Edgar Filing: PNC FINANCIAL SERVICES GROUP, INC.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

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

For the transition period from to

Commission file number 001-09718

The PNC Financial Services Group, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania

25-1435979

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(Address of principal executive offices, including zip code)

(412) 762-2000

(Registrant’s telephone number, including area code)

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 24, 2015, there were 513,599,824 shares of the registrant’s common stock ($5 par value) outstanding.

THE PNC FINANCIAL SERVICES GROUP, INC.

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


	Pages
PART I – FINANCIAL INFORMATION

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

Notes To Consolidated Financial Statements (Unaudited)
Note 1 Accounting Policies		61
Note 2 Loan Sale and Servicing Activities and Variable Interest Entities		65
Note 3 Asset Quality		69
Note 4 Purchased Loans		82
Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit		83
Note 6 Investment Securities		86
Note 7 Fair Value		90
Note 8 Goodwill and Intangible Assets		101
Note 9 Capital Securities of a Subsidiary Trust and Perpetual Trust Securities		103
Note 10 Certain Employee Benefit And Stock Based Compensation Plans		103
Note 11 Financial Derivatives		106
Note 12 Earnings Per Share		113
Note 13 Total Equity And Other Comprehensive Income		114
Note 14 Income Taxes		119
Note 15 Legal Proceedings		119
Note 16 Commitments and Guarantees		122
Note 17 Segment Reporting		126
Note 18 Subsequent Events		129

Statistical Information (Unaudited)
Average Consolidated Balance Sheet And Net Interest Analysis		130
Transitional Basel III and Pro forma Fully Phased-In Basel III Common Equity Tier 1 Capital Ratios – 2014 Periods		132

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
Financial Review
Consolidated Financial Highlights		1
Executive Summary		3
Consolidated Income Statement Review		8
Consolidated Balance Sheet Review		11
Off-Balance Sheet Arrangements And Variable Interest Entities		21
Fair Value Measurements		22
Business Segments Review		22
Critical Accounting Estimates and Judgments		31
Status Of Qualified Defined Benefit Pension Plan		32
Recourse And Repurchase Obligations		33
Risk Management		34
Internal Controls And Disclosure Controls And Procedures		49
Glossary Of Terms		49
Cautionary Statement Regarding Forward-Looking Information		54

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		34-49, 90-100 and 106-113

Item 4. Controls and Procedures.		49

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.		133

Item 1A. RiskFactors.		133

Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.		133

Item 6. Exhibits.		133

Exhibit Index.		133

Corporate Information		134

Signature		135

THE PNC FINANCIAL SERVICES GROUP, INC.

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

MD&A TABLE REFERENCE


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

THE PNC FINANCIAL SERVICES GROUP, INC.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE REFERENCE


Table	Description	Page
50	Certain Financial Information and Cash Flows Associated with Loan Sale and Servicing Activities		66
51	Principal Balance, Delinquent Loans, and Net Charge-offs Related to Serviced Loans		67
52	Consolidated VIEs – Carrying Value		68
53	Non-Consolidated VIEs		69
54	Analysis of Loan Portfolio		70
55	Nonperforming Assets		71
56	Commercial Lending Asset Quality Indicators		73
57	Home Equity and Residential Real Estate Balances		74
58	Home Equity and Residential Real Estate Asset Quality Indicators – Excluding Purchased Impaired Loans		74
59	Home Equity and Residential Real Estate Asset Quality Indicators – Purchased Impaired Loans		76
60	Credit Card and Other Consumer Loan Classes Asset Quality Indicators		77
61	Summary of Troubled Debt Restructurings		78
62	Financial Impact and TDRs by Concession Type		78
63	TDRs that were Modified in the Past Twelve Months which have Subsequently Defaulted		80
64	Impaired Loans		81
65	Purchased Impaired Loans – Balances		82
66	Purchased Impaired Loans – Accretable Yield		83
67	Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data		84
68	Rollforward of Allowance for Unfunded Loan Commitments and Letters of Credit		85
69	Investment Securities Summary		86
70	Gross Unrealized Loss and Fair Value of Securities Available for Sale		87
71	Gains (Losses) on Sales of Securities Available for Sale		89
72	Contractual Maturity of Debt Securities		89
73	Fair Value of Securities Pledged and Accepted as Collateral		90
74	Fair Value Measurements – Recurring Basis Summary		91
75	Reconciliation of Level 3 Assets and Liabilities		92
76	Fair Value Measurements – Recurring Quantitative Information		96
77	Fair Value Measurements – Nonrecurring		98
78	Fair Value Measurements – Nonrecurring Quantitative Information		98
79	Fair Value Option – Changes in Fair Value		98
80	Fair Value Option – Fair Value and Principal Balances		99
81	Additional Fair Value Information Related to Other Financial Instruments		100
82	Goodwill by Business Segment		101
83	Mortgage Servicing Rights		101
84	Commercial Mortgage Loan Servicing Rights – Key Valuation Assumptions		102
85	Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions		102
86	Fees from Mortgage and Other Loan Servicing		102
87	Other Intangible Assets		102
88	Amortization Expense on Existing Intangible Assets		102
89	Net Periodic Pension and Postretirement Benefits Costs		104
90	Stock Option Rollforward		105
91	Nonvested Incentive/Performance Unit Share Awards and Restricted Stock/Share Unit Awards – Rollforward		105
92	Nonvested Cash-Payable Incentive/Performance Units and Restricted Share Units – Rollforward		105
93	Total Gross Derivatives		106
94	Derivatives Designated As Hedging Instruments under GAAP		107
95	Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges		107
96	Gains (Losses) on Derivatives and Related Cash Flows – Cash Flow Hedges		108
97	Gains (Losses) on Derivatives – Net Investment Hedges		108
98	Derivatives Not Designated As Hedging Instruments under GAAP		109
99	Gains (Losses) on Derivatives Not Designated As Hedging Instruments under GAAP		110
100	Credit Default Swaps		110

THE PNC FINANCIAL SERVICES GROUP, INC.

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


Table	Description	Page
101	Credit Ratings of Credit Default Swaps		110
102	Referenced/Underlying Assets of Credit Default Swaps		110
103	Risk Participation Agreements Sold		111
104	Derivative Assets and Liabilities Offsetting		112
105	Basic and Diluted Earnings per Common Share		113
106	Rollforward of Total Equity		114
107	Other Comprehensive Income		115
108	Accumulated Other Comprehensive Income (Loss) Components		118
109	Net Operating Loss Carryforwards and Tax Credit Carryforwards		119
110	Commitments to Extend Credit and Other Commitments		122
111	Internal Credit Ratings Related to Net Outstanding Standby Letters of Credit		122
112	Reinsurance Agreements Exposure		122
113	Reinsurance Reserves – Rollforward		123
114	Analysis of Commercial Mortgage Recourse Obligations		124
115	Analysis of Indemnification and Repurchase Liability for Asserted Claims and Unasserted Claims		125
116	Resale and Repurchase Agreements Offsetting		126
117	Repurchase Agreements By Type of Collateral Pledged		126
118	Results Of Businesses		128

FINANCIAL REVIEW

THE PNC FINANCIAL SERVICES GROUP, INC.

This Financial Review, including the Consolidated Financial Highlights, should be read together with our unaudited Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Report and with Items 6, 7, 8 and 9A of our 2014 Annual Report on Form 10-K (2014 Form 10-K). We have reclassified certain prior period amounts to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. For information regarding certain business, regulatory and legal risks, see the following sections as they appear in this Report and in our 2014 Form 10-K and our First Quarter 2015 Form 10-Q: the Risk Management and Recourse And Repurchase Obligations sections of the Financial Review portion of the respective report; Item 1A Risk Factors included in our 2014 Form 10-K; and the Legal Proceedings and Commitments and Guarantees Notes of the Notes To Consolidated Financial Statements included in the respective report. Also, see the Cautionary Statement Regarding Forward-Looking Information section in this Financial Review and the Critical Accounting Estimates And Judgments section in this Financial Review and in our 2014 Form 10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this Report. See Note 17 Segment Reporting in the Notes To Consolidated Financial Statements included in Part I, Item 1 of this Report for a reconciliation of total business segment earnings to total PNC consolidated net income as reported on a GAAP basis.

Table 1: Consolidated Financial Highlights

THE PNC FINANCIAL SERVICES GROUP, INC. (PNC)


Dollars in millions, except per share data Unaudited	Three months ended June 30						Six months ended June 30
Dollars in millions, except per share data Unaudited	2015			2014			2015			2014
Financial Results (a)
Revenue
Net interest income	$	2,052		$	2,129		$	4,124		$	4,324
Noninterest income		1,814			1,681			3,473			3,263
Total revenue		3,866			3,810			7,597			7,587
Noninterest expense		2,366			2,328			4,715			4,592
Pretax, pre-provision earnings (b)		1,500			1,482			2,882			2,995
Provision for credit losses		46			72			100			166
Income before income taxes and noncontrolling interests	$	1,454		$	1,410		$	2,782		$	2,829
Net income	$	1,044		$	1,052		$	2,048		$	2,112
Less:
Net income (loss) attributable to noncontrolling interests		4			3			5			1
Preferred stock dividends and discount accretion and redemptions		48			48			118			118
Net income attributable to common shareholders	$	992		$	1,001		$	1,925		$	1,993
Less:
Dividends and undistributed earnings allocated to nonvested restricted shares		–			3			2			6
Impact of BlackRock earnings per share dilution		5			3			10			9
Net income attributable to diluted common shares	$	987		$	995		$	1,913		$	1,978
Diluted earnings per common share	$	1.88		$	1.85		$	3.63		$	3.67
Cash dividends declared per common share	$	.51		$	.48		$	.99		$	.92
Performance Ratios
Net interest margin (c)		2.73	%		3.12	%		2.78	%		3.19	%
Noninterest income to total revenue		47			44			46			43
Efficiency		61			61			62			61
Return on:
Average common shareholders’ equity		9.75			10.12			9.54			10.24
Average assets		1.19			1.31			1.18			1.33

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

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

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

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

(c)

Calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles (GAAP) in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the three months ended June 30, 2015 and June 30, 2014 were $49 million and $47 million, respectively. The taxable-equivalent adjustments to net interest income for the six months ended June 30, 2015 and June 30, 2014 were $98 million and $93 million, respectively.

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

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


Unaudited	June 30 2015			December 31 2014			June 30 2014
Balance Sheet Data (dollars in millions, except per share data)
Assets	$	353,945		$	345,072		$	327,064
Loans		205,153			204,817			200,984
Allowance for loan and lease losses		3,272			3,331			3,453
Interest-earning deposits with banks (b)		33,969			31,779			16,876
Investment securities		61,362			55,823			56,602
Loans held for sale		2,357			2,262			2,228
Goodwill		9,103			9,103			9,074
Mortgage servicing rights		1,558			1,351			1,482
Equity investments (c)		10,531			10,728			10,583
Other assets		24,032			23,482			23,527

Noninterest-bearing deposits		77,369			73,479			71,001
Interest-bearing deposits		162,335			158,755			151,553
Total deposits		239,704			232,234			222,554
Transaction deposits		205,296			198,267			188,489
Borrowed funds		58,276			56,768			49,066
Total shareholders’ equity		44,515			44,551			44,205
Common shareholders’ equity		41,066			40,605			40,261
Accumulated other comprehensive income		379			503			881

Book value per common share	$	79.64		$	77.61		$	75.62
Common shares outstanding (millions)		516			523			532
Loans to deposits		86	%		88	%		90	%

Client Investment Assets (billions)
Discretionary client assets under management	$	134		$	135		$	131
Nondiscretionary client assets under administration		128			128			126
Total client assets under administration		262			263			257
Brokerage account client assets		44			43			43
Total	$	306		$	306		$	300

Capital Ratios
Transitional Basel III (d) (e)
Common equity Tier 1		10.6	%		10.9	%		11.0	%
Tier 1 risk-based		12.0			12.6			12.7
Total capital risk-based		14.9			15.8			16.0
Leverage		10.3			10.8			11.2

Pro forma Fully Phased-In Basel III (e)
Common equity Tier 1		10.0	%		10.0	%		10.0	%

Common shareholders’ equity to assets		11.6	%		11.8	%		12.3	%

Asset Quality
Nonperforming loans to total loans		1.10	%		1.23	%		1.39	%
Nonperforming assets to total loans, OREO and foreclosed assets		1.25			1.40			1.57
Nonperforming assets to total assets		.73			.83			.97
Net charge-offs to average loans (for the three months ended) (annualized)		.13			.23			.29
Allowance for loan and lease losses to total loans		1.59			1.63			1.72
Allowance for loan and lease losses to nonperforming loans (f)		145	%		133	%		123	%
Accruing loans past due 90 days or more (in millions)	$	914		$	1,105		$	1,252

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

(b)	Amounts include balances held with the Federal Reserve Bank of Cleveland (Federal Reserve Bank) of $33.6 billion, $31.4 billion, and $16.5 billion as of June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

(c)	Amounts include our equity interest in BlackRock.

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

(e)

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

(f)	The allowance for loan and lease losses includes impairment reserves attributable to purchased impaired loans. Nonperforming loans exclude certain government insured or guaranteed loans, loans held for sale, loans accounted for under the fair value option and purchased impaired loans.

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

EXECUTIVE SUMMARY

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

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

Key Strategic Goals

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

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

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

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

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

Recent Market and Industry Developments

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

On June 17, 2015, the OCC terminated the 2011 consent order and 2013 amended consent order against PNC Bank entered into following a publicly-disclosed interagency horizontal review of residential mortgage servicing operations at 14 federally regulated mortgage servicers. For more information, see Note 15 Legal Proceedings of this Report and Note 21 Legal Proceedings in our 2014 Form 10-K.

On July 20, 2015, the Federal Reserve issued final rules to implement an additional risk-based common equity Tier 1 capital surcharge on U.S. bank holding companies (BHCs) identified as global systemically important banks (GSIBs) using a scoring methodology that is based on five measures of global systemic importance (size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity). Based on that methodology, PNC is not subject to the surcharge. The release accompanying the final rules indicates that there is a wide gap between the scores of U.S. BHCs identified as GSIBs and the

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

significantly lower scores of other advanced approaches BHCs (such as PNC) that are not identified as GSIBs.

On July 21, 2015, the Consumer Financial Protection Bureau issued final rules delaying to October 3, 2015 (from August 2015) the effective date of broad new regulations concerning the disclosures required to be provided to prospective residential mortgage customers. These regulations, among other things, require the provision of new disclosures near the time a prospective borrower submits an application and three days prior to closing of a mortgage loan.

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

Key Factors Affecting Financial Performance

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

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

•

General economic conditions, including the continuity, speed and stamina of the current U.S. economic expansion in general and on our customers in particular,

•

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

•

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

•

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

•

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

•

Customer demand for non-loan products and services,

•

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

•

The impact of the extensive reforms enacted in the Dodd-Frank legislation and other legislative,

regulatory and administrative initiatives and actions, including those outlined elsewhere in this Report, in our 2014 Form 10-K and in subsequent filings with the SEC, and

•

The impact of market credit spreads on asset valuations.

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

•

Focused execution of strategic priorities for organic customer growth opportunities,

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

A sustained focus on expense management,

•

Managing our credit risk in our portfolio,

•

Managing the non-strategic assets portfolio and impaired assets,

•

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

•

Prudent risk, liquidity and capital management related to our efforts to manage risk to acceptable levels and to meet evolving regulatory capital, capital planning, stress testing and liquidity standards,

•

Actions we take within the capital and other financial markets,

•

The impact of legal and regulatory-related contingencies, and

•

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

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

Income Statement Highlights

Net income decreased $8 million, or 1%, in the second quarter of 2015 to $1.0 billion, or $1.88 per diluted common share, compared to $1.1 billion, or $1.85 per diluted common share for the second quarter of 2014. Growth in noninterest income and a lower provision for credit losses were more than offset by lower net interest income and higher noninterest expense.

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

•

Net interest income of $2.1 billion for the second quarter of 2015 decreased 4% compared with the second quarter of 2014, reflective of the ongoing low rate environment, primarily resulting in lower loan yields, and decreased purchase accounting accretion, partially offset by commercial and commercial real estate loan growth and higher securities balances.

•

Net interest margin decreased to 2.73% for the second quarter of 2015 compared to 3.12% for the second quarter of 2014 principally due to the impact of increasing the company’s liquidity position, lower loan yields and lower benefit from purchase accounting accretion.

•

Noninterest income of $1.8 billion for the second quarter of 2015 increased $133 million, or 8%, compared to the second quarter of 2014, due to strong client fee income growth and higher gains on asset sales, including gains on sales of Visa Class B common shares.

•

The provision for credit losses decreased to $46 million for the second quarter of 2015 compared to $72 million for the second quarter of 2014 reflecting improved credit quality.

•

Noninterest expense of $2.4 billion for the second quarter of 2015 increased $38 million, or 2%, compared with the second quarter of 2014 due to investments in technology and business infrastructure in support of its strategic priorities and higher personnel expense associated with higher business activity, partially offset by lower asset impairment charges related to historic tax credits recorded as reductions to the associated investment asset balance. PNC maintains a continued focus on disciplined expense management.

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

Credit Quality Highlights

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

•

Nonperforming assets decreased $.3 billion, or 10%, to $2.6 billion at June 30, 2015 compared to December 31, 2014. Nonperforming assets to total assets were 0.73% at June 30, 2015, compared to 0.83% at December 31, 2014.

•

Overall loan delinquencies of $1.6 billion at June 30, 2015 decreased $.3 billion, or 16%, compared with December 31, 2014.

•

The allowance for loan and lease losses was 1.59% of total loans and 145% of nonperforming loans at June 30, 2015, compared with 1.63% and 133% at December 31, 2014, respectively.

•

Net charge-offs of $67 million for the second quarter of 2015 were down 54% compared to net charge-offs of $145 million for the second quarter of 2014.

Annualized net charge-offs were 0.13% of average loans in the second quarter of 2015 and 0.29% of average loans in the second quarter of 2014. For the first six months of 2015, net charge-offs were $170 million, and 0.17% of average loans on an annualized basis, compared with $331 million and 0.34% for the first six months of 2014.

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

Balance Sheet, Liquidity and Capital Highlights

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

•

Total loans increased by $.3 billion to $205.2 billion at June 30, 2015 compared to December 31, 2014.

–

Total commercial lending increased $2.3 billion, or 2%, as a result of increases in commercial real estate and commercial loans.

–

Total consumer lending decreased $2.0 billion, or 3%, due to declines in home equity, automobile, education and credit card loans, including runoff in the nonstrategic portfolio.

•

Investment securities increased $5.5 billion, or 10%, to $61.4 billion at June 30, 2015 compared to December 31, 2014, primarily funded by deposit growth.

•

Total deposits increased $7.5 billion, or 3%, to $239.7 billion at June 30, 2015 compared with December 31, 2014, driven by higher retail deposits.

•

PNC’s balance sheet remained core funded with a loans to deposits ratio of 86% at June 30, 2015.

•

PNC maintained a strong liquidity position.

–

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

–

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

•

PNC maintained a strong capital position.

–

The Transitional Basel III common equity Tier 1 capital ratio was 10.6% at June 30, 2015 and 10.9% at December 31, 2014, calculated using the regulatory capital methodologies applicable to PNC during 2015 and 2014, respectively. The decline in the capital ratio during the comparable periods was mainly due to higher risk-weighted assets.

–

Pro forma fully phased-in Basel III common equity Tier 1 capital ratio was an estimated 10.0% at June 30, 2015 and 10.0% at December 31, 2014 based on the standardized approach rules. See the Capital discussion and Table 19 in the Consolidated Balance Sheet

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

Review section of this Financial Review and the December 31, 2014 capital ratio tables in the Statistical Information (Unaudited) section of this Report for more detail.

•

PNC returned capital to shareholders.

–

In the first quarter of 2015, in accordance with the 2014 capital plan, PNC repurchased 4.4 million shares of common stock on the open market, with an average price of $89.48 per share and an aggregate repurchase price of $.4 billion. These first quarter 2015 repurchases completed PNC’s common stock repurchase program for the four quarter period that began in second quarter 2014 with total repurchases of 17.3 million common shares for $1.5 billion.

–

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

–

In the second quarter of 2015, we repurchased 5.9 million shares of common stock on the open market, with an average price of $93.93 per share and an aggregate repurchase price of $.6 billion. Purchases were made under share repurchase programs of up to $2.875 billion for the five quarter period beginning in the second quarter of 2015. See the Capital portion of the Consolidated Balance Sheet review of this Financial Review for more detail on these share repurchase programs.

–

In April 2015, the Board of Directors raised the quarterly dividend on common stock to 51 cents per share, an increase of 3 cents per share, or 6 percent, effective with the May dividend. On July 2, 2015, the PNC Board of Directors declared a quarterly common stock cash dividend of 51 cents per share payable on August 5, 2015.

–

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

Our Consolidated Income Statement and Consolidated Balance Sheet Review sections of this Item 7 describe in greater detail the various items that impacted our results during the first six months of 2015 and 2014 and balances at June 30, 2015 and December 31, 2014, respectively.

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

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

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

Average Consolidated Balance Sheet Highlights

Table 2: Summarized Average Balance Sheet


Six months ended June 30					Change
Dollars in millions	2015		2014		$		%
Average assets
Interest-earning assets
Investment securities	$	58,310	$	57,342	$	968		2	%
Loans		205,272		197,914		7,358		4	%
Interest-earning deposits with banks		31,392		13,410		17,982		134	%
Other		9,236		8,415		821		10	%
Total interest-earning assets		304,210		277,081		27,129		10	%
Noninterest-earning assets		46,151		43,968		2,183		5	%
Total average assets	$	350,361	$	321,049	$	29,312		9	%
Average liabilities and equity
Interest-bearing liabilities
Interest-bearing deposits	$	161,236	$	151,212	$	10,024		7	%
Borrowed funds		56,757		46,747		10,010		21	%
Total interest-bearing liabilities		217,993		197,959		20,034		10	%
Noninterest-bearing deposits		74,245		67,951		6,294		9	%
Other liabilities		12,181		10,313		1,868		18	%
Equity		45,942		44,826		1,116		2	%
Total average liabilities and equity	$	350,361	$	321,049	$	29,312		9	%

Seasonal and other factors may impact our period-end balances, whereas average balances are generally more indicative of underlying business trends apart from the impact of acquisitions and divestitures. The Consolidated Balance Sheet Review section of this Financial Review provides information on changes in selected Consolidated Balance Sheet categories at June 30, 2015 compared with December 31, 2014. Total assets were $353.9 billion at June 30, 2015 compared with $345.1 billion at December 31, 2014.

Average investment securities increased in the first six months of 2015 compared with the first six months of 2014, due to increases in average residential mortgage-backed securities and U.S. Treasury and government agency securities, partially offset by a decrease in average asset-backed securities. Total investment securities comprised 19% of average interest-earning assets for the first six months of 2015 and 21% for the first six months of 2014.

The increase in average total loans in the first six months of 2015 compared with the first six months of 2014 was driven by growth in average commercial loans of $7.4 billion and average commercial real estate loans of $2.2 billion, principally in our Corporate & Institutional Banking segment. These increases were partially offset by a decrease in consumer loans of $1.9 billion primarily attributable to lower home equity and education loans. Runoff in the non-strategic portfolio of residential mortgage and brokered home equity loans contributed to the decrease in loans.

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

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

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

Average total deposits increased $16.3 billion, or 7%, to $235.5 billion in the first six months of 2015 compared with the first six months of 2014, primarily due to an increase in average transaction deposits, which grew to $201.4 billion for the first six months of 2015. Higher average money market deposits, average noninterest-bearing deposits and average interest-bearing demand deposits drove the increase in both commercial and consumer average transaction deposits. These increases were partially offset by a decrease of $1.8 billion in average retail certificates of deposit attributable to runoff of maturing accounts. Total deposits at June 30, 2015 were

$239.7 billion compared with $232.2 billion at December 31, 2014 and are further discussed within the Consolidated Balance Sheet Review section of this Financial Review.

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

The increase in average borrowed funds in the first six months of 2015 compared with the first six months of 2014 was primarily due to increases in average Federal Home Loan Bank (FHLB) borrowings and average bank notes and senior debt. The Liquidity Risk Management portion of the Risk Management section of this Financial Review includes additional information regarding our sources and uses of borrowed funds.

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

Business Segment Highlights

Total business segment earnings were $2.0 billion for both the first six months of 2015 and 2014. The Business Segments Review section of this Financial Review includes further analysis of our business segment results over the first six months of 2015 and 2014, including presentation differences from Note 17 Segment Reporting in our Notes To Consolidated Financial Statements of this Report. Note 17 Segment Reporting presents results of businesses for the three and six months ended June 30, 2015 and 2014.

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

Table 3: Results Of Businesses – Summary (a)

(Unaudited)


	Net Income				Revenue				Average Assets (b)
Six months ended June 30 – in millions	2015		2014		2015		2014		2015		2014
Retail Banking	$	443	$	383	$	3,161	$	3,008	$	73,691	$	75,559
Corporate & Institutional Banking		990		993		2,647		2,646		131,711		119,992
Asset Management Group		99		90		595		549		7,974		7,642
Residential Mortgage Banking		47		32		413		433		7,190		8,128
BlackRock		269		253		351		332		6,760		6,400
Non-Strategic Assets Portfolio		137		209		230		295		7,094		8,732
Total business segments		1,985		1,960		7,397		7,263		234,420		226,453
Other (c) (d) (e)		63		152		200		324		115,941		94,596
Total	$	2,048	$	2,112	$	7,597	$	7,587	$	350,361	$	321,049

(a)

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

(b)	Period-end balances for BlackRock.

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

(d)

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

(e)	The decreases in net income and revenue in the first six months of 2015 compared to the first six months of 2014 for “Other” primarily reflected a decline in net interest income, partially offset by higher net securities gains.

CONSOLIDATED INCOME STATEMENT REVIEW

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

Net income for the first six months of 2015 was $2.0 billion, a decrease of 3% compared with $2.1 billion for the first six months of 2014. The decrease was driven by a 5% decline in net interest income and a 3% increase in noninterest expense, partially offset by a 6% increase in noninterest income and lower provision for credit losses.

Second quarter 2015 net income decreased $8 million to $1.0 billion, compared with second quarter 2014. Growth in noninterest income of 8% and lower provision for credit losses were more than offset by a 4% decline in net interest income and higher noninterest expense.

Net Interest Income

Table 4: Net Interest Income and Net Interest Margin


	Six months ended June 30						Three months ended June 30
Dollars in millions	2015			2014			2015			2014
Net interest income	$	4,124		$	4,324		$	2,052		$	2,129
Net interest margin		2.78	%		3.19	%		2.73	%		3.12	%

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

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

Net interest income decreased by $200 million, or 5%, in the first six months of 2015 compared with the prior year period, including a decline of $77 million, or 4%, in the second quarter compared with the same prior year quarter. The declines in both comparisons are reflective of the ongoing low rate environment, primarily resulting in lower loan yields, and decreased purchase accounting accretion, partially offset by commercial and commercial real estate loan growth and higher securities balances. The year-to-date declines also reflected the impact from the second quarter 2014 correction to reclassify certain commercial facility fees from net interest income to noninterest income.

Lower net interest margins in both comparisons were driven by 41 basis point and 39 basis point declines in the yields on total interest-earning assets in the year-to-date and quarterly

comparisons, respectively, which were principally due to the impact of increasing the company’s liquidity position, lower loan yields, and lower benefit from purchase accounting accretion. The year-to-date decline also included the impact of the second quarter 2014 correction to reclassify certain commercial facilities fees.

In the third quarter of 2015, we expect net interest income to remain stable compared with the second quarter of 2015.

For full year 2015, we expect purchase accounting accretion to be down compared to 2014 by approximately $200 million, rather than $225 million as previously disclosed, as cash recoveries on purchased impaired loans in the first six months of 2015 were higher than expected.

Noninterest Income

Table 5: Noninterest Income


	Six months ended June 30										Three months ended June 30
					Change											Change
Dollars in millions	2015		2014		$			%			2015		2014			$			%
Noninterest income
Asset management	$	792	$	726	$	66			9	%	$	416	$	362		$	54			15	%
Consumer services		645		613		32			5	%		334		323			11			3	%
Corporate services		713		644		69			11	%		369		343			26			8	%
Residential mortgage		328		343		(15	)		(4)	%		164		182			(18	)		(10)	%
Service charges on deposits		309		303		6			2	%		156		156			–			–	%
Net gains on sales of securities		50		4		46			*			8		(6	)		14			*
Other		636		630		6			1	%		367		321			46			14	%
Total noninterest income	$	3,473	$	3,263	$	210			6	%	$	1,814	$	1,681		$	133			8	%

*	Not meaningful

Noninterest income increased in both quarterly and year-to-date comparisons primarily due to strong fee income growth and higher gains on asset sales. Noninterest income as a percentage of total revenue was 46% for the first six months of 2015, up from 43% for the first six months of 2014. The comparable amounts for the second quarters of 2015 and 2014 were 47% and 44%, respectively.

Asset management revenue increased in both comparisons due to increased earnings from our BlackRock investment, stronger average equity markets, and new business. The increases also included the impact from a $30 million trust settlement during the second quarter of 2015. Discretionary client assets under management increased to $134 billion at June 30, 2015 compared with $131 billion at June 30, 2014 driven by higher equity markets, new sales and positive net flows, after adjustments for cyclical client activities.

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

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

Residential mortgage revenue decreased in both quarterly and year-to-date comparisons mainly driven by lower loan sales revenue, reflecting the impact from the second quarter 2014 sale of previously underperforming portfolio loans and lower servicing fee revenue, partially offset by higher net hedging gains on residential mortgage servicing rights.

Service charges on deposits for the first six months of 2015 increased slightly compared to the first six months of 2014, due to changes in product offerings and higher customer-related activity. Service charges on deposits for the second quarter of 2015 were stable with the prior year quarter.

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

Other noninterest income for the second quarter of 2015 included gains of $79 million on the sale of 1 million Visa Class B common shares compared with gains of $54 million on the sale of 1 million Visa Class B common shares in the second quarter of 2014. For the first six months of 2015 and 2014, gains on sales of Visa Class B common shares were $79 million and $116 million on the sale of 1 million and 2 million shares, respectively. In both comparisons, gains on loans held for sale increased.

As of June 30, 2015, we held approximately 6 million Visa Class B common shares with a fair value of approximately $649 million and a recorded investment of approximately $54 million.

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

In the third quarter of 2015, we expect the fee categories of noninterest income (asset management, consumer services, corporate services, residential mortgage and service charges on deposits) to remain stable compared to second quarter of 2015. We anticipate that continued growth in business activity in the third quarter will offset the impact to asset management revenue from the second quarter 2015 trust settlement.

Provision For Credit Losses

The provision for credit losses totaled $100 million for the first six months of 2015 compared with $166 million for the first six months of 2014, and was $46 million for the second quarter of 2015 compared with $72 million for the second quarter of 2014. The decreases in provision in both comparisons reflected improved credit quality.

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

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

Noninterest Expense

Noninterest expense increased $123 million, or 3%, to $4.7 billion for the first six months of 2015 compared to the first six months of 2014, and increased $38 million, or 2%, to $2.4 billion for the second quarter of 2015 compared to the prior year quarter. These increases were primarily related to PNC’s investments in technology and business infrastructure in support of its strategic priorities and higher personnel expense associated with higher business activity, partially offset by lower asset impairment charges related to historic tax credits recorded as reductions to the associated investment asset balance. In prior periods, these credits were recorded as a reduction to income tax expense. This change in application of historic tax credits was not material to PNC’s financial results.

In the second quarter of 2015, we have identified initiatives that support increasing our 2015 continuous improvement savings goal by an additional $100 million to $500 million.

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

Effective Income Tax Rate

The effective income tax rate was 26.4% in the first six months of 2015 compared to 25.3% in the first six months of 2014. For the second quarter of 2015, our effective income tax rate was 28.2% compared with 25.4% for the second quarter of 2014. The effective tax rate is generally lower than the statutory rate primarily due to tax credits PNC receives from our investments in low income housing and new markets investments, as well as earnings in other tax exempt investments.

The increases to the effective tax rate in both comparisons were primarily related to the second quarter 2015 impact of historic tax credits recorded as a reduction to the associated investment asset balances, while in prior periods these credits were recorded as a reduction of income tax expense.

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

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

CONSOLIDATED BALANCE SHEET REVIEW

Table 6: Summarized Balance Sheet Data


	June 30			December 31			Change
Dollars in millions	2015			2014			$			%
Assets
Interest-earning deposits with banks	$	33,969		$	31,779		$	2,190			7	%
Loans held for sale		2,357			2,262			95			4	%
Investment securities		61,362			55,823			5,539			10	%
Loans		205,153			204,817			336			–	%
Allowance for loan and lease losses		(3,272	)		(3,331	)		59			(2	)%
Goodwill		9,103			9,103			–			–	%
Mortgage servicing rights		1,558			1,351			207			15	%
Other intangible assets		435			493			(58	)		(12	)%
Other, net		43,280			42,775			505			1	%
Total assets	$	353,945		$	345,072		$	8,873			3	%
Liabilities
Deposits	$	239,704		$	232,234		$	7,470			3	%
Borrowed funds		58,276			56,768			1,508			3	%
Other		10,053			9,996			57			1	%
Total liabilities		308,033			298,998			9,035			3	%
Equity
Total shareholders’ equity		44,515			44,551			(36	)		–	%
Noncontrolling interests		1,397			1,523			(126	)		(8	)%
Total equity		45,912			46,074			(162	)		–	%
Total liabilities and equity	$	353,945		$	345,072		$	8,873			3	%

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

The increase in total assets was primarily due to higher investment securities balances and higher deposit balances maintained with the Federal Reserve. Interest-earning deposits with banks increased due to regulatory short-term liquidity standards phased in starting January 1, 2015. The increase in investment securities was primarily funded by deposit growth. The increase in liabilities was largely due to growth in deposits and higher FHLB borrowings and issuances of bank notes and senior debt, partially offset by a decline in federal funds purchased and repurchase agreements along with commercial paper. An analysis of changes in selected balance sheet categories follows.

Loans

Outstanding loan balances of $205.2 billion at June 30, 2015 and $204.8 billion at December 31, 2014 were net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.6 billion at June 30, 2015 and $1.7 billion at December 31, 2014, respectively. The balances include purchased impaired loans but do not include future accretable net interest (i.e., the difference between the undiscounted expected cash flows and the carrying value of the loan) on those loans.

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

Table 7: Details Of Loans


	June 30		December 31		Change
Dollars in millions	2015		2014		$			%
Commercial lending
Commercial
Retail/wholesale trade	$	17,162	$	16,972	$	190			1	%
Manufacturing		19,775		18,744		1,031			6	%
Service providers		14,054		14,103		(49	)		–	%
Real estate related (a)		10,931		10,812		119			1	%
Financial services		5,966		6,178		(212	)		(3	)%
Health care		9,396		9,017		379			4	%
Other industries		20,849		21,594		(745	)		(3	)%
Total commercial		98,133		97,420		713			1	%
Commercial real estate
Real estate projects (b)		15,142		14,577		565			4	%
Commercial mortgage		9,664		8,685		979			11	%
Total commercial real estate		24,806		23,262		1,544			7	%
Equipment lease financing		7,783		7,686		97			1	%
Total commercial lending (c)		130,722		128,368		2,354			2	%
Consumer lending
Home equity
Lines of credit		19,589		20,361		(772	)		(4	)%
Installment		13,946		14,316		(370	)		(3	)%
Total home equity		33,535		34,677		(1,142	)		(3	)%
Residential real estate
Residential mortgage		14,041		13,885		156			1	%
Residential construction		491		522		(31	)		(6	)%
Total residential real estate		14,532		14,407		125			1	%
Credit card		4,520		4,612		(92	)		(2	)%
Other consumer
Education		6,212		6,626		(414	)		(6	)%
Automobile		11,057		11,616		(559	)		(5	)%
Other		4,575		4,511		64			1	%
Total consumer lending		74,431		76,449		(2,018	)		(3	)%
Total loans	$	205,153	$	204,817	$	336			–	%

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

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

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

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

Loans represented 58% of total assets at June 30, 2015 and 59% at December 31, 2014. Commercial lending represented 64% of the loan portfolio at June 30, 2015 and 63% at December 31, 2014. Consumer lending represented 36% of the loan portfolio at June 30, 2015 and 37% at December 31, 2014.

Commercial real estate loans represented 12% of total loans at June 30, 2015 and 11% of total loans at December 31, 2014 and represented 7% of total assets at both June 30, 2015 and December 31, 2014. See the Credit Risk Management portion of the Risk Management section of this Financial Review for additional information regarding our loan portfolio.

Total loans above include purchased impaired loans of $4.5 billion, or 2% of total loans, at June 30, 2015, and $4.9 billion, or 2% of total loans, at December 31, 2014.

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

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

Allowance for Loan and Lease Losses (ALLL)

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

Purchase Accounting Accretion and Valuation of Purchased Impaired Loans

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

Table 8: Accretion – Purchased Impaired Loans


	Three months ended June 30						Six months ended June 30
In millions	2015			2014			2015			2014
Accretion on purchased impaired loans
Scheduled accretion	$	92		$	120		$	191		$	245
Reversal of contractual interest on impaired loans		(52	)		(70	)		(107	)		(138	)
Scheduled accretion net of contractual interest		40			50			84			107
Excess cash recoveries (a)		28			35			61			64
Total	$	68		$	85		$	145		$	171

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

Table 9: Purchased Impaired Loans – Accretable Yield


In millions	2015			2014
January 1	$	1,558		$	2,055
Scheduled accretion		(191	)		(245	)
Excess cash recoveries		(61	)		(64	)
Net reclassification to accretable from non-accretable and other activity (a)		137			190
June 30 (b)	$	1,443		$	1,936

(a)

Approximately 70% and 78% of the net reclassification for the first six months ended June 30, 2015 and 2014, respectively, were driven by the consumer portfolio and were due to improvements of cash expected to be collected on loans in future periods. The remaining net reclassifications were predominantly due to future cash flow changes in the commercial portfolio.

(b)	As of June 30, 2015, we estimate that the reversal of contractual interest on purchased impaired loans will total approximately $.8 billion in future periods. This will offset the total net accretable interest in future interest income of $1.4 billion on purchased impaired loans.

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

Table 10: Valuation of Purchased Impaired Loans


	June 30, 2015						December 31, 2014
Dollars in millions	Balance			Net Investment			Balance			Net Investment
Commercial and commercial real estate loans:
Outstanding balance (a)	$	346					$	466
Recorded investment	$	235					$	310
Allowance for loan losses		(67	)					(79	)
Net investment/Carrying value	$	168			49	%	$	231			50	%
Consumer and residential mortgage loans:
Outstanding balance (a)	$	4,136					$	4,541
Recorded investment	$	4,230					$	4,548
Allowance for loan losses		(788	)					(793	)
Net investment/Carrying value	$	3,442			83	%	$	3,755			83	%
Total purchased impaired loans:
Outstanding balance (a)	$	4,482					$	5,007
Recorded investment	$	4,465					$	4,858
Allowance for loan losses		(855	)					(872	)
Net investment/Carrying value	$	3,610			81	%	$	3,986			80	%

(a)

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

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

At June 30, 2015, our largest individual purchased impaired loan had a recorded investment of $9 million. We currently expect to collect total cash flows of $5.0 billion on purchased impaired loans, representing the $3.6 billion net investment at June 30, 2015 and the accretable net interest of $1.4 billion shown in Table 9.

At June 30, 2015, and as noted in Table 10 above, our ALLL and our recorded investment balance for purchased impaired loans is $855 million and $4.5 billion, respectively. The ratio of total ALLL less purchased impaired loan ALLL to total loans less purchased impaired loans is 1.20%. The comparable amounts at June 30, 2014 were $886 million, $5.6 billion, and 1.31%, respectively. See Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in the Notes To Consolidated Financial Statements in this Report for additional information.

Weighted Average Life of the Purchased Impaired Portfolios

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

Table 11: Weighted Average Life of the Purchased Impaired Portfolios


As of June 30, 2015 Dollars in millions
As of June 30, 2015 Dollars in millions	Recorded Investment		WAL (a)
Commercial	$	50		2.2 years
Commercial real estate		185		1.4 years
Consumer (b)		1,833		3.9 years
Residential real estate		2,397		4.8 years
Total	$	4,465		4.2 years

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

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

Through the National City Corporation (National City) and RBC Bank (USA) acquisitions, we acquired purchased impaired loans with a recorded investment of $14.7 billion. As noted in Table 11 above, at June 30, 2015, those balances are now $4.5 billion, of which $4.2 billion is accounted for using pool accounting. In anticipation of the end of our purchased impaired loan balances and in light of supervisory guidance on industry practices for purchased impaired loans that are pooled and accounted for as single asset, management is re-evaluating its derecognition policies for purchased impaired loans that are pooled and accounted for as a single asset. Any resulting change in these policies would likely result in an acceleration of when a pool’s recorded investment and associated ALLL balances are reduced. At implementation, we do not expect this potential change to impact the net carrying values of the pools or result in additional provision for credit losses for purchased impaired loans that are pooled, as a pool’s recorded investment and associated ALLL balances are to be reduced in equal amounts. See Note 4

Purchased Loans in the Notes To Consolidated Financial Statements in this Report for additional information.

Purchased Impaired Loans – Accretable Difference Sensitivity Analysis

The following table provides a sensitivity analysis on the Total Purchased Impaired Loans portfolio. The analysis reflects hypothetical changes in key drivers for expected cash flows over the life of the loans under declining and improving conditions at a point in time. Any unusual significant economic events or changes, as well as other variables not

considered below (e.g., natural or widespread disasters), could result in impacts outside of the ranges represented below. Additionally, commercial and commercial real estate loan settlements or sales proceeds can vary widely from appraised values due to a number of factors including, but not limited to, special use considerations, liquidity premiums and improvements/deterioration in other income sources.

Table 12: Accretable Difference Sensitivity – Total Purchased Impaired Loans


In billions	June 30, 2015			Declining Scenario (a)			Improving Scenario (b)
Expected cash flows	$	5.0		$	(.1	)	$	.2
Accretable difference		1.4			–			–
Allowance for loan and lease losses		(.9	)		(.1	)		.2

(a)

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

(b)

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

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

Commitments to Extend Credit

Commitment to extend credit are comprised of the following:

Table 13: Commitments to Extend Credit (a)


In millions	June 30 2015		December 31 2014
Total commercial lending	$	97,334	$	98,742
Home equity lines of credit		17,570		17,839
Credit card		18,999		17,833
Other		4,339		4,178
Total	$	138,242	$	138,592

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

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

In addition to the credit commitments set forth in the table above, our net outstanding standby letters of credit totaled $9.5 billion at June 30, 2015 and $10.0 billion at December 31, 2014. Standby letters of credit commit us to make payments on behalf of our customers if specified future events occur.

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

INVESTMENT SECURITIES

The following table presents the distribution of our investment securities portfolio by credit rating. We have included credit ratings information because we believe that the information is an indicator of the degree of credit risk to which we are exposed. Changes in credit ratings classifications could indicate increased or decreased credit risk and could be accompanied by a reduction or increase in the fair value of our investment securities portfolio. For those securities on our balance sheet at June 30, 2015, where during our quarterly security-level impairment assessments we determined losses represented other-than-temporary impairment (OTTI), we have recorded cumulative credit losses of $1.2 billion in earnings and accordingly have reduced the amortized cost of our securities. The majority of these cumulative impairment charges related to non-agency residential mortgage-backed and asset-backed securities rated BB or lower.

Table 14: Investment Securities


									Ratings (a)
	June 30, 2015				December 31, 2014				As of June 30, 2015
Dollars in millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value		AAA/ AA			A			BBB			BB and Lower			No Rating
U.S. Treasury and government agencies	$	6,184	$	6,385	$	5,485	$	5,714		100	%
Agency residential mortgage-backed		28,828		29,100		23,382		23,935		100
Non-agency residential mortgage-backed		4,609		4,811		4,993		5,225		10			1	%		2	%		82	%		5	%
Agency commercial mortgage-backed		3,122		3,184		3,378		3,440		100
Non-agency commercial mortgage-backed (b)		5,180		5,247		5,095		5,191		76			8			7			3			6
Asset-backed (c)		6,113		6,168		5,900		5,940		89			3						7			1
State and municipal		3,992		4,118		3,995		4,191		88			6									6
Other debt		2,129		2,167		2,099		2,142		61			30			8						1
Corporate stock and other		428		427		442		441														100
Total investment securities (d)	$	60,585	$	61,607	$	54,769	$	56,219		87	%		3	%		1	%		7	%		2	%

(a)	Ratings percentages allocated based on amortized cost.

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

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

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

Investment securities represented 17% of total assets at June 30, 2015 and 16% at December 31, 2014.

We evaluate our investment securities portfolio in light of changing market conditions and other factors and, where appropriate, take steps to improve our overall positioning. We consider the portfolio to be well-diversified and of high quality. At June 30, 2015, 87% of the securities in the portfolio were rated AAA/AA, with U.S. Treasury and government agencies, agency residential mortgage-backed and agency commercial mortgage-backed securities collectively representing 63% of the portfolio.

The investment securities portfolio includes both available for sale and held to maturity securities. Securities classified as available for sale are carried at fair value with net unrealized gains and losses, representing the difference between amortized cost and fair value, included in Shareholders’ equity as Accumulated other comprehensive income or loss, net of tax, on our Consolidated Balance Sheet. Securities classified as held to maturity are carried at amortized cost. As of June 30, 2015, the amortized cost and fair value of available for sale securities totaled $46.9 billion and $47.7 billion, respectively, compared to an amortized cost and fair value as of December 31, 2014 of $43.2 billion and $44.2 billion, respectively. The amortized cost and fair value of held to maturity securities were $13.7 billion and $13.9 billion, respectively, at June 30, 2015, compared to $11.6 billion and $12.0 billion, respectively, at December 31, 2014.

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

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of investment securities generally decreases when interest rates increase and vice versa. In addition, the fair value generally decreases when credit spreads widen and vice versa. Net unrealized gains in the total investment securities portfolio decreased to $1.0 billion at June 30, 2015 from $1.5 billion at December 31, 2014 primarily due to the impact of market interest rates. The comparable amounts for the securities available for sale portfolio were $.8 billion at June 30, 2015 and $1.1 billion at December 31, 2014.

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

The duration of investment securities was 2.7 years at June 30, 2015. We estimate that, at June 30, 2015, the effective duration of investment securities was 2.8 years for an immediate 50 basis points parallel increase in interest rates and 2.6 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2014 for the effective duration of investment securities were 2.2 years and 2.1 years, respectively.

Based on current interest rates and expected prepayment speeds, the weighed-average expected maturity of the investment securities portfolio (excluding corporate stock and other) was 4.6 years at June 30, 2015 compared to 4.3 years at December 31, 2014. The weighted-average expected maturities of mortgage and other asset-backed debt securities were as follows as of June 30, 2015:

Table 15: Weighted-Average Expected Maturity of Mortgage and Other Asset-Backed Debt Securities


June 30, 2015	Years
Agency residential mortgage-backed securities		4.4
Non-agency residential mortgage-backed securities		5.3
Agency commercial mortgage-backed securities		3.4
Non-agency commercial mortgage-backed securities		2.9
Asset-backed securities		3.0

At least quarterly, we conduct a comprehensive security-level impairment assessment on all securities. If economic conditions, including home prices, were to deteriorate from current levels, and if market volatility and liquidity were to deteriorate from current levels, or if market interest rates were

to increase or credit spreads were to widen appreciably, the valuation of our investment securities portfolio would likely be adversely affected and we could incur additional OTTI credit losses that would impact our Consolidated Income Statement.

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

Loans Held for Sale

Table 16: Loans Held For Sale


In millions	June 30 2015		December 31 2014
Commercial mortgages at fair value	$	757	$	893
Commercial mortgages at lower of cost or fair value		27		29
Total commercial mortgages		784		922
Residential mortgages at fair value		1,364		1,261
Residential mortgages at lower of cost or fair value		5		18
Total residential mortgages		1,369		1,279
Other		204		61
Total	$	2,357	$	2,262

As of September 1, 2014, we have elected to apply the fair value option to commercial mortgage loans held for sale to agencies. This election applies to all new commercial mortgage loans held for sale originated for sale to the agencies effective on or after September 1, 2014. The election of fair value option aligns the accounting for the commercial mortgages with the related commitments to sell the loans.

We sold $2.2 billion of commercial mortgage loans to agencies during the first six months of 2015 compared to $935 million during the first six months of 2014. Total gains of $51 million were recognized on the valuation and sale of commercial mortgage loans held for sale, net of hedges, during the first six months of 2015, including $36 million in the second quarter. Comparable amounts for 2014 were $29 million and $22 million, respectively. These amounts are included in Other noninterest income on our Consolidated Income Statement.

Residential mortgage loan origination volume was $5.5 billion during the first six months of 2015 compared to $4.5 billion during the first six months of 2014. The majority of such loans were originated under agency or Federal Housing Administration (FHA) standards. We sold $4.0 billion of loans and recognized loan sales revenue of $203 million during the first six months of 2015, of which $99 million occurred in the second quarter. The comparable amounts for the first six months of 2014 were $4.3 billion and $242 million, respectively, including $135 million in the second quarter.

