Edgar Filing: PNC FINANCIAL SERVICES GROUP, INC.

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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 March 31, 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 April 24, 2015, there were 517,920,355 shares of the registrant’s common stock ($5 par value) outstanding.

THE PNC FINANCIAL SERVICES GROUP, INC.

Cross-Reference Index to First 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		66
Note 3 Asset Quality		69
Note 4 Purchased Loans		80
Note 5 Allowances for Loan and Lease Losses and Unfunded Loan Commitments and Letters of Credit		82
Note 6 Investment Securities		85
Note 7 Fair Value		89
Note 8 Goodwill and Intangible Assets		98
Note 9 Capital Securities of a Subsidiary Trust and Perpetual Trust Securities		100
Note 10 Certain Employee Benefit And Stock Based Compensation Plans		100
Note 11 Financial Derivatives		102
Note 12 Earnings Per Share		109
Note 13 Total Equity And Other Comprehensive Income		110
Note 14 Income Taxes		113
Note 15 Legal Proceedings		113
Note 16 Commitments and Guarantees		115
Note 17 Segment Reporting		119
Note 18 Subsequent Events		121

Statistical Information (Unaudited)
Average Consolidated Balance Sheet And Net Interest Analysis		122
Transitional Basel III and Pro forma Fully Phased-In Basel III Common Equity Tier 1 Capital Ratios – 2014 Periods		124

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
Financial Review		1
Consolidated Financial Highlights		1
Executive Summary		3
Consolidated Income Statement Review		8
Consolidated Balance Sheet Review		10
Off-Balance Sheet Arrangements And Variable Interest Entities		20
Fair Value Measurements		21
Business Segments Review		21
Critical Accounting Estimates and Judgments		29
Status Of Qualified Defined Benefit Pension Plan		30
Recourse And Repurchase Obligations		31
Risk Management		32
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		32-49, 89-98 and 102-108

Item 4. Controls and Procedures		49

PART II – OTHER INFORMATION		125

Item 1. Legal Proceedings		125

Item 1A. RiskFactors		125

Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds		125

Item 6. Exhibits		126

Exhibit Index		126

Corporate Information		127

Signature		128

THE PNC FINANCIAL SERVICES GROUP, INC.

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

MD&A TABLE REFERENCE


Table	Description	Page
1	Consolidated Financial Highlights		1
2	Summarized Average Balance Sheet		6
3	Results Of Businesses – Summary		7
4	Net Interest Income and Net Interest Margin		8
5	Noninterest Income		8
6	Summarized Balance Sheet Data		10
7	Details Of Loans		11
8	Accretion – Purchased Impaired Loans		12
9	Purchased Impaired Loans – Accretable Yield		12
10	Valuation of Purchased Impaired Loans		12
11	Weighted Average Life of the Purchased Impaired Portfolios		13
12	Accretable Difference Sensitivity – Total Purchased Impaired Loans		13
13	Commitments to Extend Credit		13
14	Investment Securities		14
15	Loans Held For Sale		15
16	Details Of Funding Sources		16
17	Shareholders’ Equity		16
18	Basel III Capital		18
19	Fair Value Measurements – Summary		21
20	Retail Banking Table		22
21	Corporate & Institutional Banking Table		24
22	Asset Management Group Table		26
23	Residential Mortgage Banking Table		27
24	BlackRock Table		28
25	Non-Strategic Assets Portfolio Table		29
26	Pension Expense – Sensitivity Analysis		31
27	Nonperforming Assets By Type		33
28	Change in Nonperforming Assets		33
29	OREO and Foreclosed Assets		34
30	Accruing Loans Past Due		34
31	Home Equity Lines of Credit – Draw Period End Dates		35
32	Consumer Real Estate Related Loan Modifications		36
33	Consumer Real Estate Related Loan Modifications Re-Default by Vintage		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		43
41	Credit Ratings as of March 31, 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 (First 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 First 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		68
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		79
64	Impaired Loans		80
65	Purchased Impaired Loans – Balances		81
66	Purchased Impaired Loans – Accretable Yield		82
67	Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data		83
68	Rollforward of Allowance for Unfunded Loan Commitments and Letters of Credit		84
69	Investment Securities Summary		85
70	Gross Unrealized Loss and Fair Value of Securities Available for Sale		86
71	Rollforward of Cumulative OTTI Credit Losses Recognized in Earnings		87
72	Gains (Losses) on Sales of Securities Available for Sale		88
73	Contractual Maturity of Debt Securities		88
74	Weighted-Average Expected Maturity of Mortgage and Other Asset-Backed Debt Securities		89
75	Fair Value of Securities Pledged and Accepted as Collateral		89
76	Fair Value Measurements – Recurring Basis Summary		90
77	Reconciliation of Level 3 Assets and Liabilities		91
78	Fair Value Measurements – Recurring Quantitative Information		93
79	Fair Value Measurements – Nonrecurring		95
80	Fair Value Measurements – Nonrecurring Quantitative Information		95
81	Fair Value Option – Changes in Fair Value		95
82	Fair Value Option – Fair Value and Principal Balances		96
83	Additional Fair Value Information Related to Other Financial Instruments		97
84	Goodwill by Business Segment		98
85	Mortgage Servicing Rights		98
86	Commercial Mortgage Loan Servicing Rights – Key Valuation Assumptions		99
87	Residential Mortgage Loan Servicing Rights – Key Valuation Assumptions		99
88	Fees from Mortgage and Other Loan Servicing		99
89	Other Intangible Assets		99
90	Amortization Expense on Existing Intangible Assets		99
91	Net Periodic Pension and Postretirement Benefits Costs		100
92	Stock Option Rollforward		101
93	Nonvested Incentive/Performance Unit Share Awards and Restricted Stock/Share Unit Awards – Rollforward		101
94	Nonvested Cash-Payable Incentive/Performance Units and Restricted Share Units – Rollforward		102
95	Total Gross Derivatives		102
96	Derivatives Designated As Hedging Instruments under GAAP		103
97	Gains (Losses) on Derivatives and Related Hedged Items – Fair Value Hedges		103
98	Gains (Losses) on Derivatives and Related Cash Flows – Cash Flow Hedges		104
99	Gains (Losses) on Derivatives – Net Investment Hedges		104
100	Derivatives Not Designated As Hedging Instruments under GAAP		105
101	Gains (Losses) on Derivatives Not Designated As Hedging Instruments under GAAP		106
102	Credit Default Swaps		106
103	Credit Ratings of Credit Default Swaps		106
104	Referenced/Underlying Assets of Credit Default Swaps		106
105	Risk Participation Agreements Sold		107
106	Derivative Assets and Liabilities Offsetting		107
107	Basic and Diluted Earnings per Common Share		109

THE PNC FINANCIAL SERVICES GROUP, INC.

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


Table	Description	Page
108	Rollforward of Total Equity		110
109	Other Comprehensive Income		111
110	Accumulated Other Comprehensive Income (Loss) Components		112
111	Net Operating Loss Carryforwards and Tax Credit Carryforwards		113
112	Commitments to Extend Credit and Other Commitments		115
113	Internal Credit Ratings Related to Net Outstanding Standby Letters of Credit		115
114	Reinsurance Agreements Exposure		116
115	Reinsurance Reserves – Rollforward		116
116	Analysis of Commercial Mortgage Recourse Obligations		117
117	Analysis of Indemnification and Repurchase Liability for Asserted Claims and Unasserted Claims		118
118	Resale and Repurchase Agreements Offsetting		119
119	Results Of Businesses		121

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: the Risk Management and Recourse And Repurchase Obligations sections of the Financial Review portion of this Report and of Item 7 of our 2014 Form 10-K, respectively; 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


Dollars in millions, except per share data Unaudited	Three months ended March 31
Dollars in millions, except per share data Unaudited	2015			2014
Financial Results (a)
Revenue
Net interest income	$	2,072		$	2,195
Noninterest income		1,659			1,582
Total revenue		3,731			3,777
Noninterest expense		2,349			2,264
Pretax, pre-provision earnings (b)		1,382			1,513
Provision for credit losses		54			94
Income before income taxes and noncontrolling interests	$	1,328		$	1,419
Net income	$	1,004		$	1,060
Less:
Net income (loss) attributable to noncontrolling interests		1			(2	)
Preferred stock dividends and discount accretion and redemptions		70			70
Net income attributable to common shareholders	$	933		$	992
Less:
Dividends and undistributed earnings allocated to nonvested restricted shares		2			3
Impact of BlackRock earnings per share dilution		5			6
Net income attributable to diluted common shares	$	926		$	983
Diluted earnings per common share	$	1.75		$	1.82
Cash dividends declared per common share	$	.48		$	.44
Performance Ratios
Net interest margin (c)		2.82	%		3.26	%
Noninterest income to total revenue		44			42
Efficiency		63			60
Return on:
Average common shareholders’ equity		9.32			10.36
Average assets		1.17			1.35

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

(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 financial 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 March 31, 2015 and March 31, 2014 were $49 million and $46 million, respectively.

