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PNC Financial Services (PNC)

Filed: 3 Nov 21, 12:08pm
0000713676us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EquityMethodInvestmentsMember2021-07-012021-09-30

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________________
FORM 10-Q
______________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to         
    
Commission file number 001-09718
The PNC Financial Services Group, Inc.
(Exact name of registrant as specified in its charter)
___________________________________________________________
Pennsylvania 25-1435979
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
The Tower at PNC Plaza, 300 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2401
(Address of principal executive offices, including zip code)

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
   Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
    Yes  ☐  No  
As of October 15, 2021, there were 422,640,807 shares of the registrant’s common stock ($5 par value) outstanding.


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

 Pages
PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements (Unaudited).
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Item 3. Quantitative and Qualitative Disclosures about Market Risk.20-39, 50-51 and 88-94
Item 4. Controls and Procedures.



MD&A TABLE REFERENCE
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE
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FINANCIAL REVIEW
THE PNC FINANCIAL SERVICES GROUP, INC.

This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Quarterly Report on Form 10-Q (the Report or Form 10-Q) and with Items 6, 7, 8 and 9A of our 2020 Annual Report on Form 10-K (2020 Form 10-K). We have reclassified certain prior period amounts to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. For information regarding certain business, regulatory and legal risks, see the following: the Risk Management section of this Financial Review and of Item 7 in our 2020 Form 10-K; Item 1A Risk Factors included in our 2020 Form 10-K; and the Commitments and Legal Proceedings Notes of the Notes To Consolidated Financial Statements included in Item 1 of this Report and Item 8 of our 2020 Form 10-K. Also, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates and Judgments section in this Financial Review and in our 2020 Form 10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 14 Segment Reporting in the Notes To Consolidated Financial Statements included in this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a GAAP basis. In this Report, “PNC”, “we” or “us” refers to The PNC Financial Services Group, Inc. and its subsidiaries on a consolidated basis (except when referring to PNC as a public company, its common stock or other securities issued by PNC, which just refer to The PNC Financial Services Group, Inc.). References to The PNC Financial Services Group, Inc. or to any of its subsidiaries are specifically made where applicable.

See page 104 for a glossary of certain terms and acronyms used in this Report.
Table 1: Consolidated Financial Highlights
Dollars in millions, except per share data
Unaudited
Three months ended
September 30
Nine months ended
September 30
2021202020212020
Financial Results (a)
Revenue
Net interest income$2,856 $2,484 $7,785 $7,522 
Noninterest income2,341 1,797 6,299 5,171 
Total revenue5,197 4,281 14,084 12,693 
Provision for (recapture of) credit losses(203)52 (452)3,429 
Noninterest expense3,587 2,531 9,211 7,589 
Income from continuing operations before income taxes and noncontrolling interests
$1,813 $1,698 $5,325 $1,675 
Income taxes from continuing operations
323 166 906 128 
Net income from continuing operations$1,490 $1,532 $4,419 $1,547 
Income from discontinued operations before taxes
$5,777 
Income taxes from discontinued operations
1,222 
Net income from discontinued operations

$4,555 
Net income$1,490 $1,532 $4,419 $6,102 
Less:
Net income attributable to noncontrolling interests16 13 38 27 
Preferred stock dividends (b)57 63 162 181 
Preferred stock discount accretion and redemptions
Net income attributable to common shareholders$1,416 $1,455 $4,216 $5,891 
Per Common Share

Basic earnings from continuing operations$3.31 $3.40 $9.84 $3.11 
Basic earnings from discontinued operations10.61 
Total basic earnings
$3.31 $3.40 $9.84 $13.73 
Diluted earnings from continuing operations$3.30 $3.39 $9.83 $3.11 
Diluted earnings from discontinued operations10.59 
Total diluted earnings$3.30 $3.39 $9.83 $13.70 
Cash dividends declared per common share$1.25 $1.15 $3.65 $3.45 
Effective tax rate from continuing operations (c)17.8 %9.8 %17.0 %7.6 %
Performance Ratios
Net interest margin (d)2.27 %2.39 %2.28 %2.57 %
Noninterest income to total revenue45 %42 %45 %41 %
Efficiency69 %59 %65 %60 %
Return on:
Average common shareholders’ equity10.95 %11.76 %11.17 %16.57 %
Average assets1.06 %1.32 %1.16 %1.83 %
(a)The Executive Summary and Consolidated Income Statement Review portions of this Financial Review section provide information regarding items impacting the comparability of the periods presented.
(b)Dividends are payable quarterly other than Series R and Series S preferred stock, which are payable semiannually. On September 13, 2021, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 3.400% fixed-rate reset non-cumulative perpetual preferred stock, Series T, with a par value of $1 per share. Beginning on December 15, dividends will be paid on the Series T on a quarterly basis (March 15, June 15, September 15 and December 15 of each year).
(c)The effective income tax rates are generally lower than the statutory rate due to the relationship of pretax income to tax credits and earnings that are not subject to tax.
(d)Net interest margin is the total yield on interest-earning assets minus the total rate on interest-bearing liabilities and includes the benefit from use of noninterest-bearing sources. To provide more meaningful comparisons of net interest margins, we use net interest income on a taxable-equivalent basis in calculating average yields used in the calculation of net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. For additional information, see Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.
The PNC Financial Services Group, Inc. – Form 10-Q 1  


Table 1: Consolidated Financial Highlights (Continued) (a)
UnauditedSeptember 30
2021
December 31
2020
September 30
2020
Balance Sheet Data (dollars in millions, except per share data)
Assets$553,515 $466,679 $461,817 
Loans$290,230 $241,928 $249,279 
Allowance for loan and lease losses


$5,355 $5,361 $5,751 
Interest-earning deposits with banks (b)$75,478 $85,173 $70,959 
Investment securities$125,606 $88,799 $91,185 
Loans held for sale$2,121 $1,597 $1,787 
Equity investments$7,737 $6,052 $4,938 
Mortgage servicing rights$1,833 $1,242 $1,113 
Goodwill$10,885 $9,233 $9,233 
Other assets$36,137 $30,999 $32,445 
Noninterest-bearing deposits$156,305 $112,637 $107,281 
Interest-bearing deposits$292,597 $252,708 $247,798 
Total deposits$448,902 $365,345 $355,079 
Borrowed funds$33,471 $37,195 $42,110 
Allowance for unfunded lending related commitments
$646 $584 $689 
Total shareholders’ equity$56,259 $54,010 $53,276 
Common shareholders’ equity$51,250 $50,493 $49,760 
Accumulated other comprehensive income$1,079 $2,770 $2,997 
Book value per common share$121.16 $119.11 $117.44 
Period-end common shares outstanding (in millions)423 424 424 
Loans to deposits65 %66 %70 %
Common shareholders’ equity to total assets9.3 %10.8 %10.8 %
Client Assets (in billions)
Discretionary client assets under management$183 $170 $158 
Nondiscretionary client assets under administration170 154 142 
Total client assets under administration353 324 300 
Brokerage account client assets81 59 55 
Total client assets$434 $383 $355 
Basel III Capital Ratios (c) (d)
Common equity Tier 110.3 %12.2 %11.7 %
Common equity Tier 1 fully implemented (e)10.0 %11.8 %11.3 %
Tier 1 risk-based11.6 %13.2 %12.8 %
Total capital risk-based (f)13.6 %15.6 %15.2 %
Leverage8.2 %9.5 %9.4 %
Supplementary leverage7.0 %9.9 %9.5 %
Asset Quality
Nonperforming loans to total loans0.87 %0.94 %0.84 %
Nonperforming assets to total loans, OREO and foreclosed assets0.88 %0.97 %0.86 %
Nonperforming assets to total assets0.46 %0.50 %0.47 %
Net charge-offs to average loans (for the three months ended) (annualized)0.11 %0.37 %0.24 %
Allowance for loan and lease losses to total loans
1.85 %2.22 %2.31 %
Allowance for credit losses to total loans (g)2.07 %2.46 %2.58 %
Allowance for loan and lease losses to nonperforming loans

212 %235 %276 %
Accruing loans past due 90 days or more (in millions)$492 $509 $448 
(a)The Executive Summary and Consolidated Balance Sheet Review portions of this Financial Review provide information regarding items impacting the comparability of the periods presented.
(b)Amounts include balances held with the Federal Reserve Bank of $75.1 billion, $84.9 billion and $70.6 billion as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively.
(c)All ratios are calculated using the regulatory capital methodology applicable to PNC during each period presented and calculated based on the standardized approach. See Basel III Capital discussion in the Capital Management portion of the Risk Management section of this Financial Review and the capital discussion in the Banking Regulation and Supervision section of Item 1 Business and Item 1A Risk Factors in our 2020 Form 10-K.
(d)Ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision, unless noted differently.
(e)The fully implemented CET1 ratio is calculated to reflect the full impact of CECL and excludes the benefits of the five-year transition provision.
(f)The 2021 and 2020 Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $20 million and $40 million, respectively, that are subject to a phase-out period that runs through 2021.
(g)Calculated as the Allowance for loan and lease losses plus the Allowance for unfunded lending related commitments divided by total loans.
2    The PNC Financial Services Group, Inc. – Form 10-Q



EXECUTIVE SUMMARY
Headquartered in Pittsburgh, Pennsylvania, we are one of the largest diversified financial institutions in the U.S. We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our retail branch network is located coast-to-coast. We also have strategic international offices in four countries outside the U.S.

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

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

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

Our capital priorities are to support customers and business investment, maintain appropriate capital in light of economic conditions, the Basel III framework, and other regulatory expectations, and return excess capital to shareholders. For more detail, see the Capital Highlights portion of this Executive Summary, the Liquidity and Capital Management portion of the Risk Management section of this Financial Review and the Supervision and Regulation section in Item 1 Business of our 2020 Form 10-K.

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

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

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

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

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

Income Statement Highlights

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

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


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

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

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

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

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

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

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



Capital was impacted by our election of a five-year transition period for CECL’s estimated impact on CET1         capital. CECL’s estimated impact on CET1 capital is defined as the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date, excluding the initial allowance for PCD loans from BBVA, compared to CECL ACL at transition. The estimated CECL impact is added to CET1 capital through December 31, 2021, then phased-out over the following three years.
Common shareholders' equity increased to $51.3 billion at September 30, 2021, compared to $50.5 billion at December 31, 2020.
In the third quarter, we returned $0.9 billion of capital to shareholders through dividends on common shares of $0.5 billion and $0.4 billion of common share repurchases representing 2.1 million shares. Repurchases were made under the share repurchase programs of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021.
On October 1, 2021, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.25 per share payable on November 5, 2021.

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for more detail on our 2021 liquidity and capital actions as well as our capital ratios.

PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding a stress capital buffer established by the Federal Reserve Board in connection with the Federal Reserve Board’s CCAR process. For additional information, see Capital Management in the Risk Management section in this Financial Review and the Supervision and Regulation section in Item 1 Business and Item 1A Risk Factors of our 2020 Form 10-K.

Business Outlook
Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our views, as follows:
The U.S. economy is in an economic recovery, following a very severe but very short economic contraction in the first half of 2020 due to the COVID-19 pandemic and public health measures to contain it.
The Delta COVID-19 variant and supply chain difficulties have been drags on economic growth in the second half of 2021, although the economy continues to expand. Growth will pick up at the end of 2021 as the impact of the Delta variant fades and supply chains normalize and will remain solid into 2022. Employment in September 2021 was still down by almost 5 million from before the pandemic; PNC expects employment to return to its pre-pandemic level in mid-2022.
Compared to the spring of 2020 (when prices were falling), inflation accelerated in mid-2021 due to strong demand in specific segments and supply chain disruptions. Inflation has started to slow on a month-over-month basis but will remain elevated in the near term.
PNC expects the FOMC to keep the fed funds rate in its current range of 0.00% to 0.25% until late 2022.

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

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

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

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

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


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

For the first nine months of 2021, net income from continuing operations was $4.4 billion, or $9.83 per diluted common share, compared to $1.5 billion, or $3.11 per diluted common share, for the first nine months of 2020. The year-to-date comparison reflects a lower provision for credit losses in 2021 due to continued improvements in credit quality and macroeconomic factors and higher noninterest income driven by the benefit of BBVA, partially offset by expenses related to the BBVA acquisition and increased business activity.
Net Interest Income
Table 2: Summarized Average Balances and Net Interest Income (a)
 20212020
Three months ended September 30
Dollars in millions
Average
Balances
Average
Yields/
Rates
Interest
Income/
Expense
Average
Balances
Average
Yields/
Rates
Interest
Income/
Expense
Assets
Interest-earning assets
Investment securities$120,586 1.54 %$465 $90,502 2.18 %$496 
Loans291,326 3.32 %2,454 253,092 3.32 %2,127 
Interest-earning deposits with banks80,274 0.16 %31 60,327 0.10 %15 
Other9,113 2.03 %47 9,752 2.23 %55 
Total interest-earning assets/interest income$501,299 2.36 %2,997 $413,673 2.57 %2,693 
Liabilities
Interest-bearing liabilities
Interest-bearing deposits$298,471 0.04 %29 $248,551 0.12 %74 
Borrowed funds34,352 1.03 %90 43,344 1.06 %118 
Total interest-bearing liabilities/interest expense$332,823 0.14 %119 $291,895 0.26 %192 
Net interest margin/income (non-GAAP)2.27 %2,878 2.39 %2,501 
Taxable-equivalent adjustments(22)(17)
Net interest income (GAAP)  $2,856   $2,484 

 20212020
Nine months ended September 30
Dollars in millions
Average
Balances
Average
Yields/
Rates
Interest
Income/
Expense
Average
Balances
Average
Yields/
Rates
Interest
Income/
Expense
Assets
Interest-earning assets
Investment securities$105,287 1.73 %$1,366 $87,795 2.45 %$1,617 
Loans261,884 3.36 %6,629 254,919 3.58 %6,893 
Interest-earning deposits with banks81,383 0.12 %74 37,582 0.28 %80 
Other8,345 2.27 %142 10,028 2.64 %199 
Total interest-earning assets/interest income$456,899 2.38 %8,211 $390,324 2.98 %8,789 
Liabilities
Interest-bearing liabilities
Interest-bearing deposits$273,498 0.05 %99 $235,160 0.34 %590 
Borrowed funds34,562 1.05 %275 51,225 1.59 %619 
Total interest-bearing liabilities/interest expense$308,060 0.16 %374 $286,385 0.56 %1,209 
Net interest margin/income (non-GAAP)2.28 %7,837 2.57 %7,580 
Taxable-equivalent adjustments(52)(58)
Net interest income (GAAP)  $7,785   $7,522 
(a)Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP on the Consolidated Income Statement. For more information, see Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) in the Statistical Information (Unaudited) section in Item 1 of this Report.
Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information (Unaudited) – Average Consolidated Balance Sheet And Net Interest Analysis section of this Report for additional information.