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

Interest income on loans held for sale was $46 million during the first six months of 2015, including $23 million in the second quarter. Comparable amounts for 2014 were $47 million and $24 million, respectively. These amounts are included in Other interest income on our Consolidated Income Statement.

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

Goodwill and Intangible Assets

Goodwill and intangible assets of $11.1 billion remained relatively flat at June 30, 2015. See additional information regarding our goodwill and intangible assets in Note 8 Goodwill and Intangible Assets included in the Notes To Consolidated Financial Statements in Part 1, Item 1 of this Report.

Funding Sources

Table 17: Details Of Funding Sources


Dollars in millions	June 30 2015		December 31 2014		Change
Dollars in millions	June 30 2015		December 31 2014		$			%
Deposits
Money market	$	122,643	$	115,438	$	7,205			6	%
Demand		82,653		82,829		(176	)		–	%
Retail certificates of deposit		18,265		18,544		(279	)		(2	)%
Savings		13,818		12,571		1,247			10	%
Time deposits in foreign offices and other time deposits		2,325		2,852		(527	)		(18	)%
Total deposits		239,704		232,234		7,470			3	%
Borrowed funds
Federal funds purchased and repurchase agreements		2,190		3,510		(1,320	)		(38	)%
FHLB borrowings		22,193		20,005		2,188			11	%
Bank notes and senior debt		18,529		15,750		2,779			18	%
Subordinated debt		9,121		9,151		(30	)		–	%
Commercial paper		2,956		4,995		(2,039	)		(41	)%
Other		3,287		3,357		(70	)		(2	)%
Total borrowed funds		58,276		56,768		1,508			3	%
Total funding sources	$	297,980	$	289,002	$	8,978			3	%

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

Total deposits increased $7.5 billion at June 30, 2015 compared with December 31, 2014 due to strong growth in money market and savings, partially offset by lower other time deposits. Interest-bearing deposits represented 68% of total deposits at both June 30, 2015 and December 31, 2014. Total borrowed funds increased $1.5 billion since December 31, 2014 as higher issuances of bank notes and senior debt and FHLB borrowings were partially offset by a decline in commercial paper and federal funds purchased and repurchase agreements.

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

Capital

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

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

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

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

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

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

Table 18: Shareholders’ Equity


Dollars in millions	June 30 2015			December 31 2014			Change
Dollars in millions	June 30 2015			December 31 2014			$			%
Shareholders’ equity
Preferred stock (a)
Common stock	$	2,708		$	2,705		$	3			–	%
Capital surplus – preferred stock		3,449			3,946			(497	)		(13	)%
Capital surplus – common stock and other		12,632			12,627			5			–	%
Retained earnings		27,609			26,200			1,409			5	%
Accumulated other comprehensive income		379			503			(124	)		(25	)%
Common stock held in treasury at cost		(2,262	)		(1,430	)		(832	)		(58	)%
Total shareholders’ equity	$	44,515		$	44,551		$	(36	)		–	%

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

The slight decline in total shareholders’ equity compared to December 31, 2014 reflected common share repurchases of $1.0 billion and the redemption of $500 million of preferred stock, partially offset by an increase in retained earnings. The increase in retained earnings was driven by net income of $2.0 billion, reduced by $631 million of common and preferred dividends declared. Common shares outstanding were 516 million at June 30, 2015 and 523 million at December 31, 2014.

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

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

Table 19: Basel III Capital


	June 30, 2015
Dollars in millions	Transitional Basel III (a)			Pro forma Fully Phased-In Basel III (b)(c)
Common equity Tier 1 capital
Common stock plus related surplus, net of treasury stock	$	13,079		$	13,079
Retained earnings		27,609			27,609
Accumulated other comprehensive income for securities currently and previously held as available for sale		217			541
Accumulated other comprehensive income for pension and other postretirement plans		(195	)		(488	)
Goodwill, net of associated deferred tax liabilities		(8,849	)		(8,849	)
Other disallowed intangibles, net of deferred tax liabilities		(150	)		(374	)
Other adjustments/(deductions)		(101	)		(148	)
Total common equity Tier 1 capital before threshold deductions		31,610			31,370
Total threshold deductions		(430	)		(1,159	)
Common equity Tier 1 capital		31,180			30,211
Additional Tier 1 capital
Preferred stock plus related surplus		3,449			3,449
Trust preferred capital securities		50
Noncontrolling interests (d)		604			44
Other adjustments/(deductions)		(90	)		(105	)
Tier 1 capital		35,193			33,599
Additional Tier 2 capital
Qualifying subordinated debt		4,841			4,415
Trust preferred capital securities		149
Allowance for loan and lease losses included in Tier 2 capital		3,518			223
Other		5			10
Total Basel III capital	$	43,706		$	38,247
Risk-weighted assets
Basel III standardized approach risk-weighted assets (e)	$	293,862		$	301,688
Estimated Basel III advanced approaches risk-weighted assets (f)		N/A			286,277
Average quarterly adjusted total assets		342,680			341,687
Supplementary leverage exposure (g)		405,726			404,792
Basel III risk-based capital and leverage ratios
Common equity Tier 1		10.6	%		10.0	% (h)(j)
Tier 1		12.0			11.1	(h)(k)
Total		14.9			13.4	(i)(l)
Leverage (m)		10.3			9.8
Supplementary leverage ratio (n)		8.7			8.3

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

(b)

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

(c)

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

(d)	Primarily includes REIT Preferred Securities.

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

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

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

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

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

(j)

For comparative purposes only, the pro forma fully phased-in advanced approaches Basel III Common equity Tier 1 capital ratio estimate is 10.6%. This capital ratio is calculated using pro forma fully phased-in Common equity Tier 1 capital and dividing by estimated Basel III advanced approaches risk-weighted assets.

(k)	For comparative purposes only, the pro forma fully phased-in advanced approaches Basel III Tier 1 risk-based capital ratio estimate is 11.7%. This capital ratio is calculated using fully phased-in Tier 1 capital and dividing by estimated Basel III advanced approaches risk-weighted assets.

(l)

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

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

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

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

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

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

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

Federal banking regulators have stated that they expect the largest U.S. bank holding companies, including PNC, to have a level of regulatory capital well in excess of the regulatory minimum and have required the largest U.S. bank holding companies, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet the credit needs of their customers through estimated stress scenarios. We seek to manage our capital consistent with these regulatory principles, and believe that our June 30, 2015 capital levels were aligned with them.

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

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

We provide additional information regarding regulatory capital requirements and some of their potential impacts on PNC in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of our 2014 Form 10-K.

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

OFF-BALANCE SHEET ARRANGEMENTS AND VARIABLE INTEREST ENTITIES

We engage in a variety of activities that involve unconsolidated entities or that are otherwise not reflected in our Consolidated Balance Sheet that are generally referred to as “off-balance sheet arrangements.” Additional information on these types of activities is included in our 2014 Form 10-K and in the following sections of this Report:

•

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

•

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

•

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

•

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

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

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

Trust Preferred Securities

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

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

FAIR VALUE MEASUREMENTS

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

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

Table 20: Fair Value Measurements – Summary


	June 30, 2015						December 31, 2014
Dollars in millions	Total Fair Value			Level 3			Total Fair Value			Level 3
Total assets	$	62,102		$	9,719		$	58,973		$	10,257
Total assets at fair value as a percentage of consolidated assets		18	%					17	%
Level 3 assets as a percentage of total assets at fair value					16	%					17	%
Level 3 assets as a percentage of consolidated assets					3	%					3	%
Total liabilities	$	5,493		$	673		$	5,799		$	716
Total liabilities at fair value as a percentage of consolidated liabilities		2	%					2	%
Level 3 liabilities as a percentage of total liabilities at fair value					12	%					12	%
Level 3 liabilities as a percentage of consolidated liabilities					<1	%					<1	%

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

An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels. PNC’s policy is to recognize transfers in and transfers out as of the end of the reporting period. For additional information regarding the transfers of assets or liabilities between hierarchy levels, see Note 7 Fair Value in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report.

BUSINESS SEGMENTS REVIEW

We have six reportable business segments:

•

Retail Banking

•

Corporate & Institutional Banking

•

Asset Management Group

•

Residential Mortgage Banking

•

BlackRock

•

Non-Strategic Assets Portfolio

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

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

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

Retail Banking

(Unaudited)

Table 21: Retail Banking Table


Six months ended June 30 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	2,083		$	1,953
Noninterest income
Service charges on deposits		294			288
Brokerage		138			116
Consumer services		487			466
Other		159			185
Total noninterest income		1,078			1,055
Total revenue		3,161			3,008
Provision for credit losses		94			149
Noninterest expense		2,368			2,255
Pretax earnings		699			604
Income taxes		256			221
Earnings	$	443		$	383
Average Balance Sheet
Loans
Consumer
Home equity	$	27,964		$	29,137
Indirect auto		9,287			9,043
Indirect other		580			751
Education		6,506			7,422
Credit cards		4,446			4,289
Other		2,360			2,164
Total consumer		51,143			52,806
Commercial and commercial real estate		10,612			10,986
Floor plan		2,200			2,332
Residential mortgage		731			635
Total loans		64,686			66,759
Goodwill and other intangible assets		5,983			6,052
Other assets		3,022			2,748
Total assets	$	73,691		$	75,559
Deposits
Noninterest-bearing demand	$	23,015		$	21,634
Interest-bearing demand		36,054			33,883
Money market		54,071			49,815
Total transaction deposits		113,140			105,332
Savings		13,245			11,568
Certificates of deposit		17,032			19,617
Total deposits		143,417			136,517
Other liabilities		603			405
Total liabilities	$	144,020		$	136,922
Performance Ratios
Return on average assets		1.21	%		1.02	%
Noninterest income to total revenue		34			35
Efficiency		75			75
Other Information (a)
Credit-related statistics:
Commercial nonperforming assets	$	126		$	158
Consumer nonperforming assets		1,001			1,037
Total nonperforming assets (b)	$	1,127		$	1,195
Purchased impaired loans (c)	$	531		$	631
Commercial lending net charge-offs	$	2		$	31
Credit card lending net charge-offs		73			74
Consumer lending (excluding credit card) net charge-offs		110			156
Total net charge-offs	$	185		$	261
Commercial lending annualized net charge-off ratio		.03	%		.47	%
Credit card lending annualized net charge-off ratio		3.29	%		3.48	%
Consumer lending (excluding credit card) annualized net charge-off ratio		.47	%		.64	%
Total annualized net charge-off ratio		.58	%		.79	%


At June 30	2015			2014
Other Information (Continued) (a)
Home equity portfolio credit statistics: (d)
% of first lien positions at origination (e)		55	%		53	%
Weighted-average loan-to-value ratios (LTVs) (e) (f)		76	%		79	%
Weighted-average updated FICO scores (g)		751			748
Annualized net charge-off ratio		.38	%		.65	%
Delinquency data – % of total loans: (h)
Loans 30 – 59 days past due		.20	%		.19	%
Loans 60 – 89 days past due		.08	%		.07	%
Accruing loans past due		.28	%		.26	%
Nonperforming loans		3.13	%		3.08	%
Other statistics:
ATMs		8,880			7,977
Branches (i)		2,644			2,695
Brokerage account client assets (in billions) (j)	$	44		$	43
Customer-related statistics (average):
Non-teller deposit transactions (k)		41	%		32	%
Digital consumer customers (l)		51	%		44	%

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

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

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

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

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

(f)	LTV statistics are based upon current information.

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

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

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

(j)	Amounts include cash and money market balances.

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

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

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

Retail Banking earned $443 million in the first six months of 2015 compared with earnings of $383 million for the same period a year ago. The increase in earnings was driven by increased net interest income and noninterest income and lower provision for credit losses partially offset by higher noninterest expense. Noninterest income included lower gains on sales of Visa Class B common shares.

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

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

•

In the first six months of 2015, approximately 51% of consumer customers used non-teller channels for the majority of their transactions compared with 44% for the same period in 2014.

•

Deposit transactions via ATM and mobile channels increased to 41% of total deposit transactions in the first half of 2015 compared with 32% for the same period a year ago.

•

Integral to PNC’s retail branch transformation strategy, more than 300 branches operate under the universal model designed to drive higher ATM and mobile deposits and enhance sales opportunities for branch personnel. During the first half of 2015, the total branch network was reduced by 53 branches and the ATM network was increased by 275 ATMs. PNC had a network of 2,644 branches and 8,880 ATMs at June 30, 2015.

•

As part of Retail Banking’s transformation and multi-channel sales strategy, PNC’s proactive customer appointment setting model was rolled out to all markets.

•

Instant debit card issuance is now available in more than 500 branches, approximately 20% of the branch network.

•

By the end of third quarter, all branches will have Apple iPad™ technology to demonstrate product capabilities to customers and prospects.

Total revenue for the first six months of 2015 increased $153 million compared to the same period a year ago, which included a $130 million increase in net interest income. In addition to the benefit from the enhancements to internal funds transfer pricing methodology in the first quarter of 2015, net interest income increased slightly, as growth in deposit balances was partially offset by lower loan balances and yields and lower purchase accounting accretion on loans and deposits.

Noninterest income increased $23 million, or 2%, compared to the first six months of 2014. Noninterest income included gains on sales of Visa Class B common shares of $79 million on one million shares and $116 million on two million shares, in the first six months of 2015 and 2014, respectively. Excluding these gains, noninterest income increased $60 million, or 6%, as a result of increases in customer-initiated transactions, brokerage fees, changes in product offerings, and increased merchant processing revenue.

Provision for credit losses and net charge-offs in the first six months of 2015 declined by $55 million and $76 million, respectively, in the comparison to the same period a year ago. Provision for credit losses decreased due to improved credit metrics. Lower net charge-offs were driven by improved credit quality in both the consumer and commercial portfolios.

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

Noninterest expense increased $113 million in the first six months of 2015 compared to the same period in 2014. Increases in technology investments, sales incentive compensation, marketing, and customer transaction-related costs were offset by reduced branch network expenses as a result of transaction migration to lower cost digital and ATM channels.

Growing core checking deposits is key to Retail Banking’s growth and to providing a source of low-cost funding and liquidity to PNC. The deposit product strategy of Retail Banking is to remain disciplined on pricing, target specific products and markets for growth, and focus on the retention and growth of customer balances. In the first half of 2015, average total deposits increased $6.9 billion, or 5%, compared with the same period in 2014.

•

Average transaction deposits grew $7.8 billion, or 7%, and average savings deposit balances grew $1.7 billion, or 14%, compared to the first six months of 2014 as a result of organic deposit growth. Compared to the same period a year ago, average demand deposits increased $3.6 billion, or 6%, to $59.1 billion and average money market deposits increased $4.3 billion, or 9%.

•

Total average certificates of deposit decreased $2.6 billion in the first six months of 2015, or 13%, compared to the same period in 2014. The decline in average certificates of deposit was due to the expected run-off of maturing accounts.

Retail Banking continued to focus on a relationship-based lending strategy that targets specific products and markets for growth, including small businesses and auto dealerships. In the first six months of 2015, average total loans declined $2.1 billion, compared to the same period a year ago, driven by a decline in home equity loans and declines from run-off of non-strategic portions of the portfolios.

•

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

•

Average auto dealer floor plan loans declined $132 million, or 6%, in the first half of 2015, compared to the same period in 2014, primarily resulting from lower dealer line utilization.

•

Average indirect auto loans increased $244 million, or 3%, compared to the first six months 2014. The increase was primarily due to growth in newer footprint indirect auto markets.

•

Average credit card balances increased $157 million, or 4%, over the same period in 2014 as a result of efforts to increase credit card share of wallet through organic growth.

•

Average residential mortgage balances increased $96 million, or 15%, compared to the first six months of 2014. The increase was due to the transfer of $198 million in Community Reinvestment Act (CRA) mortgage loans from the Residential Mortgage Banking business segment in January 2015.

•

In the first half of 2015, average loan balances for the remainder of the portfolio declined a net $1.3 billion, compared to the same period a year ago, driven by declines in the education portfolio of $916 million and commercial & commercial real estate of $374 million. The discontinued government guaranteed education loan and indirect other portfolios are primarily run-off portfolios.

Nonperforming assets declined $68 million, or 6%, at June 30, 2015 compared to June 30, 2014. The decrease was driven by declines in both commercial and consumer non-performing loans.

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

Corporate & Institutional Banking

(Unaudited)

Table 22: Corporate & Institutional Banking Table


Six months ended June 30 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	1,726		$	1,855
Noninterest income
Corporate service fees		651			580
Other		270			211
Noninterest income		921			791
Total revenue		2,647			2,646
Provision for credit losses		37			90
Noninterest expense		1,061			992
Pretax earnings		1,549			1,564
Income taxes		559			571
Earnings	$	990		$	993
Average Balance Sheet
Loans
Commercial	$	85,228		$	76,771
Commercial real estate		22,319			20,640
Equipment lease financing		6,920			6,834
Total commercial lending		114,467			104,245
Consumer		1,113			1,070
Total loans		115,580			105,315
Goodwill and other intangible assets		3,840			3,815
Loans held for sale		1,048			913
Other assets		11,243			9,949
Total assets	$	131,711		$	119,992
Deposits
Noninterest-bearing demand	$	47,449		$	42,646
Money market		22,002			20,476
Other		9,368			7,548
Total deposits		78,819			70,670
Other liabilities		8,083			7,477
Total liabilities	$	86,902		$	78,147
Performance Ratios
Return on average assets		1.52	%		1.67	%
Noninterest income to total revenue		35			30
Efficiency		40			37
Commercial Loan Servicing Portfolio – Serviced For PNC and Others (in billions)
Beginning of period	$	377		$	347
Acquisitions/additions		96			39
Repayments/transfers		(37	)		(33	)
End of period	$	436		$	353
Other Information
Consolidated revenue from: (a)
Treasury Management (b)	$	653		$	624
Capital Markets (b)	$	385		$	335
Commercial mortgage banking activities
Commercial mortgage loans held for sale (c)	$	73		$	52
Commercial mortgage loan servicing income (d)		121			108
Commercial mortgage servicing rights valuation, net of economic hedge (e)		24			25
Total	$	218		$	185
Average Loans (by C&IB business)
Corporate Banking	$	58,323		$	52,947
Real Estate		30,248			26,827
Business Credit		14,415			12,868
Equipment Finance		10,938			10,250
Other		1,656			2,423
Total average loans	$	115,580		$	105,315
Total loans (f)	$	115,708		$	108,990
Net carrying amount of commercial mortgage servicing rights (f)	$	543		$	515
Credit-related statistics:
Nonperforming assets (f) (g)	$	463		$	715
Purchased impaired loans (f) (h)	$	181		$	370
Net charge-offs (recoveries)	$	(20	)	$	17

(a)

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

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

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

(d)

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

(e)	Includes amounts reported in corporate services fees.

(f)	As of June 30.

(g)	Includes nonperforming loans of $.4 billion at June 30, 2015 and $.6 billion at June 30, 2014.

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

Corporate & Institutional Banking earned $990 million in the first six months of 2015 compared with earnings of $993 million for the same period a year ago. The slight decrease in earnings was due to lower net interest income and an increase in noninterest expense, mostly offset by higher noninterest income and a decrease in the provision for credit losses. We continue to focus on building client relationships where the risk-return profile is attractive, including the Southeast.

Net interest income decreased $129 million in the first six months of 2015 compared to the first six months of 2014. The decline was due to the impact of first quarter 2015 enhancements to internal funds transfer pricing methodology, continued spread compression on loans, and lower purchase accounting accretion, partially offset by the impact of higher average loans and deposits. Decreased net interest income in the comparison also reflected the impact from the second quarter 2014 correction to reclassify certain commercial facility usage fees from net interest income to corporate service fees.

Corporate service fees increased $71 million in the first six months of 2015 compared to the first six months of 2014. This increase was primarily due to the impact of the second quarter 2014 correction to reclassify certain commercial facility fees from net interest income to corporate service fees and increases in treasury management and equity capital markets advisory fees.

Other noninterest income increased $59 million in the first six months of 2015 compared to the first six months of 2014. This increase was driven by higher multifamily loans originated for sale to agencies, higher revenue associated with credit valuations for customer-related derivatives activities and related derivatives sales and higher corporate securities underwriting activity.

The provision for credit losses declined $53 million in the first six months of 2015 compared with the first six months of 2014 reflecting improved credit quality.

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

Noninterest expense increased $69 million in the first six months of 2015 compared to the prior year period, primarily driven by investments in technology and infrastructure, higher asset writedowns, and expenses related to equity capital markets advisory fees.

Average loans increased $10.3 billion, or 10%, for the first six months of 2015 compared to the first six months of 2014, reflecting solid growth in Corporate Banking, Real Estate, Business Credit and Equipment Finance:

•

Corporate Banking business provides lending, treasury management and capital markets-related products and services to midsized and large corporations, government and not-for-profit entities. Average loans for this business increased $5.4 billion, or 10%, in the first six months of 2015 compared with the first six months of 2014, primarily due to an increase in loan commitments from specialty lending businesses and large corporate clients.

•

PNC Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased $3.4 billion, or 13%, in first six months of 2015 compared with the first six months of 2014 due to increased originations and higher utilization.

•

PNC Business Credit provides asset-based lending. The loan portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by short-term assets. Average loans for this business increased $1.5 billion, or 12%, in first six months of 2015 compared with the first six months of 2014 due to new originations, increasing deal sizes and higher utilization.

•

PNC Equipment Finance provides equipment financing solutions for clients throughout the U.S. and Canada. Average equipment finance loans and operating leases were $11.8 billion in the first six months of 2015, an increase of $.8 billion, or 7%, compared with the first six months of 2014.

Period-end loan balances increased by 6%, or $6.7 billion, at June 30, 2015 compared to June 30, 2014 primarily due to growth in our Corporate Banking, Real Estate and Business Credit businesses.

Loan commitments increased 5%, or $10.1 billion, to $213.1 billion at June 30, 2015 compared to June 30, 2014, primarily due to growth in our Corporate Banking, Real Estate and Business Credit businesses.

Average deposits for the first six months of 2015 increased $8.1 billion, or 12%, compared with the first six months of 2014 as a result of business growth and inflows into demand and money market deposits.

The commercial loan servicing portfolio increased $83 billion, or 24% at June 30, 2015, compared to June 30, 2014, as servicing additions exceeded portfolio run-off.

Nonperforming assets declined 35% at June 30, 2015 compared to June 30, 2014 reflecting improved credit quality.

Product Revenue

In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital markets-related products and services, and commercial mortgage banking activities, for customers of all business segments. On a consolidated basis, the revenue from these other services is included in net interest income, corporate service fees and other noninterest income. From a segment perspective, the majority of the revenue and expense related to these services is reflected in the Corporate & Institutional Banking segment results and the remainder is reflected in the results of other businesses. The Other Information section in Table 22 in the Corporate & Institutional Banking portion of this Business Segments Review section includes the consolidated revenue to PNC for these services. A discussion of the consolidated revenue from these services follows.

Treasury management revenue, comprised of fees and net interest income from customer deposit balances, increased $29 million in the comparison of the first six months of 2015 to the first six months of 2014, driven by growth in our commercial card, wholesale lockbox and PINACLE^® products.

Capital markets revenue includes merger and acquisition advisory fees, loan syndications, derivatives, foreign exchange, asset-backed finance revenue and fixed income and equity capital markets advisory activities. Revenue from capital markets-related products and services increased $50 million in the first six months of 2015 compared with the first six months of 2014. The increase in the comparison was primarily driven by higher revenue associated with credit valuations for customer-related derivatives activities and related derivatives sales, higher equity capital markets advisory fees and increased corporate securities underwriting activity.

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (including net interest income and noninterest income) and revenue derived from commercial mortgage loans held for sale and related hedges. Revenue from total commercial mortgage banking activities increased $33 million in the first six months of 2015 compared with the first six months of 2014. The increase in the comparison was mainly due to higher multifamily loans originated for sale to agencies and higher mortgage servicing revenue.

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

Asset Management Group

(Unaudited)

Table 23: Asset Management Group Table


Six months ended June 30 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	144		$	143
Noninterest income		451			406
Total revenue		595			549
Provision for credit losses		13			6
Noninterest expense		425			401
Pretax earnings		157			142
Income taxes		58			52
Earnings	$	99		$	90
Average Balance Sheet
Loans
Consumer	$	5,669		$	5,361
Commercial and commercial real estate		938			1,011
Residential mortgage		878			780
Total loans		7,485			7,152
Goodwill and other intangible assets		234			268
Other assets		255			222
Total assets	$	7,974		$	7,642
Deposits
Noninterest-bearing demand	$	1,344		$	1,333
Interest-bearing demand		4,127			3,902
Money market		4,873			3,873
Total transaction deposits		10,344			9,108
CDs/IRAs/savings deposits		456			441
Total deposits		10,800			9,549
Other liabilities		45			50
Total liabilities	$	10,845		$	9,599
Performance Ratios
Return on average assets		2.50	%		2.37	%
Noninterest income to total revenue		76			74
Efficiency		71			73
Other Information
Total nonperforming assets (a) (b)	$	56		$	76
Purchased impaired loans (a) (c)	$	77		$	94
Total net charge-offs	$	11		$	3
Client Assets Under Administration (a) (d) (in billions)
Personal	$	113		$	113
Institutional		149			144
Total	$	262		$	257
Asset Type
Equity	$	152		$	149
Fixed Income		73			71
Liquidity/Other		37			37
Total	$	262		$	257
Discretionary client assets under management
Personal	$	86		$	85
Institutional		48			46
Total	$	134		$	131
Asset Type
Equity	$	75		$	73
Fixed Income		41			40
Liquidity/Other		18			18
Total	$	134		$	131
Nondiscretionary client assets under administration
Personal	$	27		$	28
Institutional		101			98
Total	$	128		$	126
Asset Type
Equity	$	77		$	76
Fixed Income		32			31
Liquidity/Other		19			19
Total	$	128		$	126

(a)	As of June 30.

(b)	Includes nonperforming loans of $53 million at June 30, 2015 and $72 million at June 30, 2014.

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

(d)	Excludes brokerage account client assets.

Asset Management Group earned $99 million through the first six months of 2015 compared with $90 million in the same period of 2014. Assets under administration were $262 billion as of June 30, 2015 compared to $257 billion as of June 30, 2014. Earnings for the first six months of 2015 increased compared with the first six months of 2014 due to higher noninterest income, including a $30 million trust settlement in the second quarter of 2015, partially offset by higher noninterest expense.

The core growth strategies of the business include increasing sales sourced from other PNC lines of business, maximizing front line productivity and optimizing market presence including additions to staff in high opportunity markets. Wealth Management and Hawthorn have over 100 offices operating in 7 out of the 10 most affluent states in the U.S. with a majority co-located with retail banking branches. The businesses’ strategies primarily focus on growing client assets under management through expanding relationships directly and through cross-selling from PNC’s other lines of business.

Institutional Asset Management provides advisory, custody, and retirement administration services to institutional clients primarily within our banking footprint. The business also offers PNC proprietary mutual funds. Institutional Asset Management is strengthening its partnership with Corporate and Institutional Banking to drive growth and is focused on building retirement capabilities and expanding product solutions for all customers.

Client assets under administration at June 30, 2015 increased $5 billion compared to June 30, 2014. Discretionary client assets under management increased $3 billion in the same comparison, driven by higher equity markets, new sales and positive net flows after adjustments for cyclical client activities.

Total revenue increased $46 million in the first half of 2015 compared with the same period in 2014, primarily relating to noninterest income due to a $30 million trust settlement, stronger average equity markets, and new business.

Noninterest expense increased $24 million, or 6% in the first half of 2015 compared to the prior year period, primarily attributable to higher compensation and technology expenses. Over the last 12 months, total full-time headcount has increased by approximately 63 positions, or 2%. Asset Management Group remains focused on disciplined expense management as it invests in strategic growth opportunities.

Average loan balances for the first half of 2015 increased $.3 billion, or 5%, compared to the prior year period due to continued growth in the consumer loan portfolio.

Average deposits for the first half of 2015 increased $1.3 billion, or 13%, over the prior year period. Average transaction deposits grew $1.2 billion, or 14%, compared with the first half of 2014.

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

Residential Mortgage Banking

(Unaudited)

Table 24: Residential Mortgage Banking Table


Six months ended June 30 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	60		$	77
Noninterest income
Loan servicing revenue
Servicing fees		94			117
Mortgage servicing rights valuation, net of economic hedge		58			–
Loan sales revenue		203			242
Other		(2	)		(3	)
Total noninterest income		353			356
Total revenue		413			433
Provision for credit losses		–			–
Noninterest expense		339			382
Pretax earnings		74			51
Income taxes		27			19
Earnings	$	47		$	32
Average Balance Sheet
Portfolio loans	$	1,223		$	1,888
Loans held for sale		1,127			1,102
Mortgage servicing rights (MSR)		896			1,054
Other assets		3,944			4,084
Total assets	$	7,190		$	8,128
Deposits	$	2,357		$	2,210
Borrowings and other liabilities		2,636			2,930
Total liabilities	$	4,993		$	5,140
Performance Ratios
Return on average assets		1.32	%		.79	%
Noninterest income to total revenue		85			82
Efficiency		82			88
Residential Mortgage Servicing Portfolio – Serviced for Third Parties (in billions)
Beginning of period	$	108		$	114
Acquisitions		14			2
Additions		4			4
Repayments/transfers		(11	)		(9	)
End of period	$	115		$	111
Servicing portfolio – third-party statistics: (a)
Fixed rate		94	%		94	%
Adjustable rate/balloon		6	%		6	%
Weighted-average interest rate		4.35	%		4.54	%
MSR asset value (in billions)	$	1.0		$	1.0
MSR capitalization value (in basis points)		88			87
Weighted-average servicing fee (in basis points)		27			27
Residential Mortgage Repurchase Reserve
Beginning of period	$	107		$	131
(Benefit)/ Provision		2			(17	)
Losses – loan repurchases		(12	)		(13	)
End of Period	$	97		$	101
Other Information
Loan origination volume (in billions)	$	5.5		$	4.5
Loan sale margin percentage		3.74	%		5.01	%
Percentage of originations represented by:
Purchase volume (b)		41	%		45	%
Refinance volume		59	%		55	%
Total nonperforming assets (a) (c)	$	88		$	160

(a)	As of June 30.

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

(c)	Includes nonperforming loans of $55 million at June 30, 2015 and $113 million at June 30, 2014.

Residential Mortgage Banking earned $47 million in the first six months of 2015 compared to $32 million in the first six months of 2014. Earnings increased from the prior year as a result of higher net hedging gains on residential mortgage servicing rights and lower noninterest expense, offset by lower loan sales and servicing revenue.

The strategic focus of the business is the acquisition of new customers through a retail loan officer sales force with an emphasis on home purchase transactions. Our strategy involves competing on the basis of superior service to new and existing customers in serving their home purchase and refinancing needs. A key consideration in pursuing this approach is the cross-sell opportunity, especially in the bank footprint markets.

Residential Mortgage Banking overview:

•

Total loan originations increased $1.0 billion in the first six months of 2015 compared to the same 2014 period. Loans continue to be originated primarily through direct channels under Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal Housing Administration (FHA)/Department of Veterans Affairs agency guidelines. Refinancings were 59% of originations for the first six months of 2015 and 55% in the first six months of 2014. During the first six months of 2015, 14% of loan originations were under the original or revised Home Affordable Refinance Program (HARP or HARP 2).

•

Investors having purchased mortgage loans may request PNC to indemnify them against losses on certain loans or to repurchase loans that they believe do not comply with applicable contractual loan origination covenants and representations and warranties we have made. At June 30, 2015, the liability for estimated losses on repurchase and indemnification claims for the Residential Mortgage Banking business segment was $97 million, compared with $101 million at June 30, 2014. See the Recourse And Repurchase Obligations section of this Financial Review and Note 16 Commitments and Guarantees in the Notes To Consolidated Financial Statements of this Report for additional information.

•

Residential mortgage loans serviced for others increased $4 billion at June 30, 2015 compared to June 30, 2014. During the first six months of 2015, $14 billion of residential mortgage servicing rights were acquired, compared with $2 billion in the comparable period of 2014.

•

Noninterest income declined slightly in the first six months of 2015 compared with the prior year period, as increased net hedging gains on residential mortgage servicing rights were more than offset by decreased servicing revenue and loan sales revenue, which reflected the impact from a $17 million benefit from the release of reserves for residential mortgage repurchase obligations in the first six months of 2014.

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

•

Net interest income decreased $17 million in the first six months of 2015 compared with the first six months of 2014. This decline was primarily due to lower balances of portfolio loans held for investment.

•

Noninterest expense declined $43 million in the first six months of 2015 compared with the 2014 period, primarily as a result of lower legal accruals.

BlackRock

(Unaudited)

Table 25: BlackRock Table

Information related to our equity investment in BlackRock follows:


Six months ended June 30 Dollars in millions	2015			2014
Business segment earnings (a)	$	269		$	253
PNC’s economic interest in BlackRock (b)		22	%		22	%

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

(b)	At June 30.


In billions	June 30 2015		December 31 2014
Carrying value of PNC’s investment in BlackRock (c)	$	6.5	$	6.3
Market value of PNC’s investment in BlackRock (d)		12.2		12.6

(c)	PNC accounts for its investment in BlackRock under the equity method of accounting, exclusive of a related deferred tax liability of $2.1 billion at both June 30, 2015 and December 31, 2014. Our voting interest in BlackRock common stock was approximately 21% at June 30, 2015.

(d)	Does not include liquidity discount.

In addition to our investment in BlackRock reflected in Table 25, at June 30, 2015, we held approximately 1.3 million shares of BlackRock Series C Preferred Stock valued at $363 million, which are available to fund our obligation in connection with certain BlackRock long-term incentive plan (LTIP) programs. We account for the BlackRock Series C Preferred Stock at fair value, which offsets the impact of marking-to-market the obligation to deliver these shares to BlackRock. The fair value amount of the BlackRock Series C Preferred Stock is included on our Consolidated Balance Sheet in the caption Other assets. Additional information regarding the valuation of the BlackRock Series C Preferred Stock is included in Note 7 Fair Value in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report and in Note 7 Fair Value in the Notes To Consolidated Financial Statements in Item 8 of our 2014 Form 10-K.

Our 2014 Form 10-K includes additional information about our investment in BlackRock.

Non-Strategic Assets Portfolio

(Unaudited)

Table 26: Non-Strategic Assets Portfolio Table


Six months ended June 30 Dollars in millions	2015			2014
Income Statement
Net interest income	$	212		$	279
Noninterest income		18			16
Total revenue		230			295
Provision for credit losses (benefit)		(36	)		(91	)
Noninterest expense		50			56
Pretax earnings		216			330
Income taxes		79			121
Earnings	$	137		$	209
Average Balance Sheet
Commercial Lending:
Commercial/Commercial real estate	$	119		$	203
Lease financing		627			684
Total commercial lending		746			887
Consumer Lending:
Home equity		2,937			3,553
Residential real estate		4,103			5,032
Total consumer lending		7,040			8,585
Total portfolio loans		7,786			9,472
Other assets (a)		(692	)		(740	)
Total assets	$	7,094		$	8,732
Deposits and other liabilities	$	223		$	229
Total liabilities	$	223		$	229
Performance Ratios
Return on average assets		3.89	%		4.83	%
Noninterest income to total revenue		8			5
Efficiency		22			19
Other Information
Nonperforming assets (b) (c)	$	616		$	798
Purchased impaired loans (b) (d)	$	3,663		$	4,497
Net charge-offs (recoveries)	$	(7	)	$	41
Annualized net charge-off (recoveries) ratio		(.18	)%		0.87	%
Loans (b)
Commercial Lending
Commercial/Commercial real estate	$	108		$	176
Lease financing		630			688
Total commercial lending		738			864
Consumer Lending
Home equity		2,765			3,410
Residential real estate		3,941			4,928
Total consumer lending		6,706			8,338
Total loans	$	7,444		$	9,202

(a)	Other assets includes deferred taxes, ALLL and other real estate owned (OREO). Other assets were negative in both periods due to the ALLL.

(b)	As of June 30.

(c)	Includes nonperforming loans of $.5 billion at June 30, 2015 and $.6 billion at June 30, 2014.

(d)	Recorded investment of purchased impaired loans related to acquisitions. At June 30, 2015, this segment contained 82% of PNC’s purchased impaired loans.

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

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

Non-Strategic Assets Portfolio had earnings of $137 million in the first six months of 2015 compared with $209 million in the first six months of 2014. Earnings decreased year-over-year due to lower net interest income and a reduced benefit from the provision for credit losses.

Non-Strategic Assets Portfolio overview:

•

Net interest income declined $67 million, or 24% in the first six months of 2015 compared with the first six months of 2014, resulting from lower purchase accounting accretion and the impact of the declining average balance of the loan portfolio.

•

Provision for credit losses was a benefit in both the first six months of 2015 and 2014, reflecting continued improvements in credit quality.

•

Noninterest expense declined $6 million, or 11% in the first six months of 2015 compared with in the first six months of 2014, due to lower costs of managing and servicing the loan portfolios.

•

Average portfolio loans declined $1.7 billion, or 18% in the first six months of 2015 compared to the first six months of 2014, due to customer payment activity and portfolio management activities to reduce under-performing assets.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Note 1 Accounting Policies in Item 8 of our 2014 Form 10-K and in the Notes To Consolidated Financial Statements included in Part I, Item 1 of this Report describe 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 prove inaccurate or be subject to variations that may significantly affect our reported results and financial position for the period or in future periods.

We must use estimates, assumptions and judgments when assets and liabilities are required to be recorded at, or adjusted to reflect, fair value.

Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by independent third-party sources, including appraisers and valuation specialists, when available. When such third-party information is not available, we estimate fair value primarily by using discounted cash flow and other financial modeling techniques. Changes in underlying factors, assumptions or estimates could materially impact our future financial condition and results of operations.

We discuss the following critical accounting policies and judgments under this same heading in Item 7 of our 2014 Form 10-K:

•

Fair Value Measurements

•

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

•

Estimated Cash Flows on Purchased Impaired Loans

•

Goodwill

•

Lease Residuals

•

Revenue Recognition

•

Residential and Commercial Mortgage Servicing Rights

•

Income Taxes

•

Recently Issued Accounting Standards

We provide additional information about many of these items in the Notes To Consolidated Financial Statements included in Part I, Item l of this Report.

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

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standard Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU clarifies the principles for recognizing revenue and replaces nearly all existing revenue recognition guidance in U.S. GAAP with one accounting model. The core principle of the guidance is that an entity should recognize revenue to depict the satisfaction of a performance obligation by transfer of promised goods or services to customers. The ASU also requires additional qualitative and quantitative disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB agreed to defer the mandatory effective date of the ASU for one year, to annual reporting periods beginning after December 15, 2017. The requirements within ASU 2014-09 should be applied retrospectively to each prior period presented (with several practical expedients for certain completed contracts) or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. We are currently evaluating the impact of this ASU on our results of operations and financial position.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. All legal entities are subject to re-evaluation under this ASU, including investment companies and certain other entities measured in a manner consistent with ASC 946 Financial Services – Investment Companies which were previously excluded. The ASU will change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Specifically, the ASU modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; eliminates the presumption that a general partner should consolidate a limited partnership; potentially changes the consolidation conclusions of reporting entities that are involved with VIEs, in particular those that have fee arrangements and related party arrangements, and provides a scope exception for reporting entities with interests held in certain money market funds. The ASU is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015 and may be applied through a retrospective or modified retrospective approach. We are currently evaluating the impact of this ASU on our results of operations and financial position.

Recently Adopted Accounting Standards

See Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in Part I, Item I of this Report regarding the impact of new accounting pronouncements adopted in 2015.

STATUS OF QUALIFIED DEFINED BENEFIT PENSION PLAN

We have a noncontributory, qualified defined benefit pension plan (plan or pension plan) covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are applied as a percentage of eligible compensation. We calculate the expense associated with the pension plan and the assumptions and methods that we use include a policy of reflecting plan assets at their fair market value. On an annual basis, we review the actuarial assumptions related to the pension plan.

We currently estimate pretax pension expense of $9 million in 2015 compared with pretax income of $7 million in 2014. This year-over-year expected increase in expense reflects the effects of the lower expected return on asset assumption, improved mortality, and the lower discount rate required to be used in 2015. These factors are partially offset by the favorable impact of the increase in plan assets at December 31, 2014 and the assumed return on a $200 million voluntary contribution to the plan made in February 2015.

The table below reflects the estimated effects on pension expense of certain changes in annual assumptions, using 2015 estimated expense as a baseline.

Table 27: Pension Expense – Sensitivity Analysis


Change in Assumption (a)	Estimated Increase/(Decrease) to 2015 Pension Expense (In millions)
.5% decrease in discount rate	$	18
.5% decrease in expected long-term return on assets	$	22
.5% increase in compensation rate	$	2

(a)	The impact is the effect of changing the specified assumption while holding all other assumptions constant.

We provide additional information on our pension plan in Note 13 Employee Benefit Plans in the Notes To Consolidated Financial Statements in Item 8 of our 2014 Form 10-K.

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

RECOURSE AND REPURCHASE OBLIGATIONS

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report, PNC has sold commercial mortgage, residential mortgage and home equity loans/lines of credit directly or indirectly through securitization and loan sale transactions in which we have continuing involvement. One form of continuing involvement includes certain recourse and loan repurchase obligations associated with the transferred assets.

Commercial Mortgage Loan Recourse Obligations

We originate and service certain multi-family commercial mortgage loans which are sold to FNMA under FNMA’s Delegated Underwriting and Servicing (DUS) program. We participated in a similar program with the FHLMC. Our exposure and activity associated with these recourse obligations are reported in the Corporate & Institutional Banking segment. For more information regarding our Commercial Mortgage Loan Recourse Obligations, see the Recourse and Repurchase Obligations section of Note 16 Commitments and Guarantees included in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report.

Residential Mortgage Repurchase Obligations

While residential mortgage loans are sold on a non-recourse basis, we assume certain loan repurchase obligations associated with mortgage loans we have sold to investors. These loan repurchase obligations primarily relate to situations where PNC is alleged to have breached certain origination covenants and representations and warranties made to purchasers of the loans in the respective purchase and sale agreements. Residential mortgage loans covered by these loan repurchase obligations include first and second-lien mortgage loans we have sold through Agency securitizations, Non-Agency securitizations, and loan sale transactions. As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2014 Form 10-K, Agency securitizations consist of mortgage loan sale transactions with FNMA, FHLMC and the Government National Mortgage Association (GNMA), while Non-Agency securitizations consist of mortgage loan sale transactions with private investors. Mortgage loan sale transactions that are not part of a securitization may involve FNMA, FHLMC or private investors. Our historical exposure and activity associated with Agency securitization repurchase obligations has primarily been related to transactions with FNMA and FHLMC, as indemnification and repurchase losses associated with FHA and VA-insured and uninsured loans pooled in GNMA securitizations historically have been minimal. In addition to indemnification and repurchase risk, we face other risks of loss with respect to our participation in these programs, some

of which are described in Note 15 Legal Proceedings in the Notes To Consolidated Financial Statements in Part I, Item 1

of this Report with respect to governmental inquiries related to FHA-insured loans. Repurchase obligation activity associated with residential mortgages is reported in the Residential Mortgage Banking segment.

Origination and sale of residential mortgages is an ongoing business activity and, accordingly, management continually assesses the need to recognize indemnification and repurchase liabilities pursuant to the associated investor sale agreements. We establish indemnification and repurchase liabilities for estimated losses on sold first and second-lien mortgages for which indemnification is expected to be provided or for loans that are expected to be repurchased. For the first and second-lien mortgage sold portfolio, we have established an indemnification and repurchase liability pursuant to investor sale agreements based on claims made and our estimate of future claims on a loan by loan basis. To estimate the mortgage repurchase liability arising from breaches of representations and warranties, we consider the following factors: (i) borrower performance in our historically sold portfolio (both actual and estimated future defaults); (ii) the level of outstanding unresolved repurchase claims; (iii) estimated probable future repurchase claims, considering information about expected investor behaviors, delinquent and liquidated loans, resolved and unresolved mortgage insurance rescission notices and our historical experience with claim rescissions; (iv) the potential ability to cure the defects identified in the repurchase claims (“rescission rate”); (v) the availability of legal defenses; and (vi) the estimated severity of loss upon repurchase of the loan or collateral, make-whole settlement or indemnification.

We previously reached agreements with both FNMA and FHLMC to resolve their repurchase claims with respect to loans sold between 2000 and 2008. Thus, our repurchase obligations involve Agency securitizations and other loan sales with FNMA and FHLMC subsequent to 2008 only, as well as Agency securitizations with GNMA and Non-Agency securitizations and other loan sales with private investors. The unpaid principal balance of loans associated with our exposure to repurchase obligations totaled $66.5 billion at June 30, 2015, of which $1.3 billion was 90 days or more delinquent. The comparative amounts were $68.3 billion and $1.5 billion, respectively, at December 31, 2014.

We believe our indemnification and repurchase liability appropriately reflects the estimated probable losses on indemnification and repurchase claims for all residential mortgage loans sold and outstanding as of June 30, 2015 and December 31, 2014. In making these estimates we consider the losses that we expect to incur over the life of the sold loans. See Note 16 Commitments and Guarantees in this Report for additional information on residential mortgage repurchase obligations.

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

Home Equity Repurchase Obligations

PNC’s repurchase obligations include obligations with respect to certain brokered home equity loans/lines of credit that were sold to a limited number of private investors in the financial services industry by National City prior to our acquisition of National City. PNC is no longer engaged in the brokered home equity lending business, and our exposure under these loan repurchase obligations is limited to repurchases of the loans sold in these transactions. Repurchase activity associated with brokered home equity loans/lines of credit is reported in the Non-Strategic Assets Portfolio segment.

For more information regarding our Home Equity Repurchase Obligations, see the Recourse and Repurchase Obligations section under Item 7 of our 2014 Form 10-K and Note 16 Commitments and Guarantees included in this Report.

RISK MANAGEMENT

PNC encounters risk as part of the normal course of operating our business. Accordingly, we design risk management processes to help manage these risks.

The Risk Management section included in Item 7 of our 2014 Form 10-K describes our enterprise risk management framework including risk appetite and strategy, risk culture, risk organization and governance, risk identification and quantification, risk control and limits, and risk monitoring and reporting. Additionally, our 2014 Form 10-K provides an analysis of our key areas of risk, which include but are not limited to credit, operational, compliance, model, liquidity and market. Our use of financial derivatives as part of our overall asset and liability risk management process is also addressed within the Risk Management section.

The following information updates our 2014 Form 10-K risk management disclosures.

Credit Risk Management

As more fully discussed in the Credit Risk Management portion of the Risk Management section in our 2014 Form 10-K, 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 embedded in PNC’s 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 through our governance structure.

Asset Quality Overview

Asset quality trends improved during the first six months of 2015.

•

Nonperforming assets at June 30, 2015 decreased $302 million compared with December 31, 2014 as a result of improvements in both consumer and commercial nonperforming loans. Consumer lending nonperforming loans decreased $135 million, commercial real estate nonperforming loans declined $92 million and commercial nonperforming loans decreased $32 million. Nonperforming assets were 0.73% of total assets at June 30, 2015 compared with 0.83% at December 31, 2014.

•

Overall loan delinquencies of $1.6 billion decreased $305 million, or 16%, from year-end 2014 levels. The reduction was due in large part to a reduction in accruing government insured residential real estate loans past due 90 days or more of $134 million, the majority of which we took possession of and conveyed the real estate, or are in the process of conveyance and claim resolution.

•

Net charge-offs were $67 million in the second quarter of 2015, down 54% from net charge-offs in the same quarter of 2014 of $145 million, due primarily to improved overall credit quality. For the six months ended June 30, 2015, net charge-offs were $170 million, down from $331 million for the six months ending June 30, 2014.

•

Provision for credit losses in the second quarter of 2015 decreased to $46 million compared with $72 million in the second quarter of 2014. The smaller provision is attributed to improved overall credit quality. Provision for credit losses for the six months ending June 30, 2015 declined to $100 million compared to $166 million for the six months ending June 30, 2014.

•

The level of ALLL remained at $3.3 billion at both June 30, 2015 and December 31, 2014.

Nonperforming Assets and Loan Delinquencies

Nonperforming Assets, including OREO and Foreclosed Assets

Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming troubled debt restructurings (TDRs), OREO and foreclosed assets. Loans held for sale, certain government insured or guaranteed loans, purchased impaired loans and loans accounted for under the fair value option are excluded from nonperforming loans. Additional information regarding our nonperforming loans and nonaccrual policies is included in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report. A summary of the major categories of nonperforming assets are presented in Table 28. See Note 3 Asset Quality in the Notes To Consolidated Financial Statements of this Report for further detail of nonperforming asset categories.