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

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


Unaudited	March 31 2015			December 31 2014			March 31 2014
Balance Sheet Data (dollars in millions, except per share data)
Assets	$	350,960		$	345,072		$	323,423
Loans		204,722			204,817			198,242
Allowance for loan and lease losses		3,306			3,331			3,530
Interest-earning deposits with banks (b)		31,198			31,779			14,877
Investment securities		60,768			55,823			58,644
Loans held for sale		2,423			2,262			2,102
Goodwill		9,103			9,103			9,074
Mortgage servicing rights		1,333			1,351			1,568
Equity investments (c)		10,523			10,728			10,337
Other assets		25,538			23,482			23,315

Noninterest-bearing deposits		74,944			73,479			70,063
Interest-bearing deposits		161,559			158,755			152,319
Total deposits		236,503			232,234			222,382
Transaction deposits		202,272			198,267			188,105
Borrowed funds		56,829			56,768			46,806
Total shareholders’ equity		45,025			44,551			43,321
Common shareholders’ equity		41,077			40,605			39,378
Accumulated other comprehensive income		703			503			656

Book value per common share	$	78.99		$	77.61		$	73.73
Common shares outstanding (millions)		520			523			534
Loans to deposits		87	%		88	%		89	%

Client Investment Assets (billions)
Discretionary client assets under management	$	136		$	135		$	130
Nondiscretionary client assets under administration		129			128			125
Total client assets under administration		265			263			255
Brokerage account client assets		44			43			41
Total	$	309		$	306		$	296

Capital Ratios
Transitional Basel III (d) (e)
Common equity Tier 1		10.5	%		10.9	%		10.8	%
Tier 1 risk-based		12.0			12.6			12.6
Total capital risk-based		15.0			15.8			15.8
Leverage		10.5			10.8			11.1

Pro forma Fully Phased-In Basel III (e)
Common equity Tier 1		10.0	%		10.0	%		9.7	%

Common shareholders’ equity to assets		11.7	%		11.8	%		12.2	%

Asset Quality
Nonperforming loans to total loans		1.17	%		1.23	%		1.49	%
Nonperforming assets to total loans, OREO and foreclosed assets		1.34			1.40			1.66
Nonperforming assets to total assets		.78			.83			1.02
Net charge-offs to average loans (for the three months ended) (annualized)		.20			.23			.38
Allowance for loan and lease losses to total loans		1.61			1.63			1.78
Allowance for loan and lease losses to nonperforming loans (f)		137	%		133	%		120	%
Accruing loans past due 90 days or more (in millions)	$	988		$	1,105		$	1,310

(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 $30.8 billion, $31.4 billion, and $14.5 billion as of March 31, 2015, December 31, 2014 and March 31, 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 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 uncertainty 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.

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.

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 March 11, 2015, the Federal Reserve announced the results of its 2015 CCAR exercise. As we announced on that date, the Federal Reserve accepted the capital plan that PNC submitted in January 2015 and did not object to the capital actions included in that plan. See the Capital portion of the Consolidated Balance Sheet Review section of this Financial Review. Of the 30 other bank holding companies participating in 2015 CCAR, the Federal Reserve announced that it did not

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

object to the capital plans of 27 other bank holding companies, provided a conditional non-objection to the capital plan of one bank holding company based on qualitative grounds and objected to the capital plans of two other bank holding companies also for qualitative reasons.

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 Item 8 of 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

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 our other SEC filings, 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, please 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 for the first quarter of 2015 was $1.0 billion, or $1.75 per diluted common share, compared to $1.1 billion, or $1.82 per diluted common share for the first quarter of 2014. Net income decreased $56 million in the comparison, as a 4% increase in noninterest expense and a 1% decrease in revenue were partially offset by lower provision for credit losses. Lower revenue in the comparison reflected a 6% decline in net interest income, which was partially offset by a 5% increase in noninterest income. For additional detail, see the Consolidated Income Statement Review section in this Financial Review.

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

•

Net interest income of $2.1 billion for the first quarter of 2015 decreased 6% compared with the first quarter of 2014, primarily driven by lower loan yields and a reduction in purchase accounting accretion, partially offset by commercial and commercial real estate loan growth.

•

Net interest margin decreased to 2.82% for the first quarter of 2015 compared to 3.26% for the first quarter of 2014. The decline was principally due to the impact of balance sheet management activities related to regulatory short-term liquidity standards, lower loan yields and lower benefit from purchase accounting accretion.

•

Noninterest income of $1.7 billion for the first quarter of 2015 increased 5% compared to the first quarter of 2014, due to strong client fee income growth and higher net securities gains, partially offset by the impact of a gain on sale of Visa Class B common shares in the prior year quarter.

•

The provision for credit losses decreased to $54 million for the first quarter of 2015 compared to $94 million for the first quarter of 2014 reflecting overall credit quality improvement.

•

Noninterest expense of $2.3 billion for the first quarter of 2015 increased 4% compared with the first quarter of 2014, primarily related to PNC’s investments in technology and business infrastructure in support of its strategic priorities and higher personnel expense, partially offset by lower legal and residential mortgage compliance costs.

Credit Quality Highlights

•

Overall credit quality for the first quarter of 2015 improved modestly compared with the fourth quarter of 2014. For additional detail, see the Credit Risk Management portion of the Risk Management section of this Financial Review.

•

Nonperforming assets decreased $.1 billion, or 4%, to $2.8 billion at March 31, 2015 compared to December 31, 2014. Nonperforming assets to total assets were 0.78% at March 31, 2015, compared to 0.83% at December 31, 2014.

•

Overall loan delinquencies of $1.8 billion at March 31, 2015 decreased $.2 billion, or 10%, compared with December 31, 2014.

•

The allowance for loan and lease losses was 1.61% of total loans and 137% of nonperforming loans at March 31, 2015, compared with 1.63% and 133% at December 31, 2014, respectively.

•

Net charge-offs of $103 million for the first quarter of 2015 were down 45% compared to net charge-offs of $186 million for the first quarter of 2014. Annualized net charge-offs were 0.20% of average loans in the first quarter of 2015 and 0.38% of average loans in the first quarter of 2014.

Balance Sheet, Liquidity and Capital Highlights

•

Total loans decreased by $.1 billion to $205 billion at March 31, 2015 compared to December 31, 2014, as loan activity declined from higher fourth quarter levels.

–

Total commercial lending increased by $1.3 billion, or 1%, as a result of increases in commercial and commercial real estate loans.

–

Total consumer lending decreased $1.4 billion, or 2%, due to declines in home equity, automobile, education and credit card loans. Of the decline in consumer lending, $.3 billion, or 21% of the decline, related to non-strategic loans.

•

Investment securities increased by $4.9 billion, or 9%, during the first quarter to $61 billion at March 31, 2015, primarily funded by deposit growth.

•

Total deposits increased by $4.3 billion, or 2%, to $237 billion at March 31, 2015 compared with December 31, 2014, driven by higher retail deposits.

•

PNC’s well-positioned balance sheet remained core funded with a loans to deposits ratio of 87% at March 31, 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 at March 31, 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 10.5% at March 31, 2015 and 10.9% at December 31, 2014, calculated using the regulatory capital methodologies applicable to PNC during 2015 and 2014, respectively.