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



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

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

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

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

Average interest-earning deposits with banks increased $19.9 billion and $43.8 billion in the respective quarterly and year-to-date comparisons, as average balances held with the Federal Reserve Bank increased due to higher liquidity from deposit growth.

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

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

Further details regarding average loans and deposits are included in the Business Segments Review section of this Financial Review.
Noninterest Income
Table 3: Noninterest Income
 Three months ended September 30Nine months ended September 30
   Change  Change
Dollars in millions20212020$%20212020$%
Noninterest income
Asset management$248 $215 $33 15 %$713 $615 $98 16 %
Consumer services496 390 106 27 %1,337 1,097 240 22 %
Corporate services842 479 363 76 %2,085 1,517 568 37 %
Residential mortgage147 137 10 %355 505 (150)(30)%
Service charges on deposits159 119 40 34 %409 366 43 12 %
Other449 457 (8)(2)%1,400 1,071 329 31 %
Total noninterest income$2,341 $1,797 $544 30 %$6,299 $5,171 $1,128 22 %
 
Noninterest income as a percentage of total revenue was 45% for the third quarter and first nine months of 2021, compared to 42% and 41% for the same periods in 2020.

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

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

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


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

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

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

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

Noninterest Expense

Table 4: Noninterest Expense
 Three months ended September 30Nine months ended September 30
   Change  Change
Dollars in millions20212020$%20212020$%
Noninterest expense
Personnel$1,986 $1,410 $576 41 %$5,103 $4,152 $951 23 %
Occupancy248 205 43 21 %680 611 69 11 %
Equipment355 292 63 22 %974 880 94 11 %
Marketing103 67 36 54 %222 172 50 29 %
Other895 557 338 61 %2,232 1,774 458 26 %
Total noninterest expense$3,587 $2,531 $1,056 42 %$9,211 $7,589 $1,622 21 %
 
The increase in noninterest expense in the quarterly and year-to-date comparisons reflected BBVA operating and integration expenses as well as increased business and marketing activity.

Effective Income Tax Rate

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

Provision For (Recapture of) Credit Losses
Table 5: Provision for (Recapture of) Credit Losses
 Three months ended September 30Nine months ended September 30
ChangeChange
Dollars in millions20212020$20212020$
Provision for (recapture of) credit losses
Loans and leases$(229)$(23)$(206)$(525)$3,149 $(3,674)
Unfunded lending related commitments27 (26)16 192(176)
Investment securities25 39 (14)51 69 (18)
Other financial assets(9)19(13)
Total provision for (recapture of) credit losses$(203)$52 $(255)$(452)$3,429 $(3,881)

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

Net Income from Discontinued Operations

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

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



CONSOLIDATED BALANCE SHEET REVIEW
The summarized balance sheet data in Table 6 is based upon our Consolidated Balance Sheet in Part I, Item 1 of this Report.
Table 6: Summarized Balance Sheet Data
 September 30December 31Change
Dollars in millions20212020$%
Assets    
Interest-earning deposits with banks$75,478 $85,173 $(9,695)(11)%
Loans held for sale2,121 1,597 524 33 %
Investment securities125,606 88,799 36,807 41 %
Loans290,230 241,928 48,302 20 %
Allowance for loan and lease losses(5,355)(5,361)— 
Mortgage servicing rights1,833 1,242 591 48 %
Goodwill10,885 9,233 1,652 18 %
Other52,717 44,068 8,649 20 %
Total assets$553,515 $466,679 $86,836 19 %
Liabilities
Deposits$448,902 $365,345 $83,557 23 %
Borrowed funds33,471 37,195 (3,724)(10)%
Allowance for unfunded lending related commitments646 584 62 11 %
Other14,199 9,514 4,685 49 %
Total liabilities497,218 412,638 84,580 20 %
Equity
Total shareholders’ equity56,259 54,010 2,249 %
Noncontrolling interests38 31 23 %
Total equity56,297 54,041 2,256 %
Total liabilities and equity$553,515 $466,679 $86,836 19 %

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

The ACL related to loans totaled $6.0 billion at September 30, 2021, an increase of $0.1 billion since December 31, 2020. The increase was primarily attributable to the addition of reserves related to the BBVA acquisition, partially offset by continued improvements in credit quality and macroeconomic factors along with changes in portfolio composition. See the following for additional information regarding our ACL related to loans:
Allowance for Credit Losses in the Credit Risk Management section of this Financial Review,
Critical Accounting Estimates and Judgments section of this Financial Review, and
Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in this Report.

The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and regulatory compliance is included in the Liquidity and Capital Management portion of the Risk Management section in this Financial Review and in Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements included in our 2020 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q  


Loans
Table 7: Loans
 September 30December 31Change
Dollars in millions20212020$%
Commercial    
Commercial and industrial$152,735 $132,073 $20,662 16 %
Commercial real estate36,195 28,7167,479 26 %
Equipment lease financing6,257 6,414(157)(2)%
Total commercial195,187 167,203 27,984 17 %
Consumer
Residential real estate38,214 22,560 15,654 69 %
Home Equity24,479 24,088 391 %
Automobile17,265 14,218 3,047 21 %
Credit card6,466 6,215 251 %
Education2,653 2,946 (293)(10)%
Other consumer5,966 4,698 1,268 27 %
Total consumer95,043 74,725 20,318 27 %
Total loans$290,230 $241,928 $48,302 20 %

Commercial loans increased driven by BBVA loans, partially offset by PPP loan forgiveness. At September 30, 2021, PNC had $6.8 billion of PPP loans outstanding. PPP loans outstanding at December 31, 2020 were $12.0 billion.

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

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

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

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

Investment Securities

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

The level and composition of the investment securities portfolio fluctuates over time based on many factors including market conditions, loan and deposit growth and balance sheet management activities. We manage our investment securities portfolio to optimize returns, while providing a reliable source of liquidity for our banking and other activities, considering the LCR and other internal and external guidelines and constraints.
Table 8: Investment Securities
 September 30, 2021December 31, 2020Ratings as of September 30, 2021 (a)
Dollars in millionsAmortized
Cost (b)
Fair
Value
Amortized
Cost (b)
Fair
Value
AAA/
AA
ABBBBB and LowerNo
Rating
U.S. Treasury and government agencies$41,437 $41,860 $20,616 $21,631 100 %
Agency residential mortgage-backed64,412 65,185 47,355 48,911 100 %
Non-agency residential mortgage-backed1,003 1,242 1,272 1,501 %%49 %41 %
Agency commercial mortgage-backed2,008 2,060 2,571 2,688 100 %
Non-agency commercial mortgage-backed (c)3,637 3,671 3,678 3,689 85 %%%12 %
Asset-backed (d)5,999 6,067 5,060 5,150 95 %%%
Other (e)5,392 5,625 5,061 5,393 54 %26 %15 %%
Total investment securities (f)$123,888 $125,710 $85,613 $88,963 96 %%%%%
(a)Ratings percentages allocated based on amortized cost, net of allowance for investment securities.
10    The PNC Financial Services Group, Inc. – Form 10-Q



(b)Amortized cost is presented net of applicable allowance for investment securities of $133 million and $82 million at September 30, 2021 and December 31, 2020, in accordance with the adoption of the CECL accounting standard.
(c)Collateralized primarily by retail properties, office buildings, lodging properties and multifamily housing.
(d)Collateralized primarily by corporate debt, government guaranteed education loans and other consumer credit products.
(e)Includes state and municipal securities.
(f)Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.

Table 8 presents the distribution of our total investment securities portfolio by amortized cost and fair value, as well as by credit rating. We have included credit ratings information because we believe that the information is an indicator of the degree of credit risk to which we are exposed. Changes in credit ratings classifications could indicate increased or decreased credit risk and could be accompanied by a reduction or increase in the fair value of our investment securities portfolio. We continually monitor the credit risk in our portfolio and maintain the allowance for investment securities at an appropriate level to absorb expected credit losses on our investment securities portfolio for the remaining contractual term of the securities adjusted for expected prepayments. See Note 3 Investment Securities in the Notes To Consolidated Financial Statements included in Item 1 of this Report for additional details regarding the amount of the allowance for investment securities.

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

Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 4.4 years at September 30, 2021 compared to 3.4 years at December 31, 2020.

Table 9: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities
September 30, 2021Years
Agency residential mortgage-backed4.6 
Non-agency residential mortgage-backed6.8 
Agency commercial mortgage-backed5.0 
Non-agency commercial mortgage-backed2.1 
Asset-backed2.8 

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

Funding Sources
Table 10: Details of Funding Sources
September 30December 31Change
Dollars in millions20212020$%
Deposits    
Noninterest-bearing$156,305 $112,637 $43,668 39 %
Interest-bearing
Money market79,829 59,737 20,092 34 %
Demand103,569 92,294 11,275 12 %
Savings90,288 80,985 9,303 11 %
Time deposits18,911 19,692 (781)(4)%
Total interest-bearing deposits292,597 252,708 39,889 16 %
Total deposits448,902 365,345 83,557 23 %
Borrowed funds
Federal Home Loan Bank borrowings3,500 (3,500)(100)%
Bank notes and senior debt22,993 24,271 (1,278)(5)%
Subordinated debt7,074 6,403 671 10 %
Other3,404 3,021 383 13 %
Total borrowed funds33,471 37,195 (3,724)(10)%
Total funding sources$482,373 $402,540 $79,833 20 %

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

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

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


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

See the Liquidity and Capital Management portion of the Risk Management section of this Financial Review for additional information regarding our 2021 liquidity and capital activities. See Note 10 Borrowed Funds in the Notes to Consolidated Financial Statements in Item 8 of our 2020 Form 10-K for additional information related to our borrowings.
Shareholders’ Equity

Total shareholders’ equity was $56.3 billion at September 30, 2021, an increase of $2.3 billion compared to December 31, 2020. The increase primarily resulted from net income of $4.4 billion and a preferred stock issuance of $1.5 billion, partially offset by lower AOCI of $1.7 billion reflecting the impact of higher rates on net unrealized securities gains, common and preferred stock dividends of $1.7 billion and common share repurchases of $0.4 billion.
BUSINESS SEGMENTS REVIEW

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

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

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

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

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors.
Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in the “Other” category as shown in Table 82 in Note 14 Segment Reporting in the Notes To Consolidated Financial Statements included in Item 1 of this Report. “Other” includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as asset and liability management activities including net securities gains or losses, ACL for investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, exited businesses and differences between business segment performance reporting and financial statement reporting (GAAP).




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



Retail Banking

Retail Banking's core strategy is to help all of our consumer and small business customers move financially forward. We aim to grow our primary checking and transaction relationships through strong acquisition and retention. We seek to deepen relationships by meeting the broad range of our customers’ financial needs with savings, liquidity, lending, investment and retirement solutions. A strategic priority for us is to differentiate the customer experience, leveraging technology to make banking easier for our customers. A key element of our strategy is to expand the use of lower-cost alternative distribution channels, with an emphasis on digital capabilities, while continuing to optimize the traditional branch network. In addition, we are focused on consistently engaging both our employees and customers, which is a strong driver of customer growth, retention and relationship expansion.

Table 11: Retail Banking Table
(Unaudited)
Nine months ended September 30    Change
Dollars in millions, except as noted20212020$%
Income Statement
Net interest income$4,572 $4,229 $343 %
Noninterest income2,022 2,046 (24)(1)%
Total revenue6,594 6,275 319 %
Provision for (recapture of) credit losses(156)1,049 (1,205)*
Noninterest expense5,042 4,537 505 11 %
Pretax earnings1,708 689 1,019 148 %
Income taxes396 161 235 146 %
Noncontrolling interest26 20 30 %
Earnings$1,286 $508 $778 153 %
Average Balance Sheet
Loans held for sale$1,296 $769 $527 69 %
Loans
Consumer
Residential real estate$23,323 $18,215 $5,108 28 %
Home equity22,324 22,723 (399)(2)%
Automobile15,398 16,449 (1,051)(6)%
Credit card6,070 6,767 (697)(10)%
Education2,820 3,226 (406)(13)%
Other consumer2,326 2,417 (91)(4)%
Total consumer72,261 69,797 2,464 %
Commercial14,819 12,298 2,521 20 %
Total loans$87,080 $82,095 $4,985 %
Total assets$103,820 $98,764 $5,056 %
Deposits
Noninterest-bearing demand$55,107 $38,390 $16,717 44 %
Interest-bearing demand58,700 46,501 12,199 26 %
Money market31,639 23,210 8,429 36 %
Savings78,907 67,000 11,907 18 %
Certificates of deposit10,321 11,579 (1,258)(11)%
Total deposits$234,674 $186,680 $47,994 26 %
Performance Ratios
Return on average assets1.66 %0.69 %
Noninterest income to total revenue31 %33 %
Efficiency76 %72 %  
The PNC Financial Services Group, Inc. – Form 10-Q 13  


At or for nine months ended September 30    Change
Dollars in millions, except as noted20212020$%
Supplemental Noninterest Income Information
Consumer services$1,273 $1,058 $215 20 %
Residential mortgage$355 $505 $(150)(30)%
Service charges on deposits$406 $364 $42 12 %
Residential Mortgage Information
Residential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b)$139 $119 $20 17 %
Serviced portfolio acquisitions$42 $21 $21 100 %
MSR asset value (b)$1.1 $0.6 $0.5 83 %
MSR capitalization value (in basis points) (b)81 50 31 62 %
Servicing income: (in millions)
Servicing fees, net (c)$20 $105 $(85)(81)%
Mortgage servicing rights valuation, net of economic hedge$62 $138 $(76)(55)%
Residential mortgage loan statistics
Loan origination volume (in billions)$18.2 $11.4 $6.8 60 %
Loan sale margin percentage2.95 %3.51 %
Percentage of originations represented by:
Purchase volume (d)45 %38 %
Refinance volume55 %62 %  
Other Information (b)
Customer-related statistics (average) (e)
Non-teller deposit transactions (f)66 %63 %
Digital consumer customers (g)80 %73 %
Credit-related statistics
Nonperforming assets$1,220 $1,077 $143 13 %
Net charge-offs - loans and leases$269 $433 $(164)(38)%
Other statistics
ATMs9,572 9,058 514 %
Branches (h)2,712 2,207 505 23 %
Brokerage account client assets (in billions) (i)$76 $55 $21 38 %
*- Not Meaningful
(a) Represents mortgage loan servicing balances for third parties and the related income.
(b)Presented as of period end, except for average customer-related statistics and net charge-offs, which are both shown for the nine months ended.
(c)Servicing fees net of impact of decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan payments, prepayments, and loans that were paid down or paid off during the period.
(d)Mortgages with borrowers as part of residential real estate purchase transactions.
(e)Represents PNC legacy only, statistics will include BBVA activity in the fourth quarter reporting following the conversion of bank systems and branches.
(f)Percentage of total consumer and business banking deposit transactions processed at an ATM or through our mobile banking application.
(g)Represents consumer checking relationships that process the majority of their transactions through non-teller channels.
(h)Excludes stand-alone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.
(i)Includes cash and money market balances.