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

Table 28: Nonperforming Assets By Type


Dollars in millions	June 30 2015			December 31 2014
Nonperforming loans
Commercial lending	$	503		$	626
Consumer lending (a)		1,749			1,884
Total nonperforming loans (b) (c)		2,252			2,510
OREO and foreclosed assets		326			370
Total nonperforming assets	$	2,578		$	2,880
Amount of TDRs included in nonperforming loans	$	1,208		$	1,370
Percentage of total nonperforming loans		54	%		55	%
Nonperforming loans to total loans		1.10	%		1.23	%
Nonperforming assets to total loans, OREO and foreclosed assets		1.25			1.40
Nonperforming assets to total assets		.73			.83
Allowance for loan and lease losses to total nonperforming loans (d)		145			133

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

(b)	Nonperforming loans exclude certain government insured or guaranteed loans, loans held for sale, loans accounted for under the fair value option and purchased impaired loans.

(c)	The recorded investment of loans collateralized by residential real estate property that are in process of foreclosure was $.6 billion and $.8 billion at June 30, 2015 and December 31, 2014.

(d)

The allowance for loan and lease losses includes impairment reserves attributable to purchased impaired loans. See Note 1 Accounting Policies and Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for additional information.

Table 29: Change in Nonperforming Assets


In millions	2015			2014
January 1	$	2,880		$	3,457
New nonperforming assets		708			1,277
Charge-offs and valuation adjustments		(253	)		(300	)
Principal activity, including paydowns and payoffs		(377	)		(623	)
Asset sales and transfers to loans held for sale		(190	)		(297	)
Returned to performing status		(190	)		(346	)
June 30	$	2,578		$	3,168

Nonperforming assets decreased $302 million at June 30, 2015 compared to December 31, 2014, as a result of improvements in both consumer and commercial lending. Consumer lending nonperforming loans decreased $135 million, commercial real estate nonperforming loans declined $92 million and commercial nonperforming loans decreased $32 million. As of June 30, 2015, approximately 91% of total nonperforming loans were secured by collateral which lessens reserve requirements and is expected to reduce credit losses in the event of default. As of June 30, 2015, commercial lending nonperforming loans were carried at approximately 64% of their unpaid principal balance, due to charge-offs recorded to

date, before consideration of the ALLL. See Note 3 Asset Quality in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for additional information on these loans.

Within consumer nonperforming loans, residential real estate TDRs comprise 65% of total residential real estate nonperforming loans at June 30, 2015, up from 60% at December 31, 2014. Home equity TDRs comprise 53% of home equity nonperforming loans at June 30, 2015, down from 54% at December 31, 2014. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

At June 30, 2015, our largest nonperforming asset was $34 million in the Real Estate, Rental and Leasing Industry and our average nonperforming loans associated with commercial lending was under $1 million. Seven of the ten largest outstanding nonperforming assets are from the commercial lending portfolio and represent 21% and 4% of total commercial lending nonperforming loans and total nonperforming assets, respectively, as of June 30, 2015.

Purchased impaired loans are considered performing, even if contractually past due (or if we do not expect to receive payment in full based on the original contractual terms), as we accrete interest income over the expected life of the loans. Total nonperforming loans and assets in the tables above are significantly lower than they would have been due to this accounting treatment for purchased impaired loans. This treatment also results in a lower ratio of nonperforming loans to total loans and a higher ratio of ALLL to nonperforming loans. See Note 4 Purchased Loans in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report, as well as the Credit Risk Management portion of the Risk Management section in our 2014 Form 10-K for additional information, including the accounting treatment, on these loans.

Table 30: OREO and Foreclosed Assets


In millions	June 30 2015		December 31 2014
Other real estate owned (OREO):
Residential properties	$	153	$	183
Residential development properties		38		48
Commercial properties		111		120
Total OREO		302		351
Foreclosed and other assets		24		19
Total OREO and foreclosed assets	$	326	$	370

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

Total OREO and foreclosed assets decreased $44 million during the first six months of 2015 and is 13% of total nonperforming assets at June 30, 2015. As of both June 30, 2015 and December 31, 2014, 62% of our OREO and foreclosed assets were comprised of residential related properties.

Loan Delinquencies

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

Table 31: Accruing Loans Past Due (a) (b)


	Amount				Percentage of Total Outstandings
Dollars in millions	June 30 2015		December 31 2014		June 30 2015			December 31 2014
Early stage loan delinquencies
Accruing loans past due 30 to 59 days	$	492	$	582		.24	%		.28	%
Accruing loans past due 60 to 89 days		235		259		.11	%		.13	%
Total		727		841		.35	%		.41	%
Late stage loan delinquencies
Accruing loans past due 90 days or more		914		1,105		.45	%		.54	%
Total	$	1,641	$	1,946		.80	%		.95	%

(a)	Amounts in table represent recorded investment.

(b)

Past due loan amounts at June 30, 2015 include government insured or guaranteed loans of $185 million, $119 million, and $817 million for accruing loans past due 30 to 59 days, past due 60 to 89 days, and past due 90 days or more, respectively. The comparative amounts as of December 31, 2014 were $220 million, $136 million, and $996 million, respectively.

Total early stage loan delinquencies (accruing loans past due 30 to 89 days) decreased $114 million, or 14%, at June 30, 2015 compared to December 31, 2014, driven by reductions in both consumer and commercial real estate early stage delinquencies, which more than offset an increase in commercial lending accruing loans past due 30 to 59 days.

Accruing loans past due 90 days or more decreased $191 million, or 17%, at June 30, 2015 compared to December 31, 2014 due to a decline in government insured residential real estate loans of $134 million, the majority of which we took possession of and conveyed the real estate, or are in the process of conveyance and claim resolution. Accruing loans past due 90 days or more are referred to as late stage loan delinquencies. These loans are not included in nonperforming loans and continue to accrue interest because they are well secured by collateral and are in the process of collection, or are managed in homogenous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or are certain government insured or guaranteed loans.

On a regular basis our Special Asset Committee closely monitors loans, primarily commercial loans, that are not included in the nonperforming or accruing past due categories and for which we are uncertain about the borrower’s ability to comply with existing repayment terms. These loans totaled $.2 billion at both June 30, 2015 and December 31, 2014.

See Note 1 Accounting Policies and Note 3 Asset Quality in the Notes To Consolidated Financial Statements of this Report for additional information regarding our nonperforming loan and nonaccrual policies and further information on loan delinquencies.

Home Equity Loan Portfolio

Our home equity loan portfolio totaled $33.5 billion as of June 30, 2015, or 16% of the total loan portfolio. Of that total, $19.6 billion, or 58%, was outstanding under primarily variable-rate home equity lines of credit and $13.9 billion, or 42%, consisted of closed-end home equity installment loans. Approximately 5% of the home equity portfolio was purchased credit impaired and 3% of the home equity portfolio was on nonperforming status as of June 30, 2015.

As of June 30, 2015, we are in an originated first lien position for approximately 52% of the total outstanding portfolio and, where originated as a second lien, we currently hold or service the first lien position for an additional 2% of the portfolio. The remaining 46% of the portfolio was secured by second liens where we do not hold the first lien position. The credit performance of the majority of the home equity portfolio where we are in, hold or service the first lien position, is superior to the portion of the portfolio where we hold the second lien position but do not hold the first lien.

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

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

June 30, 2015, the following table presents the periods when home equity lines of credit draw periods are scheduled to end.

Table 32: Home Equity Lines of Credit – Draw Period End Dates


In millions	Interest Only Product		Principal and Interest Product
Remainder of 2015	$	573	$	242
2016		1,276		413
2017		2,270		567
2018		996		772
2019		685		612
2020 and thereafter		3,332		5,350
Total (a) (b)	$	9,132	$	7,956

(a)	Includes all home equity lines of credit that mature in the remainder of 2015 or later, including those with borrowers where we have terminated borrowing privileges.

(b)

Includes approximately $28 million, $45 million, $52 million, $37 million, $25 million and $537 million of home equity lines of credit with balloon payments, including those where we have terminated borrowing privileges, with draw periods scheduled to end in the remainder of 2015, 2016, 2017, 2018, 2019 and 2020 and thereafter, respectively.

Based upon outstanding balances, and excluding purchased impaired loans, at June 30, 2015, for home equity lines of credit for which the borrower can no longer draw (e.g., draw period has ended or borrowing privileges have been terminated), approximately 3% were 30-89 days past due and approximately 5% were 90 days or more past due. Generally, when a borrower becomes 60 days past due, we terminate borrowing privileges and those privileges are not subsequently reinstated. At that point, we continue our collection/recovery processes, which may include loan modification resulting in a loan that is classified as a TDR.

See the Credit Risk Management portion of the Risk Management section in our 2014 Form 10-K for more information on our home equity loan portfolio.

Loan Modifications and Troubled Debt Restructurings

Consumer Loan Modifications

We modify loans under government and PNC-developed programs based upon our commitment to help eligible homeowners and borrowers avoid foreclosure, where appropriate. Initially, a borrower is evaluated for a modification under a government program. If a borrower does not qualify under a government program, the borrower is then evaluated under a PNC program. Our programs utilize both temporary and permanent modifications and typically reduce the interest rate, extend the term and/or defer principal. Loans that are either temporarily or permanently modified under programs involving a change to loan terms are generally classified as TDRs. Further, loans that have certain types of payment plans and trial payment arrangements which do not include a contractual change to loan terms may be classified as TDRs. Additional detail on TDRs is discussed below as well as in Note 3 Asset Quality in our 2014 Form 10-K.

A temporary modification, with a term between 3 and 24 months, involves a change in original loan terms for a period of time and reverts to a calculated exit rate for the remaining term of the loan as of a specific date. A permanent modification, with a term greater than 24 months, is a modification in which the terms of the original loan are changed. Permanent modification programs primarily include the government-created Home Affordable Modification Program (HAMP) and PNC-developed HAMP-like modification programs. These programs first require a reduction of the interest rate followed by an extension of term and, if appropriate, deferral of principal payments.

We also monitor the success rates and delinquency status of our loan modification programs to assess their effectiveness in serving our borrowers’ and servicing customers’ needs while mitigating credit losses. Table 33 provides the number of bank-owned accounts and unpaid principal balance of modified consumer real estate related loans at the end of each year presented.

Table 33: Consumer Real Estate Related Loan Modifications


	June 30, 2015				December 31, 2014
Dollars in millions	Number of Accounts		Unpaid Principal Balance		Number of Accounts		Unpaid Principal Balance
Home equity
Temporary Modifications		4,808	$	366		5,346	$	417
Permanent Modifications		14,024		1,013		13,128		968
Total home equity		18,832		1,379		18,474		1,385
Residential Mortgages
Permanent Modifications		5,640		1,065		5,876		1,110
Non-Prime Mortgages
Permanent Modifications		4,338		601		4,358		611
Residential Construction
Permanent Modifications		2,304		605		2,292		629
Total Consumer Real Estate Related Loan Modifications		31,114	$	3,650		31,000	$	3,735

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

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

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

Under a HAMP trial payment period, we establish an alternate payment, generally at an amount less than the contractual payment amount, for the borrower during this short time period. This allows a borrower to demonstrate successful payment performance before permanently restructuring the loan into a HAMP modification. Subsequent to successful borrower performance under the trial payment period, we will capitalize the original contractual amount past due, to include accrued interest and fees receivable, and restructure the loan’s contractual terms, along with bringing the restructured account current. As the borrower is often already delinquent at the time of participation in the HAMP trial payment period, generally enrollment in the program does not significantly increase the ALLL. If the trial payment period is unsuccessful, the loan will be evaluated for further action based upon our existing policies.

Commercial Loan Modifications and Payment Plans

Modifications of terms for commercial loans are based on individual facts and circumstances. Commercial loan modifications may involve reduction of the interest rate, extension of the loan term and/or forgiveness of principal. Modified commercial loans are usually already nonperforming prior to modification. We evaluate these modifications for TDR classification based upon whether we granted a concession to a borrower experiencing financial difficulties. Additional detail on TDRs is discussed below as well as in Note 3 Asset Quality in our 2014 Form 10-K.

We have established certain commercial loan modification and payment programs for small business loans, Small Business Administration loans, and investment real estate loans. As of June 30, 2015 and December 31, 2014, $27 million and $34 million, respectively, in loan balances were covered under these modification and payment plan programs. Of these loan balances, $11 million and $12 million have been determined to be TDRs as of June 30, 2015 and December 31, 2014, respectively.

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 borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC. For the six months ended June 30, 2015, $442 million of Consumer loans held for sale, loans accounted for under the fair value option and pooled purchased impaired loans, as well as certain government insured or guaranteed loans, were excluded from the TDR population. The comparable amount for the six months ended June 30, 2014 was $615 million.

Table 34: Summary of Troubled Debt Restructurings (a)


In millions	June 30 2015		December 31 2014
Consumer lending:
Real estate-related	$	1,845	$	1,864
Credit card		117		130
Other consumer		40		47
Total consumer lending		2,002		2,041
Total commercial lending		414		542
Total TDRs	$	2,416	$	2,583
Nonperforming	$	1,208	$	1,370
Accruing		1,091		1,083
Credit card		117		130
Total TDRs	$	2,416	$	2,583

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

Total TDRs decreased $167 million, or 6%, during the first six months of 2015. Nonperforming TDRs were approximately 54% of total nonperforming loans, and 50% of total TDRs.

TDRs that are performing, including credit card loans, are excluded from nonperforming loans. These TDRs remained flat during the first six months of 2015 at $1.2 billion. Generally, the accruing category is comprised of loans where borrowers have been performing under the restructured terms for at least six consecutive months. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

See Note 3 Asset Quality and the Credit Risk Management portion of the Risk Management section in our 2014 Form 10-K for additional information on loan modifications and TDRs.

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

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

Table 35: Loan Charge-Offs And Recoveries


Six months ended June 30 Dollars in millions	Gross Charge-offs		Recoveries		Net Charge-offs / (Recoveries)			Percent of Average Loans (annualized)
2015
Commercial	$	82	$	97	$	(15	)		(.03	)%
Commercial real estate		25		35		(10	)		(.08	)
Equipment lease financing		1		2		(1	)		(.03	)
Home equity		102		44		58			.34
Residential real estate		6		6
Credit card		84		11		73			3.30
Other consumer		92		27		65			.59
Total	$	392	$	222	$	170			.17
2014
Commercial	$	171	$	94	$	77			.17	%
Commercial real estate		32		49		(17	)		(.15	)
Equipment lease financing		6		6
Home equity		163		39		124			.70
Residential real estate		15		2		13			.18
Credit card		85		11		74			3.47
Other consumer		92		32		60			.54
Total	$	564	$	233	$	331			.34

Total net charge-offs are lower than they would have been otherwise due to the accounting treatment for purchased impaired loans. This treatment also results in a lower ratio of net charge-offs to average loans. See Note 4 Purchased Loans in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for additional information on net charge-offs related to these loans.

We maintain an ALLL to absorb losses from the loan and lease portfolio and determine this allowance based on quarterly assessments of the estimated probable credit losses incurred in the loan and lease portfolio. Our total ALLL of $3.3 billion at June 30, 2015 consisted of $1.6 billion and $1.7 billion established for the commercial lending and consumer lending categories, respectively. We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolio as of the balance sheet date. The reserve calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan and lease portfolio performance experience, the financial strength of the borrower, and economic conditions. Key reserve assumptions are periodically updated.

We establish specific allowances for loans considered impaired using methods prescribed by GAAP. All impaired loans are subject to individual analysis, except leases and

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

Reserves allocated to non-impaired commercial loan classes are based on PD and LGD credit risk ratings.

Our commercial pool reserve methodology is sensitive to changes in key risk parameters such as PD and LGD. The results of these parameters are then applied to the loan balance and unfunded loan commitments and letters of credit to determine the amount of the respective reserves. Our PDs and LGDs are primarily determined using internal commercial loan loss data. This internal data is supplemented with third-party data and management judgment, as deemed necessary. We continue to evaluate and enhance our use of internal commercial loss data and will periodically update our PDs and LGDs as well as consider third-party data, regulatory guidance and management judgment.

The majority of the commercial portfolio is secured by collateral, including loans to asset-based lending customers, which generally demonstrate lower LGD compared to loans

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

not secured by collateral. Additionally, guarantees on loans greater than $1 million and owner guarantees for small business loans do not significantly impact our ALLL.

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

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

•

Industry concentrations and conditions,

•

Recent credit quality trends,

•

Recent loss experience in particular portfolios,

•

Recent macro-economic factors,

•

Model imprecision,

•

Changes in lending policies and procedures,

•

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

•

Limitations of available historical data.

Purchased impaired loans are initially recorded at fair value and applicable accounting guidance prohibits the carry over or creation of valuation allowances at acquisition. Because the initial fair values of these loans already reflect a credit component, additional reserves are established when performance is expected to be worse than our expectations as of the acquisition date. At June 30, 2015, we had established reserves of $.9 billion for purchased impaired loans. In addition, loans (purchased impaired and non-impaired) acquired after January 1, 2009 were recorded at fair value. No allowance for loan losses was carried over and no allowance was created at the date of acquisition. See Note 4 Purchased Loans in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for additional information.

In determining the appropriateness of the ALLL, we make specific allocations to impaired loans and allocations to portfolios of commercial and consumer loans. We also allocate reserves to provide coverage for probable losses incurred in the portfolio at the balance sheet date based upon current market conditions, which may not be reflected in historical loss data. Commercial lending is the largest category of credits and is sensitive to changes in assumptions and judgments underlying the determination of the ALLL. We have allocated approximately $1.6 billion, or 50%, of the ALLL at June 30, 2015 to the commercial lending category. Consumer lending allocations are made based on historical loss experience adjusted for recent activity. Approximately $1.7 billion, or 50%, of the ALLL at June 30, 2015 has been allocated to these consumer lending categories.

In addition to the ALLL, we maintain an allowance for unfunded loan commitments and letters of credit. We report this allowance as a liability on our Consolidated Balance

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

We refer you to Note 1 Accounting Policies and Note 3 Asset Quality in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report and in our 2014 Form 10-K for further information on certain key asset quality indicators that we use to evaluate our portfolios and establish the allowances.

Table 36: Allowance for Loan and Lease Losses


Dollars in millions	2015			2014
January 1	$	3,331		$	3,609
Total net charge-offs		(170	)		(331	)
Provision for credit losses		100			166
Net change in allowance for unfunded loan commitments and letters of credit		13			10
Other		(2	)		(1	)
June 30	$	3,272		$	3,453
Net charge-offs to average loans (for the six months ended) (annualized)		.17	%		.34	%
Total allowance for loan and lease losses to total loans		1.59			1.72
Commercial lending net (charge-offs) / recoveries	$	26		$	(60	)
Consumer lending net charge-offs		(196	)		(271	)
Total net charge-offs	$	(170	)	$	(331	)
Net charge-offs (recoveries) to average loans (for the six months ended) (annualized)
Commercial lending		(.04	)%		.10	%
Consumer lending		.53			.71

The provision for credit losses totaled $100 million for the first six months of 2015 compared to $166 million for the first six months of 2014. The primary driver of the decrease to the provision was improved overall credit quality. For the first six months of 2015, the provision for commercial lending credit losses decreased by $88 million, or 81%, from the first six months of 2014. The provision for consumer lending credit losses increased $22 million, or 38%, from the first six months of 2014.

At June 30, 2015, total ALLL to total nonperforming loans was 145%. The comparable amount for December 31, 2014 was 133%. These ratios are 94% and 85%, respectively, when excluding the $1.2 billion of ALLL at both June 30, 2015 and December 31, 2014 allocated to consumer loans and lines of credit not secured by residential real estate and purchased impaired loans. We have excluded consumer loans and lines

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

of credit not secured by real estate as they are charged off after 120 to 180 days past due and not placed on nonperforming status. Additionally, we have excluded purchased impaired loans as they are considered performing regardless of their delinquency status as interest is accreted in accordance with ASC 310-30 based on the recorded investment balance. See Table 28 within this Credit Risk Management section for additional information.

The ALLL balance increases or decreases across periods in relation to fluctuating risk factors, including asset quality trends, net charge-offs and changes in aggregate portfolio balances. During the first six months of 2015, improving asset quality trends, including, but not limited to, delinquency status and improving economic conditions, as well as reduced net charge-offs and overall portfolio growth combined to result in the ALLL remaining essentially flat at June 30, 2015 compared to December 31, 2014.

See Note 1 Accounting Policies and Note 4 Purchased Loans in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report regarding changes in the ALLL and in the allowance for unfunded loan commitments and letters of credit. See also the Purchase Accounting Accretion and Valuation of Purchased Impaired Loans portion of the Consolidated Balance Sheet Review section of this Financial Review for additional information on our ALLL related to purchased impaired loans.

Liquidity Risk Management

Liquidity risk, including our liquidity monitoring measures and tools, is described in further detail in the Liquidity Risk Management section of our 2014 Form 10-K.

PNC also monitors its liquidity 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 30-day stress scenario. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets (HQLA), as defined and calculated in accordance with the haircuts and limitations of the LCR rules, by its estimated net cash outflow, with net cash outflows determined by applying assumed outflow factors in the LCR rules. The resulting quotient is expressed as a percentage. For PNC and PNC Bank, the LCR became effective January 1, 2015. The minimum required LCR will be phased-in over a period of years. For 2015, PNC and PNC Bank are required to calculate the LCR on a month-end basis and the minimum LCR that PNC and PNC Bank are required to maintain is 80 percent. Effective July 1, 2016, PNC and PNC Bank must begin calculating their respective LCR ratios on a daily basis.

As of June 30, 2015, the LCR for PNC and PNC Bank exceeded 100 percent. The June 30, 2015 LCR calculation and the underlying components are based on PNC’s current interpretation and understanding of the final LCR rules and are subject to, among other things, further regulatory guidance.

We provide additional information regarding regulatory liquidity requirements and their potential impact on PNC in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of our 2014 Form 10-K.

Bank Level Liquidity – Uses

At the bank level, primary contractual obligations include funding loan commitments, satisfying deposit withdrawal requests and maturities and debt service related to bank borrowings. As of June 30, 2015, there were approximately $8.1 billion of bank borrowings with contractual maturities of less than one year. We also maintain adequate bank liquidity to meet future potential loan demand and provide for other business needs, as necessary.

Bank Level Liquidity – Sources

Our largest source of bank liquidity on a consolidated basis is the deposit base generated by our retail and commercial banking businesses. Total deposits increased to $239.7 billion at June 30, 2015 from $232.2 billion at December 31, 2014, driven primarily by higher money market deposits. Assets determined by PNC to be liquid (liquid assets) and unused borrowing capacity from a number of sources are also available to maintain our liquidity position. Borrowed funds come from a diverse mix of short-term and long-term funding sources.

At June 30, 2015, our liquid assets consisted of short-term investments (Federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling $38.3 billion and securities available for sale totaling $47.7 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. Of our total liquid assets of $86.0 billion, we had $4.0 billion of securities available for sale and trading securities pledged as collateral to secure public and trust deposits, repurchase agreements and for other purposes. In addition to the liquid assets we pledged, $6.1 billion of securities held to maturity were also pledged as collateral for these purposes.

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

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

Under the 2014 bank note program, PNC Bank may from time to time offer unsecured senior and subordinated notes due more than nine months from their date of issue (in the case of senior notes) and due five years or more from their date of issue (in the case of subordinated notes). On May 22, 2015, PNC Bank increased the capacity of this program by $5.0 billion to a maximum aggregate principal amount at any one time outstanding of $30.0 billion. The $30.0 billion of notes authorized to be issued and outstanding at any one time includes notes issued by PNC Bank under the 2004 bank note program and those notes PNC Bank has assumed through the acquisition of other banks, in each case for so long as such notes remain outstanding. The terms of the 2014 bank note program do not affect any of the bank notes issued prior to January 16, 2014. At June 30, 2015, PNC Bank had $20.8 billion of notes outstanding under this program. The following table details all issuances through June 30, 2015:

Table 37: PNC Bank Bank Notes Issued During 2015


Issuance Date	Amount		Description of Issuance
February 6, 2015	$	600 million	Floating rate senior notes issued to an affiliate with a maturity date of January 26, 2017. Interest is payable at the 3-month LIBOR rate, reset quarterly, plus a spread of .30%, on January 26, April 26, July 26 and October 26 of each year, beginning on April 26, 2015.

February 23, 2015	$	750 million	Senior notes with a maturity date of February 23, 2025. Interest is payable semi-annually at a fixed rate of 2.950% on February 23 and August 23 of each year, beginning on August 23, 2015.

February 23, 2015		$1.0 billion	Senior notes with a maturity date of February 23, 2018. Interest is payable semi-annually at a fixed rate of 1.500% on February 23 and August 23 of each year, beginning on August 23, 2015.

May 27, 2015	$	200 million	Floating rate senior notes with a maturity date of May 27, 2021. Interest is payable at the 3-month LIBOR rate, reset quarterly, plus a spread of .65%, on February 27, May 27, August 27 and November 27 of each year, beginning on August 27, 2015.

June 1, 2015	$	550 million	Floating rate senior notes with a maturity date of June 1, 2018. Interest is payable at the 3-month LIBOR rate, reset quarterly, plus a spread of .42%, on March 1, June 1, September 1 and December 1 of each year, beginning on September 1, 2015.

June 1, 2015		$1.3 billion	Senior notes with a maturity date of June 1, 2018. Interest is payable semi-annually at a fixed rate of 1.600% on June 1 and December 1 of each year, beginning on December 1, 2015.

June 1, 2015	$	750 million	Senior notes with a maturity date of June 1, 2020. Interest is payable semi-annually at a fixed rate of 2.300% on June 1 and December 1 of each year, beginning on December 1, 2015.

June 1, 2015	$	400 million	Senior notes with a maturity date of June 1, 2025. Interest is payable semi-annually at a fixed rate of 3.250% on June 1 and December 1 of each year, beginning on December 1, 2015.

Total senior and subordinated debt of PNC Bank increased to $22.3 billion at June 30, 2015 from $17.5 billion at December 31, 2014 due to the following activity in the period.

Table 38: PNC Bank Senior and Subordinated Debt


In billions	2015
January 1	$	17.5
Issuances		5.5
Calls and maturities		(.7	)
June 30	$	22.3

See Note 18 Subsequent Events in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for information on two $750 million issuances of senior notes on July 21, 2015.

PNC Bank is a member of the FHLB-Pittsburgh and, as such, has access to advances from FHLB-Pittsburgh secured generally by residential mortgage loans, other mortgage-related loans and commercial mortgage-backed securities. At June 30, 2015, our unused secured borrowing capacity was

$14.3 billion with FHLB-Pittsburgh. Total FHLB borrowings increased to $22.2 billion at June 30, 2015 from $20.0 billion at December 31, 2014 due to the following activity in the period.

Table 39: FHLB Borrowings


In billions	2015
January 1	$	20.0
Issuances		2.2
June 30	$	22.2

The FHLB-Pittsburgh also periodically provides standby letters of credit on behalf of PNC Bank to secure certain public deposits. PNC Bank began using standby letters of credit issued by the FHLB-Pittsburgh for these purposes in response to the regulatory liquidity standards finalized during 2014. If the FHLB-Pittsburgh is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to PNC Bank. At June 30, 2015 standby letters of credit issued on our behalf by the FHLB-Pittsburgh totaled $6.0 billion.

42 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. As of June 30, 2015, there was $3.0 billion outstanding under this program.

PNC Bank can also borrow from the Federal Reserve Bank discount window to meet short-term liquidity requirements. The Federal Reserve Bank, however, is not viewed as the primary means of funding our routine business activities, but rather as a potential source of liquidity in a stressed environment or during a market disruption. These potential borrowings are secured by commercial loans. At June 30, 2015, our unused secured borrowing capacity was $15.3 billion with the Federal Reserve Bank.

Parent Company Liquidity

As of June 30, 2015, available parent company liquidity totaled $5.6 billion. Parent company liquidity is primarily held in short-term investments, the terms of which provide for the availability of cash in 31 days or less. Investments with longer durations may also be acquired, but if so, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

Parent Company Liquidity – Uses

The parent company’s contractual obligations consist primarily of debt service related to parent company borrowings and funding non-bank affiliates. As of June 30, 2015, there were approximately $1.1 billion of parent company borrowings with contractual maturities of less than one year. Additionally, the parent company maintains adequate liquidity to fund discretionary activities such as paying dividends to PNC shareholders, share repurchases, and acquisitions.

See Balance Sheet, Liquidity and Capital Highlights in the Executive Summary section of this Financial Review for information on our 2015 capital plan that was accepted by the Federal Reserve. Our capital plan included a recommendation to increase the quarterly common stock dividend in the second quarter of 2015 and the ability to redeem the Series K Preferred Stock, as further described below, and also included share repurchase programs of up to $2.875 billion for the five quarter period beginning in the second quarter of 2015. See the Capital portion of the Consolidated Balance Sheet Review in this Financial Review for more information on our share repurchase programs, including detail on our first quarter repurchase of 4.4 million common shares for $.4 billion and our second quarter repurchase of 5.9 million common shares for $.6 billion.

On April 2, 2015, consistent with our 2015 capital plan, our Board of Directors approved an increase to PNC’s quarterly common stock dividend from 48 cents per common share to 51 cents per common share beginning with the May 5, 2015 dividend payment.

See the Supervision and Regulation section of Item 1 Business in our 2014 Form 10-K for additional information regarding the Federal Reserve’s CCAR process and the factors the Federal Reserve takes into consideration in evaluating capital plans, qualitative and quantitative liquidity risk management standards proposed by the U.S. banking agencies, and final rules issued by the Federal Reserve that make certain modifications to the Federal Reserve’s capital planning and stress testing rules.

See Table 37 for information on an affiliate purchase of notes issued by PNC Bank during 2015.

Parent Company Liquidity – Sources

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

•

Bank-level capital needs,

•

Laws and regulations,

•

Corporate policies,

•

Contractual restrictions, and

•

Other factors.

There are statutory and regulatory limitations on the ability of national banks to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was approximately $1.5 billion at June 30, 2015. See Note 20 Regulatory Matters in our 2014 Form 10-K for a further discussion of these limitations. We provide additional information on certain contractual restrictions in Note 12 Capital Securities of a Subsidiary Trust and Perpetual Trust Securities in our 2014 Form 10-K.

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. We have an effective shelf registration statement pursuant to which we can issue additional debt, equity and other capital instruments.

The PNC Financial Services Group, Inc. – Form 10-Q 43

Total parent company senior and subordinated debt and hybrid capital instruments decreased to $8.6 billion at June 30, 2015 from $10.1 billion at December 31, 2014 due to the following activity in the period.

Table 40: Parent Company Senior and Subordinated Debt and Hybrid Capital Instruments


In billions	2015
January 1	$	10.1
Maturities		(1.4	)
Other		(.1	)
June 30	$	8.6

The parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As of June 30, 2015, there were no issuances outstanding under this program.

Status of Credit Ratings

The cost and availability of short-term and long-term funding, as well as collateral requirements for certain derivative instruments, is influenced by PNC’s debt ratings.

In general, rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current legislative and regulatory environment, including implied government support. In addition, rating agencies themselves have been subject to scrutiny arising from the most recent financial crisis and could make or be required to make substantial changes to their ratings policies and practices, particularly in response to legislative and regulatory changes. Potential changes in the legislative and regulatory environment and the timing of those

changes could impact our ratings, which as noted above, could impact our liquidity and financial condition. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect liquidity and financial condition.

In March 2015, Moody’s Investors Service (Moody’s) published a new bank ratings methodology which has been implemented on a global basis and includes assessment of expected loss ratings on instruments ranging from bank deposits to preferred stock. In the second quarter of 2015, Moody’s concluded its review for PNC and PNC Bank under this new methodology. As a result, Moody’s upgraded PNC Bank’s long-term deposit rating three notches to Aa2, confirmed PNC Bank’s senior debt and issuer ratings at A2, and confirmed PNC Bank’s Prime-1 short-term notes rating. The Moody’s rating outlook for PNC and PNC Bank is stable.

Table 41: Credit Ratings as of June 30, 2015 for PNC and PNC Bank

Moody’s

Standard &
Poor’s

Fitch

PNC

Senior debt

A-

A+

Subordinated debt

BBB+

Preferred stock

Baa2

BBB-

PNC Bank

Senior debt

A+

Subordinated debt

A-

Long-term deposits

Aa2

AA-

Short-term deposits

P-1

A-1

F1+

Short-term notes

P-1

A-1

Commitments

The following tables set forth contractual obligations and various other commitments as of June 30, 2015 representing required and potential cash outflows.

Table 42: Contractual Obligations


			Payment Due By Period
June 30, 2015 – in millions	Total		Less than one year		One to three years		Four to five years		After five years

Remaining contractual maturities of time deposits (a)	$	20,590	$	14,807	$	2,003	$	955	$	2,825
Borrowed funds (a) (b)		58,276		13,263		21,617		14,079		9,317
Minimum annual rentals on noncancellable leases		2,723		379		646		490		1,208
Nonqualified pension and postretirement benefits		519		56		109		108		246
Purchase obligations (c)		647		416		136		71		24
Total contractual cash obligations	$	82,755	$	28,921	$	24,511	$	15,703	$	13,620

(a)	Includes purchase accounting adjustments.

(b)	Includes basis adjustment relating to accounting hedges.

(c)	Includes purchase obligations for goods and services covered by noncancellable contracts and contracts including cancellation fees.

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

At June 30, 2015, we had unrecognized tax benefits of $80 million, which represents a reserve for tax positions that we have taken in our tax returns which ultimately may not be sustained upon examination by taxing authorities. Since the ultimate amount and timing of any future cash settlements cannot be predicted with reasonable certainty, this estimate has been excluded from the contractual obligations table. See Note 14 Income Taxes in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for additional information.

Our contractual obligations totaled $82.0 billion at December 31, 2014. The slight increase in the comparison is primarily attributable to an increase in borrowed funds offset by a decrease in time deposits. See Funding Sources in the Consolidated Balance Sheet Review section of this Financial Review for additional information regarding our funding sources.

Table 43: Other Commitments (a)


			Amount Of Commitment Expiration By Period
June 30, 2015 – in millions	Total Amounts Committed		Less than one year		One to three years		Four to five years		After five years
Commitments to extend credit (b)	$	138,242	$	52,622	$	47,142	$	37,633	$	845
Net outstanding standby letters of credit (c)		9,509		4,361		4,053		1,094		1
Reinsurance agreements (d)		2,118		10		18		30		2,060
Standby bond purchase agreements		959		306		653
Other commitments (e)		964		764		166		33		1
Total commitments	$	151,792	$	58,063	$	52,032	$	38,790	$	2,907

(a)	Other commitments are funding commitments that could potentially require performance in the event of demands by third parties or contingent events. Loan commitments are reported net of syndications, assignments and participations.

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

(c)	Includes $5.2 billion of standby letters of credit that support remarketing programs for customers’ variable rate demand notes.

(d)	Reinsurance agreements are with third-party insurers related to insurance sold to or placed on behalf of our customers. Balances represent estimates based on availability of financial information.

(e)	Includes other commitments of $283 million that were not on our Consolidated Balance Sheet. The remaining $681 million of other commitments were included in Other liabilities on our Consolidated Balance Sheet.

Our total commitments were $154.9 billion at December 31, 2014. The decrease in the comparison is primarily due to the decline in reinsurance agreements driven by the programs being in run-off. See Note 16 Commitments and Guarantees in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for additional information related to our commitments.

Market Risk Management

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

•

Traditional banking activities of gathering deposits and extending loans,

•

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

•

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

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

Market Risk Management – Interest Rate Risk

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

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

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

Sensitivity results and market interest rate benchmarks for the second quarters of 2015 and 2014 follow:

Table 44: Interest Sensitivity Analysis


	Second Quarter 2015			Second Quarter 2014
Net Interest Income Sensitivity Simulation (a)
Effect on net interest income in first year from gradual interest rate change over following 12 months of:
100 basis point increase		1.7	%		2.0	%
100 basis point decrease		(.5	)%		(.9	)%
Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of:
100 basis point increase		5.7	%		6.8	%
100 basis point decrease		(4.6	)%		(4.6	)%
Duration of Equity Model (a)
Base case duration of equity (in years)		(3.5	)		(2.7	)
Key Period-End Interest Rates
One-month LIBOR		.19	%		.16	%
Three-year swap		1.25	%		1.00	%

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

In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 45 reflects the percentage change in net interest income over the next two 12-month periods assuming (i) the PNC Economist’s most likely rate forecast, (ii) implied market forward rates and (iii) Yield Curve Slope Flattening (a 100 basis point yield curve slope flattening between 1-month and ten-year rates superimposed on current base rates) scenario.

Table 45: Net Interest Income Sensitivity to Alternative Rate Scenarios (Second Quarter 2015)


	PNC Economist			Market Forward			Slope Flattening
First year sensitivity		2.9	%		1.1	%		(.8	)%
Second year sensitivity		7.0	%		4.5	%		(4.1	)%

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

When forecasting net interest income, we make assumptions about interest rates and the shape of the yield curve, the volume and characteristics of new business and the behavior of existing on- and off-balance sheet positions. These assumptions determine the future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 44 and 45 above.

These simulations assume that as assets and liabilities mature, they are replaced or repriced at then current market rates. We also consider forward projections of purchase accounting accretion when forecasting net interest income.

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

Table 46: Alternate Interest Rate Scenarios: One Year Forward

LOGO

The second quarter 2015 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

Market Risk Management – Customer-Related Trading Risk

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

We use value-at-risk (VaR) as the primary means to measure and monitor market risk in customer-related trading activities. We calculate a diversified VaR at a 95% confidence interval. VaR is used to estimate the probability of portfolio losses based on the statistical analysis of historical market risk factors. A diversified VaR reflects empirical correlations across different asset classes.

During the first six months of 2015, our 95% VaR ranged between $1.4 million and $3.6 million, averaging $2.1 million. During the first six months of 2014, our 95% VaR ranged between $1.4 million and $3.9 million, averaging $3.1 million.

To help ensure the integrity of the models used to calculate VaR for each portfolio and enterprise-wide, we use a process known as backtesting. The backtesting process consists of comparing actual observations of gains or losses against the

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

VaR levels that were calculated at the close of the prior day. This assumes that market exposures remain constant throughout the day and that recent historical market variability is a good predictor of future variability. Our customer-related trading activity includes customer revenue and intraday hedging which helps to reduce losses, and may reduce the number of instances of actual losses exceeding the prior day VaR measure. There were three such instances during the first six months of 2015 where actual losses exceeded the prior day VaR measure under our diversified VaR measure. In comparison, there were no such instances during the first six months of 2014. We use a 500 day look back period for backtesting and include customer-related revenue.

The following graph shows a comparison of enterprise-wide gains and losses against prior day diversified VaR for the period indicated.

Table 47: Enterprise-Wide Gains/Losses Versus Value-at-Risk

LOGO

Customer-related trading revenue increased to $102 million for the first six months of 2015 compared with $84 million for the first six months of 2014. This increase was primarily due to market interest rate changes impacting credit valuations for customer-related derivatives activities and improved derivatives client sales revenues, which were partially offset by reduced client related trading results.

Customer-related trading revenue increased to $53 million for the second quarter of 2015 compared with $44 million for the second quarter of 2014. This increase was primarily due to market interest rate changes impacting credit valuations for customer-related derivatives activities.

Market Risk Management – Equity And Other

Investment Risk

Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, and underwriting and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations, and growth financings in a variety of industries. We also have investments in

affiliated and non-affiliated funds that make similar investments in private equity and in debt and equity-oriented hedge funds. The economic and/or book value of these investments and other assets such as loan servicing rights are directly affected by changes in market factors.

The primary risk measurement for equity and other investments is economic capital. Economic capital is a common measure of risk for credit, market and operational risk. It is an estimate of the potential value depreciation over a one year horizon commensurate with solvency expectations of an institution rated single-A by the credit rating agencies. Given the illiquid nature of many of these types of investments, it can be a challenge to determine their fair values. See Note 7 Fair Value in the Notes To Consolidated Financial Statements in this Report and Note 7 Fair Value in our 2014 Form 10-K for additional information.

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 48: Equity Investments Summary


In millions	June 30 2015		December 31 2014
BlackRock	$	6,397	$	6,265
Tax credit investments		2,312		2,616
Private equity		1,611		1,615
Visa		54		77
Other		157		155
Total	$	10,531	$	10,728

BlackRock

PNC owned approximately 35 million common stock equivalent shares of BlackRock equity at June 30, 2015, accounted for under the equity method. The primary risk measurement, similar to other equity investments, is economic capital. The Business Segments Review section of this Financial Review includes additional information about BlackRock.

Tax Credit Investments

Included in our equity investments are direct tax credit investments and equity investments held by consolidated partnerships which totaled $2.3 billion at June 30, 2015 and $2.6 billion at December 31, 2014. These equity investment balances include unfunded commitments totaling $611 million and $717 million at June 30, 2015 and December 31, 2014, respectively. These unfunded commitments are included in Other Liabilities on our Consolidated Balance Sheet.

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

The PNC Financial Services Group, Inc. – Form 10-Q 47

Statements in Part I, Item 1 of this Report has further information on Tax Credit Investments.

Private Equity

The private equity portfolio is an illiquid portfolio comprised of mezzanine and equity investments that vary by industry, stage and type of investment.

Private equity investments carried at estimated fair value totaled $1.6 billion at both June 30, 2015 and December 31, 2014. As of June 30, 2015, $1.2 billion was invested directly in a variety of companies and $.4 billion was invested indirectly through various private equity funds. Included in direct investments are investment activities of two private equity funds that are consolidated for financial reporting purposes. The noncontrolling interests of these funds totaled $182 million as of June 30, 2015. The interests held in indirect private equity funds are not redeemable, but PNC may receive distributions over the life of the partnership from liquidation of the underlying investments. See Item 1 Business – Supervision and Regulation and Item 1A Risk Factors included in our 2014 Form 10-K for discussion of the potential impacts of the Volcker Rule provisions of Dodd-Frank on our interests in and sponsorship of private funds covered by the Volcker Rule.

Our unfunded commitments related to private equity totaled $144 million at June 30, 2015 compared with $140 million at December 31, 2014.

Visa

Our 2014 Form 10-K includes information regarding the October 2007 Visa restructuring, our involvement with judgment and loss sharing agreements with Visa and certain other banks, the status of pending interchange litigation, the sales of portions of our Visa Class B common shares and the related swap agreements with the purchaser.

During the first six months of 2015, we sold 1 million Visa Class B common shares, in addition to the 16.5 million shares sold in previous years. We have entered into swap agreements with the purchaser of the shares as part of these sales. At June 30, 2015, our investment in Visa Class B common shares totaled approximately 6 million shares and had a carrying value of $54 million. Based on the June 30, 2015 closing price of $67.15 for the Visa Class A common shares, the fair value of our total investment was approximately $649 million at the current conversion rate. The Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock, which cannot happen until the settlement of all of the specified litigation.

Other Investments

We also make investments in affiliated and non-affiliated funds with both traditional and alternative investment strategies. The economic values could be driven by either the fixed-income market or the equity markets, or both. At June 30, 2015 other investments totaled $157 million compared with $155 million at December 31, 2014. Net gains related to these investments were not significant for the first six months of 2015 and 2014.

Given the nature of these investments, if market conditions affecting their valuation were to worsen, we could incur future losses.

Our unfunded commitments related to other investments at June 30, 2015 and December 31, 2014 were not significant.

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 and credit risk inherent in our business activities. Substantially all such instruments are used to manage risk related to changes in interest rates. Interest rate swaps, interest rate caps and floors, swaptions, options, forwards and futures contracts are the primary instruments we use for interest rate risk management. We also enter into derivatives with customers to facilitate their risk management activities.

Financial derivatives involve, to varying degrees, market and credit risk. For interest rate swaps, options and futures contracts, only periodic cash payments and, with respect to options, premiums are exchanged. Therefore, cash requirements and exposure to credit risk are significantly less than the notional amount on these instruments.

Further information on our financial derivatives is presented in Note 1 Accounting Policies and Note 7 Fair Value in our Notes To Consolidated Financial Statements under Item 8 of our 2014 Form 10-K and in Note 7 Fair Value and Note 11 Financial Derivatives in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report, which is incorporated here by reference.

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

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

The following table summarizes the notional or contractual amounts and net fair value of financial derivatives at June 30, 2015 and December 31, 2014.

Table 49: Financial Derivatives Summary


	June 30, 2015					December 31, 2014
In millions	Notional/ Contractual Amount		Net Fair Value (a)			Notional/ Contractual Amount		Net Fair Value (a)
Derivatives designated as hedging instruments under GAAP
Total derivatives designated as hedging instruments	$	53,342	$	947		$	49,061	$	1,075
Derivatives not designated as hedging instruments under GAAP
Total derivatives used for residential mortgage banking activities	$	100,773	$	357		$	76,102	$	409
Total derivatives used for commercial mortgage banking activities		25,756		17			26,290		26
Total derivatives used for customer-related activities		187,110		171			183,474		122
Total derivatives used for other risk management activities		4,568		(468	)		5,390		(425	)
Total derivatives not designated as hedging instruments	$	318,207	$	77		$	291,256	$	132
Total Derivatives	$	371,549	$	1,024		$	340,317	$	1,207

(a)	Represents the net fair value of assets and liabilities.

INTERNAL CONTROLS AND DISCLOSURE CONTROLS AND PROCEDURES

As of June 30, 2015, we performed an evaluation under the supervision of and with the participation of our management, including the Chairman, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures and of changes in our internal control over financial reporting.

Based on that evaluation, our Chairman, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934) were effective as of June 30, 2015, and that there has been no change in PNC’s internal control over financial reporting that occurred during the second quarter of 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

GLOSSARY OF TERMS

Accretable net interest (Accretable yield) – The excess of cash flows expected to be collected on a purchased impaired loan over the carrying value of the loan. The accretable net interest is recognized into interest income over the remaining life of the loan using the constant effective yield method.

Adjusted average total assets – Primarily comprised of total average quarterly (or annual) assets plus (less) unrealized losses (gains) on investment securities, less goodwill and certain other intangible assets (net of eligible deferred taxes).

Annualized – Adjusted to reflect a full year of activity.

Basel III common equity Tier 1 capital – Common stock plus related surplus, net of treasury stock, plus retained earnings, plus accumulated other comprehensive income for securities currently and previously held as available for sale, plus accumulated other comprehensive income for pension and other postretirement benefit plans, less goodwill, net of associated deferred tax liabilities, less other disallowed intangibles, net of deferred tax liabilities and plus/less other adjustments.

Basel III common equity Tier 1 capital ratio – Common equity Tier 1 capital divided by period-end risk-weighted assets (as applicable).

Basel III Tier 1 capital – Common equity Tier 1 capital, plus preferred stock, plus certain trust preferred capital securities, plus certain noncontrolling interests that are held by others and plus/ less other adjustments.

Basel III Tier 1 capital ratio – Tier 1 capital divided by period-end risk-weighted assets (as applicable).

Basel III Total capital – Tier 1 capital plus qualifying subordinated debt, plus certain trust preferred securities, plus, under the Basel III transitional rules and the standardized approach, the allowance for loan and lease losses included in Tier 2 capital and other.

Basel III Total capital ratio – Total capital divided by period-end risk-weighted assets (as applicable).

Basis point – One hundredth of a percentage point.

Carrying value of purchased impaired loans – The net value on the balance sheet which represents the recorded investment less any valuation allowance.

The PNC Financial Services Group, Inc. – Form 10-Q 49

Cash recoveries – Cash recoveries used in the context of purchased impaired loans represent cash payments for a single purchased impaired loan not included within a pool of loans from customers that exceeded the recorded investment of that loan.

Charge-off – Process of removing a loan or portion of a loan from our balance sheet because it is considered uncollectible. We also record a charge-off when a loan is transferred from portfolio holdings to held for sale by reducing the loan carrying amount to the fair value of the loan, if fair value is less than carrying amount.

Combined loan-to-value ratio (CLTV) – This is the aggregate principal balance(s) of the mortgages on a property divided by its appraised value or purchase price.

Common shareholders’ equity to total assets – Common shareholders’ equity divided by total assets. Common shareholders’ equity equals total shareholders’ equity less the liquidation value of preferred stock.

Core net interest income – Core net interest income is total net interest income less purchase accounting accretion.

Credit derivatives – Contractual agreements, primarily credit default swaps, that provide protection against a credit event of one or more referenced credits. The nature of a credit event is established by the protection buyer and protection seller at the inception of a transaction, and such events include bankruptcy, insolvency and failure to meet payment obligations when due. The buyer of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of a credit event.

Credit spread – The difference in yield between debt issues of similar maturity. The excess of yield attributable to credit spread is often used as a measure of relative creditworthiness, with a reduction in the credit spread reflecting an improvement in the borrower’s perceived creditworthiness.

Credit valuation adjustment (CVA) – Represents an adjustment to the fair value of our derivatives for our own and counterparties’ non-performance risk.

Derivatives – Financial contracts whose value is derived from changes in publicly traded securities, interest rates, currency exchange rates or market indices. Derivatives cover a wide assortment of financial contracts, including but not limited to forward contracts, futures, options and swaps.

Discretionary client assets under management – Assets over which we have sole or shared investment authority for our customers/clients. We do not include these assets on our Consolidated Balance Sheet.

Duration of equity – An estimate of the rate sensitivity of our economic value of equity. A negative duration of equity is associated with asset sensitivity (i.e., positioned for rising interest rates), while a positive value implies liability sensitivity (i.e., positioned for declining interest rates). For example, if the duration of equity is -1.5 years, the economic value of equity increases by 1.5% for each 100 basis point increase in interest rates.

