947
Total loan balance	$	5,029				$	21,681				$	5,112				$	21,694
Weighted-average updated FICO score (d)				734					746
December 31, 2015
Weighted-average updated FICO score (b)														734					742
December 31, 2016
FICO score greater than 719	$	2,936		60	%	$	9,371		65	%	$	3,244		61	%	$	10,247		65	%
650 to 719		1,346		28			3,534		24			1,466		28			3,873		25
620 to 649		202		4			523		4			215		4			552		3
Less than 620		227		5			604		4			229		4			632		4
No FICO score available or required (c)		151		3			501		3
No FICO score available or required (b)												128		3			489		3
Total loans using FICO credit metric		4,862		100	%		14,533		100	%		5,282		100	%		15,793		100	%
Consumer loans using other internal credit metrics (b)							7,213
Consumer loans using other internal credit metrics (a)																	6,256
Total loan balance	$	4,862				$	21,746				$	5,282				$	22,049
Weighted-average updated FICO score (d)				734					744
Weighted-average updated FICO score (b)														736					744

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

(a)

~~At September 30, 2016, we had $32 million of credit card loans that are higher risk (i.e., loans with both~~We use updated FICO scores less than 660 and in late stage (90+ days) delinquency status). The majority of the September 30, 2016 balance related to higher risk credit card loans was geographically distributed throughout the following areas: Pennsylvania 17%, Ohio 15%, Michigan 8%, New Jersey 8%, Florida 7%, Illinois 6%, Maryland 5%, Indiana 5%, North Carolina 5% and Kentucky 4%. All other states had less than 4% individually and make up the remainder of the balance. At December 31, 2015, we had $34 million of credit card loans that are higher risk. The majority of the December 31, 2015 balance related to higher risk credit card loans was geographically distributed throughout the following areas: Ohio 17%, Pennsylvania 15%, Michigan 8%, New Jersey 8%, Florida 7%, Illinois 6%, Indiana 6%, Maryland 4% and North Carolina 4%. All other states had less than 4% individually and make up the remainder of the balance.

~~(b)~~

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

~~(c)~~(b)

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

~~(d)~~

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

Troubled Debt Restructurings (TDRs)

~~Table 52: Summary of Troubled Debt Restructurings~~

In millions    September 30
2016    December 31
2015
Total commercial lending
   $ 527       $ 434
Total consumer lending
   1,832       1,917
Total TDRs
   $ 2,359       $ 2,351
Nonperforming
   $ 1,177       $ 1,119
Accruing (a)
   1,182       1,232
Total TDRs
   $ 2,359       $ 2,351

~~(a)~~

Accruing loans include consumer credit card loans and loans that have demonstrated a period of at least six months of performance under the restructured terms and are excluded from nonperforming loans. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

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

~~We held specific reserves in the ALLL of $.3 billion at both September 30, 2016 and December 31, 2015 for the total TDR portfolio.~~

Table 5339 quantifies the number of loans that were classified as TDRs as well as the change in the loans’ recorded investment as a result of becoming a TDR during the ~~first nine~~three months ended March 31, 2017 and ~~third quarters of 2016 and 2015, respectively.~~March 31, 2016. Additionally, the table provides information about the types of TDR concessions. See Note 3 Asset Quality in our ~~2015~~2016 Form10-K for additional discussion of ~~TDR concessions.~~TDRs.

Table ~~53:~~39: Financial Impact and TDRs by Concession Type (a)

Pre-TDR
Recorded
Investment (b)
   Post-TDR Recorded Investment (c)
During the three months ended September 30, 2016
Dollars in millions
   Number
of Loans       Principal
Forgiveness (d)    Rate
Reduction (e)    Other (f)    Total
Total commercial lending
   37       $ 108          $ 1       $ 96       $ 97
Total consumer lending
   2,800       62          37       22       59
Total TDRs
   2,837       $ 170          $ 38       $ 118       $ 156
During the three months ended September 30, 2015
Dollars in millions

Total commercial lending
   39       $ 80       $ 15          $ 47       $ 62
Total consumer lending
   3,014       95          $ 62       28       90
Total TDRs
   3,053       $ 175       $ 15       $ 62       $ 75       $ 152


			Pre-TDR Recorded Investment (b)				Post-TDR Recorded Investment (c)														Number of Loans			Pre-TDR Recorded Investment (b)			Post-TDR Recorded Investment (c)
During the nine months ended September 30, 2016 Dollars in millions	Number of Loans					Principal Forgiveness (d)			Rate Reduction (e)				Other (f)				Total
During the three months ended March 31, 2017 Dollars in millions																					Number of Loans		Number of Loans					Pre-TDR Recorded Investment (b)		Principal Forgiveness			Rate Reduction			Other		Total
Total commercial lending		109	Pre-TDR Recorded Investment (b)	$	480						$	53			$	379			$	432			Number of Loans		$	4		Pre-TDR Recorded Investment (b)		$	6		$	5		$	15
Total consumer lending		8,435		187							119				58				177			2,899			73					37			31			68
Total TDRs		8,544	$	667						$	172			$	437			$	609			2,948		$	108		$	4	$	43		$	36		$	83
During the nine months ended September 30, 2015 Dollars in millions

During the three months ended March 31, 2016 Dollars in millions
Total commercial lending		114	$	185			$	20		$	4			$	120			$	144			42		$	168				$	10		$	142		$	152
Total consumer lending		8,400		250							150				89				239			2,965			68					44			20			64
Total TDRs		8,514	$	435			$	20		$	154			$	209			$	383			3,007		$	236				$	54		$	162		$	216

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

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

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

~~(d)~~

~~Includes principal forgiveness and accrued interest forgiveness. These types of TDRs result in a write down of the recorded investment and a charge-off if such action has not already taken place.~~

~~(e)~~

~~Includes reduced interest rate and interest deferral. The TDRs within this category result in reductions to future interest income.~~

~~(f)~~

Primarily includes consumer borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC, as well as postponement/reduction of scheduled amortization and contractual extensions for both consumer and commercial borrowers.

After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. We consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. The recorded investment of loans that were both (i) classified as TDRs or were subsequently modified during each12-month period preceding January 1, ~~2016~~2017 and January 1, ~~2015,~~2016, respectively, and (ii) subsequently defaulted during the three months ended March 31, 2017 and ~~nine months ended September 30,~~March 31, 2016 totaled ~~$66~~$32 million and ~~$118~~$27 million, respectively. ~~The comparable amounts for the three months and nine months ended September 30, 2015 totaled $29 million and $69 million, respectively.~~

~~See Note 3 Asset Quality in our 2015 Form 10-K for additional discussion on TDRs.~~

62The PNC Financial Services Group, Inc. –Form 10-Q49

Impaired Loans

Impaired loans include commercial and consumer nonperforming loans and ~~consumer and commercial~~ TDRs, regardless of nonperforming status. TDRs that were previously recorded at amortized cost and are now classified and accounted for as held for sale are also included. Excluded from impaired loans are nonperforming leases, loans accounted for as held for sale other than the TDRs described in the preceding sentence, loans accounted for under the fair value option, smaller balance homogeneous type loans and purchased impaired loans. We did not recognize any interest income on impaired loans that have not returned to performing status, while they were impaired during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and ~~September 30, 2015.~~March 31, 2016. The following table provides further detail on impaired loans individually evaluated for impairment and the associated ALLL. Certain commercial and consumer impaired loans do not have a related ALLL as the valuation of these impaired loans exceeded the recorded investment.

Table ~~54:~~40: Impaired Loans

In millions    Unpaid
Principal
Balance    Recorded
Investment    Associated
Allowance (a)    Average
Recorded
Investment (b)
September 30, 2016

Impaired loans with an associated allowance

Commercial
   $ 544       $ 389       $ 92       $ 394
Commercial real estate
   221       102       28       108
Home equity
   891       859       186       893
Residential real estate
   227       222       29       249
Credit card
   104       104       24       106
Other consumer
   27       25       1       25
Total impaired loans with an associated allowance
   $ 2,014       $ 1,701       $ 360       $ 1,775
Impaired loans without an associated allowance

Commercial
   $ 379       $ 265          $ 232
Commercial real estate
   135       115          143
Home equity
   486       221          205
Residential real estate
   508       394          390
Other consumer
   23       7          8
Total impaired loans without an associated allowance
   $ 1,531       $ 1,002          $ 978
Total impaired loans
   $ 3,545       $ 2,703       $ 360       $ 2,753
December 31, 2015

Impaired loans with an associated allowance

Commercial
   $ 442       $ 337       $ 84       $ 306
Commercial real estate
   254       130       35       197
Home equity
   978       909       216       965
Residential real estate
   272       264       35       359
Credit card
   108       108       24       118
Other consumer
   31       26       1       32
Total impaired loans with an associated allowance
   $ 2,085       $ 1,774       $ 395       $ 1,977
Impaired loans without an associated allowance

Commercial
   $ 201       $ 118          $ 87
Commercial real estate
   206       158          168
Home equity
   464       206          158
Residential real estate
   512       396          346
Other consumer
   24       8          8
Total impaired loans without an associated allowance
   $ 1,407       $ 886          $ 767
Total impaired loans
   $ 3,492       $ 2,660       $ 395       $ 2,744


In millions	Unpaid Principal Balance		Recorded Investment		Associated Allowance		Average Recorded Investment (a)
March 31, 2017
Impaired loans with an associated allowance
Total commercial lending	$	613	$	372	$	90	$	425
Total consumer lending		1,236		1,178		215		1,181
Total impaired loans with an associated allowance	$	1,849	$	1,550	$	305	$	1,606
Impaired loans without an associated allowance
Total commercial lending	$	617	$	345			$	333
Total consumer lending		957		586				598
Total impaired loans without an associated allowance	$	1,574	$	931			$	931
Total impaired loans	$	3,423	$	2,481	$	305	$	2,537
December 31, 2016
Impaired loans with an associated allowance
Total commercial lending	$	742	$	477	$	105	$	497
Total consumer lending		1,237		1,185		226		1,255
Total impaired loans with an associated allowance	$	1,979	$	1,662	$	331	$	1,752
Impaired loans without an associated allowance
Total commercial lending	$	447	$	322			$	365
Total consumer lending		982		608				604
Total impaired loans without an associated allowance	$	1,429	$	930			$	969
Total impaired loans	$	3,408	$	2,592	$	331	$	2,721

(a)	~~Associated allowance amounts include $.3 billion for TDRs at both September 30, 2016 and December 31, 2015.~~

~~(b)~~

Average recorded investment is for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and the year ended December 31, ~~2015,~~2016, respectively.

50The PNC Financial Services Group, Inc. –Form 10-Q63

NOTE 4 A~~LLOWANCES~~LLOWANCEFOR LOANAND LEASE LOSSES~~AND~~ U~~NFUNDED~~ L~~OAN~~ C~~OMMITMENTSAND~~ L~~ETTERS~~OF C~~REDIT~~

~~Allowance for Loan and Lease Losses~~

We maintain the ALLL at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. We use the two main portfolio segments – Commercial Lending and Consumer Lending, ~~–and~~and develop and document the ALLL under separate methodologies for each of these ~~segments as discussed in~~portfolio segments. See Note 1 Accounting Policies in our 2016 Form10-K for a description of ~~our 2015 Form 10-K.~~the accounting policies for ALLL. A rollforward of the ALLL and associated loan data follows.

Table ~~55:~~41: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data

In millions    Commercial
Lending Consumer
Lending    Total
September 30, 2016

Allowance for Loan and Lease Losses

January 1
   $ 1,605    $ 1,122       $ 2,727
Charge-offs
   (297 ) (395 )    (692 )
Recoveries
   133    122       255
Net (charge-offs) / recoveries
   (164 ) (273 )    (437 )
Provision for credit losses
   156    210       366
Net change in allowance for unfunded loan commitments and letters of credit
   (48 ) (1 )    (49 )
Net recoveries of purchased impaired loans and other
   1    11       12
September 30
   $ 1,550    $ 1,069       $ 2,619
TDRs individually evaluated for impairment
   $ 76    $ 240       $ 316
Other loans individually evaluated for impairment
   44       44
Loans collectively evaluated for impairment
   1,388    548       1,936
Purchased impaired loans
   42    281       323
September 30
   $ 1,550    $ 1,069       $ 2,619
Loan Portfolio

TDRs individually evaluated for impairment (a)
   $ 527    $ 1,832       $ 2,359
Other loans individually evaluated for impairment
   344       344
Loans collectively evaluated for impairment (b)
   137,170    66,619       203,789
Fair value option loans (c)
   874       874
Purchased impaired loans
   122    2,958       3,080
September 30
   $ 138,163    $ 72,283       $ 210,446
Portfolio segment ALLL as a percentage of total ALLL
   59 % 41 %    100 %
Ratio of the allowance for loan and lease losses to total loans (d)
   1.12 % 1.48 %    1.24 %
September 30, 2015

Allowance for Loan and Lease Losses

January 1
   $ 1,571    $ 1,760       $ 3,331
Charge-offs
   (176 ) (413 )    (589 )
Recoveries
   188    135       323
Net (charge-offs) / recoveries
   12    (278 )    (266 )
Provision for credit losses
   48    133       181
Net change in allowance for unfunded loan commitments and letters of credit
   (7 )    (7 )
Other
   (2 )    (2 )
September 30
   $ 1,622    $ 1,615       $ 3,237
TDRs individually evaluated for impairment
   $ 39    $ 263       $ 302
Other loans individually evaluated for impairment
   70       70
Loans collectively evaluated for impairment
   1,446    601       2,047
Purchased impaired loans
   67    751       818
September 30
   $ 1,622    $ 1,615       $ 3,237
Loan Portfolio

TDRs individually evaluated for impairment (a)
   $ 420    $ 1,948       $ 2,368
Other loans individually evaluated for impairment
   291       291
Loans collectively evaluated for impairment (b)
   130,249    66,993       197,242
Fair value option loans (c)
   915       915
Purchased impaired loans
   204    3,963       4,167
September 30
   $ 131,164    $ 73,819       $ 204,983
Portfolio segment ALLL as a percentage of total ALLL
   50 % 50 %    100 %
Ratio of the allowance for loan and lease losses to total loans
   1.24 % 2.19 %    1.58 %

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


In millions	Commercial Lending			Consumer Lending			Total
March 31, 2017
Allowance for Loan and Lease Losses
January 1	$	1,534		$	1,055		$	2,589
Charge-offs		(55	)		(143	)		(198	)
Recoveries		32			48			80
Net charge-offs		(23	)		(95	)		(118	)
Provision for credit losses		23			65			88
Net change in allowance for unfunded loan commitments and letters of credit		(5	)		1			(4	)
Other		1			5			6
March 31	$	1,530		$	1,031		$	2,561
TDRs individually evaluated for impairment	$	37		$	215		$	252
Other loans individually evaluated for impairment		53						53
Loans collectively evaluated for impairment		1,412			526			1,938
Purchased impaired loans		28			290			318
March 31	$	1,530		$	1,031		$	2,561
Loan Portfolio
TDRs individually evaluated for impairment	$	366		$	1,764		$	2,130
Other loans individually evaluated for impairment		351						351
Loans collectively evaluated for impairment		139,863			66,797			206,660
Fair value option loans (a)					874			874
Purchased impaired loans		82			2,729			2,811
March 31	$	140,662		$	72,164		$	212,826
Portfolio segment ALLL as a percentage of total ALLL		60	%		40	%		100	%
Ratio of the allowance for loan and lease losses to total loans		1.09	%		1.43	%		1.20	%
March 31, 2016
Allowance for Loan and Lease Losses
January 1	$	1,605		$	1,122		$	2,727
Charge-offs		(89	)		(147	)		(236	)
Recoveries		46			41			87
Net charge-offs		(43	)		(106	)		(149	)
Provision for credit losses		84			68			152
Net change in allowance for unfunded loan commitments and letters of credit		(19	)		(2	)		(21	)
Other		1			1			2
March 31	$	1,628		$	1,083		$	2,711
TDRs individually evaluated for impairment	$	49		$	261		$	310
Other loans individually evaluated for impairment		115						115
Loans collectively evaluated for impairment		1,414			560			1,974
Purchased impaired loans		50			262			312
March 31	$	1,628		$	1,083		$	2,711
Loan Portfolio
TDRs individually evaluated for impairment	$	500		$	1,891		$	2,391
Other loans individually evaluated for impairment		436						436
Loans collectively evaluated for impairment		134,045			66,338			200,383
Fair value option loans (a)					895			895
Purchased impaired loans		149			3,231			3,380
March 31	$	135,130		$	72,355		$	207,485
Portfolio segment ALLL as a percentage of total ALLL		60	%		40	%		100	%
Ratio of the allowance for loan and lease losses to total loans		1.20	%		1.50	%		1.31	%

(a)	~~TDRs individually evaluated for impairment exclude TDRs that were subsequently accounted for as held for sale loans, but continue to be disclosed as TDRs.~~

~~(b)~~

Includes $.1 billion of loans collectively evaluated for impairment based upon collateral values and written down to the respective collateral value less costs to sell at September 30, 2016. Accordingly, there is no allowance recorded on these loans. The comparative amount as of September 30, 2015 was $.2 billion.

~~(c)~~

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

~~(d)~~

~~See Note 1 Accounting Policies in our 2015 Form 10-K for information on our change in derecognition policy effective December 31, 2015 for certain purchased impaired loans.~~

~~Allowance for Unfunded Loan Commitments and Letters of Credit~~

We maintain the allowance for unfunded loan commitments and letters of credit at a level we believe is appropriate to absorb estimated probable credit losses incurred on these unfunded credit facilities as of the balance sheet date as discussed in Note 1 Accounting Policies of our 2015 Form 10-K. A rollforward of the allowance is presented below.

~~Table 56: Rollforward of Allowance for Unfunded Loan Commitments and Letters of Credit~~

In millions    2016    2015
January 1
   $ 261       $ 259
Net change in allowance for unfunded loan commitments and letters of credit
   49       7
September 30
   $ 310       $ 266

The PNC Financial Services Group, Inc. –Form 10-Q 6551

NOTE 5 INVESTMENT SECURITIES

Table ~~57:~~42: Investment Securities Summary


	Amortized		Unrealized					Fair
In millions	Cost		Gains		Losses			Value		Amortized Cost			Unrealized							Fair Value
September 30, 2016																				Fair Value
In millions										Amortized Cost		Amortized Cost			Gains				Losses			Fair Value
In millions																						Fair Value
Securities Available for Sale												Amortized Cost
Debt securities
U.S. Treasury and government agencies	$	12,062	$	301	$	(13	)	$	12,350	$	12,787		$	185		$	(62	)		$	12,910
Residential mortgage-backed
Agency		27,429		568		(18	)		27,979		26,329			153			(293	)			26,189
Non-agency		3,372		226		(61	)		3,537		3,011			236			(44	)			3,203
Commercial mortgage-backed
Agency		2,301		21		(4	)		2,318		2,037			4			(35	)			2,006
Non-agency		4,183		69		(19	)		4,233		3,846			28			(11	)			3,863
Asset-backed		6,123		66		(26	)		6,163		5,934			59			(13	)			5,980
State and municipal		1,963		107		(3	)		2,067
Other debt		2,712		60		(3	)		2,769		4,572			124			(23	)			4,673
Total debt securities		60,145		1,418		(147	)		61,416		58,516			789			(481	)			58,824
Corporate stocks and other		525							525		517						(2	)			515
Total securities available for sale	$	60,670	$	1,418	$	(147	)	$	61,941	$	59,033		$	789		$	(483	)		$	59,339
Securities Held to Maturity (a)
Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies	$	265	$	65				$	330	$	531		$	36		$	(18	)		$	549
Residential mortgage-backed
Agency		11,637		254	$	(2	)		11,889		12,344			66			(172	)			12,238
Non-agency		204		13					217		185			6							191
Commercial mortgage-backed
Agency		1,051		39					1,090		882			18							900
Non-agency		579		25					604		561			10							571
Asset-backed		799				(4	)		795		552			1			(1	)			552
State and municipal		1,920		159					2,079
Other debt		118				(9	)		109		2,038			92			(21	)			2,109
Total securities held to maturity	$	16,573	$	555	$	(15	)	$	17,113	$	17,093		$	229		$	(212	)		$	17,110
December 31, 2015
December 31, 2016
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies	$	9,764	$	152	$	(42	)	$	9,874	$	13,100		$	151		$	(77	)		$	13,174
Residential mortgage-backed
Agency		24,698		250		(128	)		24,820		26,245			170			(287	)			26,128
Non-agency		3,992		247		(88	)		4,151		3,191			227			(52	)			3,366
Commercial mortgage-backed
Agency		1,917		11		(10	)		1,918		2,150			3			(34	)			2,119
Non-agency		4,902		30		(29	)		4,903		4,023			29			(27	)			4,025
Asset-backed		5,417		54		(48	)		5,423		5,938			52			(22	)			5,968
State and municipal		1,982		79		(5	)		2,056
Other debt		2,007		31		(12	)		2,026		4,656			104			(37	)			4,723
Total debt securities		54,679		854		(362	)		55,171		59,303			736			(536	)			59,503
Corporate stocks and other		590				(1	)		589		603						(2	)			601
Total securities available for sale	$	55,269	$	854	$	(363	)	$	55,760	$	59,906		$	736		$	(538	)		$	60,104
Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies										$	527		$	35		$	(22	)		$	540
Residential mortgage-backed
Agency											11,074			68			(161	)			10,981
Non-agency											191			7							198
Commercial mortgage-backed
Agency											903			24							927
Non-agency											567			10							577
Asset-backed											558						(2	)			556
Other debt											2,023			76			(12	)			2,087
Total securities held to maturity										$	15,843		$	220		$	(197	)		$	15,866

6652 The PNC Financial Services Group, Inc. –Form 10-Q

   Amortized    Unrealized    Fair
In millions    Cost    Gains    Losses    Value
Securities Held to Maturity (a)

Debt securities

U.S. Treasury and government agencies
   $ 258       $ 40          $ 298
Residential mortgage-backed

Agency
   9,552       101       $ (65 )    9,588
Non-agency
   233       8          241
Commercial mortgage-backed

Agency
   1,128       40          1,168
Non-agency
   722       6       (1 )    727
Asset-backed
   717          (10 )    707
State and municipal
   1,954       116          2,070
Other debt
   204          (1 )    203
Total securities held to maturity
   $ 14,768       $ 311       $ (77 )    $ 15,002

~~(a)~~

Held to maturity securities transferred from available for sale are recorded in held to maturity at fair value at the time of transfer. The amortized cost of held to maturity securities included net unrealized gains of $78 million and $97 million at September 30, 2016 and December 31, 2015, respectively, related to securities transferred, which are offset in Accumulated Other Comprehensive Income, net of tax.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the securities available for sale portfolio are included in Shareholders’ equity as Accumulated other comprehensive income or loss, net of tax, unless credit-related. Securities held to maturity are carried at amortized cost. At ~~September 30, 2016,~~March 31, 2017, Accumulated other comprehensive income included pretax gains of ~~$103~~$52 million from derivatives that hedged the purchase of investment securities classified as held to maturity. The gains will be accreted into interest income as an adjustment of yield on the securities.

Table 5843 presents gross unrealized losses onand fair value of debt securities ~~available for sale~~ at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. The securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and twelve months or more based on the point in time that the fair value declined below the amortized cost basis. The table includes debt securities where a portion of ~~other-than-temporary impairment (OTTI)~~OTTI has been recognized in Accumulated other comprehensive income (loss). ~~The decrease in total unrealized losses at September 30, 2016 when compared to December 31, 2015 was due to a decline in market interest rates.~~

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

Table ~~58:~~43: Gross Unrealized Loss and Fair Value of Debt Securities ~~Available for Sale~~


	Unrealized loss position less than 12 months					Unrealized loss position 12 months or more					Total					Unrealized loss position less than 12 months					Unrealized loss position 12 months or more			Total
In millions	Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss	Fair Value		Unrealized Loss			Fair Value
September 30, 2016
March 31, 2017
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies	$	(1	)	$	1,197	$	(12	)	$	2,805	$	(13	)	$	4,002	$	(50	)	$	2,756	$(12)	$	869	$	(62	)	$	3,625
Residential mortgage-backed
Agency		(5	)		699		(13	)		943		(18	)		1,642		(274	)		16,931	(19)		870		(293	)		17,801
Non-agency		(1	)		146		(60	)		1,222		(61	)		1,368		(2	)		152	(42)		838		(44	)		990
Commercial mortgage-backed
Agency		(3	)		400		(1	)		114		(4	)		514		(34	)		1,582	(1)		39		(35	)		1,621
Non-agency		(4	)		587		(15	)		1,269		(19	)		1,856		(10	)		755	(1)		377		(11	)		1,132
Asset-backed		(2	)		445		(24	)		1,629		(26	)		2,074		(3	)		1,065	(10)		606		(13	)		1,671
State and municipal		(1	)		207		(2	)		123		(3	)		330
Other debt		(1	)		195		(2	)		125		(3	)		320		(20	)		1,200	(3)		292		(23	)		1,492
Total debt securities		(18	)		3,876		(129	)		8,230		(147	)		12,106
Corporate stocks and other							(a	)		16		(a	)		16
Total	$	(18	)	$	3,876	$	(129	)	$	8,246	$	(147	)	$	12,122
December 31, 2015
Total debt securities available for sale																$	(393	)	$	24,441	$(88)	$	3,891	$	(481	)	$	28,332
Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies																$	(18	)	$	242				$	(18	)	$	242
Residential mortgage-backed
Agency																	(164	)		7,961	$(8)	$	152		(172	)		8,113
Commercial mortgage-backed
Agency																				68			1					69
Non-agency																							3					3
Asset-backed																				25	(1)		251		(1	)		276
Other debt																	(21	)		141	(a)		1		(21	)		142
Total debt securities held to maturity																$	(203	)	$	8,437	$(9)	$	408	$	(212	)	$	8,845
December 31, 2016
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies	$	(40	)	$	5,885	$	(2	)	$	120	$	(42	)	$	6,005	$	(57	)	$	3,108	$(20)	$	2,028	$	(77	)	$	5,136
Residential mortgage-backed
Agency		(103	)		11,799		(25	)		1,094		(128	)		12,893		(267	)		16,942	(20)		922		(287	)		17,864
Non-agency		(3	)		368		(85	)		1,527		(88	)		1,895		(1	)		109	(51)		1,119		(52	)		1,228
Commercial mortgage-backed
Agency		(7	)		745		(3	)		120		(10	)		865		(33	)		1,577	(1)		86		(34	)		1,663
Non-agency		(22	)		2,310		(7	)		807		(29	)		3,117		(14	)		880	(13)		987		(27	)		1,867
Asset-backed		(30	)		3,477		(18	)		494		(48	)		3,971		(5	)		1,317	(17)		902		(22	)		2,219
State and municipal		(3	)		326		(2	)		60		(5	)		386
Other debt		(8	)		759		(4	)		188		(12	)		947		(33	)		1,827	(4)		243		(37	)		2,070
Total debt securities		(216	)		25,669		(146	)		4,410		(362	)		30,079
Corporate stocks and other		(a	)		46		(1	)		15		(1	)		61
Total	$	(216	)	$	25,715	$	(147	)	$	4,425	$	(363	)	$	30,140
Total debt securities available for sale																$	(410	)	$	25,760	$(126)	$	6,287	$	(536	)	$	32,047
Securities Held to Maturity
Debt securities
U.S. Treasury and government agencies																$	(22	)	$	238				$	(22	)	$	238
Residential mortgage-backed
Agency																	(153	)		8,041	$(8)	$	161		(161	)		8,202
Asset-backed																					(2)		451		(2	)		451
Other debt																	(12	)		146	(a)		1		(12	)		147
Total debt securities held to maturity																$	(187	)	$	8,425	$(10)	$	613	$	(197	)	$	9,038

(a)	The unrealized loss on these securities was less than $.5 million.

