Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


												Page

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 238)												87

Consolidated Income Statement												90

Consolidated Statement of Comprehensive Income												91

Consolidated Balance Sheet												92

Consolidated Statement of Changes in Equity												93

Consolidated Statement of Cash Flows												94

Notes to the Consolidated Financial Statements												96

86 The PNC Financial Services Group, Inc. – 2021 Form 10-K

R****EPORT OF I****NDEPENDENT R****EGISTERED P****UBLIC A****CCOUNTING F****IRM

To the Board of Directors and Shareholders of The PNC Financial Services Group, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of The PNC Financial Services Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the allowance for credit losses in 2020.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 87

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loans and Lease Losses – Commercial Loans

As described in Notes 1 and 4 to the consolidated financial statements, the allowance for loans and lease losses was approximately $4,868 million as of December 31, 2021, of which $3,185 million relates to commercial loans. For commercial loans, the determination of the allowance is based on historical loss experience, current borrower risk characteristics, current economic conditions, reasonable and supportable economic forecasts and other relevant factors. As disclosed by management, the Company considers reasonable and supportable forecasts in estimating expected credit losses and has established a framework which includes the use of four economic scenarios with associated probability weights, which in combination create a forecast of expected economic outcomes over the reasonable and supportable forecast period. To generate the four economic forecast scenarios, the Company uses a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking judgment to forecast the distribution of economic outcomes. Management used a number of economic variables in the scenarios, which are inputs into the loss forecasting models, with the most significant drivers being Real GDP and U.S. unemployment rate. Also included in the allowance for loan and lease losses for commercial loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative methods or the economic assumptions. For example, qualitative factors may include industry concentration and conditions, including the impacts of COVID-19 on highly impacted segments, changes in market conditions, changes in the nature and volume of the Company’s portfolio, recent credit quality trends, recent loss experience in particular portfolios, recent macroeconomic factors, limitations of available input data, model imprecision, changes in lending policies, and other factors.

The principal considerations for our determination that performing procedures relating to the allowance for loan and lease losses for commercial loans is a critical audit matter are (i) the significant judgment and estimation by management in developing economic forecast scenarios of Real GDP and U.S. unemployment rate, determining weighting of each scenario, and estimating qualitative reserves related to the impacts of COVID-19 on certain highly impacted segments, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence related to management’s significant judgements and estimations and (ii) the audit effort involved professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for loan and lease losses for commercial loans, including controls over the development and approval of economic forecast scenarios, related weightings, and qualitative reserves. These procedures also included, among others, testing management’s process for determining the allowance for loan and lease losses for commercial loans, including (i) evaluating the appropriateness and methodology of certain loss forecasting models, (ii) evaluating the reasonableness of certain borrower risk characteristics, (iii) evaluating the reasonableness of certain forecasted economic variables, including Real GDP and U.S. unemployment rate, (iv) evaluating the reasonableness of management’s weighting of economic forecast scenarios used in the loss forecast models, (v) testing the completeness and accuracy of data used in the estimate, and (vi) evaluating certain qualitative reserves made to the model output results to determine the overall allowance for loan and lease losses for commercial loans. The procedures also included the involvement of professionals with specialized skill and knowledge to assist in evaluating certain models, model inputs, economic forecasts, and qualitative reserves in the allowance for commercial loans.

Acquisition of BBVA USA Bancshares, Inc. - Fair Value of Commercial Loans Acquired

As described in Note 2 to the consolidated financial statements, the Company acquired BBVA USA Bancshares, Inc. (“BBVA”) on June 1, 2021. The transaction has been accounted for as a business combination and accordingly, the assets and liabilities from BBVA were recorded at fair value as of the acquisition date. The fair value of loans acquired from BBVA was approximately $61,423 million as of June 1, 2021, of which $39,742 million were commercial loans. For commercial loans, as disclosed by management, the fair value is based on a discounted cash flow methodology that considers credit loss and prepayment expectations, market interest rates and other market factors.

The principal considerations for our determination that performing procedures relating to the fair value of commercial loans acquired is a critical audit matter are (i) the significant judgment and estimation by management in developing the credit loss expectations, prepayment expectations, and market interest rates used in the discounted cash flow methodology, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence obtained related to the

88 The PNC Financial Services Group, Inc. – 2021 Form 10-K

significant judgments and estimations by management, and (ii) the audit effort involved professionals with specialized skill and knowledge.

/s/ PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

February 25, 2022

We have served as the Company’s auditor since 2007.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 89

CONSOLIDATED INCOME STATEMENT

THE PNC FINANCIAL SERVICES GROUP, INC.


	Year ended December 31
In millions, except per share data	2021		2020		2019
Interest Income
Loans	$	9,007	$	8,927	$	10,525
Investment securities	1,834		2,041		2,426
Other	293		339		811
Total interest income	11,134		11,307		13,762
Interest Expense
Deposits	126		643		1,986
Borrowed funds	361		718		1,811
Total interest expense	487		1,361		3,797
Net interest income	10,647		9,946		9,965
Noninterest Income
Asset management	964		836		862
Consumer services	1,845		1,484		1,555
Corporate services	2,924		2,167		1,914
Residential mortgage	456		604		368
Service charges on deposits	535		500		702
Other	1,840		1,364		1,473
Total noninterest income	8,564		6,955		6,874
Total revenue	19,211		16,901		16,839
Provision For (Recapture of) Credit Losses	(779)		3,175		773
Noninterest Expense
Personnel	7,141		5,673		5,647
Occupancy	940		826		834
Equipment	1,411		1,176		1,210
Marketing	319		236		301
Other	3,191		2,386		2,582
Total noninterest expense	13,002		10,297		10,574
Income from continuing operations before income taxes and noncontrolling interests	6,988		3,429		5,492
Income taxes from continuing operations	1,263		426		901
Net income from continuing operations	5,725		3,003		4,591
Income from discontinued operations before taxes			5,777		988
Income taxes from discontinued operations			1,222		161
Net income from discontinued operations			4,555		827
Net income	5,725		7,558		5,418
Less: Net income attributable to noncontrolling interests	51		41		49
Preferred stock dividends	233		229		236
Preferred stock discount accretion and redemptions	5		4		4
Net income attributable to common shareholders	$	5,436	$	7,284	$	5,129
Earnings Per Common Share
Basic earnings from continuing operations	$	12.71	$	6.37	$	9.59
Basic earnings from discontinued operations			10.62		1.84
Total basic earnings	$	12.71	$	16.99	$	11.43
Diluted earnings from continuing operations	$	12.70	$	6.36	$	9.57
Diluted earnings from discontinued operations			10.60		1.82
Total diluted earnings	$	12.70	$	16.96	$	11.39
Average Common Shares Outstanding
Basic	426		427		447
Diluted	426		427		448

See accompanying Notes to Consolidated Financial Statements.

90 The PNC Financial Services Group, Inc. – 2021 Form 10-K

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

THE PNC FINANCIAL SERVICES GROUP, INC.


	Year ended December 31
In millions	2021		2020		2019
Net income from continuing operations	$	5,725	$	3,003	$	4,591
Other comprehensive income (loss), before tax and net of reclassifications into Net income
Net change in debt securities	(2,451)		1,811		1,489
Net change in cash flow hedge derivatives	(1,126)		497		297
Pension and other postretirement benefit plan adjustments	486		82		158
Net change in Other	4		10		17
Other comprehensive income (loss) from continuing operations, before tax and net of reclassifications into Net income	(3,087)		2,400		1,961
Income tax benefit (expense) from continuing operations related to items of other comprehensive income	726		(544)		(441)
Other comprehensive income (loss) from continuing operations, after tax and net of reclassifications into Net income	(2,361)		1,856		1,520
Net income from discontinued operations			4,555		827
Other comprehensive income from discontinued operations, before tax and net of reclassifications into Net income			148		5
Income tax expense from discontinued operations related to items of other comprehensive income			(33)		(1)
Other comprehensive income from discontinued operations, after tax and net of reclassifications into Net income			115		4
Other comprehensive income (loss), after tax and net of reclassifications into Net income	(2,361)		1,971		1,524
Comprehensive income	3,364		9,529		6,942
Less: Comprehensive income attributable to noncontrolling interests	51		41		49
Comprehensive income attributable to PNC	$	3,313	$	9,488	$	6,893

See accompanying Notes to Consolidated Financial Statements.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 91

CONSOLIDATED BALANCE SHEET

THE PNC FINANCIAL SERVICES GROUP, INC.


	December 31		December 31
In millions, except par value	2021		2020
Assets
Cash and due from banks	$	8,004	$	7,017
Interest-earning deposits with banks	74,250		85,173
Loans held for sale (a)	2,231		1,597
Investment securities – available for sale	131,536		87,358
Investment securities – held to maturity	1,426		1,441
Loans (a)	288,372		241,928
Allowance for loan and lease losses	(4,868)		(5,361)
Net loans	283,504		236,567
Equity investments	8,180		6,052
Mortgage servicing rights	1,818		1,242
Goodwill	10,916		9,233
Other (a)	35,326		30,999
Total assets	$	557,191	$	466,679
Liabilities
Deposits
Noninterest-bearing	$	155,175	$	112,637
Interest-bearing	302,103		252,708
Total deposits	457,278		365,345
Borrowed funds
Federal Home Loan Bank borrowings			3,500
Bank notes and senior debt	20,661		24,271
Subordinated debt	6,996		6,403
Other (b)	3,127		3,021
Total borrowed funds	30,784		37,195
Allowance for unfunded lending related commitments	662		584
Accrued expenses and other liabilities	12,741		9,514
Total liabilities	501,465		412,638
Equity
Preferred stock (c)
Common stock ($5 par value, Authorized 800 shares, issued 543 shares)	2,713		2,713
Capital surplus	17,457		15,884
Retained earnings	50,228		46,848
Accumulated other comprehensive income	409		2,770
Common stock held in treasury at cost: 123 and 119 shares	(15,112)		(14,205)
Total shareholders’ equity	55,695		54,010
Noncontrolling interests	31		31
Total equity	55,726		54,041
Total liabilities and equity	$	557,191	$	466,679

(a)Our consolidated assets included the following for which we have elected the fair value option: Loans held for sale of $1.9 billion, Loans of $1.5 billion and Other assets of

$0.1 billion at December 31, 2021 and Loans held for sale of $1.2 billion, Loans of $1.4 billion and Other assets of $0.1 billion at December 31, 2020.

(b)Our consolidated liabilities included Other borrowed funds of less than $0.1 billion at both December 31, 2021 and December 31, 2020, for which we have elected the fair value option.

(c)Par value less than $0.5 million at each date.

See accompanying Notes to Consolidated Financial Statements.

92 The PNC Financial Services Group, Inc. – 2021 Form 10-K

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

THE PNC FINANCIAL SERVICES GROUP, INC.


		Shareholders’ Equity
In millions	Shares Outstanding Common Stock	Common Stock		Capital Surplus - Preferred Stock		Capital Surplus - Common Stock and Other		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Noncontrolling Interests		Total Equity
Balance at December 31, 2018 (a)	457	$	2,711	$	3,986	$	12,291	$	38,919	$	(725)	$	(9,454)	$	42	$	47,770
Cumulative effect of ASU adoptions (b)								62								62
Balance at January 1, 2019 (a)	457	$	2,711	$	3,986	$	12,291	$	38,981	$	(725)	$	(9,454)	$	42	$	47,832
Net income								5,369						49		5,418
Other comprehensive income, net of tax										1,524						1,524
Cash dividends declared - Common								(1,895)								(1,895)
Cash dividends declared - Preferred								(236)								(236)
Preferred stock discount accretion				4				(4)
Common stock activity (c)		1				20										21
Treasury stock activity	(24)					3						(3,327)				(3,324)
Other				3		62								(62)		3
Balance at December 31, 2019 (a)	433	$	2,712	$	3,993	$	12,376	$	42,215	$	799	$	(12,781)	$	29	$	49,343
Cumulative effect of ASU adoptions (d)								(671)								(671)
Balance at January 1, 2020 (a)	433	$	2,712	$	3,993	$	12,376	$	41,544	$	799	$	(12,781)	$	29	$	48,672
Net income								7,517						41		7,558
Other comprehensive income, net of tax										1,971						1,971
Cash dividends declared - Common								(1,980)								(1,980)
Cash dividends declared - Preferred								(229)								(229)
Preferred stock discount accretion				4				(4)
Common stock activity (c)		1				23										24
Treasury stock activity	(9)					54						(1,424)				(1,370)
Preferred stock redemption - Series Q (e)				(480)												(480)
Other						(86)								(39)		(125)
Balance at December 31, 2020 (a)	424	$	2,713	$	3,517	$	12,367	$	46,848	$	2,770	$	(14,205)	$	31	$	54,041


Net income								5,674						51		5,725
Other comprehensive income (loss), net of tax										(2,361)						(2,361)
Cash dividends declared - Common								(2,056)								(2,056)
Cash dividends declared - Preferred								(233)								(233)
Preferred stock discount accretion				5				(5)
Preferred stock issuance - Series T (f)				1,487												1,487
Common stock activity (c)						25										25
Treasury stock activity	(4)					84						(907)				(823)

Other						(28)								(51)		(79)
Balance at December 31, 2021 (a)	420	$	2,713	$	5,009	$	12,448	$	50,228	$	409	$	(15,112)	$	31	$	55,726

(a)The par value of our preferred stock outstanding was less than $0.5 million at each date and, therefore, is excluded from this presentation.

(b)Represents the impact of the adoption of ASU 2016-02 related primarily to deferred gains on previous sale-leaseback transactions.

(c)Common stock activity totaled less than 0.5 million shares issued.

(d)Represents the impact of the adoption of ASU 2016-13 - Financial Instruments - Credit Losses.

(e)On September 1, 2020, PNC redeemed all 4,800 shares of its Series Q Preferred Stock, as well as all 19.2 million Depositary Shares representing fractional interest in such shares.

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

See accompanying Notes to Consolidated Financial Statements.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 93

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.


	Year ended December 31
In millions	2021		2020		2019
Operating Activities
Net income	$	5,725	$	7,558	$	5,418
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for (recapture of) credit losses	(779)		3,175		773
Depreciation and amortization	1,773		1,497		1,315
Deferred income taxes (benefit)	178		(2,239)		303
Net gains on sales of securities	(64)		(305)
Changes in fair value of mortgage servicing rights	85		799		645

Gain on sale of BlackRock			(5,740)
Undistributed earnings of BlackRock			(174)		(531)
Net change in
Trading securities and other short-term investments	671		957		560
Loans held for sale	(480)		(372)		(123)
Other assets	(454)		(927)		(788)
Accrued expenses and other liabilities	753		(254)		132
Other	(194)		684		(341)
Net cash provided (used) by operating activities	$	7,214	$	4,659	$	7,363
Investing Activities
Sales
Securities available for sale	$	26,329	$	13,851	$	7,755
Net proceeds from sale of BlackRock			14,225
Loans	1,843		1,894		1,664
Repayments/maturities
Securities available for sale	30,691		30,901		11,974
Securities held to maturity	131		60		3,348
Purchases
Securities available for sale	(85,496)		(45,356)		(23,739)
Securities held to maturity	(87)		(53)		(1,751)
Loans	(1,891)		(1,982)		(1,027)
Net change in
Federal funds sold and resale agreements	(24)		1,738		4,899
Interest-earning deposits with banks	24,236		(61,760)		(12,520)
Loans	15,616		(3,376)		(14,963)
Net cash paid for acquisition (a)	(10,511)
Net cash received from divestiture activity					75
Purchases of bank owned life insurance	(950)
Other	(2,682)		(1,264)		(705)
Net cash provided (used) by investing activities	$	(2,795)	$	(51,122)	$	(24,990)

(continued on following page)

94 The PNC Financial Services Group, Inc. – 2021 Form 10-K

CONSOLIDATED STATEMENT OF CASH FLOWS

THE PNC FINANCIAL SERVICES GROUP, INC.

(continued from previous page)


	Year ended December 31
In millions	2021		2020		2019
Financing Activities
Net change in
Noninterest-bearing deposits	$	6,697	$	39,851	$	(1,166)
Interest-bearing deposits	(320)		36,947		21,882
Federal funds purchased and repurchase agreements	(46)		(5,861)		4,260
Short-term Federal Home Loan Bank borrowings			(6,300)		4,800

Other borrowed funds	44		123		(495)
Sales/issuances
Federal Home Loan Bank borrowings			9,060		12,040
Bank notes and senior debt	1,692		3,487		8,977
Subordinated debt					744
Other borrowed funds	822		647		1,131
Preferred stock	1,484
Common and treasury stock	66		65		90
Repayments/maturities
Federal Home Loan Bank borrowings	(3,680)		(15,601)		(22,000)
Bank notes and senior debt	(6,000)		(9,047)		(5,600)
Subordinated debt					(700)
Other borrowed funds	(823)		(639)		(1,174)
Preferred stock redemption			(480)
Acquisition of treasury stock	(1,079)		(1,624)		(3,578)
Preferred stock cash dividends paid	(233)		(229)		(236)
Common stock cash dividends paid	(2,056)		(1,980)		(1,895)
Net cash provided (used) by financing activities	$	(3,432)	$	48,419	$	17,080
Net Increase (Decrease) In Cash And Due From Banks And Restricted Cash	$	987	$	1,956	$	(547)
Net cash provided by discontinued operations			11,542		299
Net cash provided (used) by continuing operations	987		(9,586)		(846)
Cash and due from banks and restricted cash at beginning of period	7,017		5,061		5,608
Cash and due from banks and restricted cash at end of period	$	8,004	$	7,017	$	5,061
Cash and due from banks and restricted cash
Cash and due from banks at end of period (unrestricted cash)	$	7,431	$	6,636	$	5,061
Restricted cash	573		381
Cash and due from banks and restricted cash at end of period	$	8,004	$	7,017	$	5,061
Supplemental Disclosures
Interest paid	$	582	$	1,292	$	3,742
Income taxes paid	$	675	$	3,410	$	430
Income taxes refunded	$	73	$	10	$	17
Leased assets obtained in exchange for new operating lease liabilities	$	337	$	122	$	317
Right-of-use assets recognized at adoption of ASU 2016-02					$	2,004
Non-cash Investing and Financing Items
Transfer from loans to loans held for sale, net	$	869	$	1,379	$	958
Transfer from loans to foreclosed assets	$	27	$	64	$	174
Transfer from trading securities to investment securities			$	289	$	328

(a)Cash paid to acquire BBVA was $11,480 million. The amount of $10,511 million represents the cash paid for the acquisition less $969 million in cash acquired. See Note 2 Acquisition & Divestiture Activity for more detailed information on the BBVA acquisition.

See accompanying Notes to Consolidated Financial Statements.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE PNC FINANCIAL SERVICES GROUP, INC.

See the Glossary on page 191 for additional information on certain terms and acronyms used throughout the Financial Statements and related Notes.

B****USINESS

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

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

N****OTE 1 A****CCOUNTING P****OLICIES

Basis of Financial Statement Presentation

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

On June 1, 2021, we acquired BBVA, a U.S. financial holding company conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA. Our results for the year ended December 31, 2021 reflect BBVA's acquired business operations for the period since the acquisition closed on June 1, 2021. Our balance sheet at December 31, 2021 includes balances from BBVA. See Note 2 Acquisition and Divestiture Activity for additional information related to this acquisition.

We prepared these consolidated financial statements in accordance with GAAP. We have eliminated intercompany accounts and transactions. We have also reclassified certain prior year amounts to conform to the current period presentation, which did not have a material impact on our consolidated financial condition or results of operations.

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

Use of Estimates

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

Cash, Cash Equivalents and Restricted Cash

Cash and due from banks are considered cash and cash equivalents for financial reporting purposes because they represent a primary source of liquidity. Certain cash balances within Cash and due from banks on our Consolidated Balance Sheet are restricted as to withdrawal or usage by legally binding contractual agreements or regulatory requirements.

Investments

We hold interests in various types of investments. The accounting for these investments is dependent on a number of factors including, but not limited to, items such as:

Ownership interest,
Our plans for the investment, and
The nature of the investment.

Debt Securities

Debt securities are recorded on a trade-date basis. We classify debt securities as either trading, held to maturity, or available for sale. Debt securities that we purchase for certain risk management activities or customer-related trading activities are classified as trading securities, are reported in the Other assets line item on our Consolidated Balance Sheet and are carried at fair value. Realized and unrealized gains and losses on trading securities are included in Other noninterest income. We classify debt securities as held to maturity when we have the positive intent and ability to hold the securities to maturity, and carry them at amortized cost, less any allowance. Debt securities not classified as held to maturity or trading are classified as securities available for sale and are carried at fair value. Unrealized gains and losses on available for sale securities are included in AOCI net of income taxes.

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We include all interest on debt securities, including amortization of premiums and accretion of discounts on investment securities, in net interest income using the constant effective yield method generally calculated over the contractual lives of the securities. Effective yields reflect either the effective interest rate implicit in the security at the date of acquisition or, for debt securities where an OTTI was recorded, the effective interest rate determined based on improved cash flows subsequent to an impairment. We compute gains and losses realized on the sale of available for sale debt securities on a specific security basis. These securities gains and losses are included in Other noninterest income on the Consolidated Income Statement.

The CECL standard requires expected credit losses on both held to maturity and available for sale securities to be recognized through a valuation allowance, ACL, instead of as a direct write-down to the amortized cost basis of the security. An available for sale security is considered impaired if the fair value is less than its amortized cost basis. If any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If we have the intent to sell or believe it is more likely than not we will be required to sell an impaired available for sale security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Credit losses on investment securities are recognized through the Provision for credit losses on our Consolidated Income Statement. Declines in the fair value of available for sale securities that are not considered credit related are recognized in AOCI on our Consolidated Balance Sheet. The CECL standard was applied prospectively to debt securities and, as a result, the amortized cost basis of investment securities for which OTTI had previously been recorded did not change upon adoption.

We consider a security to be past due in terms of payment based on its contractual terms. A security may be placed on nonaccrual, with interest no longer recognized until received, when collectability of principal or interest is doubtful. As of December 31, 2021, nonaccrual or past due held-to-maturity and available-for-sale securities were immaterial.

A security may be partially or fully charged off against the allowance if it is determined to be uncollectible, including, for an available for sale security, if we have the intent to sell or believe it is more likely than not we will be required to sell the security before recovery of the amortized cost basis. Recoveries of previously charged-off available for sale securities are recognized when received, while recoveries on held to maturity securities are recognized when expected.

See the Allowance for Credit Losses section of this Note 1 for further discussion regarding the methodologies used to determine the

allowance for investment securities. See Note 3 Investment Securities for additional information about the investment securities portfolio and the related ACL.

Equity Securities and Partnership Interests

We account for equity securities, equity investments, private equity investments, and investments in limited partnerships, limited liability companies and other investments that are not required to be consolidated under one of the following methods:

We use the equity method for general and limited partner ownership interests and limited liability companies in which we are considered to have significant influence over the operations of the investee. Under the equity method, we record our equity ownership share of net income or loss of the investee in Noninterest income and any dividends received on equity method investments are recorded as a reduction to the investment balance. When an equity investment experiences an other-than-temporary decline in value, we may be required to record a loss on the investment.
We measure equity securities that have a readily determinable fair value at fair value through Net income. Both realized and unrealized gains and losses are included in Noninterest income. Dividend income on these equity securities is included in Other interest income on our Consolidated Income Statement.
We generally use the practicability exception to fair value measurement for all other investments without a readily determinable fair value. When we elect this alternative measurement method, the investment is recorded at cost and the carrying value is adjusted for impairment, if any, plus or minus changes in value resulting from observable price changes in orderly transactions for identical or similar instruments of the same issuer. Adjustments to fair value based on changes in observable price are recorded in Other noninterest income. These investments are written down to fair value if a qualitative assessment indicates impairment and the fair value is less than the carrying value. The amount of the write-down is accounted for as a loss included in Other noninterest income. Distributions received on these investments are included in Noninterest income.

Investments described above are included in Equity investments on our Consolidated Balance Sheet.

Private Equity Investments

We report private equity investments, which include direct investments in companies, affiliated partnership interests and indirect investments in private equity funds, at estimated fair value. These estimates are based on available information and may not necessarily represent amounts that we will ultimately realize through distribution, sale or liquidation of the investments. Fair values of publicly-traded direct investments are determined using quoted market prices and are subject to various discount factors arising from security level restrictions, when appropriate. The valuation procedures applied to direct investments and indirect investments are

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detailed in Note 15 Fair Value. We include all private equity investments within Equity investments on our Consolidated Balance Sheet. Changes in fair value of private equity investments are recognized in Other noninterest income.

We consolidate affiliated partnerships when we have determined that we have control of the partnership or are the primary beneficiary if the entity is a VIE. The portion we do not own is reflected in Noncontrolling interests on our Consolidated Balance Sheet.

Loans

Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Management’s intent and view of the foreseeable future may change based on changes in business strategies, the economic environment, market conditions and the availability of government programs.

Measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. See Note 4 Loans and Related Allowance for Credit Losses for additional information on how COVID-19 hardship related loan modifications are reported from a delinquency perspective as of December 31, 2021 and 2020.

Loans held for investment, excluding PCD loans, are recorded at amortized cost basis unless we elect to measure these under the fair value option. Amortized cost basis represents principal amounts outstanding, net of unearned income, unamortized deferred fees and costs on originated loans, premiums or discounts on purchased loans and charge-offs. Amortized cost basis does not include accrued interest, as we include accrued interest in Other assets on our Consolidated Balance Sheet. Interest on performing loans is accrued based on the principal amount outstanding and recorded in Interest income as earned using the constant effective yield method over the contractual life. Loan origination fees, direct loan origination costs, and loan premiums and discounts are deferred and accreted or amortized into Net interest income using the constant effective yield method, over the contractual life of the loan. The processing fee received for loans originated through PPP lending under the CARES Act is deferred and accreted into Net interest income using the effective yield method, over the contractual life of the loan. Loans under the fair value option are reported at their fair value, with any changes to fair value reported as Noninterest income on the Consolidated Income Statement, and are excluded from measurement of ALLL.

In addition to originating loans, we also acquire loans through the secondary loan market, portfolio purchases or acquisitions of other financial services companies. Certain acquired loans that have experienced a more-than-insignificant deterioration of credit quality since origination (i.e., PCD) are recognized at an amortized cost basis equal to their purchase price plus an ALLL measured at the acquisition date. PNC considers a variety of factors in connection with the identification of more-than-insignificant deterioration in credit quality, including but not limited to nonperforming status, delinquency, risk ratings, TDR classification and other qualitative factors that indicate deterioration in credit quality since origination. Subsequent decreases in expected cash flows that are attributable, at least in part, to credit quality are recognized through a charge to the provision for credit losses resulting in an increase in the ALLL. Subsequent increases in expected cash flows are recognized as a provision recapture of previously recorded ALLL.

We consider a loan to be collateral dependent when we determine that substantially all of the expected cash flows will be generated

from the operation or sale of the collateral underlying the loan, or when the borrower is experiencing financial difficulty and we have elected to measure the loan at the estimated fair value of collateral (less costs to sell if sale or foreclosure of the property is expected).

Additionally, we consider a loan to be collateral dependent when foreclosure or liquidation of the underlying collateral is probable.

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. A concession has been granted when we do not expect to collect all amounts due, including original interest accrued at the original contract rate, as a result of the restructuring, or there is a delay in payment that is more-than-insignificant. TDRs result from our loss mitigation activities, and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization, and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us. In those situations where principal is forgiven, the amount of such principal forgiveness is immediately charged off.

Potential incremental losses or recoveries on TDRs have been factored into the ALLL estimates for each loan class under the methodologies described in this Note. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, the collateral is foreclosed upon or it is fully charged off.

PNC excludes loans held for sale, loans accounted for under the fair value option and certain government insured or guaranteed loans from our TDR population. PCD loans do not require additional considerations and thus are evaluated for inclusion in our TDR population. In addition, PNC has elected not to apply a TDR designation to loans that have been restructured due to a COVID-19 hardship pursuant to specific criteria under the CARES Act for restructurings that occurred prior to the expiration of TDR relief on January 1, 2022. Since loans restructured due to a COVID-19 related hardship were not identified as TDRs, they are not placed on

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nonaccrual at the time of modification unless payment in full of principal or interest is not expected. These loans continue to be subject to our existing nonaccrual policy.

See the following for additional information related to loans, including further discussion regarding our policies, the methodologies and significant inputs used to determine the ALLL and additional details on the composition of our loan portfolio:

Nonperforming Loans and Leases section of this Note 1,
Allowance for Credit Losses section of this Note 1, and
Note 4 Loans and Related Allowance for Credit Losses.

Nonperforming Loans and Leases

The matrix that follows summarizes our policies for classifying certain loans as nonperforming loans and/or discontinuing the accrual of loan interest income.


Commercial
Loans classified as nonperforming and accounted for as nonaccrual			• Loans accounted for at amortized cost where: –The loan is 90 days or more past due. –The loan is rated substandard or worse due to the determination that full collection of principal and interest is not probable as demonstrated by the following conditions: •The collection of principal or interest is 90 days or more past due, •Reasonable doubt exists as to the certainty of the borrower’s future debt service ability, according to the terms of the credit arrangement, regardless of whether 90 days have passed or not, •The borrower has filed or will likely file for bankruptcy, •The bank advances additional funds to cover principal or interest, •We are in the process of liquidating a commercial borrower or •We are pursuing remedies under a guarantee.
Loans excluded from nonperforming classification but accounted for as nonaccrual			• Loans accounted for under the fair value option and full collection of principal and interest is not probable. • Loans accounted for at the lower of cost or market less costs to sell (held for sale) and full collection of principal and interest is not probable.
Loans excluded from nonperforming classification and nonaccrual accounting			• Loans that are well secured and in the process of collection. • Certain government insured loans where substantially all principal and interest is insured. • Commercial purchasing card assets which do not accrue interest.


Consumer
Loans classified as nonperforming and accounted for as nonaccrual			• Loans accounted for at amortized cost where full collection of contractual principal and interest is not deemed probable as demonstrated in the policies below: – The loan is 90 days past due for home equity and installment loans, and 180 days past due for well secured residential real estate loans, – The loan has been modified and classified as a TDR, – The loan has been modified to defer prior payments in forbearance to the end of the loan term, – Notification of bankruptcy has been received, – The bank holds a subordinate lien position in the loan and the first lien mortgage loan is seriously stressed (i.e., 90 days or more past due), – Other loans within the same borrower relationship have been placed on nonaccrual or charge-offs have been taken on them, – The bank has ordered the repossession of non-real estate collateral securing the loan or – The bank has charged-off the loan to the value of the collateral.
Loans excluded from nonperforming classification but accounted for as nonaccrual			• Loans accounted for under the fair value option and full collection of principal and interest is not probable. • Loans accounted for at the lower of cost or market less costs to sell (held for sale) and full collection of principal and interest is not probable.
Loans excluded from nonperforming classification and nonaccrual accounting			• Certain government insured loans where substantially all principal and interest is insured. • Residential real estate loans that are well secured and in the process of collection. • Consumer loans and lines of credit, not secured by residential real estate or automobiles, as permitted by regulatory guidance.

Commercial

We generally charge-off commercial (commercial and industrial, commercial real estate and equipment lease financing) nonperforming loans when we determine that a specific loan, or portion thereof, is uncollectible. This determination is based on the specific facts and circumstances of the individual loans. In making this determination, we consider the viability of the business or project as a going concern, the past due status when the asset is not well-secured, the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform. For commercial loans and leases less than a defined dollar threshold, balances are charged-off in full after pre-determined days past due.

Consumer

We generally charge-off secured consumer (home equity, residential real estate and automobile) nonperforming loans to the fair

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value of collateral less costs to sell, if lower than the amortized cost basis of the loan outstanding, when delinquency of the loan, combined with other risk factors (e.g., bankruptcy, lien position or troubled debt restructuring), indicates that the loan, or some portion thereof, is uncollectible as per our historical experience, or the collateral has been repossessed. We charge-off secured consumer loans no later than 180 days past due. Most consumer loans and lines of credit, not secured by automobiles or residential real estate, are charged-off once they have reached 120-180 days past due.

For secured collateral dependent loans, collateral values are updated at least annually and subsequent declines in collateral values are charged-off resulting in incremental provision for credit loss. Subsequent increases in collateral values may be reflected as an adjustment to the ALLL to reflect the expectation of recoveries in an amount greater than previously expected, limited to amounts previously charged-off.

Accounting for Nonperforming Assets and Leases and Other Nonaccrual Loans

For nonaccrual loans, interest income accrual and deferred fee/cost recognition is discontinued. Additionally, depending on whether the accrued interest has been incorporated into the ACL estimates, as discussed in the Accrued Interest section of this Note 1, the accrued and uncollected interest is either reversed through Net interest income (if a CECL reserve is not maintained for accrued interest) or charged-off against the allowance (if a CECL reserve is maintained for accrued interest), except for credit cards, where we reverse any accrued interest through Net interest income at the time of charge-off, as per industry standard practice. Nonaccrual loans that are also collateral dependent may be charged-off to reduce the basis to the fair value of collateral less costs to sell.

If payment is received on a nonaccrual loan, generally the payment is first applied to the remaining principal balance; payments are then applied to recover any charged-off amounts related to the loan. Finally, if both principal balance and any charge-offs have been recovered, then the payment will be recorded as fee and interest income. For certain consumer loans, the receipt of interest payments is recognized as interest income on a cash basis. Cash basis income recognition is applied if a loan’s amortized cost basis is deemed fully collectible and the loan has performed for at least six months.

For TDRs, payments are applied based upon their contractual terms unless the related loan is deemed non-performing. TDRs are generally included in nonperforming and nonaccrual loans. However, after a reasonable period of time, generally six months, in which the loan performs under restructured terms and meets other performance indicators, it is returned to performing/accruing status. This return to performing/accruing status demonstrates that the bank expects to collect all of the loan’s remaining contractual principal and interest. TDRs resulting from (i) borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us, and (ii) borrowers that are not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status.

Other nonaccrual loans are generally not returned to accrual status until the borrower has performed in accordance with the contractual terms and other performance indicators for at least six months, the period of time which was determined to demonstrate the expected collection of the loan’s remaining contractual principal and interest. Nonaccrual loans with partially charged-off principal are not returned to accrual. When a nonperforming loan is returned to accrual status, it is then considered a performing loan.

Foreclosed assets consist of any asset seized or property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure. OREO comprises principally commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. After obtaining a foreclosure judgment, or in some jurisdictions the initiation of proceedings under a power of sale in the loan instruments, the property will be sold. When we are awarded title or completion of deed-in-lieu of foreclosure, we transfer the loan to foreclosed assets included in Other assets on our Consolidated Balance Sheet. Property obtained in satisfaction of a loan is initially recorded at estimated fair value less cost to sell. Based upon the estimated fair value less cost to sell, the amortized cost basis of the loan is adjusted and a charge-off/recovery is recognized to the ALLL. We estimate fair values primarily based on appraisals, or sales agreements with third parties. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or estimated fair value less cost to sell. Valuation adjustments on these assets and gains or losses realized from disposition of such property are reflected in Other noninterest expense.

For certain mortgage loans that have a government guarantee, we establish a separate other receivable upon foreclosure. The receivable is measured based on the loan balance (inclusive of principal and interest) that is expected to be recovered from the guarantor.

See Note 4 Loans and Related Allowance for Credit Losses in this Report for additional information on nonperforming assets, TDRs and credit quality indicators related to our loan portfolio.

Allowance for Credit Losses

Our ACL, in accordance with the CECL standard, is based on historical loss experience, current borrower risk characteristics, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We maintain the ACL at an

appropriate level for expected losses on our existing investment securities, loans, equipment finance leases, other financial assets and unfunded lending related commitments, for the estimated contractual term of the assets or exposures as of the balance sheet date. The

100 The PNC Financial Services Group, Inc. – 2021 Form 10-K

remaining contractual term of assets in scope of CECL is estimated considering contractual maturity dates, prepayment expectations, utilization or draw expectations and any embedded extension options that do not allow us to unilaterally cancel the extension options. For products without a fixed contractual maturity date (e.g., credit cards), we rely on historical payment behavior to determine the length of the paydown or default time period.

We estimate expected losses on a pooled basis using a combination of (i) the expected losses over a reasonable and supportable forecast period, (ii) a period of reversion to long run average expected losses where applicable and (iii) the long run average expected losses for the remaining estimated contractual term. For all assets and unfunded lending related commitments in the scope of CECL, the ACL also includes individually assessed reserves and qualitative reserves, as applicable.