Retail Banking earnings for the first nine months of 2021 increased $778 million compared with the same period in 2020 driven by a provision recapture and higher net interest income, partially offset by higher noninterest expense. Results for the first nine months of 2021 reflect the benefit of BBVA's business operations since the acquisition closed on June 1, 2021.

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

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

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

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



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

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

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

Our national expansion strategy is designed to grow customers with digitally-led banking and a thin branch network as we expand into new markets. In 2018, we began offering our digital high yield savings deposit product and opened our first solution center in Kansas City. Solution centers are an emerging branch operating model with a distinctive layout, where routine transactions are supported through a combination of technology and skilled banker assistance to create personalized experiences. The primary focus of the solution center is to bring a community element to our digital banking capabilities. The solution center provides a collaborative environment that connects our customers with our digital solutions and services, beyond deposits and withdrawals. In 2020, we expanded into three new markets, Boston, Houston and Nashville and opened seventeen new solution centers. In the first nine months of 2021 we opened ten new solution centers and expanded into two new markets, Denver and Phoenix. In total, we have thirty-two open solution centers within the markets of Boston, Dallas/Fort Worth, Denver, Houston, Kansas City, Nashville and Phoenix. We also offer digital unsecured installment and small business loans in the expansion markets. As a result of the BBVA acquisition, we have become a coast-to-coast Retail Bank and added over 600 branches across seven states to our network.

Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for consumers and small businesses. We are focused on meeting the financial needs of our customers by providing a broad range of liquidity, banking and investment products. In April 2021, we announced our Low Cash ModeSM Virtual Wallet® feature which gives all Virtual Wallet® customers the ability to avoid unnecessary overdraft fees through real-time intelligent alerts, extra time to prevent or address overdrafts, and controls to choose whether to return certain debits rather than the bank making the decision. Through the end of September, we have successfully rolled out Low Cash ModeSM to 3.8 million PNC legacy Virtual Wallet® customers and have delivered over 10 million Low Cash ModeSM alerts.

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

Retail Banking continued to execute on its strategy of transforming the customer experience through transaction channel migration, branch network and home lending process transformations and multi-channel engagement and service strategies. We are also continually assessing our current branch network for optimization opportunities as usage of alternative channels has increased and as a result have closed 112 branches in the first nine months of 2021, consistent with our plan.
The PNC Financial Services Group, Inc. – Form 10-Q 15  


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

Table 12: Corporate & Institutional Banking Table
(Unaudited)
Nine months ended September 30    Change
Dollars in millions20212020$%
Income Statement
Net interest income$3,343 $3,055 $288 %
Noninterest income2,730 2,143 587 27 %
Total revenue6,073 5,198 875 17 %
Provision for (recapture of) credit losses(277)2,254 (2,531)*
Noninterest expense2,504 2,055 449 22 %
Pretax earnings3,846 889 2,957 333 %
Income taxes846 201 645 321 %
Noncontrolling interest10 67 %
Earnings$2,990 $682 $2,308 338 %
Average Balance Sheet
Loans held for sale$598 $669 $(71)(11)%
Loans
Commercial
Commercial and industrial$123,505 $127,149 $(3,644)(3)%
Commercial real estate30,919 27,070 3,849 14 %
Equipment lease financing6,321 6,957 (636)(9)%
Total commercial160,745 161,176 (431)— 
Consumer14 56 %
Total loans$160,759 $161,185 $(426)— 
Total assets$184,964 $185,001 $(37)— 
Deposits
Noninterest-bearing demand$76,105 $50,104 $26,001 52 %
Interest-bearing demand30,718 26,182 4,536 17 %
Money market33,706 34,373 (667)(2)%
Other7,723 8,789 (1,066)(12)%
Total deposits$148,252 $119,448 $28,804 24 %
Performance Ratios
Return on average assets2.16 %0.49 %
Noninterest income to total revenue45 %41 %
Efficiency41 %40 %  
Other Information
Consolidated revenue from: (a)
Treasury Management (b)$1,609 $1,412 $197 14 %
Capital Markets (b)$1,412 $1,077 $335 31 %
Commercial mortgage banking activities:
Commercial mortgage loans held for sale (c)$103 $117 $(14)(12)%
Commercial mortgage loan servicing income (d)244 212 32 15 %
Commercial mortgage servicing rights valuation, net of economic hedge (e)64 58 10 %
Total$411 $387 $24 %
MSR asset value (f)$703 $515 $188 37 %
Average loans by C&IB business
Corporate Banking$78,975 $83,762 $(4,787)(6)%
Real Estate42,313 40,030 2,283 %
Business Credit23,367 23,009 358 %
Commercial Banking12,435 10,093 2,342 23 %
Other3,669 4,291 (622)(14)%
Total average loans$160,759 $161,185 $(426)— 
Credit-related statistics
Nonperforming assets (f)$1,061 $832 $229 28 %
Net charge-offs - loans and leases$290 $181 $109 60 %
*- Not Meaningful
16    The PNC Financial Services Group, Inc. – Form 10-Q



(a)See the additional revenue discussion regarding treasury management, capital markets-related products and services and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section.
(b)Amounts are reported in net interest income and noninterest income.
(c)Represents other noninterest income for valuations on commercial mortgage loans held for sale and related commitments, derivative valuations, originations fees, gains on sale of loans held for sale and net interest income on loans held for sale.
(d)Represents net interest income and noninterest income (primarily in corporate service fees) from loan servicing net of reduction in commercial mortgage servicing rights due to amortization expense and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge, is shown separately.
(e)Amounts are reported in corporate service fees.
(f)As of September 30.

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

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

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

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

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

Average loans decreased compared with the nine months ended September 30, 2020 due to declines in Corporate Banking, partially offset by increases in Commercial Banking, Real Estate and Business Credit:
Corporate Banking provides lending, equipment finance, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Average loans for this business declined reflecting lower average utilization of loan commitments, partially offset by loans from BBVA and new production.
Commercial Banking provides lending, treasury management and capital markets-related products and services to smaller corporations and businesses. Average loans for this business increased primarily driven by loans from BBVA and PPP loan originations.
Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased reflecting loans from BBVA, partially offset by lower commercial mortgage and multifamily agency warehouse lending.
Business Credit provides asset-based lending and equipment financing solutions. The loan and lease portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by marketable collateral. Average loans for this business increased primarily driven by new production and loans from BBVA, partially offset by lower average utilization of loan commitments.

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

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

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


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

Capital markets-related products and services include foreign exchange, derivatives, fixed income, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. The increase in capital markets-related revenue in the comparison was mostly driven by higher merger and acquisition advisory fees as well as higher equity capital market advisory fees, partially offset by lower customer-related derivative fees.

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

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



Asset Management Group

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

Table 13: Asset Management Group Table
(Unaudited)
Nine months ended September 30    Change
Dollars in millions, except as noted20212020$%
Income Statement
Net interest income$346 $266 $80 30 %
Noninterest income729 629 100 16 %
Total revenue1,075 895 180 20 %
Provision for credit losses23 (15)(65)%
Noninterest expense676 647 29 %
Pretax earnings391 225 166 74 %
Income taxes91 52 39 75 %
Earnings$300 $173 $127 73 %
Average Balance Sheet
Loans
Consumer
Residential real estate$4,608 $2,667 $1,941 73 %
Other consumer4,249 4,031 218 %
Total consumer8,857 6,698 2,159 32 %
Commercial1,629 849 780 92 %
Total loans$10,486 $7,547 $2,939 39 %
Total assets$11,124 $8,041 $3,083 38 %
Deposits
Noninterest-bearing demand$2,884 $1,528 $1,356 89 %
Interest-bearing demand9,597 7,566 2,031 27 %
Money market3,610 1,616 1,994 123 %
Savings7,755 7,279 476 %
Other628 707 (79)(11)%
Total deposits$24,474 $18,696 $5,778 31 %
Performance Ratios
Return on average assets3.61 %2.88 %
Noninterest income to total revenue68 %70 %
Efficiency63 %72 %  
Supplemental Noninterest Income Information
Asset management fees$713 $615 $98 16 %
Brokerage fees*
Total$719 $615 $104 17 %
Other Information
Nonperforming assets (a)$80 $39 $41 105 %
Net charge-offs - loans and leases$$*
Brokerage account client assets (in billions) (a)$$*
Client Assets Under Administration (in billions) (a) (b)
Discretionary client assets under management$183 $158 $25 16 %
Nondiscretionary client assets under administration170 142 28 20 %
Total$353 $300 $53 18 %
Discretionary client assets under management
Personal$117 $99 $18 18 %
Institutional66 59 12 %
Total$183 $158 $25 16 %
* - Not meaningful
(a)As of September 30.
(b)Excludes brokerage account client assets. 



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


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

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

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

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

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

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

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

With the inclusion of BBVA, PNC Private Bank has approximately 100 offices operating in eight out of the ten most affluent states in the U.S. with a majority co-located with retail banking branches. The business provides customized investments, planning, trust and estate administration and private banking solutions to affluent individuals and ultra-affluent families.

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

RISK MANAGEMENT

The Risk Management section included in Item 7 of our 2020 Form 10-K describes our enterprise risk management framework including risk culture, enterprise strategy, risk governance and oversight framework, risk identification, risk assessment, risk controls and monitoring, and risk aggregation and reporting. Additionally, our 2020 Form 10-K provides an analysis of the firm's Capital Management and our key areas of risk, which include but are not limited to Credit, Market, Liquidity and Operational (including Compliance and Information Security).

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

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

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



Loan Portfolio Characteristics and Analysis
Table 14: Details of Loans
In billions
pnc-20210930_g1.jpg
We use several credit quality indicators, as further detailed in Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements included in Item 1 of this Report, to monitor and measure our exposure to credit risk within our loan portfolio. The following provides additional information about the significant loan classes that comprise our Commercial and Consumer portfolio segments.

Commercial

Commercial and Industrial
Commercial and industrial loans comprised 53% and 55% of our total loan portfolio at September 30, 2021 and December 31, 2020, respectively. The majority of our commercial and industrial loans are secured by collateral that provides a secondary source of repayment for the loan should the borrower experience cash generation difficulties. Examples of this collateral include short-term assets, such as accounts receivable, inventory and securities, and long-lived assets, such as equipment, owner-occupied real estate and other business assets.

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

Table 15: Commercial and Industrial Loans by Industry
September 30, 2021December 31, 2020
Dollars in millionsAmount% of TotalAmount% of Total
Commercial and industrial
Manufacturing$22,760 15 %$20,712 16 %
Retail/wholesale trade22,238 15 20,218 15 
Service providers20,969 14 19,419 15 
Financial services18,022 12 14,909 11 
Real estate related (a)14,809 10 13,369 10 
Health care10,567 8,987 
Transportation and warehousing7,318 7,095 
Other industries36,052 22 27,364 21 
Total commercial and industrial loans$152,735 100 %$132,073 100 %
(a)    Represents loans to customers in the real estate and construction industries.

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


The increase in commercial and industrial loans compared to December 31, 2020 primarily reflects the acquisition of BBVA. Amounts also include $6.8 billion of PPP loans outstanding at September 30, 2021. PPP loans outstanding at December 31, 2020 totaled $12.0 billion. For additional information on PPP lending, see the COVID-19 Relief section within Item I of our 2020 Form 10-K.

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

Commercial Real Estate
Commercial real estate loans comprised $20.9 billion related to commercial mortgages, $8.4 billion of real estate project loans and $6.9 billion of intermediate term financing loans as of September 30, 2021. Comparable amounts as of December 31, 2020 were $17.3 billion, $6.3 billion and $5.1 billion, respectively.
We monitor credit risk associated with our commercial real estate loans similar to commercial and industrial loans by analyzing PD and LGD. Additionally, risks associated with these types of credit activities tend to be correlated to the loan structure, collateral location, project progress and business environment. These attributes are also monitored and utilized in assessing credit risk. The portfolio is geographically diverse due to the nature of our business involving clients throughout the U.S.
The following table presents our commercial real estate loans by geography and property type:
Table 16: Commercial Real Estate Loans by Geography and Property Type
September 30, 2021December 31, 2020
Dollars in millionsAmount% of TotalAmount% of Total
Geography (a)
California$5,953 16 %$4,458 16 %
Texas4,052 11 2,031 
Florida3,497 10 2,991 10 
Virginia1,798 1,586 
Maryland1,683 1,770 
Pennsylvania1,556 1,425 
Ohio1,262 1,247 
Colorado1,237 584 
Illinois1,182 900 
Arizona1,141 636 
Other12,834 37 11,088 39 
Total commercial real estate loans$36,195 100 %$28,716 100 %
Property Type
Multifamily$12,148 34 %$9,617 33 %
Office9,959 28 7,691 27 
Retail3,759 10 3,490 12 
Industrial/warehouse2,832 1,999 
Seniors housing2,403 1,417 
Hotel/motel2,355 1,954 
Mixed use756 835 
Other1,983 1,713 
Total commercial real estate loans$36,195 100 %$28,716 100 %
(a)    Presented in descending order based on loan balances at September 30, 2021.