Earning assets – Assets that generate income, which include: federal funds sold; resale agreements; trading securities; interest-earning deposits with banks; loans held for sale; loans; investment securities; and certain other assets.

Effective duration – A measurement, expressed in years, that, when multiplied by a change in interest rates, would approximate the percentage change in value of on- and off- balance sheet positions.

Efficiency – Noninterest expense divided by total revenue.

Enterprise risk management framework – An enterprise process designed to identify potential risks that may affect PNC, manage risk to be within our risk appetite and provide reasonable assurance regarding achievement of our objectives.

Fair value – The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fee income – When referring to the components of Noninterest income, we use the term fee income to refer to the following categories within Noninterest income: Asset management; Consumer services; Corporate services; Residential mortgage; and Service charges on deposits.

FICO score – A credit bureau-based industry standard score created by Fair Isaac Co. which predicts the likelihood of borrower default. We use FICO scores both in underwriting and assessing credit risk in our consumer lending portfolio. Lower FICO scores indicate likely higher risk of default, while higher FICO scores indicate likely lower risk of default. FICO scores are updated on a periodic basis.

Foreign exchange contracts – Contracts that provide for the future receipt and delivery of foreign currency at previously agreed-upon terms.

Funds transfer pricing – A management accounting methodology designed to recognize the net interest income effects of sources and uses of funds provided by the assets and liabilities of a business segment. 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.

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

Futures and forward contracts – Contracts in which the buyer agrees to purchase and the seller agrees to deliver a specific financial instrument at a predetermined price or yield. May be settled either in cash or by delivery of the underlying financial instrument.

GAAP – Accounting principles generally accepted in the United States of America.

Home price index (HPI) – A broad measure of the movement of single-family house prices in the U.S.

Impaired loans – Loans are determined to be impaired when, based on current information and events, it is probable that all contractually required payments will not be collected. Impaired loans include commercial nonperforming loans and consumer and commercial TDRs, regardless of nonperforming status. Excluded from impaired loans are nonperforming leases, loans held for sale, loans accounted for under the fair value option, smaller balance homogenous type loans and purchased impaired loans.

Interest rate floors and caps – Interest rate protection instruments that involve payment from the protection seller to the protection buyer of an interest differential, which represents the difference between a short-term rate (e.g., three-month LIBOR) and an agreed-upon rate (the strike rate) applied to a notional principal amount.

Interest rate swap contracts – Contracts that are entered into primarily as an asset/liability management strategy to reduce interest rate risk. Interest rate swap contracts are exchanges of interest rate payments, such as fixed-rate payments for floating-rate payments, based on notional principal amounts.

Intrinsic value – The difference between the price, if any, required to be paid for stock issued pursuant to an equity compensation arrangement and the fair market value of the underlying stock.

Leverage ratio – Tier 1 capital divided by average quarterly adjusted total assets.

LIBOR – Acronym for London InterBank Offered Rate. LIBOR is the average interest rate charged when banks in the London wholesale money market (or interbank market) borrow unsecured funds from each other. LIBOR rates are used as a benchmark for interest rates on a global basis. PNC’s product set includes loans priced using LIBOR as a benchmark.

Loan-to-value ratio (LTV) – A calculation of a loan’s collateral coverage that is used both in underwriting and assessing credit risk in our lending portfolio. LTV is the sum total of loan obligations secured by collateral divided by the market value of that same collateral. Market values of the collateral are based on an independent valuation of the

collateral. For example, a LTV of less than 90% is better secured and has less credit risk than a LTV of greater than or equal to 90%.

Loss given default (LGD) – An estimate of loss, net of recovery based on collateral type, collateral value, loan exposure, and other factors. Each loan has its own LGD. The LGD risk rating measures the percentage of exposure of a specific credit obligation that we expect to lose if default occurs. LGD is net of recovery, through any means, including but not limited to the liquidation of collateral or deficiency judgments rendered from foreclosure or bankruptcy proceedings.

Net interest margin – Annualized taxable-equivalent net interest income divided by average earning assets.

Nonaccretable difference – Contractually required payments receivable on a purchased impaired loan in excess of the cash flows expected to be collected.

Nonaccrual loans – Loans for which we do not accrue interest income. Nonaccrual loans include nonperforming loans, in addition to loans accounted for under fair value option and loans accounted for as held for sale for which full collection of contractual principal and/or interest is not probable.

Nondiscretionary client assets under administration – Assets we hold for our customers/clients in a nondiscretionary, custodial capacity. We do not include these assets on our Consolidated Balance Sheet.

Nonperforming assets – Nonperforming assets include nonperforming loans and OREO and foreclosed assets, but exclude certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest, loans held for sale, loans accounted for under the fair value option and purchased impaired loans. We do not accrue interest income on assets classified as nonperforming.

Nonperforming loans – Loans accounted for at amortized cost for which we do not accrue interest income. Nonperforming loans include loans to commercial, commercial real estate, equipment lease financing, home equity, residential real estate, credit card and other consumer customers as well as TDRs which have not returned to performing status. Nonperforming loans exclude certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest, loans held for sale, loans accounted for under the fair value option and purchased impaired loans. Nonperforming loans exclude purchased impaired loans as we are currently accreting interest income over the expected life of the loans.

Notional amount – A number of currency units, shares, or other units specified in a derivative contract.

The PNC Financial Services Group, Inc. – Form 10-Q 51

Operating leverage – The period to period dollar or percentage change in total revenue (GAAP basis) less the dollar or percentage change in noninterest expense. A positive variance indicates that revenue growth exceeded expense growth (i.e., positive operating leverage) while a negative variance implies expense growth exceeded revenue growth (i.e., negative operating leverage).

Options – Contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to either purchase or sell the associated financial instrument at a set price during a specified period or at a specified date in the future.

Other real estate owned (OREO) and foreclosed assets – Assets taken in settlement of troubled loans primarily through deed-in-lieu of foreclosure or foreclosure. Foreclosed assets include real and personal property, equity interests in corporations, partnerships, and limited liability companies. Excludes certain assets that have a government-guarantee which are classified as other receivables.

Other-than-temporary impairment (OTTI) – When the fair value of a security is less than its amortized cost basis, an assessment is performed to determine whether the impairment is other-than-temporary. If we intend to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, an other-than-temporary impairment is considered to have occurred. In such cases, an other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Further, if we do not expect to recover the entire amortized cost of the security, an other-than-temporary impairment is considered to have occurred. However for debt securities, if we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before its recovery, the other-than-temporary loss is separated into (a) the amount representing the credit loss, and (b) the amount related to all other factors. The other-than-temporary impairment related to credit losses is recognized in earnings while the amount related to all other factors is recognized in other comprehensive income, net of tax.

Parent company liquidity coverage – Liquid assets divided by funding obligations within a two year period.

Pretax earnings – Income before income taxes and noncontrolling interests.

Pretax, pre-provision earnings – Total revenue less noninterest expense.

Primary client relationship – A corporate banking client relationship with annual revenue generation of $10,000 to $50,000 or more, and for Asset Management Group, a client relationship with annual revenue generation of $10,000 or more.

Probability of default (PD) – An internal risk rating that indicates the likelihood that a credit obligor will enter into default status.

Purchase accounting accretion – Accretion of the discounts and premiums on acquired assets and liabilities. The purchase accounting accretion is recognized in net interest income over the weighted-average life of the financial instruments using the constant effective yield method. Accretion for a single purchased impaired loan not included within a pool of loans includes any cash recoveries on that loan received in excess of the recorded investment.

Purchased impaired loans – Acquired loans (or pools of loans) determined to be credit impaired under FASB ASC 310-30 (AICPA SOP 03-3). Loans (or pools of loans) are determined to be impaired if there is evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected.

Recorded investment (purchased impaired loans) – The initial investment of a purchased impaired loan plus interest accretion and less any cash payments and writedowns to date. The recorded investment excludes any valuation allowance which is included in our allowance for loan and lease losses.

Recovery – Cash proceeds received on a loan that we had previously charged off. We credit the amount received to the allowance for loan and lease losses.

Residential development loans – Project-specific loans to commercial customers for the construction or development of residential real estate including land, single family homes, condominiums and other residential properties.

Return on average assets – Annualized net income divided by average assets.

Return on average capital – Annualized net income divided by average capital.

Return on average common shareholders’ equity – Annualized net income attributable to common shareholders divided by average common shareholders’ equity.

Risk – The potential that an event or series of events could occur that would threaten PNC’s ability to achieve its strategic objectives, thereby negatively affecting shareholder value or reputation.

Risk appetite – A dynamic, forward-looking view on the aggregate amount of risk PNC is willing and able to take in executing business strategy in light of the current business environment.

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

Risk limits – Quantitative measures based on forward looking assumptions that allocate the firm’s aggregate risk appetite (e.g. measure of loss or negative events) to business lines, legal entities, specific risk categories, concentrations and as appropriate, other levels.

Risk profile – The risk profile is a point-in-time assessment of risk. The profile represents overall risk position in relation to the desired risk appetite. The determination of the risk profile’s position is based on qualitative and quantitative analysis of reported risk limits, metrics, operating guidelines and qualitative assessments.

Risk-weighted assets – Computed by the assignment of specific risk-weights (as defined by the Board of Governors of the Federal Reserve System) to assets and off-balance sheet instruments.

Securitization – The process of legally transforming financial assets into securities.

Servicing rights – An intangible asset or liability created by an obligation to service assets for others. Typical servicing rights include the right to receive a fee for collecting and forwarding payments on loans and related taxes and insurance premiums held in escrow.

Swaptions – Contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to enter into an interest rate swap agreement during a specified period or at a specified date in the future.

Taxable-equivalent interest – The interest income earned on certain assets is completely or partially exempt from Federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of yields and margins for all interest-earning assets, 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 other taxable investments. This adjustment is not permitted under GAAP on the Consolidated Income Statement.

Total equity – Total shareholders’ equity plus noncontrolling interests.

Total return swap – A non-traditional swap where one party agrees to pay the other the “total return” of a defined underlying asset (e.g., a loan), usually in return for receiving a stream of LIBOR-based cash flows. The total returns of the asset, including interest and any default shortfall, are passed through to the counterparty. The counterparty is, therefore, assuming the credit and economic risk of the underlying asset.

Transaction deposits – The sum of interest-bearing money market deposits, interest-bearing demand deposits, and noninterest-bearing deposits.

Transitional Basel III common equity – Common equity calculated under Basel III using phased in definitions and deductions applicable to PNC during the applicable presentation period.

Troubled debt restructuring (TDR) – A loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties.

Value-at-risk (VaR) – A statistically-based measure of risk that describes the amount of potential loss which may be incurred due to adverse market movements. The measure is of the maximum loss which should not be exceeded on 95 out of 100 days for a 95% VaR.

Watchlist – A list of criticized loans, credit exposure or other assets compiled for internal monitoring purposes. We define criticized exposure for this purpose as exposure with an internal risk rating of other assets especially mentioned, substandard, doubtful or loss.

Yield curve – A graph showing the relationship between the yields on financial instruments or market indices of the same credit quality with different maturities. For example, a “normal” or “positive” yield curve exists when long-term bonds have higher yields than short-term bonds. A “flat” yield curve exists when yields are the same for short-term and long-term bonds. A “steep” yield curve exists when yields on long-term bonds are significantly higher than on short-term bonds. An “inverted” or “negative” yield curve exists when short-term bonds have higher yields than long-term bonds.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We make statements in this Report, and we may from time to time make other statements, regarding our outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting PNC and its future business and operations that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “look,” “intend,” “outlook,” “project,” “forecast,” “estimate,” “goal,” “will,” “should” and other similar words and expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time.

Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties.

•

Our businesses, financial results and balance sheet values are affected by business and economic conditions, including the following:

–

Changes in interest rates and valuations in debt, equity and other financial markets.

–

Disruptions in the U.S. and global financial markets.

–

The impact on financial markets and the economy of any changes in the credit ratings of U.S. Treasury obligations and other U.S. government-backed debt, as well as issues surrounding the levels of U.S. and European government debt and concerns regarding the creditworthiness of certain sovereign governments, supranationals and financial institutions in Europe.

–

Actions by the Federal Reserve, U.S. Treasury and other government agencies, including those that impact money supply and market interest rates.

–

Changes in customers’, suppliers’ and other counterparties’ performance and creditworthiness.

–

Slowing or reversal of the current U.S. economic expansion.

–

Continued residual effects of recessionary conditions and uneven spread of positive impacts of recovery on the economy and our counterparties, including adverse impacts on levels of unemployment, loan utilization rates, delinquencies, defaults and counterparty ability to meet credit and other obligations.

–

Changes in customer preferences and behavior, whether due to changing business and economic

conditions, legislative and regulatory initiatives, or other factors.

•

Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than we are currently expecting. These statements are based on our current view that the U.S. economic expansion will speed up to an above trend growth rate near 3.2 percent in the second half of 2015, boosted by lower oil/energy prices, and that short-term interest rates and bond yields will rise slowly in the latter half of 2015. These forward-looking statements also do not, unless otherwise indicated, take into account the impact of potential legal and regulatory contingencies.

•

PNC’s ability to take certain capital actions, including paying dividends and any plans to increase common stock dividends, repurchase common stock under current or future programs, or issue or redeem preferred stock or other regulatory capital instruments, is subject to the review of such proposed actions by the Federal Reserve as part of PNC’s comprehensive capital plan for the applicable period in connection with the regulators’ Comprehensive Capital Analysis and Review (CCAR) process and to the acceptance of such capital plan and non-objection to such capital actions by the Federal Reserve.

•

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 (particularly those implementing the Basel Capital Accords), 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 approval of related models.

•

Legal and regulatory developments could have an impact on our ability to operate our businesses, financial condition, results of operations, competitive position, reputation, or pursuit of attractive acquisition opportunities. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and ability to attract and retain management. These developments could include:

–

Changes resulting from legislative and regulatory reforms, including major reform of the regulatory oversight structure of the financial services industry and changes to laws and regulations involving tax, pension, bankruptcy, consumer protection, and other industry aspects, and changes in accounting policies and principles. We will be impacted by extensive reforms provided for in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and otherwise growing out of the most recent financial

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

crisis, the precise nature, extent and timing of which, and their impact on us, remains uncertain.

–

Changes to regulations governing bank capital and liquidity standards, including due to the Dodd-Frank Act and to Basel-related initiatives.

–

Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. In addition to matters relating to PNC’s current and historical business and activities, such matters may include proceedings, claims, investigations, or inquiries relating to pre-acquisition business and activities of acquired companies, such as National City. 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 third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards. In particular, our results currently depend on our ability to manage elevated levels of impaired assets.

•

Business and operating results also include impacts relating to our equity interest in BlackRock, Inc. and rely to a significant extent on information provided to us by BlackRock. Risks and uncertainties that could affect BlackRock are discussed in more detail by BlackRock in its SEC filings.

•

We grow our business in part by acquiring from time to time other financial services companies, financial services assets and related deposits and other liabilities. Acquisition risks and uncertainties include those presented by the nature of the business acquired, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into PNC after closing.

•

Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues. Industry restructuring in the current environment could also impact our business and financial performance through changes in counterparty creditworthiness and performance and in the competitive and regulatory landscape. Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.

•

Business and operating results can also be affected by widespread natural and other disasters, pandemics, dislocations, terrorist activities, 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 2014 10-K, in our first quarter 2015 Form 10-Q, and elsewhere in this Report, including in the Risk Factors and Risk Management sections and the Legal Proceedings and Commitments and Guarantees Notes of the Notes To Consolidated Financial Statements in such reports. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.

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

CONSOLIDATED INCOME STATEMENT

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions, except per share data	Three months ended June 30					Six months ended June 30
Unaudited In millions, except per share data	2015		2014			2015		2014
*Interest Income*
Loans	$	1,791	$	1,845		$	3,593	$	3,744
Investment securities		407		412			813		839
Other		107		99			218		183
Total interest income		2,305		2,356			4,624		4,766
*Interest Expense*
Deposits		98		80			190		158
Borrowed funds		155		147			310		284
Total interest expense		253		227			500		442
Net interest income		2,052		2,129			4,124		4,324
*Noninterest Income*
Asset management		416		362			792		726
Consumer services		334		323			645		613
Corporate services		369		343			713		644
Residential mortgage		164		182			328		343
Service charges on deposits		156		156			309		303
Net gains (losses) on sales of securities		8		(6	)		50		4
Other		367		321			636		630
Total noninterest income		1,814		1,681			3,473		3,263
Total revenue		3,866		3,810			7,597		7,587
*Provision For Credit Losses*		46		72			100		166
*Noninterest Expense*
Personnel		1,200		1,172			2,357		2,252
Occupancy		209		199			425		417
Equipment		231		204			453		405
Marketing		67		68			129		120
Other		659		685			1,351		1,398
Total noninterest expense		2,366		2,328			4,715		4,592
Income before income taxes and noncontrolling interests		1,454		1,410			2,782		2,829
Income taxes		410		358			734		717
Net income		1,044		1,052			2,048		2,112
Less: Net income (loss) attributable to noncontrolling interests		4		3			5		1
Preferred stock dividends and discount accretion and redemptions		48		48			118		118
Net income attributable to common shareholders	$	992	$	1,001		$	1,925	$	1,993
*Earnings Per Common Share*
Basic	$	1.92	$	1.88		$	3.71	$	3.73
Diluted		1.88		1.85			3.63		3.67
*Average Common Shares Outstanding*
Basic		517		532			519		532
Diluted		525		539			527		539

See accompanying Notes To Consolidated Financial Statements.

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions	Three months ended June 30						Six months ended June 30
Unaudited In millions	2015			2014			2015			2014
*Net income*	$	1,044		$	1,052		$	2,048		$	2,112
*Other comprehensive income (loss), before tax and net of reclassifications into Net income:*
Net unrealized gains (losses) on non-OTTI securities		(365	)		212			(291	)		401
Net unrealized gains (losses) on OTTI securities		4			41			7			107
Net unrealized gains (losses) on cash flow hedge derivatives		(170	)		81			69			76
Pension and other postretirement benefit plan adjustments		(10	)		9			50			91
Other		(9	)		(4	)		(36	)		7
*Other comprehensive income (loss), before tax and net of reclassifications into Net income*		(550	)		339			(201	)		682
Income tax benefit (expense) related to items of other comprehensive income		226			(114	)		77			(237	)
*Other comprehensive income (loss), after tax and net of reclassifications into Net income*		(324	)		225			(124	)		445
*Comprehensive income*		720			1,277			1,924			2,557
Less: Comprehensive income (loss) attributable to noncontrolling interests		4			3			5			1
*Comprehensive income attributable to PNC*	$	716		$	1,274		$	1,919		$	2,556

See accompanying Notes To Consolidated Financial Statements.

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

CONSOLIDATED BALANCE SHEET

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions, except par value	June 30 2015			December 31 2014
*Assets*
Cash and due from banks (includes $5 and $6 for VIEs) (a)	$	4,412		$	4,360
Federal funds sold and resale agreements (includes $150 and $155 measured at fair value) (b)		1,971			1,852
Trading securities		2,334			2,353
Interest-earning deposits with banks (includes $5 and $6 for VIEs) (a)		33,969			31,779
Loans held for sale (includes $2,121 and $2,154 measured at fair value) (b)		2,357			2,262
Investment securities		61,362			55,823
Loans (includes $1,463 and $1,606 for VIEs) (a) (includes $941 and $1,034 measured at fair value) (b)		205,153			204,817
Allowance for loan and lease losses (includes $(44) and $(50) for VIEs) (a)		(3,272	)		(3,331	)
Net loans		201,881			201,486
Goodwill		9,103			9,103
Mortgage servicing rights		1,558			1,351
Other intangible assets		435			493
Equity investments (includes $256 and $492 for VIEs) (a)		10,531			10,728
Other (includes $440 and $483 for VIEs) (a) (includes $411 and $412 measured at fair value) (b)		24,032			23,482
Total assets	$	353,945		$	345,072
*Liabilities*
Deposits
Noninterest-bearing	$	77,369		$	73,479
Interest-bearing		162,335			158,755
Total deposits		239,704			232,234
Borrowed funds
Federal funds purchased and repurchase agreements		2,190			3,510
Federal Home Loan Bank borrowings		22,193			20,005
Bank notes and senior debt		18,529			15,750
Subordinated debt		9,121			9,151
Commercial paper		2,956			4,995
Other (includes $311 and $347 for VIEs) (a) (includes $224 and $273 measured at fair value) (b)		3,287			3,357
Total borrowed funds		58,276			56,768
Allowance for unfunded loan commitments and letters of credit		246			259
Accrued expenses (includes $63 and $70 for VIEs) (a)		5,031			5,187
Other (includes $136 and $206 for VIEs) (a)		4,776			4,550
Total liabilities		308,033			298,998
*Equity*
Preferred stock (c)
Common stock ($5 par value, authorized 800 shares, issued 542 and 541 shares)		2,708			2,705
Capital surplus – preferred stock		3,449			3,946
Capital surplus – common stock and other		12,632			12,627
Retained earnings		27,609			26,200
Accumulated other comprehensive income (loss)		379			503
Common stock held in treasury at cost: 26 and 18 shares		(2,262	)		(1,430	)
Total shareholders’ equity		44,515			44,551
Noncontrolling interests		1,397			1,523
Total equity		45,912			46,074
Total liabilities and equity	$	353,945		$	345,072

(a)	Amounts represent the assets or liabilities of consolidated variable interest entities (VIEs).

(b)	Amounts represent items for which we have elected the fair value option.

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

See accompanying Notes To Consolidated Financial Statements.

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

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.


Unaudited In millions	Six months ended June 30
Unaudited In millions	2015			2014
*Operating Activities*
Net income	$	2,048		$	2,112
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for credit losses		100			166
Depreciation and amortization		530			476
Deferred income taxes		109			104
Net gains on sales of securities		(50	)		(4	)
Changes in fair value of mortgage servicing rights		43			250
Gain on sales of Visa Class B common shares		(79	)		(116	)
Undistributed earnings of BlackRock		(196	)		(193	)
Excess tax benefits from share-based payment arrangements		(27	)		(36	)
Net change in
Trading securities and other short-term investments		(22	)		839
Loans held for sale		(391	)		(99	)
Other assets		22			(262	)
Accrued expenses and other liabilities		(186	)		381
Other		(272	)		(148	)
Net cash provided (used) by operating activities		1,629			3,470
*Investing Activities*
Sales
Securities available for sale		2,402			3,359
Loans		958			1,295
Repayments/maturities
Securities available for sale		3,933			3,434
Securities held to maturity		1,054			992
Purchases
Securities available for sale		(9,706	)		(3,608	)
Securities held to maturity		(3,049	)
Loans		(355	)		(369	)
Net change in
Federal funds sold and resale agreements		(119	)		459
Interest-earning deposits with banks		(2,190	)		(4,741	)
Loans		(1,017	)		(6,837	)
Other		(394	)		(266	)
Net cash provided (used) by investing activities		(8,483	)		(6,282	)

(continued on following page)

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

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.

(continued from previous page)


Unaudited In millions	Six months ended June 30
Unaudited In millions	2015			2014
*Financing Activities*
Net change in
Noninterest-bearing deposits	$	3,909		$	723
Interest-bearing deposits		3,580			928
Federal funds purchased and repurchase agreements		(1,320	)		(1,156	)
Commercial paper		(158	)		(268	)
Other borrowed funds		712			(494	)
Sales/issuances
Federal Home Loan Bank borrowings		2,250			7,650
Bank notes and senior debt		4,932			3,636
Subordinated debt					745
Commercial paper		1,393			4,532
Other borrowed funds		586			380
Common and treasury stock		109			179
Repayments/maturities
Federal Home Loan Bank borrowings		(62	)		(5,539	)
Bank notes and senior debt		(2,134	)		(2,200	)
Subordinated debt		39			22
Commercial paper		(3,274	)		(4,262	)
Other borrowed funds		(1,532	)		(354	)
Preferred stock redemption		(500	)
Excess tax benefits from share-based payment arrangements		27			36
Acquisition of treasury stock		(1,020	)		(291	)
Preferred stock cash dividends paid		(115	)		(115	)
Common stock cash dividends paid		(516	)		(491	)
Net cash provided (used) by financing activities		6,906			3,661
*Net Increase (Decrease) In Cash And Due From Banks*		52			849
Cash and due from banks at beginning of period		4,360			4,043
Cash and due from banks at end of period	$	4,412		$	4,892
*Supplemental Disclosures*
Interest paid	$	503		$	418
Income taxes paid		191			551
Income taxes refunded		1			9
*Non-cash Investing and Financing Items*
Transfer from (to) loans to (from) loans held for sale, net		3			390
Transfer from loans to foreclosed assets		227			315

See accompanying Notes To Consolidated Financial Statements.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THE PNC FINANCIAL SERVICES GROUP, INC.

BUSINESS

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

NOTE 1 ACCOUNTING POLICIES

Basis Of Financial Statement Presentation

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

We prepared these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). We have eliminated intercompany accounts and transactions. We have also reclassified certain prior year amounts to conform to the 2015 presentation, which did not have a material impact on our consolidated financial condition or results of operations. Additionally, we evaluate the materiality of identified errors in the financial statements using both an income statement and a balance sheet approach, based on relevant quantitative and qualitative factors. The consolidated financial statements include certain adjustments to correct immaterial errors related to previously reported periods. In addition, as disclosed in certain Notes to the Consolidated Financial Statements, we made adjustments to previously reported periods for immaterial errors.

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.

When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2014 Annual Report on Form 10-K. Reference is made to Note 1 Accounting Policies in the 2014 Form 10-K for a detailed description of significant accounting policies. Included herein are policies that are required to be disclosed on an interim basis as well as policies where there has been a significant change within the first six months of 2015. These interim consolidated financial statements serve to update the 2014 Form 10-K and may not include all information and notes necessary to constitute a complete set of financial statements.

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

Use Of Estimates

We prepared these consolidated financial statements using financial information available at the time of preparation, which requires us to make estimates and assumptions that affect the amounts reported. Our most significant estimates pertain to our fair value measurements, allowances for loan and lease losses and unfunded loan commitments and letters of credit, and accretion on purchased impaired loans. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.

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

Nonperforming Loans and Leases

The matrix below summarizes PNC’s policies for classifying certain loans as nonperforming loans and/or discontinuing the accrual of loan interest income.


Commercial loans

Loans Classified as Nonperforming and Accounted for as Nonaccrual		• Loans accounted for at amortized cost where:
		– The loan is 90 days or more past due.
		– The loan is rated substandard or worse due to the determination that full collection of principal and interest is not probable as demonstrated by the following conditions:

		• The collection of principal or interest is 90 days or more past due;

		• Reasonable doubt exists as to the certainty of the borrower’s future debt service ability, according to the terms of the credit arrangement, regardless of whether 90 days have passed or not;

		• The borrower has filed or will likely file for bankruptcy;

		• The bank advances additional funds to cover principal or interest;

		• We are in the process of liquidating a commercial borrower; or

		• We are pursuing remedies under a guarantee.

Loans Excluded from Nonperforming Classification but Accounted for as Nonaccrual		• Loans accounted for under the fair value option when we determine that full collection of principal and interest is not probable. • Loans accounted for at the lower of cost or market less costs to sell (Held for Sale) when we determine that full collection of principal and interest is not probable.


Loans Excluded from Nonperforming Classification and Nonaccrual Accounting		• Purchased impaired loans because interest income is accreted by nature of the accounting for these assets. • Loans that are well secured and in the process of collection.


Consumer loans

Loans Classified as Nonperforming and Accounted for as Nonaccrual		• Loans accounted for at amortized cost where full collection of contractual principal and interest is not deemed probable as demonstrated in the policies below:
		– The loan is 90 days past due for home equity and installment loans, and 180 days past due for well secured residential real estate loans;

		– The loan has been modified and classified as a troubled debt restructuring (TDR);

		– Notification of bankruptcy has been received and the loan is 30 days or more past due;

		– The bank holds a subordinate lien position in the loan and the first lien loan is seriously stressed (i.e., 90 days or more past due);

		– Other loans within the same borrower relationship have been placed on nonaccrual or charge-offs have been taken on them;

		– The bank has repossessed non-real estate collateral securing the loan; or

		– The bank has charged-off the loan to the value of the collateral.

Loans Excluded from Nonperforming Classification but Accounted for as Nonaccrual		• Loans accounted for under the fair value option when we determine that full collection of principal and interest is not probable. • Loans accounted for at the lower of cost or market less costs to sell (Held for Sale) when we determine that full collection of principal and interest is not probable.


Loans Excluded from Nonperforming Classification and Nonaccrual Accounting		• Purchased impaired loans because interest income is accreted through the accounting model.
		• Certain government insured loans where substantially all principal and interest is insured.
		• Residential real estate loans that are well secured and in the process of collection.
		• Consumer loans and lines of credit, not secured by residential real estate, as permitted by regulatory guidance.

See Note 3 Asset Quality in this Report for additional detail on nonperforming assets and asset quality indicators for commercial and consumer loans.

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

Commercial Loans

We generally charge off Commercial Lending (Commercial, Commercial Real Estate, and Equipment Lease Financing) nonperforming loans when we determine that a specific loan, or portion thereof, is uncollectible. This determination is based on the specific facts and circumstances of the individual loans. In making this determination, we consider the viability of the business or project as a going concern, the past due

status when the asset is not well-secured, the expected cash

flows to repay the loan, the value of the collateral, and the ability and willingness of any guarantors to perform.

Additionally, in general, for smaller dollar commercial loans of $1 million or less, a partial or full charge-off occurs at 120 days past due for term loans and 180 days past due for revolvers. Certain small business credit card balances that are placed on nonaccrual status when they become 90 days or more past due are charged-off at 180 days past due.

Consumer Loans

Home equity installment loans, home equity lines of credit, and residential real estate loans that are not well-secured and in the process of collection are charged-off at no later than 180 days past due. At that time, the basis in the loan is reduced to the fair value of the collateral less costs to sell. In addition to this policy, the bank recognizes a charge-off on a secured consumer loan when:

•

The bank holds a subordinate lien position in the loan and a foreclosure notice has been received on the first lien loan;

•

The bank holds a subordinate lien position in the loan which is 30 days or more past due with a combined loan to value ratio of greater than or equal to 110% and the first lien loan is seriously stressed (i.e., 90 days or more past due);

•

The loan is modified or otherwise restructured in a manner that results in the loan becoming collateral dependent;

•

Notification of bankruptcy has been received within the last 60 days and the loan is 60 days or more past due;

•

The borrower has been discharged from personal liability through Chapter 7 bankruptcy and has not formally reaffirmed his or her loan obligation to PNC; or

•

The collateral securing the loan has been repossessed and the value of the collateral is less than the recorded investment of the loan outstanding.

For loans that continue to meet any of the above policies, collateral values are updated annually and subsequent declines in collateral values are charged-off resulting in incremental provision for credit loss.

Most consumer loans and lines of credit, not secured by residential real estate, are charged off after 120-180 days past due.

Accounting for Nonperforming Loans and Leases and Other Nonaccrual Loans

For accrual loans, interest income is accrued on a monthly basis and certain fees and costs are deferred upon origination and recognized in income over the term of the loan utilizing an effective yield method. For nonaccrual loans, interest income accrual and deferred fee/cost amortization is discontinued. Additionally, the current year accrued and uncollected interest is reversed through Net interest income and prior year accrued and uncollected interest is charged-off. Nonaccrual loans may also be charged-off to reduce the basis to the fair value of collateral less costs to sell.

If payment is received on a nonaccrual loan, generally the payment is first applied to the recorded investment; payments are then applied to recover any charged-off amounts related to the loan. Finally, if both recorded investment and any charge-offs have been recovered, then the payment will be recorded as fee and interest income.

For TDRs, payments are applied based upon their contractual terms unless the related loan is deemed non-performing. TDRs are generally included in nonperforming and nonaccrual loans until returned to performing/accruing status through performance under restructured terms and other performance indicators for a reasonable period of time demonstrating that the bank expects to collect all of the loan’s remaining contractual principal and interest. TDRs resulting from 1) borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC and 2) borrowers that are not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

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

See Note 3 Asset Quality and Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit in this Report and in our 2014 Form 10-K for additional TDR information.

Allowance for Loan and Lease Losses

We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolios as of the balance sheet date. Our determination of the allowance is based on periodic evaluations of these loan and lease portfolios and other relevant factors. This critical estimate includes significant use

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

of PNC’s own historical data and complex methods to interpret this data. These evaluations are inherently subjective, as they require material estimates and may be susceptible to significant change, and include, among others:

•

Probability of default (PD),

•

Loss given default (LGD),

•

Outstanding balance of the loan,

•

Movement through delinquency stages,

•

Amounts and timing of expected future cash flows,

•

Value of collateral, which may be obtained from third parties, and

•

Qualitative factors, such as changes in current economic conditions, that may not be reflected in modeled results.

For all loans, except purchased impaired loans, the ALLL is the sum of three components: (i) asset specific/individual impaired reserves, (ii) quantitative (formulaic or pooled) reserves and (iii) qualitative (judgmental) reserves.

The reserve calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower, and economic conditions. Key reserve assumptions are periodically updated.

Asset Specific/Individual Component

Nonperforming loans that are considered impaired under ASC 310 – Receivables, which include all commercial and consumer TDRs, are evaluated for a specific reserve. Specific reserve allocations are determined as follows:

•

For commercial nonperforming loans and commercial TDRs greater than or equal to a defined dollar threshold, specific reserves are based on an analysis of the present value of the loan’s expected future cash flows, the loan’s observable market price or the fair value of the collateral.

•

For commercial nonperforming loans and commercial TDRs below the defined dollar threshold, the individual loan’s loss given default (LGD) percentage is multiplied by the loan balance and the results are aggregated for purposes of measuring specific reserve impairment.

•

Consumer nonperforming loans are collectively reserved for unless classified as consumer TDRs. For consumer TDRs, specific reserves are determined through an analysis of the present value of the loan’s expected future cash flows, except for those instances where loans have been deemed collateral dependent, including loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC. Once that determination has

been made, those TDRs are charged down to the fair value of the collateral less costs to sell at each period end.

Commercial Lending Quantitative Component

The estimates of the quantitative component of ALLL for incurred losses within the commercial lending portfolio segment are determined through statistical loss modeling utilizing PD, LGD and outstanding balance of the loan. Based upon loan risk ratings, we assign PDs and LGDs. Each of these statistical parameters is determined based on internal historical data and market data. PD is influenced by such factors as liquidity, industry, obligor financial structure, access to capital and cash flow. LGD is influenced by collateral type, original and/or updated loan-to-value ratio (LTV), facility structure and other factors.

Consumer Lending Quantitative Component

Quantitative estimates within the consumer lending portfolio segment are calculated primarily using a roll-rate model based on statistical relationships, calculated from historical data that estimate the movement of loan outstandings through the various stages of delinquency and ultimately charge-off over our loss emergence period.

Qualitative Component

While our reserve methodologies strive to reflect all relevant risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between estimates and actual outcomes. We provide additional reserves that are designed to provide coverage for losses attributable to such risks. The ALLL also includes factors that may not be directly measured in the determination of specific or pooled reserves. Such qualitative factors may include:

•

Industry concentrations and conditions,

•

Recent credit quality trends,

•

Recent loss experience in particular portfolios,

•

Recent macro-economic factors,

•

Model imprecision,

•

Changes in lending policies and procedures,

•

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

•

Limitations of available historical data.

Allowance for Purchased Non-Impaired Loans

ALLL for purchased non-impaired loans is determined based upon a comparison between the methodologies described above and the remaining acquisition date fair value discount that has yet to be accreted into interest income. After making the comparison, an ALLL is recorded for the amount greater than the discount, or no ALLL is recorded if the discount is greater.

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

Allowance for Purchased Impaired Loans

ALLL for purchased impaired loans is determined in accordance with ASC 310-30 by comparing the net present value of the cash flows expected to be collected to the recorded investment for a given loan (or pool of loans). In cases where the net present value of expected cash flows is lower than the recorded investment, ALLL is established. Cash flows expected to be collected represent management’s best estimate of the cash flows expected over the life of a loan (or pool of loans). For large balance commercial loans, cash flows are separately estimated at the loan level. For smaller balance pooled loans, pool cash flows are estimated using cash flow models. Pools were defined at acquisition based on the risk characteristics of the loan. Our cash flow models use loan data including, but not limited to, contractual loan balance, delinquency status of the loan, updated borrower FICO credit scores, geographic information, historical loss experience, and updated LTVs, as well as best estimates for changes in unemployment rates, home prices and other economic factors, to determine estimated cash flows.

See Note 4 Purchased Loans and Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit for additional loan data and application of the policies disclosed herein.

Our credit risk management policies, procedures and practices are designed to promote sound lending standards and prudent credit risk management. We have policies, procedures and practices that address financial statement requirements, collateral review and appraisal requirements, advance rates based upon collateral types, appropriate levels of exposure, cross-border risk, lending to specialized industries or borrower type, guarantor requirements, and regulatory compliance.

Allowance for Unfunded Loan Commitments and Letters of Credit

We maintain the allowance for unfunded loan commitments and letters of credit at a level we believe is appropriate to absorb estimated probable credit losses on these unfunded credit facilities as of the balance sheet date. We determine the allowance based on periodic evaluations of the unfunded credit facilities, including an assessment of the probability of commitment usage, credit risk factors, and, solely for commercial lending, the terms and expiration dates of the unfunded credit facilities. Other than the estimation of the probability of funding, the reserve for unfunded loan commitments is estimated in a manner similar to the methodology used for determining reserves for funded exposures. The allowance for unfunded loan commitments and letters of credit is recorded as a liability on the Consolidated Balance Sheet. Net adjustments to the allowance for unfunded loan commitments and letters of credit are included in the provision for credit losses.

See Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit for additional loan data and application of the policies disclosed herein.

Earnings Per Common Share

Basic earnings per common share is calculated using the two-class method to determine income attributable to common shareholders. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities under the two-class method. Income attributable to common shareholders is then divided by the weighted-average common shares outstanding for the period.

Diluted earnings per common share is calculated under the more dilutive of either the treasury method or the two-class method. For the diluted calculation, we increase the weighted-average number of shares of common stock outstanding by the assumed conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance, if later, and the number of shares of common stock that would be issued assuming the exercise of stock options and warrants and the issuance of incentive shares using the treasury stock method. These adjustments to the weighted-average number of shares of common stock outstanding are made only when such adjustments will dilute earnings per common share. See Note 12 Earnings Per Share for additional information.

Recently Adopted Accounting Standards

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. This ASU impacts the accounting for repurchase-to-maturity transactions and transfers executed contemporaneously with a repurchase agreement with the same counterparty (i.e., a repurchase financing) by requiring secured borrowing accounting. We adopted this accounting as of January 1, 2015. The disclosure requirements were adopted in the current reporting period. Adoption of this ASU did not have a material effect on our results of operations or financial position.

NOTE 2 LOAN SALE AND SERVICING ACTIVITIES AND VARIABLE INTEREST ENTITIES

Loan Sale and Servicing Activities

As more fully described in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2014 Form 10-K, we have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. Our continuing involvement generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization SPEs.

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

The following table provides certain financial information and cash flows associated with PNC’s loan sale and servicing activities:

Table 50: Certain Financial Information and Cash Flows Associated with Loan Sale and Servicing Activities


In millions	Residential Mortgages		Commercial Mortgages (a)		Home Equity Loans/Lines (b)
FINANCIAL INFORMATION – June 30, 2015
Servicing portfolio (c)	$	115,454	$	197,932	$	3,438
Carrying value of servicing assets (d)		1,015		543
Servicing advances (e)		463		271		6
Repurchase and recourse obligations (f)		97		35		28
Carrying value of mortgage-backed securities held (g)		5,639		1,170
FINANCIAL INFORMATION – December 31, 2014
Servicing portfolio (c)	$	108,010	$	186,032	$	3,833
Carrying value of servicing assets (d)		845		506
Servicing advances (e)		501		299		31
Repurchase and recourse obligations (f)		107		35		29
Carrying value of mortgage-backed securities held (g)		3,365		1,269
CASH FLOWS – Three months ended June 30, 2015
Sales of loans (h)	$	2,015	$	1,159
Repurchases of previously transferred loans (i)		134
Servicing fees (j)		82		36	$	4
Servicing advances recovered/(funded), net		47		21		1
Cash flows on mortgage-backed securities held (g)		429		54
CASH FLOWS – Three months ended June 30, 2014
Sales of loans (h)	$	2,189	$	496
Repurchases of previously transferred loans (i)		159			$	3
Servicing fees (j)		87		26		5
Servicing advances recovered/(funded), net		39		23		3
Cash flows on mortgage-backed securities held (g)		254		47
CASH FLOWS – Six months ended June 30, 2015
Sales of loans (h)	$	3,955	$	2,179
Repurchases of previously transferred loans (i)		303			$	2
Servicing fees (j)		165		68		8
Servicing advances recovered/(funded), net		38		28		25
Cash flows on mortgage-backed securities held (g)		669		114
CASH FLOWS – Six months ended June 30, 2014
Sales of loans (h)	$	4,284	$	935
Repurchases of previously transferred loans (i)		368			$	9
Servicing fees (j)		174		67		10
Servicing advances recovered/(funded), net		69		55		6
Cash flows on mortgage-backed securities held (g)		486		191

(a)	Represents financial and cash flow information associated with both commercial mortgage loan transfer and servicing activities.

(b)	These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged.

(c)

For our continuing involvement with residential mortgages, this amount represents the outstanding balance of loans we service, including loans transferred by us and loans originated by others where we have purchased the associated servicing rights. For home equity loan/line of credit transfers, this amount represents the outstanding balance of loans transferred and serviced. For commercial mortgages, this amount represents our overall servicing portfolio in which loans have been transferred by us or third parties to VIEs.

(d)	See Note 7 Fair Value and Note 8 Goodwill and Other Intangible Assets for further information.

(e)

Pursuant to certain contractual servicing agreements, represents outstanding balance of funds advanced (i) to investors for monthly collections of borrower principal and interest, (ii) for borrower draws on unused home equity lines of credit, and (iii) for collateral protection associated with the underlying mortgage collateral.

(f)

Represents liability for our loss exposure associated with loan repurchases for breaches of representations and warranties for our Residential Mortgage Banking and Non-Strategic Assets Portfolio segments, and our commercial mortgage loss share arrangements for our Corporate & Institutional Banking segment. See Note 16 Commitments and Guarantees for further information.

(g)	Represents securities held where PNC transferred to and/or services loans for a securitization SPE and we hold securities issued by that SPE.

(h)	Gains/losses recognized on sales of loans were insignificant for the periods presented.

(i)	Includes government insured or guaranteed loans eligible for repurchase through the exercise of our ROAP option and loans repurchased due to breaches of origination covenants or representations and warranties made to purchasers.

(j)	Includes contractually specified servicing fees, late charges and ancillary fees.

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

The table below presents information about the principal balances of transferred loans that we service and are not recorded on our balance sheet.

Table 51: Principal Balance, Delinquent Loans, and Net Charge-offs Related to Serviced Loans


In millions	Residential Mortgages		Commercial Mortgages (a)		Home Equity Loans/Lines (b)
June 30, 2015
Total principal balance	$	75,639	$	56,552	$	3,438
Delinquent loans (c)		2,161		672		1,129
December 31, 2014
Total principal balance	$	79,108	$	60,873	$	3,833
Delinquent loans (c)		2,657		707		1,303
Three months ended June 30, 2015
Net charge-offs (d)	$	37	$	148	$	8
Three months ended June 30, 2014
Net charge-offs (d)	$	34	$	345	$	15
Six months ended June 30, 2015
Net charge-offs (d)	$	69	$	255	$	15
Six months ended June 30, 2014
Net charge-offs (d)	$	75	$	700	$	32

(a)	Represents information at the securitization level in which PNC has sold loans and is the servicer for the securitization.

(b)	These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged.

(c)	Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.

(d)

Net charge-offs for Residential mortgages and Home equity loans/lines represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for CMBS securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.

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

Variable Interest Entities (VIEs)

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2014 Form 10-K, we are involved with various entities in the normal course of business that are deemed to be VIEs. The following provides a summary of VIEs, including those that we have consolidated and those in which we hold variable interests but have not consolidated into our financial statements as of June 30, 2015 and December 31, 2014, respectively. We have not provided additional financial support to these entities which we are not contractually required to provide.

Table 52: Consolidated VIEs – Carrying Value (a) (b)


June 30, 2015 In millions	Credit Card and Other Securitization Trusts			Tax Credit Investments		Total
Assets
Cash and due from banks				$	5	$	5
Interest-earning deposits with banks					5		5
Loans	$	1,457			6		1,463
Allowance for loan and lease losses		(44	)				(44	)
Equity investments					256		256
Other assets		20			420		440
Total assets	$	1,433		$	692	$	2,125
Liabilities
Other borrowed funds	$	154		$	157	$	311
Accrued expenses					63		63
Other liabilities					136		136
Total liabilities	$	154		$	356	$	510


December 31, 2014 In millions	Credit Card and Other Securitization Trusts			Tax Credit Investments		Total
Assets
Cash and due from banks				$	6	$	6
Interest-earning deposits with banks					6		6
Loans	$	1,606					1,606
Allowance for loan and lease losses		(50	)				(50	)
Equity investments					492		492
Other assets		31			452		483
Total assets	$	1,587		$	956	$	2,543
Liabilities
Other borrowed funds	$	166		$	181	$	347
Accrued expenses					70		70
Other liabilities					206		206
Total liabilities	$	166		$	457	$	623

(a)	Amounts represent carrying value on PNC’s Consolidated Balance Sheet.

(b)	Difference between total assets and total liabilities represents the equity portion of the VIE or intercompany assets and liabilities which are eliminated in consolidation.

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

Table 53: Non-Consolidated VIEs


In millions	Aggregate Assets		Aggregate Liabilities		PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
June 30, 2015
Commercial Mortgage-Backed Securitizations (b)	$	45,797	$	45,797	$	1,415	$	1,415	(d)
Residential Mortgage-Backed Securitizations (b)		323,975		323,975		5,678		5,678	(d)	$	1	(f)
Tax Credit Investments and Other (c)		7,576		2,937		2,237		2,281	(e)		695	(g)
Total	$	377,348	$	372,709	$	9,330	$	9,374		$	696


In millions	Aggregate Assets		Aggregate Liabilities		PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
December 31, 2014
Commercial Mortgage-Backed Securitizations (b)	$	53,436	$	53,436	$	1,550	$	1,550	(d)	$	1	(f)
Residential Mortgage-Backed Securitizations (b)		62,236		62,236		3,385		3,385	(d)		4	(f)
Tax Credit Investments and Other (c)		7,493		2,933		2,270		2,304	(e)		777	(g)
Total	$	123,165	$	118,605	$	7,205	$	7,239		$	782

(a)

This represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). Our total exposure related to our involvement in loan sale and servicing activities is disclosed in Table 50. Additionally, we also invest in other mortgage and asset-backed securities issued by third-party VIEs with which we have no continuing involvement. Further information on these securities is included in Note 6 Investment Securities and values disclosed represent our maximum exposure to loss for those securities’ holdings.

(b)	Amounts reflect involvement with securitization SPEs where PNC transferred to and/or services loans for an SPE and we hold securities issued by that SPE. Asset amounts equal outstanding liability amounts of the SPEs due to limited availability of SPE financial information.

(c)

Aggregate assets and aggregate liabilities are based on limited availability of financial information associated with certain acquired partnerships and certain LLCs engaged in solar power generation to which PNC provides lease financing. The aggregate assets and aggregate liabilities of LLCs engaged in solar power generation may not be reflective of the size of these VIEs due to differences in classification of leases by these entities.

(d)	Included in Trading securities, Investment securities, Other intangible assets and Other assets on our Consolidated Balance Sheet.

(e)	Included in Loans, Equity investments and Other assets on our Consolidated Balance Sheet.

(f)	Included in Other liabilities on our Consolidated Balance Sheet.

(g)	Included in Deposits and Other liabilities on our Consolidated Balance Sheet.

Our involvement with VIEs is discussed in further detail in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities in our 2014 Form 10-K.

NOTE 3 ASSET QUALITY

Asset Quality

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency rates may be a key indicator, among other considerations, of credit risk within the loan portfolios. The measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. Loan delinquencies exclude loans held for sale, purchased impaired loans, nonperforming loans and loans accounted for under the fair value option which are on nonaccrual status, but include government insured or guaranteed loans and accruing loans accounted for under the fair value option.

Nonperforming assets include nonperforming loans and leases, OREO and foreclosed assets, and nonperforming TDRs. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent that full collection of contractual principal and interest is not probable. Interest income is not recognized on these loans. Loans accounted for under the fair value option are reported as performing loans as these loans are accounted for at fair value. Accordingly, when nonaccrual criteria is met, interest income is not recognized on these loans. Additionally, certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest are not reported as nonperforming loans and continue to accrue interest. Purchased impaired loans are excluded from nonperforming loans as we are currently accreting interest income over the expected life of the loans. See Note 4 Purchased Loans for further information.

See Note 1 Accounting Policies for additional delinquency, nonperforming, and charge-off information.