We use forward-looking information in estimating expected credit losses for our reasonable and supportable forecast period. For this purpose, we use forecasted scenarios produced by PNC’s Economics Team, which are designed to reflect business cycles and their related estimated probabilities. The forecast length that we have determined to be reasonable and supportable is three years. As noted in the methodology discussions that follow, forward-looking information is incorporated into the expected credit loss estimates. Such forward looking information includes forecasted relevant macroeconomic variables, which are estimated using quantitative macroeconomic models, analysis from PNC economists and management judgment.

The reversion period is used to bridge our three year reasonable and supportable forecast period and the long run average expected credit losses. We consider a number of factors in determining the duration of the reversion period, such as contractual maturity of the asset, observed historical patterns and the estimated credit loss rates at the end of the forecast period relative to the beginning of the long run average period. The reversion period is typically 1-3 years, if not immediate.

The long run average expected credit losses are derived from long run historical credit loss information adjusted for the credit quality of the current portfolio, and therefore do not consider current and forecasted economic conditions.

See the following sections related to investment securities, loans, trade receivables, other financial assets and unfunded lending related commitments for details about specific methodologies.

Allowance for Investment Securities

A significant portion of our investment securities are issued or guaranteed by either the U.S. government (U.S. Treasury or GNMA) or a government-sponsored agency (FNMA or FHLMC). Taking into consideration historical information and current and forecasted conditions, we do not expect to incur any credit losses on these securities.

Investment securities that are not issued or guaranteed by the U.S. government or a government-sponsored agency consist of both securitized products, such as non-agency mortgage and asset-backed securities, as well as non-securitized products, such as corporate and municipal debt securities. A discounted cash flow approach is primarily used to determine the amount of the allowance required. The estimates of expected cash flows are determined using macroeconomic sensitive models taking into consideration the reasonable and supportable forecast period and scenarios discussed above. Additional factors unique to a specific security may also be taken into consideration when estimating expected cash flows. The cash flows expected to be collected, after considering expected prepayments, are discounted at the effective interest rate. For an available-for-sale security, the amount of the allowance is limited to the difference between the amortized cost basis of the security and its estimated fair value.

See Note 3 Investment Securities in this Report for additional information about the investment securities portfolio.

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Allowance for Loan and Lease Losses

Our pooled expected loss methodology is based upon the quantification of risk parameters, such as PD, LGD and EAD for a loan or loan segment. We also consider the impact of prepayments and amortization on contractual maturity in our expected loss estimates. We use historical credit loss information, current borrower risk characteristics and forecasted economic variables for the reasonable and supportable forecast period, coupled with analytical methods, to estimate these risk parameters by loan or loan segments. PD, LGD and EAD parameters are calculated for each forecasted scenario and the long run average period, and combined to generate expected loss estimates by scenario. The following matrix provides key credit risk characteristics that we use to estimate these risk parameters.


Loan Class	Probability of Default	Loss Given Default	Exposure at Default
Commercial
Commercial and industrial / Equipment lease financing	•For wholesale obligors: internal risk ratings based on borrower characteristics and industry •For retail small balance obligors: credit score, delinquency status, and product type	•Collateral type, collateral value, industry, size and outstanding exposure for secured loans •Capital structure, industry and size for unsecured loans •For retail small balance obligors, product type and credit scores	•Outstanding balances, commitment, contractual maturities and historical prepayment experience for loans •Current utilization and historical pre-default draw experience for lines
Commercial real estate	•Property performance metrics, property type, market and risk pool for the forecast period •For the long run average period, internal risk ratings based on borrower characteristics	•Property values and anticipated liquidation costs	•Outstanding balances, commitment, contractual maturities and historical prepayment experience for loans
Consumer
Home equity / Residential real estate	•Borrower credit scores, delinquency status, origination vintage, LTV and contractual maturity	•Collateral characteristics, LTV and costs to sell	•Outstanding balances, contractual maturities and historical prepayment experience for loans •Current utilization and historical pre-default draw experience for lines
Automobile	•Borrower credit scores, delinquency status, borrower income, LTV and contractual maturity	•New vs. used, LTV and borrower credit scores	•Outstanding balances, contractual maturities and historical prepayment experience
Credit card	•Borrower credit scores, delinquency status, utilization, payment behavior and months on book	•Borrower credit scores and credit line amount	•Pay-down curves are developed using a pro-rata method and estimated using borrower behavior segments, payment ratios and borrower credit scores
Education / Other consumer	•Net charge-off and pay-down rates by vintage are used to estimate expected losses in lieu of discrete risk parameters

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The following matrix describes the key economic variables that are consumed during our forecast period by loan class, as well as other assumptions that are used for our reversion and long run average approaches.


Loan Class	Forecast Period - Key Economic Variables	Reversion Method	Long Run Average
Commercial
Commercial and industrial / Equipment lease financing	•GDP and Gross Domestic Income measures, employment related variables and personal income and consumption measures	•Immediate reversion	•Average parameters determined based on internal and external historical data •Modeled parameters using long run economic conditions for retail small balance obligors
Commercial real estate	• CRE Price Index, unemployment rates, GDP, corporate bond yield and interest rates	• Immediate reversion	• Average parameters determined based on internal and external historical data
Consumer
Home equity / Residential real estate	•Unemployment rates, HPI and interest rates	•Straight-line over 3 years	•Modeled parameters using long run economic conditions
Automobile	•Unemployment rates, HPI, personal consumption expenditure and Manheim used car index	•Straight-line over 1 year	•Average parameters determined based on internal and external historical data
Credit card	•Unemployment rates, personal consumption expenditure and HPI	•Straight-line over 2 years	•Modeled parameters using long run economic conditions
Education / Other consumer	•Net charge-off and pay-down rates by vintage are used to estimate expected losses in lieu of discrete risk parameters

After the forecast period, we revert to the long run average over the reversion period noted above, which is the period between the end of the forecast period and when losses are estimated to have completely reverted to the long run average.

Once we have developed a combined estimate of credit losses (i.e., for the forecast period, reversion period and long run average) under each of the forecasted scenarios, we produce a probability-weighted credit loss estimate by loan class. We then add or deduct any qualitative components and other adjustments, such as individually assessed loans, to produce the ALLL. See the Individually Assessed Component and Qualitative Component discussions that follow in this Note 1 for additional information about those adjustments.

Discounted Cash Flow

In addition to TDRs, we also use a discounted cash flow methodology for our home equity and residential real estate loan classes. We determine effective interest rates considering contractual cash flows adjusted for estimated prepayments. Changes in the ALLL due to the impact of the passage of time under the discounted cash flow estimate are recognized through the provision for credit losses.

Individually Assessed Component

Loans and leases that do not share similar risk characteristics with a pool of loans are individually assessed as follows:

For commercial nonperforming loans greater than or equal to a defined dollar threshold, reserves are based on an analysis of the present value of the loan’s expected future cash flows or the fair value of the collateral, if appropriate under our policy for collateral dependent loans. Nonperforming commercial loans below the defined threshold, and accruing TDRs are reserved for under a pooled basis.
For consumer nonperforming loans classified as collateral dependent, charge-off and ALLL related to recovery of amounts previously charged-off are evaluated through an analysis of the fair value of the collateral less costs to sell.

Qualitative Component

While our reserve methodologies strive to reflect all relevant credit risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between expected and actual outcomes. We may hold additional reserves that are designed to provide coverage for losses attributable to such risks. The ACL also takes into account factors that may not be directly measured in the determination of individually assessed or pooled reserves. Such qualitative factors may include, but are not limited to:

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Industry concentrations and conditions, including the impacts of COVID-19 on highly impacted segments,
Changes in market conditions, including regulatory and legal requirements,
Changes in the nature and volume of our portfolio,
Recent credit quality trends, including the impact of COVID-19 hardship related loan modifications,
Recent loss experience in particular portfolios, including specific and unique events,
Recent macroeconomic factors that may not be reflected in the forecast information,
Limitations of available input data, including historical loss information and recent data such as collateral values,
Model imprecision and limitations,
Changes in lending policies and procedures, including changes in loss recognition and mitigation policies and procedures,
Timing of available information, including the performance of first lien positions.

See Note 4 Loans and Related Allowance for Credit Losses for additional information about our loan portfolio and the related allowance.

Accrued Interest

When accrued interest is reversed or charged-off in a timely manner, the CECL standard provides a practical expedient to exclude

accrued interest from ACL measurement. We consider our nonaccrual and charge-off policies to be timely for all of our investment

securities, loans and leases, with the exception of consumer credit cards, education loans and certain unsecured consumer lines of credit. We consider the length of time before nonaccrual/charge-off and the use of appropriate other triggering events for nonaccrual and charge-offs in making this determination. Pursuant to these policy elections, we calculate reserves for accrued interest on credit cards, education loans and certain unsecured consumer lines of credit, which are then included within the ALLL. See the Debt Securities and Nonperforming Loans and Leases sections of this Note 1 for additional information on our nonaccrual and charge-off policies.

Additionally, pursuant to our use of a discounted cash flow methodology in estimating credit losses for our home equity and residential real estate loan classes, applicable reserves for accrued interest are also included within the ALLL for these loan classes.

Purchased Credit Deteriorated Loans or Securities

The allowance for PCD loans or securities is determined at the time of acquisition (including January 1, 2020 when certain purchased impaired loans were grandfathered and transitioned to PCD upon adoption of CECL), as the estimated expected credit loss of the outstanding balance or par value, based on the methodologies described previously for loans and securities. In accordance with CECL, the allowance recognized at acquisition is added to the acquisition date purchase price to determine the asset’s amortized cost basis.

Allowance for Unfunded Lending Related Commitments

We maintain the allowance for unfunded lending related commitments on off-balance sheet credit exposures that are not unconditionally cancelable (e.g., unfunded loan commitments, letters of credit and certain financial guarantees), at a level we believe is appropriate as of the balance sheet date to absorb expected credit losses on these exposures. Other than the estimation of the probability of funding, this reserve is estimated in a manner similar to the methodology used for determining reserves for loans and leases. See the Allowance for Loan and Lease Losses section of this Note 1 for the key credit risk characteristics for unfunded lending related commitments. The allowance for unfunded lending related commitments is recorded as a liability on the Consolidated Balance Sheet. Net adjustments to this reserve are included in the provision for credit losses.

See Note 4 Loans and Related Allowance for Credit Losses for additional information about this allowance.

Allowance for Other Financial Assets

We determine the allowance for other financial assets (e.g., trade receivables, servicing advances on PNC-owned loans, balances with banks) considering historical loss information and other available indicators. In certain cases where there are no historical, current or forecast indicators of an expected credit loss, we may estimate the reserve to be close to zero. As of December 31, 2021, the allowance for other financial assets was immaterial.

Loans Held for Sale

We designate loans as held for sale when we have the intent and ability to sell them. At the time of designation to held for sale, any ACL is reversed, and a valuation allowance for the shortfall between the amortized cost basis and the net realizable value is recognized, excluding the amounts already charged off. Similarly, when loans are no longer considered held for sale, the valuation allowance (net of writedowns) is reversed, and an allowance for credit losses is established, excluding the amounts already charged-off. Write-downs on these loans (if required) are recorded as charge-offs through the valuation allowance. Adjustments to the valuation allowance on held for sale loans are recognized in Other noninterest income.

We have elected to account for certain commercial and residential mortgage loans held for sale at fair value. The changes in the fair value of the commercial mortgage loans are measured and recorded in Other noninterest income while such changes for the residential

104 The PNC Financial Services Group, Inc. – 2021 Form 10-K

mortgage loans are measured and recorded in Residential mortgage noninterest income each period. See Note 15 Fair Value for additional information.

Interest income with respect to loans held for sale is accrued based on the principal amount outstanding and the loan’s contractual interest rate.

In certain circumstances, loans designated as held for sale may be transferred to held for investment based on a change in strategy. We transfer these loans at the lower of cost or estimated fair value; however, any loans originated or purchased for the held for sale portfolio and for which the fair value option has been elected remain at fair value for the life of the loan.

Loan Sales, Loan Securitizations and Retained Interests

We recognize the sale of loans or other financial assets when the transferred assets are legally isolated from our creditors and the appropriate accounting criteria are met. We have sold mortgage and other loans through securitization transactions. In a securitization, financial assets are transferred into trusts or to SPEs in transactions to effectively legally isolate the assets from us.

In a securitization, the trust or SPE issues beneficial interests in the form of senior and subordinated securities backed or collateralized by the assets sold to the trust. The senior classes of the asset-backed securities typically receive investment grade credit ratings at the time of issuance. These ratings are generally achieved through the creation of lower-rated subordinated classes of asset-backed securities, as well as subordinated or residual interests. In certain cases, we may retain a portion or all of the securities issued, interest-only strips, one or more subordinated tranches, servicing rights and, in some cases, cash reserve accounts. Securitized loans are removed from the balance sheet and a net gain or loss is recognized in Noninterest income at the time of initial sale. Gains or losses recognized on the sale of the loans depend on the fair value of the loans sold and the retained interests at the date of sale. We generally estimate the fair value of the retained interests based on the present value of future expected cash flows using assumptions as to discount rates, interest rates, prepayment speeds, credit losses and servicing costs, if applicable.

With the exception of loan sales to certain U.S. government-chartered entities, our loan sales and securitizations are generally structured without recourse to us except for representations and warranties and with no restrictions on the retained interests. We originate, sell and service commercial mortgage loans under the FNMA DUS program. Under the provisions of the DUS program, we participate in a loss-sharing arrangement with FNMA. When we are obligated for loss-sharing or recourse, our policy is to record such liabilities initially at fair value and subsequently reserve for estimated losses in accordance with guidance contained in applicable GAAP.

Variable Interest Entities

A VIE is a corporation, partnership, limited liability company, or any other legal structure used to conduct activities or hold assets generally that either:

Does not have equity investors with voting rights that can directly or indirectly make decisions about the entity’s most significant economic activities through those voting rights or similar rights, or
Has equity investors that do not provide sufficient equity for the entity to finance its activities without additional subordinated financial support.

A VIE often holds financial assets, including loans or receivables, real estate or other property.

VIEs are assessed for consolidation under ASC 810 – Consolidation when we hold a variable interest in these entities. We consolidate a VIE if we are its 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. Upon consolidation of a VIE, we recognize all of the VIE’s assets, liabilities and noncontrolling interests on our Consolidated Balance Sheet. On a quarterly basis, we determine whether any changes occurred requiring a reassessment of whether we are the primary beneficiary of an entity.

See Note 5 Loan Sale and Servicing Activities and Variable Interest Entities for information about VIEs that we consolidate as well as those that we do not consolidate but in which we hold a significant variable interest.

Mortgage Servicing Rights

We provide servicing under various loan servicing contracts for commercial and residential loans. These contracts are either purchased in the open market or retained as part of a loan securitization or loan sale. All acquired or originated servicing rights are measured at fair value. Fair value is based on the present value of the expected future net cash flows, including assumptions as to:

Deposit balances and interest rates for escrow and commercial reserve earnings,
Discount rates,
Estimated prepayment speeds, and

The PNC Financial Services Group, Inc. – 2021 Form 10-K 105

Estimated servicing costs.

We measure commercial and residential MSRs at fair value in order to reduce any potential measurement mismatch between our economic hedges and the MSRs. We manage the risk by hedging the fair value of MSRs with derivatives and securities which are expected to increase in value when the value of the servicing right declines. Changes in the fair value of MSRs are recognized as gains/(losses). The fair value of these servicing rights is estimated by using a discounted cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs and other factors which are determined based on current market conditions. See Note 6 Goodwill and Mortgage Servicing Rights for additional information.

Goodwill

Goodwill arising from business acquisitions represents the value attributable to unidentifiable intangible elements in the business acquired. At least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date, management performs the goodwill impairment test at a reporting unit level.

PNC may first perform a qualitative analysis to evaluate whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, PNC determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary. If PNC elects to bypass the qualitative analysis, or concludes via qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative goodwill impairment test is performed. Inputs are generated and used in calculating the fair value of the reporting unit, which is compared to its carrying amount. The fair value of our reporting units is determined by using discounted cash flows and/or market comparability methodologies. If the fair value is greater than the carrying amount, then the reporting unit’s goodwill is deemed not to be impaired. If the fair value is less than the carrying amount, an entity should recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. See Note 6 Goodwill and Mortgage Servicing Rights for additional information.

Leases

Lessor Arrangements

We provide financing for various types of equipment, including aircraft, energy and power systems and vehicles through a variety of lease arrangements. Finance leases are carried at the aggregate of lease payments plus estimated residual value of the leased equipment, less unearned income. Leveraged leases, a form of financing leases, are carried net of nonrecourse debt. We recognize income over the term of the lease using the constant effective yield method. Lease residual values are reviewed for impairment at least annually. Gains or losses on the sale of leased assets are included in Other noninterest income. Valuation adjustments on operating lease residuals are included in Other noninterest expense while valuation adjustments on the net investment of a direct financing or sales-type lease are included in Provision for credit losses. Prior to the adoption of CECL, valuation adjustments on lease residuals were included in Other noninterest expense.

Lessee Arrangements

We lease retail branches, datacenters, office space, land and equipment under operating and finance leases. Under ASC 842, we elected the practical expedient to account for the lease and nonlease components of real estate leases and leases of advertising assets, such as signage, as a single lease component. For other leased asset classes, lease and nonlease components of new lease agreements are accounted for separately. In addition, we elected the practical expedient to not apply the recognition requirements under the standard to short-term leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet, as we recognize lease expense for these leases on a straight-line basis over the lease term. Generally, we have elected to use the Overnight Indexed Swap rate corresponding to the term of the lease at the lease measurement date as our incremental borrowing rate to measure the right-of-use-asset and lease liability.

See Note 7 Leases for additional information on our leasing arrangements.

Depreciation and Amortization

For financial reporting purposes, we depreciate premises and equipment, net of salvage value, principally using the straight-line method over their estimated useful lives.

We use estimated useful lives for furniture and equipment ranging from one to 10 years, and depreciate buildings over an estimated useful life of up to 40 years. We amortize leasehold improvements over their estimated useful lives of up to 15 years or the respective lease terms, whichever is shorter.

106 The PNC Financial Services Group, Inc. – 2021 Form 10-K

We purchase, as well as internally develop and customize, certain software to enhance or perform internal business functions. Software development costs incurred in the planning and post-development project stages are charged to Noninterest expense. Costs associated with designing software configuration and interfaces, installation, coding programs and testing systems are capitalized and amortized using the straight-line method over periods ranging from one to 10 years.

We review the remaining useful lives and carrying values of premises and equipment to determine whether an event has occurred that would indicate a change in useful life is warranted or if any impairment exists.

Other Comprehensive Income

Other comprehensive income, on an after-tax basis, primarily consists of unrealized gains or losses on debt securities, unrealized gains or losses on derivatives designated as cash flow hedges, and changes in plan assets and benefit obligations of pension and other postretirement benefit plans. Details of each component are included in Note 13 Other Comprehensive Income.

Treasury Stock

We record common stock purchased for treasury at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the first-in, first-out basis.

Earnings Per Common Share

Basic earnings per common share is calculated using the two-class method to determine income attributable to common shareholders. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities under the two-class method. Distributed dividends and dividend equivalents related to participating securities and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. In a period with a loss, no allocation will be made to the participating securities, as they do not have a contractual obligation to absorb losses. Income attributable to common shareholders is then divided by the weighted-average common shares outstanding for the period.

Diluted earnings per common share is calculated under the more dilutive of either the treasury method or the two-class method. For the diluted calculation, we increase the weighted-average number of shares of common stock outstanding by the assumed conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance, if later, and the number of shares of common stock that would be issued assuming the exercise of stock options and warrants and the issuance of incentive shares using the treasury stock method. These adjustments to the weighted-average number of shares of common stock outstanding are made only when such adjustments will dilute earnings per common share. For periods in which there is a loss from continuing operations, any potential dilutive shares will be anti-dilutive. In this scenario, no potential dilutive shares will be included in the continuing operations, discontinued operations or total earnings per common share calculations, even if overall net income is reported. See Note 14 Earnings Per Share for additional information.

Fair Value of Financial Instruments

The fair value of financial instruments and the methods and assumptions used in estimating fair value amounts and financial assets and liabilities for which fair value was elected are detailed in Note 15 Fair Value.

Derivative Instruments and Hedging Activities

We recognize all derivative instruments at fair value as either Other assets or Other liabilities on the Consolidated Balance Sheet and the related cash flows in the Operating Activities section of the Consolidated Statement of Cash Flows. Adjustments for counterparty credit risk are included in the determination of fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a cash flow or net investment hedging relationship. For all other derivatives, changes in fair value are recognized in earnings.

We utilize a net presentation for derivative instruments on the Consolidated Balance Sheet taking into consideration the effects of legally enforceable master netting agreements. Cash collateral exchanged with counterparties is also netted against the applicable derivative exposures by offsetting obligations to return, or general rights to reclaim, cash collateral against the fair values of the net derivatives being collateralized.

For those derivative instruments that are designated and qualify as accounting hedges, we designate the hedging instrument, based on the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of the net investment in a foreign operation.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 107

We formally document the relationship between the hedging instruments and hedged items, as well as the risk management objective and strategy, before undertaking an accounting hedge. To qualify for hedge accounting, the derivatives and related hedged items must be designated as a hedge at inception of the hedge relationship. In addition, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. For accounting hedge relationships, we formally assess, both at the inception of the hedge and on an ongoing basis, if the derivatives are highly effective in offsetting designated changes in the fair value or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective, hedge accounting is discontinued. We assess effectiveness using statistical regression analysis. Where the critical terms of the derivative and hedged item match, effectiveness may be assessed qualitatively.

For derivatives that are designated as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a liability attributable to a particular risk, such as changes in benchmark interest rates), changes in the fair value of the hedging instrument are recognized in earnings and offset by also recognizing in earnings the changes in the fair value of the hedged item attributable to the hedged risk. To the extent the change in fair value of the derivative does not offset the change in fair value of the hedged item, the difference is reflected in the Consolidated Income Statement in the same income statement line as the hedged item.

For derivatives designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows), the gain or loss on derivatives is reported as a component of AOCI and subsequently reclassified to income in the same period or periods during which the hedged cash flows affect earnings and recorded in the same income statement line item as the hedged cash flows. For derivatives designated as a hedge of net investment in a foreign operation, the gain or loss on the derivatives is reported as a component of AOCI.

We discontinue hedge accounting when it is determined that the derivative no longer qualifies as an effective hedge; the derivative expires or is sold, terminated or exercised; or the derivative is de-designated as a fair value or cash flow hedge or, for a cash flow hedge, it is no longer probable that the forecasted transaction will occur by the end of the originally specified time period. We purchase or originate financial instruments that contain an embedded derivative. For financial instruments not measured at fair value with changes in fair value reported in earnings, we assess, at inception of the transaction, if the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the host contract, and whether a separate instrument with the same terms as the embedded derivative would be a derivative. If the embedded derivative is not clearly and closely related to the host contract and meets the definition of a derivative, the embedded derivative is recorded separately from the host contract with changes in fair value recorded in earnings, unless we elect to account for the hybrid instrument at fair value.

We enter into commitments to originate residential and commercial mortgage loans for sale. We also enter into commitments to purchase or sell commercial and residential real estate loans. These commitments are accounted for as free-standing derivatives which are recorded at fair value in Other assets or Other liabilities on the Consolidated Balance Sheet. Any gain or loss from the change in fair value after the inception of the commitment is recognized in Noninterest income.

See Note 16 Financial Derivatives for additional information.

Income Taxes

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that we expect will apply at the time when we believe the differences will reverse. Changes in tax rates and tax law are accounted for in the period of enactment. Thus, at the enactment date, deferred taxes are remeasured and the change is recognized in Income Tax expense. The recognition of deferred tax assets requires an assessment to determine the realization of such assets. Realization refers to the incremental benefit achieved through the reduction in future taxes payable or refunds receivable from the deferred tax assets, assuming that the underlying deductible differences and carryforwards are the last items to enter into the determination of future taxable income. We establish a valuation allowance for tax assets when it is more likely than not that they will not be realized, based upon all available positive and negative evidence.

We use the proportional amortization method for LIHTC investments, whereby the associated investment tax credits are recognized as a reduction to tax expense. We use the deferral method of accounting for all other tax credit investments. Under this method, the investment tax credits are recognized as a reduction to the related asset.

108 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Revenue Recognition

We earn interest and noninterest income from various sources, including:

Lending,
Securities portfolio,
Asset management,
Loan sales, loan securitizations, and servicing,
Brokerage services,
Sale of loans and securities,
Certain private equity activities, and
Securities, derivatives and foreign exchange activities.

In addition, we earn fees and commissions from:

Issuing loan commitments, standby letters of credit and financial guarantees,
Deposit account services,
Merchant services,
Selling various insurance products,
Providing treasury management services including money transfer services,
Providing merger and acquisition advisory and related services,
Debit and credit card transactions, and
Participating in certain capital markets transactions.

Service charges on deposit accounts are recognized when earned. Brokerage fees and gains and losses on the sale of securities and certain derivatives are recognized on a trade-date basis.

We record private equity income or loss based on changes in the valuation of the underlying investments or when we dispose of our interest.

We recognize gain/(loss) on changes in the fair value of certain financial instruments where we have elected the fair value option. These financial instruments include certain commercial and residential mortgage loans originated for sale, certain residential mortgage portfolio loans and resale agreements. We also recognize gain/(loss) on changes in the fair value of residential and commercial MSRs.

We recognize revenue from servicing residential mortgages, commercial mortgages and other consumer loans for others as earned based on the specific contractual terms. These revenues are reported on the Consolidated Income Statement in the line items Residential mortgage, Corporate services and Consumer services. We recognize revenue from securities, derivatives and foreign exchange customer-related trading, as well as securities underwriting activities, as these transactions occur or as services are provided. We generally recognize gains from the sale of loans upon meeting the derecognition criteria for transfers of financial assets. Mortgage revenue recognized is reported net of mortgage repurchase reserves.

For the fee-based revenue within the scope of ASC 606 - Revenue from Contracts with Customers, revenue is recognized when or as those services are transferred to the customer. See Note 24 Fee-Based Revenue from Contracts with Customers for additional information related to revenue within the scope of ASC 606.

Discontinued Operations

A disposal of an asset or business that meets the criteria for held for sale classification is reported as discontinued operations when the disposal represents a strategic shift that has had, or will have a major effect on our operating results. We report an asset as held for sale when management has approved or received approval to sell the asset and is committed to a formal plan, the asset is available for immediate sale, the asset is being actively marketed, the sale is anticipated to occur during the ensuing year and certain other specified criteria are met. An asset classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the asset exceeds its estimated fair value, the asset is written down to its fair value upon the held for sale designation.

When presenting discontinued operations, assets classified as held for sale are segregated in the Consolidated Balance Sheet commencing in the period in which the asset meets all of the held for sale criteria described above and prior periods are recast. The results of discontinued operations are reported in discontinued operations in the Consolidated Income Statement for current and prior periods commencing in the period in which the asset or business is either disposed of or is classified as held for sale, including any gain or loss recognized on the sale or adjustment of the carrying amount to fair value less cost to sell.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 109

Recently Adopted Accounting Standards


Accounting Standards Update	Description	Financial Statement Impact
Income Tax Simplification - ASU 2019-12 Issued December 2019	• Simplifies the accounting for income taxes by eliminating certain exceptions in ASC 740, Income Taxes, relating to the approach for intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences and the methodology for calculating income taxes in an interim period. • Clarifies areas of the income tax guidance around franchise taxes partially based on income, step-ups in the tax basis of goodwill, and enacted changes in tax laws. • Specifies that an entity is no longer required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements.	• Adopted January 1, 2021. • The adoption of this standard did not impact our consolidated results of operations or our consolidated financial position. PNC will no longer allocate the consolidated amount of current and deferred income tax expense to certain qualifying stand-alone entities, which will impact the presentation of parent company tax expense subsequent to adoption.
Accounting Standards Update	Description	Financial Statement Impact
Reference Rate Reform - ASU 2020-04 Issued March 2020 Reference Rate Reform Scope - ASU 2021-01 Issued January 2021	• Provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform (codified in ASC 848). • Includes optional expedients related to contract modifications that allow an entity to account for modifications (if certain criteria are met) as if the modifications were only minor (assets within the scope of ASC 310, Receivables), were not substantial (assets within the scope of ASC 470, Debt) and/or did not result in remeasurements or reclassifications (assets within the scope of ASC 842, Leases, and other Topics) of the existing contract. • Includes optional expedients related to hedging relationships within the scope of ASC 815, Derivatives & Hedging, whereby changes to the critical terms of a hedging relationship do not require dedesignation if certain criteria are met. In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing some effectiveness assessments. • Includes optional expedients and exceptions for contract modifications and hedge accounting that apply to derivative instruments impacted by the market-wide discounting transition. • Guidance in these ASUs are effective as of March 12, 2020 through December 31, 2022.	• ASU 2020-04 was adopted March 12, 2020. ASU 2021-01 was retrospectively adopted October 1, 2020. • During the fourth quarter of 2020, we elected to apply certain optional expedients for contract modifications and hedging relationships to derivative instruments impacted by the market-wide discounting transition. These optional expedients remove the requirement to remeasure contract modifications or dedesignate hedging relationships due to reference rate reform. The elections made in the fourth quarter of 2020 apply only to derivative instruments impacted by the market-wide discounting transition, not all derivative instruments. • During the first quarter of 2021, we elected to apply certain optional expedients to derivative instruments that were modified in the first quarter due to the adoption of fallback language recommended by the ISDA to address the anticipated cessation of LIBOR. These optional expedients remove the requirement to remeasure contract modifications or dedesignate hedging relationships due to reference rate reform. • During the fourth quarter of 2021, we elected to apply certain optional expedients for contract modifications to receivables modified in the fourth quarter due to the cessation of 1-week and 2-month USD LIBOR tenors and non-USD Interbank Offered Rates. These optional expedients remove the requirement to assess whether the contract modification was more-than-minor in accordance with ASC 310. We also elected to apply certain optional expedients related to assessing hedge effectiveness to our cash flow hedge relationships affected by reference rate reform. • We expect to continue to elect various optional expedients for contract modifications and hedge relationships affected by reference rate reform through the effective date of this guidance.
Accounting Standards Update	Description	Financial Statement Impact
SEC Paragraph Amendments – ASU 2020-09 Issued October 2020	• Amends the financial disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered, and issuers’ affiliates whose securities collateralize securities registered or being registered in Regulation S-X. • Improves disclosure requirements for both investors and registrants. • Provides investors with material information given the specific facts and circumstances, making the disclosures easier to understand and reducing the costs and burdens to registrants.	• Adopted January 4, 2021. • In accordance with the requirements of this ASU, we included Exhibit 22 in the Exhibit Index of Item 15 of this Report to disclose PNC’s guarantee of the PNC Capital Trust C preferred securities.

110 The PNC Financial Services Group, Inc. – 2021 Form 10-K

N****OTE 2 A****CQUISITION A****ND D****IVESTITURE A****CTIVITY

Acquisition of BBVA USA Bancshares, Inc.

On June 1, 2021, PNC acquired BBVA including its U.S. banking subsidiary, BBVA USA, for $11.5 billion in cash. PNC did not acquire the following entities as part of the acquisition: BBVA Securities, Inc., Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. This transaction has been accounted for as a business combination. Accordingly, the assets and liabilities from BBVA were recorded at fair value as of the acquisition date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Fair value estimates related to the assets and liabilities from BBVA are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, loans, certain deposits, certain other assets, customer relationships and core deposit intangibles.

On October 12, 2021, PNC converted approximately 2.6 million customers, 9,000 employees and over 600 branches across seven states, merging BBVA USA into PNC Bank.

PNC incurred merger and integration costs of $798 million for the twelve months ended December 31, 2021, in connection with the transaction. These costs are recorded as contra-revenue and expense on the Consolidated Income Statement. The integration expenses are primarily related to personnel, technology, advisory and legal, with $52 million direct acquisition-related costs. Cumulative costs through December 31, 2021 were $805 million.

The following table includes the preliminary fair value of the identifiable tangible and intangible assets and liabilities from BBVA:

Table 37: Acquisition Consideration


	June 1, 2021
In millions	Fair Value
Fair value of acquisition consideration	$	11,480
Assets
Cash and due from banks	$	969
Interest-earning deposits with banks	13,313
Loans held for sale	463
Investment securities – available for sale	18,358
Net loans	61,423
Equity investments	723
Mortgage servicing rights	35
Core deposit intangibles and other intangible assets	378
Other	3,527
Total assets	$	99,189
Liabilities
Deposits	$	85,562
Borrowed funds	2,449
Accrued expenses and other liabilities	1,275
Total liabilities	$	89,286
Noncontrolling interests	22
Less: Net assets	$	9,881
Goodwill	$	1,599

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

The PNC Financial Services Group, Inc. – 2021 Form 10-K 111

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

Table 38: Fair Value and Unpaid Principal Balance of Loans from the BBVA Acquisition


	June 1, 2021
In millions	Unpaid Principal Balance		Fair Value
Loans
Commercial
Commercial and industrial	$	29,864	$	29,381
Commercial real estate	10,632		10,313
Equipment lease financing	48		48
Total commercial	40,544		39,742
Consumer
Residential real estate	12,871		12,961
Home equity	2,430		2,423
Automobile	3,916		3,910
Credit card	820		758
Other consumer	1,688		1,629
Total consumer	21,725		21,681
Total	$	62,269	$	61,423

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

Table 39: Intangible Assets


In millions	Fair Value		Weighted Life (years)	Amortization Method
Residential mortgage servicing rights	$	35	5.5	(a)
Core deposits	$	262	10.0	Accelerated
Other	116		9.8	Straight-line
Total core deposits and other	$	378

(a) Intangible asset accounted for at fair value.

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

Cash and Due from Banks and Interest-earning Deposits with Banks

The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Loans Held for Sale

Residential mortgage loans are valued based on quoted market prices, where available, prices for other traded mortgage loans with

similar characteristics, and purchase commitments and bid information received from market participants. The prices are adjusted as

necessary to include the embedded servicing value in the loans and to take into consideration the specific characteristics of certain similar loans.

Personal installment loans are pooled based on delinquency status, and fair value of individual loans is calculated based on traded

consumer unsecured loans, dealer research and loan level performance characteristics.

Available For Sale Securities

All investment securities from the BBVA acquisition were classified within the available for sale portfolio at acquisition. Fair value

estimates for available for sale securities were determined by third-party pricing vendors. The third-party vendors use a variety of

methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace

would pay for a security under current market conditions. These methods include the use of quoted prices for the identical or a similar

security, an alternative market-based approach or an income approach, such as a discounted cash flow pricing model.

Loans

Fair value for loans is based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market

interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated

on an individual loan basis. The PD, LGD, exposure at default and prepayment assumptions are the key factors driving credit losses

which are embedded into the estimated cash flows.

112 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Equity Investments

Equity investments primarily include LIHTC investments and preservation fund investments. The fair value of the LIHTC investments

was estimated based on LIHTC pricing observed for recent transactions in markets where the properties underlying the LIHTC

investments from the BBVA acquisition are located. The fair value of the preservation investments was estimated based on appraisals

and valuations of the properties in the investment portfolio using income and market projections.

Mortgage Servicing Rights

The fair value of mortgage servicing rights from the BBVA acquisition is estimated by using a discounted cash flow valuation model

which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage

loan prepayment rates, discount rates, servicing costs and other factors which are determined based on current market conditions.

Core Deposit Intangible

This intangible asset represents the value of certain client deposit relationships. The fair value was estimated utilizing the cost method.

Appropriate consideration was given to deposit costs including servicing costs, client retention and alternative funding source costs at

the time of acquisition. The discount rate used was derived taking into account the estimated cost of equity, risk-free return rate and

risk premium for the market and specific risk related to the asset’s cash flows. The core deposit intangible is being amortized over 10 years using an accelerated depreciation methodology.

Deposits

The fair values for time deposits were estimated by discounting contractual cash flows using current market rates for instruments with

similar maturities. For deposits with no defined maturity, carrying values approximate fair values.

Borrowed Funds

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

The following table presents financial results of BBVA from the date of acquisition through September 30, 2021. BBVA information was fully integrated into PNC’s processes and systems during system conversion in the fourth quarter of 2021 and as a result standalone BBVA financial results were no longer available.

Table 40: BBVA Financial Results


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

The following table presents unaudited pro forma results as if the acquisition of BBVA by PNC had occurred on January 1, 2020 and includes the impact of amortizing and accreting certain estimated purchase accounting adjustments such as intangible assets as well as fair value adjustments to loans, deposits and long-term debt. Merger and integration costs of $798 million that have been incurred for the twelve months ended December 31, 2021 are included in the pro forma results. PNC's financial results include the divestiture of BlackRock of $4.3 billion recorded in net income. Additionally, BBVA's financial results through the twelve months ended December 31, 2020 included a $2.2 billion goodwill impairment charge recorded in noninterest expense. The pro forma information does not necessarily reflect the results that would have occurred had PNC acquired BBVA on January 1, 2020.