–

Pro forma fully phased-in Basel III common equity Tier 1 capital ratio was an estimated 10.0% at March 31, 2015 and 10.0% at December 31, 2014 based on the standardized approach rules. See the Capital discussion and Table 18 in the Consolidated Balance Sheet Review section of this Financial Review and the December 31, 2014 capital ratio tables in the Statistical Information (Unaudited) section of this Report for more detail.

•

PNC returned capital to shareholders.

–

In the first quarter of 2015, in accordance with PNC’s 2014 capital plan and under the share repurchase authorization in effect during that period, we repurchased 4.4 million shares of common stock on the open market, with an

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

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, 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 new share repurchase programs and dividend increase discussed below.

–

In March 2015, PNC announced new 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 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 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 three months of 2015 and 2014 and balances at March 31, 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.

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.

Average Consolidated Balance Sheet Highlights

Table 2: Summarized Average Balance Sheet


Three months ended March 31 Dollars in millions					Change
Three months ended March 31 Dollars in millions	2015		2014		$			%
Average assets
Interest-earning assets
Investment securities	$	57,166	$	58,379	$	(1,213	)		(2	)%
Loans		205,155		196,581		8,574			4	%
Interest-earning deposits with banks		30,405		12,157		18,248			150	%
Other		8,947		8,661		286			3	%
Total interest-earning assets		301,673		275,778		25,895			9	%
Noninterest-earning assets		46,384		43,784		2,600			6	%
Total average assets	$	348,057	$	319,562	$	28,495			9	%
Average liabilities and equity
Interest-bearing liabilities
Interest-bearing deposits	$	159,911	$	150,684	$	9,227			6	%
Borrowed funds		56,352		46,388		9,964			21	%
Total interest-bearing liabilities		216,263		197,072		19,191			10	%
Noninterest-bearing deposits		73,178		67,679		5,499			8	%
Other liabilities		12,586		10,364		2,222			21	%
Equity		46,030		44,447		1,583			4	%
Total average liabilities and equity	$	348,057	$	319,562	$	28,495			9	%

Average balances are generally indicative of underlying business trends apart from the impact of acquisitions and divestitures, while various seasonal and other factors can impact period-end balances. The Consolidated Balance Sheet Review section of this Financial Review provides information on changes in selected Consolidated Balance Sheet categories at March 31, 2015 compared with December 31, 2014. Total assets were $351.0 billion at March 31, 2015 compared with $345.1 billion at December 31, 2014.

Average investment securities declined in the first three months of 2015 compared with the first three months of 2014, due to a decrease in average residential mortgage-backed securities. Total investment securities comprised 19% of average interest-earning assets for the first quarter of 2015 and 21% for the first quarter of 2014.

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

Average total loans increased in the first quarter of 2015 compared to the prior year quarter, driven by increases in average commercial loans of $8.3 billion and average commercial real estate loans of $2.3 billion, which were due to growth primarily in Corporate Banking, Real Estate and Business Credit in our Corporate & Institutional Banking segment. Average consumer loans decreased $1.6 billion.

Average loans represented 68% of average interest-earning assets for the first quarter of 2015 and 71% of average interest-earning assets for the first quarter of 2014.

Average interest-earning deposits with banks, which are primarily maintained with the Federal Reserve Bank, increased in the first quarter of 2015 compared to first quarter 2014, reflecting higher balances maintained on deposit with the Federal Reserve Bank in part due to regulatory short-term liquidity standards phased in starting January 1, 2015.

The increase in average noninterest-earning assets for the first three months of 2015 compared to the first three months of 2014 was driven primarily by higher accounts receivable from trade date securities sales and available-for-sale securities valuations, both of which are included in noninterest-earning assets for average balance sheet purposes, and an increase in trading assets, primarily net derivatives.

Average total deposits increased $14.7 billion in the first quarter of 2015 compared with the prior year quarter, primarily due to an increase of $15.0 billion in average transaction deposits, which grew to $199.3 billion for the first quarter of 2015. Growth in both our Retail Banking and Corporate & Institutional Banking segments drove the increase in average

transaction deposits. These increases were partially offset by a decrease of $2.0 billion in average retail certificates of deposit attributable to run-off of maturing accounts.

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

The increase in average borrowed funds in the current year first quarter compared with the prior year first quarter was primarily due to increases in average Federal Home Loan Bank (FHLB) borrowings and average bank notes and senior debt, partially offset by a decline in average federal funds purchased and repurchase agreements. 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.

Business Segment Highlights

The Business Segments Review section of this Financial Review includes further analysis of our business segment results over the first three months of 2015 and 2014 including presentation differences from Note 17 Segment Reporting in our Notes To Consolidated Financial Statements in Part I, Item 1 of this Report. Note 17 Segment Reporting presents results of businesses for the first three months of 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)
Three months ended March 31 – in millions	2015		2014			2015		2014		2015		2014
Retail Banking	$	202	$	158		$	1,526	$	1,494	$	74,017	$	75,920
Corporate & Institutional Banking		482		523			1,284		1,298		131,178		117,937
Asset Management Group		37		37			281		270		7,943		7,599
Residential Mortgage Banking		28		(4	)		207		206		7,245		8,777
BlackRock		135		123			175		160		6,645		6,272
Non-Strategic Assets Portfolio		81		110			121		148		7,276		8,889
Total business segments		965		947			3,594		3,576		234,304		225,394
Other (c) (d) (e)		39		113			137		201		113,753		94,168
Total	$	1,004	$	1,060		$	3,731	$	3,777	$	348,057	$	319,562

(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. 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. See the Business Segments Review section of this Financial Review for more detail. Excluding any changes in business volumes, the estimated impacts of this change to net interest income for Retail Banking and Corporate & Institutional Banking were approximately an increase of $55 million and a decrease of $60 million, respectively, for the first quarter of 2015. The impacts to the other business segments were not significant. 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 Note 17 Segment Reporting in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report.

(e)	The decrease in net income in the first quarter 2015 compared to the first quarter 2014 for “Other” primarily reflects a decline in net interest income and higher personnel expense.

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

CONSOLIDATED INCOME STATEMENT REVIEW

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

Net income for the first three months of 2015 was $1.0 billion, a decrease of 5% compared with $1.1 billion for the first three months of 2014. The decrease was driven by a 4% increase in noninterest expense and a 1% decrease in revenue, partially offset by lower provision for credit losses. Lower revenue in the comparison reflected a 6% decline in net interest income, which was partially offset by a 5% increase in noninterest income.

Net Interest Income

Table 4: Net Interest Income and Net Interest Margin


	Three months ended March 31
Dollars in millions	2015			2014
Net interest income	$	2,072		$	2,195
Net interest margin		2.82	%		3.26	%

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.

Net interest income decreased by $123 million, or 6%, in the first quarter of 2015 compared with the first quarter of 2014 reflecting the ongoing low rate environment. Lower loan yields and a reduction in purchase accounting accretion were partially offset by commercial and commercial real estate loan growth. The decline in net interest income also included the impact from the second quarter 2014 correction to reclassify certain commercial facility fees from net interest income to noninterest income.

Net interest margin decreased in the comparison to the prior year quarter, driven by a 43 basis point decline in the yield on total interest-earning assets, which was principally due to the impact of balance sheet management activities related to regulatory short-term liquidity standards, lower loan yields and lower benefit from purchase accounting accretion. The decline also included the impact of the second quarter 2014 correction to reclassify certain commercial facility fees.

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

For full year 2015, we expect purchase accounting accretion to be down approximately $225 million compared to 2014. Further, full year revenues are expected to remain under pressure as the delay in expected interest rate increases will make growing core net interest income (net interest income exclusive of purchase accounting accretion) that much more difficult.