The following tables display the delinquency status of our loans and our nonperforming assets at June 30, 2015 and December 31, 2014, respectively.

The PNC Financial Services Group, Inc. – Form 10-Q 69

Table 54: Analysis of Loan Portfolio (a)


	Accruing
Dollars in millions	Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (b)			Nonperforming Loans			Fair Value Option Nonaccrual Loans (c)			Purchased Impaired Loans			Total Loans (d) (e)
June 30, 2015
Commercial Lending
Commercial	$	97,675		$	83		$	32		$	35		$	150		$	258					$	50		$	98,133
Commercial real estate		24,368			5			5			1			11			242						185			24,806
Equipment lease financing		7,778			2									2			3									7,783
Total commercial lending		129,821			90			37			36			163			503						235			130,722
Consumer Lending
Home equity		30,555			65			25						90			1,057						1,833			33,535
Residential real estate (f)		10,456			142			58			604			804			633		$	242			2,397			14,532
Credit card		4,448			23			17			29			69			3									4,520
Other consumer (g)		21,273			172			98			245			515			56									21,844
Total consumer lending		66,732			402			198			878			1,478			1,749			242			4,230			74,431
Total	$	196,553		$	492		$	235		$	914		$	1,641		$	2,252		$	242		$	4,465		$	205,153
Percentage of total loans		95.80	%		.24	%		.11	%		.45	%		.80	%		1.10	%		.12	%		2.18	%		100.00	%
December 31, 2014
Commercial Lending
Commercial	$	96,922		$	73		$	24		$	37		$	134		$	290					$	74		$	97,420
Commercial real estate		22,667			23			2						25			334						236			23,262
Equipment lease financing		7,672			11			1						12			2									7,686
Total commercial lending		127,261			107			27			37			171			626						310			128,368
Consumer Lending
Home equity		31,474			70			32						102			1,112						1,989			34,677
Residential real estate (f)		9,900			163			68			742			973			706		$	269			2,559			14,407
Credit card		4,528			28			20			33			81			3									4,612
Other consumer (g)		22,071			214			112			293			619			63									22,753
Total consumer lending		67,973			475			232			1,068			1,775			1,884			269			4,548			76,449
Total	$	195,234		$	582		$	259		$	1,105		$	1,946		$	2,510		$	269		$	4,858		$	204,817
Percentage of total loans		95.32	%		.28	%		.13	%		.54	%		.95	%		1.23	%		.13	%		2.37	%		100.00	%

(a)	Amounts in table represent recorded investment and exclude loans held for sale.

(b)	Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to receive payment in full based on the original contractual terms), as we are currently accreting interest income over the expected life of the loans.

(c)

Consumer loans accounted for under the fair value option for which we do not expect to collect substantially all principal and interest are subject to nonaccrual accounting and classification upon meeting any of our nonaccrual policies. Given that these loans are not accounted for at amortized cost, these loans have been excluded from the nonperforming loan population.

(d)	Net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.6 billion and $1.7 billion at June 30, 2015 and December 31, 2014, respectively.

(e)	Future accretable yield related to purchased impaired loans is not included in the analysis of loan portfolio.

(f)

Past due loan amounts at June 30, 2015 include government insured or guaranteed Residential real estate mortgages totaling $64 million for 30 to 59 days past due, $38 million for 60 to 89 days past due and $585 million for 90 days or more past due. Past due loan amounts at December 31, 2014 include government insured or guaranteed Residential real estate mortgages totaling $68 million for 30 to 59 days past due, $43 million for 60 to 89 days past due and $719 million for 90 days or more past due.

(g)

Past due loan amounts at June 30, 2015 include government insured or guaranteed Other consumer loans totaling $121 million for 30 to 59 days past due, $81 million for 60 to 89 days past due and $232 million for 90 days or more past due. Past due loan amounts at December 31, 2014 include government insured or guaranteed Other consumer loans totaling $152 million for 30 to 59 days past due, $93 million for 60 to 89 days past due and $277 million for 90 days or more past due.

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

At June 30, 2015, we pledged $18.7 billion of commercial loans to the Federal Reserve Bank (FRB) and $52.6 billion of residential real estate and other loans to the Federal Home Loan Bank (FHLB) as collateral for the contingent ability to borrow, if necessary. The comparable amounts at December 31, 2014 were $19.2 billion and $52.8 billion, respectively.

In the normal course of business, we originate or purchase loan products with contractual characteristics that, when concentrated, may increase our exposure as a holder of those loan products. Possible product features that may create a concentration of credit risk would include a high original or updated LTV ratio, terms that may expose the borrower to future increases in repayments above increases in market interest rates, and interest-only loans, among others.

We originate interest-only loans to commercial borrowers. Such credit arrangements are usually designed to match borrower cash flow expectations (e.g., working capital lines, revolvers). These products are standard in the financial services industry and product features are considered during the underwriting process to mitigate the increased risk that the interest-only feature may result in borrowers not being able to make interest and principal payments when due. We do not believe that these product features create a concentration of credit risk.

Table 55: Nonperforming Assets


Dollars in millions	June 30 2015			December 31 2014
Nonperforming loans
Commercial lending
Commercial	$	258		$	290
Commercial real estate		242			334
Equipment lease financing		3			2
Total commercial lending		503			626
Consumer lending (a)
Home equity		1,057			1,112
Residential real estate		633			706
Credit card		3			3
Other consumer		56			63
Total consumer lending		1,749			1,884
Total nonperforming loans (b) (c)		2,252			2,510
OREO and foreclosed assets
Other real estate owned (OREO)		302			351
Foreclosed and other assets		24			19
Total OREO and foreclosed assets		326			370
Total nonperforming assets	$	2,578		$	2,880
Nonperforming loans to total loans		1.10	%		1.23	%
Nonperforming assets to total loans, OREO and foreclosed assets		1.25			1.40
Nonperforming assets to total assets		.73			.83

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

(b)	Nonperforming loans exclude certain government insured or guaranteed loans, loans held for sale, loans accounted for under the fair value option and purchased impaired loans.

(c)	The recorded investment of loans collateralized by residential real estate property that are in process of foreclosure was $.6 billion and $.8 billion at June 30, 2015 and December 31, 2014, which included $.4 billion and $.5 billion, respectively, of loans that are government insured/guaranteed.

Nonperforming loans also include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered TDRs. See Note 1 Accounting Policies and the TDR section of Note 3 in our 2014 Form 10-K for additional information. For the six months ended June 30, 2015, $442 million of Consumer loans held for sale, loans accounted for under the fair value option, pooled purchased impaired loans, as well as certain government insured or guaranteed loans which were evaluated for TDR consideration, are not classified as TDRs. The comparable amount for the six months ended June 30, 2014 was $615 million.

Total nonperforming loans in the nonperforming assets table above include TDRs of $1.2 billion at June 30, 2015 and $1.4 billion at December 31, 2014. TDRs that are performing, including credit card TDR loans, totaled $1.2 billion at June 30, 2015 and December 31, 2014 and are excluded from nonperforming loans. These include TDRs that are not placed on nonaccrual status as permitted by regulatory guidance. Nonperforming TDRs are returned to accrual and classified as performing after demonstrating a period of at least six months of consecutive performance under the restructured terms. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

Additional Asset Quality Indicators

We have two overall portfolio segments – Commercial Lending and Consumer Lending. Each of these two segments is comprised of multiple loan classes. Classes are characterized by similarities in initial measurement, risk attributes and the manner in which we monitor and assess credit risk. The Commercial Lending segment is comprised of the commercial, commercial real estate, equipment lease financing, and commercial purchased impaired loan classes. The Consumer Lending segment is comprised of the home equity, residential real estate, credit card, other consumer, and consumer purchased impaired loan classes.

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

Commercial Lending Asset Classes

Commercial Loan Class

For commercial loans, we monitor the performance of the borrower in a disciplined and regular manner based upon the level of credit risk inherent in the loan. To evaluate the level of credit risk, we assign an internal risk rating reflecting the borrower’s PD and LGD. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process on an ongoing basis. These ratings are reviewed and updated, generally at least once per year. Additionally, no less frequently than on an annual basis, we review PD rates related to each rating grade based upon internal historical data. These rates are updated as needed and augmented by market data as deemed necessary. For small balance homogenous pools of commercial loans, mortgages and leases, we apply statistical modeling to assist in determining the probability of default within these pools. Further, on a periodic basis, we update our LGD estimates associated with each rating grade based upon historical data. The combination of the PD and LGD ratings assigned to a commercial loan, capturing both the combination of expectations of default and loss severity in event of default, reflects the relative estimated likelihood of loss for that loan at the reporting date. In general, loans with better PD and LGD tend to have a lower likelihood of loss compared to loans with worse PD and LGD. The loss amount also considers exposure at date of default, which we also periodically update based upon historical data.

Based upon the amount of the lending arrangement and our risk rating assessment, we follow a formal schedule of written periodic review. Quarterly, we conduct formal reviews of a market’s or business unit’s entire loan portfolio, focusing on those loans which we perceive to be of higher risk, based upon PDs and LGDs, or loans for which credit quality is weakening. If circumstances warrant, it is our practice to review any customer obligation and its level of credit risk more frequently. We attempt to proactively manage our loans by using various procedures that are customized to the risk of a given loan, including ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.

Commercial Real Estate Loan Class

We manage credit risk associated with our commercial real estate projects and commercial mortgage activities similar to commercial loans by analyzing PD and LGD. Additionally, risks connected with commercial real estate projects and commercial mortgage activities tend to be correlated to the loan structure and collateral location, project progress and business environment. As a result, these attributes are also monitored and utilized in assessing credit risk.

As with the commercial class, a formal schedule of periodic review is also performed to assess market/geographic risk and business unit/industry risk. Often as a result of these overviews, more in-depth reviews and increased scrutiny are placed on areas of higher risk, including adverse changes in risk ratings, deteriorating operating trends, and/or areas that concern management. These reviews are designed to assess risk and take actions to mitigate our exposure to such risks.

Equipment Lease Financing Loan Class

We manage credit risk associated with our equipment lease financing loan class similar to commercial loans by analyzing PD and LGD.

Based upon the dollar amount of the lease and of the level of credit risk, we follow a formal schedule of periodic review. Generally, this occurs quarterly, although we have established practices to review such credit risk more frequently if circumstances warrant. Our review process entails analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk, guarantor requirements, and regulatory compliance.

Commercial Purchased Impaired Loan Class

Estimates of the expected cash flows primarily determine the valuation of commercial purchased impaired loans. Commercial cash flow estimates are influenced by a number of credit related items, which include but are not limited to: estimated collateral value, receipt of additional collateral, secondary trading prices, circumstances of possible and/or ongoing liquidation, capital availability, business operations and payment patterns.

We attempt to proactively manage these factors by using various procedures that are customized to the risk of a given loan. These procedures include a review by our Special Asset Committee (SAC), ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.

See Note 4 Purchased Loans for additional information.

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

Table 56: Commercial Lending Asset Quality Indicators (a)(b)


			Criticized Commercial Loans
In millions	Pass Rated		Special Mention (c)		Substandard (d)		Doubtful (e)		Total Loans
June 30, 2015
Commercial	$	93,470	$	1,848	$	2,696	$	69	$	98,083
Commercial real estate		23,828		215		564		14		24,621
Equipment lease financing		7,621		84		76		2		7,783
Purchased impaired loans				6		208		21		235
Total commercial lending	$	124,919	$	2,153	$	3,544	$	106	$	130,722
December 31, 2014
Commercial	$	92,884	$	1,984	$	2,424	$	55	$	97,347
Commercial real estate		22,066		285		639		35		23,025
Equipment lease financing		7,518		73		93		2		7,686
Purchased impaired loans				4		280		26		310
Total commercial lending	$	122,468	$	2,346	$	3,436	$	118	$	128,368

(a)	Based upon PDs and LGDs. We apply a split rating classification to certain loans meeting threshold criteria. By assigning a split classification, a loan’s exposure amount may be split into more than one classification category in the above table.

(b)	Loans are included above based on the Regulatory Classification definitions of “Pass”, “Special Mention”, “Substandard” and “Doubtful”.

(c)

Special Mention rated loans have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects at some future date. These loans do not expose us to sufficient risk to warrant a more adverse classification at this time.

(d)	Substandard rated loans have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

(e)	Doubtful rated loans possess all the inherent weaknesses of a Substandard loan with the additional characteristics that the weakness makes collection or liquidation in full improbable due to existing facts, conditions, and values.

Consumer Lending Asset Classes

Home Equity and Residential Real Estate Loan Classes

We use several credit quality indicators, including delinquency information, nonperforming loan information, updated credit scores, originated and updated LTV ratios, and geography, to monitor and manage credit risk within the home equity and residential real estate loan classes. We evaluate mortgage loan performance by source originators and loan servicers. A summary of asset quality indicators follows:

Delinquency/Delinquency Rates: We monitor trending of delinquency/delinquency rates for home equity and residential real estate loans. See the Asset Quality section of this Note 3 for additional information.

Nonperforming Loans: We monitor trending of nonperforming loans for home equity and residential real estate loans. See the Asset Quality section of this Note 3 for additional information.

Credit Scores: We use a national third-party provider to update FICO credit scores for home equity loans and lines of credit and residential real estate loans at least quarterly. The updated scores are incorporated into a series of credit management reports, which are utilized to monitor the risk in the loan classes.

LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions): At least annually, we update the property values of real estate collateral and calculate an

updated LTV ratio. For open-end credit lines secured by real estate in regions experiencing significant declines in property values, more frequent valuations may occur. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.

Historically, we used, and we continue to use, a combination of original LTV and updated LTV for internal risk management and reporting purposes (e.g., line management, loss mitigation strategies). In addition to the fact that estimated property values by their nature are estimates, given certain data limitations it is important to note that updated LTVs may be based upon management’s assumptions (e.g., if an updated LTV is not provided by the third-party service provider, home price index (HPI) changes will be incorporated in arriving at management’s estimate of updated LTV).

Geography: Geographic concentrations are monitored to evaluate and manage exposures. Loan purchase programs are sensitive to, and focused within, certain regions to manage geographic exposures and associated risks.

A combination of updated FICO scores, originated and updated LTV ratios and geographic location assigned to home equity loans and lines of credit and residential real estate loans is used to monitor the risk in the loan classes. Loans with higher FICO scores and lower LTVs tend to have a lower level of risk. Conversely, loans with lower FICO scores, higher LTVs, and in certain geographic locations tend to have a higher level of risk.

The PNC Financial Services Group, Inc. – Form 10-Q 73

Consumer Purchased Impaired Loan Class

Estimates of the expected cash flows primarily determine the valuation of consumer purchased impaired loans. Consumer cash flow estimates are influenced by a number of credit related items, which include, but are not limited to: estimated real estate values, payment patterns, updated FICO scores, the current economic environment, updated LTV ratios and the date of origination. These key factors are monitored to help ensure that concentrations of risk are managed and cash flows are maximized.

See Note 4 Purchased Loans for additional information.

Table 57: Home Equity and Residential Real Estate Balances


	June 30		December 31
In millions	2015		2014
Home equity and residential real estate loans – excluding purchased impaired loans (a)	$	42,830	$	43,348
Home equity and residential real estate loans – purchased impaired loans (b)		4,136		4,541
Government insured or guaranteed residential real estate mortgages (a)		1,007		1,188
Difference between outstanding balance and recorded investment in purchased impaired loans (c)		94		7
Total home equity and residential real estate loans (a)	$	48,067	$	49,084

(a)	Represents recorded investment.

(b)	Represents outstanding balance.

(c)	Outstanding balance represents the balance on the loan servicing system for active loans. It is possible for the outstanding balance to be lower than the recorded investment for certain loans due to the use of pool accounting.

Table 58: Home Equity and Residential Real Estate Asset Quality Indicators – Excluding Purchased Impaired Loans (a) (b)


	Home Equity				Residential Real Estate
June 30, 2015 – in millions	1st Liens		2nd Liens				Total
Current estimated LTV ratios (c)
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	315	$	1,223	$	346	$	1,884
Less than or equal to 660 (d) (e)		55		236		89		380
Missing FICO		1		7		6		14

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		797		2,016		763		3,576
Less than or equal to 660 (d) (e)		114		341		137		592
Missing FICO		2		5		8		15

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		863		1,659		774		3,296
Less than or equal to 660		98		236		102		436
Missing FICO		2		4		9		15

Less than 90% and updated FICO scores:
Greater than 660		13,957		7,574		8,216		29,747
Less than or equal to 660		1,251		902		566		2,719
Missing FICO		29		15		112		156
Total home equity and residential real estate loans	$	17,484	$	14,218	$	11,128	$	42,830

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


	Home Equity				Residential Real Estate
December 31, 2014 – in millions	1st Liens		2nd Liens				Total
Current estimated LTV ratios (c)
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	333	$	1,399	$	360	$	2,092
Less than or equal to 660 (d) (e)		57		273		92		422
Missing FICO		1		9		8		18

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		839		2,190		772		3,801
Less than or equal to 660 (d) (e)		118		383		153		654
Missing FICO		1		5		12		18

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		891		1,703		755		3,349
Less than or equal to 660		103		271		118		492
Missing FICO		2		3		5		10

Less than 90% and updated FICO scores:
Greater than 660		13,878		7,874		7,703		29,455
Less than or equal to 660		1,319		995		573		2,887
Missing FICO		27		14		109		150
Total home equity and residential real estate loans	$	17,569	$	15,119	$	10,660	$	43,348

(a)

Excludes purchased impaired loans of approximately $4.2 billion and $4.5 billion in recorded investment, certain government insured or guaranteed residential real estate mortgages of approximately $1.0 billion and $1.2 billion, and loans held for sale at June 30, 2015 and December 31, 2014, respectively. See the Home Equity and Residential Real Estate Asset Quality Indicators – Purchased Impaired Loans table below for additional information on purchased impaired loans.

(b)	Amounts shown represent recorded investment.

(c)

Based upon updated LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions). Updated LTV is estimated using modeled property values. These ratios are updated at least semi-annually. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models (AVMs), broker price opinions (BPOs), HPI indices, property location, internal and external balance information, origination data and management assumptions. In cases where we are in an originated second lien position, we generally utilize origination balances provided by a third-party which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of these calculations do not represent actual appraised loan level collateral or updated LTV based upon a current first lien balance, and as such, are necessarily imprecise and subject to change as we enhance our methodology.

(d)	Higher risk loans are defined as loans with both an updated FICO score of less than or equal to 660 and an updated LTV greater than or equal to 100%.

(e)

The following states had the highest percentage of higher risk loans at June 30, 2015: New Jersey 15%, Ohio 12%, Illinois 12%, Pennsylvania 12%, Florida 7%, Maryland 6% and Michigan 5%. The remainder of the states had lower than 4% of the higher risk loans individually, and collectively they represent approximately 31% of the higher risk loans. The following states had the highest percentage of higher risk loans at December 31, 2014: New Jersey 14%, Illinois 12%, Pennsylvania 12%, Ohio 12%, Florida 8%, Maryland 6%, Michigan 5%, and North Carolina 4%. The remainder of the states had lower than 4% of the high risk loans individually, and collectively they represent approximately 28% of the higher risk loans.

The PNC Financial Services Group, Inc. – Form 10-Q 75

Table 59: Home Equity and Residential Real Estate Asset Quality Indicators – Purchased Impaired Loans (a)


	Home Equity (b) (c)				Residential Real Estate (b) (c)
June 30, 2015 – in millions	1st Liens		2nd Liens				Total
Current estimated LTV ratios (d)
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	6	$	225	$	221	$	452
Less than or equal to 660		9		105		121		235
Missing FICO				7		7		14

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		14		387		245		646
Less than or equal to 660		11		166		173		350
Missing FICO				10		9		19

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		12		186		157		355
Less than or equal to 660		7		84		103		194
Missing FICO				4		6		10

Less than 90% and updated FICO scores:
Greater than 660		109		320		625		1,054
Less than or equal to 660		97		175		472		744
Missing FICO		1		13		28		42

Missing LTV and updated FICO scores:
Greater than 660		1				12		13
Less than or equal to 660		3				5		8
Total home equity and residential real estate loans	$	270	$	1,682	$	2,184	$	4,136


	Home Equity (b) (c)				Residential Real Estate (b) (c)
December 31, 2014 – in millions	1st Liens		2nd Liens				Total
Current estimated LTV ratios (d)
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	8	$	243	$	276	$	527
Less than or equal to 660		9		125		144		278
Missing FICO				8		6		14

Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660		15		426		272		713
Less than or equal to 660		12		194		200		406
Missing FICO				11		5		16

Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660		12		207		186		405
Less than or equal to 660		9		93		123		225
Missing FICO				5		3		8

Less than 90% and updated FICO scores:
Greater than 660		102		339		626		1,067
Less than or equal to 660		109		200		515		824
Missing FICO		1		12		15		28

Missing LTV and updated FICO scores:
Greater than 660		1				14		15
Less than or equal to 660		4				10		14
Missing FICO						1		1
Total home equity and residential real estate loans	$	282	$	1,863	$	2,396	$	4,541

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

(a)	Amounts shown represent outstanding balance. See Note 4 Purchased Loans for additional information.

(b)	For the estimate of cash flows utilized in our purchased impaired loan accounting, other assumptions and estimates are made, including amortization of first lien balances, pre-payment rates, etc., which are not reflected in this table.

(c)

The following states had the highest percentage of purchased impaired loans at June 30, 2015: California 16%, Florida 14%, Illinois 11%, Ohio 8%, North Carolina 7%, and Michigan 5%. The remainder of the states had lower than a 4% concentration of purchased impaired loans individually, and collectively they represent approximately 39% of the purchased impaired portfolio. The following states had the highest percentage of purchased impaired loans at December 31, 2014: California 17%, Florida 15%, Illinois 11%, Ohio 8%, North Carolina 7% and Michigan 5%. The remainder of the states had lower than a 4% concentration of purchased impaired loans individually, and collectively they represent approximately 37% of the purchased impaired portfolio.

(d)

Credit Card and Other Consumer Loan Classes

Table 60: Credit Card and Other Consumer Loan Classes Asset Quality Indicators


	Credit Card (a)					Other Consumer (b)
Dollars in millions	Amount		% of Total Loans Using FICO Credit Metric			Amount		% of Total Loans Using FICO Credit Metric
June 30, 2015
FICO score greater than 719	$	2,680		59	%	$	9,293		65	%
650 to 719		1,265		28			3,425		24
620 to 649		193		4			503		3
Less than 620		208		5			578		4
No FICO score available or required (c)		174		4			517		4
Total loans using FICO credit metric		4,520		100	%		14,316		100	%
Consumer loans using other internal credit metrics (b)							7,528
Total loan balance	$	4,520				$	21,844
Weighted-average updated FICO score (d)				734					745
December 31, 2014
FICO score greater than 719	$	2,717		59	%	$	9,156		64	%
650 to 719		1,288		28			3,459		24
620 to 649		203		4			528		4
Less than 620		239		5			619		4
No FICO score available or required (c)		165		4			557		4
Total loans using FICO credit metric		4,612		100	%		14,319		100	%
Consumer loans using other internal credit metrics (b)							8,434
Total loan balance	$	4,612				$	22,753
Weighted-average updated FICO score (d)				732					744

(a)

At June 30, 2015, we had $30 million of credit card loans that are higher risk (i.e., loans with both updated FICO scores less than 660 and in late stage (90+ days) delinquency status). The majority of the June 30, 2015 balance related to higher risk credit card loans was geographically distributed throughout the following areas: Ohio 17%, Pennsylvania 16%, Michigan 9%, New Jersey 8%, Illinois 7%, Florida 7% and Indiana 5%. All other states had less than 4% individually and make up the remainder of the balance. At December 31, 2014, we had $35 million of credit card loans that are higher risk. The majority of the December 31, 2014 balance related to higher risk credit card loans was geographically distributed throughout the following areas: Ohio 17%, Pennsylvania 16%, Michigan 9%, Illinois 7%, New Jersey 7%, Indiana 6%, Florida 6% and North Carolina 4%. All other states had less than 4% individually and make up the remainder of the balance.

(b)

Other consumer loans for which updated FICO scores are used as an asset quality indicator include non-government guaranteed or insured education loans, automobile loans and other secured and unsecured lines and loans. Other consumer loans for which other internal credit metrics are used as an asset quality indicator include primarily government guaranteed or insured education loans, as well as consumer loans to high net worth individuals. Other internal credit metrics may include delinquency status, geography or other factors.

(c)

Credit card loans and other consumer loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name, and/or cards secured by collateral. Management proactively assesses the risk and size of this loan portfolio and, when necessary, takes actions to mitigate the credit risk.

(d)	Weighted-average updated FICO score excludes accounts with no FICO score available or required.

Troubled Debt Restructurings (TDRs)

See Note 3 Asset Quality in our 2014 Form 10-K for additional discussion on TDRs. We held specific reserves in the ALLL of $.3 billion and $.4 billion at June 30, 2015 and December 31, 2014, respectively, for the total TDR portfolio.

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

Table 61: Summary of Troubled Debt Restructurings


In millions	June 30 2015		December 31 2014
Total consumer lending	$	2,002	$	2,041
Total commercial lending		414		542
Total TDRs	$	2,416	$	2,583
Nonperforming	$	1,208	$	1,370
Accruing (a)		1,091		1,083
Credit card		117		130
Total TDRs	$	2,416	$	2,583

(a)

Accruing TDR loans have demonstrated a period of at least six months of performance under the restructured terms and are excluded from nonperforming loans. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

Table 62 quantifies the number of loans that were classified as TDRs as well as the change in the recorded investments as a result of the TDR classification during the first six months and second quarters of 2015 and 2014, respectively. Additionally, the table provides information about the types of TDR concessions. The Principal Forgiveness TDR category includes principal forgiveness and accrued interest forgiveness. These types of TDRs result in a write down of the recorded investment and a charge-off if such action has not already taken place. The Rate Reduction TDR category includes reduced interest rate and interest deferral. The TDRs

within this category result in reductions to future interest income. The Other TDR category primarily includes consumer borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC, as well as postponement/reduction of scheduled amortization and contractual extensions for both consumer and commercial borrowers.

In some cases, there have been multiple concessions granted on one loan. This is most common within the commercial loan portfolio. When there have been multiple concessions granted in the commercial loan portfolio, the principal forgiveness concession was prioritized for purposes of determining the inclusion in Table 62. For example, if there is principal forgiveness in conjunction with lower interest rate and postponement of amortization, the type of concession will be reported as Principal Forgiveness. Second in priority would be rate reduction. For example, if there is an interest rate reduction in conjunction with postponement of amortization, the type of concession will be reported as a Rate Reduction. In the event that multiple concessions are granted on a consumer loan, concessions resulting from discharge from personal liability through Chapter 7 bankruptcy without formal affirmation of the loan obligations to PNC would be prioritized and included in the Other type of concession in the table below. After that, consumer loan concessions would follow the previously discussed priority of concessions for the commercial loan portfolio.

Table 62: Financial Impact and TDRs by Concession Type (a)


			Pre-TDR Recorded Investment (b)		Post-TDR Recorded Investment (c)
During the three months ended June 30, 2015 Dollars in millions	Number of Loans		Pre-TDR Recorded Investment (b)		Principal Forgiveness		Rate Reduction		Other		Total
Commercial lending
Commercial		27	$	38	$	4	$	2	$	19	$	25
Commercial real estate		9		4				1		2		3
Equipment lease financing		1										–
Total commercial lending		37		42		4		3		21		28
Consumer lending
Home equity		818		57				27		28		55
Residential real estate		78		12				6		6		12
Credit card		1,641		14				13				13
Other consumer		232		3				1		2		3
Total consumer lending		2,769		86				47		36		83
Total TDRs		2,806	$	128	$	4	$	50	$	57	$	111

During the three months ended June 30, 2014 Dollars in millions
Commercial lending
Commercial		29	$	48	$	3	$	4	$	40	$	47
Commercial real estate		23		40				4		32		36
Total commercial lending (d)		52		88		3		8		72		83
Consumer lending
Home equity		561		40				9		29		38
Residential real estate		161		22				7		15		22
Credit card		1,717		14				14				14
Other consumer		222		4						3		3
Total consumer lending		2,661		80				30		47		77
Total TDRs		2,713	$	168	$	3	$	38	$	119	$	160

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

Table 62: Financial Impact and TDRs by Concession Type (Continued) (a)


			Pre-TDR Recorded Investment (b)		Post-TDR Recorded Investment (c)
During the six months ended June 30, 2015 Dollars in millions	Number of Loans		Pre-TDR Recorded Investment (b)		Principal Forgiveness		Rate Reduction		Other		Total
Commercial lending
Commercial		57	$	91	$	5	$	2	$	68	$	75
Commercial real estate		17		14		1		1		4		6
Equipment lease financing		1										–
Total commercial lending		75		105		6		3		72		81
Consumer lending
Home equity		1,530		102				50		47		97
Residential real estate		148		20				11		10		21
Credit card		3,204		26				25				25
Other consumer		504		7				2		4		6
Total consumer lending		5,386		155				88		61		149
Total TDRs		5,461	$	260	$	6	$	91	$	133	$	230

During the six months ended June 30, 2014 Dollars in millions
Commercial lending
Commercial		63	$	89	$	3	$	4	$	78	$	85
Commercial real estate		46		81		19		4		43		66
Total commercial lending (d)		109		170		22		8		121		151
Consumer lending
Home equity		1,392		92				29		56		85
Residential real estate		280		40				13		27		40
Credit card		3,568		29				28				28
Other consumer		487		8						6		6
Total consumer lending		5,727		169				70		89		159
Total TDRs		5,836	$	339	$	22	$	78	$	210	$	310

(a)	Impact of partial charge-offs at TDR date are included in this table.

(b)	Represents the recorded investment of the loans as of the quarter end immediately preceding TDR designation, and excludes immaterial amounts of accrued interest receivable.

(c)	Represents the recorded investment of the TDRs as of the quarter end and immediately following the TDR designation, and excludes immaterial amounts of accrued interest receivable.

(d)	During the three and six months ended June 30, 2014, there were no loans classified as TDRs in the Equipment lease financing loan class.

After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. In Table 63, we consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. The following table presents the recorded investment of loans that both (i) were classified as TDRs or were subsequently modified during each 12-month period preceding April 1, 2015, January 1, 2015, April 1, 2014 and January 1, 2014, respectively, and (ii) subsequently defaulted during these reporting periods.

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

Table 63: TDRs that were Modified in the Past Twelve Months which have Subsequently Defaulted


During the three months ended June 30, 2015 Dollars in millions	Number of Contracts		Recorded Investment
Commercial lending
Commercial		8	$	3
Commercial real estate		1		1
Equipment lease financing		1
Total commercial lending		10		4
Consumer lending
Home equity		102		5
Residential real estate		60		8
Credit card		1,140		10
Other consumer		38
Total consumer lending		1,340		23
Total TDRs		1,350	$	27

During the three months ended June 30, 2014 Dollars in millions	Number of Contracts		Recorded Investment
Commercial lending
Commercial		23	$	16
Commercial real estate		14		21
Total commercial lending (a)		37		37
Consumer lending
Home equity		100		6
Residential real estate		51		11
Credit card		1,446		12
Other consumer		34
Total consumer lending		1,631		29
Total TDRs		1,668	$	66


During the six months ended June 30, 2015 Dollars in millions	Number of Contracts		Recorded Investment
Commercial lending
Commercial		13	$	4
Commercial real estate		8		9
Equipment lease financing		1
Total commercial lending (a)		22		13
Consumer lending
Home equity		168		9
Residential real estate		71		10
Credit card		1,482		12
Other consumer		75		1
Total consumer lending		1,796		32
Total TDRs		1,818	$	45


During the six months ended June 30, 2014 Dollars in millions	Number of Contracts		Recorded Investment
Commercial lending
Commercial		33	$	22
Commercial real estate		21		31
Total commercial lending (a)		54		53
Consumer lending
Home equity		216		13
Residential real estate		76		14
Credit card		1,894		15
Other consumer		79		1
Total consumer lending		2,265		43
Total TDRs		2,319	$	96

(a)	During the three and six months ended June 30, 2014, there were no loans classified as TDRs in the Equipment lease financing loan class that have subsequently defaulted.

Impaired Loans

Impaired loans include commercial nonperforming loans and consumer and commercial TDRs, regardless of nonperforming status. TDRs that were previously recorded at amortized cost and are now classified and accounted for as held for sale are also included. Excluded from impaired loans are nonperforming leases, loans accounted for as held for sale other than the TDRs described in the preceding sentence, loans accounted for under the fair value option, smaller balance homogeneous type loans and purchased impaired loans. See Note 4 Purchased Loans for additional information. Nonperforming equipment lease financing loans of $3 million at June 30, 2015 and $2 million at December 31, 2014 are excluded from impaired loans pursuant to authoritative lease accounting guidance. We did not recognize any interest income on impaired loans that have not returned to performing status, while they were impaired during the six months ended June 30, 2015 and June 30, 2014. The following table provides further detail on impaired loans individually evaluated for impairment and the associated ALLL. Certain commercial impaired loans and loans to consumers discharged from bankruptcy and not formally reaffirmed do not have a related ALLL as the valuation of these impaired loans exceeded the recorded investment.

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

Table 64: Impaired Loans


In millions	Unpaid Principal Balance		Recorded Investment (a)		Associated Allowance (b)		Average Recorded Investment (c)
June 30, 2015
Impaired loans with an associated allowance
Commercial	$	398	$	305	$	59	$	305
Commercial real estate		367		196		41		230
Home equity		1,006		982		189		984
Residential real estate		478		362		58		398
Credit card		117		117		26		124
Other consumer		58		40		1		44
Total impaired loans with an associated allowance	$	2,424	$	2,002	$	374	$	2,085
Impaired loans without an associated allowance
Commercial	$	45	$	38			$	73
Commercial real estate		183		157				171
Home equity		421		147				144
Residential real estate		369		354				328
Total impaired loans without an associated allowance	$	1,018	$	696			$	716
Total impaired loans	$	3,442	$	2,698	$	374	$	2,801
December 31, 2014
Impaired loans with an associated allowance
Commercial	$	432	$	318	$	74	$	360
Commercial real estate		418		262		65		283
Home equity		1,021		984		215		986
Residential real estate		397		420		75		422
Credit card		130		130		32		147
Other consumer		64		47		2		51
Total impaired loans with an associated allowance	$	2,462	$	2,161	$	463	$	2,249
Impaired loans without an associated allowance
Commercial	$	106	$	84			$	133
Commercial real estate		249		187				276
Home equity		403		145				134
Residential real estate		344		315				365
Total impaired loans without an associated allowance	$	1,102	$	731			$	908
Total impaired loans	$	3,564	$	2,892	$	463	$	3,157

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

(b)	Associated allowance amounts include $.3 billion and $.4 billion for TDRs at June 30, 2015 and December 31, 2014, respectively.

(c)	Average recorded investment is for the six months ended June 30, 2015 and the year ended December 31, 2014, respectively.

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

NOTE 4 PURCHASED LOANS

Purchased Impaired Loans

Purchased impaired loan accounting addresses differences between contractual cash flows and cash flows expected to be collected from the initial investment in loans if those differences are attributable, at least in part, to credit quality. Several factors were considered when evaluating whether a loan was considered a purchased impaired loan, including the delinquency status of the loan, updated borrower credit status, geographic information, and updated LTV. GAAP allows purchasers to account for loans individually or to aggregate purchased impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Purchased impaired homogeneous consumer, residential real estate and smaller balance commercial loans with common risk characteristics are aggregated into pools where appropriate, whereas commercial loans with a total commitment greater than a defined threshold are accounted for individually. For pooled loans, proceeds of individual loans are not applied individually to each loan within a pool, but to the pool’s recorded investment since it is

accounted for as a single asset. Upon final disposition of a loan within a pool (e.g., payoff, short-sale, foreclosure, etc.), the loan’s carrying value is removed from the pool and any gain or loss associated with the transaction is retained in the pool’s recorded investment. For example, upon final disposition of a loan by short-sale, the proceeds of the short-sale may be less (or more) than the loan’s recorded investment. This shortfall or loss (excess or gain) is not accounted for as an individual loan sale in our income statement and is instead retained as part of the pool’s recorded investment consistent with our accounting for the pool as a single asset. This treatment is designed to maintain a constant effective yield for recognition of interest income. Accordingly, a pool’s recorded investment includes the net accumulation of realized losses or gains attributable to these final dispositions. As there are no future expected cash flows related to these dispositions, their net carrying value is $0. The recorded investment, including these realized losses and gains, is evaluated for collectability based upon the net present value of the pool’s remaining expected cash flows when establishing our allowance for loan losses. See below and Note 1 Accounting Policies and Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit for additional information.

The following table provides balances of purchased impaired loans at June 30, 2015 and December 31, 2014:

Table 65: Purchased Impaired Loans – Balances


	June 30, 2015						December 31, 2014
In millions	Outstanding Balance (a)		Recorded Investment		Carrying Value		Outstanding Balance (a)		Recorded Investment		Carrying Value
Commercial lending
Commercial	$	129	$	50	$	34	$	159	$	74	$	57
Commercial real estate		217		185		134		307		236		174
Total commercial lending		346		235		168		466		310		231
Consumer lending
Consumer		1,952		1,833		1,517		2,145		1,989		1,661
Residential real estate		2,184		2,397		1,925		2,396		2,559		2,094
Total consumer lending		4,136		4,230		3,442		4,541		4,548		3,755
Total	$	4,482	$	4,465	$	3,610	$	5,007	$	4,858	$	3,986

(a)	Outstanding balance represents the balance on the loan servicing system for active loans. It is possible for the outstanding balance to be lower than the recorded investment for certain loans due to the use of pool accounting.

The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized as interest income over the remaining life of the loan using the constant effective yield method. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and is not recognized in income. Subsequent changes in the expected cash flows of individual or pooled purchased impaired loans will either impact the accretable yield or result in an impairment charge to provision for credit losses in the period in which the changes become probable. Decreases to

the net present value of expected cash flows will generally result in an impairment charge recorded as a provision for credit losses, resulting in an increase to the allowance for loan and lease losses, and a reclassification from accretable yield to non-accretable difference.

During the first six months of 2015, $12 million of provision recapture was recorded for purchased impaired loans compared to $95 million of provision recapture during the first six months of 2014. Charge-offs (which were specifically for commercial loans greater than a defined threshold) during the first six months of 2015 were $5 million compared to $24

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

million during the first six months of 2014. At both June 30, 2015 and December 31, 2014, the allowance for loan and lease losses on total purchased impaired loans was $.9 billion. At June 30, 2015, an allowance was recognized on each consumer purchased impaired loan pool. Subsequent increases in the net present value of cash flows will result in a provision recapture of any previously recorded allowance for loan and lease losses, to the extent applicable, and/or a reclassification from non-accretable difference to accretable yield, which will be recognized prospectively. Individual loan transactions where final dispositions have occurred (as noted above) result in removal of the loans from their applicable pools for cash flow estimation purposes. The cash flow re-estimation process is completed quarterly to evaluate the appropriateness of the allowance associated with the purchased impaired loans.

Activity for the accretable yield during the first six months of 2015 and 2014 follows:

Table 66: Purchased Impaired Loans – Accretable Yield


In millions	2015			2014
January 1	$	1,558		$	2,055
Accretion (including excess cash recoveries)		(252	)		(309	)
Net reclassifications to accretable from non-accretable (a)		146			208
Disposals		(9	)		(18	)
June 30	$	1,443		$	1,936

(a)

Approximately 70% and 78% of the net reclassifications for the six months ended June 30, 2015 and 2014, respectively, were driven by the consumer portfolio and were due to improvements of cash expected to be collected on loans in future periods. The remaining net reclassifications were predominantly due to future cash flow changes in the commercial portfolio.

NOTE 5 ALLOWANCES FOR LOAN AND LEASE LOSSES AND UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT

Allowance for Loan and Lease Losses

We maintain the ALLL at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. We use the two main portfolio segments – Commercial Lending and Consumer Lending – and develop and document the ALLL under separate methodologies for each of these segments as discussed in Note 1 Accounting Policies. A rollforward of the ALLL and associated loan data follows.

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

Table 67: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data


In millions	Commercial Lending			Consumer Lending			Total
June 30, 2015
Allowance for Loan and Lease Losses
January 1	$	1,571		$	1,760		$	3,331
Charge-offs		(108	)		(284	)		(392	)
Recoveries		134			88			222
Net (charge-offs) / recoveries		26			(196	)		(170	)
Provision for credit losses		20			80			100
Net change in allowance for unfunded loan commitments and letters of credit		13						13
Other		(2	)					(2	)
June 30	$	1,628		$	1,644		$	3,272
TDRs individually evaluated for impairment	$	35		$	274		$	309
Other loans individually evaluated for impairment		65						65
Loans collectively evaluated for impairment		1,461			582			2,043
Purchased impaired loans		67			788			855
June 30	$	1,628		$	1,644		$	3,272
Loan Portfolio
TDRs individually evaluated for impairment (a)	$	414		$	2,002		$	2,416
Other loans individually evaluated for impairment		282						282
Loans collectively evaluated for impairment (b)		129,791			67,258			197,049
Fair value option loans (c)					941			941
Purchased impaired loans		235			4,230			4,465
June 30	$	130,722		$	74,431		$	205,153
Portfolio segment ALLL as a percentage of total ALLL		50	%		50	%		100	%
Ratio of the allowance for loan and lease losses to total loans		1.25	%		2.21	%		1.59	%
June 30, 2014
Allowance for Loan and Lease Losses
January 1	$	1,547		$	2,062		$	3,609
Charge-offs		(209	)		(355	)		(564	)
Recoveries		149			84			233
Net charge-offs		(60	)		(271	)		(331	)
Provision for credit losses		108			58			166
Net change in allowance for unfunded loan commitments and letters of credit		10						10
Other		(1	)					(1	)
June 30	$	1,604		$	1,849		$	3,453
TDRs individually evaluated for impairment	$	29		$	407		$	436
Other loans individually evaluated for impairment		118						118
Loans collectively evaluated for impairment		1,349			664			2,013
Purchased impaired loans		108			778			886
June 30	$	1,604		$	1,849		$	3,453
Loan Portfolio
TDRs individually evaluated for impairment (a)	$	545		$	2,121		$	2,666
Other loans individually evaluated for impairment		526						526
Loans collectively evaluated for impairment (b) (d)		122,533			68,717			191,250
Fair value option loans (c) (d)					985			985
Purchased impaired loans		479			5,078			5,557
June 30	$	124,083		$	76,901		$	200,984
Portfolio segment ALLL as a percentage of total ALLL		46	%		54	%		100	%
Ratio of the allowance for loan and lease losses to total loans		1.29	%		2.40	%		1.72	%

(a)	TDRs individually evaluated for impairment exclude TDRs that were subsequently accounted for as held for sale loans, but continue to be disclosed as TDRs.

(b)

Includes $174 million of loans collectively evaluated for impairment based upon collateral values and written down to the respective collateral value less costs to sell at June 30, 2015. Accordingly, there is no allowance recorded for these loans. The comparative amount as of June 30, 2014 was $232 million.

(c)	Loans accounted for under the fair value option are not evaluated for impairment as these loans are accounted for at fair value. Accordingly, there is no allowance recorded on these loans.

(d)

Prior period amounts were corrected to include transferred loans over which PNC regained effective control as fair value option loans. This resulted in an increase of $101 million in consumer lending fair value option loans and a corresponding decrease of $101 million in consumer lending loans collectively evaluated for impairment.

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

Allowance for Unfunded Loan Commitments and Letters of Credit

Table 68: Rollforward of Allowance for Unfunded Loan Commitments and Letters of Credit


In millions	2015			2014
January 1	$	259		$	242
Net change in allowance for unfunded loan commitments and letters of credit		(13	)		(10	)
June 30	$	246		$	232

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

NOTE 6 INVESTMENT SECURITIES

Table 69: Investment Securities Summary


	Amortized Cost		Unrealized					Fair Value
In millions	Amortized Cost		Gains		Losses			Fair Value
June 30, 2015
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies	$	5,931	$	166	$	(2	)	$	6,095
Residential mortgage-backed
Agency		20,629		331		(118	)		20,842
Non-agency		4,357		284		(89	)		4,552
Commercial mortgage-backed
Agency		1,980		21		(7	)		1,994
Non-agency		4,368		62		(8	)		4,422
Asset-backed		5,377		82		(24	)		5,435
State and municipal		2,010		59		(11	)		2,058
Other debt		1,822		39		(7	)		1,854
Total debt securities		46,474		1,044		(266	)		47,252
Corporate stocks and other		428				(1	)		427
Total securities available for sale	$	46,902	$	1,044	$	(267	)	$	47,679
Securities Held to Maturity (a)
Debt securities
U.S. Treasury and government agencies	$	253	$	37				$	290
Residential mortgage-backed
Agency		8,199		117	$	(58	)		8,258
Non-agency		252		7					259
Commercial mortgage-backed
Agency		1,142		48					1,190
Non-agency		812		13					825
Asset-backed		736		3		(6	)		733
State and municipal		1,982		78					2,060
Other debt		307		6					313
Total securities held to maturity	$	13,683	$	309	$	(64	)	$	13,928
December 31, 2014
Securities Available for Sale
Debt securities
U.S. Treasury and government agencies	$	5,237	$	186	$	(1	)	$	5,422
Residential mortgage-backed
Agency		17,646		438		(41	)		18,043
Non-agency		4,723		318		(99	)		4,942
Commercial mortgage-backed
Agency		2,178		23		(14	)		2,187
Non-agency		4,085		88		(11	)		4,162
Asset-backed		5,141		78		(32	)		5,187
State and municipal		1,953		88		(3	)		2,038
Other debt		1,776		43		(6	)		1,813
Total debt securities		42,739		1,262		(207	)		43,794
Corporate stocks and other		442				(1	)		441
Total securities available for sale	$	43,181	$	1,262	$	(208	)	$	44,235
Securities Held to Maturity (a)
Debt securities
U.S. Treasury and government agencies	$	248	$	44				$	292
Residential mortgage-backed
Agency		5,736		166	$	(10	)		5,892
Non-agency		270		13					283
Commercial mortgage-backed
Agency		1,200		53					1,253
Non-agency		1,010		19					1,029
Asset-backed		759		2		(8	)		753
State and municipal		2,042		111					2,153
Other debt		323		6					329
Total securities held to maturity	$	11,588	$	414	$	(18	)	$	11,984

(a)

Held to maturity securities transferred from available for sale are included in held to maturity at fair value at the time of transfer. The amortized cost of held to maturity securities included net unrealized gains of $110 million and $125 million at June 30, 2015 and December 31, 2014, respectively, related to securities transferred, which are offset in Accumulated Other Comprehensive Income, net of tax.

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

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the securities available for sale portfolio are included in Shareholders’ equity as Accumulated other comprehensive income or loss, net of tax, unless credit-related. Securities held to maturity are carried at amortized cost. At June 30, 2015, Accumulated other comprehensive income included pretax gains of $93 million from derivatives that hedged the purchase of investment securities classified as held to maturity. The gains will be accreted into interest income as an adjustment of yield on the securities.

Table 70 presents gross unrealized losses on securities available for sale at June 30, 2015 and December 31, 2014. The securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and twelve months or more based on the point in time that the fair value declined below the amortized cost basis. The table includes debt securities where a portion of other-than-temporary impairment (OTTI) has been recognized in Accumulated other comprehensive income (loss).

Table 70: Gross Unrealized Loss and Fair Value of Securities Available for Sale


In millions	Unrealized loss position less than 12 months					Unrealized loss position 12 months or more					Total
	Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value
June 30, 2015
Debt securities
U.S. Treasury and government agencies	$	(2	)	$	1,167						$	(2	)	$	1,167
Residential mortgage-backed
Agency		(94	)		7,736	$	(24	)	$	1,259		(118	)		8,995
Non-agency		(5	)		443		(84	)		1,395		(89	)		1,838
Commercial mortgage-backed
Agency		(2	)		429		(5	)		150		(7	)		579
Non-agency		(5	)		1,504		(3	)		339		(8	)		1,843
Asset-backed		(5	)		946		(19	)		605		(24	)		1,551
State and municipal		(8	)		503		(3	)		49		(11	)		552
Other debt		(4	)		332		(3	)		139		(7	)		471
Total debt securities		(125	)		13,060		(141	)		3,936		(266	)		16,996
Corporate stocks and other							(1	)		61		(1	)		61
Total	$	(125	)	$	13,060	$	(142	)	$	3,997	$	(267	)	$	17,057
December 31, 2014
Debt securities
U.S. Treasury and government agencies	$	(1	)	$	1,426						$	(1	)	$	1,426
Residential mortgage-backed
Agency		(4	)		644	$	(37	)	$	1,963		(41	)		2,607
Non-agency		(5	)		276		(94	)		1,487		(99	)		1,763
Commercial mortgage-backed
Agency		(2	)		681		(12	)		322		(14	)		1,003
Non-agency		(4	)		928		(7	)		335		(11	)		1,263
Asset-backed		(4	)		913		(28	)		1,133		(32	)		2,046
State and municipal			(a)		41		(3	)		77		(3	)		118
Other debt		(2	)		314		(4	)		186		(6	)		500
Total debt securities		(22	)		5,223		(185	)		5,503		(207	)		10,726
Corporate stocks and other							(1	)		15		(1	)		15
Total	$	(22	)	$	5,223	$	(186	)	$	5,518	$	(208	)	$	10,741

(a)	The unrealized loss on these securities was less than $.5 million.