Table 41: Unaudited Pro Forma Results


	Year ended December 31
In millions	2021		2020
Net interest income	$	11,662	$	12,413
Noninterest income	$	8,960	$	7,866
Net income	$	7,475	$	4,928

The PNC Financial Services Group, Inc. – 2021 Form 10-K 113

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

Table 42: PCD Loan Activity


	June 1, 2021
In millions
Principal Balance	$	10,253
ACL at acquisition	(1,102)
Non-credit premium	219
Purchase price	$	9,370

Sale of Equity Investment in Blackrock, Inc.

In May 2020, PNC completed the sale of its 31.6 million shares of BlackRock, Inc., common and preferred stock through a registered secondary offering at a price of $420 per share. In addition, BlackRock repurchased 2.65 million shares from PNC at a price of $414.96 per share. The total proceeds from the sale were $14.2 billion in cash, net of $0.2 billion in expenses, and resulted in a gain on sale of $4.3 billion. Additionally, PNC contributed 500,000 BlackRock shares to the PNC Foundation.

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

The following table summarizes the results from the discontinued operations of BlackRock included in the Consolidated Income Statement:

Table 43: Consolidated Income Statement - Discontinued Operations


	Year ended December 31
In millions	2020		2019
Noninterest income	$	5,777	$	988
Total revenue	5,777		988
Income from discontinued operations before income taxes	5,777		988
Income taxes	1,222		161
Net income from discontinued operations	$	4,555	$	827

The following table summarizes the cash flows of discontinued operations of BlackRock included in the Consolidated Statement of Cash Flows:

Table 44: Consolidated Statement of Cash Flows - Discontinued Operations


	Year ended December 31
In millions	2020		2019
Cash flows from discontinued operations
Net cash provided (used) by operating activities of discontinued operations	$	(2,683)	$	299
Net cash provided by investing activities of discontinued operations	$	14,225

114 The PNC Financial Services Group, Inc. – 2021 Form 10-K

N****OTE 3 I****NVESTMENT S****ECURITIES

The following table summarizes our available for sale and held to maturity portfolios by major security type:

Table 45: Investment Securities Summary


	December 31, 2021								December 31, 2020
In millions	Amortized Cost		Unrealized				Fair Value		Amortized Cost		Unrealized				Fair Value
Gains	Losses				Gains		Losses
Securities Available for Sale
U.S. Treasury and government agencies	$	46,210	$	324	$	(370)	$	46,164	$	19,821	$	903	$	(13)	$	20,711
Residential mortgage-backed
Agency	67,326		695		(389)		67,632		47,355		1,566		(10)		48,911
Non-agency	927		231				1,158		1,272		243		(14)		1,501
Commercial mortgage-backed
Agency	1,740		39		(6)		1,773		2,571		119		(2)		2,688
Non-agency	3,423		31		(18)		3,436		3,678		78		(67)		3,689
Asset-backed	6,380		60		(31)		6,409		5,060		100		(10)		5,150
Other	4,792		186		(14)		4,964		4,415		293				4,708
Total securities available for sale (a) (b)	$	130,798	$	1,566	$	(828)	$	131,536	$	84,172	$	3,302	$	(116)	$	87,358
Securities Held to Maturity
U.S. Treasury and government agencies	$	814	$	76			$	890	$	795	$	125			$	920







Other	612		27		$	(7)	632		646		42		$	(3)	685
Total securities held to maturity (c)	$	1,426	$	103	$	(7)	$	1,522	$	1,441	$	167	$	(3)	$	1,605

(a) The accrued interest associated with our available for sale portfolios totaled $322 million and $238 million at December 31, 2021 and 2020, respectively. These amounts are included in Other assets on the Consolidated Balance Sheet.

(b) Amortized cost is presented net of allowance of $130 million and $79 million for securities available for sale at December 31, 2021 and 2020, respectively.

(c) Credit ratings represent a primary credit quality indicator used to monitor and manage credit risk. 86% and 85% of our securities held to maturity were rated AAA/AA as of December 31, 2021 and 2020, respectively.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Securities available for sale are carried at fair value with net unrealized gains and losses included in Shareholders’ equity as AOCI, unless credit related. Net unrealized gains and losses are determined by taking the difference between the fair value of a security and its amortized cost, net of any allowance. Securities held to maturity are carried at amortized cost less any allowance. Investment securities at December 31, 2021 included $0.8 billion of net unsettled purchases which represent non-cash investing activity, and accordingly, are not reflected on the Consolidated Statement of Cash Flows. The comparable amount for December 31, 2020 was $0.2 billion.

We maintain the allowance for investment securities at levels that we believe to be appropriate as of the balance sheet date to absorb

expected credit losses on our portfolio. As of December 31, 2021, the allowance for investment securities was $133 million and

primarily related to non-agency commercial mortgage-backed securities in the available for sale portfolio. The comparable amount at December 31, 2020 was $82 million. The provision for credit losses on investment securities was $51 million and $80 million for the twelve months ended December 31, 2021 and 2020, respectively. See Note 1 Accounting Policies for a discussion of the methodologies used to determine the allowance for investment securities.

Table 46 presents the gross unrealized losses and fair value of securities available for sale that do not have an associated allowance for investment securities at December 31, 2021 and 2020. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities included in the table have been evaluated to determine if a credit loss exists. As part of that assessment, as of December 31, 2021, we concluded that we do not intend to sell and believe we will not be required to sell these securities prior to recovery of the amortized cost basis.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 115

Table 46: Gross Unrealized Loss and Fair Value of Securities Available for Sale Without an Allowance for Credit Losses


	Unrealized loss position less than 12 months				Unrealized loss position 12 months or more				Total
In millions	Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value
December 31, 2021
U.S. Treasury and government agencies	$	(370)	$	32,600					$	(370)	$	32,600
Residential mortgage-backed
Agency	(369)		41,521		$	(20)	$	1,489	(389)		43,010

Commercial mortgage-backed
Agency	(5)		451		(1)		60		(6)		511
Non-agency	(4)		1,453		(3)		474		(7)		1,927
Asset-backed	(29)		3,465		(2)		188		(31)		3,653
Other	(13)		1,405						(13)		1,405
Total securities available for sale	$	(790)	$	80,895	$	(26)	$	2,211	$	(816)	$	83,106
December 31, 2020
U.S. Treasury and government agencies	$	(13)	$	603					$	(13)	$	603
Residential mortgage-backed
Agency	(8)		3,152		$	(2)	$	82	(10)		3,234
Non-agency	(7)		119		(7)		73		(14)		192
Commercial mortgage-backed
Agency					(2)		149		(2)		149
Non-agency	(13)		972		(7)		714		(20)		1,686
Asset-backed	(1)		339		(9)		706		(10)		1,045
Total securities available for sale	$	(42)	$	5,185	$	(27)	$	1,724	$	(69)	$	6,909

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

Table 47: Gains (Losses) on Sales of Securities Available for Sale


Year ended December 31 In millions	Gross Gains		Gross Losses		Net Gains		Tax Expense
2021	$	360	$	(296)	$	64	$	13
2020	$	307	$	(2)	$	305	$	64
2019	$	69	$	(21)	$	48	$	10

116 The PNC Financial Services Group, Inc. – 2021 Form 10-K

The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at December 31, 2021:

Table 48: Contractual Maturity of Debt Securities


December 31, 2021	1 Year or Less			After 1 Year through 5 Years			After 5 Years through 10 Years			After 10 Years			Total
Dollars in millions
Securities Available for Sale
U.S. Treasury and government agencies	$	5,367		$	27,890		$	10,823		$	2,130		$	46,210
Residential mortgage-backed
Agency	1			97			2,682			64,546			67,326
Non-agency							2			925			927
Commercial mortgage-backed
Agency	79			335			816			510			1,740
Non-agency				142			154			3,127			3,423
Asset-backed	87			2,110			566			3,617			6,380
Other	277			2,181			1,693			641			4,792
Total securities available for sale at amortized cost	$	5,811		$	32,755		$	16,736		$	75,496		$	130,798
Fair value	$	5,851		$	32,696		$	16,788		$	76,201		$	131,536
Weighted-average yield, GAAP basis (a)	1.40		%	1.10		%	1.67		%	2.41		%	1.94		%
Securities Held to Maturity
U.S. Treasury and government agencies				$	327		$	196		$	291		$	814







Other	$	175		263			113			61			612
Total securities held to maturity at amortized cost	$	175		$	590		$	309		$	352		$	1,426
Fair value	$	177		$	621		$	357		$	367		$	1,522
Weighted-average yield, GAAP basis (a)	3.50		%	2.96		%	4.16		%	2.52		%	3.17		%

(a) Weighted-average yields are based on amortized cost with effective yields weighted for the contractual maturity of each security. Actual maturities and yields may differ as certain securities may be prepaid.

At December 31, 2021, there were no securities of a single issuer, other than FNMA and FHLMC, that exceeded 10% of total shareholders’ equity. The FNMA and FHLMC investments had a total amortized cost of $33.8 billion and $25.0 billion and fair value of $34.2 billion and $24.8 billion, respectively.

The following table presents the fair value of securities that have been either pledged to or accepted from others to collateralize outstanding borrowings:

Table 49: Fair Value of Securities Pledged and Accepted as Collateral


In millions	December 31 2021		December 31 2020
Pledged to others	$	27,349	$	22,841
Accepted from others:
Permitted by contract or custom to sell or repledge	$	707	$	683
Permitted amount repledged to others	$	707	$	683

The securities pledged to others include positions held in our portfolio of investment securities, trading securities and securities accepted as collateral from others that we are permitted by contract or custom to sell or repledge, and were used to secure public and trust deposits, repurchase agreements and for other purposes. See Note 16 Financial Derivatives for information related to securities pledged and accepted as collateral for derivatives.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 117

N****OTE 4 L****OANS A****ND R****ELATED A****LLOWANCE F****OR C****REDIT L****OSSES

Loan Portfolio

Our loan portfolio consists of two portfolio segments – Commercial and Consumer. Each of these segments comprises multiple loan classes. Classes are characterized by similarities in risk attributes and the manner in which we monitor and assess credit risk.


Commercial						Consumer

• Commercial and industrial						• Residential real estate
• Commercial real estate						• Home equity
• Equipment lease financing						• Automobile
						• Credit card
						• Education
						• Other consumer

See Note 1 Accounting Policies for additional information on our loan related policies.

Credit Quality

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

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

Table 50 presents the composition and delinquency status of our loan portfolio at December 31, 2021 and 2020. We manage credit risk based on the risk profile of the borrower, repayment sources, underlying collateral and other support given current events, economic conditions and expectations. We refine our practices to meet the changing environment and the continuing effects of the COVID-19 pandemic. To mitigate losses and enhance customer support, we have customer assistance, loan modification and collection programs that align with the CARES Act and subsequent interagency guidance.

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

118 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Table 50: Analysis of Loan Portfolio (a) (b)


	Accruing
Dollars in millions	Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (c)				Nonperforming Loans			Fair Value Option Nonaccrual Loans (d)			Total Loans (e) (f)
December 31, 2021
Commercial
Commercial and industrial	$	151,698		$	235		$	72		$	132		$	439			$	796					$	152,933
Commercial real estate	33,580			46			24			1			71				364						34,015
Equipment lease financing	6,095			25			2						27				8						6,130
Total commercial	191,373			306			98			133			537				1,168						193,078
Consumer
Residential real estate	37,706			379			119			328			826			(c)	517			$	663		39,712
Home equity	23,305			53			18						71				596			89			24,061
Automobile	16,252			146			40			14			200				183						16,635
Credit card	6,475			49			33			62			144				7						6,626
Education	2,400			43			25			65			133			(c)							2,533
Other consumer	5,644			35			22			17			74				9						5,727
Total consumer	91,782			705			257			486			1,448				1,312			752			95,294
Total	$	283,155		$	1,011		$	355		$	619		$	1,985			$	2,480		$	752		$	288,372
Percentage of total loans	98.19		%	0.35		%	0.12		%	0.21		%	0.69		%		0.86		%	0.26		%	100.00		%
December 31, 2020
Commercial
Commercial and industrial	$	131,245		$	106		$	26		$	30		$	162			$	666					$	132,073
Commercial real estate	28,485			6			1						7				224						28,716
Equipment lease financing	6,345			31			5						36				33						6,414
Total commercial	166,075			143			32			30			205				923						167,203
Consumer
Residential real estate	20,945			181			78			319			578			(c)	528			$	509		22,560
Home equity	23,318			50			21						71				645			54			24,088
Automobile	13,863			134			34			12			180				175						14,218
Credit card	6,074			43			30			60			133				8						6,215
Education	2,785			55			29			77			161			(c)							2,946
Other consumer	4,656			14			10			11			35				7						4,698
Total consumer	71,641			477			202			479			1,158				1,363			563			74,725
Total	$	237,716		$	620		$	234		$	509		$	1,363			$	2,286		$	563		$	241,928
Percentage of total loans	98.27		%	0.26		%	0.10		%	0.21		%	0.56		%		0.94		%	0.23		%	100.00		%

(a)Amounts in table represent loans held for investment and do not include any associated ALLL.

(b)The accrued interest associated with our loan portfolio totaled $0.7 billion at both December 31, 2021 and 2020. These amounts are included in Other assets on the Consolidated Balance Sheet.

(c)Past due loan amounts include government insured or guaranteed Residential real estate loans and Education loans totaling $0.4 billion and $0.1 billion at December 31, 2021. Comparable amounts at December 31, 2020 were $0.4 billion and $0.2 billion.

(d)Consumer loans accounted for under the fair value option for which we do not expect to collect substantially all principal and interest are subject to nonaccrual accounting and classification upon meeting any of our nonaccrual policies. Given that these loans are not accounted for at amortized cost, these loans have been excluded from the nonperforming loan population.

(e)Includes unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans totaling $0.7 billion and $1.3 billion at December 31, 2021 and 2020, respectively.

(f)Collateral dependent loans totaled $1.7 billion and $1.5 billion at December 31, 2021 and 2020, respectively.

In the normal course of business, we originate or purchase loan products with contractual characteristics that, when concentrated, may

increase our exposure as a holder of those loan products. Possible product features that may create a concentration of credit risk would

include a high original or updated LTV ratio, terms that may expose the borrower to future increases in repayments above increases in market interest rates and interest-only loans, among others.

We originate interest-only loans to commercial borrowers. Such credit arrangements are usually designed to match borrower cash flow

expectations (e.g., working capital lines, revolvers). These products are standard in the financial services industry and product features are considered during the underwriting process to mitigate the increased risk that the interest-only feature may result in borrowers not

being able to make interest and principal payments when due. We do not believe that these product features create a concentration of

credit risk.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 119

At December 31, 2021, we pledged $25.7 billion of commercial and other loans to the Federal Reserve Bank and $66.2 billion of residential real estate and other loans to the Federal Home Loan Bank as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, 2020 were $30.1 billion and $69.0 billion, respectively. Amounts pledged reflect the unpaid principal balances.

Nonperforming Assets

Nonperforming assets include nonperforming loans and leases, OREO and foreclosed assets. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent that full collection of contractual principal and interest is not probable and include nonperforming TDRs and PCD loans. Interest income is not recognized on these loans. Loans accounted for under the fair value option are reported as performing loans; however, when nonaccrual criteria is met, interest income is not recognized on these loans. Additionally, certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest are not reported as nonperforming loans and continue to accrue interest. See Note 1 Accounting Policies for additional information on our nonperforming loan and lease policies.

The following table presents our nonperforming assets as of December 31, 2021 and 2020, respectively.

Table 51: Nonperforming Assets


Dollars in millions	December 31 2021			December 31 2020
Nonperforming loans
Commercial	$	1,168		$	923
Consumer (a)	1,312			1,363
Total nonperforming loans (b)	2,480			2,286
OREO and foreclosed assets	26			51
Total nonperforming assets	$	2,506		$	2,337
Nonperforming loans to total loans	0.86		%	0.94		%
Nonperforming assets to total loans, OREO and foreclosed assets	0.87		%	0.97		%
Nonperforming assets to total assets	0.45		%	0.50		%

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

(b)Nonperforming loans for which there is no related ALLL totaled $1.0 billion at December 31, 2021 and primarily include loans with a fair value of collateral that exceeds the amortized cost basis. The comparable amount at December 31, 2020 was $0.8 billion.

Nonperforming loans include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered TDRs. See Note 1 Accounting Policies and the Troubled Debt Restructurings section of this Note 4 for additional information on TDRs.

Total nonperforming loans in Table 51 include TDRs of $1.0 billion and $0.9 billion at December 31, 2021 and 2020, respectively. TDRs that are performing, including consumer credit card TDR loans, totaled $0.6 billion and $0.7 billion at December 31, 2021 and 2020 and are excluded from nonperforming loans.

Additional Credit Quality Indicators by Loan Class

Commercial and Industrial

For commercial and industrial loans, we monitor the performance of the borrower in a disciplined and regular manner based upon the level of credit risk inherent in the loan. To evaluate the level of credit risk, we assign an internal risk rating reflecting the borrower’s PD and LGD. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process. These ratings are reviewed and updated, generally at least once per year. For small balance homogeneous pools of commercial and industrial loans and leases, we apply scoring techniques to assist in determining the PD. The combination of the PD and LGD ratings assigned to commercial and industrial loans, capturing both the combination of expectations of default and loss severity in the event of default, reflects credit quality characteristics as of the reporting date and are used as inputs into our loss forecasting process.

Based upon the amount of the lending arrangement and our risk rating assessment, we follow a formal schedule of written periodic reviews. Quarterly, we conduct formal reviews of a market’s or business unit’s loan portfolio, focusing on those loans which we perceive to be of higher risk, based upon PDs and LGDs, or loans for which credit quality is weakening. If circumstances warrant, it is our practice to review any customer obligation and its level of credit risk more frequently. We attempt to proactively manage our loans by using various procedures that are customized to the risk of a given loan, including ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.

120 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Commercial Real Estate

We manage credit risk associated with our commercial real estate projects and commercial mortgages similar to commercial and industrial loans by evaluating PD and LGD. Risks associated with commercial real estate projects and commercial mortgage activities tend to be correlated to the loan structure and collateral location, project progress and business environment. As a result, these attributes are also monitored and utilized in assessing credit risk.

As with the commercial and industrial loan class, a formal schedule of periodic reviews is also performed to assess market/geographic risk and business unit/industry risk. Often as a result of these reviews, more in-depth reviews and increased scrutiny are placed on areas of higher risk, such as adverse changes in risk ratings, deteriorating operating trends, and/or areas that concern management. These reviews are designed to assess risk and facilitate actions to mitigate such risks.

Equipment Lease Financing

We manage credit risk associated with our equipment lease financing loan class similar to commercial and industrial loans by analyzing PD and LGD.

Based upon the dollar amount of the lease and the level of credit risk, we follow a formal schedule of periodic reviews. Generally, this occurs quarterly, although we have established practices to review such credit risk more frequently if circumstances warrant. Our review process entails analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk, guarantor requirements and regulatory compliance as applicable.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 121

The following table presents credit quality indicators for the commercial loan classes:

Table 52: Commercial Credit Quality Indicators (a)


	Term Loans by Origination Year
December 31, 2021 In millions	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Commercial and industrial
Pass Rated	$	27,104	$	12,053	$	10,731	$	6,698	$	6,355	$	11,759	$	71,230	$	90	$	146,020
Criticized	283		368		815		649		496		824		3,448		30		6,913
Total commercial and industrial	27,387		12,421		11,546		7,347		6,851		12,583		74,678		120		152,933
Commercial real estate
Pass Rated	4,110		4,109		6,355		4,234		2,634		7,562		436				29,440
Criticized	294		298		999		820		566		1,552		46				4,575
Total commercial real estate	4,404		4,407		7,354		5,054		3,200		9,114		482				34,015
Equipment lease financing
Pass Rated	1,212		1,190		942		682		507		1,410						5,943
Criticized	37		54		41		29		19		7						187
Total equipment lease financing	1,249		1,244		983		711		526		1,417						6,130
Total commercial	$	33,040	$	18,072	$	19,883	$	13,112	$	10,577	$	23,114	$	75,160	$	120	$	193,078


	Term Loans by Origination Year
December 31, 2020 In millions	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Commercial and industrial
Pass Rated	$	31,680	$	13,340	$	8,209	$	5,956	$	4,242	$	7,141	$	54,775	$	53	$	125,396
Criticized	339		702		578		334		224		351		4,130		19		6,677
Total commercial and industrial	32,019		14,042		8,787		6,290		4,466		7,492		58,905		72		132,073
Commercial real estate
Pass Rated	3,709		6,268		3,426		2,841		2,341		6,792		218				25,595
Criticized	319		548		148		423		400		1,159		124				3,121
Total commercial real estate	4,028		6,816		3,574		3,264		2,741		7,951		342				28,716
Equipment lease financing
Pass Rated	1,429		1,202		942		738		405		1,350						6,066
Criticized	78		92		86		39		22		31						348
Total equipment lease financing	1,507		1,294		1,028		777		427		1,381						6,414
Total commercial	$	37,554	$	22,152	$	13,389	$	10,331	$	7,634	$	16,824	$	59,247	$	72	$	167,203

(a)Loans in our commercial portfolio are classified as Pass Rated or Criticized based on the regulatory definitions, which are driven by the PD and LGD ratings that we assign. The Criticized classification includes loans that were rated special mention, substandard or doubtful as of December 31, 2021 and 2020.

Residential Real Estate and Home Equity

We use several credit quality indicators, including delinquency information, nonperforming loan information, updated credit scores and originated and updated LTV ratios, to monitor and manage credit risk within the residential real estate and home equity loan classes. A summary of credit quality indicators follows:

Delinquency/Delinquency Rates: We monitor trending of delinquency/delinquency rates for residential real estate and home equity loans. See Table 50 for additional information.

Nonperforming Loans: We monitor trending of nonperforming loans for residential real estate and home equity loans. See Table 50 for additional information.

122 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Credit Scores: We use a national third-party provider to update FICO credit scores for residential real estate and home equity loans at least quarterly. The updated scores are incorporated into a series of credit management reports, which are utilized to monitor the risk in the loan classes.

LTV (inclusive of CLTV for first and subordinate lien positions): At least quarterly, we update the property values of real estate collateral and calculate an updated LTV ratio. For open-end credit lines secured by real estate in regions experiencing significant declines in property values, more frequent valuations may occur. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.

We use a combination of original LTV and updated LTV for internal risk management and reporting purposes (e.g., line management, loss mitigation strategies). In addition to the fact that estimated property values by their nature are estimates, given certain data limitations, it is important to note that updated LTVs may be based upon management’s assumptions (i.e., if an updated LTV is not provided by the third-party service provider, HPI changes will be incorporated in arriving at management’s estimate of updated LTV).

Updated LTV is estimated using modeled property values. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models, broker price opinions, HPI indices, property location, internal and external balance information, origination data and management assumptions. We generally utilize origination lien balances provided by a third-party, where applicable, which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of the calculations do not represent actual appraised loan level collateral or updated LTV based upon lien balances held by others, and as such, are necessarily imprecise and subject to change as we refine our methodology.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 123

The following table presents credit quality indicators for the residential real estate and home equity loan classes:

Table 53: Credit Quality Indicators for Residential Real Estate and Home Equity Loan Classes


	Term Loans by Origination Year
December 31, 2021 In millions	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Residential real estate
Current estimated LTV ratios
Greater than 100%	$	10	$	52	$	21	$	12	$	13	$	77					$	185
Greater than or equal to 80% to 100%	1,460		560		221		86		66		190						2,583
Less than 80%	15,213		7,822		2,834		1,004		1,570		7,385						35,828
No LTV available	275		6		1		1				22						305
Government insured or guaranteed loans	3		33		37		30		39		669						811
Total residential real estate	$	16,961	$	8,473	$	3,114	$	1,133	$	1,688	$	8,343					$	39,712
Updated FICO scores
Greater than or equal to 780	$	11,110	$	5,898	$	1,996	$	596	$	1,029	$	4,052					$	24,681
720 to 779	4,921		1,735		643		247		345		1,619						9,510
660 to 719	717		463		255		136		133		796						2,500
Less than 660	83		103		96		75		94		848						1,299
No FICO score available	127		241		87		49		48		359						911
Government insured or guaranteed loans	3		33		37		30		39		669						811
Total residential real estate	$	16,961	$	8,473	$	3,114	$	1,133	$	1,688	$	8,343					$	39,712
Home equity
Current estimated LTV ratios
Greater than 100%	$	1	$	16	$	14	$	3	$	2	$	25	$	329	$	90	$	480
Greater than or equal to 80% to 100%	7		85		62		13		11		66		990		674		1,908
Less than 80%	204		2,487		1,189		370		549		3,200		7,868		5,806		21,673
Total home equity	$	212	$	2,588	$	1,265	$	386	$	562	$	3,291	$	9,187	$	6,570	$	24,061
Updated FICO scores
Greater than or equal to 780	$	124	$	1,619	$	692	$	201	$	364	$	2,035	$	5,490	$	3,320	$	13,845
720 to 779	61		666		348		96		116		642		2,283		1,679		5,891
660 to 719	23		248		167		56		53		327		1,071		872		2,817
Less than 660	4		53		57		32		28		277		325		615		1,391
No FICO score available			2		1		1		1		10		18		84		117
Total home equity	$	212	$	2,588	$	1,265	$	386	$	562	$	3,291	$	9,187	$	6,570	$	24,061

124 The PNC Financial Services Group, Inc. – 2021 Form 10-K


	Term Loans by Origination Year
December 31, 2020 In millions	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Residential real estate
Current estimated LTV ratios
Greater than 100%	$	3	$	52	$	26	$	42	$	41	$	160					$	324
Greater than or equal to 80% to 100%	495		422		127		156		124		307						1,631
Less than 80%	7,491		3,656		992		1,706		1,847		3,991						19,683
Government insured or guaranteed loans	7		28		27		38		57		765						922
Total residential real estate	$	7,996	$	4,158	$	1,172	$	1,942	$	2,069	$	5,223					$	22,560
Updated FICO scores
Greater than or equal to 780	$	5,425	$	3,099	$	814	$	1,432	$	1,538	$	2,551					$	14,859
720 to 779	2,268		820		220		340		335		818						4,801
660 to 719	252		161		76		98		92		475						1,154
Less than 660	40		48		33		31		41		485						678
No FICO score available	4		2		2		3		6		129						146
Government insured or guaranteed loans	7		28		27		38		57		765						922
Total residential real estate	$	7,996	$	4,158	$	1,172	$	1,942	$	2,069	$	5,223					$	22,560
Home equity
Current estimated LTV ratios
Greater than 100%	$	8	$	44	$	18	$	15	$	9	$	88	$	580	$	279	$	1,041
Greater than or equal to 80% to 100%	517		320		59		42		25		158		1,781		591		3,493
Less than 80%	2,909		1,636		513		773		660		3,754		6,433		2,876		19,554
Total home equity	$	3,434	$	2,000	$	590	$	830	$	694	$	4,000	$	8,794	$	3,746	$	24,088
Updated FICO scores
Greater than or equal to 780	$	2,019	$	1,094	$	311	$	525	$	449	$	2,467	$	5,382	$	1,480	$	13,727
720 to 779	1,028		558		153		181		145		777		2,137		941		5,920
660 to 719	334		273		86		84		66		402		985		625		2,855
Less than 660	52		74		39		39		33		345		277		620		1,479
No FICO score available	1		1		1		1		1		9		13		80		107
Total home equity	$	3,434	$	2,000	$	590	$	830	$	694	$	4,000	$	8,794	$	3,746	$	24,088

Automobile, Credit Card, Education and Other Consumer

We monitor a variety of credit quality information in the management of these consumer loan classes. For all loan types, we generally use a combination of internal loan parameters as well as an updated FICO score. We use FICO scores as a primary credit quality indicator for automobile and credit card loans, as well as non-government guaranteed or non-insured education loans and other secured and unsecured lines and loans. Internal credit metrics, such as delinquency status, are heavily relied upon as credit quality indicators for government guaranteed or insured education loans and consumer loans to high net worth individuals, as internal credit metrics are more relevant than FICO scores for these types of loans.

Along with the monitoring of delinquency trends and losses for each class, FICO credit score updates are obtained at least quarterly along with a variety of credit bureau attributes. Loans with high FICO scores tend to have a lower likelihood of loss. Conversely, loans with low FICO scores tend to have a higher likelihood of loss.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 125

The following table presents credit quality indicators for the automobile, credit card, education and other consumer loan classes:

Table 54: Credit Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loan Classes


	Term Loans by Origination Year
December 31, 2021 In millions	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Updated FICO Scores
Automobile
FICO score greater than or equal to 780	$	3,247	$	1,496	$	1,380	$	533	$	226	$	79					$	6,961
720 to 779	2,119		983		1,030		499		195		62						4,888
660 to 719	969		609		772		413		155		44						2,962
Less than 660	277		315		583		429		162		58						1,824
Total automobile	$	6,612	$	3,403	$	3,765	$	1,874	$	738	$	243					$	16,635
Credit card
FICO score greater than or equal to 780													$	1,815	$	2	$	1,817
720 to 779													1,836		9		1,845
660 to 719													1,856		19		1,875
Less than 660													943		29		972
No FICO score available or required (a)													114		3		117
Total credit card													$	6,564	$	62	$	6,626
Education
FICO score greater than or equal to 780	$	37	$	60	$	77	$	62	$	48	$	392					$	676
720 to 779	20		29		37		30		21		160						297
660 to 719	7		9		11		11		7		73						118
Less than 660	1		1		2		2		2		25						33
No FICO score available or required (a)	11		10		7		2				1						31
Total loans using FICO credit metric	76		109		134		107		78		651						1,155
Other internal credit metrics											1,378						1,378
Total education	$	76	$	109	$	134	$	107	$	78	$	2,029					$	2,533
Other consumer
FICO score greater than or equal to 780	$	199	$	131	$	123	$	47	$	12	$	32	$	95	$	1	$	640
720 to 779	250		172		167		68		15		19		125				816
660 to 719	190		145		165		82		16		11		122				731
Less than 660	50		62		85		54		10		6		50		1		318
Total loans using FICO credit metric	689		510		540		251		53		68		392		2		2,505
Other internal credit metrics	87		31		35		23		22		48		2,955		21		3,222
Total other consumer	$	776	$	541	$	575	$	274	$	75	$	116	$	3,347	$	23	$	5,727

126 The PNC Financial Services Group, Inc. – 2021 Form 10-K


	Term Loans by Origination Year
December 31, 2020 In millions	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Updated FICO Scores
Automobile
FICO score greater than or equal to 780	$	1,807	$	1,915	$	807	$	452	$	246	$	58					$	5,285
720 to 779	1,098		1,581		789		381		167		44						4,060
660 to 719	617		1,222		684		288		109		31						2,951
Less than 660	192		776		598		240		87		29						1,922
Total automobile	$	3,714	$	5,494	$	2,878	$	1,361	$	609	$	162					$	14,218
Credit card
FICO score greater than or equal to 780													$	1,635	$	3	$	1,638
720 to 779													1,724		11		1,735
660 to 719													1,765		26		1,791
Less than 660													902		51		953
No FICO score available or required (a)													94		4		98
Total credit card													$	6,120	$	95	$	6,215
Education
FICO score greater than or equal to 780	$	34	$	90	$	74	$	59	$	50	$	428					$	735
720 to 779	24		46		38		28		20		190						346
660 to 719	15		15		14		9		6		90						149
Less than 660	3		2		3		2		2		37						49
No FICO score available or required (a)	16		10		6		3				1						36
Education loans using FICO credit metric	92		163		135		101		78		746						1,315
Other internal credit metrics											1,631						1,631
Total education	$	92	$	163	$	135	$	101	$	78	$	2,377					$	2,946
Other consumer
FICO score greater than or equal to 780	$	162	$	187	$	63	$	21	$	5	$	42	$	86	$	1	$	567
720 to 779	197		247		82		22		5		22		123				698
660 to 719	127		210		81		17		3		14		117		1		570
Less than 660	28		86		41		9		2		8		53		1		228
Other consumer loans using FICO credit metric	514		730		267		69		15		86		379		3		2,063
Other internal credit metrics	67		33		37		26		60		75		2,334		3		2,635
Total other consumer	$	581	$	763	$	304	$	95	$	75	$	161	$	2,713	$	6	$	4,698

(a)Loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.

Troubled Debt Restructurings

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. Loans that have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act are not categorized as TDRs. See Note 1 Accounting Policies for additional information related to TDRs.

Table 55 quantifies the number of loans that were classified as TDRs as well as the change in the loans’ balance as a result of becoming a TDR during 2021, 2020 and 2019. Additionally, the table provides information about the types of TDR concessions. The Principal Forgiveness TDR category includes principal forgiveness and accrued interest forgiveness. The Rate Reduction TDR category includes reduced interest rate and interest deferral. The Other TDR category primarily includes consumer borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us, as well as postponement/reduction of scheduled amortization and contractual extensions for both consumer and commercial borrowers.

In some cases, there have been multiple concessions granted on one loan. This is most common within the commercial loan portfolio. When there have been multiple concessions granted in the commercial loan portfolio, the principal forgiveness concession was prioritized for purposes of determining the inclusion in Table 55. Second in priority would be rate reduction. In the event that multiple concessions are granted on a consumer loan, concessions resulting from discharge from personal liability through Chapter 7 bankruptcy without formal affirmation of the loan obligations to us would be prioritized and included in the Other type of concession in Table 55. After that, consumer loan concessions would follow the previously discussed priority of concessions for the commercial loan portfolio.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 127

Table 55: Financial Impact and TDRs by Concession Type


	Number of Loans	Pre-TDR Amortized Cost Basis (b)		Post-TDR Amortized Cost Basis (c)
During the year ended December 31, 2021 (a) Dollars in millions	Principal Forgiveness	Rate Reduction		Other		Total
Commercial	57	$	536	$	6			$	510	$	516
Consumer	6,109	108				$	64	33		97
Total TDRs	6,166	$	644	$	6	$	64	$	543	$	613
During the year ended December 31, 2020 (a) Dollars in millions
Commercial	73	$	513	$	39	$	56	$	346	$	441
Consumer	12,270	178				88		73		161
Total TDRs	12,343	$	691	$	39	$	144	$	419	$	602

(a)Impact of partial charge-offs at TDR date is included in this table.

(b)Represents the amortized cost basis of the loans as of the quarter end prior to TDR designation.

(c)Represents the amortized cost basis of the TDRs as of the end of the quarter in which the TDR occurs.


			Pre-TDR Recorded Investment (e)		Post-TDR Recorded Investment (f)
During the year ended December 31, 2019 (d) Dollars in millions	Number of Loans		Principal Forgiveness		Rate Reduction	Other		Total
Commercial		75	$	278		$	11	$	241	$	252
Consumer		14,548	172			97		64		161
Total TDRs		14,623	$	450		$	108	$	305	$	413

(d) Impact of partial charge-offs at TDR date are included in this table.

(e) Represents the recorded investment of the loans as of the quarter end prior to TDR designation, and excludes immaterial amounts of accrued interest receivable.

(f) Represents the recorded investment of the TDRs as of the end of the quarter in which the TDR occurs, and excludes immaterial amounts of accrued interest receivable.

After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. We consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. Loans that were both (i) classified as TDRs, and (ii) subsequently defaulted during the period totaled $0.1 billion for each of the years ended December 31, 2021, 2020 and 2019, respectively.

Allowance for Credit Losses

We maintain the ACL related to loans at levels that we believe to be appropriate to absorb expected credit losses in the portfolios as of the balance sheet date. See Note 1 Accounting Policies for a discussion of the methodologies used to determine this allowance. A rollforward of the ACL related to loans follows:

Table 56: Rollforward of Allowance for Credit Losses


At or for the year ended December 31	2021						2020
In millions	Commercial		Consumer		Total		Commercial		Consumer		Total
Allowance for loan and lease losses
Beginning balance	$	3,337	$	2,024	$	5,361	$	1,812	$	930	$	2,742
Adoption of ASU 2016-13 (a)							(304)		767		463
Beginning balance, adjusted	3,337		2,024		5,361		1,508		1,697		3,205
Acquisition PCD reserves	774		282		1,056
Charge-offs	(434)		(667)		(1,101)		(407)		(785)		(1,192)
Recoveries	106		338		444		94		266		360
Net (charge-offs)	(328)		(329)		(657)		(313)		(519)		(832)
Provision for (recapture of) credit losses	(594)		(293)		(887)		2,139		846		2,985
Other	(4)		(1)		(5)		3				3
Ending balance	$	3,185	$	1,683	$	4,868	$	3,337	$	2,024	$	5,361
Allowance for unfunded lending related commitments (b)
Beginning balance	$	485	$	99	$	584	$	316	$	2	$	318
Adoption of ASU 2016-13 (a)							53		126		179
Beginning balance, adjusted	485		99		584		369		128		497
Acquisition PCD reserves	43		3		46
Provision for (recapture of) credit losses	36		(4)		32		116		(29)		87
Ending balance	$	564	$	98	$	662	$	485	$	99	$	584
Allowance for credit losses at December 31 (c)	$	3,749	$	1,781	$	5,530	$	3,822	$	2,123	$	5,945

(a) Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020 and our transition from an incurred loss methodology for our reserves to an expected credit loss methodology.