Noninterest Income

Table 5: Noninterest Income


Three months ended March 31 Dollars in millions							Change
Three months ended March 31 Dollars in millions	2015			2014			$			%
Noninterest income
Asset management	$	376		$	364		$	12			3	%
Consumer services		311			290			21			7	%
Corporate services		344			301			43			14	%
Residential mortgage		164			161			3			2	%
Service charges on deposits		153			147			6			4	%
Net gains on sales of securities		42			10			32			320	%
Net other-than-temporary impairments		(1	)		(2	)		1			(50	)%
Other		270			311			(41	)		(13	)%
Total noninterest income	$	1,659		$	1,582		$	77			5	%

Noninterest income increased during the first quarter of 2015 compared to first quarter of 2014, reflecting strong client fee income growth and higher net securities gains, partially offset by the impact of a gain on sale of Visa Class B common shares in the prior year quarter. Noninterest income as a percentage of total revenue was 44% in the first quarter of 2015, up from 42% in the first quarter of 2014.

Higher asset management revenue in the first three months of 2015 was driven by increased earnings from our BlackRock investment, as well as stronger average equity markets and positive net flows, after adjustments for cyclical client activities. Discretionary client assets under management grew to $136 billion at March 31, 2015 compared with $130 billion at March 31, 2014.

Consumer service fees increased in the first quarter of 2015 compared to the prior year quarter primarily due to higher customer-initiated transaction volumes.

Corporate services revenue increased in the first quarter of 2015 compared to the first quarter of 2014, principally due to the impact of the second quarter 2014 correction to reclassify certain commercial facility fees from net interest income to noninterest income, an increase in treasury management fees and higher net hedging gains on commercial mortgage servicing rights, partially offset by lower mergers and acquisition advisory fees.

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

Residential mortgage fee revenue increased slightly in the first three months of 2015 compared to the prior year quarter, as higher net hedging gains on residential mortgage servicing rights were substantially offset by lower servicing fee revenue.

Service charges on deposits increased in the first quarter of 2015 compared to the prior year quarter, benefitting from changes in product offerings and higher customer-related activity.

Other noninterest income declined in the first quarter of 2015 compared to the prior year quarter primarily due to the impact of the first quarter 2014 gain on sale of 1 million Visa Class B common shares partially offset by higher customer-related trading revenue. As of March 31, 2015, we held approximately 7 million Visa Class B common shares with a fair value of approximately $740 million and a recorded investment of approximately $77 million.

Other noninterest income typically fluctuates from period to period depending on the nature and magnitude of transactions completed. Further 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. Further 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 second quarter of 2015, we expect the fee income categories of noninterest income (asset management, consumer services, corporate services, residential mortgage and service charges on deposits) to be up low single digits, on a percentage basis, compared to the first quarter of 2015, reflecting our continued focus on our strategic priorities.

Provision For Credit Losses

The provision for credit losses totaled $54 million for the first quarter of 2015 compared with $94 million for the first quarter of 2014. The decline in provision reflected overall credit quality improvement since the first quarter of 2014.

We expect our provision for credit losses in the second 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 $85 million, or 4%, to $2.3 billion for the first quarter of 2015 compared with first quarter 2014, primarily related to PNC’s investments in technology and business infrastructure in support of its strategic priorities and higher personnel expense, partially offset by lower legal and residential mortgage compliance costs.

In the first quarter of 2015 we have captured savings of more than 30 percent of our 2015 continuous improvement savings goal of $400 million, and we expect to achieve the full-year goal. We intend to fund our business and technology investments with the cost savings.

In the second quarter of 2015, we expect noninterest expense to be up low single digits, on a percentage basis, compared to the first quarter of 2015, due to the expected impact of seasonality as second quarter expenses typically increase compared to the first quarter.

For full year 2015, we expect noninterest expense to be stable compared to 2014.

Effective Income Tax Rate

The effective income tax rate was 24.4% in the first quarter of 2015 compared with 25.3% in the first 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.

We expect our 2015 effective tax rate to be approximately 25%.

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

CONSOLIDATED BALANCE SHEET REVIEW

Table 6: Summarized Balance Sheet Data


	March 31 2015			December 31 2014			Change
Dollars in millions	March 31 2015			December 31 2014			$			%
Assets
Interest-earning deposits with banks	$	31,198		$	31,779		$	(581	)		(2	)%
Loans held for sale		2,423			2,262			161			7	%
Investment securities		60,768			55,823			4,945			9	%
Loans		204,722			204,817			(95	)		–	%
Allowance for loan and lease losses		(3,306	)		(3,331	)		25			(1	)%
Goodwill		9,103			9,103			–			–	%
Mortgage servicing rights		1,333			1,351			(18	)		(1	)%
Other intangible assets		463			493			(30	)		(6	)%
Other, net		44,256			42,775			1,481			3	%
Total assets	$	350,960		$	345,072		$	5,888			2	%
Liabilities
Deposits	$	236,503		$	232,234		$	4,269			2	%
Borrowed funds		56,829			56,768			61			–	%
Other		11,190			9,996			1,194			12	%
Total liabilities		304,522			298,998			5,524			2	%
Equity
Total shareholders’ equity		45,025			44,551			474			1	%
Noncontrolling interests		1,413			1,523			(110	)		(7	)%
Total equity		46,438			46,074			364			1	%
Total liabilities and equity	$	350,960		$	345,072		$	5,888			2	%

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 an increase in other assets partially offset by lower deposit balances maintained with the Federal Reserve Bank. The increase in investment securities was primarily funded by deposit growth while other assets increased due to accounts receivable from trade date securities sales. The increase in liabilities was largely due to growth in deposits and a rise in other liabilities due to accounts payable from trade date securities purchased, while borrowed funds remained relatively stable. An analysis of changes in selected balance sheet categories follows.

Loans

Outstanding loan balances of $204.7 billion at March 31, 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 March 31, 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.

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

Table 7: Details Of Loans


Dollars in millions	March 31 2015		December 31 2014		Change
Dollars in millions	March 31 2015		December 31 2014		$			%
Commercial lending
Commercial
Retail/wholesale trade	$	17,126	$	16,972	$	154			1	%
Manufacturing		20,057		18,744		1,313			7	%
Service providers		13,916		14,103		(187	)		(1	)%
Real estate related (a)		10,744		10,812		(68	)		(1	)%
Financial services		6,306		6,178		128			2	%
Health care		9,192		9,017		175			2	%
Other industries		20,309		21,594		(1,285	)		(6	)%
Total commercial		97,650		97,420		230			–	%
Commercial real estate
Real estate projects (b)		15,057		14,577		480			3	%
Commercial mortgage		9,498		8,685		813			9	%
Total commercial real estate		24,555		23,262		1,293			6	%
Equipment lease financing		7,470		7,686		(216	)		(3	)%
Total commercial lending (c)		129,675		128,368		1,307			1	%
Consumer lending
Home equity
Lines of credit		19,918		20,361		(443	)		(2	)%
Installment		14,147		14,316		(169	)		(1	)%
Total home equity		34,065		34,677		(612	)		(2	)%
Residential real estate
Residential mortgage		13,982		13,885		97			1	%
Residential construction		507		522		(15	)		(3	)%
Total residential real estate		14,489		14,407		82			1	%
Credit card		4,434		4,612		(178	)		(4	)%
Other consumer
Education		6,448		6,626		(178	)		(3	)%
Automobile		11,120		11,616		(496	)		(4	)%
Other		4,491		4,511		(20	)		–	%
Total consumer lending		75,047		76,449		(1,402	)		(2	)%
Total loans	$	204,722	$	204,817	$	(95	)		–	%

(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 decline in loans was driven by a decrease in total consumer lending resulting from lower home equity, automobile, education and credit card loans, offset by an increase in total commercial lending driven by commercial real estate projects.

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

Commercial real estate loans represented 12% of total loans at March 31, 2015 and 11% of total loans at December 31, 2014 and represented 7% of total assets at both March 31, 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 $4.7 billion, or 2% of total loans, at March 31, 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.