The gross unrealized loss on debt securities held to maturity was $16 million at September 30, 2016, with $10 million of the loss related to securities with a fair value of $.1 billion that had been in a continuous loss position less than 12 months and $6 million of the loss related to securities with a fair value of $.9 billion that had been in a continuous loss position for more than 12 months. The gross unrealized loss on debt securities held to maturity was $82 million at December 31, 2015, with $59 million of the loss related to securities with a fair value of $5.5 billion that had been in a continuous loss position less than 12 months and $23 million of the loss related to securities with a fair value of $953 million that had been in a continuous loss position for more than 12 months. For securities transferred to held to maturity from available for sale, the unrealized loss for purposes of this analysis is determined by comparing the security’s original amortized cost to its current estimated fair value.PNC Financial Services Group, Inc. –Form 10-Q53

Evaluating Investment Securities for Other-than-Temporary Impairments

For the securities in ~~the preceding~~ Table ~~58,~~43, as of ~~September 30, 2016~~March 31, 2017 we do not intend to sell and believe we will not be required to sell the securities prior to recovery of the amortized cost basis.

~~As more fully described in Note 6 Investment Securities in our 2015 Form 10-K,~~On at least a quarterly basis, we ~~conduct a comprehensive security-level assessment on~~review all ~~securities. For those~~debt securities that are in an unrealized loss position ~~we determine if~~for OTTI, ~~exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. An OTTI loss must be recognized for a debt security~~as discussed in ~~an unrealized loss position if we intend to sell the security or it~~

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

is more likely than not we will be required to sell the security prior to recovery of its amortized cost basis. Even if we do not expect to sell the security, we must evaluate the expected cash flows to be received to determine if we believe a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. The portionNote 1 Accounting Policies of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in accumulated other comprehensive income (loss). See Note 6 Investment Securities in our 20152016 Form ~~10-K for additional details on this quarterly assessment.~~

10-K.For those securities on our balance sheet at March 31, 2017, where during our quarterly security-level impairment assessments we determined losses represented OTTI, we have recorded cumulative credit losses of $1.1 billion ~~at September 30, 2016.~~in earnings and accordingly have reduced the amortized cost of our securities. The majority of these cumulative impairment charges related tonon-agency residential mortgage-backed and asset-backed securities rated BB or lower. During ~~the first~~

~~nine months of~~2017 and 2016, ~~and 2015,~~ the OTTI credit losses recognized in noninterest income and the OTTI

noncredit losses recognized in accumulated other comprehensive income (loss), net of tax, on securities were not significant.

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

Table ~~59:~~44: Gains (Losses) on Sales of Securities Available for Sale

Nine months ended September 30
In millions
Proceeds Gross
Gains Gross
Losses Net
Gains Tax
Expense
2016
$ 2,546 $ 20 $ 20 $ 7
2015
$ 3,445 $ 54 $ (13 ) $ 41 $ 14


Three months ended March 31 In millions	Proceeds		Gross Gains		Gross Losses			Net (Losses) Gains			Tax (Benefit) Expense
2017	$	3,222	$	14	$	(16	)	$	(2	)	$	(1	)
2016	$	788	$	9				$	9		$	3

The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at ~~September 30, 2016.~~March 31, 2017.

Table ~~60:~~45: Contractual Maturity of Debt Securities


September 30, 2016 Dollars in millions	1 Year or Less			After 1 Year through 5 Years			After 5 Years through 10 Years			After 10 Years			Total
March 31, 2017 Dollars in millions																1 Year or Less			After 1 Year through 5 Years			After 5 Years through 10 Years			After 10 Years			Total
Securities Available for Sale
U.S. Treasury and government agencies	$	404		$	5,251		$	5,244		$	1,163		$	12,062		$	157		$	5,714		$	5,745		$	1,171		$	12,787
Residential mortgage-backed
Agency					137			912			26,380			27,429			1			81			558			25,689			26,329
Non-agency					2						3,370			3,372						1						3,010			3,011
Commercial mortgage-backed
Agency		78			44			828			1,351			2,301			74			155			758			1,050			2,037
Non-agency					17			8			4,158			4,183						108			108			3,630			3,846
Asset-backed		12			2,104			1,987			2,020			6,123			28			2,255			1,764			1,887			5,934
State and municipal		2			146			383			1,432			1,963
Other debt		213			2,151			238			110			2,712			310			2,311			569			1,382			4,572
Total debt securities available for sale	$	709		$	9,852		$	9,600		$	39,984		$	60,145		$	570		$	10,625		$	9,502		$	37,819		$	58,516
Fair value	$	714		$	10,004		$	9,739		$	40,959		$	61,416		$	573		$	10,683		$	9,536		$	38,032		$	58,824
Weighted-average yield, GAAP basis		2.74	%		2.17	%		2.08	%		2.87	%		2.62	%		2.99	%		2.14	%		2.15	%		2.91	%		2.65	%
Securities Held to Maturity
U.S. Treasury and government agencies										$	265		$	265								$	109		$	422		$	531
Residential mortgage-backed
Agency				$	10		$	500			11,127			11,637					$	51			413			11,880			12,344
Non-agency											204			204												185			185
Commercial mortgage-backed
Agency	$	164			827			5			55			1,051		$	84			739			5			54			882
Non-agency											579			579												561			561
Asset-backed					1			688			110			799						1			451			100			552
State and municipal		4			69			1,008			839			1,920
Other debt		7			33			28			50			118			12			219			967			840			2,038
Total debt securities held to maturity	$	175		$	940		$	2,229		$	13,229		$	16,573		$	96		$	1,010		$	1,945		$	14,042		$	17,093
Fair value	$	175		$	979		$	2,328		$	13,631		$	17,113		$	96		$	1,035		$	2,004		$	13,975		$	17,110
Weighted-average yield, GAAP basis		3.29	%		3.60	%		3.03	%		3.55	%		3.48	%		3.67	%		3.62	%		3.33	%		3.20	%		3.24	%

54The PNC Financial Services Group, Inc. –Form 10-Q69

Weighted-average yields are based on historical cost with effective yields weighted for the contractual maturity of each security. At ~~September 30, 2016,~~March 31, 2017, there were no securities of a single issuer, other than FNMA, that exceeded 10% of Total shareholders’ equity. The FNMA investments had a total amortized cost of ~~$28.4~~$29.1 billion and fair value of ~~$29.0~~$28.8 billion.

The following table presents the fair value of securities that have been either pledged to or accepted from others to collateralize outstanding borrowings.

Table ~~61:~~46: Fair Value of Securities Pledged and Accepted as Collateral


In millions	September 30 2016		December 31 2015		March 31 2017		December 31 2016
Pledged to others	$	9,991	$	9,674	$	8,889	$9,493
Accepted from others:
Permitted by contract or custom to sell or repledge	$	655	$	1,100	$	1,693	$912
Permitted amount repledged to others	$	499	$	943	$	1,599	$799

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

NOTE 6 FAIR VALUE

Fair Value Measurement

~~PNC measures~~We measure certain financial assets and liabilities at fair ~~value in accordance with GAAP.~~value. Fair value is defined ~~in GAAP~~ as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement ~~date. GAAP focuses on the~~date, determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ~~GAAP also establishes a~~The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy see Note 76 Fair Value in our ~~2015~~2016 Form10-K.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For more information on the valuation methodologies used to measure assets and liabilities at fair value on a recurring basis, see Note 76 Fair Value in our ~~2015~~2016 Form10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which ~~PNC has~~we have elected the fair value option.

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

~~Table 62: Fair Value Measurements – Recurring Basis Summary~~

   September 30, 2016    December 31, 2015
In millions    Level 1    Level 2    Level 3    Total
Fair Value    Level 1    Level 2    Level 3    Total
Fair Value
Assets

Securities available for sale

U.S. Treasury and government agencies
   $ 11,740       $ 610          $ 12,350       $ 9,267       $ 607          $ 9,874
Residential mortgage-backed

Agency
      27,979          27,979          24,820          24,820
Non-agency
      124       $ 3,413       3,537          143       $ 4,008       4,151
Commercial mortgage-backed

Agency
      2,318          2,318          1,918          1,918
Non-agency
      4,233          4,233          4,903          4,903
Asset-backed
      5,738       425       6,163          4,941       482       5,423
State and municipal
      2,053       14       2,067          2,041       15       2,056
Other debt
      2,748       21       2,769          1,996       30       2,026
Total debt securities
   11,740       45,803       3,873       61,416       9,267       41,369       4,535       55,171
Corporate stocks and other
   462       63          525       527       62          589
Total securities available for sale
   12,202       45,866       3,873       61,941       9,794       41,431       4,535       55,760
Financial derivatives (a) (b)

Interest rate contracts
      6,703       49       6,752          4,626       29       4,655
Other contracts
      392       3       395          284       2       286
Total financial derivatives
      7,095       52       7,147          4,910       31       4,941
Residential mortgage loans held for sale (c)
      1,124       3       1,127          838       5       843
Trading securities

Debt
   826       1,774       2       2,602       987       727       3       1,717
Equity
   10             10       9             9
Total trading securities
   836       1,774       2       2,612       996       727       3       1,726
Residential mortgage servicing rights
         820       820             1,063       1,063
Commercial mortgage servicing rights
         473       473             526       526
Commercial mortgage loans held for sale (c)
         860       860             641       641
Equity investments – direct investments
         1,075       1,075             1,098       1,098
Equity investments – indirect investments (d) (e)
         220       268                347
Customer resale agreements (f)
      136          136          137          137
Loans (g)
      550       324       874          565       340       905
Other assets

BlackRock Series C Preferred Stock (h)
         221       221             357       357
Other
   263       187       6       456       254       199       7       460
Total other assets
   263       187       227       677       254       199       364       817
Total assets
   $ 13,301       $ 56,732       $ 7,929       $ 78,010       $ 11,044       $ 48,807       $ 8,606       $ 68,804
Liabilities

Financial derivatives (b) (i)

Interest rate contracts
      $ 4,830       $ 9       $ 4,839       $ 1       $ 3,124       $ 7       $ 3,132
BlackRock LTIP
         221       221             357       357
Other contracts
      183       164       347          204       109       313
Total financial derivatives
      5,013       394       5,407       1       3,328       473       3,802
Trading securities sold short (j)

Debt
   $ 505       30          535       960       27          987
Total trading securities sold short
   505       30          535       960       27          987
Other borrowed funds
      68       10       78          81       12       93
Other liabilities
         20       20             10       10
Total liabilities
   $ 505       $ 5,111       $ 424       $ 6,040       $ 961       $ 3,436       $ 495       $ 4,892

~~(continued on following page)~~

The PNC Financial Services Group, Inc. –Form 10-Q 7155

~~(continued from previous page)~~Table 47: Fair Value Measurements – Recurring Basis Summary


	March 31, 2017								December 31, 2016
In millions	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Assets
Residential mortgage loans held for sale			$	719	$	4	$	723			$	1,008	$	2	$	1,010
Commercial mortgage loans held for sale						581		581						1,400		1,400
Securities available for sale
U.S. Treasury and government agencies	$	12,312		598				12,910	$	12,572		602				13,174
Residential mortgage-backed
Agency				26,189				26,189				26,128				26,128
Non-agency				107		3,096		3,203				112		3,254		3,366
Commercial mortgage-backed
Agency				2,006				2,006				2,119				2,119
Non-agency				3,863				3,863				4,025				4,025
Asset-backed				5,614		366		5,980				5,565		403		5,968
Other debt				4,598		75		4,673				4,657		66		4,723
Total debt securities		12,312		42,975		3,537		58,824		12,572		43,208		3,723		59,503
Corporate stocks and other		454		61				515		541		60				601
Total securities available for sale		12,766		43,036		3,537		59,339		13,113		43,268		3,723		60,104
Loans				551		323		874				558		335		893
Equity investments (a)						1,106		1,390						1,331		1,381
Residential mortgage servicing rights						1,261		1,261						1,182		1,182
Commercial mortgage servicing rights						606		606						576		576
Trading securities (b)		1,312		1,313		2		2,627		1,458		1,169		2		2,629
Financial derivatives (b) (c)		13		3,265		24		3,302		10		4,566		40		4,616
Other		276		291		82		649		266		312		239		817
Total assets	$	14,367	$	49,175	$	7,526	$	71,352	$	14,847	$	50,881	$	8,830	$	74,608
Liabilities
Other borrowed funds	$	1,497	$	158	$	7	$	1,662	$	799	$	161	$	10	$	970
Financial derivatives (c) (d)		2		2,366		254		2,622		1		3,424		414		3,839
Other liabilities						31		31						9		9
Total liabilities	$	1,499	$	2,524	$	292	$	4,315	$	800	$	3,585	$	433	$	4,818

(a)	~~Included in Other assets on the Consolidated Balance Sheet.~~

~~(b)~~

Amounts at September 30, 2016 and December 31, 2015, are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow PNC to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 9 Financial Derivatives for additional information related to derivative offsetting.

~~(c)~~

~~Included in Loans held for sale on the Consolidated Balance Sheet. PNC has elected the fair value option for certain residential and commercial mortgage loans held for sale.~~

~~(d)~~

~~In accordance with ASC 820-10, certain~~Certain investments that are measured at fair value using the ~~NAV~~net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the Consolidated Balance Sheet.

~~(e)~~

The indirect equity funds are not redeemable, but PNC receives distributions over the life of the partnership from liquidation of the underlying investments by the investee, which we expect to occur over the next twelve years. The amount of unfunded contractual commitments as of September 30, 2016 related to indirect equity investments was $107 million and related to direct equity investments was $21 million, respectively. Comparable amounts at December 31, 2015 were $103 million and $23 million, respectively.

~~(f)~~(b)

Included in ~~Federal funds sold and resale agreements on the Consolidated Balance Sheet. PNC has elected the fair value option for these items.~~

~~(g)~~

~~Included in Loans~~Other assets on the Consolidated Balance Sheet.

~~(h)~~(c)

~~PNC has elected~~Amounts at March 31, 2017 and December 31, 2016, are presented gross and are not reduced by the ~~fair value option~~impact of legally enforceable master netting agreements that allow us to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 9 Financial Derivatives for ~~these shares.~~additional information related to derivative offsetting.

~~(i)~~(d)

Included in Other liabilities on the Consolidated Balance Sheet.

~~(j)~~

~~Included in Other borrowed funds on the Consolidated Balance Sheet.~~

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

Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ follow:

Table ~~63:~~48: Reconciliation of Level 3 Assets and Liabilities

Three Months Ended ~~September 30, 2016~~March 31, 2017

   Total realized / unrealized
gains or losses for the period (a)
Unrealized
gains / losses
on assets and
liabilities
held on
Consolidated
Balance
Sheet at
Sept. 30,
2016 (a) (b)

Level 3 Instruments Only
In millions
Fair Value
Jun. 30,
2016 Included in
Earnings
Included in
Other
comprehensive
income
Purchases Sales Issuances Settlements Transfers
into
Level 3 Transfers
out of
Level 3 Fair Value
Sept. 30,
2016
Assets

Securities available for sale

Residential mortgage-backed non-agency
$ 3,557    $ 25    $ 32    $ (201 ) $ 3,413
Asset-backed
436    4    8    (23 ) 425
State and municipal
15    (1 ) 14
Other debt
33    1    $ 1    $ (14 ) 21
Total securities available for sale
4,041    30    40    1    (14 ) (225 ) 3,873
Financial derivatives
51    37    (36 ) 52    $ 34
Residential mortgage loans held for sale
6    3    (1 ) $ 3    $ (8 ) 3
Trading securities –Debt
2    2
Residential mortgage servicing rights
774    23    49    $ 16    (42 ) 820    23
Commercial mortgage servicing rights
448    8    16    22    (21 ) 473    8
Commercial mortgage loans held for sale
981    18    (1,343 ) 1,205    (1 ) 860    6
Equity investments

Direct investments
1,120    19    17    (81 ) 1,075    21
Indirect investments
233    16    (31 ) 2    220    9
Loans
317    3    27    (4 ) (15 ) (4 ) 324    1
Other assets

BlackRock Series C Preferred Stock
209    12    221    12
Other
6    6
Total other assets
215    12    227    12
Total assets
$ 8,188    $ 166 (c) $ 40    $ 113    $ (1,474 ) $ 1,243    $ (340 ) $ 5    $ (12 ) $ 7,929    $ 114 (d)
Liabilities

Financial derivatives (e)
$ 385    $ 21    $ 1    $ (13 ) $ 394    $ 25
Other borrowed funds
8    $ 24    (22 ) 10
Other liabilities
13    42    (35 ) 20
Total liabilities
$ 406    $ 21 (c) $ 1    $ 66    $ (70 ) $ 424    $ 25 (d)

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

~~Three Months Ended September 30, 2015~~



			Total realized / unrealized gains or losses for the period (a)																							Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2015 (a) (b)					Total realized / unrealized gains or losses for the period (a)																					Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Mar. 31, 2017 (a) (b)
Level 3 Instruments Only In millions	Fair Value Jun. 30, 2015		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value Sept. 30, 2015					Fair Value Dec. 31, 2016		Included in Earnings			Included in Other comprehensive income	Purchases		Sales			Issuances		Settlements			Transfers into Level 3	Transfers out of Level 3				Fair Value Mar. 31, 2017
Assets
Residential mortgage loans held for sale																													$	2					$	2									$2	$	(2	)		$	4
Commercial mortgage loans held for sale																														1,400	$	9					$	(1,617	)	$	801	$	(12	)							581	$	(5	)
Securities available for sale
Residential mortgage- backed non-agency	$	4,424	$	30		$	(9	)								$	(230	)						$	4,215					3,254		26		$18									(202	)							3,096
Asset-backed		531		5			2										(27	)							511	$	(1	)		403		4		4				(25	)				(20	)							366
State and municipal		16																							16
Other debt		33					(1	)	$	8	$	(5	)				(5	)							30					66				9		1		(1	)												75
Total securities available for sale		5,004		35			(8	)		8		(5	)				(262	)							4,772		(1	)		3,723		30		31		1		(26	)				(222	)							3,537
Financial derivatives		36		39													(30	)							45		48
Residential mortgage loans held for sale		10		1						4		(1	)						$	2	$	(11	)		5
Trading securities – Debt		3																							3
Loans																														335		1				22		(4	)				(19	)	2		(14	)			323
Equity investments																														1,331		96				37		(175	)								(183	)	(c)		1,106		67
Residential mortgage servicing rights		1,015		(137	)					111				$	23		(50	)							962		(136	)		1,182		18				83					17		(39	)							1,261		17
Commercial mortgage servicing rights		543		(44	)					15					14		(23	)							505		(44	)		576		13				13					29		(25	)							606		13
Commercial mortgage loans held for sale		757		19								(846	)		874		(2	)							802		7
Equity investments – direct investments		1,191		36						87		(99	)												1,215		39
Loans		365		4						29		(13	)				(24	)		10		(21	)		350		1
Trading securities																														2																					2
Financial derivatives																														40		(1	)										(15	)							24		22
Other assets																														239		(2	)										(155	)							82		(2	)
BlackRock Series C
Preferred Stock		363		(51	)																				312		(51	)
Other		7																							7
Total other assets		370		(51	)																				319		(51	)
Total assets	$	9,294	$	(98	) (c)	$	(8	)	$	254	$	(964	)	$	911	$	(391	)	$	12	$	(32	)	$	8,978	$	(137	)(d)	$	8,830	$	164		$31	$	158	$	(1,822	)	$	847	$	(487	)	$4	$	(199	)		$	7,526	$	112
Liabilities
Financial derivatives (e)	$	498	$	(54	)											$	(1	)						$	443	$	(57	)
Other borrowed funds		165		1										$	23		(127	)							62				$	10										$	19	$	(22	)						$	7
Financial derivatives																														414	$	9					$	2					(171	)							254	$	7
Other liabilities		10																							10					9		16									77		(71	)							31		16
Total liabilities	$	673	$	(53	) (c)									$	23	$	(128	)						$	515	$	(57	)(d)	$	433	$	25					$	2		$	96	$	(264	)						$	292	$	23
Net gains (losses)																															$	139	(d)																			$	89	(e)

(continued on following page)

The PNC Financial Services Group, Inc. –Form 10-Q 7357

(continued from previous page)

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016

Total realized /
unrealized
gains or losses
for the period (a)

Unrealized
gains / losses
on assets and
liabilities
held on
Consolidated
Balance
Sheet at
Sept. 30,
2016 (a) (b)

Level 3 Instruments
Only
In millions
Fair Value
Dec. 31,
2015 Included in
Earnings
Included in
Other
comprehensive
income
Purchases Sales Issuances Settlements Transfers
into
Level 3 Transfers
out of
Level 3 Fair Value
Sept. 30,
2016
Assets

Securities available for sale

Residential mortgage-backed non-agency
$ 4,008    $ 58    $ 4    $ (60 ) $ (597 ) $ 3,413    $ (1 )
Asset-backed
482    10    (67 ) 425
State and municipal
15    (1 ) 14
Other debt
30    1    $ 10    (18 ) (2 ) 21
Total securities available for sale
4,535    69    4    10    (78 ) (667 ) 3,873    (1 )
Financial derivatives
31    106    1    (86 ) 52    101
Residential mortgage loans held for sale
5    9    (2 ) $ 8    $ (17 ) 3
Trading securities – Debt
3    (1 ) 2
Residential mortgage servicing rights
1,063    (316 ) 154    $ 39    (120 ) 820    (308 )
Commercial mortgage servicing rights
526    (56 ) 25    45    (67 ) 473    (56 )
Commercial mortgage loans held for sale
641    55    (2,797 ) 2,981    (20 ) 860    4
Equity investments

Direct investments
1,098    85    135    (243 ) 1,075    84
Indirect investments
16    (31 ) 235 (f) 220    9
Loans
340    6    82    (18 ) (57 ) (29 ) 324    3
Other assets

BlackRock Series C Preferred Stock
357    2    (138 ) 221    2
Other
7    2    (2 ) (1 ) 6
Total other assets
364    4    (2 ) (1 ) (138 ) 227    2
Total assets
$ 8,606    $ (31 ) (c) $ 2    $ 416    $ (3,170 ) $ 3,065    $ (1,156 ) $ 243    $ (46 ) $ 7,929    $ (162 ) (d)
Liabilities

Financial derivatives (e)
$ 473    $ 90    $ 4    $ (173 ) $ 394    $ 92
Other borrowed funds
12    $ 64    (66 ) 10
Other liabilities
10    1    114    (105 ) 20
Total liabilities
$ 495    $ 91 (c) $ 4    $ 178    $ (344 ) $ 424    $ 92 (d)

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

~~Nine Months Ended September 30, 2015~~


			Total realized / unrealized gains or losses for the period (a)																							Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2015 (a) (b)					Total realized / unrealized gains or losses for the period (a)																				Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Mar. 31, 2016 (a) (b)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2014		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value Sept. 30, 2015					Fair Value Dec. 31, 2015		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3	Transfers out of Level 3	Fair Value Mar. 31, 2016
Assets
Residential mortgage loans held for sale																													$	5							$	3	$	(1	)						$2	$(5)	$	4
Commercial mortgage loans held for sale																														641	$	16								(649	)	$	647							655	$	12
Securities available for sale
Residential mortgage-backed non-agency	$	4,798	$	85		$	(31	)								$	(637	)						$	4,215	$	(1	)
Commercial mortgage-backed non-agency				8													(8	)
Residential mortgage- backednon-agency																														4,008		22		$	(45	)								$	(175	)				3,810		(1	)
Asset-backed		563		16			11										(79	)							511		(1	)		482		3			(12	)									(22	)				451
State and municipal		134					(1	)									(117	)							16
Other debt		30		1			(1	)	$	11	$	(5	)				(6	)							30					45					(1	)		2		(2	)									44
Total securities available for sale		5,525		110			(22	)		11		(5	)				(847	)							4,772		(2	)		4,535		25			(58	)		2		(2	)				(197	)				4,305		(1	)
Financial derivatives		42		126						1							(124	)							45		115
Residential mortgage loans held for sale		6		1						21		(3	)				(1	)	$	4	$	(23	)		5		1
Trading securities – Debt		32															(29	)							3
Loans																														340		2						33		(8	)				(25	)		(13)		329		1
Equity investments																														1,098		51						23		(16	)									1,156		50
Residential mortgage servicing rights		845		(69	)					261				$	61		(136	)							962		(69	)		1,063		(226	)					52					11		(37	)				863		(225	)
Commercial mortgage servicing rights		506		(26	)					43					48		(66	)							505		(26	)		526		(55	)					3					9		(23	)				460		(55	)
Commercial mortgage loans held for sale		893		63								(3,081	)		2,965		(38	)							802		3
Equity investments – direct investments		1,152		92						225		(254	)												1,215		79
Loans		397		19						84		(21	)				(96	)		21		(54	)		350		10
Other assets
BlackRock Series C Preferred Stock		375		(63	)																				312		(63	)
Trading securities																														3															(1	)				2
Financial derivatives																														31		34													(24	)				41		28
Other		15										(7	)				(1	)							7					364		(9	)		(2	)				(1	)				(138	)				214		(11	)
Total other assets		390		(63	)							(7	)				(1	)							319		(63	)
Total assets	$	9,788	$	253	(c)	$	(22	)	$	646	$	(3,371	)	$	3,074	$	(1,338	)	$	25	$	(77	)	$	8,978	$	48	(d)	$	8,606	$	(162	)	$	(60	)	$	116	$	(677	)	$	667	$	(445	)	$2	$(18)	$	8,029	$	(201	)
Liabilities
Financial derivatives (e)	$	526	$	(28	)						$	1				$	(56	)						$	443	$	(69	)
Other borrowed funds		181		4										$	69		(192	)							62				$	12												$	23	$	(27	)			$	8
Financial derivatives																														473	$	7							$	2					(149	)				333	$	8
Other liabilities		9		1																					10					10													38		(34	)				14
Total liabilities	$	716	$	(23	) (c)						$	1		$	69	$	(248	)						$	515	$	(69	) (d)	$	495	$	7							$	2		$	61	$	(210	)			$	355	$	8
Net gains (losses)																															$	(169	) (d)																		$	(209	) (e)

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

(b)	The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period.