(b) See Note 11 Commitments for additional information about the underlying commitments related to this allowance.

128 The PNC Financial Services Group, Inc. – 2021 Form 10-K

(c) Represents the ALLL plus allowance for unfunded lending related commitments and excludes allowances for investment securities and other financial assets, which together totaled $171 million and $109 million at December 31, 2021 and 2020, respectively.

The ACL related to loans at December 31, 2021 totaled $5.5 billion, a decrease of $0.4 billion since December 31, 2020. This decrease was primarily driven by the impacts from portfolio changes and an improved economic environment, partially offset by the addition of reserves related to the BBVA acquisition. The following summarizes the changes in these factors that influenced the current ACL during the year ended December 31, 2021:

Portfolio changes that drove reserve declines included improvements in credit quality along with changes in portfolio composition reflecting both shifts in the portfolio mix and declines in certain loan balances.
The improved economic environment was reflected in both the forecasted economic scenarios utilized in the quantitative models and the qualitative factor reserves. The economic scenarios used at December 31, 2021 were primarily driven by improvements in the outlook for both consumer spending and the labor market. Reductions in qualitative factor reserves reflect the improved economic environment's impact on specific high risk industries.
Reserves in the current period reflect expected credit losses within the acquired BBVA loan portfolio.

Allowance for Loan and Lease Losses

Prior to January 1, 2020, we maintained our ALLL at levels we believed to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. We used the two main portfolio segments - Commercial and Consumer, and developed and documented the ALLL under separate methodologies for each of these portfolio segments.

A rollforward of the ALLL and associated loan data follows:

Table 57: Rollforward of Allowance for Loan and Lease Losses and Associated Loan Data


At or for the year ended December 31	2019
Dollars in millions	Commercial		Consumer		Total
Allowance for loan and lease losses
January 1	$	1,663	$	966	$	2,629
Charge-offs	(216)		(758)		(974)
Recoveries	78		254		332
Net (charge-offs)	(138)		(504)		(642)
Provision for credit losses	320		453		773
Net (increase) / decrease in allowance for unfunded loan commitments and letters of credit	(34)		1		(33)
Other	1		14		15
December 31	$	1,812	$	930	$	2,742
TDRs individually evaluated for impairment	$	40	$	93	$	133
Other loans individually evaluated for impairment	58				58
Loans collectively evaluated for impairment	1,714		563		2,277
Purchased impaired loans			274		274
December 31	$	1,812	$	930	$	2,742
Loan portfolio
TDRs individually evaluated for impairment	$	361	$	1,303	$	1,664
Other loans individually evaluated for impairment	220				220
Loans collectively evaluated for impairment	160,021		75,477		235,498
Fair value option loans (a)			742		742
Purchased impaired loans			1,719		1,719
December 31	$	160,602	$	79,241	$	239,843

(a)Loans accounted for under the fair value option were not evaluated for impairment as these loans are accounted for at fair value. Accordingly, there was no allowance recorded on those loans.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 129

N****OTE 5 L****OAN S****ALE AND S****ERVICING A****CTIVITIES AND V****ARIABLE I****NTEREST E****NTITIES

Loan Sale and Servicing Activities

We have transferred residential and commercial mortgage loans in securitization or sales transactions in which we have continuing involvement. These transfers have occurred through Agency securitization, Non-agency securitization, and loan sale transactions. Agency securitizations consist of securitization transactions with FNMA, FHLMC and GNMA (collectively, the Agencies). FNMA and FHLMC generally securitize our transferred loans into mortgage-backed securities for sale into the secondary market through SPEs that they sponsor. As an authorized GNMA issuer/servicer, we pool FHA and Department of VA insured loans into mortgage-backed securities for sale into the secondary market. In Non-agency securitizations, we have transferred loans into securitization SPEs. In other instances, third-party investors have also purchased our loans in loan sale transactions and in certain instances have subsequently sold these loans into securitization SPEs. Securitization SPEs utilized in the Agency and Non-agency securitization transactions are VIEs.

Our continuing involvement in the FNMA, FHLMC, and GNMA securitizations, Non-agency securitizations, and loan sale transactions generally consists of servicing, repurchasing previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization SPEs.

Depending on the transaction, we may act as the master, primary and/or special servicer to the securitization SPEs or third-party investors. Servicing responsibilities typically consist of collecting and remitting monthly borrower principal and interest payments, maintaining escrow deposits, performing loss mitigation and foreclosure activities, and, in certain instances, funding of servicing advances. Servicing advances, which are generally reimbursable, are made for principal and interest and collateral protection and are carried in Other assets at cost.

We earn servicing and other ancillary fees for our role as servicer and, depending on the contractual terms of the servicing arrangement, we can be terminated as servicer with or without cause. At the consummation date of each type of loan transfer where we retain the servicing, we recognize a servicing right at fair value. See Note 6 Goodwill and Mortgage Servicing Rights and Note 15 Fair Value for further discussion of our servicing rights.

Certain loans transferred to the Agencies contain ROAPs. Under these ROAPs, we hold an option to repurchase at par individual delinquent loans that meet certain criteria. In other limited cases, GNMA has granted us the right to repurchase current loans when we intend to modify the borrower’s interest rate under established guidelines. When we have the unilateral ability to repurchase a loan, effective control over the loan has been regained and we recognize an asset (in either Loans or Loans held for sale) and a corresponding liability (in Other borrowed funds) on the balance sheet regardless of our intent to repurchase the loan.

The Agency and Non-agency mortgage-backed securities issued by the securitization SPEs that are purchased and held on our balance sheet are typically purchased in the secondary market. We do not retain any credit risk on our Agency mortgage-backed security positions as FNMA, FHLMC and the U.S. Government (for GNMA) guarantee losses of principal and interest.

We also have involvement with certain Agency and Non-agency commercial securitization SPEs where we have not transferred commercial mortgage loans. These SPEs were sponsored by independent third-parties and the loans held by these entities were purchased exclusively from other third-parties. Generally, our involvement with these SPEs is as servicer with servicing activities consistent with those described above.

We recognize a liability for our loss exposure associated with contractual obligations to repurchase previously transferred loans due to possible breaches of representations and warranties and also for loss sharing arrangements (recourse obligations) with the Agencies. Other than providing temporary liquidity under servicing advances and our loss exposure associated with our repurchase and recourse obligations, we have not provided nor are we required to provide any type of credit support, guarantees or commitments to the securitization SPEs or third-party investors in these transactions.

130 The PNC Financial Services Group, Inc. – 2021 Form 10-K

The following table provides cash flows associated with our loan sale and servicing activities:

Table 58: Cash Flows Associated with Loan Sale and Servicing Activities


In millions	Residential Mortgages		Commercial Mortgages (a)
Cash Flows - Year ended December 31, 2021
Sales of loans (b)	$	8,426		$	3,611
Repurchases of previously transferred loans (c)	$	239		$	207
Servicing fees (d)	$	367		$	165
Servicing advances recovered/(funded), net	$	(33)		$	(26)
Cash flows on mortgage-backed securities held (e)	$	9,001		$	76
Cash Flows - Year ended December 31, 2020
Sales of loans (b)	$	6,654		$	4,521
Repurchases of previously transferred loans (c)	$	673		$	229
Servicing fees (d)	$	338		$	133
Servicing advances recovered/(funded), net	$	(32)		$	(280)
Cash flows on mortgage-backed securities held (e)	$	9,234		$	83

(a)Represents cash flow information associated with both commercial mortgage loan transfer and servicing activities.

(b)Gains/losses recognized on sales of loans were insignificant for the periods presented.

(c)Includes both residential and commercial mortgage government insured or guaranteed loans eligible for repurchase through the exercise of our ROAP option, as well as residential mortgage loans repurchased due to alleged breaches of origination covenants or representations and warranties made to purchasers.

(d)Includes contractually specified servicing fees, late charges and ancillary fees.

(e)Represents cash flows on securities where we transferred to, and/or service loans for, a securitization SPE and we hold securities issued by that SPE. The carrying values of such securities held were $17.6 billion in residential mortgage-backed securities and $0.6 billion in commercial mortgage-backed securities at December 31, 2021. Comparable amounts at December 31, 2020 were $16.5 billion and $0.8 billion, respectively.

Table 59 presents information about the principal balances of transferred loans that we service and are not recorded on our Consolidated Balance Sheet. We would only experience a loss on these transferred loans if we were required to repurchase a loan, where the repurchase price exceeded the loan’s fair value, due to a breach in representations and warranties or a loss sharing arrangement associated with our continuing involvement with these loans. The estimate of losses related to breaches in representations and warranties was insignificant at December 31, 2021 and 2020.

Table 59: Principal Balance, Delinquent Loans and Net Charge-offs Related to Serviced Loans For Others


In millions	Residential Mortgages		Commercial Mortgages (a)
December 31, 2021
Total principal balance	$	42,726	$	39,551
Delinquent loans (b)	$	569	$	42
December 31, 2020
Total principal balance	$	43,351	$	40,790
Delinquent loans (b)	$	453	$	136
Year ended December 31, 2021
Net charge-offs (c)	$	4	$	179
Year ended December 31, 2020
Net charge-offs (c)	$	17	$	127

(a)Represents information at the securitization level in which we have sold loans and we are the servicer for the securitization.

(b)Serviced delinquent loans are 90 days or more past due or are in process of foreclosure.

(c)Net charge-offs for Residential mortgages represent credit losses less recoveries distributed and as reported to investors during the period. Net charge-offs for Commercial mortgages represent credit losses less recoveries distributed and as reported by the trustee for commercial mortgage backed securitizations. Realized losses for Agency securitizations are not reflected as we do not manage the underlying real estate upon foreclosure and, as such, do not have access to loss information.

Variable Interest Entities (VIEs)

We are involved with various entities in the normal course of business that are deemed to be VIEs. We assess VIEs for consolidation based upon the accounting policies described in Note 1 Accounting Policies. Our consolidated VIEs were insignificant at both December 31, 2021 and 2020. We have not provided additional financial support to these entities which we are not contractually required to provide.

The following table provides a summary of non-consolidated VIEs with which we have significant continuing involvement but are not the primary beneficiary. We have excluded certain transactions with non-consolidated VIEs from the balances presented in Table 60 where we have determined that our continuing involvement is insignificant. We do not consider our continuing involvement to be significant when it relates to a VIE where we only invest in securities issued by the VIE and were not involved in the design of the VIE or where no transfers have occurred between us and the VIE. In addition, where we only have lending arrangements in the normal

The PNC Financial Services Group, Inc. – 2021 Form 10-K 131

course of business with entities that could be VIEs, we have excluded these transactions with non-consolidated entities from the balances presented in Table 60. These loans are included as part of the asset quality disclosures that we make in Note 4 Loans and Related Allowance for Credit Losses.

Table 60: Non-Consolidated VIEs


In millions	PNC Risk of Loss (a)		Carrying Value of Assets Owned by PNC			Carrying Value of Liabilities Owned by PNC
December 31, 2021
Mortgage-backed securitizations (b)	$	18,708	$	18,708	(c)	$	1
Tax credit investments and other	3,865		3,893		(d)	1,798		(e)
Total	$	22,573	$	22,601		$	1,799
December 31, 2020
Mortgage-backed securitizations (b)	$	18,207	$	18,207	(c)	$	1
Tax credit investments and other	3,121		2,894		(d)	1,198		(e)
Total	$	21,328	$	21,101		$	1,199

(a)Represents loans, investments and other assets related to non-consolidated VIEs, net of collateral (if applicable). The risk of loss excludes any potential tax recapture associated with tax credit investments.

(b)Amounts reflect involvement with securitization SPEs where we transferred to, and/or service loans for, an SPE and we hold securities issued by that SPE. Values disclosed in the PNC Risk of Loss column represent our maximum exposure to loss for those securities’ holdings.

(c)Included in Investment securities, Mortgage servicing rights and Other assets on our Consolidated Balance Sheet.

(d)Included in Investment securities, Loans, Equity investments and Other assets on our Consolidated Balance Sheet.

(e)Included in Deposits and Other liabilities on our Consolidated Balance Sheet.

Mortgage-Backed Securitizations

In connection with each Agency and Non-agency residential and commercial mortgage-backed securitization discussed above, we evaluate each SPE utilized in these transactions for consolidation. In performing these assessments, we evaluate our level of continuing involvement in these transactions as the nature of our involvement ultimately determines whether or not we hold a variable interest and/or are the primary beneficiary of the SPE. Factors we consider in our consolidation assessment include the significance of (i) our role as servicer, (ii) our holdings of mortgage-backed securities issued by the securitization SPE and (iii) the rights of third-party variable interest holders.

The first step in our assessment is to determine whether we hold a variable interest in the securitization SPE. We hold variable interests in Agency and Non-agency securitization SPEs through our holding of residential and commercial mortgage-backed securities issued by the SPEs and/or our recourse obligations. Each SPE in which we hold a variable interest is evaluated to determine whether we are the primary beneficiary of the entity. For Agency securitization transactions, our contractual role as servicer does not give us the power to direct the activities that most significantly affect the economic performance of the SPEs. Thus, we are not the primary beneficiary of these entities. For Non-agency securitization transactions, we would be the primary beneficiary to the extent our servicing activities give us the power to direct the activities that most significantly affect the economic performance of the SPE and we hold a more-than-insignificant variable interest in the entity.

Details about the Agency and Non-agency securitization SPEs where we hold a variable interest and are not the primary beneficiary are included in Table 60. Our maximum exposure to loss as a result of our involvement with these SPEs is the carrying value of the mortgage-backed securities, servicing assets, servicing advances and our liabilities associated with our recourse obligations. Creditors of the securitization SPEs have no recourse to our assets or general credit.

Tax Credit Investments and Other

For tax credit investments in which we do not have the right to make decisions that will most significantly impact the economic performance of the entity, we are not the primary beneficiary and thus do not consolidate the entity. These investments are disclosed in Table 60. The table also reflects our maximum exposure to loss exclusive of any potential tax credit recapture. Our maximum exposure to loss is equal to our legally binding equity commitments adjusted for recorded impairment, partnership results or amortization for qualifying low income housing tax credit investments when applicable. For all legally binding unfunded equity commitments, we increase our recognized investment and recognize a liability. As of December 31, 2021, we had a liability for unfunded commitments of $2.0 billion related to investments in qualified affordable housing projects which is reflected in Other liabilities on our Consolidated Balance Sheet.

Table 60 also includes our involvement in lease financing transactions with LLCs engaged in solar power generation that, to a large extent, provided returns in the form of tax credits. The outstanding financings and operating lease assets are reflected as Loans and Other assets, respectively, on our Consolidated Balance Sheet, whereas related liabilities are reported in Deposits and Other liabilities.

132 The PNC Financial Services Group, Inc. – 2021 Form 10-K

We make certain equity investments in various tax credit limited partnerships or LLCs. The purpose of these investments is to achieve a satisfactory return on capital and to assist us in achieving goals associated with the CRA. During 2021, we recognized $0.3 billion of amortization, $0.3 billion of tax credits and less than $0.1 billion of other tax benefits associated with qualified investments in low income housing tax credits within Income taxes.

N****OTE 6 G****OODWILL AND M****ORTGAGE S****ERVICING R****IGHTS

Assets and liabilities of acquired entities are recorded at estimated fair value as of the acquisition date.

Goodwill

Allocations of Goodwill by business segment during 2021, 2020 and 2019 follow:

Table 61: Goodwill by Business Segment


In millions	Retail Banking		Corporate & Institutional Banking		Asset Management Group		Total
Balance as of December 31, 2021	$	6,473	$	4,254	$	189	$	10,916
BBVA acquisition	678		796		125		1,599
Other			84				84
Balance as of December 31, 2020	$	5,795	$	3,374	$	64	$	9,233
Balance as of December 31, 2019	$	5,795	$	3,374	$	64	$	9,233

Goodwill increased during 2021 primarily as a result of the acquisition of BBVA. Goodwill was recorded and allocated to each segment on a preliminary basis and is subject to change based on new information obtained related to the close date or reallocation of assets and liabilities to each segment. See Note 2 Acquisition and Divestiture Activities for additional information.

We review goodwill in each of our reporting units for impairment at least annually, in the fourth quarter, or more frequently if events occur or circumstances have changed significantly from the annual test date. Based on the results of our analysis, there were no impairment charges related to goodwill in 2021, 2020 or 2019.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others as an intangible asset when the servicing income we receive is more than our projected servicing costs. MSRs are recognized either when purchased or when originated loans are sold with servicing retained. MSRs totaled $1.8 billion at December 31, 2021 and $1.2 billion at December 31, 2020, and consisted of loan servicing contracts for commercial and residential mortgages measured at fair value.

Commercial Mortgage Servicing Rights

We recognize gains (losses) on changes in the fair value of commercial MSRs. Commercial MSRs are subject to changes in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of commercial MSRs with securities, derivative instruments and resale agreements which are expected to increase (or decrease) in value when the value of commercial MSRs decreases (or increases).

The fair value of commercial MSRs is estimated by using a discounted cash flow model incorporating inputs for assumptions as to constant prepayment rates, discount rates and other factors determined based on current market conditions and expectations.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 133

Changes in the commercial MSRs follow:

Table 62: Commercial Mortgage Servicing Rights


In millions	2021		2020		2019
January 1	$	569	$	649	$	726
Additions:
From loans sold with servicing retained	87		100		53
Purchases	41		44		103
Changes in fair value due to:
Time and payoffs (a)	(119)		(115)		(146)
Other (b)	162		(109)		(87)
December 31	$	740	$	569	$	649
Related unpaid principal balance at December 31	$	272,556	$	243,960	$	216,992
Servicing advances at December 31	$	463	$	437	$	157

(a)Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period.

(b)Represents MSR value changes resulting primarily from market-driven changes in interest rates.

Residential Mortgage Servicing Rights

Residential MSRs are subject to changes in value from actual or expected prepayment of the underlying loans and defaults as well as market driven changes in interest rates. We manage this risk by economically hedging the fair value of residential MSRs with securities and derivative instruments which are expected to increase (or decrease) in value when the value of residential MSRs decreases (or increases).

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

Changes in the residential MSRs follow:

Table 63: Residential Mortgage Servicing Rights


In millions	2021		2020		2019
January 1	$	673	$	995	$	1,257
Additions:
BBVA Acquisition	35
From loans sold with servicing retained	87		45		36
Purchases	411		208		114
Changes in fair value due to:
Time and payoffs (a)	(320)		(198)		(162)
Other (b)	192		(377)		(250)
December 31	$	1,078	$	673	$	995
Unpaid principal balance of loans serviced for others at December 31	$	132,953	$	120,778	$	120,464
Servicing advances at December 31	$	176	$	143	$	111

(a)Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period.

(b)Represents MSR value changes resulting from market-driven changes in interest rates.

Sensitivity Analysis

The fair value of commercial and residential MSRs and significant inputs to the valuation models as of December 31, 2021 and December 31, 2020 are shown in Tables 64 and 65. The expected and actual rates of mortgage loan prepayments are significant factors driving the fair value. Management uses both internal proprietary models and a third-party model to estimate future commercial mortgage loan prepayments and a third-party model to estimate future residential mortgage loan prepayments. These models have been refined based on current market conditions and management judgment. Future interest rates are another important factor in the valuation of MSRs. Management utilizes market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. Changes in the shape and slope of the forward curve in future periods may result in volatility in the fair value estimate.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented in Tables 64 and 65. These sensitivities do not include the impact of the related hedging activities. Changes in fair value generally cannot

134 The PNC Financial Services Group, Inc. – 2021 Form 10-K

be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the interest rate spread), which could either magnify or counteract the sensitivities.

The following tables set forth the fair value of commercial and residential MSRs and the sensitivity analysis of the hypothetical effect on the fair value of MSRs to immediate adverse changes of 10% and 20% in those assumptions:

Table 64: Commercial Mortgage Servicing Rights – Key Valuation Assumptions


Dollars in millions	December 31 2021			December 31 2020
Fair value	$	740		$	569
Weighted-average life (years)	4.2			4.4
Weighted-average constant prepayment rate	5.49		%	4.87		%
Decline in fair value from 10% adverse change	$	12		$	9
Decline in fair value from 20% adverse change	$	21		$	18
Effective discount rate	7.75		%	7.33		%
Decline in fair value from 10% adverse change	$	20		$	15
Decline in fair value from 20% adverse change	$	40		$	31

Table 65: Residential Mortgage Servicing Rights – Key Valuation Assumptions


Dollars in millions	December 31 2021			December 31 2020
Fair value	$	1,078		$	673
Weighted-average life (years)	5.7			3.8
Weighted-average constant prepayment rate	12.63		%	21.13		%
Decline in fair value from 10% adverse change	$	46		$	41
Decline in fair value from 20% adverse change	$	89		$	82
Weighted-average option adjusted spread	857		bps	922		bps
Decline in fair value from 10% adverse change	$	31		$	20
Decline in fair value from 20% adverse change	$	60		$	38

Fees from mortgage loan servicing, which includes contractually specified servicing fees, late fees and ancillary fees were $0.5 billion for each of 2021, 2020 and 2019. We also generate servicing fees from fee-based activities provided to others for which we do not have an associated servicing asset. Fees from commercial and residential MSRs are reported within Noninterest income on our Consolidated Income Statement in Corporate services and Residential mortgage, respectively.

N****OTE 7 L****EASES

PNC enters into both lessor and lessee arrangements. For more information on lease accounting, see Note 1 Accounting Policies and for additional details on our equipment lease financing receivables see Note 4 Loans and Related Allowance for Credit Losses.

Lessor Arrangements

PNC’s lessor arrangements primarily consist of direct financing, sales-type and operating leases for equipment. Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term.

The following table provides details on our income from lessor arrangements:

Table 66: Lessor Income


Year ended December 31
In millions	2021		2020		2019
Sales-type and direct financing leases (a)	$	243	$	269	$	295
Operating leases (b)	75		95		117
Lease income	$	318	$	364	$	412

(a)Included in Loan interest income on the Consolidated Income Statement.

(b)Included in Corporate services on the Consolidated Income Statement.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 135

The following table provides the components of our equipment lease financing assets:

Table 67: Sales-Type and Direct Financing Leases


In millions	December 31 2021		December 31 2020
Lease receivables (a)	$	5,829	$	6,246
Unguaranteed residual asset values	977		957
Unearned income	(677)		(789)
Equipment lease financing	$	6,129	$	6,414

(a)In certain cases, PNC obtains third-party residual value insurance to reduce its residual risk. The carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $0.4 billion for both 2021 and 2020.

Operating lease assets were $0.9 billion and accumulated depreciation was $0.2 billion at December 31, 2021 compared to operating lease assets of $1.0 billion and accumulated depreciation of $0.2 billion at December 31, 2020. We had no lease transactions with related parties or deferred selling profits at December 31, 2021 and 2020.

The future minimum lessor receivable arrangements at December 31, 2021 were as follows:

Table 68: Future Minimum Lessor Receivable Arrangements


In millions	Operating Leases		Sales-type and Direct Financing Leases
2022	$	81	$	1,480
2023	44		1,154
2024	30		1,038
2025	23		649
2026	18		394
2027 and thereafter	27		1,114
Total future minimum lease receivable arrangements	$	223	$	5,829

Lessee Arrangements

We lease retail branches, datacenters, office space, land and equipment under operating and finance leases. Our leases have remaining lease terms of one year to 46 years, some of which may include options to renew the leases for up to 99 years, and some of which may include options to terminate the leases prior to the end date of the lease term. Certain leases also include options to purchase the leased asset. The exercise of lease renewal, termination and purchase options is at our sole discretion.

Certain of our lease agreements include rental payments based on a percentage of revenue and others include rental payments if certain bank deposit levels are met. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Subleases to third parties were not material at December 31, 2021 and 2020.

Table 69 and 70 provide details on our operating leases:

Table 69: Operating Lease Costs and Cash Flows


Year ended December 31
In millions	2021		2020		2019
Operating lease cost (a)	$	386	$	358	$	360
Operating cash flows	$	400	$	360	$	353

(a)Included in Occupancy, Equipment and Marketing expense on the Consolidated Income Statement.

Table 70: Operating Lease Assets and Liabilities


In millions	December 31 2021		December 31 2020
Operating lease assets (a)	$	1,919	$	1,876
Operating lease liabilities (b)	$	2,220	$	2,097

(a)Included in Other assets on the Consolidated Balance Sheet.

(b)Included in Accrued expenses and other liabilities on the Consolidated Balance Sheet.

Finance lease assets and liabilities, income and cash flows at December 31, 2021 and 2020 were not material.

136 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Operating lease term and discount rates of our lessee arrangements at December 31, 2021 and 2020 were as follows:

Table 71: Operating Lease Term and Discount Rates of Lessee Arrangements


	December 31 2021		December 31 2020
Weighted-average remaining lease term (years)	8		8
Weighted-average discount rate	1.99	%	2.21	%

The future lease payments based on maturity for our lessee liability arrangements at December 31, 2021 are as follows:

Table 72: Future Lease Payments for Operating Lease Liability Arrangements


In millions	December 31, 2021
2022	$	416
2023	389
2024	330
2025	285
2026	231
2027 and thereafter	761
Total future lease payments	$	2,412
Less: Interest	192
Present value of operating lease liability arrangements	$	2,220

N****OTE 8 PREMISES, E****QUIPMENT AND L****EASEHOLD I****MPROVEMENTS

Premises, equipment and leasehold improvements, stated at cost less accumulated depreciation and amortization, were as follows:

Table 73: Premises, Equipment and Leasehold Improvements


In millions	December 31 2021		December 31 2020
Premises, equipment and leasehold improvements	$	16,651	$	14,843
Accumulated depreciation and amortization	(8,058)		(7,156)
Net book value	$	8,593	$	7,687

Depreciation expense on premises, equipment and leasehold improvements, as well as amortization expense, excluding intangible assets, primarily for capitalized internally developed software are shown in the following table:

Table 74: Depreciation and Amortization Expense


Year ended December 31 In millions	2021		2020		2019
Depreciation	$	844	$	791	$	778
Amortization	122		115		109
Total depreciation and amortization	$	966	$	906	$	887

The PNC Financial Services Group, Inc. – 2021 Form 10-K 137

N****OTE 9 T****IME D****EPOSITS

The aggregate amount of time deposit accounts (including certificates of deposits) in denominations that met or exceeded the insured limit were $7.7 billion and $10.3 billion at December 31, 2021, and 2020, respectively.

Total time deposits of $17.4 billion at December 31, 2021 have future contractual maturities as follows:

Table 75: Time Deposits


In billions
2022	$	15.4
2023	$	1.0
2024	$	0.3
2025	$	0.2
2026	$	0.2
2027 and thereafter	$	0.3

N****OTE 10 B****ORROWED F****UNDS

The following table shows the carrying value of total borrowed funds of $30.8 billion at December 31, 2021 (including adjustments related to accounting hedges, purchase accounting and unamortized original issuance discounts) by remaining contractual maturity:

Table 76: Borrowed Funds


In billions
2022	$	7.2
2023	$	3.8
2024	$	3.7
2025	$	3.2
2026	$	1.8
2027 and thereafter	$	11.1

The following table presents the contractual rates and maturity dates of our FHLB borrowings, senior debt and subordinated debt as of December 31, 2021 and the carrying values as of December 31, 2021 and 2020.

Table 77: FHLB Borrowings, Senior Debt and Subordinated Debt


	Stated Rate		Maturity	Carrying Value
Dollars in millions	2021		2021	2021		2020
Parent Company
Senior debt	1.15% - 3.50%		2022 - 2032	$	10,369	$	9,573
Subordinated debt	3.90	%	2024	777		805
Junior subordinated debt	0.74	%	2028	205		205
Subtotal				11,351		10,583
Bank
FHLB (a)						3,500
Senior debt	0.00% - 3.50%		2022 - 2043	10,292		14,698
Subordinated debt	2.70% - 5.90%		2022 - 2029	6,014		5,393
Subtotal				16,306		23,591
Total				$	27,657	$	34,174

(a)FHLB borrowings are generally collateralized by residential mortgage loans, other mortgage-related loans and investment securities.

In Table 77, the carrying values for Parent Company senior and subordinated debt include basis adjustments of $252 million and $28 million, respectively, whereas Bank senior and subordinated debt include basis adjustments of $190 million and $193 million, respectively, related to fair value accounting hedges as of December 31, 2021.

Certain borrowings are reported at fair value, refer to Note 15 Fair Value for more information on those borrowings.

138 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Junior Subordinated Debentures

PNC Capital Trust C, a wholly-owned finance subsidiary of The PNC Financial Services Group, Inc., owns junior subordinated debentures issued by PNC with a carrying value of $205 million. In June 1998, PNC Capital Trust C issued $200 million of trust preferred securities which bear interest at an annual rate of 3 month LIBOR plus 57 basis points. The trust preferred securities are currently redeemable by PNC Capital Trust C at par. In accordance with GAAP, the financial statements of the Trust are not included in our consolidated financial statements.

The obligations of The PNC Financial Services Group, Inc., as the parent of the Trust, when taken collectively, are the equivalent of a full and unconditional guarantee of the obligations of the Trust under the terms of the trust preferred securities. Such guarantee is subordinate in right of payment in the same manner as other junior subordinated debt. There are certain restrictions on our overall ability to obtain funds from our subsidiaries. For additional disclosure on these funding restrictions, see Note 20 Regulatory Matters.

We are subject to certain restrictions, including restrictions on dividend payments, in connection with the outstanding junior subordinated debentures. Generally, if (i) there is an event of default under the debentures, (ii) we elect to defer interest on the debentures, (iii) we exercise our right to defer payments on the related trust preferred securities, or (iv) there is a default under our guarantee of such payment obligations, subject to certain limited exceptions, we would be unable during the period of such default or deferral to make payments on our debt securities that rank equal or junior to the debentures as well as to make payments on our equity securities, including dividend payments.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 139

N****OTE 11 C****OMMITMENTS

In the normal course of business, we have various commitments outstanding, certain of which are not included on our Consolidated Balance Sheet. The following table presents our outstanding commitments to extend credit along with other commitments as of December 31, 2021 and 2020.

Table 78: Commitments to Extend Credit and Other Commitments


In millions	December 31 2021		December 31 2020
Commitments to extend credit
Total commercial lending	$	176,248	$	153,089
Home equity lines of credit	19,410		16,626
Credit card	32,499		31,019
Other	9,081		7,087
Total commitments to extend credit	237,238		207,821
Net outstanding standby letters of credit (a)	9,303		9,053
Standby bond purchase agreements (b)	1,268		1,448
Other commitments (c)	3,045		2,046
Total commitments to extend credit and other commitments	$	250,854	$	220,368

(a)Net outstanding standby letters of credit include $3.3 billion and $3.8 billion at December 31, 2021 and 2020, which support remarketing programs.

(b)We enter into standby bond purchase agreements to support municipal bond obligations.

(c)Includes $2.0 billion and $1.1 billion related to investments in qualified affordable housing projects at December 31, 2021 and 2020, respectively.

Commitments to Extend Credit

Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee and generally contain termination clauses in the event the customer’s credit quality deteriorates.

Net Outstanding Standby Letters of Credit

We issue standby letters of credit and share in the risk of standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Approximately 97% of our net outstanding standby letters of credit were rated as Pass at December 31, 2021, with the remainder rated as Criticized. An internal credit rating of Pass indicates the expected risk of loss is currently low, while a rating of Criticized indicates a higher degree of risk.

If the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program, then upon a draw by a beneficiary, subject to the terms of the letter of credit, we would be obligated to make payment to them. The standby letters of credit outstanding on December 31, 2021 had terms ranging from less than one year to eight years.

As of December 31, 2021, assets of $1.3 billion secured certain specifically identified standby letters of credit. In addition, a portion of the remaining standby letters of credit issued on behalf of specific customers is also secured by collateral or guarantees that secure the customers’ other obligations to us. The carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $0.1 billion at December 31, 2021 and is included in Other liabilities on our Consolidated Balance Sheet.

140 The PNC Financial Services Group, Inc. – 2021 Form 10-K

N****OTE 12 E****QUITY

Preferred Stock

The following table provides the number of preferred shares issued and outstanding, the liquidation value per share and the number of authorized preferred shares:

Table 79: Preferred Stock - Authorized, Issued and Outstanding


			Preferred Shares
December 31 Shares in thousands	Liquidation value per share		2021	2020
Authorized
$1 par value			20,000	20,000
Issued and outstanding
Series B	$	40	1	1
Series O	$	100,000	10	10
Series P	$	100,000	15	15
Series R	$	100,000	5	5
Series S	$	100,000	5	5
Series T	$	100,000	15
Total issued and outstanding			51	36

The following table discloses information related to the preferred stock outstanding as of December 31, 2021:

Table 80: Terms of Outstanding Preferred Stock


Preferred Stock	Issue Date	Number of Depositary Shares Issued and Outstanding	Fractional Interest in a share of preferred stock represented by each Depositary Share	Dividend Dates (a)	Annual Per Share Dividend Rate			Optional Redemption Date (b)
Series B (c)	(c)	N/A	N/A	Quarterly from March 10th		$	1.80	None
Series O (d)	July 27, 2011	1 million	1/100th	Semi-annually beginning on February 1, 2012 until August 1, 2021 Quarterly beginning on November 1, 2021	6.75% until August 1, 2021 3 Mo. LIBOR plus 3.678% per annum beginning on August 1, 2021			August 1, 2021
Series P (d)	April 24, 2012	60 million	1/4,000th	Quarterly beginning on August 1, 2012	6.125% until May 1, 2022 3 Mo. LIBOR plus 4.0675% per annum beginning on May 1, 2022			May 1, 2022
Series R (d)	May 7, 2013	500,000	1/100th	Semi-annually beginning on December 1, 2013 until June 1, 2023 Quarterly beginning on September 1, 2023	4.85% until June 1, 2023 3 Mo. LIBOR plus 3.04% per annum beginning June 1, 2023			June 1, 2023
Series S (d)	November 1, 2016	525,000	1/100th	Semi-annually beginning on May 1, 2017 until November 1, 2026 Quarterly beginning on February 1, 2027	5.00% until November 1, 2026 3 Mo. LIBOR plus 3.30% per annum beginning November 1, 2026			November 1, 2026
Series T (d)	September 13, 2021	1.5 million	1/100th	Quarterly beginning on December 15, 2021	3.40% until September 15, 2026 5 Yr. U.S. Treasury plus 2.595% per annum beginning September 15, 2026			September 15, 2026

(a)Dividends are payable when, as, and if declared by our Board of Directors or an authorized committee of our Board of Directors.

(b)Redeemable at our option on or after the date stated. With the exception of the Series B preferred stock, redeemable at our option within 90 days of a regulatory capital treatment event as defined in the designations.

(c)Cumulative preferred stock. Holders of Series B preferred stock are entitled to 8 votes per share, which is equal to the number of full shares of common stock into which the Series B preferred stock is convertible. The Series B preferred stock was issued in connection with the consolidation of Pittsburgh National Corporation and Provident National Corporation in 1983.

(d)Non-Cumulative preferred stock.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 141

Each outstanding series of preferred stock, other than the Series B, contains restrictions on our ability to pay dividends and make other shareholder payments. Subject to limited exceptions, if dividends are not paid on any such series of preferred stock, we cannot declare dividends on or repurchase shares of our common stock. In addition, if we would like to repurchase shares of preferred stock, such repurchases must be on a pro rata basis with respect to all such series of preferred stock.

The following table provides the dividends per share for PNC's common and preferred stock:

Table 81: Dividends Per Share


December 31	2021		2020		2019
Common Stock	$	4.80	$	4.60	$	4.20
Preferred Stock
Series B	$	1.80	$	1.80	$	1.80
Series O	$	7,722	$	6,750	$	6,750
Series P	$	6,125	$	6,125	$	6,125
Series Q			$	4,031	$	5,375
Series R	$	4,850	$	4,850	$	4,850
Series S	$	5,000	$	5,000	$	5,000
Series T	$	869

On January 5, 2022, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.25 per share paid on February 5, 2022.