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

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 first three 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 March 31
In millions	2015			2014
Accretion on purchased impaired loans
Scheduled accretion	$	99		$	125
Reversal of contractual interest on impaired loans		(55	)		(68	)
Scheduled accretion net of contractual interest		44			57
Excess cash recoveries (a)		33			29
Total	$	77		$	86

(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		(99	)		(125	)
Excess cash recoveries		(33	)		(29	)
Net reclassification to accretable from non-accretable and other activity (a)		58			87
March 31 (b)	$	1,484		$	1,988

(a)

Approximately 90% and 95% of the net reclassification for the quarters ended March 31, 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 March 31, 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 $1.5 billion on purchased impaired loans.

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

Table 10: Valuation of Purchased Impaired Loans


	March 31, 2015						December 31, 2014
Dollars in millions	Balance			Net Investment			Balance			Net Investment
Commercial and commercial real estate loans:
Outstanding balance (a)	$	398					$	466
Recorded investment	$	276					$	310
Allowance for loan losses		(80	)					(79	)
Net investment/Carrying value	$	196			49	%	$	231			50	%
Consumer and residential mortgage loans:
Outstanding balance (a)	$	4,343					$	4,541
Recorded investment	$	4,399					$	4,548
Allowance for loan losses		(781	)					(793	)
Net investment/Carrying value	$	3,618			83	%	$	3,755			83	%
Total purchased impaired loans:
Outstanding balance (a)	$	4,741					$	5,007
Recorded investment	$	4,675					$	4,858
Allowance for loan losses		(861	)					(872	)
Net investment/Carrying value	$	3,814			80	%	$	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.

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

At March 31, 2015, our largest individual purchased impaired loan had a recorded investment of $9 million. We currently expect to collect total cash flows of $5.3 billion on purchased impaired loans, representing the $3.8 billion net investment at March 31, 2015 and the accretable net interest of $1.5 billion shown in Table 9.

Weighted Average Life of the Purchased Impaired Portfolios

The table below provides the weighted average life (WAL) for each of the purchased impaired portfolios as of March 31, 2015.

Table 11: Weighted Average Life of the Purchased Impaired Portfolios


As of March 31, 2015 Dollars in millions	Recorded Investment		WAL (a)
Commercial	$	60		2.1 years
Commercial real estate		216		1.5 years
Consumer (b)		1,918		3.8 years
Residential real estate		2,481		4.7 years
Total	$	4,675		4.1 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.

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	March 31, 2015			Declining Scenario (a)			Improving Scenario (b)
Expected cash flows	$	5.3		$	(.1	)	$	.2
Accretable difference		1.5			–			–
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.

Commitment to extend credit are comprised of the following:

Table 13: Commitments to Extend Credit (a)


In millions	March 31 2015		December 31 2014
Total commercial lending (b)	$	96,866	$	99,837
Home equity lines of credit		17,784		17,839
Credit card		18,539		17,833
Other		4,771		4,178
Total	$	137,960	$	139,687

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

(b)	Less than 5% of net unfunded loan commitments relate to commercial real estate at each date.

Standby bond purchase agreements totaled $1.1 billion at March 31, 2015 and $1.1 billion at December 31, 2014 and are included in the preceding table, primarily within the Total commercial lending category.

In addition to the credit commitments set forth in the table above, our net outstanding standby letters of credit totaled $9.8 billion at March 31, 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.

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

INVESTMENT SECURITIES

The following table presents the distribution of our investment securities portfolio. 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, 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. See Table 71 in Note 6 Investment Securities in the Notes To Consolidated Financial Statements in Part I, Item 1 of this Report for more detail. 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


	March 31, 2015				December 31, 2014				Ratings (a) As of March 31, 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	$	5,544	$	5,799	$	5,485	$	5,714		100	%
Agency residential mortgage-backed		28,402		29,008		23,382		23,935		100
Non-agency residential mortgage-backed		4,819		5,041		4,993		5,225		10			1	%		3	%		81	%		5	%
Agency commercial mortgage-backed		3,266		3,349		3,378		3,440		100
Non-agency commercial mortgage-backed (b)		5,183		5,294		5,095		5,191		76			7			7			4			6
Asset-backed (c)		5,904		5,957		5,900		5,940		89			2						8			1
State and municipal		4,017		4,217		3,995		4,191		87			6									7
Other debt		2,135		2,191		2,099		2,142		62			23			14						1
Corporate stock and other		364		363		442		441														100
Total investment securities (d)	$	59,634	$	61,219	$	54,769	$	56,219		87	%		2	%		1	%		8	%		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 March 31, 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 March 31, 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 62% 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 March 31, 2015, the amortized cost and fair value of available for sale securities totaled $46.4 billion and $47.6 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 $13.2 billion and $13.6 billion, respectively, at March 31, 2015, compared to $11.6 billion and $12.0 billion, respectively, at December 31, 2014.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of investment securities generally decreases when interest rates increase and vice versa. In addition, the fair value generally decreases when credit spreads widen and vice versa. Net unrealized gains in the total investment securities portfolio increased to $1.6 billion at March 31, 2015 from $1.5 billion at December 31, 2014 primarily due to the impact of market interest rates and credit spreads. The comparable amounts for the securities available for sale portfolio were both $1.1 billion.

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

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

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 2.1 years at March 31, 2015. We estimate that, at March 31, 2015, the effective duration of investment securities was 2.3 years for an immediate 50 basis points parallel increase in interest rates and 2.0 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.

At least quarterly, we conduct a comprehensive security-level impairment assessment on all securities. For securities in an unrealized loss position, we determine whether the loss represents OTTI. For debt securities that we neither intend to sell nor believe we will be required to sell prior to expected recovery, we recognize the credit portion of OTTI charges in current earnings and include the noncredit portion of OTTI in Net unrealized gains (losses) on OTTI securities on our Consolidated Statement of Comprehensive Income and net of tax in Accumulated other comprehensive income (loss) on our Consolidated Balance Sheet. During the first quarters of 2015 and 2014 we recognized OTTI credit losses of $1 million and $2 million, respectively.

If economic conditions, including housing values, were to deteriorate from current levels, and if market volatility and illiquidity 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 15: Loans Held For Sale


In millions	March 31 2015		December 31 2014
Commercial mortgages at fair value	$	975	$	893
Commercial mortgages at lower of cost or fair value		62		29
Total commercial mortgages		1,037		922
Residential mortgages at fair value		1,232		1,261
Residential mortgages at lower of cost or fair value		17		18
Total residential mortgages		1,249		1,279
Other		137		61
Total	$	2,423	$	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 $1.0 billion of commercial mortgage loans to agencies during the first three months of 2015 compared to $439 million during the first three months of 2014. Total gains of $15 million were recognized on the valuation and sale of commercial mortgage loans held for sale, net of hedges, during the first three months of 2015, and $7 million during the first three months of 2014. These amounts are included in Other noninterest income on our Consolidated Income Statement.

Residential mortgage loan origination volume was $2.6 billion during the first three months of 2015 compared to $1.9 billion during the first three months of 2014. The majority of such loans were originated under agency or Federal Housing Administration (FHA) standards. We sold $1.9 billion of loans and recognized loan sales revenue of $104 million during the first three months of 2015. The comparable amounts for the first three months of 2014 were $2.1 billion and $107 million.

Interest income on loans held for sale was $23 million during both the first three months of 2015 and 2014. 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 $10.9 billion remained relatively flat at March 31, 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.

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

Funding Sources

Table 16: Details Of Funding Sources


	March 31 2015		December 31 2014		Change
Dollars in millions	March 31 2015		December 31 2014		$			%
Deposits
Money market	$	118,746	$	115,438	$	3,308			3	%
Demand		83,527		82,829		698			1	%
Retail certificates of deposit		18,447		18,544		(97	)		(1	)%
Savings		13,692		12,571		1,121			9	%
Time deposits in foreign offices and other time deposits		2,091		2,852		(761	)		(27	)%
Total deposits		236,503		232,234		4,269			2	%
Borrowed funds
Federal funds purchased and repurchase agreements		2,202		3,510		(1,308	)		(37	)%
Federal Home Loan Bank borrowings		21,224		20,005		1,219			6	%
Bank notes and senior debt		16,205		15,750		455			3	%
Subordinated debt		9,228		9,151		77			1	%
Commercial paper		4,399		4,995		(596	)		(12	)%
Other		3,571		3,357		214			6	%
Total borrowed funds		56,829		56,768		61			–	%
Total funding sources	$	293,332	$	289,002	$	4,330			1	%

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 $4.3 billion at March 31, 2015 compared with December 31, 2014 due to strong growth in money market, savings and demand, partially offset by lower other time deposits. Interest-bearing deposits represented 68% of total deposits at both March 31, 2015 and December 31, 2014. Total borrowed funds increased $61 million since December 31, 2014 as higher Federal Home Loan Bank borrowings and issuances of bank notes and senior debt were partially offset by a decline in federal funds purchased and repurchase agreements and commercial paper issuances.