The PNC Financial Services Group, Inc. – Form 10-Q 87

The gross unrealized loss on debt securities held to maturity was $74 million at June 30, 2015, with $51 million of the loss related to securities with a fair value of $4.0 billion that had been in a continuous loss position less than 12 months and $23 million of the loss related to securities with a fair value of $1.0 billion that had been in a continuous loss position for more than 12 months. The gross unrealized loss on debt securities held to maturity was $22 million at December 31, 2014, with $1 million of the loss related to securities with a fair value of $134 million that had been in a continuous loss position less than 12 months and $21 million of the loss related to securities with a fair value of $1.6 billion that had been in a continuous loss position for more than 12 months. For securities transferred to held to maturity from available for sale, the unrealized loss for purposes of this analysis is determined by comparing the security’s original amortized cost to its current estimated fair value.

Evaluating Investment Securities for Other-than-Temporary Impairments

For the securities in the preceding Table 70, as of June 30, 2015 we do not intend to sell and believe we will not be required to sell the securities prior to recovery of the amortized cost basis.

At least quarterly, we conduct a comprehensive security-level assessment on all securities. For those securities in an unrealized loss position we determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. An OTTI loss must be recognized for a debt security in an unrealized loss position if we intend to sell the security or it is more likely than not we will be required to sell the security prior to recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if we do not expect to sell the security, we must evaluate the expected cash flows to be received to determine if we believe a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in accumulated other comprehensive income (loss).

The security-level assessment is performed on each investment security. Our assessment considers the security structure, recent security collateral performance metrics if applicable, external credit ratings, failure of the issuer to make scheduled interest or principal payments, our judgment and expectations of future performance, and relevant independent industry research, analysis and forecasts. Results of the periodic assessment are reviewed by a cross-functional senior management team representing Asset & Liability Management, Finance, and Market Risk Management. The senior management team considers the results of the assessments, as well as other factors, in determining whether the impairment is other-than-temporary.

Substantially all of the credit impairment we have recognized relates to non-agency residential mortgage-backed securities and asset-backed securities collateralized by first-lien and second-lien non-agency residential mortgage loans. Potential credit losses on these securities are evaluated on a security-by-security basis. Collateral performance assumptions are developed for each security after reviewing collateral composition and collateral performance statistics. This includes analyzing recent delinquency roll rates, loss severities, voluntary prepayments and various other collateral and performance metrics. This information is then combined with general expectations on the housing market, employment and other macroeconomic factors to develop estimates of future performance.

Security level assumptions for prepayments, loan defaults and loss given default are applied to each non-agency residential mortgage-backed security and asset-backed security collateralized by first-lien and second-lien non-agency residential mortgage loans using a third-party cash flow model. The third-party cash flow model then generates projected cash flows according to the structure of each security. Based on the results of the cash flow analysis, we determine whether we expect that we will recover the amortized cost basis of our security.

For those securities on our balance sheet where we determined losses represented OTTI, we have recorded cumulative credit losses of $1.2 billion at June 30, 2015. During the first six months and second quarters of 2015 and 2014, the OTTI credit losses recognized in noninterest income and the OTTI noncredit losses recognized in accumulated other comprehensive income (loss), net of tax, on securities were not significant.

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

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

Table 71: Gains (Losses) on Sales of Securities Available for Sale


In millions	Proceeds		Gross Gains		Gross Losses			Net Gains		Tax Expense
Six months ended June 30
2015	$	2,441	$	51	$	(1	)	$	50	$	17
2014	$	3,401	$	29	$	(25	)	$	4	$	1

The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at June 30, 2015.

Table 72: Contractual Maturity of Debt Securities


June 30, 2015 Dollars in millions	1 Year or Less			After 1 Year through 5 Years			After 5 Years through 10 Years			After 10 Years			Total
Securities Available for Sale
U.S. Treasury and government agencies	$	513		$	804		$	3,976		$	638		$	5,931
Residential mortgage-backed
Agency					123			760			19,746			20,629
Non-agency					5			1			4,351			4,357
Commercial mortgage-backed
Agency		83			136			48			1,713			1,980
Non-agency					85						4,283			4,368
Asset-backed		5			1,150			2,104			2,118			5,377
State and municipal		9			129			316			1,556			2,010
Other debt		140			1,174			327			181			1,822
Total debt securities available for sale	$	750		$	3,606		$	7,532		$	34,586		$	46,474
Fair value	$	757		$	3,682		$	7,628		$	35,185		$	47,252
Weighted-average yield, GAAP basis		2.96	%		2.46	%		2.33	%		2.98	%		2.83	%
Securities Held to Maturity
U.S. Treasury and government agencies										$	253		$	253
Residential mortgage-backed
Agency							$	215			7,984			8,199
Non-agency											252			252
Commercial mortgage-backed
Agency				$	940			144			58			1,142
Non-agency					6						806			812
Asset-backed					9			592			135			736
State and municipal					56			825			1,101			1,982
Other debt								307						307
Total debt securities held to maturity				$	1,011		$	2,083		$	10,589		$	13,683
Fair value				$	1,050		$	2,134		$	10,744		$	13,928
Weighted-average yield, GAAP basis					3.49	%		3.04	%		3.56	%		3.48	%

The PNC Financial Services Group, Inc. – Form 10-Q 89

Weighted-average yields are based on historical cost with effective yields weighted for the contractual maturity of each security. At June 30, 2015, there were no securities of a single issuer, other than FNMA, that exceeded 10% of Total shareholders’ equity.

The following table presents the fair value of securities that have been either pledged to or accepted from others to collateralize outstanding borrowings.

Table 73: Fair Value of Securities Pledged and Accepted as Collateral


In millions	June 30 2015		December 31 2014
Pledged to others	$	10,051	$	10,874
Accepted from others:
Permitted by contract or custom to sell or repledge		1,569		1,658
Permitted amount repledged to others		1,399		1,488

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

NOTE 7 FAIR VALUE

Fair Value Measurement

PNC measures certain financial assets and liabilities at fair value in accordance with GAAP. Fair value is defined in GAAP as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date. GAAP focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP also establishes a fair value hierarchy to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy see Note 7 Fair Value in our 2014 Form 10-K.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For more information on the valuation methodologies used to measure assets and liabilities at fair value on a recurring basis, see Note 7 Fair Value in our 2014 Form 10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which PNC has elected the fair value option.

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

Table 74: Fair Value Measurements – Recurring Basis Summary


	June 30, 2015								December 31, 2014
In millions	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Assets
Securities available for sale
U.S. Treasury and government agencies	$	5,476	$	619			$	6,095	$	4,795	$	627			$	5,422
Residential mortgage-backed
Agency				20,842				20,842				18,043				18,043
Non-agency				128	$	4,424		4,552				144	$	4,798		4,942
Commercial mortgage-backed
Agency				1,994				1,994				2,187				2,187
Non-agency				4,422				4,422				4,162				4,162
Asset-backed				4,904		531		5,435				4,624		563		5,187
State and municipal				2,042		16		2,058				1,904		134		2,038
Other debt				1,821		33		1,854				1,783		30		1,813
Total debt securities		5,476		36,772		5,004		47,252		4,795		33,474		5,525		43,794
Corporate stocks and other		365		62				427		426		15				441
Total securities available for sale		5,841		36,834		5,004		47,679		5,221		33,489		5,525		44,235
Financial derivatives (a) (b)
Interest rate contracts		5		4,560		34		4,599		4		4,874		40		4,918
Other contracts				250		2		252				314		2		316
Total financial derivatives		5		4,810		36		4,851		4		5,188		42		5,234
Residential mortgage loans held for sale (c)				1,354		10		1,364				1,255		6		1,261
Trading securities (d)
Debt (e)		1,048		1,272		3		2,323		1,340		960		32		2,332
Equity		11						11		21						21
Total trading securities		1,059		1,272		3		2,334		1,361		960		32		2,353
Trading loans (a)				48				48				30		7		37
Residential mortgage servicing rights (f)						1,015		1,015						845		845
Commercial mortgage servicing rights (f)						543		543						506		506
Commercial mortgage loans held for sale (c)						757		757						893		893
Equity investments (a)
Direct investments						1,191		1,191						1,152		1,152
Indirect investments (g)						425		425						469		469
Total equity investments						1,616		1,616						1,621		1,621
Customer resale agreements (h)				150				150				155				155
Loans (i)				576		365		941				637		397		1,034
Other assets (a)
BlackRock Series C Preferred Stock (j)						363		363						375		375
Other		248		186		7		441		190		226		8		424
Total other assets		248		186		370		804		190		226		383		799
Total assets	$	7,153	$	45,230	$	9,719	$	62,102	$	6,776	$	41,940	$	10,257	$	58,973
Liabilities
Financial derivatives (b) (k)
Interest rate contracts	$	3	$	3,101	$	8	$	3,112			$	3,260	$	12	$	3,272
BlackRock LTIP						363		363						375		375
Other contracts				225		127		352				241		139		380
Total financial derivatives		3		3,326		498		3,827				3,501		526		4,027
Trading securities sold short (l)
Debt		1,410		19				1,429	$	1,479		11				1,490
Total trading securities sold short		1,410		19				1,429		1,479		11				1,490
Other borrowed funds (l)				59		165		224				92		181		273
Other liabilities (k)				3		10		13						9		9
Total liabilities	$	1,413	$	3,407	$	673	$	5,493	$	1,479	$	3,604	$	716	$	5,799

(continued on following page)

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

(continued from previous page)

(a)	Included in Other assets on our Consolidated Balance Sheet.

(b)

Amounts at June 30, 2015 and December 31, 2014 are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow PNC to net positive and negative positions and cash collateral held or placed with the same counterparty. At both June 30, 2015 and December 31, 2014, the net asset amounts were $2.6 billion and the net liability amounts were $1.4 billion.

(c)	Included in Loans held for sale on our Consolidated Balance Sheet. PNC has elected the fair value option for certain residential and commercial mortgage loans held for sale.

(d)	Fair value includes net unrealized gains of $18 million at June 30, 2015 compared with net unrealized gains of $54 million at December 31, 2014.

(e)	Approximately 37% of these securities are residential mortgage-backed securities and 45% are U.S. Treasury and government agencies securities at June 30, 2015. Comparable amounts at December 31, 2014 were 34% and 57%, respectively.

(f)	Included in Other intangible assets on our Consolidated Balance Sheet.

(g)

The indirect equity funds are not redeemable, but PNC receives distributions over the life of the partnership from liquidation of the underlying investments by the investee, which we expect to occur over the next twelve years. The amount of unfunded contractual commitments as of June 30, 2015 related to indirect equity investments was $118 million and related to direct equity investments was $26 million, respectively. Comparable amounts at December 31, 2014 were $112 million and $28 million, respectively.

(h)	Included in Federal funds sold and resale agreements on our Consolidated Balance Sheet. PNC has elected the fair value option for these items.

(i)	Included in Loans on our Consolidated Balance Sheet.

(j)	PNC has elected the fair value option for these shares.

(k)	Included in Other liabilities on our Consolidated Balance Sheet.

(l)	Included in Other borrowed funds on our Consolidated Balance Sheet.

Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three and six months ended June 30, 2015 and 2014 follow:

Table 75: Reconciliation of Level 3 Assets and Liabilities

Three Months Ended June 30, 2015


			Total realized / unrealized gains or losses for the period (a)																							Unrealized gains (losses) on assets and liabilities held on Consolidated Balance Sheet at June 30, 2015 (c)
Level 3 Instruments Only In millions	Fair Value March 31, 2015		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3 (b)		Transfers out of Level 3 (b)			Fair Value June 30, 2015
Assets
Securities available for sale
Residential mortgage-backed non-agency	$	4,624	$	30		$	(8	)								$	(222	)						$	4,424
Commercial mortgage-backed non-agency				1													(1	)
Asset-backed		548		5			5										(27	)							531
State and municipal		133															(117	)							16
Other debt		33																							33
Total securities available for sale		5,338		36			(3	)									(367	)							5,004
Financial derivatives		54		16													(34	)							36	$	33
Residential mortgage loans held for sale		7							$	11	$	(2	)				(1	)	$	1	$	(6	)		10
Trading securities – Debt		3																							3
Trading loans		2										(2	)
Residential mortgage servicing rights		839		135						67				$	21		(47	)							1,015		134
Commercial mortgage servicing rights		494		34						17					20		(22	)							543		34
Commercial mortgage loans held for sale		975		23								(56	)		1,008		(1,193	)							757
Equity investments
Direct investments		1,149		27						95		(80	)												1,191		22
Indirect investments		442		21						5		(43	)												425		20
Total equity investments		1,591		48						100		(123	)												1,616		42
Loans		383		5						23		(4	)				(35	)		6		(13	)		365		1
Other assets
BlackRock Series C Preferred Stock		384		(21	)																				363		(21	)
Other		8															(1	)							7
Total other assets		392		(21	)												(1	)							370		(21	)
Total assets	$	10,078	$	276	(e)	$	(3	)	$	218	$	(187	)	$	1,049	$	(1,700	)	$	7	$	(19	)	$	9,719	$	223	(f)
Liabilities
Financial derivatives (d)	$	529	$	(15	)						$	1				$	(17	)						$	498	$	(25	)
Other borrowed funds		171		3										$	21		(30	)							165
Other liabilities		10																							10
Total liabilities	$	710	$	(12)	(e)						$	1		$	21	$	(47	)						$	673	$	(25)	(f)

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

Three Months Ended June 30, 2014


			Total realized / unrealized gains or losses for the period (a)																						Unrealized gains (losses) on assets and liabilities held on Consolidated Balance Sheet at June 30, 2014 (c)
Level 3 Instruments Only In millions	Fair Value March 31, 2014		Included in Earnings			Included in Other comprehensive income		Purchases		Sales			Issuances		Settlements			Transfers into Level 3 (b)		Transfers out of Level 3 (b)			Fair Value June 30, 2014
Assets
Securities available for sale
Residential mortgage-backed non-agency	$	5,234	$	40		$	31								$	(198	)						$	5,107	$	(1	)
Asset-backed		642		4												(27	)							619
State and municipal		331					13									1								345
Other debt		32						$	1	$	(1	)				(1	)							31
Total securities available for sale		6,239		44			44		1		(1	)				(225	)							6,102		(1	)
Financial derivatives		30		59					1							(49	)							41		47
Residential mortgage loans held for sale		5		1					3		(1	)				(1	)	$	1	$	(4	)		4		1
Trading securities – Debt		32		1																				33		2
Residential mortgage servicing rights		1,039		(57	)								$	20		(35	)							967		(57	)
Commercial mortgage servicing rights		529		(11	)				9					10		(22)								515		(11	)
Commercial mortgage loans held for sale		577		5												(61	)							521		5
Equity investments
Direct investments		1,163		38					99		(81	)												1,219		30
Indirect investments		594		15					6		(39	)				(2	)							574		14
Total equity investments		1,757		53					105		(120	)				(2	)							1,793		44
Loans (g)		518		10					25		(132	)				(26	)		3		(25	)		373		8
Other assets
BlackRock Series C
Preferred Stock		330		5																				335		5
Other		8																						8
Total other assets		338		5																				343		5
Total assets	$	11,064	$	110	(e)	$	44	$	144	$	(254	)	$	30	$	(421	)	$	4	$	(29	)	$	10,692	$	43	(f)
Liabilities
Financial derivatives (d)	$	440	$	30											$	(16	)						$	454	$	16
Other borrowed funds (g)		193		(7	)								$	10		(13	)							183
Total liabilities	$	633	$	23	(e)								$	10	$	(29	)						$	637	$	16	(f)

(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q 93

(continued from previous page)

Six Months Ended June 30, 2015


			Total realized / unrealized gains or losses for the period (a)																							Unrealized gains (losses) on assets and liabilities held on Consolidated Balance Sheet at June 30, 2015 (c)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2014		Included in Earnings			Included in Other comprehensive income			Purchases		Sales			Issuances		Settlements			Transfers into Level 3 (b)		Transfers out of Level 3 (b)			Fair Value June 30, 2015
Assets
Securities available for sale
Residential mortgage-backed non-agency	$	4,798	$	55		$	(22	)								$	(407	)						$	4,424	$	(1	)
Commercial mortgage backed non-agency				8													(8	)
Asset-backed		563		11			9										(52	)							531
State and municipal		134					(1	)									(117	)							16
Other debt		30		1					$	3							(1	)							33
Total securities available for sale		5,525		75			(14	)		3							(585	)							5,004		(1	)
Financial derivatives		42		87						1							(94	)							36		76
Residential mortgage loans held for sale		6								17	$	(2	)				(1	)	$	2	$	(12	)		10
Trading securities – Debt		32															(29	)							3
Trading loans		7										(7	)
Residential mortgage servicing rights		845		68						150				$	38		(86	)							1,015		72
Commercial mortgage servicing rights		506		18						28					34		(43	)							543		18
Commercial mortgage loans held for sale		893		44								(56	)		2,091		(2,215	)							757		2
Equity investments
Direct investments		1,152		56						138		(155	)												1,191		40
Indirect investments		469		35						8		(87	)												425		33
Total equity investments		1,621		91						146		(242	)												1,616		73
Loans		397		15						55		(8	)				(72	)		11		(33	)		365		9
Other assets
BlackRock Series C Preferred Stock		375		(12	)																				363		(12	)
Other		8															(1	)							7
Total other assets		383		(12	)												(1	)							370		(12	)
Total assets	$	10,257	$	386	(e)	$	(14	)	$	400	$	(315	)	$	2,163	$	(3,126	)	$	13	$	(45	)	$	9,719	$	237	(f)
Liabilities
Financial derivatives (d)	$	526	$	26							$	1				$	(55	)						$	498	$	(17	)
Other borrowed funds		181		3										$	46		(65	)							165
Other liabilities		9		1																					10
Total liabilities	$	716	$	30	(e)						$	1		$	46	$	(120	)						$	673	$	(17)	(f)

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

Six Months Ended June 30, 2014


			Total realized / unrealized gains or losses for the period (a)																						Unrealized gains (losses) on assets and liabilities held on Consolidated Balance Sheet at June 30, 2014 (c)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2013		Included in Earnings			Included in Other comprehensive income		Purchases		Sales			Issuances		Settlements			Transfers into Level 3 (b)		Transfers out of Level 3 (b)			Fair Value June 30, 2014
Assets
Securities available for sale
Residential mortgage-backed non-agency	$	5,358	$	74		$	85								$	(410	)						$	5,107	$	(3	)
Asset-backed		641		8			19									(49	)							619
State and municipal		333		(2	)		14																	345
Other debt		38		1				$	1	$	(7	)				(2	)							31
Total securities available for sale		6,370		81			118		1		(7	)				(461	)							6,102		(3	)
Financial derivatives		36		119					1							(115	)							41		80
Residential mortgage loans held for sale		8		1					8		(3	)				(1	)	$	4	$	(13	)		4		1
Trading securities – Debt		32		1																				33		2
Residential mortgage servicing rights		1,087		(116	)				17				$	43		(64	)							967		(114	)
Commercial mortgage servicing rights				(25	)				16					17		507(h)								515		(25	)
Commercial mortgage loans held for sale		586		7												(72	)							521		7
Equity investments
Direct investments		1,069		72					168		(90	)												1,219		63
Indirect investments		595		33					12		(65	)				(1	)							574		31
Total equity investments		1,664		105					180		(155	)				(1	)							1,793		94
Loans (g)		527		19					24		(138	)				(47	)		42		(54	)		373		14
Other assets
BlackRock Series C
Preferred Stock		332		3																				335		3
Other		8																						8
Total other assets		340		3																				343		3
Total assets	$	10,650	$	195	(e)	$	118	$	247	$	(303	)	$	60	$	(254	)	$	46	$	(67	)	$	10,692	$	59	(f)
Liabilities
Financial derivatives (d)	$	439	$	70						$	1				$	(56	)						$	454	$	22
Other borrowed funds (g)		199		(3	)								$	19		(32	)							183
Total liabilities	$	638	$	67	(e)					$	1		$	19	$	(88	)						$	637	$	22	(f)

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

(b)	PNC’s policy is to recognize transfers in and transfers out as of the end of the reporting period.

(c)	The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period.

(d)	Includes swaps entered into in connection with sales of certain Visa Class B common shares.

(e)

Net gains (realized and unrealized) included in earnings relating to Level 3 assets and liabilities were $288 million for the second quarter of 2015, while for the first six months of 2015 there were $356 million of net gains (realized and unrealized) included in earnings. The comparative amounts included net gains (realized and unrealized) of $87 million for the second quarter of 2014 and net gains (realized and unrealized) of $128 million for the first six months of 2014. These amounts also included amortization and accretion of $37 million for the second quarter of 2015 and $77 million for the first six months of 2015. The comparative amounts were $44 million for the second quarter of 2014 and $85 million for the first six months of 2014. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net gains/(losses) (realized and unrealized) were included in Noninterest income on the Consolidated Income Statement.

(f)

Net unrealized gains relating to those assets and liabilities held at the end of the reporting period were $248 million for the second quarter of 2015, while for the first six months of 2015 there were $254 million of net unrealized gains. The comparative amounts included net unrealized gains of $27 million for the second quarter of 2014 and net unrealized gains of $37 million for the first six months of 2014. These amounts were included in Noninterest income on the Consolidated Income Statement.

(g)	These line items were corrected for the three and six months ended June 30, 2014 to include transferred loans over which PNC regained effective control and the related liabilities that are recorded pursuant to ASC 860.

(h)

Settlements relating to commercial MSRs include $552 million, which represents the fair value as of January 1, 2014 as a result of an irrevocable election to measure all classes of commercial MSRs at fair value. Refer to Note 8 Goodwill and Other Intangible Assets in our 2014 Form 10-K for additional information on this election.

An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels. PNC’s policy is to recognize transfers in and transfers out as of the end of the reporting period. There were no significant transfers into or out of Level 3 assets and liabilities during the first six months of 2015 and 2014.

The PNC Financial Services Group, Inc. – Form 10-Q 95

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

Table 76: Fair Value Measurements – Recurring Quantitative Information

June 30, 2015

Level 3 Instruments Only

Dollars in millions

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)

Residential mortgage-backed non-agency
securities

4,424

Priced by a third-party vendor using a discounted cash flow pricing model (a)

Constant prepayment rate (CPR)

Constant default rate (CDR)

Loss severity

1.0% - 24.2% (6.9%)

0.0% - 16.7% (5.4%)

10.0% - 98.5% (53.1%)

(a)
(a)
(a)

Spread over the benchmark curve (b)

242bps weighted average

(a)

Asset-backed securities

531

Priced by a third-party vendor

Constant prepayment rate (CPR)

1.0% - 15.7% (6.4%)

(a)

using a discounted cash flow

Constant default rate (CDR)

1.7% - 13.9% (6.9%)

(a)

pricing model (a)

Loss severity

15.0% - 100% (76.4%)

(a)

Spread over the benchmark curve (b)

308bps weighted average

(a)

Other debt securities

Consensus pricing (c)

Credit and Liquidity discount

7.0% - 100.0% (88.4%)

Residential mortgage servicing rights

1,015

Discounted cash flow

Constant prepayment rate (CPR)

0.3% - 38.4% (9.7%)

Spread over the benchmark curve (b)

558bps - 1,861bps (966bps)

Commercial mortgage servicing rights

543

Discounted cash flow

Constant prepayment rate (CPR) Discount rate

4.8% - 13.8% (5.9%)

3.5% - 9.1% (7.6%)

Commercial mortgage loans held for sale

757

Discounted cash flow

Spread over the benchmark curve (b) Estimated servicing cash flows

32bps - 3,115bps (455bps)

0.0% - 5.2% (2.5%)

Equity investments – Direct investments

1,191

Multiple of adjusted earnings

Multiple of earnings

4.2x - 14.0x (7.7x)

Equity investments – Indirect (d)

425

Net asset value

Loans – Residential real estate

123

Consensus pricing (c)

Cumulative default rate

2.0% - 100% (86.6%)

Loss severity

0.0% - 100% (30.2%)

Discount rate

4.9% - 7.0% (5.1%)

123

Discounted cash flow

Loss severity

8.0% weighted average

Discount rate

3.5% weighted average

Loans – Home equity

119

Consensus pricing (c)

Credit and Liquidity discount

26.0% - 99.0% (52.0%)

BlackRock Series C Preferred Stock

363

Consensus pricing (c)

Liquidity discount

20.0%

BlackRock LTIP

(363

)

Consensus pricing (c)

Liquidity discount

20.0%

Swaps related to sales of certain Visa Class B common shares

(122

)

Discounted cash flow

Estimated conversion factor of

Class B shares into Class A shares

164.3%

(e)

Estimated growth rate of Visa

Class A share price

17.3%

Other borrowed funds – non-agency securitization

(154

)

Consensus pricing (c)

Credit and Liquidity discount

0% - 99.0% (18.0%)

Spread over the benchmark curve (b)

112bps

Insignificant Level 3 assets, net of liabilities (f)

Total Level 3 assets, net of liabilities (g)

9,046

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

December 31, 2014

Level 3 Instruments Only

Dollars in millions

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)

Residential mortgage-backed non-
agency securities

4,798

Priced by a third-party vendor using a discounted cash flow pricing model (a)

Constant prepayment rate (CPR)

Constant default rate (CDR)

Loss severity

Spread over the benchmark curve (b)

1.0% - 28.9% (6.8%)

0.0% - 16.7% (5.6%)

6.1% - 100.0% (53.1%)

249bps weighted average

)

Asset-backed securities

563

Priced by a third-party vendor using a discounted cash flow pricing model (a)

Constant prepayment rate (CPR)

Constant default rate (CDR)

Loss severity

Spread over the benchmark curve (b)

1.0% - 15.7% (5.9%)

1.7% - 13.9% (7.6%)

14.6% - 100.0% (73.5%)

352bps weighted average

)

State and municipal securities

132

Discounted cash flow Consensus pricing (c)

Spread over the benchmark curve (b)

Credit and Liquidity discount

55bps - 165bps (67bps)

0.0% - 20.0% (14.9%)

Other debt securities

Consensus pricing (c)

Credit and Liquidity discount

7.0% - 95.0% (88.6%)

Trading securities – Debt

Consensus pricing (c)

Credit and Liquidity discount

0.0% - 15.0% (8.0%)

Residential mortgage servicing rights

845

Discounted cash flow

Constant prepayment rate (CPR)

Spread over the benchmark curve (b)

3.8% - 32.7% (11.2%)

889bps - 1,888bps (1,036bps)

Commercial mortgage servicing rights

506

Discounted cash flow

Constant prepayment rate (CPR)

Discount rate

7.0% - 16.8% (8.0%)

2.5% - 8.6% (6.6%)

Commercial mortgage loans held for
sale

893

Discounted cash flow

Spread over the benchmark curve (b)

Estimated servicing cash flows

37bps - 4,025bps (549bps)

0.0% - 2.0% (1.2%)

Equity investments – Direct
investments

1,152

Multiple of adjusted earnings

Multiple of earnings

3.2x - 13.9x (7.7x)

Equity investments – Indirect (d)

469

Net asset value

Loans – Residential real estate

114

154

Consensus pricing (c)

Discounted cash flow

Cumulative default rate

Loss severity

Discount rate

Loss severity

Discount rate

2.0% - 100.0% (90.5%)

0.0% - 100.0% (35.6%)

5.4% - 7.0% (6.4%)
8.0% weighted average
3.4% weighted average

Loans – Home equity

129

Consensus pricing (c)

Credit and Liquidity discount

26.0% - 99.0% (51.0%)

BlackRock Series C Preferred Stock

375

Consensus pricing (c)

Liquidity discount

20.0%

BlackRock LTIP

(375

)

Consensus pricing (c)

Liquidity discount

20.0%

Swaps related to sales of certain
Visa Class B common shares

(135

)

Discounted cash flow

Estimated conversion factor of

Class B shares into Class A shares

Estimated growth rate of Visa

Class A share price

41.1%

14.8%

Other borrowed funds – non-agency securitization

(166

)

Consensus pricing (c)

Credit and Liquidity discount

Spread over the benchmark curve (b)

0.0% - 99.0% (18.0%)
113bps

Insignificant Level 3 assets, net of
liabilities (f)

Total Level 3 assets, net of liabilities (g)

9,541

(a)

Level 3 residential mortgage-backed non-agency and asset-backed securities with fair values as of June 30, 2015 totaling $3,749 million and $500 million, respectively, were priced by a third-party vendor using a discounted cash flow pricing model that incorporates consensus pricing, where available. The comparable amounts as of December 31, 2014 were $4,081 million and $532 million, respectively. The significant unobservable inputs for these securities were provided by the third-party vendor and are disclosed in the table. Our procedures to validate the prices provided by the third-party vendor related to these securities are discussed further in the Fair Value Measurement section of Note 7 Fair Value in our 2014 Form 10-K. Certain Level 3 residential mortgage-backed non-agency and asset-backed securities with fair values as of June 30, 2015 of $675 million and $31 million, respectively, were valued using a pricing source, such as a dealer quote or comparable security price, for which the significant unobservable inputs used to determine the price were not reasonably available. The comparable amounts as of December 31, 2014 were $717 million and $31 million, respectively.

(b)	The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporate non-interest-rate risks, such as credit and liquidity risks.

(c)	Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices.

(d)	The range on these indirect equity investments has not been disclosed since these investments are recorded at their net asset redemption values.

(e)	This conversion factor reflects the 4-for-1 split of Visa Class A common shares, which occurred during the first quarter of 2015.

(f)

Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities (for the 2015 period), state and municipal securities (for the 2015 period), residential mortgage loans held for sale, trading loans, other assets, other borrowed funds (ROAPs) and other liabilities. For additional information, please see the Fair Value Measurement discussion included in Note 7 Fair Value in our 2014 Form 10-K.

(g)	Consisted of total Level 3 assets of $9,719 million and total Level 3 liabilities of $673 million as of June 30, 2015 and $10,257 million and $716 million as of December 31, 2014, respectively.

Financial Assets Accounted for at Fair Value on a Nonrecurring Basis

We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 77 and Table 78. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 7 Fair Value in our 2014 Form 10-K.

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

Table 77: Fair Value Measurements – Nonrecurring


	Fair Value (a)				Gains (Losses) Three months ended						Gains (Losses) Six months ended
In millions	June 30 2015		December 31 2014		June 30 2015			June 30 2014			June 30 2015			June 30 2014
Assets
Nonaccrual loans	$	33	$	54	$	(15	)	$	(11	)	$	(15	)	$	(15	)
Loans held for sale				8					(1	)					(1	)
Equity investments				17					(3	)					(3	)
OREO and foreclosed assets		110		168		(12	)		(7	)		(18	)		(15	)
Long-lived assets held for sale		19		22		(5	)		(6	)		(13	)		(9	)
Total assets	$	162	$	269	$	(32	)	$	(28	)	$	(46	)	$	(43	)

(a)	All Level 3 as of June 30, 2015 and December 31, 2014, except for $8 million included in Loans held for sale which was categorized as Level 2 as of December 31, 2014.

Quantitative information about the significant unobservable inputs within Level 3 nonrecurring assets follows.

Table 78: Fair Value Measurements – Nonrecurring Quantitative Information


Level 3 Instruments Only Dollars in millions	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
June 30, 2015
Assets
Nonaccrual loans (a)	$	19	LGD percentage (b)	Loss severity	10.9%-99.2% (44.1%)
Other (c)		143	Fair value of property or collateral	Appraised value/sales price	Not meaningful

Total assets	$	162
December 31, 2014
Assets
Nonaccrual loans (a)	$	29	LGD percentage (b)	Loss severity	2.9%-68.5% (42.1%)
Equity investments		17	Discounted cash flow	Market rate of return	6.0%
Other (c)		215	Fair value of property or collateral	Appraised value/sales price	Not meaningful

Total assets	$	261

(a)	The fair value of nonaccrual loans included in this line item is determined based on internal loss rates. The fair value of nonaccrual loans where the fair value is determined based on the appraised value or sales price is included within Other, below.

(b)	LGD percentage represents the amount that PNC expects to lose in the event a borrower defaults on an obligation.

(c)

Other included Nonaccrual loans of $14 million, OREO and foreclosed assets of $110 million and Long-lived assets held for sale of $19 million as of June 30, 2015. Comparably, as of December 31, 2014, Other included Nonaccrual loans of $25 million, OREO and foreclosed assets of $168 million and Long-lived assets held for sale of $22 million. The fair value of these assets is determined based on appraised value or sales price, the range of which is not meaningful to disclose.

Financial Instruments Accounted For Under Fair Value Option

We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, please refer to Note 7 Fair Value in our 2014 Form 10-K.

The changes in fair value included in Noninterest income for items for which we elected the fair value option follow.

Table 79: Fair Value Option – Changes in Fair Value (a)


	Gains (Losses) Three months ended					Gains (Losses) Six months ended
In millions	June 30 2015			June 30 2014		June 30 2015			June 30 2014
Assets
Customer resale agreements									$	(1	)
Trading loans	$	1		$	1	$	2			1
Commercial mortgage loans held for sale		31			5		56			7
Residential mortgage loans held for sale		25			64		71			129
Residential mortgage loans – portfolio		13			59		29			87
BlackRock Series C Preferred Stock		(21	)		5		(12	)		3
Liabilities
Other borrowed funds		(2	)		7		(2	)		3

(a)	The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.

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

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

Table 80: Fair Value Option – Fair Value and Principal Balances


In millions	Fair Value		Aggregate Unpaid Principal Balance		Difference
June 30, 2015
Assets
Customer resale agreements	$	150	$	143	$	7
Trading loans		48		48
Residential mortgage loans held for sale
Performing loans		1,338		1,300		38
Accruing loans 90 days or more past due		3		3
Nonaccrual loans		23		25		(2	)
Total		1,364		1,328		36
Commercial mortgage loans held for sale (a)
Performing loans		755		768		(13	)
Nonaccrual loans		2		3		(1	)
Total		757		771		(14	)
Residential mortgage loans – portfolio
Performing loans		230		289		(59	)
Accruing loans 90 days or more past due		468		471		(3	)
Nonaccrual loans		243		397		(154	)
Total		941		1,157		(216	)
Liabilities
Other borrowed funds	$	224	$	260	$	(36	)
December 31, 2014
Assets
Customer resale agreements	$	155	$	148	$	7
Trading loans		37		37
Residential mortgage loans held for sale
Performing loans		1,236		1,176		60
Accruing loans 90 days or more past due		9		9
Nonaccrual loans		16		17		(1	)
Total		1,261		1,202		59
Commercial mortgage loans held for sale (a)
Performing loans		873		908		(35	)
Nonaccrual loans		20		64		(44	)
Total		893		972		(79	)
Residential mortgage loans – portfolio
Performing loans		194		256		(62	)
Accruing loans 90 days or more past due		570		573		(3	)
Nonaccrual loans		270		449		(179	)
Total		1,034		1,278		(244	)
Liabilities
Other borrowed funds	$	273	$	312	$	(39	)

(a)	There were no accruing loans 90 days or more past due within this category at June 30, 2015 or December 31, 2014.

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

Additional Fair Value Information Related to Other Financial Instruments

The following table presents the carrying amounts and estimated fair values, including the level within the fair value hierarchy, of all other financial instruments that are not measured on the consolidated financial statements at fair value as of June 30, 2015 and December 31, 2014.

Table 81: Additional Fair Value Information Related to Other Financial Instruments


	Carrying Amount		Fair Value
In millions	Carrying Amount		Total		Level 1		Level 2		Level 3
June 30, 2015
Assets
Cash and due from banks	$	4,412	$	4,412	$	4,412
Short-term assets		36,743		36,743			$	36,743
Securities held to maturity		13,683		13,928		290		13,631	$	7
Loans held for sale		236		236				203		33
Net loans (excludes leases)		192,980		194,807						194,807
Other assets		1,936		2,531				1,882		649	(a)
Total assets	$	249,990	$	252,657	$	4,702	$	52,459	$	195,496

Liabilities
Demand, savings and money market deposits	$	219,114	$	219,114			$	219,114
Time deposits		20,590		20,509				20,509
Borrowed funds		56,931		57,316				56,020	$	1,296
Unfunded loan commitments and letters of credit		228		228						228
Total liabilities	$	296,863	$	297,167			$	295,643	$	1,524
December 31, 2014
Assets
Cash and due from banks	$	4,360	$	4,360	$	4,360
Short-term assets		34,380		34,380			$	34,380
Securities held to maturity		11,588		11,984		292		11,683	$	9
Loans held for sale		108		108				56		52
Net loans (excludes leases)		192,573		194,564						194,564
Other assets		1,879		2,544				1,802		742	(a)
Total assets	$	244,888	$	247,940	$	4,652	$	47,921	$	195,367

Liabilities
Demand, savings and money market deposits	$	210,838	$	210,838			$	210,838
Time deposits		21,396		21,392				21,392
Borrowed funds		55,329		56,011				54,574	$	1,437
Unfunded loan commitments and letters of credit		240		240						240
Total liabilities	$	287,803	$	288,481			$	286,804	$	1,677

(a)

Represents estimated fair value of Visa Class B common shares, which was estimated solely based upon the June 30, 2015 and December 31, 2014 closing price for the Visa Class A common shares, respectively, and the Visa Class B common share conversion rate, which reflects adjustments in respect of all litigation funding by Visa as of that date. The transfer restrictions on the Visa Class B common shares could impact the aforementioned estimate, until they can be converted to Class A common shares. See Note 22 Commitments and Guarantees in our 2014 Form 10-K for additional information.

The aggregate fair values in the preceding table represent only a portion of the total market value of PNC’s assets and liabilities as, in accordance with the guidance related to fair values of financial instruments, Table 81 excludes the following:

•

financial instruments recorded at fair value on a recurring basis,

•

real and personal property,

•

lease financing,

•

loan customer relationships,

•

deposit customer intangibles,

•

mortgage servicing rights,

•

retail branch networks,

•

fee-based businesses, such as asset management and brokerage, and

•

trademarks and brand names.

For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 81, see Note 7 Fair Value in our 2014 Form 10-K.

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

NOTE 8 GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill by business segment consisted of the following:

Table 82: Goodwill by Business Segment (a)


In millions	June 30 2015		December 31 2014

Retail Banking	$	5,795	$	5,795
Corporate & Institutional Banking		3,244		3,244
Asset Management Group		64		64
Total	$	9,103	$	9,103

(a)	The Residential Mortgage Banking and Non-Strategic Assets Portfolio business segments did not have any goodwill allocated to them as of June 30, 2015 and December 31, 2014.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others as an intangible asset. MSRs are purchased or originated when loans are sold with servicing retained. MSRs totaled $1.6 billion and $1.4 billion at June 30, 2015 and December 31, 2014, respectively, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.

MSRs are subject to declines in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of MSRs declines (or increases).

See the Sensitivity Analysis section of this Note 8, as well as Note 7 Fair Value for more detail on our fair value measurement of MSRs. Refer to Note 8 Goodwill and Other Intangible Assets in our 2014 Form 10-K for more information on our accounting and measurement of MSRs.

Changes in the commercial and residential MSRs follow:

Table 83: Mortgage Servicing Rights


	Commercial MSRs						Residential MSRs
In millions	2015			2014			2015			2014
January 1	$	506		$	552		$	845		$	1,087
Additions:
From loans sold with servicing retained		34			17			38			43
Purchases		28			16			150			17
Changes in fair value due to:
Time and payoffs (a)		(43	)		(45	)		(86	)		(64	)
Other (b)		18			(25	)		68			(116	)
June 30	$	543		$	515		$	1,015		$	967
Related unpaid principal balance at June 30	$	144,416		$	143,226		$	115,454		$	110,933

(a)	Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period.

(b)	Represents MSR value changes resulting primarily from market-driven changes in interest rates.

Sensitivity Analysis

The fair value of commercial and residential MSRs and significant inputs to the valuation models as of June 30, 2015 are shown in the tables below. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward

rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented below. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated

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

independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

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

Table 84: Commercial Mortgage Loan Servicing Rights – Key Valuation Assumptions


Dollars in millions	June 30 2015			December 31 2014
Fair value	$	543		$	506
Weighted-average life (years)		4.9			4.7
Weighted-average constant prepayment rate		5.94	%		8.03	%
Decline in fair value from 10% adverse change	$	10		$	10
Decline in fair value from 20% adverse change	$	20		$	19
Effective discount rate		7.62	%		6.59	%
Decline in fair value from 10% adverse change	$	15		$	13
Decline in fair value from 20% adverse change	$	29		$	26

Table 85: Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions


Dollars in millions	June 30 2015			December 31 2014
Fair value	$	1,015		$	845
Weighted-average life (years)		6.7			6.1
Weighted-average constant prepayment rate		9.69	%		11.16	%
Decline in fair value from 10% adverse change	$	41		$	36
Decline in fair value from 20% adverse change	$	78		$	69
Weighted-average option adjusted spread		9.66	%		10.36	%
Decline in fair value from 10% adverse change	$	37		$	31
Decline in fair value from 20% adverse change	$	72		$	61

Fees from mortgage and other loan servicing, comprised of contractually specified servicing fees, late fees and ancillary fees, follows:

Table 86: Fees from Mortgage and Other Loan Servicing


In millions	2015		2014
Six months ended June 30	$	248	$	256
Three months ended June 30	$	127	$	127

We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset.

Fees from commercial and residential MSRs are reported on our Consolidated Income Statement in the line items Corporate services and Residential mortgage, respectively.

Other Intangible Assets

Other intangible assets consist primarily of core deposit intangibles, customer lists and non-compete agreements. Core deposit intangibles are amortized on an accelerated basis, whereas the remaining other intangible assets are amortized on a straight-line basis. The estimated remaining useful lives of our other intangible assets range from 1 year to 10 years, with a weighted-average remaining useful life of 6 years.

Other intangible assets were as follows at June 30, 2015 and December 31, 2014:

Table 87: Other Intangible Assets


In millions	June 30 2015			December 31 2014
Gross carrying amount	$	1,499		$	1,502
Accumulated amortization		(1,064	)		(1,009	)
Net carrying amount	$	435		$	493

Amortization expense on existing other intangible assets for the first six months of 2015 and 2014, as well as future amortization expense for the remainder of 2015 and the next five fiscal years, follows:

Table 88: Amortization Expense on Existing Other Intangible Assets


In millions
Six months ended June 30, 2015	$	58
Six months ended June 30, 2014		65
Remainder of 2015		56
2016		97
2017		83
2018		72
2019		61
2020		37

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

NOTE 9 CAPITAL SECURITIES OF A SUBSIDIARY TRUST AND PERPETUAL TRUST SECURITIES

Capital Securities of a Subsidiary Trust

Our capital securities of a subsidiary trust (“Trust”) are described in Note 12 Capital Securities of a Subsidiary Trust and Perpetual Trust Securities in our 2014 Form 10-K. This Trust is a wholly-owned finance subsidiary of PNC. In the event of certain changes or amendments to regulatory requirements or federal tax rules, the capital securities are redeemable in whole. In accordance with GAAP, the financial statements of the Trust are not included in PNC’s consolidated financial statements.

The obligations of the parent of the Trust, when taken collectively, are the equivalent of a full and unconditional guarantee of the obligations of the Trust under the terms of the Capital Securities. Such guarantee is subordinate in right of payment in the same manner as other junior subordinated debt. There are certain restrictions on PNC’s overall ability to obtain funds from its subsidiaries. For additional disclosure on these funding restrictions, including an explanation of dividend and intercompany loan limitations, see Note 20 Regulatory Matters in our 2014 Form 10-K.

PNC is also subject to restrictions on dividends and other provisions potentially imposed under the Exchange Agreement with PNC Preferred Funding Trust II, as described in Note 12 in our 2014 Form 10-K in the Perpetual Trust Securities section, and to other provisions similar to or in some ways more restrictive than those potentially imposed under that agreement.

Perpetual Trust Securities

Our perpetual trust securities are described in Note 12 in our 2014 Form 10-K. Our 2014 Form 10-K also includes additional information regarding the PNC Preferred Funding Trust I and Trust II Securities, including descriptions of replacement capital and dividend restriction covenants.

NOTE 10 CERTAIN EMPLOYEE BENEFIT AND STOCK BASED COMPENSATION PLANS

Pension And Postretirement Plans

As described in Note 13 Employee Benefit Plans in our 2014 Form 10-K, we have a noncontributory, qualified defined benefit pension plan covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are a percentage of eligible compensation. Pension contributions are based on an actuarially determined amount necessary to fund total benefits payable to plan participants.

We also maintain nonqualified supplemental retirement plans for certain employees and provide certain health care and life insurance benefits for qualifying retired employees (postretirement benefits) through various plans. The nonqualified pension and postretirement benefit plans are unfunded. PNC reserves the right to terminate plans or make plan changes at any time.

The PNC Financial Services Group, Inc. – Form 10-Q 103

The components of our net periodic pension and postretirement benefit cost for the first six months of 2015 and 2014, respectively, were as follows:

Table 89: Net Periodic Pension and Postretirement Benefits Costs


Three months ended June 30 In millions	Qualified Pension Plan						Nonqualified Retirement Plans				Postretirement Benefits
Three months ended June 30 In millions	2015			2014			2015		2014		2015		2014
Net periodic cost consists of:
Service cost	$	26		$	26		$	1	$	1	$	2	$	1
Interest cost		45			47			3		3		3		4
Expected return on plan assets		(74	)		(72	)
Amortization of prior service credit		(2	)		(2	)
Amortization of actuarial losses		8						1		1
Net periodic cost/(benefit)	$	3		$	(1	)	$	5	$	5	$	5	$	5


Six months ended June 30 In millions	Qualified Pension Plan						Nonqualified Retirement Plans				Postretirement Benefits
Six months ended June 30 In millions	2015			2014			2015		2014		2015		2014
Net periodic cost consists of:
Service cost	$	53		$	51		$	1	$	2	$	3	$	2
Interest cost		89			94			6		6		7		8
Expected return on plan assets		(148	)		(144	)
Amortization of prior service credit		(4	)		(4	)
Amortization of actuarial losses		15						3		2
Net periodic cost/(benefit)	$	5		$	(3	)	$	10	$	10	$	10	$	10

Stock Based Compensation Plans

As more fully described in Note 14 Stock Based Compensation Plans in our 2014 Form 10-K, we have long-term incentive award plans (Incentive Plans) that provide for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, incentive shares/performance units, restricted stock, restricted share units, other share-based awards and dollar-denominated awards to executives and, other than incentive stock options, to non-employee directors. Certain Incentive Plan awards may be paid in stock, cash or a combination of stock and cash. We typically grant a substantial portion of our stock-based compensation awards during the first quarter of the year. As of June 30, 2015, no stock appreciation rights were outstanding.

Total compensation expense recognized related to all share-based payment arrangements during the first six months of 2015 and 2014 was $88 million and $104 million, respectively. At June 30, 2015, there was $252 million of unamortized share-based compensation expense related to nonvested equity compensation arrangements, including liability awards granted under the Incentive Plans. This unamortized cost is expected to be recognized as expense over a period of no longer than five years.

Nonqualified Stock Options

Beginning in 2014, PNC discontinued the use of stock options as a standard element of our long-term equity incentive compensation programs under our Incentive Plans. Additional information regarding PNC stock options is more fully described in Note 14 Stock Based Compensation Plans in our 2014 Form 10-K.

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

The following table represents the stock option activity for the first six months of 2015.

Table 90: Stock Option Rollforward


	PNC					PNC Options Converted From National City Options					Total
In thousands, except weighted-average data	Shares			Weighted-Average Exercise Price		Shares			Weighted-Average Exercise Price		Shares			Weighted-Average Exercise Price
Outstanding at December 31, 2014		6,701		$	56.41		343		$	585.23		7,044		$	82.17
Granted (a)
Exercised		(1,533	)		59.42							(1,533	)		59.42
Cancelled		(28	)		44.42		(14	)		474.12		(42	)		187.83
Outstanding at June 30, 2015		5,140		$	55.58		329		$	590.02		5,469		$	87.73
Exercisable at June 30, 2015		5,092		$	55.50		329		$	590.02		5,421		$	87.94

(a)	PNC did not grant any stock options in the first six months of 2015.

During the first six months of 2015, we issued approximately 1.1 million common shares from treasury stock in connection with stock option exercise activity. As with past exercise activity, we currently intend to utilize primarily treasury stock for any future stock option exercises.

Incentive/Performance Unit Share Awards and Restricted Stock/Share Unit Awards

Information on incentive/performance unit share awards and restricted stock/share unit awards is more fully described in Note 14 Stock Based Compensation Plans in our 2014 Form 10-K.

Table 91: Nonvested Incentive/Performance Unit Share Awards and Restricted Stock/Share Unit Awards – Rollforward


Shares in thousands	Nonvested Incentive/ Performance Unit Shares			Weighted- Average Grant Date Fair Value		Nonvested Restricted Stock/Share Units			Weighted- Average Grant Date Fair Value
December 31, 2014		1,837		$	69.84		3,652		$	69.03
Granted		649			90.35		1,019			92.17
Vested/Released		(682	)		66.17		(1,149	)		61.17
Forfeited		(24	)		70.15		(90	)		76.96
June 30, 2015		1,780		$	78.72		3,432		$	78.41

In the preceding table, the unit shares and related weighted-average grant date fair value of the incentive/performance awards exclude the effect of dividends on the underlying shares, as those dividends will be paid in cash if and when the underlying unit shares are released to the participants.