Other Shareholders’ Equity Matters

At December 31, 2021, we had reserved approximately 81 million common shares to be issued in connection with certain stock plans.

On April 4, 2019, our Board of Directors approved the establishment of a new stock repurchase program authorization in the amount of 100 million shares of PNC common stock, which may be purchased on the open market or in privately negotiated transactions, effective July 1, 2019. In January 2020, we announced programs to repurchase up to an additional $1.0 billion in common shares through the end of the second quarter of 2020. In the first quarter of 2021, the Federal Reserve extended the special limitations on dividends and share repurchases by CCAR-participating BHCs that were put in place in 2020 as a result of ongoing economic uncertainty from COVID-19. While these restrictions permitted share repurchases based on income, we refrained from repurchasing shares until the close of the BBVA transaction. These restrictions ended on June 30, 2021 for firms with capital levels above those required by the 2021 stress tests. In June 2021, we announced the reinstatement of share repurchase programs with repurchases of up to $2.9 billion for the four-quarter period beginning in the third quarter of 2021. Under these program authorizations we repurchased 5.0 million shares in 2021 and 11.0 million shares in 2020. A maximum amount of 70.1 million shares remained available for repurchase under the new stock program authorization at December 31, 2021.

142 The PNC Financial Services Group, Inc. – 2021 Form 10-K

N****OTE 13 O****THER C****OMPREHENSIVE I****NCOME

Details of other comprehensive income (loss) are as follows:

Table 82: Other Comprehensive Income (Loss)


	Year ended December 31
	2021						2020						2019
In millions	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Debt securities
Net Unrealized gains (losses) on securities	$	(2,445)	$	576	$	(1,869)	$	2,113	$	(485)	$	1,628	$	1,529	$	(351)	$	1,178
Less: Net realized gains (losses) reclassified to earnings (a)	6		(2)		4		302		(69)		233		40		(9)		31
Net change	(2,451)		578		(1,873)		1,811		(416)		1,395		1,489		(342)		1,147
Cash flow hedge derivatives
Net Unrealized gains (losses) on cash flow hedge derivatives	(632)		149		(483)		918		(211)		707		334		(77)		257
Less: Net realized gains (losses) reclassified to earnings (a)	494		(117)		377		421		(97)		324		37		(9)		28
Net change	(1,126)		266		(860)		497		(114)		383		297		(68)		229
Pension and other postretirement benefit plan adjustments
Net pension and other postretirement benefit plan activity and other reclassified to earnings (b)	486		(114)		372		82		(19)		63		158		(36)		122
Net change	486		(114)		372		82		(19)		63		158		(36)		122
Other
Net unrealized gains (losses) on other transactions	4		(4)				10		5		15		17		5		22
Net change	4		(4)				10		5		15		17		5		22
Total other comprehensive income (loss) from continuing operations	(3,087)		726		(2,361)		2,400		(544)		1,856		1,961		(441)		1,520
Total other comprehensive income (loss) from discontinued operations							148		(33)		115		5		(1)		4
Total other comprehensive income (loss)	$	(3,087)	$	726	$	(2,361)	$	2,548	$	(577)	$	1,971	$	1,966	$	(442)	$	1,524

(a)Reclassifications for pre-tax debt securities and cash flow hedges are recorded in interest income and noninterest income on the Consolidated Income Statement.

(b)Reclassifications include amortization of actuarial losses (gains) and amortization of prior period services costs (credits) which are recorded in noninterest expense on the Consolidated Income Statement.

Table 83: Accumulated Other Comprehensive Income (Loss) Components


In millions, after-tax	Debt securities		Cash flow hedge derivatives		Pension and other postretirement benefit plan adjustments		Other		Accumulated other Comprehensive Income from Continuing Operations		Accumulated other Comprehensive Income from Discontinued Operations		Total
Balance at December 31, 2018	$	(80)	$	47	$	(530)	$	(43)	$	(606)	$	(119)	$	(725)
Net Activity	1,147		229		122		22		1,520		4		1,524


Balance at December 31, 2019	$	1,067	$	276	$	(408)	$	(21)	$	914	$	(115)	$	799
Net activity	1,395		383		63		15		1,856		115		1,971
Balance at December 31, 2020	$	2,462	$	659	$	(345)	$	(6)	$	2,770			$	2,770
Net activity	(1,873)		(860)		372				(2,361)				(2,361)
Balance at December 31, 2021	$	589	$	(201)	$	27	$	(6)	$	409			$	409

The PNC Financial Services Group, Inc. – 2021 Form 10-K 143

N****OTE 14 E****ARNINGS P****ER S****HARE

Table 84: Basic and Diluted Earnings Per Common Share


In millions, except per share data	2021		2020		2019
Basic
Net income from continuing operations	$	5,725	$	3,003	$	4,591
Less:
Net income attributable to noncontrolling interests	51		41		49
Preferred stock dividends	233		229		236
Preferred stock discount accretion and redemptions	5		4		4
Net income from continuing operations attributable to common shareholders	5,436		2,729		4,302
Less: Dividends and undistributed earnings allocated to nonvested restricted shares	27		13		18
Net income from continuing operations attributable to basic common shareholders	$	5,409	$	2,716	$	4,284
Net income from discontinued operations attributable to common shareholders			$	4,555	$	827
Less: Undistributed earnings allocated to nonvested restricted shares			22		3
Net income from discontinued operations attributable to basic common shareholders			$	4,533	$	824
Basic weighted-average common shares outstanding	426		427		447
Basic earnings per common share from continuing operations (a)	$	12.71	$	6.37	$	9.59
Basic earnings per common share from discontinued operations (a)			$	10.62	$	1.84
Basic earnings per common share	$	12.71	$	16.99	$	11.43
Diluted
Net income from continuing operations attributable to diluted common shareholders	$	5,409	$	2,716	$	4,284
Net income from discontinued operations attributable to basic common shareholders			$	4,533	$	824
Less: Impact of earnings per share dilution from discontinued operations			2		10
Net income from discontinued operations attributable to diluted common shareholders			$	4,531	$	814
Basic weighted-average common shares outstanding	426		427		447
Dilutive potential common shares					1
Diluted weighted-average common shares outstanding	426		427		448
Diluted earnings per common share from continuing operations (a)	$	12.70	$	6.36	$	9.57
Diluted earnings per common share from discontinued operations (a)			$	10.60	$	1.82
Diluted earnings per common share	$	12.70	$	16.96	$	11.39

(a)Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares and restricted share units with nonforfeitable dividends and dividend rights (participating securities).

144 The PNC Financial Services Group, Inc. – 2021 Form 10-K

N****OTE 15 F****AIR V****ALUE

Fair Value Measurement

We measure certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date, and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. The three levels of the fair value hierarchy are:

Level 1:** Fair value is determined using a quoted price in an active market for identical assets or liabilities. Level 1 assets and liabilities may include debt securities, equity securities and listed derivative contracts that are traded in an active exchange market, and certain U.S. Treasury securities that are actively traded in over-the-counter markets.
Level 2:** Fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly. The majority of Level 2 assets and liabilities include debt securities and listed derivative contracts with quoted prices that are traded in markets that are not active, and certain debt and equity securities and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable inputs.
Level 3:** Fair value is estimated using unobservable inputs that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models and discounted cash flow methodologies, or similar techniques for which the significant valuation inputs are not observable and the determination of fair value requires significant management judgment or estimation.

We characterize active markets as those where transaction volumes are sufficient to provide objective pricing information, with reasonably narrow bid/ask spreads, and where dealer quotes received do not vary widely and are based on current information. Inactive markets are typically characterized by low transaction volumes, price quotations that vary substantially among market participants or are not based on current information, wide bid/ask spreads, a significant increase in implied liquidity risk premiums, yields, or performance indicators for observed transactions or quoted prices compared to historical periods, a significant decline or absence of a market for new issuance, or any combination of the above factors. We also consider nonperformance risks, including credit risk, as part of our valuation methodology for all assets and liabilities measured at fair value.

Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. Assets and liabilities classified within Level 3 inherently require the use of various assumptions, estimates and judgments when measuring their fair value. As observable market activity is commonly not available to use when estimating the fair value of Level 3 assets and liabilities, we must estimate fair value using various modeling techniques. These techniques include the use of a variety of inputs/assumptions including credit quality, liquidity, interest rates or other relevant inputs across the entire population of our Level 3 assets and liabilities. Changes in the significant underlying factors or assumptions (either an increase or a decrease) in any of these areas underlying our estimates may have resulted in a significant increase/decrease in the Level 3 fair value measurement of a particular asset and/or liability from period to period.

Any models used to determine fair values or to validate dealer quotes are subject to review and independent testing as part of our model validation and internal control testing processes. Our Model Risk Management Group reviews significant models on at least an annual basis. In addition, the Valuation Committee approves valuation methodologies and reviews the results of independent valuation reviews and processes for assets and liabilities measured at fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Residential Mortgage Loans Held for Sale

We account for certain residential mortgage loans originated for sale at fair value on a recurring basis. The election of the fair value option aligns the accounting for the residential mortgages with the related hedges. Residential mortgage loans are valued based on quoted market prices, where available, prices for other traded mortgage loans with similar characteristics, and purchase commitments and bid information received from market participants. The prices are adjusted as necessary to include the embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans that are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation but are not considered significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans. Accordingly, the majority of residential mortgage loans held for sale are classified as Level 2.

Commercial Mortgage Loans Held for Sale

We account for certain commercial mortgage loans classified as held for sale in whole loan transactions at fair value. We determine the fair value of commercial mortgage loans held for sale based upon discounted cash flows. Fair value is determined using sale valuation assumptions that management believes a market participant would use in pricing the loans.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 145

Valuation assumptions may include observable inputs based on the benchmark interest rate swap curve, whole loan sales and agency sales transactions. The significant unobservable input for commercial mortgage loans held for sale, excluding those to be sold to agencies, is management’s assumption of the spread applied to the benchmark rate. The spread over the benchmark curve includes management’s assumptions of the impact of credit and liquidity risk. Significant increases (decreases) in the spread applied to the benchmark would have resulted in a significantly lower (higher) asset value. The wide range of the spread over the benchmark curve is due to the varying risk and underlying property characteristics within our portfolio. Based on the significance of the unobservable input we classified this portfolio as Level 3.

For loans to be sold to agencies with servicing retained, the fair value is adjusted for the estimated servicing cash flows, which is an unobservable input. This adjustment is not considered significant given the relative insensitivity of the value to changes in the input to the fair value of the loans. Accordingly, commercial mortgage loans held for sale to agencies are classified as Level 2.

Securities Available for Sale and Trading Securities

Securities accounted for at fair value include both the available for sale and trading portfolios. We primarily use prices obtained from pricing services, dealer quotes or recent trades to determine the fair value of securities. The majority of securities were priced by third-party vendors. The third-party vendors use a variety of methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. We monitor and validate the reliability of vendor pricing on an ongoing basis through pricing methodology reviews, including detailed reviews of the assumptions and inputs used by the vendor to price individual securities, and through price validation testing. Securities not priced by one of our pricing vendors may be valued using a dealer quote, which are also subject to price validation testing. Price validation testing is performed independent of the risk-taking function and involves corroborating the prices received from third-party vendors and dealers with prices from another third party or through other sources, such as internal valuations or sales of similar securities. Security prices are also validated through actual cash settlement upon sale of a security.

Securities are classified within the fair value hierarchy after giving consideration to the activity level in the market for the security type and the observability of the inputs used to determine the fair value. When a quoted price in an active market exists for the identical security, this price is used to determine fair value and the security is classified within Level 1 of the hierarchy. Level 1 securities include U.S. Treasury securities.

When a quoted price in an active market for the identical security is not available, fair value is estimated using either an alternative market approach, such as a recent trade or matrix pricing, or an income approach, such as a discounted cash flow pricing model. If the inputs to the valuation are based primarily on market observable information, then the security is classified within Level 2 of the hierarchy. Level 2 securities include agency debt securities, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities, certain non-agency residential mortgage-backed securities, asset-backed securities collateralized by non-mortgage-related corporate and consumer loans, and other debt securities. Level 2 securities are predominantly priced by third parties, either by a pricing vendor or dealer.

In certain cases where there is limited activity or less transparency around the inputs to the valuation, securities are classified within Level 3 of the hierarchy. Securities classified as Level 3 consist primarily of non-agency residential mortgage-backed and asset-backed securities collateralized by first- and second-lien residential mortgage loans. Fair value for these securities is primarily estimated using pricing obtained from third-party vendors. In some cases, fair value is estimated using a dealer quote, by reference to prices of securities of a similar vintage and collateral type or by reference to recent sales of similar securities. Market activity for these security types is limited with little price transparency. As a result, these securities are generally valued by the third-party vendor using a discounted cash flow approach that incorporates significant unobservable inputs and observable market activity where available. Significant inputs to the valuation include prepayment projections and credit loss assumptions (default rate and loss severity) and discount rates that are deemed representative of current market conditions. Significant increases (decreases) in any of those assumptions in isolation would have resulted in a significantly lower (higher) fair value measurement.

Certain infrequently traded debt securities within Other debt securities available for sale and Trading securities are also classified in Level 3 and are included in the Insignificant Level 3 assets, net of liabilities line item in Table 87. The significant unobservable inputs used to estimate the fair value of these securities include an estimate of expected credit losses and a discount for liquidity risk. These inputs are incorporated into the fair value measurement by either increasing the spread over the benchmark curve or by applying a credit and liquidity discount to the par value of the security. Significant increases (decreases) in credit and/or liquidity risk could have resulted in a significantly lower (higher) fair value estimate.

Loans

Loans accounted for at fair value consist primarily of residential mortgage loans. These loans are generally valued similarly to residential mortgage loans held for sale and are classified as Level 2. However, similar to residential mortgage loans held for sale, if these loans are repurchased and unsalable, they are classified as Level 3. In addition, repurchased VA loans, where only a portion of the principal will be reimbursed, are classified as Level 3. The fair value is determined using a discounted cash flow calculation based on our historical loss rate. We have elected to account for certain home equity lines of credit at fair value. These loans are classified as

146 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Level 3. Significant inputs to the valuation of these loans include credit and liquidity discount, cumulative default rate, loss severity and gross discount rate and are deemed representative of current market conditions. Significant increases (decreases) in any of these assumptions would have resulted in a significantly lower (higher) fair value measurement.

Equity Investments

Equity investments includes money market mutual funds as well as direct and indirect private equity investments. Money market mutual funds are valued based on quoted prices in active markets for identical securities and classified within Level 1 of the hierarchy. The valuation of direct and indirect private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. Various valuation techniques are used for direct investments, including multiples of adjusted earnings of the entity, independent appraisals, anticipated financing and sale transactions with third parties, or the pricing used to value the entity in a recent financing transaction. A multiple of adjusted earnings calculation is the valuation technique utilized most frequently and is the most significant unobservable input used in such calculation. Significant decreases (increases) in the multiple of earnings could have resulted in a significantly lower (higher) fair value measurement. Direct equity investments are classified as Level 3.

Indirect investments are not redeemable; however, we receive distributions over the life of the partnerships from liquidation of the underlying investments by the investee, which we expect to occur over the next 12 years. We value indirect investments in private equity funds using the NAV practical expedient as provided in the financial statements that we receive from fund managers. Due to the time lag in our receipt of the financial information and based on a review of investments and valuation techniques applied, adjustments to the manager-provided value are made when available recent portfolio company information or market information indicates a significant change in value from that provided by the manager of the fund. Indirect investments valued using NAV are not classified in the fair value hierarchy.

Mortgage Servicing Rights (MSRs)

MSRs are carried at fair value on a recurring basis. Assumptions incorporated into the MSRs valuation model reflect management’s best estimate of factors that a market participant would use in valuing the MSRs. Although sales of MSRs do occur and can offer some market insight, MSRs do not trade in an active, open market with readily observable prices so the precise terms and conditions of sales are not available.

Residential MSRs

As a benchmark for the reasonableness of our residential MSRs fair value, we obtained opinions of value from independent brokers. These brokers provided a range (+/-10 bps) based upon their own discounted cash flow calculations of our portfolio that reflect conditions in the secondary market and any recently executed servicing transactions. We compare our internally-developed residential MSRs value to the ranges of values received from the brokers. If our residential MSRs fair value falls outside of the brokers’ ranges, management will assess whether a valuation adjustment is warranted. For the periods presented, our residential MSRs value did not fall outside of the brokers’ ranges. We consider our residential MSRs value to represent a reasonable estimate of fair value.

Due to the nature of the unobservable valuation inputs, residential MSRs are classified as Level 3. The significant unobservable inputs used in the fair value measurement of residential MSRs are constant prepayment rates and spread over the benchmark curve. Significant increases (decreases) in prepayment rates and spread over the benchmark curve would have resulted in lower (higher) fair market value of residential MSRs.

Commercial MSRs

The fair value of commercial MSRs is estimated by using a discounted cash flow model incorporating unobservable inputs for assumptions such as constant prepayment rates, discount rates and other factors. Due to the nature of the unobservable valuation inputs and the limited availability of market pricing, commercial MSRs are classified as Level 3. Significant increases (decreases) in constant prepayment rates and discount rates would have resulted in significantly lower (higher) commercial MSR value determined based on current market conditions and expectations.

Financial Derivatives

Exchange-traded derivatives are valued using quoted market prices and are classified as Level 1. The majority of derivatives that we enter into are executed over-the-counter and are valued using internal models. These derivatives are primarily classified as Level 2, as the readily observable market inputs to these models are validated to external sources, such as industry pricing services, or are corroborated through recent trades, dealer quotes, yield curves, implied volatility or other market-related data. Level 2 financial derivatives are primarily estimated using a combination of Eurodollar future prices and observable benchmark interest rate swaps to construct projected discounted cash flows.

Financial derivatives that are priced using significant management judgment or assumptions are classified as Level 3. Unobservable inputs related to interest rate contracts include probability of funding of residential mortgage loan commitments and estimated servicing cash flows of commercial and residential mortgage loan commitments. Probability of default and loss severity are the significant unobservable inputs used in the valuation of risk participation agreements. The fair values of Level 3 assets and liabilities

The PNC Financial Services Group, Inc. – 2021 Form 10-K 147

related to these interest rate contract financial derivatives as of December 31, 2021 and 2020 are included in the Insignificant Level 3 assets, net of liabilities line item in Table 87 of this Note 15.

In connection with the sales of portions of our Visa Class B common shares, we entered into swap agreements with the purchasers of the shares to retain any future risk of decreases in the conversion rate of Class B common shares to Class A common shares resulting from increases in the escrow funded by Visa to pay for the costs of resolution of specified litigation (see Note 21 Legal Proceedings). These swaps also require PNC to make periodic payments based on the market price of the Class A common shares at a fixed rate of interest (in certain cases subject to step-up provisions) until the Visa litigation is resolved. An increase in the estimated length of litigation resolution date, a decrease in the estimated conversion rate, or an increase in the estimated growth rate of the Class A share price would have had a negative impact on the fair value of the swaps and vice versa.

The fair values of our derivatives include a credit valuation adjustment to reflect our own and our counterparties’ nonperformance risk. Our credit valuation adjustment is computed using credit default swap spreads, in conjunction with internal historical recovery observations.

Other Assets and Liabilities

Other assets held at fair value on a recurring basis primarily include assets related to PNC’s deferred compensation and supplemental incentive savings plans.

The assets related to PNC’s deferred compensation and supplemental incentive savings plans primarily consist of a prepaid forward contract referencing an amount of shares of PNC stock, equity mutual funds and fixed income funds, and are valued based on the underlying investments. These assets are valued either by reference to the market price of PNC’s stock or by using the quoted market prices for investments other than PNC’s stock and are classified in Levels 1 and 2.

All Level 3 other assets and liabilities are included in the Insignificant Level 3 assets, net of liabilities line item in Table 87 in this Note 15.

Other Borrowed Funds

Other borrowed funds primarily consist of U.S. Treasury securities sold short which are classified as Level 1. Other borrowed funds also includes the related liability for certain repurchased loans for which we have elected the fair value option and are classified as either Level 2 or Level 3, consistent with the level classification of the corresponding loans. All Level 3 amounts are included in the Insignificant Level 3 assets, net of liabilities line item in Table 87 in this Note 15.

The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which we have elected the fair value option.

148 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Table 85: Fair Value Measurements – Recurring Basis Summary


	December 31, 2021								December 31, 2020
In millions	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Assets
Residential mortgage loans held for sale			$	1,221	$	81	$	1,302			$	691	$	163	$	854
Commercial mortgage loans held for sale			526		49		575				305		57		362
Securities available for sale
U.S. Treasury and government agencies	$	41,873	4,291				46,164		$	16,675	4,036				20,711
Residential mortgage-backed
Agency			67,632				67,632				48,911				48,911
Non-agency			61		1,097		1,158				136		1,365		1,501
Commercial mortgage-backed
Agency			1,773				1,773				2,688				2,688
Non-agency			3,433		3		3,436				3,678		11		3,689
Asset-backed			6,246		163		6,409				4,951		199		5,150
Other			4,895		69		4,964				4,636		72		4,708


Total securities available for sale	41,873		88,331		1,332		131,536		16,675		69,036		1,647		87,358
Loans			617		884		1,501				718		647		1,365
Equity investments (a)	1,373				1,680		3,231		1,070				1,263		2,629
Residential mortgage servicing rights					1,078		1,078						673		673
Commercial mortgage servicing rights					740		740						569		569
Trading securities (b)	250		1,601				1,851		548		1,690				2,238
Financial derivatives (b) (c)	5		5,109		38		5,152				6,415		118		6,533
Other assets	404		114				518		373		81				454
Total assets (d)	$	43,905	$	97,519	$	5,882	$	147,484	$	18,666	$	78,936	$	5,137	$	103,035
Liabilities
Other borrowed funds	$	725	$	45	$	3	$	773	$	661	$	44	$	2	$	707
Financial derivatives (c) (e)			3,285		285		3,570				2,483		273		2,756
Other liabilities					175		175						43		43
Total liabilities (f)	$	725	$	3,330	$	463	$	4,518	$	661	$	2,527	$	318	$	3,506

(a)Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

(b)Included in Other assets on the Consolidated Balance Sheet.

(c)Amounts at December 31, 2021 and 2020 are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 16 Financial Derivatives for additional information related to derivative offsetting.

(d)Total assets at fair value as a percentage of total consolidated assets was 26% and 22% at December 31, 2021 and 2020, respectively. Level 3 assets as a percentage of total assets at fair value was 4% and 5% as of December 31, 2021 and 2020, respectively. Level 3 assets as a percentage of total consolidated assets was 1% at both December 31, 2021 and 2020.

(e)Included in Other liabilities on the Consolidated Balance Sheet.

(f)Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both December 31, 2021 and 2020. Level 3 liabilities as a percentage of total liabilities at fair value was 10% and 9% as of December 31, 2021 and 2020, respectively. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both December 31, 2021 and 2020.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 149

Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for 2021 and 2020 follow:

Table 86: Reconciliation of Level 3 Assets and Liabilities

Year Ended December 31, 2021


			Total realized / unrealized gains or losses for the period (a)																						Unrealized gains / losses for the period on assets and liabilities held on Consolidated Balance Sheet at Dec. 31, 2021 (a) (c)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2020		Included in Earnings			Included in Other comprehensive income (b)		Purchases		Sales		Issuances		Settlements		Transfers into Level 3		Transfers out of Level 3			Impact from BBVA Acquisition		Fair Value Dec. 31, 2021
Assets
Residential mortgage loans held for sale	$	163	$	(1)				$	47	$	(83)			$	(41)	$	18	$	(22)	(e)			$	81	$	(1)
Commercial mortgage loans held for sale	57									(6)				(2)									49		(1)
Other consumer loans held for sale										(256)											$	256
Securities available for sale
Residential mortgage- backed non-agency	1,365		37			$	6							(311)									1,097
Commercial mortgage- backed non-agency	11					(8)																	3
Asset-backed	199		2			9								(47)									163
Other	72					1		6						(10)									69
Total securities available for sale	1,647		39			8		6						(368)									1,332
Loans	647		45					124		(15)				(194)				(14)		(e)	291		884		44
Equity investments	1,263		627					573		(783)													1,680		338
Residential mortgage servicing rights	673		192					411				$	87	(320)							35		1,078		192
Commercial mortgage servicing rights	569		162					41				87		(119)									740		162

Financial derivatives	118		83					5						(174)							6		38		113

Total assets	$	5,137	$	1,147		$	8	$	1,207	$	(1,143)	$	174	$	(1,218)	$	18	$	(36)		$	588	$	5,882	$	847
Liabilities
Other borrowed funds	$	2										$	5	$	(4)								$	3
Financial derivatives	273		$	145						$	6			(146)							$	7	285		$	158
Other liabilities	43		151									321		(340)									175		111
Total liabilities	$	318	$	296						$	6	$	326	$	(490)						$	7	$	463	$	269
Net gains (losses)			$	851	(f)																				$	578	(g)

150 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Year Ended December 31, 2020


			Total realized / unrealized gains or losses for the period (a)																					Unrealized gains / losses for the period on assets and liabilities held on Consolidated Balance Sheet at Dec. 31, 2020 (a) (c)
Level 3 Instruments Only In millions	Fair Value Dec. 31, 2019		Included in Earnings		Included in Other comprehensive income (b)			Purchases		Sales		Issuances		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value Dec. 31, 2020
Assets
Residential mortgage loans held for sale	$	2	$	(1)				$	124	$	(13)			$	(21)		$	93	$	(21)	(e)	$	163	$	(1)
Commercial mortgage loans held for sale	64		(2)											(5)								57		(2)
Securities available for sale
Residential mortgage- backed non-agency	1,741		53			$	(75)							(354)								1,365
Commercial mortgage- backed non-agency						(8)											19					11
Asset-backed	240		6			(7)								(40)								199
Other	74		1			(4)		4						(3)								72
Total securities available for sale	2,055		60			(94)		4						(397)			19					1,647
Loans	300		28					161		(39)				280		(d)			(83)		(e)	647		28
Equity investments	1,276		(63)					229		(179)												1,263		(69)
Residential mortgage servicing rights	995		(377)					208				$	45	(198)								673		(377)
Commercial mortgage servicing rights	649		(109)					44				100		(115)								569		(109)

Financial derivatives	54		209					11						(156)								118		229

Total assets	$	5,395	$	(255)		$	(94)	$	781	$	(231)	$	145	$	(612)		$	112	$	(104)		$	5,137	$	(301)
Liabilities
Other borrowed funds	$	7										$	28	$	(33)							$	2
Financial derivatives	200		$	189						$	4			(120)								273		$	186
Other liabilities	137		17									96		(207)								43		1
Total liabilities	$	344	$	206						$	4	$	124	$	(360)							$	318	$	187
Net gains (losses)			$	(461)	(f)																			$	(488)	(g)

(a)Losses for assets are bracketed while losses for liabilities are not.

(b)The difference in unrealized gains and losses for the period included in Other comprehensive income and changes in unrealized gains and losses for the period included in Other comprehensive income for securities available for sale held at the end of the reporting period were insignificant.

(c)The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period.

(d)Upon adoption of ASU 2016-13 - Credit Losses, we discontinued the accounting for purchased impaired loans and elected the one-time fair value option election for some of these loans and certain nonperforming loans.

(e)Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment.

(f)Net gains (losses) realized and unrealized included in earnings related to Level 3 assets and liabilities included amortization and accretion. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net gains (losses) realized and unrealized were included in Noninterest income on the Consolidated Income Statement.

(g)Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in Noninterest income on the Consolidated Income Statement.

An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 151

Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities follows:

Table 87: Fair Value Measurements – Recurring Quantitative Information

December 31, 2021


Level 3 Instruments Only Dollars in millions	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted-Average) (a)
Commercial mortgage loans held for sale	$	49	Discounted cash flow	Spread over the benchmark curve (b)	555bps - 15,990bps (9,996bps)
Residential mortgage-backed non-agency securities	1,097		Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 30.7% (11.3%)
Constant default rate	0.0% - 16.9% (4.6%)
Loss severity	20.0% - 96.4% (47.6%)
Spread over the benchmark curve (b)	163bps weighted-average
Asset-backed securities	163		Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 40.0% (11.1%)
Constant default rate	1.4% - 20.0% (3.2%)
Loss severity	8.0% - 100.0% (57.4%)
Spread over the benchmark curve (b)	182bps weighted-average
Loans - Residential real estate	622		Consensus pricing (c)	Cumulative default rate	3.6% - 100.0% (74.2%)
Loss severity	0.0% - 100.0% (6.9%)
Discount rate	4.8% - 6.8% (5.2%)
Loans - Residential real estate	109		Discounted cash flow	Loss severity	6.0% weighted-average
Discount rate	3.5% weighted-average
Loans - Home equity	28		Consensus pricing (c)	Cumulative default rate	3.6% - 100.0% (75.8%)
Loss severity	0.0% - 98.4% (17.7%)
Discount rate	4.8% - 6.8% (6.0%)
Loans - Home equity	125		Consensus pricing (c)	Credit and liquidity discount	0.5% - 100.0% (47.3%)
Equity investments	1,680		Multiple of adjusted earnings	Multiple of earnings	5.0x - 14.4x (8.8x)
Residential mortgage servicing rights	1,078		Discounted cash flow	Constant prepayment rate	0.0% - 41.0% (12.6%)
Spread over the benchmark curve (b)	249bps - 2,218bps (857bps)
Commercial mortgage servicing rights	740		Discounted cash flow	Constant prepayment rate	5.0% - 15.5% (5.5%)
Discount rate	5.4% - 8.0% (7.8%)
Financial derivatives - Swaps related to sales of certain Visa Class B common shares	(277)		Discounted cash flow	Estimated conversion factor of Visa Class B shares into Class A shares	161.8% weighted-average
Estimated annual growth rate of Visa Class A share price	16.0%
Estimated length of litigation resolution date	Q2 2023
Insignificant Level 3 assets, net of liabilities (d)	5
Total Level 3 assets, net of liabilities (e)	$	5,419

152 The PNC Financial Services Group, Inc. – 2021 Form 10-K

December 31, 2020


Level 3 Instruments Only Dollars in millions	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted-Average) (a)
Commercial mortgage loans held for sale	$	57	Discounted cash flow	Spread over the benchmark curve (b)	630bps - 5,275bps (3,406bps)
Residential mortgage-backed non-agency securities	1,365		Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 37.6% (8.6%)
Constant default rate	0.0% - 12.2% (4.7%)
Loss severity	25.0% - 95.7% (48.8%)
Spread over the benchmark curve (b)	242bps weighted-average
Asset-backed securities	199		Priced by a third-party vendor using a discounted cash flow pricing model	Constant prepayment rate	1.0% - 22.0% (7.4%)
Constant default rate	1.0% - 6.0% (3.3%)
Loss severity	30.0% - 100.0% (58.1%)
Spread over the benchmark curve (b)	291bps weighted-average
Loans - Residential real estate	434		Consensus pricing (c)	Cumulative default rate	3.6% - 100.0% (82.1%)
Loss severity	0.0% - 100.0% (11.2%)
Discount rate	4.8% - 6.8% (5.1%)
Loans - Residential real estate	132		Discounted cash flow	Loss severity	8.0% weighted-average
				Discount rate	3.2% weighted-average
Loans - Home equity	21		Consensus pricing (c)	Cumulative default rate	3.6% - 100.0% (88.5%)
			Loss severity	0.0% - 98.4% (33.3%)
			Discount rate	4.8% - 6.8% (6.3%)
Loans - Home equity	60		Consensus pricing (c)	Credit and liquidity discount	17.5% - 97.0% (57.7%)
Equity investments	1,263		Multiple of adjusted earnings	Multiple of earnings	5.0x - 15.9x (8.7x)
Residential mortgage servicing rights	673		Discounted cash flow	Constant prepayment rate	0.0% - 77.5% (21.1%)
				Spread over the benchmark curve (b)	325bps - 2,783bps (922bps)
Commercial mortgage servicing rights	569		Discounted cash flow	Constant prepayment rate	4.0% - 16.1% (4.9%)
				Discount rate	4.7% - 7.8% (7.3%)


Financial derivatives - Swaps related to sales of certain Visa Class B common shares	(252)		Discounted cash flow	Estimated conversion factor of Visa Class B shares into Class A shares	162.3% weighted-average
			Estimated annual growth rate of Visa Class A share price	16.0%
			Estimated length of litigation resolution date	Q2 2022
Insignificant Level 3 assets, net of liabilities (d)	298
Total Level 3 assets, net of liabilities (e)	$	4,819

(a)Unobservable inputs were weighted by the relative fair value of the instruments.

(b)The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporate non-interest rate risks, such as credit and liquidity risks.

(c)Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices.

(d)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities.

(e)Consisted of total Level 3 assets of $5.9 billion and total Level 3 liabilities of $0.5 billion as of December 31, 2021 and $5.1 billion and $0.3 billion as of December 31, 2020, respectively.

Financial Assets Accounted for at Fair Value on a Nonrecurring Basis

We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 88.

Nonaccrual Loans

The carrying value of nonaccrual loans represents the fair value of those loans which have been adjusted due to impairment. The impairment is primarily based on the appraised value of the collateral.

Appraisals are obtained by licensed or certified appraisers at least annually and more recently in certain instances. All third-party appraisals are reviewed and any adjustments to the initial appraisal are incorporated into the final issued appraisal report. In instances where an appraisal is not obtained, collateral value is determined consistent with external third-party appraisal standards by an internal person independent of the asset manager.

OREO and Foreclosed Assets

The carrying value of OREO and foreclosed assets includes valuation adjustments recorded subsequent to the transfer to OREO and foreclosed assets. These valuation adjustments are based on the fair value less cost to sell of the property. Fair value is based on appraised value or sales price and the appraisal process for OREO and foreclosed assets is the same as described above for nonaccrual loans.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 153

Long-Lived Assets

Long-lived assets consists of buildings for which valuation adjustments were recorded during the period. A facility classified as held for use is impaired to the extent its carrying value is not recoverable and exceeds fair value. Valuation adjustments on buildings held for sale are based on the fair value of the property less an estimated cost to sell and are recorded subsequent to the transfer of the asset to held for sale status. Fair value is determined either by a third-party appraisal, recent sales offer, changes in market or property conditions, or, where we have agreed to sell the building to a third party, the contractual sales price. Impairment on these long-lived assets is recorded in Other noninterest expense on our Consolidated Income Statement.

Assets measured at fair value on a nonrecurring basis follow:

Table 88: Fair Value Measurements – Nonrecurring (a) (b) (c)


Year ended December 31 In millions	Fair Value				Gains (Losses)
2021	2020				2021			2020			2019
Assets
Nonaccrual loans	$	348	$	332		$	(4)		$	(111)		$	(76)
OREO and foreclosed assets	6		18						(2)			(5)
Long-lived assets	103		20			(45)			(27)			(3)

Total assets	$	457	$	370		$	(49)		$	(140)		$	(84)

(a)All Level 3 for the periods presented.

(b)Valuation techniques applied were fair value of property or collateral.

(c)Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented.

Financial Instruments Accounted for under Fair Value Option

We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, refer to the Fair Value Measurement section of this Note 15. These financial instruments are initially measured at fair value. Gains and losses from initial measurement and any changes in fair value are subsequently recognized in earnings.

Interest income related to changes in the fair values of these financial instruments is recorded on the Consolidated Income Statement in Other interest income, except for certain Residential mortgage loans, for which income is also recorded in Loan interest income. Changes in the value on prepaid forward contracts included in Other assets is reported in Noninterest expense and interest expense on the Other borrowed funds is reported in Borrowed funds interest expense.

154 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Fair values and aggregate unpaid principal balances of items for which we elected the fair value option follow:

Table 89: Fair Value Option – Fair Value and Principal Balances


	December 31, 2021				December 31, 2020
In millions	Fair Value		Aggregate Unpaid Principal Balance		Difference		Fair Value		Aggregate Unpaid Principal Balance		Difference
Assets
Residential mortgage loans held for sale
Accruing loans less than 90 days past due	$	1,249	$	1,219	$	30	$	831	$	793	$	38
Accruing loans 90 days or more past due	6		6				4		4
Nonaccrual loans	47		57		(10)		20		24		(4)
Total	$	1,302	$	1,282	$	20	$	855	$	821	$	34
Commercial mortgage loans held for sale (a)
Accruing loans less than 90 days past due	$	575	$	580	$	(5)	$	357	$	370	$	(13)
Nonaccrual loans							5		6		(1)
Total	$	575	$	580	$	(5)	$	362	$	376	$	(14)
Loans
Accruing loans less than 90 days past due	$	487	$	498	$	(11)	$	519	$	530	$	(11)
Accruing loans 90 days or more past due	262		278		(16)		283		295		(12)
Nonaccrual loans	752		1,028		(276)		563		820		(257)
Total	$	1,501	$	1,804	$	(303)	$	1,365	$	1,645	$	(280)
Other assets	$	105	$	107	$	(2)	$	81	$	69	$	12
Liabilities
Other borrowed funds	$	30	$	30			$	32	$	33	$	(1)

(a)There were no accruing loans 90 days or more past due within this category at December 31, 2021 or December 31, 2020.