Capital

Table 17: Shareholders’ Equity


	March 31 2015			December 31 2014			Change
Dollars in millions	March 31 2015			December 31 2014			$			%
Shareholders’ equity
Preferred stock (a)
Common stock	$	2,706		$	2,705		$	1			–	%
Capital surplus – preferred stock		3,948			3,946			2			–	%
Capital surplus – common stock and other		12,561			12,627			(66	)		(1	)%
Retained earnings		26,882			26,200			682			3	%
Accumulated other comprehensive income		703			503			200			40	%
Common stock held in treasury at cost		(1,775	)		(1,430	)		(345	)		(24	)%
Total shareholders’ equity	$	45,025		$	44,551		$	474			1	%

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

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

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.

The increase in total shareholders’ equity compared to December 31, 2014 reflected an increase in retained earnings, partially offset by share repurchases of $.4 billion under PNC’s common stock repurchase program in effect through the first quarter of 2015. The increase in retained earnings was driven by net income of $1.0 billion, reduced by $319 million of common and preferred dividends declared. Accumulated other comprehensive income increased due to the impact of market interest rates and credit spreads on securities available for sale and derivatives that are part of cash flow hedging strategies. Common shares outstanding were 520 million at March 31, 2015 and 523 million at December 31, 2014.

Our 2007 common stock repurchase program authorization permitted us to purchase up to 25 million shares of PNC common stock on the open market or in privately negotiated transactions. Under such authorization, PNC repurchased 4.4 million common shares for $.4 billion during the first quarter of 2015 and completed its common stock repurchase programs for the four quarter period that began in second quarter 2014 with total repurchases of 17 million common shares for $1.5 billion. In the first quarter of 2015, PNC’s Board of Directors approved both the termination of the 2007 authorization, effective as of March 31, 2015, and the establishment of 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 connection with the 2015 CCAR, PNC submitted its 2015 capital plan, as approved by its Board of Directors, to the Federal Reserve in January 2015. In March 2015, the Federal Reserve accepted the capital plan and did not object to our proposed capital actions and PNC 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 “de minimis” safe harbor of the Federal Reserve’s capital plan rule, PNC may make limited repurchases of common stock or other capital distributions in amounts that exceed the amounts included in its most recently approved capital plan, provided that, among other things, such distributions do not exceed, in the aggregate, 1% of PNC’s Tier 1 capital and the Federal Reserve does not object to the additional repurchases or distributions. 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.

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

Table 18: Basel III Capital


	March 31, 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	$	13,492		$	13,492
Retained earnings		26,882			26,882
Accumulated other comprehensive income for securities currently and previously held as available for sale		308			770
Accumulated other comprehensive income for pension and other postretirement plans		(193	)		(482	)
Goodwill, net of associated deferred tax liabilities		(8,853	)		(8,853	)
Other disallowed intangibles, net of deferred tax liabilities		(158	)		(396	)
Other adjustments/(deductions)		(112	)		(150	)
Total common equity Tier 1 capital before threshold deductions		31,366			31,263
Total threshold deductions		(414	)		(1,045	)
Common equity Tier 1 capital		30,952			30,218
Additional Tier 1 capital
Preferred stock plus related surplus		3,948			3,948
Trust preferred capital securities		50
Noncontrolling interests (d)		604			44
Other adjustments/(deductions)		(78	)		(100	)
Tier 1 capital		35,476			34,110
Additional Tier 2 capital
Qualifying subordinated debt		5,159			4,709
Trust preferred capital securities		149
Allowance for loan and lease losses included in Tier 2 capital		3,539			295
Other		3			9
Total Basel III capital	$	44,326		$	39,123
Risk-weighted assets
Basel III standardized approach risk-weighted assets (e)	$	295,114		$	302,784
Estimated Basel III advanced approaches risk-weighted assets (f)		N/A			287,293
Average quarterly adjusted total assets		337,960			337,046
Supplementary leverage exposure (g)		404,391			403,477
Basel III risk-based capital and leverage ratios
Common equity Tier 1		10.5	%		10.0	%(h)(j)
Tier 1		12.0			11.3	(h)(k)
Total		15.0			13.6	(i)(l)
Leverage (m)		10.5			10.1
Supplementary leverage ratio (n)		8.8			8.5

(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 10.5%. 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 11.9%. 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 14.0%. 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.

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

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 March 31, 2015 capital levels were aligned with them.

At March 31, 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.

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

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 March 31, 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 March 31, 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.

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

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 March 31, 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 19: Fair Value Measurements – Summary


	March 31, 2015						December 31, 2014
Dollars in millions	Total Fair Value			Level 3			Total Fair Value			Level 3
Total assets	$	63,114		$	10,078		$	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	$	6,678		$	710		$	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					11	%					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 three months 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 Liquidity Coverage Ratio 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 ratio. These adjustments apply to business segment results prospectively beginning with the first quarter of 2015. Excluding any changes in business volumes, the estimated impacts of this change to net interest income for Retail Banking and Corporate & Institutional Banking were approximately an increase of $55 million and a decrease of $60 million, respectively, for the first quarter of 2015. The impacts to the other business segments were not significant. Prior periods have not been adjusted due to the impracticability of estimating the impact of the change for prior periods.

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

Retail Banking

(Unaudited)

Table 20: Retail Banking Table


Three months ended March 31 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	1,038		$	980
Noninterest income
Service charges on deposits		146			140
Brokerage		67			55
Consumer services		233			218
Other		42			101
Total noninterest income		488			514
Total revenue		1,526			1,494
Provision for credit losses		49			145
Noninterest expense		1,158			1,100
Pretax earnings		319			249
Income taxes		117			91
Earnings	$	202		$	158
Average Balance Sheet
Loans
Consumer
Home equity	$	28,152		$	29,317
Indirect auto		9,287			8,994
Indirect other		603			777
Education		6,626			7,547
Credit cards		4,444			4,271
Other		2,347			2,137
Total consumer		51,459			53,043
Commercial and commercial real estate		10,654			11,051
Floor plan		2,213			2,373
Residential mortgage		734			647
Total loans		65,060			67,114
Goodwill and other intangible assets		5,990			6,062
Other assets		2,967			2,744
Total assets	$	74,017		$	75,920
Deposits
Noninterest-bearing demand	$	22,591		$	21,359
Interest-bearing demand		35,650			33,490
Money market		53,105			49,484
Total transaction deposits		111,346			104,333
Savings		12,888			11,288
Certificates of deposit		17,318			19,882
Total deposits		141,552			135,503
Other liabilities		617			398
Total liabilities	$	142,169		$	135,901
Performance Ratios
Return on average assets		1.11	%		.84	%
Noninterest income to total revenue		32			34
Efficiency		76			74
Other Information (a)
Credit-related statistics:
Commercial nonperforming assets	$	131		$	172
Consumer nonperforming assets		1,043			1,059
Total nonperforming assets (b)	$	1,174		$	1,231
Purchased impaired loans (c)	$	553		$	663
Commercial lending net charge-offs	$	1		$	20
Credit card lending net charge-offs		38			37
Consumer lending (excluding credit card) net charge-offs		60			88
Total net charge-offs	$	99		$	145
Commercial lending annualized net charge-off ratio		.03	%		.60	%
Credit card lending annualized net charge-off ratio		3.47	%		3.51	%
Consumer lending (excluding credit card) annualized net charge-off ratio		.51	%		.72	%
Total annualized net charge-off ratio		.62	%		.88	%


At March 31	2015			2014
Other Information (Continued) (a)
Home equity portfolio credit statistics: (d)
% of first lien positions at origination (f)		54	%		53	%
Weighted-average loan-to-value ratios (LTVs) (e) (f)		76	%		79	%
Weighted-average updated FICO scores (g)		748			745
Net charge-off ratio		.42	%		.75	%
Delinquency data – % of total loans: (h)
Loans 30 – 59 days past due		.18	%		.21	%
Loans 60 – 89 days past due		.09	%		.08	%
Accruing loans past due		.27	%		.29	%
Nonperforming loans		3.12	%		3.12	%
Other statistics:
ATMs		8,754			8,001
Branches (i)		2,660			2,703
Brokerage account client assets (in billions) (j)	$	44		$	41
Customer-related statistics (average):
Non-teller deposit transactions (k)		40	%		31	%
Digital consumer customers (l)		50	%		43	%

(a)	Presented as of March 31, except for net charge-offs, net charge-off ratios and customer-related statistics, which are for the three months ended and customer-related statistics which are quarterly averages.