(c)

Reflects transfers out of Level 3 associated with a change in valuation methodology for certain equity investments subject to the Volcker Rule provisions of the Dodd-Frank Act. These investments are measured at fair value using the NAV per share (or its equivalent) practical expedient as of March 31, 2017.

(d)

Net gains ~~(realized~~(losses) realized and ~~unrealized)~~unrealized included in earnings ~~relating~~related to Level 3 assets and liabilities were $145 million for the third quarter of 2016, while for the first nine months of 2016 there were $122 million of net losses (realized and unrealized) included in earnings. The comparative amounts included net losses (realized and unrealized) of $45 million for the third quarter of 2015 and net gains (realized and unrealized) of $276 million for the first nine months of 2015. These amounts also included amortization and accretion. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net ~~gains/~~gains (losses) ~~(realized~~realized and ~~unrealized) were included in Noninterest income on the Consolidated Income Statement.~~

~~(d)~~

~~Net~~ unrealized gains relating to those assets and liabilities held at the end of the reporting period were $89 million for the third quarter of 2016, while for the first nine months of 2016 there were $254 million of net unrealized losses. The comparative amounts included net unrealized losses of $80 million for the third quarter of 2015 and net unrealized gains of $117 million for the first nine months of 2015. These amounts were included in Noninterest income on the Consolidated Income Statement.

(e)	~~Includes swaps entered into~~Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in ~~connection with sales of certain Visa Class B common shares.~~

~~(f)~~

~~Reflects transfers into Level 3 associated with a change in valuation methodology.~~Noninterest income on the Consolidated Income Statement.

An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels. ~~PNC’s~~Our policy is to recognize transfers in and transfers out as of the end of the reporting period.

58The PNC Financial Services Group, Inc. –Form 10-Q75

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

Table ~~64:~~49: Fair Value Measurements – Recurring Quantitative Information

~~September 30, 2016~~March 31, 2017

Level 3 Instruments Only
Dollars in millions
Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average)
Residential mortgage-backed
non-agency securities
$ 3,413    Priced by a third-party vendor Constant prepayment rate (CPR) 1.0%-24.2% (7.2%) (a )
using a discounted cash flow Constant default rate (CDR) 0.0%-16.7% (5.4%) (a )
pricing model (a) Loss severity 10.0%-98.5% (53.2%) (a )
Spread over the benchmark curve (b) 260bps weighted average (a )

Asset-backed securities
425    Priced by a third-party vendor Constant prepayment rate (CPR) 1.0%-15.0% (6.3%) (a )
using a discounted cash flow Constant default rate (CDR) 2.0%-13.9% (6.6%) (a )
pricing model (a) Loss severity 24.2%-100.0% (78.0%) (a )
Spread over the benchmark curve (b) 333bps weighted average (a )

Residential mortgage servicing
rights
820    Discounted cash flow Constant prepayment rate (CPR) 0.0%-41.3% (18.3%)
Spread over the benchmark curve (b) 195bps-1,871bps (847bps)

Commercial mortgage servicing
rights

473


Discounted cash flow

Constant prepayment rate (CPR) Discount rate

6.1%-45.6% (7.8%)
5.1%-7.7% (7.5%)

Commercial mortgage loans held for sale

860


Discounted cash flow

Spread over the benchmark curve (b) Estimated servicing cash flows
66bps-1,220bps (527bps)0.0%-4.7% (1.4%)

Equity investments – Direct investments
1,075    Multiple of adjusted earnings Multiple of earnings 4.1x-12.0x (7.6x)

Equity investments – Indirect investments
220    Consensus pricing (c) Liquidity discount 0.0%-40.0%

Loans – Residential real estate
127    Consensus pricing (c) Cumulative default rate 11.0%-100.0% (88.0%)
Loss severity 0.0%-100.0% (24.4%)
Discount rate 4.7%-6.7% (5.1%)
114    Discounted cash flow Loss severity 8.0% weighted average
Discount rate 3.9% weighted average

Loans – Home equity
83    Consensus pricing (c) Credit and Liquidity discount 0.0%-99.0% (57.0%)

BlackRock Series C Preferred Stock
221    Consensus pricing (c) Liquidity discount 20.0%

BlackRock LTIP
(221 ) Consensus pricing (c) Liquidity discount 20.0%

Swaps related to sales of certain Visa Class B common shares
(156 ) Discounted cash flow Estimated conversion factor of     Class B shares into Class A shares 164.4% weighted average
Estimated growth rate of Visa
    Class A share price 14.0%
Insignificant Level 3 assets, net of liabilities (d)
51

Total Level 3 assets, net of liabilities (e)
$ 7,505


Level 3 Instruments Only Dollars in millions	Fair Value			Valuation Techniques	Unobservable Inputs	Range (Weighted Average)

Commercial mortgage loans held for sale	$	581		Discounted cash flow	Spread over the benchmark curve (a) Estimated servicing cash flows	40bps-13,520bps (1,046bps) 0.0%-5.4% (2.0%)
Residential mortgage-backednon-agency securities		3,096		Priced by a third-party vendor	Constant prepayment rate (CPR)	1.0%-24.2% (7.4%)
				using a discounted cash flow	Constant default rate (CDR)	0.0%-16.7% (5.2%)
				pricing model	Loss severity Spread over the benchmark curve (a)	10.0%-98.5% (53.4%) 225bps weighted average

Asset-backed securities		366		Priced by a third-party vendor	Constant prepayment rate (CPR)	1.0%-16.0% (6.5%)
				using a discounted cash flow	Constant default rate (CDR)	2.0%-13.9% (6.5%)
				pricing model	Loss severity	24.2%-100.0% (75.5%)
					Spread over the benchmark curve (a)	256bps weighted average

Loans		136		Consensus pricing (b)	Cumulative default rate	11.0%-100.0% (85.4%)
					Loss severity	0.0%-100.0% (21.4%)
					Discount rate	4.7%-7.5% (5.1%)

		113		Discounted cash flow	Loss severity	8.0% weighted average
					Discount rate	4.4% weighted average

		74		Consensus pricing (b)	Credit and Liquidity discount	0.0%-99.0% (58.6%)

Equity investments		1,106		Multiple of adjusted earnings	Multiple of earnings	4.5x-13.4x (8.0x)

Residential mortgage servicing rights		1,261		Discounted cash flow	Constant prepayment rate (CPR)	0.1%-38.1% (9.3%)
					Spread over the benchmark curve (a)	224bps-1,900bps (850bps)

Commercial mortgage servicing rights		606		Discounted cash flow	Constant prepayment rate (CPR)	7.1%-37.8% (8.1%)
					Discount rate	5.0%-7.7% (7.6%)

Financial derivatives - Swaps related to sales of certain Visa Class B common shares		(165	)	Discounted cash flow	Estimated conversion factor of Class B shares into Class A shares	164.4% weighted average
					Estimated growth rate of Visa Class A share price	14.0%
					Estimated length of litigation resolution date	Q2 2019
Insignificant Level 3 assets, net of liabilities (c)		60


Total Level 3 assets, net of liabilities (d)	$	7,234

(continued on following page)

76The PNC Financial Services Group, Inc. –Form 10-Q59

(continued from previous page)

December 31, ~~2015~~2016

Level 3 Instruments Only
Dollars in millions
Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average)
Residential mortgage-backed non-agency securities
$ 4,008    Priced by a third-party vendor Constant prepayment rate (CPR) 1.0%-24.2% (7.0%) (a)
using a discounted cash flow Constant default rate (CDR) 0.0%-16.7% (5.4%) (a)
pricing model (a) Loss severity 10.0%-98.5% (53.3%) (a)
Spread over the benchmark curve (b) 241bps weighted average (a)
Asset-backed securities
482    Priced by a third-party vendor Constant prepayment rate (CPR) 1.0%-14.0% (6.3%) (a)
using a discounted cash flow Constant default rate (CDR) 1.7%-13.9% (6.8%) (a)
pricing model (a) Loss severity 24.2%-100.0% (77.5%) (a)
Spread over the benchmark curve (b) 324bps weighted average (a)
Residential mortgage servicing rights
1,063    Discounted cash flow Constant prepayment rate (CPR) Spread over the benchmark curve (b) 0.3%-46.5% (10.6%)559bps-1,883bps (893bps)
Commercial mortgage servicing rights
526    Discounted cash flow Constant prepayment rate (CPR) 3.9%-26.5% (5.7%)
Discount rate 2.6%-7.7% (7.5%)
Commercial mortgage loans held for sale
641    Discounted cash flow
Spread over the benchmark curve (b)

85bps-4,270bps (547bps)
Estimated servicing cash flows 0.0%-7.0% (0.9%)
Equity investments – Direct investments
1,098    Multiple of adjusted earnings Multiple of earnings 4.2x-14.1x (7.6x)
Loans – Residential real estate
123    Consensus pricing (c) Cumulative default rate 2.0%-100.0% (85.1%)
Loss severity 0.0%-100.0% (27.3%)
Discount rate 4.9%-7.0% (5.2%)
116    Discounted cash flow Loss severity 8.0% weighted average
Discount rate 3.9% weighted average
Loans – Home equity
101    Consensus pricing (c) Credit and Liquidity discount 26.0%-99.0% (54.0%)
BlackRock Series C Preferred Stock
357    Consensus pricing (c) Liquidity discount 20.0%
BlackRock LTIP
(357 ) Consensus pricing (c) Liquidity discount 20.0%
Swaps related to sales of certain Visa Class B common shares
(104 ) Discounted cash flow
Estimated conversion factor of

Class B shares into Class A shares

164.3% weighted average
Estimated growth rate of Visa Class
A share price 16.3%
Insignificant Level 3 assets, net of

liabilities (d)
57

Total Level 3 assets, net of liabilities (e)
$ 8,111


Level 3 Instruments Only Dollars in millions	Fair Value			Valuation Techniques	Unobservable Inputs	Range (Weighted Average)

Commercial mortgage loans held for sale	$	1,400		Discounted cash flow	Spread over the benchmark curve (a)	42bps - 1,725bps (362bps)
					Estimated servicing cash flows	0.0% - 7.3% (1.5%)
Residential mortgage-backednon-agency securities		3,254		Priced by a third-party vendor	Constant prepayment rate (CPR)	1.0% - 24.2% (7.2%)
				using a discounted cash flow	Constant default rate (CDR)	0.0% - 16.7% (5.3%)
				pricing model	Loss severity	10.0% - 98.5% (53.5%)
					Spread over the benchmark curve (a)	236bps weighted average

Asset-backed securities		403		Priced by a third-party vendor	Constant prepayment rate (CPR)	1.0% - 16.0% (6.4%)
				using a discounted cash flow	Constant default rate (CDR)	2.0% - 13.9% (6.6%)
				pricing model	Loss severity	24.2% - 100.0% (77.3%)
					Spread over the benchmark curve (a)	278bps weighted average

Loans		141		Consensus pricing (b)	Cumulative default rate	11.0% - 100.0% (86.9%)
					Loss severity	0.0% - 100.0% (22.9%)
					Discount rate	4.7%- 6.7% (5.1%)

		116		Discounted cash flow	Loss severity	8.0% weighted average
					Discount rate	4.2% weighted average

		78		Consensus pricing (b)	Credit and Liquidity discount	0.0% - 99.0% (57.9%)

Equity investments		1,331		Multiple of adjusted earnings	Multiple of earnings	4.5x- 12.0x (7.8x)
				Consensus pricing (b)	Liquidity discount	0.0%- 40.0%

Residential mortgage servicing rights		1,182		Discounted cash flow	Constant prepayment rate (CPR)	0.0%- 36.0% (9.4%)
					Spread over the benchmark curve (a)	341bps - 1,913bps (850bps)

Commercial mortgage servicing rights		576		Discounted cash flow	Constant prepayment rate (CPR)	7.5%- 43.4% (8.6%)
					Discount rate	3.5%- 7.6% (7.5%)
Other assets - BlackRock Series C Preferred Stock		232		Consensus pricing (b)	Liquidity discount	15.0%- 25.0% (20.0%)
Financial derivatives - BlackRock LTIP		(232	)	Consensus pricing (b)	Liquidity discount	15.0%- 25.0% (20.0%)

Financial derivatives - Swaps related to sales of certain Visa Class B common shares		(164	)	Discounted cash flow	Estimated conversion factor of Class B shares into Class A shares
						164.4% weighted average
					Estimated growth rate of Visa Class A share price
					Estimated growth rate of Visa Class A share price	14.0%
					Estimated length of litigation resolution date	Q2 2019
					Estimated length of litigation resolution date	Q2 2019
Insignificant Level 3 assets, net of liabilities (c)		80


Total Level 3 assets, net of liabilities (d)	$	8,397

(a)

Level 3 residential mortgage-backed non-agency and asset-backed securities with fair values as of September 30, 2016 totaling $2.9 billion and $.4 billion, respectively, were priced by a third-party vendor using a discounted cash flow pricing model that incorporates consensus pricing, where available. The comparable amounts as of December 31, 2015 were $3.4 billion and $.4 billion, respectively. The significant unobservable inputs for these securities were provided by the third-party vendor and are disclosed in the table. Our procedures to validate the prices provided by the third-party vendor related to these securities are discussed further in the Assets and Liabilities Measured at Fair Value on a Recurring Basis section of Note 7 Fair Value in our 2015 Form 10-K. Certain Level 3 residential mortgage-backed non-agency and asset-backed securities with fair values as of September 30, 2016 of $518 million and $28 million, respectively, were valued using a pricing source, such as a dealer quote or comparable security price, for which the significant unobservable inputs used to determine the price were not reasonably available. The comparable amounts as of December 31, 2015 were $629 million and $34 million, respectively.

~~(b)~~

The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporatenon-interest-rate risks, such as credit and liquidity risks.

~~(c)~~(b)

Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices.

~~(d)~~(c)

Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, state and municipal ~~securities,~~and other debt securities, residential mortgage loans held for sale, other assets, other borrowed funds ~~(ROAPs)~~ and other liabilities. ~~For additional information, please see the Assets and Liabilities Measured at Fair Value on a Recurring Basis discussion included in Note 7 Fair Value in our 2015 Form 10-K.~~

~~(e)~~(d)

Consisted of total Level 3 assets of ~~$7.9~~$7.5 billion and total Level 3 liabilities of ~~$.4~~$.3 billion as of ~~September 30, 2016~~March 31, 2017 and ~~$8.6~~$8.8 billion and ~~$.5~~$.4 billion as of December 31, ~~2015,~~2016, respectively.

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

Financial Assets Accounted for at Fair Value on a Nonrecurring Basis

We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 6550 and Table ~~66.~~51. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 76 Fair Value in our ~~2015~~ 2016Form 10-K.

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

Table ~~65:~~50: Fair Value Measurements–Nonrecurring


	Fair Value (a)				Gains (Losses) Three months ended		Gains (Losses) Nine months ended		Fair Value (a)				Gains (Losses) Three months ended
In millions	September 30 2016		December 31 2015		September 30 2016	September 30 2015	September 30 2016	September 30 2015	March 31 2017		December 31 2016		March 31 2017			March 31 2016
Assets
Nonaccrual loans	$	180	$	30	$(32)	$(41)	$(81)	$(48)	$	146	$	187	$	(6	)	$	(47	)
OREO and foreclosed assets		108		137	(6)	(6)	(15)	(18)		56		107		(4	)		(8	)
Insignificant assets ~~(b)~~		19		28		(2)	(5)	(16)		9		19		3			(7	)
Total assets	$	307	$	195	$(38)	$(49)	$(101)	$(82)	$	211	$	313	$	(7	)	$	(62	)

(a)	All Level 3 as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~

~~(b)~~

Represents the aggregate amount of assets measured at fair value on a nonrecurring basis that are individually and in the aggregate insignificant. The amount includes certain equity investments and long-lived assets held for sale.2016.

Quantitative information about the significant unobservable inputs within Level 3 nonrecurring assets follows.

Table ~~66:~~51: Fair Value Measurements – Nonrecurring Quantitative Information


Level 3 Instruments Only Dollars in millions	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
March 31, 2017
Assets
Nonaccrual loans	$	70	LGD percentage	Loss severity	6.4%- 86.8% (23.3%)
		76	Fair value of property or collateral	Appraised value/sales price	Not meaningful
OREO and foreclosed assets		56	Fair value of property or collateral	Appraised value/sales price	Not meaningful
Insignificant assets		9

Total assets	$	211
December 31, 2016
Assets
Nonaccrual loans	$	112	LGD percentage	Loss severity	6.0%- 77.1% (31.3%)
		75	Fair value of property or collateral	Appraised value/sales price	Not meaningful
OREO and foreclosed assets		107	Fair value of property or collateral	Appraised value/sales price	Not meaningful
Insignificant assets		19

Total assets	$	313

~~Level 3 Instruments Only~~

~~Dollars in millions~~

~~Fair Value~~

~~Valuation Techniques~~

~~Unobservable Inputs~~

~~Range (Weighted Average)~~

~~September 30, 2016~~

~~Assets~~

~~Nonaccrual loans~~

~~$ 126~~

~~LGD percentage (a)~~

~~Loss severity~~

~~5.4%-77.8% (35.3%)~~

~~Fair value of property or collateral~~

~~Appraised value/sales price~~

~~Not meaningful~~

~~OREO and foreclosed assets~~

~~108~~

~~Fair value of property or collateral~~

~~Appraised value/sales price~~

~~Not meaningful~~

~~Insignificant assets~~

~~Total assets~~

~~$307~~

~~December 31, 2015~~

~~Assets~~

~~Nonaccrual loans~~

~~$ 20~~

~~LGD percentage (a)~~

~~Loss severity~~

~~8.1%-73.3% (58.6%)~~

~~Fair value of property or collateral~~

~~Appraised value/sales price~~

~~Not meaningful~~

~~OREO and foreclosed assets~~

~~137~~

~~Fair value of property or collateral~~

~~Appraised value/sales price~~

~~Not meaningful~~

~~Insignificant assets~~

~~Total assets~~

~~$195~~

~~(a)~~

~~LGD percentage represents the amount that PNC expects to lose in the event a borrower defaults on an obligation.~~

Financial Instruments Accounted ~~For Under~~for under Fair Value Option

We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, please refer to Note 76 Fair Value in our ~~2015~~2016 Form10-K.

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

The PNC Financial Services Group, Inc. –Form 10-Q61

Table ~~67:~~52: Fair Value Option – Fair Value and Principal Balances


In millions	Fair Value		Aggregate Unpaid Principal Balance		Difference
March 31, 2017
Assets
Residential mortgage loans held for sale
Performing loans	$	711	$	684	$	27
Accruing loans 90 days or more past due		3		3
Nonaccrual loans		9		10		(1	)
Total		723		697		26
Commercial mortgage loans held for sale (a)
Performing loans		578		610		(32	)
Nonaccrual loans		3		5		(2	)
Total		581		615		(34	)
Residential mortgage loans
Performing loans		279		320		(41	)
Accruing loans 90 days or more past due		378		378
Nonaccrual loans		217		339		(122	)
Total		874		1,037		(163	)
Other assets		272		278		(6	)
Liabilities
Other borrowed funds	$	57	$	58	$	(1	)
December 31, 2016
Assets
Residential mortgage loans held for sale
Performing loans	$	1,000	$	988	$	12
Accruing loans 90 days or more past due		4		4
Nonaccrual loans		6		6
Total		1,010		998		12
Commercial mortgage loans held for sale (a)
Performing loans		1,395		1,412		(17	)
Nonaccrual loans		5		9		(4	)
Total		1,400		1,421		(21	)
Residential mortgage loans
Performing loans		247		289		(42	)
Accruing loans 90 days or more past due		427		428		(1	)
Nonaccrual loans		219		346		(127	)
Total		893		1,063		(170	)
Other assets		293		288		5
Liabilities
Other borrowed funds	$	81	$	82	$	(1	)

(a)	There were no accruing loans 90 days or more past due within this category at March 31, 2017 or December 31, 2016.

The changes in fair value for items for which we elected the fair value option and are included in Noninterest income and Noninterest expense on the Consolidated Income Statement are as follows.

Table 53: Fair Value Option – Changes in Fair Value (a)


	Gains (Losses) Three months ended						Gains (Losses) Nine months ended						Gains (Losses) Three months ended
In millions	September 30 2016			September 30 2015			September 30 2016			September 30 2015			March 31 2017			March 31 2016
Assets
Customer resale agreements	$	(1	)	$	(1	)	$	(1	)	$	(1	)
Residential mortgage loans held for sale													$	30		$	47
Commercial mortgage loans held for sale	$	16		$	25		$	65		$	81		$	18		$	27
Residential mortgage loans held for sale	$	55		$	56		$	161		$	127
Residential mortgage loans – portfolio	$	7		$	8		$	24		$	37
BlackRock Series C Preferred Stock	$	12		$	(51	)	$	2		$	(63	)
Residential mortgage loans													$	4		$	6
Other assets	$	15					$	(5	)	$	2		$	7		$	(27	)
Liabilities
Other borrowed funds				$	(2	)				$	(4	)
Other liabilities													$	(16	)

(a)	The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.

