# PNC FINANCIAL SERVICES GROUP, INC. (PNC) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from PNC FINANCIAL SERVICES GROUP, INC.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/713676/000071367623000020/pnc-20221231.htm
Accession: 0000713676-23-000020
Filing date: 2023-02-22
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PNC/
All MD&A years: /company/PNC/mda/
Previous year: /company/PNC/mda/fy2021/ (FY 2021)
Next year: /company/PNC/mda/fy2023/ (FY 2023)

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

EXECUTIVE SUMMARY

Key Strategic Goals

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

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

We are focused on our strategic priorities, which are designed to enhance value over the long term, and consist of:

•Expanding our leading banking franchise to new markets and digital platforms,

•Deepening customer relationships by delivering a superior banking experience and financial solutions, and

•Leveraging technology to create efficiencies that help us better serve customers.

Our capital and liquidity priorities are to support customers, fund business investments and return excess capital to shareholders, while maintaining appropriate capital in light of economic conditions, the Basel III framework and other regulatory expectations. For more detail, see the Supervision and Regulation section in Item 1 Business, the Capital Highlights portion of this Executive Summary and the Liquidity and Capital Management portion of the Risk Management section in this Item 7.

Key Factors Affecting Financial Performance

We face a variety of risks that may impact various aspects of our risk profile from time to time. The extent of such impacts may vary depending on factors such as the current business and economic conditions, political and regulatory environment and operational challenges. Many of these risks and our risk management strategies are described in more detail elsewhere in this Report.

Our success will depend upon, among other things, the following factors that we manage or control:

•Effectively managing capital and liquidity including:

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

•Prudent liquidity and capital management to meet evolving regulatory capital, capital planning, stress testing and liquidity standards, and

•Actions we take within the capital and other financial markets.

•Execution of our strategic priorities,

•Management of credit risk in our portfolio,

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

•The impact of legal and regulatory-related contingencies,

•The appropriateness of critical accounting estimates and related contingencies, and

•Our ability to manage operational risks related to new products and services, changes in processes and procedures or the implementation of new technology.

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

•Global and domestic economic conditions, including the length and extent of the economic impacts of the COVID-19 pandemic, and the actions taken to mitigate and manage it,

•The effect of climate change on our business and performance, including indirectly through impacts on our customers,

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

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

•The functioning and other performance of, and availability of liquidity in, U.S. and global financial markets, including capital markets,

•The impact of tariffs and other trade policies of the U.S. and its global trading partners,

36    The PNC Financial Services Group, Inc. – 2022 Form 10-K

•Changes in the competitive landscape,

•Impacts of changes in federal, state and local governmental policy, including on the regulatory landscape, capital markets, taxes, infrastructure spending and social programs,

•The impact of market credit spreads on asset valuations,

•The ability of customers, counterparties and issuers to perform in accordance with contractual terms, and the resulting impact on our asset quality,

•Loan demand, utilization of credit commitments and standby letters of credit, and

•The impact on customers and changes in customer behavior due to changing business and economic conditions or regulatory or legislative initiatives.

For additional information on the risks we face, see Item 1A Risk Factors and the Cautionary Statement Regarding Forward-Looking Information section in this Item 7.

Presentation of Noninterest Income

Effective for the first quarter of 2022, PNC updated the presentation of its noninterest income categorization to be based on product and service type, and accordingly, has changed the basis of presentation of its noninterest income revenue streams to: (i) Asset management and brokerage, (ii) Capital markets related, (iii) Card and cash management, (iv) Lending and deposit services, (v) Residential and commercial mortgage and (vi) Other noninterest income. For a description of each updated noninterest income revenue stream, see Note 1 Accounting Policies. Additionally, in the fourth quarter of 2022, PNC updated the name of the noninterest income line item “Capital markets related” to “Capital markets and advisory.” This update did not impact the components of the category. All periods presented herein reflect these changes.

Acquisition of BBVA USA Bancshares, Inc.

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

On October 8, 2021, BBVA USA merged into PNC Bank. On October 12, 2021, PNC converted approximately 2.6 million customers, 9,000 employees and over 600 branches across seven states. Our results of operations and balance sheets for all periods presented in this Report reflect the benefit of BBVA’s acquired businesses for the period since the acquisition closed on June 1, 2021.

For additional information on the acquisition of BBVA, see Note 2 Acquisition and Divestiture Activity.

Discontinued Operations

In the second quarter of 2020, PNC divested its entire 22.4% equity investment in BlackRock. Net proceeds from the sale were $14.2 billion with an after-tax gain on sale of $4.3 billion. BlackRock’s historical results are reported as discontinued operations. For additional details on the divestiture of our equity investment in BlackRock, see Note 2 Acquisition and Divestiture Activity.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  37

Selected Financial Data

The following tables include selected financial data which should be reviewed in conjunction with the Consolidated Financial Statements and Notes included in Item 8 of this Report as well as the other disclosures in this Report concerning our historical financial performance, our future prospects and the risks associated with our business and financial performance.

Table 1: Summary of Operations, Per Common Share Data and Performance Ratios

[[GREPCENT_TABLE]]
[["","Year ended December 31"],["Dollars in millions, except per share data","2022","","2021","","2020"],["Summary of Operations"],["Net interest income","$","13,014","","","$","10,647","","","$","9,946"],["Noninterest income","8,106","","","8,564","","","6,955"],["Total revenue","21,120","","","19,211","","","16,901"],["Provision for (recapture of) credit losses","477","","","(779)","","","3,175"],["Noninterest expense","13,170","","","13,002","","","10,297"],["Income from continuing operations before income taxes and noncontrolling interests","7,473","","","6,988","","","3,429"],["Income taxes from continuing operations","1,360","","","1,263","","","426"],["Net income from continuing operations","6,113","","","5,725","","","3,003"],["Income from discontinued operations before taxes","","","","","5,777"],["Income taxes from discontinued operations","","","","","1,222"],["Net income from discontinued operations","","","","","","4,555"],["Net income","$","6,113","","","$","5,725","","","$","7,558"],["Net income attributable to common shareholders","$","5,735","","","$","5,436","","","$","7,284"],["Per Common Share"],["Diluted earnings from continuing operations","$","13.85","","","$","12.70","","","$","6.36"],["Diluted earnings from discontinued operations","","","","","$","10.60"],["Total diluted earnings","$","13.85","","","$","12.70","","","$","16.96"],["Book value per common share","$","99.93","","","$","120.61","","","$","119.11"],["Tangible book value per common share (non-GAAP) (a)","$","72.12","","","$","94.11","","","$","97.43"],["Performance Ratios"],["Net interest margin (non-GAAP) (b)","2.65","%","","2.29","%","","2.53","%"],["Noninterest income to total revenue","38","%","","45","%","","41","%"],["Efficiency","62","%","","68","%","","61","%"],["Return on:"],["Average common shareholders\u2019 equity","13.52","%","","10.78","%","","15.21","%"],["Average assets","1.11","%","","1.09","%","","1.68","%"]]
[[/GREPCENT_TABLE]]

(a)See explanation and reconciliation of this non-GAAP measure in Reconciliation of Tangible Book Value Per Common Share (non-GAAP) Statistical Information (Unaudited) section in Item 8 of this Report.

(b)See explanation and reconciliation of this non-GAAP measure in Average Consolidated Balance Sheet and Net Interest Analysis and Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) Statistical Information (Unaudited) section in Item 8 of this Report.

Table 2: Balance Sheet Highlights and Other Selected Ratios

[[GREPCENT_TABLE]]
[["","Year ended December 31"],["Dollars in millions, except as noted","2022","","2021"],["Balance Sheet Highlights"],["Assets","$","557,263","","","$","557,191"],["Loans","$","326,025","","","$","288,372"],["Allowance for loan and lease losses","$","4,741","","","$","4,868"],["Interest-earning deposits with banks","$","27,320","","","$","74,250"],["Investment securities","$","139,334","","","$","132,962"],["Total deposits","$","436,282","","","$","457,278"],["Borrowed funds","$","58,713","","","$","30,784"],["Total shareholders\u2019 equity","$","45,774","","","$","55,695"],["Common shareholders\u2019 equity","$","40,028","","","$","50,685"],["Other Selected Ratios"],["Common equity Tier 1","9.1","%","","10.3","%"],["Dividend payout","41.7","%","","37.8","%"],["Loans to deposits","75","%","","63","%"],["Common shareholders\u2019 equity to total assets","7.2","%","","9.1","%"],["Average common shareholders\u2019 equity to average assets","7.7","%","","9.6","%"]]
[[/GREPCENT_TABLE]]

38    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Income Statement Highlights

Net income for 2022 was $6.1 billion, or $13.85 per diluted common share, an increase of $0.4 billion compared to net income of $5.7 billion, or $12.70 per diluted common share, for 2021. The increase was driven by higher net interest income, partially offset by a higher provision for credit losses, lower noninterest income and higher expenses.

•Total revenue increased $1.9 billion, or 10%, to $21.1 billion.

•Net interest income increased $2.4 billion, or 22%, to $13.0 billion, primarily due to higher interest-earning asset yields and balances, partially offset by higher funding costs.

•Net interest margin increased to 2.65% for 2022 compared to 2.29% for 2021, due to higher interest-earning asset yields, partially offset by higher funding rates.

•Noninterest income decreased $458 million, or 5%, to $8.1 billion, primarily due to lower capital markets and advisory income, a decrease in private equity revenue and lower residential and commercial mortgage fees, partially offset by an increase in card and cash management revenue.

•Provision for credit losses was $477 million in 2022, driven by our weakened economic outlook along with loan growth, partially offset by the impacts from the reassessment of pandemic-related risks and credit quality improvement in the portfolio. Provision recapture was $779 million for 2021.

•Noninterest expense increased $168 million to $13.2 billion, reflecting the addition of a full year of BBVA operating expenses and continued business investment. The increase was partially offset by lower integration expenses.

For additional detail, see the Consolidated Income Statement Review section of this Item 7.

Balance Sheet Highlights

Our balance sheet was well positioned at December 31, 2022. In comparison to December 31, 2021:

•Total assets were stable.

•Total loans increased $37.7 billion, or 13%, to $326.0 billion.

•Total commercial loans grew $32.0 billion, or 17%, to $225.0 billion, due to new production and higher utilization of loan commitments, partially offset by PPP loan forgiveness.

•PNC had $0.4 billion of PPP loans outstanding at December 31, 2022, compared to $3.4 billion at December 31, 2021.

•Total consumer loans increased $5.7 billion, or 6%, to $101.0 billion, primarily due to increases in residential mortgages, home equity and credit card, partially offset by declines in the remaining portfolios as paydowns outpaced new originations.

•Investment securities increased $6.4 billion, or 5%, to $139.3 billion due to net purchases, primarily of agency residential mortgage-backed securities, partially offset by a decline in valuation driven by interest rates.

•Interest earning deposits with banks, primarily with the Federal Reserve Bank, decreased $46.9 billion, or 63% to $27.3 billion, reflecting higher loans outstanding, lower deposits and higher securities balances.

•Total deposits decreased $21.0 billion, or 5%, to $436.3 billion, due to lower commercial and consumer deposits, reflecting the impact of inflationary pressures and competitive pricing dynamics.

•Borrowed funds of $58.7 billion increased $27.9 billion, or 91%, due to higher FHLB borrowings, partially offset by lower senior debt.

For additional detail, see the Consolidated Balance Sheet Review section of this Item 7.

Credit Quality Highlights

2022 reflected strong credit quality performance.

•At December 31, 2022 compared to December 31, 2021:

•Nonperforming assets of $2.0 billion decreased $487 million, or 19%, due to lower commercial and consumer nonperforming loans.

•Total loan delinquencies of $1.5 billion decreased $495 million, or 25%, driven by lower consumer and commercial delinquencies.

•The ACL related to loans, which consists of the ALLL and the allowance for unfunded lending related commitments, decreased to $5.4 billion, or 1.67% of total loans at December 31, 2022, compared to $5.5 billion, or 1.92% of total loans at December 31, 2021. The decrease was primarily driven by the reassessment of pandemic-related risks and improvements in credit quality, partially offset by our weakened economic outlook along with loan growth.

•Net charge-offs of $563 million or 0.18% of average loans in 2022 decreased 14% compared to net charge-offs of $657 million or 0.24% of average loans for 2021. The decline was primarily driven by fewer commercial net charge-offs, partially offset by higher consumer net charge-offs due to a decrease in recoveries. Net charge-offs in the comparative period included BBVA-related charge-offs resulting from required purchase accounting treatment.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  39

For additional detail, see the Credit Risk Management portion of the Risk Management section of this Item 7.

Capital Highlights

We maintained a strong capital position during 2022.

•Common shareholders’ equity decreased to $40.0 billion at December 31, 2022, compared to $50.7 billion at December 31, 2021 as the benefit of net income was more than offset by a decrease in AOCI, reflecting the negative impact of higher interest rates on securities and swap values. The decline was also attributable to share repurchases and common dividends paid.

•In 2022, we returned $6.0 billion of capital to shareholders through dividends on common shares of $2.4 billion and repurchases of 21.2 million common shares for $3.6 billion.

◦The SCB framework allows for capital returns in amounts up to the level of capital in excess of the firm’s SCB plus the regulatory minimum level of capital. Consistent with the flexibility provided under the SCB framework, our Board of Directors has authorized a repurchase framework under the repurchase program approved on April 4, 2019 of up to 100 million common shares, of which approximately 49% were still available for repurchase at December 31, 2022. Under this framework, PNC expects quarterly repurchases of up to $500 million with the ability to adjust those levels as conditions warrant. PNC’s SCB for the four-quarter period beginning October 1, 2022 is 2.9%.

•On January 4, 2023, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.50 per share. The dividend, with a payment date of February 5, 2023, was paid on the next business day.

•The Basel III CET1 capital ratio decreased to 9.1% at December 31, 2022 from 10.3% at December 31, 2021.

•PNC elected to delay the estimated impact of CECL on CET1 capital through December 31, 2021, followed by a three-year transition period. CECL’s estimated impact on CET1 capital is defined as the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date, excluding the allowance for PCD loans, compared to CECL ACL at adoption. Effective for the first quarter of 2022, PNC is now in the three-year transition period, and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024. The CET1 fully implemented ratio, which reflects the full impact of CECL and excludes the benefits of the optional five-year transition, was 8.9% at December 31, 2022 compared to 10.0% at December 31, 2021.

PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding a SCB established by the Federal Reserve Board in connection with the Federal Reserve Board’s CCAR process. See additional discussion of the CCAR process in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of this Report.

See the Liquidity and Capital Management portion of the Risk Management section of this Item 7 for more detail on our 2022 capital and liquidity actions as well as our capital ratios.

Business Outlook

Statements regarding our business outlook are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be substantially different than those we are currently expecting and do not take into account potential legal and regulatory contingencies. These statements are based on our views that:

•The economy continues to expand in early 2023, but economic growth is slowing in response to the ongoing Federal Reserve monetary policy tightening to slow inflation. This has led to large increases in both short- and long-term interest rates. With much higher mortgage rates the housing market is already in contraction, with steep drops in existing home sales and single-family housing starts, and a modest decline in house prices. Other sectors where interest rates play an outsized role, such as business investment and consumer spending on durable goods, will contract in 2023.

•PNC’s baseline outlook is for a recession starting in the second half of 2023, with real GDP contracting a modest 1% before recovery starts in early 2024 as the Federal Reserve lowers interest rates in response to a deteriorating labor market and slower inflation. The unemployment rate will increase throughout 2023, peaking at above 5% in the first half of 2024. Inflation will slow with the recession and be back to the Federal Reserve’s 2% long-term objective by early 2024.

•PNC expects the FOMC to increase the federal funds rate by an additional 25 basis points in March. This would bring the federal funds rate to a range of 4.75% to 5.00% by mid-March. PNC expects a federal funds rate cut of 25 basis points in early 2024 as inflation moves toward the FOMC’s 2% long-term objective.

See Item 1A Risk Factors and the Cautionary Statement Regarding Forward-Looking Information section in this Item 7 for other factors that could cause future events to differ, perhaps materially, from those anticipated in these forward-looking statements.

40    The PNC Financial Services Group, Inc. – 2022 Form 10-K

For the full year 2023, compared to full year 2022, we expect:

•Period-end loans to be up 2% to 4%,

•Average loans to be up 6% to 8%,

•Revenue to be up 6% to 8%,

•Noninterest expense to be up 2% to 4%, and

•The effective tax rate to be approximately 18%.

For the first quarter of 2023, compared to the fourth quarter of 2022, we expect:

•Period-end loans to be stable,

•Average loans to be up 1% to 2%,

•Net interest income to be down 1% to 2%,

•Fee income to be down 3% to 5%,

•Other noninterest income, excluding net securities gains and Visa activity, to be between $200 million and $250 million,

•Total revenue to decline approximately 3%,

•Noninterest expense to be down 2% to 4%, and

•Net loan charge-offs to be approximately $200 million.

Additionally, as of year-end 2022, we have completed all actions associated with the integration of BBVA, and no additional integration costs are anticipated. A total of $980 million of integration costs were incurred, which included $120 million of write-offs for capitalized items.

We cannot provide, without unreasonable effort, a meaningful or accurate reconciliation of forward-looking non-GAAP measures to their most directly comparable GAAP financial measures. This is due to the inherent difficulty of forecasting the timing and amounts necessary for the reconciliation when such amounts are subject to events that cannot be reasonably predicted, as noted in our Cautionary Statement. Accordingly, we cannot address the probable significance of the unavailable information.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  41

CONSOLIDATED INCOME STATEMENT REVIEW

Our Consolidated Income Statement is presented in Item 8 of this Report. For the comparison of 2021 over 2020, see the Consolidated Income Statement Review section in our 2021 Form 10-K.

Net income for 2022 was $6.1 billion, or $13.85 per diluted common share, an increase of $0.4 billion compared to net income of $5.7 billion, or $12.70 per diluted common share, for 2021. The increase was driven by higher net interest income, partially offset by a higher provision for credit losses, lower noninterest income and higher expenses.