Commercial High Impact Industries
In light of the economic circumstances related to COVID-19, we are continuing to evaluate and monitor our entire commercial portfolio for elevated levels of credit risk; however, the industry sectors that have been and we believe will continue to be most likely impacted by the effects of the pandemic are:
Non-real estate related
Leisure recreation: restaurants, casinos, hotels, convention centers
Non-essential retail: retail excluding auto, gas, staples
Healthcare facilities: elective, private practices
Consumer services: religious organizations, childcare
Leisure travel: cruise, airlines, other travel/transportation
Other impacted areas: shipping, senior living, specialty education
22    The PNC Financial Services Group, Inc. – Form 10-Q



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

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

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

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

Consumer

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

We obtain loan attributes at origination, including original FICO scores and LTVs, and we update these and other credit metrics at least quarterly. We track borrower performance monthly. We also segment the mortgage portfolio into pools based on product type (e.g., nonconforming, conforming). This information is used for internal reporting and risk management. As part of our overall risk analysis and monitoring, we also segment the portfolio based upon loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV and geographic concentrations. Loan performance is evaluated by source originators and loan servicers.

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

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


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

Table 17: Residential Real Estate Loans by Geography
September 30, 2021December 31, 2020
Dollars in millionsAmount% of TotalAmount% of Total
Geography (a)
California$13,930 36 %$7,828 35 %
Texas4,524 12 409 
Florida3,089 1,620 
Washington1,657 1,104 
New Jersey1,594 1,635 
Arizona1,464 163 
New York1,184 1,020 
Colorado1,174 262 
Pennsylvania1,037 1,036 
Illinois963 1,039 
Other7,598 20 6,444 27 
Total residential real estate loans$38,214 100 %$22,560 100 %
(a)    Presented in descending order based on loan balances at September 30, 2021.

We originate residential mortgage loans nationwide through our national mortgage business as well as within our branch network. Residential mortgage loans underwritten to agency standards, including conforming loan amount limits, are typically sold with servicing retained by us. We also originate nonconforming residential mortgage loans that do not meet agency standards, which we retain on our balance sheet. Our portfolio of originated nonconforming residential mortgage loans totaled $29.9 billion at September 30, 2021 with 43% located in California. Comparable amounts at December 31, 2020 were $17.9 billion and 41%, respectively.

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

We track borrower performance of this portfolio monthly similarly to residential real estate loans. We also segment the population into pools based on product type (e.g., home equity loans, brokered home equity loans, home equity lines of credit, brokered home equity lines of credit) and track the historical performance of any related mortgage loans regardless of whether we hold the lien. This information is used for internal reporting and risk management. As part of our overall risk analysis and monitoring, we also segment the portfolio based upon the loan delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV, lien position and geographic concentration.

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

The credit performance of the majority of the home equity portfolio where we hold the first lien position is superior to the portion of the portfolio where we hold the second lien position, but do not hold the first lien. Lien position information is generally determined at the time of origination and monitored on an ongoing basis for risk management purposes. We use an industry-leading third-party service provider to obtain updated loan information, including lien and collateral data that is aggregated from public and private sources.

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



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

Table 18: Home Equity Loans by Geography and by Lien Type
September 30, 2021December 31, 2020
Dollars in millionsAmount% of TotalAmount% of Total
Geography (a)
Pennsylvania$5,169 21 %$5,602 23 %
New Jersey3,151 13 3,462 14 
Ohio2,459 10 2,753 11 
Florida1,703 1,536 
Michigan1,271 1,398 
Maryland1,216 1,332 
Illinois1,200 1,411 
Texas1,026 
North Carolina937 1,043 
Kentucky800 922 
Other5,547 23 4,622 20 
Total home equity loans$24,479 100 %$24,088 100 %
Lien type
1st lien61 %63 %
2nd lien39 37 
Total100 %100 %
(a)    Presented in descending order based on loan balances at September 30, 2021.

Automobile
Auto loans comprised $16.0 billion in the indirect auto portfolio and $1.3 billion in the direct auto portfolio as of September 30, 2021. Comparable amounts as of December 31, 2020 were $12.7 billion and $1.5 billion, respectively. The indirect auto portfolio pertains to loans originated through franchised dealers, including from expansion into new markets. This business is strategically aligned with our core retail banking business.

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

Table 19: Auto Loan Key Statistics
September 30, 2021December 31, 2020
Weighted-average loan origination FICO score (a)
Indirect auto793784
Direct auto774768
Weighted-average term of loan originations - in months (a)
Indirect auto7272
Direct auto6262
(a)Weighted-averages calculated for the twelve months ended September 30, 2021 and December 31, 2020, respectively, using the auto enhanced FICO scale.

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

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

Nonperforming Assets and Loan Delinquencies
Nonperforming Assets
Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming TDRs and PCD loans, OREO and foreclosed assets. Loans held for sale, certain government insured or guaranteed loans and loans accounted for under the fair value option are excluded from
The PNC Financial Services Group, Inc. – Form 10-Q 25  


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

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

Table 20: Nonperforming Assets by Type (a)
 September 30, 2021December 31, 2020Change
Dollars in millions$%
Nonperforming loans    
Commercial$1,204 $923 $281 30 %
Consumer (b)1,324 1,363 (39)(3)%
Total nonperforming loans2,528 2,286 242 11 %
OREO and foreclosed assets31 51 (20)(39)%
Total nonperforming assets$2,559 $2,337 $222 %
TDRs included in nonperforming loans$798 $902 $(104)(12)%
Percentage of total nonperforming loans32 %39 %  
Nonperforming loans to total loans0.87 %0.94 %
Nonperforming assets to total loans, OREO and foreclosed assets0.88 %0.97 %
Nonperforming assets to total assets0.46 %0.50 %
Allowance for loan and lease losses to nonperforming loans212 %235 %  
(a)Includes $715 million of nonperforming assets at September 30, 2021, $666 million in the commercial portfolio, $41 million in the consumer portfolio and $8 million of OREO and foreclosed assets, attributable to BBVA.
(b)Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.

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

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

Table 21: Change in Nonperforming Assets
In millions20212020
January 1$2,337 $1,752 
New nonperforming assets821 1,361 
Acquired nonperforming assets (a)880 
Charge-offs and valuation adjustments(202)(324)
Principal activity, including paydowns and payoffs(783)(418)
Asset sales and transfers to loans held for sale(131)(68)
Returned to performing status(363)(151)
September 30$2,559 $2,152 
(a)Represents the June 30, 2021 balance of nonperforming assets attributable to BBVA. Changes in this acquired portfolio for the three months ended September 30, 2021 are reflected in the appropriate category based on activity.

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

Within consumer nonperforming loans, residential real estate TDRs comprised 44% of total residential real estate nonperforming loans while home equity TDRs comprised 38% of home equity nonperforming loans at September 30, 2021. Comparable amounts at December 31, 2020 were 47% and 41%, respectively. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status. Loans that have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act are not identified as TDRs. Refer to the Troubled Debt Restructurings and Loan Modifications discussion in this Credit Risk Management section for more information on the treatment of loan modifications under the CARES Act.


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



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

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

As a result, certain loans modified due to COVID-19 related hardships are not being reported as past due as of September 30, 2021 and December 31, 2020 based on the contractual terms of the loan, even where borrowers may not be making payments on their loans during the modification period. Loan modifications due to COVID-19 related hardships that permanently reduce either the contractual interest rate or the principal balance of a loan do not qualify for TDR relief under the CARES Act or the interagency guidance. See the COVID-19 Relief section in Item 1 of our 2020 Form 10-K for more information on the CARES Act and the related interagency guidance.
Table 22: Accruing Loans Past Due (a)
 Amount
  
% of Total Loans Outstanding
 September 30
2021 (b)
December 31
2020
ChangeSeptember 30
2021
December 31
2020
Dollars in millions$%
Early stage loan delinquencies      
Accruing loans past due 30 to 59 days$659 $620 $39 %0.23 %0.26 %
Accruing loans past due 60 to 89 days245 234 11 %0.08 %0.10 %
Total early stage loan delinquencies904 854 50 %0.31 %0.35 %
Late stage loan delinquencies
Accruing loans past due 90 days or more492 509 (17)(3)%0.17 %0.21 %
Total accruing loans past due$1,396 $1,363 $33 %0.48 %0.56 %
(a)Past due loan amounts include government insured or guaranteed loans of $0.5 billion and $0.6 billion at September 30, 2021 and December 31, 2020, respectively.
(b)Amounts as of September 30, 2021 include $300 million of early stage loan delinquencies and $72 million of late stage loan delinquencies attributable to BBVA.

Accruing loans past due 90 days or more continue to accrue interest because they are (i) well secured by collateral and are in the process of collection, (ii) managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or (iii) certain government insured or guaranteed loans. As such, they are excluded from nonperforming loans.

Troubled Debt Restructurings and Loan Modifications
Troubled Debt Restructurings
A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs result from our loss mitigation activities and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from court-imposed concessions (e.g., a Chapter 7 bankruptcy where the debtor is discharged from personal liability to us and a court approved Chapter 13 bankruptcy repayment plan). Loans to borrowers experiencing COVID-19 related hardships that have been restructured but that meet certain criteria under the CARES Act are not categorized as TDRs. For additional information on the CARES Act, including TDR treatment under the CARES Act and interagency guidance, see the COVID-19 Relief section within Item 1 of our 2020 Form 10-K.
The PNC Financial Services Group, Inc. – Form 10-Q 27  


The following table provides a summary of troubled debt restructurings at September 30, 2021 and December 31, 2020, respectively:
Table 23: Summary of Troubled Debt Restructurings (a)
 September 30
2021
December 31
2020
Change
Dollars in millions$%
Commercial$486 $528 $(42)(8)%
Consumer970 1,116 (146)(13)%
Total TDRs$1,456 $1,644 $(188)(11)%
Nonperforming$798 $902 $(104)(12)%
Accruing (b)658 742 (84)(11)%
Total TDRs$1,456 $1,644 $(188)(11)%
(a)Amounts in table do not include associated valuation allowances.
(b)Accruing loans include consumer credit card loans and certain loans that have demonstrated a period of at least six months of performance under the restructured terms and are excluded from nonperforming loans.

Nonperforming TDRs represented approximately 32% of total nonperforming loans and 55% of total TDRs at September 30, 2021. Comparable amounts at December 31, 2020 were 39% and 55%, respectively. The remaining portion of TDRs represents TDRs that have been returned to accrual status after performing under the restructured terms for at least six consecutive months.

See Note 4 Loans and Related Allowance for Credit Losses in the Notes to Consolidated Financial Statements included in Item 1 of this Report for additional information on TDRs.

Loan Modifications
During the first nine months of 2021, PNC continued to provide relief to our customers from the economic impacts of COVID-19 through a variety of solutions, including additional grants and extensions of loan and lease modifications under our hardship relief programs. We continued to see a reduction in the number of customers in active assistance from the peak in the summer of 2020, which led to additional declines in loans under modification that present credit risk to PNC at September 30, 2021.

The impact of these modifications was considered within the quarterly reserve determination. See the Allowance for Credit Losses discussion within the Critical Accounting Estimates and Judgments section of this Financial Review for additional information. Refer to the Loan Delinquencies discussion in this Credit Risk Management section for information on how these hardship related loan modifications are reported from a delinquency perspective as of September 30, 2021.

Under the CARES Act, loan modifications meeting certain criteria qualify the loan for relief from TDR treatment. Loans that do not meet the criteria for TDR relief under the CARES Act may also be evaluated under interagency guidance. For additional information on this criteria, see the Loan Modifications discussion in the Credit Risk Management section within Item 7 of our 2020 Form 10-K.

Consumer Loan Modifications Under Hardship Relief Programs
Our consumer loan modification programs are being granted in response to customer hardships that extended beyond the initial relief period. These loan and line modifications include all hardship related modifications. See the Loan Modifications discussion within Credit Risk Management in Item 7 of our 2020 Form 10-K for additional details.

The following table provides a summary of consumer accounts in active assistance under hardship relief programs that were on our balance sheet at September 30, 2021. Excluded from Table 24 are government insured or guaranteed loans totaling $284 million in each of the Residential real estate and Education loan classes. These loans present minimal credit risk to PNC. Loans in active hardship assistance programs offered by BBVA prior to acquisition were $59 million at September 30, 2021 and are excluded from Table 24.
28    The PNC Financial Services Group, Inc. – Form 10-Q



Table 24: Consumer Loans in Active Hardship Relief Programs (a) (b)
As of September 30, 2021 - Dollars in millionsNumber of
Accounts
Unpaid
Principal
Balance
% of Loan Class (c)% Making Payment in Last Payment Cycle
Consumer
Residential real estate1,334 $234 0.6 %36.5 %
Home equity665 46 0.2 %82.8 %
Automobile2,556 57 0.3 %74.3 %
Credit card6,519 41 0.6 %71.6 %
Education2,449 37 1.4 %55.9 %
Other consumer553 0.1 %77.2 %
Total consumer (d)14,076 $422 0.4 %69.0 %
(a)In cases where there have been multiple modifications on an individual loan, regardless of the number of modifications granted, each loan is counted only once in this table.
(b)Amounts include loan modifications that qualify for TDR accounting totaling $101 million.
(c)Based on total loans outstanding at September 30, 2021.
(d)Approximately 80% of these loan balances were secured by collateral at September 30, 2021.

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

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

Allowance for Credit Losses
Our ACL is based on historical loss and performance experience, which is captured through PD, as well as current borrower risk characteristics including collateral type and quality, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We maintain the ACL at an appropriate level for expected losses on our existing investment securities, loans, equipment finance leases, other financial assets and unfunded lending related commitments and determine this allowance based on quarterly assessments of the remaining estimated contractual term of the assets or exposures as of the balance sheet date.