7862 The PNC Financial Services Group, Inc. –Form 10-Q

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

~~Table 68: Fair Value Option – Fair Value and Principal Balances~~

In millions    Fair Value    Aggregate Unpaid
Principal Balance    Difference
September 30, 2016

Assets

Customer resale agreements
   $ 136       $ 133       $ 3
Residential mortgage loans held for sale

Performing loans
   1,122       1,071       51
Accruing loans 90 days or more past due
   1       1
Nonaccrual loans
   4       5       (1 )
Total
   1,127       1,077       50
Commercial mortgage loans held for sale (a)

Performing loans
   855       865       (10 )
Nonaccrual loans
   5       9       (4 )
Total
   860       874       (14 )
Residential mortgage loans – portfolio

Performing loans
   231       276       (45 )
Accruing loans 90 days or more past due
   420       420
Nonaccrual loans
   223       354       (131 )
Total
   874       1,050       (176 )
Other assets
   163       164       (1 )
Liabilities

Other borrowed funds
   $ 78       $ 80       $ (2 )
December 31, 2015

Assets

Customer resale agreements
   $ 137       $ 133       $ 4
Residential mortgage loans held for sale

Performing loans
   832       804       28
Accruing loans 90 days or more past due
   4       4
Nonaccrual loans
   7       8       (1 )
Total
   843       816       27
Commercial mortgage loans held for sale (a)

Performing loans
   639       659       (20 )
Nonaccrual loans
   2       3       (1 )
Total
   641       662       (21 )
Residential mortgage loans – portfolio

Performing loans
   204       260       (56 )
Accruing loans 90 days or more past due
   475       478       (3 )
Nonaccrual loans
   226       361       (135 )
Total
   905       1,099       (194 )
Other assets
   164       159       5
Liabilities

Other borrowed funds
   $ 93       $ 95       $ (2 )

~~(a)~~

~~There were no accruing loans 90 days or more past due within this category at September 30, 2016 or December 31, 2015.~~

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

Additional Fair Value Information Related to ~~Other~~ Financial Instruments Not Recorded at Fair Value

The following table presents the carrying amounts and estimated fair values, ~~including~~as well as the level within the fair value hierarchy, of all other financial instruments that are not ~~measured~~recorded on the consolidated ~~financial statements~~balance sheet at fair value as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Table ~~69:~~54: Additional Fair Value Information Related to Other Financial Instruments


	Carrying		Fair Value								Carrying Amount			Fair Value
In millions	Amount		Total		Level 1		Level 2		Level 3				Total			Level 1			Level 2			Level 3
September 30, 2016
March 31, 2017											Carrying Amount
Assets
Cash and due from banks	$	4,531	$	4,531	$	4,531					$	5,003		$	5,003		$	5,003
Short-term assets		29,125		29,125			$	29,125
Interest-earning deposits with banks												27,877			27,877					$	27,877
Securities held to maturity		16,573		17,113		330		16,669	$	114		17,093			17,110			549			16,428		$	133
Loans held for sale		66		65				47		18
Net loans (excludes leases)		199,570		202,758						202,758		201,921			203,319									203,319
Other assets		1,748		2,225				1,731		494		5,512			6,025						5,387			638

Total assets	$	251,613	$	255,817	$	4,861	$	47,572	$	203,384	$	257,406		$	259,334		$	5,552		$	49,692		$	204,090
Liabilities
Demand, savings and money market deposits	$	241,146	$	241,146			$	241,146
Time deposits		18,749		18,806				18,806
Deposits											$	260,710		$	260,552					$	260,552
Borrowed funds		51,222		52,073				50,616	$	1,457		53,400			54,134						52,743		$	1,391
Unfunded loan commitments and letters of credit		289		289						289		305			305									305
Other liabilities		67		67				67				388			388						388

Total liabilities	$	311,473	$	312,381			$	310,635	$	1,746	$	314,803		$	315,379					$	313,683		$	1,696
December 31, 2015
December 31, 2016
Assets
Cash and due from banks	$	4,065	$	4,065	$	4,065					$	4,879		$	4,879		$	4,879
Short-term assets		32,959		32,959			$	32,959
Interest-earning deposits with banks												25,711			25,711					$	25,711
Securities held to maturity		14,768		15,002		298		14,698	$	6		15,843			15,866			540			15,208		$	118
Loans held for sale		56		56				22		34
Net loans (excludes leases)		195,579		197,611						197,611		199,766			201,863									201,863
Other assets		1,817		2,408				1,786		622		4,793			5,243						4,666			577

Total assets	$	249,244	$	252,101	$	4,363	$	49,465	$	198,273	$	250,992		$	253,562		$	5,419		$	45,585		$	202,558
Liabilities
Demand, savings and money market deposits	$	228,492	$	228,492			$	228,492
Time deposits		20,510		20,471				20,471
Deposits											$	257,164		$	257,038					$	257,038
Borrowed funds		53,761		54,002				52,578	$	1,424		51,736			52,322						50,941		$	1,381
Unfunded loan commitments and letters of credit		245		245						245		301			301									301
Other liabilities												417			417						417

Total liabilities	$	303,008	$	303,210			$	301,541	$	1,669	$	309,618		$	310,078					$	308,396		$	1,682

The aggregate fair values in ~~the preceding table~~Table 54 represent only a portion of the total market value of ~~PNC’s~~our assets and liabilities as, in accordance with the guidance related to fair ~~value of~~values about financial instruments, ~~Table 69 excludes~~we exclude the following:

financial instruments recorded at fair value on a recurring basis (as they are disclosed in Table 47),

investments accounted for under the equity method,

real and personal property,

lease financing,

loan customer relationships,

deposit customer intangibles,

mortgage servicing rights,

retail branch networks,

fee-based businesses, such as asset management and brokerage, and

trademarks and brand names.

For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table ~~69,~~54, see Note 76 Fair Value in our ~~2015~~2016 Form10-K.

80The PNC Financial Services Group, Inc. –Form 10-Q63

NOTE 7 GOODWILLAND IM~~NTANGIBLE~~ORTGAGE AS~~SSETS~~ERVICING RIGHTS

Goodwill

See Note 87 Goodwill and ~~Intangible Assets~~Mortgage Servicing Rights in our ~~2015~~2016 Form10-K for more information regarding our goodwill.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others when we recognize it as an intangible ~~asset. MSRs are purchased or originated when loans are sold with~~asset and the servicing ~~retained.~~income we receive is more than adequate compensation. MSRs totaled ~~$1.3~~$1.9 billion and ~~$1.6~~$1.8 billion at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.

MSRs are subject to declines in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of MSRs decreases (or increases).

See the Sensitivity Analysis section of this Note 7, as well as Note 6 Fair Value in our 2016 Form10-Kfor more detail on our fair value measurement of MSRs. Refer to Note 87 Goodwill and ~~Intangible Assets~~Mortgage Servicing Rights in our ~~2015~~2016 Form10-K for more information on our accounting and measurement of MSRs.

Changes in the commercial and residential MSRs follow:

Table ~~70:~~55: Mortgage Servicing Rights



	Commercial MSRs						Residential MSRs						Commercial MSRs						Residential MSRs
In millions	2016			2015			2016			2015			2017			2016			2017			2016
January 1	$	526		$	506		$	1,063		$	845		$	576		$	526		$	1,182		$	1,063
Additions:
From loans sold with servicing retained		45			48			39			61			29			9			17			11
Purchases		25			43			154			261			13			3			83			52
Changes in fair value due to:
Time and payoffs (a)		(67	)		(66	)		(120	)		(136	)		(25	)		(23	)		(39	)		(37	)
Other (b)		(56	)		(26	)		(316	)		(69	)		13			(55	)		18			(226	)
September 30	$	473		$	505		$	820		$	962
Related unpaid principal balance at September 30	$	139,976		$	143,915		$	126,189		$	121,680
Servicing advances at September 30	$	251		$	277		$	322		$	431
March 31													$	606		$	460		$	1,261		$	863
Related unpaid principal balance at March 31													$	143,908		$	143,922		$	130,382		$	124,839
Servicing advances at March 31													$	234		$	220		$	260		$	383

(a)	Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period.

(b)	Represents MSR value changes resulting primarily from market-driven changes in interest rates.

Sensitivity Analysis

The fair value of commercial and residential MSRs and significant inputs to the valuation models as of ~~September 30, 2016~~March 31, 2017 are shown in ~~the tables below.~~Tables 56 and 57. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments.

Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented ~~below.~~in Tables 56 and 57. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

64The PNC Financial Services Group, Inc. –Form 10-Q81

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

Table ~~71:~~56: Commercial Mortgage Loan Servicing Rights ~~–Key~~– Key Valuation Assumptions


Dollars in millions	September 30 2016			December 31 2015			March 31 2017			December 31 2016
Fair value	$	473		$	526		$	606		$	576
Weighted-average life (years)		4.4			4.7			4.5			4.6
Weighted-average constant prepayment rate		7.75	%		5.71	%		8.14	%		8.61	%
Decline in fair value from 10% adverse change	$	10		$	10		$	11		$	11
Decline in fair value from 20% adverse change	$	20		$	19		$	21		$	21
Effective discount rate		7.53	%		7.49	%		7.58	%		7.52	%
Decline in fair value from 10% adverse change	$	12		$	14		$	17		$	16
Decline in fair value from 20% adverse change	$	24		$	29		$	33		$	31

Table ~~72:~~57: Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions


Dollars in millions	September 30 2016			December 31 2015			March 31 2017			December 31 2016
Fair value	$	820		$	1,063		$	1,261		$	1,182
Weighted-average life (years)		4.2			6.3			6.9			6.8
Weighted-average constant prepayment rate		18.28	%		10.61	%		9.34	%		9.41	%
Decline in fair value from 10% adverse change	$	50		$	44		$	47		$	45
Decline in fair value from 20% adverse change	$	94		$	85		$	90		$	86
Weighted-average option adjusted spread		847bps			893bps			850	bps		850	bps
Decline in fair value from 10% adverse change	$	23		$	34		$	39		$	37
Decline in fair value from 20% adverse change	$	44		$	67		$	76		$	72

Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $.1 billion for both the three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015, respectively, and $.4 billion for both the nine months ended September 30, 2016 and 2015, respectively.~~2016. We also generate servicing fees fromfee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported on our Consolidated Income Statement in the line items Corporate services and Residential mortgage, respectively.

~~Other Intangible Assets~~

Other intangible assets consist primarily of core deposit intangibles, customer lists and non-compete agreements. See Note 8 Goodwill and Intangible Assets in our 2015 Form 10-K for more information regarding our other intangible assets.

NOTE 8 EMPLOYEE BENEFIT PLANS

Pension ~~And~~and Postretirement Plans

As described in Note 1211 Employee Benefit Plans in our ~~2015~~2016 Form10-K, we have a noncontributory, qualified defined benefit pension plan covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are a percentage of eligible compensation. Any pension contributions to the plan are based on an actuarially determined amount necessary to fund total benefits payable to plan participants.

We also maintain nonqualified supplemental retirement plans for certain employees and provide certain health care and life insurance benefits for qualifying retired employees (postretirement benefits) through various plans. ~~PNC reserves~~We reserve the right to terminate or make changes to these plans at any time. The nonqualified pension plan is unfunded.

The components of our net periodic ~~pension and postretirement~~ benefit cost for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively, were as follows:

Table 58: Components of Net Periodic Benefit Cost


	Qualified Pension Plan						Nonqualified Retirement Plans				Postretirement Benefit
Three months ended March 31 In millions	2017			2016			2017		2016		2017			2016
Net periodic cost consists of:
Service cost	$	26		$	26		$	1			$	1		$	1
Interest cost		45			46			3	$	3		4			4
Expected return on plan assets		(71	)		(70	)						(1	)		(1	)
Amortization of prior service credit		(1	)		(2	)
Amortization of actuarial losses		12			11			1		1
Net periodic cost/(benefit)	$	11		$	11		$	5	$	4	$	4		$	4

82The PNC Financial Services Group, Inc. –Form 10-Q65

~~Table 73: Net Periodic Pension and Postretirement Benefit Costs~~

   Qualified Pension Plan    Nonqualified Retirement Plans    Postretirement Benefits
Three months ended September 30
In millions
   2016 2015    2016    2015    2016    2015
Net periodic cost consists of:

Service cost
   $ 26    $ 27       $ 1       $ 1       $ 1       $ 1
Interest cost
   46    44       3       3       4       4
Expected return on plan assets
   (70 ) (75 )          (1 )
Amortization of prior service credit
   (2 ) (2 )             (1 )
Amortization of actuarial losses
   12    8       1       2
Net periodic cost/(benefit)
   $ 12    $ 2       $ 5       $ 6       $ 4       $ 4

   Qualified Pension Plan    Nonqualified Retirement Plans    Postretirement Benefits
Nine months ended September 30
In millions
   2016 2015    2016    2015    2016    2015
Net periodic cost consists of:

Service cost
   $ 77    $ 80       $ 2       $ 2       $ 4       $ 4
Interest cost
   139    133       9       9       11       11
Expected return on plan assets
   (211 ) (223 )          (3 )
Amortization of prior service credit
   (5 ) (6 )          (1 )    (1 )
Amortization of actuarial losses
   34    23       3       5
Net periodic cost/(benefit)
   $ 34    $ 7       $ 14       $ 16       $ 11       $ 14

NOTE 9 FINANCIAL DERIVATIVES

We use derivative financial instruments ~~(derivatives)~~ primarily to help manage exposure to interest rate, market and credit risk and reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows. We also enter into derivatives with customers to facilitate their risk management activities. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.

For more information regarding derivatives see Note 1 Accounting Policies and Note 1413 Financial Derivatives in our Notes To Consolidated Financial Statements ~~under Item 8~~ in our ~~2015~~2016 Form10-K.

The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by ~~PNC:~~us:

Table ~~74:~~59: Total Gross Derivatives


	September 30, 2016						December 31, 2015						March 31, 2017								December 31, 2016
In millions	Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional / Contract Amount		Asset Fair Value (a)			Liability Fair Value (b)			Notional / Contract Amount		Asset Fair Value (a)			Liability Fair Value (b)
Derivatives designated as hedging instruments under GAAP	$	52,466	$	1,645	$	309	$	52,074	$	1,159	$	174
Derivatives not designated as hedging instruments under GAAP		296,321		5,502		5,098		295,902		3,782		3,628
Derivatives used for hedging under GAAP
Interest rate contracts (c):
Fair value hedges (d)													$	31,380	$	216		$	71		$	34,010	$	551		$	214
Cash flow hedges (d)														18,577		109			1			20,831		313			71
Foreign exchange contracts:
Net investment hedges														962		11						945		25
Total derivatives designated for hedging													$	50,919	$	336		$	72		$	55,786	$	889		$	285
Derivatives not used for hedging under GAAP
Derivatives used for mortgage banking activities (e):
Interest rate contracts:
Swaps (d)													$	49,790	$	344		$	145		$	49,071	$	783		$	505
Futures (f)														33,779								36,264
Mortgage-backed commitments														9,074		41			19			13,317		96			56
Other														47,181		27			8			31,907		28			4
Subtotal														139,824		412			172			130,559		907			565
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps (d)														177,719		2,252			1,869			173,777		2,373			2,214
Futures (f)														3,763								4,053
Mortgage-backed commitments														2,687		7			7			2,955		10			8
Other														18,013		74			50			16,203		55			53
Subtotal														202,182		2,333			1,926			196,988		2,438			2,275
Foreign exchange contracts and other														20,880		203			191			21,889		342			309
Subtotal														223,062		2,536			2,117			218,877		2,780			2,584
Derivatives used for other risk management activities:
Foreign exchange contracts and other (g)														6,174		18			261			5,581		40			405
Total derivatives not designated for hedging													$	369,060	$	2,966		$	2,550		$	355,017	$	3,727		$	3,554
Total gross derivatives	$	348,787	$	7,147	$	5,407	$	347,976	$	4,941	$	3,802	$	419,979	$	3,302		$	2,622		$	410,803	$	4,616		$	3,839
Less: Impact of legally enforceable master netting agreements (d)																(1,497	)		(1,497	)				(2,460	)		(2,460	)
Less: Cash collateral received/paid (d)																(507	)		(508	)				(657	)		(484	)
Total derivatives															$	1,298		$	617				$	1,499		$	895

(a)	Included in Other assets on our Consolidated Balance Sheet.

(b)	Included in Other liabilities on our Consolidated Balance Sheet.

(c)	Represents primarily swaps.

(d)

In the first quarter of 2017, PNC changed its accounting treatment for variation margin related to certain derivative instruments cleared through a central clearing house. Previously, variation margin was treated as collateral subject to offsetting. As a result of changes made by the clearing house to its rules governing such instruments with its counterparties, effective for the first quarter of 2017, variation margin will be treated as a settlement payment on the derivative instrument. The impact at March 31, 2017 was a reduction of gross derivative assets and gross derivative liabilities by $.8 billion and $.7 billion, respectively. The accounting change had no impact on the net fair value of the derivative assets and liabilities that otherwise would have been reported on our Consolidated Balance Sheet. See Table 63 for more information.

(e)	Includes both residential and commercial mortgage banking activities.

(f)	Futures contracts settle in cash daily and, therefore, no derivative asset or derivative liability is recognized on our Consolidated Balance Sheet.

(g)	Includes our obligation to fund a portion of certain BlackRock LTIP programs and the swaps entered into in connection with sales of a portion of Visa Class B common shares.

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

All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk and Contingent Features section below. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.

Derivatives Designated As Hedging Instruments under GAAP

Certain derivatives used to manage interest rate and foreign exchange risk as part of our asset and liability risk management activities are designated as accounting hedges under GAAP. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of

expected future cash flows are

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

considered cash flow hedges, and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives, to the extent effective, to be recognized in the income statement in the same period the hedged items affect earnings.

~~Further detail regarding the notional amounts and fair values related to derivatives designated in hedge relationships is presented in the following table:~~

~~Table 75: Derivatives Designated As Hedging Instruments under GAAP~~

   September 30, 2016    December 31, 2015
In millions    Notional/
Contract
Amount    Asset
Fair
Value (a)    Liability
Fair
Value (b)    Notional/
Contract
Amount    Asset
Fair
Value (a)    Liability
Fair
Value (b)
Interest rate contracts:

Fair value hedges:

Receive-fixed swaps
   $ 25,972       $ 989       $ 1       $ 25,756       $ 699       $ 18
Pay-fixed swaps (c)
   7,715       1       307       5,934       13       153
Subtotal
   33,687       990       308       31,690       712       171
Cash flow hedges:

Receive-fixed swaps
   17,579       487       1       17,879       412       2
Forward purchase commitments
   200       1          1,400       4       1
Subtotal
   17,779       488       1       19,279       416       3
Foreign exchange contracts:

Net investment hedges
   1,000       167          1,105       31
Total derivatives designated as hedging instruments
   $ 52,466       $ 1,645       $ 309       $ 52,074       $ 1,159       $ 174

~~(a)~~

~~Included in Other assets on our Consolidated Balance Sheet.~~

~~(b)~~

~~Included in Other liabilities on our Consolidated Balance Sheet.~~

~~(c)~~

~~Includes zero-coupon swaps.~~

Fair Value Hedges

We enter into receive-fixed,pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt caused by fluctuations in market interest rates. We also enter intopay-fixed, receive-variable interest rate swaps andzero-coupon swaps to hedge changes in the fair value of fixed rate andzero-coupon investment securities caused by fluctuations in market interest rates. For these hedge relationships, we use statistical regression analysis to assess hedge effectiveness at both the inception of the hedge relationship and on an ongoing basis. There were no components of derivative gains or losses excluded from the assessment of hedge ~~effectiveness.~~effectiveness for all periods presented.

Further detail regarding gains (losses) on fair value hedge derivatives and related hedged items is presented in the following table:

Table ~~76:~~60: Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges (a)


					Three months ended												Nine months ended														Three months ended
					September 30, 2016						September 30, 2015						September 30, 2016						September 30, 2015								March 31, 2017		March 31, 2016
In millions	Hedged Items		Location		Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income			Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income			Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income			Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income			Hedged Items	Location	Gain (Loss) on Derivatives Recognized in Income	Gain (Loss) on Related Hedged Items Recognized in Income	Gain (Loss) on Derivatives Recognized in Income	Gain (Loss) on Related Hedged Items Recognized in Income
Interest rate contracts		U.S. Treasury and Government Agencies and Other Debt Securities		Investment securities (interest income)	$	51		$	(53	)	$	(92	)	$	94		$	(158	)	$	161		$	(80	)	$	82		U.S. Treasury and Government Agencies and Other Debt Securities	Investment securities (interest income)	$22	$(21)	$(154)	$158
Interest rate contracts		Subordinated Debt and Bank Notes and Senior Debt		Borrowed funds (interest expense)		(232	)		231			305			(323	)		330			(369	)		198			(236	)	Subordinated Debt and Bank Notes and Senior Debt	Borrowed funds (interest expense)	(95)	86	407	(432)
Total ~~(a)~~					$	(181	)	$	178		$	213		$	(229	)	$	172		$	(208	)	$	118		$	(154	)			$(73)	$65	$253	$(274)

(a)	The difference between the gains (losses) recognized in income on derivatives and their related hedged items represents the ineffective portion of the change in value of our fair value hedge derivatives.

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

Cash Flow Hedges

We enter into receive-fixed,pay-variable interest rate swaps to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. For these cash flow hedges, any changes in the fair value of the derivatives that are effective in offsetting changes in the forecasted interest cash flows are recorded in Accumulated other comprehensive income and are reclassified to interest income in conjunction with the recognition of interest received on the loans. In the 12 months that follow September 30, 2016, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $199 million pretax, or $130 million after-tax, in association with interest received on the hedged loans. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2016. The maximum length of time over which forecasted loan cash flows are hedged is five years. We use statistical regression analysis to assess the effectiveness of these hedge relationships at both the inception of the hedge relationship and on an ongoing basis.

We also periodically enter into forward purchase and sale contracts to hedge the variability of the consideration that will be paid or received related to the purchase or sale of investment securities. The forecasted purchase or sale is consummated upon gross settlement of the forward contract itself. As a result, hedge ineffectiveness, if any, is typically minimal. Gains and losses on these forward contracts are recorded in Accumulated other comprehensive income and are recognized in earnings when the hedged cash flows affect earnings.

In the 12 months that follow ~~September 30, 2016,~~March 31, 2017, we expect to reclassify net derivative gains of $159 million pretax, or $103 millionafter-tax,from ~~the amount currently reported in~~ Accumulated other comprehensive income ~~net derivative gains~~to interest income for both cash flow

The PNC Financial Services Group, Inc. –Form 10-Q67

hedge strategies. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedgede-designations and the addition of ~~$56 million pretax, or $36 million after-tax, as adjustments of yield on investment securities.~~other hedges subsequent to March 31, 2017. As of ~~September 30, 2016,~~March 31, 2017, the maximum length of time over which forecasted ~~purchase contracts~~transactions are hedged is ~~one month.~~

~~There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to either cash flow hedge strategy.~~

seven years. During the first ~~nine~~three months of ~~2016~~2017 and ~~2015,~~2016, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transaction would not occur.

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to either cash flow hedge strategy for all periods presented.

Further detail regarding gains (losses) on derivatives and related cash flows is presented in the following table:

Table ~~77:~~61: Gains (Losses) on Derivatives and Related Cash Flows–Cash Flow Hedges (a) (b)


	Three months ended September 30					Nine months ended September 30					Three months ended March 31
In millions	2016			2015		2016		2015			2017			2016
Gains (losses) on derivatives recognized in OCI – (effective portion)	$	(63	)	$	326	$	328	$	522
Less: Gains (losses) reclassified from accumulated OCI into income – (effective portion)
Gains (losses) on derivatives recognized in Other comprehensive income (OCI) – (effective portion)											$	(22	)	$	265
Less: Gains (losses) reclassified from Accumulated other comprehensive income (AOCI) into income – (effective portion)
Interest income		61			80		190		220			52			65
Noninterest income		1			12				(1	)		3
Total gains (losses) reclassified from accumulated OCI into income – (effective portion)	$	62		$	92	$	190	$	219
Total gains (losses) reclassified from AOCI into income – (effective portion)											$	55		$	65
Net unrealized gains (losses) on cash flow hedge derivatives	$	(125	)	$	234	$	138	$	303		$	(77	)	$	200

(a)	All cash flow hedge derivatives are interest rate contracts as of ~~September 30, 2016~~March 31, 2017 and ~~September 30, 2015.~~March 31, 2016.

(b)	The amount of cash flow hedge ineffectiveness recognized in income was not significant for the periods presented.

Net Investment Hedges

We enter into foreign currency forward contracts to hedgenon-U.S. Dollar ~~(USD)~~ net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. Net investment hedge derivatives are classified as foreign exchange contracts. There were no components of derivative gains or losses excluded from the assessment of the hedge ~~effectiveness.~~effectiveness for all periods presented. During the first ~~nine~~three months of ~~2016~~2017 and ~~2015,~~2016, there was no net investment hedge ineffectiveness. Gains (losses) on net investment hedge derivatives recognized in OCI were net losses of $(14) million for the three months

ended March 31, 2017 compared with net gains of ~~$27~~$29 million for the three months ended September 30, 2016 and net gains of $136 million for the nine months ended September 30, 2016 compared with net gains of $43 million for the three months ended September 30, 2015 and net gains of $32 million for the nine months ended September 30, 2015.March 31, 2016.

Derivatives Not Designated As Hedging Instruments under GAAP

We also enter into derivatives that are not designated as accounting hedges under GAAP.

For additional information on derivatives not designated as hedging instruments under GAAP see Note 1413 Financial Derivatives in our ~~2015~~2016 Form10-K.

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

~~Further detail regarding the notional amounts and fair values related to derivatives not designated in hedge relationships is presented in the following table:~~

~~Table 78: Derivatives Not Designated As Hedging Instruments under GAAP~~

   September 30, 2016    December 31, 2015
In millions    Notional/
Contract
Amount    Asset Fair
Value (a)    Liability Fair
Value (b)    Notional/
Contract
Amount    Asset Fair
Value (a)    Liability Fair
Value (b)
Derivatives used for residential mortgage banking activities:

Residential mortgage servicing

Interest rate contracts:

Swaps
   $ 37,604       $ 1,369       $ 893       $ 37,505       $ 758       $ 416
Swaptions
   1,231       13       7       650       27       14
Futures (c)
   18,428             17,653
Futures options
            6,000          1
Mortgage-backed securities commitments
   6,026       14       1       3,920       4       8
Subtotal
   63,289       1,396       901       65,728       789       439
Loan sales

Interest rate contracts:

Futures (c)
   15             20
Bond options
   200             200       2
Mortgage-backed securities commitments
   6,546       8       19       6,363       16       8
Residential mortgage loan commitments
   2,231       32          1,580       16
Subtotal
   8,992       40       19       8,163       34       8
Subtotal
   $ 72,281       $ 1,436       $ 920       $ 73,891       $ 823       $ 447
Derivatives used for commercial mortgage banking activities:

Interest rate contracts:

Swaps
   $ 4,925       $ 136       $ 64       $ 3,945       $ 77       $ 46
Swaptions
            439
Futures (c)
   3,322             18,454
Commercial mortgage loan commitments
   1,407       15       7       1,176       11       6
Subtotal
   9,654       151       71       24,014       88       52
Credit contracts
   35             77
Subtotal
   $ 9,689       $ 151       $ 71       $ 24,091       $ 88       $ 52
Derivatives used for customer-related activities:

Interest rate contracts:

Swaps
   $ 168,512       $ 3,516       $ 3,520       $ 157,041       $ 2,507       $ 2,433
Caps/floors – Sold
   5,140          10       5,337          11
Caps/floors – Purchased
   6,462       19          6,383       18
Swaptions
   4,773       150       6       4,363       86       13
Futures (c)
   3,077             1,673
Mortgage-backed securities commitments
   2,012       2       3       1,910       5       2
Subtotal
   189,976       3,687       3,539       176,707       2,616       2,459
Foreign exchange contracts
   12,064       185       159       10,888       194       198
Credit contracts
   6,397       3       7       5,026       2       4
Subtotal
   $ 208,437       $ 3,875       $ 3,705       $ 192,621       $ 2,812       $ 2,661
Derivatives used for other risk management activities:

Foreign exchange contracts
   $ 3,061       $ 40       $ 25       $ 2,742       $ 59       $ 6
Other contracts (d)
   2,853          377       2,557          462
Subtotal
   $ 5,914       $ 40       $ 402       $ 5,299       $ 59       $ 468
Total derivatives not designated as hedging instruments
   $ 296,321       $ 5,502       $ 5,098       $ 295,902       $ 3,782       $ 3,628

~~(a)~~

~~Included in Other assets on our Consolidated Balance Sheet.~~

~~(b)~~

~~Included in Other liabilities on our Consolidated Balance Sheet.~~

~~(c)~~

~~Futures contracts settle in cash daily and, therefore, no derivative asset or derivative liability is recognized on our Consolidated Balance Sheet.~~

~~(d)~~

~~Includes PNC’s obligation to fund a portion of certain BlackRock LTIP programs and the swaps entered into in connection with sales of a portion of Visa Class B common shares.~~

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

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table:

Table ~~79:~~62: Gains (Losses) on Derivatives Not Designated Asfor Hedging ~~Instruments~~ under GAAP

   Three months ended
September 30    Nine months ended
September 30
In millions    2016 2015    2016    2015
Derivatives used for residential mortgage banking activities:

Residential mortgage servicing

Interest rate contracts
   $ 7    $ 144       $ 343       $ 159
Loan sales

Interest rate contracts
   16    (6 )    13       62
Gains (losses) included in residential mortgage banking activities (a)
   $ 23    $ 138       $ 356       $ 221
Derivatives used for commercial mortgage banking activities:

Interest rate contracts (b) (c)
   $ (5 ) $ 42       $ 75       $ 47
Gains (losses) from commercial mortgage banking activities
   $ (5 ) $ 42       $ 75       $ 47
Derivatives used for customer-related activities:

Interest rate contracts
   $ 23    $ 10       $ 20       $ 44
Foreign exchange contracts
   26    23       72       56
Gains (losses) from customer-related activities (c)
   $ 49    $ 33       $ 92       $ 100
Derivatives used for other risk management activities:

Interest rate contracts
         $ 1
Foreign exchange contracts
   $ 26    $ 94       $ (3 )    208
Other contracts (d)
   (22 ) 47       (88 )    54
Gains (losses) from other risk management activities (c)
   $ 4    $ 141       $ (91 )    $ 263
Total gains (losses) from derivatives not designated as hedging instruments
   $ 71    $ 354       $ 432       $ 631


	Three months ended March 31
In millions	2017			2016
Derivatives used for mortgage banking activities:
Interest rate contracts (a)	$	(7	)	$	241
Derivatives used for customer-related activities:
Interest rate contracts	$	34		$	(4	)
Foreign exchange contracts and other		32			29
Gains (losses) from customer-related activities (b)	$	66		$	25
Derivatives used for other risk management activities:
Foreign exchange contracts and other (c)	$	(50	)	$	(99	)
Gains (losses) from other risk management activities (b)	$	(50	)	$	(99	)
Total gains (losses) from derivatives not designated as hedging instruments	$	9		$	167

(a)	Included in Residential mortgage, Corporate services and Other noninterest income.