Net Interest Income

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

[[GREPCENT_TABLE]]
[["","2022","","2021"],["Year ended December 31 Dollars in millions","Average Balances","Average Yields/ Rates","Interest Income/ Expense","","Average Balances","Average Yields/ Rates","Interest Income/ Expense"],["Assets"],["Interest-earning assets"],["Investment securities","$","137,149","","2.00","%","$","2,747","","","$","110,974","","1.67","%","$","1,855"],["Loans","307,699","","3.86","%","11,886","","","268,696","","3.37","%","9,060"],["Interest-earning deposits with banks","41,050","","1.41","%","578","","","79,869","","0.13","%","103"],["Other","9,651","","3.50","%","337","","","8,539","","2.23","%","190"],["Total interest-earning assets/interest income","$","495,549","","3.14","%","15,548","","","$","468,078","","2.39","%","11,208"],["Liabilities"],["Interest-bearing liabilities"],["Interest-bearing deposits","$","299,042","","0.42","%","1,267","","","$","279,228","","0.05","%","126"],["Borrowed funds","42,450","","2.72","%","1,155","","","34,508","","1.05","%","361"],["Total interest-bearing liabilities/interest expense","$","341,492","","0.71","%","2,422","","","$","313,736","","0.16","%","487"],["Net interest margin/income (non-GAAP)","","2.65","%","13,126","","","","2.29","%","10,721"],["Taxable-equivalent adjustments","","","(112)","","","","","(74)"],["Net interest income (GAAP)","","","$","13,014","","","","","$","10,647"]]
[[/GREPCENT_TABLE]]

(a)Interest income calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income and yields for all interest-earning assets, as well as net interest margins, we use interest income on a taxable-equivalent basis in calculating average yields and net interest margins by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP on the Consolidated Income Statement. For more information, see Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) in the Statistical Information (Unaudited) section in Item 8 of this Report.

Changes in net interest income and margin result from the interaction of the volume and composition of interest-earning assets and related yields, interest-bearing liabilities and related rates paid, and noninterest-bearing sources of funding. See the Statistical Information (Unaudited) – Average Consolidated Balance Sheet and Net Interest Analysis and Analysis Of Year-To-Year Changes In Net Interest Income in Item 8 of this Report.

Net interest income increased $2.4 billion, or 22% in 2022 compared with 2021. The increase was primarily due to higher interest-earning asset yields and balances, partially offset by higher funding costs. Net interest margin increased 36 basis points, due to higher interest-earning asset yields, partially offset by higher funding rates.

Average investment securities grew $26.2 billion, or 24%, driven by net securities purchases, primarily of agency residential mortgage-backed securities and U.S. Treasury and government agency securities. Average investment securities represented 28% of average interest-earning assets in 2022, compared to 24% in 2021.

Average loans increased $39.0 billion, or 15%, due to growth in commercial and consumer loans, partially offset by PPP loan forgiveness. Average loans represented 62% of average interest-earning assets in 2022 compared to 57% in 2021.

Average interest-earning deposits with banks decreased $38.8 billion reflecting higher loan balances and net securities purchases, partially offset by higher deposits and borrowed funds.

Average interest-bearing deposits grew $19.8 billion, or 7%, and included a shift in commercial deposits from noninterest-bearing to interest-bearing as deposit rates have risen. In total, average interest-bearing deposits represented 88% of average interest-bearing liabilities in 2022 compared to 89% in 2021.

42    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Average borrowed funds increased $7.9 billion, or 23%, primarily due to higher FHLB borrowings, partially offset by lower senior debt.

Further details regarding average loans and deposits are included in the Business Segments Review section of this Item 7.

Noninterest Income

Table 4: Noninterest Income

[[GREPCENT_TABLE]]
[["Year ended December 31","","","Change"],["Dollars in millions","2022","2021","$","%"],["Noninterest income"],["Asset management and brokerage","$","1,444","","$","1,438","","$","6","","\u2014"],["Capital markets and advisory","1,296","","1,577","","(281)","","(18)","%"],["Card and cash management","2,633","","2,398","","235","","10","%"],["Lending and deposit services","1,134","","1,102","","32","","3","%"],["Residential and commercial mortgage","647","","850","","(203)","","(24)","%"],["Other","952","","1,199","","(247)","","(21)","%"],["Total noninterest income","$","8,106","","$","8,564","","$","(458)","","(5)","%"]]
[[/GREPCENT_TABLE]]

Noninterest income as a percentage of total revenue was 38% for 2022 and 45% for 2021.

Asset management and brokerage fees increased due to the full-year benefit of BBVA and increased product sales, partially offset by lower average equity markets. PNC’s discretionary client assets under management decreased to $173 billion at December 31, 2022, compared to $192 billion at December 31, 2021, driven by lower spot equity markets.

Capital markets and advisory fees decreased primarily due to lower advisory and underwriting fees, partially offset by higher fees on customer-related derivative activities.

Growth in card and cash management revenue was primarily due to increased treasury management product revenue, including the full-year benefit of BBVA, in addition to higher consumer spending.

Lending and deposit services increased and included the full-year benefit of BBVA.

Residential and commercial mortgage decreased due to lower residential and commercial mortgage banking activities driven by a decline in both origination and sales activity, partially offset by higher residential mortgage servicing income.

Other noninterest income decreased compared to 2021, primarily due to lower private equity revenue and net losses on securities, partially offset by the benefit of lower negative Visa Class B derivative fair value adjustments. Further details regarding our customer-related trading activities are included in the Market Risk Management – Customer-Related Trading Risk portion of the Risk Management section of this Item 7. Further details regarding private and other equity investments are included in the Market Risk Management – Equity and Other Investment Risk section.

Noninterest Expense

Table 5: Noninterest Expense

[[GREPCENT_TABLE]]
[["Year ended December 31","","","Change"],["Dollars in millions","2022","2021","$","%"],["Noninterest expense"],["Personnel","$","7,244","","$","7,141","","$","103","","1","%"],["Occupancy","992","","940","","52","","6","%"],["Equipment","1,395","","1,411","","(16)","","(1)","%"],["Marketing","355","","319","","36","","11","%"],["Other","3,184","","3,191","","(7)","","\u2014"],["Total noninterest expense","$","13,170","","$","13,002","","$","168","","1","%"]]
[[/GREPCENT_TABLE]]

The increase to noninterest expense included a full year of BBVA operating expenses and continued business investment, as well as the write-off of insignificant technology projects connected to crypto currency product development, all of which has ceased as of the reporting date. The increase was partially offset by lower integration expenses.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  43

We exceeded our 2022 continuous improvement program savings goal of $300 million. In 2023, we increased our goal to $400 million in cost savings.

Effective Income Tax Rate

The effective income tax rate from continuing operations was 18.2% for 2022 compared with 18.1% for 2021.

The effective tax rate is generally lower than the statutory rate primarily due to tax credits we receive from our investments in low- income housing and new markets investments, as well as earnings on other tax exempt investments. Additional information regarding our effective tax rate is included in the Reconciliation of Statutory and Effective Tax Rates table in Note 19 Income Taxes.

Provision for (Recapture of) Credit Losses

Table 6: Provision for (Recapture of) Credit Losses

[[GREPCENT_TABLE]]
[["Year ended December 31"],["Dollars in millions","2022","2021"],["Provision for (recapture of) credit losses"],["Loans and leases","$","439","","$","(887)"],["Unfunded lending related commitments","32","","32"],["Investment securities","17","","51"],["Other financial assets","(11)","","25"],["Total provision for (recapture of) credit losses","$","477","","$","(779)"]]
[[/GREPCENT_TABLE]]

Provision for credit losses was $477 million in 2022, driven by our weakened economic outlook along with loan growth, partially offset by the impacts from the reassessment of pandemic-related risks and credit quality improvement in the portfolio.

Net interest income less the provision for (recapture of) credit losses was $12.5 billion, $11.4 billion and $6.8 billion for 2022, 2021 and 2020, respectively.

CONSOLIDATED BALANCE SHEET REVIEW

The summarized balance sheet data in Table 7 is based upon our Consolidated Balance Sheet in Item 8 of this Report. For additional detail of the comparison of 2021 over 2020, see the Consolidated Balance Sheet Review section in our 2021 Form 10-K.

Table 7: Summarized Balance Sheet Data

[[GREPCENT_TABLE]]
[["","December 31","","December 31","","Change"],["Dollars in millions","2022","","2021","","$","%"],["Assets"],["Interest-earning deposits with banks","$","27,320","","","$","74,250","","","$","(46,930)","","(63)","%"],["Loans held for sale","1,010","","","2,231","","","(1,221)","","(55)","%"],["Investment securities","139,334","","","132,962","","","6,372","","5","%"],["Loans","326,025","","","288,372","","","37,653","","13","%"],["Allowance for loan and lease losses","(4,741)","","","(4,868)","","","127","","3","%"],["Mortgage servicing rights","3,423","","","1,818","","","1,605","","88","%"],["Goodwill","10,987","","","10,916","","","71","","1","%"],["Other","53,905","","","51,510","","","2,395","","5","%"],["Total assets","$","557,263","","","$","557,191","","","$","72","","\u2014"],["Liabilities"],["Deposits","$","436,282","","","$","457,278","","","$","(20,996)","","(5)","%"],["Borrowed funds","58,713","","","30,784","","","27,929","","91","%"],["Allowance for unfunded lending related commitments","694","","","662","","","32","","5","%"],["Other","15,762","","","12,741","","","3,021","","24","%"],["Total liabilities","511,451","","","501,465","","","9,986","","2","%"],["Equity"],["Total shareholders\u2019 equity","45,774","","","55,695","","","(9,921)","","(18)","%"],["Noncontrolling interests","38","","","31","","","7","","23","%"],["Total equity","45,812","","","55,726","","","(9,914)","","(18)","%"],["Total liabilities and equity","$","557,263","","","$","557,191","","","$","72","","\u2014"]]
[[/GREPCENT_TABLE]]

44    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Our balance sheet was well-positioned at December 31, 2022. In comparison to December 31, 2021:

•Total assets were stable as higher loans, securities and MSRs were offset by lower balances held with the Federal Reserve Bank.

•Total liabilities increased primarily due to higher borrowed funds, partially offset by a decrease in deposits.

•Total equity decreased as the benefits from net income and preferred stock issuances were more than offset by a decrease in AOCI, reflecting the negative impact of higher interest rates on securities and swap values. The decline was also attributable to common share repurchases, dividends paid and the redemption of preferred stock.

The ACL related to loans totaled $5.4 billion at December 31, 2022, a decrease of $0.1 billion since December 31, 2021. The

decrease was primarily driven by the reassessment of pandemic-related risks and improvements in credit quality, partially offset by our weakened economic outlook along with loan growth.

See the following for additional information regarding our ACL related to loans:

•Allowance for Credit Losses in the Credit Risk Management section of this Item 7,

•Critical Accounting Estimates and Judgments section of this Item 7, and

•Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses.

The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and regulatory compliance is included in the Liquidity and Capital Management portion of the Risk Management section of this Item 7 and in Note 20 Regulatory Matters.

Loans

Table 8: Loans

[[GREPCENT_TABLE]]
[["","December 31","","December 31","","Change"],["Dollars in millions","2022","","2021","","$","%"],["Commercial"],["Commercial and industrial","$","182,219","","","$","152,933","","","$","29,286","","19","%"],["Commercial real estate","36,316","","","34,015","","2,301","","7","%"],["Equipment lease financing","6,514","","","6,130","","384","","6","%"],["Total commercial","225,049","","","193,078","","","31,971","","17","%"],["Consumer"],["Residential real estate","45,889","","","39,712","","6,177","","16","%"],["Home equity","25,983","","","24,061","","1,922","","8","%"],["Automobile","14,836","","","16,635","","(1,799)","","(11)","%"],["Credit card","7,069","","","6,626","","443","","7","%"],["Education","2,173","","","2,533","","(360)","","(14)","%"],["Other consumer","5,026","","","5,727","","(701)","","(12)","%"],["Total consumer","100,976","","","95,294","","","5,682","","6","%"],["Total loans","$","326,025","","","$","288,372","","","$","37,653","","13","%"]]
[[/GREPCENT_TABLE]]

Commercial loans increased primarily due to new production and higher utilization of loan commitments, partially offset by PPP loan forgiveness. PNC had $0.4 billion of PPP loans outstanding at December 31, 2022, compared to $3.4 billion at December 31, 2021.

Consumer loans increased primarily due to increases in residential mortgages, home equity and credit card, partially offset by declines

in the remaining portfolios as paydowns outpaced new originations.

For additional information regarding our loan portfolio, see the Credit Risk Management portion of the Risk Management section, Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses.

Investment Securities

Investment securities of $139.3 billion at December 31, 2022 increased $6.4 billion, or 5%, compared to December 31, 2021, due to net purchases, primarily of agency residential mortgage-backed securities, partially offset by a decline in valuation driven by interest rates.

The level and composition of the investment securities portfolio fluctuates over time based on many factors, including market conditions, loan and deposit growth, and balance sheet management activities. We manage our investment securities portfolio to optimize returns, while providing a reliable source of liquidity for our banking and other activities, considering the LCR, NSFR and other internal and external guidelines and constraints.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  45

Table 9: Investment Securities (a)

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Dollars in millions","Amortized Cost (b)","","Fair Value","","Amortized Cost (b)","","Fair Value"],["U.S. Treasury and government agencies","$","45,767","","","$","43,330","","","$","47,024","","","$","47,054"],["Agency residential mortgage-backed","77,385","","","71,073","","","67,326","","","67,632"],["Non-agency residential mortgage-backed","973","","","1,074","","","927","","","1,158"],["Agency commercial mortgage-backed","2,693","","","2,501","","","1,740","","","1,773"],["Non-agency commercial mortgage-backed (c)","2,992","","","2,883","","","3,423","","","3,436"],["Asset-backed (d)","7,291","","","7,183","","","6,380","","","6,409"],["Other debt (e)","6,642","","","6,394","","","5,404","","","5,596"],["Total investment securities (f)","$","143,743","","","$","134,438","","","$","132,224","","","$","133,058"]]
[[/GREPCENT_TABLE]]

(a)Of our total securities portfolio, 97% and 96% were rated AAA/AA as of December 31, 2022 and 2021, respectively.

(b)Amortized cost is presented net of the allowance for investment securities, which totaled $149 million at December 31, 2022 and primarily related to non-agency commercial mortgage-backed securities. The comparable amount at December 31, 2021 was $133 million.

(c)Collateralized primarily by office buildings, multifamily housing, retail properties, lodging properties and industrial properties.

(d)Collateralized primarily by corporate debt, government guaranteed education loans and other consumer credit products.

(e)Includes state and municipal securities.

(f)Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.

Table 9 presents the distribution of our investment securities portfolio by amortized cost and fair value. The relationship of fair value to amortized cost at December 31, 2022 compared to December 31, 2021 primarily reflected the impact of higher interest rates on the valuation of fixed rate securities. We continually monitor the credit risk in our portfolio and maintain the allowance for investment securities at an appropriate level to absorb expected credit losses on our investment securities portfolio for the remaining contractual term of the securities adjusted for expected prepayments. See Note 3 Investment Securities for additional details regarding the allowance for investment securities.

During 2022, we transferred securities with a fair value of $82.7 billion from available for sale to held to maturity. We changed our intent and committed to hold these high-quality securities to maturity in order to reduce the impact of price volatility on AOCI and tangible capital. See Note 3 Investment Securities for additional details regarding these transfers.

The duration of investment securities was 4.5 years at December 31, 2022. We estimate that at December 31, 2022 the effective

duration of investment securities was 4.4 years for an immediate 50 basis points parallel increase in interest rates and 4.5 years for an

immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2021 for the effective duration of

investment securities were 3.8 years and 3.5 years, respectively.

Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 6.0 years at December 31, 2022 compared to 4.4 years at December 31, 2021.

Table 10: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt Securities

[[GREPCENT_TABLE]]
[["December 31, 2022","Years"],["Agency residential mortgage-backed","7.7"],["Non-agency residential mortgage-backed","10.0"],["Agency commercial mortgage-backed","5.6"],["Non-agency commercial mortgage-backed","1.4"],["Asset-backed","2.4"]]
[[/GREPCENT_TABLE]]

Additional information regarding our investment securities portfolio is included in Note 3 Investment Securities and Note 15 Fair Value.

46    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Funding Sources

Table 11: Details of Funding Sources

[[GREPCENT_TABLE]]
[["","December 31","","December 31","","Change"],["Dollars in millions","2022","","2021","","$","%"],["Deposits"],["Noninterest-bearing","$","124,486","","","$","155,175","","","$","(30,689)","","(20)","%"],["Interest-bearing"],["Money market","64,150","","","61,229","","","2,921","","5","%"],["Demand","126,143","","","115,910","","","10,233","","9","%"],["Savings","103,033","","","107,598","","","(4,565)","","(4)","%"],["Time deposits","18,470","","","17,366","","","1,104","","6","%"],["Total interest-bearing deposits","311,796","","","302,103","","","9,693","","3","%"],["Total deposits","436,282","","","457,278","","","(20,996)","","(5)","%"],["Borrowed funds"],["Federal Home Loan Bank borrowings","32,075","","","","","32,075","","\u2014"],["Senior debt","16,657","","","20,661","","","(4,004)","","(19)","%"],["Subordinated debt","6,307","","","6,996","","","(689)","","(10)","%"],["Other","3,674","","","3,127","","","547","","17","%"],["Total borrowed funds","58,713","","","30,784","","","27,929","","91","%"],["Total funding sources","$","494,995","","","$","488,062","","","$","6,933","","1","%"]]
[[/GREPCENT_TABLE]]

Total deposits decreased due to lower commercial and consumer deposits, reflecting competitive pricing dynamics and the impact of inflationary pressures. In addition, there was a shift from noninterest-bearing to interest-bearing deposits in 2022, reflecting the impact of higher interest rates.

Borrowed funds increased due to higher FHLB borrowings, partially offset by lower senior debt.

The level and composition of borrowed funds fluctuates over time based on many factors, including market conditions, loans, investment securities, deposit growth and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity for our banking and other activities, considering our LCR and NSFR requirements and other internal and external guidelines and constraints. See the Liquidity and Capital Management portion of the Risk Management section of this Item 7 for additional information regarding our 2022 liquidity and capital activities. See Note 10 Borrowed Funds for additional information related to our borrowings.