The changes in fair value for items for which we elected the fair value option are as follows:

Table 90: Fair Value Option – Changes in Fair Value (a)


Year ended December 31 In millions	Gains (Losses)
2021			2020			2019
Assets
Residential mortgage loans held for sale	$	152		$	198		$	84
Commercial mortgage loans held for sale	$	115		$	128		$	61
Loans	$	80		$	44		$	23
Other assets	$	28		$	(3)		$	40

(a)The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.

Additional Fair Value Information Related to Financial Instruments Not Recorded at Fair Value

This section presents fair value information for all other financial instruments that are not recorded on the Consolidated Balance Sheet at fair value. We used the following methods and assumptions to estimate the fair value amounts for these financial instruments.

Cash and Due from Banks and Interest-earning Deposits with Banks

Due to their short-term nature, the carrying amounts for Cash and due from banks and Interest-earning deposits with banks reported on our Consolidated Balance Sheet approximate fair value.

Securities Held to Maturity

We primarily use prices obtained from pricing services, dealer quotes or recent trades to determine the fair value of securities. Refer to the Fair Value Measurement section of this Note 15 for additional information relating to our pricing processes and procedures.

Net Loans

Fair values are estimated based on the discounted value of expected net cash flows incorporating assumptions about prepayment rates, net credit losses and servicing fees. Nonaccrual loans are valued at their estimated recovery value. Loans are presented net of the ALLL.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 155

Other Assets

The carrying value of Other assets, which include accrued interest receivable, cash collateral, federal funds sold and resale agreements, certain loans held for sale, and FHLB and FRB stock, approximates fair value. The aggregate carrying value of our FHLB and FRB stock was $1.3 billion and $1.1 billion at December 31, 2021 and 2020, respectively.

Deposits

For time deposits, fair values are estimated by discounting contractual cash flows using current market rates for instruments with similar maturities. For deposits with no defined maturity, such as noninterest-bearing and interest-bearing demand and interest-bearing money market and savings deposits, carrying values approximate fair values.

Borrowed Funds

For short-term borrowed funds, including federal funds purchased, commercial paper, repurchase agreements and certain other short-term borrowings and payables, carrying value approximates fair value. For long-term borrowed funds, quoted market prices are used, when available, to estimate fair value. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar terms and maturities.

Unfunded Lending Related Commitments and Letters of Credit

The fair value of unfunded lending related commitments and letters of credit is determined from a market participant’s view including the impact of changes in interest rates and credit. We establish a liability on these facilities related to the creditworthiness of our counterparty.

Other Liabilities

Other liabilities includes interest-bearing cash collateral held related to derivatives and other accrued liabilities. Due to its short-term nature, the carrying value of Other liabilities reported on our Consolidated Balance Sheet approximates fair value.

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of these financial instruments as of December 31, 2021 and 2020 are as follows:

156 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Table 91: Additional Fair Value Information Related to Other Financial Instruments


In millions	Carrying Amount			Fair Value
Total			Level 1			Level 2			Level 3
December 31, 2021
Assets
Cash and due from banks	$	8,004		$	8,004		$	8,004
Interest-earning deposits with banks	74,250			74,250						$	74,250
Securities held to maturity	1,429			1,522			890			456		$	176
Net loans (excludes leases)	275,874			280,498								280,498
Other assets	4,205			4,204						4,141		63
Total assets	$	363,762		$	368,478		$	8,894		$	78,847	$	280,737
Liabilities
Time deposits	$	17,366		$	17,180					$	17,180
Borrowed funds	30,011			30,616						28,936		$	1,680
Unfunded lending related commitments	662			662								662
Other liabilities	449			449						449
Total liabilities	$	48,488		$	48,907					$	46,565	$	2,342
December 31, 2020
Assets
Cash and due from banks	$	7,017		$	7,017		$	7,017
Interest-earning deposits with banks	85,173			85,173						$	85,173
Securities held to maturity	1,445			1,604			920			489		$	195
Net loans (excludes leases)	228,788			233,688								233,688
Other assets	3,601			3,600						3,559		41
Total assets	$	326,024		$	331,082		$	7,937		$	89,221	$	233,924
Liabilities
Time deposits	$	19,692		$	19,662					$	19,662
Borrowed funds	36,488			37,192						35,571		$	1,621
Unfunded lending related commitments	584			584								584
Other liabilities	413			413						413
Total liabilities	$	57,177		$	57,851					$	55,646	$	2,205

The aggregate fair values in Table 91 represent only a portion of the total market value of our assets and liabilities as, in accordance with the guidance related to fair values about financial instruments, we exclude the following:

financial instruments recorded at fair value on a recurring basis (as they are disclosed in Table 85),
investments accounted for under the equity method,
equity securities without a readily determinable fair value that apply for the alternative measurement approach to fair value under ASU 2016-01,
real and personal property,
lease financing,
loan customer relationships,
deposit customer intangibles,
mortgage servicing rights (MSRs),
retail branch networks,
fee-based businesses, such as asset management and brokerage,
trademarks and brand names,
trade receivables and payables due in one year or less,
deposit liabilities with no defined or contractual maturities under ASU 2016-01, and
insurance contracts.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 157

N****OTE 16 F****INANCIAL D****ERIVATIVES

We use a variety of financial derivatives to both mitigate exposure to market (primarily interest rate) and credit risks inherent in our business activities, as well as to facilitate customer risk management activities. We manage these risks as part of our overall asset and liability management process and through our credit policies and procedures. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.

Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged and it is not recorded on the balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate, security price, credit spread or other index. Residential and commercial real estate loan commitments associated with loans to be sold also qualify as derivative instruments.

The following table presents the notional and gross fair value amounts of all derivative assets and liabilities held by us:

Table 92: Total Gross Derivatives (a)


	December 31, 2021						December 31, 2020
In millions	Notional /Contract Amount		Asset Fair Value (b)		Liability Fair Value (c)		Notional /Contract Amount		Asset Fair Value (b)		Liability Fair Value (c)
Derivatives used for hedging
Interest rate contracts (d):
Fair value hedges	$	23,345					$	24,153
Cash flow hedges	48,961		$	15	$	14	22,875		$	14
Foreign exchange contracts:
Net investment hedges	1,113				24		1,075				$	22
Total derivatives designated for hedging	$	73,419	$	15	$	38	$	48,103	$	14	$	22
Derivatives not used for hedging
Derivatives used for mortgage banking activities (e):
Interest rate contracts:
Swaps	$	35,623					$	50,511
Futures (f)	4,592						2,841
Mortgage-backed commitments	9,917		$	55	$	31	11,288		$	147	$	77
Other	12,225		46		12		1,831		11		2
Total interest rate contracts	62,357		101		43		66,471		158		79
Derivatives used for customer-related activities:
Interest rate contracts:
Swaps	297,711		3,335		1,520		280,125		5,475		1,601
Futures (f)	907						1,235
Mortgage-backed commitments	4,147		5		6		4,178		11		14
Other	25,718		125		72		20,125		193		88
Total interest rate contracts	328,483		3,465		1,598		305,663		5,679		1,703
Commodity contracts:
Swaps	8,840		1,150		1,161		6,149		350		323
Other	3,128		213		212		2,770		61		61
Total commodity contracts	11,968		1,363		1,373		8,919		411		384
Foreign exchange contracts and other	27,563		199		179		26,620		267		243
Total derivatives for customer-related activities	368,014		5,027		3,150		341,202		6,357		2,330
Derivatives used for other risk management activities:
Foreign exchange contracts and other	11,512		9		339		10,931		4		325
Total derivatives not designated for hedging	$	441,883	$	5,137	$	3,532	$	418,604	$	6,519	$	2,734
Total gross derivatives	$	515,302	$	5,152	$	3,570	$	466,707	$	6,533	$	2,756
Less: Impact of legally enforceable master netting agreements			928		928				720		720
Less: Cash collateral received/paid			604		1,657				1,434		1,452
Total derivatives			$	3,620	$	985			$	4,379	$	584

(a)Centrally cleared derivatives are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.

(b)Included in Other assets on our Consolidated Balance Sheet.

(c)Included in Other liabilities on our Consolidated Balance Sheet.

(d)Represents primarily swaps.

(e)Includes both residential and commercial mortgage banking activities.

(f)Futures contracts are settled in cash daily and result in no derivative asset or derivative liability being recognized on our Consolidated Balance Sheet.

158 The PNC Financial Services Group, Inc. – 2021 Form 10-K

All derivatives are carried on our Consolidated Balance Sheet at fair value. Derivative balances are presented on the Consolidated Balance Sheet on a net basis taking into consideration the effects of legally enforceable master netting agreements and, when appropriate, any related cash collateral exchanged with counterparties. Further discussion regarding the offsetting rights associated with these legally enforceable master netting agreements is included in the Offsetting and Counterparty Credit Risk section of this Note 16. Any nonperformance risk, including credit risk, is included in the determination of the estimated net fair value of the derivatives. Further discussion on how derivatives are accounted for is included in Note 1 Accounting Policies.

Derivatives Designated As Hedging Instruments

Certain derivatives used to manage interest rate and foreign exchange risk as part of our asset and liability risk management activities are designated as accounting hedges. Derivatives hedging the risks associated with changes in the fair value of assets or liabilities are considered fair value hedges, derivatives hedging the variability of expected future cash flows are considered cash flow hedges, and derivatives hedging a net investment in a foreign subsidiary are considered net investment hedges. Designating derivatives as accounting hedges allows for gains and losses on those derivatives to be recognized in the same period and in the same income statement line item as the earnings impact of the hedged items.

Fair Value Hedges

We enter into receive-fixed, pay-variable interest rate swaps to hedge changes in the fair value of outstanding fixed-rate debt caused by fluctuations in market interest rates. We also enter into pay-fixed, receive-variable interest rate swaps and zero-coupon swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. Gains and losses on the interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item.

Cash Flow Hedges

We enter into receive-fixed, pay-variable interest rate swaps and interest rate caps and floors to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to market interest rate changes. We also periodically enter into forward purchase and sale contracts to hedge the variability of the consideration that will be paid or received related to the purchase or sale of investment securities. The forecasted purchase or sale is consummated upon gross settlement of the forward contract itself. For these cash flow hedges, gains and losses on the hedging instruments are recorded in AOCI and are then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line as the hedged cash flows.

In the 12 months that follow December 31, 2021, we expect to reclassify net derivative gains of $187 million pretax, or $144 million after-tax, from AOCI to interest income for these cash flow hedge strategies. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to December 31, 2021. As of December 31, 2021, the maximum length of time over which forecasted transactions are hedged is ten years.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 159

Further detail regarding gains (losses) related to our fair value and cash flow hedge derivatives is presented in the following table:

Table 93: Gains (Losses) Recognized on Fair Value and Cash Flow Hedges in the Consolidated Income Statement (a) (b)


	Location and Amount of Gains (Losses) Recognized in Income
	Interest Income				Interest Expense		Noninterest Income
In millions	Loans		Investment Securities		Borrowed Funds		Other
Year ended December 31, 2021
Total amounts on the Consolidated Income Statement	$	9,007	$	1,834	$	361	$	1,840
Gains (losses) on fair value hedges recognized on:
Hedged items (c)			$	(5)	$	937
Derivatives			$	9	$	(993)
Amounts related to interest settlements on derivatives			$	(4)	$	521
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	376	$	57			$	61
Year ended December 31, 2020
Total amounts on the Consolidated Income Statement	$	8,927	$	2,041	$	718	$	1,364
Gains (losses) on fair value hedges recognized on:
Hedged items (c)			$	208	$	(1,059)
Derivatives			$	(202)	$	959
Amounts related to interest settlements on derivatives			$	(9)	$	480
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	375	$	40			$	6
Year ended December 31, 2019
Total amounts on the Consolidated Income Statement	$	10,525	$	2,426	$	1,811	$	1,473
Gains (losses) on fair value hedges recognized on:
Hedged items (c)			$	187	$	(808)
Derivatives			$	(178)	$	659
Amounts related to interest settlements on derivatives			$	13	$	79
Gains (losses) on cash flow hedges (d):
Amount of derivative gains (losses) reclassified from AOCI	$	9	$	9			$	19

(a)For all periods presented, there were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the fair value or cash flow hedge strategies.

(b)All cash flow and fair value hedge derivatives were interest rate contracts for the periods presented.

(c)Includes an insignificant amount of fair value hedge adjustments related to discontinued hedge relationships.

(d)For all periods presented, there were no gains or losses from cash flow hedge derivatives reclassified to income because it became probable that the original forecasted transaction would not occur.

Detail regarding the impact of fair value hedge accounting on the carrying value of the hedged items is presented in the following table:

Table 94: Hedged Items - Fair Value Hedges


	December 31, 2021				December 31, 2020
In millions	Carrying Value of the Hedged Items		Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)		Carrying Value of the Hedged Items		Cumulative Fair Value Hedge Adjustment included in the Carrying Value of Hedged Items (a)
Investment securities - available for sale (b)	$	2,655	$	23	$	2,785	$	30
Borrowed funds	$	24,259	$	663	$	25,797	$	1,611

(a)Includes $(0.1) billion of fair value hedge adjustments primarily related to discontinued borrowed funds hedge relationships at both December 31, 2021 and 2020.

(b)Carrying value shown represents amortized cost.

Net Investment Hedges

We enter into foreign currency forward contracts to hedge non-U.S. dollar net investments in foreign subsidiaries against adverse changes in foreign exchange rates. We assess whether the hedging relationship is highly effective in achieving offsetting changes in the value of the hedge and hedged item by qualitatively verifying that the critical terms of the hedge and hedged item match at the inception of the hedging relationship and on an ongoing basis. Net investment hedge derivatives are classified as foreign exchange contracts. There were no components of derivative gains or losses excluded from the assessment of the hedge effectiveness for all periods presented.

160 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Derivatives Not Designated As Hedging Instruments

Residential mortgage loans that will be sold in the secondary market, and the related loan commitments, which are considered derivatives, are accounted for at fair value. Changes in the fair value of the loans and commitments due to interest rate risk are hedged with forward contracts to sell mortgage-backed securities, as well as U.S. Treasury and Eurodollar futures and options. Gains and losses on the loans and commitments held for sale and the derivatives used to economically hedge them are included in Residential mortgage noninterest income on the Consolidated Income Statement.

Residential mortgage servicing rights are accounted for at fair value with changes in fair value influenced primarily by changes in interest rates. Derivatives used to hedge the fair value of residential mortgage servicing rights include interest rate futures, swaps, options, and forward contracts to purchase mortgage-backed securities. Gains and losses on residential mortgage servicing rights and the related derivatives used for hedging are included in Residential mortgage noninterest income.

Commercial mortgage loans held for sale and the related loan commitments, which are considered derivatives, are accounted for at fair value. Derivatives used to economically hedge these loans and commitments from changes in fair value due to interest rate risk include forward loan sale contracts and interest rate swaps. Gains and losses on the commitments, loans and derivatives are included in Other noninterest income. Derivatives used to economically hedge the change in value of commercial mortgage servicing rights include interest rate futures, swaps and options. Gains or losses on these derivatives are included in Corporate services noninterest income.

The residential and commercial mortgage loan commitments associated with loans to be sold which are accounted for as derivatives are valued based on the estimated fair value of the underlying loan and the probability that the loan will fund within the terms of the commitment. The fair value also takes into account the fair value of the embedded servicing right.

We offer derivatives to our customers in connection with their risk management needs. These derivatives primarily consist of interest rate swaps, interest rate caps and floors, swaptions and foreign exchange contracts. We primarily manage our market risk exposure from customer transactions by entering into a variety of hedging transactions with third-party dealers. Gains and losses on customer-related derivatives are included in Other noninterest income.

Included in the customer, mortgage banking risk management, and other risk management portfolios are written interest-rate caps and floors entered into with customers and for risk management purposes. We receive an upfront premium from the counterparty and are obligated to make payments to the counterparty if the underlying market interest rate rises above or falls below a certain level designated in the contract. Our ultimate obligation under written options is based on future market conditions.

We have entered into risk participation agreements to share some of the credit exposure with other counterparties related to interest rate derivative contracts or to take on credit exposure to generate revenue. The following table presents the notional amount of risk participation agreements sold and maximum potential exposures at December 31, 2021 and 2020.

Table 95: Risk Participation Agreements


	Year ended December 31
In billions	2021		2020
Risk participation agreements:
Sold - notional amount	$	8.0	$	7.0
Maximum potential amount of exposure (a)	$	0.3	$	0.5

(a)Based on the fair value of the underlying swaps assuming all underlying third party customers referenced in the swap contracts defaulted.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 161

Further detail regarding the gains (losses) on derivatives not designated in hedging relationships is presented in the following table:

Table 96: Gains (Losses) on Derivatives Not Designated for Hedging


	Year ended December 31
In millions	2021		2020		2019
Derivatives used for mortgage banking activities:
Interest rate contracts (a)	$	(78)	$	792	$	405
Derivatives used for customer-related activities:
Interest rate contracts	149		210		125
Foreign exchange contracts and other	135		156		114
Gains (losses) from customer-related activities (b)	284		366		239
Derivatives used for other risk management activities:
Foreign exchange contracts and other (b)	(30)		(338)		(137)
Total gains (losses) from derivatives not designated as hedging instruments	$	176	$	820	$	507

(a)Included in Residential mortgage, Corporate services and Other noninterest income on our Consolidated Income Statement.

(b)Included in Other noninterest income on our Consolidated Income Statement.

Offsetting and Counterparty Credit Risk

We generally utilize a net presentation on the Consolidated Balance Sheet for those derivative financial instruments entered into with counterparties under legally enforceable master netting agreements. The master netting agreements reduce credit risk by permitting the closeout netting of all outstanding derivative instruments under the master netting agreement with the same counterparty upon the occurrence of an event of default. The master netting agreement also may require the exchange of cash or marketable securities to collateralize either party’s net position. Collateral is typically exchanged daily on unsettled positions based on the net fair value of the positions with the counterparty as of the preceding day. Collateral representing initial margin, which is based on potential future exposure, may also be required to be exchanged. In certain cases, minimum thresholds must be exceeded before any collateral is exchanged. Any cash collateral exchanged with counterparties under these master netting agreements is also netted, when appropriate, against the applicable derivative fair values on the Consolidated Balance Sheet. However, the fair value of any securities held or pledged is not included in the net presentation on the balance sheet. In order for derivative instruments under a master netting agreement to be eligible for closeout netting under GAAP, we must conduct sufficient legal review to conclude with a well-founded basis that the offsetting rights included in the master netting agreement would be legally enforceable upon an event of default, including upon an event of bankruptcy, insolvency, or a similar proceeding of the counterparty. Enforceability is evidenced by a legal opinion that supports, with sufficient confidence, the enforceability of the master netting agreement in such circumstances.

Table 97 shows the impact legally enforceable master netting agreements had on our derivative assets and derivative liabilities as of December 31, 2021 and 2020. The table includes cash collateral held or pledged under legally enforceable master netting agreements. The table also includes the fair value of any securities collateral held or pledged under legally enforceable master netting agreements. Cash and securities collateral amounts are included in the table only to the extent of the related net derivative fair values.

Table 97 includes OTC derivatives and OTC derivatives cleared through a central clearing house. OTC derivatives represent contracts executed bilaterally with counterparties that are not settled through an organized exchange or directly cleared through a central clearing house. The majority of OTC derivatives are governed by the ISDA documentation or other legally enforceable master netting agreements. OTC cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to a central clearing house who then becomes our counterparty. OTC cleared derivative instruments are typically settled in cash each day based on the prior day value.

162 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Table 97: Derivative Assets and Liabilities Offsetting


In millions	Gross Fair Value			Amounts Offset on the Consolidated Balance Sheet				Net Fair Value			Securities Collateral Held /Pledged Under Master Netting Agreements		Net Amounts
Fair Value Offset Amount			Cash Collateral
December 31, 2021
Derivative assets
Interest rate contracts:
Over-the-counter cleared	$	20						$	20				$	20

Over-the-counter	3,561			$	533	$	593	2,435			$	300	2,135
Commodity contracts	1,363			299		1		1,063					1,063
Foreign exchange and other contracts	208			96		10		102					102
Total derivative assets	$	5,152		$	928	$	604	$	3,620	(a)	$	300	$	3,320
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared	$	12						$	12				$	12

Over-the-counter	1,643			$	569	$	776	298					298
Commodity contracts	1,373			291		784		298					298
Foreign exchange and other contracts	542			68		97		377					377
Total derivative liabilities	$	3,570		$	928	$	1,657	$	985	(b)			$	985
December 31, 2020
Derivative assets
Interest rate contracts:
Over-the-counter cleared	$	48						$	48				$	48

Over-the-counter	5,803			$	430	$	1,426	3,947			$	531	3,416
Commodity contracts	411			209		4		198					198
Foreign exchange and other contracts	271			81		4		186			1		185
Total derivative assets	$	6,533		$	720	$	1,434	$	4,379	(a)	$	532	$	3,847
Derivative liabilities
Interest rate contracts:
Over-the-counter cleared	$	42						$	42				$	42
Over-the-counter	1,740			$	462	$	1,179	99					99

Commodity contracts	384			182		103		99					99
Foreign exchange and other contracts	590			76		170		344					344
Total derivative liabilities	$	2,756		$	720	$	1,452	$	584	(b)			$	584

(a)Represents the net amount of derivative assets included in Other assets on our Consolidated Balance Sheet.

(b)Represents the net amount of derivative liabilities included in Other liabilities on our Consolidated Balance Sheet.

In addition to using master netting agreements and other collateral agreements to reduce credit risk associated with derivative instruments, we also seek to manage credit risk by evaluating credit ratings of counterparties and by using internal credit analysis, limits, and monitoring procedures.

At December 31, 2021, cash and debt securities (primarily agency mortgage-backed securities) totaling $1.4 billion were pledged to us under master netting agreements and other collateral agreements to collateralize net derivative assets due from counterparties and to meet initial margin requirements, and we pledged cash and debt securities (primarily agency mortgage-backed securities) totaling $2.5 billion under these agreements to collateralize net derivative liabilities owed to counterparties and to meet initial margin requirements. These totals may differ from the amounts presented in the preceding offsetting table because these totals may include collateral exchanged under an agreement that does not qualify as a master netting agreement or because the total amount of collateral pledged exceeds the net derivative fair values with the counterparty as of the balance sheet date due to timing or other factors, such as initial margin. To the extent not netted against the derivative fair values under a master netting agreement, the receivable for cash pledged is included in Other assets and the obligation for cash held is included in Other liabilities on our Consolidated Balance Sheet. Securities pledged to us by counterparties are not recognized on our balance sheet. Likewise, securities we have pledged to counterparties remain on our balance sheet.

Credit-Risk Contingent Features

Certain derivative agreements contain various credit-risk-related contingent provisions, such as those that require our debt to maintain a specified credit rating from one or more of the major credit rating agencies. If our debt ratings were to fall below such specified ratings, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions. The following table presents the aggregate fair value of derivative

The PNC Financial Services Group, Inc. – 2021 Form 10-K 163

instruments with credit-risk-related contingent features, the associated collateral posted in the normal course of business and the maximum amount of collateral we would be required to post if the credit-risk-related contingent features underlying these agreements had been triggered on December 31, 2021 and 2020.

Table 98: Credit-Risk Contingent Features


	Year ended December 31
In billions	2021		2020
Net derivative liabilities with credit-risk contingent features	$	2.4	$	1.6
Collateral posted	1.8		1.4
Maximum additional amount of collateral exposure	$	0.6	$	0.2

N****OTE 17 E****MPLOYEE B****ENEFIT P****LANS

Pension and Postretirement Plans

We have a noncontributory, qualified defined benefit pension plan covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are a percentage of eligible compensation. Earnings credit percentages for those employees who were plan participants on December 31, 2009 are frozen at the level earned to that point. Earnings credits for all employees who became participants on or after January 1, 2010 are a flat 3% of eligible compensation. All participants as of December 31, 2009 earn a minimum rate on their cash balances; new participants on or after January 1, 2010 earn interest credits on their cash balances based on 30-year Treasury securities. New participants on or after January 1, 2010 are not subject to the minimum rate. The plan provides for a minimum annual earnings credit amount of $2,000, subject to eligibility criteria. Pension contributions to the plan are typically based on an actuarially determined amount necessary to fund total benefits payable to plan participants. Assets of the qualified pension plan are held in a separate Trust.

We also maintain nonqualified supplemental retirement plans for certain employees and provide certain health care and life insurance benefits for qualifying retired employees (postretirement benefits) through various plans. PNC reserves the right to terminate or make changes to these plans at any time. The nonqualified pension plan is unfunded. Contributions from PNC and, in the case of the postretirement benefit plans, participant contributions cover all benefits paid under the nonqualified pension plan and postretirement benefit plans. The postretirement plan provides benefits to certain retirees that are at least actuarially equivalent to those provided by Medicare Part D and accordingly, we receive a federal subsidy. PNC has established a VEBA to partially fund postretirement medical and life insurance benefit obligations.

We use a measurement date of December 31 for plan assets and benefit obligations. The qualified pension plan assets and benefit obligation were re-measured as of January 31, 2019 as a result of a plan amendment.

BBVA maintained a frozen and funded noncontributory qualified defined benefit pension plan, which was merged into the PNC qualified pension plan on October 31, 2021. The pension trusts were consolidated on December 1, 2021. In addition, we obtained various frozen, unfunded nonqualified supplemental retirement plans and postretirement benefit plans as part of the BBVA acquisition.

A reconciliation of the changes in the projected benefit obligation for qualified pension, nonqualified pension and postretirement benefit plans as well as the change in plan assets for the qualified pension and postretirement benefit plans follows:

164 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Table 99: Reconciliation of Changes in Projected Benefit Obligation and Change in Plan Assets


	Qualified Pension (a)				Nonqualified Pension				Postretirement Benefits
In millions	2021		2020		2021		2020		2021		2020
Accumulated benefit obligation at December 31	$	5,370	$	5,117	$	272	$	258
Projected benefit obligation at January 1	$	5,174	$	4,887	$	263	$	265	$	337	$	333
Service cost	133		122		4		3		4		4
Interest cost	139		160		6		8		8		11
Amendments	(4)
Actuarial (gains)/losses and changes in assumptions (a)	(88)		306		(4)		17		(11)		11
Participant contributions									3		3
Federal Medicare subsidy on benefits paid									1
Benefits paid	(320)		(301)		(21)		(30)		(25)		(25)
Projected benefit obligation from BBVA acquisition	389				32				9
Projected benefit obligation at December 31	$	5,423	$	5,174	$	280	$	263	$	326	$	337
Fair value of plan assets at January 1	$	6,073	$	5,654					$	262	$	247
Actual return on plan assets	670		720						2		14
Employer contribution					$	21	$	30	20		23
Participant contributions									3		3
Federal Medicare subsidy on benefits paid									1
Benefits paid	(320)		(301)		(21)		(30)		(25)		(25)
Fair value of plan assets from BBVA acquisition	365
Fair value of plan assets at December 31	$	6,788	$	6,073					$	263	$	262
Funded status	$	1,365	$	899	$	(280)	$	(263)	$	(63)	$	(75)
Amounts recognized on the consolidated balance sheet
Noncurrent asset	$	1,365	$	899
Current liability					$	(25)	$	(25)	$	(2)	$	(2)
Noncurrent liability					(255)		(238)		(61)		(73)
Net amount recognized on the consolidated balance sheet	$	1,365	$	899	$	(280)	$	(263)	$	(63)	$	(75)
Amounts recognized in AOCI consist of:
Prior service cost (credit)	$	17	$	25					$	1	$	2
Net actuarial loss (gain)	(186)		299		$	80	$	90	(2)		4
Amount of loss (gain) recognized in AOCI	$	(169)	$	324	$	80	$	90	$	(1)	$	6

(a)The actuarial (gains)/losses and changes in assumptions in 2021 and 2020 were primarily related to a change in the discount rate used to measure the projected benefit obligation.

PNC Pension Plan Assets

The long-term investment strategy for pension plan assets in our qualified pension plan (the Plan) is to:

Meet present and future benefit obligations to all participants and beneficiaries;
Cover reasonable expenses incurred to provide such benefits, including expenses incurred in the administration of the Trust and the Plan;
Provide sufficient liquidity to meet benefit and expense payment requirements on a timely basis; and
Provide a total return that, over the long term, maximizes the ratio of trust assets to liabilities by maximizing investment return, at an appropriate level of risk.

The Plan’s named investment fiduciary has the ability to make short to intermediate term asset allocation shifts under the dynamic asset allocation strategy based on factors such as the Plan’s funded status, the named investment fiduciary’s view of return on equities relative to long term expectations, the named investment fiduciary’s view on the direction of interest rates and credit spreads, and other relevant financial or economic factors which would be expected to impact the ability of the Trust to meet its obligation to participants and beneficiaries. Accordingly, the allowable asset allocation ranges have been updated to incorporate the flexibility required by the dynamic allocation policy.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 165

The asset strategy allocations for the Plan at the end of 2021 and 2020, and the target allocation range at the end of 2021, by asset category, are as follows.

Table 100: Asset Strategy Allocations


	Target Allocation Range	Percentage of Plan Assets by Strategy at December 31
		2021		2020
Asset Category
Domestic Equity	15 – 40%	20	%	23	%
International Equity	10 – 25%	17	%	18	%
Private Equity	0 – 15%	12	%	10	%
Total Equity	30 – 70%	49	%	51	%
Domestic Fixed Income	10 – 40%	28	%	25	%
High Yield Fixed Income	0 – 25%	7	%	8	%
Total Fixed Income	10 – 65%	35	%	33	%
Real estate	0 – 10%	5	%	5	%
Other	0 – 20%	11	%	11	%
Total	100%	100	%	100	%

The asset category represents the allocation of Plan assets in accordance with the investment objective of each of the Plan’s investment managers. Certain domestic equity investment managers utilize derivatives and fixed income securities as described in their Investment Management Agreements to achieve their investment objective under the Investment Policy Statement. Other investment managers may invest in eligible securities outside of their assigned asset category to meet their investment objectives. The actual percentage of the fair value of total Plan assets held as of December 31, 2021 for equity securities, fixed income securities, real estate and all other assets are 57%, 25%, 5% and 13%, respectively.

We believe that, over the long term, asset allocation is the single greatest determinant of risk. Asset allocation will deviate from the target percentages due to market movement, cash flows, investment manager performance and implementation of shifts under the dynamic asset allocation policy. Material deviations from the asset allocation targets can alter the expected return and risk of the Trust. However, frequent rebalancing of the asset allocation targets may result in significant transaction costs, which can impair the Trust’s ability to meet its investment objective. Accordingly, the Trust portfolio is periodically rebalanced to maintain asset allocation within the target ranges described above.

In addition to being diversified across asset classes, the Trust is diversified within each asset class. Secondary diversification provides a reasonable basis for the expectation that no single security or class of securities will have a disproportionate impact on the total risk and return of the Trust.

Where investment strategies permit the use of derivatives and/or currency management, language is incorporated in the managers’ guidelines to define allowable and prohibited transactions and/or strategies. Derivatives are typically employed by investment managers to modify risk/return characteristics of their portfolio(s), implement asset allocation changes in a cost effective manner, or reduce transaction costs. Under the managers’ investment guidelines, derivatives may not be used solely for speculation or leverage. Derivatives are to be used only in circumstances where they offer the most efficient economic means of improving the risk/reward profile of the portfolio.

166 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Fair Value Measurements

As further described in Note 15 Fair Value, GAAP establishes the framework for measuring fair value, including a hierarchy used to classify the inputs used in measuring fair value.

A description of the valuation methodologies used for assets measured at fair value at both December 31, 2021 and 2020 follows:

Table 101: Pension Plan Valuation Methodologies


Asset			Valuation Methodology
Money market funds			• Valued at the NAV of the shares held by the pension plan at year end.
U.S. government and agency securities Corporate debt Common stock			• Valued at the closing price reported on the active market on which the individual securities are traded. • If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Such securities are generally classified within Level 2 of the valuation hierarchy but may be a Level 3 depending on the level of liquidity and activity in the market for the security.
Mutual funds			• Valued based on third-party pricing of the fund which is not actively traded.
Other investments Derivative financial instruments Group annuity contracts Preferred stock			• Derivative financial instruments - recorded at estimated fair value as determined by third-party appraisals and pricing models. • Group annuity contracts - measured at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. • Preferred stock - Valued at the closing price reported on an active market on which the securities are traded.
Investments measured at NAV Collective trust fund investments Limited partnerships			• Collective trust fund investments - Valued based upon the units of such collective trust fund held by the Plan at year end multiplied by the respective unit value. The unit value of the collective trust fund is based upon significant observable inputs, although it is not based upon quoted prices in an active market. The underlying investments of the collective trust funds consist primarily of equity securities, debt obligations, short-term investments, and other marketable securities. Due to the nature of these securities, there are no unfunded commitments or redemption restrictions. • Limited partnerships - Valued by investment managers based on recent financial information used to estimate fair value. The unit value of limited partnerships is based upon significant observable inputs, although it is not based upon quoted marked prices in an active market.

These methods may result in fair value calculations that may not be indicative of net realizable values or future fair values. Furthermore, while the pension plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2021 and 2020.

Table 102: Pension Plan Assets - Fair Value Hierarchy


	December 31, 2021								December 31, 2020
In millions	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Interest bearing cash			$	11			$	11
Money market funds	$	725					725		$	572					$	572
U.S. government and agency securities	583		124				707		446		$	126			572
Corporate debt			962		$	4	966				730		$	3	733
Common stock	739				1		740		738				1		739
Mutual funds			278				278				290				290
Other			148				148		1		214				215
Investments measured at NAV (a)							3,213								2,952
Total	$	2,047	$	1,523	$	5	$	6,788	$	1,757	$	1,360	$	4	$	6,073

(a)Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 167

The following table provides information regarding our estimated future cash flows related to our various plans.

Table 103: Estimated Cash Flows


	Pension Plans				Postretirement Benefits
In millions	Qualified Pension		Nonqualified Pension
Estimated 2022 employer contributions			$	25	$	23
Estimated future benefit payments
2022	$	328	$	25	$	23
2023	$	339	$	25	$	23
2024	$	346	$	24	$	24
2025	$	351	$	24	$	23
2026	$	339	$	22	$	23
2027-2031	$	1,616	$	100	$	104

The qualified pension plan contributions are deposited into the Trust, and the qualified pension plan benefit payments are paid from the Trust. We do not expect to be required to make a contribution to the qualified plan for 2022 based on the funding calculations under the Pension Protection Act of 2006. For the other plans, total contributions and the benefit payments are the same and represent expected benefit amounts, which are paid from general assets. Postretirement benefits are net of participant contributions. Estimated cash flows reflect the partial funding of postretirement medical and life insurance obligations in the VEBA.

The components of net periodic benefit cost/(income) and other amounts recognized in OCI were as follows:

Table 104: Components of Net Periodic Benefit Cost (a)


	Qualified Pension Plan						Nonqualified Pension Plan						Postretirement Benefits
Year ended December 31 – in millions	2021		2020		2019		2021		2020		2019		2021		2020		2019
Net periodic cost consists of:
Service cost	$	133	$	122	$	115	$	4	$	3	$	3	$	4	$	4	$	4
Interest cost	139		160		186		6		8		10		8		11		13
Expected return on plan assets	(273)		(302)		(288)								(6)		(6)		(5)
Amortization of prior service cost/(credit)	4		4		4
Amortization of actuarial (gain)/loss					4		6		5		4
Net periodic cost (benefit)	$	3	$	(16)	$	21	$	16	$	16	$	17	$	6	$	9	$	12
Other changes in plan assets and benefit obligations recognized in OCI:
Current year prior service cost/(credit)	(4)				21
Amortization of prior service (cost)/credit	(4)		(4)		(4)
Current year actuarial loss/(gain)	(485)		(112)		(193)		(4)		17		25		(7)		3		9
Amortization of actuarial gain/(loss)					(4)		(6)		(5)		(4)
Total recognized in OCI	$	(493)	$	(116)	$	(180)	$	(10)	$	12	$	21	$	(7)	$	3	$	9
Total amounts recognized in net periodic cost and OCI	$	(490)	$	(132)	$	(159)	$	6	$	28	$	38	$	(1)	$	12	$	21

(a) The service cost component is included in Personnel expense on the Consolidated Income Statement. All other components are included in Other noninterest expense on the Consolidated Income Statement.