(b)	Included in ~~Corporate services~~Other noninterest income.

(c)	~~Included in Other noninterest income.~~

~~(d)~~

Includes BlackRock LTIP funding obligation and the swaps entered into in connection with sales of a portion of Visa Class B common shares.

~~Credit Derivatives – Risk Participation Agreements~~

We have entered into risk participation agreements to share some of the credit exposure with other counterparties related to interest rate derivative contracts or to take on credit exposure to generate revenue. The notional amount of risk participation agreements sold was $3.9 billion at September 30, 2016 and $2.5 billion at December 31, 2015. Assuming all underlying third party customers referenced in the swap contracts defaulted at September 30, 2016, the exposure from these agreements would be $181 million based on the fair value of the underlying swaps, compared with $122 million at December 31, 2015.

Offsetting, Counterparty Credit Risk and Contingent Features

We, generally, utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of all outstanding derivative instruments under the master netting

agreement with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party’s net position.

For additional information on derivative offsetting, counterparty credit risk and contingent features see Note 1413 Financial Derivatives in our ~~2015~~2016 Form10-K. ~~Refer to Note 13 Commitments and Guarantees in this Report for additional information related to resale and repurchase agreements offsetting.~~

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

Table 8063 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. The table includes cash collateral held or pledged under legally enforceable master netting agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

~~The PNC Financial Services Group, Inc. –~~~~Form 10-Q~~87

Table ~~80:~~63: Derivative Assets and Liabilities Offsetting


March 31, 2017 In millions																Gross Fair Value		Amounts Offset on the Consolidated Balance Sheet				Net Fair Value			Securities Collateral Held / (Pledged) Under Master Netting Agreements	Net Amounts
March 31, 2017 In millions																Gross Fair Value		Fair Value Offset Amount		Cash Collateral		Net Fair Value				Net Amounts
Derivative assets
Interest rate contracts:
Cleared (a)																$	556	$	157	$	366	$	33			$	33
Exchange-traded																	10						10				10
Over-the-counter																	2,504		1,216		137		1,151		$54		1,097
Foreign exchange and other contracts																	232		124		4		104				104
Total derivative assets																$	3,302	$	1,497	$	507	$	1,298	(b)	$54	$	1,244
Derivative liabilities
Interest rate contracts:
Cleared (a)																$	176	$	157			$	19			$	19
Exchange-traded																	2						2				2
Over-the-counter																	1,992		1,238	$	490		264				264
Foreign exchange and other contracts																	452		102		18		332				332
Total derivative liabilities																$	2,622	$	1,497	$	508	$	617	(c)		$	617
	Gross Fair Value			Amounts Offset on the Consolidated Balance Sheet					Net Fair Value			Securities Collateral Held/ (Pledged) Under Master Netting Agreements		Net Amounts
September 30, 2016 In millions			Fair Value Offset Amount			Cash Collateral			Net Fair Value
December 31, 2016 In millions
Derivative assets	Gross Fair Value													Net Amounts
Interest rate contracts:
Cleared	$	2,002		$	1,793		$	184	$	25				$	25	$	1,498	$	940	$	480	$	78			$	78
Exchange-traded																	9						9				9
Over-the-counter		4,750			1,844			557		2,349		$	314		2,035		2,702		1,358		164		1,180		$62		1,118
Foreign exchange contracts		392			213			40		139					139
Credit contracts		3			1			1		1					1
Total derivative assets	$	7,147		$	3,851		$	782	$	2,514	(a)	$	314	$	2,200
Derivative liabilities
Interest rate contracts:
Cleared	$	2,192		$	1,794		$	376	$	22				$	22
Over-the-counter		2,647			1,947			643		57					57
Foreign exchange contracts		184			105			24		55					55
Credit contracts		7			5			2
Other contracts		377								377					377
Total derivative liabilities	$	5,407		$	3,851		$	1,045	$	511	(b)			$	511
December 31, 2015
In millions
Derivative assets
Interest rate contracts:
Cleared	$	1,003		$	779		$	195	$	29				$	29
Over-the-counter		3,652			1,645			342		1,665		$	178		1,487
Foreign exchange contracts		284			129			13		142			2		140
Credit contracts		2			1			1
Foreign exchange and other contracts																	407		162		13		232				232
Total derivative assets	$	4,941		$	2,554		$	551	$	1,836	(a)	$	180	$	1,656	$	4,616	$	2,460	$	657	$	1,499	(b)	$62	$	1,437
Derivative liabilities
Interest rate contracts:
Cleared	$	855		$	779		$	57	$	19				$	19	$	1,060	$	940	$	25	$	95			$	95
Exchange-traded		1								1					1		1						1				1
Over-the-counter		2,276			1,687			530		59					59		2,064		1,395		431		238				238
Foreign exchange contracts		204			85			20		99					99
Credit contracts		4			3			1
Other contracts		462								462					462
Foreign exchange and other contracts																	714		125		28		561				561
Total derivative liabilities	$	3,802		$	2,554		$	608	$	640	(b)			$	640	$	3,839	$	2,460	$	484	$	895	(c)		$	895

(a)

Reflects our first quarter 2017 change in accounting treatment for variation margin for certain derivative instruments cleared through a central clearing house. The accounting change reduced the asset and liability gross fair values with corresponding reductions to the fair value and cash collateral offsets, resulting in no changes to the net fair value amounts.

(b)	Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet.

~~(b)~~(c)

Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.

~~The table above~~Table 63 includesover-the-counter (OTC) derivatives, cleared derivatives and exchange-traded derivatives. OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or cleared through a central clearing house. The majority of OTC derivatives are governed by ISDA documentation or other legally enforceable industry standard master netting agreements. Cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house who then becomes our counterparty. Exchange-traded derivatives represent standardized futures and options contracts executed directly on an organized exchange.

The PNC Financial Services Group, Inc. –Form 10-Q69

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

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

At ~~September 30, 2016,~~March 31, 2017, we held cash, U.S. government securities and mortgage-backed securities totaling ~~$1.2~~$.8 billion under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties, and we pledged cash totaling ~~$1.6~~$1.3 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral held or pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in

Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.

Certain derivative agreements contain various credit-risk related contingent provisions, such as those that require ~~PNC’s~~our debt to maintain a specified credit rating from one or more of the major credit rating agencies. If ~~PNC’s~~our debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on ~~September 30, 2016~~March 31, 2017 was ~~$1.3~~$1.0 billion for which ~~PNC~~we had posted collateral of ~~$1.1~~$.5 billion in the normal course of business. The maximum additional amount of collateral ~~PNC~~we would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on ~~September 30, 2016~~March 31, 2017 would be ~~$.2~~$.5 billion.

NOTE 10 EARNINGS PER SHARE

Table ~~81:~~64: Basic and Diluted Earnings ~~per~~Per Common Share


	Three months ended September 30				Nine months ended September 30				Three months ended March 31
In millions, except per share data	2016		2015		2016		2015		2017		2016
Basic
Net income	$	1,006	$	1,073	$	2,938	$	3,121	$	1,074	$	943
Less:
Net income (loss) attributable to noncontrolling interests		18		18		60		23
Preferred stock dividends and discount accretion and redemptions		64		64		172		182
Net income attributable to noncontrolling interests										17		19
Preferred stock dividends										63		63
Preferred stock discount accretion and redemptions										21		2
Net income attributable to common shares		924		991		2,706		2,916		973		859
Less:
Dividends and undistributed earnings allocated to participating securities		7				19		2		6		6
Net income attributable to basic common shares	$	917	$	991	$	2,687	$	2,914	$	967	$	853
Basic weighted-average common shares outstanding		490		512		496		516		487		501
Basic earnings per common share (a)	$	1.87	$	1.93	$	5.41	$	5.64	$	1.99	$	1.70
Diluted
Net income attributable to basic common shares	$	917	$	991	$	2,687	$	2,914	$	967	$	853
Less: Impact of BlackRock earnings per share dilution		4		4		10		14		4		3
Net income attributable to diluted common shares	$	913	$	987	$	2,677	$	2,900	$	963	$	850
Basic weighted-average common shares outstanding		490		512		496		516		487		501
Dilutive potential common shares		6		8		6		9		5		6
Diluted weighted-average common shares outstanding		496		520		502		525		492		507
Diluted earnings per common share (a)	$	1.84	$	1.90	$	5.33	$	5.52	$	1.96	$	1.68

(a)	Basic and diluted earnings per share under thetwo-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares and restricted share units with nonforfeitable dividends and dividend rights (participating securities).

70The PNC Financial Services Group, Inc. –Form 10-Q89

NOTE 11 TOTAL EQUITY A~~AND~~ND OTHER COMPREHENSIVE INCOME

Activity in total equity for the first ~~nine~~three months of ~~2015~~2016 and ~~2016~~2017 follows:

Table ~~82:~~65: Rollforward of Total Equity


				Shareholders’ Equity																						Shares Outstanding Common Stock			Shareholders’ Equity
In millions	Shares Outstanding Common Stock			Common Stock		Capital Surplus – Preferred Stock			Capital Surplus – Common Stock and Other			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Non- controlling Interests			Total Equity			Shares Outstanding Common Stock			Common Stock	Capital Surplus – Preferred Stock		Capital Surplus – Common Stock and Other			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non- controlling Interests			Total Equity
Balance at January 1, 2015		523		$	2,705	$	3,946		$	12,627		$	26,200		$	503	$	(1,430	)	$	1,523		$	46,074
Balance at January 1, 2016																											504		$2,708	$	3,452	$	12,745		$	29,043		$	130		$	(3,368	)	$	1,270		$	45,980
Net income													3,098								23			3,121												924									19			943
Other comprehensive income (loss), net of tax																112								112															402									402
Cash dividends declared
Common ($1.50 per share)													(779	)										(779	)
Common ($.51 per share)																																				(260	)											(260	)
Preferred													(178	)										(178	)											(64	)											(64	)
Preferred stock discount accretion							4						(4	)																	1					(1	)
Common stock activity(a)		1			3					36														39									2															2
Treasury stock activity		(14	)							(58	)							(1,407	)					(1,465	)		(5	)					(11	)								(423	)					(434	)
Preferred stock redemption – Series K							(500	)																(500	)
Other										70											(216	)		(146	)								(150	)											(91	)		(241	)
Balance at September 30, 2015 (a)		510		$	2,708	$	3,450		$	12,675		$	28,337		$	615	$	(2,837	)	$	1,330		$	46,278
Balance at January 1, 2016		504		$	2,708	$	3,452		$	12,745		$	29,043		$	130	$	(3,368	)	$	1,270		$	45,980
Balance at March 31, 2016 (b)																											499		$2,708	$	3,453	$	12,586		$	29,642		$	532		$	(3,791	)	$	1,198		$	46,328
Balance at January 1, 2017																											485		$2,709	$	3,977	$	12,674		$	31,670		$	(265	)	$	(5,066	)	$	1,155		$	46,854
Net income													2,878								60			2,938												1,057									17			1,074
Other comprehensive income (loss), net of tax																516								516															(14	)								(14	)
Cash dividends declared
Common ($1.57 per share)													(791	)										(791	)
Common ($.55 per share)																																				(271	)											(271	)
Preferred													(168	)										(168	)											(63	)											(63	)
Preferred stock discount accretion							4						(4	)																	2					(2	)
Common stock activity (b)					1					10														11
Treasury stock activity		(16	)							(23	)							(1,397	)					(1,420	)
Redemption of noncontrolling interests																																				(19	)								(981	)		(1,000	)
Treasury stock activity (c)																																	(216	)								(257	)					(473	)
Other										(29	)										(192	)		(221	)								(162	)											(42	)		(204	)
Balance at September 30, 2016 (a)		488		$	2,709	$	3,456		$	12,703		$	30,958		$	646	$	(4,765	)	$	1,138		$	46,845
Balance at March 31, 2017 (b)																											485		$2,709	$	3,979	$	12,296		$	32,372		$	(279	)	$	(5,323	)	$	149		$	45,903

(a)	Common stock activity totaled less than .5 million shares issued.

(b)	The par value of our preferred stock outstanding was less than $.5 million at each date and, therefore, is excluded from this presentation.

~~(b)~~(c)

~~Common~~Treasury stock activity totaled less than .5 million shares issued.

Warrants

We had ~~13.4~~5.6 million warrants outstanding at ~~both September 30, 2016~~March 31, 2017 and 11.3 million warrants outstanding at December 31, ~~2015.~~2016. Each warrant entitles the holder to purchase one share of PNC common stock at an exercise price of $67.33 per share. In accordance with the terms of the warrants, the warrants are exercised on anon-cash net basis with the warrant holder receiving PNC common shares determined based on the excess of the market price of PNC common stock on the exercise date over the exercise price of the warrant. The outstanding warrants will expire as of December 31, 2018 and are considered in the calculation of diluted earnings per common share in Note 10 Earnings Per Share in this Report.

Noncontrolling Interests

Perpetual Trust Securities

Our noncontrolling interests balance at March 31, 2017 reflected our March 15, 2017 redemption of $1.0billion Fixed-to-Floating RateNon-Cumulative Exchangeable Perpetual Trust Securities issued by PNC Preferred Funding Trusts I and II with current distribution rates of 2.61% and 2.19%, respectively. The Perpetual Trust Securities were subject to replacement capital covenants dated December 6, 2006 and March 29, 2007 benefiting PNC Capital Trust C as the sole holder of $200 million of junior subordinated debentures issued by PNC in June 1998. Upon redemption of the Perpetual Trust Securities, the replacement capital covenants terminated and such debentures ceased being covered debt with respect to the replacement capital covenants.

The PNC Financial Services Group, Inc. –Form 10-Q9071

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

Table 66: Other Comprehensive Income


	Three Months Ended March 31
In millions	2017			2016
*Net unrealized gains (losses) onnon-OTTI securities*
Increase in net unrealized gains (losses) onnon-OTTI securities	$	67		$	519
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income		5			6
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income		(7	)		9
Net increase (decrease),pre-tax		69			504
Effect of income taxes		(25	)		(185	)
Net increase (decrease),after-tax		44			319

*Net unrealized gains (losses) on OTTI securities*
Increase in net unrealized gains (losses) on OTTI securities		37			(39	)
Less: OTTI losses realized on securities reclassified to noninterest income					(1	)
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income		2
Net increase (decrease),pre-tax		35			(38	)
Effect of income taxes		(13	)		14
Net increase (decrease),after-tax		22			(24	)

*Net unrealized gains (losses) on cash flow hedge derivatives*
Increase in net unrealized gains (losses) on cash flow hedge derivatives		(22	)		265
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income		46			60
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income		6			5
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income		3
Net increase (decrease),pre-tax		(77	)		200
Effect of income taxes		28			(73	)
Net increase (decrease),after-tax		(49	)		127

*Pension and other postretirement benefit plan adjustments*
Net pension and other postretirement benefit activity		(74	)		2
Amortization of actuarial loss (gain) reclassified to other noninterest expense		13			12
Amortization of prior service cost (credit) reclassified to other noninterest expense		(1	)		(2	)
Net increase (decrease),pre-tax		(62	)		12
Effect of income taxes		23			(4	)
Net increase (decrease),after-tax		(39	)		8

*Other*
PNC’s portion of BlackRock’s OCI		2			(25	)
Net investment hedge derivatives		(14	)		29
Foreign currency translation adjustments and other		16			(29	)
SBA I/O Strip sold					(2	)
Net increase (decrease),pre-tax		4			(27	)
Effect of income taxes		4			(1	)
Net increase (decrease),after-tax		8			(28	)

Total other comprehensive income (loss),pre-tax		(31	)		651
Total other comprehensive income, tax effect		17			(249	)
Total other comprehensive income (loss),after-tax	$	(14	)	$	402

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

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

Table ~~83: Other Comprehensive Income~~

   Three Months Ended
September 30    Nine Months Ended
September 30
In millions    2016 2015    2016    2015
Net unrealized gains (losses) on non-OTTI securities

Increase in net unrealized gains (losses) on non-OTTI securities
   $ (14 ) $ 139       $ 791       $ (75 )
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income
   5    6       19       20
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income
   6    (21 )    20       42
Net increase (decrease), pre-tax
   (25 ) 154       752       (137 )
Effect of income taxes
   10    (57 )    (275 )    50
Net increase (decrease), after-tax
   (15 ) 97       477       (87 )
Net unrealized gains (losses) on OTTI securities

Increase in net unrealized gains (losses) on OTTI securities
   38    3       16       8
Less: OTTI losses realized on securities reclassified to noninterest income
   (1 )    (1 )    (3 )
Net increase (decrease), pre-tax
   38    4       17       11
Effect of income taxes
   (14 ) (1 )    (6 )    (4 )
Net increase (decrease), after-tax
   24    3       11       7
Net unrealized gains (losses) on cash flow hedge derivatives

Increase in net unrealized gains (losses) on cash flow hedge derivatives
   (63 ) 326       328       522
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income
   51    74       167       202
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income
   10    6       23       18
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income
   1    12          (1 )
Net increase (decrease), pre-tax
   (125 ) 234       138       303
Effect of income taxes
   45    (86 )    (51 )    (111 )
Net increase (decrease), after-tax
   (80 ) 148       87       192
Pension and other postretirement benefit plan adjustments

Net pension and other postretirement benefit activity
      (5 )    36
Amortization of actuarial loss (gain) reclassified to other noninterest expense
   13    10       37       28
Amortization of prior service cost (credit) reclassified to other noninterest expense
   (2 ) (3 )    (6 )    (7 )
Net increase (decrease), pre-tax
   11    7       26       57
Effect of income taxes
   (5 ) (2 )    (10 )    (20 )
Net increase (decrease), after-tax
   6    5       16       37
Other

PNC’s portion of BlackRock’s OCI
   (28 )    (40 )    (34 )
Net investment hedge derivatives
   27    43       136       32
Foreign currency translation adjustments and other (a)
   (24 ) (44 )    (136 )    (35 )
Net increase (decrease), pre-tax
   (25 ) (1 )    (40 )    (37 )
Effect of income taxes (a)
   (16 )    (35 )
Net increase (decrease), after-tax
   (25 ) (17 )    (75 )    (37 )
Total other comprehensive income, pre-tax
   (126 ) 398       893       197
Total other comprehensive income, tax effect
   36    (162 )    (377 )    (85 )
Total other comprehensive income, after-tax
   $ (90 ) $ 236       $ 516       $ 112

~~(a)~~

The earnings of PNC’s Luxembourg-UK lending business have been indefinitely reinvested; therefore, no U.S. deferred income tax has been recorded on the foreign currency translation of the investment.

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

~~Table 84:~~67: Accumulated Other Comprehensive Income (Loss) Components

In millions, after-tax    Net unrealized
gains (losses) on
non-OTTI
securities Net unrealized
gains (losses) on
OTTI securities    Net unrealized
gains (losses) on
cash flow hedge
derivatives    Pension and other
postretirement
benefit plan
adjustments    Other    Total
Balance at June 30, 2015
   $ 463    $ 78       $ 394       $ (488 )    $ (68 )    $ 379
Net activity
   97    3       148       5       (17 )    236
Balance at September 30, 2015
   $ 560    $ 81       $ 542       $ (483 )    $ (85 )    $ 615
Balance at June 30, 2016
   $ 778    $ 53       $ 597       $ (544 )    $ (148 )    $ 736
Net activity
   (15 ) 24       (80 )    6       (25 )    (90 )
Balance at September 30, 2016
   $ 763    $ 77       $ 517       $ (538 )    $ (173 )    $ 646
Balance at December 31, 2014
   $ 647    $ 74       $ 350       $ (520 )    $ (48 )    $ 503
Net activity
   (87 ) 7       192       37       (37 )    112
Balance at September 30, 2015
   $ 560    $ 81       $ 542       $ (483 )    $ (85 )    $ 615
Balance at December 31, 2015
   $ 286    $ 66       $ 430       $ (554 )    $ (98 )    $ 130
Net activity
   477    11       87       16       (75 )    516
Balance at September 30, 2016
   $ 763    $ 77       $ 517       $ (538 )    $ (173 )    $ 646


In millions,after-tax	Net unrealized gains (losses) onnon-OTTI securities		Net unrealized gains (losses) on OTTI securities			Net unrealized gains (losses) on cash flow hedge derivatives			Pension and other postretirement benefit plan adjustments			Other			Total
Balance at December 31, 2015	$	286	$	66		$	430		$	(554	)	$	(98	)	$	130
Net activity		319		(24	)		127			8			(28	)		402
Balance at March 31, 2016	$	605	$	42		$	557		$	(546	)	$	(126	)	$	532
Balance at December 31, 2016	$	52	$	106		$	333		$	(553	)	$	(203	)	$	(265	)
Net activity		44		22			(49	)		(39	)		8			(14	)
Balance at March 31, 2017	$	96	$	128		$	284		$	(592	)	$	(195	)	$	(279	)

NOTE 12 LEGAL PROCEEDINGS

We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in this Note 12 as well as those matters disclosed in Note 2019 Legal Proceedings in ~~Part II, Item 8 of~~the Notes To Consolidated Financial Statements in our ~~2015 Form 10-K, in Note 14 Legal Proceedings in Part I, Item 1 of our first quarter~~ 2016 Form ~~10-Q and in Note 12 Legal Proceedings in Part I, Item 1 of our second quarter 2016 Form 10-Q~~10-K (such prior disclosure ~~collectively~~ referred to as “Prior Disclosure”)). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of ~~September 30, 2016,~~March 31, 2017, we estimate that it is reasonably possible that we could incur losses in ~~excess of related accrued liabilities, if any, in~~ an aggregate amount of up to approximately ~~$525~~$425 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.

~~In our experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently~~

contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; we have not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; the possible outcomes may not be amenable to the use of statistical or quantitative analytical tools; predicting possible outcomes depends on making assumptions about future decisions of courts or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for us to estimate losses or ranges of losses that it is reasonably possible we could incur.

As a result of ~~these~~the types of factors described in Note 19 in our 2016 Form10-K, we are unable, at this time, to estimate the losses that ~~are~~it is reasonably possible ~~to be incurred~~that we could incur or ranges of such losses with respect to some of the matters disclosed, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the Disclosed Matters. The

estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”

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

We include in some of the descriptions of individual Disclosed Matters certain quantitative information related to the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings or otherwise publicly available information. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual.

Some of our exposure in Disclosed Matters may be offset by applicable insurance coverage. We do not consider the possible availability of insurance coverage in determining the amounts of any accruals (although we record the amount of related insurance recoveries that are deemed probable up to the amount of the accrual) or in determining any estimates of possible losses or ranges of possible losses.

~~The following updates our disclosure~~Interchange Litigation

In March 2017, the U.S. Supreme Court denied the petition for a writ of ~~legal proceedings from that provided in Prior Disclosure.~~

~~CBNV Mortgage Litigation~~

~~In August 2016,~~certiorari challenging the decision of the U.S. Court of Appeals for the Second Circuit’s reversal of the order approving a settlement in the ~~lawsuits~~cases that had been consolidated forpre-trial proceedings in the U.S. District Court for the Eastern District of New York under the caption In re Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation (Master FileNo. 1:05-md-1720-JG-JO).