Shareholders’ Equity

Total shareholders’ equity was $45.8 billion at December 31, 2022, a decrease of $9.9 billion compared to December 31, 2021, as increases related to net income of $6.1 billion and preferred stock issuances of $2.2 billion were more than offset by a decrease in AOCI of $10.6 billion, reflecting the negative impact of higher interest rates on securities and swap values. The decline was also attributable to common share repurchases of $3.6 billion, dividends paid of $2.6 billion and a preferred stock redemption of $1.5 billion.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  47

BUSINESS SEGMENTS REVIEW

We have three reportable business segments:

•Retail Banking

•Corporate & Institutional Banking

•Asset Management Group

Business segment results and a description of each business are included in Note 23 Segment Reporting. Certain amounts included in this Business Segments Review differ from those amounts shown in Note 23, primarily due to the presentation in this Item 7 of business net interest income on a taxable-equivalent basis. Note 23 presents results of businesses for 2022, 2021 and 2020.

Net interest income in business segment results reflects our internal funds transfer pricing methodology. Assets receive a funding charge, and liabilities and capital receive a funding credit based on a transfer pricing methodology that incorporates product repricing characteristics, tenor and other factors.

Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in the “Other” category as shown in Table 120 in Note 23 Segment Reporting. “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).

48    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Retail Banking

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

Table 12: Retail Banking Table

[[GREPCENT_TABLE]]
[["(Unaudited)"],["Year ended December 31","","","","","Change"],["Dollars in millions, except as noted","2022","","2021","","$","","%"],["Income Statement"],["Net interest income","$","7,540","","","$","6,206","","","$","1,334","","","21","%"],["Noninterest income","2,967","","","2,796","","","171","","","6","%"],["Total revenue","10,507","","","9,002","","","1,505","","","17","%"],["Provision for (recapture of) credit losses","259","","","(101)","","","360","","","*"],["Noninterest expense","7,598","","","6,916","","","682","","","10","%"],["Pretax earnings","2,650","","","2,187","","","463","","","21","%"],["Income taxes","621","","","508","","","113","","","22","%"],["Noncontrolling interests","55","","","31","","","24","","","77","%"],["Earnings","$","1,974","","","$","1,648","","","$","326","","","20","%"],["Average Balance Sheet"],["Loans held for sale","$","927","","","$","1,328","","","$","(401)","","","(30)","%"],["Loans"],["Consumer"],["Residential real estate","$","33,643","","","$","25,230","","","$","8,413","","","33","%"],["Home equity","23,221","","","22,387","","","834","","","4","%"],["Automobile","15,425","","","15,787","","","(362)","","","(2)","%"],["Credit card","6,620","","","6,182","","","438","","","7","%"],["Education","2,381","","","2,770","","","(389)","","","(14)","%"],["Other consumer","2,164","","","2,397","","","(233)","","","(10)","%"],["Total consumer","83,454","","","74,753","","","8,701","","","12","%"],["Commercial","11,177","","","14,321","","","(3,144)","","","(22)","%"],["Total loans","$","94,631","","","$","89,074","","","$","5,557","","","6","%"],["Total assets","$","113,829","","","$","106,331","","","$","7,498","","","7","%"],["Deposits"],["Noninterest-bearing","$","64,775","","","$","57,729","","","$","7,046","","","12","%"],["Interest-bearing","199,614","","","184,040","","","15,574","","","8","%"],["Total deposits","$","264,389","","","$","241,769","","","$","22,620","","","9","%"],["Performance Ratios"],["Return on average assets","1.73","%","","1.55","%"],["Noninterest income to total revenue","28","%","","31","%"],["Efficiency","72","%","","77","%"]]
[[/GREPCENT_TABLE]]

(continued on following page)

The PNC Financial Services Group, Inc. – 2022 Form 10-K  49

(Continued from previous page)

[[GREPCENT_TABLE]]
[["Year ended December 31","","","","","Change"],["Dollars in millions, except as noted","2022","","2021","","$","","%"],["Supplemental Noninterest Income Information"],["Asset management and brokerage","$","528","","","$","465","","","$","63","","","14","%"],["Card and cash management","$","1,338","","","$","1,281","","","$","57","","","4","%"],["Lending and deposit services","$","670","","","$","619","","","$","51","","","8","%"],["Residential and commercial mortgage","$","319","","","$","456","","","$","(137)","","","(30)","%"],["Residential Mortgage Information"],["Residential mortgage servicing statistics (in billions, except as noted) (a)"],["Serviced portfolio balance (b)","$","190","","","$","133","","","$","57","","","43","%"],["Serviced portfolio acquisitions","$","74","","","$","44","","","$","30","","","68","%"],["MSR asset value (b)","$","2.3","","","$","1.1","","","$","1.2","","","109","%"],["MSR capitalization value (in basis points) (b)","122","","","81","","","41","","","51","%"],["Servicing income: (in millions)"],["Servicing fees, net (c)","$","192","","","$","34","","","$","158","","","*"],["Mortgage servicing rights valuation, net of economic hedge","$","9","","","$","64","","","$","(55)","","","(86)","%"],["Residential mortgage loan statistics"],["Loan origination volume (in billions)","$","15.1","","","$","24.8","","","$","(9.7)","","","(39)","%"],["Loan sale margin percentage","2.14","%","","2.84","%"],["Percentage of originations represented by:"],["Purchase volume (d)","67","%","","43","%"],["Refinance volume","33","%","","57","%"],["Other Information (b)"],["Customer-related statistics (average)"],["Non-teller deposit transactions (e)","64","%","","65","%"],["Digital consumer customers (f)","78","%","","79","%"],["Credit-related statistics"],["Nonperforming assets","$","1,003","","","$","1,220","","","$","(217)","","","(18)","%"],["Net charge-offs - loans and leases","$","435","","","$","393","","","$","42","","","11","%"],["Other statistics"],["ATMs","8,933","","","9,523","","","(590)","","","(6)","%"],["Branches (g)","2,518","","","2,629","","","(111)","","","(4)","%"],["Brokerage account client assets (in billions) (h)","$","70","","","$","78","","","$","(8)","","","(10)","%"]]
[[/GREPCENT_TABLE]]

* - Not Meaningful

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

(b)Presented as of period end, except for average customer-related statistics and net charge-offs, which are both shown for the year ended, respectively.

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

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

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

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

(g)Reflects all branches and solution centers excluding standalone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.

(h)Includes cash and money market balances.

Retail Banking earnings increased $326 million in 2022 compared with 2021. The increase in earnings was attributable to higher net interest income and noninterest income, partially offset by increased noninterest expense and a higher provision for credit losses.

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

Noninterest income included the full-year impact of the BBVA acquisition and increased due to the favorable impact of Visa Class B derivative fair value adjustments, higher brokerage fees reflecting favorable annuity activity, growth in card and cash management revenue driven by increased credit and debit card activity, and higher lending and deposit related fees driven by increased service charges on deposits. The increase in noninterest income was partially offset by declines in residential mortgage revenue, driven by lower loan sales revenue reflecting the higher interest rate environment.

50    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Provision for credit losses was driven by our weakened economic outlook, partially offset by the impacts from the reassessment of pandemic-related risks and credit quality improvement in the portfolio.

Noninterest expense increased due to the full-year impact of BBVA operating expenses, increased business activity and continued investments to support business growth.

The deposit strategy of Retail Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances, executing on market-specific deposit growth strategies and providing a source of low-cost funding and liquidity to PNC. In 2022, average total deposits increased compared to 2021 primarily driven by growth in demand and savings deposits, which benefited from the full-year impact of the BBVA acquisition.

Retail Banking average total loans increased in 2022 compared to 2021. Average consumer loans increased 12% due to the full-year impact of the BBVA acquisition on all loan classes except education loans, which BBVA did not have in its loan portfolio, partially offset by a decline in auto and other consumer loans as paydowns outpaced new originations. In addition, average residential real estate loans increased, as new originations outpaced runoff. Average commercial loans decreased primarily due to PPP loans.

As part of our strategic focus on growing customers and meeting their financial needs, we have established a coast-to-coast network of retail branches, solution centers and ATMs that operate alongside PNC’s suite of digital capabilities. Over time, we plan to continue to convert a portion of branches into solution centers, which have a distinctive layout and the capability to support transactions, sales and advice, using a combination of technology and personalized banker assistance. PNC began to deploy solution centers in 2018.

Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for consumers and small businesses. We are focused on meeting the financial needs of customers by providing a broad range of liquidity, banking, payments and investment products. In 2021, we successfully rolled out Low Cash Mode® to all Virtual Wallet® customers, providing them with the ability to avoid unnecessary overdraft fees through real-time alerts, extra time to prevent or address overdrafts and controls to choose whether to return certain debits rather than the bank making the decision. In 2022, we continued to make product benefit enhancements, such as by eliminating non-sufficient fund fees for all consumer checking account customers. Virtual Wallet® customers had previously received this benefit with the launch of Low Cash Mode®.

Retail Banking continued to execute on its strategy of transforming the customer experience through transaction channel migration, branch network and home lending process transformations and multi-channel engagement and service strategies. We are also continually assessing our current branch network for optimization opportunities as usage of alternative channels has increased and, as a result, we had a net closure of 111 branches in 2022, consistent with our plan.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  51

Corporate & Institutional Banking

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

Table 13: Corporate & Institutional Banking Table

[[GREPCENT_TABLE]]
[["(Unaudited)"],["Year ended December 31","","","","","Change"],["Dollars in millions","2022","","2021","","$","","%"],["Income Statement"],["Net interest income","$","5,270","","","$","4,571","","","$","699","","","15","%"],["Noninterest income","3,621","","","3,783","","","(162)","","","(4)","%"],["Total revenue","8,891","","","8,354","","","537","","","6","%"],["Provision for (recapture of) credit losses","198","","","(646)","","","844","","","*"],["Noninterest expense","3,651","","","3,479","","","172","","","5","%"],["Pretax earnings","5,042","","","5,521","","","(479)","","","(9)","%"],["Income taxes","1,155","","","1,183","","","(28)","","","(2)","%"],["Noncontrolling interests","17","","","14","","","3","","","21","%"],["Earnings","$","3,870","","","$","4,324","","","$","(454)","","","(10)","%"],["Average Balance Sheet"],["Loans held for sale","$","475","","","$","583","","","$","(108)","","","(19)","%"],["Loans"],["Commercial"],["Commercial and industrial","$","155,551","","","$","126,928","","","$","28,623","","","23","%"],["Commercial real estate","33,373","","","31,584","","","1,789","","","6","%"],["Equipment lease financing","6,195","","","6,286","","","(91)","","","(1)","%"],["Total commercial","195,119","","","164,798","","","30,321","","","18","%"],["Consumer","9","","","13","","","(4)","","","(31)","%"],["Total loans","$","195,128","","","$","164,811","","","$","30,317","","","18","%"],["Total assets","$","219,941","","","$","188,470","","","$","31,471","","","17","%"],["Deposits"],["Noninterest-bearing demand","$","76,956","","","$","79,109","","","$","(2,153)","","","(3)","%"],["Interest-bearing demand","71,388","","","72,210","","","(822)","","","(1)","%"],["Total deposits","$","148,344","","","$","151,319","","","$","(2,975)","","","(2)","%"],["Performance Ratios"],["Return on average assets","1.76","%","","2.29","%"],["Noninterest income to total revenue","41","%","","45","%"],["Efficiency","41","%","","42","%"],["Other Information"],["Consolidated revenue from: (a)"],["Treasury Management (b)","$","2,801","","","$","2,169","","","$","632","","","29","%"],["Commercial mortgage banking activities:"],["Commercial mortgage loans held for sale (c)","$","77","","","$","145","","","$","(68)","","","(47)","%"],["Commercial mortgage loan servicing income (d)","256","","","334","","","(78)","","","(23)","%"],["Commercial mortgage servicing rights valuation, net of economic hedge","138","","","80","","","58","","","73","%"],["Total","$","471","","","$","559","","","$","(88)","","","(16)","%"],["MSR asset value (e)","$","1,113","","","$","740","","","$","373","","","50","%"],["Average Loans by C&IB business"],["Corporate Banking","$","104,798","","","$","81,069","","","$","23,729","","","29","%"],["Real Estate","45,335","","","42,936","","","2,399","","","6","%"],["Business Credit","28,461","","","24,047","","","4,414","","","18","%"],["Commercial Banking","9,294","","","12,054","","","(2,760)","","","(23)","%"],["Other","7,240","","","4,705","","","2,535","","","54","%"],["Total average loans","$","195,128","","","$","164,811","","","$","30,317","","","18","%"],["Credit-related statistics"],["Nonperforming assets (e)","$","761","","","$","1,007","","","$","(246)","","","(24)","%"],["Net charge-offs - loans and leases","$","143","","","$","289","","","$","(146)","","","(51)","%"]]
[[/GREPCENT_TABLE]]

* - Not Meaningful

(a)See the additional revenue discussion regarding treasury management and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section.

(b)Amounts are reported in net interest income and noninterest income.

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

(d)Represents net interest income and noninterest income from loan servicing, net of reduction in commercial mortgage servicing rights due to amortization expense and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.

(e)As of December 31.

52    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Corporate & Institutional Banking earnings decreased $454 million in 2022 compared with 2021, driven by a higher provision for credit losses, higher noninterest expense and lower noninterest income, partially offset by higher net interest income.

Net interest income increased in the comparison primarily due to higher average loan balances reflecting organic growth and the full-year benefit of BBVA, as well as wider interest rate spreads on the value of deposits, partially offset by narrower interest rate spreads on the value of loans and lower average deposit balances.

Noninterest income decreased in the comparison driven by lower capital markets and advisory fees and lower commercial mortgage banking activities, partially offset by higher treasury management product revenue.

Provision for credit losses was driven by our weakened economic outlook along with loan growth, partially offset by the impacts from the reassessment of pandemic-related risks and credit quality improvement in the portfolio.

Noninterest expense increased in the comparison largely due to a full-year of BBVA operating expenses and continued investments to support business growth, partially offset by lower variable compensation associated with decreased business activity.

Average loans increased compared with 2021 due to increases in Corporate Banking, Business Credit and Real Estate, partially offset by a decline in Commercial Banking:

•Corporate Banking provides lending, equipment finance, treasury management and capital markets products and services to mid-sized and large corporations and government, and not-for-profit entities. Average loans for this business increased, driven by strong new production and higher average utilization of loan commitments as well as the full-year benefit of loans from BBVA.

•Business Credit provides asset-based lending and equipment financing solutions. The loan and lease portfolio is relatively high yielding, with acceptable risk as the loans are mainly secured by business assets. Average loans for this business increased, primarily driven by higher utilization of loan commitments and new production.

•Real Estate provides banking, financing, and servicing solutions for commercial real estate clients across the country. Average loans for this business increased reflecting new production, partially offset by lower average utilization of loan commitments.

•Commercial Banking provides lending, treasury management and capital markets products and services to smaller corporations and businesses. Average loans for this business decreased, primarily driven by PPP loan forgiveness, partially offset by the full-year benefit of loans from BBVA.

The deposit strategy of Corporate & Institutional Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances over time, executing on customer and segment-specific deposit growth strategies and continuing to provide funding and liquidity to PNC. Average total deposits decreased in the comparison reflecting the impact of competitive pricing dynamics, partially offset by the full-year benefit of deposits from BBVA. We continue to actively monitor the interest rate environment and make adjustments to our deposit strategy in response to evolving market conditions, bank funding needs and client relationship dynamics.

In 2021, the BBVA acquisition accelerated Corporate & Institutional Banking’s geographic expansion. Following the BBVA acquisition and our de novo expansion efforts, we are now a coast-to-coast franchise and have a presence in the largest 30 U.S. metropolitan statistical areas. These expanded locations complement Corporate & Institutional Banking’s national businesses with a significant presence in these cities, and our full suite of commercial products and services is now offered nationally.

Product Revenue

In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital markets and advisory products and services, and commercial mortgage banking activities, for customers of all business segments. On a consolidated basis, the revenue from these other services is included in net interest income and noninterest income, as appropriate. From a business perspective, the majority of the revenue and expense related to these services is reflected in the Corporate & Institutional Banking segment results, and the remainder is reflected in the results of other businesses where the customer relationship exists. The Other Information section in Table 13 includes the consolidated revenue to PNC for treasury management and commercial mortgage banking services. A discussion of the consolidated revenue from these services follows.

The Treasury Management business provides corporations with cash and investment management services, receivables and disbursement management services, funds transfer services, international payment services and access to online/mobile information management and reporting services. Treasury management revenue is reported in noninterest income and net interest income. Noninterest income includes treasury management product revenue less earnings credits provided to customers on compensating deposit balances used to pay for products and services. Net interest income primarily includes revenue from all treasury management customer deposit balances. Compared with 2021, treasury management revenue increased due to wider interest rate spreads on the value of deposits and higher noninterest income, reflecting the impact of customer growth and the full-year benefit of BBVA.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  53

Commercial mortgage banking activities include revenue derived from commercial mortgage servicing (both net interest income and

noninterest income), revenue derived from commercial mortgage loans held for sale and hedges related to those activities. Total

revenue from commercial mortgage banking activities decreased in the comparison primarily due to lower commercial mortgage servicing income and commercial mortgage loans held for sale, partially offset by a higher benefit from commercial mortgage servicing rights valuation, net of economic hedge.

Capital markets and advisory includes services and activities primarily related to merger and acquisition advisory, equity capital markets advisory, asset-backed financing, loan syndication, securities underwriting and customer-related trading. The decrease in capital markets and advisory fees in the comparison was mostly driven by lower advisory and underwriting fees, partially offset by higher fees on customer-related derivative activities.

54    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Asset Management Group

The Asset Management Group strives to be the leading relationship-based provider of investment, planning, credit and cash management solutions and fiduciary services to affluent individuals and institutions by endeavoring to proactively deliver value-added ideas, solutions and exceptional service. Asset Management Group’s priorities are to serve our clients’ financial objectives, grow and deepen customer relationships and deliver solid financial performance with prudent risk and expense management.