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


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

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

Dollars in millions
Allowance AmountTotal Loans% of Total LoansAllowance AmountTotal Loans% of Total Loans
Allowance for loans and lease losses
Commercial
Commercial and industrial$2,173 $152,735 1.42 %$2,300 $132,073 1.74 %
Commercial real estate1,312 36,195 3.62 %880 28,716 3.06 %
Equipment lease financing118 6,257 1.89 %157 6,414 2.45 %
Total commercial3,603 195,187 1.85 %3,337 167,203 2.00 %
Consumer
Residential real estate42 38,214 0.11 %28 22,560 0.12 %
Home equity167 24,479 0.68 %313 24,088 1.30 %
Automobile365 17,265 2.11 %379 14,218 2.67 %
Credit card701 6,466 10.84 %816 6,215 13.13 %
Education81 2,653 3.05 %129 2,946 4.38 %
Other consumer396 5,966 6.64 %359 4,698 7.64 %
Total consumer1,752 95,043 1.84 %2,024 74,725 2.71 %
Total5,355 $290,230 1.85 %5,361 $241,928 2.22 %
Allowance for unfunded lending related commitments646 584 
Allowance for credit losses$6,001 $5,945 
Allowance for credit losses to total loans2.07 %2.46 %
Commercial2.12 %2.29 %
Consumer1.96 %2.84 %
(a)    Excludes allowances for investment securities and other financial assets, which together totaled $162 million and $109 million at September 30, 2021 and December 31, 2020, respectively.

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



The following table summarizes our loan charge-offs and recoveries:
Table 26: Loan Charge-Offs and Recoveries
Nine months ended September 30Gross
Charge-offs
RecoveriesNet Charge-offs /
(Recoveries)
% of Average
Loans (Annualized)
Dollars in millions
2021
Commercial
Commercial and industrial$350 $68 $282 0.27 %
Commercial real estate34 29 0.12 %
Equipment lease financing0.02 %
Total commercial393 81 312 0.23 %
Consumer
Residential real estate11 20 (9)(0.04)%
Home equity16 63 (47)(0.26)%
Automobile120 117 0.03 %
Credit card196 36 160 3.52 %
Education11 0.24 %
Other consumer130 21 109 2.77 %
Total consumer484 263 221 0.36 %
  Total$877 $344 $533 0.27 %
2020
Commercial
Commercial and industrial$249 $52 $197 0.19 %
Commercial real estate(5)(0.02)%
Equipment lease financing19 12 0.23 %
Total commercial269 65 204 0.15 %
Consumer
Residential real estate12 (8)(0.05)%
Home equity31 44 (13)(0.07)%
Automobile210 95 115 0.93 %
Credit card228 26 202 3.98 %
Education13 0.29 %
Other consumer110 14 96 2.61 %
Total consumer596 197 399 0.68 %
  Total$865 $262 $603 0.32 %

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

See Note 1 Accounting Policies in the Notes to Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K and Note 4 Loans and Related Allowance for Credit Losses in the Notes To Consolidated Financial Statements in Item 1 of this Report for additional information.
Liquidity and Capital Management
Liquidity risk, including our liquidity monitoring measures and tools, is described in further detail in the Liquidity and Capital Management section of our 2020 Form 10-K.

One of the ways we monitor our liquidity is by reference to the LCR, a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a hypothetical 30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s HQLA, as calculated in accordance with the LCR rules, by its estimated, weighted net cash outflows, with net cash outflows determined by applying the assumed outflow factors in the LCR rules. The resulting quotient is expressed as a percentage. Effective January 1, 2020, PNC and PNC Bank, as Category III institutions under the Tailoring Rules, were subject to a reduced LCR requirement, with each company's net outflows reduced by 15%,
The PNC Financial Services Group, Inc. – Form 10-Q 31  


thereby reducing the amount of HQLA each institution must hold to meet the LCR minimum requirement. The minimum LCR that PNC and PNC Bank are required to maintain continues to be 100%. PNC and PNC Bank calculate the LCR daily, and as of September 30, 2021, the LCR for PNC and PNC Bank exceeded the requirement of 100%.

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

We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation and Recent Regulatory Developments section of Item 1 Business and Item 1A Risk Factors of our 2020 Form 10-K.

Sources of Liquidity
Our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable and low-cost funding. Total deposits increased to $448.9 billion at September 30, 2021 from $365.3 billion at December 31, 2020, driven by growth in both noninterest-bearing and interest-bearing deposits primarily due to the BBVA acquisition. See the Funding Sources portion of the Consolidated Balance Sheet Review section of this Financial Review for additional information related to our deposits. Additionally, certain assets determined by us to be liquid as well as unused borrowing capacity from a number of sources are also available to manage our liquidity position.
At September 30, 2021, our liquid assets consisted of cash and due from banks and short-term investments (federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling $87.0 billion and securities available for sale totaling $124.1 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Our liquid assets included $25.2 billion of securities available for sale and trading securities pledged as collateral to secure public and trust deposits, repurchase agreements and for other purposes. In addition, $0.1 billion of securities held to maturity were also pledged as collateral for these purposes.

We also obtain liquidity through various forms of funding, including long-term debt (senior notes, subordinated debt and FHLB borrowings) and short-term borrowings (securities sold under repurchase agreements, commercial paper and other short-term borrowings). See the Funding Sources section of the Consolidated Balance Sheet Review in this Report and Note 10 Borrowed Funds in Item 8 of our 2020 Form 10-K for additional information related to our borrowings.
Total senior and subordinated debt, on a consolidated basis, decreased due to the following activity:
Table 27: Senior and Subordinated Debt
In billions2021
January 1$30.7 
Issuances1.7 
Calls and maturities(3.9)
Other(0.7)
Impact from BBVA acquisition2.2 
September 30$30.0 
Bank Liquidity
Under PNC Bank’s 2014 bank note program, as amended, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount outstanding at any one time of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. At September 30, 2021, PNC Bank had $15.9 billion of notes outstanding under this program of which $10.9 billion were senior bank notes and $5.0 billion were subordinated bank notes.

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

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

PNC Bank maintains additional secured borrowing capacity with the FHLB and through the Federal Reserve Bank
discount window. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities,
but rather as a potential source of liquidity in a stressed environment or during a market disruption. At September 30, 2021, our
unused secured borrowing capacity at the FHLB and the Federal Reserve Bank totaled $95.3 billion.

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



PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. At September 30, 2021, there were no issuances outstanding under this program.

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

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

At September 30, 2021, available parent company liquidity totaled $6.0 billion. Parent company liquidity is primarily held in intercompany cash. Investments with longer durations may also be acquired, and if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

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

There are statutory and regulatory limitations on the ability of a bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was $3.1 billion at September 30, 2021. See Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements in our 2020 Form 10-K for further discussion of these limitations. Due to the net earnings restrictions on dividend distributions under Alabama law, BBVA USA was not permitted to pay dividends any time between the BBVA acquisition on June 1, 2021 and the bank merger on October 8, 2021 without regulatory approval.

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

In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. At September 30, 2021, there were no commercial paper issuances outstanding.

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

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

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

Contractual Obligations and Commitments
We have contractual obligations representing required future payments on borrowed funds, time deposits, leases, pension and postretirement benefits and purchase obligations. See the Liquidity and Capital Management portion of the Risk Management section in our 2020 Form 10-K for more information on these future cash outflows. Additionally, in the normal course of business we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. We provide information on our commitments in Note 8 Commitments in the Notes To Consolidated Financial Statements of this Report.

Credit Ratings
PNC’s credit ratings affect the cost and availability of short and long-term funding, collateral requirements for certain derivative instruments and the ability to offer certain products.
The PNC Financial Services Group, Inc. – Form 10-Q 33  


In general, rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current legislative and regulatory environment, including implied government support. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect liquidity and financial condition.
The following table presents credit ratings for PNC and PNC Bank as of September 30, 2021:
Table 28: Credit Ratings for PNC and PNC Bank
September 30, 2021
  
Moody’sStandard & Poor’sFitch
PNC
Senior debtA3A-A
Subordinated debtA3BBB+A-
Preferred stockBaa2BBB-BBB
PNC Bank
Senior debtA2AA+
Subordinated debtA3A-A
Long-term depositsAa3AAA-
Short-term depositsP-1A-1F1+
Short-term notesP-1A-1F1

On July 12, 2021, Moody’s downgraded PNC Bank’s long-term deposit rating from Aa2 to Aa3. The rating action was driven by a change in Moody’s rating methodology and no impact to PNC or its businesses is expected as a result of this downgrade. PNC Bank’s senior unsecured and subordinated debt ratings were affirmed at A2 and A3, respectively. At the same time, the Moody’s rating outlook on PNC Bank’s long-term deposit, senior unsecured debt and issuer ratings were raised from negative to stable. The credit rating agencies have withdrawn ratings on BBVA USA as the entity no longer exists.
Capital Management
Detailed information on our capital management processes and activities, including additional information on our previous CCAR submissions and capital plans, is included in the Capital Management portion of the Risk Management section in our 2020 Form 10-K.

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

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

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

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



Table 29: Basel III Capital
September 30, 2021
Dollars in millionsBasel III (a) Fully Implemented
(estimated) (b)
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock$630 $630 
Retained earnings50,598 49,541 
Goodwill, net of associated deferred tax liabilities(10,673)(10,673)
Other disallowed intangibles, net of deferred tax liabilities(469)(469)
Other adjustments/(deductions)(48)(53)
Common equity Tier 1 capital40,038 38,976 
Additional Tier 1 capital
Preferred stock plus related surplus5,009 5,009 
Tier 1 capital45,047 43,985 
Additional Tier 2 capital
Qualifying subordinated debt3,724 3,724 
Trust preferred capital securities20 
Eligible credit reserves includable in Tier 2 capital4,191 4,838 
Total Basel III capital$52,982 $52,547 
Risk-weighted assets
Basel III standardized approach risk-weighted assets (c)$389,911 $389,887 
Average quarterly adjusted total assets$547,840 $546,777 
Supplementary leverage exposure (d)$643,732 $643,727 
Basel III risk-based capital and leverage ratios (a)(e)
Common equity Tier 110.3 %10.0 %
Tier 111.6 %11.3 %
Total (f)13.6 %13.5 %
Leverage (g)8.2 %8.0 %
Supplementary leverage ratio (d)7.0 %6.8 %
(a)The ratios are calculated to reflect PNC's election to adopt the CECL optional five-year transition provision.
(b)The ratios are calculated to reflect the full impact of CECL and excludes the benefits of phase-ins.
(c)Basel III standardized approach weighted-assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets.
(d)The Supplementary leverage ratio is calculated based on Tier 1 capital divided by Supplementary leverage exposure, which takes into account the quarterly average of both on balance sheet assets as well as certain off-balance sheet items, including loan commitments and potential future exposure under derivative contracts.
(e)All ratios are calculated using the regulatory capital methodology applicable to PNC and calculated based on the standardized approach.
(f)The Basel III Total risk-based capital ratios include nonqualifying trust preferred capital securities of $20 million that are subject to a phase-out period that runs through 2021.
(g)Leverage ratio is calculated based on Tier 1 capital divided by Average quarterly adjusted total assets.

PNC’s regulatory risk-based capital ratios are calculated using the standardized approach for determining risk-weighted assets. Under the standardized approach for determining credit risk-weighted assets, exposures are generally assigned a pre-defined risk weight. Exposures to high volatility commercial real estate, nonaccruals, TDRs, past due exposures and equity exposures are generally subject to higher risk weights than other types of exposures.
The regulatory agencies have adopted a rule permitting banking organizations to delay the estimated impact on regulatory capital stemming from implementing CECL. CECL’s estimated impact on CET1 capital, as defined by the rule, is the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date, excluding the initial allowance for PCD loans from BBVA, compared to CECL ACL at transition. PNC elected to adopt this optional transition provision effective as of March 31, 2020. See additional discussion of this rule in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2020 Form 10-K.
At September 30, 2021, PNC, PNC Bank and BBVA USA were considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized”, PNC must have Basel III capital ratios of at least 6% for Tier 1 risk-based capital and 10% for Total risk-based capital, and PNC Bank and BBVA USA must have Basel III capital ratios of at least 6.5% for Common equity Tier 1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%.

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


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

We provide additional information regarding regulatory capital requirements and some of their potential impacts on us in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of our 2020 Form 10-K.

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

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

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

Table 30: Interest Sensitivity Analysis
Third Quarter 2021 (a)Third Quarter 2020
Net Interest Income Sensitivity Simulation
Effect on net interest income in first year from gradual interest rate change over the
   following 12 months of:
100 basis point increase4.5 %4.3 %
Effect on net interest income in second year from gradual interest rate change over the
    preceding 12 months of:
100 basis point increase11.3 %10.9 %
Key Period-End Interest Rates
One-month LIBOR0.08 %0.15 %
Three-month LIBOR0.13 %0.23 %
Three-year swap0.65 %0.24 %
(a) Results include BBVA USA.
In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 31 reflects the percentage change in net interest income over the next two 12-month periods, including BBVA USA, assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and (iii) yield curve slope flattening (a 100 basis point yield curve slope flattening between one-month and ten-year rates superimposed on current base rates) scenario.

All changes in forecasted net interest income are relative to results in a base rate scenario where current market rates are assumed to remain unchanged over the forecast horizon.
Table 31: Net Interest Income Sensitivity to Alternative Rate Scenarios
September 30, 2021
PNC
Economist
Market
Forward
Slope
Flattening
First year sensitivity1.6 %1.0 %(2.2)%
Second year sensitivity6.7 %5.0 %(7.3)%

When forecasting net interest income, we make assumptions about interest rates and the shape of the yield curve, the volume and characteristics of new business and the behavior of existing on- and off-balance sheet positions. These assumptions determine the
36    The PNC Financial Services Group, Inc. – Form 10-Q



future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 30 and 31. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates.