Liability Awards

A summary of all nonvested, cash-payable incentive/performance units and restricted share unit activity follows:

Table 92: Nonvested Cash-Payable Incentive/Performance Units and Restricted Share Units – Rollforward


In thousands	Cash-Payable Incentive/ Performance Units			Cash-Payable Restricted Share Units			Total
Outstanding at December 31, 2014		177			658			835
Granted		81			347			428
Vested and Released		(98	)		(349	)		(447	)
Forfeited		(43	)		(4	)		(47	)
Outstanding at June 30, 2015		117			652			769

Included in the preceding table are cash-payable restricted share units granted to certain executives. These grants were made primarily as part of an annual bonus incentive deferral plan. While there are time-based and other vesting criteria, there are generally no market or performance criteria associated with these awards. Prior to the 2015 grant, compensation expense recognized related to these awards was recorded in prior periods as part of the annual cash bonus process. Due to certain requisite service period changes in the award agreements starting with the 2015 grant (for the 2014 performance year), compensation expense is recognized ratably over a four year period commensurate with the performance year plus the three years of service-based vesting requirements. As of June 30, 2015, the aggregate intrinsic value of all outstanding nonvested cash-payable incentive/performance units and restricted share units was approximately $74 million.

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

NOTE 11 FINANCIAL DERIVATIVES

We use derivative financial instruments (derivatives) primarily to help manage exposure to interest rate, market and credit risk and reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows. We also enter into derivatives with customers to facilitate their risk management activities. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.

For more information regarding derivatives see Note 1 Accounting Policies and Note 15 Financial Derivatives in our Notes To Consolidated Financial Statements under Item 8 of our 2014 Form 10-K.

The following table presents the notional amounts and gross fair values of all derivative assets and liabilities held by PNC:

Table 93: Total Gross Derivatives


	June 30, 2015						December 31, 2014
In millions	Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)
Derivatives designated as hedging instruments under GAAP	$	53,342	$	1,172	$	225	$	49,061	$	1,261	$	186
Derivatives not designated as hedging instruments under GAAP		318,207		3,679		3,602		291,256		3,973		3,841
Total gross derivatives	$	371,549	$	4,851	$	3,827	$	340,317	$	5,234	$	4,027

(a)	Included in Other assets on our Consolidated Balance Sheet.

(b)	Included in Other liabilities on our Consolidated Balance Sheet.

All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and any related cash collateral exchanged with counterparties. Further discussion regarding the rights of setoff associated with these legally enforceable master netting agreements is included in the Offsetting, Counterparty Credit Risk, and Contingent Features section below. Our exposure related to risk participations where we sold protection is discussed in the Credit Derivatives section below. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives.

Derivatives Designated As Hedging Instruments under GAAP

Certain derivatives used to manage interest rate and foreign exchange risk as part of our asset and liability risk management activities are designated as accounting hedges under GAAP. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of expected future cash flows are considered cash flow hedges, and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives, to the extent effective, to be recognized in the income statement in the same period the hedged items affect earnings.

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

Further detail regarding the notional amounts and fair values related to derivatives designated in hedge relationships is presented in the following table:

Table 94: Derivatives Designated As Hedging Instruments under GAAP


	June 30, 2015						December 31, 2014
In millions	Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)
Interest rate contracts:
Fair value hedges:
Receive-fixed swaps	$	23,713	$	733	$	59	$	20,930	$	827	$	38
Pay-fixed swaps (c)		3,997		9		125		4,233		3		138
Subtotal	$	27,710	$	742	$	184	$	25,163	$	830	$	176
Cash flow hedges:
Receive-fixed swaps	$	20,516	$	427	$	17	$	19,991	$	400	$	10
Forward purchase commitments		3,959		3		19		2,778		25
Subtotal	$	24,475	$	430	$	36	$	22,769	$	425	$	10
Foreign exchange contracts:
Net investment hedges	$	1,157			$	5	$	1,129	$	6
Total derivatives designated as hedging instruments	$	53,342	$	1,172	$	225	$	49,061	$	1,261	$	186

(a)	Included in Other assets on our Consolidated Balance Sheet.

(b)	Included in Other liabilities on our Consolidated Balance Sheet.

(c)	Includes zero-coupon swaps.

Fair Value Hedges

We enter into receive-fixed, pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt and borrowings caused by fluctuations in market interest rates. We also enter into pay-fixed, receive-variable interest rate swaps and zero-coupon swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. For these hedge relationships, we use statistical regression analysis to assess hedge effectiveness at both the inception of the hedge relationship and on an ongoing basis. There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness.

Further detail regarding gains (losses) on fair value hedge derivatives and related hedged items is presented in the following table:

Table 95: Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges


			Three months ended												Six months ended
			June 30, 2015						June 30, 2014						June 30, 2015						June 30, 2014
In millions	Hedged Items	Location	Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income			Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income			Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income			Gain (Loss) on Derivatives Recognized in Income			Gain (Loss) on Related Hedged Items Recognized in Income
In millions	Hedged Items	Location	Amount			Amount			Amount			Amount			Amount			Amount			Amount			Amount
Interest rate contracts	U.S. Treasury and Government Agencies Securities	Investment securities (interest income)	$	63		$	(65	)	$	(53	)	$	55		$	12		$	(12	)	$	(83	)	$	86
Interest rate contracts	Other Debt Securities	Investment securities (interest income)		1			(1	)		(2	)		1									(1	)		1
Interest rate contracts	Subordinated debt	Borrowed funds (interest expense)		(138	)		130			51			(60	)		(84	)		67			74			(89	)
Interest rate contracts	Bank notes and senior debt	Borrowed funds (interest expense)		(126	)		129			50			(52	)		(23	)		20			59			(62	)
Total (a)			$	(200	)	$	193		$	46		$	(56	)	$	(95	)	$	75		$	49		$	(64	)

(a)

The ineffective portion of the change in value of our fair value hedge derivatives resulted in net losses of $7 million for the three months ended June 30, 2015 and net losses of $20 million for the six months ended June 30, 2015 compared with net losses of $10 million for the three months ended June 30, 2014 and net losses of $15 million for the six months ended June 30, 2014.

The PNC Financial Services Group, Inc. – Form 10-Q 107

Cash Flow Hedges

We enter into receive-fixed, pay-variable interest rate swaps to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. For these cash flow hedges, any changes in the fair value of the derivatives that are effective in offsetting changes in the forecasted interest cash flows are recorded in Accumulated other comprehensive income and are reclassified to interest income in conjunction with the recognition of interest received on the loans. In the 12 months that follow June 30, 2015, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $256 million pretax, or $167 million after-tax, in association with interest received on the hedged loans. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2015. The maximum length of time over which forecasted loan cash flows are hedged is 10 years. We use statistical regression analysis to assess the effectiveness of these hedge relationships at both the inception of the hedge relationship and on an ongoing basis.

We also periodically enter into forward purchase and sale contracts to hedge the variability of the consideration that will be paid or received related to the purchase or sale of investment securities. The forecasted purchase or sale is consummated upon gross settlement of the forward contract itself. As a result, hedge ineffectiveness, if any, is typically minimal. Gains and losses on these forward contracts are recorded in Accumulated other comprehensive income and are recognized in earnings when the hedged cash flows affect earnings. In the 12 months that follow June 30, 2015, we expect to reclassify from the amount currently reported in Accumulated other comprehensive income, net derivative gains of $19 million pretax, or $12 million after-tax, as adjustments of yield on investment securities. As of June 30, 2015, the maximum length of time over which forecasted purchase contracts are hedged is three months.

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to either cash flow hedge strategy.

During the first six months of 2015 and 2014, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transaction would not occur.

Further detail regarding gains (losses) on derivatives and related cash flows is presented in the following table:

Table 96: Gains (Losses) on Derivatives and Related Cash Flows – Cash Flow Hedges (a) (b)


	Three months ended June 30						Six months ended June 30
In millions	2015			2014			2015			2014
Gains (losses) on derivatives recognized in OCI – (effective portion)	$	(102	)	$	138		$	196		$	210
Less: Gains (losses) reclassified from accumulated OCI into income – (effective portion)
Interest income		72			64			140			136
Noninterest income		(4	)		(7	)		(13	)		(2	)
Total gains (losses) reclassified from accumulated OCI into income – (effective portion)		68			57			127			134
Net unrealized gains (losses) on cash flow hedge derivatives	$	(170	)	$	81		$	69		$	76

(a)	All cash flow hedge derivatives are interest rate contracts as of June 30, 2015 and June 30, 2014.

(b)	The amount of cash flow hedge ineffectiveness recognized in income was not material for the periods presented.

Net Investment Hedges

We enter into foreign currency forward contracts to hedge non-U.S. Dollar (USD) net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness.

For the first six months of 2015 and 2014, there was no net investment hedge ineffectiveness.

Further detail on gains (losses) on net investment hedge derivatives is presented in the following table:

Table 97: Gains (Losses) on Derivatives – Net Investment Hedges


	Three months ended June 30						Six months ended June 30
In millions	2015			2014			2015			2014
Gains (losses) on derivatives recognized in OCI (effective portion)
Foreign exchange contracts	$	(65	)	$	(26	)	$	(11	)	$	(33	)

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

Derivatives Not Designated As Hedging Instruments under GAAP

We also enter into derivatives that are not designated as accounting hedges under GAAP.

For additional information on derivatives not designated as hedging instruments under GAAP see Note 15 Financial Derivatives in our 2014 Form 10-K.

Further detail regarding the notional amounts and fair values related to derivatives not designated in hedge relationships is presented in the following table:

Table 98: Derivatives Not Designated As Hedging Instruments under GAAP


	June 30, 2015						December 31, 2014
In millions	Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)		Notional/ Contract Amount		Asset Fair Value (a)		Liability Fair Value (b)
Derivatives used for residential mortgage banking activities:
Residential mortgage servicing
Interest rate contracts:
Swaps	$	35,043	$	709	$	396	$	32,459	$	777	$	394
Swaptions		3,176		23		21		1,498		29		22
Futures (c)		19,177						22,084
Futures options		30,000		6		3		12,225		4
Mortgage-backed securities commitments		2,390		4		8		710		4
Subtotal		89,786		742		428		68,976		814		416
Loan sales
Interest rate contracts:
Futures (c)		40						58
Bond options		300		4				300
Mortgage-backed securities commitments		8,210		39		21		4,916		10		21
Residential mortgage loan commitments		2,437		21				1,852		22
Subtotal		10,987		64		21		7,126		32		21
Subtotal	$	100,773	$	806	$	449	$	76,102	$	846	$	437
Derivatives used for commercial mortgage banking activities:
Interest rate contracts:
Swaps	$	3,793	$	62	$	49	$	3,801	$	67	$	48
Swaptions		439		1		1		439		2		1
Futures (c)		20,146						19,913
Commercial mortgage loan commitments		1,295		10		6		2,042		16		10
Subtotal		25,673		73		56		26,195		85		59
Credit contracts:
Credit default swaps		83						95
Subtotal	$	25,756	$	73	$	56	$	26,290	$	85	$	59
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps	$	149,054	$	2,455	$	2,350	$	146,008	$	2,632	$	2,559
Caps/floors – Sold		5,142				15		4,846				16
Caps/floors – Purchased		6,462		28				6,339		34
Swaptions		4,496		59		17		3,361		62		12
Futures (c)		2,433						3,112
Mortgage-backed securities commitments		3,552		6		5		2,137		3		3
Subtotal		171,139		2,548		2,387		165,803		2,731		2,590
Foreign exchange contracts		10,895		215		202		12,547		223		240
Credit contracts:
Risk participation agreements		5,076		2		5		5,124		2		4
Subtotal	$	187,110	$	2,765	$	2,594	$	183,474	$	2,956	$	2,834
Derivatives used for other risk management activities:
Interest rate contracts							$	833	$	1
Foreign exchange contracts	$	2,519	$	35	$	18		2,661		85	$	1
Credit contracts:
Credit default swaps		15						15
Other contracts (d)		2,034				485		1,881				510
Subtotal		4,568		35		503		5,390		86		511
Total derivatives not designated as hedging instruments	$	318,207	$	3,679	$	3,602	$	291,256	$	3,973	$	3,841

(a)	Included in Other assets on our Consolidated Balance Sheet.

(b)	Included in Other liabilities on our Consolidated Balance Sheet.

(c)	Futures contracts settle in cash daily and, therefore, no derivative asset or derivative liability is recognized on our Consolidated Balance Sheet.

(d)	Includes PNC’s obligation to fund a portion of certain BlackRock LTIP programs and the swaps entered into in connection with sales of a portion of Visa Class B common shares.

The PNC Financial Services Group, Inc. – Form 10-Q 109

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table:

Table 99: Gains (Losses) on Derivatives Not Designated As Hedging Instruments under GAAP


	Three months ended June 30						Six months ended June 30
In millions	2015			2014			2015		2014
Derivatives used for residential mortgage banking activities:
Residential mortgage servicing
Interest rate contracts	$	(83	)	$	57		$	15	$	110
Loan sales
Interest rate contracts		47			(10	)		68		(12	)
Gains (losses) included in residential mortgage banking activities (a)	$	(36	)	$	47		$	83	$	98
Derivatives used for commercial mortgage banking activities:
Interest rate contracts (b) (c)	$	(25	)	$	23		$	5	$	43
Credit contracts (c)		1			(1	)				(1	)
Gains (losses) from commercial mortgage banking activities	$	(24	)	$	22		$	5	$	42
Derivatives used for customer-related activities:
Interest rate contracts	$	30		$	11		$	34	$	10
Foreign exchange contracts		32			22			33		48
Credit contracts					(1	)
Gains (losses) from customer-related activities (c)	$	62		$	32		$	67	$	58
Derivatives used for other risk management activities:
Interest rate contracts	$	1		$	(11	)	$	1	$	(15	)
Foreign exchange contracts		(69	)		(5	)		114		(7	)
Other contracts (d)		14			(19	)		7		(27	)
Gains (losses) from other risk management activities (c)	$	(54	)	$	(35	)	$	122	$	(49	)
Total gains (losses) from derivatives not designated as hedging instruments	$	(52	)	$	66		$	277	$	149

(a)	Included in Residential mortgage noninterest income.

(b)	Included in Corporate services noninterest income.

(c)	Included in Other noninterest income.

(d)	Includes BlackRock LTIP funding obligation and the swaps entered into in connection with sales of a portion of Visa Class B common shares.

Credit Derivatives

We enter into credit derivatives, specifically credit default swaps and risk participation agreements, as part of our commercial mortgage banking hedging activities and for customer and other risk management purposes. The credit derivative underlying is based on the credit risk of a specific entity, entities, or an index. Detail regarding credit default swaps purchased and risk participations sold follows.

Table 100: Credit Default Swaps (a)


	June 30, 2015				December 31, 2014
Dollars in millions	Notional Amount		Weighted- Average Remaining Maturity In Years		Notional Amount		Weighted- Average Remaining Maturity In Years
*Credit Default Swaps – Purchased (b)*
Single name	$	50		5.2	$	50		5.7
Index traded		48		33.7		60		34.2
Total	$	98		19.1	$	110		21.3

(a)	There were no credit default swaps sold as of June 30, 2015 and December 31, 2014.

(b)	The fair value of credit default swaps purchased was less than $1 million as of June 30, 2015 and December 31, 2014.

The notional amount of these credit default swaps by credit rating is presented in the following table:

Table 101: Credit Ratings of Credit Default Swaps (a)


In millions	June 30, 2015		December 31, 2014
*Credit Default Swaps – Purchased*
Investment grade (b)	$	83	$	95
Subinvestment grade (c)		15		15
Total	$	98	$	110

(a)	There were no credit default swaps sold as of June 30, 2015 and December 31, 2014.

(b)	Investment grade with a rating of BBB-/Baa3 or above based on published rating agency information.

(c)	Subinvestment grade represents a rating below BBB-/Baa3 based on published rating agency information.

The referenced/underlying assets for these credit default swaps are presented in the following table:

Table 102: Referenced/Underlying Assets of Credit Default Swaps


	June 30, 2015			December 31, 2014
Corporate debt		51	%		45	%
Commercial mortgage-backed securities		49	%		55	%

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

Risk Participation Agreements

We also periodically enter into risk participation agreements to share some of the credit exposure with other counterparties related to interest rate derivative contracts or to take on credit exposure to generate revenue. We will make/receive payments under these agreements if a customer defaults on its obligation to perform under certain derivative swap contracts. Risk participation agreements purchased and sold are included in these derivative tables: Tables 98, 99, and 103.

Further detail regarding the notional amount, fair value and weighted-average remaining maturities in years for risk participation agreements sold is presented in the following table:

Table 103: Risk Participation Agreements Sold


	June 30, 2015							December 31, 2014
Dollars in millions	Notional Amount		Fair Value			Weighted- Average Remaining Maturity In Years		Notional Amount		Fair Value			Weighted- Average Remaining Maturity In Years
Risk Participation Agreements Sold	$	2,669	$	(5	)		5.0	$	2,796	$	(4	)		5.4

Based on our internal risk rating process of the underlying third party customers referenced in the swap contracts, all exposure related to risk participation agreements sold have an internal credit rating of pass, which indicates the expected risk of default is currently low.

We have sold risk participation agreements with terms ranging from less than 1 year to 22 years. We will be required to make payments under these agreements if a customer defaults on its obligation to perform under certain derivative swap contracts with third parties. Assuming all underlying third party customers referenced in the swap contracts defaulted at June 30, 2015, the exposure from these agreements would be $115 million based on the fair value of the underlying swaps, compared with $124 million at December 31, 2014.

Offsetting, Counterparty Credit Risk, and Contingent Features

We, generally, utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of various types of derivative instruments with the same counterparty upon the occurrence of an event of default.

For additional information on derivative offsetting, counterparty credit risk, and contingent features see Note 15 Financial Derivatives in our 2014 Form 10-K. Refer to Note 16 Commitments and Guarantees in this Report for additional information related to resale and repurchase agreements offsetting.

The PNC Financial Services Group, Inc. – Form 10-Q 111

The following derivative Table 104 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of June 30, 2015 and December 31, 2014. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

Table 104: Derivative Assets and Liabilities Offsetting


	Gross Fair Value Derivative Assets		Amounts Offset on the Consolidated Balance Sheet				Net Fair Value Derivative Assets			Securities Collateral Held Under Master Netting Agreements		Net Amounts
June 30, 2015 In millions	Gross Fair Value Derivative Assets		Fair Value Offset Amount		Cash Collateral		Net Fair Value Derivative Assets			Securities Collateral Held Under Master Netting Agreements		Net Amounts
Derivative assets
Interest rate contracts	$	4,599	$	1,806	$	337	$	2,456		$	130	$	2,326
Foreign exchange contracts		250		138		11		101			3		98
Credit contracts		2		1		1
Total derivative assets (a)	$	4,851	$	1,945	$	349	$	2,557	(b)	$	133	$	2,424
	Gross Fair Value Derivative Liabilities		Amounts Offset on the Consolidated Balance Sheet				Net Fair Value Derivative Liabilities			Securities Collateral Pledged Under Master Netting Agreements		Net Amounts
June 30, 2015 In millions	Gross Fair Value Derivative Liabilities		Fair Value Offset Amount		Cash Collateral		Net Fair Value Derivative Liabilities					Net Amounts
Derivative liabilities
Interest rate contracts	$	3,112	$	1,856	$	470	$	786				$	786
Foreign exchange contracts		225		85		20		120					120
Credit contracts		5		4		1
Other contracts		485						485					485
Total derivative liabilities (a)	$	3,827	$	1,945	$	491	$	1,391	(c)			$	1,391

	Gross Fair Value Derivative Assets		Amounts Offset on the Consolidated Balance Sheet				Net Fair Value Derivative Assets			Securities Collateral Held Under Master Netting Agreements		Net Amounts
December 31, 2014 In millions	Gross Fair Value Derivative Assets		Fair Value Offset Amount		Cash Collateral		Net Fair Value Derivative Assets			Securities Collateral Held Under Master Netting Agreements		Net Amounts
Derivative assets
Interest rate contracts	$	4,918	$	1,981	$	458	$	2,479		$	143	$	2,336
Foreign exchange contracts		314		159		47		108			1		107
Credit contracts		2		1		1
Total derivative assets (a)	$	5,234	$	2,141	$	506	$	2,587	(b)	$	144	$	2,443

	Gross Fair Value Derivative Liabilities		Amounts Offset on the Consolidated Balance Sheet				Net Fair Value Derivative Liabilities			Securities Collateral Pledged Under Master Netting Agreements		Net Amounts
December 31, 2014 In millions	Gross Fair Value Derivative Liabilities		Fair Value Offset Amount		Cash Collateral		Net Fair Value Derivative Liabilities					Net Amounts
Derivative liabilities
Interest rate contracts	$	3,272	$	2,057	$	483	$	732				$	732
Foreign exchange contracts		241		80		20		141					141
Credit contracts		4		4
Other contracts		510						510					510
Total derivative liabilities (a)	$	4,027	$	2,141	$	503	$	1,383	(c)			$	1,383

(a)

Included derivative assets and derivative liabilities as of June 30, 2015 totaling $889 million and $725 million, respectively, related to interest rate contracts executed bilaterally with counterparties in the U.S. over-the-counter market and novated to and cleared through a central clearing house. The comparable amounts as of December 31, 2014 totaled $807 million and $657 million, respectively. Derivative assets and liabilities as of June 30, 2015 and December 31, 2014 related to exchange-traded interest rate contracts were not material. As of June 30, 2015 and December 31, 2014, these contracts were not subject to offsetting. The remaining gross and net derivative assets and liabilities relate to contracts executed bilaterally with counterparties that are not settled through an organized exchange or central clearing house.

(b)	Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet.

(c)	Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.

In addition to using master netting and related collateral agreements to reduce credit risk associated with derivative instruments, we also seek to manage credit risk by evaluating credit ratings of counterparties, by taking collateral and by using internal credit analysis, limits, and monitoring procedures. Collateral may also be exchanged under certain derivative agreements that are not considered master netting agreements.

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

At June 30, 2015, we held cash, U.S. government securities and mortgage-backed securities totaling $681 million under master netting and other collateral agreements to collateralize net derivative assets due from counterparties, and we have pledged cash totaling $555 million under these agreements to collateralize net derivative liabilities owed to counterparties. These totals may differ from the amounts presented in the preceding offsetting table because they may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral held or pledged exceeds the net derivative fair value with the counterparty as of the balance sheet date due to timing or other factors. To the extent not netted against the derivative fair value under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other borrowed funds on our Consolidated Balance Sheet. Securities held from counterparties are not recognized on our balance sheet. Likewise securities we have pledged to counterparties remain on our balance sheet.

Certain of the master netting agreements and certain other derivative agreements also contain provisions that require PNC’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If PNC’s debt ratings were to fall below investment grade, we would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position on June 30, 2015 was $.6 billion for which PNC had posted collateral of $.5 billion in the normal course of business. The maximum additional amount of collateral PNC would have been required to post if the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2015 would be $.1 billion.

NOTE 12 EARNINGS PER SHARE

Table 105: Basic and Diluted Earnings per Common Share


	Three months ended June 30				Six months ended June 30
In millions, except per share data	2015		2014		2015		2014
Basic
Net income	$	1,044	$	1,052	$	2,048	$	2,112
Less:
Net income (loss) attributable to noncontrolling interests		4		3		5		1
Preferred stock dividends and discount accretion and redemptions		48		48		118		118
Net income attributable to common shares		992		1,001		1,925		1,993
Less:
Dividends and undistributed earnings allocated to nonvested restricted shares				3		2		6
Net income attributable to basic common shares	$	992	$	998	$	1,923	$	1,987
Basic weighted-average common shares outstanding		517		532		519		532
Basic earnings per common share (a)	$	1.92	$	1.88	$	3.71	$	3.73
Diluted
Net income attributable to basic common shares	$	992	$	998	$	1,923	$	1,987
Less: Impact of BlackRock earnings per share dilution		5		3		10		9
Net income attributable to diluted common shares	$	987	$	995	$	1,913	$	1,978
Basic weighted-average common shares outstanding		517		532		519		532
Dilutive potential common shares (b) (c)		8		7		8		7
Diluted weighted-average common shares outstanding		525		539		527		539
Diluted earnings per common share (a)	$	1.88	$	1.85	$	3.63	$	3.67

(a)	Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares (participating securities).

(b)	Excludes number of stock options considered to be anti-dilutive of 1 million for the three and six months ended June 30, 2014. No stock options were considered to be anti-dilutive for the three and six months ended June 30, 2015.

(c)	No warrants were considered to be anti-dilutive for the three and six months ended June 30, 2015 and June 30, 2014, respectively.

The PNC Financial Services Group, Inc. – Form 10-Q 113

NOTE 13 TOTAL EQUITY AND OTHER COMPREHENSIVE INCOME

Activity in total equity for the first six months of 2014 and 2015 follows.

Table 106: Rollforward of Total Equity


				Shareholders’ Equity
In millions	Shares Outstanding Common Stock			Common Stock		Capital Surplus - Preferred Stock			Capital Surplus - Common Stock and Other			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non- controlling Interests			Total Equity
Balance at December 31, 2013		533		$	2,698	$	3,941		$	12,416		$	23,251		$	436		$	(408	)	$	1,703		$	44,037
Cumulative effect of adopting ASC 860-50 (a)													2												2
Balance at January 1, 2014		533		$	2,698	$	3,941		$	12,416		$	23,253		$	436		$	(408	)	$	1,703		$	44,039
Net income													2,111									1			2,112
Other comprehensive income (loss), net of tax																445									445
Cash dividends declared
Common ($.92 per share)													(491	)											(491	)
Preferred													(115	)											(115	)
Preferred stock discount accretion							3						(3	)
Common stock activity		1			5					55															60
Treasury stock activity		(2	)							11									(176	)					(165	)
Other										24												(116	)		(92	)
Balance at June 30, 2014 (b)		532		$	2,703	$	3,944		$	12,506		$	24,755		$	881		$	(584	)	$	1,588		$	45,793
Balance at January 1, 2015		523		$	2,705	$	3,946		$	12,627		$	26,200		$	503		$	(1,430	)	$	1,523		$	46,074
Net income													2,043									5			2,048
Other comprehensive income (loss), net of tax																(124	)								(124	)
Cash dividends declared
Common ($.99 per share)													(516	)											(516	)
Preferred													(115	)											(115	)
Preferred stock discount accretion							3						(3	)
Common stock activity		1			3					34															37
Treasury stock activity		(8	)							(55	)								(832	)					(887	)
Preferred stock redemption – Series K (c)							(500	)																	(500	)
Other										26												(131	)		(105	)
Balance at June 30, 2015 (b)		516		$	2,708	$	3,449		$	12,632		$	27,609		$	379		$	(2,262	)	$	1,397		$	45,912

(a)

Amount represents the cumulative impact of our January 1, 2014 irrevocable election to prospectively measure all classes of commercial MSRs at fair value. See Note 1 Accounting Policies and Note 8 Goodwill and Other Intangible Assets for more information on this election in our Notes To Consolidated Financial Statements under Item 8 of our 2014 Form 10-K.

(b)	The par value of our preferred stock outstanding was less than $.5 million at each date and, therefore, is excluded from this presentation.

(c)	On May 4, 2015, PNC redeemed all 50,000 shares of its Series K Preferred Stock, as well as all 500,000 Depositary Shares representing fractional interests in such shares, resulting in net outflow of $500 million.

Warrants

We had 13,685,932 warrants outstanding as of June 30, 2015 compared to 16,885,192 as of December 31, 2014. The reduction was due to 3,199,260 warrants that were exercised during 2015. Each warrant entitles the holder to purchase one share of PNC common stock at an exercise price of $67.33 per share. In accordance with the terms of the warrants, the warrants are exercised on a non-cash net basis with the warrant holder receiving PNC common shares determined based on the excess of the market price of PNC common stock on the exercise date over the exercise price of the warrant. In 2015, we issued 971,570 common shares resulting from the exercise of the warrants. The issuance of these shares resulted in a reclassification within Capital surplus – Common stock and other with no impact on PNC’s Shareholder’s equity. The remaining outstanding warrants will expire as of December 31, 2018, and are considered in the calculation of diluted earnings per common share in Note 12 Earnings Per Share in this Report.

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

Table 107: Other Comprehensive Income

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


In millions	Pretax			Tax			After-tax
*Net unrealized gains (losses) on non-OTTI securities*
Balance at March 31, 2014	$	836		$	(307	)	$	529
Second Quarter 2014 activity
Increase in net unrealized gains (losses) on non-OTTI securities		220			(80	)		140
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income		7			(2	)		5
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income		1						1
Net unrealized gains (losses) on non-OTTI securities		212			(78	)		134
Balance at June 30, 2014		1,048			(385	)		663
Balance at March 31, 2015		1,096			(402	)		694
Second Quarter 2015 activity
Increase in net unrealized gains (losses) on non-OTTI securities		(346	)		128			(218	)
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income		7			(2	)		5
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income		12			(4	)		8
Net unrealized gains (losses) on non-OTTI securities		(365	)		134			(231	)
Balance at June 30, 2015	$	731		$	(268	)	$	463
*Net unrealized gains (losses) on OTTI securities*
Balance at March 31, 2014	$	102		$	(37	)	$	65
Second Quarter 2014 activity
Increase in net unrealized gains (losses) on OTTI securities		40			(14	)		26
Less: OTTI losses realized on securities reclassified to noninterest income		(1	)					(1	)
Net unrealized gains (losses) on OTTI securities		41			(14	)		27
Balance at June 30, 2014		143			(51	)		92
Balance at March 31, 2015		118			(42	)		76
Second Quarter 2015 activity
Increase in net unrealized gains (losses) on OTTI securities		3			(1	)		2
Less: OTTI losses realized on securities reclassified to noninterest income		(1	)		1
Net unrealized gains (losses) on OTTI securities		4			(2	)		2
Balance at June 30, 2015	$	122		$	(44	)	$	78
*Net unrealized gains (losses) on cash flow hedge derivatives*
Balance at March 31, 2014	$	379		$	(139	)	$	240
Second Quarter 2014 activity
Increase in net unrealized gains (losses) on cash flow hedge derivatives		138			(50	)		88
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income (a)		61			(23	)		38
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income (a)		3			(1	)		2
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income (a)		(7	)		3			(4	)
Net unrealized gains (losses) on cash flow hedge derivatives		81			(29	)		52
Balance at June 30, 2014		460			(168	)		292
Balance at March 31, 2015		791			(290	)		501
Second Quarter 2015 activity
Increase in net unrealized gains (losses) on cash flow hedge derivatives		(102	)		38			(64	)
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income (a)		64			(24	)		40
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income (a)		8			(3	)		5
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income (a)		(4	)		2			(2	)
Net unrealized gains (losses) on cash flow hedge derivatives		(170	)		63			(107	)
Balance at June 30, 2015	$	621		$	(227	)	$	394

(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q 115

(continued from previous page)


In millions	Pretax			Tax			After-tax
*Pension and other postretirement benefit plan adjustments*
Balance at March 31, 2014	$	(292	)	$	107		$	(185	)
Second Quarter 2014 activity
Net pension and other postretirement benefit plan activity		10			(4	)		6
Amortization of actuarial loss (gain) reclassified to other noninterest expense		1			(1	)
Amortization of prior service cost (credit) reclassified to other noninterest expense		(2	)		1			(1	)
Total Second Quarter 2014 activity		9			(4	)		5
Balance at June 30, 2014		(283	)		103			(180	)
Balance at March 31, 2015		(760	)		278			(482	)
Second Quarter 2015 activity
Net pension and other postretirement benefit plan activity		(17	)		7			(10	)
Amortization of actuarial loss (gain) reclassified to other noninterest expense		9			(4	)		5
Amortization of prior service cost (credit) reclassified to other noninterest expense		(2	)		1			(1	)
Total Second Quarter 2015 activity		(10	)		4			(6	)
Balance at June 30, 2015	$	(770	)	$	282		$	(488	)
*Other*
Balance at March 31, 2014	$	(9	)	$	16		$	7
Second Quarter 2014 Activity
PNC’s portion of BlackRock’s OCI		(4	)		2			(2	)
Net investment hedge derivatives (b)		(26	)		9			(17	)
Foreign currency translation adjustments (c)		26						26
Total Second Quarter 2014 activity		(4	)		11			7
Balance at June 30, 2014		(13	)		27			14
Balance at March 31, 2015		(86	)					(86	)
Second Quarter 2015 Activity
PNC’s portion of BlackRock’s OCI		(9	)		3			(6	)
Net investment hedge derivatives (b)		(65	)		24			(41	)
Foreign currency translation adjustments (c)		65						65
Total Second Quarter 2015 activity		(9	)		27			18
Balance at June 30, 2015	$	(95	)	$	27		$	(68	)

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


In millions	Pretax			Tax			After-tax
*Net unrealized gains (losses) on non-OTTI securities*
Balance at December 31, 2013	$	647		$	(238	)	$	409
2014 activity
Increase in net unrealized gains (losses) on non-OTTI securities		421			(154	)		267
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income		14			(5	)		9
Less: Net gains (losses) realized on sale of securities reclassified to noninterest income		6			(2	)		4
Net unrealized gains (losses) on non-OTTI securities		401			(147	)		254
Balance at June 30, 2014		1,048			(385	)		663
Balance at December 31, 2014		1,022			(375	)		647
2015 activity
Increase in net unrealized gains (losses) on non-OTTI securities		(214	)		79			(135	)
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income		14			(5	)		9
Less: Net gains (losses) realized on sale of securities reclassified to noninterest income		63			(23	)		40
Net unrealized gains (losses) on non-OTTI securities		(291	)		107			(184	)
Balance at June 30, 2015	$	731		$	(268	)	$	463
*Net unrealized gains (losses) on OTTI securities*
Balance at December 31, 2013	$	36		$	(12	)	$	24
2014 activity
Increase in net unrealized gains (losses) on OTTI securities		104			(38	)		66
Less: OTTI losses realized on securities reclassified to noninterest income		(3	)		1			(2	)
Net unrealized gains (losses) on OTTI securities		107			(39	)		68
Balance at June 30, 2014		143			(51	)		92
Balance at December 31, 2014		115			(41	)		74
2015 activity
Increase in net unrealized gains (losses) on OTTI securities		5			(2	)		3
Less: OTTI losses realized on securities reclassified to noninterest income		(2	)		1			(1	)
Net unrealized gains (losses) on OTTI securities		7			(3	)		4
Balance at June 30, 2015	$	122		$	(44	)	$	78
*Net unrealized gains (losses) on cash flow hedge derivatives*
Balance at December 31, 2013	$	384		$	(141	)	$	243
2014 activity
Increase in net unrealized gains (losses) on cash flow hedge derivatives		210			(76	)		134
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income (a)		130			(48	)		82
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income (a)		6			(2	)		4
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income (a)		(2	)		1			(1	)
Net unrealized gains (losses) on cash flow hedge derivatives		76			(27	)		49
Balance at June 30, 2014		460			(168	)		292
Balance at December 31, 2014		552			(202	)		350
2015 activity
Increase in net unrealized gains (losses) on cash flow hedge derivatives		196			(72	)		124
Less: Net gains (losses) realized as a yield adjustment reclassified to loan interest income (a)		128			(47	)		81
Less: Net gains (losses) realized as a yield adjustment reclassified to investment securities interest income (a)		12			(5	)		7
Less: Net gains (losses) realized on sales of securities reclassified to noninterest income (a)		(13	)		5			(8	)
Net unrealized gains (losses) on cash flow hedge derivatives		69			(25	)		44
Balance at June 30, 2015	$	621		$	(227	)	$	394

(continued on following page)

The PNC Financial Services Group, Inc. – Form 10-Q 117

(continued from previous page)


In millions	Pretax			Tax			After-tax
*Pension and other postretirement benefit plan adjustments*
Balance at December 31, 2013	$	(374	)	$	137		$	(237	)
2014 Activity
Net pension and other postretirement benefit plan activity		93			(35	)		58
Amortization of actuarial loss (gain) reclassified to other noninterest expense		2			(1	)		1
Amortization of prior service cost (credit) reclassified to other noninterest expense		(4	)		2			(2	)
Total 2014 activity		91			(34	)		57
Balance at June 30, 2014		(283	)		103			(180	)
Balance at December 31, 2014		(820	)		300			(520	)
2015 Activity
Net pension and other postretirement benefit plan activity		36			(13	)		23
Amortization of actuarial loss (gain) reclassified to other noninterest expense		18			(7	)		11
Amortization of prior service cost (credit) reclassified to other noninterest expense		(4	)		2			(2	)
Total 2015 Activity		50			(18	)		32
Balance at June 30, 2015	$	(770	)	$	282		$	(488	)
*Other*
Balance at December 31, 2013	$	(20	)	$	17		$	(3	)
2014 Activity
PNC’s portion of BlackRock’s OCI		7			(2	)		5
Net investment hedge derivatives (b)		(33	)		12			(21	)
Foreign currency translation adjustments		33						33
Total 2014 activity		7			10			17
Balance at June 30, 2014		(13	)		27			14
Balance at December 31, 2014		(59	)		11			(48	)
2015 Activity
PNC’s portion of BlackRock’s OCI		(34	)		12			(22	)
Net investment hedge derivatives (b)		(11	)		4			(7	)
Foreign currency translation adjustments (c)		9						9
Total 2015 activity		(36	)		16			(20	)
Balance at June 30, 2015	$	(95	)	$	27		$	(68	)

(a)	Cash flow hedge derivatives are interest rate contract derivatives designated as hedging instruments under GAAP.

(b)	Net investment hedge derivatives are foreign exchange contracts designated as hedging instruments under GAAP.

(c)	The earnings of PNC’s Luxembourg-UK lending business have been indefinitely reinvested: therefore, no U.S. deferred income tax has been recorded on the foreign currency translation of the investment.

Table 108: Accumulated Other Comprehensive Income (Loss) Components


	June 30, 2015						December 31, 2014
In millions	Pretax			After-tax			Pretax			After-tax
Net unrealized gains (losses) on non-OTTI securities	$	731		$	463		$	1,022		$	647
Net unrealized gains (losses) on OTTI securities		122			78			115			74
Net unrealized gains (losses) on cash flow hedge derivatives		621			394			552			350
Pension and other postretirement benefit plan adjustments		(770	)		(488	)		(820	)		(520	)
Other		(95	)		(68	)		(59	)		(48	)
Accumulated other comprehensive income (loss)	$	609		$	379		$	810		$	503

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

NOTE 14 INCOME TAXES

Table 109: Net Operating Loss Carryforwards and Tax Credit Carryforwards


In millions	June 30 2015		December 31 2014
Net Operating Loss Carryforwards:
Federal	$	947	$	997
State	$	2,486	$	2,594
Tax Credit Carryforwards:
Federal	$	35	$	35
State	$	7	$	7

The federal net operating loss carryforwards expire in 2032. The state net operating loss carryforwards will expire from 2015 to 2035. The majority of the tax credit carryforwards expire in 2032. All federal and most state net operating loss and credit carryforwards are from acquired entities and utilization is subject to various statutory limitations. It is anticipated that the company will be able to fully utilize its carryforwards for federal tax purposes, but a valuation allowance of $64 million has been recorded against certain state tax carryforwards as of June 30, 2015. If select uncertain tax positions were successfully challenged by a state, the state net operating losses listed above could be reduced by $60 million.

The Internal Revenue Service (IRS) is currently examining PNC’s 2011 through 2013 returns. National City’s consolidated federal income tax returns through 2008 have been audited by the IRS. Certain adjustments remain under review by the IRS Appeals Division for years 2004 through 2008.

The Company had unrecognized tax benefits of $80 million at June 30, 2015 and $77 million at December 31, 2014. At June 30, 2015, $66 million of unrecognized tax benefits, if recognized, would favorably impact the effective income tax rate.

It is reasonably possible that the balance of unrecognized tax benefits could increase or decrease in the next twelve months due to completion of tax authorities’ exams or the expiration of statutes of limitations. Management estimates that the balance of unrecognized tax benefits could decrease by $53 million within the next twelve months.

During the six months ended June 30, 2015, we recognized $102 million of amortization, $111 million of tax credits, and $37 million of other tax benefits associated with qualified investments in low income housing tax credits within Income taxes. The amounts for the second quarter of 2015 were $51 million, $56 million and $18 million, respectively.

NOTE 15 LEGAL PROCEEDINGS

We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in this Note 15 as well as those matters disclosed in Note 21 Legal Proceedings in Part II, Item 8 of our 2014 Form 10-K and in Note 15 Legal Proceedings in Part I, Item 1 of our first quarter 2015 Form 10-Q (such prior disclosure collectively referred to as “Prior Disclosure”)). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of June 30, 2015, we estimate that it is reasonably possible that we could incur losses in an aggregate amount of up to approximately $725 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.

In our experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; we have not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; the possible outcomes may not be amenable to the use of statistical or quantitative analytical tools; predicting possible outcomes depends on making assumptions about future decisions of courts or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for us to estimate losses or ranges of losses that it is reasonably possible we could incur.

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

As a result of these types of factors, we are unable, at this time, to estimate the losses that it is reasonably possible that we could incur or ranges of such losses with respect to some of the matters disclosed, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the Disclosed Matters. The estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”

We include in some of the descriptions of individual Disclosed Matters certain quantitative information related to the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings or otherwise publicly available information. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual.

Some of our exposure in Disclosed Matters may be offset by applicable insurance coverage. We do not consider the possible availability of insurance coverage in determining the amounts of any accruals (although we record the amount of related insurance recoveries that are deemed probable up to the amount of the accrual) or in determining any estimates of possible losses or ranges of possible losses.

The following updates our disclosure of legal proceedings from that provided in Prior Disclosure.

CBNV Mortgage Litigation

Between 2001 and 2003, on behalf of either individual plaintiffs or proposed classes of plaintiffs, several separate lawsuits were filed in state and federal courts against Community Bank of Northern Virginia (CBNV), a PNC Bank predecessor, and other defendants asserting claims arising from second mortgage loans made to the plaintiffs. The state lawsuits were removed to federal court and, with the lawsuits that had been filed in federal court, were consolidated for pre-trial proceedings in a multidistrict litigation (MDL) proceeding in the United States District Court for the Western District of Pennsylvania under the caption In re: Community Bank of Northern Virginia Lending Practices Litigation (No. 03-0425 (W.D. Pa.), MDL No. 1674).

MDL Proceedings in Pennsylvania. In July 2015, the United States Court of Appeals for the Third Circuit affirmed the grant of class certification by the Pennsylvania district court.

North Carolina Proceedings. In January 2008, the Pennsylvania district court issued an order sending back to the General Court of Justice, Superior Court Division, for Wake

County, North Carolina the claims of two proposed class members, asserted in a case originally filed in 2001 and captioned Bumpers, et al. v. Community Bank of Northern Virginia (01-CVS-011342). The plaintiffs in Bumpers made similar allegations to those included in the amended complaint in the MDL proceedings. Following the remand to North Carolina state court, the plaintiffs in Bumpers sought to represent a class of North Carolina borrowers in state court proceedings in North Carolina. The plaintiffs claimed that this class consisted of approximately 650 borrowers. The district court in Pennsylvania handling the MDL proceedings enjoined class proceedings in Bumpers in March 2008. In April 2008, the North Carolina Superior Court granted the Bumpers plaintiffs’ motion for summary judgment on their individual claims and awarded them approximately $11,000 each plus interest. CBNV appealed the grant of the motion for summary judgment. In September 2011, the North Carolina Court of Appeals affirmed in part and reversed in part the granting of the plaintiffs’ motion for summary judgment. The court affirmed the judgment on the plaintiffs’ claim that they paid a loan discount fee but were not provided a loan discount. It reversed the judgment on the plaintiffs’ claim that they were overcharged for settlement services and remanded that claim for trial. The court also held that, in light of the Pennsylvania district court’s injunction against class proceedings having been vacated in September 2010, the trial court may on remand consider the issue of class certification. In August 2012, the North Carolina Supreme Court granted our petition for discretionary review of the decision of the North Carolina Court of Appeals. The appeal was argued in January 2013. In August 2013, the North Carolina Supreme Court reversed the decision of the Court of Appeals and remanded the case to the Superior Court for further proceedings. In September 2013, after the other plaintiff voluntarily dismissed his case, the remaining plaintiff filed a motion for leave to amend his complaint in the trial court. The plaintiff’s remaining claims, as reflected in the proposed amended complaint, related exclusively to loan discount fees. In June 2015 the court denied the plaintiff’s motion to amend his complaint. The plaintiff then moved for an order allowing dismissal of his remaining claims, which was granted, thus ending the North Carolina proceedings.

Lender Placed Insurance Litigation

In May 2015, the parties reached an agreement to settle on a nationwide settlement class basis Montoya, et al. v. PNC Bank, N.A., et al., (Case No. 1:14-cv-20474-JEM), pending in the United States District Court for the Southern District of Florida against, among others, PNC Bank. The agreement is subject to, among other things, notice to the class members and final approval by the court. In June 2015, the plaintiffs filed a motion for preliminary approval of the settlement. Notice to the class members will be provided following preliminary approval, if granted. In connection with the settlement agreement, the plaintiffs also filed a fourth amended complaint, which, among other things, adds claims

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

regarding wind and flood insurance. The proposed settlement provides for certification of a class of borrowers who were charged by PNC under a hazard, flood, flood gap or wind only lender placed insurance policy for residential property during the period January 1, 2008 through the date of preliminary approval of the settlement. The overall cost of the settlement is not expected to be material to PNC.

Patent Infringement Litigation

In separate decisions issued in April and May 2015, the Patent and Trademark Office (PTO) invalidated all claims with respect to the patents that were still at issue in Intellectual Ventures I LLC and Intellectual Ventures II LLC vs. PNC Financial Services Group, Inc., and PNC Bank, NA, (Case No. 2:13-cv-00740-AJS)(“IV 1”), pending in the United States District Court for the Western District of Pennsylvania against PNC and PNC Bank. In July 2015, in an appeal arising out of proceedings against a different defendant relating to some of the same patents, the United States Court of Appeals for the Federal Circuit affirmed a district court decision invalidating two of those same patents. As a result, all of the patents still at issue in IV 1 have been invalidated, and accordingly PNC should have no liability in this matter.

In April 2015, the PTO, in a proceeding brought by another defendant, upheld the patentability of one of the patents at issue in Intellectual Ventures I LLC and Intellectual Ventures II LLC v. PNC Bank Financial Services Group, Inc., PNC Bank NA, and PNC Merchant Services Company, LP, (Case No. 2:14-cv-00832-AKS)(“IV 2”), pending in the same court as IV 1. Three patents of the four other patents at issue in IV 2 remain under review by the PTO while PTO review has been denied as to the fourth patent.

Other Regulatory and Governmental Inquiries

PNC is the subject of investigations, audits and other forms of regulatory and governmental inquiry covering a broad range of issues in our banking, securities and other financial services businesses, in some cases as part of reviews of specified activities at multiple industry participants. Over the last few years, we have experienced an increase in regulatory and governmental investigations, audits and other inquiries. Areas of current regulatory or governmental inquiry with respect to PNC include consumer protection, fair lending, mortgage origination and servicing, mortgage and non mortgage-related insurance and reinsurance, municipal finance activities, conduct by broker-dealers, automobile lending practices, and participation in government insurance or guarantee programs, some of which are described below and in Prior Disclosure. These inquiries, including those described below and in Prior Disclosure, may lead to administrative, civil or criminal proceedings, and possibly result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs.

Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including those described below and in Prior Disclosure.

Mortgage Servicing Consent Orders

In June 2015, the Office of the Comptroller of the Currency issued an order finding that PNC Bank had satisfied all of its obligations under the OCC’s 2013 amended consent order and terminating PNC Bank’s 2011 consent order and 2013 amended consent order relating to its residential mortgage servicing and foreclosure processes. The OCC retained jurisdiction over the distribution of remaining funds contributed by PNC Bank under its 2013 amended consent order. PNC’s consent order with the Board of Governors of the Federal Reserve System, as amended, relating to the same subject matter remains open and does not foreclose the potential for civil money penalties from the Federal Reserve. The range of potential penalties communicated to PNC from the Federal Reserve in connection with these consent orders is not material and we do not otherwise expect any additional financial charges from the Federal Reserve consent orders to be material.

Other

In addition to the proceedings or other matters described above and in Prior Disclosure, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position. However, we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.

See Note 16 Commitments and Guarantees for additional information regarding the Visa indemnification and our other obligations to provide indemnification, including to current and former officers, directors, employees and agents of PNC and companies we have acquired.

The PNC Financial Services Group, Inc. – Form 10-Q 121

NOTE 16 COMMITMENTS AND GUARANTEES

Commitments

In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with significant other commitments as of June 30, 2015 and December 31, 2014, respectively.