Table 14: Asset Management Group Table

[[GREPCENT_TABLE]]
[["(Unaudited)"],["Year ended December 31","","","","","Change"],["Dollars in millions, except as noted","2022","","2021","","$","","%"],["Income Statement"],["Net interest income","$","608","","","$","476","","","$","132","","","28","%"],["Noninterest income","936","","","987","","","(51)","","","(5)","%"],["Total revenue","1,544","","","1,463","","","81","","","6","%"],["Provision for (recapture of) credit losses","28","","","(7)","","","35","","","*"],["Noninterest expense","1,086","","","941","","","145","","","15","%"],["Pretax earnings","430","","","529","","","(99)","","","(19)","%"],["Income taxes","100","","","123","","","(23)","","","(19)","%"],["Earnings","$","330","","","$","406","","","$","(76)","","","(19)","%"],["Average Balance Sheet"],["Loans"],["Consumer"],["Residential real estate","$","8,029","","","$","5,033","","","$","2,996","","","60","%"],["Other consumer","4,550","","","4,321","","","229","","","5","%"],["Total consumer","12,579","","","9,354","","","3,225","","","34","%"],["Commercial","1,505","","","1,746","","","(241)","","","(14)","%"],["Total loans","$","14,084","","","$","11,100","","","$","2,984","","","27","%"],["Total assets","$","14,505","","","$","11,677","","","$","2,828","","","24","%"],["Deposits"],["Noninterest-bearing","$","2,664","","","$","2,919","","","$","(255)","","","(9)","%"],["Interest-bearing","27,830","","","22,782","","","5,048","","","22","%"],["Total deposits","$","30,494","","","$","25,701","","","$","4,793","","","19","%"],["Performance Ratios"],["Return on average assets","2.28","%","","3.48","%"],["Noninterest income to total revenue","61","%","","67","%"],["Efficiency","70","%","","64","%"],["Supplemental Noninterest Income Information"],["Asset management fees","$","908","","","$","964","","","$","(56)","","","(6)","%"],["Brokerage fees","8","","","9","","","(1)","","","(11)","%"],["Total","$","916","","","$","973","","","$","(57)","","","(6)","%"],["Other Information"],["Nonperforming assets (a)","$","56","","","$","62","","","$","(6)","","","(10)","%"],["Net charge-offs - loans and leases","$","17","","","$","2","","","$","15","","","750","%"],["Brokerage account client assets (in billions) (a)","$","4","","","$","5","","","$","(1)","","","(20)","%"],["Client Assets Under Administration (in billions) (a) (b)"],["Discretionary client assets under management","$","173","","","$","192","","","$","(19)","","","(10)","%"],["Nondiscretionary client assets under administration","152","","","175","","","(23)","","","(13)","%"],["Total","$","325","","","$","367","","","$","(42)","","","(11)","%"],["Discretionary client assets under management"],["PNC Private Bank","$","105","","","$","123","","","$","(18)","","","(15)","%"],["Institutional Asset Management","68","","","69","","","(1)","","","(1)","%"],["Total","$","173","","","$","192","","","$","(19)","","","(10)","%"]]
[[/GREPCENT_TABLE]]
* - Not Meaningful

(a)As of December 31.

(b)Excludes brokerage account client assets.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  55

The Asset Management Group consists of two primary businesses: PNC Private Bank and Institutional Asset Management.

The PNC Private Bank is focused on being a premier private bank in each of the markets it serves. This business seeks to deliver high quality banking, trust, and investment management services to our emerging affluent, high net worth, and ultra-high net worth clients through a broad array of products and services.

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.

With the inclusion of BBVA, PNC Private Bank has approximately 100 offices operating in nine of the ten most affluent states in the U.S. with a majority co-located within retail banking branches.

Asset Management Group earnings decreased $76 million in 2022 compared with 2021, driven by an increase in noninterest expense, lower noninterest income and a higher provision for credit losses, partially offset by higher net interest income.

Net interest income increased due to growth in average loan and deposit balances, reflecting the full-year benefit of the BBVA acquisition and organic growth, as well as wider interest rate spreads on the value of deposits. This was partially offset by narrower interest rate spreads on the value of loans.

Noninterest income decreased in the comparison primarily attributable to lower average equity markets.

Noninterest expense increased due to the full-year impact of BBVA operations and continued investments to support business growth.

Discretionary client assets under management decreased in comparison to the prior year primarily attributable to lower equity markets as of December 31, 2022.

RISK MANAGEMENT

Enterprise Risk Management

We encounter risk as part of the normal course of operating our business. Accordingly, we design our risk governance framework, referred to as the ERM Framework, and risk management processes to help manage this risk. We manage risk in light of our risk appetite to optimize long-term shareholder value while supporting our employees, customers and communities.

Our ERM Framework is structurally aligned with regulatory enhanced prudential standards and heightened standards promulgated by the Federal Reserve and OCC, respectively, which establish minimum requirements for the design and implementation of a risk governance framework. This Risk Management section describes our ERM Framework, which consists of seven core components that provide executive management and the Board of Directors with an aggregate view of significant risks impacting the organization. The seven core components are risk culture, enterprise strategy (including risk appetite, strategic planning, capital planning and stress testing), risk governance and oversight, risk identification, risk assessments, risk controls and monitoring, and risk aggregation and reporting (see the figure below). The overall Risk Management section of this Item 7 also provides an analysis of the firm’s Capital Management and our key areas of risk, which include, but are not limited to Credit, Market, Liquidity and Operational (including Compliance and Information Security). Our use of financial derivatives as part of our overall asset and liability risk management process is also addressed within this Risk Management section.

We operate within a rapidly evolving regulatory environment. Accordingly, we are actively focused on the timely incorporation of applicable regulatory pronouncements into our ERM Framework.

56    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Risk Culture

A strong risk culture helps us make well informed decisions, helps ensure individuals conform to the established culture, reduces an individual’s ability to do something for personal gain, and rewards employees for working toward a common goal rather than individual interests. Our risk culture reinforces the appropriate protocols for responsible and ethical behavior. These protocols are especially critical in terms of our risk awareness, risk-taking behavior and risk management practices.

Managing risk is every employee’s responsibility. All of our employees, individually and collectively, are responsible for ensuring the organization is performing with the utmost integrity, is applying sound risk management practices and is striving to achieve our stated objectives. All employees are also responsible for understanding our Enterprise Risk Appetite Statement, the ERM Framework and how risk management applies to their respective roles and responsibilities. Employees are encouraged to collaborate across groups to identify and mitigate risks and elevate issues as required. We reinforce risk management responsibilities through a performance management system where employee performance goals include risk management objectives and incentives for employees to reinforce balanced measures of risk-adjusted performance.

Proactive and open communication, between groups and up to the Board of Directors, facilitates timely identification and resolution of risk issues. Our multi-level risk committee structure provides formal channels to identify and report risk.

Enterprise Strategy

We seek to ensure that our overall enterprise strategy is within acceptable risk parameters through our risk appetite, strategic planning, capital planning and stress testing processes. These components are reviewed and approved at least annually by the Board of Directors or one of its committees.

Risk Appetite: Our risk appetite represents the organization’s desired enterprise risk position, set within our capital-based risk and liquidity capacity to achieve our strategic objectives and business plans. The Enterprise Risk Appetite Statement qualitatively describes the aggregate level of risk we are willing to accept in order to execute our business strategies. Qualitative guiding principles further define each of the risks within our taxonomy to support the risk appetite statement. Risk appetite metrics and limits, including forward-looking metrics, quantitatively measure whether we are operating within our stated Risk Appetite. Our risk appetite metrics reflect material risks, align with our established Risk Appetite Framework, balance risk and reward, leverage analytics, and are adjusted to changes in the external and internal risk environments.

Strategic Planning: Our enterprise and line of business strategic plans outline major objectives, strategies and goals which are expected to be achieved over the next five years while seeking to ensure we remain compliant with all capital, risk appetite and liquidity targets and guidelines. Our chief executive officer and chief financial officer lead the development of the corporate strategic plan.

Capital Planning and Stress Testing: Capital planning helps to ensure we are maintaining safe and sound operations and viability. The capital planning process and the resulting capital plan evolve as our overall risks, activities and risk management practices change. Capital planning aligns with our strategic planning process. Stress testing is an essential element of the macroeconomics capital planning process. Effective stress testing enables us to consider the estimated effect on capital of various hypothetical scenarios.

Risk Governance and Oversight

We employ a comprehensive risk management governance framework to help ensure that risks are identified, balanced decisions are made that consider risk and return and risks are adequately monitored and managed. Risk committees established within this risk governance and oversight framework provide oversight for risk management activities at the Board of Directors, executive, corporate

The PNC Financial Services Group, Inc. – 2022 Form 10-K  57

and business levels. Committee composition is designed to provide effective oversight balanced across the three lines of defense in accordance with the OCC’s heightened standards and the Federal Reserve Board’s enhanced prudential standards. See the Supervision and Regulation section in Item 1 of this Report for more information.

To ensure appropriate risks are being taken and effectively managed and controlled, risk is managed across three lines of defense. The Board of Directors’ and each line of defense’s responsibilities are detailed below:

Board of Directors – The Board of Directors oversees our risk-taking activities, holds management accountable for adhering to the ERM Framework and is responsible for exercising sound, independent judgment when assessing risk.

First line of defense – The front line units are accountable for identifying, owning and managing risks to within acceptable levels while adhering to the ERM Framework. Our businesses strive to enhance risk management and internal control processes within their areas. Integrated and comprehensive processes are designed to adequately manage the business’ risk profile and risk appetite through identifying, assessing, monitoring and reporting risks that may significantly impact each business.

Second line of defense – The second line of defense is independent from the first line of defense and is responsible for establishing the risk governance framework and the standards within each independent risk area for identifying, measuring, monitoring, controlling and reporting aggregate risks. As the second line of defense, the independent risk areas monitor the risks generated by the first line of defense, review and challenge the implementation of effective risk management practices, and report on issues or exceptions. The risk areas help to ensure processes and controls owned by the businesses are designed and operating as intended.

Third line of defense – As the third line of defense, Internal Audit is independent from the first and second lines of defense. Internal Audit provides the Board of Directors and executive management comprehensive assurance on the effectiveness of the ERM Framework and the risk management practices across the organization.

Within the three lines of defense, the independent risk organization has sufficient authority to influence material decisions. Our business oversight and decision-making is supported through a governance structure at the Board of Directors and management level. Specific responsibilities include:

Board of Directors – Our Board of Directors oversees our business and affairs as managed by our officers and employees. The Board of Directors may receive assistance in carrying out its duties and may delegate authority through standing or special committees. The following provides a summary of some of the key responsibilities of the Board’s standing committees:

•Audit Committee: monitors the integrity of our consolidated financial statements; monitors internal control over financial reporting; monitors compliance with our code of ethics; evaluates and monitors the qualifications and independence of our independent auditors; and evaluates and monitors the performance of our Internal Audit function and our independent auditors.

•Nominating and Governance Committee: oversees the implementation of sound corporate governance principles and practices while promoting our best interests and those of our shareholders.

•Human Resources Committee: oversees the compensation of our executive officers and other specified responsibilities related to talent and human capital matters affecting us. The committee is also responsible for evaluating the relationship between risk-taking activities and incentive compensation plans.

•Risk Committee: oversees our enterprise-wide risk structure and the processes established to identify, measure, monitor and manage the organization’s risks and evaluates and approves our risk governance framework. The Risk Committee has formed a Compliance Subcommittee to facilitate Board-level oversight of risk management in the compliance area.

•Special Committee on Equity & Inclusion: oversees management’s equity and inclusion efforts, internally and externally, focusing on our systemic processes (including for employees and suppliers); low- and moderate-income communities (including community development banking, and product offerings and financial support for such communities); and advocacy (including partnerships with leading organizations, and advocacy for necessary structural changes to help provide greater access to the banking system and end systemic racism).

•Technology Committee: oversees technology strategy and significant technology initiatives and programs, including those that can position the use of technology to drive strategic advantages, and fulfills the oversight responsibilities delegated from the Risk Committee with respect to technology risk, technology risk management, cybersecurity, information security, business continuity and significant technology initiatives and programs.

Management Level Executive Committee – The Management Level Executive Committee is responsible for guiding the creation and execution of our business strategy across the company. With this responsibility, the Management Level Executive Committee executes various strategic approval and review activities, with a focus on capital deployment, business performance and risk management. This Committee also helps ensure PNC is staffed with sufficient resources and talent to operate within its risk appetite.

Corporate Committees – The Corporate Committees generally operate based on the delegated approval authority from a Board-level Committee, the Management Level Executive Committee or other Corporate Committees. These Committees operate at the

58    The PNC Financial Services Group, Inc. – 2022 Form 10-K

senior management level and are designed to facilitate the review, evaluation, oversight and approval of key business and risk activities.

Working Committees – Working Committees generally operate on delegated approval authority from a Corporate Committee or other Working Committees. Working Committees are intended to provide oversight of regulatory/legal matters, assist in the implementation of key enterprise-level activities within a business or function and support the oversight of key risk activities.

Transactional Committees – Transactional Committees generally operate based on delegated approval authority from a Corporate or Working Committee to approve individual transactions, transactional related activities or movements on the organization’s balance sheet.

Policies and Procedures – We have established risk management Policies and Procedures to support our ERM Framework, articulate our risk culture, define the parameters and processes within which employees are to manage risk and conduct our business activities and to provide direction, guidance and clarity on roles and responsibilities to management and the Board of Directors. These Policies and Procedures are organized in a multi-tiered framework and require periodic review and approval by relevant Committees, including where appropriate Committees of the Board of Directors, or management.

Risk Identification

Risk identification takes place across a variety of risk types throughout the organization. These risk types include, but are not limited to, credit, liquidity and capital, market and operational (which includes, among other types of risk, compliance and information security). Risks are identified based on a balanced use of analytical tools and management judgment for both on- and off-balance sheet exposures. Our governance structure supports risk identification by facilitating assessment of key risk issues, emerging risks and idiosyncratic risks and implementation of mitigation strategies as appropriate. These risks are prioritized based on quantitative and qualitative analysis and assessed against our risk appetite. Multiple tools and approaches are used to help identify and prioritize risks, including Risk Appetite Metrics, Key Risk Indicators, Key Performance Indicators, Risk and Control Self-Assessments, scenario analysis, stress testing and special investigations.

Risks are aggregated and assessed within and across risk functions and businesses. The aggregated risk information is reviewed and reported at an enterprise level to the Board of Directors or appropriate committees. This enterprise aggregation and reporting approach promotes the identification and appropriate escalation of material risks across the organization and supports an understanding of the cumulative impact of risk in relation to our risk appetite.

Risk Assessment

Once risks are identified, they are evaluated based on quantitative and qualitative analysis to determine whether they are material. Risk assessments support the overall management of an effective ERM Framework and help us to control and monitor our actual risk level and risk management effectiveness. Comprehensive, accurate and timely assessments of risk are essential to an effective ERM Framework. Effective risk measurement practices are designed to uncover recurring risks that have been experienced in the past; facilitate the monitoring, understanding, analysis and reporting of known risks; and reveal unanticipated risks that may not be easy to understand or predict.

Risk Controls and Monitoring

Our ERM Framework consists of policies, processes, personnel and control systems. Risk controls and limits provide the linkage from our Risk Appetite Statement and associated guiding principles to the risk-taking activities of our businesses. In addition to risk appetite limits, a system of more detailed internal controls exists which oversees and monitors our various processes and functions. These control systems measure performance, help employees make correct decisions, help ensure information is accurate and reliable and facilitate compliance with laws and regulations.

We design our monitoring and evaluation of risks and controls to provide assurance that policies, procedures and controls are effective and also to result in the identification of control improvement recommendations. Risk monitoring is a daily, ongoing process used by both the first and second line of defense to help ensure compliance with our ERM Framework. Risk monitoring is accomplished in many ways, including performing risk assessments at the business and risk assessment unit level, monitoring an area’s key controls, the timely reporting of issues and establishing a quality control and/or quality assurance function, as applicable.

Risk Aggregation and Reporting

Risk reporting is a comprehensive way to: (i) communicate aggregate risks, including identified concentrations; (ii) escalate instances where we are outside of our risk appetite; (iii) monitor our risk profile in relation to our risk appetite; and (iv) communicate risks and views on the effectiveness of our risk management activities to the Board of Directors and executive management.

Risk reports are produced at the line of business, functional risk and enterprise levels. Each individual risk report includes an assessment of inherent risk, quality of risk management, residual risk, risk appetite and risk outlook. The enterprise level risk report aggregates material risks identified in the risk area reports and in the business reports to define the enterprise risk profile. The enterprise risk profile is a point-in-time assessment of enterprise risk and represents our overall risk position in relation to the desired

The PNC Financial Services Group, Inc. – 2022 Form 10-K  59

enterprise risk appetite. The determination of the enterprise risk profile is based on analysis of quantitative reporting of risk limits and other measures along with qualitative assessments. Quarterly aggregation of risk reports from the risk areas and lines of business is designed to provide a clear view of our risk level relative to our quantitative risk appetite. The enterprise level report is provided through the governance structure to the Risk Committee of the Board of Directors.

Credit Risk Management

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

Credit Risk Management employs a governance, policy and monitoring framework for environmental and social risk topics that may include updates to PNC’s Credit Portfolio Strategy Committee. Outcomes from those updates may be incorporated into credit policies and risk procedures that govern our risk appetite, credit decisioning, portfolio management and reserve processes.

Credit Risk Management is currently working to understand, and incorporate into our credit risk management framework, the impacts to credit risk that may accelerate or be introduced as a result of climate change, including impacts from physical risk events and risks associated with the transition to a low-carbon economy. These risk events may impact a borrower’s income, cash flow or collateral due to frequency or severity of weather events, changing market conditions, consumer preferences and demand for products, or changes to the legislative and regulatory landscape. As disruptive events occur, PNC follows a process to determine if enhanced portfolio monitoring, reporting and executive communication is warranted to ensure appropriate oversight and action.

To address environmental and social-related risks, including climate change, PNC limits new originations in sectors that are no longer consistent with our strategic direction, such as mountain-top mining, Arctic oil and gas and private prisons. Corporate & Institutional Banking transactions may be subjected to an Environmental and Social Risk Management assessment designed to help us better identify and mitigate environmental, human rights and other social risks early in the credit application process. Transactions identified as having a potential environmental, human rights or other social risk are evaluated to determine whether enhanced due diligence is warranted. Additionally, PNC strives to ensure flood insurance is present for properties as required by applicable regulations, while also monitoring other water-related risks (such as the increased shoreline (and coastal) erosion) and weather-related events (such as hurricanes and wildfires).

Loan Portfolio Characteristics and Analysis

Table 15: Details of Loans

In billions

60    The PNC Financial Services Group, Inc. – 2022 Form 10-K

We use several credit quality indicators, as further detailed in Note 4 Loans and Related Allowance for Credit Losses, to monitor and measure our exposure to credit risk within our loan portfolio. The following provides additional information about the significant loan classes that comprise our Commercial and Consumer portfolio segments.