CBNV Mortgage Litigation

Between 2001 and 2003, on behalf of either individual plaintiffs or proposed classes of plaintiffs, several separate lawsuits were filed in state and federal courts against Community Bank of Northern Virginia (CBNV), a PNC Bank predecessor, and other defendants asserting claims arising from second mortgage loans made to the plaintiffs. The state lawsuits were removed to federal court and, with the lawsuits that had been filed in federal court, were consolidated forpre-trial proceedings in a multidistrict litigation (MDL) proceeding in the U.S. District Court for the Western

The PNC Financial Services Group, Inc. –Form 10-Q73

District of Pennsylvania under the caption In re: Community Bank of Northern Virginia Lending Practices Litigation (No.03-0425 (W.D. Pa.), MDL No. 1674).

In October 2011, the plaintiffs filed a joint consolidated amended class action complaint covering all of the class action lawsuits pending in this proceeding. The amended complaint named several defendants, including CBNV. As relevant to CBNV, the principal allegations in the amended complaint were that a group of persons and entities collectively characterized as the “Shumway/Bapst Organization” referred prospective second residential mortgage loan borrowers to CBNV, that CBNV charged these borrowers improper title and loan fees at loan closings, that the disclosures provided to the borrowers at loan closings were inaccurate, and that CBNV paid some of the loan fees to the Shumway/Bapst Organization as purported “kickbacks” for the referrals. The amended complaint asserted claims for violations of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), as amended by the Home Ownership and Equity Protection Act (HOEPA), and the Racketeer Influenced and Corrupt Organizations Act (RICO).

The amended complaint sought to certify a class of all borrowers who obtained a second residentialnon-purchase money mortgage loan, secured by their principal dwelling, including from CBNV, the terms of which made the loan subject to HOEPA. The plaintiffs sought, among other things, unspecified damages (including treble damages under RICO and RESPA), rescission of loans, declaratory and injunctive relief, interest and attorneys’ fees. In November 2011, the defendants filed a motion to dismiss the amended complaint. In June 2013, the court granted in part and denied in part the motion, dismissing the claims of any plaintiff whose loan did not originate with or was not assigned to CBNV, narrowing the scope of the RESPA claim, and dismissing several of the named plaintiffs for lack of standing. Also in June 2013, the plaintiffs filed a motion for class certification, which was granted in July 2013. In July 2015, the U.S. Court of Appeals for the Third Circuit affirmed the grant of class certification by the district court. In November 2015, we filed a petition for a writ of certiorari with the U.S. Supreme Court seeking review of the decision of the court of appeals, which was denied in February 2016. We filed motions with the district court for decertification and summary judgment in April 2016.

In August 2016, we reached a settlement with the ~~plaintiffs, subject to notice to the class and court approval.~~plaintiffs. In ~~September~~December 2016, the court granted ~~preliminary approval, authorized the sending of notice to the class, set the timing for objections and scheduled a~~ final approval ~~hearing for December 2016.~~of the settlement. Under this settlement, the matter ~~will be~~was submitted to binding arbitration in February 2017 before a panel of three arbitrators, who ~~will~~were to determine whether we ~~will~~would pay the plaintiff class either an amount (inclusive of class counsel fees and expenses) we proposed ($24 million) or an amount proposed by the plaintiffs ($70 million), with no discretion to choose any other amount. The ~~court has ordered~~arbitrators reached a unanimous

decision in March 2017 deciding in favor of our position and awarding the ~~arbitrators to reach~~plaintiffs a ~~decision by the end~~total of ~~March 2017.~~$24 million.

Captive Mortgage Reinsurance Litigation

In ~~September 2016,~~March 2017, in the lawsuit currently pending against PNC (as successor in interest to National City Corporation and several of its subsidiaries) in the U.S. District Court for the Eastern District of Pennsylvania under the captionWhite, et al. v. The PNC Financial Services Group, Inc., et al. (Civil ActionNo. 11-7928), ~~pending in~~ the ~~U.S. District Court for~~district court certified the ~~Eastern District of Pennsylvania,~~issue as to whether the ~~plaintiffs moved to lift the stay and for permission to file a Third Amended Class Action Complaint. The proposed amended complaint, if allowed, would add claims~~plaintiffs’ claim under ~~the Racketeer Influenced and Corrupt Organizations Act (RICO) and would assert that the~~ RESPA ~~claim~~ is not barred by the statute of limitations ~~because every acceptance of a reinsurance premium is a new “occurrence”~~under the “continuing violations doctrine” for ~~these purposes. We have opposed the motion~~interlocutory appeal to ~~amend.~~

~~Pre-need Funeral Arrangements~~

~~The cross appeals by the PNC defendants and the plaintiffs in~~~~Jo Ann Howard, P.C., et al. v. Cassity, et al.~~ ~~(No. 4:09-CV-~~

~~1252-ERW) were argued before~~ the U.S. Court of Appeals for the ~~Eighth~~Third Circuit and stayed the action. Also in ~~September 2016.~~March 2017, the court of appeals declined to accept the appeal, and as a result proceedings will resume in the district court.

Other Regulatory and Governmental Inquiries

~~PNC is~~We are the subject of investigations, audits and other forms of regulatory and governmental inquiry covering a broad range of issues in our consumer, mortgage, brokerage, securities and other financial services businesses, as well as other aspects of our operations. In some cases, these inquiries are part of reviews of specified activities at multiple industry participants; in others, they are directed at PNC individually. These inquiries, including those described ~~below and~~ in Prior Disclosure, may lead to administrative, civil or criminal proceedings, and possibly result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs and other consequences. These inquiries may result in significant reputational harm or other adverse collateral consequences even if direct resulting remedies are not material to ~~PNC.~~us.

Through the U.S. Attorney’s Office for the District of Maryland, the office of the Inspector General for the Small Business Administration (SBA) served a subpoena on PNC in 2012 requesting documents concerning PNC’s relationship with, including SBA-guaranteed loans made through, a broker named Jade Capital Investments, LLC (Jade), as well as information regarding other PNC-originated SBA guaranteed loans made to businesses located in the State of Maryland, the Commonwealth of Virginia, and Washington, D.C. Certain of the Jade loans have been identified in an indictment and subsequent superseding indictment charging persons associated with Jade with conspiracy to commit bank fraud, substantive violations of the federal bank fraud statute, and money laundering. In August 2016, we completed a settlement, without any admission of liability, in the amount of $9.5 million that resolves the U.S. Attorney’s Office investigation.

Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including those described in ~~this Note 12 and in~~ Prior Disclosure.

Other

In addition to the proceedings or other matters described above and in Prior Disclosure, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position. However, we cannot now determine whether or not any claims asserted against us or others to

~~The PNC Financial Services Group, Inc. –~~~~Form 10-Q~~93

whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.

~~See Note 21 Commitments and Guarantees in Part II, Item 8 of our 2015~~

74 The PNC Financial Services Group, Inc. –Form 10-K for additional information regarding the Visa indemnification and our other obligations to provide indemnification, including to current and former officers, directors, employees and agents of PNC and companies we have acquired.10-Q

NOTE 13 COMMITMENTS~~AND~~ G~~UARANTEES~~

~~Commitments~~

In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with significant other commitments as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

Table ~~85:~~68: Commitments to Extend Credit and Other Commitments


In millions	September 30 2016		December 31 2015		March 31 2017		December 31 2016
Commitments to extend credit
Total commercial lending	$	104,124	$	101,252	$	106,308	$	108,256
Home equity lines of credit		17,316		17,268		17,719		17,438
Credit card		21,907		19,937		22,807		22,095
Other		4,493		4,032		4,431		4,192
Total commitments to extend credit		147,840		142,489		151,265		151,981
Net outstanding standby letters of credit (a)		8,760		8,765		8,558		8,324
Reinsurance agreements (b)		1,880		2,010		1,766		1,835
Standby bond purchase agreements (c)		868		911		788		790
Other commitments (d)		980		966		1,073		967
Total commitments to extend credit and other commitments	$	160,328	$	155,141	$	163,450	$	163,897

(a)	Net outstanding standby letters of credit include ~~$4.4~~$3.9 billion at both March 31, 2017 and ~~$4.7 billion~~December 31, 2016, which support remarketing ~~programs at September 30, 2016 and December 31, 2015, respectively.~~programs.

(b)

Represents aggregate maximum exposure up to the specified limits of the reinsurance contracts and reflects estimates based on availability of financial information from insurance carriers. As of ~~September 30,~~March 31, 2017 and December 31, 2016, the aggregate maximum exposure amount comprised ~~$1.6~~$1.5 billion for accidental death & dismemberment contracts and $.3 billion for credit life, accident & health contracts. ~~Comparable amounts at December 31, 2015 were $1.6 billion and $.4 billion, respectively.~~

(c)	We enter into standby bond purchase agreements to support municipal bond obligations.

(d)	Includes ~~$.4 billion and~~ $.5 billion related to investments in qualified affordable housing projects at ~~September 30, 2016~~both March 31, 2017 and December 31, ~~2015, respectively.~~2016.

Commitments to Extend Credit

Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee and contain termination clauses in the event the customer’s credit quality deteriorates. ~~Based on our historical experience, some commitments expire unfunded, and therefore cash requirements are substantially less than the total commitment.~~

Net Outstanding Standby Letters of Credit

We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. ~~Internal credit ratings related to~~Approximately 91% and 94% of our net outstanding standby letters of credit were rated as ~~follows:~~

~~Table 86: Internal Credit Ratings Related to Net Outstanding Standby Letters~~Pass as of ~~Credit~~March 31, 2017 and December 31, 2016, respectively, with the remainder rated as Below Pass. An internal credit rating of Pass indicates the expected risk of loss is currently low, while a rating of Below Pass indicates a higher degree of risk.

      September 30
2016 December 31
2015
Internal credit ratings (as a percentage of portfolio):

Pass (a)
   92 % 93%
Below pass (b)
   8 % 7%

~~(a)~~

~~Indicates that expected risk of loss is currently low.~~

~~(b)~~

~~Indicates a higher degree of risk of default.~~

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

If the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on ~~September 30, 2016~~March 31, 2017 had terms ranging from less than 1 year to 8 years.

As of ~~September 30, 2016,~~March 31, 2017, assets of ~~$1.0~~$1.2 billion secured certain specifically identified standby letters of credit. In addition, a portion of the remaining standby letters of credit issued on behalf of specific customers is also secured by collateral or guarantees that secure the customers’ other obligations to us. The carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $.2 billion at ~~September 30, 2016~~March 31, 2017 and is included in Other liabilities on our Consolidated Balance Sheet.

~~Reinsurance Agreements~~NOTE 14 SEGMENT REPORTING

WeEffective for the first quarter of 2017, as a result of changes to how we manage our businesses, we realigned our segments and, accordingly, have changed the basis of presentation of our segments, resulting in four reportable business segments:

Retail Banking

Corporate & Institutional Banking

Asset Management Group

BlackRock

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a ~~wholly-owned captive insurance subsidiary which provides reinsurance~~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. Effective for ~~accidental death & dismemberment, credit life, and accident & health, all~~the first quarter of which are in run-off. This subsidiary previously entered into these various types of reinsurance agreements with third-party insurers where the subsidiary assumed the risk of loss through quota share agreements up to 100% reinsurance. In quota share agreements, the subsidiary and the third-party insurers share the responsibility for payment of all claims.

~~Recourse and Repurchase Obligations~~

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities, PNC has sold commercial mortgage, residential mortgage and home equity loans/lines of credit directly or indirectly through securitization and loan sale transactions in which2017, we ~~have continuing involvement. One form of continuing involvement includes~~made certain ~~recourse and loan repurchase obligations associated with the transferred assets. See Note 21 Commitments and Guarantees in our 2015 Form 10-K for details related~~adjustments to our ~~Recourse and Repurchase Obligations.~~

~~Resale and Repurchase Agreements~~

~~We enter into repurchase and resale agreements where we~~internal funds transfer ~~investment securities to/from a third party with the agreement~~pricing methodology primarily relating to repurchase/resell those investment securities at a future date for a specified price. These agreements are entered into primarily to provide short-term financing for securities inventory positions, acquire securities to cover short positions and accommodate customers’ investing and financing needs. Repurchase and resale agreements are treated as collateralized financing transactions for accounting purposes and are generally carried at the amounts at which the securities will be subsequently reacquired or resold, including accrued interest. Our policy is to take possessionweighted average lives of securities purchased under agreements to resell. We monitor the market value of securities to be repurchased and resold and additional collateral may be obtained where considered appropriate to protect against credit exposure.

Repurchase and resale agreements are typically entered into with counterparties under industry standard master netting agreements which provide for the right to offset amounts owed to one another with respect to multiple repurchase and resale agreements under such master netting agreement (referred to as netting arrangements) and liquidate the purchased or borrowed securities in the event of counterparty default. In order for an arrangement to be eligible for netting under GAAP, we must obtain the requisite assurance that the offsetting rights included in the master netting agreement would be legally enforceable in the event of bankruptcy, insolvency, or a similar proceeding of such third party. Enforceability is evidenced by obtaining a legal opinion that supports, with sufficient confidence, the enforceability of the master netting agreement in bankruptcy.

Table 87 shows the amounts owed under resale and repurchase agreements and the securities collateral associated with those agreements where a legal opinion supporting the enforceability of the offsetting rights has been obtained. We do not present resale and repurchase agreements entered into with the same counterparty under a legally enforceable master netting agreement on a net basis on our Consolidated Balance Sheet or within Table 87.

~~Refer to Note 9 Financial Derivatives for additional information related to offsetting of financial derivatives.~~certain

The PNC Financial Services Group, Inc. –Form 10-Q 9575

~~Table 87: Resale and Repurchase Agreements Offsetting~~

In millions    Gross Resale/
Repurchase
Agreements    Amounts Offset on
the Consolidated
Balance Sheet    Net Resale/
Repurchase
Agreements (a)    Securities Collateral
Held/Pledged Under
Master Netting
Agreements (b)    Net Amounts
Resale Agreements

September 30, 2016
   $ 637          $ 637       $ 563       $ 74 (c)
December 31, 2015
   $ 1,082          $ 1,082       $ 1,008       $ 74 (c)
Repurchase Agreements (d)

September 30, 2016
   $ 1,231          $ 1,231       $ 532       $ 699 (e)
December 31, 2015
   $ 1,767          $ 1,767       $ 1,014       $ 753 (e)

~~(a)~~

Resale agreements are included on the Consolidated Balance Sheet in Federal funds sold and resale agreements. Repurchase agreements are included on the Consolidated Balance Sheet in Federal funds purchased and repurchase agreements.

~~(b)~~

~~Represents the fair value of securities collateral purchased or sold, up to the amount owed under the agreement, for agreements supported by a legally enforceable master netting agreement.~~

~~(c)~~

Represents certain long term resale agreements which are fully collateralized but do not have the benefits of a netting opinion and, therefore, might be subject to a stay in insolvency proceedings and therefore are not eligible under ASC 210-20 for netting.

~~(d)~~

Repurchase agreements have remaining contractual maturities that are classified as overnight or continuous. As of September 30, 2016 and December 31, 2015, the collateral pledged under these agreements consisted primarily of residential mortgage-backed agency securities.

~~(e)~~

Represents overnight repurchase agreements entered into with municipalities, pension plans, and certain trusts and insurance companies which are fully collateralized but do not have the benefits of a netting opinion and, therefore, might be subject to a stay in insolvency proceedings and therefore are not eligible under ASC 210-20 for netting. There were no long term repurchase agreements as of September 30, 2016 and December 31, 2015.

N~~OTE~~ ~~14 SEGMENT~~ R~~EPORTING~~non-maturity

~~We have six reportable~~ deposits based on our recent historical experience. These changes in methodology affected business ~~segments:~~

~~Retail Banking~~

segment results, primarily adversely impacting net interest income for Corporate & Institutional Banking and Retail Banking, offset by increased net interest income in the “Other” category.

~~Asset Management Group~~The prior period presented was revised to conform to the new segment alignment and to our change in internal funds transfer pricing methodology.

~~Residential Mortgage Banking~~

~~BlackRock~~

~~Non-Strategic Assets Portfolio~~

Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual businesses are not necessarily comparable with similar information for any other company. We periodically refine our internal methodologies as management reporting practices are enhanced. To the extent significant and practicable, retrospective application of new methodologies is made to prior period reportable business segment results and disclosures to create comparability with the current period.

Financial results are presented, to the extent practicable, as if each business operated on a stand-alone basis. Additionally, we have aggregated the results for corporate support functions within “Other” for financial reporting purposes.

Net interest income in business segment results reflects 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.

~~A portion of capital is intended to cover unexpected losses and is assigned to our business segments using our risk-based~~

economic capital model, including consideration of the goodwill at those business segments, as well as the diversification of risk among the business segments, ultimately reflecting PNC’s portfolio risk adjusted capital allocation.

We have allocated the allowances for loan and lease losses and for unfunded loan commitments and letters of credit based on the loan exposures within each business segment’s portfolio. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower, and economic conditions. Key reserve assumptions are periodically updated.

~~Our allocation of the costs incurred by operations and other shared support areas not directly aligned with the businesses is primarily based on the use of services.~~

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

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

income attributable to noncontrolling interests. Assets, revenue and earnings attributable to foreign activities were not material in the periods presented for comparative purposes.

Our allocation of the costs incurred by shared support areas not directly aligned with the businesses is primarily based on the use of services.

A portion of capital is intended to cover unexpected losses and is assigned to our business segments using our risk-based economic capital model, including consideration of the goodwill at those business segments, as well as the

diversification of risk among the business segments, ultimately reflecting our portfolio risk adjusted capital allocation.

We have allocated the allowances for loan and lease losses and for unfunded loan commitments and letters of credit based on the loan exposures within each business segment’s portfolio. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower and economic conditions. Key reserve assumptions are periodically updated.

Business Segment Products and Services

Retail Bankingprovides deposit, lending, brokerage, investment management and cash management products and services to consumer and small business customers within our primary geographic markets. Our customers are serviced through our branch network, ATMs, call centers, online banking and mobile channels. The branch network is located primarily in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, Florida, North Carolina, Kentucky, Washington, D.C., Delaware, Virginia, Georgia, Alabama, ~~Georgia,~~ Missouri, Wisconsin and South Carolina. Deposit products include checking, savings and money market accounts and certificates of deposit. Lending products include residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans and personal loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to government agency and/or third-party standards, and either sold, servicing retained, or held on our balance sheet. Our mortgage servicing operation performs all functions related to servicing residential mortgage loans for investors and for loans we own. Brokerage, investment management and cash management products and services include managed accounts, education accounts, retirement accounts and trust and estate services.

Corporate & Institutional Bankingprovides lending, treasury management and capital markets-related products and services tomid-sized and large corporations, government andnot-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. Treasury management services include cash and investment management, receivables management, disbursement services, funds transfer services, information reporting and global trade services. Capital markets-related products and services include foreign exchange, derivatives, securities, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. We also provide commercial loan servicing and technology solutions for the commercial real estate finance industry. Products and services are generally provided within our primary geographic markets, with certain products and services offered nationally and internationally.

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

Asset Management Group~~includes~~provides personal wealth management for high net worth and ultra high net worth clients and institutional asset management. Wealth management products and services include investment and retirement planning, customized investment management, private banking, tailored credit solutions and trust management and administration for individuals and their families. Our Hawthorn unit provides multi-generational family planning including ~~wealth strategy,~~estate, financial, tax planning, fiduciary, investment management and consulting, private banking, ~~tax~~personal administrative services, asset custody and ~~estate planning guidance,~~customized performance reporting ~~and personal administration services~~ to ultra high net worth families. Institutional asset management provides advisory, custody ~~administration~~ and retirement administration services. The business also offers

PNC proprietary mutual ~~funds and investment strategies.~~funds. Institutional clients include corporations, unions, municipalities,non-profits, foundations and endowments, primarily located in our geographic footprint.

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

BlackRock,in which we hold an equity investment, is a leading publicly traded investment management firm providing a broad range of investment and risk management services to institutional and retail clients worldwide. Using a diverse platform of active and index investment strategies across asset classes, BlackRock develops investment outcomes and asset allocation solutions for clients. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments. BlackRock also offers an investment and risk management technology platform, risk analytics, advisory and ~~advisory~~technology services and solutions to a broad base of institutional and wealth management investors.

~~We hold an~~Our equity investment in BlackRock ~~which~~ provides us with an additional source of noninterest income and increases our overall revenue diversification. BlackRock is a publicly traded company, and additional information regarding its business is available in its filings with the Securities and Exchange Commission (SEC). At ~~September 30, 2016,~~March 31, 2017, our economic interest in BlackRock was 22%. ~~PNC~~We received cash dividends from BlackRock of ~~$248~~$89 million and ~~$240~~$83 million during the first ~~nine~~three months of 2017 and 2016, ~~and 2015,~~ respectively.

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

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

Table ~~88:~~69: Results Ofof Businesses

Three months ended September 30
In millions
   Retail
Banking    Corporate &
Institutional
Banking    Asset
Management
Group Residential
Mortgage
Banking BlackRock    Non-Strategic
Assets
Portfolio Other Consolidated (a)
2016

Income Statement

Net interest income
   $ 1,120       $ 840       $ 74    $ 28       $ 72    $ (39 ) $ 2,095
Noninterest income
   527       517       220    163    $ 189       8    110    1,734
Total revenue
   1,647       1,357       294    191    189       80    71    3,829
Provision for credit losses (benefit)
   104       12       (3 )    (22 ) (4 ) 87
Depreciation and amortization
   40       35       11    3       120    209
Other noninterest expense
   1,151       520       195    167       16    136    2,185
Income (loss) before income taxes and noncontrolling interests
   352       790       91    21    189       86    (181 ) 1,348
Income taxes (benefit)
   129       253       33    8    41       32    (154 ) 342
Net income (loss)
   $ 223       $ 537       $ 58    $ 13    $ 148       $ 54    $ (27 ) $ 1,006
Average Assets (b)
   $ 71,219       $ 139,806       $ 7,588    $ 6,160    $ 7,026       $ 5,302    $ 126,769    $ 363,870
2015

Income Statement

Net interest income
   $ 1,068       $ 855       $ 71    $ 31       $ 90    $ (53 ) $ 2,062
Noninterest income
   574       476       207    135    $ 181       16    124    1,713
Total revenue
   1,642       1,331       278    166    181       106    71    3,775
Provision for credit losses (benefit)
   57       46       (2 ) 2       (25 ) 3    81
Depreciation and amortization
   42       36       10    4       109    201
Other noninterest expense
   1,148       497       201    167       23    115    2,151
Income (loss) before income taxes and noncontrolling interests
   395       752       69    (7 ) 181       108    (156 ) 1,342
Income taxes (benefit)
   144       250       25    (3 ) 42       40    (229 ) 269
Net income (loss)
   $ 251       $ 502       $ 44    $ (4 ) $ 139       $ 68    $ 73    $ 1,073
Average Assets (b)
   $ 72,916       $ 131,613       $ 7,902    $ 6,513    $ 6,813       $ 6,460    $ 126,370    $ 358,587


Nine months ended September 30 In millions	Retail Banking		Corporate & Institutional Banking		Asset Management Group		Residential Mortgage Banking		BlackRock		Non-Strategic Assets Portfolio			Other			Consolidated (a)
Three months ended March 31 In millions																			Retail Banking		Corporate & Institutional Banking		Asset Management Group			BlackRock		Other			Consolidated (a)
2017
Income Statement
Net interest income																			$	1,120	$	802	$	71				$	167		$	2,160
Noninterest income																				603		524		218		$	186		193			1,724
Total revenue																				1,723		1,326		289			186		360			3,884
Provision for credit losses (benefit)																				71		25		(2	)				(6	)		88
Depreciation and amortization																				42		36		11					125			214
Other noninterest expense																				1,273		548		206					161			2,188
Income before income taxes and noncontrolling interests																				337		717		74			186		80			1,394
Income taxes (benefit)																				124		233		27			41		(105	)		320
Net income																			$	213	$	484	$	47		$	145	$	185		$	1,074
Average Assets (b)																			$	87,109	$	142,592	$	7,476		$	6,983	$	122,256		$	366,416
2016
Income Statement
Net interest income	$	3,350	$	2,500	$	227	$	81			$	220		$	(117	)	$	6,261	$	1,121	$	785	$	77				$	115		$	2,098
Noninterest income		1,628		1,484		636		450	$	500		35			294			5,027		633		441		203		$	141		149			1,567
Total revenue		4,978		3,984		863		531		500		255			177			11,288		1,754		1,226		280			141		264			3,665
Provision for credit losses (benefit)		210		188								(16	)		(16	)		366		72		102		(3	)				(19	)		152
Depreciation and amortization		121		107		34		8							356			626		44		36		11					111			202
Other noninterest expense		3,388		1,518		584		450				57			412			6,409		1,255		497		195					132			2,079
Income (loss) before income taxes and noncontrolling interests		1,259		2,171		245		73		500		214			(575	)		3,887
Income taxes (benefit)		461		713		90		27		110		79			(531	)		949
Net income (loss)	$	798	$	1,458	$	155	$	46	$	390	$	135		$	(44	)	$	2,938
Average Assets (b)	$	71,658	$	137,884	$	7,743	$	6,078	$	7,026	$	5,580		$	123,638		$	359,607
2015
Income Statement
Net interest income	$	3,150	$	2,515	$	215	$	91			$	302		$	(87	)	$	6,186
Noninterest income		1,652		1,397		658		488	$	532		34			425			5,186
Total revenue		4,802		3,912		873		579		532		336			338			11,372
Provision for credit losses (benefit)		151		83		11		2				(61	)		(5	)		181
Depreciation and amortization		127		109		33		11							315			595
Other noninterest expense		3,431		1,485		603		499				73			381			6,472
Income (loss) before income taxes and noncontrolling interests		1,093		2,235		226		67		532		324			(353	)		4,124
Income before income taxes and noncontrolling interests																				383		591		77			141		40			1,232
Income taxes (benefit)		399		743		83		24		125		119			(490	)		1,003		140		193		28			27		(99	)		289
Net income	$	694	$	1,492	$	143	$	43	$	407	$	205		$	137		$	3,121	$	243	$	398	$	49		$	114	$	139		$	943
Average Assets (b)	$	73,430	$	131,678	$	7,922	$	6,962	$	6,813	$	6,880		$	119,448		$	353,133	$	86,213	$	137,270	$	7,887		$	6,775	$	117,768		$	355,913

(a)	There were no material intersegment revenues for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016.