Table 110: Commitments to Extend Credit and Other Commitments


In millions	June 30 2015		December 31 2014
Commitments to extend credit
Total commercial lending	$	97,334	$	98,742
Home equity lines of credit		17,570		17,839
Credit card		18,999		17,833
Other		4,339		4,178
Total commitments to extend credit		138,242		138,592
Net outstanding standby letters of credit (a)		9,509		9,991
Reinsurance agreements		2,118		4,297
Standby bond purchase agreements (b)		959		1,095
Other commitments (c)		964		962
Total commitments to extend credit and other commitments	$	151,792	$	154,937

(a)	Net outstanding standby letters of credit include $5.2 billion which support remarketing programs at both June 30, 2015 and December 31, 2014, respectively.

(b)	We enter into standby bond purchase agreements to support municipal bond obligations.

(c)	Includes $579 million and $441 million related to investments in qualified affordable housing projects at June 30, 2015 and December 31, 2014, respectively.

Commitments to Extend Credit

Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee, and contain termination clauses in the event the customer’s credit quality deteriorates. Based on our historical experience, some commitments expire unfunded, and therefore cash requirements are substantially less than the total commitment.

Net Outstanding Standby Letters of Credit

We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Internal credit ratings related to our net outstanding standby letters of credit were as follows:

Table 111: Internal Credit Ratings Related to Net Outstanding Standby Letters of Credit


	June 30 2015			December 31 2014
Internal credit ratings (as a percentage of portfolio):
Pass (a)		94	%		95	%
Below pass (b)		6	%		5	%

(a)	Indicates that expected risk of loss is currently low.

(b)	Indicates a higher degree of risk of default.

If the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on June 30, 2015 had terms ranging from less than 1 year to 8 years.

As of June 30, 2015, assets of $1.0 billion secured certain specifically identified standby letters of credit. In addition, a portion of the remaining standby letters of credit issued on behalf of specific customers is also secured by collateral or guarantees that secure the customers’ other obligations to us. The carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $187 million at June 30, 2015 and is included in Other liabilities on our Consolidated Balance Sheet.

Reinsurance Agreements

We have a wholly-owned captive insurance subsidiary which provides reinsurance for accidental death & dismemberment, credit life, accident & health and lender placed hazard, all of which are in run-off. Aggregate maximum exposure up to the specified limits for all reinsurance contracts is as follows:

Table 112: Reinsurance Agreements Exposure (a)


In millions	June 30 2015		December 31 2014
Accidental Death & Dismemberment	$	1,705	$	1,774
Credit Life, Accident & Health		413		467
Lender Placed Hazard (b) (c)				2,056
Maximum Exposure (d)	$	2,118	$	4,297
Maximum Exposure to Quota Share Agreements with 100% Reinsurance	$	412	$	466

(a)	Reinsurance agreements exposure balances represent estimates based on availability of financial information from insurance carriers.

(b)	Through the purchase of catastrophe reinsurance connected to the Lender Placed Hazard Exposure, should a catastrophic event occur, PNC will benefit from this reinsurance. No credit for the catastrophe reinsurance protection is applied to the aggregate exposure figure.

(c)	Program was placed into run-off for coverage issued or renewed on or after June 1, 2014 with policy terms one year or less.

(d)	The Borrower and Lender Paid Mortgage Insurance program was placed into run-off. Most of these policies carry no liability to PNC, and due to immateriality this program is no longer included in the maximum exposure amount.

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

A rollforward of the reinsurance reserves for probable losses for the first six months of 2015 and 2014 follows:

Table 113: Reinsurance Reserves – Rollforward


In millions	2015			2014
January 1	$	13		$	32
Paid Losses		(6	)		(12	)
Net Provision		4			6
Changes to Agreements					(10	)
June 30	$	11		$	16

The reinsurance reserves are declining as the programs are in run-off. There were no other changes to existing agreements nor did we enter into any new relationships.

There is a reasonable possibility that losses could be more than or less than the amount reserved due to ongoing uncertainty in various economic, social and other factors that could impact the frequency and severity of claims covered by these reinsurance agreements. At June 30, 2015, the reasonably possible loss above our accrual was not material.

Indemnifications

We are a party to numerous acquisition or divestiture agreements under which we have purchased or sold, or agreed to purchase or sell, various types of assets. These agreements can cover the purchase or sale of entire businesses, loan portfolios, branch banks, partial interests in companies, or other types of assets.

These agreements generally include indemnification provisions under which we indemnify the third parties to these agreements against a variety of risks to the indemnified parties as a result of the transaction in question. When PNC is the seller, the indemnification provisions will generally also provide the buyer with protection relating to the quality of the assets we are selling and the extent of any liabilities being assumed by the buyer. Due to the nature of these indemnification provisions, we cannot quantify the total potential exposure to us resulting from them.

We provide indemnification in connection with securities offering transactions in which we are involved. When we are the issuer of the securities, we provide indemnification to the underwriters or placement agents analogous to the indemnification provided to the purchasers of businesses from us, as described above. When we are an underwriter or placement agent, we provide a limited indemnification to the issuer related to our actions in connection with the offering and, if there are other underwriters, indemnification to the other underwriters intended to result in an appropriate sharing of the risk of participating in the offering. Due to the nature of these indemnification provisions, we cannot quantify the total potential exposure to us resulting from them.

In the ordinary course of business, we enter into certain types of agreements that include provisions for indemnifying third parties. We also enter into certain types of agreements, including leases, assignments of leases, and subleases, in which we agree to indemnify third parties for acts by our agents, assignees and/or sublessees, and employees. We also enter into contracts for the delivery of technology service in which we indemnify the other party against claims of patent and copyright infringement by third parties. Due to the nature of these indemnification provisions, we cannot calculate our aggregate potential exposure under them.

In the ordinary course of business, we enter into contracts with third parties under which the third parties provide services on behalf of PNC. In many of these contracts, we agree to indemnify the third party service provider under certain circumstances. The terms of the indemnity vary from contract to contract and the amount of the indemnification liability, if any, cannot be determined.

We are a general or limited partner in certain asset management and investment limited partnerships, many of which contain indemnification provisions that would require us to make payments in excess of our remaining unfunded commitments. While in certain of these partnerships the maximum liability to us is limited to the sum of our unfunded commitments and partnership distributions received by us, in the others the indemnification liability is unlimited. As a result, we cannot determine our aggregate potential exposure for these indemnifications.

In some cases, indemnification obligations of the types described above arise under arrangements entered into by predecessor companies for which we become responsible as a result of the acquisition.

Pursuant to their bylaws, PNC and its subsidiaries provide indemnification to directors, officers and, in some cases, employees and agents against certain liabilities incurred as a result of their service on behalf of or at the request of PNC and its subsidiaries. PNC and its subsidiaries also advance on behalf of covered individuals costs incurred in connection with certain claims or proceedings, subject to written undertakings by each such individual to repay all amounts advanced if it is ultimately determined that the individual is not entitled to indemnification. We generally are responsible for similar indemnifications and advancement obligations that companies we acquire had to their officers, directors and sometimes employees and agents at the time of acquisition. We advanced such costs on behalf of several such individuals with respect to pending litigation or investigations during 2015. It is not possible for us to determine the aggregate potential exposure resulting from the obligation to provide this indemnity or to advance such costs.

The PNC Financial Services Group, Inc. – Form 10-Q 123

Visa Indemnification

Our payment services business issues and acquires credit and debit card transactions through Visa U.S.A. Inc. card association or its affiliates (Visa). For additional information on our Visa indemnification and the related interchange litigation see Note 21 Legal Proceedings and Note 22 Commitments and Guarantees in our 2014 Form 10-K.

Recourse and Repurchase Obligations

As discussed in Note 2 Loan Sale and Servicing Activities and Variable Interest Entities, PNC has sold commercial mortgage, residential mortgage and home equity loans/lines of credit directly or indirectly through securitization and loan sale transactions in which we have continuing involvement. One form of continuing involvement includes certain recourse and loan repurchase obligations associated with the transferred assets.

Commercial Mortgage Loan Recourse Obligations

Under these programs, we generally assume up to a one-third pari passu risk of loss on unpaid principal balances through a loss share arrangement. At June 30, 2015 and December 31, 2014, the unpaid principal balance outstanding of loans sold as a participant in these programs was $12.9 billion and $12.3 billion, respectively. The potential maximum exposure under the loss share arrangements was $3.9 billion at June 30, 2015 and $3.7 billion at December 31, 2014.

If payment is required under these programs, we would not have a contractual interest in the collateral underlying the mortgage loans on which losses occurred, although the value of the collateral is taken into account in determining our share of such losses. Our exposure and activity associated with these recourse obligations are reported in the Corporate & Institutional Banking segment.

We maintain a reserve for estimated losses based upon our exposure. The reserve for losses under these programs totaled $35 million at both June 30, 2015 and June 30, 2014, and was included in Other liabilities on our Consolidated Balance

Sheet. An analysis of the changes in this liability during 2015 and 2014 follows:

Table 114: Analysis of Commercial Mortgage Recourse Obligations


In millions	2015		2014
January 1	$	35	$	33
Reserve adjustments, net				2
June 30	$	35	$	35

Residential Mortgage Loan and Home Equity Loan/ Line of Credit Repurchase Obligations

PNC’s repurchase obligations also include certain brokered home equity loans/lines of credit that were sold to a limited number of private investors in the financial services industry by National City prior to our acquisition of National City. PNC is no longer engaged in the brokered home equity lending business, and our exposure under these loan repurchase obligations is limited to repurchases of loans sold in these transactions. Repurchase activity associated with brokered home equity loans/lines of credit is reported in the Non-Strategic Assets Portfolio segment.

Indemnification and repurchase liabilities are initially recognized when loans are sold to investors and are subsequently evaluated by management. Initial recognition and subsequent adjustments to the indemnification and repurchase liability for the sold residential mortgage portfolio are recognized in Residential mortgage revenue on the Consolidated Income Statement. Since PNC is no longer engaged in the brokered home equity lending business, only subsequent adjustments are recognized to the home equity loans/lines indemnification and repurchase liability. These adjustments are recognized in Other noninterest income on the Consolidated Income Statement.

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

Management’s subsequent evaluation of these indemnification and repurchase liabilities is based upon trends in indemnification and repurchase requests, actual loss experience, risks in the underlying serviced loan portfolios, and current economic conditions. As part of its evaluation, management considers estimated loss projections over the life of the subject loan portfolio. At June 30, 2015 and June 30, 2014, the total indemnification and repurchase liability for estimated losses on indemnification and repurchase claims totaled $125 million and $126 million, respectively, and was included in Other liabilities on the Consolidated Balance Sheet. An analysis of the changes in this liability during 2015 and 2014 follows:

Table 115: Analysis of Indemnification and Repurchase Liability for Asserted Claims and Unasserted Claims


	2015									2014
In millions	Residential Mortgages (a)			Home Equity Loans/ Lines (b)			Total			Residential Mortgages (a)			Home Equity Loans/ Lines (b)			Total
January 1	$	107		$	29		$	136		$	131		$	22		$	153
Reserve adjustments, net		2						2			(17	)		12			(5	)
Losses – loan repurchases and private investor settlements		(12	)		(1	)		(13	)		(13	)		(9	)		(22	)
June 30	$	97		$	28		$	125		$	101		$	25		$	126

(a)	The unpaid principal balance of loans associated with our exposure to repurchase obligations totaled $66.5 billion and $69.8 billion at June 30, 2015 and June 30, 2014, respectively.

(b)	Repurchase obligation was associated with sold loan portfolios of $2.3 billion and $2.7 billion at June 30, 2015 and June 30, 2014, respectively. PNC is no longer engaged in the brokered home equity lending business, which was acquired with National City.

Management believes the indemnification and repurchase liabilities appropriately reflect the estimated probable losses on indemnification and repurchase claims for all loans sold and outstanding as of June 30, 2015. In making these estimates, we consider the losses that we expect to incur over the life of the sold loans. While management seeks to obtain all relevant information in estimating the indemnification and repurchase liability, the estimation process is inherently uncertain and imprecise and, accordingly, it is reasonably possible that future indemnification and repurchase losses could be more or less than our established liability. Factors that could affect our estimate include the volume of valid claims driven by investor strategies and behavior, our ability to successfully negotiate claims with investors, housing prices and other economic conditions. At June 30, 2015, we estimate that it is reasonably possible that we could incur additional losses in excess of our accrued indemnification and repurchase liability of up to approximately $81 million for our portfolio of residential mortgage loans sold. At June 30, 2015, the reasonably possible loss above our accrual for our portfolio of home equity loans/lines of credit sold was not material. This estimate of potential additional losses in excess of our liability is based on assumed higher repurchase claims and lower claim rescissions than our current assumptions.

Resale and Repurchase Agreements

We enter into repurchase and resale agreements where we transfer investment securities to/from a third party with the agreement to repurchase/resell those investment securities at a future date for a specified price. These agreements are entered into primarily to provide short-term financing for securities inventory positions, acquire securities to cover short positions and accommodate customers’ investing and financing needs. Repurchase and resale agreements are treated as collateralized financing transactions for accounting purposes and are generally carried at the amounts at which the securities will be

subsequently reacquired or resold, including accrued interest. Our policy is to take possession of securities purchased under agreements to resell. We monitor the market value of securities to be repurchased and resold and additional collateral may be obtained where considered appropriate to protect against credit exposure.

Repurchase and resale agreements are typically entered into with counterparties under industry standard master netting agreements which provide for the right to setoff amounts owed to one another with respect to multiple repurchase and resale agreements under such master netting agreement (referred to as netting arrangements) and liquidate the purchased or borrowed securities in the event of counterparty default. In order for an arrangement to be eligible for netting under GAAP, we must obtain the requisite assurance that the offsetting rights included in the master netting agreement would be legally enforceable in the event of bankruptcy, insolvency, or a similar proceeding of such third party. Enforceability is evidenced by obtaining a legal opinion that supports, with sufficient confidence, the enforceability of the master netting agreement in bankruptcy.

Table 116 shows the amounts owed under resale and repurchase agreements and the securities collateral associated with those agreements where a legal opinion supporting the enforceability of the offsetting rights has been obtained. We do not present resale and repurchase agreements entered into with the same counterparty under a legally enforceable master netting agreement on a net basis on our Consolidated Balance Sheet or within Table 116. The amounts reported in Table 116 exclude the fair value adjustment on the structured resale agreements of $7 million at both June 30, 2015 and December 31, 2014, respectively, that we have elected to account for at fair value. Refer to Note 7 Fair Value for additional information regarding the structured resale agreements at fair value.

The PNC Financial Services Group, Inc. – Form 10-Q 125

Refer to Note 11 Financial Derivatives for additional information related to offsetting of financial derivatives.

Table 116: Resale and Repurchase Agreements Offsetting


In millions	Gross Resale Agreements		Amounts Offset on the Consolidated Balance Sheet	Net Resale Agreements (a)		Securities Collateral Held Under Master Netting Agreements (b)		Net Amounts (c)
Resale Agreements
June 30, 2015	$	1,548		$	1,548	$	1,474	$	74
December 31, 2014	$	1,646		$	1,646	$	1,569	$	77


In millions	Gross Repurchase Agreements		Amounts Offset on the Consolidated Balance Sheet	Net Repurchase Agreements (d)		Securities Collateral Pledged Under Master Netting Agreements (b)		Net Amounts (e)
Repurchase Agreements
June 30, 2015	$	2,132		$	2,132	$	1,332	$	800
December 31, 2014	$	3,406		$	3,406	$	2,580	$	826

(a)

Represents the resale agreement amount included in Federal funds sold and resale agreements on our Consolidated Balance Sheet and the related accrued interest income in the amount of less than $1 million at June 30, 2015 and $1 million at December 31, 2014, respectively, which is included in Other Assets on the Consolidated Balance Sheet.

(b)	Represents the fair value of securities collateral purchased or sold, up to the amount owed under the agreement, for agreements supported by a legally enforceable master netting agreement.

(c)	Represents certain long term resale agreements which are fully collateralized but do not have the benefits of a netting opinion and, therefore, might be subject to a stay in insolvency proceedings and therefore are not eligible under ASC 210-20 for netting.

(d)

Represents the repurchase agreement amount included in Federal funds purchased and repurchase agreements on our Consolidated Balance Sheet and the related accrued interest expense in the amount of less than $1 million at both June 30, 2015 and December 31, 2014, which is included in Other Liabilities on the Consolidated Balance Sheet.

(e)

Represents overnight repurchase agreements entered into with municipalities, pension plans, and certain trusts and insurance companies which are fully collateralized but do not have the benefits of a netting opinion and, therefore, might be subject to a stay in insolvency proceedings and therefore are not eligible under ASC 210-20 for netting. There were no long term repurchase agreements as of June 30, 2015 and December 31, 2014.

Table 117 summarizes our gross repurchase agreements as of June 30, 2015 by type of collateral pledged. All repurchase agreements have remaining contractual maturities that are classified as overnight or continuous as of June 30, 2015. Overnight repurchase agreements have a one-day maturity while continuous repurchase agreements have no fixed maturity date and are cancellable by either party at any time.

Table 117: Repurchase Agreements By Type of Collateral Pledged


June 30, 2015- In millions	Overnight or Continuous
Gross Repurchase Agreements
U.S. Treasury and government agency securities	$	48
Residential mortgage-backed agency securities		1,994
Commercial mortgage-backed agency securities		90
Total	$	2,132

NOTE 17 SEGMENT REPORTING

We have six reportable business segments:

•

Retail Banking

•

Corporate & Institutional Banking

•

Asset Management Group

•

Residential Mortgage Banking

•

BlackRock

•

Non-Strategic Assets Portfolio

Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual businesses are not necessarily comparable with similar information for any other company. We periodically refine our internal methodologies as management reporting practices are enhanced. To the extent practicable, retrospective application of new methodologies is made to prior period reportable business segment results and disclosures to create comparability with the current period.

Financial results are presented, to the extent practicable, as if each business operated on a stand-alone basis. Additionally, we have aggregated the results for corporate support functions within “Other” for financial reporting purposes.

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

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

A portion of capital is intended to cover unexpected losses and is assigned to our business segments using our risk-based economic capital model, including consideration of the goodwill at those business segments, as well as the diversification of risk among the business segments, ultimately reflecting PNC’s portfolio risk adjusted capital allocation.

We have allocated the allowances for loan and lease losses and for unfunded loan commitments and letters of credit based on the loan exposures within each business segment’s portfolio. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower, and economic conditions. Key reserve assumptions are periodically updated.

Our allocation of the costs incurred by operations and other shared support areas not directly aligned with the businesses is primarily based on the use of services.

Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in the “Other” category in the business segment tables. “Other” includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as gains or losses related to BlackRock transactions, integration costs, asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and certain trading activities, exited businesses, private equity investments, intercompany eliminations, most corporate overhead, tax adjustments that are not allocated to business segments, and

differences between business segment performance reporting and financial statement reporting (GAAP), including the presentation of net income attributable to noncontrolling interests as the segments’ results exclude their portion of net income attributable to noncontrolling interests. Assets, revenue and earnings attributable to foreign activities were not material in the periods presented for comparative purposes.

Business Segment Products and Services

Retail Banking provides deposit, lending, brokerage, investment management and cash management services to consumer and small business customers within our primary geographic markets. Our customers are serviced through our branch network, ATMs, call centers, online banking and mobile channels. The branch network is located primarily in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida, Kentucky, Washington, D.C., Delaware, Virginia, Alabama, Missouri, Georgia, Wisconsin and South Carolina.

Corporate & Institutional Banking provides lending, treasury management, and capital markets-related products and services to mid-sized and large corporations, government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. Treasury management services include cash and investment management, receivables management, disbursement services, funds transfer services, information reporting and global trade services. Capital markets-related products and services include foreign exchange, derivatives, securities, loan syndications, mergers and acquisitions advisory, equity capital markets advisory and related services. We also provide commercial loan servicing and real estate advisory and technology solutions for the commercial real estate finance industry. Products and services are generally provided within our primary geographic markets, with certain products and services offered nationally and internationally.

Asset Management Group includes personal wealth management for high net worth and ultra high net worth clients and institutional asset management. Wealth management products and services include investment and retirement planning, customized investment management, private banking, tailored credit solutions, and trust management and administration for individuals and their families. Hawthorn provides multi-generational family planning including wealth strategy, investment management, private banking, tax and estate planning guidance, performance reporting and personal administration services to ultra high net worth families. Institutional asset management provides investment management, custody administration and retirement administration services. The business also offers PNC proprietary mutual funds. Institutional clients include corporations, unions, municipalities, non-profits, foundations and endowments, primarily located in our geographic footprint.

The PNC Financial Services Group, Inc. – Form 10-Q 127

Residential Mortgage Banking directly originates first lien residential mortgage loans on a nationwide basis with a significant presence within the retail banking footprint. Mortgage loans represent loans collateralized by one-to-four family residential real estate. These loans are typically underwritten to government agency and/or third-party standards, and either sold, servicing retained, or held on PNC’s balance sheet. Loan sales are primarily to secondary mortgage conduits of FNMA, FHLMC, Federal Home Loan Banks and third-party investors, or are securitized and issued under the GNMA program. The mortgage servicing operation performs all functions related to servicing mortgage loans, primarily those in first lien position, for various investors and for loans owned by PNC.

BlackRock is a leading publicly traded investment management firm providing a broad range of investment and risk management services to institutional and retail clients worldwide. Using a diverse platform of active and index investment strategies across asset classes, BlackRock develops investment outcomes and asset allocation solutions for clients. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and

money market instruments. BlackRock also offers an investment and risk management technology platform, risk analytics and advisory services and solutions to a broad base of institutional investors.

We hold an equity investment in BlackRock, which is a key component of our diversified revenue strategy. BlackRock is a publicly traded company, and additional information regarding its business is available in its filings with the Securities and Exchange Commission (SEC). At June 30, 2015, our economic interest in BlackRock was 22%.

PNC received cash dividends from BlackRock of $160 million and $142 million during the first six months of 2015 and 2014, respectively.

Non-Strategic Assets Portfolio includes a consumer portfolio of mainly residential mortgage and brokered home equity loans and lines of credit, and a small commercial/commercial real estate loan and lease portfolio. We obtained a significant portion of these non-strategic assets through acquisitions of other companies.

Table 118: Results Of Businesses


Three months ended June 30 In millions	Retail Banking		Corporate & Institutional Banking		Asset Management Group			Residential Mortgage Banking			BlackRock		Non-Strategic Assets Portfolio			Other (a)			Consolidated (a)
2015
Income Statement
Net interest income	$	1,045	$	837	$	71		$	30				$	100		$	(31	)	$	2,052
Noninterest income		590		492		243			176		$	175		9			129			1,814
Total revenue		1,635		1,329		314			206			175		109			98			3,866
Provision for credit losses (benefit)		45		20		1			(2	)				(5	)		(13	)		46
Depreciation and amortization		42		37		12			4								106			201
Other noninterest expense		1,168		510		203			174					26			84			2,165
Income (loss) before income taxes and noncontrolling interests		380		762		98			30			175		88			(79	)		1,454
Income taxes (benefit)		139		254		36			11			40		32			(102	)		410
Net income	$	241	$	508	$	62		$	19		$	135	$	56		$	23		$	1,044
Inter-segment revenue	$	1	$	11	$	3		$	4		$	4	$	(2	)	$	(21	)
Average Assets (a)	$	73,369	$	132,239	$	8,005		$	7,136		$	6,760	$	6,914		$	118,217		$	352,640
2014
Income Statement
Net interest income	$	973	$	889	$	72		$	37				$	137		$	21		$	2,129
Noninterest income		541		427		207			190		$	172		10			134			1,681
Total revenue		1,514		1,316		279			227			172		147			155			3,810
Provision for credit losses (benefit)		4		103		(6	)		1					(39	)		9			72
Depreciation and amortization		44		32		11			3								95			185
Other noninterest expense		1,111		472		191			166					30			173			2,143
Income (loss) before income taxes and noncontrolling interests		355		709		83			57			172		156			(122	)		1,410
Income taxes (benefit)		130		239		30			21			42		57			(161	)		358
Net income	$	225	$	470	$	53		$	36		$	130	$	99		$	39		$	1,052
Inter-segment revenue	$	1	$	7	$	3		$	8		$	4	$	(5	)	$	(18	)
Average Assets (a)	$	75,203	$	122,025	$	7,685		$	7,486		$	6,400	$	8,577		$	95,144		$	322,520

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


Six months ended June 30 In millions	Retail Banking		Corporate & Institutional Banking		Asset Management Group		Residential Mortgage Banking		BlackRock		Non-Strategic Assets Portfolio			Other			Consolidated
2015
Income Statement
Net interest income	$	2,082	$	1,660	$	144	$	60			$	212		$	(34	)	$	4,124
Noninterest income		1,078		921		451		353	$	351		18			301			3,473
Total revenue		3,160		2,581		595		413		351		230			267			7,597
Provision for credit losses (benefit)		94		37		13						(36	)		(8	)		100
Depreciation and amortization		85		73		23		7							206			394
Other noninterest expense		2,283		988		402		332				50			266			4,321
Income (loss) before income taxes and noncontrolling interests		698		1,483		157		74		351		216			(197	)		2,782
Income taxes (benefit)		255		493		58		27		82		79			(260	)		734
Net income	$	443	$	990	$	99	$	47	$	269	$	137		$	63		$	2,048
Inter-segment revenue	$	1	$	13	$	5	$	9	$	8	$	(4	)	$	(32	)
Average Assets (a)	$	73,691	$	131,711	$	7,974	$	7,190	$	6,760	$	7,094		$	115,941		$	350,361
2014
Income Statement
Net interest income	$	1,953	$	1,791	$	143	$	77			$	279		$	81		$	4,324
Noninterest income		1,055		791		406		356	$	332		16			307			3,263
Total revenue		3,008		2,582		549		433		332		295			388			7,587
Provision for credit losses (benefit)		149		90		6						(91	)		12			166
Depreciation and amortization		88		63		21		6							188			366
Other noninterest expense		2,167		929		380		376				56			318			4,226
Income (loss) before income taxes and noncontrolling interests		604		1,500		142		51		332		330			(130	)		2,829
Income taxes (benefit)		221		507		52		19		79		121			(282	)		717
Net income	$	383	$	993	$	90	$	32	$	253	$	209		$	152		$	2,112
Inter-segment revenue	$	2	$	5	$	6	$	12	$	8	$	(8	)	$	(25	)
Average Assets (a)	$	75,559	$	119,992	$	7,642	$	8,128	$	6,400	$	8,732		$	94,596		$	321,049

(a)	Period-end balances for BlackRock.

NOTE 18 SUBSEQUENT EVENTS

On July 21, 2015, PNC Bank issued:

•

$750 million of senior notes with a maturity date of July 20, 2018. Interest is payable semi-annually at a fixed rate of 1.850% on January 20 and July 20 of each year, beginning on January 20, 2016, and

•

$750 million of senior notes with a maturity date of July 21, 2020. Interest is payable semi-annually at a fixed rate of 2.600% on January 21 and July 21 of each year, beginning on January 21, 2016.

The PNC Financial Services Group, Inc. – Form 10-Q 129

STATISTICAL INFORMATION (UNAUDITED)

The PNC Financial Services Group, Inc.

Average Consolidated Balance Sheet And Net Interest Analysis (a) (b) (c)


	Six months ended June 30
	2015								2014
Taxable-equivalent basis Dollars in millions	Average Balances			Interest Income/ Expense		Average Yields/ Rates			Average Balances			Interest Income/ Expense		Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed (d)
Agency	$	19,924		$	254		2.55	%	$	19,959		$	262		2.63	%
Non-agency		4,568			105		4.61			5,290			134		5.05
Commercial mortgage-backed (d)		6,273			98		3.11			5,435			96		3.54
Asset-backed		5,184			55		2.10			5,496			52		1.87
U.S. Treasury and government agencies		5,174			31		1.20			4,528			28		1.25
State and municipal		1,971			45		4.60			2,376			54		4.56
Other debt		1,786			29		3.27			2,265			27		2.38
Corporate stocks and other		435					.10			386					.11
Total securities available for sale		45,315			617		2.72			45,735			653		2.86
Securities held to maturity
Residential mortgage-backed		7,618			118		3.09			5,966			106		3.56
Commercial mortgage-backed		2,050			40		3.90			2,674			52		3.90
Asset-backed		749			5		1.52			997			8		1.53
U.S. Treasury and government agencies		251			5		3.79			241			5		3.79
State and municipal		2,011			55		5.51			1,395			38		5.52
Other		316			5		3.00			334			5		2.94
Total securities held to maturity		12,995			228		3.51			11,607			214		3.69
Total investment securities		58,310			845		2.90			57,342			867		3.02
Loans
Commercial		98,117			1,474		2.99			90,698			1,535		3.37
Commercial real estate		24,370			443		3.61			22,217			460		4.12
Equipment lease financing		7,547			130		3.46			7,517			136		3.62
Consumer		60,855			1,259		4.17			62,781			1,311		4.21
Residential real estate		14,383			352		4.89			14,701			366		4.98
Total loans		205,272			3,658		3.56			197,914			3,808		3.85
Interest-earning deposits with banks		31,392			39		.25			13,410			17		.25
Loans held for sale		2,169			46		4.26			2,005			47		4.75
Federal funds sold and resale agreements		1,808			2		.22			1,299			2		.40
Other		5,259			132		5.03			5,111			118		4.62
Total interest-earning assets/interest income		304,210			4,722		3.10			277,081			4,859		3.51
Noninterest-earning assets:
Allowance for loan and lease losses		(3,313	)							(3,551	)
Cash and due from banks		4,010								3,832
Other		45,454								43,687
Total assets	$	350,361							$	321,049
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market	$	80,930			102		.25		$	74,148			65		.18
Demand		46,207			12		.05			42,977			10		.05
Savings		13,416			11		.16			11,694			6		.09
Retail certificates of deposit		18,437			63		.69			20,274			75		.75
Time deposits in foreign offices and other time		2,246			2		.18			2,119			2		.17
Total interest-bearing deposits		161,236			190		.24			151,212			158		.21
Borrowed funds
Federal funds purchased and repurchase agreements		2,916			2		.13			3,794			2		.09
Federal Home Loan Bank borrowings		21,391			49		.46			13,649			34		.50
Bank notes and senior debt		15,883			102		1.27			13,409			101		1.50
Subordinated debt		8,852			116		2.62			8,307			108		2.59
Commercial paper		4,309			7		.34			4,923			7		.28
Other		3,406			34		1.97			2,665			32		2.40
Total borrowed funds		56,757			310		1.09			46,747			284		1.21
Total interest-bearing liabilities/interest expense		217,993			500		.45			197,959			442		.45
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits		74,245								67,951
Allowance for unfunded loan commitments and letters of credit		246								235
Accrued expenses and other liabilities		11,935								10,078
Equity		45,942								44,826
Total liabilities and equity	$	350,361							$	321,049
Interest rate spread							2.65								3.06
Impact of noninterest-bearing sources							.13								.13
Net interest income/margin				$	4,222		2.78	%				$	4,417		3.19	%

(a)

Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value, with changes in fair value recorded in trading noninterest income, are included in noninterest-earning assets and noninterest-bearing liabilities.

(b)	Loan fees for the six months ended June 30, 2015 and June 30, 2014 were $50 million and $92 million, respectively. Loan fees for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014 were $23 million, $27 million and $33 million, respectively.

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



Second Quarter 2015								First Quarter 2015								Second Quarter 2014
Average Balances			Interest Income/ Expense		Average Yields/ Rates			Average Balances			Interest Income/ Expense		Average Yields/ Rates			Average Balances			Interest Income/ Expense		Average Yields/ Rates





	$20,550		$	125		2.43	%	$	19,290		$	129		2.67	%	$	19,207		$	125		2.62	%
	4,480			52		4.70			4,657			53		4.51			5,204			68		5.19
	6,286			48		3.03			6,260			50		3.19			5,295			48		3.59
	5,228			28		2.12			5,140			27		2.08			5,400			27		1.96
	5,204			15		1.12			5,142			16		1.27			4,883			15		1.20
	1,973			23		4.76			1,969			22		4.45			2,104			22		4.27
	1,796			18		4.01			1,777			11		2.53			2,028			12		2.35
	414					.10			457					.10			362					.11
	45,931			309		2.69			44,692			308		2.75			44,483			317		2.84

	8,196			61		2.95			7,035			57		3.26			5,977			53		3.55
	2,005			18		3.63			2,097			22		4.16			2,560			24		3.76
	743			2		1.53			755			3		1.52			990			4		1.54
	252			3		3.81			249			2		3.77			242			3		3.80
	2,004			27		5.49			2,018			28		5.52			1,732			23		5.47
	311			3		3.12			320			2		2.89			331			2		2.87
	13,511			114		3.37			12,474			114		3.67			11,832			109		3.69
	59,442			423		2.85			57,166			422		2.95			56,315			426		3.02

	98,364			746		3.00			97,866			728		2.98			91,866			751		3.24
	24,812			215		3.44			23,924			228		3.80			22,775			232		4.04
	7,556			65		3.45			7,539			65		3.47			7,564			68		3.61
	60,240			621		4.13			61,476			638		4.21			62,472			649		4.16
	14,416			177		4.91			14,350			175		4.88			14,556			177		4.86
	205,388			1,824		3.54			205,155			1,834		3.59			199,233			1,877		3.75
	32,368			20		.25			30,405			19		.25			14,650			10		.27
	2,092			23		4.33			2,246			23		4.20			2,060			24		4.79
	1,959			1		.22			1,655			1		.22			1,184			1		.49
	5,470			63		4.65			5,046			69		5.43			4,927			65		5.26
	306,719			2,354		3.06			301,673			2,368		3.15			278,369			2,403		3.44

	(3,309	)							(3,317	)							(3,512	)
	3,954								4,067								3,776
	45,276								45,634								43,887
	$352,640							$	348,057							$	322,520



	$81,857			55		.27		$	79,994			47		.24		$	74,261			33		.18
	46,281			5		.05			46,131			7		.06			43,316			5		.05
	13,775			6		.17			13,053			5		.15			11,976			4		.10
	18,334			31		.68			18,541			32		.71			20,012			37		.74
	2,300			1		.16			2,192			1		.19			2,168			1		.17
	162,547			98		.24			159,911			92		.23			151,733			80		.21

	2,718			1		.14			3,116			1		.12			3,343			1		.07
	22,001			25		.46			20,774			24		.45			14,193			17		.50
	16,408			50		1.19			15,351			52		1.36			13,490			51		1.51
	8,861			58		2.61			8,851			58		2.64			8,570			57		2.65
	3,640			3		.35			4,986			4		.34			4,917			4		.29
	3,537			18		1.95			3,274			16		1.99			2,591			17		2.60
	57,165			155		1.07			56,352			155		1.10			47,104			147		1.24
	219,712			253		.46			216,263			247		.46			198,837			227		.45

	75,299								73,178								68,219
	234								260								228
	11,540								12,326								10,035
	45,855								46,030								45,201
	$352,640							$	348,057							$	322,520
						2.60								2.69								2.99
						.13								.13								.13
			$	2,101		2.73	%				$	2,121		2.82	%				$	2,176		3.12	%

(c)

Interest income includes the effects of taxable-equivalent adjustments using a statutory federal income tax rate of 35% to increase tax-exempt interest income to a taxable-equivalent basis. The taxable-equivalent adjustments to interest income for the six months ended June 30, 2015 and June 30, 2014 were $98 million and $93 million, respectively. The taxable-equivalent adjustments to interest income for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014 were $49 million, $49 million and $47 million, respectively.

(d)

In the third quarter of 2014, these line items were corrected for all periods then presented due to a misclassification of Government National Mortgage Association (GNMA) securities collateralized by project loans, which were previously reported as residential mortgage-backed agency securities and have been reclassified to commercial mortgage-backed securities, and these lines are now also corrected for the six months ended June 30, 2014.

The PNC Financial Services Group, Inc. – Form 10-Q 131

Transitional Basel III and Pro forma Fully Phased-In Basel III Common Equity Tier 1 Capital Ratios – 2014 Periods


	2014 Transitional Basel III						Pro forma Fully Phased-In Basel III (a) (b)
Dollars in millions	December 31 2014			June 30 2014			December 31 2014			June 30 2014
Common stock, related surplus and retained earnings, net of treasury stock	$	40,103		$	39,380		$	40,103		$	39,380

Less regulatory capital adjustments:
Goodwill and disallowed intangibles, net of deferred tax liabilities		(8,939	)		(8,923	)		(9,276	)		(9,262	)
Basel III total threshold deductions		(212	)		(216	)		(1,081	)		(1,075	)
Accumulated other comprehensive income (c)		40			115			201			576
All other adjustments		(63	)		(5	)		(121	)		(74	)
Estimated Basel III Common equity Tier 1 capital	$	30,929		$	30,351		$	29,826		$	29,545
Estimated Basel I risk-weighted assets calculated in accordance with transition rules (d)	$	284,018		$	277,126			N/A			N/A
Estimated Basel III standardized approach risk-weighted assets (e)		N/A			N/A		$	298,786		$	295,217
Estimated Basel III advanced approaches risk-weighted assets (f)		N/A			N/A		$	285,870		$	290,063
Estimated Basel III Common equity Tier 1 capital ratio		10.9	%		11.0	%		10.0	%		10.0	%
Risk weight and associated rules utilized		Basel I (with 2014 transition adjustments)						Standardized

(a)	PNC utilizes the pro forma fully phased-in Basel III capital ratios to assess its capital position (without the benefit of phase-ins), including comparison to similar estimates made by other financial institutions.

(b)

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

(c)	Represents net adjustments related to accumulated other comprehensive income for securities currently and previously held as available for sale, as well as pension and other postretirement plans.

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

(e)	Basel III standardized approach risk-weighted assets were estimated based on the Basel III standardized approach rules and include credit and market risk-weighted assets.

(f)	Basel III advanced approaches risk-weighted assets were estimated based on the Basel III advanced approaches rules, and include credit, market and operational risk-weighted assets.

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

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the information set forth in Note 15 Legal Proceedings in the Notes To Consolidated Financial Statements under Part I, Item 1 of this Report, which is incorporated by reference in response to this item.

ITEM 1A. RISK FACTORS

There are no material changes from any of the risk factors previously disclosed in PNC’s 2014 Form 10-K in response to Part I, Item 1A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Details of our repurchases of PNC common stock during the second quarter of 2015 are included in the following table:


2015 period In thousands, except per share data	Total shares purchased (a)		Average price paid per share		Total shares purchased as part of publicly announced programs (b)		Maximum number of shares that may yet be purchased under the programs (b)
April 1 – 30		2,770	$	92.13		2,730		97,270
May 1 – 31		1,739	$	94.02		1,739		95,531
June 1 – 30		1,404	$	97.29		1,399		94,132
Total		5,913	$	93.91

(a)

Includes PNC common stock purchased in connection with our various employee benefit plans generally related to forfeitures of unvested restricted stock awards and shares used to cover employee payroll tax withholding requirements. Note 13 Employee Benefit Plans and Note 14 Stock Based Compensation Plans in the Notes To Consolidated Financial Statements in Item 8 of our 2014 Annual Report on Form 10-K include additional information regarding our employee benefit and equity compensation plans that use PNC common stock.

(b)

On March 11, 2015, we announced that our Board of Directors had approved the establishment of a new stock repurchase program authorization in the amount of 100 million shares of PNC common stock, effective April 1, 2015. Repurchases are made in open market or privately negotiated transactions and the timing and exact amount of common stock repurchases will depend on a number of factors including, among others, market and general economic conditions, economic capital and regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations, including the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the CCAR process.

Our 2015 capital plan, submitted as part of the CCAR process and accepted by the Federal Reserve, included share repurchase programs of up to $2.875 billion for the five quarter period beginning with the second quarter of 2015. This amount does not include share repurchases in connection with various employee benefit plans referenced in note (a). In the second quarter of 2015, in accordance with PNC’s 2015 capital plan and under the share repurchase authorization in effect during that period, we repurchased 5.9 million shares of common stock on the open market, with an average price of $93.93 per share and an aggregate repurchase price of $.6 billion. See the Capital portion of the Consolidated Balance Sheet Review in Part I, Item 2 of this Report for more information on the share repurchase programs under the new share repurchase authorization referenced above for the period April 1, 2015 through June 30, 2016 included in the 2015 capital plan accepted by the Federal Reserve.

ITEM 6. EXHIBITS

The following exhibit index lists Exhibits filed, or in the case of Exhibits 32.1 and 32.2 furnished, with this Quarterly Report on Form 10-Q:

EXHIBIT INDEX


4.21.2		Amendment No. 1 to Issuing and Paying Agency Agreement, dated May 22, 2015, between PNC Bank, National Association and PNC Bank, National Association, relating to the $30 billion Global Bank Note Program for the Issue of Senior and Subordinated Bank Notes

4.29		Form of PNC Bank, National Association Global Bank Note for Fixed Rate Global Subordinated Bank Note issued after May 22, 2015 with Maturity of five years or more from Date of Issuance (incorporated herein by reference to Exhibit 4.21.2)

4.30		Form of PNC Bank, National Association Global Bank Note for Floating Rate Global Subordinated Bank Note issued after May 22, 2015 with Maturity of five years or more from Date of Issuance (incorporated herein by reference to Exhibit 4.21.2)

10.47.2		Amendment No. 1 to Distribution Agreement, dated May 22, 2015, between PNC Bank, National Association and the Dealers named therein, relating to the $30 billion Global Bank Note Program for the Issue of Senior and Subordinated Bank Notes

10.50		2015 Forms of Performance Restricted Share Unit Award Agreements

10.51		2015 Forms of Incentive Performance Unit Award Agreements

10.52		2015 Forms of Restricted Share Unit Award Agreements

12.1		Computation of Ratio of Earnings to Fixed Charges

12.2		Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101		Interactive Data File (XBRL)

You can obtain copies of these Exhibits electronically at the SEC’s website at www.sec.gov or by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549 at prescribed rates. The Exhibits are also available as part of this Form 10-Q on PNC’s corporate website at www.pnc.com/secfilings. Shareholders and bondholders may also obtain copies of Exhibits, without charge, by contacting Shareholder Relations at 800-843-2206 or via e-mail at investor.relations@pnc.com. The interactive data file (XBRL) exhibit is only available electronically.

The PNC Financial Services Group, Inc. – Form 10-Q 133

CORPORATE INFORMATION

The PNC Financial Services Group, Inc.

Corporate Headquarters

The PNC Financial Services Group, Inc.

One PNC Plaza, 249 Fifth Avenue

Pittsburgh, Pennsylvania 15222-2707

412-762-2000

Stock Listing

The common stock of The PNC Financial Services Group, Inc. is listed on the New York Stock Exchange under the symbol “PNC”.

Internet Information

The PNC Financial Services Group, Inc.’s financial reports and information about its products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under “About Us – Investor Relations,” such as Investor Events, SEC Filings, Financial Information (including Quarterly Earnings, Annual Reports, Proxy Statements and Regulatory Disclosures), Financial Press Releases, Message from the Chairman and Corporate Governance. Under “Investor Relations,” we will from time to time post information that we believe may be important or useful to investors. We use our Twitter account, @pncnews, as an additional way of disseminating public information from time to time to investors. We generally post the following on our corporate website shortly before or promptly following its first use or release: financially-related press releases (including earnings releases), various SEC filings, including annual, quarterly and current reports, presentation materials associated with earnings and other investor conference calls or events, and access to live and taped audio from earnings and other investor conference calls or events. In some cases, we may post the presentation materials for other investor conference calls or events several days prior to the call or event. For earnings and other conference calls or events, we generally include in our posted materials a cautionary statement regarding forward-looking and adjusted information and we provide GAAP reconciliations when we refer to adjusted information and results. Where applicable, we provide GAAP reconciliations for such additional information in materials for that event or in materials for other prior investor presentations or in our annual, quarterly or current reports. When warranted, we will also use our website to expedite public access to time-critical information regarding PNC in advance of distribution of a press release or a filing with the SEC disclosing the same information.

PNC was also required to provide additional public disclosure regarding estimated income, losses and pro forma regulatory capital ratios in March 2015 under a supervisory hypothetical severely adverse economic scenario and a similar public

disclosure in July 2015 under a PNC-developed hypothetical severely adverse economic scenario, as well as information concerning its capital stress testing processes, pursuant to the stress testing regulations adopted by the Federal Reserve and the OCC. PNC is also required to make certain additional regulatory capital-related public disclosures about PNC’s capital structure, risk exposures, risk assessment processes, risk-weighted assets and overall capital adequacy, including market risk-related disclosures, under the regulatory capital rules adopted by the Federal banking agencies. Under these regulations, PNC may satisfy these requirements through postings on its website, and PNC has done so and expects to continue to do so without also providing disclosure of this information through filings with the SEC. We also post on our website communications to our shareholders, such as the letter to shareholders that accompanies the Form 10-K mailed to shareholders, and may not file them as exhibits to filings with the SEC when not expressly required.

You can also find the SEC reports and corporate governance information described in the sections below in the Investor Relations section of our website.

Where we have included web addresses in this Report, such as our web address and the web address of the SEC, we have included those web addresses as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part hereof.

Financial Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act) and, in accordance with the Exchange Act, we file annual, quarterly and current reports, proxy statements, and other information with the SEC. Our SEC File Number is 001-09718. You can obtain copies of these and other filings, including exhibits, electronically at the SEC’s internet website at www.sec.gov or on PNC’s corporate internet website at www.pnc.com/secfilings. Shareholders and bond holders may also obtain copies of these filings without charge by contacting Shareholder Services at 800-982-7652 or via the online contact form at www.computershare.com/contactus for copies without exhibits, and by contacting Shareholder Relations at 800-843-2206 or via email at investor.relations@pnc.com for copies of exhibits, including financial statement and schedule exhibits where applicable. The interactive data file (XBRL) exhibit is only available electronically.

Corporate Governance at PNC

Information about our Board of Directors and its committees and corporate governance at PNC is available on PNC’s corporate website at www.pnc.com/corporategovernance. Our PNC Code of Business Conduct and Ethics is available on our corporate website at www.pnc.com/corporategovernance. In addition, any future amendments to, or waivers from, a

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

provision of the PNC Code of Business Conduct and Ethics that applies to our directors or executive officers (including our principal executive officer, principal financial officer, and principal accounting officer or controller) will be posted at this internet address.

Shareholders who would like to request printed copies of the PNC Code of Business Conduct and Ethics or our Corporate Governance Guidelines or the charters of our Board’s Audit, Nominating and Governance, Personnel and Compensation, or Risk Committees (all of which are posted on the PNC corporate website) may do so by sending their requests to PNC’s Corporate Secretary at corporate headquarters at the above address. Copies will be provided without charge to shareholders.

Inquiries

For financial services call 888-PNC-2265.

Individual shareholders should contact Shareholder Services at 800-982-7652.

Analysts and institutional investors should contact William H. Callihan, Senior Vice President, Director of Investor Relations, at 412-762-8257 or via email at investor.relations@pnc.com.

News media representatives and others seeking general information should contact Fred Solomon, Senior Vice President, Corporate Communications, at 412-762-4550 or via email at corporate.communications@pnc.com.

Common Stock Prices/Dividends Declared

The table below sets forth by quarter the range of high and low sale and quarter-end closing prices for The PNC Financial Services Group, Inc. common stock and the cash dividends declared per common share.


	High		Low		Close		Cash Dividends Declared (a)
2015 Quarter
First	$	96.71	$	81.84	$	93.24	$	.48
Second		99.61		90.42		95.65		.51
Total							$	.99
2014 Quarter
First	$	87.80	$	76.06	$	87.00	$	.44
Second		89.85		79.80		89.05		.48
Third		90.00		80.43		85.58		.48
Fourth		93.45		76.69		91.23		.48
Total							$	1.88

(a)	Our Board approved a third quarter 2015 cash dividend of $.51 per common share, which was payable on August 5, 2015.

Dividend Policy

Holders of PNC common stock are entitled to receive dividends when declared by the Board of Directors out of funds legally available for this purpose. Our Board of Directors may not pay or set apart dividends on the common stock until dividends for all past dividend periods on any series of outstanding preferred stock have been paid or declared and set apart for payment. The Board presently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions, our financial condition and operating results, and other factors, including contractual restrictions and applicable government regulations and policies (such as those relating to the ability of bank and non-bank subsidiaries to pay dividends to the parent company and regulatory capital limitations). The amount of our dividend is also currently subject to the results of the supervisory assessment of capital adequacy and capital planning processes undertaken by the Federal Reserve as part of the 2015 Comprehensive Capital Analysis and Review (CCAR) process as described in the Executive Summary section of the Financial Review of this Report and in Supervision and Regulation section in Item 1 of our 2014 Form 10-K.

Dividend Reinvestment And Stock Purchase Plan

The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase Plan enables holders of our common and preferred Series B stock to conveniently purchase additional shares of common stock. You can obtain a prospectus and enrollment form by contacting Shareholder Services at 800-982-7652.

Stock Transfer Agent And Registrar

Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

800-982-7652

Registered shareholders may contact the above phone number regarding dividends and other shareholder services.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on August 5, 2015 on its behalf by the undersigned thereunto duly authorized.

The PNC Financial Services Group, Inc.

/s/ Robert Q. Reilly

Robert Q. Reilly

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

The PNC Financial Services Group, Inc. – Form 10-Q 135