Commercial

Commercial and Industrial

Commercial and industrial loans comprised 56% and 53% of our total loan portfolio at December 31, 2022 and 2021, respectively. The majority of our commercial and industrial loans are secured by collateral that provides a secondary source of repayment for the loan should the borrower experience cash generation difficulties. Examples of this collateral include short-term assets, such as accounts receivable, inventory and securities, and long-lived assets, such as equipment, owner-occupied real estate and other business assets.

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

Table 16: Commercial and Industrial Loans by Industry

[[GREPCENT_TABLE]]
[["","December 31, 2022","","","December 31, 2021"],["Dollars in millions","Amount","","% of Total","","","Amount","","% of Total"],["Commercial and industrial"],["Manufacturing","$","30,845","","","17","%","","","$","22,597","","","15","%"],["Retail/wholesale trade","29,176","","","16","","","","22,803","","","15"],["Service providers","23,548","","","13","","","","20,750","","","14"],["Financial services","21,320","","","12","","","","17,950","","","12"],["Real estate related (a)","17,780","","","10","","","","15,123","","","10"],["Technology, media & telecommunications","11,845","","","7","","","","10,070","","","7"],["Health care","10,649","","","6","","","","9,944","","","7"],["Transportation and warehousing","7,858","","","4","","","","7,136","","","5"],["Other industries","29,198","","","15","","","","26,560","","","15"],["Total commercial and industrial loans","$","182,219","","","100","%","","","$","152,933","","","100","%"]]
[[/GREPCENT_TABLE]]

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

Commercial and industrial loan growth from December 31, 2021 was driven by new production and higher utilization of loan commitments, partially offset by PPP loan forgiveness. PPP loans outstanding totaled $0.4 billion and $3.4 billion at December 31, 2022 and 2021, respectively.

Commercial Real Estate

Commercial real estate loans comprised $22.3 billion related to commercial mortgages on income-producing properties, $6.4 billion of real estate construction project loans and $7.6 billion of intermediate term financing loans as of December 31, 2022. Comparable amounts as of December 31, 2021 were $18.6 billion, $7.3 billion and $8.1 billion, respectively.

We monitor credit risk associated with our commercial real estate loans similar to commercial and industrial loans by analyzing PD and LGD. Additionally, risks associated with these types of credit activities tend to be correlated to the loan structure, collateral location and quality, project progress and business environment. These attributes are also monitored and utilized in assessing credit risk. The portfolio is geographically diverse due to the nature of our business involving clients throughout the U.S.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  61

The following table presents our commercial real estate loans by geography and property type:

Table 17: Commercial Real Estate Loans by Geography and Property Type

[[GREPCENT_TABLE]]
[["","December 31, 2022","","","December 31, 2021"],["Dollars in millions","Amount","","% of Total","","","Amount","","% of Total"],["Geography (a)"],["California","$","6,224","","","17","%","","","$","5,561","","","16","%"],["Texas","3,871","","","11","","","","3,458","","","10"],["Florida","3,275","","","9","","","","2,987","","","9"],["Pennsylvania","1,638","","","5","","","","1,482","","","4"],["Virginia","1,638","","","5","","","","1,720","","","5"],["Maryland","1,496","","","4","","","","1,557","","","5"],["Colorado","1,336","","","4","","","","1,126","","","3"],["Illinois","1,321","","","4","","","","970","","","3"],["Ohio","1,236","","","3","","","","1,219","","","4"],["North Carolina","1,150","","","3","","","","823","","","2"],["Other","13,131","","","35","","","","13,112","","","39"],["Total commercial real estate loans","$","36,316","","","100","%","","","$","34,015","","","100","%"],["Property Type (a)"],["Multifamily","$","13,738","","","38","%","","","$","10,581","","","31","%"],["Office","9,123","","","25","","","","9,547","","","28"],["Industrial/warehouse","4,035","","","11","","","","2,413","","","7"],["Retail","2,855","","","8","","","","3,570","","","10"],["Seniors housing","2,228","","","6","","","","2,602","","","8"],["Hotel/motel","1,896","","","5","","","","2,008","","","6"],["Mixed use","701","","","2","","","","724","","","2"],["Other","1,740","","","5","","","","2,570","","","8"],["Total commercial real estate loans","$","36,316","","","100","%","","","$","34,015","","","100","%"]]
[[/GREPCENT_TABLE]]

(a)Presented in descending order based on loan balances at December 31, 2022.

As remote work continues to be a feasible alternative and notable portions of leased space remain unoccupied, real estate related to the office sector is an area of continuing uncertainty. Evolving conditions suggest a structural change for office demand moving forward; however, the change is anticipated to develop more fully over time. PNC continues to closely monitor our exposure in the office sector as these concerns develop, and while internal risk and regulatory classification assessments have weakened, we have not seen a notable change in loan performance at this time.

Consumer

Residential Real Estate

Residential real estate loans primarily consisted of residential mortgage loans at both December 31, 2022 and 2021.

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

62    The PNC Financial Services Group, Inc. – 2022 Form 10-K

The following table presents certain key statistics related to our residential real estate portfolio:

Table 18: Residential Real Estate Loan Statistics

[[GREPCENT_TABLE]]
[["","December 31, 2022","","","December 31, 2021"],["Dollars in millions","Amount","","% of Total","","","Amount","","% of Total"],["Geography (a)"],["California","$","18,609","","","41","%","","","$","15,041","","","38","%"],["Texas","4,194","","","9","","","","4,397","","","11"],["Florida","3,360","","","7","","","","3,124","","","8"],["Washington","3,009","","","7","","","","1,909","","","5"],["New Jersey","1,925","","","4","","","","1,660","","","4"],["New York","1,558","","","3","","","","1,279","","","3"],["Arizona","1,436","","","3","","","","1,435","","","4"],["Colorado","1,192","","","3","","","","1,145","","","3"],["Pennsylvania","1,188","","","3","","","","1,069","","","3"],["Illinois","970","","","2","","","","957","","","2"],["Other","8,448","","","18","","","","7,696","","","19"],["Total residential real estate loans","$","45,889","","","100","%","","","$","39,712","","","100","%"],["","December 31, 2022","","","December 31, 2021"],["Weighted-average loan origination statistics (b)"],["Loan origination FICO score","","","770","","","","","775"],["LTV of loan originations","","","71","%","","","","","67","%"]]
[[/GREPCENT_TABLE]]

(a)Presented in descending order based on loan balances at December 31, 2022.

(b)Weighted-averages calculated for the twelve months ended December 31, 2022 and 2021, respectively.

We originate residential mortgage loans nationwide through our national mortgage business as well as within our branch network. Residential mortgage loans underwritten to agency standards, including conforming loan amount limits, are typically sold with servicing retained by us. We also originate nonconforming residential mortgage loans that do not meet agency standards, which we retain on our balance sheet. Our portfolio of originated nonconforming residential mortgage loans totaled $40.6 billion at December 31, 2022 with 44% located in California. Comparable amounts at December 31, 2021 were $34.9 billion and 42%, respectively.

Home Equity

Home equity loans comprised $19.5 billion of primarily variable-rate home equity lines of credit and $6.5 billion of closed-end home equity installment loans at December 31, 2022. Comparable amounts were $15.8 billion and $8.3 billion as of December 31, 2021, respectively.

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

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

The PNC Financial Services Group, Inc. – 2022 Form 10-K  63

The following table presents certain key statistics related to our home equity portfolio:

Table 19: Home Equity Loan Statistics

[[GREPCENT_TABLE]]
[["","December 31, 2022","","","December 31, 2021"],["Dollars in millions","Amount","","% of Total","","","Amount","","% of Total"],["Geography (a)"],["Pennsylvania","$","5,051","","","19","%","","","$","5,108","","","21","%"],["New Jersey","3,266","","","13","","","","3,117","","","13"],["Ohio","2,352","","","9","","","","2,398","","","10"],["Florida","2,082","","","8","","","","1,701","","","7"],["Michigan","1,263","","","5","","","","1,246","","","5"],["Maryland","1,254","","","5","","","","1,206","","","5"],["California","1,247","","","5","","","","705","","","3"],["Texas","1,144","","","4","","","","978","","","4"],["Illinois","1,126","","","4","","","","1,154","","","5"],["North Carolina","995","","","4","","","","918","","","4"],["Other","6,203","","","24","","","","5,530","","","23"],["Total home equity loans","$","25,983","","","100","%","","","$","24,061","","","100","%"],["Lien type"],["1st lien","","","58","%","","","","","62","%"],["2nd lien","","","42","","","","","","38"],["Total","","","100","%","","","","","100","%"],["","December 31, 2022","","","December 31, 2021"],["Weighted-average loan origination statistics (b)"],["Loan origination FICO score","","","774","","","","","782"],["LTV of loan originations","","","67","%","","","","","66","%"]]
[[/GREPCENT_TABLE]]

(a)Presented in descending order based on loan balances at December 31, 2022.

(b)Weighted-averages calculated for the twelve months ended December 31, 2022 and 2021, respectively.

Automobile

Auto loans comprised $13.7 billion in the indirect auto portfolio and $1.1 billion in the direct auto portfolio as of December 31, 2022. Comparable amounts as of December 31, 2021 were $15.4 billion and $1.2 billion, respectively. The indirect auto portfolio consists of loans originated primarily through franchised dealers, including from expansion into new markets. This business is strategically aligned with our core retail banking business.

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

Table 20: Auto Loan Statistics

[[GREPCENT_TABLE]]
[["","December 31, 2022","December 31, 2021"],["Weighted-average loan origination FICO score (a) (b)"],["Indirect auto","784","791"],["Direct auto","776","775"],["Weighted-average term of loan originations - in months (a)"],["Indirect auto","73","72"],["Direct auto","63","62"]]
[[/GREPCENT_TABLE]]

(a)Weighted-averages calculated for the twelve months ended December 31, 2022 and 2021, respectively.

(b)Calculated using the auto enhanced FICO scale.

We continue to focus on borrowers with strong credit profiles as evidenced by the weighted-average loan origination FICO scores noted in Table 20. We offer both new and used auto financing to customers through our various channels. At December 31, 2022, the portfolio balance was composed of 50% new vehicle loans and 50% used vehicle loans. Comparable amounts at December 31, 2021 were 53% and 47%, respectively.

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

64    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Nonperforming Assets and Loan Delinquencies

Nonperforming Assets

Nonperforming assets include nonperforming loans and leases for which ultimate collectability of the full amount of contractual principal and interest is not probable and include nonperforming TDRs and PCD loans, OREO and foreclosed assets. Loans held for sale, certain government insured or guaranteed loans and loans accounted for under the fair value option are excluded from nonperforming loans. See Note 1 Accounting Policies for details on our nonaccrual policies.

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

Table 21: Nonperforming Assets by Type

[[GREPCENT_TABLE]]
[["","","December 31, 2022","","December 31, 2021","","Change"],["Dollars in millions","","$","","%"],["Nonperforming loans"],["Commercial","","$","858","","","$","1,168","","","$","(310)","","","(27)%"],["Consumer (a)","","1,127","","","1,312","","","(185)","","","(14)%"],["Total nonperforming loans","","1,985","","","2,480","","","(495)","","","(20)%"],["OREO and foreclosed assets","","34","","","26","","","8","","","31%"],["Total nonperforming assets","","$","2,019","","","$","2,506","","","$","(487)","","","(19)%"],["TDRs included in nonperforming loans","","$","699","","","$","988","","","$","(289)","","","(29)%"],["Percentage of total nonperforming loans","","35","%","","40","%"],["Nonperforming loans to total loans","","0.61","%","","0.86","%"],["Nonperforming assets to total loans, OREO and foreclosed assets","","0.62","%","","0.87","%"],["Nonperforming assets to total assets","","0.36","%","","0.45","%"],["Allowance for loan and lease losses to nonperforming loans","","239","%","","196","%"],["Allowance for credit losses to nonperforming loans (b)","","274","%","","223","%"]]
[[/GREPCENT_TABLE]]

(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)Calculated excluding allowances for investment securities and other financial assets.

The following table provides details on the change in nonperforming assets for the years ended December 31, 2022 and 2021:

Table 22: Change in Nonperforming Assets    

[[GREPCENT_TABLE]]
[["In millions","","2022","","2021"],["January 1","","$","2,506","","","$","2,337"],["Acquired nonperforming assets (a)","","","","880"],["New nonperforming assets","","1,523","","","1,216"],["Charge-offs and valuation adjustments","","(370)","","","(255)"],["Principal activity, including paydowns and payoffs","","(868)","","","(1,023)"],["Asset sales and transfers to loans held for sale","","(52)","","","(134)"],["Returned to performing status","","(720)","","","(515)"],["December 31","","$","2,019","","","$","2,506"]]
[[/GREPCENT_TABLE]]

(a)Represents the June 30, 2021 balance of nonperforming assets attributable to BBVA. Changes in this acquired portfolio for the six months ended December 31, 2021 are reflected in the appropriate category based on activity.

As of December 31, 2022, approximately 98% of total nonperforming loans were secured by collateral which lessened reserve requirements and is expected to reduce credit losses.

Within consumer nonperforming loans, residential real estate TDRs comprised 50% of total residential real estate nonperforming loans, while home equity TDRs comprised 31% of home equity nonperforming loans at December 31, 2022. Comparable amounts at December 31, 2021 were 42% and 36%, respectively. TDRs generally remain in nonperforming status until a borrower has made at least six consecutive months of both principal and interest payments under the modified terms or ultimate resolution occurs. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status. See Troubled Debt Restructurings and Loan Modifications within this Credit Risk Management section for more information on how certain loans to borrowers experiencing COVID-19 related difficulties were treated prior to the expiration of CARES Act TDR relief.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  65

Loan Delinquencies

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

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 resulting from rising inflation levels, supply chain disruptions, higher interest rates and secular changes fostered by 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, 2022 and 2021 based on the contractual terms of the loan, even where borrowers may not be making payments on their loans during the modification period.

The following table presents a summary of accruing loans past due by delinquency status:

Table 23: Accruing Loans Past Due (a)

[[GREPCENT_TABLE]]
[["","","Amount","","","","","","% of Total Loans Outstanding"],["","","December 31, 2022","","December 31, 2021","","Change","","December 31, 2022","","December 31, 2021"],["Dollars in millions","","","","$","","%"],["Early stage loan delinquencies"],["Accruing loans past due 30 to 59 days","","$","747","","","$","1,011","","","$","(264)","","","(26)","%","","0.23","%","","0.35","%"],["Accruing loans past due 60 to 89 days","","261","","","355","","","(94)","","","(26)","%","","0.08","%","","0.12","%"],["Total early stage loan delinquencies","","1,008","","","1,366","","","(358)","","","(26)","%","","0.31","%","","0.47","%"],["Late stage loan delinquencies"],["Accruing loans past due 90 days or more","","482","","","619","","","(137)","","","(22)","%","","0.15","%","","0.21","%"],["Total accruing loans past due","","$","1,490","","","$","1,985","","","$","(495)","","","(25)","%","","0.46","%","","0.69","%"]]
[[/GREPCENT_TABLE]]

(a)Past due loan amounts include government insured or guaranteed loans of $0.4 billion and $0.5 billion at December 31, 2022 and 2021, respectively.

The decrease in accruing loans past due from December 31, 2021 was the result of lower delinquencies in both the consumer and commercial portfolios.

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

Troubled Debt Restructurings and Loan Modifications

Troubled Debt Restructurings

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs result from our loss mitigation activities and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from court-imposed concessions (e.g., a Chapter 7 bankruptcy where the debtor is discharged from personal liability to us and a court approved Chapter 13 bankruptcy repayment plan). Prior to the expiration of TDR relief on January 1, 2022, PNC elected not to apply a TDR designation to loans that were restructured due to a COVID-19 hardship pursuant to specific criteria under the CARES Act. Consistent with the expiration of this relief, loans that experience a COVID-19 related hardship and are restructured after January 1, 2022 are subject to existing GAAP guidance related to TDRs.

66    The PNC Financial Services Group, Inc. – 2022 Form 10-K

The following table provides a summary of troubled debt restructurings at December 31, 2022 and 2021, respectively:

Table 24: Summary of Troubled Debt Restructurings (a)

[[GREPCENT_TABLE]]
[["","","December 31, 2022","","December 31, 2021","","Change"],["Dollars in millions","","$","","%"],["Commercial","","$","561","","","$","672","","","$","(111)","","","(17)%"],["Consumer","","841","","","919","","","(78)","","","(8)%"],["Total TDRs","","$","1,402","","","$","1,591","","","$","(189)","","","(12)%"],["Nonperforming","","$","699","","","$","988","","","$","(289)","","","(29)%"],["Accruing (b)","","703","","","603","","","100","","","17%"],["Total TDRs","","$","1,402","","","$","1,591","","","$","(189)","","","(12)%"]]
[[/GREPCENT_TABLE]]

(a)Amounts in table do not include associated valuation allowances.

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

Nonperforming TDRs represented approximately 35% of total nonperforming loans and 50% of total TDRs at December 31, 2022. Comparable amounts at December 31, 2021 were 40% and 62%, respectively. The remaining portion of TDRs represents TDRs that have been returned to accrual status after performing under the restructured terms for at least six consecutive months.

See Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses for additional information on TDRs.

Loan Modifications

PNC provides relief to our customers experiencing financial hardships through a variety of solutions. Commercial loan and lease modifications are based on each individual borrower’s situation and may involve reduction of the interest rate, extension of the loan term and/or forgiveness of principal. Consumer loan modifications are evaluated under our hardship relief programs, including COVID-19 related hardships that extended beyond the initial relief period.

See Troubled Debt Restructurings within this Credit Risk Management section for more information on how certain loans to borrowers experiencing COVID-19 related difficulties were treated prior to the expiration of CARES Act TDR relief.

Allowance for Credit Losses

Our determination of the ACL is based on historical loss and performance experience, current economic conditions, reasonable and

supportable forecasts of future conditions and other relevant factors, including current borrower and/or transaction characteristics. We maintain the ACL at an appropriate level for expected losses on our existing investment securities, loans, equipment finance leases, trade receivables and other financial assets and off-balance sheet credit exposures and determine this allowance based on assessments of the remaining estimated contractual term as of the balance sheet date.

Expected losses are estimated primarily 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) long run average expected losses for the remaining estimated contractual term.