(b)	Includes nonperforming loans of $1.1 billion at March 31, 2015 and $1.2 billion at March 31, 2014.

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

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

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

(f)	LTV statistics are based upon current information.

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

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

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

(j)	Amounts include cash and money market balances.

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

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

Retail Banking earned $202 million in the first quarter of 2015 compared with earnings of $158 million for the same period a year ago. The increase in earnings was driven by lower provision for credit losses and increased net interest income offset by higher expenses and lower noninterest income. Noninterest income declined as a result of the sale of Visa Class B common shares recognized in the first quarter of 2014.

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 also continued to serve more customers through cost effective channels that meet their evolving preferences for convenience.

•

In the first quarter of 2015, approximately 50% of consumer customers used non-teller channels for the

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

majority of their transactions compared with 43% for the same period in 2014.

•

Deposit transactions via ATM and mobile channels increased to 40% of total deposit transactions in the first quarter of 2015 compared with 31% for the same period a year ago.

•

As part of PNC’s retail branch transformation strategy, we continue to evolve our network. In the first quarter of 2015 we converted 127 branches to the new universal branch format and 40 branches were closed or consolidated. In support of our transformation efforts, we increased our ATM network by more than 9% since the first quarter of 2014.

•

Retail Banking’s primary geographic footprint extends across 17 states and Washington, D.C. Our retail branch network covers nearly half the U.S. population, with 2,660 branches and 8,754 ATMs.

Total revenue for the first three months of 2015 increased $32 million compared to the same period a year ago, which included a $58 million increase in net interest income. In addition to the benefit from the enhancements to funds transfer pricing methodology in the first quarter of 2015, net interest income increased slightly, as growth in deposit balances was mostly offset by lower yields on loans and lower purchase accounting accretion on loans and deposits.

Noninterest income decreased $26 million, or 5%, compared to the first quarter of 2014, reflecting the impact of the $62 million gain on sales of Visa Class B common shares in the first quarter of 2014. Excluding this gain, noninterest income increased as a result of strong customer-related fee income growth, primarily resulting from increases in customer-initiated transactions, changes in product offerings, and increased brokerage and merchant processing revenue.

Provision for credit losses and net charge-offs in the first quarter of 2015 declined by $96 million and $46 million, respectively, in the comparison to the prior year quarter. Provision for credit losses decreased due to improved credit metrics. Lower net charge-offs were driven by improved credit quality in both consumer and commercial portfolios.

Noninterest expense increased $58 million in the first three months of 2015 compared to the same period in 2014. Increases in technology investments, 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 quarter of 2015,

average total deposits increased $6.0 billion, or 4%, compared with the same period in 2014.

•

Average transaction deposits grew $7.0 billion, or 7%, and average savings deposit balances grew $1.6 billion, or 14%, compared to the first quarter in 2014 as a result of organic deposit growth. Compared with the same period a year ago, average demand deposits increased $3.4 billion, or 6%, to $58.2 billion and average money market deposits increased $3.6 billion, or 7%.

•

Total average certificates of deposit decreased $2.6 billion, 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, small businesses, and auto dealerships. In the first quarter 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 three months of 2014. The overall portfolio declines resulted from reduced refinance activity. 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 $160 million, or 7%, in the first quarter of 2015, compared to the same period in 2014, primarily resulting from lower dealer line utilization.

•

Average indirect auto loans increased $293 million, or 3%, compared to the first three months 2014. The increase was primarily due to growth in newer footprint indirect auto markets.

•

Average credit card balances increased $173 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 $87 million, or 13%, compared to the first three months of 2014. The increase was due to the transfer of $198 million in CRA mortgage loans from the Residential Mortgage Banking business segment.

•

In the first quarter 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 $921 million and commercial & commercial real estate of $397 million. The discontinued government guaranteed education loan and indirect other portfolios are primarily run-off portfolios.

Nonperforming assets declined $57 million, or 5%, over the same period in 2014. The decrease was driven by declines in both commercial and consumer non-performing loans.

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

Corporate & Institutional Banking

(Unaudited)

Table 21: Corporate & Institutional Banking Table


Three months ended March 31 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	855		$	934
Noninterest income
Corporate service fees		310			268
Other		119			96
Noninterest income		429			364
Total revenue		1,284			1,298
Provision for credit losses (benefit)		17			(13	)
Noninterest expense		514			488
Pretax earnings		753			823
Income taxes		271			300
Earnings	$	482		$	523
Average Balance Sheet
Loans
Commercial	$	84,712		$	75,506
Commercial real estate		22,090			20,039
Equipment lease financing		6,914			6,789
Total commercial lending		113,716			102,334
Consumer		1,352			1,125
Total loans		115,068			103,459
Goodwill and other intangible assets		3,835			3,826
Loans held for sale		1,106			894
Other assets		11,169			9,758
Total assets	$	131,178		$	117,937
Deposits
Noninterest-bearing demand	$	46,976		$	42,772
Money market		22,286			20,678
Other		9,340			7,531
Total deposits		78,602			70,981
Other liabilities		8,271			7,476
Total liabilities	$	86,873		$	78,457
Performance Ratios
Return on average assets		1.49	%		1.80	%
Noninterest income to total revenue		33			28
Efficiency		40			38
Commercial Loan Servicing Portfolio – Serviced For PNC and Others (in billions)
Beginning of period	$	377		$	347
Acquisitions/additions		29			22
Repayments/transfers		(16	)		(18	)
End of period	$	390		$	351
Other Information
Consolidated revenue from: (a)
Treasury Management (b)	$	319		$	311
Capital Markets (c)	$	180		$	157
Commercial mortgage banking activities
Commercial mortgage loans held for sale (d)	$	26		$	19
Commercial mortgage loan servicing income (e)		56			55
Commercial mortgage servicing rights valuation, net of economic hedge (f)		16			11
Total	$	98		$	85
Average Loans (by C&IB business)
Corporate Banking	$	58,227		$	52,253
Real Estate		29,918			26,003
Business Credit		14,217			12,534
Equipment Finance		10,941			10,210
Other		1,765			2,459
Total average loans	$	115,068		$	103,459
Total loans (g)	$	114,946		$	105,398
Net carrying amount of commercial mortgage servicing rights (g)	$	494		$	529
Credit-related statistics:
Nonperforming assets (g) (h)	$	516		$	786
Purchased impaired loans (g) (i)	$	221		$	428
Net charge-offs (recoveries)	$	(1	)	$	2

(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 and corporate service fees.

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

(d)	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.

(e)

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.

(f)	Includes amounts reported in corporate services fees.

(g)	As of March 31.

(h)	Includes nonperforming loans of $.4 billion at March 31, 2015 and $.7 billion at March 31, 2014.

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

Corporate & Institutional Banking earned $482 million in the first quarter of 2015 compared with earnings of $523 million for the same period a year ago. The decrease in earnings was due to lower net interest income, an increase in the provision for credit losses and an increase in noninterest expense, partially offset by higher noninterest income. We continue to focus on building client relationships where the risk-return profile is attractive, including the Southeast.