(b)	Period-end balances for BlackRock.

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

N~~OTE~~ ~~15 SUBSEQUENT~~ E~~VENTS~~

~~On November 1, 2016, we issued 525,000 depositary shares, each representing a 1/100~~^th interest in a share of our Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series S, in an underwritten public offering resulting in gross proceeds of $525 million to us before commissions and expenses. We issued 5,250 shares of Series S Preferred Stock to the depositary in this transaction. We intend to use the net proceeds from the sale of the depositary shares for general corporate purposes, which may include advances to our subsidiaries to finance their activities, repayment of outstanding indebtedness, and repurchases and redemptions of issued and outstanding securities of PNC and its subsidiaries.

The PNC Financial Services Group, Inc. –Form 10-Q 9977

STATISTICAL INFORMATION (UNAUDITED)

~~THE~~The PNC ~~FINANCIAL SERVICES GROUP, INC.~~Financial Services Group, Inc.

A~~VERAGE~~ C~~ONSOLIDATED~~ B~~ALANCE~~ S~~HEETAND~~ NET I~~NTEREST~~ A~~NALYSIS~~Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c)


	Nine months ended September 30
	2016								2015							First Quarter 2017							Fourth Quarter 2016
Taxable-equivalent basis Dollars in millions	Average Balances			Interest Income/ Expense		Average Yields/ Rates			Average Balances			Interest Income/ Expense		Average Yields/ Rates		Average Balances		Interest Income/ Expense		Average Yields/ Rates			Average Balances		Interest Income/ Expense		Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed
Agency	$	25,129		$	466		2.47	%	$	20,560		$	388		2.52%	$	26,385	$	169		2.57	%	$	26,374	$	151		2.30	%
Non-agency		3,717			133		4.75	%		4,471			157		4.68%		3,127		44		5.59	%		3,303		42		5.18	%
Commercial mortgage-backed		6,399			131		2.73	%		6,258			147		3.14%		5,919		35		2.35	%		6,283		36		2.25	%
Asset-backed		5,661			96		2.27	%		5,219			83		2.12%		5,992		37		2.50	%		5,977		36		2.39	%
U.S. Treasury and government agencies		9,846			109		1.46	%		5,640			54		1.26%		13,101		54		1.66	%		12,805		46		1.41	%
Other		5,006			113		3.00	%		4,253			111		3.46%		5,293		39		2.93	%		5,237		39		2.97	%
Total securities available for sale		55,758			1,048		2.50	%		46,401			940		2.70%		59,817		378		2.53	%		59,979		350		2.33	%
Securities held to maturity
Residential mortgage-backed		10,215			218		2.85	%		7,865			181		3.07%		11,852		83		2.79	%		11,465		72		2.52	%
Commercial mortgage-backed		1,747			47		3.55	%		2,009			58		3.82%		1,458		13		3.50	%		1,532		15		4.12	%
Asset-backed		708			10		1.91	%		744			9		1.54%		556		3		2.21	%		585		4		2.29	%
U.S. Treasury and government agencies		262			7		3.80	%		252			7		3.80%		529		4		3.07	%		444		4		3.25	%
Other		2,016			87		5.77	%		2,307			89		5.19%		2,041		27		5.34	%		2,030		27		5.35	%
Total securities held to maturity		14,948			369		3.29	%		13,177			344		3.49%		16,436		130		3.16	%		16,056		122		3.04	%
Total investment securities		70,706			1,417		2.67	%		59,578			1,284		2.87%		76,253		508		2.67	%		76,035		472		2.48	%
Loans
Commercial		99,795			2,331		3.07	%		98,053			2,230		3.00%		103,084		835		3.24	%		101,880		810		3.11	%
Commercial real estate		28,555			717		3.30	%		24,659			659		3.52%		29,178		239		3.27	%		29,247		247		3.30	%
Equipment lease financing		7,485			204		3.64	%		7,593			196		3.45%		7,497		63		3.34	%		7,398		62		3.33	%
Consumer		57,612			1,852		4.29	%		60,426			1,887		4.17%		56,843		626		4.47	%		57,164		624		4.35	%
Residential real estate		14,677			520		4.72	%		14,391			523		4.85%		15,651		178		4.55	%		15,193		176		4.64	%
Total loans		208,124			5,624		3.58	%		205,122			5,495		3.55%		212,253		1,941		3.67	%		210,882		1,919		3.59	%
Interest-earning deposits with banks		26,691			100		.50	%		33,380			63		.25%		24,192		49		.81	%		25,245		36		.56	%
Loans held for sale		1,737			55		4.20	%		2,128			68		4.25%
Federal funds sold and resale agreements		1,127			4		.53	%		1,737			4		.25%
Other		4,933			144		3.89	%		5,183			199		5.13%
Other interest-earning assets																	8,395		74		3.54	%		7,983		76		3.80	%
Total interest-earning assets/interest income		313,318			7,344		3.11	%		307,128			7,113		3.08%		321,093		2,572		3.22	%		320,145		2,503		3.09	%
Noninterest-earning assets:
Allowance for loan and lease losses		(2,699	)							(3,297	)
Cash and due from banks		3,996								3,969
Other		44,992								45,333
Noninterest-earning assets																	45,323							46,041
Total assets	$	359,607							$	353,133						$	366,416						$	366,186
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market	$	72,960			111		.20	%	$	82,151			163		.27%	$	63,921	$	36		.23	%	$	67,271	$	35		.21	%
Demand		51,854			29		.07	%		46,269			19		.05%		56,797		14		.10	%		55,223		11		.08	%
Savings		27,770			82		.40	%		13,663			17		.17%		39,095		41		.42	%		35,224		37		.42	%
Retail certificates of deposit		17,236			91		.70	%		18,422			95		.69%
Time deposits in foreign offices and other time		1,815			3		.25	%		2,285			3		.18%
Time deposits																	17,058		29		.69	%		18,409		31		.66	%
Total interest-bearing deposits		171,635			316		.25	%		162,790			297		.24%		176,871		120		.28	%		176,127		114		.26	%
Borrowed funds
Federal funds purchased and repurchase agreements		1,924			4		.29	%		2,708			3		.13%
Federal Home Loan Bank borrowings		18,694			110		.78	%		21,556			76		.47%		20,416		56		1.09	%		17,465		45		1.01	%
Bank notes and senior debt		21,990			266		1.59	%		17,087			165		1.27%		22,992		107		1.85	%		21,653		86		1.55	%
Subordinated debt		8,337			201		3.20	%		8,862			179		2.69%		7,102		62		3.49	%		8,287		63		3.05	%
Commercial paper		1					.43	%		3,486			9		.35%
Other		2,465			41		2.17	%		3,319			50		1.99%		4,432		15		1.36	%		4,127		15		1.41	%
Total borrowed funds		53,411			622		1.54	%		57,018			482		1.12%		54,942		240		1.74	%		51,532		209		1.60	%
Total interest-bearing liabilities/interest expense		225,046			938		.55	%		219,808			779		.47%		231,813		360		.62	%		227,659		323		.56	%
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits		77,133								75,359							78,050							80,925
Allowance for unfunded loan commitments and letters of credit		282								246
Accrued expenses and other liabilities		10,887								11,845							10,081							10,828
Equity		46,259								45,875							46,472							46,774
Total liabilities and equity	$	359,607							$	353,133						$	366,416						$	366,186
Interest rate spread							2.56	%							2.61%						2.60	%						2.53	%
Impact of noninterest-bearing sources							.15								.13						.17							.16
Net interest income/margin				$	6,406		2.71	%				$	6,334		2.74%			$	2,212		2.77	%			$	2,180		2.69	%

(a)

Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other noninterest-earning assets). Average balances for certain loans and borrowed funds accounted for at fair value, with changes in fair value recorded in trading noninterest income, are included in noninterest-earning assets and noninterest-bearing liabilities.

~~100~~78 The PNC Financial Services Group, Inc. –Form 10-Q


Third Quarter 2016	Third Quarter 2016						Second Quarter 2016								Third Quarter 2015								Third Quarter 2016						Second Quarter 2016							First Quarter 2016

Average Balances	Average Balances	Interest Income/ Expense		Average Yields/ Rates			Average Balances			Interest Income/ Expense		Average Yields/ Rates			Average Balances			Interest Income/ Expense		Average Yields/ Rates			Average Balances	Interest Income/ Expense		Average Yields/ Rates			Average Balances		Interest Income/ Expense		Average Yields/ Rates			Average Balances		Interest Income/ Expense		Average Yields/ Rates





	$25,825	$	154		2.39	%	$	24,856		$	153		2.46	%	$	21,813		$	134		2.47	%	$25,825	$	154		2.39	%	$	24,856	$	153		2.46	%	$	24,696	$	159		2.57	%
	3,490		45		5.06	%		3,728			44		4.79	%		4,279			52		4.83	%	3,490		45		5.06	%		3,728		44		4.79	%		3,936		44		4.45	%
	6,276		39		2.47	%		6,335			46		2.94	%		6,228			49		3.20	%	6,276		39		2.47	%		6,335		46		2.94	%		6,586		46		2.79	%
	5,823		33		2.31	%		5,672			33		2.32	%		5,287			28		2.15	%	5,823		33		2.31	%		5,672		33		2.32	%		5,486		30		2.19	%
	9,929		33		1.33	%		9,673			37		1.50	%		6,558			23		1.36	%	9,929		33		1.33	%		9,673		37		1.50	%		9,936		39		1.55	%
	5,166		39		2.99	%		5,004			38		3.02	%		4,374			37		3.26	%	5,166		39		2.99	%		5,004		38		3.02	%		4,847		36		2.99	%
	56,509		343		2.42	%		55,268			351		2.54	%		48,539			323		2.66	%	56,509		343		2.42	%		55,268		351		2.54	%		55,487		354		2.55	%

	10,521		71		2.71	%		10,215			72		2.81	%		8,352			63		3.05	%	10,521		71		2.71	%		10,215		72		2.81	%		9,906		75		3.02	%
	1,666		15		3.51	%		1,755			16		3.61	%		1,927			18		3.65	%	1,666		15		3.51	%		1,755		16		3.61	%		1,821		16		3.53	%
	702		3		1.99	%		708			4		1.91	%		733			4		1.57	%	702		3		1.99	%		708		4		1.91	%		715		3		1.84	%
	264		2		3.81	%		262			3		3.79	%		254			2		3.82	%	264		2		3.81	%		262		3		3.79	%		259		2		3.80	%
	1,983		33		6.58	%		1,986			26		5.40	%		2,268			29		5.23	%	1,983		33		6.58	%		1,986		26		5.40	%		2,081		28		5.35	%
	15,136		124		3.29	%		14,926			121		3.22	%		13,534			116		3.43	%	15,136		124		3.29	%		14,926		121		3.22	%		14,782		124		3.37	%
	71,645		467		2.60	%		70,194			472		2.68	%		62,073			439		2.83	%	71,645		467		2.60	%		70,194		472		2.68	%		70,269		478		2.72	%

	100,320		781		3.05	%		99,991			779		3.08	%		97,926			756		3.02	%	100,320		781		3.05	%		99,991		779		3.08	%		99,068		771		3.08	%
	29,034		240		3.23	%		28,659			229		3.16	%		25,228			216		3.35	%	29,034		240		3.23	%		28,659		229		3.16	%		27,967		248		3.51	%
	7,463		76		4.06	%		7,570			65		3.44	%		7,683			66		3.42	%	7,463		76		4.06	%		7,570		65		3.44	%		7,420		63		3.40	%
	57,163		621		4.32	%		57,467			610		4.28	%		59,584			628		4.18	%	57,163		621		4.32	%		57,467		610		4.28	%		58,212		621		4.29	%
	14,870		171		4.60	%		14,643			177		4.84	%		14,406			171		4.76	%	14,870		171		4.60	%		14,643		177		4.84	%		14,517		172		4.74	%
	208,850		1,889		3.57	%		208,330			1,860		3.56	%		204,827			1,837		3.54	%	208,850		1,889		3.57	%		208,330		1,860		3.56	%		207,184		1,875		3.60	%
	28,063		35		.50	%		26,463			33		.51	%		37,289			24		.25	%	28,063		35		.50	%		26,463		33		.51	%		25,533		32		.50	%
	2,044		21		4.07	%		1,655			18		4.24	%		2,048			22		4.23	%	8,174		66		3.23	%		7,449		67		3.59	%		7,764		70		3.62	%
	1,056		1		.59	%		1,026			1		.55	%		1,598			2		.33	%	316,732		2,457		3.07	%		312,436		2,432		3.10	%		310,750		2,455		3.15	%
	5,074		44		3.44	%		4,768			48		4.02	%		5,033			67		5.33	%	47,138							46,554							45,163
	316,732		2,457		3.07	%		312,436			2,432		3.10	%		312,868			2,391		3.02	%	$363,870						$	358,990						$	355,913

	(2,675)							(2,712	)							(3,265	)
	4,128							3,938								3,890
	45,685							45,328								45,094							$70,076	$	34		.19	%	$	72,442	$	35		.20	%	$	76,392	$	42		.22	%
	$363,870						$	358,990							$	358,587							53,428		10		.08	%		52,218		10		.08	%		49,770		9		.07	%
																							31,791		32		.40	%		28,131		27		.39	%		23,343		23		.39	%
																							18,910		31		.66	%		19,056		32		.66	%		19,318		31		.65	%
																							174,205		107		.25	%		171,847		104		.24	%		168,823		105		.25	%
	$70,076		34		.19	%	$	72,442			35		.20	%	$	84,554			61		.29	%
	53,428		10		.08	%		52,218			10		.08	%		46,390			7		.06	%	17,524		38		.86	%		18,716		38		.80	%		19,855		34		.68	%
	31,791		32		.40	%		28,131			27		.39	%		14,150			6		.18	%	22,896		87		1.50	%		22,375		92		1.62	%		20,690		87		1.66	%
	17,153		31		.70	%		17,277			30		.70	%		18,392			32		.68	%	8,356		65		3.06	%		8,336		68		3.26	%		8,317		68		3.29	%
	1,757				.24	%		1,779			2		.24	%		2,361			1		.17	%	4,205		16		1.41	%		4,206		14		1.39	%		4,764		15		1.24	%
	174,205		107		.25	%		171,847			104		.24	%		165,847			107		.26	%	52,981		206		1.53	%		53,633		212		1.57	%		53,626		204		1.51	%
																							227,186		313		.54	%		225,480		316		.56	%		222,449		309		.55	%
	1,844		1		.32	%		1,881			2		.29	%		2,298			1		.14	%
	17,524		38		.86	%		18,716			38		.80	%		21,882			27		.49	%	78,303							75,775							77,306
	22,896		87		1.50	%		22,375			92		1.62	%		19,455			63		1.27	%	11,855							11,390							10,255
	8,356		65		3.06	%		8,336			68		3.26	%		8,882			63		2.81	%	46,526							46,345							45,903
								1					.55	%		1,867			2		.38	%	$363,870						$	358,990						$	355,913
	2,361		15		2.27	%		2,324			12		2.29	%		3,147			16		2.03	%					2.53	%						2.54	%						2.60	%
	52,981		206		1.53	%		53,633			212		1.57	%		57,531			172		1.18	%					.15							.16							.15
	227,186		313		.54	%		225,480			316		.56	%		223,378			279		.49	%		$	2,144		2.68	%			$	2,116		2.70	%			$	2,146		2.75	%

	78,303							75,775								77,553
	304							282								246
	11,551							11,108								11,667
	46,526							46,345								45,743
	$363,870						$	358,990							$	358,587
					2.53	%							2.54	%							2.53	%
					.15								.16								.14
		$	2,144		2.68	%				$	2,116		2.70	%				$	2,112		2.67	%

(b)

Loan fees for the ~~nine~~three months ended ~~September 30,~~March 31, 2017, December 31, 2016, ~~and September 30, 2015 were $106 million and $76 million, respectively. Loan fees for the three months ended~~ September 30, 2016, June 30, 2016 and ~~September 30, 2015~~March 31, 2016 were $24 million, $31 million, $46 million, $34 million and $26 million, respectively.

(c)

Interest income ~~includes~~calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margin by increasing the ~~effects of~~interest income earned ontax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. The taxable-equivalent ~~adjustments. See~~adjustments to interest income for the ~~following table: Non-GAAP to GAAP Reconciliation of Net Interest Income.~~three months ended March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016 were $52 million, $50 million, $49 million, $48 million and $48 million, respectively.

The PNC Financial Services Group, Inc. –Form 10-Q ~~101~~79

NON~~-GAAP~~TO G~~AAP~~RECONCILIATION OOFF TAXABLE-EQUIVALENT NET INTEREST INCOME (NON-GAAP) (a)


	Nine months ended				Three months ended						Three months ended March 31
Dollars in millions	September 30, 2016		September 30, 2015		September 30, 2016		June 30, 2016		September 30, 2015
In millions											2017		2016
Net interest income (GAAP)	$	6,261	$	6,186	$	2,095	$	2,068	$	2,062	$	2,160	$	2,098
Taxable-equivalent adjustments		145		148		49		48		50		52		48
Net interest income (Non-GAAP)	$	6,406	$	6,334	$	2,144	$	2116	$	2,112	$	2,212	$	2,146

(a)

The interest income earned on certain earning assets is completely or partially exempt from federal income tax. To provide more meaningful comparisons of net interest ~~yields for all earning assets,~~income, we use interest income ~~includes~~on a taxable-equivalent basis by increasing the ~~effects of taxable-equivalent adjustments using a statutory federal income tax rate of 35% to increase tax-exempt~~ interest income earned ontax-exempt assets to ~~a taxable-equivalent basis.~~make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. ~~The above table reconciles the total adjusted net interest income to the GAAP reportable net interest income amount disclosed in our Consolidated Income Statement.~~

TRANSITIONAL BASEL III A~~AND~~ND PRO FORMA FULLY PHASED-IN BASEL III COMMON EQUITY TIER 1 CAPITAL RATIOS (NON-GAAP) – ~~2015~~2016 PERIODS


	2015 Transitional Basel III						Pro forma Fully Phased-In Basel III (Non-GAAP) (estimated) (a) (b)						2016 Transitional Basel III (a)						Pro forma Fully Phased-In Basel III (Non-GAAP) (estimated) (b) (c)
Dollars in millions	December 31 2015			September 30 2015			December 31 2015			September 30 2015			December 31 2016			March 31 2016			December 31 2016			March 31 2016
Common stock, related surplus and retained earnings, net of treasury stock	$	41,128		$	40,883		$	41,128		$	40,883		$	41,987		$	41,145		$	41,987		$	41,145
Less regulatory capital adjustments:
Goodwill and disallowed intangibles, net of deferred tax liabilities		(8,972	)		(8,986	)		(9,172	)		(9,197	)		(8,974	)		(9,023	)		(9,073	)		(9,148	)
Basel III total threshold deductions		(470	)		(448	)		(1,294	)		(1,135	)		(762	)		(678	)		(1,469	)		(1,139	)
Accumulated other comprehensive income ~~(c)~~(d)		(81	)		64			(201	)		159			(238	)		60			(396	)		101
All other adjustments		(112	)		(111	)		(182	)		(148	)		(214	)		(139	)		(221	)		(148	)

Basel III Common equity Tier 1 capital	$	31,493		$	31,402		$	30,279		$	30,562		$	31,799		$	31,365		$	30,828		$	30,811
Basel III standardized approach risk-weighted assets (d)	$	295,905		$	295,384		$	303,707		$	303,343
Basel III advanced approaches risk-weighted assets (e)		N/A			N/A		$	264,931		$	284,215
Basel III standardized approach risk-weighted assets (e)													$	300,533		$	295,555		$	308,517		$	303,805
Basel III advanced approaches risk-weighted assets (f)														N/A			N/A		$	277,896		$	283,297
Basel III Common equity Tier 1 capital ratio		10.6	%		10.6	%		10.0	%		10.1	%		10.6	%		10.6	%		10.0	%		10.1	%
Risk weight and associated rules utilized		Standardized (with 2015 transition adjustments)						Standardized						Standardized (with 2016 transition adjustments)						Standardized

(a)	Calculated using the regulatory capital methodology applicable to us during 2016.

(b)	PNC utilizes the pro forma fullyphased-in Basel III capital ratios, to assess its capital position (without the benefit ofphase-ins), as these ratios represent the regulatory capital standards that will ultimately be applicable to PNC under the final Basel III rules.

~~(b)~~(c)

Basel III capital ratios and estimates may be impacted by additional regulatory guidance and, in the case of those ratios calculated using the advanced approaches, may be subject to variability based on the ongoing evolution, validation and regulatory approval of PNC’s models that are integral to the calculation of advanced approaches risk-weighted assets as PNC moves through the parallel run process.

~~(c)~~(d)

Represents net adjustments related to accumulated other comprehensive income for securities currently and previously held as available for sale, as well as pension and other postretirement plans.

~~(d)~~(e)

Basel III standardized approach risk-weighted assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets.

~~(e)~~(f)

Basel III advanced approaches risk-weighted assets are based on the Basel III advanced approaches rules, and include credit, market and operational risk-weighted assets. During the parallel run qualification phase PNC has refined the data, models and internal processes used as part of the advanced approaches for determining risk-weighted assets. ~~Refinements implemented in the fourth quarter of 2015 reduced estimated Basel III advanced approaches risk-weighted assets.~~ We anticipate additional refinements may result in increases or decreases to this estimate through the parallel run qualification phase.

~~102~~80 The PNC Financial Services Group, Inc. –Form 10-Q

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the information set forth in Note 12 Legal Proceedings in the Notes To Consolidated Financial Statements under Part I, Item 1 of this Report, which is incorporated by reference in response to this item.

ITEM 1A. RISK FACTORS

There are no material changes in our risk factors from those previously disclosed in PNC’s ~~2015~~2016 Form10-K in response to Part I, Item 1A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Details of our repurchases of PNC common stock during the ~~third~~first quarter of ~~2016~~2017 are included in the following table:

2016 period
In thousands, except per share data
Total shares
purchased
(a)
Average
price
paid per
share
Total shares
purchased
as part of
publicly
announced
programs
(b) Maximum
number
of shares
that may
yet be
purchased
under the
programs
(b)
July 1 – 31
2,578    $ 81.76    2,561    67,500
August 1 – 31
1,469    $ 85.63    1,469    66,031
September 1 – 30
1,824    $ 89.84    1,824    64,207
Total
5,871    $ 85.24


In thousands, except per share data 2017 period	Total shares purchased (a)		Average price paid per share	Total shares purchased as part of publicly announced programs (b)	Maximum number of shares that may yet be purchased under the programs (b)
January 1 –31		1,588	$117.81	1,578	57,692
February 1 – 28		1,918	$124.97	1,341	56,351
March 1 – 31		2,170	$123.12	2,100	54,251

Total		5,676	$122.26

(a)

Includes PNC common stock purchased in connection with our various employee benefit plans generally related to ~~forfeitures of unvested restricted stock awards and~~ shares used to cover employee payroll tax withholding requirements. Note 1211 Employee Benefit Plans and Note 1312 Stock Based Compensation Plans in the Notes Toto Consolidated Financial Statements in ~~Item 8~~the Notes to Consolidated Financial Statements of our ~~2015~~2016 Annual Report on Form10-K include additional information regarding our employee benefit and equity compensation plans that use PNC common stock.

(b)

On March 11, 2015, we announced that our Board of Directors ~~had~~ approved the establishment of a ~~new~~ stock repurchase program authorization in the amount of 100 million shares of PNC common stock, effective April 1, 2015. Repurchases are made in open market or privately negotiated transactions and the timing and exact amount of common stock repurchases will depend on a number of factors including, among others, market and general economic conditions, ~~economic capital and~~ regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations, including the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process.

~~Our~~ In June 2016, ~~capital plan, submitted as part of the CCAR process and accepted by the Federal Reserve, included~~we announced share repurchase programs of up to $2.0 billion for the four quarter period beginning with the third quarter of 2016, including repurchases of up to $200 million related to employee benefit plans. In ~~the third~~January 2017, we announced a $300 million increase in our share repurchase programs for this period. In first quarter of ~~2016, in accordance with PNC’s 2016 capital plan and under the share repurchase authorization in effect during that period,~~2017, we repurchased ~~5.9~~.5 million shares of common stock on the open market, with an average price of ~~$85.25 per share~~$121.92 and an aggregate repurchase price of ~~$.5~~$.6 billion. See the Liquidity and Capital Management portion of the ~~Consolidated Balance Sheet~~Risk Management section in the Financial Review ~~in Part I, Item 2~~portion of this Report for more information on the share repurchase programs under the ~~new~~ share repurchase authorization for the period July 1, 2016 through June 30, 2017 included in the 2016 capital plan accepted by the Federal Reserve.

~~The PNC Financial Services Group, Inc. –~~~~Form 10-Q~~~~103~~

ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this Quarterly Report on Form10-Q:

EXHIBIT INDEX


~~3.1.7 and 4.29~~		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series S (Incorporated by reference to Exhibit 3.1 of PNC’s Current Report on Form 8-K filed November 1, 2016)

~~3.2~~		By-Laws of The PNC Financial Services Group, Inc., as amended and restated, effective as of August 11, 2016 (Incorporated by reference to Exhibit 3.2 of PNC’s Current Report on Form 8-K filed August 16, 2016)

~~10.51~~		~~Form of Change of Control Employment Agreements (Incorporated by reference to Exhibit 10.51 of PNC’s Current Report on Form 8-K filed August 16, 2016)~~

~~10.52~~		~~2016 Form of Performance Restricted Share Units Award Agreement~~

~~10.53~~		~~2016 Form of Incentive Performance Units Award Agreement~~

~~10.54~~		~~2016 Form of Senior Leader Performance Restricted Share Units Award Agreement~~

10.55		~~2016 Form~~The Corporation’s Executive Incentive Award Plan (formerly The 1996 Executive Incentive Award Plan), as amended and restated effective as of ~~ALM Incentive Performance Units Award Agreement~~January 1, 2017

12.1		Computation of Ratio of Earnings to Fixed Charges

12.2		Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101		Interactive Data File (XBRL)

You can obtain copies of these Exhibits electronically at the SEC’s website at www.sec.gov or by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549 at prescribed rates. The Exhibits are also available as part of this Form10-Q on PNC’s corporate website at www.pnc.com/secfilings. Shareholders and bondholders may also obtain copies of Exhibits, without charge, by contacting Shareholder Relations at800-843-2206 or viae-mail at investor.relations@pnc.com. The interactive data file (XBRL) exhibit is only available electronically.