We use forward-looking information in estimating expected credit losses for our reasonable and supportable forecast period. For this purpose, we have established a framework which includes a three-year forecast period and the use of four economic scenarios and associated probability weights, which in combination create a forecast of expected economic outcomes. Forward-looking information, such as forecasted relevant macroeconomic variables, is incorporated into the expected credit loss estimates using quantitative macroeconomic models, as well as through analysis from PNC’s economists and management’s judgment in qualitatively assessing the ACL.

The reversion period is used to bridge our three-year reasonable and supportable forecast period and the long-run average expected credit losses. We may 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 our available historical credit information. We use long-run average expected loss for the portfolio over the estimated remaining contractual term beyond our reasonable and supportable forecast period and the reversion period.

The following discussion provides additional information related to our reserves under CECL for loans and leases as well as unfunded lending related commitments. See Note 1 Accounting Policies for further discussion on our ACL, including details of

The PNC Financial Services Group, Inc. – 2022 Form 10-K  67

our methodologies and discussion of the allowances for investment securities and other financial assets. See also the Critical Accounting Estimates and Judgments section for further discussion of the assumptions used in the determination of the ACL.

Allowance for Loan and Lease Losses

Our pooled expected credit loss methodology is based upon the quantification of PD, LGD, EAD and the remaining estimated contractual term for a loan, loan segment or lease. We also consider the impact of prepayments and amortization on contractual maturity in our expected loss estimates. We use historical data, current borrower characteristics and forecasted economic variables in quantitative methods to estimate these risk parameters by loan, loan segment or lease. PDs represent a quantification of risk that a borrower may not be able to pay their contractual obligation over a defined period of time. LGD describes the estimate of potential loss if a borrower were to default, and EAD (or utilization rates for revolving loans) is the estimated balance outstanding at the time of default. These parameters are calculated for each forecasted scenario and are combined to generate expected loss estimates by scenario in proportion to the scenario weights.

We use a discounted cash flow methodology for our consumer real estate related loan classes and for certain TDR loans. For non-TDR residential real estate loans and lines, we determine effective interest rates considering contractual cash flows adjusted for prepayments and market interest rates. We then determine the net present value of expected cash flows and ALLL by discounting contractual cash flows adjusted for both prepayments and expected credit losses using the effective interest rates.

For loans and leases that do not share similar risk characteristics with a pool of loans, we establish individually assessed reserves using methods prescribed by GAAP. Reserves for individual commercial nonperforming loans and commercial nonperforming TDRs exceeding a defined dollar threshold 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. Commercial nonperforming loans that are below the defined threshold and accruing TDRs are collectively reserved for, as we believe these loans continue to share similar risk characteristics. 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.

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

•Industry concentrations and conditions,

•Changes in market conditions, including regulatory and legal requirements,

•Changes in the nature and volume of our portfolio,

•Recent credit quality trends,

•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, and

•Timing of available information.

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. 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.

68    The PNC Financial Services Group, Inc. – 2022 Form 10-K

The following table summarizes our ACL related to loans:

Table 25: Allowance for Credit Losses by Loan Class (a)

[[GREPCENT_TABLE]]
[["","","December 31, 2022","","December 31, 2021"],["Dollars in millions","","Allowance Amount","","Total Loans","% of Total Loans","","Allowance Amount","","Total Loans","% of Total Loans"],["Allowance for loans and lease losses"],["Commercial"],["Commercial and industrial","","$","1,957","","","$","182,219","","1.07","%","","$","1,879","","","$","152,933","","1.23","%"],["Commercial real estate","","1,047","","","36,316","","2.88","%","","1,216","","","34,015","","3.57","%"],["Equipment lease financing","","110","","","6,514","","1.69","%","","90","","","6,130","","1.47","%"],["Total commercial","","3,114","","","225,049","","1.38","%","","3,185","","","193,078","","1.65","%"],["Consumer"],["Residential real estate","","92","","","45,889","","0.20","%","","21","","","39,712","","0.05","%"],["Home equity","","274","","","25,983","","1.05","%","","149","","","24,061","","0.62","%"],["Automobile","","226","","","14,836","","1.52","%","","372","","","16,635","","2.24","%"],["Credit card","","748","","","7,069","","10.58","%","","712","","","6,626","","10.75","%"],["Education","","63","","","2,173","","2.90","%","","71","","","2,533","","2.80","%"],["Other consumer","","224","","","5,026","","4.46","%","","358","","","5,727","","6.25","%"],["Total consumer","","1,627","","","100,976","","1.61","%","","1,683","","","95,294","","1.77","%"],["Total","","$","4,741","","","$","326,025","","1.45","%","","$","4,868","","","$","288,372","","1.69","%"],["Allowance for unfunded lending related commitments","","694","","","","","","662"],["Allowance for credit losses","","$","5,435","","","","","","$","5,530"],["Allowance for credit losses to total loans","","","","","1.67","%","","","","","1.92","%"],["Commercial","","","","","1.66","%","","","","","1.94","%"],["Consumer","","","","","1.69","%","","","","","1.87","%"]]
[[/GREPCENT_TABLE]]

(a)        Excludes allowances for investment securities and other financial assets, which together totaled $176 million and $171 million at December 31, 2022 and 2021, respectively.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  69

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

Table 26: Loan Charge-Offs and Recoveries

[[GREPCENT_TABLE]]
[["Year ended December 31 Dollars in millions","","Gross Charge-offs","","Recoveries","","Net Charge-offs / (Recoveries)","","% of Average Loans"],["2022"],["Commercial"],["Commercial and industrial","","$","257","","","$","101","","","$","156","","","0.09","%"],["Commercial real estate","","44","","","5","","","39","","","0.11","%"],["Equipment lease financing","","6","","","8","","","(2)","","","(0.03)","%"],["Total commercial","","307","","","114","","","193","","","0.09","%"],["Consumer"],["Residential real estate","","11","","","17","","","(6)","","","(0.01)","%"],["Home equity","","15","","","71","","","(56)","","","(0.23)","%"],["Automobile","","152","","","124","","","28","","","0.18","%"],["Credit card","","256","","","51","","","205","","","3.09","%"],["Education","","16","","","5","","","11","","","0.46","%"],["Other consumer","","228","","","40","","","188","","","3.44","%"],["Total consumer","","678","","","308","","","370","","","0.38","%"],["Total","","$","985","","","$","422","","","$","563","","","0.18","%"],["2021"],["Commercial"],["Commercial and industrial","","$","385","","","$","88","","","$","297","","","0.21","%"],["Commercial real estate","","36","","","7","","","29","","","0.09","%"],["Equipment lease financing","","13","","","11","","","2","","","0.03","%"],["Total commercial","","434","","","106","","","328","","","0.18","%"],["Consumer"],["Residential real estate","","15","","","28","","","(13)","","","(0.04)","%"],["Home equity","","20","","","86","","","(66)","","","(0.27)","%"],["Automobile","","169","","","143","","","26","","","0.16","%"],["Credit card","","256","","","46","","","210","","","3.39","%"],["Education","","15","","","8","","","7","","","0.25","%"],["Other consumer","","192","","","27","","","165","","","3.05","%"],["Total consumer","","667","","","338","","","329","","","0.38","%"],["Total","","$","1,101","","","$","444","","","$","657","","","0.24","%"]]
[[/GREPCENT_TABLE]]

Total net charge-offs decreased $94 million, or 14%, in 2022 compared to 2021. The decline was primarily driven by fewer commercial net charge-offs, partially offset by higher consumer net charge-offs primarily due to a decrease in recoveries. Net charge-offs in the comparative period included BBVA-related charge-offs resulting from required purchase accounting treatment.

See Note 1 Accounting Policies and Note 4 Loans and Related Allowance for Credit Losses for additional information.

Liquidity and Capital Management

Liquidity risk has two fundamental components. The first is potential loss assuming we were unable to meet our funding requirements at a reasonable cost. The second is the potential inability to operate our businesses because adequate contingent liquidity is not available. We manage liquidity risk at the consolidated company level (bank, parent company and all subsidiaries combined) to help ensure that we can obtain cost-effective funding to meet current and future obligations under both normal “business as usual” and stressful circumstances, and to help ensure that we maintain an appropriate level of contingent liquidity.

Management monitors liquidity through a series of early warning indicators that may indicate a potential market, or PNC-specific, liquidity stress event. In addition, management performs a set of liquidity stress tests over multiple time horizons with varying levels of severity and maintains a contingency funding plan to address a potential liquidity stress event. In the most severe liquidity stress simulation, we assume that our liquidity position is under pressure, while the market in general is under systemic pressure. The simulation considers, among other things, the impact of restricted access to both secured and unsecured external sources of funding, accelerated runoff of customer deposits, valuation pressure on assets and heavy demand to fund committed obligations. Parent company liquidity guidelines are designed to help ensure that sufficient liquidity is available to meet our parent company obligations over the succeeding 24-month period. Liquidity-related risk limits are established within our Enterprise Liquidity Management Policy

70    The PNC Financial Services Group, Inc. – 2022 Form 10-K

and supporting policies. Management committees, including the Asset and Liability Committee, and the Board of Directors and its Risk Committee regularly review compliance with key established limits.

In addition to these liquidity monitoring measures and tools described above, we also monitor our liquidity by reference to the LCR, which is calculated on a daily basis, and the NSFR which are further described in the Supervision and Regulation section in Item 1 Business of this Report.

We provide additional information regarding regulatory liquidity requirements and their potential impact on us in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors of this Report.

Sources of Liquidity

Our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable and low-cost funding. Total deposits decreased to $436.3 billion at December 31, 2022 from $457.3 billion at December 31, 2021 and included a shift from noninterest-bearing to interest-bearing deposits in 2022, reflecting the impact of higher interest rates. See the Funding Sources section of the Consolidated Balance Sheet Review in this Item 7 for additional information related to our deposits. Additionally, certain assets determined by us to be liquid as well as unused borrowing capacity from a number of sources are also available to manage our liquidity position.

At December 31, 2022, our liquid assets consisted of cash and due from banks and short-term investments (federal funds sold, resale agreements, trading securities and interest-earning deposits with banks) totaling $37.8 billion and securities available for sale totaling $44.2 billion. The level of liquid assets fluctuates over time based on many factors, including market conditions, loan and deposit growth and balance sheet management activities. PNC pledges securities as collateral to secure public and trust deposits, repurchase agreements and for other purposes. Pledged securities included $25.3 billion of securities held to maturity and an immaterial amount of available for sale and trading securities.

We also obtain liquidity through various forms of funding, including long-term debt (senior notes, subordinated debt and FHLB borrowings) and short-term borrowings (securities sold under repurchase agreements, commercial paper and other short-term borrowings). See Note 10 Borrowed Funds and the Funding Sources section of the Consolidated Balance Sheet Review in this Item 7 for additional information related to our borrowings.

Total senior and subordinated debt, on a consolidated basis, decreased during 2022 due to the following activity:

Table 27: Senior and Subordinated Debt

[[GREPCENT_TABLE]]
[["In billions","2022"],["January 1","$","27.7"],["Issuances","4.5"],["Calls and maturities","(7.3)"],["Other","(1.9)"],["December 31","$","23.0"]]
[[/GREPCENT_TABLE]]

Bank Liquidity

Under PNC Bank’s 2014 bank note program, as amended, PNC Bank may from time to time offer up to $40.0 billion aggregate principal amount outstanding at any one time of its unsecured senior and subordinated notes with maturity dates more than nine months (in the case of senior notes) and five years or more (in the case of subordinated notes) from their date of issue. At December 31, 2022, PNC Bank had $8.5 billion of notes outstanding under this program of which $4.7 billion were senior notes and $3.8 billion were subordinated notes.

The following table details PNC Bank note issuances in 2022:

Table 28: PNC Bank Notes Issued

[[GREPCENT_TABLE]]
[["Issuance Date","Amount","Description of Issuance"],["December 2, 2022","$200 million","$200 million in aggregate principal amount of its senior floating rate notes due December 2, 2024. Interest is payable monthly in arrears at a floating rate per annum of the one-month BSBY, plus 0.700% on the second day of each month from January 2, 2023 to the maturity date of December 2, 2024."]]
[[/GREPCENT_TABLE]]

The PNC Financial Services Group, Inc. – 2022 Form 10-K  71

The following table details PNC Bank note redemptions in 2022:

Table 29: PNC Bank Notes Redeemed

[[GREPCENT_TABLE]]
[["Redemption Date","Amount","Description of Redemption"],["January 18, 2022","$1.25 billion","All outstanding senior bank notes with an original scheduled maturity date of February 17, 2022. The securities had a distribution rate of 2.625%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of January 18, 2022."],["February 24, 2022","$1.0 billion","All outstanding senior floating rate bank notes with 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 of February 24, 2022."],["February 24, 2022","$500 million","All outstanding senior bank notes with an original scheduled maturity date of February 24, 2023. The securities had a distribution rate of 1.743%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of February 24, 2022."],["May 31, 2022","$750 million","All outstanding senior bank notes with an original scheduled maturity date of June 29, 2022. The securities had a distribution rate of 2.875%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of May 31, 2022."],["June 28, 2022","$750 million","All outstanding senior bank notes with an original scheduled maturity date of July 28, 2022. The securities had a distribution rate of 2.450%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of June 28, 2022."]]
[[/GREPCENT_TABLE]]

PNC Bank maintains additional secured borrowing capacity with the FHLB-Pittsburgh and through the Federal Reserve Bank discount window. The Federal Reserve Bank, however, is not viewed as a primary means of funding our routine business activities, but rather as a potential source of liquidity in a stressed environment or during a market disruption. At December 31, 2022, our unused secured borrowing capacity at the FHLB-Pittsburgh and the Federal Reserve Bank totaled $67.2 billion.

PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of December 31, 2022, there were no issuances outstanding under this program.

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

Parent Company Liquidity

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

As of December 31, 2022, available parent company liquidity totaled $9.6 billion. Parent company liquidity is held in intercompany cash and investments. For investments with longer durations, the related maturities are aligned with scheduled cash needs, such as the maturity of parent company debt obligations.

The principal source of parent company liquidity is the dividends or other capital distributions it receives from PNC Bank, which may be impacted by the following:

•Bank-level capital needs,

•Laws, regulations and the results of supervisory activities,

•Corporate policies,

•Contractual restrictions, and

•Other factors.

There are statutory and regulatory limitations on the ability of a national bank to pay dividends or make other capital distributions or to extend credit to the parent company or its non-bank subsidiaries. The amount available for dividend payments by PNC Bank to the parent company without prior regulatory approval was $3.5 billion at December 31, 2022. See Note 20 Regulatory Matters for further discussion of these limitations.

In addition to dividends from PNC Bank, other sources of parent company liquidity include cash and investments, as well as dividends and loan repayments from other subsidiaries and dividends or distributions from equity investments. We can also generate liquidity for the parent company and PNC’s non-bank subsidiaries through the issuance of debt and equity securities, including certain capital instruments, in public or private markets and commercial paper. As authorized by the Board of Directors, the parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. As of December 31, 2022, there were no commercial paper issuances outstanding.

72    The PNC Financial Services Group, Inc. – 2022 Form 10-K

The following table details Parent Company note issuances in 2022:

Table 30: Parent Company Notes Issued

[[GREPCENT_TABLE]]
[["Issuance Date","Amount","Description of Issuance"],["June 6, 2022","$850 million","$850 million of subordinated fixed-to-floating rate notes with a maturity date of June 6, 2033. Interest is payable semi-annually in arrears at a fixed rate of 4.626% per annum, on June 6 and December 6 of each year, beginning on December 6, 2022. Beginning on June 6, 2032, interest is payable quarterly in arrears at a floating rate per annum equal to Compounded SOFR (determined with respect to each quarterly interest period using the SOFR Index as described in the Prospectus Supplement), plus 1.850%, on September 6, 2032, December 6, 2032, March 6, 2033 and at the maturity date."],["October 28, 2022","$1.0 billion","$1.0 billion of senior fixed-to-floating rate notes with a maturity date of October 28, 2025. Interest is payable semi-annually in arrears at a fixed rate of 5.671% per annum, on April 28 and October 28 of each year, beginning on April 28, 2023. Beginning on October 28, 2024, interest is payable quarterly in arrears at a floating rate per annum equal to Compounded SOFR (determined with respect to each quarterly interest period using the SOFR Index as described in the Prospectus Supplement), plus 1.09%, on January 28, 2025, April 28, 2025, July 28, 2025 and at the maturity date."],["October 28, 2022","$1.5 billion","$1.5 billion of senior fixed-to-floating rate notes with a maturity date of October 28, 2033. Interest is payable semi-annually in arrears at a fixed rate of 6.037% per annum, on April 28 and October 28 of each year, beginning on April 28, 2023. Beginning on October 28, 2032, interest is payable on the 2033 Senior Notes quarterly in arrears at a floating rate per annum equal to Compounded SOFR (determined with respect to each quarterly interest period using the SOFR Index as described in the Prospectus Supplement), plus 2.14%, on January 28, 2033, April 28, 2033, July 28, 2033 and at the maturity date."],["December 2, 2022","$1.0 billion","$1.0 billion of senior fixed-to-floating rate notes with a maturity date of December 2, 2028. Interest is payable semi-annually in arrears at a fixed rate of 5.354% per annum, on June 2 and December 2 of each year, beginning on June 2, 2023. Beginning on December 2, 2027, interest is payable quarterly in arrears at a floating rate per annum equal to Compounded SOFR (determined with respect to each quarterly interest period using the SOFR Index as described in the Prospectus Supplement), plus 1.62%, on March 2, 2028, June 2, 2028, September 2, 2028 and at the maturity date."]]
[[/GREPCENT_TABLE]]

See Note 25 Subsequent Events for details on the parent company’s issuance of $1.25 billion of its 4.758% senior fixed-to-floating rate notes that mature on January 26, 2027 and $1.5 billion of its 5.068% senior fixed-to-floating rate notes that mature on January 24, 2034.

The following table details Parent Company note redemptions in 2022:

Table 31: Parent Company Notes Redeemed

[[GREPCENT_TABLE]]
[["Redemption Date","Amount","Description of Redemption"],["February 7, 2022","$1.0 billion","$1.0 billion of senior notes with a maturity date of March 8, 2022. The securities had a distribution rate of 3.30%. The redemption price was equal to $1,000 per $1,000 in principal amount, plus any accrued and unpaid distributions to the redemption date of February 7, 2022."]]
[[/GREPCENT_TABLE]]

Parent company senior and subordinated debt outstanding totaled $13.1 billion at December 31, 2022 compared with $11.4 billion at December 31, 2021.