Net interest income decreased $79 million in the first three months of 2015 compared to the first three months of 2014. The decline was due to the impact of first quarter 2015 enhancements to 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 $42 million in the first quarter of 2015 compared to the first quarter 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, an increase in treasury management fees and higher net hedging gains on commercial mortgage servicing rights, partially offset by lower mergers and acquisition advisory fees.

Other noninterest income increased $23 million in the first quarter of 2015 compared to the first quarter of 2014. This increase was driven by increased securities underwriting activity, higher revenue associated with credit valuations for customer-related derivatives activities and related derivatives sales and higher multifamily loans originated for sale to agencies, partially offset by lower gains on asset sales.

The provision for credit losses was $17 million for the first three months of 2015 compared with a benefit of $13 million

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

for the first three months of 2014 reflecting the impact of portfolio growth and slower credit quality improvement.

Noninterest expense increased $26 million in the first quarter of 2015 compared to the prior year period, primarily driven by investments in technology and infrastructure.

Average loans increased $11.6 billion, or 11%, for the first quarter of 2015 compared to the prior year quarter, reflecting strong 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 mid-sized and large corporations, government and not-for-profit entities. Average loans for this business increased $6.0 billion, or 11%, in the first quarter of 2015 compared with the first quarter of 2014, primarily due to an increase in loan commitments from specialty lending businesses and higher utilization.

•

PNC Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased $3.9 billion, or 15%, in the first quarter of 2015 compared with the first quarter 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 $1.7 billion, or 13%, in the first three months of 2015 compared with the first three 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 quarter of 2015, an increase of $.9 billion, or 8%, compared with the first quarter of 2014.

Period-end loan balances increased by 9%, or $9.5 billion, at March 31, 2015 compared to March 31, 2014 primarily due to growth in our Corporate Banking, Real Estate and Business Credit businesses.

Loan commitments increased 8%, or $15.2 billion, to $213.7 billion at March 31, 2015 compared to March 31, 2014, primarily due to growth in our Corporate Banking, Real Estate and Business Credit businesses.

Average deposits for the first quarter of 2015 increased $7.6 billion, or 11%, compared with the first quarter of 2014 as a result of business growth and inflows into demand and money market deposits.

The commercial loan servicing portfolio increased $39 billion, or 11%, compared with March 31, 2014, as servicing additions exceeded portfolio run-off.

Nonperforming assets declined 34% from March 31, 2014 due to continued improving 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 our 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 21 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 $8 million in the comparison of first quarter 2015 to first quarter 2014, driven by growth in our commercial card, wholesale lockbox, and PINACLE^® and other deposit-related services.

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 $23 million in the first three months of 2015 compared with the first three months of 2014. The increase in the comparison was driven by increased securities underwriting activity and higher revenue associated with credit valuations for customer-related derivatives activities and related derivatives sales, partially offset by lower mergers and acquisition advisory fees.

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (including net interest income and noninterest income) and revenue derived from commercial mortgage loans held for sale and related hedges. Revenue from total commercial mortgage banking activities increased $13 million in the first quarter of 2015 compared with the first quarter of 2014. The increase in the comparison was mainly due to higher multifamily loans originated for sale to agencies and higher net hedging gains on commercial mortgage servicing rights.

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

Asset Management Group

(Unaudited)

Table 22: Asset Management Group Table


Three months ended March 31 Dollars in millions, except as noted	2015			2014
Income Statement
Net interest income	$	73		$	71
Noninterest income		208			199
Total revenue		281			270
Provision for credit losses		12			12
Noninterest expense		210			199
Pretax earnings		59			59
Income taxes		22			22
Earnings	$	37		$	37
Average Balance Sheet
Loans
Consumer	$	5,650		$	5,311
Commercial and commercial real estate		932			1,023
Residential mortgage		865			771
Total loans		7,447			7,105
Goodwill and other intangible assets		238			272
Other assets		258			222
Total assets	$	7,943		$	7,599
Deposits
Noninterest-bearing demand	$	1,345		$	1,338
Interest-bearing demand		4,241			3,893
Money market		4,621			3,889
Total transaction deposits		10,207			9,120
CDs/IRAs/savings deposits		455			436
Total deposits		10,662			9,556
Other liabilities		47			53
Total liabilities	$	10,709		$	9,609
Performance Ratios
Return on average assets		1.89	%		1.97	%
Noninterest income to total revenue		74			74
Efficiency		75			74
Other Information
Total nonperforming assets (a) (b)	$	63		$	80
Purchased impaired loans (a) (c)	$	82		$	96
Total net charge-offs	$	4		$	1
Client Assets Under Administration (a) (d) (in billions)
Personal	$	115		$	112
Institutional		150			143
Total	$	265		$	255
Asset Type
Equity	$	151		$	145
Fixed Income		74			66
Liquidity/Other		40			44
Total	$	265		$	255
Discretionary client assets under management
Personal	$	88		$	84
Institutional		48			46
Total	$	136		$	130
Asset Type
Equity	$	75		$	71
Fixed Income		41			34
Liquidity/Other		20			25
Total	$	136		$	130
Nondiscretionary client assets under administration
Personal	$	27		$	28
Institutional		102			97
Total	$	129		$	125
Asset Type
Equity	$	76		$	74
Fixed Income		33			32
Liquidity/Other		20			19
Total	$	129		$	125

(a)	As of March 31.

(b)	Includes nonperforming loans of $59 million at March 31, 2015 and $75 million at March 31, 2014.

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

(d)	Excludes brokerage account client assets.

Asset Management Group earned $37 million in both the first quarter of 2015 and the first quarter of 2014. Client assets under administration were $265 billion as of March 31, 2015 compared to $255 billion as of March 31, 2014. Earnings remained consistent with the prior year as increased noninterest income was offset by higher noninterest expense from strategic growth and higher technology expenses.

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 the Corporate Bank to drive growth and is focused on building retirement capabilities and expanding product solutions for all customers.

Client assets under administration increased $10 billion compared to a year ago. Discretionary client assets under management at March 31, 2015 increased $6 billion compared with March 31, 2014, driven by higher equity markets, new sales, and positive net flows, after adjustments for cyclical client activities.

Total revenue for the first quarter of 2015 increased $11 million, or 4%, compared to the first quarter of 2014, primarily relating to higher noninterest income due to stronger average equity markets and positive net flows, after adjustments for cyclical client activities.

Noninterest expense increased $11 million, or 6%, in the first three months of 2015 compared to the prior year period, which was primarily attributable to higher compensation costs from strategic growth and higher technology expenses. Over the last 12 months, total full-time headcount has increased by approximately 95 positions, or 3%. Asset Management Group remains focused on disciplined expense management as it invests in strategic growth opportunities.

Average deposits and average transaction deposits increased $1.1 billion, or 12%, in the first quarter of 2015 compared to the prior year first quarter. Average loan balances increased $.3 billion, or 5%, in the comparison due to continued growth in the consumer loan portfolio.

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

Residential Mortgage Banking

(Unaudited)

Table 23: Residential Mortgage Banking Table


Three months ended March 31 Dollars in millions, except as noted	2015		2014
Income Statement
Net interest income	$	30	$	40
Noninterest income
Loan servicing revenue
Servicing fees		48		61
Mortgage servicing rights valuation, net of economic hedge		25		(1	)
Loan sales revenue		104		107
Other				(1	)
Total noninterest income		177		166
Total revenue		207		206
Provision for credit losses (benefit)		2		(1	)
Noninterest expense		161		213
Pretax earnings (loss)		44		(6	)
Income taxes (benefit)		16		(2	)
Earnings (loss)	$	28	$	(4	)
Average Balance Sheet
Portfolio loans	$	1,282	$	2,036
Loans held for sale		1,147		1,068
Mortgage servicing rights (MSR)		843		1,073
Other assets		3,973		4,600
Total assets	$	7,245	$	8,777
Deposits	$	2,215	$	2,100
Borrowings and other liabilities		2,840		3,464
Total liabilities	$	5,055	$	5,564
Performance Ratios

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company