168 The PNC Financial Services Group, Inc. – 2021 Form 10-K

The weighted-average assumptions used (as of the beginning of each year) to determine the net periodic costs shown in Table 105 were as follows:

Table 105: Net Periodic Costs - Assumptions


	Net Periodic Cost Determination
As of January 1	2021		2020		2019
Discount rate (a)
Qualified pension (b)	2.60	%	3.30	%	4.30	%
Nonqualified pension	2.15	%	3.05	%	4.15	%
Postretirement benefits	2.40	%	3.20	%	4.20	%
Rate of compensation increase (average) (c)	4.25	%	4.25	%	3.50	%
Interest crediting rate (average)
Qualified Pension	3.70	%	3.85	%	3.95	%
Nonqualified pension	4.00	%	4.15	%	4.20	%
Postretirement benefits	1.30	%	2.05	%	3.05	%
Assumed health care cost trend rate (d)
Initial trend	6.00	%	6.25	%	6.50	%
Ultimate trend	5.00	%	5.00	%	5.00	%
Year ultimate trend reached	2025		2025		2025
Expected long-term return on plan assets (c) (e)	4.40	%	5.50	%	5.75	%

(a)The 2021 discount rate for each plan is a blended rate that is inclusive of the BBVA plans acquired during the year.

(b)The 2019 qualified pension discount rate was 4.15% at the time of remeasurement on January 31, 2019 as a result of a plan amendment.

(c)Rate disclosed is for the qualified pension plan.

(d)Rate is applicable only to the postretirement benefit plans.

(e)The 2021 rate is a blended rate that is inclusive of the BBVA plan assets acquired during the year.

The weighted-average assumptions used (as of the end of each year) to determine year end obligations for pension and postretirement benefits were as follows:

Table 106: Other Pension Assumptions


Year ended December 31	2021		2020
Discount rate
Qualified pension	2.90	%	2.55	%
Nonqualified pension	2.65	%	2.10	%
Postretirement benefits	2.80	%	2.40	%
Rate of compensation increase (average) (a)	4.25	%	4.25	%
Interest crediting rate (average)
Qualified pension	3.70	%	3.70	%
Nonqualified pension	4.00	%	4.00	%
Postretirement benefits	1.65	%	1.30	%
Assumed health care cost trend rate (b)
Initial trend	6.00	%	6.00	%
Ultimate trend	4.50	%	5.00	%
Year ultimate trend reached	2025		2025

(a)Rate disclosed is for the qualified pension plan.

(b)Rate is applicable only to the postretirement benefit plans.

The discount rates are determined independently for each plan by comparing the expected future benefits that will be paid under each plan with yields available on high quality corporate bonds of similar duration. For this analysis, 10% of bonds with the highest yields and 40% with the lowest yields were removed from the bond universe.

The expected return on plan assets is a long-term assumption established by considering historical and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes. For purposes of setting and reviewing this assumption, “long-term” refers to the period over which the plan’s projected benefit obligations will be disbursed. We review this assumption at each measurement date and adjust it if warranted. Our selection process references certain historical data and the current environment, but primarily utilizes qualitative judgment regarding future return expectations. We also examine the assumption used by other companies with similar pension investment strategies. Taking into account all of these factors, as well as the BBVA plan assets acquired during the year, the expected long-term return on merged plan assets for determining net periodic pension cost for 2021 was 4.40%. We are increasing our expected long-term return on assets to 4.50% for determining pension cost for 2022. This decision was made after considering the views of both internal and external capital market advisors, particularly with regard to the effects of the recent economic environment on long-term prospective equity and fixed income returns.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 169

With all other assumptions held constant, a 0.50% decline in the discount rate would have resulted in an immaterial change in net periodic benefit cost in 2021 and to be recognized in 2022 for each of the qualified pension, nonqualified pension and postretirement benefit plans.

Defined Contribution Plans

The ISP is a qualified defined contribution plan that covers all of our eligible employees. Newly-hired full time employees and part-time employees who are eligible to participate in the ISP are automatically enrolled in the ISP with a deferral rate equal to 4% of eligible compensation in the absence of an affirmative election otherwise. Employee benefits expense related to the ISP was $168 million in 2021, $147 million in 2020 and $139 million in 2019, representing cash contributed to the ISP by PNC.

The ISP is a 401(k) Plan and includes an employee stock ownership feature. Employee contributions are invested in a number of investment options, including pre-mixed portfolios and individual core funds, available under the ISP at the direction of the employee.

BBVA maintained a defined contribution plan, the BBVA USA SmartInvestor 401(k) plan. This plan was terminated on October 9, 2021, and the assets were transferred into the PNC ISP.

N****OTE 18 S****TOCK B****ASED C****OMPENSATION P****LANS

We have long-term incentive award plans (Incentive Plans) that provide for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, incentive shares/performance units, restricted share units, other share-based awards and dollar-denominated awards to executives and, other than incentive stock options, to non-employee directors. Certain Incentive Plan awards may be paid in stock, cash or a combination of stock and cash. We typically grant a substantial portion of our stock-based compensation awards during the first quarter of each year.

Performance Share Unit Awards and Restricted Share Unit Awards

The fair value of nonvested performance share unit awards and restricted share unit awards is initially determined based on prices not less than the market value of our common stock on the date of grant with a reduction for estimated forfeitures. The value of certain performance share unit awards is subsequently remeasured based on the achievement of one or more performance goals. Additionally, certain performance share unit awards could require subsequent adjustment due to certain discretionary risk review triggers.

The weighted-average grant date fair value of performance share unit awards and restricted share unit awards granted in 2021, 2020 and 2019 was $161.04, $150.23 and $117.53 per share, respectively. The total intrinsic value of performance share unit awards and restricted share unit awards vested during 2021, 2020 and 2019 was approximately $207 million, $213 million and $218 million, respectively. We recognize compensation expense for such awards ratably over the corresponding vesting and/or performance periods for each type of program.

A rollforward of the nonvested performance share unit and restricted share unit awards follows:

Table 107: Nonvested Performance Share Unit Awards and Restricted Share Unit Awards - Rollforward


Shares in thousands	Nonvested Performance Share Units	Weighted-Average Grant Date Fair Value		Nonvested Restricted Share Units	Weighted-Average Grant Date Fair Value
December 31, 2020	664	$	130.08	3,457	$	137.73
Granted (a)	169	$	158.76	1,267	$	161.34
Vested/Released (a)	(234)	$	141.82	(1,030)	$	147.92
Forfeitures				(112)	$	144.87
December 31, 2021	599	$	133.59	3,582	$	142.94

(a)Includes adjustments for achieving specific performance goals for Performance Share Unit Awards granted in prior periods.

In Table 107, the units and related weighted-average grant date fair value of the performance unit share awards exclude the effect of dividends on the underlying shares, as those dividends will be paid in cash if and when the underlying shares are issued to the participants.

170 The PNC Financial Services Group, Inc. – 2021 Form 10-K

N****OTE 19 I****NCOME T****AXES

The components of income tax expense from continuing operations are as follows:

Table 108: Components of Income Tax Expense


Year ended December 31 In millions	2021		2020		2019
Current
Federal	$	894	$	669	$	570
State	191		158		152
Total current	$	1,085	$	827	$	722
Deferred
Federal	123		(373)		187
State	55		(28)		(8)
Total deferred	$	178	$	(401)	$	179
Total	$	1,263	$	426	$	901

Significant components of deferred tax assets and liabilities are as follows:

Table 109: Deferred Tax Assets and Liabilities


December 31 – in millions	2021		2020
Deferred tax assets
Allowance for loan and lease losses	$	1,170	$	1,288
Allowance for unfunded lending related commitments	161		141
Compensation and benefits	290		227
Partnership investments	73		121
Loss and credit carryforward	140		162
Accrued expenses	151		107
Lease obligations	563		528
Other	238		163
Total gross deferred tax assets	2,786		2,737
Valuation allowance	(33)		(26)
Total deferred tax assets	2,753		2,711
Deferred tax liabilities
Leasing	1,023		1,179
Right of Use Assets	488		476
Goodwill and intangibles	278		193
Fixed assets	704		592

Net unrealized gains on securities and financial instruments	120		929
Other	343		143
Total deferred tax liabilities	2,956		3,512
Net deferred tax liability	$	203	$	801

The PNC Financial Services Group, Inc. – 2021 Form 10-K 171

A reconciliation between the statutory and effective tax rates from continuing operations follows:

Table 110: Reconciliation of Statutory and Effective Tax Rates


Year ended December 31	2021		2020		2019
Statutory tax rate	21.0	%	21.0	%	21.0	%
Increases (decreases) resulting from:
State taxes net of federal benefit	2.6		2.0		2.3
Tax-exempt interest	(0.9)		(1.7)		(1.5)
Life insurance	(0.8)		(1.6)		(1.0)
Tax credits	(4.4)		(6.0)		(4.2)

Unrecognized tax benefits	0.3		(1.6)		(0.1)
Subsidiary liquidation			(1.2)
Other	0.3		1.5		(0.1)
Effective tax rate	18.1	%	12.4	%	16.4	%

The net operating loss carryforwards at December 31, 2021 and 2020 follow:

Table 111: Net Operating Loss Carryforwards


Dollars in millions	December 31, 2021		December 31, 2020		Expiration
Net Operating Loss Carryforwards:
Federal	$	166	$	282	2030-2032
State	$	872	$	848	2022-2039

The majority of the tax credit carryforwards expire in 2022-2040 and were $51 million at December 31, 2021 and $58 million at December 31, 2020. Some federal and state net operating loss and credit carryforwards are from acquired entities and utilization is subject to various statutory limitations. We anticipate that we will be able to fully utilize our carryforwards for federal tax purposes. However, we have recorded an insignificant valuation allowance against our carryforwards for state tax purposes as of December 31, 2021.

Retained earnings included $0.1 billion at both December 31, 2021 and 2020 in allocations for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current law, if certain subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to Federal income tax at the current corporate tax rate.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

Table 112: Change in Unrecognized Tax Benefits


In millions	2021		2020		2019
Balance of gross unrecognized tax benefits at January 1	$	265	$	130	$	207
Increases:
Positions taken during a current period			265
Acquired unrecognized tax benefits	8
Positions taken during a prior period	7
Decreases:
Positions taken during a prior period	(2)				(77)
Settlements with taxing authorities	(3)		(130)

Balance of gross unrecognized tax benefits at December 31	$	275	$	265	$	130
Favorable impact if recognized	$	217	$	209	$	76

We do not expect that the balance of unrecognized tax benefits will significantly increase or decrease in the next twelve months.

172 The PNC Financial Services Group, Inc. – 2021 Form 10-K

We are subject to U.S. federal income tax as well as income tax in most states and some foreign jurisdictions. Table 113 summarizes the status of significant IRS examinations.

Table 113: IRS Tax Examination Status


	Years under examination		Status at December 31, 2021
	PNC Financial Services Group, Inc.	BBVA USA Bancshares, Inc.
Federal	2019	2018	Under Exam

In addition, we are under continuous examinations by various state taxing authorities. With few exceptions, we are no longer subject to state and local and foreign income tax examinations by taxing authorities for periods before 2013. For all open audits, any potential adjustments have been considered in establishing our unrecognized tax benefits as of December 31, 2021.

Our policy is to classify interest and penalties associated with income taxes as income tax expense. For 2021 and 2020, the amount of gross interest and penalties was insignificant. At December 31, 2021 and 2020, the related amounts of accrued interest and penalties were also insignificant.

N****OTE 20 R****EGULATORY M****ATTERS

We are subject to the regulations of certain federal, state and foreign agencies and undergo examinations by such regulatory authorities.

The ability to undertake new business initiatives (including acquisitions), the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to 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.

As of January 1, 2020, the 2019 Tailoring Rules became effective for PNC. The most significant changes involve the election to exclude specific AOCI items from CET1 capital and higher thresholds used to calculate CET1 capital deductions.

On March 27, 2020, the regulatory agencies issued an interim final rule delaying the estimated impact on regulatory capital stemming

from implementing the CECL standard. The estimated CECL impact was added to CET1 through December 31, 2021, and will be phased-out over the following three years. PNC and PNC Bank elected the five-year transition period as of March 31, 2020.

At December 31, 2021 and 2020, PNC and PNC Bank, our domestic banking subsidiary, were both considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements.

The following table sets forth the Basel III regulatory capital ratios at December 31, 2021 and 2020, for PNC and PNC Bank:

Table 114: Basel Regulatory Capital (a)


	Amount				Ratios
December 31 Dollars in millions	2021		2020		2021		2020		“Well Capitalized” Requirements
Risk-based capital
Common equity Tier 1
PNC	$	40,066	$	39,735	10.3	%	12.2	%	N/A
PNC Bank	$	42,024	$	35,232	11.1	%	11.0	%	6.5	%
Tier 1
PNC	$	45,075	$	43,252	11.6	%	13.2	%	6.0	%
PNC Bank	$	42,024	$	35,232	11.1	%	11.0	%	8.0	%
Total
PNC	$	52,451	$	51,001	13.5	%	15.6	%	10.0	%
PNC Bank	$	49,083	$	42,440	12.9	%	13.2	%	10.0	%
Leverage
PNC	$	45,075	$	43,252	8.2	%	9.5	%	N/A
PNC Bank	$	42,024	$	35,232	7.8	%	7.9	%	5.0	%

(a)Calculated using the regulatory capital methodology applicable to us during both 2021 and 2020.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 173

The principal source of parent company cash flow is the dividends it receives from PNC Bank, which may be impacted by the following:

Capital needs,
Laws and regulations,
Corporate policies,
Contractual restrictions, and
Other factors.

Also, there are statutory and regulatory limitations on the ability of national banks to pay dividends or make other capital distributions. The amount available for dividend payments to the parent company by PNC Bank without prior regulatory approval was approximately $2.4 billion at December 31, 2021.

Under federal law, a bank subsidiary generally may not extend credit to, or engage in other types of covered transactions (including the purchase of assets) with, the parent company or its non-bank subsidiaries on terms and under circumstances that are not substantially the same as comparable transactions with nonaffiliates. A bank subsidiary may not extend credit to, or engage in a covered transaction with, the parent company or a non-bank subsidiary if the aggregate amount of the bank’s extensions of credit and other covered transactions with the parent company or non-bank subsidiary exceeds 10% of the capital stock and surplus of such bank subsidiary or the aggregate amount of the bank’s extensions of credit and other covered transactions with the parent company and all non-bank subsidiaries exceeds 20% of the capital stock and surplus of such bank subsidiary. Such extensions of credit, with limited exceptions, must be at least fully collateralized in accordance with specified collateralization thresholds, with the thresholds varying based on the type of assets serving as collateral. In certain circumstances, federal regulatory authorities may impose more restrictive limitations.

The Federal Reserve is authorized to establish reserve requirements for certain types of deposits and other liabilities of depository institutions. Effective March 26, 2020, the reserve requirement ratios were reduced to zero. At December 31, 2021, the balance outstanding at the Federal Reserve Bank was $73.8 billion. This amount is included in Interest-earning deposits with banks on our Consolidated Balance Sheet.

N****OTE 21 L****EGAL P****ROCEEDINGS

We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in this Note 21). For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of December 31, 2021, we estimate that it is reasonably possible that we could incur losses in excess of related accrued liabilities, if any, in an aggregate amount less than $300 million. The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained we may change our estimates. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question. Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.

In our experience, legal proceedings are inherently unpredictable. One or more of the following factors frequently contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis or, if permitted to proceed as a class action, how the class will be defined; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental investigations and inquiries, the possibility of fines and penalties); the matter presents meaningful legal uncertainties, including novel issues of law; we have not engaged in meaningful settlement discussions; discovery has not started or is not complete; there are significant facts in dispute; the possible outcomes may not be amenable to the use of statistical or quantitative analytical tools; predicting possible outcomes depends on making assumptions about future decisions of courts or regulatory bodies or the behavior of other parties; and there are a large number of parties named as defendants (including where it is uncertain how damages or liability, if any, will be shared among multiple defendants). Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the harder it is for us to estimate losses or ranges of losses that it is reasonably possible we could incur.

As a result of these types of factors, we are unable, at this time, to estimate the losses that are reasonably possible to be incurred or ranges of such losses with respect to some of the matters disclosed, and the aggregate estimated amount provided above does not include an estimate for every Disclosed Matter. Therefore, as the estimated aggregate amount disclosed above does not include all of the Disclosed Matters, the amount disclosed above does not represent our maximum reasonably possible loss exposure for all of the

174 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Disclosed Matters. The estimated aggregate amount also does not reflect any of our exposure to matters not so disclosed, as discussed below under “Other.”

We include in some of the descriptions of individual Disclosed Matters certain quantitative information related to the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings or otherwise publicly available information. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual.

Some of our exposure in Disclosed Matters may be offset by applicable insurance coverage. We do not consider the possible availability of insurance coverage in determining the amounts of any accruals (although we record the amount of related insurance recoveries that are deemed probable up to the amount of the accrual) or in determining any estimates of possible losses or ranges of possible losses.

Interchange Litigation

Beginning in June 2005, a series of antitrust lawsuits were filed against Visa®, Mastercard®, and several major financial institutions, including cases naming National City (since merged into The PNC Financial Services Group, Inc.) and its subsidiary, National City Bank of Kentucky (since merged into National City Bank which in turn was merged into PNC Bank). The plaintiffs in these cases are merchants operating commercial businesses throughout the U.S., as well as trade associations. Some of these cases (including those naming National City entities) were brought as class actions on behalf of all persons or business entities that have accepted Visa or Mastercard. The cases have been consolidated for pre-trial proceedings in the U.S. District Court for the Eastern District of New York under the caption In re Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation (Master File No. 1:05-md-1720- MKB-JO).

In July 2012, the parties entered into a memorandum of understanding with the class plaintiffs and an agreement in principle with certain individual plaintiffs with respect to a settlement of these cases, under which the defendants agreed to pay approximately $6.6 billion collectively to the class and individual settling plaintiffs and agreed to changes in the terms applicable to their respective card networks (including an eight-month reduction in default credit interchange rates). The parties entered into a definitive agreement with respect to this settlement in October 2012. The court granted final approval of the settlement in December 2013. Several objectors appealed the order of approval to the U.S. Court of Appeals for the Second Circuit, which issued an order in June 2016, reversing approval of the settlement and remanding for further proceedings. In November 2016, the plaintiffs filed a petition for a writ of certiorari with the U.S. Supreme Court to challenge the court of appeal’s decision. The Supreme Court denied the petition in March 2017.

As a result of the reversal of the approval of the settlement, the class actions have resumed in the district court. In November 2016, the district court appointed separate interim class counsel for a proposed class seeking damages and a proposed class seeking equitable (injunctive) relief. In February 2017, each of these counsel filed a proposed amended and supplemental complaint on behalf of its respective proposed class. These complaints make similar allegations, including that the defendants conspired to monopolize and to fix the prices for general purpose card network services, that the restructuring of Visa and Mastercard, each of which included an initial public offering, violated the antitrust laws, and that the defendants otherwise imposed unreasonable restraints on trade, resulting in the payment of inflated interchange fees and other fees, which also violated the antitrust laws. In their complaints, collectively the plaintiffs seek, among other things, injunctive relief, unspecified damages (trebled under the antitrust laws) and attorneys’ fees. PNC is named as a defendant in the complaint seeking damages but is not named as a defendant in the complaint that seeks equitable relief.

In September 2017, the magistrate judge at the district court granted in part and denied in part the plaintiffs’ motions to file their proposed amended complaints. The dispute over amendment arose in part from the decision in United States v. American Express, Co., 838 F.3d 179 (2d Cir. 2016), in which the court held that the relevant market in a similar complaint against American Express is “two-sided,” i.e., requires consideration of effects on consumers as well as merchants. In June 2018, the U.S. Supreme Court affirmed (under the caption Ohio v. American Express Co.) the court of appeals decision*.* Previously, the plaintiffs in this litigation had alleged a one-sided market, and, as a result of the court’s decision in American Express, they sought leave to add claims based on a two-sided market. The order allowed the complaint to be amended to include allegations pertaining to a two-sided market only to the extent those claims are not time-barred, but held that the two-sided market allegations do not relate back to the time of the original complaint and are not subject to tolling. In October 2017, the plaintiffs appealed this order to the presiding district court judge. In August 2018, the judge overruled this decision, finding that the two-sided market allegations do relate back.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 175

In September 2018, the relevant parties entered an amended definitive agreement to resolve the claims of the class seeking damages. In this amended settlement agreement, the parties agreed, among other things, to the following terms:

An additional settlement payment from all defendants of $900 million, with Visa’s share of the additional settlement payment being $600 million. The additional settlement payment will be added to the approximately $5.3 billion previously paid by the defendants pursuant to the original 2012 settlement agreement.
Up to $700 million may be returned to the defendants (with up to $467 million to Visa) if more than 15% of class members (by payment volume) opt out of the class. As more than 15% of class members opted out of the class, $700 million has been returned to the defendants ($467 million to Visa).

This amended settlement agreement is subject to court approval. Following preliminary approval in January 2019, and after class notice, the submission of opt-outs, and the filing of objections, the district court granted final approval of the settlement in December 2019. Several objectors have appealed the district court’s order granting final approval to the U.S. Court of Appeals for the Second Circuit. Oral argument of this appeal is presently scheduled for March 16, 2022. Some merchants that opted out from the settlement have brought lawsuits against Visa and Mastercard and one or more of the issuing banks. Resolution by Visa of claims by merchants that opted out of the settlement, including those that file lawsuits, have been or will be paid from the Visa litigation escrow account.

National City and National City Bank entered into judgment and loss sharing agreements with Visa and certain other banks with respect to all of the above referenced litigation. We were not originally named as defendants in any of the Visa or Mastercard related antitrust litigation nor were we initially parties to the judgment or loss sharing agreements. However, we became responsible for National City’s and National City Bank’s position in the litigation and responsibilities under the agreements through our acquisition of National City. In addition, following Visa’s reorganization in 2007 in contemplation of its initial public offering, U.S. Visa members received shares of Class B Visa common stock, convertible upon resolution of specified litigation, including the remaining litigation described above, into shares of Class A Visa common stock, with the conversion rate adjusted to reflect amounts paid or escrowed to resolve the specified litigation, and also remained responsible for indemnifying Visa against the specified litigation. Our Class B Visa common stock is all subject to this conversion adjustment provision, and we are now responsible for the indemnification obligations of our predecessors as well as ourselves. We have also entered into a Mastercard Settlement and Judgment Sharing Agreement with Mastercard and other financial institution defendants and an Omnibus Agreement Regarding Interchange Litigation Sharing and Settlement Sharing with Visa, Mastercard and other financial institution defendants. The Omnibus Agreement, in substance, apportions resolution of the claims in this litigation into a Visa portion and a Mastercard portion, with the Visa portion being two-thirds and the Mastercard portion being one-third. This apportionment only applies in the case of either a global settlement involving all defendants or an adverse judgment against the defendants, to the extent that damages either are related to the merchants’ inter-network conspiracy claims or are otherwise not attributed to specific Mastercard or Visa conduct or damages. The Mastercard portion (or any Mastercard-related liability not subject to the Omnibus Agreement) will then be apportioned under the Mastercard Settlement and Judgment Sharing Agreement among Mastercard and PNC and the other financial institution defendants that are parties to this agreement. The responsibility for the Visa portion (or any Visa-related liability not subject to the Omnibus Agreement) will be apportioned under the pre-existing indemnification responsibilities and judgment and loss sharing agreements.

USAA Patent Infringement Litigation

In September 2020, a lawsuit (United Services Automobile Association v. PNC Bank N.A. (Case No. 2:20-cv-319)) was filed in the United States District Court for the Eastern District of Texas against PNC Bank for patent infringement ("the first Texas case"). The plaintiff amended its complaint in December 2020. As amended, the complaint alleges that PNC’s mobile remote deposit capture systems infringe on four patents owned by the plaintiff. The plaintiff seeks, among other things, a judgment that PNC is infringing each of the patents, damages for willful infringement, and attorneys’ fees. In December 2020, we filed a motion to dismiss the amended complaint, and in January 2021, we filed a motion to transfer the lawsuit to the United States District Court for the Western District of Pennsylvania. In February 2021, we answered the amended complaint and asserted counterclaims alleging that the plaintiff infringed four patents owned by PNC Bank, as well as for a declaratory judgment that PNC Bank does not infringe certain patents asserted by the plaintiff. In March 2021, the plaintiff filed a motion to dismiss two of the patent infringement counterclaims, as well as to sever the patent infringement counterclaims for trial. In June 2021, the plaintiff filed an answer to PNC’s counterclaims and asserted a counterclaim in reply seeking a declaratory judgment that two of the asserted PNC patents are unenforceable due to inequitable conduct and unclean hands in prosecution of the patents. In September 2021, the court denied our motion to dismiss and our motion to transfer the case. In November 2021, the court denied the plaintiff’s motion to dismiss two of the patent infringement counterclaims. Also in November 2021, the court issued a memorandum opinion and order construing certain claim terms of the patents in suit.

In December 2020, we filed a lawsuit (PNC Bank, N.A. v. United Services Automobile Association (Case No. 2:20-cv-1886)) in the United States District Court for the Western District of Pennsylvania against USAA seeking declaratory judgment of non-infringement as to two of the patents at issue in the first Texas case and awarding PNC its fees and costs. In January 2021, USAA filed a motion to dismiss or transfer PNC Bank’s declaratory judgment complaint. In June 2021, the court stayed this case pending a decision on the motion to transfer filed by PNC Bank in the first Texas case. The United States District Court for the Eastern District of Texas denied PNC Bank’s motion to transfer in the first Texas case in September 2021. This case presently remains stayed.

176 The PNC Financial Services Group, Inc. – 2021 Form 10-K

In March 2021, USAA filed a second lawsuit (United Services Automobile Association v. PNC Bank N.A. (Case No. 2:21-cv-110)) in the United States District Court for the Eastern District of Texas against PNC Bank for patent infringement. The complaint alleges that PNC’s mobile remote deposit capture systems infringe two patents owned by the plaintiff. The plaintiff seeks, among other things, a judgment that PNC is infringing each of the patents, damages for willful infringement, and attorneys’ fees. In April 2021, we moved to consolidate this action with the first Texas case and we filed motions to dismiss and transfer this action. In July 2021, this action was consolidated with the first Texas case (together, "the consolidated cases"). In September 2021, the court denied our motion to dismiss and our motion to transfer for the same reasons set forth in its September 2021 orders in the first Texas case. In November 2021, the court issued a memorandum opinion and order construing certain claim terms of the patents in suit. Trial in the consolidated cases is presently scheduled to commence on April 18, 2022.

In July 2021, USAA filed a third lawsuit (United Services Automobile Association v. PNC Bank N.A. (Case No. 2:21-cv-246)) in the United States District Court for the Eastern District of Texas against PNC Bank for patent infringement ("the third Texas case"). The complaint alleges that PNC’s mobile remote deposit capture systems, including its new versions, infringe three additional patents owned by the plaintiff. The plaintiff seeks, among other things, a judgment that PNC is infringing each of the patents, damages for willful infringement, and attorneys’ fees. In July 2021, we filed motions to dismiss and transfer this action; the court denied these motions in January 2022. Trial in this case is presently scheduled to commence on August 22, 2022.

In August 2021, USAA filed a lawsuit (United Services Automobile Association v. BBVA USA (Case No. 2:21-cv-311)) in the United States District Court for the Eastern District of Texas against BBVA USA for patent infringement ("the BBVA USA Texas case"). The complaint alleges that BBVA USA’s remote deposit capture systems infringe the same six USAA patents at issue in the consolidated cases. The plaintiff seeks, among other things, a judgment that BBVA USA is infringing each of the patents, damages for willful infringement, and attorneys’ fees. In October 2021, BBVA USA was merged into PNC Bank. Also in October 2021, we answered the complaint and asserted counterclaims for a declaratory judgment that the asserted patents are invalid and not infringed. Trial in this case is presently scheduled to commence on October 31, 2022.

In January 2022, the Patent Trial and Appeal Board granted institution of inter partes review ("IPR") with respect to petitions filed by PNC for three of the six patents at issue in the consolidated cases and in the BBVA USA Texas case. The Patent Trial and Appeal Board denied institution of an IPR with respect to PNC’s petitions for one of the six patents at issue in the consolidated cases and in the BBVA USA Texas case. PNC’s petitions for IPR with respect to the other two patents in the consolidated cases and the BBVA USA Texas case and with respect to the three patents in the third Texas case remain pending. The IPR proceedings at the Patent Trial and Appeal Board, presently scheduled to commence on October 25 and 26, 2022, will review the patentability of the claims in the patents for which IPR is granted.

Regulatory and Governmental Inquiries

We are the subject of investigations, audits, examinations and other forms of regulatory and governmental inquiry covering a broad range of issues in our consumer, mortgage, brokerage, securities and other financial services businesses, as well as other aspects of our operations. In some cases, these inquiries are part of reviews of specified activities at multiple industry participants; in others, they are directed at PNC individually. From time to time, these inquiries have involved and may in the future involve or lead to regulatory enforcement actions and other administrative proceedings. These inquiries have also led to and may in the future lead to civil or criminal judicial proceedings. Some of these inquiries result in remedies including fines, penalties, restitution, or alterations in our business practices, and in additional expenses and collateral costs and other consequences. Such remedies and other consequences typically have not been material to us from a financial standpoint, but could be in the future. Even if not financially material, they may result in significant reputational harm or other adverse consequences.

Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including that described in this Note 21.

Other

In addition to the proceedings or other matters described above, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position. However, we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 177

N****OTE 22 P****ARENT C****OMPANY

Summarized financial information of the parent company is as follows:

Table 115: Parent Company - Income Statement


Year ended December 31 – in millions	2021		2020		2019
Operating Revenue
Dividends from continuing operations:
Bank subsidiaries and bank holding company	$	3,980	$	13,701	$	3,570
Non-bank subsidiaries (a)	424		345		290
Interest income	15		38		169
Noninterest income	41		37		48
Total operating revenue	4,460		14,121		4,077
Operating Expense
Interest expense	129		179		325
Other expense	245		91		146
Total operating expense	374		270		471
Income before income taxes and equity in undistributed net income of subsidiaries	4,086		13,851		3,606
Equity in undistributed net income of subsidiaries:
Bank subsidiaries and bank holding company	1,085		(12,009)		671
Non-bank subsidiaries	543		(86)		164
Income from continuing operations before taxes	5,714		1,756		4,441
Income tax expense (benefit) from continuing operations (a)	41		(1,206)		(101)
Net income from continuing operations	5,673		2,962		4,542
Dividends from discontinued operations:
Bank subsidiaries and bank holding company			126		460
Equity in undistributed net income of subsidiaries from discontinued operations:
Bank subsidiaries and bank holding company			5,651		528
Income from discontinued operations before taxes			5,777		988
Income taxes from discontinued operations			1,222		161
Net income from discontinued operations			4,555		827
Net income	$	5,673	$	7,517	$	5,369
Other comprehensive income, net of tax:
Net pension and other postretirement benefit plan activity arising during the period	11		1		(2)
Other comprehensive income (loss)	11		1		(2)
Comprehensive income	$	5,684	$	7,518	$	5,367

(a)Prior period amounts reflect the immaterial impact of adopting ASU 2019-12 - Income Tax Simplification. See the Recently Adopted Accounting Standards portion of Note 1 Accounting Policies in this Report for additional details on this adoption.

178 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Table 116: Parent Company - Balance Sheet


December 31 – in millions	2021		2020
Assets
Cash held at banking subsidiary	$	5,367	$	14,882
Restricted deposits with banking subsidiary	175		175


Investments in:
Bank subsidiaries and bank holding company	56,596		45,992
Non-bank subsidiaries	2,693		1,984

Loans with affiliates	1,179		1,021
Other assets	1,999		1,934
Total assets	$	68,009	$	65,988
Liabilities
Subordinated debt (a)	$	982	$	1,010
Senior debt (a)	10,362		9,567
Other borrowed funds from affiliates	343		780
Accrued expenses and other liabilities	627		621
Total liabilities	12,314		11,978
Equity
Shareholders’ equity	55,695		54,010
Total liabilities and equity	$	68,009	$	65,988

(a)See Note 10 Borrowed Funds for additional information on contractual rates and maturity dates of senior debt and subordinated debt for parent company.

In connection with certain affiliates’ commercial and residential mortgage servicing operations, the parent company has committed to maintain such affiliates’ net worth above minimum requirements.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 179

Table 117: Parent Company - Interest Paid and Income Tax Refunds


Year ended December 31 – in millions	Interest Paid		Income Tax Refunds
2021	$	307	$	386
2020	$	335	$	29
2019	$	300	$	26

Table 118: Parent Company - Statement of Cash Flows


Year ended December 31 – in millions	2021		2020		2019
Operating Activities
Net income	$	5,673	$	7,517	$	5,369
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net earnings of subsidiaries	(1,628)				(1,363)
Return on investment in subsidiaries			6,444

Other	(248)		237		218
Net cash provided (used) by operating activities	$	3,797	$	14,198	$	4,224
Investing Activities
Proceeds from available for sale securities	$	300
Net change in loans and securities from affiliates	(1,188)		$	(2,808)	$	664
Net change in nonrestricted interest-earning deposits			7,024		(2,369)
Net cash paid for acquisition	(11,358)
Other	(5)				(8)
Net cash provided (used) by investing activities	$	(12,251)	$	4,216	$	(1,713)
Financing Activities
Net change in other borrowed funds from affiliates	$	(435)	$	473	$	228
Proceeds from long-term borrowings	1,692		1,986		4,180
Repayments of long-term borrowings	(500)		(1,750)		(1,300)

Preferred stock issuances	1,484
Preferred stock redemptions			(480)
Common and treasury stock issuances	66		65		90
Acquisition of treasury stock	(1,079)		(1,624)		(3,578)
Preferred stock cash dividends paid	(233)		(229)		(236)
Common stock cash dividends paid	(2,056)		(1,979)		(1,895)
Net cash provided (used) by financing activities	$	(1,061)	$	(3,538)	$	(2,511)
Net increase (decrease) in cash and due from banks	$	(9,515)	$	14,876
Net cash provided by operating activities of discontinued operations			11,542		$	299
Net cash activity from continuing operations	(9,515)		3,334		(299)
Cash and restricted deposits held at banking subsidiary at beginning of year	15,057		181		181
Cash and restricted deposits held at banking subsidiary at end of year	$	5,542	$	15,057	$	181

180 The PNC Financial Services Group, Inc. – 2021 Form 10-K

N****OTE 23 S****EGMENT R****EPORTING

We have three reportable business segments:

Retail Banking
Corporate & Institutional Banking
Asset Management Group

Results of individual businesses are presented based on our internal management reporting practices. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of our individual businesses are not necessarily comparable with similar information for any other company. We periodically refine our internal methodologies as management reporting practices are enhanced. To the extent significant and practicable, retrospective application of new methodologies is made to prior period reportable business segment results and disclosures to create comparability with the current period.

During the second quarter of 2020, we divested our entire 22.4% investment in BlackRock, which had previously been reported as a separate business segment. See Note 2 Acquisition and Divestiture Activity for additional information on the sale and details on our results and cash flow for 2020 and 2019.

Total business segment financial results differ from total consolidated net income. These differences are reflected in the “Other” category in Table 119. “Other” includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as asset and liability management activities including net securities gains or losses, ACL for investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, certain corporate overhead, tax adjustments that are not allocated to business segments, exited businesses and differences between business segment performance reporting and financial statement reporting (GAAP). The “Other” category also includes our BlackRock held for sale asset in 2019. Assets, revenue and earnings attributable to foreign activities were not material in the periods presented for comparison.

Financial results are presented, to the extent practicable, as if each business operated on a stand-alone basis. Additionally, we have aggregated the results for corporate support functions within “Other” for financial reporting purposes.

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors.