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

pnc-20210930_g2.jpg

The third quarter 2021 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

As discussed in Item 1A Risk Factors in our 2020 Form 10-K, the planned discontinuance of the requirement that banks submit rates for the calculation of LIBOR after 2023 presents risks to the financial instruments originated, held or serviced by PNC that use LIBOR as a reference rate. PNC holds instruments and services its instruments and instruments owned by others that may be impacted by the likely discontinuance of LIBOR, including loans, investments, hedging products, floating-rate obligations, and other financial instruments that use LIBOR as a reference rate. The transition from LIBOR as an interest rate benchmark will subject PNC, like other financial participants, to financial, legal, operational, and reputational risks.

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

Key efforts in 2020 and the first nine months of 2021 included:
Enhancing fallback language in new contracts and reviewing existing legal contracts/agreements to assess fallback language impacts,
Making preparations for internal operational readiness,
Making necessary enhancements to PNC's infrastructure, including systems, models, valuation tools and processes,
Developing and delivering on internal and external LIBOR cessation communication plans,
Engaging with PNC clients, industry working groups and regulators, and
Monitoring developments associated with LIBOR alternatives and industry practices related to LIBOR-indexed instruments.

PNC also has been an active participant in efforts with the Federal Reserve and other regulatory agencies to explore the potential need for a credit-sensitive rate or add-on to SOFR for use in commercial loans. Those efforts led to the formation of the Credit Sensitivity
The PNC Financial Services Group, Inc. – Form 10-Q 37  


Group, which has held a series of workshops to assess how a credit-sensitive rate or add-on to SOFR might be constructed and discuss associated implementation issues.

In late 2020, PNC began offering conforming adjustable rate mortgages using SOFR instead of USD LIBOR in line with Fannie Mae and Freddie Mac requirements. In the second quarter of 2021, PNC began offering nonconforming adjustable rate mortgages using SOFR and private student loans using Prime. Alternative rates including, but not limited to, the Bloomberg Short-Term Bank Yield Index and SOFR are currently being offered to our corporate and commercial customers. LIBOR will cease to be offered for new loans by year end 2021. PNC has provided regular updates to Federal Reserve, OCC and Federal Deposit Insurance Corporation examination staff regarding its LIBOR cessation and transition plans.
Market Risk Management – Customer-Related Trading Risk
We engage in fixed income securities, derivatives and foreign exchange transactions to support our customers’ investing and hedging activities. These transactions, related hedges and the credit valuation adjustment related to our customer derivatives portfolio are marked-to-market daily and reported as customer-related trading activities.We do not engage in proprietary trading of these products.
We use VaR as the primary means to measure and monitor market risk in customer-related trading activities. VaR is used to estimate the probability of portfolio losses based on the statistical analysis of historical market risk factors. VaR is calculated for each of the portfolios that comprise our customer-related trading activities of which the majority are covered positions as defined by the Market Risk Rule. VaR is computed with positions and market risk factors updated daily to ensure each portfolio is operating within its acceptable limits.
See the Market Risk Management – Customer-Related Trading Risk section of our 2020 Form 10-K for more information on our models used to calculate VaR and our backtesting process.
Customer-related trading revenue was $278 million for the nine months ended September 30, 2021, compared to $293 million for the same period in 2020. The decrease was primarily due to lower interest rate derivative client sales revenues partially offset by improved foreign exchange client sales revenues. For the quarterly period, customer-related trading revenue was $99 million for the third quarter of 2021, compared to $108 million in 2020. The decrease was primarily due to changes in the credit valuation for customer-related derivatives activities partially offset by improved foreign exchange client revenues.
Market Risk Management – Equity And Other Investment Risk
Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, underwriting securities and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations and growth financings in a variety of industries. We also have investments in affiliated and non-affiliated funds that make similar investments in private equity. The economic and/or book value of these investments and other assets are directly affected by changes in market factors.
Various PNC business units manage our equity and other investment activities. Our businesses are responsible for making investment decisions within the approved policy limits and associated guidelines.
A summary of our equity investments follows:
Table 33: Equity Investments Summary
 September 30
2021 (a)
December 31
2020
Change
Dollars in millions$%
Tax credit investments$3,723 $2,870 $853 30 %
Private equity and other4,014 3,182 832 26 %
Total$7,737 $6,052 $1,685 28 %
(a)Includes $0.7 billion of investments from BBVA, of which $0.6 billion are tax credit investments and $0.1 billion are private equity and other.

Tax Credit Investments
Included in our equity investments are direct tax credit investments and equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $2.0 billion and $1.4 billion at September 30, 2021 and December 31, 2020, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.

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

Private Equity and Other
The largest component of our other equity investments is our private equity portfolio. The private equity portfolio is an illiquid portfolio consisting of mezzanine and equity investments that vary by industry, stage and type of investment. Private equity investments carried at estimated fair value totaled $1.7 billion and $1.5 billion at September 30, 2021 and December 31, 2020,
38    The PNC Financial Services Group, Inc. – Form 10-Q



respectively. As of September 30, 2021, $1.5 billion was invested directly in a variety of companies and $0.2 billion was invested indirectly through various private equity funds. See the Supervision and Regulation section in Item 1 of our 2020 Form 10-K for discussion of the potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and other relationships with private funds covered by the Volcker Rule.

Included in our other equity investments are Visa Class B common shares, which are recorded at cost. Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly-traded Class A common shares, which cannot happen until the resolution of the pending interchange litigation. Based upon the September 30, 2021 per share closing price of $222.75 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $1.3 billion at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was not significant. See Note 15 Fair Value and Note 21 Legal Proceedings in the Notes To Consolidated Financial Statements in Item 8 of our 2020 Form 10-K for additional information regarding our Visa shares and related agreements. The estimated value does not represent fair value of the Visa B common shares given the share’s limited transferability and the lack of observable transactions in the marketplace.

We also have certain other equity investments, the majority of which represent investments in affiliated and non-affiliated funds with both traditional and alternative investment strategies. Net gains related to these investments were $44 million for the nine months ended September 30, 2021 and were not significant for the nine months ended September 30, 2020.

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

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

Further information on our financial derivatives is presented in Note 1 Accounting Policies, Note 15 Fair Value and Note 16 Financial Derivatives in our Notes To Consolidated Financial Statements in our 2020 Form 10-K and in Note 11 Fair Value and Note 12 Financial Derivatives in the Notes To Consolidated Financial Statements in Item 1 of this Report.

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

RECENT REGULATORY DEVELOPMENTS

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

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

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


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

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

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

Allowance for Credit Losses

We maintain the ACL at levels that we believe to be appropriate as of the balance sheet date to absorb expected credit losses on our existing investment securities, loans, equipment finance leases, other financial assets and unfunded lending related commitments, for the remaining contractual term of the assets or exposures, taking into consideration expected prepayments. Our determination of the ACL is based on historical loss and performance experience, which is captured through PD, as well as current borrower characteristics including collateral type and quality, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We use methods sensitive to changes in economic conditions, to interpret these factors to estimate expected credit losses. We evaluate and, when appropriate, enhance the quality of our data and models and other methods used to estimate ACL on an ongoing basis. We apply qualitative factors to reflect in the ACL our best estimate of amounts that we do not expect to collect because of, among other things, idiosyncratic risk factors, changes in economic conditions that may not be reflected in forecasted results, or other potential methodology limitations. The major drivers of ACL estimates include, but are not limited to:
Current economic conditions and borrower quality: Our forecast of expected losses depends on economic conditions and
portfolio quality as of the estimation date. As current economic conditions evolve, forecasted losses could be materially         
affected.
Scenario weights and design: Our loss estimates are sensitive to the shape, direction and rate of change of macroeconomic forecasts and thus vary significantly between upside and downside scenarios. Change to probability weights assigned to these scenarios and timing of peak business cycles reflected by the scenarios could materially affect our loss estimates.
Portfolio volume and mix: Changes to portfolio volume and mix could materially affect our estimates, as CECL reserves
would be recognized upon origination or acquisition.

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

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

To generate the four economic forecast scenarios we use a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking expert judgment to forecast the distribution of economic outcomes over the reasonable and supportable forecast period. Each scenario is then given an associated probability (weight) in order to represent our current expectation within that distribution over the forecast period. This process is informed by current economic conditions, expected business cycle evolution and the expert judgment of PNC’s RAC. This approach seeks to provide a reasonable representation of the forecast of expected economic outcomes and is used to estimate expected credit losses across a variety of loans and securities. Each quarter the scenarios are presented for approval to PNC’s RAC and the committee determines and approves CECL scenarios' weights for use for the current reporting period.

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



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

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

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

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

OFF-BALANCE SHEET ARRANGEMENTS AND VARIABLE INTEREST ENTITIES

We engage in a variety of activities that involve entities that are not consolidated or otherwise reflected in our Consolidated Balance Sheet that are generally referred to as off-balance sheet arrangements. Additional information on these types of activities is included in our 2020 Form 10-K and in Note 5 Loan Sale and Servicing Activities and Variable Interest Entities and Note 8 Commitments in the Notes To Consolidated Financial Statements included in this Report.

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

Trust Preferred Securities
See Note 10 Borrowed Funds in the Notes To Consolidated Financial Statements in our 2020 Form 10-K for additional information on trust preferred securities issued by PNC Capital Trust C including information on contractual limitations potentially imposed on payments (including dividends) with respect to PNC's equity securities.
INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND PROCEDURES

As of September 30, 2021, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the
The PNC Financial Services Group, Inc. – Form 10-Q 41  


effectiveness of the design and operation of our disclosure controls and procedures and of changes in our internal control over financial reporting.

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

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


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



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We make statements in this Report, and we may from time to time make other statements, regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting us and our future business and operations that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “look,” “intend,” “outlook,” “project,” “forecast,” “estimate,” “goal,” “will,” “should” and other similar words and expressions.
Forward-looking statements are necessarily subject to numerous assumptions, risks and uncertainties, which change over time. Future events or circumstances may change our outlook and may also affect the nature of the assumptions, risks and uncertainties to which our forward-looking statements are subject. Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake any obligation to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance. As a result, we caution against placing undue reliance on any forward-looking statements.
Our forward-looking statements are subject to the following principal risks and uncertainties. 
Our businesses, financial results and balance sheet values are affected by business and economic conditions, including:
Changes in interest rates and valuations in debt, equity and other financial markets,
Disruptions in the U.S. and global financial markets,
Actions by the Federal Reserve Board, U.S. Treasury and other government agencies, including those that impact money supply, market interest rates and inflation,
Changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives,
Changes in customers’, suppliers’ and other counterparties’ performance and creditworthiness,
Impacts of tariffs and other trade policies of the U.S. and its global trading partners,
The length and extent of the economic impacts of the COVID-19 pandemic,
The impact of the results of the 2020 U.S. elections, including on the regulatory landscape, capital markets, tax policy, infrastructure spending and social programs, and
Commodity price volatility.
Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our view that:
The U.S. economy is in an economic recovery, following a very severe but very short economic contraction in the first half of 2020 due to the COVID-19 pandemic and public health measures to contain it.
The Delta COVID-19 variant and supply chain difficulties have been drags on economic growth in the second half of 2021, although the economy continues to expand. Growth will pick up at the end of 2021 as the impact of the Delta variant fades and supply chains normalize and will remain solid into 2022. Employment in September 2021 was still down by almost 5 million from before the pandemic; PNC expects employment to return to its pre-pandemic level in mid-2022.
Compared to the spring of 2020 (when prices were falling), inflation accelerated in mid-2021 due to strong demand in specific segments and supply chain disruptions. Inflation has started to slow on a month-over-month basis but will remain elevated in the near term.
PNC expects the FOMC to keep the fed funds rate in its current range of 0.00% to 0.25 % until late 2022.
PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding a stress capital buffer established by the Federal Reserve Board in connection with the Federal Reserve Board's CCAR process.
PNC’s regulatory capital ratios in the future will depend on, among other things, the company’s financial performance, the scope and terms of final capital regulations then in effect and management actions affecting the composition of PNC’s balance sheet. In addition, PNC’s ability to determine, evaluate and forecast regulatory capital ratios, and to take actions (such as capital distributions) based on actual or forecasted capital ratios, will be dependent at least in part on the development, validation and regulatory review of related models.
Legal and regulatory developments could have an impact on our ability to operate our businesses, financial condition, results of operations, competitive position, reputation, or pursuit of attractive acquisition opportunities. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and ability to attract and retain management. These developments could include:
Changes to laws and regulations, including changes affecting oversight of the financial services industry, consumer protection, bank capital and liquidity standards, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
The PNC Financial Services Group, Inc. – Form 10-Q 43  


Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to PNC.
Results of the regulatory examination and supervision process, including our failure to satisfy requirements of agreements with governmental agencies.
Impact on business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of adequacy of our intellectual property protection in general.
Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.
Our acquisition of BBVA presents us with risks and uncertainties related to the integration of the acquired business into PNC including:
The business of BBVA going forward may not perform as we project or in a manner consistent with historical performance. As a result, the anticipated benefits, including estimated cost savings, of the transaction may be significantly more difficult or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events, including those that are outside of our control.
The integration of BBVA, including its U.S. banking subsidiary, BBVA USA, with that of PNC and PNC Bank may be more difficult to achieve than anticipated or have unanticipated adverse results. Our ability to integrate BBVA, including its U.S. banking subsidiary, BBVA USA, successfully may be adversely affected by the fact that this transaction results in us entering several geographic markets where we did not previously have any meaningful presence.
In addition to the BBVA transaction, we grow our business in part through acquisitions and new strategic initiatives. Risks and uncertainties include those presented by the nature of the business acquired and strategic initiative, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into PNC after closing.
Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues. Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.
Business and operating results can also be affected by widespread natural and other disasters, pandemics, dislocations, terrorist activities, system failures, security breaches, cyberattacks or international hostilities through impacts on the economy and financial markets generally or on us or our counterparties specifically.
We provide greater detail regarding these as well as other factors in our 2020 Form 10-K and subsequent Form 10-Qs and elsewhere in this Report, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments Notes of the Notes To Consolidated Financial Statements in these reports. Our forward-looking statements may also be subject to other risks and uncertainties, including those we may discuss elsewhere in this Report or in our other filings with the SEC.