Contractual Obligations and Other Commitments

We enter into various contractual arrangements in the normal course of business, certain of which require future payments that could impact our liquidity and capital resources. These obligations include commitments to extend credit, outstanding letters of credit, customer deposits, borrowed funds, operating lease payments and future pension and post-retirement benefits. For further discussion related to these contractual obligations and other commitments, see Note 7 Leases, Note 9 Time Deposits, Note 10 Borrowed Funds, Note 11 Commitments and Note 17 Employee Benefit Plans.

Credit Ratings

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

In general, rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current legislative and regulatory environment, including implied government support. A decrease, or potential decrease, in credit ratings could impact access to the capital markets and/or increase the cost of debt, and thereby adversely affect liquidity and financial condition.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  73

The following table presents credit ratings for PNC and PNC Bank as of December 31, 2022:

Table 32: Credit Ratings for PNC and PNC Bank

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["","Moody\u2019s","Standard & Poor\u2019s","Fitch"],["PNC"],["Senior debt","A3","A-","A"],["Subordinated debt","A3","BBB+","A-"],["Preferred stock","Baa2","BBB-","BBB"],["PNC Bank"],["Senior debt","A2","A","A+"],["Subordinated debt","A3","A-","A"],["Long-term deposits","Aa3","A","AA-"],["Short-term deposits","P-1","A-1","F1+"],["Short-term notes","P-1","A-1","F1"]]
[[/GREPCENT_TABLE]]

Capital Management

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

On April 26, 2022, PNC issued 1,000,000 depositary shares each representing 1/100th ownership in a share of 6.000% fixed-rate reset non-cumulative perpetual preferred stock, Series U, with a par value of $1 per share.

On August 19, 2022, PNC issued 1,250,000 depositary shares each representing 1/100th ownership in a share of 6.200% fixed-rate reset non-cumulative perpetual preferred stock, Series V, with a par value of $1 per share.

On November 1, 2022, PNC redeemed all 15,000 shares of its Series P Preferred Stock, as well as all 60 million depositary shares each representing fractional interest in such shares.

In 2022, we returned $6.0 billion of capital to shareholders through dividends on common shares of $2.4 billion and repurchases of 21.2 million common shares for $3.6 billion. Consistent with the SCB framework, which allows for capital return in amounts in excess of the SCB minimum levels, our Board of Directors has authorized a repurchase framework under the repurchase program approved on April 4, 2019 of up to 100 million common shares, of which approximately 49% were still available for repurchase at December 31, 2022. Under this framework, PNC expects quarterly repurchases of up to $500 million with the ability to adjust those levels as conditions warrant. PNC’s SCB for the four-quarter period beginning October 1, 2022 is 2.9%.

On January 4, 2023, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.50 per share. The dividend, with a payment date of February 5, 2023, was paid on the next business day.

See Note 25 Subsequent Events for details on PNC’s issuance of $1.5 billion in Series W preferred stock.

See the Supervision and Regulation section of Item 1 Business in this Report for further information concerning the CCAR and DFAST process and the factors the Federal Reserve takes into consideration in its evaluation of capital plans.

74    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Table 33: Basel III Capital

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["Dollars in millions","Basel III (a)","(Fully Implemented) (estimated) (b)"],["Common equity Tier 1 capital"],["Common stock plus related surplus, net of treasury stock","$","(3,372)","","$","(3,372)"],["Retained earnings","54,296","","53,572"],["Goodwill, net of associated deferred tax liabilities","(10,758)","","(10,758)"],["Other disallowed intangibles, net of deferred tax liabilities","(380)","","(380)"],["Other adjustments/(deductions)","(101)","","(101)"],["Common equity Tier 1 capital (c)","$","39,685","","$","38,961"],["Additional Tier 1 capital"],["Preferred stock plus related surplus","5,746","","5,746"],["Tier 1 capital","$","45,431","","$","44,707"],["Additional Tier 2 capital"],["Qualifying subordinated debt","3,544","","3,544"],["Eligible credit reserves includable in Tier 2 capital","4,465","","5,180"],["Total Basel III capital","$","53,440","","$","53,431"],["Risk-weighted assets"],["Basel III standardized approach risk-weighted assets (d)","$","435,537","","$","435,581"],["Average quarterly adjusted total assets","$","552,085","","$","551,360"],["Supplementary leverage exposure (e)","$","653,776","","$","653,775"],["Basel III risk-based capital and leverage ratios (f)"],["Common equity Tier 1","9.1","%","8.9","%"],["Tier 1","10.4","%","10.3","%"],["Total","12.3","%","12.3","%"],["Leverage (g)","8.2","%","8.1","%"],["Supplementary leverage ratio (e)","6.9","%","6.8","%"]]
[[/GREPCENT_TABLE]]

(a)The ratios are calculated to reflect PNC’s election to adopt the CECL five-year transition provisions. Effective for the first quarter 2022, PNC is now in the three-year transition period and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024.

(b)The ratios are calculated to reflect the full impact of CECL and excludes the benefits of the optional five-year transition.

(c)As permitted, PNC and PNC Bank have elected to exclude AOCI related to both available for sale securities and pension and other post-retirement plans from CET1 capital.

(d)Basel III standardized approach weighted-assets are based on the Basel III standardized approach rules and include credit and market risk-weighted assets.

(e)The Supplementary leverage ratio is calculated based on Tier 1 capital divided by Supplementary leverage exposure, which takes into account the quarterly average of both on balance sheet assets as well as certain off-balance sheet items, including loan commitments and potential future exposure under derivative contracts.

(f)All ratios are calculated using the regulatory capital methodology applicable to PNC and calculated based on the standardized approach.

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

PNC’s regulatory risk-based capital ratios are calculated using the standardized approach for determining risk-weighted assets. Under the standardized approach for determining credit risk-weighted assets, exposures are generally assigned a pre-defined risk weight. Exposures to high volatility commercial real estate, nonaccruals, TDRs, past due exposures and equity exposures are generally subject to higher risk weights than other types of exposures.

The regulatory agencies have adopted a rule permitting certain banks, including PNC, to delay the estimated impact on regulatory capital stemming from implementing CECL. CECL’s estimated impact on CET1 capital, as defined by the rule, is the change in retained earnings at adoption plus or minus 25% of the change in CECL ACL at the balance sheet date, excluding the allowance for PCD loans, compared to CECL ACL at adoption. Effective for the first quarter of 2022, PNC is now in the three-year transition period, and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024. See additional discussion of this rule in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors .

At December 31, 2022, PNC and PNC Bank were considered “well capitalized,” based on applicable U.S. regulatory capital ratio requirements. To qualify as “well capitalized”, PNC must have Basel III capital ratios of at least 6% for Tier 1 risk-based capital and 10% for Total risk-based capital, and PNC Bank must have Basel III capital ratios of at least 6.5% for CET1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%.

Federal banking regulators have stated that they expect the largest U.S. BHCs, including PNC, to have a level of regulatory capital well in excess of the regulatory minimum and have required the largest U.S. BHCs, including PNC, to have a capital buffer sufficient to withstand losses and allow them to meet the credit needs of their customers through estimated stress scenarios. We seek to manage our capital consistent with these regulatory principles and believe that our December 31, 2022 capital levels were aligned with them.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  75

We provide additional information regarding regulatory capital requirements and some of their potential impacts on us in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 20 Regulatory Matters.

Market Risk Management

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

•Traditional banking activities of gathering deposits and extending loans,

•Fixed income securities, derivatives and foreign exchange activities, as a result of customer activities, securities underwriting and our investment portfolio, and

•Other investments, including equity and activities whose economic values are directly impacted by market factors.

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

Market Risk Management – Interest Rate Risk

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

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

Sensitivity results and market interest rate benchmarks for the fourth quarters of 2022 and 2021 follow:

Table 34: Interest Sensitivity Analysis

[[GREPCENT_TABLE]]
[["","Fourth Quarter 2022","","Fourth Quarter 2021"],["Net Interest Income Sensitivity Simulation (a)"],["Effect on net interest income in first year from gradual interest rate change over the following 12 months of:"],["100 basis point increase","1.2","%","","3.7","%"],["100 basis point decrease (a)","(1.4)","%","","N/A"],["Effect on net interest income in second year from gradual interest rate change over the preceding 12 months of:"],["100 basis point increase","3.1","%","","9.9","%"],["100 basis point decrease (a)","(4)%","","N/A"]]
[[/GREPCENT_TABLE]]

(a)Due to the prevailing low interest rate environment during the COVID-19 pandemic, the reporting of Net interest income sensitivities for the 100 basis point decrease scenario was suspended from the first quarter of 2020 to the first quarter of 2022.

In addition to measuring the effect on net interest income assuming parallel changes in current interest rates, we routinely simulate the effects of a number of nonparallel interest rate environments. Table 35 reflects the estimated percentage change in net interest income over the next two 12-month periods assuming (i) PNC’s most likely rate forecast, (ii) implied market forward rates and (iii) a yield curve slope flattening (a 100 basis point yield curve slope flattening between one-month and ten-year rates superimposed on current base rates) scenario.

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

Table 35: Net Interest Income Sensitivity to Alternative Rate Scenarios

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["","PNC Economist","","Market Forward","","Slope Flattening"],["First year sensitivity","0.1","%","","2.0","%","","(0.6)","%"],["Second year sensitivity","(2.5)","%","","(1.6)","%","","(2.6)","%"]]
[[/GREPCENT_TABLE]]

When forecasting net interest income, we make assumptions about interest rates and the shape of the yield curve, the volume and characteristics of new business and the behavior of existing on- and off-balance sheet positions. These assumptions determine the

76    The PNC Financial Services Group, Inc. – 2022 Form 10-K

future level of simulated net interest income in the base interest rate scenario and the other interest rate scenarios presented in Tables 34 and 35. These simulations assume that as assets and liabilities mature, they are replaced or repriced at then-current market rates.

The following graph presents the SOFR curves for the base rate scenario and each of the alternate scenarios one year forward:

Table 36: Alternate Interest Rate Scenarios: One Year Forward

The fourth quarter 2022 interest sensitivity analyses indicate that our Consolidated Balance Sheet is positioned to benefit from an increase in interest rates and an upward sloping interest rate yield curve. We believe that we have the deposit funding base and balance sheet flexibility to adjust, where appropriate and permissible, to changing interest rates and market conditions.

LIBOR Transition

As discussed in Item 1A Risk Factors, the scheduled cessation of the requirement that banks submit rates for the calculation of LIBOR after June 30, 2023, presents risks to the financial instruments originated, held, or serviced by PNC that use LIBOR as a reference rate. PNC holds instruments and services its instruments and instruments owned by others that may be impacted by the likely cessation of LIBOR, including loans, investments, hedging products, floating-rate obligations and other financial instruments that use LIBOR as a reference rate. The transition from LIBOR as an interest rate benchmark will subject PNC, like other financial participants, to financial, legal, operational and reputational risks.

In order to address LIBOR cessation and the associated risks, PNC has established a cross-functional governance structure to oversee the overall strategy for the transition from LIBOR and mitigate risks associated with the transition.

Key efforts to date have included:

•Completion of LIBOR impact and risk assessments,

•Enhancing fallback language in new contracts and reviewing existing legal contracts/agreements to assess fallback language impacts,

•Preparing for internal operational readiness,

•Making necessary enhancements to PNC’s infrastructure, including systems, models, valuation tools and processes,

•Developing and delivering on internal and external LIBOR cessation communication plans,

•Engaging with PNC clients, industry working groups, and regulators,

•Monitoring developments associated with LIBOR alternatives and industry practices related to LIBOR-indexed instruments, and

•Providing periodic regulator updates to the Federal Reserve, OCC and FDIC examination staff regarding PNC’s LIBOR cessation and transition plans.

As of December 31, 2021, PNC Bank ceased entering into new contracts with a LIBOR reference rate, except on a limited basis, as permissible. PNC is offering conforming adjustable-rate mortgages using SOFR instead of USD LIBOR, in line with Fannie Mae and Freddie Mac requirements, nonconforming adjustable-rate residential mortgages using SOFR and private education loans using Prime.

The PNC Financial Services Group, Inc. – 2022 Form 10-K  77

Alternative rates, primarily SOFR and BSBY, are currently offered to our corporate and commercial customers. The focus for 2022 was planning for the cessation event in 2023 for all lines of business. Corporate & Institutional Banking continues its efforts of amending contracts with inadequate fallback language, working on systems enhancements, and continuing with client outreach and education.

The Federal Reserve adopted a final rule effective February 27, 2023 that implements the Adjustable Interest Rate LIBOR Act (the “Act”) by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023. The final rule helps ensure that LIBOR contracts adopting a benchmark rate selected by the Federal Reserve will not be interrupted or terminated following LIBOR’s replacement. The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR contracts subject to the Act. These contracts include U.S. contracts that do not mature before publication of LIBOR ends June 30, 2023, and that lack adequate fallback provisions that would replace LIBOR with a practicable replacement benchmark rate.

As of December 31, 2022, PNC had approximately $60.6 billion in loans and securities and $332.9 billion notional value in derivatives tied to LIBOR that mature after June 30, 2023. PNC is actively working to address contracts without an alternative rate or sufficient fallbacks in advance of cessation; however, PNC does expect to leverage the LIBOR Act for its intended purpose, to address difficult exposures when necessary. We anticipate these exposures to be a small subset of our overall portfolio.

Market Risk Management – Customer-Related Trading Risk

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

We use VaR as the primary means to measure and monitor market risk in customer-related trading activities. VaR is used to estimate the probability of portfolio losses based on the statistical analysis of historical market risk factors. A diversified VaR reflects empirical correlations across different asset classes. We calculate a diversified VaR at a 95% confidence interval and the results for 2022 and 2021 were within our acceptable limits.

To help ensure the integrity of the models used to calculate VaR for each portfolio and enterprise-wide, we use a process known as backtesting. The backtesting process consists of comparing actual observations of gains or losses against the VaR levels that were calculated at the close of the prior day. Our VaR measure assumes that exposures remain constant and that recent market variability is a good predictor of future variability. Actual observations include customer-related revenue and intraday hedging, which helps to reduce losses and can reduce the number of instances actual losses exceed the prior day VaR measure. There were no instances during 2022 and 2021 under our diversified VaR measure where actual losses exceeded the prior-day VaR measure. Our portfolio and enterprise-wide VaR models utilize a historical approach with a 500-day look-back period.

Customer-related trading revenue was $382 million in 2022 compared with $372 million in 2021 and is recorded in Other noninterest income and Other interest income on our Consolidated Income Statement. The increase was primarily due to higher foreign exchange and derivative client sales revenues, partially offset by the impact of the changes in credit valuations for customer-related derivative activities.

Market Risk Management – Equity And Other Investment Risk

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

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

A summary of our equity investments follows:

Table 37: Equity Investments Summary

[[GREPCENT_TABLE]]
[["Dollars in millions","December 31 2022","","December 31 2021","","Change"],["","$","","%"],["Tax credit investments","$","4,308","","","$","3,954","","","$","354","","","9","%"],["Private equity and other","4,129","","","4,226","","","(97)","","","(2)","%"],["Total","$","8,437","","","$","8,180","","","$","257","","","3","%"]]
[[/GREPCENT_TABLE]]

78    The PNC Financial Services Group, Inc. – 2022 Form 10-K

Tax Credit Investments

Included in our equity investments are direct tax credit investments and tax credit equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $2.5 billion and $2.2 billion at December 31, 2022 and 2021, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.

Note 5 Loan Sale and Servicing Activities and Variable Interest Entities has further information on tax credit investments.

Private Equity and Other

The largest component of our other equity investments is our private equity portfolio. The private equity portfolio is an illiquid portfolio consisting of mezzanine and equity investments that vary by industry, stage and type of investment. Private equity investments carried at estimated fair value totaled $1.8 billion at both December 31, 2022 and 2021, respectively. As of December 31, 2022, $1.6 billion was invested directly in a variety of companies, and $0.2 billion was invested indirectly through various private equity funds. See the Supervision and Regulation section in Item 1 of this Report for discussion of the Volcker Rule limitations on our interests in and relationships with private funds.

Included in our other equity investments are Visa Class B common shares, which are recorded at cost. Visa Class B common shares that we own are transferable only under limited circumstances until they can be converted into shares of the publicly-traded Class A common shares, which cannot happen until the resolution of the pending interchange litigation. Based upon the December 31, 2022 per share closing price of $207.76 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $1.2 billion at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was insignificant. See Note 15 Fair Value and Note 21 Legal Proceedings for additional information regarding our Visa agreements. The estimated value does not represent fair value of the Visa B common shares given the shares’ limited transferability and the lack of observable transactions in the marketplace.

We also have certain other equity investments, the majority of which represent investments in affiliated and non-affiliated funds with both traditional and alternative investment strategies. Net gains related to these investments were $45 million in 2022 and $50 million in 2021.

Impact of Inflation

Our assets and liabilities are primarily financial in nature and typically have varying maturity dates. Accordingly, future changes in

prices do not affect the obligations to pay or receive fixed and determinable amounts of money. However, during periods of inflation,

there may be a subsequent impact affecting certain fixed costs or expenses, an erosion of consumer and customer purchasing power,

and fluctuations in the need or demand for our products and services. When significant levels of inflation occur, our business could

potentially be impacted by, among other things, reducing our tolerance for extending credit or causing us to incur additional credit

losses resulting from possible increased default rates. Throughout most of 2022, inflation continued to rise but started to slow toward the end of the year. The Federal Reserve monetary policy has tightened with the intent to slow inflation, which has led to larger increases in interest rates. See Risk Factors in Item 1A, our Executive Summary and Cautionary Statement Regarding Forward-Looking statements in this Item 7 for further discussion of inflation and its overall impact to the economy, our borrowers’ ability to repay their obligations and certain costs and expenses to PNC.

Financial Derivatives

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

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

Further information on our financial derivatives is presented in Note 1 Accounting Policies, Note 15 Fair Value and Note 16 Financial Derivatives.

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

Operational Risk Management

Operational risk is the risk to the current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, human errors or misconduct or adverse external events. Operational risk is inherent to the entire organization.