~~104~~The PNC Financial Services Group, Inc. –Form 10-Q81

CORPORATE INFORMATION

The PNC Financial Services Group, Inc.

Corporate Headquarters

The PNC Financial Services Group, Inc.

The Tower at PNC Plaza

300 Fifth Avenue

Pittsburgh, Pennsylvania 15222-2401

~~412-762-2000~~888-762-2265

Stock Listing

The common stock of The PNC Financial Services Group, Inc. is listed on the New York Stock Exchange under the symbol “PNC”.

Internet Information

~~The PNC Financial Services Group, Inc.’s~~Our financial reports and information about ~~its~~our products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under “About Us – Investor Relations.” We use our Twitter account, @pncnews, as an additional way of disseminating to the public information that may be relevant to investors.

We generally post the following under “About Us – Investor Relations” shortly before or promptly following its first use or release: financially-related press releases, including earnings releases and supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor conference calls or events, and access to live and recorded audio from earnings and other investor conference calls or events. In some cases, we may post the presentation materials for other investor conference calls or events several days prior to the call or event. When warranted, we will also use our website to expedite public access to time-critical information regarding PNC in advance of distribution of a press release or a filing with the SEC disclosing the same information. For earnings and other conference calls or events, we generally include in our posted materials a cautionary statement regarding forward-looking and adjusted information and we provide GAAP reconciliations when we refer to adjusted information and results. Where applicable, we provide GAAP reconciliations for such additional information in materials for that event or in materials for other prior investor presentations or in our annual, quarterly or current reports.

~~PNC is~~We are required periodically to provide additional public disclosure regarding estimated income, losses and pro forma regulatory capital ratios under supervisory andPNC-developed hypothetical severely adverse economic scenarios, as well as information concerning our capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. ~~PNC is~~We are also required to make certain additional regulatory capital-related

public disclosures about ~~PNC’s~~our capital structure, risk exposures, risk assessment processes, risk-weighted assets and overall capital adequacy, including market risk-related disclosures, under the regulatory capital rules adopted by the Federal banking agencies. Under these regulations, ~~PNC~~we may satisfy these requirements through postings on our website, and ~~PNC has~~we have done so and ~~expects~~expect to continue to do so without also providing disclosure of this information through filings with the SEC.

Other information posted on our corporate website that may not be available in our filings with the SEC includes information relating to our corporate governance and communications from our chairman to ~~shareholders.~~shareholders, as well as our corporate social responsibility activities under “About Us – Corporate Responsibility.”

Where we have included web addresses in this Report, such as our web address and the web address of the SEC, we have included those web addresses as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part hereof.

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

Financial Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act) and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC File Number is001-09718. You can obtain copies of these and other filings, including exhibits, electronically at the SEC’s internet website at www.sec.gov or on ~~PNC’s~~our corporate internet website at www.pnc.com/secfilings. Shareholders and bond holders may also obtain copies of these filings without charge by contacting Shareholder Services at800-982-7652 or via the online contact form at www.computershare.com/contactus for copies without exhibits, and by contacting Shareholder Relations at800-843-2206 or via email at investor.relations@pnc.com for copies of exhibits, including financial statement and schedule exhibits where applicable. The interactive data file (XBRL) exhibit is only available electronically.

Corporate Governance at PNC

Information about our Board of Directors and its committees and corporate governance at PNC is available on ~~PNC’s~~our corporate website at www.pnc.com/corporategovernance. Our PNC Code of Business Conduct and Ethics is available on our corporate website at www.pnc.com/corporategovernance. In addition, any future amendments to, or waivers from, a provision of the PNC Code of Business Conduct and Ethics that applies to our directors or executive officers (including our principal executive officer, principal financial officer and principal accounting officer or controller) will be posted at this internet address.

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

Shareholders who would like to request printed copies of the PNC Code of Business Conduct and Ethics or our Corporate Governance Guidelines or the charters of our Board’s Audit, Nominating and Governance, Personnel and Compensation, or Risk Committees (all of which are posted on the PNC corporate website) may do so by sending their requests to ~~PNC’s~~our Corporate Secretary at corporate headquarters at the above address. Copies will be provided without charge to shareholders.

Inquiries

For financial services call888-PNC-2265.

Registered shareholders should contact Shareholder Services at800-982-7652.

Analysts and institutional investors should contact Bryan K. Gill, ~~Senior~~Executive Vice President, Director of Investor Relations, at412-768-4143 or via email at investor.relations@pnc.com.

News media representatives ~~and others seeking general information~~ should contact ~~Fred Solomon, Senior~~Marcey Zwiebel, Vice President, Corporate Communications, at412-762-4550 or via email at corporate.communications@pnc.com.

Common Stock Prices/Dividends Declared

The table below sets forth by quarter the range of high and low sale andquarter-end closing prices for ~~The PNC Financial Services Group, Inc.~~our common stock and the cash dividends declared per common share.


	High		Low		Close		Cash Dividends Declared (a)		High		Low		Close		Cash Dividends Declared (a)
2017 Quarter
First									$	131.83	$	113.66	$	120.24	$	.55
2016 Quarter
First	$	94.26	$	77.67	$	84.57	$	.51
Second		90.85		77.40		81.39		.51
Third		91.39		77.86		90.09		.55
Total							$	1.57
2015 Quarter
First	$	96.71	$	81.84	$	93.24	$	.48	$	94.26	$	77.67	$	84.57	$	.51
Second		99.61		90.42		95.65		.51	$	90.85	$	77.40	$	81.39		.51
Third		100.52		82.77		89.20		.51	$	91.39	$	77.86	$	90.09		.55
Fourth		97.50		84.93		95.31		.51	$	118.57	$	87.34	$	116.96		.55
Total							$	2.01							$	2.12

(a)	Our Board approved a ~~fourth~~second quarter ~~2016~~2017 cash dividend of $.55 per common share, which is payable on ~~November~~May 5, ~~2016.~~2017.

~~106~~ ~~The PNC Financial Services Group, Inc. –~~~~Form 10-Q~~

Dividend Policy

Holders of PNC common stock are entitled to receive dividends when declared by the Board of Directors out of funds legally available for this purpose. Our Board of

Directors may not pay or set apart dividends on the common stock until dividends for all past dividend periods on any series of outstanding preferred stock have been paid or declared and set apart for payment. The Board presently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions, our financial condition and operating results, and other factors, including contractual restrictions and applicable government regulations and policies (such as those relating to the ability of bank andnon-bank subsidiaries to pay dividends to the parent company and regulatory capital limitations). The amount of our dividend is also currently subject to the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process as described in the Capital Management portion of the ~~Consolidated Balance Sheet Review~~Risk Management section of the Financial Review of this Report and in the Supervision and Regulation section in Item 1 of our ~~2015~~2016 Form10-K.

Dividend Reinvestment ~~And~~and Stock Purchase Plan

The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common stock to conveniently purchase additional shares of common stock. You can obtain a prospectus and enrollment form by contacting Shareholder Services at800-982-7652. Registered shareholders may also contact this phone number regarding dividends and other shareholder services.

Stock Transfer Agent ~~And~~and Registrar

Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

800-982-7652

~~Registered shareholders may contact the above phone number regarding dividends and other shareholder services.~~

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on ~~November 4, 2016~~May 3, 2017 on its behalf by the undersigned thereunto duly authorized.

/s/ Robert Q. Reilly

Robert Q. Reilly

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

The PNC Financial Services Group, Inc. –Form 10-Q ~~107~~83


	Pages
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).
Consolidated Income Statement		4637
Consolidated Statement of Comprehensive Income		4738
Consolidated Balance Sheet		4839
Consolidated Statement Ofof Cash Flows		4940

Notes To Consolidated Financial Statements (Unaudited)		42
Note 1 Accounting Policies		5142
Note 2 Loan Sale and Servicing Activities and Variable Interest Entities		42
Note 3 Asset Quality		44
Note 4 Allowance for Loan and Lease Losses		51
Note ~~3 Asset Quality~~5 Investment Securities		5452
Note ~~4 Allowances for Loan~~6 Fair Value		55
Note 7 Goodwill and ~~Lease Losses and Unfunded Loan Commitments and Letters of Credit~~Mortgage Servicing Rights		64
Note ~~5 Investment Securities~~8 Employee Benefit Plans		65
Note 9 Financial Derivatives		66
Note ~~6 Fair Value~~10 Earnings Per Share		70
Note ~~7 Goodwill~~11 Total Equity and ~~Intangible Assets~~Other Comprehensive Income		8171
Note ~~8 Employee Benefit Plans~~12 Legal Proceedings		8273
Note ~~9 Financial Derivatives~~13 Commitments		8375
Note ~~10 Earnings Per Share~~14 Segment Reporting		89
~~Note 11 Total Equity And Other Comprehensive Income~~		90
~~Note 12 Legal Proceedings~~		92
~~Note 13 Commitments and Guarantees~~		94
~~Note 14 Segment Reporting~~		96
~~Note 15 Subsequent Events~~		9975

Statistical Information (Unaudited)		78
Average Consolidated Balance Sheet And Net Interest Analysis		~~100~~78
~~Non-GAAP to GAAP~~ Reconciliation of Taxable-Equivalent Net Interest Income (Non-GAAP)		~~102~~80
Transitional Basel III and Pro forma FullyPhased-In Basel III Common Equity Tier 1 Capital Ratios(Non-GAAP) – ~~2015~~2016 Periods		~~102~~80

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Financial Review		1
Consolidated Financial Highlights		1
Executive Summary		3
Consolidated Income Statement Review		65
Consolidated Balance Sheet Review		87
~~Off-Balance Sheet Arrangements And Variable Interest Entities~~Business Segments Review		1510
~~Fair Value Measurements~~Risk Management		1618
~~Business Segments Review~~Recent Regulatory Developments		16
Critical Accounting Estimates and Judgments		31 31
Off-Balance Sheet Arrangements and Variable Interest Entities		2834
~~Recourse And Repurchase Obligations~~Internal Controls and Disclosure Controls and Procedures		2934
~~Risk Management~~Glossary of Terms		2934
~~Internal Controls And Disclosure Controls And Procedures~~		43
~~Glossary Of Terms~~		43
Cautionary Statement Regarding Forward-Looking Information		4435

Item 3. Quantitative and Qualitative Disclosures ~~About~~about Market Risk.		~~29-43, 70-80~~18-31, 55-63 and ~~83-89~~66-70

Item 4. Controls and Procedures.		34

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.		~~103~~81

Item 1A. Risk Factors.		~~103~~81

Item 2. Unregistered Sales Ofof Equity Securities ~~And~~and Use Ofof Proceeds.		~~103~~81

Item 6. Exhibits.		~~104~~81
Exhibit Index.		~~104~~81
Corporate Information		~~105~~82
Signature		~~107~~83


As of September 30, 2016 Dollars in millions	Recorded Investment		WAL (a)
Commercial	$	21		2.2 years
Commercial real estate		101		1.7 years
Consumer (b)		1,188		3.9 years
Residential real estate		1,770		4.6 years
Total	$	3,080		4.2 years


	September 30, 2016				December 31, 2015				Ratings (a) As of September 30, 2016
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	$	12,327	$	12,680	$	10,022	$	10,172		100	%
Agency residential mortgage-backed		39,066		39,868		34,250		34,408		100
Non-agency residential mortgage-backed		3,576		3,754		4,225		4,392		11						4	%		80	%		5	%
Agency commercial mortgage-backed		3,352		3,408		3,045		3,086		100
Non-agency commercial mortgage-backed (b)		4,762		4,837		5,624		5,630		80			7	%		3			1			9
Asset-backed (c)		6,922		6,958		6,134		6,130		90			3						7
State and municipal		3,883		4,146		3,936		4,126		89			6									5
Other debt		2,830		2,878		2,211		2,229		51			32			16			1
Corporate stock and other		525		525		590		589														100
Total investment securities(d)	$	77,243	$	79,054	$	70,037	$	70,762		91	%		2	%		1	%		4	%		2	%


	September 30, 2016
Dollars in millions	2016 Transitional Basel III (a)			Pro forma Fully Phased-In Basel III (Non-GAAP) (estimated) (b)(c)
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock	$	10,646		$	10,646
Retained earnings		30,958			30,958
Accumulated other comprehensive income for securities currently and previously held as available for sale		504			840
Accumulated other comprehensive income for pension and other postretirement plans		(323	)		(538	)
Goodwill, net of associated deferred tax liabilities		(8,830	)		(8,830	)
Other disallowed intangibles, net of deferred tax liabilities		(163	)		(272	)
Other adjustments/(deductions)		(177	)		(180	)
Total common equity Tier 1 capital before threshold deductions		32,615			32,624
Total threshold deductions		(731	)		(1,218	)
Common equity Tier 1 capital		31,884			31,406
Additional Tier 1 capital
Preferred stock plus related surplus		3,456			3,456
Noncontrolling interests (d)		418			45
Other adjustments/(deductions)		(86	)		(111	)
Tier 1 capital		35,672			34,796
Additional Tier 2 capital
Qualifying subordinated debt		3,929			3,755
Trust preferred capital securities		119			–
Allowance for loan and lease losses included in Tier 2 capital		2,929			2,929
Other (d)		6			11
Total Basel III capital	$	42,655		$	41,491
Risk-weighted assets
Basel III standardized approach risk-weighted assets (e)	$	300,308		$	308,665
Basel III advanced approaches risk-weighted assets (f)		N/A		$	280,150
Average quarterly adjusted total assets	$	352,860		$	352,231
Supplementary leverage exposure (g)	$	417,565		$	416,937
Basel III risk-based capital and leverage ratios
Common equity Tier 1		10.6	%		10.2	%(h)(i)
Tier 1		11.9	%		11.3	%(h)(j)
Total		14.2	%		13.4	%(h)(k)
Leverage (l)		10.1	%		9.9	%
Supplementary leverage ratio (m)		8.5	%		8.3	%


	Third Quarter 2016			Third Quarter 2015
Net Interest Income Sensitivity Simulation (a)
Effect on net interest income in first year from gradual interest rate change over the following 12 months of:
100 basis point increase		3.0	%		2.7	%
100 basis point decrease		(3.9	)%		(.7	)%
Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of:
100 basis point increase		6.1	%		6.4	%
100 basis point decrease		(8.3	)%		(5.3	)%
Duration of Equity Model (a)
Base case duration of equity (in years)		(6.5	)		(5.2	)
Key Period-End Interest Rates
One-month LIBOR		.53	%		.19	%
Three-year swap		1.07	%		.98	%


September 30, 2016 (b) In millions	Total
Assets
Equity investments	$	205
Other assets		21
Total assets	$	226
Total liabilities	$	9
Noncontrolling interests	$	121


December 31, 2015 In millions	Total
Assets
Cash and due from banks	$	11
Interest-earning deposits with banks		4
Loans		1,341
Allowance for loan and lease losses		(48	)
Equity investments		183
Other assets		402
Total assets	$	1,893
Liabilities
Other borrowed funds	$	148
Accrued expenses		44
Other liabilities		202
Total liabilities	$	394
Noncontrolling interests	$	99


In millions	PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
September 30, 2016 (b)
Commercial Mortgage-Backed Securitizations (c)	$	1,089	$	1,089	(d)
Residential Mortgage-Backed Securitizations (c)		6,764		6,764	(d)	$	1	(f)
Tax Credit Investments and Other		3,138		3,072	(e)		807	(g)
Total	$	10,991	$	10,925		$	808
December 31, 2015
Commercial Mortgage-Backed Securitizations (c)	$	1,498	$	1,498	(d)	$	1	(f)
Residential Mortgage-Backed Securitizations (c)		6,680		6,680	(d)		1	(f)
Tax Credit Investments and Other		2,551		2,622	(e)		836	(g)
Total	$	10,729	$	10,800		$	838


			Criticized Commercial Loans
In millions	Pass Rated		Special Mention (c)		Substandard (d)		Doubtful (e)		Total Loans
September 30, 2016
Commercial	$	96,035	$	2,046	$	3,335	$	75	$	101,491
Commercial real estate		28,768		60		328		16		29,172
Equipment lease financing		7,185		69		116		8		7,378
Purchased impaired loans		35		1		80		6		122
Total commercial lending	$	132,023	$	2,176	$	3,859	$	105	$	138,163
December 31, 2015
Commercial	$	93,364	$	2,029	$	3,089	$	90	$	98,572
Commercial real estate		26,729		120		481		5		27,335
Equipment lease financing		7,230		87		150		1		7,468
Purchased impaired loans				6		157		6		169
Total commercial lending	$	127,323	$	2,242	$	3,877	$	102	$	133,544


	Home Equity				Residential Real Estate
September 30, 2016 – in millions	1st Liens		2nd Liens				Total
Current estimated LTV ratios (c)
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	197	$	726	$	205	$	1,128
Less than or equal to 660 (d) (e)		40		135		38		213
Missing FICO				5		3		8

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		480		1,372		391		2,243
Less than or equal to 660 (d) (e)		78		240		88		406
Missing FICO		1		3		12		16

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		535		1,233		520		2,288
Less than or equal to 660		77		195		78		350
Missing FICO		2		2		12		16

Less than 90% and updated FICO scores:
Greater than 660		13,934		7,771		10,458		32,163
Less than or equal to 660		1,334		850		593		2,777
Missing FICO		22		12		122		156
Total home equity and residential real estate loans	$	16,700	$	12,544	$	12,520	$	41,764


	Home Equity				Residential Real Estate
December 31, 2015 – in millions	1st Liens		2nd Liens				Total
Current estimated LTV ratios (c)
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	283	$	960	$	284	$	1,527
Less than or equal to 660 (d) (e)		40		189		68		297
Missing FICO		1		8		5		14

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		646		1,733		564		2,943
Less than or equal to 660 (d) (e)		92		302		102		496
Missing FICO		3		4		8		15

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		698		1,492		615		2,805
Less than or equal to 660		88		226		94		408
Missing FICO		1		3		10		14

Less than 90% and updated FICO scores:
Greater than 660		13,895		7,808		9,117		30,820
Less than or equal to 660		1,282		923		570		2,775
Missing FICO		31		18		105		154
Total home equity and residential real estate loans	$	17,060	$	13,666	$	11,542	$	42,268


	Home Equity (b) (c)				Residential Real Estate (b) (c)
September 30, 2016 – in millions	1st Liens		2nd Liens				Total
Current estimated LTV ratios (d)
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	4	$	118	$	144	$	266
Less than or equal to 660		4		53		49		106
Missing FICO				3		6		9

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		8		284		146		438
Less than or equal to 660		8		117		94		219
Missing FICO				4		9		13

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		7		152		106		265
Less than or equal to 660		5		66		55		126
Missing FICO				2		6		8

Less than 90% and updated FICO scores:
Greater than 660		110		322		607		1,039
Less than or equal to 660		83		166		399		648
Missing FICO		1		5		48		54

Missing LTV and updated FICO scores:
Greater than 660		1				14		15
Less than or equal to 660		1				3		4
Missing FICO						1		1
Total home equity and residential real estate loans	$	232	$	1,292	$	1,687	$	3,211


			Pre-TDR Recorded Investment (b)		Post-TDR Recorded Investment (c)
During the three months ended September 30, 2016 Dollars in millions	Number of Loans		Pre-TDR Recorded Investment (b)		Principal Forgiveness (d)		Rate Reduction (e)		Other (f)		Total
Total commercial lending		37	$	108			$	1	$	96	$	97
Total consumer lending		2,800		62				37		22		59
Total TDRs		2,837	$	170			$	38	$	118	$	156
During the three months ended September 30, 2015 Dollars in millions
Total commercial lending		39	$	80	$	15			$	47	$	62
Total consumer lending		3,014		95			$	62		28		90
Total TDRs		3,053	$	175	$	15	$	62	$	75	$	152


			Total realized / unrealized gains or losses for the period (a)																								Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2016 (a) (b)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2015		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3			Transfers out of Level 3			Fair Value Sept. 30, 2016
Assets
Securities available for sale
Residential mortgage-backed non-agency	$	4,008	$	58		$	4				$	(60	)			$	(597	)							$	3,413	$	(1	)
Asset-backed		482		10													(67	)								425
State and municipal		15															(1	)								14
Other debt		30		1					$	10		(18	)				(2	)								21
Total securities available for sale		4,535		69			4			10		(78	)				(667	)								3,873		(1	)
Financial derivatives		31		106						1							(86	)								52		101
Residential mortgage loans held for sale		5								9		(2	)						$	8		$	(17	)		3
Trading securities – Debt		3															(1	)								2
Residential mortgage servicing rights		1,063		(316	)					154				$	39		(120	)								820		(308	)
Commercial mortgage servicing rights		526		(56	)					25					45		(67	)								473		(56	)
Commercial mortgage loans held for sale		641		55								(2,797	)		2,981		(20	)								860		4
Equity investments
Direct investments		1,098		85						135		(243	)													1,075		84
Indirect investments				16								(31	)							235	(f)					220		9
Loans		340		6						82		(18	)				(57	)					(29	)		324		3
Other assets
BlackRock Series C Preferred Stock		357		2													(138	)								221		2
Other		7		2			(2	)				(1	)													6
Total other assets		364		4			(2	)				(1	)				(138	)								227		2
Total assets	$	8,606	$	(31	) (c)	$	2		$	416	$	(3,170	)	$	3,065	$	(1,156	)	$	243		$	(46	)	$	7,929	$	(162	) (d)
Liabilities
Financial derivatives (e)	$	473	$	90							$	4				$	(173	)							$	394	$	92
Other borrowed funds		12												$	64		(66	)								10
Other liabilities		10		1											114		(105	)								20
Total liabilities	$	495	$	91	(c)						$	4		$	178	$	(344	)							$	424	$	92	(d)


	Qualified Pension Plan						Nonqualified Retirement Plans				Postretirement Benefits
Three months ended September 30 In millions	2016			2015			2016		2015		2016			2015
Net periodic cost consists of:
Service cost	$	26		$	27		$	1	$	1	$	1		$	1
Interest cost		46			44			3		3		4			4
Expected return on plan assets		(70	)		(75	)						(1	)
Amortization of prior service credit		(2	)		(2	)									(1	)
Amortization of actuarial losses		12			8			1		2
Net periodic cost/(benefit)	$	12		$	2		$	5	$	6	$	4		$	4

	Qualified Pension Plan						Nonqualified Retirement Plans				Postretirement Benefits
Nine months ended September 30 In millions	2016			2015			2016		2015		2016			2015
Net periodic cost consists of:
Service cost	$	77		$	80		$	2	$	2	$	4		$	4
Interest cost		139			133			9		9		11			11
Expected return on plan assets		(211	)		(223	)						(3	)
Amortization of prior service credit		(5	)		(6	)						(1	)		(1	)
Amortization of actuarial losses		34			23			3		5
Net periodic cost/(benefit)	$	34		$	7		$	14	$	16	$	11		$	14


In millions, after-tax	Net unrealized gains (losses) on non-OTTI securities			Net unrealized gains (losses) on OTTI securities		Net unrealized gains (losses) on cash flow hedge derivatives			Pension and other postretirement benefit plan adjustments			Other			Total
Balance at June 30, 2015	$	463		$	78	$	394		$	(488	)	$	(68	)	$	379
Net activity		97			3		148			5			(17	)		236
Balance at September 30, 2015	$	560		$	81	$	542		$	(483	)	$	(85	)	$	615
Balance at June 30, 2016	$	778		$	53	$	597		$	(544	)	$	(148	)	$	736
Net activity		(15	)		24		(80	)		6			(25	)		(90	)
Balance at September 30, 2016	$	763		$	77	$	517		$	(538	)	$	(173	)	$	646
Balance at December 31, 2014	$	647		$	74	$	350		$	(520	)	$	(48	)	$	503
Net activity		(87	)		7		192			37			(37	)		112
Balance at September 30, 2015	$	560		$	81	$	542		$	(483	)	$	(85	)	$	615
Balance at December 31, 2015	$	286		$	66	$	430		$	(554	)	$	(98	)	$	130
Net activity		477			11		87			16			(75	)		516
Balance at September 30, 2016	$	763		$	77	$	517		$	(538	)	$	(173	)	$	646


In millions	Gross Resale/ Repurchase Agreements		Amounts Offset on the Consolidated Balance Sheet	Net Resale/ Repurchase Agreements (a)		Securities Collateral Held/Pledged Under Master Netting Agreements (b)		Net Amounts
Resale Agreements
September 30, 2016	$	637		$	637	$	563	$	74	(c)
December 31, 2015	$	1,082		$	1,082	$	1,008	$	74	(c)
Repurchase Agreements (d)
September 30, 2016	$	1,231		$	1,231	$	532	$	699	(e)
December 31, 2015	$	1,767		$	1,767	$	1,014	$	753	(e)


2016 period In thousands, except per share data	Total shares purchased (a)		Average price paid per share		Total shares purchased as part of publicly announced programs (b)		Maximum number of shares that may yet be purchased under the programs (b)
July 1 – 31		2,578	$	81.76		2,561		67,500
August 1 – 31		1,469	$	85.63		1,469		66,031
September 1 – 30		1,824	$	89.84		1,824		64,207
Total		5,871	$	85.24

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