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



CONSOLIDATED INCOME STATEMENT
THE PNC FINANCIAL SERVICES GROUP, INC.
UnauditedThree months ended
September 30
Nine months ended
September 30
In millions, except per share data2021202020212020
Interest Income
Loans$2,437 $2,116 $6,593 $6,853 
Investment securities460 490 1,350 1,599 
Other78 70 216 279 
Total interest income2,975 2,676 8,159 8,731 
Interest Expense
Deposits29 74 99 590 
Borrowed funds90 118 275 619 
Total interest expense119 192 374 1,209 
Net interest income2,856 2,484 7,785 7,522 
Noninterest Income
Asset management248 215 713 615 
Consumer services496 390 1,337 1,097 
Corporate services842 479 2,085 1,517 
Residential mortgage147 137 355 505 
Service charges on deposits159 119 409 366 
Other449 457 1,400 1,071 
Total noninterest income2,341 1,797 6,299 5,171 
Total revenue5,197 4,281 14,084 12,693 
Provision For (Recapture of) Credit Losses(203)52 (452)3,429 
Noninterest Expense
Personnel1,986 1,410 5,103 4,152 
Occupancy248 205 680 611 
Equipment355 292 974 880 
Marketing103 67 222 172 
Other895 557 2,232 1,774 
Total noninterest expense3,587 2,531 9,211 7,589 
Income from continuing operations before income taxes and noncontrolling interests1,813 1,698 5,325 1,675 
Income taxes from continuing operations323 166 906 128 
Net income from continuing operations1,490 1,532 4,419 1,547 
Income from discontinued operations before taxes0005,777 
Income taxes from discontinued operations0001,222 
Net income from discontinued operations0004,555 
Net income1,490 1,532 4,419 6,102 
Less: Net income attributable to noncontrolling interests16 13 38 27 
Preferred stock dividends57 63 162 181 
Preferred stock discount accretion and redemptions
Net income attributable to common shareholders$1,416 $1,455 $4,216 $5,891 
Earnings Per Common Share
Basic earnings from continuing operations$3.31 $3.40 $9.84 $3.11 
Basic earnings from discontinued operations00010.61 
Total basic earnings$3.31 $3.40 $9.84 $13.73 
Diluted earnings from continuing operations$3.30 $3.39 $9.83 $3.11 
Diluted earnings from discontinued operations00010.59 
Total diluted earnings$3.30 $3.39 $9.83 $13.70 
Average Common Shares Outstanding
Basic426 426 426 427 
Diluted426 426 427 428 
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 45  


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THE PNC FINANCIAL SERVICES GROUP, INC.
 
Unaudited
In millions
Three months ended
September 30
Nine months ended
September 30
2021202020212020
Net income from continuing operations$1,490 $1,532 $4,419 $1,547 
Other comprehensive income (loss), before tax and net of reclassifications into Net income
Net change in debt securities(323)10 (1,471)2,028 
Net change in cash flow hedge derivatives(174)(119)(727)678 
Pension and other postretirement benefit plan adjustments(11)(3)
Net change in Other10 
Other comprehensive income (loss) from continuing operations, before tax and net of
 reclassifications into Net income
(494)(107)(2,207)2,713 
Income tax benefit (expense) from continuing operations related to items of other
 comprehensive income
110 35 516 (630)
Other comprehensive income (loss) from continuing operations, after tax and net of
 reclassifications into Net income
(384)(72)(1,691)2,083 
Net income from discontinued operations0004,555 
Other comprehensive income from discontinued operations, before tax and net of
 reclassifications into Net income

00148 
Income tax benefit (expense) from discontinued operations related to items of other
 comprehensive income
00(33)
Other comprehensive income from discontinued operations, after tax and net of
 reclassifications into Net income
000115 
Other comprehensive income (loss), after tax and net of reclassifications into Net income
(384)(72)(1,691)2,198 
Comprehensive income1,106 1,460 2,728 8,300 
Less: Comprehensive income attributable to noncontrolling interests16 13 38 27 
Comprehensive income attributable to PNC$1,090 $1,447 $2,690 $8,273 
See accompanying Notes To Consolidated Financial Statements.
46    The PNC Financial Services Group, Inc. – Form 10-Q



CONSOLIDATED BALANCE SHEET
THE PNC FINANCIAL SERVICES GROUP, INC.
UnauditedSeptember 30
2021
December 31
2020
In millions, except par value
Assets
Cash and due from banks$8,843 $7,017 
Interest-earning deposits with banks75,478 85,173 
Loans held for sale (a)2,121 1,597 
Investment securities – available for sale124,127 87,358 
Investment securities – held to maturity1,479 1,441 
Loans (a)290,230 241,928 
Allowance for loan and lease losses(5,355)(5,361)
Net loans284,875 236,567 
Equity investments7,737 6,052 
Mortgage servicing rights1,833 1,242 
Goodwill10,885 9,233 
Other (a)36,137 30,999 
Total assets$553,515 $466,679 
Liabilities
Deposits
Noninterest-bearing$156,305 $112,637 
Interest-bearing292,597 252,708 
Total deposits448,902 365,345 
Borrowed funds
Federal Home Loan Bank borrowings3,500 
Bank notes and senior debt22,993 24,271 
Subordinated debt7,074 6,403 
Other (b)3,404 3,021 
Total borrowed funds33,471 37,195 
Allowance for unfunded lending related commitments646 584 
Accrued expenses and other liabilities14,199 9,514 
Total liabilities497,218 412,638 
Equity
Preferred stock (c)00
Common stock ($5 par value, Authorized 800 shares, issued 543 shares)2,713 2,713 
Capital surplus17,453 15,884 
Retained earnings49,541 46,848 
Accumulated other comprehensive income1,079 2,770 
Common stock held in treasury at cost: 120 and 119 shares(14,527)(14,205)
Total shareholders’ equity56,259 54,010 
Noncontrolling interests38 31 
Total equity56,297 54,041 
Total liabilities and equity$553,515 $466,679 
(a)Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $2.0 billion, Loans held for investment of $1.6 billion and Other assets of $0.1 billion at September 30, 2021. Comparable amounts at December 31, 2020 were $1.2 billion, $1.4 billion and $0.1 billion, respectively.
(b)Our consolidated liabilities included Other borrowed funds of less than $0.1 billion at both September 30, 2021 and December 31, 2020, for which we have elected the fair value option.
(c)Par value less than $0.5 million at each date.

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


CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
 
Unaudited
In millions
Nine months ended
September 30
20212020
Operating Activities
Net income$4,419 $6,102 
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for (recapture of) credit losses(452)3,429 
Depreciation and amortization1,215 944 
Deferred income taxes(74)(2,505)
Net gains on sales of securities(50)(254)
Changes in fair value of mortgage servicing rights(8)774 
Gain on sale of BlackRock(5,740)
Undistributed earnings of BlackRock(174)
Net change in
Trading securities and other short-term investments388 1,132 
Loans held for sale(390)(533)
Other assets(1,504)(2,112)
Accrued expenses and other liabilities341 1,044 
Other(165)617 
Net cash provided (used) by operating activities$3,720 $2,724 
Investing Activities
Sales
Securities available for sale$15,674 $12,512 
Net proceeds from sale of BlackRock14,225 
Loans1,409 1,365 
Repayments/maturities
Securities available for sale23,829 19,850 
Securities held to maturity67 52 
Purchases
Securities available for sale(57,911)(34,242)
Securities held to maturity(83)(49)
Loans(1,564)(1,600)
Net change in
Federal funds sold and resale agreements(119)1,693 
Interest-earning deposits with banks23,008 (47,546)
Loans14,001 (10,323)
Net cash paid for acquisition (a)(10,511)0
Other(1,538)(316)
Net cash provided (used) by investing activities$6,262 $(44,379)
(continued on following page)
48    The PNC Financial Services Group, Inc. – Form 10-Q



CONSOLIDATED STATEMENT OF CASH FLOWS
THE PNC FINANCIAL SERVICES GROUP, INC.
(continued from previous page)
 
Unaudited
In millions
Nine Months Ended
September 30
20212020
Financing Activities
Net change in
Noninterest-bearing deposits$7,832 $34,479 
Interest-bearing deposits(9,826)32,037 
Federal funds purchased and repurchase agreements91 (5,870)
Short-term Federal Home Loan Bank borrowings(6,300)
Other borrowed funds164 298 
Sales/issuances
Federal Home Loan Bank borrowings9,060 
Bank notes and senior debt1,692 3,487 
Other borrowed funds551 458 
Preferred stock1,485 
Common and treasury stock58 54 
Repayments/maturities
Federal Home Loan Bank borrowings(3,680)(13,601)
Bank notes and senior debt(3,850)(6,647)
Other borrowed funds(547)(479)
   Preferred stock redemption(480)
Acquisition of treasury stock(441)(1,604)
Preferred stock cash dividends paid(162)(181)
Common stock cash dividends paid(1,523)(1,488)
Net cash provided (used) by financing activities$(8,156)$43,223 
Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash$1,826 $1,568 
Net cash provided by discontinued operations012,244 
Net cash provided (used) by continuing operations1,826 (10,676)
Cash and due from banks and restricted cash at beginning of period7,017 5,061 
Cash and due from banks and restricted cash at end of period$8,843 $6,629 
Cash and due from banks and restricted cash
Cash and due from banks at end of period (unrestricted cash)$8,201 $6,297 
Restricted cash642332
Cash and due from banks and restricted cash at end of period$8,843 $6,629 
Supplemental Disclosures
Interest paid$395 $1,071 
Income taxes paid$402 $2,762 
Income taxes refunded$68 $
Leased assets obtained in exchange for new operating lease liabilities$289 $71 
Non-cash Investing and Financing Items
Transfer from loans to loans held for sale, net$677 $1,026 
Transfer from trading securities to investment securities0$289 
Transfer from loans to foreclosed assets$22 $57 
(a)Cash paid to acquire BBVA was $11,480 million. The amount of $10,511 million represents the cash paid for the acquisition less $969 million in cash acquired. See Note 2 Acquisition & Divestiture Activity for more detailed information on the BBVA acquisition.
See accompanying Notes To Consolidated Financial Statements.
The PNC Financial Services Group, Inc. – Form 10-Q 49  


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

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

BUSINESS

PNC is one of the largest diversified financial services companies in the U.S. and is headquartered in Pittsburgh, Pennsylvania.

We have businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of our products and services nationally. Our retail branch network is located coast-to-coast. We also have strategic international offices in four countries outside the U.S.

NOTE 1 ACCOUNTING POLICIES

Basis of Financial Statement Presentation

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

On June 1, 2021, we acquired BBVA, a U.S. financial holding company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA. Our results for the first nine months of 2021 reflect BBVA's acquired business operations for the period since the acquisition closed on June 1, 2021. Our balance sheet at September 30, 2021 includes BBVA's balances. See Note 2 Acquisition and Divestiture Activity for additional information on this acquisition.
We prepared these consolidated financial statements in accordance with GAAP. We have eliminated intercompany accounts and transactions. We have also reclassified certain prior year amounts to conform to the current period presentation, which did not have a material impact on our consolidated financial condition or results of operations.

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

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

When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2020 Form 10-K. Reference is made to Note 1 Accounting Policies in our 2020 Form 10-K for a detailed description of significant accounting policies. These interim consolidated financial statements serve to update our 2020 Form 10-K and may not include all information and Notes necessary to constitute a complete set of financial statements. There have been no significant changes to our accounting policies as disclosed in our 2020 Form 10-K.

Use of Estimates

We prepared these consolidated financial statements using financial information available at the time of preparation, which requires us to make estimates and assumptions that affect the amounts reported. Our most significant estimates pertain to the ACL and our fair value measurements, including for the BBVA acquisition. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.











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



Recently Adopted Accounting Standards

Accounting Standards UpdateDescriptionFinancial Statement Impact
Income Tax Simplification - ASU 2019-12

Issued December 2019



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


• Adopted January 1, 2021.
• The adoption of this standard did not impact our consolidated results of operations or our consolidated financial position. PNC will no longer allocate the consolidated amount of current and deferred income tax expense to certain qualifying stand-alone entities, which will impact the presentation of parent company tax expense subsequent to adoption.
Accounting Standards UpdateDescriptionFinancial Statement Impact
Reference Rate Reform - ASU 2020-04

Issued March 2020

Reference Rate Reform Scope - ASU 2021-01

Issued January 2021


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



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




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

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


• Adopted January 4, 2021.
• In accordance with the requirements of this ASU, we included Exhibit 22 in the Exhibit Index of Item 6 of this Report to disclose PNC’s guarantee of the PNC Capital Trust C preferred securities.
The PNC Financial Services Group, Inc. – Form 10-Q 51  


NOTE 2 ACQUISITION AND DIVESTITURE ACTIVITY

Acquisition of BBVA USA Bancshares, Inc.
On June 1, 2021, PNC acquired BBVA including its U.S. banking subsidiary, BBVA USA, for $11.5 billion in cash. PNC did not acquire the following entities as part of the acquisition: BBVA Securities, Inc., Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. This transaction has been accounted for as a business combination. Accordingly, the assets and liabilities from BBVA were recorded at fair value as of the acquisition date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Fair value estimates related to the assets and liabilities from BBVA are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, loans, certain deposits, certain other assets, customer relationships and the core deposit intangibles.
As of October 12, 2021, PNC has converted approximately 2.6 million customers, 9,000 employees and over 600 branches across 7 states, merging BBVA USA into PNC Bank.
PNC incurred merger and integration costs of $243 million and $360 million for the three and nine months ended September 30, 2021, in connection with the transaction. These costs are recorded as contra-revenue and expense on the Consolidated Income Statement. The integration expenses are primarily related to personnel, technology, advisory and legal, with $49 million direct acquisition-related costs. Cumulative costs through September 30, 2021 were $367 million.
The following table includes the preliminary fair value of the identifiable tangible and intangible assets and liabilities from BBVA:
Table 34: Acquisition Consideration
June 1, 2021
In millionsFair Value
Fair value of acquisition consideration$11,480 
Assets
Cash and due from banks$969 
Interest-earning deposits with banks13,313 
Loans held for sale463 
Investment securities – available for sale18,358 
Net loans61,439 
Equity investments723 
Mortgage servicing rights35 
Core deposit intangibles and other intangible assets399 
Other3,531 
Total assets$99,230 
Liabilities
Deposits$85,562 
Borrowed funds2,449 
Accrued expenses and other liabilities1,285 
Total liabilities$89,296 
Noncontrolling interests22 
Less: Net assets$9,912 
Goodwill$1,568 

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










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



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

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

June 1, 2021
In millionsUnpaid Principal BalanceFair Value
Loans
Commercial
Commercial and industrial$29,864 $29,381 
Commercial real estate10,632 10,313 
Equipment lease financing48 48 
Total commercial40,544 39,742 
Consumer
Residential real estate12,871 12,977 
Home equity2,430 2,423 
Automobile3,916 3,910 
Credit card820 758 
Other consumer1,688 1,629 
Total consumer21,725 21,697 
Total$62,269 $61,439 

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

Table 36: Intangible Assets

In millions Fair ValueWeighted Life
(years)
Amortization Method
Residential mortgage servicing rights$35 5.5(a)
Core deposits$283 10.0Accelerated
Other116 9.8Straight-line
Total core deposits and other$399 
(a) Intangible asset accounted for at fair value.