We have allocated the ALLL and the allowance for unfunded lending related commitments based on the loan exposures within each business segment’s portfolio. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower and economic conditions. Key reserve assumptions are periodically updated.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 181

Table 119: Results of Businesses


Year ended December 31 In millions	Retail Banking		Corporate & Institutional Banking		Asset Management Group		Other		Consolidated (a)
2021
Income Statement
Net interest income	$	6,206	$	4,526	$	476	$	(561)	$	10,647
Noninterest income	2,796		3,783		987		998		8,564
Total revenue	9,002		8,309		1,463		437		19,211
Provision for (recapture of) credit losses	(101)		(646)		(7)		(25)		(779)
Depreciation and amortization	293		208		23		542		1,066
Other noninterest expense	6,623		3,271		918		1,124		11,936
Income (loss) from continuing operations before income taxes (benefit) and noncontrolling interests	2,187		5,476		529		(1,204)		6,988
Income taxes (benefit) from continuing operations	508		1,138		123		(506)		1,263
Net income (loss) from continuing operations	1,679		4,338		406		(698)		5,725
Less: Net income attributable to noncontrolling interests	31		14				6		51
Net income (loss) from continuing operations excluding noncontrolling interests	$	1,648	$	4,324	$	406	$	(704)	$	5,674
Average Assets	$	106,331	$	188,470	$	11,677	$	216,688	$	523,166
2020
Income Statement
Net interest income	$	5,609	$	3,999	$	357	$	(19)	$	9,946
Noninterest income	2,519		3,062		854		520		6,955
Total revenue	8,128		7,061		1,211		501		16,901
Provision for (recapture of) credit losses	968		2,088		21		98		3,175
Depreciation and amortization	251		197		45		490		983
Other noninterest expense	5,768		2,659		813		74		9,314
Income (loss) from continuing operations before income taxes (benefit) and noncontrolling interests	1,141		2,117		332		(161)		3,429
Income taxes (benefit) from continuing operations	266		433		77		(350)		426
Net income from continuing operations	875		1,684		255		189		3,003
Less: Net income attributable to noncontrolling interests	31		10						41
Net income from continuing operations excluding noncontrolling interests	$	844	$	1,674	$	255	$	189	$	2,962
Average Assets	$	97,643	$	183,189	$	8,186	$	160,277	$	449,295
2019
Income Statement
Net interest income	$	5,520	$	3,637	$	288	$	520	$	9,965
Noninterest income	2,648		2,537		991		698		6,874
Total revenue	8,168		6,174		1,279		1,218		16,839
Provision for (recapture of) credit losses	517		284		(1)		(27)		773
Depreciation and amortization	230		198		62		545		1,035
Other noninterest expense	5,781		2,615		877		266		9,539
Income from continuing operations before income taxes (benefit) and noncontrolling interests	1,640		3,077		341		434		5,492
Income taxes (benefit) from continuing operations	377		629		79		(184)		901
Net income from continuing operations	1,263		2,448		262		618		4,591
Less: Net income attributable to noncontrolling interests	50						(1)		49
Net income from continuing operations excluding noncontrolling interests	$	1,213	$	2,448	$	262	$	619	$	4,542
Average Assets	$	92,959	$	164,243	$	7,360	$	135,773	$	400,335

(a)There were no material intersegment revenues for 2021, 2020 and 2019.

Business Segment Products and Services

Retail Banking provides deposit, lending, brokerage, insurance services, investment management and cash management products and services to consumer and small business customers. Our customers are serviced through our branch network, ATMs, call centers, online banking and mobile channels. As a result of the BBVA acquisition, we have become a coast-to-coast Retail Bank. Our national expansion strategy is designed to grow customers with digitally-led banking and a thin branch network as we expand into new markets. Deposit products include checking, savings and money market accounts and certificates of deposit. Lending products include residential mortgages, home equity loans and lines of credit, auto loans, credit cards, education loans and personal and small business

182 The PNC Financial Services Group, Inc. – 2021 Form 10-K

loans and lines of credit. The residential mortgage loans are directly originated within our branch network and nationwide, and are typically underwritten to agency and/or third-party standards, and either sold, servicing retained or held on our balance sheet. Brokerage, investment management and cash management products and services include managed, education, retirement and trust accounts.

Corporate & Institutional Banking provides lending, treasury management and capital markets-related products and services to mid-sized and large corporations, and government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. The Treasury Management business provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and Mexico and other countries primarily in Central-and South America. Capital markets-related products and services include foreign exchange, derivatives, fixed income, securities underwriting, loan syndications, mergers and acquisitions advisory and equity capital markets advisory related services. We also provide commercial loan servicing and technology solutions for the commercial real estate finance industry. Products and services are provided nationally.

Asset Management Group provides private banking for high net worth and ultra high net worth clients and institutional asset management. The Asset Management group is composed of two distinct operating units:

PNC Private Bank provides products and services to emerging affluent, high net worth and ultra high net worth individuals and their families including investment and retirement planning, customized investment management, credit and cash management solutions, and trust management and administration. In addition, multi-generational family planning services are also provided to ultra high net worth individuals and their families which include estate, financial, tax, fiduciary and customized performance reporting through PNC Private Bank Hawthorn.
Institutional Asset Management provides outsourced chief investment officer, custody, private real estate, cash and fixed income client solutions, and retirement plan fiduciary investment services to institutional clients including corporations, healthcare systems, insurance companies, unions, municipalities and non-profits.

N****OTE 24 F****EE-BASED R****EVENUE FROM C****ONTRACTS WITH C****USTOMERS

A subset of our noninterest income relates to certain fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606). The objective of the standard is to clarify the principles for recognizing revenue from contracts with customers across all industries and to develop a common revenue standard under GAAP. The standard requires the application of a five-step recognition model to contracts, allocating the amount of consideration we expect to be entitled to across distinct promises in the contract, called performance obligations, and recognizing revenue when or as those services are transferred to the customer.

Fee-based revenue within the scope of Topic 606 is recognized within our three reportable business segments: Retail Banking, Corporate & Institutional Banking and Asset Management Group. Interest income, income from lease contracts, fair value gains from financial instruments (including derivatives), income from mortgage servicing rights and guarantee products, letter of credit fees, non-refundable fees associated with acquiring or originating a loan and gains from the sale of financial assets are outside of the scope of Topic 606.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 183

Tables 120, 121 and 122 present noninterest income within the scope of Topic 606 disaggregated by segment. A description of the fee-based revenue and how it is recognized for each segment’s principal services and products follows each table.

Retail Banking

Table 120: Retail Banking Noninterest Income Disaggregation


	Year ended December 31
In millions	2021		2020		2019
Product
Debit card fees	$	665	$	522	$	535
Deposit account fees	490		463		642
Brokerage fees	464		367		356
Net credit card fees (a)	221		179		186
Merchant services	174		154		216
Other	271		225		255
Total in-scope noninterest income by product	$	2,285	$	1,910	$	2,190
Reconciliation to total Retail Banking noninterest income
Total in-scope noninterest income	$	2,285	$	1,910	$	2,190
Total out-of-scope noninterest income (b)	511		609		458
Total Retail Banking noninterest income	$	2,796	$	2,519	$	2,648

(a)Net credit card fees consists of interchange fees of $582 million, $469 million and $498 million and credit card reward costs of $361 million, $290 million and $312 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(b)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

Debit Card and Net Credit Card Fees

As an issuing bank, Retail Banking earns interchange fee revenue from debit and credit card transactions. By offering card products, we maintain and administer card-related services, such as credit card reward programs, account data and statement information, card activation, card renewals, and card suspension and blockage. Interchange fees are earned when cardholders make purchases and are presented in Table 120 net of credit card reward costs, which are earned by customers when they make purchases.

Deposit Account Fees

Retail Banking provides demand deposit, money market and savings account products for consumer and small business customers. Services include online and branch banking, overdraft and wire transfer services, imaging services and cash alternative services, such as money orders and cashier’s checks. We recognize fee income at the time these services are performed for the customer.

Brokerage Fees

Retail Banking earns fee revenue by providing its customers a wide range of investment options through its brokerage services including mutual funds, annuities, stocks, bonds, long-term care and insurance products, and managed accounts. We earn fee revenue for transaction-based brokerage services, such as the execution of market trades, once the transaction has been completed as of the trade date. In other cases, such as investment management services, we earn fee revenue over the term of the customer contract.

Merchant Services

Retail Banking earns fee revenue for debit and credit card processing services and products. We provide these services to merchant businesses including point-of-sale payment acceptance capabilities and customized payment processing built around the merchant’s specific requirements. We earn fee revenue as the merchant’s customers make purchases.

Other

Other noninterest income primarily includes ATM fees earned from our customers and non-PNC customers. These fees are recognized as transactions occur.

184 The PNC Financial Services Group, Inc. – 2021 Form 10-K

Corporate & Institutional Banking

Table 121: Corporate & Institutional Banking Noninterest Income Disaggregation


	Year ended December 31
In millions	2021		2020		2019
Product
Treasury management fees	$	1,159	$	897	$	840
Capital markets fees	1,110		759		547
Commercial mortgage banking activities	141		111		102
Other	90		83		77
Total in-scope noninterest income by product	$	2,500	$	1,850	$	1,566
Reconciliation to total Corporate & Institutional Banking noninterest income
Total in-scope noninterest income	$	2,500	$	1,850	$	1,566
Total out-of-scope noninterest income (a)	1,283		1,212		971
Total Corporate & Institutional Banking noninterest income	$	3,783	$	3,062	$	2,537

(a)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

Treasury Management Fees

Corporate & Institutional Banking provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting services. Within Treasury Management, PNC Global Transfers (formerly BBVA Transfer Services, Inc.) provides wholesale money transfer processing capabilities between the U.S. and Mexico and other countries primarily in Central-and South America. Treasury management fees are primarily recognized over time as we perform these services.

Capital Markets Fees

Capital markets fees include securities underwriting fees, merger and acquisition advisory fees and other advisory-related fees. We recognize these fees when the related transaction closes.

Commercial Mortgage Banking Activities

Commercial mortgage banking activities include servicing responsibilities where we do not own the servicing rights. Servicing responsibilities typically consist of collecting and remitting monthly borrower principal and interest payments, maintaining escrow deposits, performing loss mitigation and foreclosure activities, and, in certain instances, funding of servicing advances. We recognize servicing fees over time as we perform these activities.

Other

Other noninterest income within Corporate & Institutional Banking is primarily comprised of fees from collateral management and asset management services. We earn these fees over time as we perform these services.

Asset Management Group

Table 122: Asset Management Group Noninterest Income Disaggregation


	Year ended December 31
In millions	2021		2020		2019
Customer Type
PNC Private Bank	$	752	$	634	$	620
Institutional Asset Management	221		202		242
Total in-scope noninterest income by customer type (a)	$	973	$	836	$	862
Reconciliation to Asset Management Group noninterest income
Total in-scope noninterest income	$	973	$	836	$	862
Total out-of-scope noninterest income (b)	14		18		129
Total Asset Management Group noninterest income	$	987	$	854	$	991

(a)Amounts include $964 million of Asset Management Fees and $9 million of Brokerage Fees for the year ended December 31, 2021. Amounts for years ended December 31, 2020 and 2019 consist only of Asset Management Fees. As described in the "Asset Management Services and Brokerage Fees" narrative following this table 122, Brokerage Fees were assumed by the Asset Management Group as a result of the BBVA acquisition.

(b)Out-of-scope noninterest income includes revenue streams that fall under the scope of other accounting and disclosure requirements outside of Topic 606.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 185

Asset Management Services and Brokerage Fees

Asset Management Group provides both personal wealth and institutional asset management services including investment management, custody services, retirement planning, family planning, trust management and retirement plan fiduciary investment services. As a result of the acquisition of BBVA, the Asset Management Group assumed brokerage account client assets, resulting in brokerage fee revenue, included in the table above for the year ended December 31, 2021. We recognize fee revenue over the term of the customer contract based on the value of assets under management at a point in time.

N****OTE 25 S****UBSEQUENT E****VENTS

On January 6, 2022, PNC announced the redemption on January 18, 2022 of all of the outstanding senior bank notes due February 17, 2022 issued by PNC Bank, National Association in the amount of $1.25 billion. The securities had a distribution rate of 2.625% and an original scheduled maturity date of February 17, 2022. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.

On January 6, 2022, PNC announced the redemption on February 7, 2022 of all of the outstanding senior notes due March 8, 2022 issued by PNC (as successor-in-interest to PNC Funding Corp) in the amount of $1.0 billion. The securities had a distribution rate of 3.30% and an original scheduled maturity date of March 8, 2022. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.

On February 11, 2022, PNC announced the redemption on February 24, 2022 of all of the outstanding senior floating rate bank notes due February 24, 2023 issued by PNC Bank, National Association in the amount of $1.0 billion. The securities had an original scheduled maturity date of February 24, 2023. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.

On February 11, 2022, PNC announced the redemption on February 24, 2022 of all of the outstanding senior bank notes due February 24, 2023 issued by PNC Bank, National Association in the amount of $500 million. The securities had a distribution rate of 1.743% and an original scheduled maturity date of February 24, 2023. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date.

186 The PNC Financial Services Group, Inc. – 2021 Form 10-K

STATISTICAL INFORMATION (UNAUDITED)

THE PNC FINANCIAL SERVICES GROUP, INC.

AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS (a) (b) (c) (d)


	2021						2020						2019
Taxable-equivalent basis Dollars in millions	Average Balances		Interest Income/ Expense		Average Yields/ Rates		Average Balances		Interest Income/ Expense		Average Yields/ Rates		Average Balances		Interest Income/ Expense		Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available for sale
Residential mortgage-backed
Agency	$	57,325	$	881	1.54	%	$	50,594	$	1,109	2.19	%	$	31,526	$	867	2.75	%
Non-agency	1,100		84		7.64	%	1,480		109		7.36	%	1,746		141		8.08	%
Commercial mortgage-backed	6,093		149		2.45	%	6,865		183		2.67	%	5,676		162		2.85	%
Asset-backed	5,745		99		1.72	%	5,090		129		2.53	%	5,199		172		3.31	%
U.S. Treasury and government agencies	34,394		448		1.30	%	17,234		324		1.88	%	17,642		435		2.47	%
Other	4,852		144		2.97	%	4,564		160		3.51	%	3,200		107		3.34	%
Total securities available for sale	109,509		1,805		1.65	%	85,827		2,014		2.35	%	64,989		1,884		2.90	%
Securities held to maturity
Residential mortgage-backed													15,421		438		2.84	%
Commercial mortgage-backed													553		21		3.80	%
Asset-backed							18						120		5		4.17	%
U.S. Treasury and government agencies	805		23		2.86	%	786		22		2.80	%	767		22		2.87	%
Other	660		27		4.09	%	648		28		4.32	%	1,816		80		4.41	%
Total securities held to maturity	1,465		50		3.41	%	1,452		50		3.44	%	18,677		566		3.03	%
Total investment securities	110,974		1,855		1.67	%	87,279		2,064		2.36	%	83,666		2,450		2.93	%
Loans
Commercial and industrial	143,389		4,180		2.92	%	139,254		4,276		3.07	%	123,524		5,157		4.17	%
Commercial real estate	33,159		991		2.99	%	28,765		858		2.98	%	28,526		1,235		4.33	%
Equipment lease financing	6,286		240		3.82	%	6,812		263		3.86	%	7,255		285		3.93	%
Consumer	54,338		2,602		4.79	%	55,423		2,730		4.93	%	55,671		3,083		5.54	%
Residential real estate	31,524		1,047		3.32	%	22,379		852		3.81	%	20,040		844		4.21	%
Total loans	268,696		9,060		3.37	%	252,633		8,979		3.55	%	235,016		10,604		4.51	%
Interest-earning deposits with banks	79,869		103		0.13	%	47,333		100		0.21	%	16,878		353		2.09	%
Other interest-earning assets	8,539		190		2.23	%	9,553		239		2.50	%	12,425		458		3.69	%
Total interest-earning assets/interest income	468,078		11,208		2.39	%	396,798		11,382		2.87	%	347,985		13,865		3.98	%
Noninterest-earning assets	55,088						52,497						52,350
Total assets	$	523,166					$	449,295					$	400,335
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market	$	68,124	19		0.03	%	$	60,229	138		0.23	%	$	55,505	609		1.10	%
Demand	101,471		30		0.03	%	82,295		109		0.13	%	65,729		354		0.54	%
Savings	91,194		44		0.05	%	75,574		233		0.31	%	62,938		696		1.11	%
Time deposits	18,439		33		0.18	%	20,673		163		0.79	%	20,416		327		1.60	%
Total interest-bearing deposits	279,228		126		0.05	%	238,771		643		0.27	%	204,588		1,986		0.97	%
Borrowed funds
Federal Home Loan Bank borrowings	661		3		0.45	%	9,470		103		1.09	%	22,253		569		2.56	%
Bank notes and senior debt	22,390		224		1.00	%	27,030		428		1.58	%	26,781		869		3.24	%
Subordinated debt	6,432		86		1.34	%	5,936		112		1.89	%	5,588		214		3.83	%
Other	5,025		48		0.96	%	5,502		75		1.36	%	6,906		159		2.30	%
Total borrowed funds	34,508		361		1.05	%	47,938		718		1.50	%	61,528		1,811		2.94	%
Total interest-bearing liabilities/interest expense	313,736		487		0.16	%	286,709		1,361		0.47	%	266,116		3,797		1.43	%
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits	139,683						95,055						72,212
Accrued expenses and other liabilities	15,299						15,774						13,371
Equity	54,448						51,757						48,636
Total liabilities and equity	$	523,166					$	449,295					$	400,335
Interest rate spread					2.23	%					2.40	%					2.55	%
Benefit from use of noninterest bearing sources					0.06						0.13						0.34
Net interest income/margin			$	10,721	2.29	%			$	10,021	2.53	%			$	10,068	2.89	%

(a)Calculated using average daily balances.

(b)Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value are included in noninterest-earning assets and noninterest-bearing liabilities, with changes in fair value recorded in Noninterest income.

(c)Loan fees for the years ended December 31, 2021, 2020 and 2019 were $208 million, $156 million and $163 million, respectively.

(d)Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in this Statistical Information section for more information.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 187

A****NALYSIS OF YEAR-TO**-YEAR** C****HANGES I****N N****ET I****NTEREST I****NCOME (a) (b)


	2021/2020						2020/2019
Taxable-equivalent basis	Increase/(Decrease) in Income/ Expense Due to Changes in:						Increase/(Decrease) in Income/ Expense Due to Changes in:
In millions	Volume		Rate		Total		Volume		Rate		Total
Interest-Earning Assets
Investment securities
Securities available for sale
Residential mortgage-backed
Agency	$	134	$	(362)	$	(228)	$	445	$	(203)	$	242
Non-agency	$	(29)	$	4	(25)		$	(20)	$	(12)	(32)
Commercial mortgage-backed	$	(20)	$	(14)	(34)		$	32	$	(11)	21
Asset-backed	$	15	$	(45)	(30)		$	(4)	$	(39)	(43)
U.S. Treasury and government agencies	$	247	$	(123)	124		$	(10)	$	(101)	(111)
Other	$	10	$	(26)	(16)		$	48	$	5	53
Total securities available for sale	$	476	$	(685)	(209)		$	532	$	(402)	130
Securities held to maturity
Residential mortgage-backed							$	(219)	$	(218)	(437)
Commercial mortgage-backed							$	(11)	$	(11)	(22)
Asset-backed							$	(2)	$	(3)	(5)
U.S. Treasury and government agencies							$	1	$	(1)
Other	$	1	$	(1)			$	(50)	$	(2)	(52)
Total securities held to maturity							$	(584)	$	68	(516)
Total investment securities	$	481	$	(690)	(209)		$	102	$	(488)	(386)
Loans
Commercial and industrial	$	125	$	(221)	(96)		$	600	$	(1,482)	(882)
Commercial real estate	$	131	$	2	133		$	10	$	(387)	(377)
Equipment lease financing	$	(20)	$	(3)	(23)		$	(17)	$	(5)	(22)
Consumer	$	(53)	$	(75)	(128)		$	(14)	$	(339)	(353)
Residential real estate	$	314	$	(119)	195		$	94	$	(85)	9
Total loans	$	555	$	(474)	81		$	751	$	(2,376)	(1,625)
Interest-earning deposits with banks	$	52	$	(49)	3		$	254	$	(507)	(253)
Other interest-earning assets	$	(24)	$	(25)	(49)		$	(92)	$	(127)	(219)
Total interest-earning assets	$	1,883	$	(2,057)	$	(174)	$	1,755	$	(4,238)	$	(2,483)
Interest-Bearing Liabilities
Interest-bearing deposits
Money market	$	16	$	(135)	$	(119)	$	48	$	(519)	$	(471)
Demand	$	21	$	(100)	(79)		$	72	$	(317)	(245)
Savings	$	40	$	(229)	(189)		$	118	$	(581)	(463)
Time deposits	$	(16)	$	(114)	(130)		$	4	$	(168)	(164)
Total interest-bearing deposits	$	94	$	(611)	(517)		$	287	$	(1,630)	(1,343)
Borrowed funds
Federal Home Loan Bank borrowings	$	(62)	$	(38)	(100)		$	(233)	$	(233)	(466)
Bank notes and senior debt	$	(64)	$	(140)	(204)		$	8	$	(449)	(441)
Subordinated debt	$	9	$	(35)	(26)		$	12	$	(114)	(102)
Other	$	(7)	$	(20)	(27)		$	(28)	$	(56)	(84)
Total borrowed funds	$	(172)	$	(185)	(357)		$	(339)	$	(754)	(1,093)
Total interest-bearing liabilities	$	113	$	(987)	(874)		$	276	$	(2,712)	(2,436)
Change in net interest income	$	1,704	$	(1,004)	$	700	$	1,302	$	(1,349)	$	(47)

(a)Changes attributable to rate/volume are prorated into rate and volume components.

(b)Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in this Statistical Information section for more information.

188 The PNC Financial Services Group, Inc. – 2021 Form 10-K

R****ECONCILIATION OF TAXABLE-EQUIVALENT N****ET I****NTEREST I****NCOME **(NON-**GAAP) (a)


Year ended December 31 In millions
2021	2020		2019		2018		2017
Net interest income (GAAP)	$	10,647	$	9,946	$	9,965	$	9,721	$	9,108
Taxable-equivalent adjustments	74		75		103		115		215
Net interest income (Non-GAAP)	$	10,721	$	10,021	$	10,068	$	9,836	$	9,323

(a)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 income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP.

R****ECONCILIATION OF F****EE I****NCOME **(NON-**GAAP)


Year ended December 31 In millions	2021		2020		2019
Noninterest income
Asset management	$	964	$	836	$	862
Consumer services	1,845		1,484		1,555
Corporate services	2,924		2,167		1,914
Residential mortgage	456		604		368
Service charges on deposits	535		500		702
Total fee income	6,724		5,591		5,401
Other	1,840		1,364		1,473
Total noninterest income	$	8,564	$	6,955	$	6,874

R****ECONCILIATION OF T****ANGIBLE B****OOK V****ALUE P****ER C****OMMON S****HARE **(NON-**GAAP)


December 31 Dollars in millions, except per share data	2021		2020		2019
Book value per common share	$	120.61	$	119.11	$	104.59
Tangible book value per common share
Common shareholders’ equity	$	50,685	$	50,493	$	45,321
Goodwill and other intangible assets	(11,406)		(9,381)		(9,441)
Deferred tax liabilities on goodwill and other intangible assets	270		188		187
Tangible common shareholders’ equity	$	39,549	$	41,300	$	36,067
Period-end common shares outstanding (in millions)	420		424		433
Tangible book value per common share (Non-GAAP) (a)	$	94.11	$	97.43	$	83.30

(a)Tangible book value per common share is a non-GAAP measure and is calculated based on tangible common shareholders' equity divided by period-end common shares outstanding. We believe this non-GAAP measure serves as a useful tool to help evaluate the strength and discipline of a company's capital management strategies and as an additional, conservative measure of total company value.

The PNC Financial Services Group, Inc. – 2021 Form 10-K 189

S****ELECTED L****OAN M****ATURITIES AND I****NTEREST S****ENSITIVITY


	Loans Due After 1 Year				Contractual Maturity Range
December 31, 2021 In millions	Predetermined Rate		Floating or Adjustable Rate		1 Year or Less		After 1 Year Through 5 Years		After 5 Years Through 15 Years		After 15 Years		Gross Loans
Commercial
Commercial and industrial	$	20,951	$	90,821	$	41,161	$	96,158	$	12,991	$	2,623	$	152,933
Commercial real estate	7,011		17,302		9,702		19,400		4,183		730		34,015
Equipment lease financing	4,236		205		1,689		3,618		823				6,130
Total commercial	32,198		108,328		52,552		119,176		17,997		3,353		193,078
Consumer
Residential real estate	27,652		10,129		1,931		4,852		13,257		19,672		39,712
Home equity	12,700		9,896		1,465		4,458		8,292		9,846		24,061
Automobile	12,333				4,302		11,509		824				16,635
Credit card					6,626								6,626
Education	534		1,764		235		843		1,300		155		2,533
Other consumer	1,421		375		3,931		1,673		123				5,727
Total consumer	54,640		22,164		18,490		23,335		23,796		29,673		95,294
Total loans	$	86,838	$	130,492	$	71,042	$	142,511	$	41,793	$	33,026	$	288,372

At December 31, 2021, $43.6 billion notional amount of receive-fixed interest rate swaps were designated as part of cash flow hedging strategies that converted the floating rate (LIBOR) on the underlying commercial loans to a fixed rate as part of risk management strategies.

Uninsured Deposits

The aggregate amount of uninsured deposits, defined as (i) the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regime and (ii) amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regime were estimated to be $0.2 billion at both December 31, 2021 and 2020. The portion of U.S. time deposits in excess of the FDIC insurance limit or similar state deposit regime was $0.9 billion at December 31, 2021. Time deposits that were otherwise uninsured were $6.0 billion at December 31, 2021, all of which had a remaining maturity of three months or less.

190 The PNC Financial Services Group, Inc. – 2021 Form 10-K

GLOSSARY

D****EFINED T****ERMS

2019 Tailoring Rules – Rules adopted by the federal banking agencies to better tailor the application of their capital, liquidity, and enhanced prudential requirements for banking organizations to the asset size and risk profile (as measured by certain regulatory metrics) of the banking organization. Effective January 1, 2020, the agencies' capital and liquidity rules classify all BHCs with $100 billion or more in total assets into one of four categories (Category I, Category II, Category III, and Category IV).

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

Allowance for credit losses (ACL) – A valuation account that is deducted from or added to the amortized cost basis of the related

financial assets to present the net carrying value at the amount expected to be collected on the financial asset.

Amortized cost basis – Amount at which a financial asset is originated or acquired, adjusted for applicable accretion or amortization of premiums, discounts and net deferred fees or costs, collection of cash, charge-offs, foreign exchange and fair value hedge accounting adjustments.

Basel III common equity Tier 1 (CET1) capital - Common stock plus related surplus, net of treasury stock, plus retained earnings, plus accumulated other comprehensive income for securities currently, and those transferred from, available for sale and pension and other postretirement benefit plans, subject to phase-in limits, less goodwill, net of associated deferred tax liabilities, less other disallowed intangibles, net of deferred tax liabilities and plus/less other adjustments. Significant common stock investments in unconsolidated financial institutions, as well as mortgage servicing rights and deferred tax assets, must then be deducted to the extent such items (net of associated deferred tax liabilities) individually exceed 10%, or in the aggregate exceed 15%, of our adjusted Basel III common equity Tier 1 capital.

Basel III common equity Tier 1 (CET1) capital (Tailoring Rules) - Common stock plus related surplus, net of treasury stock, plus retained earnings, less goodwill, net of associated deferred tax liabilities, less other disallowed intangibles, net of deferred tax liabilities and plus/less other adjustments. Investments in unconsolidated financial institutions, as well as mortgage servicing rights and deferred tax assets, must then be deducted to the extent such items (net of associated deferred tax liabilities) individually exceed 25% of our adjusted Basel III common equity Tier 1 capital.

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

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

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

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

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

Basel Committee – Basel Committee on Banking Supervision.

BBVA – BBVA USA Bancshares, Inc.

BBVA USA – BBVA USA, the Alabama-chartered bank subsidiary of BBVA USA Bancshares, Inc.

BlackRock – BlackRock, Inc.

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

Collateral dependent loans – Loans expected to be repaid substantially through the operation or sale of the collateral underlying the loan when a borrower is experiencing financial difficulty, and for which we have elected to measure the loan at the estimated fair

The PNC Financial Services Group, Inc. – 2021 Form 10-K 191

value of collateral (less costs to sell if sale or foreclosure of the property is expected). Additionally, we consider a loan to be collateral dependent when foreclosure or liquidation of the underlying collateral is probable.

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

Common shareholders’ equity – Total shareholders’ equity less the liquidation value of preferred stock.

Company – The PNC Financial Services Group, Inc. and its subsidiaries (interchangeable with “PNC”, “we”, “us”, “the Company” or “the Corporation” on this Report).

COVID-19 – The coronavirus that emerged in late 2019, which resulted in a worldwide pandemic beginning in 2020 (interchangeable with “the pandemic”, or “the COVID-19 pandemic” on this Report).

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

Criticized commercial loans – Loans with potential or identified weaknesses based upon internal risk ratings that comply with the regulatory classification definitions of “Special Mention,” “Substandard” or “Doubtful.”

Current Expected Credit Loss (CECL) – Methodology for estimating the ACL on in-scope financial assets held at amortized cost and unfunded lending related commitments, which uses a combination of expected losses over a reasonable and supportable forecast period, a reversion period and long run average credit losses for their estimated contractual term.

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

Dodd-Frank – Dodd-Frank Wall Street Reform and Consumer Protection Act.

Earning assets – Assets that generate income, which include: interest-earning deposits with banks, loans held for sale, loans, investment securities and certain other assets.

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

Efficiency – Noninterest expense divided by total revenue.

Estimated contractual term - In the context of CECL, the contractual term of the financial asset or credit exposure, adjusted for estimated draws and prepayments, certain embedded extension options and extensions granted under troubled debt restructurings.

Exchange Act – Securities Exchange Act of 1934, as amended.

Exposure at default (EAD) – The credit exposure estimated to be outstanding in the event of default of a credit obligor.

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

Federal Reserve – The Board of Governors of the Federal Reserve System.

Fee income – Refers to the following categories within Noninterest income: Asset management, Consumer services, Corporate services, Residential mortgage and Service charges on deposits.

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

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

192 The PNC Financial Services Group, Inc. – 2021 Form 10-K

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

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

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

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

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

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

Loan-to-value ratio (LTV) – A calculation of a loan’s collateral coverage that is used both in underwriting and assessing credit risk in our lending portfolio. LTV is the sum total of loan obligations secured by collateral divided by the market value of that same collateral. Market value of the collateral is based on an independent valuation of the collateral. For example, a LTV of less than 90% is better secured and has less credit risk than a LTV of greater than or equal to 90%.

Long run average – In the context of CECL, expected credit losses or credit risk parameters for the remaining estimated

contractual maturity beyond the reasonable and supportable forecast and reversion periods. The long run average is generally derived

from historical loss information and current portfolio characteristics, without considering current or forecasted conditions.

Loss given default (LGD) – Assuming a credit obligor enters default status, an estimate of loss, based on collateral type, collateral

value, loan exposure and other factors. LGD is net of recovery, through any means, including but not limited to the liquidation of

collateral or deficiency judgments rendered from foreclosure or bankruptcy proceedings.

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

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

Nonperforming assets – Nonperforming assets include nonperforming loans, OREO and foreclosed assets. We do not accrue interest income on assets classified as nonperforming.

Nonperforming loans – Loans accounted for at amortized cost whose credit quality has deteriorated to the extent that full collection of contractual principal and interest is not probable, including TDRs which have not returned to performing status. Interest income is not recognized on nonperforming loans. Nonperforming loans exclude certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest, loans held for sale, and loans accounted for under the fair value option.

Notional amount – The basis to which the underlying referenced interest rate, security price, credit spread or other index is applied to determine required payments under the derivative contract.

Off-balance sheet arrangements - Activities that involve entities that are not consolidated or otherwise reflected in our Consolidated Balance Sheet.

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

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

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Other real estate owned (OREO) and foreclosed assets – Assets taken in settlement of troubled loans primarily through deed-in-lieu of foreclosure or foreclosure. Foreclosed assets include real and personal property. Certain assets that have a government-guarantee which are classified as other receivables are excluded.

PNC Bank – PNC Bank, National Association.

Probability of default (PD) – An estimate of the likelihood that a credit obligor will enter default status.

Purchased credit deteriorated assets (PCD) – Acquired loans or debt securities that, at acquisition, are determined to have experienced a more-than-insignificant deterioration in credit quality since origination or issuance.

Reasonable and supportable forecast period – In the context of CECL, the period for which forecasts and projections of

macroeconomic variables have been determined to be reasonable and supportable, and are used as inputs for ACL measurement.

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

Reversion period – In the context of CECL, the period between the end of the reasonable and supportable forecast period and the point

at which losses are expected to have reverted to their long run average, in order to reflect an overall reasonable estimate of expected

credit losses.

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

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

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

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

Secured Overnight Financing Rate (SOFR) - SOFR is a reference rate that is based on overnight transactions in the U.S. Treasury repurchase market.

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

Supplementary leverage exposure - The sum of adjusted average assets and certain off-balance sheet exposures, including undrawn credit commitments and derivative potential future exposures.

Supplementary leverage ratio – Basel III Tier 1 capital divided by Supplementary leverage exposure.

Taxable-equivalent interest income – The interest income earned on certain assets that is completely or partially exempt from federal income tax. These tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of yields and margins for all interest-earning assets, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on other taxable investments. This adjustment is not permitted under GAAP on the Consolidated Income Statement.

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

Unfunded lending related commitments – Standby letters of credit, financial guarantees, commitments to extend credit and similar

unfunded obligations that are not unilaterally, unconditionally, cancellable at PNC’s option.

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

194 The PNC Financial Services Group, Inc. – 2021 Form 10-K

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

A****CRONYMS


ACL	Allowance for credit losses	GNMA	Government National Mortgage Association
ALLL	Allowance for loan and lease losses	GSIB	Globally systemically important bank
AML	Anti-Money Laundering	HPI	Home price index
AOCI	Accumulated other comprehensive income	ISDA	International Swaps and Dealer Association
ASC	Accounting Standards Codification	ISP	The PNC Incentive Savings Plan
ASU	Accounting Standards Update	LCR	Liquidity Coverage Ratio
BEC	Business email compromise scams	LGD	Loss given default
BHC	Bank holding company	LIBOR	London Interbank Offered Rate
BHC Act	Bank Holding Company Act of 1956	LIHTC	Low income housing tax credit
bps	Basis points	LLC	Limited liability company
BSA	Bank Secrecy Act	LTV	Loan-to-value ratio
BSBY	Bloomberg Short Term Bank Yield Index	MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
CARES Act	Coronavirus Aid, Relief and Economic Security Act	MSR	Mortgage servicing right
CCAR	Comprehensive Capital Analysis and Review	NAV	Net asset value
CECL	Current Expected Credit Losses	NSFR	Net Stable Funding Ratio
CET1	Common equity tier 1	OCC	Office of the Comptroller of the Currency
CFPB	Consumer Financial Protection Bureau	OCI	Other comprehensive income
CFTC	Commodity Futures Trading Commission	OREO	Other real estate owned
CLTV	Combined loan-to-value ratio	OTC	Over-the-counter
CRA	Community Reinvestment Act	OTTI	Other than temporary impairment
DFAST	Dodd-Frank capital stress testing	PCD	Purchased credit deteriorated
DUS	Delegated Underwriting and Servicing program	PD	Probability of default
EAD	Exposure at default	PPP	Paycheck Protection Program
ERISA	Employee Retirement Income Security Act of 1974, as amended	RAC	Reserve Adequacy Committee
ERM	Enterprise Risk Management	ROAPs	Removal of account provisions
FDI Act	Federal Deposit Insurance Act	ROU	Right-of-use assets
FDIC	Federal Deposit Insurance Corporation	SCB	Stress capital buffer
FHA	Federal Housing Administration	SCCL	Single counterparty credit limit
FHLB	Federal Home Loan Bank	SEC	Securities and Exchange Commission
FHLMC	Federal Home Loan Mortgage Corporation	SOFR	Secured Overnight Financing Rate
FICO	Fair Isaac Corporation (credit score)	SPE	Special purpose entity
FinCEN	Financial Crimes Enforcement Network	TDR	Troubled debt restructuring
FINRA	Financial Industry Regulatory Authority	U.S.	United States of America
FNMA	Federal National Mortgage Association	USD	United States Dollar
FOMC	Federal Open Market Committee	VA	Department of Veterans Affairs
FSOC	Financial Stability Oversight Council	VaR	Value-at-risk
GAAP	Accounting principles generally accepted in the United States of America	VEBA	Voluntary Employee Beneficiary Association
GDP	Gross Domestic Product	VIE	Variable interest entity
GLB Act	Gramm-Leach-Bliley Act

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