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Operational risk management is embedded in our culture and decision-making processes through a systematic approach whereby operational risks and exposures are: (i) identified and assessed; (ii) managed through the design and implementation of controls; (iii) measured and evaluated against our risk tolerance limits; and (iv) appropriately reported to management and the Risk Committee of the Board of Directors. Strong operational risk management and well-informed risk-based decisions benefit us by improving the customer experience, enhancing compliance, reducing reputational risk, minimizing losses and establishing an appropriate amount of required operational risk capital held by us.

The Operational Risk Management Framework is designed to provide effective and consistent management of operational risk. The primary purpose of the framework is to enable us to understand our operational risks and manage them to the desired risk profile, in line with our Risk Appetite. Additionally, the guidance established within the framework assists management in making well-informed risk-based business decisions.

The framework provides a disciplined and structured process for us to manage operational risk across eight operational risk domains. These domains provide a comprehensive view of operational risk and allow us to discuss operational risk in a standard way, facilitating reporting and ongoing risk mitigation.

The operational risk domains are:

•Operations: Risk resulting from inadequate or failed internal processes, misconduct or errors of people or fraud.

•Compliance: Risk of legal or regulatory sanctions, financial loss, or damage to reputation resulting from failure to comply with laws, regulations, rules, self-regulatory standards or other regulatory requirements.

•Data Management: Risk associated with incomplete or inaccurate data.

•Model: Risk associated with the design, implementation and ongoing use and management of models.

•Technology and Systems: Risk associated with the use, operation and adoption of technology.

•Information Security: Risk resulting from the failure to protect information and ensure appropriate access to, and use and handling of, information assets.

•Business Continuity: Risk of potential disruptive events to business activities.

•Third Party: Risk arising from failure of third-party providers to conduct activity in a safe and sound manner and in compliance with contract provisions and applicable laws and regulations.

We utilize operational risk management programs within the framework, including Risk and Control Self-Assessments, scenario analysis, and internal and external loss event reviews and analysis, to assess existing risks, determine potential/emerging risks and evaluate the effectiveness of internal controls. Program tools and methodology assist our business managers in identifying potential risks and control gaps.

Lines of business are responsible for identifying, owning, managing and monitoring the operational risks and controls associated with their business activities and product or service offerings to within acceptable levels. Centralized functions, such as Business Continuity, Enterprise Third Party Management and Information Security, are responsible for the development, implementation and management of their individual programs and for the development and maintenance of the policies, procedures, methodologies, tools and technology utilized across the enterprise to identify, assess, monitor and report program risks. Additionally, independent risk management reviews and challenges line of business adherence to the framework to help ensure proper controls are in place and appropriate risk mitigation plans are established as necessary.

Conduct, Reputational and Strategic Risk

PNC’s risk culture seeks to reinforce the appropriate protocols for responsible and ethical behavior through sound processes and controls. In order to promote a robust risk culture, the Board and executive management establish code of conduct and professional standards to which all employees must adhere. A strong risk culture discourages misconduct and supports conduct risk management at PNC. Conduct risk is defined as the risk that employees fail to comply with the ethical standards expected of them. Strong conduct risk management is important in supporting PNC’s reputation, and PNC maintains a corporate culture that emphasizes complying with laws, regulations, and managing reputational risks. Reputational risk is the risk to the franchise and/or shareholder value based on a negative perception of PNC by its stakeholders and/or the changing expectations of its stakeholders. Strategic risk is another component of the ERM Framework that is also critical to optimizing shareholder returns. Strategic risk is the risk to earnings that may arise from adverse business decisions, improper implementation of business decisions and/or inadequate response to changes in the business environment. Strategic risk is considered and assessed by our businesses in the annual strategic planning processes and monitored on an on-going basis as those plans are carried out.

Compliance Risk

Enterprise Compliance is responsible for oversight of compliance risk for the organization. Compliance issues are identified and tracked through enterprise-wide monitoring and testing activities. Compliance risk issues are escalated through a comprehensive risk reporting process at both a business and enterprise level and incorporated, as appropriate, into the development and assessment of our operational risk profile. A management committee, chaired by the Chief Compliance Officer, is responsible for oversight of compliance and fiduciary risk management programs across PNC. Enterprise Compliance, through the Regulatory Change Program,

80    The PNC Financial Services Group, Inc. – 2022 Form 10-K

helps PNC understand and proactively address emerging regulatory topics and risks as well as respond to changes in applicable laws and regulations. To understand emerging issues impacting the industry, Enterprise Compliance communicates regularly with various regulators having supervisory or regulatory responsibilities with respect to us, our subsidiaries, or businesses and participates in forums focused on regulatory and compliance matters in the financial services industry.

Information Security Risk

The Information Security component of our Operational Risk Management Framework is responsible for protecting information assets to achieve business objectives, which includes cybersecurity. PNC’s cybersecurity program is designed to identify risks to sensitive information, protect that information, detect threats and events and maintain an appropriate response and recovery capability to help ensure resilience against information security incidents. The program includes, among other things, annual security and privacy training for all PNC employees and quarterly phishing exercises to raise employee awareness. Our security program is also regularly examined by federal regulators for compliance with financial regulations and standards. The program also establishes expectations for information asset management, system development security, identity and access management, incident management, threat and vulnerability management, security operations management and third- and fourth-party security.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Our consolidated financial statements are prepared by applying certain accounting policies. Note 1 Accounting Policies describes the most significant accounting policies that we use. Certain of these policies require us to make estimates or economic assumptions that may vary under different assumptions or conditions, and such variations may significantly affect our reported results and financial position for the period or in future periods.

Allowance for Credit Losses

We maintain the ACL at levels that we believe to be appropriate as of the balance sheet date to absorb expected credit losses on our existing investment securities, loans, equipment finance leases, other financial assets and unfunded lending related commitments, for the remaining contractual term of the assets or exposures, taking into consideration expected prepayments and estimated recoveries. Our determination of the ACL is based on historical loss and performance experience, as well as current borrower and transaction characteristics including collateral type and quality, current economic conditions, reasonable and supportable forecasts of future conditions and other relevant factors. We use methods sensitive to changes in economic conditions to interpret these factors and to estimate expected credit losses. We evaluate and, when appropriate, enhance the quality of our data and models and other methods used to estimate ACL on an ongoing basis. We incorporate qualitative factors in the ACL that reflect our best estimate of expected losses that may not be adequately represented in our quantitative methods or economic assumptions. The major drivers of ACL estimates include, but are not limited to:

•Current economic conditions: Our forecast of expected losses depends on economic conditions as of the estimation date. As current economic conditions evolve, forecasted losses could be materially affected.

•Scenario weights and design: Our loss estimates are sensitive to the shape, direction and rate of change of macroeconomic forecasts and thus vary significantly between upside and downside scenarios. Change to probability weights assigned to these scenarios and timing of peak business cycles reflected by the scenarios could materially affect our loss estimates.

•Current borrower quality: Our forecast of expected losses depends on current borrower and transaction characteristics, including credit metrics and collateral type/quality. As borrower quality evolves, forecasted losses could be materially affected.

•Portfolio volume and mix: Changes to portfolio volume and mix could materially affect our estimates, as CECL reserves

would be recognized upon origination or acquisition and derecognized upon paydown, maturity or sale.

For all assets and unfunded lending related commitments within the scope of the CECL standard, the applicable ACL is composed of one or a combination of the following components: (i) collectively assessed or pooled reserves, (ii) individually assessed reserves, and

(iii) qualitative (judgmental) reserves. Our methodologies and key assumptions for each of these components are discussed in Note 1 Accounting Policies.

Reasonable and Supportable Economic Forecast

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

To generate the four economic forecast scenarios we use a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking expert judgment to forecast the distribution of economic outcomes over the reasonable and supportable forecast period. Each scenario is then given an associated probability (weight) in order to represent our current expectation within that distribution over the forecast period. This process is informed by current economic conditions, expected business cycle

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evolution and the expert judgment of PNC’s RAC. This approach seeks to provide a reasonable representation of the forecast of expected economic outcomes and is used to estimate expected credit losses across a variety of loans and securities. Each quarter the scenarios are presented to RAC for approval, and the committee determines and approves CECL scenarios’ weights for use for the current reporting period.

The scenarios used for the period ended December 31, 2022 reflect an increase in downside risk compared to December 31, 2021. The current outlook considers the inflationary pressures that have broadened and intensified since the start of 2022, along with the fact that the FOMC raised interest rates more aggressively than what was expected at December 31, 2021, increasing the risk of a broader-ranged economic slowdown. Our most-likely expectation at December 31, 2022 is that the U.S. economy enters a mild recession in 2023.

We used a number of economic variables in our scenarios, with two of the most significant drivers being Real GDP and the U.S. unemployment rate. The following table presents a comparison of these two economic variables based on the weighted-average scenario forecasts used in determining our ACL at December 31, 2022 and 2021.

Table 38: Key Macroeconomic Variables in CECL Weighted-Average Scenarios

[[GREPCENT_TABLE]]
[["","Assumptions as of December 31, 2022"],["","2023","2024","2025"],["U.S. Real GDP (a)","(0.4)%","1.4%","1.9%"],["U.S. Unemployment Rate (b)","4.9%","4.9%","4.4%"],["","Assumptions as of December 31, 2021"],["","2022","2023","2024"],["U.S. Real GDP (a)","2.8%","1.4%","1.3%"],["U.S. Unemployment Rate (c)","4.4%","4.1%","3.9%"]]
[[/GREPCENT_TABLE]]

(a)Represents year-over-year growth (loss) rates.

(b)Represents the average forecasted unemployment rate for the fourth quarters of 2023, 2024 and 2025 as of December 31, 2022.

(c)Represents the average forecasted unemployment rate for the fourth quarters of 2022, 2023 and 2024 as of December 31, 2021.

Real GDP growth is expected to decline 0.4% in 2023 on a weighted average basis, driven primarily by our most likely scenario that the U.S. economy enters a mild recession during the year. Growth rises to 1.4% in 2024, before growing to 1.9% in 2025. In line with the slowing in overall economic activity, the weighted average unemployment rate is expected to increase throughout 2023, peaking at 5.1% during the first half of 2024 and gradually improving to 4.4% by the fourth quarter of 2025.

The current state of the economy reflects an environment with receding COVID-19 related risks, but heightened uncertainty remains due to structural and secular changes fostered by the pandemic for certain sectors of the economy combined with inflation, rising interest rates and ongoing supply chain pressures. As such, for both our commercial and consumer loan portfolios, PNC identified and performed significant analysis around segments impacted by such uncertainties to ensure our reserves are adequate, given our current macroeconomic expectations.

We believe the economic scenarios effectively reflect the distribution of potential economic outcomes. Additionally, through in-depth and granular analysis we have addressed reserve requirements for the specific populations most affected in the current environment. Through this approach, we believe the reserve levels appropriately reflect the expected credit losses in the portfolio as of the balance sheet date.

To provide additional context regarding the sensitivity of the ACL to a more pessimistic forecast of expected economic outcomes, we considered what our ACL would be when applying a 100% probability weighting to the most severe downside CECL scenario. This severe downside scenario estimated that Real GDP contracted in 2023 ending the year down 2.5% compared to 2022 levels, with growth picking up again by the end of 2024. The unemployment rate in this scenario increased to end 2023 at 6.3%, then sees a peak rate of 7.3% in the second half of 2024, before gradually improving to 6.4% by the end of 2025. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in our ACL of $1.6 billion at December 31, 2022. This scenario does not reflect our current expectation at December 31, 2022, nor does it capture all the potential unknown variables that could arise in the forecast period, but it provides an approximation of a possible outcome under hypothetical severe conditions. The CECL methodology inherently requires a high degree of judgment, and as a result, it is possible that we may, at another point in time, reach different conclusions regarding our credit loss estimates.

Residential and Commercial Mortgage Servicing Rights

We elect to measure our MSRs at fair value. This election was made to be consistent with our risk management strategy to hedge changes in the fair value of these assets. The fair value of our MSRs is estimated by using a discounted cash flow valuation model that

82    The PNC Financial Services Group, Inc. – 2022 Form 10-K

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.

We employ risk management strategies designed to protect the value of MSRs from changes in interest rates and related market factors. The values of the MSRs are economically hedged with securities and derivatives, including interest-rate swaps, options, and forward mortgage-backed and futures contracts. As interest rates change, these financial instruments are expected to have changes in fair value negatively correlated to the change in fair value of the hedged MSR portfolios. The hedge relationships are actively managed in response to changing market conditions over the life of the MSRs. Selecting appropriate financial instruments to economically hedge residential or commercial MSRs requires significant management judgment to assess how mortgage rates and prepayment speeds could affect the future values of MSRs. Hedging results can frequently be less predictable in the short term, but over longer periods of time, they are expected to protect the economic value of the MSRs.

For information on how each estimate has changed and a sensitivity analysis of the hypothetical effect of the fair value of MSRs to immediate adverse changes in key assumptions, see Note 6 Goodwill and Mortgage Servicing Rights. For additional information on our residential and commercial MSRs, see Note 1 Accounting Policies, Note 6 Goodwill and Mortgage Servicing Rights and Note 15 Fair Value.

Fair Value Measurements - Level 3

We must use estimates, assumptions and judgments when assets and liabilities are required to be recorded at, or adjusted to reflect, fair value. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. When observable price and third-party information is not available, we estimate fair value primarily by using cash flow and other financial modeling techniques. Changes in underlying factors, assumptions, or estimates in any of these valuation techniques could materially impact our future financial condition and results of operations.

We apply ASC 820 – Fair Value Measurements. This guidance defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. This guidance requires a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used in the measurement are observable or unobservable. Level 3 assets and liabilities are those where the fair value is estimated using significant unobservable inputs. While estimating potential sensitivities around fair value measurements is inherently challenging, we provide a summary of the key unobservable inputs in Note 15 Fair Value.

For additional information on Level 3 fair value measurements, see Note 15 Fair Value.

Recently Adopted Accounting Pronouncements

See Note 1 Accounting Policies regarding the impact of new accounting pronouncements that we have adopted.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

Forward-looking statements are necessarily subject to numerous assumptions, risks and uncertainties, which change over time. Future events or circumstances may change our outlook and may also affect the nature of the assumptions, risks and uncertainties to which our forward-looking statements are subject. Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake any obligation to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance. As a result, we caution against placing undue reliance on any forward-looking statements.

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

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

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

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

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

–Changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives,

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

–Impacts of tariffs and other trade policies of the U.S. and its global trading partners,

–The impact of the Russia-Ukraine conflict, and associated sanctions or other actions in response, on the global and U.S. economy,

–The length and extent of the economic impacts of the COVID-19 pandemic, including those arising from actions taken to mitigate and manage it,

–Impacts of changes in federal, state and local governmental policy, including on the regulatory landscape, capital markets, taxes, infrastructure spending and social programs,

–PNC’s ability to attract, recruit and retain skilled employees, and

–Commodity price volatility.

▪Our forward-looking financial statements are subject to the risk that economic and financial market conditions will be

substantially different than those we are currently expecting and do not take into account potential legal and regulatory

contingencies. These statements are based on our views that:

–The economy continues to expand in early 2023, but economic growth is slowing in response to the ongoing Federal Reserve monetary policy tightening to slow inflation. This has led to large increases in both short-and long-term interest rates. With much higher mortgage rates the housing market is already in contraction, with steep drops in existing home sales and single-family housing starts, and a modest decline in house prices. Other sectors where interest rates play an outsized role, such as business investment and consumer spending on durable goods, will contract in 2023.

–PNC’s baseline outlook is for a recession starting in the second half of 2023, with real GDP contracting a modest 1% before recovery starts in early 2024 as the Federal Reserve lowers interest rates in response to a deteriorating labor market and slower inflation. The unemployment rate will increase throughout 2023, peaking at above 5% in the first half of 2024. Inflation will slow with the recession and be back to the Federal Reserve’s 2% long-term objective by early 2024.

–PNC expects the FOMC to increase the federal funds rate by an additional 25 basis points in March. This would bring the federal funds rate to a range of 4.75% to 5.00% by mid-March. PNC expects a federal funds rate cut of 25 basis points in early 2024 as inflation moves toward the FOMC’s 2% long-term objective.

•PNC’s ability to take certain capital actions, including returning capital to shareholders, is subject to PNC meeting or exceeding an SCB established by the Federal Reserve Board in connection with the Federal Reserve Board’s CCAR process.

•PNC’s regulatory capital ratios in the future will depend on, among other things, the company’s financial performance, the scope and terms of final capital regulations then in effect and management actions affecting the composition of PNC’s balance sheet. In addition, PNC’s ability to determine, evaluate and forecast regulatory capital ratios, and to take actions (such as capital distributions) based on actual or forecasted capital ratios, will be dependent at least in part on the development, validation and regulatory review of related models and the reliability of and risks resulting from extensive use of such models.

•Legal and regulatory developments could have an impact on our ability to operate our businesses, financial condition, results of operations, competitive position, reputation or pursuit of attractive acquisition opportunities. Reputational impacts could

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affect matters such as business generation and retention, liquidity, funding, and ability to attract and retain management. These developments could include:

–Changes to laws and regulations, including changes affecting oversight of the financial services industry, consumer protection, bank capital and liquidity standards, pension, bankruptcy and other industry aspects, and changes in accounting and reporting standards.

–Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries resulting in monetary losses, costs, or alterations in our business practices, and potentially causing reputational harm to PNC.

–Results of the regulatory examination and supervision process, including our failure to satisfy requirements of agreements with governmental agencies.

–Costs associated with obtaining rights in intellectual property claimed by others and of adequacy of our intellectual property protection in general.

•Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives and capital management techniques, and to meet evolving regulatory capital and liquidity standards.

•Our reputation and business and operating results may be affected by our ability to appropriately meet or address environmental, social or governance targets, goals, commitments or concerns that may arise.

•We grow our business in part through acquisitions and new strategic initiatives. Risks and uncertainties include those presented by the nature of the business acquired and strategic initiative, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into PNC after closing or any failure to execute strategic or operational plans.

•Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues. Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.

•Business and operating results can also be affected by widespread natural and other disasters (including severe weather events), health emergencies, dislocations, geopolitical instabilities or events, terrorist activities, system failures or disruptions, security breaches, cyberattacks, international hostilities, or other extraordinary events beyond PNC’s control through impacts on the economy and financial markets generally or on us or our counterparties, customers or third-party vendors and service providers specifically.

We provide greater detail regarding these as well as other factors in this Report, including in Item 1A Risk Factors, the Risk Management section of Item 7 and Note 21 Legal Proceedings. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.