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

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

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

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

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

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

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


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

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

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

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

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

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

Table 37: BBVA Financial Results

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


The following table presents unaudited pro forma results as if the acquisition of BBVA by PNC had occurred on January 1, 2020 and includes the impact of amortizing and accreting certain estimated purchase accounting adjustments such as intangible assets as well as fair value adjustments to loans, deposits and long-term debt. Merger and integration costs of $360 million that have been incurred since January 1, 2021 are included in the pro forma results. PNC's financial results include the divestiture of BlackRock of $4.3 billion recorded in net income. Additionally, BBVA's financial results through the nine months ended September 30, 2020 included a $2.2 billion goodwill impairment charge recorded in noninterest expense. The pro forma information does not necessarily reflect the results that would have occurred had PNC acquired BBVA on January 1, 2020.
Table 38: Unaudited Pro Forma Results
Three months ended September 30Nine months ended September 30
In millions2021202020212020
Net interest income$2,837 $3,099 $8,812 $9,349 
Noninterest income$2,341 $2,007 $6,695 $5,832 
Net income$1,959 $1,616 $6,185 $2,467 

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



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

Table 39: PCD Loan Activity
June 1, 2021
In millions
Principal Balance$10,253 
ACL at acquisition(1,102)
Non-credit premium219 
Purchase price$9,370 
Sale of Equity Investment in BlackRock, Inc.
In May 2020, PNC completed the sale of its 31.6 million shares of BlackRock, Inc. common and preferred stock through a registered secondary offering at a price of $420 per share. In addition, BlackRock repurchased 2.65 million shares from PNC at a price of $414.96 per share. The total proceeds from the sale were $14.2 billion in cash, net of $0.2 billion in expenses, and resulted in a gain on sale of $4.3 billion. Additionally, PNC contributed 500,000 BlackRock shares to the PNC Foundation.

Following the sale and donation, PNC has divested its entire investment in BlackRock and only holds shares of BlackRock stock in a fiduciary capacity for clients of PNC.

The following table summarizes the results from the discontinued operations of BlackRock included in the Consolidated Income Statement:
Table 40: Consolidated Income Statement - Discontinued Operations
Nine months ended September 30
In millions2020
Noninterest income$5,777 
   Total revenue5,777 
Income from discontinued operations before income taxes and noncontrolling interests5,777 
Income taxes1,222 
    Net income from discontinued operations$4,555 

The following table summarizes the cash flows of discontinued operations of BlackRock included in the Consolidated Statement of Cash Flows:
Table 41: Consolidated Statement of Cash Flows - Discontinued Operations
Nine months ended September 30
In millions2020
Cash from discontinued operations
Net cash provided (used) by operating activities of discontinued operations$(1,981)
Net cash provided by investing activities of discontinued operations$14,225 

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


NOTE 3 INVESTMENT SECURITIES

The following table summarizes our available for sale and held to maturity portfolios by major security type:
Table 42: Investment Securities Summary
September 30, 2021 (a)December 31, 2020 (a)
In millionsAmortized
Cost
UnrealizedFair
Value
Amortized
Cost
UnrealizedFair
Value
GainsLossesGainsLosses
Securities Available for Sale
U.S. Treasury and government agencies$40,628 $472 $(131)$40,969 $19,821 $903 $(13)$20,711 
Residential mortgage-backed
Agency64,412 957 (184)65,185 47,355 1,566 (10)48,911 
Non-agency1,003 242 (3)1,242 1,272 243 (14)1,501 
Commercial mortgage-backed
Agency2,008 56 (4)2,060 2,571 119 (2)2,688 
Non-agency3,637 48 (14)3,671 3,678 78 (67)3,689 
Asset-backed5,999 75 (7)6,067 5,060 100 (10)5,150 
Other4,722 216 (5)4,933 4,415 293 04,708 
Total securities available for sale (b)$122,409 $2,066 $(348)$124,127 $84,172 $3,302 $(116)$87,358 
Securities Held to Maturity
U.S. Treasury and government agencies$809 $82 $891 $795 $125 $920 
Other670 29 $(7)692 646 42 $(3)685 
Total securities held to maturity (c)$1,479 $111 $(7)$1,583 $1,441 $167 $(3)$1,605 
(a) The accrued interest associated with our available for sale portfolio totaled $284 million and $238 million at September 30, 2021 and December 31, 2020, respectively.
    These amounts are included in Other assets on the Consolidated Balance Sheet.
(b) Amortized cost is presented net of allowance of $130 million and $79 million for securities available for sale at September 30, 2021 and December 31, 2020, respectively.
(c) Credit ratings represent a primary credit quality indicator used to monitor and manage credit risk. 84% and 85% of our securities held to maturity were rated AAA/AA at September 30, 2021 and December 31, 2020, respectively.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Securities available for sale are carried at fair value with net unrealized gains and losses included in Shareholders’ equity as AOCI, unless credit related. Net unrealized gains and losses are determined by taking the difference between the fair value of a security and its amortized cost, net of any allowance. Securities held to maturity are carried at amortized cost less any allowance. Investment securities at September 30, 2021 included $2.4 billion of net unsettled purchases which represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows. The comparable amount for September 30, 2020 was $0.7 billion.

We maintain the allowance for investment securities at levels that we believe to be appropriate as of the balance sheet date based on estimation of expected credit losses on our portfolio. As of September 30, 2021, the allowance for investment securities was $133 million and primarily related to non-agency commercial mortgage-backed securities in the available for sale portfolio. The provision for credit losses on investment securities was $25 million and $51 million for the three and nine months ended September 30, 2021. See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for a discussion of the methodologies used to determine the allowance for investment securities.

Table 43 presents the gross unrealized losses and fair value of securities available for sale that do not have an associated allowance for investment securities at September 30, 2021 and December 31, 2020. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities included in the table have been evaluated to determine if a credit loss exists. As part of that assessment, as of September 30, 2021, we concluded that we do not intend to sell and believe we will not be required to sell these securities prior to recovery of the amortized cost basis.
 
56    The PNC Financial Services Group, Inc. – Form 10-Q


Table 43: Gross Unrealized Loss and Fair Value of Securities Available for Sale Without an Allowance for Credit Losses

Unrealized loss position
less than 12 months
Unrealized loss position
12 months or more
Total
In millionsUnrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
September 30, 2021
U.S. Treasury and government agencies$(131)$21,970 $(131)$21,970 
Residential mortgage-backed
Agency(177)31,410 $(7)$1,135 (184)32,545 
Non-agency(2)136 (2)136 
Commercial mortgage-backed
Agency(3)380 (1)61 (4)441 
Non-agency(1)661 (2)489 (3)1,150 
Asset-backed(5)1,585 (2)331 (7)1,916 
Other(3)413 (3)413 
Total securities available for sale$(320)$56,419 $(14)$2,152 $(334)$58,571 
December 31, 2020
U.S. Treasury and government agencies$(13)$603 $(13)$603 
Residential mortgage-backed
Agency(8)3,152 $(2)$82 (10)3,234 
Non-agency(7)119 (7)73 (14)192 
Commercial mortgage-backed
Agency(2)149 (2)149 
Non-agency(13)972 (7)714 (20)1,686 
Asset-backed(1)339 (9)706 (10)1,045 
Total securities available for sale$(42)$5,185 $(27)$1,724 $(69)$6,909 

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

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












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


The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at September 30, 2021:
Table 45: Contractual Maturity of Debt Securities
September 30, 2021
Dollars in millions
1 Year or LessAfter 1 Year
through 5 Years
After 5 Years
through 10 Years
After 10
Years
Total
Securities Available for Sale
U.S. Treasury and government agencies$3,326 $24,754 $10,796 $1,752 $40,628 
Residential mortgage-backed
Agency108 2,448 61,855 64,412 
Non-agency1,001 1,003 
Commercial mortgage-backed
Agency76 413 778 741 2,008 
Non-agency147 182 3,308 3,637 
Asset-backed97 2,104 711 3,087 5,999 
Other317 2,080 1,593 732 4,722 
Total securities available for sale at amortized cost$3,817 $29,606 $16,510 $72,476 $122,409 
Fair value$3,836 $29,919 $16,673 $73,699 $124,127 
Weighted-average yield, GAAP basis (a)1.29 %1.18 %1.63 %2.45 %2.00 %
Securities Held to Maturity
U.S. Treasury and government agencies$199 $321 $289 $809 
Other$126 367 115 62 670 
Total securities held to maturity at amortized cost$126 $566 $436 $351 $1,479 
Fair value$128 $590 $502 $363 $1,583 
Weighted-average yield, GAAP basis (a)3.47 %2.91 %3.91 %2.52 %3.16 %
(a) Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security.
At September 30, 2021, there were no securities of a single issuer, other than FNMA and FHLMC, that exceeded 10% of total shareholders’ equity. The FNMA and FHLMC investments had a total amortized cost of $33.1 billion and $21.6 billion and fair value of $33.8 billion and $21.6 billion, respectively.
The following table presents the fair value of securities that have been either pledged to or accepted from others to collateralize outstanding borrowings:
Table 46: Fair Value of Securities Pledged and Accepted as Collateral
In millionsSeptember 30
2021
December 31
2020
Pledged to others$25,252 $22,841 
Accepted from others:
Permitted by contract or custom to sell or repledge$800 $683 
Permitted amount repledged to others$800 $683 

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
















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


NOTE 4 LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

Loan Portfolio
Our loan portfolio consists of 2 portfolio segments – Commercial and Consumer. Each of these segments comprises multiple loan classes. Classes are characterized by similarities in risk attributes and the manner in which we monitor and assess credit risk.
CommercialConsumer
• Commercial and industrial
• Residential real estate
• Commercial real estate
• Home equity
• Equipment lease financing
• Automobile
• Credit card
• Education
• Other consumer
See Note 1 Accounting Policies included in Item 8 of our 2020 Form 10-K for additional information on our loan related policies.

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

The measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. Loan delinquencies include government insured or guaranteed loans, loans accounted for under the fair value option and PCD loans.

Table 47 presents the composition and delinquency status of our loan portfolio at September 30, 2021 and December 31, 2020. Pursuant to the interagency guidance issued in April 2020 and in connection with the credit reporting rules from the CARES Act, the delinquency status of loans modified due to COVID-19 related hardships aligns with the rules set forth for banks to report delinquency status to the credit agencies. These rules require that COVID-19 related loan modifications be reported as follows:
if current at the time of modification, the loan remains current throughout the modification period,
if delinquent at the time of modification and the borrower was not made current as part of the modification, the loan maintains its reported delinquent status during the modification period, or
if delinquent at the time of modification and the borrower was made current as part of the modification or became current during the modification period, the loan is reported as current.

As a result, certain loans modified due to COVID-19 related hardships are not being reported as past due as of September 30, 2021 and December 31, 2020 based on the contractual terms of the loan, even where borrowers may not be making payments on their loans during the modification period. Loan modifications due to COVID-19 related hardships that permanently reduce either the contractual interest rate or the principal balance of a loan do not qualify for TDR relief under the CARES Act or the interagency guidance.
The PNC Financial Services Group, Inc. – Form 10-Q 59  


Table 47: Analysis of Loan Portfolio (a) (b)
 Accruing    
Dollars in millionsCurrent or Less
Than 30 Days
Past Due
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past
Due (c)
 Nonperforming
Loans
Fair Value
Option
Nonaccrual
Loans (d)
Total Loans
(e)(f)
September 30, 2021 
Commercial 
Commercial and industrial$151,703 $97 $50 $56 $203   $829 $152,735 
Commercial real estate35,749 68 11 81   365 36,195 
Equipment lease financing6,238   10 6,257 
Total commercial193,690 170 56 67 293   1,204 195,187 
Consumer 
Residential real estate36,504 209 80 296 585 (c)533 $592 38,214 
Home equity23,719 45 18 63 592 105 24,479 
Automobile16,940 114 23 141   184 17,265 
Credit card6,337 42 27 53 122   6,466 
Education2,521 45 26 61 132 (c)2,653 
Other consumer5,898 34 15 11 60 5,966 
Total consumer91,919 489 189 425 1,103   1,324 697 95,043 
Total$285,609 $659 $245 $492 $1,396   $2,528 $697 $290,230 
Percentage of total loans98.41 %0.23 %0.08 %0.17 %0.48 %0.87 %0.24 %100.00 %
December 31, 2020
Commercial
Commercial and industrial$131,245 $106 $26 $30 $162 $666 $132,073 
Commercial real estate28,485 224 28,716 
Equipment lease financing6,345 31 36 33 6,414 
Total commercial166,075 143 32 30 205 923 167,203 
Consumer
Residential real estate20,945 181 78 319 578 (c)528 $509 22,560 
Home equity23,318 50 21 71 645 54 24,088 
Automobile13,863 134 34 12 180 175 14,218 
Credit card6,074 43 30 60 133 6,215 
Education2,785 55 29